World Report sits down with Hellenic Bank Chairwoman, Irena Georgiadou, to discuss current developments in the banking sector, in particular the change in culture and the role of banks in stimulating economic growth to quicken Cyprus’ recovery. Hellenic Bank continues to reform and evolve with the backing of key strategic investors, as it looks to capture more of the local market.
Cyprus’ recovery continues quicker than forecasted, with the core of the on-going recovery a combination of public sector reform and a reduction in expenditure, as well as the resilience of a number of key sectors. From your perspective, as part of the private sector, how have you seen the recovery?
It is true that the public sector has done what needed to be done; we have made many necessary and painful sacrifices as a country to bring the economy back on track.
Part of the private sector has been quite resilient and we are now beginning to see a lot of new businesses and projects on the island and considerable foreign direct investment (FDI).
Both the government and the private sector have been quite active in bringing productivity back to the private sector. The government has been very careful in picking its austerity measures; they have not disrupted our tax system and have not raised a single tax, which has given the private sector comfort and confidence as well as the necessary stability to continue investing in the country.
Conversely, we have seen a number of tax incentives provided by the government lately in an attempt to boost the real estate market in particular.
The country is committed to building a new economic model that is more competitive and with better regulation, less bureaucracy which will enable the private sector to reengage with the economy.
Specifically regarding the banking sector, the Hon. Minister of Finance mentioned a real change in supervision, rules and regulations, as well as the culture itself. What is your perspective on that, as the first Chairwoman of Hellenic Bank?
Corporate governance was always a challenge on this island, especially for the private sector. It was not up to the standards that one would expect.
For us here at Hellenic Bank, adopting the highest standards of corporate governance has been a top priority over the past two years. The fact that the financial sector is now being supervised directly by the ECB, directly by the supervisory mechanism of the Eurozone, has forced us to change both the way we operate and also the way we think.
Banking in Cyprus today, is not the same as it used to be. We can no longer afford to offer anything other than world-class quality services. The public sector has also done their piece – better regulation and better supervision are always on the structural changes menu.
In terms of the recent Q1 results we saw come out, Hellenic Bank has returned to profit. What have been your key management priorities since your appointment in 2014?
Since 2014, we have sat down to see what our strategic priorities would be and how much capital we would need to achieve our goals. Capital has never been a problem for Hellenic Bank as the major shareholders show great commitment to the bank.
In addition, Hellenic Bank was in a unique position after the crisis, due to the fact that we were the only bank – not only in Cyprus, but in the region – that had not been bailed in or out, or used any Euro-system financing for its recapitalization.
Through the years, we have enjoyed some healthy indicators regarding liquidity and deposit base; therefore we have all the ingredients in place in order to be among the key players in the economic recovery of the island.
Our main challenges were and still are the management of Non-Performing Loans, but at the same time we have set growth as a priority and a goal. We aim for both organic and inorganic growth and place equal emphasis on our third strategic pillar- technological transformation and digitalization.
Stimulating the economy is something the Minister of Finance highlighted as a priority. There is a perception that credit is too difficult to access and we are now seeing that it is beginning to hold back economic growth rather than get liquidity out there into SME’s and families to stimulate economic growth.
Yes, I also hear that noise, and let me add that the fact that banking regulations getting stricter is not making it easy for banks to extend credit, not only in Cyprus, but everywhere else as well.
We still need to strike the right balance between regulation and growth, but I feel that we are getting there. It is true that right after the 2013 crisis, banks in Cyprus were reluctant or found it very difficult to start engaging in extending more credit.
However, now, this has picked up and we are seeing more and more loan applications coming in; more and more projects developing on the island and many more opportunities for banks to extend more loans.
Of course the economy is also doing a lot better and this always helps!
Hellenic Bank is almost a benchmark for confidence in the sector; as you mentioned it is the only bank not to have been bailed in or out. Furthermore Hellenic Bank was the first bank after 2013 to get investment from strategic investors including Third Point, and Wargaming. What has been the main advantage of having that caliber of investors on board?
This is true, back in March 2013, when we had the depositors bail-in on the island for the two largest banks followed by some strict capital controls and the economy almost collapsing, two very important and strategic shareholders had invested in Hellenic Bank and had actually made the first foreign direct investment on the island after the crisis.
In November 2013, Hellenic Bank was fully capitalised with new, fresh capital – most of it coming from abroad. Our two main shareholders now, who collectively own more than 50% are U.S based Third Point and Cyprus based Wargaming.
Having international investors on board has been our passport to success and has enabled us to take advantage of all the opportunities in the market. It has also given us access to international partners and international best practices in banking.
You have placed innovation and technology as a top priority. How is the implementation of new technologies proceeding?
We do have our challenges on the island and we do have our challenges within the bank, but that does not stop us from following the international trends in banking. It is clear that digital is the future of banking.
The fact that we are facing these big challenges with non-performing loans and the internal turbulence of the economy does not stop us from having our strategic priorities set right.
We do not want to lag behind in technology, we want to jump the innovation queue and become one of the key players in this respect. In fact, we have a great deal of support from our shareholders in doing just that.
Yes, there is competition on the island between the four systemic banks, however we appreciate that whilst moving forward, competition will not only be from banks on the ground. Competition is global and we do not want our banking model to become obsolete just because we are too distracted with our economic recovery.
Reunification of the island is one of the big talking points now in Cyprus, particularly around the economic opportunities, including a possible doubling of GDP within 20 years. Is that something that Hellenic Bank is considering in its strategic planning?
This is definitely something we are considering as a bank, and as a Cypriot I think that 41 years has been enough and we need to move on and reunite the island.
Any change can be difficult, but the medium and long term prospects of the reunification of the island will definitely be positive for everyone. Post-reunification Cyprus will have the opportunity and actually be the best proxy to become a key player in the region.
Cyprus is strategically located, being at the crossroads of Europe, Asia and Africa, and at the same time, we are at the heart of the European Union and members of the Eurozone.
We have what it takes to become a key player in the region and this instability around the Cyprus issue has been holding us back. It is time for everybody to move on and give Cyprus the position it truly deserves within the Mediterranean. Hellenic Bank is ready to support this transformation.
There has been some unfair and unfavorable media attention with Cyprus being closely associated with Greece, despite the significant differences. How would you like to see visitors, investors and people abroad perceive the changes that have taken place in Cyprus since 2013?
It is clear that in Cyprus we have managed to see the opportunities amidst the crisis. Yes, we had an economic model that was clearly unsustainable, but we have learned our lesson and we have moved on. We are working very hard because now we know that we are on the right track.
Greece! They also have their challenges and I do hope that stability will soon return and they also manage to find their way to recovery. There are close ties between the two countries and this is a fact – we share the same language, religion and surely a similar culture.
Our economies also have close links, just like all economies of the European Union, but Greece is definitely not Cyprus and Cyprus is not Greece. It would be unfair for both countries to claim that.
Cyprus is a small boat that has successfully managed to weather the storm and now finds itself with all the elements and potential to become a regional player.
Shipping for example has been an industry that has proven to be quite resilient in the crisis. I am extremely proud to say that Hellenic Bank has the first dedicated international shipping-banking unit in Cyprus, supporting this industry.
International investors do see a positive story unravelling in Cyprus and the Cyprus brand is picking up. As I said, the fact that we have a robust tax system that has not been changed throughout this crisis, gives the confidence and stability that investors want in order to come and invest in the island.
After all, we also have a banking sector with better regulation and better governance, fully recapitalised with international shareholders that can be a very reliable partner to international investors.