Emerging Europe

Deutsche Bank

Standard Chartered

After years of plenty, there are leaner times ahead in central and eastern Europe. That’s the stark prospect facing bankers in the wake of the continuing sub-prime mortgage woes in the US and western Europe and the associated global credit crunch. But while the banking markets in central and eastern Europe have become more challenging, they still remain highly profitable.

With a population of just 5.21 million people producing a GDP of a mere $3.7 billion, Kyrgyzstan is not going to be home to any really large financial institutions. The biggest bank in Kyrgyzstan, with $130 million in deposits accounting for a 22.1 % market share, is Asia Universal. It is also the best performer. It is Kyrgyzstan’s fastest-growing mortgage provider and is the only Kyrgyz entity to have received an international credit rating. Total shareholders’ equity rose 212% to $36.5 million in the past year, while net income climbed 246% to $2.7 million. In both of those measures, as in total assets and customer accounts, Asia Universal is by far the country’s leader. It is also the first bank to offer internet banking services, and the only one to establish a dedicated control and compliance department. It is also competitive regionally, with branches in the Ukraine, Kazakhstan and Latvia, as well as a representative office planned for China later this year.

JPMorgan Consistency and ability to execute landmark transactions makes it a clear winner in emerging markets.

Privredna Banka Zagreb continues to be the leader of the banking pack in Croatia thanks to its popular combination of core banking services allied with specialist leasing, real estate and fund management capabilities. Its 230-strong branch network and extensive electronic distribution channels give it the leading position in the credit and debit card market and more than 77.5% of total transactions were carried out electronically.

Despite increasing competition, Raiffeisen banka maintains its top billing in Serbia. On the retail front it boosted its customer base by 20% in 2007 to just short of 500,000, while growing its retail deposit and loan volumes by 32% and 26% respectively. There was a similarly strong performance in the corporate banking segment, with corporate lending rising by 24% to reach almost $1.2 billion, while deposits rose to $830 million. Raiffeisen banka was particularly successful in boosting its business with small and micro-sized enterprises, increasing its client base by 36% and its lending by 47% to reach $312 million. The bank also has a leading market position in the treasury business, accounting for a 19% share of foreign exchange trading for retail customers and 13.68% for banking clients. As a result of all these advances in 2007, the bank boosted its net profit by 60% and its return on equity climbed to 21.4% from 16.6% in 2006.

Kazkommertsbank (KKB) has more than double its assets and Bank TuranAlem (BTA) has a far superior net income but Halyk Bank takes the award for best bank in Kazakhstan thanks to its resilience in the face of global financial troubles. First-quarter net income fell by nearly 10% on the 2007 equivalent because of such issues as growing average rates on customer deposits and higher impairment charges on its loan portfolio, but other Kazakh banks have fared far worse. During the roadshow for Halyk’s successful $500 million benchmark Eurobond in April, the first for a Kazakh bank since July 2007, investors noted its "strong liquidity, low exposure to foreign debt, and its perception as the best bank in Kazakhstan". And there is ample evidence to support that sentiment. Halyk’s branches have reportedly remained busy, while KKB’s and BTA’s are much quieter. Credit lines have been shortened and cut at rival banks that have liquidity problems, which has pushed more business Halyk’s way. Between July and December last year, Halyk’s share of the domestic retail market grew from 19% to 21%, overtaking both KKB and BTA, which both lost market share over the same period. In the fourth quarter last year, Halyk’s deposits rose by 21.4%; KKB’s grew just 8.8%, and BTA’s grew not at all.

