Page 85 - bne Magazine February 2023

bne February 2023
Opinion 85
resolution strategy] banks and entrenched investment-grade local players have to pay considerable premiums currently to get the deal done.
On top of all the funding challenges described above, banks also face a round of step-ups in capital buffer requirements. Among others, these include sector-wide countercyclical capital buffers (in Croatia, Hungary, Romania – for the first time ever) and further bank-specific add-ons for systemic importance (major O-SII buffers increases in Hungary and Poland).
Coupled with the gloomier economic outlook, this does not set an inviting backdrop for active organic credit growth, but rather adds incentive to the banks’ more defensive stance on underwriting standards – something we read from both lending surveys and actual high-frequency data on real (net of inflation) loan growth. Overall, we should not get confused by bumper nominal loan growth rates. Currently deflated real loan growth rates are similar, i.e. just slightly positive or even negative, to the times of regional banking sector weakness in 2012/2013.
In the meantime, it is not all rosy as some governments target banks among other sectors for skimming off “excessive” profits in order to help them close budget gaps. The “windfall tax” has already entered into force in Hungary, will be imposed in the Czech Republic in 2023-2025 and is being discussed in Croatia.
Based on all available information about already implemented, approved and announced government interventions (excluding increased regular deposit insurance charges), we calculate the total burden at around €6.4bn, with the biggest chunk coming from Poland (€3.8bn, excluding FX mortgage provisioning) and the rest from Hungary (€2.0bn, of which €1.25bn was in 2022), Czechia (€0.6bn, 2023) and Croatia (€70mn, 2023).
Moreover, additional costs will enter banks’ P&L through other lines (typically as a “loan modification loss”). Negative mark-to-market revaluation of fixed income securities due to higher (government) benchmark yields adds another piece to the mosaic, though a large part of this has probably already materialised during 9M2022 and for single banks could have been mitigated by a shorter duration of the portfolios.
In sum, the high interest rates are a low-hanging fruit for lenders; however, it is not exceptionally sweet given the broader context it has emerged in.
Russian market affects bank rankings
The environment in the CEE banking business is certainly not a foregone conclusion. However, the attractiveness for deep-rooted players seems to be given, as multi-layered market trends show.
Within the cohort of major Western cross-border CEE banking groups the Austrian friendly competitors Erste and RBI continue to lead, while KBC has been clearly catching up as #3, closely rivalling RBI, followed by UniCredit as #4.
On the other side, upon the exit from Russia in April 2022, SocGen remained active in only two CEE markets (Czechia, Romania) and hence eventually lost the race to be regional #5 to OTP, which topped the €90bn mark in asset size this year (including Slovenia’s Nova KBM). The chance of further market share reshuffling, largely benefiting KBC and OTP, cannot be ruled out.
To a varying degree, a local presence in Russia remains a factor for five Western CEE banks, incuding RBI (Q3 2022: €13bn in loans to customers), UniCredit (€9.6bn), OTP (€2.6bn), ING (€0.6bn) and Intesa (€0.3bn). Depending on further rouble exchange rate developments, possible further local balance sheet reduction and/or active exposure reduction (until market exit), the further fate of Russian business at RBI and UniCredit could again significantly shift the CEE bank ranking in 2023.
The sketched market trends do show the willingness of dedicated players to expand in the region – and beyond. Belgium's KBC Group, at number three, is catching up strongly and is now the largest foreign cross-border player in Central Europe, ahead of Erste.
The regulatory enforced Sberbank windown also offered interesting M&A opportunities, largely benefiting locally- embedded players. Ironically, Sberbank Europe had been already on track for an orderly sale of select CEE subsidiaries at the end of 2021, however the deal largely failed upon the bank’s crisis and the sanctions hit in February/March 2022. Eventually, among the acquirers in the course of selective bail- outs, local players were able to make a swift decision on the takeover and hence gained market share, including markets such as Croatia, Slovenia or Bosnia and Herzegovina.
Overall, we see the much-needed resolution of Sberbank Europe as managed rather smoothly. Sberbank’s (enforced) withdrawal hence added to the changing balance of market
Major SEE-banks (total assets)
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