Transcript CEE - Central European Business Centre

CEE Banking: Facing challenges… battling pressures
Paolo Spada, General Manager
Head of Corporate, Investment Banking and Private Banking Division
Unicredit Bank Hungary
Frauenkirchen, 2 October 2012
AGENDA
 ECONOMIC ENVIRONMENT
 UNICREDIT IN CEE
2
Economic environment – Summary
1. International environment – fasten your seatbelts!
 Update on crisis handling in the Euro-zone – hot autumn ahead
 Moody’s cut EU’s outlook to negative
 Greece: the country is likely to have failed its time-wise obligations; troika’s report will be crucial
 Spain: deepening recession; accelerated deposit / capital withdrawal; may request a rescue package form EU
 Italy: much deeper recession; dangerous mix of debt financing; „blindly” linked to ESP
 Results of the last ECB meeting, GER decision on ESM – calming tension, but for how long?
 Unchanged base rate with worsening outlook; ECB is ready to restart purchasing bonds limitless but with stricter conditions
2. Economic processes in Hungary – downward adjustment, again
20
25
 2Q/1H GDP – Hungary is technically in recession, update of the 2012 and 2013FC
 Domestic factors persistently on the wane, Mercedes-effect faded by downsizing in other sectors
22
 Risk of arrears in potential growth, also in mid term
 Rate of investments in regional and EU comparison is the lowest, while turn in corporate lending is not in sight
21
 twice 25bps base rate cuts…
3. Banking sector
 1H results of the sector and its Top7 banks
 Following the weakest 1Q result in last decade, 6M shows negative bottom line for the first time (HUF -280 mn). Only 4 out
of Top7 banks showed up positive profit
 Results of NBH’s lending survey
 In retail new state interest rate subsidy scheme might turn the low-point in demand, but no significant boost is expected;
depressed corporate lending also in the coming quarters
3
Key challenges and themes for the CEE banking industry
in 2012-2013
 Feed-through of the European sovereign crisis into the CEE region:
 Slower trade transferring into a slowing growth momentum
 Banking sector deleveraging
 External financing amid an uncertain global risk appetite
 Need to focus on supply side support measures, rather than demand side
 Regulatory pressures
 Funding squeeze could prompt further bank taxes/levies
 Increased focus on higher capital requirements and the introduction of Basel III
 Restrictions on FX lending and further limits on FX exposure
 A changing banking model
 Prolonged competition for deposits
 Shrinking margins
 Decreased ability to generate revenues amid an uncertain economic
environment
 Greater reliance on domestic funding sources
4
CEE banking sector should continue to generate above-EU
average growth in banking volumes
Evolution in 2011-15 of CEE-16 banking business (1)
x
Expected trend of key P&L drivers
CEE Banking penetration to
converge towards EMU standards
3.6x
Loans growth,
CAGR %
CEE vs. Western Europe
4.8x
Economic
recovery should
support gradual
reacceleration in
loan volumes
11.6
7.4
Corporate Loans /GDP
60
2.9
CEE-17
50
1.2
Cost of Risk,
%
EMU-12
40
30
2009-11
Stabilization in the
cost of risk
2012-15
20
46
36
0
2005
2010
2012
2015
(1)
33
Recovery of
profitability
Pre-tax profits,
EUR bn
2007
55
+8 p.a.
-7 p.a.
