Raiffeisen CEOs Say Merging Units May Ease Capital Pressure

  • RZB faces rising capital deductions as Basel rules phased in
  • RBI-RZB merger would ease pressure, consensus yet to be found

Austria’s cooperative Raiffeisen banking group could ease capital pressure by combining its central institution with its publicly traded arm, the chief executive officers of the two banks said.

New rules taking effect over the next three years will disqualify some of Raiffeisen Zentralbank Oesterreich AG’s regulatory capital, CEO Walter Rothensteiner said. Members of the far-flung group need to act soon to counter the effects of those changes, he said, adding that there was no consensus yet on how to proceed.

“Our actions must correspond to the times we live in,” RZB’s Rothensteiner told reporters in Vienna. “If you look at the capital buffer requirements that are added every year, this will move us into a direction where we’ll have to make decisions.”

Raiffeisen, which goes back to a German 19th-century movement for rural cooperatives, is still co-owned by about 1.7 million Austrians forming 473 local credit unions. Those local units in turn own eight regional banks, which own RZB, which in turn owns 61 percent of publicly traded Raiffeisen Bank International AG, a major player in eastern Europe.

New Rules

New regulations for banks, rising capital requirements and the end of the pre-crisis era of easy profits in eastern Europe have created a dilemma for the group. While the publicly traded arm can sell new shares to bolster capital, neither RZB nor the regional Raiffeisen Landesbanks have access to equity markets. Regulators also frown on the group’s complex ownership and decision-making structure.

Bloomberg reported Nov. 16 that the group may resolve years of discussions in the coming months and decide to combine RBI with RZB, and with Raiffeisenlandesbank Niederoesterreich-Wien AG, the biggest of RZB’s shareholders. This would simplify the ownership structure of the group and reduce capital pressure, three people with knowledge of the matter said at the time.

RZB’s main problem is a rule that will make it impossible for the bank to meet its regulatory requirements using all of its subsidiaries’ capital. Capital owned by the parent company would qualify, but capital owned by other investors won’t once the new rules take full effect in 2019, as part of the Basel Committee on Banking Supervision’s rulebook.

“This will become an ever more massive issue over the next two to three years,” Rothensteiner said. RBI’s CEO, Karl Sevelda, said a merger would “mathematically” ease capital pressure in the group by eliminating this issue.

Both chief executives declined to be drawn on whether a merger would be pursued and how it could be structured, saying that they still need to get everybody in the group on board. “We have bodies who have to decide about that and if we don’t convince those bodies then it won’t happen that way,” Rothensteiner said.

Meanwhile, RBI, which is the second biggest western European bank in the former communist part of Europe, is proceeding with its deleveraging plan there, Sevelda said.

The only element that has been delayed is the sale of RBI’s Polish unit, which was put on ice over the summer and has now resumed, he said, adding that RBI has no plans to leave Russia, which will contribute an “excellent result” this year.

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