* E.Europe economic, banking growth still subdued next year
* E.Europe's top bank sees credit growth at 15 pct in 2011
* Risk cost to peak in 2009, bad debt in 2010
* Spanish, Russian, Chinese banks may buy assets
By Boris Groendahl
VIENNA, Nov 9 (Reuters) - Economic and banking growth in
emerging Europe will rebound in 2011, when credit will expand by
15 percent in euro terms and will surpass the growth seen in
2008, the former Communist region's top bank said on Monday.
Eastern Europe, once dubbed "the sub-prime of Europe", is
one of the regions that has been hit the worst by the financial
crisis, as a boom driven by western bank loans, exports,
investment, and consumer spending slammed to a halt last year.
Italy's UniCredit <CRDI.MI>, which leads Raiffeisen
International <RIBH.VI> and Erste Group Bank <ERST.VI> as the
region's biggest lender, said in a report that managing credit
losses remained the key challenge for banks in the crisis-struck
region.
Risk costs -- reserves put aside by banks to cover for
potential credit losses -- will reach their peak this year,
while non-performing loans will continue to rise into 2010, the
head of UniCredit's E.Europe business told reporters on Monday
at a briefing for the study.
"Provisions will peak this year, non-performing loans will
continue to grow until mid-2010," Federico Ghizzoni said in
Vienna. "For banks it will be important to be effective in the
restructuring and recovery of loans."
The long-term reasons for banking growth in the region --
which stretches from the Baltics to the Balkans -- are still
intact, however, as people catch up with their western
neighbours, said UniCredit's head of strategic analysis, Debora
Revoltella.
UniCredit forecasts credit in the region to contract by 5
percent in euro terms this year -- partly because currencies
devalued. In 2010, total loans will grow again, but only by a
rather modest 8 percent.
Growth will be limited as banks have turned to fund lending
mostly via customer deposits because access to wholesale funding
still remains difficult for some players.
"Lending growth will remain tied to deposit generation
capacity," UniCredit said in its report. "(It) will restart from
the corporate side... Retail lending will be more constrained in
the short term."
"As a result, revenue generation will remain subdued in 2009
and 2010 compared to recent years, with full recovery most
probably delayed until 2010," it said.
NEW ENTRANTS
Western banks with sub-scale assets in the region may leave,
and some privatisation may resume, Ghizzoni said, leaving scope
for new entrants such as Spanish banks to snap up assets,
although nothing concrete was on the table yet. []
"M&A activity is not yet back, I don't have names of new
entrants," Ghizzoni said. "For instance, one of the two or three
biggest Spanish banks could sooner or later could join the
investors in the region. They could be the next players."
While Spanish banks would be more likely to look at central
European assets, Ghizzoni said he expected Russian and Chinese
banks to look at the former Soviet Union.
UniCredit itself focused its investments on Russia, Turkey
and Poland, Ghizzoni said, but there was no concrete plan on his
table now to purchase anything.
Poland's banking landscape, in particular, is populated with
banks owned by western lenders that have no other big assets in
the region -- Commerzbank's <CBKG.DE> BRE Bank <BREP.WA>, ING
Bank Slaski <ING.AS><SLAS.WA>, AIB's <ALBK.I> Bank Zachodni WBK
<BZWB.WA> and BCP's <BCP.LS> Bank Millenium <BIGW.WA>.
UniCredit also said that bad debt in emerging Europe will
peak at between 6 percent and 39 percent of total loans, with
values varying greatly between central European and former
Soviet countries. []
Ukraine, where non-performing loans will rise to 35 percent
of all loans, and Kazakhstan, where the ratio will rise to 39
percent, are the only countries where bad debt will reach the
level of previous financial crises like in Asia or Argentina.
(Reporting by Boris Groendahl; editing by Karen Foster)
