Erste Group Bank AG: Preliminary results 2021

Net profit of EUR 1,923.4 million in 2021; dividend proposal of EUR 1.6 per share

Vienna (pta006/28.02.2022/07:30 UTC+1)

Financial data

HIGHLIGHTS

P&L 2021 compared with 2020; balance sheet as of 31 December 2021 compared with 31 December 2020

Net interest income increased to EUR 4,975.7 million (+4.2%; EUR 4,774.8 million), primarily due to rate hikes in the Czech Republic and in Hungary, strong volume growth in all markets and a positive one-off effect resulting from TLTRO III take-up in Austria and Slovakia. Net fee and commission income rose to EUR 2,303.7 million (+16.5%; EUR 1,976.8 million) supported by a strong economic recovery and rising equity markets. Increases were posted across all key fee and commission categories and core markets – most notably Austria, with significant growth seen in particular in payment services and in asset management. Net trading result declined to EUR 58.6 million (EUR 137.6 million); the line item gains/losses from financial instruments measured at fair value through profit or loss rose to EUR 173.2 million (EUR 62.0 million). The development of these two line items was driven mostly by valuation effects, apart from a rise in income from the foreign exchange business in net trading result. Operating income increased to EUR 7,742.0 million (+8.2%; EUR 7,155.1 million). General administrative expenses were up at EUR 4,306.5 million (+2.0%; EUR 4,220.5 million), personnel expenses rose to EUR 2,578.1 million (+2.3%; EUR 2,520.7 million). Other administrative expenses increased to EUR 1,180.3 million (+1.9%; EUR 1,158.9 million). Payments into deposit insurance schemes included in other administrative expenses decreased to EUR 122.4 million (EUR 132.2 million). Depreciation and amortisation rose to EUR 548.0 (+1.3%; EUR 540.9 million). The operating result was up markedly at EUR 3,435.5 million (+17.1%; EUR 2,934.6 million) and the cost/income ratio improved significantly to 55.6% (59.0%).

Due to net allocations, the impairment result from financial instruments amounted to EUR -158.8 million or 9 basis points of average gross customers loans (EUR -1,294.8 million or 78 basis points). Net allocations to provisions for loans and advances as well as for commitments and guarantees given were posted in the Czech Republic, Romania, Croatia, Serbia and Hungary, but generally remained at a very low level. A positive contribution came from income from the recovery of loans already written off as well as from releases, most notably in Austria (in the Savings Banks segment). In the comparative period, updated risk parameters with forward looking information related to Covid-19 had resulted in high net allocations to provisions for loans and advances as well as for commitments and guarantees given. The NPL ratio based on gross customer loans improved to a historic low at 2.4% (2.7%). The NPL coverage ratio (excluding collateral) increased to 90.9% (88.6%).

Other operating result amounted to EUR -310.5 million (EUR -278.3 million). This deterioration was attributable to valuation effects and higher expenses for the annual contributions to resolution funds; the latter rose – most strongly in Austria and Romania – to EUR 108.6 million (EUR 93.5 million). Banking levies declined to EUR 73.5 million (EUR 117.7 million), primarily due to the abolition of banking tax in Slovakia and lower levies in Austria. At present, banking levies are payable in two core markets: in Hungary, banking tax amounted to EUR 15.0 million (EUR 14.5 million) and transaction tax to another EUR 48.0 million (EUR 44.0 million). In Austria, banking tax equalled EUR 10.5 million (EUR 25.5 million).

Taxes on income rose to EUR 525.2 million (EUR 342.5 million). The minority charge increased to a record EUR 484.8 million (EUR 242.3 million) due to significantly higher earnings contributions of the savings banks. The net result attributable to owners of the parent rose to EUR 1,923.4 million (EUR 783.1 million) on the back of the strong operating result and low risk costs.

Total equity not including AT1 instruments rose to EUR 21.3 billion (EUR 19.7 billion). After regulatory deductions and filtering in accordance with the CRR, common equity tier 1 capital (CET1, final) rose to EUR 18.8 billion (EUR 17.1 billion), as were total own funds (final) to EUR 24.8 billion (EUR 23.6 billion). Total risk – risk-weighted assets including credit, market and operational risk (CRR, final) – increased moderately to EUR 129.6 billion (EUR 120.2 billion). The common equity tier 1 ratio (CET1, final) rose to 14.5% (14.2%), the total capital ratio declined to 19.1% (19.7%), primarily due to the early redemption of a portion of AT1 capital.

