Raiffeisen Sees Loan Losses Rising as Growth Vanishes on Ukraine

May 22, 2014 2:35 am ET

(For more on the Ukraine crisis, go to EXT2.)

May 22 (Bloomberg) -- Raiffeisen Bank International AG, the Austrian bank that makes most of its profit in the former Soviet Union, gave up hopes for loan growth returning this year and sees risk costs rising due to the crisis in Ukraine.

Raiffeisen, the second-biggest bank in eastern Europe after UniCredit SpA, said in a statement today its loan book would stagnate at the “approximate level” of last year, cutting its previous forecast of “slight growth.” The Vienna-based bank said it now expects loan loss provisions to rise by as much as 22 percent this year, rather than remain little changed. They were already driven up by its Ukrainian and Russian units in the first quarter.

Raiffeisen’s first-quarter net income rose 2.5 percent to 161 million euros ($220 million), beating the average estimate in the company’s own survey of 15 analysts, which predicted a decline to 128 million euros. Loan loss provisions expanded by 28 percent to 281 million euros, driven by Ukraine and Russia, a smaller increase than the average analyst estimate.

Chief Executive Officer Karl Sevelda warned in March that the crisis may push its Ukrainian unit into a loss this year and extend an economic downturn in Russia. The standoff with Russia has derailed the planned sale of Raiffeisen’s Ukrainian unit and put in doubt the prospects of its most profitable business, Russia’s ZAO Raiffeisenbank.