Erste Bank : Rezultate financiare preliminare 2021

Investor information

Vienna, 28 February 2022

Erste Group: Preliminary results 2021

Erste Group posts net profit of EUR 1,923.4 million in 2021; proposes dividend of EUR 1.6 per share

Financial data

Income statement

in EUR million	Q4 20	Q3 21	Q4 21	2020	2021
Net interest income	1,185.6	1,220.8	1,306.2	4,774.8	4,975.7
Net fee and commission income	528.5	591.4	613.3	1,976.8	2,303.7
Net trading result and gains/losses from financial instruments at FVPL	109.2	74.3	30.9	199.5	231.8
Operating income	1,869.3	1,944.3	2,007.0	7,155.1	7,742.0
Operating expenses	-1,097.3	-1,038.0	-1,165.5	-4,220.5	-4,306.5
Operating result	771.9	906.3	841.5	2,934.6	3,435.5
Impairment result from financial instruments	-424.7	31.3	-107.2	-1,294.8	-158.8
Post-provision operating result	347.3	937.6	734.3	1,639.8	3,276.7
Net result attributable to owners of the parent	146.0	533.4	472.0	783.1	1,923.4
Net interest margin (on average interest-bearing assets)	2.05%	1.98%	2.08%	2.08%	2.05%
Cost/income ratio	58.7%	53.4%	58.1%	59.0%	55.6%
Provisioning ratio (on average gross customer loans)	1.00%	-0.07%	0.24%	0.78%	0.09%
Tax rate	27.0%	17.3%	14.1%	25.0%	17.9%
Return on equity	2.3%	13.7%	10.1%	4.7%	11.6%
Balance sheet
in EUR million	Dec 20	Sep 21	Dec 21	Dec 20	Dec 21
Cash and cash balances	35,839	47,125	45,495	35,839	45,495
Trading, financial assets	46,849	51,239	53,211	46,849	53,211
Loans and advances to banks	21,466	27,749	21,001	21,466	21,001
Loans and advances to customers	166,050	175,929	180,268	166,050	180,268
Intangible assets	1,359	1,326	1,362	1,359	1,362
Miscellaneous assets	5,830	5,872	6,090	5,830	6,090
Total assets	277,394	309,240	307,428	277,394	307,428
Financial liabilities held for trading	2,625	2,193	2,474	2,625	2,474
Deposits from banks	24,771	35,387	31,886	24,771	31,886
Deposits from customers	191,070	207,506	210,523	191,070	210,523
Debt securities issued	30,676	33,505	32,130	30,676	32,130
Miscellaneous liabilities	5,840	6,696	6,902	5,840	6,902
Total equity	22,410	23,954	23,513	22,410	23,513
Total liabilities and equity	277,394	309,240	307,428	277,394	307,428
Loan/deposit ratio	86.9%	84.8%	85.6%	86.9%	85.6%
NPL ratio	2.7%	2.4%	2.4%	2.7%	2.4%
NPL coverage ratio (based on AC loans, ex collateral)	88.6%	92.7%	90.9%	88.6%	90.9%
Texas ratio	20.3%	18.0%	18.3%	20.3%	18.3%
CET1 ratio (final)	14.2%	14.2%	14.5%	14.2%	14.5%

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HIGHLIGHTS

P&L 2021 compared with 2020; balance sheet as of 31 December 2021 compared with 31 December 2020

Net interest income increased to EUR 4,975.7 million (+4.2%; EUR 4,774.8 million), primarily due to rate hikes in the Czech Republic and in Hungary, strong volume growth in all markets and a positive one-off effect resulting from TLTRO III take-up in Austria and Slovakia. Net fee and commission income rose to EUR 2,303.7 million (+16.5%; EUR 1,976.8 million) supported by a strong economic recovery and rising equity markets. Increases were posted across all key fee and commission categories and core markets - most notably Austria, with significant growth seen in particular in payment services and in asset management. Net trading result declined to EUR 58.6 million (EUR 137.6 million); the line item gains/losses from financial instruments measured at fair value through profit or loss rose to EUR 173.2 million (EUR 62.0 million). The development of these two line items was driven mostly by valuation effects, apart from a rise in income from the foreign exchange business in net trading result. Operating income increased to EUR 7,742.0 million (+8.2%; EUR 7,155.1 million). General administrative expenses were up at EUR 4,306.5 million (+2.0%; EUR 4,220.5 million), personnel expenses rose to EUR 2,578.1 million (+2.3%; EUR 2,520.7 million). Other administrative expenses increased to EUR 1,180.3 million (+1.9%; EUR 1,158.9 million). Payments into deposit insurance schemes included in other administrative expenses decreased to EUR 122.4 million (EUR 132.2 million). Depreciation and amortisation rose to EUR 548.0 (+1.3%; EUR 540.9 million). The operating result was up markedly at EUR 3,435.5 million (+17.1%; EUR 2,934.6 million) and the cost/income ratio improved significantly to 55.6% (59.0%).

