Abstract
The importance of assessing financial stability in emerging Europe has increased rapidly since the recent financial crisis. This article elaborates on economic development and financial stability issues and challenges in Central, Eastern and South-eastern Europe.
It discusses some common features in the region and focus mainly on credit risk as a key risk on banks’ balance sheets. Finally, it looks at assessment of banking sector resilience through stress testing and argues such analyses are valuable even in emerging economies that suffer from limited data availability, short time series and structural breaks.
A top-down stress test methodology that employs relatively limited information to overcome this data problem is employed. Moreover, as credit growth in emerging economies tends to be rather volatile, a dynamic approach projecting key balance sheet items is more appropriate.