Goldman Sachs European Financials Conference13-15 June 2012, BrusselsErste Group –Customer banking in Central and Eastern ...
Disclaimer –Cautionary note regarding forward-looking statements− THE INFORMATION CONTAINED IN THIS DOCUMENT HAS NOT BEEN ...
Presentation topics− Clear strategy: customer business in Central and Eastern Europe    − Customer loans and deposits domi...
Strategy –A real customer need is the reason for all business                         Customer banking in Central and East...
Balance sheet structure –Asset side− Customer loans (March 2012: EUR 135bn) are the key asset (EUR 217bn) component     − ...
Balance sheet structure –Liability side− Customer deposits (March 2012: EUR 122bn) dominate the liability side     − Stron...
Funding mix –Retail deposits remain a key pillar in funding mix− Providing a solid funding base in all local currencies− L...
Short term funding –Vastly improved short-term funding profile− Declining reliance on short-term funding− Short-term fundi...
Capital position –Strongly enhanced capital ratios as of March 2012                                                       ...
Presentation topics− Clear strategy: customer business in Central and Eastern Europe    − Customer loans and deposits domi...
Operating performance –Solid revenues and strict cost control− Sound underlying operating performance    − Net interest in...
Operating performance –Development of CIR and NIM− Cost income ratio represents a continuous and very strict cost control ...
Asset quality review –Stable NPL ratio in Austria; CEE still mixed− Austria: stable development in saving banks as well as...
Asset quality review –Risk costs increased in Hungary and Romania− GCIB: demand is growing in GLC business− Increase of ri...
Development of net profit –Strong start into 2012              Return on Equity                             Net profit    ...
Presentation topics− Clear strategy: customer business in Central and Eastern Europe    − Customer loans and deposits domi...
Growth outlook in CEE –CEE continuously outgrows the euro zone                                           Real GDP growth i...
Interest rate environment in Europe –Development of 10y government bonds (%)20                                            ...
Manageable indebtedness in CEE –Private and public debt levels across Europe                                              ...
Presentation topics− Clear strategy: customer business in Central and Eastern Europe    − Customer loans and deposits domi...
Conclusion –Outlook− Erste Group focuses on customer banking in Central and Eastern Europe    − Customer loans and custome...
Presentation topics− Clear strategy: customer business in Central and Eastern Europe    − Customer loans and deposits domi...
Strategy –Customer banking in the eastern part of the EU                                                                  ...
Drill-down on selected asset classes –No meaningful sovereign exposure to peripheral EuropeTotal net exposure of Erste Gro...
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Erste Group at Goldman Sachs European Financials Conference

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Erste Group at Goldman Sachs European Financials Conference

  1. 1. Goldman Sachs European Financials Conference13-15 June 2012, BrusselsErste Group –Customer banking in Central and Eastern EuropeAndreas Treichl, CEO, Erste Group
  2. 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.GS European Financials Conference Customer banking in CEE13-15 June 2012 2
  3. 3. Presentation topics− Clear strategy: customer business in Central and Eastern Europe − Customer loans and deposits dominate Erste Group’s balance sheet − Retail deposits are the key pillar in funding mix − Strong and vastly improved capitalisation− Strong start into 2012 − Net profit of EUR 346.5mn in Q1 2012− Macroeconomic snapshot− Outlook− AppendixGS European Financials Conference Customer banking in CEE13-15 June 2012 3
