Raiffeisen Bank International (RBI), the Austrian lender, has reached its capital buffer target earlier than planned, but at the cost of slumping profitability.
Consolidated profit plunged 23.8% year on year (y/y) to €210mn in the first half of 2016, hit by a 13.4% fall in net interest income to €1.455bn as the bank reduces its loan book, leaving it excessively liquid in the continuing low interest rate environment. In the second quarter alone consolidated profit fell 16% y/y to €96mn.
RBI, the second largest non-Russian bank by assets in Central and Eastern Europe, has been scaling back its operations since its first full-year loss in 2014, in an attempt to boost its core capital ratio to keep up with its peers and meet increased requirements imposed by regulators.
In a statement, the bank’s chief executive Karl Sevelda admitted that the reduction in loan volume is crimping profitability as the bank focuses on reducing risk costs and building up its capital buffers. Yet he highlighted the improvement in risk costs and in the bank’s core capital ratios.
The fully-loaded CET ratio, the key measure of the bank’s capital strength, increased to 12.2%, compared to 11.5% at the end of 2015. This means RBI has met its capital buffer target of 12% by the end of 2017, much earlier than planned and without the planned disposal of its large Polish operations.
Sevelda said the equity ratios had “increased significantly” since the beginning of the year, adding that “the improvement of our capital base remains the top priority”.
Another bright spot was falling provisioning costs. Net provisioning for impairment losses was down by a third to €403mn, while the non-performing loan ratio improved 1.5 percentage points compared with year-end 2015 to 10.4%.
“I am very satisfied with the development of our risk costs,” said Sevelda. “Especially in retail business, we were able to reduce net provisioning substantially. Non-performing loans decreased significantly as well.”
“I would like to highlight that the development of the business in our core markets Central Europe and Southeastern Europe has been particularly solid in the first half of this year – which you can see in the numbers. In addition, we believe we will have fully absorbed the problems in Asia this year. These two factors in combination, coupled with the good equity development, make me optimistic for the future,” Sevelda said.
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