Raiffeisen Warns on Corporate Loans in Austria, Slovenia

Raiffeisen Bank International AG, Austria’s third-biggest bank, said souring corporate credit in Austria and an asset-quality review in Slovenia will cause loan losses to rise as much as 20 percent this year. The shares fell.

Raiffeisen, also the second-biggest lender in eastern Europe after UniCredit SpA, sees loan-loss provisions of as much as 1.2 billion euros ($1.6 billion) this year, the Vienna-based bank said in a statement late yesterday, scrapping its goal, last reiterated Aug. 22, that charges will remain little changed from last year’s 1.009 billion euros.

Raiffeisen fell 4 percent to a one-month low of 24.57 euros in Vienna, the worst performance in the STOXX 600 Banks index, which rose 0.6 percent. The stock has lost 22 percent this year, reducing its market capitalization to 4.8 billion euros.

“This is not really a constructive signal,” said Andreas Plaesier, an analyst at M.M. Warburg & Co. KGaA in Hamburg who recommends holding Raiffeisen shares. “Of course, loan losses lag the economy, but we have had a bit of a stabilization already -- so why are there so many new items emerging?”

Bad debt in Hungary, Ukraine and the former Yugoslavia, and a rising number of insolvencies and restructurings in Austria, already forced Raiffeisen to book its first quarterly loss last year. Non-performing loans are weighing down the earnings that new Chief Executive Officer Karl Sevelda needs to prop up capital ratios and underpin dividends his shareholders demand.

Austrian Insolvencies

The increase in loan losses means earnings per share will be 22 percent lower than previously estimated, according to Berenberg Bank AG analyst Eleni Papoula, who recommends selling the stock. She cut her EPS estimate to 2.6 euros from 3.3 euros.

Large Austrian corporate loans and loans to clients in China that are related to cases of fraud were the biggest reasons for the spike in loan losses, Susanne Langer, a spokeswoman, said by telephone. Austria’s Erste Group Bank AG also reported higher loan losses for large Austrian companies in the first half of the year. The country witnessed the failure of builder Alpine Bau GmbH, its biggest postwar insolvency, and of drugstore retailer dayli.

The higher charges come before an asset-quality review the European Central Bank will oversee in the coming months as it takes on banking supervision in the European Union next year. Intesa Sanpaolo SpA, which competes with Raiffeisen in eastern Europe, said last month it is increasing provisions to gird for the ECB review.

Asset Review

A precursor to that exercise in Slovenia, the country to Austria’s south, also triggered higher provisions at Raiffeisen, Langer said. Raiffeisen last year started the process of cutting by two-thirds the 1.5 billion euros of assets held by its money-losing Slovenian unit.

Still looming over the group’s full-year results are possible additional losses in Hungary, where Prime Minister Viktor Orban has threatened to impose losses on Swiss-franc denominated mortgages on banks. There were no additional provisions for such losses in Hungary yet because the precise shape of the government’s plans is uncertain, Langer said.

“The ECB asset-quality review and the FX mortgages situation in Hungary continue to represent risks to the provisioning levels,” UBS AG analysts Matteo Ramenghi and Margarita Streltses said in a note to clients. “The weakened earnings potential, at least in the near term, increases the focus on the capital structure.”

Raiffeisen has one of the lowest capital ratios among major European banks, according to M.M. Warburg’s Plaesier, and may have to sell as much as 2.1 billion euros of new shares, or almost half of its outstanding stock, to fill the gap, he said in an Aug. 27 note.

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.