Total assets increased to EUR 307.4 billion (+10.8%; EUR 277.4 billion). On the asset side, cash and cash balances increased, primarily in Austria, to EUR 45.5 billion (EUR 35.8 billion), loans and advances to banks declined to EUR 21.0 billion (EUR 21.5 billion). Loans and advances to customers (net) rose to EUR 180.3 billion (+8.6%; EUR 166.1 billion). On the liability side, deposits from banks grew significantly to EUR 31.9 billion (EUR 24.8 billion) as a result of increased ECB refinancing (TLTRO III). Customer deposits rose in all core markets – most strongly in Austria and the Czech Republic – to EUR 210.5 billion (+10.2%; EUR 191.1 billion). The loan-to-deposit ratio declined to 85.6% (86.9%).

OUTLOOK 2022

Erste Group’s goal for 2022 is to again achieve a double-digit return on tangible equity (ROTE). Among the factors that will support achievement of this goal is the continued strong economic performance of all core markets – Austria, Czech Republic, Slovakia, Hungary, Romania, Croatia and Serbia – and, on this basis, an improvement in the operating result and a continued benign risk environment. As yet unquantifiable (geo-)political, regulatory or economic risks, or a continuation or further escalation of Covid-19 measures by governments may render meeting these goals more challenging.

Erste Group’s core markets are expected to post real GDP growth in the order of 3-5% in 2022. Inflation is set to remain a key theme throughout the year but at the same time is expected to remain broadly stable at elevated 2021 levels. In line with the strong economic outlook unemployment rates are expected to decline from already low levels in all markets. In most countries, sustained competitiveness should again result in sustainable current account balances. The fiscal situation should likewise improve again after significant budget deficits in 2021. Public debt to GDP is projected to improve across the board, albeit from elevated levels.

Against this backdrop, Erste Group expects net loan growth in the mid-single digits. This performance as well as interest rate tailwinds should lead to an at least mid-single-digit increase in net interest income despite negative policy rates in the euro zone. The second most important income component – net fee and commission income is expected to rise in the low to mid-single digits, following the exceptional performance in 2021. As in 2021, positive momentum should again come from asset management and securities business, assuming a continued constructive capital markets environment. Insurance brokerage as well as payment services fees are also expected to contribute. The net trading and fair value result is expected to come in at a similar level as in the previous year. This, however, will depend substantially on the financial market environment. The remaining income components are forecast to remain, by and large, stable. Overall, operating income should increase in 2022. Operating expenses are expected to rise at a lower level than operating income, thus resulting in a cost income ratio of below 55% in 2022, significantly earlier than planned (2024). In addition, Erste Group will continue to invest in IT in 2022 and thus strengthen its competitive position, with a focus on progressive IT modernisation, back office digitalisation and further development of the digital platform George.

Based on the robust macro outlook described above, risk costs should remain at a low level in 2022. While precise forecasting is hard at current low risk cost levels, Erste Group believes that in 2022 risk costs will be below 20 basis points of average gross customer loans. The NPL ratio is expected below 3.0%.

Other operating result is expected to remain unchanged in the absence of significant one-off effects. Assuming a low effective group tax rate of about 19% and similar minority charges as in 2021, Erste Group aims to achieve a double-digit ROTE. Erste Group’s CET1 ratio is expected to remain strong. Consequently, Erste Group will propose a dividend of EUR 1.6 per share for the 2021 fiscal year to the 2022 AGM.

Potential risks to the guidance include (geo)political and economic (including monetary and fiscal policy impacts) developments, regulatory measures as well as global health risks and changes to the competitive environment. In addition, given the Covid-19 governmental measures and their impact on the economic development, financial forecasts are still subject to an elevated level of uncertainty. The evolving Russia-Ukraine situation does not impact Erste Group directly, as it has no operating presence in those countries; exposures to both countries are negligible and no meaningful additional risk provisioning is currently anticipated in this context. Indirect effects, such as financial market volatility, sanctions-related knock-on effects on some of our customers or the emergence of deposit insurance or resolution cases cannot be ruled out, though. Erste Group is moreover exposed to non-financial and legal risks that may materialise regardless of the economic environment. Worse than expected economic development may put goodwill at risk.

PERFORMANCE IN DETAIL

January-December 2021 compared with January-December 2020

Net interest income

Net interest income rose to EUR 4,975.7 million (EUR 4,774.8 million). The benign interest rate environment in the Czech Republic and in Hungary, strong volume growth in all markets and especially in the housing loan segment, and a one-off effect from the take-up of TLTRO III funds in Austria and in Slovakia in the amount of EUR 93.0 million (EUR 8.0 million) were among the key growth drivers. A decline in modification losses from lending, which are reported in net interest income, also had a positive effect. The net interest margin (calculated as the annualised sum of net interest income, dividend income and net result from equity method investments over average interest-bearing assets) stood at 2.05% (2.08%).

Net fee and commission income

Net fee and commission income increased to EUR 2,303.7 million (EUR 1,976.8 million). Significant growth was recorded across all fee and commission categories and all core markets. The most marked rises were seen in payment services and asset management (most notably in Austria). The latter benefitted from strongly performing equity markets. Income from the custody business and brokerage commissions was likewise up substantially.

