Eastern Europe Drives Growth

Article excerpt

After consolidation, Austria's banks are looking to Eastern Europe for growth prospects.

How to compete as a medium-size bank in a period of megamergers? While Austrian banks have done their bit-Bank Austria took over Creditanstalt and Erste Osterreichische merged with GiroCredit to create Erste Bank -they still face fierce competition for domestic business. Interest margins are among the lowest in Europe, and the burden of high costs can be off loaded slowly. Bank Austria, RZB, and Erste Bank have found nearly the same answer to that dilemma: They are looking to Central and Eastern Europe (CEE) for growth. Heavy losses in Russia at Bank Austria and RZB have not changed their strategy.

"A long-term focus on emerging markets makes sense," says Matthew Czepliewicz, an analyst at Salomon Smith Barney who covers banks in Austria and in emerging markets."In times of crisis, like last year in Russia, investors may apply a higher risk rating to all of these regions, but it would have been unwise to curb CEE activities."

The two-pronged game plan for expansion is clear: commercial banking with an increasing diversification into retail on one hand and investment banking on the other. Erste Bank is gearing up for expansion into the region."We are concentrating on transferring our experience in retail and midsize corporate business into selected CEE markets," says CEO Andreas Treichl. The largest step so far was to take over Hungary's Mezobank, now Erste Bank Hungary. Having decided that growth through acquisition is more attractive than growing organically, Erste Bank has shown keen interest in Czech privatizations, especially in Ceska Sporitelna.Although the sale of Komercni Banka and Ceska Sporitelna are the last chances to buy into a major CEE market, Bank Austria and RZB aren't interested.

Bank Austria, with CEE assets of ASch74 billion, is the second-biggest international player in the region. The first is Belgian-based KBC. Bank Austria, which has concentrated its foreign activities in Bank Austria Creditanstalt International, has found its core market in Poland. There it has a stake of 43% in PBK, Poland's fourth-largest bank, and plans to merge its existing Polish business into PBK. "This will be the only market where we give up our own name," says Alarich Fenyves, vice chairman of BACAI. …