A look at BAWAG Group’s retail banking roadmap

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Despite increased competition, a slowing macroeconomic environment and congested markets, BAWAG Group is achieving success in retail banking, with a relentless focus on simplification, technology and efficiency. Anas Abuzaakouk, CEO of BAWAG Group, provides insight into the group that is among the top European banks in terms of profitability and efficiency – and which has been awarded Best Bank in Austria 2024 by Global Finance magazine.

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Mr. Abuzaakouk, first of all, congratulations on the award. Before we talk about the Bank’s recent big achievements, what can you tell our readers about the BAWAG Group?

Thank you. BAWAG has a long and rich history of over 140 years, dating back to 1883, with a strong base in Austria. Today, we are headquartered in Vienna, Austria and serve 2.1 million retail, small business, corporate, real estate and public sector customers in Austria, Germany, Switzerland, the Netherlands, Western Europe and the United States. Our goal is to provide simple, transparent and affordable financial products and services that our customers need. We launched a strategic transformation in 2012, took the company public in 2017 and today BAWAG is among the most profitable and efficient banks in Europe. This transformation of the past ten years is the foundation that has allowed us to sow the seeds for growth in the years to come.

In 2023, BAWAG delivered another year of record results…

That’s right, 2023 was another record year for BAWAG Group: we achieved a net profit of €683 million, a return on tangible common shares (ROTCE) of 25% and a cost-income ratio of 31.8%. Since our IPO in October 2017, we have delivered a total shareholder return of 67% and have outperformed the two largest and most representative European banking indices by an average of 31 percentage points (as of Q1’24).. We grew earnings per share from €4.50 in 2017 to €8.31 in 2023, representing a CAGR of 9%. However, despite our record performance in 2023, our best years still lie ahead.

What strategy are you following that will help you continuously improve your profitability?

Our strategy has been consistent throughout. Our 3 strategic pillars have guided our transformation over the past decade and will guide us in the years to come.

Pillar 1: We want to grow in our core markets by serving our customers with simple, transparent and affordable financial products and services.

Pillar 2: We drive efficiency through investment, simplification and operational excellence.

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Pillar 3: We apply a safe risk profile.

We focus on the developed and mature markets of the DACH/NL region, with a primary focus on retail and SME banking. Our focus has been and always will be on execution and doing our best to consistently deliver results for all stakeholders. We are a patient and disciplined commercial lender with no investment banking, trading or capital markets activities. Patience and discipline require thinking beyond the immediate environment, which is not always clear or understood. However, we are rewarded in the long term when unique opportunities arise and we have the capital and liquidity to take advantage of such opportunities.

In terms of opportunities… in February 2024 you announced the signing of the acquisition of Knab, a bank in the Netherlands, with a balance sheet size of ~€17 billion – approximately a third of BAWAG’s current balance sheet size. What is the reason behind this deal?
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Anas Abuzaakouk, CEO of BAWAG Group

Knab is a transformative and very valuable acquisition. This deal will expand our DACH/NL footprint, build our customer franchise and enable us to significantly grow the business and profits in the coming years. Knab is a digital bank that was founded in 2012 and has developed a very strong brand and loyal customer base focusing on the underserved Dutch self-employed space. The bank has approximately 400,000 private and SME current account customers. This is a strategic fit in terms of product offering, providing us with a current account platform, which we will expand with our retail and SME product offering across the Group. We believe that the combination of the Knab team’s experience and expertise in customer centricity, coupled with the Group’s operational infrastructure, will be a dynamic combination. The transaction is subject to customary regulatory approvals and we hope to provide updates throughout the year.

Over the years you have pointed out that you strive to be a good manager of capital. How do you best use the bank’s capital?

