LONDON May 18 A new banking crunch in the euro
zone risks another sharp retreat by western parent banks from
vulnerable economies in central and eastern Europe, a process
that must be slowed to preserve growth, officials from the
region said on Friday.
Rising speculation that Greece will leave the single
currency and a mass downgrade of Spanish banks' credit ratings
late on Thursday have intensified fears among local depositors
and global investors about the stability of euro zone banks.
Many east European countries outside the euro have banks
wholly or largely owned by western counterparts, which have
already reduced lending as they try to fix balance sheets
damaged by the sovereign debt crisis. They fear another sudden
or sharp pullback to home markets could be devastating.
"The financial system continues to be vulnerable and the
need to deleverage continues to be very strong," Polish central
bank chief Marek Belka told delegates at the annual meeting of
the European Bank for Reconstruction and Development.
"This deleveraging is potentially more dangerous in
countries with a high presence of foreign banks."
Belka, who chided policymakers from richer economies for
their inability to control the crisis, said this reduction of
bank lending and debts, or deleveraging, was necessary but that
the pace and location of it must be managed carefully.
"The crisis mostly is an issue of the developed economies,"
he said. "The so-called west has lost its monopoly for wisdom
and I'm saying it without Schadenfreude."
EBRD President Thomas Mirow, who is up against four other
candidates on Friday in seeking a second four-year term at the
regional development bank, said EBRD-sponsored efforts to slow
deleveraging had been critical in the past two years.
"What we have seen so far is a managed deleveraging process.
We haven't seen dramatic events so far," Mirow told reporters.
"What we are clearly seeing is that western banks that have
engaged in the region without putting CEE (central and eastern
Europe) into the focus of their activities tend to retrench and
to sell off their assets."
The EBRD chief expressed particular concern about countries
where subsidiaries of Greek banks have played an important role,
with Bulgaria, Romania and Serbia seen as most vulnerable.
Renewed fears about Europe's banks present additional
challenges for the region's economies, which are already
struggling to grow as the crisis hits their major trading
partners in the euro zone.
The EBRD, set up in 1991 to manage the transition of former
communist countries to market economies but with a
recently-expanded remit to North Africa and the Middle East,
predicted a substantial growth slowdown in its monitored
economies in 2012.
In its latest economic outlook for the whole transition
region, which for the first time includes four countries in the
Middle East and North Africa, the EBRD forecast expansion of 3.1
per cent in 2012, after 4.6 per cent in 2011. The Bank's
economists see only a modest pick up to 3.7 per cent next year.
Although recent data suggests that capital outflows from the
region may be levelling off, negative real credit growth and
declining exports will continue to impede expansion, it said.
Separately, citing a survey of 12,000 firms in the area,
Italian bank Unicredit's head of CEE & Poland Strategic Planning
Fabio Mucci said companies were reporting "tight credit
conditions and tighter collateral requirements as an important
obstacle to the availability of credit".
Since the end of last year, euro zone banks have been
reducing exposure to central and Eastern Europe with a
deleveraging exercise that has squeezed lending even as many
countries in the region slide into recession.
Banks from Austria, France, Belgium and other countries
control 60-90 percent of the region's banking assets. The
International Monetary Fund says deleveraging could lead to a
drop of up to 6 percent of private credit in central and Eastern
Europe in 2012 and 2013 in a downside scenario.
Before the crisis, euro zone lenders saw the region as a
main profit driver because of faster economic growth and lower
credit saturation, but data has shown an outflow of funds from
the region since the fourth quarter of last year.
The so-called Vienna Initiative to slow the western bank
exit from the region in 2009, which was jointly sponsored by the
EBRD, the International Monetary Fund, national bank regulators
and private lenders, was reprised this year.
The EBRD warned on Friday that it expected bank-related
outflows to continue from eastern Europe in coming months as
western lenders step up efforts to strengthen their balance
The central bank governors of Poland and Hungary also said
sales of local subsidiaries by Western banks remain a major
concern for policymakers.