* Athens meeting could move on fx consumer loans -sources
* Euro mortgages biggest issue, but not on agenda
* First coordinated move to curb E.Europe's toxic assets
By Boris Groendahl
VIENNA, March 18 (Reuters) - Eastern European bankers,
regulators and financiers, meeting on Friday, could agree a
first coordinated move to halt some forms of foreign currency
lending, the region's toxic asset of choice, sources said.
The meeting in Athens of the informal group known as Vienna
Initiative is due to discuss a draft that proposes to
effectively outlaw consumer loans in foreign currencies, four
sources involved in the meeting or its preparation told Reuters.
The draft also proposes stopping lending in currencies other
than the euro or the U.S. dollar -- in practice, this means
Swiss francs or Japanese yen -- but puts off a move on the
biggest and most difficult issue: euro-denominated mortgages.
Even if dealing with euro mortgages may take longer, an
agreement could add momentum to a long-standing debate about how
to tackle the problem in the unwieldy and diverse collection of
countries that make up the former Communist bloc of Europe.
"We can agree quickly on things like franc or yen loans, but
the euro mortgages are going to be more difficult," said one of
the sources which asked for anonymity.
So far, only Hungary has moved to restrict euro mortgages in
a set of new rules that came into effect this year.
[] Poland's financial watchdog KNF said last week
it was also thinking about such limits. []
"The dialogue about that goes on. The pressure is rising,
especially from the European Central Bank," the source added.
The ECB was also involved in drafting the proposal with the
European Bank for Reconstruction and Development (EBRD) and the
International Monetary Fund (IMF), all of which will take part
in the Athens meeting. []
A tendency by consumers and companies in Central and Eastern
Europe to borrow in hard currencies for everything from cars to
apartments was one of the main reasons why the region teetered
on the edge of abyss a year ago.
It helped build up major current account deficits and
currency mismatches and required interventions by the ECB and
the Swiss National Bank to avoid a severe liquidity squeeze.
On top of that, it limited policy responses to the crisis
because currency devaluation, which could have helped some
countries regain competitiveness, would have raised the threat
of mass defaults.
CAR LOANS
Foreign currency loans, mostly mortgages, make up 30 to 70
percent of all household loans in countries including Poland,
Hungary, Romania, Bulgaria and Croatia, and even more in the
Baltic states.
Car loans with maturities of 3 to 5 years -- historically
one of the first areas of credit that boomed in the 1990s after
communism collapsed -- are the biggest area of consumer loans
frequently done in foreign currencies.
Car loans make up around 10 to 20 percent of all household
debt in the region, according to Hendrik Bremer, a consultant at
Roland Berger who recently published a study on consumer finance
in Central and Eastern Europe.
The proposal, which follows an EBRD-hosted workshop of the
Vienna Initiative last December, will recommend regulators make
rules binding or create strong incentives for banks to observe
them, depending on what is possible in every individual country.
If they cannot put the rules into formal law, incentives
could be created by requiring higher reserves for foreign
currency loans that would make them unprofitable for lenders, or
by recommendations that allow naming and shaming of those who
ignore them.
The proposal will also ask the Western parent banks that are
part of the Vienna Initiative -- including the region's biggest
lenders UniCredit <CRDI.MI>, Raiffeisen International <RIBH.VI>,
Erste Group Bank <ERST.VI>, Intesa SanPaolo <ISP.MI>, Societe
Generale <SOGN.PA>, KBC <KBC.BR> and others -- to voluntarily
commit to stop those lending practices.
(Reporting by Boris Groendahl; Editing by Susan Fenton)
