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News South-East Europe drives
growth in the New Europe
14:29
- 24 May 2005 - In the past four years, South-East Europe was Europe's top
performer in terms of economic growth. With real growth of 23 per cent in this
period, the region's economy grew significantly faster than the EU-15 countries
and also outperformed the NMS8 (16 per cent). Thus South-East Europe is driving
growth in the New Europe says a BA-CA study.
South-East Europe's
economic performance also compared very favourably with the dynamic Asian region.
As a result of the stable exchange rate against the euro and the euro's appreciation
against the US dollar, South-East Europe was the region achieving the strongest
growth of income in the world, with an increase of about 50 per cent since 2000.
Stefan Bruckbauer, Deputy Head of the Economics Department at Bank Austria
Creditanstalt (BA-CA), thinks that this year and in the coming year, South-East
Europe will remain the most dynamic region in Europe. BA-CA expects economic growth
to reach 5 per cent in 2005 and 5.5 per cent in 2006. This positive development
has also enhanced the region's overall economic attraction. With over EUR 8 billion
in foreign direct investment (FDI) in 2004, South-East Europe accounted for one-third
of total FDI attracted by countries in Central and Eastern Europe. According to
BA-CA, the environment for direct investment in the region will remain favourable
in the coming years. Low wage levels and tax rates as well as further EU integration
will make significant contributions to this development. BA-CA's economists expect
foreign direct investment in South-East Europe to reach some EUR 10 billion annually
in 2005 and 2006, including the forthcoming privatisation projects. South-East
Europe will thus account for almost 40 per cent of total inflows of FDI in Central
and Eastern Europe. This will make it possible to finance a large part of the
growth-driven current account deficit of 8.5 per cent in the region. About one-half
of the strong economic growth is supported by investments, which means that part
of the FDI-financed current account deficit may be seen as an input for future
export success. In the past four years, South-East Europe has substantially
increased its market share in the "old" EU-15 countries, from 1.5 per cent in
2000 to 2.3 per cent in 2004. According to BA-CA's economists, the countries in
South-East Europe, especially the EU candidate countries, will be able to further
improve their position in the EU markets in the coming years. Bank Austria
Creditanstalt estimates that, if the candidate countries reach the same level
of integration in the medium term as the new member states which joined the EU
in 2004, and if the other countries in South-East Europe reach at least half of
this level, the market share in the old EU-15 countries could rise to about 8
per cent in the medium term. As a result, the volume of exports to the EU-15 could
more than double, with the total amount of the region's exports rising to a level
exceeding the current figure by EUR 60 billion. "In the coming years, South-East
Europe will remain Europe's powerhouse, even if some countries continue to experience
political difficulties slowing down their integration process," says BA-CA's economist
Stefan Bruckbauer. "For some countries in the region, there is still potential
for negative political surprises. At the same time, integration in some countries
could make surprisingly fast progress. For example, Bulgaria could catch up with
one or the other NMS8 country in the introduction of the euro," Stefan Bruckbauer
adds. These developments are giving impetus to the banking market, which achieved
exceptionally strong loan growth of 29 per cent annually in the past four years.
For the coming years there is still considerable potential, even if central banks
may be expected to take more restrictive measures in response to the strong growth,
which has led to current account problems. BA-CA expects lending volume to
grow by some 300 per cent in the next 10 years; new loans would thus total just
under EUR 130 billion. This means that banking business in South-East Europe will
grow more strongly than in the NMS8, which are also expected to continue to experience
substantial growth of about 230 per cent. Bank Austria Creditanstalt (BA-CA)
recognised the considerable potential of countries in Central and Eastern Europe
and in South-East Europe at an early stage. In 1975 the bank opened a representative
office in Hungary, becoming the first Western bank to gain a foothold in CEE.
Since the early 1990s BA-CA has steadily enlarged its network. "We are still benefiting
from our first-mover advantage. Today the region is our core market," says Regina
Prehofer, the BA-CA Managing Board member responsible for operations in Central
and Eastern Europe. Since BA-CA started to expand in Central and Eastern Europe,
the bank has achieved steady growth. In the past year BA-CA acquired Hebros Bank
in Bulgaria and Eksimbanka in Serbia, thus bringing the number of branches of
its network in the region to a total of over 1,000. The number of customers rose
to 4.6 million. The combined net income before taxes generated by the banking
subsidiaries in CEE increased from EUR 321 million (2003) to EUR 486 million (2004).
In the first quarter of 2005, the CEE banking subsidiaries of BA-CA improved their
net income before taxes by 50.7 per cent compared with the same period of the
previous year. This strong performance was an important factor driving the
price of BA-CA shares. Since trading in BA-CA shares started on 9 July 2003, the
share price has risen by about 155 per cent. "This makes the BA-CA share the most
successful European bank share in this period," says Regina Prehofer. In line
with the strong performance of BA-CA shares, Bank Austria Creditanstalt's market
capitalisation has doubled over the past five years, from EUR 5.76 billion in
March 2000 to almost EUR 11 billion in April 2005. This means that BA-CA is ahead
of Erste Bank (about EUR 9 billion) and Raiffeisen (about EUR 6 billion). "BA-CA
is a success story which we will continue. We will further expand our network
in the region," says BA-CA Managing Board member Regina Prehofer. In 2005, the
focus of business development is on Serbia and Bulgaria, where Eksimbanka and
Hebros Bank, the two banks acquired in the past year, are being integrated into
BA-CA's local banking subsidiaries. The branch network in Poland and Hungary
will be further expanded by opening new offices (Poland: +56, Hungary: +20). In
Romania, BA-CA signed a pre-agreement to merge its local subsidiary HVB Bank Romania
with Banca Tiriac. “This will make our market position jump to 7.5 per cent and
bring us close to our target of 10 per cent,” says Regina Prehofer. With combined
total assets of about EUR 2.1 billion and 72 branches, the merged bank will be
the number 4 on the Romanian banking market. Bank Austria Creditanstalt is
Austria's largest bank. Its network in Central and Eastern Europe comprises more
than 1,000 offices in eleven countries. Together with HVB Group, the network covers
16 countries. The BA-CA / HVB Group operates the leading international banking
network in the region Source InvestRomania
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