CEE banks will face rev­enue chal­lenges in 2016-17

Financial Mirror (Cyprus) - - FRONT PAGE -

Prof­itabil­ity of banks in Cen­tral and Eastern Europe (CEE) will be pres­sured over the com­ing 18 months as low in­ter­est rates and only lim­ited credit growth cut into rev­enues, says Moody’s In­vestors Ser­vice in a re­port pub­lished Tues­day.

“Banks will likely reg­is­ter lower net in­ter­est in­come in an en­vi­ron­ment of lim­ited lend­ing growth and low in­ter­est rates. Weaker rev­enues make banks’ prof­itabil­ity more vul­ner­a­ble to a sig­nif­i­cant rise in loan-loss pro­vi­sions in the event of de­te­ri­o­rat­ing eco­nomic con­di­tions,” said Ar­men Dal­lakyan, a se­nior an­a­lyst at Moody’s.

Over the next 12 to 18 months Moody’s ex­pects an­nual loan growth in Poland, Czech Repub­lic and Slo­vakia will be around 6%. In Hun­gary, Ro­ma­nia and Slove­nia vol­umes of new loans are in­creas­ing, how­ever the stock of loans will rise on av­er­age by 3% only due to siz­able re­pay­ments of ex­ist­ing loans.

CEE banks’ fee in­come may also be pres­sured by mod­est busi­ness vol­umes and reg­u­la­tory mea­sures. Fur­ther­more, in the years ahead, banks will likely en­counter in­creas­ing competition with non­bank com­pa­nies, in­clud­ing fi­nan­cial tech­nol­ogy com­pa­nies that are en­ter­ing the mar­ket.

De­clin­ing rev­enues will prompt banks to im­prove ef­fi­ciency, with larger banks likely turn­ing to cuts in operating ex­penses, says Moody’s. Smaller banks with lim­ited room to cut costs may de­cide to merge with larger banks or be­come nar­rowly spe­cial­ized in­sti­tu­tions such as credit card or car lenders.

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