Banking on growth: Where we invest in Eastern Europe

When it lay behind the Iron Curtain, young Australians loved Prague because you could buy world-class pilsner for 12 cents a glass. Today, Czech beer is as good as ever but a meal in the Old Town arrives with a Sydney-weight bill.

My night out near the Charles Bridge sums up Eastern Europe today. It’s still a thrill to visit but it’s changed dramatically. I’ve just returned from a research trip that spanned the Czech Republic, Poland, Hungary, Romania and Austria. I got an on-the-ground feel for the economies, checked on some companies we hold and spoke with management teams in some of the region’s most interesting banks.

Going where the growth is

One of the attractions of Europe east of the Danube is stronger growth. Western Europe will likely grow at 1.1% in 2026. Growth in “Emerging and developing Europe” should nearly double that.¹

Poland was a focus for the trip. I had eight meetings there, with both businesses and financial regulators. In the Platinum European Fund, we own Polish companies Zabka Group (convenience stores) and Biedronka (supermarkets).² Wages are surging and by owning food retail, we share in the profits as Polish shoppers switch their zlotys from small local markets to supermarket chains.

Why invest in Eastern Europe’s banks?

• Like retailers, banks enjoy a strong economy. Across the region, exports are growing and domestic consumption is strong. Low unemployment delivers wage growth and higher disposable incomes. Some Eastern European economies have relatively high debt-to-GDP levels but the economies are generally sound.
• Corporate governance. Many Eastern European banks are owned or part-owned by major players like Societe Generale and Italy’s UniCredit. As a result, risk management and disclosure standards are high. That underpins investor confidence.
• Room to grow. Australia, population 28 million, has 3.3 million mortgages.³ Romania, with a population of 18 million, has only 600,000. This under-penetration means there’s opportunity to write more mortgages and sell other services such as funds management. In Eastern Europe household debt is low (unlike in Australia) so credit risk is also low.

Which banks?

We hold Banca Transilvania in the Platinum European Fund. The market has been impressed with its successful acquisition strategy in Romania.⁴ Over the five years to end June 2026 the share price rose an average 21% a year. It’s up 47% over the past year alone.⁵

I had a close look at Erste Bank, a pan-regional bank with positions in Romania, Poland, the Czech Republic and Hungary. It’s a stock we’ve held before, so I knew the fundamentals of the business. I spoke to group management in Vienna as well as either the CEO or CFO of their subsidiaries in Romania, the Czech Republic and Hungary.

Erste recently posted excellent profit numbers and they’ve just acquired half of Santander’s Polish business. The deal is a little complex due to local banking regulations but it gives them an even larger exposure to Eastern Europe’s strongest economy.

Measurement by walking around

On a research trip I try and use any spare time to go into shops and businesses to see how consumers are feeling.

Across the region, people have money in their pockets, they’re taking short breaks, buying upscale consumer goods. Poland and the Czech Republic are two of the fastest growing countries in Europe so living standards are improving. Romania, my birthplace, is going through some political uncertainty and government debt is too high. But both bank and consumer balance sheets are in good shape.

The recent Hungarian election has boosted confidence there and means EU development funds will likely flow again. The government is promising pro-market reforms and wants to join the Euro. So those reforms are likely to be implemented.

When I think about geopolitical risks, Ukraine casts a shadow but government investment in defence is also acting as a boost to Eastern Europe’s economies. If a peace treaty is signed, reconstruction will be good for building and manufacturing firms who can help put Ukraine’s economy back on its feet.

The investment case

When I put all these factors together – catch-up development, strong economic fundamentals and solid corporate governance – I feel comfortable holding 10–15% of the portfolio in Eastern Europe. Banks and retail look the right way to play these themes over the medium term.