Published: March 13, 2012
LTRO initiative is only “buying time”, says equity analyst.
Emerging Europe is vulnerable to the debt problems elsewhere on the continent despite the European Central Bank’s long-term refinancing operation (LTRO), Citi equity analyst Leigh Goodwin has warned.
More than €1trn has been issued through the programme to boost the balance sheets of banks across the region. But speaking at the Retail Banking in Europe conference in Brussels on Tuesday, Goodwin said this has merely postponed the need to solve the industry’s problems.
“It’s buying time for the banking system,” Goodwin says. “It doesn’t solve a problem. What happens in three years time when it needs to be refinanced? Will the market be there? Probably not. No one has a plan B.”
Reducing their investments in emerging Europe is method Western European banks could use to increase their reserve levels. That “gives some cause for concern in CEE”, Goodwin said.
Analysts at UniCredit have also warned that CEE banks could suffer in the medium to long term from Western banks lessening investments to ensure they have enough capital to meet minimum funding obligations.
Goodwin also questioned the sustainability of the programme due to a lack of evidence that the funds are reaching the real economy. Instead, he says, banks are using the LTRO funds to refinance their debts.
He adds that European banks will always have exposure to their own sovereigns and that the amount of capital banks can raise means little when “we haven’t fixed the problems [in the eurozone]”.