SEE banking sector sees robust profit growth, top lender Zagrebacka turns to loss

By Siana Mishkova

Southeast Europe’s banking sector remained largely stable in 2015 and 2016 amid stricter capital requirements and low interest rate environment. Although asset quality remained a challenge for the industry with high non-performing loan (NPL) levels hindering stronger credit growth, better operating conditions in a revitalised economic environment helped the region’s biggest banks improve their overall earnings performance and boost assets.

The combined net profit of the Top 100 SEE banks for 2015 reached 1.45 billion euro, well above the tiny 53.6 million euro profit realised by last year’s top 100 lenders in 2014 (excluding the huge 2.2 billion euro loss of Bulgaria’s collapsed Corpbank). If we take the same 100 banks that made it into the 2016 rankings, their combined profit was again much higher, rising from 545 million euro a year earlier.

The total assets of SEE’s 100 biggest banks edged up 1.3% in 2015 to 251.4 billion euro, with 62 lenders reporting growth. The top three banks, accounting for 15% of the total assets, remained the same as last year, as no. 1 and 3 – Zagrebacka Banka and BRD – outpaced the pack, while BCR managed to keep its second position despite its slower growth. With an impressive 33% asset growth impacted by a merger with Volksbank Romania (VBRO), Banca Transilvania climbed by two spots to no. 4, while UniCredit Bulbank went up to no. 6 from 8 on the back of a 17% organic expansion. On the other hand, NLB lost two places to no. 7 as its assets fell 2%.

Looking at the wider top 100 ranking, OTP Bank Romania was the best performer, advancing by 18 spots to number 45 with an 81% asset expansion affected by the consolidation of Millennium Bank, which it bought for 39 million euro in January 2015. On the negative side, the assets of Alpha Bank’s Branch in Bulgaria shrank 71%, dragging it 52 positions down to the bottom of the table. In July 2015, Greece’s Alpha Bank agreed to sell its Bulgarian unit to the local subsidiary of Greece’s Eurobank EFG. The deal was completed in March 2016.

Romania’s largest privately-owned lender, Banca Transilvania, shined with a record high profit of 534 million euro, up 5.5 times from 2014. Croatia’s Hypo Alpe-Adria-Bank was the biggest loser, ending up 333 million euro in the red. Out of the total Top 100, 24 banks made losses, amounting to a combined 1.0 billion euro in 2015, while 76 made profits of an aggregate 2.5 billion euro. Nine lenders swung to profit last year, while 12 turned to loss, including leader Zagrebacka Banka. As a whole, the bottom line of 57 banks improved year-on-year, while that of 43 worsened. In the 2015 ranking (excluding Corpbank), 26 banks booked losses, worth a combined 1.76 billion euro, while 75 made profits of 1.82 billion euro, with Zagrebacka having the biggest profit and BCR – the largest loss.

By country, Romania was best represented in the ranking with 21 banks, followed by Bulgaria with 18, and Serbia with 15, the same as last year. The number of Slovenian and Croatian lenders fell by one each, to 14 and 9, respectively, while that of Bosnian and Albanian ones rose to 8 from 6 and to 7 from 6, respectively. Romania was also a leader in terms of assets with an 80 billion euro aggregate balance sheet of its Top 100 SEE representatives, or almost a third of the region’s total, followed by Croatia with 47.3 billion euro, Bulgaria with 42.6 billion euro, Slovenia with 34.7 billion euro, and Serbia with 23 billion euro. The data suggests that Serbia offers the most favourable opportunities for mergers and acquisitions with many smaller banks, while the banking activity in Croatia is concentrated in several big lenders, with its lowest ranking bank at 55th spot. The top 10 of the ranking was again dominated by Romania with five banks, Croatia had three representatives, and Bulgaria and Slovenia had one each.

Having in mind that the SEE banking sector is dominated by western European banks, holding roughly two thirds of assets, Italy stands out in our Top 10 ranking, accounting for 40% of the assets of the 10 biggest lenders, with UniCredit’s units in Croatia, Bulgaria and Romania holding a total of 29.5 billion euro in assets and Intesa Sanpaolo’s Croatian subsidiary holding 9.1 billion euro. Next comes Austria with a 29% share, as Erste’s units in Romania and Croatia have a combined 20.9 billion euro of assets and Raiffeisen’s Romanian arm holds another 7 billion euro. France also made it to the Top 10 with Societe Generale’s Romanian unit accounting for an 11% share, joined by Banca Transilvania, in which the EBRD is the largest shareholder with a 15% stake, and Slovenia’s sate-owned NLB, which was rescued by the government in 2013 and is now set to be privatised via the stock exchange in the coming months.

The number of newcomers to the 2016 Top 100 Banks ranking was six, with Sparkasse Bank Sarajevo entering highest, at 89th position A year earlier newcomers were five, as Banca Sociala was the top performer at 78th spot. At the same time, the entry threshold fell to 504 million euro from 545 million euro.