Banker’s heart in the right place
12 July 2006
Stuff.co.nz, New Zealand
July 12 2006
Girol Karacaoglu peppers his conversations with concepts such as
wanting to hug customers and do the right thing, but even with fine
ideals, taking on the big banks is hard. Sue Allen reports.
There is something unusual about Girol Karacaoglu and PSIS. In all
but its legal structure PSIS is a bank, but Dr Karacaoglu insists
its goal is not huge profits.
It doesn’t want to open call centres, the board agonises over raising
account charges, low-income earners are welcome and "hugging" customers
is almost part of staff training.
PSIS is a financial services cooperative that wants to "do the right
thing", he says.
So he cannot understand why more customers are not flocking to open
accounts. "There is a small trickle of disaffected customers of the
big banks coming to us. It’s not a flood."
But it’s not all bad. Since Dr Karacaoglu took over three years ago,
he has stemmed the tide of customers leaving.
For the past 18 months between 250 and 300 new customers have signed
up each month.
The average age of new customers is also falling – about 60 per cent
are 45 or younger, something that delights him.
PSIS was founded in 1928 to provide public servants with low-cost
financial services. It came close to collapse in 1979, its very
success almost its undoing.
Having provided cheap financial services, the board and management
wanted to extend the concept to low-cost televisions, holidays,
alcohol, almost anything.
"The heart was in the right place," Dr Karacaoglu says. "It was trying
to do the cooperative thing at a much broader level but these people
didn’t understand that kind of business, so it got too diversified."
He has only praise for his predecessors, who succeeded in turning
the organisation around.
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PSIS had opened its doors to the general public and was financially
stable, but it needed to grow.
One of the key questions he faced was how to make a cooperative
"relevant and sexy" to today’s New Zealanders.
To get an idea of how, and if, a cooperative finance house could
survive, PSIS looked to Britain. There, the Cooperative Bank turned
its fortunes around by trading on being a cooperative and on the
values of ethical banking.
Though PSIS is smaller and does not have a commercial banking arm to
fall back on, it believes its cooperative structure and values will
be key to future success.
"For some reason I don’t understand, values seem to have become an
attractive story. Whereas in the heydays of the sharemarket boom,
no one gave a damn about values."
Two years of research has shown that the same people PSIS was set up
to serve – low-income families – are still disadvantaged by the big
"They are still the people who are not getting the attention and
respect that the high-wealth and high-income individuals do.
"Those are the people being pushed away and shoved either to atms
or the Internet because they are not the ideal customers for them
(retail banks). What we’re saying is those are precisely the people
we want to hug and do business with."
These days PSIS has 32 branches and is aiming for 132,000 customers by
the end of the year. It offers all the personal banking services of a
high street bank, including text and phone banking. The only product
it does not offer is a credit card, but that is being looked into.
The cooperative is hoping to get bigger by aiming at families earning
between $30,000 and $80,000 a year.
PSIS’ research has shown that someone earning as little as $20,000
can be a profitable customer, if he or she does all their banking
with PSIS. At present, customers are "cherry picking" services such
as no transaction fees on current accounts with $500.
"For us, cooperative means co-operation: you help me and I help you.
You help me by doing all your banking with us. I help you by giving
you low rates of interest in loans, high interest rates on deposits,
good insurance premiums and good transaction fees."
FOR Dr Karacaoglu, and PSIS, it always comes back to core values –
the same values that appealed to him from his first interview.
It was a job, he says, that fitted better with his personal values
than previous ones. "I thought it would be lovely to work in an
organisation where you can do the right thing and doing the right
thing gives the profits, rather than the other way round."
It’s a long way from his birthplace – the coastal town of Mersin in
Turkey – to heading PSIS from an office overlooking Wellington Harbour.
The son of an Armenian father and Lebanese mother, he attended an
American school in Turkey, which eventually led him to the prestigious
Robert College in Istanbul, and a partial Fulbright scholarship to
do a PhD in economics at Hawaii University.
The status of his school and university was almost an automatic
right to print money. The first turning point came when he chose
economics over business. "My father almost had a heart attack when
I told him I chose economics, because in his mind it was a road to
The next detour came when he turned down a position at the management
accountancy firm of Arthur Andersen – the only Turkish candidate ever
to do so. His brother was later offered the job.
Does he ever regret choosing economics over business? "No" It is a
passion. "In Turkey the people who succeed are the entrepreneurs.
They always make fun of me, the professor."
He took a lecturing job at Victoria University after his father
advised him not to return to teach in Turkey in the unstable days of
the early 1980s.
Dr Karacaoglu then worked for the Reserve Bank, National Bank,
Tower Portfolio Management, Prudential Assurance and for Westpac,
before joining PSIS in 2003.
It is a job with some unusual characteristics. Unlike most retail
banks, PSIS has the luxury – and the challenge – of not having to
make huge profits to return to shareholders.
That said, Dr Karacaoglu stresses that PSIS is financially sound.
This year it made a pretax profit of $10.6 million, broke through
$1 billion in assets, and has about $820 million in both deposits
Capital adequacy on a risk-adjusted basis is 18 per cent, well above
the 8 per cent minimum required for registered banks. The dark days
of 1979 are always in mind.
For Dr Karacaoglu and the management, the challenge is calculating how
to return profits to customers throughout the year through lower fees,
lower home-loan rates and higher interest rates on deposits, rather
than a one-off distribution at the end of the year to shareholders.
A second challenge is getting the PSIS message across with a relatively
small advertising and marketing budget.
As PSIS gets bigger, it will have its work cut out ensuring it sticks
to one of its main selling points – treating customers as individuals.
But Dr Karacaoglu is determined that as long as he is at the helm,
PSIS will keep hugging customers till they come round to his way of
thinking and get their friends to join too.