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Erste Group – Bank of America Merrill Lynch Banking Conference 25-26 September 2013, London

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  • 1. Erste Group – Bank of America Merrill Lynch Banking Conference 25-26 September 2013, London Erste Group – Prepared for growth in Central and Eastern Europe Gernot Mittendorfer, CFO, Erste Group
  • 2. Prepared for growth in CEEBoA ML Banking Conference 25-26 September 2013 2 Disclaimer – Cautionary note regarding forward-looking statements − THE INFORMATION CONTAINED IN THIS DOCUMENT HAS NOT BEEN INDEPENDENTLY VERIFIED AND NO REPRESENTATION OR WARRANTY EXPRESSED OR IMPLIED IS MADE AS TO, AND NO RELIANCE SHOULD BE PLACED ON, THE FAIRNESS, ACCURACY, COMPLETENESS OR CORRECTNESS OF THIS INFORMATION OR OPINIONS CONTAINED HEREIN. − CERTAIN STATEMENTS CONTAINED IN THIS DOCUMENT MAY BE STATEMENTS OF FUTURE EXPECTATIONS AND OTHER FORWARD-LOOKING STATEMENTS THAT ARE BASED ON MANAGEMENT’S CURRENT VIEWS AND ASSUMPTIONS AND INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS, PERFORMANCE OR EVENTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN SUCH STATEMENTS. − NONE OF ERSTE GROUP OR ANY OF ITS AFFILIATES, ADVISORS OR REPRESENTATIVES SHALL HAVE ANY LIABILITY WHATSOEVER (IN NEGLIGENCE OR OTHERWISE) FOR ANY LOSS HOWSOEVER ARISING FROM ANY USE OF THIS DOCUMENT OR ITS CONTENT OR OTHERWISE ARISING IN CONNECTION WITH THIS DOCUMENT. − THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OR INVITATION TO PURCHASE OR SUBSCRIBE FOR ANY SHARES AND NEITHER IT NOR ANY PART OF IT SHALL FORM THE BASIS OF OR BE RELIED UPON IN CONNECTION WITH ANY CONTRACT OR COMMITMENT WHATSOEVER.
  • 3. Prepared for growth in CEEBoA ML Banking Conference 25-26 September 2013 3 Presentation topics −Macroeconomic snapshot −Erste Group − Balance sheet development − Operating performance − Asset quality review − Update on banking tax − Capital − Update on Romania −Outlook −Appendix
  • 4. Prepared for growth in CEEBoA ML Banking Conference 25-26 September 2013 -0.8 -0.3 0.2 0.5 0.5 1.8 2.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 HR CZ HU SK AT RS RO in% Real GDP growth (2013e) 4 Macroeconomic snapshot – CEE to benefit from strong fundamentals − CEE continuously outgrows the Eurozone − Growth mainly driven by exports − Eurozone’s weakness still a drag on current economic developments in CEE − CEE will benefit from its favorable economic fundamentals − CEE is an excellent region for exports with ideal location next to big consumer markets − Strong industrial basis − CEE converges to EU levels of productivity with still low labor costs − Competitiveness expected to improve compared to Western Europe − Relatively low indebtedness 2013 Eurozone avg: -0.3% Source: Erste Research 22 25 34 42 78 79 88 0 20 40 60 80 100 HR RS RO AT CZ HU SK in% Exports / GDP (2013e)
  • 5. Prepared for growth in CEEBoA ML Banking Conference 25-26 September 2013 5 Macroeconomic snapshot – Consumer confidence in CEE has improved in H1 2013 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Consumer confidence in CEE CZ Eurozone SK HU RO HR Source: European Commission
  • 6. Prepared for growth in CEEBoA ML Banking Conference 25-26 September 2013 6 Macroeconomic snapshot – Falling inflation in a very low interest rate environment − Falling inflation in all CEE countries − Driven mainly by subdued fuel and food prices − Hungary: inflation is at 38-year low reflecting administrative price reductions and lack of domestic demand − Romania: better agricultural performance expected to drive down food prices in 2013 − Low inflation expected to raise the purchasing power of consumers − Very low interest rate environment − Historically low base rates in Czech Republic (0.05%), Romania (4.50%), and Hungary (3.80%) − Despite low rates currencies have performed relatively stable − Low rates expected to support economic growth across the region Source: Erste Research, National banks 0 5 10 15 20 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F in% CPI (YE) in CEE RS RO HU HR SK AT CZ 2013F: RS: 5.4% RO: 4.7% SK: 2.5% HU: 2.3% HR: 2.2% AT: 2.1% CZ: 1.7% 0.05 0.50 0.50 3.80 4.50 6.00 11.00 0 4 8 12 CZ AT SK HU RO HR RS in% Key interest rates in CEE
