BUCHAREST (Romania), December 15 (SeeNews) – Global ratings agency Fitch said continued weakening of banks' asset quality in Bulgaria, Romania and Croatia, without strengthening of their capital, could result in sector outlooks turning negative.
Fitch has assigned a stable outlook for the banking sectors of Bulgaria, Romania and Croatia. Slovenia's banking sector has a negative outlook, reflecting the potential for further asset quality deterioration to erode capital, Fitch said in its 2012 Outlook for banks in central and eastern Europe (CEE) on Wednesday.
"In the near to medium term, funding constraints will probably restrict loan growth and pressure margins, particularly in markets more reliant on foreign funding, such as Hungary, Romania and Slovenia."
However, in the long term, a stronger focus on domestic funding sources and less reliance on external borrowings would be positive for the Central and Eastern European (CEE) banking sectors' stability.
Adverse trends have continued for banks in Bulgaria, Romania and Croatia, although they retain some flexibility to absorb shocks. The balance of risks remains negative in Slovenia, the agency added.
Fitch also said that bank IDRs [Issuer Default Ratings] and outlooks on the banking sectors of Bulgaria, Romania and Croatia could be revised in case of changes in sovereign ratings. Bulgaria and Romania are currently on stable outlook, and Croatia on negative.
The agency expects parent banks to gradually withdraw funding from CEE subsidiaries where the liquidity positions of the latter allow, and active growth in a particular market is not being targeted.