Financial Stability Challenges in EU Candidate and Potential Candidate Countries

67 Pages Posted: 27 Sep 2015

See all articles by Francisco Ramon-Ballester

Francisco Ramon-Ballester

European Central Bank (ECB)

Daniela Pulst

European Central Bank (ECB)

Michaela Posch

Oesterreichische Nationalbank (OeNB)

Li Savelin

European Central Bank (ECB)

Stoyan Manolov

Bulgarian National Bank

Ivan Huljak

Croatian National Bank

Winona Kuhles

Deutsche Bundesbank

Ramona Jimborean

Banque de France

Christos Papazoglou

Bank of Greece - Economic Research Department

Zsolt Olah

Magyar Nemzeti Bank

Bálint Dancsik

Magyar Nemzeti Bank

Andrea Colabella

Bank of Italy

Isabella Moder

European Central Bank (ECB)

Piotr Macki

National Bank of Poland

Marianna Cervena

National Bank of Slovakia

Klodion Shehu

Bank of Albania

Krenare Maloku

Government of the Republic of Kosovo - Central Bank of the Republic of Kosovo

Mihajlo Vaskov

National Bank of the Republic of Macedonia

Borko Bozovic

Central Bank of Montenegro

Ana Vlahovic

Central Bank of Montenegro

Dejan Vasilijev

National Bank of Serbia

Bahadir Cakmak

Government of the Republic of Turkey - Central Bank of the Republic of Turkey

Date Written: August 2015

Abstract

This paper reviews financial stability challenges in countries preparing for EU membership, i.e. Albania, Bosnia and Herzegovina, Kosovo*, Iceland, the former Yugoslav Republic of Macedonia, Montenegro, Serbia and Turkey. The paper has been prepared by an expert group of staff from the European System of Central Banks (ESCB) in which experts from EU candidate and potential candidate country central banks also participated. The paper finds that near-term challenges to financial stability primarily relate to credit risks from the generally weak economic dynamics in combination with already high non-performing loan burdens in many banking systems, especially in the Western Balkans. In the medium-term, challenges to financial stability stem from indirect market risks to banks related to foreign currency lending as well as lingering exposures to funding risks, with Western Balkan economies again appearing as relatively more vulnerable. Looking further ahead, the paper highlights that the magnitude of the challenge to reach a ‘new banking normal’ for banking systems in these countries appears to remain sizeable, while noting that the establishment of adequate home-host cooperation channels would be important to help maximise the potential benefits to third parties stemming from centralised banking supervision under the Single Supervisory Mechanism (SSM).

Keywords: banking sector; banking union; cross-border flows; deleveraging; emerging markets; Europe; foreign exchange lending

JEL Classification: F31, F34, F36, F41, G21, G28

Suggested Citation

Ramon-Ballester, Francisco and Pulst, Daniela and Posch, Michaela and Savelin, Li and Manolov, Stoyan and Huljak, Ivan and Kuhles, Winona and Jimborean, Ramona and Papazoglou, Christos and Olah, Zsolt and Dancsik, Bálint and Colabella, Andrea and Moder, Isabella and Macki, Piotr and Cervena, Marianna and Shehu, Klodion and Maloku, Krenare and Vaskov, Mihajlo and Bozovic, Borko and Vlahovic, Ana and Vasilijev, Dejan and Cakmak, Bahadir, Financial Stability Challenges in EU Candidate and Potential Candidate Countries (August 2015). ECB Occasional Paper No. 164, Available at SSRN: https://ssrn.com/abstract=2665676

Francisco Ramon-Ballester (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Daniela Pulst

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Michaela Posch

Oesterreichische Nationalbank (OeNB) ( email )

Otto-Wagner-Platz 3, PO Box 61
Vienna,
1010 Vienna, A-1011
Austria

Li Savelin

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Stoyan Manolov

Bulgarian National Bank ( email )

str "St. Sofia" 5
Sofia, 1040
United States

Ivan Huljak

Croatian National Bank ( email )

Croatia

Winona Kuhles

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Ramona Jimborean

Banque de France ( email )

Paris
France

Christos Papazoglou

Bank of Greece - Economic Research Department ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece
+30210-3202381 (Phone)
+30-210-3233025 (Fax)

HOME PAGE: http://www.bankofgreece.gr/publications/Abstract200529.htm

Zsolt Olah

Magyar Nemzeti Bank ( email )

Szabadsag ter 8-9
Budapest, H-1850
Hungary

Bálint Dancsik

Magyar Nemzeti Bank ( email )

Szabadsag ter 8-9
Budapest, H-1850
Hungary

Andrea Colabella

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Isabella Moder

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Piotr Macki

National Bank of Poland ( email )

00-919 Warsaw
Poland

Marianna Cervena

National Bank of Slovakia ( email )

Imricha Karvasa 1
813 25 Bratislava
Slovakia

Klodion Shehu

Bank of Albania ( email )

Sheshi "Skenderbej", no.1,
Tirana
Albania

Krenare Maloku

Government of the Republic of Kosovo - Central Bank of the Republic of Kosovo ( email )

Garibaldi Street
Number 32
Prishtina, 10 000
Kosovo

Mihajlo Vaskov

National Bank of the Republic of Macedonia ( email )

Skopje, 1000
Macedonia

Borko Bozovic

Central Bank of Montenegro

Bulevar Svetog Petra Cetinjskog, 6
Podgorica, 81000
Montenegro

Ana Vlahovic

Central Bank of Montenegro

Bulevar Svetog Petra Cetinjskog, 6
Podgorica, 81000
Montenegro

Dejan Vasilijev

National Bank of Serbia ( email )

Kralja Petra 12
Belgrade, 11000
Serbia

Bahadir Cakmak

Government of the Republic of Turkey - Central Bank of the Republic of Turkey ( email )

Istiklal Cad. 10 Ulus
06100 Ankara, Ankara 06050
Turkey

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