|Banks still vulnerable in parts of Eastern Europe - study|
|June 16, 2010|
VIENNA (Reuters) - Banks in emerging European countries with high levels of foreign currency loans and external debt could still enter into crisis due to turmoil in the euro zone periphery, Capital Economics said on Wednesday.
"Capital levels have been rebuilt and loan to deposit ratios are falling," said Capital Economics analyst Neil Shearing in a note.
"But familiar vulnerabilities remain, particularly in the Baltics, Balkans and Hungary."
The main problem for banks in those countries remains the large stock of credit denominated in euros or Swiss francs, which makes up between around 60 percent of the loanbooks in Hungary, Romania and Bulgaria, and 92 percent in Latvia.
The flip side of this exposure is large short-term external debt, mainly provided through the western parents of the region's banks, Shearing said in the note.
"Banks in this group of countries will remain vulnerable to shifts in global risk appetite and much will depend on the willingness (and ability) of parent banks in the West to roll over debts," he said.
"This is a particular concern for banks in Bulgaria and Romania, where financial linkages to the beleaguered Greek economy are strong," he said.
Greek and Austrian banks own major lenders in the countries bordering the Black Sea. Austrian banks also have the biggest exposures in Hungary, while Swedish banks rule banking in the Baltics.
"The upshot is that at best credit conditions in this group of countries will remain extremely tight as the excesses of the past decade are unwound," he said.
"At worst, however, there remains a real possibility that the deepening turmoil in the euro zone's periphery could trigger a fresh banking crisis," Shearing added in his note.
Bank credit, which had turbo-charged emerging Europe's boom years from 2003 to 2007, is growing only in a few countries in the region, including Turkey, Poland, the Czech republic, Romania and Bulgaria, according to Capital Economics.
Loanbooks are still shrinking in Hungary, the Baltics and Russia, the research firm said, and with non-performing loans still on the rise throughout the region, there is still little chance of a boost for the economies from credit growth.
"With bad debts rising just about everywhere, this is still likely to be a credit-less recovery," Shaering said.
(Reporting by Boris Groendahl; editing by Andrew Torchia)
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