







































90 

 

Finance, Accounting and Business Analysis 
Volume 4 Issue 2, 2022 

http://faba.bg 

Dynamics of Bank Credits to Private Sector in the Central and Eastern 

European Countries 

Gergana Mihaylova-Borisova  

Finance Department, University of National and World Economy, Bulgaria 

Info Articles  
 

Abstract 

Keywords:  
Credits, Banking Sectors, Central 

and Eastern European Countries 
Non-Performing Loans 

 

 Objective: The purpose of the research is to analyze credits dynamics, provided by 
banking sectors in the CEE countries from the international financial crisis to 

present.  

Methodology: The study examines the data for domestic credits, provided by banks 
of the ten Central and Eastern European countries in particular Bulgaria, Romania, 
Poland, Hungary, Czech Republic, Estonia, Lithuania, Latvia, Slovenia, Slovak 
Republic. The used methods are descriptive analyses and synthesis.  

Results: It is found that the bank credits were negatively affected by the observed 
crises in the last twenties years: international financial crisis, European debt crisis 
and pandemic crisis. After the COVID-19 crisis the credit growth has started to 
recover, together with the economies. In 2021, all banking systems in CEE countries 
reported a recovery of their loan portfolios, recording positive growth rates. 
However, rising and accelerated inflation since mid-2021 and the subsequent 
reaction by central banks to curb it faces new challenges for banks and countries. 

Implication: The study’s results are important for policy makers, aiming to recover 
the economic development of countries, as well as to the bank managers, aiming to 
improve the activity of the managed banking institutions. 
 

 

  

   

*Address Correspondence:   
E-mail: gerym@abv.bg;  gmihaylova-borisova@unwe.bg 

 

 



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INTRODUCTION 

 

The dynamics of credit provided by banks to the private sector is of particular importance for an 

economy, since it is through the credit channel that central banks ensure the action of their monetary 

policy on the economy through the so-called transmission mechanism. This mechanism is disrupted in 

times of crisis, leading central banks to turn to non-conventional monetary policy instruments such as asset 

purchases, aiming to intervene directly in certain markets and providing the necessary liquidity for the 

purposes of economic recovery. In these processes, the role of banks, which are the main intermediaries in 

an economy, is also very important. This is particularly true for the financial sector of the CEE countries. 

Their non-bank financial intermediaries account for only about 10% of total assets in the financial system. 

The main activities of banks are related to the attraction of deposits and their provision of credit to 

economic agents experiencing a shortage of financial resources. Lending by banks leads to a rise in 

demand for commodities in the economy and to an increase in investment. The study of the dynamics of 

bank credits to the firms and households is therefore a particularly topical issue. 

The objective of the research is to trace the dynamics of credit provided by the banking sector to the 

firms and households (private sector) in the CEE countries. The study period is from the global financial 

crisis to the latest available data on banking sector lending in the countries analysed.  

The study uses data on credit extended by the banking systems of ten CEE countries, namely Bulgaria, 

Romania, the Czech Republic, Poland, Hungary, Slovakia, Slovenia, Estonia, Lithuania and Latvia. The 

methods used are descriptive analysis and synthesis. The statistical information used in the study is from 

the databases of the IMF and the World Bank. 

The study argues that the banking systems of CEE countries are facing many challenges related to the 

observed crisis processes, new regulations and supervisory requirements of central banks, the level of non-

performing loans and economic development.  

The study has several parts. The next part reviews the literature from the perspective of studies on the 

analysis of credit dynamics in CEE countries. The third part analyses the data on credit extended by the 

banking systems of the CEE countries. The last section presents the main findings of the study and future 

research directions. 

 

LITERATURE REVIEW  

 

There are a lot of studies in the economic literature dealing with the dynamics of credit provided by 

banks to the private sector, as well as dealing with the development of banking systems.  

