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Western banks feared leaning toward Eastern Europe's exits Print E-mail
Tuesday, 02 March 2010

By Nick Lord

Speaking to financiers in Istanbul over the weekend, I heard much talk about the possibility that Western banks will pull out of the region. For the past year regulators in the region have been acutely aware of how exposed their economies are to foreign banks pulling lines and focusing on home markets. In the ten biggest markets in Eastern Europe, Western European banks control more than 40 percent of the local banking markets. Strenuous efforts have been put in place to keep them there and not shut down and go home.

With the crisis in Greece spreading from the sovereign to the local banks a new fear is emerging. Greek banks have been the biggest players in the Balkans, Romania and Bulgaria for years. With the Greek crisis in full swing, the fear is that these banks will pull out of these countries and decimate their economies, in a repeat of the fear about Eastern Europe in general.

Indeed, some financiers have even suggested that the reason why Romania and Bulgaria have so quickly signed up to host US anti missile systems (when the Obama administration didn't even ask them to) is a pre-emptive insurance play: they are trying to increase their strategic importance to the US prior to the withdrawal of this capital.

This is probably no more than late night conjecture, but even so wholesale withdrawal of these banking lines is one of the most dangerous things that can happen to small emerging markets. In the Asian crisis of 1997-1998, it was the wholesale withdrawal of Japanese bank lines that had by far the most pernicious effect on the companies and thus economies of Southeast Asia, much more so than currency speculators or hedge fund shorts.

For CFOs in the region, a Western bank exit would have obvious consequences on everything from risk limits to bank credit and trade finance.

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