UniCredit Group's "CEE Banking Study 2006":
CEE banking market dominated by international banks
- Top regional players are further strengthening their CEE strategy
- Macroeconomic conditions, on top of financial penetration gap, support strong banking growth in the medium to long term
The banking market in the countries of Central and Eastern Europe1 continues to be dominated by large international banks with a strong commitment to the region, being long-term investors with a clearly defined positioning strategy. At the end of 2006, the market share of international banks further increased on the back of a new privatisation wave in the South East European countries2, climbing from 78 per cent in 2005 to 82 per cent (excluding Russia, Turkey and Ukraine). With only few privatisations and change of ownership opportunities remaining in the "established" CEE countries, the focus of international investors is thus gradually moving eastwards, targeting markets such as Russia, Ukraine, Georgia and Kazakhstan. In Russia, Turkey and Ukraine, the share of international banks is the lowest in the region, therefore further market consolidation can be expected. This is the result of the "CEE banking study 2006" conducted by the economists of Bank Austria Creditanstalt (BA-CA) and the UniCredit New Europe Research Network.
"International banks will continue to play a significant role in CEE, targeting the region as a market for growth. Some will start to gradually expand towards new, developing regions", says Federico Ghizzoni, UniCredit Group's Head of Poland's Markets Division and Management Board Member for CEE at Bank Austria Creditanstalt (BA-CA). The economists of UniCredit Group expect that the future transformation in the banking landscape will be related to two major reasons: on the one hand, ongoing concentration at the domestic level in CEE countries. "On the other hand, and more importantly, concentration in the CEE market could also be "imported". It could be a consequence of wider scope for cross-border M&As at the West European level, as only three among the leading international groups in the CEE market are significant players in the European arena," says Debora Revoltella, CEE Chief Economist of UniCredit Group and of BA-CA.
CEE: Dynamic environment with some very active international players
All banking systems in the CEE region are today characterised by sound, modern and dynamic players, in a context of lively competitive pressure. The entire regional banking sector comprises 2,600 banks, with total assets of approximately EUR 1,400 billion. This corresponds to roughly 5.6 per cent of the consolidated balance sheet of all banks in the euro area. A few international players consider the region as a second home market for growth, controlling roughly 26 per cent of the entire banking assets in the region at the end of 2006. The ranking of the top three banks in CEE is led by UniCredit Group, operating through BA-CA in CEE, emerging as undisputed leader with total assets of EUR 109 billion3 and net profit after taxes (before minority interests) of EUR 1.7 billion3. Erste Bank ranks second, with total assets of EUR 61.5 billion4 and net profit after taxes (before minority interests) of EUR 805 million4. Raiffeisen International is in the third place, with total assets of EUR 55.9 billion and net profit after taxes (before minority interests) of EUR 686 million5. Some of the top 10 international players in CEE profit from a widespread cross-regional network. UniCredit still shows the strongest positioning at the regional level being present in 20 countries6, recently strengthened by the announced plans to acquire the majority shareholding of the third-largest Kazakh bank, ATF Bank, and the sixth-largest bank in Ukraine, Ukrsotsbank. Raiffeisen International and Société Générale follow with a network of 15 countries. Société Générale in particular has been very active in recent months, being involved in several M&A operations in the region, expanding its network by five new markets (Albania, Croatia, Macedonia7, Moldova and Georgia).
Strong growth in banking profitability
The CEE region will continue to deliver good results in terms of profitability, on the back of bright macroeconomic prospects and sustained growth in volumes. In 2006 alone, profits before taxes (and extraordinary items) in the CEE-9 countries8 rose by 33 per cent year-on-year to reach EUR 27.5 billion, marking a significant acceleration compared to a year earlier (2005: +27 per cent).
Good macroeconomic conditions continue to support strong banking activity
On top of a favourable economic convergence, the so-called penetration gap versus the euro area has so far been a driver of growth. A first indication of such a gap is the ratio of the bankable population which has a current account, which is equal to 48 per cent in the CEE region9 versus almost 100 per cent in West European countries like Austria. Another indicator is the ratio of banking assets to GDP. This ratio increased from 60 per cent in 2004 to 70 per cent in 2006, but it is still far from the figure of close to 300 per cent recorded in the euro area. But of course the regional average conceals significant differences between individual countries. Central Europe and the Baltics (CEB) indeed emerge as the most developed banking systems, followed by the SEE countries and the countries of Turkey, Russia and Ukraine.
In the near future banking volumes will continue to increase, particularly on the lending side. Such growth will be mostly driven by the catching up process in economic terms, enhancing the standard of living of the population, as well as by favourable cyclical features, with strong corporate investment. UniCredit Group's experts anticipate that lending volume at the regional level will increase by an average 29 per cent in the next three years, compared to around 23 per cent growth expected in the area of deposits. "We expect business volume in banking to achieve the strongest growth in fast converging countries such as Ukraine and Russia. To give an idea of the potential embedded in these markets, just consider that of the new volume10 to be generated in the region in the 2007-2009 period, Russia and Ukraine will account for around 60 per cent of the total. Good opportunities are also expected in converging markets like Bulgaria and Romania and the Baltics", says CEE economist Debora Revoltella.
Retail banking remains the most dynamic segment
Retail banking remains the most dynamic segment at the regional level, with households' financial penetration increasing both on the assets and the liabilities side. Retail loans in Central and Eastern Europe are expected to grow at an annual average rate of about 35 per cent until 2009. Particularly fast growth will be seen in Ukraine and Russia, where the sector will grow by 62 per cent and 52 per cent respectively, almost double the rate achieved by the CEE market as a whole. Russia will be followed by Romania, Serbia and the Baltic states, where retail loans are expected to grow by more than or close to 30 per cent in the next three years. Both consumer lending and housing loans have grown very fast in the recent past, but the latter is still the product showing the strongest gap compared to more developed Western markets: 7 per cent penetration over GDP in CEE versus 38 per cent in the euro area at the end of last year. "This reveals a huge potential for further growth. Banks active in the countries of the region will make use of the possibility to close the gaps, thus I expect to see new products in this area which will further contribute to accelerating the catching-up process", says Federico Ghizzoni.
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|1||CEE: BG, BiH, HR, CZ, EE, HU, LV, LT, PL, RO, RU, SK, SI, SRB, TK and UA|
|2||Including privatisation of the largest Romanian bank, BCR|
|3||Including ATF Bank (Kazakhstan) and Ukrsotsbank (Ukraine) on a pro-forma basis; Turkey at 50% for each subsidiary (YKB at 50%)|
|4||Including Bank Prestige (Ukraine) on a pro-forma basis|
|5||Net of one-off effect due to the sale of Raiffeisenbank (Ukraine) and the stake in Bank TuranAlem (Kazakhstan)|
|6||Including indirect presences also in Azerbaijan, Kyrgyzstan and Tajikistan (excluding representative offices)|
|7||Still in the process of finalisation|
|8||CEE-9: BG, HR, CZ, HU, PL, RO, SK, TK and RU|
|9||CEE excluding the Baltic States|
|10||The pool of new business volume (loans and deposits) in the 2007-2009 period is expected to reach EUR 1,600bn in the CEE region (including Kazakhstan)|