By Dragana Petrushevska
The banks in Southeast Europe (SEE) showed resilience in the pandemic-defined 2020, as their total assets continued to grow. The measures introduced by the authorities to reduce the impact of the Covid-19 spread, however, took a heavy toll on their bottom lines and only a few of the region’s top lenders managed to grow their net profit. Cross-border M&A activity further reshaped the region’s banking landscape as a bunch of big deals were completed in 2020.
Lenders take profit hit
Among the top one hundred banks in the region, only ten managed to increase their net profit in 2020. Two Romanian lenders, Banca Romaneasca and Vista Bank, formerly known as Marfin Bank, swung to profit after booking losses a year earlier. Six banks turned to net loss in 2020, compared with just one in 2019.
SEE’s largest banks posted a combined net profit of 2.977 billion euro in 2020, a sharp decline from the record-high 4.673 billion euro in 2019, due to the effect of the measures imposed by the governments and central banks in the region to prevent a deeper economic downturn and ensure stability.
In a time marked by lockdowns and curfews, central banks maintained a relaxed monetary policy for most of the year, lowering their key interest rates to record-low levels to provide additional support for domestic economies. Banks were also directly impacted by loan repayments moratoria which were introduced temporarily in all countries in the region.
At the same time, most banks held off on distributing dividends in 2020 in line with central banks’ bans to shield against risks related to the health crisis. Countries that imposed such bans include Croatia, Slovenia, Montenegro, Bulgaria and North Macedonia, following a recommendation by the European Central Bank (ECB).
Bulgaria’s central bank introduced a set of measures worth 9.3 billion levs intended to maintain the stability of the banking system amid the pandemic. The elements of the package included capitalization of the banking system’s total profit volume, cancellation of the increases in the countercyclical capital buffer planned for 2020 and 2021, and increasing the liquidity of the banking system through reduction of the foreign exposures of commercial banks.
Banks expand assets due to increased lending
The SEE governments backed a number of loan schemes for businesses and the increased lending helped banks grow their assets. Only 10 lenders among the largest banks in the region lowered their assets last year, compared with 12 in 2019. The combined assets of the top one hundred lenders grew 8.7% to 343.9 billion euro in 2020, faster than in 2019 when they expanded by 7.9%.
Romania’s Banca Transilvania topped the largest banks chart for a third consecutive year. The bank saw its assets grow 18% on the year, reaching 21.2 billion euro. The positive results are due mainly to an increase in the volume of operations and adequate cost management, the bank has said. Its net profit, however, fell to 245.9 million euro in 2020 from 339.1 million euro in 2019.
Croatia’s Zagrebacka Banka remained the second largest bank in the region with 16.5 billion euro in assets, up 5.86% year-on-year. Romania’s Banca Comerciala Romana followed with assets of 16.3 billion euro, 11.33% higher than a year earlier.
Bulgaria DSK Bank, part of Hungarian banking group OTP, was the only new entrant in the top ten, taking the seventh position. Its assets grew 43% following the absorption of Expressbank, which it acquired from France’s Societe Generale Group a year earlier.
Bulgaria had two new entrants in the top one hundred ranking, a much as Romania, and Albania, Montenegro and North Macedonia had one each.
Romania remained the best represented country in the ranking with 19 banks, up from 18 in 2019. Bulgaria and Serbia followed with 16 entrants. Romanian banks held combined assets of 111.6 billion euro, or 32% of the total assets of the region’s largest banks. They generated 969.2 billion euro of net profits, or 33% of the total.
M&A deals reshape the region’s banking industry
The year 2020 saw the completion of several big deals in the banking industry, the largest being the acquisition of Slovenia’s lender Abanka by local Nova Kreditna Banka Maribor for 444 million euro in December. Prior to the deal, Abanka was owned by Slovenia’s government.
Also in December another Slovenian bank – Nova Ljubljanska Banka – completed the purchase of an 83.23% stake in Serbia’s Komercijalna Banka for 394.7 million euro.
In Romania, the National Bank of Greece sold its 99.28% stake in Banca Romaneasca to the Export-Import Bank of Romania. In another landmark deal, IT entrepreneur Vasile Olimpiu Balas and investment fund TechVentures Capital AFIA together acquired a 74.1% stake in Banca Comerciala Feroviara, now Techventures Bank.
US-based investors were behind some of the M&A movements in the sector. Opportunity Transformation Investments sold a 78% stake in Opportunity Bank Serbia to a group of four investors for an undisclosed sum, whereas Adriatic Capital acquired Montenegrin lender Nova Banka from Azmont Investments, a local subsidiary of Azerbaijan Global Investments.
In Bulgaria, the state-owned Bulgarian Development Bank acquired some 28.3 million new shares in First Investment Bank (Fibank), representing around 19% interest, for over 141 million levs.
The ECB started directly supervising five Bulgarian and eight Croatian banks in October as part of the two countries’ preparations to join the eurozone. The move came after the ECB established close cooperation with the central banks of the two countries and assessed the significance of their banks earlier that year. The ECB accepted Bulgaria and Croatia to the Exchange Rate Mechanism (ERM II), the mandatory training grounds for the euro adoption, in July 2020.
North Macedonia’s Eurostandard Bank loses licence
Not all banks in the region fared well. North Macedonia’s central bank in August revoked the founding and operating licence of Eurostandard Bank due to non-compliance with the minimum requirements for operating a bank. The central bank underlined at the time that the crucial problems with the bank stemmed from past weaknesses, not present circumstances. The bank held 1.3% of North Macedonian banking sector’s total assets, 1.7% of deposits and 1.6% of loans as of June 30, 2020.