Austria's RBI faces steepest profitability drop among big central European banks

Raiffeisen Bank International AG is expected to see the biggest drop in profit and interest income among major banks in central Europe in the coming quarters.

The projected decline comes as the Austrian lender moves to curb its business in Russia amid growing regulatory pressure.

RBI is expected to post a 16% year-over-year decline in 2024 net profit to €2 billion, analyst consensus estimates compiled by S&P Global Market Intelligence show. This is the highest estimated profit drop among eight large banks headquartered in central Europe. RBI is anticipated to report the third-biggest profit drop in 2025, behind Hungary-based OTP Bank Nyrt. and fellow Austrian lender Erste Group Bank AG.

RBI has the largest exposure to Russia among EU banks, with the Russian business accounting for roughly 50% of its after-tax profit and more than 15% of its risk-weighted assets in the first quarter of 2024. The European Central Bank recently requested that RBI accelerate the reduction of its local business, prompting the bank to suspend its 2024 group-level guidance including Russia and Belarus. RBI maintains plans to sell its Russian subsidiary and has been in talks to sell its Belarusian unit.

Analysts also expect RBI to see the highest annual decline in net interest income over the next two years, at 8.2% in 2024 and 7.6% in 2025. Its return on equity is also expected to hit the lowest among the analyzed banks for each year.

The situation in Russia weakens RBI's strategy and market positioning in central and Eastern Europe, but it also opens up opportunities for the bank to focus on strengthening its activities in other markets in the region, according to Christian van Beek, an analyst in the Financial Institutions team at Scope Ratings. "Overall, we believe that the group is strategically well positioned in the region even without Russia," van Beek told Market Intelligence via email.

Economic recovery in Austria and central and Eastern Europe in the next few years should lead to organic growth of RBI's core business outside Russia and Belarus, acting as a "natural hedge," said Cihan Duran, associate director of financial services at S&P Global Ratings.

Analysts anticipate that Austria-based Erste will report annual drops in net profits and net interest income this and next year, Market Intelligence data shows. However, former Erste CEO Willi Cernko suggested during his final earnings call in May that the lender could improve its performance guidance at the half-year mark after reporting strong results for the first quarter.

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OTP Bank, meanwhile, is poised to report the highest net interest income growth in 2024, amounting to 14% in euro equivalent — although this is expected to drop in 2025. Analysts also estimate a more than 11% decline in its 2025 profit.

The lender's first-quarter net interest income improved 40% year over year thanks to two recent acquisitions, the normalization of rates in Hungary and the strong performance of local businesses and the Russian subsidiary. Hungary's central bank recommended in May that OTP Bank reduce deposits and corporate loans in Russia and maintain its current level of retail loans in the country.

The Hungarian government recently said it plans to keep existing windfall taxes on banks, energy firms and multinational companies beyond 2024, tax banks' foreign currency transactions and raise transaction fees for lenders to bolster the country's budget.

Poland-based PKO Bank Polski SA is expected to see the highest growth in both net profit and return on equity in 2024 in the sample, at more than 70% and 6.3 percentage points, respectively. Local peer ING Bank Slaski SA, owned by Dutch bank ING Groep NV, is projected to report the highest return on equity among the analyzed banks, although it will see the largest drop in the ratio this year at 8.1 percentage points.

Polish banks have benefited from high interest rates, while the problem of Swiss franc mortgage loans that has been troubling the sector for the last few years has subsided, with local lenders using their profits in the previous quarters to increase legal provisions against their franc mortgage exposures.

The Polish government extended its mortgage repayment deferral scheme until the end of 2024. However, it added income and other criteria for borrowers wanting to use the scheme, which limited its popularity. Bank Polska Kasa Opieki SA, the country's second-biggest lender, recently reduced its estimated cost of the scheme to approximately 234 million zlotys from 513 million zlotys, expecting a client participation rate of 21%.

The growth of Polish banks' net interest income is slowing down but is still high, so reaching 30 billion zlotys in profits in 2024 is still within reach for the country's banking sector, Polish business daily Puls Biznesu said July 21.

Santander Bank Polska SA, the Polish unit of Spain's Banco Santander SA, is set to report the highest net interest margin for the year among the analyzed banks, continuing a trend visible in previous years and quarters. The bank's executives said during its first-quarter earnings call in April that the lender will try to keep the margin "high and stable" assuming there are no rate cuts in Poland this year.

Analysts expect Société Générale SA's Czech unit Komercní banka a.s. to post the lowest net interest margin in 2024 and 2025 among the banks in the sample. The Czech central bank has been gradually reducing its key rate, bringing it to 4.75% in June, the lowest level since March 2022. A gradual reduction of funding costs will support the net interest income of Czech banks, S&P Global Ratings said in July, although lower interest rates will reduce margins in the coming quarters.

As of July 22, US$1 was equivalent to 3.93 Polish zlotys.