Fitch warns that eurozone banking crisis may extend east
Best Growth Stock – The rating agency Fitch said today in a report that if the financial crisis worsens, the euro zone banks may be forced to reduce support to its subsidiaries in the countries of Central and Eastern Europe, causing a spread to this region.
“Foreign ownership of domestic banking sector has been a fortress in the countries of Central and Eastern Europe, as foreign banks have shown their willingness and ability to support their subsidiaries before and during the global financial crisis,” he said in a statement Debt associate director of Fitch, Michele Napolitano.
However, in his view, “a further intensification of fiscal pressures in the euro area banks’ may force these to lower support for their subsidiaries in Eastern and Central Europe, so that” tensions could range from Eurozone banks “of those countries.
Twelve countries of Central and Eastern Europe joined the EU between 2004 and 2007, of which only five-Malta, Cyprus, Slovenia, Slovakia and Estonia, have so far adopted the euro, while the rest still retain their respective foreign currency.
These countries, whose economy at the time of joining the EU was much lower than that of other community partners in recent years have experienced higher growth rates than the European average, although in some cases have also been hard hit by the crisis.
Consistent with the agency, euro area banks could be forced to “cut off funding to their subsidiaries in emerging Europe beyond the levels guaranteed by local conditions.”
Thus, “a reversal of net lending in emerging Europe would reduce the available credit and GDP growth weakened in many countries” in the region, Fitch said.
The agency estimates that, for now, the loans of banks headquartered in the euro zone to subsidiaries or partners in the Eastern European Union (EU) remained stable, while demand for credit fell by a reduction in leverage the financial sector.
However, Greek banks were the most reduced their level of loans, which, according to Fitch, “suggests that eurozone banks, if they are under strong pressure on their domestic markets can reduce their exposure in other key markets,” .
The agency also noted that, although the emerging institutions of the EU “may contain some reduction in funding from its parent,” eventually “could be forced to cut credit supply and further reduce their balance sheets, with the effect adverse effect on GDP growth. ”
Banks in Central and Eastern Europe have little exposure to the debt of peripheral countries Greece and other problems, such as Portugal, Ireland, Italy or Spain.
Thus, Fitch does not expect a hypothetical Greek bankruptcy affecting these countries, as banks are not repatriated Greeks from emerging Europe funds.
However, the U.S. agency did not rule out the occurrence of situations of distrust among investors and bank customers, but added the proper management of central banks after the collapse of Lehman Brothers in 2008 increased the general confidence in the financial sector.
Category: Business News
