Business Review 2017

Key financial and operating data

in EUR million (unless otherwise stated) 2013 2014 2015 2016 2017
Balance sheet          
Total assets 200,054 196,287 199,743 208,227 220,659
Loans and receivables to credit institutions 8,377 7,442 4,805 3,469 9,126
Loans and receivables to customers 119,869 120,834 125,897 130,654 139,532
Trading, financial assets 51,269 50,131 47,542 47,586 42,752
Intangibles 2,441 1,441 1,465 1,390 1,524
Cash & other assets 18,099 16,439 20,035 25,127 27,726
Total liabilities and equity   200,054 196,287 199,743 208,227 220,659
Bank deposits 17,299 14,803 14,212 14,631 16,349
Customer deposits 122,415 122,583 127,946 138,013 150,969
Debt securities 33,124 31,140 29,654 27,192 25,095
Trading liabilities & other liabilities 12,494 14,319 13,124 11,789 9,958
Equity attributable to non-controlling interests 3,462 3,605 3,802 4,142 4,416
Equity attributable to owners of the parent 11,260 9,838 11,005 12,460 13,872
Own funds pursuant to Basel 3 (final)          
Total risk exposure amount 97,901 101,870 100,281 103,639 111,571
Total own funds 15,994 15,853 17,284 18,893 20,337
Common equity tier 1 capital (CET1) 11,199 10,811 12,045 13,256 14,448
Tier 2 capital (T2) 4,206 5,042 5,239 5,140 4,898
Total capital ratio 16.3% 15.6% 17.2% 18.2% 18.2%
CET1 capital ratio 11.4% 10.6% 12.0% 12.8% 12.9%
Income statement          
Net interest income 4,685.0 4,495.2 4,444.7 4,374.5 4,353.2
Net fee and commission income 1,806.5 1,869.8 1,861.8 1,783.0 1,851.6
Net trading result 218.8 242.3 210.1 283.8 222.8
Operating income 6,995.1 6,877.9 6,771.8 6,691.2 6,669.0
Operating expenses -3,896.1 -3,787.3 -3,868.9 -4,028.2 -4,158.2
Operating result 3,099.0 3,090.7 2,902.9 2,663.0 2,510.8
Net impairment loss on financial assets -1,849.9 -2,083.7 -729.1 -195.7 -132.0
Pre-tax result from continuing operations 302.9 -727.7 1,639.1 1,950.4 2,077.8
Net result attributable to owners of the parent 0.9 -1,382.6 968.2 1,264.7 1,316.2
Operating data          
Number of employees 45,670 46,067 46,467 47,034 47,702
Number of branches 2,833 2,792 2,735 2,648 2,565
Number of customers (in million) 16.5 16.2 15.8 15.9 16.1
Share price and key ratios          
High (EUR) 26.94 29.71 29.04 29.59 37.99
Low (EUR) 19.34 17.02 18.97 18.87 27.46
Closing price (EUR) 25.33 19.24 28.91 27.82 36.105
Price/earnings ratio >100% na 12.8 9.5 11.8
Dividend per share (EUR) 0.20 0.00 0.50 1.00 1.20
Payout ratio >100% 0.0% 22.2% 34.0% 39.2%
Dividend yield 0.8% 0.0% 1.7% 3.6% 3.3%
Book value per share 26.2 22.9 25.6 27.8 30.0
Price/book ratio 1.0 0.8 1.1 1.0 1.2
Total shareholder return (TSR) 7.1% -23.3% 50.3% -2.0% 33.4%
Stock market data (Vienna Stock Exchange)          
Shares outstanding at the end of the period 429,800,000 429,800,000 429,800,000 429,800,000 429,800,000
Weighted average number of outstanding shares 411,553,048 427,533,286 426,726,297 426,668,132 426,679,572
Market capitalisation (EUR billion) 10.9 8.3 12.4 12.0 15.5
Trading volume (EUR billion) 8.3 9.3 10.0 11.4 11.0

The figures for the comparative periods 2014 and 2013 are restated according to IAS 8. The resulting retrospective changes in the presentation were explained in chapter B on significant accounting policies in the 2015 consolidated financial statements.
The net trading result presented in this overview includes the fair-value result for the years 2013 until 2015.

