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Albania Best bank: Banka Kombetare Tregtare |
Credit demand returned to Albania last year but only one of the country’s two top banks was able to take full advantage of it. Raiffeisen’s local subsidiary has been steadily deleveraging over the past two years, partly due to pressures on the parent group and partly to very high levels of legacy non-performing loans. Banka Kombetare Tregtare (BKT), by contrast, was well placed to ride the wave of returning consumer and business confidence, thanks to its good capitalization and extremely strong asset quality.
NPLs at the Turkish-owned lender comprised just 6.5% of the total at end-2014, well below both Raiffeisen’s 17.9% and the sector average of 22.8%. As a result, BKT was able to grow its loan book by 17.6% in 2014 and its deposit base by 12.5%, allowing it for the first time to overtake Raiffeisen to become Albania’s largest lender by total assets. The bank also continued to expand its branch network and now has 89 outlets in total, including 26 in Kosovo. Nevertheless, its cost-to-income ratio remained at a respectable 43.4% in 2014 and its return on equity, while slightly below that of Raiffeisen, was a healthy 14.7%. BKT is a subsidiary of non-financial Turkish conglomerate Calik Holding.
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Armenia Best bank: Ardshinbank |
This year’s award for Armenia recognizes the remarkable turnaround Ardshinbank has achieved over the past four years. One of the country’s largest lenders before 2007, Ardshinbank slipped to number seven after adopting a highly defensive strategy in the wake of the global financial crisis.
Then in late 2011, the bank’s shareholders – led by its chairman, local businessman Karen Safaryan – opted for a complete management turnout. A new team was hired with a mandate to overhaul the bank’s systems, root out inefficient Soviet-era practices and restart growth. Key measures included centralizing the bank’s back office and risk management operations, a big expansion of its product range, and a new emphasis on cross-selling, particularly to the SME sector – an area in which Ardshinbank has a traditionally strong franchise, thanks to its extensive branch network. The strategy paid off. By the start of 2014, the bank had regained the number three spot in Armenia and was able to grow its loan book by a further 27.6% over the course of the year. Its new management also took a timely and proactive approach to dealing with the fallout from the economic slowdown in Russia, on which Armenia is heavily dependent for remittances and foreign investment.
In mid-2014, Ardshinbank implemented a policy of maintaining liquidity levels well above the regulatory minimum. The bank also boosted its funding base through the issuance in December of a $75 million privately placed international bond, the first of its kind from Armenia.
As a result, Ardshinbank was well-placed to take advantage of deleveraging elsewhere in the sector following the depreciation of the dram and, by the end of March, was ranked number two by assets, loans and deposits. A commitment to retaining the bank’s increasingly healthy profits over the past four years has ensured that it is among the best-capitalized in Armenia, while an NPL ratio of just 3% at year-end 2014 and coverage ratio of 67.4% are also significantly better than the sector averages. Bad debts are expected to rise sharply for all banks in Armenia this year due to a combination of economic shrinkage and high dollarization, but Ardshinbank is better positioned to weather any asset quality deterioration than most of its peers.
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Azerbaijan Best bank: Kapital Bank |
Azerbaijan is another country that will likely see renewed banking system stress this year, following a 34% devaluation of its currency in February. Although lower than in neighbouring Armenia, dollarization is still relatively high and the manat’s plunge is expected to cause a sharp deterioration in asset quality across the sector.
In this increasingly challenging operating environment, Kapital Bank should prove the most resilient of Azerbaijan’s big lenders. Not only does the bank have a much lower exposure to foreign currency lending than its peers – at the end of 2014, FX loans accounted for just 12% of the total, compared with a system-wide average of 27% – it also boasts a strong capital base, thanks to equity injections totalling Am100 million ($95.3 million) from parent Pasha Holding last year. Kapital Bank’s non-performing loan ratio also improved dramatically in 2014, falling by 8.2 percentage points to 7.7%, although this was largely due to a 27.4% expansion of the overall loan book.
Much of this growth was in high-margin retail lending, which helped boost pre-tax profit to Am85.1 million, more than double the level achieved in 2013. In another bank, this might be viewed as a high-risk strategy. In the case of Kapital Bank, however, the risks of rapid expansion are mitigated by its role as a leading distributor of pensions and other state benefits, as well as its sizeable corporate franchise, both of which allow it direct access to individual clients’ income streams.
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Belarus Best bank: Priorbank |
Before the collapse of the Russian rouble in December sparked a massive withdrawal of local currency deposits and panic buying of foreign exchange, Belarus’s banks had been having a good year. Credit growth had slowed from the exceptionally high levels seen in 2013, thanks in part to efforts by the central bank to cool consumer lending, but remained healthy at 16% for retail customers and 22% for corporates.
Priorbank’s loan book expansion was slightly below the sector level at 15% but its impact on returns was much greater than for major peers, thanks to an increasing focus on higher-margin retail lending. Loans to individual customers rose from 27.7% of the total at end-2013 to 30.4% by December, boosting net interest income for the year by 28% to €112 million and pre-tax profit by 3.6% to €90 million. That equated to a return on equity of 23.7%, while the bank’s cost-to-income ratio fell 4.6 percentage points to 45.2%.
