03.05.2019
Erste Group first-quarter net profit up 12.2% year-on-year to EUR 377 million on strong operating performance
"This year is an especially important one for us at Erste Group: 2019 marks the 200th anniversary of our founding as a savings bank focused on spreading prosperity in our region. Our purpose remains clear, our business model is sustainable and our footprint places us in what continues to be the EU’s most dynamic region.
All of this has also helped us to put in a very solid start to the year. Our net profit for the first three months came in at 377 million euros – a rise of over 12 percent compared to the same period a year earlier. We’re especially pleased that this bottom line growth continues to be driven organically, by our strong operating performance. Customer business is growing steadily, and that translated into higher net interest income (+7.2% YoY), net fee and commission income (+1.9% YoY) and an exceptionally robust rise in our net trading result – all of which drove a 7 percent year-on-year increase in the operating income to 1.77 billion euros.
This healthy performance is, of course, a reflection of the continued solid growth across CEE economies, largely thanks to solid domestic demand on the back of rising real wages and high employment levels. Those favourable macroeconomic fundamentals also resulted in an increased demand for loans across all geographies and especially in the Corporates segment, contributing to a 7.2 percent year-on-year rise in our performing loan volume. Our customer deposit volumes also expanded (+7.0% YoY), despite the continuing low interest rate environment. That’s a welcome sign of the trust that our customers place in us – but it’s also further proof that our region’s underdeveloped capital markets have so far failed to convince savers to shift away from savings books. The risk environment continued to be exceptionally benign, allowing us to make additional net releases. Our NPL ratio dipped to 3.0 percent at the end of the quarter, reflecting the 773 million euros decline in the volume of our non-performing loans over the course of a year.
Higher personnel expenses and larger contributions to deposit insurance programmes, which as usual were mainly paid upfront in the first quarter for the full year, led our costs to rise during the first quarter. But that development was outpaced by the 11.2 percent year-on-year boost in our operating result, which in turn helped us improve our cost-income ratio by 1.3 percentage points. Our capitalization too reflects the strong position we have in the market, with our common equity tier 1 ratio standing at 13.2 percent.
In a nutshell, it’s been a good start to the year. And as things now stand, we are well on our way to achieving the targets we set for 2019: a return on tangible equity of above 11 percent and higher dividends per share," said Andreas Treichl, CEO of Erste Group Bank AG.
"This year is an especially important one for us at Erste Group: 2019 marks the 200th anniversary of our founding as a savings bank focused on spreading prosperity in our region. Our purpose remains clear, our business model is sustainable and our footprint places us in what continues to be the EU’s most dynamic region.
All of this has also helped us to put in a very solid start to the year. Our net profit for the first three months came in at 377 million euros – a rise of over 12 percent compared to the same period a year earlier. We’re especially pleased that this bottom line growth continues to be driven organically, by our strong operating performance. Customer business is growing steadily, and that translated into higher net interest income (+7.2% YoY), net fee and commission income (+1.9% YoY) and an exceptionally robust rise in our net trading result – all of which drove a 7 percent year-on-year increase in the operating income to 1.77 billion euros.
This healthy performance is, of course, a reflection of the continued solid growth across CEE economies, largely thanks to solid domestic demand on the back of rising real wages and high employment levels. Those favourable macroeconomic fundamentals also resulted in an increased demand for loans across all geographies and especially in the Corporates segment, contributing to a 7.2 percent year-on-year rise in our performing loan volume. Our customer deposit volumes also expanded (+7.0% YoY), despite the continuing low interest rate environment. That’s a welcome sign of the trust that our customers place in us – but it’s also further proof that our region’s underdeveloped capital markets have so far failed to convince savers to shift away from savings books. The risk environment continued to be exceptionally benign, allowing us to make additional net releases. Our NPL ratio dipped to 3.0 percent at the end of the quarter, reflecting the 773 million euros decline in the volume of our non-performing loans over the course of a year.
Higher personnel expenses and larger contributions to deposit insurance programmes, which as usual were mainly paid upfront in the first quarter for the full year, led our costs to rise during the first quarter. But that development was outpaced by the 11.2 percent year-on-year boost in our operating result, which in turn helped us improve our cost-income ratio by 1.3 percentage points. Our capitalization too reflects the strong position we have in the market, with our common equity tier 1 ratio standing at 13.2 percent.
In a nutshell, it’s been a good start to the year. And as things now stand, we are well on our way to achieving the targets we set for 2019: a return on tangible equity of above 11 percent and higher dividends per share," said Andreas Treichl, CEO of Erste Group Bank AG.
Outlook
Operating environment anticipated to be conducive to credit expansion.
Real GDP growth is forecast to come in at around 3% in Erste Group’s CEE core markets and about 2% in Austria in 2019, again driven primarily by robust domestic demand. In CEE, economic activity should be supported by real wage growth and low unemployment. Fiscal discipline is expected to be maintained across CEE.
Business outlook. Erste Group aims to achieve a return on tangible equity (ROTE) of more than 11% in 2019 (based on average tangible equity in 2019). The underlying assumptions are: revenues rising faster than costs (based on mid-single digit net loan growth), risk costs higher, but still at a historically benign level (10 to 20 basis points), with a tax rate of below 20%. The amended Romanian banking tax is expected to negatively impact other operating result by a maximum of EUR 20 million in 2019.
Risks to guidance. Impact from other than expected interest rate development; political or regulatory measures against banks; as well as geopolitical and global economic risks.