May 27th, 2024
Interview with AKA's Management
Insights into the market situation and outlook on business development 2024 by
- Dr. Nadja Marschhausen, Chief Market Officer (CMO)
- Marck Wengrzik, Chief Executive Officer (CEO) & Sprecher der AKA
- Frank Zimmermann, Chief Risk Officer (CRO)
Source: AKA Annual Report 2023
AKA 2023: financially stable on the way to new target markets
What specific challenges were critical for AKA in 2023, and how did they affect your business segment?
Dr. Nadja Marschhausen: The 2023 financial year, as in previous years, was marked by increasingly complex market conditions. External challenges, such as various geopolitical uncertainties and the continuation of Russia’s attack on Ukraine, have continued to be of great concern to us. We must continue, proactively and appropriately in light of the risks, to replace or supplement traditional target markets as required amidst these challenges to ensure long-term growth and stability.
Another theme is the securing of stable refinancing, especially for our long-term business. The continued rising interest rates, which have now obviously peaked, are shaping our business environment and the profitability of financing conditions.
Frank Zimmermann: The complex multi-crisis, consisting of geopolitical uncertainties, high inflation, rising interest rates and weak growth in Germany and Europe, among other things, continued into 2023. To further strengthen the resilience of AKA during this challenging period, we have essentially pursued two approaches. On the one hand, we have further developed our agile risk management so that we can react even faster and more proactively to the changing environment. We have refined and adapted proven risk management procedures, such as portfolio and scenario analyses.
On the other hand, we have decided to significantly increase our already solid equity ratio again by means of stringent RWA management to ensure our long-term financial stability.
From a strategic and overarching company perspective, what distinctive features did the 2023 financial year bring with it?
Marck Wengrzik: The 2023 financial year was a dynamic year for AKA in the strategically important areas of IT and human resources. In 2023, we finalised a reorganisation of IT, which had begun in 2022, and thus found a structure that is characterised by a broader coverage of topics with a clearer distinction between the teams and shows AKA to be significantly better positioned for current and future requirements.
At the same time, the resource development associated with the IT reorganisation, in addition to the general challenges from increased turnover, has led to much more intensive handling of the topic of attracting new employees for AKA. As a result, in 2023, AKA successfully pursued a wide range of new methods, including direct university marketing for the first time, and is better positioned for the future in this regard as well.
What positive developments were achieved in 2023 that you would like to highlight in particular?
Dr. Nadja Marschhausen: The example of the growth of small-volume customer loans, referred to as small tickets, which we support with our digital SmaTiX finance solution, is very encouraging. With the significant increase in new business volume by approx. 40%, we achieved our ambitious target for the 2023 financial year and are striving for a further increase in new business volume based on the continued strong demand for the 2024 financial year. This is accompanied by the increase in the SmaTiX upper limit to EUR 15 million per transaction, which was approved by the Supervisory Board at the end of 2023. I would like to thank the Supervisory Board for the fruitful discussions and support.
As I mentioned at the beginning, the high refinancing costs present a challenge. In 2023, we furthered the development of a refinancing channel new to AKA for the short- and medium-term loan business in an internal, company-wide project and created the essential basis for operationalisation in 2024.
Frank Zimmermann: From a risk management perspective, 2023 was a successful year despite the major challenges: Stringent RWA management successfully increased the equity ratio from 17.3% to 19.6%. This has significantly increased the risk-taking capacity of the bank once again. In addition, we were able to improve the overall quality of our loan portfolio. The economic NPL ratio could be reduced from 2.2% to 1.4%.
We have also successfully reduced the Russia/Belarus/Ukraine portfolio by half since the beginning of the Russian war of aggression in Ukraine. Through further allocations to risk provisioning, and taking into account the increased reserve under Section 340 g of the German Commercial Code (HGB [Handelgesetzbuch]), full coverage of the remaining net loan portfolio has now been achieved. These strategic measures demonstrate our commitment to proactively managing risk while ensuring the financial stability of our business.
