Austrian Banks’ Squeezed by Capital Pressure, Fitch Ratings Says

Austrian banks’ credit ratings may come under pressure if their plans to strengthen capital are delayed or earnings are eroded by “accelerated deleveraging,” Fitch Ratings said.

Raiffeisen Bank International AG (RBI), eastern Europe’s third- largest lender, will be “challenged” to fill a 2.1 billion- euro ($2.8 billion) capital gap determined by the European Banking Authority on its own, Fitch said in a statement today. Oesterreichische Volksbanken AG (VBPS), the lender that failed the EBA’s stress test twice and has a 1.05 billion-euro shortfall, may have to seek state aid, Fitch said.

“Pressure could arise notably if plans to improve capitalization” before the EBA’s mid-2012 deadline are “delayed,” Fitch said. “Accelerated deleveraging in an attempt to meet the EBA targets could firstly potentially damage the banks’ earnings base, notably in central and eastern Europe and secondly further worsen the already fragile banking environment.”

Raiffeisen, Volksbanken, Erste Group Bank AG (EBS) and other Austrian banks, excluding UniCredit SpA (UCG)’s Bank Austria AG, are the biggest lenders in eastern Europe, having loaned $266 billion as of June, according to the Bank for International Settlements. Erste and Raiffeisen have said they are able to meet the EBA’s target to hold 9 percent of risk-weighted assets in core capital without resorting to state aid and without selling new shares.

Austria’s central bank and regulator FMA told Erste, Bank Austria and Raiffeisen last month to limit new lending in eastern Europe to the deposits and wholesale funding the units can raise on their own. Erste’s gap determined by the EBA is equivalent to 743 million euros of additional capital, the regulator said.

To contact the reporter on this story: Boris Groendahl in Vienna at bgroendahl@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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