Despite the turbulence in global financial markets and growing political noise at home, Garanti Bank has continued to exhibit strong growth, which has secured it the best bank award in a fiercely competitive field. Thanks to its strong client focus, the bank secured the top spot in the cash and non-cash lending fields, extending a total of TL50 billion ($40 billion) of loans. Backed by the rapid expansion of its branch network – Garanti opened 105 new branches in 2007 – it attained the highest growth in total deposits, 30%, among its domestic peers and became the sector leader in foreign currency deposits. Garanti is firmly established as Turkey’s leading consumer and mortgage lender. Increased lending at healthy margins fed into a strong bottom line performance, with Garanti delivering the highest growth in net interest income as well as ordinary banking income. In 2007, Garanti more than doubled its net income to TL2.3 billion, giving it a 40% return on equity, almost twice the sector average of 22%. As well as impressing its nearly 6 million retail customers the bank has demonstrated the trust of international investment banks, recently securing a €600 million loan at a tightly priced all-in level of 67.5 basis points over Euribor.

Citi

Société Générale

Based on Bank Pekao’s 2007 results, parent UniCredit has succeeded in turning it into the leading bank in Poland by total assets, client savings and equity. It was also the second-biggest lender. Despite the distraction of a merger with part of Bank BPH, Bank Pekao reported strong financial figures for 2007, proving it is both big and clever. Net income rose by 20.9% compared with 2006, while return on equity was a creditable 23.7%. The bank also cut its cost-income ratio to 47.1%. Despite market pressure on the mutual funds industry in the fourth quarter of 2007, Bank Pekao still managed to boost its net fee and commission income by 12.7% year on year.

Raiffeisen Bank managed to extend its market leadership in Albania, despite increased competition from such rivals as Banka Kombetare Tregtare and American Bank of Albania. Raiffeisen Bank Albania is firmly ranked as the number one bank by assets, deposits and loans, on both a corporate and retail basis. The bank continues to extend its client coverage and now has 97 branches, almost three times those of its nearest rival; 154 ATMs, double its closest competitor’s; and more than 400 point-of-sales terminals. The bank also extended its mobile banking team, reaching out to previously unbanked sections of the population. Thanks to this expansion, Raiffeisen Bank managed to grow its customer base by 14% in 2007, which helped it double its retail lending, while corporate loans rose by 45%. Growth did not come at the cost of profitability, however. The bank reported a cost-income ratio of 40% and a pre-tax return on equity of 58%.

Michael Philipp, chairman of Middle East and Africa at Credit Suisse, left the bank last month to set up his own business. His new, independent company will focus on investment management and advisory services in the region.

Goldman Sachs Goldman Sachs took part in all the standout deals in emerging markets over the past 12 months.

TCI

Russia is one of the most fiercely competitive banking markets in the central and eastern European region thanks to the continued strength of the domestic economy. State-owned banks such as Sberbank and VTB performed well over the past year as did foreign banks such as Raiffeisen and UniCredit. But Alfa Bank retains its best bank crown as a result of having the best-balanced universal banking franchise. Alfa is a force to be reckoned with right across the retail, corporate and investment banking spectrum, which means it is well placed to take full advantage of the buoyant economic conditions in Russia.

RBS RBS has risen to the stiff challenge of the European market post credit crunch and established a serious US franchise.

Goldman Sachs

Ansher Capital is the leading investment bank in Uzbekistan, and the flagship of its parent, Singapore-based Ansher Holding group. Ansher has pioneered a number of new instruments and transactions in Uzbekistan, including corporate bonds, M&A and equity private placements. The bank now holds leadership positions in all three. In 2007, Ansher played a leading role in attracting international investors to the Uzbek securities market, from such countries as Germany, the UK, Sweden, Russia and the US. Ansher also advised on the establishment of hedge funds with a focus on the central Asian region, such as the Central Asia Property Fund, which are entering the region thanks to improved conditions in the traditionally difficult, closed economies of Uzbekistan and other central Asian countries. The shareholders of Ansher Holding group are keen to facilitate further growth by going public in the near future, and Ansher Capital will have a key role to play in accomplishing that.

Every cloud has a silver lining. With the international debt markets only now open to a select few Russian corporates, and with many Russian banks strapped for cash, there are plenty off opportunities for asset managers to lend to strong corporate credits at distressed debt-type margins.

