Raiffeisen Bank International AG, the second-biggest lender in eastern Europe, said profit grew 11 percent, beating analyst estimates, as its Russian business held up and Ukraine returned to profit. The shares surged.
Net income during the second quarter rose to 204 million euros ($226 million) from 183 million euros a year earlier, the Vienna-based bank said in a statement Wednesday. Its Russian unit remained the biggest earnings contributor even as the country slid into recession, and its Ukrainian business was back in the black on trading gains after five straight quarterly losses. The bank beat all 17 analyst estimates for net income collected by the company, which averaged 133 million euros.
“Our Russian unit proves itself to be robust and will contribute a significant profit again this year,” Chief Executive Officer Karl Sevelda told reporters in Vienna. “All in all, I am not dissatisfied with our results. The significant improvement of our capital ratios is particularly pleasing.”
Raiffeisen plans to shrink its business a fifth by the end of 2017 to raise capital buffers after the conflict in Ukraine produced its first annual loss last year. Sevelda said he’s confident of carrying out the plan even as the sale of the Polish unit hit a snag over currency losses on Swiss franc-denominated mortgages.
The shares rose as much as 9.5 percent in Vienna, the most in six months in intraday trading, and were up 8.3 percent to 13.18 euros at 11:39 a.m., making them the best performer in the Euro Stoxx Banks index, which was little changed.
Risk-weighted assets shrank 4.8 percent to 70 billion euros in the second quarter. That helped Raiffeisen’s core equity Tier 1 capital, a gauge of financial strength, rise to 10.7 percent. The bank has pledged to reach 12 percent by the end of 2017.
RWAs should fall to 65 billion euros by that time as growth and regulatory effects are set to partially balance cuts elsewhere. Sevelda also reiterated planned cost cuts of 20 percent by the end of 2017.
The biggest chunk Raiffeisen plans to sell is Raiffeisen Bank Polska SA. That deal has been put at risk as the lower house of parliament approved a law to provide financial aid to franc mortgage holders, which would force lenders to take 90 percent of costs converting franc loans into Polish zloty.
While Raiffeisen expects the law to be blocked by the upper house, Chief Financial Officer Martin Gruell said it would make sense to resume sale talks only after the dust settles following elections in two months. Preparations for an initial public offering are continuing, however. It could be necessary for Raiffeisen to keep the franc mortgages on its books to make the sale happen, Gruell said.
Raiffeisen’s business in Hungary returned to a quarterly profit for the first time since 2013, helped by one-time gains as the unit released excess provisions for loan losses and taxes. Sevelda said it was “approaching break-even” and could become profitable next year. There are no plans to sell the unit, Raiffeisen Hungary’s CEO Heinz Wiedner said in Budapest.
Net interest income, the bank’s biggest revenue source, fell 12 percent to 862 million euros due to business cutbacks and lower rates for the ruble and hryvnia compared with a year earlier. That still beat the average analyst estimate of 823 million euros. Provisions for bad debts rose 16 percent to 332 million euros, driven by Russia and by its Asian loan book, while the share of non-performing loans stayed at 11.9 percent.
The bank returned to a second-quarter profit in Ukraine as trading income turned positive after the hryvnia was stable during the second quarter, following its sharp devaluation in February. Talks with the European Bank for Reconstruction and Development about taking a stake of about 25 percent in the Ukrainian business are “advanced,” Sevelda said.
Raiffeisen’s Russian unit had after-tax profit of 85 million euros and has paid 254 million euros in dividend to the Austrian parent so far this year.