CEE Banking

Transcription

CEE Banking

CEE Banking
Sector Report
October 2004
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•
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Trends in CEE Banking
Country Overviews
Market Players
Company Updates
Contents
Table of
Contents
Summary
3
Trends in CEE banking
Introduction
Definition of sub-regions
Banking sector reform and ownership structure
Market concentration
Financial intermediation and the structure of lending
Deposits
4
5
7
9
10
14
Market overviews
Poland
Hungary
Czech Republic
Slovakia
Slovenia
Estonia
Latvia
Lithuania
Bulgaria
Romania
Croatia
Bosnia and Herzegovina
Serbia
Albania
Kosovo
Russia
Ukraine
Belarus
16
18
20
22
24
26
28
30
32
34
36
38
40
42
43
44
46
48
Market players in CEE
49
Ratio analysis
59
Market consolidation
63
Valuation
66
Company updates
BACA
Erste Bank
Bank BPH
Bank Pekao
OTP
Komercni Banka
BRD
Banca Transilvania
68
72
76
80
84
88
92
96
Key abbreviations
101
Acknowledgements
102
Disclaimer
103
Contacts
104
2
Summary
CEE Banking Sector Report
Summary
The banking sector in Central and Eastern Europe (CEE) has displayed
a remarkable development during the last 15 years of transition.
Nevertheless, even in some of the most advanced countries, bank
restructuring and the subsequent privatisation process was completed
only recently or is still ongoing. The vast majority of banks operating in
the eight new EU member countries and the three countries that are
scheduled to join the EU in the next accession wave are now in private
hands and mostly foreign-owned. Clearly the banking sectors in the
other CEE markets are still at an earlier stage of development, which is
reflected both in the higher market share of state-owned banks and the
lower market share of foreign-owned banks.
The CEE banking sector
has displayed remarkable development over
the last 15 years
The most dynamic field of banking in the CEEC-20 over the last few
years has been consumer loans. Credits to households displayed
exceptionally high growth rates in EUR terms, and given the still low
ratio to GDP in most cases, are likely to retain strong growth for years
to come. However, this growth has already raised concerns about
macroeconomic stability in a number of countries in the region, triggering restrictive measures by some of the central banks. Another
emerging business field in a number of the countries is mortgage loans.
The most dynamic field of
banking in CEE over the
last few years has been
consumer loans
Deposits of households show a clear negative effect from the credit
fueled consumption spree, decreasing in percent of GDP in the first and
second wave accession countries, while growing strongly in the other
regions where there are still substantial savings hidden under the mattresses. There the lack of trust in the banking sector has only recently
started to improve in the course of bank restructuring and privatisation.
Deposits grew strongly in
countries with substantial
savings hidden under the
mattresses
Western European banks have dominated the consolidation process to
date and control local markets to a large extent. Austrian and Italian
banks in particular have used the opportunity to "go east" and offer the
highest CEE exposure in terms of total group assets. Some international players (HSBC, Deutsche Bank, etc.) are still under-represented in the
region. Russia, Ukraine and Belarus are to a large extent untapped by
international banks. While KBC ranks number one in terms of assets in
the region, Erste Bank, with its clear focus on retail, offers the largest
branch network in the region. Raiffeisen International, the CEE holding
of the RZB Group ranks number one in terms of country presence.
Western European banks
have dominated the consolidation process to date
and control local markets
A peer group comparison among listed banks based on both our own
and consensus estimates reveals that pure CEE players trade at a premium versus their Western peers with a lower exposure towards CEE
markets. Obviously markets expect these banks to report superior earnings growth in the medium/long term. Only Erste Bank (Neutral)
already trades at multiples close to pure CEE players, as it offers the
highest exposure among Western European listed banks. While Bank
Austria Creditanstalt (Overweight) trades in line with its Western peers
we would consider a premium justified given the above average CEE
exposure and the current dynamics of its target market Poland. While
the Polish banks, Bank BPH (Neutral) and Pekao S.A. (Neutral), as well
as Czech Komercni Banka (Neutral) are valued in line or at a slight premium towards other CEE banks, the Hungarian OTP (Buy) still trades at
a significant discount.
Pure CEE players trade at
a premium versus their
Western peers with a
lower exposure towards
CEE markets
3
Banking trends
A region set in motion
Booming banking development in CEE
Introduction
Study includes 20 CEE
countries
Back in 1999 RZB Group-Research took part in a joint study1 for the
European Capital Markets Institute (ECMI) together with the Center for
European Economic Studies in Mannheim (ZEW), which was in part
dedicated to the development of the financial sectors in the CEEC-5
and Russia. This study can be seen as the pioneering research in this
particular area. Subsequently RZB banking reports have had a stronger
focus on the banks listed on the local stock markets. With this latest
report we not only wanted to continue RZB's tradition of banking sector research, but to take a further step forward by including all 20 countries that we consider to be part of the Central and Eastern European
(CEE) region.
Before starting we need to address a word of caution to our readers.
Gathering comparable data for the CEE banking sector is among the
most excruciating tasks an economist can face. Figures are often
revised and the methodology and structure of published data can vary
to a considerable degree. It would have been impossible to provide the
extensive data you will find in the country sections without the profound
support of our colleagues throughout RZB's banking network in the
region. While we have put great effort in processing all information,
we can only provide the data to the best of our knowledge. Since the
majority of the data was collected in early summer 2004 we restricted
ourselves to year-end figures of 2003. Any data revisions since then
might not be accounted for. We are certain, however, that you will find
our analysis interesting and useful
A huge market to be tapped, population in mn
New EU member
countries
73.1
2nd wave
accession
countries
33.9
SE European
transition markets
23.2
EU-15
379.5
Russia
144.2
Ukraine, Belarus
57.5
Data as of year-end 2003
Source: WIIW, RZB Group Research
Region remains underbanked
The CEEC-20 is a large and highly dynamic region with an outstanding prospect of growth and prosperity. Despite the rapid growth of the
banking sector the people living and working in the CEEC-20 remain
1) "The New Capital Markets in Central and Eastern Europe"; Michael Schröder (ed), Springer
Verlag 2001
4
Banking Trends
vastly underbanked, offering ample opportunities to the banks in the
region to tap this vast potential to meet the demand for a full range of
banking services. In this first part we analyse the general developments
of the banking sector in the CEEC-20, focusing on the key regional
trends and characteristics. This is followed by a country section in
which we will provide a detailed overview of the banking sector in the
individual countries. The third part of the publication focuses on the
international banks active in the region, particularly those that are listed on the respective stock exchange.
Definition of sub-regions
In order to facilitate our analysis and to deduce meaningful results we
have divided the 20 countries we consider to be part of CEE into five
regions. By categorizing the countries into regions we tried to not only
reflect the stage of integration with the EU and economic development,
but also the degree of financial intermediation and the development of
the banking sector. The five regions to which we refer in the rest of this
publication are defined as follows:
Countries divided into
five sub-regions for analytical purposes
NMC-8: The eight new member countries that joined the EU in May
2004, namely Poland, Hungary, the Czech Republic, Slovakia,
Slovenia, Estonia, Latvia and Lithuania. After being forced to take
over the acquis communautaire before entering the EU, these countries are clearly the most advanced in terms of legal and institutional reforms in the region. These are also the countries that boast the
highest GDP per capita, that have the smallest share of the state
both in the industrial sector and banking, the highest share of foreign investors, and the highest degree of financial intermediation.
While being the most advanced region in the CEEC-20, as well as
the largest in terms of total assets, the overall size of the banking
sector in the NMC-8 is still very small compared to the Eurozone
and the degree of intermediation is also rather low. Clearly there is
a huge potential and need for growth, not only for the economies
in the NMC-8 but also for the banking sector.
The eight countries that
joined the EU in May
2004
CC-3: The three candidate countries that will join the EU in the coming years. Bulgaria already completed its membership negotiations
in June 2004 and is expected to join the EU in 2007 together with
Romania, which hopes to finish its negotiations by the end of 2004.
Croatia will only start its membership negotiations in early 2005
and the lengthy institutional procedure including negotiations, the
take over and implementation of the acquis communautaire, the
establishment of the necessary institutional framework, the translation of the membership treaty and the ratification by all EM member
states is generally considered to exceed the time available until
Bulgaria and Romania will probably join the EU in 2007. The
Croatian banking sector is clearly much more developed and considerably larger than those of Bulgaria and Romania, but all three
countries have been facing similar problems resulting from particularly high growth of consumer loans, which has threatened the
health of external balances and brought about restrictive measures
by the central banks. While the growth potential for the banking
The three candidate countries that will join the EU
in the coming years
5
Banking trends
sector might be limited for some time in Croatia following several
years of dynamic growth, this certainly should not be the case for
Bulgaria and Romania, both coming from a very low degree of
financial intermediation with strong growth having only started
recently. Of the three countries only Romania still has a considerable share of majority state-owned banks.
The remaining six
markets of South East
Europe
SEEC-6: The remaining six markets of South East Europe, who are
all in an earlier stage of transformation, economic development and
EU-integration. We also included Kosovo separately as there has
been a independent banking sector developing. While being small
in size, the banking sector in this region is still in an early stage of
development with a number of opportunities for international banks
to participate in the privatisation of the sector. Due to the small size
of the individual markets the large international banks active in CEE
have had a tendency to overlook this region, giving in particular the
Austrian banks the opportunity to position themselves as market
leaders.
Russia deserves a
category of its own
Russia: Clearly Russia deserves a category of its own. With a population of 143 mn it is by far the largest market in terms of potential customers, and also the largest individual market in terms of
total assets. Russia has come a long way since the crisis in 1998,
not only in economic terms but also with regard to the development
of the banking sector. While banking regulation still has some shortcomings and the sector as a whole is in need for further consolidation, there have been signs of more dynamic growth starting in
2003. After the crisis in 1998 many foreign banks abandoned the
Russian market. Thus the market share of majority foreign owned
banks was less than 4% of total assets by the end of 2003.
Ukraine and Belarus
FSR-2: Ukraine and Belarus are the two former Soviet republics that
have become neighbouring countries of the enlarged EU. This is a
large region with a population of 57.7 mn. After suffering through
a particularly severe and lengthy recession caused by the transformation from the soviet planned economic system and further economic and political crises, GDP per capita at PPP in the Ukraine has
yet to reach the level of 1991. Belarus has remained a planned
economy to this day. Both countries have recorded exceptional economic growth recently, as well as rapid growth of the banking sector particularly in Ukraine. So far foreign banks have been playing
only a minor role with a market share of about 10%
6
Banking trends
Total assets of the banking sector, in EUR bn
FSR-2
18.8
Russia
152.5
NMC-8
312.6
SEEC-6
15.0
CC-3
50.6
Source: Local central banks, RZB Group Research
The size of the banking sectors of the respective sub-regions, such as
the size of their economies, varies to a great degree. With GDP per
capita as well as financial intermediation being by far the highest in
the NMC-8, the overall size of the banking sector (expressed as assets
in EUR bn) is twice the size of the one of Russia, despite the fact that
Russia has a population about twice as large. With less than half the
population the combined banking sector of the CC-3 reaches only
about one sixth of that of the NMC-8. The size of the banking sectors
of the SEEC-6 and FSR-2 are much smaller even, reflecting particularly
low ratios for GDP per capita and financial intermediation.
Banking sector reform and ownership structure
The early stages of banking sector reforms in the region were profoundly discussed in great detail by Thomas Reininger2 in the above
mentioned ECMI joint study between the ZEW and RZB. It is useful,
however, to remind ourselves of the situation at the outset of transition.
The situation at the
outset of transition
At the start of transition the CEE countries faced the difficult task to
transform their financial system, which had been little more than a
book-keeping mechanism for recording the authorities' decisions about
the allocation of resources among various sectors and enterprises
under central planning. The key reforms implemented at the outset of
transition included the introduction of a two-tier banking system, lifting
sectoral restrictions on special banks, the permission of privately
owned banks, allowing foreign banks to enter the market, the liberalization of the licensing policy, and the implementation of a legal framework and a supervisory system.
2) also "The Financial Sector in five Central and Eastern European Countries"; Thomas Reininger and
Franz Schardax, OeNB Focus on Transition 1/2001
7
Banking trends
These early banking sector reforms often resulted in a liberal licensing
policy coupled with weak supervision and shortcomings in the legal
framework. Adequate bankruptcy laws either did not exist or simply
were not enforced. A large number of newly founded banks often
engaged in unsound practices, while the state-owned commercial
banks, which emanated from the specialized financial institutions
under the old monobank system, suffered from an inherited burden of
bad loans and an insufficient initial capital base. The banking systems
generally lacked capital and banking skills, and political intervention
coupled with the uncertain economic and institutional environment in
the state-owned banks leading to a quick accumulation of bad loans
and a number of banking crises. During the ensuing large-scale bank
recapitalisation programmes, substantial public funds had to be put up
to prepare the state-owned banks for privatization.
Share of majority state-owned banks, in % of total assets
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
PL HU CZ SK SL ES
LT
LI
NMC-8
RO BG HR SR BH AL RU UA BY
CC-3
SEEC-6
FSR-2
Vast majority of banks in
the NMC-8 and CC-3 are
now private and mostly
foreign-owned
Banking sectors in the
SEEC-6 are still at a much
earlier stage of development
8
Within the NMC-8 this bank restructuring and subsequent privatisation
process took up to 2001 for the Czech Republic, Slovakia and
Lithuania. As a result the vast majority of banks operating in the NMC8 are now private and mostly foreign-owned. There is one large majority state-owned bank left in Poland's PKO and only two large private
domestic owned banks in Hungary's OTP and Latvia's Parex Banka.
The situation is very similar in the CC-3, particularly in Croatia and
Bulgaria. While in Bulgaria bank privatisation was finally finished in
2003, there remain two large majority state-owned banks in Romania,
BCR and CEC, both scheduled for privatisation in the near future.
Clearly the banking sectors in the SEEC-6 are still at a much earlier
stage of development, which is reflected both in the higher market
share of state-owned banks and the lower market share of foreignowned banks. While the banking sector basically had to be set up from
scratch in Bosnia and Herzegovina, bank restructuring and the subsequent privatisation has only recently started in Serbia. On the other
hand, privatisation in Albania was basically completed in early 2004
Banking trends
with the sale of the Savings Bank to Raiffeisen International. Russia,
Ukraine and Belarus are different stories altogether. The particularly
high share of state-owned banks in Belarus, which is not entirely surprising given its central planned economy, underpins the perception
that the process of reform and restructuring of the banking sector is only
in its earliest stages. There are only two state-owned banks left in
Ukraine, Oshadbank and Ukreximbank, with a total market share of
about 10%, both are scheduled for eventual privatization. The economic recovery helped reducing the share of bad loans to fairly low
levels according to the official statistics and to stabilize the return on
average assets (RoA) for the whole banking sector. State-owned
Sberbank is by far the largest bank in Russia, accounting for close to
28% of total assets. While the overall number of banks in Russia steadily declined over the last few years, the consolidation of the banking
sector has barely begun. Strong economic growth over the last years
has allowed the bank to reduce the share of bad loans in their portfolios and to post very impressive performances.
Russia, Ukraine and
Belarus are each different
stories altogether
Share of majority foreign-owned banks, in % of total assets
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
PL HU CZ SK SL ES
LT
LI
NMC-8
CC-3
SEEC-6
FSR-2
Market concentration is naturally higher in small countries and with the
CEE countries ranging from being very small (Baltic States, some of the
SEE countries) to very large (in particular Russia) a comparison within
the CEEC-20 cannot be expected to yield meaningful results. Thus, we
have only looked at the market concentration, defined as the market
share of the five largest banks on total assets, of the individual countries in comparison to their peers in the same sub-region. Within the
NMC-8 the small Baltic countries display the highest market concentration as expected, while Poland shows the least market concentration.
It is worthy to note that the relatively low market concentration in
Hungary. In the case of Hungary, however, this is a sign of the intense
competition in which several foreign-owned banks and OTP are
Small Baltic countries
display the highest
market concentration
Low market concentration
in Hungary a sign of the
intense competition
9
Banking trends
engaged. Market concentration is also high in Croatia, where the competition for being the third largest bank is particularly fierce between
four foreign-owned banks. In comparison the market is somewhat more
fragmented in Bulgaria and Romania. The relatively low market concentration in Serbia points to the need for further restructuring and consolidation. While the banking market is quite fragmented in Ukraine,
with no bank accounting for more than 10% of total assets by the end
of 2003, the market concentration ratio is somewhat higher for Russia.
One reason for this, however, is the position of Sberbank. The second
largest bank in Russia, Vneshtorgbank, accounted for hardly more than
5% of total assets by the end of 2003. The exceptionally high market
concentration of Belarus can be explained with the fact that only five
banks are authorized to fund the national programmes. Belarusbank
alone commanded a share of 44% of total assets.
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
PL HU CZ SK SL ES
NMC-8
LT
LI
CC-3
SEEC-6
FSR-2
Market share of top five banks in % of assets as of year-end 2003
Financial intermediation and the structure of
lending
Relative size of the banking sector is by far the
largest in the NMC-8
10
The relative size of the banking sector, measured by total assets in %
of GDP, is by far the largest in the NMC-8. As pointed out above, bank
restructuring and privatisation in the NMC-8 was completed by 2001
and much earlier in a number of countries. The vast majority of the
banks are now majority owned by foreign banks, and can be characterised by efficient management, aggressive market penetration and
prudent lending. As could be expected given their earlier stage in transition and banking sector reforms the CC-3, the SEEC-6, Russia and the
FSR-2 all show somewhat smaller sizes of their respective banking sectors in that order. However, unlike the NMC-8 where total assets in %
of GDP stagnated and even declined over the last few years, total
assets recorded a steady and substantial growth in those regions. The
reason for the decline in the NMC-8 was the late restructuring of the
Czech and Slovak banking sectors, which led to a pronounced decline
Banking trends
in total assets in these two markets. This more than leveled out the
strong growth of total assets in the Baltic countries and Hungary in
2003. Even the NMC-8's ratio of total assets in % of GDP pales against
the ratio of the Eurozone, which exceeded 200% of GDP by the end
of 2003. Clearly there is a lot of room left for the banks in the CEEC20 to grow strongly for many years before coming anywhere close to
this ratio. However, one of the necessary preconditions for this growth
to take place is that the economies themselves must be able to gradually converge to the income and productivity levels of the Eurozone.
The banking sector will play an important role in this process if it can
provide loans to enterprises to invest into modernizing its production.
Total assets of the banking sector, in % of GDP
90%
Eurozone: 201%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1999
NMC-8
2000
CC-3
2001
SEEC-6
2002
Russia
2003
FSR-2
With respect to total credits in % of GDP the lead of the NMC-8 over
the other regions decreases. Again total credits decreased in the Czech
Republic and Slovakia in the course of bank restructuring, leading to a
stagnant aggregate figure for the NMC-8, while the other regions displayed strong growth. It is important to keep in mind that while the
clean up of loan portfolios is basically complete in the NMC-8, the
same can probably not be said for a number of countries in the other
CEE regions. Again the distance to the ratio of the Eurozone, which
reached 110% of GDP by the end of 2003, is substantial.
The clean up of loan portfolios is basically complete in the NMC-8, the
same can probably not
be said for a number of
other countries
11
Banking trends
Total credits of the banking sector, in % of GDP
40%
Eurozone: 110%
35%
30%
25%
20%
15%
10%
5%
0%
1999
NMC-8
2000
CC-3
2001
2002
SEEC-6
Russia
2003
FSR-2
Loans to small and
medium sized enterprises
appear on the verge of
significant growth in the
upcoming years
Looking more closely at the structure of lending, we first turn to credits
to private enterprises. This is where we can clearly see the clean up of
the loan portfolios of the large Czech and Slovak state-owned banks
before their privatization. Within the NMC-8 only Slovenia, Latvia and
Lithuania recorded a strong increase of credits to private enterprises in
% of GDP over the last few years. A particularly strong expansion of
company loans has also been evident in Bulgaria, Bosnia and
Herzegovina, Russia and Ukraine, while this segment is about to take
off in Romania. Loans to small and medium sized enterprises, a segment that has been greatly neglected in the past and where there is a
huge need and potential ramifications for the overall economy, appear
on the verge of significant growth in the upcoming years.
The most dynamic field of
banking in the CEEC-20
over the last few years
has been consumer loans
The most dynamic field of banking in the CEEC-20 over the last few
years has been consumer loans. Credits to households displayed
exceptionally high growth rates in EUR terms, albeit coming from very
low levels in % of GDP. There were only a few exemptions with moderately growing or even declining consumer loans. In Poland credits to
households decreased in EUR terms but increased in % of GDP in
2003, due to the strong depreciation of the Zloty against the EUR.
However, consumer loans have been stagnant also in % of GDP from
2000 to 2002. While the growth rate in this segment increased in
Slovenia in 2003, the ratio of credits to households in % of GDP has
been virtually unchanged since 1999. This is even more puzzling given
the low level of consumer loans in % of GDP and Slovenia's high GDP
per capita (by far the highest in all of the CEEC-20). An explanation
could be that due to the high wealth of Slovenia's households there is
less urge to make up in terms of consumption. The third country breaking the trend of booming credits to households is Serbia, where the
banking system as a whole is amid a process of restructuring. In all
other countries consumer loans have expanded at a high pace in
recent years and given the still low ratio in % of GDP in most cases,
will very likely retain strong growth for years to come.
12
Banking trends
Credits to households, in % of GDP
14%
Eurozone: 49%
12%
10%
8%
6%
4%
2%
0%
1999
2000
NMC-8
CC-3
2001
2002
2003
SEEC-6
Russia
FSR-2
However, the recent development has already raised concerns about
macroeconomic stability in a number of countries in the region, triggering restrictive measures by some of the central banks. With loans
often being used to buy imported consumer goods, the deficits of the
trade and current account balance have markedly increased. High current account deficits are especially troublesome if they cannot be
financed by non-debt creating inflows (i.e. foreign direct investment),
and can seriously threaten a currency's stability. The central banks of
Croatia, Bulgaria and Romania all have introduced a number of different measures to restrict credit growth. However, monetary policy in
general has to rely on rather blunt instruments (interest rates, reserve
requirements) and it is almost impossible to curb the growth of consumer loans without also negativly affecting credits to enterprises,
something that the CEE countries cannot afford. If anything the
economies need more corporate lending, particularly to small and
medium-sized enterprises, in order to raise productivity and improve
quality.
The deficits of the trade
and current account
balances have markedly
increased, triggering
restrictive measures by
some of the central banks
Credits to households in % of GDP vs. GDP per capita
60%
Eurozone
50%
40%
30%
HR
20%
BH
LT
BG
MD KO UA MK
RU
SR RO
10%
0%
0
5,000
PL
LI
10,000
ES
SK
HU
CZ
15,000
SL
20,000
25,000
GDP per capita (at PPP), in EUR
13
Banking trends
Mortgage loans have
displayed exceptional
growth rates in a number
of countries
Another emerging business field in a number of countries is mortgage
loans, which have displayed exceptional growth rates over the last few
years. There is in general a huge demand for financing the construction
and the renovation of apartments and houses in the region, which is
evident from the rapid expansion of the segment wherever the necessary legislative framework is put into place. So far this has only been
the case in the NMC-8 and Croatia. For the banks mortgage loans
involve relatively low risk and provide a channel to diversify the bank
portfolios away from state securities, corporate credits and consumer
loans. It can be expected that the mortgage market will continue to
grow in importance in the upcoming years also in some of those countries that have not created the legal preconditions yet.
Mortgage loans, in % of GDP
12%
10%
8%
6%
4%
2%
0%
1999
Poland
Slovakia
2000
2001
Hungary
Croatia
2002
2003
Czech Republic
Deposits
With the credit boom
evident, deposits have
shown a much more
moderate development
14
With the credit boom evident in virtually all of the CEEC-20, deposits
have shown a much more moderate development. Still total deposits in
% of GDP increased in all of our sub-regions. In general the gap
between the ratio of total deposits in % of GDP in the CEEC-20 and
that of the Eurozone is much smaller than the gap in all credit categories, and is particularly high in Hungary, the Czech Republic,
Slovakia and Croatia. Deposits remain much lower in Russia, the FSR2, in parts of the SEEC-6 and also in Romania, reflecting the lack of
trust in the banking sector that has started to improve only recently in
the course of bank restructuring and privatization. This is underpinned
by the strong recent growth of deposits in these regions. Deposits of
households also show a clear negative effect from the credit fueled consumption spree, decreasing in % of GDP in the NMC-8 and CC-3 while
growing strongly in the other regions where there are still substantial
savings hidden under the mattresses.
Banking trends
Deposits from households, in % of GDP
35%
Eurozone: 55%
30%
25%
20%
15%
10%
5%
0%
1999
NMC-8
2000
CC-3
2001
2002
2003
SEEC-6
Russia
FSR-2
The ratio of total deposits in % of total credits shows a substantial and
stable overhang of deposits in the NMC-8. Banks have to allocate substantial funds to state securities, something that has been very profitable in the past but has become less attractive in recent years due to
the steady decrease of interest rates and yields. In the past the overhang of deposits was much higher even in the CC-3 and the SEEC-6,
but decreased significantly due to the rapid credit growth. The situation
has been different in Russia and the FSR-2, where total deposits do not
suffice to cover total credits. While the trust in the banking system
should have improved in recent years, the ratio deteriorated further due
to the fast credit expansion.
Total deposits in % of total credits
350%
Eurozone: 81%
300%
250%
200%
150%
100%
50%
0%
1999
NMC-8
2000
CC-3
2001
2002
SEEC-6
Russia
2003
FSR-2
15
Poland
More rosy days ahead?
Polish banks look to recover from slump
Credits to households vs. GDP per capita
0.6
Eurozone
0.5
0.4
0.3
0.2
Poland
0.1
0
0
5,000 10,000 15,000 20,000 25,000
Source: NBP, RZB Group Research
Classified credits, Cost income ratio and RoE
35
75
30
70
25
65
20
60
15
55
10
50
5
45
0
1999
2000
2001
2002
40
2003
Classified loans, in % of total credits
Cost income ratio
Return on Equity (RoE)
By the end of 2003, there were 60 banks operating in Poland, a number that has steadily
decreased over the last couple of years due to a
number of mergers both in Poland and in Western
Europe. The Polish banking sector shows a relatively high degree of concentration with the top five
banks accounting for almost 50% of total assets.
Among the top ten banks there are still two domestically owned banks, both owned by the state. A
30% stake in PKO, the market leader, is scheduled
to be sold via the Polish stock exchange in a public
offer in October 2004. In the case of Bank
Gospodrky a 35% stake is held by Rabobank and
less than 15% by the EBRD, while the state treasury
will remain the majority owner at least for the time
being.
Banking assets in EUR declined over the last two
years due to the depreciation of the Polish zloty, but
were also stagnant in % of GDP. The same applies
to credits due to banks restructuring their loan portfolios mainly in 2002 but also in 2003. By the end
of 2003, classified credits still accounted for over
20% of total outstanding credits, the highest ratio in
the NMC-8. As a result of banks consolidating their
balance sheets, return on assets of the overall banking sector was substantially lower than in the other
new EU member countries, which in general have
experienced a credit boom.
Credit growth finally recovered in the first half of
2004, but remains limited to credits to households
with mortgage loans being the main driver.
Corporate loans, on the other hand, have continued to decline as companies appear to be still hes-
Key economic figures and forecasts
Population: 38.2 mn
1999
2000
2001
2002
2003
2004e
2005f
Nominal GDP (EUR bn)
GDP per capita (EUR at PPP)
Real GDP (% yoy)
Gross fixed capital formation (% yoy)
Household consumption (% yoy)
Industrial output (% yoy)
Unemployment rate (avg, %)
Consumer prices (avg, % yoy)
Producer prices (avg, % yoy)
General budget balance (% of GDP)
Public debt (% of GDP)
Current account balance (% of GDP)
Gross external debt (% of GDP)
Official FX-Reserves (EUR bn)
Exchange rate PLN/EUR (avg)
Exchange rate PLN/USD (avg)
145.5
8,410
4.1
6.8
5.2
3.6
12.0
7.3
5.7
(3.2)
40.3
(8.1)
44.7
27.2
4.23
3.97
170.9
8,960
4.0
2.7
2.7
6.7
14.0
10.1
7.9
(3.0)
36.6
(6.3)
43.7
29.5
4.01
4.35
204.6
9,550
1.0
(8.8)
2.0
0.6
16.2
5.5
1.6
(5.1)
36.7
(2.9)
39.8
30.1
3.67
4.10
200.2
9,900
1.4
(5.8)
3.3
1.4
17.9
1.9
1.0
(6.4)
41.2
(2.7)
40.4
28.5
3.85
4.08
185.3
10,370
3.8
(0.9)
3.1
8.8
19.9
0.8
2.6
(6.0)
45.4
(2.0)
44.4
27.4
4.40
3.89
190.9
10,981
6.0
5.0
4.0
15.0
19.5
3.8
8.5
(6.0)
49.1
(1.5)
44.5
27.3
4.71
3.83
208.5
11,772
5.0
5.0
4.0
6.0
19.0
4.2
8.0
(5.0)
50.3
(2.7)
43.2
27.7
4.73
3.75
Source: Thomson Financial Datastream, WIIW, RZB Group Research
16
Poland
Market share, % of total assets
itating with new investments. The trend in deposits
is naturally the exact opposite, with deposits from
households continuing its downward trend while
deposits from private companies increase.
Raiffeisen
Bank
1.6%
BGZ
3.2%
Due a regulatory change from 1 January 2004 and
the overall improved financial standing of the corporate sector, the quality of the loan portfolios of
Polish banks should improve more significantly this
year. Already in the first half of 2004 a significant
improvement was recorded for the profitability of
the banking sector, with net profits having doubled.
If the positive development can be sustained in the
second half of this year, which is not unlikely, the
Polish banking industry could be in for the best
result in its history.
growth in % yoy
in % of GDP
Total credits, EUR mn
growth in % yoy
in % of GDP
Credits to private enterprises, EUR mn
growth in % yoy
in % of GDP
Credits to households, EUR mn
growth in % yoy
in % of GDP
Credits in foreign currency, EUR mn
growth in % yoy
in % of GDP
Credits in foreign currency, in % of total credits
Total deposits, EUR mn
growth in % yoy
in % of GDP
Deposits from households, EUR mn
growth in % yoy
in % of GDP
Total deposits, in % of total credits
Structural information
Number of banks
Number of bank branches
Market share of state owned banks, in % of total assets
Market share of foreign owned banks, in % of total assets
Profitability and efficiency
Return on Assets (RoA)
Cost income ratio
Capital adequacy, in % of risk weighted assets
Average interest rate spread (PLN)
average lending rate
average deposit rate
PKO
16.4%
Bank Pekao
(UniCredit )
12.0%
Bank
Millennium
(BC
Portugues )
3.7%
Kredyt Bank
Bank
(KBC )
Zachodni BRE Bank
4.4%
(Allied Irish (Commerzbank )
Bank )
4.6%
5.2%
PBK
(BACA )
8.9%
Bank
Handlowy
ING Bank (Citibank )
6.3%
5.6%
Overview of banking sector developments
Balance sheet data
Total assets, EUR mn
Others
26.6%
1999
2000
2001
2002
2003
91,371
116,994
141,565
124,757
111,830
12.4
61.9
28.0
65.8
21.0
66.4
(11.9)
64.3
(10.4)
64.7
39,955.9
50,353.4
59,382.3
54,087.2
49,346.2
22.5
27.1
26.0
28.3
17.9
27.9
(8.9)
27.9
(8.8)
28.6
18,297.2
23,559.1
27,588.3
25,679.8
22,896.3
24.9
12.4
28.8
13.3
17.1
12.9
(6.9)
13.2
(10.8)
13.3
13,754.8
18,697.7
23,475.1
22,322.0
21,613.2
36.0
9.3
35.9
10.5
25.6
11.0
(4.9)
11.5
-3.2
12.5
6,576.9
8,260.0
9,752.8
8,817.9
8,643.8
12.3
4.5
25.6
4.6
18.1
4.6
(9.6)
4.5
(2.0)
5.0
16.5
53,396.6
16.4
66,757.3
16.4
82,114.3
16.3
69,921.3
17.5
61,660.4
13.9
36.2
25.0
37.6
23.0
38.5
(14.8)
36.0
(11.8)
35.7
40,177.6
52,193.2
63,731.2
53,963.7
45,074.4
11.7
27.2
29.9
29.4
22.1
29.9
(15.3)
27.8
(16.5)
26.1
133.6
132.6
138.3
129.3
125.0
77
10,428
24.9
49.3
74
11,470
23.9
72.5
71
10,721
24.6
72.0
62
9,965
26.4
70.9
60
9,163
25.8
71.6
0.9
12.9
64.5
13.2
13.7
7.4
1.1
14.5
62.8
12.9
15.5
7.2
1.0
12.8
61.9
15.1
18.6
8.8
0.5
5.2
62.9
13.8
22.0
7.4
0.5
5.9
68.0
13.6
21.8
6.7
20.3
12.9
21.5
14.3
16.8
8.0
11.6
4.2
9.6
2.9
17
Hungary
Profitability and competitiveness
need not be contradictory
60%
Eurozone
50%
40%
30%
20%
Hungary
10%
0%
0
5,000 10,000 15,000 20,000 25,000
Source: MNB, RZB Group Research
IR spread, RoE and cost income ratio
25
70
20
65
15
60
10
55
5
50
0
1999
2000
2001
2002
Average interest rate spread
45
2003
Cost income ratio
The Hungarian banking sector is one of the most
profitable and at the same time most competitive
markets in the CEEC-20. By the end of 2003, 36
banks were active in the market, with foreignowned banks accounting for over 80% of total
assets. The largest bank, however, is the Hungarian
owned OTP Bank. OTP had a market share of more
than 18% according to total assets by the end of
2003, almost twice that of the second largest bank.
Besides OTP there are five foreign-owned banks
with a significant market share of 5% or more
according to total assets, engaging in a fierce competition for a growing share in this highly dynamic
market.
The figures for banking sector development in EUR
terms that we use for our comparisons must be
taken with care for the year 2003. In the course of
the Forint turbulences of 2003 the exchange rate
against the EUR weakened by 12.3% from 235.9
by the end of 2002 to 264.8 by the end of 2003.
When looking at the ratios in % of GDP, one can
see that the real growth dynamic in 2003 was
much higher than in previous years. Credits to
households remained the fastest growing segment,
increasing by more than 40% in EUR terms despite
the Forint's weakening. After two years of decline
in % of GDP, credits to private enterprises also
increased, underpinning the growing importance of
loans to small and medium-sized enterprises. Due to
the high interest rates in Hungary, which are the
result of the currency turbulences in 2003 and the
staggering twin deficits in the budget and current
account balance, credits in foreign currency recorded a particularly strong growth during 2003 and
made up a quarter of all outstanding credits.
Population: 10.1 mn
Real GDP (% yoy)
Exchange rate HUF/EUR (avg)
Exchange rate HUF/USD (avg)
1999
2000
2001
2002
2003
2004e
2005f
45.1
10,200
4.5
5.9
5.4
10.4
7.0
10.0
5.1
(3.7)
61.2
(7.8)
64.8
10.9
252.8
237.2
50.6
11,030
5.2
7.7
4.4
18.1
6.4
9.8
11.8
(3.4)
55.4
(8.6)
64.4
12.1
260.1
282.2
57.9
12,020
3.8
5.0
5.7
4.1
5.8
9.2
5.5
(4.2)
53.5
(6.2)
64.6
12.2
256.6
286.5
68.9
12,840
3.5
8.0
10.3
2.0
6.0
5.3
(1.8)
(9.8)
57.1
(7.0)
55.8
9.9
242.9
255.7
72.8
13,680
2.9
3.0
7.6
6.4
5.7
4.7
2.4
(5.9)
59.1
(8.9)
60.6
10.1
253.8
224.2
80.0
14,200
3.7
10.0
4.5
8.8
5.8
6.7
3.9
(5.0)
58.7
(8.7)
61.2
10.5
255.2
207.5
91.3
14,800
4.1
6.5
4.0
9.0
5.8
4.5
2.5
(4.5)
58.0
(7.1)
62.0
11.0
253.6
201.3
18
Hungary
Due to the boom in consumer loans, deposit growth
naturally lagged behind. Total deposits still
accounted for more than 200% of total credits.
Given the high interest rates and yields for government securities, banks can put their funds into the
safe, albeit somewhat volatile, local money market
and bond market. Strong credit growth and high
interest rates and yields of government securities
have helped the Hungarian banking sector to
remain one of the most profitable in the region,
despite the tough competition for market shares.
