Central and Eastern Europe – The Growth Market for Austrian Banks

Although the Central and Eastern European banking market (excluding Russia) is relatively small with total assets of some EUR 350 billion (by comparison, total assets of banks operating in Austria were some EUR 605 billion at the end of 2003), it is nevertheless a growth market. In addition to higher economic growth, the low degree of bank intermediation (about a third of its Western European equivalent) suggests strong growth potential for banks in Central and Eastern Europe (CEE) in the coming years. Above-average growth potential, higher interest margins than in Western Europe and restructuring potential have led Western European banks to invest heavily in the CEE banking sector. Approximately 70% of the CEE banking market is currently controlled by Western European banking groups. Austrian banks were among the first to invest in Central and Eastern European countries and are now some of the best-known Western European banks in the region (market share in the region: about 22%). As early as 2002 and 2003, steady expansion in the CEE region had a positive impact on the profitability of Austria's consolidated banking sector. Favorable reports on the CEE banking market, however, often ignore potential risks. Key sources of risk in the Central and Eastern European banking market are macroeconomic imbalances, the risk of growing exchange rate volatility, credit risk, increasingly fierce competition and political risks.