Erste Group Bad Loans Peak In Eastern Europe

Erste Group Bank"s non-performing loans on Eastern European markets from Czech Republic to Romania have peaked and may decline from the middle of 2010 due to a general recovery of the region, Chief Executive Officer Andreas Treichl said. "We do not expect them to increase. The level we have seen in the last two quarters, we will probably see for a number of quarters. In mid-2010, we might see an improvement," Treichl said.

The quality of the Austrian-based bank"s assets suffered, because of the loans disbursed in Eastern Europe, a developing region hardest hit by the global crisis.

Bad loans "increased dramatically in the past 12 months. We have reached already a very high level," Andreas Treichl said.

In the first half of 2009, Erste Group more than doubled provisions for bad loans to 521.9 million EUR (771 million USD) as the ratio of non-performing loans to total lending rose to 3.6 percent from 2.4 percent a year before. Net income in the second quarter dropped 19 percent to 260 million EUR. Profit declined at all its Eastern European subsidiaries, including Banca Comerciala Romana SA, Slovenska Sporitelna AS and Ceska Sporitelna AS.

The bank operates in the Czech Republic, Slovakia, Hungary, Romania and Ukraine and has received 1.2 billion EUR in State aid and will receive another 1 billion EUR in hybrid capital from the Government this year. The bank also raised 540 million EUR from investors. According to Treichl, additional State aid will not be necessary.

Erste is not considering leaving Eastern Europe or downsizing operations in the region, CEO Andreas Treichl said, adding that the bank had no plans to close any branches in any of the Eastern European countries. So far this year, Erste has reported an increase in the number of branches in Romania and Slovakia.

Andreas Treichl further said he favoured stress tests on Eastern European banks in a bid to improve investor confidence.