Transcript Greece_presentation

Banking Systems of SEEEs : Crisis Effects, outlook and
risks
Radovan Jelašić, Governor - National Bank of Serbia
Greece, 16th October 2009
Effects of the financial crisis were reflected in all major
economic indicators (1/2)
Household FX savings
RSD/EUR exchange rate
RSD
EUR bn
6.0
100
95
90
85
80
75
5.7
+26%
- 16 %
5.5
4.9
5.0
4.8 4.8
4.9 4.9 4.9
5.1
4.9 4.9
5.2 5.2
5.3
5.3
4.5
Sept . Oct Nov. Dec Jan Feb Mar Apr May Jun. July Aug Sept . Oct .
2008
2009
Sep Oct Nov Dec Jan Feb Mar Apr May Jun
2008
2009
Financial loans* (by maturity)
Aug Sep 08. Oct
Yield of London Club (debt in USD)
%
In EUR mn
Jul
13.00
2,200
12.00
1,700
11.00
1,200
10.00
700
9.00
200
* Financial loans are shown in net amount and include net foreign borrowing by
banks and enterprises.
10/1/2009
9/1/2009
6.00
8/1/2009
Short-term
7.00
7/1/2009
II
2009.
6/1/2009
I
5/1/2009
IV
4/1/2009
III
3/1/2009
Long-term
II
2008.
2/1/2009
I
1/1/2009
IV
12/1/2008
III
11/1/2008
II
2007.
10/1/2008
-800
8.00
I
9/1/2008
-300
Effects of the financial crisis were reflected in all major
economic indicators (2/2)
Industrial production
Contribution to y-o-y GDP growth
(in percentage points)
10
7.8
6.4
5 .4
(seasonally-adjusted data, 2008=100)
8.8
6.4
5.5
3.0
5 .5
5 .3
100
4.6
4 .4
5 .8
3 .2
95
3 .0
0 .8
0 .5
0
-4.2
90
85
-4.0
80
75
-10
II
2007
III
IV
I
II
2008
III
IV
I
Agriculture, fishing and forestry
Industry and construction
Services
Tax minus subsidies
II
2009
Sep08
Oct
Nov
Dec
Jan09
Feb
Mar
Industrial production
Apr
May
Jun
Jul
Manuf acturing Industry
GDP (%)
*Serv ices include: Wholesale and retail trade, hotels and restaurants, transport and communication,
f inancial intermediation, real estate, renting and other serv ices.
Employment
In thous.
(in %)
2,800
Current account deficit
In EUR bn
2.0
1.5
21,3%
GDP
17,9%
GDP
16,1`%
GDP
28
26
24
22
20
18
16
14
12
10
2,600
2,400
14,8%
GDP
2,200
12,5% GDP
1.0
2,4%
GDP
0.5
0.0
Q1
2008.
Q2
Q3
Q4
Q1
2009.
Q2
2,000
I
II
2008
III
IV
I
II
2009
Number of employ ed persons (lef t scale) *
Unemploy ment rate (right scale)
*Including registered farmers
“You only find out who is swimming naked when the tide
goes out”
NBS was quite restrictive until the beginning
of the crisis* because of:

Low country rating S&P,
Fitch : BB- /negative

High capital adequacy ratio: 23.3%;

Substantial holdings of National Bank of
Serbia repos by commercial banks: EUR
3.2bn, representing 13% of total assets of the
banking sector;

High reserve requirements: 40% on new FX
savings, 45% on foreign borrowing;

Low level of household indebtedness**: EUR
608 per citizen, EUR 1,680 per employed
person***)

75% of banks owned by strategic owners from
the EU;
outlook;

Floating exchange rate and
70% of all loans FX
denominated;

Haunting past: lost
savings, pyramid banks,
hyperinflation.
*Figures of the banking sector as of Sept 30th 2008
**Loans and leasing contracts
***Including registered farmers
Stable banking sector saved the Serbian taxpayer

Improving international environment and several measures implemented by
government and NBS halted further deterioration of GDP: Government provided
loan subsidies while the Central bank substantially relaxed its restrictive
regulations (e.g.):
•
Since 1 October 2008, banks are exempt from reserves requirements
on foreign borrowing, subordinated loans and financial leasing abroad
•
Deposit insurance scheme was increased to EUR 50,000 from EUR
3,000;
•

Tax on interest revenue for FX saving was abolished for 2009;
Banks regained liquidity and are again borrowing money from abroad. None-
performing loans are bottoming out, exchange rate got stabilized without NBS
being active on the FX market. Based on the “Vienna agreement”, foreign
banks decided not to lower the country exposure till the end of 2010!
Bank stress tests have been carried out as part of the
Vienna Initiative

Vienna Initiative (FSSP – Financial Sector Support Program) was launched in March
2009 – the number of participating banks has in the meantime risen from 10 to 27;
Banks’ commitments

Maintain the level of exposure to Serbia
Carry out stress tests of the banking
sector as a whole until end-2009 – so far,
indirect channel: investments through
diagnostic analyses of 16 biggest banks
subsidiaries) and maintain the level of
(83% of balance sheet total) have been
regulatory indicators above the
conducted;
liquidity ratio…);


(direct channel: cross-border borrowing +
prescribed minimum (capital adequacy,

NBS’s commitments

Provide dinar (short-term liquidity loans)
and FX liquidity (EUR/RSD swap
Define methodology and participate in
transactions between the NBS and banks)
stress tests coordinated with the IMF;
- COMPLETED;
Consider pre-emptive capital increase if
stress tests prove it necessary.

