Faced with Public Deficit and High Inflation, Italian Bankers Consider Strategic Planning

By Rosenthal, Lisa | American Banker, July 6, 1984 | Go to article overview
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Faced with Public Deficit and High Inflation, Italian Bankers Consider Strategic Planning


Rosenthal, Lisa, American Banker


Confronted with double-digit inflation, a host of restrictive regulations, and an unwieldy public deficit that sends the govenment plunging into the market with huge new bill issues at frequent intervals, Italian bankers are beginning to feel the need to adopt formalized methods of strategic planning.

Top executives at various financial institutions in Roma and Milan see two key issues confronting Italian banks: the pressing need for planning, and the challenge formalized planning poses to the traditional structures of banking organizations here.

"Of all the medium and large banks in the country, only a couple haven't put the issue of strategic planning on the CEO's desk," says Carlo Radaelli, staff director at Banca Popolare di Milano, with deposits of $3.6 billion (6,050 billion lira), the country's second largest cooperative bank.

"Our financial institution is at an advantage because the board has always acted decisively to promote change," he added. "In general, big banks don't have the organizational flexibility to introduce formal strategic planning, while small banks often don't feel the need to do so as strongly." Changes in Banking Environment

The 1970s was a decade of profound upheavals for financial institutions the world over. But in Italy, continuous double-digit inflation and enormous government deficits took an added toll. In 1973, massive public sector borrowing began cutting seriously into bank deposits, which on a deflated basis actually dropped that year by 1.5%.

At roughly the same time the Bank of Italy put a lid on lending and began stimulating competition from non-banks and foreign financial institutions.

"The state adopted a policy of systematic betraval," commented the executive vice president of one of the largest banks in Italy. "First it forced us to absorb a fortune in Treasury bills and then it pulled the rug out from under us by stimulating cut-throat competition."

Another challenge was presented by the recent arrival of new foreign competitors. "The foreign banks have set themselves objectives. Careful resource allocation, in harmony with organizational structure, has thus become a necessity for every bank on the market," commented Giuseppe Vigorelli, general manager of Banca Popolare di Commercio e Industria, which has deposits of $1.1 billion (1,891 billion lira). Competition from the Provinces

The big city banks, headquartered in Rome and Milan, are faced with additional problem, you don't turn to strategic planning," says Sergio Pugliese, the former head of the strategy and development office at Banco di Roma, which has deposits of $22.9 billion (37.9 trillion lira).

"The provincial banks like Istituto Bancario San Paolo di Torino and CARIPLO (Cassa di Risparmio delle Provincie Lombarde) had a big advantage," explains Mr. Pugliese. "They collected lower cost deposits in the provinces where their hegemony was unchallenged, and then plowed them into investments in lending competition with kus here in the city".

Mr. Pugliese, now general manager at the financial services company Fideuram, was one of the architects of what many bankers consider an important early bird effort in the strategic planning field here in Italy. During Mr. Pugliese's tenur, Banco di Roma undertook a far-reaching structural reorganization that placed responsibility for earnings squarely on the shoulders of four regional directors.

Another part of the plan called for re-doing branch interiors all'americana, wih separate areas for retail and business customers and combined cashier/teller stations. (The typical Italian branch requires customers to carry out transactions with tellers and then queue up a second time to actually receive or deposit cash.) Regulatory Role

Much like regulators in the United States, the Bank of Italy has acted in such a way as to erode the differences in mandate between financial institutions of different types, and this has placed an additional strain on Italian banks.

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