1. Financial System and Economy and the Reponses to the Financial Crisis
Belgrade - November 2012
Financial System and Economy and the Reponses to the Financial Crisis
South Eastern Europe region
Albania, Bosnia, Bulgaria, Croatia, FYR Macedonia, Montenegro, Romania, Serbia

2. Financial crisis and South Eastern Europe - Second wave
Second wave of the global financial crisis that started in 2008
First wave in part tacked by the Joint IFI Action Plan of
Economic recovery appeared to be taking hold in
But continuing Eurozone crisis impacting SEE
Due to close links to troubled euro zone countries
Causing feeble or no growth and financial distress in SEE
Falling investment
Transition achievements are, once again, at increasing risk
Exports to the Eurozone are declining
High NPL ratios persist in banking systems
Contribute to low credit growth
Unemployment has remained high
Government debt is climbing
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3. Real GDP growth (per cent)
Source: EBRD, Regional Economic Prospects, July 2012

4. Net FDI (in USD million)
Source: IMF, WEO May 2012

5. Non-performing loans (per cent of total credit)
*Data refer to end of 2011 or latest available
Source: National central banks

6. General government gross debt (per cent of GDP)
Source: IMF, WEO May 2012

7. External debt (per cent of GDP)
Source: IMF, WEO May 2012

8. Unemployment rate (per cent)
Source: IMF, WEO May 2012; MONSTAT (Montenegro)

9. Share of FX-denominated loans and FX-indexed loans (per cent of total loans)
Source: National central banks

10. Bank Deleveraging continues
second wave of the global
Euro zone-based parent banks are under severe stress
And have systemic subsidiaries and branches in many SEE countries
With less external funding available, real credit continues to contract
Withdrawal of cross-border flows from the region put pressure on
exchange rates
bank balance sheets
although differences among countries and bank groups are significant.
This has reduced both
activity levels and investment
resulted in lower credit demand
impacted credit quality and
set in place a prolonged negative feedback loop between the real and financial sectors
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11. SEE – Difficult Outlook
GDP growth is expected to slow down substantially in 2012 and 2013
Euro area crisis will continue to negatively impact growth and exports from the region
as well as the availability of finance for the region’s banks and therefore credit growth
Real activity in the Eurozone will suffer due to fiscal contraction and credit decline although a full scale credit crunch should be avoided as the ECB has shown it will provide the necessary liquidity to the financial system
Countries that are the most integrated with the Euro area will slow down somewhat more than previously predicted
Exports to and FDI and bank funding from the Eurozone will continue to fall for these countries as the Euro area stagnates
SEE regions will slow down this year even more than previously forecast
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12. Support from MFIs and international community
EBRD has broadly maintained crisis level lending volumes since 2009
Annual SEE investments about EUR 1.5 billion with significant policy dialogue and technical assistance
World Bank and EIB are actively engaged in the region as well.
IMF and the European Commission have continued to play an active role
During the first phase of the crisis, jointly with the World Bank and EIB, EBRD successfully mounted what has become known as the Joint IFI Action Plan, which provided significant financial support to systemic banks in emerging Europe at the height of the crisis in
Banks continue to need both financing and restructuring without which they would be a drag on future growth
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13. EBRD Financial Institutions Portfolio: South-Eastern Europe
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14. Coming out of the crisis
Countries in the region are better prepared now, having made important adjustments in fiscal and current accounts, increased domestic savings, improved deposit insurance schemes and improved bank balance sheets
thanks in part to parent bank’s commitment in 2009/10 under the Vienna Initiative.
The key needs: liquidity, capital, and restructuring/consolidation.
IFIs can provide additional funding to address balance sheet mismatches, in particular the short tenor of wholesale funding.
IFIs can mobilize equity capital
Innovative instruments - risk-sharing, securitization, NPLs and distressed assets are needed
Well-coordinated technical assistance
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15. Challenges for national governments
SEE Countries have a good record of responsible policies since the start of the crisis,
While structural reforms need to continue, growth will be lagging, and competitiveness and employment will deteriorate irrespective of the external environment.
Eurozone periphery crisis highlights the challenge for the region’s governments.
SEE, vulnerable region, due in part to its strong financial, trade and remittance links with Greece and Italy.
The financial sector transmission channels are particularly strong in Bulgaria, Romania and Serbia, where Greek banking groups still hold significant market share (somewhere below 30% and 20%) and lending is financed to a certain extent through parent bank support.
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16. Sovereign ratings (long-term sovereign debt, August 15, 2012)
Source: S&P, Moody’s, Fitch.

17. Remittances (per cent of GDP)
Source: World Bank

18. World Bank Ease of Doing Business, 2012
Source: World Bank Doing Business Report, 2012

19. Future support from international agencies for recovery and growth
Lending to banks to support strategic priorities of MSME and EE
Develop capital markets, investing in bonds issued by local banks
Work with Greek bank subsidiaries, trade finance, swaps, credit lines and equity
Support restructuring efforts of the banking sector
Mobilize other investors to help address NPLs on bank balance sheets
Corporate working capital, refinancing of maturing loans/bonds
Corporate restructuring, foreign investors, mid-sized companies
Infrastructural projects, use of EU structural funds
Policy Dialogue – bank and corporate restructuring, regulatory issues, state aid provisions, governance
Full Forum of the Vienna 2 Initiative in Brussels on November 9, 2012
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