Credit dynamics in CESEE since the global financial crisis: adjustment back to equilibrium levels?

26  March 2018    3:00 pm CEST

Mariarosaria Comunale, Bank of Lithuania

In cooperation with:


wiiw, Rahlgasse 3, 1060 Vienna


The presentation is based on a paper co-authored with Markus Eller and Mathias Lahnsteiner.

Mariarosaria Comunale

During the period of rapid credit expansion that was observed in most Central, Eastern and Southeastern European (CESEE) countries before the 2008/2009 global financial crisis (GFC) several papers had addressed the question whether these dynamics are still sustainable or constitute overshooting compared to equilibrium levels, raising concerns with regard to macrofinancial stability. With the benefit of hindsight, a consensus has emerged that pre-crisis credit developments had been on an excessive path in several CESEE countries. In particular, the substantial increases of nonperforming loans (NPLs) in the years after 2008 suggest that credit dynamics had been too much of a good thing in many CESEE countries. In the wake of the GFC, credit growth slowed down remarkably or even turned negative in CESEE, before recovering or accelerating again more recently. Against this background, the question arises whether credit levels have eventually turned back to equilibrium levels or whether under- or overshooting tendencies can be identified.

Our paper picks up this debate and offers several methodological improvements compared to existing literature to come up with an assessment how credit levels and growth rates in different CESEE EU countries have evolved compared to the underlying equilibria. Both a static (for levels) and dynamic (for growth rates) panel setups are applied. The role of global factors and cross-country spillovers between CESEE and from the other EU member states gets particular interest. In contrast to previous work, that focused on domestic bank credit to the private sector by using it as the dependent variable in the empirical analysis, we include direct cross-border credit to the private sector in our study. Thereby we capture an important source of financing in particular for companies in CESEE, which is a very close substitute for domestic bank credit.

Paper and Powerpoint presentation, as far as available, are posted on this page after the seminar.


Keywords: credit growth, equilibrium credit, fundamental credit, CESEE

JEL classification: C23, E44, E51, G21