Economic Analysis Division Emerging Markets Analysis

Transcription

1 Bulgaria EU EMDE* Greece FYROM Egypt Romania Serbia Turkey Albania Cyprus Cyprus Serbia Greece Bulgaria EU Turkey Albania FYROM Romania EMDE* Egypt Greece FYROM EU Albania Cyprus Serbia Bulgaria Romania World EMDE* Egypt Turkey Egypt EMDE* Serbia Romania Albania Cyprus World Bulgaria Turkey FYROM EU Greece Economic Analysis Division Emerging Markets Analysis Bi-Weekly Report October November 8 TURKEY Lending activity (FX-adjusted) slowed significantly in 9M:8, on the back of elevated uncertainty and the fading impact of the Credit Guarantee Fund scheme Customer deposits (FX-adjusted) decelerated markedly in 9M:8, hampered by weakening confidence in the domestic economy Turkey slipped places to st in the 8 Global Competitiveness Index of the World Economic Forum ROMANIA Political uncertainty heightened following the Government s call for the removal of the General Prosecutor Romania s competitiveness improves slightly in 8 NBG - Economic Analysis Division Emerging Markets Analysis Head: Michael Loufir : + : mloufir@nbg.gr Analysts: Konstantinos Romanos-Louizos : romanos.louizos.k@nbg.gr Louiza Troupi : troupi.louiza@nbg.gr Athanasios Lampousis : lampousis.athanasios@nbg.gr Real GDP Growth (%, 8F) * EMDE: Emerging Market & Developing Economies End-year Headline Inflation (%, 8F) * EMDE: Emerging Market & Developing Economies Fiscal Balance (% of GDP, 8F) * EMDE: Emerging Market & Developing Economies Current Account Balance (% of GDP, 8F) BULGARIA Credit expansion strengthened modestly in 9M:8, providing support to the economic recovery Customer deposits maintained momentum in 9M:8, in line with solid economic growth Bulgaria s external competitiveness improves slowly in 8 SERBIA The underlying profitability of the banking system improved on an annual basis in Q:8, keeping ROAE in double digits for a th successive quarter FYROM The fiscal deficit narrowed temporarily by.7 pps y-o-y to.% of GDP in 9M:8, mainly due to under-executed capital spending FYROM behind the South Eastern Europe- (Bulgaria, Romania, Serbia and Albania) according to the 8 WEF Competitiveness Report ALBANIA Albania s competitiveness improves in 8 Customer deposits (FX-adjusted) strengthened in 9M:8, underpinned by the rebound in economic activity Credit growth, adjusted for large write-offs and FX variations, is estimated to have posted strong growth of c..% at end-q:8 CYPRUS Net earnings of the banking sector returned to positive territory for the first time in years in H:8, due to lower provisioning Cyprus ranked th in this year s World Economic Forum Global Competitiveness Index EGYPT GDP growth reached a -year high of.% in FY:7/8, with a significant rebalancing from consumption towards investment and exports Egypt ranked 9 th in the World Economic Forum s 8 Global Competitiveness Index APPENDIX: FINANCIAL MARKETS * EMDE: Emerging Market & Developing Economies Please see disclosures in page

2 Q: Q: Q: Q: Q: Q: Q: Q: Q:7 Q:7 Q:7 Q:7 Q:8 Q:8 Q:8 / 9/ / 9/ / 9/ / 9/ / 9/ / 9/ / 9/ /7 9/7 /8 9/8 October November 8 Turkey BB- / Ba / BB (S&P/ Moody s / Fitch) Loans and Deposits (y-o-y % change) Deposits Deposits (FX Adjusted) Loans Loans (FX Adjusted) Interest Rates (Quarterly Average, %) TRY Retail Loans TRY Corporate Loans CBRT Effective Funding Rate Overnight Interbank Rate TRY Deposits Turkey - 8 Global Competitiveness Index (Change from previous year) - Overall Institutions Infrastructure ICT adoption Macro stability Health Skills Product market Labour market Financial system Market size Business dynamism Innovation capability Nov. -M F -M F -M F -m TRIBOR (%).... TRY/EUR....8 Sov. Spread (, bps) 8 Nov. -W % YTD % -Y % ISE 9, F 9F Real GDP Growth (%) Inflation (eop, %) Cur. Acct. Bal. (% GDP) Fiscal Bal. (% GDP) Lending activity (FX-adjusted) slowed significantly in 9M:8, on the back of elevated uncertainty and the fading impact of the Credit Guarantee Fund (CGF) scheme. Lending growth, adjusted for FX variations, declined markedly to 8.% y-o-y in September from a -year high of 9.8% at end-7 well below the CBRT s implicit reference level of.%. The deceleration reflects the dissipating boost from the CGF. Indeed, in an effort to preserve economic and financial stability -- jeopardised by more visible signs of overheating and a weakening global appetite for Turkish assets -- the authorities refrained from raising the ceiling of the CGF this year, thus reducing the total amount of loans granted under State guarantee to TRY bn in FY:8 from TRY bn in FY:7 (% of end- banking sector loans). The deceleration in lending activity in 9M:8 also resulted from weaker supply and demand for loans, reflecting heightened uncertainty ahead of the June presidential and parliamentary elections and, to a greater extent, the culmination of the currency crisis in mid-q:8, due to the absence of an adequate policy response to the country s alarming imbalances and heightened tensions with the US. Indeed, banks scaled back their lending activity in 9M:8, due to more limited access to external financing (with their external debt already declining in Q:8 after consecutive quarters of increase), tighter liquidity conditions (total and local currency loans-to-deposits ratios reached record highs of.% and 7.%, respectively, at end- December), higher domestic borrowing costs (the CBRT s average effective funding rate rose by. pps y-o-y to.% in 9M:8) and rising non-performing loans (the NPL ratio increased to a ½-year high of.% in Q:8 from a 7-quarter low of.9% in Q:8). On the other hand, household and corporate demand for loans decelerated in 9M:8, due to increasingly prohibitive lending rates and pessimistic growth prospects. Indeed, average interest rates on TRY retail loans, TRY corporate loans and USD corporate loans reached multi-year highs of.%,.7% and.%, respectively, in 9M:8 up from 8.%,.7% and.% in 9M:7 and economic growth is expected to decline from.% y-o-y in H:8 to.8% in H:8 and -.% in H:9. Customer deposits (FX-adjusted) decelerated markedly in 9M:8, hampered by weakening confidence in the domestic economy. Growth in customer deposits, adjusted for FX variations, declined to.% y-o-y in September from a -year high of.% y-o-y at end- 7, hindered by deteriorating confidence in the Turkish economy. The deceleration in (FX-adjusted) deposits would have been even sharper had deposit remuneration rates not been increased. Specifically, average interest rates on TRY and USD deposits reached multi-year highs of.9% and.%, respectively, in 9M:8 up from.% and.% in 9M:7. Turkey slipped places to st in the 8 Global Competitiveness Index (GCI) of the World Economic Forum. The deterioration was mainly driven by three key components of the GCI (see chart). Indeed, the Product Market pillar weakened, mainly due to the complexity of tariffs and distortive effects from taxes and subsidies on competition. Moreover, the Macro Stability pillar was hindered by the sharp rise in inflation, which reached a -year high of % y-o-y in October. Finally, the Financial System pillar also deteriorated, as the sharp depreciation of the TRY since the beginning of the year and the ongoing slowdown in economic activity are expected to take their toll on the performance and the fundamentals of the banking system. NBG - Emerging Markets Analysis Bi-Weekly Report

