Raiffeisen Bank International AG

Transcription

CEE Banking Sector Report
June 2015
2015: A transition year
Upside on some CE/SEE markets
Restructuring in HU and RO well advanced
NPL improvements in CE/SEE, downside in EE
2014 RoE in CEE at 6%, not much upside for 2015
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1
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Content
Table of contents
Executive Summary
3
Definition of subregions, economic overview
5
Banking trends in CEE
Ownership structures and market concentration
6
Focus on Russia: Harsh market and political trends to impact competitive landscape
8
Financial intermediation, asset-to-GDP ratios
9
Focus: “Deleveraging debate” in CEE banking
11
Loan growth, growth by segments (retail, corporate)
12
Funding, deposit growth and L/D ratios
14
Profitability (Return on Assets, Return on Equity)
16
Focus: Non-performing loans and NPL ratios
17
CEE banking growth and overall market outlook
19
Country Overviews
2
Poland
22
Hungary
24
Focus: A big-picture view on Hungarian banking
26
Czech Republic
30
Slovakia
32
Slovenia
34
Croatia
36
Romania
38
Bulgaria
40
Serbia
42
Bosnia and Herzegovina
44
Albania
46
Russia
48
Ukraine
50
Belarus
52
Focus on Ukraine: Key provisions of IMF program
54
Market players in CEE
55
Appendix: Key CEE banking sector data
81
Key abbreviations
82
Risk notifications and explanations
84
Disclaimer
86
Executive Summary
Executive Summary



CE/SEE: New lending cycle may start; balance sheet clean-up results in improved NPLs, but affects profitability
EE: Western banks may start to rethink their market presence, returning to “boutique-style” business models
High-growth markets: Poland, the Czech Republic, Slovakia, Hungary and Romania
Dear reader of the CEE Banking Sector Report 2015!
Real GDP (% yoy)
4
The year 2014 marked the 25th anniversary of the fall of the Iron Curtain – a historic event that laid the foundations for a success story in terms of economic development and political stability on the European continent. Yet, the celebrations
were rather moderate, as 2014 turned out to be quite challenging for the EU and
Central and Eastern Europe (CEE) – economically and politically.
For one, 2014 was characterized by great uncertainty stemming from the political tensions in the EE region. While the Ukrainian economy and banking sector saw a terrible year, Russia was still able to absorb the negative impacts from
the economic nosedive, RUB collapse and Western sanctions. For 2015, we expect a deterioration of key economic indicators with negative impacts gradually
feeding into the banking sector performance. Moreover, the medium-term economic and banking sector outlook for Russia seems less favorable than anticipated some years ago. Hence, the largest foreign-owned banks may overthink
their presence in Russia and consider more cautious business models, while stateowned banks might even increase their market share. Up until 2016, we currently do not see a significant improvement of the economic situation in EE. It will
take extensive structural reforms to recover and to return to somewhat sustainable
growth patterns. Also, only time will show if the current IMF program for Ukraine
will be sufficient to make up for the structural and economic damage caused over
the past months of armed conflict and political challenges. Given the significance
of EE for the entire CEE region, we dedicated a focus on both Russia (page 8)
and Ukraine (page 54) to take a closer look on the current situation and to give
a near-term outlook on the development of these two banking sectors.
The second major topic in 2014 in European banking was the Asset Quality Review (AQR) and stress testing by the European Central Bank (ECB) and the European Banking Authority (EBA). The results were stricter regulations and requirements for the entire European banking industry and a broad-based balance sheet
clean-up. CEE banking markets were also affected, as Western CEE banks had
to adapt their business models and overall market presence. On a positive note,
this process led to improved NPL ratios in CE/SEE and more risk-averse lending
policies. At the same time, stricter capital requirements and increasingly negative effects stemming from the ultra-low interest rates environment resulted in profitability pressure in several key CE banking markets. Overall, the appeal of CE/
SEE banking markets, with the exception of Poland, the Czech Republic and possibly Slovakia, suffered compared to the euro area. Hence, our focus on the “Deleveraging debate” (page 11) discusses the current dilemma of Western banks
in CEE.
3
2
1
0
-1
-2
-3
-4
-5
2012 2013 2014e 2015f 2016f
CE/SEE
EE
Euro area
Source: national
RESEARCH
sources,
Eurostat,
RBI/Raiffeisen
Cross-border claims*
130
110
90
70
50
Dec 07
Mar 10
CE/SEE
Jun 12
Sep 14
EE
Euro area
* BIS-reporting Western European banks
(Dec 2007 = 100, latest data point Q4 2014)
Source: BIS, RBI/Raiffeisen RESEARCH
3
Executive Summary
CEE: RoE & impact on foreign banks*
75
24
20
50
16
12
25
8
4
0
04
05
06
07
08
09 (1)
10 (4)
11 (4)
12 (3)
13 (1)
14 (3)
0
CEE RoE (right hand scale)
Impact on foreign banks**
* RoE and average market share loss-making CEE banking markets in %, loss-making in 2014: Hungary, Romania, Ukraine
** Average market share foreign-owned banks on lossmaking CEE markets, number of loss-making markets - if
any - in brackets on horizontal axis
Source: national central banks, RBI/Raiffeisen RESEARCH
CEE vs. EA profitability (RoE, %)
25
20
15
10
5
0
-5
CEE
Long-term avg.*
Euro area
Max
Min
2014
* 1999-2014
Source: national central banks, ECB, RBI/Raiffeisen
RESEARCH
With regards to the growth outlook for the individual CEE banking markets, we
continue to consider Poland, the Czech Republic and Slovakia as high-growth
markets, characterized by modest levels of financial intermediation and hence
a fair chance that lending and asset growth can outpace GDP growth on a sustained basis. From a fundamental perspective, the turnaround markets of Hungary and Romania may be added to this group of countries. Both banking markets did see an economic and banking sector turnaround in recent years (based
on deleveraging, harsh one-off losses and NPL restructuring). However, at this
point it is difficult to predict if the restructuring of the past few years has been yet
sufficient to start a decent upturn already in 2015. Our country pages (page 22)
provide a detailed picture of individual CEE banking sectors. A special section
(page 26) covers the long-term trends in Hungarian banking. Following harsh adjustment in recent years, we may see a return to growth and profitability based
on a more constructive stance by Hungarian policymakers.
In retrospective, 2014 was much more challenging than expected. Economic
growth in the euro area was disappointing, and the stricter regulations on the
banking sector resulted in a “new reality” for the European banking industry as a
whole. In addition, the political tensions in the EE subregion worried businesses
and investors. In total, three out of 14 CEE banking markets (Hungary, Romania
and Ukraine) were loss making in 2014, which is close to the number of loss making markets (four) seen in the aftermath of the global financial crisis in 2008/09.
The Russian banking market experienced a noticeable drop in profitability in 2014
(RoE down from 15% to around 8% in 2014, Q1 2015 RoE at 4.8%). For 2015, we
expect cautious and very selective business strategies of larger Western European
CEE banks, characterized by capital discipline as well as a stark differentiation
between country and business segment strategies. Therefore, overall business
strategies in CEE banking are likely to be dominated by balance sheet optimization, cost-cutting, very selective growth and investments strategies focusing on
product optimization, modernization and operational efficiency. It is unlikely that
we will see new market entries or large-scale expansions of existing branch networks. Although we still expect 2015 to be a transition year in CEE banking, we
see players that are already positioned to profit from the increasing upside and
next credit cycle in CE/SEE banking and who are placed to gain market share
and to lay the foundations for future growth and profitability. The overview on individual market players (page 55) discusses the business models and strategies
of the largest Western and Russian banks operating in the CEE region and offers
data for comparison.
We hope you find the CEE Banking Sector Report 2015, with our analysis, data
and graphics in it, a reliable and unique reference for your daily work.
On behalf of the author team,
Gunter Deuber
Elena Romanova
Vienna, June 2015
4
Subregions and economic overview
CEE: GDP per capita (in % of European Union average)*
90
80
Eastern
Europe
(EE)
70
60
Central
Europe
(CE)
50
40
30
20
10
Southeastern
Europe (SEE)
0
CZ HU
PL
SK
SI
AL
1996-1998
BH BG HR RO RS
2006-2008
BY
RU UA
2016-18f
* at PPP; 2016-18f: IMF forecasts
Source: IMF WEO, RBI/Raiffeisen RESEARCH
Key economic indicators
Real GDP (%yoy)
2000-2013
GDP
(EUR bn)
2014-18f Chg. (14-18f vs. 00-13)
Trade
(% of GDP)
Public debt
(% of GDP)
Unemployment (%)
2014
2014
2008
2014
2008
2014
Poland
3.6
3.4
-0.2
412
80
47
49
9.8
12.3
Hungary
1.9
2.7
0.8
103
164
73
77
7.8
7.7
Czech Republic
2.6
2.4
-0.2
155
148
29
44
4.1
7.7
Slovakia
3.9
2.9
-1.1
75
170
28
54
9.6
13.2
Slovenia
2.0
2.0
0.0
37
120
22
80
4.4
9.7
CE
3.2
3.0
-0.2
783
115
44
54
8.1
10.7
Croatia
1.8
0.8
-1.0
43
45
36
85
8.5
17.3
Romania
3.6
3.0
-0.6
151
62
13
40
5.6
6.8
Bulgaria
3.5
2.5
-1.0
42
105
14
27
8.1
10.7
Serbia
3.2
1.6
-1.6
33
87
27
69
13.6
22.0
3.1
2.8
-0.4
14
66
30
45
23.4
27.5
Albania
4.7
3.5
-1.3
10
31
55
72
12.8
18.0
SEE
3.3
2.4
-0.9
298
67
21
49
8.7
12.5
Russia
4.8
0.0
-4.8
1,384
54
7
12
6.3
5.3
Ukraine
3.9
-2.0
-5.9
99
84
20
70
6.4
9.3
Belarus
6.2
1.1
-5.1
57
94
13
34
0.8
0.5
EE
4.8
-0.1
-4.9
1,540
57
8
17
6.1
5.5
Euro area
1.1
1.4
0.3
10,111
38
69
92
7.6
11.6
Source: national sources, Eurostat, RBI/Raiffeisen RESEARCH
Key institutional indicators
Key banking indicators
Ease of Doing
Business Rank*
Getting
Credit*
Enforcing
Contracts*
Resolving
Insolvency*
Corruption Perception Index**
Poland (EU)
32
17
52
32
35
Hungary (EU)
54
17
20
64
47
PL
360
61%
89%
Czech Republic (EU)
44
23
37
20
53
HU
102
67%
100%
Slovakia (EU/EA)
37
36
55
31
54
CZ
195
125%
126%
39
SK
63
89%
81%
37
71%
100%
Slovenia (EU/EA)
51
116
122
42
Bank assets
(EUR bn,
2014)
Assetsto-GDP
(2000)
Assetsto-GDP
(2014)
CE (avg.)***
44
42
57
38
46
SI
Croatia (EU)
65
61
54
56
61
CE
756
78%
98%
Romania (EU)
48
7
51
46
69
HR
53
63%
123%
Bulgaria (EU)
38
23
75
38
69
RO
90
29%
61%
Serbia
91
52
96
48
78
BG
28
36%
104%
107
36
95
34
80
RS
27
53%
85%
110
BH
13
36%
92%
AL
10.2
52%
98%
222
37%
81%
Albania
68
36
102
44
SEE (avg.)***
70
36
79
44
78
Russia
62
61
14
65
136
SEE
Ukraine
96
17
43
142
142
RU
1,136
32%
109%
Belarus
57
104
7
68
119
UA
68
23%
86%
EE (avg.)***
72
61
21
92
132
BY
33
28%
62%
EE
1,238
31%
106%
* out of 189 countries, ** out of 175 countries, *** regional aggregates unweighted averages
Source: World Bank, Transparency International, RBI/Raiffeisen RESEARCH
5
Ownership structures and market concentration
CEE: Presence of state-owned banks*
60
17
15
50
13
40
11
30
9
7
04
06
CE
08
10
SEE
20
14
EE (r.h.s.)
12
* in % of total assets
CEE: Number of banks operating
260
1,600
1,500
230
1,400
200
1,300
1,200
170
1,100
140
1,000
00 02 04 06 08 10 12 14
CE
SEE
EE (r.h.s.)
In the CE banking sectors, the secular trend of gradually decreasing foreign ownership ratios continued in 2014. For the first time in over 15 years, the foreignownership share dropped slightly below 70% of total assets. This decreasing
share reflects a market-based gradual decrease of foreign ownership in Poland,
a state-led restructuring of ownership in Hungary as well as state-driven bank
bailouts in Slovenia. In SEE, the foreign ownership ratio remained at a high level
of around 80%, with a slight upward bias from 2012 to 2014. Minor decreases
in the foreign ownership ratio in Croatia and Romania were overcompensated
by a fairly strong rise in Bulgaria by some 5 pp, which was the result of the failure of one fast growing local player. Hence, a modest correction in the SEE foreign ownership ratio could be in the cards for 2015/16.
In the EE countries, foreign ownership ratios are characterized by two very divergent trends. In Russia, the market share of 100% foreign-owned banks has
been decreasing ever since 2008. The 100% foreign ownership ratio in the Russian banking sector currently stands at 7.6%, the 50% foreign ownership ratio
(which includes lenders with foreign participation and partially also Russian offshore-money) stands at some 14%. Compared to Russia, the market share of foreign-owned banks in Ukraine was on an uptrend in 2014, increasing from 27%
to around 31%. However, this market share increase should not be overrated. It
is by and large a reflection of an increasing number of failed and restructured locally-owned banks, while foreign-owned players (among the largest banks) are
still in the market. The overall foreign ownership ratio in the EE banking sector
remains below 10%, showing that foreign-owned banks in EE are niche players
compared to their presence in the CE/SEE region.
Not much has changed with regards to state ownership ratios in nearly all CEE
banking sectors, with the possible exception of Hungary. There, state ownership
increased from some 6% in 2013 to around 12% in 2014. The overall state ownership in the CE region remains more stable at around 15%, mainly driven by Poland, Hungary and Slovenia (as state ownership is insignificant in the Czech and
Slovak banking sector). In SEE, state ownership remains insignificant in all banking sectors, with the exception of Serbia where it stands at some 20%. With reCEE: Presence of foreign-owned banks (% of total assets)
CEE: Average bank size (EUR bn)*
90
22
80
18
70
14
60
10
4.0
3.5
3.0
2.5
2.0
1.5
1.0
50
0.5
0.0
00
02
CE
04
06
08
SEE
10
12
14
EE
* Total assets divided by number of banks
6
6
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Central Europe
Southeastern Europe
EE (50% foreign-owned Russian banks, r.h.s.)
EE (100% foreign-owned Russian banks, r.h.s.)
gards to potential changes in state ownership, we may see a sale of state assets
in Hungary and Serbia going forward.
EE: Average bank size (EUR bn)*
1.5
1.3
In the EE region, state ownership in the banking sector remains significant, with
an uptrend in recent years mainly driven by Russia, with a 55% share in 2014
and potential for further increases. The Russian Central Bank (CBR) expects the
market share of state-owned banks to increase above 60% in the years ahead.
Moreover, the de facto influence in the banking sector is even higher (and increasing) compared to the official ownership figures (see also our focus section
on page 8). The banking sector in Ukraine also experienced an increase in state
ownership in 2014, while there was a further modest decrease in the state ownership ratio – from very high levels – in Belarus.
Given the high fragmentation of the Russian and Ukrainian banking market, the
challenges of 2014 resulted – as expected – in an increased number of market
exits and overall market consolidation. This trend comes as no surprise and is expected to continue in 2015. In Russia, the number of banks dropped from 923
to 834, which reflects one of the highest reductions in over a decade. However,
this high number of market exits did not impact the market concentration, as the
exiting banks were quite small. The market share of the Top 5 banks in Russia remained more or less flat at around 55%. In all other CEE banking markets there
was not much change in terms of the number of banks and market concentration. In Ukraine, the high number of market exits (17 in 2014 and at least 10 to
15 more as of May 2015) may finally result in an improvement of overall market standards and practices. As a result, the market share of the Top 5 banks increased to 43% in 2014 (up from the mid-30ies), which still leaves room for further structural consolidations.
On the Russian market, the increasing de facto and de jure state ownership may
partially compensate for the positive effects of a decreasing number of market
players (in some cases with non-viable business models). Over the past years,
the number of banks in CE stayed quite stable with 200 banks, while SEE continued to see a modest drop. Here, some 20 banks left the region in the past five
to six years. However, as the SEE banking market is comparably small (total assets at some EUR 200 bn vs. EUR 750 bn in CE banking markets), the currently
170 banks operating in it still suggest more room for consolidation. That said,
the overall profitability and margin pressure in CE and SEE (including core markets like Poland, Hungary and Romania) makes further consolidations in both regions likely.
1.0
0.8
0.5
0.3
0.0
2004 2006 2008 2010 2012 2014
EE
Russia
Russia (excl. Sberbank, VTB)
Ukraine
* Total assets divided by number of banks
RU: Ownership & concentration (%)*
60
55
50
45
40
35
05 06 07 08 09 10 11 12 13 14
Market share state-owned banks
Market share Top 5 banks
Source: CBR, RBI/Raiffeisen RESEARCH
CEE: Avg. market share Top 5 banks*
The Top 5 concentration in CE remains more or less constant at around 60%, with
higher concentrations on the Czech and Slovak markets, but below average market shares in Hungary and Poland. While the Top 5 concentration in Hungary is
further decreasing, it is on the rise in Poland. Although this increasing concentration in Poland (driven by organic growth and M&A) is positive for the market, it
also implies that further players may reconsider their presence on this consolidating market. On average, the Top 5 concentration in SEE remains a tad lower than
in CE. However, this ratio is largely driven by a fairly low market concentration
in Romania, Serbia and Bulgaria, while in other SEE markets the market share of
the Top 5 banks is much higher. We expect further consolidation (in terms of market shares) in SEE to be concentrated in Romania and Serbia – either in terms of
organic growth or M&A.
68
64
60
56
52
48
2009 2010 2011 2012 2013 2014
CE
SEE
EE
Financial analysts: Gunter Deuber, Elena Romanova, RBI Vienna
7
Focus on Russia: Harsh market and political trends to impact competitive landscape
2014 was a challenging year for Russia, as its banking sector had to digest and adjust to multiple changes that also impacted its competitive landscape. Several trends in the sector’s composition intensified, and some new tendencies revealed their initiations. Following,
we will focus on three main trends:
 Sector concentration is set to increase, with the share of state-controlled banks boosting
 Foreign banks are set to contract on cautious risk taking
 Total overall number of banks is expected to progressively diminish
We start from the latter. The banking sector clean-up continued. Both, the CBR-initiated foreclosure of feeble banks as well as the impact of deteriorating economic and market conditions, which intensified further crowding-out of inefficient bank-like institutions, led to a
notable reduction of the number of banks. In 2014, it contracted by about 10% yoy to 834. We see this development as positive and
long needed for the sector improvement, and expect the number of banks to further decline, albeit perhaps at a bit lower speed. Besides, along with the decreasing fragmentation of the Russian banking sector, there comes an increasing concentration within the remaining banking cohort.
We expect state banks’ market share to increase further
Although on balance, the share in total assets of state-controlled banks stayed stable at 55% in 2014, we expect it to grow towards 60%
in the course of the next couple of years. The current financial market turmoil, and the expected economic nosedive in 2015/16, should
benefit state-controlled banks’ market positions both on funding and lending sides. On the funding side, first, state-controlled banks are
still considered “safe havens” and places for the retail savings to wait until the market calms down again. Second, amidst the volatility of interest rates, these banks are able to offer the most attractive deposit pricing to private deposit holders. Also, as the government
started to talk about re-thinking the volumes and rules for state guarantees on commercial banks’ deposits, risk-averse households are
likely to shift their funds to state-controlled banks, too. On the lending side, these banks are the first choice for the government to distribute stabilization loans and other financial support to distressed systemic borrowers. In retail business, the recent state measures to support the mortgage lending (interest rates subsidizing, issuing loans to low-income categories of population, etc.) are also by and large
introduced via state-controlled banks. The fact that funding and recapitalization of these banks also benefit from the governmental support, makes it easier for them to maintain and even increase their asset size and market shares. In addition, the role of sizeable regional
banks that are controlled by the regional authorities must not be discounted. Even though their relative size is much smaller (below 1%
of total banking assets for each), and their individual impact on the Russian economy is much less notable than that of the Top 5 players, these regional players’ role gains increasing importance in supporting the regional economies.
Foreign banks: Contracting lending and presence
It seems that for the first time in over a decade, foreign banks are losing their optimism regarding the development of the Russian banking market. Even though the market still suggests potential for returns, the nature of emerged counterweighting risks makes it currently
difficult and costly to manage the risk-return tradeoff. In addition, Western sanctions crowd out a significant share of corporate customers from foreign banks’ franchises, and respectively, all sorts of related business.
RU: Market shares (% of total assets)
60%
12%
50%
10%
40%
8%
30%
6%
20%
4%
10%
0%
2%
02
04
06
08
10
12
14
State-owned banks
Foreign-owned banks (r.h.s.)*
* 100% foreign ownership ratio
Therefore, foreign banks, which kept their presence in Russia after the 2008/09 crisis,
have started to act towards de-risking in Russia. Whether accompanied by publicly declared programs, or just organically implemented on a routine basis, we expect the balance sheet contraction (in EUR-terms) of Russian subsidiaries of the major foreign banks to
be notable. Like for all processes linked to political risks, the scope of this expected contraction is hard to predict precisely. However, if today’s trends in geopolitics stay approximately unchanged, without sudden significant worsening or improvement in the shortterm perspective, we see a possibility for foreign banks’ share in total banking assets to
go down closer to 5%, which are the levels seen back in 2002/03, within the next two
to three years. Nevertheless, such a scenario would imply that Western foreign-owned
lenders would still have a combined asset base of some EUR 50 bn to 60 bn on the Russian market, while Russian assets of major foreign-owned banks stood at some EUR 5 bn
to 10 bn some ten years ago.
Financial analyst: Elena Romanova, RBI Vienna
8
Financial intermediation levels, asset-to-GDP ratios
Overall financial intermediation in CEE – as measured by asset-to-GDP ratios –
increased from some 89% in 2013 to well above 100% in 2014. Hence, this ratio reached an all time high, posting one of the strongest increases (in pp) over
the past 15 years. Such a surge is definitely somewhat surprising, given the still
ongoing deleveraging in several key CEE economies, the subdued or just modestly recovering GDP growth and moderate loan demand in numerous countries
of the region.
CEE: Asset-to-GDP ratios
110%
95%
80%
65%
50%
35%
However, there were stark distorting effects at play that inflated the overall CEE
financial intermediation level in 2014. Due to massive currency devaluation effects in the EE region (including the heavyweight Russia), tangible shares of assets in FCY as well as negative developments for the denominator (GDP), the increase of the 2014 asset-to-GDP ratio in EE was stronger than the “real” asset
growth. Moreover, Russian asset growth was also driven by other distorting effects, namely the strong banking sector expansion in the first half and state support to banks and corporates in the second half of 2014 (which supported strong
corporate loan growth). The average asset-to-GDP ratio in CE continues to remain more or less constant at around 98% – a level that has not changed much
since 2008/09. For the SEE region, the year 2014 was again characterized by
another drop of the asset-to-GDP ratio, down by 2 pp to 80% in 2014 – about
6 pp below its peak in 2010.
The relative stability in the CE asset-to-GDP ratio masks stark and fundamentally backed intra-regional divergences, while the ratio’s downward trend in SEE
is more broad-based. In CE, the financial intermediation trends continue to remain more positive in Poland, the Czech Republic and Slovakia, while in recent
years substantial drops in the asset-to-GDP ratio (by around 30 pp) in Hungary
and Slovenia were driven by decisive deleveraging and restructuring (including
write-offs). The sustained and more broad-based pressure on the asset-to-GDP ratio in SEE, which was seen over the past few years, is well in line with our longheld view that some deleveraging was needed (and in some cases still is) following the brisk financial sector expansion that took place between the years 2000
and 2008/09.
20%
99 01 03 05 07 09 11 13
CE
SEE
EE
CEE vs. EA: Total asset growth (% yoy)
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
00 02 04 06 08 10 12 14
CEE*
Euro area
* EUR-based
RESEARCH
CEE vs. EA: Asset-to-GDP catch-up
CEE vs. EA: Long-term asset-to-GDP ratio trends
110%
300%
100%
280%
90%
260%
80%
70%
240%
10%
1.4%
1.0%
8%
0.6%
6%
0.2%
4%
-0.2%
-0.6%
2%
-1.0%
0%
60%
220%
-1.4%
99
02
05
08
11
14
CEE total assets (% of euro area)
50%
200%
40%
30%
Change vs. euro area (pp, r.h.s.)
RESEARCH
180%
1999
2001
2003
2005
2007
CEE total assets (% of GDP)
2009
2011
2013
Euro area total assets (% of GDP, r.h.s.)*
* Excluding MFI-business
Source: national central banks, ECB, RBI/Raiffeisen RESEARCH
9
Change total assets 2011-14 (EUR bn)
250
0
-250
-500
-750
In Hungary, Slovenia and Romania – where the deleveraging process lasted at
least half the time of the boom phase – most of the much needed deleveraging
has already been achieved or is likely to be achieved in 2015. Interestingly, the
strongest deleveraging took place in Romania – the one SEE country with possibly the least deleveraging needs from a fundamental point of view. Going forward, we see a chance that the asset-to-GDP ratio in CE continues its modest uptrend. In contrast, we do not see much near-term upside for the asset-to-GDP ratio in SEE. Although we see the Romanian banking sector ready for a new lending cycle, improvements in countries like Croatia and Serbia are still to come.
-1,000
CEE*
Euro area
* EUR-based
RESEARCH
150
125
100
75
50
Dec 07
Mar 10
CE
TR
Jun 12
Sep 14
SEE
EA
RU
140
130
120
110
100
90
80
70
60
50
Dec 07
Mar 10
Jun 12
Sep 14
Czech Republic
Romania
Croatia
Poland
10
With the recent surge in asset-to-GDP ratios in Russia and Ukraine, both countries are characterized by financial intermediation levels close to or even above
thresholds that could be deemed as fundamentally backed and sound. A comparison of the wealth and financial intermediation levels with CE/SEE peers illustrates this quite well. Russia’s GDP per capita level currently remains some
25 pp below the one in CE, while its asset-to-GDP ratio (currently at some 110%
of GDP) is about 11 pp above CE levels. A comparison to the still more leveraged SEE region is even clearer. On the one hand, GDP per capita levels in Russia are some 12 pp above the ones in SEE. On the other hand, Russia’s asset-toGDP ratio is now some 36 pp above SEE levels. Although overall financial markets in Russia are fairly sophisticated from a regional perspective, which usually
adds to a certain upward bias in the asset-to-GDP ratio, it seems that there is not
much fundamental underpenetration left on Russia’s banking sector. Therefore,
the times of fairly “easy” catching-up asset growth (with asset growth strongly outpacing GDP growth) without risks of accumulating too much threats to asset quality seems to be over. Hence and for the time being, Russia’s banking sector cannot be considered as a high-growth market from a fundamental point of view, i.e.
unless wealth levels and nominal GDP levels are again increasing very strongly
– a scenario that we do not foresee for at least the next one to two years. The increasing leverage of the Russian economy during the recent years of weaker economic expansion implies that the (retail) credit-driven growth model runs out of
steam – just like the economy’s strong dependence on oil price growth. This development adds to our more cautious medium-term economic and banking sector
growth outlook. In Ukraine, the fundamental degree of overleverage is extreme.
As one of the poorest countries in CEE, Ukraine has one of the highest asset-toGDP ratios in the region at some 80% to 90%. While in Russia, we might only
see a period of “just” a flat asset-to-GDP ratio, in Ukraine a substantial reduction,
similar to the one between 2009 and 2012, seems likely for the years ahead.
This process will be supported by the massive banking restructuring as well as
substantial write-offs (page 54).
The current real “growth” picture in CEE banking seems to be better represented
in the overall total asset base of the region. Due to somewhat improving banking
dynamics inside the euro area, still ongoing deleveraging in some CEE banking
markets, modest currency weakness in several CE/SEE markets as well as strong
currency depreciation in EE, the overall CEE banking asset base decreased in
2014 in absolute EUR-terms as well as in relative terms (e.g. in relation to the
euro area). Total CEE banking assets dropped from EUR 2.400 bn to around EUR
2.200 bn in 2014. Given slightly increasing banking assets inside the euro area
– the first increase in nominal terms since 2011 – overall CEE banking assets
dropped from 9.7% of euro area banking assets to 8.6% in 2014 (marking one
of the strongest relative drops in recent years). That said, it seems that the (Western) European large-scale rebalancing and deleveraging cycle – at least in terms
of total banking assets – is gradually drying up, while the CEE banking sector
was underperforming compared to broader European banking trends in 2014.
Financial analyst: Gunter Deuber, RBI Vienna
Focus: “Deleveraging debate” in CEE banking
Cross-border financing and the (potential) deleveraging of Western banks in CEE continues to be a widely followed topic. Its relevance
has even increased once again as new aspects in the so-called “Deleveraging debate” arose. By and large, there was nothing like an
aggressive deleveraging of Western banks in CEE up to now, although the region exhibits one of the most impressive penetrations by
foreign (cross-border) banks among Western and global emerging market banking sectors. Currently, cross-border claims of Western
European banks in the whole CEE region are 5% to 10% below their 2008-levels, while overall international exposures or exposures
to Western Europe (by Western European banks) were slashed by around 35% to 40% during the same period of time. Cross-border
exposures of Western European banks to the countries of the so-called euro area “periphery” were even cut down by some 70% from
2008 to 2014, reflecting a trend of national re-orientation and substantial (cross-border) deleveraging in overall European banking. The
“Banking Union” implementation (including the AQR exercise, stress testing etc.) added to the deleveraging process at Western European banks that are in a defensive mode regarding their international operations anyway (e.g. compared to international peers). That
said, there is also a general trend of global cross-border banking deleveraging, also driven by regulatory tightening for cross-border
exposures as well as a refocusing of business strategies (see also the Global Financial Stability Report 2015, International Banking After the Crisis: Increasingly Local and Safer?, Chapter 2, pp. 54-91).
A critical reflection of the success of the “Vienna Initiative” in stabilizing cross-border funding as well as crisis experience within Western European banking sectors shows that regulation should clearly focus on the risks stemming from excessive cross-border funding and
lending that is not backed by deep ownership links (or in other words, an equity-based cross-border integration). At the same time,
cross-border funding to CEE (and especially in the CE and SEE region) had been fairly stable in the recent challenging years. The overall commitment of leading Western European banks to their large and locally embedded franchises in CEE can be seen by the development of CEE exposures compared to overall international exposures in Western European banking sectors of systemic importance for the
CEE region, i.e. those in Austria, Italy and France. In these three banking sectors, cross-border exposure to CEE developed much more
favorably than overall international exposures or the CEE exposures of other Western European banking sectors. The relatively stable
cross-border exposures to CEE in general and the CE region in particular are also a reflection of the fact that, up to now, all larger divestments of Western European banks in the region involved another Western European bank on the buyer side.
Nevertheless, leading Western CEE banks also had to adjust their exposures in the region. Recent regulatory tightening was a blow to
less profitable and funding-consuming (but possibly still moderately profitable) business lines and markets. It also became more challenging for banks to pursue long-term strategies, which may offer less short-term profit, while profits and retained earnings are currently the
best means to shore up capital positions and to meet regulatory and/or market demands in terms of capitalization. Moreover, the overall modest cuts in cross-border exposures towards the whole CEE region are partially hiding increasingly selective country strategies. In
some countries (such as Poland, Slovakia or the Czech Republic), there was definitely no pull-back of Western European banks. However, in the more challenging SEE markets, as well as in Hungary, Slovenia, Ukraine and since 2014 also in Russia, they pursued more
conservative business strategies. Due to this de-risking, Western European banks were by and large increasing their gearing towards
markets with lower macro-financial risks, lower NPL ratios (i.e. less legacy problems) and better profitability. Moreover, the modest reduction in cross-border exposures also reflects still limited new lending dynamics, a turn to more local refinancing and finally also selling
(to non-bank investors) or write-offs of certain NPL exposures (like in SEE or Ukraine). Western European banks, who are still key providers of liquidity and financing to Russia, turned more conservative in terms of cross-border exposures to the country in 2014, a clear
decoupling of overall trends in emerging markets banking. Many drivers for the most recent reduction of cross-border exposures to Russia (higher macro-financial risks, weak developments in the domestic economy and in external trade in comparison to other emerging
markets, more conservative business strategies of Western corporate clients in Russia, and Western sanctions) are likely to stay well into
2016. This is why overall cross-border exposures to CEE are likely to see some downward pressure in 2015, mainly driven by decreasing exposures to Russia and still limited need for large cross-border financing in most CE/SEE markets as indicated by low L/D ratios.
