Despite the war in Ukraine, the past year has seen UniCredit operating with more of the purpose and commitment that international banks in central and eastern Europe too often lack.
This is largely thanks to the new strategic objectives that group chief executive Andrea Orcel announced in late 2021. UniCredit’s central and eastern Europe divisions saw an increase in group capital allocation compared with Italy and greater use of revenue growth as a lever to improve profitability. Costs are also less of a focus than they are in markets such as Germany.
The strategy appears to be working. UniCredit’s central and eastern Europe divisions boast net profit for 2022 of €1.7 billion and €750 million respectively, while the divisions’ respective returns on allocated capital were 14.3% and 19.3%. Net operating profit rose by 25% in eastern Europe and by 60% in central Europe.
“Our results confirm that we are on the right path,” says Teodora Petkova, head of central and eastern Europe. “When we launched our UniCredit Unlocked strategy, we marked out eastern Europe as an area of growth, including revenue growth, but capital efficiency was also important. That’s involved reviewing our product mix and offering to our clients, disciplined business origination and optimizing our risk-weighted assets.”
Nevertheless, the war in Ukraine has been extremely painful for UniCredit. Although Orcel would clearly prefer to be out of Russia now, he has argued – perhaps rightly – that this must be done in an orderly fashion that does not involve simply gifting the bank to the Russian government. Most other regional banks have found it equally difficult to realize such an exit.
Meanwhile, Orcel’s arrival at UniCredit in May 2021 has not yet led to the bank buying spree that some feared and others hoped for. Continued caution on acquisitions is not unique to UniCredit, however, not least given the greater scope today to grow by investing in digital channels rather than by buying a retail bank.
Over the past year, when some of its rivals were distracted by integrating acquisitions, UniCredit’s potential for organic growth in this region has become clearer. The bank has seen strong growth in customer numbers – especially in countries such as Romania and Serbia, where its market share has furthest to grow – as well as more traction in cross-selling products such as insurance and asset management.
When we launched our UniCredit Unlocked strategy, we marked out eastern Europe as an area of growth
Teodora Petkova
These successes owe a lot to UniCredit’s development of digital banking – with greater digitalization of mortgages, consumer loans and current accounts in the Czech Republic and Slovakia, for example – and its efforts to trim the number of retail products, fostering greater efficiency and focus.
The launch of a pre-approved loans scheme for small businesses across the region, in February 2023, is another indication of its work to simplify and standardize its client offering. Such loans already account for an important proportion of small and medium-sized enterprise lending in both central and eastern Europe, although as Petkova notes, the attitude has also been to seek revenue growth that is less onerous in terms of capital requirements.
One important move in that direction, which helped it extend financing to Bulgarian SMEs at affordable rates and in a capital-efficient manner, was a €630 million synthetic securitization with the European Investment Bank, backed by the European Guarantee Fund.
