CESEE Bank Lending Survey 2023: Credit supply tightens as banks eye expansion amid profitability concerns

The European Investment Bank (EIB) Central, Eastern and South-Eastern Europe (CESEE) Bank Lending Survey for the second half of 2023 highlights a continued tightening of credit supply1 in the region. Credit supply is expected to remain weak or neutral in almost all countries (except for Albania). However, the large supply-demand gap of the last few years (when demand was resilient but supply tightened) is expected to diminish.

Credit demand from bank clients has remained resilient and is expected to improve slightly. Fixed investments and retail, especially the housing market, contributed negatively, but fixed investments are expected to resume in the coming period. Contrary to previous negative expectations, credit quality improved over the last six months. However, given the weaker economic outlook and higher interest rates, banks again expect an increase in non-performing loans over the next six months.

“The survey findings indicate that the tightening of credit supply that began in 2022 because of the war in Ukraine, inflation, higher rates and economic slowdowns is still ongoing. All business segments have been affected by tight supply conditions, especially small and medium-sized enterprises. This is where EIB Global comes in. It will continue to provide favourable financing via financial intermediaries to help small businesses in the region to address their financial constraints, decarbonise, expend and create new jobs,” stated EIB Vice–President Kyriacos Kakouris.

Despite this, a growing number of banks express their intention to selectively expand their operations in the region (50%, up from 45% in the last round and 30% in the round before that) or maintain the same level of operations. Most regional subsidiaries have higher profitability than the overall group, in terms of return on assets and return on equity, especially in the Czech Republic, Kosovo3 and North Macedonia. However, their view on profitability has deteriorated significantly since the previous survey round, with more than 50% of banks now signalling lower profitability in various countries (Albania, Croatia, Hungary, Poland and Romania) compared to overall group operations.

“The survey is a vital tool for monitoring banking sector trends as well as the factors influencing credit standards and terms in the CESEE region. It enables us to understand the challenges faced by banks and provides valuable insights into the financing needs of companies and households. The findings will contribute to informed decision making and policy formulation,” commented EIB Chief Economist Debora Revoltella.

The survey, conducted by the European Investment Bank (EIB) in partnership with international and local banks, provides valuable insights into cross-border banking activities, credit growth determinants and market expectations. More information and country specifics can be found here.