n ational b ank see-5 & turkey: macro challenges paul mylonas chief economist, general manager...

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SEE-5 & Turkey: Macro Challenges Paul Mylonas Chief Economist, General Manager of Strategy and Governance, National Bank Group NATIONAL BANK BANK OF GREECE - UNIVERSITY OF OXFORD (SEESOX) CONFERENCE ATHENS, 11 February 2011 Strategy & Economic Research Division

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Page 1: N ATIONAL B ANK SEE-5 & Turkey: Macro Challenges Paul Mylonas Chief Economist, General Manager of Strategy and Governance, National Bank Group N ATIONAL

NATIONAL BANK

SEE-5 & Turkey: Macro Challenges

Paul Mylonas

Chief Economist, General Manager of Strategy and Governance, National Bank Group

NATIONAL BANK

BANK OF GREECE - UNIVERSITY OF OXFORD (SEESOX) CONFERENCEATHENS, 11 February 2011

Strategy & Economic Research Division

Page 2: N ATIONAL B ANK SEE-5 & Turkey: Macro Challenges Paul Mylonas Chief Economist, General Manager of Strategy and Governance, National Bank Group N ATIONAL

NATIONAL BANK

A narrowing of sovereign spreads suggests that markets are more sanguine regarding economic prospects

Strategy & Economic Research Division p.2

SEE-5 & Turkey: Macro Challenges

Sovereign Spread (USD, 2012)

0

100

200

300

400500

600

700

800

900

01

/07

04

/07

07

/07

10

/07

02

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05

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08

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12

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03

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06

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01

/10

04

/10

07

/10

11

/10

02

/11

0

100

200

300

400500

600

700

800

900

Sovereign Spread (EUR, 2012)

0100200300400500600700800900

1000

01

/07

04

/07

07

/07

10

/07

02

/08

05

/08

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06

/09

09

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01

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04

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07

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11

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02

/11

01002003004005006007008009001000

Sovereign Spread (EUR, 2013)

0

100

200

300

400

500

600

01

/07

04

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07

/07

10

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02

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01

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04

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07

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11

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02

/11

0

100

200

300

400

500

600

Sovereign Spread (USD, 2024)

0100200300400500600700800900

1000

01

/07

04

/07

07

/07

10

/07

02

/08

05

/08

08

/08

12

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03

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06

/09

09

/09

01

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04

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07

/10

11

/10

02

/11

01002003004005006007008009001000

Sovereign Spread (EUR, 2015)

0100200300400500600700800900

1000

01

/07

04

/07

07

/07

10

/07

02

/08

05

/08

08

/08

12

/08

03

/09

06

/09

09

/09

01

/10

04

/10

07

/10

11

/10

02

/11

01002003004005006007008009001000

Romania Bulgaria Serbia

FYROM Turkey European Periphery

0100200300400500

600700800900

1000

01

/08

04

/08

07

/08

10

/08

01

/09

04

/09

07

/09

10

/09

01

/10

04

/10

07

/10

10

/10

01

/11

0100200300400500

6007008009001000

Greece

Ireland

Spain

Portugal

10-Y Sovereign Spreads

Page 3: N ATIONAL B ANK SEE-5 & Turkey: Macro Challenges Paul Mylonas Chief Economist, General Manager of Strategy and Governance, National Bank Group N ATIONAL

NATIONAL BANK

Output growth recovering weakly in SEE

Strategy & Economic Research Division p.3

SEE-5 & Turkey: Macro Challenges

Real GDP (y-o-y % change)

-10-8-6-4-202468

10

Q1

:03

Q3

:03

Q1

:04

Q3

:04

Q1

:05

Q3

:05

Q1

:06

Q3

:06

Q1

:07

Q3

:07

Q1

:08

Q3

:08

Q1

:09

Q3

:09

Q1

:10

Q3

:10

-10-8-6-4-20246810

Q1:03-Q4:08 CAGR

Q1:09-Q3:10 CAGR

Real GDP (y-o-y % change)

-8

-6-4

-20

24

68

10

Q1

:03

Q3

:03

Q1

:04

Q3

:04

Q1

:05

Q3

:05

Q1

:06

Q3

:06

Q1

:07

Q3

:07

Q1

:08

Q3

:08

Q1

:09

Q3

:09

Q1

:10

Q3

:10

-8

-6-4

-20

24

68

10

Q1:03-Q4:08 CAGR

Q1:09-Q3:10 CAGR

Real GDP (y-o-y % change)

