- Loans to customers rise 12% to EUR 202 bn
- NPL ratio at historic low of 2.0%
- Operating result 16.3% higher to EUR 4 bn
- Robust financial outlook as CEE proves resilient
Erste Group Bank AG reported a 16.3% rise in its operating result to 4 billion euros in its preliminary results for 2022. Net interest income (NII) increased by 19.6% to 5.95 billion euros on the back of strong loan volume growth and rate hikes across all of Erste Group’s core markets. Net fee and commission income rose 6.5% to 2.45 billion euros, supported by significant growth in payment services and asset management. The cost-income ratio improved to 53.4%, as the rise in operating income outpaced that in operating expenses. The banking group’s bottom line in 2022 came in at 2.16 billion euros (2021: 1.92 billion euros). Erste Group also confirmed its financial outlook for 2023, which includes continued loan growth around 5% and a rise in NII of ca. 10%. The banking group will propose a FY2022 dividend of 1.90 euros per share to shareholders at its annual general meeting in May.
“The economies in Central and Eastern Europe proved more resilient than expected this past year: they posted solid GDP growth despite the challenges brought about by the terrible war in Ukraine. Like much of the world, the CEE region faces a sharp decline in economic growth this year. But we don’t expect the region to slip into recession and are confident that its growth story remains intact. That confidence is also reflected in the robust financial outlook that we’ve just confirmed, which includes a solid loan growth target. We will continue to support the people and economies of our region to build up financial well-being, both through our lending practices and our commitment to customer-focused innovation,” explains Willi Cernko, CEO of Erste Group.
“Supported by very solid loan growth across all of our markets and segments and a favorable rate environment, net interest income was the key driver for the strong operating performance we achieved in 2022. In addition to benefiting from a positive revenue momentum, we also managed to contain our operating expenses, even in the face of last year’s significant inflationary pressures,” said Stefan Dörfler, CFO of Erste Group.
Financial results from 2022 compared with those from 2021; balance sheet positions as of 31 December 2022 compared with those as of 31 December 2021.
Strong loan growth propels +20% increase in NII
Net interest income increased to EUR 5,950.6 million (+19.6%; EUR 4,975.7 million) driven by rate hikes and strong loan growth across all of the seven core markets. Net fee and commission income rose to EUR 2,452.4 million (+6.5%; EUR 2,303.7 million). Increases were posted across nearly all fee and commission income categories and all core markets, with significant growth seen in particular in payment services and asset management. Net trading result declined to EUR -778.6 million (EUR 58.6 million); the line item gains/losses from financial instruments measured at fair value through profit or loss rose to EUR 731.3 million (EUR 173.2 million). The development of these two line items was mostly attributable to valuation effects resulting from movements in interest rates. Operating income increased to EUR 8,570.6 million (+10.7%; EUR 7,742.0 million).
Operating result improves to nearly 4 billion euros
General administrative expenses were up at EUR 4,574.9 million (+6.2%; EUR 4,306.5 million). Personnel expenses rose to EUR 2,668.0 million (+3.5%; EUR 2,578.1 million), other administrative expenses to EUR 1,356.2 million (+14.9%; EUR 1,180.3 million). Payments into deposit insurance schemes included in other administrative expenses were higher at EUR 142.9 million (EUR 122.4 million). Depreciation and amortisation rose to EUR 550.7 million (+0.5%; EUR 548.0 million). Overall, the operating result improved significantly to EUR 3,995.8 million (+16.3%; EUR 3,435.5 million) as did the cost/income ratio to 53.4% (55.6%).
NPL ratio at historic low of 2.0%
Due to net allocations, the impairment result from financial instruments (“risk costs”) amounted to EUR -299.5 million or 15 basis points of average gross customers loans (EUR -158.8 million or 9 basis points). Net allocations to credit loss allowances were posted in all core markets, with the exception of Croatia; provisions were driven mainly by updated credit risk parameters based on the latest macro-scenarios (FLIs), as well as portfolio stage overlays for cyclical and energy intense industries. At the end of December, crisis-induced performing risk provisions stood at EUR 928 million. The NPL ratio based on gross customer loans improved to a historic low at 2.0% (2.4%). The NPL coverage ratio (excluding collateral) increased to 94.6% (90.9%).
