CORRECTED-Bank Austria says profitability in Russia could suffer if crisis deepens

Fri May 2, 2014 8:31am EDT

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(Corrects Papa's title to deputy CEO from CEO)

VIENNA May 2 (Reuters) - UniCredit's Bank Austria said its profitability in Russia - which accounts for a quarter of its earnings - could fall if the economic situation there worsened due to the Ukraine crisis.

The United States and European Union have imposed sanctions on Russia in response to its annexation of Crimea and involvement in eastern Ukraine.

"The figures for the first quarter (in Russia) met expectations and we are not yet expecting the bank's profitability to fall. That could occur, however, should the situation worsen," Bank Austria's Deputy Chief Executive Gianni Franco Papa told Austria's Format magazine in an interview published on Friday.

The conflict escalated sharply on Friday when Ukrainian forces attacked the rebel-held city of Slaviansk and pro-Russia separatists shot down at least one attack helicopter, killing a pilot.

Bank Austria, UniCredit's central and eastern European arm, made an operating profit of 783 million euros ($1.09 billion) in Russia last year as a boom in retail lending helped push the figure up by 26 percent.

Last month it reclassified its Ukrainian business, which it bought in 2008, as held for sale, and completely wrote down its goodwill on equity investments, pushing Bank Austria to a 2013 loss of 1.6 billion euros.

Papa said there was no prospect of a sale of the Ukrainian bank in the near term. "The current situation naturally makes the sale more than difficult, because such a sale needs a stable environment."

He added that Bank Austria would not seek any large acquisitions while balance-sheet health checks of parent UniCredit led by the European Central bank were pending.

"We will continue to buy selectively, not banks but rather portfolios, like we bought the retail part of Royal Bank of Scotland in Romania last year. We are not counting on real acquisitions in the next months," he said.

($1 = 0.7212 euros) (Reporting by Georgina Prodhan; Editing by Pravin Char)

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