Surprisingly, this positive picture continued into the first quarter of 2015, despite a 30% devaluation of the Belarusian rouble. Priorbank’s loan book expanded by a further 4.7% and pre-tax profit more than doubled quarter-on-quarter to €47 million, although this was partly due to the one-off effects of a strategic currency position, the discontinuation of hyperinflation accounting and an improved result from proprietary trading. Part of the Raiffeisen network, Priorbank remains the only big privately owned lender in a banking sector dominated by Belarusian and Russian state-owned players.
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Bosnia and Herzegovina Best bank: UniCredit Bank Mostar |
The order of precedence in Bosnia’s banking market changed again this year as UniCredit Bank Mostar overtook Raiffeisen Bank to become the largest lender on all main metrics. While the Austrian group’s subsidiary shrank its asset base by 3.9% to €1.9 billion in 2014, its Italian-owned rival had boosted its total by 6.2% to KM3.9 billion (€2.0 billion) by year-end. Strong lending growth of 7.2% – driven partly by demand for housing reconstruction loans following widespread flooding in May – was matched by a 6.6% increase in deposits to KM3.1 billion.
On both measures, UniCredit Mostar’s expansion easily outpaced that of the wider Bosnian banking sector, and the bank also outperformed in terms of profitability and asset quality. Its pre-tax result of KM69 million was 9.5% up on the previous year and equated to a bottom line return on equity of 10.1%, well above both the sector average of 6% and Raiffeisen Bank’s 8%.
UniCredit Mostar’s non-performing loan ratio also remained below that of its peers, falling by 1 percentage point to 11.8% by the end of December, compared with a system-wide level of 14%. Capital adequacy, meanwhile, was in line with the sector at a healthy 16.4%, thanks to a KM640.1 million capital increase last year.
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Bulgaria Best bank: UniCredit Bulbank |
In June 2014, Bulgaria’s banking system was rocked by successive runs on its fourth and third-largest lenders, Corporate Commercial Bank (CCB) and FIBank. The situation was stabilized by a government bailout for FIBank and the closure of CCB but not before it had prompted a dramatic flight to quality.
Unsurprisingly, the big beneficiaries of this were Bulgaria’s leading foreign-owned lenders, UniCredit Bulbank and OTP subsidiary DSK Bank. Both saw a substantial influx of deposits in the wake of the crisis. The Italian-owned bank easily outpaced its Hungarian rival, however, growing its deposit base by 24.1% in 2014 – 10 times the level recorded by the sector as a whole – against DSK Bank’s 14.6%. The latter also failed to leverage its new-found popularity to expand its loan book, which remained roughly flat year on year. By contrast, UniCredit Bulbank widened the gap between itself and the remainder of the Bulgarian banking sector by increasing lending by an impressive 13.9%.
This helped boost the bank’s net profit by 68.1% to Lev242 million and return on equity to 11.1%, well above the 6.9% market average. UniCredit Bulbank’s growth was not, however, merely a function of systemic malaise. The lender also enhanced its reputation for both efficiency and innovation in the current awards period, hammering its cost-to-income ratio down to a sector-best 37.2%, enhancing its multichannel offering, and launching an “international centre” designed to support corporates looking to expand in Bulgaria.
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Croatia Best bank: Privredna banka ZagrebBest investment bank: InterCapital Securities |
Conditions in the Croatian market remained challenging in 2014 as the country endured a sixth year of recession. Weak business confidence and householder deleveraging caused loan books to contract for a third year in succession, exacerbating the effects of large legacy impaired loan portfolios. The system-wide non-performing loan ratio rose by 1.3 percentage points to 17% over the course of the year as total lending declined by 2.4%. While the difficult operating environment inevitably took its toll across the banking sector, however, Croatia’s leading lenders once again proved impressively resilient. Both Zagrebacka banka and Privredna banka Zagreb (PBZ) posted returns on equity well above the sector average of 3.3% for 2014. UniCredit subsidiary Zagrebacka banka’s sector-best 7.3%, however, was partly due to a K428 million ($63.6 million) one-off gain from the disposal of its tourism subsidiary, Istraturist Umag.
The award therefore goes again to PBZ, which notched a 6.5% return on equity despite an 8.1% increase in its deposit base. Zagrebacka banka, by contrast, saw deposits shrink by 4.4% last year. PBZ, Croatia’s number two lender, also outperformed its larger rival in terms of asset quality, with NPLs comprising 14.3% of the total at end-December against Zagrebacka banka’s 16.2%. Nor were the bank’s achievements all financial. Despite the restrictive environment, PBZ continued to invest in technology in the awards period, introducing in-branch wifi, an electronic signature facility and next-generation contactless payment cards.
PBZ is majority owned by Intesa Sanpaolo, which is due to increase its holding to 97.4% following the EBRD’s decision in June to exercise an option to sell its 20.8% stake to the Italian group.
