CEE Banking_May14.indd - Raiffeisen Bank International AG

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CEE Banking Sector Report
May 2014
2014 will test banks‘ diversification
Asset growth continues compared to euro area
Clear upturn of banking in CE continues
Refocusing of country strategies in CEE
Risk discipline pays off; CEE NPL ratio at around 9%
Double-digit RoE feasible in CEE banking
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1
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Content
Table of contents
Executive Summary
3
Banking trends in CEE
Definition of sub-regions and regional economic outlook
4
Ownership structure and market concentration
8
Focus on: No deleveraging in CEE – material shifts in country allocations at Western European banks
10
Financial intermediation and asset growth
13
Focus on: Financial intermediation in CEE vs. global Emerging Markets
18
Lending structure and loan growth
18
Loan-to-deposit ratios and deposit growth
21
Asset quality, NPL ratios
24
Profitability indicators (RoA, RoE)
26
Medium-term outlook: Where banks can grow in CEE
29
Focus on: “Banking Union” and CEE – complex interactions and possible learning effects
30
Strategic topics for major CEE banks
33
Country Overviews
2
Poland
36
Hungary
38
Czech Republic
40
Slovakia
42
Slovenia
44
Croatia
46
Romania
48
Bulgaria
50
Serbia
52
Bosnia and Herzegovina
54
Albania
56
Kosovo
58
Russia
60
Ukraine
62
Belarus
64
Focus on: Headwinds in Russia and Ukraine – does history repeat itself?
66
Market players in CEE
69
Key abbreviations
91
Disclaimer
93
Acknowledgements
94
Contacts
96
Executive Summary
Executive Summary