  • 7. Prepared for growth in CEEBoA ML Banking Conference 25-26 September 2013 7 Presentation topics −Macroeconomic snapshot −Erste Group − Balance sheet development − Operating performance − Asset quality review − Update on banking tax − Capital − Update on Romania −Outlook −Appendix
  • 8. Prepared for growth in CEEBoA ML Banking Conference 25-26 September 2013 8 Balance sheet development – Strong customer deposit base − Customer loans are the key asset component, amounting to 62% as of June 2013 − Deposits from private individuals and SMEs represent 93% of customer deposits as of June 2013 − Loan/deposit ratio improved to 106% as of June 2013 (2008: 115%) − Substantial increase of equity (EUR 16.2bn as of June 2013) over time (2008: EUR 11.1bn) 73 80 97 114 126 129 132 135 132 130 68 73 91 100 109 112 117 119 123 123 107% 110% 107% 114% 115% 115% 113% 113% 107% 106% 0% 50% 100% 150% 200% 0 40 80 120 160 2004 2005 2006 2007 2008 2009 2010 2011 2012 Jun.13 inEURbn Balance sheet development Customer loans Customer deposits Loan/deposit ratio
  • 9. Prepared for growth in CEEBoA ML Banking Conference 25-26 September 2013 465 222 610 470 571 481 -279 588 335 434 384 340 433 380 531 553 504 433 460 461 938 408 581 401 484 515 402 430 996 775 1,114 902 1,031 942 659 996 916 836 867 854 835 809 -400 0 400 800 1,200 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Operating result (in EUR mn) Post-provision profit Risk provisions 9 Operating performance – Operating result reflects strict cost control − Sound underlying operating performance − Cost/income ratio reflects continuous and very strict cost control − Relatively resilient margins despite the very low interest rate environment − Net interest income and net fee income account for 95% of operating income CIR: 52.8% as of H1 2013 NIM: 2.67% as of H1 2013
  • 10. Prepared for growth in CEEBoA ML Banking Conference 25-26 September 2013 10 Asset quality – Declining risk costs but pressure on net interest margin 1.64% 1.69% 1.54% 1.31% 1.38% 1.37% 2.77% 1.20% 1.72% 1.19% 1.45% 1.56% 1.23% 1.33% 0% 2% 4% 6% 8% Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Risk cost development Group Austria CEE 3.05% 3.07% 3.16% 3.05% 2.90% 3.08% 3.17% 3.13% 2.87% 2.78% 2.82% 2.73% 2.74% 2.62% 1% 2% 3% 4% 5% Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Net interest margin development Group Austria CEE
  • 11. Prepared for growth in CEEBoA ML Banking Conference 25-26 September 2013 11 Update on banking tax – Banking taxes have a significant impact on Erste Group 50 53 47 132 165 32 50 185 244 0 50 100 150 200 250 2010 2011 2012 inEURmillion Development of banking taxes Slovakia Austria Hungary In 2011, banking tax in Hungary was offset by the costs of repayment of foreign currency loans at non-market rates
  • 12. Prepared for growth in CEEBoA ML Banking Conference 25-26 September 2013 12 Capitalisation – Strong and vastly improved capitalisation − Switch to IFRS in calculation of qualifying capital as of Mar 13; no material impact due to improved AfS reserve − Final decision on regulatory treatment of savings banks minorities under Basel 3 passed by European Parliament: full recognition of minorities Core tier 1 ratio (CT1 ratio) = tier 1 capital excl. hybrid and after regulatory deductions divided by total RWA, including credit risk, market and operational risk. Based on Basel 2.5. 1.1 1.1 1.4 2.0 2.2 2.6 3.1 5.2 5.8 5.6 6.6 7.0 2.2 2.3 2.2 2.2 2.7 2.8 3.1 3.3 3.4 3.3 3.4 3.2 3.3 3.3 3.7 4.2 4.9 5.4 6.2 8.5 9.3 8.9 10.1 10.2 0 3 6 9 12 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Jun 13 inEURbn Development of CT-1 capital (excluding hybrid and adjusted for participation capital) Core tier-1 excl. minorities Minorities CT1 (Basel 2.5, Jun 2013) excl. part cap, including capital increase: 10.7%