Croatia’s long recession has also had a negative impact on the country’s equity markets, once among the most vibrant in CEE. A couple of recent deals, however, have raised hopes of a revival of activity. In December, agricultural firm Granolio completed the first IPO in Zagreb since 2007, while shipping company Tankerska Next Generation followed suit in February. Predictably, three of the main foreign banking groups in Croatia – Erste, Intesa Sanpaolo and Raiffeisen – won mandates on the two deals.
For Tankerska’s K208 million offering, however, the global coordinator was home-grown investment house InterCapital Securities. On the equity market side, InterCapital – which covers the Slovenian, Serbian and Bosnia markets, as well as Croatia – also acted in the awards period as sole agent and bookrunner on an accelerated bookbuild of 6.2% of regional consumer firm Atlantic Grupa for DEG and on a K165 million stock repurchase for tobacco group Adris Grupa. In addition, the firm’s clients took 40% of the €64 million stake in Slovenian oil distributor Petrol sold by NLB Bank in October. InterCapital also notched several notable advisory credits, with clients including ISS, Hrvatski Telekom, leading Croatian textile wholesaler Tekstilpromet, and non-food retailer Pevec.
In the secondary markets, meanwhile, InterCapital has been steadily increasing its market share in recent years and now holds the number one position in both equities and bonds, accounting for 21.6% and 32.4% respectively of total turnover on the Zagreb Stock Exchange in 2014. The InterCapital group also includes Croatia’s largest broker by market share, the largest non-bank fund manager and the fastest-growing insurance broker.
Czech Republic Best bank: Ceskoslovenska obchodni banka |
The Czech banking sector continues to be one of the most rewarding in CEE, offering stability, strong growth and handsome returns. In particular, the current combination of ultra-low interest rates and a large mass-affluent client base has made for increasing opportunities in lucrative segments such as mortgage lending and asset management.
Both of these are areas in which Raiffeisen is traditionally strong and the Austrian bank grew its loan book by 13.5% in 2014 and in November became the first Czech lender to sell a mortgage-backed covered bond in the European public market. The effect on the bank’s bottom line was impressive, with pre-tax income and return on equity more than doubling year on year to €92 million and 10.9% respectively. Nevertheless, Raiffeisenbank – currently number five in the Czech market – continued to lag its larger rivals in terms of profitability.
The number two and three lenders, Ceska sporitelna and Komercni banka, posted returns on equity of 14.5% and 13%, while market leader Ceskoslovenska obchodni banka (CSOB) notched a sector-beating 16.4%. The KBC subsidiary also recorded a faster pace of lending growth than its closest competitors, expanding its loan book by 8% in the 12 months to March. That helped to keep the bank’s NPL ratio down to just 4%, while the partial retention of profits in 2013 boosted its tier-1 capital ratio under Basel III to 17.2% by end-December.
CSOB also continues to lead the market in innovation, with new initiatives in 2014 including the launch of the Czech Republic’s first portable payment terminal for smartphones and tablets, the introduction of a retail loyalty programme, and the issuance of the bank’s first ever secured bonds.
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Estonia Best bank: SEB Pank |
Estonia’s second-largest lender, SEB Pank, takes the award ahead of market leader Swedbank for the third year in succession by virtue of its superior growth and strong profitability. In 2014, SEB Pank expanded its loan book by 3.4% to €4 billion and its deposit base by 17.1% to €3.2 billion, while Swedbank could only manage lending and deposit growth of 1.5% and 7.9% respectively. Unlike its larger rival, and indeed the Estonian banking sector as a whole, SEB Pank also succeeded in boosting its pre-tax profit last year, by 9.1% to €79.4 million.
This helped cut the bank’s cost-to-income ratio to 41.7%, while return on equity was roughly flat at a healthy 9.8%. A first quarter pre-tax result of €21.4 million augured well for a similarly strong performance in 2015. Asset quality also remained a key strength. SEB Pank’s non-performing loan ratio at end December was unchanged from 12 months earlier, at a negligible 0.76%.
While the bank is active across all segments, a large part of its success can be attributed to its commitment to supporting Estonia’s SMEs. In 2014, SEB Pank not only revived a nationwide advisory programme for small businesses but also launched Innovation Lab, an annual seminar designed to help entrepreneurs access new markets and technologies.
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Georgia Best bank: TBC Bank |
Banking in Georgia remained largely a two-horse race last year, with market leaders Bank of Georgia and TBC Bank once again achieving sector-best results while maintaining a breakneck pace of expansion. In terms of profitability, there was little to choose between the two, with both posting returns on equity in the high teens.
TBC Bank’s pre-tax income was up 37% on 2013, however, compared with 12.8% for Bank of Georgia and the number two lender also outperformed its larger rival in terms of lending growth, expanding its portfolio by 15% in the 12 months to December. In the same period, Bank of Georgia increased lending by 7.1%. Despite its rapid pace of growth, however, TBC Bank has maintained strong fundamentals. At year-end 2014, the lender boasted a non-performing loan ratio of just 0.5%, well below Bank of Georgia’s 3.4%. TBC Bank’s Basel II/III tier-1 capital adequacy ratio was also extremely healthy at 12.4% at year-end, thanks to the inclusion of a $96 million primary component in the lender’s $239 million London listing in June.
