Fitch sees rising loan losses, Baltics worst hit

                                
 BUDAPEST, Dec 3 (Reuters) - Loan losses for banks active in
Central and Eastern Europe are unlikely to peak until next year,
hitting profits and denting their ability to support economic
recovery, Fitch Ratings said.
                                
 Imbalances remain greatest in regions like the Baltics,
while banking systems with greater funding and capital
flexibility -- such as Turkey, the Czech Republic, Slovakia and
Poland -- are better placed to underpin a return to growth, the
agency said on Thursday. 
                                
 The region's banks have suffered from a deep recession
across most of eastern Europe, hit by a high foreign exchange
exposure in their lending and funding problems.
                                
 A key priority will be for banks to resume lending to help
foster economic recovery.
                                
 "The banking systems with greater funding and capital
flexibility will be able to support economic growth, while those
with the greatest imbalances, such as the Baltic countries, will
be less able to (do so)," said Michael Steinbarth, Senior
Director in Fitch's Financial Institutions team.
                                
 All three Baltic states face double-digit recessions this
year as they aim to retain their currency pegs to the euro and
avoid devaluations, and banks there face rising loan losses due
to the recession.
                                
 Things look far rosier in Poland, expected to be the only
European Union country to escape recession this year after
posting 1.7 percent annual growth in GDP in the third quarter.
                                
 Fitch said that given significant levels of restructured
loans, which do not feature in non-performing loan numbers, and
growing reliance on collateral, particularly in property,
sizeable losses will be incurred by banks in emerging Europe.
                                
 It said the reliance on collateral relative to available
capital in the banking system was highest in Latvia and
Lithuania, which means these markets will likely be in greatest
need of new capital if collateral does not achieve expected
valuations.
                                
 But Fitch said the rate of inflow of NPLs in banks across
the region should gradually slow and peak during 2010 if there
is no deterioration in the operating environment.
                                
 Last month the parents of the six largest foreign banks
active in Hungary reaffirmed their commitment to supporting
their subsidiaries. [ID:nLK575746]
                                
 The Hungarian central bank has said Hungary's bank sector
was expected to suffer increasing loan losses amid a deepening
recession but its capital position remains strong enough to
absorb the losses.
                                
 (Reporting by Krisztina Than; editing by John Stonestreet)
                                
 ((krisztina.than@reuters.com; tel +36 1 327 47 45; rme
krisztina.than@reuters.com.net))