Another important factor has been the continued
streamlining of banking operations, reflected in the
gradual decrease of the cost income ratio of the
sector. The recent hike of the corporate tax rate for
banks by 8% to 24%, which is planed fo 2005,
reflects the underlying concerns about political and
macroeconomic stability.
OTP Bank
18.3%
Others
36.6%
K&H Bank
(KBC )
9.4%
Citibank
2.4%
Budapest
Bank (GE
Capital )
3.0%
MKB
(Bay. LB )
7.6%
CIB (Intesa )
6.9%
HVB Bank
(BACA )
4.4%
Raiffeisen
Bank
5.4%
Erste Bank
5.9%
Balance sheet data
1999
2000
2001
2002
2003
30,799.1
33,839.1
41,214.6
49,172.6
54,797.1
growth in % yoy
13.6
9.9
21.8
19.3
11.4
in % of GDP
68.1
68.5
68.4
69.3
78.1
26,107.8
11,367.3
14,463.9
17,984.0
22,339.1
growth in % yoy
21.6
27.2
24.3
24.2
16.9
in % of GDP
25.1
29.3
29.8
31.5
37.2
16,692.7
9,313.4
12,001.1
14,154.0
15,635.8
growth in % yoy
20.1
28.9
17.9
10.5
6.8
in % of GDP
20.5
23.8
24.5
22.7
22.8
1,845.5
2,245.6
3,537.0
6,219.1
8,864.2
32.9
21.7
57.5
75.8
42.5
4.1
4.5
6.1
9.0
12.1
3,208.8
4,640.2
4,707.7
5,132.9
6,535.1
28.9
44.6
1.5
9.0
27.3
7.0
9.2
8.1
7.5
8.9
28.2
30,799.1
32.1
33,839.1
26.2
41,214.6
23.0
49,172.6
25.0
5,4797.1
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
growth in % yoy
13.6
9.9
21.8
19.3
11.4
in % of GDP
68.1
68.5
68.4
69.3
78.1
17,350.4
11,057.4
12,117.3
15,031.9
16,995.3
growth in % yoy
12.4
9.6
24.1
13.1
2.1
in % of GDP
24.5
24.5
24.9
23.9
24.7
270.9
234.0
229.2
220.1
209.9
40
65.3
39
66.7
38
63.0
37
78.3
36
1159
81.9
0.6
6.4
15.0
4.4
3.7
1.3
13.8
65.1
15.2
3.1
3.4
1.6
15.7
61.8
15.6
2.8
3.1
1.7
18.3
61.4
12.2
3.6
2.8
1.9
21.1
55.7
11.9
3.2
2.5
Number of banks
Market share of foreign owned banks, in % of capital
Cost income ratio
Average interest rate spread HUF)
19
Czech Republic
Severe competition
in spite of high market concentration
0.6
Eurozone
0.5
0.4
0.3
0.2
Czech
Republic
0.1
0
0
5,000 10,000 15,000 20,000 25,000
Source: CNB, RZB Group Research
Share of state-owned assets and RoE of
whole banking sector
30
25
20
15
10
5
0
-5
-10
-15
-20
100
90
80
70
60
50
40
30
20
10
0
1999
2000
2001
2002
2003
Population: 10.2 mn
Real GDP (% yoy)
Exchange rate CZK/EUR (avg)
Exchange rate CZK/USD (avg)
1999
2000
2001
2002
2003
2004e
2005f
51.6
12,700
0.5
(1.0)
1.9
(3.0)
8.6
2.1
1.0
(2.6)
14.5
(2.7)
44.1
12.7
36.9
34.6
55.7
12,490
3.3
5.4
2.3
5.4
9.0
3.9
4.9
(4.0)
16.7
(5.3)
41.8
14.0
35.6
38.6
63.8
14,100
2.6
5.4
2.8
6.7
8.6
4.7
2.9
(4.9)
18.6
(5.7)
39.8
16.1
34.1
38.0
73.9
14,920
1.5
3.4
2.7
4.8
8.2
1.8
-0.5
(6.4)
19.5
(6.0)
34.8
22.6
30.8
32.7
75.7
15,400
3.1
7.4
4.9
5.8
9.9
0.1
-0.3
(5.4)
23.0
(6.5)
36.5
21.3
31.8
28.2
80.9
16,800
3.5
9.0
4.0
7.5
10.3
3.3
4.0
(5.2)
27.3
(6.3)
37.1
22.1
32.1
26.1
89.2
17,700
3.6
7.0
5.0
7.0
9.9
3.2
3.0
(4.2)
31.8
(5.7)
35.9
24.4
31.3
24.8
20
The transformation and consolidation of the Czech
banking sector is now history. Since finishing the
bank privatisation programme in 2001, the role of
the state as an owner in the banking sector is limited to two standard specialized institutions, the
development bank (administering and financing in
particular the government's SME programmes) and
the Exim bank. The rest of the banking sector is
owned by foreign banks or non-banking financial
institutions. Only two small banks have domestic
private owners. Czech banking, hence, is considerably internationalised from a worldwide perspective. As regards banking performance, the post-privatisation consolidation and re-engineering of former state-owned banks, i.e. Ceskoslovenska
obchodni banka (CSOB), Ceska sporitelna (CS)
and Komercni banka (KB), was completed in 2002.
These "Big Three" are still the dominant players in
the market. Their combined market share in terms of
assets is about 55% and they have extensive retail
branch networks. A number of banks, which originated in the early nineties as foreign greenfield ventures, are the other important segment of Czech
banking. These institutions mostly play an important
role as strong and dynamic niche players. Rapid
development of alternative channels and changes
in the behavior of clients towards a preference of
direct banking in recent years has also enabled
many banks of this group to expand into retail
banking.
The corporate banking and treasury markets are
consolidated and stable. Demand for and supply of
new products and financial innovations are moderate and mainly driven by developments in the global banking industry. However, the degree of financial intermediation is only about half the level in the
Czech Republic
Eurozone. Thus, there is natural room for fast
organic growth of the market. Retail banking, and
recently also the SME segment, is very vibrant, and
the market for many products such as credit cards
or mortgage credits is still underdeveloped.
Therefore, this is the area where competition is
heating up, growth rates are double-digit, and
where most banks concentrate their business efforts.
The Czech banking industry has reached a comparably strong level of financial efficiency on an international level with RoE around 20%. The strong
presence of numerous global or international banks
with significant market shares provides a degree of
competition that exceeds many mature banking
markets where domestic banking institutions play a
dominant role with only a limited or negligible presence of foreign rivals.
ING Bank
Ziv.banka 1.6%
(UniCredit )
1.9%
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
Number of banks
Cost income ratio
Average interest rate spread (CZK)
CSOB
(KBC )
20.1%
GE Capital
2.2%
CS (Erst e)
18.2%
Raiffeisenbank
2.4%
Citibank
2.7%
Commerzbank
3.6%
HVB Bank
(BACA )
5.1%
KB
(SocGen )
17.5%
Balance sheet data
Others
24.6%
1999
2000
2001
2002
2003
74,587.3
81,889.5
88,533.7
81,212.4
79,454.7
1.4
141.7
9.8
144.8
8.1
130.2
-8.3
112.8
-2.2
106.8
24,072.7
24,689.3
25,777.0
25,332.4
26,635.1
(6.1)
45.7
2.6
43.6
4.4
37.9
(1.7)
35.2
5.1
35.8
17,633.1
16,861.3
13,262.1
10,915.5
10,588.2
(8.4)
33.5
(4.4)
29.8
(21.3)
19.5
(17.7)
15.2
(3.0)
14.2
2,112.4
2,671.7
3,620.6
4,955.3
6,494.2
18.8
4.0
26.5
4.7
35.5
5.3
36.9
6.9
31.1
8.7
6,775.9
6,249.5
5,172.2
4,103.8
3,819.3
(4.8)
12.9
(7.8)
11.0
(17.2)
7.6
(20.7)
5.7
(6.9)
5.1
28.1
28,333.7
25.3
30,042.7
20.1
38,827.1
16.2
46,432.6
14.3
46,299.9
(2.9)
53.8
6.0
53.1
29.2
57.1
19.6
64.5
(0.3)
62.3
18,432.4
20,144.4
24,421.4
24,895.4
25,557.9
(2.2)
35.0
9.3
35.6
21.2
35.9
1.9
34.6
2.7
34.4
117.7
121.7
150.6
183.3
173.8
34
1,993
38.5
-
32
1,795
24.3
75.4
30
1,736
3.7
93.3
29
1,701
4.5
94.2
27
1,670
3.1
95.9
(0.3)
(5.3)
56.6
13.6
32.2
4.2
0.7
13.1
54.1
14.8
28.9
3.8
0.7
16.6
53.6
15.4
20.8
4.1
1.2
27.4
51.7
14.3
15.8
4.0
1.2
23.7
52.7
14.5
11.1
3.9
8.7
4.5
7.2
3.4
7.0
3.0
6.2
2.2
5.3
1.4
21
Slovakia
Dynamic development
as competition increases
0.6
Eurozone
0.5
0.4
0.3
0.2
0.1
Slovakia
0
0
5,000 10,000 15,000 20,000 25,000
Source: NBS, RZB Group Research
Credits to households, in % of GDP and
growth yoy
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
50
45
40
35
30
25
20
15
10
5
0
1999
2000
2001
2002
2003
Credits to households, growth % yoy
Competitiveness in the Slovak banking sector has
significantly increased after the restructuring and
the subsequent privatisation in 2001 of the two
largest banks, Slovenska Sporitelna and VUB. At
the same time other foreign banks or their affiliates
are also trying to get a foothold in the Slovak market. The top three banks, which also includes
Raiffeisen International's Tatra banka, dominate the
market, accounting for two thirds of total banking
assets by the end of the first quarter 2004.
With competition heating up and margins being
squeezed, banks have increasingly turned to retail
business and more advanced products that yield
higher margins. Credits to households experienced
a boom in 2003, growing by more than 40% yoy
in EUR terms. However, overall oustanding credits
to households remain low at 7.1% of GDP , even
when compared with the 11% average of the eight
new EU member countries from CEE (NMC-8),
where only Lithuania has a lower percentage. The
comparable ratio for the Eurozone is 49% of GDP.
Assets under management in mutual funds again
more than doubled in 2003, reaching EUR 820
mn, while pension funds also continued to grow
strongly. Clearly these are the major growth markets for banks in the upcoming years.
Both the surge of private loans and the emergance
of mutual funds have put a break on the growth of
overall deposits. Deposits received from households
even decreased to 27% of GDP in 2003, down
from levels around 32% in the period 1999-2001.
Still, total deposits fell only to a level of just below
200% of total credits in 2003, underlining the
banks' reliance on T-bills and T-bonds that today
yield rather low interest rates.
Population: 5.4 bn
1999
2000
2001
2002
2003
2004e
2005f
Real GDP (% yoy)
Unemployment rate (avg. %)
Consumer prices (avg. % yoy)
Producer prices (avg. % yoy)
Exchange rate SKK/EUR (avg)
Exchange rate SKK/USD (avg)
19.1
9,160
1.5
(19.6)
2.7
(2.7)
17.5
10.6
3.8
(3.6)
43.8
(4.8)
54.8
3.4
44.1
41.4
21.9
9,910
2.0
(7.2)
(0.9)
8.4
18.2
12.2
9.8
(10.4)
49.9
(3.5)
53.1
4.3
42.6
46.2
23.3
10,480
3.8
13.9
4.9
7.4
18.2
7.1
6.7
(7.3)
48.7
(8.4)
53.7
4.6
43.3
48.4
25.7
11,330
4.4
(0.9)
5.3
6.7
17.8
3.3
2.1
(5.7)
43.3
(8.0)
49.2
8.5
42.7
45.3
28.8
11,730
4.2
(1.2)
(0.6)
5.5
15.2
8.5
8.3
(3.5)
42.8
(0.9)
50.9
9.4
41.5
36.7
34.0
12,400
5.4
4.5
3.2
6.5
14.5
7.7
3.3
(3.8)
45.0
(2.1)
48.5
11.3
40.1
32.6
36.9
13,000
4.9
9.0
4.3
7.5
14.1
3.3
2.8
(3.4)
46.0
(2.8)
49.5
11.8
39.3
31.2
22
Slovakia
Credits to private companies increased in EUR
terms in 2003 for the first time in three years, but
continued to decrease in % of GDP. In 2003 the
total stock of credits to private enterprises reached
only about half of the level of 1999, and it is no surprise that gross fixed capital formation in the Slovak
economy fell in four out of five years from 19992003. The clean up of the loan portfolios of the two
large state banks ahead of their privatisation has
reduced the percentage of classified loans down by
more than a half from a level of 36.4% in 1999.
Capital adequacy of the Slovak banking sector has
been the highest in the NMC-8 since privatisation
in 2001. Thus, credits to small and medium-sized
enterprises should become a more important factor
in the upcoming years and contribute to a much
needed acceleration of fixed capital investment.
Istrobanka
(BAWAG )
2.8%
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
Number of banks
Cost income ratio
Average interest rate spread (SKK)
Others
15.3%
Slovenska
sporitelna
(Erste )
21.1%
Dexia banka
Slovensko
2.9%
VUB Banka
(Intesa )
19.6%
ING Bank
4.8%
UniBanka
(UniCredit )
5.0% HVB bank
(BACA )
5.0%
CSOB
(KBC )
7.1%
Tatra banka
(Raiffeisen )
13.6%
Balance sheet data
Ludova
banka
(ÖVAG )
2.7%
1999
2000
2001
2002
2003
18,130.0
19,250.7
21,721.4
24,304.1
(1.4)
91.2
6.2
90.7
12.8
92.0
11.9
92.5
23,941.5
(1.5)
9,671.2
9,266.5
(4.2)
7,910.7
(14.6)
8,423.9
9,768.8
43.6
33.5
6.5
32.1
16.0
33.6
7,183.6
6,804.3
5,005.4
5,006.3
5,252.4
3.0
36.1
(5.3)
32.0
(26.4)
21.2
0.0
19.1
4.9
18.1
846.6
996.5
1,213.1
1,469.7
2,067.8
38.2
4.3
17.7
4.7
21.7
5.1
21.2
5.6
40.7
7.1
1,422.6
1,269.4
(10.8)
1,361.7
1,438.2
1,985.4
6.0
7.3
5.8
5.6
5.5
38.0
6.8
14.7
12,038.7
13.7
13,855.5
17.2
15,861.4
17.1
18,489.6
20.3
19,347.6
14.8
60.6
15.1
65.3
14.5
67.2
16.6
70.4
4.6
66.6
6,567.9
6,917.3
7,562.6
7,752.1
7,851.6
12.3
33.0
5.3
32.6
9.3
32.0
2.5
29.5
1.3
27.0
124.5
149.5
200.5
219.5
198.1
25
1,153
62.2
37.8
23
1,101
59.4
40.6
21
1,052
9.5
90.5
21
1,020
4.4
95.6
22
1,057
1.5
96.3
(2.3)
108.2
12.6
36.5
6.4
1.5
9.5
104.8
12.5
27.9
4.6
1.0
14.4
107.3
19.8
32.3
4.1
1.2
13.6
82.6
21.3
21.8
4.5
1.2
12.9
83.8
21.7
17.7
4.3
16.9
10.5
11.8
7.2
9.3
5.2
9.1
4.6
7.6
3.3
5.3
48.6
6.1
7.2
(30.2)
82.4
23
Slovenia
Consumer loans to take off
foreign-owned banks on the fast lane
0.6
Eurozone
0.5
0.4
0.3
0.2
0.1
Slovenia
0
0
5,000 10,000 15,000 20,000 25,000
Source: BSI, RZB Group Research
Credits to households and private enterprises, in % of GDP
40
35
30
25
20
15
10
5
0
1999
2000
2001
2002
2003
Credits to private enterprises, in % of GDP
Population: 2.0 mn
Real GDP (% yoy)
Exchange rate SIT/EUR (avg)
Exchange rate SIT/USD (avg)
1999
2000
2001
2002
2003
2004e
2005f
18.8
14,330
5.2
21.0
5.9
(0.5)
13.6
6.1
2.1
(0.6)
25.1
( 3.5)
42.6
3.2
193.6
181.8
20.7
15,150
4.1
0.6
0.3
6.2
12.2
8.9
7.6
(1.3)
26.7
(2.9)
46.1
3.4
205.0
222.7
21.9
15,920
2.9
4.1
2.3
2.9
11.6
8.4
8.9
(1.3)
26.9
0.2
47.7
4.8
217.2
242.5
23.4
19,720
2.9
2.6
0.3
2.5
11.6
7.5
5.1
(2.9)
27.8
1.4
49.3
6.5
227.0
240.1
24.5
17,500
2.3
5.4
2.9
1.4
11.2
5.5
2.5
(1.8)
28.6
0.1
53.3
7.3
234.0
206.8
25.6
18,100
3.0
6.0
3.5
4.0
10.5
4.0
4.0
(1.7)
29.0
(0.2)
55.0
8.1
239.0
194.3
27.3
18,700
3.5
7.0
3.5
5.0
10.0
3.5
3.5
(1.5)
29.5
(0.5)
56.5
8.4
240.0
190.5
24
There were 20 banks operating in Slovenia by the
end of 2003, the same number as a year ago. Of
those 20 banks, five were subsidiaries of foreign
banks and one was a branch office of a foreign
bank. In addition to these six banks under majority
foreign ownership, there were seven fully domesticowned banks and a further seven under majority
domestic ownership (of the seven banks under
majority domestic ownership, three had less than
1% foreign equity capital).
Only at the end of 2003 the environment for some
Slovenian banks had been rather depressed, as the
growth of the balance sheets especially in the
largest banks in Slovenia slowed down, and partially came to a complete halt. However, those worries are certainly forgotten. In the first half of 2004,
bank assets have again recorded solid growth
(5.8%) and should increase by around 10% in
2004. Unlike two years ago, when the asset
growth was mainly artificial through the purchase
of central bank securities, the traditional buoyant
borrowing activities of the corporate sector were
recently accompanied by significant volumes of
loans to retail customers, the latter fueled by an
increasing consumption fever.
Slovenia has by far the highest level of credits to
private enterprises among the new EU member
countries, underlining the fact that the economy is
the most developed in the region and pointing to a
relatively high degree of bank intermediation.
Credits to households, on the other hand, are still at
a rather low level and have only shown a very moderate growth in recent years, in particular compared with the development in virtually all the countries in the region. However, the most recent development points to a more dynamic development of
Slovenia
this segment and there now appears plenty of room
for all of the 20 Slovenian banks to grow. With
interest margins continuing to shrink again during
the first part of this year, there have been increasing efforts of the banks to control growing operational costs. Some positive results are already
apparent and in turn total profit of the banking system has increased over the last year. However, this
is just the aggregate picture of the banking system
as a whole. If we look at the individual development of banks in the first half of this year, we can
find that things have not changed very much.
Austrian banks continue to expand their market
shares and while local banks still have above average results the biggest banks are mostly busy with
the question of how to defend their market position.
Raiffeisen
Krekova
2.5%
BACA
4.6%
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
Number of banks
Cost income ratio
Average interest rate spread (SIT)
Others
11.4%
NLB
33.6%
Gorenjska
banka
5.0%
Banka
Koper
(San Paolo
IMI ) Banka
6.2%
Celje
6.7%
SKB
(Societe
Generale )
7.7%
NKBM
11.0%
Abanka
Vipa
9.1%
Balance sheet data
Hypo Alpe
Adria
2.2%
1999
2000
2001
2002
2003
13,587.5
15,040.5
17,489.1
20,092.7
21,553.0
9.4
73.7
10.7
75.6
16.3
81.8
14.9
87.6
7.3
89.9
7,019.4
7,709.4
8,635.2
9,482.6
10,640.6
19.9
38.1
9.8
38.8
12.0
40.4
9.8
41.4
12.2
44.4
5,147.1
5,734.5
6,589.8
7,353.0
8,321.1
19.9
27.9
11.4
28.8
14.9
30.8
11.6
32.1
13.2
34.7
1,872.3
1,975.0
2,045.4
2,129.7
2,319.5
19.7
10.2
5.5
9.9
3.6
9.6
4.1
9.3
8.9
9.7
-
1,332.2
1,606.3
2,302.6
2,996.0
-
6.7
20.6
7.5
43.4
10.0
30.1
12.5
9,398.4
17.3
10,163.5
18.6
12,457.7
24.3
13,685.9
28.2
13,919.6
6.7
51.0
8.1
51.1
22.6
58.3
9.9
59.7
1.7
58.1
5,131.6
5,999.7
7,809.7
8,448.1
8,865.6
9.0
27.8
16.9
30.2
30.2
36.5
8.2
36.8
4.9
37.0
133.9
131.8
144.3
144.3
130.8
25
578
4.8
25
501
15.3
21
643
40.7
15.6
20
638
24.9
23.1
20
-
0.8
7.7
61.9
14.0
11.0
-
1.1
11.4
55.6
13.5
12.4
6.4
0.4
4.7
60.1
11.8
12.8
4.9
1.1
13.0
55.3
11.9
13.3
5.1
1.0
12.8
62.4
11.6
13.6
4.5
-
14.6
8.2
12.7
7.8
12.2
7.1
9.3
4.8
25
Estonia
Credit boom
fueling staggering current account deficit
0.6
Eurozone
0.5
0.4
0.3
Estonia
0.2
0.1
0
0
5,000 10,000 15,000 20,000 25,000
Source: EB, RZB Group Research
growth yoy
20
50
40
15
30
10
20
5
10
0
0
1999
2000
2001
2002
2003
Credits to households, growth % yoy
Estonia has the most highly concentrated banking
sector of the whole CEE region with the top three
banks, all owned by Nordic banking groups, making up 90% of total assets. Hansabank alone had
a market share of almost 58% in terms of total
assets by the end of 2003. Up to the end of 2003
there have been seven licensed banks with only the
two smallest ones not being foreign majority
owned. After three years without change, two new
banks have entered Estonia's banking market in
2004. In March, Parex Banka, the market leader in
Latvia whose interests lie in financing transit-related
business activities in Estonia, was issued a permit to
set up a branch. Then in April, Vereins- und
Westbank AG submitted an application to open a
subsidiary to offer project and trade financing services.
Hansabank also is a major player in Latvia and
Lithuania, being the second largest bank in those
markets. Also the border regions of Russia, particularly the St. Petersburg area, have become an
increasingly important playing field for Estonian
banks. Hansabank already established a leasing
company in Russia in 2002 and Ühispank
announced that it also intends to re-launch leasing
operations in St. Petersburg. Given the small
domestic market and a rather high degree of financial intermediation relative to Estonia's GDP per
capita, the expansion beyond Estonia's borders
has been seen as crucial for sustaining growth and
profitability.
Total assets of the Estonian banking sector have
been growing by around 20% yoy for the last two
Population: 1.4 mn
1999
2000
2001
2002
2003
2004e
2005f
Real GDP (% yoy)
Exchange rate EEK/EUR (avg)
Exchange rate EEK/USD (avg)
5.2
8,040
(0.1)
(15.6)
(2.7)
(2.7)
5.2
3.3
(1.2)
(2.8)
6.5
(4.4)
54.9
0.9
15.65
14.69
5.9
9,010
7.8
14.3
8.5
8.6
5.9
4.0
4.9
(0.3)
5.0
(5.5)
54.6
1.0
15.65
16.98
6.7
9,610
6.4
13
5.9
6.9
6.1
5.8
4.4
0.3
4.7
(5.6)
55.6
0.9
15.65
17.48
7.5
10,450
7.2
17.2
9.9
6.5
5.4
3.6
0.4
1.8
5.7
(11.3)
60.1
1.0
15.65
16.61
8.0
10,860
5.1
5.4
5.4
5.3
4.9
1.3
0.2
2.6
5.8
(12.6)
69.1
1.1
15.65
13.86
8.5
11,450
5.5
6.0
5.5
6.5
5.0
2.8
1.0
0.0
5.5
(9.8)
71.0
1.1
15.65
12.7
8.9
12,100
6.0
5.5
5.5
7.0
4.5
3.1
1.5
0.6
6.0
(9.2)
72.5
1.2
15.65
12.4
26
Estonia
years and reached a level of 85.1% of GDP in
2003. The growth of credits has been even more
dynamic, particularly credits to households, which
expanded by almost 50% in 2003. With 59.3%
Estonia has the highest level of total credits in % of
GDP in the whole region and the level of credits to
households is the second highest after Croatia with
16.6% of GDP. The boom of consumer loans also
contributed to a widening of the already high current account deficits to staggering levels in 2002
and 2003. With Estonia having already entered
the ERM2 exchange rate mechanism and being
seen on track for entering the Eurozone in 2007,
the relatively high and rising levels of external debt
are not regarded as an immediate threat to the stability of the currency board.
Krediidipank
1.6%
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
Number of banks
Cost income ratio
Average interest rate spread (EEK)
Preatoni
Bank
0.1%
Sampo Bank
7.1%
Nordea
Bank
8.2%
Hansabank
(Swedbank )
57.7%
Eesti
Ühispank
(SEB )
24.7%
Balance sheet data
Business
Bank
0.7%
1999
2000
2001
2002
2003
3,008.1
3,684.1
4,372.3
5,220.7
6,314.3
14.7
61.7
22.5
66.2
18.7
69.9
19.4
75.6
20.9
85.1
1,696.1
2,150.9
2,683.9
3,423.6
4,405.6
9.5
34.8
26.8
38.6
24.8
42.9
27.6
49.6
28.7
59.3
944.1
1,015.4
1,133.4
1,239.7
1,490.4
-2.0
19.3
7.5
18.2
11.6
18.1
9.4
18.0
20.2
20.1
344.6
439.6
590.4
830.7
1229.6
26.3
7.1
27.6
7.9
34.3
9.4
40.7
12.0
48.0
16.6
1,297.3
1,700.1
2,047.3
2,638.4
3,604.3
11.5
26.6
31.0
30.4
20.4
32.7
28.9
38.2
36.6
48.6
76.5
1,687.8
79.0
2,215.5
76.3
2,727.8
77.1
3,115.3
81.8
3,415.3
22.9
34.6
31.3
39.8
23.1
43.6
14.2
45.1
9.6
46.0
748.4
990.5
1,234.5
1,375.7
1,502.5
30.7
15.3
32.4
17.8
24.6
19.7
11.4
19.9
9.2
20.2
99.5
103.0
101.6
91.0
77.5
7
273
7.9
90
7
222
0.0
97
7
205
0.0
98
7
203
0.0
98
7
215
0.0
99.2
1.4
9.2
16.1
1.7
5.4
1.2
8.0
72.5
13.2
1.1
4.0
2.7
20.7
53.3
14.4
1.3
7.1
1.6
11.9
61.6
15.3
0.8
2.8
1.7
14.2
53.0
14.5
0.4
3.2
8.6
3.3
8.4
4.5
9.8
2.7
5.9
3.1
5.4
2.2
27
Latvia
Need to re-peg the currency
before entering the ERM II in 2005
0.6
Eurozone
0.5
0.4
0.3
0.2
Latvia
0.1
0
0
5,000 10,000 15,000 20,000 25,000
Source: Bank of Latvia, RZB Group Research
Credits in foreign currency, in % of total
credits
25
100
20
80
15
60
10
40
5
20
0
0
1999
2000
2001
2002
2003
Credits in foreign currency, in % of GDP
Latvia is one of only a few countries in the region
where a domestic, private-owned bank - Parex
Banka - remains the market leader. Similar to the
other Baltic countries, the Nordic banks Hansabanka owned by Swedbank and SEB's
Unibanka - command a significant market share.
With a combined market share of the top three
banks of only slightly less than 50% of total assets
the market concentration is rather high, even
though it is still considerably lower than in neighbouring Estonia and Lithuania. With 22 banks and
one branch of a foreign bank - Nordea Bank - operating in Latvia, market consolidation is also less
pronounced than in the neighboring Baltic countries. With 53.9% of total assets the market share of
majority foreign-owned banks is well below that of
most of the new EU member countries and has even
gradually decreased in recent years. This is even
more remarkable since restructuring and privatisation of the banking sector is basically completed,
with the state maintaining a majority in only one
bank - Latvijas Hipoteku un zemas banka, accounting for less than 5% of total assets.
Despite interest rates being squeezed, the performance of the banking sector has been very good
and stable over the last two years. One of the reasons for this is that bank assets have been growing
very strongly, a development that continued in the
first half of this year. Total assets almost matched
GDP by the end of 2003, one of the highest ratios
in the region and second only to the Czech
Republic among the NMC-8. Total credits
increased by over 40% in 2003 and have shown
no signs of slowing down in 2004. The develop-
Population: 2.3 mn
1999
2000
2001
2002
2003
2004e
2005f
Real GDP (% yoy)
Exchange rate LVL/EUR (avg)
Exchange rate LVL/USD (avg)
6.8
6,990
3.3
(6.8)
3.7
(5.4)
9.1
2.4
(4.0)
(5.3)
13.7
(9.0)
55.6
0.8
0.62
0.58
8.4
7,690
6.9
10.2
7.4
4.7
7.8
2.6
0.6
(2.7)
13.9
(6.4)
60.4
0.9
0.56
0.61
9.2
8,370
8.0
11.4
7.8
9.2
7.7
2.5
1.7
(1.6)
16.2
(8.9)
68.6
1.3
0.56
0.63
9.8
9,180
6.4
13
6.9
5.8
8.5
1.9
1.0
(2.7)
15.5
(7.0)
69.1
1.2
0.58
0.62
9.9
9,970
7.5
7.4
8.0
6.5
8.6
2.9
3.2
(1.8)
15.6
(8.6)
74.3
1.2
0.64
0.57
10.6
10,600
7.0
12.0
6.5
8.5
9.0
4.0
3.5
(2.5)
16.0
(9.0)
77.5
1.2
0.64
0.52
11.5
11,300
6.5
12.0
6.0
8.0
8.5
4.0
3.0
(2.0)
16.0
(8.5)
80.0
1.3
0.63
0.50
28
Latvia
ment of credits to households was even more staggering with above 60% growth in the last two
years. Despite growing steadily, deposits could not
quite keep the pace of credits and reached less
than two thirds of total credits by the end of 2003.
Thus, banks have to raise funds through alternative
channels in order to meet the continued high
demand for loans.
Others
24.7%
Parex Banka
18.1%
NORD/LB
Latvija
4.1%
Hansabanka
(Swedbank )
15.9%
LATEKO
banka
4.6%
The boom of consumer loans has also contributed
to a widening of the already high current account
deficits. Latvia aims at re-pegging the lat to the EUR
at the end of this year in order to be able to join the
ERM II waiting room for entry to the Eurozone early
2005. Currently the lat is still pegged to the SDR
("special drawing right"), an artificial unit of
account that was created by the IMF in 1969.
Nordea
Bank
4.7%
Aizkraukles
Bank
4.7%
Unibank
(SEB )
15.4%
Rietumu
Banka
7.7%
Balance sheet data
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
Number of banks
Average interest rate spread (LVL)
1999
2000
2001
2002
2003
3,424.2
4,886.5
5,973.8
6,967.4
8,413.7
32.0
51.5
42.7
64.7
22.3
70.5
16.6
83.6
20.8
96.1
1,122.9
1,571.1
2,384.7
2,967.3
3,790.2
31.8
16.9
39.9
20.8
51.8
28.1
24.4
35.6
27.7
43.3
907.9
1,202.4
1,818.4
2,093.8
2,524.4
26.2
13.6
32.4
15.9
51.2
21.5
15.1
25.1
20.6
28.8
162.4
277.5
423.4
693.1
1,135.3
68.2
2.4
70.9
3.7
52.6
5.0
63.7
8.3
63.8
13.0
622.0
751.5
1,276.4
1,539.4
2,019.6
39.1
9.3
20.8
9.9
69.8
15.1
20.6
18.5
31.2
23.1
55.4
1,060.5
47.8
1,473.8
53.5
1,859.3
51.9
2,120.7
53.3
2,471.1
21.6
15.9
39.0
19.5
26.2
21.9
14.1
25.4
16.5
28.2
443.8
713.4
1012.0
1204.2
1412.8
29.5
6.7
60.8
9.4
41.9
11.9
19.0
14.4
17.3
16.1
94.4
93.8
78.0
71.5
65.2
24
160
2.6
66.2
22
184
2.9
69.9
23
193
3.2
67.8
23
199
4.0
54.4
23
4.1
53.9
1.0
11.2
16.4
6.8
7.6
1.6
18.6
14.3
4.5
4.5
1.5
19.0
14.2
2.8
4.3
1.5
16.4
13.1
2.0
4.0
1.4
16.7
11.7
1.4
2.9
13.8
6.1
10.8
6.4
10.6
6.3
8.6
4.7
7.2
4.2
29
Lithuania
Growing strongly
from low levels
0.6
Eurozone
0.5
0.4
0.3
0.2
0.1
Lithuania
0
0
5,000 10,000 15,000 20,000 25,000
Source: Lietuvos Bankas, RZB Group Research
growth yoy
80
70
60
50
40
30
20
10
0
-10
-20
10
9
8
7
6
5
4
3
2
1
0
1999
2000
2001
2002
2003
Credits to households, growth in % yoy
Like the other Baltic countries, Lithuania has a highly concentrated banking sector. There are only 10
banks and four branches of foreign banks operating in Lithuania, with the top five banks accounting
for 83% of total assets. By the end of 2003, almost
90% of the capital in the banking sector was
owned by foreign investors. Similar to Estonia and
Latvia the Nordic banks also dominate the
Lithuanian banking sector with Swedbank's
Hansabankas and SEB (Vilniaus bankas) being
major market players in all three markets.
Bank assets recorded a steady growth over the last
years by about 30% annually and the dynamics
even increased in 2003 on the back of a significant
acceleration of credit growth. Both credits to private enterprises and credits to households
increased by more than 50% in 2003, albeit in
both cases from rather low levels. The amount of
outstanding credits to households still reached only
3.4% of GDP by the end of 2003, by far the lowest ratio of the NMC-8; thus leaving ample potential to grow in the coming years. Credit growth continued to accelerate to 60.5% yoy in the first half of
2004. As a result of the credit boom, deposit
growth slowed to less than 20% yoy. Consequently
the ratio of total deposits in % of total credits
decreased to 125.5% in 2003 from 160% only two
years previously. Given the current pace of credit
growth banks will soon have to find alternative
channels to raise additional funds.
Growth and profitability of the banking sector have
been supported by strong economic growth in the
last few years. In 2003 Lithuania recorded the high-
Population: 3.5 mn
1999
2000
2001
2002
2003
2004e
2005f
Real GDP (% yoy)
Exchange rate LTL/EUR (avg)
Exchange rate LTL/USD (avg)
10.2
7,440
(1.7)
(6.1)
3.2
(9.9)
10.0
0.8
1.7
(5.7)
23.4
(11.0)
44.3
1.2
4.27
4.00
12.3
8,110
3.9
(9.0)
6.4
2.2
12.6
1.0
16
(2.6)
24.3
(5.9)
42.4
1.4
3.70
4.00
13.5
8,850
6.4
13.5
4.0
16.0
12.9
1.3
-3
(2.1)
23.4
(4.7)
44.2
1.8
3.58
4.00
14.9
9,580
6.8
8.7
6.2
3.1
10.9
0.3
(2.8)
(1.4)
22.8
(5.2)
39.8
2.3
3.46
3.67
16.2
10,600
9.0
11.4
11.1
16.1
7.7
(1.2)
(0.5)
(1.7)
21.9
(6.6)
42.7
2.7
3.45
3.06
17.4
11,500
7.5
12.0
6.0
10.0
7.5
0.2
1.0
(3.0)
23.0
(6.5)
45.0
2.9
3.45
2.80
18.4
12,300
6.0
10.0
5.0
8.0
7.0
2.0
2.0
(2.5)
23.5
(6.0)
47.0
3.2
3.45
2.74
30
Lithuania
est real GDP growth in the whole region with 9.0%.
With double digit growth of industrial output and
fixed capital investment, GDP growth was clearly
not limited to household consumption demand. The
more than 50% increase of credits to private companies underpins the growing importance of the
banking sector for corporate funding.
Others
17.5%
Vilniaus
bankas
(SEB )
36.8%
Ukio
Bankas
4.4%
Bankas
Snoras
6.2%
As in the other Baltic countries, the boom of consumer loans also contributed to a widening of the
current account deficit. Unlike some of the other
countries in the region, the high credit growth is not
seen as a problem for macroeconomic stability as it
is coming from a very low base. Lithuania, together
with Estonia and Slovenia, already entered the
ERM II exchange rate mechanism and is being seen
on track to enter the Eurozone in 2007.
