CEE banking M&A dynamics remain stable - Multiple factors to further boost consolidation December 2018 - Deloitte
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CEE banking M&A dynamics remain stable Multiple factors to further boost consolidation December 2018
Contents
Foreword
1
Number of M&A deals in the CEE Region 2
CEE macroeconomic overview 4
Banking trends in CEE 5
Banking M&A dynamics in CEE 12
Poland 16
Czech Republic 20
Slovakia 24
Hungary 28
Romania 32
Slovenia 36
Croatia 40
Bulgaria 44
Serbia 48
Baltic region (Estonia, Latvia, Lithuania) 52
Contacts 64
2
Foreword
Leveraging on the success of our NPL an average real GDP growth of 4.2% in market players. Therefore, there are
study which provides an overview on non- 2017, improving labour market conditions motivating factors to trade both on the sell
performing loan markets in 12 countries and intense lending activity in the and buy sides, and a number of potential
across CEE and the Baltics, as a leading region. Additionally, as base interest rate acquirers have significant war chest to do
advisor not only in loan portfolio but increases have been commenced by some deals. These trends are expected to drive
banking entity deals as well, we decided national banks, further improvements in further consolidation in the CEE banking
to introduce a new study on banking M&A profitability might come due to the higher market. Such dynamics validate the
dynamics with the same geograpical scope. interest rate environment. existence of this paper and are expected
We do hope this study will also be a useful to provide rich content for it in the years to
material to various stakeholders of the Besides digital transformation, another come.
banking M&A universe in the region. prevailing trend in the regional banking
sector is the consolidation of the banking
Recent performance of the banking market, driven by non-core exits on the
industry in the CEE and Baltics has been sell side and acquisitive growth on the
reassuring. Capital adequacy ratios in buy side to increase economies of scale.
2017 remained solid with an average over Multiple banking sectors in the region are Balázs Bíró
20% in the twelve countries, NPL ratios overbanked with a fragmented market Partner, Regional Financial Services
and volumes decreased significantly, while structure and a number of banks with low Industry Leader
profitability rose to historically high levels market shares, therefore with no efficient Financial Advisory
in several countries with an average ROE economies of scale. In addition, the low
around 10% and no loss making banking interest environment still puts a pressure
sectors. These positive dynamics were on profitability, thus cost efficiency
backed by stable economic expansion with improvements are being hunted by banking
1
Number of M&A deals in the CEE region (2017-2018 September) 2
Bulgaria 2
Croatia 1
Czech Republic 0
Estonia 1
Hungary 2
Latvia 2
Lithuania 1
Poland 2
Romania 2
Serbia 5
Slovakia 0
Slovenia 2
3
CEE macroeconomic overview
All the twelve countries analysed in the a result, average GDP growth of the twelve
report had positive GDP growth in 2017. countries increased from 2.9% to 4.2% in 2017.
The highest growth rates were achieved by The main source of growth was improving
Romania (7.0%), Latvia (5.1%) and Slovenia labour market conditions across Europe and
(5.0%). Romania experienced increasing low consumer prices which led to growing
wages and decreasing VAT which resulted domestic demand. Besides current positive
in the boost of private consumption. In economic conditions, further structural
Latvia and Slovenia export activity and reforms are expected in several countries
private consumption generated the above- to develop productivity, competitiveness,
average expansion of the economy. As education and labour markets.
Figure 1. Changes in real GDP, 2015-2017
9.0%
7.0%
5.0%
4.2%
3.0% 2.9%
1.0%
-1.0%
PL CZ SK HU RO SI HR BG SRB EE LV LT
2015 2016 2017 Average - 2016 Average - 2017
Source: EIU
Recorded unemployment rate decreased unemployment rate decreased by 1.1 percentage
in all the twelve countries in 2017. The point from 8.8% to 7.7% in 2017 due to the
most significant improvements were growing economies. Most countries experienced
posted in Croatia (-2.4 percentage points), a significant real wage increase on top of the
Slovakia (-2.4 percentage points) and decreasing unemployment rate, which resulted in
Serbia (-2.2 percentage points). On average the gradual increase of inflation.
Figure 2. Unemployment rate, 2015 - 2017
20%
15%
10% 9.0%
7.6%
5%
0%
PL CZ SK HU RO SI HR BG SRB EE LV LT
2015 2016 2017 Average - 2016 Average - 2017
Source: EIU
4
Banking trends in CEE
In most of the analysed twelve countries years, with lending growth, stable funding
banking sectors experienced one of their and liquidity positions, which could
best performances in 2017 since the moderate the pressure on the profitability
crisis of 2008. Capital adequacy ratios in the region. Furthermore, the slowly
were stable, NPL ratios decreased and rising interest rate environment affects
profitability rose to historically high levels in banking interest margins positively, already
some countries. These positive trends are delivering profitability improvements in
expected to continue in the forthcoming several countries.
Figure 3. Banking Assets to GDP, 2015-2017
140%
120%
100% 96%
80%
60%
40%
20%
0%
PL CZ SK HU RO SI HR BG SRB EE LV LT
2015 2016 2017 Average - 2016 & 2017
Source: ECB CBD, Eurostat
5
Average asset penetration (banking The banking sector of the region can be penetration ratio is between 10-15% with
assets to GDP) of the CEE banking sector classified into three groups in terms of six countries. It is also visible that there is
remained stable in recent years around banking penetration. Romania, Serbia and a fairly strong correlation between GDP
96% and improved in some countries due Bulgaria have lower penetration ratio and per capita and penetration ratio of the
to the vivid lending activity. Although, some therefore higher future growth potential, respective banking markets.
countries experienced a slight decrease while the Czech Republic, Estonia and
owing to the higher rate of economic Slovenia have higher current market
growth which outpaced lending activity. penetration ratios. In the middle group
Figure 4. Banking market penetration to GDP per capita, 2017
25
SI
41.7
20
SK
77.6
HU
EE
120.1
GDP per capita (EUR ths)
25.3 CZ
15 LT
LV 263.3
27.3
28.6
High penetration
HR
61.3
10
RO
PL
93.7
427.5
Middle penetration
BG
SRB
5 50.7
28.5
Lower penetration
0
0 5 10 15 20 25 30
Total Assets per capita (EUR ths)
Source: ECB CBD, EIU, Eurostat Note: Bubble size: Total assets volume (EUR bn)
6
Banking sectors of the presented countries CAR with 30.1%, while the Hungarian Overall CAR remained stable in 2017 in the
were well capitalized in 2017, having an banking sector has the lowest CAR among covered countries.
average capital adequacy ratio of 21%. The the covered countries, with still a robust
Estonian banking sector has the highest 16.8% well-above the regulatory minimum.
Figure 5. Capital adequacy ratio, 2015-2017
35%
30%
25%
20% 21%
15%
10%
5%
0%
PL CZ SK HU RO SI HR BG SRB EE LV LT
2015 2016 2017 Average - 2016 & 2017
Source: National Banks
In 2017, total assets of the twelve sales and write-offs) of banks as well in Bulgaria (10.6%), while the lowest in Latvia
banking sectors increased by 11.1%. The as the generally improving financial (2.9%) and Estonia (3.0%). At the same time,
increase was mostly due to the positive position of households and corporations. the general trend is very positive even for
macroeconomic environment and the Thus, average NPL ratio of the covered Croatia and Bulgaria, since banks were able
entailing strengthening of lending activity. banking sectors stood at 6.1% in 2017, 1.5 to significantly reduce the total NPL volumes
Asset quality also improved considerably percentage point lower than in 2016 and in their balance sheet in previous years. On
owing to the proactive balance sheet close to pre-crisis levels. The highest NPL average 56% of total NPL volume consisted
clean-up measures (mostly NPL portfolio ratio was measured in Croatia (14.0%) and of corporate NPLs in 2017.
Figure 6. Evolution of key NPL metrics, 2015 - 2017
18,000 25%
16,000
14,000 20%
12,000
NPL volume (EUR mn)
15%
10,000
8,000
10%
6,000
4,000 5%
2,000
0 0%
2017
2015
2016
2016
2017
2017
2015
2017
2015
2016
2015
2016
2016
2017
2017
2015
2015
2016
2016
2017
2017
2015
2015
2016
2016
2017
2017
2015
2015
2016
2016
2017
2015
2016
2017
2015
PL CZ SK HU RO SI HR BG SRB EE LV LT
Retail NPL (EUR mn) Corporate NPL (EUR mn) NPL ratio (%), right axis
Source: National Bank
7
Profitability remained reassuring in 2017, Poland the main reason for the relatively Whereas in Croatia the low profit of the
however average ROE of 10% is still below lower profitability was the shortage of banking sector was in connection with the
pre-crisis highs, due to high average capital considerable one-off income from asset restructuring of large Agrokor Group.
levels and the relatively underperforming disposals, or the Visa transaction in
Croatian and Polish banking sector. In 2016 and also the increased tax burden.
