Dozens of euro-zone banks flocked to Eastern Europe in recent years, hoping to harness the region's fast-growing economies and relatively untapped banking markets. Amid Europe's banking crisis, the situation has suddenly been thrown into reverse.
Banks are beating hasty retreats from the region, scrambling to conserve limited resources and facing pressure to concentrate on their domestic markets. The withdrawal is fanning fears that the economies of Eastern Europe, which so far have held up reasonably well despite the crisis to the west, could fall victim to a downturn.
"At the very least, this means that credit growth in Eastern Europe will remain very weak," said Neil Shearing, chief emerging-markets economist at Capital Economics in London. "But I think there's a sizable and underappreciated risk of a new credit crunch."
Among recent examples: In Poland and Turkey, once coveted by western lenders, at least seven European banks have sold or are looking to sell their local businesses to drum up much-needed cash. Buyers appear to be scarce.
Two of Europe's biggest banks, Germany's Commerzbank AG and Italy's UniCredit SpA, say they plan to cease or scale back lending in some Eastern European countries that previously were priorities. Both banks are under pressure from regulators to come up with billions of euros of new capital by next June.
The situation is feeding consumer jitters. In Latvia over the weekend, Internet rumors circulated that Swedish banks, which control about 40% of the industry's total assets, were unhealthy and preparing to leave the country.
Latvian customers yanked millions of dollars worth of deposits out of banks, including Swedbank AB and SEB AB, spokesmen for the banks said. By Sunday evening, about one-third of Swedbank's Latvian ATMs were empty.
The bank spokesmen said the rumors were false and that the unusually large withdrawals didn't affect the banks' overall health. By Monday afternoon, the situation seemed to be normalizing, with withdrawals tapering off.
Latvian police are investigating the rumors.
Until recently, the influx of foreign banks into Eastern Europe was a boon to local economies. Credit was easily available. Out-of-town banks became civic boosters, sponsoring programs like free bike rentals in some cities.
Some places are brimming with branches of big banks. The downtown area of Brasov, Romania, a Transylvanian city of about 300,000 people, is jammed with the branches of at least a dozen different foreign banks, mostly from euro-zone countries.
In Bulgaria, Croatia, Macedonia, Poland, Romania and Serbia, at least 20% of the total assets in the banking systems are held by banks headquartered in Greece, Ireland, Italy, Portugal or Spain, which are Europe's five most troubled countries, according to a recent report by Fitch Ratings.
When euro-zone banks first started suffering losses, they vowed to hang onto their prized Eastern Europe operations. But that stance has been shifting. Banks from Belgium, Germany, Greece, Ireland, Italy and Portugal have moved to ditch businesses in Poland, Turkey and elsewhere. Their hope was that the units would garner interest from healthy banks.
But the reception so far has been lukewarm.
Poland was one of the most sought-after locales for euro-zone banks. Among those that set up shop there was Portugal's Banco Comercial Portugues SA, through its Bank Millennium unit. In July 2008, BCP's chairman asserted that the Polish business was as core to the bank as its Portuguese operations.
Now BCP, which European regulators last week required to raise €2.1 billion ($2.81 billion) in new capital, is among a handful of banks looking to sell their Polish arms. BCP's auction, as well as others in Poland, appears to have drawn tepid interest, according to people familiar with the matter. Some would-be buyers are preoccupied with their own finances and unnerved by the current environment, these people said.
BCP views Millennium as a high-quality business and plans to keep running it if it can't find a buyer, said a person familiar with the matter.
Austria's big banks, including Erste Group Bank AG and Raiffeisen Bank International AG, set up big branch networks in Croatia, the Czech Republic and Hungary.
Last month, Austrian regulators proposed new rules that will make it harder for them to lend there. The banks will have to finance loans in Eastern Europe with locally gathered funds, instead of by siphoning money from Austria. The move was intended to strengthen the banks' Austrian businesses and avoid potential bailouts of foreign subsidiaries.
Raiffeisen Chief Executive Herbert Stepic said the new rules won't cause his company to withdraw from Eastern Europe. "One has to differentiate the banks like ours, that have a strategic long-term interest in the region," he said in an interview. Other banks "that see Central and Eastern Europe as a non-strategic region, they have started to pull out already."
In Croatia, 48% of the banking industry's assets are held by Italian banks and 36% by Austrian banks, according to Fitch. Big western lenders are cutting back, especially when it comes to the big-ticket public-sector projects that foreign banks traditionally would vie for, said Markus Ferstl, CEO of Hypo Alpe-Adria-Bank d.d., a Croatian unit of Hypo Group Alpe Adria, a nationalized Austrian bank. While the bank is still lending, it has cut back on some bigger and riskier projects, a spokesman added.
