Vienna - The International Monetary Fund (IMF) is concerned about a possible credit crunch in Central and Eastern Europe, in case Austrian banks start pulling out funds from stalling economies in the region, the daily Der Standard reported Friday.

Austrian banks have issued around a quarter of total foreign loans in CEE countries, trailed by Germany and Italy, according to the still unpublished report by the Washington-based IMF.

Should the economic situation decline in one country, the banks would be forced to reduce their financial business in the whole region, leading to a credit crunch, according to the cited study.

According to the European Bank for Reconstruction and Development (EBRD), economic growth in Central Europe will slow to 1.5 per cent in 2009, from 4.3 per cent last year.

In South-Eastern Europe, the London-based EBRD expects 3.1-per- cent growth, less than half of last year's rate.

In addition to risks stemming from the economic environment, a recent report by the German bank Sal Oppenheim warned of the risk of foreign-currency loans issued by Austrian banks.

Owing to the depreciation of local currencies, Raiffeisen International Bank-Holding AG would have to write off 516 million euros (679 million dollars) for 2008 - half of it from its operations in the Ukraine.

Erste Group Bank AG would be affected with 164 million euros, the report said.

"We expect Raiffeisen International's capital ratios to weaken significantly in 2009 and consider a capital hike as likely," Sal Oppenheim analyst Thomas Stoegner wrote.

But Ewald Nowotny, the governor of the Austrian national bank, said that the risks in the CEE region should not be overrated.

"Of course one has to watch the development in these countries closely, because unfortunately economic weakness is spreading," Nowotny told national broadcaster ORF.

"But one should not overestimate the dimensions. These are dimensions that can be handled," he added. (dpa)