The calculation of own funds pursuant to Basel 3 is effective as of 1 January 2014. Until 31 December 2013 the calculation was effected pursuant to Basel 2.5.
Number of employees is defined as full-time equivalents as of the end of the reporting period.

The dividend payout ratio represents dividends paid to owners of the parent (excluding dividends paid on participation capital) for the respective year divided by the net result attributable to owners of the parent.

Shares outstanding include Erste Group shares held by savings banks that are members of the Haftungsverbund (cross-guarantee system).

Strategy

Erste Group strives to be the leading retail and corporate bank in the eastern part of the European Union, including Austria. To achieve this goal, Erste Group aims to support its retail, corporate and public sector customers in realising their ambitions by offering excellent financial advice and solutions, lending responsibly and providing a safe harbour for deposits. Erste Group’s business activities will continue to contribute to economic growth and financial stability and thus to prosperity in its region.

Business performance

Net interest income declined to EUR 4,353.2 million (-0.5%; EUR 4,374.5 million) despite lending growth, mostly due to lower interest income from the government bond portfolio and a lower unwinding effect. Net fee and commission income increased to EUR 1,851.6 million (+3.8%; EUR 1,783.0 million). Income from the securities business, from asset management and from brokerage was up substantially, while income from the lending business declined. Net trading result decreased significantly to EUR 222.8 million (-21.5%; EUR 283.8 million). Operating income was nearly stable at EUR 6,669.0 million (-0.3%; EUR 6,691.2 million). General administrative expenses rose to EUR 4,158.2 million (+3.2%; EUR 4,028.2 million). This was attributable to an increase in other administrative expenses and in depreciation and amortisation (+6.0% and +1.5%, respectively) as well as higher personnel expenses of EUR 2,388.6 million (+2.1%; EUR 2,339.3 million). This line item also included deposit insurance payments in the amount of EUR 82.2 million (EUR 88.8 million). Consequently, the operating result decreased to EUR 2,510.8 million (-5.7%; EUR 2,663.0 million). The cost/income ratio rose to 62.4% (60.2%).

Net impairment loss on financial assets declined even further to EUR 132.0 million or 9 basis points of average gross customer loans (EUR 195.7 million or 15 basis points) and thus to a historical low. This was attributable to the substantial decline in the balance of the allocation and release of provisions for the lending business, mostly in Austria and in the Czech Republic. The NPL ratio improved further to 4.0% (4.9%). The NPL cover ratio was stable at 68.8% (69.1%).

Other operating result amounted to EUR -457.4 million (EUR -665.0 million). The improvement was largely due to the significant reduction of Austrian banking taxes to EUR 23.0 million (EUR 306.7 million, including a one-off payment of EUR 200.9 million under the Austrian Bank Tax Act). Overall, banking and transaction taxes declined to EUR 105.7 million (EUR 388.8 million). This line item includes the annual contributions to resolution funds in the amount of EUR 65.8 million (EUR 65.6 million) and EUR 45.0 million in expenses for losses from loans to consumers incurred as a result of supreme court rulings regarding negative reference interest rates in Austria.

The minority charge rose to EUR 351.5 million (+29.2%; EUR 272.0 million) due to a rise in the earnings contributions of the savings banks. The net result attributable to owners of the parent rose to EUR 1,316.2 million (+4.1%; EUR 1,264.7 million).

Total equity not including AT1 instruments rose to EUR 17.3 billion (EUR 16.1 billion). After regulatory deductions and filtering according to the CRR, common equity tier 1 capital (CET1, Basel 3 phased-in) increased to EUR 14.7 billion (EUR 13.6 billion). Total own funds (Basel 3 phased-in) went up to EUR 20.3 billion (EUR 18.8 billion). Total risk (risk-weighted assets including credit, market and operational risk, Basel 3 phased-in) rose to EUR 110.0 billion (EUR 101.8 billion). The common equity tier 1 ratio (CET1, Basel 3 phased-in) remained stable at 13.4% (13.4%), the total capital ratio (Basel 3 phased-in) at 18.5% (18.5%).