Net trading result & gains/losses from financial instruments measured at fair value through profit or loss

Valuation effects have a substantial impact on the net trading result as well as the line item gains/losses from financial instruments measured at fair value through profit or loss. Debt securities issued measured at FV through profit or loss have a significant impact on these line items as related valuation results are shown in the line item gains/losses from financial instruments measured at fair value through profit or loss, while the valuation results of corresponding hedges are shown in net trading result – as are financial assets in the fair value and trading portfolios.

Due to valuation effects in the derivatives business resulting from interest rate developments, net trading result declined to EUR 58.6 million (EUR 137.6 million) despite continued strong foreign exchange trading. Gains/losses from financial instruments measured at fair value through profit or loss rose to EUR 173.2 million (EUR 62.0 million). Due to the rise in long-term interest rates, lower income from the valuation of the securities portfolio in Austria and losses from the valuation of the loan portfolio measured at fair value in Hungary were offset by significantly higher gains from the valuation of debt securities in issue.

General administrative expenses

General administrative expenses rose to EUR 4,306.5 million (EUR 4,220.5 million). Personnel expenses increased to EUR 2,578.1 million (EUR 2,520.7 million), most notably in the Czech Republic, but also in Hungary and Croatia. On the back of lower average headcounts, cost reductions were achieved primarily in Austria, Romania and Slovakia. Other administrative expenses were higher at EUR 1,180.3 million (EUR 1,158.9 million), with marketing and IT expenses up most markedly. Contributions to deposit insurance systems declined to EUR 122.4 million (EUR 132.2 million). In Austria they decreased to EUR 85.5 million (EUR 95.0 million) after a one-off effect in the previous year. No contributions are currently payable in Croatia. In Slovakia, contributions rose to EUR 9.4 million (EUR 1.1 million). Depreciation and amortisation amounted to EUR 548.0 million (EUR 540.9 million).

Headcount as of end of the period

Operating result

Operating income increased to EUR 7,742.0 million (+8.2%; EUR 7,155.1 million), with a marked rise in the key income components, most notably net fee and commission income but also net interest income, and a strong net trading and fair value result. General administrative expenses rose to EUR 4,306.5 million (+2.0%; EUR 4,220.5 million). The operating result rose to EUR 3,435.5 billion (+17.1%; EUR 2,934.6 million). The cost/income ratio improved to 55.6% (59.0%).

Gains/losses from derecognition of financial instruments not measured at fair value through profit or loss

Losses from derecognition of financial instruments not measured at fair value through profit or loss amounted to EUR 32.8 million (EUR 6.5 million). This line item includes primarily one-off losses from derecognition of liabilities and negative results from the sale of securities in the Czech Republic and Austria.

Impairment result from financial instruments

The impairment result from financial instruments amounted to EUR -158.8 million (EUR -1,294.8 million). Net allocations to provisions for loans and advances declined to EUR 119.1 million (EUR 1,231.0 million), those for commitments and guarantees given to EUR 104.8 million (EUR 159.2 million). Positive contributions came from the release of provisions for loans in Austria (Savings Banks segment) as well as from income from the recovery of loans already written off in all segments in the amount of EUR 90.8 million (EUR 145.0 million). In the comparative period, updated risk parameters with forward-looking information as well as stage overlays related to the Covid-19 pandemic had led to a significant rise in allocations to provisions.

Other operating result

Other operating result came in at EUR -310.5 million (EUR -278.3 million). The deterioration was primarily due to valuation effects. Levies on banking activities declined to EUR 73.5 million (EUR 117.7 million). This decline is attributable to the abolition of banking levies in Slovakia, which had amounted to EUR 33.8 million in the comparative period. Banking levies payable in Austria decreased to EUR 10.5 million (EUR 25.5 million) on the back of significantly lower levies payable by the Holding. Hungarian banking tax rose slightly to EUR 15.0 million (EUR 14.5 million). Together with the financial transaction tax of EUR 48.0 million (EUR 44.0 million), banking levies in Hungary totalled EUR 63.0 million (EUR 58.5 million).

The balance of allocations/releases of other provisions improved to EUR 5.1 million (EUR -18.4 million). Other operating result also reflects the annual contributions to resolution funds in the amount of EUR 108.6 million (EUR 93.5 million). Increases were recorded above all in Austria to EUR 51.5 million (EUR 43.6 million) and in Romania to EUR 11.4 million (EUR 7.7 million).

Net result

The pre-tax result from continuing operations amounted to EUR 2,933.4 million (EUR 1,368.0 million). Taxes on income rose to EUR 525.2 million (EUR 342.5 million). The minority charge increased to EUR 484.8 million (EUR 242.3 million) due to higher earnings contributions of savings banks resulting primarily from a significant improvement in the impairment result from financial instruments. The net result attributable to owners of the parent rose to EUR 1,923.4 million (EUR 783.1 million).