Nord/LB
Lietuva
11.7%
Hansabankas
(Swedbank )
23.5%
Balance sheet data
1999
2000
2001
2002
2003
3,187.2
3,747.1
4,279.6
4,913.6
6,301.7
growth in % yoy
26.2
17.6
14.2
14.8
28.3
in % of GDP
30.0
31.5
32.1
33.5
39.7
3,921.3
1,473.8
1,575.7
2,044.7
2,584.2
growth in % yoy
34.4
6.9
29.8
26.4
51.7
in % of GDP
13.9
13.2
15.3
17.6
24.7
962.0
989.6
1,276.6
1,650.2
2,504.0
-
2.9
29.0
29.3
51.7
9.1
8.3
9.6
11.2
15.8
164.6
152.6
200.5
352.2
534.5
-
-7.2
31.4
75.7
51.7
1.5
1.3
1.5
2.4
3.4
907.8
1052.9
1240.6
1321.0
2,152.8
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
-
16.0
17.8
6.5
63.0
8.5
8.8
9.3
9.0
13.6
61.6
1,857.6
66.8
2,443.9
60.7
3,274.8
51.1
3,905.7
54.9
4,920.1
growth in % yoy
30.8
31.6
34.0
19.3
26.0
in % of GDP
17.5
20.5
24.5
26.6
31.0
975.9
1,317.8
1,748.6
1,952.7
2,284.7
52.7
35.0
32.7
11.7
17.0
9.2
11.1
13.1
13.3
14.4
126.0
155.1
160.2
151.1
125.5
15
33.6
34.6
14
28.6
57.7
13
8.3
81.1
14
0.1
88.1
13
0.1
88.7
0.1
1.1
17.4
11.9
8.5
0.4
4.0
16.3
10.8
9.7
-0.1
-1.1
15.7
7.4
7.3
0.9
8.5
14.8
5.8
6.3
1.4
13.4
13.2
2.6
5.6
growth in % yoy
in % of GDP
Number of banks
Market share of state owned banks, in % of capital
Market share of foreign owned banks, in % of capital
Cost income ratio
Average interest rate spread (LTL)
31
Bulgaria
Privatisation complete
but concerns about rapid credit growth
0.6
Eurozone
0.5
0.4
0.3
0.2
Bulgaria
0.1
0
0
5,000 10,000 15,000 20,000 25,000
Source: BNB, RZB Group Research
growth yoy
100
90
80
70
60
10.0
9.0
8.0
7.0
6.0
50
40
30
20
10
0
5.0
4.0
3.0
2.0
1.0
0.0
1999
2000
2001
2002
2003
Currently there are 35 commercial banks in
Bulgaria, of which 29 have a license to operate
locally and internationally and six are branches of
foreign banks. The privatisation of the banking sector was practically completed in 2003 after the sale
of the State Savings Bank (DSK Bank) to Hungarian
OTP. Following this landmark privatisation deal,
over 97% of total assets in the banking system are
now controlled by private entities, while the market
share of foreign-owned banks has reached 83% of
the total assets.
According to Bulgarian National Bank’s (BNB)
data, banking assets and deposits also continued to
grow strongly in 2004. A high and stable capital
adequacy ratio (21.28% in Q1 2004) indicates
stability of the banking sector. Bank lending also
continued its rapid growth and even accelerated in
the first five months of 2004, despite the restrictive
measures introduced by the BNB and the government.
Although the prevailing opinion is that credit
expansion contributes to the positive economic
development, the IMF and government officials
agreed on a number of measures aiming to slow
down the credit growth to a target level of 30%
yoy.
In June 2004, fiscal reserves of the state, which had
been held with commercial banks, were withdrawn
and deposited with the central bank. A Central
Credit Registry at the BNB became operational in
July 2004. It will serve as an information system for
banks, providing data for all outstanding credits.
This is aimed at facilitating and reducing the costs
for evaluating credit applications, the supervision of
credit portfolios and risk management. Also mini-
Population: 7.8 mn
1999
2000
2001
2002
2003
2004e
2005f
Real GDP (% yoy)
Exchange rate BGN/EUR (avg)
Exchange rate BGN/USD (avg)
11.6
5,120
2.3
20.8
(1.1)
(12.5)
13.8
2.6
3.1
(0.9)
86.7
(4.8)
89.2
3.2
1.96
1.84
13.7
5,560
5.4
15.4
0.2
2.3
18.1
10.3
17.2
(1.0)
77.1
(5.6)
86.9
3.7
1.96
2.12
15.2
6,080
4.1
23.3
6.8
2.2
17.5
7.4
3.6
(0.9)
69.9
(7.3)
78.6
4.1
1.96
2.18
16.5
6,360
4.9
9.3
3.1
4.6
17.5
5.8
1.3
(0.6)
55.9
(5.6)
65.1
4.5
1.96
2.08
17.6
6,830
4.3
13.8
7.1
15.3
14.2
2.3
4.9
0.0
46.2
(8.6)
59.5
5.3
1.96
1.73
19.6
7,200
5.0
18.0
5.0
15.0
13.0
6.5
6.5
(0.3)
45.0
(8.0)
60.0
5.6
1.96
1.59
21.6
7,600
5.5
15.0
6.0
18.0
12.5
5.0
5.5
(0.7)
42.5
(8.0)
61.0
6.0
1.96
1.55
32
Bulgaria
mum statutory reserves (MSR) of 4% on long-term
deposits (exceeding two years) were introduced,
which could be raised to 8%. In this context, half of
the cash in bank vaults will no longer be counted as
MSR as of September 2004. Again this could be
raised to exclude total cash in vaults if deemed necessary. In addition, stricter monitoring of the liquidity ratio for the local banks acting as primary securities dealers has been introduced as of September
2004. The BNB also postponed its plans to reduce
minimum reserve requirements.
If the impact of the above listed measures is regarded as insufficient, other potentially more drastic
steps may include raising the MSR on all deposits
to 11%, imposing certain rigid liquidity ratios, or
introducing mandatory ceilings on the growth of
loan portfolios of the banks.
Bulbank
(UniCredit )
17.5%
Others
28.3%
Hebros Bank
3.2%
DZI Bank
3.4%
DSK Bank
(OTP
Group )
14.8%
SG
Expressbank
(SocGen )
3.9%
Raiffeisenbank
5.3%
Bulgarian
Post Bank
(EFG
Eurobank )
5.6%
First
Investment
Bank
6.4%
United
Bulgaria
Bank (NBG )
10.7%
CB Biochim
(BACA )
7.3%
Balance sheet data
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
Deposits from households, EUR mn*
growth in % yoy
in % of GDP
Number of banks
Average interest rate spread (BGN)
1999
2000
2001
2002
2003
4,204.4
4,997.1
6,248.5
7,442.9
8,857.4
-
18.9
25.0
19.1
19.0
34.6
36.5
41.1
45.0
50.3
1,226.8
1,545.1
2,119.7
3,085.1
4,609.0
-
25.9
37.2
45.5
49.4
10.1
11.3
14.0
18.7
26.2
822.5
1,192.8
1,615.4
2,358.4
3,514.2
-
45.0
35.4
46.0
49.0
6.8
8.7
10.6
14.3
20.0
253.2
290.9
425.6
618.3
1,082.3
-
14.9
46.3
45.3
75.0
2.1
2.1
2.8
3.7
6.2
796.5
991.9
1,340.4
1,732.2
2,009.7
-
24.5
35.1
29.2
16.0
6.5
7.3
8.8
10.5
11.4
64.9
3,122.1
64.2
3,638.4
63.2
4,885.7
56.1
5,768.5
43.6
6,950.3
-
16.5
34.3
18.1
20.5
25.7
26.6
32.2
34.9
39.5
1,508.7
1,806.8
2,572.7
2,815.2
3,454.6
-
16.5
34.3
18.1
20.5
12.4
13.2
16.9
17.0
17.5
254.5
235.5
230.5
187.0
150.8
34
583
48.7
28.4
35
789
17.2
71.5
35
719
17.6
70.6
35
673
14.2
72.4
35
1035
0.4
82.2
2.4
20.9
41.3
11.7
10.3
3.0
21.9
35.6
8.2
7.9
2.7
20.5
31.3
7.0
8.6
2.0
15.6
25.2
5.5
7.1
2.4
18.7
22.0
7.3
6.4
33
Romania
Privatisation underway
early stages of a dynamic development
0.6
Eurozone
0.5
0.4
0.3
0.2
0.1
Romania
0
0
5,000 10,000 15,000 20,000 25,000
Source: NBR, RZB Group Research
growth yoy
6.0
250
5.0
200
4.0
150
3.0
100
2.0
50
1.0
0
0.0
-50
1999
2000
2001
2002
2003
Population: 21.7 mn
Real GDP (% yoy)
Exchange rate ROL/EUR (avg)
Exchange rate ROL/USD (avg)
1999
2000
2001
2002
2003
2004e
2005f
33.5
4,980
(1.2)
(4.8)
(1.1)
(2.4)
11.4
45.8
42.2
(2.8)
24
(4.0)
26.1
0.8
16,296
15,333
40.3
5,230
2.1
5.5
0.2
7.1
11.2
45.7
53.4
(4.0)
23.9
(3.7)
27.4
2.7
19,956
21,693
44.8
5,700
5.7
10.2
6.8
8.4
9.0
34.5
43.2
(3.3)
23.2
(5.5)
30.1
4.4
26,027
29,061
48.4
6,360
5.0
8.2
3.1
6.0
10.2
22.5
23.0
(2.5)
23.3
(3.4)
30.3
5.9
31,255
33,055
50.3
6,730
4.9
9.2
7.1
3.1
7.6
15.3
19.5
(2.3)
21.8
(5.8)
30.6
6.4
37,576
33,200
56.2
7,100
6.5
9.0
7.0
6.0
7.0
12.0
18.0
(1.7)
23.0
(6.0)
31.0
10.2
40,908
33,259
63.8
7,500
5.0
10.0
6.0
5.5
7.0
8.2
15.0
(1.3)
24.0
(5.8)
31.5
12.6
42,312
33,581
34
Although the Romanian banking system still plays
the most important role in financial intermediation
and its total assets increased to EUR 15 bn in
2003, it proves to be small relative to the size of
the economy (32.6% of GDP in 2003). The major
driver of the recent growth has been the dynamism
of the loan portfolio. In 2003, the weight of loans
in total assets increased to 49.5% from 37.6% in
2002. Foreign currency loans (55.4% of private
sector loans by the end of 2003) have become a
major concern for the National Bank of Romania
(NBR), which in turn raised the reserve requirements on foreign currency funds from 25% to 30%.
Most new products and services developed in
2003 had their focus on the retail market, which
still remains underdeveloped. Loans to households
boomed in 2003, increasing by 204.8% in EUR
terms and accounting for 24.8% of total loans by
the end of 2003. However, the amount of loans to
households is still very low at below 4% of GDP,
providing ample room for the retail sector to grow.
Competition on the corporate market is rather
fierce, with loans to private companies representing
only 9.5% of GDP by the end of 2003. Although
loans had a large growth in 2003, overdue and
doubtful loans accounted for only 0.32% of total
loans and the overall solvency ratio was much
above the 12% NBR limit (20% by the end of
2003).
In recent years, some major foreign banks entered
the market or increased their local presence in
Romania. The top three banks (BCR, BRD-SocGen
and Raiffeisen) account for half of the market.
Romania sold 25% of BCR to EBRD and IFC, and
the privatisation should be finalised with selecting a
strategic investor by 2006. Erste Bank and HVB
Romania
have already announced their interest in the privatisation of CEC. Romania also wants to sell its
remaining 7.3% stake in BRD-SocGen by the end of
2004.
Banking regulations have been improved in line
with EU legislation and the NBR has been
approved a new status which emphasizes its independence with. Due to the low level of banking
intermediation and given the overall economic
development, the Romanian banking system is
expected to grow rapidly (a maximum real growth
of 35% for non-government credits was agreed with
the IMF for 2004). The increased competition will
lead to a reduction of interest rate margins as well
as boost the development in retail banking. Foreign
currency lending will still be preferred as long as
the interest rate differential with the Eurozone
remains high.
Others
22.2%
CitiBank
2.7%
BC Ion
Tiriac
3.0%
BCR
28.9%
HVB Bank
3.4%
Banc Post
4.1%
ING
4.2%
ABN Amro
5.0%
CEC
6.5%
BRD
(SocGen )
13.2%
Raiffeisen
Bank
6.9%
Balance sheet data
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
Credits in foreign currency, EUR mn*
growth in % yoy
in % of GDP
Credits in foreign currency, in % of total credits*
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
Number of banks
Cost income ratio
Average interest rate spread (ROL)
1999
2000
2001
2002
2003
9,938.2
9,647.3
12,630.3
13,694.3
15,011.6
(14.1)
34.9
(2.9)
29.2
30.9
30.5
8.4
31.6
9.6
32.6
3,148.7
3,110.0
4,241.4
5,118.4
7,368.8
(31.9)
11.1
(1.2)
9.4
36.4
10.2
20.7
11.8
44.0
16.0
2,402.5
2,389.2
3,224.8
3,615.5
4,366.3
(28.8)
8.4
(0.6)
7.2
35.0
7.8
12.1
8.3
20.8
9.5
160.1
176.6
286.6
598.5
1,824.4
(32.4)
0.6
10.3
0.5
62.3
0.7
108.8
1.4
204.8
4.0
1,553.2
1,484.5
1,987.2
2,551.4
3,313.9
(32.4)
5.5
(4.4)
4.5
33.9
4.8
28.4
5.9
29.9
7.2
49.3
6,369.0
47.7
6,605.8
46.9
8,424.2
49.8
9,397.0
45.0
9,795.8
0.5
22.4
3.7
20.0
27.5
20.4
11.5
21.7
4.2
21.3
3,329.2
(0.1)
11.7
202.3
3,252.1
-2.3
9.8
212.4
4,419.2
35.9
10.7
198.6
4,534.7
2.6
10.5
183.6
4,667.4
2.9
10.1
132.9
41
3,274
50.3
43.6
41
2,669
46.1
43.1
41
2,758
41.8
47.3
39
2,848
40.4
49.0
38
41.5
50.7
(1.5)
(15.3)
17.9
75.4
20.5
1.5
12.5
62.4
23.8
6.4
20.7
3.1
21.8
57.8
28.8
3.9
18.7
2.6
18.3
62.0
25.0
2.8
16.5
2.6
15.6
63.9
20.0
33.1
14.6
65.9
45.4
53.5
32.7
45.1
26.4
35.2
18.7
25.4
10.8
* to private sector; Source: NBR, RZB Group Research
35
Croatia
Slow down
after years of high growth
0.6
Eurozone
0.5
0.4
0.3
Croatia
0.2
0.1
0
0
5,000 10,000 15,000 20,000 25,000
Credits to households and external debt,
in % of GDP
40
80
35
70
30
60
25
50
20
40
15
30
10
20
5
10
0
0
2000
2001
2002
2003
External debt, in % of GDP
The overall size of the Croatian banking system (in
terms of total assets) surpassed the GDP for the first
time last year. Despite restrictive measures by the
central bank, total assets still grew by 14.3% yoy in
EUR terms last year. New measures to curb credit
growth were introduced in 2004 and should further
slow down the growth of the banking system.
Commercial banks still account for around 85% of
the whole financial system, although the competition of other institutions is slowly growing. In 2003,
exceptionally high growth was recorded in the leasing industry as alternative to ordinary credits. At the
same time the competition in the collection of savings is shaping up in the form of investment funds,
pension funds and building societies.
Competition among the largest banks has
increased over the last few years, even though the
number of banks operating in the Croatian banking
system fell significantly in the course of the consolidation process (rehabilitation in the 1990's, privatization, M&A's). The top six banks (and banking
groups) accounted for almost 85% of total banking
assets in 2003. Currently the top two banks
(Zagrebacka and Privredna) are still ahead of the
next four banks (including Raiffeisenbank) that are
growing strongly and competing for the third place.
Almost 92% of banking assets in Croatia are controlled by banks in foreign ownership.
The banks’ assets in Croatia have two major characteristics. Almost 70% of liabilities are denominated in foreign currency or indexed to foreign currency (predominantly EUR), which results in loan
portfolios also largely indexed to foreign currency.
The second characteristic is the high share of retail
loans (around 48% of all loans). Credits to house-
Population: 4.4 mn
1999
2000
2001
2002
2003
2004e
2005f
Real GDP (% yoy)
Exchange rate HRK/EUR (avg)
Exchange rate HRK/USD (avg)
18.7
7,510
(0.4)
(3.9)
(2.9)
(12.5)
19.1
4.2
2.6
(6.4)
(7.0)
53.1
3.0
7.58
7.11
20.0
8,050
2.9
(3.8)
4.2
1.7
21.2
6.2
9.7
(6.9)
51.1
(2.5)
59.3
3.9
7.64
8.28
22.2
8,600
3.8
7.1
4.5
6.4
22.0
4.9
3.6
(6.8)
51.6
(4.2)
57.8
5.3
7.47
8.34
24.2
9,270
5.2
10.1
6
5.5
22.3
2.2
(0.4)
(6.0)
51.6
(6.9)
62.2
5.6
7.41
7.83
25.5
9,890
4.3
16.8
4.1
4.1
19.5
1.8
1.9
(5.0)
52.7
(7.3)
75.3
6.5
7.56
6.68
27.4
10,200
3.5
6.0
2.5
3.6
18.4
2.4
2.7
(4.5)
54.0
(5.4)
76.0
6.8
7.48
6.08
29.0
10,600
4.0
7.0
3.0
3.8
18.0
2.7
2.8
(4.0)
55.0
(4.9)
76.5
6.5
7.55
5.99
36
Croatia
holds increased to almost 30% of GDP, growing
significantly faster than credits to private enterprises. Croatia has the highest ratio of retail loans in %
of GDP among all CEE countries, but is still well
below the EU average. Credit growth has
decreased in 2004 due to restrictive monetary policy and a slower growth of deposits and, unlike in
the past, both retail and corporate loans have been
demonstrating similar dynamics.
Bank profits increased in 2003, but due to continued asset growth the return on average assets
recorded a slight decrease, although the return on
average equity increased. As credits increased, the
quality of assets has improved, which is evident
from the decreasing share of classified credits in the
banking system during the past years.
HPB (Post
Bank )
Nova
2.7%
banka,
Dubrovacka
banka
(Regent
Fund )
4.3%
Volksbank
Others
1.3%
13.5%
Zagrebacka
banka
(UniCredit)
24.2%
Privredna
banka
(Intesa )
18.3%
Raiffeisenbank
9.1% Hypo Alpe-
Adria,
Splitska
Slavonska
banka
banka
(BACA )
9.2%
9.3%
Erste
9.5%
Balance sheet data
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
Number of banks
Average interest rate spread (HRK)
1999
2000
2001
2002
2003
12,179.0
14,718.7
20,139.4
23,398.6
26,743.3
(7.8)
66.1
20.9
73.3
36.8
91.1
16.2
98.7
14.3
107.7
7,214.4
7,944.4
10,079.2
12,928.6
14,433.8
(11.3)
39.1
10.1
39.6
26.9
45.6
28.3
54.5
11.6
58.1
-
2,983.1
3,968.3
5,094.5
5,394.6
-
14.9
33.0
18.0
28.4
21.5
5.9
21.7
-
3,066.2
4,087.1
5,787.5
7,192.6
-
15.3
33.3
18.5
41.6
24.4
24.3
29.0
-
834.4
997.5
1,402.0
1,316.2
-
4.2
19.5
4.5
40.6
5.9
-6.1
5.3
7,303.5
10.5
9,563.8
9.9
13,957.2
10.8
15,091.7
9.1
16,085.5
(8.9)
39.6
30.9
47.6
45.9
63.1
8.1
63.7
6.6
64.8
6,221.7
9,545.8
10,012.7
10,863.8
10,667.8
18.1
27.3
53.4
31.3
4.9
44.5
8.5
41.8
-1.8
42.6
101.2
120.4
138.5
116.7
111.4
53
823
45.6
39.9
43
756
5.7
84.1
43
879
5.0
89.3
46
956
4.0
90.2
41
1019
3.0
91.5
0.7
10.6
20.6
10.3
9.3
1.4
12.2
21.3
9.5
7.1
0.9
13.1
18.5
7.3
6.8
1.6
14.6
17.2
5.9
9.4
1.6
15.7
16.0
5.2
9.8
13.5
4.3
10.5
3.4
9.5
2.8
10.9
1.6
11.5
1.7
37
Small market
large potential
0.6
Eurozone
0.5
0.4
0.3
Bosnia and
Herzegovina
0.2
0.1
0
0
5,000 10,000 15,000 20,000 25,000
Source: CBBH, RZB Group Research
Credits to households and private enterprises, in % of GDP
20
18
16
14
12
10
8
6
4
2
0
1999
2000
2001
2002
2003
The dynamics of the transition process of the economy in Bosnia and Herzegovina was determined
by the accomplishments of the post-war reconstruction phase. The banking sector in Bosnia and
Herzegovina had and still has the pioneer role with
regard to reforms and for the promotion of western
standards and practices. The market entrance of
international groups, led by Raiffeisen in mid
2000, has had a huge impact on the banking
industry. By the end of 2003, the banks in Bosnia
and Herzegovina were almost fully privatized and
to a large degree owned by foreign banks (more
than 75% of total banking assets in 2003).
The main characteristics over the last few years
have been a very strong growth with total assets
almost doubling in % of GDP since 1999 on the
one hand, and a struggle for market share between
the key players on the other hand. By the end of
2003, the top five banks accounted for almost two
third of total banking assets. Increased competition
has squeezed margins, forcing banks to further
develop their products and services and to attract
new customer groups. Additionally, in the course of
the introduction of the euro as banknotes, the banks
were faced with a substantial growth of deposits in
2001 (+58.7%). The high deposit base together
with reduced margins for corporate loans has
opened the path for the boom of credits to households (118.7% growth in 2002).
Although a further growth of the consumer banking
segment can be expected in the future, a slowing
down of the dynamics is already noticeable. With
credits to households having reached a ratio of
16% of GDP, compared with only 3.8% in 2000,
Credits to private enterprises, in % of GDP
Population: 3.9 mn
1999
2000
2001
2002
2003
2004e
2005f
Real GDP (% yoy)
Gen. government foreign debt (% of GDP)
Exchange rate BAM/EUR (avg)
Exchange rate BAM/USD (avg)
4.6
4,830
10.0
12.1
39.3
3.7
4.0
(7.8)
(22.4)
41.7
0.4
1.96
1.83
5.1
5,210
5.5
9.3
39.5
4.8
(0.2)
(7.0)
(21.7)
40.4
0.5
1.96
2.12
5.6
5,500
4.5
(2.0)
40.0
3.1
2.4
(3.3)
(24.3)
40.3
1.4
1.96
2.18
6.0
5,860
5.5
11.5
40.5
0.4
0.6
(2.2)
(30.9)
36.8
1.3
1.96
2.07
6.2
6,030
3.5
3.8
41.5
0.6
0.8
0.4
(29.6)
33.0
1.4
1.96
1.73
6.5
6,350
5.0
5.0
42.0
0.9
1.5
0.0
(29.0)
32.0
1.4
1.96
1.59
6.9
6,700
5.8
6.0
41.0
1.5
2.0
0.0
(28.5)
31.5
1.5
1.96
1.55
38
the central bank introduced measures in order to
limit future credit growth. Those measures and the
saturation of this market segment will certainly
accelerate the further diversification and development of existing and new products. Low inflation
and the fixed exchange rate to the Euro (currency
board arrangement of the central bank) provide a
solid base for this. The establishment of a fully functional local capital and money market, and further
reforms of the legal environment and the tax system
will open additional business fields for the banks.
The unrealised potential in consumer banking and
particularly in the SME segment should give plenty
of room for future growth.
Raiffeisen
Bank
19.9%
Others
35.5%
Upi Banka
Sarajevo
3.7%
Zagrebacka
banka
(UniCredit)
16.8%
Hypo AlpeAdria
16.2%
HVB Bank
(BACA )
7.9%
Balance sheet data
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
Number of banks
Cost income ratio
Average interest rate spread (BAM)
1999
2000
2001
2002
2003
1,468.3
1,604.2
2,290.7
2,801.8
3,578.7
-
9.3
42.8
22.3
27.7
31.9
31.2
40.9
47.0
57.5
7,23.5
812.4
1,048.2
1,619.4
2,118.8
-
12.3
29.0
54.5
30.8
15.7
15.8
18.7
27.2
34.1
402.3
373.6
523.7
688.1
965.3
-
(7.1)
40.2
31.4
40.3
8.8
7.3
9.3
11.6
15.5
172.1
193.6
330.8
723.3
993.5
-
12.5
70.8
118.7
37.3
3.7
3.8
5.9
12.1
16.0
936.3
1,070.4
1,699.1
2,125.9
2,680.6
-
14.3
58.7
25.1
26.1
20.4
20.8
30.3
35.7
43.1
207.3
274.1
739.3
832.6
1,002.1
-
14.3
58.7
25.1
26.1
4.5
5.3
13.2
14.0
16.1
129.4
131.8
162.1
131.3
126.5
61
30
<40
56
10
50
49
<10
60
39
<5
>70
36
<5
>75
(2.1)
(9.3)
28.3
-
(1.7)
(7.8)
28.4
-
(0.8)
(5.0)
60.3
25.1
-
(0.3)
(1.6)
60.2
20.6
25.0
8.8
0.6
3.7
62.1
20.3
21.2
7.7
-
-
-
11.8
10.3
-
-
-
3.0
2.6
39
Serbia
Bank privatisation
finally underway
0.6
Eurozone
0.5
0.4
0.3
0.2
0.1
Serbia
0
0
5,000 10,000 15,000 20,000 25,000
Credits to and deposits from households,
in % of GDP
9
8
7
6
5
4
After being neglected for a decade, retail and SME
business are now the fastest growing market segments similar to most other countries in the region.
All market players are offering a wide range of
products to potential retail customers, with housing
loans and car loans being the most important. In
the first half of 2004, retail loans finally took off
with a growth of 33%, reaching EUR 556 mn. At
the same time, retail deposits are also continuing
their upward trend.
Owing to the successful privatisation of local blue
chips, which attracted the top multinationals, a new
investment cycle was initiated and generated an
increase of corporate credit. The largest creditors
are the privately owned Delta banka and
Raiffeisenbank due to their strong deposit base.
Loan portfolio growth for other locally owned banks
is limited since the main funding source is deposits.
3
2
1
0
2000
After a year of standstill, the reform of the banking
system should gain momentum with the privatisation
of the first three state-owned banks, which is scheduled to be finished by the end of Q1 2005. For the
first bank to be sold, Jubanka, there remain three
contenders in the bidding race with Societe
Generale, Alphabank and the Hungarian OTP. The
four largest banks make up 43% of total banking
assets. Raiffeisenbank, so far the only foreignowned bank among the large banks, already
moved into second position in % of total assets by
the end of June 2004. However, with just 36.3% of
GDP by the end of 2003 overall banking assets are
rather low in comparison with the neighbouring
countries.
2001
2002
2003
Population: 7.5 mn
1999
2000
2001
2002
2003
2004e
2005f
GDP per capita (EUR at exchange rate)*
Real GDP (% yoy)
Exchange rate CSD/EUR (avg)
Exchange rate CSD/USD (avg)
9.5
1,945
(21.9)
(23.1)
25.5
41.0
43.2
(8.3)
(12.9)
123.9
0.3
11.7
11.0
9.4
2,990
6.4
10.9
26.7
70.0
102.6
(0.9)
(4.2)
131.7
0.6
15.3
16.7
12.9
1,558
5.1
0.0
27.9
91.8
87.8
(1.6)
(5.9)
101.7
1.3
59.4
66.8
16.6
1,996
4.0
1.7
29.0
19.5
8.8
(3.6)
(12.8)
75.2
2.2
60.8
64.2
16.8
2,075
1.5
(2.9)
31.4
11.3
4.6
(4.0)
(12.5)
72.5
2.9
65.3
57.4
17.4
2,160
3.5
5.0
31.0
9.0
5.0
(3.0)
(11.0)
63.3
3.2
73.0
59.3
18.9
2,380
4.5
6.0
28.5
9.0
4.5
(3.0)
(10.0)
55.0
3.5
78.0
61.9
*data for Serbia and Montenegro
Source: Thomson Financial Datastream, WIIW, NBS, RZB Group Research
40
Serbia
Foreign owned banks are in a better position in this
respect, since additional funding may be procured
from their parent or other western banks.
Komercijalna banka
11.7%
Other important trends are the usage of payment
cards and e-banking offered to both corporate and
retail customers. Although decreasing, interest rates
are still high due to a number of reasons, above all
the remaining country risk and the overall limited
new funding. The privatisation of the state-owned
banks, together with the recent 62% write-off of
debt by the London club of creditors, should open
the path for Serbia to be assigned a credit rating
for the first time sometime in 2005. It would also
facilitate the inflow of much needed foreign capital
which in turn would accelerate corporate
investment.
Delta banka
11.6%
Vojvodjanska
banka
10.6%
Others
43.8%
Raiffeisenbank
8.5%
Srpska
banka
2.4%
Novosadska
banka
2.7%
Jubanka
4.0%
Postal
Savings
bank
3.4%
Societe
AIK banka
Generale
Nis
3.2%
3.2%
Balance sheet data
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
1999
2000
2001
2002
2003
12,100.6
10,891.4
14,940.0
5,364.5
5,518.5
(37.1)
(10.0)
37.2
(64.1)
2.9
79.8
180.0
126.0
35.9
36.3
4,005.1
3,477.1
3,936.0
2,487.2
2,956.9
(34.9)
(13.2)
13.2
(36.8)
18.9
26.4
57.5
33.2
16.6
19.5
-
477.2
469.0
455.2
409.9
-
7.9
(1.7)
4.0
(2.9)
3.0
(10.0)
2.7
1,533.9
920.4
1,674.9
2,422.2
(33.5)
(40.0)
82.0
44.6
23.9
10.1
15.2
14.1
16.2
19.7
188.3
86.1
467.0
940.4
1,233.7
(33.5)
(40.0)
82.0
44.6
23.9
1.2
1.4
3.9
6.3
8.1
38.3
26.5
42.6
97.4
101.5
96
180
58.2
-
86
155
72.4
0.3
49
156
84.9
2.1
50
236
58.7
12.8
46
46.5
20.0
0.0
0.0
68.6
18.4
42.1
(0.1)
(0.4)
62.3
0.6
30.9
71.6
(0.3)
(0.8)
79.3
27.0
8.9
28.4
(0.1)
(0.2)
70.0
27.0
20.9
16.5
0.0
0.0
80.0
31.0
12.1
45.4
77.9
32.5
19.2
14.8
3.4
6.3
4.1
2.6
2.7
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
Number of banks
Cost income ratio
Average interest rate spread (CST)
3,000.8
41
Albania
Returning to the fold
Stage set for dynamic development
Procredit
Bank
3.6%
National
Bank of
Greece
2.1%
Others
9.9%
Banka ItaloAlbanese
4.4%
Tirana Bank
(Piraeus
Bank )
6.7%
Alpha Bank
7.0%
Savings
Bank of
Albania
(Raiffeisen )
49.1%
American
Bank of
Albania
7.8%
National
Commercial
Bank
9.5%
Data as of year-end 2003; Source: Bank of Albania, RZB Group Research
Population: 3.1 mn
2000
2001
2002
2003
Real GDP (% yoy)
Budget balance (% of GDP)
C/A balance (% of GDP)
Exchange rate ALL/EUR (avg)
Exchange rate ALL/USD (avg)
4.2
7.7
2,800
0.9
16.8
0.1
(8.0)
(4.3)
30.5
0.7
132.6
143.7
4.8
7.6
3,390
6.5
16.4
3.1
(8.5)
(5.1)
28.2
0.9
128.5
143.5
5.1
4.7
3,560
2.1
15.8
5.2
(8.0)
(8.7)
24.5
0.9
132.4
140.2
5.4
6.0
3,740
3.0
15.2
2.4
(7.2)
(6.7)
21.6
0.9
137.5
121.9
The banking market experienced significant developments during 2003, with the market entry of two
new banks and the privatisation of the Savings
Bank of Albania, the country's largest bank, which
was sold to Raiffeisen International. The concentration of the banking sector is very high, with the top
five banks accounting for 80% of total assets. After
the privatisation of the Savings Bank the Albanian
banking sector is now entirely controlled by private
and mostly foreign investors.
Even though total credits tripled over the last three
years, the ratio of total credits in % of GDP
remained among the lowest in the CEE-20 represented by 13.6% at end 2003. There is certainly
both the need and the potential for ample growth in
the future. Due to the particularly low amount of outstanding loans, the ratio of total deposits in % of
total credits has been the highest in the CEEC-20,
which underpins the banks' dependence on treasury bills.
The development of the banking sector has also
been helped by the satisfactory economic development over the last two years. Albania has entered
the first stage of the process of EU integration with
the negotiations concerning the Stabilisation and
Association Agreement having been rather slow.
The necessary reforms in the course of this integration process, however, should provide the approoriate conditions for sustained growth not only in the
economy but also in the banking sector.
Balance sheet data
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
Structural information, profitability and efficiency
Number of banks
Average interest rate spread (ALL)
Source: Bank of Albania, RZB Group Research
42
2000
2001
2002
2003
2,042.2
2,638.8
2,420.1
2,519.5
11.2
50.2
29.2
54.8
-8.3
54.3
4.1
55.1
182.5
336.4
446.5
624.0
4.5
84.3
7.0
32.7
10.0
39.7
13.6
1,725.5
2,164.0
2,061.3
2,124.0
10.8
42.4
25.4
44.9
-4.7
46.2
3.0
46.4
1,238.3
1,360.4
1,171.2
1,106.5
10.8
26.2
25.4
25.5
(4.7)
25.5
3.0
24.2
945.5
643.3
461.7
340.4
13
45
36.2
2.1
35.3
42.6
16.0
13
68
41.0
1.5
31.6
6.9
15.0
14
74
45.0
1.2
28.5
5.6
7.9
14
65
45.0
1.2
25.3
5.1
7.7
24.0
8.3
23.7
7.7
16.3
7.7
13.9
6.2
Kosovo
Small but growing
market re-established in 2000
The Kosovo banking sector was re-established in
2000 after the war with Serbia ended. The Banking
and Payments Authority of Kosovo (BPK) became
the de-facto central bank, as well as the banking
regulator. In 2002, it closed all its branches (except
the main branch in Pristina) and leased the premises to the highest bidder amongst the Kosovo banks.
Today, BPK has adopted the role of central bank
and is gradually transferring responsibilities to its
local staff.
Micro Enterprise Bank was the first bank to open
after the war in 2000, as a provider of micro
finance. It was followed a year later by five local
banks who obtained authorisation from BPK. The
last bank to open was the USAID funded American
Bank of Kosovo (ABK) in November 2001. ABK
quickly established itself through the integration of
the loan portfolio of the USAID funded KBFF and
the acquisition of many of the BPK branches. In
December 2002, 76% of the Bank was sold by
USAID to Raiffeisen Zentralbank, which acquired
the remaining shares in July 2003, and was
renamed Raiffeisen Bank Kosovo.
Naturally total credits have been growing strongly
from zero levels after the re-establishment of the
banking sector. Due to the lack of sufficient foreign
corporate investment, the economy remains highly
dependent on foreign aid.
