Interview Berislav Kutle

Interview Berislav Kutle

CEO of the Banking Association of BiH, Berislav Kutle, gave an interview in a daily newspapers

What does the data on the BiH banking system for the last year show?

Business results of banks (unofficial - unaudited) for the y2017 show a trend of business improvement across all segments, which confirms the already well-known thesis that the banking sector is the most advanced, stable, self-sustainable part of BiH economy. According to the first unofficial data of banking sector, for the previous year, Assets grew by 8.2% and amounted to KM 28,256 billion KM, deposits grew by 10.7% (KM 19,669 billion KM), loans with a growth of 7% (KM 18,422 billion KM). It should be noted that loans to legal entities grew slightly more than loans to households, while the deposits of legal entities grew more than double compared to deposits of individuals.

Why is this happening?

This positive business trend has been influenced - and will be influence by a large number of factors individually as well as interacting with each other.

As a first segment is the fact that the banks, since the recognition of BIH as a sovereign state, especially after the crisis in 2008 continually elevate the quality of their business. In this way, try to validate their vision by realizing a laid-out mission.

A vision in which banks remain profitable catalyzing the positive economic, social and environmental impacts for all participants. Creating self-sustaining values is a prerequisite for the development that benefits all participants.

This development is generated in a way that enables banks to be efficient, effective and profitable enough to support the local community, customer competitiveness, and the quality of life of each individual.

Realizing its mission in the past year banks were able to take benefits of all business opportunities in the best possible way that cause such a good result. Special attention banks paid (as well in the previous year) to optimizing costs. This means managing the long-term effects of cost and potential revenue ratio. Banks are aware of the fact that each projected expense will happen, whereas revenue based on that cost does not necessary need to happen.

What marked the year behind us in the banking world?

The segment that enables this continuity of business is a constant work on raising the quality of services as well as introducing new products on which the future of banks is based. Quality and satisfaction of employees is one of the key factors that quality of business depends on. It is clear that these are all preconditions in order to achieve the result in optimal conditions with quality clients.
Banks (in general) base their success on five pillars:

1. The client is the bloodstream-blood of life and the reason why the banks exist
2. people/employee’s development must all be motivated and engaged in creating the bank's success;
3. The co-operation and synergy of all participants is the engine that drives the bank to achieve ever-growing business and optimum profitability;
4. Risk management is the heart of banking that must be implemented in every segment;
5. Discipline and execution. This is the focus that banks make successful. This means at any time to do what is said

The feature of last year is the continuation of decline in interest rates on loans, which led to decreased interest income. There was a higher relative decline in interest rates then the increase of loan portfolio which led to this effect. On the other hand, there was a drop-in interest rates on deposits, which resulted in an increase in net interest income. This had a direct impact on the profitability-self-sustainability of banks.
The next segment in which banks made positive moves last year was the growth of non-interest income. This growth was achieved by creating new products as well as reducing costs by specifically digitizing products-processes. Despite the extremely unfavorable socio-political situation in Bosnia and Herzegovina, banks managed to keep the percentage of nonperforming loans under control which additionally contributed to the overall result of their business.

Finally, it is important to note that banks remain transparent, self-sustainable, profitable institutions in the service of their clients - each individual.

What does this tell you, deposits grow, banks profit, but no release of the financial potential?

Of course, but at the same time, the reality of today are great expectations, as well as the speed with which it should be realized. The result is general anger if these (desired) expectations are not achieved. We seek the culprit everywhere just not in the real world-in ourselves. We create those expectations.

This can be mapped to our expectations about the release of financial potential. This is by definition a long-term, strategically defined process that requires with all other parameters a properly dedicated time. It's not a 100 meters race.

It is a process in which everything and everyone needs to change in continuity with a lot of effort, perseverance, and renunciation - an effort we are not accustomed to, and then are not ready for.
Releasing something (financial potential) means having a defined new framework in which to move and achieve results. We're still far from it and I'm not sure we're on the right track.

Deposits of banks in BiH grow by the increase of savings, and in the EU by creating new money - without coverage which indirectly weakens our currency as well. This growth does not bring real effects - and it will not until we build a complete new framework - a model of managing this potential. Banks in the world are actively working on dealing with the parallel competition of start-up technologies. New players come to the market with much less restrictions and regulations. As long as banks are "owners" of clients and databases, they can work this way. This trend is changing too fast and we all have to be prepared for the consequences. New digital technologies are changing faster and more drastically change the look at work.