The IPO was the largest-ever from a Georgian entity and the first from the country since Bank of Georgia’s stock market debut in 2006. Other notable achievements in the awards period included the timely completion of the merger of Bank Constanta, a microfinance lender bought by TBC Bank in 2011, with the parent group.
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Hungary Best bank: UniCredit Bank HungaryBest investment bank: Concorde Securities |
Another round of heavy penalties – this time in the form of retroactive fines for alleged mis-selling of foreign currency mortgages – left Hungary’s lenders reeling last year. The sector as a whole made a 13.2% loss on equity and only one of the leading players was able to show a net profit.
UniCredit Bank Hungary, however, not only managed to remain in the black, but actually showed an improvement on 2013, posting a bottom line profit of Ft16 billion ($57.8 million) and more than doubling its return on equity to 7.5%. This impressive resilience is partly due to UniCredit Bank Hungary’s traditional corporate focus, which has allowed it to avoid at least some of the FX lending-related pain that has afflicted more retail-oriented banks, and it was the corporate sector that provided much of the momentum for last year’s recovery. A 17% increase in net fee and commission income was generated by strong growth in securities services and transaction banking activity, while lending to companies jumped by nearly 10% in the 12 months to December. This contributed to an increase in total assets of 26% to Ft2.24 billion, moving the bank up to third in the Hungarian rankings – from sixth in 2013 – for the first time.
Asset quality remained a concern but an impaired loan ratio of 16.7% was still well below the sector average thanks to successful work-out and restructuring activities, while provisioning costs fell by 59% last year.
UniCredit Bank Hungary also remained a market leader in investment banking, thanks in part to its integration within the parent group’s regional and global network. By contrast, local investment house Concorde Securities has earned a loyal following among Hungarian clients over more than a decade of operations through its independence, personalized service and flexibility.
The firm’s services cover the full range of securities trading, research, corporate finance, capital markets origination, asset management and private banking. In 2014, Concorde Securities was the leading broker on the Budapest Stock Exchange, with a market share of 15.8%, and the firm is also a member of the Warsaw Stock Exchange, Deutsche Börse and – since March – the Bucharest Stock Exchange. Corporate finance activity remains subdued in Hungary but nonetheless Concorde managed to notch an advisory credit last year as advisor to BKF University of Applied Sciences Budapest, Hungary’s largest private higher education provider, on its sale to CEE Equity Partners.
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Kazakhstan Best bank: Halyk Bank |
Last year brought renewed pain to an already stressed Kazakh banking sector in the form of February’s currency devaluation and a sharp economic slowdown in the wake of the collapse of oil prices. As a result, few of the country’s larger lenders were able to meet the central bank’s requirement to step up the pace of restructuring of legacy bad debts left over from the financial crisis and reduce non-performing loan ratios to below 15% by year-end.
An honourable exception, however, was Halyk Bank. The second biggest lender succeeded in slashing its NPL ratio by 5.4 percentage points to just 11.9% by end-December, well below the sector average of 24%, thanks to a combination of debt write-offs, recoveries and strong loan growth. Profitability was also excellent, thanks to a 40bp reduction in the bank’s cost of risk, a 90bp increase in its net interest margin and a pick up in transactional banking activity. Halyk Bank’s pre-tax profit for the year was up by 58% to KT114.4 billion ($615 million), while its return on equity jumped 6.3pp to 27.1%. The latter number was all the more impressive given that the bank’s shareholders last year boosted its equity base by 21.2% by retaining earnings from 2013.
Strong first quarter results in the face of a deteriorating operating environment also confirmed Halyk Bank’s position as one of the country’s strongest and most resilient lenders. A slight increase in NPLs – to 12.4% – was compensated for by a further boost of the net interest margin to 6.6%, while return on equity remained extremely healthy at 22.8%.
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Kosovo Best bank: TEB |
TEB once again took advantage of deleveraging by Kosovo’s largest banks last year to increase its market share. While number one and two lenders ProCredit and Raiffeisen cut lending by 5.9% and 1.1% respectively, TEB expanded its loan book by 10.4% to €312 million.
Much of the bank’s rapid growth since its launch in 2008 – by BNP Paribas and Turk Economi Bankasi – has been due to its success in developing Kosovo’s nascent credit card market. Its Star Card is already the most widely used in the country and continues to gain new customers, thanks to TEB’s commitment to expanding the range and functionality of the product.
Innovations in 2014 included the introduction of a service allowing clients to make cash deposits to their own accounts and those of other TEB customers via the bank’s ATMs, as well as a bonus system for debit card transactions in the bank’s point-of-sale network. Last year also saw the launch by TEB – in conjunction with USAID – of Kosovo’s first Agro Credit Card, a product designed to provide flexible short-term financing for farmers. TEB also collaborated with the European Bank for Reconstruction and Development (EBRD) in 2014 to introduce green loans for energy-efficient investment projects to the Kosovan market. Meanwhile, the launch of a new private-banking programme allowed TEB to target the growing upper-retail segment.
This strong and broad-based growth was reflected in the bank’s pre-tax result, which more than doubled to €10.3 million last year thanks to increases in both interest and fee and commission income.
