Raiffeisen Bank International AG (RBI), Austria’s third-biggest lender, said souring corporate loans to large Austrian clients and an asset-quality review in Slovenia will cause provisions to rise as much as 20 percent this year.
Raiffeisen, based in Vienna, the second-biggest bank in eastern Europe after UniCredit SpA (UCG), now expects loan loss provisions to rise to as much as 1.2 billion euros ($1.6 billion) this year, it said in a statement late yesterday. The company last reiterated its forecast on Aug. 22, saying any debt charges would remain on a “similar” level as last year’s 1.009 billion euros. The average analyst estimate is 1.004 billion euros, according to the company’s own survey published on its website.
“The revision is based predominantly on the development of the corporate customer business in the segments Group Corporates, Central Europe and Southeastern Europe,” Raiffeisen said in the statement. “The rest of RBI’s Outlook is confirmed.”
Raiffeisen is struggling with persistent bad debt in its eastern European businesses, especially in Hungary, Ukraine and the former Yugoslavia, and with a rising number of corporate insolvencies and restructurings in Austria. Provisions for non-performing loans are weighing down the earnings that new Chief Executive Karl Sevelda needs to prop up capital ratios and underpin dividends his shareholders demand.
Among the main causes for the increase in provisions are large Austrian corporate loans and loans to clients in China that are related to cases of fraud, Susanne Langer, a spokeswoman, said by telephone.
A bank asset quality review in Slovenia that was demanded by the European Union triggered the increase in provisions in that country, Langer said. The lender is already in the process of cutting down by two thirds its money-losing unit in the part of the country that borders Austria’s southern frontier.
Burdened by non-performing loans equaling about a fifth of the economy, Slovenia’s mostly state-owned banks pushed the Adriatic country to the brink of a bailout in March. A dispute with the EU over the size of the banks’ capital needs and the value of their bad assets has delayed Prime Minister Alenka Bratusek’s plan to fix the banks by raising their capital and shifting non-performing loans to a bad bank.
Corporate loan losses in Bulgaria and a “methodology change” in Albania that caused more loans to be classified as non-performing also contributed to the higher loan loss provisions, Langer said.
Raiffeisen sticks to its forecast that lending volume will remain little changed and the net interest margin will rise this year, the company said. There were no provisions for possible losses on foreign-currency mortgages in Hungary because the precise shape of the government’s plans to impose currency losses on banks is not yet certain, Langer said.
Raiffeisen has lost 15 percent this year, making it the second-worst performer in the Stoxx 600 Banks index after Bankia SA (BKIA) amid concerns its weak capital ratios may force it to do a dilutive rights issue.
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