Wednesday, January 16, 2013

Financial Times: Erste write-off shows Romania pain

Romania’s economy may be recovering from a deep crisis, but it is not recovering quickly enough for the country’s main lender, BCR.

Austria’s Erste Group this week announced that it would take a €300m goodwill charge largely due to the problems besetting BCR. So even if the International Monetary Fund is reasonably content with Romania’s economic progress, a key foreign investor is far from happy.

Erste said in a statement on Tuesday that it would post net profit of around €450m for 2012. The bank said it would “fully service participation capital as well as pay a dividend on ordinary shares for the 2012 business year,” adding that “as goodwill is excluded from the regulatory capital calculation, Erste Group will report significantly improved capital ratios as at year-end 2012.”

Erste said that it still expected full-year operating profit for 2012 to be “slightly behind” the €3.363bn achieved in 2011.

The Austrian bank’s performance has also been held back by losses on its sale of its Ukrainian subsidiary. It sold Erste Bank Ukraine for $83m in December, recording a €151m loss.

Erste has been experiencing difficulties with BCR, which has been hit by Romania’s economic troubles, which have seen a deep recession followed by swinging austerity measures.

In December, BCR announced that it was cutting 1600 staff – around 18 per cent of the total – due to market conditions; Erste said that it would pump more money into its Romanian subsidiary through a capital increase worth nearly €111m.

This followed a downgrade by Moody’s in June, with the agency citing “the bank’s rapidly weakening financial performance”.In a statement to beyondbrics, Erste said that “we started an intense restructuring program at BCR in December 2012, which should enable us to post a slight profit for the full year 2013.”

Romania’s banking system is beset by bad debt, with the non-performing loan ratio reaching around 26 per cent, according to research by Italian bank Unicredit. Many lenders have been hit by defaults on foreign currency loans made in the boom years of the last decade, which have since turned rotten due to Romania’s economic crash and the fall in its currency, the leu.

Erste says that it expects provisions for bad debt in Romania to fall significantly in 2013, but with its GDP growth forecast at just 1.1 per cent, the good years are an increasingly distant memory.


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