Nomura: The Greek crisis will have significant effects in Romania and Bulgaria

The situation in Greece will affect Romania and Bulgaria, given the fact that the subsidiaries of Greek banks have reduced lending, the report of Japanese lender Nomura said Nomura, partially published on a blog of the paper "Financial Times" (FT).

The terms of the "Vienna Initiative", the agreement concluded in 2009, which forced the parent-banks of Romanian lenders to support their subsidiaries and not to withdraw their capital, has been reversed in the case of Greek financial groups, the Japanese bank and FT journalists note.

"Right now, the Romanian subsidiaries have already been funding their parent banks in Greece for some time", according to the Nomura analysis.

The loans granted by the Greek subsidiaries to their parent banks have contributed to the recent strengthening of the leu and have reduced liquidity on the Romanian market, the report states.

"More specifically, the NBRused these outflows as a method to strengthen the currency by relaxing the control of the foreign exchange policy", Nomura notes.

This means that the capital flows mentioned by the "Vienna initiative" are going the other way, while on an official level, it is assumed that the Greek banks are still committed to maintaining their exposure to Eastern Europe.

A new "Vienna Initiative", which is already being discussed in Europe, would require Greek banks to maintain their commitments towards their subsidiaries of Emerging Europe even if they were to encounter a severe crisis on the domestic market. Such a decision would be hard to enforce, placing new burdens on the Greek banking system which is already "extremely stressed".

Nomura discusses several scenarios, concerning the consequences that the crisis of Greece could have on Romania and Bulgaria.

The least negative scenario would be a severe reduction in lending by the Romanian and Bulgarian subsidiaries of the Greek banks, following the increasingly high financing requirements of the parent banks. This scenario will stunt the growth of the two countries and is already developing, the Japanese bank claims.

Another scenario would see Greek banks being forced to take out capital from their subsidiaries to consolidate their financial situations.

"The capital outflows are causing problems for the payment balance, requiring the use of reserves, or, in the case of Romania, the accessing of the precautionary stand-by agreement", the Nomura report states.

Another solution for the rescue of the Greek banks, would be to withdraw their support for the subsidiaries and their default, in which case the EBRD and the governments of Romania and Bulgaria would be forced to intervene and to nationalize the companies or to consolidate them in Romania in order to absorb their operations.

The most pessimistic scenario anticipated by Nomura expects the default of Greek banks, which would withdraw their support and capital from their subsidiaries in the two countries and would start an emergency liquidation of the assets in Eastern Europe. Even if the Greek banks were to be nationalized in order to avoid bankruptcy, the government in Athens would not be interested in supporting their subsidiaries in Romania and Bulgaria.