Loss-making Erste Bank optimistic about EBA rules

The head of Austria’s leading finance institute has shown understanding for the latest bank tax hike and confidence concerning more severe equity ratio regulations.

Andreas Treichl, the CEO of Erste Bank Group AG (Erste Bank), said yesterday (Weds) he was not surprised by the government’s decision to jack up the bank solidarity charge by 25 per cent. “The financial sector is not one of the most popular economic branches. Obviously, many people will applaud such a step,” he said about the upcoming increase.

Treichl added that he had no other chance but to accept the decision but also pointed out that his bank was paying more bank tax to the finance ministry already than any of its rivals. The Erste Bank boss stressed that some financial institutes could opt for a more reluctant policy in providing companies with credits because of the charge while other bankers branded the levy as inappropriate, incomprehensible and unfair.

Social Democratic (SPÖ) Finance Secretary Andreas Schieder announced earlier this week that the bank tax would soon rise by 25 per cent. The state raked in around 500 million Euros of additional tax revenues in 2011 thanks to the charge which had been introduced in 2010. At that time, SPÖ Chancellor Werner Faymann described the measure as a fair and reasonable contribution considering banks’ extraordinary role in the crisis.

Some CEOs made clear that all kinds of extra charges caused by the levy would be passed on directly to customers. The Labour Chamber (AK) reacted by presenting plans to conduct investigations – and underlined it would not hesitate from naming and shaming banks which jacked up activity fees. Schieder said that research had shown that none of Austria’s banks introduced significant increases of customer charges because of the bank tax in the past two years.

The decision of the government coalition of SPÖ and the People’s Party (ÖVP) to increase the bank tax followed the partial nationalisation of Volksbank AG (ÖVAG). ÖVP Finance Minister Maria Fekter said the state would raise its participation in ÖVAG to 49 per cent. Fekter admitted that the rescue operation for the debt-stricken bank – which sustained a loss of around one billion Euros last year – will increase this year’s budget deficit.

The government said it decided to raise the bank tax to ensure that financial sector firms came up for the lion’s share of the costs of ÖVAG’s partial nationalisation. SPÖ and ÖVP hope that this strategy helps to remain on the chosen budget consolidation path. ÖVAG recently sold most of its Volksbank International (VBI) departments to Russian bank Sberbank for 505 million Euros. ÖVAG chief Gerald Wenzel hoped to rake in more money by getting rid of ÖVAG’s Eastern European (EE) departments before Sberbank prevailed in calling for a discount. Wenzel is expected to leave ÖVAG later this year.

Erste Bank also experienced immense difficulties in the EE region in the past years. Treichl – who heads Erste Bank since 1997 – said yesterday that the bank’s Hungarian branch would not be back in the black before 2014 due to foreign currency loan controversies and its current restructuring procedures involving layoffs and closures. Erste Bank Hungary’s workforce level will decline by 400 or 450 in the coming years, he said, adding that the affiliate suffered a loss of 566.6 million Euros last year.

Erste Bank’s Austrian branches achieved a profit of 177.6 million Euros in 2011, up from 166.7 million Euros in 2010, while its Romanian subsidiary company struggled. The bank made a loss of 22.5 million Euros in 2011 after a profit of 8.6 million Euros in the previous year. These setbacks, the force to write off government bonds and higher taxes in several countries resulted in an overall loss of 719 million Euros in 2011.

Treichl said Erste Bank would manage to make a profit again this year. He emphasised that the bank had a profit of 254 million Euros in the final quarter of 2011. The bank’s CEO also said he was optimistic about meeting the European Banking Authority’s (EBA) equity ratio directive. The stricter regulations mean that Europe’s 70 biggest banks must ensure a core tier 1 capital ratio of nine per cent by June. Erste Bank’s rate was 8.9 per cent at the moment, according to Treichl who claimed that his bank would have no problem in surpassing the demanded rate.