Post-Crisis Business Model of Banks in the Regiona1dcad67-7c3a-4b45-9872-ebd8... · 2019. 6. 6. ·...
Transcript of Post-Crisis Business Model of Banks in the Regiona1dcad67-7c3a-4b45-9872-ebd8... · 2019. 6. 6. ·...
POST- CRISIS BUSINESS MODEL OF BANKS IN THE REGION
Dr. György Surányi
Resident Regional Head
16-17, November, 2009
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BEFORE THE CRISIS:
A MACROECONOMIC OVERVIEW
3
GDP GROWTH RATES WELL ABOVE THE EMU AVERAGE...
Before the crisis the consensus view was that in case of small, open, converging economies the sustainable growth strategies are export and investment-driven
growth strategies –actively supported by capital inflows(both debt- and non-debt type financing)
(C/A deficits!)Source: Eurostat, IMF
GDP GROWTH,CEE REGION
2,9
0,7
5,1
0,2
4,4 4,8
7,3
66,6
5,5
3
-5
-6
-4
-2
0
2
4
6
8
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
%
1991-2000 average: 2%2002-2008 average:5,4%
CAGR OF GDP1997-2007
2,7%
3,0%
3,1%
3,9%
4,0%
5,1%
6,4%
7,7%
7,4%
4,3%
4,1%
1,00% 3,00% 5,00% 7,00% 9,00%
RO
SRB
CZ
BG
CR
HU
PL
SK
LV
LT
EST
4
TOTAL INVESTMENTS (yearly growth rates%)
0
5
10
15
20
25
30
35
Bulgaria
Czech R
ep
Estonia
Latvia
Lithuania
Hungary
Poland
Rom
ania
Slovakia
1997-2001 average: 7,8%
2002-2006 average: 9,1%
2007 average:13,5%
EXPORTS (yearly growth rates%)
0
5
10
15
20
25
Bulgaria
Czech R
ep
Estonia
Latvia
Lithuania
Hungary
Poland
Rom
ania
Slovakia
1997-2001 average: 9,9%
2002-2006 average: 10,1%
2007 average:9%
EXPORT AND INVESTMENT DRIVEN GROWTH STRATEGIES
Source: Eurostat
5
STRONG GROWTH RATES PUSHED AHEAD REAL CONVERGENCE
Source: Eurostat
GDP/CAPITA (PPP, EU27 average=100)
81,3
71,6
68,6
64,5
60
58,1
54,6
53,2
40,4
38,1
72,9
42
51,3
53,1
38,6
34,6
46,8
52
26,3
26,4
0 20 40 60 80 100
Czech Republic
Estonia
Slovakia
Hungary
Lithuania
Latvia
Poland
Croatia
Romania
Bulgaria
2007
1997
6
In the CEE region almost all countries run external deficits or to put it another way: net domestic savings were negative
Before the current crisis it was considered sustainableA natural „side effect” of the catching up process
C/A DEFICIT A REGIONAL PHENOMENON
Source: IMF
CEE REGION, C/A DEFICIT AS A % OF GDP
-3,1
-4,4 -4,7
-2
-3
-4
-5,4-5
-6,6
-7,9 -8
-3,1-3,9
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009*
2010*
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DISCIPLINED FISCAL POLICIES
Source: IMF
BUDGET BALANCE (as a % of GDP)
-10
-8
-6
-4
-2
0
2
4
6
8
2001 2002 2003 2004 2005 2006 2007 2008
CEE
CIS
The external deficit was not the result of loose fiscal policies(SGP, Maastricht!)
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GOVERNMENT DEBT (as a % of GDP)
69,5 70 68,3 66
25,526,830,3 28,1
0
10
20
30
40
50
60
70
80
2004 2005 2006 2007
EMU
average NMS+SK
60%
LOW DEBT LEVELS
Source: Eurostat
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The first group: low inflation, healthy fiscal balances, acceptable external position, no asset price bubble
The second group: high inflation, huge external imbalances, asset price bubbles, consumption driven growth financed by cheap external funding
BUT DUE TO THE GLOBAL CRISIS ALL COUNTRIES FACE ALMOST SIMILAR CHALLENGES
PolandCzech Republic
SlovakiaRomaniaBulgaria
The Baltic statesUkraine
STABLE GROWTH, SUSTAINABLE INTERNAL AND EXTERNAL
BALANCES
SERIOUS IMBALANCES
Hungary
BUT THERE WERE DIFFERENCIES ACROSS THE REGION
Serbia
Croatia
10
In some countries domestic demand rose stronglyin spite of disciplined fiscal policies
HOUSEHOLDS' CONSUMPTION (%)
0
2
4
6
8
10
12
14
16
Bulgaria
Czech R
ep
Estonia
Latvia
Lithuania
Hungary
Poland
Rom
ania
Slovakia
1997-2001 average: 3,7%
2002-2006 average: 7,4%
2007 average: 7,8%
NUMBER OF UNEMPLOYED (%)
0
2
4
6
8
10
12
14
16
18
20
Bulgaria
Czech R
ep
Estonia
Latvia
Lithuania
Hungary
Poland
Rom
ania
Slovakia
1997-2001 average: 11,7%
2002-2006 average: 10,9%
2007 average: 6,8%
Source: Eurostat
BUT THERE WERE DIFFERENCIES ACROSS THE REGION
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THE CRISIS: THE REGION ENTERED A DEEP RECESSION
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THE CRISIS: THE REGION ENTERED A DEEP RECESSION
Source: IMF
GDP GROWTH RATES,CEE (%)
1,8
5,5
3
-5-6
-4
-2
0
2
4
6
8
1991-2000 2007 2008 2009