Relax the arrears criteria in case of
rescheduling the repayment terms for
loans granted before April 2009 COMPLETED.
Model and assumptions

Моdel – regression using output gap, depreciation and changes in interest rates as independent variables
and their impact on the worsening of credit portfolio and losses from rising NPLs over 2 years (2009 and
2010);

The NBS uses a standardized “bottom-up” IMF testing of credit risk (which has the strongest impact);

Assumptions of the downside scenario have been used.
2008
Expected
2009
2010
Changes in GDP
5.4
-6.0
-3.5
-3.0
+1.5
Output gap
0.7
-5.8
-8.5
-6.0
-5.8
11.8
12.0
10.0
13.0
1.0
/
0.1
2
-6.75
?
Depreciation
Changes in interest rates

Assumption
2009
2010
Elasticity demonstrating the intensity of impact of macroeconomic scenario on the rise in NPLs (based on
the IMF panel regression implemented in around 50 countries)
Output gap
0.7
Depreciation
0.3
Changes in interest rates
0.4
Composite results of bank stress testing (83% of balance
sheet total – 16 banks) are positive!

In the downside scenario, the
volume of NPLs would rise by
13.9%;

Even if the downside scenario
materialized, the composite
regulatory indicator (capital
adequacy) would remain high
above the regulatory minimum
(12%).

Banks in Serbia do not need
pre-emptive capital increase;

The strongest impact on the rise
in NPLs comes from declining
economic activity reflected in
declining GDP and output gap.
Starting basis after diagnostic analyses (RSD bn)
Capital adequacy
19.01%
2009
Estimated annual loss from the rise in NPLs
Capital adequacy
-63.09
18.04%
2010
Estimated annual loss from the rise in NPLs
Capital adequacy
-34.81
16.42%
Conclusion
NPLs in total loans (% ) and nominal NPLs (RSD mln)
12%
120,000
100,000
9%
80,000
6%
60,000
40,000
3%
20,000
0%
0
31.03.08. 30.06.08. 30.09.08. 31.12.08. 31.01.08. 28.02.08. 31.03.08. 30.04.08. 31.05.08. 30.06.08. 31.07.08. 31.08.08.
Total loans in nominal terms (right scale)

Total loans (share)
Materialization of a downside scenario would lead to а) a 13.9% increase in NPLs (from 8.1% to 22%), i.e.
175% nominal increase relative to the March 2009 level and b) a drop in capital adequacy from 19.0% to
16.4% at end-2010;

In the year to August, NPLs rose by 25% (from 8.1% to 10.1%), with a trend of stagnation - minimum
chances of materialization of the downside scenario until end-2010!

Results of the stress tests have shown that even in a downside scenario, the banking sector (with its current
level of capital and reserves) is capable to absorb all potential losses, and level of 37% above the capital
adequacy regulatory minimum!
Even today there are several key lessons regarding the
effects of the crisis

Bank shareholders are playing a key role in case of crisis
a) strategic owners deserved the confidence;
b) in Serbia, private owners (non-state) caused some concern;

Countercyclical fiscal policy should be practiced also during good times
i.e., government should use the periods of economic prosperity and boom
for building up savings or at the very least, it should try not to increase
public debt;

Legislation should allow fast and efficient handling of crises;

Credit growth in good times should be more aggressively curbed;

Both capital adequacy ratio and liquidity ratio of banks should be higher in
emerging countries;

Central bank should maintain an adequate (higher) level of FX reserves
as a lender of last resort not only in local currency but FX as well;
Outlook for the banks in SEE will be determined by several
factors !
1. Growth model: Domestic demand or more export driven growth model ?
2. Macroeconomic policies : To which extent will adjustment take place in
fiscal or monetary policy ?
3. International capital market conditions : Will money be available at the
price and in the amount as previously?
4. Conditions in the country of the banks’ headquarters : Will the origin of
the bank be an asset or a liability?
5. Speed of adjustment : How fast will particular bank adjust to a new reality?
Serbia and the region
Contribution to y-o-y GDP growth
(in percentage po ints)
(in percentage points)
10
Contribution to y-o-y GDP grow th
Serbia
8.3
6.9
5.4
5.2
3 .3
3.8
2.4
4 .3
4 .7
0
Croatia
10
5.5
5.6
5 .4
3 .9
3.6
5.0
3.4
4.2
1.8
2.7
2 .0
0 .7
5.5
4.7
4.2
3.3
2.9
4.0
2.4
1.7
0
-1.9
-4.1
-6.5
-10
-10
2003
2004
2005
2006
A griculture, hunting & fo restry, fishery
Services
GDP (%)
2007
2008
Industry & Co nstructio n
Tax minus subsidies
2009 H1
2002
2003
2004
FYROM
4.1
4.1
0
2009*
GDP (%)
Bulgaria
10
4.5
4.9
3.9
3.4
2.6
2008
Services
6.6
0.6
2007
Indust ry and const ruct ion
5.9
2.8
2006
(in percentage points)
(in percentage points)
0.9
2005
A gricult ure, f ishing and f orest ry
Contribution to y-o-y GDP growth
Contribution to y-o-y GDP growth
10
2001
3.2
6.2
5.0
6.3
6.2
6.0
3.8
2.1
2.9
2.4
2.8
4.1
3.6
3.0
1.8
0.7
-1.2
1.2
0
-4.2
-0.2
-10
-10
2002
2003
2004
2005
2006
2007
2008
2009*
2002
2003
2004
2005
2006
2007
2008
2009*
A gricult ure, f ishing and f orest ry
Indust ry and const ruct ion
A gricult ure, f ishing and f orest ry
Indust ry and const ruct ion
Services
GDP (%)
Services
GDP (%)