Dozens of euro-zone banks flocked to Eastern Europe in recent years, hoping to harness the region's fast-growing economies and relatively untapped banking markets. Amid Europe's banking crisis, the situation has suddenly been thrown into reverse.
Banks are beating hasty retreats from the region, scrambling to conserve limited resources and facing pressure to concentrate on their domestic markets. The withdrawal is fanning fears that the economies of Eastern Europe, which so far have held up reasonably well despite the crisis to the west, could fall victim to a downturn.
"At the very least, this means that credit growth in Eastern Europe will remain very weak," said Neil Shearing, chief emerging-markets economist at Capital Economics in London. "But I think there's a sizable and underappreciated risk of a new credit crunch."
Among recent examples: In Poland and Turkey, once coveted by western lenders, at least seven European banks have sold or are looking to sell their local businesses to drum up much-needed cash. Buyers appear to be scarce.
Two of Europe's biggest banks, Germany's Commerzbank AG and Italy's UniCredit SpA, say they plan to cease or scale back lending in some Eastern European countries that previously were priorities. Both banks are under pressure from regulators to come up with billions of euros of new capital by next June.
The situation is feeding consumer jitters. In Latvia over the weekend, Internet rumors circulated that Swedish banks, which control about 40% of the industry's total assets, were unhealthy and preparing to leave the country.
Latvian customers yanked millions of dollars worth of deposits out of banks, including Swedbank AB and SEB AB, spokesmen for the banks said. By Sunday evening, about one-third of Swedbank's Latvian ATMs were empty.
The bank spokesmen said the rumors were false and that the unusually large withdrawals didn't affect the banks' overall health. By Monday afternoon, the situation seemed to be normalizing, with withdrawals tapering off.
Latvian police are investigating the rumors.
Until recently, the influx of foreign banks into Eastern Europe was a boon to local economies. Credit was easily available. Out-of-town banks became civic boosters, sponsoring programs like free bike rentals in some cities.
Some places are brimming with branches of big banks. The downtown area of Brasov, Romania, a Transylvanian city of about 300,000 people, is jammed with the branches of at least a dozen different foreign banks, mostly from euro-zone countries.
In Bulgaria, Croatia, Macedonia, Poland, Romania and Serbia, at least 20% of the total assets in the banking systems are held by banks headquartered in Greece, Ireland, Italy, Portugal or Spain, which are Europe's five most troubled countries, according to a recent report by Fitch Ratings.
When euro-zone banks first started suffering losses, they vowed to hang onto their prized Eastern Europe operations. But that stance has been shifting. Banks from Belgium, Germany, Greece, Ireland, Italy and Portugal have moved to ditch businesses in Poland, Turkey and elsewhere. Their hope was that the units would garner interest from healthy banks.
But the reception so far has been lukewarm.
Poland was one of the most sought-after locales for euro-zone banks. Among those that set up shop there was Portugal's Banco Comercial Portugues SA, through its Bank Millennium unit. In July 2008, BCP's chairman asserted that the Polish business was as core to the bank as its Portuguese operations.
Now BCP, which European regulators last week required to raise €2.1 billion ($2.81 billion) in new capital, is among a handful of banks looking to sell their Polish arms. BCP's auction, as well as others in Poland, appears to have drawn tepid interest, according to people familiar with the matter. Some would-be buyers are preoccupied with their own finances and unnerved by the current environment, these people said.
BCP views Millennium as a high-quality business and plans to keep running it if it can't find a buyer, said a person familiar with the matter.
Austria's big banks, including Erste Group Bank AG and Raiffeisen Bank International AG, set up big branch networks in Croatia, the Czech Republic and Hungary.
Last month, Austrian regulators proposed new rules that will make it harder for them to lend there. The banks will have to finance loans in Eastern Europe with locally gathered funds, instead of by siphoning money from Austria. The move was intended to strengthen the banks' Austrian businesses and avoid potential bailouts of foreign subsidiaries.
Raiffeisen Chief Executive Herbert Stepic said the new rules won't cause his company to withdraw from Eastern Europe. "One has to differentiate the banks like ours, that have a strategic long-term interest in the region," he said in an interview. Other banks "that see Central and Eastern Europe as a non-strategic region, they have started to pull out already."
In Croatia, 48% of the banking industry's assets are held by Italian banks and 36% by Austrian banks, according to Fitch. Big western lenders are cutting back, especially when it comes to the big-ticket public-sector projects that foreign banks traditionally would vie for, said Markus Ferstl, CEO of Hypo Alpe-Adria-Bank d.d., a Croatian unit of Hypo Group Alpe Adria, a nationalized Austrian bank. While the bank is still lending, it has cut back on some bigger and riskier projects, a spokesman added.
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