VIENNA Dec 15 UniCredit SpA's
business in central and eastern Europe (CEE) is holding up well
despite the economic slowdown, a top executive said, adding it
was "nuts" to think Italy's biggest bank by assets would quit
Gianni Papa, deputy group chief executive and head of
Unicredit's CEE division, told reporters the case for staying
put remained intact because the region would on average grow
faster than western Europe and had greater demand for financial
The division's net operating profit in the first nine months
rose 31 percent thanks to higher revenue, lower costs and
reduced loan-loss provisions.
"This (trend) is going to be reconfirmed for the end of the
year," Papa said late on Wednesday, in remarks for release on
Papa said the economic slowdown in western Europe was having
a knock-on effect in CEE, which made the bank put on hold its
expansion in some countries to focus on high-growth markets such
as Turkey, Russia, the Czech Republic and Poland.
UniCredit had a strong footpint in those markets, which
crucially also required no central funding from the parent.
But its selective growth strategy by no means implied its
commitment to the region -- where its Bank Austria unit competes
with Austrian peers Erste Group Bank and Raiffeisen
Bank International -- was wavering, he said.
"If the message received is UniCredit is pulling out from
central and eastern Europe, I believe that the one that is
receiving the message is nuts," he said of a media report it
could retrench in the region.
The CEO of Raiffeisen Bank International said last month it
could quit one or two CEE markets.
Papa acknowledged the bank was sub-scale in some markets
there but denied it might leave any country entirely. "For the
time being I don't see any of these possibilities," he said.
WATCHING CREDIT QUALITY
Its shunning of M&A activity also applied to buying assets.
"I am receiving offers -- I don't want to say on a weekly
basis -- and we say no to all of them," he said, noting markets
do not now allow buyers to pay goodwill on acquisitions while
sellers are not prepared to divest assets below book value.
Papa said the cost of risk in the region had to go down.
"For sure we have seen the peak of the bad loans towards the
end of last year, the beginning of this year," he said, noting
the bank still had to keep a close eye on the slowdown's impact.
"This could bring some deterioration in the quality of
assets. Nevertheless, also in this field we have been very
careful in the last two, three years ... and also there we feel
quite confident that we are on the right track to reach the
target that we have given ourselves," he said.
He said its bank was one of only two profitable lenders in
Hungary, thanks to a conservative approach that has led it to
scale back foreign-currency lending to individuals across the
This included reining in lending in euros to borrowers in
countries like Croatia, Bulgaria and Romania that intend to
adopt the single currency eventually.
After restructuring, its bank in Kazakhstan had stopped
bleeding money but "is still not in positive territory", while
Romania had not developed as well as expected.
Papa saw no signs of a CEE credit crunch developing despite
banks' efforts to shore up balance sheets.
"I think every bank has become much more conservative in its
approach to lending and this has clearly created, if you will, a
credit crunch, but ... it is a credit crunch to the unhealthy
part of the business so it is not (really) a credit crunch," he
He noted CEE division loans rose 10 percent in the first
three quarters of 2011, while deposits grew 17 percent.
But he sounded a note of caution.
"When we talk to customers they are telling us in many
countries they had a good 2011. They think they are going to
have a good 2012," based on orders on hand, he said.
"I'm afraid that because there is constantly all this news
-- we have problems here, problems there -- it is becoming a
sort of self-fulfilling prophecy. We are really talking the
economy to death and I am afraid of that."
(Editing by David Holmes)