The CEE deleveraging conundrum

Western European banks heavily involved in the CEE region strenuously rebut suggestions they are cutting back on these foreign operations. But they are under pressure from a combination of Vienna 2.0, Basle III and a need to delever.

It has been a confusing summer for observers of central and eastern European banking. Barely a week has gone by without a new spate of headlines pointing to the risks surrounding a potential pullback by western European banks from the region. However, the messages have been at best mixed and at worst contradictory.

At one end of the spectrum are the European Bank for Reconstruction and Development and its fellow members of the Vienna 2.0 initiative, designed to help maintain foreign banks’ exposure to central Europe. In their first quarterly Deleveraging monitor, published in late July, they insisted that not only had "worrisome" levels of deleveraging already taken place but that the prospect of further withdrawals of funding from the region "remains a headwind and a potential threat to external and financial stability".

On the other side, bankers in the region – from chief executives to analysts –...