June 12, 2020 / 11:20 AM / 23 days ago

Eastern Europe's banks braced for spike in bad loans - EIB

LONDON, June 11 (Reuters) - Central, Eastern and Southeastern Europe’s banks are facing one of their worst years since the global financial crisis a study on Friday showed, with many expecting to cut back lending and see a jump in loan defaults.

The survey carried out by the European Union’s lending arm, the European Investment Bank during March, showed nearly 65% of banks polled expected non-performing loans (NPLs) to increase in the coming months, and for “visibly” fewer new loans to be approved.

Specifically, almost 40% of the groups reporting after coronavirus restrictions were imposed expected their loan-to-deposit ratios to fall, leaving a “deleveraging attitude” indicator close to euro zone debt crisis levels.

“The coronavirus pandemic is an unprecedented crisis. But coordinated action and support at a European level has and will be unprecedented as well,” EIB Vice-President Lilyana Pavlova said.

The 10-country region, which includes Poland, the Czech Republic, Hungary and Romania, had entered this year on a strong footing, with credit standards easing and loan demand picking up.

However, banks are now expecting “overall demand for financing to contract sharply, credit standards to tighten significantly and loan approval rates to decline”.

The quality of loan applications is also expected to deteriorate sharply across the spectrum, from firms and businesses to households. For full survey click here here

The EIB included the caveat that bank were surveyed before governments injected stimulus into their economies and global central banks like the ECB and U.S. Federal Reserve had flooded financial markets with their latest deluge of aid.

Institutions like the International Monetary Fund have continued to deepen recession forecasts however, and with extreme uncertainty about their duration, questions remain about how much of retrenchment bank lending might see.

“Certainly the stimulus went exactly in the right direction,” EIB economist Luca Gattini said, adding too that banks in the survey had said they were planning to maintain their presence in the region in the medium-term.

Reporting by Marc Jones, editing by Louise Heavens

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