Eastern Europe Credit Pullback Is Easing, Capital Economics Says

Eastern Europe’s credit shortage is easing, though conditions will remain tight as lenders in the continent’s west pull back, according to Capital Economics Ltd.

About 12 billion euros ($15.4 billion) of foreign funding has left the region since mid-2011, equivalent to about 9 percent of liabilities, William Jackson, emerging-market economist at London-based Capital, said today. While withdrawals have slowed this year, nations including Poland, Hungary and Romania, remain at risk of a new credit crunch from an “external shock,” he wrote in an e-mailed note.

“The risk of a painful banking crisis is much lower now than it was just a year ago,” Jackson said. “Even so, the fact that deleveraging is ongoing, coupled with high levels of non-performing loans, a legacy of the pre-crisis lending boom, means that credit conditions are set to remain tight in the region for some time.”

The so-called “deleveraging” process is abating in eastern Europe, where western lenders control three quarters of banking assets, according to the Vienna Initiative, a group of banks, regulators and policy makers that helped prevent an eastern European financial collapse in 2008 and 2009. Still, bad loans and sluggish demand from recession-hit borrowers are curbing credit growth, the group said May 2 in a report.

To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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