Market share, % of total assets, end 2003
Bank for
Private
Business
6.8%
Others
11.0%
New Bank
of Kosovo
8.1%
ProCredit
Bank
46.8%
KSB
10.4%
Raiffeisen
Bank
17.0%
Data as of year-end 2003; Source: BPK, RZB Group Research
Population: 1.9 mn
2000
2001
2002
2003
GDP per capita (EUR)
Real GDP (% yoy)
0.7
410
-14.3
-22.1
0.4
1.2
626
21.2
11.7
3.6
-19.1
0.4
1.3
684
3.9
3.6
5.4
-30.8
0.5
1.3
696
4.7
0.1
1.4
-29.4
0.4
Source: BPK, RZB Group Research
Balance sheet data
2000
2001
2002
2003
103.0
519.0
471.2
581.5
growth in % yoy
in % of GDP
13.8
404.1
45.0
25.9
(9.2)
36.3
86.5
23.4
44.2
232.8
growth in % yoy
in % of GDP
0.4
723.3
2.2
233.8
6.7
169.1
17.7
growth in % yoy
in % of GDP
-
-
0.4
583.2
3.0
3.1
-
-
5.7
38.9
93.0
492.3
427.2
515.8
growth in % yoy
in % of GDP
12.5
0.0
429.3
42.7
227.8
-13.2
32.9
273.7
20.7
39.2
298.0
growth in % yoy
in % of GDP
0.0
0.0
0.0
27.5
20.2
17.6
8.9
20.8
Number of banks
Cost income ratio
Average interest rate spread (EUR)
2,954.3
1,899.4
493.9
221.6
7
22
74.2
1.3
53.5
1.9
0.7
-
7
46
73.1
0.6
76.2
1.6
3.7
12.5
7
47
63.8
1.1
64.2
1.4
2.6
12.9
7
42
63.2
0.3
63.3
1.2
5.3
11.6
-
14.9
2.4
15.3
2.4
14.2
2.6
Source: BPK, RZB Group Research
43
Russia
Shaky developments in 2003
but huge long-term growth potential
0.6
Eurozone
0.5
0.4
0.3
0.2
0.1
Russia
0
0
5,000 10,000 15,000 20,000 25,000
Source: CBR, RZB Group Research
in % of GDP
14
12
10
8
6
4
2
0
1999
2000
2001
2002
2003
The Russian banking sector, while being the largest
of the CEEC-20 in terms of total assets in EUR bn, is
still relatively small with regards to the size of the
economy, and it also has some striking peculiarities
in terms of its structure. Over 1,100 institutions
have licences to collect private deposits. At the
same time, total banking assets only reached a
level of around 42% of GDP by the end of 2003.
State-owned Sberbank accounts for over 60% of
private deposits and about 30% of commercial
loans; the second-largest bank, Vneshtorgbank
(VTB), is also state-owned.
Most banks are small and either serve as treasuries
of industrial groups or regional businesses, or are
used for dubious operations. The presence of foreign banks is limited in both number and market
share, as they are not allowed to open branches
and have to operate through subsidiaries. While
many subsidiaries of foreign banks are active in
corporate banking, only two of them Raiffeisenbank and Citigroup - have a notable
share in the retail banking business. The highly
atomised banking sector is clearly in need of consolidation. Despite certain legal impediments we
expect such a consolidation process to speed up.
There are a number of areas of concern with
respect to the current situation of the banking sector. There is a huge need for long-term funds for
Russian enterprises (esp. large ones) to finance their
investment needs. Long-term commercial loans still
make up less than 10% of GDP. In 2003, the
growth rate was impressive (over 50%), but highquality borrowers are getting difficult to find. The
stability of the financial system as a whole is not
unshakable yet, as was perfectly demonstrated by
the recent mini-crisis in the banking sector. In early
Population: 143.5mn
1999
2000
2001
2002
2003
2004e
2005f
Real GDP (% yoy)
Public external debt (% of GDP)
Exchange rate RUB/EUR (avg)
Exchange rate RUB/USD (avg)
192.0
5,460
6.4
6.4
(2.9)
8.1
12.6
36.6
71.0
(1.2)
12.6
13.1
23.51
24.67
280.5
6,130
9.0
18.1
7.3
11.9
10.4
20.8
46.5
2.4
56.5
17.9
25.8
26.0
28.2
345.8
6,630
5.0
10.2
9.5
4.9
9.0
21.6
19.1
2.9
43.9
11.2
36.5
26.1
29.2
366.1
7,160
4.3
3.0
8.9
3.7
8.0
15.8
11.7
1.4
35.4
9.5
42.0
29.7
31.4
382.5
7,890
7.3
12.9
7.9
7.0
8.3
13.6
13.6
1.7
25.0
8.3
58.0
34.7
30.7
471.8
8,350
7.0
10.0
7.0
7.0
7.9
10.9
23.0
1.3
19.8
9.5
77.9
35.6
29.0
538.1
8,850
5.8
10.0
7.0
6.0
7.6
11.2
15.0
0.7
15.7
7.2
83.8
37.5
29.8
44
Russia
summer 2004, the inter-bank market collapsed primarily as a result of purely psychological factors,
leaving many smaller banks engaged in high-risk
activities without the means of refinancing. Also a
hostile PR campaign precipitated a run on the
largest private bank, Alfa-bank, where deposits up
to USD 200 mn were withdrawn in a matter of
days.
The banking sector overall still suffers from a lack of
trust. Even though deposits from households recorded strong growth last year, circa USD 40-80 bn are
still estimated to be kept "under the mattress". The
introduction of deposit insurance, now under way,
should improve the situation. Despite its intrinsic
problems Russia's banking sector, like its economy,
has a huge potential to grow. On-going reforms of
the banking sector will help to realise this.
Sberbank
28.1%
Vneshtorgbank
5.2%
Others
47.4%
Gazprombank
4.1%
Raiffeisenbank
1.1%
IMB (HVB
minority
stake )
1.5%
Alfa Bank
3.7%
MDM Bank Rosbank
2.1%
2.1%
IIB
2.6%
Bank of
Moscow
2.1%
Balance sheet data
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
Number of banks
Average interest rate spread (RUB)
1999
2000
2001
2002
2003
59,074.3
90,380.6
119,135.3
125,142.4
152,509.1
23.3
35.4
53.0
33.4
31.8
34.9
5.0
37.8
21.9
41.8
21,917.4
36,583.5
55,397.8
61,278.3
79,246.2
29.5
13.1
66.9
13.5
51.4
16.2
10.6
18.5
29.3
21.7
16,349.2
37.8
9.8
3,945.6
1.0
2.4
11,167.7
(5.3)
6.7
51.0
16,953.0
29,202.2
78.6
10.8
5,216.2
32.2
1.9
14,076.2
26.0
5.2
38.5
26,618.6
44,977.4
54.0
13.2
7,087.8
35.9
2.1
18,680.6
32.7
5.5
33.7
36,676.9
48,707.2
8.3
14.7
8,420.2
18.8
2.5
22,500.0
20.4
6.8
36.7
41,145.7
62,628.5
28.6
17.2
11,374.6
35.1
3.1
26,766.0
19.0
7.3
33.8
52,393.8
39.5
10.2
57.0
9.9
37.8
10.7
12.2
12.4
27.3
14.4
11,033.7
17,337.6
26,049.7
31,609.3
41,932.6
36.8
6.6
57.1
6.4
50.2
7.6
21.3
9.6
32.7
11.5
77.3
72.8
66.2
67.1
66.1
2342
3923
-
2034
3793
-
1953
3433
32.4
-
1773
3326
31.6
-
1612
3219
31.7
<4
(0.3)
(4.0)
18.1
13.4
27.1
0.9
8.0
19.0
7.7
21.5
2.4
19.4
20.3
6.2
16.8
2.6
18.0
19.1
5.6
17.6
2.6
17.8
19.1
5.0
15.7
42.4
15.3
28.4
7.0
22.2
5.3
23.3
5.7
21.1
5.4
45
Ukraine
Booming economy
thriving banking sector
60%
Eurozone
50%
40%
30%
20%
10%
Ukraine
0%
0
5,000 10,000 15,000 20,000 25,000
Source: NBU, RZB Group Research
in % of GDP
14
12
10
8
6
4
2
0
1999
2000
2001
2002
2003
By the end of 2003, there were 156 banks licensed
by the National Bank of Ukraine (NBU). The market
share of foreign banks in % of total assets increased
by half a percent to 7.5% in 2003, but remains
rather low. Raiffeisenbank was the largest foreign
bank with a market share of 2.9% of total assets by
the end of 2003. The share of the majority stateowned banks also decreased to less than 10%. The
two majority state-owned banks are Oschadbank
and Ukreximbank, and both are planned to be privatized in the foreseeable future. Market concentration is fairly low with the top five banks accounting for less than 40% of total assets. Also no single
bank had a market share of more than 10% of total
assets by the end of 2003.
Deposits from households more than tripled in the
last three years, from 4% of GDP in 2000 to 12.3%
by the end of 2003, showing the increased trust in
the banking sector and overall economic stability.
Strong growth of deposits from households also
continued in the first half of 2004. A more recent
phenomenon is the strong growth of credits to
households, which doubled in each of the last two
years. However, this growth comes from virtually
zero levels and leaves a lot of untapped potential
for the coming years. Like Russia, but unlike most of
the other CEE countries, total deposits only covered
90% of total credits in 2003, a ratio that has been
fairly stable with both credits and deposits growing
strongly. This means that banks have to find funding for additional credits through different channels.
The economic stabilisation and subsequent recovery from year 2000 onwards has allowed the banking sector to reduce the share of bad loans in their
Population: 47.6 mn
1999
2000
2001
2002
2003
2004e
2005f
Real GDP (% yoy)
Exchange rate UAH/EUR (avg)
Exchange rate UAH/USD (avg)
29.7
3,400
(0.2)
0.4
(1.9)
4.0
4.3
22.7
31.1
(1.5)
5.2
41.7
3.0
4.39
4.13
33.8
3,690
5.9
14.4
2.5
12.4
4.2
28.2
20.9
0.6
4.7
32.9
3.9
5.03
5.44
42.4
4,190
9.2
20.8
9.6
14.2
3.7
12.0
8.6
(0.3)
3.7
32.4
5.3
4.81
5.37
44.9
5,470
5.2
8.9
5.6
7.0
3.8
0.8
3.1
0.7
7.5
21.9
5.7
5.03
5.33
43.9
5150
9.4
31.3
15.8
3.6
5.2
7.8
(0.2)
5.8
27.8
6.6
6.02
5.33
47.5
5,600
9.5
30.0
15.0
3.5
7.0
14.0
5.8
29.5
6.9
6.5
5.3
53.6
6,000
7.0
15.0
10.0
3.5
8.0
7.0
4.3
30.5
7.0
6.7
5.3
46
Ukraine
portfolios and to improve overall profitability.
Ukraine has recorded the strongest GDP growth of
all CEE countries in recent years. After suffering
through a particularly severe and lengthy recession
caused by the transformation from the Soviet
planned economic system and further economic
and political crises, GDP per capita at PPP has yet
to reach the level of 1991. The very high growth
rates of fixed capital investment in recent years
underpin both the need and the willingness of companies to invest after more than a decade of wearing out the machinery existing from the Soviet
times. Banks have been playing an increasingly
important role with credits to private enterprises
growing strongly and reaching 22.4% of GDP by
the end of 2003. Improved economic and political
relations with the EU could open the door for a substantial increase in foreign direct investment.
Aval
9.9%
PrivatBank
9.8%
Others
51.4%
Prominvestbank
7.6%
Oshadbank
5.6%
Ukrsots-bank
5.1%
BrokBusinessBank
2.2%
Nadra
2.9%
Raiffeisenbank
2.9%
Ukreximbank
3.9%
Ukrsibbank
3.8%
Balance sheet data
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
Number of banks
Cost income ratio
Average interest rate spread (UAH)
1999
2000
2001
2002
2003
-
7,342.4
10,191.7
11,548.4
15,045.2
-
21.8
38.8
23.3
13.3
28.3
30.3
38.1
2,249.3
3,870.8
6,076.1
7,597.3
10,182.1
20.0
9.0
72.1
11.5
57.0
13.9
25.0
18.6
34.0
25.8
2,118.4
3,677.0
5,772.4
6,998.3
8,833.1
20.1
8.5
73.6
10.9
57.0
13.2
21.2
17.1
26.2
22.4
130.9
193.8
303.7
598.8
1,348.8
17.1
0.5
48.0
0.6
56.7
0.7
97.2
1.5
125.3
3.4
1,090.8
2,089.9
3,393.2
4,421.4
5,938.4
0.9
4.4
91.6
6.2
62.4
7.8
30.3
10.8
34.3
15.0
48.5
2,319.5
54.0
3,705.5
55.8
5,497.9
58.2
6,816.7
58.3
9,210.9
32.6
9.3
59.8
11.0
48.4
12.6
24.0
16.7
35.1
23.3
824.0
1,340.8
2,427.8
3,488.8
4,849.6
25.1
3.3
62.7
4.0
81.1
5.6
43.7
8.5
39.0
12.3
103.1
95.7
90.5
89.7
90.5
153
-
149
-
149
-
153
12.0
7.0
156
9.5
7.5
26.2
-0.1
-0.5
13.7
21.9
1.2
7.5
20.7
6.6
16.2
1.2
8.0
61.8
18.5
5.0
13.4
1.0
7.6
66.9
14.4
3.7
10.7
43.3
17.1
33.0
11.1
26.1
9.9
20.8
7.4
17.5
6.8
47
Belarus
Growing strong as planned
New EU neighbour continues its own way
Others
14.0%
Belinvestbank
7.2%
Belarusbank
44.3%
Belpromstroybank
8.3%
Priorbank
(Raiffeisen )
12.9%
Belagroprombank
13.3%
Data as of year-end 2003; Source: NBRB, RZB Group Research
Population: 9.8 mn
Real GDP (% yoy)
Exchange rate BYR/EUR (avg)
Exchange rate BYR/USD (avg)
2000
2001
2002
2003
14.0
13.9
15.5
15.3
7,210 7,760
8,390
9,200
5.8
4.7
5.0
6.8
7.8
5.9
4.5
6.8
2.1
2.3
3.0
3.1
169.0
61.0
43.0
29.0
(0.6)
(1.6)
(0.2)
(1.6)
(3.8)
(3.6)
(2.3)
(2.9)
18.5
20.6
19.1
17.7
567.0 390.0
482.0
418.0
962.6 1,248.2 1,694.8 2,344.8
1,035.0 1,394.0 1,784.0 2,075.0
By the end of Q2 2004, 31 banks were operating
in Belarus, with the overwhelming majority being
universal banks. In total eight representative offices
of foreign banks and non-bank financial institutions
from Russia, the Baltics, Germany and Poland have
been established. In 2004, a new bank was
opened with Unionbank, fully owned by RussianLatvian investors. Foreign investments in the banking sector constitutes over 12% of share capital,
seven banks are completely owned by foreign
investors, and 26 banks have foreign holdings in
their share capital. The major investors in the banking sector are state bodies and legal entities based
on state ownership. The state has holdings in 13
banks and its share is about 80% of total assets.
The banking system is dominated by the five largest
banks, which accounted for no less than 86% of
total assets by the end of 2003. Belarusbank alone
commanded a share of 44% of total assets. These
five banks are also those that are authorised to fund
the national programmes.
Deposits from households, despite growing strongly in recent years, remain at a very low level in %
of GDP. GDP growth is expected to further accelerate in 2004, but it is important to keep in mind that
Belarus is still a planned economy, which also
affects the banking sector to a large degree.
Source: WIIW, RZB Group Research
Balance sheet data
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
growth in % yoy
in % of GDP
Number of banks
Average interest rate spread (BYR)
Source: NBRB, RZB Group Research
48
2000
2001
2002
2003
1,884.1
(8.9)
22.6
1,551.8
18.1
18.6
-
4,464.4
137.0
36.2
1,959.5
26.3
15.9
1,473.4
11.9
234.1
1.9
75.2
3,218.4
(27.9)
24.5
1,983.8
1.2
15.1
1,591.7
8.0
12.1
334.4
42.9
2.6
80.2
3,758.4
16.8
28.2
2,362.3
19.1
17.7
1,850.5
16.3
13.9
434.2
29.9
3.3
78.3
4.5
87.4
9.6
28
79.6
8.7
30
78.3
10.2
24.4
11.7
-
20.7
12.2
27.7
57.7
30.0
1.0
24.2
7.0
24.4
45.9
21.5
1.5
27.3
3.3
13.5
28.6
15.1
Market players
Market players
in CEE
Foreign controlled banks control the CEE markets to a large extent and
take the most active part in the consolidation process. There is no doubt
that they have played a key role in ensuring knowledge transfer relating to product diversification, risk management, IT and bank supervision and contributed to stabilise the banking environment by reducing
the state influence on banks. The region is clearly controlled by
Western European banks especially German, Austrian, Italian and
Belgian banks, while US corporations are underrepresented in the
region. The only local bank following an explicit regional expansion
strategy is OTP. As there is still room for further consolidation we
expect the share of foreign banks to increase in the next years.
Foreign banks have
taken the lead in most
countries
Share of majority foreign-owned banks
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
PL HU CZ SK SL ES
LT
LI
NMC-8
CC-3
SEEC-6
FSR-2
We took a closer look at the top banking groups in the region, ranked
the banks in terms of total assets, branch network and country presence
and determined the banks' market shares in various regions. For this
purpose we fully incorporated local subsidiaries if the company is controlled by a majority stake. Minority interests were not accounted for in
the presentations below.
49
Market players
Total assets of international banks in CEE, 2003 (in EUR bn)
35
30
25
20
15
10
Volksbank
GE Capital
Commerzbank
ING
OTP
Citibank
Banca Intesa
SocGen
Raiffeisen Int.
HVB/BACA
UniCredit
Erste
KBC
0
Allied Irish
Hypo AlpeAdria
ABN Amro
5
CEEC-20: PL, CZ, SK, HU, SL, LI, LT, ES, RO, BG, HR, SR, BH, AL, MK, MD, KO, RU, UA, BY
Source: Company data
Development of total assets in CEE 2000 - 2003 (in EUR bn)
Compound annual growth
rates of CEE assets
2000-2003:
• SocGen: 104%
• Raiffeisen Intl.: 44%
• Banca Intesa: 42%
• HVB/BACA: 33%
• Erste Bank: 30%
• OTP: 21%
• KBC: 18%
• UniCredit: 6%
35
30
25
20
15
10
5
0
2000
Raiffeisen Int.
KBC
2001
BACA
SocGen
2002
Erste
OTP
2003
UniCredit
Banca Intesa
Source: Company data, National banks
KBC: No. 1 international
bank in terms of assets
KBC defines CEE as its second home market and ranks No. 1 in terms
of CEE assets. The bank controls CSOB, the market leader in the Czech
Republic, K&H - Hungary's second largest bank - and Poland's Kredyt
Bank, ranking No. 8 in the local market. In addition, KBC owns a
minority stake in Slovenia's largest bank NLB. While CSOB and K&H
bank are providing strong results in H1 Kredyt Bank finally managed
to get out of the red thanks to improving asset quality and significant
restructuring. KBC targets to spread its successful domestic bankassurance concept to its CEE subsidiaries. While having a strong market
positions in the Czech Republic, Slovakia and Hungary the bank is partially withdrawing from the region as it has recently disinvested in
Lithuania and in the Ukraine.
Erste Bank follows a similar strategy, with a strong presence in a few
CEE countries based on acquisitions. Ceska Sporitelna, the second
50
Market players
largest bank in the Czech Republic and Slovenska Sporitelna, No. 1 in
Slovakia, provide substantial market power in these two markets. By
acquiring Hungary's Postabanka and merging the Hungarian operations the bank became No. 5 in Hungary. By taking over Rijecka
Banka Erste Bank has grabbed a 9% market share of the Croatian market. The bank clearly follows a retail banking-focused strategy with the
largest branch network in the region and tries to leverage this position
by using economies of scale in the retail segment.
Erste Bank: Most branches in the region
UniCredit (UCI) ranks third in terms of CEE assets. The bank owes this
position to its 53% stake in the second largest bank in Poland, Pekao
S.A., and to its Bulgarian and Croatian subsidiaries which are the market leaders in the respective countries as well as owning Zivnostenská
banka, a mid-sized bank in CZ. UCI operates the second largest
branch network in the region. Pekao S.A. accounts for more than 50%
of the group's CEE assets and provides substantial retail exposure to
UCI in Poland.
UCI: Strong potential in
Poland, Croatia and
Bulgaria
HVB controls one of the broadest networks in CEE with a presence in
13 countries via Bank Austria Creditanstalt (BACA). Poland is the key
market for the group's CEE operations accounting for 36% of risk
weighted assets in CEE and contributing 48% to segmental pre-tax
income. The group has a strong position in corporate banking but its
substantial retail operations are only in Poland, Bulgaria and Croatia.
BACA intends to strongly expand operations in Poland, Hungary and
Croatia by opening 170 branches up to 2007.
HVB/BACA: Strong position in corporate banking
Raiffeisen International - CEE holding of Raiffeisen Zentralbank (RZB) offers a network with the most comprehensive country presence covering 15 markets in the region with its 15 Network banks. In contrast to
KBC, Erste Bank and UniCredit, who have bought their networks,
Raiffeisen followed a strategy of organic growth with only a few acquisitions. Whereas the bank has a relatively small market share in some
new EU countries such as Poland and the Czech Republic, the bank
offers substantial exposure to the convergence markets in South Eastern
Europe and is No. 1 among foreign banks in Russia, Belarus and the
Ukraine.
Raiffeisen International:
Most comprehensive network
Société Générale offers CEE exposure to a large extent via its 60%
stake in Komercni Banka, its 51% holding BRD in Romania and in SKB
No. 4 in Slovenia. In addition, the bank is active in Bulgaria and
Serbia with a market share of around 5% and a small operation in
Russia.
SocGen: Top positions in
the Czech Republic,
Slovenia and Romania
Banca Intesa has a strong market position in Croatia (No. 2), Hungary
(No. 4) and Slovakia (No. 2). Privredna Banka operates the largest
branch network in Croatia and VUB ranks second after Slovenska
Sporitelna (Erste Group) in Slovakia in terms of retail exposure. CIB in
Hungary is more of a corporate bank trying to intensify retail primarily via direct banking.
Banca Intesa: Strong presence in Croatia,
Hungary and Slovakia
OTP is the only CEE bank expanding outside its home country and has
recently created its own network with subsidiaries in Slovakia, Bulgaria
51
Market players
OTP: Uncontested No. 1
in Hungary trying to copy
paste the success in the
Balkans
and Romania. OTP is the uncontested No. 1 in Hungary with a market
share of 18% in terms of total assets (26% including all domestic subsidiaries), running a network 440 branches in Hungary and capturing
more than 60% of the local mortgage market with its mortgage bank
subsidiary. The bank tries to expand its retail know-how towards the
CEE region and has ambitious targets for its Bulgarian subsidiary DSK
(No. 2) and its small unit in Romania.
PKO: No. 1 in Poland
PKO BP, the largest bank in Poland, operates a branch network of
1,246 units and has scheduled its IPO for early November 2004.
According to various sources, the Treasury targets PLN 5-6 bn in proceeds from an offer of up to a 30% stake in the bank. This IPO will
have a major impact on the market as we expect that institutional funds
are already setting aside liquidity to participate in the offering. The
bank has recently acquired the Ukrainian operation of Kredyt Bank
(KBC Group).
Sberbank: The Russian
giant
Sberbank: The state-controlled bank is not only No. 1 in Russia, but
also the largest bank in the region. Sberbank operates by far the
largest branch network in Russia and accounts for over 60% of private
deposits and about 30% of commercial loans.
TOP 20 banks in CEE, 2003
Bank
Majority owner
Sberbank
CB of the Russian Fed.
PKO BP
Polish State
CSOB
Ceská sporitelna
Stake
Assets
Loans Branches
EUR mn
EUR mn
63.6%
30,417
15,368
1,043
100.0%
18,391
8,168
1,246
KBC
81.9%
15,999
5,268
208
Erste Bank
97.9%
14,431
6,047
663
Komercní banka
Societe Generale
60.3%
13,930
4,942
337
Bank Pekao
UniCredit
53.0%
13,474
5,450
827
OTP Bank Hungary
-
11,336
6,386
440
Bank BPH
BA-CA (HVB Group)
9,903
5,121
511
NLB
Slovenian. State 35.4%/KBC 34%
7,246
3,369
325
Bank Handlowy w Warszawie
Citibank
89.3%
7,073
2,961
160
UniCredit - Zagrebacka banka
UniCredit
81.9%
6,460
3,200
127
ING Bank Slaski
ING
87.8%
6,256
2,515
338
BRE Bank
Commerzbank
72.2%
5,864
2,405
45
Bank Zachodni WBK
Allied Irish Bank
70.5%
5,182
2,635
432
Vneshtorgbank
Russian state
99.0%
5,182
2,178
44
Kereskedelmi és Hitelbank (K&H)
KBC (ABN AMRO [40.2%])
59.1%
5,134
3,424
n.a.
Banca Intesa - Privredna banka
Banka Intesa
76.3%
4,905
2,668
178
Kredyt Bank
KBC
81.4%
4,903
2,948
372
BCR
Romanian state
45.0%
4,333
1,963
283
Bank Millennium
Banko Comercial Portugues
50.0%
4,136
2,054
367
71.0%
Austrian banks offer the
highest CEE exposure
among their international
peers
52
While a lot of international banks label themselves CEE players, the relative importance of CEE operations differs substantially. Clearly the
Austrian banks offer the highest exposure in this respect. RZB Group
offers the highest exposure with 36% of total assets in the region and
62% of pre-tax profit. Hypo Alpe Adria also has a strong footprint in
the region through its presence in Slovenia, Croatia, Serbia and Bosnia
and Herzegovina. Erste Bank offers the highest exposure among listed
banks (31% of assets and already more than 50% of pre-tax profit
adjusted for the minority stakes in savings banks which are consolidat-
Market players
ed due to the cross-guarantee system). It is followed by BACA with 24%
of its group assets in CEE, althoughthe bank already generates more
than 40% of the pre-tax income in this area. CEE subsidaries of BACA
accounted for 17% of total group assets in 2003
Share of assets of CEE subsidiaries in % of total group
assets, 2003
80%
70%
60%
50%
40%
30%
*
20%
Commerzbank
SocGen
HVB
Banca Intesa
Allied Irish
UniCredit
KBC
Volksbank
BACA
Erste
RZB Group
OTP
0%
Hypo AlpeAdria
10%
* adjusted for Austrian savings banks in the cross-guarantee system
Country presence and
asset volume differs
among peers
When looking at CEE presence it can be seen that some banks have a
high network concentration in a few countries or even in a single market, such as Allied Irish. There are only two groups with banking operations in more than 10 countries - Raiffeisen International covering 15
markets and HVB, plus its Austrian CEE competence centre BACA, controlling banks in 13 markets.
Market presence* and branch networks
PL
HU
CZ
SK
SL
ES
LT
LI
BG
RO
HR
RU
UA
BY
AL
SR
37
1
2
157
190
29
8
14
63
92
9
82
Raiffeisen Int.
58
50
41
103
13
HVB/BACA
519
37
23
24
10
ING
338
35
15
n.a.
2
9
1
Citi
160
20
7
4
1
6
6
28
19
34
68
Volksbank
UniCredit
801
26
SocGen
5
338
Erste Bank
KBC
359
55
194
664
342
155
208
73
OTP
440
Banca Intesa
45
1
1
3
229
91
28
128
63
181
58
16
4
33
15
789
904
1
8
401
1
8
205
8
8
125
65
7
1207
4
3
21
16
43
1
92
66
122
432
...
17
13
3
200
Swedb./Hansabank
Allied Irish/BZ-WBK
13
163
5
45
10
KO
118
51
Hypo Alpe-Adria
Commerzbank
9
BH
number of branches per country
...
number of countries (majority stakes)
Minority interest stakes
...
total number of banking outlets
2
59
7
666
4
1318
4
795
4
670
4
475
4
109
4
50
3
280
1
432
* Majority stakes only, data as at 31 Dec. 2003, reflecting ownership structure as at June 2004
53
Market players
Erste Bank: First in
branches
Raiffeisen: First in country
presence
Erste Bank with a strong presence in the Czech Republic, Slovakia,
Hungary and Croatia has the largest branch network among international banks in the region. However, it is not followed by another international bank other than by PKO BP, operating 1,246 branches in
Poland. Also HVB/BACA has more than 55% of its CEE outlets in
Poland and intends to further strengthen its position in the country.
Whereas a wide market presence (No. of countries) is necessary to
capture business from large corporates active in the region, a strong
local presence is necessary to use economies of scale in retail banking.
Although most of the banks in the region offer direct banking facilities,
branch banking clearly dominates the retail scene. However, as branch
penetration is much lower than in Western Europe, banks are not concerned with closing outlets but maintain quite aggressive expansion targets in order to increase exposure towards retail banking, which offers
higher margins and currently shows stronger dynamics.
50%
40%
30%
20%
10%
Retail as % ot total loans
60%
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
Commerzbank
ING
SocGen
Banca Intesa
KBC
HVB/BACA
UniCredit
Erste
0%
OTP
CEE retail loans (EUR mn)
Retail loan exposure of international banks in CEE, 2003
To provide a closer look at the market shares of banking groups, we
split CEE into four regions: New EU members, EU accession candidates, South Eastern Europe (SEE) transition markets,
Russia+Ukraine+Belarus (CIS3). As the amount of interbank lending
and lending to the state varies significantly among the players in the
market, we show market shares in terms of loan volumes.
Looking at the overall region, including Russia, offers a somewhat distorted picture as Russian banks account for around 30% of the total
loan volume. There are only five banks that can offer a market share of
around 4% or more. These are HVB/BACA with 4.9%, KBC with 4.5%,
Erste Bank and Unicredito with 4.2% each and Raiffeisen International
(RZB Group) with 3.9%. It is interesting to see that no international
banking group in the region commands a higher lending volume than
Russia's No.1, Sberbank. Also Poland's No. 1, PKO, leaves most institutions in the region behind. Quite significant is the slice of the cake
54
Market players
taken by Austrian banks whose market shares aggregate 14% (including Volksbank, BAWAG and ventures of smaller players such as
Oberbank, Sparkasse Klagenfurt etc.), followed by Italians with a market share of around 8%.
The trend clearly supports banks with a strong market position being
able to increase their market shares in the medium term (already indicated by H1 figures). These banks are able to finance the expansion
of the fast growing retail business and run local and cross-border synergies and will be able to participate in the further consolidation
process by acquiring smaller local banks or taking part in the privatizations that are still left.
Size does matter when it
comes to market consolidation
Market shares in CEEC-20*
in % of net loans**
Top local banks
Sberbank 5.9%
PKO 3.1%
NLB 1.3% (KBC min.)
BCR 0.8%
Raiffeisen Int.
HVB/BACA
3.9%
4.9%
Erste Bank
4.2%
KBC
UniCredit
4.5%
4.2%
Others
63.1%
Russia accounts for 30% of net loans
Commerzbank
1.3%
Societe Generale
2.6%
Banca Intesa
Citigroup 3.0%
2.3%
OTP
ING 3.0%
1.5%
GE Capital
0.6%
Hypo Alpe Adria
0.7%
* CEEC-20: PL, CZ, SK, HU, SL, LT, LI, ES, RO, BG, HR, SR, BH, AL, MK, MD, KO, RU, UA, BY
** Majority stakes only, data as at 31 Dec. 2003, reflecting ownership structure as at June 2004
Source: Company Data, National banks
The market shares in the new EU countries are driven by Polish banks
as nine out of the top-20 CEE banks are Polish. The largest market
share is captured by HVB/BACA, Erste Bank and KBC. Poland is currently the most contested market and some international players, which
are strongly involved in Poland, are less active in other parts of the CEE
region (Allied Irish: 70.5% stake in BZ-WBK, Commerzbank: 72%
stake in BRE Bank, ING: 88% of Bank Slaski). Whilst in recent years
weak margins and high credit losses have put a drag on banks in
Poland the recent turnaround on a broad basis helped many banks to
"polish up" their 2004 figures. After Poland with a loan volume of
around EUR 50 bn the Czech and Hungarian markets rank second
both with a credit volume of approximately EUR 27 bn. While the
Czech market is dominated by three players (CSOB/KBC, Ceska
Sporitelna/Erste and Komercni Banka/SocGen controlling more than
60% of the market), Hungary is clearly dominated by OTP with a 24%
stake in the Hungarian loan market.
Polish banks dominate
market shares in the new
EU countries
55
Market players
Market shares in new EU member countries*
Raiffeisen Int. BACA (HVB4.3%
Group)
8.0%
Erste Bank
7.2%
in % of net loans**
KBC
8.6%
Others
44.6%
UniCredit
4.9%
Societe Generale
3.8%
Polish PKO has a 6.1%
market share
Commerzbank
2.4%
Hypo Alpe Adria
0.7%
GE Capital
1.2%
ING
2.6%
Banca Intesa
3.5%
Citigroup
3.6%
OTP
5.2%
* PL, HU, CZ, SK; SL, ES, LT, LI
Top market positions in
accession countries offer
high potential
The top three in the second wave accession countries are UniCredit
(strong position in Croatia and Bulgaria), Banca Intesa (No. 2 in
Croatia) and Raiffeisen International, which is present in all three countries with strong positions in Romania and Croatia. We expect this
region to outpace the new EU member states in terms of volume growth
and expect higher earnings growth from major players in this region.
With a loan volume of around EUR 27 mn (the same as Hungary or
Czech Republic) at the end of 2003 - Croatia accounted for more than
50% of this figure - with a population of 34 mn we see strong potential in the medium/long-term.
Market shares in 2nd wave countries*
in % of net loans**
Raiffeisen Int.
8.7%
Others
35.9%
BACA (HVBGroup)
7.4%
Erste Bank
4.7%
UniCredit
16.8%
Hypo Alpe Adria
4.5%
ING
1.1%
OTP
3.0%
Citigroup
0.7%
Societe Generale
5.4%
Banca Intesa
11.7%
* RO, BG, HR
56
Market players
SEE transition countries (Serbia, Montenegro, Bosnia and
Herzegovina, Albania, Macedonia, Moldova and Kosovo) are still
characterised a few international banks engaged in these markets. The
reason is that the markets are quite fragmented and the overall size
(total loan volume in Dec. 2003: EUR 7 mn) is rather small. However,
we also expect this region to outpace the new CEE countries in dynamics and assume that banks who might be able to use regional synergies
in this region will see a strong upside potentials in earnings.
SEE transition countries:
Too small to bother?
Market shares in SEE transition countries*
in % of net loans**
Raiffeisen Int.
11.0%
BACA (HVBGroup)
2.1%
Societe
Generale
1.5%
Hypo Alpe
Adria
6.5%
Others
78.9%
* SR, BH, AL, MK, MD, KO
Russia, Ukraine and Belarus are clearly dominated by local banks with
Sberbank having the highest market share. International banks concentrate only on a small segment of the market, i.e. primarily on multinationals and local corporate giants in the commodity or telecom businesses. Only Raiffeisen International and Citigroup are able to acquire
more than 1% of the total market.
CIS3: Still a local party
Market shares in CIS-3*
Gazprombank Alfa Bank
3.0%
2.2%
Vneshtorgbank
2.4%
Sberbank
16.7%
IIB
2.2%
IMB (HVB minority)
0.7%
Aval (UKR)
PrivatBank (UKR)
1.1%
1.2%
Belarusbank (BLR)
Raiffeisen
1.2%
International
Citigroup
1.5%
1.0%
ING
KBC
0.3%
0.1%
HVB
0.1%
Societe Generale
0.1%
Others
66.3%
* RU, UA, BY
57
Market players
To provide an overall picture of the market players and the respective
market shares in the region we should like to point out some important
facts:
• Some international players such as HSBC, Deutsche Bank, JP
Morgan Chase and Bank of America are well under-represented in
the region. The Dutch banks, ABN Amro and ING had an early
entry into CEE markets but have lost relative importance in the last
few years.
• Austrian banks used the opportunity to "go east" in order to reallocate capital from the very competitive, low margin Austrian market
into the burgeoning CEE markets. With Erste Bank, BACA,
Raiffeisen International (RZB Group), Hypo Alpe Adria and
Volksbank the Austrian banks provide a third of the top 16 players
in the region.
• Russia, Ukraine and Belarus are to a big extent untapped by international banks. While international banks concentrate only on the
very top segment of the market, Raiffeisen International (RZB Group)
shows a presence in all three countries and also serves mid-sized
companies.
• The increasing importance of the retail business will have an impact
on market shares as overall loan portfolios are still dominated by
corporate loans.
58
Ratio analysis
Ratio analysis
supporting the positive trend
We compared some key ratios in order to assess profitability, revenue
structure, operating efficiencies, asset quality and capitalisation of the
banks in the region. Due to different standards with regard to segment
reporting (different segment definition and allocation to corporate centre etc.) a comparison of CEE operations of Western banks on a consolidated basis was not possible. We therefore had a look at local
banks and compared them to the financials of international banks on a
group level only.
Profitability: Sector profitability has improved in the last few years and
this year should become one of the best years for the sector, as indicated by HY figures 2004. The chart below shows profitability in terms
of return on equity (ROE) adjusted for goodwill amortisation in relation
to the level of leverage used by the bank. While a high capitalisation
usually drags down current ROE it offers opportunities for the banks to
grow further in terms of assets. In general CEE banks still are less leveraged than their Western peers.