  4. 4. Strategy –A real customer need is the reason for all business Customer banking in Central and Eastern Europe Eastern part of EU Focus on CEE, limited exposure to other Europe Retail Corporate Capital Public Interbank banking banking markets sector business Focus on local Large, local corporate Focus on customer Financing sovereigns Focus on banks that currency mortgage and SME banking business, incl. and municipalities operate in the core and consumer loans customer-based with focus on markets funded by local Advisory services, trading activities infrastructure deposits with focus on development in core Any bank exposure is providing access to In addition to core markets only held for liquidity FX loans only where capital marekts and markets, presences in or balance sheet funded by local FX corporate finance Poland, Turkey, Any sovereign management reasons deposits (RO & HR) Germany and London holdings are only held or to support client Real estate business with institutional client for market-making, business Savings products, that goes beyond focus and selected liquidity or balance asset management financing product mix sheet management and pension products reasons Potential future Building debt and Potential future expansion into Poland equity capital markets expansion into Poland in CEEGS European Financials Conference Customer banking in CEE13-15 June 2012 4
  5. 5. Balance sheet structure –Asset side− Customer loans (March 2012: EUR 135bn) are the key asset (EUR 217bn) component − Loans to private individuals and SMEs represent 85% of customer loans − Share of customer loans within assets has substantially increased over time − Decline in Mar 2012 is mainly due to rising assets on investing surplus liquidity Customer loans / Total assets 80% 63% 64% 64% 64% 62% 60% 57% 52% 53% 53% 40% Avg of Barclays, 39% BNP, DB, HSBC, ING, Santander* 20% 0% 2004 2005 2006 2007 2008 2009 2010 2011 Mar 12 *Source: Bloomberg (YE 2011)GS European Financials Conference Customer banking in CEE13-15 June 2012 5
  6. 6. Balance sheet structure –Liability side− Customer deposits (March 2012: EUR 122bn) dominate the liability side − Strong deposit inflow in Q1 2012 leads to further improvement of loan to deposit ratio (110.2%) − Deposits from private individuals and SMEs represent 92% of customer deposits− Substantial increase of total equity (March 2012: EUR 16bn) over time Customer deposit + Total equity / Total assets 80% 63% 65% 64% 64% 60% 60% 56% 56% 53% 52% Avg of Barclays, 41% BNP, DB, HSBC, 40% ING, Santander* 20% 0% 2004 2005 2006 2007 2008 2009 2010 2011 Mar 12 *Source: Bloomberg (YE 2011)GS European Financials Conference Customer banking in CEE13-15 June 2012 6
  7. 7. Funding mix –Retail deposits remain a key pillar in funding mix− Providing a solid funding base in all local currencies− Limited long-term funding required due to decrease of non-core business − 10yr EUR 1bn Pfandbrief in February 2012 (MS + 130bps) − 5yr EUR 500mn Senior Unsecured in March 2012 (MS + 175bps) − Total issuance of EUR 3bn ytd Evolution of Erste Groups funding mix 100% 3% 3% 3% 3% 3% 2% 6% 6% 8% 9% 8% 8% 19% 18% 14% 11% 12% 13% 80% 16% 16% 16% 16% 17% 16% 60% 40% 55% 57% 59% 61% 61% 61% 20% 0% Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Mar 12 Customer deposits Issued bonds & CDs Deposits by banks Equity Subordinated capitalGS European Financials Conference Customer banking in CEE13-15 June 2012 7
