Contents
Shaky ground 3
Green shoots of global recovery have turned investors’ attention to emerging
markets, and CEE banks are likely to benefit. However, potential damage to the
banks’ book values, if the credit cycle matches our worst-case scenario, determines
our Neutral view. 3
Cyclical risks precede secular growth 3
Country growth and risk positioning 7
We acknowledge that the region’s economies are not out of the woods yet, and
valuations are pricing in quite a bearish but realistic scenario in our opinion. We
expect regional positioning to be the key determinant of the banks’ performance. 7
Geographical positioning 13
The three regional banks have diversified exposure to Eastern European banking
markets across 17 countries. OTP and Raiffeisen operate exclusively in the region,
while Erste operates in developed markets (particularly in Austria), too. 13
Defensive Erste vs stretched Raiffeisen 13
Conclusion 15
Capital strength and asset quality 17
We believe cyclical factors will have a greater influence on the banking sector in the
CEE region over the next two years. Therefore, worsening asset quality is the
Achilles heel of CEE regional banks. 17
Asset quality: the key vulnerability 17
Capital strength 22
Valuations do not appear stretched 25
Company profiles
OTP 29
Erste 39
Raiffeisen 52