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BANKING OUTLOOK IN CENTRAL EASTERN EUROPE
Gianfranco Bisagni, Head of CEE Corporate and Investment Banking Helsinki, November 2012
2
The banking sector‘s view on Central and Eastern Europe
EE LV
LT
PL
CZ
SI HR SRB
SK
BG
UA
RO
TK
HU
KZ
AUT
RU
GER
BIH IT
3
AGENDA
CEE – Banking Sector Outlook
Future Challenges & Outlook 2013
4 SOURCE: Central Banks, UniCredit CEE Strategic Analysis
-5,6 HU
-1,1
Baltics
0,6
SLO CRO
1,8 CZ
3,0 BH
3,0 UA
3,1
RO 3,7 BG
5,1 PL
KZ 10,0
TK 12,2
SRB 12,2 RU 19,4
131
71
132
123
145
138
120
155
90
118
101
111
103
145
100
HU
Baltics
SLO
CRO
CZ
BH
UA
RO
BG PL
KZ
TK
SRB
RU
Total Loans, 2012 forecast, % growth Loan-to-deposits ratio, % 2012 forecast
-9,1
3,4
SK SK
Lending growth generally higher where funding gap is lower (with exceptions)
Banking Outlook
5 SOURCE: Central Banks, UniCredit CEE Strategic Analysis
In most sub-regions in CEE lending growth recovered since 2009, with Baltics being a clear exception
Banking Outlook
Lending growth in CEE - subregions
60
80
100
120
140
160
180
2008 2009 2010 2011 2012 2013
Central EuropeSEEBalticsformer CIS & TKCEE Total
Baltics
SEE
CE
CIS&TK
6
CEE loans as well as deposits are expected to move in parallel aiming at a more balanced banking sector
-10,0%
0,0%
10,0%
20,0%
30,0%
40,0%
50,0%
60,0%
70,0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Deposits, yoy growth Loans, yoy growth
Before the crisis loan growth was higher than deposit growth
Since 2011 loan growth and deposits moving in close correlation.
Growth in Loans and Deposits in CEE
SOURCE: Central Banks, UniCredit CEE Strategic Analysis
Banking Outlook
L > D
L < D L ~ D
7
At single country level this trend is mainly confirmed, only Hungary is expected to show negative growth also in 2013
SOURCE: Central Banks, UniCredit CEE Strategic Analysis
-2.0
2.0 2.4 4.8
1.3 0.7
-1.1 -3.6
2.1 2.6 1.1 1.9
11.2 8.4
2.9 3.7 7.4 5.9 7.2
9.6 6.1 6.3
12.4 12.2 12.5
7.5 10.6 9.9
14.0 14.2
3.1 3.2 3.0
UA
3.4 7.2
3.0 4.8
SK
3.0
RO
19.4
SRB
9.6
14.3 12.2
RU
-1.1
2.2
Baltics
1.1
SI
-5.6
0.6
CZ
2.7
HR BH
1.8
HU
-0.9
1.5
-9.1
KZ
11.3 12.2 10.0
TK
17.6
BG
4.3 4.7 3.7
PL
5.1
2013 2012
Total Deposits, yoy % growth
Total Loans, yoy % growth
UA SK RO SRB RU Baltics SI CZ HR BH HU KZ TK BG PL
Banking Outlook
8
Risk perception remains a key variable to monitor
SOURCE: Central Banks, UniCredit CEE Strategic Analysis
Note: (1) International banks in CEE include UCG, ERSTE, KBC, SOCGEN and INTESA; EU large banking groups include BARCLAYS, RBS, HSBC, BBVA, DB
0
100
200
300
400
500
600
700
800
900
1000
Mar-0
7
Jun-
07
Sep-
07
Dec-0
7
Mar-0
8
Jun-
08
Sep-
08
Dec-0
8
Mar-0
9
Jun-
09
Sep-
09
Dec-0
9
Mar-1
0
Jun-
10
Sep-
10
Dec-1
0
Mar-1
1
Jun-
11
Sep-
11
Dec-1
1
Mar-1
2
Jun-
12
Sep-
12
CEE Sovereign CDS CDS of International Banks in CEE CDS of EU large banking groups
Turmoil begins
Bear Stearnsrescue take-over
LehmanBrothersdefaults
Global liquiditycrisis affecting CEE
Increasing alarmover Eurozonedebt crisis
ECB announces easing measures
Global banking and CEE regional risks (1) (5Y CDS, bp)
Banking Outlook
CEE countries under pressure
Banks under pressure
9 SOURCE: Central Banks, UniCredit Group CEE Strategic Analysis
Revenue generation capacity reaching a bottom in 2012, expected to improve in 2013. Banks keep strong focus on costs.
