Download Key Role of Financial Sector in Economic Growth

Access to Finance and the
Financial Sector Enabling Environment
in the Balkans
Facts, Figures, and How to Address the Weaknesses
Outline
• About PFS
• Key role of financial sector in economic
growth
• Measuring access to finance in the Balkans
• Sizing up the enabling environment for
financial services
• What can be done?
2
2
About USAID’s Regional Partners for Financial
Stability Program
PFS helps countries more effectively address their financial sector
challenges focusing on stability, access to finance and growth.
•
Regional training and study tours to
mentor countries, bringing together
key players in the region
•
Crisis related focus: deposit insurance,
access to finance, crisis preparedness
measures, problem loans
•
Research, surveys, publications
•
Partnerships, leveraging program funds
•
Strengthening domestic institutions
3
3
Key Role of Financial Sector in Economic Growth
4
Key Role of Financial Sector in Economic Growth
Providing Credit & Specialized
Financial Services
Providing Capital
Economic Growth and Incomes
Noncash Payment
System
5
Savings and
Investment Vehicles
5
Measuring Access to Finance in
the Balkans
6
What is Access to Finance
Physical access
To bank branches, other financial
institutions
Available funds Are banks are liquid and willing to lend?
Affordability
Are interest rates are reasonable?
Suitability
Are financial products and services
“right” for SMEs?
7
7
Physical Access to Bank Branches and Other Financial
Physical
Services
Number of branches is
rather low; trend is
downward or stagnant.
8
Available Funds: Healthy Banks
Emerging Europe
has the least
stable financial
institutions of any
emerging region
This chart compares the stability of financial institutions in the main “emerging regions” of the world. It shows that
the 29-country Emerging Europe region has the least stable financial institutions of any emerging region. The
financial stability indicator represents the average weighted z-score of commercial banks in each country (based
on the volatility of bank profits).
Source: World Bank, 2012
9
Available Funds: Bank
Liquidity
Physical
Mixed picture in the
Balkans. Banks are quite
liquid in Albania. Banks in
Serbia and Bosnia are least
liquid.
10
Available Funds: Banks’
Willingness to Lend
Physical
Banks are not
making new net
loans in Montenegro,
Serbia, or Bosnia. –
similar to the
Eurozone
(Benchmark)
11
Available Funds: Banks’
Willingness to Lend
Physical
The ratio of bank credit to
GDP is shrinking in
Montenegro and Serbia,
flat in Bosnia, and growing
modestly in Macedonia,
Albania and Kosovo.
12
Affordability: Interest
Rates
Physical
Interest rates on
loans (in local
currency) range from
7% to 17% across the
Balkans, compared to
6% in the Eurozone
13
Suitability of Financial
Products and ServicesSME lending will
Physical
What SMEs have:
What SMEs need:
always carry a
rather high
interest rate
• Few assets to serve as
collateral
• Carefully managed, cash flowbased lending
• Cash flow from sales
• Specialized lenders who take
the time to work closely with the
SME
– But only if financing is
available (to produce
goods, buy inventory)
• Unproven track record
with financial institutions
– Higher cost for the lender
• Flexible lending terms and
conditions
– Higher risk for the lender
• Very little capital
• Capital
– Forget it (for early phase SMEs)
14
Sizing up the Enabling
Environment for Financial
Services in the Balkans
15
Keys to a Vibrant Financial Sector
 Legal system
• Financial sector supervision
• Infrastructure
• Competition
16
16
Keys to a Vibrant Financial Sector – Legal System
 Judicial independence
 Contract enforcement
 Property registration
 Collateral enforcement (foreclosure)
17
17
Judicial Independence
Judicial
independence is
weak
18
18
Contract Enforcement
Enforcing contracts is
costly and difficult –
this raises the risks
and costs of lending
19
19
Property Registration
Some countries have
improved the process
and cost of registering
property (and mortgage
liens)
20
20
Collateral Enforcement
Weaknesses in the
collateral enforcement
regime translate into
higher risks for lenders,
higher interest rates for
borrowers, and reduced
supply of credit
 Slow
 Unreliable courts
 Costly for the lender
21
21
Financial Sector Enabling Environment
What Can be Done
22
Strengthening the Financial Sector
Domestic authorities, private sector players,
and donors are working to:
23
•
Rid banks of problem loans
•
Strengthen banks, capital markets, and
nonbank financial institutions
•
Implement new international standards
to prevent and mitigate financial crises
23
Improving the Legal System
Domestic authorities, USAID, IMF, World
Bank, other donors are working to:
24
•
Improve the legal system overall
•
Reduce corruption
•
Streamline collateral enforcement
•
Improve bankruptcy procedures
•
Remove tax impediments to writing off
loans
24
Partners for Financial Stability (PFS)
1919 N. Lynn Street
Arlington. VA 22209
Phone: +1 571 882 5000
Fax: +1 571 882 5100
www.pfsprogram.org
.
David Cowles
Leslie Sulenta
Pat Bryski
COTR
USAID
+1 202 567 4052
Chief of Party
Deloitte Consulting LLP
+385 98 355 258
Engagement Director
Deloitte Consulting LLP
+1 571 882 5330
[email protected]
[email protected]
[email protected]