ROE vs equity/total assets (2003)
Allied Irish
Intesa
6%
5%
4%
3%
KBC
UniCredit
BACA
SocGen
RZB
2%
1%
0%
Erste
0%
5%
10%
15%
20%
Equity/total assets
Equity/total assets
8%
7%
ROE vs equity/total assets (2003)
20%
Bulbank
Handlowy
18%
BRD
16%
BT
14%
Biochim
BPH
12%
Pekao Hansabank
Kredyt 10%
Komercni
ZaBa
PKO
OTP
< -30% 8% BZ-WBK
CSOB
Ceska Sp
6%
4% BRE NLB
2%
-10%
0%
10%
20%
30%
40%
ROE (adj. goodwill) 2003
Source: Company data, consolidated group figures
ROE (adj. goodwill) 2003
The position of Polish banks (esp. Pekao S.A., BZ-WBK, Bank BPH) has
improved as the banks tend to offer a better ROE than in recent years
but still have enough capital in order to expand volume. Also
Hansabank has the possibility of further stretching its balance sheet
and improve ROE in the medium term. Romanian (BRD, Banca
Transilvania) and Bulgarian banks (Bulbank, Biochim) are relatively
highly capitalised, but offer substantial potential due to the underbanked nature of their markets.
Polish banks have improved their position
Thanks to its uncontested No. 1 position in Hungary (especially as a
retail bank), the recent mortgage boom and thanks to relatively high
interest rates, OTP manages to outperform its peers in terms of
profitability.
OTP remains No. 1 in
terms of profitability
Loan quality: In an environment where we see a downward trend in net
interest margins, risk costs become even more important for the banks'
overall profitability. Overall the asset quality has improved throughout
the sector, however information disclosure on non-performing loans,
Risk costs become more
important for overall profitability
59
Ratio analysis
especially in interim reports, is still to some extent weak and the NPL
definition also varies among peers. However, comparing the percentage of classified loans with the provision coverage could give an indication whether the bank could have to bear higher credit risk costs in
the future relative to the peer group. The provision coverage shows the
cushion that a bank has set aside to cover potential loan losses.
However, this figure might also be misleading as it gives no information as to what extent NPLs are covered by collateral.
NPL/loans vs. provision coverage (2003)
35%
Handlowy
30%
NPLs/Total loans
Kredyt
ING Slaski
25%
Pekao
Millenium
20%
15%
BPH
BRE
10%
BZ-WBK
BACA
5%
0%
Erste
OTP
0%
20%
40%
60%
80%
Komercni
NLB
Hansabank > 300%
100%
120%
Provisions/NPLs
Source: Company data, consolidated figures
Although Polish banks suffered from high risk costs in recent years, their
credit quality looks worse than it actually is due to legal restrictions with
regard to the write-off of bad loans.
Better cost/income, but
cost/assets leaves room
for improvement
Cost efficiencies: A bank's cost efficiency can be measured in two
ways. The cost/income ratio relates operating costs (not including risk
costs and goodwill amortisation) to total banking income and shows
how effective a bank is in producing current revenues. Operating costs
to average total assets show how effective a bank is in managing its
assets. Especially looking at the second ratio, retail banks score lower
due to substantial infrastructure investments. However, as most of the
CEE banks are universal banks we do not distinguish between our CEE
peers.
CEE banks have already done a decent job in controlling operating
costs and improving cost-income ratios, as we see this ratio for most
banks is already in line with Western peers or otherwise outperforming
them. A further step would be to increase the cost effectiveness by volume growth or by spreading operating costs over a larger asset base
via consolidation.
60
Ratio analysis
Cost/income vs. cost/assets (2003)
6%
Cost/avg. assets
4%
3%
2%
BZ-WBK
OTP
5%
PKO
Pekao
Hansabank
Komercni
NLB
BPH
Ceska Sp
CSOB
RZB
Erste
50%
60%
BRE
BACA
1%
0%
40%
Kredyt
70%
80%
90%
100%
Cost/income
Source: Company data, consolidated figures
The development of revenues still looks challenging in an environment
with pressure on net interest margins, which are still higher than the
margins of Western peers. Margin pressure is coming from the deposit
side to a large extent. The effect of low-margin corporate loans is partly offset by a growing portion of higher-margin retail loans. But often
deposit rates were kept at a high level in order to use the cross-selling
potential of existing retail clients. However, this strategy pays off only
if fee generated income is able to compensate the net interest margin
reduction. Some banks see this policy more as an investment in the
future expecting the market for asset management, insurance and card
business to gain speed in the near future. Especially in fragmented markets like Poland we expect the pressure on margins to continue until further consolidation in the market.
While interest margins
remain under pressure,
fee income is the growth
driver
Hansabank can be considered a cost-leader offering the best
cost/income ratio among its peers. OTP has substantially improved its
position in recent years. While costs/assets remain relatively high due
to the nature of the business (high retail portion), cost/income
improved due to cost control measures and high net interest margins of
its retail/mortgage business (mortgage loans account for nearly 40%
of the bank's loan portfolio). Also Erste Bank offers quite favourable
cost ratios considering its positioning with a strong retail focus.
Hansabank is the costleader in CEE
61
0.0
62
BRE Bank
Komercni
Handlowy
Kredyt
UniCredit
Banca Intesa
BZ WBK
Slaski
Pekao
Bank BPH
Banca Trans.
BRD
BACA
Cseka Sp.
Hansabank
NLB
Allied Irish
Bulbank
Sberbank
CSOB
RZB
KBC
PKO PB
Millenium
Erste
Zagreb.
Privredna
OTP
K&H
0.0%
OTP
PKO
K&H
Privredna
Sberbank
Pekao
Hansabank
Bulbank
Zagrebacka
BZ WBK
Slaski
Kredyt
Ceska Sp
Millenium
Bank BPH
Komercni
NLB
CSOB
Intesa
Allied Irish
Handlowy
UniCredit
Erste
RZB
BACA
KBC
BRE
Ratio analysis
Net interest margin on avg. total assets (2003)
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
Net fee income/net interest income (2003)
1.2
1.0
0.8
0.6
0.4
0.2
is still on its way
In general, market concentration is already relatively high with the top
5 controlling more than 60% of the market in most countries. Smaller
banks were increasingly more aggressive and gained market share
throughout the region, especially after a change in the shareholder
structure. But in countries where international banks are in the driver's
seat the market concentration has increased in the last few years as
most privatizations resulted over foreign banks winning market position. Besides Russia and Ukraine, the markets of Poland and Hungary
are still relatively fragmented.
International banks have
driven the consolidation
process
Market share of five largest banks
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
PL HU CZ SK SL ES
LT
NMC-8
LI
CC-3
SEEC-6
FSR-2
Market share of top five banks in % of assets as of year-end 2003
Despite the fact that major privatisations (esp. in Hungary, Czech
Republic, Slovakia, Bulgaria) have already been concluded we still see
opportunities for growth via acquisitions in the region, as some international banks with selective holdings might reconsider their CEE strategy and use the opportunity of the current prices for CEE banks trading at a premium over its Western peers to divest from the region.
Acquisition growth has
not come to an end
Banks controlled by the treasury
as of Dec. 2003 in EUR mn
Poland
Slovenia
Romania
Croatia
Bulgaria
Serbia
Russia
PKO
Bank Gospodarki (BGZ)
Nova Kreditna
Nova Ljubljanska (KBC 34%)
BCR
CEC
HPB
First Investment
Komercijalna bank
Delta bank
Vojvodjanska bank
Jubanka
Postal Savings bank
AIK bank Nis
Novosadska bank a.d.
Sberbank
Vneshtorgbank
Assets
18391
3549
2360
7246
4333
973
710
570
644
643
586
220
190
176
146
30417
5182
Loans
8168
1621
1271
3369
1963
171
n.a.
368
351
263
307
132
59
132
88
15368
2178
Deposits Branches
15207
2736
1782
4791
2972
843
n.a.
312
498
483
263
88
102
29
73
18872
4330
1043
244
91
325
282
1424
n.a.
8
321
120
113
85
17
6
36
1043
44
63
Poland: Too precious to
leave
Being one of the most fragmented markets Poland offers substantial
consolidation potential. However it seems that further privatisations
might not support the consolidation process as neither the IPO of PKO
BP nor - as it looks now - the privatisation of BGZ will allow an existing player to gain market share. The management of Rabobank has
indicated acquiring, together with EBRD, a 35% stake in Polish agricultural bank Bank Gospodarki Zywnosciowej (BGZ) and to participate
in a capital increase in order to finally hold a 50% stake together with
EBRD. Obviously, despite being one of the most difficult markets in
terms of competition and margin pressure, the Polish market is considered a key market for many institutions and its pure size justifies an
engagement even without an overall CEE strategy (Commerzbank,
AIB).
Consolidation to go on in
Hungary
While the Hungarian market is also quite fragmented, we reckon with
a faster consolidation than in Poland. While the acquisition of
Postabank was one step towards consolidation, we expect further steps
to come as Hungary is not such a key market as Poland. In this respect
the Hungarian No. 3, Magyar Külkereskedelmi Bank (MKB), might be
an example for disinvestments of an international bank as its main
shareholder Bayerische Landesbank does not seem not to follow a longterm CEE strategy. Also OTP remains an extremely interesting takeover
target for an international bank to increase its CEE exposure, although
we do not expect a takeover in the near future.
The highest potential for international banks to use privatisations as a
market entry point clearly lie in Russia, Belarus and Ukraine. South
Eastern Europe also still offers potential to grow via acquisitions.
Romania is the hot spot
in terms of acquisition
targets
One highlight in this respect might be Romania where many international banks are still quite underrepresented. The privatisation of BCR
has already been on top of the agenda with BACA and OTP close to
finding an agreement in forming a joint venture. However, after two
failed attempts to sell Romania's No. 1 bank, the EBRD and IFC have
bought a 25% stake plus two shares, with the state holding (AVAS)
remaining with a 44.8% stake and five local investment funds (SIF) with
6% each. After the privatisation of Petrom (acquired by OMV, Austria)
and EBRD’s and IFC’s investment in BCR, there is less pressure on the
Romanian Government to achieve further FDI in the near future. The privatisation of the state's savings bank CEC seems to be more likely in
the near term. The company, which is currently in a restructuring phase,
offers by far the country's largest branch network with 1,424 outlets
and would be an interesting target for any bank looking for substantial
retail exposure in Romania. Also smaller banks like Banca Transilvania
or Bank Tiriac might be considered take-over targets, as evidenced by
the current stock valuation of Banca Transilvania.
Jubanka only one of
several privatisiations in
Serbia
Several banks in Serbia, are on the selling list of the state. The first of
which is Jubanka operating a branch network of 85 outlets and reporting total assets of EUR 220 mn in 2003. The Serbian government has
announced that OTP, SocGen and Alpha Bank of Greece have submitted bids for a 88% stake in the bank. After eight banks originally
expressed interest in the bank only three have submitted bids.
64
However, there is still plenty of opportunity to capture a piece of the
Serbian banking sector with other privatisations to come later this and
in 2005.
Nova Banka, the No. 8 in Croatia with EUR 1,043 mn in assets, is one
example where we might see an exit of a financial investor in the medium term future. The bank was established in 2002 merging the three
regional banks Dalmatinska, Istarska and Sisacka which were bought
by two offshore funds. The same investors also control Dubrovacka
Banka which is not yet included under the roof of Nova Banka. While
BACA has explicitly confirmed interest in the bank we believe that all
players in the region would have a closer look at the company.
No. 8 in Croatia likely for
sale
Acquisitions in CEE
Year Acquisition/Country
Buyer
Price
EUR mn
Stake M&A Multiple
Price/Book
2004 RoBank/RO
OTP
Kredyt Bank/UA
PKO BP
Savings Bank of Albania Raiffeisen
400
n.a.
105
100
67
100
2.0
n.a.
2.5
2003 Postabank/HU
DSK/BG
Erste Bank
OTP
399
311
100
100
2.7
2.4
2002 Biochim/BG
Rijecka banka/HR
Dubrovacka Banka/HR
Splitska Banka/HR
LG Bank/PL
Zivnostenska B./CZ
Zagrebacka Banka/HR
Nova Ljiuljanska/SL
BACA
Erste Bank
Charlem.Cap.
BACA
Nordea
UniCredit
UniCredit
KBC
83
55
24
132
115
200
626
435
100
85
100
88
99
85
82
34
2.4
1.8
1.4
1.8
1.6
2.6
1.7
2.6
2001 SKB/SL
Istrobanka/SL
Banka Koper/SL
Komercni Banka/CZ
IRB/SK
LTB/LI
LZUB/LI
VUB/SK
SocGen
BAWAG
San Paolo IMI
SocGen
OTP
Hansabank
NordLB
IntesaBCI
143
51
119
1,185
12
38
21
550
97
100
47
60
98
91
76
95
1.2
2.0
2.2
3.2
0.7
0.7
0.7
1.8
2000 UBB/BG
Bulbank/BG
Stopanska Banka/MC
Splitska Banka/HR
Rijecka Banka/HR
Slov. Sporitelna/SK
Privredna B./HR
Ceska Sporit./CZ
PBK/PL
Dalmatinska B./HR
NB of Greece
UniCredit
NB of Greece
UniCredit
Bayer. LB
Erste Bank
IntesaBCI
Erste Bank
BACA
Regent Pac.
229
361
47
58
76
424
302
517
81
33
90
98
65
63
60
87
66
52
10
65
2.0
1.3
1.6
1.4
1.3
2.1
1.7
1.5
1.6
1.4
1999 Express Bank/BG
Bank Zachodni/PL
Pekao/PL
CSOB/CZ
Rom. Devel Bank/RO
SocGen
Allied Irish
UniCredit
KBC
SocGen
39
635
1,040
1,113
200
98
80
52
66
51
1.2
4.2
2.5
2.3
1.9
1998 BPH/PL
Post Bank/BG
HVB
AIG/EFG
597
38
37
78
3.3
2.8
Source: Reuters, Bloomberg, Company data
65
Valuation
Valuation
CEE exposure enhances value
Recommendations
Based on our own and on consensus estimates we have created a peer
group comparison. While European banks with a CEE exposure trade
at a median 2005e P/E ratio of 10.4, pure CEE players trade at 13.0
times 2005e earnings. Also a regression analysis of Price/Book valuations to 2005e ROE reveals that pure CEE players trade at a premium vs. their Western peers with a lower exposure towards CEE markets.
Erste Bank: neutral
BACA: overweight
Only Erste Bank (neutral) already trades at multiples close to pure CEE
players, as it has the highest exposure among Western European listed banks and due to its focus on retail markets which should provide
superior earnings growth in CEE for the next years. While Bank Austria
trades in line with its Western peers we would consider a premium justified given the above-average CEE exposure and the current recovery
of its target market Poland.
Bank BPH: neutral
Pekao: neutral
Bank BPH and Pekao S.A. are both trading at multiples slightly above
their CEE peers. We consider a premium justified given the current
dynamics in the Polish market. However taking into account the upcoming IPO of PKO BP. which might prompt investors to reduce their current positions in bank shares, we see no significant upside at the
moment and recommend to take a "neutral" position towards the stock.
OTP: buy
Komercni: neutral
OTP - the most profitable bank in our universe in terms of ROE - is trading at a significant discount versus its CEE peers. Taking into account
the strong position in Hungary (especially in the retail/mortgage market) and its exposure towards Bulgaria we do not consider this discount
fundamentally justified. Price/Earnings and Price/Book multiples of
Komercni Banka show the bank is trading only at a smaller discount
compared to the peer group.
BRD: neutral
BT: sell
Both Romanian banks are valued at a premium versus the peer group.
While we consider a premium justified, given the high potential we see
in the Romanian banking market, the regional player Banca
Transilvania is already trading at takeover multiples.
Price/Book vs. ROE 2005e
3.5
Banca Transilvania
3.0
R 2 = 0.4553
Pekao SA
2.5
2.0
1.5
1.0
0.5
5.0%
BRD
Komercni
Hansabank
Bank BPH
Erste
OTP
BZ-WBK
AIB
R 2 = 0.7476
UniCredit
ABN
SocGen ING
KBC
BACA
Banca Intesa
Intl. banks with CEE exp.
BRE
CEE banks
Commerzbank
10.0%
15.0%
20.0%
ROE
Source: Thomson Financial Datastream, Raiffeisen estimates
66
25.0%
30.0%
Valuation
Peer Group Comparison
Western European banks
with CEE exposure
Erste Bank
Bank Austria
Commerzbank
Societe Generale
UniCredit Italiano
Banca Intesa
ABN Amro
ING
KBC
Allied Irish
Median
Average
CEE banks
OTP
Komercni Banka
Bank Pekao
Bank BPH
BZW WBK
BRE Bank
Sberbank
Hansabank
Banca Transilvania
BRD
Median
Average
Curr.
Price
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
HUF
CZK
PLN
PLN
PLN
PLN
USD
EUR
EURc
EURc
2004e
P/E
2005e
P/B
2004e 2005e
Dividend yield
2004e 2005e
ROE
2004e 2005e
33.8
54.0
15.3
73.1
4.1
3.1
18.4
21.2
50.7
13.5
15.9
14.6
13.7
11.2
12.5
12.8
8.6
9.1
10.8
11.3
11.9
12.0
12.7
12.3
11.4
10.3
11.1
10.6
8.8
8.9
10.2
10.2
10.4
10.7
2.5
1.3
0.9
1.7
1.9
1.3
1.9
1.8
1.5
2.0
1.7
1.7
2.2
1.2
0.9
1.6
1.8
1.3
1.7
1.6
1.4
1.9
1.6
1.5
1.6%
2.1%
1.6%
3.9%
4.9%
3.3%
5.4%
4.8%
3.8%
4.4%
3.8%
3.6%
2.0%
2.4%
2.6%
4.2%
5.6%
4.2%
5.6%
5.0%
4.0%
4.8%
4.2%
4.1%
16.9%
8.9%
7.2%
15.9%
16.1%
10.6%
24.8%
20.3%
13.9%
18.7%
16.0%
15.3%
18.3%
9.9%
8.1%
15.5%
16.8%
12.0%
21.0%
18.8%
13.6%
18.9%
16.2%
15.3%
4,335
2,931
126
447
84
104
429
7.0
17.6
66.2
9.5
12.0
15.6
17.2
15.2
18.0
8.7
14.5
20.5
17.4
15.4
14.9
9.0
11.2
13.7
13.8
13.1
11.5
8.3
12.8
17.5
16.1
13.0
12.7
2.9
2.6
2.8
2.3
2.1
1.3
1.4
2.8
3.8
2.5
2.6
2.5
2.3
2.4
2.7
2.2
1.9
1.2
1.2
2.4
3.2
2.5
2.3
2.2
2.3%
2.9%
5.2%
4.3%
1.5%
1.4%
0.6%
8.1%
0.0%
2.9%
2.6%
2.9%
2.5%
4.0%
5.8%
5.1%
1.8%
2.5%
0.8%
9.4%
0.0%
3.1%
2.8%
3.5%
34.7%
22.5%
18.4%
13.8%
15.3%
7.9%
20.4%
20.7%
19.8%
15.6%
19.1%
18.9%
28.3%
22.0%
20.2%
16.6%
16.1%
10.2%
19.7%
20.1%
19.9%
15.8%
19.8%
18.9%
Source: Thomson Financial Datastream, Raiffeisen estimates
67
BACA
BACA
September 2004
Overweight
"Polished up" 2004
Price (EUR)
54.0
17 Sep 2004
Target price
58.0
Listing: Vienna
XETRA
ISIN Code
AT0000995006
Reuters RIC
BACA.VI
Bloomberg
BACA AV
Homepage
www.ba-ca.com
Free Float (%)
22.5%
Market Cap. (EUR mn)
7,939.0
Ø daily turnover 01-07/04
(EUR mn)
10.4
ATX weighting (%)
8.4%
Book value per share (04e)
41.7
BACA
55
50
45
40
35
30
25
J
A
S
O
N
D
J
F
Banks
M
A
M
J
J
A
S
BANK AU.CREDITANSTALT
AUSTRIAN TRADED INDEX - PRICE INDEX
Source: Thomson Financial Datastream
Investment story: Bank Austria is operating a broad network with 868
offices in the CEE region. While the CEE region already accounts for
24% of risk weighted assets, 41% of pre-tax income is generated here.
Poland is the key market for the group's CEE operations accounting for
36% of risk weighted assets in CEE and contributing 48% to segmental pre-tax income. An offensive strategy in this market (+ 77 new
branches, new product offensive, cost optimization in mid-cap segment) targets at improving the cost/income ratio to 51% on a sustainable basis and should further enhance the relative importance of this
region. The recent turnaround of the Polish economy led to a 12%
increase in operating income and a reduction in risk costs by 20%.
Austria remains a tough terrain, however, with substantial improvements in the retail segment.
HY result: With an increase of the pre-tax profit by 37% yoy to EUR
412 mn BACA could report a strong set of H1 figures and presented
itself again as the main value driver in the HVB Group - reporting a
consolidated pre-tax profit of EUR 535 mn, which is, however, distorted by one-offs of around EUR 40 mn. Due to high competition the
Austrian corporate sector remains a difficult terrain for BACA.
However, the Austrian Private Clients segment was reporting strong
earnings dynamics due to increasing volumes and a more favourable
interest rate environment. The main growth driver, however, was again
the CEE business showing a 47% jump in pre-tax profit yoy fuelled by
the above-mentioned turnaround in Poland (+ 66% pre-tax profit yoy)
but as well by a strong performance in Hungary (+88%, distorted by
first-time consolidation of the mortgage bank), the Czech Republic
(+28%), Romania (+135%) and Bulgaria (+39%). The trend of falling
risk costs continues. The risk/earnings ratio improved from 21.6% in
H1 2003 to 18.3% in H1 2004.
Outlook & Recommendation: BACA confirmed its targeted 15% growth
in pre-tax income of EUR 750 mn. However, given the current dynamics we consider this outlook quite conservative and we expect the
group to top this figure by around EUR 40 mn. While the stock trades
in line with its international peer group we consider a premium justified given its CEE exposure and the current recovery in its focus market Poland. We increase our target price from EUR 52 to EUR 58 and
confirm our overweight recommendation.
Key figures (IFRS)
Analyst
Raiffeisen Centrobank
Stefan Maxian, CFA
+43/1/515 20-177
[email protected]
EPS (in EUR)
P/E
P/B
ROE (in %)
ROA (in %)
Dividend (in EUR)
Dividend yield (%)
Pay out Ratio (%)
No. of outstanding shares (mn)
2002
2003 2004e
2.71
n.a.
n.a.
6.5
0.20
1.02
n.a.
37.6
114.0
3.40
11.9
1.0
8.5
0.31
1.02
2.5
30.0
129.9
Source: BACA, Raiffeisen Centrobank estimates
68
3.69
14.6
1.3
8.9
0.39
1.15
2.1
31.1
147.0
2005e
2006e
4.40
12.3
1.2
9.9
0.45
1.30
2.4
29.5
147.0
4.90
11.0
1.1
10.4
0.48
1.50
2.8
30.6
147.0
BACA
Austria: In the domestic retail business the surge in pre-tax profits from
EUR 61 mn to EUR 90 mn was primarily due to a 4.5% rise in fee and
commission income and improvements on the cost front (4% reduction
in headcount yoy, IT cost savings and a different cost allocation
retail/corporate). The cost/income ratio improved from 81.7% to
78.5%. Further cost control should support the positive cost/income
trend. The bank managed to raise average risk weighted assets by 8%
yoy backed by successfully marketing mortgage and consumer finance
products, but with sacrificing net interest margin on risk weighted
assets dropping by 40 bps in H1. We expect this trend to continue in
the next quarters. By further streamlining the branch network and intensified use of alternative distribution channels the management intends
to reach a C/I ratio of 75% in the Retail segment by 2006.
Improving trends in
Austrian retail business
The Austrian corporate segment remains a tough terrain characterised
by eroding net interest margin (NIM) and flat volumes. H1 results do
not give a clear picture due to one-off dividend income distorting net
interest results. The bank targets an after-tax ROE in the corporate segment above the cost of capital (8.5%). We do not see strong potential
in volumes and reckon only with marginal improvements in NIM. Still,
due to increased cross-selling efforts and tight cost control we expect
the bank to reach this target by 2006 on a sustainable basis.
Low NIM and borderline
ROE of corporate business
CEE: CEE operations in H1 were characterised by a very strong result
of the Polish entity. The local bank could increase its market share in
deposits by 0.5% to 10.4% and in the lending business by 1.2% to
10.7%.
CEE result boosted by
turnaround in Poland
The bank was able to widen its NIM on RWAs by about 10 bps, which
we would attribute to a relatively stronger rise of retail loans and a shift
from inter-bank assets to loans. We expect NIM to shrink overall in the
region, but the above-mentioned reallocation of assets should partly offset this trend in the medium term. Still, the highest dynamics should
come from fee and commission income posting a 23% increase in H1.
The bank intends to increase its retail exposure by expanding its
branch network by 200 outlets, 170 of which in the core retail markets
Poland, Hungary and Croatia until 2007. The management targets to
widen its customer base from 4.1 mn to 4.5 mn clients in CEE within
the next year and plans to reach a pre-tax ROE of 25% in the region
(vs. 21% in H1 04) by 2006.
BACA targets more retail
exposure in CEE
We expect the bank to take an active part in the consolidation process
among CEE banks. Romanian operations are relatively small and as
the market is gaining momentum there seems to be pent-up potential for
BACA, which has been interested in the country's largest bank BCR for
quite a while. However, after EBRD and IFC have acquired a 25%
stake and due to the Petrom privatisation, an immediate privatisation is
not that likely. Although BCR would be the best strategic fit, BACA
would probably be interested in the privatisation of CEC (savings bank)
scheduled for next year to leverage its Romanian exposure.
Consolidation will go on
69
BACA
2004 target confirmed but seems too
conservative
Outlook: For 2004 BACA confirmed its targeted 15% growth in pre-tax
income of EUR 750 mn. However, given the current dynamics we consider this outlook quite conservative and we expect the group to top this
figure by around EUR 40 mn. Still, we have to consider that H1 was
slightly distorted, especially by the sale of Wienerberger shares with a
value of EUR 30 mn and the change in dividend accounting peaking
in Q2.
BACA reiterates its medium-term targets for 2006. The bank intends to
widen the after-tax ROE to 13% and to improve the C/I ratio to 63%.
Increased capital allocation to CEE and private customers should support this target. We expect an increase in overall NIM due to a shift of
RWAs towards CEE and a shift from interbank and corporate assets to
the retail segment. A further reduction of staffing levels in Austria from
11,410 as of December 2003 to 10,000 by December 2005 should
keep operating costs down.
Valuation: Based on the strong H1 figures we have increased our
2004e EPS estimates by EUR 0.11. On the basis of our estimates
BACA stands on a P/E ratio of 14.6 in 2004e and 13.2 in 2005e,
respectively. The Price/Book ratios are 1.3 and 1.2. Comparing the
P/B valuation and expected ROE to the peer group, BACA trades in
line with international peers, but offers a substantial discount versus
CEE bank stocks. Taking into consideration that BACA's CEE exposure
is higher than the peer group average and given the current recovery
in its target market Poland, we believe that a valuation premium is justified. We raise our target price from EUR 52 to EUR 58 and confirm
our overweight recommendation.
Ratio Analysis
in %
2002
2003
2004e
2005e
2006e
ROE
ROE adj. goodwill amortisation
ROA
Return on avg. risk weighted assets
6.5
8.4
0.20
0.43
8.5
9.8
0.31
0.67
8.9
10.1
0.39
0.77
9.9
11.1
0.45
0.87
10.4
11.5
0.48
0.94
NIM (on avg. earning assets)
NIM (on avg. risk weighted assets)
1.91
3.22
1.97
3.28
2.17
3.34
2.18
3.29
2.12
3.27
F&C income / interest income
F&C income / operating income
Costs / income
Staff costs / total operating costs
46.7
25.0
69.3
56.2
52.1
27.6
69.9
57.1
52.1
27.5
65.5
56.9
53.4
27.9
63.2
57.0
54.2
28.4
62.6
57.0
Deposits /loans (gross)
Retail loans / total loans (gross)
Mortgage loans / total loans
74.1
n.a.
7.54
70.8
n.a.
8.53
68.9
n.a.
9.80
67.5
n.a.
10.40
67.0
n.a.
10.60
NPL / customer loans
Provisions / NPL
Provision expense / gross loans
7.6
62.4
0.70
7.0
65.9
0.61
7.9
55.4
0.28
7.7
58.1
0.53
7.6
58.8
0.53
70
BACA
Shareholder structure
14
72
12
70
10
68
8
66
6
64
4
62
2
60
0
Free Float
22.5%
CIR (%)
ROE (%)
ROE and cost/income development
58
2001 2002 2003 2004e 2005e 2006e
ROE (adj. goodwill amort.)
HVB
77.5%
Cost/income ratio
Source: BACA
Income statement (IFRS)
in EUR mn
Net interest income
Losses on loans and advances
Net interest income after risk provisions
Net fee and commission income
Net trading result
General administrative expenses
Result of other operating activities
Operating Income
Net income from investments
Amortisation
Other Result
Pre-tax profit
Taxes on income
Net income
Minority interests
Consolidated net income
2002
2,306.0
(537.0)
1,769.0
1,076.0
231.0
(2,503.0)
(1.0)
572.0
28.0
(88.0)
(8.0)
504.0
(111.0)
393.0
(84.0)
309.0
2003
+/- %
2004e
(13.7%)
2,176.0
(23.6%)
(467.0)
(10.2%)
1,709.0
1.5% 1,134.0
(11.5%)
220.0
(9.7%) (2,479.0)
(102.9%)
18.0
3.8%
602.0
(85.0%)
120.0
20.5%
(67.0)
(20.0%)
(7.0)
(23.1%)
648.0
13.3%
(155.0)
(29.4%)
493.0
13.5%
(51.0)
(36.0%)
442.0
+/- %
(5.6%)
(13.0%)
(3.4%)
5.4%
(4.8%)
(1.0%)
n.a.
5.2%
328.6%
(23.9%)
(12.5%)
28.6%
39.6%
25.4%
(39.3%)
43.0%
2,367.0
(437.0 )
1,930.0
1,233.0
187.0
(2,468.0
(19.5)
862.5
12.0
(73.0)
-9.0
792.5
(188.6)
603.9
(61.0)
542.9
+/- %
2005e
+/- %
8.8%
2,445.0
3.3%
(6.4%)
(448.0)
2.5%
12.9%
1,997.0
3.5%
8.7%
1,305.0
5.8%
(15.0%)
230.5 23.3%
(0.4%) (2,520.0)
2.1%
n.a.
6.0
n.a.
43.3%
1,018.5
18.1%
(90.0%)
7.8 (35.0%)
9.0%
(73.0)
0.0%
28.6%
(10.1) 12.2%
22.3%
943.2
19.0%
21.7%
(216.9) 15.0%
22.5%
726.3
20.3%
19.6%
(79.0) 29.5%
22.8%
647.3
19.2%
2006e
+/- %
2,519.0
3.0%
(464.0)
3.6%
2,055.0
2.9%
1,366.3
4.7%
245.0
6.3%
(2,586.0
2.6%
1.0
n.a.
1,081.3
6.2%
18.0 130.8%
(73.0)
0.0%
(6.1) (39.6%)
1,020.2
8.2%
(224.4)
3.5%
795.8
9.6%
(75.0)
(5.1%)
720.8
11.4%
Balance sheet (IFRS)
2002
% TA
2003
% TA
2004e
% TA
2005e
% TA
2006e
% TA
Cash & central bank
Trading assets
Inter-bank loans
Loans to customers
Total loan loss provisions
Financial fixed assets
Property and equipment
Intagible assets
Other assets
Balance sheet total
1,824
18,954
29,558
76,354
(3,622)
17,976
1,177
1,162
4,586
147,969
1.2%
12.8%
20.0%
51.6%
(2.4%)
12.1%
0.8%
0.8%
3.1%
100.0%
2,286
16,140
25,130
75,996
(3,491)
15,910
1,120
1,288
2,674
137,053
1.7%
11.8%
18.3%
55.5%
(2.5%)
11.6%
0.8%
0.9%
2.0%
100.0%
2,500
14,200
23,200
81,100
(3,628(
17,900
1,150
1,280
3,120
140,822
1.8%
10.1%
16.5%
57.6%
(2.6%)
12.7%
0.8%
0.9%
2.2%
100.0%
2,500
15,200
22,900
84,587
(3,776)
18,100
1,250
1,300
3,200
145,261
1.7%
10.5%
15.8%
58.2%
(2.6%)
12.5%
0.9%
0.9%
2.2%
100.0%
2,500
15,400
29,000
88,055
(3,940)
18,300
1,350
1,350
3,600
155,615
1.6%
9.9%
18.6%
56.6%
(2.5%)
11.8%
0.9%
0.9%
2.3%
100.0%
Interbank deposits
Customer deposits
Securities
Trading assets
Provisions
Other liabilities
Subordinated capital
Minority interests
Shareholder´s equity
Balance sheet total
41,033
56,562
19,992
10,504
3,490
4,673
6,455
650
4,610
147,969
27.7%
38.2%
13.5%
7.1%
2.4%
3.2%
4.4%
0.4%
3.1%
100.0%
39,133
53,825
17,399
8,560
3,422
3,118
5,419
362
5,815
137,053
28.6%
39.3%
12.7%
6.2%
2.5%
2.3%
4.0%
0.3%
4.2%
100.0%
39,250
55,878
19,000
7,430
3,750
3,263
5,520
400
6,331
140,822
27.9%
39.7%
13.5%
5.3%
2.7%
2.3%
3.9%
0.3%
4.5%
100.0%
40,800
57,096
19,200
8,000
3,700
3,413
5,900
450
6,702
145,261
28.1%
39.3%
13.2%
5.5%
2.5%
2.3%
4.1%
0.3%
4.6%
100.0%
44,200
58,997
20,300
10,900
3,850
3,552
6,200
500
7,117
155,615
28.4%
37.9%
13.0%
7.0%
2.5%
2.3%
4.0%
0.3%
4.6%
100.0%
71
Erste Bank
Erste Bank
September 2004
Neutral
The CEE retail engine
Price (EUR)
33.80
17 Sep 2004
Target price
33.0
Listing: Vienna
XETRA
London
SEAQ
ISIN Code
AT0000652011
Reuters RIC
ERST.VI
Bloomberg
EBS AV
Homepage
www.erstebank.at
Free Float (%)
60.5%
8,160.7
(EUR mn)
10.4
ATX weighting (%)
20.4%
13.6
Erste Bank
35
30
25
20
15
10
O N D J F M A M J
Banks
J
A S O N D J
F M A M J
J
AS
ERSTE BANK
AUSTRIAN TRADED INDEX - PRICE INDEX
Investment story: Erste Bank intends to leverage its strong retail position in CZR, SLK and HUN and wants to take advantage of economies
of scale in these countries. While now mortgages and consumer credits are the main revenue drivers the bank expects asset management
products to pick up in the next few years. The management accepts
highly competitive deposit rates in order to keep its market share to
have a strong position once the market for wealth management products starts to flourish. We expect the bank to take a very active part in
the consolidation process among CEE retail banks. In Austria the main
potential is in increasing the profitability of its "Retail & Real Estate"
operations.
HY result: Erste Bank reported figures fully in line with our estimates.
Main drivers for net interest income (NII) were once again CEE operations reporting a 9.6% rise (however adjusted for one-off effects NII
increased by 2.3% in the CEE region). Austrian operations could not
show similar dynamics and NII dropped by 2.7%. While NII was partly under pressure due to lower net interest margin (NIM) on earning
assets (at 2.21% in H1, down slightly from the 2.30% for FY 2003),
net commission income showed strong dynamics and increased by
15.7% already adjusted for the one-off effect of consolidating
Postabank. Operating costs seem to be under control. General administrative expenses were up 5.6% to EUR 1,291.5 mn. Excluding the
consolidation of Postabank, the increase in expenses was just 2.2%.
The cost/income ratio remained stable at 64.4% compared to H1
2003, however considering one-offs in Slovakia last year and integration costs in Hungary we should see a positive trend overall. Along
with the industry trend also Erste Bank could report improving asset
quality on a group wide basis with its non-performing-loan ratio
decreasing from 3.4% at YE 2003 to 3.1%. As a result of the reduction in the effective tax rate, as well as reduced minority interests
(below-average results posted by the savings banks in the cross-guarantee system, increase in the ownership interest in Slovenska sporitelna), net profit after minority interests rose from EUR 104.2 mn in Q1
to EUR 136.0 mn in Q2.
