CEE lender Erste lifts profit by a third to €1.265bn in 2016

By bne IntelliNews February 28, 2017

Erste Group reported on February 28 record net profit of €1.265bn in 2016, a rise of 31% on the previous year. The Austrian banking group proposed doubling its dividend to €1 a share for the year.

Net interest income edged down 1.6% to €4.375bn and net fees and commissions also slipped 4.2% to €1.783bn, but profit was pulled up by a 30% rise in net trading income and a 73% plunge in net impairments.

In a statement, Chief Executive Andreas Treichl said that the bank had made nearly €5bn in net new loans in 2016 and raised deposits by more than €10bn.

“While this savings inflow is a strong indication of the trust placed in our group, it also shows once more that the low interest rate environment by itself isn’t encouraging investments,” he said.

Non-performing loans fell to 4.9% of the total, down from 7.1% a year ago. However, during the year the bank had to make a €62.3mn provision for consumer protection claims in Romania, and another for €129.5mn for conversion of Swiss franc loans in Croatia. It also had to make a €613mn goodwill writedown in Slovakia because of increased capital requirements.

Treichl said Erste, the third biggest non-Russian bank in Central and Eastern Europe by assets, has doubled its capital base since the global financial crisis, lifting its (phased-in) CET1 ratio to 13.4% of assets, compared to 13.2% in the third quarter, and 12.3% a year ago.

Erste forecasts another return on tangible assets of more than 10% this year (after 12.3% in 2016). “We are one of the few banks in Europe that earn more than their cost of capital,” Treichl reiterated on Bloomberg TV.

The banking group said net interest income would be at best stable in the current low interest rate environment, with margins under pressure from falling sovereign bond yields. The net interest margin slipped 8 basis points to 2.51% in 2016.

Erste said loan growth and falling risk costs would again be the main drivers of profit this year. It predicted mid-single-digit loan growth in 2017.

Treichl stressed that Erste is not looking at acquisitions. “I’m not interested in M&A at all,” he said, adding that purchases would be a “drag on efficiency”.

He said the bank would continue to focus investment on rolling out its online banking platform across the Czech Republic, Slovakia and Romania this year. “I have no desire to invest in brick and mortar any more,” the CEO reiterated.

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