BoAML Annual Financials CEO Conference September 2018, London Erste Group: Being successful in Central and Eastern Europe Andreas Treichl, CEO Erste Group
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. 2
Presentation topics Business environment in Central and Eastern Europe Erste Group business performance Digital banking Conclusion & Outlook Appendix 3
Operating in the most promising region of Europe CEE and Austria have outgrown the Euro zone 7 6 5 4 3 2 1 0-1 -2-3 -4-5 Real GDP growth in the Euro zone, Austria and CEE (in %) CEE avg (2000-2018f): 3.1% Austria avg (2000-2018f): 1.7% Euro zone avg (2000-2018f): 1.6% -6 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018f Source: Erste Group Research, Eurostat *CEE includes Erste Group s CEE markets (CZ, SK, RO, HU, HR, RS) Euro zone Austria CEE* 4
Operating in the most promising region of Europe Despite faster growth CEE still represents huge potential 100 GDP per capita in Austria and CEE (in EUR th) 10 Source: Erste Group Research Austria (2018f): EUR 44,200 Hungary: EUR 13,300 Czech Republic: EUR 19,800 Croatia: EUR 12,000 Slovakia: EUR 16,500 Romania: EUR 10,300 1 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018f AT CZ SK RO HU HR 5
10,000 Operating in the most promising region of Europe Recent wage increase in CEE represents convergence of the region Nominal wage in Austria and CEE/month (in EUR) 1,000 100 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018f Source: Erste Group Research Austria (2018f): EUR 2,800 Hungary: EUR 1,000 Czech Republic: EUR 1,300 Slovakia: EUR 1,000 Croatia: EUR 1,100 Romania: EUR 900 AT CZ SK RO HU HR 6
Operating in the most promising region of Europe Some of the CEE countries have among the lowest unemployment in the EU Unemployment rate in Austria and CEE (in %) 25 20 Croatia (2018f): 9.6% Romania: 4.6% Slovakia: 6.9% Hungary: 3.7% Austria: 5.1% Czech R: 2.3% 15 10 5 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018f AT CZ SK RO HU HR Source: Erste Group Research 7
Operating in the most promising region of Europe Interest rates have moderately started to increase 40 Key policy rates in Austria and CEE (in %) 35 30 Romania (current): 2.5% Croatia: 0.3% Czech Republic: 1.25% Austria: 0.0% Hungary: 0.9% Slovakia: 0.0% 25 20 15 10 5 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018f AT & SK CZ RO HU HR Source: National banks, Erste Group Research 8
Presentation topics Business environment in Central and Eastern Europe Erste Group business performance Digital banking Conclusion & Outlook Appendix 9
Business performance Operating performance review and outlook 2018: Operating turnaround under way, as volumes grow and interest rates rise moderately 2011-2017: Low interest rates and slow banking market recovery bite into revenues 2009-2010: Financial crisis induced outliers, especially driven by exceptional trading results 1998-2008: High growth phase driven by acquisitions and organic growth 72% 70% 68% 67% 68% Cost/income ratio 64% 64% 62% 60% 61% 61% 51% 50% 53% 53% 56% 55% 57% in EUR bn 62% 60% Operating result 0.7 0.3 0.4 0.5 1.2 1.4 1.5 1.6 2.0 2.4 2.6 3.8 3.9 3.6 3.4 3.1 3.1 2.9 2.7 2.5 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 10
Business performance Risk costs and asset quality 2015-now: Low interest rates and economic recovery drive risk costs to unprecedented lows 2008-2014: Financial crisis leads to economic downturn and deleveraging, resulting in spike of risk costs and asset quality 1998-2007: Benign risk environment on the back of economic and volume growth NPE ratio Risk costs 4.7% 5.4% 5.7% 6.1% 5.4% 4.6% in EUR bn 2.1% 2.3% 2.5% 3.8% 3.4% 2.9% 2.6% 2.5% 2.2% 2.9% 1.3 4.1% 2.1 2.1 2.4 2.1 1.8 2.1 3.3% 2.8% 0.1 0.1 0.2 0.2 0.4 0.4 0.4 0.4 0.4 0.4 0.7 0.2 0.1 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 11
Business performance Loan growth and loan/deposit ratio From 2009: continued decline of LDR towards 90%, initially driven by financial crisis induced deleveraging, followed by consistently higher deposit than loan growth 2000-2008: Expansion into CEE initially drives down LDR before growth lifts it to 112% 1998-1999: Post-Girocredit merger and pre-cee expansion, Erste was dependent on wholesale funding 136% 135% in EUR bn 108% 110% 105% 105% 105% 107% 111% 112% 111% 107% 108% 108% 101% 98% 99% 98% 95% 92% LDR ratio Customer loans 39 26 26 31 64 68 73 80 97 111 122 124 127 128 124 120 121 126 131 140 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 12
Business performance Tangible equity per share CAGR (1998-2018) > 8% 2018 ytd decline in TE/share driven exclusively by IFRS 9 adoption, underlying continued growth 2015-2017: improved profitability drives TE/share growth 2008-2014: TE/share growth driven primarily by goodwill writedowns and equity issuance 1998-2007: Limited TE/share growth in acquisition phase, significant build-up in goodwill 60 55 50 45 40 35 30 25 20 15 10 5 TE per share YE share price 0 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 13
Presentation topics Business environment in Central and Eastern Europe Erste Group business performance Digital banking Conclusion & Outlook Appendix 14
