VIENNA (Reuters) - UniCredit SpA (MI:CRDI) plans to expand its already strong presence in central and eastern Europe and is on the lookout for possible buys, the Italian bank said, lured by the region's long-term growth potential despite short-term difficulties.
In a review of the region published on Wednesday, UniCredit said it expected non-performing loans (NPLs) to rise to nearly 14 percent of loan books in the sector, reflecting disruption caused by factors such as the Ukraine crisis.
However the lender said it aimed to strengthen its position in CEE, in part by scouting for selected acquisition opportunities. It gave no further detail and did not mention any possible targets or particular markets in which it was interested.
Ukraine topped its list of countries with the highest projected NPL ratios at 34 percent, ahead of Serbia at 23 percent and Russia at 21 percent. Turkey and Slovakia had the lowest expected NPL rates at 3.2 and 5.3 percent. NPL ratios vary partly by national definition.
"Geopolitical developments as well as changes in the external environment represent a source of uncertainty for our outlook," said Gianni Franco Papa, the bank's new head of corporate and investment banking and outgoing CEE chief. "Non-performing loans in the region are likely to remain a challenge."
The overall return on assets for the bank industry is set to languish at around 1 percent, it said.
Downside risks in the region, where other banks including Erste (VI:ERST) and Raiffeisen (VI:RBIV) are also active, included heightened political tensions such as Russia's standoff with Ukraine, a bleaker euro zone growth outlook and lower oil prices for Russia.
Upside risks included lower oil prices boosting spending power for households and businesses, monetary policy getting more accommodative and efforts towards greater harmonisation of financial services regulation, UniCredit said.
Its outlook was a bit brighter for central and southeast Europe (CESEE), which excludes Russia, Turkey and Ukraine. Lending growth there was set to accelerate slightly and bad loans were expected to slip to 10.5 percent of the total from 10.9 in 2014.
UniCredit's Bank Austria unit had warned last November that uncertainty over Ukraine's political standoff with Russia had cast a shadow over the CEE region.
However UniCredit the same month posted a higher-than-expected net profit of 722 million euros (553 million pounds) in the third quarter, thanks in part to a strong performance in eastern Europe.