Matthew Day in Warsaw -

Bank Wspolpracy Europejskiej (BWE), one of Poland's smallest banks, is set to go through an extreme makeover after its new owners, the private equity firm Innova Capital, announced a new strategy to turn around a bank that has struggled to make much of a financial impact.

Innova bought a 92% stake in BWE back in December from the Gudzowaty family, one of Poland's richest clans, for €25m in a deal that marked the first acquisition of a Polish bank by a private equity fund. Since then, it has been working on a plan to breathe life into BWE, which posted a profit of just PLN0.2m in 2007 on assets worth PLN416m.

To begin with, the makeover will ditch the BWE label in favour of a new name, which Innova has so far kept secret, in a step to rebrand the bank. Perhaps more importantly, Innova also plans to reinforce and expand BWE's role as a bank catering primarily for small anmd medium-sized enterprises (SMEs) – one of Poland's fastest-growing banking sectors. "We believe the SME sector is underserved in Poland," says Krzysztof Kulig, a partner at Innova. "You have a lot of small companies that produce around 60% to 70% of GDP, but they are not served in the way they should be. The sector lacks that and we see a niche there."

Hand in hand with this will come a range of banking products. Marisuz Karpinski, CEO of BWE, has said the bank plans to offer credit cards and various loans in a drive to make consumer finance one of the pillars of BWE's strategy. Even so, the bank has no current plans to tap into Poland's booming mortgage market despite the home-loans sector offering soaring returns to banks cashing in on the healthy appetite Poles exhibit for house buying. "We won't be offering mortgages, because to do that a bank has to have a large asset base, which we won't have at the beginning," explains Kulig. "But once we have that, we will offer them, but this won't happen just now."

Sales points

With or without mortgages, all banking products need to be sold, and here Innova plans a have what Kulig describes as a "mix of distribution channels."

BWE should see its branch network expand from the handful it has now to 200 – both owned and franchised – with 20 to 30 branches opening this year. While recognising that BWE still needs feet on the ground to reach its customers, Kulig says the need to maintain a light-cost structure means the bank will also sell products through non-direct channels. For this, Innova intends to employ the services of companies it owns in the Polish financial services sector, such as the consumer finance company Expander, as agents.

Innova has refused to disclose just how much all this will cost, but Kulig says the firm will put more money in over the next two years - a period, he adds, generally considered long enough for a bank to break even at the net-profit level.

The private equity firm also expresses its confidence that BWE will become profitable despite the woes in the global financial markets and subsequent tightening of liquidity and lending. "Every business sector in Poland is catching up with Western Europe, but when you look at Poland and banking you see that it is still some way behind," explains Kulig. "Even in the Czech Republic there are 175 branches per million inhabitants; in Spain, which is possibly over saturated, you have 950; but in Poland you have only 140. So there is still room in the financial services."

As further evidence, Kulig points to the success of recent arrivals in the Polish banking sector, such as Eurobank. "Have you seen any branches being closed in Warsaw, for example? You need to be careful, have a niche and low costs, but I'm far from gloomy," he says.

Kulig also rejects the notion that by purchasing BWE, Innova is sailing into uncharted waters. He points out that through its investments in a number of other Polish financial services companies, it's now a seasoned player in Poland, so purchasing a bank was a logical step. "We've been in the sector, and around banks, for many years now, and we've been looking at buying a bank," he concludes. "This was an investment we had to make."

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