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Erste Group Posts Net Profit of EUR 968.2 Million in 2015

Published: February 26, 2016; 17:30 · (FriedlNews)

“A net profit of nearly 1 billion euro, a strong capital base and substantially lower risk costs for 2015 show that we have done our homework,” said Andreas Treichl, CEO of Erste Group Bank AG, about the full-year 2015 preliminary results.

Treichl: Erste Group posts net profit of EUR 968.2 million in 2015 / Picture: © Erste Group / Andi Bruckner

“The interest rate environment remains challenging and the impact can be seen in the reduction of our operating result. On a positive note, we have seen solid growth in lending, equally driven by the retail and corporate business.” said Andreas Treichl.

“Our result shows that we belong to the small group of banks that are able to earn their cost of capital. We will do our utmost in the coming years, even if the environment for our industry remains difficult, to improve our position on the market.”

“I am pleased about the fact that due to our profitability we have strongly improved our capital base. With a common equity tier 1 ratio of 12.3%, we are well ahead of our regulatory requirement of 9.75%. Our strong result allows us to do three things: continue to fund growth in our markets, strengthen our capital base and pay dividends. We want to share the good results with our shareholders and therefore will propose a dividend of 50 cents per share,” announced Treichl.

HIGHLIGHTS

Net interest income declined to EUR 4,444.7 million (EUR 4,495.2 million) mainly because of the persistently low interest rate environment, despite the solid growth posted in lending. The net loan volume increased by 4.2% driven by the robust economic growth in Central and Eastern Europe especially in the Czech Republic, Slovakia, but also in Austria. Net fee and commission income declined only slightly to EUR 1,861.8 million (EUR 1,869.8 million) supported by robust earnings from the asset management and custody business. The net trading and fair value result decreased to EUR 210.1 million (EUR 242.3 million). Operating income went down moderately to EUR 6,771.8 million
(-1.5%; EUR 6,877.9 million). General administrative expenses rose to EUR 3,868.9 million
(+2.2%; EUR 3,787.3 million). Overall, this resulted in a decline of the operating result to EUR 2,902.9 million (-6.1%; EUR 3,090.7 million). The cost/income ratio was 57.1% (55.1%).

Erste Group saw a positive development in risk costs (net impairment loss on financial assets not measured at fair value through profit or loss), which improved significantly to EUR 729.1 million or 56 basis points of average gross customer loans (-65.0%; EUR 2,083.7 million or 163 basis points). This was primarily due to a substantial decline in Romania, but also to a positive trend in all Austrian segments. The NPL ratio improved further to 7.1% (8.5%). The NPL coverage ratio declined – due to the application of EBA default definition – to 64.5% (68.9%).

Other operating result amounted to EUR -635.6 million (EUR -1,752.9 million). The significant positive change was attributable to the non-recurrence of high, negative one-off effects in 2014 (primarily intangible write-downs). Current figures include the expense of contributions to national resolution funds in the amount of EUR 51.3 million, payable in 2015 for the first time. Moreover, losses in the amount of EUR 129.5 million resulted from legislation requiring the conversion of customer loans (Swiss francs to euro) in Croatia, in addition to provisions of EUR 101.6 million for consumer protection claims in Romania. At EUR 236.2 million (EUR 256.3 million), banking and financial transaction taxes were again significant: EUR 128.6 million (EUR 130.5 million) in Austria, EUR 23.6 million (EUR 31.5 million) in Slovakia, and EUR 84.0 million (EUR 94.2 million) in Hungary.

“At more than EUR 450 million, the total cost of charges triggered by populist measures remained very high in 2015 – nearly half of our net profit. We would have preferred to use this amount for new loans to finance the economy and create new jobs,” commented Andreas Treichl.

Based on the solid earnings, total equity rose to EUR 14.8 billion (EUR 13.4 billion). Common equity tier 1 capital (CET1, Basel 3 phased-in) increased to EUR 12.1 billion (EUR 10.6 billion) and total eligible own funds (Basel 3 phased-in) amounted to EUR 17.6 billion (EUR 15.8 billion). Total risk, i.e. risk-weighted assets including credit, market and operational risk (Basel 3 phased-in) decreased to EUR 98.3 billion (EUR 100.6 billion). The common equity tier 1 ratio (CET1, Basel 3 phased-in) stood at 12.3% (10.6%) and thus significantly higher than the minimum requirement of 9.75%. The total capital ratio (Basel 3 phased-in) rose to 17.9% (15.7%).

Total assets increased to EUR 199.7 billion (EUR 196.3 billion), driven mainly by the increase in customer lending volume, with loans and receivables to customers (net) rising to EUR 125.9 billion (EUR 120.8 billion). Within liabilities, customer deposits rose to EUR 127.9 billion (EUR 122.6 billion). The loan-to-deposit ratio was 98.4% (98.6%).

OUTLOOK

Operating environment anticipated to be conducive to credit expansion. Real GDP growth in 2016 is expected to be between 1.5% and 3.8% in all major CEE markets, including Austria, driven by solid domestic demand.

Return on tangible equity (ROTE) expected at about 10-11% in 2016 underpinning continued dividend payout. Support factors include re-emerging loan growth; continued improvement in asset quality amid a benign risk environment as well as a positive one-off impact related to the sale of a participation in VISA in the amount of approximately EUR 127 million pre-tax. Headwinds are the persistent low interest rate environment affecting group operating income, primarily net interest income, as well as lower operating results in Hungary (lower volumes) and Romania (following asset re-pricing). Banking levies (comprising banking taxes, financial transaction tax, resolution funds and deposit insurance fund contributions) will have a negative pre-tax impact of about EUR 360 million in 2016.

Risks to guidance. Geopolitical risks and global economic risks, impact from negative interest rates, consumer protection initiative.