Erste Group expects €1.4 billion losses

The Local
The Local - [email protected] • 3 Jul, 2014 Updated Thu 3 Jul 2014 19:14 CEST
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The Austrian banking conglomerate Erste Group delivered bad news to its shareholders on Thursday, when it announced expected losses of between €1.4 and €1.6 billion for 2014. Its shares plunged 16.4 percent on Friday.

The primary reason is due to bad loans made by its subsidiaries in Hungary and Romania.  As a result, the bank has announced that necessary risk provisions are expected to increase from an original estimate of €1.7 billion up to €2.4 billion, an increase of €700 million. 
In Hungary especially it is burdened by a new banking law that will force banks in the country to repay loans of foreign currency borrowers, who were especially badly hit by devaluation of the Forint against the Swiss Franc. 
In Romania, the bank faces an "impairment test" for all its local intangible assets (goodwill, brand and customer base) of around €800 million.
"This could lead to a complete depreciation of these assets," said Die Erste. This may also lead to a depreciation of deferred taxes of around €200 million. 
Further Reporting from AFP suggests that shares in Austria's Erste Bank plunged 14 percent on Friday after problems in Hungary and Romania prompted the lender to forecast a major loss this year.
Erste, with a major presence in emerging markets in eastern and central Europe, said it expects to end 2014 1.4-1.6 billion euros ($1.9-2.2 billion) in the red.
In Hungary it blamed government plans forcing the conversion of foreign-currency loans into the local forint currency expected to be approved by lawmakers Friday.
About a million Hungarians took out foreign-currency mortgages -- mostly in Swiss francs -- but the 2008-9 financial crisis hit the forint and set repayment costs soaring.
For Romania, Erste cited efforts by the central bank to reduce the volume of non-performing loans ahead of an asset review by the European Central Bank.
Erste Bank's competitor UniCredit Bank Austria already took a write-down of its East European assets by valuing them effectively at zero, closing 2013 with a record-high loss of €1.6 billion, according to FriedlNews.  Similarly, Raiffeisen Bank International is expected to be severely impacted by its exposure to Hungarian loans.



The Local 2014/07/03 19:14

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