10
Excluding Poland; Source: UniCredit CEE Strategic Analysis
2011
2015
CEE: opportunities and challenges ahead
OPPORTUNITIES
CHALLENGES
 Region still showing stronger medium-
 Macroeconomic environment (i.e. global
term growth prospects compared to
slowdown, Euro debt crisis), with potential
Western Europe
negative impact on the cost of risk and
funding
 Significant cross-border business
potential
 Changes in regulatory requirements and
increase in competitive pressures
 Focus on cost containment actions to
further exploit rationalization and efficiency
potentials across the region
6
 Liquidity and funding
UNICREDIT IN CEE: keep leadership through a focused country approach
Focus on highly attractive countries
Focus maintained on highly attractive countries where UniCredit enjoys a strong footprint
and is well positioned in a risk / return matrix (i.e. Poland, Turkey, Russia and Czech Republic)
Key strategic initiatives
Optimization of investments, fewer and more focused to maximize value of CEE operations:
CEE cost optimization program with focus on operational, IT, Real Estate and purchasing efficiencies
New sales channels development including internet and mobile banking and the creation
of a Call Center. CRM Implementation as a backbone of customer relationship strategy and
commercial efficiency
Streamlined branch openings with network expansion strategy limited to highly attractive countries
Simplification of geographical footprint
Intra-group rationalization (Hubs, combination etc.) to simplify further and generate
cost savings opportunities
7
CEE: Profitability and liquidity to define the strategy for each country
BUSINESS
REFOCUSING
III
2015
+
20%
RARORAC
Mapping our subsidiaries:
profitability (RARORAC) and
liquidity (Loans / Local Funding)
30%
15%
Expansion
strategy
POL
RUS
10%
CZK
5%
TRK
0%
-5%
-10%
Bubble size: RWA end of Period
1.9
1.6
1.5
1.4
1.3
1.2
1.1
1.0
0.9
LOANS / LOCAL FUNDING
0.8
-
Strongly diversified country approach
Expansion strategy: large, highly attractive countries (i.e. for profitability and liquidity). UCG strongly positioned,
with potential for further growth – Poland, Turkey, Russia and Czech Republic
Core countries:
Expansion on hold: countries with market appeal but challenging environment in the short-term
Balanced growth, focus on efficiency: countries with low growth and challenging environment
Minimize risks / portfolio run-offs: countries with high level of vulnerability, poor competitive positioning for UCG
8
RARORAC is the ratio between EVA (Economic Value Added) and allocated / absorbed capital and represents the value created per each unit of risk
taken
Ranking of top international players in CEE
Data as of
FY2011
Net Profit (2)
EUR mn
Total Assets (1)
EUR bn
Number of Branches
CEE, % share in
Group revenues
Countries of
presence (3)
19
19
116
UniCredit
Erste
84
RBI
79
KBC
SocGen
9
134
52
(4)
(6)
1,933
330
85
69
(5)
(7)
70
3,863
19
(4)
(8)
401 478
800
2,915
(7)
804
59
7
2,140
648
26
(4)
1,798
3,237
(7)
(5)
19
5
79
12
18
2,626
(10)
(9)
26
(4)
35
(7)
15
ISP
41
215
1,446
11
13
OTP
32
300
1,424
9
n.m.
(1) 100% of total assets for controlled companies (stake > 50%) and pro rata for non-controlled companies (stake < 50%), except for OTP; (2) After tax before minority interest
(including goodwill impairment). Consolidated net profit for the CEE Region, except for Erste, KBC and SocGen (aggregated net profit); (3) Including direct and indirect presence in
the 25 CEE countries, excluding representative offices; (4) Results of RBI exclude group corporate, markets and corporate center segments; (5) Including pro-forma Polbank; (6)
IFRS figures adjusted by subsidiaries earmarked for divestment (PL, RU, SRB and SI); (7) Including PL, RU, SRB, SI; (8) Underlying figures adjusted by subsidiaries earmarked for
divestment (PL, RU, SRB and SI); (9) Including PL, RU, SRB, SI, BH, MG and MC; (10) Disposal process for the Baltics ongoing.
