28 I Special report bne November 2015 bne November 2015 Special report I 29

Uphill battle to raise banking Special Report: profitability CEE/CIS Bank Survey 2015 Ben Aris in Moscow

t has been a tough year for banks as a way of excluding the chaff of the The Ukrainian banking sector is probably across the bne IntelliNews region. more obvious scams and glorified the worst off following the collapse of IEconomic stagnation, civil unrest treasury operations that some banks are the economy, which is expected to shrink and even wars and terror attacks have – especially east of the European Union by 11% this year. A massive devaluation weighed on banks’ profits and muted (EU) member states. of the hryvnia, which has lost more than growth. half its value, has nearly bankrupted the The list was compiled with help from whole sector. bne IntelliNews has been ranking banks our partners Standard & Poor’s and Fitch every year for more than half a decade, Ratings, which provided some of the Russia and Belarus are not doing much but this year we have introduced a new numbers, in addition to bne IntelliNews’ better. Russia’s banks are now in an unof- methodology. In the past we ranked own research. The final ranking is not ficial slow-motion crisis as the Central banks in terms of asset size as the entire a definitive list, but it is comprehensive Bank of Russia (CBR) has been closing region boomed on the back of the and covers all the 30-plus countries in banks at the rate of several a week in transition process. But now as the region our patch. recent months – to the point where the moves into a more difficult low-growth funds of Russia’s Deposit Insurance Agen- phase, we decided to switch the focus The picture across the region is very cy (DIA) have almost been exhausted and to looking at profitability as the most mixed and the situation is highly it has had to ask the CBR for more cash. relevant metric in this environment. dependent on the local story. Taken as a whole, ROE has fallen across the entire The Russian list is remarkable for the We chose to rank banks on the basis of region to 3.0-3.5% in the first half of this total lack of state-owned banks near the return on equity (ROE) as the crucial year compared with 6% growth in 2014, top of the league. The two biggest banks variable and subdivided the bigger according to data from Raiffeisen Bank in the country, which enjoy significant banking sectors into groups by asset International (RBI). Risks remain high competitive advantages thanks to their size to be able to compare apples with and the worst problems are in Eastern state ownership, did very badly on an apples. However, we have also taken into Europe, which is dragging down the rest ROE basis: VTB Bank earned a mere account asset growth and profitability of the region. 5.51% ROE (308th place) whereas its 30 I Special report bne November 2015 bne November 2015 Special report I 31 sister Sberbank did slightly better with In Poland, lenders are facing a large bill Banks are also muddling through in 6.80% (260th place). on mortgage loans denominated in Swiss Southeast Europe with “their perfor- And the winners are… francs. Since the Swiss currency spiked mance and developments hampered Things are going better inside the EU in January, the political pressure has by both macro-related and structural accession countries in Central Europe been on. The current government has put issues,” RBI said. Eastern Europe where the economies are less volatile together legislation to offer borrowers and financial sector regulation is a conversion scheme that would cost New loan volumes were sinking slowly Russia Group A Russia Group C Belarus stronger. the banks around PLN10bn (€2.35bn). in Southeast Europe in the first half Bank ROE Bank ROE Bank ROE However, with the populist Law & Justice of this year in real terms, especially in Promsvyazbank 14.22 Deutsche Bank 40.65 Belagroprombank 5.38 Banks have “more or less sustainable (PiS) likely to win the October 25 elec- Croatia and Bulgaria. The only exception FC Otkrytie 9.17 Sovcombank 32.34 ASB Belarusbank 5.08 single-digit loan growth, solid profitabil- tion, the bill could shoot up to anywhere is Romania, which has clearly turned Raiffeisen Bank 7.47 HSBC 32.15 ity on aggregate and on-going soundness between PLN30bn-60bn, depending on the corner and is recovering on the of the core funding base”, RBI analysts how hard any new proposals prove