CEE Credit Growth to Continue

We called Azerbaijan 'authoritarian' yesterday (quoting @TheEIU_Europe). No doubt the Nicholas and Pierre are already sharpening their keyboards.

Credit growth in Central and Eastern Europe will continue throughout 2018, thanks to a benign operating environment and stable loan performance, Moody’s Investors Service reports.

“Almost all the CFOs that we surveyed expect business confidence to remain either unchanged, or to improve, an indication of rising credit demand,” said Armen Dallakyan, a vice president and senior analyst at Moody’s.

In particular, Hungary and Slovenia, which experienced significant lending contraction in recent years, are the most optimistic regarding credit growth. According to Deloitte’s 2018 Central Europe CFO survey, internal financing and bank borrowing are considered to be the most attractive sources of funding, while EU funds are less attractive as they often impose limitations on the way companies operate.

In fact, as Moody’s underlines, according to 38 per cent of respondents regulatory changes will add uncertainty to bank operations, while most CFOs expect banking regulations to tighten. This will mainly be driven by credit growth in local markets as well as by EU rules. Moody’s also expects that planned new European rules on capital adequacy, loss absorption capacity and financial reporting will result in additional costs.

Technology also represents a challenge, as making payments, transferring money and lending can now be done without commercial banks, more efficiently and more successfully.

“Financial technology (fintech) is changing the banking landscape, increasing competition and prompting the restructuring of business models, presenting both challenges and opportunities,” said Mr Dallakyan.

But although fintech can offer superior services, many fintech companies are not always able to guarantee services in the long term, bringing in banks and asset managers to look for partnerships.