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Corporate Lending in Central and Eastern Europe 2012

18.05.2012

Financing to the corporate sector is holding up well, but a diverging performance among countries is likely to persist

  • Cyclical sectors, which have been at the forefront of the economic recovery, look set to loose further strength in 2012
  • Survey data reveal banks´ willingness to give sufficient financing improved over 2011 in the context of still low demand
  • Availability of credit remains an essential pre-condition for output to return to its long-term trend

To date, bank lending to the corporate sector in the CEE region is holding up well, but a diverging performance among countries is likely to persist over the next months. This is one of the key findings of a recent analysis on corporate lending in Central and Eastern Europe run by UniCredit´s CEE & Poland Strategic Planning department. Larger economies such as Turkey and Russia saw a strong double digit growth in the demand for commercial loans until February 2012, whereas in smaller countries like the Baltics corporate financing is more than lackluster with even shrinking volumes.

Improved business environment, but FDIs are recovering slowly

“As pointed out by the latest business climate indicator the forward-looking business sentiment of companies has improved recently. Nevertheless industry growth in the CEE region will be a small negative in the first quarter of this year due to a weaker external demand”, said Gianni Franco Papa, Head of CEE Division at UniCredit. Important elements of differentiation would remain in place with short-term indicators pointing to a still fragile growth particularly in SEE. Apart from that cyclical sectors have lost some of their impetus since January. Only exception is machinery and equipment, which benefits from a steady demand in China. “Overall the business environment improved significantly over the past years, but regulation, judicial system, tax and political factors are still reported as important obstacles to doing business in CEE”, explained the top-executive.

Following 2008 crisis the CEE region experienced a large shift in the composition of capital flows. The portfolio component is now dominating in CEE, whereas FDI inflows have only marginally recovered from the trough relative to other emerging markets like Latin America or Asia and remain well below pre-crisis level. Generally speaking the trend is toward more short term portfolio capital instead of medium to long term capital. In the end fostering competitiveness remains a key challenge for the CEE region, which on the one hand still enjoys more favorable production costs than EU-15 in the context of still lower productivity on average.

Cost of credit and collateral perceived as major obstacles to the availability of credit

Firm-level data suggests a strong positive relationship between bank credit and investment activity especially in the recovery phase, confirming that availability of credit is an essential pre-condition for output to return to its long term trend. At the same time one must not neglect the important role of demand-side factors. Empirical evidence indicates also that the contraction in investment activity has been the largest in sectors having experienced an accelerated or booming dynamic in lending such as Bulgaria or Romania in the pre-crisis period.

“The contraction in the availability of credit at the peak of the crisis led to a visible substitution in the sources of financing and implementation of cost cutting measures”, reckoned Fabio Mucci, Head of CEE & Poland Strategic Planning at UniCredit. Thus many enterprises substituted bank loans with refinancing from parent companies and to less extent by bond issuance. Companies experiencing the largest contraction in the availability of credit during the crisis were also those recording a significant adjustment in labour costs to overcome liquidity problems. In the aftermath of the crisis, investment activity of most leveraged sectors lagged substantially behind that of the least dependent ones.

“According to an UniCredit survey conducted with over 12,000 companies in 16 CEE countries banks´ willingness to give sufficient financing improved over 2011 in the context of still low demand”, stated Fabio Mucci, “On a scale from 1 to 5, where 5 is the best mark, interviewees rated banks 3.77 on average in 2011 compared to 3.67 in the previous year.” However, in a complimentary poll the majority of enterprises reported a tightening of credit conditions in 2011 with cost of credit and collateral requirements as major obstacles to the availability of credit. Demand-side factors are also playing a role with 44 per cent of companies having reported ‘no need’ among major reasons not to apply for a loan.

Corporate remains among the most attractive business segments as the level of their indebtedness falls well behind the Western European average with particularly untapped potential related to cross-border business. In the EMU corporate lending is about 50 per cent of the regional GDP, whereas in Turkey it accounts for 32 per cent, Russia 28 per cent and in Czech Republic 21 per cent for example.

UniCredit is the leading corporate bank in CEE

UniCredit supports cross border business development and operations of companies through its extensive network of local banks in different CEE countries and through direct financing by its Western European subsidiaries in third countries. Over 1,650 relationship managers serve around 4,500 active German and between 2,000 and 3,000 Austrian and Italian clients operating in Central and Eastern Europe. They consolidate a personal in-depth knowledge of local CEE markets and a global banking product expertise leveraging on the products´ hubs in London, Munich and Vienna.

Cross border business is a key pillar of UniCredit´s strategy for corporate customers, which is also confirmed by the bank´s superior performance in serving international clients. Referring to the latest customer satisfaction index all UniCredit segments perform better than the next global competitor, with international clients being the most satisfied customer group.

UniCredit

UniCredit is a leading European commercial bank with strong roots in 22 countries. Our overall global network embraces approximately 50 markets, with over 9,500 branches and more than 160,000 employees (as of 31 December 2011).

In the CEE region, UniCredit runs the largest international banking network with more than 3,800 branches. The Group operates in Austria, Azerbaijan, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Germany, Hungary, Italy, Latvia, Lithuania, Kazakhstan, Kyrgyzstan, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Turkey and Ukraine.

Enquiries: International Media Relations

Tiemon Kiesenhofer,
Phone: +43 (0) 50505 56036
e-mail: tiemon.kiesenhofer@unicreditgroup.at

NOTE

Ukrsotsbank is one of the largest universal banks of Ukraine, operating in the local market since 1990. The bank offers full range of services to individuals and corporate clients.

The renovated Ukrsotsbank emerged on 31 October 2016 as a result of strategic deal whereby 99.9% of Ukrsotsbank shares have been transferred from UniCredit Group to ABH Holdings S.A. (АВНН) in exchange for a minority 9.9% stake in ABHH. Thus, the bank has combined 26-year-old traditions of Ukrsotsbank’s client-centric attitude, European quality of service inherent to UniCredit, as well as international banking expertise of ABHH in a number of European countries including CIS. Thanks to the successful synthesis and synergy of the two assets of ABHH in Ukraine, Ukrsotsbank and Alfa-Bank, the banking market of Ukraine will see the rise of a new stronger financial institution. This, in turn, will spur up technological advance, increase efficiency, improve quality of service for the clients, reduce cost of banking services whereas their range will inevitably expand.

The extensive retail network of Ukrsotsbank consists of 237 branches, its headcount reaching nearly 5 thousand employees.


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