Depositors and shareholders
Category: Bank Management
Everybody who has ever visited a bank in the CIS knows that there is an obvious lack of consumer orientation. Opening up a bank account or even the simple withdrawal of money from an account can be a very time-consuming activity. This is mainly due to over regulation by government agencies that are undertaken in order to prevent capital flight and black market transactions. Moreover, banking staff often have a wrong attitude vis-a-vis customers, who are still mainly perceived as a disturbance and not as the main source of funds for a bank. As outlined above, the trust of consumers in banks is low. Moreover, in CPE’s households did not have any incentive to save money, and money would only be saved due to insufficient consumption opportunities. A “savings culture” has not emerged yet, and recent experience with inflation that devaluated quickly people’s saving has not been helpful in this respect. Until today, high volatility of real interest rates does not make it worthwhile to deposit savings with a bank, especially in times were consumer goods are getting more and more expensive.
Consequence on strategy: A bank that considers itself strong enough to survive on the free market, i.e. without the intervention and subsidization from government agencies, must take the initiative in order to acquire a sufficient number of depositors. The most important but also most demanding marketing activity to be taken in regard to customers is building up trust. This is a hard task since there are a number of factors that are beyond the influence of the very bank, but that are either subject to influences of the banking sector as a whole, or even of macroeconomic nature. However, banks can to a large extent reduce the risk by becoming more transparent about their activities. Besides public relation measures, widespread public ownership and a policy of open doors can help to build up the necessary confidence. So far, most banks are controlled by a small number of owners, and bank operations are highly intransparent for the outsiders. Banks that are quoted on the stock market and subject to the control of shareholders will in the long run gain trust against banks that preserve closed ownership forms.
Consequence on the use of resources: In any economy, the most important financial resource are savings from households. An economy can not flourish, if people do not re-inject the money they save into the economy; then, industrial firms are dried out completely and will not be able to preserve employment which further reduces the propensity to save.
A bank that decides to operate in the free market instead of being kept afloat by subsidized loans, will evidently have to shift most of its resources from interactions with the government towards interactions with depositors. Obviously bank staff needs other skills than those that were needed to allocate state subsidies. TACIS has provided large resources in order to support this process of acquiring necessary skills, and banks should utilise these resources.
Consequence for organization: The organization of a consumer-oriented bank has not much in common with the organization of a bank that basically provides large firms with loans according to the political will of the government. Banks need to be present in the centers of large towns, and they must reach depositors in less densely populated regions. Accounts must be administered in a modern way, outlets and the central administration must be linked by telephone and data lines that are often not available yet. Marketing must be developed. These activities involve large investments, and only some large banks will be able to handle these requirements. There is however scope to pool resources, and since a lot of the banks that are currently on the market are not viable in the long run, the concentration process that has already begun in most CIS countries will further accelerate due to economies of scale and scope.