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

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.