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Too Much of a Good Thing? Credit Booms in Transition Economies

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  • Christoph Duenwald
  • Nikolay Gueorguiev
  • Andrea Schaechter
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    Abstract

    Rapid credit growth in Bulgaria, Romania, and Ukraine has been driven by successful macroeconomic stabilization, robust growth, and capital inflows. While financial deepening is both expected and welcome, the recent expansions appear to have been excessive, as evidenced by widening current account deficits in Bulgaria and Romania, and prudential concerns in Ukraine. Policy responses have included attempts to both moderate credit growth and offset its impact on domestic demand, with mixed success thus far.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/128.

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    Length: 33
    Date of creation: 01 Jun 2005
    Date of revision:
    Handle: RePEc:imf:imfwpa:05/128

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    Keywords: Transition economies; banking; banking crises; banking sector; credit boom; capital adequacy; credit booms; national bank; bank credit; macroeconomic stabilization; reserve requirements; banking system; financial deepening; crisis countries; banking crisis; bank lending; bank branches; bank liabilities; banking sector stability; return on assets; return on equity; financial crises; competitiveness; macroeconomic policies; macroeconomic stability; banking systems; financial crisis; denominated loans; accounting standards; currency crises; banking distress; bank for international settlements; bank privatization; international accounting standards; foreign exchange; private savings; capital adequacy ratio; banking sector distress; bank regulation; bank liquidity; early warning system; probability of default; recessions; bank borrowing; bank capital; evergreening; bank asset quality; reserve requirement; banking system assets; accounting framework; banking sector reform; loan classification; bank credit ceilings; systemic banking crises; bank balance sheets; subordinated debt; bank ownership; bank loans; asset diversification; prudential supervision; loan concentration; asian financial crisis; segmentation; bank deposit; nonperforming loan; financial sector health; bank restructuring; bank owners; financial liberalization; bank borrowers; bank supervisors; financial sector development;

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    1. Morris Goldstein & Carmen M. Reinhart, 2000. "Assessing Financial Vulnerability: An Early Warning System for Emerging Markets," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number 100, July.
    2. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
    3. Andrew Berg & Eduardo Borensztein & Catherine A. Pattillo, 2004. "Assessing Early Warning Systems," IMF Working Papers 04/52, International Monetary Fund.
    4. Bussière, Matthieu & Fratzscher, Marcel & Müller, Gernot J., 2004. "Current accounts dynamics in OECD and EU acceding countries - an intertemporal approach," Working Paper Series, European Central Bank 0311, European Central Bank.
    5. Menzie D. Chinn & Eswar S. Prasad, 2000. "Medium-Term Determinants of Current Accounts in Industrial and Developing Countries: An Empirical Exploration," NBER Working Papers 7581, National Bureau of Economic Research, Inc.
    6. Armando Méndez Morales & Maria del Mar Cacha, 2003. "The Role of Supervisory tools in Addressing Bank Borrowers' Currency Mismatches," IMF Working Papers 03/219, International Monetary Fund.
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    Cited by:
    1. Jarko Fidrmuc & Christa Hainz, 2009. "Default Rates in the Loan Market for SMEs:Evidence from Slovakia," Ifo Working Paper Series Ifo Working Paper No. 72, Ifo Institute for Economic Research at the University of Munich.
    2. Conway, Patrick, 2012. "The exchange rate as nominal anchor: A test for Ukraine," Journal of Comparative Economics, Elsevier, vol. 40(3), pages 438-456.
    3. Brzoza-Brzezina, Michał & Chmielewski, Tomasz & Niedźwiedzińska, Joanna, 2010. "Substitution between domestic and foreign currency loans in Central Europe. Do central banks matter?," Working Paper Series, European Central Bank 1187, European Central Bank.
    4. Mejra Festić & Sebastijan Repina & Alenka Kavkler, 2009. "The overheating of five EU new member states and cyclicality of systemic risk in the banking sector," Journal of Business Economics and Management, Taylor & Francis Journals, Taylor & Francis Journals, vol. 10(3), pages 219-232, May.
    5. Jean-Marc Figuet & Nikolay Nenovsky, 2006. "Convergence and shocks in the road to EU: Empirical investigations for Bulgaria and Romania," William Davidson Institute Working Papers Series wp810, William Davidson Institute at the University of Michigan.
    6. Andreas Stephan & Oleksandr Talavera & Andriy Tsapin, 2008. "Corporate Debt Maturity Choice in Transition Financial Markets," Discussion Papers of DIW Berlin 784, DIW Berlin, German Institute for Economic Research.
    7. Büyükkarabacak, Berrak & Valev, Neven T., 2010. "The role of household and business credit in banking crises," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(6), pages 1247-1256, June.
    8. Hegerty, Scott W., 2009. "Capital inflows, exchange market pressure, and credit growth in four transition economies with fixed exchange rates," Economic Systems, Elsevier, Elsevier, vol. 33(2), pages 155-167, June.
    9. Andreas Stephan & Oleksandr Talavera & Andriy Tsapin, 2010. "Corporate Debt Maturity Choice in Emerging Financial Markets," University of East Anglia Applied and Financial Economics Working Paper Series, School of Economics, University of East Anglia, Norwich, UK. 010, School of Economics, University of East Anglia, Norwich, UK..
    10. Peter Backé & Cezary Wójcik, 2006. "Catching-up and Credit Booms in Central and Eastern European EU Member States and Acceding Countries: An Interpretation within the New Neoclassical Synthesis Framework," CESifo Working Paper Series 1836, CESifo Group Munich.
    11. Backé, Peter & Wójcik, Cezary, 2008. "Credit booms, monetary integration and the new neoclassical synthesis," Journal of Banking & Finance, Elsevier, Elsevier, vol. 32(3), pages 458-470, March.
    12. Peter Backé & Balázs Égert, 2006. "Credit Growth in Central and Eastern Europe: New (Over)Shooting Stars?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 112-139.
    13. Alenka Kavkler & Mejra Festić, 2010. "The Trade Deficit and Banking Sector Results in Romania and Bulgaria," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, Academy of Economic Studies - Bucharest, Romania, vol. 12(27), pages 199-213, February.
    14. Binici, Mahir & Köksal, Bülent, 2012. "Türkiye'de Aşırı Kredi Genişlemeleri ve Belirleyicileri
      [Determinants of Credit Booms in Turkey]
      ," MPRA Paper 38032, University Library of Munich, Germany.
    15. Jesús Crespo Cuaresma & Jarko Fidrmuc & Maria Silgoner, 2008. "Fundamentals, the exchange rate and prospects for the current and future EU enlargements: evidence from Bulgaria, Croatia, Romania and Turkey," Empirica, Springer, Springer, vol. 35(2), pages 195-211, April.

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