BANKING OUTLOOK IN CENTRAL EASTERN EUROPE
Gianfranco Bisagni, Head of CEE Corporate and Investment Banking
Helsinki, November 2012
The banking sector‘s view on Central and Eastern Europe
RU
EE
LV
LT
KZ
PL
GER
UA
CZ
SK
HU
AUT
IT
SI
RO
HR
BIH SRB
BG
TK
2
AGENDA
3

CEE – Banking Sector Outlook

Future Challenges & Outlook 2013
Lending growth generally higher where funding gap is lower (with
exceptions)
Banking Outlook
Total Loans, 2012 forecast, % growth
19,4
RU
12,2
SRB
TK
12,2
TK
10,0
PL
5,1
BG
RO
3,4
RO
SK
3,1
SK
UA
3,0
UA
BH
3,0
BH
0,6
CRO
-1,1
SLO
Baltics -5,6
HU
-9,1
SOURCE: Central Banks, UniCredit CEE Strategic Analysis
103
132
111
PL
3,7
1,8
145
KZ
BG
CZ
100
RU
SRB
KZ
4
Loan-to-deposits ratio, % 2012 forecast
CZ
CRO
SLO
101
118
90
155
120
71
131
138
145
Baltics
HU
123
In most sub-regions in CEE lending growth recovered since 2009, with
Baltics being a clear exception
Banking Outlook
Lending growth in CEE - subregions
CIS&TK
Central Europe
180
SEE
Baltics
160
former CIS & TK
CEE Total
140
CE
120
SEE
100
Baltics
80
60
2008
2009
2010
SOURCE: Central Banks, UniCredit CEE Strategic Analysis
5
2011
2012
2013
CEE loans as well as deposits are expected to move in parallel aiming
at a more balanced banking sector
Banking Outlook
Growth in Loans and Deposits in CEE
Loans, yoy growth
Deposits, yoy growth
70,0%
60,0%
 Before the crisis loan
growth was higher
than deposit growth
50,0%
40,0%
L<D
30,0%
20,0%
 Since 2011 loan
growth and deposits
moving
in
close
correlation.
L~D
L>D
10,0%
0,0%
2006
2007
2008 2009
2010
-10,0%
SOURCE: Central Banks, UniCredit CEE Strategic Analysis
6
2011
2012 2013
2014
2015
At single country level this trend is mainly confirmed, only Hungary is
expected to show negative growth also in 2013
Banking Outlook
2012
2013
Total Loans, yoy % growth
19.4 14.3
17.6
12.2 9.6 12.2
10.0 11.3
5.1 4.7 3.7 4.3 3.4 4.8 3.1 3.0 3.0 7.2 3.0 3.2
1.8 2.7 0.6 2.2
1.5
-0.9
-1.1
RU
SRB
TK
KZ
PL
BG
RO
SK
UA
BH
CZ
HR
1.1
-5.6
SI
Baltics
-9.1
HU
Total Deposits, yoy % growth
14.2 14.0
9.9 10.6
12.5 12.2 12.4
11.2
8.4
9.6
7.5
6.3 6.1
7.2
5.9
7.4
4.8
3.7 2.9
1.1 1.9
2.0 2.1 2.6
1.3 0.7 2.4
-1.1
-2.0
RU
SRB
TK
KZ
PL
BG
SOURCE: Central Banks, UniCredit CEE Strategic Analysis
7
RO
SK
UA
BH
CZ
HR
SI
-3.6
Baltics
HU
Risk perception remains a key variable to monitor
Banking Outlook
Global banking and CEE regional risks (1) (5Y CDS, bp)
1000
900
Global liquidity
crisis affecting CEE
Banks under
pressure
CEE countries
under pressure
800
Lehman
Brothers
defaults
700
600
ECB
announces
easing
measures
Increasing alarm
over Eurozone
debt crisis
500
Bear Stearns
rescue take-over
400
300
Turmoil begins
200
100
CEE Sovereign CDS
8
CDS of International Banks in CEE
Sep-12
Jun-12
Mar-12
CDS of EU large banking groups
Note: (1) International banks in CEE include UCG, ERSTE, KBC, SOCGEN and INTESA; EU large banking groups
include BARCLAYS, RBS, HSBC, BBVA, DB
SOURCE: Central Banks, UniCredit CEE Strategic Analysis
Dec-11
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
Dec-07
Sep-07
Jun-07
Mar-07
0
Revenue generation capacity reaching a bottom in 2012, expected to
improve in 2013. Banks keep strong focus on costs.