Source: UniCredit CEE Strategic Analysis
UniCredit has an unrivalled network in CEE
Czech Republic
 6% market share
 104 branches
Slovakia
 7% market share
 79 branches
Hungary
 6% market share
 122 branches
Slovenia
 6% market share
 35 branches
Croatia
 26% market share
 141 branches
Bosnia
 22% market share
 134 branches
Serbia
 8% market share
 78 branches
#4
Poland
 11% market share
 1,042 branches
#2
Baltics
 2% market share
 8 branches
#10
#5
#7
#8
Ukraine
 4% market share
 381 branches
#5
Romania
 6% market share
 220 branches
#6
Bulgaria
 16% market share
 221 branches
#1
#5
Turkey
 9% market share
 965 branches
#1
#1
#3
Note: Ranking and market shares (in terms of total assets) as of March 31, 2012. Number of branches as of June 30, 2012
Source: CEE Identity & Communications & CEE CIB Marketing
10
Russia
 2% market share
 110 branches
Azerbaijan
 2% market share
 10 branches
#5
#15
Kazakhstan
 8% market share
 103 branches
#5
Kyrgyzstan
 16% market share
 38 branches
#1
UniCredit can rely on a strong competitive advantage coming from
its business model based on specialization…
Customer
Centricity
Multi-Local
Approach
Global
Product Lines
Global
Services
Lines
11
 is the primary objective which specialize in business relationships with
customers and provide them with the best service and highest level of
satisfaction over the medium and long term.
 Allows our local banks to take responsibility for their distribution networks and
customer relationships, and to take full advantage of the Group’s product and
service lines, and of the colleagues who work in every market where the Group
operates.
 Are responsible for developing the products and services that drive the creation
of value across all geographic areas, as well as for leveraging our internal
product lines.
 Are responsible for providing support through the Group’s service factories and
through the Group's centralized areas. They backstop the network and the
centralized product factories through specialized services provided by our Back
Office, ICT, Loan Recovery, Procurement Office, Real Estate and Shared
Service Center.
We have a superior performance in serving our clients
Customer satisfaction in CEE (TRI*M 2011 cumulated results)
TRI*M Index threshold: 40: sufficiency; 70: excellence
80
75
70
Global Competitors
77
76
74
UC
72
69
68
CEE UC avg
75
73
70
68
65
60
55
50
45
40
Total
Large
Mid
International
Real Estate
 All UniCredit segments perform better than global competitors
 International UniCredit clients show the best performance
12
Global Peers definition: more than 3 CEE countries coverage; no. of interviews > 100; *Customer Satisfaction level is based on
a benchmark (state-of-the-art “TRI*M” index developed by the external provider TNS)
Global Comp. avg
UniCredit Hungary 1° in Customer Satisfaction
TRI*M INDEX– 2011 to 2012
Main evidences
100
90
80
70
60
50
40
30
20
10
0
Key:
2012
 Positive trend for UCB since 2010 with a constant
growth
 Steadily growing gap vs. Market for UCB
compared to 2011
70 73
57 56
* Due to the low base (N<35 cases), be careful in reading data (take it as a “qualitative” indicator)
* *No sufficient number of cases
UCB
13
2011
Market
UniCredit Hungary – at a glance 31 December 2011*
Balance Sheet Total: 5.5 bn EUR
Salgótarján
Mosonmagyaróvár
Esztergom
Sopron
Győr (2)
Budakeszi
Budaörs (2)
Érd
Dunakeszi
Keszthely
Nagykanizsa
Siófok
Dunaújváros
Hajdúszoboszló
Jászberény
Szolnok (2)
Békéscsaba
Kecskemét (2)
Kiskunfélegyháza
Paks
Kaposvár (2) Szekszárd
Pécs (2)
Eger
Gyöngyös Debrecen (2)
Budapest (56) Gödöllő
Vecsés
Pápa
Szombathely (2)
Ajka Tatabánya (2) Szigetszentmiklós
Cegléd
Tököl
Sárvár Veszprém (2)
Székesfehérvár (2)
Zalaegerszeg (2)
Nyíregyháza (2)
Tiszaújváros
Vác
Szentendre
Miskolc (2)
Szentes
Hódmezővásárhely
Gyula
Szeged (2)
Baja
*accordingly IFRS, UCB and Mortgage Bank– consolidated
1 since
14
1st of April
Result before tax: 57.6 mn EUR
Market Share in %:
Loans:
Corporate 8.84 %
Retail 4.14%
Deposits:
Corporate 10.63%
Retail 5.46%
Number of Employees: 1967
Number of branches: 1201
UniCredit vision 2015
