Banking in the Eastern Neighbours and Central Asia - Challenges and Opportunities: a new study from the European Investment Bank
A study on the banking sector in the EU’s Eastern Neighbours and Central Asia (ENCA) has been published by the European Investment Bank. The study examines the opportunities for growth in the banking sector in the region and discusses the challenges involved in providing an enabling environment for the development of the private sector.
“The banking sector has a key role to play as faster growth and economic diversification will require more activity in the small corporate and SME sectors,” says a European Investment Bank press release announcing the publication.
According to the executive summary of the 122-page study, growth expectations for the Eastern Neighbourhood and Central Asia region have been revised downwards following the global financial crisis, but the financial sectors of these economies are still showing more potential for growth versus those of the mature western European economies, driven by the catch-up in banking penetration and differences in GDP growth.
Forecasts for 2012 and 2013 show GDP growth of around 4% for Russia and the Eastern Partners and around 6% for Central Asia. Penetration levels are at 43.3%, when measured in terms of loans over GDP and 45.6% in terms of deposits over GDP. Banking sectors were affected to varying degrees by the global crisis and now face a diverse set of challenges and opportunities.
The study says that in Russia, the authorities responded quickly with liquidity and capital support for the banking sector and although a major crisis was averted there was nevertheless an important structural impact. State owned banks gained market share in the domestic market, while their strengthened capital and liquidity positions played a role in supporting a renewed ambition for growth throughout the region, at a time when privately-owned local or foreign banks were restructuring following the crisis.
Among the other Eastern partner countries Armenia, Moldova and Georgia all suffered significant economic shocks in 2009, but avoided major banking crises, the report says. The openness of these economies and progress with market reform mean that they have good future growth potential. On the other hand Ukraine had a major banking crisis as international funding dried up, exchange rates depreciated and the pre-existing banking sector vulnerabilities came to the surface, with GDP contracting by 14.5% in Ukraine in 2009. The study says Belarus was also severely affected, though internal factors also played an important part in the resulting balance of payments problems.
The study, titled ‘Banking in the Eastern Neighbours and Central Asia - Challenges and Opportunities’, includes a regional overview, country-by-country sections, and a short wrap-up on EIB actions in the region. (EU Neighbourhood Info