3 PSD PNL ALDE RO+ USR UDMR PMP PRO Other October November 8 Romania BBB- / Baa / BBB- (S&P / Moody s / Fitch) Ruling Coalition,,,,,,,, -, Composition of Parliament Chamber of Deputies Election Polls (%) Elections Mar 7 (Sociopol) Jun 7 (Avangarde) Sep 7 (Sociopol) Dec 7 (Avangarde) Mar 8 (CURS) Jun 8 (CURS) Oct 8 (IMAS) WEF- Global Competitiveness Index (Change from previous year) Senate Party Seats Seats PSD 9 7 ALDE 9 PNL 7 USR 7 UDMR 9 PMP Minorities Independent MPs Total 9 Overall Institutions Infrastructure ICT adoption Macro stability Health Skills Product market Labour market Financial system Market size Business dynamism Innovation capability Nov. -M F -M F -M F -m ROBOR (%).... RON/EUR Sov. Spread (, bps) 8 Nov. -W % YTD % -Y % BET-BK, F 9F Real GDP Growth (%) Inflation (eop, %) Cur. Acct. Bal. (% GDP) Fiscal Bal. (% GDP) Political uncertainty heightened following the Government s call for the removal of the General Prosecutor (GP). Justice Minister, T. Tudorel, sought the dismissal of the GP, A. Lazar, in the past week, accusing him of exceeding his authority, mismanaging the anticorruption authority (DNA), which is under his jurisdiction, and defying the Constitutional Court (CC). The Government s initiative to dismiss the GP follows the removal of the head of the DNA a few months ago. The opposition-linked President had then refused to endorse the dismissal; however, a ruling by the CC forced him to comply with the Government s request. Lazar has been a strong critic of the Government s controversial judicial and legislative reforms. These judicial reforms included granting control to the Ministry of Justice the judicial inspection unit (then managed by an independent watchdog) and depriving the President of the power to appoint senior judges. On the other hand, the proposed changes to the Criminal and Criminal Procedure Codes decriminalise several graft offenses and raise significantly the burden of evidence on all criminal investigations, making convictions harder to obtain. Note that the majority of the proposed legislative changes were rejected by the CC and need to be revised by the Government. Critics believe the changes would benefit convicted PSD members, including the party leader and the real power behind PM Dancila s Government, L. Dragnea. The Government s initiatives have drawn strong criticism both domestically and internationally, having led to the resignation of two PMs in one year. All said, political uncertainty is unlikely to ease soon. Indeed, despite its slim majority in the Chamber of Deputies, we expect the PSD-ALDE ruling coalition, which has seen its popularity falling sharply over the past months, to continue with its controversial reform plan, in an effort to tighten further its grip on power. As a result, the EC, which is already seeking sanctions against Poland and Hungary for breaching the rule of law, is set to add pressure to Romania to reverse policy. Note that Romania has yet to comply with the benchmarks set years ago by the EU s Cooperation and Verification Mechanism (mainly focusing on the reform of the judicial system and fight against corruption). At the same time, tensions between the Government and the opposition are set to escalate, especially ahead of the next year s Presidential elections. Against this backdrop, we expect investor sentiment to deteriorate further, threatening macroeconomic and financial stability. Romania s competitiveness improves slightly in 8. Romania remained in nd place in the latest ranking of the World Economic Forum s Global Competitiveness Index, with its score improving moderately (up. points to.). The main drivers were the improvement in the institutional framework, which, nevertheless, still remains below EU standards, and the strengthening of the financial system, mainly on the back of the sharp drop in the NPL ratio. Other factors include the upgrade of the country s transportation network and a higher innovation capability, due to increased R&D spending. All said, Romania remains the nd most competitive economy in the region -- behind Bulgaria (ranking st ) and ahead of Serbia, Albania and FYROM (ranking th, 7 th and 8 th, respectively) -- but rd last in the EU. Key challenges to competitiveness include: i) strengthening financial intermediation, which remains very low, with a loan-to-gdp ratio of just %; ii) further improving the institutional framework, especially through the reduction of the burden of government regulation; and iii) upgrading the education system, which suffers from the lowest school life expectancy in the EU. NBG - Emerging Markets Analysis Bi-Weekly Report

