Erste Group Bank: Net profit of EUR 1,228.3 million in 1-9 2018

Volume growth and interest rate hikes drive operating performance

Vienna (pta006/02.11.2018/07:30 UTC+1) Financial data table - see pdf

HIGHLIGHTS
P&L 1-9 2018 compared with 1-9 2017; balance sheet as of 30 September 2018 compared with 31 December 2017

Net interest income increased - mainly in the Czech Republic and Romania - to EUR 3,372.0 million (+4.4%; EUR 3,229.3 million). Net fee and commission income rose to EUR 1,430.7 million (+5.1%; EUR 1,361.9 million), primarily on the back of significantly higher income from brokerage commissions - mostly insurance products -, but also from payment services, asset management and lending. While net trading result was down at EUR -50.4 million (EUR 139.3 million), the line item gains/losses from financial instruments measured at fair value through profit or loss improved to EUR 165.8 million (EUR 12.1 million). Operating income rose to EUR 5,096.2 million (+3.2%; EUR 4,936.9 million). The increase in general administrative expenses to EUR 3,102.3 million (+2.9%; EUR 3,013.6 million) was mainly attributable to higher personnel expenses of EUR 1,830.5 million (+4.8%; EUR 1,747.2 million). Depreciation and amortisation was up (+2.7%); administrative expenses were almost unchanged (-0.4%). Other administrative expenses included almost all payments to deposit insurance systems expected in 2018 in the amount of EUR 84.2 million (EUR 74.7 million). Overall, the operating result was higher at EUR 1,993.9 million (+3.7%; EUR 1,923.4 million). The cost/income ratio improved slightly to 60.9% (61.0%).

The impairment result from financial instruments amounted to EUR 102.2 million or, adjusted for net allocation of provisions for commitments and guarantees given, -9 basis points of average gross customer loans (net allocations of EUR 71.5 million or 7 basis points) due to net releases on the back of improved asset quality. This was attributable to the substantial improvement in net allocations to risk provisions for the lending business across almost all segments, most notably in Croatia and Austria. The NPL ratio based on gross customer loans improved again to 3.5% (4.0%), the NPL coverage ratio to 70.7% (68.8%).

Other operating result amounted to EUR -237.0 million (EUR -296.6 million). It included expenses for the annual contributions to resolution funds in the amount of EUR 70.4 million (EUR 65.6 million). Banking and transaction taxes increased to EUR 88.1 million (EUR 82.1 million), including EUR 13.8 million (EUR 12.6 million) in Hungarian banking taxes booked upfront for the full financial year. Other taxes decreased to EUR 6.4 million (EUR 31.3 million). In the comparative period, other operating result had included EUR 45.0 million in provisions for losses from loans to consumers resulting from supreme court rulings regarding negative reference interest rates in Austria.

The minority charge rose to EUR 285.8 million (+4.8%; EUR 272.6 million). The net result attributable to owners of the parent increased to EUR 1,228.3 million (+24.4%; EUR 987.6 million).

Total equity not including AT1 instruments rose to EUR 17.4 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 billion. 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 20.1 billion (EUR 20.3 billion). While half-year interim profit is included in the above figures, third quarter profit is not. 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 117.0 billion (EUR 110.0 billion). The common equity tier 1 ratio (CET 1, Basel 3 phased-in) stood at 12.5% (13.4%), the total capital ratio (Basel 3 phased-in) at 17.2% (18.5%).

Total assets were up at EUR 234.8 billion (+6.4%; EUR 220.7 billion). On the asset side, cash and cash balances decreased to EUR 15.2 billion (EUR 21.8 billion), while loans and advances to credit institutions increased to EUR 20.0 billion (EUR 9.1 billion). Loans and advances to customers rose to EUR 148.3 billion (+6.3%; EUR 139.5 billion). On the liability side, deposits from banks increased to EUR 19.1 billion (EUR 16.3 billion) and customer deposits grew again - most notably in Austria, the Czech Republic and Slovakia - to EUR 159.8 billion (+5.9%; EUR 151.0 billion). The loan-to-deposit ratio stood at 92.8% (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 12% in 2018 (based on average tangible equity in 2018). The underlying assumptions are growing revenues (assuming 5%+ net loan growth and interest rate hikes in the Czech Republic and Romania) and flat expenses with risk costs remaining at historically low levels.

Risks to guidance. Impact from other than expected interest rate development; political or regulatory measures against banks; as well as geopolitical 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