* Banks operating in CEE may be "evergreening" bad debt -IMF
* Debt restructuring has delayed "day of reckoning" -EBRD
* Banks have been delaying NPL build-up to safeguard profits
By Boris Groendahl
VIENNA, Nov 17 (Reuters) - Banks operating in emerging
Europe may have been too slow in recognising possible losses due
to bad debt and could face a day of reckoning early next year,
international financial institutions warned on Tuesday.
The former Communist region's banks, most under western
ownership, have used leeway in local accounting rules to build
up reserves for bad debt as slowly as possible this year, and as
a result only few of them are expected to report losses.
But this may have come at the price of keeping loans to
borrowers alive that are not viable in the long term,
International Monetary Fund (IMF) Senior Adviser Christoph
Rosenberg told a conference in Vienna.
The biggest lenders in emerging Europe are Italy's UniCredit
<CRDI.MI>, Austria's Raiffeisen International <RIBH.VI> and
Erste Group Bank <ERST.VI>, Societe Generale <SOGN.PA>,
Belgium's KBC <KBC.BR> and Hungary's OTP <OTPB.BU>.
"The suspicion is that banks are 'evergreening' loans,"
Rosenberg told the conference hosted by the Austrian central
bank. "We are closely watching that development."
Rosenberg said that this practice was boosting profits this
year, but that it may run out of steam at some point.
"In the long run, it doesn't serve the interests of the
financial sector to carry unviable banks or corporates,"
Rosenberg said, reiterating the IMF's concern that corporate
refinancing risks were still very high in emerging Europe.
The European Bank for Reconstruction and Development's
(EBRD) Chief Economist Erik Berglof said that delaying the
build-up of both non-performing loans and of the reserves set
aside to cover them was particularly pronounced in Ukraine.
"The country that illustrates best the lack of recognition
is Ukraine where all the banks have been 'evergreening' credit,"
Berglof told reporters on the sidelines of the conference.
"That will come back to reckoning at the beginning of next
year," Berglof said. [] []
Ukraine, whose economy is on track to shrink by 15 percent
this year, has one of the highest levels of bad debt in Europe
with about 30 percent of all loans impaired at the end of the
second quarter. []
The banks' strategy to go easy on building reserves has
allowed them to safeguard profits and avoid massive dilutive
cash calls at depressed prices earlier this year.
But having run down the ratio of reserves to non-performing
loans to as low as 50 to 60 percent -- from close to or more
than 100 percent going into the crisis -- there is little room
left to manoeuvre.
The main risks are that loans that were restructured to
avoid default become non-performing anyway, that collateral
seized proves to be worth less than thought, and that rising
unemployment and corporate insolvencies create more bad debt.
(Reporting by Boris Groendahl; editing by John Stonestreet)
