Addiko Bank

www.addiko.com
Country Austria
Sector
Deal type Buyout
Investment date July 2015
Status Unrealized investment

The only serious international banking group focusing exclusively on Southeastern Europe, Addiko Bank serves approximately 1.1 million customers via more than 200 branches throughout Slovenia, Croatia, Bosnia and Herzegovina, Serbia and Montenegro.

THE HOME FIELD ADVANTAGE

In December 2009, the Austrian government nationalized Hypo Alpe-Adria-Bank International to keep the bank from collapsing under the weight of more than €13 billion in bad debt.

Ultimately, the Austrian government split the bank into several pieces, including a Balkans banking unit called Hypo Group Alpe Adria A.G. (HGAA).

In July 2015, Advent International agreed to purchase 80% of the Balkans unit, with our partner, the European Bank for Reconstruction and Development (EBRD,) buying the remaining 20%. To symbolize a clean break with the past, the SEE-Network went through a rebranding process and was ultimately renamed as Addiko Bank ("Addiko") in 2016.

In acquiring Addiko, we saw an opportunity to acquire a medium-sized local retail bank with a defensible market position in its core markets of Croatia, Slovenia and Serbia. Looking at the ratio of banking assets to GDP, we recognized that the Southeast Europe region offered good growth potential for the banking sector.

We also recognized that Addiko had the potential to capture significant market share through organic growth and/or acquisitions.

"What gives us the competitive edge is that the five countries where we operate are our home market," explains Ulrich Kissing, CEO of Addiko Bank. "We are not distracted by other markets, and we are agile enough to adjust processes quickly to meet customer needs."

A LOW RISK, HIGH GROWTH STRATEGY

In the negotiations to acquire the bank that ultimately became Addiko, we persuaded the Austrian government to carve out and retain the SEE-Network's non-performing loan (NPL) portfolio. As a result, Addiko started life on solid financial footing.

We believed that Addiko could achieve success without taking on a lot of risk by becoming a cash-flow lender for consumers and offering standardized products to small and medium-sized enterprises (SMEs).

"We focused on speed - delivering fast-cash loans and consolidation loans," says Kissing. "We could see that customers were waiting for these offers because we significantly over-performed our loan origination volume estimates."

With these new products offerings and investments in digital technologies that let customers access banking services anytime from anywhere, Addiko saw growth of new loan disbursements soar 70% on a year-over-year basis.

Even as Addiko was ramping up lending, the bank was also tamping down risk. Addiko strengthened its risk monitoring and reporting systems, while enforcing strict underwriting criteria. As a result, default levels on new loads came in well below expectations.

GREATER EFFICIENCY CONTRIBUTES TO NEW PROFITABILITY

Under Advent's ownership, Addiko moved its headquarters to Vienna and implemented a new, more efficient organizational structure. As a result, the bank saw a 17% year-over-year reduction in run-rate operating expenses.

We also helped Addiko revamp its financial reporting processes to provide more precise information that helps the company's leaders make informed, accurate decisions on the best ways to manage and grow the business.

With Southeast Europe leaving a prolonged period of economic turmoil and entering a new cycle of economic expansion, we believe Addiko is well positioned for sustainable, profitable growth in the retail and SME sectors.

"I see opportunities for us to compete and win share on both ends of the market," declared Kissing. "Smaller banks cannot be successful because the regulatory costs are simply too high...On the other hand, we can move faster than bigger banks, make decisions more quickly and adapt our offerings more nimbly as the market evolves."

With strong growth in high-margin loan products, efficient operations, better digital capabilities, a fresh brand image and a low-risk lending strategy, we believe that with Advent's support Addiko is in an excellent position to fulfill a larger share of Southeast Europe's consumer and SME banking needs.

 

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