Erste Group Bank AG
Online Annual Report 2018

Extensive presence in Central and Eastern Europe

Erste Group posts a net profit of EUR 1,793.4 million in 2018 and achieved a return on tangible equity (ROTE) of 15.2%. Based on this record result the management board of Erste Group will propose to the annual general meeting a dividend for the financial year 2018 of EUR 1.40 per share (2017: EUR 1.20 per share).

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

After the gains posted in the previous year, international equity markets registered substantial losses in 2018. Initially, share prices rallied on US markets and, in their wake, also at other international stock exchanges on the back of robust global economic growth, an expected boost from the US tax reform and the prospect of a continuing rise in corporate earnings. Later in the year, however, volatility increased, and share prices declined. This was largely attributable to the trade disputes between the US and its main trading partners, most importantly China and Europe, and their potential impacts on the global economy as well as persistent uncertainty over the terms of the United Kingdom’s forthcoming withdrawal from the European Union (Brexit). In addition, forecasts of slowing global economic growth in the years ahead along with concerns over a visible economic downturn in the US and the simultaneous announcement of further rate hikes by the US central bank (Fed) triggered a sell-off in the equity markets in December. The European banking index shed one-third of its value over the past year. Against this backdrop the Erste Group share declined by 19.5%.

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

Interactive Chart of Erste Group Share 

Shareholder Structure

Erste Group targets a return on tangible equity (ROTE) of above 11% in 2019. The expected solid macro-economic development in the core markets Czech Republic, Slovakia, Hungary, Romania, Croatia, Serbia and Austria, compared to 2018 only moderately 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 2019, the positive development of the economy should be reflected in growth rates (real GDP growth) of around 3% in 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 remain broadly stable. Strong competitive positions should again lead to current account surpluses in most countries. The fiscal situation and public debt levels are also projected to remain sound. Austria should see continued dynamic economic growth at a rate of above 2%. 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. Net interest income should thus increase further in 2019. The second key income component, net fee and commission income, is also expected to rise moderately. As in 2018, some positive momentum should again come from fund management and payment services. 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 continue to grow in 2019. Operating expenses are expected to rise in 2019, albeit not to the same extent as operating income, mostly due to anticipated further wage increases in all core markets of Erste Group. However, Erste Group will continue to invest in digitalisation and thereby its future competitiveness in 2019. The focus will be on product simplification, process standardisation as well as the group-wide implementation and expansion of the digital platform George. The roll-out of George will continue in Hungary and Croatia in 2019. Overall, the operating result is projected to rise in 2019.

Risk costs should remain low in 2019. Amid a stable low interest rate environment, 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 2018. While precise forecasts are difficult in the current environment, Erste Group projects for 2019 risk costs of 10 to 20 basis points of average gross customer loans.

The Romanian banking tax will have a negative impact on other operating result in 2019, even though the magnitude remains as yet unclear.

Assuming a tax rate of below 20% and a similar level of minority charges, Erste Group aims to achieve a return on tangible equity (ROTE) of above 11%.

Due to its limited presence in the United Kingdom, Erste Group does not anticipate any material impact from Brexit at the current time.

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.