What steps and structural developments has AKA taken with regard to sustainability and transformation?
Marck Wengrzik: For AKA, sustainability means shaping the future. In 2023, we strengthened our activities for AKA’s sustainable orientation by establishing and implementing a sustainability governance structure. In the long term, this new structure enables us to anchor the topic of sustainability even more strongly through processes and a clear allocation of roles in the bank. The core of the sustainability governance structure is the newly created Sustainability Board, which has been implemented alongside the existing Environmental, Social and Corporate Governance (ESG) working group with extensive decision-making skills.
Furthermore, the Sustainability Team, as a central control unit for ESG aspects, made further fundamental sustainability-related advancements. The focus was on developing the sustainability mission statement, which further anchors sustainability principles throughout the bank and serves as a guiding framework to align business activities with the mission statement.
Frank Zimmermann: We have expanded ESG scoring to integrate ESG risks in credit risk management in a more qualified way, but also as a strategic management tool for requested financing. Managing these risks is now a core task at the bank. However, it is clear that continuous development is essential. Key words for the future in this regard are data availability and digitisation.
Equally, in addition to these technical aspects, the human factor is one of the key components in managing ESG risks. To ensure and promote a deep understanding of environmental, social and governance aspects in all corporate areas, we have established ESG AKAdemy, together with the Frankfurt School of Finance. The customised training series aims to focus on sustainability in the context of export finance and to continuously build and expand the knowledge of our employees. It also ensures a consistent understanding of sustainability and ESG risks.
Looking to 2024: between economic transformation, the regulatory system and innovation Let’s stay on the topic of sustainability. What does AKA’s further development in this area look like in 2024?
Dr. Nadja Marschhausen: The EU taxonomy, as well as country-specific regulations, such as the sector guidelines of the Federal Republic of Germany, are a fundamental guideline for us in the coming decades. They provide important guidance and set the course for which export transactions can be financed. At the same time, they will enable an objective assessment of the efficiency of export transactions with regard to climate targets in the future.
These new regulations and guidelines will support the change in our portfolio and enable us to intensify our business approaches in the areas of environmental and social development. Our goal is to guide our customers with our expertise and support them along their transformation path.
Marck Wengrzik: I can only confirm this – the topic of sustainability will continue to affect AKA’s business activities in 2024. Basically, we want to bring the momentum from 2023 into 2024 and use the transformation opportunities presented by the economy as an opportunity for new business.
From a strategic point of view, we will further develop a sustainability strategy based on the business strategy and the sustainability concept. Our sustainability principles provide guidance and set the framework for the five areas of sustainability action integral to our strategic and operational goals: business model; operating model; management system; communication and public relations; and corporate culture and employees.
The already mentioned new EU regulatory system, including the EU taxonomy and CSRD reporting, must also be prepared and implemented. However, with the 2023 milestones and the already planned implementation for 2024, I believe we are well equipped for these tasks.
A current trend is also artificial intelligence. The motto of the AKA Investors Meeting in 2023 was “Human and Machine – Chat with the Future”. To what extent does AKA deal with this topic?
Marck Wengrzik: The use of AI solutions is becoming, and has already become, a key success factor for companies: faster, better, more customer-friendly. A relatively simple but valuable example is machine translation services that use neural networks. To illustrate, it is particularly important for AKA, whose customers are distributed all over the world, to be able to conduct contract negotiations accurately and “in real time” not only in German and English. Therefore, we are currently working on an AI translation solution for our colleagues.
For our customers, the focus is above all on increasing the customer experience and the quality of service. To do this, we are experimenting with intelligent avatars. We have already presented our first prototype, Amy, at Euro Finance Week 2023. One deployment option is, for example, high-quality 24/7 support in our SmaTiX portal or use as a simultaneous translator. But this is not a matter of course for a small institution like AKA.
Clearly, the AI age has only just really started, and I expect many exciting innovations. At the same time, it is important that legislators and regulators create realistic framework conditions in the financial world that enable even small institutions to participate in innovations and remain globally competitive.