Outlook and recommendation: We expect Erste to overshoot its net
profit targets for 2004e and 2005e. However, trading at the current
multiples we see only limited upside potential and confirm our
"Neutral" recommendation.
Key ratios (IFRS)
Analyst
Raiffeisen Centrobank
Stefan Maxian, CFA
+43/1/515 20-177
[email protected]
EPS (in EUR)
P/E
P/B
ROE (%)
ROA (%)
DPS (in EUR)
Dividend yield (%)
Pay out Ratio (%)
No. of outstanding shares (mn)
2002
2003 2004e
1.18
13.6
1.6
11.6
0.25
0.31
2.1
26.2
215.8
1.49
16.5
2.0
13.4
0.28
0.38
1.9
25.6
237.8
Source: Erste Bank, Raiffeisen Centrobank estimates
72
2.13
15.9
2.5
16.9
0.38
0.54
1.6
25.3
239.4
2005e
2006e
2.66
12.7
2.2
18.3
0.45
0.66
2.0
24.8
239.4
2.93
11.6
1.9
17.8
0.48
0.73
2.2
24.9
239.4
Erste Bank
Austria: Austrian operations accounted for 52% of pre-tax profits,
down from 56% one year ago. We expect its profit contribution to
decrease further even without additional acquisitions in CEE. While
Austrian operations account for 49% of the total group net income,
more than 58% of equity capital is allocated to the domestic segment.
In own retail operations restructuring is successfully under way, own
savings banks are however lagging behind in the turnaround process.
Still the management confirms its target for the Retail & Real Estate segment of 10% ROE in 2005 (up from 4.5% in H1), which we consider
quite ambitious but we believe that NIM should improve slightly in the
next years backed by a higher interest rate environment and unusually
low margins of the building society unit in 2004. Also, provisioning
costs should come down as already indicated in the HY trend. We do
not see strong upside potential in the large corporate segment contributing 26% of Austrian net income in H1 and yielding an ROE of
14% as this segment remains very competitive and prospects for loan
growth seem to be limited. However, overall we expect the management to improve the cost/income ratio of Austrian operations from 67%
last year to 63 - 64% by year-end 2006.
Ambitious targets in
Retail and Real Estate
segment prevail …
CEE: Volume growth in the CEE region remains impressive with risk
weighted assets rising around 18% yoy in H1 adjusted for the acquisition of Postabank. The management expects the loan volume to continue to grow at a rate of 15 to 20% in all four countries. Margins,
however, have been under pressure given increasing competition (e.g.
in Slovakia Erste Bank has lost some market share in H1 on deposits
due to aggressive pricing by its competitors) and decreasing key interest rates in the past. Still the strong erosion of NIM to average RWAs
yoy does not give a correct picture due to one-off gains of Slovenska
sporitelna last year of more than EUR 20 mn and refinancing costs of
the Postabank acquisition. However based on higher key interest rates
(esp. in CZ) management reckons with stable or even slightly expansive NIM. Money market rates have come down in Slovakia at the end
of Q2 but due to the strong growth of the loan portfolio, the bank
expects to replace low-margin interbank money by mortgage loans.
Also at Ceska sporitelna the management expects loans to grow at a
faster pace than deposits, supporting the overall NIM development.
Impressive volume
growth in CEE constrained
by NIM development in
the past
Fee growth (Ceska sp. +7% yoy in H1, Slovenska sp. + 36%, Erste B.
Hungary +16% adj. for Postabank, Erste B. Croatia +30%) continues
to be the main revenue driver in the CEE region. In the Czech Republic
fee increases (payment transaction fees) initiated by CS have been followed by competition to a large extent. While the management sees
the possibility to raise prices in Slovakia the fee structure in Hungary
remains very competitive in the medium term. Due to increased volume
and new products we expect net fee and commission income to continue its double-digit growth until 2006e. Operating expenses (rising
5.0% excluding Postabank) seem to be under control and also asset
quality gives no reason to worry with non performing loans staying flat
despite strong volume growth and actual risk costs indicated by the
management to be substantially below the previous assumption of
around 80 bps.
Fees and commission
growth outpaces increase
of operating expenses by
far
… but improvements with
large corporates seem
limited
73
Erste Bank
Guidance for 2005 and
2006 confirmed
Outlook: The management has confirmed its net profit targets of EUR
500 mn for 2004e and EUR 600 mn for 2005e, which goes with a
ROE above 16% for the current year and at least 18% for 2005e. Total
provisioning requirements for 2004 are not expected to exceed those
of 2003. The target cost/income ratio for next year is 62%. Given the
current volume growth, and the outlook for stable net interest margins
and risk costs well under control, we consider this guidance to be realistic and expect the bank to slightly overshoot its targets for this and
next year.
CEE expansion has not
come to an end
The company seems to be very interested in the privatisation of the
Romanian savings bank CEC, which we would consider a perfect fit
given the management's proven experience in turn-around situations in
CEE, the exposure towards a high potential economy with EU convergence fantasy still ahead and the broad branch network of the target.
In addition, it is likely that Erste will use its option to take over the
remaining 20% stake of Slovenska Sporitelna from EBRD in 2005.
Valuation: According to our EPS estimates Erste Banks trades at P/E
multiples of 15.9 in 2004e and 12.7 in 2005e. The respective
Price/Book ratios are 2.5 and 2.2. A peer group valuation to international banks with CEE exposure reveals a valuation premium of roughly 25%, which we consider justified on the back of expected superior
earnings growth due to its higher CEE exposure. Looking at pure CEE
players, Erste Bank is trading in line with this peer group. While the
focus on the fast growing retail market should justify a premium the fact
that less than a third of total group risk weighted assets (adjusted for
the Austrian savings banks) are "pure" CEE assets should be considered a discount. Taking into account the expected profitability
improvements of the Austrian business a sum-of-the-parts valuation
reveals a fair value between EUR 31 and EUR 34 per share. We therefore confirm our "neutral" recommendation.
Ratio Analysis
in %
2002
2003
2004e
2005e
2006e
ROE
ROA
11.6
0.25
0.42
13.4
0.28
0.57
16.9
0.38
0.77
18.3
0.45
0.91
17.8
0.48
0.97
2.8
4.1
2.5
4.2
2.4
4.1
2.4
4.1
2.4
4.0
Costs / income
38.3
26.4
67.9
52.1
38.5
26.0
64.2
56.5
42.5
28.0
64.4
57.8
44.3
28.8
61.8
58.0
45.3
29.3
60.3
58.2
Deposits /loans (gross)
Retail loans / total loans (gross)
95.1
30.2
n.a.
95.7
31.9
n.a.
94.3
31.9
n.a.
92.0
31.9
n.a.
90.0
31.9
n.a.
Provisions / NPL
6.4
72.4
0.63
6.0
68.6
0.60
5.7
70.0
0.55
5.7
70.0
0.54
5.7
70.0
0.57
74
Erste Bank
20.0
70.0
18.0
67.0
16.0
64.0
14.0
61.0
12.0
58.0
10.0
Die Erste
Privatstiftung
33.5%
CIR (%)
ROE (%)
Free Float
60.5%
55.0
Austria Verein
6.0%
2002 2003 2004e 2005e 2006e
ROE
Cost/Income ratio
Source: Erste Bank
Income statement (consolidated, IFRS)
in EUR mn
Net interest income
Net trading result
Income from insurance
Staff expense
Depreciation of fixed assets
Other operating expense
Other operating activities
Pre(tax profit
Taxes on income
Net income
Minority interests
2002
+/- %
2003
2,463.0
71.2%
2,587.0
(406.4) 99.6%
(406.5)
2,056.7 66.5% 2,180.5
944.3
64.3%
996.6
167.4
9.7%
214.6
8.4
n.a.
32.9
(1,373.2) 81.4% (1,422.3)
(762.6) 49.5%
(691.9)
(296.2) 58.3%
(346.6)
(2,432.0)
67.2% (2,460.8)
(80.2 (21.7%)
(202.1)
664.6
63.8%
761.7
(151.4) 86.2%
(224.4)
513.2 58.2%
537.3
(258.0) 155.3%
(184.0)
255.2
14.3%
353.3
+/- %
2004e
5.0%
2,674.1
0.0%
(400.3)
6.0%
2,273.8
5.5%
1,135.5
28.2%
209.2
289.7%
34.3
3.6% (1,513.2)
(9.3%
(730.5)
17.0%
(365.3)
1.2% (2,609.0)
152.0%
(53.0)
14.6%
990.8
48.2%
(257.3)
4.7%
733.5
(28.7%)
(223.5)
38.5%
510.0
+/- %
2005e
3.4%
2,822.5
(1.5%)
(414.0)
4.3%
2,408.5
13.9%
1,250.5
(2.5%)
215.5
4.3%
46.0
6.4% (1,559.8)
5.6%
(745.0)
5.4%
(375.2)
6.0% (2,680.0)
(73.8%
(57.0)
30.1%
1,183.5
14.6%
(291.5)
36.5%
892.0
21.5%
(256.0)
44.4%
636.0
+/- %
2006e
+/- %
5.5%
2,921.5
3.4%
(455.0)
5.9%
2,466.5
10.1%
1,324.0
3.0%
214.8
34.1%
53.0
3.1% (1,589.9)
2.0%
(751.4)
2.7%
(381.2)
2.7% (2,722.5)
7.5%
(52.0)
19.4%
1,283.8
13.3%
(306.4)
21.6%
977.4
14.5%
(276.9)
24.7%
700.5
3.5%
9.9%
2.4%
5.9%
(0.3%)
15.2%
1.9%
0.9%
1.6%
1.6%
(8.8%)
8.5%
5.1%
9.6%
8.2%
10.1%
Balance sheet (consolidated, IFRS)
in EUR mn
2002
% TA
2003
% TA
2004e
% TA
2005e
% TA
2006e
% TA
Cash & central bank
Inter-bank loans
Loans to customers
Trading assets
Other current financial assets
Intagible assets
Other assets
Balance sheet total
3,181
15,492
64,435
(2,983)
3,487
6,736
22,572
1,596
1,866
4,840
121,222
2.6%
12.8%
53.2%
(2.5%)
2.9%
5.6%
18.6%
1.3%
1.5%
4.0%
100.0%
2,549
13,140
67,766
(2,772)
5,259
7,379
26,454
1,868
1,814
5,117
128,574
2.0%
10.2%
52.7%
(2.2%)
4.1%
5.7%
20.6%
1.5%
1.4%
4.0%
100.0%
2,750
15,000
72,510
(2,893)
5,250
8,400
28,400
1,750
1,795
5,400
138,361
2.0%
10.8%
52.4%
(2.1%)
3.8%
6.1%
20.5%
1.3%
1.3%
3.9%
100.0%
2,900
15,400
76,498
(3,052)
5,500
8,500
29,500
1,700
1,800
5,700
144,445
2.0%
10.7%
53.0%
(2.1%)
3.8%
5.9%
20.4%
1.2%
1.2%
3.9%
100.0%
3,000
15,300
79,940
(3,190)
5,800
8,800
30,000
1,650
1,814
5,900
149,014
2.0%
10.3%
53.6%
(2.1%)
3.9%
5.9%
20.1%
1.1%
1.2%
4.0%
100.0%
Interbank deposits
Customer deposits
Securities
Provisions
Other liabilities
Minority interests
Balance sheet total
26,425
61,308
14,191
5,488
5,220
3,387
2,723
2,481
121,222
21.8%
50.6%
11.7%
4.5%
4.3%
2.8%
2.2%
2.0%
100.0%
25,704
64,839
16,944
6,366
5,515
3,538
2,879
2,791
128,576
20.0%
50.4%
13.2%
5.0%
4.3%
2.8%
2.2%
2.2%
100.0%
28,780
68,377
19,000
6,700
5,251
3,800
3,200
3,259
138,367
20.8%
49.4%
13.7%
4.8%
3.8%
2.7%
2.3%
2.4%
100.0%
29,900
70,378
20,500
6,900
6,193
3,900
3,000
3,675
144,445
20.7%
48.7%
14.2%
4.8%
4.3%
2.7%
2.1%
2.5%
100.0%
31,200
71,946
21,000
7,120
6,466
4,000
3,100
4,182
149,014
20.9%
48.3%
14.1%
4.8%
4.3%
2.7%
2.1%
2.8%
100.0%
75
Bank BPH
Bank BPH
September 2004
Neutral
Banks
Aggressive strategy 2006
Price (PLN)
447
17 Sep 2004
Target price (PLN)
425
Listing: Warsaw
WSE
ISIN Code
PLBPH0000019
Reuters RIC
BPHW.WA
Bloomberg
BPH PW
Homepage
www.bph.pl
Free Float (%)
21.1%
2,950.7
(EUR mn)
1.5
WIG20 weighting (%)
8.8%
198.8
Bank BPH
500
450
400
350
300
250
200
150
O ND J F M AMJ J
A S OND J
F M AMJ
J AS
BANK BPH
PRAGUE PX 50 - PRICE INDEX
Investment story: Bank BPH's strategy for the years 2004-2006 concentrates on: 1) retail banking: expansion of retail network, strengthening sales in the middle market segment, further development of new
products: mortgage loans, credit cards, and investment funds, 2) corporate banking: cost optimization, adjustment of corporate centers,
revenue growth in transactional banking, treasury products, and
Internet banking, 3) improvements in operations. The strategy assumes
that a pre-tax ROE of 22% will be reached in 2006, in comparison to
11.2% in 2003, and a C/I ratio of 51%, down from 63.8% in 2003.
Major opportunities seem to be in further development of distribution
channels. Risks arise from competition of other banks wanting to pursue a similar strategy, and the risk of rising provisions due to aggressive loan expansion.
H1 figures: Bank BPH reported H1 2004 consolidated net profit of PLN
424 mn vs. PLN 204 mn in H1 2003, up 107.8%, partly due to oneoff items. Primarily thanks to strong retail operations both net interest
income increased by 12.4% and net commission income by 19.4%.
Operating costs remained under control. Net provisions decreased by
18% showing further improvement in loan portfolio quality. Total assets
increased by 9.2%, mainly in the area of corporate loans, which were
higher by 17.2%, and retail mortgage loans, which showed a steady
increase of 70%. Corporate deposit volumes increased by 29.4% and
retail only by 1.1%, but the bank continued to market alternative savings forms. All in all, the bank's market share in loans was up from
9.7% to 11.2% and in deposits from 9.9% to 10.2%. Additionally, the
bank tripled its credit card business and nearly doubled the number of
e-clients.
Outlook: For the full year 2004 we expect net profit to more than double in comparison to 2003, thanks to a steady increase in net interest
and commission income coupled with controlled operating costs and
lower provisions. On the balance sheet side we expect a further
increase in corporate and mortgage loans but at a slower rate.
Recommendation: In our opinion Bank BPH shows good results in revenue generation, cost control and balance sheet developments, which
seem to be accounted for by the market. Trading at a slight premium
vs. the peer and having in mind the upcoming IPO of PBK we see no
significant upside at the moment.
Key figures (PAS)
2002
Analyst
Janusz Siatkowsi, CFA
+48 22 5853171
[email protected]
EPS (PLN)
P/E
P/B
ROE (%)
ROA (%)
DPS (PLN)
Dividend yield (%)
Payout Ratio (%)
Shares outstanding (mn)
Source: Bank BPH, Raiffeisen estimates
76
4.7
58.2
1.6
2.7
0.29
1.4
0.52
30.0
28.7
2003 2004e
11.2
31.6
1.9
6.3
0.69
8.4
2.38
75.0
28.7
26.0
17.2
2.3
13.8
1.50
19.5
4.36
75.0
28.7
2005e
2006e
32.3
13.8
2.2
16.6
1.74
24.3
5.43
75.0
28.7
38.6
11.6
2.1
18.9
1.91
29.0
6.48
75.0
28.7
Bank BPH
Asset structure: Adjusted for the sale of GBG Bank BPH reported a 16%
increase in assets from H1 2003 to H1 2004. Main asset driver was
an expanding loan book with corporate loans rising 17% yoy and
mortgage loans increasing by an impressive 70% due to a quite
aggressive but successful sales strategy. As a result, the ratio of customer loans to total assets increased from 50.5% to 52.4%. In total
loans, the share of private individual loans (+33% yoy) went up substantially from 23% to 29%. The bank showed a steady improvement
in loan portfolio quality. The ratio of non-performing loans decreased
from 19.1% as of Q4 2003, to 14.7% as of H1 2004. Provision coverage of irregular loans increased from 44% in Q4 2003 to 54% in
H1 2004. The decrease in non-performing loans was mainly due to
loan restructuring and loan reclassification because of regulatory
changes.
Impressive 70% growth
in mortgage loans drives
the retail exposure
Profitability: In H1 2004 the bank managed to more than double H1
2003 net profit. In Q2 2004 interest income again started to increase
yoy thanks to active loan selling, and interest cost continued to fall,
however at a decreasing rate. As a result net interest income increased
by 12.4% yoy. The aggressive sales strategy and improvements in the
card business had an impact on net fee and commission income rising
19.4% yoy. The increase in net profit in H1 2004 was also possible
thanks to lower costs and provisions. Operating costs decreased by
6% in comparison to H1 2003, mainly due to the positive effect of
falling personnel costs. As a result, the cost/income ratio dropped from
63% in H1 2003 to 54.8% in H1 2004. Net provisions decreased by
18% from PLN 156 mn to PLN 128 mn thanks to better loan quality
and a lack of significant new provisions for specific purposes. The larger net profit in H1 2004, amounting to PLN 424 mn, was also supported by such one-off items as a PLN 67m gain on the GBG sale, a
PLN 15 mn dividend from CU, and a tax credit of PLN 34 mn related
to bad debt at the end of 2003.
Net profit up 107% in H1
Strategy 2004-2006: In its strategy presented in early summer, the
bank outlined quite aggressive targets for the retail as well as for the
corporate business coupled with improvements in operations aimed at
achieving a pretax ROE of 22% and a cost/income ratio of 51% in
2006. In retail banking the bank plans to expand its distribution network, open up 77 new retail branches and increase the number of
transactions carried out through electronic channels. Additionally, the
bank wants to reach retail customers in areas of high economic potential, achieve a 20% market share in the affluent/middle segment and
attain the leading position by 2008 through better client segmentation
and product adjustments. In the mass client segment the bank also targets at 25% efficiency growth. In corporate banking the bank plans to
increase transactional banking and treasury products sales and adjust
its corporate centers to local market potential through consolidation of
4 out of 27 centers. On the operations side the bank thinks about simplifying product processes, further optimization of employment and
central functions as well as the implementation of modern CRM tools.
According to the management all these activities should bring about a
positive annual net impact of PLN 340 mn starting from 2007. The
bank also estimates that in 2004-2006 it will implement investments
Aggressive targets for
2006
77
Bank BPH
and bear one-off costs of PLN 170 mn. Since income effects of active
sales of loans and cards are already visible, particular costs are
decreasing or under control, restructuring of workforce progresses, and
the branch network seems to be largely reorganized and ready for
expansion, we think that the strategy goals are aggressive but feasible.
ROE (pre-tax) target of
22% by 2006
Outlook: We have based our assumptions on the targets announced in
the "Strategy 2004 - 2006" and expect an accelerating increase in
customer loans and, at a slower rate, also in customer deposits, leading to a steady increase in net interest income. We also assumed
strong dynamics in net commissions, some decrease in staff costs and
a stable ratio of net provisions to loans leading to further improvements
of the cost-income ratio and a pre-tax ROE close to the target level of
22%.
Bank BPH trades at a
slight premium versus its
peers
Valuation: We valued the bank using the P/B valuation method. We
calculated 2006 expected ROE of 18.9%, took 4.5% growth rate,
11% cost of equity, and assumed that they are sustainable. Using these
figures we calculated a target price to book ratio of 2.22 at the end of
2006. Then using this ratio we calculated a 2006 price, discounted it
to the end of 2004, and adjusted for the present value of expected dividends, reaching an expected price of PLN 425 at year-end 2004.
Bank BPH trades now at 17.2x earnings and 2.3x book for 13.8%
2004e ROE, as well as 13.8x earnings and 2.2x book for 16.6%
2005e ROE. Trading at a slight premium vs. the peer group and having in mind the upcoming IPO of PKO BP we see no significant upside
at the moment and recommend to take a "Neutral" position towards the
stock.
Ratio analysis (PAS)
in %
2002
2003
2004e
2005e
2006e
2.7
0.3
3.4
4.2
6.3
0.7
3.0
3.6
13.8
1.5
3.1
3.7
16.6
1.7
3.1
3.8
18.9
1.9
3.2
3.9
F&C income / operating costs
49.6
32.7
57.5
40.3
62.8
47.2
64.2
51.9
62.9
54.3
Costs / total income
Cash costs / total income
Staff costs / total costs
66.8
56.4
28.6
66.7
55.8
28.6
60.3
49.7
25.0
56.2
46.1
22.2
53.3
43.5
20.0
132.4
28.5
10.6
45.3
11.1
112.3
32.1
17.0
52.3
11.0
102.5
39.2
22.7
56.4
10.8
91.8
43.7
27.3
59.3
10.2
83.0
45.3
29.5
61.7
9.9
20.7
46.2
3.11
18.9
43.8
1.07
15.0
55.0
0.86
15.0
55.0
0.86
15.0
55.0
0.87
ROE
ROA
Deposits / loans (gross)
Retail loans / total loans
Loans / total assets
Equity / total assets
NPLs / total customer loans
Provisions / NPLs
78
Bank BPH
15%
10%
40%
30%
20%
10%
0%
5%
0%
Free float
21.1%
Bank of New York
4.0%
CIR (%)
80%
70%
60%
50%
20%
ROE (%)
State treasury
3.7%
Bank Austria
Creditanstalt
71.2%
2001 2002 2003 2004e2005e2006e
ROE
Cost/income
Source: Bank BPH
Income statement (consolidated, PAS)
in PLN mn
Interest income
Interest expense
Net interest income
Net commission income
Net trading result
Other operating income
Total operating income
Staff expense
Depreciation
Amortisation of Goodwill
Total operating expense
Net provisions
Profit before tax
Tax
Minorities
Net profit
+/- %
2003
+/- %
2004e
+/- %
2005e
+/- %
2006e
+/- %
3,211 (36.3%)
(1,954) (48.3%)
1,257
(0.3%)
624
5.1%
901
(8.2%)
79 (56.8%)
2,861
(5.2%)
(818)
(7.9%)
(235)
(5.6%)
(62)
1.6%
(796) (13.0%)
(1,911
(9.6%)
(703)
5.9%
247
2.1%
(104) (182.5%)
(11) 37.5%
134 (62.7%)
2002
2,471
(1,208)
1,263
726
536
175
2,700
(772)
(234)
(60)
(734)
(1,800)
(296)
603
(241)
(10)
323
(23.0%)
(38.2%)
0.5%
16.3%
(40.5%)
121.5%
(5.6%)
(5.6%)
(0.4%)
(3.2%)
(7.8%)
(5.8%)
(57.9%)
144.1%
131.7%
(9.1%)
141.0%
2,580
(1,216)
1,364
857
595
198
3,014
(754)
(258)
(60)
(744)
(1,816)
(270)
928
(176)
(10)
747
4.4%
0.7%
8.0%
18.0%
11.1%
13.4%
11.6%
(2.4%)
10.3%
0.0%
1.4%
0.9%
(8.8%)
53.9%
(26.8%)
0.0%
131.2%
2,795
(1,275)
1,520
977
640
213
3,350
(745)
(277)
(60
(800
(1,883)
(309)
1,159
(220)
(10)
929
8.3%
4.8%
11.5%
14.0%
7.5%
7.5%
11.2%
(1.2%)
7.5%
0.0%
7.5%
3.7%
14.5%
24.9%
24.9%
0.0%
24.4%
2,985
(1,276)
1,709
1,074
698
233
3,714
(744)
(303)
(60
(873
(1,980)
(352
1,382
(263)
(10)
1,110
6.8%
0.1%
12.4%
10.0%
9.1%
9.1%
10.9%
(0.1%)
9.1%
0.0%
9.1%
5.2%
14.0%
19.3%
19.3%
0.0%
19.5%
Balance sheet (consolidated, PAS)
in PLN mn
2002
% TA
2003
% TA
2004e
% TA
2005e
% TA
2006e
% TA
Cash & central bank
Inter-bank loans
Loans to customers
Debt securities
Equity investments
Intangible fixed assets
Tangible fixed assets
Other assets
Total assets
2,369
6,593
20,425
10,500
191
521
1,186
3,310
45,095
5.3%
14.6%
45.3%
23.3%
0.4%
1.2%
2.6%
7.3%
100.0%
1,707
4,342
25,303
12,138
195
467
1,069
3,171
48,392
3.5%
9.0%
52.3%
25.1%
0.4%
1.0%
2.2%
6.6%
100.0%
1,442
4,559
28,702
11,218
168
417
897
3,444
50,848
2.8%
9.0%
56.4%
22.1%
0.3%
0.8%
1.8%
6.8%
100.0%
1,325
4,331
33,109
11,592
174
431
927
3,973
55,862
2.4%
7.8%
59.3%
20.8%
0.3%
0.8%
1.7%
7.1%
100.0%
1,183
4,115
37,357
11,835
178
440
947
4,483
60,537
2.0%
6.8%
61.7%
19.5%
0.3%
0.7%
1.6%
7.4%
100.0%
Inter bank deposits
Customer deposits
Securities
Provisions
Other liabilities
Subordinated debt
Minorities
Total equity
Total equity & liabilities
5,923
29,893
78
892
3,232
0
59
5,020
45,095
13.1%
66.3%
0.2%
2.0%
7.2%
0.0%
0.1%
11.1%
100.0%
7,171
30,978
580
795
3,498
0
67
5,302
48,392
14.8%
64.0%
1.2%
1.6%
7.2%
0.0%
0.1%
11.0%
100.0%
7,627
32,050
861
861
3,959
0
0
5,489
50,848
15.0%
63.0%
1.7%
1.7%
7.8%
0.0%
0.0%
10.8%
100.0%
8,379
33,119
993
993
6,656
0
0
5,721
55,862
15.0%
59.3%
1.8%
1.8%
11.9%
0.0%
0.0%
10.2%
100.0%
9,080
33,813
1,121
1,121
9,403
0
0
5,998
60,537
15.0%
55.9%
1.9%
1.9%
15.5%
0.0%
0.0%
9.9%
100.0%
79
Bank Pekao
Bank Pekao
September 2004
Neutral
Bottoming out in H1
Price (PLN)
126
17 Sep 2004
Target price (PLN)
122.0
Listing: Warsaw
WSE
ISIN Code
PLPEKA000016
Reuters RIC
BAPE.WA
Bloomberg
PEO PW
Homepage
www.pekao.com.pl
Free Float (%)
46.9%
4,853.5
(EUR mn)
4.5
WIG20 weighting (%)
11.9%
44.6
Pekao S.A.
170
160
150
140
130
120
110
100
90
80
70
O N D J F M A M J
Banks
J
A S O N D J
F M A M J
J
AS
PEKAO
Investment story: Bank Pekao is the second largest bank in Poland, and
(still) the largest of all listed Polish banks. The bank has a 10.1% market share of loans, 13.7% of deposits and 32.3% in investment funds.
Bank Pekao plans to: 1) increase the volume of loans by launching a
new mortgage product and targeting SMEs 2) strengthen the position
in the savings business, mainly through selling investment funds, and
3) increase the volume of the transaction business, active selling of
credit cards, and current accounts with higher added value. Due to its
size we consider Pekao a good play on the overall economic recovery
in Poland. Opportunities lie in actively tapping developing markets for
mortgage loans, credit cards, foreign payments and investment funds.
Risk might arise from expanding SME loans too aggressively.
H1 figures: In H1 2004 Bank Pekao earned a net profit of PLN 665
mn in comparison to PLN 506 mn in H1 2003, which means an
increase of 31.4%. Revenue was mainly driven by substantially higher
commissions (up by 22.1%). On the other hand, net interest income
decreased by 7.7% in H1 2004 compared to H1 2003, due to lower
yields on debt securities. However, it recently stabilised and slowly
started to pick up. As to the balance sheet developments, loans slightly decreased in H1 2004 in comparison to H1 2003, however started
to increase since the beginning of this year, in the case of corporate
loans by 4.2%, and in the case of mortgage loans by 11%, and rose
faster than the market. One could also observe an increase in corporate deposits by 16.5% in H1 2004 over H1 2003, as well as a continuing decrease in retail deposits and bonds by 10.9%. All in all Bank
Pekao's market share in savings remained stable on the level of 18.2%
after H1 2004.
Outlook: For the full year 2004 Pekao targets an ROE of 18.7% based
on accelerating mortgage, an expansive SME business and further
improvements of cost effectiveness. We reckon with almost a 46%
increase in net profit, to be reached through a further increase in commissions and trading income, with still declining (yoy) but stabilizing
interest income, coupled with controlled personnel costs.
Recommendation: Q2 figures indicate a positive trend, but there is still
room for higher growth. We see the company well positioned in retail,
SME and mutual fund market to benefit from the current broad recovery. However Pekao already trades at a premium to its peers. We keep
our "Neutral" rating.
Key figures (PAS)
Analyst
Janusz Siatkowsi, CFA
+48 22 5853171
[email protected]
in EUR
2002
2003 2004e
EPS
P/E
P/B
ROE (%)
ROA (%)
DPS
Dividend yield (%)
Payout Ratio (%)
4.6
20.3
2.2
11.0
1.11
4.18
4.42
90.0
165.7
5.5
19.5
2.5
13.0
1.44
4.5
4.17
81.3
166.1
Source: Pekao S.A., Raiffeisen estimates
80
8.1
15.6
2.8
18.4
2.11
6.5
5.13
80.0
166.1
2005e
2006e
9.2
13.7
2.7
20.1
2.27
7.3
5.83
80.0
166.1
10.6
11.9
2.6
22.3
2.43
8.5
6.73
80.0
166.1
Bank Pekao
Profitability: In H1 2004 operating income slightly decreased yoy, a
bit more than operating costs, so that the cost/income ratio increased
from 54.6% in H1 2003 to 55.1% in H1 2004. Net interest income
decreased by 7.7% yoy, especially due to stagnating loan volumes
and contracting margins in Q1, when net interest income was down
12% yoy. However, loan growth finally picked up in Q2 and net interest margin improved slightly from a record low level in Q1. The
decrease in net interest income was compensated by the substantial
rise in net commissions by 22.1% yoy, which boosted the share of fees
and commissions in revenue from 30% as of H1 2003 to 38% as of
H1 2004. Main growth drivers were fees and commissions from
accounts and transactions plus fees from investment funds. Fees from
loans and cards remained stable in that period, but picked up in Q2
after a weak Q1. Since the end of 2003, the bank has increased the
number of credit cards by 82.4% and charge cards by 8.4%, however in outstanding and new credit cards the bank still has less than one
third of the volume of its nearest competitor, Bank BPH. The bank tightly controlled costs in recent months, so that they decreased by 1.2%
yoy, with the number of employees decreasing from 17,120 in H1
2003 to 16,617 in H1 2004. Lower credit risk costs (provisioning was
still relatively high but down 21% yoy) and a substantial drop in tax
expense due to a revaluation of deferred tax assets supported the bottom line as well.
Net interest margin still
under pressure …
Balance sheet developments: On the assets side customer loans
decreased slightly by 1.2% in H1 2004 vs. H1 2003, but have been
increasing since the end of 2003 driven by higher mortgage loans,
which increased by 11%, and corporate loans, which increased by
4.2%. The bank increased its market share in new mortgage loans from
4.3% in Q2 2003 to 12.9% in Q2 2004. However, the bank's overall market share in mortgage loans still dropped from 10.5% in Q2
2003 to 9.4% in Q2 2004 as other players were even more aggressive. Thanks to an improved environment and reclassification of loans,
non performing loans decreased by 6.4% and the provision coverage
ratio increased to 64.9% in H1 2004 from 57.4% in H1 2003, since
the bank decided to maintain its retail loans provisioning strategy.
Deposit collection remains weak with deposits flat compared to H1
2003. While retail deposits dropped significantly, Pekao reports an
increase in corporate deposits by more than 16% yoy. On the other
side, Pekao quite successfully markets mutual funds posting a 34.4%
rise compared to 2003 and widening its market share to 32%.
… but loan volume picked
up in Q2
Strategy: In the upcoming years, Bank Pekao plans an expansion in
mortgage loans through a broader product range, the development of
an intermediary distribution network, an increase in the sales force and
a shorter loans granting cycle. At the end of 2003, the bank expected
a 29% increase of the mortgage market for 2004 and up to now
increased its market share in new mortgage loans. The bank also plans
to sell more loans to SMEs than the market average and to achieve an
increase in selected segments of medium-sized companies, mainly
through specialized services, broader and deeper market penetration,
and cross selling with other Group Pekao products, like leasing. Pekao
Focus remains on mortgage products, SME specialization and mutual funds
81
Bank Pekao
plans to further strengthen its leading position in the mutual fund
market by exploiting cross-selling opportunities and attracting new
clients via improved relationship management and product diversification. The management targets to narrow the gap to competitors in the
card business through intensified marketing and more flexible selling
procedures and the bank also focuses on "upgrading" the current
account customer base by offering new money management products.
In addition Pekao wants to increase its market share in the foreign
trade transaction business.
Two-digit expansion of
customer loans
Outlook: Based on the targeted dynamics in mortgage lending and the
additional focus on SME business we reckon with two-digit expansion
of customer loans until 2006 coupled with slowly improving net interest margins. We also assumed a stable increase in net commissions,
controlled personnel costs and a stable ratio of provisions to loans.
Pekao trades at a premium versus its CEE peers
Valuation: We valued the bank using the P/B valuation method. We
calculated 2006 expected ROE of 22.3%, took 4.5% growth rate,
11% cost of equity and assumed that they are sustainable. Using these
figures we calculated a target price to book ratio of 2.74 at the end of
2006. Then using this ratio we calculated a 2006 price, discounted it
to the end of 2004, and adjusted for the present value of expected dividends, reaching an expected price of PLN 121.5 at end-2004.
Bank Pekao is trading at 15.6x earnings and 2.8x book for 18.4%
2004e ROE, as well as 13.7x earnings and 2.7x book for 20.1%
2005e ROE. In terms of these ratios Bank Pekao trades at a 5-10% premium vs. the peer group. Based on our valuation and having in mind
the upcoming IPO of PKO BP we see no significant upside at the
moment and remain "Neutral" towards the stock.
Ratio analysis
in %
2002
2003
2004e
2005e
2006e
ROE
ROA
11.0
1.1
4.9
8.1
13.0
1.4
4.3
6.9
18.4
2.1
4.0
6.4
20.1
2.3
4.1
6.6
22.3
2.4
4.2
6.8
42.8
51.2
59.1
57.5
68.8
62.7
67.6
66.2
67.0
68.7
47.4
42.6
21.9
57.9
50.7
27.4
57.3
49.7
27.4
54.0
46.8
25.6
51.9
44.8
24.1
153.6
22.7
6.1
45.2
10.8
161.0
23.9
8.0
42.1
11.4
152.1
25.2
9.8
43.2
11.5
141.0
25.0
10.9
44.5
11.1
131.0
24.8
11.8
46.3
10.8
21.0
54.5
4.7
24.4
55.4
1.7
23.0
55.0
1.0
23.0
55.0
1.0
23.0
55.0
1.0
NPLs / total customer loans
Provisions / NPLs
82
Bank Pekao
70%
25%
60%
20%
Free Float
47.0%
50%
15%
40%
10%
30%
CIR (%)
ROE (%)
20%
5%
10%
0%
UniCredit
53.1%
0%
2001 2002 2003 2004e2005e2006e
ROE
Cost/income
Source: Pekao S.A.
