August 19 (SeeNews) - Slovenian financial services provider KD Group has no plans for further expansion in Southeastern Europe (SEE) at the moment, the Executive Director for Financial Markets at the group's banking unit KD Banka, Benjamin Josar, told SeeNews in a written interview.
Instead, the group focuses on tapping the full potential of the markets where it is already operating and on developing products for more risk-sensitive clients, whose investment expectations have been dampened by the global crisis, said Josar.
KD Group, headquartered in Ljubljana, was set up in 1994. Its key businesses comprise asset and investment fund management, private wealth management and brokerage; life, property and health insurance; banking, business and financial services, and capital investments.
The asset management companies in the group run 24 funds. In Southeastern Europe, the group provides investment fund services in Slovenia, Bulgaria, Macedonia, Serbia, Croatia and Romania, and operates privatisation funds in Bosnia and Herzegovina, and Montenegro.
KD Group has life insurance operations in Croatia, Romania, Bulgaria and Slovenia. The group provides non-life insurance services in Slovenia. In March, the group entered the banking market after completing the transformation of its Ljubljana-based brokerage house KD BPD into KD Banka.
In 2008, KD Group turned to a net loss of 77 million euro ($108.6 million) from a net profit of 34.9 million euro a year earlier. The group's operating revenues totalled 391.6 million euro in 2008, a drop of 2.0% from 2007. Net revenue from insurance premiums rose 9.0% year-on-year to 321.3 million euro in 2008, contributing 82% of the group's operating revenue. Total assets decreased to 795 million euro at the end of 2008, 17% down from the end of 2007.
Here is what Benjamin Josar told SeeNews:
Q: What is your macro view of the emerging markets where the group operates? Where do you see the biggest challenges for your business in this respect?
A: In general, we have an optimistic view on the national economies where the group is active. The financial crisis has, of course, had a significant impact, but the dark scenarios for countries not belonging to the euro area have not materialised. With prudent economic policy and continuous implementation of EU standards at all levels, these economies will return to the pattern of long-term growth.
Q: In which countries do you see the best opportunities for your asset management and insurance businesses?
A: We have a long-term focus and in line with this philosophy we see most of the countries of Central and Eastern Europe (CEE) as attractive for these businesses. In particular, we consider the countries, where we already operate, to have the biggest potential.
Q: What has been the performance of KD Group’s asset management and insurance businesses so far in 2009? How does your latest performance compare with your goals?
A: We are satisfied with the way we have weathered the crisis so far. It was hard to establish relevant goals for 2009, since the business plans were made amidst the peak of the crisis, but we are happy with both the performance of our investment products and sales levels, given the fact that the environment for these businesses is not particularly friendly at the moment.
Q: Earlier this year, the group closed its brokerage unit in Bulgaria. Do you plan to shed units in other SEE countries? Do you plan to completely pull out of certain markets? If not, what are the group’s medium- and long-term plans for expansion in SEE?
A: KD is not leaving these markets. We have only closed the brokerage operation in Bulgaria, but continue to be present with the remaining two businesses, namely fund management and life insurance. Currently we don’t plan to expand into other SEE countries, although we are constantly assessing the environment to find opportunities which will be seized when the time is right.
Q: In what direction have the needs and the expectations of the customers, whose portfolios you are managing, changed as a result of the global financial turmoil?
A: A positive side effect of the financial crisis was that clients changed the irrational expectations they had had until that time. Most of the clients had had a misperception of the relation between risk and return and had not associated significant gains with risk. The risk awareness is higher now than it was before this turmoil, and investors will demand more diversified investment structures both among various asset classes and within single asset classes.
Q: Do you see potential acquisition targets in SEE amidst the ongoing financial crisis?
A: We expect that the financial landscape will be somehow different as a result of the crisis. The market structure in most SEE countries, especially in the fund management and the brokerage industry, is quite fragmented and we will surely see some consolidation. For companies with aggressive expansion policies this may be the right time to achieve the scale they lack or a better market position.
Q: What is in your product pipeline?
A: Although the last six months were really good for investors on most markets, the investors in markets where we are present are still hesitant about new investing. Since clients are becoming more sensitive to risk, we are developing products that will reflect investors’ changed attitudes.
Q: Do you see a quick-recovery scenario for the SEE economies? What about the asset management business, in particular, when do you see this side of your operations getting back to normal?
A: As we are optimistic for the long run, we are realistic for the near future. It is unlikely the economies will soon recover and we may experience lower GDP growth rates in the following years. But the investors will realise that there are nevertheless lucrative investment opportunities and will once again consider investing into asset management products with a greater emphasis on diversification. I am confident they will not be misled by some significant gains in recent months and will develop realistic expectations for the performance of investment products.
Q: The group entered the banking sector earlier this year. Do you have any plans for expansion on this market, both at home and abroad?
A: Entering the banking sector is currently the most important project of KD Group, since it will complete the array of financial services KD is offering and will change the way customers are served. We would like to concentrate on a permanent relationship with our clients and move farther away from the transactional approach. To be able to achieve this, we have to be able to offer our clients banking services alongside the products we are already offering, so that we can accommodate most of their needs. This model will be first introduced in Slovenia and although there are no such plans yet, I can imagine KD implementing a similar approach abroad as well, albeit in a more distant future.
Q: What distinguishes KD Group from its regional peers?
A: KD Group focuses on providing all investment products that retail and private clients need, starting from investment funds, insurance products, brokerage services, private wealth management and, since recently, banking services. Many of our competitors are offering similar product ranges, but there are very few of them where neither one of these investment products would dominate others, which is giving KD credibility in finding investment solutions clients really need. Superb financial advisory, combined with top investment products, will distinguish ourselves from other competitors in this competitive industry.
Q: What major changes in investing patterns have taken place in emerging markets in Europe since the group was founded?
A: We are very pleased to see that investors are becoming more and more sophisticated and familiar with modern investing. The very beginning, when financial markets were created in CEE and SEE countries, can be described as a learning period, for both financial intermediaries and investors. Since then, the offer of investment products has been constantly growing and investors have developed an appetite for a broad range of investment products. The main distinction between investors from emerging markets and investors from developed countries was, and to some extent still is, in my view, the extreme inclination towards risk of the former. In my view, this will gradually change, in fact this change is happening now, and we will see more and more long-term investors with diversified portfolios and realistic return expectations.
($=0.709 euro)