Two groups can be distinguished among the studies in respect to the analised countries. On the one 

hand, these are studies concerning the development of credit and the banking sector in an individual 

country (Vachkov, Georgiev, Valkanov and Yambolov 2017; Dimitrov 2018; Mihaylova-Borisova 2021a; 

Sariiski 2011), and on the other hand, these are studies related to the dynamics of credit in several 

countries with similar development (Kiss et al. 2006; Aydin 2008; Enoch and Otker-Robe 2007). 

Studies on the performance of the banking system in Bulgaria use a number of indicators 

characterizing banks. Vachkov, Georgiev, Valkanov, and Yambolov (2017) analyze the banking system 

stability by focusing on the asset quality, liquidity position of banks and their solvency. 

In analysing the development of the banks, the researchers also considered the crises impact in the last 

years - the international financial crisis in 2008 and the COVID-19 crisis. In this regard, Dimitrov (2018) 

examines the influence of the international crisis in 2008 on the stability of Bulgarian banks, concluding 

that they are highly liquid and maintain their high capital adequacy. Sariiski (2011) also analyses the 

impact of the crisis on the banking system in Bulgaria. The study concluded that Bulgarian banks were not 

largely influenced by the crisis. Mihaylova-Borisova (2021a) examines the impact of the COVID-19 crisis 

on the Bulgarian banking sector. It concludes that banks are more stable than during the international 

financial crisis in 2008. In addition to studies on the stability of the banking system in Bulgaria, there are 

those that calculate and analyze the bank efficiency dynamics  (Borisov 2017; Borisov 2020; Nenovsky, 

Mihaylova, Chobanov and Koleva 2008). 

Tsanevska (2017), Vasileva (2017), Peshev (2014) analyze the lending activity of Bulgarian banks. 

Peshev (2014) examines the factors that affect the demand for credit in several EU countries but outside 

the euro area. The period of analysis is from 2008 to 2012. The result  showed that the significant impact 

of economic activity on credit demand is proved. 

Among the group of comparative studies on banking systems is that of Kiss et al. (2006). The authors 

investigate whether the CEE countries are experiencing a more serious increase in lending due to 

convergence towards the euro area countries, or whether this increase in lending is more related to a credit 

boom that poses a risk to the financial stability of the countries. For this purpose, the researchers use data 

for the new EU member states including (Estonia, Lithuania, Latvia, Czech Republic, Slovakia, Slovenia, 



Finance, Accounting and Business Analysis 4 (2) 2022 

92 

 

Hungary, Poland) applying a panel econometric model for the purpose of separating the equilibrium trend 

and the excess (boom) component. The results pointed out that for most countries the credit-to-GDP ratio 

appears to be below the level justified by macroeconomic fundamentals. For two countries, Latvia and 

Estonia, the increase in this ratio is found to be beyond the equilibrium level in the years 2004-2005. For 

this reason, credit growth in Estonia and Latvia is considered to be riskier, while there are no signs of 

excess credit growth for the Czech Republic, Slovakia and Poland (Kiss et al. (2006), p. 23). 

Aydin (2008) examines the importance of foreign banks in the credit boom in Central and Eastern 

European countries. The results show that they are essential for credit growth in these countries. Banking 

sector credit activity in the countries analysed depends on foreign banks, for which economic activity and 

interest margin are determinants. 

Emoch and Otker-Robe (2007) also investigate the concept of excessive growth of credit in Central 

and Eastern European countries. The credit dynamics for each country over a longer period, before the 

international financial crisis in 2008 is also analysed. Overall, for the period 1996-2004, this indicator was 

at a much lower level than the European Union average (Emoch and Otker-Robe 2007, p. 54). By 1998, 

the countries of Central and Eastern Europe (Bulgaria, Croatia Latvia, Lithuania,, Estonia, Slovenia, 

Hungary, Romania) had levels of this indicator below 40%, with the largest value in Croatia at 40%, while 

Bulgaria, Romania, Lithuania and Latvia had levels below 20%. Until 1997, the majority of these 

countries' loans were denominated in national currency, with the exception of Latvia and Romania. In 

2004, only Croatia and Slovenia remained with loans predominantly denominated in local currency - 

around 70-80% of total credits, while for most countries the part of loans in local currency was below 50% 

in the same year. 

