Erste Group Bank: progressing as planned - on track for 10%+ ROTE in 2017

stable outlook for 2018

Vienna (pta009/03.11.2017/07:30 UTC+1) Highlights

P&L: January-September 2017 compared with January- September 2016; balance sheet: 30 September 2017 compared with 31 December 2016
(Financial data table in enclosed pdf)

Net interest income declined to EUR 3,229.3 million (-1.2%; EUR 3,267.5 million) despite lending growth, mostly due to lower interest income from the government bond portfolio and a lower unwinding effect. Net fee and commission income increased to EUR 1,361.9 million (+3.2%; EUR 1,319.8 million). Income from the securities business and from asset management was up substantially, while income from the lending business declined.
Net trading result decreased significantly to EUR 139.3 million (-36.3%; EUR 218.7 million). While operating income was nearly stable at EUR 4,936.9 million (-0.5%; EUR 4,959.7 million), general administrative expenses rose to EUR 3,013.6 million (+1.7%; EUR 2,963.0 million) in line with expectations. This was attributable to an increase in other administrative expenses and in depreciation and amortisation (+1.7% and +3.9%, respectively) as well as higher personnel expenses of EUR 1,747.2 million (+1.3% to EUR 1,724.7 million). Almost all projected deposit insurance payments for 2017 in the amount of EUR 74.7 million (EUR 83.4 million) are already included in this line item. Consequently, the operating result decreased to EUR 1,923.4 million (-3.7%; EUR 1,996.6 million). The cost/income ratio rose marginally to 61.0% (59.7%).

Net impairment loss on financial assets remained low at EUR 71.5 million or 7 basis points of average gross customer loans (EUR 63.2 million or 6 basis points). As in the previous year, substantial income from the recovery of loans already written off, mostly in Hungary, had a positive impact. The NPL ratio improved again to 4.3% (4.9%). The NPL coverage ratio was stable at 69.5% (69.1%)

Other operating result amounted to EUR -296.6 million (EUR -252.4 million). This line item includes the annual contributions to resolutions funds in the amount of EUR 65.6 million (EUR 64.6 million), banking and financial transaction taxes of EUR 82.1 million (EUR 151.7 million), and expenses of EUR 45.0 million for losses from loans to consumers incurred as a result of supreme court rulings regarding negative interest reference rates in Austria.

The minority charge rose to EUR 272.6 million (+11.0%; EUR 245.6 million) due to a rise in the earnings contributions of the savings banks. The net result attributable to owners of the parent declined to EUR 987.6 million (-16.2%; EUR 1,179.2 million), which was primarily due to a gain from the sale of shares in VISA Europe in the amount of EUR 138.7 million (pre-tax) in the previous year.

Total equity not including AT1 instruments rose to EUR 17.0 billion (EUR 16.1 billion). After regulatory deductions and filtering according to the CRR, common equity tier 1 capital (CET1, Basel 3 phased-in) increased to EUR 14.2 billion (EUR 13.6 billion). Total own funds (Basel 3 phased-in) went up to EUR 19.9 billion (EUR 18.8 billion). While half-year interim profit is included in the above figures, third quarter profit is not included. Due to net releases in the third quarter no risk costs were deducted. Total risk (risk-weighted assets including credit, market and operational risk, Basel 3 phased-in) rose to EUR 110.8 billion (EUR 101.8 billion). The common equity tier 1 ratio (CET1, Basel 3 phased-in) stood at 12.8% (13.4%), the total capital ratio (Basel 3 phased-in) at 18.0% (18.5%).

Total assets increased to EUR 221.7 billion (+6.5%; EUR 208.2 billion). On the asset side, cash and cash balances rose to EUR 22.1 billion (EUR 18.4 billion), loans and receivables to credit institutions increased to EUR 10.4 billion (EUR 3.5 billion). Loans and receivables to customers rose to EUR 138.0 billion (+5.6%; EUR 130.7 billion). On the liability side, deposits from banks increased to EUR 19.2 billion (EUR 14.6 billion) and customer deposits continued to grow - most notably in the Czech Republic and in Austria - to EUR 148.4 billion (+7.5%; EUR 138.0 billion). The loan-to-deposit ratio stood at 93.0% (94.7%).

Outlook 2017 & 2018

Operating environment anticipated to be conducive to credit expansion in 2018. Real GDP growth is expected to be between 2% and 4% 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 confirms an expected return on tangible equity (ROTE) of more than 10% in 2017 and aims to achieve a ROTE of more than 10% in 2018 (based on average tangible equity in 2018). The underlying assumptions for 2018 are flat to slightly growing revenues (assuming 5%+ net loan growth and interest rate hikes in the Czech Republic and Romania), currency-adjusted flat costs (+/- 1%) due to lower project-related costs and an increase in risk costs, albeit remaining at historically low levels.

Risks to guidance. Impact of longer than expected expansionary monetary policies by central banks including negative interest rates; political risks including consumer protection initiatives 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