Erste Group posts net profit of EUR 487.2 million in H1 15

“We posted good results in the first half of the year supported by a stable operating result and lower risk costs, which resulted in a meaningful increase of our capital base, with the common equity Tier 1 capital (B3 fully loaded) now reaching 11.3%. Most of our core CEE markets fare substantially better than the rest of Europe with an increasing part of the growth being domestic demand-driven. This is the basis for two encouraging simultaneous trends: performing loans have increased for the 5th consecutive quarter, while the NPL-ratio has come down for the sixth quarter in a row and stands at 7.7%,” explained Andreas Treichl, CEO of Erste Group at the presentation of the financial results for H1 2015.

“All our markets are making a significant contribution to the Group profit of EUR 487.2mn in H1 2015, inclusive Romania. The only country where we have a negative result remains Hungary, but given the recent improvements in the operating environment and the fact that the government kept its commitment to reduce the banking tax, we are confident that we will see a turnaround in profitability next year. Overall, in the first half, our balance sheet expanded: the performing loan book grew by 2.4% ytd and our deposit base increased by 1.6% ytd,” Andreas Treichl continued.

In brief

Erste Group closed the first half of 2015 with positive results, reflected in strong improvements in profitability, asset quality, lending and capital. The group reported a sound net profit of EUR 487.2 million in H1 2015, compared to a negative result of EUR -929.7 million in the similar period last year; all countries except Hungary made a positive contribution to this development.

Total assets increased to EUR 197.5 billion, compared to EUR 196.3 billion at the end of 2014. This balance sheet growth reflects a 2.2% advance in net lending to customers compared to the end of 2014, to EUR 123.5 billion, supported by the 1.7% growth in loans to households, 2.0% to SMEs and 5.9% to large corporates. The deposit base increased by 1.6% in H1 2015 to EUR 124.5 billion, demonstrating Erste’s strong deposit-gathering capabilities and supporting the financial independence of the group.

The asset quality continued to register a steady improvement in all key segments (retail, SMEs and large corporate), with the overall rate of bad loans (relative to total gross loans) decreasing notably to 7.7% at the end of June 2015, compared to 8.5% at the end of last year.

Total equity also strengthened significantly from EUR 13.4 billion at 31 December 2014 to EUR 14.0 billion at the end of June 2015, with the total capital ratio up from 15.7% to 16.8%. The common equity tier 1 ratio improved at 11.6% (10.6%).

The Group’s efficiency was proven in the first half of the year by the solid cost/income ratio of 55.8% (H1 2014: 55.4%), as administrative expenses remained stable at EUR 1,896.8 million despite the slightly higher personnel numbers. The operating income declined marginally, by -0.7%, to EUR 3,399.4 million, on the back of persistently low interest rates across CEE markets. The operating result amounted to EUR 1,502.6 million (H1 2014: EUR 1,525.3 million).

Outlook

Operating environment anticipated to be conducive to credit expansion. Real GDP growth is expected to be between 2% and 4% in all major CEE markets, except Croatia, driven by solid domestic demand. For Austria, a real GDP growth below 1% is forecast.

Return on tangible equity (ROTE) expected at 8-10% in 2015 (YE 14 TE: EUR 8.4 billion). Operating result is expected to decline in the mid-single digits on the back of lower but sustainable operating results in Hungary (due to FX conversion related effects of lower average volume) and Romania (lower unwinding impact) as well as the persistent low interest rate environment.

For 2015, loan growth in the low single digits and a decline in risk costs to about EUR 0.9-1.1 billion are anticipated. Banking levies are expected to amount to about EUR 360 million, including parallel contributions to national as well as European bank resolution and deposit insurance funds. Related discussions with the Austrian government are still ongoing.

Risks to guidance. Consumer protection initiatives such as a potential CHF borrower support scheme in Croatia as well as geopolitical risks could have negative economic impacts.

More detailed information about Erste Group H1 2015 results is here available