4 Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q:7 Q:7 Q:8 :9 : : : : : : : :7 9:8 October November 8 Bulgaria BB+ / Baa / BBB- (S&P / Moody s / Fitch) ,,,,,,, Credit to the Private Sector & Customer Deposits (y-o-y % change) Credit to the Private Sector (BNB definition) Credit to the Private Sector (excl. CCB, NBG estimate) Customer Deposits (BNB definition) Customer Deposits (excl. CCB, NBG estimate) Domestic Demand & Credit Impulse Credit Impulse (-quarter rolling, pps of GDP, lhs) Domestic Demand (-quarter rolling, y-o-y % change, rhs) *Adjusted for the bankruptcy of CCB in WEF- Global Competitiveness Index (Change from previous year) Credit expansion strengthened modestly in 9M:8, providing support to the economic recovery. Credit to the private sector rose by.% y-o-y in September against.% at end-7. As a result, the loan-to-gdp ratio reached.9% -- above the SEE- average (.%). Specifically, FX lending continued to decline (down.7% y-o-y in September), albeit at a significantly slower pace compared with end- 7 (down.%), despite the lower interest rates offered (.% for FX loans against.% for LC loans) and the absence of FX risk. At the same time, LC lending maintained its momentum (up.% y-o-y in September following a rise of.% at end-7), on the back of ample liquidity (the LC loan-to-deposit ratio stood at 79.8%). In our view, the pick-up in credit expansion is due to the gradual easing in credit standards by banks. Indeed, solid economic growth, together with the gradual decline in the NPL ratio (to 8.% in September from.% a year ago, still double the EU average), have increased banks appetite for lending. The introduction of negative interest rates by the BNB and the increased transparency in the aftermath of the AQR have also helped. Customer deposits maintained momentum in 9M:8, in line with solid economic growth. Customer deposits expanded by 9.7% y-o-y in September following a broadly similar increase at end-7. Deposit growth would have been even stronger had deposit yields not been subdued, due to abundant liquidity, thus favouring other asset classes, like real estate (where rental yields are as high as.%). From a currency perspective, FX deposits rose (up 9.% y-o-y in September against.% at end-7) at a faster pace than LC deposits (up.% y-o-y in September against.% at end-7). Credit activity is set to improve in 8-9. Against the backdrop of increased liquidity in the system (the loan-to-deposit ratio stands at 7.8%), we expect the pace of credit expansion to pick up, in line with the continuing economic recovery and the sustained drop in NPLs (to.% by end-9). Stronger demand for real estate, together with the continuation of a state loan subsidy programme aimed at improving the energy efficiency of residential buildings should also help (in fact, out of every new retail loans is granted under this scheme). Note, however, that the high level of non-financial corporate indebtedness (estimated by the IMF at c. 8% of GDP -- the highest in the region) remains a stumbling block to credit expansion. All said, we expect credit to the private sector to increase by 7.%-8.% in FY:8-FY:9, still below deposit growth (up 9.%-.% in FY:8-FY:9)., Bulgaria s external competitiveness improves slowly in 8. Overall Institutions Infrastructure ICT adoption Macro stability Health According to the ranking of the World Economic Forum s Global Competitiveness Index, Bulgaria remained in st place for a nd Innovation capability consecutive year in 8, with its score improving slightly (up. pts to Skills Financial system Product market Market size Labour market Business dynamism Nov. -M F -M F -M F.). Indeed, Bulgaria s competitiveness continued to strengthen -- Base Interest Rate (%).... albeit sluggishly -- reflecting: i) a higher information and BGN/EUR communication technology adoption rate; ii) an improved institutional Sov. Spread (, bps) 7 framework, which, nonetheless, still lags significantly behind that of the EU; iii) macroeconomic stability; iv) a more effective product market, SOFIX Nov. -W % YTD % -Y % due to easier regulation; and v) stronger innovation drive. On the other hand, significant bottlenecks remain in the labour market, which suffers 7 8F 9F from rigidities, skills mismatches and poor activation policies, and the Real GDP Growth (%) financial system, mainly due to the relatively high NPL ratio. All said, Inflation (eop, %) Bulgaria remains the most competitive economy in SEE-, followed by Cur. Acct. Bal. (% GDP) Romania, Serbia, Albania and FYROM (ranking nd, th, 7 th and Fiscal Bal. (% GDP) th, respectively), but th last in the EU. NBG - Emerging Markets Analysis Bi-Weekly Report

