CEE banking: Heaven or hell


Lucy Fitzgeorge-Parker
Published on:

A proposed tie-up between UniCredit and Société Générale would be a real game changer in the region: complementary and challenging.


It has been a long time since the last big realignment among the large regional banks in central and eastern Europe

Over the last decade there has been some trimming of networks in the more remote parts of the region, a few exits from unprofitable or subscale markets and a couple of reluctant departures from Poland – but by and large things have stayed as they were when the music stopped in 2008.

Now, as then, the key players nearly all hail from western European – UniCredit, Erste, Raiffeisen Bank International (RBI), Société Générale, KBC and Intesa Sanpaolo. 

RBI has retained the broadest geographical reach. Following the sale of its Polish operation to BNP Paribas, which was announced in April, the Austrian group will have subsidiaries in 13 countries. UniCredit, Société Générale and Intesa each boast 10. Erste and KBC have six and four respectively. 

By balance-sheet exposure, however, Erste currently leads the way after overtaking UniCredit when the latter sold Bank Pekao in Poland at the end of 2016. The Austrian group had total CEE assets of €101 billion at the end of December, according to RBI analysts. 

UniCredit was close behind, with €97.3 billion; RBI is in third place on €86.8 billion; and Société Générale is fourth with €78.6 billion. 

In terms of market share, meanwhile, Erste and KBC head the pack in the Visegrad countries, but in southeastern Europe UniCredit is well ahead of rivals with 16.5% of total banking assets. Further east, it is a three-way fight between UniCredit, RBI and Société Générale, all of which have big operations in Russia.


Competition between the groups is fierce, particularly in key growth markets such as the Czech Republic and Romania, but during the lean years since the financial crisis a certain equilibrium has been established as the various players have fine-tuned their business models and refocused on their specialisms. 

KBC and Erste are the big retail players with limited risk appetite, as exemplified by their preference for EU markets. UniCredit and RBI compete for the day-to-day banking, balance sheet and domestic capital markets business of international and local corporates across the region. 

Société Générale, meanwhile, focuses on consumer finance at one end of the scale and full-service corporate and investment banking at the other. 

This could all be upended, however, if a proposed merger between UniCredit and Société Générale comes to pass. As rumours of a possible alliance resurfaced with added vigour in recent months, most of the discussion centred on the groups’ operations in western European – but in CEE it could be even more of a game changer.

In many ways it would be a match made in heaven. The combined entity would have a 30% market share among the leading cross-border banks in the region, opening up a big gap to the rest of the pack.  

There is also the possibility that a merger could throw up opportunities for rival players 

More importantly, the groups’ networks would complement each other nicely. In the highly profitable Czech market, Société Générale’s Komercni Banka is currently number three by total assets behind close rivals CSOB and Ceska Sporitelna, with UniCredit a fairly distant fourth. Combining the two, however, would create a clear local leader with a market share of more than 20%.

UniCredit could contribute mid-sized operations in Hungary and Slovakia, while in Romania the Italian group’s corporate-focused second-tier operation would fit well with Société Générale’s revitalized BRD. The latter recently lost its number two spot to local challenger Banca Transilvania so might be expected to relish the chance to leapfrog both it and current market leader BCR.

A Société Générale-UniCredit tie-up would also create a new market leader in Serbia, a current favourite with regional groups, while the French bank’s decision to offload its Croatian operation to OTP last year would seem opportune in retrospect, given UniCredit’s dominant position in that market. 

Meanwhile in Russia, combining Société Générale’s restructured retail franchise with UniCredit’s corporate-focused business would create a new champion among foreign-owned banks, with a market share to rival that of Alfa Bank, the largest domestic lender still in private ownership.

Poland would remain a gap in the merged group’s network. Société Générale has only a limited commercial banking presence in the country, which it is reportedly looking to exit. Given the lacklustre returns in the Polish market and the increasing incursions of the state into the banking sector, however, that might not be as much of a negative as it would have been eight years ago.

Mixed response

It is no surprise, then, that reports of the proposed merger have prompted a mixed response from other regional groups. 

“Such a transaction would definitely be a challenge for mid-sized competitors,” says a regional banker in Vienna. RBI in particular could be vulnerable to the emergence of a dominant corporate and investment banking player in the region. 

On the other hand, there is also the possibility that a merger could throw up opportunities for rival players. 

“If the regulator decides that they have to sell certain portfolios or business lines in order to avoid too much market dominance, then competitors would definitely be willing to snap up some parts of those businesses,” says the banker. 

Rivals may also be comforted by the reflection that CEE once again looks set to be a reliable source of returns for the next few years. Economic growth across the region remains strong, credit demand is picking up and financial intermediation levels are still feeble by western European standards. 

Last year’s healthy profits across the sector may have been boosted by the release of provisioning after intensive work on NPL portfolios, but digitalization is also driving down costs and rising interest rates promise relief from the lean years of margin squeeze. 

With a bit of luck and a fair wind, there could yet be room for everyone in the market – even if a Société Générale-UniCredit super-bank does get the green light.