Figure 7. Return on equity, 2015-2017
15%
10% 10%
5%
0%
-5%
-10%
PL CZ SK HU RO SI HR BG SRB EE LV LT
2015 2016 2017 Average 2016 & 2017
Source: ECB CBD
The highest profitability was achieved by where ROE was the second highest (13%) in due to the improving asset quality, strong
the Hungarian banking sector, where ROE 2017, rising interest margins on new loans loan demand, as well as release of former
rose to a historically high level of 14.5%, supported profit growth, in parallel with a provision stocks. Nonetheless, to maintain
CIR was also one of the highest among the low CIR which supports higher profitability the current positive trend in profitability,
analysed countries though. Consequently, in the long run. banks are expected to put further stringent
exceptional profit of the Hungarian banking focus on cost and operational efficiency in
sector was partially the result of one-off Generally, current profitability of the the forthcoming years to minimize their CIR,
items, like reversals of provisions and high region’s banking sectors was supported which currently vary in a fairly wide range in
trading income. In the Czech Republic, by the limited new loan loss provisions the region.
8Figure 8. ROE and CIR of the respective countries (2017)
18%
16%
HU
14% 120.1
CZ
263.3 RO
12% SRB
93.7 28.5
BG
10% SK
ROE (2017)
50.7 LT SI
77.6
EE 27.3 41.7
8%
25.3
LV
6% HR 28.6
61.3
PL
4%
427.5
2%
0%
40.0% 45.0% 50.0% 55.0% 60.0% 65.0% 70.0%
CIR (2017)
Source: ECB CBD Note: Bubble size: Total assets volume (EUR bn)
The top 15 leading banking groups covered nearly EUR 100 bn assets in 6 countries, in assets. The leading groups experienced
more than 70% of the total banking while Raiffeisen Bank had presence in increasing profitability, reporting an
assets of the presented twelve countries. most of the covered countries (8) in 2017. average ROE ratio of 10.5% and ROA ratio
The largest banking group in terms of On average the leading banking groups of 1.3% in 2017.
total assets was Erste Group possessing operate in 3.5 countries owning EUR 44 bn
9Figure 9. Nr. of countries with presence and ROE of the leading banking groups in the respective countries, 2017
Figure 9. Nr. of countries with presence and ROE of the leading banking groups in the respective countries, 2017
10
Raiffeisen
9
65.0 Unicredit
68.4
8
Erste
99.9 OTP Société Générale
7 48.1 61.1
Nr. of countries with presence
6 Intesa Sanpaolo
38.2
5
KBC
4
SEB 91.0
Commerzbank 17.3
3 34.1
BNP Paribas Santander Swedbank
2 BCP 36.0 23.1
17.2
16.9
ING
1
Citibank 29.2
10.3
0
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0%
ROE (2017)
Source: EMIS, Annual reports, Inteliace Research Note: Bubble size: Total CEE assets volume (EUR bn)
Table 1. Ranking of the leading banking groups by total assets in the respective countries, 2017
Total CEE Cumulative
Nr. of countries Total CEE
Rank Banking Group PL CZ SK HU RO SI HR BG SRB EE LV LT market market
with presence assets (EUR bn)
shares (%) shares (%)
1 Erste 2 1 4 1 3 7 6 99.9 11.2% 11.2%
2 KBC 1 4 3 3 4 91.0 10.2% 21.4%
3 Unicredit 4 2 4 3 1 1 2 7 68.4 7.7% 29.1%
4 Raiffeisen 7 5 3 5 3 5 5 3 8 65.0 7.3% 36.3%
5 Société Générale 14 3 2 2 6 4 6 61.1 6.8% 43.2%
6 OTP 8 1 8 4 2 5 6 48.1 5.4% 48.6%
7 Intesa Sanpaolo 2 7 11 4 2 1 6 38.2 4.3% 52.9%
8 Santander 2 1 36.0 4.0% 56.9%
9 Commerzbank 3 11 2 34.1 3.8% 60.7%
10 ING 4 1 29.2 3.3% 64.0%
11 Swedbank 1 1 1 3 23.1 2.6% 66.6%
12 BNP Paribas 5 1 17.2 1.9% 68.5%
13 SEB 2 2 2 3 17.3 1.9% 70.4%
14 BCP 6 1 16.9 1.9% 72.3%
15 Citibank 8 1 10.3 1.1% 73.5%
Source: EMIS, Annual reports, Inteliace Research TOP 1-5 TOP 6-10 TOP 11-15
10The average market share of the top 5 The markets in most of the presented own less than 50% of the total assets.
largest banks in terms of total assets was countries are moderately concentrated, in Concentration is expected to increase
around 65% and it has been increasing Serbia, Bulgaria, Romania, Slovenia, Czech further gradually driven by the ongoing
in past years, thus creating a more Republic, Latvia, Croatia and Slovakia the banking market consolidation in the region.
concentrated banking sector in the region. top 5 banks own more than 50% but less
Market concentration is high in Lithuania than 75% of the total banking assets. The
and Estonia, where the top 5 banks least concentrated markets are Hungary
own more than 75% of the total assets. and Poland, where the top 5 banks
Figure 10. Market concentration in terms of total assets in the respective countries, 2017
TOPTOP 5Banking M&A dynamics in CEE
M&A activity in banking markets of the three years, vivid lending activity, dismantling improve economies of scale and realize cost
twelve analysed countries peaked in 2015 of non-performing exposure volumes and synergies.
in terms of the number of deals, and has entailing profitability improvements, which
been decreasing since then. In 2018 there eased the pressures on banks and hence In the mid and long term efficiency deriving
were 2 completed deals and 6 ongoing postponed the iimminent need for mergers from healthy economies of scale is expected
as of September 2018, while 2017 saw 12 and acquisitions in the banking sector in to become an even more vital factor in the
completed deals, whereas the number of the short term. At the same time, the low cut throat competition, therefore banks
the completed transactions in 2015 was interest environment still puts a pressure with 1-2% market share might not be able to
19. The main reason for the decreasing on the profitability, thus cost efficiency compete successfully and deliver satisfying
number of transactions is the stabilizing improvements are being hunted by banking returns to shareholders. The CEE banking
macroeconomic environment in the past market players, also via acquisitions to sector has a number of banks with such size.
Figure 11. M&A activity by year - Nr. of transactions
2018 (1-9M) 2 6
2017 12
2016 13
2015 19
Source: Deloitte Intelligence, September 2018 Completed Ongoing
The busiest banking M&A markets in CEE since 2015 and 2 deals were still ongoing.
in terms of number of transactions were In Hungary, Serbia and Romania, 8, 7 and 6
Poland, Hungary, Serbia and Romania. 6 transactions were closed, respectively.
transactions were completed in Poland
Figure
Figure12.
12.M&A
M&A activity
activity by
bycountry
country -- Nr.
Nr. of
of transactions,
transactions, 2015
2015 - September 2018
September 2018
PL 3 3 2
CZ 2
SK 2
HU 3 3 2
RO 3 1 2
SI 1 1 2
HR 1 1 1
BG 1 1 1 1
SRB 1 1 3 2
EE 1 1
LV 1 2
LT 1 1 1
0 1 2 3 4 5 6 7 8
2015 2016 2017 2018 Ongoing
Source: Deloitte Intelligence, September 2018
12The most active buyer in the region
was the Hungarian OTP Bank with 5 higher market shares on these markets to made two acquisitions. In both cases,
transactions since 2015, in Croatia (1), improve economies of scale and exploit these acquisitions were in line with the
Romania (1), Bulgaria (1- signed, not yet cost synergies. The second most active pronounced strategic goal of the state to
closed), Serbia (1) and Hungary (1). These buyer was the Polish state, having made increase state ownership in the respective
acquisitions were in line with OTP`s 4 acquisitions since 2015 via PZU and banking sectors. All the other top buyers
declared expansion strategy to achieve Alior Bank. The Hungarian state also completed 2 deals.
