BANKING IN CEE: adequate risk appetite crucial to win the upside

12 Noiembrie 2009

UNICREDIT TIRIAC BANK S.A.

Executive Summary

� Economic recovery, but risk and volatility remain. Strong regional differentiation is confirmed

� 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

� The changing competitive environment means also opportunities

� Winners - new entrants or consolidated players, with appropriate 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

� UCG ready to take the upside - can leverage on diversification, strong regional network and newly raised capital to strengthen and optimize its positioning in the market

 

How the CEE banking landscape has changed in the short term

Signs of recovery: still 2010 implies growth below potential and countries confirm to be very different

Note: (1) CEE-17: Poland, Hungary, Czech R., Slovakia, Slovenia, Lithuania, Latvia, Estonia, Romania, Bulgaria, Croatia, Bosnia-H, Serbia, Turkey, Ukraine, Russia and Kazakhstan

Source: UniCredit Group CEE Strategic Analysis, CEE Research

Out of a “liquidity crisis mood". Credit quality the main risk

Out from a "liquidity crisis" mood

• Interbank markets work
• Deleveraging process started, but already being reverted
• Parent banks fund their subsidiaries
• Availability and cost of external funding remains a key competitive advantage for CEE banks

Credit crunch clear

• Negative growth in lending on a YTD basis
• exceptions where government guaranteed lending play a role
• Demand and credit quality the main constraints
• Risk of second round effects from credit crunch to credit quality

Credit quality today challenge

• NPLs to peak in 2010-2011
• Cost of risk staying high, but 2009 might be the peak
• Cost of risk out of the crisis to be higher than in the pre-crisis period

 

Banking through the crisis

The long term potential of the CEE region is intact

The story of economic and income convergence towards the standards of Western countries, as well as the potential related to the banking sector penetration gap, continue to hold

(1) CEE incl. new EU member states, Croatia and Turkey; calculation based on GDP per capita expressed in dollar terms

Source: UniCredit Group CEE Strategic Analysis, IMF, ECB

1

2

3

4

The tricky lag LUCIAN CROITORU Adviser to the Governor - BANCA NAŢIONALĂ A ROMÂNIEI Lucian Croitoru, Adviser on monetary policy issues to the National Bank of Romania Governor, talks about the NBR’s next moves and explains why the decrease ofthe policy rate hasn’t been reflected into lower interest rates on bank loans. mai mult... The turnaround CRISTIAN SPORIS Secretar de Stat - MINISTERUL ECONOMIEI ŞI FINANŢELOR Cristian Sporis, Secretary of State at the Ministry of Public Finance, in charge with the national treasury and public debt, explains how the state managed to borrow money at the lowest costs in the last seven years and how it turned from a clear market taker into a player with a strong position on the market. mai mult...