Letter from the CEO

Erste Group’s share price performance since the May 2025 announcement has been a clear indicator of how positive this acquisition – the largest in the European banking market in many years – has been received by our investors. The positive feedback we have received on our investment in growth in our region from many parts – including equity and debt investors as well as rating agencies – has further encouraged us to pursue our business model resolutely.

Beyond the prospects for the future, there is also much positive to report on Erste Group’s development prior to its enlargement. In the 2025 financial year, we enjoyed an excellent business performance across our then seven core markets. We achieved all targets that had been revised upwards throughout the year. Overall, Erste Group posted a net profit of EUR 3,510 million, up 12.3% versus the previous year, and a return on tangible equity (ROTE) of 16.6%.

Economic growth in the core markets 

Before going into details, a brief overview of the business environment: the CEE economies achieved GDP growth rates ranging between 0.4% in Austria and Hungary and 3.0% in Croatia (3.6% in Poland). Economic growth was supported by robust labour markets and mostly higher real wages – as well as, most importantly, private household spending. The Austrian economy also performed slightly better than originally projected and, in 2025, achieved moderate growth after two years in recession. This was driven primarily by increased consumer and government spending, as well as stabilisation in investment activity. Inflation rates in our region were in the low to mid-single digits. The European Central Bank (ECB) lowered its key interest rate in four steps over the course of the year, from 3.00% to 2.00%. The Czech and Polish central banks also cut interest rates during the year, while the central banks of Hungary, Romania and Serbia left their rates unchanged. Market interest rates were thus overall supportive of banks.

Excellent operating result

What was the impact of this macroeconomic environment on our result? The two most important income components again registered growth: net interest income rose by 3.5% to EUR 7,788 million, well above expectations at the beginning of the year. The strongest increase was seen in the Czech Republic and Slovakia. Most notably, we were able to keep the interest margin stable despite falling market interest rates. This was supported by healthy loan growth and a good deposit mix. At the same time, net fee and commission income reached a new record high at EUR 3.2 billion in 2025. The 8.6% increase is all the more remarkable, as the baseline had already been elevated by strong growth in recent years. Growth was achieved across all core markets, with the securities business (including asset management) performing exceptionally well. Overall, we posted operating income of EUR 11.7 billion, 4.3% up on the previous year. Operating expenses rose by 5.8% to EUR 5.6 billion, as we projected. Inflationary pressure eased slightly but still affected collective salary negotiations in Austria. Personnel expenses increased to EUR 3.3 billion. In addition to investment spending on IT (including several strategic initiatives focused primarily on efficiency), I wish to highlight integration costs in Poland that have already been posted. The strong operating result is reflected in a cost/income ratio of 47.9%, which is excellent for our business model. One P&L line item deserves more attention this year than usual, namely other result: positive one-off effects totalling some EUR 270 million from the release of provisions for legal risks and real estate selling gains improved this line item and also contributed visibly to the excellent annual result, as they offset part of the regulatory costs, which by now have unfortunately become a standard set of costs for a bank. Payments to resolution funds and deposit insurance systems declined slightly to below EUR 70 million, while banking and transaction taxes rose to about EUR 440 million in the four affected countries.

Risk costs again at a low level, as expected

Asset quality was again very satisfactory in our core markets, with the NPL ratio improving to 2.4% at year-end 2025. Risk costs remained moderate at EUR 478 million, which is equivalent to a provisioning ratio of 21 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, albeit to a lesser extent than in the previous year. CEE core markets again outperformed Austria, even though asset quality has also stabilised in Austria, and the need for allocations to provisions for loans and advances declined at both the savings banks and Erste Bank Oesterreich. 

Healthy organic loan growth and a sound deposit base

In 2025, Erste Group’s proven business model supported organic loan growth of 6.4%, with the strongest momentum in the Czech Republic, Slovakia, Hungary, and Croatia. It was primarily strong mortgage loan demand across nearly all countries that drove a 9.3% rise in net loan volume in the retail business. By comparison, growth in corporate lending was still a little more subdued at 5.0%. The inflow of customer deposits remained solid, rising by 4.7%. Importantly, core deposits from retail customers, SMEs and  savings banks customers increased by 5.5%. The focus has shifted back to sight deposits. At the end of December, the loan-to-deposit ratio stood at 91.7%. Funding activities in the capital markets were likewise successful: the Holding and several local subsidiaries in CEE countries issued bonds in various asset classes both locally and internationally.

Significant improvement in common equity tier 1 ratio (CET1)

In the course of the year, the CET1 ratio rose by more than 400 basis points to a historic high of 19.3%. The rise in common equity tier 1, i.e. regulatory capital, by more than 18% was based on the strong profitability of the financial year, combined with measures including in particular the limitation of dividend payouts to no more than 10% of net profit after the deduction of AT1 dividends – the Management Board will propose a dividend of EUR 0.75 per share at the annual general meeting – and the cancellation of the announced share buyback programme. Erste Group was thus able to fund the acquisition from its internal resources fully and is excellently positioned for the first-time consolidation of Erste Bank Polska.

Digitalisation

Before moving on to the outlook on 2026, a brief update on the subject of digitalisation. While some of the IT investment in 2025 was aimed at internal bank processes and hence efficiency, this did not come at the expense of the continued development of technology-assisted financial advice. As of the end of December, our digital platform George had more than 11.4 million users. Overall, more than two-thirds of all retail business products were already distributed digitally. 

Outlook on 2026

The outlook for the new Erste Group, now comprising eight core markets after the addition of Poland, for the 2026 financial year is very good: based on more supportive economic growth between 1% and 4% we expect loan volume to expand to more than EUR 285 billion, net interest income of more than EUR 11 billion, net fee and commission income of around EUR 4 billion and operating expenses of about EUR 7 billion. This should improve the cost/income ratio to approximately 45%. We expect risk costs to be in the range of 25 to 30 basis points, as risk costs tend to be higher in Poland than in other CEE markets. This forecast does not include the one-off provision for expected credit losses in the amount of EUR 300 million, which must be recognised under IFRS at first-time consolidation. Erste Group’s reported net profit is expected to come in at slightly below EUR 4 billion. Further details on extraordinary effects resulting from the first-time consolidation of Erste Bank Polska are provided in the complete outlook in the Business overview chapter. We expect the CET1 ratio to rise again in 2026 on the back of strong forecast earnings performance following the decline due to the first-time consolidation. This will again provide room for manoeuvre in capital allocation, i.e. we expect flexibility regarding future payouts and/or M&A transactions. The first priority will continue to be growth in our region, i.e. lending to retail and corporate customers.

I would like to thank all our employees for their dedication and commitment. In line with Erste Goup’s statement of purpose – to foster prosperity and financial health – we are working together to support our – by now, 22.7 million – customers in all financial matters. We are looking forward to working with our Polish colleagues to strengthen further and develop our position as the leading credit institution in Central and Eastern Europe.