* Falling E.Europe forex weigh on capital, cause bad debt
* "Would we be better off in U.S.? UK? Categorically no!"
* Will keep E.Europe lending stable, help clients survive
* No outlook but still aiming for 2009 profit
(Adds quotes from news conference, more analyst comment)
By Boris Groendahl
VIENNA, March 26 (Reuters) - Emerging Europe's No.2 bank,
Raiffeisen International <RIBH.VI>, pledged to keep lending to
the region after declining currencies ate into its regulatory
capital and caused a spike in bad debt in the fourth quarter.
Raiffeisen said on Thursday it maintain lending at last
year's level and would provide capital and liquidity to its
banks in 17 former Communist countries, reiterating its pledge
not to pull out of its core region.
"Would we be better off if we were active in the United
States, in Great Britain or in Germany?," a defiant Chief
Executive Herbert Stepic told journalists at his Vienna
headquarters. "I can only say: categorically no."
Stepic spoke after reporting that his bank's fourth quarter
net profit dropped 44 percent, non-performing loans rose 20
percent, bad debt provisions nearly tripled and tier 1 capital,
a measure of a bank's strength, fell 2.4 points to 8.1 percent.
The results, partly pre-released on Feb. 19 [],
were weighed down by dropping emerging European currencies,
mainly the Ukrainian hryvnia <UAH=>, which hit capital and made
a sizeable chunk of the region's hard-currency debt precarious.
While Raiffeisen's capital is comfortably above regulatory
minimums, analysts doubt it will provide the bank with a big
enough cushion against the deep recession sweeping across the
former communist part of Europe, notably the countries furthest
to the east to which Raiffeisen has high exposure.
"Solvency is quite impacted by weaker currencies, and this
is going to continue in 2009 as their drop continues versus the
euro," said Francois Boisson, analyst at Exane BNP Paribas.
Analysts expect the rise in non-performing loans and bad
debt provisions, which Raiffeisen expects to continue in 2009,
to be just a foretaste of what is on the menu for this year.
"Assuming this run rate to carry forward we would see no
profit ... in 2009," J.P.Morgan analysts said in a note.
Stepic declined to give a profit outlook for 2009 saying
that he could not get any reliable forecast for the region's
economies in the first place. When asked if he expected to
remain profitable, he only said: "We are aiming for it."
Raiffeisen's net profit still rose 17 percent in 2008 to 982
million euros ($1.33 billion), and it will keep its dividend
stable at 0.93 euro per share.
IMF ASKS FOR COMMITMENT
Stepic's commitment to Eastern Europe came as elsewhere in
Vienna the International Monetary Fund met western owners of
Romania's top lenders -- which apart from Raiffeisen include
Erste Group Bank <ERST.VI>, Societe Generale <SOGN.PA> and
UniCredit <CRDI.MI> -- to bring them on board for the Fund's 20
billion euro rescue of the country. []
The World Bank and the IMF have repeatedly appealed to the
western banks dominating emerging Europe to stay put and
continue to fund the region's economies, for which they are now
virtually the only remaining source of capital.
They have also offered 25 billion euros worth of funds for
emerging European banks and firms, and Raiffeisen's finance
chief Martin Gruell said the bank may tap this fund to boost
capital and liquidity at its subsidiaries in the region.
Raiffeisen itself is funded mainly by parent cooperative
banking group RZB, which has asked for a 1.75 billion euro
capital injection from Austria's banking stability package and
is expected to pass on part of that to its subsidiary.
To counter the crisis, Stepic said the bank would bring down
cost growth -- they rose 20 percent last year -- to zero by
halting branch expansion, cutting staff in Ukraine, Hungary and
Slovakia, and shelving plans to expand in Kazakhstan.
The bank has stopped lending in Swiss Francs <CHF=> entirely
and reined in other foreign currency lending, and it will
restructure loans in all regions and help clients unable to meet
payments by extending maturities and lowering payments.
Raiffeisen shares see-sawed during the session and were down
0.3 percent at 23.75 euros by 1431 GMT as the DJ Stoxx Banking
index <.SX7P> fell 0.4 percent.
Similar to other banks in the region, the shares have almost
doubled since hitting a low of 12.80 euros on Feb. 17, the day
that marked the nadir for panic selling of emerging European
assets triggered by fears of a region-wide collapse.
($1=.7408 Euro)
(Reporting by Boris Groendahl; editing by David Cowell)
