Bank Austria today published a 36 page report about CEE Banking Outlook, concluding that now is the time to take risk to win the potential upside.
Read the brief summary below or download the full report here.
The ongoing economic, financial and banking crises are clearly modifying the shape, structure and functioning of the global banking sector – higher capital ratios, deleveraging, de-risking, efficiency and cost cutting, together with a return to traditional commercial banking operations are the new mantra. The crisis had its centre in the core markets, but rapidly spread to the entire financial industry, Central and Eastern Europe (CEE) banks included. CEE banks had virtually no direct exposure to the sub-prime crisis, but the crisis has revealed imbalances, related to high dependency on foreign funding and the effects of a widespread credit boom of the past years. As a new global banking order is being rebuilt, CEE today is also changing as a result.
Full recovery from the crisis needs time. Economic growth is expected in most of the countries for 2010, with SEE and the Baltics turning to positive figures in 2011 and economic activities remaining below the long-term potential overall. A full rebound of banking business is most likely starting from 2011. Banking penetration continues but will be more balanced. Product offering has to cope with low consumption and a weak investment environment. More diversification, away from retail lending only strategies, toward a more balanced mix is needed. Profitability will have to account for a structurally higher cost of risk, but will benefit from a leaner cost structure. In such a framework, 2009 and 2010 are likely to be the key years for reshaping positioning and strategies for the CEE banks.
Despite the crisis, the region's long term potential is confirmed – both in terms of economic and banking growth. This means the game is worth it, for both market players and potential new entrants. With new strategies currently being designed and new windows of opportunities gradually opening, those players who can afford enough risk appetite for the region now are those likely to enjoy the upside and confirm as tomorrow's leaders.