UniCredit sees more focus on loan risk in CEE

VIENNA (Reuters) - UniCredit (CRDI.MI) sees lending in emerging Europe growing more slowly next year because banks will be more cautious about credit risks, the Italian bank's head of the region, Federico Ghizzoni, told Reuters on Monday.

However, the liquidity squeeze that has hit the region's banks since this month and will lead to a sharp decline in lending this quarter will ease next year, he told the Reuters Central European Investment summit in Vienna.

"Honestly, I don't see liquidity as the main problem for 2009. I'm more concerned (about) managing properly the potential increase of the credit risk," Ghizzoni said.

"You have to be cautious because the conditions of the economy will deteriorate. At the same time the banking system has to be equally careful to not close completely so as not to move to a sort of credit crunch," he said.

UniCredit is the region's biggest lender with operations in 20 of these countries, including Turkey and central Asia. But it has put branch openings in the area on hold as the current financial crisis increased uncertainty.

UniCredit has about 3,380 branches in CEE countries, according to its website and had planned to open 450 branches in 2009 in the area before freezing this expansion, Ghizzoni said.

Ghizzoni said he expected banks in the area to rein back lending in the next three months, partly because of current tight liquidity but also because of concerns about the possible impact on customers of an economic slowdown.

"We will see some sharp decrease on the lending side in the next three months," Ghizzoni said. "Then we should see some adjustment, but with a level of growth below what we were used to see in the past.

"In the past we were used to seeing something between 20-30 percent. Varying from country to country, i think we will now see something like 10-20 percent (of loan growth)."

Some of that drop is likely to come from banks' sudden reluctance to lend in foreign currencies -- which used to be a staple in mortgage financing in some countries including Hungary and Romania because of high interest rates in local currencies.

"We have seen already that all banks are substantially stopping this activity," he said. "In our case it was already very very limited, as we never liked foreign currency lending to individuals very much.

"My concern is that the lending activity could stop for a while," he said. "We have seen that in some of those countries, there is no alternative, for example in Romania ... So there may be a stop of mortgage activity for some time."

PICKING CORPORATE SECTORS

He said banks were likely to be more careful in choosing which sectors of the economy to lend to, given the potential impact of economic slowdowns, for example by asking corporate clients to borrow with less leverage.

"For project finance or real estate lending we have to probably ask a bit more effort from the customers in terms of putting equity in," he said, suggesting that "instead of having 10 percent maybe it's good to have 30-40 percent from now on."

Ghizzoni said UniCredit, like other banks in the region, was stepping up efforts to raise more deposits from clients. He expects the gap between loan and deposit growth to narrow next year, although loans would still rise faster.

"In the bank's 3-year plan there was a difference of 5-10 points (between deposits and loans) in terms of growth. In 2009 this gap will be less but I still don't see (at the moment) deposits growing faster than loans, so the gap will decrease."

For UniCredit's businesses in CEE, an optimal level of loans to deposits would be 100-105 percent, he said.

The group has almost reached that level in big central European countries such as Poland, but there is still a large gap in less-developed eastern European economies.

Ghizzoni added that in general, banks had seen sporadic spikes of deposits withdrawals during the financial crisis but it had been day-by-day, country-by-country, rather than region-wide and did not pose a systemic problem.

"It's been one country, then another, then another ... linked to special (regional) news. A lot of emotion from customers, it's not yet a systemic problem," he said.

Given current turmoil, UniCredit had decided to bring forward its six-month review of operations in the region, Ghizzoni said, and might have new figures next month.

"We have brought forward (the six-month review) due to the fact that we have an acceleration of the crisis," he said.

The bank is now expecting average growth in the CEE region of 3.5 percent for 2009 from 5-5.5 percent at the start of this year.

(Additional reporting by Eva Komarek, Editing by Hans Peters)