Notable banking expansion in 2013; upside visible in CE and partially SEE, some risks in CIS
Average CEE L/D ratio below 100%; funding gaps of Western CEE banks decreased substantially
Profitability turnaround in several challenging markets in 2013; 2014 a crucial test for banks’ diversification strategies
For European banking, 2013 was a year of extensive deleveraging. Spillovers of
this trend to the CEE region were once again limited, but its overall positive image
does not rule out selective country strategies on the part of foreign-owned CEE
banks. We have found clear evidence that Western banks carried out substantial
portfolio shifts over the last three to five years (focussing on more profitable and
less risky markets). Therefore, 2014 will provide a crucial test for the diversification strategies of Western CEE banks. The RoE profitability gap between CE and
CIS banking markets narrowed from 5pp to 2.8pp in 2013 and this trend, which
benefits CE markets, may continue throughout 2014. Moreover, 2013 already
showed indications of accelerating loan extension especially in the CE region
and the retail loans segment. In 2014, corporate loans are expected to follow.
The decreased external funding of Western banks to CEE cannot be considered
as deleveraging per se or a market retreat. In 2013, the remarkable L/D ratio rebalancing in CEE continued and LCY bank bond placements in a “frontier market”
were made in Romania. Nonetheless, the substitution of intra-group funding by
local funds, deposit growth well above loan growth and fairly high capitalization
ratios ate up some profitability in CEE banking. The decrease of the CEE banking
RoE by 2pp to 11.5% in 2013 can be attributed largely to a weaker performance
on the Russian market. The recent escalation of geopolitical tensions may bolster
this trend and in our baseline scenario, Russia’s banking RoE might drop slightly
to below 10%. In Ukraine, the overall banking market RoE is likely to be negative.
The general trend towards stabilizing or slightly improving asset quality in CEE
was confirmed during the past year. The CEE NPL ratio hovered at around 9% in
2013, which was more or less the same level as in 2012. In major CE markets,
the NPL ratio peak has been reached, while the NPL ratio in the Russian market
posted a marginal decline in 2013, although this is a pattern that may change in
2014. The NPL ratios in several SEE markets continued to inch up from already
high levels of around 20%, but 2014 may bring some relief in this area.
The ranking of foreign-owned CEE banks remained largely unaltered in 2013
due to low-key M&A activities. Following a moderate decline in 2012, the earnings of nine selected banks (typical representatives of foreign banks in CEE)
remained generally stable and were supported by higher cost reductions yoy
and moderated provisioning. Those banks with a balanced local exposure and
solid revenue flows from Russia reported the most resilient CEE segment financials in 2013 (SocGen, RBI). As opposed to 2012, the contribution of the local
heavyweights (UniCredit, Erste, KBC) from Poland and the Czech Republic was
(again) substantially impacted by margin pressure and modest growth. As far
as the CIS region is concerned, the banks still operating in Ukraine expect pressure on results, particularly due to significant FX depreciation. The approach of
UniCredit, SocGen, RBI and OTP towards the Russian market as major foreign
banks has not yet changed, they all maintain their mid-term growth plans for the
country. Romania is seen as a turnaround story (Erste, SocGen), which to some
extent also applies to Hungary. However, banks are cautious with regard to the
Hungarian market given the high degree of political and regulatory uncertainty.
No region-wide asset-based deleveraging ...
... but selective country strategies
2013 RoE down 2pp (at 11.5%),
mostly driven by Russia
Uptick in (relative) CE/SEE profitability expected
Stabilization of NPL ratios to continue
Muted M&A, relative stability in the
ranking of leading CEE banks
Financial analysts
Gunter Deuber
Elena Romanova
Jovan Sikimic
3
CEE: Population distribution**
CEE
Other*,
55
Definition of sub-regions and regional economic outlook
Before going into detail about CEE banking sector structures and the most recent
CEE banking sector trends, which are also partially based on deep-rooted divergences in the economic sphere, we wish to shed some light on our sub-regional
definitions and regional economic trends. We divide the CEE region into three
sub-regions comprised by Central Europe (CE), Southeastern Europe (SEE) and
the Commonwealth of Independent States (CIS).
CE, 66
SEE, 47
RU, 143
* Ukraine, Belarus; ** mn people, 2013
Source: IMF, Raiffeisen RESEARCH
CEE: Nominal GDP distribution**
CEE
Other*
7%
CE
26%
RU
57%
SEE
10%
* Ukraine, Belarus; ** % of total, based on IMF figures
in nominal USD, 2013
CE: GDP per capita at PPP*
90
80
70
60
50
40
2000
2004
CZ
SK
2008
2012
HU
SI
PL
* % of euro area, current international dollar
CE: FDI stock per capita (EUR)*
10,000
8,000
6,000
4,000
2,000
0
CZ
HU
PL
* average 2010-2012
Source: wiiw, Raiffeisen RESEARCH
4
SK
SI
Central Europe (CE): This sub-region consists of five EU and OECD members
(Poland, Hungary, Czech Republic, Slovakia and Slovenia). Slovakia and Slovenia are also euro area members. The CE economies are characterized by a
high level of development and the IMF considers the Czech Republic, Slovenia
and Slovakia to be advanced economies. According to the IMF World Economic
Outlook, at USD 22,000 (or EUR 18,500) this CE sub-region’s average GDP per
capita at purchasing power parity (PPP) is the highest in the CEE region. Over the
years, nearly all CE countries have attracted substantial foreign direct investment
(FDI) that has helped to (re-)build strong industrial sectors. At EUR 5,600 the nominal FDI per capita in CE is almost twice as high as in the other two sub-regions.
Powerful export-oriented industrial sectors have also helped to foster economic
prosperity and stability (e.g. through the avoidance of excessive external imbalances). On average, manufacturing industries contribute over 20% of the GDP in
CE countries, with some of them even exceeding the levels of Germany, the EU’s
manufacturing powerhouse. Manufacturing in CE is highly integrated with “core”
euro area countries such as Germany, the Netherlands and Austria via complex
supply chain patterns. These countries are also the biggest investors in CE (in
both the real economy and the financial sector). Therefore, it is not surprising that
in line with the “core” euro area, GDP growth in CE also picked up from mid2013. By year-end 2013, all CE countries returned to a respectable economic
growth path and entered 2014 with substantial tailwinds, as indicated by the
solid readings in the regional Purchasing Manager’s Indices (PMI).
However, the convergence of output and income levels with those of the euro
area has slowed significantly since 2008/09. In the years before the crisis, the
average per capita GDP in CE (GDP per capita at PPP in relation to the euro
area) increased by 1.8pp p.a., but following the financial crisis only by 1.3pp. In
comparison to Germany, the performance of recent years looks even less favorable, as the per capita growth (at PPP) in CE was only 0.3pp higher. In addition,
CE has become more divergent. Convergence levels in Hungary, Slovenia and
the Czech Republic have almost come to a halt or are even falling back, while
Poland and Slovakia are still progressing quickly. This may be explained partly
by the fact that some CE countries have already exploited the low-hanging fruits
of EU/euro area economic integration (e.g. in terms of FDI and trade integration), while others are clearly dropping behind. The GDP per capita of Slovenia
and the Czech Republic already stands at 80% of the euro area average (at
PPP). As a consequence of the dynamics of recent years, Hungary is now the
poorest CE country with an average of less than 60% of the per capita GDP in
the euro area. Due to unsustainable developments in the fiscal sphere and its
banking sector, in recent years Slovenia has also shown a convergence reversal.
However, other CE countries such as Poland, the Czech Republic and Slovakia,
and increasingly Hungary as well, have solid growth prospects. We expect GDP
growth in CE to average 2.5-3.0% in the period from 2014-2016, resulting in
an outperformance of the euro area of 1-1.5%.
Southeastern Europe (SEE): The SEE sub-region consists of seven countries, which
are characterized by stark economic and political divergence. According to our
definition, SEE consists of the EU member states Romania, Bulgaria and since
2013, Croatia, as well as four other countries from the Western Balkans: Serbia,
Bosnia and Herzegovina, Albania and Kosovo (for the latter we still have limited
coverage throughout the report). Serbia, Bosnia and Herzegovina and Albania
are all at very different stages of their long-term rapprochement with the EU (with
Serbia being the first to open accession talks).
Although the SEE region is moving closer to the EU in political terms, there is unquestionably a certain economic backwardness as compared to CE. The average
GDP per capita at PPP in SEE stands at USD 12,600 (EUR 10,000 or 37% of that
in the euro area) and at market prices, GDP per capita is around EUR 5,800. In
SEE, Croatia – the newest EU member country in SEE – has the highest GDP per
capita income (52% of the euro area), while Bosnia and Herzegovina, Albania
and Kosovo have the lowest average incomes (24% of the euro area).
CEE: GDP per capita (at PPP in current international USD, in % of euro area)*
100
CE-3, German PMI vs. Russian PMI*
58
54
50
46
42
Mar-12
Oct-12
Russia
May-13
Dec-13
Germany
CE-3*
* Equally weighted average of Czech Rep., Hungary,
Poland; Hungarian PMI 3mmav
Source: Thomson Reuters, Raiffeisen RESEARCH
SEE: GDP per capita at PPP*
60
50
40
30
90
80
20
70
10
2000
60
2004
2008
BH
RO
AL
HR
50
2012
BG
RS
* % of euro area
40
30
20
10
SEE: FDI stock per capita (EUR)*
CZ
HU
PL
SK
SI
AL
CE
2001-2003
BH
BG
HR
RO
RS
BY
SEE
2006-2008
RU
UA
CIS
2011-2013
3 year averages; Source: IMF, Raiffeisen RESEARCH
From a structural perspective, on average SEE countries are only about a third of
the size of CE economies and the industrial sectors in SEE are also not as strong
as those in CE. The share of manufacturing in GDP is about a third lower than
in CE and stands at around 16%. SEE countries are less open to trade than the
CEE average and, in particular, the more export-oriented CE countries such as
the Czech Republic, Hungary and Slovakia. Moreover, the smaller SEE countries,
which are even less mature with regard to their economic and political development, have difficulties in emulating the FDI-fuelled development path of CE. The
average FDI level per capita in SEE is EUR 3,100 and thus roughly half of that in
CE. On a more positive note some SEE countries, especially Serbia and Bulgaria,
have managed to achieve a modest increase in FDI stock from low levels.
On average, recent growth performance of SEE has been disappointing. Hence
the convergence rate of GDP per capita in comparison to that in the euro area
has fallen to 0.4pp per year (as compared to 1.7pp prior to 2008).
That said SEE clearly had to sweat out the economic imbalances that had accumulated in the course of the consumption and bank lending boom of the 2000s.
However, it is important to stress that SEE has shown a remarkable degree of
structural reform and economic rebalancing (e.g. as shown by the massive correction of external imbalances). Romania in particular has made remarkable
progress in the areas of consolidation and reform. The country has been able to
6,000
5,000
4,000
3,000
2,000
1,000
0
AL
BH
BG
HR
RO
RS
* average 2010-2012
CEE: Export share vs. country size*
100
Export share (% GDP)
0
90
HU
80
SK
70
SI
60
BG
50
BY
CZ
UA
HR
40
RS
30
RO
PL
RU
20
3
5
7
9
Size of economy (Log of nominal GDP)
* average of 2010 to 2011/2012
Source: Thomson Reuters, World Bank WDI, Raiffeisen
RESEARCH
5
CEE: Real GDP forecasts (% yoy)
'00-'08*
2013
2014e
2015f
PL
4.2
1.6
3.1
3.3
HU
3.3
1.1
2.0
2.0
CZ
4.5
-0.9
2.3
2.4
SK
5.6
0.9
2.2
3.0
SI
4.3
-1.1
-0.5
1.5
CE
4.3
0.8
2.5
2.8
HR
4.3
-1.0
-0.8
1.0
BG
5.7
0.9
2.0
3.5
RO
5.8
3.5
3.5
3.5
RS
5.0
2.5
1.0
2.0
BH
4.9
1.9
1.5
3.5
AL
6.1
0.4
2.0
3.0
SEE
5.4
2.1
2.2
2.9
RU
7.0
1.3
-0.3
1.0
UA
6.9
0.0
-5.0
1.5
BY
8.0
0.9
0.5
1.5
CIS
7.0
1.2
-0.6
1.1
CEE
6.1
1.2
0.5
1.7
EA
2.0
-0.4
1.5
2.0
DE
1.6
0.5
1.8
2.5
* average growth rate
Source: National Statistics, Raiffeisen RESEARCH
CIS: GDP per capita at PPP*
60
50
40
30
20
10
2000
2004
BY
2008
2012
RU
UA
* % of euro area
CEE: Inward FDI stock distribution*
Ukraine
6%
CE
40%
Russia
39%
SEE
15%
* % of total, average 2010-2012
6
invigorate its export sector, which has contributed substantially to growth over the
last two years. Serbia’s growth performance has also been passable, while on
the back of a standstill in terms of structural reforms and a low degree of overall
competitiveness, Croatia is still mired in a recessionary/stagnating environment.
Overall, we see a certain upside for GDP growth in SEE in the next two years,
although this will be based mainly on the strong impetus in Romania.
From a medium-term perspective, we expect average GDP growth rates in SEE
of around 2-3% yoy. Such growth rates are far below the levels of 5-7% seen
in the period of unbalanced economic growth between 2004 and 2007. As a
consequence, future income convergence in SEE will also be much slower. Nevertheless, the region has not yet fully exploited all of the economic benefits that EU
integration offers and some room for catching up remains. Recent economic developments in some SEE countries have also shown that economic convergence is
neither a one-way street, nor easy to achieve. For instance, Croatia has not demonstrated any convergence over the past 5 years and thus illustrates that real and
nominal convergence has to be backed by similar structural progress. Moreover,
some SEE countries are still characterized by certain legacies from the past very
strong financial cycle. As financial cycles tend to last much longer than business
ones, it would also seem reasonable to expect GDP growth in the coming years
to remain well below the brisk, credit-fuelled pre-crisis readings of 5-7%.
Commonwealth of Independent States (CIS): This CEE sub-region consists of
Russia, Ukraine and Belarus. Russia and Ukraine are the most populous CEE
countries and Russia is the by far wealthiest CIS economy with average GDP
per capita at PPP of around USD 17,300 (EUR 14,000 or 51% of the euro
area figure). By contrast, GDP per capita at PPP in Ukraine only amounts to
22% of that in the euro area. The Russian and Ukrainian economies are both
commodity driven. In Russia, revenues from oil and gas account for up to 50%
of central budget revenue and around two-thirds of all exports, while steel represents roughly 30% of all Ukrainian exports. According to World Bank data
returns from natural resources represent about 20% of Russian GDP and 6% of
Ukrainian GDP. Outside the resource sector, industrial production has not developed as successfully as in CE. Manufacturing accounts for only 15-16% of GDP
(with a manufacturing share of 30%, Belarus is the major exception) and lacks
global competitiveness, as its main target is the CIS market. The CIS region is
comparatively less integrated with Western Europe (in terms of trade and FDI)
than the CE and SEE sub-regions, although substantial links do exist. Trade with
European countries accounts for 58% of Russian and 25% of Ukrainian exports
(in CE and SEE, intra-EU trade accounts for up to 90% of trade volume levels
in smaller economies). FDI levels in the CIS region are even lower than in SEE
with EUR 2,600 per capita in Russia and EUR 1,100 in Ukraine. However, these
figures still “overstate” actual FDI dynamics, as a large share of FDI to Russia is
simply Russian money that was “round tripped” through offshore constructions for
tax optimization and other purposes. Even so, when corrected by these “Russian
FDIs”, the general FDI stock remains at tolerable levels compared to other major
Emerging Market peers, but significantly below the FDI stock in CE economies.
The commodity-oriented economic model resulted in strong economic growth
rates during the commodity price boom of the 2000s and also supported considerable income convergence. In nominal terms, the Russian economy ballooned
from around 15% of the German economy in 2000 to around 60% in 2013, surpassing USD 2 tn (equalling 17% of the euro area GDP). Not surprisingly, Russia
now accounts for over 55% of nominal CEE GDP (with 45% of the population). In
per capita terms (PPP), Russia’s GDP moved from around a third of the euro area
level in 2001-2003 to 51% ten years later.
However, superior past performance is no guarantee for future success. The postcrisis convergence rates (to the euro area GDP per capita) of both Russia and
Ukraine have fallen by one percentage point each to 1.2pp and 0.2pp, respectively. With commodity prices still high, but no longer rising (oil prices have been
flat for almost two years), the Russian economic model is running out of steam.
In CIS, the business and investment climate is unfavorable, resulting in low private sector investment activity (apart from state-sponsored projects such as the
Sochi Winter Olympics or the potential forthcoming modernization of the Crimea
peninsula) and low labor productivity. Moreover, economic growth in the postcrisis years has been overly reliant upon household consumption and Russia’s
confidence indicators, such as the PMI, are currently clearly underperforming
as compared to the broader regional CEE trend. The recent round of geopolitical tensions between Russia and the Western world (including a serious debate
about the imposition of far-reaching economic sanctions against Russia by major
Western countries) have just added to this state of weakness. Even if the tensions
between Russia and the West do not escalate further, we expect the Russian GDP
to drop by -0.3% in 2014 and even in such a non-escalation scenario, further
stagnation in 2015 or a deeper recession cannot be ruled out.
CEE: Convergence rate to EA*
Assuming that no repetition/continuation of the commodity price boom occurs,
future potential growth in CIS will depend upon the ability of CIS countries to
tackle structural reforms, modernize their industrial sectors and increase their productivity. Without these steps Russian (and CIS) growth could remain at around
a meagre 2% or lower, which would be substantially below the growth rates of
other major Emerging Market regions and only just surpass euro area growth.
In a more positive scenario, in which additional growth-enabling reforms are
implemented, we could envisage GDP growth rates of 3% and more as being
feasible. However, we do not expect a repetition of the boom years and see the
unfavorable demographic outlook as a long-term cap on growth.
15
2.5
2.0
1.5
1.0
0.5
0.0
CE
SEE
CIS
5y pre-crisis
CEE
EM
5y post-crisis
* GDP per capita at PPP (pp per year), 5 year periods
from 2001/2003 to 2006/2008 (“pre-crisis”); and from
2006/2008 to 2011-2013 (“post crisis”)
CEE: Resource rents*
25
20
10
5
0
EA
CE
SEE
CIS
Resource rent (% GDP)
* average of 2010 to 2011/2012
Source: Thomson Reuters, World Bank WDI, Raiffeisen
RESEARCH
CEE: Regional growth contributions*
Financial analyst: Andreas Schwabe, CFA
3.0
3
2.2
1.7
1.0
1
1.3
0.4
0.6
Q2 13
2
Q1 13
4
0
CIS
SEE
Q4 13
Q3 13
Q4 12
Q3 12
-1
Q2 12
Given recent political upheavals and the conflict with Russia, Ukraine has a shaky
near-term outlook (we expect a recession of 3-7% of GDP in 2014). However,
under the surveillance of the IMF, the new authorities in Ukraine seem to be more
willing to move forward with necessary fiscal, monetary, energy and structural reforms. These, together with strong financial support by the IMF, the EU and other
IFIs, may lead to the desired result, i.e. bringing the Ukrainian economy closer to
its potential rate of expansion from a medium- to long-term perspective. However,
the risk of failure (both due to external and internal reasons) is high. Ukraine has
been unable to tap into its economic potential during the last 25 years, and may
well add another decade to this record. Finally, the resource-poor, manufacturingoriented Belarusian economy presents a unique picture in the CIS region. The
Belarusian economy remains state-run as in the Soviet era and is characterized
by fairly low efficiency, a major dependency upon cheap Russian energy and
external funding. The limits of this growth model are obvious, as evidenced by
repeated balance of payments problems and ongoing depreciation pressure on
the domestic currency.
CE
CEE (% yoy)
* pp
Source: Bloomberg, Raiffeisen RESEARCH
CEE: FDI stock per capita (EUR)*
6,000
5,600
5,000
4,000
3,100
3,000
2,600
2,000
1,100
1,000
0
CE
SEE
Russia
Ukraine
* average 2010-2012
7
RU: Ownership & concentration*
Ownership structures and market concentration
60
During 2013, the long-term trend with regard to CEE banking sector ownership
structures was maintained. In the CEE region as a whole, the average market
share of foreign-owned banks inched further down, due mainly to Russia’s vast
weight. By contrast, the average market share of state-owned banks continued to
increase. In 2013, foreign-owned banks had a market share of 34% in the whole
CEE region (down 3.5pp from 2008), while in the same period the market share
of state-owned banks rose by 7.7pp to 37%. CE and SEE regions ownership patterns resemble the broader CEE trend, but with entirely different market share levels. The average market share of foreign-owned banks in CE and SEE also eased,
falling from 78% in 2008 to around 74% at year-end 2013. The market share of
state-owned banks in CE and SEE was up by around 3-4pp (from 9.5% in 2008
to about 13% in 2013), but starting from a much lower level than in the CEE region as a whole. As far as ownership trends in CE and SEE are concerned, additional breakdowns are needed. In CE the average market share of foreign-owned
banks continued to decline marginally, falling to 71% in 2013. This trend has
been evident for roughly the past ten years (peak foreign ownership levels in CE
of close to 80% were reached in 2003-2005). Conversely, the average market
share of foreign-owned banks in the SEE sub-region showed a modest upturn during the past two years. This somewhat counterintuitive trend was largely driven
by two markets, namely Romania and Serbia. In both countries the market share
of foreign-owned banks increased over the last two years. Moreover, the market
share trend in CE and SEE shows clearly that there is no extensive withdrawal or
above market-average deleveraging amongst Western European banks.
55
50
45
40
35
05 06 07 08 09 10 11 12 13
Market share state-owned banks
Market share Top 5 banks
* % of total assets
Source: CBR, Raiffeisen RESEARCH
CE: Foreign ownership**
100%
80%
60%
40%
20%
0%
SK
HU
CZ
HU*
2008
PL
SI
2013
* excluding OTP, ** % of total assets
Source: national sources, company data, Raiffeisen
RESEARCH
SEE: Foreign ownership*
100%
80%
60%
40%
20%
0%
AL
BH
2008
RO
HR
RS
2013
* % of total assets
Source: national sources, Raiffeisen RESEARCH
8
BG
The picture in the CIS banking markets is somewhat different, as it goes without
saying that the CIS market share trends are largely driven by the sizeable Russian market, where foreign-owned banks have recently tended to lose market
share. The group of 100% foreign-owned banks in Russia (which also includes
the three leading foreign-owned Western European banks among the Top 10 to
Top 15 Russian banks and which, in our view, is also the relevant variable for
a “true” foreign-owned bank presence) has been gradually losing market share
since 2007 or 2008 and this tendency intensified again in 2013. On the other
hand, the group of 50% foreign-owned Russian banks managed to gain market
share prior to 2010 (however, this group of banks includes institutions in which
the final beneficiaries are not truly foreign-owned). Following a period of fairly
stable market share, the group of 50% foreign-owned banks also suffered a considerable market share loss during 2013. Given most recent developments, this
group may very well have ambitions regarding a “de-offshoring” in the Russian
economy, which may lead to changes of legal ownership.
The broader CIS picture also mirrors the trends outlined in the Russian market.
Here, the market-share of foreign-owned banks is also declining steadily, in terms
of both the 100% and the 50% foreign-ownership ratio in Russia. The overall
trend towards market share losses by foreign-owned banks in the CIS region
is also underpinned by the major withdrawal of Western European banks from
Ukraine during recent years, where both Russian and Ukrainian banks have filled
the gap. All in all, the CIS ownership trends clearly indicate that domestic, privately-owned and/or state-owned banks are currently in the driving seat in this
sub-region. This tendency in the overall CIS averages is not altered by the expansion of major state-owned Russian banks into other CIS markets such as Belarus
and Ukraine, which to a certain degree has helped to increase (as in Belarus) or
at least stabilize (as in Ukraine) foreign-ownership ratios.
CEE: Presence of foreign-owned banks (% of total assets)
CIS: Foreign ownership***
70
14
60
10
50
6
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
CE
SEE
CIS (50% foreign-owned Russian banks, r.h.s.)
CIS (100% foreign-owned Russian banks, r.h.s.)
Source: national central banks, Raiffeisen RESEARCH
State-owned banks now account for over 50% of market share in the CIS region
overall. In the Russian market, state ownership continued to increase and at yearend 2013 amounted to 55% (compared to 53% in 2012). On average, in both
the CIS markets and Russia, state-ownership in the banking sectors has grown
by some 10pp since 2008. During the past few years, state-owned banks in CE
have also increased their average market share by 3-4pp, but only to a still modest level of around 10-15%. This tendency was driven largely by the growing extent of state-ownership in the Polish, Hungarian and Slovenian banking sectors.
In the case of the latter two markets, recent increases in state-ownership were
largely crisis-driven and/or induced by tough policies. Conversely, in Poland’s
case the moderate increase in the state-ownership ratio was more a reflection of
the relative strength of state-run banks, as well as well-targeted policy initiatives
to support overall economic growth. In SEE, the average market share of stateowned banks increased marginally in recent years, i.e. by 2-3pp, at low average levels of around 7%. This increase was driven by a broad-based but modest increase in state ownership across all larger SEE banking markets (i.e. in Romania, Serbia, Croatia and Bulgaria). Given recent developments with regard
to the Russian banking sector, the trend of rising state-ownership may receive a
boost. Periods of economic and financial uncertainty in Russia caused by domestic and/or external factors tend to bolster the largest state-owned banks (e.g. via
higher placements with state-owned banks and/or crisis-related business expansion). From 2007 to 2008, state-owned banks in Russia gained some 4-5pp of
market share, while the longer-term average annual market share gains of stateowned Russian banks amount to only 2-2.5pp.
In terms of market concentration, i.e. the market share of the Top 5 banks, there
were no major changes in 2013 as compared to 2012. On average, the market
share of the Top 5 banks in all CEE sub-regions remained at around 50-60% (CE:
64%; SEE: 57.1%; CIS 55.7%). On a country level, Poland, the Czech Republic, Slovakia, Croatia, Bulgaria, Serbia and Ukraine are exceptions. In Poland,
Bulgaria, Serbia and Ukraine the banking market concentration remains below
the relevant regional average and the average concentration ratio in larger and
smaller CEE banking sectors. By contrast, banking markets in the Czech Republic, Slovakia, Croatia and the smaller SEE markets of Bosnia and Herzegovina
and Albania are characterized by a concentration among the Top 5 banks that
is well-above the regional average. In most of these banking markets, a top-end
concentration looks fairly unlikely in the near future. In Russia the market share
of the Top 5 banks is more or less at the level that could be expected in such a
large market. However, outside the top players, Russia’s banking sector is still
40%
30%
20%
10%
0%
2008
2013
RU
(100%)**
18
RU (50%)*
80
50%
BY
22
UA
90
* Banks with over 50% foreign ownership
** 100% foreign-owned banks
*** % of total assets
CEE: Market share largest bank (%)*
45
40
35
30
25
20
15
10
5
0
PL HU CZ SK HR RO BG RS RU UA BY
CE
SEE
CIS
* 2013, % of total assets
RESEARCH
CEE: Market share Top 5 banks (%)*
70
60
50
40
30
20
10
0
08
13
CE
08
13
SEE
08
13
CIS
* % of total assets
CEE: Market share Top 5 banks (%)*
80
70
60
50
40
30
20
10
0
PL HU CZ SK HR RO BG RS AL RU UA
CE
SEE
CIS
* 2013, % of total assets
RESEARCH
9
Share of CEE cross-border claims*
15%
13%
10%
8%
5%
3%
0%
Dec.1999 Jun.2004 Dec.2008 Sep.2013
CEE (% of total)
CEE (% of Western Europe)
* BIS-reporting European banks
Source: BIS, Raiffeisen RESEARCH
BIS cross-border claims**
130
110
90
70
50
Dec.2007 Sep.2009 Jun.2011 Mar.2013
CE
SEE
CEE Other*
Russia
* Ukraine, Belarus
** Dec 2007 = 100, BIS-reporting European banks
BIS cross-border claims**
450
375
300
225
150
75
Dec-99 Dec-02 Dec-05 Dec-08 Dec-11
CEE
Western Europe (WE)
Upper/Lower bound CEE*
Upper/Lower bound WE*
* Based on annualized past standard deviation with
matching maturities
** Dec 1999 = 100, BIS-reporting European banks
BIS cross-border claims*
120
100
80
60
40
20
Dec.2007 Sep.2009 Jun.2011 Mar.2013
CEE
EA Periphery (IT, ES)
Western Europe
* Dec 2007 = 100, BIS-reporting European banks
10
Focus on: No deleveraging in CEE – material shifts in country allocations at Western
European banks
In recent years there has been an ongoing discussion about the threat of a far-reaching
deleveraging of Western European banks in CEE, which however, we still cannot observe (see also our 2013 CEE Banking Sector Report).1 Within this context, our analysis
of relevant regional trends is based on BIS data regarding the cross-border claims of
European banks (aggregated according to the regional definitions used throughout this
report).
In September 2013, the total cross-border exposure of Western European banks in the
CEE region stood more or less at the year-end 2007 level. This comparative stability
continues to be a sign of strength in view of the recent adverse environment for European
banks and the deleveraging experienced at Western European banks in general over
the last three to five years. For example, the cross-border exposure of European banks in
Western Europe and in the USA has dwindled by 30-40% since 2007. This said, it seems
that most deleveraging and de-risking at Western European banks was achieved through
substantial cuts to the intra-euro area and global exposures, with sizeable reductions in
euro area periphery countries. This trend of more dramatic cuts in Western European
cross-border exposures as opposed to changes in CEE (i.e. total cross-border exposures
of Western European banks in Western Europe and in CEE) has been evident since
2000. Given time-series characteristics (i.e. past variations in the pre-crisis uptrend), the
CEE cross-border exposure of Western European banks remains well within the range
band based on its own past volatility (measured as an annualized standard deviation).
By contrast, there seems to be a trend reversal in Western Europe, where current crossborder exposures are significantly below previous levels. This development could be
interpreted as a widespread and large-scale deleveraging trend in Western Europe,
although pre-crisis expansion was less strong in Western Europe than in CEE.
Therefore, it is not surprising that as compared to global or Western European exposures, the relative importance of the CEE cross-border exposure of Western European
banks has increased in recent years. The size of CEE cross-border exposure in relation
to Western European exposure at Western European banks increased to a new all-time
high of 14% in 2013. Therefore, it would seem that the focus of international financial
institutions and individual national banks (e.g. in Austria or Poland) on CEE deleveraging as part of the “Vienna Initiative” has decreased somewhat.2 The renaming of
the former “Quarterly Deleveraging Monitor” into “Quarterly Deleveraging and Credit
Growth Monitor” 3 in 2013 offers proof of this trend. Against this background, it should
be stressed that in recent years, the three Western European banking sectors (Austria,
France and Italy) of systemic importance to CEE and with extensive ownership links, offered some shock absorption. The cross-border exposure of Austrian, French and Italian
banks to CEE (which represents about 50% of cross-border exposure to CEE) showed a
high degree of resilience, while CEE exposures from other Western European banking
sectors demonstrated less stability. Nonetheless, the reductions by the Western European
banks of funding to their CEE subsidiaries were higher than overall exposure cuts. This
trend is largely driven by a much greater degree of self-funding in the CEE banking sectors. In 2013, the L/D ratio in the CEE region hit its lowest level since 2006 and all CEE
sub-regions currently exhibit average L/D ratios below 100% (for more details see the
L/D ratio and funding section of this report).
Despite the positive picture of the total CEE exposure of Western European banks, significant regional and country-specific differences do exist. In addition, quite substantial
shifts of the exposure on a regional and country level have been notable in recent years.
From 2007 to 2013, the CE share of total CEE exposures of the Western European banks
increased by some 4pp from 54-58% (which puts the relative increase at some 7% when
1 Focus on: The never-ending “Deleveraging Debate” in CEE, in: CEE Banking Sector Report 2013, p.10ff.
2 See Austrian National Bank, Financial Stability Report No. 25, June 2013, p. 40f or National Bank of Poland,
Financial Stability Report July 2013, p. 70ff.
3 See Vienna Initiative website: www.vienna-initiative.com/vienna-initiative-part-2.
There is definitely not one single driving force behind the shifts in CEE country allocations at Western European banks. Parts of the changes can be explained by past overexpansion and low banking sector growth (as indicated by changes in loan-to-GDP ratios).
However, we have also identified two additional explanatory factors. Firstly, changes
in CEE country allocations are positively correlated with profitability, i.e. Western European banks increased their exposure to the most promising markets. This would appear
to be rational, as profits remain the best means of meeting current capitalization needs.
Secondly, country allocation shifts are positively correlated to levels and changes in CEE
sovereign ratings. Western European banks increased exposures to CEE countries with
rating upsides or at least limited rating downsides at decent rating levels, i.e. sovereign
ratings in the BBB to BBB+ and Baa1 to Baa2 range (S&P/Moody’s) and higher. Conversely, exposures were cut in countries with sovereign ratings below BB- and Ba3 levels
(S&P/Moody’s) and/or rating pressure. Accordingly, the country portfolio shift towards
less risky countries also shielded the CEE exposures of Western European banks from
rating pressure on several CEE sovereigns. Without de-risking and changes to the country allocation, the average sovereign rating of the aggregated CEE exposure at Western
European banks would be around one full notch lower than the current portfolios, which
were subject to the material portfolio shifts.
Within this context, it is also important to mention that Western European banks showed
a less aggressive market approach in the fast growing Russian market, despite its profitability and the demand-side driven increase of the Russian loan-to-GDP ratio. On the
other hand, in Ukraine the cautious market strategies were a result of low profitability
and increased sovereign risk. Although these less aggressive and even cautious strategies in the CIS region resulted in a loss of market share by Western European banks
as compared to state-owned and/or locally-owned banks, it will now partially shield
them from the current downsides in the Russian and Ukrainian economies and banking
sectors.
Financial analyst: Gunter Deuber
CIS
SEE
CE
-50%
-25%
0%
25%
50%
CZ
HU
PL
SK
SI
AL
BH
BG
HR
RO
RS
RU
UA
* Relative change 2007-2013, BIS-reporting European
banks, Source: BIS, Raiffeisen RESEARCH
BIS cross-border claims*
140
120
100
80
60
40
Dec-07 Apr-09 Aug-10 Dec-11 Apr-13
PL
RO
HU
RU
CZ
UA
* Dec 2007 = 100, BIS-reporting European banks
Change exposures* vs. ratings
45%
Relative exposure change (%)
On a country level, there are also considerable divergences within the sub-regions. In
relative terms, in CE the exposures towards Poland and the Czech Republic increased
fairly substantial between 2007 and 2013 (i.e. by around 30%). Exposures to Slovakia
increased less strongly with a modest, single-digit relative increase of 4%. By contrast,
Hungary and Slovenia experienced drastic cuts of 30-35%. In SEE, on a relative basis
exposures of Western European banks to Romania, Croatia and Bosnia and Herzegovina have been cut by 20-30% (as compared to 2007), while exposures to Serbia,
Bulgaria and Albania increased by some 10-30%. During the same period, in the
CIS sub-region exposure of Western European banks to Russia increased on a relative
basis by some 3-4%, while the exposure to Ukraine was cut by 40-50%. The trends
described indicate clearly the highly differentiated approach of the Western European
banks within the CEE region, based on extremely selective country strategies (as shown
by the relative exposure changes in the -40% to +30% range). Given the magnitude
of exposure changes, it has to be mentioned that selected banking markets (such as
Hungary, Slovenia or Ukraine) experienced exposure cuts by Western European banks
similar to those witnessed in the countries of the euro area periphery. However, the number of CEE banking markets that saw an increased exposure exceeded the number that
experienced cuts (i.e. 8 as opposed to 6 markets). Especially the larger CEE markets
such as Russia, Poland and the Czech Republic showed stable or increasing Western
European bank exposures.
Change cross-border exposures*
30%
15%
0%
-15%
-30%
-45%
-8
-6
-4
-2
0
2
Avg. rating change (notches)
banks, Source: BIS, rating agencies, Raiffeisen RESEARCH
Change exposures* vs. Profitability
45%
Relative exposure change (%)
starting levels are taken into account). Conversely, the relative share of SEE exposures
in the overall CEE exposure at Western European banks dropped by 3pp over the same
period and stood at about 20% as at year-end 2013. At first sight this decrease looks
modest, but if starting levels are accounted for, it implies overall cuts of some 12%. The
relative share of the CIS exposure has remained almost flat with a marginal change
from 20.5-19.5% (share of total CEE exposures of Western European banks) between
2007 and 2013.
30%
15%
0%
-15%
-30%
-45%
-10
0
10
20
Avg. RoE (2008-2013)
30
banks, Source: BIS, national sources, Raiffeisen RESEARCH
11
CEE: Presence of state-owned banks (% of total assets)
60
50
40
30
20
10
0
2003
2004
2005
2006
2007
CE
2008
SEE
2009
2010
2011
2012
2013
CIS
CEE: Average bank size (EUR bn)*
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2005
CE
2007
2009
SEE
2011
2013
CIS
* Total assets divided by number of banks
CIS: Average bank size (EUR bn)*
1.5
1.3
1.0
0.8
0.5
0.3
0.0
2005
2007
2009
2011
2013
CIS
Russia
Russia (excl. Sberbank, VTB)
Ukraine
* Total assets divided by number of banks
Source: national central banks, company data, Raiffeisen
RESEARCH
faced by the problem of extreme fragmentation, as indicated by the very high total of 923 banks operating in the local market. Therefore, in Russia the ratio of total assets (in EUR bn) divided by the number of banks shows a low figure of only
around EUR 1.4 bn. By comparison, the respective figures for the CE and SEE
banking markets stand at EUR 3.7 bn and EUR 1.5 bn respectively. Moreover,
the ratio between total assets and the number of banks in Russia becomes even
more extreme when Sberbank and VTB are excluded from such calculations. In
such equations, the division of total banking assets (excl. Sberbank and VTB) by
the number of banks leads to a stunningly low figure of only EUR 0.7-0.8 bn.
The “average bank size” of EUR 0.7-0.8 bn caused by this extreme market fragmentation is more or less identical with that prevailing in the highly fragmented
Ukrainian market (with 180 banks). Challenges to the banking sectors in Russia
and Ukraine, which may arise from recent adverse developments, could therefore trigger further market consolidation. Past experience shows that the number
of banks operating in Russia and Ukraine may fall by at least by 10-20% over
the next two to three years, which would result in the closure of some 120-130
banks operating in the Russian market and some 20-30 banks in the Ukrainian
market. Such trends could be considered as healthy given the high market fragmentation in both countries. That said, it is important to stress that structural banking sector consolidation also remains a key objective of the regulator, the Central Bank of Russia (CBR). Therefore, in the Russian market there is also additional
pressure from the regulatory side on top of the looming economic and banking
sector challenges, which may add to consolidation pressure. However, consolidation in the fragmented Russian banking market is unlikely to add substantially
to market concentration in terms of the market share of the Top 5 or even the Top
10 banks, as most Russian banks outside the Top 50 to Top 100 market player
group have minuscule market shares. Nevertheless, the market exits of a larger
number of banks may still help to somewhat increase the average bank balance
sheet in the Russian market. It has to be mentioned that on average Russia’s banking sector has seen 30-40 market exits annually over the last five to ten years,
which have all been conducted in an orderly way. However, given the size of the
Russian banking sector, there can be no direct comparisons with the other CEE
countries. In spite of this fact, it is expected that at some point the Russian banking sector will downsize to some 300-500 banks, which would more or less be
equal to the more mature levels of the Polish banking sector.
As far as the Ukrainian banking sector is concerned, it remains to be seen to
what extent much-needed IMF-sponsored reforms will target banking sector con-
12
solidation. It must also be mentioned that a structural transformation in Ukraine
(e.g. supported by a further rapprochement with EU standards), which would
also support a tangible reduction of the shadow economy, might also help to foster essential banking sector consolidation. As an illustration, other CEE banking
markets of roughly the same size as Ukraine (in terms of total assets), such as
the Czech Republic or Romania, have on average 40 banks, while in Ukraine
180 banks are in operation. This large bank overhang also translates into a very
low Top 5 concentration ratio of only around 40%, which is one of the lowest figures in the entire CEE region.
CEE: Banks operating in sub-regions
290
1,600
260
1,500
230
1,400
200
1,300
170
1,200
140
1,100
2000 2003 2006 2009 2012
CE
Financial intermediation and asset growth
The European banking industry as a whole, which is dominated by trends in
the large Western European banking markets, is currently facing tough deleveraging, which became even more widespread in 2013. The huge deleveraging in Western European banking is being driven by overexpansion in cross-border transactions and in some Western markets by tougher regulations. The latter
are reflected by tightened liquidity and capital ratios, as well as the far-reaching
consolidation of euro area banking supervision at the ECB (which will perform a
comprehensive Asset Quality Review in the course of 2014). Overexpansion in
the banking sector has been particularly significant in some of the (larger) countries of the euro area and therefore regulatory and deleveraging pressure is much
more intense inside the euro area than in CEE.
SEE
CIS (r.h.s.)
CEE: Asset-to-GDP ratio trends
110%
95%
80%
65%
50%
35%
20%
99 01 03 05 07 09 11 13
In the euro area, significant deleveraging was achieved via sizeable cuts in
cross-border banking over the past few years. The cross-border exposure of Western European banks inside the euro area has been slashed by some 40% since
year-end 2007, while the CEE cross-border exposure of Western European banks
has hovered around the level of year-end 2007 (see section “Focus on” on page
10f). Given such adverse conditions, it has to be stressed that spillovers from the
broader European deleveraging to CEE as a whole have been limited. In other
words, the striking divergence of financial intermediation trends between the
euro area and CEE continued in 2013. With an increase of 3-4pp, the CEE asset-to-GDP ratio rose slightly in 2013, while the asset-to-GDP ratio for the euro
area plunged by some 17pp. This fall reflects massive asset sales (e.g. of derivatives or real estate portfolios), the winding down of loan exposures, total business line closures and transfers of non-performing assets to resolution entities (socalled “bad banks”). Deleveraging in terms of falling asset-to-GDP ratios was not
merely limited to the so-called “euro area periphery”, but was also evident to a
lesser extent in so-called “core” euro area countries such as Austria, Germany or
Finland. The focus of euro area banks on cutting non-core bank activities is also
indicated by a much greater fall in the euro area asset-to-GDP ratio as compared
to the loan-to-GDP ratio. However, widespread deleveraging was not the name
of the game across the CEE region, as illustrated by a modest increase in the asset-to-GDP ratio, which can also be explained by the dominance of traditional
lending in CEE banking.
A continuation of divergent financial intermediation trends for the euro area and
CEE, which was already evident in recent years, led to remarkable CEE outperformance in terms of relative financial intermediation stability (e.g. measured by
the asset-to-GDP ratio). Since 2011, financial intermediation in the euro area has
fallen by 24pp, while in CEE it has risen by 6-7pp. The cumulative asset growth
rate picture is even more interesting. For even if the relative under-penetration
and developing banking markets in CEE are taken into account, nominal post-crisis bank growth in the region has been remarkable. Cumulative 2009-2013 total
asset growth (in EUR-terms) in CEE stood at 39%, while the corresponding growth
CE
SEE
CIS
Change total assets 2011-2013**
500
0
-500
-1,000
-1,500
-2,000
-2,500
CEE*
Euro area
** EUR bn * EUR-based
Source: ECB, national central banks, Raiffeisen RESEARCH
CEE vs. EA: Total asset growth (% yoy)
35%
30%
25%
20%
15%
10%
5%
0%
-5%
00
02
04
06
08
CEE*
* EUR-based
Source: ECB,
RESEARCH
national
10
12
Euro area
central
banks,
Raiffeisen
13
rate for the euro area amounted to a meagre 3%. The solid rise of financial intermediation in CEE in recent years is largely based on encouraging increases in
CE and the CIS (mostly in Russia). By contrast, in SEE, there was a modest decline
in financial intermediation following brisk pre-crisis expansion. In 2013, the asset-to-GDP ratio in SEE dropped by some 4pp from its 2010 peak level.
CEE vs. euro area: Long-term asset-to-GDP ratio trends
100%
300%
90%
285%
270%
80%
255%
70%
240%
60%
225%
50%
210%
40%
195%
30%
180%
1999
2001
2003
2005
CEE total assets (% of GDP)
2007
2009
2011
2013
Euro area total assets (% of GDP, r.h.s.)*
* Excluding MFI business
Source: national central banks, ECB, Raiffeisen RESEARCH
CEE vs. EA: Real loan growth**
40%
30%
20%
10%
0%
-10%
04 05 06 07 08 09 10 11 12 13
CEE*
Euro area
* for CEE LCY loan growth
** Nominal loan growth deflated with CPI and PPI (75%
and 25% weight)
Source: ECB, Eurostat, national sources, Raiffeisen
RESEARCH
CEE vs. EA: Real loan growth
30%
20%
10%
0%
-10%
Cumulative 2010-2013*
CEE
Euro area
* Cumulative 2010-2013 nominal loan growth deflated
with CPI and PPI (75% and 25% weight), for CEE LCY
loan growth
RESEARCH
14
Logically, the strong divergence in the most recent asset-to-GDP ratio trends resulted in a fall in total banking assets in absolute terms inside the euro area,
while banking assets in CEE continued to rise. In the euro area, banking assets
decreased by some EUR 2,000 bn from 2011 until year-end 2013, which more
or less equals the total amount of CEE banking assets. Conversely, CEE banking
assets grew by some EUR 350 bn during the same period, which brought total
CEE banking assets up to around EUR 2,400 bn (as at year-end 2013). At the
same time, the solid growth of CEE banking assets should not mask the relatively
small size of the CEE banking market, which although growing, remains only a
fraction of the size of the euro area banking sector. Nevertheless, in view of the
increasingly divergent financial trends in CEE and the euro area, the level of total
banking assets in CEE in relation to the euro area continued to rise significantly.
As at year-end 2013, CEE banking assets amounted to 9.7% of banking assets
inside the euro area, which is an increase of 0.8pp as compared to 2012. Therefore, the CEE banking sector catch-up (measured as a relative increase in relation to the euro area’s assets) was the second largest in history following 1.3pp
in 2012 and 0.8pp in 2007.
The divergence between the loan-to-GDP ratios in CEE and the euro area has
been slightly smaller than that of the asset-to-GDP ratios (a reflection of the sharp
deleveraging in non-core banking activities among Western European banks).
Nevertheless, the CEE region continued to post a moderate increase in its loanto-GDP ratio in 2013, while the euro area’s ratio showed a not inconsiderable
decrease for the second time in succession in 2013. On the one hand, the relative stability of CEE banking in terms of financial intermediation (measured as
an asset-to-GDP or loan-to-GDP ratio) clearly underlines the fact that structural
problems are less acute and broad-based than those in Western Europe. Several
core banking markets in CEE, including the largest in absolute terms, are characterized by loan-to-GDP ratios that point to a prevailing under-penetration. In
other words, as compared to the income position, loan-to-GDP ratios remain at
a low level, which points to a substantial yet untapped demand-side potential
for banks. This finding is clearly backed by empirical demand-driven estimations
of fundamentally backed loan-to-GDP ratios in relation to GDP per capita levels
-10%
0%
10%
CE
EUR
LCY
EUR
LCY
EUR
55%
145%
50%
140%
CEE: Loan-to-GDP ratio trends
45%
135%
60%
40%
130%
50%
35%
125%
40%
30%
120%
30%
25%
115%
20%
20%
110%
10%
15%
105%
10%
100%
1999
2001
2003
2005
CEE total loans (% of GDP)
2007
2009
2011
2013
20%
LCY
SEE
Nevertheless, the fact cannot be ignored that the most recent deleveraging in
euro area banking via a decrease in financial intermediation also has some material implications for some CEE countries. This is a reversal of the situation before the crisis when a brisk rise in Western European financial intermediation levels led on paper to a “non-convergence” as the clean loan-to-GDP ratio penetration gap between CEE and the euro area did not decrease (due to the growth of
the “convergence target”, i.e. financial intermediation inside the euro area). This
trend then partly fuelled over-optimistic banking sector growth (expectations) in
some CEE markets such as Slovenia, Croatia or Bulgaria.
CEE vs. euro area: Long-term loan-to-GDP ratio trends
CEE: 2013 loan growth (% yoy)
CIS
based on large country samples including CEE states, as well as other developed
and emerging economies, but not the euro area.
99
01
03
CE
05
07
09
SEE
11
13
CIS
Euro area total loans (% of GDP, r.h.s.)*
Source: national central banks, ECB, Raiffeisen RESEARCH
Given the strong pre-crisis expansion (i.e. prior to 2007/08), at best the postcrisis banking growth in several overexposed (major) euro area and CEE countries has been very modest. In the case of Spain, Portugal, Ireland, Slovenia and
Hungary, we have even seen deleveraging, as indicated by falls in the loan-toGDP ratios over the past three to five years. However, it has to be stressed that it
can even take longer to overcome significant banking overexpansion. In this regard, it has to be acknowledged that some CEE countries such as Slovenia, Croatia or Bulgaria followed the steep financial intermediation trend of the countries
in the so-called “euro area periphery” rather than that of their CEE peers or countries like Germany. When adjusted for income levels some of the banking sectors in selected CEE countries even look as oversized as those in the “euro area
periphery”. Interestingly, the idea that higher GDP per capita levels can be associated with higher financial intermediation levels is currently being challenged
within the euro area and in CEE, where some of the richer core euro area and
CEE countries have much lower loan-to-GDP ratios than those of less advanced
euro area or CEE countries. In other words, the financial deepening of the past
was stronger in the less developed euro area countries than in the euro area as
a whole. To a certain extent a similar tendency was visible in the CEE region during the last credit cycle. For example, the loan-to-GDP ratios in all SEE economies (except Romania) are above the CE-3 average of Poland, the Czech Republic and Slovakia (some 65% in SEE as opposed to 55% in CE-3), whilst the GDP
per capita levels in SEE are only 70-50% of the CE-3 average. In the CIS region,
it has to be acknowledged that Ukraine has a substantially higher loan-to-GDP ratio than Russia, while the income level in Ukraine (measured in PPP) is only 40%
of the one in Russia. Given this underlying picture, it should not come as a surprise that NPLs in the CEE banking sector are largely clustered in the SEE sub-re-
CEE vs. EA: Loan-to-GDP catch-up
12%
2.0%
9%
1.3%
6%
0.6%
3%
-0.1%
0%
-0.8%
1999
2003
2007
2011
CEE total loans (% of euro area)
Change vs. euro area (pp, r.h.s.)
CEE vs. EA: Loan growth
35
25
15
5
-5
Jan 09 Jan 10 Jan 11 Jan 12 Jan 13
CEE (total loans, % yoy)
Euro area (total loans, % yoy)
15
Financial intermediation trend*
Total loans (% of GDP)
95%
SI 2001-13
80%
65%
50%
SK 2001-13
35%
12,000 16,000 20,000 24,000
GDP per capita (EUR, at PPP)
Intermediation trend (ES benchmark)
Intermediation trend (DE benchmark)
* Grey dot shows GDP p.c./loan-to-GDP relationship in
2001, blue dot in 2013
Source: ECB, national sources, Raiffeisen RESEARCH
Financial intermediation trend*
95%
80%
65%
HR 200113
50%
35%
PL 200113
20%
5,000 10,000 15,000 20,000
Intermediation trend (ES benchmark)
Intermediation trend (DE benchmark)
* Grey dot shows GDP p.c./loan-to-GDP relationship in
2001, blue dot in 2013
CE/SEE: Financial intermediation*
60%
50%
40%
30%
20%
10%
5,000
10,000 15,000 20,000
CE 2000-2013
SEE 2000-2013
* Line starts in 2000, latest data point 2013
CEE/EA: Financial intermediation*
Total loans (% of GDP)**
175%
150%
125%
100%
75%
50%
25%
5,000
20,000
35,000
GDP per capita (EUR)*
CEE countries (2013)
Euro area countries (2013)
* For CEE countries GDP per capita at PPP, for EA countries GDP per capita
** Excluding MFI business
RESEARCH
16
gion, or in a country like Ukraine where as compared to the income position, financial intermediation levels are fairly high.
The recent major setback in financial intermediation levels in some countries
within the “euro area periphery” also implies a sizeable need for indirect adjustment in selected overexposed CEE countries. In fact, in relative terms (i.e. adjusted for income levels) financial intermediation levels in Slovenia, Croatia and
Bulgaria have even been slightly above the financial intermediation trend of the
“euro area periphery” if the most recent banking sector adjustments there are ignored. For example, as compared to the financial intermediation trend prior to
the recent deleveraging in the “euro area periphery”, Croatia’s estimated financial overexpansion measured by the loan-to-GDP ratio in relation to income levels would have “only” been some 10pp. However, when the most recent adjustments in the “euro area periphery” (i.e. substantial loan-to-GDP ratio drops in
Spain or Portugal) are factored in, as compared to the financial intermediation
trend, it now stands at around 15pp.
The expected economic recovery in the “euro area periphery” and the CEE countries that to date were also lacking an economic upside may even lead to another drop in loan-to-GDP ratios during the next few years. Moreover, the relative degree of overleverage in some CEE countries also has some significant medium-term implications for the economic growth outlook. A strong rise in private
sector debt, based partially on very optimistic, long-term income convergence
assumptions by borrowers and lenders, was an important driver of the pre-crisis growth in several euro area and CEE economies. In Ireland, Spain, Slovenia,
Bulgaria, Croatia and Ukraine expansion went over the top, i.e. these countries
would have ended up in a situation of over-indebtedness anyway (regardless of
global or regional, i.e. euro area financial crisis events). In countries with tangible deleveraging needs in the private sector/banking sector, economic growth in
the years to come is unlikely to match the performance during the past ten debtbased boom years. In other words, much of the bank lending in some CEE and
euro area economies was based on overly optimistic, inter-temporal consumption
smoothing. Now loan-to-GDP ratios must be brought into line with income levels.
It is evident that economic growth during such a period will probably be lower
than in the pre-crisis era of strong loan growth. This idea is supported by more
recent economic research, which suggests that financial cycles (e.g. as measured
by loan growth, loan-to-GDP ratios or house prices) tend to last much longer than
standard business cycles. In order to make this idea more transparent, pre-crisis and post-crisis (expected) GDP growth rates were calculated for a larger set
of countries. This country sample included twelve euro area and CEE countries
that can be grouped together as overleveraged countries, and countries without
a significant private sector debt overhang (the group of overleveraged countries
comprises Ireland, Spain, Slovenia, Bulgaria, Croatia and Ukraine; the group of
countries without private sector debt overhang consists of Austria, Finland, Germany, Poland, the Czech Republic and Slovakia). Within these country samples,
economic growth in overleveraged countries will probably remain at around
30% of pre-crisis levels, while countries without a private sector debt overhang
are likely to achieve around 80% of their pre-crisis economic growth in the period from 2010-2018 (the overall lower growth performance can be explained
by an anticipated slowdown in global economic growth, as well as the inclusion
of the most recent years into the time period from 2010-2018).1 Therefore, it is
clear that possible benefits from a period of deleveraging with regard to economic growth usually only materialize given a long-term perspective.
1 See also Raiffeisen RESEARCH (2014): CEE growth: looking beyond the numbers, CEE Economics Special, 3 February
2014.
At this point, it should be reiterated that in the past problems of overexpansion
in the CEE banking sector were limited to a few markets, while the largest banking markets in absolute terms and on a regional level, namely Poland, the Czech
Republic, Russia, Romania and Serbia (representing around 80% of CEE banking assets) can still be considered fundamentally underpenetrated. Here, it has to
be stressed that loan-to-GDP ratios (in relation to income levels) in Poland, Russia
and Romania are clearly at very modest levels as compared to more developed
markets, a broader sample of global emerging markets, or even the BRICS economies (excluding Russia). Fairly modest financial intermediation figures for major
CEE countries such as Poland, Russia or Romania become even more infavorable
when the much higher GDP per capita levels compared to other Emerging Markets are taken into account. For more details, please also see the “Focus on” section comparisons of financial intermediation in CEE and other global Emerging
Markets on pages18f.
The outlined relatively solid outperformance of the CEE banking sector in terms
of asset and loan growth, as well as the remaining degree of underpenetration
point to some highly important strategic factors for (Western) CEE banks. Firstly,
overall financial overexpansion in CEE was not as excessive as that in the euro
area. Modest financial intermediation levels (as compared to fundamentals, e.g.
adjusted for income levels) in the largest core CEE banking markets (e.g. Russia, Poland, some other CE markets and Romania) back this idea. From a medium-term perspective financial intermediation in CEE also stays fairly close to
the longer-term financial intermediation uptrend (with some overshooting from
2007-2010), while there seems to be a clear trend hiatus in financial intermediation terms within the euro area. In addition, there is still room to grow for financial intermediation levels in the core banking markets in CEE. Therefore, CEE
banks have to be prepared for a totally different setting as compared to euro
area banks without sizeable CEE business. Moreover, the deleveraging experienced inside the euro area also has some important messages for a few smaller
and overexposed markets in the CEE region. There may be an additional decline
in the financial intermediation levels and such an outlook does not seems unreasonable in view of the fact that large parts of the deleveraging in the euro area
were also linked to aggressive balance sheet clean-ups, portfolio sales or the pulling out of business lines. Consequently, such developments cannot be excluded
for weaker and less promising CEE banking markets.
Furthermore, long-term, crisis-induced deleveraging in the Western European
banking sectors once again shows that a convergence to the (past) financial intermediation levels in Western Europe may not represent an economically feasible optimum. This is especially true with regard to total assets and hence the previous asset-mix of the large Western European banks, which over the past two to
three years have slashed many non-core activities.2
EA: Long-term loan-to-GDP ratio (%)
200
175
150
125
100
75
50
25
1980
1988
1996
2004
ES, PT, IE, GR
2012
DE, FR, AT, FI
Source: World Bank, ECB, Eurostat, national sources,
Raiffeisen RESEARCH
CEE: Long-term loan-to-GDP ratio (%)
70
60
50
40
30
20
10
1995 1998 2001 2004 2007 2010 2013
RO, HR, BG, UA
PL, CZ, SK, RU
EA: Loan-to-GDP ratio* vs. trend
140
130
120
110
100
90
1999
2003
2007
2011
Euro area (loan-to-GDP ratio, %)
CEE: Loan-to-GDP ratio vs. trend
55
45
35
25
15
1999
2003
2007
2011
CEE (loan-to-GDP ratio, %)
2 See also Raiffeisen RESEARCH (2013): Euro area bank deleveraging – rethinking financial intermediation in CEE, CEE
Banking Sector Research, 2 July 2013.
17
CEE vs. EM: Loan-to-GDP ratio (%)
140
120
100
80
60
40
20
0
1977
1985
1993
2001
2009
EM
CEE-3*
BRICS (excl. RU)
* CEE-3: Poland, Russia, Romania, no reliable data before 1990ies; ** Averages not GDP-weighted
Source: World Bank, national sources, Raiffeisen
RESEARCH
No overheating in CEE**
4.5
3.8
3.0
2.3
1.5
0.8
0.0
BRICS (excl.
RU)
EM
CEE-3*
Chg. loan-to-GDP ratio (l-t trend, pp)
Chg. loan-to-GDP ratio (2009-2012)
* CEE-3: Poland, Russia, Romania; ** Averages not
GDP-weighted, long-term financial intermediation trend
1995-2012; Source: World Bank, national sources, Raiffeisen RESEARCH
IIF Lending Survey: NPLs*
Focus on: Financial intermediation in CEE vs. global Emerging Markets1
Despite robust financial sector trends in CEE compared to the euro area no overly strong
financial deepening took place in CEE in recent years. Therefore, on average the CEE
loan-to-GDP ratio did not increase significantly compared to its long-term financial deepening trend in recent years. Also in the core CEE banking markets of Poland, Russia and
Romania loan-to-GDP ratios did not increase very strongly in recent years. In contrast,
an already fairly steep financial deepening in key global Emerging Markets (EM) clearly
accelerated in recent years. Hence financial deepening in global EM (measured as annual change of the loan-to-GDP ratio) was more or less double its long-term trend over
the last 3-5 years. In contrast, recent financial deepening was more or less half of its
longer-term trend in CEE. More modest banking sector developments in CEE in recent
years can be attributed to two factors. First, recent modest expansion in CEE (below its
long-term trend) is just a “natural” correction following a boom phase or “overshooting”
(above the long-term financial intermediation trend). Moreover, considerable market
and regulatory challenges for Western European banks that arose in recent years also
had some impact (foreign-owned Western European banks have a much higher importance in CEE compared to global EM). It goes without saying that accelerated financial
deepening in global EM increased loan-to-GDP ratios substantially. Therefore, it is not
a surprise that the speed of financial deepening and financial intermediation levels in
several major EM – measured by loan-to-GDP ratios – became more and more a point of
concerns (e.g. China on a more global level and Turkey closer to the CEE region). Therefore, it is important to stress that CEE has not participated in the strong rise of financial
intermediation we have seen in key global EM over the last 3-5 years. Moreover, financial intermediation levels in the main CEE economies are well below levels in other
major EM. The current regional CEE loan-to-GDP ratio stands at some 50% vs. 80% in
a broader EM sample on average and 130% in the BRICS economies excluding Russia.
1 See also Raiffeisen RESEARCH (2013): Current EM weakness and lessons from the CEE credit cycle, CEE Banking
Sector Research, 23 September 2013.
Lending structure and loan growth
In 2013, total loan growth in LCY-terms in CEE remained at reasonable levels
and once again a double-digit increase of 11.2% yoy (as opposed to 11.4% yoy
in 2012) was posted. In EUR-terms, however, the situation looks less favorable
and stable with loan growth of only 3% yoy (14% yoy in 2012), which is the second lowest reading since 2008.
65
60
55
50
50
45
40
35
Q4 09
Q4 10 Q4 11 Q4 12 Q4 13
Global EM (excl. CEE)
CEE
* 50 = neutral level, levels above 50 indicate improving NPL outlook (falling NPLs), below 50 deteriorating
NPL outlook (increasing NPLs), Source: IIF, Raiffeisen
RESEARCH
CEE: Loan growth LCY- vs. EUR-terms
50%
40%
30%
20%
10%
0%
-10%
00 02 04 06 08 10 12
CEE loan growth (% yoy, LCY)
CEE loan growth (% yoy, EUR-based)
This slowdown was mainly driven by the negative developments in the CIS region, where the difference between loan growth rates in LCY and in EUR was
by far the largest in CEE and was also reflected by FX risks above the regional
average. Furthermore, the CIS region had the strongest deviations in LCY loan
growth rates from 2012 to 2013 and given the continuation of FX depreciation,
similar divergence between LCY and FCY loan growth rates also seems likely for
2014. The strong impact of the CIS markets on overall LCY loan growth trends
in CEE is also illustrated by the fact that in CE total loan growth in LCY-terms for
2013 is even higher than in EUR-terms, while the CE sub-region also posted a
modest increase in LCY loan growth yoy. In SEE, total loan growth in both, LCY
and EUR-terms was slightly negative in 2013, which mirrored some fundamental regional weaknesses described in the previous section on financial intermediation levels (i.e. some SEE banking markets are overexposed, which is also indicated by negative regional asset quality trends). In terms of economic impact on
(new) lending, it has to be stressed that real loan growth in LCY terms in CEE was
higher in 2013 than in 2012 (although headline LCY growth in 2013 was down
on that in 2012). In real terms, total loan growth in CEE increased from 6.3% in
2012 to 7.2% in 2013.
18
In light of the sketched trends the CEE banking sectors are at a very different stage of the credit and financial cycle compared to global
EM. Hence CEE started to outperform global EM in the broad-based Bank Lending Conditions Survey conducted by the Institute of
International Finance (IIF). The CEE sub-index outperforms the global EM sub-index (excl. CEE) since Q1 2013. Moreover, the Emerging Europe/CEE sub-index change over the last 8-10 quarters shows the strongest relative upsurge from its lows back in Q4 2011.
Therefore, the IIF EM Bank Lending Survey points to above average near-term momentum in CEE banking compared to global EM (the
CEE outperformance in the IIF Bank Lending Survey is particularly pronounced in the categories for loan demand and NPL formation).
It remains to be seen to what extent the IIF Lending Survey will take a hit from the most recent deterioration of sentiment and liquidity
conditions in Russia and Ukraine; at least a modest temporary setback to the CEE sub-index might be in the pipeline.
All in all it seems that nowadays some key global EM outside of CEE have to pay the price for a certain banking overexpansion or overheating (like CEE also did in 2008/09), while there was no overexpansion in CEE in recent years (compared to the years 2004–2008).
In this context it has to be stressed that Russia’s banking market exhibits a very low degree of financial intermediation compared to other
global EM and other BRICS economies in particular. Or in other words: the size of the Russian banking market is much smaller than
predicted by income to financial intermediation relationships in a larger sample of CEE and EM economies. Basically, Russia could be
considered as one of the least leveraged major EM. Therefore, a sizeable penetration gap vs. peers will even remain in case parts of
the most recent rise in financial intermediation in other BRICS economies are reflecting a bit of overheating there.
The prevailing degree of fundamental banking sector underpenetration, that offers substantial long-term potential, may also help to
limit near-term downsides on the Russian banking market that may result from recent adverse developments in terms of slowing growth,
exchange rate depreciation and increased funding costs. It has to be added that increasing loan books without adding too much credit
risks tends to become more and more challenging the closer an economy inches towards a fundamentally-backed loan-to-GDP ratio.
With regards to Ukraine the picture is less favorable. Here financial intermediation, as measured by the loan-to-GDP ratio, remains at
