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June 9, 2017 www.intellinews.com I Page 4
Banking convergence returns to CEE, says RBI
Return on equity (ROE) across the CEE region (which for RBI does not include Turkey or Eurasia) more than doubled to 10.5%, well above the 5-6% achieved in the Eurozone. Eight of the 15 CEE markets are now covering their cost of capital, compared to four in 2015. Looking forward, the bank predicts an average of more than 10% ROE.
“All in all, the CEE region started to significantly outperform Western European banking profitabil- ity once again,” the report said. “Therefore,
the year 2016 ended years of down-trending prof- itability in CEE banking.”
Large Western players in the region are mak-
ing even higher profits than the average, around 12-14% ROE. This could reawaken interest in CEE banks, and lead to an end to foreign banks' retreat from the region in recent years. “From now on the appetite is there once again from foreign players,” Gunter Deuber, RBI’s chief economist, tells
bne IntelliNews.
The market share of foreign lenders fell last year to the lowest level for a decade, mainly due to
an increase in the market share of state-owned banks in Eastern Europe and growing local or state ownership in Central Europe, notably Poland and Hungary. But RBI expects this trend now to peter out.
In fact, the rebound in profits could have unwel- come repercussions if banks once again attract the attention of governments, Deuber says. “We must watch carefully how politicians and regula- tors react to the current situation. There could be certain claims on bank profits, for example in the Czech Republic and Hungary. This could be a problem for profitability going forward.”
The recovery was strongest in Russia, Romania and Hungary. Southeast Europe continued its solid rebound, while Central Europe has already been growing strongly for a few years, though RBI said the Polish market has begun to soften.
The fast recovery of the Russian market was the big surprise of last year, according to Deuber, with ROE bouncing back to 10% after just 2.5% in 2015, and assets growing by 15% across the Eastern European region led by Russia.
Western players in Russia maintained an ROE of 18%. “Foreign banks have shown they can oper- ate in the niches,” Deuber says. “Now they have proved this for a second year.”