"FITCH RATINGS": It is difficult for the Austrians to maintain their banking operations in Central and Eastern Europe

Financial ratings firm "Fitch Ratings" yesterday warned that the attempts of the major Austrian banks to meet the capital requirements f the European Banking Authority (EBA), by mid-2012, could have negative consequences for their operations in Central and Eastern Europe, according to a press release of the agency quoted by Agerpres.

The analysts of "Fitch Ratings" do not expect Austrian banks to withdraw from Central and Eastern Europe, but the announcements of the credit institutions concerning their intention to lower their exposure to some countries in the region and to only grow prudently in others, would deteriorate the operating environment which is fragile enough as it is in many countries in the region.

Christian Kuendig, "Fitch Ratings" analyst, said: "The major Austrian banks will need to perform a difficult balancing act by mid-2012. (...) Even though they are being asked to improve their capitalization to meet the requirements of the EBA, they must ensure that the process of reducing their risky assets does not affect their operations in Central and Eastern Europe".

The new Vienna Initiative, Vienna 2.0, is trying to solve this potential conflict through the coordination of regulatory projects in the countries of Central and Eastern Europe, with those of the Western Countries, where the banks are headquartered, according to Fitch Ratings.

One of the objectives of the Vienna 2.0 Initiative is to ensure that the authorities in the countries where the banks' main headquarters are located, take into consideration the impact that their regulations might have on countries in Central and Eastern Europe, the press release states.

Out of Austrian banks, the largest structural modifications will take place at Volksbanken Verbund and at its central institution, Oesterreichische Volksbanken-Aktiengesellschaft (OeVAG), according to the estimates of "Fitch Ratings".

Even the capital needs of Raiffeisen Bank International AG and of the parent bank Raiffeisen Zentralbank Oesterreich AG, as well as those of Erste Group Bank AG, to a lesser degree are considerable, the analysts of the financial ratings firm note.

Finding a balance between capital bolstering and the reduction of risky assets will determine whether the ratings of Austrian banks will be maintained at their current levels, "Fitch Ratings" said.

Furthermore, all the ratings of Austrian banks rely on the hypothesis that the Austrian government will provide financing and/or capital if necessary, the press release says.

Last month, the European Banking Authority asked European banks to boost their capital to be able to better withstand losses which might occur from government bonds. By the end of June 2012, the main European banks are required to reach a Tier-1 Core Capital ratio of 9%.