The current report reviews the developments in the banking sector in the region of Central and Eastern Europe (CEE) and in the following countries in particular (in alphabetical order): Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Russia, Slovakia, and Ukraine. It tracks the market developments in full year 2013 and Q1 2014 and provides an overall picture of the current trends and the outlook for the sector.
The CEE banking sector, which is dominated by Western European banks (with the exception of Russia, where the sector is dominated by the government), is widely expected to start recovering from the effects of the crisis, which led to reduced lending activity amid an economic downturn that hurt investments and household spending and withdrawal of cheap foreign funding that fuelled a credit boom before that. Although the big picture points at a fragile recovery of the banking sector this year in line with improved economic growth prospects, there are a number of regional differences covered by the report.
• This report covers the banking sector’s earnings performance, asset quality, lending activity, deposits base and capitalisation indicators in each of the 11 countries, along with a brief overview of the specific operating environment;
• The banking sector across the CEE region was profitable last year, and interest margins, although tightened, are still much higher than in Western Europe;
• Lending growth has softened and banks have focused on attracting funding from domestic sources – mainly through deposits;
• The major problems for the sector are related to the still sluggish economy and subdued consumer and business sentiment in most countries, which weigh on credit demand, high levels of problem loans that hurt profitability, and tightened interest margins due to historically low rates coupled with intense competition for deposits;
• Domestic funding may not be enough to support a credit expansion when economic growth becomes more robust and credit demand returns;
• The ongoing deleveraging and de-risking of the European banks’ balance sheets is likely to continue, but Western banks are believed to remain committed to the region, which has a strong growth potential amid low levels of indebtedness compared to the more developed economies.
Table of Contents
Executive summary 4
Macroeconomic developments 5
Major trends and outlook for the CEE banking sector 6
Bank deleveraging from emerging Europe continues 6
EIB lending survey suggests improving credit demand and flat supply 7
Rating agencies expect fragile recovery of the CEE banking sector this year 7
Baltic States 8
Czech Republic 22
Release Date: Wed, 28 May 2014