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Emerging Europe: No respite for banking sector

The banking sector in emerging Europe is likely to experience an outright fall in total assets this year, according to a report issued last month.

The biggest decline will be in the CIS countries, whose banking systems were more badly hit by the financial crisis than those in Central Europe because of a much higher dependence on wholesale funding, adds the report by RZB.

The expected shrinkage in bank assets this year compares with a growth of 25% in euro terms in 2008, although that amounted to a fall of 31% on 2007. At the end of 2008, banking assets in Central and Eastern Europe reached €1.78 trillion, an increase of €353 billion on the previous year.

The report is more optimistic about the prospects for 2010. "While we expect the sector’s total assets to shrink in 2009, our updated forecasting model suggests that these will rise again by an average of around 10% in 2010," says Walter Demel, senior analyst at RZB and co-author of the study.

Despite the problems of the past 12 months, the report says that financial intermediation, as measured in total banking assets as a percentage of GDP, increased in most countries in the region in 2008.

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