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15.09.06

CEE banking markets show record growth.

Balance-sheet total of all banks in CEE increases by almost one third in2005. Continual strong growth potential in the long term, analystsexpect doubling of assets by 2009. Business with personal customersbooms, Southeastern Europe and CIS are regional growth motors.Raiffeisen International grows stronger than other international banksin the region and displays the largest branch network.

The well-established strong growth of the banking markets in Central andEastern Europe (CEE) has further accelerated during the last year. Thisis evidenced by the current issue of the annual CEE Banking SectorReport prepared by the analysts of Raiffeisen Zentralbank Oesterreich AG(RZB) and Raiffeisen Centrobank AG (RCB) and published on the occasionof the imminent annual meetings of the International Monetary Fund (IMF)and the World Bank in Singapore. After growing by 15 per cent in 2004(to€ 645 billion), the industry''s aggregate balance-sheet total increased by 31.3 per cent to € 846 billion in 2005. This represents the strongest annual advance since the full set of data has been available.

Apart from Central Europe (CE) and Southeastern Europe (SEE), the surveycovers the Commonwealth of Independent States (CIS, for the purposes ofthe study comprising Belarus, Russia and Ukraine), which hassubstantially contributed to that growth. Ukraine (plus 91 per cent),Belarus (plus 63 per cent), Romania (plus 54 per cent) and Russia, theregion''s largest banking market (plus 51 per cent) showed the highestgrowth rates in euro terms. With a still respectable 15 per cent,Hungary had the smallest growth rate.

Doubling of the banking market forecast by 2009

For the first time, the CEE Banking Sector Report includes a long-termprognosis on the development of the banking market. A key result of thatmodel is the expectation that it should more than double by 2009 fromtoday''s€ 846 billion to more than € 1,700 billion. By 2014, the analysts expect a total market volume of more than € 3,700 billion, corresponding to an average annual growth rate of approximately 18 per cent. The forecast model is based on the relation between GDP per capitaand the level of financial intermediation, measured as banking assets as a percentage of GDP.

Growth rates highest in the CIS

Another result of the forecast model is the prognosis that the bankingmarkets in the CIS will develop significantly faster than those in thenew EU-member states. Until 2010, average annual growth of 25 per centis expected for the CIS, as against 16 per cent per annum for SEE and 15per cent for CE. Therefore, the analysts expect total assets in the CISto exceed those in CE at some time during 2008.

Due to the continual high growth rates, the CEE region remainsattractive for banks. While economic growth is unbroken and high– projected at 6.1 per cent in CEE for 2006, against 2.5 per in the eurozone – the banking industry''s growth potential is still a multiple of that. During the past three years, banks have been growing on average three times as much as the whole economy, and this trendis expected to hold.

Business with personal customers is key growth motor

The most important growth motor is business with private individualsthat keeps expanding strongly. Increasing levels of disposable incomefor broad segments of the population in the region''s countries have ledto growing demand for banking products, both in financing and deposits.Therefore, practically all international banks active in the regionfocus on that particular customer segment.

In 2005, a regular boom could be noticed in loans to private customers.In Ukraine, loans to private households grew by 175 per centyear-on-year, in Russia by 111 per cent and in Belarus by 97 per cent(in euro-terms). These rates reflect the immense need for catching-up inthe countries of the former Soviet Union. Even in the much higherdeveloped Czech banking market, this figure went up by 41 per cent."Wesee the highest demand in financing apartments, cars and consumer goods.On the one hand, there is an enormous back-log and on the other hand,demand is further fuelled by rising income," said Herbert Stepic, CEO ofRaiffeisen International.

The segment''s potential becomes obvious when comparing outstandingprivate loans with GDP. While the ratio averages at 53 per cent in theeurozone, it is 14.4 per cent in CE, 15 per cent in SEE and only 5.7 percent in the CIS."The regions show different economic stages ofdevelopment, and the significant differences in growth rates supportthis fact," added Stepic.

