Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/175732
Authors: 
Gächter, Martin
Macki, Piotr
Moder, Isabella
Polgár, Éva Katalin
Savelin, Li
Żuk, Piotr
Year of Publication: 
2017
Series/Report no.: 
ECB Occasional Paper 190
Abstract: 
This paper reviews and assesses financial stability challenges in countries preparing for EU membership, i.e. Albania, Bosnia and Herzegovina, Kosovo1, the former Yugoslav Republic of Macedonia, Montenegro, Serbia and Turkey. The paper focuses on the period since 2014 and on the banking sectors that dominate financial systems in this group of countries. It identifies two main near-term challenges applying to most of them. The first relates to credit risk, which remains substantial despite some progress in reducing the burden of non-performing loans on banks' balance sheets in the period under review. However, progress so far is limited, partly owing to structural impediments. The second relates to the still high share of foreign exchange denominated loans and deposits, which poses an indirect credit risk in the case of lending to unhedged borrowers and impairs the monetary transmission channel. In addition, profitability is worth monitoring going forward, as it remains subdued in many countries given high provisioning needs and a lacklustre credit growth and low interest rate environment. These concerns are generally met with a solid shock-absorbing capacity, as exemplified by robust capital and liquidity buffers.
Subjects: 
Banking sector
financial stability
foreign exchange lending
credit growth
EU accession
Western Balkans
cross-border flows
deleveraging
JEL: 
F31
F34
F36
G15
G21
G28
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-2852-6
Document Type: 
Research Report

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