Featured Product

    ECB Assesses Financial Stability Challenges for EU Candidate Countries

    September 16, 2019

    ECB published occasional paper that reviews and assesses financial stability challenges in countries preparing for EU membership. These countries are Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, Serbia, and Turkey. The paper mainly focuses on the period since 2016 and on the banking sectors, which dominate financial systems in this group of countries. The paper includes a special feature that looks at maturity mismatches in detail, including at the level of sectors and currency of denomination.

    Banks dominate the financial sectors of EU candidate countries and potential candidates and the majority of the banks in the Western Balkans (Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia) are owned by foreign banks. These are mainly EU-headquartered banks, which have, however, been losing market share to other foreign banks since 2014. The non-bank financial sector is generally very small in EU (potential) candidates. For the Western Balkans, the paper analyzes recent trends in financial intermediation as well as the main challenges that have been identified in the past. Asset quality continues to improve, but the share of non-performing loans, or NPLs, is still high in some countries, while regulatory, legal, and tax impediments are still to be resolved in most cases. High unofficial "euroisation" is a source of indirect credit risk for countries with their own national legal tender and this calls for continued efforts to promote the use of domestic currencies in the financial system. 

    Compared with certain EU countries, banking systems in EU candidate countries and potential candidates seem less prone to financial stress from maturity mismatches, but related risks should be closely monitored. While maturity mismatches are less pronounced in the region than in the selected EU countries, the funding of long-term lending via long-term deposits has declined in recent years. In addition, maturity mismatches appear most problematic in foreign currencies, where the central bank cannot fully act as a lender of last resort. This strengthens the case for promoting the use of domestic currencies.

    The paper mentions that Turkey has experienced periods of heightened financial stress recently, with strong currency depreciation, falling equity price, and increasing yields. This follows economic overheating, which was partly due to buoyant credit growth supported by policy stimuli and the expansion of the credit guarantee fund. While the banking system in Turkey appears to have buffers to absorb shocks, there are considerable financial stability risks owing to significant foreign-exchange borrowing in the corporate sector, rising credit risk, and high rollover needs of banks in the wholesale market.

     

    Related Link: Occasional Paper (PDF)

     

    Keywords: Europe, EU, Turkey, Banking, Financial Stability, NPLs, Western Balkans, Credit Risk, ECB

    Featured Experts
    Related Articles
    News

    FSB Sets Out Effective Practices for Cyber Incident Recovery

    FSB finalized the toolkit of effective practices to assist financial institutions in their cyber incident response and recovery activities.

    October 19, 2020 WebPage Regulatory News
    News

    HKMA Urges Early Action for Adherence to IBOR Fallbacks Protocol

    HKMA urged authorized institutions to take early action to adhere to the IBOR Fallbacks Protocol, which ISDA is expected to publish soon.

    October 16, 2020 WebPage Regulatory News
    News

    FSB Sets Out Roadmap for Transition to Alternative Reference Rates

    FSB published a global transition roadmap for London Inter-bank Offered Rate (LIBOR).

    October 16, 2020 WebPage Regulatory News
    News

    HM Treasury Publishes Response to Proposal on BRRD2 Transposition

    HM Treasury published a document that summarizes the responses received from a consultation on the approach of UK to transposition of the revised Bank Resolution and Recovery Directive (BRRD2).

    October 15, 2020 WebPage Regulatory News
    News

    HM Treasury Publishes Response to Proposal on CRD5 Transposition

    HM Treasury published the government response to the feedback received on the consultation for updating the prudential regime of UK before the end of the Brexit transition period.

    October 15, 2020 WebPage Regulatory News
    News

    BoE Publishes Reporting Schedule for Statistical Returns

    In a recent statistical notice, BoE announced publication of the reporting schedule for statistical returns for 2021.

    October 15, 2020 WebPage Regulatory News
    News

    EC Welcomes Declaration by Member States on EU Cloud Federation

    EC welcomed the joint declaration by 25 EU member states on building the next generation of cloud in Europe.

    October 15, 2020 WebPage Regulatory News
    News

    MAS Amends Notice on Issuance of Covered Bonds by Banks in Singapore

    MAS published amendments to Notice 648 on the issuance of covered bonds by banks incorporated in Singapore.

    October 15, 2020 WebPage Regulatory News
    News

    FDIC Selects Technology Companies for Rapid Prototyping Competition

    FDIC has selected 14 technology companies—including Accenture Federal Services, LLC, Fed Reporter, Inc, and S&P Global Market Intelligence, LLC—for inclusion in the next phase of the rapid prototyping competition.

    October 15, 2020 WebPage Regulatory News
    News

    GLEIF Defines New Validation Agent Role for Financial Institutions

    GLEIF announced that financial institutions worldwide can realize a variety of cost, efficiency, and customer experience benefits by assuming a new “validation agent” role within the Global Legal Entity Identifier (LEI) System.

    October 15, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5979