Interview of Bertolt Hertzfeldt, Executive Director of ProCredit Armenia Bank, to Armenian Mediamax News Agency and www.banks.am web-portal

- The decision on ProCredit’s arrival in Armenia, most likely, followed the many-sided analysis of the financial market of the country. Would you, please, present the picture, which was formed as a result of your analysis, as well as the risks, which were considered by you as the most significant ones?

- We definitely did some analysis, and we have a quite developed sense of what the Caucasus is like, and we thought that Armenia could be the next place to go to. In our analysis we realized that there are opportunities, based on the fact that we saw that the financial system is not as developed as probably in other countries. We saw little international presence, and we also saw the opportunities that, by entering Armenia and the sphere of delivering services to small and medium enterprises, as well as to ordinary people, we could have a serious impact. So it was mainly that we also saw that the lending to very small and small enterprises was not very much developed and that the service provided by the banking system was not at a level we think it could be provided to the ordinary customers. We also took into account the fact that the market was still undercapitalized, it was mostly heavily dependent on the international inflow of money from donors, from organizations, like the World Bank and the European Bank of Reconstruction and Development.

We saw that direct investment would make sense and would help to develop this market. In terms of risk, we saw a certain geographical risk. Armenia is a landlocked country, having certain difficult relations with neighbors. Armenia is also affected by the strained relations between Georgia and Russia, which have an impact not just on the political situation, but also the economic development. For instance, transport routes are blocked, and it becomes much more expensive for Armenian companies to export their goods. On the other hand, being a small country and being not the first place, where international investors would come to, we saw many opportunities. In Armenia we think that we will have many opportunities in the nearest future, where we can realize our concept of development-oriented full service bank.

- The ProCredit Group declares itself to be the leader in the sphere of crediting of family business and small enterprises, which, undoubtedly, is urgent for Armenia. At the same time, today, the banking system of the country counts more than 20 commercial banks, competing in the sphere of provision of multi-type banking services. Don’t you think that gambling on crediting of small enterprises, in the future you will have to make up for the missed spheres of banking services?

- Credit is a very important part of our business, but we plan to be a development-oriented full-service bank. So, we are looking at both sides of the balance sheet. We want to do a lot of lending to our target group, in order to develop their businesses, the economy and the financial system, because we felt that this part is underdeveloped. From the analysis we have seen that international programs, run by EBRD, KfW and by others, despite a lot of efforts for a number of years, we felt that there is still a lot to be achieved.

Coming to your second question, it is not just about bringing these people into the banks to give them loans and to give them opportunity to develop their business, but also to make them customers of the bank in the full sense of the word. So, not only looking at the lending side, but also looking at the side that these customers should develop the sense of how to handle their finances even more comprehensively, talking about the importance of savings, about the fact that you have to have money for the black day, it should not be under the mattress, but should be kept in a bank, where they will earn money on.

So, taking this whole concept into account, we think that we are in a good position to tap into a niche that is to a certain extent developed, but not fully developed. I would also add here that the microfinance institutions, working in Armenia, are doing a good job, but they still cannot deliver the full service that we want to, and this is where we come in and offer full banking service. We want to attract every deposit possible to our bank, we do not put any minimum limit to the deposit brought to our bank, so if somebody has a thousand dram available, they should come and learn how to save and how to make use of this service provided to them. So, in that respect, we want to compete and bring down this limit that in my understanding still exists in the market, where we see that certain banks put limits, and certain banks limit their target group to certain spheres of the society.

- Is the size of the starting credit portfolio of ProCredit Bank in Armenia established?

- So far we have not started yet. The official opening is planned for February 5. We have received the banking license. We are still in the process of preparing ourselves for the opening. We will start immediately from the first day to build up our portfolio. The means will come from our capital in the first place, but also from the deposits we want to attract, so we want to have a very clear strategy to balance our means with the loan portfolio, so that at the end of the day we can rely on what we do in the local market. It should not be that we depend too much on the outside financing. In the beginning we are in a pretty good position, we have a strong capital base and we will be able to use it to develop the loan portfolio quickly.

- How active will ProCredit be in the regions of Armenia?

- We see a very big role of ProCredit bank in developing a branch network in the regions. Our plan is to have full presence in all the regions by the fifth year of our existence in Armenia. We are currently preparing our entrance to two regions. We are preparing our branches in Vanadzor and in Artashat, and we will keep on doing so in the year to come. It depends on various factors, but we also see the geographical needs, first we are present in the North, then we are present in the South, something that will lead us in our strategy to go to regions. We particularly selected Artashat, because we want not only to lend to small businesses in the sphere of services, production and trade businesses, but we also want to go to regions, to be a lender and a service-provider to agro-businesses. So, Artashat could be a very nice place for us to start agro-lending and agro-financing, which will be developed in the nearest future. And, as I said, by the fifth year we will be available in all the regions of Armenia.