From a strategic perspective, the “Deleveraging debate” in CEE also reflects a certain dilemma for leading Western European CEE-lenders. On the one hand, they delivered on their regional commitment and were sometimes even criticized by regulators
or IFIs for trimming their exposures in certain markets in a modest way (e.g. in the regular “CESEE Deleveraging and Credit Monitor”). On the other hand, their European
competitors with a focus on Western and global business improved their capitalization
ratios via substantial deleveraging in international business. Capital ratios were raised
substantially in the EU and the euro area, and this was partially achieved via substantial cross-border deleveraging. Given the modest deleveraging compared to their Western European peers, it comes as no surprise that most leading Western European CEE
banks (still) have lower capitalization ratios than their peers (page 20) with a focus on
non-CEE markets (although there are other drivers for this development as well).
120
110
100
90
80
70
60
Dec 09 Feb 11 Apr 12 Jun 13 Aug 14
AT, IT, FR banks CEE
European banks CEE
AT, IT, FR banks Dev. Markets
European banks Dev. Markets
* Dec 2009 = 100, latest data point Q4 2014
11
Loan growth, growth by segments (retail, corporate)
CEE: Loan-to-GDP ratio
60%
50%
40%
30%
20%
10%
99 01 03 05 07 09 11 13
CE
SEE
EE
Loan-to-GDP ratio
75%
60%
45%
30%
15%
0%
99 01 03 05 07 09 11 13
Hungary
Romania
CE-3 (PL, CZ, SK)
SEE (excl. RO)
CE/SEE vs. EA loan growth (% yoy)
30
CEE vs. EA: Long-term loan-to-GDP ratio trends
5
22
3
14
Major trends in the regional CEE loan-to-GDP ratios are a reflection of the asset growth picture sketched previously (relative stability in CE, downward trend
in SEE, distorted increase in EE with a massive impact on the overall CEE trend).
In combination with currency effects, the total CEE loan stock posted a drop in
2014 (down from EUR 1.370 bn to EUR 1.200 bn). In relation to bank loans
inside the euro area, the overall CEE loan stock dropped from 11.7% in 2013
to 10.4% in 2014 (driven by currency devaluation effects as well as a slightly
increasing loan stock inside the euro area). Once again the drop was mainly
driven by the EE region, as the CE/SEE total loan stock remained more or less
flat in 2014, at around EUR 550 bn or 4.7% of total loans inside the euro
area. Hence, in terms of loan growth there was at least no significant underperformance of CE/SEE markets compared to the euro area in 2014 (where total
loan growth stood at 0.2% after two years of decline).
Nevertheless, in 2014 overall loan growth remained modest in CE and SEE as indicated by a CE/SEE loan stock that remained virtually flat in nominal terms. But
stark country differentiation prevails. CE banking markets once again strongly
outperformed SEE markets. Annual CE loan growth in LCY-terms came in at 5.1%
yoy in 2014 and at 1.5% in EUR-terms, while the respective annual “growth
rates” in SEE stood at -2% in LCY-terms and -2.9% in EUR-terms yoy. Real loan
growth in CE/SEE in LCY-terms, largely driven by the larger CE banking markets, reached some 3% yoy in 2014, which has been the strongest level since
2011 and quite decent given the subdued inflation developments. Therefore, the
2014 loan-to-GDP ratios increased by several percentage points in the CE markets without adjustments needs (like in Hungary or Slovenia). Due to contracting loan stocks, the overall SEE loan-to-GDP ratio (mainly driven by Romania,
Bulgaria and Croatia, where loan stocks were dropping in both LCY- and EURterms) dropped modestly from 50% to 48% in 2014. Now the ratio stands some
5 pp below the peak levels of 53% (reached from 2010 to 2012) reflecting
broad based regional deleveraging needs. As already mentioned, the strongest
regional adjustment was observed in Romania, mainly driven by regulatory tightening related to NPL exposures, which caused write-offs and NPL sales. There
could be similar adjustment needs in other SEE markets with similar high loan
and NPL stocks, that have not been addressed yet.
60%
150%
50%
140%
40%
130%
30%
120%
20%
110%
0
6
-3
-2
-10
-5
09
10
11
12
13
14
CE/SEE (total loans)
Euro area (total loans, r.h.s.)
RESEARCH
100%
10%
1999
2001
2003
2005
2007
CEE total loans (% of GDP)
2009
2011
2013
Euro area total loans (% of GDP, r.h.s.)*
* Excluding MFI-business
12
Hungary, Slovenia and Romania saw drops in their loan-to-GDP ratios by some
10 pp to 20 pp in recent years. We consider Hungary and Romania ready for a
new lending cycle (especially in LCY lending), which cannot be said about some
other SEE banking markets. In euro area countries with substantial deleveraging
needs, like Spain or Portugal, recent drops in loan-to-GDP ratios were even more
extreme (in absolute and relative terms) than in the CE/SEE region. In light of
deleveraging experience in selected CEE markets and inside the euro area, we
see a fair chance that at least 30% to 50% of a brisk pre-crisis expansion of the
loan-to-GDP ratio has to be corrected within a deleveraging phase (either via less
credit-driven economic growth and/or loan write-offs).
Deleveraging Western Europe/EA*
From a longer-term perspective, the outperformance in the by and large more
healthy CE banking sectors compared to SEE markets is even more striking. The
cumulative loan growth from 2011 to 2014 stands at 18% in LCY-terms or 8%
in EUR-terms. On contrary, in SEE the cumulative loan growth was just some 6%
in LCY-terms or 1% in EUR-terms over the same period of time. Putting the cumulative LCY loan growth rates in relation to cumulative nominal GDP growth, the
recent SEE deleveraging becomes even more obvious. From 2011 to 2014, nominal GDP growth in SEE stood at 20% (i.e. well below loan growth), whereas in
CE loan growth was at least slightly outpacing cumulative nominal GDP growth
at 16%. Since the overall CE aggregate was driven down by a negative performance in Hungary and Slovenia, the real loan growth in the other CE markets
was even higher. The overall loan growth in most CE/SEE banking sectors currently remains geared towards more short-term transactions in corporate and retail lending as well as mortgage lending. In many CE/SEE markets – with the
possible exception of Poland for overall corporate lending and Hungary for SME
lending – corporate lending growth remains below expectations and mostly focused on working capital financing. The focus of many CEE banks on retail lending seems to be explained by still higher margins and better (risk-adjusted) return prospects. However, the recent substantially increased consumer protection
on EU and CE/SEE banking markets should also support cautious business strategies in retail lending, in order to avoid unpleasant restructuring issues later on.
* Loan-to-GDP ratio (%), period from 2000-2014
RESEARCH
250
200
150
100
50
0
Spain
Portugal Ireland
Start credit cycle
Peak
100
80
60
40
20
0
Hungary
Romania
Start credit cycle
Slovenia
Peak
2014
High**
Average
Russia
Croatia
Bulgaria
Low*
* Loan-to-GDP ratio (%), period from 2000-2014
Romania
Slovenia
Slovakia
Czech Rep.
Hungary
2014
Deleveraging CE/SEE*
Interestingly, SEE banking markets are not clearly underperforming their CE
peers in mortgage lending. In some countries, there is also government support
for mortgage lending. Moreover, customers are currently attracted by the fairly
low nominal interest rates and are refinancing existing mortgage loans. In some
CE/SEE markets strong retail/mortMortgage loans (% of GDP)
gage lending has led to an increasing
50%
regulatory alertness. In some cases,
like Slovakia, recommendations aim40%
ing at more prudent retail/mortgage
lending standards were issued. From
30%
a through-the-cycle perspective and
20%
given the positive experience on the
Polish banking sector, such recom10%
mendations should be welcomed. This
holds especially true as the mortgage
0%
loan penetration in CE and Croatia
is not very low anymore and steadily increasing. Here mortgage loan-toCEE
GDP ratios are currently hovering at
around 20% of the GDP. At first sight
2002
2008
* Larger EA countries with lowest mortgage loan-to-GDP ratios in 2002 (AT, FR, BE, IT)
such levels seem low compared to the
** Larger EA countries with highest mortgage loan-to-GDP ratios in 2014 (NL, ES, FR, DE)
average euro area mortgage loan-toSource: ECB, national sources, RBI/Raiffeisen RESEARCH
Poland
UK
Euro area
2014
13
CE: Loan growth LCY- vs. EUR-terms
35%
25%
15%
5%
-5%
00
02
04
06
08
10
12
14
CE loan growth (% yoy, LCY)
CE loan growth (% yoy, EUR-based)
SEE: Loan growth LCY- vs. EUR-terms
50%
40%
30%
20%
10%
0%
-10%
00
02
04
06
08
10
12
14
GDP ratio at some 38% (some countries like Spain, France or the Netherlands
even have a mortgage loan-to-GDP ratio of up to 40% to 60%). In this context, it
is also worth mentioning that a decade ago and before the most recent sustained
financial cycle (with some excesses inside the euro area) mortgage loan-to-GDP
ratios in some euro area countries, like Austria, Belgium and France, had been
as low as 16% to 20% (which are current mortgage loan penetration ratios in
several CE/SEE economies).
In Russia, overall loan growth, like the asset growth, looks inflated for 2014. The
Russian banking sector actually posted a higher loan growth rate in 2014 yoy,
although the overall economy was moving into a different direction. Even when
corrected for FX effects, the overall 2014 loan growth came in at fairly high
levels of 12% to 15% yoy. This development is the result of a complex mix of various factors, while the overall market trends in Russia are definitely opposite to
the picture in most other CEE banking markets. Corporate loans showed a striking increase, accelerating in the second half of 2014. Robust corporate lending
growth was mainly driven by the idea to draw on all existing and still available
credit lines to secure an adequate cushion for (external) debt repayments (as indicated by the fact that corporate deposits also increased in times of strong loan
growth). State-support also played an important role here. Strong corporate loan
growth, driving the overall market growth, was even over-compensating for a
continuous decline in retail loan growth with an above average decline in activity in longer-term transactions, including mortgage loans. As a result, the share
of corporate loans in total loans increased to around 77% at Russian banks – levels seen from 2005 to 2010, i.e. before the strong retail lending boom. A somewhat similar trend was visible in Ukraine, where the corporate loan stock in total
loans also increased in 2014, to a level of 80%. Therefore, the looming restructuring in corporate exposures and related-party lending at Ukrainian lenders, as
requested by the IMF, will affect large parts of the local banking sector (page 54).
SEE loan growth (% yoy, LCY)
SEE loan growth (% yoy, EUR-based)
Funding, deposit growth and L/D ratios
EE: Loan growth LCY- vs. EUR-terms
75%
50%
25%
0%
The past years’ trend in core funding dynamics in CEE, and its relation to the
lending base, saw a continuation in 2014 as well. The aggregated loan-to-deposit (L/D) ratio across the CEE banking markets remained stable at some 97%
(i.e. notably below its peak at 114% in 2008). Two general tendencies contributed to that in 2014. First, the CEE L/D ratio, well below its peak levels, is a clear
indication that the times of very strong loan growth across CEE markets are over.
Second, the increasing reliance on local funding is also a reflection of the global
trend to decrease cross-border banking flows and penetration that is driven by
market and regulatory forces (see also the focus on page 11 about cross-border
financing in CEE banking markets.) Thus, the predominantly conservative lending behavior of CE/SEE banks was going in parallel with still sanguine deposit
dynamics within the banks.
-25%
00
02
04
06
08
10
12
14
EE loan growth (% yoy, LCY)
EE loan growth (% yoy, EUR-based)
14
2014 was another good year for deposit funding growth in the entire CEE area,
notwithstanding some countries’ headwinds, that left the respective banking systems in a tougher funding situation (e.g. Bulgaria, Russia and Ukraine). That said,
it is possible that the CEE region’s low L/D ratio may witness something like a
turning point in the lending cycle. Given the rebalancing of the L/D ratio in most
of the countries, and especially in those countries with the strongest macro-performance, we see sufficient room to finance a new, but more cautious, lending cycle going forward. In particular in those CE markets without secular deleveraging needs (i.e. the Czech Republic, Poland and Slovakia) the trend of loan and
deposit growth continued in 2014 at more or less similar levels, with a slightly
stronger deposit growth in comparison to loan growth. Poland, for example, enjoyed deposit growth rates close to 10% yoy, the Czech Republic at 3% yoy and
Slovakia at 4% yoy, all in LCY-terms. Banking markets with secular deleveraging needs (i.e. SEE as well as Hungary and Slovenia) continued to show a significantly stronger growth in deposits than in loans. In SEE, the leaders in deposit
growth were Bosnia and Herzegovina, Romania and Serbia, each posting a 8%
yoy customer fund’s growth. Like in previous years, the weakest core funding dynamics were in Hungary with 2% yoy (LCY-denominated) and Croatia with zero
growth. Bulgaria, which managed to recover after the mid-year banking sector
turmoil, posted a modest 2% yoy deposit growth (LCY-terms).
Across the CEE countries, the dynamics in EUR-terms were more diverse, as determined by the multidirectional trends in the local exchange rates, and in particular in Russia and Ukraine. As a result, the total deposit stock in the overall CEE
area was significantly down by 10% (yoy, in EUR-terms) in 2014. This includes
a decline of 40% in Ukraine and of 18% in Russia as well as a 4% decline in
Hungary, which resulted from a HUF depreciation against the EUR of about 4%.
In SEE, the regional L/D ratio has reached the lowest level since 2006, with
around 90% in 2014. A similar pattern also revealed in Hungary and Slovenia, where the L/D ratios reached their lowest levels over the past decade. In
our view, this has come as a clear reflection of a need for deleveraging and
restructuring on the asset side (i.e. low loan growth, managing high stock of
NPLs), while deposit growth remained at solid levels. In the EE region, the deposit growth and L/D ratio posted decreases in 2014. The L/D ratios in Russia
have been gradually rising since the 2008/09 downward adjustment, while we
view the recent L/D ratio increase in Ukraine as a crisis-induced phenomenon
(the country’s L/D ratio was on a downtrend before 2014).
CEE: Loan-to-deposit ratios at the country level (%)
CEE: FCY loans (% of total)
70
60
50
40
30
20
10
0
2010 2014 2010 2014 2010 2014
CE
SEE
EE
Source: national sources, Raiffeisen RESEARCH
CEE: Loan-to-deposit ratio
125%
115%
105%
95%
85%
75%
05 06 07 08 09 10 11 12 13 14
CE
SEE
EE
CEE vs. EA: Loan-to-deposit ratio
160%
120%
140%
120%
110%
100%
100%
80%
60%
90%
40%
20%
80%
00 02 04 06 08 10 12 14
CE
2005
SEE
2008
Belarus*
Ukraine*
Russia
Albania
Bosnia a.H.
Serbia
Croatia
Bulgaria
Romania
Slovenia*
Slovakia
Czech Rep.
Hungary
Poland
0%
CEE
Euro area
EE
2014
* Scale capped at 160%; Slovenia, Ukraine and Belarus in 2008 with values above 160%; Sl: 166%, UA: 205%,
BY: 171%
15
Profitability (Return on Assets, Return on Equity)
CEE: Return on Equity (%)
25
20
15
10
5
0
-5
00
02
04
06
08
10
12
14
CE
SEE
EE
CE (excl. Hungary)
Second, in 2014, the overall profitability pressure was notable also in profitable CE markets like Poland, the Czech Republic and Slovakia and resulted in a
further round of profit compression from already low levels by historical regional
standards. The regional CE RoE dropped from 10.3% to 9.2%; excluding Hungary, the regional RoE decreased from12% to 11.7%. Due to the relative maturing of the CE markets, the risk premium in the region went down, supporting the
respective downwards pressure on profitability. Nevertheless, we want to emphasize that the CE countries currently have the greatest potential for banking
business in CEE. In SEE, the negative performance of the Romanian market (RoE:
-11.6%) was overwhelming. In the other SEE markets, the average RoE has remained at meagre 3% and thus at a disappointing level ever since 2009.
CEE: Return on Assets (%)
5
4
3
2
1
0
-1
-2
00
02
04
06
CE
08
10
Profitability in CEE banking was a mixed bag in 2014. The overall CEE banking
RoE has reached its lowest level at some 6.9% since the year 2000. This disappointing performance can be attributed to several factors. First, in 2014, three
markets in the region, namely Hungary, Romania and Ukraine, turned negative,
which is a significant worsening compared to 2013, when only Slovenia made a
loss and marks one of the worst years in CEE banking. Only in 2010/11 the situation in the region was worse, with four loss-making banking markets. Although
the losses were partially related to one-off effects, the RoE readings in the three
affected markets were deep in the red (HU: -11%; RO: -12.5%; UA: -30%). The
losses in the Hungarian and Romanian banking sector had a substantial impact
on leading Western CEE banks given the still high foreign ownership in both
banking sectors. The average foreign ownership ratio on loss-making CEE banking markets reached 61% in 2014 (compared to 57% back in 2011).
12
SEE
14
EE
CEE: Loss-making banking markets*
5
Finally, the lower RoE margins in the CEE area reflect the new European regulatory requirements that are pushing banks towards larger capital buffers. The
lower ratio of return to equity in the CEE region, per se, was determined by the
increase in denominator value (E: Equity), while Western European banks were
acting towards being in accord with the new European capital requirements, and
also domestic regulators were increasingly solidifying banking sectors’ capitalization in their countries.
CEE vs. EA: Return on Equity (%)
25
23
4
20
3
18
15
2
13
1
10
8
0
00
02
04
06
08
10
12
14
Number of countries with negative RoE
* out of 14 CEE banking sectors covered in this report
(loss-making 2014: HU, RO, UA)
5
3
0
-3
-5
2000
2002
2004
2006
CEE
2008
2010
2012
Euro area
16
2014
Focus: Non-performing loans and NPL ratios
CEE: NPL ratios*
Regarding NPL ratios, 2014 was finally a turnaround year in the CE and SEE banking
20
sectors and brought dropping ratios after years of increases. In CE, the positive regional
NPL ratio trend got support from solid and/or improving asset quality and new lending
15
activity in markets like Poland, the Czech Republic and Slovakia, while asset quality
was finally also improving in hard-hit Hungary (NPL ratio down from 14% to 13.3%)
and Slovenia (down from 22% to 16%). The overall NPL ratio in the CE region improved
from 9.1% to 8.5%, the regional NPL ratio excluding Hungary dropped from 7.1% to
6.8% in 2014. Hence, on a regional level (whole CE aggregate) the NPL ratio dropped
by 0.6 pp in 2014 following five consecutive years of a cumulative increase by 5.2 pp.
It is likely that an even larger drop in the regional CE NPL ratio would have been possible, however, the ECB’s AQR led to more cautious assessments of the asset quality in
the affected banking sectors (directly or indirectly part of the SSM).
The regional SEE NPL ratio dropped by some 5 pp from 19.5% in 2013 to 14.8% in
2014. This turnaround follows an overall increase of 16 pp between 2008 and 2013.
This NPL drop mainly stems from a substantial balance sheet clean-up in Romania (with
increased provisioning, write-offs and asset sales) as well as stabilizing or slightly improving NPL ratios in some other SEE markets (like Albania, Bulgaria and Bosnia and
Herzegovina), partially supported by a mild lending recovery. In Croatia and Serbia,
the NPL ratios continued to inch higher throughout 2014 and in both markets we expect
the asset quality either deteriorating further or stabilizing only very gradually in 2015.
In the SEE region, 30% of the NPL ratio increases of the years 2008 to 2013 were reversed in 2014 – three times as much as in the CE region. The boldness of the NPL ratio turnaround in SEE was reflected in a negative profitability performance of the overall SEE banking sector, largely driven by Romania, where the banking sector was once
again loss-making in 2014. In 2014 and also in 2015, Romania saw a larger number
of NPL sales transactions, that may finally pave the way for more transactions to follow
in Romania and possibly other markets (e.g. also part of strategic restructuring or possible divestment and M&A transactions). As a first candidate for potential NPL sales transactions we see Hungary. Like Romania, Hungary is a large banking market (by regional
standards) and hence decent sized NPL transactions are possible. In addition, the EU jurisdiction in Hungary and an economic turnaround, driven by domestic demand, seem
to be supportive factors (like in Romania). In the other SEE markets with high NPL levels,
namely Albania, Bulgaria, Croatia and Serbia, we doubt to see NPL sales transactions,
as at least one or several previously mentioned criteria are not fulfilled. Here we expect
banks to continue with internal work-out procedures for the time being.
The combined CE/SEE NPL ratio dropped from 12% to around 10% in 2014. In contrast, NPL ratios inched up in all EE countries and we expect this trend to continue in
2015. The NPL ratio in Russia increased from some 4.2% in January 2014 to 5% in December 2014. However, 2014 was still characterized by modest asset quality deterioration, also supported by strong loan (which led to a downward bias in the NPL ratio).
For 2015, we expect a stronger deterioration of asset quality due to the looming recession of the Russian economy. The first months of 2015 already brought a strong rise of
the NPL ratio from 5% to 6% (April), with 7.1% of NPLs in retail and 5.6% in corporate
lending. Currently, we expect the Russian NPL ratio to reach 8% to 10% of total loans
(depending on loan growth dynamics) in 2015, while the overall restructured loans
are expected at 20% to 30%. In Ukraine, we see IFRS-based NPL ratios once again at
around 40%, while the recent adverse conditions may add 10 pp to 15 pp to this already high NPL stock. The looming structural banking sector clean-up (as requested by
the IMF support package) may also add to NPL formation in 2015. This may finally
pave the way for a more sustained NPL resolution in 2016 and beyond. In total, the
diverging NPL ratio trends in the three CEE subregions were still somewhat offsetting
each other in 2014, resulting in a fairly stable overall CEE NPL ratio of 8.5%. However, in 2015 the developments in EE could overshadow positive NPL developments in
other CEE markets, a scenario that may lead to an increase of the total CEE NPL ratio
to above 9% until year-end 2015.
10
5
0
04 05 06 07 08 09 10 11 12 13 14
CE
SEE
EE
* % of total loans
Source: national sources, RBI/Raiffeisen RESEARCH
CEE: Markets with NPLs <10%*
10
9
8
7
6
5
4
3
2
1
0
BY
SK
RU**
CZ
PL
* year-end 2014; ** RU: Latest data as of April 2015
CEE: Markets with NPLs > 10%*
40
35
30
25
20
15
10
5
0
HU RO SI
BH BG HR RS AL UA*
* UA: based on IFRS estimates, official ratio much lower;
year-end 2014
Overall CEE NPLs
135
120
105
90
75
60
45
30
15
0
10
8
6
4
2
0
00 02 04 06 08 10 12 14
CEE NPLs (total EUR bn)
CEE NPLs (% of total loans, r.h.s.)
17
As a result, given the profitability pressure in key CE/SEE markets, the regional
RoE dropped to below 6%, which is hardly above the current RoE inside the euro
area and in Western European banking. In the CE/SEE region, the 2014 RoE
marks a new 15-year low (previous lows were at around 9% in 2009/10), while
the RoE of about 5% in Western European banking represents a recovery. Hence,
the overall appeal of CE/SEE banking markets vs. euro area peers suffered a lot
in 2014, with the exception of Poland, Slovakia and the Czech Republic.
CE: Return on Equity (RoE, %)*
20%
15%
10%
5%
0%
-5%
-10%
-15%
HU
SI**
SK
2013
PL
CZ
2014
* countries sorted by 2014 RoE
** scale capped at -15%; Slovenia RoE 2013: -31.6%
SEE: Return on Equity (RoE, %)*
15%
10%
5%
0%
-5%
-10%
-15%
RO
RS
HR
BH
2013
BG
AL
2014
* countries sorted by 2014 RoE
EE: Return on Equity (RoE, %)*
20%
15%
10%
5%
0%
-5%
-10%
UA**
2013
RU
BY
2014
* countries sorted by 2014 RoE;
** scale capped at -10%; Ukraine RoE 2014: -30%
18
Also and important for the CEE banking in general, this time around EE markets
could not offer any meaningful compensation for the profitability pressure in CE/
SEE banking. In fact, in 2014 there was a significant positive profitability gap
between the CE RoE and the RoE in the EE banking sectors. In the second half of
2014, the Russian banking sector RoE dropped to 7.9%, which is still well above
the 4.9% crisis-driven slide recorded in 2009. But given the further pressure
on profitability, the expectations for 2015 are still on the downside (Q1 2015
RoE at 4.8%). The overall RoE in the EE banking markets stood at around 7% in
2014, i.e. hardly above the average RoE on the CE/SEE banking markets, which
bear a notably lower risk profile at the same time.
Depending on the strength of the turnaround in larger CE/ SEE markets, in 2015
the profitability of the CEE banking sector could fall below the one in Western European banking. This would be a first ever since the year 2000, when the CEE
region was still characterized by the aftermaths of the Russian crisis of 1998/99.
Similar to the situation in Western Europe and given the current profitability in
the region, Western banks could barely recoup their equity costs in CEE. The fact
that the current profitability in the CEE region is only slightly above the levels in
Western European banking will add to pressure on market players in the region
and may result in further consolidation and strategic re-orientation. Respectively,
given the near-term profitability expectations (put in risk-adjusted return perspective or in relation to funding costs), it will be difficult to sustain large and capitalconsuming franchises in some SEE markets, Russia or Ukraine.
In 2014, the aggregated RoA in CEE developed similarly to the RoE in the region. The RoA stood at fairly disappointing 0.8%, which is the same low level
like back in 2009. In the SEE and EE banking sectors, the 2014 RoA readings
were just at some 40% of their pre-crisis values, with the 2014 RoE at just around
50% of long-term pre-crisis values. The positive exception is once again the CE
region, where the core profitability in terms of RoA remains at 64% of its longterm pre-crisis average and hence above the RoE (56% of its long-term pre-crisis average), which reflects the higher capitalization levels in the region. Excluding Hungary, the CE RoA is even better at 87% of its pre-crisis average vs. RoE
of 75%. All in all, the profitability outlook for CEE banking remains challenging.
Profitability pressure is likely to stay in the few lucrative CE markets. In Slovakia
there is some upside to profitability due to the reduction of the fairly high banking
tax. In other larger markets, like Hungary or Romania, it is difficult to predict to
what extent a turnaround in profitability can be achieved in 2015. In Romania,
the plan to join the SSM is likely to result in further tough stress testing and possible adverse effects on the local banking market. Moreover, potential settlement
to CHF exposures could lead to negative effects in Poland, Croatia and partially
also in Romania. Furthermore, we expect profitability pressure to stay on the Russian market. Here the main factors will be the ability of the CBR to cut rates substantially without damaging the RUB stability, the pace of asset quality deterioration as well as the ability of Russian banks to cut costs and restructure their franchises. The previous credit growth cycle supported fairly expansionary and aggressive strategies, while cost inflation was a long-standing issue.
CEE banking growth and overall market outlook
According to our current assessment, the prospects for CEE banking in 2015 and
2016 are likely to be shaped by a complex mix of supportive factors, but also
headwinds (related to legacy issues and new challenges).
On a positive note, CEE banks are likely to profit from the adjustments and positive trends seen in major CE/SEE banking markets in recent years and in 2014
in particular (e.g. deleveraging, improved L/D ratios, petering out of asset quality deterioration, increased tackling of NPL stocks). The increasing economic momentum in Western Europe and CE/SEE markets adds to the uplift in CE/SEE
banking. This holds especially true as in CE/SEE markets economic growth is increasingly generated by domestic drivers. Such a situation should translate into
growing demand for new lending and investment financing as well as longerterm transactions. Therefore, corporate lending and also SME lending may develop in a more favorable way going forward. Up to now, positive dynamics in
these two segments were limited to Poland and Hungary. Over the recent one
to three years, loan growth in CE/SEE markets was largely driven by short-term
transactions (like consumer financing or working capital financing), refinancing
Average annual loan growth rate 2015-2019f
(% yoy in LCY-terms)
CEE: Long-term banking growth outlook: Larger markets
Banking growth outlook
(EUR- vs. LCY-terms)
Current Loan stock Avg.
Avg.
loan
growth* growth growth
stock
2015-19f 2015-19f
EUR bn
EUR bn
% yoy,
EUR
% yoy,
LCY
PL
210
143
11.2%
8.8%
HU
43
16
8.0%
6.8%
CZ
95
53
9.3%
6.6%
SK**
40
21
8.1%
8.1%
SI**
23
11
4.0%
4.0%
RO
48
44
14.2%
12.4%
BG**
28
6
3.8%
3.8%
HR
37
0.3
0.2%
0.1%
RS
15
5
6.1%
7.6%
9
2
4.4%
4.4%
8.8%
BH**
AL
4
2
8.9%
RU
598
114
5%
9.3%
UA
51
-11
-2.5%
19.3%
BY
23
-6
-5.3%
15.0%
CE
411
233
8.4%
8.2%
SEE
141
60
8.8%
8.1%
672
98
4.2%
10.3%
1,224
411
5.8%
9.5%
Regions
14%
13%
Romania
12%
EE
CEE
11%
Poland
Russia
10%
* From 2015-2019f in nominal EUR-terms
** In SK, SI, BG and BH loan growth rates in LCY and
EUR are matching due to EA membership or Currency
Board arrangements
9%
8%
Czech Republic
7%
6%
5%
25
50
75
100
125
150
175
Change in total loan volume year-end 2014-2019f (EUR bn)
CEE: Long-term banking growth outlook: Smaller markets*
Average annual loan growth rate 2015-2019f
(% yoy in LCY-terms)
14%
12%
Albania
10%
Slovakia
Hungary
Serbia
8%
6%
Bosnia and
Herzegovina
4%
Slovenia
Bulgaria
2%
Croatia
0%
-
5
10
15
20
25
Change in total loan volume year-end 2014-2019f (EUR bn)
* Ukraine and Belarus not shown due to expected decline in loan stock in EUR-terms
Source: national central banks, Raiffeisen RESEARCH
19
Banking growth trough-the-cycle*
Average loan growth
2000-10
2011-14
PL
15.2%
6.8%
2015-2019f
8.8%
HU
17.7%
-4.7%
6.8%
CZ
6.7%
4.8%
6.6%
SK
10.9%
6.5%
8.1%
SI
15.8%
-8.8%
4.0%
RO
40.3%
0.6%
12.4%
BG
34.0%
0.9%
3.8%
HR
16.2%
0.6%
0.1%
RS
49.8%
4.4%
7.6%
BH
16.7%
3.8%
4.4%
AL
36.3%
8.8%
8.8%
RU
38.0%
22.1%
9.3%
UA
48.1%
7.9%
19.3%
BY
67.2%
36.7%
15.0%
CE
13.0%
4.5%
8.2%
SEE
27.9%
1.5%
8.1%
EE
39.7%
21.5%
10.3%
CEE
31.2%
14.8%
9.5%
Regions
* Loan growth rates in LCY-terms
Source: national sources, RBI/Raiffeisen Research
CET-1 ratios (%)***
13.5
12.8
12.0
11.3
10.5
160
120
80
40
0
Avg. large
Avg. 3 leading
Europ. banks** Western CEE
banks*
Year-end 2014
Chg. CET-1 ratio 2014 vs. 2013 (bp, r.h.s.)
9.8
* RBI, Erste, UniCredit
** Swedbank, SEB, Nordea, Danske, Intesa, Deutsche,
HSBC, Standard Chartered, ING, SocGen, BNP, Commerzbank, Santander
*** CET-1, fully loaded Basel III pro forma CET-1 ratios
Source: company data, Bankscope, RBI/Raiffeisen
RESEARCH
20
and/or debt restructuring transactions. Given the fact that deleveraging and restructuring seem to be largely completed on larger CE/SEE markets, like Hungary and Romania, as well as the absence of restructuring and deleveraging
needs in Poland, the Czech Republic and Slovakia, CE/SEE banking sector assets may develop in a fairly positive way over the next one to two years. As a result, deleveraging and restructuring needs in markets like Croatia, Serbia or Bulgaria are likely to be overcompensated by positive developments elsewhere. In
contrast to the encouraging banking outlook in CE/SEE on the operational level,
banking dynamics in the EE region are likely to be less impressive in 2015. We
see tough times ahead on the Russian market although RUB stabilization as well
as the ability to bring funding costs back to more normal levels may help to avoid
larger downsides in terms of restructuring needs and write-offs. The Ukrainian
banking market is likely to see another year of hefty losses and recapitalization
needs, and also the Belarusian economy is facing tough economic challenges in
the year ahead.
Moreover, there are also broader and longer-term challenges in CEE banking
(e.g. regulatory pressure, capital and profitability pressure) that may constrain
the near-term upside offered by increasing economic and banking sector growth
momentum in CE/SEE. For instance, the effects of the ultra-low rates environment
are likely to gradually feed into the banks’ portfolios in 2015 and 2016 (as indicated by strong profitability pressure on CE markets that are characterized by
solid asset quality). Moreover, market strategies of major Western CEE banks are
increasingly focusing on just a few markets, which will add to profitability pressure. On the regulatory side, the handling of CHF loan stocks in several CEE
countries, like Poland or Croatia, adds to uncertainty, as individual players could
face significant costs of restructuring. Overall regulatory and market trends in European banking are also likely to spill over to CEE banking. Some CEE banking
sectors in non-euro area countries may finally join the SSM on a voluntary basis which may imply a need for strict stress testing and balance sheet clean-up.
