Page 14 - bne magazine February 2022_20220208

14 I Companies & Markets bne February 2022
“In total exposure terms the Russian market is only the third-largest country-level exposure of Western banks in the CEE region, well behind Czechia and Poland”
Measured from December 2019 to June 2021, cross-border exposures to the EE region dropped by 4%; from June 2020 to June 2021 they increased by 8%. However, this flattish development should not be seen as negative either, in
the aftermath of the GFC (as well as in the context of the Russia/Ukraine crisis in 2014) there was a brutal (external) deleveraging in EE banking exposures. Therefore stability is also a certain success here. Moreover, everybody still operating in the region is doing so based on very selective and risk-oriented business policies.
Overall, aggregated exposure of Western banks towards the EE region has reached its lowest point in relative terms over the last two decades in 2021. The reference to geopolitics is also reflected in the fact that the relative decline trend accelerated substantially from 2014 to 2016. During this period the share of the EE region in international banking exposures into the CEE region dropped from 22% to 14% (based on substantial nominal cuts in exposures), and is now hovering around 11%. The Russian banking market currently represents some 9% of CEE exposures at Western banks. This sounds still substantial but has to be put into
a broader context. Western banks have more or less the same amount of money at work in Slovakia as in Russia, while Slovak GDP represents some 6-7% of Russia’s economic wealth (in euro terms).
Some further modest downside with regard to Western bank positions towards Russia might be looming with the partial exit of Citi from the retail market in Russia. However, we would not overdramatise this development either. In
Russian banking market snapshot
total exposure terms the Russian market still represents the third-largest country-level exposure of Western banks in international banking statistics towards the CEE region, well behind Czechia and Poland, but still somewhat ahead of Slovakia and Romania.
Back to square one, is Central Europe again the place to be?
The “winners” in terms of increased importance in cross- border exposures in the CEE region are the Central European countries. We see this trend as a reflection of relative stability: solid growth in Czechia and Slovakia, a revival of attention towards the Hungarian market, while exposures towards Poland are not really moving in either direction recently (up or down). Therefore exposures of international banks towards the CE region in relation to overall CEE exposures are currently standing at their highest level since 2004 (close to 70% of total), while we still remain somewhat below historical peaks in SEE (and obviously well below historical peaks in EE).
At least in the mass business, it looks like the Western banks are returning to where they started their Eastern expansion. In the light of increasing geopolitical risks, this makes sense; from this perspective, Central European EU countries are much more suitable for mass business. Moreover, the regional markets here have retained their relative attractiveness, and we see further euro introductions by the end of this decade (beyond Croatia and Bulgaria), which will maintain market attractiveness.
Given all the trends and figures sketched above, we labelled our CEE Banking Report 2021 “As good as it gets in (post-) crisis times”. This title also reflects the hope that we are finally approaching post-crisis times in the course of 2022.
Gunter Deuber is chief economist of Raiffeisen Bank in Vienna. This article was prepared with Ruslan Gadeev & Jovan Sikimic of Raiffeisen Research in Vienna together with local research teams across CEE.
The CEE Banking Sector Report is a well-established annual flagship study of Raiffeisen Research. Once a year the entire Raiffeisen Research team in CEE and Vienna analyse banking sector dynamics in the CEE region in detail. In addition to country coverage with local flavour, we once again documented market shares, balance sheet totals and financials of the leading (Western) cross-border CEE banks. The same holds true for cross-country trends for market shares, business dynamics, asset quality and profitability. For more information plus data on CEE banking sectors see our 2021 edition of our flagship CEE Banking Sector Report (for registered users at the Raiffeisen Research Portal).
Source: national sources, BIS, RBI/Raiffeisen Research
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