Earnings call transcript: Erste Group sees record net income in Q4 2024

Erste Group, a leading financial institution in Central and Eastern Europe, reported its highest-ever net income of €3.125 billion for the fourth quarter of 2024. The company saw significant growth in net interest income, particularly from its operations in Central and Eastern Europe, while operating income in Austria slightly declined. According to InvestingPro data, the stock has experienced significant volatility recently, with a -8.43% return over the past week and -26.15% year-to-date, despite maintaining strong financial health metrics with a current ratio of 2.88x.

Key Takeaways

• Net income reached a record €3.125 billion.
• Net interest income grew, driven by Central and Eastern European markets.
• Operating income in Austria saw a slight decline.
• The company anticipates continued loan growth and interest rate stabilization in 2025.

Company Performance

Erste Group’s financial performance in the fourth quarter of 2024 was marked by record net income, highlighting strong operational results in its Central and Eastern European markets. The growth in net interest income offset the slight decline in operating income in Austria. The bank’s strategic focus on expanding its presence in Eastern Europe continues to pay dividends, positioning it well against its competitors.

Financial Highlights

• Net income: €3.125 billion, marking the best result in the company’s history.
• Taxes on income increased to €1.053 billion, up 21% from the previous year.
• Loan growth of nearly 5% across all markets.

Outlook & Guidance

Looking ahead, Erste Group expects to maintain its loan growth trajectory into 2025. The company anticipates interest rate stabilization and is preparing for a potential banking levy of €140-160 million. Management remains focused on organic growth within existing markets and foresees the Czech National Bank potentially reducing rates to 3-3.25%. InvestingPro data reveals the company maintains a solid financial foundation with a Piotroski Score of 6 and an overall Financial Health rating of "GOOD", suggesting resilience in face of these challenges.

Executive Commentary

CEO Peter Bosik emphasized the need for proactive strategies, stating, "We need to release this mental handbrake and really step on the gas now." He expressed optimism about the long-term prospects of Eastern Europe, noting, "We believe that Eastern Europe is in a good position going forward for the coming fifty years."

Risks and Challenges

• Potential banking levy of €140-160 million could impact profitability.
• Continued economic recession in Austria poses challenges.
• Rising staff and IT expenses could pressure margins.
• SME loan demand challenges in certain markets.
• Macroeconomic pressures in the European region.

Q&A

During the earnings call, analysts inquired about the impact of the potential banking levy and the challenges faced in SME loan demand. The management addressed these concerns, highlighting their commitment to energy transition and infrastructure investments as part of their growth strategy.

Full transcript - Emergent Biosolutions Inc (NYSE:EBS) Q4 2024:

Margarita Thill, Enterprise Communication, Erste Group: The figures will be presented by CEO, Peter Bosik, Ms. Alexander Havel Atropic, responsible for risk and CEO CFO, Stefan Derfla. I’m Margarita Thill. And since the beginning of the year, I’m responsible for Enterprise Communication of Erste Group. We start with the presentation of the members of the board who will be willing to answer your questions afterwards.

Peter Posik, please.

Peter Bosik, CEO, Erste Group: Ladies and gentlemen, thank you very much for coming. We know that you’re quite busy reading government programs, the maybe economic policies. And for those of you who were at the Opera (NASDAQ:OPRA) Bowl, you said thank you very much for coming. We really appreciate your presence. So let me start with our annual results 2024.

And to start off, I’d like to talk about the environment that we’re operating in currently. I think that you’re fully aware of what’s going on since the coronavirus pandemic, since the Russian war of aggression in Ukraine and since the election of The US President. We have permanently been faced with a situation where we’re always trying to understand what’s going on and what’s happening in our environment, especially since the Munich Security Conference, things have changed yet again for Europe. So there will be no way around Europe reaching a higher level of independence that we haven’t had for many years. It’s about becoming independent in the area of energy, technology, also the capital markets, and it’s also about digitization and also about military independence because it looks as though The U.

S. Were to maybe reduce its financial commitment to military spending for Europe. Now on the other hand, the way we are positioned as EAStech Group, and we’re actually in a very good condition as a company. This is owing to

Margarita Thill, Enterprise Communication, Erste Group: self confidence.

Peter Bosik, CEO, Erste Group: We’re used to knowing what can be done better, what can be improved, and we’re used to looking with envy to The US or maybe looking at the technological development in China. But I think it is necessary that we create a positive momentum here in Europe, and we should be very much focused on the fact that we have a lot of good things. And Austria, the country we’re in today, well, Austria has a lot of things that are also very positive. Now if you take The remainder of Europe had 17% and The US had 29% growth. So that has always been a major core of our strategy that in the East Of The European Union, this is where we want to have a presence because this is the region that is growing strongly.

That has turned out to be true in the past twenty years, and we are firmly convinced that this will also be the case in the fifty years to come. Now if you take a look at the outlook, what we are planning to do in 2025, you see a disproportional growth. So Austria is, of course, lagging behind in the statistics. You know that this is the third year of a recession that we’re experiencing. But fortunately, all the other countries in the group are experiencing growth above 2% or even higher.