 A rock solid European commercial bank
Strenghtened core client franchises with a unique geographical spread, focused
on diversified Western European countries and high growth CEE economies
 Strong balance sheet
A sound capital base, further reinforced liquidity buffer, continued access to diversified
funding sources
 Operational efficiency
A leaner customer centric operational structure benefiting from increased efficiencies,
stringent cost management and simplified support and HQ functions
 Commercial banking activities core
A comprehensive product portfolio and added value services throughout the franchises,
underpinned by increased cross selling
 Sustainable returns
A robust business model with a low risk framework delivering sustainable profits and
a return on equity above cost of capital
15
Why UniCredit is the ideal banking partner in CEE
 UniCredit is unique in combining
 a distinctive franchise network based on a strong presence in
- Western markets (Italy, Germany, Austria) and
- 17 CEE countries
 local roots in each country of presence, but a global banking product know-how and
expertise (leveraging on the product hubs in London, Munich, Vienna)
 We have specific knowledge of local CEE markets: we know local regulations and market
practices, we speak local languages; we can help you find opportunities and manage your
business operations against different commercial and political risks in CEE
 We can offer you tailor-made products and services for your specific needs
 We can support your cross border business development and operations through our local banks
in different CEE countries, including financing of your subsidiaries in third countries
 We ensure strong quality of service: we are leader in customer satisfaction in CEE compared to
global banking competitors
16
ANNEXES
17
International environment
Update on crisis handling in the Euro-zone – hot autumn ahead
■ Moody’s set the tone last week as it cut EU’s outlook to negative, reflecting the risks to GER, FRA, the UK and the NED that
account for about 45% of union’s budget revenue. Moreover, the likelihood of GRE’s exit increased again, while both ESP and
ITA might have need of a rescue package.
Greece
■ The country is likely to have failed its time-wise obligations of fiscal consolidation, this will be „confirmed” by troika’s country
report mid of September.
■ The report will be crucial, as it shows if there is any way (sense) to continue the financing
■ PM Samaras’ road-show in August to reach the prolongation of targets (by 2Y) failed any breakthrough - GER is still reluctant
■ Risk that lenders (esp. IMF) stop financing following the troika-report is rising
Spain
■ Deeping recession: 2Q GDP down by -0,4% q/q and -1% y/y. 2012FC is -1,5% and further -1,2% in 2013, while
unemployment rate exceeded 25%.
■ Lack of confidence towards banks and the economy is reflected in accelerated deposit / capital withdrawal: in 1HY EUR
220bn portfolio investments and FDI left the country (22% of GDP), while share of non-residents in GB holdings decreased from
45% to 33% in one year
■ Positive impacts of LTRO I. and II. on yields vanished in 2Q, (avg. financing costs up to 4%, while duration down to 6.3Y)
■ Two of the largest regions (Valencia and Catalonia) already asked for financial aid (EUR 18bn fund established)
■ Depending on the outcome of ECB’s meeting and the forthcoming EcoFin summit, the country may request a rescue
package form EU (/IMF) following the EUR 100bn aid for the banking sector.
18
Italy
■ Much deeper recession this years than expected (-2.1% instead of -1.2%), with stagnation next year
■ Dangerous mix of debt financing: huge volume (EUR 1600bn), shortening of duration, increasing yields, but with primary
sufficit of budget
■ Share of non-resident GovBond holdings declined YTD by -8pps to 30% due to confused investor confidence, however
considerable share of banks and individuals
■ Domino-effect - „blindly” linked to ESP
International environment
Results of the last ECB meeting and Germany’s Constitutional court
decision – calming tension, but for how long?
