Raiffeisen Bank International AG currently assumes state-imposed restrictions to contain the new coronavirus outbreak and government packages for affected businesses will lead to a gradual normalization from the third quarter, CEO Johann Strobl said March 18.
The CEO struck an optimistic note despite RBI reducing its 2020 loan growth guidance and projecting a higher provisioning ratio this year given the recession forecasts for its core markets in Austria and Central and Eastern Europe.
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2020 outlook
The Austria-based group said its provisioning ratio is seen at 50 basis points to 75 basis points in 2020, which is more than two times higher than the 26 basis points recorded in 2019.
Nevertheless, the bank confirmed its target for a common equity Tier 1 ratio of 13% and a dividend payout ratio of 20% to 50% of consolidated profit. RBI also kept its medium-term targets for 11% return on tangible equity and a cost-to-income ratio of 55%.
It is hard to give precise prognoses as the situation is fluid and the bank will adjust to changes in the markets throughout 2020, Strobl told journalists at the presentation of the 2019 financial report.
The outbreak will affect the revenues of RBI's corporate clients and the bank is in contact with them to gauge the extent of the impact and assess their funding needs over the next weeks and months, Strobl said. But the bank's capital buffers are strong, he said, and the Austrian government and EU will provide support, which should help ailing businesses through the crisis.
Austria will provide €38 billion in financial support to address the impact of COVID-19, the disease caused by the coronavirus, in addition to an initial €4 billion package.
The financial system is also much stronger now than it was during the global financial crisis and this provides scope for more bank and government support to affected businesses, according to Strobl.
Relax NPL rules
RBI started 2020 with a strong loan base where nonperforming loans accounted for only 2.1% of total loans and the coverage ratio for bad loans was 61%, Strobl said. If the bank would wish for something from regulators, it would be a relaxation of the forbearance rules for short-term NPLs, Strobl said. Under the existing rules, short-term forbearance measures should not exceed two years, and in the case of project finance and the construction of commercial property, one year. This may not be enough time for certain borrowers to get back on track with repayments, according to Strobl.
The CEO said he was convinced government backing will greatly contribute to the swift mitigation of the negative economic effects of the virus. Hopefully, then social and corporate life can return back to normal in the third or fourth quarter, he said.
The situation is not completely unusual because many industries have seasonal production slowdowns and if the outbreak is contained soon, production and service levels can recover in the latter part of the year, the CEO said.
RBI itself currently has 90% of its staff working remotely with the number of employees at branches kept to an "absolute minimum," Strobl said. All bank branches remain open and if there are necessary closures due to health risks, RBI has enough branches to compensate for that and continue the service to its clients, the CEO said.
The bank sees Slovakia and the Czech Republic as its markets most exposed to an economic hit, forecasting a gross domestic product drop of 6% and 5.2% in 2020, respectively. Croatia is expected to record a 4.8% drop because of the impact on its tourism sector and Austrian GDP is expected to drop by 4.5%, compared to a 4% shrinking of the eurozone economy.