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Loans stagnating throughout most of the region

In 2013, the dynamics of loans to non-financial corporations was either anaemic or negative in most of the countries in the region, with the exception of Turkey and the CIS countries.

Latvia, Slovenia and Croatia performed worst; their loans stocks fell on average by 7% to 8% year-on-year over the period December 2012 to November 2013. At the end of November 2013, loans to non-financial corporations in nine of the twenty countries analysed displayed negative growth in year-on-year terms. During 2013, loan dynamics in Serbia, Romania,  Bulgaria, and Slovenia decelerated significantly, whereas Croatia and Hungary registered an improvement in the performance of loans to nonfinancial corporations. In November 2013, year-on-year growth rates of loan stocks in Serbia, Romania,  Bulgaria, and Slovenia fell by 20 p.p., 9 p.p., 5 p.p., and 3 p.p. respectively compared to December 2012. In Croatia and Hungary, they increased by 8 p.p. and 12 p.p., respectively.

 

In most countries in the region household loans have on average grown more rapidly or decreased more slowly than  corporate loans – with the exception of Latvia, Albania, Ukraine, Croatia, and Poland. Over the period December 2012 to November 2013 the most dramatic decline in the stock of household loans occurred in Latvia and Hungary; on average, they slumped by 9 % and 6% year-on-year, respectively. Russia, Serbia, Romania, Slovenia, Albania and Croatia recorded a deceleration of growth or acceleration of decline. Kazakhstan and Turkey registered double-digit growth rates throughout the same period, in addition to the growth of household loans picking up speed in both countries.

 

 

Countries with lower levels of private debt tend to have their loans stock growing at higher rates. As can be seen from Figure 1 this holds especially true for household loans. Over the period December 2012 – November 2013 the coefficient of correlation between the share of private debt in GDP in 2012 and average year-on-year growth rate of loan stocks was -0.7. As for loans to nonfinancial corporations, the coefficient of correlation was also negative, albeit much lower (-0.3). The share of private household debt in GDP is significantly lower than that of corporate debt, as a result of which banks currently consider the household loan market to be much safer than the corporate loan market. Turkey and the three CIS countries display one of the lowest levels of private debt in the region, while Serbia, Albania, Bosnia and Herzegovina, and Slovenia lead the region in terms of the share of non-financial corporate debt in GDP (in Serbia the indicator exceeds 100%). Private household debt as a share of GDP was highest in Romania and Slovenia – but even there it only stood at around 40% of GDP in 2012.

 

 

 

Loan dynamics is also negatively correlated with the level of nonperforming loans (NPLs) in the total loan stock. In many of the countries analysed, the share of NPLs in the total loan stock (see Figure 2) tends to be higher for corporate loans than for household loans. In the 15 countries analysed, the average share of NPLs in corporate loans in September 2013 was 15%  as against a 9% share of NPLs in household loans. Particularly striking are the shares of NPLs in non-financial corporate loans in Ukraine, Slovenia, Kazakhstan, Croatia and Hungary: 20% and higher. Hungary also managed to exceed a 20% share of NPLs in its household loan stock. That would appear to reflect the impact of the national currency having been  devalued recently (more than 50% of the household loans in Hungary are denominated in foreign currencies).

 

Over the period September 2012 to September 2013, Western European banks adopted different strategies with respect to  their exposure to the countries in the CESEE region. The Bank of International Settlements (BIS) data show that in some  countries European banks continued to decrease their exposure, whereas in others they would appear to have stopped  reducing their external positions – in certain instances they even increased them somewhat.

 

Hungary and Slovenia are the countries most affected by the Western European banks reducing their exposure in Central and Eastern Europe (CEE). Figure 3 compares the indices of the Western European banks’ foreign claims on five CEE countries. In the recent past, Slovenia appears to have been the worst performer in the CEE region in terms of the external positions of Western European banks, closely followed by Hungary. Over the period September 2012 – September 2013, the Western European banks’ foreign claims on those countries decreased by 8% and 5%, respectively. The other three countries in the region recorded moderate growth in the Western European banks’ foreign claims over the same period.

 

 

 

 

Of the countries in the CESEE region that had been accumulating Western European bank claims at the highest rate prior to the crisis, Ukraine and Kazakhstan continue to be the countries hardest hit by the withdrawal of external funds. Over the period September 2012 - September 2013, the European banks’ foreign claims on both countries declined by 16% and 52%,  respectively (see Figure 4). In the case of Ukraine, that drop reflects the deteriorating macroeconomic situation, while  Kazakhstan is still battling with the consequences of the housing bubble having burst and the restructuring of the banking system thereafter. Slovenia and Latvia also recorded a decrease in external funding.
In the other countries over the same period, the Western European banks appear to have reversed their deleveraging activities and achieved slight positive growth of foreign bank claims. Estonia stands out as the best performer among the countries compared, with the Western European banks’ foreign claims on that country having increased by 12% over the period under discussion.

 

 

Overall, the other countries in Southeast Europe together with Russia performed better than their CEE neighbours. The largest expansion of the Western European banks’ external exposure was to be observed in Macedonia, Russia and Bosnia and Herzegovina – with growth rates of around 10% (see Figure 5). Other countries also recorded positive growth in external
funding by Western European banks.