April 3, 2014 / 11:31 AM / in 4 years

UPDATE 1-Volksbanken says it can pass EU health check without more state aid

* CEO says assumes group will pass stress test this year

* Sees no need for more capital this year

* Subordinated debt issues from owners may plug any capital gap (Adds comments from news conference)

By Michael Shields

VIENNA, April 3 (Reuters) - Austrian bank Volksbanken AG has enough capital to pass a European-wide health check this year without needing more state aid as it presses ahead with radical restructuring plan, it said on Thursday.

Getting Volksbanken - which failed a similar test in 2011 - back onto solid ground would be a relief for Austria’s government as it grapples with another nationalised bank, Hypo Alpe Adria [HAABI.UL, whose chronic need for capital will sharply inflate state debt and the budget deficit this year.

“I expect that we will pass and exceed the stress test,” said Stephan Koren, chief executive of Volksbanken, which is one of six Austrian banks to come under direct supervision of the European Central Bank late this year.

Volksbanken reported an unconsolidated 2013 loss of 224 million euros ($308 million) under Austrian accounting rules - as it had flagged in December - and a group loss of 100 million.

It also unveiled a revamp that will consolidate the dozens of local savings banks that own a majority of Volksbanken into nine regional players.

“My aim is to make the Association of Volksbanks fit for the future in the long term without putting any more pressure on taxpayers. To this end, we need to strengthen the sector’s earnings power and improve the... ability to operate on capital markets above all else,” Koren said in a statement.

Austria became Volksbanken’s second-biggest shareholder with a stake of 43 percent in 2012 and has so far ploughed 1.35 billion euros of state aid into the bank to keep it afloat.

Finance Minister Michael Spindelegger has said Volksbanken cannot expect any more aid from taxpayers, but Koren said he was unworried by this. “You don’t see me on the verge of a nervous breakdown,” he told reporters.

Volksbanken, which has projected losses in 2015 as well, says it may use bonds issued by the regional savings banks to help fill any capital gap that emerges.


The group almost halved its total assets from 41.1 billion euros in 2011 to 20.9 billion at the end of 2013. Risk-weighted assets (RWAs) fell from 26.3 billion in 2011 to 11.3 billion.

This helped boost its tier 1 capital ratio to 14.1 percent of RWAs under Basel II standards at the end of 2013 even as writedowns and wind-down costs triggered the 2013 loss.

Including its regional bank owners, its tier 1 equity ratio rose to 10.4 percent under Basel II, and was projected at 11.3 percent under new Basel III rules. Its overall equity ratio stood at 14.6 percent under Basel III.

Austria’s FMA market watchdog has set a preliminary target of a 13.6 percent overall equity ratio for the wider group.

Volksbanken said its equity ratio would inevitably fall in the years ahead as it repays 300 million euros in non-voting capital it got from the state and takes a hit from applying Basel III rules. It also faces “substantial” risks from winding down its remaining portfolio, Koren said.

“VBAG’s managing board cannot rule out the possibility - as frequently mentioned - of a potential future capital requirement despite the satisfactory 2013,” it said.

Koren said he did not expect to need more capital this year. Its annual report said it could need extra capital in 2015 should FMA’s 13.6 percent target not be changed.

Moody’s last week cut its Volksbanken debt rating to junk status, citing lower chances for more state aid.

VBAG said sales of its Malta and VB Leasing International businesses were at an advanced stage. It must also sell its 51 percent stake in its Romanian banking business next year.

$1 = 0.7263 Euros Additional reporting by Angelika Gruber; Editing by Sophie Walker

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