Perspectivele economiilor ECE sunt mai bune decat cele ale economiilor din vestul Europei

Posted: May 9, 2013 in Politica si politici, Proiect "de Romania"
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De ce ar trebui sa fim optimisti?

With open economies heavily geared to a eurozone recovery and cheaper wage costs, central Europe is still expected to grow faster than western Europe.

“The growth difference still stands,” says Herbert Stepic, chief executive of Austria’s Raiffeisen Bank International, one of the biggest operators in central Europe. “We see a growth difference for 2013 of about two percentage points between CEE as a whole and the EU.”

Other heads of big banks in the region share this cautious optimism. “We still consider CEE to be the driving engine for the growth of our group,” says Gianni Franco Papa, head of the CEE division of Italy’s UniCredit.

Central and eastern Europe to outpace west as lenders think local

The shadows that gathered last year over central and eastern Europe (CEE) have, little by little, started to recede.

This time a year ago, the eurozone debt problems were weighing heavily on sentiment, with talk of a possible “Grexit” – a Greek exit – from the eurozone that could tear the single currency apart.

Much of central Europe was less directly vulnerable to that threat than western European countries. But the spectre sharply depressed economic activity in the eurozone – and by extension across CEE, which is still reliant on the single currency area as its biggest market and source of investment.

May 9, 2013 1:04 am, By Neil Buckley, Financial Times

Since then, the Greek coalition elected last June has proved to be more stable than expected. The European Central Bank (ECB) has pledged to do “whatever it takes” to preserve the monetary union. The EU, too, has taken the first steps towards a banking union, tightening the fiscal framework underpinning the euro.

Meanwhile, the exceptional monetary policy measures of the ECB and US Federal Reserve have led to a flood of portfolio inflows into all emerging markets, including central Europe, offsetting lower foreign direct investment and other credit flows.

A se vedea si: Economiile emergente au potential de crestere mai bun decat cele dezvoltate. Companiile de pe aceste piete stau insa mai prost la profituri decat cele din economiile dezvoltate.

The eurozone is now better placed to gain from an expected pick-up in global trade later this year – with knock-on benefits for CEE. That, in turn, will boost the outlook for banking and finance in the region.

But any broader CEE recovery is likely to be slow. With high unemployment in many countries and low wage growth depressing domestic demand, any recovery will rely almost entirely on exports.

“There has been a big degree of convergence in gloom [among consumers] within central Europe,” says Mateusz Szczurek, chief economist for CEE at ING Bank in Poland. “We are still waiting for some impulse to get us out of this problem, because essentially everyone is saving at the same time.”

One hopeful sign is that thanks to stabilising oil and food prices, inflation is moderating – which could boost consumer spending power. It will also give central banks more scope to loosen monetary policy.

The lower public and private sector debts of CEE countries compared with their western counterparts – and the former’s earlier embrace of austerity policies after the 2008 crisis – are another positive.

“There is not really a case for a long-lasting debt-deflation spiral, as in many western European countries,” says Mr Szczurek. “[In the west] you have companies, households and governments trying to pay back old debt, and at the same time digging themselves deeper and deeper into recession.”

With open economies heavily geared to a eurozone recovery and cheaper wage costs, central Europe is still expected to grow faster than western Europe.

“The growth difference still stands,” says Herbert Stepic, chief executive of Austria’s Raiffeisen Bank International, one of the biggest operators in central Europe. “We see a growth difference for 2013 of about two percentage points between CEE as a whole and the EU.”

Other heads of big banks in the region share this cautious optimism. “We still consider CEE to be the driving engine for the growth of our group,” says Gianni Franco Papa, head of the CEE division of Italy’s UniCredit.

UniCredit has forecast that the CEE banking sector’s return on equity, after falling to 8.5 per cent between 2009 and 2011, will average 10.9 per cent between 2012 and 2015.

These reasonably healthy prospects – certainly for banks with strong positions – may explain why few western European banks have withdrawn from operations in the region in recent years, with less consolidation than expected.

“Practically speaking, having gone through this crisis, the banking landscape hasn’t changed dramatically,” says Tamás Simonyi, Hungary-based head of CEE financial institutions mergers and acquisitions advisory at KPMG, the business advisers. He notes that banks have been reluctant even to sell lossmaking subsidiaries in southeast Europe.

One reason, he suggests, may be that banks that have worked hard to achieve, say, top five positions in CEE markets may be reluctant to give them up.

. . .

Willing buyers of eastern European banking assets have also proved relatively few. In Poland, Santander of Spain bought Kredyt Bank from KBC of Belgium last year, and Raiffeisen bought Polbank from Greece’s Eurobank. Elsewhere, Russia’s Sberbank bought the CEE operations of Austria’s Volksbank. However, mooted Russian and Chinese bank buyers have largely not surfaced.

