Thursday, December 15, 2011

Romania faces "maximum risk" from banks in 2012 - Basescu

Dec 14 (Reuters) - Next year is a point of "maximum risk" for Romania because of the risk of capital outflows from banks as euro zone lenders seek to shore up their balance sheets, its President Traian Basescu said on Wednesday.

Economists raised the alarm about central and eastern Europe last month after regulators in Austria, whose banks dominate lending in the region, said three lenders needed extra capital.

That sparked renewed concern banks could withdraw capital from their local operations, cut financing lines or sell units to raise cash, putting pressure on a region already suffering from poor domestic demand and contagion from the euro zone.

"I would say that 2012 is a year of maximum risk for Romania, because of a fundamental reason: the risk of capital flows from banks beyond tolerable limits," Basescu said at an American Chamber of Commerce event in Bucharest.

"If this does not happen, Romania will get through 2012 well, even if the agricultural year is expected to be weaker than this year," Basescu said.

Romania, the European Union's second-poorest member, is one of the more vulnerable countries in the region because Greek and Italian banks have a substantial presence and investors are looking out for any sign of capital flight.

The combined outlook for banks in central and eastern Europe remains stable, Fitch Ratings said, but downside risks are increasing because of weakening economic growth, worsening asset quality and potential funding constraints.

Hungary is vulnerable because of unorthodox and unpredictable government policies and Greek and Italian lenders also have a major presence in Bulgaria, Serbia and Croatia.

"I hope that banks -- and not Romanian banks but their mothers -- will be extremely responsible," Basescu said.

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