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Hungary, Bulgaria Lead Bank Funding Drop in EU’s East

Bulgarian and Hungarian lenders suffered the largest funding drop of seven eastern European countries surveyed by Fitch Ratings as western parent banks seek savings since the onset of the financial crisis.

Funding withdrawals, although slowing, remained significant in the first half of the year, suggesting that “changes in risk appetite, a weaker medium-term economic outlook and limited attractive lending opportunities were the main drivers,” according to a survey of 43 foreign-owned banks in central and eastern Europe published by Fitch today.

Central and eastern European economies are struggling with subdued growth or recession as the European debt crisis saps demand for exports and fiscal measures damp consumption and demand for credit across the region. The EU’s eastern members will see expansion of 0.3 percent to 2.2 percent next year, according to the latest European Commission forecast published on Nov. 7.

Group funding at eastern European banks decreased by 20 percent to 62 billion euros ($81 billion) between the end of 2008 and July 2012 , representing a “moderate” 4 percent of total liabilities, the survey said. The drop in funding has been largely replaced with domestic deposits, it said.

The most significant reductions in parent funding were in Bulgaria, by 47 percent, and Hungary, by 38 percent, approaching 10 percent of gross domestic product in each country. The other countries surveyed are Croatia, Romania, Poland, the Czech Republic and Slovakia

“In Fitch’s opinion, outflows from Hungary also reflected weak prospects for the local economy as well as unorthodox policies implemented by the Hungarian government in respect of the banking system,” the survey said.

Hungary imposed special levies on lenders and forced them to swallow losses on foreign-currency mortgages offered to households.

Foreign-owned banks control a large majority of total banking assets in the seven countries covered by the report, with most owners coming from euro-area countries, Fitch said.

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