In the next 5-10 years the financial world will look totally different. Such a look at the finances will disappear. It is up to us to try to manage the occurrences or they will manage us.

In these new processes - creating financial capabilities, banks are just one of the players. They will have to work hard to stay in all these changes.

For years, in BiH we are talking about the country of many potentials for investment in infrastructure, energy, agriculture ... and, at the same time, the results are not encouraging. It is up to whom?

It was clear to everybody that BiH is a country of great potential. It is also clear that this is not enough to have it happen.

Political security - stability is of critical importance for such projects. I think it is unnecessary to answer to the question whether we have that. In preparation for the new elections this year will go through promises and sporadic solutions. What will the next bring regarding stability is on us to hope – since hope is the last one to die.

For each - and the slightest positive movement, all preconditions need to be met. We're still far from it. When we talk about the state what is it we think of. All apart from passport, money, and car registration, from the "state" level has different definitions.

The beginning - but not enough to change the perception of the political stability of the state is the Peace Constitution, and it is still in the stage of science fiction.

Fifteen years ago, an influential stranger told me that we are a country deprived of wealth. Whether we want to do it or not is up to us. To seek a culprit - the solution in someone else means staying in the so-called comfort zone, and it directly leads to failure.

Why do not bankers and government representatives sit together and agree on how to devote financial potential, which is not a small one, and to direct it into development, which will be the benefit for everyone?

There is one saying that we see as much as we know - or we want to know (see). The precondition for this kind of cooperation is that the same picture is likewise viewed by the government representatives as well as by the bankers. This means that with the same knowledge they have and comment on the picture-complete one, not just partially. The second precondition is to define a common interest in which both the government and banks will be able to realize their vision.

There banks have bigger limitations because they manage foreign funds and are subject to European regulations that government is still far from. Banking is based on the continuity, the persistence of self-sustainability, whereas the government is based on the mandate and results of the mandate.

It is clear that there are ways and innumerable possibilities for achieving co-operation on key issues relevant to the quality of BiH citizens, if the actors are sufficiently competent, moral and willing to change acquired habits. we should not be fooled, it will not be easy and simple though I hope it is possible and feasible even after the election. We have to believe it is possible, so that we can seriously work on it.

The common interest of banks and government representatives is to improve the quality of life of citizens. Clearly, the way in which each of them operate is different because of the role and responsibilities they have by definition of the job.

There are enough cross-sections of these two groups that can bring lives of citizens to a higher level. It should not be understood as only those two groups can do it without the active role - the efforts of citizens themselves.

Citizens constantly claim that interest rates on loans are relatively high, do you expect they will decrease and depending on what?

Whether interest rates are high or low depends on who observes them. From the client's point of view, interest rate is always too high, and from the bank’s point of view interest rate is insufficient to cover all risks and enable self-sustainability. BiH is already part of the EU, at least when it comes to banking industry.

Banking organizations, risk-taking, safety of deposits and interest rates are approaching the EU much faster than the country we live in. Today's interest rate level is the lowest since the establishment of the state. The interest rate decrease was significant in the last year, so that today they are on average lower even than in some EU countries. This is the result of the real situation with offer and demand for money in the BIH market.
It is well known information that even our country has larger volume of deposits than loans, which for the first time in history is that we can meet our credit needs with our findings. Deposits are relatively faster increasing than the demand for loans, affecting interest decrease in both deposits and loans. It is clear that a bigger change has reflected on deposits than on loans. In general interest rate as such is the same category for all participants and does not make such a difference. The problem of BiH citizens is large unemployment as well as a small average salary income. With an average salary of 820 KM every interest rate is large and every annuity is too burdensome.

Today's credit exposure to citizens is that high that it does not allow greater debt without raising salaries and-or increasing employment. In BiH, there is one absurd that many successful companies have multiplied profits over the last few years, and wages were kept far below the BIH average. With such a policy there is no increase in consumption - standards.

It is also realistic to expect further downsizing of loan interest rates as long as the offer of deposits is higher than credit demand and as long as the ECB introduces new 60-70bn euros of new cash without coverage, every month.

In BiH, everyone is talking about EU, and then we are still "successful" in cheating and smuggling, apples, meat, milk, and even arms exports. Can such a country get membership in the EU?

The fate of BIH is the EU but it is not going to happen by itself.

