Investors looking for attractive long-term return potential could do worse than look at bank stocks in southeastern Europe. That’s the conclusion of a recent report by Günther Hohberger and Gernot Jarny, banking analysts at Erste Bank in Vienna. Entitled South east European Banks: Boom or bust? the report looked at the banking sectors in Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Montenegro, Romania and Serbia, and concluded that overall growth rates for banks in the emerging economies of southeastern Europe versus the more developed markets in central Europe will be higher for the next decade at least.
"We expect all south east European countries to make use of their catch-up potential, resulting in above-average growth for more than 10 years," says Jarny, adding that, in particular, strong deposit growth in the region over the coming years will ultimately help to mitigate any short-term funding concerns. "While deposits are already at a relatively high level in countries like the Czech Republic, in the emerging banking markets of south east Europe, a significant amount of money is still stored under mattresses. We expect commercial banks to continue to replace piggy banks as confidence in the banking markets rises."
One of the things helping to underpin trust in the banking sector in the region is increasing foreign ownership, which is bringing much-needed know-how and enhanced access to capital. "Foreign-owned banks account for the vast majority of the region’s banking assets and provide a competitive benchmark for the remaining domestically owned banks," says Jarny.
In the short term, Erste says that unlike many US and western European players, banks in southeastern Europe are not involved in any sub-prime or sub-prime-related investments and have therefore not needed to write off any assets. Furthermore, the report notes that current or prospective European Union membership for most of the countries in the region is helping to produce a more secure legal and political environment and has further stimulated already high economic growth rates.
Erste’s top picks in the region include AIK Banka in Serbia and BRD-GSG in Romania. Jarny says that corporate banking specialist AIK Banka, for example, combines high growth with cost efficiency and a strong market position in the fast-growing small and medium-sized enterprise segment. As a result, it has improved its overall market position from number 11 to number six over the past year.
Erste believes that this makes AIK a potential takeover target in the medium term, either by 20% shareholder ATE Bank of Greece or another strategic investor. Romania’s BRD-GSG is another of Erste Bank’s preferred banking plays in the region. Despite the rapid expansion of its branch network in recent years, Jarny says that the bank is the country’s market leader in terms of efficiency and profitability and has a strong foothold in the high-growth, high-margin retail and SME market segments.