Erste Group Bank: Operating result improved, net profit of EUR 774.3 million in 1-6 2018

Vienna (pta009/31.07.2018/07:30 UTC+2) HIGHLIGHTS
P&L 1-6 2018 compared with 1-6 2017; balance sheet as of 30 June 2018 compared with 31 December 2017
(see pdf for financial data table)

Net interest income increased - mainly in the Czech Republic and in Romania - to EUR 2,213.8 million (+3.3%; EUR 2,143.0 million). Net fee and commission income rose to EUR 959.3 million (+5.3%; EUR 910.9 million) mostly on the back of stronger income from payment services, asset management and lending. While net trading result declined significantly to EUR 11.9 million (EUR 102.9 million), the line item gains/losses from financial instruments measured at fair value through profit or loss improved to EUR 66.6 million (EUR 4.5 mil-lion). Operating income rose to EUR 3,374.1 million (+2.5%; EUR 3,292.8 million). The increase in general administrative expenses to EUR 2,076.5 million (+3.6%; EUR 2,003.5 million) was mainly attributable to higher personnel expenses of EUR 1,216.7 million (+5.7%; EUR 1,151.3 million). Depreciation and amortisation was up slightly (+1.8%); administrative expenses were almost unchanged (+0.5%). Other administrative expenses included almost all payments to deposit insurance systems expected in 2018 in the amount of EUR 80.2 million (EUR 68.6 million). Overall, the operating result was slightly higher at EUR 1,297.6 million (+0.7%; EUR 1,289.3 million). The cost/income ratio rose to 61.5% (60.8%).

The impairment result from financial instruments amounted to EUR 73.2 million or, adjusted for net allocation of provisions for commitments and guarantees given, -12 basis points of average gross customer loans (net allocations of EUR 104.3 million or 15 basis points) due to net releases on the back of improved asset quality. This was attributable to the substantial decline in the balance of the allocation and release of provisions for the lending business across almost all segments, most notably in Croatia and in Austria. The NPL ratio improved again to 3.6% (4.0%), the NPL coverage ratio increased to 72.0% (68.8%) (both based on gross customer loans).

Other operating result amounted to EUR -204.6 million (EUR -209.8 million). It included expenses for the annual contributions to resolution funds in the amount of EUR 71.3 million (EUR 65.4 million). Banking and transaction taxes increased - primarily in Hungary and in Slovakia - to EUR 63.0 million (EUR 59.4 million), including EUR 13.8 million (EUR 13.3 million) in Hungarian banking taxes booked upfront for the full financial year. Other taxes decreased to EUR 6.5 million (EUR 11.9 million).

The minority charge declined slightly to EUR 165.5 million (-2.1%; EUR 169.1 million). The net result attributable to owners of the parent increased to EUR 774.3 million (+24.0%; EUR 624.7 million).

Total equity not including AT1 instruments declined to EUR 16.7 billion (EUR 17.3 billion). Transition to the new financial reporting standard IFRS 9 as of 1 January 2018 resulted in a reduction of total equity by EUR 0.7 bil-lion. After regulatory deductions and filtering in accordance with CRR, common equity tier 1 capital (CET1, Basel 3 phased-in) amounted to EUR 14.7 billion (EUR 14.7 billion), total own funds (Basel 3 phased in) to EUR 20.3 billion (EUR 20.3 billion). First half year earnings are included in the above figures. Total risk (risk-weighted assets including credit, market and operational risk, Basel 3 phased-in) rose to EUR 116.3 billion (EUR 110.0 billion). The common equity tier 1 ratio (CET 1, Basel 3 phased-in) stood at 12.6% (13.4%), the total capital ratio (Basel 3 phased-in) at 17.4% (18.5%).

Total assets were up at EUR 229.9 billion (+4.2%; EUR 220.7 billion). On the asset side, cash and cash balances decreased to EUR 16.9 billion (EUR 21.8 billion), while loans and receivables to credit institutions increased to EUR 17.1 billion (EUR 9.1 billion). Loans and receivables to customers rose to EUR 144.7 billion (+3.7%; EUR 139.5 billion). On the liability side, deposits from banks increased to EUR 17.9 billion (EUR 16.3 billion) and customer deposits grew again - most notably in Austria, the Czech Republic and Slovakia - to EUR 156.8 billion (+3.9%; EUR 151.0 billion). The loan-to-deposit ratio stood at 92.3% (92.4%).

OUTLOOK

Operating environment anticipated to be conducive to credit expansion. Real GDP growth is expected to be approximately between 3% and 4% in Erste Group's CEE core markets, including Austria, in 2018. It should primarily be driven by solid domestic demand, as real wage growth and declining unemployment should support economic activity in CEE. Fiscal discipline is expected to be maintained across CEE.

Business outlook. Erste Group aims to achieve a return on tangible equity (ROTE) of more than 10% in 2018 (based on average tangible equity in 2018). The underlying assumptions are slightly growing revenues (assum-ing 5%+ net loan growth and interest rate hikes in the Czech Republic and Romania), slightly falling expenses due to lower project-related costs and risk costs remaining at historically low levels.

Risks to guidance. Impact from other than expected interest rate development; political or regulatory measures against banks; and geopolitical risks and global economic risks.

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Emitter:	Erste Group Bank Am Belvedere 1 1100 Wien Austria
Contact Person:	Thomas Sommerauer/ Simone Pilz
Phone:	+43 (0)5 0100 - 17326
E-Mail:	thomas.sommerauer@erstegroup.com
Website:	www.erstegroup.com
ISIN(s):	AT0000652011 (Share)
Stock Exchange(s):	Vienna Stock Exchange (Official Trade)
Other Stock Exchanges:	Bucharest Stock Exchange, Prague Stock Exchange