FINANCIAL RESULTS – QUARTER-ON-QUARTER COMPARISON

Fourth quarter of 2021 compared to third quarter of 2021

Net interest income rose to EUR 1,306.2 million (+7.0%; EUR 1,220.8 million), with a significant rise recorded in the Czech Republic on the back of interest rate hikes. Net interest income was also slightly up in Austria and Romania and stable in all core markets. In Hungary, net interest income was negatively impacted by legislative measures affecting the retail business. Net fee and commission income rose to EUR 613.3 million (+3.7%; EUR 591.4 million). Growth was registered in particular in asset management and in income from brokerage commissions in Austria. Dividend income declined to EUR 5.0 million (EUR 7.7 million) due to seasonal effects. Net trading result worsened to EUR -8.8 million (EUR 24.3 million). A rise in foreign exchange trading was offset by negative valuation effects in derivatives trading due to interest rate developments. Gains/losses from financial instruments measured at fair value through profit or loss declined to EUR 39.7 million (EUR 49.9 million), primarily due to valuation losses in the loan portfolio measured at fair value through profit or loss in Hungary. Valuation gains of debt securities in issue are also attributable to the development of market interest rates.

General administrative expenses rose to EUR 1,165.6 million (+12.3%; EUR 1,038.0 million). Personnel expenses increased to EUR 696.8 million (+10.2%; EUR 632.4 million), driven by provisions for bonuses and a planned employee share programme. The rise in other administrative expenses to EUR 333.8 million (+25.8%; EUR 265.3 million) is mainly due to higher marketing expenditure in Austria. Depreciation and amortisation declined to EUR 134.9 million (EUR 140.3 million). The cost/income ratio stood at 58.1% (53.4%).

Gains/losses from derecognition of financial instruments not measured at fair value through profit or loss amounted to EUR ‑15.9 million (EUR -19.6 million). This item includes losses from the sale of securities in the Czech Republic and Austria.

Impairment result from financial instruments amounted to EUR -107.2 million (EUR 31.3 million), with rises in net allocations to provisions for commitments and guarantees given, primarily in Austria. Lower income from the recovery of loans already written off also had a negative impact.

Other operating result improved to EUR -67.2 million (EUR -70.9 million). Levies on banking activities declined to EUR 1.9 million (EUR 19.4 million), primarily due to losses in the Holding’s unconsolidated financial statements and a resulting release of provision for banking tax in the amount of EUR 13.0 million. In Hungary, levies on banking activities amounted to EUR 12.3 million (EUR 12.4 million). These were almost exclusively transaction taxes as the 2021 banking tax had already been booked upfront in the first quarter in the full amount of EUR 14.7 million.

The pre-tax result declined to EUR 651.2 million (EUR 847.0 million). Taxes on income amounted to EUR 91.6 million (EUR 146.3 million). The minority charge declined to EUR 87.6 million (EUR 167.3 million). The net result attributable to owners of the parent stood at EUR 472.0 million (EUR 533.4 million).

DEVELOPMENT OF THE BALANCE SHEET

31 December 2021 compared with 31 December 2020

The rise in cash and cash balances to EUR 45.5 billion (EUR 35.8 billion) was primarily due to rising cash balances held at central banks, not least as a result of increased TLTRO III funds. Trading and investment securities held in various categories of financial assets increased to EUR 53.2 billion (EUR 46.8 billion).

Loans and advances to credit institutions (net), including demand deposits other than overnight deposits, declined slightly to EUR 21.0 billion (EUR 21.5 billion). Loans and advances to customers (net) rose – most notably in Austria and the Czech Republic – to EUR 180.3 billion (EUR 166.1 billion) driven by retail and corporate loan growth.

Loan loss allowances for loans to customers amounted to EUR 3.9 billion (EUR 4.0 billion). The NPL ratio – non-performing loans as a percentage of gross customer loans – improved to 2.4% (2.7%), the NPL coverage ratio (based on gross customer loans) rose to 90.9% (88.6%)

Intangible assets were stable at EUR 1.4 billion (EUR 1.4 billion). Miscellaneous assets amounted to EUR 6.1 billion (EUR 5.8 billion).

Financial liabilities – held for trading declined to EUR 2.5 billion (EUR 2.6 billion). Deposits from banks, primarily in the form of term deposits, rose to EUR 31.9 billion (EUR 24.8 billion), including TLTRO III funds with a carrying amount of EUR 20.9 billion (EUR 14.1 billion); deposits from customers increased to EUR 210.5 billion (EUR 191.1 billion) due to strong growth in overnight deposits (leasing liabilities of EUR 0.6 billion are not included in this position). The loan-to-deposit ratio declined to 85.6% (86.9%). Debt securities in issue increased to EUR 32.1 billion (EUR 30.7 billion). Miscellaneous liabilities amounted to EUR 6.9 billion (EUR 5.8 billion).