  • 13. Prepared for growth in CEEBoA ML Banking Conference 25-26 September 2013 13 Capitalisation – Capital position after capital increase − Capital increase in the amount of EUR 660.6 million conducted in July 2013 − First Austrian bank which fully repaid the entire participation capital – demonstrating strength of Erste Group − Full repayment of government and private participation capital was executed on 8 August 2013 − Erste Group expects to comfortably meet its targeted 10% fully loaded Basel 3 common equity tier-1 ratio from the end of 2014 onwards − Full repayment of government and private participation capital combined with the recent capital increase will be EPS accretive from 2014 onwards Core tier 1 ratio (CT1 ratio) = tier 1 capital excl. hybrid and after regulatory deductions divided by total RWA, including credit risk, market and operational risk. Based on Basel 2.5. 10.1% 10.7% 10.3% 8% 9% 10% 11% Basel 2.5, ex part cap Basel 2.5, ex part cap, incl. cap increase Basel 3 fully loaded, incl. cap increase Core Tier 1 ratio (total risk) as at 30 June 2013 − Fully loaded Basel 3 CET1 at 10.3% (pro forma as of June 13, after capital increase) − Transition in Romania for the calculation of RWA from standardised approach to IRB approach is expected to take effect in 2015 with a negative impact of approx. 40bps
  • 14. Prepared for growth in CEEBoA ML Banking Conference 25-26 September 2013 14 Update on BCR – Restructuring well under way 4.8% 4.3% 4.5% 4.9% 4.9% 5.0% 44.8% 45.6% 42.1% 53.8% 42.2% 39.2% 0% 10% 20% 30% 40% 50% 60% 0% 2% 4% 6% 8% Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 BCR: NIM and CIR Net interest margin Cost income ratio − Operating income to grow in the mid-single digits in 2013 − Strict deposit pricing discipline − New current account product launched in Q4 2012; 215,000 bundles sold by June 2013 − Focus on transaction banking and fee business − Operating expenses to decline in the mid-single digits in 2013 with full effect of restructuring to be seen in 2014 − Ongoing simplification and improvement of all structures in headquarter and subsidiaries − Branch network optimisation; Group headcount target of 7,500 FTE by end of 2013 -81 -74 -87 -88 1 25 191 174 195 177 111 94 110 99 108 90 112 120 -100 -50 0 50 100 150 200 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 BCR: Operating result (in EUR mn) Post-provision profit Risk provisions
  • 15. Prepared for growth in CEEBoA ML Banking Conference 25-26 September 2013 15 Update on BCR – Strong decline in risk costs − Significant improvement of net result on lower risk costs and on release of deferred tax liability in Q2 13 − Deferred tax liability amounted to EUR 127.7m − Strong decline in risk costs − Absolute NPL volume to peak and modestly decline in 2013 − 6th consecutive quarter of improving NPL provisioning coverage; 60.4% as of June 2013 − Risk provisions expected to decline significantly in 2013 -72 -68 -66 -88 -4 120 -100 -50 0 50 100 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 inEURmn BCR: Net profit after minorities
  • 16. Prepared for growth in CEEBoA ML Banking Conference 25-26 September 2013 16 Presentation topics −Macroeconomic snapshot −Erste Group − Balance sheet development − Operating performance − Asset quality review − Update on banking tax − Capital − Update on Romania and Hungary −Outlook −Appendix
