Jan Cienski in Prague -

The banking sectors in Slovakia and the Czech Republic have some of the highest levels of foreign ownership in the EU and for the last few years the market has been ruled by the early entrants who saw the two countries' potential back in the 1990s. However, the big fat profits those banks are making are attracting the attention of new entrants.

One likely aggressive entrant at the bottom end of the market is Poland's mBank, an internet bank which plans to be in both countries by the end of this year. MBank is a subsidiary of BRE, in turn owned by Germany's Commerzbank, which in turn is the fifth largest bank in the Czech Republic.

Mbank plans to operate on the EU's single passport, meaning it will remain under the jurisdiction of Polish regulators. The plan is to bring in lower interest mortgage and consumer loans as well as savings and investment accounts. As in Poland, where the bank only has 15 customer centres for the whole country, the emphasis will be on keeping as many transactions electronic as possible in order to reduce costs.

"Our advantage will be our strong price competition," says Piotr Gawron, the bank's president. "I think we will provoke some serious price competition."

Mbank's model did well in Poland, where it was launched in 2000 and now has more than 1.3m customers. But existing Czech banks profess to be unworried, pointing out that eBanka, a mainly internet-based bank founded in 1997, only made profits for two of its 10 years of independent existence before being bought last year by Austria's Raiffeisen in a €130m deal.

At the higher end of the market, HSBC is also hoping to serve multi-national companies who are already its clients in other countries, says Guy Hamilton, who has spent the last year in Prague preparing the international banking group to enter central Europe.

The banks that already dominate both countries are preparing their defences.

Defending their turf

Slovenska Sporitelna, owned by Austria's Erste Bank, the third-largest bank in Austria, is beefing up its internet presence. The number of online customers grew by 100,000 in the first half of this year and now electronic transactions make up almost three-quarters of all banking transactions. The bank, Slovakia's largest, also expanded its ATM network by a fifth over the last year.

Other banks like Tatra, a unit of Austria's Raiffeisen, and VUB, a subsidiary of Italy's Intesa Sanpaolo, are ramping up their mortgage loan and personal finance arms.

Slovakia in particular will be a difficult market for the new entrants to crack. A small country, with only about 5m people, it has possibly the highest concentration of foreign bank ownership in Europe, with about 98% of bank assets in non-Slovak hands.

Foreign investors lured by an economy growing at 9.4% are being aggressively courted by the Austrian banks which dominate the local market, while retail customers have already grown used to the big four banks.

The situation is similar in the Czech Republic, where about 95% of the market is in foreign hands. The largest four banks - Ceska Sporitelna (owned by Erste Bank), Komercni Banka (owned by France's Societe Generale), CSOB (owned by Belgium's KBC) and HVB - control about three-quarters of the banking market.

Local banks are rapidly growing their networks, making their dominance even more overwhelming. Komercni plans to open 19 branches this year, the same number it opened last year; Ceska Sporitelna plans to open about 100 new branches over the next two years.

Those defensive measures aren't frightening off Gawron and mBank, though.

"In Poland we reached breakeven in four years, and I don't think it will take us any longer in the Czech Republic," he predicts.

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