Austria's Erste rides CEE recovery to swing to profit in Jan-Sep

By bne IntelliNews November 6, 2015

bne IntelliNews -

Erste Group Bank saw the continuing economic recovery across Central and Eastern Europe push its January-September financial results back into net profit of €764.2mn, the Austrian bank announced early on November 5. The bank praised the Czech Republic, Slovakia and Romania for helping provide the bedrock of profitability, but noted a painful hit in Croatia.

The nine-month net profit at CEE's third-largest lender was in stark contrast to the €1.4bn loss recorded in the year-earlier period. The bank said the result was supported by significantly better performances in the retail and small and medium-sized enterprise (SME) segments, as well as the drastic decline of exceptional items compared with last year.

Profitability improved in all countries except Croatia, where the result deteriorated considerably due to provisions booked for the conversion of the entire Swiss franc loan portfolio to euro required by legislation.

Total assets increased by 2.5% compared with the end of last year to €201bn, driven mainly by the revival in lending. Net lending to customers advanced 3.1% compared with the end of 2014 to €124.5bn, supported by an increase of 7.5% of loans to large corporates, 3.7% to SMEs and 2.9% to households and micros.

Risk costs declined substantially in the first nine months of 2015, by 67.6% compared with the same period in 2014 to €518.4mn, reflecting improvement in asset quality and a decrease in provisions registered in Romania and Hungary. Moreover, customer deposits increased by 2.3% in the first nine months to €125.4bn, demonstrating Erste’s strong deposit-gathering capabilities and supporting the group’s financial independence. The loan/deposit ratio remained steady at 99.3%.

"Our solid result of €764.2mn for the first nine months of 2015 was driven by several positive developments: better than expected loan growth of 3.1%, lower risk costs and limited one-offs compared to the previous year,” said CEO Andreas Treichl. “We are especially satisfied with the improvements in asset quality and capital levels.

Treichl noted that the non-performing loan ratio decreased to a five-year low of 7.4%, while Erste achieved a clean common equity Tier 1 ratio of 11.6%, up from 10.6% at year-end 2014. "Thus, we are already firmly on track to meet the recently increased capital requirements on a lasting basis and well ahead of the deadlines," he insisted.

“Most of our core markets showed robust economic growth this year and our subsidiaries further improved their results, with Austria, Czech Republic and Slovakia remaining the pillars of our profitability and Romania quickly catching up. However, the forced conversion of CHF loans in Croatia triggered a negative impact of €144.9mn."

Erste expects its CEE operating environment to remain "conducive" to credit expansion, it said. Real GDP growth in 2015 is expected to be between 2% and 4% in all major CEE markets, except Croatia, driven by solid domestic demand.

The group expects loan growth in the low single digits, while risk costs guidance is set at €750-950mn. The rise from the level recorded at the end of the third quarter reflects the accounting for conversion costs on Swiss franc loans in Croatia.

Banking levies for the group are expected to total €320mn, including parallel contributions to national as well as European bank resolution and deposit insurance funds.

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