Due to net allocations, the impairment result from financial instruments amounted to EUR -158.8 million or 9 basis points of average gross customers loans (EUR -1,294.8 million or 78 basis points). Net allocations to provisions for loans and advances as well as for commitments and guarantees given were posted in the Czech Republic, Romania, Croatia, Serbia and Hungary, but generally remained at a very low level. A positive contribution came from income from the recovery of loans already written off as well as from releases, most notably in Austria (in the Savings Banks segment). In the comparative period, updated risk parameters with forward looking information related to Covid-19 had resulted in high net allocations to provisions for loans and advances as well as for commitments and guarantees given. The NPL ratio based on gross customer loans improved to a historic low at 2.4% (2.7%). The NPL coverage ratio (excluding collateral) increased to 90.9% (88.6%).

Other operating result amounted to EUR -310.5 million (EUR -278.3 million). This deterioration was attributable to valuation effects and higher expenses for the annual contributions to resolution funds; the latter rose - most strongly in Austria and Romania - to EUR 108.6 million (EUR 93.5 million). Banking levies declined to EUR 73.5 million (EUR 117.7 million), primarily due to the abolition of banking tax in Slovakia and lower levies in Austria. At present, banking levies are payable in two core markets: in Hungary, banking tax amounted to EUR 15.0 million (EUR 14.5 million) and transaction tax to another EUR 48.0 million (EUR 44.0 million). In Austria, banking tax equalled EUR 10.5 million (EUR 25.5 million).

Taxes on income rose to EUR 525.2 million (EUR 342.5 million). The minority charge increased to a record EUR 484.8 million (EUR 242.3 million) due to significantly higher earnings contributions of the savings banks. The net result attributable to owners of the parent rose to EUR 1,923.4 million (EUR 783.1 million) on the back of the strong operating result and low risk costs.

Total equity not including AT1 instruments rose to EUR 21.3 billion (EUR 19.7 billion). After regulatory deductions and filtering in accordance with the CRR, common equity tier 1 capital (CET1, final) rose to EUR 18.8 billion (EUR 17.1 billion), as were total own funds (final) to EUR 24.8 billion (EUR 23.6 billion). Total risk - risk- weighted assets including credit, market and operational risk (CRR, final) - increased moderately to EUR 129.6 billion (EUR 120.2 billion). The common equity tier 1 ratio (CET1, final) rose to 14.5% (14.2%), the total capital ratio declined to 19.1% (19.7%), primarily due to the early redemption of a portion of AT1 capital.

Total assets increased to EUR 307.4 billion (+10.8%; EUR 277.4 billion). On the asset side, cash and cash balances increased, primarily in Austria, to EUR 45.5 billion (EUR 35.8 billion), loans and advances to banks declined to EUR 21.0 billion (EUR 21.5 billion). Loans and advances to customers (net) rose to EUR 180.3 billion (+8.6%; EUR 166.1 billion). On the liability side, deposits from banks grew significantly to EUR 31.9 billion (EUR 24.8 billion) as a result of increased ECB refinancing (TLTRO III). Customer deposits rose in all core markets - most strongly in Austria and the Czech Republic - to EUR 210.5 billion (+10.2%; EUR 191.1 billion). The loan-to-depositratio declined to 85.6% (86.9%).

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OUTLOOK 2022

Erste Group's goal for 2022 is to again achieve a double-digit return on tangible equity (ROTE). Among the factors that will support achievement of this goal is the continued strong economic performance of all core markets

• Austria, Czech Republic, Slovakia, Hungary, Romania, Croatia and Serbia - and, on this basis, an improve- ment in the operating result and a continued benign risk environment. As yet unquantifiable (geo-)political, regu- latory or economic risks, or a continuation or further escalation of Covid-19 measures by governments may render meeting these goals more challenging.

Erste Group's core markets are expected to post real GDP growth in the order of 3-5% in 2022. Inflation is set to remain a key theme throughout the year but at the same time is expected to remain broadly stable at elevated 2021 levels. In line with the strong economic outlook unemployment rates are expected to decline from already low levels in all markets. In most countries, sustained competitiveness should again result in sustainable current account balances. The fiscal situation should likewise improve again after significant budget deficits in 2021. Public debt to GDP is projected to improve across the board, albeit from elevated levels.