a fairly high level compared to the income position (i.e. the loan-to-GDP ratio in Ukraine is some 10pp higher than in Russia, while the
GDP per capita level in Ukraine is 40% the one of Russia). Therefore, recent adverse developments in Ukraine may quickly erase upside
that was achieved via de-leveraging that followed the credit-based boom-bust cycle from 2004-2008 (that pushed the loan-to-GDP ratio
beyond a fundamentally backed level at that time).
In 2013, the share of FCY loans in the total loans portfolio in CEE continued to
decrease, falling to 26% in CE (32% in 2008), 60% in SEE (63% in 2008) and
20% in CIS (26% in 2008). Until 2008, loan growth was exceptionally strong
across the whole CEE region. Moreover, since 2008, loan books have at least
doubled in all three CEE sub-regions, although the picture has changed completely. Strong growth continued in the CIS region, driven mainly by the Russian
market, while loan books more or less stagnated in SEE and increased only modestly in CE. The core CE banking markets of Poland, the Czech Republic and Slovakia developed well, while there was a painful deleveraging in Hungary and
Slovenia. Stagnation is broader based in SEE, with the possible exception of Serbia, while the CIS region is also characterized by marked divergences. In recent years, the Russian and Belarussian banking markets continued to show very
strong growth (that slowed in 2013), while the Ukrainian banking market was
closer to stagnation. Prior to the crisis, i.e. until 2008, lending growth had been
equally strong in almost all business lines. Household and corporate loans increased in all three CEE sub-regions and from 2000-2008, retail and corporate
loan volumes grew significantly across all CEE sub-regions, with loan stocks in
corporate and retail lending at least doubling or even tripling across the board.
As compared to the market average, volumes in corporate lending posted decent
growth in the SEE and CIS sub-regions, while corporate lending in CE has more
or less stagnated over the last few years. By contrast, since 2008 volumes in retail lending have stalled in SEE, while they grew at tolerable rates in CE and at
very strong rates in the CIS region.
CEE: FCY loans (% of total)
40
35
30
25
20
00
02
04
06
08
10
12
CEE loans in FCY (% of total loans)
CEE: FCY loans (% of total)
70
60
50
40
30
20
10
0
08
13
CE
08
13
SEE
08
13
CIS
19
CE: Loans by business segments
40
30
20
10
0
-10
2009
2010 2011 2012 2013
CE household loans (% yoy)
CE corporate loans (% yoy)
SEE: Loans by business segments
30
25
20
Despite the recent divergence in terms of regional growth rates in corporate and
retail lending, corporate lending still represents the backbone of banking business in CEE. In CE, corporate loans represent some 54% of total lending, in SEE
52% and in the CIS region around 70%. Household lending constitutes only
some 30-40% of total loans, with readings at around 30% in CE and CIS and
roughly 40% in SEE. This said, slightly higher household lending growth (already
visible in CE in H2 2013) and increasing loan extensions in corporate lending in
CE (corporate lending tends to follow retail lending in an economic upcycle) will
be a key factor for the near-term loan growth of major Western-owned CEE banks
and total loan growth in CEE. New lending in the corporate and retail segments
is likely to be subdued in the CIS region. With regards to future loan demand
the IIF Lending Survey flags increasing loan demand across all loan categories
in CEE (with the exception of commercial real estate). The lending survey data
also flag a fairly strong consumer loan demand, which we consider as a usual
pattern in the early stage of an economic recovery (like we are seeing it in most
major CEE economies with the exception of Russia). Therefore, the recent outperformance of retail lending in CE and SEE should not per se be considered as an
alarming sign (i.e. that banks are taking on too much risks here).
15
10
5
0
-5
-10
2009 2010 2011 2012 2013
SEE household loans (% yoy)
SEE corporate loans (% yoy)
Russia: Loans by business segments
45
30
15
0
-15
2009 2010 2011 2012 2013
RU household loans (% yoy)
RU corporate loans (% yoy)
CEE: Loan growth divergence**
70%
From a medium-term perspective, the expected loan growth dynamics look more
favorable in CE and Russia (once the current cyclical low, which has been exacerbated by recent political tension is overcome) than in SEE, where a significant
near-term upside in loan extension seems unlikely. However, Romania is a possible exception to this trend in the CE sub-region. One main indicator for the expected loan growth dynamics in CE (with the exception of Hungary and Slovenia) and Russia is the loan-to-GDP ratio, which did not decline over the past few
years. By contrast, the loan-to-GDP ratio in SEE declined significantly in recent
years and especially in 2013. This development was similar to those inside the
euro area and points to structural deleveraging needs. The outlined loan-to-GDP
ratio picture for the CEE banking market as a whole and its sub-regions is well in
line with our forecasts. Loan-to-GDP levels still offer significant growth potential
for the whole CEE region. The difference in the loan-to-GDP ratio in CEE as opposed to the euro area stands at 73pp, while the difference to a more cautiously
estimated and fundamentally backed loan-to-GDP ratio stands at 10-15pp.
On a country level, there is clear segregation of the best performers within the
three CEE sub-regions. In terms of loan growth, the high performers in CE were
the Czech Republic and Slovakia (6.6% and 5.4% LCY lending growth in 2013),
while the Polish banking market started to demonstrate a degree of positive dynamics in H2 2013 with loan growth of 3.5% (in LCY-terms). Romania provided
the negative surprise in SEE with a loan growth decline of 3-4% in 2013. However, a recovery is expected in 2014. In Hungary, the decline in lending continued in 2013, although at a slower pace (with a 5.8% decrease in loan stock in
2013, following a drop of 12.8% in 2012).
60%
50%
40%
30%
20%
10%
0%
00
02
04
06
08
10
12
High-growth markets*
Other banking markets*
* High-growth markets: PL, CZ, SK, RO, RS, AL, RU;
Other banking markets: HU, SI, BG, HR, BH, UA, BY
** Yoy loan growth rates, EUR-based
20
For the CIS sub-region and the CEE region as a whole, Russia remained the leading banking growth market in 2013. In LCY-terms, total loans expanded by 17%
yoy, once again led by a surge in retail lending that was well above the market average. The retail lending boom in Russia continued in spite of the regulatory constraints introduced in the past two years, although at a much slower pace
(29% yoy in 2013) than before (35-40% yoy in 2012). However, in view of the
increasingly difficult environment in Russia, our near-term growth estimates for the
Russian banking sector in 2014 are more conservative: The overall slow-down in
loan growth is unlikely to be as sharp as it was in 2008, but may fall to a singledigit level. For the rest of the CEE region, we broadly expect the major lending
performance trends of 2013 to be maintained in 2014.
It must be stressed that bank balance sheets in CEE are largely dominated by traditional lending. This is particularly clear if one looks at the share of loans in total assets. A distinctive trend in CEE lending of the past decade was a significant
increase in the share of loans as a percentage of total banking assets. However,
this trend was somewhat disrupted by the recent crisis years. All in all, the share
of loans in CE region assets rose from 42% in 2006 (which was the last “quiet”
year before the crisis) to about 55% in 2013, while the respective ratios for SEE
are 51% and 61%, and 55% and 58% for CIS.
However, it should be noted that if 2013 is considered in isolation, the share of
loans diminished slightly across almost all of CEE, with the exception of the CIS.
In the rest of the CEE region, the share of loans in assets declined by around 1pp
yoy. A possible reason was the new regulatory norms (both for euro area based
CEE banks and locally-owned banks). These new regulations may have forced
CEE banks to be somewhat more restrictive in issuing new loans. Moreover, the
still limited demand for loans in some CEE markets was also reflected by higher
(government) bond holdings, which also slightly reduced the share of loans in total assets.
IIF Lending Survey: Loan demand*
65
60
55
50
50
45
40
Q4 09
Q4 10 Q4 11 Q4 12
Global EM (excl. CEE)
CEE
Q4 13
* 50 = neutral level, levels above 50 indicate improving
loan demand, below 50 decreasing loan demand
Source: IIF, Raiffeisen RESEARCH
CEE: Business segment split*
100%
80%
Loan-to-deposit ratios and deposit growth
60%
Adjustment to a new macroeconomic and market environment, more cautious
business strategies, the sorting out of credit risks, and the digestion of tightened
liquidity and capitalization requirements are all factors that have pushed the
CEE banking sectors towards a stricter focus on liquid assets and more conservative lending. As a result and on an annual basis, the aggregate CEE Loan-to-Deposit (L/D) ratio continued its generally moderate downward movement at levels
slightly below 100%, with fairly balanced L/D ratios in most of the major CEE
banking markets (e.g. Poland, Russia, Romania). The L/D ratio downtrend in CEE
is also reflected by the number of CEE banking markets with L/D ratios above
110%, which currently stands at only five out of fourteen, as compared to ten in
2008. Hence, a broad-based increase in balance sheet flexibility and liquidity in
the CEE banking sectors has taken place.
40%
20%
0%
CE
SEE
CIS
Corporate lending (% of total)
Household lending (% of total)
* % of total loans
CE: Loans (% of total assets)
80%
60%
40%
20%
0%
PL
CEE: Loan-to-deposit ratios at the country level (%)
160%
HU
CZ
2006
SK
SI
2013
140%
120%
100%
SEE: Loans (% of total assets)
80%
80%
60%
40%
60%
20%
CE
2005
SEE
2008
CIS
2013
* Slovenia, Ukraine and Belarus in 2008 with L/D ratio values above 160%; Sl: 166%, UA: 205%, BY: 171%
Belarus*
Ukraine*
Russia
Albania
Bosnia a.H.
Serbia
Croatia
Bulgaria
Romania
Slovenia*
Slovakia
Czech Rep.
Hungary
Poland
0%
40%
20%
0%
RO
BG
HR
RS
2006
BH
AL
2013
21
Apart from a more cautious new loan extension, the past two years have seen
quite robust deposit collection, which has also bolstered the L/D ratio improvement supported by fairly modest inflation readings in nearly all CEE economies.
This trend shows that the CEE economies had internal resources that could be
transferred to fund banks through deposits, and will hopefully be transformed into
a new wave of lending.
CIS: Loans (% of total assets)
80%
60%
40%
20%
0%
RU
UA
2006
BY
2013
CEE: Loan vs. deposit growth
35
30
25
20
15
10
5
0
-5
2009
2010
2011
2012
2013
CEE total loans (% yoy)
CEE total deposits (% yoy)
CE: Loan vs. deposit growth
30
A more detailed look at the deposit and loan growth trends across the CEE countries shows a significant decline in the L/D ratio in SEE to 97% at year-end 2013.
The main reasons for this development were slow lending activity and an ongoing deposit increase throughout the region, especially in the Romanian market.
In Croatia, Serbia and Bosnia and Herzegovina, funding imbalances remained
as the L/D ratios stayed above 100%. The ongoing adjustment process in these
markets will eventually lead to balanced self-funding in the new lending cycle.
In 2013, the average L/D ratio in the CE region showed a slight but continuous decline of 3pp to 102% (following a slide of 5pp in 2012). In Poland and
Hungary the L/D ratio was steadily close to 100%, while the banking systems in
the Czech Republic and Slovakia even remained somewhat over-liquid with low
L/D ratios of 75% and 90% respectively. The L/D ratio in the CIS sub-region remained stable at 100%, as compared to 99% in 2012. As at year-end 2013, the
L/D ratio in the Russian banking sector hovered at around 95%, while Ukraine’s
self-funding was much weaker with an L/D ratio of 135% (which is nevertheless clearly below the levels seen in previous years). In Belarus, the L/D ratio remained at the highest level in the CIS region, hitting 150% at year-end 2013.
However, for 2014, we see risks that banking sector impact stemming from the
tensions between Russia and Ukraine could also have impacts on both sides of
the balance sheets of CIS banks. In general, some deterioration of the L/D ratios can be expected if there are prolonged liquidity tensions, as well as continued pressure on deposit collection in Ukraine and, as is likely, in Russia as well.
25
20
15
10
5
0
-5
2009
2010
2011
2012
2013
CE total loans (% yoy)
CE total deposits (% yoy)
SEE: Loan vs. deposit growth
30
25
20
15
10
5
0
-5
2009
2010
2011
2012
2013
SEE total loans (% yoy)
SEE total deposits (% yoy)
In 2013, deposit funding in CEE continued to grow at rates that clearly outpaced
the overall euro area deposit dynamics (3% as opposed to less than 1% in EURterms), but were significantly below the growth of 2012 (14% in EUR-terms). Total deposit stock in the CE sub-region surged by almost 6% in LCY-terms in 2013
(4% in 2012). However, deposit growth in EUR-terms was only at 1.9% (9% in
2012), mainly because of HUF and CZK currency depreciation. The CIS region
posted an even stronger difference in deposit stock development between LCY(15%) and EUR-terms (3%), mainly because of strong RUB and UAH depreciation. The slump in deposit and loan growth in EUR-terms is mainly the result of
a notable depreciation of CIS currencies, as well as the weakness of the CZK
and HUF against the EUR. That said, even the strong negative impact of CEE currency volatility did not impinge upon the relative strength of the region as a deposit provider.
As at year-end 2013, the deposit base in CEE amounted to 12.5% of the deposit base of the euro area, while total loans in CEE amounted to about 10% of
total loans in the euro area. For 2014 and beyond, in spite of the somewhat inferior macro-outlooks in the CIS sub-region, we see reliable deposit funding remaining in CEE, as the potential for deposit growth is not yet exhausted. Reasons for reliable deposit funding include the still-rising propensity in CEE to save
and the more favorable outlook regarding economic development in CE and major SEE countries.
22
The recent strong deposit collection in CEE is clearly based on the far greater potential for steering short-term deposit collection trends via pricing adjustments, as
compared to instruments available in more mature markets (where there are also
additional alternatives for placing savings on the corporate and retail side). In
this context it has to be stressed that deposits in relation to GDP remain at modest
levels in all major CEE sub-regions as compared to both the more mature banking markets and the major Emerging Markets (which might be explained by a
higher reliance on cross-border/parental funding in the past). Nonetheless, deposit collection in CEE, which is well above euro area trends, should not create
too much complacency, as banks inside the euro area have far more opportunities to attract alternative, and even more stable and longer-term funding than deposit funding.
In CE and SEE, the main shares in the total deposit-funding portfolio consist of retail deposits with about 66% and 70% respectively. As far as the perspectives for
2014 and beyond are concerned, there is evidence that the corporate funds inflow will move up a gear in CE, where corporate deposits grew by about 11%
yoy in 2013 (LCY), causing acceleration in all of the region’s five countries.
However, it should be noted that the pick-up in corporate deposits in 2013 was
caused in part by sluggish investment activity and as yet, it is too early to state
that a new trend has begun. Indeed, investment dynamics in 2014 may well
bring some changes to the corporate deposit area. By contrast, retail deposit
rates in CE demonstrated a quite significant slowdown, although they remained
in positive territory. The retail funding growth rate for CE banks in 2013 fell to
3% (LCY) from about 5.5% (LCY) in 2012. This, however, was entirely attributable to a significant decline in retail funding in Hungary, where the household deposit base deteriorated by almost 10% in 2013. If this impact is excluded, retail
funding growth in the other countries was only somewhat lower than in 2012,
and reached 4% yoy (LCY). The deposit component dynamics in SEE followed
a similar development. In the CIS, the pattern was reversed with retail deposits
posting growth that was almost twice as high as that of corporate deposits (22%
and 12% yoy, respectively, on aggregate levels in LCY-terms).
The aggregate L/D ratio in CEE has fallen substantially since its peak level in
2008 (17pp from 115% in 2008 to around 98% in 2013), driven by a broadbased improvement across all sub-regions and major banking markets such as
Poland, Russia and Romania. The decline in the L/D ratio in CEE is definitely a
reflection of a broader trend in global and European banking derived from the
increasing appeal of deposit financing. Therefore, it comes as no surprise that
the aggregated L/D ratio in the euro area is also on a sustained downward path.
Nevertheless, the drop in the aggregated L/D ratio in the euro area (some 7-9pp
from pre-crisis peak levels) did not match the level of the L/D ratio fall in CEE,
while the overall L/D ratio in the euro area also remained slightly above 100%
as at year-end 2013. The rather low L/D ratio has some important implications
for loan and asset growth over the next two years, as banks in CEE will face
greater pressure to invest their collected deposit base in interest-earning and/or
fee-earning assets.
The already visible uptick in loan growth in CE and parts of SEE should bode
well for such asset growth. Moreover, the current modest L/D level in major CEE
markets implies that at the very least sufficient resources exist to fund most of this
increase in loan growth. Nevertheless, it must be kept in mind that most of the
funding recently attracted in local markets is short-term in nature (as sight deposits dominate compared to term deposits). By contrast, most intra-group funding (which has been reduced in recent years) was more long-term in nature (and
RU: Loan vs. deposit growth
40
30
20
10
0
-10
2009
2010
2011
2012
2013
Russia total loans (% yoy)
Russia total deposits (% yoy)
L/D ratios (%)*
125%
100%
75%
50%
25%
0%
CZ SK HU PL
BG RU RO HR
L/D ratio, 5 banks weighted average*
L/D ratio, market aggregate
* RBI, ERSTE, UniCredit, Societe Generale, OTP
Source: company data, national central banks, Raiffeisen
RESEARCH
CEE vs. EA: L/D ratio trends
120%
110%
100%
90%
80%
2000
2003
CEE
2006
2009 2012
Euro area
CEE: L/D ratio in the sub-regions
125%
115%
105%
95%
85%
75%
2005
CE
2007
2009
SEE
2011
2013
CIS
23
mostly denominated in FCY). Therefore, the increased reliance on local funding may cause a growing number of maturity mismatches in CEE banking sectors with relatively large mortgage portfolios. This is especially true in the case of
larger (legacy) FCY-denominated mortgage portfolios (although new loan extension in FCY is currently declining).
CEE: NPL ratio in the sub-regions*
20
15
10
Non-performing loans, NPL ratios
5
0
2005
2007
2009
CE
2011
SEE
2013
CIS
* % of total loans
CEE: NPL ratio (%)*
14
12
10
8
6
4
2
03 04 05 06 07 08 09 10 11 12 13
CEE
CE/SEE
* % of total loans
CE/SEE: NPLs (EUR bn) and NPL ratio
80
14
12
60
10
8
40
6
4
20
2
0
0
2000
2003
2006
2009
CE/SEE NPLs (total EUR bn)
CE/SEE NPLs (% of total loans, r.h.s.)
24
In terms of the aggregated non-performing loan (NPL) ratio in CEE, 2013 was
definitely the long-awaited year of stabilization. After several years of increases
in the NPL ratio by several percentage points, the overall NPL ratio did not move
significantly in 2013 and stabilized at around 9%. Moreover, 2013 was the first
year for roughly a decade in which overall levels of NPLs in terms of volume did
not increase significantly in absolute terms. The trend towards stabilized asset
quality is definitely a reflection of a much changed risk appetite and risk discipline within the CEE banking sector. Moreover, NPL ratios in several markets also
received support from solid lending activity.
The stabilization of CEE asset quality in 2013 was largely driven by the CE and
CIS markets. In CE, the average NPL ratio increased marginally from 8.9% in
2012 to 9.1% in 2013. This gradual rise was largely driven by positive NPL ratio
developments in Poland, the Czech Republic and Slovakia, while upward pressure continued in Hungary and Slovenia. In the CIS region, the average NPL ratio dropped from 7.1% in 2012 to 6.6% in 2013. This development was largely
supported by an NPL ratio decrease in the Russian market from 4.8% in 2012 to
4.3% in 2013. As opposed to the NPL ratio decrease in the CIS region, the average NPL ratio in SEE continued its significant upturn. The regional NPL ratio
in SEE rose from 17% in 2012 to 19.5% in 2013. During the last three to four
years, the SEE NPL ratio has been increasing by several percentage points annually. In SEE, the uptrend in NPL ratios tends to be a reflection of poor asset quality trends as well as subdued loan growth. The concentration of asset quality issues in two CE countries (Hungary, Slovenia) and several SEE banking sectors is
also reflected by the fact that the NPL ratio in these two sub-regions continues to
remain well above the overall CEE ratio.
We expect a certain downward NPL ratio trend in CE during 2014, following the
stabilization seen in 2013. A certain slowdown in the rise of the regional NPL
ratio in the SEE region might also be possible in 2014. However, given the still
substantial rise of NPLs in 2013, a complete trend turnaround in SEE seems unlikely in the coming year. In the light of recent adverse developments in the CIS
region, pressure on the asset quality side cannot be ruled out for 2014. In the
case of Russia, the NPL ratio may increase to some 5%-6%, depending on loan
extensions in 2014. Our expectation of a modest increase is based on the assumption that borrowers are already more familiar with a much higher degree of
exchange rate flexibility than they were five years ago. Moreover, we do not anticipate steep falls in GDP and lending dynamics of the scale seen in 2008/09.
In the case of Ukraine, macroeconomic weakness and exchange rate pressure
should add to an already fairly high NPL ratio in the range of 35-40%. Therefore,
Ukraine NPL ratios may inch above 40% in 2014. However, as in Russia, an asset quality deterioration in Ukraine might also turn out to be less dramatic than in
2008/09, as in recent years loan growth rates have remained within a range of
low single-digit or very low double-digit expansion.
As asset quality issues in CEE are clearly concentrated in the SEE banking markets, coordinated efforts to support NPL resolution will be key to restoring the economic and banking sector recovery prospects in this sub-region. The tendency to
carry bad loans on balance sheets is an impediment to the future growth prospects of these banks and therefore requires the use of all possible means of resolution. Gradually, the banks will write off, restructure, or even refinance them
should the borrowers show robust recovery. There are signs of increased activity
on this front already and bad loan sell-off transactions, whether government orchestrated or market-driven by nature, have started to take place in Poland, the
Czech Republic and Russia.
CEE: Markets with NPL ratio < 10%*
While overall asset quality data indicates a certain stabilization across most of
the CEE banking markets, individual player performance (especially that of the
large ones, including major foreign-owned CEE banks) remains challenged by
asset quality issues. Evidence of this is provided by the fact that within a country
context, the NPL ratios for foreign-owned CEE banks still often exceed the country’s overall NPL level, especially in the CEE banking sectors most exposed to
credit risk. However, we think that this factor, although painful at present, should
be relatively short-lived. Financial performance data still shows significant jeopardy to the results of foreign-owned CEE banking groups owing to credit risk
costs, which continue to eat into their bottom line returns. Provisioning costs of as
much as 40-50% of operating revenues are not surprising for the group of competitors considered in a number of CEE markets. This is yet another indication
of the fairly strong pre-crisis risk appetite of the foreign banks, which was driven
mostly by the strategy of chasing large market shares. The banks hit hardest are
naturally those that prior to the crisis were actively expanding in the countries that
posted the highest aggregate asset quality deterioration (e.g. Hungary, Bulgaria
or Romania). Another group consists of banks with a high willingness to assume
consumer-lending exposures in CIS countries. OTP Russia is one of these banks
and in 2013 it had rocketing provisions due mainly to aggressively accumulated
credit risk during the previous years. Apart from the other factors, the most recent
shifts in country mix within the country strategies of the biggest CEE foreign bank
players were determined by expectations of credit quality developing in various
markets. Firstly, Western European CEE banks used to issue a significant portion
of loans in foreign currencies, which backfired when the crisis hit. Secondly, the
excessive credit risk could have been assumed during the race for market share
in the pre-crisis years. In any case, whatever the reasons, the evidence points to
the fact that gaining a quality franchise is now one of the key issues for the banks
active in CEE. Their ability to attract and maintain the strongest clientele will determine their further NPL and profitability development.
* % of total loans
10
9
8
7
6
5
4
3
2
1
0
BY
RU
SK
CZ
PL
CEE: Markets with NPL ratio > 10%**
40
35
30
25
20
15
10
5
0
HU BH HR BG RS RO SI
AL UA*
* based on IFRS estimates, official ratio much below that
** % of total loans
CEE: Change of NPL ratio (bp)
500
400
300
200
100
0
-100
-200
-300
-400
04 05 06 07 08 09 10 11 12 13
CE
SEE
CIS
CE (excl. HU)
CEE: No. of challenging markets*
5
4
3
2
1
0
00
01
02
03
04
05
06
07
08
09
10
11
12
13
Possible asset quality deterioration in the CIS in 2014 may hit foreign-owned
Western European banks to a lesser extent than locally owned players. This is because to the latter, major foreign-owned banks in the Ukrainian and Russian market have been operating in a cautious and risk-disciplined manner. As a result, in
recent years Western foreign-owned banks in Ukraine have lost substantial market shares and this is also the case in the Russian market. Asset quality trends
in SEE will continue to be an important profitability driver, as these banks have
fairly large market shares in the region (foreign ownership ratios are the highest
in SEE). On a more positive note, the expected positive asset quality trends in CE
should bode well for large foreign-owned banks, especially in view of the substantial foreign ownership ratios in nearly all CE markets (with the exception of
the heavily burdened Slovenian banking market).
Number of countries with negative RoE
* out of 15 CEE banking sectors covered in this report
(loss-making 2013: SI)
25
CEE: Long-term Return on Assets (%)
3
2
In this connection, 2012 and 2013 have brought greater clarity to the identification of the worst performers in those markets where there has been notable progress with regard to asset quality and possibilities to undertake viable new business. These included the Czech Republic (NPL ratio: 6%), Poland (8%), Slovakia
(5%), and Russia (4%), while in 2013 Slovenia with an NPL ratio of over 20%,
Hungary (14%) and Bulgaria (17%) continued to lag behind. The situation in Romania is somewhat more complex in this respect. Although the NPL ratio was
high at 22% in 2013, the increase was largely driven by loan base deterioration. The NPL ratio is expected to fall as soon as lending activity picks up and a
more decisive balance sheet cleanup occurs.
1
Profitability indicators (RoA, RoE)
0
In 2013, profit development in the CEE banking sectors was characterized by
two major trends. On the one hand, there were signs of broad-based improvement, while on the other, stark regional and intra-regional differences in terms
of profitability remained. On a positive note, in 2013 the number of loss-making banking sectors (RoE) decreased to one (Slovenia), while two sizeable markets (Hungary and Romania) shifted back to a marginally positive RoE after a
few loss-making years. The RoE in 2013 in Hungary amounted to 4.5% (up 8pp
from -3.8% in 2012) and the Romanian banking sector posted average RoE of
1.3%, which was up 7.2pp from -5.9% in 2012. Nevertheless, overall banking
profitability in CEE deteriorated slightly on average in 2013. The overall RoA in
CEE decreased from 1.5% (2012) to 1.2% (2013) and the RoE slid from 13.3%
to 11.5%. However, this moderate fall cannot be attributed to clear-cut deterioration in bottom-line profits or squeezed profit-making opportunities, as both indicators represent broad, weighted averages with diverse components. Besides,
the RoE decline has been due to strengthening of capital base by the banks (a
positive stability impact of which is likely to outweigh the somewhat negative impact on profitability ratios in this case). This was the intended result following action by major CEE banks and their regional subsidiaries, which was also partially
driven by regulation aimed at solidifying capital positions. The implementation
of new, stringent capital requirements (by EU and/or local regulators) and more
conservative own leverage strategies were therefore reflected in lower RoEs.
Even so, 2013 was still a year in which the macroeconomic backdrop and market sentiment in most CEE banking markets became more favorable and created
modestly positive loan extension momentum in several countries. Nonetheless, an
ultra-low rate environment in several CEE markets (especially in CE and SEE) limited the interest-bearing opportunities in new business. At the same time, 2013
-1
-2
2000
2003
CE
2006 2009
SEE
2012
CIS
CE: Return on Equity (RoE, %)
30%
20%
10%
0%
-10%
-20%
-30%
-40%
SI
HU
SK
2012
PL
CZ
2013
CEE: Long-term Return on Equity (%)
25
23
20
18
CE: Return on Assets (RoA, %)
15
2.0%
13
1.0%
10
8
0.0%
5
-1.0%
3
-2.0%
0
-3.0%
-3
SI
HU
2012
SK
PL
2013
26
CZ
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
CE
SEE
CIS
Euro area*
CE (excl. Hungary)
* H1 2013 data for euro area
saw stable or slightly improving RoA ratios in some major markets, in particular
in Poland, the Czech Republic, Slovakia and, as already highlighted, in Romania and Hungary, which finally emerged from negative return territory. The decline of profitability ratios in Russia, which moved down from their 2012 heights
(RoE down to 15% in 2013), is responsible for almost the entire decrease in the
average 2013 RoA in CEE and to a large extent also impacted the RoE in the
CEE region.
SEE: Return on Equity (RoE, %)
8%
6%
4%
2%
0%
-2%
-4%
As with other indicators, the average RoE in CEE masks strong regional and intra-regional divergences. In 2013, the average RoE in CE amounted to 10.6%
and without the negative effects of the Hungarian market would have stood at
12.2%. Such levels are fairly close to the average RoE in the CIS region, which
is mainly driven by Russia and came in at 13% in 2013. In terms of average
profitability, SEE continued to underperform in 2013 with a disappointing RoE of
only 2.4%, which still is an improvement on the negative RoE of -0.5% in 2012
that was caused primarily by the Romanian market. The outlined regional profitability trends imply that the sizeable performance gap between CE and SEE decreased slightly in favor of the SEE markets, but a large difference remains. The
challenging profitability situation in SEE is also reflected by the fact that average
government bond yields and/or risk premiums (i.e. LCY bond yields or yields on
government Eurobonds, where there are no long-term rates in LCY) are above the
banking sector’s RoE. In all other CEE sub-regions there remains a decent positive differential between banking RoE and bond yields and/or risk premiums. For
the CIS region, the difference between banking RoE and government bond yields
and/or risk premiums is not substantially higher than the CE average. Hence the
fact that on a risk-adjusted basis (i.e. factoring in volatility risks on CIS banking
markets), on average the CE banking sector already looked fairly promising as
compared to the CIS region in 2013, where profitability in Russia showed a tangible downturn. In the light of the most recent adverse economic, FX and rates
developments in Russia and Ukraine, a narrowing or even a closing of the profitability gap between the CE and CIS banking markets, as well as a reduction in
the positive gap between banking profitability and government bonds yields in
the CIS countries, can be expected to continue throughout 2014. Therefore, for
Western European banks with a strong presence in CEE and especially Russia,
2014 will represent a test of diversification across the whole CEE region in general and the profitability of their SEE and CE operations in particular.
Within this context, it must be stressed that another general distinguishing feature
of the CE banking sector, where the difference between balance sheet growth in
LCY and EUR-terms in 2013 was modest, is the high degree of through-the-cycle
resilience in terms of profitability, e.g. as demonstrated during the five post-crisis
years of 2009-2013. The average RoE in CE for these years stood at 12.5% with
a standard deviation (STD) of 1.5%. In Poland, the average RoE for this 5-year
period was 13.7%, with a STD of just 0.8%. The Czech banking sector posted
an even higher average RoE of 24% over the same period, although with a somewhat higher volatility (i.e. a STD of 2.4%). The respective parameters for the Slovak banking market were at 10% (RoE) and 3.2% (STD). Hungary and Slovenia definitely constitute exceptions with regard to this positive regional throughthe-cycle resilience. As opposed to the core CE banking markets, as always the
core CIS markets are characterized by more volatile margins and higher risk premiums. For 2014, downside potentials along the lines of past patterns of profitability volatility are expected. In the past five years, the average RoE in Russia’s
banking market was 13.6% with a STD of 5.4%. This alone is quite a high volatility indicator and is likely to have a negative effect on profitability and return
ratios in 2014 that may even extend into 2015. This said, the Russian banking
-6%
RO
HR
RS
BH
BG
2012
AL
2013
SEE: Return on Assets (RoA, %)
1.3%
1.0%
0.8%
0.5%
0.3%
0.0%
-0.3%
-0.5%
-0.8%
RO
HR
AL
BH
2012
BG
RS
2013
CIS: Return on Equity (RoE, %)
20%
15%
10%
5%
0%
UA
BY
2012
RU
2013
CIS: Return on Assets (RoA, %)
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
UA
2012
RU
BY
2013
27
RoE: Selective CEE countries (%)
25%
20%
15%
10%
5%
0%
-5%
RU CZ SK BG
PL
RO HR HU
RoE, 5 banks weighted average*
RoE, market aggregate
* RBI, ERSTE, UniCredit, Societe Generale, OTP
Source: company data, national central banks, Raiffeisen
RESEARCH
sector’s RoE may decline to around 10% in 2014, which is likely to once again
have a significant impact on overall banking profitability ratios in the entire CEE
region. The economic and political situation in Ukraine also indicates a downside risk to bank profits. The only difficulty here is to “guestimate” the extent of
the profitability drop. In this connection, it should be stressed that over the past
five years and even before, the Ukrainian banking sector was characterized by
very high return volatility. The average RoE in the Ukrainian banking sector for
the years 2009-2013 was -9%, with a STD at 14%, i.e. from a statistical point of
view, the situation has been relatively unpredictable for quite some time.
In SEE, the major positive shift in 2013 was the return of Romania’s banking sector to profit (after being in the red for three years). Romanian banks posted a RoA
of 0.1%, and their RoE was at 1.3%. Although fairly modest in absolute terms,
these figures may well prove to be an indication that banking in Romania is coming out of recession. Relatively upbeat expectations and increasing balance sheet
clean-ups by major market players also support this view. Among the remaining
SEE markets, Bulgaria and Albania showed acceptable, though unspectacular,
performance ratios in 2013 (with RoEs in the range of 5-6%), while all other SEE
markets were characterized by RoEs below 3%. Given the depressed earnings
situation in SEE over the past few years, it is rather hard to compare the stability of returns in these markets with the two other CEE sub-regions. The SEE profitability “observation cloud” appeared uneven, and therefore the average RoA
and RoE ratios in SEE were roughly equal to their standard deviations within the
past five years. On average, the RoE for SEE stayed at 1.9% from 2009-2013
with a STD of 1.8%.
CEE vs. EA profitability (RoE, %)*
The profitability data (RoE) of the largest Western European banks doing business in CEE show a rather mixed set of (cross-country) figures. The weighted average for the five international banking groups with high CEE exposure (namely
UniCredit, RBI, Erste Bank, SocGen and OTP, as at September 2013) was markedly lower than the overall market RoE in countries such as the Czech Republic,
Poland and Romania, but notably better than the market RoE in Hungary, Bulgaria, Slovakia and Russia, and virtually the same as in Croatia. On the positive side, these ratios point yet again to the advantages of the big Western European banking groups with regard to technologies and risk management, which
enable them to beat the average market profitability in markets with higher risks.
The poor market performance in Romania is explained by the high costs of credit
risks, in particular those of Erste Bank.
14
12
10
8
6
4
2
0
2012
CEE
2013*
Euro area
* H1 2013 data for euro area
CEE: Bank RoE - gov. bond yield (pp)*
20
15
10
5
0
-5
-10
2005
2007
CE
2009
SEE
2011
2013
CIS
* Long-term gov. bond yields if available, otherwise
yields on long-term gov. FCY instruments
28
However, the relative underperformance of leading Western banks in profitable but generally lower-risk CE markets such as Poland and the Czech Republic
is perhaps an evidence that these banks are not seizing emerging opportunities
actively enough. On the other hand, the reason could be purely statistical and it
might be difficult to employ micro- and macroeconomic RoE data for banking in
this regard because the largest international CEE banks report according to IFRS,
while the local market statistics are still largely based on local accounting standards. Part of the differences outlined may be related to this statistical effect. There
could also be an economic rationale behind this question, as large international
CEE banks are subject to their domestic regulations and thus restricted as far as
increases in their exposures are concerned.
With the macroeconomic mood becoming more positive throughout CEE in general, the topic of ongoing business optimization and efficiency improvement continues to be particularly important for Western European banks operating in the
region. In 2014 and beyond, this issue will be applicable to the Russian banking
Average annual loan growth rate 2014-2018
(% yoy in LCY-terms)
CEE: Expected loan growth trends (2014 - 2018)
CEE: Banking market divergence*
75%
13%
Romania: 10.8%
12%
11%
60%
Poland: 8.7%
10%
45%
Russia: 9.5%
30%
9%
8%
15%
7%
99
Czech Republic:
5.4%
6%
3%
100
150
200
250
300
Change in total loan volume year-end 2013 - 2018 (EUR bn)
Average annual loan growth rate 2014-2018
(% yoy in LCY-terms)
CEE: Expected loan growth trends (2014 - 2018)
22%
Belarus: 19.8%
20%
18%
16%
Serbia: 10.6%
Albania: 9.6%
12%
Slovakia: 8.2%
10%
Ukraine: 7.1%
8%
Bosnia a.H: 4.7%
6%
Slovenia: 4.9%
4%
Hungary: 6.3%
Bulgaria: 3.6%
2%
Croatia: 0.1%
0%
-
5
11 14f 17f
10
15
20
* Loan-to-GDP ratio; ** High-growth markets: PL, CZ, SK,
RO, RS, AL, RU; Other banking markets: HU, SI, BG,
HR, BH, UA, BY; Source: National sources, Raiffeisen
RESEARCH
High-growth vs. Other CEE markets
Given different loan-to-GDP and GDP
per capita levels in the CEE banking
markets we are covering, we tend to
split these markets into two categories.
Source: National sources, Raiffeisen RESEARCH
14%
08
Other banking markets**
4%
50
05
High-growth markets**
5%
-
02
25
Change in total loan volume year-end 2013 - 2018 (EUR bn)
Source: National sources, Raiffeisen RESEARCH
sector, where over the past five years business adjustments and cost optimization
were the smallest, and Western-owned CEE banks have larger franchises compared to other markets. In other larger CEE markets such as Poland, the Czech
Republic or Romania (which have witnessed a great deal of cost cutting and optimization in recent years) leading Western European banks will aim for better returns, which will require both a search for profit-making opportunities, continued
competitive pricing (competition is increasing notably on these markets), and further improvements in administrative efficiency.
Medium-term outlook: Where banks can grow in CEE
A number of our medium-term banking sector growth expectations have not
changed substantially since our last CEE Banking Sector Report. We expect annual nominal banking sector growth in the range of 8-10% yoy over the next
five years and consequently a further round of modest financial deepening for
the CEE region as a whole. Based on our growth assumptions, we anticipate the
loan-to-GDP ratio to rise from 51% at year-end 2013 to some 56% by 2018. Our
expectation of another round of financial deepening in CEE is based largely on
the fact that the major banking markets, which represent some 80% of total regional banking assets, continue to be high-growth markets where the loan-to-GDP
ratio remains below a level that can be justified by current and expected GDP
High-growth CEE banking markets:
These markets have a high growth
potential and are characterized by a
loan-to-GDP ratio well below or at least
at a fundamentally backed level compared to adequate long-term financial
intermediation trends. According to
this definition Russia, Poland, Czech
Republic, Slovakia, Romania, Albania
and to a certain extent Serbia still tend
to be undersupplied in terms of bank
services.1 In these markets, business
strategies based on volume growth are
feasible from both a macroeconomic
and macroprudential point of view.
Other CEE banking markets: These
markets are characterized by high
loan-to-GDP ratios in relation to current income levels (either measured in
comparison to the euro area or financial intermediation trends in Emerging
Markets).1 In such a setting banking
growth is unlikely to strongly outpace
GDP growth on a sustainable basis. In
some of these markets loan-to-GDP ratios may decrease. However, this does
not indicate that there will not be any
growth opportunities at all. There still
might be a multitude of business opportunities apart from loan volume growth.
Furthermore, a certain stabilization of
loan-to-GDP ratios following a period of
very strong growth may help to restore
medium-term banking sector prospects.
1 Source: Raiffeisen RESEARCH 2011 CEE Banking
Sector Report
29
CEE: LCY- vs. EUR-based loan growth*
20%
EUR-based loan growth >
LCY-based loan growth
15%
per capita levels. According to our definition, we consider the banking markets
in Russia, Poland, the Czech Republic, Slovakia, Romania, Serbia and Albania
as the ones with the highest potential for a significant deepening of financial intermediation over the next five years.
RO
10%
PL
CZ
RS
BY
UA
5%
EUR-based loan growth
< LCY-based loan growth
0%
0%
5%
10%
15%
20%
On a sub-regional level, we expect that the average loan-to-GDP ratio in CE will
inch up by 7pp, from 55% in 2013 to 62% in 2018. Based on the achieved deleveraging over the last few years, we forecast the loan-to-GDP ratio in SEE to increase marginally by 1-2pp by 2018 (from 51% in 2013). In the CIS region, we
anticipate a rise in the average loan-to-GDP ratio to 53%, up 4pp from 49% as
at year-end 2013. This said, as compared to previous editions of our CEE Bank-
* average annual 2014-2018 loan growth rate
Focus on: “Banking Union” and CEE – complex interactions and possible learning effects
The foundation of the so-called “Banking Union” (BU) in the euro area involves the concentration of the Single Supervisory Mechanism
(SSM) and banking supervision at the European Central Bank (ECB) along with the Single Resolution Mechanism (SRM), the phasing-in
of a unified bank resolution and “bail-in” procedure, which will put the euro area well ahead of other jurisdictions.
Both the SSM and SRM will increase the transparency and resilience of the participating, individual (Western) European banking sectors
and the euro area’s banking sector as a whole. Basically, the objective of the BU is to enhance the clarity, comparability and harmonization of the banking supervision, regulation and supervisory culture inside the euro area and possibly the rest of the EU. Moreover, the
BU will strengthen the cross-border dimension of European banking supervision and regulation. The last few years revealed sizeable
and complex cross-border banking linkages. Therefore, the foundation of the BU is also in the interest of the CEE countries, as the related
tensions in major Western European banking sectors caused negative spillovers in CEE. Greater and more stable confidence in the viability of Western Europe’s banking sectors, based on the BU architecture, may now produce positive effects in CEE (e.g. as mirrored
by the broad-based decline of bank funding costs in recent years, which also benefits larger Western European banks in CEE). For euro
area members in CEE (e.g. Slovakia, Slovenia) there is no choice. They have to follow the rules of the game inside the BU. However,
for CEE countries such as Poland, the Czech Republic, Hungary, Romania, Bulgaria or Croatia (still outside the euro area) the question
as to whether they should join the BU on a voluntary basis (as offered by current regulations) remains.
Beyond the political sphere, there are some valid arguments for the claim that having as many non-euro area EU countries as possible
on board would make sense. Foreign ownership ratios in the CEE banking sectors are well above the levels in most euro area countries
and European financial and banking sector integration extends well beyond the euro area. Consequently, very broad-based SSM
participation might also help to prevent contrasting regulations at national levels (e.g. where national interests are in conflict with the
overlapping European goals of the single market). Furthermore, although complex by nature, decision-making inside the SSM/SRM
might still be faster than less organized home/host regulatory coordination outside the SSM. And in any event, decisions taken within
the SSM and SRM may have significant spillover effects on non-opt-in countries. Therefore, BU participation by the non-euro area CEE
countries can ensure that their interests are reflected in broader European regulation. In addition, there are definitely some aspects
where the CEE banking sectors deviate from those in Western Europe (e.g. measurements of the credit-to-GDP gap within the Basel III
framework, which are relevant to countercyclical capital buffer implementation (CCB), may have to be treated more cautiously in CEE
than in Western Europe). From a private sector perspective, the broad-based participation of non-euro area CEE countries could also
be highly beneficial. Firstly, SSM participation might assist the streamlining of the supervision of large cross-border banks (i.e. for large
cross-border banks the costly multiplication effects of dealing with and reporting to several regulators with different legislations would
be reduced considerably). This may also help to lower overall compliance and supervisory costs significantly. The latter might also be in
the interests of several CEE countries given the relatively small size of their banking sectors (and hence their revenue bases). Moreover,
broad-based SSM participation could assist the limitation of national ring-fencing and/or additional uncoordinated local regulation that
sometimes lead to even higher market risks at the group level of large cross-border banks in CEE. Furthermore, opt-in countries within
the BU would still have the possibility to apply a wide range of national (macro-prudential) regulation despite the centralization of microand macro-prudential supervision at the ECB.
However, there are also several arguments, which could keep non-euro area countries in CEE from joining the BU at least for the time
being. For instance SSM participation is also linked to SRM participation and this makes the choice far from easy. The SRM implies
mutual burden sharing (via its Single Resolution Fund, SRF), which looks less attractive from a CEE perspective. This holds especially
true, as the SRF is likely to be based on some pooling or mutualization of national resolution funds. The fact cannot be ignored that
with the exception of Slovenia, banking crisis costs are concentrated in the Western European banking sectors and there remains some
uncertainty with regard to their legacy assets. Moreover, in most CEE countries traditional lending dominates the banks’ balance sheets
(which is not the case in all the larger euro area banking sectors).
30
The dimensions of the BU cannot be underestimated. It constitutes the biggest transfer of sovereignty and potential financial burdens
since the euro area’s foundation. This can be shown easily by comparing the fiscal and banking sector liabilities. At present, depending upon the definition, the average public sector indebtedness of euro area members stands at some 90% of GDP, while the liabilities
of euro area banks amount to some 257-317% of GDP (i.e. including or excluding interbank liabilities). As a rule of thumb, smaller
countries with sizeable banking sectors and/or international banks may gain from the BU. That said there might not be near-term gains
from voluntary BU membership in CEE. Moreover, some CEE countries have much lower L/D ratios, while all CEE banking sectors are
characterized by far lower leverage ratios than the largest euro area banking sectors. Therefore, several CEE countries could be de facto
liquidity providers within the SSM and it remains unclear as to how this rule would be handled in times of crisis.
However, it has to be stressed that in the case of disagreements, non-euro area countries would have the option of leaving the SSM
(and hence the SRM) with the possibility of re-entry after a certain period of time. On the one hand, such a flexible opt-in and opt-out
mechanism (a fairly new aspect of European politics) could make sense, but on the other, it is obvious that in a more volatile market environment an opt-out, following a previous opt-in, may at least temporarily add to uncertainty. Decision-making structures in the SSM are
given, providing CEE countries with some important constraints (e.g. that non-euro area countries cannot be part of the ECB Governing
Council). Moreover, the problem remains that the CE and SEE banking sectors are very small in comparison to the euro area aggregate
(total loans in all the CEE countries within the EU currently total just 4.4% of the euro area’s total loan stock). Therefore, the concerns of
the CE and SEE banking sectors, which could also arise in the case of voluntary BU participation, may not receive sufficient attention
inside the BU, in spite of the fact that voluntary participation would mean that a large part of the banking assets in non-euro area CEE
countries would be part of the SSM. Furthermore, in several CEE countries there is also some skepticism with regard to the complexity
of the BU and the current Western European focus on macro-prudential regulation. In CEE sound business models and soundness at the
micro-level are seen as being key to financial sector stability, while in some CEE countries the view that the new supervisory complexity
in the euro area and beyond also has its costs and drawbacks predominates.
We think that a likely scenario will involve non-euro area countries in CEE taking a wait and see stance with regard to the option of
joining the BU (i.e. the SSM and SRM) on a voluntary basis. The position recently adopted by the local authorities in the Czech Republic,
Poland, Hungary and Romania is fairly skeptical with regard to the handling of their interests within the BU framework that is currently
evolving. From Bulgaria and Croatia there are more neutral signals, but to date there is no clear indication that any non-euro area country may opt-in for the SSM/SRM-framework in 2014. Therefore, it will be crucial that pan-European institutions for banking regulation
such as the European Banking Authority (EBA) and the European Systemic Risk Board (ESRB) keep a close watch on the consistency of
regulation inside the BU (substantially driven by the ECB) and within the EU as a whole. Moreover, it will be up to the non-participating
CEE countries to remain as close as possible to the BU in terms of regulatory standards in order to avoid competitive disadvantages
and/or regulatory arbitrage. Furthermore, the BU and its institutions have to seek close cooperation with European countries (mostly
located in SEE) that are still not part of the EU, but may become members in roughly the next ten years. Here further cooperation within
the much appreciated “Vienna Initiative” framework will be required.
As far as near-term business prospects are concerned, say for the next one to three years, the decision as to whether a non-euro area
CEE country will or will not opt-in for the BU is unlikely to have a strong influence. A non-opt-in would not represent a change to the status
quo and banks operating in the region are used to the sometimes complex home/host supervisory coordination in CEE. In addition,
overall business strategies will be determined to a far greater extent by market-related factors. However, from a long-term perspective
an uneven playing field in terms of regulation and supervision may still have a slightly negative impact (definitely also depending upon
the concrete national regulation of an opt-out country). Nevertheless, it has to be stressed that, going forward, there should not be any
de-facto or de-jure differentiation from home country supervision inside the BU with regard to participating, opt-in and non-opt-in CEE
countries.
From a more strategic perspective the BU might also help to bring the ownership structures in the Western European banking sectors
slightly closer to those in CEE. Up to now, equity-based, cross-border banking integration inside the euro area has been fairly modest. In
fact, compared to CEE, previous banking integration inside the euro area was largely debt-based. However, the high degree of crossborder banking sector integration in CEE also represents a result of the crisis-induced clean-up, which is an aspect that underlines the
need for possible structural changes in euro area banking. An efficient BU that also helps to limit country-specific risks will require the
tangible cross-border expansion of healthy euro area banks inside the euro area. Recent financial fragmentation inside the euro area
has shown that in times of crisis, incentives for banks differ substantially in an environment of equity- or debt-based cross-border banking
sector integration. Equity-based integration offers more incentives and possibilities to maintain cross-border stability in periods of difficulty (as shown by the “Vienna Initiative” framework). By contrast, debt-based integration increases the risks of “cut and run” behavior
(as we have seen inside the euro area in the past). However, at present the BU is not promoting further cross-border risk sharing of the
type that could be offered by equity-based banking sector integration. Critical observers of the BU even foresee the risk that from a
short-term perspective it may create smaller and more nationally focused banking systems. For example, capital ratios have been raised
substantially inside the euro area, although this was carried out partially via substantial (cross-border) deleveraging.
31
CEE banking growth outlook*
Chg. total
loans yearend 2013 18 (EUR bn)
PL
Avg.
Avg.
growth rate growth rate
2014-18
2014-18
(LCY-terms) (EUR-terms)
125
8.8%
10.2%
CZ
48
5.4%
8.7%
SK
19
8.2%
8.2%
HU
14
6.3%
5.9%
7
4.9%
4.9%
37
10.9%
11.8%
SI
RO
AL
3
9.7%
9.8%
RS
8
10.7%
8.5%
BH
2
4.8%
4.8%
BG
6
3.7%
3.7%
HR
0
0.1%
0.1%
RU
206
9.5%
9.4%
BY
10
19.8%
6.5%
UA
13
7.1%
5.2%
CE
213
7.3%
7.3%
SEE
57
7.7%
7.9%
CIS
404
9.7%
9.0%
CEE
674
8.9%
8.4%
* Countries within the sub-regions sorted by EUR-based
loan growth rate
Source: Raiffeisen RESEARCH
Bankable
population
penetrated *
GDP p.c.
(EUR at
PPP)
2009-11
2013
Potential
based
on GDP
trend**
PL
70%
18,000
HU
73%
15,480
-5%
4%
CZ
81%
20,337
-1%
SK
80%
18,943
4%
SI
97%
20,800
12%
CE
80%
18,382
4%
RO
45%
14,180
-18%
BG
53%
12,238
-3%
HR
88%
15,300
22%
RS
62%
8,800
16%
BH
56%
7,550
13%
AL
28%
8,100
-15%
SEE
54%
12,705
-6%
RU
48%
14,400
-14%
UA
41%
6,200
4%
CIS
49%
13,342
-10%
EA
94%
28,932
n.a.
* Population age 15+ having an account with a formal
financial institution
** Based on the correlation between GDP per capita
and bankable population penetration in CEE; negative
value shows relative underpenetration, positive value
relative overpenetration
RESEARCH
32
ing Sector Report, there are definitely changes with regard to the regional banking growth outlook that reflect structural macroeconomic strengths and weaknesses. Given the expected regional projections regarding financial deepening,
we envisage that loan growth in Russia and the whole CIS region will marginally
outpace loan growth in the CE region and some SEE countries. This relative shift
in medium-term growth expectations clearly represents a game change. Before
the most recent setback in near-term and medium-term growth expectations, we
awaited the largely underpenetrated Russian banking market to clearly outpace
other CEE banking markets. Now, our medium-term loan growth expectations
for markets such as Poland and Romania are more or less identical with those
for Russia. This holds especially true in EUR-terms given our expectations that the
RUB is likely to follow a modest, but fundamentally backed medium-term depreciation path against the EUR and the USD. By contrast, we foresee some modest, medium-term appreciation of the PLN and the RON against the EUR. Therefore, in terms of expected, medium-term growth rates, Russia may lose its position
as the strongest growing CEE banking market (in EUR-terms) over the next few
years. Nevertheless, due to its sheer size the Russian banking market is expected
to post the largest volume growth by far in the years 2014-2018. On the basis
of our macroeconomic RUB and financial deepening forecasts, we expect the total loan volume in the Russian banking market to grow by some EUR 200 bn till
2018. In terms of expected total loan volume growth, Russia will be followed by
Poland (EUR 125 bn until 2018), the Czech Republic (EUR 48 bn) and Romania
(EUR 37 bn). In all other individual CEE banking markets, total loan growth is expected to add up to less than EUR 20 bn until 2018. However, some 80% of the
total expected loan stock growth in CEE banking is likely to take place in Russia,
Poland, the Czech Republic and Romania. It goes without saying that these top
banking growth markets (by volume) in CEE show a substantial under-penetration
with regard to several demand-side indicators such as loan-to-GDP ratios in relation to income levels, or the already penetrated bankable population. In Russia,
Poland, the Czech Republic and Romania the penetrated bankable population remains below the potential estimated in a larger sample of CEE countries. Hence,
other CEE banking markets with relatively high loan-to-GDP ratios also tend to
demonstrate a penetration of the bankable population, that is above the values
that could be anticipated given their current income position. Nevertheless, for
the CEE region as a whole the level of the already penetrated bankable population looks modest. At present, around 60% of the bankable population has an
account with a formal financial institution, while the average figure in more mature markets is generally above 80% and stands at 93% inside the euro area.
In recent years the leading Western European banks in CEE have clearly refocused their operations on the largest and most attractive or underpenetrated CEE
markets (among them Russia, Poland, the Czech Republic and Romania). This
process has taken several years, and the first clear results of this rethink only became evident in 2013 (e.g. in terms of profit allocation). Moreover, there were
a number of outright market exits from less promising markets and downscaling
plans were announced. We expect the increasing penetration of markets with the
most promising near-term potential (by and large the strongest and most resilient
economies within CEE) to continue. These are the markets where banks achieve
the best returns in their major business lines, further expand their franchises in
both corporate and retail business and are placing a growing emphasis on investment banking.
Markets, market approach, networks
Western European-owned CEE banks will probably continue to review their overall banking market and network approach in the region. The concentration of
nearly all major CEE banks on a few, but highly attractive growth markets may
well subject them to increasing margin pressure and therefore cannot be a winning strategy throughout the cycle. Consequently, major CEE banks have to cautiously rethink their market position in every country and also consider a halt to
certain business and product lines in selected markets, or even exiting from less
attractive ones if necessary. For some banks, however, the presence in what are
currently only moderately attractive CEE banking markets such as Serbia, Albania, Ukraine and Belarus will continue to make strategic sense. Restructuring processes in CEE banking markets inside the EU may also take advantage of the
“Single European Passport” principle. Moreover, considerable potential remains
for introducing countrywide smart (e-based) solutions in the CEE markets. Here,
Western players that are also market leaders in this field in their home markets
may fully catch the upside. Smart banking solutions may also be a way of optimizing and reducing the still fairly extensive branch networks in several CEE
countries. For the time being, we do not expect significant M&A transactions in
the CEE banking sector involving the leading Western European players. Nevertheless, we can envisage some transactions on a portfolio basis during which the
largest banks may absorb smaller portfolios from less committed players in the
region, as we have partly seen in Russia, Romania and the Czech Republic. In
terms of optimizing existing franchising networks, the most challenging balance
may arise from the trade-off between securing standardization and harmonization (e.g. via shared service centers) and the need to remain close to the domestic markets.
Up to now, we have not witnessed significant NPL (selling) transactions in CEE
markets (this is especially true with regard to retail portfolios). The absence of
transactions can be attributed to several factors that have determined the lack of
appetite on the part of buyers, such as limited CEE experience of international
distressed debt investors, a shortage of valid collector solutions, a marked deterioration in collateral value or simply different price expectations. The latter are
also based on a degree of evidence that case-by-case handling could result in
better recoveries than a loan sale. However, the outlook for a more broad-based
economic stabilization in CE and SEE may open up room for a rethink concerning the possibility of selling larger NPL portfolios (especially regarding real estate
or corporate loans). In some CEE markets we see an increasing interest in purchasing NPL portfolios at reasonable prices.
GDP per capita (PPP, EUR,
2013)
In this section we will provide some food for thought on major topics that will
most likely keep CEE banks busy over the next few years. The main strategic
fields that are important to improved profitability are market approach, network
optimization and funding, including capitalization.
CEE: GDP p.c. & account penetration
23,000
20,000
17,000
14,000
11,000
8,000
5,000
20% 40% 60% 80% 100%
Population with an account
RESEARCH
CEE: GDP p.c. & e-payments
GDP per capita (PPP, EUR,
2013)
Strategic topics for major CEE banks
23,000
20,000
17,000
14,000
11,000
8,000
5,000
0% 10% 20% 30% 40% 50%
Usage of electronic payments
RESEARCH
Usage
GDP p.c.
Potential
e-payments (EUR at PPP,
based on
(2011) *
2013)
GDP trend**
PL
31%
18,000
-9%
HU
29%
15,480
-6%
CZ
45%
20,337
-5%
SK
43%
18,943
0%
SI
41%
20,800
-9%
CE
38%
18,382
-6%
RO
11%
14,180
-19%
BG
5%
12,238
-22%
HR
17%
15,300
-18%
RS
10%
8,800
-8%
BH
6%
7,550
-9%
AL
3%
8,100
-14%
Funding, capital and product mix
SEE
8%
12,705
-18%
As far as funding is concerned, the two major strategic issues facing CEE banks
in 2014 and beyond are identical to those that worried all the banking groups in
the euro area some two to three years ago. Firstly, there is the matter of capitalization, especially in view of the imposition of the new banking capital requirements according to Basel III standards, the additional capital buffers imposed on
European SIFIs, the “Austrian Finish” and the requirements of local CEE regulators relating to an increased degree of risk perception. The new regulatory re-
RU
8%
14,400
-24%
UA
6%
6,200
-4%
CIS
8%
13,342
-18%
EA
61%
28,932
n.a.
* % of population age 15+ using electronic payments;
** Based on the correlation between GDP per capita
and usage of electronic payments in CEE; negative
value shows relative underpenetration, positive value
relative overpenetration; Source: World Bank, national
sources, Raiffeisen RESEARCH
33
quirements introduced in recent years are tough for large Western Europeanowned CEE banking groups, both in terms of securing sufficient capital stocks
and in adjusting their asset mix.
Refinancing large Europ. CEE banks*
250
200
150
100
50
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
0
* EUR bn totals for RBI, ERSTE, UniCredit, Societe Generale, BNP Paribas, Intesa, Santander, Commerzbank,
KBC
Source: Bloomberg, Raiffeisen RESEARCH
CEE vs. EA: Loans (% of total assets)
70%
60%
50%
40%
30%
20%
10%
2006
CIS
SEE
EA
CE
0%
2013
The first round of checks and adjustments was completed by the beginning of
2013, and all major Western European-owned banking groups managed to
demonstrate sufficient capital ratios. However, the second round of capitalization
adjustments is still ahead. Therefore, certain negative surprises on the RWA side
cannot be excluded, for example, as a result of the European Asset Quality Review (AQR), which is expected in the course of H2 2014. In addition, the intention of the Austrian regulators to impose more stringent capital requirements on
the banks with large international exposures remains in place. At the same time,
profits remain a fairly limited source of new capital (albeit the more favorable
macro trends and the gradual improvement of NPLs in CEE suggest that the next
12-14 months will be more hopeful). New equity placements and Tier II solutions,
such as the issue of various hybrids, are possible and have been implemented by
the largest Western European-owned CEE banks, although these were and will
continue to be strongly dependent on market sentiment. Last but not least, an important issue for the coming years will be the possibility of state support for euro
area SIFIs in capital need (for example as a result of the AQR) and the impact that
such a scenario would have on both the cost of capital and bank ratings. Given
all these complications for large European banks with high CEE exposures, we
expect banks to continue to focus on less capital-intensive products in order to secure compliance with the new capitalization norms. In this regard, it has to be
mentioned that corporate lending in CEE remains structurally still more profitable
than in Western Europe markets. Therefore, Western European banks in CEE will
possibly concentrate more on corporate lending than in their home markets, although there is an increasing corporate bond flow in less mature CEE markets.
The second point relates to alternative funding sources. Hence, the trade-off with
deposits (primarily market funding) in CEE countries remains largely untouched.
Cautious lending and good deposit funding secured sufficiently low L/D ratios
for the major players in 2013 and provided potential for loan growth for at least
next year. At the same time, the majority of CEE markets are still lacking alternative funding sources, which would be essential for the future growth of the banking sectors. Accordingly, the issue of local bond market development becomes
particularly important, as during the next few years the issuance of LCY-denominated debt by the banks could well evolve into a supportive funding source. Until recently, the most developed local bond market in the CEE region was Russia,
although countries such as Poland and the Czech Republic and possibly Romania (given first bank bond issuance recently) offer as yet untapped potential for
this kind of funding.
In addition, the high reliance to date of the CEE banking sectors on capital consuming traditional loan business also has some important implications. Firstly,
major CEE banks are likely to expand in non-capital consuming (bank) activities. Secondly, asset-based finance transactions that do not stretch the own capital position may gain in importance. Up to now significant deals were limited
to the Russian market, but we may see further transactions in the future (also in
other markets and with more diverse collateral). For example, Western Europeanowned CEE banks may mobilize their group-wide EUR, USD and/or CHF assets
for asset-backed finance or covered bond transactions.
Gunter Deuber, Elena Romanova
34
Basel III implementation timeline – major highlights
2011
2012
Minimum Common Equity Capital Ratio
2013
2014
2015
2016
2017
2018
2019
3.5%
4%
4.5%
4.5%
4.5%
4.5%
4.5%
0.625%
1.25%
1.875%
2.5%
3.5%
4%
4.5% 5.125%
5.75%
6.375%
7%
6.0%
6.0%
6.0%
Capital Conservation Buffer
Minimum Common Equity + Capital Conservation Buffer
Minimum Tier 1
4%
4%
4.5%
5.5%
6.0%
Minimum Total Capital
8%
8%
8%
8%
8%
Countercyclical Buffer
Minimum Total Capital + Conservation Buffer + Countercyclical Buffer
8%
8%
Leverage Ratio
Supervisory monitoring phase; first
disclosures since
2015
Liquidity Coverage Ratio
Observation
period
Net Stable Funding Ratio
Observation
period
8%
8%
8%
6.0%
8%
8%
8%
8%
0.625%
1.25%
1.875%
2.5%
9%
11%
12%
13%
Final
adjustments
Final adjustments
Planned
implementation
Final
adjustments
Planned
implementation
Source: Basel III, Raiffeisen RESEARCH
35
Poland
First signs of upside in retail – corporate lending to follow



