* Shares fall as much as 16 percent on profit warning
* Bank cites higher risk provisions in Romania, Hungary
* Rival Raiffeisen forecasts profit in Romania this year
(Adds Raiffeisen forecasting profit in Romania, para 13)
By Michael Shields
VIENNA, July 4 Investors wiped more than 1
billion euros ($1.4 billion) off Erste Group's market
value and took evasive action against rivals on Friday on
concerns the bank's warnings about Hungary and Romania could
echo across the sector.
Austria's Erste, emerging Europe's third-biggest lender,
said late on Thursday it could post a record net loss of up to
1.6 billion euros this year due to a law cutting bank charges in
Hungary and higher provisions for soured loans in Romania.
The charge in Romania was due to the central bank there
clamping down on non-performing loans ahead of a European
Central Bank review of large European banks, Erste said. The
Romanian central bank declined to comment.
Erste was the biggest loser among European bank stocks,
tumbling more than 16 percent to a 12-month low of 19.52 euros
in afternoon trading and pulling Austria's benchmark ATX
down more than 3 percent.
"The latest profit warning reduces significantly the book
value and will also likely lead to the stock derating versus the
EU banking sector, until Erste shows stability in the operating
performance and an end to cleaning up exercises," Barclays said
in a note.
The ECB review is forcing banks to take a harder look at
their loan books. Investors expect banks to flag additional
costs to deal with any problems before the overall results of
the tests are announced in October.
Hungary's parliament, meanwhile, approved a bill on Friday
that will cut bank charges on foreign-currency and
forint-denominated loans to compensate borrowers after the
Supreme Court ruled that banks had unfairly charged them.
The law is only the first step in a comprehensive scheme to
help borrowers. Analysts at Barclays said Erste faced a risk of
more losses in Hungary given that the final rules for phasing
out foreign-currency mortgages have yet to be unveiled.
The developments in Romania and Hungary mean that Erste has
to raise its risk costs from a planned 1.7 billion euros to
about 2.4 billion this year.
More banks are expected to increase provisions from the
Hungarian moves, which the central bank said could cost banks
600 billion to 900 billion forints ($3.95 billion). That is
potentially twice analysts' estimates of 400 billion.
However, the bank told Reuters that this new burden will not
pose a risk to the stability of the banking system, and none of
the country's banks would need significant additional capital.
Shares in Raiffeisen Bank International <RBIV.VI > (RBI)
were off lows but still down 3.8 percent in afternoon trade. It
said its Romanian business was expected to make a profit again
RBI, emerging Europe's second-biggest lender said it would
need a few more days to assess the impact of the Hungarian law.
Other lenders exposed to Hungary, including Belgium's KBC
and Italy's UniCredit, emerging Europe's
largest lender, have not commented on the impact of the law.
Their stocks were down more than 3 percent.
Erste's warning was another reminder of the challenges of
operating in central and eastern Europe, a region that generated
fat profit margins for banks for years after the Iron Curtain
fell but now causes headaches as the region's economy struggles.
Telekom Austria and utility EVN both
issued profit warnings in the past two weeks due to conditions
in eastern Europe and shares of banks active in the region have
underperformed the European sector by around 15 percent this
year, according to analysts at UBS.
Erste, which last year raised capital to repay state aid and
strengthen its balance sheet, said it did not need to raise
fresh equity but would not be paying a dividend for 2014.
Analysts had previously expected a profit of around 570 million
euros and a 37 cent dividend.
At its annual shareholder meeting in May, Erste Chief
Executive Andreas Treichi said European bank tests were slanted
against banks like his because markets in central and eastern
Europe were being tested against a bigger fall in output than
countries such as Greece and Italy.
Treichi said on Friday he wanted to remain as CEO despite
the surprise warning.
Erste did warn in its prospectus for last year's rights
issue that it could face more writedowns in Romania. French
rival Societe Generale booked higher provisions in
Romania at the end of last year.
"The bank (Erste) is being forced to sell 25 to 30 percent of
its non-performing loans while also increasing the provisioning
coverage on the remaining non-performing loans," said
Jean-Pierre Lambert, an analyst at Keefe, Bruyette & Woods.
($1 = 227.9600 Hungarian forints)
($1 = 0.7331 euros)
(Additional reporting by Georgina Prodhan and Angelika Gruber
in Vienna, Radu Sorin Marinas in Bucharest, Lionel Laurent in
London and Maria Pia Quaglia in Milan; Editing by David Holmes,
Susan Fenton and Jane Merriman)