Business Review

P&L 2024 compared with 2023; balance sheet 31 December 2024 compared with 31 December 2023

Net interest income increased to EUR 7,528 million (+4.2%; EUR 7,228 million), in all core markets except Austria, on the back of higher loan volumes and lower interest expenses. Net fee and commission income rose to EUR 2,938 million (+11.3%; EUR 2,640 million). Growth was registered across all core markets, most notably in payment services and asset management. Net trading result declined to EUR 519 Mio (EUR 754 million); the line item gains/losses from financial instruments measured at fair value through profit or loss improved to EUR -82 million (EUR -306 million). The development of these two line items was mostly attributable to valuation effects. Operating income increased to EUR 11,178 million (+5.9%; EUR 10,552 million). General administrative expenses were up at EUR 5,279 million (+5.2%; EUR 5,020 million). Personnel expenses rose to EUR 3,202 million (+7.1%; EUR 2,991 million) driven by salary increases. Other administrative expenses were higher at EUR 1,529 million (+4.1%; EUR 1,468 million), which was mainly attributable to higher IT expenses in the amount of EUR 622 million (EUR 549 million). Contributions to deposit insurance schemes included in other administrative expenses declined to EUR 72 million (EUR 114 million), most notably in Austria. Amortisation and depreciation amounted to EUR 547 million (-2.2%; EUR 560 million). The significant increase in the operating result to EUR 5,900 million (+6.6%; EUR 5,532 million) was attributable in equal parts to increases in net interest income and net fee and commission income. The cost/income ratio improved to 47.2% (47.6%).

The impairment result from financial instruments amounted to EUR -397 million or 18 basis points of average gross customer loans (EUR -128 million or 6 basis points). Allocations to provisions for loans and advances were posted primarily in Austria. Positive contributions came from the recovery of loans already written off, likewise most notably in Austria. The NPL ratio based on gross customer loans deteriorated slightly to 2.6% (2.3%). The NPL coverage ratio (excluding collateral) slipped to 72.5% (85.1%).

Other operating result amounted to EUR -414 million (EUR -468 million). This includes an allocation in the amount of EUR 102 million to a provision relating to the interbank exemption pursuant to the Austrian VAT Act. Expenses for annual contributions to resolution funds declined significantly to EUR 28 million (EUR 113 million), as no regular annual contributions were collected in the euro zone in 2024. Banking levies were paid in four core markets. EUR 245 million (EUR 183 million) are reflected in other operating result: thereof, EUR 168 million (EUR 137 million) were charged in Hungary. In Austria, banking tax equaled EUR 40 million (EUR 46 million), in Romania EUR 37 million (newly introduced in 2024). The banking tax in Slovakia of EUR 103 million is booked in the line item taxes on income.

Taxes on income amounted to EUR 1,053 million (EUR 874 million). The decline in the minority charge to EUR 819 million (EUR 923 million) was attributable to lower profitability at the savings banks. The net result attributable to owners of the parent rose to EUR 3,125 million (EUR 2,998 million) on the back of the strong operating result.

Total equity not including AT1 instruments rose to EUR 28.1 billion (EUR 26.1 billion). After regulatory deductions and filtering in accordance with the CRR, common equity tier 1 capital (CET1, final) rose to EUR 24.0 billion (EUR 22.9 billion), total own funds (final) to EUR 30.9 billion (EUR 29.1 billion). Total risk – risk-weighted assets including credit, market and operational risk (CRR, final) – increased to EUR 159.1 billion (EUR 146.6 billion). The common equity tier 1 ratio (CET1, final) stood at 15.1% (15.7%), the total capital ratio at 19.5% (19.9%).

Total assets increased to EUR 353.7 billion (+4.9%; EUR 337.2 billion). On the asset side, cash and cash balances declined to EUR 25.1 billion (EUR 36.7 billion); loans and advances to banks rose – most notably in the Czech Republic – to EUR 27.0 billion (EUR 21.4 billion). Year on year, loans and advances to customers increased to EUR 218.1 billion (+4.9%; EUR 207.8 billion). On the liability side, deposits from banks declined to EUR 21.3 billion (EUR 22.9 billion). Customer deposits rose – most strongly in the Czech Republic and Romania – to EUR 241.7 billion (+3.8%; EUR 232.8 billion). The loan-to-deposit ratio stood at 90.2% (89.3%).

Erste Group’s goal for 2025 is to achieve a return on tangible equity (ROTE) of about 15%. This ambition is built on the following key assumptions: Firstly, the macroeconomic environment, primarily as measured by real GDP growth, in Erste Group’s seven core markets (Austria, Czech Republic, Slovakia, Romania, Hungary, Croatia and Serbia) remains robust and on average, improves moderately versus 2024. Consequently, Erste Group expects robust loan growth of about 5% in 2025, supported by growth in the retail as well as the corporate business. Secondly, operating performance as defined by operating result to stay broadly stable versus 2024, as net interest income is projected to remain flat year-on-year, fee and commission income continues to grow by about 5%, net trading and fair result produces a similar revenue contribution as in 2024, and operating expenses grow on the order of 5%. Consequently, the cost/income ratio is expected to be below 50%. Thirdly, risk costs increase only slightly to about 25 basis points of average customer loans from levels seen in 2024, as the asset quality environment remains strong across Central and Eastern Europe while only deteriorating moderately in Austria. In addition, regulatory costs, comprising deposit insurance and resolution fund contributions, banking levies such as banking and financial transaction taxes as well as sector-specific extra profit taxes, and, the cost of supervision, in aggregate, are expected to increase due to an announced increased banking tax in Austria.