Positioning for the economic upside started, low investments continue to weigh on corporate lending
Additional increase in balance sheet liquidity, supported by modest balance sheet growth in 2013
Decent profitability; stabilization of asset quality helped to offset pressure on interest rate margins
Total loans vs. GDP per capita
100%
80%
60%
40%
20%
5,000
15,000
25,000
GDP per capita (EUR at PPP)
Data for 2013, red triangle shows Poland vs. all other
CEE markets
Source: NBP, national sources, Raiffeisen RESEARCH
Lending growth (% yoy)*
25
20
15
10
5
0
-5
-10
Jan-10
Dec-10 Nov-11 Oct-12 Sep-13
Household loans (% yoy)
Corporate loans (% yoy)
Mortgage loans (% yoy)
* in LCY-terms
Source: NBP, Raiffeisen RESEARCH
As in 2013 economic growth turned out fairly weak, banks did not experience
a broader upside. However, faster GDP growth in H2 2013 helped to lift annual banking sector expansion figures somewhat. Accelerating loan growth observed in Q4 2013 might even mark the beginning of a new uptrend. Total
loan growth (LCY-terms) rose marginally from 1.2% yoy in 2012 to 3.5% yoy
in 2013. Corporate lending underperformed mostly due to weak investments.
In contrast, retail lending showed an increase, up by 4.2% yoy (compared to
0.2% in 2012). The latter was supported by low inflation and low interest rates.
As usual, mortgage lending enjoyed higher growth than overall retail lending
business (up 4.5%). On a positive note, PLN lending outpaced FCY lending for
mortgages (95% of mortgages are in PLN). Thus, the share of FCY loans in total
loans continued its downtrend (30% of total loans in FCY at year-end 2013, 6pp
below peaks). Going forward, we expect corporate lending to follow the uptrend
in retail lending, a usual pattern at the early stage of a broad-based recovery.
Corporate lending should also profit from state incentives for working capital and
SME loans. Modest growth of loans and assets (up by 4.2% in 2013) helped to
lower the balance sheet leverage, reflected in a L/D ratio of 108% – the lowest
reading since 2007. But the L/D ratio tells only half the story as Polish banks
can also use alternatives to deposits by (re-)financing on local and international
markets. Capitalization is not an issue on the Polish market with its decent capital
adequacy and conservative risk weightings. The NPL ratio decreased slightly in
2013 (from 8.8% in 2012 down to 8.6%). However, the modest overall NPL
ratio masks substantial divergences across segments. In corporate lending NPL
are 11% (large corporates: 9%, SMEs: 13%); in retail the NPL ratio is at around
7% (15% consumer, 3% mortgages).
A fairly stable FX rate and stabilization of asset quality helped to keep promising profitability despite headwinds from modest growth and net interest margin
pressure (a reflection of low key rates and competition for deposits). The 2013
RoA came in at 1.1% (which is about the post-crisis average since 2009). With
12.5% the RoE decreased a tad below its post-crisis average in 2013 (13.5%).
Although we expect an uptick in asset growth, this will not necessarily translate
Key economic figures and forecasts
Poland
2009
Nominal GDP (EUR bn)
Nominal GDP per capita (EUR)
2010
2011
2012
2013
2014e
355
370
382
389
412
451
8,152
9,206
9,612
9,902
10,100
10,701
11,729
Real GDP (% yoy)
1.7
3.9
4.5
1.9
1.6
3.1
3.3
Consumer prices (avg, % yoy)
3.5
2.6
4.3
3.7
0.9
1.2
2.1
11.0
12.1
12.4
12.8
13.6
13.1
12.7
-7.4
-7.9
-5.0
-3.9
-4.1
-3.2
-2.8
50.9
54.8
56.4
55.6
57.1
49.9
49.8
Unemployment rate (avg, %)
General budget balance (% of GDP)
Public debt (% of GDP)
Current account balance (% of GDP)
-3.9
-5.1
-4.9
-3.5
-1.3
-2.8
-4.1
Gross foreign debt (% of GDP)
62.5
66.9
67.5
72.7
71.0
68.7
66.5
EUR/LCY (avg)
4.33
3.99
4.12
4.18
4.20
4.16
4.03
Source: national sources, wiiw, Raiffeisen RESEARCH
36
2015f
311
Poland
Market shares (2013, eop)
immediately into profitability. The latter was kept at decent levels due to imPKO BP, 14.3%
provements to the cost-effectiveness.
Others, 37.9%
However, such measures are largely
Bank Pekao
(UniCredit), 10.7%
exhausted. Moreover, pressure on
the net interest rate margin and fees
driven by macro-prudential regulation
BRE Bank (Commerz(e.g. the Stabilization Fund) are likely
bank), 7.4%
to stay. Backed by M&A, also of leadING Bank, 6.2%
BOS, 1.3%
ing banks, the market share of the Top
Alior, 1.5%
5 banks increased to 46% (40.9% in
BZ WBK (Santander
+ Kredyt Bank),
2012). This trend is also largely reBank BPH, 2.4%
7.5%
flected in the increase of Bank ZachBank Handlowy
Bank Millennium (BC
odni WBK’s (Santander Group) mar(Citibank), 3.2% Raiffeisen Polbank,
Portugues), 4.1%
3.4%
ket share from 4.3% in 2012 to 7.5%
% of total assets
in 2013, as well as in the increased
market share of PKO Bank Polski (by
0.5pp from 13.8% to 14.3%). Recent market concentration lead to concerns among competent Polish authorities (regarding “too big to fail” risks). Yet, from a broader European and regional perspective we do not see too much concentration
in Poland. However, given the regulatory stance it is unlikely that further market consolidation involving the largest players
will take place soon.
Key banking sector indicators
Balance sheet data
Total assets (EUR mn)
growth in % yoy
in % of GDP
Total loans (EUR mn)
2009
2010
2011
2012
2013
273,965
292,755
293,100
330,267
339,309
4.8
6.9
0.1
12.7
2.7
83.7
81.8
85.0
84.6
86.2
202,242
156,084
176,384
181,285
198,230
growth in % yoy
11.7
13.0
2.8
9.3
2.0
in % of GDP
47.7
49.3
52.6
50.8
51.4
54,058
55,472
59,888
66,593
67,024
4.4
2.6
8.0
11.2
0.6
16.5
15.5
17.4
17.1
17.0
133,947
Loans to private enterprises (EUR mn)
growth in % yoy
in % of GDP
Loans to households (EUR mn)
101,361
120,048
120,447
130,436
growth in % yoy
15.2
18.4
0.3
8.3
2.7
in % of GDP
31.0
33.6
34.9
33.4
34.0
53,007
67,547
72,223
78,706
81,083
7.9
27.4
6.9
9.0
3.0
16.2
18.9
20.9
20.2
20.6
52,497
60,406
64,789
62,465
60,567
9.1
15.1
7.3
(3.6)
(3.0)
16.0
16.9
18.8
16.0
15.4
Mortgage loans (EUR mn)
growth in % yoy
in % of GDP
Loans in foreign currency (EUR mn)
growth in % yoy
in % of GDP
Loans in foreign currency (% of total loans)
34
34
36
32
30
138,058
156,647
158,168
177,097
186,970
growth in % yoy
19.2
13.5
1.0
12.0
5.6
in % of GDP
42.2
43.8
45.9
45.4
47.5
132,181
Total deposits (EUR mn)
Deposits from households (EUR mn)
94,368
106,648
108,078
126,211
growth in % yoy
18.6
13.0
1.3
16.8
4.7
in % of GDP
28.8
29.8
31.3
32.3
33.6
113
113
115
112
108
Number of banks
67
70
66
69
69
Market share of state-owned banks (% of total assets)
21
22
22
21
21
Market share of foreign-owned banks (% of total assets)
63
66
66
63
62
Total loans (% of total deposits)
Structural information
Profitability and efficiency
Return on Assets (RoA)
0.9
0.9
1.2
1.2
1.1
Return on Equity (RoE)
13.3
13.7
14.6
14.3
12.5
Capital adequacy (% of risk weighted assets)
13.3
13.7
13.1
14.7
14.2
7.1
7.8
7.5
8.8
8.6
Non-performing loans (% of total loans)
37
Hungary
Bottoming out – upside likely to be limited for the time being