Total assets rose to EUR 307.4 billion (EUR 277.4 billion). Total equity increased to EUR 23.5 billion (EUR 22.4 billion). This includes AT1 instruments in the amount of EUR 2.2 billion from four issuances (April 2017, March 2019, January 2020 and November 2020). After regulatory deductions and filtering according to the Capital Requirements Regulation (CRR) common equity tier 1 capital (CET1, CRR final) rose to EUR 18.8 billion (EUR 17.1 billion) as were total own funds (CRR final) to EUR 24.8 billion (EUR 23.6 billion). Total risk – risk-weighted assets including credit, market and operational risk (CRR final) – increased moderately to EUR 129.6 billion (EUR 120.2 billion).

The total capital ratio, total eligible qualifying capital in relation to total risk (CRR final), declined to 19.1% (19.7%), primarily due to the early redemption of a portion of AT1 capital but remained well above the legal minimum requirement. The tier 1 ratio stood at 16.2% (16.5%), the common equity tier 1 ratio improved to 14.5% (14.2%) (both ratios CRR final).

SEGMENT REPORTING

January-December 2021 compared with January-December 2020

Erste Group’s segment reporting is based on a matrix organisation. It provides comprehensive information to assess the performance of geographical (operating) segments as well as business segments. The tables and information below provide a brief overview and focus on selected and summarised items. At www.erstegroup.com/investorrelations additional information is available in Excel format.

Operating income consists of net interest income, net fee and commission income, net trading result, gains/losses from financial instruments measured at fair value through profit or loss, dividend income, net result from equity method investments and rental income from investment properties & other operating leases. The latter three listed items are not shown in the tables below. Net trading result and gains/losses from financial instruments measured at fair value through profit or loss are summarized under one position. Operating expenses correspond to the position general administrative expenses. Operating result is the net amount of operating income and operating expenses. Risk provisions for loans and receivables are included in the position impairment result from financial instruments. Other result summarizes the positions other operating result and gains/losses from financial instruments not measured at fair value through profit or loss, net. The cost/income ratio is calculated as operating expenses in relation to operating income. The return on allocated capital is defined as the net result after tax/before minorities in relation to the average allocated capital.

Geographical (operating) segments

Erste Bank Oesterreich & Subsidiaries

The Erste Bank Oesterreich & Subsidiaries (EBOe & Subsidiaries) segment comprises Erste Bank der oesterreichischen Sparkassen AG (Erste Bank Oesterreich) and its main subsidiaries (e.g. sBausparkasse, Salzburger Sparkasse, Tiroler Sparkasse, Sparkasse Hainburg).

Net interest income increased due to the one-off booking related to TLTRO III refinancing with ECB (EUR 20.1 million) and higher loan volumes, which were partially offset by lower margins for customer loans and higher interest expense for the placement of excess liquidity. Net fee and commission income rose on the back of higher in-come from securities and payment fees. The improvement in net trading result and gains/losses from financial instruments at FVPL was driven by valuation effects. Operating expenses went down due to the decrease of deposit insurance contribution to EUR 33.8 million (EUR 49.9 million) and lower IT expenses, which offset higher personnel, marketing, legal and consulting expenses. Consequently, operating result increased and the cost/income ratio improved. Impairment result from financial instruments improved as last year updated risk parameters with forward looking information and stage overlays related to the Covid-19 crisis led to significantly higher risk provisioning. Other result worsened mainly due to lower selling gains from real estate. Payments into the resolution fund increased to EUR 12.3 million (EUR 10.5 million). Banking tax amounted to EUR 4.3 million (EUR 3.7 million). Overall, the net result attributable to owners of the parent improved significantly.

Savings Banks

The Savings Banks segment includes those savings banks which are members of the Haftungsverbund (cross-guarantee system) of the Austrian savings banks sector and in which Erste Group does not hold a majority stake but which are fully controlled according to IFRS 10. The fully or majority owned savings banks Erste Bank Oesterreich, Tiroler Sparkasse, Salzburger Sparkasse, and Sparkasse Hainburg are not part of the Savings Banks segment.

Net interest income increased due to a one-off booking related to TLTRO III refinancing with ECB (EUR 13.6 million) and higher loan volumes, largely offset by lower margins for customer loans and higher interest expense on the placement of excess liquidity. Net fee and commission income increased on the back of higher securities and payment fees. The notable improvement of net trading result and gains/losses from financial instruments at FVPL was primarily driven by valuation effects. Operating expenses remained almost unchanged as lower IT expenses and depreciation largely offset higher payment into deposit insurance fund of EUR 51.6 million (EUR 45.0 million), higher personnel expenses and higher expenses for advertising and marketing. Overall, operating result as well as the cost/income ratio improved. Impairment result from financial instruments also improved and resulted in a net release as last year updated risk parameters with forward looking information and stage overlays related to the Covid-19 crisis led to significantly higher risk provisioning. Other result worsened due to provisions for legal expenses related to a potential client reimbursement for interest payments during loan moratoria (EUR -11.5 million). The resolution fund contribution increased to EUR 11.2 million (EUR 9.5 million), banking tax to EUR 5.1 million (EUR 4.6 million). Overall, the net result attributable to the owners of the parent increased considerably.