  8. 8. Short term funding –Vastly improved short-term funding profile− Declining reliance on short-term funding− Short-term funding needs are well covered by collateral− Investment in highly liquid assets emphasized by continuously rising collateral coverage of short-term funding needs Short-term funding vs collateral coverage 60 142% 148% 160% 50 116% 107% 120% in EUR billion 40 36 32 73% 32 32 26 28 28 30 53% 23 24 80% 22 21 19 20 40% 10 0 0% Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Mar 12 S-t funding Unencumbered collateral Collateral coverageGS European Financials Conference Customer banking in CEE13-15 June 2012 8
  9. 9. Capital position –Strongly enhanced capital ratios as of March 2012 Core tier 1 ratio Development of Core Tier 1 capital (total risk)1 (excluding hybrid) 10.2% 9.4% 9.2% 15,000 Mar 2012 EBA CET1 ratio: 9.7% 12,000 11,019 11,425 10,276 10,681 in EUR million 3,340 3,430 9,000 3,330 3,322 2010 2011 Mar 12 6,192 6,000 5,426 Core Tier 1 ratio – 3,083 excluding part capital 2,831 7,589 8,085 6,946 7,359 (total risk) 3,000 8.6% 2,595 3,109 7.8% 7.7% 0 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Mar 12 Core tier-1 excl. minorities Minorities 2010 2011 Mar 12 1) Core tier 1 ratio (total risk) = tier 1 capital excl. hybrid and after regulatory deductions divided by total RWA - including credit risk, market and operational risk.GS European Financials Conference Customer banking in CEE13-15 June 2012 9
  10. 10. Presentation topics− Clear strategy: customer business in Central and Eastern Europe − Customer loans and deposits dominate Erste Group’s balance sheet − Retail deposits are the key pillar in funding mix − Strong and vastly improved capitalisation− Strong start into 2012 − Net profit of EUR 346.5mn in Q1 2012− Macroeconomic snapshot− Outlook− AppendixGS European Financials Conference Customer banking in CEE13-15 June 2012 10
  11. 11. Operating performance –Solid revenues and strict cost control− Sound underlying operating performance − Net interest income and net fee and commission income account for 95% of operating income (Q1 12)− Q1 2012 risk costs mainly driven by extraordinary items in Hungary and Romania Erste Groups operating profit history (pre-provision profit) 1,114 1,031 1,001 1,200 996 996 995 942 938 659 916 902 839 804 775 761 732 731 900 703 504 460 408 in EUR million 557 607 531 433 461 119 163 370 522 581 600 221 218 469 553 938 300 614 597 510 484 610 470 571 481 588 468 416 443 .387 465 334 335 222 0 -279 -300 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 07 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 Post-provision profit Risk provisionsGS European Financials Conference Customer banking in CEE13-15 June 2012 11
  12. 12. Operating performance –Development of CIR and NIM− Cost income ratio represents a continuous and very strict cost control − Declining CIR in CEE; stable in Austria− Resilient margins even in a low interest rate environment − Recent decrease in CEE is mainly due to Hungary (FX loan repayment) and Romania (Prima Casa) Cost/income ratio Net interest margin 80% 5% 4.7% 4.6% 4.6% 67% 66% 4.2% 65% 65% 64% 4.0% 4% 60% 57% 50% 50% 51% 51% 3.1% 3.0% 3.0% 2.8% 2.9% 3% 49% 40% 44% 44% 44% 2.1% 2.1% 2.1% 43% 2.0% 2% 1.8% 20% 1% 0% 0% 2008 2009 2010 2011 1-3 12 2008 2009 2010 2011 1-3 12 Group Austria CEE Group Austria CEEGS European Financials Conference Customer banking in CEE13-15 June 2012 12
  13. 13. Asset quality review –Stable NPL ratio in Austria; CEE still mixed− Austria: stable development in saving banks as well as Erste Bank Oesterreich− Hungary and Romania have remained challenging− Slovakia: good quality loan growth− Czech Republic: new production mainly in low risk mortgage business Erste Group: NPL ratio vs NPL NPL ratios in key segments coverage 30% 30% 70% 24.3% 23.5% 25% 63.9% 25% 65% 61.4% 61.9% 60.6% 61.0% 20% 20% 60% 15% 15% 55% 10% 8.2% 8.5% 8.8% 50% 10% 8.0% 7.7% 7.9% 6.7% 5.6% 5.6% 5% 45% 5% 0% 40% 0% Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 AU CZ RO SK HU GCIB NPL ratio NPL coverage (exc collateral) Mar 11 Jun 11 Sep 11 Dec 11 Mar 12GS European Financials Conference Customer banking in CEE13-15 June 2012 13