-6

-4-2

02

46

810

12

Q1

:03

Q3

:03

Q1

:04

Q3

:04

Q1

:05

Q3

:05

Q1

:06

Q3

:06

Q1

:07

Q3

:07

Q1

:08

Q3

:08

Q1

:09

Q3

:09

Q1

:10

Q3

:10

-6

-4-2

02

46

810

12

Q1:03-Q4:08 CAGR

Q1:09-Q3:10 CAGR

Real GDP (y-o-y % change)

-4

-2

0

2

4

6

8

10

Q1

:03

Q3

:03

Q1

:04

Q3

:04

Q1

:05

Q3

:05

Q1

:06

Q3

:06

Q1

:07

Q3

:07

Q1

:08

Q3

:08

Q1

:09

Q3

:09

Q1

:10

Q3

:10

-4

-2

0

2

4

6

8

10

Q1:03-Q4:08 CAGR

Q1:09-Q3:10 CAGR

Real GDP (y-o-y % change)

-2

0

2

4

6

8

10

Q1

:03

Q3

:03

Q1

:04

Q3

:04

Q1

:05

Q3

:05

Q1

:06

Q3

:06

Q1

:07

Q3

:07

Q1

:08

Q3

:08

Q1

:09

Q3

:09

Q1

:10

Q3

:10

-2

0

2

4

6

8

10Q1:03-Q4:08 CAGR

Q1:09-Q3:10 CAGR

Real GDP (y-o-y % change)

-15

-12-9

-6-3

03

69

12

Q1

:03

Q3

:03

Q1

:04

Q3

:04

Q1

:05

Q3

:05

Q1

:06

Q3

:06

Q1

:07

Q3

:07

Q1

:08

Q3

:08

Q1

:09

Q3

:09

Q1

:10

Q3

:10

-15

-12-9

-6-3

03

69

12

Q1:03-Q4:08 CAGR

Q1:09-Q3:10 CAGR

Romania Bulgaria Serbia

FYROM Albania Turkey

Page 4: N ATIONAL B ANK SEE-5 & Turkey: Macro Challenges Paul Mylonas Chief Economist, General Manager of Strategy and Governance, National Bank Group N ATIONAL

NATIONAL BANK

What is the level of potential growth post crisis?

Strategy & Economic Research Division p.4

SEE-5 & Turkey: Macro Challenges

2003-2008CAGR (%, A)

2010 Growth (%, F)

2011 Growth (%, F)

Potential Growth

(%)

2010 Output

Gap (%, E)

2009 Per capita GDP in PPS (EU27=100)

Romania 6.6 -2.2 1.5 3.0-4.0 -3.3 45

Bulgaria 6.3 -0.2 2.3 2.5-3.5 -2.5 41

Serbia 5.7 2.1 3.5 3.0-4.0 -1.9 37

FYROM 4.4 0.7 2.8 2.5-3.5 -1.3 35

Albania 6.0 4.4 5.5 3.5-4.5 -0.5 27

Turkey 6.0 10.0 5.0 3.5-4.5 -0.7 46

Page 5: N ATIONAL B ANK SEE-5 & Turkey: Macro Challenges Paul Mylonas Chief Economist, General Manager of Strategy and Governance, National Bank Group N ATIONAL

NATIONAL BANK

Main macroeconomic challenges

Strategy & Economic Research Division p.5

SEE-5 & Turkey: Macro Challenges

Balanced output growth

Sufficient financing

Monetary and fiscal policy nexus

Progress on structural reforms

Page 6: N ATIONAL B ANK SEE-5 & Turkey: Macro Challenges Paul Mylonas Chief Economist, General Manager of Strategy and Governance, National Bank Group N ATIONAL

NATIONAL BANK

Large external imbalances corrected rapidly … but is it permanent or temporary?

Strategy & Economic Research Division p.6

SEE-5 & Turkey: Macro Challenges

Current Account Deficit (12-m rolling sum, % of GDP)

0

2

4

6

8

10

12

14

16

01

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05

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09

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01

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01

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0

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12

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Current Account Deficit (12-m rolling sum, % of GDP)

0

5

10

15

20

25

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

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01

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/10

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/10

01

/11

0

5

10

15

20

25

Current Account Deficit (12-m rolling sum, % of GDP)

0

3

6

9

12

15

18

21

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

0

3

6

9

12

15

18

21

Current Account Deficit (12-m rolling sum, % of GDP)

0

2

4

6

810

12

14

16

18

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

0

2

4

6

810

12

14

16

18

Current Account Deficit (12-m rolling sum, % of GDP)

0

2

4

6

810

12

14

16

18

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

0

2

4

6

810

12

14

16

18

Current Account Deficit (12-m rolling sum, % of GDP)

