Euro Crisis Poses Risk to Emerging Europe Banks, Fitch Says

Capital pressures on euro region banks may force them to cut funding to units in central and eastern European, weakening economic growth in the region, Fitch Ratings said.

The banking industries in Croatia, Bulgaria, Serbia and Romania have the strongest links with banks from Greece and Italy, according to an e-mailed report from Michele Napolitano, an associate director in Fitch’s Sovereign team.

“Although eurozone banks’ subsidiaries would be able to sustain some reduction in funding from their parents, they could be forced to cut credit provision and shrink their balance sheets further, with an adverse effect on GDP growth,” Napolitano said. “Countries with lower loan-to-deposit ratios and weaker links with the peripheral eurozone banks would be less affected.”

While depositors’ confidence in central and eastern European banks was reinforced by “smooth management” of the aftermath of the collapse of Lehman Brothers Holdings Inc in 2008, “confidence effects cannot be ruled out,” according to Napolitano.

To contact the reporter on this story: Jason Webb in London at jwebb25@bloomberg.net

To contact the editor responsible for this story: Cecile Gutscher at cgutscher@bloomberg.net

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