To our Shareholders

Our region saw a moderate recovery of the economy, yet economic performance was a mixed bag. Austria failed to meet expectations and registered a mild recession for the second year in a row. In our CEE core markets, 2024 GDP growth rates ranged between 0.5% in Hungary and 3.9% in Serbia, supported mainly by household consumption. Labour markets remained robust despite the weakness of the economy.

Inflation declined across all core markets and is now in the low to medium single digits, which has led to rate cuts in all markets. In 2024, the European Central Bank lowered its policy rate in four steps from 4.00% to 3.00%. Most of the CEE central banks likewise eased their monetary policies further. The central banks of Hungary and the Czech Republic had already started trimming their policy rates in the final quarter of 2023, while the central banks of Serbia and Romania followed suit only in the second and fourth quarters of 2024, respectively.

What was the effect of these fundamentals on our result? The two most important income components again posted growth: net interest income rose by 4.2% to EUR 7.5 billion and thus far beyond what had been forecast at the beginning of 2024. While all CEE markets registered growth – in Romania, Hungary, Czech Republic and Serbia, i.e. the markets outside the euro zone, even at double-digit rates – net interest income in Austria was down. It is worth noting that we were able to keep the net interest margin nearly stable in the face of falling market interest rates. At the same time, net fee and commission income hit a record high at EUR 2.9 billion. The 11.3% rise is all the more remarkable as the baseline had already been elevated due to strong growth seen in previous years. Growth was achieved in all core markets, with particularly strong performance in payment services and asset management. Overall, operating income came in at EUR 11.2 billion, almost 6% higher than in the previous year. Operating expenses increased by around 5% to EUR 5.3 billion, in line with expectations. Inflationary pressure had an impact on collective salary negotiations, most importantly in Austria. Personnel expenses were up at EUR 3.2 billion. The block of regulatory costs typical of a bank (payments to resolution funds and deposit insurance systems as well as banking and transaction taxes) amounted to some EUR 450 million in 2024. The strong operating result was reflected in a cost/income ratio of 47.2%, which is excellent for our business model.

Asset quality was, overall, very good again in 2024, particularly in the retail customer business, due last but not least to low unemployment rates. Remarkably, the CEE core markets outperformed Austria for the first time. The NPL ratio rose moderately to 2.6% at year-end. Overall, (net) allocations to provisions amounted to EUR 397 million in 2024, which equals a provisioning ratio of 18 basis points of average gross customer loans. In addition to solid asset quality, another positive contribution came from the release of provisions for credit risks driven by updated forward-looking economic indicators (FLIs) and stage overlays.

After a slow start in the first months of the year, demand for loans rose markedly towards the end of the year. Overall, net customer loan volume increased by 4.9% to EUR 218.1 billion. Growth momentum was seen across the entire region, most notably in Austria, Czech Republic, Romania and Slovakia. Particularly noteworthy was the budding recovery of the mortgage business in the Czech Republic and at Erste Bank Oesterreich. Corporate lending was likewise more dynamic in the fourth quarter than in the first nine months of 2024.

Deposit inflow continued, with customer deposits up by nearly 4%. The strongest deposit growth, at a rate of 5.2%, was seen in the retail and SME business and from customers of savings banks. Because of our business model and solid market positions in our core markets, Erste Group has a very large proportion (nearly 80%) of these highly granular customer deposits. The central banks’ rate cuts, moreover, slowed down the shift from demand deposits to term deposits. At the end of December 2024, the loan-to-deposit ratio stood at 90.2%.

Similarly successful were funding activities in the capital markets. Not only the parent company but also a number of local subsidiaries in CEE countries issued benchmark bonds in various asset classes and placed these issues both locally and internationally.

Erste Group’s strong capitalisation is another point that I wish to highlight once again. Erste Group’s strong capital base and sustainable profitability are the preconditions for the bank’s future growth and ability to pay dividends and expand our scope of action. At 15.1% as of the end of December 2024, the common equity tier 1 ratio (final) was again substantially above the regulatory minimum requirement and our target of 14%.

For the 2024 fiscal year, the management board will propose a dividend of EUR 3.0 per share at the annual general meeting in line with our policy of distributing between 40 to 50% of net profit after the deduction of AT1 dividends. In addition, after the successful completion of the second share buyback programme with a volume of EUR 500 million at year-end 2024, Erste Group is seeking to launch another such programme with a volume of EUR 700 million (subject to regulatory approval). Both the dividend and the share buyback programme were considered in calculating the common equity tier 1 ratio.

Sustainability aspects have always been integral components of the strategy of Erste Group, which is firmly embedded in the real economy. Where sustainability is concerned, the priorities defined are based on the conviction that the green transition and social inclusion may have a positive impact on the long-term prosperity of our region.

In 2024, Erste Group Bank AG integrated the sustainability statement into the management report. This report uses the European Sustainability Reporting Standards (ESRS) as a framework along with the requirements of Article 8 of EU Regulation 2020/852 (EU Taxonomy). For further information on goals, emission reduction pathways and sustainability initiatives of Erste Group, as well as a variety of ESG metrics, please refer to the management letter and our website.

In the current fiscal year of 2025, we expect solid loan growth of about 5% on the back of a moderate acceleration of economic growth, supported by both the retail and the corporate business. This should help to keep net interest income stable.

Net fee and commission income is projected to continue its positive trend and increase by about 5%. Assuming a rise in operating expenses (including expenses for strategic initiatives) by about 5%, we expect that we will be able to achieve a cost/income ratio of less than 50%. Given the stable environment, most notably in the CEE markets, we expect risk costs of approximately 25 basis points in 2025. This should yield a continued solid return on tangible equity (ROTE) of around 15%.

Working with my management team, I have been leading Erste Group, one of the largest financial institutions in Central and Eastern Europe, since July 2024. The focus of our employees in all of the seven core markets – Austria, Czechia, Slovakia, Romania, Hungary, Croatia and Serbia – has always been on the purpose of the business, which has remained unchanged since its foundation in 1819: creating and spreading prosperity. To ensure that our business model will remain relevant and successful in the future, we are working on strategic initiatives. Our focus is on the continuing development of our brand identity, a wide range of topics relating to digitalisation and the commitment to consider M&A transactions in our region to complement organic growth.

Talking about digitalisation: across the group, nearly eleven million customers were using our digital platform George as of year-end 2024. The number of digital transactions has been rising steadily. By now, more than half of all retail business products are already distributed digitally. Supported by technology, we are planning to offer our customers broader access to financial advice than has ever been feasible in the past. Progress is likewise being made in increasing efficiency through digitalisation, i.e. by automating transactions and processes and using digital data analysis.

It is of special importance to me to thank the employees of Erste Group for their personal commitment. Our joint efforts and dedication to strategic initiatives provide an excellent basis for further strengthening and expanding Erste Group’s position in the CEE region.