5 Q:8 Q:9 Q:9 Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q:7 Q:7 Q:8 Q:9 Q: Q: Q: Q: Q: Q: Q: Q:7 Q:8 Q:8 Q:8 Q:9 Q:9 Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q: Q:f Q:7 Q:7 Q:8 October November 8 Serbia BB / Ba / BB (S&P / Moody s / Fitch) Quarterly Net Banking Sector Profit (bn RSD) Provisions Net noninterest Income Pre-Tax Profit Quarterly Cost of Risk and ROAE (Annualised) ROAE (%, -q m.a., left scale) Operating Expenses Net Interest Income Pre-Tax Profit excl. Once-offs Cost of Risk (bps, -q m.a., right scale, inverted) % Non-Performing Loans (Non-adjusted for FX variations) Other NPLs (RSD bn, right scale) Household NPLs (RSD bn, right scale) Corporate NPLs (RSD bn, right scale) NPL ratio (%, left scale) RSD bn 8 8 Nov. -M F -M F -M F -m BELIBOR (%) RSD/EUR Sov. Spread (, bps) Nov. -W % YTD % -Y % BELEX F 9F Real GDP Growth (%) Inflation (eop, %) Cur. Acct. Bal. (% GDP) Fiscal Bal. (% GDP) The underlying profitability of the banking system improved on an annual basis in Q:8, keeping ROAE in double digits for a th successive quarter. Excluding sizeable exceptional gains in Q:7 (following the partial write-off of Marfin Bank s debt by Cyprus Popular Bank, in view of Marfin s sale to the Czech Expobank, amounting to RSD.bn, in Q:7), pre-tax profits in the banking sector rose by 9.% y-o-y, reaching RSD 7.bn (c..% of GDP) in Q:8. As a result, (annualised) ROAE and ROAA rose to.% and.%, respectively, in Q:8 from an estimated.% and.% in Q:7 excluding the above-mentioned once-off item in Q:7. P/L provisions were reduced significantly in Q:8, mainly due to a steady decline in the NPL ratio. P/L provisions continued to decline in Q:8, amounting to just half their level in Q:7. The decline was in line with the decrease in the NPL ratio. In fact, the NPL ratio declined, for a th successive quarter, by a sizeable 7. pps y-o-y in Q:8 to a record low 9.% (since the introduction of a uniform definition in 8) from a peak of.% in Q:, well below its pre-crisis level (of.% in Q:8). This positive development reflects lower NPL formation, restructuring, large write-offs (c. RSD 7.7bn in Q:8, or.% of GDP), and the sale of NPLs to non-banking sector entities (c. RSD.bn in Q:8). As a result, the cost of risk declined further by bps y-o-y to a record low of bps, on a -quarter rolling basis, in Q:8. Excluding non-recurrent revenue in Q:7, (underlying) preprovision income (PPI) improved on an annual basis in Q:8. Excluding extraordinary once-offs (entailing the write-off of part of Marfin Bank s debt in view of its acquisition by the Czech Expobank CZ in Q:7), (underlying) PPI increased by.% y-o-y in Q:8, mainly due to higher net interest income (NII). In fact, NII rose by.% y-o-y in Q:8 (after declining for two successive years, by.% and.%, respectively in FY:7 and FY:). This performance occurred despite the continued compression in the NIM (down by bps y-o-y to a low of 77 bps (annualised) in Q:8), driven by: i) the drop in non-core NIM, in line with the fall in T-bill rates; and ii) tightening lending-deposit spreads (the drop in interest rates on loans is more pronounced than that on deposits), exacerbated by a faster pace of deposit growth (up.% y-o-y in Q:8) than loan growth (up.% y-o-y in Q:8) and higher competition among banks. This negative impact was more than offset by the rise in average interest earning assets (up.% y-o-y in Q:8). On the other hand, operating expenses declined slightly, by.9% y-o-y in Q:8, partly due to the continued downsizing of the banking sector (with the number of employees and branches declining by.% and.8% y-o-y, respectively, in Q:8). As a result, banking sector efficiency improved, with the cost-to-income ratio (adjusting for onceoff revenue in Q:7) declining by. pps y-o-y to a record low 9.% in Q:8 from.% in FY:7. The banking sector bottom line is set to strengthen further in Q- Q:8. Profitability is set to improve on an annual basis in Q-Q:8, with the ROAE rising to an estimated c. 9.8% from 8.% in Q-Q:7, excluding large exceptional gains in Q-Q:7 due to bank takeovers -- including the acquisition of BNP Paribas subsidiary, Findomestic Bank, by the Serbian Direktna Bank in Q:7 (RSD.bn) and the purchase of Jubanka by AIK Bank in Q:7 (RSD 8.bn). Profitability is expected to be supported by lower provisioning, and, to a lesser extent, by higher NII. Overall, we expect ROAE to reach a post-global crisis peak of c..% in FY:8 up from 8.% in FY:7 (.% including the once-offs). NBG - Emerging Markets Analysis Bi-Weekly Report

6 October November 8 F.Y.R.O.M. BB- / NR / BB (S&P / Moody s / Fitch) The fiscal deficit narrowed temporarily by.7 pps y-o-y to.% of GDP in 9M:8, mainly due to under-executed capital spending. The fiscal deficit eased to.% of GDP in 9M:8 from.8% a year earlier, due to lower expenditure (down. pps of GDP y-o-y) and, to a lesser extent, higher revenue (up. pp of GDP y-o-y). The decline Consolidated Budget (% of GDP) in expenditure reflects mainly under-executed capital spending (c. 7 9M:7 9M: % of end-year target), stemming from delays in the clearance of NBG Budget Fcst administrative obstacles to the resumption of country s key infrastructure projects, originated in the past year s political crisis. The decline in expenditure would have been sharper had it not been for a Personal Inc rise in transfers (up. pps of GDP y-o-y), reflecting not only base Corporate Inc effects from the postponement of payments of social transfers and VAT (Net) subsidies during the political vacuum in M:7, but also higher farm Excises subsidies, including payments of.% of GDP to tobacco producers. Import Duties On the other hand, the increase in overall revenue in 9M:8 was Other Taxes..... driven by tax revenue (up. pps of GDP y-o-y) and would have been Soc. Contrib higher had non-tax revenue not weakened (down. pps of GDP y-o-y). The strong tax revenue was mainly due to higher direct taxes and social contributions, reflecting strengthening economic activity and tightening labour market conditions. The weak non-tax revenue Personnel..... was due to lower income from special revenue accounts, attributed G. & Services to postponed revenue of the Ministry of Transport and Transfers Telecommunications. As a result, the -month rolling fiscal deficit Int. Payments narrowed to.% of GDP in September from.7% in December, well below the revised FY:8 target of.8%. Although the fiscal policy is set to turn expansionary in Q:8, the FY:8 deficit target of.8% of GDP is likely to be attained. In view of the year-to-date fiscal performance and weaker-than-expected economic activity (the Ministry of Finance revised down FY:8 GDP growth to.8% from.% earlier), the Government submitted to Parliament a draft supplementary 8 budget (to soon be approved WEF- Global Competitiveness Index by Parliament), revising down both target revenue and expenditure (Score Difference with SEE- *) (each by. pps of GDP) and therefore leaving the FY:8 fiscal deficit target unchanged at.8% of GDP. The draft supplementary budget envisages a large fiscal loosening in - Q:8 (.8 pps of GDP y-o-y), which is expected to result from higherthan-initially-budgeted - transfers (.% of GDP), reflecting the Government s plan to support municipalities to service their -9 * SEE- comprise outstanding debt obligations, as well as efforts to make up for delays Romania, Bulgaria, Serbia and Albania in the execution of capital spending in 9M:8. The draft supplementary - positive = greater score than SEE- average Budget also envisages a realistic revenue growth target of.9% - negative = lower score than SEE- average (against 7.7% previously), which is in line with FY:8 nominal GDP Overall Institutions Infrastructure ICT adoption Macro stability Health growth. In our view, the revised revenue and expenditure targets are Skills Financial system Product market Market size Labour market Business dynamism realistic. We expect the year-to-date fiscal tightening of.7 pps of Innovation capability GDP y-o-y to be fully offset in Q:8, leading to a full-year fiscal deficit of.8% of GDP in line with its target and implying a broadly neutral Nov. -M F -M F -M F fiscal stance for a second consecutive year. FYROM stands behind the South Eastern Europe- (Bulgaria, Romania, Serbia and Albania) according to the 8 WEF Competitiveness Report. FYROM was ranked 8 th out of Nov. -W % YTD % -Y % countries in the 8 WEF s global competitiveness index well behind Bulgaria ( st ), Romania ( nd ), Serbia ( th ) and Albania (7 nd ). The relatively unfavourable position of the country reflects 7 8F 9F weaknesses in all constituent pillars of the index, apart from the financial system (see chart). FYROM s relatively better financial system score reflects mainly its low NPL ratio in the banking sector (.% at end-h:8) compared with that of Romania (.7%), Bulgaria (.%), Serbia (9.%) and Albania (.%). NBG - Emerging Markets Analysis Bi-Weekly Report Revenue Tax Revenue Non-Tax revenue..... Expenditure Cur. Expenditure Capital Expend Fiscal Balance Primary Balance m SKIBOR (%) MKD/EUR.... Sov. Spread (. bps) 9 MBI, Real GDP Growth (%) Inflation (eop. %) Cur. Acct. Bal. (% GDP) Fiscal Bal. (% GDP)

