SocGen, OTP deals stir M&A market, Greek banks continue to divest SEE assets

By Mario Tanev

The consolidation of the banking sector in Southeast Europe (SEE) continued full steam in 2018, as most deals were related to the ongoing divestment of assets by Greek lenders and French banking group Societe Generale.

Societe Generale has been engaged in a broad restructuring plan for the past few years, as it committed to refocus its business model and dispose of non-core assets which carry insufficient potential for intragroup synergies.

At the same time, Hungarian banking group OTP continued to operate in an aggressive expansionary mode, snatching the majority of Societe Generale’s disposals in SEE.

OTP leveraged its extremely well-capitalised position and leaned on its solid retail lending expertise, which partly explains its bet on the region, where despite the somewhat lagging corporate credit demand, retail lending remains particularly strong.

Societe Generale began disposing of its SEE assets in 2017, when it sold a 100% stake in Croatia’s Splitska Banka to OTP. The partnership between the two lenders proved to be fruitful, as in 2018 Societe Generale agreed to sell a further four of its units in the region – in Albania, Bulgaria, Montenegro and Serbia, to OTP. In addition, the two banking groups entered into a services agreement concerning their operations in Albania, Bulgaria, Croatia, Hungary and Serbia. The agreement encompasses the provision of mutual services in various fields, including investment banking, capital markets, financing and global transaction banking.

This process continued in 2019 when Societe Generale agreed to sell two more units – in Moldova and Slovenia, to OTP Bank. Of all the SEE banking units Societe Generale agreed to divest in 2018 and early 2019, only North Macedonia’s Ohridska Banka was sold to an investor different from OTP – Austria’a Steiermaerkische Sparkasse.

Meanwhile, Greek banks stuck to the commitments they made in their restructuring plans adopted in the aftermath of the global financial crisis. Local lenders increasingly focused on their domestic operations and continued their efforts to slim down by divesting their foreign subsidiaries and using the proceeds to boost capital ratios and liquidity.

At first, when Greek banks struggled to cut foreign exposure in SEE, weak asset quality chased away potential investors. However, the tide turned in 2017 and the process continued in 2018. Piraeus Bank was among the most active players in the region, agreeing the sale of its subsidiaries in Albania, Bulgaria and Romania.

Serbian lender Direktna Banka completed the acquisition of the local banking and leasing operations of Piraeus Bank in April 2018. Direktna Banka wrapped up the integration of Piraeus Bank’s Serbian operations in October. Then, in July 2018, the Greek lender completed the sale of its Romanian subsidiary to private equity firm J.C. Flowers & Co and the European Bank for Reconstruction and Development (EBRD).

In August 2018, Piraeus Bank agreed to sell a 98.83% stake in its Albanian subsidiary, Tirana Bank, to Macedonia’s Komercijalna Banka and Albanian investment group Balfin for a total consideration of 57.3 million euro.

The following month, Piraeus Bank signed an agreement to sell a 99.9819% stake in Piraeus Bank Bulgaria to Eurobank Bulgaria, which operates under the Postbank brand. Eurobank Bulgaria is a unit of another Greek lender – Eurobank Ergasias.

After selling its assets in Bulgaria and Serbia in the second half of 2017, National Bank of Greece continued with its strategy to divest assets in the SEE region.

National Bank of Greece sold United Bulgarian Bank and leasing company Interlease to Belgium’s KBC Group for 610 million euro in mid-2017, while it wrapped up the sale of Serbia’s Vojvodjanska Banka to OTP Group in December 2017.

In July 2018, National Bank of Greece completed the sale of its Albanian subsidiary NBG Albania, to American Bank of Investments (ABI), a unit of Albania’s Tranzit. Subsequently, American Bank of Investments received central bank approval to absorb NBG Albania.

The Greek lender also tried to sell its Romanian unit, Banca Romaneasca, but the selected buyer, OTP Group, failed to obtain approval from Romania’s central bank in April 2018.

Another Greek bank – Eurobank Ergasias, sold its Romanian unit Bancpost to Banca Transilvania in April 2018. Romania’s Banca Transilvania subsequently absorbed Bancpost.

In addition to the Bancpost acquisition, in January 2018 Banca Transilvania became a shareholder of Moldova’s Victoriabank after acquiring a 39.18% stake in a deal that marked the first investment by a non-Moldovan bank in the local market in a decade. Subsequently, Banca Transilvania grew its stake in Victoriabank to 44.6% in a buyout bid.

