As the debt crisis makes itself felt across Central and Eastern Europe, Austrian banks heavily exposed to the region are increasingly getting nervous. Raiffeisen Bank International (RBI), for instance, is already contemplating a partial retreat. "It is quite possible that we will retreat from one or the other country in the future," its chief executive, Herbert Stepic, said this week.
Major Austrian banks such as RBI, Erste Group and Bank Austria were among the first to expand from West to East after the Iron Curtain fell, sometimes by reviving old connections of the Habsburg empire, which once spanned much of Central and Eastern Europe.
"Erste Bank was founded in Vienna in 1819, and in Bohemia in 1824," said Erste Group spokeswoman Hana Cygonkova, referring to the region that is now part of the Czech Republic. Today, Erste operates retail banks in eight countries and makes two thirds of its operating profit in Austria, the Czech Republic and Slovakia.
RBI has cast an even wider net, providing a range of financial services in 17 markets. The bank announced its possible reorganisation even before the rating agency Moody's downgraded Hungary's bonds to "junk" status. RBI's Hungarian subsidiary made a loss of 189 million euros (252 million dollars) in the first three quarters of this year, amid slowing economic growth and increasing provisions for bad loans.
Bank Austria, a subsidiary of Italy-based Unicredit, also made massive losses in its eastern business, especially in Kazakhstan and Ukraine. The bank had to write down 705 million dollars between January and September, most of it because operations in Kazakhstan and Ukraine lost their value. Erste, for its part, wrote 1 billion euros off in Romania and Hungary.
Austrian banks are heavily exposed in the eastern and south-eastern parts of Europe, having issued some 250 billion euros of credit in these regions. This is almost as much as Austria's gross domestic product, which in 2010 amounted to 286 billion euros Regulatory authorities in Vienna, concerned that a mounting crisis in the East could pull down Austria's banks, have come up with new rules this month to back up credits with adequate savings.
And although the rating agency Fitch says the new rules will not lead to a credit crunch in the region, Poland and Romania have already voiced concern. Romanian President Traian Basescu, for instance, pointed out that Austrian banks had made huge profits in his country between 2000 and 2009, after Romania's financial sector was privatised following its entry into the European Union. "This is a lack of fair play, and I hope that the latest EU members will not have to pay for the greed of the banks," he said.
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