Shareholders of CEE lender RBI approve merger with parent RZB

By bne IntelliNews January 25, 2017

Shareholders of Raiffeisen Bank International (RBI) have approved the merger with its parent Raiffeisen Zentralbank Osterreich (RZB) by a 99.4% majority, in a move that will make it easier for the combined entity to raise its capital in the future.

RBI, the second largest bank operating across Central and Eastern Europe (CEE) by assets, and Austria’s unlisted RZB have been struggling to meet tighter regulatory guidelines imposed since the global financial crisis in 2008.

RZB came third-last in the stress tests of 51 big European lenders carried out last July by the European Banking Authority. The EBA estimated that RZB’s fully loaded CET 1 ratio, a key measure of capital strength, would fall to 6.12% in a crisis from 10.6% in the second quarter of last year. RZB has been handicapped by accounting rules that do not let it count all of RBI's capital as its own.

RBI has itself been restructuring since it made its first full-year lost in 2014, in order to cut costs, reduce risk-weighted assets and bolster its capital strength. Its CET 1 ratio (fully loaded) already meets its end-2017 target. At the end of the third quarter it had increased by 0.8 percentage point (pp) to 12.3% compared to year-end 2015.

Under a plan proposed in May and announced in October, RBI will acquire RZB in an all-share deal under which it increases its share capital by 10.9% through the issue of new shares to RZB shareholders.

“The merger of RZB and RBI eliminates the minority deduction from capital and leads to an immediate improvement in the common equity tier 1 ratio of the ultimate group,” Karl Sevelda, the outgoing CEO of RBI, said at the extraordinary general meeting on January 24.

In the short term the merger will help RZB more. The merged bank would have had a fully loaded CET 1 ratio of 11.3% as of the end of last September, less than RBI's 12.3% at the same point. The combined bank’s CET1 target remains 12% by the end of 2017.

“The elimination of the minority deduction also makes it easier to increase regulatory capital in the future, whether through earnings retention or issuance,” Sevelda added.

Until now, RBI has been constrained from increasing its capital because of its complex co-operative structure. RBI was majority owned by RZB, which in turn was owned by Austrian regional landesbanks, which in turn were owned by local savings banks. They resisted capital raisings because they feared losing their 60.7% majority in RBI.

The merger should simplify the group’s complex structure, improving transparency and governance, though the regional landesbanken will still hold a blocking majority of 58.8% of the shares.

Through merging with its Austrian parent, RBI could also improve investor perceptions about its relatively high non-performing loan ratio and exposure to emerging markets. 

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