July 31, 2019 / 6:12 AM / 4 months ago

Erste Group's second-quarter profit down 19% due to provisions for lost legal case

FILE PHOTO: The logo of Erste Group Bank is seen outside of one of its branch offices in Vienna, Austria, September 27, 2016. REUTERS/Leonhard Foeger

VIENNA (Reuters) - Austrian lender Erste Group (ERST.VI) on Wednesday reported a 19% drop in second-quarter net profit, mainly due to provisions for a lost legal case in Romania.

Net profit reached 354.9 million euros (£325.7 million) in the April to June period, down from 438.2 million in the year-earlier period, the bank said. Analysts had expected net profit of 328 million, according to a poll by Erste Group published on its website.

Erste Group, which operates in six central and eastern European countries besides its Austrian home market, confirmed its full-year target of a return on tangible equity (ROTE) of more than 11%.

Analysts have described that profitability target as lacking in ambition as the lender reached 15.2% at the end of last year.

The bank booked a one-off charge of 150.8 million euros in Romania after warning last month it would set aside up to 230 million euros for the issue.

The provision was made after a Romanian High Court ruled that local building society BCR BpL, a subsidiary of Erste Group’s subsidiary BCR, did not comply with legal requirements for paying state subsidies to building society clients.

The lender earned 220 million euros in the country last year.

Erste Group also reported an 3.4% increase in net interest income helped by higher central bank interest rates in the Czech Republic, its largest single market with a 2018 profit of 583 million euros. The Czech National Bank has increased its key two-week repo rate in eight moves since 2017 to 2.00%.

Reporting by Kirsti Knolle; Editing by Riham Alkousaa and David Holmes

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