The banking sector in SEE

1
The banking sector in SEE
Steven van Groningen 17 May 2007
2
REAL GDP ( YOY)Strong economic growth in SEE
continues

• Real GDP increased rapidly in last years in SEE
  countries, while perspectives for next years are
  also optimistic

till 2007 EU-12 Source Thomson Financial
Datastream, wiiw, Raiffeisen RESEARCH
3
FOREIGN DIRECT INVESTMENTSEE becomes more and
more attractive
FDI inflows, in EUR bn Source wiiw, Raiffeisen
RESEARCH
4
SEE BANKING SYSTEMStrong potential to grow

• Positive relation between economic development
  and the degree of financial intermediation
• Low level of GDP per capita in SEE countries and
  expected real convergence imply a high potential
  to grow for financial intermediation in these
  countries
• Some risks rapid increase of financial
  intermediation could amplify macroeconomic
  disequilibria

GDP per capita at PPP in of EU-25 avg (EU-25
avg100), wiiw estimate for 2006 Source wiiw,
Raiffeisen RESEARCH
Data as of 2006 for MFI in European Union Source
ECB, Eurostat, central banks, Raiffeisen RESEARCH
5
SEE BANKING SYSTEMStrong potential to grow
Forecast of banking assets growth (2006-2014)
SEE Romania, Bulgaria,Croatia, Serbia, Bosnia
and Herzegovina, Albania Source Raiffeisen
RESEARCH CEE Banking Sector Report 2006
Forecast of credit growth (2006-2014)
Source Raiffeisen RESEARCH CEE Banking Sector
Report 2006
6
SEE BANKING SECTORLarge presence of
international banks
Market share of majority foreign-owned banks
Market shares in SEE (in of total assets)
Data as of year-end 2005 Source Local central
banks, Raiffeisen RESEARCH Note In Romania,
market share of majority foreign-owned banks
increased to 88.6 of total net assets in 2006
from 62.2 in 2005
Data as of year-end 2005, representing ownership
structure as of August 2006 (including announced
but still unclosed transactions) Source
Raiffeisen RESEARCH CEE Banking Sector Report
2006
7
SEE BANKING SECTORLarge presence of
international banks
Market presence and branch networks

• Thereof 51 branches operated by leasing
  subsidiaries including Bank Aval
• Source Company data Majority stakes only, data
  as at 31 Dec 2005, reflecting ownership structure
  as at August 2006

8
RAIFFEISEN INTERNATIONALPresence in CE, SEE and
CIS countries
9
SEE BANKING SECTORStill high concentration

• Privatisation almost completed
• Banking system consolidation mergers and
  acquisitions
• Competition on the increase

Market concentration
Average interest rate spread ()
Data as of 2005 Source Local central banks,
Raiffeisen RESEARCH Note In Romania average
interest rate spread decreased to 9.1 in 2006
from 13 in 2005
Market share of top five banks in per cent of
assets as of end 2005 Source Local central
banks, Raiffeisen RESEARCH
10
ROMANIAN BANKING SYSTEMStill huge potential to
grow

• Strong growth of non-government credit in last
  years
• Still huge potential to grow as real convergence
  progresses

Non-government credit as percentage of GDP in
Romania (end of period)
Non-government credit as percentage of GDP (end
of 2006)
Source NBR, ECB, Eurostat, Raiffeisen RESEARCH
11
ROMANIAN BANKING SYSTEMModern regulations and
supervision

• Regulations concerning Romanian banking sector
  activities are harmonized with the EU Directives
  and Basel II principles
• A new banking act was enforced on 1 January 2007
• It contains regulations for all credit
  institutions
• It creates the single passport principle for the
  pursuit of business through a branch or by way of
  direct provision services
• Prudential supervision of activity is ensured by
  the competent authority of the Home Member State
• There were adopted new prudential regulations for
  setting capital requirements for credit risk,
  market risk and operational risks, which are in
  accordance with the methods set out in the EU
  Capital Requirements Directive and with Basel II
  principles

12
ROMANIAN BANKING SYSTEMOpportunities for further
growth

• Romanias EU accession on January 2007 has the
  potential to accelerate trade and investment and
  to sustain healthy expansion of financial sector
• Real convergence should accelerate
• There will be an increase in household wealth and
  revenues
• Privatisation of banking system was almost
  finalized
• Increase in the efficiency of the banking
  activity
• Large market share of foreign-owned banks (88.6
  of total assets at the end of 2006)
• Improvement of the quality and of the range of
  banking products offered
• Import of management techniques
• Increase in market competition
• Funding opportunities (by intra-group funding)
• Direct competition from banks located in European
  Union
• Increase in market competition