The best banks in the continent’s developing markets reported higher growth and stronger fundamentals in 2019.
Even as the coronavirus crisis tears across the globe, leading banks are focusing on how to maintain their long-term strategy and prepare for the world that will follow the pandemic’s eventual subsidence.
“The economic impact of Covid-19 will be very serious,” says Johann Strobl, CEO of Raiffeisen Bank International (RBI), Global Finance’s 2020 Best Bank in Central and Eastern Europe, but “we are well prepared both for the economic downturn and to quickly respond once the environment changes for the better again.”
RBI has the broadest and most longstanding presence in the region of any privately owned financial institution. Last year, the Vienna-based bank expanded its overall lending 13%, focusing on Central Europe, Russia and larger corporates serviced by the head office. Net interest income increased 8% after adjustments for the sale of RBI’s Polish banking operations in 2018, while fees and commissions rose 7%.
Over the year, RBI started with a strong loan portfolio, of which only 2.1% were nonperforming, according to the company. The bank’s coverage ratio for bad loans stood at 61% after it took on a 41% higher charge for impairments over the year. That fed through to the bottom line, leaving pretax profit just 1% higher, but stronger capital buffers raised the bank’s tier-one capital ratio 0.5 percentage points to 15.4% by year-end.
Digitization continues to be in the forefront of RBI’s strategic vision. “Our focus during the past year has been on innovation and the resulting improvement in customer value,” Strobl says. “We started cooperating with fintechs, strengthened our internal innovation power and further developed RBI as an adaptive organization.”
Our Best Bank in the Czech Republic, CSOB, achieved a 28% increase in net profit last year: “one of the best in our history,” said CEO John Hollows, in a statement announcing the bank’s 2019 financial results. “We leveraged the indisputable advantages of a large financial group and our unique bank-insurance model.”
CSOB also benefited from the continued growth of the Czech economy, the willingness of growing companies to invest and consumers’ enhanced purchasing power. “We strove to accommodate clients by offering a full set of products and services and by moving to the digital environment,” Hollows said.
The bank enhanced its mobile offering by introducing instant payments and adding Apple Pay, Google Pay and Garmin Pay to its suite of options. Total loan volume rose 5%, deposits 3% and assets under management 18%, year-on-year. The bank’s cost/income ratio improved by 3 percentage points to 44.9% and its capital base strengthened, its tier-one ratio standing at 19.2% at year-end. Completing the acquisition of the building society Ceskomaravska stavebni sporitelna reinforced CSOB’s leadership in the housing loan market.
In neighboring Slovakia, Slovenska Sporitelna expanded its overall loan book nearly 8% on the back of strong demand for retail and housing loans; but tighter lending margins contributed to a 1.6% drop in net interest income to €431 million ($466.8 million).
“I am pleased that we are able to offset the decreasing interest income with other sources of income—mainly insurance and investing,” said CEO Peter Krutil, in announcing the bank’s 2019 financial highlights, “but we are also successful in motivating people to use cards instead of cash. The mobile version of George [a mobile banking service] is already used by more than half a million clients, making us the most popular mobile bank in Slovakia.”
Operating profit for Slovenska Sporitelna rose by 2.6%; but an unexpected increase in the bank levy hit post-tax profit, which came in 2% lower than in 2018. The bank’s capital adequacy ratio (CAR) stood at 17.3%, comfortably above required levels.
OTP Bank, Hungary’s leading bank, expanded its presence through Southeastern Europe in 2019, concluding six acquisitions and thereby becoming a major regional player. However, its core operations in Hungary still account for roughly half of all group assets, and last year these grew by 13%.
Business expanded across the board, reflected in market-share gains in both loans and deposits. Net lending to customers rose 21%, as retail consumer loans enjoyed a 75% surge. Overall deposits were up 13% on large inflows from small to medium-size enterprises (SMEs) as well as larger corporates.
While operating expenses rose, OTP’s total cost of risk was 43% lower in 2019. Operating profit rose 20% on the back of strong fee and commission income, and net interest income increased 6%. After-tax profit was 6% higher compared with the previous year; return on equity (ROE) came in a shade lower; and OTP tier-one CAR weakened to 22.6% by end-of-year.
As the Covid-19 crisis hit Russia, Vladimir Verkhoshinskiy, CEO of Alfa-Bank, our 2020 Best Bank in Russia and the country’s largest privately owned bank, said the sector was much better prepared for a downturn than previously. Privately owned institutions, he predicted, would prove more nimble at helping customers through deferring debt servicing for SMEs and providing relief for repayments of retail loans.
Alfa-Bank increased net income last year by more than 1.5 times to just over $1 billion. Net interest and fee and commission income rose in ruble terms by 15.5% and 10.2%, respectively. The loan portfolio grew by nearly a third to $40 billion, on a sharp rise in lending to retail customers—especially mortgage issuance—and small-business servicing and loan quality remained high, with just 1.4% overdue. Ongoing digitization of front- and back-office operations contributed to a drop in cost-to-income ratio to fewer than 42% while improvements in customer-facing apps helped attract one million new retail customers.
