Erste Group Bank AG
Online Annual Report 2017

Extensive presence in Central and Eastern Europe

Erste Group posts a net profit of EUR 1,316.2 million in 2017 and achieved a return on tangible equity (ROTE) of 11.5%. Based on this record result the management board of Erste Group will propose to the annual general meeting a dividend for the financial year 2017 of EUR 1.20 per share, an increase of 20 percent on the previous year.

Please refer to the links below for detailed information on business performance and segments

Erste Group Share - Share performance in its 20th year on the stock exchange

The uptrend in international stock markets continued in 2017. Share prices rose mainly on the back of the broad-based growth of the global economy, underpinned by positive economic and corporate news flows as well as institutions’ and economists’ upward revisions of economic growth, corporate earnings and revenues forecasts for 2017 and subsequent years. The central banks’ rate policies remained at the centre of market attention. While the European Central Bank (ECB) continued its expansionary monetary policy, the US central bank (Fed) raised its key interest rate again in 2017. In this benign environment, which also saw a rebound in European bank share prices, the share of Erste Group, which marked the 20th anniversary of its stock market listing, was up 29.8% on the year.

4 December 2017 marked the 20th anniversary of the Erste Group’s IPO on the Vienna Stock Exchange. Erste Group not only developed from a local Austrian bank to one of the leading financial institutions in Central and Eastern Europe, but has also witnessed a strong, sometimes volatile performance of its share price, which hit its all-time high at EUR 61.5 in April 2007. In the course of the financial crisis, the share price dipped to its historic low of EUR 7.0 in February 2009. Due to Erste Group’s rigorous execution of its business strategy, the share price has since more than quintupled.

IPO … initial public offering, SPO … secondary public offering.

Interactive Chart of Erste Group Share 

Shareholder Structure

CEO, Andreas Treichl: "For 2018, we have two clear focus areas: investing in the employees so that we can deliver the best advice to clients, and expanding George as the number one digital banking platform in all of our countries. A fully digitalized bank together with the best client relationship managers is what we are ultimately aiming for.” 

"Having a positive outlook in mind, we feel that our shareholders should benefit from these good 2017 results and will therefore propose to them a dividend of EUR 1.20 per share, an increase of 20 percent on the previous year."

Erste Group targets a return on tangible equity (ROTE) of more than 10% in 2018. The expected very solid macro-economic development in the core markets Czech Republic, Slovakia, Hungary, Romania, Croatia, Serbia and Austria, rising interest rate levels in several of our markets and still historically low risk costs should be supportive factors to achieve this target. On the other hand, a global or regional slowdown of economic growth as well as potential – and as yet unquantifiable – political or regulatory risks might jeopardize achieving the target.

In 2018, the positive development of the economy should be reflected in growth rates (real GDP growth) of around 3% to 5% in the Erste Group's CEE core markets. All other economic parameters are currently expected to be similarly robust. Unemployment rates should remain at historic lows – in the Czech Republic and in Hungary they are already among the lowest in the EU. Inflation is forecast to rise but remain subdued by historical standards and strong competitive positions should again lead to current account surpluses. The fiscal situation and public debt levels are also projected to remain sound. Austria should see accelerating economic growth at a rate of close to 3%. Overall, growth continues to be driven by domestic demand across all economies. The contribution of exports is forecast as neutral.

Against this backdrop, Erste Group expects mid-single digit net loan growth. In 2018, net interest income should also be slightly up on the back of rising short and long-term interest rates, primarily in the Czech Republic and Romania, but also globally, and therefore declining margin pressure from sovereign bond reinvestments. The second key income component, net fee and commission income, is also expected to increase moderately in 2018. As in 2017, some positive momentum should again come from the securities business, fund management and the insurance business. The other income components are expected to remain stable, by and large, despite the volatility of the net trading and fair value results. Consequently, operating income should grow slightly in 2018.

Operating expenses are expected to decline marginally in 2018, mainly due to the fact that in 2017 higher IT expenditure was incurred for regulatory projects, which will not recur on the same scale in 2018. However, Erste Group will continue to invest in digitalisation and thereby its future competitiveness in 2018. The focus will be on product simplification, process standardisation or the group-wide implementation of the digital platform George. After its rollout in Austria, George will be fully up and running in the Czech Republic, Slovakia and Romania in 2018.

Overall, the operating result is projected to rise in 2018.

Risk costs should support net profit again in 2018. Amid a moderate rise of interest rates, risk costs should go up only slightly. Further improvements in asset quality, however, should have a dampening effect. Overall, Erste Group does not expect a recurrence of the historically low risk cost level of 2017 of just 9 basis points of average gross customer loans. While precise forecasts are difficult in the current environment, Erste Group projects for 2018 risk costs of up to 20 basis points of average gross customer loans. The implementation of accounting standard IFRS 9 is not expected to materially impact financial results in 2018.

Assuming a tax rate of around 22% and a similar level of minority charges, Erste Group aims to achieve a return on tangible equity (ROTE) of more than 10%.

Potential risks to the guidance are interest rate trends that differ from expectations, political or regulatory measures targeting banks as well as geopolitical and global economic developments.