Figure 13. Top buyers by the Nr. of transactions, 2015 - September 2018
1
4 4
1
2 2 2
1
OTP (HU) Polish state Direktna Banka Banca Transilvania Hungarian state Apollo Global
(via PZU & Alior Bank) (SRB) (RO) Management (US)
Source: Deloitte Intelligence, September 2018 Completed Ongoing
The top seller of the region was Raiffeisen line with their exit or downsizing strategy M&A activity. As a specialty, Eurobank
Bank International with 4 transactions in in the region. The highlighted three Greek did not declare a clear exit strategy from
Slovakia (1), Slovenia (2) and Poland (1). banks altogether sold 6 banking entities, CEE though, as they were reported to eye
With these transactions Raiffeisen exited while Eurobank also closed a deal via selling Piraues Bank in Bulgaria.
the Polish and Slovenian market in line Bancpost in Romania to Banca Transilvania.
with the bank’s restructuring strategy, to Therefore, the four Greek banks altogether
– inter alia – improve its capital adequacy. sold 7 banks since 2015, having been the
All the other top sellers sold 2 banks, in main driver on the sell side of CEE banking
Figure 14. Top sellers by the Nr. of transactions, 2015 September 2018
1
3 1 1
2 2 2 2 2 2
1 1
Raiffeisen Société Danske Bank Citibank (US) Piraeus Bank National Bank Alpha Bank Hungarian GE Capital
(AT) Générale (FR) (DK) (GR) of Greece (GR) state (US)
(GR)
Source: Deloitte Intelligence, September 2018
Completed On going
13As presented in the report above, multiple Most recent CEE banking M&A deals from
banking sectors are overbanked with a 2017 January to 2018 September are
fragmented market structure and a number presented in the table below. For deals of
of banks with low market shares, therefore 2015 and 2016 please refer to deal summary
with no efficient economies of scale, which tables of the respective country sections.
is expected to drive further consolidation in
the CEE banking market.
Table 2. List of the most recent banking M&A deals in CEE, 2017-September 2018
List of the most recent banking M&A deals in CEE
Deal Value in
Country Year Target Buyer % Acquired Seller
EUR mn
LT 2018* Luminor Group AB Blackstone Group LP 60% 1000 DNB ASA; Nordea AB
BG 2018* Societe Generale Expressbank AD OTP 100% n.a. Société Générale
SRB 2018* Piraeus Bank AD Beograd Direktna Banka 100% 58 Piraeus Bank
SRB 2018* Telenor Banka River Styxx Capital 85% n.a. Telenor ASA
PL 2018* Raiffeisen Bank Polska SA BNP Paribas 100% 775 Raiffeisen
PL 2018* Deutsche Bank Polska SA Bank Zachodni WBK SA 100% 305 Deutsche Bank
RO 2018 Piraeus Bank Romania J.C. Flowers & Co. LLC 100% n.a. Piraeus Bank
RO 2018 S.C. Bancpost Banca Transilvania 94% 301 Eurobank
EE 2017 AS Eesti Krediidipank Inbank AS; Coop Eesti Keskuhistu 85% n.a. VTB Bank OAO
HR 2017 Societe Generale Splitska Banka d.d. OTP 100% n.a. Société Générale
Signet Capital Management
LV 2017 Bank M2M Europe AS 56% n.a. Private investor
Limited; SIA Hansalink; SIA Fin.lv
Nordea AB (Baltic region operations);
LV 2017 Luminor n.a. n.a. DNB ASA; Nordea AB
DNB ASA (Baltic region operations)
SI 2017 Gorenjska Banka AIK Banka 37.6% n.a. Sava
SI 2017 KBS banka Nova Kreditna Banka Maribor 100% n.a. Raiffeisen
BG 2017 Municipal Bank AD Novito Opportunities Fund 68% 23.3 Bulgarian State
SRB 2017 Vojvodjanska banka a.d. OTP 100% 125 National Bank of Greece
SRB 2017 Alpha Bank Srbija AD MK Group d.o.o. 100% n.a. Alpha Bank
Cyprus Popular Bank Public
SRB 2017 Marfin Bank A.D. Beograd Expobank 100% 14.8
Co Ltd.
HU 2017 Granit Bank Zrt. Management 37% 14.4 Hungarian State
Blue Robin Investments
HU 2017 MKB Bank Zrt. Konzum Nyrt. 49% n.a. S.C.A.; Minerva Capital Fund
Management
Source: Deloitte Intelligence, September 2018 *Closing in progress
14As per pricing of banking deals, the chart years. Despite enhanced recent M&A banks without having to pay overinflated
below highlights the evolution of the P/BV activity in CEE and the Baltics, pricing levels price levels. In parallel, as expounded
ratio of transactions with disclosed deal seem to remain in reasonable ranges. above, performance of banks in the region
value since 2000. Surge before and decline Average and median P/BV of transactions has improved markedly in the past years
after the financial crisis is astonishing. with disclosed deal value between January fuelled by the improved overall economic
Number of substantial deals also remained 2015 and September 2018 were 1.1 and landscape.
limited for a couple of years after the crisis, 1.0 respectively, indicating that the region
however, an increase is visible in the past might be an attractive ground to acquire
Figure15.
Figure 15.P/BV
P/BV evolution
evolution of the banking
of banking deals
deals in the CEEinand
CEEBaltics,
and Baltics, 2000- September
2000- September 2018 2018
8.0x
7.0x
6.0x
5.0x
4.0x
3.0x
2.0x
1.0x
0.0x
1999 2002 2004 2007 2010 2013 2015 2018
-1.0x
Source: Deloitte Intelligence, September 2018
15Poland
Macroeconomic environment
• Polish economy showed a stable GDP growth between 2015 • In tandem with the strengthening economy unemployment
and 2017 mainly driven by household spending. Consumption decreased from 10.5% to 7.3% in 3 years. Declining
was also backed by stagnant inflation and low cost of credit. unemployment rate is also a result of shrinking labour supply, also
As a result, 2017 saw a real GDP growth of 4.7%. However, the due to the decreasing number of people in working age.
pace of further economic development could be affected by a
contraction in investment activity in the corporate sector. • In 2017 budget deficit decreased to 1.7% compared to the
previous year’s 2.3% which is the best result since 2007 due to
• Inflation decreased between 2015 and 2016 mainly because of tightening tax system. Public debt also decreased significantly by
the drop of energy commodity prices. Increasing consumption 3.5% percentage points to 50.6%.
resulted in growing consumer prices in 2017. Low interest rates
stimulated lending activity and improved economic activity of
Polish companies.
Change 2016-17
Macro indicators 2015 2016 2017
(% or % point)
Nominal GDP (EUR mn) 430 055 425 942 465 605 9.3%
Nominal GDP/capita (EUR) 11 199 11 108 12 172 9.6%
GDP (% real change pa) 3.8% 3.0% 4.7% 1.7%
Consumer prices (% change pa) -0.9% -0.6% 2.0% 2.6%
Recorded unemployment (%) 10.5% 8.9% 7.3% -1.7%
Budget balance (% of GDP) -2.6% -2.3% -1.7% 0.7%
Public debt (% of GDP) 51.1% 54.2% 50.6% -3.5%
Source: EIU, Eurostat
16Banking trends
• Capital base of the banking system increased further in 2017, • In 2017, ROE of the banking sector slightly decreased, which
mainly due to retained earnings from 2016. This growth in capital was mainly due to the shortage of considerable one-off income
resulted in an increasing capital adequacy ratio from 17.7% to from asset sales of the Visa transaction in 2016, as well as
19.0% in 2017. Therefore, the banking sector is well capitalized the increased tax burden. The number of credit institutions
and according to the stress test of the Polish National Bank, most with negative profit increased significantly compared to 2016.
of the banks would meet the capital adequacy requirements Expected potential regulatory changes might put a downward
even in a crisis situation. pressure on banking profits in the forthcoming period.
• The Polish banking sector experienced a relatively strong • In August 2017, the Polish parliament submitted a draft bill to
10.3% asset growth in 2017. This dynamic asset growth did not support Swiss franc borrowers by creating a new fund. The bill
entail any portfolio quality deterioration, the retail NPL ration set a quarterly payment of up to 0.5% of the value of each FX
remained unchanged at 6.1%, while the corporate NPL ratio even mortgage portfolio for the banks. The most exposed banks
decreased from 9.2% to 8.2% in 2017. to the bill were: Raiffesen Bank Polska, Bank Millennium, Getin
Noble Bank, mBank and PKO BP.
