Erste May Need to Boost Romania Unit Capital ‘Soon’ on Bad Debt

Erste Group Bank AG (EBS) may soon have to boost the capital of its Romanian unit, Banca Comerciala Romana SA, as the Black Sea country’s banks are squeezed by bad debts and the economic situation is “severe.”

“The overall economic situation is still pretty severe,” Erste’s Chief Financial Officer Manfred Wimmer said today in Bucharest. “There is very little new business. Risk costs in BCR and other banks will remain elevated for quite some time and there is substantial probability that a capital increase will be needed pretty soon.”

Erste, eastern Europe’s second-biggest lender after Italy’s UniCredit SpA (UCG), agreed this week to raise its stake in BCR by buying out shares held by four Romanian funds, a deal it expects to complete at least partly this year, Wimmer said. A fifth fund is invited to enter the transaction. The funds, known as SIFs, cannot support a “significant” capital increase for BCR, he said.

Erste, like regional rivals including UniCredit and Raiffeisen Bank International AG (RBI), is betting that lending will return to growth and drive profits again as risk costs continue to decline. Romania, along with Hungary, is holding back the earnings recovery, while profit is expanding in the Czech Republic, Slovakia and Austria.

Romania has the third-highest share of bad debt in the European Union after Latvia and Lithuania, according to the International Monetary Fund, after its economy contracted again last year. Hungary ranks next on that scale. At Erste, delinquent loans grew to 19 percent of total outstanding credit in Romania by the end of June, it said on July 29.

BRD-Groupe Societe Generale (BRD) SA, and Raiffeisen’s and UniCredit’s units are other major foreign-owned banks in Romania. Banca Transilvania (TLV) SA and state-owned CEC are major domestic banks. Oesterreichische Volksbanken AG (VBPS) kept its Romanian unit when it agreed to sell most of its eastern European business to OAO Sberbank this month.

To contact the reporters on this story: Irina Savu in Bucharest at isavu@bloomberg.net; Andra Timu in Bucharest at atimu@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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