SURVEY: bne's Best Bank in CEE/CIS

Guy Norton in Moscow

bne launches it first annual "Best Bank in CEE/CIS" rating for 2010 in what was one of the toughest years for banks for at least a decade.

Our survey, which looked at the period from the second half of 2009 to the first half of 2010, recognizes both established market leaders that continue to push the envelope in their respective markets, plus acknowledges the up-and-coming lenders that are seeking to challenge the current market leaders in the countries where they operate.

The lender that wins the bne 2010 Best Overall Bank accolade is Raiffeisen International, which despite having sown some confusion among investors with its plans to merge with parent bank RZB, arguably maintains its position as a lender of choice in many of its markets. Not only is it the leading lender in many of the countries where it operates, it's also the bank that is seeking to shake up the financial landscape in those markets where it's trying to catch up with the pack.

On the back of its strong market positioning it managed to post vastly improved financial figures for the first half of this year, with consolidated profits more than doubling versus the year-earlier to ?171m and its return on equity (ROE) improving by 3.7 percentage points to 8.6%. At the same time, it slashed bad loan provisions by 42% to ?560m.

Eastern Europe

Russia was one of the tough markets, as the character of the leading state banks is very different from that of the commercial banks and everyone was affected differently by the global financial crisis.

The shortlist included France's Societe Generale, which is in the middle of a merger that will make it the largest commercial bank in the country and Russia the second largest market for the parent bank after its home market in France.

Pioneering express credit bank Russky Standart was also on the list after it weathered the crisis well and managed to maintain the highest margins in the sector at 16% - four times the sector average.

And the state-owned retail giant Sberbank was in the running simply because in a crisis everyone in Russia runs to the savings behemoth confident that if the sector collapses, the state will always rescue it; crises are good for business at Sberbank.

However, the winner was VTB24, the retail arm of the state-owned VTB Group. What started out as the rump of Guta bank that went bust in 2004, itself the rump of Inkombank that went bust in 1998, VTB24 has managed to combine the best elements of all the above banks: the natural advantages in a crisis that come from being state owned, a market mentality from dealing with consumers, and the financial nous necessary to be a big commercial banking operation. Since the bank was created following the mini-banking crisis in 2004, it has built itself up into a formidable player on the Russian banking scene.

If Russian banking profits and returns are ranked, VTB24 doesn't top any category, but taken all together it is near the top in all categories. It was the second most profitable bank last year with deposits in the top five. And unlike its big sister Sberbank, it has introduced a range of innovative products that meet the needs of its clients, say our panellists. "I go for VTB24 because of its fast growing market share - retail deposits were up 16% in the first half of this year versus a market rise of 13% - and it generated more pre-tax profit than any other part of the group," says Andrew Keeley, Troika Dialog's bank analyst. "Given it is still a relatively new bank in a big field, its growth has been impressive."

Making the choice in Ukraine is even more difficult than Russia, as the bank sector there has yet to emerge from the crisis. Most banks are still simply fighting for survival. This wasn't a year for doing anything clever and the best bank won simply because it was cautious in the boom years, concentrating on building up a solid business rather than chasing rapid expansion. "In Ukraine, I think that Raiffeisen Aval and UkrSib are tough to tell apart - both shrinking their balance sheets, hiding all their bad loans, and generally nursing their wounds. But on paper, Aval is slightly better," argues Margot Jacobs, an expert on banks in the CIS at the fund manager East Capital.

In Belarus, the choice was much easier. As the country's banking sector has yet to be fully liberalised and has very little in the way of international borrowing, the crisis had a muted impact on the banking sector. At the same time, bank loans are concentrated in the public sector while consumer credits have yet to take off. As a result, non-performing loans in Belarus are under 1% of total industry credits and the main affect on the sector has been a slowdown in the growth of assets and a lengthening of maturity dates on loans. The clear winner remains Belarusbank, the largest bank in the country; with half of all bank assets, to a large extent Belarusbank is Belarus' banking sector.

The bank's profits were up 61% in 2009 to BYR241bn (?58m). Corporate deposits were flat virtually at BYR12.6 trillion, while retail deposits rose strongly by 21.7% to BYR12.7 trillion. Loans to the economy expanded 18% to BYR34.4 trillion over the year, including a 24.7% increase in its retail loan portfolio to BYR13.4 trillion, making it the biggest player in the retail banking sector.