Change 2016-17
Banking sector 2015 2016 2017
(% or % point)
Total assets (EUR mn) 376 356 387 517 427 453 10.3%
Assets penetration (%)1 87.5% 91.0% 91.8% 0.8%
Total equity (EUR mn) 40 976 41 372 48 782 17.9%
Total loans (EUR mn) 223 048 226 327 247 758 9.5%
Loans penetration (%)2 51.9% 53.1% 53.2% 0.1%
Retail loans (EUR mn) 146 559 148 376 160 048 7.9%
Corporate loans (EUR mn) 76 489 77 952 87 710 12.5%
Interest rates
Lending (%) 4.9% 4.7% 4.8% 0.1%
Deposit (%) 1.9% 1.6% 1.5% -0.1%
NPL volumes
Retail NPLs (EUR mn) 9 130 8 983 9 762 8.7%
Corporate NPLs (EUR mn) 7 631 7 182 7 171 -0.2%
NPL ratios
Retail NPL ratio (%) 6.2% 6.1% 6.1% 0.0%
Corporate NPL ratio (%) 10.0% 9.2% 8.2% -1.0%
Key ratios
CAR (%) 16.5% 17.7% 19.0% 1.3%
ROE (%) 7.7% 7.5% 6.9% -0.6%
ROA (%) 0.9% 0.8% 0.8% 0.0%
CIR (%) 60.2% 57.6% 57.2% -0.4%
L/D (%) 95.1% 93.3% 93.7% 0.3%
FX share of lending (%) 29.9% 28.4% 22.2% -6.1%
Source: Deloitte NPL Study, NBP, ECB CBD, EIU ¹Assets penetration = Total assets/Nominal GDP ²Loans penetration = Total loans/Nominal GDP
17Banking market
• There were 36 locally-licensed commercial banks, 26 branches of concentration of the market is moderate. There are 8 banks with
foreign banks and 554 co-operative banks at the end of 2017 in 2-5% market share, and almost half of the banks hold around 1%
the Polish banking market. or less market share.
• The Polish market is still fragmented with many players, whereas • Consolidation is expected to continue in the Polish banking market
the top 5 banks own around 50% of the total market, thus the as new regulatory costs put a pressure on profitability, especially
for smaller banks without efficient economies of scale.
List of Banks in Poland in 2017 (EUR mn)
Institutions Total Assets Market share Equity Net income ROA ROE Major shareholder
1. PKO 66 503 15.6% 8 616 664 1.0% 7.7% State
2. Pekao 43 590 10.2% 5 329 500 1.1% 9.4% PZU
3. BZ WBK 31 808 7.4% 4 989 459 1.4% 9.2% Santander
4. mBank 29 823 7.0% 3 421 261 0.9% 7.6% Commerzbank
5. ING BSK 29 233 6.8% 2 768 323 1.1% 11.7% ING
6. Bank Gospodarstwa Krajowego 17 796 4.2% 4 800 124 0.7% 2.6% State
7. BGZ BNP Paribas 17 213 4.0% 1 571 71 0.4% 4.5% BNP Paribas
8. Millennium 16 911 4.0% 1 805 155 0.9% 8.6% BCP
9. Alior Bank 16 610 3.9% 1 629 129 0.8% 7.9% PZU
10. Getin Noble 14 426 3.4% 1 040 -136 -0.9% -13.1% Leszek Czarnecki
11. Raiffeisen Bank Polska 11 725 2.7% 1 554 19 0.2% 1.2% Raiffeisen
12. Bank Handlowy w Warszawie 10 262 2.4% 1 646 129 1.3% 7.8% Citibank
13. Deutsche Bank Polska 9 575 2.2% 1 008 1 0.0% 0.1% Bank Zahodni WBK
14* Bank BPH 7 123 1.7% 927 -242 -3.4% -26.1% Alior
15. Idea Bank 5 824 1.4% 556 80 1.4% 14.4% Leszek Czarnecki
16. BPS 5 665 1.3% 195 0 0.0% 0.0% State
17. Crédit Agricole Bank Polska 5 242 1.2% 536 18 0.3% 3.4% Co-operatives
18. SGB Bank 4 660 1.1% 190 1 0.0% 0.5% Credit Agricole
19. Bank Ochrony Srodowiska 4 646 1.1% 431 6 0.1% 1.4% Cooperative banks
20. Santander Consumer Bank 4 225 1.0% 764 155 3.7% 20.3% Santander
21. PKO Bank Hipoteczny 4 047 0.9% 293 12 0.3% 4.1% Société Générale
22. Euro Bank 3 303 0.8% 394 25 0.8% 6.3% Commerzbank
23. mBank Hipoteczny 2 913 0.7% 253 7 0.2% 2.8% DNB Bank
24. DnB Bank Polska 2 614 0.6% 375 19 0.7% 5.1% PKO
25. Bank Pocztowy 1 790 0.4% 155 1 0.1% 0.6% State
26. HSBC Bank Polska 1 436 0.3% n.a. 0 0.0% n.a. HSBC
27. Nest Bank 1 206 0.3% 195 -10 -0.8% -5.1% Volkswagen FS
28. VW Bank Polska 1 052 0.2% 173 29 2.8% 16.8% AnaCap
29* Plus Bank 554 0.1% 65 -7 -1.2% -10.1% Delas Holding Ltd
30* RBS Bank 517 0.1% 123 5 0.9% 3.9% RBS
31. Toyota Bank Polska 474 0.1% 56 3 0.6% 1.8% Toyota Kreditbank
32. Pekao Bank Hipoteczny 471 0.1% 78 1 0.3% 1.8% Pekao
33* Mercedes-Benz Bank Polska 59 0.0% 18 1 1.2% 3.7% Daimler
34. FCA-Group Bank Polska n.a. n.a. n.a. n.a. n.a. n.a. FCA Bank
35. BPI Bank Polskich Inwestycji n.a. n.a. n.a. n.a. n.a. n.a. Getin Noble Bank
36. DZ BANK Polska SA n.a. n.a. n.a. n.a. n.a. n.a. n.a.
FOREIGN BRANCHES 54 158 12.7% FB 554 1.0% FB
Total 427 453 100% 48 782 3 357 0.8% 6.9%
Source: EMIS, LNB, Annual reports, Inteliace Research *Note: data from 2016
18M&A activity
Between 2015 and 2018 there were 8 banking deals in the country, • In 2016, PZU-controlled Alior Bank agreed to acquire Bank BPH
from which 6 were public. The publicly made deals overall value from GE Capital for 360 mn. The transaction was consistent with
were around EUR 4,301 mn. the strategy of Alior, based on a dynamic organic growth and
acquisitions.
• In 2018, Société Générale was considering the sale of its Polish
subsidiary, Eurobank. The potential buyers of the bank are • Also in 2016, PZU purchased a 25.3% stake in Alior Bank from an
Santander’s Polish subsidiary BZ WBK, Credit Agricole and the Italian conglomerate for EUR 396 mn. Based on PZU’s activity it
Millennium Bank, owned by Banco Comercial Portugues (BCP). is visible that the most active consolidator in the Polish banking
market has been the state, in line with its intention to increase
• In 2018, Bank BGZ BNP Paribas agreed to acquire the core domestic ownership in the banking sector.
bank business of Raiffeisen Bank Polska from Raiffeisen Bank
International for EUR 775 mn. The transaction will help Bank BGZ • In 2015, a UK-based private equity firm, AnaCap Financial
to further strengthen its position in the Polish market, due to the Partners, agreed to acquire FM Bank PBP, the Poland-based retail
strong distribution network, innovative products platform and and SME bank, from Abris Capital Partners for an undisclosed
modern central costumer service which will be provided by the consideration.
acquisition. The transaction is expected to be completed in Q4
of 2018. • In 2015, state-owned PKO agreed to acquire SKOK Wesola, the
Poland-based cooperative savings and credit company engaged
• In 2018, Deutsche Bank sold its retail and private banking in providing non-banking financial services and products such
business to Bank Zachodni WBK, owned by Santander Group, as loans and credit, term deposits, current accounts, and
for a consideration of EUR 305 mn. With the deal Bank Zachodni other insurance related transfer services, for an undisclosed
WBK acquired 113 branches, 1 500 employees and nearly consideration.
