Eurozone crisis could force banks to cut funding to CEE units – Fitch

Ratings

Capital and pressure on eurozone banks could force them to cut funding to units in Central and Eastern Europe beyond the level warranted by local conditions if the eurozone crisis intensifies, Fitch Ratings said in an analysis on Monday.

A reversal in net funding to the region would reduce available credit and weaken GDP growth in many countries, Fitch said.

"Foreign ownership of domestic banking sectors has been a rating strength in Central and Eastern European (CEE) countries, as foreign banks have demonstrated their willingness and ability to support their subsidiaries prior to and through the global financial crisis when required," said Michele Napolitano, Associate Director in Fitch’s Sovereign team. "However, a further intensification of financial pressures on eurozone banks raises the risks that they may be less able to do so and, in light of the strong economic and financial links with the region, stress could spread from the eurozone to CEE banks," she added.

"If Western European parent banks were to start to withdraw funding at a rate beyond a controlled level in keeping with demand conditions in CEE economies, or there was a co-ordination problem in that parent banks feared their competitors might be about withdraw funding, then some form of new Vienna Initiative may be required to prevent stresses in Western Europe creating a systemic crisis in Eastern Europe," Fitch said.

About 85.6% of the assets of Hungary’s banking sector is foreign-owned, according to data in Fitch’s analysis. Parent banks in the eurozone own 56.9% of the system’s assets. Austrians are the biggest owners, with 20.7% of the assets.

ADVERTISEMENT

Századvég raises GDP forecast to 7.8% Analysis

Századvég raises GDP forecast to 7.8%

Opposition parties to begin PM candidate primaries Elections

Opposition parties to begin PM candidate primaries

New editor-in-chief at Betone Studio Appointments

New editor-in-chief at Betone Studio

Budapest leaders make public transport free for under-14s City

Budapest leaders make public transport free for under-14s

SUPPORT THE BUDAPEST BUSINESS JOURNAL

Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.