Moreover, joining the SSM may also add to profitability pressure due to the need
to build up crisis funds as requested within the SRM framework. Furthermore,
overall European regulatory pressure is likely to continue impacting on CEE banking sectors, e.g. via continuous ECB stress-testing or the continuous focus on capital and profitability planning (following years of subdued profitability in CEE
banking). Such broader trends in European banking could particularly challenge
larger Western European CEE banks operating in the region. They are still characterized by fairly low capitalization levels compared to major European peers
and measured by current market standards, while doing business on CEE markets is likely to require more capital for future growth than operations in Western
European markets. Besides, internal capital generation capability is likely to be
challenged by the currently very subdued profitability outlook in CEE banking.
For some leading Western CEE banks the results of the 2014 stress testing and
AQR were a mixed bag. Therefore, ongoing restructuring at leading Western
CEE banks is mainly targeting capital positions, while adjustments were largely
achieved via asset sales, balance sheet optimization and only to a lesser extent
via outright capital increases and financial market transactions. We expect cautious and very selective business strategies of larger Western European banks,
characterized by capital discipline as well as a stark differentiation between
country and business segment strategies, to prevail in 2015. Consequently, overall business strategies in CEE banking are likely to be dominated by balance
sheet optimization, cost-cutting and very selective growth and investments strategies focusing on product optimization, modernization and operational efficiency.
Hence, it is unlikely to see new market entries or large-scale expansions of ex-
isting branch networks (page 55). Although we expect 2015 to still be a transition year in CEE banking, we see players that are already positioned to profit
from the increasing upside and next credit cycle in CE/SEE banking and who
are placed to gain market share and to lay the foundation for future growth and
profitability.
With regards to the growth outlook for the individual CEE banking markets, we
continue to consider Poland, the Czech Republic and Slovakia as high-growth
markets, characterized by modest levels of financial intermediation and hence
a fair chance that lending and asset growth can outpace GDP growth on a sustained basis. From a fundamental perspective, also Hungary and Romania can
be added to this group of countries. However, at this point it is difficult to predict
if the restructuring of the past few years has yet been sufficient to start the upturn
already in 2015. In several other CEE banking markets, such as Bosnia and Herzegovina, Bulgaria, Croatia, Serbia or Ukraine, overall financial intermediation
levels continue to remain at fairly elevated levels. Hence, there seems to be less
upside in terms of headline banking sector growth. Overall loan/asset growth
may come in below GDP growth rates. This holds especially true in case of an increasing economic momentum and once again increasing inflation rates in CE/
SEE markets. On markets characterized by already elevated financial intermediation levels any growth has to be very selective, but business strategies based on
large volume growth seem to be no viable option.
CEE: RoE vs. gov. bond yields (%)*
20
15
10
5
0
-5
-10
05 06 07 08 09 10 11 12 13 14
CE
SEE
EE
RU: Market footprint RBI, UniC, SocG
1,000
80
800
60
600
40
400
Given the massive increase in lending and financial intermediation in recent
years, Russia can no longer be considered as a high-growth market. Although financial intermediation levels have not overshot levels that could yet be deemed
as sustainable, more cautious business strategies are likely to prevail here (not
taking into account other factors like low capitalization levels, increasing refinancing pressure or lack of investor and consumer confidence). The closer a
country inches towards a sustainable level of financial intermediation, the more
cautious overall business strategies should evolve in light of increasing risks of
accumulating inferior asset quality. Moreover, we expect the recovery in the Russian economy and banking sector to be weaker than following the strong hit seen
in 2008/09 (when it was mostly related to global factors and not per se country
specific issues). The short- and medium-term outlook for much lower banking sector dynamics in Russia as well as the increased operational and legal risks resulting from having a larger local presence are likely to result in further strategic repositioning of the largest Western European banks operating there. Although the
leading Western CEE banks continue to remain niche players in Russia (in terms
of overall market shares) their business strategies changed dramatically over the
past five to seven years (as indicated by massive increases in balance sheets and
branch networks, partially based on M&A activity). Instead of offering exclusive
“boutique-banking” they were following more ambitious business models in order to catch the mass market. However, the big retail lending boom seems to be
over, while the corporate lending segment remains highly competitive (at least for
better credit risks). Moreover, some Western players may also consider a re-scaling on the Russian market, as some of their customers (e.g. larger Western European corporates) are also taking a more conservative stance on Russia due to
the tense EU-Russia relations and the outlook that Western-Russian economic relations are likely to have peaked.
EA
* Long-term LCY-yields if available for CEE countries,
otherwise yields on long-term FCY instruments, for EA
German Bund yields
20
200
0
0
2004
2013
2014
RU: Number of branches
RU: Total assets (EUR bn, r.h.s.)
Source: company data, RBI/Raiffeisen RESEARCH
RU: Importance for RBI, UniC, SocG
24%
15%
20%
16%
10%
12%
8%
5%
4%
0%
0%
2004
2013
2014
RU: Total assets (% of total)
RU: Number of branches (% of total, r.h.s.)
* Compared to the whole CEE business at RBI, UniCredit
and SocGen
Source: company data, RBI/Raiffeisen RESEARCH
21
Poland
Lending upswing, profitability may come under pressure
 Solid lending growth in 2014 with a clear upturn in the corporate segment
 Sufficient domestic resources to fund growth at present; L/D ratio at lowest level for years
 Solution for CHF-loans may add to profitability pressure on highly competitive market
Total loans vs. GDP per capita
Total loans (% of GDP)
100%
80%
60%
40%
20%
5,000
15,000
25,000
GDP per capita (EUR at PPP)
Data for 2014, red triangle shows Poland vs. all other
CEE markets
Source: NBP, national sources, RBI/Raiffeisen RESEARCH
Lending growth*
25
20
15
10
5
0
-5
-10
Jan-10 Mar-11 May-12
Jul-13
Sep-14
Household loans (% yoy)
Corporate loans (% yoy)
Mortgage loans (% yoy)
* in LCY-terms
Source: NBP, RBI/Raiffeisen RESEARCH
The Polish banking sector continued to profit from a solid macroeconomic development and GDP growth of 3.3% in 2014. Moreover, the zero-inflation in 2014
with its positive impact on nominal wage growth supported the increasing demand in household lending. In this loan segment, both nominal and real growth
remained decent. Corporate lending showed a clear uptrend as well, following
an underperformance in the past years. The return of corporate lending growth is
definitely positive, considering that large Polish corporates can currently also finance themselves at very favorable conditions on the local bond market or internationally. Therefore, the Polish banking sector saw a modest financial deepening in 2014, in line with the performance in other solid CE markets not characterized by fundamental deleveraging needs. Solid growth in new lending as well
as fairly solid asset quality trends supported another modest drop of the NPL ratio to 8.1% in 2014. In terms of refinancing, the trend of deposits growing faster
than loans – a development that has been characterizing the Polish banking
sector since 2012 – continued in 2014. The average L/D ratio reached about
105% – the lowest reading since 2007/08. Hence, there are sufficient domestic resources to finance the current decent loan growth and economic expansion.
The banking sector’s FCY exposure remains significant with some 30% of total
loans. Consequently, the “CHF shock” in early 2015 had a significant negative
impact. Ironically, the previous warnings of NBP governor Marek Belka that the
FCY exposures were a “ticking time bomb”, in fact partially materialized due to
the surprising move of the Swiss National Bank. However, the FX effects on the
Polish market are somewhat eased by declining benchmark CHF/LIBOR rates.
Currently, discussions are still ongoing on how to tackle the CHF exposure, although the overall exposures are less of a systemic threat than in Hungary. At
this point, it seems likely that the domestic banks will have to contribute to a final
solution/conversion, as there are explicit claims by Polish officials on the table
in that respect. Depending on the details of such a solution, the CHF exposure’s
profitability of the Polish banking sector (and especially of individual banks with
high CHF exposures) is likely to remain under pressure in 2015. This will add to
already increasing overall profitability and margin pressure.
Key economic figures and forecasts
Poland
2010
2011
2012
2013
2014
2015f
359.8
377.0
386.1
396.0
412.2
426.5
457.3
Nominal GDP per capita (EUR)
9,463
9,905
10,144
10,403
10,842
11,218
11,920
Real GDP (% yoy)
3.7
4.8
1.8
1.7
3.3
3.5
3.4
Consumer prices (avg, % yoy)
2.6
4.3
3.7
0.9
0.0
-0.4
1.3
12.1
12.4
12.8
13.5
12.3
10.7
9.7
Unemployment rate (avg, %)
General budget balance (% of GDP)
Public debt (% of GDP)
Current account balance (% of GDP)
-7.6
-4.9
-3.7
-4.0
-3.6
-2.7
-2.0
53.6
54.8
54.4
55.7
49.2
50.4
50.3
-5.0
-4.8
-3.7
-1.3
-1.3
-1.5
-2.0
Gross foreign debt (% of GDP)
66.3
66.4
72.0
70.1
71.1
70.3
69.1
EUR/LCY (avg)
3.99
4.12
4.18
4.20
4.19
4.14
4.08
Source: national sources, wiiw, RBI/Raiffeisen RESEARCH
22
2016f
Nominal GDP (EUR bn)
Poland
Market shares (2014, eop)
Profitability indicators were already
a tad weaker in 2014 compared to
2013. It has to be stressed that, from
PKO BP, 15,9%
a long-term perspective, overall profOthers, 34,9%
Bank Pekao
itability remains at fairly decent lev(UniCredit), 10,9%
els compared to the pressure recorded
in other CEE markets. This holds especially true for the RoA as an indicator
mBank (Commerzbank), 7,7%
for core banking profitability.
BOS, 1,3%
The increasing pressure on profitabilING Bank, 6,5%
Alior, 2,0%
ity is adding to a consolidation moBZ WBK (Santander
Bank BPH, 2,1%
+ Kredyt Bank),
mentum on the highly competitive and
7,9%
Bank Handlowy
still fairly fragmented Polish market.
Raiffeisen Polbank,
(Citibank), 3,3%
3,5%
As large international banks, like SanBank Millennium (BC
Portugues), 4,0%
tander or BNP, are only present in Po% of total assets
land and no other CE/SEE markets,
further M&A activity seems likely in
2015 and beyond.
Unlike some regional peers, Poland seems to have no intention to join the European SSM on a voluntary basis, and we see
that the national regulator (KNF) is quite satisfied with its role as an independent and powerful authority.
Financial analysts: Text: Gunter Deuber, RBI Vienna; Data: Dorota Strauch, Raiffeisen Polbank, Warsaw
Key banking sector indicators
Balance sheet data
Total assets (EUR mn)
growth in % yoy
in % of GDP
Total loans (EUR mn)
2010
2011
2012
2013
2014
292,755
293,100
330,267
338,950
359,502
6.9
0.1
12.7
2.6
6.1
81.8
85.0
84.6
86.1
88.8
210,017
176,384
181,285
198,230
202,242
growth in % yoy
13.0
2.8
9.3
2.0
3.8
in % of GDP
49.3
52.6
50.8
51.4
51.9
55,472
59,888
66,593
67,024
70,614
2.6
8.0
11.2
0.6
5.4
15.5
17.4
17.1
17.0
17.5
138,079
Loans to private enterprises (EUR mn)
growth in % yoy
in % of GDP
Loans to households (EUR mn)
120,048
120,447
130,436
133,947
growth in % yoy
18.4
0.3
8.3
2.7
3.1
in % of GDP
33.6
34.9
33.4
34.0
34.1
83,468
Mortgage loans (EUR mn)
67,547
72,223
78,706
81,083
growth in % yoy
27.4
6.9
9.0
3.0
2.9
in % of GDP
18.9
20.9
20.2
20.6
20.6
65,341
Loans in foreign currency (EUR mn)
60,406
64,789
62,465
60,567
growth in % yoy
15.1
7.3
(3.6)
(3.0)
7.9
in % of GDP
16.9
18.8
16.0
15.4
16.1
Loans in foreign currency (% of total loans)
Total deposits (EUR mn)
34
36
32
30
31
156,647
158,168
177,097
186,970
200,387
growth in % yoy
13.5
1.0
12.0
5.6
7.2
in % of GDP
43.8
45.9
45.4
47.5
49.5
142,271
Deposits from households (EUR mn)
106,648
108,078
126,211
132,181
growth in % yoy
13.0
1.3
16.8
4.7
7.6
in % of GDP
29.8
31.3
32.3
33.6
35.2
113
115
112
108
105
Number of banks
70
66
69
69
64
Market share of state-owned banks (% of total assets)
22
22
21
20
18
Market share of foreign-owned banks (% of total assets)
66
66
63
62
60
Total loans (% of total deposits)
Structural information
Profitability and efficiency
Return on Assets (RoA)
0.9
1.2
1.2
1.1
1.1
Return on Equity (RoE)
13.7
14.6
14.3
12.5
12.0
Capital adequacy (% of risk weighted assets)
13.7
13.1
14.7
15.5
15.0
7.8
7.5
8.8
8.6
8.1
Non-performing loans (% of total loans)
23
Hungary
Reconciliation between government and banks continues
 Government to cut banking tax and refrain from harmful measures
 Household FX-mortgage loans converted to HUF
 National Bank’s funding scheme extended
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2014, red triangle shows Hungary vs. all other
CEE markets
Source: MNB, national central banks, RBI/Raiffeisen
RESEARCH
Lending growth*
15
10
5
0
-5
-10
-15
-20
Jul-13
Sep-14
* in LCY-terms
Source: MNB, RBI/Raiffeisen RESEARCH
The Hungarian economy left behind its long-lasting misery and a GDP growth of
3.6% surprised on the upside in 2014. This growth was driven by strong exports,
public sector investment activity, slowly recuperating household consumption demand, and the National Bank’s Funding for Growth Scheme (FGS).
After a long period of deleveraging (2009 to 2013), the first bright spots appeared in the Hungarian banking sector in the course of 2014. Total banking
sector assets increased by 3% yoy (HUF-terms). However, total assets declined
in EUR-terms (due to the HUF weakening by 6%) as well as in relation to GDP
(due to the nominal GDP growth of almost 7%). Looking at the details, the picture
is fairly mixed: corporate loans increased, while household net lending was still
negative. Corporate lending is supported by the FGS (targeting cheap HUF-loans
for the SME sector). The program started in mid-2013, and by the end of 2014,
a total of HUF 1,300 bn was disbursed through commercial banks. Households
were still in the process of paying back FX-loans, but net household lending in local currency turned positive in 2014. Deposits increased by 1.7% due to corporate deposits, while household deposit depletion slowed compared to the massive outflow registered in 2013 (-10% vs. -1%).
After peaking at 14.0% in 2013, NPLs started to inch down to 13.3% in 2014.
The improvement was due to the stabilization of the financial situation of private
households as well as re-emerging economic growth. Nevertheless, the National
Bank targets a more sizeable NPL-reduction. To that end, it has set up an asset
management company (MARK), a “bad bank” that will buy failed commercial
real estate projects at market prices starting in the second half of 2015. Due to
the Settlement Act and the hefty banking levy, banking sector profitability turned
negative in 2014 (RoA: -1.3% and RoA: -13.2%), while the CAR stayed at an elevated level. For more details on regulatory measures affecting the Hungarian
banking sector in recent years see pages 26 - 29.
In 2014, the government purchased MKB from Bayerische Landesbank and announced its plan to purchase Budapest Bank form GE Finance in 2015. It seems
likely that these banks will be merged to become the country’s second largest commercial bank. In early 2015, the government, together with the EBRD, announced
the plan that they would each acquire a 15% stake in Erste Bank Hungary. At
the same time, a Memorandum of Understanding (MoU) was signed between
Hungary
2010
2011
2012
2013
2014
2015f
100.3
98.7
100.5
103.3
109.3
112.3
9,771
10,048
9,938
10,147
10,459
11,085
11,418
Real GDP (% yoy)
0.8
1.8
-1.5
1.5
3.6
3.0
2.5
4.9
3.9
5.7
1.7
-0.2
0.1
2.7
11.2
11.1
11.0
10.1
7.7
7.1
6.6
EUR/LCY (avg)
-4.3
4.2
-2.1
-2.3
-2.6
-2.8
-2.8
81.4
80.6
78.8
77.2
76.9
75.0
73.8
1.1
0.8
1.9
4.1
3.9
3.8
3.7
143.7
134.9
128.9
118.5
108.6
92.3
84.7
275.38
279.40
289.23
296.84
308.71
309.73
320.00
Source: national sources, wiiw, RBI/Raiffeisen RESEARCH
24
2016f
97.8
Hungary
the government and the EBRD, agreeing on a gradual cut of the banking
OTP, 22.2%
tax starting in 2016, to refrain from
Others, 31.3%
implementing any measures that could
potentially damage the banking sector’s profitability as well as on the privatization of recently acquired stateowned banks within the next three
K&H (KBC), 7.6%
years. We consider this agreement a
real shift in the previously rather hostile
BB (GE Money)*, 3.1%
stance of the government towards its
UniCredit, 7.0%
banking sector. Nevertheless, consolMFB*, 4.6%
idation and profitability pressure are
Raiffeisen Bank, 6.7%
CIB (Intesa), 5.5%
likely to remain due to the strict reguErste, 5.9%
lation of retail lending fees as well as
MKB*, 6.1%
% of total assets; * MFB and MKB state-owned, state ownership planned for BB
the possible pressure on margins from
the growing market presence of stateowned or state-near banks. Moreover, the government’s plan to make the financial sector to pay for losses of clients at failed
brokerage companies, disregarding earlier set guidelines, clearly violates the MoU signed with the EBRD.
Financial analyst: Zoltán Török (+36 1 484 4843), Raiffeisen Bank Zrt., Budapest
Balance sheet data
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
2010
2011
2012
2013
2014
121,268
111,934
107,899
104,589
101,652
(2.9)
(7.7)
(3.6)
(3.1)
(2.8)
124.9
124.2
110.1
104.1
100.4
59,964
53,678
50,003
46,149
42,935
3.2
(10.5)
(6.8)
(7.7)
(7.0)
61.8
59.5
51.0
46.0
42.4
21,486
27,369
24,842
23,757
22,496
growth in % yoy
(2.4)
(9.2)
(4.4)
(5.3)
(4.5)
in % of GDP
28.2
27.6
24.2
22.4
21.2
30,919
27,351
24,832
23,019
21,366
7.7
(11.5)
(9.2)
(7.3)
(7.2)
31.8
30.3
25.3
22.9
21.1
17,286
growth in % yoy
in % of GDP
24,699
22,159
20,055
18,488
growth in % yoy
11.1
(10.3)
(9.5)
(7.8)
(6.5)
in % of GDP
25.4
24.6
20.5
18.4
17.1
36,962
32,854
27,401
23,731
21,774
3.7
(11.1)
(16.6)
(13.4)
(8.2)
38.1
36.4
28.0
23.6
21.5
growth in % yoy
in % of GDP
62
61
55
51
51
42,742
40,449
42,856
41,830
40,141
growth in % yoy
(2.0)
(5.4)
6.0
(2.4)
(4.0)
in % of GDP
44.0
44.9
43.7
41.7
39.6
21,897
26,580
25,057
26,426
23,373
growth in % yoy
(4.3)
(5.7)
5.5
(11.6)
(6.3)
in % of GDP
27.4
27.8
27.0
23.3
21.6
140
133
117
110
107
Number of banks
35
35
35
35
39
4.6
5.3
5.1
5.8
12.6
90
89
89
88
83
Market share of foreign-owned banks (ex. OTP, % of total assets)
69
70
68
67
59
0.2
(0.2)
(0.4)
0.5
(1.3)
2.3
(1.7)
(3.8)
4.5
(13.2)
13.3
13.5
15.7
17.4
17.0
7.8
11.5
13.7
14.0
13.3
25
Hungary
Focus: A big-picture view on Hungarian banking
 Sturdy leveraging and high (short-term) lucrativeness pre-crisis caused large-scale rebalancing
 Turnaround following very harmful policy against (foreign-owned) banks in 2014, excessive bank tax to be cut
 Growth focus of government requests healthy banks, some implementation risks in more bank-friendly policy agenda
Return on Equity (%)
Pre-crisis boom and deleveraging phase
30
25
From 2000 to 2008, the Hungarian banking market was a highly attractive and
profitable place for (foreign-owned) banks. With an average RoE of 20% (also
reflecting attractive margins), the country’s banking sector was among the most
profitable ones in CEE. Growth was spectacular, which finally resulted in a certain overshooting (e.g. in terms of loan-to-GDP or L/D ratios). This holds especially true as lending growth was still strong in times of subdued economic expansion, and finally banking growth surpassed levels that could be re-financed
domestically and on a sound basis (as indicated by a high L/D ratio). Moreover,
growth in FCY lending was fairly aggressive, which resulted in additional downsides and overleverage problems in times of HUF depreciation. In this context,
and in comparison to regional peers, it has to be stressed that there was never
any sufficient regulatory action to slow down the strong lending, especially in
FCY, during those years.
20
15
10
5
0
-5
-10
-15
00
02
04
06
08
10
Hungary
12
14
CE-3*
* CE-3: PL, SK, CZ
Given too strong and externally financed growth as well as an increasingly challenging legal and operational environment, it comes as no surprise that Hungary’s banking market finally came to see a protracted deleveraging (from 2009 to
2014). Western European banks slashed their exposure to Hungary to the same
extent as in the so-called euro area “periphery”. High pre-crisis profits as well
as a sustained deleveraging, aiming at a reduction of both cross-border and incountry risk positions, definitely added to a negative sentiment towards banks
and foreign-owned lenders in particular. This in turn ultimately led to a vicious cycle of growing legal and operational risks and additional rounds of deleveraging on behalf of (foreign-owned) banks.
Return on Assets (%)
3
2
1
0
-1
-2
00
02
04
06
08
10
Hungary
12
14
CE-3
GDP and total loans (LCY)
GDP and total loans (EUR)
35,000
18,000
30,000
15,000
25,000
12,000
20,000
9,000
15,000
10,000
5,000
98
00
02
04
Boom-Phase
Nominal GDP (HUF bn)
06
08
10
35
70
50
Total loans (HUF bn, r.h.s.)
45
80
3,000
14
55
90
60
DeleveragingPhase
26
12
65
100
6,000
0
0
110
25
15
40
5
30
98
00
02
04
06
08
Boom-Phase
10
12
14
Deleveraging-Phase
Total loans (EUR bn, r.h.s.)
Hungary
Measures negatively influencing the Hungarian banking sector
Banking sector levy: 0.53% based on total assets as at year-end 2009, unchanged in
the period from 2010 to 2015, one of the highest bank levies in Europe, totalling over
EUR 2.5 bn.
Eviction moratorium on non-performing household mortgages: Initially, there was a full
moratorium, which was eased gradually in a regulated manner.
Early FX mortgage repayment scheme: Approximately 25% of total outstanding FXmortgage loans were repaid at the preferential exchange rate of CHF/HUF 180 (at a
market rate of 220 to 230). The difference resulted in a loss of almost EUR 1 bn for the
NPLs (% of total loans)
15
13
10
8
5
3
0
04
banking sector.
Financial transactions levy: All financial transactions are taxed at 0.2%. This tax can be
transferred to customers for the largest part, but has to be paid by the service provider.
06
08
10
12
Hungary
14
CE-3
ATM cash withdrawals are free of charge up to HUF 150,000 per account/month.
Settlement Act: The Hungarian Supreme Court ruled that previous practices of banks to
unilaterally change the contract terms (i.e. interest rates) and FX margins utilized were
unconstitutional. Fees and charges generated via such practices had to be repaid, causing a one-off loss of EUR 3 bn for the sector.
Fair Banking Act: The National Bank of Hungary strictly regulates the terms and conditions of new household loans from 2015 onwards.
Market share foreign-owned banks*
95
80
A very harmful policy turn for banks
In light of the sketched up-and-down dynamics, the regulatory action seen in recent years was clearly aimed at “punishing” past behavior and “reclaiming”
parts of earlier profits. Some measures were designed to hit banks that grew aggressively during the years of strong expansion (mostly foreign-owned lenders).
Given a lot of one-off loss items, the Hungarian banking sector was finally among
the worst performing in CE/SEE in terms of profitability. Moreover, the dominant
political agenda since 2010, namely to deliver an overhaul of the banking structures, finally resulted in a substantial drop of the foreign-ownership ratio (now in
a range of 50% to 60% of total assets depending on the way of measurement).
Or in other words: local and state ownership increased substantially within a
short period of time.
65
50
08
09
10
11
12
13
14
Hungary (excl. OTP, % of total assets)
CE-3
Romania
* % of total assets
Basically, the current Fidesz/Orbán government, which has been in power since
2010, has always had an explicitly negative attitude towards the banking sector. This stance was based on the generally quite negative feelings of the Hungarian public against banks, as well as on the attempts of the current government to
differentiate itself from the previous (Socialist) administration labelled as a “bankers’ government”(partly because of the business background of several cabinet
members and the IMF program that started in 2008). As there was no room to increase budget deficits after the 2010 elections (with the country being under the
EU’s Excessive Deficit Procedure for many years), the Fidesz/Orbán government
was looking for measures to generate extra revenues as an alternative to the previous austerity stance burdening mostly households. Therefore, putting an extra
tax burden on the banking sector seemed to be a “natural” choice (later to be followed for several other sectors). The policy was in general also not completely
different from what was implemented in other countries. However, the situation in
Hungary was aggravated due to the massive FX lending boom (typically in CHF
in case of households) and the massive CHF appreciation (or HUF depreciation).
As over one million Hungarian households (practically one out of three) were indebted in FX, the jump in monthly instalments (doubling in certain cases) became
a major social, political and macroeconomic issue – for which the government
promised to present a “solution”, which was then delivered in several stages.
27
Hungary
Loan-to-GDP ratio (%)
Hungarian banking sector: Under reconstruction
75%
60%
45%
30%
15%
0%
99 01 03 05 07 09 11 13
Hungary
CE-3*
Romania
* CE-3: PL, SK, CZ
In February 2015, the government and the EBRD announced the purchase of
15% stakes each in Erste Bank Hungary. At the same accord, a MoU between
the government and the EBRD was signed. In this document, the government
promises to reduce the bank levy (from 0.53% to 0.31% in 2016 and further
down later on, aligning it with general EU norms by 2019), while the tax base
is changed from total assets as at year-end 2009 to year-end 2014 (which is
a more proper measurement given market shifts and deleveraging seen in recent years). The government also pledges not to purchase further stakes in systemically important banks and promises to privatize its recently acquired stakes
within three years, i.e. before the next elections. Additionally, it assures to refrain
from any further measures with potentially negative impact on overall banking
sector profitability.
Change loan-to-GDP ratio (pp)
40
30
20
10
0
-10
-20
-30
Hungary
CE-3
2000-2008
The Fidesz/Orbán government aimed to reduce the (high) foreign ownership
in the banking sector. A target was set to raise Hungarian ownership to above
50%. As a starter, the government purchased DZ Bank’s stake in Takarékbank
– the central bank of saving cooperatives – in 2013 (the public stake was later
sold to selected private participants of the saving cooperation system). The government also raised capital in small privately owned local lenders (Gránit Bank,
Széchenyi Bank). In 2014, it purchased MKB from Bayerische Landesbank and
in 2015, Budapest Bank (BB) from GE Finance. These two banks are likely to be
merged later on to become a prominent player with a market share of around
10%.
Romania
2010-2014
In our view, this marks a major change of the government policy towards banks.
Moreover, the overall setting of the MoU (i.e. to include EBRD) serves the purpose
to restore international trust in the Hungarian banking sector and economic policymaking (a factor that was also a constraint to the sovereign rating in the past).
What purposes did banking sector-hostile policies serve
and why do we see a turnaround in 2015?
The negative measures served numerous purposes: (1) fiscal purpose; (2) social
purpose, i.e. to soften the consequences of the FX-debt trap; (3) consumer protection purpose, i.e. to correct previous “unfair” practices; (4) political purpose,
namely to stop potential new radical political movements benefitting from the
question of high indebtedness in FCY; and (5) strategic policy purpose, namely to
decrease the dependence of foreign-owned lenders by increasing domestic ownership and showing a paradigm shift towards banks.
FCY loans (% of total loans)*
65
55
45
So, what is the explanation for the policy shift towards banks in 2015? (1) The
government achieved the above targets; (2) economic policy is shifting its emphasis on growth, for which it needs a supportive banking sector; and (3) the negative measures hurt the state-owned banks as well.
35
25
15
00
02
04
Hungary
06
08
CE-3*
10
12
14
Romania
* SK included until 2009, afterwards average of PL and
CZ
28
While the MoU is very positive and signals reconciliation in government-banking
sector relationships, there still remain some concerns. The most notable one is related to the series of brokerage scandals erupting in early 2015 with considerable losses (amounting to EUR 1 bn) and the government’s attempt to make the financial sector pay the bill, disregarding the rules of the games set earlier. This is
a continuation of the political routine witnessed between 2010 and 2014, and
risks the violation of the MoU as well as halves the positive financial impact of
the banking tax cut (for banks).
Hungary
Hungarian market outlook in the CEE context
Loan-to-deposit ratio
The market structure shifts seen recently and possibly also to happen in the near
future are definitely differentiating the Hungarian banking sector from its regional
peers characterized by more stability in terms of markets shares (especially at
the top-end of the market). While previously, market structures in Hungary were
practically frozen (seven large universal banks with stable market shares), we
have been witnessing major structural changes in 2014 and 2015. Several foreign players are exiting fully or partially. Moreover, the MKB-BB merger is seen to
take place with an eventual privatization in 2017 or 2018. We see a fair chance
that the government will try to push for an IPO of the merged MKB-BB entity, as
this may also create a lot of business opportunities for domestic elites. Given the
ongoing market consolidation (increasing concentration, strong competition and
margin pressure) we expect three to five large universal banks to remain on the
market in the medium-term, while other banks may have to follow a more selective approach.
135%
Margin and profitability pressure is likely to stay high due to several regulatory
and structural issues. Moreover, it remains to be seen to what extent there will be
a fair market pricing in the years ahead, given the increasing government influence on some larger market players. This holds especially in corporate lending,
while retail lending is expected to suffer from margin pressure resulting from increasing (fee) regulation. As things stand, it will be difficult to achieve doubledigit RoE numbers on the Hungarian market within the next three years. The outlook of strong competitive pressure in combination with the increasingly positive
market perspective (that may result in improving valuations for Hungarian banks)
may ultimately add to M&A-activity and market consolidation.
Nevertheless, due to the most recent indications of a turnaround in the banking
sector – following the one of the real economy that started in 2013/14 – as well
as a more supportive government stance towards banks, the relative attractiveness of the Hungarian banking market increases once again. The deleveraging
seen in recent years in terms of overall banking sector size and FX-exposures was
among the strongest ones in the whole CE/SEE region, which implies that not all
other regional banking sectors have adjusted up to now. Coupled with the ultralow domestic interest rates environment and improving economic prospects, this
now adds to upside potential in terms of loan demand. In light of the currently
modest penetration ratios (i.e. loan-to-GDP ratio) in the corporate and retail segments there seems to be room for growth in both segments at or even slightly
above nominal GDP-growth.
150%
120%
105%
90%
75%
60%
45%
00
02
04
06
08
Boom-Phase
Hungary
10
12
14
DeleveragingPhase
CE-3
Romania
145
120
95
70
45
20
Dec 07
Mar 10
Jun 12
Sep 14
Hungary
CE-3
Euro area
Romania
400
350
300
250
All in all, we see a fair chance that loan demand will finally be met by supply given the improving legal and operational environment. Moreover, a lot of
leading regional CEE banks still consider Hungary a core market, a view that is
largely backed by the deep economic integration of the country’s economy and
its corporate sector in the common European market.
200
150
100
50
Dec 99
Dec 04
Dec 09
Hungary
Financial analysts: Gunter Deuber, RBI Vienna,
Zoltán Török (+36 1 484 4843), Raiffeisen Bank Zrt., Budapest
Dec 14
CE-3
(Dec 2000 = 100)
29
Czech Republic
Slowly moving towards clear waters
 Economy expected to accelerate due to competitive FX rate, expansive fiscal policy and low oil price
 Meager lending recovery driven by household loans and mortgages
 Low level of interest rates promotes alternative investment decisions
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2014, red triangle shows the Czech Republic vs.
all other CEE markets
Source: CNB, national sources, RBI/Raiffeisen
RESEARCH
Lending growth*
15
10
5
0
-5
-10
Jan-10
Mar-11 May-12 Jul-13 Sep-14
* in LCY-terms
Source: CNB, RBI/Raiffeisen RESEARCH
In 2014, the Czech GDP posted a 2.0% growth, following a decline of 0.7% in
the year before. For 2015, we forecast economic growth to accelerate to 2.4%.