0

1

2

3

4

5

6

7

8

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

0

1

2

3

4

5

6

7

8

Romania Bulgaria Serbia

FYROM Albania Turkey

Page 7: N ATIONAL B ANK SEE-5 & Turkey: Macro Challenges Paul Mylonas Chief Economist, General Manager of Strategy and Governance, National Bank Group N ATIONAL

NATIONAL BANK

Exports, the main engine of growth, have recovered markedly and suggest competitive and open economies

Strategy & Economic Research Division p.7

SEE-5 & Turkey: Macro Challenges

Merchandise Exports (12-m rolling sum, EUR, y-o-y % change)

-20-15-10

-505

1015202530

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

-20-15-10-5051015202530

Merchandise Exports (12-m rolling sum, EUR, y-o-y % change)

-30

-20

-10

0

10

20

30

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

-30

-20

-10

0

10

20

30

Merchandise Exports (12-m rolling sum, EUR, y-o-y % change)

-20-15-10

-505

1015202530

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

-20-15-10-5051015202530

Merchandise Exports (12-m rolling sum, EUR, y-o-y % change)

-30

-20

-10

0

10

20

30

40

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

-30

-20

-10

0

10

20

30

40

Merchandise Exports (12-m rolling sum, EUR, y-o-y % change)

-20-15-10

-505

1015202530

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

-20-15-10-5051015202530

Merchandise Exports (12-m rolling sum, EUR, y-o-y % change)

-30

-20

-10

0

10

20

30

40

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

-30

-20

-10

0

10

20

30

40

Exports of G&S/GDP

= 27.2% (2010E)

Romania Bulgaria Serbia

FYROM Albania Turkey

Exports of G&S/GDP

= 35.0% (2010E)

Exports of G&S/GDP

= 56.1% (2010E) Exports of G&S/GDP

= 32.9% (2010E)

Exports of G&S/GDP

= 44.0% (2010E)

Exports of G&S/GDP

= 31.2% (2010E)

Page 8: N ATIONAL B ANK SEE-5 & Turkey: Macro Challenges Paul Mylonas Chief Economist, General Manager of Strategy and Governance, National Bank Group N ATIONAL

NATIONAL BANK

Large output gaps reflected in high unemployment rates, creating political pressures

Strategy & Economic Research Division p.8

SEE-5 & Turkey: Macro Challenges

Romania Bulgaria Serbia

FYROM Albania Turkey

Unemployment Rate (%)

6

8

10

12

14

16

18

Q1

:07

Q2

:07

Q3

:07

Q4

:07

Q1

:08

Q2

:08

Q3

:08

Q4

:08

Q1

:09

Q2

:09

Q3

:09

Q4

:09

Q1

:10

Q2

:10

Q3

:10

Q4

:10

6

8

10

12

14

16

18

Unemployment Rate (%)

2

3

4

5

6

7

8

9

10

Q1

:07

Q2

:07

Q3

:07

Q4

:07

Q1

:08

Q2

:08

Q3

:08

Q4

:08

Q1

:09

Q2

:09

Q3

:09

Q4

:09

Q1

:10

Q2

:10

Q3

:10

Q4

:10

2

3

4

5

6

7

8

9

10

Unemployment Rate (%)

4

5

6

7

8

9

10

11

12

Q1

:07

Q2

:07

Q3

:07

Q4

:07

Q1

:08

Q2

:08

Q3

:08

Q4

:08

Q1

:09

Q2

:09

Q3

:09

Q4

:09

Q1

:10

Q2

:10

Q3

:10

Q4

:10

4

5

6

7

8

9

10

11

12

Unemployment Rate (%)

12

13

14

15

16

17

18

19

20

Q1

:07

Q2

:07

Q3

:07

Q4

:07

Q1

:08

Q2

:08

Q3

:08

Q4

:08

Q1

:09

Q2

:09

Q3

:09

Q4

:09

Q1

:10

Q2

:10

Q3

:10

Q4

:10

12

13

14

15

16

17

18

19

20

Unemployment Rate (%)

30

31

32

33

34

35

36

Q1

:07

Q2

:07

Q3

:07

Q4

:07

Q1

:08

Q2

:08

Q3

:08

Q4

:08

Q1

:09

Q2

:09

Q3

:09

Q4

:09

Q1

:10

Q2

:10

Q3

:10

Q4

:10

30

31

32

33

34

35

36

Unemployment Rate (%)

12,0

12,5

13,0

13,5

14,0

14,5

Q1

:07

Q2

:07

Q3

:07

Q4

:07

Q1

:08

Q2

:08

Q3

:08

Q4

:08

Q1

:09

Q2

:09

Q3

:09

Q4

:09

Q1

:10

Q2

:10

Q3

:10

Q4

:10

12,0

12,5

13,0

13,5

14,0

14,5

Page 9: N ATIONAL B ANK SEE-5 & Turkey: Macro Challenges Paul Mylonas Chief Economist, General Manager of Strategy and Governance, National Bank Group N ATIONAL

