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Investors wipe out $1.4bn off Erste's market value

New York, July 5, 2014

Investors wiped more than one billion euros ($1.4 billion) off Erste Group's market value and took evasive action against rivals yesterday on concerns the bank's warnings about Hungary and Romania could echo across the sector.

Austria's Erste, emerging Europe's third-biggest lender, said on Thursday it could post a record net loss of up to 1.6 billion euros this year due to a law cutting bank charges in Hungary and higher provisions for soured loans in Romania.

The charge in Romania was due to the central bank there clamping down on non-performing loans ahead of a European Central Bank (ECB) review of large European banks, Erste said.

The Romanian central bank declined to comment.

Erste was the biggest loser among European bank stocks, tumbling more than 16 per cent to a 12-month low of 19.52 euros in afternoon trading and pulling Austria's benchmark ATX down more than three per cent.

"The latest profit warning significantly reduces the book value and will also likely lead to the stock derating versus the EU banking sector, until Erste shows stability in the operating performance and an end to cleaning up exercises," Barclays said in a note.

The ECB review is forcing banks to take a harder look at their loan books. Investors expect banks to flag additional costs to deal with any problems before the overall results of the tests are announced in October.

Hungary's parliament, meanwhile, approved a bill yesterday that will cut bank charges on foreign-currency and forint-denominated loans to compensate borrowers after the Supreme Court ruled that banks had unfairly charged them.

The law is only the first step in a comprehensive scheme to help borrowers. Analysts at Barclays said Erste faced a risk of more losses in Hungary given that the final rules for phasing out foreign-currency mortgages have yet to be unveiled.

The developments in Romania and Hungary mean that Erste has to raise its risk costs from a planned 1.7 billion euros to about 2.4 billion this year.

More banks are expected to increase provisions from the Hungarian moves, which the central bank said could cost banks 600 billion to 900 billion forints ($3.95 billion). That is potentially twice analysts' estimates of 400 billion.

However, the bank said this new burden would not pose a risk to the stability of the banking system, and none of the country's banks would need significant additional capital.

RBI, emerging Europe's second-biggest lender said it would need a few more days to assess the impact of the Hungarian law.-Reuters




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