Unicredit in Eastern Europe

In Bloomberg today:

UniCredit Says Higher Rates Won't Stop Eastern Boom


July 11 (Bloomberg) -- UniCredit SpA will grow profit from its eastern European banking businesses at least 15 percent annually over the next two years, driven by a retail lending boom that will likely survive tightening credit in the region.

UniCredit's 2007 pretax profit from eastern Europe will rise to at least 2.8 billion euros ($3.9 billion) from 2.4 billion euros in 2006, Bloomberg calculated based on the Milan-based lender's forecasts that were published in a report. Credit to retail banking customers will grow 35 percent annually through 2009, wrote Debora Revoltella, UniCredit's chief east Europe economist.

``Tightening credit forecasts have been taken into account,'' Revoltella said late yesterday at a news briefing in Vienna. ``We are not concerned in terms of big non-performing loans.''

The bank, which has 24 million customers in 20 eastern European and central Asian countries, posted record profit last year after purchasing Germany's HVB Group. UniCredit agreed to spend $4.3 billion in the last month to buy banks in Kazakhstan and Ukraine. People in ex-Communist countries are still in the early stages of using bank credit to buy houses, cars, computers and TVs, the lender says.

``Retail is by far the most dynamic business,'' said Federico Ghizzoni, head of UniCredit's Polish business. ``Margins are better than in old Europe. With fewer assets, you make more money.''

In Poland, where the Italian lender is awaiting regulatory approval to merge its Bank BPH and Pekao SA units, interest rates are on the rise. Poland's Monetary Policy Council raised its benchmark interest rate by a quarter percent to 4.5 percent on June 27. More rate increases may be needed later this year, Polish central banker Miroslaw Pietrewicz told Bloomberg on July 5.

Yen, Franc Loans

``I'm not much concerned about the credit impact'' of rising rates on UniCredit, said Ghizzoni, who added that the lender in 2005 stopped giving foreign currency loans backed by Japanese yen or Swiss francs.

Real estate prices have risen as much as 100 percent in the eight eastern European states that joined the European Union in 2004. The surge in prices has also triggered investor concerns that the bubble will burst as interest rates rise, saddling banks such as UniCredit, Erste Bank SA and Societe Generale SA with billions of euros in bad loans. The boom had been fueled by floating-rate mortgages of as low as 4.4 percent.

``In some countries we have to be careful about the mortgage activity because the growth is too steep,'' Ghizzoni said without specifying which countries UniCredit is beginning to pull back home loans from.

Mortgages measured as a portion of gross domestic product in eastern Europe are about 7 percent compared with 38 percent in the countries using the euro, UniCredit wrote in the report. Only Estonia and Latvia's home-lending sectors top 20 percent of GDP.

UniCredit will control about 108 billion euros in eastern European assets by the end of 2007, making it the biggest bank in the region, the report also said.