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Big western European banks to race for top CEE market spots

The big western European banks that have been establishing their presence in central and eastern Europe in recent years are now ready to compete for the top market spots in the region, according to Austria's Raiffeisen Bank International AG.

"We believe that achieving leading positions on these markets will become one of the major tasks for the big banking groups [in 2018]," RBI projected in its CEE Banking Report published June 14.

Since 2014, seven international banking groups — RBI, its compatriot Erste Group Bank AG, Hungary's OTP Bank Nyrt., Italian groups UniCredit SpA and Intesa Sanpaolo SpA, France-based Société Générale SA and Belgium's KBC Group NV, have been working their way into the CEE banking markets.

They used the time to position themselves in countries where they wanted to grow by cleaning up portfolios and streamlining business setups, but also by accumulating enough core funding for future growth, RBI said. The loan-to-deposit ratio for the group of seven banks now stands at nearly 80% for the entire CEE region, it noted.

As competition between the seven increases, they will look to increase retail lending in their respective target markets, boosting overall CEE retail lending, RBI said. Retail lending as a share of total portfolios ticked up to 57% at the end of 2017 from 55% in 2014, and RBI said it expects that figure "to continue to grow at a rather high pace, possibly within the average range of 1 [percentage point] per year."

In the medium to long term, retail loan growth in the CEE markets overall should clearly outpace corporate loan growth, RBI added.

From 2018 to 2023, most of the nominal CEE loan stock growth will be concentrated in Russia and Poland, given the large nominal sizes of their respective economies and banking sectors. RBI foresees nominal loan stock growth of roughly €385 billion over the period, of which about €200 billion is expected to come from Poland and Russia and around €150 billion from the Czech Republic, Romania, Hungary and Slovakia.

Hungary and Romania will see the fastest loan growth rates among larger CEE markets, with annual rates of 9% to 10% in the medium term, compared to an average of 5% to 7% growth expected for the whole CEE region.

Apart from looking to grow in preferred markets, the big seven international groups will also take a more flexible approach to the expansion by raising investment in digital services, according to the report. Erste Group said earlier in 2018 that it will seek to grow in its core CEE markets through a new digital platform called George, rather than through new acquisitions.

RBI also said large groups may look to expand through offering complementary services such as insurance and asset management, noting Intesa Sanpaolo's track record of having done so in Italy.