Surgically Assisted Rapid Maxillary Expansion; surgical and ...
Rapid expansion of credit in South Eastern Europe: a cause for concern?
description
Transcript of Rapid expansion of credit in South Eastern Europe: a cause for concern?
1
Rapid expansion of credit in South Eastern Europe: a cause for concern?
Dubravko MihaljekBank for International Settlements*
Presentation at ICEG EC conference
South Eastern Europe after EU Enlargement and before Accession Budapest, 4 April 2005
* The views expressed are those of the author and not necessarily those of the BIS.
2
Overview
1. Two views of credit expansioni. Benign view
ii. Reasons for concern
2. Composition of bank lending
3. Mortgage lending and housing prices
4. Real estate markets in SEE
3
1. Two views of credit expansion
Basic facts:
• Cumulative expansion of bank credit to the private sector over 2002-04:
> 200% (nominal) in BG, RO, SCG
90-170% in AL, HU, TR, Baltic states
40-75% in BH, HR, MK, SI
• Real growth > 20% p.a. in 8 countries
4
Bank credit to the private sector, 2002-04
3738
33
38
2826
1820
16
1012
53
2
34
13
0
50
100
150
200
250
300
SCG ROM BUL LAT LIT TUR ALB EST HUN BIH HRV SVN MAK POL SKA CZE EUR
0
5
10
15
20
25
30
35
40
45
Nominal growth (cumulative, in percent) (lhs) Real growth (compound rate, % per year) (rhs)
Sources: IMF, International Financial Statistics; national data; BIS estimates.
5
Benign view of credit expansion
• Recent growth mostly reflects low base, low levels of financial intermediation
R (credit growth, credit/GDP) = -0.5
• Banking sector indicators improved
• Banking reforms advanced in SEE
6
Developments in bank credit to private sector
In nominal terms2 In real terms2,3 Credit/ GDP
M3/GDP Countries1
2002 2003 2004 2002 2003 2004 2003, in per cent
Croatia 30.2 14.6 11.8 27.4 12.5 8.8 57.8 66.8
Slovenia 15.0 15.7 17.1 6.7 10.7 11.8 43.2 66.0
Hungary 21.9 34.3 17.7 16.3 27.1 11.6 41.7 47.3
Bosnia-Herzegovina 27.7 20.3 13.2 27.4 19.6 13.7 41.7 45.2
Poland 10.0 8.1 3.0 9.2 6.3 –1.4 32.4 41.7
Czech Republic –6.6 9.3 12.2 –7.1 8.2 9.1 31.0 69.2
Bulgaria 43.2 48.3 42.6 38.0 40.4 37.1 27.6 48.1
Slovakia 1.5 15.0 1.4 –1.7 5.3 –4.2 27.4 62.5
Macedonia 4.7 15.3 17.8 3.7 12.5 18.9 19.6 30.0
Romania 51.1 69.5 38.0 28.3 48.5 26.3 15.9 24.2
Turkey 19.4 31.8 49.3 –7.9 1.4 37.2 13.6 43.5
Serbia-Montenegro 64.7 31.9 64.1 43.5 22.6 46.8 10.3 10.7
Albania 41.0 31.0 23.4 38.6 26.8 20.7 6.8 60.2
Memo: Euro area 4.1 4.7 3.5 1.7 2.7 1.1 97.7 83.3 1 Ordered according to the private sector credit/GDP ratio. 2 Annual changes, in per cent. 2004 figures based on latest available data. 3 Deflated by consumer prices.
Sources: IMF, International Financial Statistics; national data.
7
Benign view of credit expansion (cont)
• Banking sector indicators improved• Lower NPLs• Kept high capital adequacy• Increased profitability
• Banking reforms advanced in SEE (privatisations in AL, SCG; consolidation in BH; better supervision in MK,TR)
8
Banking sector indicators
Non-performing loans1
Capital adequacy2
Return on equity Return on assets
1999 2003 1999 2003 1999 2003 1999 2003
Bulgaria 29.0 4.2 43.0 22.0 20.9 15.6 2.5 2.0 Croatia 11.8 5.1 20.6 16.2 4.8 14.5 0.7 1.6
Czech Rep. 22.0 4.9 13.6 14.5 –4.3 23.6 –0.3 1.3
Hungary 3.6 3.2 14.9 11.6 7.1 19.8 0.6 1.7
Poland 13.2 22.2 13.2 13.6 12.9 5.9 0.9 1.0
Romania 35.4 3.4 17.9 21.1 –15.3 15.6 –1.5 2.2
Slovakia 23.7 9.6 29.5 20.7 –36.5 13.8 –2.3 1.1
Slovenia 5.2 9.4 14.0 11.5 7.8 12.6 0.8 1.0
Turkey 10.5 11.5 8.2 31.0 33.1 14.7 3.3 2.2
Average 14.6 6.6 18.7 16.8 4.3 14.9 0.6 1.5 Memo: Austria 1.7 1.5 13.9 14.5 6.9 7.2 0.3 0.4 1 As percent of total loans. 2 Risk-weighted capital-asset ratio. 2 End-2000.