Against this backdrop, Erste Group expects net loan growth in the mid-single digits. This performance as well as interest rate tailwinds should lead to an at least mid-single-digit increase in net interest income despite negative policy rates in the euro zone. The second most important income component - net fee and commission income is expected to rise in the low to mid-single digits, following the exceptional performance in 2021. As in 2021, positive momentum should again come from asset management and securities business, assuming a continued constructive capital markets environment. Insurance brokerage as well as payment services fees are also expected to contribute. The net trading and fair value result is expected to come in at a similar level as in the previous year. This, however, will depend substantially on the financial market environment. The remaining income components are forecast to remain, by and large, stable. Overall, operating income should increase in 2022. Operating expenses are expected to rise at a lower level than operating income, thus resulting in a cost income ratio of below 55% in 2022, significantly earlier than planned (2024). In addition, Erste Group will continue to invest in IT in 2022 and thus strengthen its competitive position, with a focus on progressive IT modernisation, back office digitalisation and further development of the digital platform George.

Based on the robust macro outlook described above, risk costs should remain at a low level in 2022. While precise forecasting is hard at current low risk cost levels, Erste Group believes that in 2022 risk costs will be below 20 basis points of average gross customer loans. The NPL ratio is expected below 3.0%.

Other operating result is expected to remain unchanged in the absence of significant one-off effects. Assuming a low effective group tax rate of about 19% and similar minority charges as in 2021, Erste Group aims to achieve a double-digit ROTE. Erste Group's CET1 ratio is expected to remain strong. Consequently, Erste Group will propose a dividend of EUR 1.6 per share for the 2021 fiscal year to the 2022 AGM.

Potential risks to the guidance include (geo)political and economic (including monetary and fiscal policy impacts) developments, regulatory measures as well as global health risks and changes to the competitive environment. In addition, given the Covid-19 governmental measures and their impact on the economic development, financial forecasts are still subject to an elevated level of uncertainty. The evolving Russia-Ukraine situation does not impact Erste Group directly, as it has no operating presence in those countries; exposures to both countries are negligible and no meaningful additional risk provisioning is currently anticipated in this context. Indirect effects, such as financial market volatility, sanctions-relatedknock-on effects on some of our customers or the emergence of deposit insurance or resolution cases cannot be ruled out, though. Erste Group is moreover exposed to non-financial and legal risks that may materialise regardless of the economic environment. Worse than expected economic development may put goodwill at risk.

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PERFORMANCE IN DETAIL

January-December 2021 compared with January-December 2020

in EUR million	2020	2021	Change
Net interest income	4,774.8	4,975.7	4.2%
Net fee and commission income	1,976.8	2,303.7	16.5%
Net trading result and gains/losses from financial instruments at FVPL	199.5	231.8	16.2%
Operating income	7,155.1	7,742.0	8.2%
Operating expenses	-4,220.5	-4,306.5	2.0%
Operating result	2,934.6	3,435.5	17.1%
Impairment result from financial instruments	-1,294.8	-158.8	-87.7%
Other operating result	-278.3	-310.5	11.6%
Levies on banking activities	-117.7	-73.5	-37.6%
Pre-tax result from continuing operations	1,368.0	2,933.4	>100.0%
Taxes on income	-342.5	-525.2	53.3%
Net result for the period	1,025.5	2,408.1	>100.0%
Net result attributable to non-controlling interests	242.3	484.8	>100.0%
Net result attributable to owners of the parent	783.1	1,923.4	>100.0%

Net interest income

Net interest income rose to EUR 4,975.7 million (EUR 4,774.8 million). The benign interest rate environment in the Czech Republic and in Hungary, strong volume growth in all markets and especially in the housing loan segment, and a one-off effect from the take-up of TLTRO III funds in Austria and in Slovakia in the amount of EUR 93.0 million (EUR 8.0 million) were among the key growth drivers. A decline in modification losses from lending, which are reported in net interest income, also had a positive effect. The net interest margin (calculated as the annualised sum of net interest income, dividend income and net result from equity method investments over average interest-bearing assets) stood at 2.05% (2.08%).

Net fee and commission income

Net fee and commission income increased to EUR 2,303.7 million (EUR 1,976.8 million). Significant growth was recorded across all fee and commission categories and all core markets. The most marked rises were seen in payment services and asset management (most notably in Austria). The latter benefitted from strongly performing equity markets. Income from the custody business and brokerage commissions was likewise up substantially.

Net trading result & gains/losses from financial instruments measured at fair value through profit or loss Valuation effects have a substantial impact on the net trading result as well as the line item gains/losses from financial instruments measured at fair value through profit or loss. Debt securities issued measured at FV through profit or loss have a significant impact on these line items as related valuation results are shown in the line item gains/losses from financial instruments measured at fair value through profit or loss, while the valuation results of corresponding hedges are shown in net trading result - as are financial assets in the fair value and trading portfolios.

Due to valuation effects in the derivatives business resulting from interest rate developments, net trading result declined to EUR 58.6 million (EUR 137.6 million) despite continued strong foreign exchange trading. Gains/losses from financial instruments measured at fair value through profit or loss rose to EUR 173.2 million (EUR 62.0 million). Due to the rise in long-term interest rates, lower income from the valuation of the securities portfolio in Austria and losses from the valuation of the loan portfolio measured at fair value in Hungary were offset by significantly higher gains from the valuation of debt securities in issue.

