Eastern European credit growth has ground to a halt because of the euro region’s recession and a withdrawal of funding by the western lenders that dominate the market, the Vienna Initiative group of international lenders and regulators said.
Western banks stepped up a retreat from from emerging Europe, excluding Russia and Turkey, in the second quarter, bringing the cumulative amount withdrawn since mid-2011 to 4 percent of gross domestic product, the group said today in a statement after a Nov. 9 forum on deleveraging and bank resolution in Brussels.
“Tightening credit supply played a role, although weak credit demand is also a driver at the moment,” it said. “It was emphasized that supply-side constraints encompass both international and domestic factors.”
The slump in the euro region, the top destination for emerging Europe’s exports and the main source of its investment and bank financing, is dragging down economic growth and credit demand. Foreign lenders, including Erste Group Bank AG, which own three-quarters of banks in the continent’s east, are cutting financing and capital to their units as stricter regulations require them to repair balance sheets.
The Vienna Initiative group of banks, regulators and policy makers helped prevent an east European financial collapse in 2008 and 2009 by persuading western banks to stay invested in the region and roll over financing when needed.
In six countries western banks have reduced exposure by more than 5 percent of GDP, the group said. Funding in Hungary and Slovenia fell by 10 percent to 15 percent of GDP and by 5 percent to 10 percent of output in Bulgaria, Croatia, Lithuania, and Serbia, according to the group.
Credit to households and companies increased by 1.3 percent in the 12 months through June compared with 5.7 percent a year earlier, the group said. Credit contracted in seven countries -- the Baltic nations of Estonia, Lithuania and Latvia, as well as in Croatia, Hungary, Montenegro, and Slovenia.
The European Investment Bank, based in Luxembourg, the Washington-based World Bank and the European Bank for Reconstruction and Development in London agreed on Nov. 9 to provide eastern Europe with more than 30 billion euros ($38 billion) in loans and investments in the next two years to shield it from the impact of the euro area’s debt crisis, mimicking a plan they implemented in 2009.
The three international lenders pledged 24.5 billion euros of loans and investments to prevent a banking-industry collapse in eastern Europe in the aftermath of Lehman Brothers Holdings Inc.’s bankruptcy. They eventually disbursed 33 billion euros.