Sources: Central bank publications and websites; ECB (2004); Bank Austria (2004).
9
But there are reasons for concern
1. In BG, HR, TR credit has expanded by 5% of GDP or more p.a. for 5 years(benchmark signalling potential for crisis; Demirguc-Kunt and Detragiache, 1997)
In the last two years credit growth has exceeded this benchmark also in BH, HU, and RO (and Baltic states)
10
Bank credit to the private sector, 2000-04 (Increase in percent of GDP, annual average)
8.5
6.0 6.05.1
3.62.7
1.9
0.9 0.9 0.60.1
-3.1 -3.2
4.5 4.34.0 3.9
-5
0
5
LIT BUG TRK HRV EST ROM LAT HUN BIH SVN EUR ALB POL MAK SCG CZE SKA
Sources: National data; BIS estimates.
11
But there are reasons for concern
2. Lending expanding faster than deposits
banks borrow from foreign HQs
rising foreign liabilities of banking system
external indebtedness
central banks in BG, HR, RO taking precautionary measures
12
Commercial bank liabilities, 2002-04(annual pct change, quarterly average )
-20
0
20
40
60
80
100
ROM BUG SKA LIT HRV EST SVN LAT HUN POL TRK MAK CZE
Time, savings and foreign currency deposits
Foreign liabilities
Source: IMF; BIS estimates.
13
Reasons for concern (cont)
3. Loans extended during the boom have yet to mature NPLs could increase
4. Rapid expansion of foreign currency lending bank customers exposed to FX risk, banks substitute credit risk for FX risk
14
2. Composition of credit growth
• Much faster growth of credit to households than to enterprises
• Negative correlation:R (household, enterprise credit growth) = -0.75
15
Real credit growth to enterprises and households, 2003–041
Albania Bosnia and
Herzegovina Bulgaria Croatia
Czech Republic
Estonia Hungary Latvia
Enterprises 35 64 72 7 2 57 21 63
Households 172 77 173 38 68 111 92 212
Lithuania Macedonia Poland Romania Serbia and
Montenegro Slovakia Slovenia
Simple average
Enterprises 68 19 -4 52 50 -16 34 35
Households 212 129 35 356 227 56 25 132 1 Cumulative percentage changes from 2003 to latest available data for 2004; deflated by consumer prices. Source: National data.
16
Real growth of credit, 2003-04 (cumulative growth rate, in percent)
BUL
ROM BIHSCG
ALB SVN AVGTRK
HUNMAK
HRVCZE
POLSKA-15
5
25
45
65
85
Enterprises
ROM
SCG
BUL ALB TRK
AVG MAK
HUNBIH SKA CZE
HRV SVNPOL
0
50
100
150
200
250
300
Source: National data; BIS estimates.
Households
17
Composition of credit growth (cont)
• Composition of lending still far from that in mature market economies (except in HR)
• Lending to households (after years of neglect) welcome, profitable
• But household indebtedness rising fast (84% of disposable income in HR)
central banks in HR, CZ, HU issued warnings
18
Composition of commercial bank lending1
Government2 Corporate Household
1999 2003 2004 1999 2003 2004 1999 2003 2004
Bulgaria 21 8 –3 65 67 70 14 25 33 Croatia 21 8 8 65 68 42 14 25 50
Czech Republic 6 31 25 83 45 45 12 25 30
Hungary 43 13 9 49 57 57 8 30 32
Poland 5 6 7 62 53 46 33 31 46
Romania 35 9 5 62 68 68 3 23 27
Slovakia 29 49 49 64 37 34 7 14 17
Slovenia 22 22 22 52 57 55 26 21 23
Turkey 3 4 4 86 76 71 11 20 25
Average 19 16 12 66 59 56 15 25 32 Euro area … 11 11 … 41 41 ... 48 49 1 In percent of total credit, excluding interbank credit and credit to non-bank financial institutions. End of period or for 2004, latest available period. 2 Net claims on government for most countries.
Sources: Central banks, ECB; IMF.
19
3. Mortgage lending and housing prices
• Mortgage lending fastest rising component of household credit in many countries
• No excessive growth in housing prices so far
• But where data exist, clear correlation b/w housing loans and housing prices
20
Mortgage lending and residential property prices1
(annual percentage changes)
HPRICE =-2.4 + 0.14 HLOAN
R2 = 0.33
-10
-5
0
5
10
15
20
-10 10 30 50 70 90 110 130
Housing loans
Hou
se p
rice
1 Based on quarterly data for Croatia, Hungary and Poland, 2000-04.Sources: Central banks; BIS estimates.
21
4. Real estate markets in SEE
• Still underdeveloped– high owner occupancy ratios– many properties do not have clean titles– supply of good quality properties constrained
• But property prices rising rapidly in big cities and coastal areas demand by non-residents how fast should SEE countries open up their real estate markets to EU residents