CEE lender RBI consolidated profit down 15% in first three quarters

By bne IntelliNews November 16, 2016

Raiffeisen Bank International (RBI), the second largest bank operating across Central and Eastern Europe (CEE), reported consolidated profit down 14.7% to €394mn in the first three quarters, as its restructuring programme continues to crimp profitability.

Net interest income fell 12.3% to €2.187bn year-on-year, which the Austrian bank attributed to persistently low market interest rates and excessive liquidity, as well as to a reduction of €171mn in interest income from hedging. The net interest margin eased to 2.76% from 2.79% in the same period a year ago.

Net fee and commission income fell 3% y/y to €1.097bn because of currency devaluations in Eastern Europe as well as lower sales in Central Europe. Consolidated return on equity was 6.6% compared with 7.9% in the same period a year ago.

Nevertheless, by comparison with the second quarter, RBI’s results showed a marked improvement. In the third quarter consolidated profit was €184mn, an increase of 91.6%. This helped RBI’s shares rise 1.4% to €16.08 at midday in Vienna. RBI’s shares have recovered from a low this February of €10.21.

After making its first full-year loss in 2014, RBI launched a project in February 2015 to cut costs, reduce risk-weighted assets and bolster its capital strength to the level of rivals, reassuring regulators and investors.

The plan involved focusing on core business by slashing its operations in the US and Asia, cutting lending in Russia, Ukraine and Hungary, and selling its banks in Poland, Slovenia and its internet bank Zuno, as well as cutting costs and skipping dividends.

The bank continues to make progress in meeting the targets of its restructuring programme, helped less by disposals and cost-cutting than by more cautious lending. The main drawback of this is that as the bank reduces its loan book, it could get stuck in a low-growth mode as it becomes excessively liquid in the continuing low interest rate environment.

So far it sold its Slovenian bank to Apollo Global Management of the US, and has begun winding down Zuno, and is in exclusive talks with state-owned insurance group PZU to sell its Polbank crown jewel in Poland. It has recently sold its leasing business in Poland to PKP Leasing, a unit of state-controlled PKO bank for close to €200mn.

Furthermore it has announced an agreement in principle to merge with its Austrian co-operative bank parent Raiffeisen Zentralbank Österreich (RZB), which will simplify the group’s structure, but slightly weaken its capital adequacy ratio.

Its common equity tier 1 ratio (fully loaded) already meets its end-2017 target. At the end of the third quarter it had increased by 0.8 percentage point (pp) to 12.3% compared to year-end 2015

As risk-weighted assets fall and the non-performing loan ratio declines (down 1.7pp to 10.2% from the year-end), lower provisioning is supporting profits. Net provisioning for impairment losses was down by 36.7% to €503mn in the first three quarters compared to the same period a year ago, while the NPL coverage ratio reached 72.0%, up from 71.3% at year-end.

Costs have remained stubbornly high, however. General administrative expenses were stable at €2.1bn and the cost-income ratio actually increased 3.1pp to 60.5% y/y, predominantly due to the lower net interest income. The bank has reduced its workforce by around 1,000, or almost 2%, to 50,500 over the past year.

Karl Sevelda, chief executive, said he was satisfied by the results and was optimistic about the future development. “Our transformation programme makes good progress, and we are already now approaching our target figures, one year ahead of schedule,” he said in a statement.

“I would like to emphasize the turnaround in Hungary as well as the outstanding result in Ukraine in the light of the extremely difficult environment there. Russia, the Czech Republic, Slovakia and Bulgaria delivered very strong results, too,” said Sevelda.

He warned that “populist measures at the expense of banks are cause for concern”, but hailed as positive the decision of the Romanian Constitutional Court to partially repeal a law allowing debtors to walk away from their debts. “I hope for a signal effect from this verdict,” Sevelda said.

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