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Eastern European banks could face downgrades if parent banks reduce support

Moody's Investors Service said in a special comment that banks in Eastern Europe could face downgrades if their Western European parent banks reduce support.

Analysts partly attributed the sharp fall in bank shares prices and a softening of currencies in the region to the comment.

“Most West European banks...may carefully balance strategic importance, past investments, expected earnings and country risks,” Moody's said. “Risks are particularly skewed to the downside in countries that have been identified as more vulnerable and that will post very weak or even negative economic growth in the medium term.”

Hungary's economy is set to contract 3.0%-3.5% in 2009.

“Any evidence of reduced parental support and/or a deterioration of the quality of such support...exerts downward pressure on ratings in Eastern Europe,” Moody's said.

Moody's also named Hungary among countries in the region where banks are at higher risk because of sizeable fiscal deficits. (MTI – Econews)