Wednesday, February 4, 2009

Romania urges West's banks to boost E.Europe units

By Justyna Pawlak

BUCHAREST, Feb 4 (Reuters) - Romania has called on western banks to help stabilise their affiliates in former Communist states, weighing into a debate over how best to ease the impact of the economic crisis on eastern Europe's banking sector.

Most of Romania's banks are foreign-owned, with the largest two, BCR and BRD BRDX.BX, belonging respectively to Austria's Erste (ERST.VI) ERST.BX and France's Societe Generale (SOGN.PA).

Speaking late on Tuesday, Romanian President Traian Basescu also urged the European Commission to assist local banks, saying the EU's policy should involve "the allotment of financial resources for transfers towards banks that are not in the euro zone".

An EU official said last Thursday that Bucharest's new centre-left government, in place since December, has started preliminary talks with the Commission on a potential rescue loan to shore up its strained finances.

Basescu said Romania should not have to bail out its banks by going further into debt to "substitute the obligations of parent banks that are majority owners in Romania".

"The (foreign) majority owners have the duty to continue to ensure their Romanian banks have the resources needed to finance economic activities on the Romanian market."

Basescu added that, so far, the Romanian banking sector is "solid". BCR and BRD's nine-month profits rose sharply.

The global financial crisis has led risk-averse investors to dump emerging market assets, which has left foreign-owned banks as the only source of loans for companies and consumers in some developing countries.

Worries that east European banks may implode if foreign owners cut off funding, dragging western banks down with them, have sparked calls for a joint rescue package by the foreign banks, home and host states and European institutions.

FUNDING HELP

So far there has been no agreement so far who should foot the bill, amid concerns in western states that bailout packages there have so far relied on taxpayers' money, which should not be transferred abroad.

Last week, Austria, whose banks are particularly exposed to eastern Europe, appealed to other members of the EU to support an initiative aimed at bolstering the region's banking sector.

Germany has already offered support to this idea but said only existing EU and International Monetary Fund (IMF) programmes should be used.

Romania is seen as particularly vulnerable to a funding shortage in eastern Europe because of its high reliance on foreign cash to plug a vast trade deficit. Already, two rating agencies see its debt at "junk" level.

This, and expectations of a drastic economic slowdown, have prompted economists to predict Bucharest will have to ask for foreign funding in deals similar to the IMF and EU packages secured by Hungary and Latvia. It has made no official request so far. (Reporting by Justyna Pawlak and Radu Marinas; editing by John Stonestreet)

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