* Vienna Initiative 2.0 aims to halt stampede from region
* EBRD worried about unruly flight from emerging Europe
* Austrian banks play down danger of credit crunch
By Michael Shields and Michael Winfrey
VIENNA, Jan 17 Top bankers sought to play
down fears on Tuesday that they would abandon emerging Europe in
a rush to hoard capital that could cripple efforts to bridge the
continent's economic divide, but one senior official warned the
process was already under way.
Western banks need to shore up their balance sheets under
regulatory pressure to ensure a debt crisis does not drag them
into the abyss again just as it seemed they had turned the
corner from the 2008/09 financial crisis.
That has stoked worries that lenders heavily invested in
central and eastern Europe will curtail business there, leaving
the region exposed to a credit crunch that would paralyse the
growth countries need to boost prosperity.
Governments, regulators and international agencies agreed in
Vienna to cooperate in trying to avert a stampede from the
region, especially in Hungary and countries in southeastern
Europe that analysts say are most at risk of a banking crisis.
The programme is being called a second "Vienna Initiative",
loosely modelled on a 2009 pact that prevented a financial
meltdown in eastern Europe as an economic boom went bust.
But officials at a regional economic conference disagreed
on how big the danger was, and whether banks were even
deleveraging - scaling back business - at all.
"There will be no general deleveraging" by Austrian banks,
the leading lenders in the region, Austrian National Bank
Governor Ewald Nowotny told reporters.
"Wherever there are good opportunities where it makes sense
from an economic point of view, Austrian banks will be prepared
to grant loans," he said.
The head of Raiffeisen Bank International,
emerging Europe's third-biggest lender, saw scant danger of
having to scale back in the region.
"There is no deleveraging taking place," RBI Chief Executive
Herbert Stepic said at the Euromoney conference.
"What is happening is probably it will come to very slow or
no growth of bank assets. But what I am seeing now, also in the
last quarter, is that is not coming to a reduction in assets."
That contrasted sharply with warnings from Erik Berglof,
chief economist of the European Bank for Reconstruction and
Development and a key architect of the new Vienna Initiative.
"We are very concerned about a lot of signs of deleveraging,
about a lot of announcements of a reduced commitment in the
region, the fact that a number of subsidiaries are for sale and
so on," he told Reuters in Vienna.
Berglof would not give details on which banks were for sale,
but said, "there are quite a few subsidiaries in play".
Austrian regulators in particular have come under fire for
pressing ahead unilaterally with rules that link lending growth
by CEE subsidiaries to the amount of financing they can arrange
Berglof told the conference he was encouraged by the
consensus emerging on policy coordination. "Now it's time to sit
down and work out the details together with the private sector."
But London-based Capital Economics called the discussions "a
damp squib", noting that in the first incarnation of the plan
the European Union and international financial institutions
ponied up 24.5 billion euros and secured commitments from
western banks to maintain their exposure in the region.
It said there was no sign of a similar commitment this time,
adding that Hungary appeared to be most at risk after a string
of policies had alienated lenders and because of its reluctance
to accept help from the EU and IMF, with whom it is in tortuous
talks now for a financing package.
"We also remain concerned about Romania, Bulgaria and
Croatia, but their problems are probably manageable with
external help," Capital Economics said in a research note.
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.
Among the main lenders 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 initiative dubbed "Vienna 2.0" are more
modest than in 2009: to slow the pace of deleveraging and avoid
a regional funding crisis rather than to maintain investments.
"In the absence of coordination, excessive and disorderly
deleveraging as well as a credit crunch may be the outcome," an
official statement by the bodies taking part in the new Vienna
Initiative-style plan said.
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.