In any scenario, “it appears that deleveraging from Western European parent banks in the region is already underway, and has only intensified over the past few months. We estimate that around €15B flowed out of the region’s banks over the past year or so, mainly in Central Europe and Russia.” she adds. What’s more, capital outflows from banks failed to reverse even when the ECB’s LTROs eased market strains earlier this year.
“In summary, while the recent actions from the ECB and the Fed mean that the immediate risks to Emerging Europe’s banks have eased, we remain cautious. The process of gradual deleveraging by Western parents continues to cast a long shadow over the outlook for the region’s banking sector.” Ermolenko warns. Credit conditions are already extremely tight, and with banks still vulnerable to a deterioration in external conditions, worse may be yet to come.