EUR 4,350 bn in assets. The acquisition was aligned with Bank
Zachodni WBK’s strategy to enhance its position in the retail • In 2015, Alior Bank agreed to acquire a 97.9% stake in Meritum
segment. The deal is yet to be closed. Bank ICB from Innova Capital, WCP Cooperatief UA and EBRD for
a consideration of EUR 83.6 mn. The acquisition was expected
• In 2016, the largest banking acquisition in recent years was the to help Alior Bank to strengthen its position in high margin
sale of a 32.8% stake of the second largest bank in Poland, Bank consumer lending business.
Pekao, owned by UniCredit Group, to the state-owned PZU for
EUR 2,382 bn.
List of banking M&A deals in Poland 2015-2018
Year Target Buyer % Acquired Deal Value in EUR mn Seller
2018* Raiffeisen Bank Polska SA BNP Paribas 100% 775 Raiffeisen
2018* Deutsche Bank Polska SA Bank Zachodni WBK SA 100% 305 Deutsche Bank
2016 Bank Pekao PZU 32.8% 2382.5 UniCredit
2016 Bank BPH SA Alior Bank 100% 359.6 GE Capital
2016 Alior Bank SA PZU 25.3% 395.7 Carlo Tassara S.P.A.
2015 Nest Bank SA AnaCap Financial Partners LLP 100% n.a. Abris Capital Partners
2015 SKOK Wesola PKO 100% n.a. n.a.
EBRD; Innova Capital Sp
2015 Meritum Bank ICB SA Alior Bank 97.9% 83.6
zoo; WCP Cooperatief UA
Source: Deloitte Intelligence *Closing in progress
19The Czech Republic
Macroeconomic environment
• The Czech economy grew by 4.5% following a moderate 2.4% real • Consumption was boosted by the lowest unemployment rate in
GDP growth in 2016. The fluctuating growth in the last 3 years the CEE Region and by growing nominal wages. Unemployment
is mainly attributed to the transition between two EU-funding rate decreased from 5.1% to 2.9% in 3 years and is expected to
periods and the available funding opportunities. As in 2016, decrease further.
domestic consumption and foreign trade remained the main
economic drivers in 2017. • The budget deficit improved during the past 3 years which
resulted in a positive rate of 1.6% in 2017. Public debt also
• The inflation accelerated in 2017 mostly due to imported decreased significantly by 2.2 percentage points to 34.6% from
inflationary pressures. 2016 to 2017.
Change 2016-17
Macro indicators 2015 2016 2017
(% or % point)
Nominal GDP (EUR mn) 168 473 176 370 191 643 8.7%
Nominal GDP/capita (EUR) 15 888 16 621 18 047 8.6%
GDP (% real change pa) 5.4% 2.4% 4.5% 2.1%
Consumer prices (% change pa) 0.3% 0.7% 2.4% 1.8%
Recorded unemployment (%) 5.1% 4.0% 2.9% -1.1%
Budget balance (% of GDP) -0.6% 0.7% 1.6% 0.9%
Public debt (% of GDP) 39.9% 36.8% 34.6% -2.2%
Source: EIU, Eurostat
20Banking trends
• The capitalization of the banking sector increased in 2017, further in the recent quarters, reaching 3.1%. As a result, the
thus the capital adequacy ratio of the banks improved by 0.9 NPL ratio nearly reached the all-time historical low (2.6%). The
percentage points. The increased capitalization and the drop improvement in asset quality was caused by the combination of
in aggregate risk weights offset the strong credit growth. The the growth in total loans and a decline in NPLs.
sufficient capitalization and the improved profitability allow
banks to lend more and to grow their balance sheets in the • The profitability of the banking industry remains relatively high
following quarters. in the recent years. ROE of the whole sector increased with 1.2
percentage points between 2016 and 2017. Interest income has
• Total assets of the banking industry significantly increased long been the main source of profitability and it started to grow
in 2017, reaching EUR 263 294 mn. The asset quality of the in 2017. Furthermore, the rising interest margin on new loans
banks significantly improved, since the NPL ratio has dropped supports the growing profitability.
Change 2016-17
Banking sector 2015 2016 2017
(% or % point)
Total assets (EUR mn) 192 528 211 193 263 294 24.7%
Assets penetration (%)1 114.3% 119.7% 137.4% 17.6%
Total equity (EUR mn) 19 061 19 668 21 294 8.3%
Total loans (EUR mn) 82 970 88 565 99 812 12.7%
Loans penetration (%)2 49.2% 50.2% 52.1% 1.9%
Retail loans (EUR mn) 48 894 52 458 59 798 14.0%
Corporate loans (EUR mn) 34 076 36 107 40 014 10.8%
Interest rates
Lending (%) 4.3% 3.9% 3.6% -0.3%
Deposit (%) 0.5% 0.4% 0.3% -0.1%
NPL volumes
Retail NPLs (EUR mn) 1 991 1 679 1 490 -11.2%
Corporate NPLs (EUR mn) 1 949 1 862 1 692 -9.1%
NPL ratios
Retail NPL ratio (%) 4.1% 3.2% 2.5% -0.7%
Corporate NPL ratio (%) 5.7% 5.2% 4.2% -0.9%
Key ratios
CAR (%) 18.4% 18.4% 19.3% 0.9%
ROE (%) 11.3% 11.9% 13.0% 1.2%
ROA (%) 1.2% 1.2% 1.1% -0.1%
CIR (%) 46.5% 46.6% 47.1% 0.5%
L/D (%) 81.8% 84.3% 94.9% 10.5%
FX share of lending (%) 18.7% 19.6% 18.9% -0.7%
Source: Deloitte NPL Study, NBP, ECB CBD, EIU ¹Assets penetration = Total assets/Nominal GDP ²Loans penetration = Total loans/Nominal GDP
21Banking market
• There were altogether 23 operating banks plus foreign branches leading banks on the Czech market are predominantly owned by
at the end of 2017 in the Czech Republic. international banking groups, like KBC Group, Erste Group and
Société Générale.
• The Czech banking industry is moderately concentrated, around
65% of assets are owned by the top 5 largest banks. These
List of Banks in Czech Republic in 2017 (EUR mn)
Institutions Total Assets Market share Equity Net income ROA ROE Major shareholder
1. Ceskoslovenska obchodni banka 50 404 19.1% 3 281 601 1.2% 18.3% KBC
2. Ceska sporitelna 49 483 18.8% 4 528 588 1.2% 13.0% Erste
3. Komercni banka 37 050 14.1% 3 470 584 1.6% 16.8% Société Générale
4. UniCredit Bank Czech Republic 21 219 8.1% 1 977 244 1.3% 12.7% UniCredit
5. Raiffeisenbank 13 232 5.0% 1 065 111 0.8% 10.4% Raiffeisen
6. Hypotecni banka 11 291 4.3% 1 543 166 1.0% 7.2% KBC
7. PPF banka 9 122 3.5% 397 60 0.7% 15.0% PPF Group
8. Moneta Money Bank 7 731 2.9% 1 051 143 1.9% 13.6% GE Capital
9. Ceskomoravska stavebni sporitelna 5 843 2.2% 358 41 0.7% 11.4% KBC
10. Fio banka 4 213 1.6% 65 16 0.4% 24.6% Private individuals
11. Air Bank 3 840 1.5% 241 24 0.6% 9.8% PPF Group N.V.
12. Modra pyramida stavebni sporitelna 3 306 1.3% 246 35 1.1% 14.3% Societe Generale
13. Sberbank CZ 3 190 1.2% 343 17 0.5% 4.8% Sberbank
14. J&T banka 3 056 1.2% n.a. - 17 1.1% 7.9% J&T Finance Group
15. Stavebni sporitelna Ceske sporitelny 2 985 1.1% 199 27 0.9% 13.4% Erste
16. Raiffeisen stavebni sporitelna 2 633 1.0% 187 17 0.7% 9.3% Raiffeisen
17. Ceska exportni banka 2 458 0.9% 263 10 0.4% 3.8% State
18. Equa bank 1 969 0.7% 146 9 0.5% 6.2% AnaCap
19. Wustenrot - stavebni sporitelna 1 449 0.6% 129 8 0.6% 6.5% Wüstenrot
20. Wüstenrot hypotecni banka 1 282 0.5% 78 8 0.6% 8.6% Wüstenrot
21. Banka CREDITAS a.s. 1 241 0.5% 88 3 0.2% 3.0% n.a.
22. Expobank CZ 988 0.4% 120 -3 -0.3% -2.3% Private individuals
23. Ceskomoravska zarucni a rozvojova banka 918 0.3% 199 1 0.1% 0.6% State
FOREIGN BRANCHES 24 391 9.3% FB 80 0.5% FB
Total 263 294 100% 21 294 2 772 1.2% 13.1%
Source: EMIS, LNB, Annual reports, Inteliace Research Note: Banka Creditas was converted to a bank in 2017
22M&A activity
• In 2015, a majority stake in Creditas was acquired by a private
There were two closed bank acquisitions between 2015 and investor, the owner of investment group Unicapital in 2015. The
September 2018 on the Czech banking market. deal is estimated to be valued at EUR 18 mn. Creditas which was
formerly operating as a cooperative bank had more than 19,000
• In 2016, Citi Bank sold its retail banking operations in 10 members and an EUR 383.1 mn balance sheet.
countries, including the Czech Republic. This supported Citi’s
strategic goal to build down operations on non-core markets
and focusing on 24 flagship markets with the largest growth
potential.