As a result of the literature review, it worth to be concluded that there are numerous studies on both 

the development of banking systems for individual countries and groups of countries and the development 

of credit in individual countries and groups of countries. It is noteworthy, however, that the time period is 

very short and covers several years, i.e. they concentrate on periods of rapid credit growth, periods of 

global financial crisis or pandemic crisis. For this reason, a study of the dynamics of credit in the Central 

and Eastern European countries for the period from 2008 to the present would be particularly important. 

 

Analyses of credit dynamics in the Central and Eastern European Countries 

When analysing the loan portfolios of banks in Central and Eastern European countries, loans to the 

private sector have shown a steady downward trend in the years following the 2008 global financial crisis. 

In 2008, the countries, having the highest share of credit in GDP were Estonia, Latvia, Slovenia, Bulgaria 

(Figure 1). The high levels of loans as a present of GDP are due to high growth rates in the years before the 

financial crisis. In Bulgaria, for example, the credit growth was 63.3% in 2007. The minimum reserve ratio 

was used to limit credit growth, despite the action of the Currency Board. It was increased from 8% to 12% 

in September 2007, and additional reserves were introduced if a certain credit growth rate was exceeded. 

All these administrative restrictions introduced by the central bank aim to limit credit growth.  

Estonia also recorded a credit growth rate of over 60% in 2004 and 2005. The high growth of banks' 

loan portfolios in Estonia is associated with sound public finances and a favourable business environment, 

low real interest rates, high GDP growth, EU accession (OECD 2011). The expansion of the credit 

portfolio of banks in Estonia is also due to the low level of lending in the years before the country's 

accession to the EU i.e. the low level of financial intermediation. The share of loans in GDP in 2004 was 

only 40.3% and reached 101.4% in 2009. At the same time, high credit growth is dangerous as it also 

reveals the presence of macroeconomic imbalances (Fitch 2005). 

The only CEE country that has seen an increase in the share of credit as a share of GDP over the 

period analysed is Slovakia. In 2008, private sector claims as a share of GDP amounted to 40.7% and rose 

to 68.3% in 2021, reaching the highest level of credit as a share of GDP among all CEE countries. 

Following the country's accession to the European Union, an accelerated increase in the banking sector's 

lending to the non-financial sector began (Harvan et al. 2015, p. 3). In the loan portfolio structure of banks 

in Slovakia, it can be observed that until the 2008 international financial crisis, loans granted to non-

financial enterprises increased, while after that the increase stopped. At the same time, loans granted to 

households continued to grow at double-digit rates as they were used to finance the purchase of a house. 

Housing loans accounted for 77% of total credits extended to households at the end of 2014 (Harvan et al., 

2015, p. 3). 

With the accelerated growth of the banks' loan portfolio, the level of non-performing loans is also 

important, as it is possible that at some point a larger part of these loans will become non-performing with 

a more substantial increase in borrowers' indebtedness. Countries with higher levels of credit as a share of 

GDP, such as Latvia and Estonia, experienced a more substantial deterioration in the quality of their 

banking systems' loan portfolios within a year of the global financial crisis (Figure 2). After this increase, 

there was an improvement in their loan portfolios. For most countries, an improvement in the quality of 



Finance, Accounting and Business Analysis 4 (2) 2022 

93 

 

banks' loan portfolios is observed several years after the 2008 financial crisis until 2013-2014. These are 

several countries such as Bulgaria, Hungary, Romania, whose non-performing loans reached 16.7%, 

15.6% and 13.9% in 2014, respectively. Due to the financial crisis and the slowdown in credit growth, a 

gradual stabilisation and improvement in the quality of banks' loan portfolios in CEE countries has also 

been seen. In 2021, non-performing loans account for less than 5% of the loan portfolios of banks in the 

countries analysed. An additional factor for banks' loan quality improvement is the pandemic crisis, which 

has a restraining effect onthe new loans due to business closures, job cuts, and income restrictions. 