Other Austria

The Other Austria segment comprises the Corporates and Group Markets business of Erste Group Bank AG (Holding), Erste Group Immorent, Erste Asset Management and Intermarket Bank.

Net interest income went down primarily in Holding markets business on the back of unfavorable market interest rate developments, partially compensated by higher result from corporate lending in the Holding. Net fee and commission income increased due to a higher contribution of securities business driven among others by higher assets under management with institutional clients in Austria as well as the good development of corporate lending in the Holding. Net trading result and gains/losses from financial instruments at FVPL improved significantly due to valuation results of interest rate derivatives, equity futures and bonds. Overall, operating income improved notably while operating expenses decreased, mostly on lower costs in foreign branches. Consequently, operating result and the cost/income ratio improved. The impairment result from financial instruments improved and resulted in a net release as last year updated risk parameters with forward looking information and stage overlays related to the Covid-19 crisis led to significant risk provisioning in the corporate portfolio. Other result improved due to higher real estate selling gains and lower provisions for commitments and guarantees, partially offset by breakage costs related to an early loan repayment. Other result included the resolution fund contribution of EUR 8.0 million (EUR 9.6 million). Overall, the net result attributable to owners of the parent improved significantly.

Czech Republic

The segment analysis is done on a constant currency basis. The CZK appreciated by 3.0% against the EUR in the reporting period. Net interest income in the Czech Republic segment (comprising Česká spořitelna Group) in-creased on higher business volumes and the non-recurrence of loan repayment moratorium modification losses. The increase in net fee and commission income was mainly driven by higher securities and insurance brokerage fees. Negative valuation effects resulted in a lower net trading result and gains/losses from financial instruments at FVPL. Operating expenses increased due to higher personnel as well as IT and marketing costs. The deposit insurance contribution amounted to EUR 10.8 million (EUR 10.1 million). Overall, the operating result increased while the cost/income ratio deteriorated. Impairment result from financial instruments improved significantly as last year updated risk parameters with forward looking information and stage overlays related to the Covid-19 crisis led to high risk provisioning. Other result deteriorated mainly due to higher impairments of non-financial assets and provisions for legal expenses. Payments into the resolution fund amounted to EUR 31.9 million (EUR 29.1 million). Altogether, these developments led to a significant improvement in the net result attributable to the owners of the parent.

Slovakia

Net interest income in the Slovakia segment (comprising Slovenská sporitel’ňa Group) decreased moderately as the negative impact of lower consumer loan volumes and lower margins for housing loans in the retail business as well as the lower result from bond investments was only partially compensated by a one-off booking related to TLTRO III refinancing with ECB (EUR 12.9 million). Net fee and commission income increased on the back of higher income from payment, securities and insurance brokerage fees. Net trading result and gains/losses from financial instruments at FVPL decreased slightly on valuation effects. Operating expenses increased due to a higher deposit insurance contribution of EUR 9.4 million (EUR 1.1 million) on the back of a methodology change and higher IT costs. This increase was partially compensated by lower depreciation and personnel expenses. Consequently, operating result increased and the cost/income ratio improved. Impairment result from financial instruments improved significantly as last year updated risk parameters with forward looking information and stage overlays related to Covid-19 crisis led to high risk provisioning. Other result improved due to the abolition of the banking tax as of the second half of last year (EUR 33.8 million in the first half year of 2020). Payment into the resolution fund increased slightly to EUR 4.7 million (EUR 4.0 million). Overall, the net result attributable to the owners of the parent increased significantly.

Romania

The segment analysis is done on a constant currency basis. The RON depreciated by 1.7% against the EUR in the reporting period. Net interest income in the Romania segment (comprising Banca Comercială Română Group) remained largely stable, as the effect from higher loan volumes was offset by lower result from bond investments and the negative FX translation effect. Net fee and commission income improved mainly due to higher payment fees in retail and corporate business. Securities, insurance brokerage and lending fees went up as well. The increase of net trading result and gains/losses from financial instruments at FVPL was attributable to an improved contribution from FX business. Operating expenses decreased mainly due to lower personnel expenses driven by the deconsolidation of a subsidiary as well as a lower deposit insurance contribution of EUR 3.4 million (EUR 4.4 million). Overall, operating result increased and the cost/income ratio improved. The significant improvement of the impairment result from financial instruments was a consequence of last year’s update of risk parameters with forward looking information and stage overlays related to the Covid-19 crisis. Other result improved mainly due to lower impairments and higher selling gains from property. Payment into the resolution fund increased to EUR 11.4 million (EUR 7.7 million). The net result attributable to the owners of the parent increased notably.

