* New lending in CEE no longer capped at 110 pct of local
* That level now seen only as "alarm signal"
* Big three banks still need extra capital buffer by 2016
* Must meet Basel III rules in full by January 2013
(Adds EBRD reaction, background, shares)
By Michael Shields
VIENNA, March 14 Austria's market
watchdogs have softened guidelines to limit lending by three big
Austrian banks' units in emerging European countries after
international protests that the curbs could cause a credit
squeeze in the region.
A proposal that UniCredit's Bank Austria unit,
Erste Group Bank and Raiffeisen Zentralbank
cap new central and eastern Europe lending at 110
percent of financing they arrange locally was diluted in the new
Regulators now simply say they will monitor and analyse
quarterly lending data.
"The analysis of past experience has shown that exceeding a
reference ratio of 110 percent can be considered an alarm
signal," a joint release from the FMA market regulator and
central bank said on Wednesday.
"The results of this monitoring exercise will be discussed
and assessed with the competent host and home supervisors in the
supervisory colleges to agree on any necessary supervisory
measures," the regulators added.
An FMA spokesman said Austrian regulators would discuss such
cases with counterparts from emerging Europe and the European
Banking Authority. That meant any remedial steps would be
decided at a European, not Austrian, level.
Romanian President Traian Basescu and other officials had
warned in November that the original curbs were unfair and could
trigger a credit crunch in the region.
Others complained that Austria had not coordinated its
action - launched as Vienna scrambled in vain to protect its AAA
debt rating amid concerns about its large banking sector - with
other countries in the region.
"These (guidelines) are an improvement relative to the first
ones," said Piroska Nagy, a senior official at the European Bank
for Reconstruction and Development.
One market expert who asked not to be identified said
Austrian watchdogs now seemed to have got the message from
supervisors in emerging Europe and the European Commission that
Vienna could not go it alone in such matters.
Big Austrian banks - the leading lenders in central and
eastern Europe - "are back on a level playing field with other
European competitors", he said.
A spokeswoman for Raiffeisen Bank International
(RBI), the listed unit of Raiffeisen Zentralbank, said the
change in the lending guidelines to a monitoring approach could
have a positive impact.
But it would not have had a problem even under the original
rules because its lending in all markets in the region was at or
below the 110 percent level, she added.
Governments, regulators and international agencies are
trying to avert a stampede from the region, especially in
Hungary and southeastern European countries that analysts say
are most at risk of a banking crisis.
Under Austria's revised guidelines, the three banks will
still need an extra capital buffer of up to 3 percentage points
by 2016, the FMA and central bank said.
They must also meet Basel III banking industry capital rules
in full by January 2013, six years ahead of schedule, to help
boost the safety and sustainability of the financial system.
The RBI spokeswoman welcomed the fact that Austrian
supervisors would accept as core Tier 1 capital the non-voting
capital that banks got from the state and private investors
during the 2008/09 financial crisis.
RBI shares were up 2.5 percent and Erste shares had gained
0.3 percent by 1520 GMT, while the Stoxx European bank sector
index was up 1.4 percent.
(Reporting by Angelika Gruber and Michael Shields; Editing by