post- back of solid lending activity, but most Gunter Deuber and Elena Romanova election. On top of that, PiS has suggested of the countries in the region have to Promsvyazbank won in the Russian A Deutsche Bank wins in the C group The winner of best bank in Belarus was wrote in the bank’s annual banking it will levy some form of tax on the sector bear the millstone of non-performing category of biggest banks with an ROE with an ROE of 40.65%, but the German Belagroprombank, the state-owned report. However, the analysts warned that could cost lenders PLN1.7bn-5.0bn. loans (NPL). of 14.22%. Russia’s leading commercial bank recently decided to close all its titan that funds the agricultural sector, that there might be some “underwater lender, the bank is part of a larger investment bank operations and scale with an ROE of 5.38%. Just behind stones” in the second half of the year In Hungary, meanwhile, banks could And times are tough in Central Asia. group owned by the conservative back to only maintain its corporate is Belarusbank (5.08%), the biggest related to Poland’s changing regulations benefit from a cut in Europe's highest Kazakhstan is the only country with Russian Orthodox brothers Dmitry banking services after its office bank in the country. An honourable on foreign currency loans. bank tax in 2016, with further reduc- a fully developed banking sector and and Aleksey Ananyev, who both sport was dogged by money-laundering mention goes to Priorbank, a Group tions promised in the coming years. banks there have been hit by the deci- enormous beards and made their first allegations. However, that didn’t stop it C bank set up in cooperation with the In Central Europe RBI predicts loan However, they remain wary of poli- sion of the government to free the tenge, money by laying fibre optic cables and earning the highest ROE in our Russian European Bank for Reconstruction growth will come in at 4-6% year on cymaking after several years of pain, leading to a 25% devaluation of the computers before building a banking rankings so far this year. and Development (EBRD), which year (y/y) this year, with the outlook for including a big hit on forex mortgages in national currency. empire. The bank has always focused had an impressive return of 35.46%, Czech Republic, Slovakia and Poland in late 2014. In the face of that, the central on quality mid-sized to large industrial the highest in its class, despite the particular all looking positive, as most of bank is preparing measures to push “We would expect keeping overall profit- enterprises in the private sector and economic problems in the country. the bank sectors in the region will return them to raise lending if they want to ability in CEE in 2015 at the 2014 level to seeks out quality customers with which to profit in the second half of this year. benefit from the lowered tax. be an uphill battle,” RBI concluded. it works closely, rather than chasing the easy-government money. Russia Group D Ukraine Bank ROE Bank ROE Runners up are Financial Company Financial Settlement Centre 269.84 Bank Petrocommerz Ukraine 124.13 Otkrytie (9.17%), a fast growing mid- Rapida 204.65 Motor Bank 52.37 sized investment bank that specialises StarBank 178.39 Bank Veles 51.40 in pension fund management among other things, and the Austrian Raiffeisen Bank, which has been in Russia since The winners in Group D highlight the The Ukrainian results are a bit the 1990s and was a pioneer of retail problems of dealing with Eastern meaningless this year, as the whole and corporate services in the country. Europe’s banking sector. The winner banking sector is in crisis and the is Financial Settlement Centre with a numbers they are reporting to the massive ROE of 269.84%, which would National Bank of Ukraine (NBU) are Russia Group B have made it the most profitable bank regarded as having little bearing on Bank ROE in the country – indeed the whole region reality. ING Bank 38.08 – except the CBR pulled its banking Citibank 26.88 license on August 3 when it was found to “not comply with anti-money laun- Ural Bank for R&D 8.97 dering laws of proceeds from crime and terrorism”. The B group was won by Holland’s ING Bank, which is Russia’s largest custodian bank with a ROE of 38.08%. 32 I Special report bne November 2015 bne November 2015 Special report I 33

Central Europe Turkey

Poland Group A Poland Group C/D Czech Republic Latvian Turkey Group A Turkey Group C Bank ROE Bank ROE Bank ROE Bank ROE Bank ROE Bank ROE