Commonwealth of Independent States

The crisis hit Kazakhstan a year earlier than anyone else and it all-but destroyed the banking sector. As financial the tsunami recedes, the banking landscape looks completely different. BTA and Alliance bank, which were top five players last year, have ceased to exist as commercial banks, both having been taken over by the state to prevent them from collapsing. Likewise, Kazkomertzbank, another top-tier bank came through the crisis well, but wounded.

Halyk Bank is the clear winner of this year's award for the CIS. Each of the leading three banks in the country adopted remarkably different strategies, and Halyk's plodding conservatism has paid handsome dividends in the crisis to make it the only large bank to actually grow in 2009. It has emerged as the largest bank in the country with the lowest NPLs amongst the big banks and half the sector average.

Georgia was also an easy market, as the country was probably the least affected by the crisis of any country in the CIS. The government in Kazakhstan had to come up with $4bn in bailout money and took stakes in several leading banks and the Russian government paid out over $66bn to save banks. The Georgian government didn't spend a single penny on helping banks. Nor did it offer guaranteed loans or repurchase debt or any of the other tricks that central banks around the world came up with to ease their banks through the worst months.

Bank of Georgia remains head and shoulders above any other bank in the region and wins best bank in Georgia with out much competition. "Bank of Georgia is my favourite, as is the best way to play the Georgian banking sector growth story. It remains clearly the best bank in the country and has built up a clear lead over the other commercial banks who are unable to take it on at its own game," says Dmitry Dmitriev, a veteran bank analyst at VTB Capital.

In Armenia, HSBC Bank Armenia benefited from a flight-to-quality effect, which cemented its position as market leader in the Caucasian republic. The bank introduced telephone and internet banking, which helped to boost customer deposits and as a leading player in the foreign exchange and trade finance markets in Armenia, it is well placed to benefit from any pick-up in the country's economic fortunes.

Political unrest has cast a pall over Kyrgyzstan, but with the likes of the European Bank for Reconstruction and Development and the International Finance Corporation among its shareholders, Demir Kyrgyz International Bank looks set to weather the storm. Before the turmoil, the bank had already soared up the rankings, thanks to its growing deposit base and lending activity.

Local analysts in Uzbekistan believe that Trastbank has the most professional management team in the country and this was translated into concrete results in 2009, when the bank was the most profitable in the sector, with the highest ROE and return-on-asset ratios.

Turkmenistan is similar to Belarus, with Turkmenvnesheconombank widely recognized by both local and foreign institutions as the principal banking gateway into and out of the country. As the state bank for foreign economic affairs, it boasts the widest network of relationships among commercial and investment banks, export credit agencies and development banks around the world and as such, dominates the all-important foreign trade services business in Turkmenistan.

Thanks to the presence of the EBRD as a major shareholder, Agroinvestbank can lay claim to being the safe-haven bank of choice in Tajikistan. With the EBRD coming on board in 2009, the bank looks well placed to increase its market dominance in Tajikistan where it is a leading supporter of the country's an all-important agricultural sector.

Mongolia's bank sector continues to be dominated by Xaan Bank , the local retail giant that by itself accounts for half the banking sector that is well placed to capitalise most on the coming boom in the local economy over the next few years.

Central Europe

Bank Pekao's risk management practices win it the best bank accolade in Poland. Thanks to its conservatism, its bad loan ratio last year of 6.8% was a full percentage point lower than the sector average, while its net profit of ?587.1m was the highest in the sector.

In Hungary, OTP Bank's position as the leader in nearly every sector of its home market remains unchallenged and as a result, it was still able to post impressive numbers in 2009. The bank raised its market share by 2.5 percentage points to 26.3%, grew its assets by 17.3% and net profit by 34%.

In the Czech Republic, Ceska Sporitelna is a case of the proverbial ugly ducking becoming a swan. When Austria's Erste Bank Group took over the Czech retail bank in 2000, it was, in the words of Gernot Mittendorfer, chairman and CEO of Ceska Sporitelna, "a really bad bank." However, a drive toward western banking standards over the subsequent decade has transformed Ceska Sporitelna into arguably the safest bank in the country, something Mittendorfer tells bne , "we are very proud to have achieved." It occupies the number-one spot in any number of areas: in number of clients (5.3m); total loans (22% of the market); in mortgages (23%); in consumer loans (43%); by total deposits (24%); and in number of credit cards (39%).

