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Improving conditions sees EM European lending benefit the most

Credit activity is rising across EMs following accommodative central bank policies. Emerging Europe has benefitted the most across EMs, with increasing demand for loans being supported by improving lending conditions and lowering of NPLs – but Turkey bucks the trend.

Aug 25, 2016 // 4:37PM

According to the IIF, the composite index for EM bank lending conditions improved by 3 points to 47.8 from Q1 to Q2 2016. Although a number below 50 indicates a tightening of lending conditions, the improvement remains significant, and is the best movement on the index since Q2 2015.

The easing of lending conditions for banks is largely the result of accommodative monetary policies.

“In countries where central banks have been on hold for some time, the environment has become increasingly accommodative of lending activities,” said Roxana Hulea, VP, EM strategy at Societe Generale.

Improved liquidity positions at banks means that there are increased funds to support an economic recovery. The IIF noted that emerging Europe made the biggest gains over Q2, with all components of its index now above 50.

Although credit activity has been increasing across most of Europe, Turkey has seen a slowdown due to conditions within the country, according to Hulea.

The number of global NPLs also decreased between Q1 and Q2 2016, with the index making a 2.4 point rise to 44.6 in the second quarter of the year.

In Eastern European countries such as Serbia, Hungary and Romania, banks have in the past had seen NPLs in excess of 20% of their loan portfolios. The level of NPLs at these countries’ banks has now fallen, which has improved the lending environment.

“The banks’ room for manoeuvre has improved with the ditching of legacy loans, which means they can accommodate increased demand.”

According to the IIF, the index for overall loan demand also increased from 49.0 to 49.2 from Q1 2016. Demand for loans has been on the increase particularly in emerging Europe, with the index rising 4 points to 55.7. This is largely due to a steady improvement in real wages across the region.

Europe Macro Policy & Government

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