The IMF, CESEE and Banking

Transcription

1 The IMF, CESEE and Banking 34 th BACEE Regional Banking Conference Budapest, April 1-11, 217 Bas B. Bakker Senior Regional Resident Representative for Central and Eastern Europe

2 The IMF has had close involvement with CESEE since early transition It supported the transition to market economies with Financing Technical Assistance Training It provide financial help and TA during the 28/9 crisis and beyond 2

3 Two waves of IMF programs: early transition and post Number of countries with active IMF arrangements in CESEE Latest IMF arrangements by country CIS SEE 8 6 Baltics 4 2 CE Note: Dashed pattern shows precautionary programs (SRB and MNE) Note: Years indicate start date of arrangement. 3

4 Many of the IMF programs originated in banking sector problems Most countries had banking crisis in 199s Banking crises 4

5 After banking crises in 199s, banking systems were opened to foreign investors Much of the banking system in non-cis CESEE is foreign owned 1 9 Market share of foreign-owned banks, 215 (Percent of total assets) RUS SVN UKR BLR LVA POL SRB BGR HUN CZE BIH ALB HRV ROU LTU EST SVK Note: for BLR and LTU data for

6 In pre-crisis boom years, CESEE was very profitable Credit was growing rapidly Interest rate margins were relatively high Return on equity and capital was great 6

7 Between 23 and 28 there were large funding flows of Western European banks to CESEE 1, External position of BIS-reporting banks on all sectors (billion of USD, FX change adjusted) CESEE CESEE excl. RUS and TUR 1 23:Q1 24:Q1 25:Q1 26:Q1 27:Q1 28:Q1 7

8 which fueled and financed a credit boom 12 Credit-to-GDP ratio and its change (Percent of GDP) 12 Increase of credit-to-gdp ratio and increase of foreign funding to banks Change during Annual increase of credit-to- GDP ratio MKD CZE UKR BGR SVN LTU ALB POL HUN ROU RUS BIH TUR HRV MDA BLR SVK LVA EST BLR UVK TUR ALB MDA ROU SRB RUS MKD SVK POL CZE BIH LTU HRV HUN BGR UKR SVN MNE LVA EST y =.6915x R² = Annual increase of foreign-funding -to-gdp ratio 8

9 which led to high current account deficits and overheating economies Note: For EST, LVA and LTU: 27. 9

10 After Lehman Brothers this suddenly stopped As parent banks got under pressure they could no longer send new funding to CESEE Credit booms suddenly stopped Domestic demand plunged just as exports dried up as well Result was deep recession 1

11 IMF provided financial assistance to many countries 11

12 Vienna Initiative helped prevent uncoordinated withdrawal of foreign banks Launched in January 29, as a framework for safeguarding the financial stability of emerging Europe at the height of the global economic crisis; The main objectives were: Prevent a large-scale and uncoordinated withdrawal of cross-border bank groups from the region; Ensure that parent bank groups maintain their exposures and recapitalise their subsidiaries in emerging Europe These objectives were achieved and a potentially region-wide systemic crisis in emerging Europe s banking sector was avoided. 12

13 By 21, crisis seemed over Risk premia had declined sharply Region started growing again Bank exposure to region stopped falling 13

14 Then euro area crisis broke 1-year Government Bond CDS spreads (Percent) Portugal Greece 2 1 Spain Ireland

15 Bank deleveraging resumed Bank s external claims on all sectors (billions of USD, FX change adjusted) 1, CESEE CESEE excl. RUS and TUR US$319b (9% of 216 GDP) US$224b (15% of 216 GDP) 1 23:Q1 27:Q3 212:Q1 216:Q3 15

16 CESEE s economy experienced another downturn 12 GDP growth (Percent) European CIS 4 SEE non-eu 4 CE-5-4 SEE-EU Baltics

17 Many SEE countries asked for IMF assistance 17

18 In CIS was hit by recession Collapse of commodity prices Sudden stop in capital flows to Russia, result of sanctions on Russia Conflict in Ukraine Change in GDP (percent) Between Between Ukraine Belarus Russia 18

19 Moldova and Ukraine got help from the IMF Note: UKR had a Stand-By Arrangement program in

20 Banking problems played prominent role in programs Non-performing loans to total loans (Percent) Number of Banks in Ukraine 35 2 Solvent Declared insolvent Ukraine In total 87 banks lost license; representing 3% of sector s assets at end Moldova Q2 14Q4 15Q2 15Q4 16Q2 16Q4 2

21 More recently, external position of BIS reporting banks in CESEE excl. Russia and Turkey appears to have stabilized 1, 9 External position of BIS-reporting banks on all sectors (billion of USD, FX change adjusted) 8 CESEE CESEE excl. RUS and TUR :Q1 25:Q1 27:Q1 29:Q1 211:Q1 213:Q1 215:Q1 21

22 as loan to deposit ratios in many countries have been reduced to much safer levels 25 Domestic Loan to Domestic Deposit Ratio (Percent) ALB MDA CZE BGR HUN SVN MKD UKV ROU RUS SRB POL LTU BIH SVK HRV LVA EST BLR UKR TUR 22

23 CIS is now recovering; growth in non-cis CESEE continues to be strong 15 PPP weighted real GDP growth (Percent) 1 5 Other CESEE CIS -5-1 CIS excl. RUS

24 All regions are now showing positive growth 5 GDP growth (Percent) Forecast for CIS Euro area Baltics CE-5 SEE non-eu SEE EU 24

25 Unemployment in New Member States coming down rapidly Cumulative changes in unemployment rate (28Q1=, seasonally adjusted) LVA LTU 8 HRV POL EST CZE HUN SVK SVN BGR ROU

26 Crisis legacies remain: high NPLs (especially in SEE and UKR) 35 Non-performing loans to total loans, end 216 (Percent) EST TUR LVA POL SVK CZE LTU MKD SVN RUS HUN ROM BLR BIH MNEMDA HRV ALB BGR SRB UKR Note: for MNE data for 212 and

27 High public debt Public debt (Percent of GDP) 27

28 Since early 199s CESEE has made tremendous progress 28

29 Banking sector has played an important role in this convergence But banking sector has also contributed to problems Not enough risk aversion during booms; very risk averse during busts Foreign funding has exacerbated boom-busts 29

30 Thank you