Economic recovery is on its way, but government burden on the financial sector is expected to stay
Retail lending has yet to recover, corporate lending supported by Hungarian National Bank’s scheme
Share of FX loans is slowly decreasing, partially supported by enforced restructurings
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2013, red triangle shows Hungary vs. all other
CEE markets
Source: MNB, national central banks, Raiffeisen
RESEARCH
15
10
5
0
-5
-10
-15
-20
Jan-10 Dec-10 Nov-11 Oct-12 Sep-13
* in LCY-terms
Source: MNB, Raiffeisen RESEARCH
The Hungarian economy turned around in 2013 and GDP growth came just above
1% – in part due to a statistical base effect, but also supported by exports, agriculture and the public sector. In 2014, we expect 2% GDP growth with the public sector remaining a major driver. However, the domestic private sector is still weak and
requires a more sustained stabilization for a recovery. The deleveraging process in
the banking sector continued in 2013, which partly explains why the Hungarian
Central Bank (MNB) launched a “Funding for Growth Scheme” (FGS) aiming to
supply SMEs with cheap HUF funding (maximum interest rate 2.5%). During phase
1, the focal point of the FGS was on restructuring high-cost loans – a quite successful exercise. In phase 2, the emphasis is now on lending – with limited demand so
far. Due to the FGS the share of FX corporate loans dropped from 56% to 50%.
We expect demand for FGS loans to increase in 2014, and net corporate lending
to become positive. For retail lending, however, a turnaround is not yet expected,
as many households have been affected by the HUF weakness. In 2013, the household loan stock declined by more than 5%. In 2014 and in 2015 we expect
households to further deleverage. While HUF-lending is expected to rise due to the
cheaper HUF credit costs, FX-denominated loans remains an issue (55% share in
2013), although there was a notable drop (from 67% back in 2011).
As a consequence of massively reduced interest rates and attractive alternative
investments (e.g. government bonds and mutual funds) households’ bank deposits
are melting away quickly (10% decrease in 2013). This, however, was offset by an
upsurge of corporate deposits. The capitalization improved in 2013, with a capital
adequacy ratio increasing to 17.4% by year-end 2013. The NPL ratio peaked at
14% in 2013, showing contrasting developments in the individual sectors. While
the NPL ratio for corporates decreased (to 16.4% at year-end 2013, down from
18% in 2012, on the back of the FGS), the household NPL ratio went the opposite
direction (up from 16.1% in 2012 to 18.5% in 2013, also due to the shrinking
loan base). These trends are expected to continue in 2014.
After two consecutive loss-making years, the banking sector turned profitable in
2013, albeit at a low level (RoA 0.5%, RoE 4.5%), and many large banks are
still in the red. Another government program targeting problem-ridden FX mortgages, with the possibility of further costs for the related banks, is expected to be
installed before the end of the year. In 2013, Takarékbank (the Central Bank of
Hungary
2009
2010
2011
2012
2013
2014e
96
101
96
98
96
100
9,119
9,619
10,145
9,674
9,876
9,755
10,104
Real GDP (% yoy)
-6.8
1.3
1.6
-1.7
1.1
2.0
2.0
4.2
4.9
3.9
5.7
1.7
1.1
3.2
9.8
11.1
11.0
10.9
10.4
8.0
6.8
-4.6
-4.2
4.3
-1.9
-2.9
-2.9
-2.9
79.8
81.4
80.6
80.2
79.2
81.6
80.9
-0.2
1.1
0.8
1.8
2.8
3.4
4.2
149.9
143.5
130.3
131.1
123.6
121.3
114.4
280
275
279
289
297
313
321
EUR/LCY (avg)
38
2015f
91
Hungary
Saving Cooperatives) was getting full
attention, as the whole savings and
OTP, 21.3%
cooperative bank sector underwent
Others, 27.6%
a state-driven reform and modernization. Of particular interest were the
transactions related to the stake of German DZ Bank, which was purchased
by the government in 2012 and then,
Erste, 8.7%
in early 2014, sold to the Hungarian
BB (GE Money), 2.9%
project company Magyar Takarék. The
goal of this transaction was to enhance
MFB, 4.4%
K&H (KBC), 7.9%
competition in the rural retail and SME
UniCredit, 5.3%
business sector. The long-awaited sale
of MKB (owned by Bayerische LandesMKB (Bay. LB), 7.7%
Raiffeisen Bank, 6.9%
bank) may take place rather sooner
CIB (Intesa), 7.3%
% of total assets
than later. The eventual MKB transacSource: MNB, Raiffeisen RESEARCH
tion would most likely comply with the
goal of policy makers to increase the share of domestic ownership in the Hungarian banking sector. Given the recent re-election of the previous government in April 2014, the policy stance towards the financial sector is unlikely to improve significantly.
Financial analyst: Zoltán Török (+36 1 484 4843), Raiffeisen Bank Zrt., Budapest
Balance sheet data
growth in % yoy
in % of GDP
2009
2010
2011
2012
2013
124,888
121,268
111,934
107,899
104,589
(0.3)
(2.9)
(7.7)
(3.6)
(3.1)
133.1
126.9
126.0
112.1
107.7
46,149
58,129
59,964
53,678
50,003
growth in % yoy
(4.4)
3.2
(10.5)
(6.8)
(7.7)
in % of GDP
61.9
62.8
60.4
51.9
47.5
22,496
28,035
27,369
24,842
23,757
growth in % yoy
(7.1)
(2.4)
(9.2)
(4.4)
(5.3)
in % of GDP
29.9
28.6
28.0
24.7
23.2
23,019
28,721
30,919
27,351
24,832
growth in % yoy
(1.2)
7.7
(11.5)
(9.2)
(7.3)
in % of GDP
30.6
32.4
30.8
25.8
23.7
18,488
22,240
24,699
22,159
20,055
growth in % yoy
(0.9)
11.1
(10.3)
(9.5)
(7.8)
in % of GDP
23.7
25.9
24.9
20.8
19.0
35,635
36,962
32,854
27,401
23,731
growth in % yoy
(4.6)
3.7
(11.1)
(16.6)
(13.4)
in % of GDP
38.0
38.7
37.0
28.5
24.4
61
62
61
55
51
43,630
42,742
40,449
42,856
41,830
growth in % yoy
(1.1)
(2.0)
(5.4)
6.0
(2.4)
in % of GDP
46.5
44.7
45.5
44.5
43.1
27,761
26,580
25,057
26,426
23,373
2.4
(4.3)
(5.7)
5.5
(11.6)
29.6
27.8
28.2
27.4
24.1
133
140
133
117
110
growth in % yoy
in % of GDP
Number of banks
35
35
35
35
35
4.4
4.6
5.3
5.1
5.8
91
90
89
89
88
Market share of foreign-owned banks (excl. OTP, % of total
assets)
69
69
70
68
67
1.7
0.2
(0.2)
(0.4)
0.5
10.1
2.3
(1.7)
(3.8)
4.5
13.1
13.3
13.5
15.7
17.4
5.9
7.8
11.5
13.7
14.0
Source: MNB, Raiffeisen RESEARCH
39
Czech Republic
The Czech banking sector – geared for the future



Economic turnaround expected, supported by external demand, a supportive FX rate and recovery of investments
Positive outlook as a result of rising capitalization, sufficient liquidity, and improving financial standing
Loans to recover gradually, with the highest growth potential in the corporate segment
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2013, red triangle shows Czech Republic vs. all
other CEE markets
Source: CNB, national sources, Raiffeisen RESEARCH
15
10
5
0
-5
-10
Jan-10 Oct-10 Jul-11 Apr-12 Jan-13 Oct-13
* in LCY-terms
Source: CNB, Raiffeisen RESEARCH
The Czech banking sector’s assets grew by almost 9% in 2013 in LCY-terms,
supported by the FX interventions of the Czech National Bank (CNB) with an
impact of approximately +4bp. The Czech economy’s growth numbers turned
positive again in the last quarter of 2013 and the recovery is expected to continue in 2014. The supportive global economic sentiment and the competitive
exchange rate should have a positive impact on exports and consequently lead
to a recovery of investment activities. At the same time, we expect the recovery
of household consumption to be slower and bumpier.
Both corporate and household loans accelerated in 2013, and grew by 3.8%
yoy and 4.5% yoy respectively (in LCY-terms). The term structure of corporate
loans gradually changed towards longer-term credits that grew by more than 6%
in 2013. Corporate bonds continued to gain more importance as an alternative
to traditional bank loans. The growth in household loans was mostly driven by
mortgage loans, which surged by more than 6%. The volume of consumer credits
stabilized, after having posted a decline for two subsequent years. The amount of
newly issued consumer loans grew by 27% yoy. Following this trend, we expect
the growth rate of loans granted to households to remain in a single-digit territory, while the volume of corporate loans is likely to show accelerated growth.
Czech banks’ funding, which is relatively independent from external financing
due to a stable client deposit base, continued its growth in 2013 with an increase of 6.7% yoy. The L/D ratio stayed at the quite low level of 75%, therefore
providing a sufficient funding base for a further rise in lending activity. In 2013
however, caused by low demand for loans, the banks kept a high proportion of
government bonds on their balance sheets. Due to high demand for liquid instruments from the banks, almost 45% of total governmental debt were held by the
local banking sector. The positive development of the banking sector’s financial
results in 2013 enabled it to boost the sector’s capitalization. Thus, the capital
adequacy ratio rose above 17% in 2013.
The NPL ratio remained almost unchanged at 6.1% in 2013, mainly because
of the stabilization of NPLs in the corporate segment (+0.8%) and a moderate
NPL growth in the household segment (+1.3%). The latter was mainly the result
of the current situation on the Czech labor market. However, the NPL structure
Czech Republic
2009
2010
2011
2012
2013
2014e
150
156
153
150
148
160
13,606
14,274
14,835
14,576
14,216
14,074
15,193
Real GDP (% yoy)
-4.4
2.3
1.8
-0.9
-0.9
2.3
2.4
1.0
1.5
1.9
3.3
1.4
1.3
2.0
6.2
7.0
6.7
6.8
7.6
7.3
7.2
-5.8
-4.7
-3.2
-4.2
-1.5
-1.8
-2.2
34.5
38.4
41.4
46.2
46.0
44.2
44.6
-2.4
-3.9
-2.7
-1.3
-1.5
-0.5
-0.1
43.5
47.6
49.0
50.5
51.1
49.8
49.3
26.44
25.28
24.59
25.14
25.98
27.14
26.00
EUR/LCY (avg)
40
2015f
142
Czech Republic
worsened in 2013, as the share of
non-recoverable loans reached 59%.
CS (Erste), 17.2%
This trend remains the main source of
Others, 33.5%
risk for the performance of the Czech
banking sector in 2014. As a consequence, additional provisions for this
CSOB (KBC), 8.0%
loan category need to be created.
Another potential threat to the Czech
banking sector’s profitability is the
Air Bank, 0.9%
narrowing interest margin due to the
Sberbank (Volksbank),
low level of interest rates while at
KB (SocGen), 15.9%
1.9%
the same time market competition is
J&T Banka, 1.5%
PPF banka, 1.2%
increasing. As a natural response to
GE Money, 3.5%
this development, banks are cutting
UniCredit, 10.9%
down costs and are actively seeking
% of total loans
new sources for income. In this conSource: CNB, Raiffeisen RESEARCH
nection, most banks are focusing on
the expansion of their client franchise, the introduction of new technologies and product innovations.
Some marginal changes in the ownership structure of the Czech banking sector were made in 2013 but without a significant
impact on the market concentration. The Top 5 banks still control more than 60% of the banking sector’s assets.
Financial analyst: Lenka Kalivodova (+420 724 266869), Raiffeisenbank a.s., Prague
Balance sheet data
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
2009
2010
2011
2012
2013
159,418
172,776
178,675
189,996
189,749
3.4
8.4
3.4
6.3
(0.1)
112.2
114.3
120.7
124.2
135.2
79,429
86,781
89,314
93,835
91,692
3.1
9.3
2.9
5.1
(2.3)
55.9
57.4
60.3
61.4
65.3
31,616
29,555
31,142
32,095
33,214
growth in % yoy
(6.1)
5.4
3.1
3.5
(4.8)
in % of GDP
20.8
20.6
21.7
21.7
22.5
39,828
33,930
38,339
39,107
41,548
growth in % yoy
13.0
13.0
2.0
6.2
(4.1)
in % of GDP
23.9
25.4
26.4
27.2
28.4
27,222
20,948
24,129
25,543
27,851
growth in % yoy
42.0
15.2
5.9
9.0
(2.3)
in % of GDP
14.7
16.0
17.2
18.2
19.4
10,655
11,941
13,287
13,746
16,704
(1.7)
12.1
11.3
3.5
21.5
7.5
7.9
9.0
9.0
11.9
13
14
15
15
18
101,955
111,257
112,944
124,352
121,697
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
7.0
9.1
1.5
10.1
(2.1)
71.7
73.6
76.3
81.3
86.7
61,512
55,366
61,310
61,791
65,628
growth in % yoy
10.8
10.7
0.8
6.2
(6.3)
in % of GDP
39.0
40.6
41.7
42.9
43.8
78
78
79
75
75
Total deposits (% of total credits)
Number of banks
39
41
44
43
45
2.7
3.3
3.2
2.8
2.6
87
87
84
82
83
1.5
1.3
1.2
1.4
1.4
25.8
21.9
19.3
21.4
20.6
14.1
15.5
15.3
16.4
17.3
5.2
6.5
6.2
6.2
6.1
41
Slovakia
Surge in retail loans supports sector performance



Profitability recovered in 2013 despite headwinds from taxation
Growth of retail loans major factor for positive performance, corporate loan growth expected to catch up in 2014
Sound capital and liquidity position supportive to future growth of banking system
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2013, red triangle shows Slovakia vs. all other
CEE markets
Source: NBS, national sources, Raiffeisen RESEARCH
Lending growth (% yoy)
20
15
10
5
0
-5
Source: ECB, Raiffeisen RESEARCH
After having bottomed out in 2013 at 0.9%, we expect economic growth to accelerate to 2.2% during 2014. The banking sector should benefit from this development, in particular from the recovery of private consumption and investments.
In 2013, the asset growth of the Slovak banking sector has been supported by
a surge in retail loans. Loans to enterprises declined and have only posted a
marginal growth of 0.2% yoy. Investments into securities, mainly into government
bonds, have decreased as a percentage of banking assets. Thus, the development is in line with the trend towards recovery in retail lending, down from levels
which are among the highest in the euro area. Corporate loans remained stagnant, mimicking the overall corporate lending trends in the euro area. Contrary
to this, loans to households posted a steady double-digit growth in 2013, one of
the highest growth rates in CEE. Mortgage loans, up by 12% in 2013, were the
key driver of this development while real estate prices and average mortgage
interest rates further decreased. We expect this trend to continue in 2014, with
retail loans remaining the main driver of the overall lending growth. At the same
time, we see corporate lending recover, supported by higher economic growth
rates. Also, we continue to forecast a positive outlook for deposit growth in the
corporate and retail segments, which are both backed by the stabilizing labor
market and growing income levels. At the same time, the structure of deposits is
expected to further shift towards short-term maturities, as the decreasing interest
rates have translated into a move from term deposits to current accounts. The
Slovak banking sector’s capitalization is decent with a Tier 1 ratio above 15%
and hence sufficient to support the ongoing loan growth in the years to come.
The NPL ratio has been stable at slightly above 5% for the whole banking system.
The share of NPLs in retail loans is close to 4%, while corporate NPLs exceed 7%.
We expect the ongoing banking system recovery and rising volume of loans to
push the NPL ratio further down in 2014.
After a more than 25% decline in net profit back in 2012, 2013 was a more
promising year, with the banking sector’s net financial result improving by 13%
yoy. This development is largely explained by increasing gross income, decreasing operational expenses and lower provisioning costs. Still, the banks’ overall
profitability in 2013 was negatively impacted by the high level of the Slovak
bank levy (0.4% of total liabilities; this rate is expected to be lowered to 0.2% in
Key economic figures and forecasts*
Slovakia
2009
2010
2011
2012
2013
2014e
66
69
71
72
74
78
11,638
12,137
12,777
13,151
13,301
13,669
14,312
Real GDP (% yoy)
-4.9
4.4
3.0
1.8
0.9
2.2
3.0
1.6
1.0
3.9
3.6
1.4
0.7
2.7
12.1
14.4
13.4
13.9
14.2
13.5
13.1
-8.0
-7.7
-5.1
-4.4
-2.8
-2.6
-2.4
35.4
41.0
43.4
52.2
55.4
55.2
56.2
-2.6
-3.7
-3.8
2.2
2.2
2.4
2.2
72.3
74.5
76.5
71.5
81.6
82.9
83.9
* Slovakia is a euro area member as of 1 January 2009
42
2015f
63
Slovakia
2015) and the low interest rate environment. The decreasing margins and
interest rates on assets cannot be fully
compensated by the liability side.
The ownership structure of the Slovak
banking sector is stable with foreign
owners absolutely dominating the
market. Competition has been further
intensifying with the most apparent
effects in the mortgage market. Considering the small size of the Slovak
market, the Top 3 banks have a strong
position. On the deposit side, competition is mainly driven by smaller
banks, which have to pay significantly
higher rates to attract the desired volume of deposits.
Others
14.2%
OTP Banka
2.3%
Slovenska Sporitelna
(Erste)
20.7%
Volksbank Slovensko
(Sberbank)
2.9%
Prima Banka (Penta)
3.4%
Postova banka
5.5%
UniCredit
6.9%
VUB Banka (Intesa)
19.0%
CSOB (KBC)
9.3%
Tatra Banka (Raiffeisen)
15.7%
% of total assets
Source: NBS, Raiffeisen RESEARCH
Financial analyst: Juraj Valachy (+421 2 5919 2033), Tatra banka, a.s., Bratislava
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
2009
2010
2011
2012
2013
53,028
54,695
55,775
58,086
59,554
(15.6)
3.1
2.0
4.1
2.5
84.1
83.0
80.9
81.7
82.6
31,876
33,452
36,624
37,870
39,909
0.7
4.9
9.5
3.4
5.4
50.6
50.8
53.1
53.3
55.3
16,317
15,620
15,688
16,677
16,277
growth in % yoy
(3.3)
0.4
6.3
(2.4)
0.2
in % of GDP
24.8
23.8
24.2
22.9
22.6
13,158
14,773
16,362
17,940
19,733
growth in % yoy
11.2
12.3
10.8
9.6
10.0
in % of GDP
20.9
22.4
23.7
25.2
27.4
9,235
10,581
12,014
13,290
14,860
growth in % yoy
10.8
14.6
13.5
10.6
11.8
in % of GDP
14.6
16.1
17.4
18.7
20.6
375
340
330
520
409
(94.6)
(9.5)
(2.9)
57.7
(21.3)
0.6
0.5
0.5
0.7
0.6
1.2
1.0
0.9
1.4
1.0
37,541
39,642
40,426
42,980
44,823
growth in % yoy
in % of GDP
growth in % yoy
(8.4)
5.6
2.0
6.3
4.3
in % of GDP
59.5
60.1
58.6
60.5
62.1
25,990
21,090
22,248
23,869
25,312
growth in % yoy
(1.2)
5.5
7.3
6.0
2.7
in % of GDP
33.4
33.8
34.6
35.6
36.0
85
84
91
88
89
Number of banks
26
29
31
28
28
0.9
0.9
0.9
0.8
0.8
99
99
99
99
99
0.9
0.5
0.9
1.2
0.8
6.5
12.3
14.2
9.1
7.8
12.6
12.7
13.4
16.0
16.6
5.5
6.1
5.7
5.3
5.2
43
Slovenia
Recapitalization brings relief, but structural weaknesses remain