The big CEE banks say the pace of lending growth should also pick up again, although that will depend on demand as well as supply.

Raiffeisen’s Mr Stepic says a modest slowdown in bank lending growth last year was not caused, as often suggested, by “deleveraging” or the reduction of parent-bank funding to CEE subsidiaries. Mostly, he says, it reflected slowing loan growth in Russia due to regulatory tightening, and the end of the construction boom associated with the Euro 2012 football championship in Poland and Ukraine.

Mr Papa of UniCredit adds that lending growth has also slowed in recent years as regulators in some countries have restricted lending in foreign currencies. That had been widespread before 2008 but left borrowers facing debt-servicing pressures when local currencies weakened.

In Hungary, he adds, 2011 government measures to reduce the foreign exchange mortgage burden on consumers, allowing them to repay loans at discounted exchange rates, reduced overall lending volumes.

But the biggest theme of CEE banking is a shift to a model that might not provide the explosive growth and profits seen up to 2008, but one that will be more sustainable.

Banks are altering lending criteria, says Mr Papa – for instance, by shifting away from asset-based lending, which can create problems if inflated valuations collapse, to cash flow-based credit provision.

Most importantly, banks are shifting their funding model and reducing external liabilities, including wholesale and parent-company funding, as a percentage of assets, but they are taking in more local deposits. Loan-to-deposit ratios, though still high in certain countries – notably Ukraine, Serbia, Estonia and Lithuania – are being brought more into balance.

A recurring plea from bank chiefs as these processes take place is for a more co-ordinated approach by regulators.

“Central banks are requiring more and more capital buffers, and they are requiring higher loan-loss provisions. On the other hand, they are pushing banks to lend more. So we are really between a rock and a hard place,” says Mr Papa.

The European Bank for Reconstruction and Development and other international financial institutions last year rebooted the so-called Vienna Initiative – a mechanism established in 2009 to foster better co-operation between regulators. Bank chiefs say the proposed EU banking union should also eventually help with co-ordination.

With bank lending and cross-border funding more constrained, the EBRD and others have also been working on expanding local currency financing, including, for example, corporate bond markets.

That will help the region to replace the cross-border credit flows that were such a big part of its pre-2008 growth model, reducing its reliance on the eurozone. CEE countries will also need to look elsewhere for new investment sources and export markets – which might explain why Hungary and Poland have held big Chinese investor fairs in the past two years.

Longer term, the region needs to beef up innovation and entrepreneurialism, to reduce its reliance on low-cost manufacturing for western European companies and come up with world-beating products and companies of its own.

Meanwhile, says ING’s Mr Szczurek, there is still scope for “catch-up” growth. “In the next five to 10 years, there are gaps that are quite easy to fill, in physical infrastructure, in stock of capital. These are going to help [CEE] catch up without a complete change in the growth model.”

——————————————-

Fears of western banking capital flight prove excessive

In late 2011, as regulators tightened capital requirements for western European banks, there were fears that the banks would withdraw capital from their eastern European subsidiaries to help rebuild balance sheets at home.

Since then, data from the Bank for International Settlements show that western parent banks’ exposure to central, eastern and southeastern Europe has indeed fallen, although the impact of “deleveraging” has been less severe than feared.

“We contest the fact that there has been deleveraging in CEE,” says Gianni Franco Papa, head of the CEE division of Italy’s UniCredit.

Indeed, UniCredit says that after a small initial dip, total CEE banking system assets increased fairly steadily from €2.2tn when Lehman Brothers, the US investment bank, collapsed in September 2008 to €2.9tn four years later.

But while banking assets have grown by €700bn, says Mr Papa, they have been financed much more from local currencies. That has resulted in part from regulatory restrictions on lending in foreign currencies.

“There has been a strong effort from every bank to become more self-sufficient,” says Mr Papa, “because if banks have to lend in local currency, the only way is to tap the local market.”

At the same time, the banking sector’s external liabilities, which include parent bank funding, have declined.

But the decline has been more than offset by an increase in local currency deposits, as regulators have also pushed banks to improve their loan-to-deposit ratios.

“Banks have also started collecting more money, either through local markets, through retail or corporate deposits locally, or by issuing bonds in local currency,” says Mr Papa.

Central European banks have also increased their capitalisation by some €130bn, he adds.

“This is not deleveraging – it’s a rebalancing of the balance sheet structure,” he says. “So, [there is] less dependence on the wholesale market – because 2008 taught everybody that the wholesale market can disappear overnight – and more reliance on local funding.”

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