Eastern European Banking Crisis

[Dangerous]

How bad is the NAB cup? Who the freak thought mikes on umpires was a good idea...

anyway, the "footy" is boring so i thought i would start a post here on the emerging Eastern European banking crisis. Reports have been seeping through in the last few weeks that the Eastern Europeans will be unable to repay nations like italy, france, germany and austria. The reports are saying that Austria could be owed 70-80% of its GDP by these nations.

Just wondering what everyones spin on the situation is? The sub prime crisis was largely ignored for the best part of a year (I was told June 07 to stay away from financials), but i think this story will snowball as the big boys won't ignore such problems going forward...

 

[doctorj]

A topic that I'm living every day. The fear is quite real and probably justified. This was announced today:

East Europe banks set for €24.5bn loan
By Alan Beattie in Washington
Published: February 27 2009 03:06 | Last updated: February 27 2009 03:06
A group of multilateral lenders on Friday unveiled a lending package of up to €24.5bn ($31bn) to help central and eastern Europe’s battered banking systems weather the financial crisis.

The World Bank, the European Bank for Reconstruction and Development and the European Investment Bank announced the package on Friday in London. The move follows widespread financial turmoil across the region, as the western European institutions that own large parts of eastern Europe’s banking sector pull back capital to their home bases.

Several central and eastern European countries, including Ukraine, Hungary and Latvia, have also borrowed from the International Monetary Fund, the World Bank’s sister institution, to plug the gap in their capital flows.

The European Investment Bank said it would provide €11bn for small and medium enterprise lending, of which €5.7bn is ready for immediate disbursement. The EBRD will provide up to €6bn in 2009-2010 for the financial sector in a mixture of equity and debt finance, and the World Bank group €7.5bn.

Robert Zoellick, World Bank president, said: "This is a time for Europe to come together to ensure that the achievements of the last 20 years are not lost because of an economic crisis that is rapidly turning into a human crisis."

The take on the scope of the problem varies. The attention grabbing figures from Austria make good headlines. Take a look at https://www.aussiestockforums.com/forums/showthread.php?t=14387 for some of my thoughts a week or so ago and some research on the topic by the bullish UBS.

My big concern is the collateral damage of something like this. It's all well and good for Austria if Raiffeisen rationalise their eastern european exposures, but what is the impact on these countries. Many small countries, who might be immaterial to the likes of Raiffeisen rely on these banks for the vast majority of their banking system. The potential second order impact for these countries could well be astronomical - think no lending, no local industry and therefore no jobs!

Off the top of my head foreign banks (or majority own foreign subsidiares) make up something like 88% of the banking systems of Croatia and Slovakia. The same can probably be said for the likes of Bulgaria, Serbia, Bosnia, Kosovo, Romania, Hungary, Albania... And that's before even thinking about the basket case that is Ukraine.

Talking about Bosnia - banking assets of something like €10,000 mill. Raiffeisen has about 19.5% market share, meaning €2,000 mill give or take exposure to Bosnia. Raiffeisen's balance sheet is more than €80 bn euro - so 2.5% of their total exposure is to Bosnia. Leaving to protect their capital and reduce their currency exposures (and hence cost base) would mean NOTHING to them, but at the same time would decimate an already unstable country.

Oh and one more thing, on Austria. Yes their banks are heavily exposed to Eastern Europe, but atleast one of their big banks is owned by Intesa (Italian...)

 

[Dangerous]

Doc,

I read most of that UBS report last night (from your posts on the other thread). They were very frank in saying no worries!

Anyway, thanks for the info.