1
1,5
2
2,5
3
2006 2007 2008 2009 2010 2011 2012 20133
3,5
4
4,5
5
5,5
6
CEE Net revenues [right hand scale]CEE OPEX [left hand scale]GOP [left hand scale]
Revenues, expenses and GOP in CEE, % on average volumes (L+D)
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
Banking Outlook
10
Gradual normalization in credit quality problems…
(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
Impaired loans and CoR (% on lending) in CEE(1)
0
4
8
12
16
2006 2007 2008 2009 2010 2011 2012 2013
1.4
13.0
1.4
13.8
1.4
13.6
1.8
14.1
5.0
12.9
2.4
7.8
1.4
5.6
1.4
6.1
CoR Impaired loans
Banking Outlook
11
…especially in countries with a high percentage of impaired loans during the crisis
Impaired loans, % 2011 2012 2013
Poland 7.5 7.9 8.3
Czech R. 6.2 6.3 6.5
Slovakia 5.8 5.5 5.6
Bulgaria 14.7 18.9 19.3
Romania 22.9 26.1 23.6
Croatia 12.4 13.8 14.0
Russia 16.3 16.8 16.2
Turkey 2.6 2.9 3.2
Ukraine 37.0 33.0 30.0
Kazakhstan 34.4 34.1 33.9
Hungary 17.3 20.0 18.5
Serbia 19.0 20.0 19.0
Bosnia-H. 11.8 12.9 13.8
Slovenia 11.3 13.3 13.1
Baltics 13.2 11.5 10.7
∆ 2012-13
+0.4
+0.2
+0.1
+0.4
-2.5
+0.2
-0.6
+0.3
-3.0
-0.2
-1.5
-1.0
+0.7
-0.2
-0.8
SOURCE: Central Banks, UniCredit CEE Strategic Analysis
Banking Outlook
12
0
10.000
20.000
30.000
40.000
50.000
60.000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
EUR, mn
And a lower cost of risk can support profitability
SOURCE: Central Banks, UniCredit CEE Strategic Analysis
CEE BANKING FORECAST CEE (incl. PL) – Pre-tax profit (EUR, mn)
Banking Outlook
~ 90% from TK and RU
13
CEE banking sectors with proper capital buffer
Capital Adequacy ratio, % (June 2012)
SOURCE: Central Banks, UniCredit CEE Strategic Analysis
2,0 1,7 2,0 2,0
2,5
4,02,0
0
5
10
15
20
25
10.0
SI
10.8
8.0
SK
15.0
10.0
CZ
16.3
8.0
HU
14.8
8.0
PL
13.6
8.0
KZ
17.5
10.0
RU
13.8
10.0
1.0
UA
18.0
10.0
TK
16.5
8.0
SRB
17.3
12.0
BH
16.8
12.0
HR
20.2
12.0
RO
14.7
8.0
BG
16.7
12.0
LT
14.2
8.0
LV
17.2
8.0
EE
19.6
CAR min Additional recommendation Jun-2012 CAR
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.
Banking Outlook
14
AGENDA
CEE – Banking Sector Outlook
Future Challenges & Outlook 2013
15
An increase in the regulatory pressures on banks also in CEE
SOURCE: UniCredit Group CEE Strategic Analysis
Basel III
Action against FX lending
Bank levy
Domestic funding resources continue to become more important
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
LLSFR of 110% (Loans to local funding ratio), introduced in Austria, affects lending in countries where loans/deposits ratio is already high
16
The banking sector in Central and Eastern Europe: Outlook 2013
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
Challenges & Outlook
17
The long term growth potential of the CEE region vs other markets are still visible, mainly driven by under-penetration…
NA: North America; AF: Africa; ME: Middle East; WE: Western Europe; SOURCE: Economist Intelligence Unit (EIU), McKinsey Global Banking Pools 17
Retail volume/Disposable income (%, 2011) Corporate volume/GDP (%, 2011)
458417392
219
13310087
371
NA Asia WE AF ME CEE LatAm
World avg.
138122
95
60565639
LatAm NA ME AF Asia
99
WE CEE
World avg.
18
The banking sector in Central and Eastern Europe: Outlook 2013
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
Challenges & Outlook
19
EUR4bn
What happened so far
Poland
EUR0.5bn
Poland
EUR4.1bn
Russia
RBI acquired a 70% stake, Eurobank EFG remained
with 30%
Bank of Moscow ranked #6
Santander
USD 3,5bn
EUR 0,5bn
Merger
Opportunities still there
SEE subs (HR, SRB, SLO, ME, BiH and AT head office) on sale for ~EUR1.5bn
Merger
Units in SRB, RU, SLO to be sold
In Slovenia, EUR100mn recapitalization needed, Gazprombank among potential buyers
Merger
Merger creates #10 player
Santander holds 76.5% of the merged lender and KBC 16.4%, 7.1% free
floating
M&A activity is again significant
Denizbank is #10 player by assets
Entered into CEE market
Turkey
CEE
Russia
Greek banking groups merging
20
THANK YOU!
Q & A