“The gradual retreat of euro area banks from Central and Eastern Europe will likely generate headwinds for some time,” IMF said in its latest Global Financial Stability report.
It said bank asset quality has continued to worsen in many CEE countries, reflecting a deterioration in the repayment capacity of borrowers, and increased recognition of non-performing loans from the 2008-09 crisis.
With more bank deleveraging on the way and feeble economic recovery, asset quality will probably weaken further over the next period, IMF said.
Additionally, currency depreciation could hurt households and businesses that have debts denominated in foreign currencies, the report noted.
IMF estimates European banks may have to sell assets of up to $4.5 trillion by 2013 in the absence of effective measures to fight the debt crisis, substantially higher compared to a maximum deleveraging level of $3.8 trillion previously predicted.