Provisions in Romania, Hungary push up cost of risk for Erste Group

Erste Group, the owner of Romanian lender BCR, estimates higher risk costs by EUR 700 million because of provisions in Hungary and in Romania. This will fuel a net loss of some EUR 1.6 billion. As a result of increased provisions in Romania, Erste Group will carry out an impairment test on the entire amount of Romanian intangibles (goodwill, brand, value of customer relationships) of about EUR 800 million, which may result in the full write-off of such intangibles. "Such action may also lead to the write-off of deferred tax assets of about EUR 200 million," the Austrian group has announced. "Increased risk provisions in Romania reflect recently increased efforts by the Romanian National Bank, ahead of the ECB’s asset quality review (AQR), to reduce non-performing loans in the banking system in an accelerated manner, and the implementation of lower recovery assumptions by BCR, based on offer prices received for large volume NPL packages," according to Erste. The lender sees a possible 25 percent drop in the volume of non-performing loans in Romania, to some EUR 800 million, from 2015. BCR’s assets were of EUR 14.7 billion at the end of March 2014. The non-performing loans were 30 percent of the portfolio. “We are convinced that these measures will also help us pass the Asset Quality Review and stress test comfortably. But what is much more important: by taking these measures, we have done everything in our power to avoid one-off effects from 2015 onwards. This will also be reflected in a more stable and increasing net profit of Erste Group”, comments Andreas Treichl, CEO of Erste Group Bank AG. editor@romania-insider.com