Erste Profit Slumps 88% as Austrian Bank Levy Hurts Tax Credits

Erste Group Bank AG (EBS), Austria’s biggest lender, said profit declined 88 percent last year after it couldn’t use tax loss carryforwards to the same extent as before. The shares pared gains.

Preliminary net income dropped to about 60 million euros ($82 million) from 483.5 million euros a year earlier, Vienna-based Erste said in a statement today. Erste can’t realize as much in tax losses as before because banking levies reduced its taxable income, the lender said. Previously announced goodwill writedowns also curtailed profit.

“This is directly related to the persistently high banking tax burden on the Austrian tax group as well as goodwill writedowns over the past years,” Erste said. “In a fully loaded Basel III capital scenario, this measure is capital neutral.”

Erste is struggling with declining revenue as central and eastern European economies remain mired in recession or slow growth. The bank kept its forecast that pre-provision operating profit fell 5 percent last year and loan-loss provisions declined at least 10 percent.

Today’s statement implies Erste had a 370 million-euro net loss in the fourth quarter of 2013, based the difference between nine-month and full-year net income. The lender said Dec. 17 that it will write down by 350 million euros the goodwill of its Romanian unit Banca Comerciala Romana.

The bank’s non-performing loan ratio, which stood at 9.6 percent at the end of September, remained stable in the final quarter, Erste said. Its capital ratio according to the new Basel 3 standard increased from 10.3 percent, the bank said.

Austria introduced a banking levy in 2011 to make lenders contribute to bank bailouts. The levy is due to rise to around 640 million euros this year.

Erste shares were 0.5 percent higher at 28.30 euros at the 5:30 p.m. close in Vienna, paring earlier gains of as much as 2.1 percent. The 43-company Bloomberg Europe Banks and Financial Services Index was 1.2 percent higher.

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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