[size=75:fuive75g]novinite 15 February 2010

Bulgaria, Romania Most at Risk From Greece - Morgan Stanley

Bulgaria and Romania are among countries “most at risk” from potential spillovers from Greece after banks invested in central and eastern Europe, according to Morgan Stanley.

“Greek banks will seek to move away from the external funding model for their emerging Europe subsidiaries, and try to grow the local deposit base faster than loans, to reduce leverage;
in the extreme, they may refrain from making fresh loans for a while,” Morgan Stanley wrote in a report dated, as cited by Bloomberg agency.

“As a result, CEE economies which are under-leveraged already may suffer from a severe shortage of credit, which derails the recovery. Bulgaria, and to a lesser extent Romania, look most at risk here.”

The report comes days after Citigroup Inc. warned that Bulgaria is more susceptible to contagion risk from the Greek crisis than neighboring Romania or Turkey, because Greek banks control 28 percent of the Balkan country’s market.

“Bulgaria stands out in terms of the presence of Greek banks, followed by Romania and Turkey,” Citigroup economists including Ilker Domac in Istanbul said in a report last Thursday. “This, in turn, leaves the country more vulnerable to adverse shocks associated with Greek banks’ funding.”

Greece’s struggle to finance the European Union’s widest budget deficit “could lead Greek banks to shrink their balance sheets in the region, which could in turn trigger a sharp contraction in credit availability,” according to the report. Still, there is no evidence that this sort of contagion is taking place, Citigroup said in the report.

European leaders are keen to prevent Greece's problems from spreading to other highly indebted or high-deficit euro zone members, such as Spain and Portugal, as well as to euro hopeful Bulgaria.