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Financial stability challenges in EU candidate and potential candidate countries

Author

Listed:
  • Ramon-Ballester, Francisco
  • Oláh, Zsolt
  • Dancsik, Bálint
  • Colabella, Andrea
  • Moder, Isabella
  • Shehu, Klodion
  • Maloku, Krenare
  • Vaskov, Mihajlo
  • Bozovic, Borko
  • Vlahovic, Ana
  • Vasilijev, Dejan
  • Kuhles, Winona
  • Huljak, Ivan
  • Papazoglou, Christos
  • Savelin, Li
  • Ĉervená, Marianna
  • Pulst, Daniela
  • Manolov, Stoyan
  • Jimborean, Ramona
  • Macki, Piotr
  • Lalouette, Laure
  • Posch, Michaela
  • Çakmak, Bahadır

Abstract

This paper reviews financial stability challenges in countries preparing for EU membership, i.e. Albania, Bosnia and Herzegovina, Kosovo*, Iceland, the former Yugoslav Republic of Macedonia, Montenegro, Serbia and Turkey. The paper has been prepared by an expert group of staff from the European System of Central Banks (ESCB) in which experts from EU candidate and potential candidate country central banks also participated. The paper finds that near-term challenges to financial stability primarily relate to credit risks from the generally weak economic dynamics in combination with already high non-performing loan burdens in many banking systems, especially in the Western Balkans. In the medium-term, challenges to financial stability stem from indirect market risks to banks related to foreign currency lending as well as lingering exposures to funding risks, with Western Balkan economies again appearing as relatively more vulnerable. Looking further ahead, the paper highlights that the magnitude of the challenge to reach a JEL Classification: F31, F34, F36, F41, G21, G28

Suggested Citation

  • Ramon-Ballester, Francisco & Oláh, Zsolt & Dancsik, Bálint & Colabella, Andrea & Moder, Isabella & Shehu, Klodion & Maloku, Krenare & Vaskov, Mihajlo & Bozovic, Borko & Vlahovic, Ana & Vasilijev, Deja, 2015. "Financial stability challenges in EU candidate and potential candidate countries," Occasional Paper Series 164, European Central Bank.
    • Handle: RePEc:ecb:ecbops:2015164
    Note: 508212
    as

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    File URL: https://www.ecb.europa.eu//pub/pdf/scpops/ecbop164.en.pdf
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    References listed on IDEAS

    as
    1. Gregorio Impavido & Mr. Heinz Rudolph & Mr. Luigi Ruggerone, 2013. "Bank Funding in Central, Eastern and South Eastern Europe Post Lehman: A “New Normal”?," IMF Working Papers 2013/148, International Monetary Fund.
    2. IRC Expert Group of the ESCB, 2012. "Financial stability challenges for EU acceding and candidate countries: making financial systems more resilient in a challenging environment," Occasional Paper Series 136, European Central Bank.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    banking sector; banking union; cross-border flows; deleveraging; emerging markets; Europe; foreign exchange lending;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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