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Emerging Trends in Central-Eastern Europe and CIS: Opportunities and Risks

Explore the positive outlook for GDP growth and consumer credit, along with the booming credit market in Central-Eastern Europe and CIS regions. Uncover the risks associated with macroeconomic, micro, and institutional factors shaping the financial landscape. Gain insights into the potential for market expansion and the challenges ahead.

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Emerging Trends in Central-Eastern Europe and CIS: Opportunities and Risks

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  1. Macro trends in Central-Eastern Europe and CIS: Opportunities and Risks Global ABS Forum, Barcelona 11 June, 2007 Fabrizio Coricelli EBRD

  2. Outline • Positive outlook for GDP growth and consumption • Credit is booming, especially for consumer loans and mortgages • Huge gap to be filled: in spite of extraordinary growth rates, markets still shallow • Interest rates: high spreads, (even for FX loans) relative to €-zone or $, especially for CIS countries • Risks: in addition to macroeconomic risks (currency risk, low financial wealth of households), there are micro risks and institutional risks, associated to uncertainty of the legal framework. • Markets are still young, little history of default and untested legal framework (enforcement issue)

  3. Positive trends in incomes & consumption(average % growth 2004-2006)

  4. Forecast for 2007

  5. Credit boom • Credit to households growing at extremely high rates, especially in CIS and Romania • Consumer loans account for the largest share, but mortgages are generally growing faster

  6. Credit boomHousehold debt, stock in 2006 (bn €) % increase over 2005

  7. Household debt 2000-2006 (average % growth) % increase over 2005

  8. Interest rates: large spreads, stable outlookLending rates and inflation, 2006 Note: Interest rate data for Kazakhstan 2005

  9. Prospects for market growth • In spite of recent extraordinary growth rates, levels of household debt remain low, in terms of incomes • Huge margins for market expansion

  10. Household debt/GDP * Central-Eastern Europe plus Turkey

  11. Risks: Macro risks • Currency risks: high shares of FX in total household loans in some countries (in most of them for the mortgage segment) • Speed of growth of markets extremely high: quality of portfolio likely to deteriorate rapidly • Household wealth very low: little room for absorbing shocks to ability to repay debts

  12. Share of FX loans in total Household loans 2006 Note: Interest rate data for Kazakhstan 2005

  13. Household debt/Household financial wealth * Central-Eastern Europe plus Turkey

  14. Risks: Micro and institutional • No history of default in such young markets; issue of proper valuation of assets. • Local legislation still largely incomplete and there is uncertainty on enforcement of laws: the market has not been tested yet. • Most transactions occur under foreign laws to reduce risks, but this limits the development of local markets.

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