Analytics, Banks, Economics, EU – Baltic States, Financial Services

Christine Lagarde.

"The issue of availability of liquidity may very well come back as we see some of those western banks withdraw, reduce their activities, reduce their exposure," Lagarde said, diverging from the text of the speech released by the IMF.

Lagarde's remarks echoed the European Bank for Reconstruction and Development, which warned last month that regulatory pressure on euro-area banks to raise capital ratios may result in less support to local units.

About three-quarters of eastern Europe's banking industry is owned by western lenders such as Italy's UniCredit SpA (UCG), Austria's Erste Group Bank AG (EBS) and France's Societe Generale (GLE) SA.

A possible withdrawal of funds by west European banks from Russia is among the country's "significant vulnerabilities," Lagarde said, urging the government of the world's biggest energy exporter to "rebuild fiscal buffers while oil prices are still high."

While eastern European economies have reined in the current-account deficits that plagued them in the runup to the 2008 crisis, their fiscal leeway to counter a downturn has narrowed, Lagarde said.

Banks in Eastern Europe should "lend what is possible based on local refinancing," the Austrian central bank's head of banking supervision, Andreas Ittner, said last week. "I consider this a crucial element of a sustainable business model," he added.