The company
Founded in 1901 as a savings bank, the Laiki Bank has expanded impressively, always responding rapidly and successfully to changing socio-economic conditions. In particular, the last two decades have seen rapid development of the Bank into a leading financial institution in Cyprus, with steady expansion overseas and recognition as a pioneer in the introduction of new technology, services and products into Cyprus. The most recent developments have been the LaikiOnline service, which provides a broad range of traditional banking services via the Internet and the Call Centre, which provides new, automated telephone banking services. The Bank's impressive performance over the past ten years has matched the performance of the Cyprus economy, which has improved each year over the past decade.
In 1971, the progress and dynamism of the Bank attracted the attention of the Hong Kong and Shanghai Banking Corporation (HSBC), one of the largest financial services groups in the world. The HSBC purchased 22 per cent of the Laiki Bank's shares, which gave a tremendous boost to the Laiki Bank's expansion plans as well as placing at its disposal a worldwide network of correspondent banks. The Laiki Bank's management team uses the association between the two banks to great effect, and many of its current policies have been developed from initiatives pioneered by the HSBC.
The Laiki Bank and its subsidiaries offer a wide range of high-quality financial services, both to individuals and corporate customers, including Laiki Finance, Laiki Insurance, Laiki Investment, and Laiki Factors. A major step forward was the establishment of Cyprialife in 1995, which offers life insurance services. The Bank also reinforced its financial position in the market with the recent acquisition of Paneuropean Insurance and its subsidiaries Philiki Insurance and Interamerican to become number one in the insurance market in Cyprus.
Expansion overseas began in 1974, with the establishment of a branch in London to serve the Cypriot and Greek communities there; the Bank now operates six branches in the United Kingdom. In addition, the Bank has five representative offices in Australia and one office in each of the following cities: Johannesburg, Moscow, New York, Montreal, Toronto and Belgrade. Perhaps the most notable expansion of the Laiki Bank abroad has been the establishment of a new bank in Greece, under the trade name of the Laiki Bank Greece. The first branch of this Bank commenced operations in Athens in 1992, and it now operates a total of 15 branches in Greece, expected to rise to 25 branches by the end of 2000. The strengthening of the International Banking and Treasury Division in 1995 reflected the importance that the Bank attaches to overseas expansion. The Division consists mainly of young people, products of the Group's policy to recruit high-calibre MBA graduates.
Excluding the overseas operations, the Group employs approximately 2,500 people, of whom 2,200 work in the banking sector and 300 in the insurance sector. One hundred and eighty additional staff were recruited during 1999 because of the increased activity of the Cyprus Stock Exchange. The opportunities presented by the Stock Exchange have also significantly increased the labour turnover in the banking sector; until six months ago, there had been very little labour mobility amongst Bank staff. In Cyprus, the staff are strongly unionized; approximately 99 per cent belong to the Union of Bank Employees of Cyprus. This is not the situation in Greece or the United Kingdom and, as a result, different reward systems, based on performance, are in operation in these countries as compared with Cyprus. There are also some differences in agreed work organization, with more flexibility in Greece and the United Kingdom than in Cyprus.
The Bank has always had a commitment to its social role and responsibility. It has set up cultural centres in Nicosia, Limasol and Paphos to provide fora for fine arts exhibitions, lectures, seminars and other cultural activities. The Bank's social responsibility policy also involves sponsoring as well as organizing events which address the needs of various social groups. Over recent years, special attention has been paid to activities which contribute to children's welfare, particularly to the welfare of those with special needs.
The Laiki Bank is the most profitable bank in Cyprus in terms of its growth in profits and its profit per employee. The excellent financial results achieved year after year have enabled the Bank to adopt a policy of strengthening its capital base whilst, at the same time, distributing a satisfactory dividend. This policy has enabled the Bank to achieve a good capital adequacy ratio, the highest in the Cyprus banking system and much higher than the minimum requirements set by the Central Bank of Cyprus and the Central Banks of the Group of Ten. In order to achieve these positions, the Bank pays constant attention to its costs-to-income ratio and keeps staff numbers to a minimum. Table 1 compares the Laiki Bank, the Bank of Cyprus, and the Hellenic Bank.
