Volksbanken Sees Losses on Bad Real Estate Loans, Romania

Oesterreichische Volksbanken AG said bad debt charges more than tripled last year and will remain on a “very high” level that will cause further losses at the lender partially nationalized by Austria.

Risk provisions soared to 366.9 million euros ($469 million) from 103.6 million euros a year earlier, causing a loss that was offset only by the Austrian state’s bailout measures, the bank said in a statement today. The provisions will be “very high” again this year, mostly in its eastern European real estate and corporate loan books and will lead to another loss, Chief Executive Officer Stephan Koren said.

“Winding down is something you can’t do without costs,” he told journalists in Vienna. “There is no guarantee that we won’t need further aid” from the Austrian government, he said.

Austria has bailed out Volksbanken three times since its decade-long, fivefold balance sheet expansion began unraveling in 2008. The Alpine republic has 300 million euros of non-voting capital left in the bank, as well as a 43 percent equity stake bought for 250 million euros. The country already wrote down 700 million euros of capital injected into the bank.

Volksbanken swung to net income of 312.6 million euros in 2012 compared with a loss of 959.3 million euros a year earlier, it said. The result was inflated as some of the bailout measures were booked as profit under international accounting standards, the Vienna-based bank said. Stripping off those gains, the lender had a pretax loss of about 150 million euros, Koren said.

EU Approval

The lender won European Union approval for the government support in September 2012 by agreeing to sell or wind down more than a third of its assets. It will focus on the support of local cooperative banks, its main shareholders, and get rid of its unprofitable corporate and real estate financing as well as subsidiaries outside of its core business.

Volksbanken shrank its balance sheet to 27.7 billion euros from 41.1 billion euros a year earlier before the EU plan to cut it to 28.5 billion euros, it said. OAO Sberbank bought most of its eastern European business in February 2012. The bank also sold its container-leasing unit, stakes in insurance companies as well as most of its credit-default swaps, it said.

The lender has about 2.9 billion euros of non-performing loans, or 12 percent of its total loan book, the bank said. Of those, 1.2 billion euros are in its ailing Romanian business, where almost one in three loans is delinquent.

Raiffeisen Zentralbank Oesterreich AG, which owns 0.9 percent in Volksbanken, may take over the international leasing unit, RZB Chairman Walter Rothensteiner has said. Volksbanken’s Malta unit is also due to be sold.

Before it's here, it's on the Bloomberg Terminal.