Raiffeisen Research CEE Banking Sector Report 2024

Banking markets in Central and Southeastern Europe (CE/SEE) are currently experiencing even more positive development than in the past years. “In 2024, return on equity in banking markets in CE/SEE will be 15–20% on average, compared to just under 10% in the euro area. The relative excess return in regional CE/SEE banking business is well above the long-term average at almost 8 percentage points,” according to Gunter Deuber, Chief Economist at Raiffeisen Research and co-author of the annual CEE Banking Sector Report.

SEE banking markets most profitable now and in the long term

Raiffeisen Research currently estimates the regional banking profit pool in CE/SEE at almost EUR 30 billion. The visible recovery in earnings momentum in Poland is a key factor in this development, with the EUR 20 billion mark being surpassed for the first time in the regional banking earnings pool in 2023. The banking markets in Southeastern Europe are currently and from a long-term perspective the most profitable in the regional banking business. In Romania and Serbia, sector-wide returns on equity of 20% were achieved in 2024. The profitability of the CE/SEE banking markets is currently close to the record levels of 2004 to 2007, despite a significantly lower underlying country risk profile.

Banks benefit from solid real economy

The solid performance of CE/SEE banking business is attributable to a combination of several supporting factors, according to Raiffeisen Research analysts. A cautious monetary easing by local central banks allows for maintaining reasonable interest margins. Above all, however, banks in CE/SEE benefit from the extremely solid development of the real economy. “The somewhat self-sustaining economic development in the sense of solid growth in consumption and investment, coupled with record low unemployment rates, continues to keep risk costs for CE/SEE banks very much at bay,” explains Deuber. The CE/SEE region has managed to decouple itself to some extent from the weak economic development in Germany.According to this year's Raiffeisen Research CEE Banking Sector Report, earnings momentum is expected to remain solid in 2025. “Monetary policy easing should continue to proceed cautiously, while customers are apparently shifting less money into time deposits. At the same time, investment business continues to develop positively, while significantly higher risk costs are not expected in 2025 either,” says Ruslan Gadeev, Senior Banking Analyst at Raiffeisen Research. Gadeev also sees a positive development in residential real estate lending, while corporate lending could pick up slightly in 2025. “In the area of commercial real estate financing, a concern in Austria and Germany, the CE/SEE region is in a much better position. In contrast to Western Europe, non-performing loans are not increasing here; their levels in this sector are notably lower than in parts of Western Europe,” analyzes Gadeev.

Austrian banks remain leaders in CE/SEE banking business

According to the local market shares analyzed by Raiffeisen Research, Austrian banks remain the leading force in the CE/SEE banking business. “Large Austrian CEE banks and their regional subsidiaries account for around 20–30% of regional banking business in CE/SEE,” states Gadeev. This allows Austrian banks to benefit from the positive regional earnings momentum. However, in many CE/SEE markets, there are also bank- and transaction-specific extra levies. “These measures could become entrenched, given the challenging situation with regard to the pending fiscal consolidation in Central and Southeastern Europe,” says Deuber. According to the CEE Banking Sector Report, 85% of regional bank assets are currently affected by extra taxation, with such measures in place in the banking markets of Czechia, Hungary, Poland, Romania, Slovakia, and Slovenia.

Effects of the war in Ukraine

The war in Ukraine has led to substantial shifts in CEE bank balance sheets. Western banks have again significantly scaled back their exposure to Russia, which now stands at a non-systemic 4% of their total assets in the entire CEE region and just 3% of Russia's economic output. In the past, the exposure here was as high as 20%. The importance of more stable EU markets in the CEE banking business has increased in recent years. “Currently, a little more than 90% of regional CEE assets are concentrated in EU markets; almost ten years ago, this metric hovered around 75%. In this way, the financial value of EU membership becomes tangible,” concludes Deuber.

A freely available summary of the CEE Banking Sector Report can be downloaded using the following link.

The full CEE Banking Sector Report is available to registered Raiffeisen Research customers and can be downloaded using the following link.