7 Dec. 9 Dec. Dec. Dec. Dec. Dec. Dec. Dec. Dec. 7 Sep. 8 Bulgaria Romania Serbia Albania FYROM not ranked October November 8 Albania B+ / B / NR (S&P / Moody s / Fitch) Business sophistication Market size Global Competitiveness Index -7 Technological readiness Innovation Financial market development Albania Europe & North America 8 * Inverted Scale 9 - Institutions 7 Labour market efficiency 7 Infrastructure Goods market efficiency 8 7 Macroeconomic environment Health and primary education Higher education and training WEF- 8 Global Competitiveness Index SEE- Countries' Ranking * th out of 7 8 Credit to the Private Sector and Customer Deposits (y-o-y % change) Customer Deposits 8 Customer Deposits (FX-Adjusted) Credit to the Private Sector Credit to the Private Sector (FX-Adjusted) Credit to the Private Sector (FX-Adjusted excl. write-offs) Nov. -M F -M F -M F -m TRIBOR (mid, %).... ALL/EUR.... Sov. Spread (bps) 9 8 Nov. -W % YTD % -Y % Stock Market F 9F Real GDP Growth (%) Inflation (eop, %) Cur. Acct. Bal. (% GDP) Fiscal Bal. (% GDP) Albania s competitiveness improved in 8. According to the WEF Global Competitiveness Index, Albania rose places, ranking 7 th among economies in 8. It recorded the second largest improvement in SEE-, behind Serbia (that rose places), while it reduced its competitiveness gap with the most competitive SEE countries -- Bulgaria and Romania (ranking st and nd, respectively, see chart). The positive performance reflects: i) a better capacity to generate and adopt new technologies, likely reflecting the transfer of foreign technology (through large energy-related FDIs); ii) improved workforce skills, likely due to enhanced vocational training and active labour market policies; and iii) lower market distortions, due to lower non-tariff barriers, likely reflecting improved administrative procedures and reduced regulatory burden. Key bottlenecks to Albania s competitiveness comprise: i) an underdeveloped financial market (including the lack of a stock exchange); ii) infrastructure gap -- the largest in SEE-; iii) its small market size; and iv) low levels of technological readiness and innovation capability. Customer deposits (FX-adjusted) strengthened in 9M:8, underpinned by the rebound in economic activity. Overall deposit growth turned positive in September (up.% y-o-y, adjusted for FX fluctuations, against a marginal decline of.% at end-7), mainly driven by the rise in (both LC and FC) retail deposits. In fact, the growth rate of retail deposits (accounting for 8.% of total deposits) turned positive, up.% y-o-y in September against a decline of.% at end-7, on the back of tighter labour market conditions (the unemployment rate fell to.% in H:8 from.% in H:7), as well as the continued recovery in tourism inflows and remittances. Note that retail deposit growth would have been stronger had households not continued to invest heavily in high-yielding domestic debt (up by ALL 7.bn in H:8, equivalent to.9% of the end-7 stock of retail deposits). Indeed, in September, the -month T-bill rate was bps higher than the -month deposit interest rate, which reached a low.%. On the other hand, corporate deposit growth also rose (to 7.% y-o-y in September from a -year low of.% at end-7, FX adjusted), due to the acceleration in the FC segment. The latter likely reflects stronger exports. Credit growth, adjusted for large write-offs and FX variations, is estimated to have posted strong growth of c..% at end-q:8. Adjusted for FX variations and loan write-offs (estimated to have amounted to ALL.bn in 9M:8, compared with outcomes of ALL 8.bn in FY:7,.bn in FY: and ALL 7bn in FY:), credit growth is estimated to have accelerated to.% y-o-y in September from.7% in FY:7. The underlying improvement could be attributed to stronger loan supply and demand. Indeed, loan supply was boosted by: i) the easing of credit standards by banks, on the back of ample liquidity in the banking sector (with the total loans-to-total deposits ratio at just.% in September), and nonreliance on foreign financing; ii) improved asset quality (the NPL ratio declined significantly to.9% in August -- its lowest level since mid- -- from.% at end-7 and a peak of.% in mid-); iii) the improving economic outlook; and iv) a low loan penetration rate (% of GDP in September). Moreover, demand for loans was supported by the low interest rate environment (the average LC and EUR lending interest rate on new loans declined to a record low of.7% and.%, respectively, in 9M:8 from a corresponding.8% and.% in 9M:7). NBG - Emerging Markets Analysis Bi-Weekly Report

