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The Big Picture: ‘Small is not an Option’

It is not unusual in the digital age that startups skyrocket and become important players on the international market in a short time span. But in the early 1990s, for companies emerging from the Eastern bloc with very limited free market experience, competition often proved a painful lesson. Hungary’s OTP Bank, however, managed to grow significantly. Deputy CEO László Wolf tells the Budapest Business Journal how it succeeded.

László Wolf

BBJ: The first major step for OTP in the market economy era was the privatization of the company. How was this conducted?  

László Wolf: Back in the 1980s we had already acquired a solid profit and we had a very wide client base in Hungary, which gave us an advantage in the new circumstances. In 1995, we launched the initial public offering (IPO); this was the first step in the privatization, then we entered the stock market. The basics of entering the market for any company are: transparent procedures, a reliable reporting system, and a strategy. We implemented all these, plus organizational changes in the company, which allowed us to take the next step, to enter the stock market.

BBJ: Did the strategy also included regional expansion at this time, or did this come later?  

LW: No, back in 1995 this was not yet a goal; we started thinking about that after 1997. That was the time when we told our investors that we were looking at foreign investment opportunities. We had sufficient profit for that and there were banks for sale in the region. We believed that the region would develop quickly and we also saw huge differences between bank values. Of course some banks were way overpriced, but we acquired our first project in Slovakia at a very low price.

BBJ: What were the risks?  

LW: The risks were the same as today, in any other acquisition: that the market would not expand as we expected, and the target would not bring the results we forecasted. And yes, sometimes we made mistakes at the management level too, we did not correctly foresee the risks. But managing a foreign bank is not very easy, we did not know at the time how a network of banks should be managed efficiently. In Serbia, for example, we accepted high risks, which resulted in years of losses and low profit.

BBJ: Did you experience distrust at a government level in the target countries?  

LW: First, let us define the role of the state in such transactions, which is to approve the transaction or make the sale, if it has a majority share. I negotiated our first acquisition, in Slovakia, where the state was the seller and also the authority to approve the transaction. During the negotiations I never experienced a negative approach towards us. It is true that we were buying a poorly performing bank, not a big one, but I never felt discriminated because we were a Hungarian bank. And we had no such problems in other countries either.

It was only in Romania where I had the feeling that, because of some reasons, the state authority was unwilling to sell us a big bank. But this was not politically motivated. In the early 2000s, there was a general belief that only Western banks are really good banks, and East European banks were somehow disregarded. An Austrian or Italian bank was more welcome than a Hungarian one. There was no political consideration in this, I just felt that Romania was reluctant to sell us a big bank.

BBJ: Why do you think that, of all the banks in the region, only OTP managed to become a regional player? Is it a matter of available money only?  

LW: I can only answer that with immodesty. It is to the management’s merit; the management had the ambition and the vision to build this, and it was also the management which contradicted the general belief that a company from a former socialist country can survive only if acquired by a strategic investor. Two factors were needed for an Eastern European company to enter the regional market. First, to avoid becoming a subsidiary of a multinational company and privatization based on its market value. Second, ambition and vision within the management to complete this. But in all this, [chairman-CEO] Mr. [Sándor] Csányi had a significant role.

BBJ: Mr. Csányi is a prominent public figure, closely linked to the history and success of OTP. But how much can the results of such a large company as OTP be linked to a single person?  

LW: Well, largely. Mr. Csányi likes to “think big”, he is always looking at the big picture, on an international scale and he also likes the approach to do things that are surprising and difficult. Of course, our colleagues also made a significant contribution, but he was needed to encourage ambitious projects and to catalyze bold ideas.

BBJ: How much state support did you receive?  

LW: We never depended on financial state support, we always relied on our own profits, even in times of crisis. On a diplomacy level, as for any other Hungarian company, we have always been supported by the government in power.

BBJ: The pandemic has significantly hit the world economy. How can OTP make plans in the current circumstances?  

LW: It is difficult because we cannot foresee when the pandemic will end and if there will be a second wave. We do make new plans, even under these difficult circumstances. What we already see is that our region will recover sooner than others. There are already positive signs the economy is restarting. While there are still uncertainties, we are pretty sure that we will have economic growth in 2021.

BBJ: Do you expect recession this year?  

LW: Our analysts expect negative growth, not only in Hungary, but in most European countries. Credit lending and consumption will slow, but we expect a strong recovery by 2021.

BBJ: Are you planning new acquisitions?  

LW: We are continuously watching the market. We have strong profits, we are stable and this is the time to gain an advantage. We are not eyeing big countries, because they are expensive and we do not wish to be small anywhere. I would say that we do not necessarily need to be leaders in a country, but we do need to reach a productive size in all countries. Small is not an option.

OTP Group is the largest financial supplier in Hungary. The bank currently operates in 12 countries including Hungary.

OTP Group provides financial solutions to meet the needs of its almost 20 million private and corporate clients in the Central and Eastern European region through nearly 1,700 branches and 5,000 ATMs, internet and electronic channels and with its almost 40,000 employees. The banking group holds market leader or near market leader position in Bulgaria, Hungary, Montenegro and Serbia.

OTP Bank operates nearly 400 branches in Hungary and has more than 10,000 staff. It provides a wide range of financial services in the country, while offering, through the network of local subsidiaries, solutions for a number of other special financial needs, including investment funds, home and other specific savings, and auto financing. In addition to retail, OTP and most subsidiary banks offer special products to agricultural companies.