Erste Group’s annual net profit rose by more than a third to EUR 1.79 billion – the best in the group’s history, EUR 477 million higher than the net profit recorded in 2017, based on an increase of the operating income, lower risk costs and lower taxes. The bank proposes its shareholder a dividend of EUR 1.4/share. In Romania, where Erste operates through BCR, profit grew in 2018 by more than 80 percent, to EUR 220 million.
“The fact that this result was underpinned by strong fundamentals – a 7 per cent increase in both deposit and loan volumes – further points to the soundness of our model. Our footprint continues to place us in the most economically dynamic region of the EU. Low unemployment rates, rising real wages and increasing economic competitiveness have prompted our region’s entrepreneurs to take more risks and to invest – and thus, to create jobs. This positive sentiment is also apparent in the retail sector, where customer demand for housing and consumer loans remained solid. The strong continued growth on the deposit side underscores the confidence our customers place in us as a 200-year-old institution, but it is also reflects the failure of capital markets to provide a compelling alternative to savings books. As far as the challenges that our region presents to us as a company, the past year made clear that political risk outweighs commercial risk – but that phenomenon is not unique to the CEE region,” said Andreas Treichl, CEO of Erste Group Bank AG.
The Group’s net interest incomeincreased – mainly in the Czech Republic and in Romania, but also in Austria – to EUR 4.5 million (+5.3 percent compared to 2017). Net fee and commission incomerose to EUR 1.9 million (+3.1 percent), primarily on the back of significantly higher income from payment services and asset management.
While net trading result was down at EUR -1.7 million (compared to EUR 222.8 million), the line item gains/losses from financial instruments measured at fair value through profit or loss improved to EUR 195.4 million (EUR -12.3 million in 2017).
Operating income rose to EUR 6.91 million (+3.7 percent). General administrative expenses were nearly stable at EUR 4.18 million (+0.5 percent). This was mostly attributable to the reduction of other administrative expenses to EUR 1.23 million (-5.7 percent). Payments to deposit insurance systems included in this line item amounted to EUR 88.6 million. This reduction almost fully compensated the rise in personnel expenses to EUR 2.47 million (+3.6 percent) and in depreciation and amortisation (+2.6 percent). Overall, the operating result improved to EUR 2.73 million (+8.9 percent) and the cost/income ratio to 60.5 percent (compared to 62.4 percent in 2017).
The impairment result from financial instruments amounted to EUR 59.3 million due to net releases on the back of improved asset quality or, adjusted for net allocation of provisions for commitments and guarantees given, -14 basis points of average gross customer loans (net allocations of EUR 132 million or 9 basis points). 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 3.2 percent (from 4.0 percent), the NPL coverage ratio to 73.0 percent (from 68.8 percent).
Other operating result improved to EUR -304.5 million (from EUR -457.4 million). It included expenses for the annual contributions to resolution funds in the amount of EUR 70.3 million (EUR 65.8 million). Banking and transaction taxes increased to EUR 112.2 million (EUR 105.7 million).
Other taxes were positive at EUR 1.0 million (EUR -37.7 million) due to one-off effects. In the financial year 2017, 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.
Taxes on income decreased significantly to EUR 332.4 million (EUR 410.1 million) as deferred tax assets were recognised, resulting in deferred tax income. The minority charge increased to EUR 369.1 million (+5 percent). The net result attributable to owners of the parent rose to EUR 1.79 million (+36.3 percent).
Total equity not including AT1 instruments rose to EUR 17.9 billion (from 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 15.5 billion (+5.3 percent), total own funds (Basel 3 phased in) to EUR 20.9 billion (from EUR 20.3 billion).
Total risk (risk-weighted assets including credit, market and operational risk, Basel 3 phased-in) rose to EUR 114.6 billion (EUR 110.0 billion). The common equity tier 1 ratio (CET 1, Basel 3 phased-in) stood at 13.5 percent (13.4 percent), the total capital ratio (Basel 3 phased-in) at 18.2 percent (18.5 percent).
Total assets were up at EUR 236.8 billion (+7.3 percent). On the asset side, cash and cash balances decreased to EUR 17.5 billion (EUR 21.8 billion), while loans and advances to credit institutions increased to EUR 19.1 billion (EUR 9.1 billion).
Loans and advances to customers rose to EUR 149.3 billion (+7.0 percent). On the liability side, deposits from banks increased to EUR 17.7 billion (from EUR 16.3 billion) and customer deposits grew again – in all core markets – to EUR 162.6 billion (+7.7 percent). The loan-to-deposit ratio stood at 91.8 percent (92.4 percent).
The outlook is based on a solid macroeconomic development in Erste’s region, which is expected to experience real GDP growth of approximately 3 percent in CEE and above 2 percent in Austria on the back of continued strong domestic demand, rising real wages, low unemployment, and healthy public finances across CEE.
Based on loan growth in the mid-single digit percentage range, the Group expects revenues to grow more strongly than costs. Risk costs will rise, but remain at historically low levels (10-20bps). Other operating result will be negatively impacted by the Romanian banking tax. On the back of the low average tax rates in CEE, the tax rate of Erste Group is expected to remain below 20 percent.
Based on this assumption, the Return on Tangible Equity (ROTE) for 2019 is targeted at above 11 percent.