Erste rules out acquistions as it reports record loss

By bne IntelliNews March 2, 2015

Robert Anderson in Prague -


Austria's Erste Bank will put acquisition activity on hold over the next two years and concentrate instead on costs, after it reported a record full-year loss of €1.44bn on February 27.

"Our long-term plan is to add Poland to our group but for the next few years this is a clear no-go for us," Andreas Treichl, the longstanding CEO of the third largest bank in Central and Eastern Europe by assets told a conference call with analysts. "We have a lot to do [to improve efficiency] and no intention to enter international acquisition deals in 2015-2016."

Erste was expected to be amongst the bidders for a raft of banks in Poland. The market is a huge gap in its portfolio in the region. Four or five lenders are for sale, including Austrian peer Raiffeisen's subsidiary Polbank, General Electric's BPH, Carlo Tassara Group's stake in Alior Bank, and Abris private equity fund's stake in PBOP. Bank Millennium, owned by Portugal's BCP, has also been the subject of rumours for years.

Erste returned to a surprise net profit of €42mn in the fourth quarter, after huge writedowns in Q3, easily beating the average estimated loss of €33.6mn in a Reuters poll. The full year loss was at the lower end of guidance issued in July, when the bank estimated it could sink into the red to the tune of €1.4bn-1.6bn. 

After resolving problems in Romania and Hungary, Erste predicts it will remain profitable in 2015, though operational profits would be weaker this year - down by around 5% from the €3.09bn it made in 2014 - in the continuing low interest rate environment. The bank says loan growth is re-emerging in the region, which it predicts in the single digits this year, while asset quality is improving, meaning risk costs will significantly decline, improving profitability compared to 2014.

"We finally see a slight improvement in domestic demand which should see a positive effect on the development of our loan volumes," Treichl said. "We now have a real chance that over the next two years we can operate profitably in all our markets and the two real problems that we had - Romania and Hungary - both look substantially better than they did last year."

Erste operates in seven countries in CEE and is the market leader in Austria, the Czech Republic, Slovakia and Romania. Its last remaining worry is Croatia, the bank said, where there will be no economic growth this year. There is also a risk of the government imposing further measures to help Swiss franc borrowers that would hurt banks.

In 2014, Erste was hit by net impairments of €2.15bn, mainly because of intangible writedowns of  €809m at its Romanian subsidiary. Erste also made €400m of extra loan provisions for Romania. The bank has also run into deep trouble in Hungary, where it estimates that a new consumer loan law and forced foreign exchange loan conversions cost it €312m last year. 

However, Treichl hailed the bank's deal with the Hungarian government earlier this month, in which Prime Minister Viktor Orban agreed to ease pressure on the banking sector in return for a 15% stake in Erste's local unit, and a commitment to greater lending. 

"This is a very positive development for the banking system in Hungary given the commitments on the part of the Hungarian government," Treichl said. He suggests the deal should allow Erste to return to a "profitable business base" in Hungary in 2015-16, though it would not be profitable this year.

Erste's common tier 1 equity ratio stood at 10.6% at the end of 2014. It paid no dividend in 2014 and Treichl says the bank is awaiting clarification from regulators before deciding on returning further money to shareholders. 

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