The great Greek Balkan banking sell-off
NBG and Alpha speed up exits; private equity buyers appear.
At long last, the Greek banks are starting to sell off their subsidiaries in south-eastern Europe (SEE). The Hellenic big four have been under orders to cut exposure in the region following their bailouts in the wake of the Greek credit crisis, but low valuations and weak asset quality curbed enthusiasm for disposals. Now, with disposal deadlines looming and economic growth accelerating in markets across emerging Europe, the big sell-down is finally getting underway. National Bank of Greece (NBG) set the ball rolling at the end of last year with the sale of its Bulgarian subsidiary and this summer has followed up with exits from Romania and Serbia.
Alpha Bank also sold out of Serbia in January, Eurobank is taking bids for its Romanian operation and incoming Piraeus Bank chief executive, Christos Megalou, has announced plans to make a clean sweep of the lender’s four-country Balkan network.
On the buy-side, the key player so far has been OTP Bank. The Hungarian group has been in expansionary mode for a while, turning up regularly in sale processes across central and eastern Europe (CEE) and over the past year it has bagged no fewer than three banks in the Balkans.
Hard on the heels of its takeover of Société Générale’s Croatian subsidiary Splitska Banka, which was completed in May, came the news that OTP had agreed to buy NBG’s operations in Romania and Serbia.
Analysts attribute OTP’s enthusiasm for expansion to two factors. Firstly, by western European standards, the group is remarkably well-capitalized. At the end of March, its core tier-1 ratio stood at 16.0%, providing ample scope for acquisitions.
Secondly, current trends in SEE banking play to OTP’s strengths. While corporate credit demand in the region remains sluggish, retail lending is booming.
“OTP has well-established expertise in retail lending, particularly in higher-margin segments,” says Gunter Deuber, head of CEE research at Raiffeisen Bank International. “They are confident they can manage retail through the cycle, so they see current conditions as an opportunity to build market share in their core competence.”
Another name that is turning up with increasing regularity in the Balkans is MK Group. Owned by Serbia’s richest man, Miodrag Kostic, the conglomerate, which covers sectors from agriculture and tourism to IT and telecoms, has recently started to build up its banking business.
In January the group announced plans to merge Alpha Bank’s Serbian subsidiary with its own local lender, AIK Banka. Further acquisitions in Serbia are said to be likely, while the purchase of a 13.9% stake in Slovenia’s Gorenjska Banka in the same month hinted at regional ambitions.
Other regular bidders mentioned in the context of the Greek subsidiaries include rising Romanian national champion Banca Transilvania, which is looking for further acquisitions following its successful absorption of Volksbank Romania, plus a clutch of private equity funds.
Bankers report that private equity buyers are particularly interested in Romania, where a population of close to 20 million and GDP growth of well over 4% make for a uniquely appealing combination, but other markets are also seeing interest from the sector.
Advent International is said to be keen to bulk up some of the subscale franchises in the Balkan network it acquired from Hypo Alpe Adria, while local media in Slovenia report that Apollo is bidding against AIK Banka for a controlling stake in Gorenjska Banka.
The deal would mark a fourth acquisition in the country for Apollo, which already owns KBS Banka, Raiffeisen Slovenia and number two lender Nova KBM. Guy Stevens, a regional financial institutions M&A specialist at UBS, says this model is one that other private equity firms may seek to emulate.
“We are seeing a lot of interest from private equity buyers in the Balkan region, but they don’t necessarily want to buy just one bank,” he says. “They want to buy two or three banks as a means of consolidating and ending up with something more meaningful.”
The market consensus is that at least some of the funds bidding for Greek subsidiaries – and other SEE assets such as Serbian number two Komercijalna Banka, which is up for privatization next year – will be successful.
A few years back, there might have been concerns over whether such transactions would be approved by local authorities, but bankers say regulators in the region are becoming less fussy given the shortage of alternative buyers. With the exception of KBC’s one-off purchase of United Bulgarian Bank from NBG, western regional groups have been notable by their absence in the recent spate of M&A in SEE.
Groups such as Raiffeisen, UniCredit and Erste have only just succeeded in boosting their capital ratios to levels acceptable to regulators, making them wary of acquisitions in what are, for the most part, relatively small and fragmented markets.
“If regulators had a choice of a western European strategic investor or a private equity fund, all else being equal they would go for the former,” says Stevens. “But they would rather see businesses that are for sale go to a respectable international private equity firm than have prolonged uncertainty over their ownership.”