NPLs in a regional perspective Budapest, March 3, 215 James Roaf Senior Resident Representative IMF Regional Office for Central and Eastern Europe, Warsaw
Diverging NPL ratios 2 NPLs as percent of total loans 18 16 14 12 Baltics 1 8 6 4 SEE CIS CE4 2 27 28 29 21 211 212 213 214
NPLs inhibit credit growth NPLs ratios (214) Real credit growth (214)
Change in corporate loans outstanding. (Exchange rate adjusted changes, Dec-8 - Jun-14, percent) NPLs and credit contraction in 1 Bank7 Higher NPLs -1 Bank1 Bank6 Credit contraction -2 Bank9 Bank8-3 -4 Bank4 Bank5-5 -6 Bank2 Note: Size of the bubble reflect banks market share. Bank3 5 1 15 2 25 3 35 NPL ratio of corporate loans, Jun-214 (percent) Source: MNB, Fiancial Stability Report, November 214.
Determinants of NPLs Change in unemployment (+) Exchange rate depreciation (+) Past credit growth, (+) Past Equity to Assets ratio (-) Past ROE (-) Past growth in the Euro Area (-) Macro variables Bank level variables External variable Klein, N. 213. Non-Performing Loans in CESEE: Determinants and Impact on Macroeconomic Performance. IMF Working Paper 13/72.
Determinants of NPLs Change in unemployment (+) Exchange rate depreciation (+) Past credit growth, (+) Equity to Assets ratio (-) ROE (-) Growth in the Euro Area (-) 16 14 12 1 8 6 4 2 8 6 4 2 Unemployment rate (percent) Czech Republic 28 29 21 211 212 213 214 215 216 Real GDP growth Slovak Republic (percent) Slovak Republic -2-4 -6 Czech Republic -8 28 29 21 211 212 213 214 215 216 Klein, N. 213. Non-Performing Loans in CESEE: Determinants and Impact on Macroeconomic Performance. IMF Working Paper 13/72.
PLN bn Determinants of NPLs Change in unemployment (+) Exchange rate depreciation (+) Past credit growth, (+) Equity to Assets ratio (-) ROE (-) Growth in the Euro Area (-) 13 Corporate loan portfolio by currency 125 35 3 25 2 15 1 5 135 12 115 11 15 1 95 Euro exchange rate (index, 28 average = 1) 9 28 29 21 211 212 213 214 215 29 21 211 212 213 214 FX PLN Czech Republic Slovak Republic Klein, N. 213. Non-Performing Loans in CESEE: Determinants and Impact on Macroeconomic Performance. IMF Working Paper 13/72.
Determinants of NPLs Change in unemployment (+) Exchange rate depreciation (+) Past credit growth, (+) Equity to Assets ratio (-) ROE (-) Growth in the Euro Area (-) 4 3 2 1-1 -2-3 Czech Republic Real Credit Growth (percent, y/y) -4 21 23 25 27 29 211 213 Slovak Republic Klein, N. 213. Non-Performing Loans in CESEE: Determinants and Impact on Macroeconomic Performance. IMF Working Paper 13/72.
Determinants of NPLs Change in unemployment (+) Exchange rate depreciation (+) Past credit growth, (+) Equity to Assets ratio (-) ROE (-) Growth in the Euro Area (-) 18 16 14 12 1 8 Equity to Assets (percent) Slovak Republic Czech Republic 6 28 29 21 211 212 213 214 Klein, N. 213. Non-Performing Loans in CESEE: Determinants and Impact on Macroeconomic Performance. IMF Working Paper 13/72.
Determinants of NPLs Change in unemployment (+) Exchange rate depreciation (+) Past credit growth, (+) Equity to Assets ratio (-) ROE (-) Growth in the Euro Area (-) 3 25 2 15 1 5-5 -1 Return on Equity Czech Republic Slovak Republic 28 29 21 211 212 213 Klein, N. 213. Non-Performing Loans in CESEE: Determinants and Impact on Macroeconomic Performance. IMF Working Paper 13/72.
Determinants of NPLs Change in unemployment (+) Exchange rate depreciation (+) Past credit growth, (+) Equity to Assets ratio (-) ROE (-) Growth in the Euro Area (-) 3 2 1-1 -2-3 -4-5 Real GDP growth in Euro Area October WEO January WEO 28 29 21 211 212 213 214 215 216 Klein, N. 213. Non-Performing Loans in CESEE: Determinants and Impact on Macroeconomic Performance. IMF Working Paper 13/72.
NPL determinants and consequences Impact on NPL ratio* (1pp shock) Result of NPL ratio shock* (1pp shock) Credit to GDP ratio -.7pp -1.7pp Real GDP growth -.6pp -1.pp * Point estimates of 4-quarter cumulative impact based on panel VAR model. Klein, N. 213. Non-Performing Loans in CESEE: Determinants and Impact on Macroeconomic Performance. IMF Working Paper 13/72.
Change in NPLs to GDP ratio 21-latest (percent) Asset quality improvement Credit contraction exacerbates NPLs problem in 6 5 4 3 2 1-1 -2-3 -4-5 -6-7 -8-9 Slovenia Croatia Bosnia Czech Rep. Romania Slovak Rep. Lithuania Estonia Latvia Macedonia Ukraine Moldova Russia -5-4 -3-2 -1 1 2 3 4 5 Change in outstanding loans to GDP ratio 21-latest (percent) Credit expansion
Source: MNB, Fiancial Stability Report, November 214. while portfolio cleaning continues. 3,5 3, 2,5 2, 1,5 1,,5, -,5-1, -1,5-2, -2,5 Factors affecting changes in NPLs in corporate sector in (percentage point) Change in NPLs ratio Portfolio impairment Stock component Portfolio cleaning 28 29 21 211 212 213 214
Latvia Slovenia Croatia Bosnia and Herz. Romania Ukraine Bulgaria Montenegro Slovak Rep. Albania Serbia Russia Moldova Estonia Macedonia Lithuania Belarus Czech Rep. Credit contraction: Deleveraging External Position of BIS-reporting Banks (USD billions, exchange rate adjusted) External Position of BIS-reporting Banks (exchange rate adjusted changes, 213Q4-214Q3, percent of 213 GDP) 2 1-1 -2-3 -4-5 -6-7 -8
Slovenia Ukraine Romania Macedonia Bosnia and Herz. Bulgaria Croatia Lithuania Latvia Moldova Slovak Republic Belarus Russia Estonia Turkey Czech Rep. Credit contraction: Bank funding 2 Banks Return on Equity (average 211q1-214q3) Main Bank Funding Sources, 214q3 (y/y change in percent of GDP, XR-adjusted) 15 1 5-5 -1
Findings of 212 NPLs Report Factors behind slow resolution of NPLs include: Delays and weaknesses in enforcement of collateral Underdeveloped frameworks for going-concern or out-of-court restructurings lead to lengthy and inefficient liquidations Absence of insolvency frameworks for natural persons leaves debt lingering on bank books Weakness in legal institutional frameworks delay resolution and overload court systems Tax systems disincentivize recognition of losses Lax banking supervision provides disincentives for NPL resolution Underdeveloped markets for distressed assets Collective action problems Need comprehensive, tailored, coordinated approach Avoid direct government intervention/subsidy Improve NPL transparency and data consistency
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