Erste Group Bank: Net profit of EUR 332.6 million in 1-3 2018; outlook confirmed

Wien (pta008/04.05.2018/07:30 UTC+2) HIGHLIGHTS
P&L 1-3 2018 compared with 1-3 2017; balance sheet as of 31 March 2018 compared with 31 December 2017

Net interest income increased - mainly in the Czech Republic and in Austria - to EUR 1,082.6 million (+3.0%; EUR 1,051.3 million). Net fee and commission income rose to EUR 478.6 million (+4.6%; EUR 457.7 million). Strong rises were seen in income from asset management and from lending. While net trading result declined significantly to EUR 11.3 million (EUR 48.6 million), the line item gains/losses from financial instruments measured at fair value through profit or loss improved. Operating income rose to EUR 1,651.6 million (+2.1%; EUR 1,617.5 million). The increase in general administrative expenses to EUR 1,065.0 million (+4.6%; EUR 1,018.3 million) was attributable to a rise in other administrative expenses and in depreciation and amortisation (+3.6% and +1.5%, respectively), as well as higher personnel expenses of EUR 604.5 million (+5.7%; EUR 571.7 million). Other administrative expenses included almost all payments to deposit insurance systems expected in 2018 in the amount of EUR 74.2 million (EUR 64.7 million). Consequently, the operating result decreased to EUR 586.7 million (-2.1%; EUR 599.2 million). The cost/income ratio rose to 64.5% (63.0%).

The impairment result from financial instruments amounted to EUR 54.4 million or adjusted for net allocation of provisions for commitments and guarantees given and financial assets (FVOCI) -22 basis points of average gross customer loans (net allocations of EUR 65.8 million or 19 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, most notably in Austria and in the Czech Republic. The NPL ratio improved further to 3.7% (4.0%). The NPL coverage ratio increased to 72.5% (68.8%)

Other operating result amounted to EUR -128.0 million (EUR -127.1 million). It included expenses for the annual contributions to resolution funds in the amount of EUR 68.2 million (EUR 77.5 million). Banking and transaction taxes were slightly higher at EUR 38.6 million (EUR 35.8 million), including EUR 13.7 million in Hungarian banking taxes posted upfront for the full financial year 2018. Other taxes rose to EUR 9.5 million (EUR 5.6 million).

The minority charge declined to EUR 70.1 million (-8.8%; EUR 76.8 million) due to lower earnings contributions of the savings banks. The net result attributable to owners of the parent increased to EUR 332.6 million (+26.8%; EUR 262.2 million).

Total equity not including AT1 instruments declined to EUR 17.0 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 0.6 billion. After regulatory deductions and filtering in accordance with CRR, common equity tier 1 capital (CET1, Basel 3 phased-in) amounted to EUR 14.4 billion (EUR 14.7 billion), total own funds (Basel 3 phased in) to EUR 20.1 billion (EUR 20.3 billion). First quarter earnings are not included in the above figures. Total risk (risk-weighted assets including credit, market and operational risk, Basel 3 phased-in) rose to EUR 114.0 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 17.7% (18.5%).

Total assets increased to EUR 230.0 billion (+4.2%; EUR 220.7 billion). On the asset side, cash and cash balances rose to EUR 25.2 billion (EUR 21.8 billion), loans and receivables to credit institutions increased to EUR 11.9 billion (EUR 9.1 billion). Loans and receivables to customers rose to EUR 142.1 billion (+1.8%; EUR 139.5 billion). On the liability side, deposits from banks increased to EUR 21.0 billion (EUR 16.3 billion) and customer deposits continued to grow - most notably in the Czech Republic and in Austria - to EUR 155.3 billion (+2.9%; EUR 151.0 billion). The loan-to-deposit ratio stood at 91.5% (92.4%).

OUTLOOK

Operating environment anticipated to be conducive to credit expansion. Real GDP growth is expected to be between 3% and 5% in Erste Group's CEE core markets, including Austria, in 2018. Real GDP growth 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 (assuming 5%+ net loan growth and further interest rate hikes in the Czech Republic and Romania), slightly falling expenses due to lower project-related costs and an increase in risk costs, albeit 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.

(see also pdf for financial data overview)

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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