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Rapid Credit Growth in Central and Eastern Europe
Front Matter

Front Matter

Author(s):
Charles Enoch, and Inci Ötker
Published Date:
March 2007
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    Rapid Credit Growth in Central and Eastern Europe

    Rapid Credit Growth in Central and Eastern Europe

    Endless Boom or Early Warning?

    Edited by

    Charles Enoch

    and

    İnci Ötker-Robe

    International Monetary Fund 2007

    All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission.

    No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London WIT 4LP.

    Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages.

    The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988.

    Nothing contained in this book should be reported as representing the views of the IMF, its Executive Board, member governments, or any other entity mentioned herein. The views expressed in this book belong solely to the authors.

    First published 2007 by

    PALGRAVE MACMILLAN

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    PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St Martin’s Press LLC and of Palgrave Macmillan Ltd.

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    ISBN-13 978-0-2305-2151 3 hardback

    ISBN-10 0-2305-2151 7 hardback

    This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources.

    A catalogue record for this book is available from the British Library.

    Library of Congress Cataloging-in-Publication Data

    Rapid credit growth in Central and Eastern Europe: endless boom or early warning? / edited by Charles Enoch and İnci Ötker-Robe.

    • p. cm.

    • Includes bibliographical references and index.

    • ISBN-13: 978-0-230-52151-3 (cloth)

    • ISBN-10: 0-230-52151-7 (cloth)

    • 1. Credit control—Europe, Eastern. 2. Credit control—Europe, Central. 3. Credit control—Former Soviet republics. I. Enoch, Charles. II. Ötker, İnci.

    • HG3711.E85R37 2007

    • 332.709443—dc22

    • 2006051551

    10 9 8 7 6 5 4 3 2 1

    16 15 14 13 12 11 10 09 08 07

    Printed and bound in Great Britain by

    Antony Rowe Ltd, Chippenham, Wiltshire

    Contents

    List of Tables

    List of Figures

    List of Abbreviations

    ACB

    Association of Commercial Banks

    ARDL

    Autoregressive Distributed Lag

    BIS

    Bank for International Settlements

    BL

    Bank of Lithuania

    BNB

    Bulgarian National Bank

    BoE

    Bank of Estonia

    BoG

    Bank of Greece

    BoL

    Bank of Latvia

    BoP

    Bank of Portugal

    BoS

    Bank of Spain

    CAR

    Capital Adequacy Ratio

    CBA

    Currency Board Arrangement

    CCR

    Central Credit Register

    CEBS

    Committee of European Banking Supervisors

    CEE

    Central, Eastern and South-eastern Europe

    CEPI

    European Council of Real Estate Professionals

    CNB

    Croatian National Bank

    CPI

    Consumer Price Index

    CRD

    Capital Requirements Directive

    CZ

    Czech Republic

    DC

    Domestic Currency

    DEM

    Deutsche mark

    DIT

    Direct Inflation Targeting

    DNB

    The Netherlands Bank (De Nederlandsche Bank)

    EBRD

    European Bank for Reconstruction and Development

    EC

    European Commission

    ECB

    European Central Bank

    EE

    Estonia

    EEA

    European Economic Area

    EEK

    Estonian kroon

    EFTA

    European Free Trade Association

    EMS

    European Monetary System

    EMU

    European Economic and Monetary Union

    ERM

    Exchange Rate Mechanism

    ESCB

    European System for Central Banks

    EU

    European Union

    EUR

    Euro

    Euribor

    Euro Interbank Offered Rate

    FDI

    Foreign Direct Investment

    FSAP

    Financial Sector Assessment Program

    FSIs

    Financial Soundness Indicators

    FX

    Foreign Exchange

    FYR

    Former Yugoslav Republic

    GPS

    Greece, Portugal, and Spain

    GDP

    Gross Domestic Product

    HU

    Hungary

    IFRS

    International Financial Reporting Standards

    IMF

    International Monetary Fund

    IPOs

    Initial Public Offerings

    IT

    Information Technology

    KredEx

    The Estonian Credit and Export Guarantee Fund

    LI

    Lithuania

    LIBOR

    London Interbank Offer Rate

    LOLR

    Lender of Last Resort

    LTL

    Lithuanian litas

    LTV

    Loan to Value

    LV

    Latvia

    LVL

    Latvian lat

    M2

    Broad Money

    MCM

    Monetary and Capital Markets Department

    MFIs

    Monetary Financial Institutions

    MGE

    Mean Group Estimator

    MoUs

    Memoranda of Understanding

    MRR

    Marginal Reserve Requirement

    MTM

    Monetary Transmission Mechanism

    NBP

    National Bank of Poland

    NBR

    National Bank of Romania

    NBS

    National Bank of Slovakia

    NBU

    National Bank of Ukraine

    NPL

    Nonperforming loan

    OECD

    Organization for Economic Cooperation and Development

    OLS

    Ordinary Least Square

    PL

    Poland

    PPI

    Producer Price Index

    RAS

    Risk Assessment System

    ROA

    Return on Assets

    ROE

    Return on Earnings

    RON

    Romanian leu (pi. lei)

    RR

    Reserve Requirements

    SEE

    South East Europe

    SEOs

    Seasoned Equity Offerings

    SI

    Slovenia

    SK

    Slovakia

    SMEs

    Small and Medium-size Enterprises

    SoEs

    State-owned Enterprises

    SREP

    Supervisory Review and Evaluation Process

    TALSE

    An index that reflects changes in the prices of shares listed in the Main and Investor lists of the Estonian Stock Exchange, and the Tallinn Stock Exchange

    VAR

    Value at Risk

    VECM

    Vector error correction model

    VILSE

    Lithuanian Broad Stock Market Index

    WIBOR

    Warsaw Interbank Offer Rate

    ZL

    Polish zloty

    Preface

    The chapters in this volume derive from the presentations made at a two-day conference jointly organized by the National Bank of Romania and the International Monetary Fund in Sinaia, Romania on October 7–8, 2005. We would first and foremost wish to thank the National Bank of Romania, in particular Governor Isarescu and Deputy Governor Popa, for hosting the conference. The conference brought together central banks and national supervisory and regulatory authorities of a number of Western, Central, Eastern and South-eastern European (CEE) countries. The conference and discussions were expertly organized, and certainly helped participants in their thinking and work on credit growth issues. We are also grateful to all the authors of the papers and other participants at the seminar for their many contributions and lively discussions.