Banking Outlook
Revenues, expenses and GOP in CEE, % on average volumes (L+D)
6
3
5,5
2,5
5
4,5
2
4
CEE Net revenues [right hand scale]
CEE OPEX [left hand scale]
GOP [left hand scale]
1,5
3,5
3
1
2006
2007
2008
2009
2010
2011
2012
2013
 CEE Net revenues and CEE OPEX over average volumes (Loans + Deposits) both follow a
decreasing trend, but some stickiness on costs is jeopardizing Gross Operating Profits
SOURCE: Central Banks, UniCredit Group CEE Strategic Analysis
9
Gradual normalization in credit quality problems…
Banking Outlook
Impaired loans and CoR (% on lending) in CEE(1)
Impaired loans
16
14.1
13.6
CoR
13.8
13.0
12.9
12
7.8
8
6.1
5.6
5.0
4
2.4
1.4
0
2006
10
1.8
1.4
2007
2008
2009
2010
1.4
1.4
1.4
2011
2012
2013
(1) CEE includes Poland, “Impaired Loans” = loans that are 90 days overdue (definition according to Basel 2 regulation, however, some local
variations are possible). SOURCE: Central Banks, UniCredit CEE Strategic Analysis
…especially in countries with a high percentage of impaired loans during
the crisis
Banking Outlook
Impaired
loans, %
2011
2012
Kazakhstan
34.4
34.1
33.9
-0.2
Ukraine
37.0
33.0
30.0
-3.0
Romania
22.9
26.1
23.6
-2.5
Hungary
17.3
20.0
18.5
-1.5
Serbia
19.0
20.0
19.0
-1.0
Bulgaria
14.7
18.9
19.3
+0.4
Russia
16.3
16.8
16.2
-0.6
Croatia
12.4
13.8
14.0
+0.2
Slovenia
11.3
13.3
13.1
-0.2
Bosnia-H.
11.8
12.9
13.8
+0.7
Baltics
13.2
11.5
10.7
-0.8
Poland
7.5
7.9
8.3
+0.4
Czech R.
6.2
6.3
6.5
+0.2
Slovakia
5.8
5.5
5.6
+0.1
Turkey
2.6
2.9
3.2
+0.3
SOURCE: Central Banks, UniCredit CEE Strategic Analysis
11
2013
∆ 2012-13
And a lower cost of risk can support profitability
Banking Outlook
CEE BANKING FORECAST
CEE (incl. PL) – Pre-tax profit (EUR, mn)
~ 90% from
TK and RU
EUR, mn
60.000
50.000
40.000
30.000
20.000
10.000
0
2006
2007
2008
2009
SOURCE: Central Banks, UniCredit CEE Strategic Analysis
12
2010
2011
2012
2013
2014
2015
CEE banking sectors with proper capital buffer
Banking Outlook
Capital Adequacy ratio, % (June 2012)
25
Jun-2012 CAR
17.2
16.3
15
13.6
15.0
14.8
CAR min
20.2
19.6
20
Additional recommendation
16.7
16.8
17.3
18.0
14.7
14.2
17.5
16.5
13.8
2,5
10.8
10
5
2,0
8.0
8.0
8.0
PL
HU
CZ
2,0
1,7
10.0
8.0
10.0
2,0
12.0
8.0
8.0
LV
LT
1.0
2,0
10.0
10.0
10.0
UA
RU
KZ
4,0
12.0
12.0
12.0
8.0
8.0
0
SK
SI
EE
BG
RO
HR
BH
SRB
TK
1 Bulgaria: Minimum is set at 12% However BNB requires banks to keep sufficient Capital buffer
2 Czech republic: Minimum CAR is 8%, but informal limit is 10%
3 Latvia Minimum is 8% but regulators strongly recommend keeping ratio above 10%
4 Serbia: Minimum set at12%, however dividend payout limited to ratios above 14.5%
5 Slovenia: Bank required to keep ratio of 1.216 between Pillar II and Pillar I capital requirement (8% * 1.216 = 9.7%)
6 Romania: Formalized minimum level is 8%, informal limit is 10%
7 Russia: Minimum 10% for banks , 11% for banks participating in deposit insurance system
8 Turkey: Although minimum is 8% according to legislation, local regulator recommends 12%, the banking system uses 12% as the effective minimum.
SOURCE: Central Banks, UniCredit CEE Strategic Analysis
13
AGENDA
14