Despite the economic recovery and the labor market improvement, we expect inflation in 2015 to remain low at 0.2%. After an excessive asset growth of 8.8%
in 2013, backed by the CNB FX interventions, the Czech banking sector’s assets returned to a more conventional growth rate of 3.7% in 2014. In 2014, the
growth rate of total loans followed the pattern and decelerated slightly to 4.8%
from 6.5% in 2013. Household loans remained the major growth driver, keeping growth rate at 4.5%. In particular, mortgage loans continued to provide the
strongest increase with a stable growth rate of 6.7%. On the other hand, consumer credits decreased again, namely by 0.4% in 2014. The development of
corporate loans was below expectations with an increase of only 0.9% in 2014.
In line with our expectations, the deposit growth rate was decreasing to 2.9% in
2014. This, however, was not a result of any significant withdrawals by households or corporations, which posted a healthy growth of 5.7% and 8.0%, respectively. The decline came on the back of decreases in deposits from financial institutions (down 11% yoy) and the government (down 18% yoy). The L/D ratio thus
rose slightly to 76.7%.
In 2014, the net profit of the Czech banking sector increased by 3.9% to CZK
63.5 bn. This growth was backed by a slight increase of the banks’ core income
(4.7%), and a simultaneous reduction of risk costs by 35.9%, which could be
seen as a correction to somewhat excessive provisioning in 2013. Therefore,
the profitability of the banking sector remained stable in 2014 with an RoA of
1.2% and an RoE of 16.9%. Prudent retained earnings, in turn, supported the
banks’ capitalization, making Czech banks able to overshoot the regulatory capital requirements. The total CAR increased to 17.7% in 2014, and the CAR Tier1
reached 17.3%.
The quality of loan portfolio did not change significantly in 2014. Although a
considerable write-off of receivables by the Czech export bank caused a surge
of NPLs to 6.5% in March, the final share of NPLs in total loans decreased to
6.04% as at year-end 2014, mostly due to the base effect, i.e. resulting from the
growing loan stock.
Czech Republic
2010
2011
2012
2013
2014
2015f
163.7
161.2
157.5
155.1
159.8
169.2
14,949
15,610
15,348
14,976
14,750
15,179
16,067
Real GDP (% yoy)
2.1
2.0
-0.7
-0.7
2.0
2.4
3.0
1.5
1.9
3.3
1.4
0.4
0.2
1.7
7.0
6.7
6.8
7.7
7.7
7.0
6.8
-4.4
-2.9
-4.0
-1.3
-1.5
-2.5
-1.8
38.2
41.0
45.5
45.7
43.8
43.2
43.1
-3.6
-2.1
-1.6
-0.5
0.6
0.6
0.6
55.2
54.8
60.1
63.3
66.5
65.9
65.0
25.28
24.59
25.14
25.98
27.54
27.63
27.28
EUR/LCY (avg)
Source: national sources, wiiw, Raiffeisen RESEARCH
30
2016f
156.4
Czech Republic
Market shares (Q3 2014, eop)
The Czech banking sector operates
in an extremely low interest rates enOthers, 27.5%
CSOB (KBC), 18.4%
vironment. Although not dramatically,
the impact still started to be reflected
in the banks’ deposit structures. The total amount of term deposits declined
by 13% in 2014, as customers rather
Air Bank, 1.1%
favored immediately callable demand
CS (Erste), 15.9%
Sberbank, 1.3%
deposits (which were up by 39%). A
very small difference in interest rates
PPF banka, 2.2%
creates insufficient benefit to outweigh
J&T Banka, 2.3%
the lack of prompt access to cash
GE Money, 2.6%
saved on term deposits. Alternative
KB (SocGen), 15.7%
investment options have gained from
UniCredit, 9.1%
this trend. Over the past three years,
% of total assets
both mutual and pension funds posted
growth of assets under management
by 46% and 37%, respectively. On the asset side, decreasing interest rates motivate households to take new mortgage loans
or to refinance existing ones. Over the past three years, newly granted mortgages grew on average by 17% yoy. The current interest rate trends have no effect on corporate loans so far, as corporations are cash sufficient and seem to postpone
larger investments in anticipation of a further inflation rate decline.
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
growth in % yoy
in % of GDP
2010
2011
2012
2013
2014
173,191
180,458
190,777
190,276
194,677
8.0
4.2
5.7
(0.3)
2.3
109.6
114.7
118.0
127.3
126.3
86,990
90,206
94,221
91,992
95,200
8.9
3.7
4.5
(2.4)
3.5
55.0
57.3
58.3
61.5
61.8
31,217
32,416
33,351
31,726
31,606
5.0
3.8
2.9
(4.9)
(0.4)
19.8
20.6
20.6
21.2
20.5
41,231
38,431
39,498
41,719
39,966
growth in % yoy
12.6
2.8
5.6
(4.2)
3.2
in % of GDP
24.3
25.1
25.8
26.7
26.7
28,789
24,187
25,798
27,966
27,316
growth in % yoy
14.8
6.7
8.4
(2.3)
5.4
in % of GDP
15.3
16.4
17.3
18.3
18.7
11,970
13,420
13,803
16,742
17,745
11.7
12.1
2.9
21.3
6.0
7.6
8.5
8.5
11.2
11.5
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
14
15
15
18
19
111,524
114,071
124,864
122,204
124,108
8.8
2.3
9.5
(2.1)
1.6
70.6
72.5
77.3
81.7
80.5
64,441
61,457
62,408
65,898
61,725
growth in % yoy
10.4
1.5
5.6
(6.3)
4.4
in % of GDP
38.9
39.7
40.8
41.3
41.8
78
79
75
75
77
Total deposits (% of total credits)
Number of banks
41
44
43
44
45
3.3
3.2
2.8
2.4
2.3
87
84
82
83
84
1.3
1.2
1.4
1.3
1.2
22.5
19.8
21.8
18.6
16.9
15.5
15.3
16.4
17.1
17.8
6.5
6.2
6.2
6.1
6.3
31
Slovakia
Sober performance backed by retail banking
 Increase of aggregate loan volume due to accelerating retail loans
 Slovak banks passed AQR and stress test, confirming buffers for further expansion
 Low-interest rate environment had a negative impact on margins and profitability
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2014, red triangle shows Slovakia vs. all other
CEE markets
Source: NBS, national sources, RBI/Raiffeisen RESEARCH
Lending growth*
20
15
10
5
0
-5
Jul-13
Sep-14
Source: ECB, RBI/Raiffeisen RESEARCH
The Slovak economy experienced a strengthening of GDP growth to 2.4% in
2014, coming from 1.4% in 2013. The main driving force was domestic demand, which was particularly reflected in retail lending trends. The steady growth
of loans to households accelerated to 12.1%, with mortgage loans accounting
the lion share, but also consumer lending saw a 20% upswing. Although the
growth rates are high, we do not see them – yet – as a matter of concern regarding too aggressive risk taking. The level of household indebtedness in Slovakia
is still somewhat below the average of its CE peers. That, and the steady positive economic performance over the past few years, explain the above average
growth of retail loans that was recorded in recent years.
In order to limit the risks of the accelerating retail lending growth, the National
Bank of Slovakia (NBS) issued a number of recommendations on tightening credit
standards for retail loans. These include, for example, stricter LTV ratios in mortgage loans, and more detailed checks regarding the borrower’s income sustainability and credibility. However, this new policy and its goal to limit retail lending is in some way counteracting the major ECB policy pattern with its historically
low interest rates as a stimulus for private consumption. Backed by the European
monetary trends, interest rates on new mortgage loans in Slovakia have now already reached the level of France or the Netherlands. This makes us hesitant to
expect that the growth of household loans would decrease in 2015, and if at all,
we expect the decrease to be only moderate.
In contrast, corporate loans stagnated in 2014. We do not take this as a sign of
the corporate sector’s lower loan demand, but rather interpret it as a switch to
cross-border financing on intra-group level, facilitated by Slovakia’s accession to
the euro area. The NPL ratio increased moderately to 5.4% in 2014 despite the
sustainable growth of the loan base. While in part possibly driven by accelerating consumer lending, the NPL ratio may also have been affected by a more conservative approach of the banks following the ECB’s AQR.
Deposit trends remained reasonable, with customer deposits posting a 4.1%
yoy increase, evenly split between households and companies. The L/D ratio increased to 91%, leaving substantial room for further loan growth in 2015.
The three biggest Slovak banks have successfully passed the AQR and stress
tests. The banking sector’s current Tier 1 CAR is around 16% and supported by
Key economic figures and forecasts*
2010
Slovakia
2011
2012
2013
2014
2015f
70.2
72.2
73.6
75.2
77.1
80.6
12,395
13,012
13,358
13,601
13,885
14,213
14,562
Real GDP (% yoy)
4.8
2.7
1.6
1.4
2.4
2.5
3.0
1.0
3.9
3.6
1.4
-0.1
0.0
1.5
14.4
13.4
13.9
14.2
13.2
12.5
11.9
-7.5
-4.1
-4.2
-2.6
-2.9
-2.5
-1.2
41.1
43.4
52.1
54.6
54.1
54.4
52.3
-3.6
-3.7
2.2
2.1
0.2
0.0
0.0
73.1
75.2
70.5
81.1
93.6
103.1
92.5
* Slovakia is a euro area member as of 1 January 2009
32
2016f
67.2
Slovakia
Market shares (2014, eop)*
good profitability (RoE close to 10% in
2014). We expect the sector’s finanSlovenska Sporitelna
Others, 23.0%
(Erste), 22.3%
cial result in 2015 to be further supported also from the legislative side.
The bank levy has halved since the
OTP Banka, 2.5%
beginning of 2015. Another supportive stance will be a lower contribution
to the deposit protection scheme startSberbank, 3.5%
ing from 2015 onwards. At the same
VUB Banka (Intesa),
time, we expect some negative presPrima Banka (Penta),
19.2%
3.3%
sure on the sector’s financial standing from shrinking interest margins, as
Postova banka, 7.2%
the Slovak banks cannot bring down
the level of deposit interest rates in acTatra Banka (Raiffeisen),
16.6%
CSOB (KBC), 10.3%
cordance with the decreased interest
% of total assets; * UniCredit not shown as operations in Slovakia are parts of Czech operations
rates on loans. Interest rates on term
Source: NBS, RBI/Raiffeisen RESEARCH
deposits are currently above EURIBOR
and can hardly be trimmed any more despite negative margins. As much as 45% of primary deposits are kept on current
accounts with basically zero interest, thus limiting the room for an additional decrease of the aggregate deposit interest
rate. Besides, strong competition on the refinancing market is further squeezing the banks’ margins and increases the negative effect on their gross income.
Financial analyst: Juraj Valachy (+421 2 5919 2033), Tatra banka, a.s., Bratislava
Balance sheet data
2010
2011
2012
2013
2014
54,695
55,775
58,086
59,554
62,742
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
3.1
2.0
4.1
2.5
5.4
81.4
79.5
80.5
80.9
83.4
33,452
36,624
37,870
39,909
42,534
4.9
9.5
3.4
5.4
6.6
49.8
52.2
52.5
54.2
56.6
15,688
16,677
16,277
16,317
16,203
0.4
6.3
(2.4)
0.2
(0.7)
23.3
23.8
22.5
22.2
21.5
14,773
16,362
17,940
19,733
22,125
growth in % yoy
12.3
10.8
9.6
10.0
12.1
in % of GDP
22.0
23.3
24.9
26.8
29.4
10,581
12,014
13,290
14,860
16,872
growth in % yoy
14.6
13.5
10.6
11.8
13.5
in % of GDP
15.7
17.1
18.4
20.2
22.4
340
330
520
409
400
(9.5)
(2.9)
57.7
(21.3)
(2.2)
0.5
0.5
0.7
0.6
0.5
1.0
0.9
1.4
1.0
0.9
39,642
40,426
42,980
44,823
46,668
5.6
2.0
6.3
4.3
4.1
59.0
57.6
59.5
60.9
62.0
22,248
23,869
25,312
25,990
27,041
5.5
7.3
6.0
2.7
4.0
33.1
34.0
35.1
35.3
36.0
84
91
88
89
91
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
Number of banks
29
31
28
28
28
0.9
0.9
0.8
0.8
0.8
99
99
99
99
98.5
0.9
1.2
0.8
0.9
0.9
12.3
14.2
9.1
10.9
10.3
12.7
13.4
16.0
17.2
17.4
6.1
5.7
5.31
5.20
5.4
33
Slovenia
Out of the negative territory, but restructuring needs remain
 Sector clean-up has helped to sort out NPL issues and created pre-conditions for new lending
 Funding structure has improved; moderate private deposit growth
 Aggregate returns broke even in 2014, but structural risks remain
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2014, red triangle shows Slovenia vs. all other
CEE markets
Source: BSI, national sources, RBI/Raiffeisen RESEARCH
Lending growth*
32
24
16
8
0
-8
-16
-24
-32
Jan-10 Mar-11 May-12 Jul-13
Sep-14
Source: ECB, RBI/Raiffeisen RESEARCH
After two years of decline in growth, the Slovenian economy grew again by
2.6% in 2014. Our positive outlook for 2015/16 is an indication that the recent reforms took effect. In addition, the regulator made a clear commitment to
improve the situation of the banking sector, which already started to show an improvement in the major performance parameters. The main push for this positive
development was the banking sector clean-up, which started in late 2013. The
major measures during this process included the EUR 3 bn recapitalization of
the largest state banks, the transfer of EUR 1.6 bn in impaired loans from Nova
Ljubljanska banka, Nova KBM and Abanka to the government-funded Bank Asset Management Company (BAMC) as well as the write-off of EUR 440 mn of
non-performing debt and the unwinding of Probanka and Factor Banka. Following these measures, the share of non-financial private sector NPLs came down to
16% in the third quarter of 2014 (as per an estimate of the European Commission). This can be seen as a notable stabilization sign of asset quality, albeit the
ongoing loan base contraction in Slovenia continues.
The stock of private sector loans kept contracting in 2014, due to low corporate
demand, continual high leverage of large corporations, and the ongoing restructuring of the banking sector’s funding structure. The latter was mostly related to
the gradual replacement of external funding by domestic deposits. According to
the National Bank of Slovenia (NBS), these replacements have exceeded EUR
11 bn since 2008, thereof EUR 2.8 bn in 2013 and about EUR 1 bn in 2014. Although this development was positive and necessary for the sustainability of the
sector’s funding, the replacement of external funding also had constrained new
loan issuances in 2014. External debt redemption demanded sizeable resources
that hence could not be used for domestic lending, and as a result, the non-financial private sector loan stock decreased by 12%. Corporate lending growth declined by 19%, whereas retail loans remained flat.
Government deposits are gradually losing their importance for the banking sector’s funding. There was very limited, if any, new placement by the government,
and “old” deposits were used for recapitalization needs. In total, state-related deposits contracted by EUR 0.7 bn in 2014.
The sector’s refinancing risk is gradually improving due to external debt redemption and moderate private deposits growth. As at year-end 2014, the share of
Key economic figures and forecasts*
Slovenia
2010
2011
2012
2013
2014
2015f
36.9
36.0
36.1
37.4
38.7
40.2
17,694
17,985
17,521
17,554
18,153
18,767
19,519
Real GDP (% yoy)
1.2
0.6
-2.6
-1.0
2.6
2.0
2.0
1.8
1.8
2.6
1.8
0.2
0.1
1.2
7.3
8.2
9.0
10.1
9.7
9.5
9.0
-5.9
-6.3
-3.8
-14.7
-5.0
-4.0
-3.0
38.6
46.9
54.0
73.0
80.0
82.0
81.0
-0.1
0.4
3.2
6.4
6.1
4.8
4.6
112.4
108.8
113.5
110.7
109.6
109.8
109.4
* Slovenia is an euro area member as of 1 January 2007
34
2016f
36.2
Slovenia
external debt has decreased to 16% of the banks’ total funding. The share of private deposits, on the other hand, grew by 4% and makes up for about two thirds
of total banking sector liabilities now. The share of retail deposits was 38% of total liabilities as at year-end 2014. These trends on the asset and liabilities sides
resulted in a decline of the L/D ratio to 105% in 2014 (excluding loans and deposits by MFIs). Compared to the L/D ratio of 150% back in 2011/12, this development should be a good starting point for upcoming loan issuances.
Backed by the sector clean-up and aggregate banking balance sheet fine-tuning,
the Slovenian banking sector’s profitability left negative territory for the first time
since 2010. In the third quarter of 2014, profitability (in terms of pre-tax profits) broke even and the sector’s RoE was again positive as well at 3.8%. Thus,
although with caution, one can state that the Slovenian banking sector has potential for an upside development in 2015 and beyond. However, on the fundamental risk side, banking performance can still be subject to a negative spill-over
from the economy’s structural weakness. This relates in particular to the still high
indebtedness of the corporate sector, a vast part of which remains under state
ownership or control (about one third of assets and over 40% of equity value of
non-financial companies). Also, it is possible that, with the re-start of a new corporate lending cycle, a new wave of inferior asset quality will again be accumulated by the large (state-controlled) banks.
Market share ranking as of 2014
1
Nova Ljubljanska banka (state-owned)
2
UniCredit Banka Slovenija d.d.
(UniCredit)
3
SKB Banka d.d. Ljubljana (Societe
Generale)
4
Nova Kreditna banka Maribor (stateowned)
5
Abanka Vipa (state-owned)
...
12
Raiffeisen Bank Slovenia (RBI)
Source: BSI, RBI/Raiffeisen RESEARCH
Balance sheet data
Total assets (EUR bn)*
2010
2011
2012
2013
2014
45.8
45.6
44.5
39.6
1.1
(0.4)
(2.4)
(11.0)
(5.6)
129.0
126.0
126.1
112.3
100.4
33.8
33.0
31.7
26.4
23.2
3.4
(2.4)
(3.9)
(16.7)
(12.1)
95.2
91.2
89.8
74.8
62.3
21.0
20.3
18.8
14.1
11.4
0.0
(3.3)
(7.4)
(25.0)
(19.1)
59.2
56.1
53.3
40.0
30.6
9.3
9.5
9.3
8.9
8.9
growth in % yoy
10.7
2.2
(2.1)
(4.3)
0.0
in % of GDP
26.2
26.2
26.3
25.2
23.9
growth in % yoy
in % of GDP
Total loans (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)
Mortgage loans (EUR bn)
37.4
4.8
5.2
5.3
5.3
5.5
growth in % yoy
23.1
8.3
1.9
0.0
3.8
in % of GDP
13.5
14.4
15.0
15.0
14.8
20.8
21.3
20.9
21.2
22.1
4.1
2.5
(2.0)
1.4
4.2
107.4
104.7
104.5
91.9
81.1
162
155
152
125
105
Number of banks
25
25
23
23
21
47
47
45
61
52.5
28
29
31
31
n.a.
Total deposits (EUR bn)*
growth in % yoy
in % of GDP
(0.2)
(1.1)
(1.6)
(2.6)
0.4
(2.4)
(11.7)
(19.0)
(31.6)
3.8
15.8
11.3
11.6
11.5
13.7
Tier-1 capital adequacy (%)
9.0
9.6
10.1
11.1
12.1
8.2
11.8
15.2
22.0
16.0
* excluding MFI business; Source: BSI, ECB, RBI/Raiffeisen RESEARCH
35
Croatia
Still waiting for the upturn
 Weak economic performance and overleverage kept banking activities subdued
 NPL ratio showed no improvement in 2014 – upside risks for 2015 due to concerns over CHF-denominated loans
 Banking system remains well-capitalized despite stagnating economy
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2014, red triangle shows Croatia vs. all other
CEE markets
Source: CNB, national sources, RBI/Raiffeisen
RESEARCH
Lending growth*
20
15
10
5
0
-5
-10
-15
-20
Jan-09 May-10 Sep-11 Jan-13 May-14
* in LCY-terms
The ongoing recession of the Croatian economy weighs on its banking sector. In
the past six years, the cumulative decline in real GDP exceeded 12%, resulting
in an accumulation of systemic risks for the banking sector: inferior lending environment, deteriorating asset quality, and shrinking cross-border funding possibilities, on the flows contraction by the large European financial groups active in
the market. The demand for loans remains on a downward trend, private sector
lending continued to shrink in 2014 due to the long-lasting deleveraging process
in the household sector and the continued decrease of business activity in the corporate sector. Nevertheless, the aggregate Croatian leverage remains high by
CEE standards. The volume of household loans is close to 40% of GDP, while the
overall corporate indebtedness exceeds 80% of GDP. Only about a third of the
latter, however, are domestically issued loans, while the majority is direct borrowing from abroad. NPLs have continued to rise also on the back of the loan base
contraction in 2014. At the end of the year, the share of NPLs in the total loan
portfolio reached 17.0%, with corporate NPLs exceeding 30%. In this segment,
construction and real estate companies are suffering the most due to declining demand and prices following the economic downturn.
Pressure on asset quality also comes from FCY-denominated lending to households, as CHF mortgage loans account for 36% of total mortgage loan volume.
In January 2015, following the CHF appreciation, the Croatian government has
intervened in CHF-denominated lending contracts. A special amendment to the
Consumers Loans Act fixed the CHF/HRK exchange rate at 6.39 for twelve instalments maturing in 2015. The financial burden of the resulting differences between the fixed and the market rates was placed on the banks. The consequences
of the measure will definitely have a negative impact on the sector’s 2015 financial results and may well lead to deterioration of its profitability indicators, which
posted an improvement in 2014 (RoE at 3.3%, RoA at 0.6%).
In 2014, the Asset Quality Review was conducted for Croatian banks in line with
the common European methodology. The results indicated that after asset reclassification, the sector-wide CAR of more than 21% was one of the highest capital-
2010
Croatia
2011
2012
2013
2014
2015f
44.7
44.0
43.6
43.1
42.9
43.8
10,479
10,427
10,282
10,225
10,148
10,149
10,380
Real GDP (% yoy)
-1.7
-0.3
-2.2
-0.9
-0.4
0.0
1.0
1.1
2.3
3.4
2.2
-0.2
0.2
1.4
11.6
13.7
15.9
17.3
17.3
17.0
16.9
-6.0
-7.5
-5.3
-5.4
-5.7
-5.4
-5.0
52.8
59.9
69.2
80.6
85.0
90.7
94.0
EUR/LCY (avg)
-1.1
-0.8
-0.1
0.8
0.7
0.4
0.7
104.2
103.7
103.0
105.5
108.4
109.7
108.3
7.29
7.43
7.52
7.58
7.63
7.66
7.69
36
2016f
45.0
Croatia
ization levels within the entire CEE region. The reason for this sound capitalization is the market domination of
Western European banking groups,
which can recapitalize their Croatian subsidiaries more easily than domestic players. Currently, about 90%
of the assets in the 28 banks operating in the highly competitive Croatian
banking sector are foreign-owned.
Given the ongoing weak economy,
the smaller banks in the market are
suffering difficulties, and both takeovers of smaller banks by larger players as well as bank closures can therefore not be excluded.
Others, 9.8%
Zagrebacka Banka
(UniCredit), 25.4%
Sberbank, 2.5%
OTP , 3.9%
HPB, 4.3%
Hypo Alpe Adria Bank,
7.0%
Splitska Banka (SocGen),
7.1%
Privredna Banka (Intesa),
17.1%
Raiffeisenbank, 7.8%
Erste, 14.9%
% of total assets
Financial analyst: Anton Starcevic (+385 1 6174-210), Raiffeisenbank Austria d.d., Zagreb
Balance sheet data
2010
2011
2012
2013
2014
53,958
55,137
54,032
53,116
52,688
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
4.2
2.2
(2.0)
(1.7)
(0.8)
121.5
124.8
123.4
122.9
122.7
37,459
38,930
38,018
37,901
36,984
6.8
3.9
(2.3)
(0.3)
(2.4)
84.3
88.1
86.8
87.7
86.1
10,997
11,948
12,664
11,474
11,094
growth in % yoy
(3.6)
6.0
(9.4)
(3.3)
(0.9)
in % of GDP
26.9
28.7
26.2
25.7
25.6
17,549
17,379
17,118
16,619
16,449
4.9
(1.0)
(1.5)
(2.9)
(1.0)
39.5
39.3
39.1
38.4
38.3
8,232
growth in % yoy
in % of GDP
8,731
8,803
8,713
8,440
growth in % yoy
13.8
0.8
(1.0)
(3.1)
(2.5)
in % of GDP
19.7
19.9
19.9
19.5
19.2
27,257
28,029
29,686
28,366
28,161
growth in % yoy
10.1
5.9
(4.4)
(0.7)
(3.2)
in % of GDP
63.1
67.2
64.8
65.1
63.5
growth in % yoy
in % of GDP
75
76
75
74
74
36,539
37,348
36,157
36,837
37,459
4.0
2.2
(3.2)
1.9
1.7
82.3
84.6
82.6
85.2
87.3
23,890
21,449
22,011
22,909
23,484
growth in % yoy
11.0
2.6
4.1
2.5
1.7
in % of GDP
48.3
49.8
52.3
54.3
55.6
103
104
105
103
99
Number of banks
33
32
31
30
28
4.3
4.5
4.8
5.3
5.1
90
91
90
90
88
1.1
1.2
0.8
0.2
0.6
6.5
6.9
4.8
0.8
3.3
18.8
19.6
20.9
21.0
21.4
11.2
14.4
13.9
15.7
17.0
37
Romania
Getting ready for a new lending cycle
 Lending activity showed signs of recovery with the new LCY-denominated loans taking off in 2014
 Sector-wide NPL ratio declined from ~22% to ~14% after clean-up of balance sheets
 Solvency and funding improved due to regulatory measures, although the sector’s aggregated loss was notable
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2014, red triangle shows Romania vs. all other
CEE markets
Source: NBR, national sources, RBI/Raiffeisen RESEARCH
Lending growth*
25
20
15
10
5
0
-5
-10
Jan-10
Mar-11 May-12
Jul-13
Sep-14
* in LCY-terms
Source: NBR, RBI/Raiffeisen RESEARCH
The GDP growth of 2.9% in 2014 was better than expected and mostly driven by
increasing private consumption. Household spending picked up due to improving labor market conditions, but demand for loans stayed suppressed nevertheless. Corporate sector demand for borrowed funds remained low as well, as companies were further cutting back their plans for investment projects. On the back
of a nearly stable exchange rate, the LCY- and FCY-denominated stocks of gross
banking loans moved in accord decreasing by 3.1% in 2014. The aggregate
lending decline, however, masks the restructuring of the credit risk within the Romanian banking sector, which will in our opinion eventually lead to a healthier
new lending take-off. 2014 saw divergent trends in the FCY versus LCY lending
segments: while the active de-risking across all business lines resulted in a decline
of 10% yoy in FCY-denominated loans, lending in RON increased by 7.8% yoy.
Supported by the governmental “First House” program, housing loans had the
highest growth rate among all loan categories. While FCY-denominated corporate lending declined by over 10% in 2014, LCY corporate loans grew by 2.5%
over the same period of time.
In 2014, the Romanian central bank implemented a range of measures to speed
up the balance sheet clean-up in the banking sector. Hence, banks had to increase provisions for impaired and doubtful loans and finally sold or wrote off
bulks of already provisioned NPLs. While this new regulation led to the largest
loss of the banking sector since 2009 of about EUR 1 bn, it also resulted in the
intended sharp fall of the NPL ratio from 20.5% in April 2014 to 13.9% at yearend. The record loss notwithstanding, the banking sector’s solvency improved at
the same time, as the asset stock also contracted and its quality improved.
A further regulatory measure was the reduction of the Minimum Reserve Requirements (MRR) for local banks from 15% to 10% for RON liabilities and from 20%
to 14% for FCY liabilities. This regulation helped to improve the sector’s funding profile, since banks used proceeds and repayments from FCY loans together
with resources relieved by the MRR cut to repay foreign credit lines. As a result,
external liabilities of the Romanian banking sector decreased by EUR 2.7 bn to
17.7% of assets as at year-end 2014 (at year-end 2008, this ratio had peaked
at 30.7%).
2010
Romania
2011
2012
2013
2014
2015f
126.8
133.3
133.8
144.3
150.7
158.9
170.1
6,276
6,634
6,685
7,235
7,563
8,005
8,582
Real GDP (% yoy)
-0.8
1.1
0.6
3.4
2.9
3.0
3.0
6.1
5.8
3.3
4.0
1.1
-0.3
1.7
7.0
7.2
6.8
7.1
6.8
6.6
6.5
-6.6
-5.5
-3.0
-2.2
-1.8
-2.3
-2.3
29.9
34.2
37.3
37.9
39.6
40.0
40.1
-4.6
-4.6
-4.5
-0.8
-0.5
-1.5
-2.0
73.9
75.0
75.4
68.0
62.6
59.8
58.2
EUR/LCY (avg)
4.21
4.24
4.46
4.42
4.44
4.44
4.40
38
2016f
Romania
Following several years of restructuring, Romanian banks are now well
BCR (Erste), 16.2%
prepared to expand lending again.
Supported by low interest rates, private demand for loans is expected to
gradually pick up amidst economic
BRD (Societe Generale),
12.4%
recovery. The central bank targets to
Others, 45.9%
join the European SSM by signing a
“close cooperation” agreement by the
end of 2016, following an extensive
local AQR in 2015. This may add
Banca Transilvania, 9.8%
to profitability pressure (although the
overall process is complex and we
may see a delay).
Another point to watch is the sector‘s
UniCredit, 7.9%
% of total assets, preliminary data
competitive structure, in particular folSource: Ziarul Financiar, RBI/Raiffeisen RESEARCH
lowing the recent acquisition of Volksbank Romania by Banca Transilvania, and ongoing restructuring and business fine-tuning at BCR (Erste Bank). These two
cases may well reduce the market share of foreign-owned banks in favor of those domestically owned.
Financial analyst: Nicolae Covrig (+40213061262), Raiffeisen BANK S.A., Bucharest
Balance sheet data
2010
2011
2012
2013
2014
89,906
90,925
91,451
91,139
90,483
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
growth in % yoy
in % of GDP
4.3
1.1
0.6
(0.3)
(0.7)
72.2
69.5
67.9
64.1
60.6
49,208
52,125
51,562
49,077
47,547
3.4
5.9
(1.1)
(4.8)
(3.1)
39.5
39.8
38.3
34.5
31.8
24,692
27,108
27,289
25,304
23,842
7.7
9.8
0.7
(7.3)
(5.8)
19.8
20.7
20.3
17.8
16.0
23,889
24,199
23,647
23,087
22,811
0.5
1.3
(2.3)
(2.4)
(1.2)
19.2
18.5
17.6
16.2
15.3
6,776
7,753
8,393
9,132
10,009
17.8
14.4
8.3
8.8
9.6
5.4
5.9
6.2
6.4
6.7
31,131
33,183
32,351
30,027
26,989
8.4
6.6
(2.5)
(7.2)
(10.1)
25.0
25.4
24.0
21.1
18.1
63
64
63
61
57
44,843
46,866
47,612
51,174
55,225
4.8
4.5
1.6
7.5
7.9
36.0
35.8
35.3
36.0
37.0
24,673
26,506
27,922
29,249
30,984
4.8
7.4
5.3
4.8
5.9
19.8
20.3
20.7
20.6
20.7
110
111
108
96
86
Number of banks
41
40
39
39
39
7.4
8.2
8.4
8.5
8.8
85
83
90
90
90
(0.2)
(0.2)
(0.6)
0.0
(1.3)
(1.7)
(2.6)
(5.9)
0.1
(-12.5)
15.0
14.9
14.9
15.5
17.6
11.9
14.3
18.2
21.9
13.9
Source: NBR, RBI/Raiffeisen RESEARCH
39
Bulgaria
Digesting the consequences of the bank crisis
 Lending activity and funding stance were impacted by the bank crisis in June 2014
 Regulator and government are processing the consequences of the crisis, targeting European regulation standards
 Despite the shake-up, 2014 banking sector financial results were positive
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2014, red triangle shows Bulgaria vs. all other
CEE markets
Source: BNB, national sources, RBI/Raiffeisen RESEARCH
Lending growth*
12
9
6
3
0
-3
-6
-9
-12
Jan-10 Mar-11 May-12 Jul-13
Sep-14
* in LCY-terms
Source: BNB, RBI/Raiffeisen RESEARCH
In 2014, the Bulgarian GDP grew by 1.7% posting some improvement over
2013. The increase came on the back of positive dynamics of all three major GDP components on the production side (services, industry and agriculture),
which has happened for the first time since 2009.
