Erste Bank asset quality improves ahead of key test

Wed Oct 30, 2013 8:26am EDT
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By Georgina Prodhan

VIENNA (Reuters) - Austria's Erste Group Bank (ERST.VI: Quote) surprised the market with a noticeable improvement in bad loans ahead of a key health check by the European Central Bank, lifting its shares on Wednesday.

Its non-performing loans (NPL) ratio fell to 9.6 percent in the third quarter from 9.7 percent a quarter earlier, helped by the first decline in Romania since the start of the financial crisis.

Coverage - a measure of the bank's ability to absorb potential loan losses - rose to 63 percent from 61.7 percent.

"In dire times, you're happy with little things," Chief Executive Andreas Treichl told analysts in London.

The bank said its core Tier 1 capital ratio under Basel 3 rules was 10.3 percent, well above expected requirements, thanks to a repayment of participation capital and an equity issue.

"Going into the asset quality review, we are above our internally set and defined targets. This makes us comfortable," Chief Financial Officer Gernot Mittendorfer said, referring to the ECB's planned tests of banks' assets at the end of this year.

Shares in Erste rose to a two-month high and were trading up 3.8 percent at 25.94 euros by 1216 GMT, as investors forgave the central and eastern European (CEE) lender for missing profit expectations.

European banking analyst Eleni Papoula of Berenberg Bank said: "The improvement in asset quality in the current quarter is encouraging."   Continued...