The largest multilateral lenders in eastern Europe today pledged €24.5 billion over the next two years to support the region's banking sectors affected by "global financial retrenchment".The World Bank Group, the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank Group (EIB) said today they would "deploy rapid, large-scale and co-ordinated financial assistance," including equity and debt finance, credit lines, and political risk insurance, to support lending to local banks and corporates.
Over the next two years the EBRD will provide up to €6 billion in the form of equity and debt finance. The EIB will make €11 billion available for lending to corporates and local banks, while the World Bank Group plans to offer up to €7.5 billion.
Today's co-ordinated response is intended to complement both national aid packages, which, the lenders said, "are necessary but may not be sufficient to contain the crisis and maintain lending to the real economy", and financing from parent banks of their subsidiaries in the region, which has become an issue of particular importance.
In recent months, deteriorating economic conditions in eastern Europe caused a withdrawal of capital from the region by western European banks exposed to the markets through local subsidiaries. In mid-February, rating agency Moody's Investors Service warned the "deteriorating financial strength of east European subsidiaries has a negative spillover effect on their west European parents".
The cost of credit protection on Austrian banks Esrte Bank and Raiffeisen, as well as Unicredit in Italy, Société Générale in France, and German firms Deutsche Bank and Commerzbank - the major players in eastern Europe - rose significantly as a result of this warning.
Five-year senior credit default swaps referencing Raiffeisen, for example, rose 25.25% from 343.3 basis points on February 16, the day before the report was issued, to 430.0bp on February 26.
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