"Strauss-Kahn flagged dangers in Eastern Europe, where domestic banks have built up large negative net foreign positions through foreign parent banks, which are vulnerable to market sentiment because a large part of their funding is from wholesale markets.
Also, banks have become increasingly exposed to struggling real estate markets. They have not experienced a significant increase in loan losses so far, but have increased provisions for bad loans and may be forced to reduce credit growth if asset quality deteriorates sharply, he said.
The risk of such a scenario has risen, for instance, in the Baltics, where house prices and credit growth have fallen.
He said the combination of tightening credit markets, rising domestic interest rates and the global growth slowdown could increase the force of the credit squeeze and rising defaults to a larger number of emerging markets and some developing countries"
I have many time highlighted in this blog that if danger there is, it's coming from the baltics, where Banks and Nordic company overinvested or overextended. I wrote almost a year ago, in November 2007 that the trigger could be the Baltics : "Housing Slump, What Could Trigger It?..The Baltics"
The situation started to deteriorate well before the credit crisis as states were running big deficit and experiencing a very high inflation. Today, it's all bad luck for those country as they didn't enter in this crisis prepared or fit to fight what is a scary market, an unpredictable global financial crisis.
... in the meantime:
"Prime Minister Matti Vanhanen says that Finland does not need guarantees to the banking sector agreed upon by Eurozone leaders in Paris Sunday evening. Banks in Finland, he pointed out, are in good shape."
...and at the sametime:
"The Finnish Financial Supervision Authority (FSA) has approved raising the deposit guarantee limit for Icelandic bank Kaupþing in Finland, the FSA said in a statement Monday.
According to the FSA increasing the deposit guarantee would promote equal treatment of bank customers as it would raise Kaupþing's coverage from 25,000 to 50,000 euros, the same level as other banks."
... to be continued...