The Russian business made an important contribution to Raiffeisen Bank International’s 9-month profit and the bank will not join the line of Western financial institutions heading for the exit, Stepic told analysts and journalists in a conference call after the announcement of the bank’s results.
“We have no intention at all to exit Russia,” he said. “I think those banks that exit Russia have never seen it as a strategic place. Just the opposite, we will further promote our business there.”
“We are the Western bank most geared towards Russia.”
Germany’s WestLB, Britain’s Barclays, Spain’s Santander and the United States’ Morgan Stanley (MS) have exited the country over the past few years, due to a combination of higher regulatory burdens imposed by home regulators and tight competition from state-owned Russian banks.
Stepic said Raiffeisen had “a strong foothold on the corporate side” in Russia, where it is the 10th largest bank in terms of assets, and that it will continue to growth its retail side. It currently has 2.2 million customers.
The bank’s operating income fell by 5.2% year-on-year in the first 9 months of the year to 3.88 billion euros ($5 billion), but its profit before tax increased by 8.1% to 1.1 billion euros.
“The development in the Russian retail operation remains positive, the good performance of our Romanian business continued,” Stepic said in the conference call. Profit before tax for Raiffeisen’s Russian business jumped by 69.3% to 485 million euros in the first 9 months of this year compared with the same 2011 period, while in Romania it increased by 19.3% to 84 million.
NON-PERFORMING LOANS
Raiffeisen is present in 17 Central and Eastern European countries. It is positioned among the top 5 banks in 13 of them.
Central and Eastern Europe has been hit hard by deleveraging by Western Banks since most of the countries in the region went into deep recessions in 2009, because of the fallout from the 2007 financial crisis.
In 2011 and this year, they were hit by the effects of the eurozone crisis; some of them were again plunged in recession while others kept growing but at a much slower pace than before the crisis.
However, the region’s prospects are brighter than those of the eurozone, Stepic said. He sees a positive growth differential between CEE and the eurozone at over 2 percentage points in the coming years.
Public debt levels of most CEE economies are “well below the average in the EU and other major advanced economies,” while fiscal deficits remain within the 1% and 4% of GDP level, he added.
Market perception regarding the risk in these countries has improved significantly, according to Stepic, who cited the example of Poland whose credit default swap (CDS) spreads are lower than France’s.
“With the exception of Hungary, we are facing stable market conditions in all countries,” Stepic said. The bank’s non-performing loans (NPL) ratio increased by 1.4 percentage points from the end of 2011, to 10%. In Central Europe, Hungary had the highest NPL ratio, at 27.7%; in South-Eastern Europe, Bulgaria with 18% had the highest, followed by Bosnia and Herzegovina with 12.7% and Croatia with 11.9%, while in the CIS Ukraine had a 37.4% NPL ratio.
“We expect a slight increase in the volume of non-performing loans in the next months, driven primarily by higher defaults in Hungary, but also in the Southeastern European countries,” said Stepic.
But the bank expects “a gradual recovery of economic conditions” in CEE and South Eastern Europe in the second half of 2013 and in 2014, he added.