Demand for loans in Eastern Europe improves

You have to squint to notice it, but it looks like things are finally on the mend in Central and Eastern Europe on the financial front.

Demand for loans has improved in the past six months in the region, the first significant improvement since a lending survey by the European Investment Bank (EIB) started in October 2012.

CEE credit growth

Credit conditions are beginning to thaw. Source: Vienna Initiative

The data, released by the European Bank for Reconstruction and Development in a statement, is part of the Vienna Initiative – an initiative by the EBRD, the EIB and other financial institutions in Central, Eastern and Southeastern Europe meant to prevent capital from leaving the region suddenly and destabilising the fragile economies during the financial crisis.

A statement by the Vienna Initiative stressed that most of the improvement in demand for credit was accounted for by debt restructuring and requirements for working capital, while demand for loans to finance investments “remains very weak.”

However, the survey’s forward-looking component shows that consumer confidence and spending that isn’t related to housing are expected to contribute positively to credit demand over the next six months.

“For the first time, credit demand from enterprises (including SMEs) is also expected to rebound significantly,” the Vienna Initiative’s statement said.

On the supply side, conditions stabilised, contrasting to the “clear tightening pattern” from back in March.

Credit standards have continued to ease for consumer credit. Going forward, aggregate conditions for credit supply are expected to continue to ease. This will be primarily driven by short-term maturities and consumer credit.

Non-performing loans (NPLs) are still the main hurdle to be overcome in Central, Eastern and Southeastern Europe.

NPL ratios have not yet peaked, although the speed of the deterioration of the quality of loans has moderated, according to the survey.

It showed that less than 30% of banks continue to expect NPLs to increase over the next six months. That’s lower than the 40% who said they expected them to increase in March.

NPLs for companies are seen falling, while those for retail clients are still expected to rise marginally.

Besides NPLs, banks that took part in the survey mentioned regulations imposed by the European Union – which has asked banks, among other things, to keep higher levels of capital for risky assets – as having a negative effect on lending.

The outlook for global markets was not considered a negative factor in the last six months, but “is expected to become one going forward.”

Among the participants in the survey were 50 international groups and 90 local banks or subsidiaries of international banks, covering 50% of regional banking assets.

The countries included in the survey are: Albania, Bosnia-Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Macedonia, Poland, Romania, Serbia, Slovakia, Slovenia and Ukraine.


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