Assessing the Sustainability of Credit Growth: the Case of Central and Eastern European Countries

Strong credit growth rates in transition countries may result from a normal catching-up process in a framework of financial development. However, as elsewhere, they can also pertain to a “credit boom”, paving the way to future “credit crunches”. We try to disentangle these two types of situation for the central and eastern European countries (CEECs) by applying a number of methods. First, we consider the gap between current credit and its longterm trend and we find some signs of credit booms, in several CEECs in 2005-2007. Second, we assess the “normal” growth of credit with regard to fundamentals through econometric estimations. Credit growth is also shown to have been excessive in several countries just before the 2008-2009 financial crisis.CREDIT BOOM;TRANSITION;FINANCIAL DEVELOPMENT