Raiffeisen Zentralbank Österreich (RZB), the parent of Central and Eastern Europe’s second largest lender Raiffeisen Bank International (RBI), said the two boards have decided to examine a potential merger of the two businesses.
Speculation has grown about RZB’s move to consolidate RBI since the former CEO of the emerging market unit, Herbert Stepic, was forced to resign in 2013 in disgrace over an offshore investment scandal. Stepic had built it up from scratch into a CEE banking empire covering 17 countries with 60.000 employees, but his headstrong manner and salary demands had rubbed many in the staid parent up the wrong way . His successor, Karl Sevelda, told investors on February 2 that he was unable to provide an outlook for the group's structure, fuelling speculation that such a consolidation was firmly on the cards.
The Austrian bank said the objectives of any consolidation of the businesses “would be simplification of the corporate structure and adapting the group more closely to increased regulatory requirements”.
The statement said nothing has been signed and the evaluation of a possible consolidation would be completed within six months, “in order that the applicable resolutions for implementation may be passed in 2016”. It added that any possible consolidation of RZB and RBI would not affect RBI’s stock exchange listing.
The announcement came as RBI announced a consolidated net profit of €114mn in the first quarter, up 37.1% from the year-earlier period, as net provisioning for impairment losses fell 59.5% to €106mn.
The rise in profit came despite net interest income decreasing 12.5% year on year to €718mn, which CEO Sevelda made the results “satisfying overall, as the first quarter continued to be characterized by the ongoing low interest rate environment”, adding that, “A turnaround of the interest rate policy is currently not in sight".
“The reduction of our cost base is all the more important. Unfortunately, the regulatory costs are increasing year after year. The majority of the regulatory costs for the financial year 2016 have been booked in the first quarter,” he said.
The bank said after the implementation of the strategic measures defined at the beginning of 2015, the cost base should be approximately 20% below the level of 2014, when general administrative expenses were €3.024bn.
Sevelda highlighted the “positive results in Hungary and Ukraine” as especially encouraging – two countries where it has struggled over the past few years due to punitive taxes and forced forex loan conversion (Hungary) and a debilitating financial crisis (Ukraine). “I expect that both countries have made the turnaround and will deliver positive results for the full year 2016," he added.