And of course, due to this situation of strong growth in our Eastern European countries as compared to Austria, the shares have shifted, and it was clear that at some point, we would be going in this direction. So for 2025, we expect further stronger shift towards Central And Eastern Europe. And my colleague, Aleksandra, will explain this in greater detail. We see an extremely good risk cost situation in Central And Eastern Europe. And that, of course, is supporting our growth story.

I think you’re all familiar with our market shares in the various markets. I think the essential message we’d like to share with you is that we are seeing a positive loan growth of almost five percent last year. This is clearly above the European average. And we’ve seen this in various countries, in various areas. We are seeing a stronger demand for consumer loans in Romania and Croatia, partially also in Slovakia.

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Stefan Derfla, CFO, Erste Group: I don’t want to focus on the figures too much, but let me just make a few qualitative comments. So there is an increase in operating income. And what is this due to? As was already alluded to by Peter Bosic, we’ve had, over several years now, shown something, and our competitors know this all over Europe, and we’ve outperformed them. Now as far as commission income is concerned, well, we have increased figures.

Technical aspects come into play, the inflationary environment and adjustments that have been the consequence of this as well as the catching up to do catch up developments that occurred in Central And Eastern Europe, and we are quite convinced that this will go on in the years to come. Also, we are seeing, the impact of our initiative in the areas already referred to by Pieta Bosek. Nevertheless, there is a dominant revenue driver and that is the net interest income or result. So, the result of twenty twenty three was great, but 2024 was even better. And this is driven mainly by Central And Eastern Europe.

CE Austria is more or less flat, as you can see. We have been able to sustain the result as far as interest goes in Erste Bank (VIE:ERST) Austria, but in the savings banks, there has been a decline and that is quite normal in 2023. We were not surprised by this. Operating income in total in Austria declined slightly. Nevertheless, the result increased Czech Republic is quite strong, Romania, CE, in general, Hungary, even though the structure is a bit different, Hungary supporters.

What do we expect for 2025? Well, there are some supporting components that will fall by the wayside. Inflation, which is great, has stabilized, but we will have to look into the effects as they unfold as the year goes on. We expect interest to be where we were in 2024. And as far as net fee and commission income is concerned, well, we have made investments and now we want to see income.

What about costs or expenditures? Well, there is one thing that we need to stress. We still feel the impact of high inflation years. If you look at staff expenses and the percentage rates, well, we hover at around 7%. The levels are quite high compared to the previous years.

This is something that, of course, is quite a substantial increase. But of course, operating income is quite good and that’s why we’ve been able to sustain this or tolerate this. IT expenses have also skyrocketed, which is not all that surprising. Providers have not been very reluctant here. So going forward, this will be a major challenge and will need to contain our costs and investments in a future oriented way, and we need to be more efficient in this area.

As far as 2025 is concerned, we think that costs will increase by around 5%. It’s important to make a distinction between several parts, and we’ve already had an analyst call today, something that’s driven by the environment in which we move. There’s a positive impact. We have quite an air market in CE, so salary pressures there are quite substantial in Austria. The situation is different.

Structurally speaking, we’re thinking 3% to 3.5% as was already alluded to by Peter as far as future investments go. Well, in 2025, we’ll talk about 1.5% to 2%. This will be the impact on our cost. So the guidance would be 5% higher costs. Risk costs, fortunately, will remain low as will be pointed out by Alexandra.

This still means a good result for us. Aleksandar.

Margarita Thill, Enterprise Communication, Erste Group: Thank you, Stephane. So expectations of low risk costs. In the past years, we had low cost of risks, very low cost of risks. You know that. And, I had the pleasure of presenting that several times.

You know that in the year 2020, following the COVID crisis, we had extensive loan loss provisions in order to be well positioned for the expected economic consequences of the crisis. You see it on the right hand side of the slide. And Turquoise is Ukraine, loan loss provisions and also the macroeconomic provisions for the macroeconomic situation, which is still challenging. Let’s start with the last quarter of twenty twenty three, a little bit more than a year back. We’ve seen since then that the economic situation had consequences, particularly in increasing defaults in Austria.

This resulted in slightly higher risk costs for 2022, an increase of six basis points from 12 to 18, but 18 basis points is not only extremely well within our ambitious guidance for 2024 but also well below the long term average of 30 to 50 basis points. So the basis points themselves are not striking, but what is striking is that for the first time we see that in Central And Eastern Europe, not only as far as the income is concerned, but also as far as risk costs are concerned, is performing better than Austria. In 2024, in CEU, we had de facto zero risk costs. That means that all risk costs that we booked came from Austria. As far as 2025 is concerned, we expect a similar picture that is comparatively higher provisions in Austria than in CE, but in total, a slight increase overall in spite of a difficult economic environment, which is very challenging, and we expect to 25 basis points, which is markedly below the lower edge of our historical 30 to 50 basis points, which we had in the years before.

The next slide illustrates nonperforming loans, and this shows exactly what I said as far as risk costs are concerned. The economic environment was, is, and will remain to be challenging, and this can be taken from the nonperforming loans ratio at 2.6%. Two point five % was our goal. We haven’t reached our goal. And on the right hand side of the slide, you also see that the strongest increase in non performing loans was we saw in Austria.

