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Report: Central Europe banks set to outperform western peers

Profits of central European banks are expected to grow faster than those of lenders from western EU countries over the next two years thanks to the improving quality of loan portfolios, expected interest rate hikes and better economic growth prospects, Reuters reported March 30.

Hungary's OTP Bank Nyrt., Poland's PKO Bank Polski SA and Romania's Banca Transilvania SA have outperformed the STOXX Europe 600 banks index, and this trend could continue in the coming years, according to analysts cited by the news agency.

The Hungarian banking sector reportedly saw its aggregated 2016 pretax profit reaching around 500 billion Hungarian forints in 2016, a 10-fold increase compared with 2010 thanks to the improving economic situation and bank tax cuts launched by the Hungarian government.

Hungarian lenders also experienced a drop in nonperforming loans to between 13% and 15% of overall lending, with sales of bad mortgage portfolios and project loans to private investors indicating potential for a further fall in the NPL ratio in 2017, Reuters said.

The profits of Polish banks have also been improving thanks to the accelerating economy, while fee hikes helped them offset some of the costs generated by the introduction of a 0.44% asset tax in early 2016, it added.

Meanwhile, banks in Romania were reportedly positively affected by a court ruling rejecting a potentially costly conversion of CHF loans into the local currency at historical rates.

With the economic situation improving, central banks from the region are expected to increase interest rates, a move that would help local lenders boost their margins and preserve strong ROE ratios, Reuters said.