Bloomberg News

Raiffeisen May Exit Some Eastern Europe Nations Amid Hungary Woe

November 25, 2011

Nov. 24 (Bloomberg) -- Raiffeisen Bank International AG said it may leave some eastern European nations as losses in Hungary stall a two-decade expansion drive that made the Austrian company the region’s third-biggest lender.

“It is indeed possible that we withdraw from a country or two” besides Hungary, Raiffeisen Chief Executive Officer Herbert Stepic said. He declined to name particular nations. He spoke in Vienna today as the bank reported a 58 percent decline in third-quarter profit, hurt by a Hungarian law that forces banks to take losses on Swiss franc-denominated mortgages.

“We have only one problem country, and that’s Hungary,” Stepic told journalists. “We will stay in Hungary, but also I have to say that there is a maximum to what an organization can bear, and I won’t deny that we’re pretty stretched.”

Stepic said Raiffeisen will start shrinking by cutting as much as 15 percent of its assets in Hungary, where it first invested before the fall of communist rule. The Vienna-based bank, which is under pressure from regulators to boost capital, now operates in 15 countries, with its four biggest units by assets in Russia, the Czech and Slovak republics and Hungary.

Shrinking the balance sheet will affect “markets that don’t yield much and won’t yield much in the long term,” Stepic said. He and the bank’s parent company, Raiffeisen Zentralbank Oesterreich AG, must fill a 2.5 billion-euro ($3.4 billion) capital shortfall by June.

Staying in Hungary

Raiffeisen’s Hungarian loss was 245 million euros in the quarter as it increased the money set aside to cover bad debt there more than fivefold. Hungary’s government is forcing banks to swallow the cost of easing the burden on borrowers who took out foreign-currency mortgages. Prime Minister Viktor Orban has also imposed the highest banking tax in Europe.

Raiffeisen said its 8.3 billion euros of assets in Hungary are under review as the government’s policies “weakened foreign investors’ confidence in the political system.”

The lender’s Austrian peer Erste Group Bank AG, which grew to be the second-biggest lender in eastern Europe after a similar expansion strategy, set aside an extra 450 million euros for bad debt in Hungary in the third quarter and wrote down the value of its unit there.

Stepic reiterated that Raiffeisen, which made two-thirds of its profit in eastern Europe in the first nine months of the year, still considers the region its main source of income and growth. That’s because its economies will likely grow an average of 2 percentage points faster than western Europe in the coming years, while the banking industry is not as developed and offers better growth opportunities, he said.

Raiffeisen and RZB have about 20 projects that could generate the equivalent of as much as 3.6 billion euros of capital and let the bank avoid selling new shares or resorting to state aid to meet the European Banking Authority’s capital requirements, today’s presentation from the lender showed.

One measure is the reduction of risk-weighted assets by about 6 billion euros, including the Hungarian cuts. Other steps include changes to increase the capital recognized by the EBA and retaining earnings.

--Editors: Keith Campbell, Francis Harris.

To contact the reporter on this story: Boris Groendahl in Vienna at bgroendahl@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net


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