* EBRD says EUR 1.7 bln CEE exposure figure "nonsensical"
* Short-term financing needs much, much smaller
* Capital flows to region still seen growing
* Bank group says situation in some states not as bad as
presented
By Michael Winfrey
PRAGUE, March 4 (Reuters) - The alarming figure that western
banks have 1.7 trillion euros of exposure in Eastern Europe is
an exaggeration and a more relevant number is 130 billion in
short term debt, world banking officials said on Wednesday.
The EU's eastern members came under sharp scrutiny last
month when mainstream global media jumped on warnings of
economic imbalances there and suggestions that the region could
be "the sub-prime of Europe" for some euro zone banks.
Many papers cited data from the Bank for International
Settlements showing the total claim of foreign banks and their
affiliates on Eastern Europe amounted to 1.7 trillion euros.
But in a letter to the Financial Times on Wednesday, the
chief economist of European Bank for Reconstruction and
Development said that number was just the size of the overall
balance sheet of the region's foreign-owned banks, not exposure
to debt.
"The comparison is simply nonsensical," the EBRD's Eric
Berglof wrote. "A much better measure of refinancing needs is
short-term external debt owed by the region's banking sectors to
foreign creditors."
He said that excluding Russia and Kazakhstan, which can
count on their own resources thanks to years of high oil prices,
the short-term debt owed by local banking sectors to foreign
creditors was about $130 billion, and more than half of that was
debt owed by subsidiaries to parent banks.
Worries around the region have so far centred around the
amount of external financing needed to keep them growing faster
than their developed western neighbours, but details on how much
that means have been cloudy.
Economists are also convinced that most countries in the
region will see their economies contract this year. Even the
best case scenarios call for very minimal growth for the
region's best off economies.
The EBRD, the International Monetary Fund and the World Bank
have long urged the handful of western banks from places like
Austria, Italy, France and Sweden to continue backing their
units in the region.
And on Wednesday, the head of Italian bank UniCredit
<CRDI.MI>, the largest lender to Eastern Europe, said it would
support its units in the region, echoing statements by others
including Austria's Erste <ERST.VI> and Raiffeisen <RIBH.VI>.
SLOWING BUT STILL FLOWING
Berglof's comments were also backed up by a paper from the
Institute of International Finance, an association of major
financial service firms with 400 members worldwide.
It also said the 1.7 trillion figure was misleading, and
that a projected contraction in private capital flows to
emerging Europe -- seen as the main risk to the region's banking
sector, and therefore western banks -- would probably be limited
to Russia and Ukraine.
Net private flows to Poland, the Czech Republic, Hungary,
Romania, Bulgaria and Turkey were expected to continue at "the
much slower but still substantial pace of $60 billion,
equivalent to 5 percent of their combined GDP," the IIF said.
It said that although that figure was 40 percent of the peak
seen in 2007, borrowing in these countries from foreign banks
would still grow by a projected 1.5 percent of their GDP.
Parent banks would provide the capital barring their
experiencing more intense pressure from the crisis.
"Data available since September, however, suggest that
foreign parents have thus far increased or sustained financing
for their local subsidiaries, which remain important franchises
for their owners," it said.
The Czech Republic and Poland have been at pains to convince
investors that their banking sectors are sound, and Czech
foreign owned banks are actually net lenders to their parents.
They joined with four other countries' banking supervisors
on Wednesday to complain about negative press over their banking
systems.
The IIF said the situation in the region was not as bad as
much of what had been presented by some media.
"Greater differentiation about the circumstances of
individual countries combined with analysis of recent financing
flows and the scale of indebtedness suggests that the situation
in a number of important countries is decidedly more favourable
than has been generally understood," it said.
(Editing by Patrick Graham)
