The well-established strong growth of the banking markets in Central and Eastern Europe (CEE) accelerated during the last year, according to the most recent issue of the annual CEE Banking Sector Report.

Analysts at Raiffeisen Zentralbank Osterreich AG (RZB) and Raiffeisen Centrobank AG (RCB) prepared the report, which was published on the occasion of the annual meetings of the International Monetary Fund (IMF) and the World Bank in Singapore.

After growing by 15 per cent in 2004 to 645 billion euro, the industry’s aggregate balance-sheet total increased by more than 31 per cent to 846 billion euro in 2005. The increase represents the strongest annual advance since the full set of data has been available.

Apart from Central Europe (CE) and South Eastern Europe (SEE), the survey covers the Commonwealth of Independent States (CIS) - for the purposes of the study comprising Belarus, Russia and Ukraine - which has substantially contributed to that growth.

Ukraine grew by 91 per cent, Belarus by 63 per cent, and Russia, the region’s largest banking market, increased by 51 per cent, showing the highest growth rates in euro terms. Romania grew by 54 per cent. With a still-respectable 15 per cent, Hungary had the smallest growth rate.

The growth in the banking assets in Bulgaria was weaker, resulting from the tighter credit restrictions imposed by the Bulgarian National Bank. Nevertheless, the assets of the banking system in the country grew by 31.8 per cent from last year in absolute terms.

After a 50 per cent growth in credit in the previous three years, in 2005 extended loans increased by 32.9 per cent, which was close to BNB’s desired level. Meanwhile, household credits registered a 63 per cent growth and mortgage loans doubled their volume in 2005.

In 2010, the Austrian analysts predict that the average annual growth in the Bulgarian banking assets will slow to 15.3 per cent, or 34.2 billion euro, compared to the 2005 level of 31.8 per cent. In 2014 there will be an additional drop to 13.3 per cent, when the assets are expected to reach 56.3 billion euro, according to the report.

For the first time, RZB’s CEE Banking Sector Report includes a long-term prognosis on the development of the banking market. A key result of that model is the expectation that it should more than double by 2009 from today’s 846 billion euro to more than 1700 billion euro.

By 2014, the analysts expect a total CEE market volume of more than 3700 billion euro, corresponding to an average annual growth rate of about 18 per cent. The forecast model is based on the relation between GDP per capita and the level of deposits expected to be held by financiers and other firms.

Another result of the forecast model is the prognosis that the banking markets in the CIS will develop significantly faster than those in the new EU member states. Until 2010, average annual growth of 25 per cent is expected for the CIS, as against 16 per cent annually for SEE and 15 per cent for CE. Therefore, the analysts expect total assets in the CIS to exceed those in CE at some time during 2008.

Due to continued high growth rates, the CEE region remains attractive for banks. While economic growth is unbroken and high – projected at 6.1 per cent in CEE for 2006, against 2.5 per in the eurozone – the banking industry’s growth potential is expected to be greater. In the past three years, banks have been growing on average three times as much as the whole economy, and this trend is expected to hold.