The banking sector, however, could not fully benefit from the overall positive economic dynamics, as the behavioral patterns of both banks and customers were
negatively affected by the banking crisis in June 2014. After the spread of negative news regarding the shareholders of Corporate Commercial Bank (CCB), Bulgaria’s fourth largest bank, and its subsidiary Commercial Bank Viktoria (CBV),
and reports on their alleged lack of liquidity, both banks faced massive deposit
withdrawals until June 20, 2014, when CCB stopped all its banking operations.
Another locally owned bank – the country’s third-largest First Investment Bank
(FIB) – faced tight liquidity pressure. As a result, FIB had to be bailed out by the
government, while CCB and CBV were put under special supervision of the Bulgarian National Bank (BNB). This step was followed by the revocation of CCB’s
banking license and the commencement of its liquidation at year-end 2014.
Obviously, the banking sector was affected by these developments. The banks’
total assets shrank by 0.7% as at year-end 2014. Corporate loans contracted
by 6.7%, while the retail segment recorded a decline of 1.2%. In total, the aggregated loan stock declined by almost 5.0%.
On a positive note, household savings recovered again during the second half of
the year. Household deposits increased by more than 4.5% to BGN 41 bn. This
growth, however, was strongly supported by the Deposit Insurance Fund (DIF),
which paid reimbursements to the depositors on account of the CCB collapse.
The majority of these funds remained in the sector, since only 2.0% of them were
withdrawn in cash by year-end. At the same time, corporate deposits declined
by 1.2% to BGN 22.7 bn. Nevertheless, the total deposit base grew by 2.4%
overall.
Despite the negative impact from the mid-year crisis, the Bulgarian banking sector registered a net profit of BGN 746 mn in 2014, which is about 25% above
the results of 2013. That, on the back of a shrinking asset size, caused an improvement in both aggregate RoA and RoE figures.
Bulgaria
2010
2011
2012
2013
2014
2015f
36.8
40.1
40.9
41.0
42.0
41.2
42.9
4,899
5,473
5,620
5,671
5,833
5,745
6,019
Real GDP (% yoy)
0.7
2.0
0.5
1.1
1.7
1.2
2.1
2.4
4.2
3.0
0.9
-1.4
-0.1
2.2
10.2
11.3
12.3
12.9
11.4
11.0
10.7
EUR/LCY (avg)*
-4.0
-2.0
-0.4
-1.9
-3.8
-2.8
-2.5
16.2
16.3
18.5
19.0
27.1
29.0
30.0
-1.4
0.1
-0.8
1.8
0.0
-0.5
-0.8
100.7
90.5
92.2
90.0
94.2
98.4
96.9
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
40
2016f
Bulgaria
In 2014, the Bulgarian banking sector saw a number of important legal
and regulatory developments. First, in
order to join the SSM, the Bulgarian
regulator implemented the EU CRD
and CRR. As a result, the banking sector‘s overall CAR increased to 22.0%,
and its liquidity ratio reached 30.1%.
Second, and as a direct consequence
of the crisis, the government introduced amendments to the legislation
on bankruptcy for the banking sector.
UniCredit Bulbank,
17.4%
Others, 20.3%
Piraeus Bank, 3.8%
DSK Bank, 11.7%
Alpha Bank, 4.3%
Central Cooperative
Bank, 4.9%
First Investment Bank,
10.2%
Societe Generale
Expressbank, 5.4%
Raiffeisenbank, 7.0%
The overall NPL ratio remained at
Eurobank, 7.2%
16.8% and continues to be subject to
% of total assets
upside risk. The major risks stem from
possible vulnerabilities, which can still
emerge in the system that could be somehow related to the recent banking crisis.
United Bulgarian Bank,
7.7%
Financial analysts: Emil S. Kalchev, Angel R. Kavrakov, Raiffeisenbank (Bulgaria) EAD, Sofia
Balance sheet data
2010
2011
2012
2013
2014
37,695
39,273
42,138
43,842
43,529
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
4.0
4.2
7.3
4.0
(0.7)
102.5
97.9
103.0
106.8
103.6
27,535
28,655
29,573
29,905
28,423
2.7
4.1
3.2
1.1
(5.0)
74.9
71.5
72.3
72.9
67.7
18,036
19,189
20,158
20,444
19,071
4.4
6.4
5.0
1.4
(6.7)
49.1
47.9
49.3
49.8
45.4
9,352
9,499
9,466
9,416
9,461
growth in % yoy
(0.5)
(0.4)
(0.5)
0.5
(1.2)
in % of GDP
25.8
23.6
23.0
23.0
22.3
4,739
4,790
4,827
4,800
4,757
3.5
1.1
0.8
(0.6)
(0.9)
12.9
11.9
11.8
11.7
11.3
16,876
18,267
18,937
18,297
16,196
7.3
8.2
3.7
(3.4)
(11.5)
45.9
45.5
46.3
44.6
38.6
61
64
64
61
57
23,994
27,000
29,275
31,818
32,574
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
8.4
12.5
8.4
8.7
2.4
65.3
67.3
71.5
77.5
77.5
20,965
14,335
16,311
18,340
20,067
growth in % yoy
12.9
13.8
12.4
9.4
4.5
in % of GDP
39.0
40.7
44.8
48.9
49.9
115
106
101
94
87
Number of banks
30
31
31
30
28
3.2
3.7
3.3
3.4
3.7
81
76
74
70
76
0.86
0.78
0.71
0.70
0.89
6.73
5.76
5.34
5.31
6.87
17.5
17.5
16.7
16.9
21.9
11.9
14.9
16.6
16.9
16.8
41
Serbia
Struggling with structural vulnerabilities
 Economic performance had negative impact on loan issuance and asset quality
 Banking sector profitability remained positive supported by banks’ investment in LCY-government bonds
 Capitalization remained solid, suggesting a decent resilience buffer against the economy‘s nosedive
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2014, red triangle shows Serbia vs. all other
CEE markets
Source: NBS, national sources, RBI/Raiffeisen RESEARCH
Lending growth*
35
30
25
20
15
10
5
0
-5
-10
Jan-10
Mar-11 May-12
Jul-13
Sep-14
* in LCY-terms
After an improvement and 2.6% GDP growth in 2013, the Serbian economy
shrunk by 1.8% in 2014. One of the reasons for the return of the recession
was the devastating flood in May. Although a government investment incentive
scheme and a new IMF stand-by arrangement were introduced in order to support the economy, the banking sector did not benefit from these measures, and
was affected by increasing risks.
Although the government’s loan subsidizing program failed to reverse the downtrend in corporate lending (corporate loans down 2.2% yoy in 2014), the NPL
ratio inched slightly lower recently, after a deterioration during mid-2014 (corporate NPL ratio at 24.8% in Q1 2015 vs. 27.4% mid-2014). We assume that
changes to the law on the bankruptcy, making the process more efficient, may
have added to the NPL stabilization in corporate portfolios. On a positive note,
retail lending posted a moderate growth of 2.0% in 2014 on the back of cash
and mortgage lending, whereas all other retail loan categories were underperforming. At the same time, the banking sector’s total asset stock posted a 5% yoy
nominal increase in LCY supported by the 7.8% growth in household deposits
(also in LCY) and inflated to a certain extent by the 5% RSD depreciation against
the EUR (on the mark-to-market revaluation of FCY-denominated assets).
Facing a lack of adequate risk-return opportunities on the loan market, banks
switched to less risky but still profitable market-based opportunities, and increased their exposure in LCY-government bonds. The same trends caused a fall
of the L/D ratio from 116% in 2013 to 111% in 2014.
In spite of the weak economy and low core margins, the banking sector posted
an aggregate profit for H1 2014, although there was a decline of about 8% compared to the results of the same period in the previous year. The H1 2014 RoE
reached 5%, however, we expect profitability to decline in both 2014 and 2015.
The recession and deteriorating asset quality, which are both resulting in sluggish
lending activity, are complemented by stricter requirements for capital reserves
for banks. Another burden for the banking sector, especially for its largest stateowned banks, results from sizeable (non-performing) loans to state-owned enterprises that are currently in a privatization or restructuring phase. Still, the banking
sector’s capitalization suggests decent resilience, with the CAR remaining well
Serbia
2010
2011
2012
2013
2014
2015f
33.4
31.7
34.3
33.2
33.7
35.6
4,087
4,617
4,403
4,788
4,634
4,704
4,957
Real GDP (% yoy)
1.0
1.4
-1.0
2.6
-1.8
0.0
2.5
6.3
11.3
7.8
7.8
2.9
2.0
4.0
19.2
23.0
23.9
22.1
22.0
23.0
22.0
-4.9
-4.8
-6.8
-5.5
-6.6
-6.0
-4.8
43.5
44.2
55.9
58.8
68.8
75.3
78.5
EUR/LCY (avg)
-6.3
-8.6
-11.5
-6.1
-6.0
-5.9
-5.6
79.8
72.2
81.1
75.3
78.3
78.3
75.6
103.00
101.96
113.05
113.08
117.27
122.37
125.75
42
2016f
29.8
Serbia
above the mandatory 12%, at 20.4%
at H1 2014, and NPLs are fully covered with loan loss reserves (off and
on balance) at 116% because of restrictive regulation and tight credit pol-
Banca Intesa, 14.7%
Others, 26.4%
Komercijalna banka,
icies of foreign-owned lenders.
12.2%
The banking sector currently experiBanka Postanska
Stedionica, 3.3%
ences major restructuring. The second
largest bank in the country, KomerciHypo Alpe-Adria, 3.9%
UniCredit, 8.7%
jalna banka, is at the moment privaVojvodanska banka,
tized with 83% of its shares up for
5.1%
sale. Also, the main shareholders of
Raiffeisen, 7.3%
Eurobank, 5.3%
Èaèanska banka (EBRD, Republic of
Societe Generale,
Serbia and IFC) sold a 76.76% share
7.0%
AIK banka, 6.0%
to Turkey’s Halkbank. This transaction
% of total assets
was closed in March 2015. FurtherSource: NBS, RBI/Raiffeisen RESEARCH
more, the Serbian banking market
saw its first green-field investment since 2008 in late 2014. The Central Bank issued an operating licence to Mirabank, a
unit of the United Arab Emirates-based Royal Group conglomerate, which plans to invest about USD 5 bn in Serbia over
the next three years.
Financial analyst: Ljiljana Grubic (+381 11 2207178), Raiffeisenbank a.d. Serbia, Belgrade
Balance sheet data
2010
2011
2012
2013
2014
25,984
27,732
27,775
27,467
27,352
growth in % yoy
in % of GDP
6.7
6.7
0.2
(1.1)
(0.4)
92.8
88.1
93.8
83.1
85.0
15,166
16,452
16,615
15,804
15,470
growth in % yoy
15.4
8.5
1.0
(4.88)
(2.12)
in % of GDP
54.2
52.3
56.1
47.8
48.1
8,696
9,218
9,419
8,514
7,890
(7.33)
growth in % yoy
15.7
6.0
2.2
(9.61)
in % of GDP
31.0
29.3
31.8
25.8
24.5
5,373
5,702
5,686
5,820
5,934
1.95
growth in % yoy
12.3
6.1
(0.3)
2.37
in % of GDP
19.2
18.1
19.2
17.6
18.4
2,621
2,835
2,940
2,899
2,975
19.5
8.2
3.7
(1.4)
2.6
9.4
9.0
9.9
8.8
9.2
9,991
11,615
11,885
11,394
10,618
growth in % yoy
15.2
16.3
2.3
(4.1)
(6.8)
in % of GDP
35.7
36.9
40.2
34.5
33.0
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
66
71
72
72
69
11,897
13,100
13,310
13,655
13,967
4.0
10.1
1.6
2.6
2.3
42.5
41.6
45.0
41.3
43.4
9,309
7,515
8,173
8,694
9,112
growth in % yoy
14.8
8.7
6.4
4.8
2.2
in % of GDP
26.8
26.0
29.4
27.6
28.9
127
126
125
116
111
Number of banks
33
33
32
31
29
20.3
19.7
19.0
18.5
19.2
73
73
69
75
75
1.1
1.2
1.0
0.8
1.1
5.4
6.0
4.7
3.8
5.0
19.9
19.1
19.9
19.9
20.4
16.9
19.0
18.6
21.1
23.0
43
Sector stable and profitable – despite economic slump
 Disastrous floods resulted in economic slump, deteriorated corporate lending
 Good level of profitability and capital adequacy preserved in 2014
 Banking sector performance in line with the real economy, higher potential expected for 2015
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2014, red triangle shows Bosnia a.H. vs. all
other CEE markets
Source: CBBH, national sources, RBI/Raiffeisen
RESEARCH
Lending growth*
10
5
0
-5
-10
Jan-10 Feb-11 Mar-12 Apr-13 May-14
* in LCY-terms
Source: CBBH, RBI/Raiffeisen RESEARCH
In 2014, the uneven path of Bosnia and Herzegovina’s economy was determined by a major natural disaster, namely the devastating floods in May that
caused damages of EUR 2 bn or 14.8% of the country’s GDP. Consequently, the
stable growth of 3.2% yoy recorded in the first quarter was followed by a decrease of 0.5% yoy in the second quarter and only a modest recovery of 0.5%
at year-end.
The economic volatility was also reflected in the banking sector figures. Although
both balance sheet growth and asset quality felt the pressure, there was no major impact on the sector’s overall stability. However, the toughened economic
conditions resulted in both a diverging performance of the retail and corporate
segments and a further increase in NPLs. In 2014, the total loan stock increased
moderately by 2.8%, which has been, however, the lowest expansion rate within
the past five years and for the first time since 2009. Corporate loans declined
by 1.5% yoy.
After the flood, the corporate segment’s NPL ratio peaked at 20.7% in the third
quarter, as the regulator forced the banks to clean up their portfolios in order to
stabilize their performance. The banks slowed down their corporate lending, and
consequently, corporate loan volumes decreased and the corporate NPL ratio recovered at 17.3% as at year-end 2014. The retail NPL ratio improved to 10.2%
(the lowest figure since the third quarter of 2011), bringing down the overall NPL
ratio to 14.0% as at year-end. At the same time, weakened corporate lending opportunities coupled with increased demand for retail loans to finance housing reconstruction after the flood resulted in banks focusing to a greater extent on retail
business. The increasing household loan volumes resulted in retail loan growth
of 5.7% in 2014 (the strongest since 2011) and loans in that segment reaching
44.2% of total loan stock. On the funding side, total deposits continued to outperform lending growth, posting the strongest gain since 2007 (7.9% yoy). The
increase was driven by retail deposits, which surged by 8.1% in 2014, accounting for 58.8% of total deposits. Corporate deposits went up by a comparatively
modest 2.4%. Strong support for the banks’ funding came from the government,
with public sector deposits increasing by 26.5% (as a system support after the
natural disaster) following a negative trend ever since 2007.
2010
2011
2012
2013
2014
2015f
13.2
13.2
13.4
13.6
14.2
14.9
3,264
3,387
3,388
3,465
3,500
3,666
3,936
Real GDP (% yoy)
0.8
1.0
-1.2
2.5
0.5
2.5
3.0
2.1
3.7
2.1
-0.1
-0.9
1.5
2.5
27.2
27.6
28.0
27.5
27.5
26.5
24.0
-2.5
-1.3
-2.0
-2.2
-3.8
-2.5
-2.0
38.3
38.9
39.7
41.5
45.0
44.6
42.5
-6.1
-9.7
-9.3
-6.0
-9.6
-8.5
-7.4
57.3
66.8
63.1
62.5
66.4
63.6
58.3
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
44
2016f
12.7
The local banking sector retained a
decent level of profitability in 2014,
posting a RoE of 6.0% and a RoA of
0.8%. The CAR remained practically
stable at 16.3%, exceeding the regulatory requirements. Going forward,
we expect the country’s banking sector to develop in line with its real
economy (2015: expected real GDP
growth of 2.5%), and to post single
digit values in asset and loan growth,
with retail lending continuing to be the
main growth driver.
UniCredit*, 21.6%
Others, 29.4%
Intesa Bank, 6.1%
Sberbank, 7.4%
Hypo Alpe Adria, 9.8%
NLB Group, 9.0%
We expect the performance of the
% of total assets
banking sector in Bosnia and Herze* UniCredit Bank & UniCredit Bank Banja Luka
govina to be further strengthened by
the EU initiatives for the country under
the Stabilization and Association Agreement (SAA). The SAA will allow the country to benefit from EU financial and technical assistance and from tariff-free access to EU markets for some of its products. The SAA will also assist with economic and
structural reforms in order to boost economic growth, increase investments and reduce unemployment. For the banking sector, this should result in notable growth in both the retail and the corporate segment.
Financial analyst: Ivona Zametica (+387 33 287 784), Raiffeisen BANK d.d. Bosnia and Herzegovina, Sarajevo
Balance sheet data
2010
2011
2012
2013
2014
10,828
11,196
11,414
11,988
12,514
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
Loans in foreign currency (% of total Loans)
growth in % yoy
in % of GDP
0.8
3.4
1.9
5.0
4.4
85.1
85.0
86.8
89.2
92.4
7,436
7,828
8,151
8,388
8,626
3.5
5.3
4.1
2.9
2.8
58.5
59.4
61.9
62.4
63.7
3,545
3,641
3,803
3,846
3,767
4.3
2.7
4.4
1.1
(2.1)
27.9
27.6
28.9
28.6
27.8
3,234
3,428
3,474
3,612
3,817
0.3
6.0
1.3
4.0
5.7
25.4
26.0
26.4
26.9
28.2
328
534
372
333
325
(27.2)
(30.2)
(10.5)
(2.6)
1.0
25.4
26.0
26.4
26.9
28.2
7.2
4.8
4.1
3.9
3.8
6,406
6,643
6,814
7,286
7,904
3.6
3.7
2.6
6.9
8.5
50.4
50.4
51.8
54.2
58.3
4,663
3,315
3,605
3,914
4,276
growth in % yoy
14.5
8.7
8.6
9.3
9.0
in % of GDP
26.1
27.4
29.7
31.8
34.4
116
118
120
115
109
Number of banks
29
29
28
27
26
0.8
0.9
1.0
1.0
n.a.
93
92
92
90
n.a.
(0.6)
0.7
0.6
(0.2)
0.8
(5.5)
5.8
5.0
(1.3)
6.0
16.2
17.1
17.0
17.8
16.3
11.4
11.8
13.5
15.1
13.5
45
Albania
Positive signs in lending and asset quality
 Banking assets grew moderately compared to past five years
 Lending activity improved due to low rates, and demand-side recovery started to kick in
 NPL ratio remained high, requires regulatory management
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2014, red triangle shows Albania vs. all other
CEE markets
Source: NBA, national sources, RBI/Raiffeisen
RESEARCH
Lending growth*
40
30
20
10
0
-10
08
09
10
11
12
13
14
* in LCY-terms
Source: NBA, RBI/Raiffeisen RESEARCH
The Albanian economy grew by 2.0% in 2014, mainly due to increasing domestic demand, which gets support from the expansive monetary policy. Gradual recovery of lending activities was one of the positive patterns. During 2014,
lending activity increased by 5.0% yoy, thereby recovering from the decrease of
2.3% in 2013. The historically low interest rates, a moderate revival of consumption demand and business confidence were the main reasons to drive the lending
recovery. In 2014, about 93% of the volume of new loans came from corporate
customers, increasing this segment by 6.3%. Despite the regulator’s lower interest rates policy applied, total deposits increased by EUR 336 mn or 4.6%, indicating still suppressed investment demand. Corporate deposits grew by 18% yoy
in 2014, while retail deposits only showed a 2.6% increase.
The Albanian banking sector remained stable, liquid and well capitalized with a
CAR of 16.8% in 2014, which significantly exceeded the 12% minimum capital
requirement demanded by the Bank of Albania. Furthermore, the capitalization
is supported by banks’ decent earnings in 2014, as the banking sector posted
a total net profit of EUR 79.9 mn. This has been the best result since 2007 and
is largely a reflection of the renewed asset quality improvement and reduction in
provisioning costs.
As at year-end 2014, the NPL ratio was 22.8% (coming down from 23.5% at
year-end 2013). The still high NPL ratio remains the main concern for the current
lending growth and is the reason for a joint-initiative between the IMF, the Bank
of Albania and the Albanian government. The goal is to review and improve all
aspects of the current NPL management. In particular, the review will focus on
collateral management, the streamlining of write-offs as well as restructuring regulations. Because of this initiative, we are positive that the country’s NPL ratio will
continue to improve in 2015.
Looser monetary policies and an improved business confidence, which will support economic growth and lending activities, are expected for 2015. However,
several foreign-owned banks could be forced to limit their exposure in Albanian
assets due to requirements from their parent companies following the new ECB
capital regulations.
In 2015, the repayment of government arrears to private lenders will continue
in accordance with the IMF program. This should eventually improve the banks’
Albania
2010
2011
2012
2013
2014
2015f
8.9
9.4
9.7
9.8
10.4
11.0
11.8
3,097
3,297
3,445
3,529
3,733
3,986
4,252
Real GDP (% yoy)
3.7
2.6
1.6
0.4
2.4
3.0
4.0
4.0
3.5
2.0
1.9
1.6
1.8
2.8
13.5
14.0
13.3
17.0
18.0
17.0
15.0
-5.7
-3.5
-3.4
-6.0
-6.6
-4.5
-3.5
59.5
59.4
61.5
68.0
72.0
70.0
69.0
-10.8
-11.8
-9.3
-10.4
-10.2
-10.5
-10.0
24.7
24.5
25.8
28.2
28.5
29.3
30.9
137.79
140.36
139.04
140.30
140.00
140.13
139.88
EUR/LCY (avg)
46
2016f
Albania
balance sheets and increase their willingness to be more active in lending.
The expected revival of the state activity on the Eurobond market and the
disbursement of a EUR 250 mn loan
(guaranteed by the World Bank) may
lead to the reduction of the government borrowing from the domestic
market and therefore also stimulate
banks’ lending to the private sector.
Others, 9.2%
National Bank of
Greece, 3.1%
Procredit Bank, 2.8%
Societe Generale, 5.4%
Alpha Bank, 5.6%
Tirana Bank (Pireaus
Bank), 7.2%
The escalation of the economic hardCredins Bank, 10.2%
ships in their home market had Greek
banks to rethink their presence in Albania. One of the four Greek banks
% of total assets
left the country, and as a result, the
market share of Greek banks shrunk
to 16% in 2014 (compared to 28% in 2008).
National Commercial
Bank, 24.3%
Intesa Sanpaolo Bank,
11.2%
Financial analyst: Joan Canaj (+355 4 2381000 1122), Raiffeisen Bank Sh.a., Tirana
Balance sheet data
2010
2011
2012
2013
2014
7,139
8,063
8,626
9,164
growth in % yoy
11.1
12.9
7.0
6.2
0.7
in % of GDP
79.9
86.1
90.2
94.1
91.5
3,537
4,076
4,139
4,045
4,246
8.5
15.2
1.6
(2.3)
5.0
39.6
43.5
43.3
41.6
42.1
2,956
growth in % yoy
in % of GDP
9,231
2,379
2,858
2,887
2,788
growth in % yoy
14.9
20.1
1.0
(3.4)
6.0
in % of GDP
26.6
30.5
30.2
28.6
29.3
1,065
1,072
1,071
1,067
1,081
1.7
0.6
(0.0)
(0.3)
1.3
11.9
11.4
11.2
11.0
10.7
753
806
815
801
796
5.1
7.0
1.1
(1.7)
(0.7)
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
Loans in foreign currency (% of total credits)
8.4
8.6
8.5
8.2
7.9
2,470
2,766
2,670
2,547
2,649
7.8
12.0
(3.5)
(4.6)
4.0
55.8
61.3
65.1
65.6
65.0
70
68
65
63
62
5,885
6,651
7,104
7,315
7,651
growth in % yoy
17.0
13.0
6.8
3.0
4.6
in % of GDP
65.9
71.0
74.3
75.1
75.8
6,556
4,987
5,743
6,225
6,388
growth in % yoy
16.1
15.2
8.4
2.6
2.6
in % of GDP
55.8
61.3
65.1
65.6
65.0
60
61
58
55
56
Number of banks
16
16
16
16
16
91
90
90
89
87
0.7
0.1
0.3
0.5
0.9
7.6
0.8
3.8
6.4
10.5
16.2
15.6
16.2
18.0
16.8
14.0
18.8
22.5
23.5
22.8
Structural information, profitability and efficiency
47
Russia
Challenges constrain business opportunities, earnings and capital
 Weakened economy weighs on lending growth and asset quality
 Financial markets turmoil and sanctions constrain funding options, thus leaving interest rates in disequilibrium
 State support is still strong, but can outweigh poor banking earnings only in the short-term
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2014, red triangle shows Russia vs. all other
CEE markets
Source: CBR, national sources, RBI/Raiffeisen RESEARCH
Lending growth*
45
30
15
0
-15
Jan-10
Mar-11 May-12
Jul-13
Sep-14
* in LCY-terms
Aggregate banking sector data and individual banks’ financial releases for
2014 and the first months of 2015 reveal the hard hit of the fundamental challenges carried over from the second half of 2014. The swift RUB devaluation and
persisting financial market volatility, scarcity of funding from domestic and international market sources, negative news flow from rating agencies, and negative
short-term expectations for the Russian economy put the entire local banking business under serious constraint. The first of that came through the weakened lending stance and inferior asset quality. At the first glance the nominal aggregate
loan growth rate does not seem to be dramatic at all, and even exceeds 2013
if expressed in LCY-terms: 26% in 2014 vs. 17% in 2013. The dynamics of the
individual lending components is more telling, however. Household loan growth
in LCY dropped to 12% yoy as of January 2015 (coming from 28% yoy in January 2014), and if expressed in EUR-terms, retail lending suffered a decline of
25% yoy. And while the corporate loan growth rate in nominal LCY-terms stayed
high at above 30% yoy, the segment saw a decline of 13% if expressed in EURterms. According to our estimates, the actual market-based corporate lending dynamics is also masked by the state-funded loans to systemically important companies. If to adjust for that, and also for the impact of FCY loans inflation on the RUB
devaluation, the estimated rate of LCY-expressed corporate loan growth would
be positive at 13% yoy or so in January 2015. That is, the “true market” corporate loan growth figures were already below the inflation rate, and the Q1-2015
saw a further lending deterioration. Corporate loans growth (expressed in LCY)
fell to 15% yoy, retail loan growth rate fell below 4%, giving a 13% yoy growth
for the total loan stock. Respectively, the NPL ratio climbed to 6% (above 7% in
retail, and 5.6% in corporate segment). As a continuation of this trend, we expect the lending growth to fall below 10% yoy in LCY-terms in 2015 (adjusted
for RUB devaluation and state support to systemic borrowers), and NPLs to increase to up to 8% of total loans. Falling lending growth rates and the deterioration of asset quality weigh on the banks’ profits, as volumes and margins fall
and provisioning costs go up. Besides, jumpy official and volatile money market interest rates leave no viable benchmark for the banks’ money pricing, implying a prolonged period of market re-adjustment. The resulting deterioration of the
major earnings indicators versus 2013 is notable. Q4 2014 recorded a bank-
Russia
2010
2011
2012
2013
2014
2015f
2016f
1,149.2
1,359.7
1,547.8
1,556.8
1,384.2
1,323.1
1,422.2
8,042
9,509
10,801
10,834
9,633
9,207
9,911
Real GDP (% yoy)
4.5
4.3
3.4
1.3
0.6
-4.0
0.5
6.9
8.5
5.1
6.8
7.8
15.2
7.5
7.5
6.6
5.7
5.6
5.3
7.0
7.0
-3.5
1.6
0.4
-1.0
-1.0
-3.2
-2.0
9.3
9.8
10.5
11.3
11.5
12.5
13.5
4.4
5.1
3.6
1.6
3.5
4.4
2.9
31.8
30.7
31.3
34.0
35.8
43.2
28.7
40.27
40.88
39.91
42.32
51.04
62.50
64.47
EUR/LCY (avg)
48
Russia
ing sector RoE of 8% and an RoA of
0.9%, compared to 15% and 1.9%,
respectively, in 2013. In turn, limited
Sberbank, 28.1%
earning capacity creates pressure on
Others, 33.4%
capital, which is why the capitalization ratios of 2014 are fairly low by
historical standards. The government
has been strongly supportive to the
banking sector, with measures aimed
SocGen*, 1.5%
to boost banks’ liquidity and capitalRaiffeisenbank, 1.1%
ization; bail-outs, and vast funding
VTB Group*, 17.0%
Promsviazbank, 1.4%
support to systemic borrowers. Private
UniCredit, 1.7%
Gazprombank, 5.9%
funding, however, continues to be difRusAgro, 2.6%
ficult in 2015, as the propensity of the
Otkrytie Financial
Corporation, 4.5%
Alfa Bank, 2.7%
private sector to save is declining and
* VTB Group = VTB, VTB 24, Bank of Moscow, Transcreditbank; SocGen = Rosbank, Rusfinance and Deltacredit;
the extensive cut-off from international
% of total assets; Source: RBC-Rating, RBI/Raiffeisen RESEARCH
markets stays. Deposits showed two
counteracting trends at end-2014: withdrawals by households versus excessive savings by corporates against the due debt
repayment. With stickiness of the former, and gradual disposal of the latter, preventing a decrease of the deposit base will
be possible, in our view, only on funding support from government sources.
Balance sheet data
2010
2011
2012
2013
2014***
838,138
998,949
1,238,697
1,276,922
1,136,230
growth in % yoy
23.6
19.2
24.0
3.1
(11.0)
in % of GDP
73.0
74.6
79.4
86.8
109.5
449,946
558,325
693,248
721,734
597,950
growth in % yoy
21.1
24.1
24.2
4.1
(17.2)
in % of GDP
39.2
41.7
44.4
49.0
57.6
348,669
425,119
499,671
500,317
432,175
growth in % yoy
20.6
21.9
17.5
0.1
(13.6)
in % of GDP
30.4
31.7
32.0
34.0
41.6
101,277
133,206
193,577
221,417
165,775
23.0
31.5
45.3
14.4
(25.1)
8.8
9.9
12.4
15.0
16.0
32,119
38,992
52,838
61,496
53,406
18.0
21.4
35.5
16.4
(13.2)
2.8
2.9
3.4
4.2
5.1
99,615
114,462
118,308
129,341
147,954
13.0
14.9
3.4
9.3
14.4
8.7
8.5
7.6
8.8
14.3
22
21
17
18
25
520,161
622,019
748,058
766,887
629,113
growth in % yoy
32.3
19.6
20.3
2.5
(18.0)
in % of GDP
45.3
46.5
47.9
52.1
60.6
243,423
284,881
356,550
377,086
271,446
growth in % yoy
41.1
17.0
25.2
5.8
(28.0)
in % of GDP
21.2
21.3
22.9
25.6
26.2
87
90
93
94
95
1,012
978
956
923
834
46
52
53
54.7
55.0
18.0
16.9
17.8
15.3
13.9
8.1
8.5
7.9
7.7
7.6
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
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 %)
1.9
2.4
2.3
1.9
0.9
Return on Equity (RoE %)
12.5
17.6
18.2
15.2
7.9
Capital adequacy (CAR % of risk weighted assets)
18.1
14.7
13.7
13.5
12.5
5.7
5.0
4.8
4.3
5.0
* As reported by the CBR, ** RBI/Raiffeisen RESEARCH estimate; *** LCY depreciation against the EUR in 2014: -38%; Source: CBR, RBC-Rating, RBI/Raiffeisen RESEARCH
49
Ukraine
Exhausted by 2014 crisis, longing for stabilization and reforms
 Systemic crisis exposed banking system to multiple troubles regarding credit risk, funding and liquidity matters
 The banking sector’s solvency is clearly at risk
 The IMF program should bring stabilization and relief, but implementation is very challenging
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2014, red triangle shows Ukraine vs. all other
CEE markets
Source: NBU, national sources, RBI/Raiffeisen
RESEARCH
Lending growth*
60
50
40
30
20
10
0
-10
-20
Jan-09 May-10 Sep-11 Jan-13 May-14
* in LCY-terms
Source: NBU, RBI/Raiffeisen RESEARCH
Ukraine is experiencing one of the most challenging periods in its modern history.
The ongoing economic, social and political crisis has hit all market segments and
the banking sector in particular. Industrial output decline, capital outflows, job
cuts, and the vast volatility of the monetary fundamentals and the exchange rate
created an extremely challenging environment for local banks.
One of the key problems currently faced by Ukrainian banks is the liquidity shortage, enhanced by vast deposit outflow. During 2014, the Ukrainian banking sector lost UAH 200 bn in deposits, which is about 15% of the banking sector’s total assets. As a result, banks faced a liquidity crunch, and many of them had no
other option but to close and leave the market. Since the beginning of the crisis, 44 banks were assimilated by the Deposit Guarantee Fund, thus leaving the
market. It is likely that between 30 and 40 more financial institutions will do likewise in 2015. The rapid and sharp worsening of the economic environment has
also caused a spike in the NPL ratio. Since the latest official data on NPLs are
not yet available, we rely on an IMF estimate of an NPL ratio of 32% as at yearend 2014. We expect the final figure to be even above this estimate and, based
on experience from previous systemic crises, to climb to around 40% to 50% of
total loans.
