Pál Kovács, CEO At CKB:

Time For Dynamic Business Development

Crnogorska Komercijalna Banka (CKB), a member of the OTP Group, is marking 20 years of successful operations in Montenegro

In this interview, company CEO Pál Kovács talks about the achievements of the banking market in Montenegro, as well as CKB’s plans.

What is your first impression of the business climate in Montenegro? What do you see as the biggest challenges facing the Montenegrin economy?

– The investment climate and political situation in the country, with regard to the development of new market opportunities in all sectors of the economy, are stable and reliable. The country has made tremendous progress in the process of Euro-Atlantic integration, having become a member of NATO and soon to become, I believe, a member of the EU. Some of the major challenges that the Government has been working on include efforts to improve the situation in public finances, stability and the resilience of the financial sector, the implementation of structural reforms, successful and continuous engagement in attracting direct foreign investment, particularly in projects that are of vital importance in tourism, agro-business and other significant branches of industry. I think we are on the right track, with the results visible. I can see the Government’s efforts in attracting foreign capital in all sectors of industry. I hope that, in the period ahead, they will show even greater commitment to ensuring a safe legal and economic framework for foreign investors in Montenegro.

Investment in infrastructure is sure to contribute to regional development, whilst making stable economic growth even more dynamic, decreasing unemployment and raising income per capita to, I hope, the European level.

On the other hand, expansion of the SME sector may have an additional impact on the development of local markets and, simultaneously, the entire economy. Investment in SMEs should be the scaffolding of the Montenegrin economy, with banks there to help the Government in their development. Acknowledging the importance of this segment of the economy, the European Investment Fund (EIF) and CKB have signed an agreement guaranteeing support to SMEs in Montenegro in the Programme for the Development of Entrepreneurship and Innovation in the Western Balkans (WB EDIF). The Agreement on Guarantees for the Western Balkans aims to support SMEs in Montenegro under favourable conditions in the next two years by offering access to loan guarantees for a portfolio of 20 million euros.

Is Montenegro’s banking-financial market stable?

– The banking market of Montenegro is characterised by dynamic changes, the implementation of contemporary regulations, international standards, internal procedures, a higher level of financial culture and service digitisation, as well as prominent competitiveness with a stable growth trend. Nevertheless, the profitability of the Montenegrin banking sector is gradually growing to the EU average.

The saturated nature of the Montenegrin banking sector causes the high impact of fixed costs, making market operations with a continuous drop in interest rate margins (the key source of profitability) unsustainable in the long run. I believe that the market should promote stable growth constantly, whilst simultaneously bearing in mind the level of acceptable risk. As such, we should bear in mind the global economic crisis and the circumstances in which Montenegrin banks were the most affected in the Western Balkans, with respect to total loan/deposit coefficient, while the financial system faced the crisis with an underdeveloped structure and ceased external financing.

Do you think there are too many banks in Montenegro?

– Montenegro is breaking the regional record for the number of banks per capita. For instance, the Serbian market is nine times the size of the Montenegrin market and has twice as many banks, but they are also in need of a consolidation process. You may find a similar scenario in Croatia. There are also a large number of banks with a low participation rate. Desaturating the market may lead to greater efficiency and increase income.

Banks in Montenegro have high fixed operational and administrative costs, while some of them do not have favourable sources of financing. Let us also not forget the deposit expenses, as well as other transaction costs. What contributes the most to the relative decrease in operational costs is desaturation, primarily through the effects of economy of scope.

I believe that an optimal number of banks in Montenegro would meet the needs of competitiveness of the banking system, which would consequently provide better quality, diversity and innovativeness of financial services, increased availability through the permanent development of digital channels, as well as sustained innovation and technological development. I think that the Montenegrin market, in the long run, needs fewer banks and that consolidation would also benefit clients.

You say that the market is saturated. Why are interest rates in Montenegro still high? Do you anticipate a decrease?

