Despite increased competition, a slowing macroeconomic environment and congested markets, BAWAG Group has achieved success in retail banking through a relentless focus on simplification, technology and efficiency. Anas Abuzaakuk, CEO of BAWAG Group, talks about the group, which is among the leading European banks in terms of profitability and efficiency and was recognized as the best bank in Austria 2024 by Global Finance magazine.
Mr. Abuzaaqouk, first of all, congratulations on your award. Before we talk about the Bank’s latest major achievements, what can you tell our readers about the BAWAG Group?
Thank you. BAWAG has a long and rich history dating back over 140 years to 1883, with its founding firmly rooted in Austria. Today, we are headquartered in Vienna, Austria, and serve 2.1 million retail, small business, corporate, real estate and public sector customers in Austria, Germany, Switzerland, the Netherlands, Western Europe and the United States. Our goal is to provide simple, transparent and accessible financial products and services that our customers need. We began a strategic transformation in 2012, took the company public in 2017, and today BAWAG is one of the most profitable and efficient banks in Europe. This transformation over the past decade is the foundation that has allowed us to sow the seeds for growth in the coming years.
In 2023, BAWAG delivered another year of record results…
It’s true, 2023 was another record year for the BAWAG Group: we achieved a net profit of €683 million, a return on equity (ROTCE) of 25% and an expense-to-income ratio of 31.8%. Since our IPO in October 2017, we have achieved a total shareholder return of 67% and outperformed the indices of the two largest and most representative European banks by an average of 31 percentage points (as of Q1 2024).. We increased earnings per share from €4.50 in 2017 to €8.31 in 2023, representing a CAGR of 9%. However, despite record results in 2023, our best years are still ahead of us.
What strategy are you following that will allow you to continually improve your profitability?
Our strategy was consistent throughout. Our three strategic pillars have guided our transformation over the past decade and will continue to guide us in the years to come.
Pillar 1: We want to grow in our core markets by providing our customers with simple, transparent and accessible financial products and services.
Pillar 2: We increase efficiency through investment, simplification and improvement of operations.
Pillar 3: We maintain a safe and secure risk profile.
We target developed and mature markets in the DACH/NL region, with a particular focus on retail and SME banking. Our focus has always been and will continue to be on the execution and execution of all our objectives to consistently achieve results for all stakeholders. We are a patient and disciplined commercial lender that does not engage in investment banking, trading or capital markets activities. Patience and discipline require thinking beyond the immediate, which is not always obvious or understandable. However, over the long term, we are rewarded when unique opportunities arise and we have the capital and liquidity to take advantage of those opportunities.
On the opportunity side… in February 2024 you announced that you had signed an agreement to acquire Knab, a bank in the Netherlands with a balance sheet size of ~€17 billion – roughly a third of BAWAG’s current balance sheet size. What is the point of this deal?
Anas Abuzaakuk, CEO of BAWAG Group
Knab is a revolutionary and very active acquisition. This transaction will expand our presence in DACH/NL, strengthen our customer base and enable us to significantly expand our business and revenues in the coming years. Knab is a digital bank founded in 2012 that has developed a very strong brand and loyal customer base targeting the underserved Dutch self-employed sector. The bank serves approximately 400,000 primary clients on current accounts of retail and small and medium-sized enterprises. This is a strategic decision in terms of product offering, providing us with a current account platform which we will complement with our product offering for retail and SMEs across the Group. We believe that the combination of the Knab team’s experience and knowledge of customer focus and the Group’s operational infrastructure will be a dynamic combination. The transaction is subject to customary regulatory approvals and we expect to provide updates throughout the year.
Over the years, you have noted that you strive to be good stewards of capital. What is the best way to use the Bank’s capital?
Disciplined capital allocation and, in particular, mergers and acquisitions are key to our strategy and how we run the bank. Our capital allocation plans are based on high returns, which allow us to grow significant amounts of capital each year. We then use this capital to invest in our franchises and teams, provide loans to our customers, acquire businesses and distribute to our shareholders. Saying we strive to be good stewards of capitalWhat we mean is that we want to be prudent in our capital allocation plans, keep our fortress balanced, and be prepared to capitalize on unique opportunities. Since our IPO in 2017, we have provided €47 billion in credit to our clients, supporting our clients while expanding our franchise and financing 9 acquisitions. We paid progressive dividends, starting from €0.60 per share in 2017 to €5.00 per share in 2023. In total, we distributed a dividend of €19.70 per share, equivalent to €1.7 billion, and completed a share buyback of €900 million. , allowing us to reduce our total share capital by more than 21% since the IPO.
What do you see as current and future challenges for the banking business model as a whole?
We are living in one of the most dynamic and transformative periods in banking. The coming years will see rapid change as the traditional banking model is challenged by new and evolving technologies, changing customer behavior, new ways of interacting and the use of AI in every aspect of our business. The future guarantees only one thing: change. Merchant banking is becoming increasingly commoditized as it allows financial institutions to truly capitalize on technology to create seamless processes. Defining core competencies, focusing on a few core products and services, maintaining discipline and prudence in lending, and simplifying end-to-end processes across the organization are key to delivering the simple, transparent and accessible financial products our customers need. while ensuring the long-term competitiveness and profitability of the franchise.
What are your key priorities in this situation?
We continue to focus on two key areas that we believe provide long-term franchising value to our business and significantly enhance shareholder value. First, we continue to invest to drive growth and performance across the business. For example, over the last decade we have invested approximately 600 million euros in technology and our branch footprint. We are constantly looking for ways to remain competitive. The banking landscape continues to change, and by investing, we remain at the forefront of new trends in customer engagement and the delivery of quality products and services. Second, we are focused on disciplined growth. We operate a multi-brand and multi-channel lending and advisory platform in our core markets. Our history is a mixture of organic growth and mergers and acquisitions, and we have used this strategy in both situations. We continue to plant the seeds in our core markets that will lead to stable and sustainable profitable growth in the future.
Where do you see BAWAG positioned in the coming years?
Today, I am more excited than ever about our future growth opportunities. Our transformation over the past decade has positioned the franchise for long-term profitable growth and enabled us to pursue several strategic growth opportunities. My colleagues and I are very proud of the BAWAG team. We look forward to working on behalf of all stakeholders in the coming years!
Anas Abuzaaqouk has been working at BAWAG since 2012. Before becoming CEO and Chairman of the Board in 2017, he served as Chief Restructuring Officer and Chief Financial Officer.
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FORWARD-LOOKING STATEMENTS (You should check with the Legal Department to determine if a disclaimer is required)
This article contains “forward-looking statements” regarding the financial condition, results of operations, business plans and future performance of BAWAG Group. Words such as “anticipates”, “believes”, “estimates”, “expects”, “predicts”, “intends”, “plans”, “projects”, “may”, “will”, “should”, “would” “, “may” and similar expressions are intended to identify these forward-looking statements. These forward-looking statements reflect management’s expectations as of the date hereof and are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, economic conditions, the regulatory environment, credit concentrations, suppliers, employees, technology, competition and interest rates. Readers are cautioned not to place undue reliance on forward-looking statements as actual results may differ materially from those projected. Neither the BAWAG Group nor any of its subsidiaries, consultants or representatives accept any liability (negligent or otherwise) for any damages arising from any use of this report or its contents or otherwise arising in connection with by this document. This report does not constitute an offer or solicitation to purchase or subscribe for any securities, and neither it nor any part thereof shall form the basis of or be used in connection with any contract or obligation. This statement is included specifically to reference the “safe harbor provisions.”