Central and eastern Europe’s banking sector continues to offer significant opportunities, the CEO of one of the region’s largest banks has insisted.
Herbert Stepic, CEO of Raiffeisen Bank International (RBI), told Emerging Markets that the risks posed by a Greek default, non-performing loans or a lack of liquidity are extremely limited.
He remained “relaxed” about the potential impact of a Greek haircut on the region’s banking sector. The exposure of his bank and of most other major regional banks to Greek debt remained small while regional banking markets had “ample liquidity”.
“We would be very little affected, as the whole of RBI’s exposure in Greece was E115 million [at the end of 2010], and this is predominantly toward financial institutions and corporates; our sovereign exposure is only E2 million. So I’m rather relaxed, frankly speaking,” he told Emerging Markets.
His positive outlook contrasts with concern among private economists that a restructuring in Greece could trigger a drought in the credit markets that would undermine CEE banks.
While Stepic acknowledged contagion in Portugal, Ireland and Spain would have a much more significant negative impact on the European economy as a whole, he said he expected EU leaders to engineer a “semi-soft landing” for Greece.
A number of economists have warned that a Greek default and a potential escalation of the eurozone crisis could result in a withdrawal of liquidity from central and eastern European subsidiaries by Western European parent banks.
“The concern that there could be major disruption is certainly something to bear in mind,” Erik Berglof, EBRD chief economist, told Emerging Markets. “The main scenario is that [Greek restructuring] goes smoothly but we cannot rule out that there will be hiccups.”
Michael Ganske, head of emerging market research at Commerzbank, told Emerging Markets: “debt restructuring [could] have an impact on the financial sector and then we’re once more back in the situation of credit markets drying up that will clearly have a negative effect on growth in eastern Europe.”
Stepic said he was unconcerned by the suggestions. “I’m not at all worried about parent banks, and I think people are perhaps thinking around too many corners,” he said. “At the moment and for the foreseeable future, there is ample liquidity in all CEE markets.”
Stepic was also “rather positive” on the issue of non-performing loans (NPLs) in the region, suggesting NPLs would peak during the second half of 2011.
But he acknowledged NPLs remained a problem in Hungary due to the dual impact of the global economic crisis and a “domestic home-made crisis”, and in the Ukraine, which is “still sitting on a relatively high pile of NPLs” due to “five years of political standstill, which aggravated the crisis significantly and led to disastrous economic consequences.”
He said his generally positive outlook for the regional banking sector was reflected in the fact that the bank saw “positive client sentiment coming back to the market”.
Nevertheless, Stepic said domestic consumption growth in many countries in the region was “very slow-moving”, and that many economies in the region continues to remain over-reliant on exports to Germany in particular, constraining growth for retail banking in the region.
“The retail business still has to get off the ground,” he said. “We see a growing dynamic in retail borrowing, but from a low base.”