Non-performing loans (NPL) in Central and Eastern Europe (CEE) states continue to decrease to ever-lower levels, according to the latest Vienna Initiative report, which covers the second half of 2022. The region has shown so far resilience to crises, notes the study. At the end of June 2022 the average NPL-level in CEE was 2.6%, 0.5 percentage points decrease compared to June 2021. This signs that the quality of bank assets doesn’t deteriorate, at least for now, despite the lifting of government support measures. The share of NPL is on record low since the world financial crisis of 2008-2009.
But the risks remain – especially the trend for sharp interest rates increase in a battle against inflation and continuing rising costs of life crisis. We should also take into account the fact that NPL statistics cannot reflect the changes immediately due to time delaying – 90 days to define the loan as overdue. Stage 2 shares, which means debt in risk, have been rising over the past year (see the chart).
The different movements in levels of NPL and Stage 2 loans reflect how pressures on asset quality are rising. The recommendation to regulators and banks is to be ready with measures, if NPL start to increase. The lessons of past experience show how important it is to act proactively, to support borrowers, struggling, but able to pay their debt. It is also important to avoid the accumulation of NPL in bank assets.
In general, most CEE countries have taken measures in recent years to improve the adequacy of their provisions for NPL and sale of overdue debt on time. Forecast for the current crisis is to be different from the previous one, as some of the challenges to bank asset quality, which are then reflected in NPL, can be predicted. The Vienna Initiative advises banks to look closely at the sectors where companies are performing worse and are likely to have problems in paying on time, in order to be ready for early intervention. They should also have action plans in place in the event of NPLs increasing.
Bulgaria is among the countries with larger than average share of bank NPL – 4.1% at the end of June, decreasing as a value and part of GDP. But the country holds a record for their reduction in the first half of 2022 – 4.7%, along with Latvia and Romania. The newest Bulgarian National Bank data shows a sharp decrease at the end of 2022 – up to 2.84% to December.
The best-performing countries in the first half of 2022 are Estonia, Latvia and Lithuania, and it is an interesting fact that in this period NPL decrease in Ukraine. The only country where NPL grow, is Montenegro.
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