List of banking M&A deals in the Czech Republic 2015-2018
Year Target Buyer % Acquired Deal Value in EUR mn Seller
Citi Europe plc (Czech consumer
2015 Raiffeisenbank 100% n.a. Citibank
banking business)
2015 Creditas Private investor n.a. 18 n.a.
Source: Deloitte Intelligence
23Slovakia
Macroeconomic environment
• Slovakia’s economic growth (4.7%) is above the EU average • The main indicators of the economic growth are the country’s
and its acceleration boosted business confidence. The private rising wages fueled an increased consumption, while
investment which supports the economy is supported by easier unemployment rate fell to historical lows.
credit terms and a higher capacity utilization.
• Slovakia reached the second lowest budget deficit in the past
• Combined with low interest rates, it encourages borrowings and 9 years. State finances performed better than expected,
discourages savings. Despite inflation has increased for the first with a deficit standing at 1.22 EUR billion in 2017, which is an
time since 2013, a continued growth prospects for Slovakia in the improvement of 0.7 EUR billion compared to the previous years
following years. approved budget.
Change 2016-17
Macro indicators 2015 2016 2017
(% or % point)
Nominal GDP (EUR mn) 78 896 81 154 84 985 4.7%
Nominal GDP/capita (EUR) 14 506 14 907 15 602 4.7%
GDP (% real change pa) 3.9% 3.3% 3.4% 0.1%
Consumer prices (% change pa) -0.3% -0.5% 1.4% 1.9%
Recorded unemployment (%) 11.5% 9.5% 7.1% -2.4%
Budget balance (% of GDP) -2.7% -2.2% -1.0% 1.2%
Public debt (% of GDP) 52.3% 51.8% 50.9% -1.0%
Source: EIU, Eurostat
24Banking trends
• The consolidated capital adequacy ratio of the banking sector was a favourable development for the market, credit risk is still
moderately increased by 0.7 percentage points in 2017, however the most significant banking sector risk.
it still remained below the median among the EU countries. The
increasing solvency of the banks is mainly due to the increased • In 2017, the profit of the banking sector slightly increased
retained earnings in the sector. compared to the previous year (leaving aside the impact of
extraordinary income in 2016). Furthermore, the ROE and ROA
• The total assets significantly increased by 6.3 % in 2017, while profitability ratios were quite stable in the recent years. The main
the asset quality further improved. Both the retail and corporate reason behind this slight growth was the intense lending activity
NPL ratios declined, mostly due to the low default rate and and the slowdown interest margin compression. Additionally, the
writing-offs of the NPLs. Even though the NPL ratio’s fall in 2017 profitability of the banking sector was also driven by the drop in
the credit risk costs.
Change 2016-17
Banking sector 2015 2016 2017
(% or % point)
Total assets (EUR mn) 67 353 73 051 77 632 6.3%
Assets penetration (%)1 85.4% 90.0% 91.3% 1.3%
Total equity (EUR mn) 7 491 7 979 8 384 5.1%
Total loans (EUR mn) 42 512 46 463 51 044 9.9%
Loans penetration (%)2 53.9% 57.3% 60.1% 2.8%
Retail loans (EUR mn) 25 906 29 390 32 834 11.7%
Corporate loans (EUR mn) 16 606 17 073 18 210 6.7%
Interest rates
Lending (%) 3.1% 2.7% 2.4% -0.3%
Deposit (%) 0.5% 0.4% 0.2% -0.1%
NPL volumes
Retail NPLs (EUR mn) 1 007 1 084 1 043 -3.8%
Corporate NPLs (EUR mn) 1 155 1 077 917 -14.9%
NPL ratios
Retail NPL ratio (%) 3.9% 3.7% 3.2% -0.5%
Corporate NPL ratio (%) 7.4% 6.5% 5.2% -1.3%
Key ratios
CAR (%) 17.7% 18.2% 18.8% 0.7%
ROE (%) 9.7% 9.9% 9.3% -0.6%
ROA (%) 0.9% 0.9% 0.9% 0.0%
CIR (%) 55.0% 54.9% 57.8% 2.9%
L/D (%) 90.3% 90.5% 96.2% 5.7%
FX share of lending (%) 0.4% 0.4% 0.2% -0.2%
Source: Deloitte NPL Study, NBP, ECB CBD, EIU ¹Assets penetration = Total assets/Nominal GDP ²Loans penetration = Total loans/Nominal GDP
25Banking market
• In 2017, 12 locally-licenced banks and 13 foreign branches were • The top 5 banks in Slovakia own more than 70% of the
operating in Slovakia. The banking sector is dominated by total market share, thus the banking market is moderately
foreign owned credit institutions, like the Erste Group and Intesa concentrated.
Sanpaolo.
List of Banks in Slovakia in 2017 (EUR mn)
Institutions Total Assets Market share Equity Net income ROA ROE Major shareholder
1. Slovenska Sporitelna 16 315 21.0% 1 505 162 1.0% 10.8% Erste
2. Vseobecna Uverova Banka 14 469 18.6% 1 556 160 1.1% 10.3% Intesa Sanpaolo
3. Tatra Banka 12 281 15.8% 935 113 0.9% 12.1% Raiffeisen
4. Ceskoslovenska Obchodna 8 032 10.3% 763 51 0.6% 6.7% KBC
Banka
5. Postova Banka 4 311 5.6% 643 48 1.1% 7.5% J&T Finance group
6. Prima Banka Slovensko 3 553 4.6% 304 15 0.4% 4.9% Penta Investments
7. Prva Stavebna Sporitelna 3 004 3.9% 235 17 0.6% 7.2% Schwäbisch Hall
8. OTP Banka Slovensko 1 458 1.9% 126 -6 -0.4% -4.8% OTP
9. Privatbanka 658 0.8% 78 9 1.4% 12.1% Penta Investments
10. Slovenska Zarucna a Rozvojova 553 0.7% 297 3 0.6% 1.2% Ministerstvo financii
Banka Slovenskej republiky
11. Wustenrot Stavebna Sporitelna 420 0.5% 41 1 0.3% 3.5% Bausparkasse Wustenrot
Aktiengesellschaft
12. Csob Stavebna Sporitelna 251 0.3% 26 0.5 0.2% 1.9% Ceskoslovenska obchodna
banka
FOREIGN BRANCHES 12 328 15.9% FB 202 1.6% FB
Total 77 632 100% 8 384 777 0.9% 9.3%
Source: EMIS, LNB, Annual reports, Inteliace Research
26M&A activity
Between 2015 and 2018 there were two major M&A deals in the • In 2015, ABH Holdings, which is currently investing into several
Slovakian banking sector. banking groups in Europe, has agreed to acquire Zuno Bank
from Raiffeisen Bank International. The acquisition will enlarge
• In 2016, 99.5 % stake in Sberbank Slovensko was acquired by the presence of Alfa Banking Group on European markets and
Primabanka which is owned by Penta Investments Limited, increase its technological potential. The acquisition will enable
a private equity firm. This transaction was in line with the Zuno to further strengthen and grow its business in Slovakia and
international strategy of Sberbank Europe. the Czech Republic.
