International banking groups maintain strong position in CESEE, despite geopolitical challenges

Credit demand from bank clients has remained resilient and is expected to improve.

International banking groups operating in Central, Eastern and South-Eastern Europe (CESEE) have demonstrated resilience and commitment to the region, according to the findings of a new survey carried out by the European Investment Bank (EIB).

The survey’s results highlight bank strategies and prospects for the coming months, indicating their sustained focus on the region’s banking markets.

The CESEE Bank Lending Survey, conducted in March 2023, reveals that parent banks in CESEE countries have either maintained or increased their level of exposure to the region. A significant majority (73 per cent) of parent banks maintained their exposure, while 18 per cent increased their presence in the last six months.

Remarkably, the ongoing war in Ukraine did not affect the banking groups’ strategies and commitments in other banking markets in the region.

According to EIB Chief Economist Debora Revoltella, “The data collected by our economists confirm the continued commitment of international banking groups to the CESEE region as well as their efforts in maintaining stability. It is encouraging to see the banking sector’s confidence in the market potential, and their ability to navigate challenging economic conditions and the overall economic trajectory.”

“The CESEE region is once again demonstrating its market potential, resilience and willingness to overcome the current geopolitical constraints,” adds EIB Vice-President Lilyana Pavlova.

“Banking groups’ commitment to supporting economic growth has to be safeguarded and the EIB Group will continue to provide the necessary financing to the region to respond to future needs.”

High market potential

The survey sheds light on long-term strategies, with cross-border banking groups signalling their intention to either maintain the same level of operations (45 per cent) or selectively expand (45 per cent) in the region.

These groups perceive high or medium market potential in most banking markets within the region. Furthermore, they reported higher profitability locally compared to the group level, except in Poland.

The survey, which collected data during the Silicon Valley Bank and Credit Suisse crisis, offers insights into credit demand and supply trends in the region. Despite economic challenges, credit demand from bank clients has remained resilient and is expected to improve slightly.

Firms’ liquidity needs, particularly working capital, have been identified as the primary driver of credit demand. Fixed investments and the retail segments, including the housing market, are expected to have a negative impact in the coming months.

On the supply side, credit supply remained tight and is expected to remain weak across all business segments and in most countries, except for banks in Slovakia, which anticipate positive supply conditions. However, the survey indicates a slight reduction in the supply-demand gap for the next survey period.

Optimism persists

Banking groups remain optimistic about the funding environment, driven by retail and corporate funding. Despite the difficult economic outlook, the expected deterioration in credit quality has not materialised in the last six months.

However, banks anticipate an increase in non-performing loans, particularly affecting the retail and corporate sectors, because of lower growth, high inflation and higher interest rates.

The survey findings confirm that parent banks in Central, Eastern and South-Eastern Europe have broadly maintained their positions in the region despite the war in Ukraine. No debt reduction is expected, and most banks anticipate a stable or increased loan-to-deposit ratio.

The banking groups’ exposure to the region has shown a positive trend over the last six months, with an increased number of cross-border groups (27 per cent) planning to increase their exposure in the next six months, suggesting a positive outlook for the future.

Looking ahead, banking groups’ long-term strategies indicate a focus on stability or expansion, driven by perceived high or medium market potential and higher profitability in most banking markets within the region compared to the group level.

The collected data reflect the strong position and ongoing commitment of international banking groups in Central, Eastern and South-Eastern Europe despite economic challenges and geopolitical uncertainties.

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