Page 14 - bne_newspaper_July_19_2019

Southeast Europe
July 19, 2019 www.intellinews.com I Page 14
COMMENT: Southeast Europe the growth star in CEE banking, but the profit pool is elsewhere
Gunter Deuber of Raiffeisen Research in Vienna
As part of one of the most committed players
in the region, analysts from Raiffeisen Bank International's Raiffeisen Research unit once again worked intensively on documenting and analysing trends in the banking sector throughout the CEE region. The results can be found in the flagship publication CEE Banking Sector Report 2019.
The core message for bankers and investors active in the CEE region should be: close to old records, potential for more but watch out for late cycle phenomena!
For the first time in several years, no single market in CEE was loss-making on aggregate in 2018. Moreover, there were also no major shocks (economic and/or political) in 2018. Profitability ratios reached their highest level in the last five
to six years in 2018 in CEE banking, a situation that continued in 2019. The CEE return on equity (ROE) surpassed the 12% threshold. Particularly noteworthy is the broad-based nature of the profit recovery. All core regions of Central Europe (CE), Southeast Europe (SEE) and Eastern Europe
(EE) recorded double-digit ROE ratios in 2018.
The respective ratios are at 11.2% (CE), 13.5% (SEE) and 12.7% (EE). The banking markets in Russia and Ukraine recovered nicely. The positive earnings situation was supported by further improvements in credit quality, the highest credit growth since 2011 and a stabilisation of the net interest margin (NIM) in important markets. There were successes on the non-performing loan (NPL) front in CEE in 2018 almost everywhere. The overall CEE NPL ratio reached its lowest level
since 2010 in 2018 at 7.7%. In the CE/SEE region the regional NPL ratio (5.2%) fell to its lowest level since 2008. Therefore, we would estimate the total amount of NPLs in CE/SEE markets at around €35bn currently, down from some €60bn some years ago.
Overall, Southeast Europe is currently the star
in CEE when it comes to profitability ratios —
even though the SEE banking profit pool is still relatively small with some €4.5bn compared
to CE (approx. €9.5bn) and EE (approx. €20bn), but there state banks have a market share of
just under 70%! That said, the overall profit pool in CEE banking in 2018 (at over €30bn) almost reached its historic peak seen in 2011/2012 (which we estimate at just over €35bn). In CE/SEE, the estimated profit pool of almost €14bn in 2018
well exceeded earlier highs from times before
the global financial crisis (2008). Developments
in the region are also supportive for foreign banks. In the Czech Republic (the most stable but highly profitable market in CEE) as well as in the turnaround marketplaces Romania and Russia — all core markets of major Western CEE banks — an average ROE of over 14% was recorded in 2018 (the highest level since 2007/2008). However, 2018 also brought some disappointments. The Polish market once again underperformed in terms of profitability, while the ROE in the euro area market of Slovakia also remained in single-digit territory. The Czech and Hungarian markets are currently clearly outperforming in the CE region.
Read the full story here