The RBI gives loans to the government

Bad loans slow down Raiffeisen in Eastern Europe - shares plummet

By Reuters Staff

Vienna (Reuters) - The economic downturn and the increasing number of corporate troubles are causing problems for Raiffeisen Bank International.

The second largest lender in Eastern Europe had to raise its forecast for provisions for bad loans on Monday night: Instead of stagnating at the previous year's level of a billion, the bank now expects provisions of 1.1 to 1.2 billion euros. This was not well received on the stock market: “In our opinion, this is a profit warning,” wrote Berenberg analyst Eleni Papoula. Some shareholders see it similarly: The Raiffeisen share lost up to 7.3 percent and in the afternoon was still 3.4 percent lower at 24.7 euros.

In the past few years, the rising or falling provisions for bad loans have largely determined the profits of many banks in Eastern Europe. In economically difficult times, many companies get into turmoil and can no longer repay their bank debts. The money houses have to put money aside for this - which in turn reduces their profits. "There are various cases of customers who come under pressure because of the long recession in the euro zone - including in Albania, Bulgaria and Slovenia," said an RBI spokesman.

The UniCredit subsidiary Bank Austria as a larger competitor is adopting a much more optimistic tone. The quality of UniCredit loans is good and the institute is not affected by the turbulence in Slovenia, for example. An exchange of foreign currency loans for the national currency forint planned by the Hungarian government would also affect UniCredit less than other banks, said Gianni Franco Papa, head of Eastern Europe, said confidently.

For RBI, the increasing volume of bad loans is not the only problem area: The institute has been keeping the door open for a capital increase for years in order to repay the billions in government aid it received during the crisis. So far, however, the bank has not ventured out of cover because of the low share price. Even the new head of the bank, Karl Sevelda, who has been in office since June, has not yet looked into his cards.