  14. 14. Asset quality review –Risk costs increased in Hungary and Romania− GCIB: demand is growing in GLC business− Increase of risk cost mainly driven by Hungary and Romania in Q1 2012 − One-off risk provisions of EUR 75.6m in Hungary related to the interest subsidy scheme − Extraordinary risk provisions of EUR 98.6m in Romania which resulted in increased NPL cov. ratio− Long-term improvement trend of risk costs in AT, SK and CZ Risk costs in key segments 1,000 938 800 in EUR million 581 600 460 461 408 400 200 0 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Austria Czech Republic Romania Slovakia Hungary GCIB OtherGS European Financials Conference Customer banking in CEE13-15 June 2012 14
  15. 15. Development of net profit –Strong start into 2012 Return on Equity Net profit (in EUR m) 11.2% 347 321 9.6% +17% +7.8% 1-3 11 1-3 12 1-3 11 1-3 12GS European Financials Conference Customer banking in CEE13-15 June 2012 15
  16. 16. Presentation topics− Clear strategy: customer business in Central and Eastern Europe − Customer loans and deposits dominate Erste Group’s balance sheet − Retail deposits are the key pillar in funding mix − Strong and vastly improved capitalisation− Strong start into 2012 − Net profit of EUR 346.5mn in Q1 2012− Macroeconomic snapshot− Outlook− AppendixGS European Financials Conference Customer banking in CEE13-15 June 2012 16
  17. 17. Growth outlook in CEE –CEE continuously outgrows the euro zone Real GDP growth in CEE 8 2012 euro zone avg. 0.0% 6 4.2 3.3 3.1 2.6 2.5 2.3 4 1.7 1.7 1.4 1.3 1.2 0.9 0.5 2 0 in % -0.5 -2 -1.6 -4 -3.8 -4.5 -4.9 -6 -6.6 -6.8 -8 -10 AT CZ RO SK HU 2009 2010 2011 2012e Source: Erste ResearchGS European Financials Conference Customer banking in CEE13-15 June 2012 17
  18. 18. Interest rate environment in Europe –Development of 10y government bonds (%)20 20 Greece18 1816 Euro Lehman 1614 1412 12 Portugal10 10 8 8 Ireland 6 6 Spain Italy 4 4 France 2 2 Austria Germany 0 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012GS European Financials Conference Customer banking in CEE13-15 June 2012 18
  19. 19. Manageable indebtedness in CEE –Private and public debt levels across Europe Debt to GDP* 350 318 300 274 254 250 243 225 226 227 197 208 in % 200 160 150 127 109 110 110 100 50 0 GE FR GR IT SK PL SL SP PT RO CZ HU BE AT Public Private *Source: Eurostat Private sector data include households and non-financial corporationsGS European Financials Conference Customer banking in CEE13-15 June 2012 19
  20. 20. Presentation topics− Clear strategy: customer business in Central and Eastern Europe − Customer loans and deposits dominate Erste Group’s balance sheet − Retail deposits are the key pillar in funding mix − Strong and vastly improved capitalisation− Strong start into 2012 − Net profit of EUR 346.5mn in Q1 2012− Macroeconomic snapshot− Outlook− AppendixGS European Financials Conference Customer banking in CEE13-15 June 2012 20
  21. 21. Conclusion –Outlook− Erste Group focuses on customer banking in Central and Eastern Europe − Customer loans and customer deposits dominate the balance sheet − Real economy related business remains the key priority− Comfortable liquidity position − Retail deposits are the key pillar in funding − Significantly improved short-term funding profile− Strong capitalisation − Erste Group expects to comfortably and sustainably meet all capital requirements (EBA, Basel 3) − Basel 2.5 CET1 ratio reaches 10.2%, EBA CET1 ratio rises to 9.7% as of March 2012− Erste Group expects a stable operating result in 2012 − Supported by selective loan growth in core markets and further cost reductions− Risk costs expected to decline to about EUR 2.0 billion in 2012 − Impacted by one-off provisioning requirements in Hungary (EUR 75.6 million in Q1 2012) and by the slow economic recovery in Romania− Net income will be further supported in Q2 2012 − By one-off income of EUR 160m (pretax) from the buyback of additional tier 1- and tier 2-instrumentsGS European Financials Conference Customer banking in CEE13-15 June 2012 21
