Role and Contribution of Banks a Regional Perspective

Transcription

1 Role and Contribution of Banks a Regional Perspective AAB Conference, Tirana November 2017 Dejan Vasiljev, CFA, Principal Economist

2 Global economic outlook has strengthened in recent months Global growth by 0.4 pp in 2017, to 3.6%, and further to 3.7% in 2018 The recovery momentum has been broadly shared across countries, signs of investment revival Global trade growth has picked up somewhat, expected at 4%+ in volume terms in 2017 (in line with output growth) Global growth, % Source: IMF and authors calculations. 2

3 Financing conditions cycle has run ahead of economic cycle: improved financing conditions for EMs Argentina s 100-year old bond placement in Jun 17 and Ukraine s US$ 3 billion bond in Jun 17 oversubscribed several times Tajikistan (S&P B-) issued a 10-year bond in Sep 17 with a yield of 7.1% (US$ 500m = 7% of GDP, oversubscribed 6+ times) Belarus placed 10-year bonds yielding 7.6 per cent in Jun 17, others countries took advantage of favourable conditions, too Yields, % Source: Bloomberg. 3

4 Stock market volatility low for the longest time since 2013 Market volatility, Index 100 = 01/2013 Source: Thomson Reuters. 4

5 EBRD regions: 3.3% in H1 2017, up from 1.9% in 2016 Same trend into November, based on EBRD nowcast EBRD nowcast estimates growth in the region based on 152 economic and financial variables monitored in real time Growth, year-on-year, % Source: EBRD calculations based on CEIC, national authorities, IMF, Bloomberg. 5

6 The recovery momentum is perhaps more notable for its breadth than its strength Growth in H1 2017, year-on-year, % Source: National authorities, CEIC and authors calculations. 6

7 Year-on-year growth picked up in 27 countries out of 36 in H vs. H The first such occurrence since 2010 % of countries in the EBRD regions with accelerated year-on-year growth in H1 Source: National authorities, CEIC and authors calculations. 7

8 Western Balkans: slowdown due to drought in Serbia and political uncertainty in FYROM Macedonia Country contributions (in p.p.) to the Western Balkans growth performance H SRB MNE MKD KOS BIH ALB WB Western Balkans growth dynamics by industry H Stat. discrepancy Net Taxes Services Construction Industry Agriculture GDP 13 November, Source: National authorities; EBRD calculations. 8

9 Banking systems in the region are dominated by EU banks EU banks hold roughly 2/3 of the banking sector assets in the region. Once considered a strenght, the ownership structure is a potential concern nowdays. Banking sector ownership structure by total assets Source: Bankscope,

10 Capital adequacy position is relatively comfortable, and currently does not seem to constrain lending Liquidity is ample. There has been a significant reduction of loan to deposit ratios across the region, as credit growth slowed and even turned negative, and banks sought to replace parent funding with local deposits. Regulatory capital to risk-weighted assets Loan to deposit ratio Source: IMF, national central banks. CAR as of Q or later. 10

11 There is still significant catch-up potential, as financial intermediation is low Financial depth is stil low throughout the region. In Albania, there is a large gap between credit to private sector and banking sector assets to GDP, indicating sub-optimal portfolio structure. Credit to private sector / GDP Banking sector assets / GDP Source: IMF, national central banks, as of YE 2015 or later. 11

12 But credit growth, although picking up somewhat recently, remains low in many countries Credit growth year-on-year, adjusted for exchange rate movements and inflation Source: CEIC. 12

13 Albania is the only country in the region with no improvements in credit growth Credit growth year-on-year, adjusted for exchange rate movements and inflation Source: CEIC, national authorities and authors calculations. 13

14 High NPLs increase risk aversion and constrain credit growth Some improvement in NPLs since the peak but modest to date Median decline from the post-crisis peak 3 pp vs. peak of 16.5% Countries that reduced their NPL ratios by 1/3+: Baltics, Egypt, Hungary, Kazakhstan, Kyrgyz R., Romania. Non-performing loans, % of total loans Source: CEIC, national authorities, World Bank and Moody s 14

15 NPL ratios in the region are high, but coverage provides some comfort NPL Ratio (%) Even when they are fully provisioned for, NPLs are still a drag on credit growth, as they absorb significant resources and managerial time. Non-performing loans and NPL Coverage CESEE Average EE: 0.2Bn BG: 5.1Bn LT: 0.8Bn ME: 0.3Bn CZ: 5.7Bn RO: 5.3Bn SK: 2.3Bn RS: 2.8Bn SL: 1.5Bn PL: 11.4Bn AL: 0.8Bn HR: 4.8Bn BA: 1.0Bn HU: 3.5Bn MK: 0.3Bn KV: 0.1Bn LV: 0.7Bn CESEE NPL Coverage Average (%) K Source: NPL monitor, 1H

16 In Albania, despite progress, NPL resolution still has some way to go NPL ratio has been almost flat YE YE2016, and tops the region with 18.3% (YE 2016) Whereas other countries in the region have seen some notable improvements, partly due to increased secondary market activity, transactions in Albania are scarce Non-performing loans, % of total loans and NPL transactions Source: NPL Monitor, 1H

17 Can banks do more to support the ongoing and expected economic recovery 1/2? There are significant constraints on the supply side due to: Increased regulatory burden coming from EU, as most banks are supervised by SSM, but also from national regulators: higher capital requirements, MREL, risk-weights on non-eu government exposures, state-aid rules... Small size and fragmented nature of the markets in the region, coupled with the perception of limited growth potential Impaired balance sheets, as evidenced by high level of NPLs Overbanked markets As a consequence, the ongoing consolidation will continue. But there are many sellers and only a few buyers Banks managed to replaced parent funding with local deposits in the aftermath of the financial crysis But deposit growth has moderated when demand for credit picks up, funding will become more of an issue 17

18 Can banks do more to support the ongoing and expected economic recovery 2/2? So what can be done? Clean up balance sheets and increase efforts aimed at NPL resolution Develop local capital markets and diversify funding sources ( spare tire ) Intensify work on de-dollarisation agenda Actively seek new investors, in the absence of strategic investors consider alternative solutions Strenghten insolvency frameworks and improve collateral valuation 18