June 12 (SeeNews) - Banking systems across the Balkans are crossing the threshold to recovery, with expectations of corresponding improvements in the region's credit conditions, Moody's Investors Service said on Thursday.
The turnaround will be driven by gradual macro-economic recovery, owing to the modest pick-up in growth in Europe, and banks' strong liquidity and capital buffers, Moody's said in a press release upon the issue of its Banking in the Balkans report.
However, while new non-performing loans (NPL) formation will continue to ease, Moody's expects NPL ratios - currently ranging between 15%-20% - to remain high.
Moody's report covers Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, Macedonia, Montenegro, Romania and Serbia.
The rating agency predicts gross domestic product (GDP) growth of over 2.0% in 2014 for the region, and its central forecast for economic growth over the next three to five years remains below the levels of 4%-5% that had been achieved prior to the financial crisis.
Asset quality risks will also adversely affect Balkan banks' profitability via high loan-loss provisioning requirements and subdued lending growth, which is estimated at 5% for the region in 2014.
The region's extensive use of the euro in place of local currencies continues to generate significant credit risks from foreign currency lending to unhedged borrowers and constrain the ability of central banks to act as lenders of last resort, it noted.