Page last updated at 10:26 GMT, Friday, 27 February 2009

Eastern Europe banks get bail-out

A job centre in Warsaw
Countries such as Poland are being hit hard by the downturn

The banking sectors in Central and Eastern Europe are to get a 24.5bn euro ($31bn; 21.8bn) rescue package to support them in the economic crisis.

The European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB) and the World Bank have pledged the investment.

The funds are particularly aimed at helping small firms survive.

Countries such as Latvia and Hungary have seen their economies particularly hit by the global economic slump.

The two-year joint initiative will include equity and debt financing, and access to credit and risk insurance aimed at encouraging lending, the three groups said in a joint statement.

This initiative is on top of national government responses and was designed to "deploy rapid, large-scale and coordinated financial assistance... to support lending to the real economy through private banking groups, in particular to small-and medium-sized enterprises."

'Diverse challenges'

The EBRD will provide up to 6bn euros for the financial sector, the EIB will put up 11bn euros of lending facilities, while the World Bank will provide about 7.5bn euros.

For many years the growing integration of Europe has been a source of prosperity and mutual benefit, and we must not allow this process to be reversed
Thomas Mirow
President, EBRD

"The response takes into account the different macroeconomic circumstances in, and financial pressures on countries in Eastern Europe, acknowledging the diversity of challenges stemming from the global financial retrenchment," the groups added.

Founded in 1991, the EBRD aims to assist the transition of former communist nations to market economies - investing across 30 countries including Ukraine, Moldova and Russia.

"The institutions are working together to find practical, efficient and timely solutions to the crisis in eastern Europe," said EBRD President Thomas Mirow.

"We are acting because we have a special responsibility for the region and because it makes economic sense.

"For many years the growing integration of Europe has been a source of prosperity and mutual benefit, and we must not allow this process to be reversed."

Exposure outgrown?

Earlier this week, ratings agency Moody's said that faltering economic conditions in Eastern and Central Europe would hit the local subsidiaries of Western banks.

Austria, whose banks have large exposure to Eastern Europe, has seen the cost of insuring its debt rocket.

On Friday, the country's Erste Group Bank signed a long-expected deal to get up to 2.7bn euros of government support.

But the talks to secure the funding have been going on since October, with some analysts saying that the mounting problems in emerging Europe meaning Erste's exposure may already have outgrown the government injection.

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