Disciplined capital allocation and mergers and acquisitions in particular are key to our strategy and the way we run the bank. Underlying our capital distribution plans is our strong profitability, which allows us to build significant amounts of capital each year. We then use this capital to invest in our franchise and teams, lend to our customers, acquire companies and distribute them to our shareholders. By saying that we strive to be good managers of capitalwe mean that we want to ensure that we are prudent in our capital allocation plans, maintain our strong balance sheet and are ready to take advantage of unique opportunities. Since our IPO in 2017, we have provided €47 billion in loans to our clients, supporting our clients as we expanded the franchise and self-financed nine acquisitions. We paid a progressive dividend, starting with €0.60 per share in 2017 until €5.00 per share in 2023. In total, we paid €19.70 per share in dividends, equivalent to €1.7 billion, in addition the completion of a €900 million share buyback, which has allowed us to reduce our total share capital by more than 21% since our IPO.

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Where do you see current and future challenges for the banking business model in general?

We are living in one of banking’s most dynamic and transformative periods. The coming years will bring rapid change as the traditional banking model is challenged by new and evolving technologies, changing customer behavior, new methods of engagement and the embrace of AI in all aspects of our business. The future guarantees only one thing: change. Commercial banking is becoming increasingly commoditized in the sense that it is allowing financial institutions to really take advantage of technology to create seamless processes. Defining core competencies, taking a laser-focused focus on a handful of core products and services, maintaining discipline and prudence in lending, and simplifying end-to-end processes across the organization are key to delivering simple, transparent and affordable financial products that our customers need. while also ensuring the long-term competitiveness and profitability of the franchise.

What are your main priorities in such an environment?

There are two key areas that we continue to focus on that we believe drive long-term franchise value for our business and fundamentally drive shareholder value. First, we continue to invest in driving growth and efficiency across the business. For example, we have invested approximately €600 million in technology and our footprint over the past ten years. We are constantly looking at how we can remain competitive. The banking landscape continues to change and by investing we remain at the forefront of emerging trends in customer engagement and delivering quality products and services. And second, we focus on disciplined growth. We operate a multi-brand, multi-channel lending and advisory platform in our core markets. Our history is a mix of organic growth and mergers and acquisitions, and we have leveraged this strategy in both situations. We continue to plant seeds in our core markets, which will lead to stable and sustainable profitable growth well into the future.

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How do you see BAWAG positioned for the coming years?

Today, I am more excited about our future growth opportunities than ever before. Our transformation over the past decade has positioned the franchise for long-term profitable growth and allowed us to pursue several strategic growth opportunities. My colleagues and I couldn’t be more proud of the BAWAG team. We look forward to achieving results on behalf of all stakeholders in the coming years!

Anas Abuzaakouk has been working at BAWAG since 2012. Before becoming Chief Executive Officer and Chairman of the Board of Directors in 2017, he served as Chief Restructuring Officer and Chief Financial Officer.

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FORWARD-LOOKING STATEMENTS (check with Legal whether a disclaimer is necessary)

This article contains “forward-looking statements” regarding the financial condition, results of operations, business plans and future performance of BAWAG Group. Words such as ‘anticipate’, ‘believe’, ‘estimate’, ‘expect’, ‘predict’, ‘intend’, ‘plan’, ‘project’, ‘may’, ‘will’, ‘would’, ‘could’ ‘, “May” and other similar expressions are intended to identify these forward-looking statements. These forward-looking statements reflect management’s expectations as of the date hereof and are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks and uncertainties include, but are not limited to, economic conditions, the regulatory environment, loan concentrations, suppliers, employees, technology, competition and interest rates. Readers are cautioned not to place undue reliance on the forward-looking statements as actual results could differ materially from those predicted. Neither the BAWAG Group nor any of its subsidiaries, advisors or representatives shall be liable in any way (whether negligently or otherwise) for any loss whatsoever arising from any use of this report or its contents, or otherwise arising out of this document. This report does not constitute an offer or invitation to purchase or subscribe for securities and neither this report nor any part of it shall form the basis of or be relied upon in connection with any contract or obligation. This statement is included for the express purpose of invoking “safe harbor provisions.”

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