Fitch ratings added to rising fears of banking sector woe in Romania and the Central and Eastern European (CEE) region, in a new report. A number of ratings could be downgraded and any negative effects from the eurozone crisis on parent banks would potentially have repercussions in Romania's banking sector, described previously as heavily exposed. Fitch gives the banks in the region a stable outlook, but warns of the potentially damaging effects of “weakening GDP growth, worse asset quality and potential funding constraints.” Adverse trends are continuing in Romania according to the report, but the ratings agency believes the banking sector here has the flexibility to “Absorb shocks.”

Parent banks are likely to reduce funding to subsidiaries in the region. This, according to Fitch ratings, is particularly bad for Romania as the local banking sector is heavily reliant on foreign funding. The ratings agency thinks the major international banks in Romania are unlikely to pull out and that they will continue to support the local banking sector, but warns “they will more tightly ration funding and capital.”

The eurozone crisis throws a shadow over countries outside the single currency and Fitch admits that outlooks and ratings for Romania and the region's banking sectors could suffer if the crisis takes a turn for the worse. Worsening recession could effect parent banks' default ratings and funding for Romanian banks would be reduced if exports to the eurozone dropped.

reporting by Alex Camburu, alex.camburu@romania-insider.com

editing by Liam Lever, liam@romania-insider.com

(photo source: Sxc.hu)