A fallout of the global financial crisis was balance sheet recession in the region. The rapid credit growth during the pre-crisis boom period was grounded in excessive borrowing and risk taking by banks and enterprises. Banks relied heavily on external wholesale funding and the rapid credit expansion took place against very limited equity capital in the corporate sector.
The global financial crisis exposed these balance sheet vulnerabilities. The onset of the crisis caused a sudden stop in external financing, and countries in the region were caught in a vicious cycle of reduced credit availability, deleveraging, rising non-performing loans, and a cutback in corporate investment and output. Much of the region is still suffering from the fallout of the global crisis.