Business Review 2019

Key financial and operating data

Income statement (in EUR million)

2015

2016

2017

2018

2019

Net interest income

4,444.7

4,374.5

4,353.2

4,582.0

4,746.8

Net fee and commission income

1,861.8

1,783.0

1,851.6

1,908.4

2,000.1

Net trading result and gains/losses from financial instruments at FVPL

210.1

272.3

210.5

193.7

293.8

Operating income

6,771.8

6,691.2

6,669.0

6,915.6

7,255.9

Operating expenses

-3,868.9

-4,028.2

-4,158.2

-4,181.1

-4,283.3

Operating result 

2,902.9

2,663.0

2,510.8

2,734.6

2,972.7

Impairment result from financial instruments

-729.1

-195.7

-132.0

59.3

-39.2

Other operating result

-635.6

-665.0

-457.4

-304.5

-628.2

Pre-tax result from continuing operations

1,639.1

1,950.4

2,077.8

2,495.0

2,329.7

Net result attributable to owners of the parent

968.2

1,264.7

1,316.2

1,793.4

1,470.1

 

 

 

 

 

 

Net interest margin (on average interest-bearing assets)

2.59%

2.51%

2.40%

2.30%

2.18%

Cost/income ratio

57.1%

60.2%

62.4%

60.5%

59.0%

Provisioning ratio (on average gross customer loans)

0.56%

0.15%

0.09%

-0.03%

0.07%

Tax rate

22.2%

21.2%

19.7%

13.3%

18.0%

Return on tangible equity

10.8%

12.3%

11.5%

15.2%

11.2%

Earnings per share (in EUR)

2.27

2.93

2.94

4.02

3.23

 

 

 

 

 

 

Balance sheet (in EUR million)

Dec 15

Dec 16

Dec 17

Dec 18

Dec 19

Cash and cash balances

12,350

18,353

21,796

17,549

10,693

Trading, financial assets

47,542

48,320

42,752

43,930

44,295

Loans and advances to banks

4,805

3,469

9,126

19,103

23,055

Loans and advances to customers

125,897

130,654

139,532

149,321

160,270

Intangible assets

1,465

1,390

1,524

1,507

1,368

Miscellaneous assets

7,685

6,775

5,929

5,382

6,012

Total assets

199,743

208,227

220,659

236,792

245,693

Financial liabilities held for trading

5,867

4,762

3,423

2,508

2,421

Deposits from banks

14,212

14,631

16,349

17,658

13,141

Deposits from customers

127,946

138,013

150,969

162,638

173,846

Debt securities issued

29,654

27,192

25,095

29,738

30,371

Miscellaneous liabilities

7,257

7,027

6,535

5,381

5,437

Total equity

14,807

16,602

18,288

18,869

20,477

Total liabilities and equity

199,743

208,227

220,659

236,792

245,693

 

 

 

 

 

 

Loan/deposit ratio

98.4%

94.7%

92.4%

91.8%

92.2%

NPL ratio

7.1%

4.9%

4.0%

3.2%

2.5%

NPL coverage ratio (based on AC loans, ex collateral)

64.5%

69.1%

68.8%

73.4%

77.1%

Texas ratio

48.1%

34.6%

29.2%

24.5%

19.9%

Total own funds (CRR final, in EUR million)

17,284

18,893

20,337

20,891

21,961

CET1 capital ratio (CRR final)

12.0%

12.8%

12.9%

13.5%

13.7%

Total capital ratio (CRR final)

17.2%

18.2%

18.2%

18.1%

18.5%

 

 

 

 

 

 

About the share

2015

2016

2017

2018

2019

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

426,726,297

426,668,132

426,679,572

426,696,221

426,565,097

Market capitalisation (in EUR billion) 

12.4

12.0

15.5

12.5

14.4

High (in EUR) 

29.04

29.59

37.99

42.38

37.07

Low (in EUR) 

18.97

18.87

27.46

28.10

28.23

Closing price (in EUR) 

28.91

27.82

36.105

29.05

33.56

Price/earnings ratio 

12.8

9.5

11.8

7.0

9.8

Dividend per share (in EUR) 

0.50

1.00

1.20

1.40

1.50

Payout ratio 

22.2%

34.0%

39.2%

33.6%

43.9%

Dividend yield 

1.7%

3.6%

3.3%

4.8%

4.5%

Book value per share

25.6

27.8

30.0

31.1

32.9

Price/book ratio 

1.1

1.0

1.2

0.9

1.0

 

 

 

 

 

 

Additional information

Dec 15

Dec 16

Dec 17

Dec 18

Dec 19

Employees (full-time equivalents)

46,467

47,034

47,702

47,397

47,284

Branches

2,735

2,648

2,565

2,507

2,373

Customers (in million)

15.8

15.9

16.1

16.2

16.6

Data as of 28 February 2020

CRR: Capital Requirements Regulation

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, corporateand 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.

