Up to 12 of the 16 key western banks in eastern Europe, under pressure from regulators to recapitalise, have resorted to shrinking outside their home markets to beef up capital levels.
“After being disappointed by communism, these countries risk the discovery that capitalism does not bring benefits,” said Amid Faljaoui, a leading Belgian media commentator.
In all, western European banks account for nearly three-quarters of all lending in central and eastern Europe, where most countries now only have one significant remaining independent bank.
Raiffeisen Bank experts assessed central and eastern European (CEE) banking assets at €1.940 trillion in June 2011 (5.5% of the eurozone total), according to Dnevnik, EurActiv's media partner in Bulgaria.
Shoring up finances
Many of the foreign banks that dominate the region – including UniCredit of Italy, KBC of Belgium, Commerzbank of Germany and Raiffeisen of Austria – have suffered as a result of the eurozone debt crisis.
UniCredit – trying to plug a €7.4 billion capital shortfall – is refocusing its CEE operations on Poland, Russia and the Czech Republic at the expense of the 16 other regional countries where it has operations.
Commerzbank, whose shortfall is put at €2.9 billion, has announced a substantive freeze on lending within the Czech Republic and Slovakia.
Meanwhile, the French bank Société Générale (shortfall €3.3 billion) Austria's Erste Bank, Raiffeisen and Bank Austria (a subsidiary of UniCredit) are expected to limit credit availability in central and eastern Europe.
Bulgaria and Romania – also exposed to the Greek crisis, since Greek banks have subsidiaries there – are particularly at risk. The effect is rippling into EU candidate country Serbia, where KBC and Austrian-based Hypo Bank are in the process of selling subsidiaries.
The European Bank for Reconstruction and Development (EBRD) late last year forecast a 3.2% growth rate for central and eastern European countries this year, from 4.4% just three months earlier.
Some commentators remain optimistic, however. Adrian Vasilescu, an advisor to the governor of the National Bank of Romania told EurActiv: “No bank has withdrawn its capital from the Romanian market. And why would they do so?”
The Romanian leu was one of the strongest performers in the region last year, Vasilescu said, and interest rates remain favourable.
Bulgarian Prime Minister Boyko Borissov recently said in Brussels that banks in his country needed no recapitalisation, as a law adopted following the country's bankruptcy in 1997 obliges them to keep a 15% level of recapitalisation - much higher that required by the EU.
Hungary - currently seeking a new bailout - is very dependent on credit from eurozone banks. According to BBC News, foreign banks supply four-fifths of credit in the country and around half of this was delivered from outside Hungary rather than being funded locally by the foreign-owned banks.
New ‘Vienna Initiative’ required
Another factor for concern which is spurring western banks to shed assets are non-performing loan rates in the region, which are rising, ranging from 5% in Russia to more than 12% in Hungary.
In December, Austrian financial supervisors – concerned about maintaining the country’s AAA rating – instructed leading banks to limit lending to central and eastern Europe, including to subsidiaries.
Ralph De Haas, deputy director of research at the EBRD, warned in December that new measures being imposed by countries would put further pressure on the banking environment.
“National regulators should ensure that their actions do not unduly exacerbate multinational banks’ home bias in the short term,” De Haas said.
Erik Berglöf, chief economist at the EBRD, in December called for a new “Vienna Initiative”, referring to the agreement his bank brokered in 2009 to prevent western banks from pulling out of central Europe.
“We need to ensure there is not discrimination against subsidiaries in the region, that will require a serious co-ordination exercise,” Berglöf said.