Central Europe banks face low risk

Significance

Banks in the four Visegrad countries (V4) countries -- Poland, Hungary, the Czech Republic and Slovakia -- are generally sound and well-capitalised, but regulators are vigilant in case a slump in confidence causes a liquidity crisis. V4 banks have outsized importance because regional economies lack deep, liquid and functional capital markets.

Impacts

• Worsening economic conditions can reverse the trend towards a decline of non-performing loans’ (NPLs) share in banks’ portfolios.
• Putting on hold monetary policy tightening may grind down bank profitability in Poland, the Czech Republic and Hungary.
• Large-scale exits of banking groups from Russia could expose some banks operating in the region, without posing systemic risk.