“Considering the unprecedented crisis environment, Erste Group’s profitability remains satisfactory at 637 million euros in net profit for the first nine months of 2020, with the third quarter being very strong. Our operating income decreased only by 2 percent year-on-year, loan loss provisions amounted to 70 basis points, and continued cost discipline resulted in lower expenses year-on-year. These results speak to the strength of our business model, our capital position, as well the resilience of the Central and Eastern European markets in which we operate.
The economic outlook for 2021 depends on the course of the pandemic. In any case, our commitment to continue supporting our customers and delivering results for our shareholders remains as solid as ever,” comments Stefan Doerfler, CFO of Erste Group.
EARNINGS PERFORMANCE IN BRIEF
In the interim management report, financial results from January- September 2020 are compared with those from January-September 2019 and balance sheet positions as of 30 September 2020 with those as of 31 December 2019.
Net interest income increased – mainly in Austria, but also in Romania – to EUR 3,589.3 million (+2.0%; EUR 3,517.4 million). Net fee and commission income decreased to EUR 1,448.3 million (-2.4%; EUR 1,484.3 million) as lower income from payment services (EUR 17 million due to SEPA) and lending was not fully offset by higher income from other fee and commission income categories. While net trading result declined significantly to EUR 9.0 million (EUR 419.3 million), the line item gains/losses from financial instruments measured at fair value through profit or loss improved to EUR 81.4 million (EUR -189.4 million), both line items being impacted by valuation effects due to market volatility amid the Covid-19 pandemic. Operating income decreased to EUR 5,285.8 million (-2.0%; EUR 5,394.1 million). General administrative expenses declined to EUR 3,123.2 million (-1.2%; EUR 3,160.8 million). While personnel expenses rose to EUR 1,902.2 million (+0.8%; EUR1,887.2 million), other administrative expenses were reduced to EUR 819.0 million (-6.9%; EUR 879.3 million). Almost all payments into deposit insurance schemes expected for 2020 – EUR 100.3 million (EUR 97.7 million) – are already included in other administrative expenses. Amortisation and depreciation amounted to EUR 402.0 million (EUR 394.4 million). Overall, the operating result declined to EUR 2,162.7 million (-3.2%; EUR 2,233.3 million). The cost/income ratio rose to 59.1% (58.6%).
Due to net allocations, the impairment result from financial instruments amounted to EUR -870.1 million or 70 basis points of average gross customers loans (net releases of EUR 42.9 million or -4 basis points). Allocations to provisions for loans as well as for commitments and guarantees given went up in all core markets. The marked rise in allocations to provisions was primarily driven by the deterioration in the macroeconomic outlook due to Covid-19. A positive contribution came from high income from the recovery of loans already written off in Romania. The NPL ratio based on gross customer loans improved to 2.4% (2.5%). The NPL coverage ratio increased to 95,5% (77.1%).
Other operating result improved to EUR -213.6 million (EUR -397.2 million). Expenses for the annual contributions to resolution funds included in this line item rose – in particular in Austria – to EUR 93.7 million (EUR 75.3 million). The rise in banking and transaction taxes to EUR 100.3 million (EUR 90.9 million) is primarily attributable to banking levies in Slovakia in the amount of EUR 33.8 million (EUR 24.2 million) posted for the last time in the first half of the year. Hungarian banking tax for the entire financial year 2020 was EUR 14.4 million (EUR 12.6 million). In the comparative period, other operating result included allocations to a provision in the amount of EUR 150.8 million set aside for losses expected to result from a supreme court decision concerning the business activities of a Romanian subsidiary.
Taxes on income declined to EUR 264.2 million (EUR 350.9 million). The minority charge decreased to EUR 177.1 million (EUR 322.7 million) due to significantly lower earnings contributions of the savings banks. The net result attributable to owners of the parent amounted to EUR 637.1 million (-47.9%; EUR 1,223.0 million).
Total equity not including AT1 instruments rose to EUR 19.5 billion (EUR 19.0 billion). After regulatory deductions and filtering in accordance with the CRR, common equity tier 1 capital (CET1, final) increased to EUR 16.4 billion (EUR 16.3 billion), total own funds (final) rose to EUR 22.4 billion (EUR 22.0 billion). While interim profit of the first half year is included in the above figures, interim profit for the third quarter is not. Total risk – risk-weighted assets including credit, market and operational risk (CRR, final) – decreased to EUR 116.1 billion (EUR 118.6 billion). The common equity tier 1 ratio (CET1, final) increased to 14.1% (13.7%), the total capital ratio to 19.3% (18.5%).
Total assets rose to EUR 272.0 billion (EUR 245.7 billion). On the asset side, cash and cash balances increased, primarily in Austria, to EUR 27.8 billion (EUR 10.7 billion), loans and advances to banks to EUR 25.7 billion (EUR 23.1 billion). Loans and advances to customers increased to EUR 164.5 billion (+2.6%; EUR 160.3 billion). On the liability side, deposits from banks grew significantly to EUR 26.4 billion (EUR 13.1 billion) as a result of increased ECB refinancing (TLTRO). Customer deposits rose again – in particular in the Czech Republic and Austria – to EUR 184.8 billion (+6.3%; EUR 173.8 billion). The loan-to-deposit ratio stood at 89.0% (92.2%).