Bad debts remain stable in emerging Europe despite macro-financial pressure

This article is brought to you in association with EBRD.

• Latest NPL Monitor shows non-performing loans remain stable in the CESEE region, despite persistent economic uncertainty
• Credit risks remain under control, but commercial real-estate lending looks vulnerable
• NPL market in Greece remains buoyant, unlike more subdued transactional flows in the CESEE region

Bad debts remain stable in the European Bank for Reconstruction and Development’s (EBRD) European markets, despite external pressure from macroeconomic uncertainty and geopolitical tensions over the past year, according to the new edition of the NPL Monitor, published today.

The latest data suggest that the non-performing loan (NPL) landscape in central, eastern and south-eastern Europe (CESEE) remains resilient, with stable volumes and ratios across most jurisdictions.

In a shift from the declining trend seen since 2020, between December 2022 and December 2023, NPL volumes in the CESEE region increased marginally by 0.9 per cent to €27.5 billion. However, the average regional NPL ratio remained broadly unchanged at 2.1 per cent. The region’s overall coverage ratio held steady at around 65 per cent.

“Overall, the fact that the NPL ratio and coverage ratio remain stable, despite increasing NPL stocks, indicates that the banking sector in the region shows resilience to external shocks such as high inflation and the low purchasing power of households,” the report says.

However, it warns that vulnerabilities persist, with commercial real-estate lending and loans to small and medium-sized enterprises (SMEs) under stress as a result of reduced demand and refinancing risks in a high-interest rate environment.

The report warns against complacency and the potential risk of deteriorating asset quality triggered by high inflation and economic uncertainty. These two factors continue to affect borrowers’ creditworthiness, especially in leveraged sectors, and may pose a risk of new NPL inflows.

NPL deal activity was low in the CESEE region in 2023, though the Greek market remained buoyant, thanks to a significant contribution from secondary sales. Banks now approach portfolio sales more from a tactical perspective than as a crisis response. Consolidation dynamics in the credit servicers industry also helped to expand the secondary flow in 2023. 

The half-yearly report tracking NPLs is prepared by the EBRD as part of the European Bank Coordination “Vienna” Initiative framework. The NPL Monitor is published on the Vienna Initiative website in tandem with a partner publication prepared by the IMF, the Deleveraging and Credit Monitor, also issued today.

The Vienna Initiative was established during the global financial crisis in 2009 to safeguard the financial stability of emerging Europe by bringing together banks, governments, regulators and international financial institutions.