VIENNA Austria's Raiffeisen Bank International will this week repay the 1.75 billion euros ($2.4 billion) of state aid it got in the financial crisis, joining the ranks of lenders that have weaned themselves off government help by boosting their balance sheets.
The repayment of the non-voting capital will make Raiffeisen Bank International (RBI) the third Austrian lender - after Erste Group and BAWAG PSK - to hand back taxpayer money after tapping their owners for more equity.
Several Austrian banks were hit hard in the 2008-10 financial crisis, as a ramp-up in lending to central and eastern European (CEE) countries was undermined by a steep economic downturn. Some analysts are still concerned about their exposure to a region struggling to return to economic growth.
However RBI, CEE's second-biggest lender, said on Wednesday regulators had deemed it strong enough to repay its state aid.
"Early today ... we got authorization from the Financial Market Authority (FMA) and on June 6 we will repay to Austria the entire state share of the participation capital worth 1.75 billion euros," Chief Executive Karl Sevelda told shareholders.
Sevelda said the bank also aimed to repay "as quickly as possible" the remaining 750 million euros in such capital it got from private investors.
Finance chief Martin Gruell later told reporters the bank planned to issue so-called additional tier 1 capital to repay the private capital tranche, as it flagged when releasing first-quarter results last month.
Its shares were flat at 24.43 euros by 1335 GMT.
RBI, which raised 2.78 billion euros by selling shares early this year, had said last month it expected approval from supervisors soon to repay the participation capital that costs it nearly 600,000 euros a day in interest.
The participation capital will not count as core capital after 2017 under Basel 3 rules, which aim to ensure banks are robust enough to withstand future shocks.
The FMA had held up approval, citing RBI's exposure to turbulent markets in Ukraine and Russia, which are locked in a standoff after pro-western activists toppled Ukraine's president and Moscow annexed the Crimea peninsula.
Gruell said supervisors finally allowed the repayment given a fall in the bank's risk-weighted assets in the first quarter and a review of the regulatory treatment of minority stakes in other companies, such as its stake in insurer Uniqa.
Sevelda put a positive spin on RBI's business in Ukraine, where it is a top-five bank. It lost 24 million euros there in the first quarter after earning 101 million in all of 2013.
"I can say in April and May the bank did not develop all that badly," he said, even as the bank takes a restrictive approach to lending in a Ukrainian economy it expects to shrink 5 percent this year.
"In the past weeks we have seen an increased influx of customers who are shifting ties not just from Russian banks but also from Ukrainian banks. In all of course it came to an outflow of deposits, as is normal in crises," he said
RBI has closed its 32 branches in Russian-annexed Crimea - which contributed less than 2 percent of its 2013 profit in Ukraine - and sold them at a small profit.
It remains concerned about upheaval in eastern Ukraine, where government forces are trying to quash an uprising by pro-Russian separatists, Sevelda said, noting RBI at times had to stop refilling cash machines there given the risk of robbery.
Russia - where it is the 10th-largest lender with nearly 2.7 million customers and a 9.6 billion euro loan book - made 139 million euros before tax in the first quarter.
Sevelda said he was optimistic Europe would not impose stricter economic sanctions on Russia that could hit the banking sector hard.
Before the repayment news, debt ratings agency Standard & Poor's reiterated its negative outlook for RBI and its unlisted parent Raiffeisen Zentralbank (RZB).
It cited the banks' potential vulnerability to the impact of worsening economic conditions in its extended home market in central and eastern Europe, especially Russia and Ukraine, over the next 12 to 24 months.
"This could lead to higher credit losses and weaker earnings for RZB than we forecast in our base case," it said.
(Editing by David Holmes and Mark Potter)