VIENNA (Reuters) - Steady progress in lending and a declining backlog of bad loans have improved the outlook for banks operating in emerging Europe and raised expectations of a selective expansion, a report from the Vienna Initiative said on Wednesday.
Based on data from the Bank for International Settlements, the report said banks across Central, Eastern, and Southeastern Europe (CESEE) reported increasing demand for credit and an easing of supply conditions in the six months through September.
"This marks the first clear-cut easing event over the past two years," the Vienna Initiative said. "Contributions to demand from investment... exerted a significant positive impact, scoring increasingly higher than in previous releases of the survey and pointing at a strengthening of the economic cycle."
Created in 2009 after the global financial crisis to prevent large-scale withdrawals by Western banks from emerging Europe, the Vienna Initiative is credited with averting banking crises in the region after 2008.
It includes major banks as well as groups such as the European Bank for Reconstruction and Development and the World Bank.
A large majority of international lenders saw returns on assets of CESEE operations in the six months through September to be higher than overall group returns, the Vienna Initiative said. "With the regional outlook improving, expectations of future selective strategic expansions are on the rise," it said.
The ratio of non-performing loans (NPL) across the region continued to decline, standing at 6.2 percent as of end-December 2016 compared with 7.1 percent at the end of June 2016.
Bad loans totalled 46.5 billion euros (41.04 billion pounds) or around 3.8 percent of the region's annual economic output.
All countries in the region recorded a drop in their NPL ratio since December 2015, with the exception of Albania. However, NPL ratios still exceeded 10 percent in six of the 17 countries in the region.
After the crises in 2008 and the euro crisis in 2012, banks both foreign and local cut lending lines and many western European banks sold assets in eastern Europe to heal balance sheets damaged by the crisis and to meet new capital rules.
(Reporting by Kirsti Knolle, editing by Larry King)