Raiffeisen CFO worried about bad loans

Bad loans continue to dog many of the countries in which Raiffeisen Bank International, the Austrian lender with operations across much of Eastern Europe, is present, Martin Grüll, chief financial officer and a member of Raiffeisen’s management board, told Emerging Markets.

The bank’s finance chief highlighted concerns about rising levels of soured loans in Bulgaria, Croatia, and Hungary. Grüll said that NPLs in the latter had, until recent months, “gone up dramatically”.

But he announced the first fall in its ratio of bad debts to overall lending in Ukraine since the onset of the financial crisis. Non-performing loans (NPLs) at the company’s Ukrainian operations fell to 34.7% at end-2012 after spiking as high as 37.4% during the course of the year.

While the fall in soured loans in 2012 was almost negligible – the final tally was just one-tenth of one percentage point lower than the previous year – Grüll said it suggested that, for the first time in many years, conditions “were improving” at the bank’s operations in Ukraine.

Raiffeisen’s almost-universal presence in most countries covered by the EBRD’s traditional remit, from Russia to Turkey and the Czech Republic to Bulgaria, and its reputation as a solid bank helped it gain more clients during Cyprus’s March bailout.

That convoluted deal left the Mediterranean island state’s economy in tatters and reverberated across Europe. Prior to and during the bailout, depositors with the Bank of Cyprus in Romania ripped their savings out of the lender, depositing them with banks with high credit ratings and regional or global reach. 

Raiffeisen was one of the leading beneficiaries. In the course of a “normal” month, the bank would expect to absorb between €20 million and €30 million in net capital inflows: deposits from existing or new customers. Yet in March that number spiked to €100 million, Grüll said. He noted that this was a further sign of the “flight to quality” across the region as savers diverted their savings into systemically stable, pan-regional or universal lenders.

Grüll said he expected to see more Western lenders leave struggling states across Eastern Europe and Central Asia even though he forecasts an economic recovery across the region as the second half of the year progresses.

This deleveraging process, which began in 2009 and has yet to be concluded, will continue to create opportunities for pan-regional operators. Greek banks notably have yet to exit several Balkan markets.

Grüll reiterated that Raiffeisen was not seeking to enter any new markets for the time being. “There’s no need to buy an entire [new market] infrastructure – why would we?” he said. “We don’t want to burden ourselves.”

The bank is still on the lookout for appropriate assets, as and when they come available, he said. Raiffeisen will continue to expand into Romania, an increasing source of profitability, while expanding its operations in the Russian Federation.

Other target markets include the Czech Republic and Slovakia, where the lender is currently rebranding its local operations under its group name. 

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