Banks remain at risk with their emerging market investments
Economic recovery in Eastern Europe remains the risk of a banking crisis and the lack of transparency in the industry continues to undermine confidence and interfere with interbank lending, according to the European Bank for Reconstruction and Development, chief economist Erik Berglof, reports Bloomberg. Emerging European banking system “is not off the hook” and “there is still a chance” in the region could suffer a financial crisis, said Berglof.
As the blow of the global financial crisis, the EBRD has worked to persuade Western banks to stay invested in the region and help bridge the financial gap is estimated at 140 billion euros. By blocking the second banking crisis is “an absolute key” to the recovery zone, Berglof said. He warns that “There are some signs that demand is increasing in Western Europe, and helps these countries, but the biggest threat is the deterioration of the financial system again.”
Global efforts to repair the financial system, some believe, do not work. Joseph Stiglitz, Nobel economist winning said on September 1st, the United States and in many other countries, the banking system, “the problems are worse than in 2007, before the crisis.”
The EBRD has focused on 12 Western parent banks identified as “systemically important” of Eastern Europe, including units in Italy, UniCredit, Societe Generale, as well as some major local banks such as Bank of Latvia Parex.
Swedbank, said that investors hold their second rights offering in less than a year on plans to raise 15.1 billion kronor (1.4 million) to strengthen its balance sheet, news agency LETA. August 17, the bank said it plans to sell new shares to strengthen reserves and to help them quit the Swedish government’s plan to support banks. The bank, which raised 12.4 billion kronor by the shareholders in 2008, is based on Swedish state guarantees for its loans, as credit markets seized last year.
“There are big questions about the portfolios of banks in Western Europe,” and many of these uncertainties are related to investments in Eastern Europe, “Berglof said.” If the banks do not trust each other, This makes the interbank market does not work and they are wary of lending to customers. When there is a central pressure of these banks, it is generally in the periphery they prefer. The same fear that we had in the spring. “
The European Commission has warned that lenders Latvia in June in Sweden, Swedbank and SEB, the debt may be redeeming their units Baltic, which threaten to undermine the effectiveness of the rescue of the country internationally. Both banks denied the allegations, and the Commission and the IMF said lenders have “reaffirmed” their commitment to Latvia at a meeting Sept. 11. European banks will benefit from more rigorous stress tests and the results made public, said Berglof. It would strengthen confidence and encourage inter-bank lending in the region.