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Erste Group Posts Biggest Loss Since 2011 on Romania, Hungary

Erste Group Bank AG, Austria’s largest bank, reported the biggest quarterly loss in almost three years after it wrote off Romanian assets and abided by new rules on loan fees in Hungary.

The net loss for the three months through June was 1.03 billion euros ($1.38 billion), compared with a profit of 125.5 million euros a year earlier, the Vienna-based bank said in a statement today. That beat the average estimate of a 1.12 billion-euro loss in a survey of 20 analysts published on the company’s website. One-off effects in Hungary and Romania totaled 1.25 billion euros in the first half, it said.

“The positive trends that emerged in the second quarter of 2014 may only be visible at second glance, but they do exist and provide reason for some optimism,” Chief Executive Officer Andreas Treichl said in the quarterly report. “We expect that in 2015 we will again be able to generate a solid net profit.”

Erste, which trails UniCredit SpA and Raiffeisen Bank International AG as the biggest bank by assets in eastern Europe, predicted a full-year loss of as much as 1.6 billion euros earlier this month. The warning was triggered by a bad-debt cleanup in Romania and new legislation in Hungary that may force Erste to refund loan fees.

Erste’s shares rose 1.2 percent to 19.48 euros yesterday, reducing this year’s losses to 23 percent, the third-biggest decline on the 43-member Bloomberg Europe Banks and Financial Services Index after Spain’s Banco Espirito Santo SA and National Bank of Greece SA. The index climbed 1.5 percent in the period.

Capital Ratio Rises

Pre-provision profit, a measure of the bank’s gross income, rose to 798 million euros, more than analysts estimated. That was mainly driven by lower personel expenses, Erste said.

This year’s loss won’t hit Erste’s capital to the full extent because intangible assets at its Romanian unit that the bank is writing down aren’t part of regulatory capital. Erste’s common equity Tier 1 ratio will reach about 10 percent at the end of the year without raising new capital, Treichl has said. The ratio stood at 11.7 percent at the end of June.

Provisions the bank set aside for non-performing loans rose to 431.9 million euros from 412.6 million euros. It reiterated that they will rise to about 2.4 billion euros, 40 percent more than initially planned, by the end of the year.

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