Fabio Mucci, Head of CEE & Poland Strategic Planning, illustrates the figures from the recent study on banking systems in the CEE region.

At a difficult time for the Eurozone, the CEE does not appear to be too worrying. What does 2012 hold for the region?

At macroeconomic level, overall the CEE is enjoying strong growth, particularly if compared with the nations of Eastern Europe. It is clear that the situation, particularly as of last summer, has become much more challenging as a result of the deterioration also related to the sovereign debt crisis at the periphery of the euro area. The positive news is that, if we look at the available data, the majority of countries have not been significantly influenced by the slowdown that has affected most Western countries. As such it is not a similar situation to that of 2008 following the international crisis.

Is the good news valid for the whole area?

We need to make a few distinctions. For example, looking at the most recent industrial production data, we can see that the growth dynamic has remained fairly strong in Poland, Czech Republic, Kazakhstan while in other countries there have been more visible signs of a slowdown. If we look at the macroeconomic prospects for 2012, the CEE nonetheless remains an area of growth with strong internal diversification: many countries will maintain a growth rate that is significantly higher than that expected in the euro area, while others, such as Slovenia and Hungary, may be more affected by the impact that the crisis is having in Europe or, in the case of Hungary, internal problems. All the same, we expect the growth rate in the region to be around 3% , much higher than the average expected in the euro area.

How are the comforting macroeconomic forecasts reflected in the banking sector?

If we look at the growth prospects for the region and the opportunities for the banking sector we can expect the CEE to maintain a positive gap in terms of opportunities compared with Western European countries. If we compare the economic growth dynamic with credit activities in the region, one of the biggest trends we have recorded in the post-crisis period is the substantial deviation between the two. Again it is important to distinguish between the various countries. As in Russia or Turkey which back in 2011 recorded a high two-figure growth between 20% and 30% of credit. Meanwhile in other countries, particularly the Baltic States, Hungary and Slovenia, the credit dynamic has remained weak on the whole.

What impact has the European banking crisis had on the CEE banking system?

The presence of Western banks in Central and Eastern Europe is obviously quite significant. However, the potential impact of a deleveraging by the European banks in the region seems to be manageable, as illustrated by a scoring system that is constructed beginning with the information available on the recapitalisation requirements resulting from the last EBA budget and the weight of the biggest European bank groups in the various countries. The majority of states, even the most exposed, are between 1.5 and 2 in this ranking system that goes from 0 to 5. Clearly, countries like Bulgaria, Romania and Serbia are more exposed because of the significant presence of Greek banks in their systems.

Moreover, if we investigate the factors that underlie the weakness of credit by carrying out an econometric analysis, the evidence shows that the contribution of demand factors (that is demand for credit from both from businesses and families) plays a substantial role in explaining the weakness of the credit activity observed, in some countries in particular, in the last two years. Clearly, supply factors in these countries also play an important role and this is valid in particular for those whose banking systems are undergoing major restructuring, such as Kazakhstan and the Ukraine.