Bold recapitalization of state-owned banks eased long-lasting solvency concerns
Alarming deterioration of banking fundamentals continued
Uncertainty up to now how structural imbalances will be resolved
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2013, red triangle shows Slovenia vs. all other
CEE markets
Source: BSI, national sources, Raiffeisen RESEARCH
Lending growth (% yoy)
25
20
15
10
5
0
-5
-10
-15
-20
Jan-10
Dec-10 Nov-11 Oct-12 Sep-13
Source: ECB, Raiffeisen RESEARCH
2013 brought successful attempts to solve the Slovenian banking sector’s most
pending issue of the past few years – the system’s recapitalization and the start of
its restructuring. In December 2013, the system’s total EUR 4.8 bn lack of capital
was made public, and the largest systemically relevant banks – state-controlled
Nova Ljubljanska banka (NLB), Nova Kreditna Banka Maribor (NKBM) and
Abanka Vipa (Abanka), which together account for over two thirds of the Slovenian banking system’s assets – received capital injections of around EUR 3 bn
(in total) from the Slovenian government. These three banks have also transferred
sizeable parts of their NPL portfolios (amounting to EUR 4.5 bn in total) to the
state-run Bank Asset Management Company (BAMC). This transaction was made
in exchange for state-guaranteed bonds worth EUR 1.6 bn, which in turn, can be
used as a fund-securing tool, and serve as collateral for ECB funding in particular.
The three banks are also obliged to start restructuring their business models and
governance, and are subject to privatization up until 2016.
Although the measures outlined above have resolved the system’s immediate solvency concerns, the systemic banking crisis in Slovenia is still far from being
resolved. The banks’ aggregate loans and assets are still in a steep downward
trend, and the banking sector’s net financial result has been negative for several
years already. Over the past three years, the volume of loans contracted by 22%,
in 2013 alone by 8.5%, which adds to the vicious circle between the banking
sector and the macroeconomic weakness of the country. Banks are suffering from
a lack of revenue-generating opportunities, a situation that erodes their capital
base, limits their access to global market funding, and thus prevents any quick
fundamental revival. The system’s recovery now depends on a number of critical factors with the macroeconomic performance as one of the most important
determinants. The problems of the past have a high probability of repeating themselves, as long as the real sector and public finances remain in distress.
With regard to the macroeconomic situation, there are some early signs of recovery, which might help gaining ground against additional downside risks (e.g.
in terms of asset quality). At the same time, the high concentration of loans from
large holding companies as well as from the construction and real estate sectors
in the corporate loan portfolio remains the main weakness of the Slovenian banks’
asset mix. Before the clean-up, some banks’ impairment ratio in this category of
Slovenia
2009
2010
2011
2012
2013
2014e
36
36
35
35
36
37
17,355
17,317
17,616
17,153
17,087
17,273
17,855
Real GDP (% yoy)
-7.8
1.2
0.6
-2.3
-2.0
-0.5
1.5
0.9
1.8
1.8
2.6
1.8
1.8
2.0
5.9
7.3
8.2
8.9
10.5
10.5
10.0
-6.3
-5.9
-6.3
-3.8
-7.0
-5.0
-4.0
35.0
38.6
46.9
54.0
65.0
70.0
72.0
-0.6
-0.1
0.4
3.3
7.1
7.0
4.9
113.9
114.7
110.8
115.7
113.6
115.2
115.5
* Slovenia is an euro area member as of 1 January 2007
44
2015f
35
Slovenia
loans exceeded 50%. On contrast, the retail lending segment is underdeveloped,
representing just about 25% of the total loan portfolio. These structural factors
weigh on the banks’ profits and growth, and cannot be resolved quickly without
a substantial recovery of the Slovenian economy.
Another issue is that of availability of funding for the Slovenian banking sector,
in particular for the largest banks which are in the middle of their restructuring
phase. On an aggregate level, the non-bank deposit base has decreased by
5.5% in 2013, mostly due to a large-scale conversion of state deposits into capital. Apart from that, the deposits’ “flight to quality” has been a clear trend, with
household and corporate deposits, for example, drifting away from the large
state-owned banks to foreign-owned banks. Debt funding would be challenging
for the banks in restructuring too, and cross-border financing is clearly difficult
for Slovenian banks. Finally, the planned privatization of the by then “cleaned-up
giants” in 2016 will leave some question marks, and will depend not only on the
country-specific performance, but to a large extent also on the demand of potential investors. Finally, the question of “how much more might be needed?” still
remains open. Slovenia is facing an ECB AQR in 2014, and additional capital
needs cannot entirely be ruled out.
It all comes down to the question of whether the Slovenian government can cope
with the restructuring process of its banking sector on its own, or whether it will
have to turn to the EU for further assistance.
Financial analyst: Elena Romanova
Market share ranking as of 2013
1
Nova Ljubljanska banka (State-owned)
2
Nova Kreditna banka Maribor (Stateowned)
3
Slovenska izvozna in razvojna banka SID (State-owned)
4
Abanka Vipa (Zavarovalnica Triglav/
Sava)
5
UniCredit Banka Slovenija (UniCredit)
…
12
Raiffeisen Bank Slovenia (RBI)
Source: BSI, Raiffeisen RESEARCH
Market shares (%)
Large
domestic
banks
Small
domestic
banks
Foreignowned
banks
Assets
(2007)
63.6
7.8
28.6
Assets
(2013)
59.9
9.3
30.7
NPLs
(2013)
75.3
9.0
15.7
Source: BSl, Raiffeisen RESEARCH
Balance sheet data
Total assets (EUR bn)*
2009
2010
2011
2012
2013
45.3
45.8
45.6
44.5
39.8
5.1
1.1
(0.4)
(2.4)
(10.6)
128.5
130.0
126.4
125.5
112.2
32.7
33.8
33.0
31.7
26.4
3.2
3.4
(2.4)
(3.9)
(16.7)
92.7
95.9
91.5
89.4
74.5
39.0
39.0
38.4
36.9
32.3
8.0
0.0
(1.5)
(3.9)
(12.5)
110.6
110.7
106.5
104.1
91.1
21.0
21.0
20.3
18.8
14.3
1.4
0.0
(3.3)
(7.4)
(23.9)
59.6
59.6
56.3
53.0
40.3
8.4
9.3
9.5
9.3
8.9
7.7
10.7
2.2
(2.1)
(4.3)
23.8
26.4
26.3
26.2
25.1
3.9
4.8
5.2
5.3
5.3
growth in % yoy
14.7
23.1
8.3
1.9
0.0
in % of GDP
11.1
13.6
14.4
14.9
14.9
20.0
20.8
21.3
20.9
20.8
4.5
4.1
2.5
(2.0)
(0.5)
114.9
108.1
105.1
104.1
90.8
40.5
38.1
37.9
36.9
32.2
5.5
-5.9
-0.6
-2.6
-12.7
56.7
59.0
59.1
58.9
58.7
164
162
155
152
127
96
102
101
100
100
Number of banks
25
25
25
23
23
48
47
47
45
61
29
28
29
31
31
0.3
(0.2)
(1.1)
(1.6)
(2.6)
3.9
(2.4)
(11.7)
(19.0)
(31.6)
11.8
growth in % yoy
in % of GDP
Total loans (EUR bn)*
growth in % yoy
in % of GDP
Total loans incl. MFIs and state (EUR bn)
growth in % yoy
in % of GDP
Loans to private enterprises (EUR bn)
growth in % yoy
in % of GDP
Loans to households (EUR bn)
growth in % yoy
in % of GDP
Mortgage loans (EUR bn)
Total deposits (EUR bn)*
growth in % yoy
in % of GDP
Total deposits incl. MFIs and state (EUR bn)
growth in % yoy
in % of GDP
Total loans incl. MFIs and state (% of total deposits)
11.6
11.3
11.6
11.5
Tier-1 capital adequacy (%)
9.3
9.0
9.6
10.1
11.1
5.8
8.2
11.8
15.0
22.0
* excluding MFI business; Source: BSI, ECB, Raiffeisen RESEARCH
45
Croatia
Decreasing loans and assets in a more and more difficult market



Loans continue to decline due to weak macroeconomics and new regulatory standards
Profitability is jeopardized by high cost of credit risk and lack of profitable alternatives
NPLs are expected to increase further
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2013, red triangle shows Croatia vs. all other
CEE markets
Source: CNB, national sources, Raiffeisen RESEARCH
15
10
5
0
-5
-10
-15
Jan-09 Feb-10 Mar-11 Apr-12 May-13
* in LCY-terms
Economic and regulatory factors have caused a continuous decline of the Croatian banks’ loan and asset base. Croatia’s economy has been ailing since 2008,
and little has changed after the EU accession in July 2013. The newly introduced
legislation regarding a pre-bankruptcy settlement of bad assets (Financial Operations and Pre-Bankruptcy Settlements Act) seems to have further undermined business confidence. In accordance with the new regulation, debtors obtain an option to initiate pre-bankruptcy proceedings with creditors, and thus to reduce their
debts by writing-off claims, or engaging in debt-to-equity swaps. Hence, we expect a massive write-off of claims in the corporate sector, which may add to deleveraging. As a consequence, Croatian banks have responded by implementing more restrictive credit policies and enhancing their liquidity position – both
measures, are not supportive for an economic recovery. Demand for household
loans has further declined as well, mostly because of negative income expectations. A number of banks which had reset the interest rates on retail loans issued
in FCY were facing resistance of the regulator. Through the amendments of the
Consumer Loans Act a cap was introduced in order to prevent further interest rate
hikes. Also, a maximum level for interest rates on mortgages and consumer loans
was defined. As a result, fewer loans were issued in these categories, while the
still high real estate prices put additional pressure on mortgage lending. Since
mid-2013, a new legislation is focusing on houses and apartments built illegally,
which leads to even more confusion in the mortgage market.
On a positive note, deposit funding remained solid in 2013. Household term deposits are predominantly denominated in EUR (80%) and banks are still offering high interest rates on deposits (above 2.5%), thus stimulating the increase.
In 2013, 90% of the Croatian total banking equity was owned by foreign financial institutions. An average CAR of 21% shows that foreign owners do not withdraw equity. At the same time, foreign financial groups have further engaged in
the ongoing deleveraging process of the last two years as the amount of funds
borrowed by Croatian subsidiaries from their foreign parent banking groups exceeded the amount of equity by year-end 2013. Given that Croatia is among the
CEE countries where since 2007 Western European banks have substantially cut
their exposure and the economic growth outlook remains subdued, we expect the
foreign funds outflow from the banking sector to continue in 2014.
Croatia
2009
2010
2011
2012
2013
2014e
44.4
44.2
43.7
43.3
42.9
44.1
10,111
10,045
10,305
10,221
10,172
10,098
10,413
Real GDP (% yoy)
-6.9
-2.3
-0.2
-1.9
-1.0
-0.8
1.0
2.4
1.1
2.3
3.4
2.2
0.6
2.0
14.9
17.4
18.0
19.1
20.3
21.0
20.6
EUR/LCY (avg)
-5.3
-6.4
-7.8
-5.0
-4.9
-5.0
-4.6
36.6
44.9
51.6
55.5
67.1
70.5
72.8
-5.1
-1.1
-0.9
-0.1
1.3
1.2
0.7
101.0
104.7
103.8
102.6
105.3
106.1
103.7
7.34
7.29
7.43
7.52
7.58
7.63
7.65
46
2015f
44.8
Croatia
The NPL ratio continued to grow,
reaching 15.6% year-end 2013. In
Others
8.4%
Sberbank
the light of the weak growth prospects
Zagrebacka Banka
2.3%
for lending to the vulnerable real es(UniCredit)
OTP
26.9%
3.4%
tate sector, high and still rising unemHPB
ployment, and the “delayed bankrupt4.6%
cies” in the corporate sector we exSplitska Banka (SocGen)
pect further growth in NPLs during
6.9%
2014. The shrinking profit margins
of the banks are primarily caused by
Hypo Alpe Adria Bank
7.6%
the worsening asset quality and rising provisions. Both, an increase in inPrivredna Banka (Intesa)
come or a decrease in risk costs are
Raiffeisenbank
16.5%
8.3%
unlikely to happen in 2014. Hence,
Erste
we expect cost cutting and efficiency
15.1%
% of total assets
improvement measures to be impleSource: CNB, Raiffeisen RESEARCH
mented in order to raise profitability.
However, such measures are feasible only for bigger players. In the heavily regulated Croatian banking sector, small banks
find it difficult to cut costs and will therefore continue to post losses in 2014. Thus, the Croatian banking sector might face
consolidation pressure in the years to come: either local players will merge or will be taken over by stronger competitors.
Financial analyst: Anton Starcevic (+385 1 6174-210), Raiffeisenbank Austria d.d., Zagreb
Balance sheet data
2009
2010
2011
2012
2013
51,788
53,028
54,096
53,045
52,126
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
2.5
2.4
2.0
(1.9)
(1.7)
115.1
120.9
123.9
121.8
120.8
35,084
36,965
38,440
37,528
37,375
3.4
5.4
4.0
(2.4)
(0.4)
78.0
84.3
88.1
86.2
86.6
12,389
11,948
12,664
11,474
11,094
2.8
(3.6)
6.0
(9.4)
(3.3)
27.5
27.3
29.0
26.3
25.7
16,123
16,725
17,056
16,889
16,628
growth in % yoy
(2.7)
2.0
(1.0)
(1.5)
(3.0)
in % of GDP
37.2
38.9
38.7
38.2
37.4
7,671
8,237
8,346
8,223
7,945
1.3
7.4
1.3
(1.5)
(3.4)
17.1
18.8
19.1
18.9
18.4
27,669
growth in % yoy
in % of GDP
25,460
27,548
29,214
27,901
growth in % yoy
13.7
8.2
6.0
(4.5)
(0.8)
in % of GDP
56.6
62.8
66.9
64.1
64.1
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
73
75
76
74
74
35,150
36,416
37,353
36,549
37,028
3.9
3.6
2.6
(2.2)
1.3
78.1
83.1
85.6
83.9
85.8
19,321
20,664
21,169
22,066
22,652
4.0
7.0
2.4
4.2
2.7
42.9
47.1
48.5
50.7
52.5
100
102
103
103
101
Number of banks
34
33
32
31
30
4.2
4.3
4.5
4.8
5.3
91
90
91
90
90
1.1
1.1
1.2
0.8
0.3
6.4
6.5
6.9
4.8
1.3
16.4
18.8
19.6
20.9
20.9
7.8
11.2
12.4
13.8
15.6
47
Romania
Expectations building up for 2014 and beyond



Low spending, investing and borrowing accompanied by a strong appetite for savings
Housing loans increased thanks to government program “First House”
National Bank of Romania tightened its bank supervision, with a focus on resolving NPLs
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2013, red triangle shows Romania vs. all other
CEE markets
Source: NBR, national sources, Raiffeisen RESEARCH
25
20
15
10
5
0
-5
-10
Jan-10
Dec-10 Nov-11 Oct-12
Sep-13
* in LCY-terms
Source: NBR, Raiffeisen RESEARCH
Although economic activity is on an upward trend, the recovery remains uneven
across the sectors. Due to fragile financial balances and low confidence, companies and households remained cautious in terms of spending and investment. As
a consequence, their propensity to save was quite strong. Adjusted for FX effects
total banking loans (RON and FCY) decreased by 4.4% yoy in 2013. There were
quite strong deleveraging efforts related to FCY loans (-3.3% for household loans
and -10.9% for corporate loans, in EUR equivalent). This development was amplified by tighter lending standards and a reluctance to lend in FCY due to changed
funding strategies. Little lending activity was accompanied by a faster, but still
orderly deleveraging process of foreign-owned banks. In 2013, external liabilities
in the Romanian banking system fell by 11.9% (or EUR 2.5 bn). In contrast to a
poor overall market performance, 2013 showed again a decent performance
of housing loans as the government program “First House” continued. However,
starting in H2 2013, the program covers only RON-denominated loans.
The funding structure of domestic banks continued to improve. In 2013, total
deposits (RON and FCY) went up by 8.3% yoy (adjusted by FX changes), driven
mainly by strong RON-deposit inflow (+12.5% yoy). The sharp fall in RON yields
has been taken as an opportunity for bank bond issues. Raiffeisen Bank (Romania)
raised RON 225 mn through a three year RON-denominated bank bond and
UniCredit Tiriac raised RON 550 mn in a five year placement. Further bond issues are planned in 2014. Also, competent authorities are amending the covered
bonds legislation in order to allow banks to take benefit of this funding instrument.
The Romanian banking system as a whole started to experience a liquidity surplus
in 2013, although this is unevenly spread across the banks. In January 2014, the
National Bank of Romania (NBR) reduced the minimum reserve requirement ratios
for RON and FCY and plans similar moves in the future.
A subdued economic recovery as well as sluggish loan growth resulted in another
rise of the NPL ratio reaching 21.9% (year-end 2013). As part of the agreements
with the IMF and the European Commission (EC), efforts of the authorities are
now directed to easing and speeding up the removal of fully provisioned NPLs
from banks’ balance sheets. The NBR has intensified the supervision of banks by
performing regular reviews of their collateral and of asset quality. A special focus
was put on restructured loans and impaired assets. The solvability ratio of the
Romania
2009
2010
2011
2012
2013
2014e
118.3
124.4
131.5
131.7
142.2
149.3
161.8
5,509
5,804
6,142
6,565
7,106
7,470
8,106
Real GDP (% yoy)
-6.6
-1.1
2.3
0.6
3.5
3.5
3.5
5.6
6.1
5.8
3.3
4.0
2.1
3.3
6.9
7.3
7.4
7.0
7.3
7.2
7.1
-9.0
-6.8
-5.5
-3.0
-2.3
-2.5
-2.3
23.6
30.5
34.7
38.0
38.4
38.5
38.2
-4.2
-4.4
-4.5
-4.4
-1.1
-2.0
-2.5
68.7
74.3
75.1
75.7
67.5
63.6
61.8
EUR/LCY (avg)
4.24
4.21
4.24
4.46
4.42
4.51
4.49
48
2015f
Romania
banking system remained unchanged
at 15% in 2013 despite strong proBCR (Erste), 17.5%
Others, 29.8%
visioning pressure. However, for the
first time since 2009, the Romanian
banking sector has been able to post
a profit in 2013. This was to a large
BRD (Societe Generale),
extent based on one-off fiscal gains
13.0%
while many banks still posted losses.
Hence, the aggregated RoE remained
Alpha Bank, 4.5%
at a disappointing 1.3%, the RoA
stood at 0.1%. Also, several small
Banca Transilvania, 8.9%
banks are put on sale by their foreign
ING Bank, 5.0%
shareholders.
A new law for the application of the
UniCredit, 7.6%
Civil Code has set new rules to deal
CEC Bank, 7.4%
% of total assets, preliminary data
with the so-called “abusive clauses”
Source: Ziarul Financiar, Raiffeisen RESEARCH
in lending contracts. According to the
programs with the IMF and the EC, the authorities pledged to ensure a harmonized application of the law provisions (i.e.
cases involving abusive clauses to be dealt with by higher-ranking courts or by specialized courts). An uneven economic
recovery, fragile balance sheets and low confidence still constrain lending. However, the low level of financial intermediation
suggests that medium- and long-term prospects remain positive.
Financial analyst: Nicolae Covrig (+40213061262), Raiffeisen BANK S.A., Bucharest
Balance sheet data
2009
2010
2011
2012
2013
86,202
89,906
90,925
91,451
91,096
growth in % yoy
in % of GDP
1.2
4.3
1.1
0.6
(0.4)
72.7
73.6
70.5
69.0
64.7
49,077
47,584
49,208
52,125
51,562
growth in % yoy
(4.8)
3.4
5.9
(1.1)
(4.8)
in % of GDP
40.1
40.3
40.4
38.9
34.9
25,304
22,932
24,692
27,108
27,289
growth in % yoy
(3.9)
7.7
9.8
0.7
(7.3)
in % of GDP
19.3
20.2
21.0
20.6
18.0
23,087
23,779
23,889
24,199
23,647
growth in % yoy
(4.8)
0.5
1.3
(2.3)
(2.4)
in % of GDP
20.1
19.5
18.8
17.8
16.4
5,754
6,776
7,753
8,393
9,132
growth in % yoy
9.2
17.8
14.4
8.3
8.8
in % of GDP
4.9
5.5
6.0
6.3
6.5
28,713
31,131
33,183
32,351
30,027
growth in % yoy
(0.8)
8.4
6.6
(2.5)
(7.2)
in % of GDP
24.2
25.5
25.7
24.4
21.3
growth in % yoy
in % of GDP
60
63
64
63
61
42,803
44,843
46,866
47,612
51,175
6.1
4.8
4.5
1.6
7.5
36.1
36.7
36.3
35.9
36.4
29,250
23,534
24,673
26,506
27,922
growth in % yoy
11.0
4.8
7.4
5.3
4.8
in % of GDP
19.9
20.2
20.5
21.1
20.8
111
110
111
108
96
Number of banks
41
41
40
39
39
7.3
7.4
8.2
8.4
8.5
85
85
83
90
90
0.3
(0.2)
(0.2)
(0.6)
0.1
2.9
(1.7)
(2.6)
(5.9)
1.3
14.7
15.0
14.9
14.9
15.0
7.9
11.9
14.3
18.2
21.9
Source: NBR, Raiffeisen RESEARCH
49
Bulgaria
Stability and modest profitability in a low growth environment



Banking system’s total assets increased on account of retail and corporate funds inflow
Growth of corporate and retail lending continued, though at a slower pace
Banks maintained levels of capital and liquidity buffers significantly above the required minimum
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2013, red triangle shows Bulgaria vs. all other
CEE markets
Source: BNB, national sources, Raiffeisen RESEARCH
10
8
5
3
0
-3
-5
* in LCY-terms
Source: BNB, Raiffeisen RESEARCH
In 2013, the Bulgarian economy continued to recover slowly, with GDP posting
a 0.9% growth yoy. Despite last year’s positive performance of the export sector,
domestic demand has been stagnant, due to only marginal pay increases, slowly
rising levels of unemployment and political uncertainty in Bulgaria. The economy
is expected to continue its weak performance in the years to come with declining
export growth – although against the backdrop of gradually improving consumption patterns and investment climate.
Amidst the sluggish economic recovery, the Bulgarian banking sector is experiencing pressure on the quality of its assets and profitability. Still, in 2013 it
generated sound results.
Thanks to a stable inflow of funds, mainly from private households, the Bulgarian
banking system’s total assets increased by 4% yoy to EUR 44 bn. The majority of
the funding was allocated to liquid assets. The banks’ loan portfolio grew by only
1.1% in 2013, to EUR 30 bn in total.
A moderate increase in demand for loans by corporate clients, mostly in agriculture, transport and processing industries, resulted in a 1.4% yoy growth (to
EUR 20 bn in total) of the banks’ corporate loan portfolio. Retail loans rose by
less than 0.5% to EUR 9.5 bn due to the slow recovery of purchasing power. The
Bulgarian National Bank (BNB) expects that the low economic growth will continue to weigh negatively on the demand for loans (corporate and households)
and will challenge the banks’ ability to generate profits from this core activity.
Thus, the liquidity position of the banking sector remained sanguine. The liquidity
ratio, showing the ability of banks to repay debts, improved further to 27.1%, up
from 26% in 2012. The households’ high propensity to save contributed largely
to the deposit base growth, moving it up by 8.7% yoy to BGN 32 bn. Retail
deposits surged by 9.4% yoy, while corporate deposits were up by 7.5% yoy,
indicating an improving confidence in the Bulgarian banking sector. Overall, the
financial results were positive, adding up to the sector’s capital adequacy ratio,
which remained close to 16.9% in 2013. The reported sectors’ net profit saw
a moderate growth, reaching EUR 300 mn at year-end 2013 (EUR 290 mn in
2012). Profitability was positively influenced by an increased net income from
fees and commissions and lower impairment costs, while the system-wide NPL ratio increased slightly to 16.9% compared to 16.6% in 2012. The profitability in-
Bulgaria
2009
2010
2011
2012
2013
2014e
36.1
38.5
39.9
39.9
42.1
44.5
4,618
4,804
5,255
5,483
5,520
5,858
6,228
Real GDP (% yoy)
-5.5
0.4
1.8
0.6
0.9
2.0
3.5
2.8
2.4
4.2
3.0
0.9
2.2
3.5
6.8
10.2
11.3
12.3
12.9
12.6
12.1
EUR/LCY (avg)*
-0.9
-4.0
-2.0
-0.5
-1.8
-1.8
-1.3
14.6
16.2
16.3
18.5
19.0
22.0
20.0
-8.9
-1.5
0.1
-1.3
2.1
0.7
-0.5
108.3
102.7
94.3
94.3
93.5
89.1
82.4
1.96
1.96
1.96
1.96
1.96
1.96
1.96
* Currency Board to the EUR; Source: national sources, wiiw, Raiffeisen RESEARCH
50
2015f
34.9
Bulgaria
dicators RoA (0.7%) and RoE (5.31%)
remained largely unchanged due to
UniCredit Bulbank,
14.8%
the marginal increase in profitability
Others, 23.9%
and an overall rise in total assets. That
said, banks maintained levels of capiDSK Bank, 10.4%
tal and liquidity buffers significantly
above the required minimum.
Alpha Bank, S.A.
Bulgaria Branch, 4.3%
Following the close-down of the Sofia
Branch of the Latvian Regional InvestFirst Investment Bank,
Societe Generale,
8.7%
Expressbank, 4.3%
ment Bank, the total number of banks
operating on the Bulgarian market
Central Cooperative
Bank, 4.4%
decreased to 30 (24 universal banks
Corporate Commercial
Eurobank Bulgaria ,
and 6 branches of foreign banks). The
Bank, 7.9%
6.6%
market share of local credit institutions
Raiffeisenbank (Bulgaria)
United Bulgarian Bank,
grew to 30% (26% in 2012), largely
EAD, 7.0%
7.8%
% of total assets
because of First Investment Bank’s
(Fibank’s) acquisition of MKB Unionbank. The market share of foreign financial institutions – most of them are banking groups originating from Western Europe
– stayed at around 70%. Less than 4% of the total assets are controlled by state-owned banks.
Financial Analyst: Tsvetanka Madjounova (+359 2 91985-423), Raiffeisenbank (Bulgaria) EAD, Sofia
Balance sheet data
2009
2010
2011
2012
2013
36,234
37,695
39,273
42,138
43,842
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
1.9
4.0
4.2
7.3
4.0
103.7
104.6
102.0
105.5
109.8
26,817
27,535
28,655
29,573
29,905
4.5
2.7
4.1
3.2
1.1
76.8
76.4
74.4
74.1
74.9
17,274
18,036
19,189
20,158
20,444
2.9
4.4
6.4
5.0
1.4
49.4
50.0
49.8
50.5
51.2
9,543
9,499
9,466
9,416
9,461
7.5
(0.5)
(0.4)
(0.5)
0.5
27.3
26.3
24.6
23.6
23.7
4,578
4,739
4,790
4,827
4,800
8.4
3.5
1.1
0.8
(0.6)
13.1
13.1
12.4
12.1
12.0
15,726
16,876
18,267
18,937
18,297
7.2
7.3
8.2
3.7
(3.4)
45.0
46.8
47.4
47.4
45.8
59
61
64
64
61
22,132
23,994
27,000
29,275
31,818
3.7
8.4
12.5
8.4
8.7
63.4
66.6
70.1
73.3
79.7
20,067
12,699
14,335
16,311
18,340
growth in % yoy
12.0
12.9
13.8
12.4
9.4
in % of GDP
36.4
39.8
42.4
45.9
50.2
121
115
106
101
94
Number of banks
30
30
31
31
30
2.4
3.2
3.7
3.3
3.4
84
81
76
74
70
1.1
0.86
0.78
0.71
0.70
9.3
6.73
5.76
5.34
5.31
17.0
17.5
17.5
16.7
16.9
6.1
11.9
14.9
16.6
16.9
51
Serbia
Consolidation in one of the most attractive SEE banking markets



Softening of lending growth on the back of deteriorating asset quality
Marginal improvement in profitability, supported by cost discipline
Consolidation of banking sector continued, de-licensing of banks might continue
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2013, red triangle shows Serbia vs. all other
CEE markets
Source: NBS, national sources, Raiffeisen RESEARCH
35
30
25
20
15
10
5
0
-5
-10
* in LCY-terms
Following a recession in 2012, the Serbian economy started to recover in 2013
(+2.2% yoy), with the help of the automobile manufacturer Fiat investing in the
country, and thanks to oil exports and the recovery of the agricultural sector. Despite these – modestly positive – economic indicators, banks tightened credit supply. This was mainly driven by a high NPL ratio, coupled with ongoing fiscal
consolidation. Disappointing lending dynamics were mainly caused by a steep
setback in medium- and longer-term corporate loans (-9.4% yoy), whereas retail lending showed a modest growth of 2.4% yoy, mainly driven by an extension of high-margin cash lending products. Banks were especially cautious in
the segment of corporate lending due to negative NPL dynamics here (the corporate lending NPL ratio inched up to around 26% in 2013, from 21.2% yearend 2012). On the other hand, we witnessed a deleveraging process in relation
to existing clients and a reduction in credit demand due to business restructuring
and the decision to reduce financing of new investments via bank loans. Also,
the NPL ratio of SMEs continued to increase and reached 30% in 2013 (28% in
2012). In contrast, the NPL ratio remained in the single-digit territory in the retail
segment, posting an increase to 9.4% in 2013 (8.5% at year-end 2012). On a
more positive note, the level of NPLs covered by provisions is very high (117.7 %
as of Q3 2013). Also, capital adequacy remained well above the mandatory requirements of 12%, standing at 19.9% (Q3 2013). Due to the lack of viable new
business models, banks showed a high willingness to take long positions in repo
operations with the National Bank of Serbia (NBS) and/or T-bills.
The L/D ratio continued its down trend in 2013 on the back of a subdued loan
extension and reached 116% (125% in 2012). The L/D drop is mainly the result
of solid growth in retail deposits (+4.8% yoy). In contrast, corporates drained liquidity from banks and caused a decline in deposits of 2.5% yoy. Subdued asset
growth prompted banks to further improve cost efficiency as the cost-income ratio
was down to 62.9% in Q3 2013 (compared to 67.3% in 2012). Together with
still impressive net interest margins, this supported a slight improvement in profitability. However, other operating revenues were weak, especially FX gains due
to fairly stable EUR/RSD exchange rates. Therefore, the Q3 2013 RoE came in
at 3.8% – just slightly above its disappointing Q3 2012 reading of 2.9%.
Serbia
2009
2010
2011
2012
2013
2014e
28
31
30
33
35
38
3,955
3,841
4,317
4,083
4,557
4,858
5,230
Real GDP (% yoy)
-3.5
1.0
1.6
-1.5
2.5
1.0
2.0
8.2
6.3
11.3
7.8
7.8
5.5
5.5
16.1
19.2
23.0
26.0
23.9
24.5
23.0
EUR/LCY (avg)
-4.5
-4.7
-4.9
-6.4
-4.8
-6.9
-5.9
34.1
43.2
45.8
59.7
60.8
64.1
64.6
-6.6
-6.7
-9.1
-10.7
-4.8
-5.1
-5.8
77.7
84.9
76.7
86.9
78.2
76.2
73.4
93.95
103.00
101.96
113.05
113.08
116.00
119.00
52
2015f
29
Serbia
Agrobanka was the first state-owned
bank that faced bankruptcy in 2012;
Banca Intesa, 14.7%
its assets and liabilities were ultimately
Others, 26.4%
transferred to Nova Agrobanka.
Given that Nova Agrobanka did not
Komercijalna banka,
meet minimum requirements under
12.2%
the Law on Banks concerning equity
Sberbank, 3.3%
and other prudential ratios in a six
months deadline, the bank was de-liVojvoðanska banka,
3.9%
censed and assets and liabilities were
UniCredit, 8.7%
merged with the Postal Savings bank.
Hypo Alpe Adria, 5.1%
Razvojna Banka Vojvodine followed
Societe Generale, 7.3%
in 2012 and finally the NBS revoked
AIK banka, 5.3%
the undercapitalized Privredna banka
Eurobank, 6.0%
Beograd’s (PBB) license due to exces% of total assets
sive NPLs. The remaining healthy PBB
assets and deposits were transferred
to the state-owned Banka Poštanska štedionica. On the back of these mergers, the share of state-owned banks’ assets in total banking assets stands at 19.9% (Q3 2013), out of which Komercijalna banka holds 12.2pp. As there are indications
that several niche banks have continuous problems to meet required capital ratios, the Serbian government and the NBS
formed a joint financial stability committee.
Financial analyst: Ljiljana Grubic (+381 11 2207178), Raiffeisenbank a.d. Serbia, Belgrade
Balance sheet data
2009
2010
2011
2012
2013
24,362
25,984
27,732
27,775
27,485
growth in % yoy
12.6
6.7
6.7
0.2
(1.0)
in % of GDP
84.1
92.8
88.1
93.8
83.2
13,138
15,166
16,452
16,615
15,801
7.1
15.4
8.5
1.0
(4.9)
45.4
54.2
52.3
56.1
47.8
8,514
growth in % yoy
in % of GDP
7,514
8,696
9,218
9,419
growth in % yoy
13.8
15.7
6.0
2.2
(9.6)
in % of GDP
25.9
31.0
29.3
31.8
25.8
5,820
4,784
5,373
5,702
5,686
growth in % yoy
11.6
12.3
6.1
(0.3)
2.4
in % of GDP
16.5
19.2
18.1
19.2
17.6
2,193
2,621
2,835
2,940
2,899
17.8
19.5
8.2
3.7
(1.4)
7.6
9.4
9.0
9.9
8.8
8,054
10,002
11,633
11,921
11,453
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
(17.9)
24.2
16.3
2.5
(3.9)
27.8
35.7
37.0
40.3
34.7
61
66
71
72
72
11,408
11,894
13,100
13,310
13,655
growth in % yoy
13.9
4.3
10.1
1.6
2.6
in % of GDP
39.4
42.5
41.6
45.0
41.3
9,112
6,546
7,515
8,173
8,694
growth in % yoy
27.1
14.8
8.7
6.4
4.8
in % of GDP
22.6
26.8
26.0
29.4
27.6
115
128
126
125
116
Number of banks
34
33
33
32
31
18.2
20.3
19.7
19.0
18.5
74
73
73
69
75
1.0
1.1
1.2
1.0
0.8
4.6
5.4
6.0
4.7
3.8
21.4
19.9
19.1
19.9
19.9
15.7
16.9
19.0
18.6
21.1
53
Sobering NPL ratio but silver lining on the horizon



Lending dynamics in line with nominal GDP growth rates
NPL ratio at record level, but expected to stabilize by H2 2014
Banking sector’s capital adequacy, liquidity and profitability at satisfying levels
Total loanst (% of GDP)
100%
80%
60%
The economy of Bosnia and Herzegovina (BH) experienced a modest recovery in
2013. The GDP growth achieved was mostly driven by the improving sentiment
in the euro area, which resulted in higher exports and investments. The lending
of banks was supported by the economic recovery, matching the nominal GDP
growth at 3% yoy in 2013. However, the growth rate of major loan segments
differed from their performance in 2012.
40%
20%
5,000
15,000
25,000
Data for 2013, red triangle shows Bosnia a.H. vs. all
other CEE markets
Source: CBBH, national sources, Raiffeisen RESEARCH
Household demand for credit was rising, as the disposable income was hampered by stagnating wages, although the unemployment rate started to marginally decrease. As a result, retail loans increased throughout the year, posting
an overall growth of 3.9% yoy (which corresponds to 26.7% of the GDP). At
the same time, corporate lending experienced easing dynamics, with a modest
growth of 1.6% yoy, corresponding to 31.6% of the GDP. Given the currency
structure of the total loans, there were no major changes during 2013. Around
60% of total loans are linked to the EUR. Because of the high share of NPLs in
the corporate segment, banks became more cautious and hence limited their
corporate lending.
10
As of Q3 2013, the corporate NPL ratio peaked at 18.1%, while the retail NPL
ratio fell to 10.8%. Consequently, the total NPL ratio posted a record increase by
1.6pp up to 15.1% as of year-end 2013.
5
0
-5
-10
* in LCY-terms
Source: CBBH, Raiffeisen RESEARCH
We expect lending to gain additional momentum in 2014, with the corporate
segment as key driver for credit growth. Further economic recovery should continue to be driven by investments in public infrastructure projects and growing exports of manufacturing goods. The retail segment should also post sound growth,
but we expect it to lag behind the corporate sector. We see the latter increasing
at a rate of 5-8% yoy, which should result in a 4-5% growth in total loans yoy –
matching the nominal GDP growth rates expected in 2014. At the same time, we
expect that NPLs will continue to increase, especially in H1 2014, although at a
slower pace compared to 2013, and to stabilize in H2 2014.
2009
2010
2011
2012
2013
2014e
13
13
13
14
14
15
3,222
3,298
3,418
3,415
3,561
3,661
3,891
Real GDP (% yoy)
-2.8
0.7
1.0
-1.1
1.9
1.5
3.5
-0.4
2.1
3.7
2.1
-0.1
2.5
2.5
24.1
27.2
27.6
28.0
27.5
26.5
24.5
-4.4
-2.5
-1.3
-2.0
-1.5
-1.0
-1.0
35.1
38.3
38.9
39.7
41.5
39.6
38.5
-10.2
-6.6
-5.5
-9.5
-9.8
-5.9
-8.6
53.8
57.5
67.0
63.3
62.2
62.0
60.3
EUR/LCY (avg)*
1.96
1.96
1.96
1.96
1.96
1.96
1.96
* Currency Board to the EUR; Source: national sources, wiiw, Raiffeisen RESEARCH
54
2015f
12
Deposits inflow in 2013 registered an
increase by 6.9% yoy, the strongest
growth since 2007. Household savings, as the main engine of deposit
growth, saw an increase by 9.3%
yoy. Corporate deposits surged by
7.9% yoy, which is the first positive
growth rate since 2010 (although the
growth came largely on the back of
a low statistics base). In 2014, stable
growth of deposits in a range of 6-8%
remains our baseline scenario.
UniCredit Group*,
20.8%
Others, 27.8%
Sberbank, 6.1%
Intesa Bank, 6.3%
Despite elevated NPLs, the financial
Hypo Alpe Adria Group,
NLB Group, 9.0%
stability and profitability of the BH
12.6%
% of total assets
banking sector could be sustained
* UniCredit Bank & UniCredit Bank Banja Luka
in 2013. In the first three quarters of
2013, the banking sector registered
a net financial result of EUR 54.6 mn
resulting in a RoA of 0.5% and a RoE of 3.4%. The CAR also remained stable at 17%, which is well above the legal requirements. There have been no major M&A activities or corporate changes in BH’s banking sector, although the number
of banks decreased to 27, as one small local bank was revoked of its banking license.
Financial analyst: Ivona Zametica (+387 33 287 784), Raiffeisen BANK d.d. Bosnia and Herzegovina, Sarajevo
Balance sheet data
2009
2010
2011
2012
2013
10,742
10,828
11,196
11,414
11,994
growth in % yoy
(0.5)
0.8
3.4
1.9
5.1
in % of GDP
86.8
85.5
85.3
87.0
89.1
8,391
7,184
7,436
7,828
8,151
growth in % yoy
(3.2)
3.5
5.3
4.1
3.0
in % of GDP
58.1
58.7
59.6
62.1
62.3
3,848
3,398
3,545
3,641
3,803
growth in % yoy
(1.1)
4.3
2.7
4.4
1.2
in % of GDP
27.5
28.0
27.7
29.0
28.6
3,611
3,225
3,234
3,428
3,474
growth in % yoy
(5.8)
0.3
6.0
1.3
3.9
in % of GDP
26.1
25.5
26.1
26.5
26.8
733
534
372
333
325
growth in % yoy
(0.9)
(27.2)
(30.2)
(10.5)
(2.6)
in % of GDP
26.1
25.5
26.1
26.5
26.8
10.2
7.2
4.8
4.1
3.9
6,183
6,406
6,643
6,814
7,286
Loans in foreign currency (% of total Loans)
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
1.8
3.6
3.7
2.6
6.9
50.0
50.6
50.6
51.9
54.1
2,896
3,315
3,605
3,914
4,276
8.8
14.5
8.7
8.6
9.3
23.4
26.2
27.5
29.8
31.8
116
116
118
120
115
Number of banks
30
29
29
28
27
0.9
0.8
0.9
1.0
1.0
95
93
92
92
90
0.1
(0.6)
0.7
0.6
0.5
0.8
(5.5)
5.8
5.0
3.9
16.1
16.2
17.1
17.0
17.0
5.9
11.4
11.9
13.5
14.9
55
Albania
Hard landing, but not all banks affected the same way



