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International Monetary Fund. European Dept.
This paper discusses Kosovo’s First Review Under the Stand-By Arrangement and Requests for Modification and Waivers of Applicability of Performance Criteria (PC). The program is on track. All end-August 2015 PCs and indicative targets were met by comfortable margins. All structural benchmarks for the first review have been met. More broadly, there is strong ownership of structural reforms in the financial sector and in public procurement. The authorities reaffirmed the targets for the fiscal deficit and bank balances for next year and identified measures to achieve these. The IMF staff support the authorities’ request for completion of the first review.
Mr. Shekhar Aiyar, Mr. Wolfgang Bergthaler, Jose M Garrido, Ms. Anna Ilyina, Andreas Jobst, Mr. Kenneth H Kang, Dmitriy Kovtun, Ms. Yan Liu, Mr. Dermot Monaghan, and Ms. Marina Moretti
Europe’s banking system is weighed down by high levels of non-performing loans (NPLs), which are holding down credit growth and economic activity. This discussion note uses a new survey of European country authorities and banks to examine the structural obstacles that discourage banks from addressing their problem loans. A three pillared strategy is advocated to remedy the situation, comprising: (i) tightened supervisory policies, (ii) insolvency reforms, and (iii) the development of distressed debt markets.
Mr. Ralph De Haas, Ms. Yevgeniya Korniyenko, Mr. Alexander Pivovarsky, and Ms. Elena Loukoianova
We use data on 1,294 banks in Central and Eastern Europe to analyze how bank ownership and creditor coordination in the form of the Vienna Initiative affected credit growth during the 2008–09 crisis. As part of the Vienna Initiative western European banks signed country-specific commitment letters in which they pledged to maintain exposures and to support their subsidiaries in Central and Eastern Europe. We show that both domestic and foreign banks sharply curtailed credit during the crisis, but that foreign banks that participated in the Vienna Initiative were relatively stable lenders. We find no evidence of negative spillovers from countries where banks signed commitment letters to countries where they did not.
Mr. Pablo Federico and Mr. Francisco F. Vazquez
This paper analyzes the evolution of bank funding structures in the run up to the global financial crisis and studies the implications for financial stability, exploiting a bank-level dataset that covers about 11,000 banks in the U.S. and Europe during 2001?09. The results show that banks with weaker structural liquidity and higher leverage in the pre-crisis period were more likely to fail afterward. The likelihood of bank failure also increases with bank risk-taking. In the cross-section, the smaller domestically-oriented banks were relatively more vulnerable to liquidity risk, while the large cross-border banks were more susceptible to solvency risk due to excessive leverage. The results support the proposed Basel III regulations on structural liquidity and leverage, but suggest that emphasis should be placed on the latter, particularly for the systemically-important institutions. Macroeconomic and monetary conditions are also shown to be related with the likelihood of bank failure, providing a case for the introduction of a macro-prudential approach to banking regulation.
International Monetary Fund
This Technical Note assesses Corporate and Household Debt Restructuring in Serbia. As of June 2009, nonperforming loans (NPLs) in the banking system constituted 16.5 percent of total loans, owing primarily to the corporate sector. This marks a significant increase over 2008 and, despite a strongly capitalized banking system, underscores a troubling trend. In the current recessionary environment, more businesses are likely to encounter financial distress owing to a decline in demand, shrinking revenues, and untimely payments from their own debtors and customers.
International Monetary Fund
This Technical Note reviews crisis management framework in Serbia. In light of the banking crisis in Serbia in late 2008 and early 2009, a series of measures were introduced to urgently address stability concerns. The report recommends that crisis management memoranda of understanding (MOUs) be urgently developed with the most important home supervisors. In light of the importance of foreign banks in the Serbian market, it is also paramount that the authorities develop MOUs on crisis management with the home jurisdictions of the largest investors in the country.
International Monetary Fund
This Technical Note analyzes the insurance sector in Serbia. The Serbian insurance sector remains small and underdeveloped. Over the last three years, the market experienced little growth in real terms mainly owing to weak economic growth, fierce price competition among the growing number of players, and premium payment difficulties in the industrial sector, which forced many corporate policyholders to cancel their insurance. The paper highlights that the Serbian insurance sector is well capitalized relative to its overall net risk exposure.
International Monetary Fund
This Technical Note discusses key findings of the assessment of deposit insurance in Serbia. The deposit insurance scheme is managed by the deposit insurance agency (DIA), which has a multi-faceted mandate. Consequently, few DIA staff is actively involved in the core mandate of deposit insurance fund (DIF) management. DIA revenue sources are volatile, and DIF related revenues are used to subsidize non-DIF related activities. To improve transparency and ensure sustainability of the DIF, the legal framework should be amended to clarify the use of DIF resources and cap the use for operating costs.
International Monetary Fund
This paper presents an assessment of the Central African Republic’s (C.A.R) qualifications for assistance under the Enhanced HIPC Initiative. Stronger policy implementation has helped the economic growth of the C.A.R. under the Poverty Reduction and Growth Facility (PRGF) arrangement. Directors stressed the need for fiscal consolidation supported by policies and implementation of more structural reforms to meet the challenges. A sensitivity analysis of the C.A.R.’s projected external debt burden highlights the need for economic reforms to diversify and enhance export performance and for sustained foreign assistance on favorable terms to avoid the risk of renewed debt distress.
Mr. Axel Schimmelpfennig and Mr. E. H. Gardner
This paper reviews Lebanon's ability to manage financial pressures following severe shocks despite its large public debt overhang and significant external vulnerabilities. Based on interviews with market participants in Beirut and London, the paper concludes that Lebanon's ability to weather what appear to be "perfect storms" derives from three characteristics: a perceived implicit guarantee from donors; Lebanon's track record of having never defaulted on external debt or deposits; and the unique market structure for Lebanese debt which is dominated by local banks and "dedicated" investors and depositors.