Table 1: Comparison of Bank performances
| Cost/income ratio (%) | |||||||||
| Growth in oper-
ating profit (%) |
-30 | ||||||||
| Growth in share-holder funds (%) | |||||||||
| Capital adequacy ratio (%) | |||||||||
The Bank's management is proud of its employees, whom it considers to be skilled, well organized and friendly. Staff are carefully selected through recruitment and development centres based on models used by the HSBC. Twenty-five per cent of the employees are university graduates and 10 per cent have post-graduate qualifications. Considerable use is made of the Residential Training Centre, which also incorporates social and sporting facilities. As part of their development, selected staff may be attached to the Human Resource Development (HRD) Department for up to two years to deliver lectures, organize training and act as HRD facilitators. Employees spend an average of three days per year on formal learning activities.
The Bank is regarded as an organization that cares for its employees. It was agreed at the last Board Meeting that in January 2000 stock options would be offered to employees meeting certain criteria, whereby shares can be purchased at very favourable prices in quantities depending on the individual's length of service and hierarchical level. The fact that employees become stakeholders in their own company will strengthen their commitment and identification with the Group, resulting in enhanced efforts for maximization of group performance. An additional incentive scheme will also be offered in January 2000, whereby employee savings over a five-year period will be allowed to be converted into shares at a favourable known 1999 price. Both these schemes have been based on successful models already in operation in the HSBC.
Company strategy
Drivers
The Bank consists of a workforce of totally commited individuals, each exhibiting a passion for company success and loyalty to its policies. This situation has arisen because:
The above factors have enabled the Group to take expansion in its stride. Strategic planning involves the production of three- to five-year Group strategy plans followed by three-year strategic plans produced by each Division of the company. The divisional plans are coordinated by the Group Strategy Team, consisting of the Executive Chairman, Group Managing Director and Executive Director, and are brought together into the company plan which is updated on a rolling annual basis. The components of the strategic plans are:
All employees are involved through a project approach which links culture, methodology, technology, organization, skills, and measurement to accomplish project results as part of the achievement of strategic goals. One recent example of such a project concerned the use of the Internet as an alternative to branch banking. A project was set up within the Group Technology Projects Unit, and a strategy for using the Internet was developed. It included:
The Cyprus culture had to be taken into account when building the model for the project. HSBC models were studied but were considered too large for use in Cyprus, so a model had to be developed to suit local conditions.
Action in the market place
In 1991, the Laiki Bank took a policy decision to differentiate its customer service provision from that of its competitors and hence to increase its market share. The areas which were targeted for the service differentiation included:
Necessary conditions
The Laiki Bank has achieved a great deal since its formation in 1901 and particularly over the past 20 years. It has done so against increasing competition in a globalizing era and under conditions that demand adaptation to changing technology and work organization. In achieving such impressive results, the Bank considers that there have been some prerequisite conditions that have had to be met. These have included:
The importance of good leadership is considered paramount by the Bank, and the inspiration provided by its Executive Chairman has already been described. His vision for the future has been reflected in the Bank's Mission Statement, which is shown in Box 1 below.
| Box 1 "Our vision is to differentiate ourselves as the most dynamic, effective and reliable financial organization.
We thereby ensure long-term and stable profitability for the benefit of our shareholders and our staff." |
The Bank puts considerable effort into ensuring that its values are shared by all its employees. It does this by widespread distribution and discussion of its Mission Statement and by determined efforts to ensure that the conditions listed in the Statement are clearly implemented. It also encourages social activities amongst the staff through use of the Residential Training Centre. The Bank's human resource policies are transparent and appropriate for a competitive, forward-looking organization; they respond to the needs of people who want to be treated on merit. The focus of the Bank is on work and on the achievement of planned results. The environment in which this is carried out is pleasant, encouraging and mutually supportive. It is through these means that values become shared, employees demonstrate commitment to the company, and all staff offer a common front to customers and outsiders.
Commitment of the Bank staff comes in part through the shared values discussed above but is also a reflection of the Bank's image in the society, its treatment of its employees, and its success as a commercial venture and as a socially responsible organization. The Laiki Bank scores well in all these areas, and it is not surprising that its employees demonstrate commitment and loyalty to their employers. Some movement of staff took place during 1999 but mainly as a result of the upsurge in the Cyprus Stock Exchange activities. This represents Bank staff responding to external opportunities and is in no way suggestive of lack of commitment whilst they were working for the Bank.
