"At present, we see no indications for a significant slackening of the long-term growth trend"
Walter Demel, senior analyst at RZB in Vienna and co-author of the study, expects the strong growth pattern to be maintained. "At present, we see no indications for a significant slackening of the long-term growth trend," he says. The balance sheet total for the region is forecast to more than double by 2011 to 2.5 trillion, according to Demel, and then double again to reach 5 trillion by 2106 equating to an average annual growth rate of 17%.
RZBs central and eastern European banking study looked at the most important 15 markets in central and eastern Europe and found that growth in 2006 was highest in the Commonwealth of Independent States (which include Belarus, Russia and the Ukraine for the purpose of the study), at 41.7%, followed by southeastern Europe, which grew 36.7%. The banking markets of central Europe, which are more mature in terms of market development, grew by 15.8%. In terms of individual country performance, the fastest-growing markets were Serbia (up 51%), Romania (up 47%), Ukraine and Russia (both up 42%). Bulgaria and Belarus (up 28%) both achieved above-average growth dynamics in 2006. Slovakia achieved the lowest increase but still recorded growth of 10%.
The banking markets in the CIS will develop much faster than those of the new EU member states, adds the study, with average annual growth of 21% for the period up to 2011. The figures for southeastern and central Europe are 16.6% and 15.6% respectively. As a result, RZB analysts expect the balance sheet total for the CIS to overtake that for central Europe in 2008.
The key condition for further banking growth underlying economic expansion looks set to stay in place, according to RZB. For example, in 2007 the bank is forecasting that GDP across central and eastern Europe will expand by more than 6%, compared with 3% for the eurozone and 2% for the US. However, Demel says that growth in the banking industry will continue to be a multiple of this GDP figure, pointing out that in recent years banks have grown on average three times faster than the overall economic performance. This trend is expected to continue, he adds. He reckons that the key driver of growth is now retail banking, with rising incomes across the region leading to growing deposit levels and increased demand for consumer and housing finance.
"We see that the greatest demand is to finance housing property, cars and consumer goods. On the one hand, there is incredible pent-up demand and, on the other hand, demand is further boosted by the increases in income," says Demel. He adds that the long-term potential of retail banking can clearly be seen from the difference in retail lending/GDP ratios between central and eastern Europe and the eurozone. In the eurozone, retail lending accounted on average for 54.1% of GDP at year-end 2006. In central Europe and south-eastern Europe, in contrast, the respective figures were 17.5% and 17.7%, and just 8.3% in the CIS. "The regions are in different stages of development. As a result, there are major differences in growth rates," says Demel.
Although Russias Sberbank is the biggest bank in the region, with assets of 100.5 billion, the regions banking market is increasingly dominated by international players. "The international banks in central and eastern Europe are growing significantly faster than the overall market, which is due, among other things, to their intensive merger and acquisition activities," says Stefan Maxian, head of company research at Raiffeisen Centrobank and co-author of the report.
As a result, international banks are also a big driving force behind the overall economic growth of the region. With average annual balance-sheet growth of 37.1% for 2001 to 2006, Raiffeisen International showed the biggest growth dynamics, followed by Italys UniCredit with 31.7% and Hungarys OTP at 27.6%.