An attempt by Ukrainian industrialists to buy a provincial bank in Austria is facing resistance from Austrian regulators, who may reject the Ukrainian approach in favour of a politically safer bid by a local company, according to people close to the negotiations, the FT informed.

But Austrian officials are worried that rejection of the Ukrainian bid to buy Bank Burgenland could damage ties with Kiev, particularly since Austria's Raiffeisen Bank recently became the largest banking group in Ukraine after purchasing Aval Bank.

The Ukrainian bid for Bank Burgenland of ?140m (£95m) plus a ?100m capital injection is greater than a rival bid of about ?105m by the Austrian insurance group Grazer Wechselseitige.

The Ukrainian consortium wants to buy Bank Burgenland, which is being privatised by the Burgenland regional government, and merge it with a small Ukrainian bank, Aktiv Bank. Sergiy Klyuyev, chairman of the Ukrpodshipnik metallurgy group, said the consortium wanted to use Bank Burgenland as a base to expand across central Europe and as a vehicle for trade finance connected to metallurgy exports.

The Burgenland government is anxious the sale goes smoothly because a previous effort to sell the bank last year was mired in scandal.

The Burgenland government is said to be worried at the possibility the FMA, Austria's financial market regulator, might reject the Ukrainian bid, forcing it to restart the privatisation process.

"We will only start to investigate [the bid] after the sale is completed," an FMA spokesman said. Austrian law required proof the new owners were capable of a "solid and sustainable bank management", he added.

The FMA will be under pressure to apply strict standards because approval would, in principle, give the Ukrainian group permission to operate throughout the European Union.

People close to the negotiations said the regulator had several concerns, including a lack of certainty about the would-be buyers' intentions.

But Mr Klyuyev was confident his group could secure approval.


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