We are happy with the results achieved in the first half of 2021. Having maintained the stability of business operations, we recorded positive trends in total loans and deposits segments, while providing adequate support to clients in these challenging times. Strong emphasis was placed on further development of our digital solutions, which included the launch of online cash loans for clients of other banks through the George platform, while the KEKS Pay app, with the development of additional payment functionalities, recently exceeded 200,000 users. At the same time, we continued to implement the free-of-charge School of Smart Finance programme, which is held online and in line with the most recent COVID measures. From March to June this year, upwards of 430 participants received training through the programme“, Christoph Schoefboeck, CEO of Erste Bank Croatia, pointed out while commenting on the business result in the first half of 2021 and added:
Christoph Schoefboeck, CEO of Erste Bank Croatia
“We are pleased with the fact that at the end of June we successfully carried out the first issue of our own bonds in the international capital market, after we also successfully concluded the first issue of bonds on the domestic capital market at the beginning of the year within the so-called MREL regulatory requirement. This not only confirmed our position as the most active bond issuer among financial institutions in Croatia, but also allowed us to set new standards in the Croatian banking market. In addition to the bank's core business, the funds raised by the issue will be used to encourage green and sustainable investments, which will, in turn, keep Erste Bank Croatia on the path to a successful and long-term sustainable business in the domestic market.“
IN BRIEF
According to the unconsolidated financial report, which includes the result of Erste Bank Croatia (the Bank) excluding subsidiaries, the Bank's net profit in the first half of 2021 amounted to HRK 511.2 million, compared to HRK 171.3 million in the first half of 2020. The growth of net profit is primarily the result of significantly lower risk costs, which in the first half of 2021 amounted to HRK 26.5 million, compared to HRK 316.5 million in the same period a year earlier.
Net interest income increased by 1.4%, from HRK 800.2 million in the first half of 2020 to HRK 811.0 million in the same period this year. At the same time, the net fee and commission income increased by 4.2%, from HRK 208.8 million in the first half of 2020 to HRK 217.5 million in the same period this year. Net trading and fair value result in the first six months of 2021 reached HRK 103.2 million, 24.8% more than HRK 82.7 million in the same period a year earlier.
The Bank’s total assets at the end of June 2021 were HRK 79.9 billion, or 9.2% more than at the end of 2020, when it amounted to HRK 73.2 billion. Total loans to customers as of 30 June 2021 amounted to HRK 45.6 billion, 0.9% more than HRK 45.2 billion at the end of 2020. Total deposits of the Bank's customers as of 30 June 2021 amounted to HRK 58.7 billion, which is 2.4% more than at the end of 2020, when they amounted to HRK 57.3 billion.
EBC Group’s* net profit before minority interests amounted to HRK 608.1 million in the first half of 2021, compared to HRK 200.5 million in the same period in 2020. EBC Group’s net interest income increased by 0.2%, from HRK 1,004.4 million in the first half of 2021, to HRK 1,006.2 million in the same period of the current year. Net fee and commission income amounted to HRK 349.2 million, 5.0% more than HRK 332.5 million in the first half of 2020.
EBC Group’s total assets at the end of June 2021 amounted to HRK 89.2 billion, which is 8.1% more than at the end of 2020, when it amounted to HRK 82.5 billion. Total loans to customers as of 30 June 2021 amounted to HRK 50.1 billion, which is 0.6% more than HRK 49.8 billion at the end of 2020. Total deposits from EBC Group's customers as of 30 June 2021 amounted to HRK 61.8 billion, which is an increase of 2.8% compared to the end of 2020, when they amounted to HRK 60.1 billion.
IMPACT OF THE COVID-19 SITUATION – STABLE TRENDS OF NPLs
The total share of NPLs at the end of June 2021 amounted to 6.2%, compared to 6.7% at the end of 2020, with a slight downward trend recorded, compared to the previous year. With respect to private individuals, at the share of NPLs reached 7.5%, compared to 7.0% at the end of 2020. In the corporate segment, the share of NPLs was 5.1%, compared to 5.0% at the end of last year. In the light of the objective economic situation, a slight increase in NPLs can be expected in the coming period. As a responsible business entity, the Bank will continue to monitor and manage its loan portfolio, in accordance with its business policies and applicable credit risk management standards. At the same time, the Bank will respect all regulatory rules and apply a balanced approach that respects the objective market situation and needs of its clients.