In addition to the revenue shortfall due to escalated credit and market risks and
the vastly depreciated domestic currency, banks are forced to create extra provisioning for bad loans and FCY-denominated loans. As a result, the total banking
sector loss reached UAH 53 bn as at year-end 2014. According to IMF data, the
system’s RoE was minus 30.5% as of December 2014, 14 banks failed to meet
the Tier 1 CAR requirements (2013: 8 banks), and 34 banks failed to meet prudential regulation requirements (2013: 26).
In March 2015, the IMF Executive Board approved a new four-year Extended
Fund Facility program for Ukraine totaling USD 17.5 bn. The first tranche of USD
5 bn was already released, USD 2.7 bn thereof aimed at supporting the budget.
The remaining amount was used for replenishing National Bank FX-reserves. The
key requirement of the new IMF program was the de-escalation of the conflict in
the Eastern regions of the country. It is based on the expectation that the Ukrainian economy will eventually cease to feel the impact of the conflict and start performing again in 2016 (after a deep recession in 2015).
2010
Ukraine
2011
2012
2013
2014
2015f
102.4
116.9
135.2
135.3
98.6
83.0
80.0
2,245
2,573
2,979
3,153
2,306
1,944
1,776
Real GDP (% yoy)
4.1
5.5
0.2
0.2
-6.8
-10.0
1.5
9.4
8.0
0.6
-0.2
12.1
53.7
14.0
11.0
8.2
8.0
7.6
7.3
9.3
11.5
-7.5
-4.3
-5.5
-6.7
-11.0
-7.0
-5.5
40.0
36.0
36.8
40.3
70.0
81.4
72.0
EUR/LCY (avg)
-2.2
-6.3
-8.5
-9.0
-4.0
-2.8
-0.7
86.4
77.6
76.5
79.3
96.4
141.1
154.9
10.55
11.12
10.39
10.83
15.89
24.64
29.84
50
2016f
Ukraine
In addition, and this is most important, the IMF program provides assisPrivatBank, 15.5%
tance for urgently needed reforms of
economic governance and the fight
Oshadbank, 9.7%
Others, 40.3%
against corruption, for the energy sector, as well as optimizations in public
spending and improvements in investUkreximbank, 9.6%
ment climate. It is partly related to the
banking system and envisages a set of
Delta, 4.6%
measures for its stabilization, aimed
at providing general monetary stabilProminvestbank,
4.0%
ity and economic growth. (For more
VTB, 2.8%
Ukrsotsbank
details on the IMF program, please
(UniCredit), 3.7%
refer to our section on page 54.) All
Alfa, 2.8%
Raiffeisen
Bank
Aval,
Sberbank, 3.5%
3.6%
in all, the described set of IMF-meas% of total assets
ures, if implemented as stated, should
be strongly supportive to the Ukrainian economy and monetary system. However – as it is always the case during crises – there are major risks on the execution side. Not only is enough political will required to perform all the needed steps, it is also necessary to reach an accord
within the Ukrainian society to ensure general public support of the government in implementing these reforms.
Financial analyst: Ludmilla Zagoruyko (+380 44 49087-72), Raiffeisen Bank Aval JSC, Kiev
Balance sheet data
2010
2011
2012
2013
88,167
101,788
106,339
114,627
68,469
growth in % yoy
15.0
15.4
4.5
7.8
(40.3)
in % of GDP
87.0
81.3
80.0
88.5
86.0
67,809
76,268
76,353
81,155
51,039
(37.1)
growth in % yoy
2014**
8.3
12.5
0.1
6.3
66.9
60.9
57.4
62.7
64.1
48,674
57,402
59,078
64,246
41,730
growth in % yoy
15.9
17.9
2.9
8.7
(35.0)
in % of GDP
48.0
45.8
44.4
49.6
52.4
19,134
18,866
17,275
16,909
9,309
(44.9)
in % of GDP
growth in % yoy
(6.7)
(1.4)
(8.4)
(2.1)
in % of GDP
18.9
15.1
13.0
13.1
11.7
8,686
7,526
6,174
3,455
2,802
(4.8)
(13.3)
(18.0)
(44.0)
(18.9)
8.6
6.0
4.6
2.7
3.5
31,569
31,071
28,261
27,624
24,083
growth in % yoy
in % of GDP
growth in % yoy
(1.5)
(1.6)
(9.0)
(2.3)
(12.8)
in % of GDP
31.2
24.8
21.3
21.3
30.2
47
41
37
34
47
38,767
46,806
53,995
59,959
35,239
growth in % yoy
35.8
20.7
15.4
11.0
(41.2)
in % of GDP
38.3
37.4
40.6
46.3
44.2
25,431
29,560
34,836
39,209
21,649
growth in % yoy
38.0
16.2
17.8
12.6
(44.8)
in % of GDP
25.1
23.6
26.2
30.3
27.2
175
163
141
135
145
Number of banks
176
176
176
180
163
17
17
18
18
22
43
38
33
27
31
(1.5)
(0.8)
0.5
0.1
(4.1)
(10.2)
(5.3)
3.0
0.8
(30.5)
20.9
18.2
18.1
18.3
15.6
Non-performing loans (% of total loans)*
42.0
40.0
37.5
37.5
40.0
* Average of “unofficial” estimates based on IFRS estimates; **LCY depreciation against the EUR in 2014: -41%
51
Belarus
Weak economy tests the banking sector’s resilience
 Slowdown of economy resulted in reduction of lending activity
 Banks stayed profitable amidst weakening economic environment
 Further increase of NPLs possible
100%
80%
60%
40%
20%
5,000
15,000
25,000
Data for 2014, red triangle shows Belarus vs. all other
CEE markets
Source: NBB, national sources, RBI/Raiffeisen RESEARCH
Lending growth*
95
80
65
50
35
20
Jan-09 May-10 Sep-11
Jan-13 May-14
* in LCY-terms
Source: NBB, RBI/Raiffeisen RESEARCH
In 2014, the economic slump and the currency devaluation in Russia and Ukraine
negatively impacted the Belarusian economy, resulting in increased expectations
of currency weakening and a 30% BYR depreciation.
The situation in the Belarusian banking sector faced a steep deterioration at the
end of 2014. In December, on high devaluation expectations, the banking system faced massive withdrawals of household deposits, namely more than BYR
6.1 bn or 8% of total BYR deposits. At the same time, net FCY purchase by households amounted to USD 900 mn, as the withdrawn BYR deposits were converted
into FCY. In order to prevent a strong FX reserves decline and to limit BYR money
supply as well as to eliminate the excessive demand for FX, the National Bank
(NBB) implemented countermeasures. These measures included stricter requirements for the mandatory sale of FCY revenues, which were lifted in April 2015,
and increased the key interest rate by 500 bp to 25% per annum. Subsequent to
this and in order to reduce the negative impact on the local banks’ liquidity resulting from the BYR depreciation, the NBB reduced the minimum reserve requirement on FCY deposits from 13% to 10% in early 2015. As the problems in the
banking sector only started to accumulate towards the end of 2014, its yearly
performance statistics were not yet significantly affected. Until the liquidity problems started in December, the NBB’s measures were aimed at the ongoing limitation of FCY lending and the reduction of interest rates on loans. As a result, retail
loan growth dropped from 34% in 2013 to 16% in 2014, and corporate lending growth was down to 22% in 2014 (compared to 27% in the previous year).
The loan volume increased in line with deposit growth, resulting in an L/D ratio slightly below 150%, as the banks’ dependency on external funding continued. As a result, RoA and RoE also declined yoy to 1.7% and 13.1%, respectively. The Belarusian banking sector remained decently capitalized, with an increased CAR of 17.4%.
According to local standards, non-performing assets remained at the level of
4.4%, while NPLs increased slightly to 0.9%. They stayed low partially due to
the activity of the Development Bank of the Republic of Belarus, which provides
loans under government programs and helps to mop the NPLs out of the commercial banking sector.
2010
Belarus
2011
2012
2013
2014
2015f
40.9
49.3
53.8
57.3
56.7
58.2
4,378
4,315
5,213
5,689
6,052
6,018
6,171
Real GDP (% yoy)
7.7
5.5
1.7
1.0
1.6
-2.0
1.0
7.7
53.2
59.2
18.3
18.1
20.0
18.0
1.0
0.7
0.6
0.5
0.5
0.5
1.0
-2.6
2.1
0.5
0.2
1.0
-1.0
0.0
23.3
48.5
31.3
32.5
34.1
40.6
39.4
-15.0
-9.0
-2.9
-10.2
-6.6
-2.5
-3.3
51.0
64.1
51.9
52.7
57.8
74.4
60.1
3,952.60
7,219.56
10,746.59
11,833.61
13,597.18
16,263.00
19,364.00
EUR/LCY (avg)
52
2016f
41.6
Belarus
The performance of the Belarusian
banking sector in 2015 is likely to reOthers, 9.0%
main subdued because of weaker RusBank VTB Belarus, 2.5%
Belarusbank, 41.8%
sian demand, a shrinking economy,
high inflation and possible ongoing
Priorbank (Raiffeisen), 4.4%
BYR devaluation. It can be expected
Belgazprombank, 4.7%
that banks will see an increased NPL
Bank Bel (VEB), 5.1%
ratio, less profitability, and continued
pressures on capital ratios and funding stability. Loan and asset growth is
Belinvestbank, 5.9%
set to moderate levels at best, in nominal terms.
BPS-Sberbank, 10.4%
Effective January 2015, the main
change in the regulatory environment
Belagroprombank, 16.3%
includes an increase of the income tax
% of total assets
rate for banks and insurance compaSource: NBB, RBI/Raiffeisen RESEARCH
nies from 18% to 25%. There were no
major changes in the banking landscape, and state-owned banks continued to dominate the Belarusian banking sector with
64% of total assets. One of the largest M&A deals in 2014 was the sale of Moscow-Minsk Bank, a Belarusian subsidiary
of the Bank of Moscow (a member of Russian VTB Group), to NBB (99.75%) and state-owned JSC Paritetbank (0.25%).
The main reasons for the acquisition were to avoid sanctions imposed on VTB group and to increase the bank’s capitalization. Some potential for further M&A activity remains in place, given the tough competition between the market players.
Financial analyst: Mariya Keda (+375 17 2899231), Priorbank Open Joint-Stock Company, Minsk
Balance sheet data
2010
2011
2012
2013
2014
32,104
24,019
28,328
30,211
33,486
growth in % yoy
58.3
(25.2)
17.9
6.6
10.8
in % of GDP
78.3
94.6
60.9
62.1
61.9
22,355
13,691
17,808
19,831
21,835
growth in % yoy
44.2
(38.8)
30.1
11.4
10.1
in % of GDP
54.5
53.9
38.3
40.7
40.3
16,645
10,729
14,265
15,705
17,458
growth in % yoy
43.3
(35.5)
33.0
10.1
11.2
in % of GDP
40.6
42.2
30.7
32.3
32.3
5,710
2,962
3,544
4,126
4,377
growth in % yoy
47.0
(48.1)
19.6
16.4
6.1
in % of GDP
13.9
11.7
7.6
8.5
8.1
4,848
5,410
8,101
9,960
11,105
growth in % yoy
5.8
11.6
49.7
22.9
11.5
11.8
21.3
17.4
20.5
20.5
22
40
45
50
51
10,831
9,093
12,743
13,202
14,843
growth in % yoy
35.8
(16.0)
40.1
3.6
12.4
in % of GDP
26.4
35.8
27.4
27.1
27.4
5,779
4,539
6,884
7,824
9,342
growth in % yoy
30.7
(21.5)
51.7
13.7
19.4
in % of GDP
14.1
17.9
14.8
16.1
17.3
206
151
140
150
147
Number of banks
31
31
32
31
31
71
67
65
63
64
28
32
35
36
35
in % of GDP
1.7
1.7
1.8
1.9
1.7
11.8
14.9
12.7
13.8
13.1
20.5
24.7
20.8
15.5
17.4
0.7
0.5
0.5
0.8
0.9
Source: NBB, RBI/Raiffeisen RESEARCH
53
Ukraine
Focus on Ukraine: Key provisions of IMF program
UA: Consolidation dynamics
The IMF/IFI support package (updated in March 2015) is based on 4 pillars:
200
 Flexible and stable FX policy (although commitments to inflation targeting as
well as a flexible FX rate do remain on the table)
 Strengthening banking supervision and supporting banking sector restructuring
 Reduction of government spending, restructuring of public and private debt
 Improvement of business climate and deregulation
190
180
170
160
00
02
04
06
08
10
12
14
Number of banks
UA: Profitability and consolidation
10
10
5
0
0
-10
-5
-20
-10
-30
-15
-40
-20
01
02
03
04
05
06
07
08
09
10
11
12
13
14
20
RoE (%)
Number of banks opened/closed (r.h.s.)
Sectoral distribution domestic loans*
28%
72%
Non-financial corporations
Other**
* % of total loans to residents (96.1% of total loans, loans
to non-residents at 3.9% of total loans)
** Other financial corporations, private individuals,
government
Source: NBU, IMF, RBI/Raiffeisen RESEARCH
According to the current IMF program, the restructuring of the Ukrainian banking
system will be based on a detailed monitoring of insider lending to related parties. The planned prudential review of related party lending (supported by international accounting firms to guarantee creditability) definitely offers some room
for negative surprises, given the large corporate loan books in the Ukrainian
banking sector (around 70% to 80% of total loans). Systemic risks in this field
will be monitored by a special unit of the National Bank of Ukraine (NBU) focussing on mapping the largest industrial and financial groups in the country. Moreover, legislative changes have already been adopted and increased bank owners’ responsibility in case their banks violate prudential requirements. Envisaged
changes in banking regulation also include the establishment of a credit registry
within the NBU, a transition to IFRS by mid-2015 as well as a strategy to monitor
the largest banks in detail until September 2015 (later the standards used here
should be applied to the overall sector). Under the IMF framework Ukrainian authorities are also showing commitment to strengthen the NPL resolution framework with a focus on out-of-court restructuring and bilateral agreements between
lenders and borrowers regarding FX exposures (based on an official guidance
for negotiations). A more effective handling of NPLs will definitely be a key measure. NPL exposures from the last crisis (2008/09) stayed within the banking system for too long (partially still burdening the banks). Moreover, the overall governance structure and banking sector monitoring capabilities at the NBU will be
strengthened, while there will be also a detailed regular reporting to the IMF regarding banking sector issues. The latter may help to avoid worst case scenarios.
Nevertheless, the IMF estimates that the total amount of funds needed to recapitalize the banking system in Ukraine will amount to some 9.25% of the GDP (in
2014/15). Banks’ recapitalization strategy, as proposed by the IMF, will take an
updated diagnostic study of the banking system’s health into account, based on
more adverse macroeconomic scenarios. A new diagnostic survey for the Top 10
banks will be provided by the end of July 2015. The IMF considers the infusion
of banks’ owners funds and own capital as the best option for recapitalization.
However, the IMF reserves 4% of the GDP in public funds as a buffer that could
be used to restructure and recapitalize local banks. For foreign-owned banks a
recapitalization by their owners is expected, while we may also see a partnering with the EBRD or other IFIs given the very high-risk environment in Ukraine.
The new IMF program is based on a UAH/USD rate of 22 as at year-end 2015,
an average UAH/USD rate of 21.7 in 2015 as well as a an update expectation for a GDP drop by -9% (as of May 2015, previously -5%). Macro-financial
risks do remain with the Ukrainian banking sector given the still fragile situation
in the first half of 2015. Hence, we fully agree with the IMF’s take that there are
still “exceptionally high” risks down the road during the process of restoring economic and financial stability in Ukraine.
Financial analysts: Gunter Deuber, RBI Vienna
Ludmilla Zagoruyko, Raiffeisen Bank Aval JSC, Kiev
54
1,036
UniCredit*
26
9
129
234
61
292
178
45
SK
52
33
14
56
12
SI
Number of branches per country
7
319
644
183
127
398
27
CZ
115
176
149
179
86
71
84
538
184
529
860
RO
199
103
385
203
156
149
BG
** including 173 SCB branches
*** BG including insurance outlets (including CIBank and DZI Insurance)
**** sorted by number of branc
* SK branches including in CZ
Source: Company data, RBI/Raiffeisen RESEARCH
Commerzbank
Alpha Bank
EFG
NBG
KBC***
222
95
Intesa
210
380
OTP
Santander**
128
85
114
48
HU
Erste
961
351
RBI
VTB
488
PL
SocGen
Sberbank
2014
197
117
158
137
77
119
31
HR
40
27
32
92
40
AL
81
95
109
177
51
68
72
85
104
34
RS
29
19
ME
51
120
96
58
BH
52
KO
18
65
28
MK
157
97
139
BY
61
198
1,700
110
212
600
17,046
RU
234
116
60
291
671
228
UA
23
117
KZ
50
MD
32
41
GE
4
5
3
5
4
1
10
9
6
5
12
15
13
11
No. of
countries
264
374
450
515
761
961
1,204
1,421
1,828
1,972
2,454
2,851
2,952
17,785
No. of branches
2014
CEE: Market presence and networks of international banks****
55
Raiffeisen Bank International
 Substantial group transformation program launched in early 2015
 Exit from Poland and Slovenia as well as sale of direct banking unit ZUNO
 Targets CET1 of 12% by year-end 2017 and a medium-term consolidated RoE of 11%
Loans and deposits in CEE*
60
58
56
54
52
50
48
46
2012
2013
Loans
2014
Deposits
* EUR bn, aggregated data of CEE subsidiaries
Source: company data
Asset quality in CEE*
11.5%
1.00%
11.0%
0.50%
10.5%
0.00%
10.0%
2014
1.50%
2013
12.0%
2012
2.00%
2011
12.5%
2010
2.50%
NPL Ratio (r.h.s.)
Annual provisioning/Gross loans
* aggregated data of CEE subsidiaries
Source: company data, calculation by RBI/Raiffeisen
RESEARCH
With reported aggregated assets of EUR 78.7 bn in CEE and a presence in
15 regional markets, Raiffeisen Bank International (RBI) ranks No. 4 in CEE.
While RBI’s regional footprint remained unchanged over the past years, its management revealed a revised strategy in February 2015. The clear group target is to further raise capital buffers (target CET1 ratio, fully loaded, of 12% by
year-end 2017 compared to 10% at year-end 2014). The measures to be implemented include the sale of the operations in Poland and Slovenia as well as its
direct banking unit ZUNO. The rationale for exiting the Polish market was that a
further participation in the ongoing market consolidation would require substantial additional capital resources, whereas a market exit is calculated in resulting
in a EUR 7.7 bn RWA relief. The reason for the sale of the Slovenian operations is
the limited strategic relevance of the market for RBI’s overall CEE network. As part
of the drive to further increase the group’s focus on the CEE region, it is planned
to significantly scale back or exit niche player operations in Asia and the US.
In addition, RBI’s management plans to rescale its operations in Russia and targets an RWA reduction of 20% in EUR-terms based on a footprint optimization
(e.g. exit of six regions in the far east of Russia) and focus on top-tier corporates,
trade finance and affluent retail banking. A reduction in exposure is also foreseen in Ukraine, where RWAs will be decreased by about 30% in EUR-terms by
year-end 2017. In Hungary, a further optimization of the operation will be undertaken with focus on corporate and affluent retail banking. Overall, the targeted
gross RWA reduction of about EUR 16 bn from 2015 to 2017 should give room
for further growth in core CEE markets (EUR 7 bn business growth in RWA targeted for the next three years).
The aggregated lending volume of RBI’s CEE entities decreased by 4.2% due
to LCY depreciation and more restrictive lending in Ukraine and Russia. It was
partly offset by volume growth in Slovakia (retail and corporates) and Poland
(corporates). The local funding improved evidenced by an aggregated L/D ratio
in CEE of 107% in 2014 compared to 109% in 2013. In the majority of countries, the asset quality (NPL ratio) improved in 2014 (especially in Bulgaria, the
Czech Republic, Hungary, Poland and Romania), while Ukraine (NPL ratio: 46%)
and to a much lower extent also Russian operations (NPL ratio: 5.9%) have seen
a weakening in credit quality. Overall, RBI managed to increase the NPL coverage in the CEE region by 810 bp to 71.5%.
Key business position indicators in CEE
Number of countries in CEE
Market share in CEE (% of total assets)
Number of branches in CEE
2010
2011
2012
2013
2014
76,189
78,949
84,041
80,936
78,667
15
15
15
15
15
3.8%
3.5%
3.4%
3.2%
3.3%
2,947
2,914
3,093
3,010
2,851
Source: company data, calculation by RBI/Raiffeisen RESEARCH
56
RBI’s 2014 results (EUR 493 mn net
Countries of significant presence in CEE (% of total assets)
loss on group level, EUR 221 mn net
Banks’ market share (%)
Overall market data
profit in CEE) have been characterMarket share foreignMarket share
owned banks (%)
Top 5 banks (%)
ized by negative one-offs of about
2009
2014
2009
2014
2014
EUR 780 mn (EUR 306 mn goodwill
Poland
2.3
2.3
62.9
59.5
49.0
impairments in Russia, Poland and AlHungary*
7
6.7
69.2
60.8
50.0
bania; EUR 251 mn impact from reCzech Republic
4.9
3.9
87.1
83.5
63.0
tail government measures in Hungary;
Slovakia
17.6
16.6
98.8
98.5
63.2
Romania
EUR 196 mn deferred tax asset write7.1
7.9
85.3
89.9
54.1
Bulgaria
11
7
83.5
76.3
54.3
down and EUR 30 mn intangibles imSerbia
8.3
7.3
74.3
74.5
50.0
pairment in Ukraine). On a group
Bosnia a.H.
21.6
16.7
95.0
90.0
64.5
level, the net interest margin slightly
Russia**
1.4
1.1
8.6
7.6
56.4
widened by 13 bp to 3.24% on re* foreign-owned banks excl. OTP
** 100% of foreign-owned banks
pricing initiatives and higher margins
Source: company data, national sources, RBI/Raiffeisen RESEARCH
in Russia, Ukraine and Belarus. Risk
costs, however, jumped from 139 bp
in 2013 to 210 bp driven by higher provisioning in Ukraine, Asia and Russia.
On contrast, CE/SEE markets saw lower risk costs.
For 2015 and H2 in particular, RBI’s management still expects net provisioning to
remain elevated, but below the levels of 2014. The consolidated result might still
be negative, as the majority of restructuring costs (around EUR 550 mn) are expected to be booked in 2015. After the implementation of the above mentioned
strategic measures, RBI’s cost base should be 20% below the level of 2014 (at
constant FX rates) and the RoE is targeted at about 11% in the medium-term (14%
pre-tax RoE).
Financial analysts: Text: Stefan Maxian, Raiffeisen Centrobank
Data: Jovan Sikimic, Raiffeisen Centrobank
Key performance indicators CEE business (aggregated data of CEE subsidiaries, all indicators in EUR)
2010
2011
2012
2013
2014
Asset growth (% yoy)
1.3%
3.6%
6.4%
-3.7%
-2.8%
Loans/total assets (%)
69%
69%
70%
70%
69%
Retail loans/total loans (%)
47%
45%
50%
52%
51%
Corporate loans/total loans (%)
52%
53%
48%
46%
47%
Assets and loans
Credit risk
Growth customer loans (% yoy)*
Gross non-performing loans (% of total loans)
Loan loss reserves/non-performing loans (%)
Annual provisioning/customer loans (%)
4.7%
3.7%
-2.2%
-2.8%
-4.2%
10.8%
11.4%
12.0%
12.3%
11.9%
55%
65%
65%
66%
71%
2.0%
1.8%
1.5%
1.6%
2.2%
Funding
Customer deposits/total assets (%)
Customer loans/customer deposits (%)
Deposit growth (% yoy)
59%
63%
64%
65%
65%
118%
110%
108%
109%
107%
5.2%
11.3%
8.7%
-3.2%
-2.3%
Profitability and capitalization**
Cost/Income (%)
NII/total assets (%)
Return on Assets (pre-tax proportional, %)
Profit before tax (EUR mn, proportional)
Total CAR ratio (%), at the group level
55%
56%
58%
57%
57%
3.9%
3.8%
3.7%
3.9%
3.9%
1.08%
1.20%
1.23%
1.42%
0.52%
823
948
1,034
1,148
411
13.3%
13.5%
15.6%
15.9%
16.0%
Tier-1 ratio (%), at the group level
9.7%
9.9%
11.2%
11.2%
10.9%
Core Tier-1 ratio (%), at the group level
8.9%
9.0%
10.7%
10.7%
10.9%
* adjusted for M&A
** 2013; 2014 transitional acc. to Basel 2.5
57
Erste Group
 Unchanged regional footprint; interest in Poland remains in the medium-term
 Significant impairments and risk provisions affected 2014 results, turnaround penciled for 2015
 Hungarian government and the EBRD to acquire stake in Erste HU
56
54
52
50
48
46
44
2012
2013
Loans
2014
Deposits
10.0%
1.00%
5.0%
0.00%
0.0%
2014
2.00%
2013
15.0%
2012
3.00%
2011
20.0%
2010
4.00%
NPL Ratio (r.h.s.)
RESEARCH
Since exiting Ukraine two years ago, Erste Group has not changed its regional
footprint with a strong retail franchise in the Czech Republic, Slovakia, Hungary,
Croatia and Romania. While the management still expressed interest in entering the Polish market in the long-term, it ruled out any acquisition within the next
two years. The current capitalization level and valuation differential between the
Erste Group share and potential Polish targets would not allow such a step. In the
short- to medium-term, rather bold-on acquisitions to improve the market share in
existing countries might be on the agenda. This was evidenced by Erste’s interest
in Citi’s retail portfolio in Hungary and in the Czech Republic. In the past year,
the management’s attention was on restructuring the group’s Romanian and Hungarian operations with the target to return to positive profitability in 2015 (Romania) and 2016 (Hungary). Also, on group level several restructuring steps have
been undertaken with the target to transfer a larger part of the corporate business gradually to local banks.
In Hungary, Erste Group signed an agreement with the government and the EBRD
that is aimed to enhance the effectiveness of the Hungarian banking sector via
a series of measures (substantial reduction of the banking tax, no further costs in
the FX conversion process, no new laws dragging on banks’ profitability, ensuring fair competition among local and foreign players). Based on this agreement,
Erste Group has invited the government and the EBRD to invest in its local operation via the acquisition of a 15% stake each. Negotiations are in progress and
the government has set aside HUF 15 bn in the 2015 budget for the purchase of
a 15% stake in Erste Hungary. In exchange, Erste announced the introduction of
several programs to support lending growth over a period of three years.
Overall CEE lending volume was eroding by 3% attributable to FX retail loan conversion and muted lending activity in Hungary (down 20% yoy in EUR-terms) and
NPL sales and selective SME lending in Romania. While other markets showed
flat or slightly increasing loan volumes yoy, Erste’s Slovakian unit reported a 12%
loan growth based on market share gains and a stronger demand for consumer
and mortgage loans. Given its strong retail franchise in the Czech Republic and
Slovakia, Erste’s funding position in CEE remains favorable with a regional L/D
ratio of 92%. For 2015, the management expects low single digit loan growth
on group level with contributions from all countries (except Croatia). The NPL ratio in CEE improved from 14.2% in the fourth quarter of 2013 to 12.3% in the
fourth quarter of 2014 (11.6% in the first quarter of 2015) based on a 16%
2010
2011
2012
2013
2014
83,625
84,028
83,839
79,322
75,178
7
7
6
6
6
4.1%
3.8%
3.4%
3.1%
3.1%
2,160
2,140
1,937
1,861
1,828
58
decline in NPL stock driven by significant NPL sales (mainly in Romania)
and lower gross inflows on supportive
trends overall (except Croatia).
Overall market data
Market share foreignowned banks (%)
Hungary*
Market share
Top 5 banks (%)
2009
2014
2009
2014
8.5
5.9
69.2
60.8
50.0
87.1
83.5
63.0
98.8
98.5
63.2
85.3
89.9
54.1
90.9
88.3
75.4
Erste’s 2014 results (EUR 1,442 mn
Czech Republic
20.3
15.9
net loss on group level) were characSlovakia
21.7
22.3
terized by additional risk provisioning
Romania
19
16.2
Croatia
in Romania (EUR 400 mn) and impair13.7
14.9
*
foreign-owned
banks
excl.
OTP
ment of intangibles in Romania (goodSource: company data, national sources, RBI/Raiffeisen RESEARCH
will, brand, customer stock of about
EUR 810 mn), the effect of the Hungarian consumer loan law including the FX mortgage conversion (EUR 312 mn)
as well as impairments of goodwill in Croatia (EUR 156 mn) and deferred tax
assets (EUR 197 mn). The first quarter result in 2015 demonstrated a strong rebound (EUR 226 mn net profit) due to a significant decline in risk costs especially
in Romania and Hungary. Targeting a ROTE of 8% to 10% for 2015, translating into a net profit range of about EUR 700 mn to 900 mn, Erste’s management
also expects the significant earnings rebound in 2015 based on a significant decline in risk costs towards a target range of EUR 1.0 bn to 1.2 bn. The operating
result is expected to decline in the mid-single digits on the back of lower operating result in Hungary (FX mortgage conversion, consumer loan law) and Romania (lower unwinding impact post NPL sale) as well as NIM pressure given the
low interest environment.
2014
2010
2011
2012
2013
2014
5.8%
0.5%
-0.2%
-5.4%
-5.2%
62%
62%
62%
62%
64%
61%
61%
61%
57%
60%
33%
33%
33%
43%
40%
Assets and loans*
Credit risk
Growth customer loans (% yoy)**
5.2%
1.5%
0.1%
-5.3%
-2.8%
10.2%
13.3%
14.9%
14.2%
12.3%
62%
62%
62%
66%
74%
2.66%
3.30%
2.61%
2.07%
3.16%
69%
Funding
63%
62%
65%
67%
99%
101%
96%
93%
92%
5.7%
-0.8%
4.6%
-3.0%
-1.1%
Profitability and capitalization
Cost/Income (%)
43%
44%
45%
44%
45%
3.9%
3.9%
3.6%
3.5%
3.4%
1.14%
0.62%
0.97%
1.05%
0.00%
951
519
810
829
3
Total CAR ratio (%)***
13.5%
14.4%
15.5%
16.3%
15.7%
Tier-1 ratio (%), at the group level****
11.8%
12.2%
13.5%
11.8%
10.6%
9.2%
9.4%
11.2%
11.4%
10.6%
Core Tier-1 ratio (%), at the group level*****
* 2011 including Ukraine
** adjusted for M&A
*** 2014 - Basel 3 fully loaded; 2013 Basel 2.5 on total risk; 2010-2012 Basel 2 incl. participation capital
**** 2014 - Basel 3 fully loaded; 2013 Basel 2.5 on total risk; 2010-2012 Basel 2 (credit risk) incl. participation capital
***** 2014 - Basel 3 fully loaded; 2010 - 2013 acc. to Basel 2.5 on total risk; 2010-2012 inlcuding participation capital
59
OTP
 Agreement with EBRD and banks should provide a more bank-friendly environment in Hungary
 Ukrainian and Russian operations expected to be loss making in 2015
 Strong capitalization allows for further M&A activity
25
24
23
22
21
20
19
2012
2013
Loans
2014
Deposits
3.60%
15.0%
3.40%
10.0%
3.20%
5.0%
3.00%
0.0%
2014
20.0%
2013
3.80%
2012
25.0%
2011
4.00%
2010
OTP did not change the setup of its CEE presence over the past years. Still, the
bank closed two smaller acquisitions in 2014 and increased its market share in
Croatia and Romania by buying Croatian assets from Italy’s Banco Populare and
the Romanian entity of Portuguese BCP. The management continues to look at
markets where OTP has subscale operations and opportunistically looks at other
targets. The targeted year-end 2015 CET1 ratio of 13.5% (13.0% as of Q1)
should provide room for further mid-scale M&A activity. In Russia, OTP’s management targets to reduce loan volumes and gradually shift operations from a POS/
consumer credit focused bank towards a retail direct bank by launching a new
direct bank (Touch Bank) with the focus on affluent and mass affluent segments.
NPL Ratio (r.h.s.)