  • 17. Prepared for growth in CEEBoA ML Banking Conference 25-26 September 2013 1717 Conclusion – Outlook − Erste Group expects a slight improvement in economic performance for Central and Eastern Europe in H2 2013, even though growth will remain moderate − For 2013 Erste Group expects operating result to decline up to 5% compared to 2012 − Lower operating income as a result of moderate loan demand and low interest rates − Partially offset by lower operating costs − Group risk costs are expected to decline by 10-15% in 2013 − Mainly due to declining risk costs in Romania − BCR is expected to return to profitability in 2013 − Irrespective of extraordinary tax-effect
  • 18. Prepared for growth in CEEBoA ML Banking Conference 25-26 September 2013 18 Presentation topics −Macroeconomic snapshot −Erste Group − Balance sheet development − Operating performance − Asset quality review − Update on banking tax − Capital − Update on Romania −Outlook −Appendix
  • 19. Prepared for growth in CEEBoA ML Banking Conference 25-26 September 2013 1919 Strategy – A real customer need is the reason for all business Retail banking Corporate banking Capital markets Public sector Interbank business Customer banking in Central and Eastern Europe Eastern part of EU Focus on CEE, limited exposure to other Europe Focus on local currency mortgage and consumer loans funded by local deposits FX loans only in EUR for clients with EUR income (or equivalent) and where funded by local FX deposits (RO, HR & RS) Savings products, asset management and pension products Potential future expansion into Poland Focus on customer business, incl. customer-based trading activities In addition to core markets, presences in Poland, Turkey, Germany and London with institutional client focus and selected product mix Building debt and equity capital markets in CEE Financing sovereigns and municipalities with focus on infrastructure development in core markets Any sovereign holdings are only held for market-making, liquidity or balance sheet management reasons Large, local corporate and SME banking Advisory services, with focus on providing access to capital markets and corporate finance Real estate business that goes beyond financing Potential future expansion into Poland Focus on banks that operate in the core markets Any bank exposure is only held for liquidity or balance sheet management reasons or to support client business
  • 20. Prepared for growth in CEEBoA ML Banking Conference 25-26 September 2013 20 Strategy – Customer banking in the eastern part of the EU Clients: 0.9m Hungary Retail loans: 15.6% Retail dep.: 8.2% Branches: 136 Clients: 3.4m Romania Retail loans: 18.1% Retail dep.: 19.2% Branches: 562 Clients: 0.3m Serbia Retail loans: 3.4% Retail dep.: 2.6% Branches: 68 Clients: 1.0m Croatia Retail loans: 13.7% Retail dep.: 12.7% Branches: 150 Clients: 5.3m Czech Republic Retail loans: 23.7% Retail dep.: 27.4% Branches: 653 Clients: 2.4m Slovakia Retail loans: 26.4% Retail dep.: 25.9% Branches: 296 Clients: 3.3m Austria Retail loans: 19.0% Retail dep.: 18.3% Branches: 981 EU or EU candidate Indirect presence − Leading retail and corporate bank with 16.6m customers in 7 geographically connected countries − Favourable mix of mature & emerging markets with low penetration rates − Potential for cross selling and organic growth in CEE
  • 21. Prepared for growth in CEEBoA ML Banking Conference 25-26 September 2013 2121 Valuation of banks – Valuations differ significantly across Europe 0.4 0.5 0.5 0.5 0.6 0.6 0.8 0.8 0.8 0.9 1.8 1.9 2.0 2.2 0.0 0.4 0.8 1.2 1.6 2.0 UNI IS CA Raif SG DB OTP DAN SAN EG KOM BRE PEKAO BZWBK Selected European banks: P/BV Light blue indicates CEE banks Source: Bloomberg; EG adjusted for capital increase and redemption of participation capital

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