Pavel Kysilka: Czechs are victims of regulatory terror

14. 4. 2016 | Source: BusinessInfo.cz

Setting up a business in this country means negotiating an almost insurmountable obstacle course, says former head of Česká spořitelna bank Pavel Kysilka.

The digital revolution has already transformed media, entertainment, and communications. Now, according to the former CEO of Česká spořitelna, and former vice-governor of the Czech National Bank [ČNB] Pavel Kysilka, other spheres face the same fate. "Finance is undergoing a similar process; and we can expect the same for the energy, health and automotive sectors."

In terms of fundamental economic problems facing the country, Kysilka identifies a shortage of qualified labour. And he believes the state should pay for expanded education to close the gaps in key under-funded professions. Kysilka, moreover, believes that the entire Czech education system is in need of an overhaul.

"Each minister comes along with a series of nonsensical reforms and changes to the current model. But the nature of the model itself is entirely besides the point... so long as you have quality head teachers and teachers, then you can't lose. They need more than just the promise of higher wages - though without good pay you won't get anywhere," observes the Czech economist.

What have you been doing since you departed Česká spořitelna last year?

I am partaking in a number of external projects. These include sitting on the board of directors at the University of Economics, Prague [VŠE], Bohemian Heritage Fund [supporting the arts] and Smetanova Litomyšl [a music festival], and also the supervisory board at Dobrý anděl [an assistance charity for those facing hardship]. I also intensively follow the digital economy and digital revolution, and pursue my ambition to connect with people who can provide targeted assistance for the Czech economy and Czech businesses in order to help them succeed in the digital era. I also follow the public and government sectors, where we have a major shortfall.

Describe this shortfall...

In comparison with other countries, we are at the summit in terms of the digitalisation of businesses, communications, sales [technology] and so forth. But in contrast to that we are the second worst country after Romania with regards to digitalisation in the public and government spheres. Companies are having to transform for this digital age, and that is exactly what is under way. The media, entertainment, communication and sales industries have all gone through this. The financial industry is transforming, and the energy, health and automotive industries are following suit - the latter is on the cusp of a revolution in electric cars and autonomous (self) driving.

How can new technologies change the banking sector?

People want to have their banks in their pockets via their mobiles. Within two years, you'll want to have everything accessible via a few swipes of your mobile, from transactions, internet banking and investment, through to credit. That doesn't mean you won't want face-to-face advice, but this will change into a new form.

Is such change impacting the way that banks earn their money?

Today banks are already giving up on certain previously significant revenue streams. These include current account fees, internet banking fees, and cash machine withdrawal fees. Now they are learning to offer all this for free. They are changing their business models, which means that they are looking for ways to supplement such lost revenue. In the future, banks will have to come to terms with far lower profitability than they enjoy today.

How did the banking industry change during your time at Česká spořitelna?

It shifted decisively from offering products towards building up customer relations, understanding customer needs, and offering solutions. Right now the process is half-way there, but digitalisation is serving as a catalyst. Banks that build up relationships with customers and offer solutions are the ones finding success today. Previously all that was needed for success was to have a good product for a good price, as that was something businesses and households automatically responded to. But today that is no longer enough - this phenomenon is actually visible across all fields.

Asides from technology, are central banks also changing the face of banking by pouring stimulative cash into under-performing economies?

That may just be a provisional solution. Negative interest rates are a new phenomenon, but I wouldn't see this as something that is going to shift trends.

You spent more than six years in the upper echelons of the ČNB. Do you think it is realistic for a central bank to implement negative interest rates?

In general, as we see from other countries, it is realistic. But I do not see this as an appropriate solution. And as I have been observing, many central bankers themselves are hardly very enamoured with the idea either.

Does our economy need negative rates?

No.

What are the main risks right now for the Czech economy?

In the short-term I don't see any domestic risks. In the long-term, I would say that regulations which reduce competitiveness represent a risk, because in this country setting up a business means negotiating an almost insurmountable obstacle course. We are literally suffering from a kind of regulatory terrorism. People setting up a pub or small enterprise are terrorised by an unbelievable number of duplicate and triplicate requirements regarding oversight and controls.

Do you mean having to fill out various forms?

Incidentally, that's mostly still pen and paper - it's a disgrace this isn't available as a digital service yet. Instead of being able to devote your time to your business and customers you have to spend an inordinate amount of time sitting and responding to the questions of inspectors. One controller might say that they only come once a year, but the entire problem lies in the fact that each year 20 different oversight entities are conducting inspections. Additionally, the Czech Republic must be able to successfully carry out its digital revolution. Here I would expect the state to at least not get in the way.

Can you name any additional economic risks?

There are also external risks. Negative factors from Europe, the US, or China, which impact us too. But the Czech economy is healthy and growing. What is hugely lacking are people.

You mean in the technical and scientific fields?

Quality people across all the professions. Almost all corporate clients of Česká spořitelna would be able to produce far more than they currently are, and also grow far more, if they possessed the right number of qualified staff. At present, the problem is not credit or investment, because everything is cheap and accessible. The labour force is the key issue.

What can the government do to improve education and training?

The first thing is to double pay for teachers. That may not change too much within a one to five year timeframe, but it will at least begin a process of change by making it clear that we view the teaching profession as a prestigious one. And you will lure in smart people. Today, they are avoiding this field because the average pay is far below that earned by university graduates. Compared with soldiers, fire-fighters, and public officials, I would say that while their work is important and fantastic too, only teachers can really say that they are cultivating the future of the nation.

Why did you leave Česká spořitelna in 2015?

I left after 17 years. Originally I never would have anticipated remaining there for so long. I planned to be there for five to six years. I am convinced that after such a long period it is healthy for both sides to remain excellent friends, but to both go their own separate ways. You can end up too comfortable and rigid regarding updating the changes you implemented yourself. It is good for a fresh face to come in and shake things up a bit.

Pavel Kysilka (57)

CEO at Česká spořitelna from 2011- 15, having been with the bank since 2000 after arriving from the Czech branch of Austria's Erste Bank. Member of the board of governors of the Czech National Bank [ČNB] from 1993-99. A ČNB governor from December 1997 until July 1998. As vice-governor during the 1990s of the State Bank of Czechoslovakia [SBČS], Kysilka was responsible for separating the currencies of the Czech Republic and Slovakia following the countries' divorce in 1993. Kysilka enjoys cycling, skiing and hiking. He enjoys listening to both baroque and contemporary music, and has a keen interest in historical Bohemian glassmaking.


Originally published in E15 weekly, economic and business newsmagazine. Author: Vladan Gallistl

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