“Finance leaders face tough times ahead with Hungary posing countless challenges”

Hungarian corporate lending zooms at an annual rate of credit expansion of close to 15%. How long is this sustainable in the long run and what trends are emerging in the market?

Continued long-term growth is unrealistic as is proven by historical data. That said, what would be a better time than now to produce this increase in loans in an environment with low interest rates, available resources and banks’ increased risk appetite? Now we have a market in Hungary that most international banks view as a growth market. At the same time, the geopolitical situation in Europe cannot be called overly rosy, the first signs of an economic downturn already show and lending may slow down.

A great number of banks in the Hungarian market have relaxed their lending standards in terms of loan terms, interest rates and collateral requirements in the past 2-3 years. This was not necessary in our case as we have a balanced lending policy and have always been flexible enough if the situation so required.

We have outgrown the market at over twice the average rate and so we also clearly feel credit expansion. It is because we have pursued intensive acquisitions and found companies with a potential and the promise of further growth. The focus of our lending decisions is whether the given form and amount of financing fit the company’s business model, rather than being forced to expand under competitive pressure.

Economic growth is slackening in foreign markets and the industrial output is beginning to show the first negative signs. Do you feel the change?

Only slightly, for the time being, through our corporate clients, but we are already addressing this issue. Our Hungarian specialists are continuously and directly informed by the Group risk management and sector analysts on European and global trends, and we are also advised on what to watch out for in the case of various industries. There are currently a few sectors in respect of which we are more critical. That is not to say we are sounding retreat from there but that we monitor the performance, order book and profitability of individual companies much more closely and frequently, and look out for signs of a slowdown.

This year, in addition to our usual risk management methods, we had a more comprehensive, in-depth review of our entire portfolio but found no firm that we had to let go or whose loans had to be restructured only because they were hit by a recession. Having said that, there are some industries, including the automotive industry, that are higher on our radar. One of the reasons is that a few automotive suppliers in Germany have filed for bankruptcy recently and the automotive industry growth rate is falling in most regions, that is the signs of recession have increased in this sector.

However, no one should cherish the illusion that you can prepare for a downturn, or even a crisis, so you can protect your entire portfolio. Once that happens, change will take place rapidly and may have wide-ranging impact. We prefer to finance companies that have what it takes to survive a crisis in terms of capitalisation, management and methodology, and have drawn the lessons of the previous recession.

Hungary’s economy is very closely linked to Germany’s and Commerzbank Zrt. to German-owned companies. In that light, what is your take on our economic dependence, including its positive and negative aspects?

Hungary’s is an open economy with a high dependence on exports and imports. Besides other industries, German investors have the greatest exposures in the automotive sector. How investors here will respond to what is happening in their home country and to strategic steps determined there can clearly influence the operation and performance of companies seated here.

New car industry investors and manufacturers keep coming to our country and while certain investments are being delayed we have confirmed information that foreign investors will not retreat. This also indicates that, first, they trust the country’s economic potential and, second, the industry per se and, third, they do not expect a persisting crisis, but are moving forward cautiously.

Redundancies and analyses of a slowdown are reported in the business news but this is more about careful foresight. If, let us say, a worldwide automotive industry recession hits, that will affect everyone, not just German companies. It can also influence the performance of Hungary’s economy.

This year’s great sensations are Funding for Growth Fix (FGS Fix) and the Bond Funding for Growth Scheme (BGS). The former can give a chance to small enterprises, the latter to larger firms to move ahead. How is Commerzbank involved in the two schemes?

FGS Fix is typically not tailored to our customer base as we primarily deal with medium-sized businesses and large corporations. We lend directly to SMEs only to a limited extent; even so, this subsidised leasing facility has produced significant market growth and that is where we can support the domestic SME sector. I think SMEs are key to shaping the future of the economy, as we still lack a segment of highly capitalised SMEs, unlike Germany, where this segment has built up in a few decades and is now the driving force of the economy. In addition, I would like to underline that our bank’s equity position is very strong, thanks to our parent, which is exactly what makes us much more competitive, primarily in EUR-denominated lending. In terms of HUF resources, FGS Fix provides us a profitable option to lay out a growing amount of HUF-denominated loans in the long run.

The bond scheme is quite another story from our perspective. The mid-1990s saw a fast-moving bond market in Hungary where companies, in addition to bank loans, had access to financing through bonds, which was more competitive than bank financing.

Based on the MNB’s communication and announcements, I would think it intends to revitalise the bond market on the basis of strong market standards, which is a rather strong alternative to bank financing in European economies. In my eyes, this is a good objective worth professional support as this financing option has almost completely disappeared from the Hungarian market. This is certainly an important step, especially because it can be key in the preparation for a recession. That is lending activity will automatically decline in the event of an economic slowdown and bank limits may even disappear, while bond financing will very likely remain intact until maturity. The low-interest-rate environment is also ideal for launching the programme. That allows access to long-term financing at relatively low interest rates, perhaps just before interest rates are expected to rise.

