Banking in the 20 countries of central and eastern Europe (CEE) has undergone remarkable development in the past 15 years of economic and political transition, but the 332 million people in the region remain vastly under-banked and represent a huge market to be tapped. Understanding the size and structure of these markets and their potential can be difficult, so Austria’s Raiffeisen International (RZB) has taken a close look at the latest banking trends and developments in this large and highly dynamic region, and it has now published its findings.
The sizes of the banking sectors of the five sub-regions of the CEE vary considerably (see figure 1) – as do their economies – but, according to the RZB report, the vast majority of banks operating in the NMC-8 are now private and mostly foreign-owned (see figure 2). More than 90% of banks in the Czech Republic, Slovakia and Estonia fall into this category. The one large majority state-owned bank left is PKO in Poland; the only two large private domestically-owned banks are Hungary’s OTP and Latvia’s Parex Banka.
The situation is similar in the CC-3, particularly in Croatia and Bulgaria. In Bulgaria, bank privatisation was completed in 2003. There remain two large majority state-owned banks in Romania: Banca Comerciala Romana (BCR) and CEC. Both are scheduled for privatisation in the near future.
The banking sectors in the SEEC-6 are at a much earlier stage of development. This is reflected in the higher market share of the state-owned banks and the lower market share of foreign-owned banks.
Russia, Ukraine and Belarus are different stories altogether. State-owned banks in Belarus still have almost 80% of the market, while there are only two state-owned banks left in the Ukraine, Oshadbank and Ukreximbank, which have a market share of 10% and are both scheduled for eventual privatisation. State-owned Sberbank is by far the largest in Russia, accounting for about 28% of banking assets. But consolidation in this sector has barely begun and foreign banks in these countries, unlike those in other regions, are barely visible, with less than 10% of banking assets.
In terms of growth potential, all five regions have a long way to go to catch up with the eurozone, whose total banking assets to GDP ratio reached 201% at the end of 2003 (see figure 3). The NMC-8’s ratio is the next highest, at about 80%.
The most dynamic field in banking in the CEE countries in the past few years has been consumer loans. Credits to households have displayed exceptionally high growth rates in most countries. According to RZB, given the low credit to GDP ratio (about 10% in the best regions, compared with 49% in the eurozone), they are likely to retain strong growth for years to come.
However, RZB’s research expresses some concerns about macroeconomic stability in these countries. Loans are being used to buy imported consumer goods, markedly increasing trade and current account deficits. It concludes that it is almost impossible to curb the growth of consumer loans without negatively affecting credits to enterprises, something that the CEE countries cannot afford to do.
Key players
Attracted by both the growth in the economies in the region and the under-banked nature of the markets, foreign banks have moved in (see figure 4). 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 taken the opportunity to “go east” and have the highest CEE exposure in terms of total group assets. Some international players (HSBC and Deutsche Bank, for example) are still under-represented in the region. Russia, Ukraine and Belarus are to a large extent untapped by international banks.
While Belgium’s KBC ranks number one in terms of assets in the region (with close to c2.9bn at the end of 2003), Erste Bank, with its clear focus on retail, offers the largest branch network in the region (1318 branches in four countries, including 664 in its Czech subsidiary Ceska Sporitelna). RZB ranks number one in terms of country presence with 789 branches in 15 countries.
Other key players include Italy’s Unicredit, which ranks third in CEE assets and has 1207 branches in seven countries, including the 801 branches of Poland’s second largest bank, Bank Pekao. The network of Germany’s HypoVereinsbank (HBV) and its Austrian subsidiary, Bank Austria Creditanstalt, is also formidable. It has a presence in 13 countries with 904 branches. Both France’s Société Générale and Italy’s Banca Intesa are well represented, with 666 and 475 branches, respectively.
Room for growth
While RZB believes market concentration is already relatively high, with the top five banks controlling more than 60% of the market in most countries, it still sees opportunities for growth via acquisitions in the region, as some international banks with selective holdings reconsider their CEE strategy.
A picture of europe The 20 central and European countries (CEE) in RZB’s banking report have been divided into five regions: 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. While being the most advanced region in the CEE, 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 with the eurozone, and the degree of intermediation is also rather low. Clearly, there is huge potential and a need for growth, not only for the economies of the NMC-8 but also for the banking sector. CC-3: The three candidate countries that will join the EU in the next few years. Bulgaria 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 start its membership negotiations in early 2005.
SEEC-6: The remaining six markets in south east Europe: Serbia, Bosnia, Macedonia, Kosovo, Albania and Moldova.
Russia: With a population of 143 million, it is by far the largest market in terms of potential customers and also the largest individual market in terms of total assets.
FSR-2: Ukraine and Belarus. This is a large region bordering the enlarged EU with a population of 57.7m.
