VIENNA Nov 22 Western European banks'
efforts to trim balance sheets are putting the squeeze on
corporate fundraising from Albania to Australia, threatening the
health of economies both near and far.
Forced to raise capital by regulators who want to head off
another financial crisis akin to 2008, many banks are looking to
dump assets and focus on top clients, moves that could make it
harder for others to refinance.
"This was a problem in 2008 as well, in markets like
Hungary, Romania and Russia in particular. There's a fundamental
inconsistency with what policymakers are trying to do in
Europe," said Philip Poole, global head of investment strategy
at HSBC Global Asset Management.
"On the one hand they tell banks that they should continue
to lend, expand their balance sheet. On the other hand they are
imposing quite draconian increases in capital requirements in a
very short period of time....So banks are going to find it
difficult to raise capital in this environment."
The head of UniCredit's business in central and
eastern Europe (CEE), Gianni Franco Papa, said on Tuesday he was
cautiously optimistic about prospects for the region, where
economic growth was still set to outpace that in western Europe.
But he added it was clear that lending growth rates in the
region would not rebound to match the robust pace seen in 2007
before the financial crisis burst.
And the problem could be exacerbated if regulators follow
Austria's example and impose new rules that aim to curb lending
growth by linking to the amount of refinancing that CEE banking
subsidiaries arrange via local deposits or debt issues.
"It is something that has to be handled with care. We cannot
change the situation overnight," Papa told reporters. "What
could happen is that you put a squeeze on liquidity, you have a
This in turn could rebound on banks by boosting
non-performing loan rates and forcing even more caution on
The Economist Intelligence Unit said the steps by Austria,
whose banks are the largest lenders in CEE, to limit lending to
units in that region, showed how the euro zone crisis is
spreading well beyond the zone's borders.
"Only several weeks ago many observers were arguing that CEE
is much better placed than the euro zone periphery (which is not
saying much) and might be relatively resilient in the face of
euro zone difficulties. This was wrong then and is even more
obviously wrong now," it said.
It argued that the the region is highly exposed to the euro
zone crisis in view of multiple links including trade,
remittances, foreign investment flows and the banking sectors.
It said Hungary, Albania, Croatia and Serbia were the
countries most vulnerable.
David Creighton, chief executive of Montreal-based Cordiant
Capital, a key player in the emerging market corporate loan fund
sector, said fundamentally strong corporate borrowers in CEE
were struggling to secure finance from traditional debt
providers as a result of deleveraging of Western lenders.
"The universe of high quality loans that we could look at is
increasing and competition for those loans is decreasing. Banks
are showing weaker appetite to lend to projects right across the
board, I can't say that we have seen any one country suffering
the most difficulties," he said.
But he was wary of calling events a credit crunch.
"A crunch to me suggests some sort of a quick specific event
but what we've seen is a slow train wreck, where there's just a
lot of little crunching going on," he said.
"The volume of capital coming out of the traditional banks
is much smaller, and what is coming out does not really fit with
borrower needs, particularly infrastructure projects, which
require 10-15 year money. Where there is lending going on, it
tends to be much shorter than that."
Coupled with the 17-member euro zone sovereign debt crisis,
the banking ructions are casting long shadows.
On the other side of the globe, European lenders are
retreating from the $65 billion Australian syndicated loan
market to free up funds as the debt crisis makes funding scarce
and sends costs soaring.
CBA, the nation's top mortgage lender, was ready to make its
debut with a euro-denominated five-year issue last week but
soaring borrowing costs in Europe forced the borrower to defer
the offer, a banker familiar with the situation said.
Elod Dinnyes, secretary of the Gyor-Moson-Sopron country
trade and industry chamber in northwestern Hungary, said
builders were already feeling the pinch.
"For the time being, construction sector businesses are
crying on our shoulders. The situation is very bad in that
sector and that's where the banks' credit squeeze is first
felt," he said.