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CBBH and SEESOX High Level Seminar South East Europe in an Environment of Volatile Capital Flows June 6, 2014 CESEE Deleveraging and Credit Developments Ruben Atoyan (IMF) BIS reporting banks continue to reduce funding to CESEE; pace remains the same CESEE: External Positions of BISreporting Banks, 2013:Q1 - 2013:Q4 CESEE: Change of External Positions of BISreporting Banks, 2011:Q1-2013:Q4 (Percent (Change, Percent of 2013 GDP*) of 2013 GDP) 1.5 4 CESEE, all sectors and instruments 1 0.9 Vis-à-vis all sectors gross 2 CESEE excl. Russia and Turkey, all sectors and instruments -0.1 0 -0.4 -0.2 -0.2 -0.3 0 -0.2 -0.2 -0.2 -0.4 -0.5 -0.7 -1 0.5 0.1 -0.2 -0.3 -2 -0.3 -4 2013 Q3 -0.6 -6 -0.8 -8 -1.5 -1.4 2013 Q4 2013 Q2 2013 Q1 Total -1.5 -10 Sources: BIS, Locational Banking Statistics: and IMF staff calculations. 2013:Q4 2013:Q3 2013:Q2 2013:Q1 2012:Q4 2012:Q3 2012:Q2 2012:Q1 2011:Q4 2011:Q3 2011:Q2 2011:Q1 -2 CESEE CESEE ex. RUS & TUR -0.5 0.0 -0.2 0.2 -1.6 0.6 Slovenia Latvia Hungary Bulgaria Slovakia Croatia Romania Macedonia Serbia Ukraine Moldova Poland Bosnia-Herzegovina Lithuania Belarus Russia Turkey Albania Montenegro Czech Republic 0.5 Sources: BIS, Locational Banking Statistics; and IMF staff calculations. 2 Cumulative reductions significant for many 1000 900 800 700 600 500 400 (Change, US$194 b (4.1% of 2013 GDP) US$77 b (1.6% of 2013 GDP) 10 US$175 b (10.1% of 2013 GDP) US$114 b (6.6% of 2013 GDP) -10 Percent of 2013 GDP) Vis-à-vis all sectors gross 5 0 -5 -3.0 (Billions of US$, exchange-rate adjusted, vis-à-vis all sectors) CESEE: External Positions of BISreporting Banks, 2009-2013 -9.4 CESEE: External Position of BIS-reporting Banks, 2003:Q1-2013:Q4 -15 -20 2013 -25 2011-12 -30 2009-10 CESEE -35 Total CESEE ex. RUS & TUR -40 300 200 CESEE CESEE ex. RUS & TUR 2013:Q4 2013:Q1 2012:Q1 2011:Q1 2010:Q1 2009:Q1 2008:Q1 2007:Q1 2006:Q1 2005:Q1 2004:Q1 2003:Q1 0 Hungary Latvia Slovenia Lithuania Bulgaria Croatia Romania Ukraine Serbia Bosnia-Herzegovina Moldova Slovakia Russia Czech Republic Belarus Poland Albania Montenegro Macedonia Turkey 100 Sources: BIS, Locational Banking Statistics; and IMF staff calculations. 3 Credit growth to NFCs remains subdued outside CIS & Turkey Credit to Private Sector, Jan 2009 - Jan 2014 (Percent change, year-over-year, nominal, exchange-rate adjusted) 35 (Percent change, year-on-year, nominal, exchange-rate adjusted) 40 Total: CESEE excl. CIS & TUR 30 CESEE: Growth of Credit to Households and Corporations, Dec 2013 Total: CIS & TUR 30 NFCs: CESEE excl. CIS & TUR NFCs: CIS & TUR 20 25 Households Corporates Total 10 20 0 15 -10 10 0 -5 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Sources: National authorities and EBRD staff calculations. Jan-14 CESEE excl. CIS & TUR CIS & TUR -30 5 Slovenia Latvia Hungary Serbia Romania Lithuania Croatia Albania Bulgaria Estonia Poland BiH Slovakia Montenegro Macedonia Ukraine Russia Moldova Belarus Turkey -20 Sources: National authorities and EBRD staff calculations. 4 HH credit shows signs of revival, deposit growth continues CESEE: Growth of Credit to Households, Jan 2009 to January 2014 (Percent change, year-on-year, nominal, exchange-rate adjusted) 14 35 30 CESEE. Evolution of Main Bank Funding Sources, 2007Q1 – 2013Q4 Total (percent of GDP) CEE Baltics SEE Δ Domestic deposits 10 25 8 20 6 15 4 Total 2 10 0 5 -2 0 -4 -5 -6 2007:Q1 -10 Jan-09 Δ Foreign banks 12 2008:Q2 2009:Q3 2010:Q4 2012:Q1 2013:Q2 * Excludes Montenegro and Kosovo because of data unavailability. Jan-10 Jan-11 Jan-12 Sources: