Volksbanken aims to avoid more Austrian aid

VIENNA, April 3 Thu Apr 3, 2014 4:35am EDT

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VIENNA, April 3 (Reuters) - Part-nationalised Austrian lender Volksbanken AG aims to avoid seeking more state aid but may need more capital to meet regulatory minimums as it implements a radical shrinking cure ordered by the European Commision, it said on Thursday.

Reporting an unconsolidated 2013 loss of 224 million euros ($308 million) under Austrian accounting rules and a group loss of 100 million, it said a revamp would create nine regional players among the dozens of local savings bank that now own it.

"My aim is to make the Association of Volksbanks fit for the future in the long term without putting any more pressure on taxpayers. To this end, we need to strengthen the sector's earnings power and improve the...ability to operate on capital markets above all else," Chief Executive Stephan Koren said.

Austria in 2012 had to take a 43 percent stake in Volksbanken AG (VBAG), which has so far got 1.35 billion euros in state aid. It is one of six Austrian lenders to come under the direct supervision of the European Central Bank this year.

Volksbanken, which has projected losses in 2015 as well, has said it may use bonds issued by the regional savings banks to help fill any capital gap that emerges.

The group almost halved its total assets from 41.1 billion euros in 2011 to 20.9 billion at the end of 2013. Risk-weighted assets (RWAs) fell from 26.3 billion in 2011 to 11.3 billion, much lower than the EU had targeted in its restructuring plan.

This helped boost its equity ratio under Basel II standards to 19.1 percent of RWAs at the end of 2013 even as writedowns and wind-down costs triggered the well-flagged 2013 loss.

Including its regional bank owners, its equity ratio stood at 14.9 percent under Basel II rules at the end of 2013, it said, and was projected at 14.6 percent under new Basel III rules.

Austria's FMA market watchdog has set a preliminary target of a 13.6 percent equity ratio for the wider group, much more than the current 8 percent requirement.

Volksbanken said its equity ratio would inevitably fall in the years ahead due to the loss in 2017 and 2018 of non-voting participation capital it got from the state and negative effects from applying Basel III rules, the new industry standard. It also faces risks from winding down its remaining portfolio.

"As a result, VBAG's managing board cannot rule out the possibility - as frequently mentioned - of a potential future capital requirement despite the satisfactory 2013 statement of financial position," it said, although it added that the 13.6 percent capital target may be reduced in light of 2013 figures.

Finance Minister Michael Spindelegger has said Volksbanken cannot expect any more immediate aid from taxpayers.

Moody's last week cut its debt rating for Volksbanken to junk status, highlighting another potential problem case for the government which is already grappling with nationalised bank Hypo Alpe Adria's woes.

VBAG said the sale of its Malta and VB Leasing International businesses was at an advanced stage. It must also sell its 51 percent stake in its Romanian banking business next year.

The government has earmarked 5.8 billion euros in aid over the next five years for struggling banks, primarily Hypo Alpe Adria, which is supposed to be wound down via a "bad bank".

($1 = 0.7263 Euros) (Reporting by Michael Shields; Editing by Georgina Prodhan)

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