The ups and downs of CEE banking


Lucy Fitzgeorge-Parker
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In the spirit of summer supplements, here is Euromoney’s must-have guide to some of the main winners and losers of the past year in central and eastern Europe.



Long after their arrival was first rumoured, China’s banks are finally extending their reach into emerging Europe. In January, Bank of China became the first Chinese lender to set up shop in central and southeastern Europe when it opened a branch in Serbia, from which it is reportedly looking to cover the whole of the Balkans and neighbouring countries.

The lender is also planning to open a deposit bank in Turkey this year, following in the footsteps of fellow state-controlled bank ICBC, which bought Tekstilbank in 2015. Both banks have also turned up with increasing frequency over the last two years on loan syndications in the region, mainly in Turkey and Russia, but also in Bulgaria, Hungary, Poland and the Czech Republic. 
Traditionally China’s banks and big firms move in lockstep, and that looks to be the case here. Acquisitions by Chinese firms in CEE doubled last year in volume terms, boosting China to number three in the rankings of inbound M&A for the region, according to lawyers CMS. 


Given the political climate, it is perhaps surprising that Russia’s state-owned banks had not been kicked out of Ukraine before this year. Admittedly far-right activists had taken it upon themselves to firebomb or otherwise vandalize branches of Sberbank and VTB in various parts of the country in the three years following the invasion of Crimea. 

It was not until president Vladimir Putin signed a decree in February recognizing passports from the Moscow-backed breakaway republics in eastern Ukraine, however, that policymakers in Kiev took up the cause. The following month, Ukraine’s central bank banned local subsidiaries of Russian state banks from transferring capital to their parents and made it clear that they were no longer welcome in the country. Nationalists drove home the message by building walls in front of bank branches. 

Sberbank promptly announced plans to sell its Ukrainian bank, the sixth-largest in the country, to a consortium led by Said Gutseriev, the son of RussNeft and B&N Bank owner Mikhail Gutseriev. VTB and VEB have yet to find buyers for smaller operations – unsurprising, given the parlous state of the Ukrainian banking sector, not to mention persistent rumours of extremely high levels of unrecognized non-performing loans at Russian subsidiaries.


This time last year we flagged the Italian bank’s increasing enthusiasm for deals considered too dicey by even traditionally broad-minded western lenders. This strategy bore fruit in December, when Intesa acted as adviser and main financier of the €10.2 billion ($11.3 billion) sale of a 19.5% stake in Rosneft to Qatar’s sovereign wealth fund and Glencore. 

Mystery still surrounds the mechanics of the deal, as well as the question of whether or not it will ever be syndicated and if so who will touch it. It has, however, already earned Intesa’s CEO Carlo Messina the Order of Friendship, an accolade bestowed by Putin himself. Antonio Fallico, head of the bank’s Russian subsidiary, had to make do with the Order of Honour.


Société Générale makes much of its market-leading franchises in the Czech Republic, Russia and Romania. Less well-advertised is the fact that the French group has commercial banking operations in a clutch of tiny markets on the periphery of CEE: FYR Macedonia, Montenegro, Moldova and Albania. 

All are profitable and well-run, yet there are signs that SG may be starting to doubt the wisdom of maintaining such remote outposts, particularly given that the political and business environment in those countries is notoriously febrile. In September, the French group sold its subsidiary in Georgia to TBC Bank. It is also rumoured to be looking to exit Montenegro. SG did not respond to a request for comment. Watch this space.


When the Ukrainian government nationalized PrivatBank in December and recapitalized it to the tune of $4.5 billion, policymakers were adamant that no further state support would be required. Unfortunately it appears that the more time its new owners spend looking into the books of PrivatBank, the more holes they find to plug. 

Insiders in Kiev had been hinting for some time that a further capital injection would be necessary and last month [June] the central bank named a figure of $1.5 billion. That would make the total bill for PrivatBank so far equivalent to 6.6% of Ukraine’s GDP. 

Why does the bank need so much support? Well, that depends on who you ask. Ukrainian authorities say almost 100% of PrivatBank’s lending has effectively disappeared into entities related to its shareholders, led by powerful oligarch Ihor Kolomoisky. The former owners say this is a fabrication to justify the unlawful seizure of their bank. 

Kolomoisky and his associates were given until July 1 to come up with restructuring proposals for the loans, failing which the authorities will start legal action. Why policymakers are so keen to keep PrivatBank afloat is easier to answer. The bank holds 36% of all private sector deposits in Ukraine. 

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On a more mundane, but also more practical note, it is heartening to report that emerging Europe finally seems to be getting over its passion for paperwork. Bankers in the region have complained for years of the difficulty of persuading local authorities to give up the post-Communist habit of demanding that every transaction be documented in triplicate at the very least – “the battle with the rubber stamp”, as one Romanian bank CEO calls it. 
Yet it was notable that this year nearly every award submission from CEE commercial banks included the introduction of online loan applications or account opening in their list of recent achievements. Good news for banks, bank customers – and trees.