mBank SA 13.28 Idea Bank SA 14.00 Československá obchodní banka, a. s. 5.38 ABLV Bank. 35.95 Türkiye Cumhuriyeti Ziraat Bankası 16.66 Citibank A.S. 18.43 A.S. ING Bank Śląski SA 12.10 Bank Pocztowy SA 10.08 Česká spořitelna, a. s. 5.08 Rietumu Banka 21.73 Aktif Yatırım Bankası A.S. 13.39 Türkiye Halk Bankası A.S. 14.22 Bank Millennium SA 11.12 Pekao Bank Hipoteczny SA 2.15 Norvik Banka. 11.53 Türk Ekonomi Bankası A.S. 13.91 Citi started doing business in Turkey in Two out of the three top banks in Idea Bank and Bank Pocztowy are Ceskoslovenska Obhodni Banka (CSOB) ABLV Bank, with an ROE of nearly 36%, Turkish state-owned lenders dominated 1975 with corporate banking services Poland’s Group A – mBank and Bank both looking to raise funds to power is the winner in the Czech Republic with is significantly more profitable than our list this year, led by state-owned and began to operate as a branch Millennium – are amongst the lenders rapid expansion. The innovative Idea an ROE of 17.27%. The third biggest the majority of its European peers. Ziraat Bankasi, Turkey’s largest lender in 1981. In 2007, Citi acquired Opus with the biggest forex loans portfolios, issued PLN200mn worth of bonds in bank by assets is owned by Belgium’s ABLV is Latvia’s biggest locally-owned by asset size. French BNP Paribas’ Menkul Değerler A.Ş. and has started and therefore stand to take a big hit late September, with plans to execute financial group KBC. Alongside runners bank; Oleg Fils and Ernests Bernis Turkish unit Turk Ekonomi Bankasi to provide security services in Turkey as should a costly "solution" be forced on another PLN300mn soon. The bond up Ceska Sporitelna and Komercni – who control the lender – regularly (TEB) was the only private lender in the Citi Menkul Değerler A.Ş. the banks. Germany's Commerzbank, issue follows the bank’s troubled IPO in Banka, it was one of the three major top the charts of richest Latvians. Its first group. which owns mbank, has threatened April, when it only achieved an IPO price banks in the country before the fall of expansion outside its home country possible legal action. of PLN24 per share, having hoped for communism. All are owned by major has concentrated on the former Soviet The Turkish banking sector is highly PLN32. Eurozone banking groups and operate Union, helping to concrete Latvia's dependent on external funds because of However, banks with forex loans stand in what is often described as the perfect reputation as an EU base for capital low saving rates in the country. Turkish to make lower profits whether or not Bank Pocztowy’s shareholders - state- banking market: stable, but a bit boring. from that region. lenders have not faced visible problems legislation arrives. The regulator KNF is owned postal operator Poczta Polska in foreign borrowing yet, although the already pushing exposed lenders to beef and state-controlled bank PKO BP – US Federal Reserve’s expected rate hike up capital buffers, hitting both financial boosted the bank’s capital by PLN60mn Slovakia Lithuania could curb capital flows to emerging results and dividends. The uncertainty in September, and plan to get an IPO off Bank ROE Bank ROE markets, with Turkey seen as amongst only adds to a year already set to prove as soon as market conditions allow. Tatra banka 15.46 AB Šiaulių bankas 22.41 the most vulnerable to that. mediocre for bank earnings, because Slovenská sporiteľňa, a.s. 14.40 AB Citadele bankas. 11.52 of record low interest rates and fierce 9.91 AB bankas „FINASTA“. 10.33 competition between lenders to get Hungary ČSOB, a.s. Turkey Group B Turkey Group D Poland’s consumers to spend more. Bank ROE Bank ROE Bank ROE OTP Mortgage Bank 16.93 Tatra banka was established in 1991 as Siauliu Bankas is the least profitable Türkiye Sınai Kalkınma Bankası A.S. 18.31 Deutsche Bank A.S. 17.50 ING Bank l ski, owned by the Dutch the first private bank in Slovakia. It is of the Baltic winners, but its ROE still Ś ą K&H Bank Zrt 9.85 Şekerbank T.A.S. 5.17 Nurol Yatırım Bankası A.S. 12.59 group, looks to be in a more comfortable owned by Raiffeisen Bank International. stands at over 22%. The EBRD is the Kereskedelmi es Hitelbank Zrt 6.24 İller Bankası A.S. 5.13 JPMorgan Chase Bank N.A. 10.25 place. It has few specific risks weighing (K&H Bank Zrt) Like the Czech market next door, bank’s biggest shareholder with a on its balance sheet. Slovakia is seen