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Emerging Europe: Banks assume the recovery position

Western bankers have paid a heavy price for their expansion into the further reaches of central and eastern Europe yet the region still offers potential for growth. With recovery on the way, will banking groups be able to resist making the same mistakes again? Lucy Fitzgeorge-Parker reports.

A YEAR AGO, the banking outlook in central and eastern Europe was grim. The western groups that dominate banking in the region spent 2009 cost-cutting and fire-fighting as the knock-on effects of the global financial crisis took a heavy toll, particularly in more peripheral economies such as Ukraine and the Balkan states that became fashionable late in the day as expansion mania took over. Today, however, the picture looks much brighter. Even in the worst-hit economies, such as Hungary and Romania, non-performing loans are finally predicted to peak by the end of the first half of the year, while in most countries recovery is already well under way. Relieved of their immediate concerns, bankers are free to turn their attention to strategy and plan for the longer term.

One thing everyone in the industry agrees on is that CEE is still a market with big potential, even if all of it might not be realized as soon as had been hoped. The numbers speak for themselves. The ratio of banking assets to GDP stands at about 260% in the eurozone, while even in central Europe it is barely at 100% and in the southeastern European economies it is below 90%.

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