the imf, cesee and banking · 2017. 5. 31. · banking sector has played an important role in this...
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The IMF, CESEE and Banking
34th BACEE Regional Banking Conference
Budapest, April 10-11, 2017
Bas B. Bakker Senior Regional Resident Representative
for Central and Eastern Europe
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The IMF has had close involvement with CESEE since early transition
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It supported the transition to market economies with Financing Technical Assistance Training
It provide financial help and TA during the 2008/09 crisis and beyond
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2
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6
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14
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1990 1994 1998 2002 2006 2010 2014
Two waves of IMF programs: early transition and post-2008
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2017
19992008
2000
2001
2009
2015
20162013
2004
19931994
2008
2015
2004
2016
2002(SRB and MNE)
2015
20142011
CE
SEE
Baltics
CIS
Note: Years indicate start date of arrangement.
Number of countries with active IMF arrangements in CESEE
Note: Dashed pattern shows precautionary programs.
Latest IMF arrangements by country
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Most countries had banking crisis in 1990s
Many of the IMF programs originated in banking sector problems
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Banking crises
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After banking crises in 1990s, banking systems were opened to foreign investors
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Much of the banking system in non-CIS CESEE is foreign owned
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10
20
30
40
50
60
70
80
90
100
RUS SVN UKR BLR LVA POL SRB BGR HUN CZE BIH ALB HRV ROU LTU EST SVK
Market share of foreign-owned banks, 2015(Percent of total assets)
Note: for BLR and LTU data for 2014.
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In pre-crisis boom years, CESEE was very profitable…
Credit was growing rapidly Interest rate margins were relatively high Return on equity and capital was great
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Between 2003 and 2008 there were large funding flows of Western European banks to CESEE…
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0
100
200
300
400
500
600
700
800
900
1,000
2003:Q1 2004:Q1 2005:Q1 2006:Q1 2007:Q1 2008:Q1
CESEE
CESEE excl. RUS and TUR
External position of BIS-reporting banks on all sectors(billion of USD, FX change adjusted)
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…which fueled and financed a credit boom…
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0
20
40
60
80
100
120
BLR
UVK TU
RAL
BM
DA
ROU
SRB
RUS
MKD SV
KPO
LCZ
EBI
HLT
UH
RVH
UN
BGR
UKR
SVN
MN
ELV
AES
T
Change during 2003-08 2003
Credit-to-GDP ratio and its change(Percent of GDP)
ALB
BLR
BIH
BGR
HRVCZE
EST
HUN
LVA
LTU
MKD
MDA
POLROU
RUS
SVK
SVN
TUR
UKR
y = 0.6915x + 3.9528R² = 0.5733
0
2
4
6
8
10
12
-5 0 5 10
Ann
ual i
ncre
ase
of c
redi
t-to
-G
DP
ratio
Annual increase of foreign-funding -to-GDP ratio
Increase of credit-to-GDP ratio and increase of foreign funding to banks
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…which led to high current account deficits and overheating economies
9Note: For EST, LVA and LTU: 2007.
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After Lehman Brothers this suddenly stopped
As parent banks got under pressure they could no longer send new funding to CESEE
Credit booms suddenly stopped Domestic demand plunged just as exports
dried up as well Result was deep recession
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IMF provided financial assistance to many countries
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Vienna Initiative helped prevent uncoordinated withdrawal of foreign banks
Launched in January 2009, as a framework for safeguarding the financial stability of emerging Europe at the height of the global economic crisis;
The main objectives were: Prevent a large-scale and uncoordinated withdrawal
of cross-border bank groups from the region; Ensure that parent bank groups maintain their
exposures and recapitalise their subsidiaries in emerging Europe
These objectives were achieved and a potentially region-wide systemic crisis in emerging Europe’s banking sector was avoided.