NATIONAL BANK

Weak recovery in output and external account correction mainly due to a shortage of external financing

Strategy & Economic Research Division p.9

SEE-5 & Turkey: Macro Challenges

Capital Inflows (Net, 12-m rolling sum, % of GDP)

-5

05

1015

2025

3035

40

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

-5

05

1015

2025

3035

40

FDI OtherTotal

Capital Inflows (Net, 12-m rolling sum, % of GDP)

-5

0

5

10

15

20

25

30

35

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

-5

0

5

10

15

20

25

30

35

FDI IMF Other Total

Capital Inflows (Net, 12-m rolling sum, % of GDP)

-5

0

5

10

15

20

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

-5

0

5

10

15

20FDI Other Total

Capital Inflows (Net, 12-m rolling sum, % of GDP)

-5

0

5

10

15

20

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

-5

0

5

10

15

20FDI Other Total

Capital Inflows (Net, 12-m rolling sum, % of GDP)

-5

0

5

10

15

20

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

-5

0

5

10

15

20

FDI IMF EU Other Total

Capital Inflows (Net, 12-m rolling sum, % of GDP)

0

2

4

6

8

10

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

0

2

4

6

8

10

FDI Other Total

Romania Bulgaria Serbia

FYROM Albania Turkey

Page 10: N ATIONAL B ANK SEE-5 & Turkey: Macro Challenges Paul Mylonas Chief Economist, General Manager of Strategy and Governance, National Bank Group N ATIONAL

NATIONAL BANK

Domestic financing also tight, reflecting both demand and supply factors

Strategy & Economic Research Division p.10

SEE-5 & Turkey: Macro Challenges

Loans ( y-o-y % change)

-10

0

10

20

30

40

50

60

70

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

-10

0

10

20

30

40

50

60

70

Loans ( y-o-y % change)

-10

0

10

20

30

40

50

60

70

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

-10

0

10

20

30

40

50

60

70

Loans ( y-o-y % change)

05

101520253035404550

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

05101520253035404550

Loans ( y-o-y % change)

05

101520253035404550

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

05101520253035404550

Loans ( y-o-y % change)

-10

0

10

20

30

40

50

60

70

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

-10

0

10

20

30

40

50

60

70

Loans ( y-o-y % change)

0

10

20

30

40

50

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

0

10

20

30

40

50

Romania Bulgaria Serbia

FYROM Albania Turkey

2002-2010 CAGR = 30.5%

2010 Loans/GDP = 43.3%

2002-2010 CAGR = 22.8%

2010 Loans/ GDP = 52.0%

2002-2010 CAGR = 31.5%

2010 Loans/GDP = 72.3%

2002-2010 CAGR = 39.3%

2010 Loans/GDP = 40.2%

2002-2010 CAGR = 36.3%

2010 Loans/GDP = 36.8% 2002-2010 CAGR = 19.3%

2010 Loans/GDP = 45.5%

Page 11: N ATIONAL B ANK SEE-5 & Turkey: Macro Challenges Paul Mylonas Chief Economist, General Manager of Strategy and Governance, National Bank Group N ATIONAL

NATIONAL BANK

FX-denominated loans continue to be the preferred credit instrument, raising banking sector vulnerabilities

Strategy & Economic Research Division p.11

SEE-5 & Turkey: Macro Challenges

FX Loans-to-Total Loans Ratio (%)

40

45

50

55

60

65

70

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

40

45

50

55

60

65

70

FX Loans-to-Total Loans Ratio (%)

40

45

50

55

60

65

70

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

40

45

50

55

60

65

70

FX Loans-to-Total Loans Ratio (%)

0

10

20

30

40

50

60

70

80

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

0

10

20

30

40

50

60

70

80

FX linked and FX denominatedFX denominated

FX Loans-to-Total Loans Ratio (%)

0

10

20

30

40

50

60

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

0

10

20

30

40

50

60

FX linked and FX denominatedFX denominated

FX Loans-to-Total Loans Ratio (%)

66

67

68

69

70

71

72

73

74

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

66

67

68

69

70

71

72

73

74

FX Loans-to-Total Loans Ratio (%)

22

24

26

28

30

32

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

22

24

26

28

30

32

Romania Bulgaria Serbia

FYROM Albania Turkey

Page 12: N ATIONAL B ANK SEE-5 & Turkey: Macro Challenges Paul Mylonas Chief Economist, General Manager of Strategy and Governance, National Bank Group N ATIONAL

