Robert Anderson in Prague -
Raiffeisen Bank International (RBI), the second largest lender in Central and Eastern Europe, will sell its banking operations in Poland and Slovenia, and scale back its exposure to Russia and Ukraine in order to boost its capital buffers.
The decision follows steep falls in the Austrian bank’s shares and bonds in January sparked by the Ukraine crisis and the Swiss central bank’s decision to end the Swiss franc’s peg to the euro. RBI is heavily exposed to Russia and Ukraine, and has thousands of clients in the region who have taken out Swiss franc mortgages.
The bank said in a statement on February 9 that the moves should help increase its Tier 1 capital ratio to 12% by the end of 2017, compared with 10% at the end of last year. “By implementing these measures RBI will improve its risk profile, strengthen its capitalisation and ensure sustainable profitability,” said Karl Sevelda, RBI’s chief executive.
The bank will also write down the value of its international operations by €306mn, which pushed it into a loss of €493mn in 2014.
RBI’s shares rose 8% in trading by lunchtime on February 10 to €12.29, but they were still down 57% compared with a year ago.
The announcements, which were fleshed out on an investor call on February 10, represent a significant refocusing of RBI’s portfolio of assets and goes some way to answering criticism that it was too thinly spread across the CEE region.
The sale of the Polish unit had been widely predicted. RBI’s Polish operations are its biggest foreign subsidiary and the country is one of the most promising CEE markets. However, the bank ranks only number eight in Poland and further growth would require capital that RBI can no longer afford. “Significant investment would be necessary to be a top five player and we are not able to make such investments due to our deleveraging strategy,” Sevelda told the conference call.
Selling the bank could, though, put RBI on a collision course with the Polish financial regulator. The KNF has stated several times its opposition to further consolidation in the country’s banking sector, and would be likely to apply extremely strict conditions on any potential buyer. The KNF is also insisting that RBI keeps its pledge to float some of the shares in its Polish operation, a promise the bank said it planned to keep.
RBI is also selling two small loss-making businesses: its internet bank Zuno and its Slovenian operations. The sale of the latter is close to being agreed, it revealed.
In Russia, RBI will cut its risk-weighted assets (RWA) by approximately 20% until the end of 2017. At the end of last year it had RWA of €8.4bn in the country.
In Ukraine, where RWA at the end of last year were €3.0bn, the cut will be 30%. RBI had also considered selling its Ukraine business, where it lost €290m in 2014 after raising loan-loss provisions to €533m.
Hungary for more
In Hungary, RBI said that “further optimisation of the operation will be undertaken” through a reduction in the branch network and a focus on the higher end of the market, but it was no longer planning to exit the country, despite losing €398mn last year. Some €251mn of this loss was a result of government measures to penalise banks that sold loans to households denominated in foreign currencies like the Swiss franc.
RBI said in late 2013 that it was ready to listen to offers for its Hungarian business, as it looked to have tired of the punishment meted out by the government to foreign banks over these forex loans. However, it soon retreated when it got just one offer, of €1.
Sevelda told the investor conference call that the environment was now improving in Hungary, following the government’s pledge to halve banking taxes. “We see light at the end of the tunnel,” he said.
The bank is also significantly scaling back its operations in Asia by the end of 2017 and the US by end-2016. The pullback in Asia would represent most of the €500mn-550m costs of the refocusing strategy, Finance Director Martin Grull told the conference call.
The bank said that implementation of all these measures would result in a reduction in its RWA of approximately €16bn by the end of 2017, from its total of €68.7bn at the end of 2014. RBI has already cut some €10bn from its RWA during the fourth quarter of 2014.
In its full-year unaudited preliminary results, also announced on February 9, RBI recorded a loss of €493mn, compared with a profit of €557mn in 2013. No dividend will be paid.
The results were affected by goodwill write-downs of €148mn in Russia, €99mn in Poland and €51mn in Albania, as well as by a cancellation of deferred tax assets at head office and in Asia.
“Raiffeisen’s commitment to reinforce capital and reduce its complexity should be viewed positively,” Goldman Sachs wrote in a note to investors. “While many of the measures don’t come as a major surprise, they now form a clearer commitment that could add credibility to management’s plans. We think execution will be key.”
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