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Slowdown hits CEE banks hard

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Two themes dominate the changes in this year's rankings compared with 2008. First, the heavy sell-off in the currencies of many central and eastern European countries, including Russia, Hungary and Ukraine, has reduced Tier 1 capital in dollar terms. Second, liquidity crises and the revelation of high non-performing loan (NPL) ratios on portfolios that had not previously been tested in an economic downturn has brought a number of banks close to collapse, knocking them out of the Top 1000 altogether.

The top five CEE banks remain the same, bar a small reshuffle, as Gazprom fell from third to fifth. Sberbank shrank a little, but this is more to do with rouble depreciation than decline: because the rouble fell by more than 25% in 2008, its 4% Tier 1 decline means there is still actual capital growth in rouble terms. With no subprime exposure, OTP in Hungary grew, due also to record profits and a restricted dividend that has helped the bank to build its capital base to $4.15bn, from $3.47bn last year.

However, it is in 2009 that the main impact of the global economic slowdown will be felt. Sberbank has large real estate and construction exposure, and OTP has exposure to the Ukraine plus a large portfolio of Swiss franc/euro mortgages that may turn sour after heavy currency depreciation. And some big banks have already been hit; Gazprombank, with a $2.5bn loss, has been a big faller in the global rankings, from 112 in 2008 to 196 this year.

In Kazakhstan and Ukraine, banking crises have removed the largest banks in both countries. Prominvest Bank Ukraine went bust and was bought by Russian state development bank Vnesheconombank (which is not in the rankings because it is a development bank). Kazakhstan's BTA suffered a $7.9bn loss in 2008, wiping out its equity. The bank was bailed out by Kazakh sovereign wealth fund Samruk-Kazyna, which bought 75% of its equity in February, and could re-enter the rankings if ongoing debt restructuring negotiations are successful.

Samruk-Kazyna also bailed out the country's fourth largest bank, Alliance, which remains in the rankings based on 2007 data as 2008 results are not yet available. If this bank has similar NPL ratios to BTA (more than 40%), then it is likely to disappear from the Top 1000 as soon as 2008 results are released.

Only 2007 data is available for Nadra Bank in Ukraine and KIT Finance in Russia, which were both also the subject of rescues in 2008. Although liquidity rather than asset deterioration was the initial trigger for the crises at both of these banks, their positions may change significantly once 2008 results are released.

Belarussian banks have risen significantly, including a new entry for Belpromstroibank at 997 in the global rankings. This reflects the greatly improved availability of data for banks in this country, which had dated back as far as two years in the previous rankings, but is now updated to the end of 2008.

Top 25 Central & Eastern Europe($M)

Top 25 Central & Eastern Europe($M)

CEE Tier 1 capital: assets %

CEE Tier 1 capital: assets %

CEE pre-tax profits: capital %

CEE pre-tax profits: capital %

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