Analysis of and Policy Responses to Rapid Credit Growth

Abstract

This chapter discusses the phenomenon of rapid growth in bank credit to the private sector, which in recent years has been particularly prominent in many Central, Eastern, and South-eastern European countries (CEE). In the past few years, real growth rates of credit to the private sector in these countries were often in the range of 30–50 percent per year, albeit beginning from a low base. This trend has generally been viewed as a normal and positive consequence of the growing degree of deepening and restructuring of the financial system. It fits in with the transition process from centrally planned to market-based economies and has often been supported by the prospect of European Union (EU) accession. At the same time, there are growing concerns about the implications for macroeconomic and financial stability, in particular where rapid credit growth has coIncided with a weakening current account and vulnerabilities in the financial systems.