In Poland, the biggest economy in the European Union's emerging east, three banks are slated to change hands and the regulator has pushed for new entrants to step in rather than existing players.

In neighbouring Czech Republic, meanwhile, General Electric's (>> General Electric Company) GE Money Bank is expected to leave the market within two years, potentially bringing a new player to the region.

"We will see further consolidation (in Poland) as some banks struggle to maintain profitability," the chief executive of one of Poland's biggest banks said, asking not to be named.

The attraction for investors is that the region's economies are growing faster than the European average, while debt as a share of gross domestic product is lower than in western Europe, which implies more room for growth.

Polish regulator KNF may be pushing for new entrants, but the more likely scenario is for mergers of incumbents looking to benefit from economies of scale.

The biggest risk for potential buyers is from the region's Swiss franc-denominated home loans, which have become more expensive for borrowers since the franc's surged in value, bringing political pressure for increasing the regulatory burden on lenders.

Yet Poland and the Czech Republic could still offer an opportunity to crack profitable markets, particularly with the Polish government now thought unlikely to force its banks to allow customers to convert Swiss franc mortgages into zlotys at historical rates after the central bank warned that such a move would be too costly.

Poland's economy is expected to expand by more than 3 percent in both 2015 and 2016 according to the European Commission's spring forecast. The Czech Republic is expected to increase by 2.5 percent and 2.6 percent respectively while euro zone growth is seen at 1.5 percent and 1.9 percent this year and next.

   

FRAGMENTED SECTOR

Emerging Europe's second-biggest lender Raiffeisen (>> Raiffeisen Bank International AG) is the most visible name readying for a Polish exit as part of a restructuring drive.

It operates Poland's seventh-largest bank, with a market value of a little more than 2 billion euros (£1.4 billion) based on the median price-to-book value for the Polish banking sector. That is almost half its parent company's market value of 4.5 billion euros.

Raiffeisen is also selling its Slovenian business and internet banking arm Zuno in the Czech Republic and Slovakia.

Henry MacNevin, associate managing director at ratings agency Moody's, said that the large number of operators in Poland's fragmented banking sector gives scope for consolidation among mid-sized players. "There is more opportunity to pick up something that has greater market share," he said.

Alior Bank (>> ALIOR BANK SA) is another Polish lender likely to find a new owner. Carlo Tassara, the holding company for French financier Romain Zaleski, plans to sell 25.3 percent of the bank, representing the largest single stake in the company.

France's Societe Generale (>> SOCIETE GENERALE) had been a front runner, but Polish insurer PZU (>> Powszechny Zaklad Ubezpieczen SA) has emerged as a rival suitor. PZU, the region’s biggest insurance company, is looking to build its own banking business, potentially through two or three of the smaller lenders, which would provide a natural distribution channel for its asset management and investment products.

Alior ranks 15th among Polish banks by assets and has a market capitalisation of 6.7 billion zlotys (£1.17 billion). It's valuation is at 1.8 times price-to-book value, according to Thomson Reuters data, against a sector median of 1.7.

Austria's Erste Bank (>> Erste Group Bank AG), meanwhile, has publicly declared its interest in Citigroup's (>> Citigroup Inc) assets in the Czech Republic and Hungary after the U.S. group began its withdrawal from consumer banking in 11 markets as part of global cost-cutting. Erste is already the second-biggest bank in the Czech Republic and No.6 in Hungary.

Raiffeisen is also in the running for Citi's Czech consumer business, newspaper Hospodarske Noviny reported in March. A Citi spokeswoman declined to comment on the report and it remains unclear how such a move would fit with Raiffeisen's restructuring plan.

The Czech market is more concentrated than that in Poland, making any big consolidation unlikely, focussing attention on the potential sale of GE Money's Czech business as the most likely way in.

"Some smaller banks may be interested, but I think a bigger possibility is someone not already in the market will buy GE Money," said Milan Lavicka, a banking analyst for J&T.

Analysts have said that a Chinese capital may be interested in the Czech banking sector and the deputy CEO of Bank of China Hungary told the Czech President on Monday that the bank will open a branch in the Czech Republic by September.

(Additional reporting by Krisztina Than in Budapest and Robert Muller in Prague; Editing by David Goodman)

By Marcin Goclowski and Jason Hovet