Athens cautions banks on transfers to Balkans

By Kerin Hope in Athens and Stefan Wagstyl in London

Published: January 27 2009 17:20 | Last updated: January 27 2009 17:20

Greece has warned its banks against transferring funds from a €28bn government support package to their Balkan subsidiaries, because of growing fears of financial turmoil in these countries.

George Provopoulos, governor of the Bank of Greece, told the Financial Times he was concerned about the impact of the global crisis in countries – including Romania, Bulgaria and Serbia – that had experienced recent foreign currency lending booms.

“I have advised the banks to be more prudent and to lend on the basis of availability of local funding, taking into careful consideration local economic conditions,” he said.

The warning comes after about 10 international banks, including Greece’s EFG Eurobank, urged European Union governments not to discriminate in their anti-crisis policies against states outside the eurozone and EU.

They were supported by the European Bank for Reconstruction and Development, the multilateral lender, which on Tuesday cut its 2009 growth forecast for the region from 2.5 per cent to 0.1 per cent. Erik Berglof, EBRD chief economist, said the danger of west European countries preparing bank support packages that discriminated against foreign countries was “a very big worry”.

The European Commission has welcomed the international banks’ initiative. The European Central Bank has already given liquidity support to EU members, notably Hungary, but has responded cautiously to proposals for assisting countries outside the union.

Bankers are particularly concerned about steep local currency declines, which have squeezed borrowers with foreign currency loans. Foreign exchange lending accounts for more than 70 per cent of loans in Serbia, 60 per cent in Hungary and in excess of 50 per cent in Romania and Bulgaria.

Mr Provopoulos said: “If economic conditions in these countries were to significantly weaken, Greek banks might find themselves exposed not just to credit risk but also to exchange rate risk.”

Banks with big market shares in south-east Europe include Italy’s Unicredit, Austria’s Raiffeisen International and Erste Bank, and Greece’s EFG, Alpha Bank and National Bank of Greece.

Meanwhile, some south-east European officials are concerned about the danger of foreign banks taking funds from the region.

Radovan Jelasic, Serbia’s central bank governor, told the FT this happened in Belgrade in December when he relaxed banks’ reserve requirements to release €600m ($780m, £564m) in local foreign exchange liquidity. Officials were dismayed to see €600m transferred out of the country by international banks in the following two weeks, he said. Foreign banks contacted by the FT in Belgrade declined to comment.

Elsewhere, Romania’s central bank said inflows from foreign owners were expected to slow, but not reverse. Some 39 per cent of the financing made available to Romanian subsidiaries of international banks was due for repayment this year but there was a “high probability” that about 80 per cent of this would be renewed, the bank said.

In Hungary, foreign banks poured in funds in October when the country faced a crisis and the International Monetary Fund launched an emergency package. Banks injected €2.8bn compared with a previous monthly average of €500m-€600m. Inflows have since dropped below the monthly average but the the central bank says “not a single bank is seeing an outflow”.