By Radomir Ralev
As the macroeconomic environment in Southeast Europe (SEE) continued to improve, banks enjoyed solid profitability and a robust growth in assets amid lax access to funding. Demand for loans increasеd, fuelled by the need for working capital and investment financing by enterprises and robust growth of housing- and non-housing-related expenditures by households. Credit quality improved further, albeit at a slower pace than in previous years.
SEE banks’ assets grow 7.9% as consolidation continues
Amid an ongoing consolidation of the banking sector across SEE, Hungarian financial services group OTP significantly expanded its footprint through acquisitions in Serbia, Montenegro, Slovenia, Moldova and Bulgaria. Other M&A deals involved the sale of the entire capital of Slovenia’s third largest bank, Abanka, to Nova Kreditna Banka Maribor (NKBM) by sovereign holding company SDH. In Serbia, the preparations for the privatisation of Komercijalna Banka moved forth.
Against this backdrop, the total assets of SEE’s top one hundred banks rose 7.9% in 2019 to 316.3 billion euro, versus 7.2% growth in 2018.
Banca Transilvania cemented its leadership as the largest bank in SEE, its assets rising 15% to 18.3 billion euro. The Romanian lender was followed by Croatia’s Zagrebacka Banka in second place, and Banca Comerciala Romana in third.
A total of 88 lenders reported growth, up from 85 last year.
Serbia’s Vojvodjanska Banka, a unit of OTP, climbed 17 positions to 49th spot as its assets swelled 146% to 1.8 billion euro, backed by the acquisition of the Serbian unit of French banking group Societe Generale. Eurobank Bulgaria saw its assets grow 36% to 5.7 billion euro as it absorbed Piraeus Bank Bulgaria in November.
Profits hit record high
The combined net profit of the region’s top lenders rose to 4.673 billion euro in 2019 from 4.467 billion euro in the previous year, reaching its highest value since 2008.
Banca Transilvania posted the highest profit of 339.1 million euro among SEE lenders last year, an increase of 29.7%, backed by resilient interest margins, strong franchise and good cost efficiency. Another Romanian bank, BRD, ranked second, with a profit of 319.8 million euro, down 3.5%.
Banca Romaneasca was the only member of the on hundred biggest lenders that recorded a loss last year, compared to six loss-markers in 2018. In June 2019, Romania’s EximBank, in which the finance ministry holds a majority stake, signed an agreement with National Bank of Greece (NBG) for the purchase of NBG’s equity holding of 99.28% in Banca Romaneasca.
Of the five lenders which swung to profit in 2019, three were Albanian. Tirana Bank managed to reverse a loss of 13.2 million euro recorded in 2018 to a 3.3 million euro profit last year, whereas Alpha Bank Albania turned to a profit of 1.1 million euro in 2019 from a 7.9 million euro loss in the previous year.
Romania, the region’s most populous country, was best represented in the ranking with 18 banks, down from 19 a year earlier, followed by Serbia with 16 lenders, as many as in 2018. The aggregate assets of the Romanian lenders in the ranking stood at 98.9 billion euro, equal to 31.3% of the region’s total.
The ranking welcomed only three new entrants and includes one bank that does not exist anymore – Bulgaria’s Expressbank, which was acquired by OTP. Of the new entrants, Bosna Bank International (BBI) ranked highest, in 94th place, as its assets grew 26% to 643 million euro, the largest increase among the new members of the ranking.
Capital shortfalls at Fibank, Investbank
A comprehensive assessment carried out by the European Central Bank (ECB) found capital shortfalls in two Bulgarian lenders – Investbank and First Investment Bank (Fibank), which committed to address the problems in a timely manner.
The assets of Investbank shrank 10.5% to 971 million euro. In 2019, the ECB found a capital shortfall of 262.9 million euro at Fibank and 51.8 million euro at Investbank during an asset quality review and a stress test of six Bulgarian banks. Investbank completed the measures addressing the capital shortfall in April 2020.
Fibank saw its assets grow 10.4% to 5.2 billion euro, although its profit declined 21.2%. The bank signed deals for the sale of non-performing loan (NPL) portfolios of some 538 million levs in face value and subsequently included its 2019 net profit into its common equity tier 1 capital.
NPLs on decline
Bad loans declined in all SEE countries in 2019, with Kosovo and Slovenia posting the lowest NPL ratios as of the end of December – of 2.4% and 3.4%, respectively. Albania and Croatia recorded the sharpest decline in NPL ratios, down by 2.7 percentage points each. Still, Albania had the highest NPL ratio in the region – of 8.4%.
Italian-owned lenders hold 40% of total assets of SEE’s top ten lenders
The SEE banking sector remained dominated by foreign lenders. Italy stands out with four representatives, accounting for 39.6% of the total assets in the top 10. UniCredit was the banking group with the most robust presence in the top 10 of the ranking with three local subsidiaries – Croatia’s Zagrebacka Banka, Bulgaria’s UniCredit Bulbank and Romania’s UniCredit Bank SA. Austria’s Erste Group and Raiffeisen had one representative in the top ten each, while local units of Dutch lender ING, France’s Groupe Societe Generale and Italy’s Intesa Sanpaolo were also on the top 10 list. The European Bank for Reconstruction and Development (EBRD) holds a 15% stake in the capital of the leader of the ranking, Banca Transilvania.
Overall, the SEE banking sector entered 2020, a year marked by the recessionary environment of the COVID-19 pandemic, in good shape. However, according to the Spring 2020 Bank Lending Survey of the European Investment Bank (EIB), the positive leveraging trend may come to an end and a rise of NPL ratios may be seen in 2020 for the first time since 2015, while the induced crisis effects could lead to a sharp tightening in supply across the client spectrum.
SEE TOP 100 banks is a ranking of the largest banks in Southeast Europe in terms of total assets from non-consolidated balance sheets as of December 31, 2019. To allow comparison, all local currencies have been converted into euro, using the central banks’ official exchange rates on the last working day of 2019 and 2018, respectively. Local currency figures have been used when calculating year-on-year changes. All data is sourced from central banks, national commercial registers, financial supervision commissions, bank associations, government and corporate websites, and companies themselves. The initial pool of companies exceeds 200 active banks registered in the region including branches and representative offices of foreign banks.