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Macro trends in Central-Eastern Europe and CIS: Opportunities and Risks

Macro trends in Central-Eastern Europe and CIS: Opportunities and Risks. Global ABS Forum, Barcelona 11 June, 2007 Fabrizio Coricelli EBRD. Outline. Positive outlook for GDP growth and consumption Credit is booming, especially for consumer loans and mortgages

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Macro trends in Central-Eastern Europe and CIS: Opportunities and Risks

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  1. Macro trends in Central-Eastern Europe and CIS: Opportunities and Risks Global ABS Forum, Barcelona 11 June, 2007 Fabrizio Coricelli EBRD

  2. Outline • Positive outlook for GDP growth and consumption • Credit is booming, especially for consumer loans and mortgages • Huge gap to be filled: in spite of extraordinary growth rates, markets still shallow • Interest rates: high spreads, (even for FX loans) relative to €-zone or $, especially for CIS countries • Risks: in addition to macroeconomic risks (currency risk, low financial wealth of households), there are micro risks and institutional risks, associated to uncertainty of the legal framework. • Markets are still young, little history of default and untested legal framework (enforcement issue)

  3. Positive trends in incomes & consumption(average % growth 2004-2006)

  4. Forecast for 2007

  5. Credit boom • Credit to households growing at extremely high rates, especially in CIS and Romania • Consumer loans account for the largest share, but mortgages are generally growing faster

  6. Credit boomHousehold debt, stock in 2006 (bn €) % increase over 2005

  7. Household debt 2000-2006 (average % growth) % increase over 2005

  8. Interest rates: large spreads, stable outlookLending rates and inflation, 2006 Note: Interest rate data for Kazakhstan 2005

  9. Prospects for market growth • In spite of recent extraordinary growth rates, levels of household debt remain low, in terms of incomes • Huge margins for market expansion

  10. Household debt/GDP * Central-Eastern Europe plus Turkey

  11. Risks: Macro risks • Currency risks: high shares of FX in total household loans in some countries (in most of them for the mortgage segment) • Speed of growth of markets extremely high: quality of portfolio likely to deteriorate rapidly • Household wealth very low: little room for absorbing shocks to ability to repay debts

  12. Share of FX loans in total Household loans 2006 Note: Interest rate data for Kazakhstan 2005

  13. Household debt/Household financial wealth * Central-Eastern Europe plus Turkey

  14. Risks: Micro and institutional • No history of default in such young markets; issue of proper valuation of assets. • Local legislation still largely incomplete and there is uncertainty on enforcement of laws: the market has not been tested yet. • Most transactions occur under foreign laws to reduce risks, but this limits the development of local markets.

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