Hungary

The segment analysis is done on a constant currency basis. The HUF depreciated by 2.1% against the EUR in the reporting period. Net interest income in the Hungary segment (comprising Erste Bank Hungary Group) increased due to higher customer loan and deposit volumes as well as a positive contribution from securities and money market placements, despite the negative impact from interest refund related to revolving loans in moratoria and modification losses related to the mortgage interest cap. Net fee and commission income rose on higher securities, payment and insurance brokerage fees. Net trading result and gains/losses from financial instruments at FVPL decreased due to valuation effects. Operating expenses went up on the back of higher personnel costs, IT costs and depreciation. Deposit insurance contributions went up to EUR 7.1 million (EUR 5.8 million). Overall, operating result and the cost/income ratio improved. The significant improvement of the impairment result from financial instruments was a consequence of last year’s update of risk parameters with forward looking information and stage overlays related to the Covid-19 crisis. Other result improved mainly due to higher property selling gains. This line item also included the banking tax of EUR 15.0 million (EUR 14.5 million), transaction tax of EUR 47.9 million (EUR 44.0 million) and the contribution to the resolution fund of EUR 5.6 million (EUR 3.5 million). Consequently, the net result attributable to the owners of the parent increased significantly.

Croatia

The segment analysis is done on a constant currency basis. The HRK remained largely stable against the EUR in the reporting period. Net interest income in the Croatia segment (comprising Erste Bank Croatia Group) remained almost unchanged as the effect of the lower interest rate environment was offset by the non-recurrence of modification losses related to loan moratoria booked last year. Net fee and commission income went up due to higher payment, lending and insurance brokerage fees. Net trading result and gains/losses from financial instruments at FVPL improved driven by a higher result from foreign currency transactions and valuation effects. Operating expenses went up on the back of higher personnel and IT costs, partially offset by lower deposit insurance contribution of EUR 1.9 million (EUR 12.3 million). Overall, operating result and the cost/income ratio improved. The significant improvement of the impairment result from financial instruments was a consequence of last year’s update of risk parameters with forward looking information and stage overlays related to the Covid-19 crisis which led to high risk provisioning. Other result improved mainly due to releases of provisions for legal expenses and a lower resolution fund contribution of EUR 3.4 million (EUR 5.7 million). Consequently, the net result attributable to the owners of the parent increased significantly.

Serbia

The segment analysis is done on a constant currency basis. The Serbian Dinar (RSD) remained stable against the EUR in the reporting period. Net interest income in the Serbia segment (comprising Erste Bank Serbia Group) increased mainly due to higher loan and deposit volumes in retail and corporate business. Net fee and commission income went up due to higher payment and insurance brokerage fees. Net trading result and gains/losses from financial instruments at FVPL increased driven by a higher result from foreign currency transactions and derivatives. Operating expenses rose mainly due to higher personnel, legal and consultancy costs and depreciation. Deposit insurance contribution rose to EUR 4.3 million (EUR 3.5 million). Operating result increased and the cost/income ratio improved. Impairment result from financial instruments improved as a consequence of last year’s update of risk parameters with forward looking information. Other result deteriorated due to higher provisions for litigations. Overall, the net result attributable to owners of the parent increased.

Other

The residual segment Other consists mainly of internal service providers, the Group Asset/Liability Management and the Corporate Center of Erste Group Bank AG as well as the reconciliation to the consolidated accounting result (e.g. intercompany elimination, dividend elimination) and free capital.

Operating income improved primarily due to one-off booking related to TLTRO III refinancing with ECB partially offset by a lower valuation result. Although operating expenses went up slightly, operating result improved. Other result deteriorated on the back of negative valuation effects. The tax charge developed positively. Consequently, the net result attributable to owners of the parent improved.

Business segments

Retail

The Retail segment comprises the entire business with private individuals, free professionals and micros in the responsibility of account managers in the retail network of the local banks cooperating with their specialised subsidiaries (such as leasing and asset management companies).

