bne IntelliNews – Central and South-Eastern European economies remain fragile, according to Vienna Banks Initiative
Banks in Central and Southeastern Europe (CESEE) have so far weathered the financial blow of the COVID-19 pandemic, but they could be strained by the withdrawal of government support to businesses , especially as infection rates start to soar again, according to the Vienna Initiative of banks active in the region.
Its NPL monitor for the 17 countries of the CESEE region indicates that the average ratio of non-performing loans for the region stood at 3.2% of total loans as of June 30, compared to 2.3% for the European Union / European Economic Area.
This is a further improvement, although at a slower pace than in the previous period. At the end of last year, NPL’s average ratio was 3.6%, placing it slightly above the EU average of 2.9%.
“The COVID-19 crisis has not yet fully materialized in a significant deterioration in the quality of banks’ assets as was initially feared,” the semi-annual report said.
NPL volumes declined 7.8% in the 12 months from Q2 / 2020 (ending June 30, 2020) to Q2 / 2021 (ending June 30, 2021). The region’s overall NPL coverage rate (the proportion of NPLs covered by provisions) has also remained stable since 2018 and stood at 64.5% as of June 30.
However, he warned that many economies “remain fragile and significant performance disparities can be observed.” He also stressed that the next few months will be critical.
“The full impact of the effects of the pandemic on the resilience of the private sector and the quality of corporate balance sheets could still be fully apparent in the coming period, with a direct impact on lending activity and the need for resolute action. and forward-looking, “said Boris VujÄiÄ, Governor of the National Bank of Croatia (HNB), at the Vienna Initiative Full Forum meeting in October 2021.
The decline in stocks of non-performing loans was greatest in Hungary, North Macedonia and Estonia, where they fell by 28%, 23% and 22% respectively during the period. The main contributor to the decline in absolute terms was Poland, where the stock of NPL fell by almost â¬ 2 billion, or 14.6%.
The downward trend in non-performing loans was “largely due to the success of measures implemented to support borrowers, banks and economies, such as payment moratoria and government guarantee programs,” the report said. .
However, most of the measures have now expired or are about to end in the coming months. The effect of the crisis could therefore still be felt, warns the Vienna Initiative. In addition, the recent spike in infection rates has again made it possible to introduce drastic restrictions to protect public health.
“The sectors most affected by the short-term liquidity shocks of the crisis, such as food, accommodation and entertainment, could see problems arise in 2022 as the benefits of the support measures begin to appear. fade, “the report says. âThese sectors will remain vulnerable to any further shocks caused by the pandemic, which could jeopardize the viability of already weakened businesses. “
He also points out that regulators are also closely monitoring other sectors, such as commercial real estate and retail, which risk accelerated structural change due to the pandemic. For now, real estate guarantees are maintained, with some regions experiencing a continuous rise in property values. However, there are fears of future value readjustments.