Lending down for the first time since 2004, replaced by asset growth due to increased holdings of government bonds
Deposit growth under pressure of low remittance inflow, but deposit base still solid
Slowdown of NPL growth and government payments to the private sector should support banking sector in 2014
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2013, red triangle shows Albania vs. all other
CEE markets
Source: NBA, national sources, Raiffeisen RESEARCH
40
30
20
10
0
-10
Mar-09
Feb-10
Jan-11
Dec-11 Nov-12
* in LCY-terms
Source: NBA, Raiffeisen RESEARCH
In 2013, the Albanian economy has further slowed down due to weak domestic
demand. The modest growth in GDP was solely driven by external demand and
fiscal stimulus. Despite a less supportive macroeconomic picture, total banking
assets increased by 6.7% yoy in 2013. However, this expansion was based on
investments in government securities. In contrast, credit growth remained subdued, with a decline of total loans by 1.8% yoy, reflecting low demand for
loans and a lack of confidence in the market. Corporate lending saw an aboveaverage decline of -2.5% yoy, retail lending posted a very modest growth of
0.1% yoy. FCY loans shrunk by 4.2% yoy, however, they still make up around
63% of total loans (five years ago, this ratio was at 73%). In contrast, LCY lending posted a moderate growth of 2.4% yoy in 2013. Despite the overall market
dynamics, it seems that the expansionary monetary policy, as well as other supportive measures undertaken by the Bank of Albania in H1 2013 (especially in
terms of capital requirements), were not appropriate to boost lending. The high
level of NPLs continues to be a serious issue. In 2013, the NPL ratio increased
further by 1pp to 23.5%. In 2014, the NPL ratio might reach a plateau indicating an uptick in lending activity, especially in the corporate segment. The start of
government arrears payments to the private sector (estimated at around EUR 100
mn) will improve the liquidity situation in the business sector and in particular in
the construction sector. Another factor likely to have a positive impact on lending
activity and NPLs is a new draft law facilitating procedures for the writing-off of
impaired loans from banks’ balance sheets. Moreover, agreements of the public
sector with international financial institutions, such as IMF or World Bank, to
finance half of the current budget deficit with soft loans is expected to support
banks’ appetite for lending to the real economy (instead of government papers,
the sole driver for asset growth in 2013).
In 2013, deposits grew only by 3% compared to around 7% in 2012. Deposit
collection was mainly concentrated in the segment of LCY deposits. This trend
and overall low deposit growth reflect a drop in remittances (caused by economic hardship in Italy and Greece), which remain the main source of FCY
inflow into Albania. Investments in term deposits posted an even more negative
trend than total deposits (term deposits only grew by 0.4% in 2013), which can
be interpreted as a reflection of the low interest rate environment. In 2013, the
Albania
2009
2010
2011
2012
2013
2014e
9
10
10
10
11
12
2,743
2,928
3,445
3,563
3,686
4,003
4,221
Real GDP (% yoy)
3.3
3.9
3.1
1.6
0.4
2.0
3.0
5.0
4.0
3.5
2.0
1.9
2.3
2.5
13.0
13.5
14.0
13.3
13.5
13.6
13.4
-7.0
-5.7
-3.5
-3.4
-6.0
-6.6
-4.5
59.5
59.5
59.4
61.5
68.0
72.0
68.0
-15.6
-10.3
-11.3
-8.8
-9.1
-9.2
-9.2
22.5
23.5
23.6
24.7
26.5
25.9
26.8
132.12
137.79
140.36
139.04
140.30
140.00
139.75
EUR/LCY (avg)
56
2015f
9
Albania
Albanian banking system posted a net
Others, 9.1%
profit of EUR 46.8 mn. This unusually
National Bank of
high profit was triggered by banks
Greece, 3.1%
cleaning up their balance sheets. NevProcredit Bank, 3.2%
ertheless, with a RoA at 0.54% and
Societe Generale, 5.4%
a RoE at 6.43%. Despite low profitability, the Albanian banking sector
as a whole remains well capitalized
Alpha Bank, 5.9%
(the CAR remains at 18% at year-end
2013, well above the minimum reTirana Bank (Pireaus
quirements of 12%) and has a solid
Bank), 7.1%
liquidity position – as indicated by the
National Commercial
Credins Bank, 8.4%
low market L/D ratio of around 55%.
Bank, 21.1%
However, it has to be mentioned that
Intesa Sanpaolo Bank,
there are vast discrepancies among
10.6%
% of total assets
the individual players on the market.
The NPL ratios of individual banks are
quite diverse, ranging from 9% to 50% (with five players above the market average of 23.5%). In 2013, five major banks
posted losses, while the three top players (Raiffeisen Bank, National Commercial Bank of Albania [NCB] and Intesa Sanpaolo Bank Albania) managed to post double-digit RoEs in 2013.
Financial analyst: Joan Canaj (+355 4 2381000 1122), Raiffeisen Bank Sh.a., Tirana
Balance sheet data
2009
2010
2011
2012
2013
6,424
7,139
8,063
8,626
growth in % yoy
(4.7)
11.1
12.9
7.0
6.2
in % of GDP
76.6
76.8
81.8
85.6
87.6
3,261
3,537
4,076
4,139
4,045
1.8
8.5
15.2
1.6
(2.3)
38.9
38.1
41.4
41.1
38.7
2,070
2,379
2,858
2,887
2,788
4.6
14.9
20.1
1.0
(3.4)
24.7
25.6
29.0
28.7
26.7
1,067
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
9,164
1,047
1,065
1,072
1,071
growth in % yoy
(7.4)
1.7
0.6
(0.0)
(0.3)
in % of GDP
12.5
11.5
10.9
10.6
10.2
716
753
806
815
801
7.0
5.1
7.0
1.1
(1.7)
growth in % yoy
in % of GDP
8.5
8.1
8.2
8.1
7.7
2,291
2,470
2,766
2,670
2,547
growth in % yoy
(1.8)
7.8
12.0
(3.5)
(4.6)
in % of GDP
51.2
53.7
58.3
61.8
61.1
Loans in foreign currency (% of total credits)
70
70
68
65
63
5,032
5,885
6,651
7,104
7,315
growth in % yoy
(3.4)
17.0
13.0
6.8
3.0
in % of GDP
60.0
63.4
67.5
70.5
69.9
4,296
4,987
5,743
6,225
6,388
0.5
16.1
15.2
8.4
2.6
51.2
53.7
58.3
61.8
61.1
65
60
61
58
55
Number of banks
16
16
16
16
16
94
94
94
94
94
0.4
0.7
0.1
0.3
0.5
4.6
7.6
0.8
3.8
6.4
16.2
16.2
15.6
16.2
18.0
10.5
14.0
18.8
22.5
23.5
growth in % yoy
in % of GDP
Structural information, profitability and efficiency
57
Kosovo
Growth on track, modest upside as no past overexpansion



Banking sector continues to develop supported by reasonable funding levels and capital standing
Asset growth stabilized in 2013, asset quality in line with CEE trends (NPL ratio at 7.5%) and better than in SEE peers
Profitability mostly core-business driven, as the securities market is still in the build-up phase
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2013, red triangle shows Kosovo vs. all other
CEE markets
50
40
30
20
10
0
2005
2007
2009
2011
2013
* in LCY-terms
The banking sector in Kosovo only started to emerge in 2000 after the Yugoslavian conflicts, but has managed to turn into a more or less fully developed
banking sector within the last decade. However, in spite of this rapid growth,
the Kosovar banking sector still remains quite small by European standards. The
sector consists of nine banks with total assets of around EUR 3 bn (60% of GDP)
as at year-end 2013. Loans make up about two-thirds of banking assets, and
during the last five years reached 35% of GDP. In nominal terms, loan stock has
increased by over 50% since 2008, supported by the relative resilience of the
economy during the global financial crisis, ongoing capital inflow from the Kosovar diaspora and additional foreign lending. 70% of loan stock is comprised by
corporate loans and 30% by retail lending.
Foreign banks also play a substantial role in Kosovo’s banking lending development. In 2013, the share of euro area based banks in loans stock issued to
corporate clients amounted to 71%, other foreign banks accounted for 17% and
domestic banks contributed just 12% to the total loan volume.
The upbeat economic performance that triggered consumption and investment
activity has also had a positive impact on the development of the Kosovar banking sector. However, in the last two years, the banking assets growth rate slowed
to 6.8% (2012 yoy) and 4.3% (2013 yoy), falling from previous double-digit
rates.
In 2014, the continuing decline in interest rates is expected to be a major factor
in further pushing loan demand. The Kosovar banking sector has a high level
of liquidity, as banks are mostly deposit-funded with customer deposits making
up to 80% of the banking sector’s liabilities. Over the last five years, deposits
showed growth rates similar to that of assets and were the main reason for the
comparably low L/D ratio of below 80%. Of all deposits 46% are fixed-term,
37% are in current accounts and 18% are in savings accounts. Banking system
capitalization is firm, with the Tier 1 CAR ratio at 12% in 2012 and 2013, and
total regulatory CAR approaching 15%. Capital quality is also good, with share
capital representing 78% of the capital base.
Asset quality is with an NPL ratio of 7.6% as of year-end 2013 more or less in line
with the CEE trends. We expect the NPL ratio to drift upwards slightly in 2014,
although the impact of a rather speedy write-off policy may well counteract this
Kosovo
2009
2010
2011
2012
2013
2014e
4.1
4.6
4.7
4.9
5.0
5.2
2,460
2,427
2,667
2,729
2,775
2,822
2,897
Real GDP (% yoy)
2.9
3.9
4.0
2.5
3.0
3.0
4.0
-2.4
3.5
7.3
2.5
1.8
3.0
2.5
45.4
45.1
41.4
44.8
30.5
30.5
31.0
-0.7
-2.6
-2.9
-2.7
-2.7
-2.0
-2.0
17.6
16.6
15.4
18.0
20.0
22.0
22.0
-9.1
-12.6
-14.4
-8.0
-7.0
-7.7
-7.8
16.8
17.1
15.8
14.8
14.4
13.9
13.4
* EUR is the official currency of Kosovo introduced on a unilateral basis.
58
2015f
4.1
Kosovo
trend. As the internal securities market only really started in 2012, banking industry profitability is comprised
mostly of core income. According to
IMF data, net interest income made up
around 75% of the pre-tax profit of the
Kosovar banking system. In general,
profitability remains in positive territory, although it is volatile with RoE
varying within a range of 7% to 17%
and RoA of 0.8% to 1.6% over the
past three years.
IS Bank, 0.4%
Banka per Biznes, 4.0%
Banka Ekonomike, 6.3%
ProCredit Bank, 27.7%
BKT, 7.7%
TEB (BNP), 13.1%
As far as M&A activities are conNLB, 16.3%
cerned, Turkish IS Bank, which has
% of total assets
been hibernating without any depositSource: national sources, Raiffeisen RESEARCH
ing or lending activity since its market
entry in 2013, is looking for an appropriate acquisition target amongst the existing market players. IS Bank is interested
in an established branch network and a sound customer base. Hence, two banks would come into question: the Germanowned ProCredit Bank and the Slovenian NLB Prishtina. However, for the moment the situation is uncertain and surrounding
details are quite vague.
Financial Analyst: Fisnik Latifi (+381 38 222222-183), Raiffeisen Bank Kosovo J.S.C., Prishtina
Balance sheet data
2008
2009
2010
2011
2012
1,808
2,205
2,455
2,650
growth in % yoy
26.0
21.9
11.4
7.9
6.8
in % of GDP
48.9
53.8
59.9
58.1
59.8
1,763
2,829
1,183
1,289
1,459
1,698
growth in % yoy
32.7
8.9
13.2
16.4
3.8
in % of GDP
32.0
31.4
35.6
37.2
37.3
1,171
902
943
1,010
1,129
growth in % yoy
30.4
4.6
7.1
11.7
3.8
in % of GDP
24.4
23.0
24.6
24.7
24.7
543
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
281
344
434
511
40.1
22.3
26.4
17.7
6.2
7.6
8.4
10.6
11.2
11.5
21
44
45
38
36
84.1
111.8
1.5
(15.2)
(5.0)
0.8
0.6
1.1
1.1
0.8
n.a.
n.a.
3
7
7
n.a.
n.a.
n.a.
185.2
(5.3)
22.8
25.4
31.7
32.7
34.7
n.a.
n.a.
0.2
0.4
0.4
1,444
1,745
1,937
2,104
2,279
growth in % yoy
26.3
20.8
11.0
8.6
8.3
in % of GDP
39.0
42.6
47.2
46.1
48.2
growth in % yoy
in % of GDP
Loans in foreign currency (% of total credits)
843
1,040
1,299
1,490
1,640
growth in % yoy
24.5
23.4
25.0
14.7
10.0
in % of GDP
22.8
25.4
31.7
32.7
34.7
82
74
75
81
77
8
8
8
8
9
0.7
Structural information, profitability and efficiency
Number of banks
2.4
1.4
1.5
1.4
20.2
13.8
14.8
14.9
7.1
16.5
17.9
18.7
17.5
14.2
3.3
4.4
5.9
5.7
7.5
59
Russia
Potential remains, but watch out for short-term downsides



Lending growth rates high, but drifting down on economic slowdown
Profitability under pressure from more challenging interest and exchange rates environment
Tighter and more pro-active regulatory stance positive for system stability
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2013, red triangle shows Russia vs. all other
CEE markets
Source: CBR, national sources, Raiffeisen RESEARCH
45
30
15
0
-15
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
* in LCY-terms
In 2013, Russia continued to outpace the rest of CEE in banking assets and loan
growth rates, although the growth has slowed down. Economically, it was a reflection of a gradual credit saturation in Russia, and lowering demand for loans
from the major private borrower groups (corporates and households). As a result, corporate lending growth lowered to 12-13% yoy in 2013 (16% in 2012),
and the retail loan growth rate was 29% yoy (39-40% in 2012). In total, loans to
the private non-financial sector grew some 17% over the year, down from about
20% in 2012. The development in 2014 and beyond will depend strongly on the
political sentiment and its implications on the economic performance. Although
we expect the lending growth to remain at solid levels, it should lower further
in 2014. Market-related and macroeconomic factors will play a crucial role in
this trend. The major constraining factors for lending growth in 2014 are a slowdown of economic growth, and – by large – FX and interest rate fluctuations, induced by political risks. The latter two would also weigh on the banking sector
profitability through tighter margins and weaning on borrowers’ financial standing. In 2013, with RoE at 15% and RoA at 1.7%, Russia kept its position among
the most profitable CEE banking markets. As mentioned, there is a notable downside risk for profitability in 2014 and beyond, mainly due to inferior economic
performance, possible political instability, and expected margin squeeze. So far
the credit risk remained at a fairly low level, with the NPL ratio varying around
4.5% within 2013. In 2014, depending upon the extent of the economic slowdown, and expose to risks related to the crisis in Ukraine, we expect an increase
of the NPL stock to about 5-6%. Funding and capital trends saw an improvement in 2013. According to national accounting standards, the overall capitalization of the system remained at decent levels in 2013, with an own funds ratio
of 13.5%, only 0.2% lower than in 2012. In 2014, we anticipate a cautious leverage of own funds by banks and the continuation of tighter regulatory capital
supervision, as lower expected growth, and dampened profitability could result
in limited ability of the banks to boost their capital base. Deposit funding posted
a slightly stronger growth in 2013 than a year before, up by 22% in yoy terms.
The system-wide L/D ratio therefore levelled at 94%, pointing to the possibility of
further expanding the loan base via domestic funding. As previous, a potential
Russia
2009
Real GDP (% yoy)
2010
2011
2012
2013
2014e
1,147
1,342
1,540
1,578
1,441
1,517
6,157
8,030
9,387
10,753
11,012
10,049
10,575
-7.8
4.5
4.3
3.4
1.3
-0.3
1.0
11.8
6.9
8.5
5.1
6.8
6.1
5.5
8.4
7.5
6.6
5.7
5.8
6.0
6.0
-6.3
-3.5
1.6
0.4
-1.0
-0.5
-0.6
8.3
9.3
9.8
10.5
12.0
13.0
14.0
4.1
4.4
5.2
3.6
1.6
2.3
2.0
37.1
31.8
31.1
31.4
34.1
42.0
44.1
44.25
40.29
40.92
39.94
42.32
48.97
49.37
EUR/LCY (avg)
60
2015f
879
Russia
liquidity risk in the system stems from
sizeable maturity gaps. A considerable part of the loan base is funded
Sberbank, 28.5%
with short-term means from the interbank and money market. The secOthers, 36.8%
tor’s structure is characterized by an
increasing concentration, with a “the
big become bigger” stance pushed
even more so by the recent regulatory measures on the sector clean-up.
SocGen, 1.5%
The share of state-controlled heavyVTB Group, 15.6%
Raiffeisenbank, 1.2%
weights (Sberbank, VTB, Russian AgPromsviazbank, 1.3%
Gazprombank, 6.2%
ricultural Bank, Gazprombank, and
RusAgro, 3.2%
UniCredit,
1.6%
commercial subsidiaries of VneshekNOMOS Group, 1.6% Alfa Bank, 2.6%
onombank [VEB]) reached 55% of the
* VTB Group = VTB, VTB 24, Bank of Moscow, Transcreditbank; SocGen = Rosbank, Rusfinance and Deltacredit; Nomos
system’s assets in 2013. Large private
Bank Group = Nomos Bank, Bank Khanty Mansiysk and 2 small regional subsidiaries
banks (Top 50) also gained a bit of
% of total assets
Source: RBC-Rating, Raiffeisen RESEARCH
weight, reaching 17% in assets, up
from 16.5% in 2012. The market share of 100% foreign-owned banks stays flat at 7.7% as of December 2013.
Financial analyst: Elena Romanova
Balance sheet data
growth in % yoy
in % of GDP
2009
2010
2011
2012
2013
678,293
838,138
998,949
1,238,697
1,276,922
0.3
23.6
19.2
24.0
3.1
75.8
73.0
74.6
79.4
86.1
721,734
371,425
449,946
558,325
693,248
growth in % yoy
(6.9)
21.1
24.1
24.2
4.1
in % of GDP
41.5
39.2
41.7
44.4
48.7
500,317
289,057
348,669
425,119
499,671
growth in % yoy
(4.2)
20.6
21.9
17.5
0.1
in % of GDP
32.3
30.4
31.7
32.0
33.7
82,368
101,277
133,206
193,577
221,417
(15.0)
23.0
31.5
45.3
14.4
9.2
8.8
9.9
12.4
14.9
27,214
32,119
38,992
52,838
0
(11.2)
18.0
21.4
35.5
(100.0)
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
3.0
2.8
2.9
3.4
0.0
88,157
99,615
114,462
118,308
129,341
(10.7)
13.0
14.9
3.4
9.3
9.9
8.7
8.5
7.6
8.7
24
22
21
17
18
393,260
520,161
622,019
748,058
766,887
growth in % yoy
10.9
32.3
19.6
20.3
2.5
in % of GDP
44.0
45.3
46.5
47.9
51.7
377,086
172,512
243,423
284,881
356,550
growth in % yoy
21.0
41.1
17.0
25.2
5.8
in % of GDP
19.3
21.2
21.3
22.9
25.4
94
87
90
93
94
1,058
1,012
978
956
923
45
46
52
53
55
18.3
18.0
16.9
17.8
15.5
9.0
8.6
8.3
7.9
7.6
Number of banks
Market share of state-owned banks (% of total assets)**
Market share of banks over 50% foreign-ownership (% of total assets)*
Market share of 100% foreign-owned banks (% of total assets)**
Return on Assets (RoA %)
0.7
1.9
2.4
2.3
1.7
Return on Equity (RoE %)
4.9
12.5
17.6
18.2
14.9
20.9
18.1
14.7
13.7
13.5
6.2
5.7
5.0
4.8
4.3
Capital adequacy (CAR % of risk weighted assets)
* As reported by the CBR, ** Raiffeisen RESEARCH estimate; Source: CBR, RBC-Rating, Raiffeisen RESEARCH
61
Ukraine
Headwinds once again – legacy assets still on the balance sheets



Highly uncertain outlook on the macroeconomic developments, deep recession inevitable in 2014
Financial system under pressure of FX adjustment and increasing liquidity risk
Local private banks continued to benefit from shift in market structure, but reshuffling might be in the cards
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2013, red triangle shows Ukraine vs. all other
CEE markets
Source: NBU, national sources, Raiffeisen RESEARCH
60
50
40
30
20
10
0
-10
-20
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
* in LCY-terms
Source: NBU, Raiffeisen RESEARCH
The macroeconomic situation remains complex amid a slump in growth and a
non-sustainable current account deficit. However, in 2013 FX pressure has been
brought under control (before the adjustment seen in March 2014), thus improving the liquidity situation for banks. As a result, total loan growth in LCY-terms
accelerated to 11.9% yoy in 2013 (up from 2.2% in 2012), while the loan-toGDP ratio increased from 57% to 62%. Hence, as we indicated in our 2013 CEE
Banking Sector Report, a deep deleveraging cycle, lasting for approximately five
years, has slowed down in 2013. Among the various market segments unsecured
consumer lending has been the most thriving, providing attractive margins, while
longer-term lending to corporates was curbed by weak demand in the light of
looming economic uncertainty and a poor business climate. On the funding side,
deposit growth accelerated from 16.1% yoy in 2012 to 17.3% in 2013, driven
by a 38% yoy increase in LCY retail deposits. Moreover, the structural funding
profile of Ukrainian banks improved as new lending was predominantly funded
by domestic deposits. The L/D ratio in 2013 further dropped from 142.5% to
136%, albeit at a much slower pace than in recent years. So far, the last two
year’s economic stagnation surprisingly has not yet caused material deterioration
in asset quality, which might be explained by tighter lending standards. However,
the overall NPL ratio remains at a very high level of 30-40%, largely reflecting
legacy asset from the 2008/09 crisis. There is upward pressure on the NPL ratio
due to the FX adjustment and the slump in growth that is likely to follow. Additional
pressure is caused by the expected fiscal tightening and ongoing tensions with
Russia. On aggregate, the banking system posted a meagre profit in 2013 (RoE
at 0.8%) due to the continued build-up of provisions by a few large banks and
squeezed interest margins.
The Ukrainian banking system is characterized by a low degree of consolidation,
while the ownership structure has changed dramatically. In particular, the deteriorating economic prospects for Ukraine and the increasingly challenging economic
and regulatory environment in the home markets prompted an exodus of Western
European banks – the share of foreign-owned (non-Russian) banks shrank from
37% of total assets to 16% in the years 2010 to 2013. This retreat has resulted in
a cut of cross-border banking exposures of European banks by around 75% from
peaks (September 2008), which is slightly above exposure cuts of Western banks
Ukraine
2009
2010
2011
2012
2013
2014e
102.7
117.2
135.6
133.2
103.7
112.9
1,775
2,239
2,564
2,975
2,929
2,288
2,499
Real GDP (% yoy)
-14.8
4.2
5.2
0.2
0.0
-5.0
1.5
15.9
9.4
8.0
0.6
-0.2
6.0
7.5
8.8
8.1
7.9
7.7
7.5
8.5
8.0
-8.7
-7.5
-4.3
-5.5
-7.0
-4.0
-3.0
34.6
40.0
36.0
36.8
40.3
52.0
53.0
-1.6
-2.2
-6.3
-8.5
-9.1
-5.9
-4.2
88.2
85.2
83.0
74.4
78.9
107.1
106.3
11.21
10.54
11.11
10.39
10.83
14.46
14.76
EUR/LCY (avg)
62
2015f
81.7
Ukraine
in the peripheral countries of the euro
area. The gap in market shares was
PrivatBank, 16.8%
filled by private domestic banks with
aggressive growth strategies and valuOshadbank, 8.1%
able political connections.
Going forward, the banking system is
Others, 45.7%
facing a number of challenges, mostly
Ukreximbank, 7.4%
stemming from the ongoing economic
Delta , 4.3%
and political adjustment. In particular,
the large-scale FX depreciation (around
Raiffeisen Bank Aval,
20-30%) will dent banks’ profitability,
3.4%
given the open short-term FX positions
Ukrsotsbank
(UniCredit), 3.4%
in the banking system (around USD
Nadra, 2.4%
1.5 bn) and the still sizeable share of
Prominvestbank,
Sberbank, 2.7%
FUIB, 2.6%
3.1%
FX loans. Also, the expected severe
% of total assets
GDP decline in 2014 is likely to result
in adverse banking sector conditions.
In the long run the local banking system might undoubtedly benefit from a broader-based economic transformation (which is
expected to follow the recent political changes and a possible rapprochement with the EU), with the fight against corruption
being one of the first priorities for any new government in order to strengthen the domestic economy.
Financial analyst: Dmytro Sologub (+380 44 49590-72), Raiffeisen Bank Aval JSC, Kiev
Balance sheet data
2009
2010
76,697
88,167
growth in % yoy
in % of GDP
2011
2012
2013
101,788
106,339
114,627
(11.9)
15.0
15.4
4.5
7.8
96.4
87.0
81.3
80.0
88.5
81,155
62,619
67,809
76,268
76,353
growth in % yoy
(9.3)
8.3
12.5
0.1
6.3
in % of GDP
78.7
66.9
60.9
57.4
62.7
64,246
42,013
48,674
57,402
59,078
growth in % yoy
(3.0)
15.9
17.9
2.9
8.7
in % of GDP
52.8
48.0
45.8
44.4
49.6
20,506
19,134
18,866
17,275
16,909
(20.2)
(6.7)
(1.4)
(8.4)
(2.1)
25.8
18.9
15.1
13.0
13.1
9,122
8,686
7,526
6,174
0
(9.8)
(4.8)
(13.3)
(18.0)
(100.0)
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
11.5
8.6
6.0
4.6
0.0
32,043
31,569
31,071
28,261
27,624
growth in % yoy
-21.4
-1.5
-1.6
-9.0
-2.3
in % of GDP
40.3
31.2
24.8
21.3
21.3
growth in % yoy
in % of GDP
51
47
41
37
34
28,555
38,767
46,806
53,995
59,959
(15.1)
35.8
20.7
15.4
11.0
35.9
38.3
37.4
40.6
46.3
18,423
25,431
29,560
34,836
39,209
growth in % yoy
(9.1)
38.0
16.2
17.8
12.6
in % of GDP
23.2
25.1
23.6
26.2
30.3
219
175
163
141
135
Number of banks
182
176
176
176
180
17
17
17
18
18
47
43
38
33
27
0.1
(4.4)
(1.5)
(0.8)
0.5
(32.5)
(10.2)
(5.3)
3.0
0.8
18.1
20.9
18.2
18.1
18.3
Non-performing loans (% of total loans)*
33.8
42.0
40.0
37.5
37.5
* Average of “unofficial” estimates based on IFRS estimates
63
Belarus
Challenged by macroeconomics – increasing risks in FX lending