As far as absolute levels are concerned, I am very proud that in Czechia, Slovakia as well as Hungary, we had a nonperforming loan ratio of well below 2%. So what are we expecting for 2025? We expect a similar picture as compared to 2024 around 2.5%, even if we have economic challenges. And we think that 2.5% is an excellent value. So back to you.

Good

Alexandra Havel, Risk Management, Erste Group: afternoon, Isthe.

Stefan Derfla, CFO, Erste Group: Thank you. Let’s now move on to the next slide. So we’ve had a waterfall, a cascade, if you like. The results of 2023 and 2024, the first three blocks, well, we’ve already covered those. As you can see, when looking at the headlines, that the net result is higher thanks to increased operating income.

No surprise there. Just look at the charts. But let me single out two items that may not have been placed very prominently here because I think that they are quite telling as far as the Austrian situation is concerned and the overall, situation. So income, pretax or taxes referring to income, that’s the change that occurred between 2023 and 2024. So that’s tax on income.

I looked at the ’23 and ’24 figures, the absolute numbers. Euros 874,100,000.0, euros taxes on income. So taxes on profit in 2023. And what we have here is the following situation. We exceeded a billion, €1,053,000,000.

So that’s taxes on income in 2024 that we have entered in our books. That’s a rate, if you like, of more than 20%, twenty one point something percent. So that’s one thing that I wanted to refer to. And the other thing well, I refer to the savings banks in Austria. Twenty Twenty Three, record breaking numbers, 2024, again, a quite good result but, somewhat less good because the interest business did not generate so much income.

And that is a positive impact as far as the net result of the Astell Bank is concerned. Many of you know this and have known this for quite a long time. So the positive effect is there, a 100,000,000 or a bit more than 10%, that’s the income differential between ’twenty three and ’twenty four as far as the savings bank goes. And that, of course, has an impact on Aestel Group’s net income, DKK3.125 billion, 3 point 1 2 5 billion. That’s the best result ever that we have achieved.

But of course, we have to put things into perspective because the balance sheet is quite different, and the same goes for our overall positioning in the region. So as far as I see things, we’ve had a consistent continuation of our performance levels over the past few years, not more and not less. Let’s now move on to something that’s quite important for us as we interact with our customers, something that we are looking at very close in every region, every segment. So how sustainable is our business our business activities? And how sustainably can we support the business activities of our customers.

Very much so. That’s the answer as far as deposits go, and I’ll turn to capital in a minute. We’re not restricted at all. We want to generate good business for us as well as our customers. So that’s a situation that we’re faced with.

And that, of course, has an impact on balance sheet stability. I don’t want to bore you with details 3.8 or 4.2 or whatever. Alright. So this is the right slide. What’s important is that we have a healthy credit deposit or loan deposit ratio.

That’s a strategic decision. We like to control things properly. Now in some countries, we had a skewed situation. We had a foreign currency impact. So based on our deposits and equity, we are able to fund our customers’ business, which is very important for us.

So So we’re on the right track, and this is our plan to we’d like to make sure that this percentage can be maintained and can even grow. And this brings me to our next slide. So this is our environment. We all know the GDP growth figures, very different from the ones that you see here with exception of Hungary. So in the long run, the economies will grow, and this will go hand in hand with, the loan growth.

So

Margarita Thill, Enterprise Communication, Erste Group: thanks

Stefan Derfla, CFO, Erste Group: to the development that we’re seeing and that we will be seeing will be supported. So there’ll be some tailwind, but we’re also able, of course, to make available loan financing. These here are the detailed figures. It’s been a very balanced situation. Just look at various segments.

Basically, it’s been around 5% as far as retail and corporate loans go. There is, a fair amount of volatility in the corporate sector. The fourth quarter, for example, was quite good. Also in Austria, which is great news. But before, the quarters were less favorable on account of the interest situation.

What’s our guidance for? A ’25. Well, we’d like to maintain figures in terms of percentage rates. So we’ve had a few critical questions put in the call. Honestly, I have no problem if things go up here, but we have to be quite realistic because there are substantial challenges.

And in the q and a, we’ll touch on this. Last but not least, something that is also quite important, something that I’d always like to show to you, what is our position, the position of our bank or our group compared to historic levels. No need to dwell on the details. I’ve just mentioned fifteen point one and the hatched segment here. So the share buyback program has already been deducted from the capital.

We’ve already made that request, so there’s been flat sailing, if you like. But the levels are quite different from right after the financial crisis. And this is something that, is good for our customers. We are willing to fund their future together with them, and I’m quite sure that we’ll do this in the next few months, quarters, and years, and we’ll be able to demonstrate this. We are well positioned to do this.

And with this, I’d like to hand over to Peter.

Peter Bosik, CEO, Erste Group: I think it is worth mentioning that our colleagues, when they did their planning for 2024, were confronted with a lot of uncertainties because ever since we started doing this business, we’ve never seen such a rapid rise of interest rates and such a quick turnaround. And we have not seen these high levels of inflation for a long time and energy price shocks. And to be still capable of coming up with a budget that allows us to reach our very ambitious goals, I think, is a hallmark of our strength, not only our strong financial KPIs, but that we also have the right employees and the right know how that is required for that. And especially in 2025, this will be necessary in all countries, but in particular here in Austria because it is quite clear that independent of the political constellations, we are aware of the responsibility that has been imposed on us so that we need to support our economy, that we need to achieve the required economic growth. So I think it is important to have a strong capital base, and we are going to do everything in our power to assist Austria in getting out of this two and a half years of recession period.