as a stable market, but stake of over 18%. Siauliu took over offering limited opportunity to boost investment bank Finasta and Finasta State-owned lenders Turkiye Sınai Deutsche Bank Turkey is a provider Poland Group B: The winner in Hungary is OTP Mortgage returns swiftly. brokerage services earlier in 2014 from Kalkinma Bankasi (TSKB) and Iller of corporate banking services, while Bank with an ROE of 16.93%. The investment group Invalda LT. Bank ROE Bankasi were among the top three Nurol Yatirim Bankasi is an investment mortgage lender is owned by the lenders in the second group. Sekerbank bank and JP Morgan Chase Bank Alior Bank SA 5.47 country’s largest bank by assets, OTP. Estonia was the only private lender in the is a provider of financial services to Bank BPH SA 1.45 Runner up is K&H Bank, a unit of Bank ROE leaders of the second group. corporates. Belgium's KBC. All banks in Hungary Swedbank 49.62 Top performers Alior Bank and Bank are hoping to recover from tough Versobank 30.10 BPH are centre stage in ongoing treatment by the Fidesz government LHV Pank 20.84 speculation on a coming consolidation over the past five years, which has wave in Polish banking. Poland’s state- driven many into large losses. controlled insurer PZU took control of The winner in Estonia is Swedbank, Alior in May, and was reportedly close to with an ROE of 49.62%, a result that a deal to buy BPH from GE Capital until leaves most European banks far behind. talks broke down in October. In September, the Swedish lender acquired the retail banking businesses The uncertainty over the sector of Danske Bank in Lithuania and Latvia, impeded the pair from agreeing on growing its consumer base and loan a price. Meanwhile, KNF remains portfolio to strengthen its position in the opposed to any major acquisitions by Baltic region. existing large players, especially the foreign groups that mostly dominate. 34 I Special report bne November 2015 bne November 2015 Special report I 35

Southeast Europe Eurasia

Romania Bulgaria Moldova Kazakhstan Group A Armenia Georgia Bank ROE Bank ROE Bank ROE Bank ROE Bank ROE Bank ROE Banca Comerciala Româna 23.30 DSK Bank 21.71 BC „MOBIASBANCA - Groupe Societe 27.12 Halyk Bank 23.86 ARARATBANK 23.41 JSC TBC bank 13.01 Generale” S.A. Banca Transilvania 10.38 Sibank EAD 14.36 Tsesnabank 14.27 INECOBANK 19.59 JSC Bank of Georgia 10.60 BC „Moldindconbank” S.A. 25.93 BRD – Groupe Société Générale 9.66 Unicredit BulBank AD 13.56 Sberbank 2.37 Armbusiness 18.30 BC „Moldova - Agroindbank” S.a. 21.38

Erste group’s Romanian branch DSK Bank, a state savings institution Moldova’s banking sector is in turmoil Halyk Bank, also known as Halyk Armenia's underdeveloped banking Georgia's banking sector has been no Banca Comerciala Romana (BCR) in the communist era, is Bulgaria’s as investigations into a $1bn bank Savings Bank of Kazakhstan, is the sector, the assets of which stand at stranger to controversy, or operating returned to profit in H1 this year after second largest bank by assets, now fraud drag on, most recently resulting country’s second largest bank in terms a meagre €6bn, has had its margins environment and currency devalua- massive losses in 2014. But its non- owned by Hungary’s OTP Bank. A in the arrest of former PM Vlad Filat on of assets and first in terms of equity affected by a weak operating environ- tion shocks this year, but the country performing loan (NPL) problem is still February 2015 survey by Client X October 15. The central bank’s decision capital and profit. Halyk was one of ment, characterised by devaluation, continues to have the most competitive not fully settled and the group has just found it was the most trusted bank in to liquidate the three banks involved the few Kazakh banks not involved in economic slowdown and higher rates. banks in the Caucasus. The two winning abandoned plans to sell a €2.7bn bad Bulgaria. DSK was also the developer in the scandal does, however, create reckless lending to high-risk projects Overall sector ROE in the first quarter institutions, TBC Bank and Bank of loan bundle, disappointed by the price of the mobile savings gaming opportunities for other banks to expand. and in aggressive borrowing in the was a modest 0.7%, which may explain Georgia, are also the two largest lend- offered. Banca Transilvania, in second application DSK Gameo in 2003. Mobiasbanca in particular could benefit global capital markets during the credit