Deleveraging of the Central-Eastern-European Countries' Bank Systems during and after the Economic Crisis

Abstract

The economic crisis broke out in the most developed part of the world in 2008 affected seriously to the Central-Eastern-European bank systems. It wasn't a wonder, because these economies were closely linked to the developed countries. Firstly the Central-Eastern-European banks were mostly owned by large Western-European banks, and the management of these subsidiaries became tougher due to the asset management problems of their mother banks (Tressel, 2010). The current paper examines the deleveraging of bank systems of this area during the crisis and thereafter. A special northern-southern division can be observed among the Central-Eastern-European bank systems, where the border is unfortunately at the northern border of Hungary. During the crisis, the amount of private loan was mostly determined by the economic growth, the starting state of loan-deposit ratio, as well as the uncertainty of sovereign CDS spread. In the after-crisis period the change in private loan stock is especially the function of non-performing loan ratio and the change in loan-deposit ratio. Hungary is an 'off-line' country in case of all strong correlated variable pair, so the decrease of private loan may have country-specific reasons besides the general theoretical variables.