Credit boom puts pressure on Balkan banks
Southeastern Europe is experiencing a retail lending boom. Although this credit expansion is helping the region’s economies to grow, there is concern that it is putting pressure on banking systems. Sudip Roy explores the dimensions of that risk and weighs up what the authorities are doing to mitigate it.
|Steps taken to deal with rapid credit growth by Balkan countries|
|Monetary tightening (interest rate hikes and increase in reserve requirements)||Bosnia, Bulgaria, Romania, Serbia|
|Foreign exchange liquidity requirements||Croatia|
|Fiscal tightening||Bulgaria, Croatia, Romania|
|Prudential and supervisory policies|
|Tightening of regulations and supervision (higher/differentiated capital requirements, tighter loan classification and provisioning); tighter collateral rules; lower loan-to-value ratios||Bosnia, Bulgaria, Croatia, Romania, Serbia|
|Regulations for banks to strengthen risk management and internal controls||Romania|
|Credit controls (marginal reserve requirement for banks exceeding a certain level of credit growth)||Bulgaria|
|Direct credit controls (requirement to purchase central bank securities at below market rates when loan portfolio exceeds a certain level of credit growth; marginal reserve requirement on foreign borrowing)||Croatia|
|Postponement of FX liberalization measures||Romania|
|Strengthening risk awareness|
|Market development measures (credit registry, wider information base)||Bulgaria, Romania|
|Source: Hilbers, Okter-Robe, Pazarba_io_lu, and Johnsen (2005)|
IT’S A CLASSIC dilemma facing any fast-growing developing economy.