ECB – key results and main statements of the 6 Sept meeting
■ As expected base rate remained unchanged at 0.75%, but ECB cut back this year’s GDP FC from -0.1% to -0.4% in the
context of higher inflation caused by rising oil prices
■ The bank is ready to restart purchasing bonds (outright monetary transactions) of countries which:
 already requested aid from EFSF/ESM (ITA and ESP not yet!),
 fulfill their austerity commitments (controlled also by IMF)
 are able to issue bonds on the primary market (GRE, POR not)
■ Limitless intervention on the secondary market, buying 1-3Y GBs to help the yield curves on the short term
■ Intervention will be sterilized – surplus in money supply will be extracted from the market not to cause inflationary pressure
■ The ECB won’t get a senior lender status
■ There is no target-yield set
■ Perceived positively, triggered global asset rally on the short term and EUR strengthened significantly vs. USD
■ Deutsche Bank expects at least another EUR 200bn bond-program (ECB currently holds EUR 200bn of Euro-zone bonds)
■ ECB expects the program to be more effective but stricter, however its efficiency on the longer term is questionable again
■ On 12 Sept the GER Cc. gave green light to the ratification of ESM under strict parliamentary control
■ first meeting of the ESM Board is scheduled for 8th October
Yields of 10Y ITA and ESP govies
8
7,5
ECB’s bond
purchasing
announcement
Announcement
of the € 100 bn
package
7
6,5
6
5,5
5
EU-Summit
and austerity
announcements
4,5
19
Source: Bloomberg
Spain
Italy
Economic processes in Hungary
2Q/1H GDP – Hungary is technically in recession, update of the 2012 and
2013FC
■ Hungarian economic downturn continued in 2Q. GDP contracted by 1.3% y/y and by 1.0% in the first 6M, as most of
the sectors were characterized by declining or stagnating output. Export-oriented manufacturing, which was the
driving factor of growth in the last two years, came to a halt in the last quarter as well
■ GDP use was contracted by both consumption and investments while net export slowed down significantly ,reflecting
trends of the main export markets.
■ Regarding 2HY GDP performance: agriculture and construction industry is expected to fall further, with some help
coming from car manufacturers announcing expansion of production.
■ With regard to discouraging news flow and downward revised FCs on the German / EU economy and practically no
change in domestic factors we cut back our 2013 GDP outlook which predicts only 0.5% economic growth with net export
being the only lifebelt of the economy as the needed fiscal consolidation will have its costs on the consumption side.
Growth components of GDP growth, %
8
forecast
6
6
4.5
4
3
2
1.5
0
0
-2
-1.5
-4
-3
-6
-4.5
-8
-6
-10
-7.5
-12
-9
-14
-10.5
-16
2006y/y
3.9%
2007y/y
0.1%
2008y/y
0.9%
2009y/y
-6.8%
2010y/y
1.3%
2011y/y
1.6%
2012y/y
-1.9%
2013y/y
0.5%
-12
-13.5
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
2006
2006
2006
2006
2007
2007
2007
2007
2008
2008
2008
2008
2009
2009
2009
2009
2010
2010
2010
2010
2011
2011
2011
2011
2012
2012
2012
2012
2013
2013
2013
2013
-18
Private consumption
Fixed investments
20
Source: CSO, UniCredit Research
Public consumption
Net Exports
Changes in inventories
Economic processes in Hungary
Inflation, base rate and exchange rate outlook
 Sustained improvement in risk premia and weak economic performance spurred external MC members to push through
25bp base rate cut in August and further 25bps in September.
 Even with IMF deal in the pocket – expected in 1Q 2013 – further monetary easing is uncertain given Hungary’s vulnerable
fundamentals and the „track record” of unorthodox measures.
While inflationary pressures from the real economy continue to be subdued due to weak domestic demand, the higher-thananticipated price of crude oil and the unfolding food price shock pose upside risks to inflation.
 Euro-zone developments and changes in international sentiment may keep the HUF volatile, however clear steps towards
EU/IMF deal could support country’s risk assessment and thus the LC.
