ECB欧洲央行-Occasional-paper-no-233_-Financial-stability-assessment-for-EU-candidate-countries-and-potential-candidates_68页_1mb

Summary of Financial Stability Assessment for EU Candidate Countries and Potential Candidates

Core Content

This paper provides a financial stability assessment for EU candidate countries and potential candidates, focusing on the period since 2016. The countries analyzed include Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, Serbia, and Turkey. The analysis primarily centers on the banking sector, as it dominates financial systems in these countries.

Main Points

• Banking Sector Dominance: Banks hold the majority of financial sector assets in EU candidate countries and potential candidates, with foreign ownership being common, especially in the Western Balkans.
• Market Share Shifts: EU-headquartered banks have lost significant market share to other foreign banks since 2014, due to deleveraging, withdrawal, and consolidation. Domestic banks have seen only minor increases.
• Financial Intermediation: Credit growth has accelerated in most countries, with household lending being a key driver. However, financial intermediation remains low overall, especially in Albania.
• Asset Quality: Non-performing loans (NPLs) have declined in most Western Balkan countries, but remain high in some. Regulatory, legal, and tax impediments still hinder NPL resolution.
• Euroisation: High levels of unofficial euroisation pose indirect credit risks, particularly for unhedged borrowers. This trend is more pronounced in the Western Balkans than in non-euro area EU countries.
• Maturity Mismatches: While Western Balkan banking systems are less prone to financial stress from maturity mismatches than some EU peers, the issue remains a concern, especially in foreign currency.
• Turkey: Experienced heightened financial stress in 2018, with currency depreciation, falling equity prices, and rising yields. Despite sufficient buffers, corporate forex borrowing and high rollover needs pose significant risks.

Key Information

1. Banking Sector Overview

• Banks dominate the financial systems of EU (potential) candidates, holding 83-98% of sector assets, except for Kosovo.
• Most banks are foreign-owned, primarily by EU-based institutions.
• Non-bank financial sectors are small and lack depth, limiting the range of financial instruments available.

2. Structural Changes in the Western Balkans

• EU-headquartered banks lost market share, while other foreign banks gained it, especially in Montenegro, Albania, and Bosnia and Herzegovina.
• Consolidation and privatisation of state-owned banks have played a role in reshaping ownership structures.

3. Financial Intermediation and Credit Growth

• Credit growth has accelerated in most Western Balkan countries, driven by macroeconomic stability, low interest rates, and improved business environments.
• Household lending is the main driver of credit expansion.
• Private sector credit growth is still subdued, constrained by cautious lending practices and structural issues.

4. Asset Quality Trends

• NPL ratios have declined since 2013, but remain above 10% in Albania and Bosnia and Herzegovina.
• Resolution strategies and regulatory reforms have contributed to the decline in NPLs.
• NPLs still constrain credit supply, though their impact has diminished over time.

5. Euroisation in the Banking Sector

• High levels of unofficial euroisation in the Western Balkans are a tail risk for financial stability.
• Currency substitution is common, with a high share of foreign exchange-linked loans and deposits.
• This trend is more pronounced in the household sector than in the corporate sector.

6. Maturity Mismatches

• Maturity mismatches are less pronounced in the Western Balkans compared to certain EU countries.
• However, the use of foreign currency increases the risk, as central banks cannot fully act as lenders of last resort.
• Promoting domestic currency usage is encouraged to mitigate these risks.

7. Turkey's Financial Stability

• Turkey experienced heightened financial stress in 2018, with currency depreciation and falling equity prices.
• Despite sufficient capital and liquidity buffers, financial stability risks remain due to corporate forex borrowing and high rollover needs.
• The banking system has sufficient capacity to absorb shocks, but risks are elevated.

Conclusion

The banking sector remains a central pillar of financial systems in EU candidate and potential candidate countries. While financial stability has improved in many areas, challenges such as high NPL ratios, indirect credit risks from euroisation, and maturity mismatches still require attention. Continued efforts to promote domestic currencies, improve data coverage, and resolve NPLs are essential. In Turkey, the situation is more volatile, with significant risks from forex borrowing and currency depreciation.

References

• JEL codes: F31, F34, F36, G15, G21, G28
• Keywords: Banking sector, financial stability, foreign exchange lending, credit growth, non-performing loans, EU accession, Western Balkans, Turkey

Country Annexes

• Albania: Financial intermediation is the lowest in the region, with high NPL ratios and operating costs.
• Bosnia and Herzegovina: NPLs have declined, but euroisation remains high.
• Kosovo: Shows the strongest credit growth, supported by past reforms.
• Montenegro: NPL ratios have declined, but challenges remain in resolution and legal frameworks.
• North Macedonia: NPL ratios are still high, but recent strategies have been adopted.
• Serbia: High sovereign exposure and NPL ratios, with government absorbing a significant share of deposits.

Data Appendix

• Data sources include national authorities, ECB staff calculations, and international financial institutions.
• Charts and data illustrate trends in NPLs, euroisation, and credit growth.