Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Look up keyword
Like this
2Activity
0 of .
Results for:
No results containing your search query
P. 1
CEE Credit Monitor a Credit Less Recovery in CEE

CEE Credit Monitor a Credit Less Recovery in CEE

Ratings: (0)|Views: 104 |Likes:
Published by ReadEverything

More info:

Published by: ReadEverything on May 10, 2010
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

07/01/2010

pdf

text

original

 
A credit-less recovery inCEE
May 7, 2010
   C  r  e   d   i   t   M  o  n   i   t  o  r   E  a  s   t  e  r  n   E  u  r  o  p  e
 
   C  o  n   t  a  c   t  :   G  u  n   t  e  r   D  e  u   b  e  r
 ,
   M  a  r   i  o  n   M   ü   h   l   b  e  r  g  e  r
     
    +   4   9   6   9   9   1   0  -   3   1   8   1   5
   G   l  o   b  a   l   R   i  s   k   A  n  a   l  y  s   i  s
 
Key views
 
Economic recovery under way, no revival in creditgrowth.
Most CEE countries have left recession and willrecord modest positive growth rates this year. But we do notexpect any significant growth stimulus to come from credit.
 
Gradual external deleveraging ongoing.
External asset-to-liability ratios have inched down across the board and areexpected to continue to do so. CEE banking sectors stillcharacterised by high external leverage should profit from thevery moderate monetary tightening outlook of the ECB.
 
NPLs are close to peak levels, no significant risks fromfurther provisioning needs
. NPLs continue to trend up inalmost all CEE countries. With the exception of Ukraine,Lithuania and Russia, provisioning levels stand atcomfortable levels.
 
Assessing contagion risk from Greek debt crisis
. Our contagion matrix shows that Bulgaria, Macedonia and Serbiawould suffer most from a potential withdrawal of Greek parentbanks and reduced exports to Greece. Hungary seems mostexposed to a reduction of foreign investor holdings of localassets, if global risk aversion increases.
A credit-less recovery
Although Eastern Europe is lagging other EM regions in terms of recovery, most countries have left recession and will recordmodestly positive growth rates this year. Only the worst or latesthit countries (Latvia, Lithuania, Hungary, Romania and Bulgaria)were still in recession in Q4 2009 or Q1 2010 (see chart). But therecovery has been credit-less so far. Credit is still declining inmost countries (see charts) and will only pick up slowly. Theavailability of (external) funding and the evolution of NPLs (andsubsequent risks to profitability and capital) will be importantdeterminants for credit growth over the next few months.
-4-2024682007200820092010RomaniaBulgariaHungaryUkrainePolandEstoniaLatviaLithuaniaRussiaCzechKazakhstan
Sources: IMF, DB Research
No credit impulsein CEE countries
Real credit growth, 3mma, % mom-14-12-10-8-6-4-202462007 q12008q12009q12010q1LatviaHungaryRomaniaLithuania
Only few countries still in
Sources: Eurostat, Nat. authorities, DB Research
Real GDP growth, % qoq sa
recession
-20-15-10-505PolandBulgariaKazakhstanCzech Rep.EstoniaRomaniaRussiaLatviaLithuaniaHungaryUkraineNov.-Jan., avg.Real private sector credit growth, % yoy
Sources: IMF,National central banks, DB Research
Credit is contracting almosteverywhere
 