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Kyrgyzstan Best bank: Kyrgyz Investment and Credit Bank |
Kyrgzstan’s banking sector came under pressure in the second half of last year as Russia’s economic slowdown caused a dramatic decline in remittances to the central Asian republic and prompted a sharp devaluation of the som. Despite the challenging operating environment, however, Kyrgyz Investment and Credit Bank (KICB) managed to maintain its recent record of impressive growth and strong returns, even in hard currency terms.
The number two lender posted a pre-tax result of $10.8 million for 2014, 5.7% up on the previous year, as a 14.7% increase in net interest income more than made up for increased provisioning. Lending growth was stellar, at 29.3% in dollar terms, while a slight shrinkage in deposits was compensated for by the bank’s commitment to diversifying its funding base.
In September, KICB launched the placement of a Som150 million ($2.5 million) corporate bond, the second from the bank and the largest ever in the Kyrgyz market. KICB also has access to funding via its shareholders, which include three multilateral institutions – DEG, the EBRD and the International Finance Corporation – as well as the Aga Khan Fund for Economic Development, the Kyrgyz Republic, and Pakistan’s Habib Bank.
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Latvia Best bank: Swedbank |
The long-running contest between Latvia’s largest lenders was quite one-sided last year, with market leader Swedbank outperforming number two player SEB across all leading metrics. While the latter bank’s pre-tax profit fell by 15.4% to €26.6 million, Swedbank’s €135 million result was slightly up on the previous year despite a sharp drop in commission and trading income following Latvia’s adoption of the euro in January 2014.
As a result, the profitability gap between the two widened still further, with SEB posting a return on equity of less than half Swedbank’s 10.7%. On the lending side, meanwhile, SEB saw an 11.6% drop in its overall exposure, while its larger rival reversed the deleveraging trend of the previous year to record loan growth of 2.7%.
Swedbank’s fundamentals also remained among the strongest in the Latvian banking sector. At end-2014, the lender boasted a common equity tier-1 ratio of 33.9% and a liquidity ratio of 48.3%, well above the minimum requirement of 30%. Swedbank is Latvia’s biggest retail bank, with a 28% market share of household deposits and a 31% share of mortgage lending.
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Lithuania Best bank: SEB |
SEB regains the Lithuanian award this year thanks to a strong performance across the board in 2014. The country’s largest lender scored particularly highly on profitability, boosting its pre-tax result by 33.4% to €324.8 million and its return on equity to 9.4% despite additional costs associated with Lithuania’s adoption of the euro in January.
On the deposit side, meanwhile, SEB Bank reaped notable benefits from the introduction of the single currency, capturing a sizeable proportion of the cash inflows into the banking system ahead of the changeover. By end-2014, the bank’s deposit base had reached €15.4 billion, up 16.7% on the previous year. Lending growth was less breakneck but still impressive at 4.2% and helped to bring SEB Bank’s non-performing loan ratio down by 1.7 percentage points to 5.2% by year-end.
The bank also maintained its commitment to technology and innovation in the awards period, upgrading its multichannel offering and introducing a new cashless branch concept.
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Former Yugoslav Republic of Macedonia Best bank: Tutunska banka |
In recent months, the newsflow from the former Yugoslav Republic of Macedonia has been increasingly negative as protests and clashes with Albanian rebels have exacerbated an already febrile political situation. Before that, however, the republic had been enjoying a strong recovery from its 2012 recession, with GDP growth topping 3.7% last year on the back of strong exports, public infrastructure projects and private consumption. Combined with historically low interest rates, this spurred a renewed appetite for credit among both retail and corporate customers.
Of fYROM’s leading lenders, the one that worked this shift to best advantage was the number three player, Tutunska banka. In 2014, the Slovenian-owned bank expanded its lending book by 8.7% to €622.4 million. Still higher deposit growth of 11.1%, despite rates well below the market average, testified to Tutunska banka’s reputation for stability and customer service. Ultra-low deposit rates also contributed to the bank’s strong bottom line result. Pre-tax income was up 9.9% in 2014 to €11.1 million, generating a return on equity of 10.8% and making Tutunska banka once again the big profit generator in NLB Group’s five-country Balkan network.
A slight deterioration in asset quality was the one blot on the bank’s record last year. Despite the substantial growth, the bank’s non-performing loan ratio rose by 0.8 percentage points to 8.4% in the 12 months to March – however, coverage remained ample at 168.4%.
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Montenegro Best bank: Société Générale Montenegro |
Overall lending declined in Montenegro by 3% last year as economic growth slowed and banks struggled to deal with legacy portfolios of non-performing loans. Société Générale Montenegro (SGME) decisively bucked the trend, however, expanding its loan book by 4.2% thanks to growth in all client segments. Lending to corporates was up by 2.4%, while loans to SME and retail customers were up by 11.1% and 8.2% respectively. This helped to slice 1.7 percentage points off the bank’s NPL ratio, reducing it to 8.5% by end-December, well below the sector average of 15.9%.
SGME also made further substantial strides last year towards achieving its goal of funding self-reliance via a 16% increase in deposits. Just 2% of the bank’s funding now comes from its French parent, with customer deposits and multilateral loans accounting for the remainder. Profitability also improved last year, thanks to strong take-up of a range of new retail card and remote banking products, as well as large increases in corporate payments volumes, trade finance activities and point-of-sale acquiring.