National authorities and EBRD staff calculations. Jan-13 Jan-14 Notes: CESEE excl. Russia and Turkey; y-o-y change in BIS banks’ exposure and domestic deposits in percent of GDP, exchange-rate adjusted. Sources: BIS Locational Banking Statistics; IMF, International Financial Statistics; and IMF staff calculations. IIF survey suggests no improvement in bank funding conditions and still tight credit standards EM Europe Bank Lending Conditions Survey Q4 2013 (Values above 50 indicate improving conditions; values below 50 indicate deteriorating conditions) 80 Credit Standards Demand for Loans 80 70 Funding Conditions Overall 70 60 50 50 40 40 30 30 20 20 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 60 Sources: IIF. 6 What Matters for Funding: Domestic Factors Important Explaining Change in BIS Banks’ Positions since 2008Q2: Relative Importance of External and Domestic Factors 10 16 21 47 6 Global liquidity conditions Parent bank characteristics Host country macro characteristics Host bank characteristics Dummy variables Sources: CESEE Regional Economic Issues Spring 2014, forthcoming 7 LD ratio coming down, NPL outlook more upbeat CESEE. Evolution of Loan to Deposit Ratio, 2004M3 – 2013M12 CESEE. Evolution of NPLs during last 3 months and expected evolution in the next 3 months (Values above 50 indicate improving conditions; values below 50 indicate deteriorating conditions) 170 70 75th percentile 160 Average (simple) 150 60 25th percentile 140 50 130 120 40 110 30 100 90 NPL Q4 NPL outlook 20 80 10 2013M12 2013M3 2012M6 2011M9 2010M12 2010M3 2009M6 2008M9 2007M12 2007M3 2006M6 2005M9 2004M12 2004M3 60 Sources: IMF, Monetary and Financial Statistics; IMF, International Financial Statistics; and IMF staff calculations. * Excludes loans and deposits from other financial institutions. Derived from Standardized Reporting Forms. May differ from "headline" ratios reported by national authorities. In the case of Russia, derived from IFS as ratio of claims on the private and nonfinancial public sectors to all deposits. 0 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 70 Sources: IIF. 8 Portfolio flows rebounded in Q4 But market conditions remain volatile Capital Flows (excluding Turkey and Russia), 2009:Q1 – 2013:Q4 (Billions of US dollars, bop data) 30 CESEE: EMBIG Spreads Indices, 2013 Jan - 2014 Apr (May 21, 2013 = 100) 170 25 160 20 150 15 BLR, HRV, SRB, & TUR (simple avg.) Others (simple avg.) 140 10 130 5 120 0 110 -5 100 Other investment 90 Portfolio investment FDI Sources: Haver Analytics; IMF, World Economic Outlook database; and IMF staff calculations Apr-14 Feb-14 Mar-14 Jan-14 Dec-13 Nov-13 Oct-13 Sep-13 2013:Q1 2013:Q4 Aug-13 2012:Q1 Jul-13 2011:Q1 Jun-13 2010:Q1 May-13 2009:Q1 Apr-13 80 Total -20 Feb-13 Mar-13 -15 Jan-13 -10 Sources: Bloomberg; and IMF staff calculations 9 Main points and issues for discussion: Western banks’ pullback from CESEE region continues, pace seems slower (excluding Russia and Turkey). Q-n: Is there a risk of pick-up? Is it largely complete in countries where loans-to-deposits ratios are around or below 100 percent? Credit decline seems to be bottoming out at least in the HH sector; credit still declining for NFCs. Q-n: What is holding back investment demand? What does this imply for a return of domestic demand outside CEE? With funding and credit conditions still tight, if demand picks up, will there be supply constraints? Q4 saw an improvement in financial conditions, but going forward, further tightening and bouts of volatility is likely. Q-n: Are there significant risks for CESEE? 10