    The timing of the conference and the book is certainly not a coincidence. Rapid credit growth continues to be pervasive across almost the whole of the CEE region, and is recognized as a potentially serious problem. Assessing credit growth and developing an adequate policy response when such growth is viewed as excessive continue to occupy the minds of policymakers in the region. A regional conference on this topic provided an excellent opportunity to exchange information and experiences among the participants. We hope that this volume offers a useful contribution to the ongoing policy debate on these issues in the CEE region as well as in other regions experiencing a similar phenomenon.

    We are grateful to many colleagues in the Monetary and Capital Markets Department (MCM) of the International Monetary Fund for working with us on the range of issues associated with the rapid credit growth phenomenon. Our papers are the result of collaboration with, and comments from, many colleagues, as well as several seminars and internal discussions within MCM and more widely within the IMF. The papers have also benefited from the able editorial work of Mr. Graham Colin-Jones. We also thank Maria Delia M. Araneta and Erik William Churchill for their excellent assistance in producing this volume, and Shannon Bui, Hortense N’Danou, and Roxana Nikdjou, for providing back-up support.

    Finally, we would like to acknowledge the patience, advice, and general support received from Sean Culhane in the IMF’s External Relations Department, who coordinated the arrangements for publication, and the guidance of the staff at Palgrave Macmillan.

    Charles Enoch

    İnci Ötker-Robe

    Notes on Contributors

    Calin Arcalean, Department of Economics, Indiana University, USA

    Peter Backé, Head of Unit, Foreign Research Division, Oesterreichische National Bank, Austria

    Piotr Bednarski, National Bank of Poland, Poland

    Fréderic Boissay, European Central Bank, Germany

    Oscar Calvo-Gonzalez, Principal Economist, EU Neighboring Regions Division, European Central Bank, Germany

    Christoph Duenwald, Senior Economist, European Department, International Monetary Fund

    Balázs Égert, Oesterreichische National Bank, Austria

    Charles Enoch, Deputy Director, Monetary and Capital Markets Department, International Monetary Fund

    Nikolay Gueorguiev, Senior Economist, European Department, International Monetary Fund

    Paul Hilbers, Advisor, European Department, International Monetary Fund

    Mats Josefsson, Senior Financial Sector Expert, Monetary and Capital Markets Department, International Monetary Fund

    Nikos Kamberoglou, Senior Economist, Statistics Department, Bank of Greece, Greece

    Tomasz Koźluk, European Central Bank, Germany

    Maroje Lang, Head, Monetary Analysis Division, Research Department, Croatian National Bank, Croatia

    Raoul Lättemäe, Head, Monetary Policy Unit, Economics Department, EEST 1 Pank (Bank of Estonia), Estonia

    Marek Ličák, Banking Specialist, Banking Supervision, Risk Management, National Bank of Slovakia, Slovak Republic

    Stoyan Manolov, Director, Off-Site Supervision & Analysis, Bank Supervision Department, Bulgarian National Bank, Bulgaria

    Carmen Martinez-Carrascal, Economist, Monetary and Financial Studies Department, Research Department, Banco de España, Spain

    Dubravko Mihaljek, Senior Economist, Bank for International Settlements, Switzerland

    Csaba Móré, Senior Economist, Financial Stability, Magyar Nemzeti Bank, Hungary

    İnci Ötker-Robe, Deputy Area Chief for TA Europe, Monetary and Capital Markets Department, International Monetary Fund

    Ceyla Pazarbasioğlu, Division Chief, Emerging Markets Surveillance Division, Monetary and Capital Markets Department, International Monetary Fund

    Veselka Petkova, National Bank of Bulgaria, Bulgaria

    Cristian Popa, Deputy Governor, National Bank of Romania, Romania

    Tomas Ramanauskas, Macroeconomics and Forecasting Division, Economics Department, Lietuvos Bankas (Bank of Lithuania), Lithuania

    Nuno Ribeiro, Head of Financial Stability Division, Research Department, Bank of Portugal, Portugal

    Uldis Rutkaste, Chief Economist, Monetary Policy Department, Macroeconomic Analysis Division, Bank of Latvia, Latvia

    Andrea Schaechter, Senior Economist, European Department, International Monetary Fund

    Dariusz Starnowski, National Bank of Poland, Poland

    Nikolaos Stavrianou, Bank Examiner, Department for the Supervision of Credit and Financial Institutions, Bank of Greece, Greece

    Piotr Szpunar, Deputy Director of Macroeconomic Analyses Department, National Bank of Poland, Republic of Poland

    Linda van Goor, The Netherlands Bank, The Netherlands

    Adrian van Rixtel, Principal Economist, Capital Markets and Financial Structure Division, European Central Bank, Germany

    Adalbert Winkler, Deputy Head of Division, EU Neighboring Regions Division, European Central Bank, Germany

    Karin Zartl, Member of the Secreteriat, Committee of European Banking Supervisors, Great Britain

    Tina Zumer, Economist, EU Countries Division, European Central Bank, Germany

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