A Roel model at Rabodirect

THE FRIDAY INTERVIEW: Roel van Veggel, banker:ROEL VAN Veggel had quite a baptism of fire in the Irish banking industry. He took over as general manager of Rabodirect, the Dutch-owned online bank, the week after the collapse of US bank Lehman Brothers – just as deposits were flooding out the doors of the Irish banks.

For an online bank specialising in clear attractive deposit rates, you would think the banking meltdown of September 2008 would have been a perfect time for Rabodirect to hoover up deposits.

Not so, says Van Veggel. Even though €200 million did flow in over just two weeks over that period, he wasn’t jumping with joy. Rabobank, the bank’s Utrecht-based parent, looks for stable deposits – money that won’t flow out as quickly as it comes in.

“Bankers love predictability and that was completely gone in a couple of months,” he says.

“It is all about sticky money – you don’t want to have too much building up at once because of the way we price deposits internally within the group. Rabobank wants to know, if it comes in one day, could it go out the following day?”

As it happens, between 60 and 70 per cent of the deposits which moved to the bank in that period left again after the Government first increased the deposit guarantee limit to €100,000 from €20,000 in mid-September and then introduced the two-year blanket guarantee on deposits soon after.

Rabodirect’s staff spent most of their time fielding calls from worried depositors at other institutions asking whether they would be protected by the Dutch guarantee for sums of up to €100,000. The bank took three to four times more calls than normal every day.

Van Veggel and his staff of 19 in Dublin now manage deposits and savings of €1.4 billion for 63,000 customers. The average balance ranges from €20,000 to €25,000 and the average interest rate paid is about 2 per cent, he says.

Van Veggel says the domestic Irish banks are engaged in “a deposit war” for short-term money as they attempt to shore up term deposits over the crucial September 2010 period when the Government’s two-year blanket guarantee draws to a close.

Irish institutions have to refinance a whopping €24 billion of bonds which fall due at the end of the blanket guarantee, a maturity deadline dubbed “the wall of worry” by banking analysts at Royal Bank of Canada.

“I cannot see how banks offering a 3.3 per cent deposit rate can make money,” he says. “These rates are not sustainable because this is not the model to bring the banks back to a healthy state. They need to increase mortgage rates and decrease savings rates.”

Van Veggel says the banks have to become “reasonably profitable” again and that the Irish banking model needs to change.

He admits that Rabodirect is not making any money offering customers a 2 per cent interest rate on demand deposit accounts with the European Central Bank rate at a record low of 1 per cent.

“Profit is not a priority for us as we operate on a basis of volume against cost for the bank,” he says.

Rabodirect draws in €7 billion in deposits for its parent, Rabobank, across its four internet banks in Ireland, Belgium, Australia and New Zealand. This helps to reduce the bank’s overall reliance on costly wholesale funding which collapsed many of the European banks that relied heavily on the debt markets when the financial crisis struck in 2008.

“Rabobank has easy access to the capital markets and at way lower prices than the other players out there,” he says.

The bank’s triple-A rating, the only private bank in the world with such a high ranking for creditworthiness, is “more of a stamp approval for the safety and solidness of the bank”, says Van Veggel.

“People would not know the detail of the credit rating but they are looking for reassurance.”

Van Veggel says he was “a bit surprised at the drastic way” that Bank of Scotland (Ireland) announced the closure of the Halifax retail business – issuing a statement at 3pm one afternoon last week.

“It doesn’t show much sympathy for their current staff or current clients. They have at least destroyed the brand name for good in Ireland,” he says.

Rabodirect has assigned one member of staff to handle queries from Halifax customers who must move demand deposits before the bank closes in June. Rabodirect also moved quickly to email Halifax customers who also have accounts at Rabodirect to offer an alternative home for their money.

Van Veggel believes the biggest difficulty attracting customers to an online bank is signing them up. “The first step is the biggest,” he says.

Rabodirect’s oldest Irish customer is 92, a fact Van Veggel expresses with some pride illustrating that the internet-only banking model is being embraced.

The bank has tried to develop a no-nonsense, what-you-see-is-what-you-get reputation in banking, with catchy advertising campaigns selling its “no sneaky” terms and conditions banking.

Van Veggel is passionate about greater transparency in banking. Bankers have to cut out the heavily qualified small print as one way of regaining the trust of customers following the financial crisis.

“They just have to tell it like it is and don’t over-complicate things – they must be honest on what they offer.”

He recently noticed a deposit product at a rival which offered an attractive rate in large print but below it in small writing were 11 conditions, including one saying the rate was only for six months.

Van Veggel says that marketing accounts for a large part of Rabodirect’s costs. The bank has also devised novel approaches of communicating with customers through social networking sites.

The bank has about 2,500 customers on its Facebook page and 250 people have signed up to its Twitter alerts which are used to announce products and rates.

New advertising campaigns are premiered on YouTube and the bank has set up a website called TruthBank where visitors can make confessions. The site has little to do with banking but it clearly generates web traffic for Rabodirect. “We are seeing how we can create an environment where we can engage with our customers,” says Van Veggel, adding that an individual’s experience with banks can “make or break a company”.

“Banking is going to be moving much more from an organisation sending out mass communications to one-to-one communication,” says Van Veggel. He regularly gets involved in online chatrooms discussions about bank deals on offer.

Competing with Irish rivals is a challenge for Van Veggel as he feels the Government bank guarantee creates “an uneven playing field” and “unfair competition and a battle for foreign banks”.

Rabobank is retrenching its retail presence in Ireland by drastically shrinking Rabodirect’s sister bank ACC, which has taken significant losses on property development loans. The bank is closing 16 of its 25 branches, and cutting almost a third of the workforce.

The chief financial officer (CFO) at Rabobank, Bert Bruggink, caused quite a stir last August when he told reporters in the Netherlands that it was no longer possible for foreign banks to compete in Ireland. “Who am I to contradict my CFO?” says Van Veggel.

He believes there are still major challenges facing banks in Ireland – Nama, funding, the so-called “third force” merger, “cost-cutting” and foreign banks “waiting for guidance from their parents”.

“Everyone is waiting for the dust to settle. There are some major issues to be settled before market stability kicks in.”

Irish banks will have to move more quickly to internet banking than elsewhere, he says, as they face “painful cost-cutting” to reduce their heavy cost bases with less profitable business out there.

Ireland is “over-branched rather than over-banked”, he says. For example, if Irish Nationwide, EBS and Permanent TSB end up in the “third force”, the new bank could have four branches in one town, which is not sustainable and will lead to many branch closures.

“Although painful, it will need to happen,” he says.

On the record

Name: Roel van Veggel

Job: General manager, Rabodirect

Age: 47

Nationality: Dutch

Hobbies: Collector of art (Indonesian and European), and travelling

Education: masters degrees in business and politics

Something you might expect: he has worked for the past 14 years within the Dutch banking group Rabobank, but initially wanted to be a diplomat, not a banker.

Something that might surprise: Fergus Murphy, the chief executive of EBS building society, was his boss for a short period when Murphy was the regional head of Rabobank in Asia and Van Veggel worked in Indonesia