  22. 22. Presentation topics− Clear strategy: customer business in Central and Eastern Europe − Customer loans and deposits dominate Erste Group’s balance sheet − Retail deposits are the key pillar in funding mix − Strong and vastly improved capitalisation− Strong start into 2012 − Net profit of EUR 346.5mn in Q1 2012− Macroeconomic snapshot− Outlook− AppendixGS European Financials Conference Customer banking in CEE13-15 June 2012 22
  23. 23. Strategy –Customer banking in the eastern part of the EU Erste Group Slovakia Czech Republic Clients: 2.4m The leading retail bank with 16.9 m customers Clients: 5.2m Retail loans: 26.4% One of the leading corporate banks Retail loans: 24.2% Retail dep.: 25.7% Retail dep.: 28.3% Branches: 292 Strong capital markets presence Branches: 654 Hungary Clients: 0.9m Retail loans: 14.2% Austria Retail dep.: 7.8% Clients: 3.2m Branches: 143 Retail loans: 19.2% Retail dep.: 18.7% Ukraine Branches: 1,050 Clients: 0.2m Croatia Romania Retail loans: 1.4% Clients: 1.0m Clients: 3.6m Retail dep.: 0.4% Retail loans: 13.9% Retail loans: 18.0% Branches: 121 Serbia Retail dep.: 13.0% Retail dep.: 22.2% Clients: 0.3m Branches: 146 Branches: 667 Retail loans: 3.3% EU or EU candidate country Retail dep.: 2.5% Non-EU or non-EU-candidate country Branches: 66 Indirect PresenceGS European Financials Conference Customer banking in CEE13-15 June 2012 23
  24. 24. Drill-down on selected asset classes –No meaningful sovereign exposure to peripheral EuropeTotal net exposure of Erste Group (incl. savings banks) to selected European countries:in EUR million Sovereign Bank Other Total net exposure Dec 10 Dec 11 Mar 12 Dec 10 Dec 11 Mar 12 Dec 10 Dec 11 Mar 12 Dec 10 Dec 11 Mar 12Greece 602.2 4.4 3.9 172.0 57.9 15.1 7.7 7.6 7.6 781.9 69.9 26.7Ireland 88.6 46.5 61.1 252.2 204.4 107.4 81.7 78.2 67.1 422.6 329.1 235.6Portugal 234.6 5.6 3.8 280.5 94.0 70.1 14.3 13.0 9.6 529.5 112.6 83.5Spain 114.2 23.8 5.8 734.6 282.2 400.7 383.6 425.6 328.5 1,232.4 731.6 735.0Italy 1,075.8 472.6 70.7 1,164.8 806.8 720.5 1,082.0 582.0 619.4 3,322.6 1,861.4 1,410.6Sum total 2,115.5 553.0 145.2 2,604.2 1,445.2 1,313.8 1,569.3 1,106.4 1,032.2 6,288.9 3,104.6 2,491.3Sovereign net exposure by country and portfolio:in EUR million FV AfS At amortised cost Total net exposure Dec 10 Dec 11 Mar 12 Dec 10 Dec 11 Mar 12 Dec 10 Dec 11 Mar 12 Dec 10 Dec 11 Mar 12Greece 456.5 -8.5 1.3 77.5 10.3 2.6 68.2 2.6 0.0 602.2 4.4 3.9Ireland 59.7 0.0 0.0 25.3 31.8 46.4 3.6 14.7 14.7 88.6 46.5 61.1Portugal 168.4 0.0 0.0 10.6 5.6 3.8 55.6 0.0 0.0 234.6 5.6 3.8Spain 35.1 -27.1 -26.2 51.6 38.7 29.8 27.5 12.2 2.2 114.2 23.8 5.8Italy 907.2 399.9 0.0 149.1 70.9 70.7 19.5 1.8 0.0 1,075.8 472.6 70.7Sum total 1,627.0 364.3 -25.0 314.1 157.3 153.3 174.4 31.3 16.9 2,115.5 553.0 145.2Bank net exposure by country and portfolio:in EUR million FV AfS At amortised cost Total net exposure Dec 10 Dec 11 Mar 12 Dec 10 Dec 11 Mar 12 Dec 10 Dec 11 Mar 12 Dec 10 Dec 11 Mar 12Greece 0.1 0.0 2.2 0.0 0.0 0.0 171.9 57.9 13.0 172.0 57.9 15.1Ireland 141.8 99.4 64.8 90.4 92.0 38.7 20.0 13.0 3.9 252.2 204.4 107.4Portugal 71.7 9.4 15.3 56.4 29.7 0.0 152.4 54.9 54.8 280.5 94.0 70.1Spain 341.0 61.9 166.8 163.6 64.5 56.1 229.9 155.8 177.8 734.6 282.2 400.7Italy 322.8 233.6 28.1 152.7 180.6 186.6 689.2 392.6 505.8 1,164.8 806.8 720.5Sum total 877.5 404.3 277.2 463.3 366.8 830.1 1,263.4 674.2 755.2 2,604.2 1,445.2 1,313.8GS European Financials Conference Customer banking in CEE13-15 June 2012 24
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