Banking sector risks revisited

Fears are mounting over the exposure of Emerging Europe’s banks to the deepening crisis in the euro-zone. Our view remains unchanged from that which we put forward earlier this year: the big risk to the region’s banking sector is not that West European parents might withdraw equity capital from their subsidiaries in the East, but rather that they might withdraw funding. In the extreme, this could force some countries to turn to the IMF for finance or be left with the prospect of a renewed credit and banking crisis at home. The biggest risks seem to be in Hungary, Croatia and Bulgaria.