Moody’s downgrades Erste, Raiffeisen and UniCredit Bank Austria on heavy exposure in Eastern Europe

Newsroom 06/06/2012 | 14:48

Ratings firm Moody’s has downgraded on Wednesday seven lenders in Germany and three in Austria – Erste Group Bank, Raiffeisen Bank International and UniCredit Bank Austria, because of the risk of shocks from the euro zone debt crisis and high exposure to emerging economies in Eastern Europe, including Romania.

In Romania, Erste has a majority stake in Banca Comerciala Romana (BCR), while Raiffeisen controls Raiffeisen Bank. Meanwhile, Bank Austria controls UniCredit Tiriac Bank. Foreign institutions own 83 percent of the total banking sector assets, while Austrian banks hold 39 percent of the total market share.

Raiffeisen and UniCredit Bank Austria have a stable rating outlook, while Erste has a negative outlook due to increased risks in Hungary and Romania.

Moody’s downgraded Raiffeisen due to high exposure in CEE/CIS countries, where 67 percent of its loan book its concentrated. Furthermore 24 percent of the loans were granted in non-investment grade countries.

The main weakness of UniCredit Tiriac Bank is the level of non-performing loans at 10.1 percent, adding to the problem loan coverage of 52 percent. However, the lender remains well capitalized and the exposure in CEE/CIS represents 49 percent of the loan-book, with 31 percent in non-investment-grade countries.

Erste’s subsidiaries in Hungary and Romania pose the highest risk to the group’s earning, and operations in other countries may not be enough to compensate the shocks under stressed scenarios, warns Moody’s. In addition, Erste’s capital buffer in the CEE seems to be lower than its domestic peers, while a large share of the Tier 1 capital includes hybrids and silent participations. However, the Austrian operations of the lender, which owns a savings bank brand, may reduce this weakness. In addition, only 36 percent of the loan book is in the CEE and the coverage ratio of problem loans stands at 60 percent.

Moody’s maintains the review for downgrade of Hypo Tirol Bank, Volksbanken and Investkredit.

The rating agency has also cut ratings for Commerzbank, Germany’s second largest bank by assets, and five other banks. The agency will make a separate rating decision on Deutsche Bank, Germany’s largest banks.

Moody’s maintains Romania in the group of countries recommended for investments. At present, Romania has a Baa3 rating with stable outlook.

BCR held 20.1 percent of the total banking assets in 2011, while BRD, controlled by Societe Generale, and Banca Transilvania had 13.6 percent and 7.3 percent, according to preliminary data form the National Bank of Romania and Raiffeisen Research. CEC Bank, Raiffeisen Bank and UniCredit had 7 percent, 6.7 percent and 6.3 percent. Volksbank Romania and Alpha Bank Romania had 5 percent and 4.7 percent. The rest of the assets is split between other banks.

Ovidiu Posirca

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