Eastern European banks: good and bad

May 13, 2013

First, some good news – eastern European banks are relatively profitable. Austrian bank Raiffeisen, which is heavily involved in the region, published a report at the weekend which showed:

In terms of growth and profit, the banking sectors in the CEE (central and eastern Europe) region continue to outperform their Western European counterparts.

Real loan growth in the region’s banks, which includes Russia and Ukraine, was 21.8 percent between 2010 and 2012, Raiffeisen says, while euro zone banks’ real loan growth was negative over the same period.

The IMF said something similar this month, pointing out that for the five largest banking groups in the region, their businesses in eastern Europe were substantially more profitable than those in the West.

That might go some way to explaining why banking stocks in emerging Europe have outperformed broader indices, in contrast to the euro zone where they have been underperforming.

But here’s the bad news – not everyone is repaying their loans. Both the IMF and Raiffeisen point to high levels of non-performing loans, ¬†particularly in southeastern Europe. The NPL ratio in that region rose to¬†17.3 per cent in 2012, from 14.5 per cent in 2011, Raiffeisen says:

The high NPL ratios in Hungary and Slovenia still have a significant negative impact on the entire CE-region, overshadowing the stable or declining NPL ratios in the Czech and Slovak banking sector.

Erik Berglof, chief economist at the European Bank for Reconstruction and Development, which last week slashed its emerging Europe and North Africa growth forecasts, was also concerned. At the bank’s annual meeting this weekend in Istanbul, he said:

“We are watching some countries in southeastern Europe, Slovenia is also a part of this story and Ukraine and Moldova – there is not much reason for optimism.”




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