Balkans Need Legal Reforms to Boost Economies, IMF says

Balkan nations need to develop a legal framework for dealing with bad loans, speed up judicial reforms and improve bankruptcy and insolvency laws to improve their economic prospects, the International Monetary Fund said in report on Monday.

The report on six western Balkan nations - Albania, Bosnia, Kosovo, Montenegro, Macedonia and Serbia - found their banking systems were plagued by lack of funding, a high level of bad loans and poor bankruptcy procedures. Those drawbacks have slowed the growth of lending at their banks, it said.

"Sound institutions and a sound judiciary are essentially the source of all business transactions and economy," Jorg Decressin, the IMF European Department Deputy Director, said at the report presentation in the Bosnian capital, Sarajevo.

External bank funding rose by more than 500 percent before 2008, pushing economic growth in the six countries, the IMF said in a chapter of its European outlook. During that period, 70 to 95 percent of banking assets in the various countries were controlled by foreign banks, mostly based in the European Union.

But eight years after the world financial crisis broke, foreign banks still see limited prospects in the region, which has prompted the local banks to curb funding from abroad and rely on self-funding, the IMF report said.

 Return on equity fell 10 to 35 percentage points during the crisis and still has not recovered to pre-crisis levels. In addition, a high percentage of non-performing loans (NPL) in most of the countries continues to hurt profitability.

"Only if you have a sound judiciary can you have contracts, only if you have contracts can you have exchanges of goods or exchanges of services or landing or borrowing money which is essential to keep economy going,"...