Foreign banks back off from market risk

International banks in the first half of 2001 backed away from risky emerging economies in Europe, including Poland, according to a Bank for International Settlements report released last week.

Poland saw claims by international banks tail off slightly, by 2.1%, from the first quarter to the second quarter with the public sector seeing the sharpest decline, according to BIS figures. Bank claims on Poland totaled $23.3 billion in the second quarter.

"That is not good news for Poland, but I would not say it's terribly bad news considering the scale of shrinkage," said Jarosław Deryło, a research fellow with the Adam Smith Research Center. "Market circumstances are such that they favor a temporary partial withdrawal from emerging economies."

The numbers could be exacerbated by Poland's budget situation and the Sept. 11 terrorist attacks in the United States - events that undermined market confidence. But in the medium term there should be no problems for the country, Deryło said.

While overall banks maintained their international corporate credit exposure, they did reduce risk exposure by demanding third-party guarantees or increased collateral, the BIS said. For example, while contractual claims fell by only $500 million, net risk exposure dropped by $6.4 billion in Poland, the BIS said.

Still, Poland's decline was not as sharp as elsewhere.

"While banks in the reporting area maintained their overall claims on private sector borrowers in the developed countries, outstanding claims on emerging economies fell again in the second quarter, by approximately 3%," the BIS said.

The general wariness was strongly felt in Argentina and Turkey, the BIS said, two countries with severe budget and macroeconomic problems that are perceived as high risk. Claims on Turkey fell by more than 12% from the first to the second quarter, the bank said. Lending in the Czech Republic fell sharply but the numbers were largely due to a statistical glitch and lending in Hungary increased 5.2%

German banks have by far the largest claim on Poland at $8.33 billion, followed by Italy ($3.96 billion), the Netherlands ($1.95 billion), France ($1.07 billion) and the United States ($1.03 billion), the BIS reported.

Jeff Sparshott