Erste Group records strong net profit of EUR 774 mln in H1 2018 based on improved operating performance and benign risk environment

Erste Group’s net interest income increased – mainly in the Czech Republic and in Romania – to EUR 2.21 billion (+3.3 percent). Net fee and commission income rose to EUR 959.3 million (+5.3 percent) mostly on the back of stronger income from payment services, asset management and lending.

While net trading result declined significantly to EUR 11.9 million (from EUR 102.9 million), the line item gains/losses from financial instruments measured at fair value through profit or loss improved to EUR 66.6 million (EUR 4.5 million).

Operating income rose to EUR 3.37 billion (+2.5 percent). The increase in general administrative expenses to EUR 2.07 billion (+3.6 percent) was mainly attributable to higher personnel expenses of EUR 1.21 billion (+5.7 percent).

“Erste Group’s performance in the first six months of this year has been one of the best ever — our net profit rose by 24 percent year-on-year to 774 million euros. This was driven by an increase of 3.3 percent in net interest income and 5.3 percent in fees income, risk costs remaining at low levels and the cost/income ratio dropping from 64.3 percent to 58.8 percent in the second quarter.

We expect this positive trend in our operating performance to continue in the second half of 2018, based on the persisting outperformance of CEE economies, with low unemployment rates, rising real wages and increasing economic competitiveness,” said Andreas Treichl, CEO of Erste Group Bank AG.

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The impairment result from financial instruments amounted to EUR 73.2 million or, adjusted for net allocation of provisions for commitments and guarantees given, -12 basis points of average gross customer loans (net allocations of EUR 104.3 million or 15 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 across almost all segments, most notably in Croatia and in Austria. The NPL ratio improved again to 3.6 percent from 4.0 percent, the NPL coverage ratio increased to 72.0 percent from 68.8 percent (both based on gross customer loans).

Other operating result amounted to EUR -204.6 million (EUR -209.8 million). It included expenses for the annual contributions to resolution funds in the amount of EUR 71.3 million (EUR 65.4 million). Banking and transaction taxes increased – primarily in Hungary and in Slovakia – to EUR 63.0 million (EUR 59.4 million), including EUR 13.8 million (EUR 13.3 million) in Hungarian banking taxes booked upfront for the full financial year. Other taxes decreased to EUR 6.5 million (EUR 11.9 million).

Total assets were up at EUR 229.9 billion (+4.2 percent). On the asset side, cash and cash balances decreased to EUR 16.9 billion (from EUR 21.8 billion), while loans and receivables to credit institutions increased to EUR 17.1 billion (from EUR 9.1 billion). Loans and receivables to customers rose to EUR 144.7 billion (+3.7 percent). On the liability side, deposits from banks increased to EUR 17.9 billion (from EUR 16.3 billion) and customer deposits grew again – most notably in Austria, the Czech Republic and Slovakia – to EUR 156.8 billion (+3.9 percent). The loan-to-deposit ratio stood at 92.3 percent, compared to 92.4 percent compared to the 6 months up to December 31, 2017.

OUTLOOK

Operating environment is anticipated to be conducive to credit expansion. Real GDP growth is expected to be approximately between 3 and 4 percent 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.

In terms of business outlook, Erste Group aims to achieve a return on tangible equity (ROTE) of more than 10 percent in 2018 (based on average tangible equity in 2018). The underlying assumptions are slightly growing revenues (assuming 5 percent+ net loan growth and interest rate hikes in the Czech Republic and Romania), slightly falling expenses due to lower project-related costs and risk costs remaining at historically low levels.