Erste Group expects higher risk costs in 2014, updates outlook for 2014 and 2015
Erste Group today announces that it expects risk costs to rise from the planned EUR 1.7bn to about EUR 2.4bn in 2014 as a result of increased provisions in Hungary and Romania. In Hungary this is related to the planned government action on retail FX loans, which is expected to be related primarily to the retroactive correction of bid-ask spreads applied to FX loans and the abolition of unilateral interest rate and fee changes and is set to be approved by parliament on 4 July 2014. Any potential additional costs related to the complete phase-out of retail FX loans announced by government officials for H2 2014 are - in line with recent High Court decisions - not expected and hence not included in the above estimate. Increased risk provisions in Romania reflect recently increased efforts by the Romanian National Bank, ahead of the ECB's asset quality review (AQR), to reduce NPLs in the banking system in an accelerated manner, and the implementation of lower recovery assumptions by BCR, based on offer prices received for large volume NPL packages.
As a result of increased provisions in Romania Erste Group will carry out an impairment test on the entire amount of Romanian intangibles (goodwill, brand, value of customer relationships) of about EUR 800m, which may result in the full write-off of such intangibles. Such action may also lead to the write-off of deferred tax assets of about EUR 200m.
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