From the very beginning of the pandemic situation, the Bank has invested maximum efforts to ensure its clients, private individuals and corporates, are affected as little as possible by the current circumstances and that companies are able to maintain the continuity of their regular business operations. Experience so far supports the fact that with an open approach and transparent mutual communication with clients, in most cases, an optimal solution can be found, whenever that is realistically possible.
Most of the so-called COVID moratoria for private individuals expired at the end of September last year. In total, slightly more than 9,200 clients, to which almost 11,600 credit lots apply, realized the possibility of COVID repayment deferral. Prior to their expiration, the Bank took a proactive stance and in direct communication with clients sought to examine their situation and what their expectations and capabilities were, so that it could offer them the best individual solution. By the end of June 2021, about 10% of clients who used the so-called COVID moratorium option, have realized some of the additional credit relief measures. The Bank offers standard restructuring measures that adapt to the clients’ current financial circumstances and can use them regardless of whether they have previously used the so-called COVID moratorium.
A total number of 2,500 COVID deferrals were realized in corporate segment, and after the expiry of the six-month moratoria at the end of September last year, a limited number of clients requested the postponement period to be extended. The reason is that most of them did not need an additional extension and the clients from tourism and related segments had already taken a 12-month deferral. In direct communication with its clients, through an individual approach and considering the objective circumstances, the Bank seeks to find the optimal solution, which may include additional restructuring measures or liquidity loans. In cooperation with domestic and foreign financial institutions (HBOR, HAMAG, EIF), the Bank strives to ensure adequate sources of financing and guarantee schemes, which provide its corporate clients with favourable borrowing conditions in the current market circumstances.
*Non-performing loans to clients
EURO BOND ISSUE - ENTERING THE INTERNATIONAL CAPITAL MARKET
After successfully realising the issue of the so-called senior preferred bonds in the amount of EUR 45 million at the beginning of the year, which was the first such issue in the domestic capital market within the so-called MREL regulatory requirement, the Bank successfully concluded its first issue of bonds in the international market, in the total nominal amount of EUR 400 million at the end of June 2021. With the realisation of this transaction, the Bank made an additional step forward and added the first international euro bond to its existing securities in circulation in the domestic capital market. This also made it the first bank in Croatia to successfully issue its own bonds in the international capital market.
The primary purpose of the issue is to meet the regulatory requirement with which the Bank must comply by 1 January 2024, and the first binding requirement in the transitional period must be met by 1 January 2022. It is about the so-called MREL requirement (Minimum regulatory capital requirement and eligible liabilities). MREL is part of the EU regulatory framework aimed at strengthening the financial system, with a focus on credit institutions, in order to increase resilience to shocks, unforeseen stress scenarios and prevent systemic risk. The funds raised by this issue will be used for general financing purposes and to encourage green and sustainable investments and will also contribute to further diversification of funding sources.
OUTLOOK
“Although positive progress is visible and some progress has been made in the general investment climate in Croatia, strengthening legal and investment security, especially at the local level, remain the most important prerequisites for sustainable economic growth. The planned path towards the implementation of the euro at the beginning of 2023, as well as the planned entry into the Schengen agreement, give an additional positive impetus to the recovery and stronger growth of the Croatian economy, i.e., its long-term stability and better positioning at the international level. In this regard, a stable financial system and a robust, liquid and adequately capitalised Croatian banking sector will continue to be the backbone of future development and growth, while at the same time representing a strong comparative advantage of the Republic of Croatia in the regional context,“ Schoefboeck underlined.
"The period ahead will remain significantly dependent on the developments regarding the pandemic and its impact on the entire economy. With quality and transparent communication and a coordinated approach of all participants, Croatia can overcome current challenges, minimise all their potential negative effects and turn to finalising its strategic goals. In the next period, Erste Bank Croatia will continue to make a relevant contribution, with its active and constructive approach, to finding the best possible solutions for the benefit of its customers, the entire economy, but also to spreading the prosperity of the entire community,” Schoefboeck concluded.
*EBC Group’s consolidated financial statement includes the following subsidiaries in addition to Erste Bank Croatia, Erste Nekretnine d.o.o., Erste&Steiermärkische S-Leasing d.o.o., Erste Bank a.d., Podgorica, Erste Card Club group, Erste Group IT HR d.o.o., and Izbor Nekretnina d.o.o.