CEE – Banking Sector Outlook

Future Challenges & Outlook 2013
An increase in the regulatory pressures on banks also in CEE
 Basel III
 Action against FX lending
 Bank levy



Domestic funding resources continue to become more important

LLSFR of 110% (Loans to local funding ratio), introduced in Austria, affects lending in countries
where loans/deposits ratio is already high
Loan growth is more and more closely tied to growth in deposits than it was in the past
Liquidity coverage requirements & net stable funding ratios represent a major challenge and might
intensify competition for deposits
SOURCE: UniCredit Group CEE Strategic Analysis
15
The banking sector in Central and Eastern Europe: Outlook 2013
Challenges & Outlook
 Generally tight funding / liquidity conditions remain an issue to be carefully
watched, a fully fledged credit crunch has been avoided in most of the countries
 Credit quality problems – the major challenge for the banking sector
worldwide - are gradually normalizing especially in countries with a high
percentage of impaired loans such as Kazakhstan, Ukraine and Romania
 A differentiated regulatory environment poses serious challenges for cross
border banking groups
 Poland, Turkey and Russia emerge as having the greatest growth potential in
the medium-long term. In other CEE countries the environment remains more
challenging
16
The long term growth potential of the CEE region vs other markets are
still visible, mainly driven by under-penetration…
Retail volume/Disposable income (%, 2011)
Corporate volume/GDP (%, 2011)
138
122
95
56
56
392
World avg.
219
60
17
AF
World avg.
371
87
NA
458
99
39
LatAm CEE
417
ME
WE
Asia
100
LatAm CEE
133
ME
AF
WE
Asia
NA
NA: North America; AF: Africa; ME: Middle East; WE: Western Europe; SOURCE: Economist Intelligence Unit (EIU),
McKinsey Global Banking Pools
The banking sector in Central and Eastern Europe: Outlook 2013
Challenges & Outlook
 Some re-shaping of business strategy with a clearer focus on specific markets became
visible - in 5 years time we expect to see a more consolidated, less leveraged and
more resilient banking sector:
 Focus on cost
 Capital strengthening
 Focus on Funding
 Business reshuffle
 Banks are either choosing selective growth or selective exit from non-core markets
 In the retail sphere, multichannel banking becomes more and more important
 In the corporate banking area, consultancy, Fee&Commission business has a greater
role – less eagerness for gaining market shares, more for quality of revenues. Risk
management more and more important
18
M&A activity is again significant
What happened so far
EUR4.1bn
Bank of Moscow ranked
#6
Russia
USD 3,5bn
Denizbank is #10 player
by assets
Turkey
EUR 0,5bn
Entered into CEE market
Opportunities still there
SEE subs (HR, SRB,
SLO, ME, BiH and AT
head office) on sale
for ~EUR1.5bn
CEE
Merger
Merger creates #10
player
Russia
EUR4bn
Santander Poland
EUR0.5bn
Poland
Merger
19
Merger
Santander holds 76.5% of
the merged lender and
KBC 16.4%, 7.1% free
floating
RBI acquired a 70% stake,
Eurobank EFG remained
with 30%
Greek banking groups
merging
Units in SRB, RU,
SLO to be sold
In Slovenia,
EUR100mn
recapitalization
needed,
Gazprombank
among potential
buyers
THANK YOU!
Q&A
20