Austria's Raiffeisen Zentralbank Oesterreich AG, or RZB, said Monday that its set-asides for bad loans surged to euro1.27 billion ($1.8 billion) in the first half of the year, mostly to account for credit losses in crisis-hit countries such as Ukraine and Russia.
The Vienna-based group, which considers Austria, as well as Central and Eastern Europe as its home market, said its provisioning for impairment losses rose 533.5 percent compared to euro200 million ($285.7 million) during the same period a year earlier.
According to an interim report, the problem of non-performing loans affected "virtually all" of the RZB's reporting segments in the first six months of the year. However, Ukraine, Russia, Hungary and Romania were "taking the hardest hit," the report said. RZB has a 70 percent stake in Raiffeisen International Bank-Holding AG, which is present in 17 countries in Central, Eastern and Southeastern Europe.
"The difficult economic conditions and the negative exchange rate trends in some markets have led to an expected increase in non-performing loans, where clients fall behind with their repayments," RZB said in a statement. "This applies especially to foreign currency loans and struggling financial institutions."
During the first half of 2009, RZB said set-asides for bad loans jumped to euro229 million ($328.3 million) in Central Europe, to euro227 million ($325.4 million) in Southeastern Europe, to euro252 million ($361.3 million) in Russia and to euro261 million ($374.2 million) in other former Soviet republics, including Ukraine.
Along with German, French and Italian banks, Austrian banks offered euro or Swiss-franc loans at low rates as countries like Poland and Hungary grew rapidly. It was a good deal for banks and borrowers, until local currencies plunged and sent borrowers payments soaring.
RZB also said its provisions in Austria increased to a staggering euro282 million ($404 million) in the first six months of the year, compared to euro3 million ($4.3 million) during the same period a year earlier.
"Most of the increase was due to provisioning for individual loan losses mostly in connection with Icelandic financial institutions by Raiffeisen Zentralbank," RZB said in the report.
RZB, which is Austria's third-largest bank, also said Monday that its pretax profit was down 47 percent, declining from euro878 million ($1.25 billion) in the first half of 2008 to euro463 million ($661.1 million) in the first six months of 2009.
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