UPDATE 3-Raiffeisen mulls capital hike to fuel growth

Fri Apr 8, 2011 8:08am EDT

Related Topics

* CEO does not rule out possibility of raising fresh capital

* 2010 net profit 1.09 billion euros, vs forecast 907 mln

* Net interest income 3.58 bln euros, vs forecast 3.62 bln

* Provisions for impairment losses 1.19 bln vs poll 1.25 bln

* Shares up 1.4 percent, outpace sector

(Recasts with share sale, adds comments from news conference)

By Michael Shields

VIENNA, April 8 (Reuters) - Raiffeisen Bank International (RBIV.VI) is considering selling new shares to help finance brisk growth in central and eastern Europe, its chief executive said on Friday.

"Depending on expectations of how our own business will develop and of market conditions, we do not rule out the possibility of raising fresh capital in the future," CEO Herbert Stepic told a news conference on Friday.

Emerging Europe's No.3 lender by assets was already well capitalised, Stepic said, but the bank saw more room to grow in the region, which it expects to outperform developed markets.

Raiffeisen forecast its bad loan ratio would top out late this year after 2010 profit easily beat market expectations, sending its shares higher.

High margins have allowed Raiffeisen, Austrian peer Erste Group Bank (ERST.VI) and market leader UniCredit (CRDI.MI) to remain profitable in emerging Europe, but investors are looking for a clear reversal of the bad-debt cycle to boost returns.

"Based on current market forecasts, we assume the non-performing loan ratio at group level will peak in the second half of 2011," it said. It was 9 percent at the end of 2010.

Growth in Raiffeisen's bad loans started to slow in the second half of 2010, but the NPL ratio ticked up in central Europe late last year due to Hungary, whose bank tax made it the only country in the region where the group lost money.

Amid mounting signs of an economic recovery, Raiffeisen set a mid-term target to boost its pre-tax return on equity to 15-20 percent from 13.7 percent in 2010.

Net profit jumped more than 140 percent in 2010 to 1.09 billion euros. It proposed a dividend of 1.05 euros, also above expectations.

Raiffeisen shares were trading 1.4 percent higher at 39.96 euros by 1048 GMT, while the Stoxx European banking index .SX7P gained 0.4 percent.

"The numbers look better than expected at first glance but this is almost exclusively due to the tax rate," CA Cheuvreux analyst Alfred Reisenberger said.

He said the bank's core tier 1 capital ratio had risen to a "very solid" 8.9 percent, adding: "The question is whether this will stifle speculation about a possible capital increase. I am afraid it won't."

DISCOUNTED VALUATION

The group also needs to find ways to offset a 130 million euro hit this year from bank levies in Austria and Hungary.

Raiffeisen stock trades on a 12-month forward price/earnings ratio of 8.5 times, a discount to Erste Group on 10 times, according to StarMine, which weights analysts' estimates by their track record for accuracy.

Speculation that it will sell more equity to bolster its balance sheet and underpin expansion plans has weighed on its valuation.

Raiffeisen is in the process of taking over Poland's Polbank to cement its position in that fast-growth market. [ID:nLDE7130WQ]

Based on 2010 pro-forma figures, Raiffeisen's common equity Tier 1 ratio in 2013 would be 8.4 percent, well above the minimum of 3.5 percent, the bank said.

The 2.5 billion euros in participation capital it raised during the financial crisis is fully grandfathered as common equity until the end of 2017, it added. Stepic said there were no immediate plans to repay this capital.

It put its combined exposure to Greece, Ireland, Italy, Portugal and Spain at 3.42 billion euros, but its sovereign debt exposure was just 461 million, nearly all from Italy. (Editing by Jon Loades-Carter and Will Waterman) ($1 = 0.6996 euro)

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