2009 versus 2007:~-10,5% change in the
grow th rate
GDP GROWTH RATES (%) CEE AND CIS
-5
-6,7-8
-6
-4
-2
0
2
4
6
8
10
2001 2002 2003 2004 2005 2006 2007 2008 2009*
CEE
CIS
2002-2006 averageCEE: 5.8%CIS: 7.3%
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EXPORT MARKETS COLLAPSED
Exports are down ~25-35% y-o-y
EXPORT VALUE (change, %)
-25
-36,7
-50
-40
-30
-20
-10
0
10
20
30
40
50
2001 2002 2003 2004 2005 2006 2007 2008 2009*
CEE
CIS
IMPORT VALUE (change, %)
-31,6
-33,4
-40
-30
-20
-10
0
10
20
30
40
2001 2002 2003 2004 2005 2006 2007 2008 2009*
CEE
CIS
2002-2006 averageCEE: 22.5%CIS: 24.1%
2002-2006 averageCEE: 23.8%CIS: 25.7%
Source: IMF
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SUDDEN STOP OF CAPITAL INFLOWS
Source: IMF, IMF sraff estimates
NET CAPITAL INFLOWS TO THE CEE REGION1990-2014* (as a % of GDP)
-6
-4
-2
0
2
4
6
8
10
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
15
EMU 2008-2010: -2.5%
Source: Eurostat, Brussel Commission
Sustainability fears (even in case of low debt countries), the appearance of roll- over risks!
Fiscal policies are not in a position to give a countercyclical boost to the economy
FISCAL POLICIES ARE NOT ABLE TO PROVIDE A SHELTER
CHANGE IN THE CYCLICALLY ADJUSTED BUDGET BALANCE (% of GDP)
-8
-6
-4
-2
0
2
4
6
8
10
SK RO PL HU LIT LV EST CZ BG
CHANGE 2006-2010 (average: -1,1%)
CHANGE 2008-2010 (average: +0,1%)
CHANGE 2007-2009 (average:-1,3%)
CHANGE IN THE CYCLICALLY ADJUSTED BUDGET BALANCE (% of GDP)
-16
-14
-12
-10
-8
-6
-4
-2
0
FR ESP IRE GER
CHANGE 2006-2010(average: -7.3%)
CHANGE 2008-2010(average: -3.3%)
CHANGE 2007-2009(average: -5.8%)
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RISING UNEMPLOYMENT, FALLING CONSUMPTION
Source: Eurostat, Brussel Commission
HOUSEHOLDS' CONSUMPTION (%)
-30
-20
-10
0
10
20
30
Bulgaria
Czech R
ep
Estonia
Latvia
Lithuania
Hungary
Poland
Rom
ania
Slovakia
2007 average: 7,8% 2008 average:1,3% 2009* average:-9,1%
NUMBER OF UNEMPLOYED (%)
0
2
4
6
8
10
12
14
16
18
Bulgaria
Czech R
ep
Estonia
Latvia
Lithuania
Hungary
Poland
Rom
ania
Slovakia
2007 average: 6,8%
2008 average:6,6%
2009* average:11%
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CHANGE IN REAL PER CAPITA GDP (%)
-8
-6
-4
-2
0
2
4
6
8
10
2001 2002 2003 2004 2005 2006 2007 2008 2009*
CEE
CIS
Source: IMF
REAL CONVERGENCE CAME TO A HALT
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THE BANKING SECTOR
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AVERAGE REAL CREDIT GROWTH OVER THE LAST 5 YEARS (%)
13,1 14,3 14,7 16
26,2 27,329,8
34,5 35,938,4
43,247,1 47,5
50,1
0
10
20
30
40
50
60
Croatia
Hungary
Poland
Czech R
epublic
Serbia
Estonia
Turkey
Russia
Bulgaria
Latvia
Lithuania
Rom
ania
Ukraine
Kazakhstan
BEFORE THE CRISIS: STRONG CREDIT GROWTH ACROSS THE REGION
Source: IMF,2004-2008
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Source:IMF
STILL RELATIVELY LOW LEVEL OF FINANCIAL INTERMEDIATION
PRIVATE SECTOR CREDIT TO GDP IN SELECTED COUNTRIES (eop,%)
0%
20%
40%
60%
80%
100%
120%
140%
160%
Bulgaria Croatia Czech Rep Estonia Hungary Latvia Lithuania Poland Romania Slovakia euro zone
2000 2001 2002 2003 2004 2005 2006 2007 2008
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THE CREDIT GROWTH WAS FINANCED BY CHEAP EXTERNAL FUNDING
Source: NBH
Foreign banks play a leading role in the region
Foreign-controlled equity/total equity: ~70-90%
RATIO OF FOREIGN BORROWING TO TOTAL FUNDS IN THE CEE BANKING SECTORS
( as of December 2008, values indicates the value of total foreign loans in bln EUR)
12
3
26
42
30
16
9
40
0
10
20
30
40
50
60
70
Bal
ticst
ates BG CZ
HU PL
RO SI
SK
%
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THE CRISIS: SUDDEN STOP OF CREDIT
LOAN TO DEPOSIT RATIOS OF EU BANKING SECTORS
0
50
100
150
200
250
300
350D
enm
ark
Latv
ia
Sw
eden
Est
onia
Lith
uani
a
Irela
nd
Slo
veni
a
Hun
gary
Finl
and
Italy
Por
tuga
l
Rum
ania
Fran
ce
Bul
garia
the
Net
herla
nds
Spa
in
Aus
tria
Cyp
rus
Pol
and
Mal
ta
Ger
man
y
Gre
ece
Slo
vaki
a
Cze
ch R
epub
lic
Bel
gium
Luxe
mbo
urg
%
AVERAGE: 140.6%EMU AVERAGE: 112%
BALTIC STATES: 223%CEE6: 105%
The growth strategies built on cheap external financing are not sustainable any more
Domestic savings will not be sufficient to substitute external fundingSource: ECB, NBH, data as of end-2008