8 Q: Q: Q: Q: Q:7 Q:7 Q:7 Q:7 Q:8 Q:8 -M: 7-M: -M: 7-M: -M: 7-M: -M: 7-M: -M:7 7-M:7 -M:8 October November 8 Cyprus BBB- / Ba / BBB- (S&P / Moody s / Fitch) Net earnings of the banking sector returned to positive territory for the first time in years in H:8, due to lower provisioning. The banking sector posted profits of EUR 8mn (.% of GDP) in H:8, against losses of EUR mn (.% of GDP) in H:7, on the Semi-annual Net Income (bn, EUR, annualised) back of a sharp decline in banks provisions (down 89.% y-o-y). As a, result, the (annualised) ROAE and ROAA improved to.9% and.%,,, respectively, in H:8, from -7.7% and -.9% in H:7., Lower provisioning in H:8 was in line with a sharp decline in - -, - -, the ratio of non-performing exposures (NPEs). Indeed, banks stock - -, of NPEs contracted by.% y-o-y to EUR.9bn or 8.8% of GDP at - -, - -, end-h:8 -- c..% off their peak in February -- mainly due to - -, sales of bad loans, write-offs and debt-for-asset swaps. Note that the -7 -, island s largest two banks, Bank of Cyprus (BoC) and Hellenic Bank (HB), engaged in NPL sales, amounting to.% and.7% of GDP, respectively, in H:8 (equivalent to c..% of the end-7 stock of Net interest income Provisions & impairments total gross loans or c..% of the respective NPE stock). As a result, Net non-interest & other income Taxes Operating expenses Overall net income (rhs) the overall NPE ratio declined to 8.9% at end-h:8 from.% a Net income (Cont. Oper., rhs) year earlier and a peak of 9.% in May. Against this backdrop NPE Ratio and Cost-of-Risk and despite increased impairment requirements due to IFRS-9 firsttime adoption, banks lowered loan loss provisions. As a result, the (- quarter rolling) cost of risk declined by 7 bps y-o-y to a multi-quarter 7 low of bps in Q:8. Pre-provision earnings more than halved in H:8, due to lower revenue and higher operating costs. Net interest income declined sharply, by.8% y-o-y, in H:8 due to: i) lower average interestearning assets (down.7% y-o-y to 9% of GDP), in line with the 8 ongoing deleveraging; and ii) a weaker net-interest margin (NIM down bps y-o-y to bps), reflecting, inter alia, higher restructurings and tighter loan-deposit spreads. Net non-interest and other income also declined markedly in H:8 (down.7% y-o-y), mainly due to an NPE ratio (% of Gross Loans) exceptional accounting loss (.7% of GDP) related to BoC s NPE sales Cost-of-Risk (total, -quarter m.a., inverted, bps, rhs) transaction (see above) and a base effect from a once-off gain (.% WEF- Global Competitiveness Index of GDP) from HB s divesture of its arrears management unit last year. (Change from previous year), Excluding these once-offs, net non-interest and other income declined, slightly (down.% y-o-y), mainly reflecting lower net fees and, commission income, due, inter alia, to migration of certain NPE-related, commission income under new IFRS-9 accounting standards. On the other hand, operating expenses rose by 8.% y-o-y in H:8,, exclusively due to elevated general & administrative expenses (up,.7% y-o-y), reflecting increased advisory costs related to banks NPE, sales and the carrying out of stress tests early in the year. Staff costs, remained flat on an annual basis. As a result, the cost-to-income ratio -, increased by pps y-o-y to 7.9% in H:8. However, excluding the Overall ICT adoption Institutions Macro stability Infrastructure Health BoC s once-off loss and HB s once-off gain, the deterioration in the Skills Product market Labour market Financial system Market size Business dynamism cost-to-income ratio on an annual basis is milder (up.7 pps y-o-y to Innovation capability.% -- lower than the EU-average of.8%). Nov. -M F -M F -M F Cyprus ranked th in this year s World Economic Forum Global -m EURIBOR (%) Competitiveness Index. The country improved its overall score by.9 EUR/USD.... pps y-o-y to., keeping its ranking almost unchanged from last year Sov. Spread (. bps) ( th among countries). Indeed, there was a broad-based improvement in the pillars of the competitiveness index (see chart). Nov. -W % YTD % -Y % CSE Index Skills and business dynamism were the only pillars that posted a slight deterioration from the previous year. The latter reflects hurdles to 7 8F 9F entrepreneurship, stemming from bureaucracy, as was recently Real GDP Growth (%) stressed by the EC/ECB s latest Post-Programme Surveillance Inflation (eop. %) mission. Importantly, the island s improved institutions and higher Cur. Acct. Bal. (% GDP) absorption of information technology helped to narrow its Fiscal Bal. (% GDP) competitiveness gap with the European and North American average. NBG - Emerging Markets Analysis Bi-Weekly Report 7

