On the occasion of the annual meeting of the European Bank for Reconstruction and Development (EBRD) in Belgrade the RZB Group, steered by Raiffeisen Zentralbank Österreich AG (RZB), presented its most recent research report about South East Europe.
Herbert Stepic, CEO of Raiffeisen International Bank-Holding AG (Raiffeisen International), underlined that Raiffeisen International showed a very good development in South East Europe. According to the First Quarter Interim Report 2005, which was presented on Friday, Raiffeisen International’s balance-sheet total in the region reached € 10.4 billion. “We have the most extensive market coverage of all banks in the region and show excellent positions: our banks are the largest in Serbia and Montenegro, Bosnia and Herzegovina and Albania. We rank second in Kosovo, where we run a separate unit, third in Romania and are on the fourth position in Bulgaria and Croatia”, Stepic said.
Increasing profit contribution
Martin Grüll, CFO of Raiffeisen International, is very positive about the development of South Eastern Europe. “The region contributed a first-quarter pre-tax profit of € 15.0 million in 2004, this year it increased to € 44.3 million. This is already one third of our entire profit”, Grüll stated. The return on equity before tax in the region amounts to 24.9 per cent after 15.2 per cent in the first quarter of 2004. The main driver of the growth within the region was retail banking business. Out of its currently 5.27 million retail customers, Raiffeisen International services 3.35 million in South East Europe through a network of 494 business outlets.
Number 1 position in Serbia and Montenegro
In the autumn of 2000, Raiffeisenbank became the first bank set up by Western owners in Serbia and Montenegro following the political upheavals. It began operations in mid-2001 and quickly developed into one of the country’s fastest-growing and most prominent banks. It had a balance-sheet total of € 875 million with a sales network of 27 banking outlets at year-end 2004. “We managed to become number one in just 3.5 years, today we have a market share in terms of assets of almost 15 per cent”, said Bosko Kostic, CEO of Raiffeisenbank.
Overall promising development of South Eastern Europe
“In 2004, Austria has invested € 5.8 billion abroad, 40 per cent of which was spent in South East Europe alone”, said Peter Brezinschek, Chief Economist at RZB and head of Raiffeisen Research. Consequently, Austrian investments in the SEE region account for between 20 and 43 per cent of total foreign direct investments. “Even if it is a long journey to close the gap to Central European countries in terms of foreign direct investments, this reflects a tremendous increase in confidence in those countries”, adds Brezinschek.
Since 2000, the dynamics of the SEE-business cycle have been constantly outpacing the growth of the new EU-member states in Central Europe. Even modest growth figures in the Eurozone did not affect growth pattern in Central Europe and SEE. “The strong growth will continue in SEE at an average rate of almost 5 per cent”, states Brezinschek. Exports would be the driving force in the whole region while the ongoing orientation towards the EU would characterize a structural shift of economies. But this structural shift will not be strong enough to respond to the substantial rise of domestic demand. Hence the likelihood of increasing current account deficits is quite high. This would be accompanied by rising debt levels, which in turn would require a prudent fiscal policy.
“The change in market sentiment is most evident in the Eurobond market”, says Brezinschek. Yield spreads of SEE government issues diminished significantly in the past three years. Spread differentials of 50-60 basis points for Croatian, Bulgarian and Romanian vs. German bonds in Euro currency are comparable to yield premiums recorded for Austrian bonds in the years before the introduction of the Euro. Concerns about French EU-referendum may trigger some temporary spread widening. But an additional 10 basis points spread increase will be recommended as a buying opportunity for SEE-Eurobonds.
