The Vienna 2 Initiative has published the latest CESEE Deleveraging and Credit Monitor examining developments in cross-border bank funding and credit trends in central, eastern and south-eastern Europe for the 2013:Q2.
The monitor reports that funding of western banks for central, eastern and south-eastern Europe (CESEE) excluding Russia and Turkey continued to decline for the eighth consecutive quarter in 2013:Q2, but only moderately so. It has so far proved resilient to the financial market turmoil in the wake of the prospective roll-back of unconventional monetary policy in the US, although this could change as implementation draws closer. Europe’s forthcoming bank asset quality review and stress tests enter additional uncertainties.
Private sector credit growth remained weak in CESEE, with the exception of the CIS countries and Turkey. Supply-side and demand-side factors are both responsible, but the former could become more binding as credit demand seems to be recovering faster than lending conditions, according to the latest edition of the Vienna Initiative’s bank lending survey. High non-performing loans (NPLs) and regulatory uncertainty appear principal constraining factors on the supply side.
Even if they are addressed, the more fundamental challenge remains to fund a meaningful credit recovery in the region with banks now committed to a funding strategy based much more on local sources and given shallow local capital markets. Western banks remain committed to the CESEE region, according to the survey but are becoming more selective, which could create important challenges in markets seen as lacking potential.
The Vienna Initiative was established at the height of the global financial crisis of 2008/09 as a private-public sector platform to secure adequate capital and liquidity support by Western banking groups for their affiliates in central, eastern and south-eastern Europe. The Deleveraging and Credit Monitor replaces the quarterly Deleveraging Monitor.