Erste Group Burdened by Losses in Eastern Europe
Despite losses in Romania, Hungary and Ukraine, Erste Group posts a net profit of € 453.6m in first half of 2012.
Net interest income eased 1.9% to € 2,651.7m in H1 2012 driven by the reduction of non-core assets and subdued credit demand. Net fee and commission income amounted to € 865.5m in H1 2012, down 4.5% on H1 2011 due to weaker securities business. The deterioration in net trading result from € 288.8m in H1 2011 to € 121.5m in H1 2012 was due to valuation gains in H1 2011, which did not recur in H1 2012.
Driven by the lower net trading result, operating income was down 6.7% to € 3,638.7m (H1 2011: € 3,898.8m).Effective cost management resulted in a 2.0% drop in general administrative expenses from € 1,926.3m in H1 2011 to € 1,887.4m in H1 2012. Thus, the operating result amounted to € 1,751.3m (H1 2011: € 1,972.5m). The cost/income ratio stood at 51.9% (H1 2011: 49.4%).
Risk costs rose 6.6% from € 920.8m in H1 2011 to € 981.8m in H1 2012, or to 146 basis points of average customer loans. With the exception of Romania and Croatia, the provisioning level for the core countries declined or remained stable. Asset quality was mixed, with Austria, the Czech Republic and Slovakia showing improving trends while Romania, Hungary and Croatia deteriorated. Overall, the NPL ratio increased to 9.2% as of 30 June 2012 (year-end 2011: 8.5%), while the NPL coverage ratio improved to 61.2% (year-end 2011: 61.0%).
Other operating result improved to € -68.1m in H1 2012 compared to € -260.2m. This was mainly due to a € 413.2m contribution from the buy-back of tier 1 and tier 2 instruments, which was partly offset by a goodwill adjustment of € 210.0m for Banca Comercială Română as well as a € 60.6m charge related to the FX mortgage interest subsidy legislation in Hungary (booked as risk costs in Q1 2012 and now presented as other operating result). A banking tax charge of € 114.5m continued to weigh on this position in H1 2012.
Thus, net profit after minorities declined by 12.9% to € 453.6m in H1 2012.
Core tier 1 capital improved significantly to € 11.3bn (year-end 2011: € 10.7bn), resulting in a rise of the core tier 1 ratio (total risk; Basel 2.5) to 10.4% (year-end 2011: 9.4%). The EBA capital ratio increased to 9.9% (year-end 2011: 8.9%). Including retained earnings, the EBA capital ratio reached 10.4%. The continued improvement in capital ratios was supported by a decline in total risk-weighted assets of 4.4% to € 109.0bn as of 30 June 2012 (year-end 2011: € 114.0bn). Shareholders’ equity rose substantially to € 12.6bn (year-end 2011: € 12.0bn).
Driven by deposit growth and investments into highly liquid assets, total assets grew by 2.5% to € 215.2bn versus € 210.0bn at year-end 2011. The loan-to-deposit ratio improved to 109.6% as of 30 June 2012 (year-end 2011: 113.3%).
"Despite the challenging operating environment in Europe, Erste Group generated a net profit of € 453.6m in the first half of 2012. This result was impacted by positive as well as negative one-off items, yet reflects the underlying strength of our franchise", said Andreas Treichl, Chief Executive Officer of Erste Group Bank AG, when presenting the results for the first half of 2012. "Moreover, we have significantly improved our capital position, reaching an EBA capital ratio of 9.9% as of 30 June 2012. Including retained earnings, the ratio improved to 10.4%. In addition, we continued to record good inflows of customer deposits", Treichl continued. "The on-going reduction of non-core assets demonstrates our commitment to the core retail and corporate customer business in Central and Eastern Europe. While we continued to deliver a resilient performance in Austria, the Czech Republic and Slovakia, we embarked on transforming our Romanian bank in order to take advantage of growth opportunities in the medium term", Treichl concluded.