Back to general topics: How will the export economy evolve in 2024? Will this be an opportunity or a challenge for AKA?
Marck Wengrzik: The economic outlook for Germany for 2024 and, thus, the outlook for the development of exports from Germany in general currently only suggests very low growth. In addition to the current framework conditions, geopolitical uncertainties also play a role here.
But of course, the concerns in the respective sectors of the export economy are very different. Particularly companies that, with their products, are relevant to the topic of transformation will show significantly positive growth rates in some areas. There are opportunities for AKA precisely in these areas.
Dr. Nadja Marschhausen: It can be assumed that the German export economy will remain under great pressure in 2024. German value creation share will continue to decrease due to the relocation of production sites abroad, among other factors, which means that the fundability of German foreign trade support instruments must be reinterpreted. European and internationally positioned exporters will increasingly move into our focus as the cooperation with the European ECAs intensifies.
The new sector guidelines of the Federal Republic of Germany will also influence the competitive position of German exports. However, as a bank, we are also required to deal intensively with new unknown risks due to new transformation-related technologies.
To conclude, I will share one more thought on interest rate changes. In periods of rising interest rates, there was caution in large and novel investment projects. We hope that, with a change in interest rates, more investments will be made again, and that this will result in an increasing need for financing.
What kind of growth trajectory is AKA pursuing for 2024, and are there overarching goals that seem particularly important to you for AKA’s ongoing development?
Dr. Nadja Marschhausen: Two aspects are very important to me. First: supporting our customers on their transformation journey with customised financing solutions. These cover various aspects – from securing raw materials to supporting infrastructure projects. With the consistent expansion of relationships with European exporters and ECAs, we continue to rely on sustainable cooperation. In the future, these strategic partnerships will not only enable the opening up of new markets, but also ensure that we can continue to develop existing markets.
Second: the initiation of further sources of refinancing aimed at further diversifying and strengthening our financing base. We have already used the past few years to expand partnerships with European ECAs and their refinancing programmes, as well as cooperations with diverse refinancing partners for the long-term loan business. In 2024, we want to continue this expansion.
Marck Wengrzik: In addition to the goals that Nadja Marschhausen already described, we will of course continue to work on the topic of qualitative growth. And in 2024, we will continue to try to use equity in such a way that we link our activities with a clear risk-return requirement.
Your closing remarks, please: What are you focusing on in 2024 to ensure the organization’s performance in the coming years?
Dr. Nadja Marschhausen: In 2024, we want to further increase the efficiency of our work processes. One key project, among others, is the further centralisation of the KYC process, which will also lead to digitisation of documentation and work processes. This efficiency gain is an important building block for our goal of further strengthening sales, structuring and transaction expertise.
A key competence of AKA lies in the area of services and specialised services, such as the takeover of agency and administration functions. In 2024, we would like to further exploit and expand this experience, which was developed over many years, so that we can offer our customers innovative, customised service solutions.
The planned ongoing development of AKA in the coming year will not only further increase internal efficiency, but also strengthen competitiveness and sustainably improve the added value for our customers and partners. We are confident that these strategic plans will lead us along a successful path in 2024.
Frank Zimmermann: First and foremost, we strive to maintain AKA’s resilience. This is done particularly by stabilising the equity ratio at a sustainably high level. This forms a solid foundation for stability and reliability, two decisive pillars of our business success.
Proactive and agile risk management remains essential in order to succeed as a specialist institution for Export and Trade Finance in a world of increasing geopolitical uncertainties.
Marck Wengrzik: The strategic work of the new year will also be determined by the goal of creating more relevance for AKA’s shareholders and customers. We will deal intensively with how we can offer more opportunities to collaborate, particularly to the bank’s shareholders, for example, by expanding our product portfolio or creating new service offers. We already have some interesting ideas, and I am sure that, at the end of this process, we will work even more widely with our shareholders and customers.