The outlook for Central and Eastern European banks remains stable, according to U.S. credit rating agency Moody’s Investor Service, which also changed bank outlooks to negative in the UK and eurozone countries.
In its 37-page annual report of the banking system, Moody’s said that the downward revision of the eurozone and UK banking system was necessary “as weakening economic prospects in much of the region will cause loan quality and profitability to deteriorate.”
The outlook for the banks of the eurozone was changed to negative because the economic slowdown and a somewhat lax monetary policy was expected to further undermine already weak profitability.
The outlook for the UK’s banking system also turned negative due to Brexit-related uncertainty weakening operating conditions and reducing loan demand.
“The UK and German banking systems account for the largest share of banking assets in the region and drive the overall negative outlook,” Carola Schuler, managing director for banking at Moody’s said in a statement.
For this year, Moody’s expects a 1.1 percent increase in economic growth in the eurozone, the slowest rate in five years. For 2020 and 2021, their growth forecast is 1.2 and 1.4 percent, respectively.
While the economic slowdown in the eurozone and the UK will have a negative impact on Central and Eastern Europe (CEE) as well, the region was still expected to “outperform the euro area and foster business opportunities for the banks.”
In the CEE region, the banking system will remain stable mainly because an improvement in their assets structure, and the fact that the process of cleaning up bank balances has been completed in Hungary, Romania and Slovenia.
Moody’s sees a CEE economic growth of between 2.5 and 3.5 percent in emerging economies in 2020 and 2021 and a robust 3.2 percent in Hungary.
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