COVID-19 Impact on CEE Region Banks

Fortunately, a strong banking sector in Central and Eastern Europe faced the constraints of the COVID-19 epidemic. However, there is a lot of uncertainty about the long-term outlook. The regional survey by the consulting firm Deloitte researched how financial institutions see their own future.

“It has been several months since the start of the economic slowdown caused by the coronavirus epidemic. During this period, most financial institutions have faced and continue to face unprecedented challenges. Banks have to reckon with an increase in default rates, and consequently an increase in lending losses. At the same time, due to the slowdown in economic activity, interest, commission and fee income may also fall,” according to Albert Márton, Head of Deloitte's Regional Portfolio Management Services Division.

In order to map the challenges facing the banking sector as accurately as possible, Deloitte's Financial Advisory Team conducted a questionnaire survey of 12 countries in the Central and Eastern European region, focusing on economic growth, lending dynamics, non-performing loan portfolios (“NPLs”) and NPL transaction activity and the areas of restructuring and receivables management. In the survey, a total of 69 bank risk management managers and receivables management directors shared their experiences and expectations. In addition, Deloitte has asked debt purchase companies investing in non-performing loans to share their views on current and future developments. Here are some of the findings.

Following the global economic crisis of 2008-2009, asset quality improved significantly in the banking sector in the Central and Eastern European region. Financial institutions have built up capital reserves and strengthened their liquidity positions. As a result, at the start of the economic downturn caused by the COVID-19 epidemic, banks in the CEE region faced new challenges in a stronger position than in the 2008-2009 financial crisis.

The stable macroeconomic environment of the past few years, regulatory and policy attention, and banks' risk mitigation efforts have all contributed to the gradual decline in non-performing loans. These years have required banks to improve the management of problem or non-performing loans and to develop best practices, as well as to prevent the recovery of non-performing portfolios.