Why Central and Eastern European Countries Are Lagging
Durham, Brad, Global Finance
A slew of difficulties-from teetery banks and undeveloped legal systems to insufficient credit histories at companies-have so far kept asset securitization from catching on in Central and Eastern Europe. But there are signs that this could soon change as foreign banks devise clever structures to securitize export receivables.
The financial assets most commonly securitized in the West, of course, are future payments on consumer loans-credit cards, auto loans, and mortgages. The former communist countries do not yet have flourishing consumer markets. "There isn't a sufficient amount of consumer loans to establish a basket or a good history of loan performance," says Alexander Batchvarov, an analyst in the structured finance group at Moody's in New York. "Without a history of a consumer market, there are not sufficient data to evaluate loans and predict defaults." Moreover, legal systems do not yet provide reliable recourse for creditors who get stiffed. Even in the most developed parts of Eastern Europethe Czech Republic, Poland, Hungary, and Slovakia-"the foreclosure process is cumbersome and filled with gray areas," Batchvarov says. "It is not at all certain that a secured creditor in a mortgage could get to foreclosure quickly."
Lenders aren't in great shape either. With few exceptions, banking systems throughout the region suffer from inexperience, low liquidity, bad loans, and more than a little embezzlement. Bank collapses are common-and bankers haven't yet developed skills at managing such income flows as credit card receivables. Says Dan Baldini, a senior investment officer specializing in European capital markets for the International Finance Corporation, the World Bank's private sector arm: "I can't think of any Czech, Hungarian, or Polish banks that currently are capable of offering the level of expertise required." As for Russian banks, their expertise so far is mostly in speculation and crime. …