– Further EU integration may cause a decrease in the medium term. However, in the short-term I do not anticipate a significant drop in interest rates, although the number of banks has been increasing recently. The reason for this lies in the fact that certain banks entered this saturated banking market without motivation to be competitive in retail banking, but rather decided to follow companies and investors in their realisation of projects relevant to Montenegro.

As such, I think we are already close to the level of low interest rates and that the local market will stay in alignment with global trends. Apart from retail banking, the market should focus on bigger companies, project funding and SME development in the next period.

CKB this year marked 20 years of its operations. How would you briefly describe these two rather dynamic decades and how do you see the bank developing in the coming years?

– CKB has kept its leading position in most market segments with 15 banks and a market share ranging from 15 to 60 per cent in various business sectors. The first ten years of CKB were a period of rather dynamic, explosive growth, while the second decade was marked by consolidation, restructuring, transparent client relations and the establishment of a new foundation and a new business philosophy.

In the years ahead I expect that, as a hi-tech bank, we will sustain our partnership relations in major projects of the Montenegrin economy and sustain our market distinctiveness based on trust, security and service efficiency, additionally solidifying the already developed and strong CKB brand.

Have client relations also changed in these contemporary conditions?

– The new understanding of business further complicates client relations, which have become very sensitive. Nowadays clients expect a lot, even delivering greater value than promised, while simultaneously demanding additional effort on behalf of our helpful staff, as well as additionally saving both their money and time. The core of service will be up to several times more important than price itself. The service of new customers shows that we are doing the right thing.

The needs of new clients must be integrated into continuous and long-term partnership relations, while CKB is there to offer them a strong focus on stability, transparency, additional and high-quality services. In our relations with clients we place emphasis on the fact that a bank is not about interest rates but rather mutual trust, quality guarantees and positive service experience. We try not to be only a provider of services, but also a partner of each client.

CKB is the first bank in Montenegro to provide funding for renewable energy sources, while in the period ahead we plan to additionally strengthen the efficient and sustainable business environment

CKB has invested a lot in the digitisation of its business. What has been accomplished so far and what are your further plans on the path to becoming a so-called digital bank?

– The digitisation trend in banking is an unstoppable global phenomenon that allows the bank to automate and optimise its processes, while providing the clients with top-level, consistent service value delivered through contemporary digital channels.

OTP Group is one of the carriers of the technological innovation and digitisation of the CEE banking region, ready to meet the most demanding client needs, focused on the digital concept (i.e. cashless banking) and the development of advanced platforms. The last very successful example is the foundation of FinTech start-up OTP eBiz, a cloud-based web application solution for SMEs that provides these enterprises with a full set of digital functionality and financial analysis in one platform.

We keep passing on and implementing modern technological systems that have already developed, as well as group knowhow on the Montenegrin market. We are aware that it is an additional challenge to meet the needs of the so-called “digital” generation, which has grown up in the period of great technological development and smart phones, and which expects to have each service provided on a “touch screen”.

CKB has been recognised as a bank that cares about the wider community. What about your CSR business concept?

– CKB has spent two full decades caring for long-term market development. It has managed the environment in a responsible and efficient manner and, as a socially responsible bank, it understands that this is the only way to build upon and improve the economic development of Montenegro. As has been the case to date, we will continue to support each quality project in culture, art, science and sport, as well as initiating socially responsible actions. Some examples of our permanent engagement in special care for children and youth include the sponsorship and co-organising of various events, investments in the Montenegrin healthcare system and education, research and science.

Our CSR policy is shaped by the standards of the OTP Group, which pays great attention to the standards of social development, environmental protection, employee and client satisfaction and the affirmation of transparent operations with the aim of achieving sustainability and top-level services.

CKB is the first bank in Montenegro to provide funding for renewable energy sources, while in the period ahead we plan to additionally strengthen the efficient and sustainable business environment. One of the aims of our CSR in the coming period is to educate the youth in our community about responsible financial management and help them develop healthy habits in order for them to be able to make wise financial decisions in the future.