It’s time for a new game plan. When it comes to operating in today’s real estate markets, simply buying an asset and waiting for it to appreciate isn’t going to bring adequate returns. Investors will tell you that the idea that the rising tide raises all boats is passé. The new accepted wisdom is: if you’re going to the market with the same old strategy, you will fail.

by Timo Tschammler, managing director of the international investment team, and Nicholas Spiro, director in the central and east European investment team, at DTZ.

Sizing up sovereign investment

A surge in sovereign wealth funds’ real estate activities could bring an estimated $100 billion in investments to the sector annually. However, although sovereign funds are cash rich, they won’t be throwing their money around but rather hunting for bargains. Rachel Wolcott reports.

As the second largest financial institution in Montenegro, NLB Montenegrobanka is a key player in the country’s burgeoning banking sector, serving a growing number of retail and corporate customers through its 15-strong branch network. In 2007, the bank nearly tripled its profits to €3.4 million. As a member of Slovenia’s NLB banking group, NLB Montenegrobanka has helped to forge important economic links between Slovenia and Montenegro. By providing consumer loans for goods manufactured by Slovene producers, the bank has helped Slovene companies to enter the Montenegrin market. At the same time it provides loans and other forms of export financing to Montenegrin companies exporting to Slovenia.

Privredna Banka Zagreb continues to be the leader of the banking pack in Croatia thanks to its popular combination of core banking services allied with specialist leasing, real estate and fund management capabilities. Its 230-strong branch network and extensive electronic distribution channels give it the leading position in the credit and debit card market and more than 77.5% of total transactions were carried out electronically.

A part of the RZB group since 2003, Priorbank is one of the two largest banks in Belarus, alongside last year’s winner, Belagroprombank. It is also the only privately owned bank in Belarus’s top six banks by size. It made significant strides forward in 2007: assets grew by 48%, loans by 44% and deposits by 32%. The bank gained more than 134,000 new customers last year, bringing its customer base above the 750,000 mark, while the number of branches grew from 61 in 2006 to 81 by the end of 2007. Return on equity was up by one-quarter, while profit after tax rose by one-third.

Raiffeisen Bank managed to extend its market leadership in Albania, despite increased competition from such rivals as Banka Kombetare Tregtare and American Bank of Albania. Raiffeisen Bank Albania is firmly ranked as the number one bank by assets, deposits and loans, on both a corporate and retail basis. The bank continues to extend its client coverage and now has 97 branches, almost three times those of its nearest rival; 154 ATMs, double its closest competitor’s; and more than 400 point-of-sales terminals. The bank also extended its mobile banking team, reaching out to previously unbanked sections of the population. Thanks to this expansion, Raiffeisen Bank managed to grow its customer base by 14% in 2007, which helped it double its retail lending, while corporate loans rose by 45%. Growth did not come at the cost of profitability, however. The bank reported a cost-income ratio of 40% and a pre-tax return on equity of 58%.

Despite a challenging political and economic environment in Hungary, OTP Bank continues to perform well, registering a net profit of Ft141.7 billion ($907.5 million) in 2007, up more than 11% on 2006. OTP dominates all segments of the Hungarian banking market, accounting for more than 50% of municipal loans and deposits, more than 30% of retail deposits and loans as well as 10% of the corporate segment. With more than 400 branches, it is by far the largest retail bank in Hungary, with almost 4.6 million customers, but also services more than 200,000 corporate clients. The bank has invested heavily in technology with the result that its award-winning OTPdirekt internet banking channel was used by more than 1.5 million customers in 2007, giving it a best-in-class 38% market share. Its telephone banking services have also proved a hit, servicing more than 50% of all Hungarians using mobile phones. In corporate banking, the bank offers an extensive range of services spanning leasing, forfaiting, factoring, project finance and syndicated loans in both forint and foreign currencies. The bank also has a highly successful asset management arm, OTP Fund Management, that manages building society, health fund and insurance portfolios as the portfolio of the National Deposit Insurance Fund, Investor Protection Fund and Guarantee Fund of Pension Funds, which were established by the Hungarian state to protect investors’ interests. OTP Fund Management has a 32.4% market share, with assets under management growing by 25% in 2007 to Ft815.1 billion.