Hungary makes progress in reducing NPL ratios, EBRD says

MNB

Credit growth is picking up in Central, Eastern and Southeastern Europe (CESEE) on the back of a robust economic recovery and an improving situation with respect to non-performing loans (NPLs), according to the latest studies by the Vienna Initiative, cited by the European Bank for Reconstruction and Development (EBRD).

Non-performing loan volumes in the region dropped 15.9% year-on-year to EUR 42.8 billion, a seven-year low, as of September 30, 2017, shows the most recent NPL Monitor for the CESEE region, published in May 2018, Hungarian news agency MTI reported.

The NPL ratio average for the CESEE region stood at 5.3%, down by 1.4 percentage points year-on-year, with the largest drops registered in Serbia, Albania and Hungary, of 7.3, 6.5 and 4.2 percentage points, respectively.

The EBRD noted that NPL ratios varied significantly, ranging from 0.7% in Estonia to 14.8% in Albania.

Total credit to the private sector in the CESEE expanded at 8% year-on-year, in line with strong real GDP and investment growth, the EBRD said, citing the latest Deleveraging and Credit Monitor. Lending to both households and non-financial corporations is increasing, although corporate credit growth continues to be sluggish, it added.

While domestic deposits remain the main source of bank funding, CESEE banks resumed tapping into foreign funding sources in 2017.    According to the report, deleveraging of Western banks in the region seems to have come to an end, with their exposure in the region remaining stable in 2017 at about USD 630 bln. This corresponded to 15% of the region’s GDP, down from the peak of 21% of the region’s GDP in the third quarter of 2008.

Foreign bank funding remains significantly below pre-crisis levels in most countries, except in Albania, the Czech Republic, FYR Macedonia, Montenegro and Turkey.

In addition to continuing NPL sales, the growth recovery and structural reforms - such as stricter write-off policies and better NPL resolution procedures - further helped NPL resolution in the region, the EBRD found. While significant disparities remain between countries, most jurisdictions have continued to implement reforms to resolve remaining impediments to NPL resolution and sales.

Moreover, the report added, European Union regulators have been active in introducing a broad range of new initiatives. These are expected to put further pressure on CESEE countries to align with European best practices.

The CESEE Bank Lending Survey, covering the period October 2017 to March 2018, shows positive developments in the credit market. Banking groups consider their positioning in the region to be either improving or stabilizing, on the back of brighter profitability performances, noted the MTI report.

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