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13th January 2012

Austria concerned over domestic banks exposure to CEE

The Austrian Central Bank and regulators from many countries met in Vienna this week to consider proposals for banks with exposure in certain central and eastern European countries to ensure they raised appropriate capital in those countries.


The risk to Austria is obvious with it being the base for three of the western European banks with the most exposure to the CEE region - Bank Austria (though owned by UniCredit), Erste and Raiffeisen.


No one was talking on the record however at the heart of the discussions concerned the proposal that such banks should raise all of the capital required for the CEE region in the countries they operate in. The central bank announced last year that banks should ideally raise 110% of their capital needs in 'key' countries. In addition to the obvious reasons for not wanting any bank failure, the country is concerned it could lose its AAA sovereign credit rating. Adding further to the concerns are the actions of its neighbour, Hungary. There are major concerns that the Hungarian government will create a major financial crisis within the country. The Hungarian government's refusal to back down on certain issues including increasing its direct control of the central bank has prompted the IMF to consider not lending to the country and this stance is likely to be echoed by others.