why, of the banks we selected, only ers in the country, and are both listed place, recently acquired Volksbank from its status as part of international boom preceding the 2008 financial Armbusinessbank, ROE of 18.30%, is on the London Stock Exchange. Bank Romania. This allowed locally owned banking group Societe Generale. crisis, which hit the Kazakh banking among the country's top five largest of Georgia caters largely to corporate Banca Transilvania to overtake sector badly. Historically, the bank has banks. The ranking is completed by the clients, while TBC Bank focuses on the Societe Generale’s BCR to become always adhered to the highest corporate smaller Inecobank (9th largest bank, retail and SME segments. the second largest bank in Romania. Kosovo Montenegro governance standards which have ROE 18.30%) and Araratbank (ROE However, while the deal boosted Banca Bank ROE Bank ROE allowed it to make the right strategic 23.41%). Transilvania’s market share the bank TEB Bank 35.59 Societe Generale banka Montenegro AD 18.08 decisions. Halyk is the only Kazakh Azerbaijan Kyrgyzstan also had to resolve NPL problems at ProCredit Bank, Kosovë 32.67 ERSTE Bank AD Podgorica 13.94 company to make Forbes magazine’s Volksbank, including with CHF debtors. Global 2000 list of the world’s biggest, Bank ROE Bank ROE Raiffeisen Bank Kosovo J.S.C. 28.63 Hipotekarna banka AD Podgorica 10.65 most powerful companies in 2015. AccessBank 33.13 Optima Bank 25.09 Kapital Bank 28.20 Rosinbank 18.39 Xalq Bank 6.07 JSC CB Tolubay Bank 17.50 Albania Croatia Serbia Kazakhstan Group B Bank ROE Bank ROE Bank ROE Bank ROE Banka Kombëtare Tregtare 19.78 Privredna Banka Zagreb d.d. 10.59 Banca Intesa a.d. Beograd 195.45 Citi Bank Kazakhstan 39.74 Azerbaijani banks have withstood the Uzbekistan Raiffeisen Bank Albania 15.73 Zagrebacka Banka d.d. 6.57 Unicredit Bank Srbija a.d. Beograd 16.14 Delta Bank 22.37 shock of the decline in oil prices and a 33% devaluation of the national currency Bank ROE Intesa Sanpaolo Bank Albania 14.96 Erste & Steiermärkische Bank D.d. 2.38 Raiffeisen banka a.d. Beograd 11.33 Kaspi Bank 19.34 thanks to their high liquidity, although Ipoteka Bank 27.50 the sector's high level of dollarisation Asaka Bank 15.09 Banka Kombetare Tregtare (BKT), now Winner Privredna Banka Zagreb is a Banka Intesa is the largest Serbian may turn into a credit risk. A noteworthy Qishloq Qurilish Bank 13.46 part of Turkey's Calik Holding, is the member of Intesa Sanpaolo Group. bank with total assets of over €4bn exception may be International Bank, the biggest and oldest commercial bank The EBRD, a shareholder since 2002, and a 16.2% market share. Originally country's largest bank, which may be in Albania. sold its 20.9% stake to Intesa Sanpaolo Serbia’s first private bank, Delta banka, privatised after reports of poor manage- in June, citing the bank’s successful it is now part of Intesa Sanpaolo. Kazakhstan Group C ment led to an investigation that resulted Mongolia development within the Italian group. Despite cost-cutting efforts, it still has Bank ROE in a wave of arrests of executives from Bank ROE Runner-up Zagrebacka Banka, part of one of the country’s largest branch Home Credit Bank 23.37 different companies this May. Khan Bank LLC 24.81 UniCredit Group, was Croatia’s largest networks and an emphasis on customer RBS (Kazakhstan) 22.58 Trade and Development Bank of 20.22 bank by assets at the end of June, with service in a market where staff are After restructuring over 100,000 foreign- Mongolia LLC Altyn Bank 18.96 Privredna in second place and Erste & traditionally rude and unhelpful. currency denominated loans this year, Golomt Bank of Mongolia 10.28 Steiermarkische Bank third. Runner-up UniCredit Bank Srbija is Azerbaijan’s banks have managed to post the country’s third largest bank with a 6.5% NPL rate, which may not reflect a focus on small and medium-sized the true quality of their loan portfolio. Bosnia Macedonia enterprises. Tajikistan Bank ROE Bank ROE AccessBank is an SME and micro- Bank ROE Raiffeisen Bank d.d. BiH 19.76 Eurostandard Banka a.d. Skopje 60.00 lender owned by international financial First MicroFinance Bank (The) 20.83 UniCredit Bank d.d. Mostar 12.52 Ohridska Banka a.d. Ohrid 22.08 institutions; Kapital Bank is owned by CJSC Accessbank Tajikistan 12.62 one of the largest holdings in the coun- Orienbank 6.61 try, which can count on close ties to Baku and generous financial backing.