Bank only packs bags after folks go

Photo: Erik Prozes

Swedbank Estonia director general Priit Perens says local branches are in the red except for Tallinn and Tartu.

On behalf of Swedbank, Priit Perens apologises for confusion and utterances around closure of Haapsalu branch leading to justified displeasure and leaving an air of arrogance. «Things like that are not to happen,» said Mr Perens, referring to Swedbank’s West-Estonian director Egon Jekabson’s sayings to Lääne Elu, the local newspaper.

Why do things like that happen, seeing you should have lots of experience?

Regarding Haapsalu, let me first say we are not intending to close the branch, we have no such plans. Secondly, the branch will not become cash-free  – both cash-in and cash-out machines are there. But starting June 9^th, we will indeed not be taking or giving money over the counter.

The changes concern 36 private persons who monthly do cash transactions in the Haapsalu branch, 28 of these pensioners. All these people are dealt with individually, to find solutions for their needs. Also, there are four companies that monthly do cash transactions in our branch.

Before we proceed to the broader subject, let me say something may don’t want to realise: first the people leave, and only then the bank leaves; it’s not like the bank leaves or cuts services and then the people leave. These two things are not to be confused.

The other very important aspect is that outside the large cities like Tallinn and Tartu, the branches are not in the black – for quite a long time now. We only start to shut down smaller branches when people no longer visit them. The fact that a branch is in the red is no reason to close it down; the reason for closure is people no longer coming.

But now about why it so happened in Haapsalu. I think Urmas Sukles summarised it well, saying that it is significant for the local people when the school, the pharmacy, and the bank go. Then, a regional centre has died out. Secondly, in a small place a bank is an extra place where people can have a chat.

Thirdly, and perhaps most importantly, problems sharply tend to home up in places where the political struggle between various forces is acute. This is a comfortable means for brinkmanship, and to show that the bunch in power is not doing enough to maintain the bank or some other service. And how else will one do that except through the media.

But I still do not understand why you stop handling money via the teller, while the teller is there helping and advising? What difference does it make if a couple of people a day come to give or get cash?

The main question still remains why this is needed. On the one hand, yes, there’s the demand. If the demand is big enough, we will not stop tellers handling cash. We have not changed the branch network, and are not intending to, so that tellers will not handle cash anymore, overall. There are the branches where people keep on handling cash. But if the demand is 36 people in a month who could do the same thing through a machine, it makes no sense for people sitting behind the counter to waste time on the unnecessary service. They could do something more useful for these same customers.

Are ATMs also closed down or repositioned?

This year, we are installing ten more automatons of the kind where cash can be withdrawn, and four where money can be put in. Technically, over Estonia, the number of places where one can draw out money will increase.

We have a system that every night calculates the potential needs of the clients, on the basis of which we may say, according to our best knowledge of prior customer behaviour, what kinds of products they might want or need. The workers at branches say thank God we have it like that, or else we would have nothing to do. On the basis of information calculated by this system, we invite clients for consultations. Actually, if we would not call and invite customers to the branch, they would not come there.

In a way, the bank branch is a relic; but at the same time I’m convinced that the branch will never disappear, as there are transactions where people need face to face counselling. If you take a home loan, you want to look in the eye of the person who gives you the money; on the other hand, we are under obligation to talk about the risks and what the decision may mean, materially, for the person.

In addition to loan counselling, there’s the advice on saving money, on insurance. But to offer advice, we need to get the customer into the branch.

But still: your competitor is doing these same things, but they manage with much less pain...

I would not like to be set against SEB here for often we really do the same things. Maybe we often do these things first, and maybe it’s also because we are the largest – that makes for added interest.

A colleague of mine said the thing that keeps him with you is the dense network of branches and ATMs; once this advantage goes, he will think about changing banks as there are no other advantages. Rather the opposite – the nonexistent interest on deposits, and the worse-than-others yield from pension fund.

Our ETM network is the largest in Estonia, our network of branches is the greatest, about a half of Estonian bank employees work with us. Summarising: our accessibility is the best. We desire to be and to keep being Estonia’s best accessible bank, with the largest network of channels.

Over these past weeks, there have been calls to leave you. Any signs of that, already?

None, at the moment. Through our channels, we have detected no increase of dissatisfaction; of course, that must not necessarily men it isn’t there.

Did you get a thank-you mail from finance minister, of prime minister, due to you drawing out dividends and starting to pay income tax?

I don’t think anybody ought to thank us for that.

But the decision did come at quite a favourable time, for the new coalition?

We did not do the timing based on somebody’s votes of collection of signatures. It was a totally pragmatic decision. We have always said we’d accumulate capital as much as is reasonable and necessary. Based on first quarter, our capital adequacy is nearly 40 percent, which is unreasonably much. So obviously it is time for us to take the excess capital home. It’s a purely financial decision.

In my opinion, this totally corresponds to the goal of our tax policy – as long as there is a need to reinvest, which for a bank means accumulating capital, you can postpone payment of income tax. We have reached a phase where, in our estimation, we do not need to accumulate capital anymore; and so we are paying dividends on the current income and, correspondingly, the income tax. 

Does that mean that, by owners, you are no longer considered a growing company?

Firstly, 40 percent of the profits will remain. Out capital adequacy is 40 percent, wherefore we could easily grow twice as big without having any capital limitations. How probable that we will double in size, over the next two years? Not too probable at all.

The owner has also shown, however, that when capital is needed and the opportunity for growth on its way, he will simply add some. Let me remind you that, during the crisis, capital was doubled in Latvia and Lithuania. In Estonia, this was not needed.

Over these past years, the banking sector has been quite stable. Now, the competitors are strengthening somewhat: LHV is coming on strong, Nordea is trying to be more active.

In various niches of the market, the competition has always been there. Maybe not so on the market as a whole, and not with all products, but for two-three years LHV has been active in the 2^nd and 3^rd pension pillars. We take them very seriously. We aren’t taking them as a small bank. They are active, and – honestly – very good at what they are doing. 

Nordea has also been very active on the corporate market and the home loans market. The competition has been intense all the time. I do not remember a time where we would have said there was no competition.

In 2009, maybe, there was a moment when we were more focussed in getting our digestion in order. We were having to digest what we had given out over the past five years, it cost us about €350m. There has never been a moment when we do not feel the competitions at our heels.

Let’s talk economy a bit. How do you feel the recession in the first quarter?

From the corporate side, looking from the inside out, the first quarter felt very calm in the economy. We did not know then if the economy was shrinking or not, but the demand for loans seemed to have vanished.

Calm in the sense of nothing happening?

Nothing was happening and everybody was wait-and-see. When it comes to retail clients, they have been active since the start of the year. The retail client feels last year’s wage rise in his pocket. When compared to nominal growth of the economy, last year’s wage rise wasn’t that large. What will happen this year is that wage pressure being strong, it will soon start to weigh on financial results of companies, probably.

At the moment, all the money accumulated in people’s pockets is coming to the retail market. We are seeing the growth of retail turnovers; on the loan market, we are seeing increase in both home loans and small loans.

Even so: if you’d ask whether we are nearing the 2007 situation, then I don’t think we do – as, in 2007, we had 111 percent of private persons’ real estate purchases financed with loans; now, loans are just a bit over 50 percent of the financing.