Foreign banks withdraw capital from eastern Europe

Foreign banks accelerated the withdrawal of their capital from central and eastern Europe in the first quarter of this year, the latest report of the European Bank for Reconstruction and Development (EBRD) shows.

Banks that report to the Bank for International Settlements (BIS) reduced their external positions in emerging European countries, excluding Russia and Turkey, by 0.7 percent of gross domestic product (GDP) in the first quarter, picking up from 0.2 percent in the last 2012 quarter, SeeBiz reports.

Many banks in eastern Europe are either wholly or largely owned by western parents that have been reducing their lending lately in a bid to fix balance sheets damaged by the Eurozone debt crisis. The fear is that their pullback to home markets will harm the economies in emerging Europe.

The study found significant cumulative funding cuts in recent quarters, reaching 5.5 percent of GDP on average since mid-2011. The biggest shift was in Hungary where the fall came to 23 percent of GDP, followed by Slovenia with 17 percent.

The process was continued in the first three months of 2013 in these countries as well as in Croatia, Latvia, Lithuania, Romania and Ukraine, the EBRD said.