There is a concern that the deterioration in the market sentiment vis-à-vis emerging market countries that started in late May may intensify funding reductions in CESEE*, the EBRD said, concluding that assessing the systemic risks of continuing deleveraging in the region remains very important. The conclusions are based on Q1 data included in the Deleveraging Monitor issued by the Vienna 2 Initiative Steering Committee. Raw data was provided by BIS.

The focus should be placed on reviving the credit growth, the Bank said in a statement Private sector credit growth remained weak and loan-to-deposit ratios declined further.

As we reported on July 26, Romania’s banks faced the toughest deleveraging among CESEE countries** in Q1 – as BIS-reporting banks withdrew over USD 2bn from local banks during the quarter, or 6.9% of their initial exposure to the local banking system. Separately, lending remains weak and the stock of bank loans marked negative annual dynamics for a first time since 2009.

The forecast provided in the previous Deleveraging Monitor issued by the Vienna 2 Initiative Steering Committee about the second wave of funding reductions that had started in mid-2011 tapering off did not prove correct, the EBRD concluded.

The outflows from CESEE countries reached a very low value [USD 882mn, or 0.4% of initial exposure] in Q4 last year, but they returned to high volumes in Q1 of 2013, according to our calculations. The outflows reached USD 5.5bn [2.2% of initial exposure] in Q1 – out of which USD 2bn only from Romania. The outflows accounted for 0.3% of the assets of the banking systems in CESEE.

* Central, Eastern, and South Eastern Europe

** outflows from Bosnian banking systems accounted to 10.4% [USD 225mn] of initial exposure, but this was on low base.