Growth potential remains high, especially in retail banking. South-East-Europe and CIS are regional growth drivers. Raiffeisen shows strongest growth and improves market position.

According to the annual CEE banking study published by Vienna-based Raiffeisen Zentralbank Österreich AG (RZB) and Raiffeisen Centrobank AG, the banking market in Central and Eastern Europe (CEE) continues to grow rapidly. After a 10.1 per cent increase in 2003, the combined banking assets grew by 15 per cent to € 658 billion (2003: € 572 billion) in 2004. The strongest growth was reported in Romania (+53.5 per cent), Ukraine (+30.2 per cent) and in Russia, the biggest banking market in the region (+28.5 per cent).

Personal lending has stronger growth potential than corporate lending

CEE remains to be highly attractive for banks. While economic growth remains high – for 2005, 4.8 per cent are projected, compared to only 1.5 per cent for the Euro zone – the growth potential for the banking industry is multiple. In the past two years, banks grew about three times as fast as the overall economy and this trend is likely to continue. Main driver it still the rapidly expanding corporate business, but the retail business takes a more and more significant role. South-Eastern-Europe (SEE) and the Commonwealth of Independent States (CIS) show disproportionate growth. For example, in 2004 lending to corporate customers grew by 15 per cent in Central Europe (CE) while soaring 32 per cent in SEE and 28 per cent in CIS. In the Euro zone growth was comparably low at just 5.4 per cent.

Lending to private customers shows even higher rates of expansion. The overall growth potential in this segment becomes obvious when compared with the Euro zone, where lending to private customers is at about 50 per cent of GDP on average. In CE the overall volume is 12.4 per cent of GDP, in SEE 11.9 per cent and in CIS only 3.5 per cent. “This growth potential reflects the late start of the retail banking business in the entire region”, as Herbert Stepic Deputy CEO of RZB and CEO of Raiffeisen International Bank-Holding AG (Raiffeisen International) emphasized. "We have also started with serving corporate customers. Since 1999, we have systematically increased our efforts and regional coverage. Today we already serve more than 5.2 million customers in the region", Stepic added.

New products in Retail banking

With a growing middle class and rising incomes new products are established in retail banking. "We observe growing demand from retail clients in general. But demand is especially strong in mortgage loans, investment funds and credit cards. The relevance of these products rises quickly with rising wealth. In some countries assets under management in investment funds have nearly doubled last year", Martin Grüll, CFO of Raiffeisen International, pointed out.

International banks continue to lead the way

In the development of the banking market in CEE international banks take a decisive role. Their market entry is not only a major stimulus for subsequent direct investments of other companies; they also pave the way for know-how transfer and stiffer competition. International banks control about 45 per cent of the total banking assets in the region. They were also a significant driver in the further development of the banking system in CEE. In this way foreign banks contribute significantly to higher stability, new products and service standards as well as lower prices for customers.

Raiffeisen, Creditanstalt, Citigroup and ING were the first to move into CEE, with KBC, UniCredit, Société Générale, Erste Bank und Intesa BCI following through the acquisition of major formerly state-owned banks, quickly grasping market shares. Inversely, OTP, which initially was only present in Hungary, has developed into an international player with a growing CEE network.

Raiffeisen improves market position

With consolidated total assets of € 28.9 billion, Raiffeisen has improved its market position from No. five in 2003 to fourth place in 2004 behind HVB Group with € 35.5 billion, Erste Bank with € 33.4 billion and Belgian KBC with total assets of € 31.9 billion. UniCredit with € 27.3 billion ranks fifth. While the top-5 banks have stayed the same as last year, their rankings have shifted: As of year-end 2003, KBC lead the table, followed by Erste Bank, UniCredit, HVB and Raiffeisen. By proportionate total assets (i.e. the effectively attributable investment in CEE), Raiffeisen ranks even third with € 28.6 billion behind Erste Bank (€ 31.7 billion) and KBC (€ 29.8 billion).

Austrian banks are strongly represented in the region. Among the 16 largest banking groups there are four Austrian banks (Erste Bank, Raiffeisen, ÖVAG and Hypo-Alpe Adria) and Bank Austria-Creditanstalt is primarily in charge for steering this business segment within HVB.

Raiffeisen with strongest growth momentum

International banks grow significantly faster than the overall market. Regarding total assets Raiffeisen International displays the strongest growth momentum with a compound annual growth rate of 33.4 per cent in total assets over the past four years. This is more than double the growth rates of Erste Bank (15.2 per cent) and HVB Group (12.4 per cent).

As of year-end 2004, Erste Bank disposed of 1,313 banking outlets. Runner-up was UniCredit with 1,201 outlets, followed by HVB Group (1,073), OTP (930) and Raiffeisen (916).

Raiffeisen and HVB Group have the widest geographical reach being present with subsidiary banks in 15 markets of the region. ING, Citigroup and ÖVAG cover eight markets each. Raiffeisen and HVB Group are the only banking groups among the region's top-5 with a subsidiary in the CIS.

"We have built the largest part of our network by organic growth and have benefited from the advantage of the early mover", Stepic said, commenting on Raiffeisen's position, which had opened its first subsidiary bank in Hungary in 1987 and has since then time and again proven its pioneer role.

Raiffeisen International is the steering unit for the subsidiaries of Raiffeisen Zentralbank Österreich AG (RZB) in Central and Eastern Europe (CEE). Its shares are traded on the Vienna Stock Exchange. RZB owns 70 per cent, the balance is free-float. Raiffeisen International operates the leading banking network in CEE with 15 Network Banks and 14 leasing companies in 16 markets. More than 5.2 million customers are served via approximately 950 business outlets.

Definitions:
Central Europe: Poland, Hungary, Czech Republic, Slovakia, Slovenia, Estonia, Latvia, Lithuania
South Eastern Europe: Romania, Bulgaria, Croatia, Serbia and Montenegro, Bosnia and Herzegovina, Albania, Moldova, Macedonia
CIS: Belarus, Russia, Ukraine