UPDATE 2-Erste stays cautious as Ukraine crisis casts shadow over CEE recovery

Wed Apr 30, 2014 6:32am EDT

Related Topics

* No change to guidance as Ukraine crisis unfolds

* Q1 net profit 103 mln eur vs Reuters poll avg 88 mln

* Shares unchanged (Releads, adds executive comments, shares)

By Georgina Prodhan

VIENNA, April 30 (Reuters) - Austria's Erste Group Bank stuck to its forecast for flat operating profit this year, saying the crisis engulfing Ukraine could still derail an improving economic outlook in its main central and eastern European (CEE) markets.

Erste sold its Ukrainian unit last year, but is concerned that disruption to energy flows from Russia - which is accused of destabilising Ukraine by the West and faces sanctions - would hit economies in the region hard.

It said on Wednesday it would keep its forecast for 2014 operating profit of about 3.1 billion euros ($4.3 billion), despite improving clarity about European Central Bank health checks of the banking industry - which it cited in February as a reason for a conservative outlook.

"As some things clear up, other things are unfolding so we don't see a reason to change our guidance," Chief Risk Officer Andreas Gottschling said on a conference call after the bank posted a 4 percent drop in first-quarter operating profit.

Excluding the effects of the Ukraine crisis, Erste said its view of the markets where it operates outside Austria - the Czech Republic, Slovakia, Romania, Hungary and Croatia - was improving.

"We anticipate slightly stronger growth in our region than we had initially anticipated," Chief Executive Andreas Treichl said on the call.

Erste shares were barely changed at 24.42 euros at 1010 GMT, outperforming the European banking index, which was 0.6 percent lower.

Erste's bigger rivals in central and eastern Europe, UniCredit's Bank Austria and Raiffeisen Bank International, have said they would also like to sell their Ukrainian units when the market allows.

RBI said last month its ability to meet previous targets for lending and risk provisioning depended on how events in Russia and Ukraine played out. Russia is its single most important market.

Erste's first-quarter operating profit fell 4 percent to 727 million euros, missing all the estimates in the Reuters poll of analysts, which averaged 760 million euros.

It also posted a 42 percent drop in net profit to 103 million euros, blaming subdued loan demand, persistently low interest rates and unfavourable currency exchange rates. However, that was less steep than expected.

It was helped by a 2 percent fall in risk provisions to 364 million euros, versus expectations of a rise to 435 million, which Gottschling said was mainly due to one major commercial property in the Czech Republic.

"We expect a lower level of provisioning for commercial real estate for this year. Whether it's going to stay as low as it was in the first quarter, there's no way of telling," he said.

($1 = 0.7237 Euros) (Editing by Michael Perry, David Holmes and Mark Potter)

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