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VIENNA 2 INITIATIVE STEERING COMMITTEE DISCUSSES DELEVERAGING

     (The following press release from the European Bank for Reconstruction and 
Development was received by e-mail. It was not confirmed by the sender.) 
PRESS RELEASE 
Vienna 2 Initiative Steering Committee Discusses Deleveraging, Asset Quality 
and Implications of Banking Union Plans   
The Steering Committee of the Vienna 2 Initiative met in Vienna on 14 January, 
2013 to discuss deleveraging trends, asset quality, and next steps towards a 
banking union in light of the EU Council's decisions in December 2012.  
Steering Committee members also met with key banking groups operating in 
Central, Eastern, and South-Eastern Europe in a subsequent meeting, chaired by 
European Bank for Reconstruction and Development President Sir Suma 
Chakrabarti. European Investment Bank Vice President Wilhelm Molterer provided 
the concluding remarks.  
Deleveraging moderates with continued variation between countries 
The Steering Committee noted that funding withdrawal by Western European banks 
vis-à-vis Central Eastern and South Eastern Europe (CESEE) continued to 
moderate in the third quarter of 2012. A recent paper from the Bank of 
International Settlements' Quarterly Review 
{http://vienna-initiative.com/wp-content/uploads/2013/01/BIS-report-December-201
2.pdf}, which was presented at the meeting, clearly shows that (i) withdrawal 
of cross-border funding by Western European banks vis-à-vis CESEE has been 
substantial since 2011; (ii) the decisive factor behind this withdrawal has 
been home and parent bank factors in the context of the euro area crisis; and 
(iii) local factors have started to play a role recently. Apart from parent 
funding, local funding sources started to gain in importance, which resulted in 
a more moderate deleveraging picture on the consolidated level, although there 
are limits to these sources of funding given that local capital markets remain 
underdeveloped. Deleveraging continues to differ greatly between countries over 
the past 12 months, reflecting both the different severity of pre-crisis 
build-up of debt and current domestic policy environments in host countries. 
The Vienna 2's new Deleveraging Monitor 
{http://vienna-initiative.com/wp-content/uploads/2013/01/Deleveraging_Monitor_01
2413b.pdf} has been released with an in-depth analysis of these trends.  
More action to address high non-performing loans  
Participants emphasized the need to tackle urgently asset quality issues and 
the high-level of non-performing loans (NPLs) in some countries in the region. 
The Steering Committee welcomed the expansion of the World Bank advisory 
initiative on NPLs and other IFIs' increasing attention to this issue. In order 
to avoid a prolonged stagnation of credit and growth because of belated balance 
sheet clean-ups, it will be critical to clean balance sheets from NPLs, which 
can act as a drag on new credit provision.    
Creation of the Working Group on the European Banking Union  
The Steering Committee announced the creation of a working group on the Banking 
Union. The working group will take stock of the implications of the recent EU 
Council's decisions for host countries in Central, Eastern, and South-Eastern 
Europe from the perspective of home and host authorities as well as commercial 
banks operating in the region, with a particular focus on non-euro countries 
both within and outside the European Union where euro-zone based cross-border 
banks are active. Its first progress report is expected by the end of the first 
quarter of 2013. 
For additional information and the latest publications visit: 
www.vienna-initiatve.com.  
Contacts: 
European Commission: Simon O'Connor, Spokesperson for Economic and Monetary 
Affairs, Tel. +32 (0)2 296 73 59, E-mail: simon.o'connor@ec.europa.eu 
EBRD: Anthony Williams, Press office: Tel: +44 20 7338 7805 
EIB: Christof Roche: Email: c.roche@eib.org 
IMF: IMF Media Relations: Email: media@imf.org <mailto:media@imf.org> , Tel: 
202-623-7100 
World Bank Group: Kristyn Schrader-King, Senior Communications Officer, Europe 
& Central Asia Region, The World Bank, Tel: +1-202-458-2736, Email: 
Kschrader@worldbank.org <mailto:Kschrader@worldbank.org>