Erste Group's Q1 2019 net profit up 12.2 pct year-on-year to EUR 377 million on strong operating performance

Erste Group has posted solid financial results for the first quarter of 2018, with a net profit of EUR 377 million, a rise of more than 12 percent over the same period of 2018, with growth driven organically through strong operating performance. Customer business is also growing steadily, which translates into higher net interest income (+7.2 percent YoY), net fee and commission income (+1.9 percent) and a robust rise in net trading result, all of which drove a 7 percent increase in operating income, to EUR 1.77 billion, according to a statement by the bank.

“This healthy performance is, of course, a reflection of the continued solid growth across CEE economies, largely thanks to solid domestic demand on the back of rising real wages and high employment levels. Those favourable macroeconomic fundamentals also resulted in an increased demand for loans across all geographies and especially in the Corporates segment, contributing to a 7.2 percent year-on-year rise in our performing loan volume. Our customer deposit volumes also expanded (+7.0 percent YoY), despite the continuing low interest rate environment. That’s a welcome sign of the trust that our customers place in us – but it’s also further proof that our region’s underdeveloped capital markets have so far failed to convince savers to shift away from savings books. The risk environment continued to be exceptionally benign, allowing us to make additional net releases. Our NPL ratio dipped to 3 percent at the end of the quarter, reflecting the EUR 773 million decline in the volume of our non-performing loans over the course of a year,” said Andreas Treichl, CEO of Erste Group Bank AG.

At the end of March 2019 compared to March 2018, net interest income increased – mainly in the Czech Republic, but also in other core markets – to EUR 1.16 billion (from EUR 1.08 billion). Net fee and commission income rose to EUR 487.7 million (from EUR 478.6 million) primarily on the back of payment services.

While net trading result improved significantly to EUR 153.3 million (from EUR 11.3 million), the line item gains/losses from financial instruments measured at fair value through profit or loss declined to EUR -77.1 million (EUR 30.3 million), both line items being impacted by valuation effects related to own liabilities from debt securities issued. Operating income rose to EUR 1.77 billion (from EUR 1.65 billion).

The increase in general administrative expenses to EUR 1.11 billion (+4.8 percent) was attributable to a rise in other administrative expenses to EUR 358.3 million (+4.0 percent) as well as higher personnel expenses in the amount of EUR 621.9 million (+2.9 percent). Other administrative expenses included almost all contributions to deposit insurance systems expected in 2019 in the amount of EUR 87.5 million (compared to EUR 74.2 million).

Due to net releases on the back of continued solid asset quality, the impairment result from financial instruments amounted to EUR 35.8 million or, adjusted for net allocation of provisions for commitments and guarantees given, 1 basis point of average gross customer loans (EUR 54.4 million or -22 basis points). This was mainly attributable to income received from the recovery of loans already written off as well as from releases of provisions for commitments and guarantees given in the Czech Republic and Romania. The NPL ratio based on gross customer loans improved again to 3 percent (from 3.2 percent), the NPL coverage ratio to 74.2 percent (from 73.0 percent).

Total assets rose to EUR 243.7 billion (from EUR 236.8 billion). On the asset side, cash and cash balances decreased to EUR 16.4 billion (EUR 17.5 billion) while loans and advances to credit institutions increased to EUR 22.7 billion (EUR 19.1 billion).

Loans and advances to customers rose to EUR 152.0 billion (from EUR 149.3 billion). On the liability side, deposits from banks increased to EUR 20.3 billion (EUR 17.7 billion) and customer deposits grew again – most notably in the Czech Republic and in Austria – to EUR 166.2 billion (EUR 162.6 billion). The loan- to-deposit ratio stood at 91.4 percent (91.8 percent).

“In a nutshell, it’s been a good start to the year. And as things now stand, we are well on our way to achieving the targets we set for 2019: a return on tangible equity of above 11 percent and higher dividends per share,“ CEO Andreas Treichl added.