Banking Crisis

Who Are Possible CEE Winners, Losers From Greek Woes, Asks Berenberg

Tom Burroughes Group Editor London 1 July 2015

Who Are Possible CEE Winners, Losers From Greek Woes, Asks Berenberg

There losers - and some potential gainers - from the turmoil now hitting Greece's financial system, argues the Germany-headquartered private bank.

The dark clouds cast by the risk of Greece leaving the eurozone because of the country’s crushing debt mean some banks in Central and Eastern Europe face rising problems but there is also a silver lining for some other players, European bank Berenberg says.

The biggest impact of Greece imposing capital controls, as has happened this week, will be felt on Central Eastern European countries where Greek banks operate; the economic growth of these nations could be hit, the bank said in a note. It has a “sell” recommendation on Erste Group Bank; a “hold” recommendation on Raiffeisen Bank International and “buy” views on Unicredit and KBC Group.

Despite the gloom, some banks may benefit from developments on the ground, Berenberg went on.

“However, the funding and liquidity problems of the Greek banks may present an opportunity for organic market share gains for the banks in our coverage present in the same CEE countries such as Erste (Sell), KBC (Buy) and Unicredit (Buy). Unicredit offers the biggest valuation upside in our view. Despite this opportunity we continue to believe Erste’s medium-term consensus revenue expectations are too high,” analysts at Berenberg said in a note.

The debt impasse and associated restrictions on capital may increase the cost of funding of eurozone banks may increase in the short term and financial instability in the currency bloc could reduce demand for loans and force local regulators to impose tougher rules to protect domestic banks, also restricting the flow of capital, the analysts continued.

The CEE countries where the Greek banks have significant lending market shares (higher than 15 per cent) include Albania, Bulgaria, the former Yugoslavian Republic of Macedonia, Romania and Serbia. Greek banks are also present in Cyprus with total lending market share of 11 per cent. Aggregate loans of the Greek banks’ subsidiaries in these countries are €29.3 billion, or 11 per cent of total loans, it said.

There are also greater risks for subsidiaries of Greek banks in Central and Eastern Europe; although these subsidiaries are separate legal entities and fund themselves, capital controls on their parents restrict the flow of funds inside a broader group, potentially leading to credit downgrades and higher funding costs.

Berenberg added that some local CEE banks could gain market share from incumbents, either organically, or through acquisitions, following the compulsory shrinkage of Greek banks’ balance sheets.

“We believe Erste and Unicredit are well positioned to gain market share organically in Romania and KBC in Bulgaria. We believe Raiffeisen may struggle to take advantage of this opportunity given its deleveraging plan,” it said.
 

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