{"id":55260,"date":"2016-08-31T00:33:41","date_gmt":"2016-08-30T22:33:41","guid":{"rendered":"http:\/\/beta.next-finance.net\/news\/austrian-banks-benefit-from-eastern-european-recovery\/"},"modified":"2019-12-31T01:02:06","modified_gmt":"2019-12-31T00:02:06","slug":"austrian-banks-benefit-from-eastern-european-recovery","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/news\/austrian-banks-benefit-from-eastern-european-recovery\/","title":{"rendered":"Austrian banks benefit from eastern European recovery"},"content":{"rendered":"

An improving performance in central and eastern Europe is benefitting Austrian banks at a time when their home market is sluggish.<\/strong> <\/em><\/p>\n

Erste Group Bank AG flagged up loan growth in Slovakia and the Czech Republic as it reported a surge in second-quarter return on average equity to 17.1%, double the first quarter’s level. UniCredit Bank Austria AG’s 28% rise in first-half net attributable profit was almost entirely driven by a doubling of gains in central and eastern Europe. Raiffeisen Bank International AG’s quarter-on-quarter 16% decline in consolidated profit would have been worse but for jumps of 80% in central Europe and 40% in eastern Europe, where a harsh recession is easing.<\/p>\n

Central Europe’s economies should expand by 2.5% this year, compared to a 1.7% average for the EU, according to the Economist Intelligence Unit. Eastern Europe’s GDP, which plummeted 5.8% in 2015 under the impact of Ukraine’s conflict and sanctions on Russia, should contract only 0.8% in 2016, before growing again next year.<\/p>\n

Yet investing in CEE can be risky. The 400+ basis-points fall in common equity Tier 1 equity reported for both Erste and Raiffeisen in the adverse scenario of the European Banking Authority’s 2016 stress test was partly due to the assumption of a very steep contraction in eastern European economies.<\/p>\n

Political risk can also be greater than in developed economies. Raiffeisen said in its first-half report that it took a provisioning charge of \u20ac43 million against the effects of a Romanian law allowing mortgage holders to walk away from their contracts. Banks in Poland escaped a forced conversion of about $36 billion of Swiss franc-denominated mortgages earlier this month after concern it could weaken the financial system.<\/p>\n

All three leading banks have strengthened their capital since 2015. Retained profits and further deleveraging could continue this trend. Loan to deposit ratios range between 90% and 110%.<\/p><\/blockquote>\n

Both UniCredit and RBI are also restructuring to cut risks and strengthen capital. Shareholders are expected to decide by end September about a possible merger between RBI and Raiffeisen Zentralbank \u00d6sterreich AG. Asset sales including the disposal of Raiffeisen Bank Polska SA should strengthen the capital of the combined company, SocGen analysts said.<\/p>\n

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