International banks seem to have accelerated efforts to scale back exposure to emerging Europe in the second quarter, renewing a trend that had slowed in early 2012, the Vienna Initiative monitoring group said on Friday.
A study prepared for the group highlighted this "deleveraging" issue, which officials are eyeing closely for fear a banking crisis in developed countries could choke off growth in the region as foreign lenders hoard money.
"The withdrawal of funding by western banks from central, eastern, and south-eastern Europe (CESEE) remains a headwind for the economies of the region at best and a potential threat to external and financial stability if downside risks materialised," the study found. The Vienna Initiative, founded by banks and public finance institutions during the 2008/09 financial crisis to avoid a mass exodus from the region, had already flagged a sharp reduction in banks' exposure to emerging Europe in the second half of 2011.
This slowed somewhat in the first quarter as massive European Central Bank liquidity injections (LTROs) helped calm market fears over the euro zone's debt crisis, it noted. "In the second quarter of 2012 funding withdrawals of western banks are likely to have picked up again, although not to the pace of the second half of last year," said the study. compiled by staff at Initiative members such as the European Bank for Reconstruction and Development and IMF.