Bad loans hitting Eastern European banks could last beyond 2021 (report)

LONDON (Reuters) – Banks in central, eastern and southeastern Europe are set to be hit by a wave of bad loans that could last beyond 2021, a report from the lenders and policymakers consortium said on Wednesday. Vienna Initiative.

Banks were better prepared than during the previous financial crisis in 2008 to deal with the flood of non-performing loans following the COVID-19 pandemic, according to the report.

But he said how lenders reacted in the coming months to anticipate and prevent a rise in the number of troubled borrowers would be key.

Created in 2009 after the global financial crisis to prevent massive withdrawals by Western banks from emerging Europe, the Vienna Initiative is a coordinated effort by banks, international financial institutions and policymakers credited with averting banking crises. in the region after 2008.

A survey by the European Union’s lending arm, the European Investment Bank, in March showed that almost 65% of banks surveyed expected non-performing loans (NPLs) to increase in the coming months, and that there are “visibly” fewer new loans to be approved.

The temporary nature of the social restriction measures means that the effects of the current crisis could be shorter than during the 2008-09 crisis, according to the latest biannual report from the Vienna Initiative.

But the initiative said three waves of bad loans could be anticipated, starting with an immediate spike in the fourth quarter as pandemic containment measures expire and weaker borrowers begin to default.

A second wave, slower and more spread out, could follow in the first half of 2021, with the intensity of business bankruptcies and job losses strongly depending on the recovery of the economy or the markets.

Finally, a third wave could hit, resulting from the ripple effects of failures in different parts of the economy and supply chains. This should start to emerge towards the end of 2021 and beyond, he said.

Editing by William Maclean