World Savings Banks Institute (WSBI)European Savings Banks Group (ESBG)

World Savings Banks Institute (WSBI)European Savings Banks Group (ESBG)

Reform Experiences in Public Sector Banks

9 April 2003

World Bank

ESBG MembershipESBG Membership

26 Members from26 CountriesKey Figures (1 January 2002)

Total Assets: 2,890 billion EURNon-Banker Deposits: 1,708 billion EURNon-Banker Loans: 1,623 billion EURBranches: 65,813Staff: 734,359Institutions represented: 955

WSBI MembershipWSBI Membership

101099 Members Members from from 9292 CountriesCountriesKey Figures (1 January 2002) Total Assets: 6,414 billion EURNon-Banker Deposits: 4,602 billion EURNon-Banker Loans: 2,152 billion EURBranches: 201,136Staff: 2,421,148 Institutions Represented: 1,118

OutlineOutline

Features of a well functioning Retail Bank

Reform approaches

Common factors frustrating reform

Example of a successful transformation

Conclusions

What is a Savings Bank?What is a Savings Bank?

Retail Bank

Market focus:

»Private Individuals

»Households

»SMEs

»Local Authorities

Broad distribution network

Acts in a socially responsible manner

Examples of Savings BanksExamples of Savings Banks

State-owned banks

Cooperative banks

Private Foundations

Joint-stock banks

(Banque et Caisse d’Epargne de l’Etat, Luxembourg)

(Caisse Nationale des Caisses d’Epargne, France)

(Cajas de Ahorros, Spain)

(Lloyds TSB Bank, UK)

Examples of Savings BanksExamples of Savings Banks

NB. A successful bank is not determined by its ownership structure

Features of a well-Features of a well-functioning savings bankfunctioning savings bank

Sound Corporate Governance

High quality management

Sound business plan

Good financial management

Well trained and motivated workforce

Appropriate products and services

Optimum size and combination of branch networks and distribution channels

Streamlined internal processes

Institutional Integrity

Proficiency

Efficiency

Independent legal and management structure

Confidence of all stakeholders

Transparency towards owners and customers

Instruments used in the Instruments used in the Reform ProcessReform Process

Technical Assistance

Bank Twinning

Management Contracts

Selling of strategic stakes

Must be appropriate to the beneficiary’s needs

Management commitment essential

Caution amongst some Western banks:

- Concern re beneficiary’s desire for ‘most favoured status’

- High demand for study tours

Caution amongst some Western banks:

- Reputational risk from problems outside contractor’s control

- Care re contractual liability

A foreign bank rarely wishes to remain a minority investor for very long

The process of managementThe process of managementof changeof change

I Know

I Can

I Will

If unable to say this, the change process will fail

Common factors frustrating Common factors frustrating reformreform

Political interference in internal affairs

Corporate inertia

General resistance to change

Low level of skills

A successful transformation A successful transformation Nova Ljubljanska BankaNova Ljubljanska Banka

Full service bank active in retail, corporate and investment banking

0.00

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

7,000.00

8,000.00

9,000.00

1997 1998 1999 2000 2001

Mill

ion

EU

R

Total assets

Non bank loans

Non bank deposits

Nova Ljubljanska BankaNova Ljubljanska Banka

Capital adequacy ratio

Return on assets Cost to income ratio

1997 16,80% 1,26% 60,30% 1998 15,40% 1,12% 59,20% 1999 15,20% 0,97% 62,95% 2000 13,50% 0,93% 59,39% 2001 12,80% 0,94% 61,87%

Nova Ljubljanska BankaNova Ljubljanska Banka

Market share Non-bank deposits

0.00%

10.00%

20.00%

30.00%

40.00%

1997 1998 1999 2000 2001

Nova Ljubljanska BankaNova Ljubljanska Banka

Number of branches & agencies No. of employees No. of ATMs

1997 83 2.736 122 1998 84 2.689 155 1999 110 2.800 206 2000 119 2.904 249 2001 191 3.979 433

Nova Ljubljanska Banka Nova Ljubljanska Banka Reasons for successReasons for success

Slovenian authorities created an environment conducive to reform

Capable leadership of a strong President and management team

Clear business and strategic objectives Redesign of its business processes and

introduction of new IT Ongoing process of investment in management

and staff education and development

ConclusionsConclusions

1. Ownership per se is not the determining factor in whether or not a bank is successful

2. Good corporate governance is key to a well-functioning public sector retail bank

3. Common factors that frustrate reform are political interference, corporate inertia, resistance to change, and low skill levels

ConclusionsConclusions

4. The key to a successful reform process is PEOPLE

5. International aid projects facilitate the process of reform

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