It's no secret that structured products manufacturers and distributors are excited by the opportunities available in Central and Eastern Europe. Erste Bank, though, has arguably led the pack when it comes to distributing products in the region. The Austrian bank's strongest markets remain the Czech Republic, Hungary and Slovakia, but it also sells products through its branch networks in Romania, Croatia, Poland, Serbia and Ukraine.
Jaromir Malak, Vienna-based head of treasury sales at Erste, says the bank's success in Central and Eastern Europe is to a large extent a result of its educational efforts. "Our marketing and investor education campaign has separated us from our rivals in the structured products markets. After all, this is a market that is still warming to derivatives-based investments and to tap the potential education is vital," Malak says.
Erste entered the structured product market in the Czech Republic in 2003, Slovakia in 2004 and Hungary in 2005. Since then, the bank has built a sizeable structured products business in all three markets. In the Czech Republic, for example, Erste has distributed EUR169 million of structured products so far in 2006, and is on track to surpass the EUR177 million it distributed last year. In Slovakia, its structured products business has boomed from EUR15.8 million in 2005 to EUR105.8 million so far this year. Strong growth in Hungary has also been reported, with sales up from EUR121 million to EUR168 million.
Erste identified structured products in Central and Eastern Europe as a key priority two years ago, Malak says. "We have put considerable resources in marketing and selling structured products though our branch network," Malak adds. "The retail branch network in each individual market provides product ideas and feedback to the head office in Vienna who then tailors its products to each individual market."
Erste structures the majority of its own products in Vienna but has also used European investment banks to assist on some structuring deals. Having this combination of a significant branch network in several Eastern European countries - as well as Austrian structuring and distribution expertise - is one of Erste's key advantages over its rivals, Malak says.
Erste is particularly strong in equity-linked products. For a start, Erste is the only bank in the region that has created its own Central and Eastern Europe equity index for the creation of structured products. Launched in September 2005, the index now forms a key part of the bank's structured products offering. The New Europe Blue Chip Index comprises 30 of the largest listed companies in Central and Eastern Europe. The basket draws equities from Austria, Poland, Hungary, Czech Republic, Romania, Slovenia and Croatia and arguably provides one of the most robust investable indexes in the region. Erste has retained exclusive rights to structure products tied to the benchmark index.
Keeping it simple
Its product range in the Central and Eastern Europe market primarily uses the index as an underlying, wrapped with capital protection and plain vanilla payoffs. It is a deliberate strategy by Erste to keep the product structure simple for a relatively new market, Malak says. For example, in Hungary it released a product tied to the index which offered capital protection and participation in the index, which Hungarian investors ploughed money into. The product was one of the main reasons for the bank's impressive sales figures for Hungary in 2006.
In the Czech Republic, meanwhile, the bank issued another equity structure - this time a basket of 25 international equities. It proved popular for Czech investors seeking participation in the performance of some of the largest global companies, including Canon, Daimler Chrysler, McDonald's, Rio Tinto and Toyota.
In addition to equities, Erste has offered foreign exchange and commodity-linked structures, although investors in the region are not yet demanding large volumes of these underlyings, Malak says.
WHY ERSTE BANK WON
Erste Bank is represented throughout Central and Eastern Europe and actively sells structured products via its own branch network. Using its Central and Eastern European equity index, the bank has equity capabilities far beyond any of its competitors. In a market still warming to structured products, Erste's educational and marketing strategies put it head and shoulders above its competition.
The week on Risk.net, December 9–15 2017Receive this by email