Credit Monitor Eastern EuropeMay 7, 2010 2
Gradual external deleveraging in CEE
External deleveraging is taking place gradually in CEE asexternal asset-to-liability ratios are inching down across theboard (see chart). Ukraine, Kazakhstan and Russia have seenthe strongest drop, while Czech Republic, Hungary and Polandhave recorded the smallest decline. This mirrors data on cross-border exposure of BIS-reporting banks as of Q4 2009, whichshow large decreases in exposure to CIS countries (20% yoy atleast), but stable or even increasing exposure to Poland, CzechRepublic and Hungary (see chart). In our view, further gradualdeleveraging is still in the cards, especially in the Baltics. On apositive note, CEE banking sectors still characterised by highexternal leverage should profit indirectly from the very moderatemonetary tightening outlook of the ECB and slow removal of liquidity expansion.
NPLs already close to expected peak levels
In tandem with weak economic performance and risingunemployment NPLs are continuing to trend up in almost allcountries. While NPLs may already have reached their peaklevels in Kazakhstan and Estonia, we expect further strongincreases in Bulgaria and Romania, as they lag the other countries in terms of economic recovery. In Ukraine and RussiaNPLs are estimated to be much higher than official figures, asthese include only overdue loan payments and not the fulloutstanding loan amount or restructured loans (
Moody’s
estimates NPL levels in Russia at 20% and 20-25% in Ukraine).Given NPL levels above 20% in several countries, strategies toclean up bank balance sheets have to be developed, e.g. writingoff of fully provisioned loans or the creation of bad-assetmanagement companies. Overall, we expect our NPL peak levelforecasts (see chart) to be reached within the next few months.
No significant risks to profitability and capital fromfurther provisioning needs
Adequate provisioning helps banks to avoid negative surprises interms of profitability or capital needs. We have taken a closelook at current provisioning levels in CEE. The chart on the rightshows that provisioning levels have declined since last year inalmost all countries but still stand at relatively comfortable levels.We consider 60-70% loan-loss provision coverage of NPLs asappropriate, given that a considerable share of loans iscollateralised by mortgages. In Lithuania, Ukraine and Russia,
-50-25025PolandCzech Rep.HungaryBulgariaRomaniaLithuaniaLatviaEstoniaRussiaKazakhstanUkraineCross border claims Q409 / Q408, %
Source: BIS, DB Research
Internationalbanks retreatfromCIS
0204060Czech Rep.RussiaPolandHungaryKazakhstanUkraineRomaniaBulgariaLithuaniaEstoniaLatvia
Dec. 2008Dec. 2009
Banks' external liabilities as% of totalassets in LC
Sources: IFS, Central Banks, DB Research
Ongoing deleveraging
020406080100120LithuaniaUkraineRomaniaPolandHungaryLatviaBulgariaEstoniaRussiaKazakh.2009*2008
Relatively soundprovisioning levels
Bank provisions to NPLs, %
Sources: IMF, nat. statistics, DB Research*As of Sept./Oct or Dec.
01020304050CZRUPLHUBGLTEEROUALVKZ2008 eopFeb./March 2010*Peak level forecast lower bound**Peak level forecast upper bound**
*PL, HU and UA data from Dec.**Forecasts DBR Credit Monitor Eastern Europe, 20. August 2009Sources: National central banks and regulators, DB Research
NPLsin % of total loans (national definitions)
NPLpeak levels to be reached soon
 
Credit Monitor Eastern EuropeMay 7, 2010 3
however, either due to current low provisioning levels or underreported NPLs, we see a need for increased loan-lossprovisions and thus potential negative surprises to profitabilityand capital needs. Thus the recent improvements in capitaladequacy ratios for these countries (see chart) have to be takenwith a grain of salt. In all other countries, provisioning needsshould decrease over time and well-diversified CEE banksshould be able to support the real economy with new credit later in 2010
.
Assessing contagion risks from Greek debt crisis
After S&P’s downgrade of Greece to sub
-investment grade onApril 28 and resulting negative financial market reactions, thequestion of possible contagion channels to CEE has resurfaced.In our contagion matrix we present the three main contagionchannels, i.e. contagion via reduced bank lending from Greekparent banks, contagion via reduced exports to Greece andcontagion via foreign investors selling their portfolio equity anddebt holdings. We grouped the CEE countries into threecategories according to the relative contagion risk they face.We start our analysis with the banking channel, which we regardas the most relevant. Our matrix shows that Bulgaria, Macedoniaand Serbia would suffer most from a potential withdrawal of Greek parent banks. The recent rescue package for Greecemitigates the risk of a fire sale of Eastern European assets byGreek banks in two ways. First, Greek banks access to ECBfunding cannot be jeopardised by another sovereign downgradeas the ECB suspended the minimum credit rating threshold.Second, the package includes EUR 10 bn for a financial stabilityfund to support Greek banks. Nevertheless, it is unrealistic toexpect the same level of commitment of Greek parent banks asbefore the crisis.With regard to the second contagion channel, the real economy,Albania, Bulgaria and Macedonia would be most affected bylower import demand from Greece.The third contagion channel captures indirect spillover potentialresulting from an increase in general risk aversion due toGreek/PIIGS troubles. Here, Hungary seems most exposed to areduction of foreign investor holdings of local assets.
0510152025RussiaBulgariaEstoniaUkraineLatviaLithuaniaRomaniaHungaryPoland20092008
Capital adequacy ratiosincreased
Bank reg. capital to risk-weighted assets
Sources: IMF, DB Research
High (15-25%)Medium (5-15%)Low (<5%)
Albania, RomaniaAlbania, Bulgaria, MacedoniaCroatia, Czech Republic,Estonia, Hungary, Kazakhstan,Latvia, Lithuania, Poland,Russia, Slovakia, UkraineCroatia, Czech Republic, Estonia,Hungary, Kazakhstan, Latvia,Lithuania, Poland, Romania,Russia, Serbia, Slovakia, Ukraine
Capital outflowsPortfolio investment (equity + debt),in % of local GDP, 2008 eop
Albania, Kazakhstan, Latvia, Macedonia,Romania, Russia, Serbia, UkraineBulgaria, Croatia, Czech Republic,Estonia, Lithuania, Poland, SlovakiaHungary
Banking sector Real economyGreek foreign claims, in %of local GDP, Dec. 2009Exports to Greece in % of total exports, Oct. 2009
Bulgaria, Macedonia, Serbia
 

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->