Eastern Europe’s credit shortage is easing, though conditions will remain tight as lenders in the continent’s west pull back, according to Capital Economics Ltd.
About 12 billion euros ($15.4 billion) of foreign funding has left the region since mid-2011, equivalent to about 9 percent of liabilities, William Jackson, emerging-market economist at London-based Capital, said today. While withdrawals have slowed this year, nations including Poland, Hungary and Romania, remain at risk of a new credit crunch from an “external shock,” he wrote in an e-mailed note.
“The risk of a painful banking crisis is much lower now than it was just a year ago,” Jackson said. “Even so, the fact that deleveraging is ongoing, coupled with high levels of non-performing loans, a legacy of the pre-crisis lending boom, means that credit conditions are set to remain tight in the region for some time.”
The so-called “deleveraging” process is abating in eastern Europe, where western lenders control three quarters of banking assets, according to the Vienna Initiative, a group of banks, regulators and policy makers that helped prevent an eastern European financial collapse in 2008 and 2009. Still, bad loans and sluggish demand from recession-hit borrowers are curbing credit growth, the group said May 2 in a report.