UPDATE 2-Raiffeisen beats Q1 profit estimates, to repay aid soon

Thu May 22, 2014 4:38am EDT

Related Topics

* Q1 profit 161 mln eur vs 157 mln yr ago, 124 mln poll avg

* Ups provisioning forecast to 1.3-1.4 bln euros

* Aims to repay all or most of state aid within 3-4 weeks

* Shares rise more than 5 percent in early trade (Adds details on Ukraine, Russia; CEO and analyst quotes)

By Michael Shields

VIENNA, May 22 (Reuters) - Raiffeisen Bank International reported first-quarter profit that beat market expectations, saying its Russian business was "relatively normal" and it could soon pay back nearly 2 billion euros ($2.73 billion) in state aid.

Shares in the Austrian lender jumped more than 5 percent in early trade on Thursday, as rising net interest income provided a positive surprise, while risk provisions rose less than expected despite a hit from Ukraine.

Its risk provisions for Ukraine - locked in a power struggle with Russia - were 92 million in the first quarter, up from 27 million in the fourth, as the hryvnia currency weakened and borrowers struggled to repay mortgages.

RBI, central and eastern Europe's second-biggest lender, said it now expected lending to hold steady this year - it had previously forecast a slight rise - and saw risk provisions rising to 1.3-1.4 billion euros from 1.15 billion in 2013.

"Results may be impacted by the ECB Asset Quality Review process and further deterioration of the situation in Ukraine and Russia," it said, referring to upcoming balance sheet health checks by the European Central Bank.

RBI said that, within three to four weeks, it would repay all or part of the 1.75 billion euros in state aid it got during the financial crisis, which will not count as core capital after 2017. It raised a total of 2.5 billion euros including private capital.

"This is an encouraging signal given the pending AQR and, while management commentary at today's analyst call will be scrutinised ... we expect today's results to be supportive," Nomura analysts wrote in a note.

RBI stock was trading up 5.6 percent at 23.38 euros by 0755 GMT, the top gainer in a flat European bank sector index .

RBI said net profit rose 2.5 percent to 161 million euros, well above the average forecast of 124 million in a Reuters poll of 10 analysts.

The Russian business brings in most of RBI's profits and the bank had already said the political turmoil in Ukraine would prompt it to revisit its 2014 forecast for steady risk provisions.

STATE AID REPAYMENT LOOMS

RBI, which raised fresh capital this year to shore up its balance sheet, said it expected approval from supervisors soon to repay non-voting capital it raised in 2009 to help weather the financial crisis. The FMA watchdog had held up approval, citing RBI's exposure to turbulent eastern markets.

RBI kept Russia atop its list of the six most attractive countries in the CEE region on Thursday, citing an underbanked market, solid corporate banking and a growing retail segment.

Russia - where it is the 10th-largest lender with nearly 2.7 million customers and a 9.6 billion euro loan book - made 139 million euros before tax in the quarter, down from 198 million a year earlier but up from 108 million in the fourth quarter.

"Business in Russia was relatively normal, although the economic development was weaker than in the previous year, and we therefore had to apply stricter standards in extending loans", Chief Executive Karl Sevelda said, adding he thought that significantly tougher EU sanctions on Moscow were unlikely.

RBI put its Ukraine credit exposure at 3.8 billion euros net of provisions. Its government bond holdings worth 386 million were almost entirely in local currency, while it described its liquidity position there as stable.

Raiffeisen lost 30 million euros before tax in Ukraine, where it is the number five bank. It has closed its 32 branches in Russian-annexed Crimea - which contributed less than 2 percent of its 2013 profit in Ukraine - and sold them to an unnamed bank it said was legally allowed to operate there.

It moved its Crimea corporate loan book to its Russia unit.

In eastern Ukraine, a hotbed of insurrection against the interim government in Kiev, RBI had 84 branches and 1,000 staff in the separatist regions of Donetsk and Lugansk, it said, putting its credit exposure there at around 590 million euros, of which 100 million was already covered by provisions. ($1 = 0.7318 Euros) (Reporting by Michael Shields; editing by Georgina Prodhan and Tom Pfeiffer)

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