Erste Group Bank AG: Erste Group posts net profit of EUR 301.2 million for H1 13; risk costs decline

Vienna (pta009/30.07.2013/07:30 UTC+2) Erste Group posts net profit of EUR 301.2 million
for first half of 2013; risk costs decline
HIGHLIGHTS
* Net interest income decreased to EUR 2,431.2 million in H1 2013 (H1 2012: EUR 2,651.7 million) against the backdrop of a continuing challenging environment with subdued credit demand and low market interest rates. Net fee and commission income rose from EUR 865.5 million in H1 2012 to EUR 895.9 million and the net trading result from EUR 121.5 million to EUR 160.5 million on the back of higher income from the securities business.
* Operating income amounted to EUR 3,487.6 million (-4.2% versus H1 2012: EUR 3,638.7 million). Strict cost management reduced general administrative expenses by 2.4%, from EUR 1,887.4 million to EUR 1,842.9 million in H1 2013. This led to an operating result of EUR 1,644.7 million (H1 2012: 1,751.3 million) and a cost/income ratio of 52.8% (H1 2012: 51.9%).
* Risk costs showed a positive trend and declined by 15.3% to EUR 831.8 million, or 128 basis points of average customer loans in H1 2013, from EUR 981.8 million, or 146 basis points, in H1 2012. The NPL ratio rose to 9.7% as of 30 June 2013 (year-end 2012: 9.2%), driven by the decline in the loan book and NPL inflows in the commercial real estate business. The NPL coverage ratio stood at 61.7% (year-end 2012: 62.6%).
* Other operating result amounted to EUR -397.7 million versus EUR -68.1 million in H1 2012. This development was largely attributable to the non-recurrence of - on balance - positive one-off effects in H1 2012 as well as to negative one-off effects (sale of Ukraine subsidiary, extraordinary tax and advance payment of banking tax in Hungary) in the amount of EUR 115.4 million in H1 2013. Banking and financial transaction taxes levied in Austria, Hungary and Slovakia had a negative impact of EUR 184.6 million (H1 2012: EUR 114.5 million). Taxes on income benefited from a positive one-off effect in the amount of EUR 127.7 million in Romania.
* Net profit after minorities amounted to EUR 301.2 million in H1 2013 versus a profit of EUR 453.6 million in the previous year that had been driven by one-off effects.
* Shareholders' equity remained almost unchanged at EUR 12.8 billion. Core tier 1 capital amounted to EUR 11.9 billion as of 30 June 2013 (year-end 2012: EUR 11.8 billion). The reduction of risk-weighted assets to EUR 100.9 billion (year-end 2012: EUR 105.3 billion) was primarily due to the deconsolidation of the Ukrainian subsidiary and lower exposure. The core tier 1 ratio (total risk; Basel 2.5) stood at 11.8% (year-end 2012: 11.2%); adjusted for the effects of the capital increase and the redemption of the participation capital it amounted to 10.7%.
* The balance sheet total as of 30 June 2013 was EUR 210.2 billion. The slight decline year to date was primarily attributable to valuation changes, but also to declines in the customer business. The deposit base was largely stable at EUR 122.5 billion while loans and advances to customers declined to EUR 129.8 billion year to date. The latter reflected subdued loan demand in most business lines. The loan-to-deposit ratio improved to 105.9% as of 30 June 2013 (year-end 2012: 107.2%).

"Erste Group posted a net profit of EUR 301.2 million for the first six months of 2013. This is a satisfactory result considering an operating environment that has become increasingly challenging for banks which do exactly what politicians and regulators would like them to do, i.e. taking deposits from and lending to real customers," said Andreas Treichl, CEO of Erste Group Bank AG, when presenting the results for the first half of 2013. "We are happy that following the successful completion of the capital increase in early July Erste Group will be the first Austrian bank to repay the participation capital in full on 8 August 2013" Treichl continued. "We also strongly improved our capital ratios. Excluding half year profit and adjusted for the effects of the capital increase and participation capital repayment our core tier 1 ratio rose to 10.7%," Treichl concluded.

Earnings performance in brief
Despite a reduction of operating costs, the operating result declined to EUR 1,644.7 million in the first half of 2013 (-6.1% versus EUR 1,751.3 million in H1 2012) due to lower operating income.

Operating income amounted to EUR 3,487.6 million in the first half of 2013 (H1 2012: EUR 3,638.7 million). The 4.2% decline was mainly due to lower net interest income (-8.3% to EUR 2,431.2 million), which was not fully offset by a rise in the net trading result (+32.1% to EUR 160.5 million) and higher net fee and commission income (+3.5% to EUR 895.9 million).

General administrative expenses were down 2.4% to EUR 1,842.9 million (H1 2012: EUR 1,887.4 million). This resulted in a cost/income ratio of 52.8% (H1 2012: 51.9%).

Net profit after minorities declined from EUR 453.6 million in the first half of 2012, which had benefited from - on balance - positive one-off effects, to EUR 301.2 million.

Cash return on equity, i.e. return on equity adjusted for non-cash expenses such as goodwill impairments and straight-line amortisation of customer relationships, stood at 5.3% (reported ROE: 4.6% versus 10.4% in the first half of 2012 (reported ROE: 7.2%). Cash earnings per share for the first half of 2013 amounted to EUR 0.71 (reported EPS: EUR 0.59) versus EUR 1.51 (reported EPS: EUR 0.98) in the first half of 2012.

Total assets, at EUR 210.2 billion, were down 1.7% versus year-end 2012. Risk-weighted assets declined by 4.2% to EUR 100.9 billion (year-end 2012: EUR 105.3 billion).

The solvency ratio improved to 16.6% as of 30 June 2013 (year-end 2012: 15.5%), well above the legal minimum requirement. The core tier 1 ratio relating to total risk and as defined by Basel 2.5, was 11.8% as of 30 June 2013 (year-end 2012: 11.2%).
Outlook
Erste Group expects a slight improvement in economic performance for Central and Eastern Europe in the second half of 2013, even though growth rates in the region are expected to remain moderate. Erste Group expects the operating result to decline by up to 5% in 2013, due to expected lower operating income only being partially off-set by lower operating cost. The risk costs of Erste Group are estimated to decrease by approximately 10-15% in 2013, mainly due to the expected improvement of the risk situation in Romania. Banking taxes (excluding financial transaction taxes) in Austria, Slovakia and Hungary in the amount of approximately EUR 260 million pre-tax (approximately EUR 200 million post-tax) are expected to continue to adversely impact net profit in 2013. Erste Group continues to expect that its Romanian subsidiary BCR will return to profitability in 2013 (irrespective of the extraordinary tax effect).

For the full text please see enclosed pdf.

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Emitter:	Erste Group Bank AG Milchgasse 1 1010 Wien Austria
Contact Person:	Thomas Sommerauer/ Simone Pilz
Phone:	+ 43 (0)5 0100 - 17741
E-Mail:	investor.relations@erstegroup.com
Website:	www.erstegroup.com
ISIN(s):	AT0000652011 (Share)
Stock Exchange(s):	Vienna Stock Exchange (Official Trade)