March 6 (Bloomberg) -- Eastern Europe’s borrowings are “negligible” compared with western Europe’s, according to analysts at Erste Group Bank AG, the lender whose shares have fallen 54 percent this year on concerns about loans to the region.

Fears about the region’s borrowings from abroad aren’t justified, Erste analysts Juraj Kotian and Rainer Singer wrote in a report today.

“To build a story using misrepresented data is very misleading,” the bank said. “That is what happened to many influential newspapers and sound research sources as well in recent weeks.”

On Feb. 17, Moody’s Investors Service said west European banks with the biggest investments in central and east Europe, faced downgrades because of loans to the region. The MSCI East Europe Financials Index dropped 16 percent to the lowest in almost six years after the report. The International Monetary Fund has offered aid worth about $52 billion to countries in the region including Latvia, Hungary, Serbia and Ukraine.

Erste said that statistics from the Bank for International Settlements had been misinterpreted. The analysts cited the “alarming news” that eastern Europe has borrowed $1.7 trillion abroad and has to roll-over or repay $400 billion this year. They compared that with Germany’s foreign borrowings of $2.3 trillion, Britain’s figure of $4.5 trillion and Belgium’s need to repay or roll-over $375 billion this year.

Local Loans

“Such a comparison would reveal that the indebtedness of eastern Europe and its dependence on foreign funding is negligible compared to western Europe,” the report said.

Anyway, the foreign borrowings figure for eastern Europe was misleading because it included loans provided and funded by local units of foreign banks on local markets, the analysts said.

The Erste analysts cite BIS figures showing total foreign claims for the Czech Republic at $191 billion in the third quarter of last year, which is bigger than the country’s $88 billion external debt. It says the figure is inflated by loans granted by foreign-owned local banks including Ceska Sporitelna AS, owned by Erste, and Ceskoslovenska Obchodni Banka AS, owned by KBC Groep NV. The country has borrowed “only” $55 billion from BIS-reporting banks, compared with $26 billion it lent to them.

Erste was 1.1 percent higher at 7.53 euros in Vienna trading, paring its decline this year to 54 percent.

Austrian banks have granted loans of $318 billion, or 73 percent of the Alpine nation’s gross domestic product to eastern Europe, the report said. They have also borrowed $143 billion, or 33 percent of GDP, from the region, it added. That makes the banks’ net debt equivalent to 40 percent of GDP.

The ratio of household loans per capita versus GDP per capita shows that “countries within central and eastern Europe with the highest debt” don’t reach the eurozone average, Kotian and Singer wrote.

To contact the reporter on this story: Zoe Schneeweiss in Vienna at zschneeweiss@bloomberg.net

Last Updated: March 6, 2009 11:40 EST