NATIONAL BANK

Indeed, non-performing loans continue to rise, lagging the recovery

Strategy & Economic Research Division p.12

SEE-5 & Turkey: Macro Challenges

NPL Ratio (%)

02468

101214161820

Q1

:07

Q2

:07

Q3

:07

Q4

:07

Q1

:08

Q2

:08

Q3

:08

Q4

:08

Q1

:09

Q2

:09

Q3

:09

Q4

:09

Q1

:10

Q2

:10

Q3

:10

Q4

:10

Q1

:11

02468101214161820

NPL Ratio (%)

0

2

4

6

8

10

12

14

16

Q1

:07

Q2

:07

Q3

:07

Q4

:07

Q1

:08

Q2

:08

Q3

:08

Q4

:08

Q1

:09

Q2

:09

Q3

:09

Q4

:09

Q1

:10

Q2

:10

Q3

:10

Q4

:10

Q1

:11

0

2

4

6

8

10

12

14

16

NPL Ratio (%)

02468

101214161820

Q1

:07

Q2

:07

Q3

:07

Q4

:07

Q1

:08

Q2

:08

Q3

:08

Q4

:08

Q1

:09

Q2

:09

Q3

:09

Q4

:09

Q1

:10

Q2

:10

Q3

:10

Q4

:10

Q1

:11

02468101214161820

NPL Ratio (%)

0

2

4

6

8

10

12

Q1

:07

Q2

:07

Q3

:07

Q4

:07

Q1

:08

Q2

:08

Q3

:08

Q4

:08

Q1

:09

Q2

:09

Q3

:09

Q4

:09

Q1

:10

Q2

:10

Q3

:10

Q4

:10

Q1

:11

0

2

4

6

8

10

12

NPL Ratio (%)

0

2

4

6

8

10

12

14

16

Q1

:07

Q2

:07

Q3

:07

Q4

:07

Q1

:08

Q2

:08

Q3

:08

Q4

:08

Q1

:09

Q2

:09

Q3

:09

Q4

:09

Q1

:10

Q2

:10

Q3

:10

Q4

:10

Q1

:11

0

2

4

6

8

10

12

14

16

NPL Ratio (%)

0

1

2

3

4

5

6

Q1

:07

Q2

:07

Q3

:07

Q4

:07

Q1

:08

Q2

:08

Q3

:08

Q4

:08

Q1

:09

Q2

:09

Q3

:09

Q4

:09

Q1

:10

Q2

:10

Q3

:10

Q4

:10

Q1

:11

0

1

2

3

4

5

6

Romania Bulgaria Serbia

FYROM Albania Turkey

Page 13: N ATIONAL B ANK SEE-5 & Turkey: Macro Challenges Paul Mylonas Chief Economist, General Manager of Strategy and Governance, National Bank Group N ATIONAL

NATIONAL BANK

Liquidity conditions, although improving as deposit growth is strong, remain tight

Strategy & Economic Research Division p.13

SEE-5 & Turkey: Macro Challenges

Loans-to-Deposits Ratio (%)

405060708090

100110120130140150

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

405060708090100110120130140150

Loans-to-Deposits RatioBenchmark Ratio

Loans-to-Deposits Ratio (%)

405060708090

100110120130140150

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

405060708090100110120130140150

Loans-to-Deposits RatioBenchmark Ratio

Loans-to-Deposits Ratio (%)

405060708090

100110120130140150

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

405060708090100110120130140150

Loans-to-Deposits RatioBenchmark Ratio

Loans-to-Deposits Ratio (%)

70

75

80

85

90

95

100

105

110

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

70

75

80

85

90

95

100

105

110

Loans-to-Deposits RatioBenchmark Ratio

Loans-to-Deposits Ratio (%)

40

50

60

70

80

90

100

110

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

40

50

60

70

80

90

100

110

Loans-to-Deposits RatioBenchmark Ratio

Loans-to-Deposits Ratio (%)

40

50

60

70

80

90

100

110

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

40

50

60

70

80

90

100

110

Loans-to-Deposits RatioBenchmark Ratio

Romania Bulgaria Serbia

FYROM Albania Turkey

Deposits: Dec. 10 y-o-y % change = 8.7% Deposits: Dec. 10 y-o-y % change = 18.0%

Deposits: Nov. 10 y-o-y % change = 13.2%

Deposits: Dec. 10 y-o-y % change = 7.0%

Deposits: Dec. 10 y-o-y % change = 20.3%

Deposits: Dec. 10 y-o-y % change = 13.9%

Page 14: N ATIONAL B ANK SEE-5 & Turkey: Macro Challenges Paul Mylonas Chief Economist, General Manager of Strategy and Governance, National Bank Group N ATIONAL

