Head of Bigbank Estonia Jonna Pechter says in an interview to Kuku Radio’s “Majandusruum” program how the second pillar of pension takes clients for a ride, what people should do instead of saving and why Bigbank came out with a seemingly insane home loan product.
You are the only female bank manager in Estonia. Why are there so few?
I have thought about it and I don’t rightly know. I know that a lot of capable women work as middle managers in banks, also at Bigbank. They are in charge of a unit, organize their own work and that of their employees as they see fit, measure results, help and support their colleagues. It’s fantastic if a woman enjoys doing all that!
Still, why are there so few female top executives?
I do not know how many women have run for bank manager and been denied the position. The group’s management board is made up of men also at Bigbank. However, I do not believe women have been unfairly and consciously excluded. That is just how it has turned out.
Should we somehow promote women in management? Lay down quotas?
It would be terrible if someone started putting women in charge by force! Banking has enough regulations one needs to follow. Adding artificial gender quotas – it would be terrible. It would also be degrading as it would create a whole new term: a quota woman. You’re sitting there at the board meeting like a pink elephant in the middle of the room, with everyone around you thinking you might not be the best, that there might have been more suitable candidates. Let women make it to management for being the best choice for the job, not because of quotas! And if they want to continue working as middle executives, they should have that chance too.
All in all, I believe it is not the most important thing in the world. No 21st century woman wants to be seen as a woman in a professional setting – they want to be seen as a person.
Let us also talk about Bigbank. You recently reported brilliant half-year financials. What is behind that success?
Bigbank has really polished its processes and products. We are familiar enough, our clients are happy with us and that translates into growing business volume.
Being there for our clients when the economy suddenly took a bad turn in March-April helped. We decided to stay active and continue issuing loans, not to pull back. People need money, especially when times are difficult.
How many clients are having trouble making loan payments?
We were prepared for something much worse because the economy being locked down virtually overnight is very scary. At the same time, everyone was treated to the shock at the same time. People realized we were now in a crisis. Consumers went over their spending and loan behavior. Those who saw problems came to us and asked for a payment holiday, which we gave them. This means that the number of clients owing arrears has not grown at all.
How to describe Bigbank’s typical customer?
Broadly speaking, they are hardworking Estonian people who want to make a bigger purchase. There are a lot of families. We have learned what people need loans for over time and designed our products accordingly.
We are not offering vague products called guaranteed or unsecured loans. That would be thinking from the banker’s perspective, not the client’s. A person wants a loan to renovate their house, buy a car or go traveling. That is what we offer. We even have a wedding loan.
You came out with what is an unprecedented loan product in Estonia last week where a person can take a home loan but choose to only pay back interest and not the principal amount for up to 20 years. A typical Estonian’s common sense suggests it is insane. How do you comment?
It would be insane to think it is insane! However, every person needs to carefully consider their borrowing. If you are a conservative person and want to repay the loan as quickly as possible, you can always opt for an annuity payment schedule (a fixed monthly payment made up of interest and principal loan amount – ed.)! But if you want to make use of financial amplification and pay less at first, you can opt for a loan with a built-in payment holiday.
Who could benefit from such a product? Let us presume you want to buy your own home but the family still has five years of lease payments to make on the car. You can take out a home loan where you only pay interest for the first five years and start making principal amount payments once the lease is up.
Client interest has been considerable so far as we have received hundreds of applications and have signed the first contracts.
The home loan market looks quite saturated. How will you fit?
On the contrary, we were approached by a lot of people who said they cannot find a suitable financing solution on the market. We have quite a few banks in Estonia, while our home loan market is very homogeneous. Banks offer very similar loan products in terms of down payment, interest and payment schedules. We want to be different.
There has been a lot of talk about loan decisions being made by robots and algorithms these days. Is that true?
It absolutely is not! We have decided that we want to be very human, which is why we look at every loan decision separately.
But what about automation, innovation…?
Do not get me wrong, we do not do everything by hand. Processing of loan data and how it is presented to the banker takes place automatically. But we never turn a client down simply because the computer said no.
People also need to understand that a client not qualifying for a loan at a certain point does not mean they never will. In cases like these, we suggest people look at cheaper apartments, save up for a bigger down payment or repay old loans before they take on new ones. A client cannot be sent away, they need to be given advice!
As an Estonian bank, you tend to criticize your major Scandinavian competitors. Have they sunk into their comfort zone and are holding back innovation?
We’re not that critical of them. I believe Scandinavian banks have their place on the market. Rather, what rubs us the wrong way is the ban on loan advertising, which leads to people not comparing offers.
If you’re a client of Swedbank and go to make payments in their online banking environment, you are easily sold on a consumer loan that you could get for much less elsewhere. I’m not saying we need ads telling people to borrow and live the good life, but the state could allow credit providers to showcase their products more freely.
You have said it would be wise to use money freed from the second pension pillar to repay consumer loans. Does Bigbank stand to gain the most from the dismantling of the second pillar?
I have never understood why people think a small bank with just 11 percent of the market stands to gain the most here. It is true we don’t have pension funds, meaning we don’t stand to lose anything. But gains? If a client gets a wad of cash from the pillar and repays their loan on the same day, it disadvantages us in a way as we stand to miss out on interest revenue. Therefore, it will gain us nothing.
Is it sensible to render the second pillar voluntary?
Depends on how you look at it. From the point of view of the state or the bank, it makes a great deal of difference whether we’re talking about the first or second pillar. While it doesn’t really matter from the client’s perspective. You are simply told that somewhere there is money you own and are responsible for but cannot use. The client has just as little control over their second pillar as they do over the first today.
Therefore, I hope banks will come out with new products that give clients greater control over their money once the reform enters into force.
Finally, every person could also have a plan for old age. You could have a couple of responsible kids and bet on their support. The important thing is for the person to feel they are responsible and be able to control their options. Being responsible for something with no control over it is not a lot of fun.
You wrote in an article last summer that saving up is pointless and that it’s better to earn more. Care to elaborate?
I do not think having savings is a bad thing. Having a few monthly salaries’ worth of money saved gives you certainty for unexpected situations. However, saving up hundreds of thousands of euros and keeping them in your bank account is senseless. The sensible thing to do would be to invest the money.
But if a person does not wish to invest, they would do well to live the kind of life they want in the moment instead of saving up every penny. Invest in yourself, learn something new. Invest in your family, pay your children’s tuition. Find ways of making more money in the future. Keeping money sitting in a bank might not help you.