Austria’s Erste Bank will get a cash injection from its Czech unit Ceska Sporitelna which set out plans to pay all of its €628.4 million 2008 net profit in dividends.
The dividend payout is more than three times higher than previous years on a per share basis, and will help parent Erste achieve its planned €2.7 billion ($3.40 billion) capital hike.
Erste is entitled to 97.99% of the dividend, corresponding to its ownership stake in the Czech bank, the banks’ press offices said on Thursday.
At the same time, Erste will underwrite a €240 million subordinated debt for its Czech subsidiary to help cover the higher dividend while keeping a strong capital ratio.
“Following this measure, (Sporitelna) will still be very strongly capitalized with 10.3% (capital ratio) after 9.55% in 2007,” Erste’s press office said in an email. “It’s a normal capital optimization within the group.” It added Sporitelna’s capital structure would have a higher proportion of foreign capital.
“It is quite a reasonable step by Erste because Ceska Sporitelna is well-capitalised,” said Milan Lavicka, a banking sector analyst with brokerage Atlantik FT in Prague. “It is not exactly a win-win situation for Sporitelna but it is nothing especially bad for them.”
The Czech unit has traditionally been the strongest profit driver for Erste, Lavicka said, adding the Austrian parent was not likely to make such a capital call on its other units.
Erste has a Tier 1 capital ratio of 7.2%, up from 7% in 2007, it said. It said this week it secured enough private interest in its capital hike to cap an injection of government aid at €2 billion.
Investors have grown increasingly cautious over western banks exposed to the hard-hit central and eastern European region, which some media have dubbed “the sub-prime of Europe”.
The Czech central bank has however stressed most Czech banks were in net creditor positions to their foreign owners and that the Czech banking system was well capitalised and had low exposure to foreign credit.
Czechs have avoided foreign currency loans -- which have troubled borrowers in Romania, Hungary or Poland as currencies sink in value -- in recent years due to traditionally lower interest rates.
Polish, Czech, Romanian, Bulgarian and Slovak bank supervisors on Wednesday decried “publicly announced initiatives” about banks’ exposure to the region, which they said undermined efforts to uphold stability.
On Thursday, JP Morgan said banks exposed to the region would require additional capital of €32 billion to 40 billion by 2010. (Reuters)