NATIONAL BANK

Strong profitability buffers have kept capital ratios at high levels

Strategy & Economic Research Division p.14

SEE-5 & Turkey: Macro Challenges

Capital Adequacy Ratio (%)

10

11

12

13

14

15

16

Q1

:07

Q2

:07

Q3

:07

Q4

:07

Q1

:08

Q2

:08

Q3

:08

Q4

:08

Q1

:09

Q2

:09

Q3

:09

Q4

:09

Q1

:10

Q2

:10

Q3

:10

10

11

12

13

14

15

16

Capital Adequacy Ratio (%)

12

14

16

18

20

Q1

:07

Q2

:07

Q3

:07

Q4

:07

Q1

:08

Q2

:08

Q3

:08

Q4

:08

Q1

:09

Q2

:09

Q3

:09

Q4

:09

Q1

:10

Q2

:10

Q3

:10

12

14

16

18

20

Capital Adequacy Ratio (%)

18

20

22

24

26

28

Q1

:07

Q2

:07

Q3

:07

Q4

:07

Q1

:08

Q2

:08

Q3

:08

Q4

:08

Q1

:09

Q2

:09

Q3

:09

Q4

:09

Q1

:10

Q2

:10

Q3

:10

18

20

22

24

26

28

Capital Adequacy Ratio (%)

14

15

16

17

18

19

20

Q1

:07

Q2

:07

Q3

:07

Q4

:07

Q1

:08

Q2

:08

Q3

:08

Q4

:08

Q1

:09

Q2

:09

Q3

:09

Q4

:09

Q1

:10

Q2

:10

Q3

:10

14

15

16

17

18

19

20

Capital Adequacy Ratio (%)

15

16

17

18

19

Q1

:07

Q2

:07

Q3

:07

Q4

:07

Q1

:08

Q2

:08

Q3

:08

Q4

:08

Q1

:09

Q2

:09

Q3

:09

Q4

:09

Q1

:10

Q2

:10

Q3

:10

15

16

17

18

19

Capital Adequacy Ratio (%)

16

17

18

19

20

21

22

23

24

Q1

:07

Q2

:07

Q3

:07

Q4

:07

Q1

:08

Q2

:08

Q3

:08

Q4

:08

Q1

:09

Q2

:09

Q3

:09

Q4

:09

Q1

:10

Q2

:10

Q3

:10

16

17

18

19

20

21

22

23

24

Romania Bulgaria Serbia

FYROM Albania Turkey

Page 15: N ATIONAL B ANK SEE-5 & Turkey: Macro Challenges Paul Mylonas Chief Economist, General Manager of Strategy and Governance, National Bank Group N ATIONAL

NATIONAL BANK

No further room for fiscal policy support, reflecting weak initial conditions, lack of financing and credibility concerns

Strategy & Economic Research Division p.15

SEE-5 & Turkey: Macro Challenges

Tax Revenue, Primary Expenditure and Fiscal Balance (12-m rolling sum)

-10-8-6-4-202468

10

12

/06

04

/07

08

/07

12

/07

04

/08

08

/08

12

/08

04

/09

08

/09

12

/09

04

/10

08

/10

12

/10

-8

-7

-6

-5

-4

-3

-2

-1

0

Tax Rev. (y-o-y % change, lhs) Prim. Exp. (y-o-y % change, lhs)Fiscal Balance (% of GDP, rhs)

Tax Revenue, Primary Expenditure and Fiscal Balance (12-m rolling sum)

-2

0

2

4

6

8

10

12

12

/06

04

/07

08

/07

12

/07

04

/08

08

/08

12

/08

04

/09

08

/09

12

/09

04

/10

08

/10

12

/10

-6

-5

-4

-3

-2

-1

0

Tax Rev. (y-o-y % change, lhs) Prim. Exp. (y-o-y % change, lhs)Fiscal Balance (% of GDP, rhs)

Tax Revenue, Primary Expenditure and Fiscal Balance (12-m rolling sum)

-10

-5

0

5

10

15

20

25

12

/06

04

/07

08

/07

12

/07

04

/08

08

/08

12

/08

04

/09

08

/09

12

/09

04

/10

08

/10

12

/10

-6

-5

-4

-3

-2

-1

0

1

2

3

Tax Rev. (y-o-y % change, lhs) Prim. Exp. (y-o-y % change, lhs)Fiscal Balance (% of GDP, rhs)

Tax Revenue, Primary Expenditure and Fiscal Balance (12-m rolling sum)

