ERNO KELECSENYI General Director of OTP Bank

The antecedent of OTP Bank, the National Savings Bank of Hungary, was established as a state-owned entity concerned with retail loans and deposits in 1949, later branching out into the provision of foreign currency accounts and exchange services. This move paved the way, in 1990, for the bank’s transformation, into a public limited company and its subsequent change of name: National Savings and Commercial Bank (OTP Bank Ltd.). Three public offerings in 1990 saw the Hungarian state’s ownership of the bank whittled down to a single voting preference – a ‘golden’ share – while the bank’s listing on the Budapest Stock Exchange opened the door to the eventual ownership of the bank’s stock by private and institutional investors.

Now the largest bank among Hungarian credit institutions, OTP has become a multi-faceted, integrated business entity involved in diverse operations including retail and corporate banking, asset management, investment and pension fund management, mortgaging services, vehicle insurance leasing and rental and travel agency services. In 2006 alone, OTP Bank tended 4.6 million retail customers, 192,000 entrepreneurial customers, 18,000 corporate clients and 2,300 municipal clients in Hungary, where it boasts 25 percent share of the market.

In 2002, OTP made its first foray into international acquisitions in the form of Slovakia’s IRB Bank, now OTP Bank Slovakia (OBS). Today, the OTP Group is present in nine European countries, with a client base of over 10 million customers and a network of 1,300 branches. The key to the bank’s success in Europe has been its diversity and a keen eye for niche segments. Indeed, it has been this sharp eye for niches that has contributed to its success in Slovakia.

Although OBS was focused from the beginning on developing its retail banking, it was also looking for the type of rapid growth it could only get from corporate business. Consequently, the bank initially focused on large corporations, quickly establishing itself in the market and building up a loan portfolio of $20 billion within three years (although it still managed to increase its retail business by 60 percent between 2002 and 2006). Last year, however, it really struck gold when it began to target smaller companies in a range of sectors, resulting in a 48 percent increase in profits by year’s end.

“We were the most creative bank, coming up with new products every quarter,” explains Ernö Kelecsényi, OBS CEO and Chairman of the Board of Directors, “Agriculture is a prime example. We were the first bank in Slovakia to manage EU funds for the agriculture sector. We also made special sub-segments within SMEs. One of these was agriculture, but we also moved into the health sector, including private doctors, the church, housing associations and many other organisations that didn’t have banking services. We prepared a special and complex product offer for these groups. This is how to sum up how we want to proceed with our development. The principal four or five banks in Slovakia are very strong, but we aim to focus on these segments and to maximize our market share to reach at least 10 percent. This is a possibility as early as this year, especially in the agriculture and health sectors.”

Enabling OBS’s move into SMEs last year was a €10 million loan from the EBRD in 2004 that provided the bank with the catalyst to build a solid portfolio of small and micro loans of either €30,000 or €125,000. According to Mr. Kelecsényi, profitability is traditionally stronger in smaller and micro clients than in larger clients, which explains the bank’s astounding 2006 jump in profits.

OBS still hasn’t lost its focus on retail, however. Moving forward, Mr. Kelecsényi says OBS plans to use its corporate, including SME, business to expand its retail base. By developing links between its niche markets, such as health, to build connections with individual customers, OBS believes it can survive in Slovakia’s heavily concentrated banking market.

“There are big players in the market and it very difficult to compete, so in the long term we want to explore retail business, while continuing to build relations with our larger clients,” he comments, saying the bank is seeking to acquire a client base of between 100,000 to 300,000 customers through this niche link. “We have to find synergies to prepare a common product, and then we can sell it.”

With this well-defined strategy, Mr. Kelecsényi is confident about the bank’s future in Slovakia, despite the pressure from larger competitors. Although there is still room for improvement in the bank’s operations, such as maximizing efficiency and minimizing its cost-income ratio, OBS is well supported by the larger and stronger (and nearby) OTP Group.

“There are 1,000 kilometers of border between Hungary and Slovakia,” continues Mr Kelecsényi. “There is good dialogue and cooperation between the governing regions of the two countries, and also support from the EU. Together, Slovakia and Hungary are going to lobby for EU funds. We also have strong support from our shareholders, and our know-how is very strong.”