2016 results confirm the quality and sustainability of ESB group's business model in Croatia

"The financial results achieved in 2016 have confirmed the quality, soundness and sustainability of our business model. The stability of our operation, responsible risk policy management, increase in lending, the and use of the bank's digital channels have further consolidated our position on the Croatian banking market, while laying strong foundations for long-term business success," pointed out Christoph Schoefboeck, Chairman of the Management Board of Erste&Steiermärkische Bank d.d. in a comment of the 2016 business results. "The bank's success can only come about if our clients are successful and satisfied. Therefore we wish to remain their reliable partner in meeting their financial needs and business plans, while at the same time focusing strongly on further digitization of operation," Schoefboeck concluded.

HIGHLIGHTS

In 2016, the ESB group* achieved good financial results. Its net profit amounted to HRK 912.7 million, compared to HRK 769.0 million loss recorded in 2015 as a result of the one-time negative financial effects of the CHF conversion. Lower provisioning costs, a stable and moderate upward trend in the operating result, and the one-time effect of the divestment of the bank’s share in VISA Europe Limited, amounting to HRK 74.9 million, were the most important influences on the profit. The group's total assets at 2016YE stood at HRK 65.6 billion and were down 3.9% compared to HRK 68.2 billion from 2015YE. As of 31 December 2016 total loans to customers stood at HRK 43.7 billion, down 5.4% from HRK 46.2 billion on 31 December 2015. The group’s total deposits from customers at the end of December 2016 stood at HRK 43.3 billion and were up 4.5% from HRK 41.4 billion on 31 December 2015.

According to the unconsolidated financial statement, which includes the results of Erste&Steiermärkische Bank d.d. (Erste bank) without subsidiaries, net profit stood at HRK 626.5 million in 2016, compared to the HRK 1.0 billion loss recorded in 2015. The bank's total assets at the end of December 2016 stood at HRK 56.1 billion and were down 4.9% compared to HRK 59.0 billion at 2015YE. Total loans to customers amounted to HRK 36.3 billion on 31 December 2016 and were down 6.6% compared to the HRK 38.8 billion recorded at the end of December 2015, which is partially a consequence of the CHF loan conversion, i.e., the reduction of loan principals after the conversion. Total deposits from customers stood at HRK 41.3 billion at the end of December 2016 and were 4.1% up compared to 31 December 2015 when they stood at HRK 39.7 billion.

Erste bank saw positive trends in new lending in 2016. For example, in the retail segment, which also includes micro enterprises, the bank saw new loans grow by around 13.7% from around HRK 3 billion in 2015, to around HRK 3.5 billion in 2016. Home and renovation loans grew by 71.3%, from around HRK 271.1 million of new loans in 2015 to HRK 464.2 million in 2016. The growing digitization is also reflected in the increased use of the bank's online channels. For example, the proportion of cash loans that were granted via an online loan application in 2016 was nearly 35.6% by number and 49.6% by volume. The proportion reached around 33% for housing  loans. Positive trends were also noted in the corporate segment, which reflects a more favourable environment for business entities and increased demand for investment financing. In this segment, Erste bank saw an increase in new loans of around 26.0%, from HRK 5.6 billion in 2015 to around HRK 7.0 billion in 2016.

OUTLOOK

Positive economic trends gaining momentum, a moderate GDP growth, the unemployment rate decline, continued fiscal consolidation, public debt stabilization, foreign debt decline, and a smaller risk premium signal the long-awaited beginning of Croatia's economic recovery, which is expected to continue in 2017. That is why it is

important to lay a strong emphasis on the need to further consolidate public finances and ensure that the recovery of economic activity continues, primarily by implementing structural reforms more actively. Success in these two areas will pave the way for further macroeconomic stabilization, while also generating potential for positive developments with regard to the credit rating, meaning a further risk premium decline.

Political and legal stability present the main challenges for the banking system as the basic prerequisites for maintaining recovery and regaining investors' trust. Erste bank wants to continue  to adequately support the citizens’ financial needs, as well as all positive initiatives and quality projects in the private sector, which needs to be a generator of healthy economic growth and new jobs, while ensuring long-term stability. The focus should be on entrepreneurs and their initiatives and efforts must be invested to eliminate all obstacles that stand in the way of the realisation of their potentials. Erste bank wants to have an active role in reaching these goals, which will also contribute to the improvement of the overall quality of life of all Croatian citizens.

Statement of Profit or Loss