Total assets increased to EUR 220.7 billion (+6.0%; EUR 208.2 billion). On the asset side, cash and cash balances rose to EUR 21.8 billion (EUR 18.4 billion), loans and receivables to credit institutions increased to EUR 9.1 billion (EUR 3.5 billion). Loans and receivables to customers rose to EUR 139.5 billion (+6.8%; EUR 130.7 billion). On the liability side, deposits from banks increased to EUR 16.3 billion (EUR 14.6 billion) and customer deposits continued to grow – most notably in the Czech Republic and in Austria – to EUR 150.9 billion (+9.4%; EUR 138.0 billion). The loan-to-deposit ratio stood at 92.4% (94.7%).

Segments

Erste Group’s segment reporting is based on IFRS 8 Operating Segments, which adopts the management approach. Accordingly, segment information is prepared on the basis of internal management reporting that is regularly reviewed by the chief operating decision-maker to assess the performance of the segments and make decisions regarding the allocation of resources. Within Erste Group, the function of the chief operating decision-maker is exercised by the management board.

Erste Group’s segment reporting is based on the matrix organisation (business and geographical information) and provides comprehensive information to assess the performance of the segments.

Business segments comprise the divisions Retail, Corporates, Group Markets, Asset/Liability Management & Local Corporate Center, Savings Banks and Group Corporate Center. 

The geographical area Austria consists of three segments:
_ The Erste Bank Oesterreich & Subsidiaries (EBOe & Subsidiaries) segment comprises Erste Bank der oesterreichischen Sparkassen AG (Erste Bank Oesterreich) and its main subsidiaries (e.g. sBausparkasse, Salzburger Sparkasse, Tiroler Sparkasse, Sparkasse Hainburg).
_ The Savings Banks segment is identical to the business segment Savings Banks.
_ The Other Austria segment comprises Erste Group Bank AG (Holding) with its Corporates and Group Markets business, Erste Group Immorent, Erste Asset Management and Intermarket Bank.

The geographical area Central and Eastern Europe (CEE) consists of six segments covering Erste Group’s banking subsidiaries located in the respective CEE countries:
_ Czech Republic (comprising Česká spořitelna Group)
_ Slovakia (comprising Slovenská sporiteľňa Group)
_ Romania (comprising Banca Comercială Română Group)
_ Hungary (comprising Erste Bank Hungary Group)
_ Croatia (comprising Erste Bank Croatia Group) and
_ Serbia (comprising Erste Bank Serbia Group)

The residual segment Other covers mainly centrally managed
activities and items that are not directly allocated to other segments.

(Consolidated) non-financial report

For Erste Group, considering the impact of its entrepreneurial activities on society is nothing new. On the contrary, looking beyond financial performance is very much in line with the idea of social responsibility to which Erste österreichische Spar-Casse committed itself when it was founded almost 200 years ago.

Resolving the conflicting targets of profitability and the ecological and social impact of its business is also a key element for the management of Erste Group. In this regard, Erste Group’s Statement of Purpose offers valuable guidance by defining the following
tasks and principles:

_ Disseminating and securing prosperity
_ Accessibility, independence and innovation
_ Profitability
_ Financial literacy
_ It is about people
_ Serving civil society
_ Transparency, stability, simplicity

The starting point of non-financial reporting is a materiality analysis. With the involvement of the relevant stakeholders, matters of economic, ecological and social relevance that are of material importance to Erste Group are identified.
These are: Commitment to society, Customers, Suppliers, Employees and Environment.

Materiality Analysis

Corporate Governance

In 2003, Erste Group Bank AG declared its commitment to complying with the rules of the Austrian Code of Corporate Governance (Austrian CCG – see www.corporate-governance.at) with the objective of ensuring responsible and transparent corporate governance.

In addition, the management board adopted a Statement of Purpose in 2015. This statement reaffirms and states in more detail the purpose of Erste Group Bank AG to promote and secure prosperity throughout the region in which Erste Group is active. Building on this Statement of Purpose, a Code of Conduct defines binding rules for day-to-day business. Erste Group values responsibility, respect and sustainability in pursuing its business activities. The Code of Conduct therefore helps to protect the reputation of Erste Group and to strengthen stakeholder confidence.