Digital Banking And Green Finance Will Redefine Eastern Markets

Key Takeaways

• Accelerated Russian market exit and robust non-Russian loan performance could unlock capital and drive stronger margins and returns.
  
• Strategic expansion in Central and Eastern Europe, digital transformation, and diversification into green finance support long-term, resilient growth beyond traditional lending.
  
• Persistent exposure to high-risk regions, rising costs, regulatory pressures, slow digital transformation, and macroeconomic uncertainty threaten profitability, efficiency, and market share.

Catalysts

Offers banking services to corporate, private, and institutional customers.

• Analyst consensus highlights geopolitically-driven asset sales in Russia as uncertain, but recent developments-including the removal of share transfer bans post-damages and management's continued progress on derisking-indicate an accelerated timeline for exit, which could unlock capital and boost return on equity much sooner than expected.
  
• While consensus expects rising operational risk costs to pressure margins, ongoing improvements in the core non-Russian loan book (evidenced by an NPE ratio below 2% and benign default trends) as well as significant overlay buffers suggest provisions could surprise positively, supporting higher net margins and earnings.
  
• Raiffeisen's deep presence in fast-growing Central and Eastern European markets, combined with structural economic convergence between East and West Europe, sets up the bank for sustained retail and SME loan growth, driving a long-term revenue uplift above Western European peers.
  
• The bank's extensive digital transformation and cost discipline-including persistent efforts to optimize branch networks and leverage rising mobile banking adoption-should drive a structural reduction in cost-to-income ratio, resulting in sustainable margin expansion.
  
• Early moves into fee-generating services and sustainable/green finance, alongside further sector consolidation, will diversify earnings streams beyond traditional lending and position Raiffeisen for long-term, resilient earnings growth driven by non-interest income.

Raiffeisen Bank International Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Raiffeisen Bank International compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Raiffeisen Bank International's revenue will decrease by 3.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 20.7% today to 25.7% in 3 years time.
• The bullish analysts expect earnings to reach €2.0 billion (and earnings per share of €6.62) by about July 2028, up from €1.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 6.5x on those 2028 earnings, up from 4.5x today. This future PE is lower than the current PE for the GB Banks industry at 9.9x.
• Analysts expect the number of shares outstanding to decline by 0.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.68%, as per the Simply Wall St company report.

Raiffeisen Bank International Future Earnings Per Share Growth

Risks

• Persistent exposure and operational entanglement in Russia and other high-risk regions, coupled with the unresolved Rasperia litigation and loss of €1.9 billion, could lead to further asset write-downs and depress group earnings and equity.
  
• The bank is experiencing rising operational costs and an elevated cost-to-income ratio, partly due to complex multi-jurisdictional compliance and legacy IT, which threaten net margins and efficiency improvements over the long term.
  
• RBI faces increasing pressure from both regulatory (e.g., CRR3, Basel IV) and ESG requirements that raise capital and operational costs, limiting its ability to expand lending and putting downward pressure on return on equity and overall profitability.
  
• The slow pace of digital transformation and intensified competition from local and fintech players in core markets undermines RBI's ability to defend market share and puts its main sources of fee and net interest income at risk.
  
• Ongoing macroeconomic and geopolitical uncertainty in Central and Eastern Europe-including the risk of further rate cuts, muted loan growth, and potential for economic contraction in key markets such as Austria-raises the likelihood of lower revenues and potentially higher credit risk costs, impacting overall earnings growth.

Valuation

• The assumed bullish price target for Raiffeisen Bank International is €30.5, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Raiffeisen Bank International's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €30.5, and the most bearish reporting a price target of just €20.6.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €7.8 billion, earnings will come to €2.0 billion, and it would be trading on a PE ratio of 6.5x, assuming you use a discount rate of 9.7%.
• Given the current share price of €24.56, the bullish analyst price target of €30.5 is 19.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.