E.Europe banks crisis weighs on bank ratings: Moody's
VIENNA (Reuters) - The recession in emerging Europe will be more severe than elsewhere due to large imbalances, and will put the financial strength ratings of local banks and their western parents under pressure, Moody's said on Tuesday.
The combination of higher provisions for bad debt, the rise in banks' borrowing costs and falling currencies will weigh down banks' profitability and help erode their capital base, the ratings agency said in a special comment on the region's banking sector released overnight.
The warning alarmed markets on Tuesday, sending the euro, emerging European currencies and bank stocks lower on concerns the region's crisis may become a vicious circle.
"Deteriorating financial strength of East European subsidiaries has a negative spillover effect on their West(ern) European parents," Moody's said in the note.
"A widespread deterioration in the economic health of core markets in Eastern Europe is exerting negative rating pressure on subsidiaries and eventually may also lead to a weakening of the parent bank's ratings," it said.
Western European banks led by UniCredit (CRDI.MI), Erste Group Bank (ERST.VI), Raiffeisen International (RIBH.VI) and Societe Generale (SOGN.PA) have bought most of emerging Europe's banking sector in past years to tap into the rampant credit growth that fueled the region's boom.
Their eastern franchise has in the past boosted parents' profits and helped them resist the temptation of structured debt products, but this boon has turned into risk now that economic crisis has the region firmly under control.
The euro hit its lowest in more than two months against the dollar on Tuesday as the report added to investors' worries over the region. The Polish zloty, Hungarian forint and Czech crown all fell to new lows. Continued...
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