Croatian Post Must Save HPB as the Government Did Not Conduct Capital Increase on Time

Despite the fact that Josip Protega has brought the only bank in Croatian ownership among the top ten, the authorities have been wanting to ‘reward’ him with dismissal for some time now. He is currently successfully resisting this.

Written by: Gordana Gelenčer
[email protected]

All development paths of Croatian Postal Bank lead to – capital increase. However, the several-year-old story about the capital increase of HPB will not be told this year either, at least not in the way that the bank’s management had hoped back in January this year. At that time, the Management planned to raise between 1.6 and 2.5 billion kuna through capital increase by May, either through a public offering of shares or a private offering to shareholders. However, the Government, as the owner, did not want to start preparations before the announcement of revised business data for 2007. A missed opportunity, as the IPO still made sense then. With too long hesitation and weighing after the summer, it was too late for that.

However, some form of capital increase must be carried out (or at least jump in with additional money) because from January 1, 2009, the HNB’s regulation on capital adequacy of at least 12 percent is in force. The bank, however, regardless of the problem of capital shortage (which other banks do not have, as they have support from foreign owners) has maintained its adequacy ratio above the current legal minimum of 10 percent all the time. At the end of September this year, that ratio was 10.68 percent. Banks have the entire first half of the year to adjust (some form of capital increase to reach the capital adequacy ratio of 12 percent is also needed by Croatia, Nava, and Podravska banka besides HPB), but even by then, the IPO or some other form of real capital increase will not make any more sense than today. A source in the Ministry of Finance says that the situation has complicated in just a few months, and the models of capital increase have been reduced to a minimum. Now it is difficult, or almost impossible, to carry out the capital increase in the desired way, so the Ministry is considering how to ‘buy’ a few months until a better opportunity for a real capital increase arises.

Scenarios for Buying Time

Therefore, they have requested a plan for 2009 from the Management of HPB with several scenarios, or ‘maximally flexible’ options to bridge the time. The bank would currently be satisfied with around 300 million kuna, which would raise capital adequacy to approximately 12 percent. However, to leave something for business in the next year, it would be ideal, the source explains, to raise 400 to 500 million kuna. Namely, although the bank has somewhat profited from the crisis as savings from banks with foreign owners began to move to ‘real’ domestic banks, that is precisely the shortcoming. With the abolition of the mandatory reserve (penalties for foreign borrowing), HPB had nothing to sit on the account because the bank has no foreign owner, so it did not borrow abroad.

Drago Jakovčević, a professor at the Faculty of Economics in Zagreb and a member of the Supervisory Board of HPB, confirms that Croatian Post, as one of the owners (HP holds 33.56 percent, HFP 37, and HZMO 28.01 percent), will ‘jump in’ with several hundred million kuna to increase capital adequacy, and the rest up to at least one and a half billion kuna will be raised according to some other model, but he does not want to discuss the details for now. When asked about the long-standing plan to merge with Croatia Bank into a large and strong domestic bank that would be the main support for Croatian companies, Jakovčević says that such a plan is no longer feasible. Within the bank itself, they say that they have set a goal of at least one and a half billion kuna increase in capital in their strategic plans. With the help of that money, they could implement most projects, some of which have already started, and some were supposed to start after the entry of fresh capital. They are aware that plans must change and that the capital increase will take place gradually. By the end of the year, they expect a payment of approximately 110 million kuna in long-term deposits to be made by Croatian Post, one of the owners and strategic partners. The remaining amount will be paid when and how the circumstances and further development plans of the bank allow and require, they say at the bank.

However, even with insufficient capital, HPB is the only domestic bank among the top ten. In the ranking for 2007, it was seventh in terms of net profit and assets, eighth in terms of household savings, ninth in terms of guarantee capital and approved loans. Its rapid growth began with the new management led by Josip Protega.

Aggressive Catching Up with the Big

With an aggressive development policy, the bank quickly expanded into a group that today includes HPB Invest, HPB Real Estate, and HPB Housing Savings Bank. Today, HPB’s business network has nine branches, 28 offices, 206 ATMs, and 1,558 POS devices; for comparison, just four years ago it had two offices, one branch, and 449 POS devices. The bank’s balance sheet at the end of 2004 was 5.5 billion kuna, and at the end of 2007, it was as much as 14.6 billion. In four years, about 50 new products were launched, and all parts of the business were improved. Namely, the bank was underdeveloped and completely uncompetitive until 2004. However, despite the rapid expansion of the network, which affected the growth of costs, they claim to have maintained the desired level of profitability. Plans for expanding the network and modernizing business and services relied on timely capital increases, which also depend on business in the next year. Along with the lack of fresh capital, they say the state of the global financial market, HNB’s measures to limit the growth of placements, and new regulations will also be a problem. Therefore, the bank has no choice but to maintain the current level of business and use the calmer business period to improve the quality of services and find solutions for clients who will need help in servicing current obligations. However, even in such constrained conditions, they expect growth similar to this year’s. They say they do not give up on capital increases and as soon as the market conditions stabilize, they will continue to implement their planned goals.

HPB Has Picked Up Some Savings with the Crisis

While Jakovčević claims that the bank has even profited from the crisis, as it ‘picked up’ some savings from banks with foreign ownership, HPB emphasizes that as a domestic bank, it has been disadvantaged – it has not borrowed abroad, but is equally limited by the growth of placements, and is even more focused on financing companies than others. In the portfolio structure, 65 percent of loans are to companies and 35 percent to citizens, while deposits are divided between companies and citizens 55:45. Regardless, development continues to be based on domestic sources and placements. Despite the fact that Protega has brought the bank to the top ten, the authorities have been wanting to ‘reward’ him with dismissal for some time now. He is currently successfully resisting this.

HPB Makes Too Little Use of the Strongest Distribution Network of Croatian Post

Part of the financial operations of Croatian Postal Bank is intertwined with the operations of Croatian Post because HP conducts all its financial operations through accounts opened at Croatian Postal Bank. In postal offices (there are a total of 1,147 in Croatia), almost all banking operations can be performed on kuna accounts of citizens opened at HPB, from deposits or withdrawals on kuna accounts, term deposits to authorizing the disposal of savings deposits and depositing money with HPB’s Maestro, MasterCard, and Visa cards, says Robert Jukić, CEO of Croatian Post.
HP has been conducting cash payment transactions on behalf of and for the account of HPB since April 1, 2002, meaning that in postal offices it receives payments from individuals for the benefit of business accounts and makes payments to individuals charged to business accounts. Users can also pay everything they need for the benefit of business accounts using prescribed payment transaction forms. Based on contracts concluded with individual business entities, users can pay various fees, costs, subscriptions, and other utilities, without paying a fee for the payment transaction service. Croatian Post also performs payments on behalf of and for the account of HPB charged to the accounts of individuals and legal entities based on payment transaction orders and payments charged to the accounts of legal entities, participants in payment transactions based on contracts concluded with legal entities using specially agreed payment documents, says Jukić. However, with such a volume of business, HP’s management is not entirely satisfied as it mainly involves administrative tasks. They say they expect the cooperation with HPB to be redefined as the Post wants to activate the space in front of the counters and on it. This would mean entering into banking and insurance businesses. The benefit for HPB would be enormous as Croatian Post has the strongest distribution network in Croatia. The Post would, in turn, view this as a capital investment from which it would expect satisfactory rates of return. With the planned capital increase of HPB, fresh money was intended to be used for expansion and improvement of business, among other things, for expanding the financial offer through the distribution channels of Croatian Post.