In Slovakia, Vseobecna Uverova Banka (VUB) takes first place, thanks to its strong net profits in 2009, which comprised 52% of total banking profits last year. The bank also continues to focus on costs, with its cost-income ratio improving from an already market best level of 49.5% to 46.9%.

In Estonia, market leader Swedbank managed to outperform in difficult circumstances, with its assets falling less than 10% in 2009 versus a 14% decline in the Estonian economy. The bank remains a key player in the Estonian economy, with Swedbank's Swedish parent showing its commitment to the country by granting the government $74m loan to help it cope with the recession.

Latvia's sharp recession has hammered many of the Latvian banks, but Rietumu banka has remained printable and as one of the few liquid banks in the country, it can lend to high-quality clients at high-interest margins. With signs of an economic pick-up, Rietumu is well placed to benefit from increased international trade activity and has expanded its trade finance activities to take advantage of that.

In Lithuania, Swedbank looks set to continue its dominance of the country's sector, with the bank attracting new customers, slashing bad loan levels and cutting operating expenses to ensure that it will benefit from the return in the Lithuanian economy. Its strategic importance has been recognized by the European Investment Fund, which has mandated Swedbank to manage a ?100m-plus loan programme for small and medium-sized enterprises.

Southeast Europe

In Turkey, the combination of its strong domestic banking franchise and its innovative approach to international fundraising wins Akbank the best bank title. While its close rival Garanti Bank narrowly outperformed it last year on the assets, net income and capital adequacy ratios front, Akbank's pioneering bond and securitization issues this year mean that it can lay claim to being the flagship borrower for Turkey in the international debt markets.

In Bulgaria, the clear market leader UniCredit Bulbank continued to set the pace and further increased its market share to 16.3% last year on the back of growing corporate lending and deposits. It also generated the highest net income of the sector at ?98.7m.

In Croatia, where the recessionary environment has lead to growing bad loans and weaker customer demand, Raiffeisen Bank Austria still managed to impress. In the first six months of this year, Raiffeisen was the only one of the largest banks in the country to increase its gross profits, which rose by HRK14m to HRK266.2m (?36.3m).

Abanka has comprehensively outperformed its bigger rivals in Slovenia, with the country's third-largest lender reporting a rise in net profits in 2009, while both its bigger rivals NLB and NKBM saw revenues slump. The bank also kept a keen eye on costs, slashing its cost-income ratio by 10 percentage points to 47.25%.

Banca Intesa Beograd secures top billing in Serbia thanks to its acquisition of Panonska Banka. It has overtaken its rivals and now has more than 1.4m customers and 210 branches throughout the length and breadth of the country. Last year, it boosted its balance sheet by 22% thanks to improving net interest and fee and commissions, which rose over 15% and 8% respectively.

In Macedonia, Ohridska Banka is clearly the bank to watch having transformed itself from a small regional player in 2007 when SocGen bought it to the country's fourth-biggest lender with a nationwide presence of 29 branches. The bank is rapidly becoming a universal bank, adding corporate and SME banking services to complement its one-time retail-focused franchise.

NLB Montenegrobanka is the number-one player on the Montenegrin banking market, boasting both a strong retail banking franchise as well as a well-developed corporate banking franchise that builds on the strong regional connections of its Slovenian parent, Nova Ljubljanska Banka (NLB).

Raiffeisen Bank set the pace in Albania where it cemented its position as the clear market leader through a combination of organic growth and cost-cutting. Raiffeisen not only upped its customer base by 8.1% in 2009, but also became the country's leading provider of private voluntary pensions, accounting for more than half the market. Efficiency improvements meant the bank's the cost-income ratio fell from 39.8% to 32.6%.

In Bosnia-Herzegovina, despite a challenging economic backdrop, UniCredit Mostar successfully managed to grow its operating profit by an impressive 55% in 2009 thanks to improved cost controls and a growing asset base. Its ROE at 8.3% was superior to its closest rival, Raiffeisen Bank.

Despite political and economic uncertainty in Kosovo, the country's biggest lender ProCredit Bank continued to perform creditably, boosting its balance sheet last year by 14% to ?732.5m and net profit by 12.3% to ?21.4m.

Moldova Agroindbank, which boasts a 20% market share in its home market, continues to dominate its rivals in terms of assets, loans and deposits. It continues to build out its already extensive network across the country, while at the same time remaining profitable, thanks to a combination of higher net income and lower bad loan levels than the sector average.


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