VIENNA, Aug 27 (Reuters) - Austrian bank BAWAG PSK will sell a rump 1.3 percent stake in Hungary's MKB as it winds down its exposure to central and eastern Europe (CEE) to focus on core markets further west, it said on Tuesday.
BAWAG, majority owned by private equity firm Cerberus Capital, began withdrawing from the region in 2008 and has cut its CEE exposure by 35 percent over the past 12 months. The region now accounts for around 3 percent of its 38 billion euros ($51 billion) in assets.
It sold its Polish leasing business in February and agreed in June to sell the remaining MKB stake back to MKB - a unit of BayernLB - pending regulatory approval expected this year.
Scaling back its balance sheet - risk-weighted assets have fallen by 3.4 billion euros over 18 months - has helped BAWAG increase its core tier 1 capital ratio to 12.3 percent under risk reporting standards known in the industry as Basel 2.5, up from 11.0 percent at the end of 2012.
Strong liquidity allowed BAWAG this year to repay 50 million euros of its 550 million euros in state aid, becoming the first Austrian bank to start returning capital it got as the financial crisis raged.
It said further redemptions of this non-voting capital were planned. Paying down the aid takes preference over paying dividends, Chief Executive Byron Haynes said in March.
With its balance sheet beefed up by a 200-million-euro share issue that gave U.S. asset manager GoldenTree a stake of nearly 40 percent, BAWAG repaid 2 billion euros in cheap long-term funding from the European Central Bank early this year.
BAWAG's net profit fell 3 percent in the first half to 94 million euros. Excluding tax, restructuring costs and bank levies, profit rose 46 percent, it said.
BAWAG said the Austrian economy was set to pick up momentum after stagnating in the first half of 2013 but added: "In this environment of continuing low interest rates, it remains very difficult to offer attractive terms for customer deposits, and lending is being impacted by the relatively low demand for credit and the ongoing reduction of risks." ($1 = 0.7477 euros) (Reporting by Michael Shields; editing by Tom Pfeiffer)