One of the first changes, as a precondition, is the clear definition and formal confirmation of what BiH is. A state with such political instability no one wants in its backyard. It is up to us, as well as up to the international community, to solve this issue. Another obvious fact is that BIH has legislation at most levels that is good enough, but the degree of implementation of these laws is not even 30%, so this is not the way to enter serious society. We easily agree, sign, and then we act like we did not. The impression is that to the political establishment EU is not the real – but only declarative goal. Obviously, in EU Bosnia and Herzegovina will have to have a completely different structure and quality of politicians.

Fortunately, there are such people in BiH so I hope they will be in the right places in the near future or we have ourselves condemned to poverty and no future.

We are constantly witnessing the departure of a large number of people. How to stop this trend?

The trend of young skilled people leaving the country is evident in BiH for the last 25 years as well as depopulation. This trend is impossible to stop (for several reasons), but the obligation of all those responsible in the country is to minimize it. It is clear that the offer and demand of the labor force generally in BIH is disproportionate. The qualification structure of the unemployed and the need for employees is in total contravention. The third segment is capable young people who cannot achieve ambitions in the country and live from their work. Today, to all such people a unique opportunity to achieve their ambitions in the EU and it is good, because a dissatisfied man does not do well to anyone. There is a question of analyzing these departures and how to optimize them - impossible to stop it.

The fourth element is a system of education that enables citizens to complete university education at a low cost and as such work in the EU without any education allowance. Students in the EU and especially in America for 10 years are repaying student loans.

Nearly ten percent of all US household loans refer to student loans. Much bigger problem with the current departure is the outdated system of education, especially the natural decrease of the population, and then the aging of the population. These two problems require long-term strategic action, and I do not even see the beginning of this process.

Nearly ten percent of all US household loans refer to student loans. Much bigger problem with the current departure is the outdated system of education, especially the natural decrease of the population, and then the aging of the population. These two problems require long-term strategic action, and I do not even see the beginning of this process.

There are about fifty life principles in science that people should pay attention to - which they should stick to. The first principle is the so-called the principle of the mirror.
That means that before we do anything, accuse anyone, we should look at ourselves in the mirror and clearly define what our role is - the responsibility in everything. It is clear to us that this is often done as impossible - Sizif's job, but it is clear to us that responsibility is still on us.

You have defined in the very question – stated the situation that is much simpler than the proposed solution. If the solution was simple and fast, they would not even talk about it.

In the last 25 years, we have been hanging around in a spider net and fetter ourselves. With all the domestic wits, we cannot get out of that spider net today. The great responsibility for where we are being in the international community to which we need to find the interest to help us. To talk about why we are there is useless, we should look for the possibility of going out. One should not be fooled by the fact that it will be easy and that someone can do it without our active contribution.

Though they have been present for many years, crypto currencies aroused some discernment on the financial market. The media of the last few days speaks of a decline after a steep growth. How do you look at crypto currencies and their future?

Crypto Currency is one of the products - a result of the development of digital technologies. With the development of these data transfer technologies - financial transactions since the beginning of 2004 the development of Crypto currency has also begun. Today, more than ten crypto currencies exist in the world. The best known with the largest market capitalization is Bitcoin (191 billion USD) followed by Etherium (US $ 105 bn), then Ripple (USD 48 bn), Cordano, Steller, Litecoin, EOS, NEO, NEM etc.

Crypto currency is a reality today that has a market capitalization of over $ 500bn US dollars. As by the definition this is a speculative business beyond which there is no real value, apart from offer and demand, it behaves as such. Today, there is clearly an excess currency in the world as a legal means of payment. The possibility of greater investment in such risky jobs appeared which on the other hand, offers (potentially) high profits as well as losses. With the increase in demand for a limited offer of crypto currency (because each of them has a fixed bid) there is the possibility of increasing speculation. It is clear that as in every business of great opportunities the main word is led by big players (which no one sees).

Crypto currency has become increasingly popular as demand increases, as there is a lot of interest in earnings in these transactions. The real problem is that all the value of these crypto currencies rests only on enormous demand - until when it will last, only the biggest players know.

The technology on which the crypto transaction is based is called block-chain technology. It is technology of the future and it introduces a real revolution in the financial world. More than 92% of European banks invest in the development of this technology. The first to evolve was Ripple, and banks started to use this technology since 2013 for so called RTGS - Real Time Money Transfer. These block chain transactions are transmitted securely, at a moment almost free of charge from one account to another user's account. As such, they change the payment transactions, where so far, the transaction lasted for at least one day and was relatively expensive.

More and more banks - institutions have been involved in the development of this type of technology on which the future of all service activities lies.