* Sees 2014 operating profit of about 3.1 bln euros
* Sees risk costs falling by up to 5 pct, steady lending
* Proposes halving dividend after 2013 profit slump
* Shares down 11 percent
(Recasts with market reaction, CEO comments)
By Michael Shields
VIENNA, Feb 28 Austrian lender Erste Group's
subdued earnings guidance despite an economic upturn
in its core region of central and eastern Europe (CEE) sent its
shares reeling on Friday.
CEE's third-biggest lender said it expects operating profit
to remain steady this year at about 3.1 billion euros ($4.24
billion) with lending to customers staying flat.
Erste proposed halving its dividend to 0.2 euros per share
after 2013 net profit slumped 87 percent to 61 million euros, as
the bank had flagged on Feb. 11.
"We have pushed down market expectations for 2014
substantially, and that in an environment in which the economic
indicators in our region are actually positive," Chief Executive
Andreas Treichl told reporters.
The bank's shares fell 11 percent to 25.45 euros by 1425
GMT, the worst performers by far in a Stoxx European banking
sector index that was down 0.5 percent.
Erste posted a fourth-quarter loss of 369 million euros
after risk provisions jumped nearly 18 percent from the third
quarter, mainly for the large corporate and commercial real
estate business and at its savings banks.
Its non-performing loan (NPL) ratio was stable in the second
half but still rose to 9.6 percent at year-end, against 9.2
percent a year earlier. Its NPL coverage ratio improved to 63.1
percent from 62.6 percent.
Erste expected a moderate economic pick-up of 1.7 percent on
average in the region this year.
Citing the imminent European Central Bank-led health checks
of big euro zone banks' balance sheets, Erste said it expects
risk costs to decline by no more than 5 percent this year, to
about 1.7 billion euros.
Treichl said Erste should know by mid-year the likely impact
of the so-called Assets Quality Review.
Chief Risk Officer Andreas Gottschling cited the example of
one eastern European country, which he declined to name, telling
Erste to add provisions on what it considered perfectly good
loans, because of regulatory concerns about collateral or long
"This has shaken our belief in the process a little bit, and
that is why we are more cautious now," he said in an analysts'
Writedowns and tax effects hit the bottom line in 2013, and
its tax burden again poses difficulties this year, the bank
said. It does not expect to recognise deferred tax assets in the
Austrian tax group this year, which would lead to a
"significantly elevated" tax rate of about 40 percent.
But a decline in banking taxes from 311 million euros in
2013 to about 270 million this year should benefit net profit.
Erste, which sold its Ukrainian business last year, said its
core Tier 1 capital ratio under Basel 2.5 rules improved to 11.4
percent of risk-weighted assets. Its common equity tier 1 ratio
under new Basel 3 standards stood at 10.8 percent.
Erste hit its goal of making money in Romania in 2013 but
still faced problems in Hungary, where its full-year loss nearly
doubled to 109 million euros, hit by a 45.5 million euro
financial transaction tax bill on top of a 49 million bank levy.
($1 = 0.7309 euros)
(Additional reporting by Angelika Gruber; Editing by Georgina
Prodhan and David Goodman)