And to come back to what I said initially, I think it is about time to develop more self confidence here in Europe and to use our potential. We don’t have to hide our light under the bushel. We have a lot of potential in our region. We have strong growth, and we have technologies that work well. We have good education.

We have excellent entrepreneurs also in this country. I had the privilege of meeting with many entrepreneurs last week, and it is a lot of fun to see what they are doing on a day to day basis to move their own companies forward. So I think we need to release this mental handbrake and to really step on the gas now. We need to move the country forward. So thank you for your attention, and we are now available for questions.

Margarita Thill, Enterprise Communication, Erste Group: Okay. Let’s continue with questions. If you have a question, please raise your hand. What is important, I call you about please, speaking to the microphone so that the colleagues that are listening to our event online can hear you. Ms.

Lengauer from APA APA. You talked about economic growth and your responsibility. As far as the new program of the government is concerned, which support do you see? And what about the bank levy that was mentioned, although only in two sentences, in the new program. And I also have a question relating to the NPL ratio.

I wanted to know about the driving factors of the NPL ratio in Austria, which industries were responsible for that. And I also saw that the coverage ratio has also gone down. Maybe you can give us more information about that. Is this still okay with you?

Peter Bosik, CEO, Erste Group: Let me start with the banking levy. As you can imagine, I’m not really a big fan of banking levies. We have communicated this time and again in recent months. This is a political decision. Either we have a banking tax or economic recovery.

Well, the government have not decided on a banking tax, which is a shame because that reduces the ability of Austrian banks to finance growth. Just do the numbers, 100,000,000 banking tax, that’s 1,600,000,000.0 worth of loans. So we now have a banking tax of 500,000,000. You can do the numbers for yourselves what this means by way of lost potential here in Austria. Of course, like I said, it’s a political decision.

We don’t think it is right. But anyway, this is a democratically elected government. We can only acknowledge the facts. What I mean by our responsibility and assuming our responsibility, I think there are a couple of issues that we need to tackle here in Austria because they’re very urgent. And one of these things is affordable housing.

The second is the transformation of the energy infrastructure. When it comes to affordable housing, well, it is not completely clear to me how to understand this in the government program. They want to have a cap on rents. Well, this is a bit counterintuitive. If you want to help the construction industry.

But in the past twenty five years, we have developed models that help us to make housing more affordable. What do I mean by that? Well, this is not just an announcement. We have demonstrated this over many years. We have, shown this for nonprofit builders in Bergenland or in Aspen, where we managed to lower the cost of land and to bring down the rent.

This is a model where we are ready to work with other not for profit companies in the area of real estate development and together with VIG or the Bonde des Immobilengesellschaft, the federal real estate company, that we are certainly going to carry on going forward. Now in terms of the transformation of the energy infrastructure, if you talk to representatives of the energy industry, we are seeing an investment need for about EUR 50,000,000,000, depending on who you talk to, so between EUR 48,000,000,000 and EUR 55,000,000,000. But I’m seeing this in a very positive light because I believe that this will generate a lot of economic momentum because this transformation of the energy infrastructure is something that we won’t be getting around because it has turned out that many private households are investing in solar panels, etcetera. So we need to change our central infrastructure where we just have one central power plant. Now this is more decentralized.

Energy is being produced in the households and how do you control this also in the various seasons. So we need to invest in this infrastructure. And as a rule, these companies that belong to the public authorities, so normally, they have a very good rating. For us, these are cash flows that are easy to calculate, which is good news. So these are things that we like to have on our balance sheet and that can also be securitized and sold to pension funds or insurance companies, so all those who are interested in long term cash flows.

So I think we can really contribute to that because the way the system is organized today is that any energy infrastructure investments will lead to higher energy costs. You can see this at the beginning of the year. Energy costs have increased by 25%, not because energy as such became more expensive but because they had to invest in the energy infrastructure. And in order to avoid any future inflation hikes, it will make sense to have a long term financing. And I think thanks to our good credit rating, we can do that.

Now let me talk about banking tax. Because in the political debate, often people are envious and they are saying broad shoulders contribute more, bear more of the burden. Well, it is not our broad shoulders. It’s not our money. It’s the money of our shareholders that we have here.

So we need to say this quite clearly. In the Schparkhausen Group, we have more than 40,000 private individuals who are shareholders. We have pension funds that are invested, and now things are taken away from them. Now maybe there are some political parties who have a few members, and we have private shareholders. We need to mention this because these things need to be considered because either it is the rich banks, the rich, the rich, the rich, the rich, the rich, the rich, the rich, the rich, the rich, the bank.

No, it is not our money. It’s the money of our shareholders.

Margarita Thill, Enterprise Communication, Erste Group: Your question was why the NPL ratio increased. Basically, it’s housing, commercial housing in Austria. And this also answers your second question, why the NPL ratio, coverage ratio is lower. And this figure shows the coverage of provisions of loan losses. So if you have a loan if you have a collateral loan, the NPL ratio is lower.

