East European banks face more credit weakening

Eastern European credit quality may worsen further this year as the euro area’s economic weakness hampers demand for loans and harms the finances of lenders’ parent banks, Standard & Poor’s said. Slovenian and Hungarian banks are most vulnerable, Bloomberg reported citing a research note by S&P analysts. Non-performing loans in those countries, which are near or exceed 20%, will probably grow, they said. Lenders in Eastern Europe, including UniCredit SpA, Raiffeisen Bank International AG andErste Group Bank AG, have struggled to contain the effect of the debt crisis in the euro area, the main destination for export from the continent’s former communist nations. New capital and liquidity terms for western lenders, which control three quarters of the region’s banking assets, have curbed credit to companies and households. “We continue to view the Czech, Slovak and Polish banking sectors as the strongest in the region,” the S&P analysts wrote. “In other countries - notably Slovenia and Hungary - we expect the credit quality of rated banks to continue to be under pressure, despite being at low levels after various downgrades in past years,” they said.