Banks in Central, Eastern and Southeastern Europe report strengthening loan demand and improving profitability

2024-06-28 10:07:00, Aktualitet CNA

European Investment Bank. Source: EIB

Banks in Central, Eastern and Southeastern Europe report strengthening loan demand and improving profitability.

The European Investment Bank published the latest results of the Bank Lending Survey in Central, Eastern and South Eastern Europe (EQLJ) , which shows that banks expect to see increased customer demand for loans in all categories, with demand for mortgage loans is expected to have the strongest growth and corporate investment is expected to recover after 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, especially mortgage and consumer loans. Banks in the region cited an improved market outlook and better financing conditions as contributing factors to the easing of credit standards, signaling an increased willingness of banks to extend credit to their customers. Credit quality in the region is also improving. After declining in 2023, the NPL ratio is projected to continue to decline in various CEE countries in 2024.

"The positive outlook reflected in the CEE Bank Lending Survey is an encouraging sign for the region's economic development," said EIB Vice President Kyriacos Kakouris.

"With the strengthening of the banking sector, we expect to see continued progress in the region's economic convergence and increased investment, job creation and improved living standards across Central, Eastern and Southeastern Europe."

Stronger capital ratios will provide banks with greater flexibility to support lending growth. In addition, the banks say their profitability in the CEE region relative to overall group operations has improved, with subsidiaries on average being more profitable than their parent banks. When asked about their long-term strategies, 58% of cross-border banking groups expressed their willingness to expand selectively or maintain the same level of operations in the region. This is a significant improvement compared to the three previous rounds of the survey, where this figure was 50%, 45% and 30% respectively.

"The CEE bank lending survey highlights a growing banking sector with healthy expectations of credit growth across the region," said the EIB's economic director, Debora Revoltella. "After a challenging period, banks are becoming increasingly optimistic about the economic outlook and their business prospects. However, finance in the region is almost exclusively bank-based, while structural transformations and innovation require more diversified sources of financing, as well as more developed and integrated capital markets in the EU.

The survey points to a positive outlook for lending in the coming months, covering 70 domestic subsidiaries and domestic banks as well as 12 international banking groups. You can read the full report here .