And if you have more collateralized loans, the NPL ratio is lower. And in contrast, if you don’t have collateralized loans, the EPL ratio is higher. I have a question relating to the Czech Republic. Currency reserves increased in The Czech Republic. Is this due to Helobank?

Increase from 101,000,000 to 195,000,000? And what’s the reason for that? It’s a strong increase.

Stefan Derfla, CFO, Erste Group: Well, we’re not a government that has foreign currency reserves. What do you exactly mean with this question? I’m not quite sure if I follow you.

Margarita Thill, Enterprise Communication, Erste Group: And in general, I wanted to refer to the development in Eastern Europe. If we look back to what happened in the past twenty years, it’s a success story, of course. We still see growth, but the economy has been constantly developing and we see a certain level of saturation. It is still a certain level of growth, but growth has attenuated at least in Serbia. What do you expect for the future?

Will it be a success story also in the future? Can we rely on Eastern Europe?

Peter Bosik, CEO, Erste Group: We believe that Eastern Europe is in a good position going forward for the coming fifty years. We have a good level of education, the quality of labor, the will of achieving things is very strong, and that makes a big difference. So there is a difference whether people want to achieve something or whether they’ve already reached a level of prosperity that is significant. Looking at Austria, of course, this is good news, but the financial assets of private households, well, it’s SEK870 billion. This is good news for people here in Austria, but it shouldn’t mean that they’re smug and lean back and are not ambitious anymore because we need the will to perform and commitment.

This doesn’t fall from the sky. This is the situation we are seeing in Eastern Europe. We believe that we will continue to invest in Eastern Europe. This has a positive impact and will continue to do so. And I believe that hope that Ukraine will soon be built up and then Eastern Europe will also play a big role.

And countries such as The Czech Republic, Romania, Poland in the past two or three years have demonstrated that as far as NATO is concerned and the geopolitical situation is concerned, that they do play an essential role and they’re more ready to engage in activities and take measures rather than many well established Western European countries, to put it that way. Now the second part of the question referred to Serbia or you mentioned Serbia. Well, I believe that Serbia is experiencing a very dynamic phase. If I remember the figures correctly, we are forecasting the highest growth there. Now this is a mix of different investors.

I think 55% of foreign direct investments come from the European Union, but there’s also significant investments coming from Middle East, from China, and has also geopolitical proximity to Russia because Serbia is one of the countries that did not implement sanctions against Russia. Now how Serbia will do in light of this geopolitical situation in the long term, well, it’s hard to assess.

Margarita Thill, Enterprise Communication, Erste Group: Mister Pachnend and mister Sveitli.

Stefan Derfla, CFO, Erste Group: Thank you. I’d like to talk about the banking levy. In terms of millions of euros, I mean, what is the absolute numbers or the figure that, Erste Bank is impacted by?

Peter Bosik, CEO, Erste Group: There is no legal basis yet. As the colleague from the Austrian press agency said correctly, well, there’s not really a lot of information at this point. What we do know is that this will mean 500,000,000 for the entire banking sector and then maybe 200,000,000 in the long term going forward. So there are no details as yet as well. We are counting on maybe 140, 2 50, 1 hundred and 60 million tops or something like that.

But, admittedly, this is just divining because as to the question of how this is going to be spread out and what the basis for this levy will be. Well, the last law that we had was after the banking and financial crisis. That’s back then when it was implemented. So we’ll have to see how what the intention is. And are there any control effects or whether this is just to close the budget gap?

Stefan Derfla, CFO, Erste Group: Two comments or questions. You said that this is our shareholders’ money. Now there’s a distribution rate of 51%, so or 41%. So is this your own funds, 60% at least?

Peter Bosik, CEO, Erste Group: Well, I don’t belong to myself. Well, who do you belong to, your wife? No. I mean, I don’t belong to myself as a company, the me company. Well, I belong to my shareholders.

Right? So even if we don’t distribute the dividend, it is still the own the ownership of the shareholders. So we have a high equity position. If you take a look at our share price, some shareholders would have liked to have a higher payout. But as Stefan said, we’re trying to use a very balanced long term approach.

Margarita Thill, Enterprise Communication, Erste Group: All right.

Stefan Derfla, CFO, Erste Group: That’s the key for my final question. 4.85, that’s the decline. So not a very well performing stock. Is this because of the banking levy or because of the flat perspective? Why is there this decline?

Last year, it was a well performing stock.

Peter Bosik, CEO, Erste Group: Absolutely. But if you have been in this business for a long time, you know that a record year does not only lead to increases of the price of the share. Essentially, we attribute this to the expectations that might have been even higher concerning a share buyback program. Other than that, the development of the share price over the past months has been actually excellent. But of course, you need to remain modest, and of course, things that go up can also go down.

But of course, we have a company value of about 26 or 27,000,000,000, so we’re quite sustainable. We’re always matching with Verbond, which is the most valuable company. So I believe that we’re doing quite well.

Margarita Thill, Enterprise Communication, Erste Group: Yes. Mister Sweety, mister Kinds, mister Nuts. And after that, I will read out the questions that have come in online.

