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UPDATE 3-Raiffeisen plays down impact of Russia sanctions
August 21, 2014 / 6:52 AM / 3 years ago

UPDATE 3-Raiffeisen plays down impact of Russia sanctions

* Q2 net profit 183 mln eur vs poll avg 123 mln

* Sticks to 2014 profit guidance

* Shares rise more than 9 percent (Adds comments from news conference, market reaction)

By Michael Shields and Angelika Gruber

VIENNA, Aug 21 (Reuters) - Raiffeisen Bank International expects no significant impact from western sanctions against Russia and will not back out of its most profitable market, the Austrian lender said on Thursday as it posted surprisingly strong quarterly results.

RBI has nearly 2.8 million customers in Russia and is among the country’s top ten banks measured by its 10-billion-euro ($13.6 billion) loan book.

Russia’s economy faces a recession this year, undermined by the sanctions imposed over its role in Ukraine, some of which target the banking sector.

But Chief Executive Karl Sevelda said the sanctions as they now stand did not pose a serious risk to RBI’s business in Russia, a market where it has been active for decades.

“I see our commitment to Russia by no means in question,” he told reporters, saying RBI’s decision to hang on through the Russian economic crisis in the late 1990s was paying off.

“The current numbers show that our Russian unit is no fair-weather bank. We view Russia in the medium to long term as an attractive banking market and we will stay in Russia.”

Still, RBI said it was proceeding cautiously and doing selective underwriting in Russia with a focus on existing corporate and retail clients. It has tightened curbs on foreign-currency loans and stepped up monitoring of customer payments.

Chief Risk Officer Johann Strobl said the sanctions would not have much effect on third-quarter results.

“The impact will not be so great that you see it. Not yet. But I don’t know what is still to come,” he told reporters, referring to the possibility of harsher sanctions down the line.

The political situation remains volatile as the Kiev government tries to put down a pro-Moscow separatist revolt.

RBI’s Russian unit made a pre-tax profit of 127 million euros in the second quarter, down 9 percent from the previous quarter after provisions for soured loans jumped 60 percent.

Rapid depreciation of the Russian and Ukrainian currencies and the risks from foreign-currency loans there pose dangers for RBI’s provisioning and capital, but the rouble’s recovery in the second quarter helped ease some of the pressure, RBI said.

RBI’s pre-tax loss in Ukraine narrowed to 13 million euros in the quarter from 30 million in the previous three months.

A Ukrainian central bank audit of operations in the country found no need for additional capital and “negligible further provisioning” for impairment losses was required, it said.

NO STRESS

Overall second-quarter net profit grew 52 percent from a year earlier to 183 million euros as net interest income rose more than expected, risk provisions came in lower than expected and savings measures began to kick in.

RBI shares - which this month hit their lowest since early 2012 as investors pondered its Russian exposure - jumped 9.3 percent to 20.38 euros by 1130 GMT, making it the leading gainer in an index of European banks which was up 0.8 percent.

Analysts polled by Reuters had on average expected net profit of 123 million euros.

“We believe investors have become too bearish on the stock recently, as the fair value for the Raiffeisen ex-CIS operations is around 23 euros per share,” Kepler Cheuvreux analyst Thomas Neuhold wrote in a research note, maintaining his “buy” rating.

But Credit Suisse was less upbeat. “The numbers look better than expected, and so the stock may see a short-term bounce. However, we do not think this will be sustained given the uncertain geopolitical outlook,” its research note said.

Bank Austria, the central and eastern Europe arm of Italian bank UniCredit, also expects to keep making solid profits in Russia despite Western sanctions, it said this month.

Bank Austria’s first-half pretax profit in Russia rose 3 percent to 247 million euros, more than a quarter of its total and making it the bank’s most profitable market.

Raiffeisen officials reiterated that the Raiffeisen group should “clearly” pass the stress test that major euro zone banks are undergoing this year.

Sevelda said RBI had no specific plans to revive efforts to sell its banks in Ukraine and Hungary, but said both were under “constant review” and he could not rule out an exit one day. (1 US dollar = 0.7548 euro) (editing by Georgina Prodhan and Tom Pfeiffer)

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