* Q4 net profit 278.6 mln eur vs 265 mln forecast
* Sees profitability rising as risk costs fall
* Expects 135 mln eur after-tax hit from bank levies in 2011
* Says placed to repay state capital without capital hike
(Adds comments from news conference)
By Michael Shields
VIENNA, Feb 25 Erste Group Bank (ERST.VI)
forecast profitability would rise as loan-loss provisions fall
further, allowing it to repay the Austrian government without
asking shareholders to stump up more cash.
Emerging Europe's number two lender by assets said on Friday
it expected all its markets in the region to grow this year as
reviving private consumption complements export growth.
Fourth-quarter net profit rose a forecast-beating 5.2
percent to 278.6 million euros ($384.3 million) as loan-loss
provisions beat market expectations, dropping 12 percent from
the third quarter to reach their lowest level since early 2009.
The bank said risk costs would "remain elevated" in Romania
and Hungary in 2011.
Lending growth, stable margins, cost control and rising
commission income should support operating results, it said,
though bank taxes of around 100 million euros in Austria and 35
million in Hungary, after tax, would hit the 2011 bottom line.
"Overall, given its improved earnings power, Erste Group is
positioned to repay participation capital without further
capital measures," it said, referring to the 1.2 billion euros
it got from Austria during the financial crisis.
"We have not yet made a decision on when we will (repay
state capital), but we have finalised all preparatory work so
that at any point in time we are ready to do it," Chief
Executive Andreas Treichl told a conference call.
Treichl, the longest-serving CEO of a major European bank,
said he thought Erste would be able to reduce the impact of the
bank tax, which it had flagged last month. [ID:nLDE70Q1YU]
Asked at a news conference if it would be able to boost net
profit in 2011, he declined to give a forecast but said:
"We are very optimistic that we will be able to generate
higher results and give a bigger part of this success to the
people and institutions who gave us this capital."
He said he would prefer to pay back state capital in one go
but that details were still under discussion while the bank
awaits the final form of new capital rules for lenders.
Erste is allowed to repay state capital while still keeping
participation capital provided by private investors, he added.
Still, the extent of the special bank levies and Deutsche
Bank's downgrade of the stock to "hold" pushed Erste shares down
11 percent by 1105 GMT, bucking a firmer European banking sector
High margins have allowed Erste, Austrian peer Raiffeisen
Bank International (RBIV.VI) and UniCredit (CRDI.MI) to remain
profitable in emerging Europe, but investors are looking for a
clear reversal of the bad-debt cycle to boost returns.
Shares in Erste, whose 2010 annual net profit was the best
since 2007, had risen more than 8 percent this year.
According to StarMine, which weights analyst views by their
track records, Erste was trading at around 11.5 times its
12-month forward earnings per share, a premium to Raiffeisen on
nine times and UniCredit, emerging Europe's biggest bank, on
around 11 times.
Erste's core Tier 1 capital ratio of 9.2 percent at the end
of 2010 translates into a common equity tier ratio under Basel
III capital rules of "comfortably above 7 percent" excluding the
state participation capital, it said.
(Additional reporting by Christian Gutlederer; Editing by
David Hulmes and Erica Billingham)