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bne July 2021 Companies & Markets I 5
region, with banks singling out Bosnia and Herzegovina and Kosovo as having signs of somewhat increasing lower market potential, while in other countries they see medium to reasonable market potential.
However, the report added: “Prior to the COVID-19 pandemic, exposures had been oscillating, reflecting an increased level of global uncertainty and volatility. This calls for a cautious approach when interpreting the current outcomes.”
Demand for loans and credit lines rose in the six months before the survey was compiled, recovering from the sharp contraction recorded in the second and third quarter of 2020. This was the first contraction in aggregate demand in six years.
“The increase in demand was primarily supported by working capital needs, debt restructuring but also positive housing market prospects,” according to the report.
“Debt restructuring started to be a positive contributing element since March 2020, whilst its contribution was close to zero in pre-pandemic years. On the other hand, the contribution from investment continued to be negative, as already detected in spring and autumn 2020 waves of the survey. This is a significant turnaround, because fixed investments were among the highest positive contributors prior to the COVID-19 pandemic.”
On the supply side, the report said that credit standards tightened – the tightening was observed across the client spectrum, but in particular for small and medium-sized enterprise (SME) and corporate lending. Looking forward, banks anticipate that aggregate supply conditions will gradually move towards a neutral stance but not ease in the next six months.
“The financial system in Central, Eastern and Southeastern Europe is showing a remarkable resilience in [the] face of one of the largest economic shocks it has ever faced. International banks continue to show their commitment to the region,” said EIB chief economist Debora Revoltella.
However, Revoltella added, "Nonetheless, our survey shows weak investment demand and still tightening conditions on loans to smaller business and corporates. A continued joint effort by the public and private sector as well as multilateral
Groups' total exposure to CESEE
Source: EIB – CESEE Bank Lending Survey.
Source: EIB – CESEE Bank Lending Survey.
Note: All indicators in net percentages.
Supply/Demand: Positive figures refer to increasing (easing) demand (supply). Access to funding: Positive values indicate increased access to funding.
NPL: Negative
partners is needed to boost investment activities, to help the region not only recover but to further prosper and meet the challenges of the green and digital transition.”
The survey showed uneven expectations across client portfolios. The household segment is anticipated to benefit from easing standards, while SMEs and large corporates are still expected to face tightening credit standards, the survey revealed.
However, the report added: “Despite a tightening in supply conditions, approval rates have increased in the past six months compared to the significant drop recorded from April to September 2020. The terms and conditions of loan supply tightened in terms of size of the loans and only slightly in terms of maturity.”
Meanwhile, collateral requirements have tightened, especially for SMEs. When it comes to the reasons for tightening conditions, the survey reveals local market outlooks and non- performing loans (NPLs) as limiting factors, along with some international factors, specifically the global market outlook and EU regulation. Meanwhile, changes in the domestic regulatory environment and local bank funding played an easing role.
“Access to funding has continued to ease in the CESEE region over the past six months backed by almost all sources of funding,” said the report. It added, however, “Easy access
to retail and corporate deposits supports a positive outlook.
In addition, CESEE subsidiaries report that easier access to short-term funding is making a positive contribution to overall funding activities. IFI funding contributed positively.”
On the other hand, it added: “Longer-term funding conditions have only marginally eased. Subsidiaries did not indicate
a positive contribution from access to international and intra-group funding over the past six months."
NPL ratios had been falling in the years since economies in the region began to recover from the international economic
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