Published: March 02, 2013
Like other parts of Europe, Central & Eastern Europe (CEE) has suffered volatility and an economic downturn during the global financial crisis and subsequent Eurozone crisis. CEE is proving resilient and flexible in its ability to diversify its reliance on the Eurozone, and create a favourable environment for growth. Consequently, the prospects for CEE are very positive, and forward-looking corporations will be considering how best to leverage the opportunities that the region presents. ING is actively engaged and committed to promoting efficient and effective banking solutions in CEE, and facilitating the region’s growth potential.
Many CEE countries depend heavily on Western Europe for exports, and in most cases, CEE economies were similarly affected by the global financial crisis and Eurozone crisis. Hungary, Bulgaria, Romania, Czech Republic and Poland have seen the most significant impact. However, the downturn has been relatively brief. Governments in the region have been diversifying their trading partners, creating more favourable investment conditions, and implementing economic stimulus measures to fuel growth. Currencies are also performing well. These factors are contributing to CEE becoming more resilient to the ongoing Eurozone crisis than countries at the eye of the storm, creating new opportunities. Consequently, we are now seeing that many parts of CEE, particularly countries such as Poland and Turkey, are now in a favourable position economically. Turkey, for example, witnessed growth averaging 6% between 2001 and 2008 and quickly rebounded following the global financial crisis. It has taken time for the markets to be convinced of Turkey’s financial stability and resilience, but its credit rating upgrade to investment grade in November 2012 is helping to provide reassurance.
Prompted by the ongoing Eurozone crisis, many companies are looking to diversify their risk, revenue streams and cost base, and CEE offers considerable opportunities. According to a recent ING survey, 70% of customers expect to see growth in CEE and are therefore expanding their activities in the region. This view is supported by recent and projected GDP growth rates shown in figure 1.
Please click the above image to enlarge
Despite the attractive growth prospects that exist in CEE, there has been some uncertainty about the ability of western banks to support the needs of both CEE companies and foreign companies doing business in CEE. Some banks reduced their operations or pulled out altogether from countries such as Hungary during the crisis. In contrast, ING was one of the first foreign banks to arrive in CEE in the early 1990s and has remained a constant presence in the region ever since. Even during times of crisis and uncertainty, when other international banks pulled out, ING has continued to invest in CEE and continues to service its client base and strengthen our capabilities in the region.[[[PAGE]]]
There are still some perceived difficulties in operating in CEE, such as lack of transparency in tender participation in some industries, but regulatory change and a gradually evolving culture focused on growth is helping to address this. At ING, we are actively helping companies to increase their competitiveness in CEE by sharing our depth of local expertise on evolving regulation, business culture and cash management practices such as local clearing requirements and SEPA migration in CEE. In some cases, for example, companies are seeking to offshore transactions to minimise transaction taxes, such as in Hungary.
Another consideration for corporate treasurers is how best to ensure the security of cash, and reduce the impact of currency volatility. In the past, they may have chosen to centralise cash in western European countries such as the Netherlands or Germany, but many now wonder whether these jurisdictions are any more secure than those in CEE, so they are restructuring their liquidity models accordingly. This is another area in which ING can offer particular value through Bank Mendes Gans (BMG is a subsidiary of ING) who provides market-leading overlay cross-border, cross-currency cash pooling solutions. These solutions make it easier to monitor and manage liquidity and counterparty risk, and avoid risk fragmentation.
In addition to cross-border solutions, our customers need access to comprehensive payment, collection and cash management solutions in each CEE country. As the financial infrastructure evolves and matures, we are seeing a greater commitment to standardisation and efficiency, such as the introduction of real-time gross settlement systems (e.g., VIBER RTGS in Hungary and BESP RTGS in Russia, launched in 2007). These developments provide greater payment and collection efficiency and control, and assist in managing liquidity and flows more effectively.
Cash remains an important payment and collection method in many parts of CEE, necessitating innovative solutions to ensure efficiency, control and security. For example, ING solutions such as secure cash collections and rapid value dating for Grupa Žywiec have received international acclaim, with Grupa Žywiec being awarded the 2012 TMI Corporate Recognition Award for Collections. Companies such as SITA and Orange Romania have also recently described their experiences of working with ING in CEE. Yann Guengant, Director of Treasury, SITA, who appointed ING as the company’s regional banking partner explains,
“SITA also recognised ING’s track record in CEE and capabilities as a truly pan-European bank. The bank has a strong commitment to CEE, with considerable expertise and on-the-ground presence. Finally, ING was able to offer excellent local payments and cash management capabilities, together with an overlay liquidity management solution that was tailored specifically to requirements in the region” (TMI 208, September 2012)
One issue that companies located in Western Europe have when operating in CEE is the need to manage multiple currencies, but also different formats for payments and collections. Slovenia, Estonia and Slovakia are the only countries in CEE to use euro as their domestic currency at present, but other countries are also seeking to implement SEPA payment formats, with euro commonly used as a trade currency, and to ensure cohesion and efficiency across the Eurozone. As a leading SEPA bank, our advice and experience in SEPA implementation is proving particularly valuable to institutions and market infrastructure providers alike. Furthermore, we provide support in ensuring compliance with local formats without fragmentation of payment and collection processes.
2013 will undoubtedly bring both opportunities and challenges in CEE as in any other region. While the Eurozone crisis will continue to have a negative impact on CEE, the region is benefiting from a newly emerging world picture, with growth rates in regions such as North America, in addition to Asia and Latin America, widely expected to exceed those in Europe. The return to growth in the United States is of particular significance, as the largest economy in the world. Market growth and growing employment will fuel growth in other parts of the world, including CEE, with US corporations seeking European production and sales locations, and new export opportunities for CEE companies.
We also expect to see trade links between CEE and Asia strengthening. For example, with three deep-sea ports, Turkey is becoming a logistics centre, as well as an import/export destination. This is very positive for the region and will encourage imports and exports, particularly with improved railway connections to both CEE and Western Europe.
The banking landscape in CEE remains diverse and in some cases fragmented. In the past, many companies have chosen to work with local banks for domestic cash management, and an international banking partner for cross-border activities. Increasing concerns over counterparty risk since the global financial crisis, ongoing consolidation in the banking sector and a growing depth of domestic products and services by banks such as ING that are strongly committed to CEE are prompting a change in corporate behaviour. Today, companies headquartered in CEE and foreign corporations alike are seeking a cohesive approach to domestic and pan-European payments, collections and cash management, working with ING as a strong partner bank.
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