The increase in net interest income was driven by the growth of customer loan and deposit volumes across all markets. Net interest income improved in the Czech Republic, Hungary and Serbia from loan and deposit business, partially offset by the change in transfer prices related to the deposit business as a response to the lower interest rate environment and a corresponding positive effect in ALM & Local Corporate Center. Contributions from the lending business in Slovakia and Austria declined primarily on the impact of lower market rates. Net fee and commission income increased due to higher fees from securities business, higher payment fees and improved insurance brokerage fees. Net trading result and gains/losses from financial instruments FVPL increased moderately due to higher foreign currency transactions in the Czech Republic, Hungary, Romania, Croatia and Slovakia, partially offset by negative valuation effects in Hungary. Operating expenses increased mainly due to higher personnel and IT expenses, partially offset by lower deposit insurance contributions in Austria and Croatia. Consequently, operating result increased and the cost/income ratio improved. The impairment result from financial instruments improved significantly across all markets as last year updated risk parameters with forward looking information and stage overlays related to the Covid-19 crisis led to high risk provisioning. The main driver of the other result improvement was the abolition of the banking tax in Slovakia as of the second half of last year, partially offset by negative effects in other entities. Overall, the net result attributable to the owners of the parent increased significantly.

Corporates

The Corporates segment comprises business done with SMEs (small and medium sized enterprises), Large Corporate customers, as well as commercial real estate and public sector business.

Net interest income improved primarily due to higher customer loan volumes as well as higher income from early loan repayments. Net fee and commission income increased mainly because of higher payment and lending fees. Net trading result and gains/losses from financial instruments at FVPL improved significantly due to positive valuation effects mainly in the Holding and the Czech Republic. Operating expenses increased moderately. Consequently, operating result went up and the cost/income ratio improved. The impairment result from financial instruments improved significantly as last year updated risk parameters with forward looking information and stage overlays related to the Covid-19 crisis led to high risk provisioning. Other result improved mainly due to real estate selling gains as well as the release of provisions for legal expenses. Consequently, the net result attributable to the owners of the parent improved significantly.

Group Markets

The Group Markets segment comprises trading and markets services as well as business done with financial institutions.

Net interest income decreased on the back of lower market interest rates. Net fee and commission income increased mostly due to the higher contribution of the securities business driven among others by higher assets under management with institutional clients in Austria. Net trading result and gains/losses from financial instruments at FVPL improved significantly due to valuation results of interest rate derivatives, equity futures and bonds. Overall, operating income increased notably. As operating expenses went up only slightly, operating result increased significantly and the cost/income ratio improved. Impairment result from financial instruments deteriorated due to higher provisioning requirements in Austria. Other result remained by and large stable. Overall, the net result attributable to the owners of the parent improved significantly.

Asset/Liability Management & Local Corporate Center

The ALM & LCC segment includes all asset/liability management functions – local and of Erste Group Bank AG (Holding) – as well as the local corporate centers which comprise internal service providers and reconciliation items to local entity results.

Net interest income improved primarily due to a one-off booking related to TLTRO III refinancing with ECB (EUR 79.3 million), lower transfer prices that led to a negative impact in the retail segment and a corresponding positive effect in ALM & LCC as well as lower refinancing costs in the Holding and higher income from investments in Czech Republic and Hungary. These effects were partially offset by higher interest expense from the placement of excess liquidity with the ECB. Net fee and commission income decreased mainly due to a higher internal fee recharge between Group Markets and ALM & LCC in the Czech Republic and the Holding. The deterioration of net trading result and gains/losses from financial instruments at FVPL was driven by valuation effects. Operating expenses increased mainly due to higher personnel expenses in Austria and higher property management costs in the Czech Republic. Overall, operating result improved. Other result worsened primarily due to breakage costs in Austria related to an early loan repayment and impairments of buildings and IT in the Czech Republic, partially compensated by higher real estate selling gains in Romania. As the tax charge increased significantly, the net result attributable to the owners of the parent deteriorated.

Savings Banks

The business segment Savings Banks is identical to the geographical (operating) segment Savings Banks.

Group Corporate Center

The Group Corporate Center segment covers mainly centrally managed activities and items that are not directly allocated to other segments. It includes the Corporate Center of Erste Group Bank AG as well as internal service providers, therefore in particular the line items other operating result and general administrative expenses should be considered together with intragroup eliminations. Furthermore, the free capital of Erste Group is included.

Operating income decreased on lower net trading result and gains/losses from financial instruments at FVPL due to valuation effects. Operating expenses decreased on eliminated costs between the two IT entities after their merger – countereffect in intercompany eliminations. Other result deteriorated due to negative valuation effects as well as intercompany effects. The tax charge developed positively. All in all, the net result attributable to owners of the parent improved.

Appendix

Preliminary results 2021 of Erste Group Bank AG (IFRS)

Consolidated income statement

Consolidated statement of comprehensive income

Group balance sheet

Segment reporting

Operating segments: Geographical segmentation – overview

Operating segments: Geographical area – Austria

Operating segments: Geographical area – Central and Eastern Europe

Business segments (1)

Business segments (2)

(end)

Emitter:	Erste Group Bank AG Am Belvedere 1 1100 Wien Austria
Contact Person:	Thomas Sommerauer / Simone Pilz
Phone:	+43 (0)50100-17326
E-Mail:	investor.relations@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