UPDATE 1-Initiative aims to avert east Europe bank exit

VIENNA Tue Jan 17, 2012 5:41am EST

VIENNA Jan 17 (Reuters) - Governments, regulators and international lenders have agreed to cooperate in trying to avert a stampede out of emerging Europe by banks seeking to slash their exposure to risk and ride out the euro debt crisis.

In a joint statement on Tuesday, national authorities, European Union bodies and the international financial institutions said they agreed to pursue a second "Vienna Initiative", loosely modelled on a 2009 pact that prevented a financial meltdown in eastern Europe after the decade's global economic boom went bust.

"What I took away from this meeting was a remarkable consensus," Erik Berglof, chief economist of the European Bank for Reconstruction and Development, told a Euromoney conference in Vienna. "Now it's to sit down and work out the details together with the private sector."

The original Vienna Initiative helped west European banks maintain their exposure to subsidiaries in emerging Europe at the height of the global financial crisis, but the commitments expired last April.

Banks have since come under new pressure to sell assets to raise their core capital ratio, reduce their risk profile and focus on home markets, while their ability to fund themselves on capital markets has weakened.

"The euro zone crisis has led to renewed risks in the financial sectors of emerging Europe since mid-2011," a joint statement released by the European Commission and the European Bank for Reconstruction and Development said.

"Market tensions notably in equity and funding markets have resulted in significant deleveraging pressures in most countries," they said.

Among the main banks concerned are Austria's Erste Group Bank and Raiffeisen Bank International, Italy's Unicredit and Belgium's KBC, all of which face regulatory pressure to boost their capital buffers.

The aims of the new initiative, reached in Vienna on Monday and dubbed "Vienna 2.0" in the statement, are more modest than in 2009 - to slow the pace of deleveraging and avoid a funding crisis in emerging Europe rather than to maintain investments there.

"In the absence of coordination, excessive and disorderly deleveraging as well as a credit crunch may be the outcome," the official statement said.

Raiffeisen CEO Herbert Stepic told the Euromoney conference his bank was committed to staying in emerging Europe but said the pace at which the European Banking Authority was demanding banks increase their core capital was making that more difficult.

"It's one of the biggest nonsenses that has happened," Stepic said.

"We see central and eastern Europe as a place that we will continue to invest in. We won't run away because that continues to stay the growth engine for Europe," he added.

The initiative brought together representatives of the banks' home and host countries, plus the European Commission, the European Banking Authority, the European Systemic Risk Board as well as the International Monetary Fund, the EBRD, the European Investment Bank and the World Bank.

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