9 FY:9/ FY:/ FY:/ FY:/ FY:/ FY:/ FY:/ FY:/7 FY:7/8 FY:/ FY:/ FY:/ FY:/7 FY:7/8 October November 8 Egypt GDP growth reached a -year high of.% in FY:7/8, with a significant rebalancing from consumption towards investment B / B / B (S&P / Moody s / Fitch) and exports. GDP growth accelerated to.% in FY:7/8 (July 7- June 8) from.% in FY:/7, underpinned by the return of Contributions to Annual Real GDP Growth (pps) confidence in the Egyptian economy following the steady implementation of the IMF-supported programme. Note that on October st, an IMF staff team and the Egyptian authorities reached a staff-level agreement on the th review of the country s economic reform programme, which is supported by the IMF s -year USD bn Extended Fund Facility arrangement. The completion of this review by the IMF s Executive Board is expected in the coming weeks and will - - allow the authorities to draw the equivalent of USD bn, bringing total - - disbursements under the programme to c. USD bn. Importantly, the ongoing adjustment programme is shifting the structure of economic growth from consumption towards exports and Private Consumption Public Consumption investments, which bodes well for strong and sustainable growth in the Net Exports Gross Capital Formation coming years. The main measures of this programme are: i) the GDP (y-o-y %) flotation of the domestic currency; ii) cuts in fuel and gas subsidies 7 Real GDP Growth 8 (through price increases); iii) the introduction of the long-awaited VAT and Unemployment Rate and the increase of other taxes; and iv) the containment of the wage 9 bill (through a new civil service law). Real GDP (y-o-y % change, lhs) Specifically, private consumption growth moderated sharply to.% in Start of Revolution (Jan. ) FY:7/8 from.% a year earlier, contributing. pp to overall growth in FY:7/8 against. pps a year earlier. Gross capital formation growth accelerated to.7% in FY:7/8 from.% a year earlier, contributing. pps to overall growth in FY:7/8 against.8 pps a year earlier. Unemployment Rate (%, inverted, rhs) Net exports have become a key driver of overall growth in FY:7/8, after having been a drag for consecutive years -- contributing.8 pps to headline growth in FY:7/8 after having subtracted. pps a year earlier. The positive net exports performance reflects the fact that exports of goods and services not only rose by an impressive.% in Egypt - 8 Global Competitiveness Index FY:7/8 but also expanded at a faster pace than imports (.%), (Change from previous year) following the flotation of the EGP in mid-q:/7 (that halved the EGP value) and a strong rebound in tourism activity. Indeed, the number of nights spent by tourists rose sharply by c. 9.% in FY:7/8, on the - back of a cheaper domestic currency and improved security conditions. - Note that, in line with the rebound in economic activity, the FY:7/8 - unemployment rate declined to an 8-year low of.9% -- down from - -.% in FY:/7 and a peak of.% in FY:/. - With high frequency indicators pointing to the continuation of recent -7 trends in M:8/9 and projecting continued strong implementation of -8-9 the ongoing IMF-supported programme, we expect GDP growth to Overall ICT adoption Institutions Macro stability Infrastructure Health accelerate further to.% in FY:8/9 from.% in FY:7/8 -- Skills Product market Labour market Financial system Market size Business dynamism broadly in line with the latest IMF forecast of.%. Innovation capability Egypt ranked 9 th in the World Economic Forum s 8 Global Competitiveness Index. Although there was a broad-based Nov. -M F -M F -M F O/N Interbank Rate (%) improvement in the pillars of the index, Egypt s ranking remained EGP/USD unchanged from last year due to a deterioration in the Macro Stability Sov. Spread (. bps) 9 88 and Financial System pillars. The Institutions and the Labour Market pillars strengthened HERMES Nov. -W % YTD % -Y % significantly as a result of sustained progress in property rights, the, efficiency of the legal framework in settling disputes and challenging / / /7 7/8E 8/9F regulations, the judicial independence, the hiring and firing practices Real GDP Growth (%)..... and the female participation in the labour force. The poor performance Inflation (eop. %) of the Macro Stability and Financial System pillars resulted from a Cur. Acct. Bal. (% GDP) sharp rise in inflation and a widening credit gap (the difference Fiscal Bal. (% GDP) between the lending penetration rate and its long-term trend). NBG - Emerging Markets Analysis Bi-Weekly Report 8

10 October November 8 FOREIGN EXCHANGE MARKETS, NOVEMBER TH 8 Against the EUR 8 7 Currency SPOT -week %change -month %change YTD %change* -year %change Year- Low Year- High -month Forward rate** -month Forward rate** -month Forward rate** % change* % change* Albania ALL Brazil BRL Bulgaria BGL China CNY Egypt EGP FYROM MKD India INR Romania RON Russia RUB Serbia RSD S. Africa ZAR Turkey YTL Ukraine UAH US USD JAPAN JPY UK GBP * Appreciation (+) / Depreciation (-) ** Forward rates have been calculated using the uncovered interest rate parity for Brazil, China, Egypt, India and Ukraine Currencies against the EUR (November th 8) ALL BRL BGL CNY EGP -week % change -month % change YTD % change MKD INR RON RUB RSD ZAR TRY UAH USD JPY GBP Depreciation Appreciation NBG - Emerging Market Research Bi-Weekly Report 9

11 October November 8 MONEY MARKETS, NOVEMBER TH 8 Albania Brazil Bulgaria China Cyprus Egypt FYROM India Romania Russia Serbia Turkey S. Africa Ukraine EU US O/N T/N S/W Month Month Month Month Year *For Bulgaria, the Base Interest Rate (BIR) is reported. For Egypt, the O/N Interbank Rate is reported. LOCAL DEBT MARKETS, NOVEMBER TH 8 Albania Brazil Bulgaria China Cyprus Egypt FYROM India Romania Russia Serbia Turkey S. Africa Ukraine EU US -Month Month Month Year Year Year Year Year Year Year Year *For Albania. FYROM and Ukraine primary market yields are reported CORPORATE BONDS SUMMARY, NOVEMBER TH 8 Currency Rating S&P / Moody s Maturity Amount Outstanding (in million) Bid Yield Gov. Spread Asset Swap Spread Bulgaria Bulgaria Energy Hld.87% ' EUR NA/NA /8/. South Africa FirstRand Bank Ltd.% ' USD BBB-/Baa //. 7 7 FirstRand Bank Ltd.% ' EUR NA/NA //.9 Arcelik AS.87% ' EUR BB+/NA /9/. 7 Garanti Bank.% ' USD NA/Ba /9/ Turkiye Is Bankasi % ' USD NA/B //,. 8 7 Turkey Vakifbank.7% ' USD NA/Ba // 9. 7 TSKB.% ' USD NA/Ba // Petkim.87% ' USD NA/B // KOC Holding.% ' USD BB+/Ba // CREDIT DEFAULT SWAP SPREADS. NOVEMBER TH 8 Albania Brazil Bulgaria China Cyprus Egypt FYROM India Romania Russia Serbia Turkey S. Africa Ukraine -Year Year NBG - Emerging Market Research Bi-Weekly Report

12 October November 8 EUR-DENOMINATED SOVEREIGN EUROBOND SUMMARY. NOVEMBER TH 8 Currency Rating S&P / Moody s Maturity Amount Outstanding (in million) Bid Yield Gov. Spread Asset Swap Spread Albania.7% ' EUR B+/B // Bulgaria.% ' EUR NA/NA //. 7 Bulgaria.% ' EUR BBB-/Baa //,. 7 Bulgaria.9% ' EUR BBB-/Baa /9/,9.7 7 Bulgaria.% '7 EUR BBB-/Baa //7,. 9 Bulgaria.% ' EUR BBB-/Baa // Cyprus.% ' EUR BBB-/Ba // Cyprus.87% ' EUR NA/Ba //,.7 7 Cyprus.7% ' EUR NA/Ba /7/,. 9 Cyprus.7% ' EUR NA/Ba 7// 8. 7 Cyprus.% ' EUR NA/Ba //, FYROM.87% ' EUR BB-/NA // FYROM.97% ' EUR BB-/NA /7/. FYROM.% ' EUR BB-/NA /7/. 8 FYROM.7% ' EUR BB-/NA 8//. 7 Romania.% ' EUR BBB-/BBB- 8/9/,. 7 7 Romania.% ' EUR BBB-/BBB- //,. 8 Romania.7% '7 EUR BBB-/BBB- 9//7,. 7 Turkey.% ' EUR NR/Ba //,. 9 Albania.7% ' Bulgaria.% ' EUR-Denominated Eurobond Spreads (November th 8) Bulgaria.% ' Bulgaria.9% ' Bulgaria.% '7 -week change -month change YTD change Bulgaria.% ' Cyprus.% ' Cyprus.87% ' Cyprus.7% ' Cyprus.7% ' Cyprus.% ' FYROM.87% ' FYROM.97% ' FYROM.% ' FYROM.7% ' Romania.% ' Romania.% ' Romania.7% '7 Turkey.% ' Tightening Widening NBG - Emerging Market Research Bi-Weekly Report

