Raiffeisen International is hiking its provisions

ALEXANDRU SÂRBU (Translated by Cosmin Ghidoveanu)
Ziarul BURSA #English Section / 17 septembrie 2013

Raiffeisen International is hiking its provisions

RBI shares fell almost 5% yesterday

Raiffeisen Bank International (RBI), the majority shareholder of Raiffeisen Bank România, has revised upwards its estimates concerning the level of provisions for non-performing loans which it will need to set up this year. Thus, whereas initially the financial group expected provisions to reach 1.009 billion Euros this year, sees loan-loss provisions of as much as 1.2 billion Euros. The revision was caused by the evolution of the group's corporate client portfolios, in Central and Eastern Europe.

Among the main clauses that make the hike of the provisions necessary comprise the deterioration of some loans granted to Austrian companies, as well as loans to Chinese clients that are involved in cases of fraud, said Susanne Langer, a spokesperson of RBI, according to Bloomberg.

Also, the bank has conducted a review of the quality of its assets in Slovenia, at the request of the European Union, following which an increase in provisions was necessary, she added.

Other factors that have led to the increased forecasts are the losses on the corporate segment in Bulgaria and a change in the methodology in Albania, which resulted in an increase of the loans that need to be classified as non-performing, the RBI official said.

Raiffeisen stands by its estimates which say that the volume of loans will suffer minor changes, and interest revenues will increase slightly, according to the representatives of the bank, who claim that no provisions have been set up for the possible losses on the mortgage loans in Hungary, since no information on the final form of the legislation by which the government in Budapest intends to impose currency exchange losses on banks. Hungarian Prime Minister Viktor Orban has announced that his government intends to amend the law of mortgage loans denominated in foreign currencies.

Raiffeisen Bank International, the second largest lender in Central and Eastern Europe, in terms of assets, after Erste Group Bank, the institution which controls the Romanian Commercial Bank (BCR), is faced with the deterioration of its loan portfolios in the region, especially in Hungary, Ukraine and the countries in former Yugoslavia, as well as the increase in the number of insolvencies and restructuring of Austrian companies.

RBI intends to downsize its operations, focusing on the development of six of the seventeen countries in which it operates, namely Romania, Russia, Poland, Czech Republic, Slovakia and Austria, said the new CEO of the bank, Karl Sevelda, who added that the bank does not intend to exit any of those countries.

Karl Sevelda returned to the helm of the bank, after the resignation of former CEO, Herbert Stepic, which was the result of an internal audit concerning certain real estate deals he had done.

In mid-July, RBI announced that it intends to engage in a "massive" cost-cutting program to the tune of millions of Euros, and the closing among the measures considered being the closing down of several branches.

A report by Standard & Poor's published in April, stated that the capital requirements of Raiffeisen Bank International were "rising at an alarming rate". Raiffeisen was forced to cancel the sale of subordinated bonds, that month, after it didn't receive enough subscriptions.

Shares of RBI fell 15% this year, the second weakest performance of the Stoxx 600 Banks index, after Spanish bank Bankia.

The announcement of Raiffeisen comes after a country report published last week by the International Monetary Fund (IMF), warned against the deterioration of the quality of the assets of Austrian banks, and the difficulty of estimating the correct trend, due to the insufficiency of the data concerning the exposures in Central and Eastern Europe. Also, the level of provisions may be inadequate in some countries, including the Czech Republic, Hungary, Croatia, Slovenia and Romania.

Raiffeisen Bank International has announced a consolidated profit of 227 million Euros for the first half of the year, which represents a drop of 60.5% over the first semester of the previous year.

Profit before taxes fell 49.6%, to 467 million Euros, whereas the net profit fell 57.6% to 311 million, compared to the same period of last year. Also, the earnings per share fell to 0.91 Euros, from 3.09 Euro in the first semester of 2012. Operating revenues increased in the first half of the year, 2.7% to 2.686 million Euros, and the net interest margin has been increased by 42 basis points/year to 3.06%.

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