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Financial stability challenges in EU candidate and potential candidate countries

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

No 164, Occasional Paper Series from European Central Bank

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

Keywords: banking sector; banking union; cross-border flows; deleveraging; emerging markets; Europe; foreign exchange lending (search for similar items in EconPapers)
Date: 2015-08
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Handle: RePEc:ecb:ecbops:2015164