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Hypo Alpe-Adria-Bank International AG, the nationalized Austrian lender loaded with bad debt, said the nation’s central bank found 48 areas where risk management needs improvement.
The Austrian central bank, which was probing the lender’s tools for measuring default risks and collateral valuations, presented a preliminary report to the bank on Aug. 8, Hypo Alpe said in its half-year report released today. The exam is meant to update the Klagenfurt, Austria-based lender’s capital needs, which were last year determined by the central bank to stand at 1.5 billion euros ($1.8 billion).
“The report includes 48 concrete findings where a need for change and improvement is seen,” Hypo Alpe said in the report. “The majority of those critical remarks are compatible” with the company’s own plan to improve, it said, adding that it will reply by Sept. 16.
Hypo Alpe, which is the third-biggest lender in the former Yugoslav nations, is one of three banks that Austria has had to rescue since 2008 after shareholders walked away. The risk of further state capital injections into banks was one of the main reasons the Alpine republic lost its triple-A rating at Standard & Poor’s and was put on negative outlook at Moody’s Investors Service earlier this year.
Hypo Alpe said this week that it has cut risky assets and improved controls to reduce capital needs, while “economic tension” in its “core countries” will boost risk weightings and may drive the capital needs higher.
Hypo Alpe’s common equity Tier 1 ratio, a measure of financial strength, rose to 2.6 percent in the first half from 2 percent at the end of last year as it cut assets and bought back hybrid capital, it said in a presentation for investors on its website today. Its Tier 1 ratio, a broader measure, fell to 6.1 percent from 6.2 percent.
Hypo Alpe would have to ask for more government aid if the central bank sticks to the capital requirement. It has received 1.35 billion euros in state capital and a 200 million-euro guarantee already, of which the federal government wrote off 700 million euros in last year’s budget. About 16.7 billion euros of its funding is also guaranteed by Austria and the province of Carinthia, Hypo Alpe’s former owner.
While the lender swung to a loss in the first six months of this year, the units it put up for sale were all profitable, according to the presentation. The biggest, in the former Yugoslavia, had after-tax profit of 26 million euros, down from 32.3 million euros a year earlier. Profit almost doubled in Croatia and narrowed in Serbia, while the bank had losses in Slovenia and Montenegro. Hypo Alpe’s larger rivals in the former Yugoslavia are UniCredit SpA (UCG) and Nova Ljubljanska Bank dd.
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