Albania continues to hold the top position in terms of non-performing loan (NPL) ratio among 17 countries in Central, Eastern and South Eastern Europe (CESEE) at the end of 2020, despite an improvement in its position, a new report of the European Bank Coordination "Vienna" Initiative shows.

Bosnia and Herzegovina registered the largest annual decline of NPL ratio, slashing the ratio by 4.3 pp to 3.1%.

The average NPL ratio across the CESEE region declined by 0.2 pp on the year to 3.5% at the end of 2020, according to the NPL Monitor for CESEE published by NPL Initiative, a subset of the Vienna Initiative, on Monday.

In Southeast Europe (SEE), apart from Albania and Bosnia and Herzegovina, countries that have decreased their NPL ratios in 2020 include Bulgaria, North Macedonia, Serbia and Slovenia. Croatia, Kosovo and Montenegro have increased their NPL ratios, whereas Romania's NPL ratio remained unchanged in 2020.

The NPL volume in the CESEE region fell by 3.9% on the year to Euro 32 billion (Dollar 39 billion) at the end of 2020.

North Macedonia saw the largest annual decrease in NPL volume - by 26.4% - among the SEE countries last year.

The public measures which were implemented to mitigate the effects of the pandemic prevented a rise in NPLs in the CESEE region last year, but the ultimate impact of the crisis on banks' asset quality remains uncertain, according to the report.

"NPLs are still expected to rise, however, as government measures begin to wane. While the extent of the impact remains to be seen, the recent increase in stage 2 loans, particularly among loans that benefited from payment moratoria, can be seen as an indicator of intensifying credit risks in future," the report reads.

Moreover, countries which rely on vulnerable sectors such as accommodation and food, arts and entertainment, commercial real estate or transport, are likely to be particularly affected.

The Vienna Initiative is a framework for safeguarding the financial stability of emerging Europe. It was launched at the height of the first wave of the global financial crisis in January 2009. It brings together all the relevant public and private sector stakeholders of EU-based cross-border banks active in emerging Europe, which own much of the banking sectors in that region.