* Q2 net profit 217 mln eur vs Reuters poll 223 mln eur
* 30 mln eur provision for future items incl Hungary tax
* Bad debt charges higher than expected on large corporates
* Bad debt rise picks up speed in Q2, charges increase
* Sticks to forecast of flat risk provisions in full year
(Adds detail on bad debt, aims to repay state aid)
By Boris Groendahl
VIENNA, July 30 (Reuters) - Emerging Europe's No.3 lender
Erste Group Bank <ERST.VI> just missed market expectations as it
provided more than expected for bad loans and for Hungary's
special bank tax in the second quarter.
The Austrian group, which owns the biggest banks in the
Czech Republic and Romania, said on Friday the rise in bad debt
had accelerated in the three months to June and forced it to
make higher charges than in the first quarter.
The quarterly rise in charges was mainly due to defaults of
large corporate clients, Erste said, while they declined on the
quarter in most eastern European units apart from troubled
Hungary, where provisions were at their second-highest level
ever.
A 30 million euro ($39 million) provision to cover the
special banking tax Hungary's new government plans to raise to
plug its budget hole also helped bring net profit down 17
percent to 217 million euros on a year earlier.
Analysts polled by Reuters had expected profit to fall 14
percent on average as they forecast broadly stable loan loss
provisions and a sharp decline in trading income due to volatile
markets. []
The former Communist bloc, where Erste makes most of its
profit, is crawling out of recession, but austerity programmes
in countries such as Romania and Hungary are hampering the
recovery and testing the resilience of banks in the region.
High margins have allowed Erste and rivals UniCredit
<CRDI.MI>, Raiffeisen International <RIBH.VI> and KBC <KBC.BR>
to remain profitable in the region, but investors are looking
for signs of a reversal of the bad debt cycle to boost returns.
Erste Chief Executive Andreas Treichl stuck to his forecast
that risk provisions would stay at last year's level of around 2
billion euros, which implies a slight drop in the second half,
but he said growth would remain subdued.
"Customer loan volumes in central and eastern Europe are
expected to remain muted during the course of this year," Erste
said. "The general improvement in operating conditions should
have positive, if gradual, effects on asset quality."
HUNGARY, ROMANIA
Erste's biggest trouble spot remains Romania, which is
surviving on emergency loans from the International Monetary
Fund (IMF) and the European Union. Its economy is expected to
shrink again this year due to budget austerity measures.
That will push back even further the profit growth Treichl
needs to recoup the 3.7 billion euros -- six times book value --
he spent in 2006 to buy the country's biggest bank.
Hungary moved up on the list of Treichl's headaches after
the new government of Prime Minister Viktor Orban turned to
foreign banks to plug its budget hole with a special levy and
did not waver despite bankers' intense lobbying. []
The levy may even drive Erste's Hungarian unit to a loss
this year. After six months, it had booked a meagre 12.6 million
euros in profits, less than a third of what it made last year.
Erste shares have gained 6 percent this week after it scored
well in the Europe-wide bank stress test and after regulators
eased some upcoming new rules on bank capital that could have
hit its capital levels disproportionately.
They closed at 32.45 euros on Thursday, up 24.5 percent this
year, making it one of the best performers among European banks.
Erste said in presentation slides that it aimed to repay 1.2
billion euros in state aid it received last year as soon as it
has "full clarity" on the new Basel III capital rules. Its core
tier 1 ratio rose to 8.6 percent in the quarter.
(Reporting by Boris Groendahl, editing by Will Waterman)
($1=.7641 Euro)