-15

-10

-5

0

5

10

15

20

25

30

12

/06

04

/07

08

/07

12

/07

04

/08

08

/08

12

/08

04

/09

08

/09

12

/09

04

/10

08

/10

12

/10

-10-9-8-7-6-5-4-3-2-10

Tax Rev. (y-o-y % change, lhs) Prim. Exp. (y-o-y % change, lhs)Fiscal Balance (% of GDP, rhs)

Tax Revenue, Primary Expenditure and Fiscal Balance (12-m rolling sum)

-15

-10

-5

0

5

10

15

20

25

12

/06

04

/07

08

/07

12

/07

04

/08

08

/08

12

/08

04

/09

08

/09

12

/09

04

/10

08

/10

12

/10

-6

-4

-2

0

2

4

6

8

Tax Rev. (y-o-y % change, lhs) Prim. Exp. (y-o-y % change, lhs)Fiscal Balance (% of GDP, rhs)

Tax Revenue, Primary Expenditure and Fiscal Balance (12-m rolling sum)

-5

0

5

10

15

20

25

30

12

/06

04

/07

08

/07

12

/07

04

/08

08

/08

12

/08

04

/09

08

/09

12

/09

04

/10

08

/10

12

/10

-6

-5

-4

-3

-2

-1

0

Tax Rev. (y-o-y % change, lhs) Prim. Exp. (y-o-y % change, lhs)Fiscal Balance (% of GDP, rhs)

Romania Bulgaria Serbia

FYROM Albania Turkey

Page 16: N ATIONAL B ANK SEE-5 & Turkey: Macro Challenges Paul Mylonas Chief Economist, General Manager of Strategy and Governance, National Bank Group N ATIONAL

NATIONAL BANK

Fiscal policy has the capacity to further reduce budget deficits

Strategy & Economic Research Division p.16

SEE-5 & Turkey: Macro Challenges

2009 Fiscal Deficit (% of

GDP, A)

2010 Fiscal Deficit (% of

GDP, E)

2011 Fiscal Deficit (% of

GDP, F)

2010 Public

Debt (% of GDP, E)

PIT Rate

(%)

Corp. Tax Rate

(%)

VAT Rate (%)

2010 Revenue

(% of GDP, E)

Romania 7.4 6.6 4.3 36.6 16.0 16.0 24.0 32.8

Bulgaria 0.8 3.9 3.0 18.4 10.0 10.0 20.0 34.2

Serbia 4.3 4.5 4.1 43.5 12.0 10.0 18.0 39.6

FYROM 2.7 2.5 2.5 27.5 10.0 10.0 18.0 31.6

Albania 7.4 3.3 4.2 59.0 10.0 10.0 20.0 25.6

Turkey 5.5 3.5 3.4 44.0 15 - 35 20.0 18.0 22.7

Page 17: N ATIONAL B ANK SEE-5 & Turkey: Macro Challenges Paul Mylonas Chief Economist, General Manager of Strategy and Governance, National Bank Group N ATIONAL

NATIONAL BANK

Monetary Policy has been the main source of policy accommodation

Strategy & Economic Research Division p.17

SEE-5 & Turkey: Macro Challenges

Policy Rate (%)

0

2

4

6

8

10

12

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

-2

-1

0

1

2

3

4

5

Nominal (lhs)Real (ex post , rhs)

Policy Rate (%)

0

1

2

3

4

5

6

7

8

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

-8

-6

-4

-2

0

2

4

6Nominal (lhs)Real (ex post , rhs)

Policy Rate (%)

02468

101214161820

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

-2

0

2

4

6

8

10Nominal (lhs)Real (ex post , rhs)

Policy Rate (%)

0123456789

10

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

-4

-2

0

2

4

6

8

10

12Nominal (lhs)Real (ex post , rhs)

Policy Rate (%)

0

1

2

3

4

5

6

7

8

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

0

1

2

3

4

5

Nominal (lhs)Real (ex post , rhs)

Policy Rate (%)

0

3

6

9

12

15

18

21

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

-6

-4

-2

0

2

4

6

8

10

12

Nominal (lhs)Real (ex post , rhs)

Romania Bulgaria Serbia

FYROM Albania Turkey

Page 18: N ATIONAL B ANK SEE-5 & Turkey: Macro Challenges Paul Mylonas Chief Economist, General Manager of Strategy and Governance, National Bank Group N ATIONAL

NATIONAL BANK

MP has had to keep an eye on the exchange rate

Strategy & Economic Research Division p.18

SEE-5 & Turkey: Macro Challenges

Exchange Rate and CPI-based REER

3,0

3,2

3,4

3,6

3,8

4,0

4,2

4,4

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

90

100

110

120

130

140

150

RON/EUR (lhs)REER (2000=100, rhs)

