Inside BAWAG Group’s retail banking roadmap

Despite heightened competition, a slowing macroeconomic environment, and overbanked markets, BAWAG Group is finding success in the retail banking sphere with a relentless focus on simplification, technology and efficiency. Anas Abuzaakouk, CEO of BAWAG Group, gives insights into the Group which ranks in the top tier of European banks in terms of profitability and efficiency – and which has been awarded as Best Bank in Austria 2024 by the Global Finance magazine.

Mr. Abuzaakouk, first, congratulations on the award. Before we talk about the recent major achievements of the Bank: What can you tell our readers about BAWAG Group?

Thank you. BAWAG has a long and rich history of over 140 years dating back to 1883 with its foundation firmly rooted in Austria. Today, we are headquartered in Vienna, Austria and serve 2.1 million retail, small business, corporate, real estate and public sector customers across Austria, Germany, Switzerland, Netherlands, Western Europe and the United States. Our goal is to deliver simple, transparent, and affordable financial products and services that our customers need. We launched a strategic transformation in 2012, took the company public in 2017, and today, BAWAG ranks among the most profitable and efficient banks in Europe. This transformation over the past decade is the foundation which has allowed us to plant the seeds for growth in the coming years.

In 2023, BAWAG delivered another year of record results…

That’s true, 2023 was another record year for BAWAG Group: We delivered a net profit of €683 million, a return on tangible common equity (ROTCE) of 25% and a cost-to-income ratio of 31.8%. Since our IPO in October 2017, we have delivered a total shareholder return of 67% and outperformed the two largest and most representative European bank indices by an average of 31 percentage points (as of Q1’24). We have grown earnings per share from €4.50 in 2017 to €8.31 in 2023, representing a CAGR of 9%. However, despite our record performance in 2023, our best years are still ahead.

Which strategy do you pursue which allows you to continuously improve your profitability levels?

Our strategy has been consistent throughout. Our 3 strategic pillars have guided our transformation over the past decade and will guide us over the coming years.

Pillar 1: We want to grow in our core markets by serving our customers with simple, transparent and affordable financial products and services.

Pillar 2: We drive efficiency through investments, simplification, and operational excellence.

Pillar 3: We maintain a safe and secure risk profile.

We are focused on the developed and mature markets of the DACH/NL region with a primary focus on retail & SME banking. Our focus has, and will always be, on execution and doing our best to consistently deliver results for all stakeholders. We are a patient and disciplined commercial lender with no investment banking, trading or capital markets business.  Patience and discipline require thinking beyond the immediate quarter, which is not always obvious or understood. However, we are rewarded over the long term when unique opportunities present themselves and we have the capital and liquidity to take advantage of such opportunities.

Regarding opportunities … in February 2024 you announced the signing of the acquisition of Knab, a bank in the Netherlands, with a balance sheet size of ~€17bn – roughly a third of BAWAG’s balance sheet size today. What is the rationale behind this deal?

Anas Abuzaakouk, CEO of BAWAG Group

Knab is a transformative and highly accretive acquisition. This deal will expand our DACH/NL footprint, building out our customer franchise, and allow us to significantly grow the business and earnings in the years ahead. Knab is a digital bank that was founded in 2012 and has developed a very strong brand and loyal customer base addressing the underserved Dutch self-employed space. The bank has about 400,000 retail and SME primary current account customers.  This is a strategic fit in terms of product offering, providing us with a platform for current accounts, which we will augment with our Retail & SME product offering across the Group. We believe the combination of the Knab team’s experience and expertise around customer centricity, coupled with the operating infrastructure of the Group, will be a dynamic combination.  The transaction is subject to customary regulatory approvals, and we hope to provide updates throughout the year.

Over the years, you have pointed out that you aim to be good stewards of capital.   How do you best use the Bank’s capital?

Disciplined capital allocation and M&A in specific is key to our strategy and how we run the bank.  Underpinning our capital distribution plans is our strong profitability, which allows us to accrete significant amounts of capital each year. We then use this capital to invest in our franchise and teams, extend credit to our customers, acquire businesses, and distribute to our shareholders. By saying that we aim to be good stewards of capital, we mean that we want to make sure we are prudent in our capital distribution plans, maintain our fortress balance sheet, and be ready to capitalize on unique opportunities. Since our IPO in 2017, we have extended €47 billion of credit to our customers, supporting our customers while growing the franchise and self-funded 9 acquisitions. We delivered a progressive dividend, starting with €0.60 per share in 2017 to €5.00 per share in 2023. In total we have distributed €19.70 per share in dividends, equal to € 1.7 billion, in addition to completing € 900 million of share buybacks, allowing us to reduce our overall share capital by over 21% since our IPO.

Where do you see current and future challenges for the banking business model in general?

We are living in one of the most dynamic and transformative periods of banking. The years ahead will bring about rapid change as the traditional banking model is challenged by new and evolving technologies, changing customer behavior, new methods of engagement, and the embrace of AI across all aspects of our business. The future guarantees only one thing: change. Commercial banking is becoming more commoditized in the way that it enables financial institutions to truly benefit from technology to create seamless processes. Defining core competencies, being laser-focused on a handful of core products and services, maintaining discipline and prudence in lending, and simplifying end-to-end processes across the organization are key to delivering simple, transparent, and affordable financial products our customers need while also ensuring the long-term competitiveness and profitability of the franchise. 

What are your key priorities in such an environment?

There are two key areas we continue to focus on that we believe drive long-term franchise value to our business, and fundamentally leads to shareholder value. First, we continue to make investments driving growth and efficiency across the business. As an example, we invested approximately €600 million into technology and our branch footprint over the past decade. We are continuously looking at how we remain competitive. The banking landscape continues to change and by investing, we stay at the forefront of emerging trends around customer engagement and delivering quality products and services. And second, we are focused on disciplined growth. We run a multi-brand and multi-channel lending and advisory platform across our core markets. Our history is a mix of organic growth and M&A, and we’ve leveraged this strategy in both situations. We continue to plant seeds in our core markets, which will lead to stable and sustainable profitable growth long into the future.

How do you see BAWAG positioned for the next years?

Today, I am more excited about our future growth opportunities than I have ever been. Our transformation over the past decade has positioned the franchise for long-term profitable growth and has allowed us to pursue several strategic growth opportunities. My colleagues and I could not be prouder of the BAWAG team.  We look forward to delivering on behalf of all stakeholders in the many years to come!

Anas Abuzaakouk has been with BAWAG since 2012. Before becoming Chief Executive Officer and Chairman of the Management Board in 2017, he served as Chief Restructuring Officer and Chief Financial Officer.

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This article contains “forward-looking statements” regarding the financial condition, results of operations, business plans and future performance of BAWAG Group. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “plans,” “projects,” “may,” “will,” “should,” “would,” “could” and other similar expressions are intended to identify these forward-looking statements. These forward-looking statements reflect management’s expectations as of the date hereof and are subject to risks and uncertainties that may cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, economic conditions, the regulatory environment, loan concentrations, vendors, employees, technology, competition, and interest rates. Readers are cautioned not to place undue reliance on the forward-looking statements as actual results may differ materially from the results predicted. Neither BAWAG Group nor any of its affiliates, advisors or representatives shall have any liability whatso-ever (in negligence or otherwise) for any loss howsoever arising from any use of this report or its content or otherwise arising in connection with this document. This report does not constitute an offer or invitation to purchase or subscribe for any securities and neither it nor any part of it shall form the basis of or be relied upon in connection with any contract or commitment whatsoever. This statement is included for the express purpose of invoking “safe harbor provisions”.