Higher net result reflects strong operating result, low risk costs
Other operating result amounted to EUR -398.5 million (EUR -310.5 million). This deterioration was due to higher banking levies and increased annual contributions to resolution funds. Banking levies – currently payable in two core markets – increased to EUR 187.1 million (EUR 73.5 million). Thereof, EUR 124.1 million were charged in Hungary. Banking levies included regular banking tax in the amount of EUR 15.1 million (EUR 15.0 million), transaction tax in the amount of EUR 59.1 million (EUR 47.9 million) and a new windfall profit tax of EUR 49.9 million based on the net revenues of the preceding year. In Austria, banking tax equalled EUR 63.0 million (EUR 10.5 million). Half of this rise is due to a one-off effect in 2022. The annual contributions to resolution funds rose – most markedly in Austria and the Czech Republic – to EUR 139.1 million (EUR 108.6 million).
Taxes on income increased to EUR 556.1 million (EUR 525.2 million). The non-controlling interests charge improved further to a record level of EUR 501.6 million (EUR 484.8 million) due to significantly higher earnings contributions of the savings banks. The net result attributable to owners of the parent rose to EUR 2,164.7 million (EUR 1,923.4 million) on the back of the strong operating result and low risk costs.
Lending volume to customers up 12%
Total equity not including AT1 instruments rose to EUR 23.1 billion (EUR 21.3 billion). After regulatory deductions and filtering in accordance with the CRR, common equity tier 1 capital (CET1, final) rose to EUR 20.4 billion (EUR 18.8 billion), as were total own funds (final) to EUR 26.2 billion (EUR 24.8 billion). Total risk – risk-weighted assets including credit, market and operational risk (CRR, final) – increased to EUR 143.9 billion (EUR 129.6 billion). The common equity tier 1 ratio (CET1, final) stood at 14.2% (14.5%), the total capital ratio declined to 18.2% (19.1%).
Total assets increased to EUR 323.9 billion (+5.4%; EUR 307.4 billion). On the asset side, cash and cash balances declined, primarily in Austria, to EUR 35.7 billion (EUR 45.5 billion) due to the repayment of TLTRO III funds. Loans and advances to banks were lower at EUR 18.4 billion (EUR 21.0 billion). Loans and advances to customers (net) rose to EUR 202.1 billion (+12.1%; EUR 180.3 billion). On the liability side, deposits from banks declined to EUR 28.8 billion (EUR 31.9 billion). Customer deposits increased in all core markets – most strongly in Austria and the Czech Republic – to EUR 224.0 billion (+6.4%; EUR 210.5 billion). The loan-to-deposit ratio rose to 90.2% (85.6%).
Outlook 2023
The current expectation (as per mid-February 2023) by economists is for Erste Group’s core markets to avoid recession in 2023 and, in fact, to post real GDP growth in the order of 0 to 3% in 2023. Inflationary pressures are expected to subside in 2023, following double digit-levels in 2022 as a result of exceptionally high energy prices. Continued strong labour markets should be supportive of economic performance in all of Erste Group’s markets. Current account balances, which suffered significantly during 2022 on the back of exceptionally high energy prices, are expected to improve again in 2023 benefiting from a reversal in energy prices. Fiscal balances should likewise consolidate again after significant budget deficits in 2022. Public debt to GDP in all Erste Group markets is projected to be broadly stable, and hence remain materially below the euro zone average.
Against this backdrop, Erste Group expects net loan growth in the mid-single digits. Based on the robust macro outlook described above, risk costs should remain at a low level in 2023. While precise forecasting is hard at current low risk cost levels, Erste Group believes that in 2023 risk costs will be below 35 basis points of average gross customer loans.
Erste Group aims to achieve a ROTE in the range of 13 to 15%. Erste Group’s CET1 ratio is expected to remain strong. Consequently, Erste Group will propose a dividend of EUR 1.90 per share for the 2022 fiscal year to the 2023 AGM. In addition, Erste Group targets a share buy-back in a volume of up to EUR 300 million in 2023, subject to regulatory approval.
All forward-looking statements in this outlook are based on the following key assumptions: significant economic slowdown, but no negative YoY real GDP growth in 2023; no further material political or regulatory interventions; no further worsening of geopolitical situation; stabilisation of European energy situation.