* Credit growth in EBRD region 4.2 pct annualised in Aug-Nov
* Credit declined 3.8 pct annualised in March-Aug
* Credit growth helps economic recovery in some countries
* "No crisis cleanup without balance sheet cleanup"
(Adds detail, background, more quotes)
By Boris Groendahl
VIENNA, Jan 19 (Reuters) - Private credit growth, the main
fuel for emerging Europe's economic motors, has started to show
up in "green shoots" including Poland, the Czech Republic and
the Balkans, a senior EBRD official said on Tuesday.
But for a sustainable recovery from the financial crisis
that hit the former Communist bloc hard, banks had to thoroughly
clean up their balance sheets, said Piroska Nagy, a senior
advisor at the European Bank for Reconstruction and Development.
Non-performing assets piled up in countries that had
excessive credit booms before the crisis still burden balance
sheets and hamper banks' ability to provide funding needed in
the region to emerge from the crisis, she said.
"We do see credit recovery in several cases, in some cases
we even see the return of fx lending to households," Nagy told
Reuters in an interview on the sidelines of a conference.
"We do also see that credit returns where there had not been
a massive boom beforehand, which points to the need to clean up
balance sheets," said Nagy, who is advising the EBRD's Chief
Economist Erik Berglof on issues including the banking sector.
"No crisis cleanup and recovery in the past 50 years has
happened without balance sheet cleanup," Nagy said. "If you
don't do it, you go the Japanese way. So there is not too much
of a choice."
Nagy acknowledged that banks were right to start the cleanup
slowly during the peak of the crisis, it seemed to put the
entire banking system at risk.
"There was a good reason why the cleanup wasn't that fast in
the systemic phase of the crisis because you really had to keep
things together," she said. "But it has to happen now that the
systemic phase is over."
GROWTH RETURNS
In August to November, private sector credit in the EBRD
region grew by an annualised 4.2 percent on average, after a 3.8
percent contraction in the March to August period, Nagy said.
Credit growth in many countries correlated with the recovery
from recession, Nagy said. The EBRD is currently in the process
of revising its outlook for the region, with results due in a
few weeks. Nagy declined to discuss the revision in detail.
"We see a correlation between (economic) growth and private
sector credit growth returning," Nagy said.
"That underlines the point that this region really needs
private sector credit because there is no fiscal space and there
are no other sources of funding," she said.
Credit growth returned to some of eastern Europe's most
important economies including Poland and the Czech Republic,
both by an annualised 2.6 percent, in which countries credit had
dropped before, she said.
Credit also expanded in Serbia, Bulgaria and even
crisis-struck Ukraine, she said, while it continued to contract
in the Baltics, Kazakhstan and Russia.
The EBRD region includes the former Communist countries of
Europe, the former Soviet Union and the former Yugoslavia, as
well as Albania and Turkey. For a full table breaking down the
credit developments, double click on []
Nagy was citing a so far unpublished research paper she
wrote for the EBRD together with Franziska Ohnsorge.
(Reporting by Boris Groendahl; Editing by Andy Bruce)
