Erste Group posts good start to 2021 on back of low risk costs and higher fee income

Erste Group, the leading lender in Central and Eastern Europe, has launched into the rebound year 2021 with a solid operating result of 725 million euros (up 31.5% year-on-year). During the first quarter, the banking group formed low risk costs of 36 million euros (down 42% year-on-year) as the risk environment in the region remained benign. Coupled with a reversal in the net trading and fair value result compared to the same quarter in 2020, these lower risk costs offset higher tax charges and minorities to help boost net profit by 50.9% to 355 million euros. Customer loans grew by 1.1% since the start of the year to 168 billion euros, while customer deposit volumes increased by 7.5% to 205 billion euros. The common equity tier 1 ratio (CET1, final) declined from 14.2% to 14.0%.

Erste Group CFO Stefan Dörfler: "We’re off to a good start in 2021, which promises to be a solid rebound year. Our operating business continues to run very well and our bottom line has been given a big boost thanks to lower risk costs and higher fee and commission income.”

OPERATING INCOME POSTS STRONG GAIN

Net interest income declined by 4.6% year-on-year to 1.17 billion euros, also reflecting reduced NII contributions from the Czech Republic on account of a lower interest rate environment and a foreign currency effect. Net fee and commission income rose by 7.1% to 540 million euros on the back of increases in all fee and commission income categories, most notably in the securities business and in asset management. The total revenues stemming from the net trading result and the line item gains/losses from financial instruments measured at fair value experienced a significant rebound, coming in at 66 million euros compared to a loss of nearly 120 million euros during the same period in 2020. Both line items were driven mostly by valuation effects. These developments helped push operating income 10% higher year-on-year to 1.83 billion euros.

COSTS DOWN SLIGHTLY

General administrative expenses declined by 0.7% to 1.10 billion euros, supported by a 1.2% drop in personnel expenses to 622 million euros. Headcount (on a FTE basis) declined by 0.6% from 45,690 to 45,411 at the end of the period. Other administrative expenses were nearly unchanged (+0.3%) at 346 million euros, despite a 22% rise in payments into deposit insurance schemes to 108 million euros. Most of the contributions expected for 2021 have already been posted upfront. Amortisation and depreciation remained largely stable (-1%) at 135 million euros.

LOWER RISK PROVISIONING HELPS BOOST NET PROFIT

Overall, the operating result increased by 31.5% to 725 million euros, while the cost/income ratio improved to 60.3% (Q1/2020: 66.8%). Due to net allocations, the impairment result from financial instruments (“risk costs”) amounted to -36 million euros or 8 basis points of average gross customers loans (net allocations of -62 million euros or 15 basis points). Positive contributions came primarily from the release of provisions for loans in Austria and Romania and the recovery of loans already written off in Hungary and Austria. Net allocations to provisions for commitments and guarantees given were likewise lower. The NPL ratio based on gross customer loans improved to 2.6% (12/2020: 2.7%). The NPL coverage ratio increased to 89.5% (88.6%).

Other operating result amounted to -127 million euros, compared to -128 million euros a year earlier. Expenses for the annual contributions to resolution funds for the full year 2021 included in this line item rose – most strongly in Austria and Romania – by 19.4% to 100 million euros. Banking levies fell by one-third year-on-year to 33 million euros, mainly as a result of the abolition of banking tax in Slovakia.

Taxes on income increased by 21% to 124 million euros. The minority charge grew by 273% to 86 million euros due to the significantly higher earnings contributions of the savings banks. The net result attributable to owners of the parent rose by 50.9% to 355 million euros.
 

LENDING AND DEPOSIT VOLUMES CONTINUE TO GROW

Total assets increased considerably by 9.9% since the end of the previous financial year to 305.0 billion euros. On the asset side, cash and cash balances rose, most notably in Austria, to 54.0 billion euros, an increase of 50.8%. This rise was primarily due to large cash balances held at central banks, not least due to increased Targeted Longer-Term Refinancing Operations (TLTRO) funds, which are concessionary ECB loans with the purpose of boosting lending. Loans and advances to banks rose by 27.9% to 27.5 billion euros, while loans and advances to customers grew by 1.1% to 167.8 billion euros.

On the liability side, deposits from banks grew by 42.3% to 35.3 billion euros as a result of increased ECB refinancing (TLTRO). Once again, customer deposits rose in all core markets – most strongly in the Czech Republic and Austria – to 205.4 billion euros, a rise of 7.5% since the end of 2020. The loan-to-deposit ratio stood at 81.7% (86.9%).