Stefan Derfla, CFO, Erste Group: Mister Bosek, a hundred forty to a hundred and 60,000,000.

Peter Bosik, CEO, Erste Group: I’m not running as a ministry minister for finance.

Stefan Derfla, CFO, Erste Group: But he’s not very precise either, right, as we both know.

Peter Bosik, CEO, Erste Group: Yeah. I don’t have to comment everything.

Stefan Derfla, CFO, Erste Group: Anyway, that’s the money owned by your customers. But you’re in the same situation as the energy providers. They also pay a lot of taxes. And so this really is the money held by your shareholders and not money held by the company or the government. Anyway, I’d like to know the following.

At the beginning of your presentation, you refer to plans. You said that there should be more transparent pricing models. What is this exactly? The banks in general, not just your bank, but the entire group? Well, when it comes to price increases or new prices for the services rendered, will those be on offer in order to offset the losses?

I mean, this is something that your customers own. In order to offset the losses, will you do this? Will the banking service increase?

: Sorry. I appreciate

Peter Bosik, CEO, Erste Group: there’s two different, kettles of fish. I see a big difference between the bank levy and the energy levy because these energy companies well, they’re also the banks of the republic. They have some scattered holdings, but not really a lot. And anyway, they’re either owned by the federal states or by the federal government. So it’s like putting money from one pocket into the other pocket of your own pants.

So that will not lead to the energy prices or inflation going down, but that’s only my personal opinion. What I meant by more transparent pricing, well, refer to the asset management business because historically, like all other banks, we have pricing models where we have deposit fees, transaction fees as current fees for the product. And we’re in the process of making this process more transparent. And this is currently a pilot project of the Erste Bank Austria. We have another pilot project in The Czech Republic that has nothing to do with the banking levy.

Margarita Thill, Enterprise Communication, Erste Group: Mr. Keins, please.

Stefan Derfla, CFO, Erste Group: Now for a number of years now, the EU has defined requirements for sustainability reporting. Requirements have actually become more and more stringent. Now we’ve got the so called Omnibus Directive or it’s in the works. So 25% of sustainability reporting would need to disappear. So what 25% should fall by the wayside?

Peter Bosik, CEO, Erste Group: Well, I think in terms of what parts should be eliminated, maybe Steph and Dafla can come back on that. But that’s not essential. What is essential is that we need to differentiate between two things. We are absolutely committed to the energy transition and transformation of our energy systems. We want to accompany the energy industry in order to bring about this transition.

The European Central Bank is a regulator, considers this from the side of risks. So they’re saying we should only finance things that are not built in a flood prone area. So all of these things have an impact on the reporting side where the requirements with respect to reporting are extremely ambitious. Overly ambitious, we believe, because large companies we are working with do have all of this data, but many smaller companies simply don’t have this data. And we need to simplify this, and this this will be done through the Omnibus initiative where we consider what data can be obtained from customers by banks because we can’t report on things that don’t exist.

And I believe that the European Commission while I discussed things with two commissioners this week, well, they will take some time to evaluate how these facilitations are supposed to look. And of course, we like the fact that the EU is thinking about how it can not really reduce regulations, but make regulations simpler so that this makes all of our lives easier. And there’s a second part of your question.

: I saw it. Yeah. I read it.

Peter Bosik, CEO, Erste Group: Yes. I think this would go into too much detail. So the data we don’t have should not be reported on, of course.

Margarita Thill, Enterprise Communication, Erste Group: Let me ask you something. We hope that the green asset ratio, which must be shown by all banks, should have a wider definition so that you see what banks are actually doing and what Peter said to support the green transformation. Let me give you an example. A building, even if it satisfies our criteria of a taxonomy, cannot be integrated in the green assets if we don’t have expertise. And an example is this building here.

We all have expert opinions, and this costs a lot of money. And not all customers are willing to pay so much money for three different certificates. And even if you have the certificates and the building is built on an area which had been an agricultural area before, this is not 100%. So we would like to have a definition a definition a better definition in order to show what banks are doing for customer transformation.

Peter Bosik, CEO, Erste Group: Talking about our wishes, it’s almost Easter. So I have an Easter wish, if I may. I want the economy to recover, of course. And there’s a difference whether there’s a central register for these certificates or not. One of the reasons why we’re lagging behind in Austria is that, well, there are lots of energy performance certificates, but there’s no central register where they’re all pooled.

And we didn’t start ten years ago with all these energy certificates. So we would love the public authorities to support us in reaching these goals.

Margarita Thill, Enterprise Communication, Erste Group: Mister Notz,

Stefan Derfla, CFO, Erste Group: please. Now on the pricing models, mister Bosek, I understood you a bit differently. You were referring to the trading interface. So you’d become cheaper. Right?

Or right? Because Trade Republic and Flat and other providers, well, they’re focusing on the price and their interfaces are not all that sophisticated. Maybe you could, delve into this a bit. Who are the customers that you’re going to address? Well,

Peter Bosik, CEO, Erste Group: it’s different pricing models depending on the customer behavior. Are you one person who trades more often or do you have one or two trades per year? That’s what these different customer models are based on. This is just a pilot project that we engaged in. We’re not going to go down to the price level of Trade Republic because they’re not charging any fees.

