KBC Buys Raiffeisen Unit in Record $1.2 Billion Bulgarian Deal

(Bloomberg) -- KBC Group NV agreed to buy Raiffeisen Bank International AG’s Bulgarian operations in a 1.02 billion euros ($1.16 million) deal that will allow it to take on market leaders in the quickly growing, foreign-lender dominated market.

The biggest-ever banking transaction in Bulgaria will allow the Belgian lender to raise its market share in assets to 18% from 10% -- within touching distance of leaders UniCredit SpA and OTP Bank Nyrt. The deal includes Raiffeisen’s leasing arm, asset management and insurance brokerage businesses in the Balkan country on track to adopt the euro in a as little as 14 months. 

With prospects on KBC’s home turf likely to remain low for years to come, the Brussels-based lender views central and eastern Europe as its key growth market. The bank has already reached a “near market-leader position in the Czech Republic and this deal moves Bulgaria much closer,” according to Philip Richards, a senior banks analyst at Bloomberg Intelligence.

The deal “will give both pricing power and cost takeout potential” to KBC in Bulgaria, Richards said. KBC grew in the country through the purchases of a unit of the National Bank of Greece in 2017 for 610 million euros and NN Group NV’s life insurance and pension fund business earlier this year. 

KBC shares, trading ex-dividend, were 0.5% lower at 78.58 euros at 2:42 p.m. in Brussels, while Raiffeisen gained 0.7% to 28.08 euros.

After the completion of the deal, expected by mid-2022, KBC plans to merge the two banking units, it said. Raiffeisen’s unit ranked sixth by assets.

The deal will add as much as 90 basis points to Raiffeisen’s tier 1 capital ratio, allowing it to allocate additional capital to key markets and accelerate growth there, Raiffeisen said in a statement. The Austrian lender has been looking to expand its regional presence with acquisition options in the Czech Republic, Romania, Slovakia and Serbia.

The deal adds to consolidation on the Bulgarian market since its banking crisis in 2014, including OTP’s purchase of Societe Generale SA’s unit and Eurobank’s purchase of Piraeus’s subsidiary. Bulgaria has been looking to strengthen its financial industry before it’s due to switch to the euro in 2024, a move that will also make the European Central Bank its key regulator.

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