Financial and operating performance

Net interest income increased – mainly in the Czech Republic, but also in Romania and Hungary – to EUR 4,746.8 million (+3.6%; EUR 4,582.0 million). Net fee and commission income rose to EUR 2,000.1 million (+4.8%; EUR 1,908.4 million), driven mainly by higher payment fees, insurance brokerage fees and asset management fees. While net trading result improved significantly to EUR 318.3 million (EUR ‑1.7 million), the line item gains/losses from financial instruments measured at fair value through profit or loss declined to EUR ‑24.5 million (EUR 195.4 million). The development of both line items was driven by valuation effects due to market interest rate volatility. Operating income increased to EUR 7,255.9 million (+4.9%; EUR 6,915.6 million). The increase in general administrative expenses to EUR 4,283.3 million (+2.4%; EUR 4,181.1 million) was mainly attributable to a rise in personnel expenses to EUR 2,537.1 million (+2.5%; EUR 2,474.2 million). Payments to deposit insurance systems included in other administrative expenses rose to EUR 104.8 million (EUR 88.6 million). The increase in amortisation and depreciation to EUR 541.0 million (EUR 472.0 million) is attributable to the first-time application of the new financial reporting standard for leases (IFRS 16) as of 1 January 2019, while a corresponding positive effect was recorded in other administrative expenses. Overall, the operating result increased to EUR 2,972.7 million (+8.7%; EUR 2,734.6 million) and the cost/income ratio improved to 59.0% (60.5%).

Due to net allocations in Austria and Slovakia in both the retail and the corporate segments, the impairment result from financial instruments amounted to EUR‑39.2 million or, adjusted for net allocations to provisions for commitments and guarantees given, 7 basis points of average gross customer loans (net releases of EUR 59.3 million or ‑3 basis points). Positive effects came from substantial income from the recovery of loans already written off, primarily in the Czech Republic, Hungary and Romania, as well as from releases of provisions for commitments and guarantees given in Austria, the Czech Republic and Romania. The NPL ratio based on gross customer loans improved again to 2.5% (3.2%), the NPL coverage ratio to 77.1% (73.4%).

Other operating result amounted to EUR -628.2 million (EUR‑304.5 million). The deterioration is attributable to a provision in the amount of EUR 153.3 million set aside for losses expected from a supreme court decision concerning the business activities of a Romanian subsidiary as well as goodwill impairment in Slovakia in the amount of EUR 165.0 million. The expenses for the annual contributions to resolution funds included in this line item rose – in particular in the Czech Republic – to EUR 75.3 million (EUR 70.3 million). Levies on banking activities increased to EUR 128.0 million (EUR 112.2 million), including a EUR 11.0 million banking tax payable in Romania for the first time in the reporting year.

The minority charge rose due to significantly better results from the savings banks to EUR 440.9 million (EUR 369.1 million). The net result attributable to owners of the parent declined to EUR 1,470.1 million (‑18.0%; EUR 1,793.4 million) due to the one-off effects.

Total equity not including AT1 instruments rose to EUR 19.0 billion (EUR 17.9 billion). After regulatory deductions and filtering in accordance with CRR, common equity tier 1 capital (CET1, CRR final) amounted to EUR 16.3 billion (+4.9%; EUR 15.5 billion), total own funds (CRR final) to EUR 22.0 billion (EUR 20.9 billion). Total risk (risk-weighted assets including credit, market and operational risk, CRR final) rose to EUR 118.6 billion (EUR 115.4 billion). The common equity tier 1 ratio (CET 1, CRR final) stood at 13.7% (13.5%), the total capital ratio at 18.5% (18.1%).

Total assets rose to EUR 245.7 billion (EUR 236.8 billion). On the asset side, cash and cash balances decreased substantially to EUR 10.7 billion (EUR 17.5 billion), while loans and advances to credit institutions increased to EUR 23.1 billion (EUR 19.1 billion). On the back of continuing loan growth in all core markets, loans and advances to customers rose to EUR 160.3 billion (+7.3%; EUR 149.3 billion). On the liability side, deposits from banks declined to EUR 13.1 billion (EUR 17.7 billion) while customer deposits increased again markedly – across all Erste Group markets – to EUR 173.8 billion (+6.9%; EUR 162.6 billion). The loan-to-deposit ratio stood at 92.2% (91.8%).

Segments

Erste Group’s segment reporting is based on IFRS 8 OperatingSegments, which adopts the management approach. Accordingly,segment information is prepared on the basis of internal managementreporting that is regularly reviewed by the chief operatingdecision maker to assess the performance of the segments andmake 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 comprehensiveinformation to assess the performance of the businessand geographical segments.

Non-financial report

The exclusive focus on profit and shareholder value has undergonesome critical re-evaluation. In summer 2019, for example,200 US top managers announced that they would no longer be guided solely by shareholder value in future but would also take into account the public’s social and ecological interests. Centralbanks from all over the world have joined together to form the Network for Greening the Financial System (NGFS). The EuropeanCommission published the key documents of its EU ActionPlan on Sustainable Finance. 2019 was also marked by initiative ssuch as Fridays for Future. It is, most prominently, the younger generation that voices its discontent with economic policies that do not aim at the long-term preservation of an intactenvironment.

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

Resolving the conflicting targets of profitability and the ecologicaland social impact of its business is therefore a key element for the management of Erste Group. In this regard, Erste Group’s Statement of Purpose offers valuable guidance by defining thefollowing tasks and principles:
_ Disseminating and securing prosperity
_ Accessibility, independence and innovation
_ Profitability
_ Financial literacy
_ It is about people
_ Serving civil society
_ Transparency, stability, simplicity

Corporate Governance

Erste Group Bank AG is a stock corporation established according to Austrian law and declare since 2003 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. The Corpo-rate Governance Report has been prepared in accordance with sections 243c and 267b of the Austrian Commercial Code and Rules 60 etseq. of the Austrian CCG and combines the corporate governance report of Erste Group Bank AG, the parent, and the consolidatedcorporate governance report in one single report. The managementboard has also prepared a (consolidated) non-financial report inaccordance with sections 243b and 267a of the Austrian Commercial ode, which is released as part of the annual report.