EIB to Reduce 2012 Lending on Market Turmoil, Molterer Says

The European Investment Bank will reduce lending next year as the sovereign debt crisis pushes markets lower and banks cut back on offering credit, EIB Vice President Wilhelm Molterer said.

The European Union’s long-term lending institution said it lent about 77 billion euros ($100.7 billion) to central and eastern European countries between 2004 and 2010. That pace won’t be maintained in 2012, Molterer said in an interview today in Bucharest.

“We are not working out of the blue, we are of course working under current market circumstances,” Molterer said in an interview in Bucharest today. “That means our level of lending won’t be increased for the next year. It has to be a bit lower than it was, no doubt about that.”

The euro region has been hit by a debt crisis that has pushed the euro down about 13 percent against the dollar in two years and caused stocks and bonds to slump, while governments are under pressure to slash spending to keep debt levels from soaring. International banks, which fueled an eastern credit boom between 2005 and 2008, may reduce support for their local units as they seek to attract funds to boost their own capital.

“I do not see a specific situation for a credit crunch in specific countries,” Molterer said. “I think it is one of the key elements for all of us to find the right balance between austerity on the public sector and growth via research and investment.”

Fresh Capital

European Banking Authority demanded banks raise about 115 billion euros in fresh capital by mid-2012 to withstand writedowns on Greek bonds and other risky markets. It also warned them not to cut lending or inflate capital levels artificially.

About 70 percent of the capital requirement falls on lenders in Spain, Greece, Italy and Portugal, according to the EBA. Greek banks, which control about 30 percent of Romania’s banking system have the biggest deficit and need to raise 30 billion euros.

“We are not playing any role in the recapitalization of banks, not now and not in the future,” Molterer said.

Central banks around the world have injected cash into markets to address concern that banks are struggling to fund themselves. The European Central Bank said Dec. 8 it will offer banks unlimited cash for three years.

Ratings Cuts

Moody’s Investors Service cut the ratings of BNP Paribas SA, Societe Generale SA and Credit Agricole SA on Dec. 9, citing funding constraints and deteriorating economic conditions.

EIB’s lending capacity may also be hurt by market turmoil, even though the bank has no problems with bad loans and provisioning, Molterer said.

“We are a very cautious bank, but if you have downgrades of our counterparts, then you have to have a much more careful look on some specific loans,” Molterer said.

Economic fundamentals for Europe’s economies are “still extremely strong” because industry is the main driver of growth, he said.

EIB, which has lent about 9 billion euros to Romania in the past 20 years “has a lot of projects in the pipeline,” in the country, mainly in infrastructure and energy, according to Molterer.

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