CE/SEE Banking Sector: High Resilience, Strong Profitability, and Sustainable Growth Potential

The CE/SEE banking sectors have repeatedly demonstrated strong resilience in terms of profitability and asset quality with an ability to steer through successive waves of uncertainty (war in Ukraine, 2022/23 energy/inflation crisis, 2025 spike in trade tensions). They are also successfully navigating the most recent protracted conflict in the Middle East. We see this performance rewarded by fairly attractive market valuations of major CE/SEE banks compared to European peers. Notwithstanding a volatile market backdrop, major CE/SEE-exposed Western EU banks tend to trade at richer levels than the broader regional average (average price-to-book ratios of around 1.7 vs. 1.6, respectively, as of October 2026).

Profitability remains close to historical toppish levels, despite some moderation

In Return on Equity (RoE) terms, the CE/SEE banking sector retains its pronounced lead, keeping the metric at 15-16 per cent in 2025 and H1/2026 compared to around 9 per cent recorded by the euro area banking system or around 8-10 per cent on an unconsolidated basis by the Austrian market. The current positive RoE gap of 7-8 percentage points exceeds the long-term average of around 6 pp, and we expect CE/SEE markets to continue generating mid-teen RoE in 2026 and 2027 due to various factors. Eight out of twelve core CE/SEE markets currently feature RoE levels at 14-15 per cent or above, including the more challenging markets Romania (weaker economic backdrop) and Hungary (elevated banking levies), which also deliver returns of 14-16 per cent in 2026.

CE/SEE banks can look back at record high profit pools earned in 2024 (EUR 29.8 billion) and 2025 (EUR 31.5 billion), which is set to broadly repeat in 2026 on the back of a generally resilient macroeconomic background, a strong regional credit cycle plus an earnings-supportive turn of relevant central banks (ECB rate hikes, mostly hawkish or cautious domestic central banks in CE/SEE). The amount of extra profit taxes across the “main payer” markets (Hungary, Romania, Slovakia) has accrued to around EUR 1 billion in both 2024 and 2025, further stepping up to EUR 1.8 billion in 2026, which underscores the notably higher actual earnings in the region.

Profit pool comparable to Italy

The CE/SEE profit pool is currently comparable to the banking sector of Italy (2025: EUR 36.3 billion), though still notably trailing Spain (EUR 41.9 billion). Some reference can be also made to the Austrian banking sector. However, one should mind substantial contributions from CE/SEE subsidiaries included in the Austrian market’s profit pool (2025: close to EUR 12 billion net profit, about 40-50 per cent sourced from CE/SEE; hence the true domestic profit pool in the Austrian market stands at some EUR 6-7 billion). In the context of current monetary and credit cycles, coupled with the continuing economic convergence assumption, the CE/SEE profit pool can reach EUR 37-38 billion over the next five years, i.e. until 2030. This should be sufficiently large to sustain European cross-border banking models, partly supported by relatively concentrated banking market structures in CE/SEE from a broader European perspective. Moreover, the regional earnings profile is increasingly supported by fee-generating private wealth and asset management business, which can be seen as the second leg of regional financial convergence actively taking shape in CE/SEE.

Asset quality in core CE/SEE banking markets remains at solid levels

In most jurisdictions, non-performing loan rates (NPLs) remain at historic lows, close to euro area averages or inside Western European benchmarks, despite pockets of risks in selected industries. Underpinned by persistently strong labor markets, average NPLs hover around 2.7 per cent in SEE (against the historic high of 20 per cent in 2013) and consolidate around 1.8 per cent in CE-3 markets (vs. the peak of 8.4 per cent in 2015), compared to around 2 per cent in the euro area as a whole. Asset quality in cyclical sectors such as commercial real estate also remains at very solid levels as well, in most cases below the respective ratios in Austria and Germany.

The convergence story is intact

While growth prospects vary across markets featuring both underperformers (Romania and Slovakia) and markets with near-term and longer-term structural upside, the region is expected to continue outpacing Western Europe on average. Hungary stands out with potential "Polish-style" convergence growth already in 2027, while a credible euro entry path may give boost to a strong financial deepening cycle over the coming years (sharp increase in credit relative to economic output). Although aided by extensive subsidies in 2025 and 2026, Hungary’s housing loan penetration rate remains at least 5-10 pp of GDP below peers, while corporate banking may also see stronger growth with the unlocking of EU funds.

CE/SEE remains one of Europe's most attractive banking-growth regions. Supported by solid domestic fundamentals and external tailwinds, including EU funding, German fiscal stimulus and supply-chain reconfiguration, average loan growth should be anchored around the double-digit range on average. Retail lending is expected to remain a stronger growth driver despite selective macroprudential tightening, with the potential to advance by 10-12 per cent p.a. across our universe, with SEE markets in the lead. Residential mortgages continue to offer considerable structural headroom, the full realization of which hinges on further wealth convergence and the continued strengthening of legal, regulatory and institutional frameworks (incl. long-term refinancing in local currencies).

Sector consolidation is accelerating

M&A activity has gained momentum, with Poland and Romania emerging as the region's key battlegrounds for scale and market-share gains. Despite steadily rising market concentration ratios, further consolidation potential remains intact. At the same time, fundamental underpenetration of individual markets remains conducive to organic expansion, also regarding larger regional economies. Over the longer term, Romania remains one of the compelling stories, with the potential to rank among the three largest banking markets in CE/SEE after Poland and Czechia not only by asset size but also by profit capacity (can exceed EUR 4 billion p.a. by 2030). Likewise, Hungary is well placed to revive its stalled economic and banking sector catch-up following the elections in April 2026.

Austrian banks continue to strengthen their regional footprint, accounting for around 29 per cent and 33 per cent of foreign bank exposures in CE and SEE, respectively, despite intense competition from national champions. Pending final completion of recently announced M&A transactions, both Austrian friendly competitors have improved their positioning, with Erste emerging as the largest CE bank, while RBI becoming a podium player across SEE (#3 position). Meanwhile, other contenders are gathering in the wings, as UniCredit may substantially increase its CE heft through a re-entry into Poland via the Commerzbank deal, while OTP continues its push into euro area markets with the acquisition of Baltic lender Luminor.

Geopolitical realignment opens new frontiers

Geopolitical realignment is opening new frontiers for CE/SEE-dedicated Western banks in Türkiye and Central Asia & Caucasus (CAC), underpinned by deepening trade ties, expanding transport connectivity and growing strategic-resource partnerships with the West. Nominal exposures to the “new” region have been on a rise since 2022 to reach USD 340 billion in Türkiye (incl. local franchises) and around USD 37 billion in CAC (comparable with foreign bank exposures to smaller CE/SEE markets, e.g. Serbia). That said, the broadening trade and FDI agenda can justify an additional “real” increase in foreign banks’ engagement to 20-30 per cent of GDP in Türkiye (currently around 20 per cent) and 10-20 per cent of GDP in CAC (currently below 10 per cent). Kazakhstan and Uzbekistan appear particularly well placed to benefit from these trends. By comparison, Austrian banks remain niche actors in the expansion eastward. Hence, they might also need to step up their efforts to follow their clients.

A summary of the CEE Banking Sector Report can be downloaded free of charge.

The full CEE Banking Sector Report is available to registered Raiffeisen Research customers and can be downloaded here.