Vienna Initiative: Non-performing loans in Central and Eastern Europe record a new historic low

As an absolute value the biggest decrease was in Poland.
As an absolute value the biggest decrease was in Poland.

Non-performing loans (NPL) in the region of Central and Southeastern Europe record a new historic low, shows the data, published by the analysis group Vienna Initiative. The analysts said the overdue debt continues to decline, despite the economic tumults of the past years. At a regional level, NPL volumes fell 10% to €27.4 billion in the 12 months to 31 December 2022. Thus, the average regional NPL ratio decreased to 2.3% of total gross loans. In a continuation of the trend of the first half of 2022 NPL have once again hit their lowest levels since the NPL Monitor was first published in 2016.

In the first half of this year the biggest NPL decline was in Latvia,Croatia, Bosnia and Herzegovina and also in Poland. As an absolute value the biggest decrease was in Poland – EUR 9.4 billion or 14.8% (see the chart). Bulgaria is still among the countries with an NPL level double or more than the average in the region – 4.6%. The other countries like that are Hungary, Albania, Bosnia and Herzegovina.

According to the report, the banking sector in the EU and its border states of Central, Eastern and Southeastern Europe stay stable and resilient. On the whole banks’ asset quality in the region has not yet shown meaningful signs of deterioration, despite the end of unprecedented levels of Covid-19 government support and the challenging macroeconomic environment. However, the report warns against complacency, since vulnerabilities remain in most countries.

Persistent macroeconomic pressures, including high inflation and interest rates, combined with low economic growth prospects in many jurisdictions, are contributing to stress in many asset classes, noted the experts of Vienna Initiative. Overall, in the region the average NPL coverage ratio increased 1.8 percentage points to 65.2% between December 2021 and December 2022.

For the same period тhe gap between stage 2 and stage 3 loans in the newest 11 EU-member states continued to widen during 2022. Stage 2 loans, which are at risk of overdue, are increasing and at the end of 2022 was 12.15%, almost 1 percent point growth for 12 months. The difference between decreasing NPL (Stage 3 loans) and loans at risk suggest that rising levels of borrower distress could translate into fresh pressures on asset quality in the banking sector, warns the report of Vienna Initiative. 

One of the few countries with an increase of NPL is Ukraine – they grew with EUR 11.6 billion, up to 38% of bank assets. Cyprus and Greece, once leaders in the overdue debt, continue to report decreases. In Greece the main reason is the sale of receivables to specialized companies.

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