EIB Survey Highlights Stability and Expansion Plans of Banking Groups in CESEE

EIB Survey Highlights Stability and Expansion Plans of Banking Groups in CESEE

(IN BRIEF) International banking groups maintain a strong presence in Central, Eastern, and South-Eastern Europe (CESEE) despite geopolitical challenges, according to a recent survey by the European Investment Bank (EIB). The survey indicates that parent banks in CESEE countries have either maintained or increased their exposure to the region, with a majority maintaining their presence. The ongoing war in Ukraine did not significantly impact banking groups’ strategies in other CESEE markets. Cross-border banking groups plan to maintain or selectively expand their operations in the region due to perceived market potential and higher profitability. Credit demand from clients remains resilient, primarily driven by firms’ liquidity needs, while credit supply remains tight across most business segments. Despite economic challenges, international banking groups anticipate a stable or increased loan-to-deposit ratio and a positive outlook for future exposure in CESEE. The survey reflects the commitment of banking groups in the region despite uncertainties.

(PRESS RELEASE) LUXEMBOURG, 8-Jun-2023 — /EuropaWire/ — The European Investment Bank (EIB), the lending arm of the European Union, announces that its latest survey findings reveal that international banking groups operating in Central, Eastern, and South-Eastern Europe (CESEE) have demonstrated resilience and steadfast commitment to the region. Despite geopolitical challenges, the survey highlights the banks’ strategies and prospects, demonstrating their sustained focus on the banking markets in the region.

The CESEE Bank Lending Survey, conducted by the European Investment Bank (EIB) in March 2023, shows that parent banks in CESEE countries have either maintained or increased their level of exposure to the region. A significant majority (73%) of parent banks have maintained their exposure, while 18% have increased their presence in the last six months. Notably, the ongoing war in Ukraine has not affected the strategies and commitments of these banking groups in other markets within 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. 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,” said EIB Vice-President Lilyana Pavlova.

The survey sheds light on long-term strategies, with cross-border banking groups signaling their intention to either maintain the same level of operations (45%) or selectively expand (45%) in the region. These groups perceive high or medium market potential in most banking markets within the region. Additionally, they report 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. However, 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 has 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. Nevertheless, the survey indicates a slight reduction in the supply-demand gap for the next survey period.

Banking groups maintain an optimistic outlook for the funding environment, driven by retail and corporate funding. Despite the challenging economic outlook, the expected deterioration in credit quality has not materialized in the last six months. However, banks anticipate an increase in non-performing loans, particularly affecting the retail and corporate sectors, due to lower growth, high inflation, and higher interest rates.

The survey findings confirm that parent banks in Central, Eastern, and South-Eastern Europe have largely 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 survey indicates a positive trend in the banking groups’ exposure to the region over the last six months, with an increased number of cross-border groups (27%) planning to further increase their exposure in the next six months, suggesting a favorable outlook for the future.

Looking ahead, the long-term strategies of banking groups underscore 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.

More information here.

Background information

About the CESEE Bank Lending Survey
The survey was conducted in March 2023 and collected data on international banking groups’ strategies and commitments in Central, Eastern and South-Eastern Europe. It collects information on credit standards, credit terms and conditions, as well as various domestic and international factors that may be responsible for changes in lending. Demand for loans is also investigated. The survey includes specific questions on credit quality and funding conditions for banks. It is designed to build a panel of observations that can provide an almost real-time assessment of the health of the banking sector in the CESEE region. The survey is developed and managed by the Economics Department of the EIB, and is part of a series of reports produced alongside the EBRD, IMF and World Bank for the Vienna Initiative.

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SOURCE: European Investment Bank