UPDATE 3-Raiffeisen says can hit capital target and grow

Thu Nov 24, 2011 10:30am EST

Related Topics

* Narrows ROE target to 15 pct, low end of previous range

* Says cannot accurately predict when non-performing loans will peak

* Steps could yield equivalent up to 3.6 bln eur in capital

* Says could exit some CEE countries but not Hungary

* Shares rise 6.7 percent, outperform sector (Writes through after news conference)

By Michael Shields

VIENNA, Nov 24 (Reuters) - Austria's Raiffeisen banking group could cut assets and reshuffle its capital structure to meet regulatory targets without curbing growth in its core emerging Europe markets, the region's third-biggest lender said.

Unveiling better-than-expected quarterly profit on Thursday, Raiffeisen Bank International (RBI) said it expected to keep growing in most central and eastern (CEE) Europe markets despite new Austrian curbs on lending growth there.

Chief Executive Herbert Stepic said talks continued with Austrian regulators on rules proposed this week, and that some countries could be covered by transitional arrangements.

"The talks should allow a smoothening process for a small number of countries and prevent market distruptions, which we want to avoid under all circumstances," he told reporters.

"I think with these few exceptions that were indicated to us we will still be able grow along with the market."

The proposed rules, which would link lending in central, eastern and southeastern Europe to the amount of refinancing that CEE units of Austrian banks can arrange locally, have stoked fears of a regional credit crunch.

RBI and its unlisted parent Raiffeisen Zentralbank need around 2.5 billion euros ($3.34 billion) to reach a 9 percent core capital target by the middle of 2012 under guidelines set by the European Banking Authority (EBA).

Raiffeisen on Thursday put out tenative plans to beef up its balance sheet by the equivalent of 2.5-3.6 billion euros.

It may convert up to 1 billion euros in private non-voting capital into a category that complies with EBA guidelines, reduce risk-weighted assets by up to 900 million euros, and gain up to 800 million from retained earnings and other measures.

"Raiffeisen Bank International is still well under way, almost a bit too well," Stepic said, a reference to the fact that as the group grows its need for capital goes up under the regulatory targets.

STAYING IN HUNGARY

Stepic said Raiffeisen's presence in 18 CEE markets let it tap a region growing faster than sluggish western Europe and with generally healthier public finances.

Its big businesses in solid markets such as Russia, Poland and the Czech Republic positioned it well despite troubles in Hungary, where it lost 245 million euros in the third quarter and ramped up provisions for impairment losses.

The bank did not rule out exiting some marginal markets in the region but will stay in Hungary, although Stepic said he could cut risk-weighted assets there by 10-15 percent.

Budapest's decision to let consumers repay foreign-currency loans at exchange rates well below market levels has saddled banks, already hit by a hefty banks levy, with big losses.

RBI said it will have to inject at least 320 million euros into its Hungarian unit, where the loan plan could cost it around 120 million euros.

The group's presence in less-promising markets elsewhere was under active discussion. "From today's perspective it is absolutely possible that we would withdraw from a country or two," Stepic said without being more specific.

Third-quarter net profit at the bank fell 58 percent year-on-year to 130 million euros. Analysts polled by Reuters had on average expected 94.6 million.

RBI shares rose 6.9 percent to 15.12 euros by 1530 GMT, outperforming the STOXX 600 European banking sector index that was up 1.0 percent. Analysts cited positive surprises for revenues and asset quality.

But RBI gave a cautious outlook and narrowed its return on equity target to 15 percent from the previous 15-20 percent range given "current economic developments, especially in CEE".

ROE, a measure of the efficiency with which companies make profits from the resources provided by investors, was 13.6 percent in the first nine months of 2011.

Raifeissen retreated from its previous view that its non-performing loan (NPL) ratio would peak in the second half of 2011, saying it could no longer predict this accurately.

($1 = 0.7490 euros) (Reporting by Michael Shields and Angelika Gruber; Editing by Jodie Ginsberg)

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