RESEARCH
In 2014, OTP had to swallow a HUF 156 bn P&L impact (after tax) of regulatory changes related to consumer contracts in Hungary. On a retroactive basis,
the use of FX conversion margins as well as several unilateral consumer contract
amendments were declared unfair and void. Banks had to treat “overpayments”
as principal pre-payments and adjust installments ahead of the conversion of FX
mortgage loans. Besides the above mentioned one-off impact, OTP assumes that
the new regulation will impact the bank’s NII by around HUF 10 bn to 12 bn
annually. However, we expect at least some compensation of the NII impact by
lower risk costs as the fading FX-related credit risk and reduced mortgage installments. Several government initiatives to revive loan growth should support the
clearly improving risk costs trend of the past quarters. Earlier in 2015, the Hungarian government and the EBRD sealed an agreement to enhance the effectiveness of the Hungarian banking sector via a series of measures to be implemented
over the short- to medium-term, including a significant reduction of the banking
tax, assurance of no further costs for FX mortgage conversion and the promise
of no new laws or measures that may have a negative impact on the profitability of the banking sector. Also, the implementation of an enhanced Funding for
Growth Scheme with cheap funding and partial risk sharing provided by the
Central Bank should help to revive corporate lending and improve the sentiment
among banks in Hungary.
Adjusted for FX effects, OTP’s gross loan volume dropped by 6% at group level
in 2014. This drop was driven by a 12% loan volume decrease in Hungary due
to the state bundling of municipal loans and further erosion of mortgage and consumer lending as well as a loan volume contraction of about 24% in Ukraine.
2010
2011
2012
2013
2014
38,329
35,877
37,255
37,318
37,533
9
9
9
9
9
1.9%
1.6%
1.5%
1.5%
1.6%
1,508
1,424
1,401
1,434
1,421
60
On the other hand, loan growth was
visible in Bulgaria (corporate lending), Slovakia (consumer lending) and
Serbia (corporate and consumer lending). OTP’s funding profile improved
on 11% deposit growth, which was
mainly driven by 13% volume growth
in Hungary (driven by institutional
fund deposits and retail) and a 14%
increase in Bulgaria.
Overall market data
Market share
Top 5 banks (%)
2009
2014
2009
2014
2014
18.2
22
69.2
60.8
50.0
Slovakia
2.7
2.5
98.8
98.5
63.2
Bulgaria
12.5
11.7
83.5
76.3
54.3
3.5
3.9
90.9
88.3
75.4
Hungary*
Croatia
* foreign-owned banks excl. OTP
The 2015 loan development should be impacted by FX conversion. Excluding
this effect, loan volume should bottom-out low to mid-single digit in Hungary according to OTP. Apart from an upbeat outlook for OTP’s core markets Hungary
and Bulgaria, the bank’s management still expects Ukrainian and Russian operations to remain in the red in 2015, despite the already significant impairments
of 2014.
2010
2011
2012
2013
2014
0.3%
-6.4%
3.8%
0.2%
0.6%
69%
68%
66%
64%
56%
64%
66%
68%
68%
69%
31%
30%
29%
29%
28%
Assets and loans
Credit risk
2.0%
-8.2%
1.1%
-3.3%
-12.3%
13.7%
16.6%
19.1%
19.8%
19.3%
74%
80%
80%
84%
84%
3.67%
3.37%
3.40%
3.60%
3.85%
65%
Funding
54%
59%
61%
62%
128%
126%
116%
109%
91%
-1.8%
2.4%
6.3%
2.7%
4.3%
Profitability and capitalization***
Cost/Income (%)**
43%
45%
46%
48%
50%
5.7%
6.1%
6.0%
5.8%
5.2%
1.86%
1.97%
1.80%
1.57%
1.20%
712
706
672
585
452
17.5%
17.3%
19.7%
19.7%
17.5%
14.0%
13.3%
16.0%
17.4%
n.a.
12.1%
12.4%
15.1%
16.0%
14.1%
* not adjusted for M&A and FX
** operating cost/ NII+Fees+Other non-interest income
*** from Q1 2014 the Basel 3 regulation has been applied
61
UniCredit
 CEE division posted good profitability in 2014, supported by the group’s business streamlining in the region
 NPL ratio virtually unchanged in CEE, albeit credit risk costs decline
 Sober core funding supports further lending potential
82
80
78
76
74
72
2012
2013
Loans
2014
Deposits
2.00%
12.0%
1.50%
11.0%
1.00%
10.0%
0.50%
2014
2013
2012
2011
9.0%
2010
0.00%
NPL Ratio (r.h.s.)
RESEARCH
UniCredit Group’s presence in the CEE region is one of the largest among the
Western European banks, with total assets in the region over EUR 120 bn as at
year-end 2014 (the bank’s CEE division and Poland, which is regarded as a
separate division, taken together). The group remains committed to CEE and, although it implements certain downscaling adjustments in the most risky countries,
it keeps its CEE assets and market shares high. The group’s CEE performance
in 2014 was strong, as the restructuring and streamlining of the past years has
started to pay off. Additional support comes from the macro upturn in the region
as well as visible improvement of risk costs in most CEE countries. The group’s
divisions in CEE and Poland delivered more than half of the group’s profits in
2014, albeit they were somewhat lower than in 2013 (profit before tax was
down 4% yoy in the CEE division and 2% down yoy in Poland). Nevertheless, in
nominal terms the consolidated profit of the CEE division exceeded EUR 1 billion
in 2014 and profits in Poland contributed EUR 327 mn.
In 2014, UniCredit finalized the integration of its Czech and Slovak subsidiaries,
completed the restructuring in the Balkans, and went on adjusting its branch networks and the cost efficiency across the regional divisions. The result of the latter was a 44% contraction of the number of branches in the CEE division, which
has come down by about 450 branches (16%) between 2010 and 2014. The
group’s Cost/Income ratio in CEE division thus recorded at 41.5% in 2014,
which was one of the lowest among its peers (47% for Poland). In EE, UniCredit
exited from Kazakhstan (sold to ATF bank in 2013) and keeps its Ukrainian unit
for sale.
The group’s lending volume in the CEE region stayed approximately flat in 2014.
Country-wise, however, the dynamics were diverse. The group’s lending (EURterms) saw the strongest momentum in Bulgaria (17% yoy growth), Poland (7%
yoy), Serbia (6% yoy) and Romania (7% yoy). A lending contraction (in EURterms) was posted in Russia (down 7% yoy, while LCY-denominated loans saw
growth largely due to the LCY depreciation), and Slovenia (down 8% yoy). The
consolidated CEE RWA were still on the rise, with total RWA growth of 3% yoy
in Poland, and 9% yoy in the CEE division.
Country-wise the group was by and large cash-flow positive in its CEE division
countries, with only one market – Slovenia – posting a moderately negative performance in 2014. The major profit contributors were Poland, the Czech Re-
Key business position indicators in CEE*
2010
2011
2012
2013
2014
110,526
116,255
121,555
120,074
120,307
14
14
13
12
12
5.5%
5.2%
4.9%
4.7%
5.0%
2,903
2,861
2,658
2,522
2,454
* 2014 including Ukraine (held for sale); Baltics treated as 1 country; Source: company data, calculation by RBI/Raiffeisen RESEARCH
62
public, Slovakia and Russia. The latter
was notwithstanding the headwinds
of the second half of 2014. On the
core funding side, we see the group
to be well-positioned to get ready to
a (widely expected) economic upturn in the CEE region. Customer deposit growth posted a sanguine 4%
yoy growth in the CEE division and
2% yoy growth in Poland. As a result,
the L/D ratio in the CEE division was
111% and 89% in Poland, allowing
sufficient room for further expansion
in case the macro-stance appears to
be supportive.
Overall market data
Market share
Top 5 banks (%)
2009
2014
2009
2014
2014
10.6
5.9
62.9
59.5
49.0
Czech Republic
6.4
9.1
87.1
83.5
63.0
Hungary*
5.2
7
69.2
60.8
50.0
6
7.9
85.3
89.9
54.1
Croatia
25.3
25.4
90.9
88.3
75.4
Bulgaria
16.3
17.4
83.5
76.3
54.3
5.8
8.7
74.3
74.5
50.0
16.4
21.6
95.0
90.0
64.5
2.1
1.7
8.6
7.6
56.4
Poland
Romania
Serbia
Bosnia a.H.**
Russia***
** UniCredit bank and UniCredit bank Banja Luka
*** 100% of foreign-owned banks
Risk costs, one of the major weak
points of UniCredit in the previous years, continue to be a main concern for the
group’s financial performance, as they stay particularly high in Italy, the group’s
home market. In the CEE region, however, the aggregate risk costs posted a notable decline, from 192 bp in 2013 to 118 bp in 2014, signaling an improved
asset quality of the newly uploaded loan book. The progress was especially notable in Hungary, where the risk costs lowered from 270 bp in 2013 to 114 bp
in 2014. The highest risk costs remain in SEE (e.g. Romania, Serbia) and Slovenia. The NPL ratios both in the group’s CEE division and in Poland remain virtually flat, with 12% in the former and just-below 7% in the latter.
Financial analysts: Text: Elena Romanova, RBI Vienna
2010
2011
2012
2013
2014
2.7%
5.2%
4.6%
-1.2%
0.2%
65%
65%
62%
65%
65%
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
Assets and loans
Credit risk
Loan loss reserves/non-performing loans (%)**
5.8%
5.1%
-0.5%
3.9%
0.5%
11.8%
11.8%
10.0%
10.6%
10.7%
54%
53%
56%
57%
59%
1.77%
1.25%
1.15%
1.41%
1.00%
68%
Funding
63%
63%
63%
67%
104%
103%
98%
98%
97%
4.9%
6.4%
4.4%
3.8%
1.9%
Cost/Income (%)
47%
46%
45%
44%
44%
3.2%
3.1%
2.8%
2.7%
2.8%
1.07%
1.37%
1.37%
1.26%
1.25%
1,185
1,589
1,661
1,512
1,506
12.7%
12.4%
14.5%
13.6%
13.6%
9.5%
9.3%
11.4%
10.1%
11.3%
8.6%
8.4%
10.8%
9.6%
10.4%
* not adjusted for M&A
** incl. Turkey for 2010-2012
*** 2012, 2013 transitional; 2014 fully loaded Basel 3
63
Société Générale
 SocGen committed to Russia; expects loss in 2015 there due to high risk costs
 Czech operations traditionally stable for the highly capitalized bank
 Management expects turnaround in Romania on lower risk costs
52
50
48
46
44
42
2012
2013
Loans
2014
Deposits
2.50%
15.0%
2.00%
10.0%
1.50%
1.00%
5.0%
0.50%
2014
2013
2012
2011
0.0%
2010
0.00%
NPL Ratio (r.h.s.)
RESEARCH
SocGen’s footprint in CEE has been unchanged over the past twelve months. The
bank remains committed to the region (including Russia) and would be ready to
take expansionary steps in Poland. Its largest presence is still in the Czech Republic, Russia and Romania, followed (with quite a gap) by Croatia, Serbia and
Poland.
The Czech Republic (capital, growth): Komerèní banka delivered a moderate 4%
net profit growth in 2014, driven by a visible improvement of risk provisioning
(minus 25%), while the low interest rate environment curbed income (minus 1%)
despite a 5% loan growth. The bank managed to maintain its solid cost efficiency
as well as its excellent capitalization and funding profile. With regard to 2015,
management forecasts a loan growth of 5% to 6% with accelerating trends in
consumer lending, SME and large corporates, while deposit growth should come
down to 3% (from 8% in 2014). The outlook for revenues remains muted with
net interest income remaining flat given pressure on NIM – which should shrink
from 2.6% to 2.4% – and slightly eroding F&CI due to ongoing re-pricing effects.
On the other hand, management expects flat Opex and at the current stage does
not see any reason for weakening credit quality, keeping the risk cost guidance
at 5 bp to 45 bp for corporate loans and at 30 bp to 45 bp for retail business.
Given the group’s strong capitalization – targeting a CET1 range of 15% to 16%
– Komerèní banka will likely keep up its generous dividend pay-out ratios of 80%
to 100% for the next two years.
Romania (recovery): For the past couple of years, SocGen’s BRD has been struggling to get rid of its largest challenge, namely high risk costs (exceeding 300
bp). After aggressively allocating provisions and writing off NPLs, there is more
confidence in the balance sheet which could pave the way to the first meaningful drop in risk cost to normalized levels close to approximately 150 bp in 2015.
Also, the statement of the head of the supervisory board of the Romanian Central Bank, who said that he was quite pleased with the level of provisioning, provides some tailwind. Separately, BRD’s management expects revenue growth of
3% yoy on a flat NIM-development and slightly higher fees and commissions that
will be fuelled by a 4.5% loan growth, while Opex is forecasted to increase by a
marginal 1.5% yoy. Consequently, 2015 should be the year in which the group
could return to the profitable path after three years of losses.
Russia (challenge): SocGen Russia comprises Rosbank (consumer finance), Delta
Credit (mortgage lender) and Rusfinance (car loans unit). The operations’ profitability in 2014 was affected by the RUB depreciation and soaring (retail) risk provisioning resulting in a moderate EUR 28 mn net profit. SocGen underscores its
Number of branches in CEE*
2010
2011
2012
2013
2014
69,206
75,152
78,584
76,220
77,408
14
14
13
13
13
3.3%
3.3%
3.2%
3.0%
3.2%
2,740
2,725
2,675
3,019
2,952
* 2012 without Poland (n.a.); Source: company data, calculation by RBI/Raiffeisen RESEARCH
64
strong cost efficiency in RUB-terms as
well as the resilient revenue development. Following de-risking initiatives,
the NPL ratio came down to 8.5%.
The segmental performance was also
impacted by the EUR 525 mn goodwill write-off that was booked in the
first quarter of 2014.
Overall market data
Market share
Top 5 banks (%)
2009
2014
2009
2014
n.a.
0.8
62.9
59.5
49.0
Czech Republic
16.4
15.7
87.1
83.5
63.0
Romania
Poland
2014
13.1
12.4
85.3
89.9
54.1
Croatia
7.5
7.1
90.9
88.3
75.4
Bulgaria
4.2
5.4
83.5
76.3
54.3
74.3
74.5
50.0
8.6
7.6
56.4
In the course of the group’s results reRussia*
1.9
1.5
lease for the first quarter of 2015, the
* 100% of foreign-owned banks
management announced that it would
probably post a loss in Russia in 2015
in the amount of EUR 250 mn to 300
mn, driven by a soaring risk cost outlook of 400 bp to 500 bp as NPLs will continue to rise amid a difficult macroeconomic situation and high inflation. Recently,
the Deputy CEO confirmed SocGen’s commitment to Russia as well as a continuous liquidity improvement but also announced changes in the lending criteria.
Management expects less activity on the retail side while the corporate situation
remains good overall. On top of that, the bank said to have introduced measures of defense against falling profits, like the plan to cut about 2,500 jobs (out
of 20,500 in total) during 2015.
Poland (potential expansion): SocGen is operating in Poland via its small subsidiary Eurobank (about EUR 3 bn in total assets). Recent comments from the French
group seem to point to a rising appetite for an increased presence, as SocGen
has confirmed its interest in a minority stake in Alior Bank, a local retail bank.
Serbia
4.3
7
Financial analysts: Text: Jovan Sikimic, Raiffeisen Centrobank
2010
2011
2012
2013
2014
6.2%
8.6%
4.6%
-3.0%
1.6%
65%
64%
64%
66%
58%
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
Assets and loans
Credit risk
10.5%
6.7%
4.5%
0.6%
-10.7%
Gross non-performing loans (% of total loans)**
11.1%
11.6%
10.8%
11.4%
8.3%
n.a.
n.a.
n.a.
n.a.
n.a.
1.98%
1.35%
1.77%
2.07%
1.98%
65%
Annual provisioning/customer loans (%)**
Funding
61%
59%
58%
63%
100%
109%
111%
105%
90%
1.8%
4.0%
2.9%
5.9%
4.1%
Cost/Income (%)**
56%
61%
61%
57%
60%
n.a.
n.a.
n.a.
n.a.
n.a.
0.4%
0.6%
0.3%
0.4%
0.4%
Return on Assets (pre-tax proportional, %)**
Profit before tax (EUR mn, proportional)**
262
417
216
291
308
n.a
11.9%
12.7%
13.4%
14.3%
10.6%
10.7%
12.5%
11.8%
12.6%
8.5%
9.0%
10.7%
10.0%
10.1%
* adjusted for M&A
** only for CZ, RO, RU
*** 2013, 2014 Basel 3 fully loaded Danish compromise; 2011, 2012 Basel 2.5 ; 2010 Basel 2
65
KBC
 After divestments in previous years, KBC now focuses on four core markets
 Czech operations by far the strongest contributor to group earnings
 Improving asset quality in Hungary, but impact from one-off charge
40
30
20
10
0
2012
Loans
2013
2014
Deposits
1.50%
8.0%
6.0%
1.00%
4.0%
0.50%
2.0%
2014
2013
2012
2011
0.0%
2010
0.00%
NPL Ratio (r.h.s.)
RESEARCH
After several divestments made over the past years in Poland (sold Kredyt Bank
to Santander), Russia, Slovenia (minority share in the largest local bank NLB sold
to the state) and Serbia, KBC’s footprint did not change over the past twelve
months. Today, KBC operates in four core markets in the region. It is the leading bank in the Czech Republic and among the Top 5 banks in Hungary and
Slovakia. On the fourth market, Bulgaria, KBC only holds a minor market share.
KBC allocates 14% of its total capital base to the Czech Republic, underscoring
the highest importance (by far) of that international market for the whole group.
Along with its known banc-assurance franchise, KBC also runs insurance subsidiaries in CEE, both in the life and the non-life segment, complementing its banking
operations and making it one of the top foreign players in that segment.
In 2014, KBC’s aggregated loan growth in CEE amounted to about 5% yoy with
all subsidiaries managing to increase their respective lending volumes (excluding
FX effect): the Czech Republic (4%), Hungary (5%), Slovakia (8%) and Bulgaria
(9%). With the exception of Hungary, the major driver for the loan growth was
the clear uptick of mortgage lending, particularly visible in the Czech Republic
(9%) and Slovakia (16%). Despite the fact that deposits remained unchanged on
aggregate, as some outflows from managed funds in Hungary were neutralized
by inflows in Slovakia, with L/D of below 80%, KBC was able to keep up one of
the best funding profiles among international banks in the CEE region.
On the asset quality front, the aggregated CEE NPL ratio increased by about 50
bp, touching almost 6% as at year-end 2014. While the low-risk markets in the
Czech Republic and Slovakia adjusted upwards from low bases (3% to 4%), a
certain improvement in Hungary (NPL ratio down to 13.6% coming from 15% in
2013) could offset the still quite risky Bulgarian market (28%). Nevertheless, risk
provisioning for assets in CEE was lower yoy, thanks to certain positive effects in
Hungary and the Czech Republic.
In 2014, the group’s profit after tax was lower than the year before, as the oneoff charge in Hungary of EUR 231 mn (Supreme Court’s decision on retail loans)
decreased the total earnings to about EUR 600 mn (2013: about EUR 800 mn).
Market share in CEE (% of total assets)*
Number of branches in CEE**
2010
2011
2012
2013
2014
67,315
64,312
53,060
51,238
47,085
8
8
5
4
4
3.3%
3.0%
2.1%
2.1%
2.0%
1,602
1,419
777
771
761
* The number of branches 2010/2011 including NLB **Czech Republic includes CSOB Bank + Era Financial Centers; Source: company data, calculation by RBI/Raiffeisen RESEARCH
66
Despite facing relatively high pressure
on the NIM side in the Czech RepubBanks’ market share (%)
Overall market data
lic, KBC has managed to keep its profMarket share foreignMarket share
owned banks (%)
Top 5 banks (%)
itability stable on the wings of good
2009
2014
2009
2014
2014
cost management in the Czech RepubCzech Republic
20.3
18.4
87.1
83.5
63.0
lic, lower impairment charges in HunHungary*
9.6
7.6
69.2
60.8
50.0
gary, the Czech Republic and SlovaSlovakia
10.9
10.3
98.8
98.5
63.2
kia as well as strong revenues in SloBulgaria
n.a.
2.9
83.5
76.3
54.3
vakia. The country-wise profitability
breakdown for 2014 shows the highest rebound in Bulgaria (as a result of
the base effect from 2013), an improvement in Hungary (adjusted for one-offs,
lower provisioning and flat revenues), a stable performance in Slovakia and a
deterioration in the Czech Republic. For 2015, KBC’s management expects to be
able to maintain stable and solid returns from its Czech business unit.
Financial analysts: Text: Jovan Sikimic, Raiffeisen Centrobank
Assets and loans
Asset growth (% yoy)*
3.8%
-4.5%
1.5%
-3.4%
-8.1%
Loans/total assets (%)**
51%
56%
54%
52%
60%
Retail loans/total loans (%)***
58%
57%
57%
56%
55%
Corporate loans/total loans (%)***
41%
43%
43%
44%
45%
2.3%
5.2%
4.1%
-5.4%
4.8%
6.2%
6.3%
5.2%
5.4%
5.9%
n.a.
n.a.
n.a.
n.a.
n.a.
1.40%
1.31%
0.47%
0.70%
0.41%
Customer deposits/total assets (%)**
61%
64%
68%
72%
77%
82%
87%
80%
75%
77%
-0.6%
-0.9%
3.0%
2.1%
-0.6%
Credit risk
Funding
Deposit growth (% yoy)*
Profitability and capitalization****
Cost/Income (%)
57%
53%
60%
61%
60%
NII/Total assets (%)
3.5%
3.2%
2.9%
2.9%
2.9%
1.3%
1.2%
1.2%
1.6%
1.6%
832
778
866
833
632
n.a.
15.6%
15.8%
17.8%
18.3%
12.6%
12.3%
13.8%
12.8%
15.9%
10.9%
10.6%
11.7%
12.8%
14.3%
* adjusted for M&A
** 2010, 2011 not including NLB
*** only for CSOB
**** 2013, 2014 fully loaded Basel 3 and acc. to Danish compromise; 2010, 2011, 2012 Basel 2
67
Intesa Sanpaolo
 Good profitability in 2014 supported by improved core revenues, strong asset management and insurance business
 NPLs remain high at the group level, although asset quality sees certain improvement
 Funding is solid on the group’s retail business position, backed by asset management and insurance business arms
28
27
26
25
24
23
22
2012
Loans
2013
2014
Deposits
4.00%
15.0%
3.00%
10.0%
2.00%
5.0%
1.00%
2014
2013
2012
2011
0.0%
2010
0.00%
NPL Ratio (r.h.s.)
RESEARCH
The Intesa Sanpaolo Group is one of the leading financial groups in Italy with
total assets of EUR 646 bn and customer loans of EUR 339 bn as at year-end
2014. The group has a significant footprint in CEE, and its geographic diversification also includes the Middle East and Africa. It also benefits from its diversified business lines, being predominantly a corporate bank, but also actively developing asset management, insurance, and pension businesses. The group is active in nine CEE countries (and currently in the process of exiting from the tenth,
Ukraine). About 8% of the group’s loan business and approximately 6% of its total assets originate in CEE. Intesa Sanpaolo ranks among the Top 3 in Serbia,
Croatia, Slovakia and Albania, and among the Top 10 in Hungary, Bosnia and
Herzegovina and Slovenia.
Inferior asset quality has been the major jeopardy for the group’s business performance over the past few years, predominantly stemming from the weakened
Italian economy, but also from the crisis in CEE from 2008 to 2010. This resulted
in quite high cost of risk that the group had to carry, which has pushed down its
bottom-line results in the previous years. On the positive side, Intesa Sanpaolo
has implemented the streamlining and clean-up of its Italian and global loan portfolio so that the NPL ratio and cost of risk started to improve in 2014. The new
inflow of classified loans to the NPL stock declined significantly in 2014, namely
by over 20% according to the group’s reporting, which resulted in a general decline of cost of risk on both the group level and in the CEE countries. The countries with the highest risk costs for the group in the area remain Hungary and Romania, while Russia saw escalated cost of risk starting 2014. Ukraine’s business
is set to be sold out, amidst remaining very high risk costs. The total groups’ stock
of doubtful, sub-standard and restructured loans stood at 8.4% of total loans for
the CEE area as at year-end 2014.
The group showed good profitability in 2014 as a whole, with its operating
income flow growing by 4%, and pre-tax results significantly exceeding those
of 2013. The performance was supported by improved core income, but also
largely benefitting from strong profits generated by its asset management and insurance business. CEE contributed over 10% of the group’s operating income, although the net profit stemming from the area was in negative territory. That was
a result of the loss of EUR 337 mn in Hungary due to the country’s new regulations and charges, as well as the combined losses in Romania and Ukraine of
Number of countries in CEE*
2010
2011
2012
2013
2014
40,800
40,600
39,500
38,000
37,200
10
10
10
9
9
2.0%
1.8%
1.6%
1.5%
1.6%
1,542
1,446
1,320
1,268
1,204
* not including Ukraine since 2013 (on sale); Source: company data, calculation by RBI/Raiffeisen RESEARCH
68
EUR 75 mn. In total, these losses outweighed the positive results from the
rest of the CEE markets.
Overall market data
2009
2014
The group’s funding remains defiSlovakia
18.7
19.2
nitely among its strong sides. Intesa
Hungary*
8.1
5.5
Sanpaolo is rich with deposit fundCroatia
19.4
17.1
ing, with retail deposits accounting
Serbia
13.1
14.7
Bosnia a.H.
for 75% of the groups’ deposits gener5.6
6.1
*
foreign-owned
banks
excl.
OTP
ated by the banking business. DeposSource: company data, national sources, RBI/Raiffeisen RESEARCH
its based on asset management and
insurance business only enhance the
funding strength. In 2014, the L/D ratio, calculated for only the banking business, stood at 94%. The group’s capitalization is decent, comfortably exceeding
regulatory requirements.
Market share
Top 5 banks (%)
2009
2014
2014
98.8
98.5
63.2
69.2
60.8
50.0
90.9
88.3
75.4
74.3
74.5
50.0
95.0
90.0
64.5
Financial analysts: Text: Elena Romanova, RBI Vienna
2010
2011
2012
2013
2014
2.8%
-0.5%
-2.7%
-3.8%
-2.1%
70%
69%
68%
66%
65%
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
3.3%
-1.8%
-3.9%
-6.7%
-3.6%
Gross non-performing loans (% of total loans)***
8.2%
8.1%
9.7%
9.2%
8.4%
68%
66%
58%
62%
64%
1.74%
2.33%
3.19%
3.00%
2.10%
73%
Assets and loans
Credit risk
Funding
66%
66%
69%
71%
106%
105%
99%
93%
90%
3.5%
-0.7%
2.2%
-1.1%
-0.4%
Profitability and capitalization**
Cost/Income (%)
49%
47%
52%
53%
51%
3.7%
3.8%
3.5%
3.5%
3.4%
0.98%
0.93%
-0.37%
-0.15%
0.23%
400
379
-146
-55
85
13.2%
14.3%
13.6%
15.1%
17.2%
9.4%
11.5%
12.1%
12.3%
14.2%
7.9%
10.1%
11.2%
11.9%
13.6%
* adjusted for M&A
** 2014 acc. to Basel 3 fully loaded; 2013 pro-forma acc. to Basel 3
*** including past-due, restructured, sub-standard and doubtful loans
69
Sberbank
 Political tension and sanctions impact Sberbank’s positions in CEE
 2014 profitability and capitalization hit by risen cost of risk as well as RUB depreciation trend
 Loan quality is on a downsize trend, as indicated by growing NPL, restructured loans
Loans and deposits*
350
300
250
200
150
100
50
0
2012
2013
Loans
2014
Deposits
* EUR bn
Asset quality
4.0%
0.50%
2.0%
0.00%
0.0%
2014
1.00%
2013
6.0%
2012
1.50%
2011
8.0%
2010
2.00%
NPL Ratio (r.h.s.)
RESEARCH
Sberbank’s business is predominantly domiciled in Russia, with 86% of the bank’s
assets located in the country as of end-2014. At the same time, the bank’s CEE
presence remains quite significant. As at year-end 2014, Sberbank was present
in ten CEE countries, which represented 3.6% of the total group’s assets. Sberbank is still in the process of streamlining its CEE network operations, and the final strategy regarding the new shape is expected to be announced in the coming months. The group has also a significant presence in Turkey with 8% of the
group’s assets and almost 5% market share, after the acquisition of DenizBank in
2012. The CEE ambitions of Sberbank, the largest Russian bank (above 28.1%
of total assets in RU), were notably affected by the ongoing conflict between Russia and Ukraine, and the Western sanctions against Russia. Reportedly Sberbanks’ earlier plans to expand in CEE have been put on hold, and 2015 has already seen a range of news for the group’s CEE presence contraction. For example according to various media sources, Sberbank may contract its branches in
Europe, by possible sales of its Slovak and Hungarian units. Besides Sberbank
faces increasing regulatory pressure in Europe. The ECB has announced earlier
this year, that it intends to have European business of Sberbank and VTB under
supervision, and plans to complete stress tests and balance sheet reviews for both
banks already in 2015.
While the bank has definitely felt a negative impact of the financial fundamentals volatility and FX depreciation, for 2014 its NII and F&CI posted increases by
18% yoy and 30% yoy respectively, supported by sanguine performance within
the first three quarters of the year. Nevertheless, net profit in 2014 was down
20% yoy on the escalated risk cost and sharply increased provisioning costs.
The decrease came mostly on the back of an inferior performance in the fourth
quarter, when the group’s profit halved in comparison with the respective period
of 2013. Thus, RoE decreased to 14.8% in 2014 from over 20% a year ago.
The bank’s management expects for 2015 a further deterioration of core margins and a further increase of risk costs, both leading to a RoE in the single-digits. The bank’s asset quality is expected to come further under pressure in 2015.
In 2014, the overdue loan stock increased to 3.2% of gross loans and total problem loans to 6% of gross loans, and this is notwithstanding a 37% loan book
growth of the bank in 2014 (this number refers to the loan portfolio expressed in
LCY, and thus captures the revaluation of the FCY denominated loans in accordance with the depreciated RUB). Restructured loans surged to 13.2% of gross
loan portfolio in 2014. One of the measures to be undertaken to counteract
2010
2011
2012
2013
2014
213,358
260,869
375,304
403,687
367,273
4
4
11
11
11
10.7%
12.1%
13.1%
14.8%
14.1%
19,241
19,417
19,465
18,434
17,785
70
the increasing credit risk, according to
the bank’s management, is to contract
the retail loan portfolio in 2015, and
focus on the collateralized retail loan
categories.
Overall market data
Russia
Ukraine
Market share
Top 5 banks (%)
2009
2014
2009
2014
2014
24.7
28.1
8.6
7.6
56.4
n.a.
3.5
46.6
31
43.3
19.4
35.4
79.4
87.1
83.5
63.0
98.8
98.5
63.2
90.9
88.3
75.4
95.0
90.0
64.5
Sberbank’s capitalization exposure
Belarus
5.9
10.4
to the FX volatility came as the major
Czech Republic
n.a.
1.3
Slovakia
negative surprise of the group’s pern.a.
3.5
Croatia
n.a.
2.5
formance in 2014. Tier 1 ratio deBosnia a.H.
n.a.
7.4
creased to 8.6% on FX asset mark-toSource: company data, national sources, RBI/Raiffeisen RESEARCH
market revaluation as a result of the
sharp RUB depreciation. The drop of
the capitalization ratio made Sberbank cut its dividend pay-out ratio to 3.5% of net profit of 2014 in order to support its capital buffers. Besides, an option for Sberbank remains to convert a RUB
500 bn subordinated loan from the Central Bank of Russia. Funding conditions
are expected to stay challenging in 2015, as access to international capital markets remains restricted by the Western sanctions. Sberbank’s L/D ratio increased
to 114% in 2014, albeit remaining better than of its Russian peers. On a positive
note, Sberbank strongly benefits from its customers’ loyalty and is considered the
most secure bank in its home market. Its deposit base is RUB 2.3 tn as at year-end
2014, which corresponds to an overwhelming 45% market share.
Financial analysts: Text: Michael Ballauf, Elena Romanova, RBI Vienna
Data: Key performance indicators: Michael Ballauf, RBI Vienna
Key business position indicators: Jovan Sikimic, Raiffeisen Centrobank
Key performance indicators in CEE (all indicators in RUB, IFRS-based)
2010
2011
2012
2013
2014
21.4%
25.6%
39.3%
20.6%
38.4%
Loans/assets (%)
63.6%
71.2%
69.5%
71.0%
70.5%
21.3%
21.5%
25.4%
27.7%
26.0%
78.7%
78.5%
74.6%
72.3%
74.0%
12.9%
40.6%
36.0%
23.2%
37.3%
7.3%
4.9%
3.2%
2.8%
3.2%
21.3%
21.3%
26.5%
27.5%
35.6%
155.3%
162.6%
161.0%
160.2%
144.8%
11.3%
7.9%
5.1%
4.5%
4.7%
Customer funds/liabilities (%)
87.0%
82.9%
75.5%
73.9%
67.3%
Customer loans/customer deposits (%)*
82.5%
97.3%
103.1%
107.2%
114.1%
22.3%
19.3%
28.3%
18.5%
29.0%
Assets and loans
Credit risk
Growth of customer loans (% yoy)
FCY-denominated loans/total loans (%)
Loan loss reserves/gross non-performing loans (%)
Loan loss reserves/customer loans (%)
Funding
Cost/Income (%)
42.4%
47.0%
49.0%
46.1%
43.4%
NIM (%)
6.6%
6.4%
6.1%
5.9%
5.7%
2.3%
3.2%
2.7%
2.2%
1.4%
20.6%
28.0%
24.2%
20.8%
14.8%
Total CAR ratio (%)
16.8%
15.2%
13.7%
13.4%
12.1%
Tier-1 ratio (%)
11.9%
11.6%
10.4%
10.6%
8.6%
* based on net loans; Source: company data, calculation by RBI/Raiffeisen RESEARCH
71
VTB
 Business and financial standing jeopardized by inferior domestic market and Western sanctions
 Modestly positive profits in 2014 due to state support; inferior performance expected for 2015
 Capitalization in 2015 is likely to be maintained through ongoing state support
Loans and deposits*
200
150
100
50
0
2012
2013
Loans
2014
Deposits
* EUR bn
Asset quality
3.00%
10.0%
8.0%
2.00%
6.0%
4.0%
1.00%
2.0%
2014
2013
2012
2011
0.0%
2010
0.00%
NPL Ratio (r.h.s.)
