Raiffeisen Research CEE Banking Sector Report 2023

The Raiffeisen Research analysts in Vienna and the countries in Central and Eastern Europe (CEE) in which Raiffeisen Bank International AG (RBI) operates, together with RBI Chief Economist Gunter Deuber, have already in 2022 provided a constructive view on business activity in the regional banking sectors for 2023. In the newly published Raiffeisen Research CEE Banking Sector Report 2023, however, the analysts have to admit, "The present earnings situation in CEE banking has exceeded all our expectations," says Gunter Deuber. We are currently recording a return on equity of over 10% in all banking markets in Central and Southeastern Europe (CE/SEE), which, according to Deuber, was unheard of even in the "CEE banking boom times" before the global financial crisis. On average, the return on equity in CE/SEE is seen at 16-17%.

2024: banking assets in CE/SEE should exceed the EUR 2,000 billion mark

"The solid and broad-based earnings situation in all CEE-markets confirms our business model as a regionally focused and broadly positioned universal bank," says Johann Strobl, CEO of RBI. Moreover, according to Raiffeisen Research analysts, the banking markets in CE/SEE are of a sufficient size for larger cross-border players even without the Russian market. Local banking assets in CE/SEE should exceed the EUR 2,000 billion mark in the coming year. This means that the CE/SEE banking market will soon be as large as the CEE market as a whole, including the Russian banking sector, was ten years ago. According to estimates by Raiffeisen Research, the earnings potential in the CE/SEE region is EUR 19-20 billion this year. The Czech Republic is still the main source of profits (approx. 25% of the regional CE/SEE revenue pool), although Poland and Hungary have caught up (18% and 13%, respectively).

Earnings likely to peak in 2023

However, Raiffeisen Research senior banking analyst Ruslan Gadeev notifies: "The current earnings situation can hardly be continued so easily". Core bank earnings are likely to come under pressure from various factors. RBI banking specialist Gadeev sees a complex mix approaching CEE banks: "Pressure on earnings will increase from all sides. Be it the additional bank taxation, inflationary pressure on operating costs, changes to the funding structure, be it a more expensive mix due to the growing
share of term deposits, costly regulatory driven (MREL) funding and the prospect of low credit growth combined with certain risk costs and key rate declines. All those drivers point to a peak in earnings next year."

Profit taxation in more and more CEE countries

It should come as no surprise that the record banking profits have awakened political tax appetite – and not only in the RBI core region CE/SEE. The practice of (over)taxing profits from supposed "windfall profits" in the banking business is affecting more and more countries in Central and Eastern Europe. Ukraine, Romania, Slovenia, and Slovakia will follow the example of Hungary and the Czech Republic, where such taxes were already introduced in 2022. According to Raiffeisen Research analysts, it is important that such extra burdens remain limited in time. RBI CEO Johann Strobl emphasizes, "The current very solid earnings situation reflects not only the key interest rate hikes, but also massive optimization and restructuring efforts in recent years."

Business activities of Western banks continue to shift strongly towards CE/SEE

The CEE Banking Sector Report 2023 shows that regional business activities of leading Western banks in CEE continued to shift massively towards CE/SEE markets in 2023. This group of countries now accounts for almost 94% of the balance sheet totals of Western banks in the CEE region. The Russian business is at 5% and thus at the level of a country such as Croatia. Ruslan Gadeev also shows that Chinese banks are already as important in some areas of transaction banking business on the local Russian market as the remaining Western and Western European banks, which for the time being continue to operate in a very cautious and risk-adverse way on the local Russian market.

Leading Austrian CEE banks continue to have a market share of 30%+ in regional banking markets

Leading Austrian CEE banks (Erste, RBI) continue to have a market share of well over a third of the regional banking business in CEE (33%). The Austrian lenders are followed by Italian banks with a market share of 27%. Gunter Deuber therefore believes that Vienna's role as a regional hub remains well secured. However, according to Raiffeisen Research analysts, there are currently signs of a shift in market share in favor of local players in some markets such as Hungary, Romania, or Serbia. According to Raiffeisen Research, RBI is number three in the key CE-3 banking markets (Czechia, Slovakia, Hungary) and number four across all banking sectors in Southeastern Europe. 

Ukraine: Banking market as a core component of local economic resilience

In addition to the Russian banking market, the CEE Banking Sector Report also provides in-depth insights into the Ukrainian banking sector. The latter is a core component of the resilience of the Ukrainian (service) economy. In this context, Gunter Deuber emphasizes, "Austrian banks, and RBI in particular, account for 35% of international bank exposures to Ukraine. This is an extremely high figure and underlines the systemic role of our subsidiary bank in Ukraine." 

Registered users of Raiffeisen Research can access the entire CEE Banking Sector Report here.
A shorter version in commentary style can be found (without registration) here.

The CEE Banking Sector Report is an annual analysis by Raiffeisen Research that attracts a lot of attention from (CEE) banking experts and beyond. Once a year, all Raiffeisen Research teams in CEE and Vienna analyze the dynamics of the regional banking market in detail. In addition to country sections and a focus on the Croatian euro market this time, the specialists once again document the market shares, balance sheet totals and key financial figures of the leading (western) international CEE banks. The same applies to cross-country trends in market shares, business dynamics, asset quality and profitability.