Raiffeisen Bank International unit leads surge in riskier loans at Czech lenders

Austrian lender Raiffeisen Bank International AG's Czech subsidiary demonstrated the largest increase in riskier loans in the first half of 2023 among the biggest banks in central and southeast Europe.

Stage 2 loans — classified under IFRS 9 accounting rules as those for which credit risk has increased significantly since origination — accounted for 38.7% of Raiffeisenbank a.s.'s gross customer loans in the half, up almost 1,600 basis points from the same period in 2022, S&P Global Market Intelligence data shows.

The Czech businesses of France's Société Générale SA and Austria's Erste Group Bank AG recorded the next largest year-over-year growth in stage 2 loan ratios among a sample of more than 30 banks based in the Czech Republic, Hungary, Poland, Slovakia, southeast Europe and the Baltic states, the data shows.

RBI's Czech business moved part of its riskier consumer loans from stage 1 to stage 2 in the third quarter of 2022, a spokesperson told Market Intelligence. SocGen's Komercní banka a.s., which saw a rise of more than 600 basis points in its stage 2 loan ratio in the period, took a similar decision in relation to a portion of its inflation-sensitive retail loans, according to its financial reports.

Erste's Ceská sporitelna a.s. applied stage 2 overlay rules to some corporate and retail loans in the third and fourth quarter of 2022 based on the recommendations of the Czech central bank to take into account the potential impact of high inflation, growing interest rates and high energy prices. This approach is coordinated within Erste Group, Česká spořitelna told Market Intelligence.

The Czech central bank has kept its key interest rate unchanged at 7% since June 2022. With inflation dropping in recent months, it recently signaled that cautious rate-cutting could start at the end of 2023.

Bank Handlowy and another Polish lender, ING Bank Slaski SA, were also among five banks with the highest stage 2 loans ratio growth year over year.

The Romanian subsidiaries of Erste Group, SocGen and UniCredit SpA also reported some of the highest stage 2 loan ratios in the sample.

Poland-based BNP Paribas Bank Polska SA, mBank SA and Bank Handlowy w Warszawie SA — controlled by BNP Paribas SA, Commerzbank AG and Citigroup Inc., respectively — reported large year-to-date increases in their stage 2 loan ratios.

BNP Paribas' Polish unit in its latest financial report attributed an increase in stage 2 mortgage loans to a drop in the gross value of its mortgage portfolio amid limited production of new loans, but it noted that existing loans were being repaid.

ING Groep NV unit ING Bank Śląski told Market Intelligence that it moved part of its zloty-denominated retail mortgage loans to stage 2 assets following the launch of Poland's mortgage repayment deferral scheme in the third quarter of 2022.

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Problem loans

Even as concerns around inflation and high interest rates drove stage 2 loan increases at several Czech banks, they had some of the lowest nonperforming loan (NPL) ratios in the sample. Baltic financial institutions AS LHV Group and AB SEB bankas and Slovakia-based Prima banka Slovensko a.s. had the lowest NPL ratios among the analyzed banks.

Polish lender Bank Ochrony Srodowiska SA had the highest NPL ratio in the sample, amounting to 15.19% after the first half of 2023. The lender, which has reported a double-digit NPL ratio since 2016, said earlier this year that it was working on a new strategy to bring the ratio to single digits within two to three years.

Bulgaria-based First Investment Bank AD had the second highest NPL ratio in the sample while also demonstrating the most significant reduction of the ratio, both on a year-to-date and annual basis.

Poland-based Alior Bank SA, Hungary's largest lender OTP Bank Nyrt. and the Hungarian unit of Raiffeisen Bank International were also among banks with the largest NPL ratio improvements in the sample. OTP Bank Chief Financial and Strategic Officer László Bencsik said in August that loan quality was stable across the entire group, even in Russia and Ukraine, which have been at war since February 2022.

Hungary's MBH Bank Nyrt. had the largest NPL ratio increase since the beginning of 2023. MBH Bank was formed earlier this year as a result of a three-way tie-up between MKB Bank, Budapest Bank and Takarékbank.

Poland-based Bank Polska Kasa Opieki SA reported the highest NPL ratio increase year over year, alongside Slovakia-based 365.bank a.s. and other Polish lenders including ING Bank Śląski, mBank and Bank Millennium SA.