Worries that Western European banks might leave Eastern Europe

• Romania and Bulgaria are exposed to a major risk due to the local branches of Greek banks

The markets are increasingly worried that Western European banks, pressured by the new regulations to increase their capital adequacy ratios, will reduce their operations, and their contraction seems to focus outside their countries of origin, more particularly in Central and Eastern Europe, according to the Financial Times (FT).

The British publication shows that Western European banks are responsible for almost three quarters of the total lending in Central and Eastern Europe, and most of the countries in the region have only one major independent bank. The only exception is Bulgaria, which has none.

According to FT, Bulgaria and Romania are high risk areas, as they have branches of Greek banks on their territory.

Magdalena Stoklosa, analyst at "Morgan Stanley", warns of a new credit crisis in Central and Eastern Europe, with the exception of Poland and the Czech Republic, namely a resurgence of the financial troubles of 2008, when the lending flows from the developed to the emerging markets fell 20%. "The largest part of that figure affected Eastern Europe, and since the current crisis is centered in Europe, this time it could be even worse", said Stoklosa, quoted by the FT.

The British newspaper also notes that Italian bank "UniCredit", the largest player in Central and Eastern Europe, now looks like a shell of what it was before the financial crisis. According to the recent stress tests performed by the European Banking Authority (EBA) on a European level, "UniCredit" needs a share capital increase of 7.4 billion Euros, which will be conducted through a rights offering. Also, the bank will refocus on Central and Eastern Europe.

FT also reports that French bank "Société Générale" is trying to increase its capital by 3.3 billion Euros, and analysts are expecting the institution to reduce its lending capacity to the Central and Eastern European countries. FT mentions that this is a potentially major problem for the region, since "Société Générale" is a top bank, among the first five in Central and Eastern Europe, with a strong presence in Russia and Romania.

Financial Times also notes that regulatory authorities in Austria spooked Central and Eastern Europe last month, by setting new norms for banks which have exposure to those two regions. The restrictions - which are first and foremost affecting the top two banks in the region, "Erste Bank" and "Raiffeisen" - come as Austria is making efforts to keep its top AAA rating.