CEE banking: Is the boom time on hold?

JUDGING BY THE region’s banks’ first-half profit figures, you could be forgiven for wondering if the heavy clouds of the international credit crisis might break up before they reach central and eastern Europe. Banks are still enjoying double-digit profitability and asset growth, and many forecast returns on equity of between 20% and 30% for the next few years. Thanks to strong economic growth in recent years and the entrance of several large foreign banking groups, the banking sectors of Poland, Hungary, the Czech Republic and Slovakia are in good shape.

Even so, they are unlikely to escape the international credit crisis unscathed. While Czech and Slovak banks remain liquid (see chart), their counterparts in Poland and especially Hungary are becoming increasingly reliant on external funding, making them more vulnerable to external shocks. There is also a wisp of suspicion that lending growth might not just be a sign of...