Italian banking giant UniCredit carries out some of the best and most in-depth research into CEE markets in the business.

And it's not surprising - 22% of the bank's €13 billion of revenue now comes from CEE markets.

So it's always worth listening to the bank's analyst briefings, one of which they gave in London the other day.

The main thrust of its report was that while its investment bank wing was being hurt by the US subprime fallout the rising shining star was still central and Eastern Europe where the Italian bank plans to open 502 new branches this year.

Chief Executive Officer Alessandro Profumo said growth had been ``healthy growth'' at its central and eastern European businesses.

Loan growth would probably rise 28% this year, he said and the region offered 'exceptional opportunities.'

Interesting in itself, but even more so are some of the numbers from the bank's recent report into the financial wealth of CEE households 2007 - 2009.

This provides a great insight into the real investment potential of this region unobscured by the credit crunch fallout that seems to overshadow everything right now.

And, to be clear, when it refers to CEE countries, it's talking about Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia and Turkey.

Financial wealth of CEE households topped €718 billion in 2007 'thanks to strong economic growth and improved labour market conditions and given limited impact so far from the US sub-prime crisis.

'In the years to come, good economic prospects will continue to support the accumulation of financial wealth, although with some lowering in its dynamic.

'The growth of financial wealth will continue to greatly exceed that of the real economy averaging 14% a year in 2008-2009 to reach 64% of GDP by 2009.'

What is significant here is not so much the amount or the pace, but both of these relative to Western Europe. The gap is still big and the pace of growth very rapid indeed.

At the end of 2006 CEE household financial wealth reached almost €600 billionn (up by 15 % year on year), and posting double-digit growth for the third year in a row.

Although CEE wealth and euro area wealth are converging very quickly, there is still a significant gap.

In 2006, household financial wealth over GDP equalled 56 % in CEE, versus 205 % in the euro area (in CEE, the same ratio was 54 % in 2005 and 43 % in 2000).

This then is a measure of huge potential and also very fast growth of CEE spending (and investing) power.

And what of the credit crunch? We've heard a lot about how CEE banks are relatively immune as they lend based on deposits, but the fact is that in a modern banking system no bank can isolate itself in this way - especially when so much debt in CEE is foreign denominated, making it vulnerable to external interest rates and currency volatility.

Here's what UniCredit says on the matter: 'The recent "credit crunch" has raised fears that house- hold debt might be overstretched in some countries and that the future growth of household wealth may be unsustainable.

'While financial markets are typically subject to cyclical swings and excesses, we believe there is a good basis for continued sustainable growth in the medium term.'

Here's a summary:

• Strong economic growth and quickly developing financial markets are driving the accumulation of financial wealth
• High levels of consumption and high demand for new houses and renovation continue to spur the growth of the level of household debt at a higher level than that of financial assets, resulting in the stabilisation of net financial wealth relative to GDP
• Households are however continuing to save, increasingly shifting towards the real estate market

'Household debt still appears to be relatively low compared to GDP, reaching 18 % in 2006 compared to 55 % observed in the euro area, although these levels are converging at a fast pace.

The credit boom was connected to the household sector's desire to acquire durable goods and housing and to the improved access to the credit market. Quickly developing real estate markets also contributed to an increase in the household sector's willingness to borrow.'

And here are the summaries of some key CEE countries' prospects:

Bulgaria

Despite a rapid surge in debt in H1 2007, the household sector reconfirmed its position as a net saver.

Deceleration in the pace of household debt accumulation will keep net wealth as a share of GDP on an upward trend in the next few years to reach 30 % of GDP in 2009.

The continued rapid development in mortgage financing and the high propensity to invest in real estate assets will continue to support a further increase in corrected net wealth, expected to reach 44 % of GDP in 2009 from 37 % in 2007.


Czech Republic

The financial assets of Czech households grew by over 13% yoy in the first six months of 2007. The trends within the sector changed a bit, with investment now more evenly distributed in relative terms between bank deposits and other forms of savings.

Household liabilities drastically increased by about 30% yoy in the first six months of 2007. The lion's share of growth was again due to mortgages.

Overall, we still anticipate double-digit growth rates in both mortgages and consumer loans in the next few years, despite some slight easing in the overall pace of expansion in total liabilities compared to the recent past.

Driven by rapidly expanding financial liabilities, the net wealth to GDP ratio of Czech households is expected to decrease further accompanied by a stable trend in the corrected net wealth to GDP ratio due to the high demand for housing investment.

Poland

Remarkable acceleration in the accumulation of wealth in 2006 and 2007 was driven by rebounding economic activity and a rapid increase in household income.

Despite vigorous growth in household debt stimulated by relatively low interest rates, net financial wealth as a share of GDP increased significantly, reaching 44 % in 2006, and will exceed 47 % in 2007.

Although the rate of growth is decelerating overall, the fast convergence of income levels is expected to keep the accumulation of net financial wealth
on an upward trend, reaching 49 % of GDP in 2009.

The recent vitality in household wealth has been positively influenced by a rapid increase in asset prices. So far, prices have been only marginally impacted by the recent turbulence on the international markets.

Downward adjustments in equity prices next year and a high level of consumption
are expected to limit financial asset growth to around 15 % in the forthcoming period.

Sustained growth is expected to continue in household debt, mainly driven by the continuing strong demand for housing investments.

Improving financial conditions for low-income households will provide further stimulus, especially in the personal loan segment.

Romania

The accumulation of household financial wealth further accelerated in 2007, reaching 26 % of GDP, driven by a strong upsurge in household bank deposits.

This increase has been stimulated by improving real returns and the very dynamic performance of the stock market.

The stock market has been only marginally impacted by the recent turmoil on the international markets.

Despite the sustained accumulation of financial wealth, the high demand for both consumer and mortgage loans will cause a further decrease in net wealth over GDP from 11 % in 2006 to 10 % in 2007, while corrected
net wealth is expected to stabilize around 13 % of GDP.

Overall, these developments confirm that Romanian households are generally reluctant to save, despite some slight improvements anticipated in the years to come.

Slovakia

In the first half of 2007, the accumulation of financial assets remained on a stable upward trend driven by strong economic performance and increasing real wages.

Fast increase of household debt driven by falling interest rates that increased the household sector's access to the credit market and its demand for loans for both consumer goods and real estate investments.

In the forthcoming period, the ratio of net wealth to GDP is expected to remain fairly stable around 36 %, given the willingness of households to maintain a high consumption level and to direct their savings towards the real estate market.

Low interest rates will probably gradually slow down the growth of bank deposits. On the liabilities side, mortgages and consumer loans will remain the main driving forces.