And charging no fees is not really a sustainable business model. But in the past, they sold the water flow, which is no longer possible now based on the EU regulations. So we have to wait and see how these models evolve over time. And I believe that the major difference in our case is that we also provide advisory services. So we don’t leave our customers standing in the ring.

You can call me anytime.

Margarita Thill, Enterprise Communication, Erste Group: Okay. Let’s continue with the questions that were asked online.

Stefan Derfla, CFO, Erste Group: Let me briefly come in here. Just just a minute or even less than a minute. And, of course, I tried very hard to, talk about, or to to address the issue of of foreign exchange reserves asked by the journals. There’s a problem. Now the term is something that we know from government budgets, gold reserves.

It’s not the proper term, but, of course, it’s a valid question. There’s a change, but that is not a change as far as holdings go. But the profit and loss item, a hundred and five, that’s what you mentioned, that referred to ’23. Ninety ’5, ’20 ’20 ’4. So the change in ’24 results 50% from depreciations of the Czech crown or devaluations and the Hungarian foreign.

But it’s the December 31. That’s what what you also have to keep in mind. The Chekron has picked up again. Now in ’23, however, the foreign actually saw its value increase. Chekron saw its value decrease.

So that’s why in ’23, you had an impact of 01/2005 and ’95 and ’twenty four. So just to put things into perspective, we are talking about overall dimensions

Peter Bosik, CEO, Erste Group: occurring

Stefan Derfla, CFO, Erste Group: in Czech Republic, Romania. We’re talking about billions of capital allocations. So this item is actually quite small. But thank you very much for this question. It took me a while to actually unearth this item.

Thank you.

Margarita Thill, Enterprise Communication, Erste Group: Thank you. Okay. Let’s continue with the questions that were asked online. First question by Gerhard Hufbauer from Kronen Seitchell. Please give us a short statement on problems in salary remittances.

: And probably in the

Peter Bosik, CEO, Erste Group: That’s a problem with the European Central Bank. Its payment transaction system, Target (NYSE:TGT) two is the name. But I think these problems have been fixed by now. So pensions will be paid out today, and it should all be sent out at 01:00.

Margarita Thill, Enterprise Communication, Erste Group: Second.

Peter Bosik, CEO, Erste Group: But still, let me use this opportunity to apologize for all the failed payment transactions

Margarita Thill, Enterprise Communication, Erste Group: Hungary. The negative interest in your CE markets?

Alexandra Havel, Risk Management, Erste Group: Interest rates, is the question probably.

: It just says

Margarita Thill, Enterprise Communication, Erste Group: interest, but I think interest rates probably.

Alexandra Havel, Risk Management, Erste Group: The answer is clearly no. We would assume a kind of stabilization where, okay, using the word stabilization these days is maybe a little bit risky. But we would see the inflation numbers in the forthcoming months to hovering around the current levels. And we expect the respective central banks to cut slightly but not dramatically from current levels. That’s the assumptions to be concrete, touching upon the most important one in Central Eastern Europe for us, the Czech National Bank, would it’s our assumption they will go somewhere to the area of 3% to 3.25% from currently 3.5%.

Three point two five %, there was already a cut, but not much lower. So definitely not towards any kind of negative interest rate levels.

Margarita Thill, Enterprise Communication, Erste Group: Thank you. Next (LON:NXT) to Ragen, Ms. Janica. Is your perspective regarding the banking sector in Romania during this difficult time? Do you think you will remain the number two bank in Romania?

Are you planning or looking at an acquisition opportunity in Romania? If so, do you think that the National Bank of Romania will allow you to do so?

: It’s a very good question. National Bank in Romania. But we are very happy with our operations in Romania. I think they’re in very good shape. Also profit wise, they improved over the last years very strongly.

So as we already consistently communicated over the last time that we are, of course, interested in all our existing markets for opportunities when it comes to M and A. So far, to be very precise, when it comes to Romania, we don’t see actually some kind of movements where we are looking at.

Margarita Thill, Enterprise Communication, Erste Group: Next question comes also from Romania from The Wall Street Journal. Is your company considering expanding into Romanian market through strategic mergers or acquisitions?

Alexandra Havel, Risk Management, Erste Group: Yes. That’s about the 60 exactly the same. Peter already addressed it. Nothing to add. We have not seen any material opportunity popping up.

There were discussions about one or the other player rather in ’twenty three already than in ’twenty four. These have been coming down. And the current strategy is very clearly, and we have discussed it with our Romanian colleagues very intensively in the course of the strategy dialogue in autumn, is to push the organic growth and strengthen our market position this way.

Margarita Thill, Enterprise Communication, Erste Group: Next question by Alexander Zens. Greetings from Linz. I think one question has already been answered, but I’ll read the questions anyway. Two questions. First question, relating to the banking levy, what is the amount Erste Group or Sparkhausen Group has to pay if we had a new banking level levy?

Secondly, what do you think about bank tellers in communities without installing tellers?

Peter Bosik, CEO, Erste Group: Yes. I think we already addressed the first question. And the second question, were ATMs that are put up in municipalities without any banks intervening. Well, I think there have been intensive discussions driven by the central bank. And I think there was an agreement about how the ATMs should be distributed in rural areas.