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THE RISING RATIO OF FX TRANSACTIONS AND BOOMING FX LENDING IS A REGIONAL PHENOMENON
Small, open, export-driven economies, liberalized FX transaction among residents, and/or currency board or spontaneous euroization or the voluntary
interpretation of IT (high interest rate differential)
NO LENDER OF LAST RESORT
SHARE OF FX LOANS WITHIN THE BANKS' HOUSEHOLD LOAN PORTFOLIO
0102030405060708090
100La
tvia
Est
onia
Hun
gary
Lith
uani
a
Rom
ania
Pol
and
Bul
garia
Slo
vaki
a
Cze
chR
epub
lic
%
0102030405060708090100
%
2003 2008
Source: NBH
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UNHEDGED FX POSITIONS
A natural consequence of the permanent external deficits in the region
Net domestic savings were insufficient to finance investments and exports, hence external capital inflows were needed to finance the deficit.
The debt-generating part of the capital inflows necessarily resulted in the formation of an unhedged FX position at one or more domestic agents.
The balance sheet of the banking sector purely mirrors the macro imbalances.
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THE CRISIS: IS THERE A WAY OUT?
The region imported the financial crisis
Collapsing export markets: a huge shock to the real economy
Sudden-stop of capital inflows: financial sector shock
The room for fiscal maneuver is limited
The central banks are unable to provide the system with foreign currency liquidity
If –in the midst of the crisis-
• governments intend to improve external balances, to keep budget deficits under control,
•the banking sector aims for lower L/D rates,
•authorities, financial watchdogs demand higher capital adequacy ratios, impose limitations to FX lending
simultaneously, the result would be an even deeper recession
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Due to the cross –border dependencies coordinated actions are needed
The problems can not be solved on a national basis
Governments, central banks in the region should act jointly with the ECB, the European authorities, international organizations and foreign owners of the
banking sector
Not to fund a credit boom, but
to create the conditions for a moderate 5-8% yearly growth rate in credit and avoid a long-lasting depression
THE CRISIS: IS THERE A WAY OUT?
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DID THE EURO PROVIDE A SHELTER?
The EUR on its own was not able to provide a shelter
The ECB could have helped by providing EUR liquidity to the region
The main issue was:
Whether the given banking sector had a liquidity buffer?
Slovakia versus Czech Republic
The Czech Republic managed the crisis well and so did Slovakia.
The pace of GDP contraction is similar in both countries.
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FUTURE CHALLENGES
Macroeconomic policies
The external deficits that had been considered sustainable before the crisis are no longer sustainable
The region will not be able to return to the growth levels seen before the crisis, economies should adjust to a lower path.
Germany: should take over as the „final consumer” of Europe instead of pushing ahead with a purely export-driven growth strategy.
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Banking sector
L/D ratios should adjust, but it would be a mistake to target L/D at or even below 100%, as it would kill growth and convergence
Limiting FX based lending is acceptable only if medium and long-term domestic currency- based financing is available at a reasonable price
Killing FX-based lending and at the same time not providing domestic currency based financing would result in a prolonged economic stagnation
In an economy that is heading towards the euro, the dynamic expansion of CHF or JPY denominated loans in the household sector is clearly not a welcome
development (especially if these loans are short-term instruments), but there are serious arguments supporting EUR-based lending in case of mortgages and
investments
If the economy as a whole is on a sustainable path –primarily the external position is sustainable- the risk of the open, unhedged FX position is manageable, both on
a macro and on a micro level.
FUTURE CHALLENGES