Income statement (consolidated, PAS)
in PLN mn
Interest income
Interest expense
Net interest income
Net commission income
Net trading result
Other operating income
Total operating income
Staff expense
Depreciation
Amortisation of goodwill
Total operating expense
Net provisions
Profit before tax
Tax
Minorities
Net profit
2002
+/- %
2003
+/- %
2004e
+/- %
5,348
(2,485)
2,863
1,226
703
257
5,049
(1,106)
(227)
(16)
(1,046)
(2,395)
(1,480)
1,174
(392)
7
770
(27.8%)
(44.9%)
(1.1%)
(2.1%)
19.0%
53.0%
2.9%
(10.8%)
3.7%
0.0%
0.5%
(4.8%)
136.4%
(33.4%)
(24.0%)
3,915
(1,540)
2,375
1,403
225
212
4,215
(1,157)
(294)
(11
(980)
(2,442)
(497
1,276
(358)
3
920
(26.8%)
(38.0%)
(17.0%)
14.4%
(68.0%
(17.5%
(16.5%)
4.6%
29.5%
(31.3%)
(6.3%)
2.0%
(66.4%
8.7%
(8.7%)
(57.1%)
19.48%
3,789
(1,547)
2,242
1,543
318
191
4,295
(1,178)
(318)
(10)
(955)
(2,462)
(326)
1,507
(211)
5
1,341
(3.21%)
0.45%
(5.58%)
10.00%
41.50%
(9.89%)
1.90%
1.85%
8.29%
(9.09%)
(2.54%)
0.82%
(34.40%)
18.11%
(41.06%)
66.67%
45.77%
(38.6%)
2005e
+/- %
2006e
+/- %
4,118 8.67%
(1,608) 3.95%
2,510 11.93%
1,698 10.00%
335 5.33%
201 5.33%
4,744 10.46%
(1,213) 2.90%
(335) 5.33%
(10) 0.00%
(1,006) 5.33%
(2,564)
4.14%
(353) 8.40%
1,827 21.21%
(347) 64.50%
5 0.00%
1,525 13.69%
4,403
(1,617)
2,786
1,867
362
217
5,233
(1,260)
(362)
(10)
(1,086)
(2,718)
(395)
2,120
(403)
5
1,762
6.93%
0.58%
11.00%
10.00%
7.92%
7.92%
10.30%
3.95%
7.92%
0.00%
7.92%
6.01%
11.73%
16.03%
16.03%
0.00%
15.55%
Balance sheet (consolidated, PAS)
in PLN mn
2002
% TA
2003
% TA
2004e
% TA
2005e
% TA
2006e
% TA
Cash & central bank
Inter-bank loans
Loans to customers
Debt securities
Equity investments
Intangible fixed assets
Tangible fixed assets
Other assets
Total assets
3,191
7,432
29,395
21,307
272
72
1,985
1,430
65,084
4.9%
11.4%
45.2%
32.7%
0.4%
0.1%
3.0%
2.2%
100.0%
3,159
6,045
26,528
23,041
300
502
1,660
1,779
63,013
5.0%
9.6%
42.1%
36.6%
0.5%
0.8%
2.6%
2.8%
100.0%
1,937
6,952
27,809
21,797
327
727
1,453
3,337
64,339
3.0%
10.8%
43.2%
33.9%
0.5%
1.1%
2.3%
5.2%
100.0%
2,007
7,786
31,092
22,584
339
753
1,506
3,731
69,798
2.9%
11.2%
44.5%
32.4%
0.5%
1.1%
2.2%
5.3%
100.0%
2,083
8,565
34,720
23,434
352
781
1,562
3,472
74,969
2.8%
11.4%
46.3%
31.3%
0.5%
1.0%
2.1%
4.6%
100.0%
Inter bank deposits
Customer deposits
Securities
Provisions
Other liabilities
Subordinated debt
Minorities
Total equity
Total equity & liabilities
1,887
48,310
1,208
487
6,124
0
24
7,043
65,084
2.9%
74.2%
1.9%
0.7%
9.4%
0.0%
0.0%
10.8%
100.0%
2,758
45,882
514
391
6,292
0
20
7,156
63,013
4.4%
72.8%
0.8%
0.6%
10.0%
0.0%
0.0%
11.4%
100.0%
2,574
48,437
556
362
4,967
0
19
7,424
64,339
4.0%
75.3%
0.9%
0.6%
7.7%
0.0%
0.0%
11.5%
100.0%
2,792
50,187
622
404
8,043
0
21
7,729
69,798
4.0%
71.9%
0.9%
0.6%
11.5%
0.0%
0.0%
11.1%
100.0%
2,999
52,076
694
451
10,644
0
22
8,082
74,969
4.0%
69.5%
0.9%
0.6%
14.2%
0.0%
0.0%
10.8%
100.0%
83
OTP
OTP
September 2004
Buy
Banks
The story is not over yet
Price (HUF)
4.335
17 Sep 2004
Target price (HUF)
5.350
Listing: Budapest
BSE
ISIN code
HU0000061726
Reuters RIC
OTPB.BU
Bloomberg
OTP HB
Homepage
www.otp.hu
Free float
90,00%
Market cap.(EUR mn)
4.894
(EUR mn)
12,04
BUX weighting
31,0%
Book value per share (03)
1292
OTP
5000
4500
4000
3500
3000
2500
2000
1500
O N D J F M A M J
J
A S O N D J
F M A M J
J
AS
OTP BANK
BUDAPEST (BUX) - PRICE INDEX
Investment story: As a banking stock and given the share price gain of
more than 30% this year, OTP is particularly sensitive to macro sentiment. Due to the shaky macro environment (including the planned corporate tax hike), we see both trading and investing opportunities in the
shares this year. The upside is huge profit and still impressive expansion potential supported by additional acquisition targets in the region
(mainly in Serbia and Croatia). In the mid-term, fundamentals should
gradually come to the fore again. The expected delay of the euro-zone
entry is also likely to help OTP maintain its dominance in Hungary.
H1 (Q2) figures: Net interest margin was still fuelled by the high key
interest rate "thanks to" uncertainty in the government budget and sustainable cash flow from subsidies of housing (mortgage) loans.
Increased competition for funding also had a positive effect on the margin, as the deposit volume did not rise as much as at other banks. The
quality of loans has basically not changed on a quarterly basis, while
provision expenses declined somewhat. On the other hand, the mortgage business and the overall loan business fell back slightly, which
was reflected in stagnating net interest income qoq, even though the
amount itself is still impressive. Meanwhile, DSK (Bulgarian unit)
showed a very attractive performance, much above expectations and
the management's earlier targets. Cost control within the group seems
adequate, but there is still scope for further tightening, disregarding
required one-off items.
Outlook: We estimate a full year profit of HUF 127 bn for 2004, which
is even higher than management's updated target (HUF 115-120 bn)
and significantly exceeds the objective of HUF 103 bn set at the beginning of the year. The factors that characterised the first half of the year
are likely to remain in place in the second half, too: the NBH seems to
stick to a cautious monetary policy. Even if the NBH lowers the key
interest rate sharply, it would have only a slight impact on 2004 results
due to the usual time-lag in pricing both the asset and the liability side.
Moreover, we also expect a continuing excellent and further improving
performance at most subsidiaries (mainly DSK, OTP Banka Slovensko,
Merkantil Bank) and strong figures from OTP Mortgage Bank.
Recommendation: Based on our peer group valuation as well as a DCF
and dividend model we derive a target price of HUF 5,350. We therefore raise our recommendation from "Neutral" to "Buy".
Key figures (IFRS)
2002
Analyst
Kornél Sarkadi Szabó
+36/1/484-4812
[email protected]
EPS (HUF)
P/E
P/B
ROE (%)
ROA (%)
DPS (HUF)
Dividend yield (%)
Pay out ratio (%)
Source: OTP, Raiffeisen estimates
84
218
19.9
5.43
30.4
2.41
0
0.00
0.0
280
2003 2004e
297
14.6
3.90
31.1
2.69
64.15
1.48
21.6
280
454
9.6
2.88
34.7
3.47
100
2.31
22.0
280
2005e
2006e
481
9.0
2.29
28.3
3.32
110
2.54
22.9
280
510
8.5
1.89
24.4
3.17
120
2.77
23.5
280
OTP
Due to of OTP's dominant market position and sustainable margins on
housing loans, OTP group will be able to benefit in all scenarios and
it will only make a relatively small difference what happens in monetary policy and to what amount the budget deficit increases. On the
other hand, investors do not really make a difference when sentiment
turns, and they usually pick OTP to sell off as it is the most liquid stock
in the Hungarian market, providing good trading opportunities. It is
clearly seen that the group will manage to achieve a net profit level of
around HUF 130 - 140 bn for the next 3 - 4 years, even under very
conservative conditions and despite the hike in the corporate tax rate.
We believe the market needs time to overcome the current level and
price the shares above a P/E level of 10 - 12, which will distinguish it
more significantly from other banks in CEE and Western Europe.
Phase shift: The market
has not yet caught up
with fundamentals
Though mortgage business activity lost impulse this year due to
changes in the housing loan subsidy system, it is anticipated to pick up,
driven by lower rates and favorable changes in the subsidy system
planned and announced by the designated prime minister. Even if lending activity does not speed up to last year's level, the outlook should
become brighter as relevant real wages are anticipated to grow and
OTP just launched currency-based mortgage loan products in June. The
mortgage business in Bulgaria is less foreseeable, but provides much
higher growth potential. The ratio of total loans to GDP is below 30
percent, while the mortgages to total credit ratio is 4.5%. In Hungary
the corresponding ratios are 40% and 17%, respectively. For the time
being, DSK contributes 8% to OTP's operating profit. This figure could
jump to 16 - 18% by 2006 and could further rise to 25% by 2008.
There are some rumors pointing out that the Bulgarian government
might introduce a housing subsidy system similar to Hungary's. Most of
the buildings in Bulgaria are in very bad shape. Therefore, we look
towards a big housing boom, once disposable incomes and interest
rates reach an adequate level and construction activity accelerates.
Experience in the Hungarian system showed that the mortgage boom
and the construction boom fuel each other. Of course, it is not a shortterm process, but it contributes to creating a great outlook and an interesting story in the long term that investors always jump on.
More(tgage)!
Outlook: Lending activity in the Hungarian market is tightly connected
to government policy and the pace of expected interest rate cuts. We
presumed a yearly average rate cut by 200 basis points until 2006.
Increasing competition for funding suggests moderate growth in
deposits, while loans are forecasted to rise by around 17%, which is
still behind OTP's more aggressive targets. Loans at DSK are assumed
to rise by close to 50% (annually) for the next three years, even though
the margin is likely to gradually narrow. Market shares and the dominance of OTP are likely to decline slightly in retail, as the number of
branches of other banks is rapidly growing. We expect the current
26% share of total assets will shrink below 24% by 2006. We incorporated the planned tax rate hike for banks from 16% to 24% from
2005 onwards. We expect OTP to partly pass on the effect of the tax
increase to customers and anticipate the contribution to earnings from
abroad (mainly Bulgaria) to rise. We assume 4% lower net profit due
to the corporate tax hike.
The “loanly story”
continues
85
OTP
OTP trades at a discount
versus its CEE peers
Valuation: Our new target price of HUF 5,350 is supported by three
valuation methods. We mainly applied peer ratios to value the stock,
but discounted cash flow and dividend potential models both back up
the results. Based on our estimates OTP trades at a P/E ratio 9.0 for
2005e, while all peer companies trade above 11.0x 2005e estimates.
Also comparing P/B multiples to ROE reveals a significant discount to
the peer group, although we assume ROE to post a slight decrease for
the next years. On the one hand ROE might get under pressure as we
did not assume large dividends year by year, so shareholders' equity
rises pretty sharply in our model, by more than at other banks. The
other reason is that net interest margin is expected to narrow, triggered
by anticipated interest rate cuts in the future, which will naturally have
a negative effect on income.
Only P/BV seems to be an exception, because this ratio does not differ from other banks in the region. Even if our new target price materializes, the P/BV ratio will be in line with that of other banks in CEE by
2005-2006 due to the expected increase in equity. Since our target
price substantially exceeds the current price, our recommendation is
buy. On the other hand, we have to warn that unexpected government
actions might have a unfavorable effect on OTP's outlook, even though
OTP has the strongest lobby power among the companies listed in
Hungary. Furthermore, irrational economic decisions by the government could drive the HUF hectic, which would make the overall
Hungarian market less attractive.
Ratio Analysis
in %
2002
2003
2004e
2005e
2006e
ROE
ROA
NIM (on avg. weighted assets)
30.4
2.4
6.4
4.9
31.1
2.7
6.7
5.5
34.7
3.5
7.6
6.3
28.3
3.3
7.2
6.1
24.4
3.2
6.5
5.5
51.2
51.5
76.1
29.7
68.3
53.3
44.9
75.1
30.6
68.3
39.2
49.2
70.9
26.3
69.7
41.0
54.8
66.8
25.8
77.0
45.4
59.0
65.7
25.8
82.0
168.0
48.4
31.7
47.1
8.2
130.7
59.1
49.5
57.2
9.0
110.9
53.7
49.2
62.1
11.0
103.1
52.7
50.1
65.4
12.4
95.5
52.3
51.4
68.6
13.6
6.8
52.1
0.8
4.0
76.0
0.3
3.7
73.7
0.8
3.8
74.5
0.9
3.9
75.2
0.9
Deposits / loans
NPLs / total loans
Provisions / NPLs
Provisions expense / gross loans
86
OTP
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Treasury
shares Government
0.1%
4.7%
EBRD
Employees
2.0%
2.9%
80.0%
75.0%
70.0%
65.0%
60.0%
CIR (%)
ROE (%)
Domestic
private
investors
2.7%
55.0%
50.0%
Domestic
institutional
investors
8.7%
Foreign
institutional
investors
78.8%
2002 2003 2004e2005e2006e
ROE
Cost / income
Source: OTP
Income statement (consolidated, IFRS*)
in HUF mn
Net interest income
Net trading result
Result of other operating activities
Operating Profit
Amortisation of goodwill
Other Result
Pre(tax profit
Taxes on income
Net income
Minority interests
2002
+/- %
133,934
10,124
123,810
50,518
1,359
123,165
21,617
74,139
n.a.
1,305
75,444
(14,429)
61,015
0
61,015
n.a.
n.a.
n.a.
n.a.
n.a.
.n.a.
.n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
+/- %
2004e
+/- %
176,397
31.7%
6,463 (36.2%)
169,934
37.3%
62,058
22.8%
(2,366) (274.1%)
149,300
21.2%
22,521
4.2%
102,847
38.7%
1,950
n.a.
1,760
34.9%
102,657
36.1%
(19,569)
35.6%
83,088
36.2%
0
83,088
36.2%
2003
247,969
19,026
228,943
67,676
11,884
178,275
23,260
153,488
4,050
1,922
151,360
(24,291)
127,069
0
127,069
40.6%
194.4%
34.7%
9.1%
(602.3%)
19.4%
3.3%
49.2%
107.7%
9.2%
47.4%
24.1%
52.9%
52.9%
+/- %
2006e
+/- %
272,387
9.8%
25,115 32.0%
247,272
8.0%
76,450 13.0%
10,381 (12.6%)
180,650
1.3%
25,525
9.7%
178,978
16.6%
4,050
0.0%
120 (93.8%)
175,048
15.7%
(40,261) 65.7%
134,787
6.1%
0
134,787
6.1%
2005e
278,367
29,128
249,239
85,370
14,357
187,481
27,962
189,446
4,050
120
185,516
(42,669)
142,847
0
142,847
2.2%
16.0%
0.8%
11.7%
38.3%
3.8%
9.5%
5.8%
0.0%
0.0%
6.0%
6.0%
6.0%
2006e
% TA
6.0%
*adjusted
Balance sheet (consolidated, IFRS*)
in HUF mn
2002
% TA
2003
% TA
Cash & central bank
Trading assets
Inter-bank loans
Loans to customers
Other assets
Balance sheet total
355,440
225,555
295,892
1,327,071
(46,361)
352,916
93,568
112,510
2,716,591
13.1%
276,655
8.0%
8.3%
382,732 11.0%
10.9%
252,189
7.3%
48.9% 2,010,643 58.0%
(1.7%)
(25,408) (0.7%)
13.0%
299,771
8.6%
3.4%
166,789
4.8%
4.1%
106,142
3.1%
100.0% 3,469,513 100.0%
Interbank deposits
Customer deposits
Securities
Other liabilities
Minority interests
Balance sheet total
79,060
2.9%
126,401
3.6%
2,151,169 79.2% 2,689,849 77.5%
84,862
3.1%
124,887
3.6%
161,972
6.0%
200,982
5.8%
15,511
0.6%
15,413
0.4%
405
0.0%
432
0.0%
223,612
8.2%
311,549
9.0%
2,716,591 100.0% 3,469,513 100.0%
2004e
% TA
2005e
% TA
328,343
8.5% 315,789
7.4%
377,583
9.8% 395,854
9.2%
194,136
5.0% 190,253
4.4%
2,415,867 62.8% 2,836,694 66.2%
(27,348) (0.7%) (34,040) (0.8%)
298,119
7.8% 310,044
7.2%
166,985
4.3% 173,665
4.1%
92,611
2.4%
96,504
2.3%
3,846,298 100.0% 4,284,762 100.0%
0
180,692
4.7% 187,920
4.4%
2,649,229 68.9% 2,888,162 67.4%
358,633
9.3% 431,133 10.1%
219,911
5.7% 231,769
5.4%
15,602
0.4%
15,758
0.4%
440
0.0%
400
0.0%
421,790 11.0% 529,620 12.4%
3,846,298 100.0% 4,284,762 100.0%
276,529
5.8%
419,374
8.9%
186,448
3.9%
3,289,997 69.5%
(39,480) (0.8%)
322,446
6.8%
180,611
3.8%
100,631
2.1%
4,736,557 100.0%
0
195,437
4.1%
3,104,294 65.5%
536,133 11.3%
240,480
5.1%
15,916
0.3%
400
0.0%
643,897 13.6%
4,736,557 100.0%
*adjusted
87
Komercni Banka
Komercni Banka
September 2004
Neutral
KB - another positive dividend surprise?
Price (CZK)
2,931
17 Sep 2004
Target price (CZK)
2,900
Listing: Prague
PSE
ISIN Code
CZ0008019106
Reuters
BKOM PR
Bloomberg
KOMB CP
Homepage
www.kb.cz
Free Float
40.0%
Market cap (EUR mn)
3,470
(EUR mn)
10.9
PX50 weighting
18.2%
Book value per share (03)
976
Komercni Bank
3600
3400
3200
3000
2800
2600
2400
2200
2000
1800
1600
1400
O N D J F M A M J
Banks
J
A S O N D J
F M A M J
J
AS
KOMERCNI BANKA
Investment story: KB is a universal bank with focus on both corporate
and retail customers. The Czech retail segment is still underdeveloped
in comparison to the EU and therefore mortgages and consumer loans
are among the growth drivers of the bank. On top of that, SME and
municipal loans have been growing by double digit numbers. On the
positive side, the CNB is expected to hike interest rates by 25 - 50 bps
by the end of 2004. An additional hike of 25 - 50 bps is expected in
2005. In our view, it should enable KB to increase its net interest margins in future. On the negative side, KB still holds a non-liquid CDO
portfolio with an average maturity in 2011. The credit rating of the
portfolio has deteriorated over time. Despite that, the high quality of
KB's assets was recently confirmed by S&P. KB partially solved its overcapitalisation by paying a high special dividend of CZK 200 per share
from its 2003 net earnings. We expect a dividend payment of CZK 86
per share from KB's net profit in 2004 based on our conservative
assumption of 35% payout. However, in our view there is rather a positive surprise risk on KB's dividend payments.
Outlook: In our view, the outlook for KB is rather positive. We expect
a 25 to 50 bp hike in interest rates by the end of the year, which
should further improve interest rate margins and consequently top line
and operating profit growth of KB. We expect KB's top line to grow
4% yoy in 2004. In addition we expect KB's management to keep
operating costs at low levels, which should be reflected by a low
cost/income ratio at around 51% in 2004. As a result, we expect KB's
operating profit to grow 9% yoy in 2004. On the negative side, KB
might create additional provisons for its collatalized debt obligation
(CDO) portfolio due to two reasons. The credit rating of the CDO portfolio has worsened over time. Therefore KB had to post an impairment
charge of CZK 218 mn 1H 2004. In addition, possible interest rate
hikes in the USA by the end of 2004 might further reduce the fair value
of KB's CDO portfolio. Despite that, S&P recently upgraded its longterm credit rating on KB deposits from BBB to BBB+.
Recommendation: We set our price target for KB stock at CZK 2,900
for the end of this year, which means that in our view further upside
potential for the stock is limited. We believe that KB stock is fairly valued at the current price level of around CZK 2,900 per share.
Therefore we changed recently our "Buy" recommendation on KB stock
to "Neutral".
Key figures (IFRS)
Analyst
Jindrich Svatek
+420/221/141/841
[email protected]
EPS (CZK)
P/E
P/B
ROE (%)
ROA (%)
DPS (CZK)
Dividend yield (%)
Payout ratio (%)
2002
2003 2004e
230.6
9.0
2.8
30.6
2.0
40.0
1.9
17.3
38.0
243.7
9.9
2.5
25.0
2.1
200.0
8.3
82.1
38.0
Source: Komercni Banka, Raiffeisen Centrobank estimates
88
244.6
12.0
2.7
22.5
2.0
85.6
2.9
35.0
38.0
2005e
2006e
262.2
11.2
2.4
21.9
2.1
118.0
4.0
45.0
38.0
249.5
11.7
2.1
18.5
1.9
137.2
4.7
55.0
38.0
Komercni Banka
H1 figures: KB's result for H1 2004 was better than our and market
expectations. We see it positively that net interest income started to
grow by 2.7% yoy in H1 2004. In addition, KB's net fees and commissions grew by 3.2% yoy in 1H 2004 as a result of increasing
demand for loans, payment cards and settlements. All told, KB's top
line grew by 2.6% yoy in 1H 2004 based on restated unconsolidated
statements. On the balance sheet side, we can see impressive customer
loan growth of 15.7% yoy and customer deposits growth of 8.7% yoy.
The main drivers of loans growth remained mortgages (+45% yoy),
consumer loans (+17% yoy), loans to small businesses (+47% yoy) and
municipalities and medium-sized enterprises (+22 % yoy). On top of
that, large corporate loans grew by 3% year to date. All told, KB's
assets grew 6.3% yoy in 1H 2004. KB has a problem with its excess
liquidity because there are limited opportunities for loan placements.
Therefore KB is forced to buy fixed income securities or to increase
inter-bank loans. KB's equity declined due to dividend payments and
value changes in CDOs, which dropped by CZK 124 mn in 1H 2004
on the back of an increasing interest rate environment in the USA.
Half year figures beat
our estimates
CDO portfolio: KB acquired the CDO portfolio at the end of 2000.
Most of the portfolio (86%) is invested in the USA and particularly in
the financial sector. The average maturity of the portfolio ends in 2011.
On the negative side, the CDO portfolio is usually illiquid. As a matter
of fact KB was unable to find a buyer for the portfolio.
CDO portfolio remains a
risky asset
The initial amount invested in the portfolio was USD 426 mn, or CZK
11 bn. Part of the portfolio has already been repaid so the balance
was USD 388 mn in 1H 2004. KB already created specific provisions
for the portfolio of USD 91 mn, which is 23.5% of the current value. In
other words, the current exposure of the portfolio reaches USD 297
mn, or CZK 7.7 bn. Even though the credit rating of the portfolio has
deteriorated over time, 57% of the portfolio still has an investment
grade rating, which means at least Baa3 or better. Therefore, the noninvestment grade part of the portfolio stood at 43% of CZK 7.7 bn, i.e.
CZK 3.3 bn or CZK 87 per KB share. Even if we assume a default on
the non-investment grade part, our price target would only be reduced
by CZK 87 per share.
KB's management indicated its dividend policy in the past which seems
to be rather conservative. The management would prefer a payout ratio
around 35%. This is also our assumption for a dividend payment from
the 2004 net profit. However, KB's shareholders approved a special
dividend of CZK 200 per share from the 2003 net profit due to the
overcapitalisation of KB. Its capital adequacy ratio stood at 18.5%
before the special dividend payment in 1Q 2004. After the dividend
payment, the capital adequacy ratio fell to 14.8% in 1H 2004, which
is still a high figure. Taking into account the good quality of KB's
assets, we would rather expect a positive dividend surprise than lower
dividend payments.
KB’s CDO credit rating
development
100%
80%
60%
40%
20%
0%
2002
Investment grade
2003
1H 2004
Non - investment garade
Source: Komercni Banka
A positive dividend
surprise seems possible
89
Komercni Banka
Outlook: In our view, the outlook for KB is rather positive. We expect
a 25 to 50 bp hike in interest rates by the end of year, which should
further improve interest rate margins and consequently the operating
profitability of KB. We expect KB's top line to grow 4% yoy. In addition, we expect the management to keep KB's operating costs at low
levels, which should be reflected by a low cost/income ratio at around
51% in 2004. We assumed KB's ROE to gradually decline to a sustainable level of 18% after 2007. Among our main balance sheet
assumptions is net customer loan growth of 12.5% for this year and
12% for next year.
Valuation: According to our EPS estimates KB trades at P/E multiples
of 12.0 in 2004e and 11.2 in 2005e. The respective Price/Book
ratios are 2.7 and 2.4. Based on these multiples, KB trades at a small
discount compared to the peer group. For a valuation of KB stock we
also used the equation P = (ROE1-g)/(required rate-g)*BVPS in combination with a discounted dividend model. We assumed a risk free rate
of 5.5%, market premium of 5% and beta of KB stock at 1. In other
words, our required rate of return stood at 10.5% for calculating terminal value. In addition, we assumed a sustainable ROE of 18% and
a sustainable growth rate of 4%. We derived a price target around
CZK 2,900 per share at the end of 2004. This would imply an expected P/BV ratio of 2.4 at an ROE of 22% in 2005 and a P/BV of 2.1 at
an ROE of 21% in 2006.
Ratio analysis
in %
2002
2003
2004e
2005e
2006e
ROE
ROA
NIM (on av. earnings assets)
NIM (on av. risk weighted assets)
30.6
2.0
3.1
n.a.
25.0
2.1%
2.9
n.a.
22.5
2.0
2.9
n.a.
21.9
2.1
3.3
n.a.
18.5
1.9
3.4
n.a.
F&C income/interest income
F&C income/operating costs
Cost/Income ratio
Cash costs/ income
Staff costs/total costs
66.8
70.8
52.0
44.7
21.4
73.0
78.8
50.5
44.4
21.6
71.9
77.9
51.3
44.5
20.1
63.5
76.6
48.7
41.7
20.3
61.7
75.6
48.5
41.0
20.3
281.6
18.8
13.2
27.6
6.5
267.0
26.0
19.3
29.2
8.3
258.7
29.0
22.2
30.9
8.7
239.1
32.0
25.2
33.4
9.2
224.9
34.2
27.4
35.3
10.0
19.1
65.0
(1.2)
6.6
101.0
(2.4)
5.8
80.6
(1.2)
5.4
72.4
(0.2)
5.2
83.4
0.8
Deposits/ net loans
Retail loans/total loans
mortgage loans/total loans
loans/total assets
equity/total assets
NPLs/total loans
Provisions/NPLs
Provison expense/gross loans
Source: Komercni Banka, Raiffeisen estimates
90
Komercni Banka
35%
58%
30%
56%
25%
54%
20%
52%
15%
50%
10%
48%
5%
46%
0%
44%
Free float
40%
CIR (%)
ROE (%)
Societe
Generale
60%
2001 2002 2003 2004e2005e2006e
ROE
Cost/Income ratio
Source: Komercni Banka
in CZK mn
Net interest income
Net F&C income
Income on securities
Other income
Total non(interest income
Total banking income
Staff costs
Depreciation
Other non(interest expenses
Total non(interest expenses
Restructuring costs
Net operating income
Provisions
Profit before tax
Income tax
Reported net profit
Adjusted net profit
+/- %
2003
+/- %
2004e
+/- %
12,447
(4.2%)
8,320
(0.9%)
1,426
(8.1%)
404 (53.8%)
10,150
(6.2%)
22,597
(5.1%)
(5,257) (10.7%)
(1,653) (34.8%)
(4,843)
(4.4%)
(11,753) (12.9%)
(1007) (42.6%)
9,837
14.9%
1,434 (126.9%)
11,271 248.8%
(2,508) 185.3%
8,763 272.6%
6,320 168.7%
2002
11,937
8,711
800
441
9,952
21,889
(5,149)
(1,347)
(4,562)
(11,058)
(670)
10,161
3,122
13,283
(4,021)
9,262
6,768
(4.1%)
4.7%
(43.9%)
9.2%
(2.0%)
(3.1%)
(2.1%)
(18.5%)
(5.8%)
(5.9%)
(33.5%)
3.3%
117.7%
17.9%
60.3%
5.7%
7.1%
12,661
9,103
600
397
10,100
22,761
(4,892
(1,549
(5,246
(11,687
0
11,074
1,836
12,909
(3,615)
9,295
7,372
6.1%
4.5%
(25.0%)
(10.0%)
1.5%
4.0%
(5.0%
15.0%
15.0%
5.7%
n.a.
9.0%
(41.2%)
(2.8%
(10.1%)
0.4%
8.9%
2005e
+/- %
14,988 18.4%
9,513
4.5%
612
2.0%
405
2.0%
10,530
4.3%
25,518
12.1%
(5,136)
5.0%
(1,781) 15.0%
(5,509)
5.0%
(12,426)
6.3%
0
n.a.
13,091
18.2%
373 (79.7%)
13,465
4.3%
(3,501)
(3.1%)
9,964
7.2%
8,821
19.7%
2006e
+/- %
16,110
7.5%
9,941
4.5%
624
2.0%
413
2.0%
10,978
4.3%
27,088
6.2%
(5,315)
3.5%
(2,049) 15.0%
(5,784)
5.0%
(13,147)
5.8%
0
n.a.
13,941
6.5%
(1,465) (492.4%)
12,476
(7.3%
(2,994) (14.5%)
9,482
(4.8%
9,608
8.9%
Balance sheet (consolidated, IFRS)
in CZK mn
% TA
2003
% TA
2004e
% TA
2005e
% TA
2006e
% TA
Cash & central bank
Inter-bank loans (net)
Loans due from CKO
Customer loans
Debt securities
Other assets
Total assets
14,377 (21.1%)
199,729 18.8%
35,440 (28.8%)
121,154
(1.3%)
36,143
(7.3%)
32,910 37.4%
439,753
4.3%
2002
12,340
201,638
24,303
130,900
48,444
29,940
447,565
(14.2%)
1.0%
(31.4%)
8.0%
34.0%
(9.0%)
1.8%
12,472
231,884
12,152
147,263
42,146
29,940
475,856
1.1%
15.0%
(50.0%)
12.5%
(13.0%)
0.0%
6.3%
12,289
238,840
0
164,934
46,361
31,138
493,562
(1.5%)
3.0%
n.a.
12.0%
10.0%
4.0%
3.7%
11,394
240,034
0
181,427
48,679
32,383
513,918
(7.3%)
0.5%
n.a.
10.0%
5.0%
4.0%
4.1%
Central bank & inter(bank deps.
Customer deposits
Subordinated debt
Certified debt
Other liabilities
Share capital
Retained earnings & reserves
Total equity
Total liabilities & equity
22,549
341,114
6,100
18,267
17,965
19,005
14,753
33,758
439,753
18,959
349,505
0
21,348
17,354
19,005
21,394
40,399
447,565
(15.9%)
2.5%
n.a.
16.9%
(3.4%)
0.0%
45.0%
19.7%
1.8%
15,167
380,960
0
20,281
17,354
19,005
23,089
42,094
475,856
(20.0%)
9.0%
n.a.
(5.0%
0.0%
0.0%
7.9%
4.2%
6.3%
14,409
394,294
0
19,469
16,585
19,005
29,799
48,804
493,562
(5.0%)
3.5%
n.a.
(4.0%)
(4.4%)
0.0%
29.1%
15.9%
3.7%
13,688
408,094
0
21,416
16,917
19,005
34,797
53,802
513,918
(5.0%)
3.5%
n.a.
10.0%
2.0%
0.0%
16.8%
10.2%
4.1%
(21.9%)
6.2%
(15.9%)
(34.2%)
39.3%
0.0%
221.2%
43.1%
4.3%
91
BRD
BRD – GSG
September 2004
Neutral
On track…
Price (ROL)
27,200
Price (EURc)
66.2
17 Sep 2004
Target price (EURc)
57.0
Listing: Bucharest
BSE
ISIN Code
0000BRD510
Reuters RIC
BRDX.BX
Boomberg
BRD RO
Homepage
www.brd.ro
Free Float (%)
10.9%*
922.3
Ø daily Turnover 01-07/04
(EUR mn)
0.2
BET Weighting (%)
ROL/EUR
24%
41083
*incl. SIFs 36%
BRD
000'S
30
28
26
24
22
20
18
16
14
12
O ND J F MA MJ J
Banks
A S O ND J F M AMJ
J AS
BRD
ROMANIA BET (L) - PRICE INDEX
Investment story: BRD-Groupe Société Générale (BRD) is Romania's
second largest bank in terms of assets. The bank currently has 1.4 mn
clients and some 900 thousand cards issued. BRD claims a 13% market share in terms of assets, some 16% of the loan market and around
one-third of the credit card market. In early August, AVAS (the successor of the privatisation authority - APAPS) initiated the process of selling the State's remaining stake of 7.32%. Although the market expected a sale on the stock exchange, AVAS decided to sell its stake
through direct negotiation. France's Société Générale, now holding a
51% stake in BRD, was the sole investor showing interest in the deal.
H1 figures: BRD provides IFRS financials only once a year. We base
our forecasts and recommendation on full IFRS financials, but believe
that figures under Romanian standards offer a good insight on loans
and deposit growth rates. BRD's loan book expanded by 13.2% in
EUR terms in H1 04 (7.8% in real ROL terms), reaching EUR 1.3 bn.
Deposits rose by 11.3% on YE03 in EUR terms (6.0% in real terms).
The loans-to-deposits ratio stood at 80%, flat on end-2003.
Outlook: Despite the fact that BRD managed to raise NIM in 2003 to
8% (from 7.5% in 2002), we believe that looking ahead the bank will
align to the industry trend. Thus, in a falling inflation environment, we
see NIM declining over the forecast period to 7.4% in 2004 and 5.7%
in 2006. Following a significant decline in the cost/income ratio to
64% in 2003 from 71% during the previous year, we believe that the
ratio will remain in the 63-65% range in the coming period.
Accounting for the positive effect of the switch from inflation to nominal accounting starting 2004, as well as of the reduction in corporate
tax from 25% to 19% as of January 1, 2005, we estimate that BRD will
post ROEs in excess of 15% between 2004 and 2006.
Recommendation: At the September 17 closing price of ROL 27,200
(EURc 66.2), BRD trades at a 2005e P/BV of 2.5x versus an average
multiple of its CEE peers of 2.1x. However, we note that due to the fact
that Romania remains underbanked compared to the CEE countries,
the bank should benefit from the growth potential of the industry. Our
target price of ROL 23,400 (EURc 57.0) per share implies a 14% discount to the current market price of BRD-GSG. We maintain our
"Neutral" view on the stock.
Key figures (BRD)
Analyst
Bogdan Campianu
+40/21/30202-71
[email protected]
multiples on EUR basis
2002
EPS (ROL)
EPS (EURc)
P/E
BPS (EUR)
P/B
ROE
ROA
DPS (EURc)
Dividend yield
848
2.35
18.4
0.24
1.81
9.7%
1.7%
2.39
5.5%
Source: BRD, Raiffeisen Centrobank estimates
92
2003 2004e
1394
3.39
15.3
0.24
2.15
14.1%
2.4%
1.69
3.3%
1615
3.81
15.0
0.26
2.23
15.6%
2.4%
1.90
3.4%
2005e
2006e
1786
4.11
13.9
0.27
2.09
15.8%
2.1%
2.06
3.8%
1900
4.29
13.3
0.29
1.97
15.4%
1.9%
2.14
4.1%
BRD
BRD provides IFRS financials only once a year, while quarterly data is
reported under the local standards, IAS compliant to some extent and
thus dubbed BNR IAS. Although a direct comparison of the results
reported under the two accounting standards is meaningless, we note
that the latter offer a good insight on loans and deposit growth rates.
This in turn is useful in revising the IFRS forecasts on which we base our
recommendation.
BRD provides IFRS financials only once a year
BRD's loan book expanded by 13.2% in EUR terms in H1 04 (7.8% in
real ROL terms), reaching EUR 1.3 bn. Loans to individuals stood at
EUR 400 mn, up 21% on YTD basis, comprising 30% of total credit at
end-June, from 28% as of end-2003. We calculate that the bank held
an 18% market share in retail lending as of H1 04, virtually flat on
YE03. In corporate lending BRD's market share stays around 15%,
while the bank's overall market share in loans remains in the region of
16%. Deposits rose by 11.3% on YE03 in EUR terms (6.0% in real ROL
terms). The loans-to-deposits ratio stood at 80%, flat on end-2003. The
ROL/FCY breakdown of loans and deposits was not available.
Loan book expanded by
13% in EUR terms in H1.
