CEE banking subsidiaries: growth with profitability and efficiency

2006 was an excellent year for the banking subsidiaries in CEE, both the companies reflected in BA-CA’s consolidated financial statements for the year and in the new perimeter. This development was in line with the upward trend of previous years.

Details of developments in BA-CA’s CEE Division are included in the segment reporting section of the management report. Any assessment of the bank’s performance in 2006 is to be based on this definition of the CEE business segment. The definition is, however, distorted by the sale of CEE banks in 2006 and – given the additions to the group of consolidated companies which have taken place in the meantime – it is also of limited significance for the future development of the bank.

A pro-forma presentation of the CEE business segment in the new structure shows that our banks in the EU member states – despite the inclusion of the large subsidiaries in Bulgaria and Romania in this group of countries – account for 46% of average risk-weighted assets, less than half of the total figure for CEE. A major factor is our market leadership position in Croatia, which includes the Bosnian banking subsidiary of Zagrebačka banka. Turkey and Russia, given the size of the countries and of our well-established banking subsidiaries there, together account for almost one-third of total RWA of the new group of consolidated companies.

Although it is often difficult to classify countries into groups, and subject to numerous one-off effects resulting from the current mergers, the income statement figures confirm the picture of a growth market developing at different speeds: while the combined profit before tax generated by banks in the EU member states increased by 14%, it grew by 30% in South-East Europe and by 52% in Russia and Turkey (with growth driven especially by operations in Russia). All CEE banking subsidiaries together achieved an increase of almost one-third in profit before tax. Despite the strong expansion, costs (cost/income ratio below 55%) and the provisioning charge (45 basis points of the risk-weighted assets of the banking book) remained under control.