For full-year 2014, SMGE posted a pre-tax result of €6.3 million, up 16.4% on the previous year, while return on equity was a sector-beating 12.7%. The bank also cemented its position as the go-to house for corporate clients last year by launching Montenegro’s first factoring service.
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Poland Best bank: Bank Zachodni WBKBest investment bank: Deutsche BankBest equity house: PKO BP Securities |
Despite cut-throat competition and increasing pressure on margins, Poland’s leading banks all managed to maintain strong profitability and a healthy pace of growth in 2014. Choosing one was more difficult than ever but the bank that was judged to have delivered the best all-round performance across metrics including customer attraction, innovation and efficiency was Bank Zachodni WBK.
The Santander subsidiary’s growth figures for the year were inflated by the completion of the integration of Kredyt Bank, an achievement in itself and one that boosted the bank to the number three spot in Poland, as well as the absorption of Santander Consumer Bank into the Polish group. Even excluding these mergers, however, BZ WBK’s cash loan portfolio grew by 9%, while lending to both SMEs and corporates increased by 8%. This impressive pace of growth – which was well ahead of the market average of 3.8% – was driven by the bank’s ability to both attract new customers and capitalize on its existing client base, as well as its unrivalled multichannel penetration. Nearly half a million new customers opened accounts with BZ WBK in 2014, while the number of SME customers with high transactional activity and cross-selling increased by 16.3%.
BZ WBK also boasts the highest proportion of active internet banking customers of any Polish lender and last year saw users of its mobile banking application double to just under half a million. All of this translated into another year of strong profitability. Integration expenses knocked 1.1 percentage points off the bank’s return on equity – which was nevertheless comfortably above the sector average at 14.4% – and also masked the effects of a tight focus on efficiency.
Adjusting for one-off merger costs, BZ WBK posted a 1.7% year-on-year decrease in underlying costs and a sector-beating cost-to-income ratio of 38.8%. The bank also impressed with its ability to maintain and even increase its net interest margin – to 3.55% in 2014 and by a further 4bp in the first quarter of this year – in the face of historically low interest rates.
The reduction in deal flow in Poland in the past two years, particularly in equity capital markets, has prompted several global banks that piled into Warsaw in the heady privatization years to pull back. A notable exception, however, is Deutsche Bank. The German house has maintained a big team of investment bankers dedicated to Poland, as well as a strong corporate and SME franchise in the country.
This commitment has paid off. In the awards period, Deutsche Bank was the only house to achieve a top-five league table position across debt and equity capital markets and M&A. Notable bond market transactions included chemical firm Synthos’s high-yield debut, an inaugural issue from insurance company PZU – for whom Deutsche Bank also acted as adviser on the purchase of RSA’s Baltic assets – and the largest ever issue in Swiss francs by an emerging-market sovereign. On the equity side, Deutsche Bank notched five accelerated bookbuilds, including two on which it acted as sole lead – for Enea and BZ WBK – and a $436 million sale of 3.5% of state-controlled utility PGE.
More than matching Deutsche Bank’s success in ECM, however, was local house PKO BP Securities, which last year leveraged its unrivalled penetration of Poland’s corporate base into a league table-topping position for the first time. The firm – part of Poland’s largest, state-controlled banking group – acted on five deals in the awards period, including the IPO of railway builder Torpol and a $331 million ABB for Bank Millennium, as well as sizeable follow-on offerings for PKP Cargo, Grupa Lotos and PGE.
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Romania Best bank: Raiffeisen Bank |
The big story in Romanian banking last year was the purchase in December of Volksbank Romania by local lender Banca Transilvania. Not only was this the first major acquisition in Romania since the financial crisis, it will also move the buyer – which just six years ago was the country’s 10th largest by total assets – up another spot in the rankings to number two. Nevertheless, the deal does not come without risks. Volksbank Romania represents the rump of the failed Austrian lender’s CEE operation, having been rejected when Sberbank bought the rest of the network in 2011 due to its extremely poor liquidity ratios and asset quality. Its stock of bad debts reduced last year through the sale of a €495 million non-performing real estate loan portfolio. It remains to be seen, however, whether Banca Transilvania – which itself still has a fairly large stock of legacy non-performing loans – will be able to deal successfully with the remainder and reap the full benefits of its acquisition. Asset quality also continued to weigh on profitability at Romania’s other market leaders, Erste’s BCR and Société Générale’s BRD.
By contrast, number four player Raiffeisen Bank continued to go from strength to strength. The Austrian subsidiary not only posted a 24.2% rise in pre-tax profits in 2014, allowing it to maintain a sector-beating return on equity of 16%, but also succeeded in reducing its already low NPL ratio by a further 1.2 percentage points to 7.5%. Growth was also stellar, with lending up 3.6% year-on-year and customer numbers up 9%, thanks in large part to the bank’s highly effective targeting of employees of its extensive corporate client base. Raiffeisen Bank also deepened its engagement with the SME sector through a partnership with the European Investment Fund on a new funding round under the Jeremie programme. Another notable achievement of 2014 was the integration of Raiffeisen Bank’s investment banking arm, the local market leader in terms of both capital markets origination and turnover, into the parent group.