12
11
10
9
8
Inflation - base rate - exchange rate
Headline inflation
Base rate
HUF/EUR monthly avg (RHS)
350
forecast
330
310
7
6
290
5
4
270
3
2
250
1
%
0
230
Dec-2006 Dec-2007 Dec-2008 Dec-2009 Dec-2010 Dec-2011 Dec-2012 Dec-2013
21
Source: NBH, UniCredit Research
Economic processes in Hungary
Risk of arrears in potential growth, also in mid term
Investments in % of GDP,
33
■ Investment rate since 2009 sharply on the wane, since
2010 even below EU average, showing widening gap
■ In Q2 investment rate fell further and came in at 16.4%
■ Only 4 countries behind us in Europe: crisis hit Ireland,
Iceland and Greece, and by far more developed UK
■ Further decline in 2013 expected as positive impacts of
expansion in automotive will be faded by downscaling in
other sectors
■ Since run-up in production has a natural time-lag and HU
is still missing a turn of the adverse trend, the country is
likely to fail the first wave of regional upswing
Czech Republic
Hungary
EU27
Austria
Poland
31
29
27
25
23
21
19
115
22
Source: Eurostat, NBH
2013
Corporate lending in international comparison
%
115
110
110
105
105
100
100
95
95
90
90
85
85
80
80
75
75
2008. okt.
nov.
dec.
2009. jan.
feb.
márc.
ápr.
máj.
jún.
júl.
aug.
szept.
okt.
nov.
dec.
2010. jan.
feb.
márc.
ápr.
máj.
jún.
júl.
aug.
szept.
okt.
nov.
dec.
2011. jan.
feb.
márc.
ápr.
máj.
jún.
júl.
aug.
szept.
okt.
nov.
dec.
2012. jan.
feb.
márc.
ápr.
máj.
jún.
■ Currently we face ongoing credit construction,
where:
 postponement or cancellation of new investments
to replace or improve amortised capacities,
already cause decrease in potential GDP
Corporate lending outlook shows a dangerous
mix of market conditions: no demand for long-term
(investment) loans, coupled with tight (price, and
non-price) conditions and weak lending willingness!
%
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
15
1995
17
BG
PL
CZ
HU
RO
SK
Balti államok
Eurozóna
Development of corporate loans by economic segments
Dec 2008 – June 2012
8.4
2.3
28.5
0.7
Total corp.
loans -11.0%
3.1
3.7
4.0
6.5
1.7
4.4
15.7
4.8
16.0
0.2
 as most of the sectors were characterized by declining or stagnating output, financing of these is also on the wane
 Positive turn seems to be a long time coming as further tightening of credit conditions is expected, where economic
prospects and industry-specific problems are main concerns.
23
Source: NBH
Weight in
total %
Lending outlook
Results of NBH’s survey on banks’ lending practices (August)
Retail lending
■ in 2Q 2012 credit conditions on housing and consumer loans eased, resulting in a modest adjustment of the previous
broad-based tightening
■ For 2HY banks calculate with an upturn in demand: in the case of housing loans, this shift may be brought by the
launch of the state interest rate subsidy scheme, as it will reduce markedly the prevailing 13% APR (THM) to around 9%
during the early stage of the scheme
→ banks may become more active on the market, resulting in a tangible, but not significant boost in lending
Corporate lending
■ In line with the previously observed trend corporate conditions tightened further in 2Q 2012 both for large companies
and SMEs.
■ One important change was that the outflow of foreign funds slowed down in Q2, thus instead of lending capacity, it was
lower willingness to lend, which mainly contributed to the further tightening.
■ Positive turn seems to be a long time coming as further tightening of credit conditions is expected for 2HY where
economic prospects and industry-specific problems as factors of tightening.
■ In demand, the trend observed in the last several quarters continued: demand for short-term loans increased, while
demand for long-term loans was reported to have declined further
→ the trend involves and increases the risk of delay or lag in potential upswing of the economy. Current level of
corporate lending not sufficient to replace or improve amortised capacities which erodes the output potential of the
economy.
Summary of developments in supply and perceived demand by banks
Supply
Perceived demand
Segments
2012 Q2 2012 2HY(exp) 2012 Q2 2012 2HY(exp)
↓
Housing
↑
→
↑
Household
↑
↓
↑
↑
Consumer
↑
Corporate
→
↓
↓
Note: The up-arrow denotes an increase and the down-arrow a decrease
24
Source: NBH
Appendix to Economic processes in Hungary
2Q/1H GDP – Hungary is technically in recession, update of the 2012 and 2013FC
25
Source: CSO