Besides the Greek banks, Societe Generale and OTP Group, another key player on the SEE M&A market in 2018 was Italian banking group Intesa Sanpaolo.

In July 2017, Intesa Sanpaolo sold its unit in Croatia – Veneto Banka, to Croatian lender Privredna Banka Zagreb. Privredna Banka Zagreb absorbed Veneto Banka in October.

Subsequently, the Italian banking group, through its unit Intesa Sanpaolo Bank Albania, completed the acquisition of the Albanian subsidiary of defunct Italian lender Veneto Banca.

The M&A market in the region seems likely to remain hot in 2019, as OTP Group continues to firm its foothold, while several other large players are reportedly scanning the scene for new buys.

“Beyond the capital required for organic growth the management intends to allocate significant part of the generated excess capital for further value-creating acquisitions,” OTP Bank’s management says in a presentation before the shareholders at its 2019 annual meeting.

OTP is reportedly looking into further acqusitions in Croatia after buying Societe Generale’s local unit.

The Hungarian bank is not the only lender contemplating purchases in SEE. In May Austria’s Raiffeisen Bank International announced that it will seek to make acquisitions in Croatia as oganic growth alone will not be sufficient to boost its market share in a market with limited growth potential.

At the same time Turkish state-owned Halkbank, already present in North Macedonia and Serbia, is reportedly considering expansion in Moldova.

The consolidtion of the SEE banking sector is expected to continue in 2019, a poll among some of the leading banks in the region confirmed. The ongoing privatisation process in Serbia and Slovenia may lend further momentum to this process.

We asked some of the leading banks in the region if they see room for further consolidation or entry of new players in the respective market/markets where they operate. Following are their answers:

OTP Banka Hrvatska

Bearing in mind the more complex and expensive regulatory framework for European banks, as well as the relatively small market of ours, further consolidation, especially in the segment of smaller banks is always possible.

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Horia Braun,

BCR chief economist:

There is probably still room for consolidation in the local market as some small players continue to struggle and are interested in exits, while others remain interested in faster building of scale to compete with the Top 7. On the other hand, I think it’s more difficult to expect new players coming to the market, at least as long as loan growth in the banking market remains far from a compelling story and the regulatory and fiscal environment is also on a challenging path.

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EBRD economist Peter Tabak:

Most countries of the region have still too many banks for the country size and recent bank failures show that corporate governance and lending standards are not equally strong for all of them. Large changes have been already under way in recent years, with many Greek banking groups or Societe Generale leaving the region while others (like OTP Group) strengthening their presence. These changes, together with strengthening regulatory activities, tightening capital requirements within the Basel III/IV framework, might also contribute to the consolidation in the banking sectors in the region.

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Privredna Banka

Zagreb Research Office:

Today, number of banks operating in Croatia declined to 21 – significantly lower compared to 34 banks in 2008, out of which around 13 banks have less than 1% market share. Trends in B&H are similar with number of banks declining to 23 (end-2018) from 30 (end-2008). Number of banks in both Croatia and B&H can still be considered high in relation to the size and concentration of the market, hence the process of consolidation will most likely continue. Banks will certainly try to benefit from economies of scale in an environment of stricter regulatory requirements, growing complexity of business, rising nonbank competition and narrowing margins, where pressure on profitability is strong, particularly in case of smaller players (which usually have higher C/I ratio). Also, various equity funds currently engaged in banking sector will most likely consider exit strategies.

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Raiffeisen Bank d.d. Bosnia and Herzegovina, Investment Banking, Research and Advisory

Consolidation of banking sector has been practically halted in 2017 and 2018 with no changes in banking sector market in terms of banks number. Number of banks of 23 is still too high for small market and economy as B&H, especially with such large concentration of top three players holding 50% of the assets and loan portfolio in the market (Unicredit Group, Raiffeisen,NLB Group). With still limited potential for organic growth in BH banking sector in coming mid-term period due to limited growth of economy in range of 2.5 – 3% yoy in real terms, further consolidation of the market is inevitable. Banks will for sure seek out for an opportunity to acquire smaller players and their portfolio as creating of new portfolio is restricted due to moderate economic dynamics and quality projects in the country. In addition, some very weak and small banks could be liquidated in mid-term period in B&H.