Moreover, this programme opens the way to the bond market for smaller companies, which is also commendable.

However, I tend to be more critical concerning the programme, as not all companies thoroughly consider how and on what to spend funds raised in this manner. I advise all companies to plan their bond issue just as carefully as they plan taking out a bank loan. They should weigh the benefits, but also be aware of the risks and the associated responsibility. This is no panacea, either. It requires the same prudence and business case that you need when raising funds from other sources.

In my view, bank financing will and must continue to play an important role in companies’ lives. Its flexible, tailor-made and cheaper availability continues to make it indispensable in carefully considered corporate financing.

What potential do you see in financing M&A deals? How active or problematic is the Hungarian corporate lending market in this area?

We see many M&A transactions from close range. Foreign investors apparently show increased interest in Hungarian firms. That requires a strong risk appetite and long-term loans at favourable interest rates. All of these are now available in the Hungarian financing market.

We manage relatively few M&A transactions but are often approached by organisers for our market reputation. That is because the strength of our business model lies in our offer of tailor-made solutions, which is a crucial aspect of M&A deals. We would like to expand further in the area as we can see a great number of highly professional active players in this segment of the Hungarian corporate lending market. At the same time, I anticipate further mergers and acquisitions in the region in the coming years. These high-stakes transactions may require the involvement of multiple banks.

As a female senior executive, what do you think of women’s employment in managerial positions in Hungary?

When I stand in for our CEO at senior banking executives’ meetings, I can hardly see any female leaders among them. Positive changes in the composition of senior leadership teams would be more than welcome, since I can clearly see that women are grossly under-represented here.

My experience from business negotiations shows the situation is very similar in other sectors, too. At the same time, significantly more women work at the second and third tiers of management, which at least raises hopes that sooner or later they will be promoted and contribute to a more balanced composition in senior leadership teams.

I strongly believe that it is not whether an employee is a man or woman that determines their fitness for leadership. But I do not think that women’s under-representation in leadership stems from their ineptitude.

I see a need, though, to pay more attention to increasing female employees’ self-confidence, supporting them by role modelling and methodology training, as well as to accepting that we as women lead differently from men and everyone must find their own leadership style.

I believe that a happy family life and a career can coexist in harmony. Not so long ago, Commerzbank organised the International Women’s Network conference here in Hungary, where I was invited to speak as a successful top banking executive, together with three other Hungarian senior women executives and, in the spirit of diversity, a top male executive. This gave me an opportunity to speak about how I had achieved my professional successes in 28 years and what it had taken to raise my children in a happy and balanced family with my husband.

Commerzbank has taken the lead in responding to the issue of female leadership. There are two women on our four-member board of directors and the proportion of women across the entire management staff is 50 per cent, which is quite exemplary in Hungary. We do a lot to sustain this rate in the long term.

I think that while we have a healthy balance, this is rarely the case in the Hungarian market.

Our conference on 12 September will focus on finance leaders. In what respect do you think they have a difficult job in 2019?

CFOs are facing immense difficulties this year as the range of financing options has expanded and there are growing signs that a new era with greater changes and challenges is looming.

They must hedge exchange rate risks in a highly volatile environment and there have been a vast number of regulatory and market changes (enough to mention just a few tremendous challenges such as the imminent launch of the instant transfer system or the introduction of PSD2 rules, which requires the alignment of internal processes and corporate systems with the new parameters).

These tasks are all concentrated at CFOs. For a CFO to be successful, they must keep learning and build communication channels they use as authentic and professional sources of information. This will certainly take much more energy and time than previously. This position has become one of the most complex functions in a corporate organisation.

We seek to support them by attending partner meetings, personal consultations and conferences, and to recognise their work by creating or sponsoring awards.

As an advisory bank, we can take a lot of burden off their shoulders as we start preparing for handling these issues months ahead and have all information that can make CFOs’ lives easier.

Why does Commerzbank consider it important to contribute to selecting the best CFOs by sponsoring an award ceremony and being on the jury?

It is CFOs that our colleagues most often negotiate with. That is why I believe that we must show our appreciation of their cooperation and competence. Of course, we primarily seek to demonstrate this in our daily work as we communicate with them, but this is an occasion where we can do so more transparently. This year we will attend the event for the third time, although we committed ourselves to and immediately identified with the idea of recognition by an award in 2017, when the first occasion was organised. 

As a member of the jury, I can see many applications submitted by persons outside our clientèle. I get very exciting impressions from the projects described, management, efficiency improvement and change management methods, and individuals’ professional development. I am absolutely inspired by evaluating the applications, and I hope that this year we can again call on stage applicants on account of their performance that is worthy of recognition by the general public, too. The award we sponsor serves to confirm this market recognition.