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IntelliNews - CEE Banking Sector Report - February 2013

  • February 2013
  • -
  • Emerging Markets Direct Media Holdings
  • -
  • 38 pages

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.

The CEE banking sector is still suffering from the effects of the global economic crisis in 2008/09 and from the consequent sovereign debt crisis in the eurozone, which has not faded out. The adverse external developments resulted in a tough operating environment in the region, characterised by sluggish economic growth, reduced credit appetite and withdrawal of foreign funding. The CEE banking sector is dominated by Western European banks, which hold more than two thirds of the total assets (with the exception of Russia, where the banking sector is dominated by the government). After the onset of the eurozone debt crisis and the multibillion euro bank bailouts in some countries, western European regulators exerted pressure on banks to reduce foreign investments in order to reduce their debts and improve capital buffers. This led to a significant bank deleveraging in CEE, putting an end to an era of booming lending activity, supported by cheap parent funding. The weakened lending capacity of banks in the region coincided with a softening in credit demand, as the sluggish economy hurt investments and household spending. The cumulative bank funding withdrawal from emerging Europe (excluding Russia and Turkey) since mid-2011 has been 4% of regional GDP, with some countries experiencing much greater outflows than others. A potential disorderly withdrawal of foreign funding, although not very likely, represents one of the major risks for the CEE banking sector.

As a whole, the banking sector across the CEE region remains profitable with a few exceptions, interest margins have tightened, but are still much higher than in Western Europe, lending growth has softened and banks have increasingly focused on attracting funding from domestic sources – mainly through deposits but also via local debt markets. Western banks are believed to remain committed to the region, which has a strong growth potential. The key weakness of the sector is the high level of non-performing loans (NPLs), both in volume and as a share of total loans. The weakened economic environment poses risks for further deterioration of the quality of banks’ lending portfolio, which may lead to a need for additional provisioning. Cleaning of balance sheets from NPLs is considered vital for a future credit expansion, as high NPLs can act as a drag on new credit provision.

The expected increase in provisioning, coupled with tightening interest margins, will affect the banking sector’s profitability this year. Having in mind also the subdued credit demand, cost efficiency and risk management will remain the determining factors for CEE banks' earnings performance. On the part of deposits, further growth will be restricted by the sluggish economy, which dents disposable income, which may be partly offset by higher propensity for savings in view of the economic uncertainty.

Table Of Contents

IntelliNews - CEE Banking Sector Report - February 2013
Executive Summary
Overview
Macroeconomic developments
Bank deleveraging from CEE slows
Lending conditions in CEE show signs of improvement
Banking sector outlook
Baltic States
- Estonia
- Latvia
- Lithuania
Bulgaria
Czech Republic
Hungary
Poland
Romania
Russia
Slovakia
Ukraine



List of Tables

Table 1 GDP growth forecasts
Table 2 Estonia: Aggregated income statement of credit institutions
Table 3 Bulgaria: Banking system income statement
Table 4 Slovakia: Aggregate income statement of credit institutions, EUR mn



List of Figures

Figure 1 Estonia: Domestic loan portfolio, outstanding amounts (in EUR mn), and y/y change (in %)
Figure 2 Estonia: Credit institutions, non-performing loan ratio, %
Figure 3 Estonia: Credit institutions, stock of deposits by customer group, EURmn, and y/y change in stocks, %
Figure 4 Latvia: Loans, outstanding amounts (in LVL mn) and annual growth rates (in %)
Figure 5 Latvia: Domestic deposits - stock of deposits by maturity (LVL mn) and annual growth rates (%)
Figure 6 Latvia: Stock of deposits by domestic and foreign non-financial corporations and households, LVL mn
Figure 7 Lithuania: Loans, outstanding amounts (in LTL mn) and annual growth (in %)
Figure 8 Lithuania: Non-performing loans ratio, %
Figure 9 Lithuania: Deposits, outstanding amounts (in LVL mn) and annual change (in %)
Figure 10 Lithuania: Banking sector funding
Figure 11 Lithuania: Capital adequacy ratios
Figure 12 Bulgaria: Lending portfolio, outstanding amounts (in BGN mn) and y/y growth rates (in %)
Figure 13 Bulgaria: NPL ratio, including bad and restructured loans
Figure 14 Bulgaria: Deposits outstanding amounts (in BGN mn) and y/y growth rates (in %)
Figure 15 Czech Republic: Non performing loans
Figure 16 Czech Republic: Loans granted by credit institutions to domestic clients, outstanding amounts
Figure 17 Czech Republic: Deposits by domestic clients, outstanding amounts
Figure 18 Hungary: MFI's loans, outstanding amounts (in HUF bn) and annual change (in %)
Figure 19 Hungary: NPL ratio
Figure 20 Poland: Banking sector gross loans to non-financial sector (in PLN mn) and annual growth rates (in %)
Figure 21 Poland: NPLs, non-financial sector - value in PLN mn and NPL ratio in %
Figure 22 Poland: Bank deposits by non-financial sector
Figure 23 Romania: Banking sector profitability ratios
Figure 24 Romania: Loans granted by credit institutions to domestic clients, outstanding amounts
Figure 25 Romania: NPLs and prudential ratios
Figure 26 Romania: Bank deposits, outstanding amounts
Figure 27 Russia: Lending portfolio, outstanding amounts (in RUB bn) and annual growth rates (in %)
Figure 28 Russia: Deposit base, outstanding amounts (in RUB bn) and annual growth rates (in %)
Figure 29 Slovakia: Loans granted by credit institutions to domestic clients, outstanding amounts, EUR bn
Figure 30 Slovakia: Non-performing loans
Figure 31 Slovakia: Deposits by domestic clients, outstanding amounts, EUR bn
Figure 32 Ukraine: Loans to residents, outstanding amounts (in UAH mn) and annual growth rates (in %)
Figure 33 Ukraine: Non performing loans
Figure 34 Ukraine: Resident deposits, outstanding amounts (in UAH mn) and annual growth rates (in %)
Figure 35 Ukraine: Loan-to-deposit ratio
Figure 36 Ukraine: Capital adequacy ratios

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