Pressure on bank earnings due to new taxes and regulations is threatening a nascent loan recovery in the former Communist part of Europe and weighing on its economies, one of the region's biggest banks said on Tuesday. Austria's RZB also said in a study on the eastern European banking sector that bad debt levels may go on rising longer than expected in at least some countries as stagnation or contraction persists.
RZB is eastern Europe's third-biggest lender via its international arm Raiffeisen International. Bank lending is one of the main avenues for western European capital flowing into central, eastern and south-eastern Europe and parts of the former Soviet Union, and is therefore a key determinant of the region's economic fate.
Despite concerns last year that the region's dominant, mainly western-owned banks could pull out, RZB said loan books shrank only 1.8 percent in euro terms - and not at all in local currency terms except in Hungary, Russia, Ukraine and Bosnia.
But the moderate growth that RZB researchers have pencilled in for this year and next may be at risk because bank profits are being squeezed by new taxes such as in Hungary and Austria and possibly Poland, the bank said. "Based on the current expectations for a muted recovery of the economies at varying speeds our forecasting model projects a moderate growth of banking loans in 2010 and 2011," RZB economist Walter Demel said in the study.
"However, given the still elevated stress that the banks around the globe are facing - including the prospect of the Basel III regulatory framework and new taxes being imposed on the financial sector - there might be structural factors that jeopardise such a recovery. "Undoubtedly, this is one of the major risk factors for the economic recovery also in central and eastern Europe."
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