Banks in Central and Southeast Europe (CE/SEE) are set to roughly repeat 2025's record profit of €31.5bn this year despite the Iran war, Raiffeisen Research said in its annual CEE Banking Sector report published on October 20.
The sector's return on equity (RoE) held at 15-16% in 2025 and 1H26, against about 9% for the euro area banking system and 8-10% for Austria's domestic banks, the Vienna-based research arm of Raiffeisen Bank International (VIE: RBI) said. The gap of 7-8 percentage points is wider than the long-term average of about 6 points, and it expects mid-teens returns again in 2026 and 2027.
The region has now weathered the 2022-2023 energy and inflation crisis, the 2025 spike in trade tensions and the war in Ukraine while its banks' balance sheets remained resilient. Raiffeisen does not expect the latest shock, the US-Iran conflict, to cause a recession either, though it has brought back higher inflation and pushed central banks towards higher-for-longer rates, which supports bank margins.
"Despite hitting some cyclical highs in terms of credit expansion and profitability over the last two years, we expect the sector to stay on a firm footing, well-positioned to remain an attractive pocket of growth with an increasing heft and importance in the broader European context," the report said.
Eight of the 12 core markets have RoE of 14-15% or more, including Romania, despite its weak economy, and Hungary, despite heavy bank levies. Extra profit taxes in Hungary, Romania and Slovakia came to about €1bn in both 2024 and 2025 and will rise to €1.8bn this year, Raiffeisen estimates. Hungarian lender K&H Bank's 1H26 profit plunged 80% because of the windfall taxes.
Poland generates about 37% of the region's bank profits, followed by Czechia with 17%, Hungary with 12% and Romania with 10%. The regional profit pool is now comparable to Italy's €36.3bn, though it still trails Spain's, and could reach €37bn-€38bn by 2030, the report said. Romania could join Poland and Czechia among the three biggest markets by assets and earnings, with profits of more than €4bn a year by 2030.
Bad loans are close to historic lows. Non-performing loans average about 2.7% in SEE, against a peak of 20% in 2013, and about 1.8% in the CE-3 of Czechia, Hungary and Slovakia, against 8.4% in 2015. The euro area average is about 2%.
Raiffeisen expects loan growth to stay around double digits on average, with retail lending growing 10-12% a year in 2026 and 2027 and SEE markets in the lead, helped by EU funds, German fiscal stimulus and supply chains moving into the region. Hungary could enter a "Polish-style" convergence phase from 2027; its housing-loan penetration is at least 5-10 percentage points of GDP below its peers'.
Poland and Romania have become the main battlegrounds for consolidation. Erste Group has become the largest bank in CE after buying Santander Bank Polska, now Erste Bank Polska, while RBI will be the third-largest in SEE once its purchases of Garanti BBVA Romania and Addiko Bank close. Austrian banks hold 29% of foreign bank exposure in CE and 33% in SEE. UniCredit could re-enter Poland through its Commerzbank deal, which would bring in mBank's roughly €71bn of assets, and Hungary's OTP is pushing into the euro area with its takeover of Baltic lender Luminor.
Western banks are also looking further east. Their exposure has risen since 2022 to $340bn in Turkey and about $37bn in Central Asia and the Caucasus, and Raiffeisen argues trade and investment flows could justify raising it to 20-30% of GDP in Turkey and 10-20% in Central Asia and the Caucasus, with Kazakhstan and Uzbekistan best placed. Austrian banks remain niche players there and "might also need to step up effort to follow their clients", the report said.