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Central, Eastern and South-Eastern European banks report strengthening loan demand and improving profitability

25.06.2024 17:57 "Agro Perspectiva" (Kyiv) — Credit supply is expected to significantly improve this year in the Central, Eastern and South-Eastern Europe region, with credit demand further strengthening.

Banks’ profitability has been benefiting from rising net interest income.

Banks are interested in expanding in the region.

The European Investment Bank today published the latest results of the Central, Eastern and South-Eastern Europe (CESEE) Bank Lending Survey, which provides in-depth analysis of credit dynamics and banking sector developments across 12 countries in the region. The survey points to a positive outlook for lending in the coming months, covering 70 local subsidiaries and domestic banks as well as 12 international banking groups.

Banks are expecting to see increased demand from clients for loans across all categories, with mortgage demand expected to see the strongest growth, and corporate investment recovering following a period of slow growth.

The tightening of credit supply in early 2022 caused by the conflict in Ukraine, inflation and higher interest rates is expected to end soon with strong improvements in all segments, particularly for mortgages and consumer loans.

Banks in the region cited an improving market outlook and better funding conditions as factors contributing to the easing of credit standards, signalling the increased willingness of banks to extend credit to their clients.

«The positive outlook reflected in the CESEE Bank Lending Survey is an encouraging sign for the economic development of the region,» said EIB Vice-President Kyriacos Kakouris. «As the banking sector strengthens, we expect to see continued progress in the economic convergence of the region and increased investment, job creation and better living standards across Central, Eastern and South-Eastern Europe.»

Stronger capital ratios will provide banks with greater flexibility to support credit growth. Additionally, banks say their profitability in the CESEE region compared to overall group operations has improved, with subsidiaries there being on average more profitable than their parent banks.

When asked about their long-term strategies, 58% of cross-border banking groups signalled their willingness to selectively expand or maintain the same level of operations in the region. This is a visible improvement in comparison to the three previous survey rounds, where this figure was 50%, 45% and 30%, respectively.

Credit quality in the region is also improving. After declining in 2023, non-performing loan ratios are projected to continue decreasing in various CESEE countries in 2024.

«The CESEE Bank Lending Survey reveals a strengthening banking sector and healthy credit growth expectations across the region,» said EIB Director of Economics Debora Revoltella. «After a challenging period, banks are increasingly optimistic about the economic outlook and their own business prospects. Still, finance in the region is almost exclusively bank based, while structural transformations and innovation require more diversified financing sources, as well as more developed and EU integrated capital markets.»

The European Investment Bank is the long-term lending institution of the European Union owned by its Member States. It provides finance and expertise for projects that contribute to EU objectives. The EIB Group works closely with public and private sector partners to support sustainable investment, job creation, economic growth and innovation across Europe.

The CESEE Bank Lending Survey was developed in the context of the Vienna Initiative 2.0 to monitor cross-border banking activities, understand credit dynamics, and gain insights into the business strategies and market expectations of banks operating in Central, Eastern and South-Eastern Europe. The survey is administered by the European Investment Bank.

Agro Perspectiva

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