List of banking M&A deals in Slovakia 2015-2018
Year Target Buyer % Acquired Deal Value in EUR mn Seller
2015 Sberbank Slovensko Penta Investments Limited 99.50% n.a. Sberbank
2015 Zuno Bank, AG ABH Holdings 100% 35 Raiffeisen
Source: Deloitte Intelligence
27Hungary
Macroeconomic environment
• Real GDP increased by 4.2% in 2017, mainly driven by fiscal • Recorded unemployment in Hungary is at record low levels.
loosening, tax cuts and increased expenditure. Labour shortage and the lack of the skilled workers is an issue to
be dealt with in most fields of the economy.
• Consumer prices increased by 2.4% in 2017, which was the
highest since 2012. Fuel price inflation with 5.9% was the • Budget deficit increased by 0.3 percentage point in 2017 to 2.0%,
main driver of the rise as other components did not increase while public debt stood at 73.7%.
significantly.
Change 2016-17
Macro indicators 2015 2016 2017
(% or % point)
Nominal GDP (EUR mn) 110 723 113 731 123 495 8.6%
Nominal GDP/capita (EUR) 11 317 11 660 12 703 8.9%
GDP (% real change pa) 3.3% 2.1% 4.2% 2.1%
Consumer prices (% change pa) -0.1% 0.4% 2.4% 2.0%
Recorded unemployment (%) 6.8% 5.1% 4.2% -0.9%
Budget balance (% of GDP) -1.9% -1.7% -2.0% -0.3%
Public debt (% of GDP) 76.8% 76.1% 73.7% -2.4%
Source: EIU, Eurostat
28Banking trends
• The banking sector’s capital adequacy is satisfactory, in spite of segments. In the corporate segment it was mostly due to the
the decrease in 2017. The decrease was mostly due to increasing improvement of the portfolio and reclassifications, whereas in
total assets and the higher average riskiness of the new assets. the retail segment it was primarily the result of the banks’ active
Despite the overall picture is still positive, there is a relatively balance sheet cleaning activity.
heterogeneous distribution of capital adequacy ratios among the
respective individual banks. • Total profit of the banking sector in 2017 exceeded even the
record figure of 2016. Consequently, profitability ratios rose to
• Total assets of the bank sector increased considerably in historically high levels. At the same time, the exceptional profit
2017, while asset quality also improved. In 2017 NPL volumes was partially due to significant non-recurring items, such as high
decreased significantly in both the retail and corporate trading income and reversals of provisions.
Change 2016-17
Banking sector 2015 2016 2017
(% or % point)
Total assets (EUR mn) 102 672 108 105 120 108 11.1%
Assets penetration (%)1 92.7% 95.1% 97.3% 2.2%
Total equity (EUR mn) 9 147 10 919 12 370 13.3%
Total loans (EUR mn) 37 726 37 333 39 416 5.6%
Loans penetration (%)2 34.1% 32.8% 31.9% -0.9%
Retail loans (EUR mn) 18 792 18 306 18 574 1.5%
Corporate loans (EUR mn) 18 933 19 027 20 842 9.5%
Interest rates
Lending (%) 2.9% 2.1% 1.5% -0.6%
Deposit (%) 1.1% 0.6% 0.1% -0.5%
NPL volumes
Retail NPLs (EUR mn) 3 312 2 324 1 402 -39.7%
Corporate NPLs (EUR mn) 1 816 1 029 678 -34.1%
NPL ratios
Retail NPL ratio (%) 17.6% 12.7% 7.5% -5.1%
Corporate NPL ratio (%) 9.6% 5.4% 3.3% -2.2%
Key ratios
CAR (%) 17.8% 18.7% 16.8% -1.9%
ROE (%) 0.3% 11.7% 14.5% 2.8%
ROA (%) -0.1% 1.3% 1.5% 0.3%
CIR (%) 83.9% 62.6% 64.4% 1.7%
L/D (%) 78.6% 74.5% 71.8% -2.7%
FX share of lending (%) 23.5% 22.1% 23.4% 1.4%
Source: Deloitte NPL Study, NBP, ECB CBD, EIU ¹Assets penetration = Total assets/Nominal GDP ²Loans penetration = Total loans/Nominal GDP
29Banking market
• In total, 40 locally-licensed credit institutions and 9 foreign with market leading OTP having a 21% market share. There are
branches conducted business in Hungary as of December 2017. only 6 banks with a market share greater than 5%, and a number
of banks below 3%, providing material room for consolidation.
• The concentration of the banking industry is relatively low, since Market share of foreign-owned banks decreased below 50% in
the top 5 banks own around 50% of the total banking assets, recent years.
List of Banks in Hungary in 2017 (EUR mn)
Institutions Total Assets Market share Equity Net income ROA ROE Major shareholder
1. OTP Bank 25 059 20.9% 4 596 814 3.2% 17.7% OTP
2. Kereskedelmi és Hitelbank 9 806 8.2% 858 135 1.4% 15.7% KBC
3. UniCredit Bank 9 154 7.6% 1 031 158 1.7% 15.3% Unicredit
4. Erste Bank 7 026 5.8% 1 163 262 3.7% 22.5% Erste
5. Raiffeisen Bank 7 004 5.8% 654 92 1.3% 14.1% Raiffeisen
6. MKB Bank 6 651 5.5% 520 100 1.5% 19.2% PE/VC
7. CIB Bank 5 410 4.5% 665 72 1.3% 10.9% Intesa Sanpaolo
8. MFB 3 824 3.2% 689 43 1.1% 6.2% State
9. OTP Jelzálogbank 3 482 2.9% 244 74 2.1% 30.2% OTP
10. Budapest Hitel- és Fejlesztési Bank 3 310 2.8% 435 45 1.4% 10.3% State
11. EXIM Bank 3 030 2.5% 480 15 0.5% 3.1% State
12. Magyar Takarékszövetkezeti Bank 2 711 2.3% 81 19 0.7% 23.2% Co-operatives
13. Fundamenta-Lakáskassza 1 559 1.3% 111 20 1.3% 18.1% Schwäbisch Hall
14. FHB Kereskedelmi Bank 1 503 1.3% 66 - 32 -2.1% -48.4% Private individuals
15. Merkantil Váltó és Vagyonbefekteto Bank 1 191 1.0% 98 31 2.6% 31.4% OTP
16. Sberbank 1 144 1.0% 141 2 0.1% 1.1% Sberbank
17. OTP Lakástakarékpénztár 1 048 0.9% 126 8 0.7% 6.2% OTP
18. GRÁNIT Bank 989 0.8% 44 2 0.2% 4.8% State
19. Takarek Kereskedelmi Bank Zrt. 980 0.8% 186 15 1.5% 8.0% Private individuals
20. Commerzbank 948 0.8% 90 2 0.2% 2.2% Commerzbank
21. UniCredit Jelzálogbank 704 0.6% 71 10 1.4% 13.9% Unicredit
22. KDB Bank 682 0.6% 63 5 0.7% 7.3% Korea Development Bank
23. Bank of China 462 0.4% 53 1 0.2% 1.5% Bank of China
24. MagNet Magyar Közösségi Bank 428 0.4% 37 6 1.5% 17.3% Fr Invest
25. Magyar Cetelem Bank 345 0.3% 113 36 10.4% 32.0% Cetelem
26. KELER Központi Értéktár 326 0.3% 84 -9 -2.7% -10.3% National Bank
27. Erste Jelzalogbank Zrt. 286 0.2% 21 1 0.3% 3.5% Erste
28. Duna Takarék Bank 251 0.2% 15 1 0.4% 7.0% Garancsi István
29. Erste Lakás-takarékpénztár 242 0.2% 12 -6 -2.6% -53.2% Erste
30. K&H Jelzálogbank Zrt. 241 0.2% 12 0 0.1% 2.6% KH
31. Pannon Takarék Bank 237 0.2% 16 0 2.0% 17.1% Private individuals
32. Sopron Bank Burgenland 207 0.2% 24 5 2.2% 19.0% Communitas Holding
33. NHB Növekedési Hitel Bank 190 0.2% 13 0 0.1% 2.0% Bankonzult
34. Porsche Bank Hungaria 171 0.1% 28 1 0.8% 4.6% Porsche Bank
35. Garantiqa Hitelgarancia 150 0.1% 106 8 5.3% 7.5% MFB
36. Mohácsi Takarék Bank 125 0.1% 11 0 -0.2% -2.8% Private individuals
37. Polgári Bank 122 0.1% 8 0 0.2% 3.6% Private individuals
38. Agrár-Vállalkozási Hitelgarancia 108 0.1% 101 3 2.4% 2.6% Private individuals
39. Kinizsi Bank 104 0.1% 9 0 0.4% 4.5% Private individuals
40. AEGON Magyarország Lakástakarékpénztár Zrt. 62 0.1% 7 -3 -5.5% -45.9% AEGON
FOREIGN BRANCHES 18 835 15.7% FB -137 -0.7% FB
Total 120 108 100% 12 370 1 797 1.5% 14.5%
Source: EMIS, HNB, Annual reports
30M&A activity
The Hungarian banking sector experienced significant M&A • In 2016, MKB Bank was privatized, Metis Fund (45%), Blue Robin
activity between 2015 and 2018. The state has been an active Investments (45%) and Pannonia Pension Fund (10%) acquired
buyer in recent years, in line with its pronounced strategic goal to 100% of the Bank from the Hungarian State for a consideration
increase Hungarian ownership in the banking sector. As of year- of EUR 118 mn.
