* E.Europe bank loans shrank 1.8 pct in euro terms in 2009
* Moderate growth seen in 2010, 2011 - Raiffeisen study
* Bank stress may “jeopardise” loan recovery, economies
By Boris Groendahl
VIENNA, Sept 21 (Reuters) - Pressure on bank earnings due to new taxes and regulations is threatening a nascent loan recovery in the former Communist part of Europe and weighing on its economies, one of the region’s biggest banks said on Tuesday.
Austria’s RZB [RZB.UL] RIBH.VI also said in a study on the eastern European banking sector that bad debt levels may go on rising longer than expected in at least some countries as stagnation or contraction persists.
RZB is eastern Europe’s third-biggest lender via its international arm Raiffeisen International.
Bank lending is one of the main avenues for western European capital flowing into central, eastern and southeastern Europe and parts of the former Soviet Union, and is therefore a key determinant of the region’s economic fate.
Despite concerns last year that the region’s dominant, mainly western-owned banks could pull out, RZB said loan books shrank only 1.8 percent in euro terms -- and not at all in local currency terms except in Hungary, Russia, Ukraine and Bosnia.
But the moderate growth that RZB researchers have pencilled in for this year and next may be at risk because bank profits are being squeezed by new taxes such as in Hungary and Austria and possibly Poland, the bank said.
“Based on the current expectations for a muted recovery of the economies at varying speeds ... our forecasting model ... projects a moderate growth of banking loans in 2010 and 2011,” RZB economist Walter Demel said in the study.
”However, given the still elevated stress that the banks around the globe are facing -- including the prospect of the Basel III regulatory framework and new taxes being imposed on the financial sector -- there might be structural factors that jeopardize such a recovery.
“Undoubtedly, this is one of the major risk factors for the economic recovery also in central and eastern Europe.”
A prolonged rise in bad debt rates, which has shown up in the results of banks including eastern European market leader UniCredit (CRDI.MI) and No.2 Erste Group Bank (ERST.VI), could persist for some time as unemployment grows, RZB said. [ID:nLDE66S2CW]
This has shown in particular in Hungary, where a huge stock of mortgages in Swiss francs combined with a falling forint currency have added to the economic malaise, and in Romania, where the economy is tipped to contract again this year. [ID:nLDE67U164]
UniCredit remained the international bank with most assets in eastern Europe in 2009, RZB said in the report. Erste overtook Raiffeisen as the second biggest lender. Societe Generale (SOGN.PA) was No.4, followed by KBC (KBC.BR).
The full study is available here
Reporting by Boris Groendahl; Editing by John Stonestreet