Erste Group’s solid performance continues in the third quarter

In the first nine months of 2024, Erste Group Bank AG generated an operating profit of 4.51 billion euros. This increase of 7.9% year-on-year is attributable to a good operating performance and a continued favourable interest rate environment, with the advantageous situation in the CEE region making a particularly strong contribution. Operating income rose by 5.9%, significantly more than operating expenses (up 3.7%), resulting in an improved cost-income ratio of 45.8%. Since the beginning of the year, the loan portfolio increased by 2.7% to 213.5 billion euros, while customer deposits rose by 3.0% to 239.7 billion euros. Risk costs rose by 5 basis points year-on-year to 211 million euros, while the NPL ratio increased slightly to 2.4% (12/2023: 2.3%). The banking group’s nine-month net profit amounted to 2.52 billion euros (2.31 billion euros).

“Our loan volume increased in the first nine months, although the economic environment remains muted. Residential mortgages in particular are finally showing signs of recovery, not least due to falling key interest rates. Although our cost of risk has increased slightly, it remains at a low level and our capitalisation is very solid. All this makes us well positioned to continue fulfilling our role as a provider of financing for investment and growth in our region, and to continue pursuing our own growth story,” says Peter Bosek, CEO of Erste Group.

“The first nine months were characterised by solid growth in our operating business. We were able to slightly increase our loan volume and to improve all of our core revenue components. All this led to an increase of nearly eight percent in our operating result. On this basis, we can further raise our already positive outlook for 2024 in several respects,” comments Erste Group CFO Stefan Dörfler.

^{Financial results (profits & losses) from January to September 2024 are compared with those from January to September 2023 and balance sheet positions as of 30 September 2024 with those as of 31 December 2023.}

Net interest income rises due to higher loan volume

Net interest income increased to EUR 5,591 million (+3.1%; EUR 5,422 million), in all core markets except Austria, on the back of larger loan volume and lower interest expenses on customer deposits. Net fee and commission income rose to EUR 2,158 million (+11.4%; EUR 1,938 million). Growth was registered across all core markets, most notably in payment services and asset management. Net trading result increased to EUR 428 million (EUR 337 million); the line item gains/losses from financial instruments measured at fair value through profit or loss deteriorated to EUR -70 million (EUR -18 million). The development of these two line items was mostly attributable to valuation effects. Operating income increased to EUR 8,319 million (+5.9%; EUR 7,853 million).

Operating income and cost-income ratio improved

General administrative expenses were up at EUR 3,809 million (+3.7%; EUR 3,675 million). Personnel expenses rose to EUR 2,318 million (+5.6%; EUR 2,195 million) driven by salary increases. Other administrative expenses were higher at EUR 1,086 million (+2.3%; EUR 1,062 million). While contributions to deposit insurance schemes included in other administrative expenses – mostly already posted upfront for the full year of 2024 – declined to EUR 72 million (EUR 119 million), IT expenses increased to EUR 451 million (EUR 403 million). Amortisation and depreciation amounted to EUR 405 million (-2.9%; EUR 417 million). Overall, the operating result increased markedly to EUR 4,510 million (+7.9%; EUR 4,178 million), the cost/income ratio improved to 45.8% (46.8%).

NPL ratio remains low at 2.4%

The impairment result from financial instruments (“risk costs”) amounted to EUR -211 million or 13 basis points of average gross customer loans (EUR 128 million or 8 basis points). Allocations to provisions for loans and advances were posted primarily in Austria. Positive contributions came from the recovery of loans already written off, likewise most notably in Austria. The NPL ratio based on gross customer loans increased slightly to 2.4% (2.3%). The NPL coverage ratio (excluding collateral) declined to 78.7% (85.1%).

Strong operating result as basis for increased net profit

Other operating result amounted to EUR -289 million (EUR -327 million). This includes an allocation in the amount of EUR 90 million to a provision relating to the interbank exemption pursuant to Art 6 sec 1 subsec 28 (2^nd sentence) Austrian VAT Act. This exemption might be classified by the European Court of Justice or the EU Commission as aid that is not compatible with EU law and might therefore have to be refunded. Expenses for annual contributions to resolution funds included in this line item already for the full year of 2024 declined significantly to EUR 28 million (EUR 113 million), as no regular annual contributions will be collected in the euro zone in 2024. Banking levies have been paid in four core markets. EUR 194 million (EUR 148 million) are reflected in other operating result: thereof, EUR 137 million (EUR 119 million) were charged in Hungary. In Austria, banking tax equaled EUR 30 million (EUR 29 million), in Romania EUR 27 million (newly introduced in 2024). The banking tax in Slovakia of EUR 74 million is posted in the line item taxes on income.

Taxes on income amounted to EUR 817 million (EUR 670 million). The decline in the minority charge to EUR 653 million (EUR 741 million) was attributable to lower profitability at the savings banks. The net result attributable to owners of the parent rose to EUR 2,516 million (EUR 2,310 million) on the back of the strong operating result and improved other operating result.

Loan and deposit volumes rise, CET1 ratio at 15.6% (pro forma)

Total equity not including AT1 instruments rose to EUR 27.4 billion (EUR 26.1 billion). After regulatory deductions and filtering in accordance with the Capital Requirements Regulation (CRR), common equity tier 1 capital (CET1, final) equalled EUR 23.6 billion (EUR 22.9 billion), total own funds (final) EUR 29.9 billion (EUR 29.1 billion). While interim profit for the first half of the year is included in the above figures, interim profit for the third quarter is not. Total risk (risk-weighted assets including credit, market and operational risk, CRR final) rose to EUR 155.9 billion (EUR 146.5 billion). The common equity tier 1 ratio (CET1, final) stood at 15.1% (15.7%) and at 15.6% on a pro forma basis, the total capital ratio at 19.2% (19.9%).

Total assets increased to EUR 346.5 billion (+2.8%; EUR 337.2 billion). On the asset side, cash and cash balances declined to EUR 24.0 billion (EUR 36.7 billion); loans and advances to banks rose – most notably in Austria and the Czech Republic – to EUR 33.2 billion (EUR 21.4 billion). Year to date, loans and advances to customers rose to EUR 213.5 billion (+2.7%; EUR 207.8 billion). On the liability side, deposits from banks declined to EUR 16.9 billion (EUR 22.9 billion). Customer deposits rose – most strongly in the Czech Republic and Romania – to EUR 239.7 billion (+3.0%; EUR 232.8 billion). The loan-to-deposit ratio stood at 89.0% (89.3%).

Outlook

Following the good business development in the first nine months of the year, Erste Group again upgrades its financial outlook for 2024, now targeting a return on tangible equity (ROTE) of more than 16%, as opposed to higher than 15% previously.

Better than expected net profitability is principally expected to be driven by higher net interest income, which is now forecast to grow by more than 2% versus 2023 (previously: flat year-on-year). This is attributable to positive effects from customer deposit and fixed rate customer loan repricing, as well as loan growth of about 5% (unchanged) and better income from the bond portfolio, all of which more than offset the negative effect of interest rate cuts performed by central banks. The expectations for net fee and commission income growth (up by about 10% versus 2023) and operating expense inflation (up by about 5% vs 2023) remain unchanged.

Consequently, the outlook for operating efficiency has also improved. Erste Group now projects a cost/income ratio no higher than 48%. The forecast for risk costs remains unchanged at less than 20 basis points of average gross customer loans, as economic performance of the countries in which Erste Group operates – while showing some GDP growth divergence in the range of approximately 0% to 4% for 2024 - remains broadly unchanged.