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SOFIA (Bulgaria), December 1 (SeeNews) - Fitch Ratings said on Thursday it expects profitability challenges caused by regulatory and government actions to lead to further consolidation in the banking sector in the region of central and eastern Europe (CEE), particularly in Bulgaria, Romania and Slovenia.
"These pressures mean that further consolidation is likely, particularly in fragmented markets, such as Bulgaria, Poland, Romania and Slovenia. In Bulgaria and Slovenia, M&A activity is likely to also involve smaller banks, but could be hampered by the challenging operating environment," the global ratings agency said in a press release.
Regulatory and government actions will continue to add to profitability pressures stemming from low interest rates and sluggish economic growth. These will likely weaken returns in better-performing markets such as Bulgaria, the Czech Republic, Poland and Slovakia, and limit the improvement for weaker ones such as Hungary, Romania and Slovenia, Fitch said.
"In Romania, two new consumer-friendly laws on mortgages, including a forced conversion of Swiss franc loans, passed against the central bank's recommendations and are under scrutiny by the Constitutional Court. In Bulgaria, in turn, a sector-wide asset-quality review uncovered sizeable adjustments for only two banks, both of which are domestically owned, while foreign-owned banks performed well," Fitch pointed out.
Fitch also said that "the stable sector outlook for banks in central and eastern Europe (CEE) reflects moderately improved credit fundamentals, but the operating environment remains difficult."
Foreign shareholders remain largely committed to the region and would provide support to their subsidiaries if needed, but some may decide to exit some countries to relieve pressure on capital at the parent bank level, Fitch added.