General administrative expenses

in EUR million	2020	2021	Change
Personnel expenses	2,520.7	2,578.1	2.3%
Other administrative expenses	1,158.9	1,180.3	1.9%
Depreciation and amortisation	540.9	548.0	1.3%
General administrative expenses	4,220.5	4,306.5	2.0%

General administrative expenses rose to EUR 4,306.5 million (EUR 4,220.5 million). Personnel expenses increased to EUR 2,578.1 million (EUR 2,520.7 million), most notably in the Czech Republic, but also in Hungary

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and Croatia. On the back of lower average headcounts, cost reductions were achieved primarily in Austria, Ro- mania and Slovakia. Other administrative expenses were higher at EUR 1,180.3 million (EUR 1,158.9 million), with marketing and IT expenses up most markedly. Contributions to deposit insurance systems declined to EUR 122.4 million (EUR 132.2 million). In Austria they decreased to EUR 85.5 million (EUR 95.0 million) after a one-off effect in the previous year. No contributions are currently payable in Croatia. In Slovakia, contributions rose to EUR 9.4 million (EUR 1.1 million). Depreciation and amortisation amounted to EUR 548.0 million (EUR 540.9 million).

Headcount as of end of the period

	Dec 20	Dec 21	Change
Austria	15,942	15,606	-2.1%
Erste Group, EB Oesterreich and subsidiaries	8,866	8,538	-3.7%
Haftungsverbund savings banks	7,076	7,068	-0.1%
Outside Austria	29,748	28,990	-2.6%
Česká spořitelna Group	9,820	9,711	-1.1%
Banca Comercială Română Group	5,645	5,342	-5.4%
Slovenská sporiteľňa Group	3,770	3,644	-3.3%
Erste Bank Hungary Group	3,227	3,238	0.3%
Erste Bank Croatia Group	3,252	3,220	-1.0%
Erste Bank Serbia Group	1,198	1,197	0.0%
Savings banks subsidiaries	1,625	1,461	-10.1%
Other subsidiaries and foreign branch offices	1,213	1,177	-3.0%
Total	45,690	44,596	-2.4%

Operating result

Operating income increased to EUR 7,742.0 million (+8.2%; EUR 7,155.1 million), with a marked rise in the key income components, most notably net fee and commission income but also net interest income, and a strong net trading and fair value result. General administrative expenses rose to EUR 4,306.5 million (+2.0%; EUR 4,220.5 million). The operating result rose to EUR 3,435.5 billion (+17.1%; EUR 2,934.6 million). The cost/income ratio improved to 55.6% (59.0%).

Gains/losses from derecognition of financial instruments not measured at fair value through profit or loss Losses from derecognition of financial instruments not measured at fair value through profit or loss amounted to EUR 32.8 million (EUR 6.5 million). This line item includes primarily one-offlosses from derecognition of liabilities and negative results from the sale of securities in the Czech Republic and Austria.

Impairment result from financial instruments

The impairment result from financial instruments amounted to EUR -158.8 million (EUR -1,294.8 million). Net allocations to provisions for loans and advances declined to EUR 119.1 million (EUR 1,231.0 million), those for commitments and guarantees given to EUR 104.8 million (EUR 159.2 million). Positive contributions came from the release of provisions for loans in Austria (Savings Banks segment) as well as from income from the recovery of loans already written off in all segments in the amount of EUR 90.8 million (EUR 145.0 million). In the comparative period, updated risk parameters with forward-looking information as well as stage overlays related to the Covid-19 pandemic had led to a significant rise in allocations to provisions.

Other operating result

Other operating result came in at EUR -310.5 million (EUR -278.3 million). The deterioration was primarily due to valuation effects. Levies on banking activities declined to EUR 73.5 million (EUR 117.7 million). This decline is attributable to the abolition of banking levies in Slovakia, which had amounted to EUR 33.8 million in the comparative period. Banking levies payable in Austria decreased to EUR 10.5 million (EUR 25.5 million) on the back of significantly lower levies payable by the Holding. Hungarian banking tax rose slightly to EUR 15.0 million (EUR 14.5 million). Together with the financial transaction tax of EUR 48.0 million (EUR 44.0 million), banking levies in Hungary totalled EUR 63.0 million (EUR 58.5 million).

The balance of allocations/releases of other provisions improved to EUR 5.1 million (EUR -18.4 million). Other operating result also reflects the annual contributions to resolution funds in the amount of EUR 108.6 million (EUR 93.5 million). Increases were recorded above all in Austria to EUR 51.5 million (EUR 43.6 million) and in Romania to EUR 11.4 million (EUR 7.7 million).

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