In some countries, moratoriums are being introduced on payments on loans already received by 

households and businesses to deal with the negative effects of the pandemic crisis, while in other countries 

moratoriums are being introduced on loan payments to deal with inflation. For example, Bulgaria is 

introducing a private moratorium from 13 March 2021 for the purpose of easing the difficulties faced by 

households and businesses in servicing their obligations. On December 2, 2020, a decision of the Bulgarian 

National Bank’s Managing Board extended the deadline for deferring loans to households and firms 

(Mihaylova-Borisova 2021a). This has a favourable impact on the quality of Bulgarian banks' loan 

portfolios.  In 2020, the deterioration was by 0.82 percentage points to 5.8% by year-end. There is an 

improvement in Bulgarian banks' credit portfolios’ quality (4.6% non-performing loans (NPLs) as a share 

of total loans at end-2021), despite some increase in NPLs to 6.4% at end-September 2021. 

 

 
Figure 1. Claims to private sector as a share of GDP, % 

Sources: World Bank Database 

 

20

30

40

50

60

70

80

90

100

110

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Bulgaria Estonia Latvia Lithuania

Poland Czech Republic Hungary Slovak Republic



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Figure 2. Bank non-performing loans (% of total gross loans) 

Sources: World Bank Database 

 

From the beginning of July 2022 Romania introduces a temporary moratorium on the servicing of 

bank loans by households and companies. The measure is part of an overall EUR 1.1 billion package 

aimed at reducing the impact of accelerating inflation. Households eligible for the temporary moratorium 

must have demonstrated that their monthly expenditure has increased by 25% year-on-year over the past 

three months. Businesses are required to prove that their annual revenues have fallen by 25% year-on-year 

over a three-month period. 

Credit dynamics depend on credit interest rate levels. Since the global financial crisis, there has been a 

steady downward trend in lending rates in most countries. This is the result of the expansionary policy of 

the European Central Bank (ECB) and other non-euro area central banks, which initially moved to lower 

key interest rates to support constrained lending after the 2008 global financial crisis. After interest rates 

reached zero levels, even after introducing negative interest rates in mid-2014, the ECB moved to directly 

inject liquidity into specific markets (Mihaylova-Borisova 2021b). In 2022, the ECB starts to increase 

interest rates and tighten monetary policy because of rising inflation, which will affect future lending and 

deposit rates upwards. 

 

 
Figure 3. Lending interest rates (%) 

Sources: World Bank Database 

 

0

5

10

15

20

25

30

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Bulgaria Estonia Latvia Lithuania

Poland Czech Republic Hungary Slovak Republic

Slovenia Romania

0

2

4

6

8

10

12

14

16

18

20

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Bulgaria Czech Republic Hungary Romania



Finance, Accounting and Business Analysis 4 (2) 2022 

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Over the period analysed in the countries covered, the most significant decline in lending rates was 

recorded in Romania, which went from 17.3% in 2009 to 5.6% in 2021 (Figure 3) . In 2018 and 2019, a 

slight increase in lending rates was observed in Romania, but it was also associated with a slight increase 

in deposit rates in these two years, from 0.89% in 2017 to 1.3% in 2018 and 1.9% in 2018, respectively. At 

the same time, the real interest rate in Romania fell below 1%, the lowest since the financial crisis, which is 

reflected in the slowdown in the country's credit growth rate in 2018-2019. 

In Hungary, lending rates are the lowest compared to Romania, the Czech Republic and Bulgaria 

since 2014. Over the period 2015-2021, lending rates in the country range from 1.36% to 1.95%. These low 

interest rates on loans granted by the banking system have a favourable impact on economic agents in 

terms of loan withdrawals. The growth rate also reached double-digit levels in this period, accelerating 

rapidly from 5.3% in 2017 to 16.8% in 2021 (Figure 4). 

