EUROPEAN BANKS are vying for dominance in one of the continent’s most dynamic corners.
Governments in parts of eastern Europe, where growth is outpacing the euro area, are loosening their grip on state-held assets. Serbia and Slovenia are the latest to offer stakes in their banks, opening up a potential battlefield as OTP Bank Nyrt. of Hungary, Vienna-based Raiffeisen Bank International AG and Erste Group Bank AG and financial investors seek to widen their footprint in the region.
Across former communist eastern Europe, expanding loan books from higher consumer spending are making banks more attractive as takeover targets amid a reshuffling of the industry. In the Balkans, a decades-long wariness is easing about doing business in a region with a reputation of corruption, ethnic strife and economic instability.
“The former Yugoslav republics provide a kind of coming of age story and that makes public investments more reliable,” said Matthias Siller, a fund manager at Barings in London with $310 billion in assets under management. “In the past, a lot of investors would have approached with more caution. Now most people would actually agree that the former Yugo republics offer an interesting story.”
Partly as a result of pressure from the European Union and the International Monetary Fund, euro-area Slovenia is offering two banks that together account for almost a third of the market and Serbia is selling a lender that controls about 11% of the banking industry.
As a sign of the buzz generated by the deals, 14 companies expressed interest in advising the planned sale of Komercijalna Banka AD Beograd, according to the Finance Ministry in Belgrade. The government wants to pick a winner by the end of the year for the bank with assets of €3.1 billion ($3.5 billion).
The sale of the nation’s third-largest bank — behind the local units of Intesa Sanpaolo SpA and UniCredit SpA — is a condition for Serbia to fulfill its new 30-month IMF program. The Washington-based lender in July said that the transaction will be completed by the end of September next year.
“Serbia is a very attractive market and Komercijalna is the key to market leadership in terms of scale,” said Klaus Vukovich, a managing partner at Vienna-based investment firm Alantra Partners SA. “Given where the strategic investors stand and also private-equity interest, I wouldn’t be surprised if the outcome here is something more nuanced than a straightforward strategic buy-out.”
Slovenia this month sold 59.1% of Nova Ljubljanska Banka dd for €608.6 million. The bank was the chief recipient of €3.2-billion state bailout in 2013 and the EU and European Central Bank have since urged the government to sell its holding.
At least five suitors may be interested in Abanka, Slovenia’s third biggest by assets, according to the Finance newspaper in Ljubljana. Potential bidders include OTP, US-based Apollo Global Management and Blackstone Group LP, Finance reported without saying where it got information. The sale agreement must also be completed by the end of next June.
While some European banks including Societe Generale SA are pulling back from certain countries to refocus on core markets, others are looking for opportunities from Poland to Bulgaria.
Even with scandals and money-laundering allegations buffeting some of the region’s banks from Latvia and Estonia to Poland, much of the industry is thriving. In a sign of its strength, banks beating profit estimates for last quarter included local giants Bank Pekao SA, Komercni banka AS and OTP. Of the western European lenders with large operations in the region, KBC Group NV, Raiffeisen, Societe Generale, Intesa and Erste all performed above analysts’ expectations as well.
The difference between the NLB sale and the bidding for Komercijalna is that the former had five years to be restructured, shed its non-performing loans and prepare itself for the scrutiny of an IPO. Komercijalna, which is 42.6% owned by the state, is still loaded with debt and lacks the efficiency to compete with larger foreign rivals. The European Bank for Reconstruction and Development has a 25% holding. The company’s shares have gained 10.5% this year, compared with a 2.3% decline in Serbia’s benchmark Belex15 stock index.
“Komercijalna will most probably find its buyer, bearing in mind its strong market share, but it would be highly surprising to see the valuation exceeding 70% to 75% of its book value,” said Stasha Petkovic, a broker at Momentum Securities in Belgrade. — Bloomberg