Slowdown of the domestic economy leads to a decline in profitability of banks
Regulator’s policy of high interest rates on BYR deposits have borne fruit so far, but fragile further development expected
Credit expansion is underpinned by continued direct lending and increased domestic demand
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2013, red triangle shows Belarus vs. all other
CEE markets
Source: NBB, national sources, Raiffeisen RESEARCH
95
80
65
50
35
20
Jan-09 Feb-10 Mar-11 Apr-12 May-13
* in LCY-terms
Source: NBB, Raiffeisen RESEARCH
Unlike in 2012, Belarus’ macroeconomic position was characterized by a significant slowdown in growth, a return to trade deficit and another round of BYR
devaluation. Although macroeconomic trends played against the banking sector,
the latter posted strong growth in 2013. Total assets in LCY-terms increased by
23% yoy, even though in EUR-terms growth amounted to 7% yoy, affected by
a 15% BYR weakening. The loan growth was in high double-digits in 2013
(28.5% yoy in LCY), which even exceeded official targets. A very strong loan
growth was visible in the consumer lending segment: households’ loan portfolio
in BYR increased by almost 35% yoy on the back of a strong increase of wages.
The expansion of loans was also underpinned by a continued stimulation of economic activity (partly through direct lending under state programs) and domestic
demand, as well as for some part inflated by the LCY devaluation. Rapid growth
of FCY loans, up from 22% in total loans back in 2010 to around 50% in 2013,
as well as strong retail lending growth gave rise for concern in 2013. In early
2014, the National Bank of the Republic of Belarus (NBB) introduced a number
of additional measures limiting FCY lending and aiming at a reduction of interest
rates on consumer loans, but also at constraints in terms of total lending volumes
(e.g. higher capital requirements for household credit risk or restrictions on FX
loans to Belarusian enterprises, except for payments to non-residents). The volume of NPLs increased slightly in 2013. However, their share in the total loan volume remains rather insignificant at 0.8%. This can be attributed to the continued
support from the NBB, the ban on FX lending to households issued in 2009 and
the activity of the Development Bank of Belarus (founded in 2011), which takes
state lending programs on its own balance. The loan book of the Development
Bank of Belarus almost doubled in 2013, amounting to BYR 19 tn (EUR 1.5 bn).
Profitability figures according to local reporting standards were not as impressive
as in 2012 (net earnings grew by a quarter in 2013 against above 70% in the
previous year), however, the RoA climbed to 1.9%, reaching the highest level of
the last decade, and RoE stood at 13.8%. Nevertheless, the gradual BYR devaluation had a negative impact on the CAR, which now stands at 15.5% (yearend 2013), down from above 20% in 2012. Devaluation expectations and low
confidence in BYR deposits forced the regulator to adhere to a high interest rate
policy (above 40% p.a.) in order to prevent mass deposit outflows and/or con-
Belarus
2009
Real GDP (% yoy)
2010
2011
2012
2013
2014e
41.6
43.1
49.6
54.0
47.4
56.3
3,715
4,391
4,550
5,237
5,708
5,024
5,977
0.2
7.7
5.5
1.7
0.9
0.5
1.5
13.0
7.7
53.2
59.2
18.3
21.0
20.0
0.9
0.7
0.5
0.5
0.5
1.0
1.0
-0.7
-2.6
2.1
0.5
0.0
0.0
0.0
34.6
22.2
23.3
48.5
31.5
33.0
34.4
-12.5
-15.0
-8.5
-2.9
-9.7
-4.0
-6.1
43.6
50.9
60.9
51.7
49.0
59.4
54.7
3,892
3,954
7,263
10,748
11,828
14,484
17,208
EUR/LCY (avg)
64
2015f
35.3
Belarus
version into FCY. Currently, deposits in
FCY make up for about 62% of total
Others, 8.5%
deposits, while the L/D ratio stands at
Belarusbank, 40.3%
Bank VTB Belarus, 2.4%
150% (compared to more than 200%
Belgazprombank, 3.4%
in 2010), pointing to improvements in
Priorbank (Raiffeisen), 4.9%
the deposit base.
The overall number of banks in BeBank Bel (VEB), 5.2%
larus amounts to 31. The market is
highly concentrated as 80% are conBelinvestbank, 5.8%
trolled by the Top 5 players. Three of
them are state-owned banks, while
BPS-Sberbank, 11.1%
the other two are banks with a majority Russian capital. The position of
the latter shows the continued trend
Belagroprombank, 18.4%
of increasing market share of foreign% of total assets
owned (mainly Russian) banks and
their aggressive growth strategies.
We expect only moderate growth for the Belarusian banking sector in the following years, influenced by a slowdown in
economic growth. It is also inevitable that a rise of NPLs will be seen, which will put additional pressure on the banks’
capital reserves. Further credit growth is likely to be limited, due to the weakening ability of the state to support to the real
economy and the banking sector.
Financial Analyst: Marya Keda (+375 17 2899231), Priorbank Open Joint-Stock Company, Minsk
Balance sheet data
2009
2010
2011
2012
2013
20,281
32,104
24,019
28,328
30,211
growth in % yoy
(2.1)
58.3
(25.2)
17.9
6.6
in % of GDP
60.6
78.3
94.6
60.9
62.1
15,499
22,355
13,691
17,808
19,831
5.9
44.2
(38.8)
30.1
11.4
46.3
54.5
53.9
38.3
40.7
11,614
16,645
10,729
14,265
15,705
growth in % yoy
10.4
43.3
(35.5)
33.0
10.1
in % of GDP
34.7
40.6
42.2
30.7
32.3
3,885
5,710
2,962
3,544
4,126
growth in % yoy
(5.6)
47.0
(48.1)
19.6
16.4
in % of GDP
11.6
13.9
11.7
7.6
8.5
4,582
4,848
5,410
8,101
9,960
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
1.3
5.8
11.6
49.7
22.9
13.7
11.8
21.3
17.4
20.5
30
22
40
45
50
7,978
10,831
9,093
12,743
13,202
growth in % yoy
(6.9)
35.8
(16.0)
40.1
3.6
in % of GDP
23.8
26.4
35.8
27.4
27.1
4,421
5,779
4,539
6,884
7,824
1.9
30.7
(21.5)
51.7
13.7
13.2
14.1
17.9
14.8
16.1
194
206
151
140
150
Number of banks
32
31
31
32
31
79
71
67
65
63
19
28
32
35
36
growth in % yoy
in % of GDP
1.4
1.7
1.7
1.8
1.9
8.9
11.8
14.9
12.7
13.8
19.8
20.5
24.7
20.8
15.5
0.9
0.7
0.5
0.5
0.8
65
Focus on: Headwinds in Russia and Ukraine – does history repeat itself?
Assumptions baseline scenario
 No tangible Russian interference in
Ukraine, no secession of Eastern/South
Eastern Ukraine
 Diplomatic dialogue between Ukraine/
Russia/US/EU, some change to the territoral structure of Ukraine
 No far reaching economic and financial
sanctions against Russia implemented
 Modest economic fall-out in Ukraine and
Russia
 Political stabilization in Ukraine in H2
2014
Banking sector RoE (%)
30
20
10
0
Both Russia and Ukraine have been exposed to significant event and market risks. This
situation confronts banks with a number of issues and in the following analysis we seek
to assess possible challenges and their results.
Our judgments are based on past experience, as both the banking sectors in Russia and
Ukraine also faced significant difficulties in 2008/09, as well as a so-called baseline
scenario (for the assumptions see the left-hand side). In 2014, the Ukrainian banking
market is likely to be hit harder than the Russian. Nevertheless, the overall impact in
Ukraine is expected to be somewhat less severe than the one in 2008/09. Banking
sector growth has been quite modest recently and since 2008/09 FX retail lending
has stalled. As far as the Russian banking market is concerned, on the basis of several
indicators (balance sheet growth, NPLs and profitability), at a maximum we expect
about half of the setback seen in 2008/09. This assumption is backed by the fact
that as compared to the period from 2004 to 2008, recent banking growth in Russia
has been less aggressive. Moreover, the 2014 losses on domestic financials are much
lower than in 2008/09. In 2013 economic agents were used for RUB flexibility and
the macro-backdrop already clouded substantially (which also implies less aggressive
business strategies).
-10
Market risks
-20
-30
-40
2000
2003
2006
2009
Russia
2012
Ukraine
Russia: Cross-border claims*
50
5%
4%
40
3%
30
2%
20
1%
10
0%
CH JP UK NL AT SE IT DE US FR
Cross-border exposure (USD bn)
Share total cross-border exposure (%, r.h.s.)
* Averages for 2013
Ukraine: Cross-border claims*
8
2.0%
6
1.5%
4
1.0%
2
0.5%
0
0.0%
GR
DE
FR
IT
AT
Cross-border exposure (USD bn)
Share total cross-border exposure (%, r.h.s.)
* Averages for 2013
66
Interest rates in Russia and Ukraine are likely to drift upwards. In Ukraine the “upside
risk” is higher. However, Russia is also exposed, as indicated by the recent emergency
rate hikes that are likely to be only partially reversed in 2014. However, FX volatility
implies far more disruptive impacts. Here, Russia would appear to be in a much better
position to fend off pressure on the RUB. This holds especially true following the return
to greater FX fine-tuning and a decreasing focus on introducing full-scale FX flexibility in
the near future. By contrast, even taking IMF funding into account, the reserve position
in Ukraine remains critically low. Moreover, political uncertainty could last at least until
the summer (presidential elections in May, subsequent forming of a new government,
etc.) and this may add to the FX overshooting risks. Liquidity risk is far more dangerous than interest or credit risk, as a liquidity crunch comes quickly and is hard to stop
once contagious panic sets in. This is especially true in fragmented banking systems
such as those in Russia or Ukraine. Should a liquidity crunch occur, the probability of
system-wide pressure is much greater in Ukraine than in Russia. With the exit of major
foreign banks and limited firepower at the National Bank of Ukraine (NBU), the Ukrainian banking system appears to be relatively “locked into itself”, especially if the locals
undertake another round of conversions from LCY into FX. Moreover, Ukrainian borrowers are priced out of international markets and as compared to Russia (L/D ratio below
100%), balance sheet liquidity and flexibility in Ukraine (L/D ratio at around 130%) is
constrained. One relief element does exist in Ukraine because the elevated L/D ratio
has to be seen within the context of large NPL portfolios. Balance sheet cleanup (as per
IMF requirements) may lower the L/D ratio significantly and as compared to 2008/09
various aspects look much brighter for Ukrainian banks. In September 2008, these had
a L/D ratio of 166% and were therefore heavily reliant upon foreign funding (of total
liabilities some 27% were non-resident). Since then the Ukrainian banking system has
gone through external deleveraging and by year-end 2013, foreign funding in total
liabilities had shrunk to 17%. Owing to surging loan growth in 2007/08 (60-70%
yoy), Ukrainian banks also suffered from a lack of liquidity reserves, which is not the
case at present. Therefore, the liquidity risk would seem to be lower than in 2008/09,
especially given the determination of the new NBU management to support banks via
refinancing facilities. Although increasing liquidity pressure on the Russian market cannot be ruled out, the probability of a liquidity crunch is much lower. Moreover, in Russia,
the 2007/08 liquidity crunch provided experience as how to avoid such situations (with
measures ranging from ample liquidity injections, to the rescue of distressed banks and
a degree of funding outflow ring-fencing). Russian issuers have also felt some pressure
on foreign markets. For as funding costs increase, there is anecdotal evidence that lines
for Russian banks are treated more cautiously although Russian issuers have not been
totally priced out of international markets. However, the deposit base in Russia is concentrated at major state banks and therefore many
banks have L/D ratios well above the market average.
Asset quality and credit risk trends
The Russian loan-to-GDP ratio (at 49%) is somewhat below a level that, given the high wealth levels, we deem as being fundamentally
sound but all in all this implies that there is no over-indebtedness. Conversely, in Ukraine the loan-to-GDP ratio (62%) remains at the upper limit of a level that given low current GDP per capita levels could be seen as sustainable. Thus, on average there are fewer “good”
credits risks, which implies higher risk costs in times of an external shock. However, loan growth had been moderate in Ukraine in recent
years and by contrast strong consumer lending in Russia may now backfire. Accordingly, asset quality will possibly deteriorate in both
markets (again with a far greater impact in Ukraine) and NPL ratios are likely to rise. In Russia, the main risk of negative performance
relates primarily to direct and indirect exposure to Ukraine (also via cross-border loans from headquarters). A second threat to asset
quality stems from macro-economic and RUB weakness, but in Russia’s case the system-wide NPL ratio rise might be offset by a continuation of decent loan growth. However, in this regard we are slightly more optimistic than some observers, who expect an NPL ratio
rise in Russia to around 8%. Moreover, we anticipate that (state-owned) banks are likely to rollover a lot of corporate exposure, which
may otherwise become non-performing. At the same time, we do not exclude a tangible upswing in the NPL ratios of state-controlled
banks, as these may well be involved in sizeable lending, not only to Ukrainian companies and large Russian companies with significant
Ukraine exposure, but also a number of infrastructure projects. In Ukraine, stagnant loan books are likely to step up the pressure on
the NPL ratio. Here it has to be stressed that Ukrainian banks are still plagued by large NPL volumes (average NPL ratio according to
IFRS estimates at 30-35%, as compared to 5-10% in 2008), as well as a sizeable short open FX position (about USD 1.5 bn). On the
other hand, the exposure to indirect credit risk (i.e. UAH depreciation) is lower now, given much smaller FX loan portfolios and tighter
underwriting standards, e.g. FX loans to individuals, the most toxic product 2008/09, fell by 70% (to USD 8 bn) amidst a ban on new
lending. Moreover, half of this loan stock is already non-performing and therefore the incremental NPL increase is unlikely to be significant. In our baseline scenario, this time banks are also facing less severe macroeconomic adjustment (in 2009 GDP slumped by 15%),
although NPLs are much higher. In general, according to our estimates, 20-30% UAH depreciation might bring the aggregate NPL ratio
up from its current level of over 30% to more than 40%.
Profitability and capitalization
Given sizeable profitability swings, a year or two of poor profitability for banks in Ukraine (with negative RoE and RoA readings) is on
the cards. The most likely strategy of banks (local and foreign-owned, including Russian banks) operating in Ukraine will be to freeze
operations until greater clarity is obtained. By contrast, in our baseline scenario we continue to expect satisfactory banking sector
profitability in Russia, i.e. RoE of 7-12% might still be in reach given a much higher degree of overall resilience. Moreover, we do not
see an immediate need for Russia’s private banks to recapitalize, although capitalization levels are now much lower than in 2008/09.
Whether or not Ukrainian banks have a higher loss absorption capacity than in 2008/09 is not yet entirely clear. The headline capital
position seems to be stronger than in 2008 because at the end of 2013 capital adequacy stood at 18.2%, as compared to 14% in
2008. We estimate that 20-30% UAH depreciation could push capital adequacy down to 11-14%, which would still be above the
normative level of 10%. However, a lot of banks may need recapitalization (driven by UAH devaluation and accelerated balance sheet
clean-up) and this could become an issue for some local private banks, which currently comprise 60% of the system. As the resources of
the Deposit Insurance Fund (DIF) are limited at present, the Ukrainian authorities should quickly come up with a mechanism to raise their
firepower. Recapitalization needs in Ukraine over the next 12-18 months could amount to between USD 3 and 5 bn.
Potential impact on Western banks
As compared to their local peers, who showed strong growth in recent years, given their less aggressive positioning foreign-owned
banks may be less hard hit in both the Russian and Ukrainian markets. In Russia, major foreign-owned players were less aggressive
in the retail and SME lending segments, which could now be impacted most. On a comparative basis, in terms of profitability the Russian market is likely to suffer less than the Ukrainian. However, the exposures of Western European banks to Russia are much larger
than to Ukraine. If one looks for comparisons in CEE, the exposure of major Western European banks to Russia is comparable to that
in Poland, while exposures to Ukraine are closer to the level of exposures to Slovenia. The cross-border banking exposure to Russia
(some USD 200 bn) of European banks (the largest providers of liquidity and funding to Russia) represents something like 1.12% of
total cross-border claims, or roughly 15% of the emerging Europe exposure (CEE + Turkey). The largest absolute exposures are held by
French, German and Italian banks. In relative terms (as compared to overall international exposures) the largest exposures to Russia are
at Italian, Austrian and Swedish banks. The share of Russia in total CEE exposures in the Austrian and Italian banking sector (due to a
broad-based, large-scale CEE presence) is not overly large per se. In fact other European banking sectors are far more exposed to Russia
with regard to this indicator. In the European banking sector as a whole, the cross-border exposures to Ukraine are very low (0.14%
of total cross-border claims or some USD 25 bn). The cross-border exposures of European banks for Ukraine are far more concentrated
with the largest exposures in Austria, Italy and France. Owing to increased financial stability concerns, international banks operating
in Russia and Ukraine may become subject to increased regulatory vigilance, or tighter regulation in their home countries. Moreover,
some (de facto) ring-fencing activity on the part of host country authorities cannot be ruled out entirely.
Financial analysts: Gunter Deuber, Elena Romanova,
Dmytro Sologub, dmytro.sologub@aval.ua, Raiffeisen Bank Aval JSC, Kiev
67
International players in Ukraine – many exits in recent quarters
Apart from Russian banks, the international players that are active in Ukraine include RBI, BNP Paribas, UniCredit, OTP, as well as the
Greek banks EFG and Alphabank. Ukraine has seen several exits by international players in the last quarters (e.g. Erste Group, Commerzbank, Swedbank, SocGen, SEB and most recently Bank Intesa) and some others are also considering exit scenarios. UniCredit
plans to merge its two subsidiaries with the final objective of leaving the country, as evidenced by the fact that the group has already
booked its Ukraine exposure as held-for-sale. RBI, as well as BNP Paribas, have become more cautious with regard to their lending
activity, but continue to finance the subsidiaries of multinational corporates and agricultural clients. OTP’s management has indicated
that as of March 2014 the bank had not yet seen a significant weakening of credit quality, but admitted that it is too early to judge
the impact of recent events. The management has stated that it is prepared for UAH depreciation, but estimates that UAH/USD 10.0
should be a break-even FX rate for the local subsidiary. A more significant devaluation (as currently) would cause additional provisioning which would not allow OTP’s local subsidiary to report a positive result in 2014. There have not been any statements with respect
to a potential market exit.
International players in Russia – ongoing commitment by key players
To date, most of the international players in Russia have not indicated a strategy shift. For example, in its recently presented “Strategy
2018”, UniCredit, the largest foreign player, included Russia among its CEE core markets. UniCredit’s management clearly sees an
incentive to increase the capital allocations to fast-growing markets such as Russia. After years of consolidation and the merger of individual entities, thus far SocGen has not announced any changes to its business model, nor presented a specific strategy for the Russian
market. A look at the 2013 performance of Rosbank, which includes all the banking entities in Russia, reveals that the turnaround of
what is now the second largest CEE market for SocGen, seems to be on track. The RBI management recently confirmed that Russia will
remain among its six strategic focus markets. OTP‘s Russian subsidiary is focused primarily on consumer lending with a large POS lending market share. The portfolio quality has deteriorated significantly owing to a more aggressive attitude on the part of competitors in
the consumer financing area, problems with collection agents and a shift away from POS lending by clients. This trend has prompted
the management to review its local strategy and significantly reduce its growth targets, which was already evidenced in Q4 2013 by
substantially reduced POS loan origination (-29% yoy).
Financial analyst: Stefan Maxian, maxian@rcb.at, Jovan Sikimic, sikimic@rcb.at, Raiffeisen Centrobank
Competitive landscape and financial stability considerations
The Russian authorities are in a better position to safeguard financial stability. The buffers in Russia are large and major state-owned
banks are in a much healthier state than those in Ukraine. Moreover, there are initial signs that large Russian state-owned banks may
function as anti-cyclical players (e.g. more leeway may arise from the relaxation of dividend payments, generous liquidity provisions, or
risk sharing agreements with state development institutions). We expect the market share of state-owned banks to increase noticeably in
2014. In addition, the Russian authorities have shown their ability to safeguard financial stability in a global crisis (as in 2008/09). As
compared to Russia, the picture with regards to near-term market share trends is less clear for Ukraine. Recently there was a tendency
towards decreasing activity with Russian-owned banks, which may benefit local and/or foreign-owned players in Ukraine. However,
some local private banks (especially those with close ties to the ousted government) may feel the pressure. Accordingly, it would appear
that there is a chance for foreign (non-Russian) banks to gain some market share through the use of their higher operative efficiency and
strong parent support. Moreover, if Ukraine is able to embark on a sustainable growth path (as we expect in our baseline scenario, with
GDP growth of 1.5% in 2015 followed by 4% in 2016) the foreign presence in the banking sector might increase again. It remains to
be seen to what extent foreign-owned (non-Russian) banks are willing to change their country allocations in favor of Ukraine (in the last
few years exposures were cut substantially). And in terms of overall financial stability, it has to be stressed that Ukrainian banks have
still not fully recovered from the fall-out of the 2008/09 crisis, which implies far smaller buffers than in Russia.
General outlook and a high degree of unpredictability
All the aforementioned ideas are based on our current baseline scenario. Therefore, it goes without saying that the absence of broadbased political stabilization in Ukraine, non-compliance with IMF conditionality, or the implementation of far-reaching economic and
financial sanctions against Russia would change all the outlined views completely. Market risks, the overall macroeconomic backdrop
and the credit risk picture are likely to worsen substantially in an escalation scenario, which would obviously imply substantial operational risks for international banks operating in the Russian and Ukrainian markets. Tighter economic sanctions would also create an
increased risk of “informal sanctions”, e.g. higher capital requirements for the Western subsidiaries of Russian banks and vice versa.
Financial analysts: Gunter Deuber, Elena Romanova,
Dmytro Sologub, dmytro.sologub@aval.ua, Raiffeisen Bank Aval JSC, Kiev
68
Aggregated profitability of the nine selected typical representatives of foreign
banking in CEE1 as measured by year-end RoA remained broadly stable in 2013
after a moderate decline in 2012. Despite a continuous slowdown in revenue
generation (weak loan growth, downward key rate moves), a slight acceleration
in cost reductions and only negligible easing in the provisioning cycle (upcoming AQRs, CIS/SEE picking up) helped to drive up aggregated RoA by 2bp
to 1.06%. Unlike in 2012, margin pressure on massive rate cuts in the largest
CE countries, Poland and the Czech Republic, has somewhat distorted its usual
“safety” features especially for the local banking heavyweights UniCredit, Erste
and KBC. This led us to conclude that only banks with balanced local exposure
and strong revenue streams from Russia reported the most resilient CEE segmental financials in 2013 (SocGen, RBI). With regard to the rapidly changing overall
environment in the CIS region, the banks operating in Ukraine expect heavy
earnings pressure on the results after the currency devaluation ytd. Major foreign
banks in Russia declared themselves committed to the fast-growing market potential in their updated strategies following their Q4 2013 results (UniCredit, RBI).
Hindered by the pace of accumulating risks from unsecured consumer lending in
2013, OTP has adopted plans to review its retail operations in the near future.
Fortunately, Romania is seen as a turnaround story, particularly for those banks
with deep losses on their books over the last two years (Erste, SocGen). With
some reservations this can be said to apply to Hungary as well. However, the
banks remain cautious regarding the potential unpredictability of political and
regulatory actions against the sector.
Foreign banks in CEE had quite a
solid year 2013 with stable
profitability yoy
Major challenges were key rate cuts
in CE, provisioning in SEE as well as
a pick-up of retail-based impairments
in Russia
CEE: Regional asset allocation (%, year-end 2013)
100%
80%
60%
40%
20%
CE
SEE
VTB
NBG
Alpha Bank
EFG
Sberbank
RBI
SocGen
Intesa
UniCredit
OTP
Citibank
Erste
ING
Commerzbank
KBC
Swedbank
Santander
0%
CIS
Source: company data, national central banks, Raiffeisen RESEARCH
The ranking of foreign banks in CEE remained broadly unchanged in 2013 due
to the absence of large-scale M&A activity over the last 12 months (we already
considered some deals in our last year’s edition). UniCredit, RBI, Erste, SocGen
and KBC are still the largest foreign banks as measured by CEE assets. When
also considering important CEE-domiciled players, PKO BP’s purchase of Nordea
Bank in Poland has placed the largest Polish bank ahead of KBC. In the middle of
the ranking, Santander (also operating a consumer finance arm in Poland, SCB)
has pushed itself into the Top 10, but here the lack of proper 2013 local data
for Citibank and Commerzbank might have played a role. BNP Paribas is the
newcomer after having signed an agreement to acquire Rabobank’s EUR 8 bn
in Polish assets. Overall, apart from missing deals, the reported total assets in
Top-ranking unchanged and BNP
Paribas as a newcomer after
takeover in Poland
1 The selected representatives of foreign banking in CEE include: Raiffeisen Bank International, Erste Group, OTP, UniCredit, Société Générale, Santander, Commerzbank, KBC, Intesa Sanpaolo.
69
EUR-terms were pretty much deflated due to local currency depreciation, muted
loan demand and were earmarked by asset reductions. When considering those
parameters, this is particularly visible for those banks with above-average asset
allocation in CE (excl. Poland). The most heavily impacted banks were Intesa,
Erste and KBC, while, on the other hand, UniCredit, SocGen and RBI benefitted
from the volume pick-up effect in Russia.
CEE: Total assets of international banks, consolidated* (EUR bn, 2013)
6.6
NBG
BLB
5.9
9.2
8.5
EFG Eurobank
14.4
9.6
BCP
Hypo Alpe Adria
16.0
BNP Paribas
27.1
19.8
20
Swedbank
29.4
28.5
Santander
OTP
Citibank****
38.0
37.3
Intesa Sanpaolo
53.9
40
38.2
60
ING***
76.0
SocGen
55.5
80.9
79.3
RBI
120.1
UniCredit
80
Erste
376.4
194.3
100
VTB
120
Sberbank
140
Alpha Bank
Commerzbank*****
KBC**
PKO BP
0
* considering also the announced but not yet finalized M&A activities
** BG as of 31 December 2012
*** CZ, SK, BG, HU, RO, RU, UA as of 31 December 2012
**** CZ, SK, HU, RO, BG, RU, UA as of 31 December 2012
***** CZ, SK, HU, RU as of 31 December 2012
Source: company data, national central banks, Raiffeisen RESEARCH
CEE: Development of total assets, consolidated* (EUR bn)
140
120
100
80
60
40
20
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
RBI
OTP
Intesa
Erste
UniCredit
SocGen
KBC
* considering also the announced but not yet finalized M&A activities
Source: company data, Raiffeisen RESEARCH
Currency depreciation in CE and
CIS notably impacted reported loan
growth in EUR-terms
70
Analogous to total assets, the aggregated loan growth of selected foreign banks
in euros has notably deteriorated, which we attribute to the deflating currency effects and generally weak corporate loan growth. Both factors have combined to
affect the CE countries (see KBC, Santander, Commerzbank). For foreign banks,
Russian volume pick-up has been distorted by RUB devaluation, but still it can be
evidenced that the banks focusing on the local market outperformed the rest in
terms of aggregated loan growth (RBI, SocGen, UniCredit). Furthermore, countries with stable currencies yoy as of year-end 2013, such as Romania and
Hungary, are still characterized by muted loan demand, whereas in some cases
company-specific de-risking measures have taken their toll on reported lending
volumes: Erste in both countries and Intesa in Hungary were more affected than
others.
CEE: Loan book growth 2011 - 2013 (yoy, in EUR)*
15%
10%
5%
0%
-5%
-10%
2012
2013
Intesa
Swedbank
KBC
Erste
Commerzbank
2011
OTP
Santander
RBI
SocGen
UniCredit
-15%
* adjusted for M&A activities
Loans and deposits, change 2013/2012 (in EUR-terms)
UniCredit*
Country
Loans
Deposits
PL
5%
9%
HU
-7%
CZ
3%
-16%
4%
Erste
Deposits
Loans
SocGen
Deposits
-7%
-8%
3%
-5%
-16%
-15%
-12%
6%
-6%
-9%
-5%
-5%
4%
1%
6%
8%
-14%
-15%
SK
SI
RBI
Loans
Loans
KBC
Deposits
n.a.
n.a.
-4%
3%
-10%
11%
Loans
OTP
Deposits
-21%
3%
-3%
-1%
0%
12%
-9%
3%
15%
10%
Loans
-19%
Deposits
-11%
1%
0%
-5%
13%
5%
5%
-12%
-1%
0%
1%
-2%
6%
RO
5%
12%
1%
15%
-13%
-2%
-6%
13%
2%
27%
0%
17%
HR
2%
2%
-3%
-6%
4%
6%
-1%
1%
6%
2%
-3%
-2%
-6%
-14%
1%
1%
2%
7%
0%
12%
-1%
0%
10%
-9%
RS
-7%
1%
-9%
-2%
3%
4%
-3%
3%
7%
8%
5%
-3%
ME
BH
KO
MK
BY
RU
UA
-3%
-5%
3%
3%
-3%
-8%
MD
-1%
21%
15%
21%
-4%
3%
10%
-40%
Intesa
Deposits
BG
AL
-9%
Loans
0%
0%
-8%
0%
0%
25%
-2%
-7%
-8%
-11%
1%
-2%
-33%
0%
21%
* CZ incl. SK
There is nothing unusual to add regarding the foreign banks’ segmental loans-todeposits profiles. Weak lending growth in large parts of CEE, continuous asset
reductions and on top of all this depreciating currencies in 2013 – the latter particularly weighing on the Czech Republic, Russia and Ukraine – have gradually
pushed down overall CEE L/D ratios. We have been observing this trend more
or less since 2010. The notable exceptions to this trend were the two Russian
banks in our sample, which could not decouple from the rest in 2013 following the RUB correction at the end of last year. Also the absence of large-scale
takeovers in the last 12 months has contributed to this trend on the individual
CEE fragments. Nevertheless, we have detected some noteworthy developments
during 2013 within particular banking groups: UniCredit managed to improve
its L/D ratios across the region (with the exception of Russia, but even there the
L/D ratio is below 100% and the lowest among all foreign banks in the market).
Erste performed similarly including a massive loan contraction in Serbia and
Romania which clearly stands out also in local interbank comparison. RBI’s individual L/Ds in CE countries grew on the back of deposit contractions, somewhat
contrary to overall market trends. However, in Romania RBI scaled down the L/D
Following the currency effect, L/D
balances improved further in 2013
71
ratio to 100% following strong deposit inflows. OTP’s core market meanwhile
shows L/D of less than 80% – cementing the comparative advantage of HUF
liquidity. In contrast, Russia’s L/D ratio of 143% and Romania’s L/D ratio of more
than 200% might call for some adjustments going forward. SocGen tapered
L/Ds in a quite balanced way with less volatility observed on the level of subsidiaries. Intesa together with KBC topped other foreign banks when it comes to loan
volume reduction in Hungary (19% yoy vs. 5-15% for the main players) and has
demonstrated above average deposit growth of 17% yoy in Romania. However,
this has to be interpreted as a base effect.
CEE: Loan-to-deposit ratios of regional segments (2010-2013)*
80%
109%
109%
107%
106%
95%
93%
92%
100%
75%
120%
88%
140%
100%
160%
119%
180%
146%
200%
60%
40%
20%
VTB
Commerzbank
OTP
RBI
Sberbank
SocGen
2013
Swedbank
2012
UniCredit
Erste
2011
Intesa
Santander
2010
KBC
0%
* adjusted for M&A activities
NPL ratios are decelerating, though
still in an upward trend;
improvement only in Russia and/
or via exits (KBC, Commerzbank,
UniCredit)
72
With regard to the screening of asset quality across foreign banks, we concede
that an interbank comparison is pretty much limited due to different NPL methodologies that are applied, so we rather focus on commenting on the trends for
particular banks. Nevertheless, we dare to share the view that reported NPL
ratios as of year-end 2013 to some extent display the banks’ risk profiles from
the geographical point of view. This is evident when comparing, for example,
OTP – which tops the ranking as market leader in Hungary, boasts a strong retail
segment in Russia and also has a not to be underestimated SEE presence – to Russian universal banks (Sberbank, VTB) or to pure CE specialists (KBC, Santander
or Commerzbank), all with limited or no exposure to Hungary. In a dynamic
comparison and excluding M&A activity, the data show increasing NPL ratios,
albeit with a decelerating trend. The positive “effects” from market exits during
the analyzed period are visible in particular at Swedbank, Commerzbank or
KBC, but temporarily also at UniCredit after leaving Kazakhstan in 2012. At this
stage we note that the depreciation of local currencies in CE as well as gradual
asset optimization measures, especially observable in Hungary and Romania,
also gave some boost to the reported NPL ratios in 2013.
CEE: NPL ratios of international banks (2010-2013)
25%
20%
15%
10%
5%
2010
2011
2012
OTP
Erste
RBI
SocGen*
UniCredit
Intesa
Santander
Commerzbank
KBC
VTB
Swedbank
Sberbank
0%
2013
* NPLs of CZ, RO, RU
When looking at recently released data for 2013, the NPL ratio trend was rather
mixed with positive developments at those banking groups whose assets are
almost exclusively focused on Russia, such as Sberbank and VTB, while moderately negative – as mentioned above on a decelerating trend – for those with a
higher share of SEE exposure (Erste, RBI, UniCredit and OTP). In addition, OTP’s
Russian retail specialized subsidiary delivered a sharp increase of NPLs in Q4
2013. The asset quality trend in Russia, improving at RBI as a corporate bank
and stabilizing at SocGen as merely a retail bank, could not fully compensate for
some pressure on other markets. In Hungary the banks finally reported a contraction in nominal NPL volumes yoy overall, but still predominantly registered higher
NPL ratios than in 2012 as the permanent de-risking depressed the asset base in
the denominator. One of the exceptions was Intesa, which managed to reduce
NPLs in Hungary more sharply than its competitors by neutralizing higher bad
loans accumulation from the SEE segment (i.e. Croatia and Serbia, top-ranked
in both countries). After signs of easing in Hungary, some improvement can be
expected in Romania as well. Erste’s NPL volumes peaked in 2012, but a sharp
15% loan contraction in EUR-terms pushed up the NPL ratio further, while the rest
including SocGen, RBI and OTP were facing additional nominal growth as of Q4
2013. The development in the Czech Republic was noteworthy, with all the Top
3 names – KBC, Erste and SocGen – reporting lower NPL volumes. KBC stood
out positively by keeping its CEE NPL ratio below the level of 2012 despite the
sharp CZK depreciation.
Signs of easing in Hungary, Romania
and Slovenia
Over the last 12 months there have been no large M&A transactions in the CEE
region. Aside from deal closings in Kazakhstan by UniCredit and in Ukraine by
Erste, the transaction which we would like to highlight is the agreement signed
between Rabobank and BNP Paribas for the sale of Rabobank’s subsidiary in
Poland. With this coup BNP Paribas is now ranked among the Top 15 foreign
banks in the region with assets of EUR 16 bn.
M&A transactions
73
CEE: Finalized and ongoing transactions
Country
Target
Total assets
Comment
(EUR bn)
Bank BGZ
8.6
BNP Paribas has acquired the majority in the bank that has specialized in agriculture from Dutch
Rabobank. The purchase price was EUR 1 bn or ~1.2x BV.
Santander Consumer
Bank
2.1
Bank Zachodni WBK agreed to acquire 60% of Santander's subsidiary via a share exchange with
the latter. The deal was priced at EUR 512 mn or 1.75x BV.
Nordea Bank Polska S.A.
7.9
PKO BP acquired Nordea´s Polish business for approx. EUR 620 mn. The deal was closed in April
2014.
UniCredit (CZ/SK)
4.0
UniCredit Bank Czech Republic and UniCredit Bank Slovakia merged at the end of 2013 in order
to gain synergies.
MKB Unionbank
0.8
Bulgarian First Investment Bank acquired 100% of the shares of MKB Unionbank for EUR 50 mn.
RBS retail operations
0.3
UniCredit took over the retail & private banking portfolio of RBS in Romania in spring 2013.
RIB
0.1
Getin Holding bought the bank from two individuals in late 2013.
Nextebank
0.2
Three investment funds managed by Axxess Capital bought Nextebank from MKB (which is owned
by BayernLB) in December 2013.
Citibank operations
0.1
Raiffeisen Bank Romania acquried the retail loan book of EUR 90 mn as well as deposits/Asset
under Management in Q1 2013.
KBC Banka
0.1
Mobile operator Telenor bought 100% of the shares, while the local SocGen subsidiary took over
the loan portfolio.
AIK Banka
1.3
Miodrag Kostic increased his holding to 50.4% from 36% via a takeover bid in February 2014 at
a price of approx. 0.3x BV.
Croatia
Banco Popolare
0.3
OTP Banka Hrvatska has acquired 100% of Banco popolare Croatia at a price of EUR 13 mn, or
at a takeover multiple of 0.3x BV. The purchase agreement was signed in January 2014.
Bosnia
a. H.
Balkan Investment Bank
n.a.
The Government of the Republic of Serbia acquired the Balkan Investment Bank AD Banja Luka for
EUR 15 mn.
JSC Astra Bank
0.2
Alpha Bank sold its small Ukrainian subsidiary to Delta Bank in September 2013 for EUR 82 mn.
Pravex-Bank
0.4
In January 2014 Intesa Sanpaolo signed an agreement for the sale of 100% of its Ukrainian
subsidiary Pravex-Bank.
JSC Swedbank
0.5
Swedbank finalized the sale of its Ukrainian operations in Q2 2013. Swedbank´s subsidiary JSC
Swedbank was sold to Mykola Lagun, the majority owner of Delta Bank in Ukraine.
Poland
Czech
Rep. /
Slovakia
Bulgaria
Romania
Serbia
Ukraine
Rosbank
Russia/
other CEE
ATF Bank
VTB Bank
In April 2014, SocGen acquired 7% of Rosbank's share capital from Interros group, raising its
stake to 99.4%. Previously in Q4 2013, SocGen had already raised its stake in Rosbank by 10pp
to 92.4%.
19.7
3.8
In April 2013 UniCredit disposed of ATF Bank in Kazakhstan.
A consortium including China Construction Bank Corporation bought a 13.8% stake in VTB Bank
for ~EUR 1.8 bn.
195
Bank Petrocommerce
5.3
Otkritie Financial Corporation JSC acquired a 95% stake in the bank from Financial Group IFD
Capital for EUR 422 mn.
GE Money Bank (Russia)
0.6
Sovcombank purchased GE Money Bank from DRB Holdings BV.
Source: banks, press articles, Bloomberg, Raiffeisen RESEARCH
Departures from Ukraine (Alpha,
Intesa, potentially UniCredit) and
one mid-field deal in Poland are the
highlights in the last 12 months
74
Apart from this, an acceleration of the departures from Ukraine (Alpha Bank,
Intesa and UniCredit – still in progress) was observed. For one thing, the less
eventful M&A market can open up some room for a pick-up in takeover activity
in the near future. Namely, in some countries the pipeline of possible deals is
getting larger for various reasons: Firstly, the Romanian banking sector benefits
from positive macro, regulatory and asset quality momentum and some smalland medium-sized banks might consider a country exit. Secondly, Poland is still
considered to have remarkable growth potential and is hence of interest for
large international banks. Thirdly, in Hungary the banking sector might enter a
consolidation phase, which is partially driven by the government’s intention to
increase the local ownership in the sector. Here due to a lack of deals since the
crisis the question is at what multiples the local top-ranked banks are disposed
of in light of the uncertainty regarding actions to be taken by the regulator/the
government, the heavy losses that have been digested since 2009 but with an
improving macro outlook.
CEE: Potential takeover candidates
Country
Target
Bank Millennium
Alior Bank
Poland
Hungary
Romania
Bank BPH
Others
8.0 Subsidiary of GE Money Bank.
PKO BP
55.5 Government is expected to dilute its current 31% stake further, very speculative long-term target.
mBank
24.2 Despite CoBa's committment to Poland, mBank appears as an ongoing speculative long-term
target, very much depending on its parent bank's standing.
MKB Bank
6.6 Bayerische Landesbank plans to sell Hungarian MKB Bank by the EU´s deadline of 2015. According to local media, OTP is being connected with a potential acquisition.
Raiffeisen Bank Hungary
6.2 Hungary does not belong to RBI‘s focus markets. The sale of the Hungarian subsidiary is no longer
on the agenda.
Banca Transilvania
7.2 10% owned by the Bank of Cyprus; 15% owned by EBRD; these stakes might be sold through
accelerated private placements.
Intesa Sanpaolo Romania
0.9 The Italian group said that it would rethink its strategy for some markets, including Romania, where
it lacked scale.
Banca Carpatica
0.9 The management is seeking shareholders´ approval for a merger with the Romanian subsidiary of
a foreign group which might be willing to leave the market.
Marfin Bank
0.6 The bank is owned by the Cyprus Popular Bank and is expected to be sold given an agreement
with the EC.
Volksbank Romania S.A.
3.1 According to the agreement with the EC, the Romanian subsidiary should be sold by the end of
2015; according to rumors, Rothschild has been mandated as advisor.
15.8 SIF Oltenia is still expected to sell its 6% minority stake to Erste Group but apparently negotiations
are on hold for the moment.
Millennium Bank S.A.
0.6 The Portuguese group has reached an agreement with the EC to divest its Romanian subsidiary by
June 2015.
Bancpost
2.5 With its parent, EFG, being the sole big bank nationalized by the Greek state, Bancpost is a likely
candidate to be sold.
AIK Banka
1.3 A 20% stake changed hands from ATE to Piraeus Bank; the bank did not sell the shares to Miodrag
Kostic.
Komercijalna Banka
3.2 Country's No. 2 in size, EBRD holding 25% and the state 42%, strong retail network, rather a
long-term target.
HPB
2.3 The government has rejected two bids from Erste and OTP priced at 0.7x BV and 0.6x BV respectively.
NLB Group
Russia/
other CEE
6.2 After the IPO in late 2012, a 36% stake held by Carlo Tassara Group should be sold to a strategic
investor. The deadline set by the regulator was extended to year-end 2014.
15.4 Owned by Leszek Czarnecki, no rumors at all currently, rather long-term takeover target.
Serbia
Slovenia
13.8 The bank appears to be the takeover candidate in the mid-term; dependent on the repayment of
state aid and the outcome of the AQR at its parent BCP.
Getin Noble Bank
BCR
Croatia
Total assets Comment
(EUR bn)
NKBM
12.5 After being nationalized and recapitalized in 2013, NLB is part of the privatization strategy. No
precise time frame has been set yet, currently the transfer of bad loans to the bad bank established
in Slovenia is on the agenda.
5.0 After being nationalized and recapitalized in 2013, NKBM is part of the privatization strategy.
The government plans to proceed with the sale of a majority stake earlier than at NLB. The transfer
of bad loans to the bad bank established in Slovenia is open.
Banka Celje
1.8 According to local media, the bank should be merged with visibly larger Abanka Vipa in 2014.
Banca Intesa (Russia)
1.5 Intesa Sanpaolo considers its rather small Russian subsidiary as non-core, therefore a divestment
cannot be ruled out in the long run.
Raiffeisen Bank Aval
(Ukraine)
4.3 Ukraine does not belong to RBI‘s focus markets. Prior to the crisis outbreak, RBI was in talks to
dispose of its Ukrainian subsidiary. This plan is on hold.
OAO Swedbank
0.2 Since Q1 2013 Swedbank´s rather small Russian subsidiary has been classified as held for sale.
UniCredit (Ukraine)
3.8 UniCredit announced first the merger of its two subsidiaries Ukrsotsbank and UniCredit Bank and
later their intention to exit.
Hypo Group Alpe Adria
(SEE assets)
7.3 The Austrian government is still considering the option of selling HGAA's SEE subsidiaries (largest
entities in RS and HR) separately from the parent bank in Austria.
Source: banks, press articles, Bloomberg, Raiffeisen RESEARCH
From the individual banks’ perspective, we understand that everything that is
not clearly defined as a core segment (see the section with bank descriptions for
more details) could potentially be subject to disposal. This is also true for several
SEE markets including Slovenia, but with the exception of a few banks who are
still benefitting from leading positions in Croatia, Serbia (Intesa, UniCredit) or
Romania.
75
Profitability
Pre-tax RoA broadly stable
compared to 2012, but helped by
deflating impact on assets from
currencies
Aggregated proportional profit before tax of the nine selected banks remained
broadly stable after a moderate decline in 2012 despite a continuous slowdown
in revenue generation (-3% yoy in 2013 vs. -4% in 2012, characterized by weak
loan growth and downward key rate moves in CE). Support in this area came
from slightly higher cost reductions compared to 2012 and a moderate easing
in the provisioning cycle. In relation to underlying CEE segmental assets, the
aggregated RoA before tax improved negligibly by 2bp to 1.06% compared to
2012, which could be partially a consequence of depreciating local currencies
(end of period yoy RUB -12%, CZK -9%, UAH -7%, PLN -2%, HUF -1%, RON
0%) and the ensuing deflating impact on the reported assets in EUR-terms. In
general we have observed that among the banks with a wide CEE presence,
those with a balanced local exposure as well as above-average revenue streams
from Russia (namely RBI and SocGen) reported the most resilient CEE segment
financials yoy in 2013. It is also worth mentioning that Erste managed to offset a
revenue downturn in CEE via a turnaround in Romania (both expenses were cut
and provisioning was lowered) and a visible cost decline in the Czech Republic.
UniCredit seems not to have faced the same magnitude of revenue pressure
like Erste, presumably due to Russia and partially SEE, but offset higher impairments across CEE thanks to strong cost control in most of the countries. Although
purely CE-focused, KBC posted satisfactory profitability in 2013, supported by a
reported above-average performance in its main market of the Czech Republic.
Santander posted the strongest RoA increase in yoy terms, but here the base effect after extraordinary provisioning in 2012 played a certain role. It should be
noted that Intesa, being still in the red, managed to reduce the segmental loss on
the back of P&L recovery in Hungary and Ukraine, despite facing weakness in
Croatia and Romania. OTP, following a significant deterioration in Russia and
Serbia which overshadowed the rebound on its core market of Hungary, ended
the year 2013 with the highest RoA before tax among foreign banks.
CEE: Pre-tax RoA in the region (proportional, 2010-2013, %)
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
2012
Intesa****
SocGen***
Santander
OTP
Erste
2011
Commerzbank**
2010
KBC
UniCredit*
RBI
-1.0%
2013
* Baltics, Kazakhstan and Ukraine not included in 2013, ** considering only mBank, *** calculation includes CZ, RO,
RU, **** excl. Ukraine in 2013; Source: company data; Raiffeisen RESEARCH
KBC, RBI and UniCredit with better
RoA vs. 2010
76
From the longer-established banks in CEE, based on our calculations, only RBI
(due to Russian momentum), KBC (exits from Poland, Bulgaria, Slovenia and Serbia) and UniCredit (departure from the Baltics and Kazakhstan, more conservative approach in Hungary and thanks to Russia and Poland) showed higher RoAs
before tax in 2013 than in 2010. While SocGen’s performance was stable during the last four years, Intesa still brings up the rear on the back of late/delayed
clean-ups in Hungary, Romania and Ukraine when compared to the actions of its
main foreign peers in the region.
Revenues development
Relative to the underlying assets allocated in CEE, we observed that core revenues (calculated as the sum of net interest income and net fee and commission
income) of the sample of nine selected foreign banks have been showing a
declining trend since 2010, with an acceleration of the trend taking place especially over the last two years. When looking at individual banks’ performances,
there are multiple reasons for such a development, ranging from dynamic external factors to key rates, underlying growth, the competitive environment and
the banks’ specific issues such as disposals or acquisitions, strategies, funding
profiles or capital endowment. From a static point of view the revenues and assets overview for 2013, irrespective of any possible accounting/reporting differences, might be taken as an indicator for the CEE allocation. For instance, OTP
shows the highest ratio by far, with a visible gap to the second best RBI, given its
dominant asset and revenue contribution from Hungary and Russia. In contrast,
Commerzbank ranks at the low-end with a ratio of below 3% due to the bank’s
almost exclusive focus on Poland.
Net interest income significantly
driven by key rate cuts in Poland,
the Czech Republic, Hungary and
Romania
CEE: Revenues per assets in the region (2010-2013, %)
8%
7%
6%
5%
4%
3%
2%
1%
2011
2012
2013
Intesa**
SocGen
Santander
OTP
Erste
Commerzbank***
2010
KBC
UniCredit*
RBI
0%
* Baltics, Kazakhstan and Ukraine not included in 2013, ** excl. Ukraine in 2013, *** in 2012, 2013 only contribution
of mBank / BRE Bank; Source: company data; Raiffeisen RESEARCH
In a dynamic analysis, we sum up our main findings that the most severe decline
of revenues/assets in the period 2010-2013 was observed by banks which acquired less revenue-rich assets such as Santander with the Kredyt Bank takeover
in 2011. Also banks with above-average exposure to the sharpest key rates
cuts, such as UniCredit (Poland and Czech Republic), Erste (Czech Republic),
Santander and Commerzbank (Poland), and banks which pulled out from high
interest rate countries like Commerzbank after selling Bank Forum (Ukraine) did
see a severe decline of their revenues/assets. Only RBI and OTP managed to
achieve revenue/asset ratios comparable to those in 2010 which is, in our view,
the result of a strong CIS/Russia momentum, while OTP has additionally highly
benefitted from its extraordinary position on its Hungarian home market. To that
group we can also add Intesa and KBC, both with quite a robust performance
over the last four years: Intesa on the back of the highest share of SEE allocation
among foreign banks including Top 3 positions in Croatia and Serbia albeit
with below-average exposure to downward rate movements (no presence in the
Czech Republic and Poland); KBC, as an almost pure CE player, rubbing hands
after leaving Poland in 2011, which has undoubtedly reduced the downward
margin pressure on group revenues, while also departing from non-core countries
that generate lower revenues (Serbia, Bulgaria and Slovenia).
Core revenues on assets still
declining since 2010
Intesa, KBC, RBI and OTP with
comparable performance to 2010
77
Risk provisioning development
The worst seems over in Hungary,
Romania and Slovenia
Preparing for upcoming AQRs in
some cases
The dynamics of relative provisioning look more volatile compared to revenue
streams over the last four years, obviously as the managerial influence on that
line is somewhat higher. The reported data show that provisioning/assets ratios
for the majority of banks were predominantly fuelled by Hungary and Ukraine in
2010/11, while more differentiation among banks was observed in 2012/13
(Romania, Slovenia and Russia were catching up, while no real easing was felt
in CE). Nevertheless, in nominal terms segmental provisioning eased by 5% yoy
(-3% in 2012), but the decline was determined by a few positive cases. One of
them was Erste, a clear outlier in 2013 after facing peaks in the Czech Republic
(2010), Hungary (2011) and Romania (2012). In addition, Erste boasted no
CIS exposure and a below-average share of business in SEE. Somewhat similar
was the performance of Santander after extraordinary provisioning in Poland in
2012. However, the majority of peers faced growing balances of impairments
and assets. In some cases we understand this as precautionary measures for the
upcoming ECB AQRs and/or as a reaction to higher requirements from local
regulators. For example this applies to UniCredit which had a “late provisioning
hike” in Romania, a significant pick-up in Croatia and Russia. SocGen showed
a similar performance to UniCredit, but already saw the second year in a row
of material provisioning in Romania. For OTP, it should be noted that the Russian
segment with a size of less than one third of its Hungarian core operations triggered more than two times higher impairments in 2013, keeping the bank at the
top of the provisioning/assets ranking.
CEE: Provisioning per assets in the region (2010-2013, %)
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
2012
2013
Intesa**
SocGen***
Santander
OTP
Erste
KBC
2011
Commerzbank****
2010
RBI
UniCredit*
0.0%
* Baltics, Kazakhstan and Ukraine not included in 2013, ** excl. Ukraine in 2013, *** calculation includes CZ, RO, RU
**** in 2012, 2013 only contribution of mBank / BRE Bank; Source: company data; Raiffeisen RESEARCH
Provisioning relative to assets visibly
lower than in 2010 in most cases /
Intesa (SEE) and OTP (Hungary, SEE,
Russia) still with the highest ratios in
the peer group
78
Since 2010, RBI’s performance has been one of the least volatile with some
recent challenges from Russia, Ukraine and Slovenia which have been compensated for by the positive tendencies in Hungary and Poland. Interestingly, Intesa’s
CEE provisioning was growing until 2012 due to somewhat delayed clean-ups
in Hungary and Ukraine (both only in 2012). However, the ongoing weakness
in Croatia, where Intesa is the second largest bank, did not leave too much room
for improvement in 2013. Also, similar to revenues, assets disposals/acquisitions
had an impact on the ratio with the most prominent case of Kredyt Bank in Poland
which was positive for the seller KBC and negative for the new owner Santander.
According to 2013 figures, OTP unsurprisingly leads the ranking on the back of
above-average combined allocation in Hungary and Russia, but with a clearly
narrowing gap to the second-ranked Intesa. Erste and RBI are in the middle of
the provisioning league table despite the former’s sharply positive momentum in
the last three years. Although there is evidence of increasing macro risks, Russia
is still not perceived as a “high-credit-risk market” among foreign market participants from an asset quality perspective, especially for those banks where the
corporate segment prevails.
Branch network
In 2013, the aggregate number of branches in the region decreased by 4% yoy,
which equals the decrease in 2012. The only bank that expanded its branch network was OTP with more than 50 new branch openings in Russia. In this report
we give an overview on the historical evolution of branch networks by comparing the available data from 2013 and 2008. For this purpose we analyzed
the branch development of almost all relevant foreign players (excluding ING
and Citibank, due to limited public data quality). It is evident that the networks
of foreign banks have visibly narrowed over the last five years. We calculated
with a net decline of about 15% since year-end 2008 (M&A deals between
selected banks have been considered). The overall reasons are various but most
prominent, in our view, certainly are M&A-driven changes as well as any kind of
harsh restructuring steps like those undertaken (or which are still in the process of
being implemented) by banks in Hungary, Romania and Ukraine. Our findings
on individual banking groups suggest that KBC and EFG (thanks to their exits
from Poland/CIS) as well as Commerzbank and Swedbank (through exits from
Ukraine) have reduced their respective network presences in the magnitude of
45-65%. Intesa can also be put in this group after the bank signed the agreement
to sell its Ukrainian subsidiary with a wide network, thereby cutting almost a
third of the total number of its branches. UniCredit and Erste have not disposed
of any of their respective “branch-rich” subsidiaries – although UniCredit’s exit
from Kazakhstan is debatable – and therefore show only a modest down-scaling
of -16% and -11% respectively compared to 2008. OTP and RBI show “just” a
single-digit branch network scale-down which is a result of gradual optimization
in Ukraine, expansion in Russia (OTP) and an acquisition in Poland (RBI with its
Polbank deal).
79
CEE: Market presence and networks of international banks
PL
HU
CZ
SK
SI
38
370
122
22
41
12
129
165
1002
100
111
73
EE
LV
LT
BG
RO
HR
16
168
530
76
35
199
187
130
58
150
900
118
563
150
76
203
84
102
AL
RS
ME
BH
KO
MK
BY
RU
UA*
KZ
MD
GE
2013
Sberbank
RBI
UniCredit
SocGen
478
398
Erste
135
Intesa
95
239
382
68
OTP
653
32
292
52
378
104
43
27
26
85
98
74
124
101
20
35
54
100
29
798
105
402
11
18309
137
1
630
31
192
51
51
29
156
1
60
34
69
260
200
140
1378 121
22
16
830
KBC
219
256
121
50
EFG
190
211
NBG
210
115
27
109
64
86
149
42
101
18
Alpha Bank
Commerzbank
195
No. of
outlets 2013
68
VTB
Santander
17734 205
No. of
countries
225
Swedbank
7
26
54
9
50
...
107
Number of branches per country
54
77
…
17
3012
12
2542
13
3019
6
1861
10
1268
9
1434
5
1693
1
830
4
646
4
562
5
525
5
396
4
5
271
2
4
183
only leasing
branches
* of which located on Crimea: RBI 32, UniCredit 20, Sberbank 14, OTP 8, Intesa 6, EFG 2, VTB n.a.
Source: company data, www.securities.com, Raiffeisen RESEARCH
-10%
-20%
-30%
-40%
-50%
-60%
-70%
Source: company data, www.securities.com, Raiffeisen RESEARCH
80
Swedbank
Commerzbank
KBC
EFG Eurobank
Alpha Bank
Intesa
NBG
UniCredit
Erste
OTP
RBI
0%
SocGen
CEE: Branch network change (2013 vs. 2008, %)
Raiffeisen Bank International
The management of Raiffeisen Bank International (RBI) has undertaken a strategy
review. It has changed its approach from a full commitment to the whole CEE
region with restructuring in individual problematic countries (i.e. Hungary and
Slovenia) towards a more specific country focus on Russia, Poland, the Czech Republic, Slovakia, Romania and Austria. RBI intends to allocate additional capital
to these focus markets in order to more efficiently explore the growth opportunities they offer. In other countries, RBI’s management is aiming for stable overall
business development. A significant strengthening of RBI’s capital position by
means of a capital increase of about EUR 2.8 bn took place in Q1 2014. The
proceeds are earmarked to redeem private and state participation capital, which
is currently being negotiated with the Republic of Austria.
Despite recent tensions between the EU and Russia, RBI’s management confirmed
that Russia would remain among its six focus markets and that it continued to
target a solid position in corporate lending and a growing share in retail banking
there. RBI’s loan book contracted by 3.2% in 2013, due above all to continued
weak corporate credit demand (mainly in Russia, Bulgaria, the Czech Republic
and Hungary), as opposed to retail loan growth especially in Russia, Slovakia
and Romania. In 2014, the bank aims to increase the overall loan volume and
expects a net provisioning requirement at around the same level as in the previous year (excl. possible impacts from the ECB AQR and a potential additional
provisioning requirement in Ukraine, which in the case of a currency devaluation
of about 40% the management has flagged at around EUR 200 mn in additional
risk costs as of April 2014). A reduction of the cost base remains one of the
management’s key initiatives and is aimed at a total cost savings target of EUR
460 mn, which translates into a flat cost base in 2016 as compared to 2012.
Erste Group
Management attention of Erste in CEE was on restructuring of the group’s Romanian and Hungarian operations. In Romania operations returned to profitability
in 2013 driven by significantly lower risk provisioning and lower operating expenses following a 17% headcount reduction and the closure of 60 branches of
BCR. For 2014 the management of BCR targets a 15-20% reduction of its NPL
stock and expects to deliver the full cost benefits of the restructuring program.
Also in Hungary Erste continued its restructuring exercise, however, its FY result
2013 remained deeply in the red (EUR -84 mn) impacted by bank taxes (incl.
extra FTT) of EUR 103 mn and a fine by the Competition Authority affecting all
banks.
Management continues to express interest in closing the main gap of Erste’s
regional footprint in CEE (Poland) and in M&A opportunities that might arise in
connection with the ECB AQR. In 2013 Erste filed an indicative bid in the privatisation of Croatian HPB with the intention to increase its HRK deposit base (the
privatisation was cancelled). Erste conducted a capital increase of EUR 661 mn
in July 2013 and has fully repaid the participation capital of EUR 1.76 bn. Management expects overall stable customer loans on group level (+/-2% yoy) and
aims to keep the operating profit (before risk costs) flat yoy. In the light of the upcoming ECB AQR, Erste does not expect a decline in risk costs beyond 5% yoy.
Raiffeisen Bank International
2013
in EUR mn
Loans
Deposits
Pre-tax
profit
Poland
9,744
7,280
54
Russia
9,967
9,924
615
134
Slovakia
6,879
7,320
Czech Rep.
5,983
5,757
51
Hungary
4,990
4,163
-110
Romania
4,266
4,344
104
Ukraine
3,599
2,433
127
Croatia
3,436
2,863
56
Bulgaria
2,526
2,133
-18
Bosnia a. H.
1,223
1,567
29
Slovenia
1,051
423
-63
Serbia
1,105
1,119
54
Albania
916
1,758
35
Belarus
910
842
87
Kosovo
458
558
18
Erste Group
2013
in EUR mn
Loans
Czech Rep.
18,503
26,492
Romania
10,453
8,387
15
Slovakia
7,513
9,091
239
Croatia
6,776
4,604
35
Hungary
5,465
4,093
73
562
601
10
Serbia
Deposits
Pre-tax
profit
750
81
OTP
OTP
2013
in EUR mn
Loans
Deposits
Pre-tax
profit
Hungary
10,246
13,180
486
Bulgaria
3,843
3,561
114
Russia
2,813
1,873
12
Ukraine
2,250
813
38
Romania
1,376
677
-14
Croatia
1,280
1,422
9
Slovakia
1,147
1,123
5
Montenegro
554
493
3
Serbia
309
147
-45
UniCredit
UniCredit
2013
in EUR mn
Loans
Deposits
Pre-tax
profit
Poland
25,089
28,916
817
Russia
12,049
12,796
706
9,518
8,463
105
10,563
12,736
151
Bulgaria
4,613
4,428
100
Romania
3,771
3,487
-6
Hungary
3,065
3,620
27
Slovenia
1,895
1,283
-53
Bosnia a. H.
1,526
1,665
42
Serbia
1,266
907
31
Ukraine
2,452
1,829
-123
Croatia
Czech Rep.
+ Slovakia
82
OTP did not change the setup of its CEE presence in 2013. However, the management has the clear target to strengthen its position in the region and in its home
market via acquisitions. The capitalization of the bank (Core Tier 1 ratio of 16.0%)
provides room for that. This was evidenced by OTP filing an indicative bid for the
Croatian Postbank HPB (however, the privatisation was cancelled) and showing
interest in further targets in the region. In January 2014 OTP announced a small
transaction in Croatia acquiring the local banking arm of Italy’s Banco Populare
(total assets of ca. EUR 300 mn, 35 branches). Also the bank is rumoured to have
set its sights at the Hungarian subsidiary of Bayerische Landesbank MKB, which
would strengthen the corporate business in OTP’s home market. All in all, OTP
reported a 1% contraction of its loan book in HUF terms adjusted for FX effects.
Consumer lending in Russia was again the most expansionary segment, however
weakening portfolio quality over several quarters prompted the management to review its local strategy and hence significantly reduce its growth targets. Local management targets to gradually shift Russian operations from a POS/consumer creditfocused bank towards universal banking by launching online banking, enhancing
cross-sale activity and starting SME lending. OTP’s Hungarian loan book was still
contracting by 7% in 2013 driven by further erosion in the mortgage book. For
2014 OTP expects to be able to start increasing its loan volume (FX adjusted) on
group level and reckons with stable net interest margins. Management expects
further stabilization of the portfolio quality and anticipates declining risk costs.
Following 2011, except in Poland, UniCredit completed another wave of largescale impairments on its CEE goodwill position. However, this time the remaining
amount of EUR 2.2 bn was fully written off (only at Bank Austria level as the CEE
hub). With additional provisioning for underlying business of EUR 300 mn, UniCredit has raised its segmental NPL coverage to 51% as a part of precautionary
measures against unforeseen risks from the upcoming AQR, while deliberately
taking a hit on segmental profit as opposed to 2012. Nonetheless, several one-offs
helped to ease the pressure on asset quality and thus facilitate a marginal net profit
fall from EUR 1.77 bn to EUR 1.66 bn. Such important, non-recurring effects were
provided by the sale of stakes in the Moscow Stock Exchange and Yapi Kredi Sigorta in Turkey. Bearing in mind the current interest rate trend in Poland, the Czech
Republic, Hungary and Romania, a solid core revenue growth also contributed to
this mitigating effect. At the same time, by wiping the slate clean of legacies from
the past in Q4 2013, UniCredit’s CEO presented the group’s new 2020 strategy,
which foresees a return to a growth course in CEE, especially in so-called “expansion countries”. The wording points clearly to a strategic change with a move
away from the “savings/restructuring bias” of the last five years, which delivered
the respectable 10% cost decline achieved on FTEs reduction (Kazakhstan disposal
included). As far as the Baltics are concerned, UniCredit has shut down its banking
business and from mid-2014 onwards will only offer leasing products. The operations in Ukraine are considered as being “for sale” but as yet no immediate steps
appear realistic. Following the active role in local acquisitions of the major peers
PKO BP and BZ WBK in Poland, UniCredit should become slightly more concrete,
as it is well equipped with a CT1 of almost 19%. Of its individual subsidiaries, Russia delivered the highest yoy growth (+27%), which to a large extent was driven
by non-recurring income from asset sales in Q4 2013, while Croatia, Hungary (still
no red figures!) and Romania posted the weakest yoy trends with the latter entering
the loss zone following the material clean-up of the loan book. On top, the loss in
Slovenia, which is a country of relatively low importance for UniCredit, tripled in
a yoy comparison.
Société Générale
One can sum up 2013 for SocGen’s core CEE operations in the Czech Republic,
Russia and Romania (which together account for 81% of SocGen’s total CEE
assets) with one word for each country: stability, reorganization and clean-up.
Despite facing headwinds in 2013 owing to lower key rates and moderate loan
growth, which weighed down both net interest margin and net fee and commission income, in the Czech Republic Komerèní banka managed to counter both
effects by keeping the profitability decline at an acceptable -10% yoy. This was
achieved thanks to effective cost control and lower risk costs, which benefitted
from a positive NPL trend of 3.8% as at year-end. With CT1 of 15.8% and an
L/D ratio of 73%, Komerèní banka ranks among the most defensive banks in
the region. In Russia, where SocGen is the No. 1 foreign bank in terms of assets, 2013 was a year of further consolidation for its three entities under the
Rosbank umbrella. According to SocGen, consolidated combined annual earnings rebounded by 83% yoy (excluding goodwill impairment of EUR 250 mn
in 2012) although this was driven by non-recurring asset sales income in Q4
2013 and burdened by increasing risk costs, which related mainly to inherited
corporate cases. The improvement in the funding balance at Rosbank on a standalone base is worth mentioning (L/D ratio fell by 10pp to 115%). However, the
L/D ratio on a consolidated level is still at 170%, i.e. relatively stretched. In its
Romanian subsidiary, BRD-GSG, SocGen has been facing twin pressure from
lower key rates and to some degree from the National Bank of Romania’s recommendation to improve NPL coverage. In 2013, BRD-GSG decided to undertake a
thorough clean-up of its loan book, reporting a record loss of EUR 85 mn (following a loss of EUR 71 mn in 2012). Conversely, it lifted the NPL coverage to 69%,
which opens up room for an earnings recovery (11% RoE is expected in 2014).
This said, BRD-GSG remains one of the most attractive banks in terms of valuation among the listed banks in Romania and the region. As far as the remaining
markets are concerned, SocGen’s limited presence in Poland, as well as in the
SEE sub-region remains of note. At this stage, there are no indications from the
French bank that this picture will change in the foreseeable future.
(Banco) Santander
The Spanish (Banco) Santander, the “newcomer” in the region (and at this point
only present in Poland with two separate banks) is still a small CEE foreign player
in terms of assets, but quite a dynamic one with regard to its business integration,
development of underlying operations and appetite for acquisitions. Santander’s
CEE adventure started in late 2010 with the purchase of the Polish corporate
lender Bank Zachodni WBK. A year later, the purchase of Kredyt Bank, former
KBC’s FX mortgage lender, followed. The operational merger of the two institutions started in Q1 2013 and management expects to be able to begin reaping
the benefits of revenue synergies in Q3 2014. By then cross-selling as the operational tie-up should be largely completed. By year-end 2013, the number of
employees had been reduced by 2,000 and 60 branches closed (as compared
to the levels at year-end 2011). The material lowering of funding costs in 2013
helped to boost the NIM by 10bp as compared to the peers’ average NIM decline of about 40bp. Parallel to the integration of Kredyt Bank, the consolidation
of Santander Consumer Bank (SCB, former Consumer Bank Polska) is scheduled
for Q3 2014. This is another Santander entity that specializes in consumer lending with around 15% of BZ WBK’s asset size and somewhat better profitability
owing to a higher margin product range. According to Santander’s management, unlike Kredyt Bank, there will be no merger between SCB and BZ WBK
due to a lack of synergies, as both banks will maintain a different business approach with virtually no network overlap. Last, but not least, BZ WBK will transfer
Société Générale
2013
in EUR mn
Loans
Deposits Operat.
income
Czech Rep.
17,967
23,731
Russia
14,562
8,562
260
Romania
7,500
8,093
-145
Slovenia
2,050
1,712
n.a.
Croatia*
2,244
2,078
130
Poland
2,200
n.a.
n.a.
Bulgaria*
1,511
1,162
n.a.
Serbia
1,405
1,056
n.a.
Montenegro*
242
208
n.a.
Albania
245
372
n.a.
575
Georgia*
216
180
n.a.
Macedonia*
253
335
n.a.
Moldova
160
167
n.a.
* as of 31.12.2012
(Banco) Santander
2013
in EUR mn
Loans
Deposit Pre-tax
profit
Bank Zachodni
WBK/ PL
16,214
18,503
557
Santander Consumer Bank*
3,196
1,688
108
* net profit
83
its (locally quite well-known) asset management operations to Santander and
will concentrate on funds distribution in Poland. The management has recently
reiterated its intention to generate a RoE of at least 20% from 2016 onwards
and, in spite of losing the race for BGZ’s assets to BNP Paribas in late 2013, has
expressed further interest in local acquisitions with the aim of raising its current
market share from about 10% to 15%. In 2013, Poland already delivered 6% of
Santander’s total group earnings thus equalling the contributions from the bank’s
activities in Germany.
Commerzbank
Commerzbank
2013
in EUR mn
Loans
Poland
Deposit
17,036
14,527
Czech Rep.*
691
565
23
Hungary***
560
342
n.a.
Russia**
526
266
n.a.
26
136
1
Slovakia*
* as of 31.12.2012
** as of 30.9.2012
*** as of 31.12.2011
84
Pre-tax
profit
318
Commerzbank has benefitted from the earlier sale of its minority stake in the Russian Promsvyazbank in 2011 and disposing of its majority holding in the Ukrainian Bank Forum in 2012, which in the meantime has been put under state control.
By far its most important subsidiary is located in Poland and Commerzbank can
be quite upbeat when looking at the underlying performance of mBank in 2013,
which prior to rebranding was known as BRE Bank. In a nutshell, during 2013
mBank’s profitability outstripped that of its main peers. This performance was
mainly based on its NIM of -20bp, which was visibly stronger than the sector’s
-40bp. This was achieved on the back of more resilient lending yields, thanks to
one of the most aggressive approaches to higher margin consumer lending. In
addition, mBank’s robust F&CI growth of +6% clearly outperformed the average
-1% decline of its main competitors. Despite some risk cost volatility throughout
2013, the full year result was slightly higher yoy and, unlike that at some other
banks, did not contribute positively to profitability growth. As far as funding is
concerned, mBank has mainly been enjoying parental funding for its FX mortgage segment for quite some time. However, since 2008 it has gradually deleveraged via deposit generation and bond issuances, thereby reducing the share
of parental funding in total funding from 47% to about 32% in 2013. Starting in
2014, mBank will use its mortgage bank platform to tap into the covered bonds
market. For 2014 the management is optimistic about attaining growth potential
at a lower double-digit rate and aims to emulate the 2013 results, which can be
considered as a conservative goal. mBank’s retail subsidiaries in the Czech Republic and Slovakia also both performed well in 2013, but still only provided a
moderate contribution to the overall results. Interestingly, the Commerzbank CEO
has recently been quoted as mentioning expansion outside Germany. However,
he did not specify the CEE region as a target market.
KBC
KBC
In 2013, KBC continued to divest in line with its strategy of reducing group assets and entities in CEE. At the beginning of the year, KBC implemented a new
business unit structure, defining the Czech Republic as its core market in CEE.
Having completed the sale of KBC Banka, its rather small Serbian subsidiary, in
December 2013 KBC downsized its presence to the Czech Republic, Slovakia,
Hungary and Bulgaria, which are considered to be its core operations. The loan
book and deposits stock in the Czech Republic grew by 6% and 4% yoy respectively with the cost/income ratio (47%) stable at the level of 2012. While in the
Czech Republic the cost of risk slightly improved yoy, the figures for all other CEE
countries deteriorated yoy. Loan volumes decreased overall in CEE, while deposits remained stable thus helping to improve the L/D ratio to an excellent 75%
from 81% in 2012. However, the aggregated pre-tax profit in the CEE region
slightly decreased as compared to the 2012 figures, with only the Slovakian segment increasing its contribution. Interestingly, the Hungarian segment still shows
a positive pre-tax result of EUR 81 mn. KBC plans to keep its focus on the retail
and SME segments, providing bank and insurance services in all of its markets in
order to make use of cross-selling and cost synergies. The bank is divesting itself
of all activities apart from traditional banking and insurance business, and most
of its non-core activities have already been sold.
Intesa Sanpaolo
Intesa Sanpaolo has not pulled out of the CEE markets, however, in January
2014 it did sign an agreement to sell its Ukrainian subsidiary, which is currently
pending regulatory approval. Like its main rival UniCredit, Intesa decided to
write off EUR 722 mn of goodwill on its network banks, which represented 82%
of its total goodwill position in CEE. The bulk of the impairment was related to
Serbia and Slovakia (53% of total). The group operates relatively small banks
in Ukraine and Russia with a loan exposure of EUR 0.2 bn and EUR 1.2 bn,
respectively, or 6% of its total CEE loan volumes. This represents a negligible
0.4% of the group’s total assets. Aggregate CEE segmental revenues were virtually unchanged over 2012, but net loss was down marginally, falling by 25%
yoy to EUR 199 mn. This was due mainly to lower risk provisioning in Hungary
and Ukraine. However, both entities are still in the red, as is Intesa’s Romanian
subsidiary, which has been struggling to escape from negative territory since
2010. As far as other subsidiaries are concerned, we wish to highlight stable
earnings development in Serbia and respectable earnings growth in the group’s
biggest subsidiary in Slovakia. These improvements compensated largely for a
deterioration in earnings at the core subsidiary in Croatia, which has been facing NII headwinds, as well as pressure on the asset quality front. In total, the
CEE region accounts for 6% of the group´s total assets and 11% of its operating
income (10% in 2012).
With an NPL ratio of 9.5% (9.7% in 2012), Intesa’s asset quality in CEE remained generally stable at a somewhat lower level than that of a number of its
rivals. The loan-to-deposit ratio decreased slightly to 94% yoy. Apart from the
initiated sale of the Ukrainian subsidiary, the new updated 2014-2017 CEE strategy underlines the group’s focus on its core markets in Croatia, Serbia and Slovakia, which has the overall objective of gaining market share in these countries.
All other markets are subject to reviews and repositioning with a clear message
not to exit from any of them.
2013
in EUR mn
Loans
Deposits
Pre-tax
profit
Czech Rep.
18,103
24,840
654
Hungary
3,864
5,878
81
Slovakia
4,248
4,583
95
Bulgaria
612
544
1
Intesa Sanpaolo
2013
in EUR mn
Loans
Deposits
Pre-tax
profit
Slovakia
7,600
9,200
180
Croatia
6,400
6,300
121
Hungary
4,200
4,200
-387
Serbia
2,300
2,500
83
Slovenia
1,800
1,700
3
Russia
1,200
800
5
800
700
-37
Romania
Bosnia a. H.
500
500
8
Albania
300
800
9
Ukraine
200
300
-27
85
Sberbank
Sberbank
2013
in EUR mn
Loans
Deposits
Pre-tax
profit
Group total
287,614 268,268 11,198
Ukraine
2,073
1,660
Kazakhstan
3,439
3,486
n.a.
Belarus*
1,906
1,479
n.a.
Czech Rep.*
2,210
1,997
n.a.
Slovakia**
1,227
1,378
n.a.
Hungary**
1,045
971
n.a.
* as of 30.9.2013
** as of 31.12.2012
n.a.
Sberbank is the largest state-controlled commercial bank in Russia, with an asset
base of EUR 406 bn, which equals more than 27% of Russia’s total banking assets (year-end 2013). CBR holds a 50% stake plus one vote in Sberbank, with the
rest of the shares being held by Russian and international private and institutional
investors. The vast majority or 87% of the total group’s assets involve the bank’s
business in Russia with its network of nearly 18,000 branch offices. In November
2012, Sberbank registered a special subsidiary called Sberbank Europe AG in
Austria, which coordinates the business activities of a network of banks in nine
countries i.e. Slovakia, Czech Republic, Hungary, Slovenia, Croatia, Bosnia and
Herzegovina, Serbia and Ukraine. Sberbank Europe AG operates a network of
280 branch offices and accounts for about 3% of Sberbank’s total group assets.
Within the next five years Sberbank is planning to continue its growth in Russia
(in all business divisions) and further expand in the CEE region (with a special
focus on the Czech Republic and Slovakia) and Turkey at an average rate of 4%.
In these countries Sberbank expects growth in commercial banking sector, and in
particular, aims to exploit untapped opportunities in the fields of corporate and
investment banking (CIB). In Russia, key developments over the past few years
have been the strengthening of Sberbank’s CIB division, the launch of a consumer banking venture in cooperation with Cetelem, and focusing on innovative
banking technologies and a restructuring process to improve its cost-efficiency.
As a result, Sberbank has improved profitability in recent years, boasting a RoE
close to 20% in 2012/13, cost/income ratio down to 47% in 2013, and loan
growth of 22% yoy in 2013. A strong competitive advantage of Sberbank on
the Russian market remains its access to state support and the bank’s historical
connections to the largest and most important Russian enterprises for corporate
lending.
86
VTB
VTB
VTB is the second largest bank in the Russian market, 61% state-controlled, with
assets at EUR 195 bn at the end of 2013. The bank follows a universal banking
model, being one of the key lenders to domestic large corporates, enlarging its
retail business, and actively developing its investment banking arm. The group
also runs insurance, leasing and factoring business. The bank is currently represented in 23 countries with a strong focus on its domestic market of Russia
(accounting for an estimated 90% of group assets and revenue). In mid-2013,
VTB issued a SPO resulting in a decrease of the Russian Federation’s stake from
75.5% to 60.9% and an equity increase totaling USD 3.3 bn. The CAR stood at
12.4% as of year-end 2013.
2013
in EUR mn
Loans
Group total
132,733
96,540
1,645
981
n.a.
509
456
n.a.
Ukraine
Kazakhstan
Deposits
Pre-tax
profit
2,817
Belarus*
385
328
n.a.
Armenia
384
262
n.a.
* as of 30.9.2013
VTB’s position in retail banking was further strengthened as a consequence of the
consumer banking venture Leto Bank established in 2012, reflecting the bank’s
strategy to enlarge both its retail business and investment banking arm. However,
in 2013 the share of retail loans only amounted to a quarter of the loan portfolio.
Nevertheless, VTB managed to achieve quite a favorable net interest income
performance, with NIM at 4.5% by year-end 2013. In particular, this was driven
by commission income (contributing 13% of the core income before provisions).
As a result, VTB saw rather good returns in 2013, although the RoE was down to
11.8% from 13.7% in 2012.
In the corporate business segment, the declared strategic priority of the group is
the development of lending to medium-size enterprises, where the bank sees a
strong potential for increasing returns. Another strategic target of the group is to
enhance cost efficiency, as reflected in the goal of reducing the cost/income ratio
down to 42-43% by 2016 from the current level of 49-50%. For the time being,
the cost of risk is on the decline and is in line with the banking system’s average
(NPL ratio at 4.7% in 2013). However, downside risks for VTB’s asset quality cannot be excluded, given the group’s exposure in Ukraine (direct and indirect) as
well as the aggressive development of consumer lending over the past two years.
87
Market shares
Sberbank strengthens top position
in CEE
In 2013, there was no big change in the CEE ranking. The Top 5 banks account
for roughly one third of the total market share. 52% of total CEE assets are held
by the Top 15 banks, a slight increase compared to 2012. In EUR-terms, aggregated banking assets grew by 2.3% yoy due to the performance of the Russian
banking sector. The strongest increase in CEE market share was achieved by
Sberbank, the largest player in the region. The bank reached a 14.8% market
share in 2013 (up 170bp yoy), mainly due to strong loan book growth. In a
yoy perspective, only Russian banks managed to increase their relative market
shares in CEE (VTB up 20bp, Gazprombank up 20bp, RusAgro up 10bp). As
a consequence, the market shares of foreign banks in CEE deteriorated in the
range of 0.1-0.3%, also because of the lack of M&A activity over the last 12
months. Similar to prior years, Russian banks strengthened their presence at the
expense of Western European players. The largest Western European bank in
CEE remains UniCredit with a market share of 4.7%, followed by RBI and Erste
with 3.2% and 3.1% respectively. KBC ranks behind with 2.1%. For the second
consecutive year, UniCredit, RBI, Erste and SocGen lost market share, altogether
some 80bp yoy.
Market shares in CEE (in % of total assets, 2013)
Sberbank, 14.8%
VTB, 7.6%
UniCredit, 4.7%
Other, 45.7%
RBI, 3.2%
Erste, 3.1%
Gazprombank, 3.0%
SocGen, 3.0%
Santander, 1.0%
PKO BP, 2.2%
Commerzbank*****, 1.1%
KBC*, 2.1%
Citibank****, 1.2%
Alfa Bank, 1.4%
RusAgro Bank***, 1.5%
ING**, 1.5%
Intesa, 1.5%
OTP, 1.5%
CEE: PL, CZ, SK, HU, SL, LT, LV, EE, RO, BG, HR, RS, MD, BH, AL, KO, MK, RU, UA, BY, KZ
* BG as of 31 December 2012
** CZ, SK, BG, HU, RO, RU, UA as of 31 December 2012
*** as of 30 June 2013
**** CZ, SK, HU, RO, BG, RU, UA as of 31 December 2012
***** CZ, SK, HU, RU as of 31 December 2012
Source: company data, local central banks, Raiffeisen RESEARCH
Total assets in CE remain stable
88
From a sector point of view, aggregated banking assets in the CE region remained broadly at the same level. Concentration on this sub-market is relatively
high, with the Top 10 players accounting for a combined market share of nearly
50% in the region. UniCredit is still the market leader in CE with 8% market
share, followed by PKO BP (6.9%) and Erste (6.8%). While UniCredit and KBC
could slightly expand their market shares, PKO BP has benefitted from a local
takeover of Polish Nordea Bank assets (the deal has been announced but is not
yet fully finalized, up 20bp market share). On the other hand, Erste (down 40bp)
and RBI (down 30bp) fell somewhat behind due to Erste´s loan volume decrease,
while especially RBI saw asset volumes decline in the Czech Republic and in
Hungary. SocGen remained stable at 4.6%.
With UniCredit, RBI and PKO BP three of the Top 5 banks are present in Poland,
which for all of them is a crucial part of their CE market. In 2013, ING and Commerzbank saw a decrease in market share as well, standing at 3.5% and 3.3%
respectively. On average, the largest contribution to the CE market share stems
from Poland and the Czech Republic.
Market shares in CE (in % of total assets, 2013)
UniCredit, 8.0%
PKO BP, 6.9%
Erste, 6.8%
KBC, 6.5%
Other, 38.7%
RBI, 4.8%
SocGen, 4.6%
BLB, 0.8%
ING*, 3.5%
Sberbank, 0.9%
Commerzbank**,
3.3%
Santander, 3.1%
BCP, 1.8%
OTP, 2.9%
Citibank***, 2.4%
Swedbank, 2.4%
Intesa, 2.5%
CE: PL, CZ, SK, HU, SI, LT, LV, EE
* CZ, SK, HU as of 31 December 2012
** CZ, SK, HU as of 31 December 2012
*** CZ, SK, HU as of 31 December 2012
The SEE market is characterized by a relatively low concentration. The Top 6
banks by assets account for half of the market. In 2013, market leader UniCredit
saw a decline in its market share to 13.1% (down 30bp) due to a decrease in
assets. Erste´s loan book in Romania shrank, with the country representing more
than half of Erste’s SEE exposure. Therefore the bank lost 60bp yoy to stand at
a 10.1% market share in 2013. Following a slight decrease, RBI comes in third
in the asset ranking with a market share of 8.7%. Like RBI, SocGen and Intesa
lost a moderate 10bp yoy, though they managed to clearly defend their positions
in the size ranking. SocGen and Intesa both reduced their exposures in Russia.
Interestingly, not a single one of the Top 15 foreign players in the region managed to increase its market share in 2013. With a decline of 120bp Austrian
Hypo Alpe Adria saw the strongest market share fall, now ranking in ninth place,
presumably due to its limited operational activity during the ongoing political
solution-finding process for its NPL portfolio. It is worth mentioning that Volksbank
Romania also suffered from a relatively strong decline in market share (down
50bp yoy). The Greek NBG as well as Sberbank were both able to keep their
market shares stable at 3.5% and 1.1% respectively.
Small players on the upside in SEE
Market shares in SEE (in % of total assets, 2013)
UniCredit, 13.1%
Other, 32.9%
Erste, 10.1%
RBI, 8.7%
KBC****, 0.4%
Citibank***, 0.6%
SocGen, 7.9%
Sberbank, 1.1%
Volksbank, 1.3%
Intesa, 6.5%
ING**, 1.5%
Alpha Bank, 2.4%
Hypo Alpe Adria*, 3.0%
OTP, 3.6%
NBG, 3.5%
EFG Eurobank, 3.5%
SEE: RO, BG, HR, RS, MD, BH, AL, KO, MK
* as of June 2013
** BG, RO as of 31 December 2012
*** BG, RO as of 31 December 2012
**** BG as of 31 December 2012
89
Market share of Russian banks
further increasing
Traditionally strong Russian banks further strengthened their market presence,
with Sberbank leading the way (up 270bp yoy), followed by VTB (13.0% market
share) and Gazprombank (5.2% market share). Apart from the Top 3 banks, the
CIS region is characterized by high concentration. RusAgro Bank ranked fourth
in 2013, with a market share of only 2.5%. The biggest Western European
player is UniCredit with a market share of 1.6% (down 20bp due to decreasing
assets in Russia and Ukraine), followed by RBI (down 10bp) and SocGen (down
20bp). For these Western European players, the Russian market accounts on
average for approximately 80% of their total assets in the CIS region. Analogous
to the SEE market no foreign bank from Western Europe managed to improve its
market share in the CIS region (overall, as well as country level).
Market shares in CIS (in % of total assets, 2013)
Sberbank, 24.5%
Other, 39.5%
VTB, 13.0%
Gazprombank, 5.2%
OTP, 0.4%
RusAgro Bank*, 2.5%
BTA**, 0.6%
Alfa Bank, 1.6%
Uralsib Bank, 0.5%
Nomos Bank, 2.4%
UniCredit, 1.4%
Citibank, 0.6%
Belarusbank, 2.0%
Halyk Bank, 0.8%
Kazkommertsbank, 0.7%
RBI, 1.3%
SocGen, 1.1%
PrivatBank, 1.1%
Promsvyazbank, 0.8%
CIS: RU, UA, BY, KZ
* as of 30 June 2013
** as of 30 June 2013
90
Key abbreviations
Key abbreviations
Basic abbreviations
bn
bp
eop
mn
p.c.
pp
qoq
r.h.s.
tn
yoy
ytd
billion
basis point(s)
end of period
million
per capita
percentage point(s)
quarter on quarter
right hand side
trillion
year on year
year to date
Key figures
BV
CAR
CPI
CT1
F&CI
GDP
L/D ratio
NPL
NII
NIM
P&L
PMI
PPI
PPP
RoA
RoE
RWA
Book value
Capital adequacy ratio
Consumer price index
Core Tier 1
Fee & commission income
Gross domestic product
Loan-to-deposit ratio
Non-performing loan(s)
Net interest income
Net interest margin
Profit & loss
Purchasing manager’s indices
Producer price index
Purchasing power parity
Return on assets
Return on equity
Risk-weighted assets
Currencies
FCY
FX
LCY
foreign currency
foreign exchange
local currency
BYR
CHF
CZK
EUR
HRK
HUF
PLN
RON
RSD
RUB
UAH
USD
Belarusian ruble
Swiss franc
Czech crown
Euro
Croatian kuna
Hungarian forint
Polish zloty
Romanian leu
Serbian dinar
Russian ruble
Ukrainian hryvnia
US dollar
91
Key abbreviations
Institutions
BIS
BNB
BSI
BU
CBR
CBBH
CNB
DIF
EBA
EC
ECB
EMU
ESRB
EU
IFI
IIF
IMF
MFI
MNB
NBA
NBB
NBP
NBR
NBS
NBU
OECD
SIFI
wiiw
Bank for International Settlement
Bulgarian National Bank
Bank of Slovenia
Banking Union
Central Bank of Russia
Central Bank of Bosnia and Herzegovina
Czech National Bank | Croatian National Bank
Deposit Insurance Fund
European Banking Authority
European Commission
European Central Bank
European Monetary Union
European Systemic Risk Board
European Union
International Financial Institution
Institute of International Finance
International Monetary Fund
Monetary Financial Institution
Hungarian Central Bank
National Bank of Albania
National Bank of the Republic of Belarus
National Bank of Poland
National Bank of Romania
National Bank of Slovakia | National Bank of Serbia
National Bank of Ukraine
Organization for Economic Co-operation and Development
Systemically Important Financial Institution
Vienna Institute for International Economic Studies
Others
AQR
BRICS
CCB
FDI
FGS
IFRS
M&A
POS
SME
SPO
SRF
SRM
SSM
STD
WDI
92
Asset Quality Review
Brazil – Russia – India – China – South Africa
Countercyclical Capital Buffer
Foreign direct investments
Funding for Growth Scheme
International Financial Reporting Standards
Mergers and acquisitions
Point of sales
Small and medium sized enterprises
Second public offering
Single Resolution Fund
Single Resolution Mechanism
Single Supervisory Mechanism
Standard deviation
(World Bank) World Development Indicators
Risk notifications and explanations
Risk notifications and explanations
Warnings
 Figures on performance refer to the past. Past performance is not a reliable indicator of the future results and development of a financial instrument, a financial index or a securities service. This is particularly true in cases when the financial instrument, financial index or securities service has been offered for less than 12 months. In particular, this very short
comparison period is not a reliable indicator for future results.
 Performance is reduced by commissions, fees and other charges, which depend on the individual circumstances of the
investor.
 The return on an investment can rise or fall due to exchange rate fluctuations.
 Forecasts of future performance are based purely on estimates and assumptions. Actual future performance may deviate from the forecast. Consequently, forecasts are not a reliable indicator for the future results and development of a
financial instrument, a financial index or a securities service.
A description of the concepts and methods which are used in the preparation of financial analyses can be found at: www.raiffeisenresearch.at/conceptsandmethods
Detailed information on sensitivity analyses (procedure for checking the stability of the assumptions made in this document) can be found
at: www.raiffeisenresearch.at/sensitivityanalysis
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93
Acknowledgements
Acknowledgements
Published by: Raiffeisen Bank International AG
Raiffeisen Bank International AG
Am Stadtpark 9, 1030 Vienna
Phone: +43-1-717 07-0
Fax: +43-1-717 07-1715
www.rbinternational.com
Financial analysts
Gunter Deuber
Elena Romanova
Andreas Schwabe
Jovan Sikimic
Raiffeisen Bank International AG, Vienna
Banking trends in CEE, Focus on sections,
+43-1-717 07-5707, gunter.deuber@rbinternational.com
Country overview Poland
Banking trends in CEE, Country overview
+43-1-717 07-1378, elena.romanova@rbinternational.com
Russia and Slovenia, Russian banks
Definition of sub-regions and regional
+43-1-717 07-1389, andreas.schwabe@rbinternational.com
economic outlook
Raiffeisen Centrobank AG, Vienna*
+43-1-515 20-184, sikimic@rcb.at
* Raiffeisen Centrobank would like to thank David Haberfellner for excellent research assistance.
Note: Raiffeisen RESEARCH comprises research work by Vienna based RBI analysts, Raiffeisen Centrobank analysts and
analysts in the RBI network banks
Published and produced in: Vienna
Editing: Anja Knass, Raiffeisen Bank International AG
Design: Kathrin Rauchlatner, Birgit Bachhofner, Raiffeisen RESEARCH GmbH
Printed by: Rabl Druck, Karl Müller Straße 9, 3943 Schrems
This report was completed on 5 May 2014.
94
Raiffeisen Bank International network support and contributions
Albania
Joan Canaj
Valbona Gjeka
Raiffeisen Bank Sh.a., Tirana
Belarus
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Priorbank JSC, Minsk
Ivona Zametica
Srebrenko Fatusic
Raiffeisen Bank d.d. Bosna i Hercegovina, Sarajevo
Bulgaria
Tsvetanka Madjounova
Raiffeisenbank (Bulgaria) EAD, Sofia
Croatia
Anton Starcevic
Raiffeisenbank Austria d.d., Zagreb
Czech Republic
Lenka Kalivodova
Raiffeisenbank a.s., Prague
Hungary
Zoltán Török
Raiffeisen Bank Zrt., Budapest
Kosovo
Fisnik Latifi
Raiffeisen Bank Kosovo J.S.C.
Poland
Dorota Strauch
Raiffeisen Polbank, Warsaw
Romania
Ionut Dumitru
Nicolae Covrig
Raiffeisen Bank S.A., Bucharest
Serbia
Ljiljana Grubic
Raiffeisen banka a.d., Belgrade
Slovakia
Robert Prega
Juraj Valachy
Tatra banka a.s., Bratislava
Ukraine
Dmytro Sologub
Raiffeisen Bank Aval JSC, Kiev
95
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Prague: Raiffeisenbank a.s.
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Bratislava: Tatra banka, a.s.
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Kiev: Raiffeisen Bank Aval
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96
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Sofia: Raiffeisenbank (Bulgaria) EAD
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Sarajevo: Raiffeisen Bank d.d. Bosna i Hercegovina
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Tirana: Raiffeisen Bank Sh.a.
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Zagreb: Raiffeisenbank Austria d.d.
Wolfgang Wöhry
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CEE Banking_May14.indd - Raiffeisen Bank International AG

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