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Deloitte Adria Top 15: UniCredit and Triglav Leading Groups

Deloitte Adria FSI Top 15

Home Press release Top 15 - Banks Top 15 - Insurances

Adria FSI Top 15 - Press conference

In the current year, UniCredit, with total assets of 20.8 billion euros, remained the leading banking group of the Adria region 1, followed by the Intesa Sanpaolo and NLB groups which swapped the places they held in the previous year. The region's insurance industry leader is the Triglav Group, with a total realized premium of 921 million euros. The Croatia Group occupies the second place, and Adriatic Slovenia climbed up to the third position.

Adria's largest banking groups are present on the majority markets in the region. “Because of the differing development levels of the economies in the region, the banks' regional presence ensures stability and provides the opportunity to achieve significant growth and profitability rise,” emphasizes Luka Babić, FAS Senior Consultant at Deloitte.

Juraj Moravek
Juraj Moravek, Deloitte Audit Partner: “The three largest banking groups account for around 36 percent of the region's total assets. The importance of the Top 15 banking groups on Deloitte's ranking list is additionally emphasized by the fact that their assets make up almost 80 percent of the total bank assets in all the countries of the region”

The 2011 ranking list is headed by UniCredit, with total assets of almost 20.8 billion euros. The remaining five banking leaders comprise Intesa Sanpaolo, which, thanks to its assets of 16 billion euros, overtook the third-ranked NLB Group (15.9 billion euros). They are followed by the Hypo Group (10.57 billion euros) and the RBA Group (10.53 billion euros). “The three largest banking groups account for around 36 percent of the region's total assets. The importance of the Top 15 banking groups on Deloitte's ranking list is additionally emphasized by the fact that their assets make up almost 80 percent of the total bank assets in all the countries of the region,” notes Juraj Moravek, Audit Partner in Deloitte.

Lack of economic recovery in the Adria Region gave rise to further increase in non-performing loans on banks' balance sheets in 2011. It is exactly the growing portfolio of non-performing loans that impelled banks to maintain their focus on activities aimed at recovering their loans. “Restructuring programs remain among the most popular measures to recover loans,” says Slaven Ćurić, FAS Manager at Deloitte. “The idea behind the majority of restructuring programs is to sell real estate. However, we may conclude from our experience that selling property while liquidity is low may not prove to be a reasonable basis for developing a restructuring program, but rather a way of meeting the existing debt repayment deadlines,” concludes Ćurić.

Last year, the region's banking system experienced a significant shift, as the largest Russian bank, Sberbank, acquired eight members of the Volksbank International group. The transaction, completed in September 2011, was worth 505 million euros. “Sberbank holds twenty-seven percent of the total Russian banking sector assets and a highly developed retail deposit base. It is also highly profitable and has low levels of non-performing loans,” says Ivan Fabijančić, FAS Director, and continues: “It will be interesting to witness how the change of the ownership structure will affect the operations and market approach of the Group members in the region.”

As in previous years, Zagrebačka banka, a member of the UniCredit Group, remained Croatia's largest bank, followed by Privredna banka Zagreb, a member of Intesa Sanpaolo, and Erste & Steiermärkische Bank. The Croatian banking market, with its total assets of over 54 billion euros, is the largest in the region by size. Large banks account for over 81 percent of the total bank assets in Croatia. “Generally, profitability, measured in terms of Return on Equity i.e. ROE, is lower at small banks. Thus, only two of the twenty-three small banks achieved a double-digit ROE. Also, nine of Croatia’s small banks operated at loss, which was not the case with any of the large and medium-sized banks. This is exactly the reason why the mergers of small banks as well as plans for further consolidation announced so far should not come as a surprise,” points out Moravek and continues: “No higher need to inject additional capital, in particular in systemic banks, was noted, which speaks of stability of the Croatian banking system.”

Ivan Fabijancic
Ivan Fabijančić, Director, Financial Advisory Services: “Due diligence assignments are currently under way to determine the actual need to increase the capital of the banks”

Slovenia, the only EU member in the region, tops the ranking list by the average per-capita assets. NLB is Slovenia's largest bank, with total assets of EUR 12.98 billion, followed by another two, locally owned banks – Nova kreditna banka Maribor and Abanka Vipa. “Increasing the capital of systemic banks is currently a burning issue in Slovenia, and the increasingly common question is whether they are threatened by the Spanish scenario,” says Fabijančić and continues: “ Due diligence assignments are currently under way to determine the actual need to increase the capital of the banks.”

The Serbian banking system, with its total assets two times less than the total assets in Croatia or Slovenia, occupies the third position in the region. However, the average per-capita assets place Serbia on the fifth position, with only Macedonia ranked worse. “Low penetration is not necessarily a bad thing because, at the end of the day, it speaks of a high potential of the Serbian banking market, making it thus extremely attractive,” emphasizes Moravek.

The banking market in Bosnia and Herzegovina is characterized by a low level of assets relative to the number of banks and a pronounced concentration of large banks. “Three leading banks make up twenty-two percent of the total assets, with the share rising to over fifty-four percent on the group level, which speaks of a relatively high concentration of the market leaders,” notes Fabijančić. Once again Raiffeisen remained the largest bank in Bosnia and Herzegovina, followed by the members of the UniCredit and the Hypo groups.

