EU banks boost capital of Hungary, Romania banks

European banks have promised to boost the funding of their subsidiaries in Hungary and Romania to help them weather the financial crisis, the European Commission and the International Monetary Fund said Wednesday.

Nine banks vowed Tuesday to increase the minimum capital adequacy ratio for Romanian subsidiaries from 8 percent to 10 percent, the two organizations said. The ratio is a global recommendation for how much capital banks should put aside to cover risk.

For Romania, the banks involved are involved are Erste Group Bank, Raiffeisen International, Eurobank EFG, National Bank of Greece, Unicredit Group, Societe Generale, Alpha Bank, Volksbank and Piraeus Bank.

Parent banks of the six largest foreign banks in Hungary also vowed Tuesday to support their Hungarian branches and ensure their "prudent capitalization" _ which could lead to commitments to boost the capital adequacy ratio in the future.

The banks are Bayerische Landesbank, Erste Group Bank AG, Intesa SanPaolo, KBC Group, Raiffeisen International Bank Holding and UniCredit Bank Austria AG.

The European Union's executive said the move in Romania was precautionary and followed stress tests by the country's central bank that concluded the foreign-owned banks are well capitalized.

Romania is getting a euro20 billion bailout from the IMF, the EU and others to help it plug a budget gap this year. Hungary last year secured a euro20 billion loan package led by the IMF.

A rapid economic downturn, falling tax revenues and high public debt have hit both countries' public finances hard _ barely a year after their booming economies saw house prices soar, partly because banks were offering low-cost loans.

The downturn raises fears that more people will lose their jobs and be unable to repay loans, which could damage banks already rocked by a financial crisis that has forced them to cover massive losses and curb lending.

The EU forecasts that Romania's economy could contract by 4 percent this year and not grow at all next year. It says Hungary's economy could shrink 6.3 percent in 2009 and 0.3 percent in 2010.