Eastern exposure

As the economic outlook deteriorates the economies of central and eastern Europe are sinking fast.

The IMF expects that output in the region will contract by 0.4 per cent in 2009, after growing 5.4 per cent in 2007 and 3.2 per cent in 2008.

But the effects of those reversals will likely reverberate back across Western Europe.

Since 2002 Western European banks have extended more and more credit to the once fast growing economies of the East.

By 2008, Eurozone banks had built up a staggering $1,500bn exposure to the region, according to Bank for International Settlement figures.

Should those loans sour, Europe’s tottering financial system and its fragile economies could take another hit.

In this graphic we explore the current status of western European banks and some possible scenarios for the future.

Source: Danske Bank, Bank for International Settlements

Note: ”Major banks” refers to banks with significant exposure to CEE. It is not a comprehensive list of all banks with exposure to CEE. In the case of Belgium for example, KBC’s individual exposure to CEE is €43bn (Source: Company). Other banks hold the remaining claims on CEE.