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June 9, 2017 www.intellinews.com I Page 5
On aggregate, Ukraine was the only loss-making banking market in 2016, according to RBI, be- cause of massive one-offs related to the nation- alisation of PrivatBank. Non-performing loans (NPLs), at an average of 30% of total lending, remain a serious problem across the sector.
Deuber also highlights Belarus as a worry be- cause of the “substantial increase” in the NPL ra- tio to 12%, and the overall contraction in lending.
Apart from Russia, one of the main drivers for the overall improvement in banking profitability was the faster than expected progress in restructur- ing NPLs, which have stabilised at 8% across the region. As well as workouts by banks themselves, sales of NPL bundles have taken off, particularly in Poland, Romania and Russia, enabling banks to write back provisions.
“Now it is reasonable and feasible to sell NPLS at acceptable prices for all parties,” says Deuber, pointing out that some buyers of distressed debt had been reluctant to go into CEE before.
Across the region banks have benefited from strong growth in loans, and especially deposits. Assets are now growing strongly in euro terms after two years of setbacks, with growth once again higher than in the Eurozone. Asset growth was 11% in 2016, above the post 2007-08 crisis average of 6-7% and last year’s Eurozone average of 2-3%. Overall credit growth was 8%, above the post-crisis average of 6% and the Eurozone’s 1% last year. The bank predicts 7% growth in lending
in local currency terms in 2017-22, though slightly slower in the more mature Central European market.
Going forward, RBI predicts that the market should be buoyed by the promising macro- economic outlook for the region, boosting lending, particularly in the retail segment. “Strong macro momentum should support retail growth,” says Deuber. “There is still upside left on the banking side”.
Unlike before the global financial crisis, this growth should be more balanced, with more local financing, and less lending in foreign exchange and aggressive pursuit of market share. Loan/ deposit ratios are already down to 86%, back to pre-boom levels.
The main problem for the banks now is what to do with all these deposits at a time when net interest margins are very narrow and are not expected to improve fast. “Banks are over liquid,” says Deuber. “They cannot accumulate deposits indefinitely.”
One way to use retail deposits, he said, was to invest in banks’ digital footprint, which can create new revenues and cut costs dramatically. “The CEE region is an ideal ‘testing field’ for cross- border digital banking solutions, as the size of some CEE banking markets is comparably small and the users seem to be quite open to accept new products and services as well as innovative retail and communications channels,” the RBI report said.