The head of Erste Group, the central European banking
giant, has questioned the logic of developing local
currency markets in countries that aspire to join monetary
Does it make sense now to develop a forint market,
when five years down the line Hungary might join the
euro? Andreas Treichl, chairman and CEO of Erste, asked
at a seminar in Zagreb.
Maybe those countries that are not in the euro [but
are on course to join] should not even attempt to form a local
His remarks cut across the EBRDs initiative to boost
local currency markets, to be launched in Zagreb on
Treichl said euro lending but not lending in Swiss
francs or yen, for example was not bad per se, but
needs to be better regulated in the region.
Treichl told the gathering that, when discussing
loan-deposit ratios, it was crucial to distinguish between
forex lending and local lending. Hungarys ratio for local
lending was reasonable, at around 100%, but when forex loans
were included, it was a cause for concern, he said.
He added that there was a danger not only of ratios being
too high, but also of them being too low, because then
what do you do with the excess funding? You buy nonsense
The theme of regulation was taken up by Julia Kiraly, deputy
governor of the National Bank of Hungary, who said that she
wished that the stringent restrictions imposed on foreign
exchange lending by Austrian regulators would be extended to
Austrian banks subsidiaries in eastern Europe.
Herbert Stepic, CEO of Raiffeisen International, told the
seminar that improved regulation was a prerequisite for forex
lending. If his bank declined a six-month dollar loan to an
individual customer who wanted to buy a fridge, and then
the regulator allows a competitor, because it is classed as a
consumer finance entity, to do so, then we have no
The criticisms came on the day after the EBRD unveiled its
Local Currency and Capital Market Initiative, which seeks to
phase out short-term unsecured consumer lending in foreign
Although banks have broadly welcomed the initiative, some
senior industry figures have warned that it runs the risk of
triggering a drop in foreign currency loans that could imperil
economic growth by choking off credit supply to the
As Emerging Markets reported yesterday,
Charles Dallara, director of the Institute for International
Finance, which represents leading banks, has warned that the
biggest threat to local credit provision in the region lay with
new and pro-cyclical regulation.
The initiative has been informally dubbed Vienna+, as
modelled on the European Banking Co-ordination Framework, set
up in Vienna in January 2009.
This brokered an agreement between the EU, IMF, World Bank, EIB
and EBRD and banking regulators, among others, that parent
banks would maintain their exposures in eastern Europe.