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Russia Best bank: UniCredit Bank Best investment bank: VTB CapitalBest debt house: Raiffeisenbank |
The impact of international sanctions, economic slowdown and a plunging rouble was felt throughout the Russian banking sector last year. Consumer lenders were particularly hard hit as the long retail spending boom came to a halt and bad debts began to mount. Even Russia’s strongest banks saw profitability decline, as asset quality deteriorated and lending growth slowed to below inflation. Domestic lenders, whether public or private sector, faced liquidity and capital pressures due to their exclusion from international markets, although for systemic banks these were eased by state support.
Of the leading foreign-owned banks, Société Générale’s Rosbank continued to struggle, while Raiffeisenbank turned in another strong performance but was forced to begin deleveraging in the first quarter of this year due to capital weakness at its Austrian parent.
By contrast, UniCredit Bank’s combination of a strong, corporate-focused franchise in Russia and a supportive parent allowed the Italian subsidiary not only to maintain good profitability last year, but also to defend its market-leading position going into 2015. Despite a substantial increase in provisioning, the bank posted a pre-tax profit of R22.2 billion for 2014, down only 21% on the previous year.
Return on equity came in at a healthy 13.2%, while a cost-to-income ratio of 32.5% was among the best in Russia. Asset quality was inevitably affected but UniCredit Bank’s traditionally conservative approach to lending ensured that its overall non-performing loan ratio remained well below the sector average. For corporates, the ratio was even lower, at 1.6%, reflecting both the diversity of UniCredit Bank’s portfolio and the strength of its relationships with Russia’s largest and most resilient companies.
The bank is a leader in both trade finance and syndicated loans in Russia. A jump in the cost of risk in the first quarter of 2015 suggested that matching last year’s result may be challenging. Nevertheless, it seems certain that, barring political headwinds, UniCredit Bank will remain among the best-performing and best-managed banks in Russia. The bank is Russia’s largest foreign-owned lender and number 10 overall by total assets.
If 2014 was a tough year for commercial banks in Russia, it was even tougher for their investment-banking counterparts. Deal flow fell off the proverbial cliff in the wake of the annexation of Crimea and the introduction of western sanctions, with volumes down by at least two thirds in all of debt and equity capital markets and M&A in the 12 months to March. This did not, however, prevent a clear winner emerging in investment banking.
VTB Capital once again easily eclipsed both local and global rivals in M&A and equity, acting on deals including O1 Group’s purchase of a 16% stake in Austrian property group CA Immo, Yandex’s $165 million acquisition of online car seller Auto.ru, and secondary share offerings for Qiwi, Moscow Exchange, TMK, Magnit and Lenta. The bank also reinforced its position as the go-to house for domestic debt capital markets transactions, winning mandates on more than a quarter of the 133 deals priced in the awards period.
While VTB Capital remained the dominant force in rouble bonds, however, Raiffeisenbank’s commitment to maintaining and strengthening its franchise in the increasingly important debt market for Russian corporates also caught the judges’ eye. The Austrian subsidiary notched up 11 mandates across the full range of sectors, acting for leading Russian names including Megafon, Sistema, Alfa Bank and Credit Bank of Moscow, as well as Volkswagen Bank.
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Serbia Best bank: Raiffeisen Banka |
Operating conditions remained challenging in Serbia last year as severe flooding in May pushed the economy back into the recession from which it had just emerged. Despite the launch of a government-backed subsidized lending programme, corporate credit demand failed to revive and overall lending contracted by a further 2.1%. Meanwhile, large portfolios of legacy bad debts continued to weigh on the profitability and growth potential of many of the country’s leading banks.
For the strongest and best-managed lenders, however, the travails of the rest of the sector presented growth opportunities – as was clearly demonstrated by number four player Raiffeisen banka. In 2014, the Austrian subsidiary enjoyed its best ever year in retail banking, increasing both its deposit base and customer numbers – particularly in the sought-after payroll sector – by more than 10% year on year. Similar levels of growth were achieved in premium banking and asset management, while in the small business segment deposits and lending rose by 9.6% and 12% respectively.
Raiffeisen banka also continued to capitalize on its leading presence in Serbia’s corporate sector, increasing volumes of capital-light products such as documenting and attracting new clients from as far afield as China and the UAE. Asset quality was a concern, with non-performing loans rising both in 2014 and in the first quarter of this year. At 13.2%, however, the level at the end of March was still well below the sector average.
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Slovakia Best bank: Slovenska Sporitelna |
Retail loan growth remained the dominant theme in Slovak banking in 2014, thanks to a combination of rising wages and ultra-low interest rates. Despite efforts by the country’s central bank to cool the market, lending to households increased by 12.1% on the back of surging demand for both mortgages and consumer finance. This played to the strengths of Slovenska sporitelna, which once again managed to leverage its dominant position in the retail segment to expand its loan book by an above-market 14%.
