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
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.
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.