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CEE Banking Sector Report - 2015

CEE Banking Sector Report - 2015

The current report reviews the developments in the banking sector in the region of Central and Eastern Europe (CEE) and in the following countries in particular (in alphabetical order): Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Russia, Slovakia, and Ukraine. It tracks the major recent market developments, with data available up to June 22, and provides an overall picture of the current trends and the outlook for the sector, including consolidation and mergers and acquisitions (M&A) activity. The report provides also an insight into the specifics of the banking sector in each separate country.

Key points:

The CEE banking sector, which is dominated by Western European banks (with the exception of Russia, where the sector is dominated by the government), is still suffering from an outflow of liquidity towards parents. This, combined with weak credit demand (amid soft economic recovery) and reduced risk appetite by banks, has led to subdued lending activity;

Most CEE countries’ banking sectors were profitable last year, with Poland hitting an all-time high. The exceptions are Hungary, where banks reported a record high loss in 2014 due to regulatory-ordered one-off foreign currency loan settlements, Romania, where the industry started to recover after a massive cleaning of the loan portfolio, and war-torn Ukraine;

Interest margins across the region, although tightened, are still much higher than in Western Europe. Growth potential is also much stronger amid low levels of indebtedness compared to the more developed economies;

M&A activity is focused mostly in Poland (where the regulator opposes further consolidation in the sector), Hungary (where the state is the major buyer of bank assets,) Romania, the Czech Republic and Slovakia;

With a few exceptions, the non-performing loan (NPL) ratio remains uncomfortably high across the region, hurting profitability and credit growth;

The major risks for the CEE banking sector are related to the ongoing Russia/Ukraine conflict, as well as to the developments in the Greek debt crisis. A potential banking crash in Greece could have a spillover effect, mainly on Bulgaria, where 23% of the banking system assets are held by Greek lenders.