RESEARCH
VTB, Russia’s second largest state-controlled bank (about 17% of the Russian
banking system’s assets) has around 90% of its business domiciled in Russia. The
majority of the remaining 10% is spread in neighbouring countries, while the European presence takes only a very modest share of the group’s assets. In the euro
area, VTB operates banks in Austria, Germany and France as part of VTB European Subholding with VTB Bank (Austria) as the parent company. The bank’s CEE
business is governed predominantly from its Austrian subsidiary. Since 2015,
VTB has been facing tighter regulation of its European business. ECB has announced earlier this year, that it intends to have the European businesses of Sberbank and VTB under supervision, and plans to complete stress tests and balance
sheet reviews for both banks already in 2015.
In 2014, VTB’s financial and business standing suffered from Russia’s economy
weakening, and the Western sanctions, which has led to restricted international
funding possibilities, and worsened business opportunities at home and internationally. Domestically, the group, which was active in expanding its business in
previous years, had to carry escalated cost of credit risk in 2014, and experienced a significant deterioration of financial performance. VTB’s NIM contracted
by 40 bp to 4.1% in 2014 and risk costs surged to 3.4% coming from 1.6% the
year earlier. VTB’s management expectations stay rather gloomy for 2015 as
well, possibly expecting a loss. NPL ratio was at 5.8% of gross loans in 2014,
which is 1.1 pp higher than in 2013. The NPL ratio increase came on the back of
the still strong loan growth in 2014, suggesting a further increase of NPL ratio in
2015, as the group targets a more conservative lending. In order to mitigate the
negative impact of Russia’s economic nosedive at least partially, VTB targets to
contract its RWA by 10% in 2015, predominantly on the consumer lending side.
The “de facto” business performance by VTB in 2014 turned negative. Sizeable
provisioning costs, together with falling margins were the major reason for that.
The possibility of the group to record a modestly positive bottom-line result in its
2014 IFRS statements was largely because of the state support. A RUB 99 bn
gain (about USD 2 bn at year-end FX rate), was granted to the bank based on
implicit revenue estimates on the state-funded deposit placed in VTB at 0.5% annual interest rate by the state-owned Deposit Insurance Agency (DIA). The gap
between this 0.5% and the at that time market interest rate was recorded by VTB
as implicit revenue on its P&L account.
Number of branches in CEE*
2010
2011
2012
2013
2014
106,096
163,470
184,350
194,381
177,667
5
6
6
8
8
4.7%
7.3%
7.4%
7.6%
7.4%
820
983
1,707
1,693
1,972
* excl. Armenia; Source: company data, calculation by RBI/Raiffeisen RESEARCH
72
We are quite sceptical about the
group’s intention to have its Tier 1 raBanks’ market share (%)
Overall market data
tio at targeted 10% as at year-end
Market share foreignMarket share
owned banks (%)
Top 5 banks (%)
2015 without further state support.
2009
2014
2009
2014
2014
In 2014, VTB has already completed
Russia
6.7
17
8.6
7.6
56.4
the conversion of state-owned subordiUkraine
3.3
2.8
46.6
31
43.3
nated loans in the amount of RUB 214
Belarus
2.3
2.5
19.4
35.4
79.4
bn into CT1 capital. VTB has already
received RUB 100 bn subordinated
deposits from the National Wealth
Fund and has applied for another RUB 300 bn in subordinated capital from DIA
in April 2015. If the request succeeds, the funds would be sufficient to support the
groups’ strained capitalization in our view. Despite the financial hardships, statecontrolled VTB kept its high dividend pay-out ratio at 15% in 2014. We view
VTB’s refinancing needs as manageable, given the state support that the group
receives. As at year-end 2014, the group had RUB 695 bn in cash and equivalents, which compares well to the RUB 140 bn due in 2015.
Its L/D ratio surged to a height of 142% in 2014, however, in our take, by and
large driven by the necessity to perform a supportive role to the systemically important borrowers.
Financial analysts: Text: Michael Ballauf, Elena Romanova, RBI Vienna
Data: Key performance indicators: Michael Ballauf, RBI Vienna
Key business position indicators: Jovan Sikimic, Raiffeisen Centrobank
Key performance indicators in CEE (all indicators in RUB, IFRS-based)
2010
2011
2012
2013
2014
18.8%
Loans/assets (%)
64.9%
58.2%
9.2%
18.3%
39.0%
63.4%
64.2%
68.1%
66.2%
17.7%
13.9%
17.2%
19.4%
18.2%
82.3%
86.1%
82.8%
80.6%
81.8%
20.6%
54.4%
10.7%
25.4%
35.3%
8.6%
5.6%
5.7%
4.7%
5.8%
103.7%
111.3%
112.4%
115.5%
114.8%
9.0%
6.0%
6.1%
5.5%
6.7%
Assets and loans
Credit risk
Growth of customer loans (% yoy)
Loan loss reserves/gross non-performing loans (%)
Loan loss reserves/customer loans (%)
Funding
Customer funds/liabilities (%)
Customer loans/customer deposits (%)*
59.6%
58.3%
55.2%
55.3%
51.3%
125.9%
119.6%
129.6%
136.2%
142.4%
41.1%
62.5%
2.1%
19.3%
29.3%
Cost/Income (%)
43.4%
49.8%
52.3%
49.2%
46.0%
NIM (%)
5.1%
5.0%
4.6%
4.5%
4.1%
1.5%
1.7%
1.3%
1.2%
0.0%
10.3%
15.0%
13.6%
11.8%
0.1%
Total CAR ratio (%)
16.8%
12.7%
14.4%
14.7%
12.0%
Tier-1 ratio (%)
12.4%
8.7%
10.1%
10.9%
9.8%
* based on net loans; Source: company data, calculation by RBI/Raiffeisen RESEARCH
73
CEE: Regional asset allocation (%, year-end 2014)
100%
80%
60%
OTP, UniCredit, Intesa, SocGen and
RBI with most diversified regional
asset allocation
40%
20%
CE
SEE
VTB
NBG
Alpha Bank
EFG
Sberbank
RBI
SocGen
Intesa
UniCredit
OTP
Erste
ING
Commerzbank
KBC
Swedbank
Santander
0%
EE
Source: company data, national central banks, RBI/Raiffeisen RESEARCH
CEE: Total assets of international banks, aggregated (EUR bn, 2014)
7.6
NBG
7.0
7.7
14.1
BCP
EFG Eurobank
17.5
20
BNP Paribas****
19.8
30.4
Commerzbank***
36.1
ING
31.3
37.2
Intesa
Santander
37.5
40
OTP
75.2
Erste
47.1
77.4
SocGen**
60
57.8
78.7
RBI
337.9
177.7
80
VTB
100
Sberbank*
120
UniCredit remains the largest
Western CEE lender, SocGen now
among Top 3 Western CEE banks
120.3
140
Alpha Bank
Swedbank
KBC
PKO BP
UniCredit
0
* excluding Turkey
** HR as of 31 December 2013
*** HU as of 31 December 2013
**** including BGZ and Russia
Source: company data, local central banks, aggregated data CEE subsidiaries
CEE: Development of total assets, aggregated (EUR bn)
140
120
100
No return to strong pre-crisis
balance sheet expansion
80
60
40
20
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
RBI
OTP
Intesa
Erste
UniCredit
SocGen
Source: company data, aggregated data CEE subsidiaries
74
KBC
CEE: Pre-tax RoA (proportional, 2010-2014, %)
3.0%
2.5%
2.0%
No improvement in RoA as a result of
NIM pressure, still high provisioning
(RU, SEE) and one-offs in HU
1.5%
1.0%
0.5%
0.0%
-0.5%
2011
2012
2014
Intesa****
SocGen***
Santander
OTP
Erste
2013
Commerzbank**
2010
KBC
UniCredit*
RBI
-1.0%
* Baltics, Kazakhstan and Ukraine not included since 2013
** considering only mBank
*** calculation includes CZ, RO, RU and other CEE
**** excl. Ukraine since 2013
Source: company data; calculations by Raiffeisen RESEARCH
CEE: Revenues per assets (2010-2014, %)
8.0%
7.0%
6.0%
NIM and fee squeezes plus subdued
loan growth preventing recovery of
revenues
5.0%
4.0%
3.0%
2.0%
1.0%
2011
2012
2014
Intesa**
SocGen
Santander
OTP
Erste
2013
Commerzbank***
2010
KBC
UniCredit*
RBI
0.0%
** excl. Ukraine since 2013
*** since 2012 only contribution of mBank / BRE Bank
Source: company data; calculations by Raiffeisen RESEARCH, aggregated data CEE subsidiaries
CEE: Provisioning per assets (2010-2014, %)
3.0%
2.5%
2.0%
EE exposure and write-offs in RO
main drivers for provisioning in 2014,
CE players benefited from improving
asset quality (incl. HU)
1.5%
1.0%
0.5%
2011
2012
2014
Intesa**
SocGen***
Santander
OTP
Erste
2013
Commerzbank****
2010
KBC
UniCredit*
RBI
0.0%
** excl. Ukraine since 2013
*** calculation includes CZ, RO, RU
**** since 2012 only contribution of mBank / BRE Bank
Source: company data; calculations by Raiffeisen RESEARCH, aggregated data CEE subsidiaries
75
CEE: Loan book growth 2011-2014* (yoy, in EUR-terms)
10%
5%
0%
-5%
-10%
2013
2014
Intesa
KBC
Erste
OTP
Santander
RBI
2012
Commerzbank
2011
SocGen
UniCredit
-15%
* adjusted for M&A activities
Source: company data, RBI/Raiffeisen RESEARCH, aggregated data CEE subsidiaries
L/D ratios of CEE segments*
161%
200%
180%
80%
104%
91%
107%
90%
97%
90%
100%
92%
77%
120%
Subdued loan growth supported
further drop of L/D ratios,
lowest L/D ratios at CE players
96%
140%
120%
160%
60%
40%
20%
2014
VTB
Commerzbank
Erste
RBI
Sberbank
SocGen
2013
OTP
2012
UniCredit
Intesa
Erste
2011
RBI
2010
Santander
KBC
0%
* adjusted for M&A activities; based on gross loans
NPL ratios of CEE segments
20%
18%
16%
14%
12%
NPL ratios: Positive momentum in
CE, positive signals from HU and RO,
partially offsetting deterioration in EE
10%
8%
6%
4%
2%
2010
2011
2012
2013
* NPLs of CZ, RO, RU
** NPLs only in PL
76
OTP
SocGen*
UniCredit
Intesa
Santander
Commerzbank
**
KBC
VTB
Sberbank
0%
2014
CEE: Finalized and ongoing transactions (sorted by total assets)
Country
Target
Poland
Czech Republic /
Slovakia
Hungary
Romania
Serbia
Slovenia
Total assets (EUR bn) Comment
Bank Millennium
14.2 Portuguese parent BCP sold a 15.4% stake in Q1 2015.
Raiffeisen Polbank
13.7
Alior Bank
After the IPO in late 2012, a 25% stake held by Carlo Tassara Group should be
8.5 sold to a strategic investor. The deadline set by the regulator was extended to mid2016. Potential buyers are PZU, SocGen and Leszek Czarnecki.
BPH Bank
7.4 General Electric in talks to sell its Polish operations.
Meritum Bank
0.8
FM Bank
0.7 FM Bank was sold by Polish Abris Private Equity to AnaCap.
ZUNO Bank
0.1 A direct bank owned by RBI up for sale as part of the RBI's restructuring program.
CitiBank CZ
n.a.
As part of the strategy to exit 11 consumer markets, Citibank has announced to
abandon its Czech consumer operations.
MKB
6.2
100% stake held by BLB was sold to the Hungarian State for EUR 55 mn in September 2014. Previously, BLB agreed to recapitalize the bank with EUR 270 mn.
CitiBank HU
3.1
As part of the strategy to exit 11 consumer markets, Citibank has announced to
dispose of its Hungarian consumer operations.
Budapest Bank
n.a.
In December 2014, the Hungarian government signed a deal to buy the bank from
its 100%-owner General Electric.
Erste Bank Hungary
Erste sold minority stake in Erste Hungary to Hungarian government and EBRD
(each a 15% stake in Erste Bank Hungary via a capital increase); Erste Bank
Hungary will introduce several initiatives to support the Hungarian economy, e.g.
n.a.
EUR 250 mn loan disbursement scheme, including a complete financial package
for public sector employees, EUR 100 mn lending package for energy efficiency
and a EUR 200 mn loan facility to primary agricultural producers.
RBS retail operations
0.3
UniCredit took over the retail and private banking portfolio of RBS in Romania in
spring 2013.
Nextebank
0.2
Three investment funds managed by Axxess Capital bought Nextebank from MKB
(which is owned by BayernLB) in December 2013.
RIB
0.1 Polish Getin Holding bought the bank from two individuals in late 2013.
AIK Banka
1.4
Cacanska Banka
0.3 Sold to Turkish Halk Bank for EUR 10 mn.
Dunav Banka
0.1
KBM (Credy) Banka
0.1 Former subsidiary of Slovenian NKBM could be sold in the near future.
NKBM
4.4
Advanced talks with private equity fund(s) for taking over 100% stake from the Slovenian State. Recently, the takeover multiple has been rumored at about 0.2x BV.
Raiffeisen Bank
Slovenia
1.1
RBI has announced to sell its Slovenian subsidiary as part of a program to reduce
the group's RWA base.
Pravex Bank
0.2
Subsidiary of Banca Intesa: Agreement of sale signed in January 2014. The finalization is subject to regulatory approval.
Raiffeisen Bank Aval
n.a.
RBI is in talks with EBRD about cooperation in Ukraine, which may involve selling a
stake in the business to EBRD (e.g. via a capital increase).
Hypo Group Alpe Adria
n.a.
The finalization of the deal is pending on the final regulator approval in Austria.
The US private equity fund Advent and the EBRD have signed an agreement with
the Austrian State to buy the SEE Holding with operations in HR, RS, BH, SL and
ME.
Ukraine
Other
RBI has announced its intention to sell its Polish subsidiary. The deal might be
structured including a parallel IPO.
Acquired by Alior Bank from a local private equity fund at about 1.2x BV at yearend 2014.
MK Group increased the holding to 70% from 50.1% via a takeover bid in March
2015.
Telekom Serbia acquired a majority stake (now 95%) in this small bank through a
capital injection in December 2014.
Source: banks, press articles, Bloomberg, RBI/Raiffeisen RESEARCH
77
CEE: Potential M&A candidates (sorted by total assets)
Country
Target
Total assets (EUR bn) Comment
mBank
27.5
Despite CoBa’s committment to Poland, mBank appears as a speculative long-term
target, very much depending on its parent bank’s standing.
Getin Noble Bank
16.1
Owned by Leszek Czarnecki. There are currently no rumors at all, hence rather longterm takeover target.
Bank Millennium
14.2
The bank appears to be a takeover candidate in the medium-term. BCP recently cut the
stake from 66% to 50.1%.
Poland
Bank Pocztowy
1.8
PKO BP might decide to dispose of its 25% stake via the announced IPO of the small
bank that is controlled by Poczta Polska.
Hungary
Sberbank HU
1.7
There are market rumors that the Hungarian State might be interested in acquiring
Sberbank’s Hungarian assets.
Slovakia
Sberbank SK
BCR
Banca Transilvania
Croatia
13.9
8
Negotiations between Erste Group and SIF Oltenia for the 6% stake in BCR have not
progressed, but a buy-out of the Romanian fund is expected in the future.
Bank of Cyprus sold its 10% stake through an accelerated private placement. After the
deal for Volksbank Romania, EBRD is unlikely to sell its 14.5% stake in TLV.
Volksbank Romania S.A.
Banca Transilvania has acquired a 100% equity interest in Volksbank Romania and
2.8 reimbursed all parent funding. The implied BV for the equity is 0.2x, while the BV for
the whole transaction was 0.7x.
Pireus Bank Romnaia
2.1
The parent has a similar agreement with the EC which says that it has to scale down its
foreign assets. Hence, the Romanian subsidiary might be up for sale.
Banca Romaneasca
1.7
According to an agreement reached with the EC in H2 20124, its parent National
Bank of Greece has to sell its operations in SEE, including Romania, by June 2018.
Intesa Sanpaolo Romania
The Italian group said that it would rethink its strategy for some markets where it
1.1 lacked scale, including Romania, although local representatives expressed commitment
for the local market.
Banca Carpatica
0.9
The management has proposed a merger with Nextebank, a small local player, to
strenghen its capital position. So far shareholders have rejected this proposal.
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.
Millennium Bank S.A.
0.6
OTP acquired 100% of Millennium Romania in H2 2014. The implied BV of the transaction is considered to be around 0.6x.
Credit Agricole Romania
0.3 Lacking scale in Romania, the French group is said to be looking for a buyer.
RBS Romania
0.3
UniCredit announced in H2 2014 that it had acquired the Romanian corporate portfolio of RBS, resulting in the British bank to leave the Romanian market.
Komercijalna Banka
3.4
Serbia’s second largest bank – the EBRD holds 25% and the State 42%. The privatization procedure has started with a completion targeted for 2017.
KBM (Credy) Banka
0.1 The former subsidiary of Slovenian NKBM might be put on sale in the near future.
HPB
Two bids for the country’s seventh largest bank came from Erste and OTP but were
2.3 rejected last year. Still a mid-term takeover candidate, rumored to receive a capital
injection in the near future.
NLB Group
8.9
Largest bank in Slovenia and 100% state-owned. Remains rather a long-term privatization target.
Banka Celje/ Abanka
4.3
The two state-controlled banks should be merged in Q4 2015, resulting in the second
largest bank in Slovenia. Privatization of the merged entity is targeted for 2017.
UniCredit (Ukraine)
3.8
UniCredit has announced the merger and sale of its two subsidiaries Ukrsotsbank and
UniCredit Bank.
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.
Romania
Serbia
2 Market speculates that Sberbank mulls exit from Slovakia.
Slovenia
Russia / EE
Source: banks, press articles, Bloomberg, RBI/Raiffeisen RESEARCH
78
Market shares in CEE (in % of total assets, 2014)
Sberbank, 14.1%
VTB, 7.4%
UniCredit, 5.0%
Other, 46.9%
RBI, 3.3%
SocGen*, 3.2%
Erste Group, 3.1%
Gazprombank, 2.9%
PKO BP, 2.4%
RusAgro Bank, 1.2%
KBC, 2.0%
Commerzbank**, 1.3%
Intesa Sanpaolo, 1.6%
OTP, 1.6%
Santander, 1.3%
Alfa Bank, 1.3%
ING, 1.5%
CEE: CE + SEE + EE + MK, ME, KZ
* HR as of 31 December 2013
** HU as of 31 December 2013
Market shares in CE (in % of total assets, 2014)
UniCredit, 8.0%
PKO BP, 7.0%
Erste Group, 6.2%
KBC, 5.5%
Other, 42.5%
RBI, 4.9%
SocGen, 4.8%
Santander, 3.8%
Commerzbank*, 3.7%
ING, 3.3%
Sberbank, 1.0%
OTP, 2.9%
BCP, 1.7%
Swedbank, 2.4%
CE + Baltics
* HU as of 31 December 2013
79
Market shares in SEE (in % of total assets, 2014)
UniCredit, 14.1%
Erste Group, 9.6%
Other, 36.5%
RBI, 8.7%
SocGen*, 8.0%
KBC, 0.5%
Sberbank, 1.2%
ING, 1.7%
Alpha Bank, 2.8%
OTP, 3.9%
NBG, 3.1%
EFG Eurobank, 3.1%
SEE + ME + MK
* HR as of December 2013
Market shares in EE (in % of total assets, 2014)
Sberbank, 24.7%
Other, 39.0%
VTB, 13.4%
Gazprombank, 5.3%
OTP, 0.3%
Otkritie*, 2.9%
Alfa Bank, 2.4%
Uralsib Bank, 0.4%
RusAgro Bank, 2.3%
Kazkommertsbank, 1.5%
Belarusbank, 0.8%
UniCredit, 1.4%
SocGen, 1.3%
PrivatBank, 0.9%
Halyk Bank, 1.0%
RBI, 1.2%
Promsvyazbank, 1.2%
EE + KZ
* former Nomos Bank
80
Appendix
Key CEE banking sector data
Total assets (% of GDP)
Poland
Hungary
Czech Rep.
Slovakia
Slovenia
CE
Romania
Bulgaria
Croatia
Serbia
Bosnia a. H.
Albania
SEE
Russia
Ukraine
Belarus
EE
EA*
2004
63%
80%
99%
84%
90%
76%
37%
63%
92%
41%
59%
57%
50%
42%
41%
29%
41%
196%
2005
64%
89%
93%
97%
99%
78%
45%
72%
96%
53%
69%
61%
58%
45%
51%
32%
45%
215%
2006
69%
98%
93%
87%
109%
81%
51%
81%
103%
69%
75%
71%
66%
52%
63%
37%
52%
225%
2007
71%
108%
101%
88%
110%
86%
62%
98%
107%
74%
89%
77%
76%
61%
83%
43%
62%
242%
2008
86%
123%
108%
90%
116%
97%
65%
100%
106%
65%
85%
77%
76%
68%
98%
49%
70%
254%
2009
84%
130%
112%
92%
128%
99%
71%
104%
114%
84%
86%
77%
84%
76%
96%
61%
77%
258%
2010
82%
125%
110%
83%
129%
96%
72%
103%
121%
93%
85%
80%
86%
73%
87%
78%
74%
272%
2011
85%
124%
115%
81%
126%
98%
70%
98%
125%
88%
85%
86%
84%
75%
81%
95%
76%
274%
2012
85%
110%
118%
79%
126%
96%
68%
103%
123%
94%
87%
90%
85%
79%
80%
61%
79%
268%
2013
86%
104%
127%
80%
112%
98%
64%
107%
123%
83%
89%
94%
82%
87%
89%
62%
86%
250%
2014
89%
100%
126%
81%
100%
98%
61%
104%
123%
85%
92%
98%
81%
109%
86%
62%
106%
257%
2008
46%
60%
54%
45%
85%
51%
38%
72%
71%
37%
58%
22%
47%
40%
77%
34%
43%
124%
2009
48%
61%
56%
46%
92%
53%
39%
77%
77%
45%
58%
30%
51%
42%
79%
46%
45%
128%
2010
49%
62%
55%
50%
95%
54%
39%
75%
84%
54%
58%
37%
53%
39%
67%
54%
42%
129%
2011
53%
60%
57%
50%
91%
56%
40%
71%
88%
52%
59%
39%
53%
42%
61%
54%
44%
127%
2012
51%
51%
58%
52%
90%
54%
38%
72%
87%
56%
62%
40%
53%
44%
57%
38%
45%
125%
2013
51%
46%
62%
52%
75%
54%
35%
73%
88%
48%
62%
44%
50%
49%
63%
41%
50%
119%
2014
52%
42%
62%
54%
62%
53%
32%
68%
86%
48%
64%
43%
48%
58%
64%
40%
58%
117%
2008
121%
138%
81%
60%
166%
106%
124%
120%
100%
122%
122%
62%
113%
112%
205%
171%
122%
121%
2009
113%
133%
78%
84%
164%
105%
111%
121%
100%
115%
116%
65%
108%
94%
219%
194%
105%
118%
2010
113%
140%
78%
80%
162%
105%
110%
115%
103%
128%
116%
60%
108%
87%
175%
206%
95%
116%
2011
115%
133%
79%
83%
155%
105%
111%
106%
104%
126%
118%
61%
108%
90%
163%
151%
96%
115%
2012
112%
117%
75%
85%
152%
101%
108%
101%
105%
125%
120%
58%
106%
93%
141%
140%
97%
112%
2013
108%
110%
75%
84%
125%
97%
96%
94%
103%
116%
115%
55%
98%
94%
135%
150%
98%
107%
2014
105%
107%
77%
86%
105%
95%
86%
87%
99%
111%
109%
55%
92%
95%
145%
196%
99%
105%
* Excluding MFI business, source: ECB, national sources, RBI/Raiffeisen RESEARCH
Poland
Hungary
Czech Rep.
Slovakia
Slovenia
CE
Romania
Bulgaria
Croatia
Serbia
Bosnia a. H.
Albania
SEE
Russia
Ukraine
Belarus
EE
EA*
2004
24%
39%
39%
32%
47%
31%
16%
34%
51%
22%
37%
6%
25%
23%
26%
18%
23%
104%
2005
26%
44%
38%
37%
53%
33%
21%
40%
58%
28%
44%
7%
30%
25%
32%
19%
26%
110%
2006
30%
48%
42%
39%
65%
37%
27%
44%
65%
31%
47%
9%
35%
30%
45%
25%
31%
114%
2007
36%
53%
49%
44%
77%
43%
36%
63%
67%
35%
54%
16%
44%
37%
59%
30%
38%
120%
Loan-to-deposit ratios (%)
Poland
Hungary
Czech Rep.
Slovakia
Slovenia
CE
Romania
Bulgaria
Croatia
Serbia
Bosnia a. H.
Albania
SEE
Russia
Ukraine
Belarus
EE
EA*
2004
77%
105%
60%
53%
133%
77%
72%
68%
83%
120%
106%
19%
77%
95%
109%
123%
97%
126%
2005
79%
113%
64%
67%
149%
82%
80%
90%
91%
124%
110%
29%
87%
94%
107%
120%
96%
126%
2006
86%
119%
70%
72%
183%
89%
96%
77%
94%
103%
105%
38%
90%
93%
134%
135%
98%
126%
2007
103%
126%
75%
76%
147%
98%
111%
98%
93%
98%
98%
46%
98%
100%
152%
144%
106%
125%
81
Key abbreviations
Key abbreviations
Basic abbreviations
bn
bp
eop
mn
pp
r.h.s.
tn
vs.
yoy
billion
basis point(s)
end of period
million
percentage point(s)
right hand side
trillion
versus
year on year
Key figures
BV
CAR
CT1 ratio
CET1
F&CI
GDP
L/D ratio
LTV
NPL
NII
NIM
Opex
P&L
PPP
RoA
RoE
ROTE
RWA
Book value
Capital adequacy ratio
Core Tier 1 ratio
Common Equity Tier 1
Fee & commission income
Gross domestic product
Loan-to-deposit ratio
Loan-to-value ratio
Non-performing loan
Net interest income
Net interest margin
Operating expenditure
Profit & loss
Purchasing power parity
Return on assets
Return on equity
Return on Tangible Equity
Risk-weighted assets
Currencies
82
FCY
FX
LCY
foreign currency
foreign exchange
local currency
BYR
CHF
CZK
EUR
HRK
HUF
RON
RSD
RUB
UAH
USD
Belarusian ruble
Swiss franc
Czech crown
Euro
Croatian kuna
Hungarian forint
Romanian leu
Serbian dinar
Russian ruble
Ukrainian hryvnia
US dollar
Key abbreviations
Institutions
BB
BIS
BNB
BNR
BRD
BSI
CBR
CBBH
CBV
CCB
CNB
DIA
DIF
EBA
EBRD
EC
ECB
EU
FIB
IMF
KNF
MFI
NBA
NBB
NBP
NBR
NBS
NBU
SIFI
SNB
wiiw
Budapest Bank
Bank for International Settlement
Bulgarian National Bank
Romanian Central Bank (Banca Naþionalã a României)
Banca Romana pentru Dezvoltare (see SocGen)
Bank of Slovenia
Central Bank of Russia
Central Bank of Bosnia and Herzegovina
Commercial Bank Viktoria (see Bulgaria)
Corporate Commercial Bank (see Bulgaria)
Czech National Bank | Croatian National Bank
Deposit Insurance Agency
Deposit Insurance Fund
European Banking Authority
European Bank for Reconstruction and Development
European Commission
European Central Bank
European Union
First Investment Bank (see Bulgaria)
International Monetary Fund
Komisja Nadzoru Finansowego (Polish Financial Supervisory Authority)
Monetary Financial Institution
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
Systemically Important Financial Institution
Swiss National Bank
Vienna Institute for International Economic Studies
Others
AQR
CRD
CRR
FGS
IFRS
M&A
MoU
MRR
POS
SAA
SME
SRM
SSM
WEO
Asset Quality Review
Capital Requirements Directive
Capital Requirements Regulation
Funding for Growth Scheme (see Hungary)
International Financial Reporting Standards
Mergers and acquisitions
Memorandum of Understanding
Minimum Reserve Requirements (see Romania)
Point of Sales
Stabilization and Association Agreement
Small and medium sized enterprises
Single Resolution Mechanism
Single Supervisory Mechanism
IMF World Economic Outlook
83
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 of a financial instrument, a financial index or a securities service 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.
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A description of the concepts and methods which are used in the preparation of financial analyses can be found at:
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Detailed information on sensitivity analyses (procedure for checking the stability of potential assumptions made in the context of financial analysis) can be found at: www.raiffeisenresearch.at/sensitivityanalysis
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Raiffeisen Bank International network support and contributions
84
Albania
Joan Canaj
Valbona Gjeka
Raiffeisen Bank Sh.a., Tirana
Belarus
Mariya Keda
Priorbank JSC, Minsk
Ivona Zametica
Srebrenko Fatusic
Raiffeisen Bank d.d. Bosna i Hercegovina, Sarajevo
Bulgaria
Tsvetanka Madjounova
Emil Kalchev
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
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
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Ludmilla Zagoruyko
Raiffeisen Bank Aval JSC, Kiev
Acknowledgements
FINLAND
NORWAY
Helsinki
Osl o
Stockholm
BALTIC
SE A
SWEDEN
Tallinn
ESTONIA
Riga
LATVIA
DENMARK
Co penha gen
NOR TH SE A
Mosc ow
LITHUANIA
RUSSIA
Vilnius
Minsk
Dublin
IRELAND
UNITED KINGDOM
War sa w
NETHERLANDS
London
GERMANY
BELGIUM
Brussels
Fra nkfurt
Kiev
Pra gue
LUXEMBOURG
UKRAINE
CZECH REPUBLIC
Vienna
SWITZERLAND
Bern
Bra tislava
LIECHTENSTEIN
Bucha rest
SERBIA
Pristina
MONTENEGRO
Sofia
KOSOVO
Podgorica
BULGARIA
Skopje
MACEDONIA
Tirana
ALBANIA
Sa rdinia
GEORGIA
Tbilisi
Istanbul
Ankara
GREECE
SPAIN
ME DITERRANEAN SE A
ALGERIA
Athens
Baku
ASERBAIJAN
TURKMENISTAN
TURKEY
Asga ba t
Sicily
Tunis
Algiers
MOROCCO
ARMENIA
Yereva n
UZBEKISTAN
SE A
Lisbon
BLACK SE A
PIAN
Rome
M a drid
ARAL
SE A
Belgrad e
Sa rajevo
CAS
ITALY
ROMANIA
Zagre b
BOSNIA AND
HERZEGOWINA
Co rsica
Chisinau
HUNGARY
Ma ribor
CROATIA
MOLDOVA
Budapest
AUSTRIA
SLOVENIA
PORTUGAL
KAZAKHSTAN
SLOVAKIA
Paris
FRANCE
RUSSIA
BELARUS
POLAND
Berlin
Amsterda m
TUNISIA
IRAN
SYRIA
CYPRUS
IRAQ
Tehra n
Nico sia
www.rbinternational.com
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Sofija Davidovic
P: +381 11 220 7807
P: +36 1 484 4639
UA: Raiffeisen Bank Aval
Andreas Kettlgruber
P: +38 044 495 41 10
HR: Raiffeisenbank Austria d.d.
Wolfgang Woehry
HU: Raiffeisen Bank Zrt.
Lászlo Volosinovsky
88
P: +355 4 2381 445 2865
P: +43 1 71707 3537

Raiffeisen Bank International AG

Transcription

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