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Erste, emerging Europe's No.3 lender, expects next year's operating earnings to rise by 10 percent, more than market expectations, even though lending growth will slow down and risk provisions rise, it told investors at its Capital Markets Day.
"That we are in retail banking, in this region, makes us feel more comfortable than other banks who are in other businesses and in other regions," Chief Executive Andreas Treichl told the meeting in remarks broadcast over the Internet.
While this forecast is in stark contrast to the losses and job cuts announced by banks in developed countries, Erste and its peers in the region are facing mounting evidence that the wider economic slowdown is spreading to emerging Europe.
The worst decline of Czech output in eight years in October and Czech carmaker Skoda's production cut reminded investors on Friday that even the strongest central European economies are not immune from the global downturn.
Erste, which made 62 percent of its operating earnings in the first three quarters of this year in emerging Europe, owns the biggest Czech and Slovakian banks as well as the biggest in Romania, an economy that looks even more fragile.
"Romania is going to have big problems and when even Skoda in the Czech Republic is shutting down, the pressure is just everywhere," said one analyst who declined to be identified.
By 1509 GMT, Erste shares traded down 6 percent at 15.45 euros, in-line with the DJ Stoxx European banking index which also fell 6 percent as banks suffered from dire news about U.S. banks late on Thursday.
STATE CAPITAL
Erste has asked the Austrian government for a 2.7 billion euro injection to prop up its capital ratio, but approval of the deal has dragged on for more than a month until finally being given this week, and Erste said it was in no hurry anymore.
Treichl said he would now wait into next year and see what his options were, adding that the tendency on European capital markets may become more accommodative of bank capital raisings.
"Now we believe it is appropriate and wise to wait," Treichl said. "We are going to look at a couple of other programmes and some time in the first quarter we may actually draw."
Its tier 1 capital ratio will stand at 7.6 percent by the end of this year without the state capital, Erste said.
Moody's late on Thursday put Erste's credit rating on review for a possible downgrade, saying the economic slowdown in emerging Europe would put pressure on Erste's asset quality, capital ratios, revenues and earnings.
Erste reiterated its pledge to raise operating earnings by 15 percent this year. Analysts, which slashed their estimates after Erste issued a profit warning in October, expect only 3 percent growth this year and 9 percent next.
Erste's outlook translates into 2009 operating earnings of around 3.2 billion euros ($4.3 billion), while analysts expect 2.9 billion euros on average, according to Reuters Estimates.
But the underlying growth in customer loans, Erste's main revenue source, will drop more notably to 5-7 percent, from 12 percent this year and 17 percent in 2007, Erste said.
And at the same time, risk provisions will rise to 0.9 to 1.2 percent of customer loans -- up 60 percent from this year and almost three times as high as 2007 -- implying a significant deterioration of Erste's loan book.
According to Reuters calculations, this outlook implies risk provisions of between 1.2-1.6 billion euros next year.
($1=.7537 Euro)
(Additional reporting by Sylvia Westall; Editing by Jon Loades-Carter and Hans Peters) Keywords: ERSTEBANK/ (boris.groendahl@reuters.com; +43 1 53112-258; Reuters Messaging: boris.groendahl.reuters.com@reuters.net)
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