Anti-crisis moves risk crash, officials caution

15/05/2009 | Simon Pirani

Financial authorities in eastern Europe risk triggering a new wave of crisis if they fail to develop a counter-cyclical response, in particular by relaxing capital requirements, senior bankers from the region warned yesterday.

“We have not yet reached the point where the banks are safe: they are still struggling with the lack of liquidity,” Gyorgy Suranyi, head of central and eastern Europe at Banca Intesa of Italy, warned a seminar at the EBRD Business Forum in London.

The crisis in the region only started with the onset of the credit squeeze late last year, he pointed out, meaning that its banking systems have been hit by the monetary shock and the collapse of export markets at the same time.

Suranyi, a former governor of the Bank of Hungary, said that western Europe had adopted counter-cyclical fiscal and monetary policies, but that eastern Europe, “with the possible exception of the Czech republic”, had “responded pro-cyclically – which is about to create an even deeper recession”.

He added: “I don’t believe high growth rates will return in the region. If they did, a higher capital requirement should be imposed. But to impose it now risks compelling banks to tighten risk management and pushing the economies further down the drain.”

Suranyi said he “didn’t see a solution” without the involvement of a lender of last resort – an implicit criticism of the ECB’s reluctance to play a greater role in the region.

Suranyi told Emerging Markets: “It would have been much better [for eastern European authorities] to have a counter-cyclical policy on capital requirements and provisioning.” If capital requirements were increased during the downturn, this could negatively impact lending policy and risk management – and curb lending at the point when the real economy needs it most.

Grigori Marchenko, Governor of the National Bank of Kazakhstan, also advocated a counter-cyclical approach. “Trying to be tough in difficult times, having been lax in good times, is not a good model.”

Herbert Stepic, chief executive of Raiffeisen International, in response to a question about prospects of recovery, told the seminar: “We are still only at the beginning of the crisis of the real economy.” He said the crisis was an excellent opportunity for regulators in the region to stop foreign exchange lending to private individuals. Discussions with regulators on such measures are “far advanced”, he added.

Oleg Vyugin, chairman of MDM Bank, which is in the process of completing a merger with Ursa Bank to create Russia’s largest privately-owned bank, said that the crisis was “the best time” for banking consolidation.

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