Exchange Rate and CPI-based REER

1,950

1,952

1,954

1,956

1,958

1,960

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

90

100

110

120

130

140

150

BGN/EUR (lhs)REER (2000=100, rhs)

Exchange Rate and CPI-based REER

6065707580859095

100105110

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

90

100

110

120

130

140

150

160

170

180

RSD/EUR (lhs)REER (2000=100, rhs)

Exchange Rate and CPI-based REER

61,0

61,2

61,4

61,6

61,8

62,0

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

80

85

90

95

100

105

MKD/EUR (lhs)REER (2000=100, rhs)

Exchange Rate and CPI-based REER

120

124

128

132

136

140

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

90

100

110

120

130

140

150

ALL/EUR (lhs)REER (2000=100, rhs)

Exchange Rate and CPI-based REER

1,0

1,2

1,4

1,6

1,8

2,0

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

100

110

120

130

140

150

TRY/USD (lhs)REER (2000=100, rhs)

Romania Bulgaria Serbia

FYROM Albania Turkey

Page 19: N ATIONAL B ANK SEE-5 & Turkey: Macro Challenges Paul Mylonas Chief Economist, General Manager of Strategy and Governance, National Bank Group N ATIONAL

NATIONAL BANK

Monetary policy will face the dilemma of closing a large output gap, while commodity price inflation is on the upswing

Strategy & Economic Research Division p.19

SEE-5 & Turkey: Macro Challenges

Inflation (%)

0

2

4

6

8

10

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

0

2

4

6

8

10HeadlineCore

Inflation (%)

0

2

4

6

8

10

12

14

16

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

0

2

4

6

8

10

12

14

16

HeadlineCore

Inflation (%)

0

2

4

6

8

10

12

14

16

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

0

2

4

6

8

10

12

14

16

HeadlineCore

Inflation (%)

-3

0

3

6

9

12

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

-3

0

3

6

9

12HeadlineCore

Inflation (%)

0

1

2

3

4

5

6

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

0

1

2

3

4

5

6HeadlineCore

Inflation (%)

0

2

4

6

8

10

12

01

/07

05

/07

09

/07

01

/08

05

/08

09

/08

01

/09

05

/09

09

/09

01

/10

05

/10

09

/10

01

/11

0

2

4

6

8

10

12HeadlineCore

Romania Bulgaria Serbia

FYROM Albania Turkey

Page 20: N ATIONAL B ANK SEE-5 & Turkey: Macro Challenges Paul Mylonas Chief Economist, General Manager of Strategy and Governance, National Bank Group N ATIONAL

NATIONAL BANK

Further progress on structural reforms, key to a high growth rate, stable macroeconomic and financial environment, and resilience to external shocks

Strategy & Economic Research Division p.20

SEE-5 & Turkey: Macro Challenges

EBRD Transition Indicators

0,00,51,01,52,02,53,03,54,04,5

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20002010

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EBRD Transition Indicators

0,00,51,01,52,02,53,03,54,04,5

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0,00,51,01,52,02,53,03,54,04,5

Sm

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Romania Bulgaria Serbia

FYROM Albania

Page 21: N ATIONAL B ANK SEE-5 & Turkey: Macro Challenges Paul Mylonas Chief Economist, General Manager of Strategy and Governance, National Bank Group N ATIONAL

NATIONAL BANK

EU membership process acts as a catalyst and provides a much-needed anchor for policy and reform -- efficient absorption of EU funds, another macroeconomic challenge

Strategy & Economic Research Division p.21

SEE-5 & Turkey: Macro Challenges

EU Membership

Turkeyo Candidate country

o Formal opening of Accession negotiations in October 2005

Romania o Member country since January 2007 2009-2013 EU Funds = EUR 31.5bn

Bulgaria o Member country since January 2007 2009-2013 EU Funds = EUR 12.8bn

Serbia

o Potential candidate country

o Signed a Stabilisation and Association Agreement (SAA) in April 2008

o EU member States agreed to start ratification of the SAA in June 2010

o EU Foreign Ministers asked the European Commission to assess the country’s eligibility for candidacy status in October 2010

FYROM

o Candidate country

o Signed a SAA in April 2001

o EU Commission recommended entry talks with FYROM (14 October 2009)

Albania

o Potential candidate country

o Signed a SAA in June 2006

o The European Commission denied Tirana the status of EU candidate in November 2010, considering that accession negotiations should start as soon as the country meets a number of key priorities

Page 22: N ATIONAL B ANK SEE-5 & Turkey: Macro Challenges Paul Mylonas Chief Economist, General Manager of Strategy and Governance, National Bank Group N ATIONAL

NATIONAL BANK Strategy & Economic Research Division