At the root of the Bank's success is its commitment to fundamental values: caring for its staff; investing in new technology and products; and constantly striving for excellence in customer service. In-house training programmes offered by the Training and Development Department of the Bank and conducted at the Residential Training Centre reflect this pursuit of excellence. One such programme is entitled "Customer service, communications and promotion of services" and covers excellent service skills, negotiation skills for retail credit officers, product knowledge, product promotion, effective presentation skills, sales skills, and communications and interpersonal skills. Other training programmes focus on specific areas of Bank activity, such as current account of exchange business, credit facilities, and commercial business. An extensive human resource development programme includes coaching, training of on-the-job facilitators, performance appraisal, the role of managers in excellent service, time management, and stress management.
Several factors contribute to the undoubted drive exhibited by employees of the Bank. The main factor is the example shown by the Executive Chairman and top executives. Another factor is the recruitment and development policies pursued by the Bank. If the right people are recruited and provided with the appropriate learning opportunities, it is not surprising that they develop commitment to the organization and seek to drive it towards the achievement of ever-increasing goals. The Bank has its own scheme for rewarding new ideas. Employees are rewarded if their suggestions are adopted. Risk taking is encouraged, although within prudent limits as should befit a bank, and there is devolved accountability and responsibility. All these factors combine to induce a strong drive amongst individuals and collectively for driving the Bank forward.
The Bank has moved progressively nearer to an integrated approach to all its operations. For example, the integration of cross-functional processes has allowed more effective follow-through to be achieved in some of the sales areas such as loans and hire purchase. There is also follow-through in the HRD policies. The appraisal system is derived from the HSBC model and is based on merit. The development centre approach is also based on an HSBC-proven model and allows for detailed individual assessments to be made. Data from the appraisal and assessment systems are fed into the processes which culminate in promotion decisions being made. All of the managers are involved in such decisions, first in discussion fora, then through second-level discussions at which final decisions are made.
Other examples of Bank follow-through include the performance and development criteria for managers, which reflect the concepts incorporated in the Bank's Mission Statement. The criteria are listed in Box 2 below.
Box 2
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Changing work organization
Evidence of the Bank's commitment to stay ahead in a rapidly changing world is demonstrated through its spearheading of the use of new technology in Cyprus and abroad. It introduced the first real-time on-line system in 1982, and a few years later it installed the first ATM in Cyprus. It also pioneered the concept of home banking by developing two home-banking products, one geared to the needs of corporate customers and the other serving retail customers. Other examples include the Bank's establishment of a European Union Affairs Unit to help pave the way for the entry of Cyprus into the European Union and an International Business Unit to cater for the needs of international businesses that have set up their offices in Cyprus.
The Bank has tackled the challenges of globalization and changing technology effectively. It is expanding internationally, particularly in Greece, and keeps the introduction of new technology as one of its highest priorities in the drive to improve competitiveness. The other major factor in competitiveness is work organization. In this context, the Bank is well placed to keep track of international trends though its links with the HSBC. Thus, changes in work organization are brought about by changes in international good practice and by changes necessitated by new technology. All changes in work organization require the learning of new competencies by the staff who have to adapt to them. Such competencies encompass the requirement to:
There is sometimes some staff resistance to continuous change in processes and work organization. Such resistance is usually restricted to the older, more conservative members of the staff. There is rarely any resistance from the young, highly educated employees. The top management team is known to encourage change.
Measurement of results
The Bank makes active efforts to ensure that its policies and practices meet with customer approval and with national and international banking standards. Representatives of an external consultant assess customer service and customer reactions before issuing a report to the Bank. The Bank also has its own method of assessing the performance of its branches. Anonymous customers (known in the Bank as "mystery shoppers") visit the branches on behalf of the Bank's headquarters and rank each branch in terms of its customer service performance. Prizes are awarded to the branch or branches that receive the highest ratings.
Other methods of measuring performance against national and international standards include the examination of Bank practices by external organizations. In this connection, the Group has received seven awards from the Bank Marketing Association, a national organization which acknowledges and rewards products and services from various banking institutions. In addition, four of the Bank's retail schemes have achieved international recognition from the Association for their uniqueness and effectiveness. Also, in 1998 the Group's new service, Laikionline, received the innovation and creativity award from the Cyprus Employers' and Industrialists' Federation.
The future of the Laiki Bank
The Group's management confidently expects the successful performance of the Laiki Bank to continue into future years, and there is every indication that these expectations will materialize. International expansion will be prominent on the Group's agenda for the near future. The establishment of the Laiki Bank in Greece, in which the Laiki Bank has full control with 70 per cent shareholding, has opened up new horizons for expansion into other European Union countries. Likely obstacles or constraints that the Bank has recognized include:
