30.04.2021   

The stock exchange-listed Erste Group Bank AG is maintaining its positive outlook for 2021. The economic recovery in the region in which the banking group operates hinges on a high vaccination coverage rate. Another key driver for the region’s economic rebound: the effective use of grants from the EU Recovery Fund, with governments called on to pursue ambitious and high-quality initiatives.

“Two injections will power the economy’s recovery. One involves vaccinations that immunize people and by doing so make a return to normality possible. The second consists of capital injections from the 750 billion euro EU Recovery Fund. Especially in our region, this funding will release a great deal of economic potential,” says Erste Group CEO Bernd Spalt. “All countries in our region should experience an economic recovery in 2021, with that upswing particularly apparent in the second half of the year. In addition, we expect further solid economic growth in 2022-23, as the application of EU funds provides a further boost.”

VACCINATION COVERAGE WILL DRIVE THE REBOUND

The speed and scope of the vaccine roll-out remains the most important factor for the region’s economic turnaround. Erste Group expects that most of the public eligible to receive vaccines will have been offered vaccinations by the end of the second-quarter of this year. Relying largely on the EU’s collective ordering mechanisms, large parts of the region have ordered enough vaccine doses to make reaching 70% herd immunity possible.

Due to the sometimes sluggish roll-out of vaccinations, the GDP growth forecasts for 2021 had to be revised slightly downward for some of the region’s economies. Nevertheless, the growth scenario for 2021 in most of Erste Group’s markets is generally above the +4.0% average seen for the euro zone as a whole. In 2021, GDP growth is expected to be most pronounced in Croatia (+4.5%) and Serbia (+5.0%). The economies of Hungary, Romania and Slovakia should also grow by more than 4%, while those of the Czech Republic and Austria are seen lagging behind with expected growth of 3.3% and 2.8%, respectively. Solid growth should continue in all countries in 2022, with year-on-year GDP rises of between 4% and 5% and a more pronounced dynamic in the upswing occurring in Austria, Slovakia and the Czech Republic.
 

SIGNIFICANTLY BETTER RESULTS IN Q1 2021

The region’s brightening economic environment are also reflected in Erste Group's results in the first quarter. Risk costs in the quarter amounted to 36 million euros, a year-on-year decline of 42%. Coupled with a reversal in the net trading and fair value result compared to the same quarter in 2020, these lower risk costs help boost net income profit by 50.9% to 355 million euros. The NPL ratio stood at 2.6% (12/2020: 2.7%), while the common equity tier 1 ratio (CET1, final) was 14.0% as of March 31.

EU RECOVERY FUND: THINKING SUSTAINABLY AND FOR THE LONG TERM

Bernd Spalt also attributes an important role in the region's recovery to the EU Recovery Fund. The deadline for member states to submit their implementation plans to the European Commission is today, April 30.

“The large sums of money that the EU is making available should be invested in ambitious projects that pursue a very clear goal,” Spalt notes. He points out that some of the national programs, especially in Eastern Europe, could afford to be even more ambitious in their approach: “If we want to get a clear view what the investment priorities should be, we just need to listen to the next generations in our societies: sustainability, digitalization and education.” The situation for young people in the region has generally worsened as a result of the pandemic, with the labor markets in Hungary, the Czech Republic and Serbia in particular seeing a sharp increase in the number of young people who are not in employment, education or training.

“As a bank, as an employer and as a corporate citizen, Erste is very much involved with the issues of how to sustainably transform the economy,” says Spalt. “Future growth must be built primarily on sustainability. For this, our economies need to strengthen their digital infrastructure and ensure that the workforce benefits from the best possible education offerings.”