Central and Eastern European banks face a difficult year, with those in Hungary, Slovenia, Bulgaria and Croatia among the weakest, according to a sector report published by credit-rating agency Standard and Poor’s on Monday. “The region’s banks will likely continue to suffer from high levels of bad loans and credit losses, weak credit demands and compressed margins,” S&P wrote in its report Central and Eastern European Banking Outlook 2013: Another Tough Year in a Weak Economic Climate.
Banks across the region show a wide credit quality disparity, with the Czech Republic, Poland and Slovakia expected to be able to maintain sound creditworthiness in 2013 but Slovenia, Hungary, Bulgaria and Croatia suffering from a weaker position, S&P credit analyst Pierre Gautier said. “We believe in most cases their credit quality should stabilise and stop deteriorating in 2013,” he added about those four countries.
Won’t get better here
Hungarian and Slovenian banks are the most vulnerable with expectations of a growth in the number of non-performing loans in those countries. “We expect the credit quality of rated banks to continue to be under pressure [in Hungary and Slovenia], despite being at low levels after various downgrades in past years” with Hungarian lenders to continue to lose money in particular over its Swiss franc-denominated mortgage loans, the report said. Unfriendly and improvised measures in Hungary against the banking sector, including the bank tax (originally to be abolished in 2013 but now made permanent) have increased banks’ losses, in turn reducing their activity and slowing economic growth, according to S&P.
Banking systems are also weakened by their overreliance on Western European parent banks to fund loans in Central and Eastern Europe over the past decade, the agency said. This is a business model that needs to be amended in the next two years as “we believe CEE banking systems will remain vulnerable to [the situation in the eurozone] and to eurozone banks’ deteriorating creditworthiness,” Gautier said.