Book Description

International banking group strategies and commitment to the CESEE region: Banking group strategies are tilted towards expansion or stability in the CESEE region. This is also supported by the profitability (return on assets - RoA) of CESEE operations. Banking groups' medium-term market assessment in terms of their potenatial and positioning does not show any sigfincant deterioration compared to the pre-COVID-19 period. Overall, banking groups report a generalised stability stance in their loan-to-deposit (LTD) ratios and group-level access to funding conditions continued to be easy. Nonetheless, COVID-19 has brought about a deceleration in activities to increase capital. CESEE subsidiaries and local banks report a decrease in demand for credit and they have tightened supply conditions over the past six months. Demand contracted for the first time over the past five years. Investment became a contractionary element whilst working capital needs continue to play a positive contributing role. Consumer confidence fell, hitting non-housing-related consumption, which led to a contraction in demand for credit. Credit standards tightened across the board, including on SME lending. Collateral requirements tightened significantly across the board. Many domestic and international factors tightened supply conditions over the past six months, including market and bank outlook and non-performing loans (NPLs) at the local level. Global market outlook, group funding and, to a lesser extent, group NPLs started playing a constraining role. Changes in the domestic regulatory environment played an easing role for the first time. Access to funding has continued to ease in the CESEE region over the past six months. NPL ratios deteriorated, albeit less than anticipated in the Spring 2020 survey wave. This trend is expected to continue over the next six months in both corporate and retail segments. Policy response to the COVID-19 shock: Regulatory and policy measures have played a supportive role to lending activity and public guarantee schemes have been effective so far, whilst central banks' long-term liquidity provisions have also helped to some degree. Flexibility on treatment of NPLs, relaxation of liquidity ratios, various forms of capital relief measures and adjustments of risk weights were deemed supportive. Moratoria on loans: Many countries and banks have implemented moratoria measures, with total outstanding loan portfolio coverage between 0% and 20% for roughly 50% of banks and between 20% and 60-70% for the other reporting banks. Digitalisation processes in response to COVID-19: Banks have sped up their propensity to digitalise, notably in terms of client outreach and in the area of risk management.