Deposits' growth broadly
in line
Balance Sheet - BNR accounting standards (EUR mn)
Cash and Banks
Securities Portfolio
H1 03
H2 03
H1 04
457.7
540.9
669.2
19.6
11.5
26.7
Change (EUR)
yoy
YTD
46.2%
2002
2003
23.7%
652.3
540.9
36.3% 132.1%
103.1
11.5
1,044.1 1,189.0 1,345.9
28.9%
13.2%
853.0
1,189.0
Total assets
1,760.2 1,974.5 2,299.1
30.6%
16.4% 1,829.6
1,974.5
Customer deposits
1,318.3 1,508.7 1,679.2
27.4%
11.3% 1,407.6 1,508.7
Customer loans, net
Borrowings
126.7
138.1
235.3
85.7%
70.4%
109.9
138.1
Equity
244.6
289.7
307.4
25.7%
6.1%
270.6
289.7
Source: BRD
Income Statement - BNR accounting standards
H1 03
H2 03
H1 04
Interest income
98.5
119.1
136.9
Interest expense
37.7
47.2
Net interest income
60.8
71.9
Provision for Loan Losses (-)
Change (EUR)
yoy
hoh
2002
2003
245.0
217.6
38.9%
14.9%
58.7
55.6%
24.5%
137.4
84.9
78.1
28.6%
8.6%
107.6
132.7
(15.5)
(14.4)
(6.3)
(20.8)
Net Trading Gains / (Losses)
10.4
11.1
10.1
(3.0%)
(9.2%)
40.8
21.6
Net Fees and Commissions
32.0
37.8
34.4
7.7%
(9.0%)
60.8
69.8
2.3
3.9
3.8
60.4%
(3.9%)
5.7
6.3
(55.6)
(74.6)
(63.4)
14.0% (15.0%)
(121.8)
(130.2)
Other non(Interest Income
Other non(Interest Expenses
(11.4) (26.5%) (21.0%)
Profit before taxes
34.3
45.0
51.6
50.4%
14.8%
86.8
79.3
Net profit
28.6
34.2
37.9
32.6%
10.8%
72.0
62.8
Source: BRD
State's stake: In early August, AVAS (the successor of the privatisation
authority - APAPS) initiated the process of selling the State's remaining
7.32% stake in BRD. Although the market expected a sale on the stock
exchange, AVAS decided to sell its stake through direct negotiation.
France's Société Générale, now holding a 51% stake in BRD, was the
sole investor showing interest in the deal. The bid placed by SocGen
was put by the media at EUR 40 mn, corresponding to ROL 16,000
(EURc 39.2) per share. On the bright side, AVAS' opting for a direct
SocGen - the sole bidder
for the State's 7.3% stake
93
BRD
sale removed fears of a share overhang that might have occurred
should the block have been dumped on the market. Moreover, the fact
that Société Générale's offer pointed to a 40% discount to the market
price had virtually no influence on the stock price.
BRD to post ROEs in
excess of 15% in 20042006
Outlook: The bank has released FY03 IFRS financials long after our
May update. We have used those together with H1 04 financials
reported under Romanian standards to revise our earlier forecasts.
Despite the fact that BRD managed to raise NIM in 2003 to 8% (from
7.5% in 2002), we believe that looking ahead the bank will align to
the industry trend. Thus, in a falling inflation environment, we see NIM
declining over the forecast period to 7.4% in 2004 and 5.7% in 2006.
Following a significant decline in the cost/income ratio to 64% in
2003 from 71% during the previous year, we believe that the ratio will
remain in the 63-65% range in the coming period. Taking into account
the positive effect of the switch from inflation to nominal accounting
starting 2004, as well as of the reduction in corporate tax from 25%
to 19% as of January 1, 2005 we estimate that BRD-GSG will post
ROEs in excess of 15% between 2004 and 2006.
We remain Neutral
Valuation: At the September 17 closing price of ROL27,200
(EURc66.2), BRD trades at a 2005e P/BV of 2.5x versus an average
multiple of its CEE peers of 2.1x. However, we note that due to the fact
that Romania remains underbanked compared to the CEE countries, the
bank should benefit from the growth potential of the industry. Also, BRD
still holds the maximum weighting in the BET index (25%) and remains
one of the most liquid stocks traded at the BSE. As such, it is likely to
continue to attract a significant part of the funds entering the capital
market. Our target price of ROL 23,400 (EURc 57.0) per share implies
a 14% discount to the current market price of BRD. We maintain our
“Neutral” view on the stock.
Ratio Analysis
in %
2002
2003
2004e
2005e
2006e
ROE
ROE adj. Goodwill amortisation
ROA
Return on avg. Risk weighted assets
9.7
9.7
1.7
3.1
14.1
14.1
2.4
3.8
15.6
15.6
2.4
3.5
15.8
15.8
2.1
3.2
15.4
15.4
1.9
2.8
NIM (on avg. Earning assets)
NIM (on avg. Risk weighted assets)
7.5
11.1
8.0
10.6
7.4
9.6
6.3
8.3
5.7
7.4
Costs / income
51.9
32.3
70.7
40.1
54.7
34.6
63.6
38.1
56.8
36.1
63.1
37.6
60.1
37.5
64.0
37.1
62.9
38.5
64.6
36.9
Loans / Total Assets
Equity / Total Assets
168.1
16.8
n.a.
42.7
17.8
129.7
28.5
n.a.
56.5
16.4
124.6
30.8
n.a.
59.3
14.1
121.8
33.2
n.a.
60.3
12.9
117.4
34.9
n.a.
62.0
12.3
n.a.
(0.67)
n.a.
(1.33)
n.a.
(1.42)
n.a.
(1.31)
n.a.
(1.20)
Source: BRD, Raiffeisen estimates
94
BRD
75.0%
20.0%
SIFs (combined)
26%
65.0%
10.0%
60.0%
5.0%
CIR (%)
70.0%
15.0%
ROE (%)
55.0%
0.0%
50.0%
others
11%
2002 2003 2004e 2005e 2006e
ROE
Societe Generale
51%
EBRD
5%
Cost/income
AVAS
7%
Source: BRD
Income Statement IFRS (consolidated IFRS)
Total interest income
Total interest expense
Net interest income
Loan provisions
Net interest less provisions
Comission income, net
Inc. Bef. non(interest exp.
Personnel expenses
D&A
Other exoense
Total non(interest expense
Net operating profit
Loss on monetary positions
Profit before tax
Income Tax
Net Profit
2002
+/- %
2003
+/- %
2004e
+/- %
244.2
(128.8)
115.4
(5.7)
109.6
59.9
76.0
185.6
(54.3)
(28.6)
(52.5)
(135.3)
50.3
(3.5)
46.8
(14.0)
32.8
(18.3%)
(26.0%)
(7.7%)
(55.2%)
(2.4%)
4.7%
(15.6%)
(8.3%)
0.3%
(1.2%)
12.2%
4.2%
(30.7%)
(59.3%)
(26.8%)
(38.2%)
(20.6%
213.4
(81.8)
131.7
(16.2
115.5
72.1
92.7
208.2
(54.4)
(32.5)
(55.8)
(142.7)
65.5
(7.1)
58.4
(11.1)
47.2
(12.6%)
(36.5%)
14.2%
184.1%
5.3%
20.4%
22.0%
12.2%
0.3%
13.5%
6.3%
5.4%
30.2%
103.4%
24.7%
(20.8%)
44.3%
235.3
(89.3)
145.9
(22.2)
123.7
82.9
106.1
229.9
(59.8)
(36.0)
(63.3)
(159.1)
70.8
0.0
70.8
(17.7)
53.1
10.2%
9.3%
10.8%
36.6%
7.2%
15.1%
14.5%
10.4%
9.8%
10.8%
13.6%
11.5%
8.1%
(100.0%)
21.3%
59.3%
12.3%
2005e
+/- %
2006e
+/- %
232.3
(1.2%)
(81.0)
(9.4%)
151.4
3.7%
(24.4) 10.1%
126.9
2.6%
91.0
9.7%
115.6
8.9%
242.5
5.5%
(63.3)
6.0%
(38.4)
6.5%
(69.1)
9.2%
(170.9)
7.4%
71.6
1.2%
0.0
71.6
1.2%
(14.3) (19.0%)
57.3
8.0%
242.7
(86.5)
156.2
(25.5)
130.7
98.2
124.2
254.9
(66.8)
(40.7)
(73.8)
(181.2)
73.7
0.0
73.7
(14.0)
59.7
4.5%
6.8%
3.2%
4.4%
3.0%
8.0%
7.5%
5.1%
5.4%
5.9%
6.7%
6.0%
2.9%
2.9%
(2.2%)
4.2%
Balance Sheet IFRS (consolidated IFRS)
2002
% TA
2003
% TA
2004e
% TA
2005e
% TA
2006e
% TA
Cash & Deposits
Treasury securities
Other securities
Loans, net
Lease receivables
Interest earning assets
Investments in equities
Tangible assets, net
Goodwill, net
Intangible assets, net
Other assets, net
Total assets
632.3
104.1
1.9
798.3
15.2
1,533.3
13.3
272.5
14.2
10.8
9.1
1,871.7
33.8%
5.6%
0.1%
42.7%
0.8%
81.9%
0.7%
14.6%
0.8%
0.6%
0.5%
100.0%
542.5
11.5
1.2
1,160.8
53.9
1,770.9
11.4
248.3
12.2
6.1
5.7
2,053.7
26.4%
0.6%
0.1%
56.5%
2.6%
86.2%
0.6%
12.1%
0.6%
0.3%
0.3%
100.0%
642.0
10.4
1.3
1,494.0
69.0
2,219.0
10.9
269.9
12.3
5.2
4.9
2,519.9
25.5%
0.4%
0.1%
59.3%
2.7%
88.1%
0.4%
10.7%
0.5%
0.2%
0.2%
100.0%
752.6
10.1
1.4
1,778.9
82.9
2,635.4
10.8
290.3
12.3
4.9
4.6
2,948.8
25.5%
0.3%
0.0%
60.3%
2.8%
89.4%
0.4%
9.8%
0.4%
0.2%
0.2%
100.0%
786.1
11.0
1.5
2,032.0
92.9
2,938.2
11.8
316.6
13.4
5.3
5.0
3,275.7
24.0%
0.3%
0.0%
62.0%
2.8%
89.7%
0.4%
9.7%
0.4%
0.2%
0.2%
100.0%
Total deposits
Borrowings
Deferred tax liability, net
Other liabilities
Total Liabilities
Interest bearing liabilities
Total shareholders' equity
Total liabilities & Equity
1,425.6
79.3
25.1
8.8
1,538.8
1,504.9
332.9
1,871.7
76.2%
4.2%
1.3%
0.5%
82.2%
80.4%
17.8%
100.0%
1,583.1
107.4
12.9
14.1
1,717.6
1,690.6
336.1
2,053.7
77.1%
5.2%
0.6%
0.7%
83.6%
82.3%
16.4%
100.0%
1,944.9
189.9
12.4
16.6
2,163.7
2,134.8
356.2
2,519.9
77.2%
7.5%
0.5%
0.7%
85.9%
84.7%
14.1%
100.0%
2,264.1
274.5
12.9
18.2
2,569.7
2,538.6
379.1
2,948.8
76.8%
9.3%
0.4%
0.6%
87.1%
86.1%
12.9%
100.0%
2,492.2
346.4
14.2
19.8
2,872.7
2,838.6
403.0
3,275.7
76.1%
10.6%
0.4%
0.6%
87.7%
86.7%
12.3%
100.0%
95
Banca Transilvania
Banca Transilvania
September 2004
Sell
Banks
Expectations confirmed but the stock is
expensive…
Price (ROL)
7,250
Price (EURc)
17.6
17 Sep 2004
Target price (EURc)
13.9
Listing: Bucharest
BSE
ISIN Code
0000TLV510
Reuters RIC
BATR.BX
Boomberg
TLV RO
Homepage
www.bancatransilvania.ro
Free Float (%)
25%*
235.6
Ø daily Turnover 01-07/04
(EUR mn)
0.3
BET Weighting (%)
24%
ROL/EUR
41083
*incl. local investors/founders 85%
Banca Transilvania
8000
7000
6000
5000
4000
3000
2000
O N D J F M A M J
J
A S O N D J
F M A M J
J
AS
BCA.TRANSILVANIA CLUJ
ROMANIA BET (L) - PRICE INDEX
Investment story: Banca Transilvania (BT) continued to deliver on the
expected strong loan and asset growth during H1 2004. It improved
its market share in terms of total assets to 2.7% from 2.3% as of YE03
and looks on track to achieving its target of entering the top ten of
Romanian banks by year-end. Moreover, the bank posted improved
bottom line performance, especially on the back of the switch to nominal accounting and we now expect it to post ROE in excess of 19%
over the forecast period. The stock's weight in BET is just below the
25% cap imposed for weightings in the index and liquidity is good (by
BSE standards). Finally, BT remains a potential acquisition target, as
one of the tasks ahead for the management team seems to be to set the
grounds for the sale of the bank sometime around 2006.
H1 figures: Non-consolidated IFRS financial results for H1 04 revealing a 31% rise in total assets and a 39% increase in loans (YTD, EUR
terms). The bank's balance sheet growth was funded by a 27%
increase in deposits to EUR 326mn and a 28% rise in borrowed funds.
On the P&L, the bank recorded NII of EUR 15mn, up 42% yoy in EUR
terms. Net fee and commission income of EUR 8.0 mn was up 49%
yoy in EUR terms, covering 45% of operating expenses, flat on H1 03.
Operating profit was up 25% in EUR-terms to EUR 6.2 mn while net
income of EUR 5.1 mn was up 104% in EUR-terms, due to the impact
of the change from hyperinflationary to nominal accounting.
Outlook: The bank sticks to the targets announced in the 2004 budget
where total assets and loans are expected to grow more than 40% and
50% in real terms, respectively. Despite an expected decline in NIM in
line with inflation and an anticipated deterioration in the cost/income
ratio on the back of the aggressive strategy adopted by the bank, we
see BT posting ROEs in excess of 19% over the forecast period. This is
mainly due to the positive impact of the switch to nominal accounting
and of the reduction in corporate tax from 25% to 19% as of 2005.
Recommendation: BT now trades at a 2005e P/BV multiple of 3.2x
(the highest in our comparison universe) pointing to a premium of 54%
to the average multiple of its peers. At average 2004/2005e ROE of
19.9% we believe that the stock should trade at a 2005e P/BV of 2.3x
and set our target price at ROL 5,700 (EURc 13.9) per share. At
September 17 closing BT traded at a 28% premium to our target. We
downgrade the stock from "Neutral" to "Sell".
Key figures (IFRS)
multiples on EUR basis
Analyst
Bogdan Campianu
+40/21/30202-71
[email protected]
EPS (ROL)
EPS (EURc)
P/E
BPS (EUR)
P/B
ROE
ROA
DPS*
Dividend yield
2002
102.2
0.54
9.7
0.034
1.52
17.0%
3.2%
0.0
0.0%
2003 2004e
193.4
0.62
13.6
0.040
2.07
16.5%
2.6%
0.0
0.0%
253.2
0.86
20.8
0.047
3.81
19.8%
2.5%
0.0
0.0%
2005e
2006e
364.1
1.01
17.6
0.056
3.19
19.9%
2.2%
0.0
0.0%
440.6
1.20
15.0
0.067
2.68
19.6%
2.1%
0.0
0.0%
*Banca Transilvania pays stock dividends only; Source: Banca Transilvania, Raiffeisen estimates
96
Banca Transilvania
BT continued to deliver on its aggressive growth strategy expanding its
network by another 21 branches in H1 2004, out of the planned 30
new units for the year. It currently operates 91 branches and claimed
a market share of 2.7% as of end-June (up from 2.3% as of YE03). The
bank, now ranking eleventh in terms of TA, plans to enter the top ten
of Romanian banks by year-end.
Market share continues to
grow
According to the management, BT managed to expand its overall customer base by 25% during the first semester of 2004 (the retail customer base was up 27% while the corporate customer base grew by
10%). Over the period, the bank's ATM and POS networks reached
194 and 999, respectively, expanding by 11% and 25%, respectively.
The bank recently presented non-consolidated and un-audited IFRS
financial results:
Balance sheet: During H1 04, BT persisted in growing faster than the
banking sector as a whole, with total assets reaching EUR 455 mn from
EUR 348 mn as of YE03, rising 31% in EUR-terms and 25% in real
ROL-terms. Earning assets rose 80% yoy in EUR-terms to EUR 405 mn,
triggered by a 97% rise in loans (90% in real ROL terms). The bank's
loan portfolio grew 39% on an YTD basis (32% in real ROL-terms).
Loans up 39% in H1
versus the sector’s 17%
growth
BT's balance sheet growth was funded by strong deposit growth and
helped by the increase in borrowed funds, especially due to financing
programs with international institutions. Deposits rose 83% yoy in EURterms (77% in real ROL terms) to EUR 326 mn with demand deposits
representing 25% of the total, down from 30% in the same period of
2003 and 31% at YE03. The breakdown between ROL and FCY
deposits was not available. The loans-to-deposits ratio climbed to 85%
from 77% at end-2003 and 79% one year ago. Borrowed funds rose
28% (EUR-terms), as the bank has made use of the credit lines attracted from EBRD, DEG and FMO.
Profit and Loss: BT recorded NII of EUR 15 mn, up 42% yoy in EUR
terms, corresponding to an annualized NIM of 8.3%, down from 9.5%
in H1 03. Net fee and commission income of EUR 8.0 mn was up 49%
in EUR terms, covering 45% of operating expenses, flat on H1 03.
Bottom line boosted by
the switch to nominal
accounting
Operating expenses, influenced as anticipated by the aggressive
expansion of the bank, stood at USD 18mn, up 50% yoy. The
cost/income ratio stood at 66% in H1 04, up from 64% in the same
period of 2003. Operating profit was up 25% in EUR-terms to EUR 6.2
mn. Net income of EUR 5.1 mn rose 104% in EUR-terms, due to the
impact of the change from hyperinflationary accounting to nominal
accounting.
Outlook: The bank sticks to the targets announced in the 2004 budget
where total assets and loans are expected to grow more than 40% and
50% in real terms, respectively. Based on the recently announced H1
IFRS results we have fine-tuned our estimates for 2004 and extended
our forecast period to 2006. We see NIM declining in line with infla-
97
Banca Transilvania
Expansion set to continue
and NIM to decline
tion to 7.4% in 2004 and 5% in 2006. On the other hand, we expect
the aggressive expansion strategy pursued by the bank to be reflected
in higher operating expenses (personnel, depreciation, marketing).
Thus, we expect the cost/income ratio to hover around 67% in 2004
and 2005 and to start to decline in 2006. However, due to the positive impact of the switch to nominal accounting as well as of the reduction in corporate tax from 25% to 19% as of January 1, 2005, we see
BT posting ROEs in excess of 19% over the forecast period.
Trading at the highest
2005e P/BV among peers
Valuation: Since our May update BT stock has gained 29% in EURterms bringing the YTD performance of the stock to a staggering 102%
in EUR terms. BT has outperformed the BET index by 35% during 2004
and now trades at a 2005e P/BV multiple of 3.2x (the highest in our
comparison universe), pointing to a premium of 54% to the average
multiple of its peers. As we expect BT to post an average 2004/2005e
ROE of 19.9% (significantly above the average of its peers) we believe
that the stock should trade at a 2005e P/BV of 2.3x and set our target
price at ROL 5,700 (EURc 13.9) per share. BT has consistently proved
its ability to post higher growth rates than its peers and we believe it
has the ability to continue on that path. The stock's weight in BET is just
below the 25% cap imposed for weightings in the index and liquidity
is good (by BSE standards). Finally, BT remains a potential acquisition
target, as one of the tasks ahead for the management team seems to
be to set the grounds for the sale of the bank sometime around 2006.
On the other hand, the aggressive growth strategy pursued by the
bank, and especially the rapid expansion of its loan portfolio, alongside the size issue, increase the risks in the stock. Currently, BT trades
at a 28% premium to our target. We downgrade the stock from
“Neutral” to “Sell”.
Ratio Analysis
in %
2002
2003
2004e
2005e
2006e
ROE
ROE adj. goodwill amortisation
ROA
17.0
17.0
3.2
n.a.
16.5
16.5
2.6
n.a.
19.8
19.8
2.5
n.a.
19.9
19.9
2.2
n.a.
19.6
19.6
2.1
n.a.
NIM (on avg. total assets)
12.0
11.0
9.0
8.2
7.4
6.7
5.7
5.3
5.0
4.6
Costs / income
44.9
28.3
60.2
52.7
54.4
32.0
63.5
52.3
63.5
36.7
67.2
48.7
68.8
38.7
67.0
49.4
71.0
39.6
65.6
50.6
166.0
23.2
n.a.
43.4
18.0
127.8
34.2
n.a.
57.2
14.4
119.4
36.9
n.a.
60.6
11.8
112.2
39.9
n.a.
62.9
10.6
107.5
41.9
n.a.
64.4
10.4
Provisions / NPL
n.a.
n.a.
(0.41)
n.a.
n.a.
(0.26)
n.a.
n.a.
(0.72)
n.a.
n.a.
(0.63)
n.a.
n.a.
(0.60)
Source: Banca Transilvania, Raiffeisen estimates
98
Banca Transilvania
EBRD
15%
70.0%
25.0%
20.0%
65.0%
15.0%
60.0%
10.0%
55.0%
5.0%
0.0%
Foreign indiv.
7%
50.0%
2002 2003 2004e 2005e 2006e
ROE
Domestic indiv.
43%
Foreign instit.
13%
CIR (%)
ROE (%)
Domestic instit.
22%
Cost/income
Source: Banca Transilvania
in EUR mn
2002
+/- %
2003
+/- %
2004e
+/- %
2005e
+/- %
2006e
+/- %
Total interest income
Total interest expense
Net interest income
Loan provisions
Net interest less provisions
Comission income, net
FX income, net
Other income
Inc. Bef. non(interest exp.
Personnel expenses
D&A
Other expenses
Total non(interest expense
Net operating profit
Loss on monetary positions
Profit before tax
Total income tax
Net Profit
38.6
(16.0)
22.7
(0.4)
22.2
10.2
2.9
0.6
13.7
36.0
(11.5)
(3.8)
(6.5)
(21.9)
14.1
(4.8)
9.3
(2.7)
6.6
(2.4%)
(6.1%)
0.4%
(93.2%)
36.6%
8.1%
23.8%
(58.1%)
3.5%
21.7%
16.6%
211.9%
3.0%
25.4%
16.3%
(16.8%)
46.0%
32.6%
52.3%
37.8
(14.0)
23.8
(0.5
23.3
12.9
3.4
0.8
17.1
40.4
(13.6)
(1.8
(10.5
(26.0)
14.4
(4.0)
10.4
(2.8)
7.6
(2.1%)
(12.0%)
4.9%
20.0%
4.6%
26.9%
16.0%
31.6%
24.8%
12.3%
17.8%
(52.2%)
61.6%
18.6%
2.5%
(15.2%)
11.6%
2.7%
15.0%
51.4
(22.1)
29.3
(2.4
26.9
18.6
4.2
1.0
23.8
50.7
(17.4)
(3.1)
(15.2)
(35.7)
15.0
0.0
15.0
(4.0)
11.0
35.8%
57.2%
23.2%
357.4%
15.8%
43.9%
22.6%
26.1%
38.8%
25.6%
27.9%
70.5%
43.9%
37.4%
4.2%
(100.0%)
44.7%
44.5%
44.9%
56.0
(23.5)
32.5
(2.9)
29.6
22.3
4.7
1.1
28.1
57.7
(20.1)
(3.6)
(17.0)
(40.6)
17.1
0.0
17.1
(3.6)
13.5
9.0%
6.5%
10.9%
22.0%
9.9%
20.1%
12.8%
9.3%
18.4%
13.9%
15.4%
14.9%
11.8%
13.8%
14.0%
15.7%
22.6%
10.6%
17.6%
10.0%
14.2%
9.0%
8.7%
13.1%
11.5%
12.2%
11.1%
5.9%
9.5%
16.4%
14.0%
(9.6%)
22.6%
64.8
(28.8)
35.9
(3.4)
32.5
25.5
5.1
1.2
31.8
64.4
(22.5)
(4.0
(18.0)
(44.5)
19.9
0.0
19.9
(4.0)
16.0
16.4%
10.9%
17.9%
Balance Sheet (consolidated, IFRS)
in EUR mn
2002
% TA
2003
% TA
2004e
% TA
2005e
% TA
2006e
% TA
Cash & Deposits
Treasury securities
Other securities
Loans, net
Lease receivables
Interest earning assets
Investments in equities
Tangible assets, net
Intangible assets, net
Other assets, net
Total assets
77.0
33.2
1.3
102.6
6.2
215.3
1.6
11.5
0.6
2.0
236.1
32.6%
14.1%
0.5%
43.4%
2.6%
91.2%
0.7%
4.9%
0.3%
0.9%
100.0%
93.6
18.5
2.3
198.9
12.4
317.0
1.7
17.0
1.8
1.4
347.7
26.9%
5.3%
0.6%
57.2%
3.6%
91.2%
0.5%
4.9%
0.5%
0.4%
100.0%
136.4
16.8
3.1
322.0
19.9
488.5
2.9
23.6
2.5
3.7
530.9
25.7%
3.2%
0.6%
60.6%
3.7%
92.0%
0.5%
4.4%
0.5%
0.7%
100.0%
173.0
15.8
3.9
445.0
29.1
658.8
3.6
29.6
2.9
4.0
706.9
24.5%
2.2%
0.6%
62.9%
4.1%
93.2%
0.5%
4.2%
0.4%
0.6%
100.0%
201.1
16.4
4.9
553.4
36.2
804.9
4.1
35.3
3.3
5.0
859.8
23.4%
1.9%
0.6%
64.4%
4.2%
93.6%
0.5%
4.1%
0.4%
0.6%
100.0%
Total deposits
Borrowings
Other liabilities
Total Liabilities
Interest bearing liabilities
Total shareholders' equity
Total Liabilities & Equity
174.0
16.1
3.6
193.7
190.1
42.4
236.1
73.7%
6.8%
1.5%
82.0%
80.5%
18.0%
100.0%
257.9
36.9
2.8
297.6
294.8
50.1
347.7
74.2%
10.6%
0.8%
85.6%
84.8%
14.4%
100.0%
390.2
64.9
13.1
468.2
455.1
62.7
530.9
73.5%
12.2%
2.5%
88.2%
85.7%
11.8%
100.0%
509.5
108.3
14.4
632.2
617.8
74.8
706.9
72.1%
15.3%
2.0%
89.4%
87.4%
10.6%
100.0%
608.4
146.5
15.7
770.6
754.9
89.2
859.8
70.8%
17.0%
1.8%
89.6%
87.8%
10.4%
100.0%
99
Notes
100
Key abbreviations
Key
abbreviations
CEEC-20
The 20 Central and Eastern European markets
NMC-8
The eight new EU member countries from CEE
Poland
(PL)
Hungary
(HU)
Czech Republic (CZ)
Slovakia
(SK)
Slovenia
(SL)
Estonia
(ES)
Latvia
(LT)
Lithuania
(LI)
CC-3
The three second wave EU accession countries
Bulgaria
(BG)
Romania
(RO)
Croatia
(HR)
SEEC-6
The remaining six markets of South East Europe
Serbia
(SR)
Bosnia a. H.
(BH)
Macedonia
(MK)
Kosovo
(KO)
Albania
(AL)
Moldava
(MD)
Russia
Russia
(RU)
FSC-2
The two former soviet republics on the European continent
Ukraine
(UA)
Belarus
(BY)
GDP
PPP
yoy
FX
bn
mn
Gross Domestic Product
Purchasing Power Parity
Year on year
Foreign exchange
billion
million
RoA
RoE
NIM
NII
C/I
P/E
P/B
Return on Assets
Return on Equity
Net interest margin
Net interest income
Cost income ratio
Price earnings ratio
Price book ratio
101
Acknowledgements
Acknowledgements
Published by: Raiffeisen Zentralbank Österreich AG and Raiffeisen Centrobank AG
Raiffeisen Zentralank Österreich AG
Am Stadtpark 9, A-1030 Vienna
Postal address: P.O. Box 50, A-1011 Vienna
Phone: +43-1-71 707-0
Fax: +43-1-71 707-1715
www.rzb.at, www.rzbgroup.com
Raiffeisen Centrobank AG
Tegetthoffstraße 1, A-1010 Vienna
Phone: + 43-1-515 20-0
Fax: +43-1-515 20-180
www.rcb.at
Published and manufactured in: Vienna
Design: Marion Stadler, ERPEG Publikations Gesellschaft mbH
This report was completed on 24 September 2004
Analysts:
Walter Demel, CEFA
Stefan Maxian, CFA
102
Raiffeisen Zentralbank Österreich AG, Vienna
+43-1-71 707-1526, [email protected]
Raiffeisen Centrobank AG, Vienna
+43-1-515 20-177, [email protected]
Acknowledgements
Analysts of this report (continued):
Janusz Siatkowski, CFA
Raiffeisen Bank Polska S.A., Warsaw
+48-22-5853-171, [email protected]
Kornel Sarkadi Szabo
Raiffeisen Bank Rt., Budapest
Jindirch Svatek
Raiffeisenbank a.s., Prague
Bogdan Campianu
Raiffeisen Bank S.A., Bucharest
RZB network contributions:
Slawomir Szkutnik
Agnes Tolgyes
Zoltan Torok
Bence Lany
Pavel Mertlilk
Maria Bilcikova
Robert Prega
Alenka Plut
Tsvetanka Madjounova
Elena Stancheva
Mihail Catalin Ion
Anton Starcevic
Hrvoje Dolenec
Ljiljana Grubic
Miodrag Dimitrijevic
Osvelda Qafa
Rigers Muhedini
Madina Butaeva
Elena Romanova
Petr Prikhodko
Sergey Naumov
Vladimir Grigoriev
Olga Laschevskaya
Raiffeisen Bank Polska S.A., Warsaw
Raiffeisenbank Rt., Budapest
Raiffeisenbank a.s., Prague
Tatra banka a.s., Bratislava
Raiffeisen Krekova Banka d.d., Maribor
Raiffeisenbank EAD, Sofia
Raiffeisen Bank S.A., Bucharest
Raifeisenbank Austria d.d., Zareb
Raiffeisenbank a.d., Belgrade
Raiffeisen Bank d.d. Bosna i Hercegovina
Raiffeisen Bank Kosovo J.S.C., Pristina
Savings Bank of Albania, Tirana
ZAO Raiffeisenbank Austria, Moscow
JSCB Raiffeisenbank Ukraine, Kiev
Priorbank JSC, Minsk
This document does not constitute an offer or invitation to subscribe for or purchase any securities and neither this document nor anything contained herein
shall form the basis of any contract or commitment whatsoever. This document is being furnished to you solely for your information and may not be reproduced or redistributed to any other person. Any investment decision with respect to any securities of the respective company must be made on the basis of
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any investment mentioned herein or related investments and or may have a position or holding in such investments as a result. RZB may have been, or might
be, acting as a manager or co-manager of a public offering of any securities mentioned in this report or in any related security. Information contained herein is based on sources, including annual reports and other material which might have been made available by the entity which is the subject of this document. RZB believes all the information to be reliable, but no representations are made as to their accuracy and completeness. Unless otherwise stated, all
views (including statements and forecasts) are solely those of RZB and are subject to change without notice.
Investors in emerging markets need to be aware that settlement and custodial risk may be higher than in markets where there is a long established
infrastructure and that stock liquidity may be impacted by the numbers of market makers which may therefore impact upon the reliability of any investments
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document does not intend to recommend the purchase or the sale of securities or investments in the meaning of the Wertpapieraufsichtsgesetz. This document shall not replace the necessary advice concerning the purchase or the sale of securities or investments. For any advice concerning the purchase or the
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(UK): Raiffeisen Zentralbank. This publication has been either approved or issued by Raiffeisen Zentralbank Österreich AG (RZB) in order to promote its
investment business. RZB is regulated for the conduct of investment business within the UK by the Securities & Futures Authority (SFA) and a member of the
London Stock Exchange. This publication is not intended for investors who are private customers within the meaning of the SFA rules and should therefore
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103
RZB Group
Raiffeisen Zentralbank Österreich AG (RZB Austria)
Investment banks
Investment Banking/Fixed Income
Raiffeisen Centrobank AG, Vienna
Equity Capital Markets
Bratislava: Tatra banka, a.s.
Raiffeisen Investment AG, Vienna
Head: Christian Säckl
Sales: Hans Rettl
Tel: +43 1 71707 3347
Tel: +43 1 71707 3300
Contact: Dusan Pivka
Tel: +421 2 5919 1221
Head: Wilhelm Celeda
Sales: Manfred Schmirl
Contact: Heinz Sernetz
Tel: +43 1 515 20 402
Tel: +43 1 515 20 465
Tel: +43 1 710 54 00 13
Bucharest: Raiffeisen Capital & Investment S.A.
Moscow: ZAO Raiffeisenbank Austria
Budapest: Raiffeisen Bank Rt.
Prague: Raiffeisenbank a.s.
Contact: Dragos Neacsu
Tel: +40 21 302 00 82
Contact: Gabor Nagy
Tel: +36 1 4844 813
Kiev: Raiffeisenbank Ukraine
Contact: Vladislav Anisimov
Tel: +380 44 49005 43
Contact: Sergei Monin
Contact: Martin Blaha
Tel: +7 095 721 9972
Tel: +420 221 141 863
Sofia: Raiffeisenbank (Bulgaria) EAD
Contact: Dragomir Velikov
Tel: +359 2 91985 451
Maribor: Raiffeisenbank Krekova Banka d.d.
Warsaw: Raiffeisen Bank Polska S.A.
Minsk: Priorbank JSC
Zagreb: Raiffeisenbank Austria d.d.
Contact: Primoz Kovaæiæ
Contact: Vladimir Dedyul
Tel: +386 2 2293 119
Tel: +375 17 217 34 19I
Contact: Konrad Sitnik
Contact: Zoran Koscak
Tel: +48 22 585 26 50
Tel: +385 1 4560 839
Commercial banks
RZB Finance LLC, New York
RZB London Branch
RZB Bejing Branch
Contact: Peter Bazil
Martin Czurda
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Tel: +43 1 71707 1120
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Tel: +44 20 7933 8002
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Contact: A. C. Schembri
Tel: +356 21 320 942
Contact: Dieter Beintrexler
Contact: Andreas Werner
RZB Singapore Branch
Contact: Rainer Silhavy
Tel: +1 212 845 4123
Tel: +86 10 653 233 88
Tel: +65 653 192 00
Central and Eastern Europe
Belgrade: Raiffeisenbank a.d.
Contact: Oliver Rögl
Bratislava: Tatra banka, a.s.
Contact: Rainer Franz
Bucharest: Raiffeisen Bank S.A.
Contact: S. van Groningen
Tel: +381 11 32021 02
Tel: +421 2 591 912 03
Tel: +40 21 32622 64
Contact: Péter Felcsuti
Tel: +361 484 44 40
Kiev: JSCB Raiffeisenbank Ukraine
Tel: +380 44 490 05 59
Maribor: Raiffeisen Krekova Banka d.d.
Contact: Aleš Zajdela
Minsk: Priorbank JSC
Contact: Olga Gilakhwa
Tel: +386 2 229 31 02
Tel: +375 17 217 34 01
Moscow: ZAO Raiffeisenbank Austria
Contact: Michel Perhirin
Contact: Rudolf Rabinak
Tel: +420 2 21 141 289
Pristina: Raiffeisen Bank Kosovo J.S.C.
Contact: Mike Issaias
Tel: +381 38 226 400 114
Sofia: Raiffeisenbank (Bulgaria) EAD
Budapest: Raiffeisen Bank Rt.
Contact: Leonid Kryuchkov
Prague: Raiffeisenbank a.s.
Tel: +7 095 721 99 11
Contact: Momtchil Andreev
Tel: +3592 91 985 101
Sarajevo: Raiffeisen Bank d.d. Bosna i Hercegovina
Contact: Edin Muftic
Tel: +387 33 208 366
Tirana: Raiffeisen Bank (Savings Bank of) Albania
Contact: Steven Grunerud
Tel: +355 422 93 04
Warsaw: Raiffeisen Bank Polska S.A.
Contact: Piotr Czarnecki
Tel: +48 22 585 20 17
Zagreb: Raiffeisenbank Austria d.d.
Contact: Lovorka Penaviæ
Tel: +385 1456 65 37

CEE Banking

Transcription

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