Corporate loans to drive CEE lending growth-UniCredit

Tue Jan 14, 2014 4:45am EST

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* CEE region benefits from improving western Europe markets

* CEE banks' loans-to-deposits ratio look healthier - study

VIENNA Jan 14 (Reuters) - Corporate loans will drive lending growth in central and eastern Europe (CEE) as a rebound in western European export markets pulls the region out of an economic slump, according to a forecast by UniCredit, CEE's top lender.

Overall average economic growth in the 13-nation region will accelerate to a real 2.0 percent in 2014 and 2.5 percent in 2015, outperforming western Europe's respective levels of 1.5 percent and 1.8 percent, said the study released on Tuesday.

UniCredit said it detected "mild signs" of a credit recovery across the CEE region, helped by an industrial rebound that began in mid-2013, and was set to continue this year.

Potential risks to its outlook include "uncertainty on asset quality development" and a welter of international and local regulations, it said, but added the impaired loans ratio of CEE was expected to gradually improve this year.

Lending growth has also been picking up moderately since mid-2013 while deposit growth remained "at a sound level", supporting the sectors shift towards a new banking model.

"Despite several challenges, the CEE banking sector keeps showing satisfactory profitability, with a return on assets more than double that of Western Europe," it added.

"The signs of economic recovery in Western Europe are translating into a higher industrial production for CEE, although differences from country to country persist," said UniCredit's CEE head, Gianni Franco Papa.

HEALTHIER BALANCE

Foreign-owned banks' CEE lending has traditionally been fuelled by funds that parent banks provided, but this is changing as lenders seek to use more funds generated locally.

From 2008 to 2013 total CEE loans grew 20 percent at constant exchange rates after 113 percent in the boom years of 2005 to 2008. Total CEE deposits rose 34 percent between 2008 and 2013 after 55 percent in the 2005-08 period.

That means the region's loans-to-deposits ratio has improved from 114 percent at the peak of the global financial crisis to 102 percent in 2013, a much healthier balance, UniCredit said.

Papa said UniCredit remained committed to the CEE region given its faster growth and higher profitability, although the bank added: "Some reshaping of the banks' business model seems vital to ensure sustainability."

UniCredit, which has almost 3,600 branches across CEE, competes against rivals including Raiffeisen Bank International , Erste Group Bank and KBC. (Reporting by Michael Shields; Editing by Gareth Jones)

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