Executive summary 8
Overview 9
Macroeconomic developments 9
EBRD sees Eurozone recovery boosting growth in Central Europe and the Baltics 9
Major trends and outlook for the CEE banking sector 11
EBRD tries to kick-start bank lending as CEE convergence falters 11
Outflow of bank liquidity continues 12
S&P sees foreign banks pulling out of Russia and Ukraine 13
Central Europe offers some relief as RBI net profit halves in first quarter 13
RBI draws in its horns in CEE 14
Erste rules out acquisitions as it reports record loss 15
Baltic States 16
Moody's: Outlook turns negative for Baltic banking system 17
Estonia 17
Estonian financial system stable, but risks persist says central bank 17
Estonian loan quality aids financial stability, says central bank 18
Banking sector net profit shrinks 26% in 2014 19
Banking sector net profit soars 2.4 times in Q1 19
Steady growth in the loan and lease portfolio continues in April 20
Latvia 20
Latvian financial market watchdog sets priorities until 2017 21
Banking sector net profit rises 26.5% in 2014 21
Net profit keeps on growing in January-April, lending keeps on shrinking 22
Lithuania 23
IMF says banking system strengthening 23
Banking sector profit drops 24% in 2014 23
Banking sector profit grows 10% y/y in Q1 24
Banks to seek alternatives to improve profitability 24
Lending remains sluggish, loan quality worsens slightly in Q1 25
Deposits fall after hitting record high at end-2014 25
Capitalisation improves further 26
Geopolitical tensions overshadow low interest rate concerns – survey 26
Bulgaria 26
Recent developments and trends 26
Banking sector turbulence 26
Concerns remain... 27
…but are to be addressed 28
Greek woes 29
Bulgarian banking sector profit rises 22% y/y in January-April 29
Deposits grow moderately 30
Lending plummets after Corpbank’s collapse 30
Problem loans worryingly high 30
M&A activity 30
Bulgaria’s Doverie United Holding to buy local Тokuda Bank 30
Czech Republic 31
Recent developments and trends 31
Czech banking profit recovers in 2014 31
Czech loan growth accelerates to six-month high in April 31
Czech corporate loans seen growing 5%-6% in 2015 32
Czech banks continued to ease credit standards in Q1 32
Czech mortgage rates bouncing back from record lows 33
New Czech mortgage loans at two-year high in May 33
Czech financial sector's resilience continues growth - central bank 33
S&P maintains low to moderate risk rating on Czech banking sector 34
M&A activity 34
Austrian banks reportedly facing off to buy Citi’s Czech retail business 34
Alfa and BNP Paribas reportedly racing for Zuno Bank 35
UniCredit Czech Republic and Slovakia acquires factoring provider Transfinance 35
General Electric plans to sell Czech banking arm 36
Hungary 36
Recent developments and trends 36
Banking sector reports record high loss in 2014 36
Hungary plans bank tax reliefs to boost lending 37
Hungarian central bank warns of loans risk, while bank lending continues fall 38
Hungary’s central bank puts up €1.1bn for conversion of forex retail loans 39
Hungary to stir up market with new ratio requirement on mortgage portfolios 39
Banking association estimates Hungary's forex loan moves cost lenders HUF1trn 40
UniCredit announces large scale branch closures in Hungary 40
Raiffeisen to scale down retail banking operations in Hungary 41
Austria’s Oberbank eyes expansion on Hungarian market 41
M&A activity 41
State boosts ownership in banking sector 41
Hungarian central bank approves state acquisition of Budapest Bank 42
Hungarian state reportedly set to add Sberbank to bank collection 42
Hungary's appetite for banks not yet sated, suggests central banker 43
Hungary reportedly set to pay €51mn for Erste stake 43
Erste reportedly closing in on acquisition of Citi’s Hungarian retail portfolio 44
Poland 44
Recent developments and trends 44
Polish banking profit hits 5-year high in 2014 44
Banking sector profit grows further in Q1 but uncertain outlook for the year remains 45
Polish bank profit set to drop, but financial system stable, says NBP 45
Banks grow loans and deposits in Q1 46
Polish banks foresee further easing of credit criteria 46
Polish banks warn raised stability fund charges will hit credit 47
Polish banks table new mortgage relief proposals as pressure rises 47
Recovery on Poland’s mortgage market fails to last 49
M&A activity 49
Polish bank sales unlikely to boost consolidation or profitability, says Fitch 49
PZU buys Alior stake as "first step" in consolidation of the banking sector 50
PZU reportedly in due diligence on RBI's Polish unit 51
Chinese investment fund reportedly eyeing Raiffeisen Polbank 52
General Electric looking for buyers of Bank BPH 52
Poland’s Bank Pocztowy to list in Warsaw by October, says minister 53
Poland's FM Bank PBP sold to PE fund AnaCap 53
Romania 53
Recent developments and trends 53
Banking system reports robust €187mn profits in Q1, after massive losses in 2014 53
Bank loans in Romania 3.8% down y/y at end-April, currency substitution loses ground 54
Romania’s bank deposit base keeps expanding, by 6.3% y/y at end-April 55
New bank loans issued in Romania up 5.7%y/y, to €3.45bn in January-April 56
Bad loans remain constant in Romania in Q1 57
M&A activity 57
Banca Transilvania acquires Volksbank Romania 57
UniCredit Bank Austria buys out Tiriac's 45% stake in Romanian unit 58
Banca Transilvania, OTB Bank reportedly compete to buy Piraeus’ Romanian division 58
Nextebank makes third merger offer to Romanian Banca Carpatica. 58
Russia 59
Recent developments and trends 59
Russia’s key interest rate seen falling to at least 10% by end-2015 59
S&P: Government support critical for Russian banking sector, bad loans to soar 59
Russian banks face widespread losses, says Moody's 60
Russia’s central bank expects rise in overdue loans and unprofitable banks in 2015 61
Russia abandons “bad debt” bank idea 62
Central bank extends anti-crisis measures, exchange rate pegs 62
Most eligible Russian banks apply for OFZ recapitalisation scheme 62
One fifth of Russian banks under central bank supervision 63
Central bank says banks fit for worst-case $40/barrel oil scenario 63
Banks ask government for extra mortgage subsidies 64
Russians losing trust in banks - survey 64
Banks see record surge in loan fraud 65
Major players 65
Sberbank's Q1 profit drops 58% y/y, but above expectations 66
VTB Bank reports RUB18.3bn losses in Q1 66
Charity spending pushes Russia's VTB Bank into first-quarter loss 67
Gazprombank became lossmaking in 2014 68
Gazprombank to request capital support, may issue CNY bonds 68
Slovakia 69
Recent developments and trends 69
Slovak banks see profit rise 23% in January-April 69
Deposits and loans rise in April, NPL ratio declines 70
Slovak banking sector remains resilient, central bank reports 70
C-bank imposes extra capital buffers on four systemically important banks 70
M&A activity 71
Trio reportedly eyeing Sberbank’s Slovak unit 71
Alfa and BNP Paribas reportedly racing for Zuno Bank 71
Ukraine 72
Loss of operating Ukrainian banks up 8-fold y/y in Q1 72
Non-performing loans reach 25% of total in May 73
Ukrainian bank insolvencies cost 9% of GDP in 2014-15 73
Ukraine's fourth largest bank collapses 75
Government support for Ukrainian banks dwindling - S&P 76
Moody's sees increased insolvency risk in Ukrainian banking sector 77
ICU estimates $11bn needed to recapitalise Ukrainian banking system 77
State-owned Ukreximbank agrees $1.5bn debt restructuring with bondholders 78
State-owned Oschadbank agrees $1.3bn debt restructuring deal 78
EBRD insists on bank reforms 79





Tables and charts

Table 1 GDP growth forecasts, %, y/y 11
Table 2 Estonia: Banking sector earnings performance 19
Table 3 Latvia: Banking sector earnings performance 22
Table 4 Lithuania: Banking sector earnings performance 24
Table 5 Bulgaria: Banking sector earnings performance 29
Table 6 Czech Republic: Banking sector earnings performance 31
Table 7 Romania: Stock of bank loans, RONbn 55
Table 8 Romania: Stock of bank deposits, RONbn 56
Table 9 Romania: Bad loans 57
Table 10 Slovakia: Banking sector earnings performance 69

Figure 1 Estonia: Quarterly loan losses and net profit of the banking sector 20
Figure 2 Estonia: Monthly change and annual growth in loans and leases extended to domestic non-financial companies and households by banks operating in Estonia 20
Figure 8 Bulgaria: Lending portfolio, outstanding amounts (BGN bn, rh axis) and y/y change 30
Figure 9 Hungary: Banking sector earnings 37
Figure 10 Romania: Banking sector net profit, quarterly, €mn 54
Figure 11 Romania: Stock of credit by debtor 55
Figure 12 Romania: Non-government bank deposits

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