end 2017, more than 50% of total banking assets was domestically
owned. The government indicated they are planning to dispose of • In 2016, AXA sold its Hungarian subsidiary to OTP Bank, in
Budapest Bank acquired from GE in 2015 for USD 700 mn, with IPO line with its strategy to exit the non-core CEE exposures. The
and trade sale both being potential options. acquisition included the whole operation and all employees of
AXA Bank. The deal increased OTP Bank’s mortgage portfolio by
8 deals were completed in the Hungarian banking since 2015, with almost 25%.
deal value being announced in 5 cases, adding up to EUR 1,085 mn.
• In 2015, Magyar Posta, the Hungarian postal service provider,
• In 2017, a 36.5% stake in Granit Bank was acquired by the has acquired 49% stake in FHB Bank Zrt. from FHB Land Credit
management team of the Bank from the Hungarian Government and Mortgage Bank for a consideration of EUR 90.6 mn. With the
in a management buyout transaction for EUR 14.4 mn. transaction Magyar Posta could increase its market share in the
financial sector. Furthermore, the acquisition strengthened the
• In 2017, Konzum investment fund manager acquired 49% of the capital position of FHB.
MKB Bank. As of September 2018, Konzum investment fund
manager still possesses 49% (35 % via Metis Fund), while the • In 2015, Citibank, in line with its strategy to focus on its core
other significant owner is Blue Robin Investments with 33%. activities which are institutional and corporate banking, sold its
retail banking business to Erste for an undisclosed consideration.
• In 2016, Corvinus - a Hungarian state-owned investment fund -
purchased 15% of Erste Bank Hungary, together with EBRD which • In 2015, the sale of the SME-focused Budapest Bank was a
also acquired 15%, for a total consideration of EUR 247.8 mn. large deal in the Hungarian banking sector. GE sold the Bank to
Corvinus - a Hungarian state-owned investment fund, for EUR
615 mn (the purchase price was set in USD 700 mn).
List of banking M&A deals in Hungary 2015-2018
Year Target Buyer % Acquired Deal Value in EUR mn Seller
2017 Granit Bank Zrt. Management 36.5% 14.4 Hungarian State
Blue Robin Investments
2017 MKB Bank Zrt. Konzum Nyrt. 49% n.a. S.C.A.; Minerva Capital
Fund Management
2016 Erste Bank Hungary Zrt Hungarian State; EBRD 30% 247.8 Erste
Pannonia Pension Fund; METIS
2016 MKB Bank Zrt. Private Capital Fund; Blue Robin 100% 118 Hungarian State
Investments S.C.A.
2016 AXA Bank Hungary OTP 100% n.a. AXA Bank
FHB Mortgage Bank Co.
2015 FHB Kereskedelmi Bank Zrt. Magyar Posta Zrt. 49% 90.6
Plc.
2015 Citi retail business Erste 100% n.a. Citibank
2015 Budapest Bank Zrt. Hungarian State 100% 614.9 GE Capital
Source: Deloitte Intelligence
31Romania
Macroeconomic environment
• Romania’s economic growth accelerated in the last 3 years. In • In 2017 budget balance resulted in a negative ratio of -2.8%, and it
2017 GDP increased by 10% in nominal, while 7% in real terms decreased slightly compared to the year before. Although, Public
with a 2.2% CAGR. The country’s economy had one of the debt decreased by 2.1 percentage points to 35.0%.
highest growth in private consumption within Europe, which
explains the solid GDP growth. The reason behind private • Although EU funds continued to boost investments, there
consumption is the increasing disposable income and the wages were changes in tax and business-related legislations, which
while VAT had been cut. might create some legal uncertainty for long term investments.
The pro-cyclical fiscal policy pushed the deficit of the general
• Despite the stagnant labour market, consumer confidence has consolidated budget up to 3% of the GDP from 0.8% in 2015.
reached the pre-crisis level, and there is a strong domestic
demand on imports.
Change 2016-17
Macro indicators 2015 2016 2017
(% or % point)
Nominal GDP (EUR mn) 160 298 170 893 187 940 10.0%
Nominal GDP/capita (EUR) 8 064 8 641 9 550 10.5%
GDP (% real change pa) 3.9% 4.8% 7.0% 2.2%
Consumer prices (% change pa) -0.6% -1.6% 1.3% 2.9%
Recorded unemployment (%) 6.8% 5.6% 4.8% -0.8%
Budget balance (% of GDP) -1.5% -2.4% -2.8% -0.4%
Public debt (% of GDP) 37.7% 37.1% 35.0% -2.1%
Source: EIU, Eurostat
32Banking trends
• The capital adequacy ratio further improved in 2017 and it is still The NPL ratio significantly drooped last year and it is lower than
at a sufficient level. Hence, in general the banks in Romania are the EBA’s red threshold, however considerably higher than the
well capitalized, which could support further the credit growth EU average. All in all, Romania is an excellent example in terms
and create a buffer for potential losses in the future. According of asset quality improvement manners, since the quality of the
to the stress test of the Romanian National Bank, most of the loans significantly improved in a relatively narrow time frame,
banks would meet the capital adequacy criterion even in a crisis without affecting other prudential indicators of the banks.
situation.
• The profitability of the banking industry has strengthened in
• Romania’s banking sector has strengthened in the last 3 years. 2017 due to the significant reduction in net impairment losses
Although, corporate loans have slightly decreased, retail loans and the low level of funding costs. Although, the profitability of
have risen due to macroeconomic changes, like increased private the banks is still heterogeneous and the profits are concentrated
consumption. The asset quality of the banking sector further in large banks. The key element of the banks’ income remains the
improved in 2017 due to the banks’ balance sheet clean-up net interest income, since the credit institutions still rely on high
process, however there is still room for additional developments. interest margins.
Change 2016-17
Banking sector 2015 2016 2017
(% or % point)
Total assets (EUR mn) 84 546 88 202 93 739 6.3%
Assets penetration (%)1 52.7% 51.6% 49.9% -1.7%
Total equity (EUR mn) 8 632 9 013 9 774 8.4%
Total loans (EUR mn) 47 522 47 805 48 974 2.4%
Loans penetration (%)2 29.6% 28.0% 26.1% -1.9%
Retail loans (EUR mn) 23 889 24 922 26 176 5.0%
Corporate loans (EUR mn) 23 632 22 883 22 798 -0.4%
Interest rates
Lending (%) 6.8% 5.7% 5.6% -0.1%
Deposit (%) 1.9% 1.1% 0.9% -0.2%
NPL volumes
Retail NPLs (EUR mn) 2 174 1 841 1 488 -19.1%
Corporate NPLs (EUR mn) 6 182 4 345 2 608 -40.0%
NPL ratios
Retail NPL ratio (%) 9.1% 7.4% 5.7% -1.7%
Corporate NPL ratio (%) 26.2% 19.0% 11.4% -7.5%
Key ratios
CAR (%) 19.2% 19.7% 20.0% 0.3%
ROE (%) 11.3% 10.6% 11.7% 1.1%
ROA (%) 1.2% 1.1% 1.3% 0.2%
CIR (%) 57.9% 52.4% 54.9% 2.5%
L/D (%) 67.6% 68.2% 69.2% 1.0%
FX share of lending (%) 49.9% 43.4% 37.8% -5.5%
Source: Deloitte NPL Study, NBP, ECB CBD, EIU ¹Assets penetration = Total assets/Nominal GDP ²Loans penetration = Total loans/Nominal GDP
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