Banks in Central Eastern Europe Remain Resilient and Profitable

Despite recent challenges, including geopolitical tensions and macroeconomic changes, banks have demonstrated remarkable resilience, as shown by a study on banking mergers and acquisitions in Central Eastern Europe published by Deloitte. The analysis for 2024 revealed strong profitability resulting from high interest rates, fragmentation of the banking market in Central Eastern Europe, and stable capital positions of banks acquiring others, all of which continue to create favorable conditions for further market consolidation.

In the banking market in Central Eastern Europe, a decline in the number of mergers and acquisitions transactions was recorded in 2024. High interest rates and strong sector profitability have reduced pressure on smaller and less successful players to sell, while decreased market liquidity has significantly hampered access to favorable financing, making acquisitions harder to finance and achieve attractive prices. Despite these obstacles, market consolidation in the region is expected to continue, as the pursuit of economies of scale and further strengthening of market positions remain key strategic objectives for players in the banking sector.

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Lena Habuš, Deloitte

—- Although the number of banking mergers and acquisitions transactions in the region was somewhat lower in 2024 compared to 2023, it was still a dynamic year for us. Based on the transactions Deloitte worked on in the CEE region, we gained valuable insights into the motives of sellers and buyers, and based on these, we expect regional bank consolidation to continue in the upcoming period – says Lena Habuš, partner in Deloitte’s strategic consulting and transactions department.

The macroeconomic situation in Central Eastern Europe improved slightly in 2024 compared to 2023, but future growth will still depend on challenges both within and outside the region. Ongoing conflicts, trade disputes, and vulnerabilities in the supply chain still exist, and the fragility of the energy market contributes to economic uncertainty. Furthermore, tariffs that the U.S. will impose could jeopardize global trade, weaken exports, and create barriers for Western and Eastern Europe.

The banking sector achieved record profitability in 2023-2024 thanks to high interest rates and high-quality portfolios. At the same time, the ratio of non-performing loans further decreased, while banks across the region maintained solid capital positions.

Historically, most mergers and acquisitions transactions occurred during periods of significant changes in the sector, when less resilient banks experienced capital depletion, forcing them into transactions. Consequently, the exceptional profitability of the banking sector in 2024 led to a reduced number of mergers and acquisitions transactions. Furthermore, liquidity sterilization measures taken by central banks to curb inflation significantly reduced market liquidity and forced banks to access financing at lower costs for acquiring banks at attractive prices. However, given that the regional banking sector remains fragmented, consolidation is expected to continue as institutions seek to increase scale efficiency and strengthen market positions.

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Damir Vukotić, Deloitte

—- M&A activity in the banking sector across Central Eastern Europe has slowed due to macroeconomic uncertainty, regulatory pressures, and geopolitical risks, including likely a limited number of quality targets, resulting in a cautious approach from investors. Additional challenges, such as differences in valuation estimates, higher financing costs, and changes in strategic priorities of leading banking groups, have further slowed the number of transactions. However, opportunities for consolidation still exist, especially for well-capitalized banks looking to increase or optimize their portfolios. As economic conditions stabilize, monetary easing continues, and regulatory clarity improves, it is realistic to expect an increase in the number of certain transactions, driven by digital transformation, efficiency improvements, or the need for market consolidation – emphasized Damir Vukotić, chief partner for regulatory and risk consulting.