Banking in CEE: Challenging Times but Recovery on the Horizon

10 August 2009

UNICREDIT TIRIAC BANK S.A.

 

Executive Summary

 Prospects start to materialize for a recovery of world growth. When confirmed, this will boost recovery in CEE - 2010 will show a positive regional growth, below potential however

 Strong regional differentiation is confirmed, with Central Europe better prepared to catch the international recovery. The performance of different banks in the same market can widely differ.

 Markets are out of a "liquidity-crisis mood" - credit quality and risk appetite today's key constraints for CEE banking.

 Medium term: "CEE convergence story" holds, but the banking model has to be rebalanced

- Financial penetration will continue. The pace of growth will moderate, with availability of funding (domestic or external) the main driver. Changing competition allows for leaner structure of costs

- Cost of risk to stays high in 2009 and 2010, representing a constraint for banking profitability

 The changing competitive environment means also opportunities

- All CEE players have been affected by the crisis - access to funding, credit quality and business/network diversification the determinants of future success

- New entrants might take opportunities, while unfocused players might exit the market

- No big changes expected for the top committed international players

 Winners - new entrants or consolidated players, with a good risk appetite for CEE, able to leverage on strong funding position (both through a strong domestic network or through international channels) and with sound risk

 Policy implications from the crisis:

- IMF securing firm commitment from international banks active in the region

- Funding remains an issue but is not the key obstacle for lending growth - transferring the risk the main channel to unlock the credit market. Policy actions should be directed towards such target

 

How the CEE banking landscape has changed in the short term

SIGNS OF RECOVERY IN US AND WESTERN EUROPE PROVIDE A BOOST TO CEE - STILL 2010 IMPLIES GROWTH BELOW POTENTIAL AND COUNTRIES CONFIRM TO BE VERY DIFFERENT

OUT OF A "LIQUIDITY-CRISIS MOOD"?, BUT FUNDING AVAILABILITY AND COSTS REMAIN A CONSTRAINT FOR CEE BANKING

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