Poland’s largest bank by assets, branches and profit, state-owned PKO Polski, generated a record 4 billion zoty ($954 million) net profit in 2019 and is this year’s winner.
“The decisions we made several years ago, focusing on digitization, innovation and the development of modern technologies, paid off in our good and repeatable results, market share and customer satisfaction,” said Zbigniew Jagieo, president of PKO, in announcing annual results. “Our clients expect financial services that are simpler, faster and safer and we want to meet those expectations by continuing our digital transformation and changing into a bank of the future.”
Overall lending and deposits grew 5.8% and 8.2%, respectively, as savings from retail customers finished 2019 more than 12% higher than the previous year. PKO raised its total assets to 348 billion zote and improved its cost/income ratio to a shade below 42%; while cost of risk decreased sharply, helping the bank achieve a 10% ROE.
In neighboring Lithuania, this year’s winner is the leading homegrown bank, Siauliu Bankas, which combined strong business growth and profitability with top ratings for its quality of customer service.
“Unlike other banks in the country, together with digitization of the bank services, we intend not to decrease but maintain a wide network of bank divisions—a lot of clients feel the need for physical service at the bank divisions, live consultations on financial matters with a specialist,” said CEO Vytautas Sinius in a February press release. Net interest income and operating profit before impairment losses rose sharply; and even after higher provisions and taxes, the bottom line improved slightly over 2018.
Siauliu is strengthening its anti-money laundering systems, addressing a key issue across the Baltics. The same goes for Stockholm-based SEB, whose Baltic subsidiaries are our winners in Latvia and Estonia, as Sweden’s financial supervisory authority is delaying the conclusion of its anti-money laundering assessment of the bank due to the pandemic.
SEB banka Latvia achieved a 6% increase in underlying profit and further advanced its digital leadership last year, notably through its code card replacement project and the development of a new open-banking platform. The number of customers using the bank’s digital solutions increased nearly 50%, and its new mobile wallet has enjoyed rapid uptake by Android phone users. The Best Bank in next-door Estonia, SEB Pank, saw post-tax profit jump from €63.7 million to €100.4 million on the back of stronger net interest and fee income.
Our winner in Ukraine, Raiffeisen Bank Aval, grew its business across the board last year with corporate lending up 11% and retail loans growing 54% over 2018. Gross income increased 16%, and the bank posted a net profit of 4.8 billion Hryvni ($177 million). It also reported a good liquidity position and solid capital base, its CAR standing at 19.4% as of end-December.
Moldova Agroindbank (MAIB), our Best Bank in Moldova, benefited last year from the decision by the European Bank for Reconstruction and Development, alongside two private equity funds, to take a 41% stake in the country’s leading institution. Profits rose sharply as Agroindbank continued to grow its market share in both loans and deposits; while the launch of its mobile banking app, MAIBank, confirmed its leadership in the digital field. MAIB also attracted praise for strengthening its anti-money laundering toolbox.
State-owned Belarusbank is by far the largest financial institution in that country, with 57% market share in retail lending and 43% in both deposits and corporate loans as of the end of 2019. It consolidated its leading position last year by expanding assets, strengthening its capital base and increasing profits nearly 15% to the equivalent of $177 million. While costs rose slightly, Belarusbank’s cost-to-income ratio of 42% is the lowest among its peers. ROE rose to 9.7% and capital buffers were strengthened significantly.
Among fast-growing OTP’s key acquisitions last year was our country winner in Slovenia, SKB Banka, previously owned by Societe Generale. SKB reported a rise in net interest income of 4.3% for 2019 and reduced costs, resulting in a 6% improvement in operating income. However, in aligning itself to OTP’s policy on the valuation of fixed assets at fair value and provisioning, the bank took on additional impairments that adversely affected the bottom line. Declared net profit fell 6%; although without the accounting changes, it would have been higher than the previous year. ROE came in at 14.8% and a stable deposit base strengthened DKB’s liquidity.
Raiffeisenbank is our 2020 winner in Croatia. Although it ranks sixth in total assets, it has been gaining market share in retail lending and deposit taking. Despite a squeeze on net interest margins, it managed to lift post-tax profit by nearly 26% to €58 million, thanks largely to lower risk costs. Raiffeisenbank’s nonperforming loan (NPL) ratio fell to 4.1% at year-end.
Our winner in Romania is the home-owned Banca Transilvania, which last year increased its net profit 33% on the back of an 8% rise in net interest income. Total active customers increased 15%, and the bank extended nearly a quarter of a million new loans to companies and individuals. Operating income jumped by more than 12% and, despite higher provisioning, pretax profits climbed 15% against the previous year. Banca Transilvania also strengthened its capital base with a 15% increase in total equity.
“For BT, 2019 was a good year,” Chairman Horia Ciorcil commented in announcing preliminary financial results. “We grew sustainably and we delivered sound financials. As market leader, we have clear responsibilities toward Romania and know that our role is essential in lending to the Romanian economy.”