From the regulatory aspect, the adoption of Basel III, which should commence in January 2013, is of extreme importance for the banks in the region. Basel III should strengthen the resilience of the global banking system which would in turn provide higher security in case of economic shocks and prevent their negative impact on the economy in the future. “Considering the high capitalization level of the Croatian banking system, no shock is to be expected following the adoption of Basel III,” says Ivica Perica, BAS Senior Manager at Deloitte. “On the other hand, banks in the region are still lagging behind in terms of some of the Basel II requirements because of different regulatory maturity levels as well as different levels of compliance with the regulations,” concludes Perica. In addition to Basel III, IFRS 9 should additionally strengthen the resilience of the banking system. The International Financial Reporting Standard 9 should have entered into force in January 2013. However, due to prolonged expected completion dates of other project phases, the International Accounting Standards Board (“the IASB”) postponed the mandatory adoption of IFRS 9 to the periods starting on or after 1 January 2015. “The amendments reflect the decision of the Board to annul the mandatory retrospective application of the standard because of potential higher costs of restating the comparative periods presented in the financial statements. Instead, disclosures will be required in the financial statements that will make the impact of the transition from IAS 39 to IFRS 9 easier to understand for users of the financial statements,” explains Tatjana Sučić, Audit Senior Manager at Deloitte.

Luka Babic
Luka Babić, FAS Senior Consultant at Deloitte: “Because of the differing development levels of the economies in the region, the banks' regional presence ensures stability and provides the opportunity to achieve significant growth and profitability rise”

The insurance industry sees its largest players still focused on the region. This year again, the Slovenian Triglav Group topped Deloitte's ranking list, with a total premium written of almost 921 million euros, double the premium figure reported by the Croatian Croatia Group for 2011 which amounted to 427 million euros. The insurers – like banks – also saw a change on the top of the ranking list, with the Adriatic Slovenica Group (333 million euros) taking the third place from the Agram Group. With Croatia as the only exception, other countries in the region saw a reversal of the total gross premium drop prevailing in the prior periods and signs of a slow-paced recovery. “The reversal was caused mainly by growing life insurance premiums,” comments Babić.

One of the hot topics on the EU insurance market is the so-called unisex pricing resulting from the invalidation of Article 5(2) of the EU Gender Directive from 2004. Despite the implementation of the principle of equal treatment between men and women, the clause currently allows insurers to use gender as an actuarial factor. The article is invalid with the effect from December 21st, 2012. In practice, this decision means for the insurers in the Adria region, primarily Slovenia, as an EU member, and Croatia, to soon join the EU, the need to redefine prices, that is, implement the so-called unisex pricing.

Unlike the banking industry, the Slovenian insurance market is the most developed in the region, both by the share of gross premium in the GDP and the gross premium on a per capita basis, putting the country far ahead of the other countries in the region. The Croatian insurance market is the second largest measured by size, but also by maturity. “Last year, the Croatian insurance market again reported a premium decline, this time somewhat lower than in the earlier years. The 2011 decline was 1.1 percent, measured in the local currency, and slightly more pronounced in non-life insurance operations. There are a total of twenty-five insurance companies on the Croatian market, five of which hold slightly less than two-thirds of the market. This speaks of a highly segmented market despite the relatively large number of insurances,” stresses Fabijančić. As in previous years, Croatia osiguranje (375 million euros) remained the largest insurer in Croatia, followed by Allianz (136.85 million euros) and Euroherc (134.54 million euros).

The Serbian insurance market is marked by stiff competition between individual insurers. There are twenty-two insurers in total, which is much more than in Slovenia or Croatia in terms of the market premium. “The strongest competition was found on the motor third-party liability insurance, which, coupled with the fight for the premium, resulted in very low policy prices, which makes the companies strive to make this segment of operations more profitable,” notes Moravek. Serbia's largest insurer was again Dunav osiguranje, followed by Delta Generali and DDOR.

The largest insurers in Bosnia and Herzegovina are Sarajevo osiguranje, Bosna-Sunce and Euroherc. The Montenegrin insurance market is dominated by foreign insurers, with Lovćen, a member of the Triglav Group, Sava Montenegro, a member of the Sava RE Group, and a local member of the Generali group achieving best rankings. Macedonia's largest insurer is Vardar, a member of the Triglav Group, followed by Eurotabak and Sava Tabak, members of the Sava Re Group.

The EU Solvency II Directive poses the biggest challenge for the insurances in the region. The insurers will have to achieve full compliance with the Directive, but also seek ways to make use of the business opportunities that the new regulatory environment brings. “In the long run, being reasonable in defining goals and successful in applying the risk management system required by Solvency II will help prompt adopters achieve considerable competitive advantage,” comments Vanja Vlak, Audit Senior Manager at Deloitte. In addition to the challenges imposed by Solvency II, there are those from the new International Financial Accounting Standard for Insurance which should change the accounting framework for insurance companies considerably. “Still, we are going to wait for some time for this Standard to arrive because the Boards preparing the standard have still not reached consensus on some key issues,” concludes Vlak.

1 Comprising Croatia, Slovenia, Serbia, Bosnia and Herzegovina, Macedonia and Montenegro


Ana Kovačec Cofek
Deloitte Croatia
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