Northern Country

How globalization changes capitalism, the economy and politics

Posts Tagged ‘capital

Eastern Europe showered with IMF funds

leave a comment »

The Raiffeisen Zentral Bank (RZB), a major Austrian bank with total assets of 156 billion euro, has issued results for the first quarter of 2009 today. While the bank is still making money profit after tax plunged to 29 million euro from 117 a year earlier, despite record revenues which increased 34 percent compared to last year.

Provisions for credit risk increased by a stunning 500 million euro to 596 million euro. RZB is one of the many European banks with heavy exposure to Eastern Europe. Devaluation of  local currencies led to a massive increase in troubled loans mainly in Ukraine, Russia, Hungary and Serbia, according to CEO Rothensteiner.

The dramatic development in Eastern Europe has caused the government of Austria, the EU and the International Monetary Fund (IMF) to intervene. Austria has already pledged 1.75 billion euro as participation capital for the RZB.

There is more concern in the region. The IMF has determined in a stress test that Romanian banks are also short of capital. They are in need of 1.7 billion euro. IMF experts think that output contraction in the region has not run its course yet.

Although due to large foreign currency reserves Russia does not need assistance from the IMF or the EU, Alexej Simanowski, head of bank supervision, urged banks to increase their capital by 12 billion euro. A necessary step to keep banks liquid if loan default would increase to 10 percent from about 4 percent today.

How precarious the situation is, becomes obvious from the plethora of assistance offered to Eastern European countries in the last 12 month. The IMF has granted Stand By Arrangements (SBA), pending SBA, Poverty Reduction and Growth Facilities (PRGF) and Flexible Credit Lines (FCL) to the tune of 80 billion US dollar. In the table below a loan of 2.1 billion USD to Iceland is also included.

Not included is Croatia. The outlook for long term credit rating has been lowered to negative from stable due to the deep recession . The country needs IMF assistance according to Fitch. 

IMF loan programs to eastern Europe:

image

Advertisements

Written by Alfred

27. May 2009 at 12:12 pm

A muddle through version of a stress test

leave a comment »

America is leading the way, and Europe follows. But is it really? A few days ago the Federal Reserve published results of its Supervisory capital Assessment Program (SCAP). Although received with plenty of criticism it revealed a rather robust capital position of America’s largest financial institutions. Only a few of them are in need of fresh capital, if the economy were to worsen significantly. According to the results it is likely that concerned banks do not need any more tax payer funds to meet their requirements.

EU-Finance Commissioner Joaquín Almunia wants a stress test for European banks and financial institutions. Unfortunately this European version will be less transparent and less scrutinizing. A capital adequacy test will be applied only to the financial system as a whole and does not concern individual financial institutions. The question will be answered if financial institutions in general will be able to withstand a worsening of the financial crisis. The council for Economic and Financial Affairs (ECOFIN) contrary to Mr. Almunia wants the results of the stress test not being published. The question bears to mind which member states and their finance ministers do not want the health of their financial institutions being revealed. One cannot help but speculate that European financial institutions are in direr straits than their US counterparts. If there is only one result coming out of this half secretive test it will be this.

Written by Alfred

12. May 2009 at 5:01 pm