CEE Banking M&A Study 2023

About the study

In 2023, there was a decrease in transaction activity within the banking sector. The prevalence of high-yield conditions established a temporary pricing gap that weakened sellers' incentives. Additionally, the wider net interest margins resulting from the high-interest environment might not compel sellers to divest. Nonetheless, additional consolidation is expected in fragmented markets where leading banking groups lack a strategic market share. 

The 6th edition of Deloitte's CEE Banking M&A Study provides an extensive analysis of the present condition of the banking industry in the region. It sheds light on the foremost challenges and opportunities confronting the sector, influencing deal-making. The study covers macroeconomic factors, banking market dynamics, transactional trends, and offers an overview of developments within the fintech sector.

We hope that this study will be highly valuable to banks, financial institutions, investors, and other stakeholders with an interest in the CEE banking sector.

Key findings:

• Over the past few years, the growth of the CEE banking market was impeded by geopolitical tensions and adverse macroeconomic conditions. Nevertheless, the region continued to demonstrate resilience to these difficulties.
  
• Despite the challenging economic environment affecting loan demand and asset growth, capital adequacy remained strong, and non-performing loan (NPL) ratios decreased in the region.
  
• In 2023, the profitability of the banking sector reached a record level in CEE given the high-interest rates environment paired with a benign risk environment. However, as inflation rates decrease and there are expectations of policy rate reductions across the region, coupled with potentially higher risk costs due to increased interest rates, profitability rates are anticipated to decrease in 2024. 
  
• Transaction activity in the banking market declined throughout 2023. The pricing gap caused by the high-yield environment and stellar profitability together could potentially dampen sellers’ motivation. However, the need for consolidation in CEE banking markets is still present, particularly as smaller banks with weaker capital positions might find themselves compelled to divest their operations should asset quality decline given the increased interest rates. Outstanding profitability boosting the capital base will enable potential buyers to realize these transactions.
  
• The most active banking M&A markets of the CEE region in terms of number of transactions between January 2022 and December 2023 were Hungary (7 transactions), Serbia (4 transactions), Baltics (3 transactions), Czech Republic (3 transactions), and Romania (3 transactions).
  

Deloitte Financial Advisory participated in numerous transactions during the consolidation wave of recent years, we’ve been supporting our clients either on the seller or on the buyer side in the majority of the deals signed in 2023. Based on the current market dynamics of banking markets and the gradually decreasing interest rate environment, we anticipate that the consolidation will continue further in the coming years.

—  said Albert Márton, Partner,
Deloitte Financial Advisory.

Historically, banking M&A activity has increased during periods of turbulence in profitability and capital adequacy. Currently, banks are benefiting from the positive effects of the high-interest environment leading to wider net interest margins without an increase in risk costs. However, once this situation changes, it could become a significant driver for transaction activity.

— said Csaba Csomor,
Director, Deloitte Financial Advisory.

The full study is available by clicking here.