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Erste will tap TLTRO II, says CFO

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Erste will tap TLTRO II, says CFO

will tap theECB's latest targeted long-term refinancing operations, according to theAustrian bank's CFO.

"Ifwe can take advantage and get the benefits of negative refinancing, then it willhave a positive impact," Gernot Mittendorfer told a conference call todiscuss first-quarterresults. He reminded participants, though, that rival firms alsohave access to the so-called TLTRO II facility.

Announcedin March, the fundingline could in effect pay banks to lend by charging them a negative0.4% interest rate on ECB funds, if they manage to boost their lending by acertain amount. As much as €1.7 trillion in eurozone bank loans are eligible toaccess TLTRO funding, Nomura analysts have calculated.

Forthe first quarter, Erste reported a net interest margin of 2.51%, down from2.59% in the prior quarter and 2.55% a year ago. First-quarter net profitattributable to owners of the parent increased to €274.7 million, up from€225.8 million in the year-ago period, but bank executives said the increasewas mostly due to unsustainably low impairment provisions which came in at €56million, compared to €211 million in the previous quarter and €183 million inthe year-ago period.

"Thereis nothing to justify the level of the risk cost booked in the first quarter sofar; therefore, I would refrain from turning it into any kind of runrate," Chief Risk Officer Andreas Gottschling warned. He pointed to a veryrare lack of significant corporate defaults in the first quarter, and saidprovisions are set to increase through the rest of the year.

Executiveson the call also spoke about a new Romanian mortgage law that takes effect inMay, which may have adverse effects for the country's biggest lender , asubsidiary of Erste. It will allow buyers of property to walk awayfrom their mortgages, and applies retroactively.

ErsteCEO Andreas Treichl said the bank is already adjusting its products in response.

"Wehave changed our offering in terms of what is the necessary equity and theconditions on which we finance," he said, noting that, for the time being,no additional provisions are needed to cover outstanding mortgages that alsofall under the scope of the rule.

Mittendorferalso warned of the law's impact on future business.

"InRomania you will definitely see mortgage lending coming down because we willneed to change pricing, and of course loan-to-value requirements will increasedramatically," he said. Erste will try to offset some of the lost mortgagebusiness in the country by increasing high-yielding unsecured consumer lending.