Are you sure?

Moodyʼs: CEE bank CFOs expect rising credit demand

Chief financial officers at Central and East European banks expect a benign operating environment this year will support continued credit growth, as well as stable loan performance and capital levels, says Moodyʼs Investors Service in a new report, summarized in a press release sent to the editor of the Budapest Business Journal.

Over 70% of CFOs expect rising credit demand this year, says the report. Banks in Hungary and Slovenia, which have experienced significant lending contraction in the past several years, are the most optimistic regarding credit growth. However, 90% of respondents characterized lending competition as high.

"Almost all the CFOs that we surveyed expect business confidence to remain either unchanged, or to improve, an indication of rising credit demand," said Armen Dallakyan, a vice president and senior analyst at Moodyʼs.

Despite their optimism, 38% of CFOs cited economic factors as a key element constraining their business. For example, the prevailing low interest rate environment is constraining banksʼ revenues, whilst rising wages are exerting pressure on banksʼ operating expenses.

Regulatory changes are adding uncertainty to banksʼ operations, according to 38% of respondents, and most CFOs expect banking regulations to tighten. This will mainly be driven by credit growth in local markets as well as EU rules. Moodyʼs also expects that planned new European rules on capital adequacy, loss absorption capacity and financial reporting will result in additional costs.

"Financial technology (FinTech) is changing the banking landscape, increasing competition and prompting the restructuring of business models, presenting both challenges and opportunities," said Dallakyan.

Most respondents see FinTech affecting retail banking and payment services the most. Also, 74% of CFOs said they expect the EUʼs Payment Services Directive (PSD2) to have a slightly or moderately negative effect on banking revenues.

The report, entitled "Banks: Poland, Czech Republic, Slovakia, Hungary, Slovenia: CFOs bullish on growth; regulatory, technological changes pose challenges," can be accessed by subscribers via the Moodyʼs website.