Banks withdrawing credit faster from emerging Europe - committee

LONDON (Reuters) - Western banks scaled back funding to central, eastern and south-eastern Europe (CESEE) countries at a slightly faster pace in the third quarter of last year, a report from European banking committee, the Vienna Initiative, showed on Wednesday. Croatia, whose economy has been in a slump since 2008, was the worst affected in the region amid anecdotal evidence that international banks had stepped up efforts to repatriate funds from Croatian subsidiaries. Ukraine, whose forces are fighting pro-Russian separatists in its east, was also hard hit as credit contracted 14 percent in November and banks saw deposits equivalent to 11 percent of the country's economy pulled in the second and third quarters. International lenders have persistently withdrawn capital, investments and loans from the region since the 2008 global financial crisis to the tune roughly $230 billion, or just under 5 percent of the overall region's gross domestic product (GDP), said the committee, which was set up in 2009 to prevent large‑scale and uncoordinated withdrawals by Western banks. Banks monitored by the report, which is based on IMF and BIS statistics, reduced their exposure to CESEE countries by 0.3 percent of the region's GDP in the third quarter of 2014 compared with 0.1 percent in the second quarter. After Croatia, Hungary, and Lithuania saw the biggest declines in the CESEE area - stretching from Poland to Russia and from Estonia to Turkey - with all three seeing drops exceeding 1 percent of GDP and Croatia a fall of 2.7 percent. However, overall domestic credit growth remained positive in the region in November 2014, but was concentrated largely in Turkey, Russia and Poland, with weak growth in most other countries. Domestic bank deposit growth also continued to more than offset the reductions in foreign bank funding in most countries in the third quarter, although another rise in banks' bad loans came alongside a slowdown in the improvement of lending conditions. (Reporting by Marc Jones; Editing by Louise Ireland)