Raiffeisen Bank International warned that the political tensions between Russia and Ukraine could affect its business this year as it reported a 24 per cent decline in post-tax profit for 2013 and cut its dividend by 13 per cent.

The Austrian lender was one of the first western banks to expand into central and eastern Europe after the collapse of the Iron Curtain, and through its Aval subsidiary is now the fifth-biggest bank in Ukraine, measured by lending volumes.

Before the unrest began Raiffeisen had been trying to leave the country but the political uncertainty forced it to put the sale of Aval on hold this month. The Austrian bank said its total exposure to Ukraine stood at €5.13bn as of the end of February. It also holds €399m of Ukrainian government bonds.

“Due to the recent developments in Ukraine, the outlook for the Ukrainian, as well as Russian economy is marked by significant downside risks,” Raiffeisen warned, adding that recent moves by the Ukrainian central bank to tighten currency controls would also hurt.

“The impacts on Raiffeisen Bank Aval’s financial and asset position could not yet be assessed at the editorial deadline of this [annual] report. However, devaluation of the hryvnia resulted in negative exchange differences in RBI’s equity [in Aval],” the bank said.

However, Karl Sevelda, chief executive, said that in the long term, he remained optimistic about the bank’s position, including in Russia, which is Raiffeisen’s most profitable market, but which is surrounded by uncertainty as western powers consider whether to impose tougher sanctions on the country.

“I am confident that Russia will remain an attractive banking market in the medium and long term, once the political crisis is overcome,” he said, adding that he thought this would happen “soon”.

The troubles in Russia and Ukraine have added to already difficult business conditions for Austria’s third-largest lender by assets.

Raiffeisen’s consolidated profit has fallen by about a quarter in each of the past two years, dropping from €968m in 2011 to €730m in 2012 and to €557m – or €1.83 per share – in 2013. As a result the bank proposed cutting its dividend from €1.17 to €1.02 per share.

Raiffeisen said its operating income rose 8 per cent to €5.7bn in 2013. However it also increased its provisions against loan losses by 14 per cent to €1.15bn.

The bank expects a similar level of provisioning in 2014 but conceded that both the asset quality review being carried out by the European Central Bank, and the situation in Russia and Ukraine, could lead to higher provisions being required.

Raiffeisen said that by March 11, when its annual report went to press, movements in the hryvnia and other currencies had knocked about 0.25 per cent off its core tier one capital ratio. The ratio had reached 10.1 per cent after a capital raising in January, on the basis of incoming Basel III banking rules.

Shares in the bank were up 1 per cent at €23.32 in early morning trading in Vienna.

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