With many considering the banking slide to have served it’s term and new regulations on the offing, several financial institutions have recognised this as the time to make profitable steps. Bank Austria has presented a strong and distinct message to the industry.

What does recognition as the “Best Banking Group – Austria 2011” mean to you?
Banks around the world lost massive amounts of trust during the global financial crisis. In this, people differentiated very little between investment and commercial banks. I see this distinction from World Finance as an important milestone on our path to winning back lost trust by coming even closer to our customers, offering higher service intensity, and offering simpler, real-life products. In other words: It is both confirmation and motivation for my team and me.

As part of UniCredit with its broadly diversified business model in terms of regions, product groups and customer groups, Bank Austria already proved to be very robust during the crisis and closed every quarter since the collapse of Lehman in 2008 with a profit. And unlike other Austrian competitors, we did not draw on any government assistance. In fact, we began utilising synergies early and were the driving force behind the consolidation of the Austrian banking market.

How was the first quarter of 2011 for Bank Austria?
We got off to a good start in 2011. The upward trend seen in the past few quarters continued in the first three months of the current year. It is particularly noteworthy that we have further improved our performance in commercial banking business with customers while the provisioning charge in Austria and in Central and Eastern Europe continued to decline. On the basis of these two factors, net operating profit increased by 38 percent, and net profit reached €341m. Although the economy is gaining momentum, especially in our CEE markets, we have not yet attained the pre-crisis level. We need to maintain stringent cost discipline and further improve our productivity in order to absorb the additional burdens resulting from the bank levies in Austria and Hungary and to meet the new capital requirements under Basel III.

What opportunities do your home markets offer for the future?
Austria is a mature, saturated bank market with more or less fixed customer shares. Bank Austria has a broad base as a universal bank and is the leader in many areas. For example, the University of St. Gallen named our retail business the “most customer-oriented service provider for 2011.” The European Customer Service Champions competition is based on concrete customer feedback, customer survey tools and complaint management as well as on service quality initiatives and innovative service models. In this connection, we recently introduced SmartBanking, a flexible package for the online generation – a customer group that completes most of its banking business over the internet and with smartphones and that does not want to be bound to branch business hours. I would also like to mention corporate banking, where we are the clear number one, and private banking, where we are the largest asset manager in Austria.

The key to growth in this market is customer satisfaction and absolute customer orientation. For this reason, we increased the number of special branches across Austria for serving small and medium-sized businesses with annual sales of up to €50m to approximately 60 over the past year.

And in Central and Eastern Europe?
There are still major opportunities in banking in CEE. On the one hand, the region is expected to grow at 4.4 percent this year and 4.0 percent in 2012, twice as fast as the eurozone. On the other, the convergence process in terms of prosperity and the use of financial services is far from complete. Take mortgage loans, for example: they only made up eight percent of the region’s GDP in 2010. In the eurozone, they make up 40 percent. There is also massive potential in corporate financing. It comes in at 26 percent of GDP in CEE but 52 percent of GDP in the eurozone. Taken together, all of these factors form a solid basis for continued growth in the banking sector in Central and Eastern Europe.

What risks are you confronted with right now?
Overall, our risk costs have fallen considerably compared to two years ago. Nevertheless, there is a great deal of uncertainty on the markets, especially because of the sovereign debt crisis. In this context, I am really disappointed to see how quickly our common Europe is cast aside time and again because of national interests.

We need more Europe, not less, to assert ourselves as one of the most potent economic areas in the world. It is time to act with solidarity and speak with a single voice. Speculative attacks against large economies in the eurozone are attacks against Europe.

What lessons have you drawn from the financial crisis?
It is no coincidence that Bank Austria and its parent company, UniCredit, have posted a profit every quarter since the eruption of the crisis. In fact, it is impressive evidence of how crisis-resistant our business model is, our model of a universal bank with broad diversification in terms of regions, customer groups and product groups. Other key factors are our conservative risk policy, strong deposit business and continuous efforts to improve our efficiency.

Nevertheless, the confidence crisis is also affecting our bank group. And we can’t fix this overnight with a slew of new high-gloss brochures. It will take hard work and absolute customer orientation.

What do you think of the coming new regulations, like Basel III?
The global financial crisis we just went through was precipitated by a number of factors. These include the blind trust investors placed in the little-regulated rating agencies, a jungle of shadow banks that is not monitored by the various supervisory authorities, insufficient liquidity at some banks, and the Fed’s policy of printing cheap money for many years.

Don’t get me wrong, I think that the new, stricter capital requirements are sensible, but they are not enough by themselves. The system will not be made more secure by highly regulating commercial banks like UniCredit Bank Austria, a traditional “bread-and-butter” bank with a high level of deposit-taking business, and letting the shadow bank system go about its business as usual. The business model and risk management system must also be taken into account here.

Lehman Brothers had a core capital ratio of 11 percent when it collapsed in 2008. What would have been a comfortable safety net for a customer-oriented commercial bank proved to be insufficient for one of the leading investment banks.

What strategy will the group pursue in the coming years?
As I said, Austria is a saturated bank market with a multitude of financial providers. This fierce competition makes it impossible for us to increase our margins at will. For this reason, we will continue focusing strongly on innovative offerings for new customer groups and on using the economies of scale provided by our membership in one of the leading European bank groups, UniCredit. For example increasing our productivity by combining IT activities.

We are striving to achieve organic growth in Central and Eastern Europe in the coming years. For example, we are planning to open around 900 new branches in selected markets such as Turkey, Romania, Hungary, Russia, Bulgaria and Serbia by 2015. The conditions are promising. All countries in the UniCredit bank network will post positive GDP growth for the first time in four years in 2011, and this should facilitate further recovery in the banking sector.

Are there business segments that your bank group wants to focus on in particular in this context?
We are currently completing a strategic assessment of all of our activities in CEE. In general, we want to maintain and expand our leading market position in the region. To this end, we will provide our subsidiary banks in Central and Eastern Europe with more capital for their customer business, focusing on the countries with higher growth rates. We want to grow selectively, organically and sustainably – quick, short-term profits are not part of our philosophy.

Willibald Cernko heads Bank Austria, UniCredit’s CEE sub-holding