- Your bank will start officially functioning on February 5. What basic tasks do you set for your team for 2008?

- The basic task I would put for our team is to really provide best service to our customers and deliver to the promise with which we have come to the country. We have said that we can become the number one in providing services to small businesses and to ordinary people, and we need to deliver to this promise. This is the first task we really need to fulfill. The second task is that our team is pretty big already. We have now one hundred and twenty people in our banking team. Our team needs to grow in many respects to become a really strong team, to be able to deliver to this task and that is an on-going process in terms of what we have to do in training, what we have to do in working with our people to grow, to be able to deliver things not only professionally, as bankers, but also in the terms of how to represent and to stand for the values the whole ProCredit Group stands for. I think that we are on the best track possible. I see that as a very good development and I see many opportunities for the team. That would be the main tasks. If we can manage to do these two things, we are also well empowered to fulfill the business-plan task we have set for ourselves.

- Can you tell us more about your team? When we speak with people from this sphere, they say that there is a real lack of good specialists, and all the good professionals are already employed in banks.

- It is the basic strategy of ProCredit to develop people inside the group. We have a multi-layered system of training not only in professional terms but we also spread the ideas that stand behind the values of ProCredit. We have extensively trained our people. The majority of them had not had banking experience, so we took them from Universities with little job experience and sent them to other ProCredit banks. We are in the good position to have strong banks in the regions, in Georgia, in Ukraine, in Moldova. We have a strong presence in the Balkans, so we send people to extensive training to these countries in order to understand banking better and also to understand ProCredit better.

Furthermore, we have the opportunity to send people to ProCredit Academy in Frankfurt but we have also regional academies. So, for Eastern Europe we have an Academy in Macedonia, for the African countries, an Academy in Ghana, in Nicaragua, the Latin-American Academy. We have already sent people out to study. Some colleagues are being trained in the Academy in Frankfurt, and we will also send people to the Academy in Macedonia this year to give them the opportunity to learn more and to become really capable managers in many respects which is needed for the banking system. They will also to become ambassadors for the ideas ProCredit stands for because it is a very important part of training our people and giving them the feeling that they belong to one strong group that has a very specific philosophy in how to provide services to customers. That will be an on-going process and will also, from my point of view, give a chance to many young Armenians to join our system and develop their careers, based on what we can offer them. That is something that is not cheap to do but we strongly believe in this. You can only build strong teams if you invest in your people, if you give them the belief that they belong to something that is valuable, and that you empower them and show them the areas where they can develop. It is not only about salary increases and benefits, it is also about something that really is a basis for you and a value you live for.

- It would be interesting to hear your opinion about the competition in the banking market of Armenia in general. What is your attitude to it? How fair is the competition?

- I have the feeling, especially looking back at the few months I have been in Armenia that the competition is strongly growing. When I came first to Armenia in March of 2007, I had the feeling that actually banks are not visible in the market, there are no billboards, there was little advertisement, and even bank buildings were not that visible and I could really not single them out easily. At that moment, I had the feeling that there is a lot more to be done, but if I look back now, in this short period of time the presence of banks has much more increased, you can really see that there are new branches opening in the regions, some banks are doing re-branding or re-development of their marketing strategy, and those are the outcomes of a much stronger competition, which I feel is really fair.

It will become stronger and will force banks to think about how to present and marked their services in the sense of what they stand for and which groups they target. I hope that this competition in the future will also be as fair as it is now. And I have the feeling that in Armenia, taking into account the strong role of the Central Bank, controlling processes very strictly, we will not see excessive developments, like for example in Ukraine, where you had advertisement for 0% interest rate, which is in reality a lie, because banks do not do responsible lending, but just want to grab the opportunity to make as much profit as possible. I do not see it in Armenia, and I hope that the competition increase will be good for the customers, for the development of the financial system, and that we can avoid these excessive developments, which we have seen in other countries.

- The Armenian officials often speak about the intention to make Armenia the financial center of the region. How realistic you consider this idea in terms of being a landlocked country, presence of problems of neighbors, and also having a small volume of national economy?

- It depends a little bit on how the whole region is defined to be and whom you include. This is difficult. Because if you look at it in regional terms, it would include to a certain extent Azerbaijan and Turkey, but as long as you have no normal relations, it would be difficult to be a regional center from the geographical or geopolitical point of view. To a certain extent, it can be developed with certain countries.

And I think, taking into account the strong role of the Central Bank and also the support of the government to develop into that area, there is a good opportunity to become a regional financial center in a certain sense. But it needs to be more clearly defined, so that you can say, which role should Armenia play, which areas are to be developed to be a financial center in that sense. Then I think it becomes clearer, and then you also can work on the mechanisms that need to be put in place to develop Armenia into a regional financial center.