June 1, 2015 / 2:15 PM / 4 years ago

UPDATE 1-Austria's Erste selling 2 bln euros of bad loans in Romania -sources

(Adds details, background)

By Gergely Szakacs

BUDAPEST, June 1 (Reuters) - Romania’s top lender Banca Comerciala Romana (BCR), controlled by Austria’s Erste Group , is selling distressed loans worth about 2 billion euros ($2.2 billion) as part of a drive to clean up its balance sheet, three financial sector sources told Reuters.

The sale, which would relieve Erste of the bulk of its non-performing loans (NPLs) in Romania, could take place over the next few weeks, the sources said.

BCR’s efforts to clean up its balance sheet have received a boost from fresh capital pouring into central European bad loan portfolios as foreign investors seek higher returns than those offered by western European markets, such as Ireland or Spain.

Last year BCR sold 2 billion lei ($493 million) in NPLs, cutting its stock of distressed loans by 24 percent, it said in its 2014 results statement.

“Obviously the BCR process is ongoing, reports are that there is going to be a $2-3 billion (1.8-2.7 billion euros) sale in non-performing loans, which is up and coming in the next couple of weeks,” Mayank Gupta, Banking and Finance Partner at law firm Mayer Brown International LLP told Reuters.

“We understand the tender process will be finalised in (the) next few weeks,” Gupta said, adding that a number of the firm’s clients were interested in the bidding process.

Two bank sector sources speaking on condition of anonymity also confirmed the sale.

An Erste Group spokeswoman said the bank stood by its guidance issued after its first-quarter results that in Romania the bank was trying to sell non-performing loans worth at least the 500 million euros disposed of in 2014.

The Austrian bank had NPLs worth 2.1 billion euros in Romania at the end of the first quarter, according to its quarterly earnings report.

If most of that is sold, foreign investors might look to other lucrative markets in the region, such as Hungary, where such assets are still in abundance, sources say.

“If BCR sells this (portfolio) ... Hungary could be the next big market,” one banking source said. “Things took off early last year, when people started flying in.”

Hungarian state-owned MKB Bank plans to sell about half of its distressed loans by the end of the summer, central bank Deputy Governor Adam Balog told local media last month.

He added that there was “very lively” interest in the assets from potential investors. ($1 = 0.9131 euros) ($1 = 4.0539 lei) (Additional reporting by Angelika Gruber in Vienna and Luiza Ilie in Bucharest; Editing by Susan Fenton)

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