The crises have had a negative impact on credit dynamics in Central and Eastern Europe. The global 

financial crisis has had a significant impact on the growth rate of credit extended by banks to the private 

sector. In 2009, there was a significant slowdown in the growth rate of credit in all countries compared to 

the previous year, due to the loss of jobs, the slowdown in economic activity, the decline in the incomes of 

economic agents. In Estonia and Hungary, there was even a fall in lending of 3.9% and 1.9% respectively 

in 2009. Over the period 2012-2013, there was also a drop in bank private loans in almost all countries 

except Bulgaria, Estonia, Poland, Slovakia and the Czech Republic. The most significant decline was 

recorded in Slovenia, with a 17.1% year-on-year decline in 2013. Following the gradual recovery of 

economies from the debt crisis in Europe in 2012-2013, positive credit growth rates were also observed. 

However, the pandemic crisis again had a negative impact  on their growth rate. The dynamics of lending 

in the countries analysed show that banks are facing the challenge of coping with the crisis developments, 

economic instability, stricter regulations related to high capital adequacy and liquidity requirements after 

the global financial crisis. However, thanks to the stricter regulatory requirements after the global financial 

crisis, banks are better prepared for the next two crises, and therefore their recovery is faster. In 2021, all 

banking systems in Central and Eastern European countries reported a recovery of their loan portfolios, 

recording positive growth rates. 

 

 

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

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7

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0

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0

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Bulgaria

Poland

Czech Republic

Hungary

Romania



Finance, Accounting and Business Analysis 4 (2) 2022 

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Figure 4. Private sector claims growth rate (%) 

Sources: World Bank Database, own calculations 

 

DISCUSSION AND CONCLUSIONS 

 

The study analyses the dynamics of credit provided by banks to the private sector in Central and 

Eastern European countries. Data for the ten Central and Eastern European countries Bulgaria, Romania, 

Czech Republic, Poland, Hungary, Slovakia, Slovenia, Estonia, Lithuania and Latvia are used. It is found 

that most countries have seen a decline in the level of credit extended to the private sector as a share of 

GDP due to the impact of a series of crises: the global financial crisis, the European Union debt crisis and 

the pandemic crisis. The only country in Central and Eastern Europe that has seen an increase in the 

credits as a share of GDP over the period analysed is Slovakia. In 2008, private sector claims as a share of 

GDP amounted to 40.7% and rose to 68.3% in 2021, reaching the highest level of credit as a share of GDP 

among all countries in the region. 

The level of non-performing loans is also of concern to banks, as accelerated growth in banks' loan 

portfolios could lead to deterioration in the quality of loan portfolios. Countries such as Latvia and 

Estonia, which had higher levels of loans as a share of GDP before the global financial crisis, also 

experienced a more significant deterioration in the quality of loan portfolios in the year after the crisis. For 

most countries, there was an improvement in the quality of banks' loan portfolios several years after the 

2008 financial crisis until 2013-2014. These are several countries such as Bulgaria, Hungary, and Romania, 

whose bad loans reached 16.7%, 15.6% and 13.9% in 2014, respectively. Due to the financial crisis and the 

slowdown in credit growth, a gradual stabilization and improvement in the quality of the loan portfolios of 

banks in Central and Eastern European countries is also reported, reaching levels below 5% of the loan 

portfolios of banks in the countries analyzed in 2021. 

Taking the importance of credit for countries' economic development, future work will focus on 

identifying the determinants of credit dynamics in Central and Eastern European countries. This is also 

important for economic policy makers, as expectations of recession in the countries and rising inflation, 

they will face new challenges. 

 

ACKNOWLEDGEMENTS 

 
This work was supported by thе UNWE Research Programme (Research Grant No10/2021 „ECONOMIC 

ACTIVITY AND DEVELOPMENT OF THE BANKING SECTOR IN CENTRAL AND EASTERN EUROPE 

IN THE CONTEXT OF CONTEMPORARY CRISIS PROCESSES“) 

  

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