Asset Management– boom ante portas

Not only do banking customers in CEE borrow more and more, they alsostock up on their deposits with growing prosperity. As is the case withloans, growth rates are highest in the CIS. In Ukraine, deposits byprivate individuals increased by 113 per cent, in Belarus by 64 per centund in Russia by 52 per cent year-on-year, in euro-terms. In CE and SEE,growth rates are considerably lower, the exception being Serbia. Thisis, among other things, due to the fact that customers in developedmarkets do not invest their money in savings books alone, butincreasingly chose alternative forms of saving such as investment funds.In many countries, investment fund volumes have grown significantly. Forexample, total funds in relation to GDP grew from 4.1 to 6.2 per cent inPoland and from 5.3 to 8.4 per cent in Slovakia. Asset managementbusiness may therefore well expect a boom in the short term.

UniCredit largest western bank in CEE

With assets in CEE amounting to€ 72.4 billion, Italian UniCredit is the largest western banking group in the region. The runner-ups are Austrian Erste Bank (€ 48.7 billion) and Raiffeisen International (€ 41.7 billion). If one included local banks, Russian Sberbank would be the region''s leader with total assets of € 73.8 billion. The Austrian banking industry continues to be well-represented. Four banks (Erste Bank, Raiffeisen International, Hypo-Alpe-Adria and OVAG) are among the 16 largest banking groups, and a fifth, Bank Austria-Creditanstalt plays a decisive role in steering this regional segment within UniCredit group.

Raiffeisen International grows strongest

International banks in CEE grow significantly stronger than the overallmarket, which is due to, among other things, to their activities inmergers and acquisitions. Raiffeisen International displays thestrongest dynamic with an average growth rate of 37 per cent between2001 and 2005. Because of the take-over of HypoVereinsbank last year,UniCredit achieved 33 per cent and Hungarian OTP, also very keen onacquisitions, came in at 22 per cent per annum.

"We have executed our early-mover strategy consistently ever since westarted our commitment to the region. One result is the constant growthrate," commented Stepic the position of the Raiffeisen InternationalGroup, which had opened its first subsidiary bank in Hungary back in1987 and has since then repeatedly proven its pioneer role.

Raiffeisen International with the widest distribution network

Business success with private customers largely depends on an extensivebranch network. With 2,629 business outlets (as of year-end 2005 withownership structure as of 31 August 2006), Raiffeisen Internationaldisposes of the largest distribution network of all international banksoperating in the region. UniCredit follows with 2,373 branches and ErsteBank with 1,668."More than half of our branches are located in marketswith the highest growth rates. As the largest international bankinggroup in the CIS we are excellently positioned to keep growing strongerthan our competitors," said Stepic.

With subsidiary banks in 15 markets, Raiffeisen International andUniCredit boast the widest reach among international banking groups. Sixbanks are active in eight markets: Banca Intesa, Citigroup, ING, OTP,OVAG and Societe Generale.

* * * * *

Raiffeisen International operates one of the leading banking networks inCEE with subsidiary banks and leasing companies in 16 markets. More than11 million customers are attended to through more than 2,700 businessoutlets. Representative offices in Lithuania and Moldova complement theGroup''s presence in the region. Raiffeisen International is a fullyconsolidated subsidiary of Raiffeisen Zentralbank Osterreich AG (RZB),which owns 70 per cent of the common stock. The remaining 30 per cent isfree float, the shares are traded on the Vienna Stock Exchange. RZB is aleading corporate and investment bank in Austria and the centralinstitution of the Austrian Raiffeisen Banking Group, the country''slargest banking group.

Definitions

Central Europe: Czech Republic, Hungary, Poland, Slovakia and Slovenia

Southeastern Europe: Albania, Bosnia and Herzegovina, Bulgaria, Croatia,Kosovo, Romania and Serbia

CIS: Belarus, Russia and Ukraine

You can download the banking study in pdf-format fromhttp://www.ri.co.at/ceebankingreport2006.

For further information please contact Martin Schreiber (+43-1-71707-1562, martin.schreiber@ri.co.at).

http://www.ri.co.at, http://www.rzb.at

 

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