Bulgaria’s leading bank, UniCredit Bulbank, is again our country winner. While ultralow interest rates prevailing in the eurozone squeezed margins on lending, UniCredit continued to expand its loan book, deposit-taking and total asset base, gaining market share across the board. Its already strong liquidity position further improved, resulting in a 66% loans-to-deposits ratio; and its capital base strengthened such that its tier-one ratio reached 22.5% at year-end. Charges for impaired loans dropped by nearly two thirds compared to 2018. The end result was a 45% jump in post-tax profit and 15.1% ROE.
Banca Intesa Beograd, our winner in Serbia, lifted pretax profits by 5.3% on the strength of robust business growth. Both lending and total assets increased nearly 16% and customer deposits 16.7%. The market leader in both retail and corporate lending and deposit taking, Banca Intesa Beograd is looking to meet clients’ changing needs through continuing digitization and innovation.
A unit of UniCredit is our winner in Bosnia and Herzegovina as well, having increased its consolidated profit by 4.6% thanks to higher business volumes, lower cost of risk and reduced loan write-downs. Lending grew 6.4%, while the volume of customer deposits was nearly 12% stronger. Last year saw the client base grow by 2%, much of this stemming from a sustained uptake of mobile banking services. By the end of 2019, nearly 40% of UniCredit’s individual customers were using mobile banking.
CKB, Montenegro’s leading bank, which is owned by OTP, acquired Societe Generale banka Montenegro last July, creating by far the largest banking institution in the country by total assets, branch network and volume of loans and deposits. Pál Kovács, CEO of CKB, at a press conference on the occasion, called the deal “a milestone acquisition” that will benefit customers “thanks to the larger development and innovation potential of the larger-size, branch and ATM network, and electronic banking channels.” Full integration of CKB and the renamed Podgoricka banka is ongoing.
In North Macedonia, Societe Generale likewise sold our winner, Ohridska Banka, to Austria’s Steiermarkische Sparkasse Group last year. One of the country’s top five banks, Ohridska grew its loan book and attracted more customer deposits in 2019. Combined with a 6% increase in fees and commissions, this generated a 14% improvement in underlying profit. Ohridska has strengthened provisions against NPLs and its capital base through a proposed rights issue.
Albania’s largest and most profitable bank, Banka Kombetare Tregtare (BKT), maintained its market leadership despite spinning off its banking operations in Kosovo into a separate subsidiary. Lending volumes held stable at $1.2 billion last year while customer deposits increased to $3.4 billion. BKT’s proactive management of NPLs also resulted in a sharp improvement in its NPL ratio. While net profit fell slightly to $56.5 million, ROE stood at nearly 20% by year-end. BKT continued to invest in its digital capabilities while simplifying the online journey for customers.
Our winner in Kosovo is TEB Bank, a BNP Paribas joint venture, which benefitted last year from a fast-expanding economy to generate an average ROE of nearly 18%, bolstered by an expanding loan book and net interest margins of 6.28%. TEB’s CAR ratio stood at 14.79% at year-end.
The Near East
Turkey’s banking sector has been battling strong economic headwinds combined with a depreciating currency; but our winner, Akbank, was more agile in confronting these challenges than other institutions. Key to its 2019 performance was a proactive approach to risk management. Akbank deleveraged its foreign-currency loan book and reduced its holding of foreign exchange securities, helping reduce its forex risk-weighted assets and the sensitivity of capital to currency movements going forward.
While retaining its prudent approach to lending, including local-currency loans, Akbank was also careful to support its most valuable clients and preserve long-standing relationships. Net lending grew by 7% last year, while deposits increased 17%. Costs rose slightly as a radically new branch format was rolled out and investment continued in technology and innovation, including the $250 million Akbank Data and Living Center. Net profit declined 6% from 2018, and ROE was 10.9%, down 1.7% from the end of 2018. Akbank enjoys strong liquidity. Its capital base strengthened, its tier-one CAR rising to 16.9% at year-end.
Our winner in Armenia, Ardshinbank, broadened its footprint in the republic’s banking industry through a range of digital inputs, boosting app-transacted activity at the bank by 700% last year. These included enhancing client service via a popular mobile banking app that enables access to current accounts and delivers cost saving, greater productivity and enhanced customer loyalty to one of Armenia’s best known banks. Ardshin’s upward momentum was underscored in 2019 when Moody’s upgraded its credit outlook to stable, equal to Armenia’s sovereign rating. Financials hit the mark in 2019, with profit rising a remarkable 52%, total capital increasing 19% and ROE coming in at a respectable 13.8% year-on-year.
Georgia’s largest bank, TBC Bank, delivered another sparkling performance last year with a 15% increase in pretax profit, despite lower net interest margins. Overall loan growth rose 22% on strong new lending to corporates, micros and SMEs. Having launched the region’s first fully digital bank, Space, further innovations including voice-payment mobile banking, and Apple Pay and QR payment options were introduced last year as well. At year-end, TBC’s tier-one CAR stood at 12%.
Central & Eastern Europe Winners
|Albania||Banka Kombetare Tregtare|
|Bosnia & Hercegovina||UniCredit|
|Latvia||SEB banka Latvia|
|North Macedonia||Ohridska Banka|
|Serbia||Banca Intesa Beograd|
|Ukraine||Raiffeisen Bank Aval|