13 October November 8 USD-DENOMINATED SOVEREIGN EUROBOND SUMMARY. NOVEMBER TH 8 Currency Rating S&P / Moody s Maturity Amount Outstanding (in million) Brazil.7% ' USD NA/Ba // Brazil.87% ' USD NA/Ba //,7. 9 Bid Yield Gov. Spread Asset Swap Brazil 8.7% ' USD NA/Ba // Egypt.7% ' USD B/B 9//,. 9 Egypt.7% ' USD NA/B //,. Egypt.87% ' USD B/B // Egypt 7.% '8 USD NA/B //8, Egypt.87% ' USD B/B //, Egypt 8.% '7 USD NA/B // Romania.7% ' USD BBB-/BBB- /8/,. Romania.87% ' USD BBB-/BBB- //,. 7 Romania.% ' USD BBB-/BBB- //,. Russia.7% '8 USD BBB-/Ba //8,. 8 Russia.87% ' USD BBB-/Ba /9/,. Serbia.87% ' USD BB/Ba //,. 7 Serbia 7.% ' USD BB/Ba 8/9/,. S. Africa.87% ' USD BB/Baa /9/, S. Africa.% ' USD BB/Baa 8// Turkey 7.% ' USD NR/Ba //,. Turkey 7.7% ' USD NR/Ba //, 7. 9 Turkey.87% ' USD NR/Ba //, Turkey 8.% ' USD NR/Ba //, Turkey.7% ' USD NR/Ba //, Ukraine 7.7% ' USD B-/Caa /9/, Spread Brazil.7% ' USD-Denominated Eurobond Spreads (November th 8) Brazil.87% ' Brazil 8,7% ' Egypt.7% ' Egypt.7% ' Egypt.87% ' Egypt 7.% '8 Egypt.87% ' Egypt 8.% '7 Romania.7% ' Romania.87% ' Romania.% ' Russia.7% '8 Russia.87% ' Serbia.87% ' Serbia 7.% ' S. Africa.87% ' S. Africa.% ' Turkey 7% ' Turkey 7.7% ' Turkey.87% ' Turkey 8% ' Turkey.7% ' Ukraine 7.7% ' -week change -month change YTD change - - Tightening Widening NBG - Emerging Market Research Bi-Weekly Report

14 October November 8 Level -week % change STOCK MARKETS PERFORMANCE. NOVEMBER TH 8 -month % change 8 7 Local Currency Terms EUR Local Currency EUR Local Currency EUR Terms Terms terms terms terms YTD % change -year % change Year- Low Year- High YTD % change % change % change Brazil (IBOV) 89, ,9 89, Bulgaria (SOFIX) China (SHCOMP), ,9, Cyprus (CSE GI) Egypt (HERMES), ,, F.Y.R.O.M (MBI), ,, India (SENSEX),9..7..,8 8, Romania (BET-BK), ,7, Russia (RTS), ,7, Serbia (BELEX-) South Africa (FTSE/JSE), ,, Turkey (ISE ) 9, ,, Ukraine (PFTS) MSCI EMF , MSCI EAFE, ,778, Greece (ASE-General) Germany (XETRA DAX), ,, UK (FTSE-) 7, ,8 7, USA (DJ INDUSTRIALS), ,, USA (S&P ), ,, Brazil (IBOV) Bulgaria (SOFIX) Equity Indices (November th 8) China (SHCOMP) Cyprus (CSE GI) Egypt (HERMES) F.Y.R.O.M (MBI-) -week % change -month % change YTD % change India (SENSEX) Romania (BET-BK) Russia (MICEX) Serbia (BELEX ) South Africa (FTSE/JSE) Turkey (ISE-) Ukraine (PFTS) MSCI EMF MSCI EAFE Greece (ASE-General) Germany (DAX) UK (FTSE-) USA (DJ INDUSTRIALS) USA (S&P ) - 9 Loss Gain NBG - Emerging Market Research Bi-Weekly Report

15 October November 8 DISCLOSURES: This report has been produced by the Economic Analysis Division of the National Bank of Greece, which is regulated by the Bank of Greece, and is provided solely for the information of professional investors who are expected to make their own investment decisions without undue reliance on its contents, i.e. only after effecting their own independent enquiry from sources of the investors sole choice. The information contained in this report does not constitute the provision of investment advice and under no circumstances is it to be used or considered as an offer or an invitation to buy or sell or a solicitation of an offer or invitation to buy or sell or enter into any agreement with respect to any financial asset, service or investment. Any data provided in this report has been obtained from sources believed to be reliable but have to be not been independently verified. Because of the possibility of error on the part of such sources, National Bank of Greece does not guarantee the accuracy, timeliness or usefulness of any information. The National Bank of Greece and its affiliate companies, its representatives, its managers and/or its personnel or other persons related to it, accept no liability for any direct or consequential loss arising from any use of this report. The final investment decision must be made by the investor and the responsibility for the investment must be taken by the investor. This report is not directed to, nor intended for distribution to use or used by, any person or entity that is a citizen or resident of or located in any locality, state, country or other jurisdiction where such a distribution, publication, availability or use would be contrary to any law, regulation or rule. The report is protected under intellectual property laws and may not be altered, reproduced or redistributed, to any other party, in whole or in part, without the prior written consent of National Bank of Greece. NBG - Emerging Markets Analysis Bi-Weekly Report