The IMF has produced a blog on the precariousness of banks in Central and Eastern Europe. The majority of banks in the region are owned by Western European banks, and have therefore suffered as a result of the weaknesses of their parent institutions, which has caused the latter to withdraw billions of euros of funding from their CEE subsidiaries and affiliates since the crisis intensified in October 2008.
Prior to that western European banks, led by the likes of Austria’s Erste and Raiffeisen and Italy’s Unicredit played a key part in funding the economic boom in the former Soviet bloc.
However the IMF’s Bas Bakker and Christoph Klingen argue that so long as western funding is withdrawn in an orderly manner, it is unlikely to spark a financial crisis or a credit crunch in CEE, since banks in most of the region’s countries have been remarkably successful when it comes to attracting indigenous deposits, and other sources of domestic funding, to fill the void.
Unfortunately, however, banks in Slovenia and Hungary have been much less successful at doing this than their counterparts elsewhere in the region, which has left them looking perilously exposed.
Foreign banks have lent the equivalent about 60% of GDP to countries in CEE, with the biggest recipients being Croatia, Latvia, Slovenia and Estonia.
This blog was posted on 13 June 2012