Herbert Stepic, chief executive of Raiffeisen International, the second-biggest lender in central and eastern Europe, remains confident that despite the short-term effects of the global credit crunch and the associated economic slowdown, central and eastern Europe will continue to offer profitable opportunities for those institutions that display a long-term commitment to the region.
"I personally believe that central and eastern Europe will stay the most attractive growth market in the whole of Europe and that in a couple of years time, we will look back at this crisis as a spot in history"
Herbert Stepic, Raiffeisen International
Stepic says: "I personally believe that central and eastern Europe will stay the most attractive growth market in the whole of Europe and that in a couple of years time, we will look back at this crisis as a spot in history." While acknowledging that economic growth levels in the region will be lower than in the pre-credit crunch era no bad thing, he argues, given the dangers of economic overheating he still believes that so-called New Europe will continue to outperform the soi-disant Old Europe by some margin. "Central and eastern Europe still offers a number of key advantages versus the EU15 economies," says Stepic, citing such features as low labour costs, high educational standards and rising productivity gains. Whats more, he adds, the investment case for central and eastern European has been further bolstered by attractive, low tax regimes for both corporates and private individuals. Raiffeisen analysts forecast that GDP growth in the region will be at least 2.5 percentage points higher than in the EU15 on a long-term basis after this crisis.
Stepic recognizes that this upbeat prognosis is struggling to find an audience against the doom-laden predictions of some analysts who have said that central and eastern Europe is heading for economic meltdown. "The hammering that central and eastern Europe and, consequently, Austrian banks and the Austrian economy, have received from unobjective reporting in recent months has been a source of great concern to us," says Stepic, adding that the incorrect interpretation of financial data has given an utterly false picture of Austrian banks risk exposure in central and eastern Europe. "Of the total 200 billion exposure of Austrian banks to central and eastern Europe, some 85% is financed locally through deposits," he says. He adds that some 72% of the total is invested in countries that are now members of the European Union. "There is the common understanding within the EU and outside the EU that no EU country will fail." Of the 28% balance, half is exposed to southeastern Europe, where many countries are already on the path to EU membership, while the remaining exposure of just 14% is to Russia and the Commonwealth of Independent States, where Stepic acknowledges that the economic and financial risks are probably the highest.
"Media coverage has created a great deal of uncertainty in the banking industry and a totally wrong risk perception of central and eastern Europe," says Stepic. "Our lending in central and eastern Europe is almost only on a secured basis and so it will not lead to an explosion of the Austrian economy, let alone the Austrian banks, as has been suggested in some quarters." Stepic is not blind to the short-term financial pitfalls. "Of course we see the risks and we will see a rise in non-performing loans as the region has been hit by the liquidity and financial crisis of the past year." He is dismissive of any notion, though, that central and eastern Europe poses a comparable risk to the sub-prime mortgage problems in the US. "Investors can still invest in productive assets in central and eastern Europe and not in toxic assets," he says.