While a forecast for the other operating result, which is primarily impacted by regulatory costs excluding deposit insurance contributions as well as extra profit tax in Slovakia, and various categories of gains and losses from financial instruments not measured at fair value is challenging, this combined item is likely to stay flat versus 2024 in the absence of significant one-off effects. Assuming an effective group tax rate of about 21% and lower minority charges compared to 2024, all of the above should result in return on tangible equity of about 15% in 2025.

In line with the projected strong profit performance, the CET1 ratio is expected to increase in 2025, providing enhanced capital return and/or M&A flexibility. The adjusted net profit of 2024 (net profit after deduction of AT1-dividends) allows Erste Group to target a regular dividend equalling 41.2% of adjusted net profit as well as the execution of a third share buyback in the amount of 23.7% of adjusted net profit, subject to regulatory approval.

Potential risks to the guidance include (geo)political and economic (including monetary and fiscal policy impacts) developments, regulatory measures as well as changes to the competitive environment. International (military) conflicts, such as the war in Ukraine and in the Middle East do not impact Erste Group directly, as it has no operating presence in the regions involved. Indirect effects, such as financial markets volatility, sanctions-related knock-on effects, supply chain disruptions or the emergence of deposit insurance or resolution cases cannot be ruled out, though. Erste Group is moreover exposed to non-financial and legal risks that may materialise regardless of the economic environment. Worse than expected economic development may put goodwill at risk.

Erste Group has developed a risk management framework that is forward-looking and tailored to its business and risk profile. This framework is based on a clear risk strategy that sets out general principles according to which risk taking must be performed across the Group. The risk strategy is consistent with the business strategy and incorporates the expected impact of external envi-ronment on the planned business and risk development.

The risk strategy describes the current and targeted risk profile, defines risk management principles, strategic goals and initia-tives for the main risk types as well as sets strategic limits for the significant financial and non-financial risk types as defined in the Risk Materiality Assessment. The risk strategy is executed within a clearly defined governance structure. This structure also applies to monitoring of risk appetite, additional metrics, as well as to the escalation of limit breaches.
 

We strive to be the leading retail and corporate bank in the eastern part of the European Union, including Austria. To achieve this goal, we aim to support our retail, corporate and public sector customers in realising their ambitions and ensuring financial health by offering excellent financial advice and solutions, lending responsibly and providing a safe harbour for deposits.

As a competent and reliable partner for our customers and with our business activities anchored in the real economy for more than 200 years, we will continue to contribute to economic growth and financial stability and, thus, to the prosperity of our region.

In all of our core markets in the eastern part of the European Union, we pursue a balanced business model focused on providing the best banking services to each of our customers. In this respect, digital innovations are playing an increasingly important and inclusive role.

The sustainability of the business model is reflected in our ability to fund customer loans by customer deposits, with most customer deposits being stable retail deposits. The sustainability of our strategy is reflected in long-term client trust, which underpins strong market shares in almost all of our core markets. However, market leadership is not an end in itself. Market leadership creates value only when it goes hand in hand with positive economies of scale and contributes to the long-term success of the company. The banking business, however, should not only be run profitably but should also reflect its corporate responsibility towards all material stakeholders, in particular customers, employees, society and the environment. Therefore, we pursue the banking business in a socially responsible manner and aim to earn an adequate premium on the cost of capital.
 

Since Erste Group was founded, the idea of sustainability has been an integral part of our business activities. Today, the green transition and social inclusion are the pillars of our ESG strategy.

For us, the green transition means providing financial resources to limit climate change and global warming. Our goal is to bring the carbon footprint of our portfolio to a net-zero status by 2050. We specify our efforts and, thus, their implementation with specific, science-based goals for each defined sector. The net-zero status of banking operations should be achieved by 2030.

For us, social inclusion means more than providing financial services; it also includes financial literacy, social banking, affordable housing and gender equality. We are convinced that a good socio-economic environment forms the basis for solid banking business and has a positive impact on our economic development.

The strategic pillars of the green transition and social inclusion are supported by best-in-class governance. Our ESG strategy is anchored in the governing bodies, the Management Board and the Supervisory Board. This ensures that our ESG strategy is established at all levels of the Group and comprehensively integrated into the business processes.
 

For 2024, Erste Group Bank AG has integrated its sustainability statement into the management report. This report has been prepared on a consolidated basis, using the European Sustainability Reporting Standards (ESRS) as a framework, alongside the requirements of Article 8 of EU Regulation 2020/852 (EU Taxonomy). Previously the option was used pursuant to § 267a (6) and § 243b (6) of the Austrian Commercial Code (UGB) to prepare a separate non-financial report.