UPDATE 1-UniCredit not put off by Ukraine turmoil

Tue Dec 3, 2013 10:38am EST

* UniCredit doing better in Ukraine than rivals - CEE head

* Opposes higher tax burden in Hungary but no plan to exit

* Sees upturn in Turkey in 2015 after year of stabilisation

By Michael Shields

VIENNA, Dec 3 (Reuters) - Unicredit will not walk away from Ukraine because of political unrest, particularly as its business there has been doing better than rivals, the Italian bank's head of central and eastern Europe (CEE) said.

Gianni Franco Papa also said although Unicredit is committed to Hungary, Budapest should not push lenders too far by raising taxes again and that he was not worried about stress testing of its bank in Slovenia.

Ukraine plunged into crisis after President Viktor Yanukovich dropped a trade deal with the European Union under pressure from Russia, triggering mass protests.

UniCredit has just finished merging its two banks in Ukraine, which combined have around 3.3 billion euros ($4.5 billion) in assets, 435 branches and 6,200 staff in a country that Papa called "an important part of Europe".

"I think we have been weathering the situation in the country much better than many other competitors in the country," he told reporters, having already restructured operations heavily to cut costs and address risks.

"An investment like this cannot be just left out because of (one) situation or another. What is important for us as a bank is to have stable countries... because turmoil is never good for business," he said late on Monday.

"I don't really think that what we are seeing in Ukraine is very much different from what we have seen in the last six or seven years."

But he said the situation could not be allowed to go on for weeks as the country decides its direction.

UniCredit Chief Executive Federico Ghizzoni had said in October that the bank was sounding investors out on the possibility of selling its Ukrainian unit.

"We are still there, which means that either nothing pops up or what pops up was not interesting," Papa said, but he would not say UniCredit had ended its deliberations. "For the time being we are there," he said. "I don't have a crystal ball."

Papa said UniCredit was making money in Hungary but that the financial burden the government was imposing on banks and other segments of the economy was getting close to unbearable.

While tax alone was no reason to exit a country, "hopefully they are not going to impose other taxes because this would really break the camel's back," he said.

"We cannot keep on going like this. If they start again with a new round we will reconsider."

The bank said later it "clearly intends to stay in Hungary", adding: "Nevertheless we are closely monitoring the local business environment in order to adapt our business model in time and to secure positive results."

Banks in Hungary lost more than 1 billion euros under a 2011 government relief scheme for households with foreign currency mortgages. Its constitutional court is looking into whether such loan contracts are unconstitutional.

Any new government measure would affect Hungary's biggest lender, OTP Bank, as well as local units of Austria's Raiffeisen and Erste, Italy's Intesa Sanpaolo, Belgium's KBC and others.

Papa reiterated that he was not worried about the potential impact of bank stress tests on its unit in Slovenia, one of the 10 biggest banks in the struggling euro zone country.

"So far I don't have any indication that we are going to have a problem" from results of the tests due on Dec. 12, he said, calling its unit there "overcapitalised".

Papa said new Turkish measures that aim to control rampant consumer loan growth and spur domestic savings would weigh on revenue generation but could be offset at least in part.

He said of Turkey: "2014 will be a year of stabilisation and then we see 2015 as a pick-up again for the business."

He played down the impact of a Croatian law on foreign-currency loans and takes effect next year, noting it did not apply retroactively to its FX loan book of around 560 million euros. "There will be no losses but less revenues," he said.

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