Raiffeisen Latest Bank to Be Hit by Ukraine Crisis

By Nicole Lundeen and Ulrike Dauer 

VIENNA--Several European banks are warning that their 2014 results will be hurt by the Russia-Ukraine crisis, with Austria's Raiffeisen Bank International AG becoming the latest casualty.

Shares in Raiffeisen took a nose dive Tuesday after Austria's third-largest bank warned of a net loss this year because of additional risk costs mainly in its Ukraine business.

Chief Executive Karl Sevelda said this year's net loss could be up to EUR500 million ($642 million). It would be the first ever loss in the bank's four-year history and "a consequence of the latest developments" in the Russia-Ukraine conflict, the bank said.

On Monday, Russian state-controlled lender VTB warned it could report a $1.4 billion loss for 2014, also citing the Ukraine crisis.

Russia's second-largest lender has already lost 26 billion rubles ($672 million) because of the crisis in Ukraine, and that figure could double for the full year, Chief Executive Andrey Kostin said. The bank is only getting back half of its loans in Ukraine, and its offices in Ukraine have been attacked and vandalized.

Hungarian bank OTP's Chief Executive Sandor Csanyi recently called his bank's presence in Ukraine problematic, especially in the areas under pro-Russian separatist rule in the Luhansk and Donetsk region. There have been break-ins at some of the branches even though they were closed.

Raiffeisen's fellow Bank Austria AG, a subsidiary of Italy's UniCredit, has had its Ukrainian business classified as for sale since the beginning of 2014. It made a loss of EUR25 million in the first half of the year. The bank declined to comment on business expectations for the year.

Raiffeisen is Ukraine's fifth largest bank and has 80 branches in east Ukraine. The Ukrainian business accounts for about 2.4% of the bank's total assets.

Raiffeisen now forecasts 2014 risk provisions of between EUR1.50 billion and EUR1.70 billion, an increase from its previous guidance of between EUR1.30 billion and EUR1.40 billion.

Raiffeisen, which is a key player in Central and Eastern Europe, said it expects to return to a net profit next year, forecasting a figure in the middle-three-digit millions.

Since the conflict between Russia and Ukraine started in late 2013, Ukraine's currency, the hryvnia, has collapsed. The economy appears set for its largest contraction since 2009. A number of banks have had to write down or write off assets in Ukraine.

Although Raiffeisen probably will be the hardest hit, due to its higher exposure to Russia and Ukraine than many other European peers, it won't be the last bank to issue a warning as the conflict persists.

According to Barclay's analysts, European banks together have more than EUR100 billion in exposure to loans in Russia and Ukraine, mostly loans to companies operating there. Raiffeisen Bank, Italy's UniCredit and France's Société Générale account for roughly 60% of the total. European banks' exposure to Ukraine is limited, following divestments over the past few years, Barclay's analysts add.

Société Générale and UniCredit were not immediately available for comment.

Germany's two biggest banks, Deutsche Bank and Commerzbank declined to update statements from second-quarter reports ahead of third-quarter earnings due in November.

Commerzbank's exposure to Russia amounted to EUR5.4 billion at the end of June and the Ukraine exposure to EUR100 million. The group expects 2014 loan-loss provisions to be "noticeably below the 2013 level," but it didn't rule out a rise in loan loss provisions should the situation in Ukraine aggravate.

Deutsche Bank's credit exposure to Russia was EUR6.1 billion as of June 30. Credit exposure to Ukraine was EUR500 million.

Deutsche Bank said in its second-quarter report it doesn't expect material credit losses from the tensions between Russia and Ukraine.

Raiffeisen is sufficiently capitalized and doesn't need a capital increase, CEO Sevelda said. Mr. Sevelda is also relatively sanguine about the situation in Russia pointing to the bank's portfolio of mostly corporate loans. He also said that international sanctions against Russia haven't had a significant impact on the bank's business but there could be some hits if sanctions persist.

At 1239 GMT, shares were down 10% or EUR2.06, at EUR17.71. The shares have already lost about one-third of their value since January.

Veronika Gulyas in Budapest also contributed to this article.

Write to Nicole Lundeen at [e-mail] and Ulrike Dauer at [e-mail]

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