By end-2014, the Erste subsidiary had boosted its share of household lending to around 27% of the total, thanks to a combination of successful loan consolidation, focused marketing and strong take-up of a new mortgage product. Deposit growth was slightly lower at 9.1% but still more than double the sector average of 4.1%, while a loan-to-deposit ratio of 83.7% at end-December left ample scope for further lending expansion.
Slovenska sporitelna also easily outpaced both the sector and its closest rival, Intesa Sanpaolo’s VUB, in terms of profitability, with a return on equity of 14.5%. Where VUB did score higher, however, was on asset quality. The number two lender’s non-performing loan ratio fell to 5.8% in the 12 months to December despite negligible loan growth, while Slovenska sporitelna’s bad debts mounted to 6.3% of the total.
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Slovenia Best bank: UniCredit Bank |
Growth returned to the Slovenian economy in 2014 and the country’s banks also began to show signs of recovery thanks to government efforts to recapitalize and restructure state-owned banks Nova Ljubljanska Banka (NLB), Nova Kreditna Banka Maribor (NKBM) and Akbanka. Market leader NLB and NKBM, now ranked number four by assets, both managed to post after-tax profits last year – however, non-performing loan ratios of 30.2% and 40.3% at end-December suggest it will be a while before either can return to pre-crisis growth levels.
By contrast, the fact that UniCredit Bank’s return to profitability in 2014 was matched by a resumption of lending growth and backed by strong fundamentals augurs well for further expansion over the coming year. The number two lender’s capital adequacy ratio stood at 19.7% at end-December, up 2.7 percentage points from a year earlier, while NPLs appeared to have stabilized at just over 17% of the total – a level that, by Slovenian standards, is both modest and manageable. Balance-sheet growth in 2014 was a sector-beating 3.6%, with the main drivers of expansion coming from the retail segment. An increase of 7.2% in the retail deposit base particularly impressed, proof of UniCredit Bank’s success in positioning itself as a reliable and trustworthy partner for Slovenian consumers.
Turkey Best bank: Akbank Best DCM house: Citi Best M&A house: Unlu & Co |
Turkey’s banking market remained as fiercely competitive as ever in 2014. The three biggest private-sector banks – Garanti, Isbank and Akbank – all posted strong results and maintained a dizzying pace of innovation, while smaller rivals continued to line up to challenge their dominance. A notable example is Yapi Kredi, jointly owned by Koc Group and UniCredit, which last year declared its intentions to become number one in Turkey within four years. Loan growth of 22% in 12 months showed the bank is serious about achieving its target but, with a balance sheet barely half the size of market leader Garanti’s, it still has a long way to go. Garanti also scored highest on profitability again, pipping closest rival Akbank by 0.7 percentage points in terms of return on equity with a full-year result of 14.8%.
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Akbank’s Hakan Binbasgil has produced superior lending growth, cost efficiency and asset quality |
Nevertheless, it was Akbank that got the nod from the judges again this year by virtue of its superior lending growth, cost efficiency and asset quality, as well as its impressive ability to respond to changing market and regulatory dynamics. Following the introduction of curbs on consumer lending in 2012, the bank, led by chief executive Hakan Binbasgil, has rebalanced away from the segment towards more lightly regulated areas. Thus, last year Akbank shrank its credit card loan book by a further 14%, while over the same period local currency lending to SMEs increased by 30%. Profitability has also been buoyed by a steady improvement in the bank’s cross-selling ratio, from 2.8 times in 2009 to 3.3 times last year, and extremely strong growth in fee-generating products such as money transfer and non-cash loans.
Other notable achievements in the current awards period included the expansion of Akbank’s global network via the signing of cooperation agreements with Barclays Africa and Korea’s Exim Bank and Hana Bank.
Turkish debt was a rare bright spot in emerging Europe’s capital markets last year. Uniquely for the region, Eurobond volumes in the awards period were up on the previous year by 7.5%, while the number of transactions rose from 33 to 41. The major beneficiary of this resilience was Citi, which reinforced its dominance of the market with mandates on 19 transactions for a total allocated volume of $2.3 billion, well above second-placed JP Morgan’s $1.7 billion.
Citi also scored highly in qualitative terms, acting on deals covering the full range of sectors, currencies and formats. Notable corporate transactions included Global Ports’ market debut, Arcelik’s €350 million seven year – the first ever euro-denominated Eurobond from a Turkish company – and Turkish Airlines’ inaugural enhanced equipment trust certificate (EETC). In the FIG space, Citi’s credits included Akbank’s first dollar offering since 2012 and the first ever Basel III-compliant tier-2 bond from Turkey, issued by Vakifbank.
M&A activity also picked up in Turkey last year, reaching just under $25 billion in the 12 months to March. A large chunk of this came from the year’s headline deal, the $3.3 billion acquisition by Yildiz Holdings of United Biscuits from private equity owners Blackstone and PAI Partners. Yildiz Holdings fought off fierce competition from Kelloggs and Burton’s Biscuits to win the auction, with the advisory support of local investment bank Unlu & Co and HSBC. The deal boosted Unlu & Co to number five in the M&A rankings in the awards period and confirmed its position as the Turkish market leader in cross-border transactions.