And we fully understand that access to cash in small municipalities is important if there’s no bank there. So the customers fully understand this.

Margarita Thill, Enterprise Communication, Erste Group: Les. Tashmir Kolunda from WAIF.

Stefan Derfla, CFO, Erste Group: I’d like to know something about the banking levy. A hundred and 40 to a hundred and 60,000,000. That was your estimate. Right? So we’re talking about 140,000,000 to 160,000,000 annually for the next two years.

Over and above that, could you mention some figures?

Peter Bosik, CEO, Erste Group: Well, actually, it should then go back more or less to the levels that we are currently seeing. Well,

Stefan Derfla, CFO, Erste Group: we know, extracts from the government program. And it says quite clearly that in ’twenty five and ’twenty six, there’ll be 500,000,000 to be followed by $250,000,000 in the years to come. So two divided by five multiplied by something, easy calculations. But we often claim that a banking levy were to be introduced now, but some of you wrote this correctly, if there were an increase of the existing banking levy. Well, we’re not talking about huge numbers, but in ’twenty four, it was 40,000,000 to 50,000,000.

That was the banking levy that we paid. I’m just talking about Austria, of course. So in order to address this question, we’d have to look into the implementation of this increase and are we talking about the delta or the absolute figures. But the numbers mentioned by Peter Bosik, those are the numbers that we base our assumptions on.

Peter Bosik, CEO, Erste Group: And one more comment. We already paid 1,000,000,000 lump sum to make sure that there’s no other banking levy going forward.

Margarita Thill, Enterprise Communication, Erste Group: I don’t see any further questions. Yes, Ms. Stottmoe. I wanted to come back to corporate loans because you have a rather challenging outlook. Could you tell us more about that?

What is worrying you? What to expect from companies? I think corporate loans are measuring the economy and economic development.

Peter Bosik, CEO, Erste Group: I think this is quite ambitious. If we have 0.6% economic growth, then we still are seeing positive results. But what we are seeing in the area of enterprises is that there is a demand in the larger corporate business. So there is a demand for that. And also in the commercial real estate, well, for commercial real estate, you need to be careful because in the past two or three years, commercial real estate always had a negative connotation.

We need to differentiate. This is a very broad connotation when we talk about data centers, for example. These are really top of the line. And then also anything that has to do with logistics due to the change and transformation of traditional trade. And then there’s offices.

Well, this is maybe not the place to be. So that’s quite a mixed bag. But this is where we are seeing an increased demand. Where we’re not yet seeing a lot of demand as we would wish it, and this is the SME or small and medium sized enterprises. This is where we are seeing a very reduced demand, subdued demand.

But this is the case for all the countries we’re operating in. And the economic structure in Central And Eastern Europe. Well, normally, this small scale structure is good because it is good for job stability and well diversified. But this is where we don’t have enough demand yet. And to come back to Austria, it has something to do with the general mood that prevails, the optimism.

So we are faced with the situation where the financial assets of private households has reached maximum and still people don’t see a positive outlook into the future. And any entrepreneur in an SME will only take out a loan if they are under the impression that their business is likely to improve. And this higher amount of assets combined with the high savings rates and a very subdued demand for loans in SMEs, well, this is the mental handbrake that I referred to. We can only release this handbrake if we all contribute to ensure that we create an overall sentiment where people believe in a better future and where they want to perform and move forward. And even though we don’t like, for example, the banking levy, we feel that we have a responsibility.

We’ll contribute everything we can to help this country recover. And since 1950, we’ve never seen such a phase. So it will be urgent, to act quickly. And I think, mister Feldmeier also said it. We should not wait for too long.

We’ve had long discussions about who gets what and, who gets what job. Now it’s about getting

Margarita Thill, Enterprise Communication, Erste Group: I have a question relating to the KIM regulation. It expires by midyear. And there were the FSMG issued guidelines. What is your opinion? Will this change something as far as the environmental conditions are concerned?

Or will it change the market environment as far as housing credits are concerned?

Peter Bosik, CEO, Erste Group: Well, if I’m getting this question right, we had the KIM regulations, real estate financing, that is different than what we have now. So this is the Financial Market Stability Body that recommended that the Financial Market Authorities should generate such guidelines, which would look like the KIM Ordinance previously. Well, these guidelines have not yet been published. They will probably be published sometime after June. And secondly, well, I would not really overemphasize this issue because what we’re seeing since the end of the second quarter of last year that housing finance is picking up.

So I believe that demand for housing finance is a matter of prices and interest rates rather than the Kim regulation. But anyway, what we’d wish for would be less bureaucracy because, well, then I have to well, this requires a lot of note taking and bookkeeping. So the regulators were in times when interest rates were very high and really state prices were going down, well, the way it was implemented was a bit anticyclical. But anyway, I would not really attribute too much importance to the issue.

Margarita Thill, Enterprise Communication, Erste Group: Okay. Thank you very much for your questions. We’re coming to an end. Thank you very much for asking questions. Thank you very much for coming.

And if there are any questions that haven’t been answered, my team and I will be available to you. Thank you very much.

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