Global bank turmoil another headwind to Em Europe

The turmoil in the global banking sector has not spread to Emerging Europe, but the focus is back on the health of the region’s banks given the not-so-distant memory of the 2008/09 banking crises that swept across the region. The good news is that banks are in a much better shape now than they were back then: they are better capitalised, much less dependent on external financing, have not overextended credit in recent years and have largely cut out FX lending. But problems may still flare up at individual institutions and there are pockets of risk, including low profitability and bank capital among some large Polish banks, large external debt among Turkey’s banks and high dependence on banking sector flows to finance current account deficits. What’s more, developments of the past month may prompt banks to tighten their credit conditions further, which would weigh more heavily on regional growth this year.