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By 2010, crisis seemed over
Risk premia had declined sharply Region started growing again Bank exposure to region stopped falling
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50
100
150
200
250
2008 2009 2010 2011 2012 2013
Then euro area crisis broke
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0
1
2
3
4
5
6
7
8
9
10
2008 2009 2010 2011 2012 2013
Portugal
Greece
SpainIreland
10-year Government Bond CDS spreads(Percent)
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Bank deleveraging resumed
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100
200
300
400
500
600
700
800
900
1,000
2003:Q1 2007:Q3 2012:Q1 2016:Q3
US$319b(9% of 2016 GDP)
US$224b(15% of 2016 GDP)
CESEE
CESEE excl. RUS and TUR
Bank’s external claims on all sectors(billions of USD, FX change adjusted)
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CESEE’s economy experienced another downturn
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-16
-12
-8
-4
0
4
8
12
2007 2009 2011 2013
GDP growth(Percent)
SEE-EU
SEE non-EU
-16
-12
-8
-4
0
4
8
12
2007 2009 2011 2013
Baltics
European CIS
CE-5
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Many SEE countries asked for IMF assistance
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In 2014-16 CIS was hit by recession
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-16
-14
-12
-10
-8
-6
-4
-2
0
Ukraine Belarus Russia
Collapse of commodity prices
Sudden stop in capital flows to Russia, result of sanctions on Russia
Conflict in Ukraine
Change in GDP(percent)
Between 2013-15
Between 2013-16
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Moldova and Ukraine got help from the IMF
19Note: UKR had a Stand-By Arrangement program in 2014-15.
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5 611
1113
5 66
69
2 4 3
0
20
40
60
80
100
120
140
160
180
200
2013 14Q2 14Q4 15Q2 15Q4 16Q2 16Q4
Solvent Declared insolvent
Number of Banks in Ukraine
Banking problems played prominent role in programs
20
Non-performing loans to total loans(Percent)
0
5
10
15
20
25
30
35
2010 2011 2012 2013 2014 2015 2016
Ukraine
Moldova
In total 87 banks lost license; representing 30% of sector’s assets at end-2013
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More recently, external position of BIS reporting banks in CESEE excl. Russia and Turkey appears to have stabilized…
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0
100
200
300
400
500
600
700
800
900
1,000
2003:Q1 2005:Q1 2007:Q1 2009:Q1 2011:Q1 2013:Q1 2015:Q1
CESEE
CESEE excl. RUS and TUR
External position of BIS-reporting banks on all sectors(billion of USD, FX change adjusted)
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…as loan to deposit ratios in many countries have been reduced to much safer levels
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0
50
100
150
200
250
ALB
MD
A
CZE
BGR
HU
N
SVN
MKD UKV
ROU
RUS
SRB
POL
LTU
BIH
SVK
HRV LV
A
EST
BLR
UKR TU
R
2016
2008
Domestic Loan to Domestic Deposit Ratio(Percent)
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CIS is now recovering; growth in non-CIS CESEE continues to be strong
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-15
-10
-5
0
5
10
15
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
PPP weighted real GDP growth(Percent)
CIS
Other CESEE
CIS excl. RUS
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-1
0
1
2
3
4
5
CIS Euro area Baltics CE-5 SEE non-EU SEE EU
All regions are now showing positive growth
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GDP growth (Percent)
2016 Forecast for 2017
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Unemployment in New Member States coming down rapidly
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-4
-2
0
2
4
6
8
10
12
14
2007 2009 2011 2013 2015
Cumulative changes in unemployment rate(2008Q1=0, seasonally adjusted)
LTU
EST
LVA
HUNPOL SVK
CZEROU
SVN
HRV
BGR
-4
-2
0
2
4
6
8
10
12
14
2007 2009 2011 2013 2015
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Crisis legacies remain: high NPLs (especially in SEE and UKR)
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0
5
10
15
20
25
30
35
EST TUR LVA POL SVK CZE LTU MKD SVN RUS HUN ROM BLR BIH MNE MDA HRV ALB BGR SRB UKR
2012
2016
Non-performing loans to total loans, end 2016(Percent)
Note: for MNE data for 2012 and 2015.
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High public debt
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Public debt(Percent of GDP)
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Since early 1990s CESEE has made tremendous progress
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Banking sector has played an important role in this convergence
But banking sector has also contributed to problems
Not enough risk aversion during booms; very risk averse during busts
Foreign funding has exacerbated boom-busts
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Thank you