UPDATE 2-Hungary, Romania to push Erste to record 2014 loss

Thu Jul 3, 2014 1:23pm EDT

Related Topics

* Sees 2014 risks costs around 700 mln euro above plan

* Operating result in 2014 to miss guidance slightly

* Sees year-end core equity ratio at 10 pct at year-end without raising equity (Adds spokesman comment, background)

By Michael Shields

VIENNA, July 3 (Reuters) - Fresh hits from Hungary and Romania will push Austria's Erste Group Bank to a record 2014 net loss of up to 1.6 billion euros ($2.2 billion), emerging Europe's third-biggest lender said on Thursday.

It said it expected risk costs to rise from a planned 1.7 billion euros to about 2.4 billion this year, while its group operating result would slightly miss guidance this year "due to weaker operating results in Romania and Hungary".

The bank, which last year raised fresh capital to repay state aid and strengthen its balance sheet, did not need to raise more equity now but would not pay a dividend on 2014 results, a spokesman said.

It said business in Hungary would suffer from government plans to get banks to swallow more losses on foreign-exchange loans that went sour when the forint depreciated.

Hungary's government moved on Friday to reduce bank charges on foreign-currency mortgages, submitting legislation to parliament that could also help people with similar concerns about their forint loans.

The costs from Friday's bill alone could reach 600 billion to 900 billion forints ($3.95 billion), the central bank's deputy governor told a newspaper at the weekend, potentially twice analysts' estimates of 400 billion.

Banks in Hungary include units of Belgium's KBC, Austria's Raiffeisen Bank International and Erste, Italy's UniCredit and Intesa Sanpaolo, and German-owned MKB Bank.

In Romania, increased risk provisions reflect the central bank's stepped-up efforts to speed reductions of non-performing loans in the banking system ahead of the ECB-led health checks of big European banks' balance sheets, Erste said.

It also marked down expectations for what it could get by selling packages of bad loans there.

"As a result of increased provisions in Romania, Erste Group will carry out an impairment test on the entire amount of Romanian intangibles (goodwill, brand, value of customer relationships) of about 800 million euros, which may result in the full write-off of such intangibles," it said.

This could also trigger a write-off of deferred tax assets of about 200 million euros.

Erste said it now expected a 2014 group net loss of 1.4-1.6 billion euros before profits rebound in 2015.

It forecast a common equity tier 1 capital ratio of about 10.0 percent of risk-weighted assets at the end of 2014 "without any need to issue equity". The ratio may lag that level in the course of the year, it said.

Big writedowns in Hungary and Romania drove Erste to a loss in 2011 as well, highlighting the risks of operating in central and eastern Europe.

Erste's losses in Hungary nearly doubled last year to 109 million euros, hit by a 45.5 million euro financial transaction tax bill on top of a 49 million bank levy.

It lost 54 million there in the first quarter of this year after booking 48 million for the full-year bank levy.

($1 = 0.7331 Euros) (Reporting by Michael Shields; Editing by Sophie Walker)

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