CEE lender RBI reports preliminary net profit of €383mn

CEE lender RBI reports preliminary net profit of €383mn
By Robert Anderson February 2, 2016

Raiffeisen Bank International (RBI), the struggling Austrian lender, continued to claw its way back in the fourth quarter, reporting a higher 2015 full-year net profit than expected.

In a release after the market close on February 1, RBI, the second biggest non-Russian bank by assets in Central and Eastern Europe, said it had a made a preliminary 2015 consolidated net profit of €383mn, largely because of lower-than-expected net provisioning for impairment losses. RBI had guided for a “small consolidated profit” at its third quarter results – having previously warned that it might be lossmaking in 2015 – after much of the restructuring costs were postponed until 2016.

"This is very positive news," commented Thomas Unger of Erste in a research note, highlighting the 0.7 percentage point increase in the bank's ratio of core capital to risk-weighted assets, some 0.6pp of which was because of lowering assets. RBI's shares rose 6.3% to €12.03 in morning trading in Vienna.

In 2015 impairment losses were €1.267bn, 28% below 2014. Some €124mn of 2015’s expected goodwill impairment charges and risk costs were reallocated to 2014, pushing up that year’s consolidated loss to €617mn.

That full-year loss a year ago – its first – forced RBI to launch a plan to scale back its operations, in an attempt to boost its core capital ratio to keep up with its peers and meet increased requirements imposed by regulators.

Since then, RBI has sold its Slovenian operations and agreed to sell its internet bank Zuno, and has welcomed the European Bank for Reconstruction and Development into its troubled Ukrainian unit Aval, but it has made little progress in offloading its most valuable asset for sale, Polbank in Poland.

"The environment is not very helpful," Martin Gruell, chief financial officer, told a conference call with analysts on February 2, highlighting the incoming Law and Justice government's "excessive" banking asset tax and its proposals for a "very harmful law" on converting Swiss franc loans. Bidders for Polbank have insisted that RBI carve out the Swiss franc loans, though Gruell insisted that "we do not believe that - on top of the expensive burden from the bank asset tax - that such a [Swiss franc] measure will be implemented".

RBI has scaled down its risk-weighted assets significantly, which has helped boost its fully-loaded CET1 ratio, a key measure of balance sheet strength. RBI said risk-weighted assets had been cut by more than €4bn in the fourth quarter to reach approximately €63bn as of December 31, 2015. The CET1 ratio was around 11.5% compared with 10.0% at the end of 2014 and 10.8% at the end of the third quarter of 2015. 

"We have already made substantial progress towards our end 2017 target," Karl Sevelda, chief executive, told the call. RBI targets a CET1 ratio of 12% by the end of next year and Sevelda said the bank now expects to be "comfortably above" that figure.

At the same time restructuring costs and overall cost-cutting have progressed slower than expected. Restructuring costs in 2015 were €90mn of what is expected to be a maximum total of €550mn. General administrative expenses were €2.915bn, just 4% down on 2014. RBI plans to cut its cost base by 20% by the end of 2017 compared with 2014’s level.

Sevelda said banking conditions in Russia and Ukraine had been "better than expected". In Russia RBI made a "very satisfactory" net profit of €387mn, he said, Belarus produced "excellent results", while its operations in Ukraine remained lossmaking in the fourth quarter.

Elsewhere RBI returned to the black in Hungary, and performed well in the Czech Republic, Slovakia, Romania and Bulgaria, though no figures were released. In Croatia, however, the bank made a loss after the sector was "heavily hit" by the forcible conversion of Swiss franc loans into euros.

Sevelda confirmed that RBI, which is listed, was still discussing a merger with its parent, the co-operative-owned RZB group, which would help improve its core capital ratio by eliminating deductions because of minority interests, though "nothing has been decided yet". "There are ongoing discussions but I believe in the next couple of months we will not see any change," he told the call.

RBI reiterated that it will recommend that no dividend is paid for the 2015 financial year.