The market focus is again turning to potential banking trouble in Central and Eastern Europe (CEE) after Austria's sixth-largest bank Hypo Group Alpe Adria was nationalised on December 13.
The bank - which is now in Austrian state hands after its 67% shareholder, the troubled German state-controlled bank BayernLB, transferred its stake for free - has a large exposure to the former Yugoslavia region and especially to Croatia, which Danske Bank says is the most worrying. While its €58bn in assets makes it only Austria's sixth largest bank, the financial opinion site Seeking Alpha notes in relative terms that this is a very large bankruptcy. "Using GDP at purchasing power parity, an American HGAA would have assets of $2.5 trillion, larger than any of the American banks. So, this is a very big deal and it points to renewed risks in banking and the possibility of contagion."
The consultancy Capital Economics says it has long argued that the pressures facing CEE banks are likely to persist for some time. "While the rebound in global risk appetite over the past six months or so has helped to stem the outflow of capital from the region and ease tensions in interbank lending markets, it is still far too soon to sound the all clear," it says.
Austria is the most exposed of EU countries to emerging Europe after its bank snapped up banks across the region since 1998, bringing its banking system's exposure to the region to a massive 70% of Austrian GDP. Other countries are also exposed to the region, but not to this extent. Sweden is in the next most vulnerable position, as it also has a large exposure of about 20% of GDP to the more risky emerging European countries' bank sectors.
Natixis has also done a study looking at the extent of the problem and come to similar conclusions. The bank cross-referenced the economic data available for CEE and information from the balance sheets of the various banks present in the region and rated the "Eastern Europe" risk on a scale of 1 to 12. "Beyond the size of the various banks' exposure, our risk measure takes into account the degree of diversification of the banking portfolios in the region, the quality of their funding, the (heterogeneous) economic situation of the various Eastern European countries and the risk of a devaluation of the local currencies," the bank said in a note.
The bank concluded:
• Raiffeisen Zentralbank is particularly exposed to "Eastern Europe" risk, closely followed by the Swedish bank Swedbank and a second Austrian bank, Erste Bank.
• Next, we have KBC, Eurobank and SEB, three banks with very varied profiles.
• The other banks that it analysed were NBG, UniCredit, Nordea, Societe Generale, Commerzbank, Intesa, Bayerische Landesbank, BNPP and ING. Some are marked out by a significant presence, but with a high level of diversification in the region like UniCredit, others by a relatively small presence, but offset by a concentration on one country whose economic situation is deteriorating markedly, like Nordea in the Baltic countries or SocGen in Russia.
In addition, looking at these banks' credit exposure highlights how deeply some of especially Austria's banks have nailed their flag to the CEE mast. Raiffeisen is way in the lead on this score with about half of its loan portfolio extended to CEE countries, followed by Erste and KBC with about 30-35%.
"Erste Bank, Raiffeisen Zentralbank and KBC have considerable outstandings in their balance sheets to Eastern European countries, and these countries account for a significant part of the total amount of their outstanding loans, above all in the case of Raiffeisen Zentralbank. However, there are two positive points about Erste Bank and KBC: their main exposure to Eastern European countries is to a relatively low-risk country, compared with the average, and their total exposure is diversified. Raiffeisen Zentralbank has only the second quality, as its greatest exposure is to Russia, which is more affected by the economic crisis. We emphasise the diversification of these three banks that puts the scale of their exposure relative to their equity into perspective (a multiple of 3x or even 6x their equity in the case of Raiffeisen Zentralbank). Lastly, we note that these banks account for a substantial part of the total financing of the economies under consideration, thus pointing to an interdependence and the issue - with political overtones - of the role these banks 'should' play in the recovery in such or such other economy in the region," Natixis said in a note.
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