Embracing digital banking Changing customer behaviour Online banking penetration (in %) 60 50 40 Austria: 57% (2017) Hungary: 38% Czech Republic: 57% Croatia: 33% Slovakia: 51% Romania: 7% Euro zone avg: 51% 30 20 10 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 AT CZ SK RO HU Very high penetration in Northern European countries (90%) compared to Southern Europe (30%) Penetration of CEE countries is expected to significantly increase further HR Source: Eurostat; Croatia not available for 2005 and 2006 15
Embracing digital banking Branch has become less important to customers 1,045 Erste Group: Number of branches 900 Erste Group (Dec 2010): 3,204 branches 667 668 Erste Group (June 2018): 2,524 branches 504 509 291 260 184 114 141 150 AT CZ SK RO HU HR Erste Group s branch network has been significantly reduced in the last eight years Further scope for branch network reduction 2010 June 2018 16
Embracing digital banking Continuous increase of digital clients 1.5 Erste Group: Number of digital clients (in mn) 1.8 Erste Group (Dec 2010): 2.6 mn clients 1.1 0.9 Erste Group (June 2018): 5.1 mn clients 0.7 0.5 0.4 0.1 0.2 0.1 0.1 0.3 AT CZ SK RO HU HR Value in customer data 2010 June 2018 Digitalisation will lead to cost reductions from smaller branch network and lower transaction costs 17
Embracing digital banking George goes to CEE 100 years ago the first autopilot in aviation history was named George George was developed in Austria with an introduction in January 2015 Launched in Slovakia and Czech Republic in H1 2018 Romania to follow in the autumn of 2018; other CEE countries in 2019-2020 Number of clients has recently reached 3 million 18
Presentation topics Business environment in Central and Eastern Europe Erste Group business performance Digital banking Conclusion & Outlook Appendix 19
Conclusion Outlook 2018 Macro outlook 2018 Real GDP growth of approx. 3-4% expected in 2018 in CEE and Austria Real GDP growth to be driven by solid domestic demand, as real wage growth and low unemployment support economic activity in CEE Solid public finances across CEE Business outlook 2018 ROTE for 2018 targeted at 10%+ (based on average tangible equity in 2018) Assumptions for 2018: slightly growing revenues (assuming 5%+ net loan growth and interest rate hikes in CZ and RO); slightly falling expenses due to lower projectrelated costs; risk costs to remain at historically low levels Risk factors for guidance Impact from other than expected interest rate development Political or regulatory measures against banks Geopolitical risks and global economic risks 20
Presentation topics Business environment in Central and Eastern Europe Erste Group business performance Digital banking Conclusion & Outlook Appendix 21
Additional information: footprint Customer banking in Austria and the eastern part of the EU Erste Group footprint Highlights Czech Republic Customers: 4.7m Employees: 10,086 Slovakia Customers: 2.2m Employees: 4,184 Leading retail and corporate bank in 7 geographically connected countries AT CZ HR SK HU RS RO Branches: 504 Branches: 260 Hungary Customers: 0.9m Employees: 3,053 Branches: 114 Romania Favourable mix of mature & emerging markets with low penetration rates Potential for cross selling and organic growth in CEE Customers: 3.3m Employees: 7,200 Branches: 509 Direct presence Austria Croatia Serbia Indirect presence Customers: 3.6m Customers : 1.2m Customers: 0.5m Employees: 16,287 Employees : 3,250 Employees: 1,091 Branches: 900 Branches: 150 Branches: 87 Employees: FTEs as of end of reporting period 22
Additional information: Ratings Composition of Erste Group Bank AG s issuer ratings Asset Risk Capital Profitability Funding Structure Liquid Resources baa2 baa1 baa3 a3 baa1 Business Diversification 0 Opacity, Complexity 0 Corporate Behaviour 0 BCA Baseline Credit Assessment baa1 Affiliate Support 0 Adjusted BCA Macro Profile Strong + Financial Profile + Qualitative Factors = + = + baa1 LGF Loss Given Failure + 2 Government Support 0 = Issuer Rating / Senior Unsecured Long-Term Outlook / Short-Term A2 Positive / P-1 SACP - Stand-Alone Credit Profile Anchor Business Position Strong +1 Capital & Earnings Adequate 0 Risk Position Adequate 0 Funding Liquidity Support ALAC Support GRE Support Group Support Sovereign Support Additional Factors a + + Above Average Strong bbb+ = Issuer Credit Rating Long-Term Outlook / Short-Term A Positive / A-1 0 0 0 0 0 0 +1 VR - Viability Rating (Individual Rating ) a- SRF - Support Rating Floor NF (No Floor) IDR - Issuer Default Rating Long-Term Outlook / Short-Term A- Stable / F1 Status as of 30 April 2018 23
Additional information: shareholder structure Total number of shares: 429,800,000 By investor By region Unidentified * Erste Foundation 1 Unidentified * Identified Trading ** BlackRock Inc. T. Rowe Price Group Inc. 4.0% 4.2% 3.1% 9.5% 11.2% 5.6% Savings Banks & Savings Banks Foundations 2 3.1% Other Syndicated 3 Identified Trading ** Rest of world 3.1% 3.0% 9.5% 27.6% Austria 9.9% Caixa Institutional 43.7% 0.7% 5.0% Employees 4 Retail Continental Europe 1 Economic interest Erste Foundation 2 Economic interest Savings Banks & Savings Banks Foundations 3 Other parties to the shareholder agreement of Erste Foundation, Savings Banks and CaixaBank 4 Including Erste Employees Private Foundation * Unidentified institutional and retail investors ** Including Market Makers, Prime Brokerage, Proprietary Trading, Collateral and Stock Lending positions which are visible through custodian banklists 25.7% 15.0% UK & Ireland 16.1% North America Status as of 21 August 2018 24