Most countries in the region are already facing high inflation and high current account deficit. The crisis in the West might additionally enlarge these problems. Governments of the countries in the region must motivate banks to continue approving credits to economy.

When he returned home from his vacation last summer, Gikas Hardouvelis, Head of the Research Division of Eurobank EFG Group, didn’t have even a slightest idea how the European financial autumn might look like. Similar to all other bankers he was surprised by “the fire” started by Lehman Brothers.

Therefore it was not a surprise that many chairs at this year’s Euromoney Conference, smartly dedicated to the topic “how to survive the financial crisis”, were empty. Almost a half of about 400 expected participants had to stay at home in order to “clean their own yard first”, as Walter would say.

Hardouvelis and his colleagues at Eurobank EFG have fewer problems than many of their colleagues from West Europe. Banks in South East Europe are not directly affected by the world financial crisis. However, they shouldn’t relax because of that. Richard Ensor, Operational Director of Euromoney Institutional Investor, warned that citizens of the region should not relax because of the fact that East and South East Europe were not directly affected by the crisis.

“These countries cannot handle expensive loans,” said Ensor. He added that most countries in the region were already facing high inflation and high current account deficit. According to Ensor, the crisis in the West might additionally enlarge these problems since, on one hand, the reduced purchase power of citizens of West Europe would reduce export from the region to these countries, which are at the same time the biggest importers. On the other hand, the crisis in the West will reduce investments inflow into the countries of East and South East Europe.

Liquidity

In opinion of almost all bankers, liquidity is the greatest challenge that regional banks can face. Banks seem to have lost the mutual trust. In other words, they have moved from “expansion” mode to “safe” mode. This is proved by the fact that for the last thirty days deposits of banks at the European Central Bank have increased five times. Besides, bankers warn that they are ready to offer only very short-term loans, up to three months, on the market. On the other hand, the question is whether local deposits in countries in the region, together with the capital the banks own, are sufficient to compensate a lack of sources from the money market.

“Between 2002 and 2007, an increase was higher than ever before. Interest rates were low, and there was a lot of capital. Nowadays, the international environment is completely different,” said Gikas Hardouvelis. He estimated that insolvency of banks in the region shouldn’t be worried about. “Banks are well capitalized. For example, the ratio between capital and assets in Serbia is 20 percent,” he said, adding that banks might face a crisis of liquidity, since it didn’t depend on the real health of a bank.

“In the region, the crisis is now felt only at stock exchanges. As for the banking system, countries where banks have more approved loans than collected deposits are risky, but it is the case in several countries only. Economies of the countries in the region are still more or less closed; penetration of loans is low, and banking systems are diversified – banks on the market are not from a single country”, he said, adding that governments of the countries in the region must motivate banks to continue approving loans to economy.

“There mustn’t be a lack of loans,” said Hardouvelis

A little optimism

Regional bankers showed a little more optimism. Noticing that it sometimes seems to him that citizens of Serbia discuss the world financial crisis more than Americans do, Governor of the National Bank of Serbia estimated that people in Serbia “are afraid because of the bad experience they had in 1990s”, and therefore they are “skeptical”. Jelasic repeated that the monetary measures carried out by NBS during the credit expansion led to sufficient capitalization of banks, adding that savings in them are safe. Therefore, he repeated that withdrawal of deposits by citizens seemed illogical to him.

Boris Vujicic, Deputy Governor of the Central Bank of Croatia, said that banks in that country were also sufficiently capitalized to safely “survive” the international crisis. He added he was not afraid of the liquidity crisis, explaining that although the international money market was almost not functioning, capital owned by banks in Croatia, which could be freed by the central bank if needed through mitigating the monetary measures, could compensate a lack of money from the international market.

Janis Pehlivanidis, Vice President and Deputy Executive Director of National Bank of Greece, said that “we are currently in the middle of the crisis” and no-one can predict how it will end, adding that it is high time bankers resumed their strategies and changed priorities, on the basis of their experience, focusing on quality of assets and risk management.

“A closer look at economies of South East European countries shows they are more resistant than one could think. Penetration of loans in these countries is still low. Indebtedness is low and, although I expect the growth of banks to slow down, I don’t believe that the percentage of paying off of loans will reduce,” he estimated.