• Operating result of 1.69 billion euros driven by improved fee performance, turnaround in net trading & fair value result, and stable net interest income
• Risk costs down nearly 90% YoY in H1/2021, reflecting benign risk environment 
• Half-year net profit increases to 918 million euros 
• Solid lending growth and continued significant deposit inflows
• Dividends: EUR 1.00 DPS catch-up dividend for 2020, EUR 1.60 DPS target for FY2021

Erste Group, the leading lender in Central and Eastern Europe, continued its strong business performance in 2021 by posting a 24% year-on-year rise in its operating result to 1.69 billion euros for the first half of the year (H1/2020: 1.36 billion euros). This was driven by solid net interest income, a significant rise in net fee and commission income and the strong increase in the net trading and fair value result. With the risk environment in the region remaining favourable in the first half of 2021, the banking group posted risk costs of 83 million euros, compared to 675 million euros a year earlier, when Erste undertook a front-loading response to the risk associated with the outbreak of the Covid crisis. The Group’s net profit increased to 918 million euros (H1/2020: 294 million euros). The comparison to a pre-Corona year: net profit was 732 million euros for the first half of 2019.

Erste Group CFO Stefan Dörfler: “As we’re a bank that’s closely linked to the real economy, the ongoing macro upswing is directly reflected in our balance sheet. A solid earnings situation, stable costs and a significantly lower volume of risk provisions compared to the Corona year 2020 have all contributed to a clear improvement in our half-year results. We are cautiously optimistic for the year 2021 as a whole, even as we are aware that much depends on the further course of the pandemic and its medium-term impact on the economy."

OPERATING INCOME POSTS 9.2% GAIN

Net interest income increased by 2.2% year-on-year to 2.45 billion euros, primarily due to one-off effects in connection with the take-up of the European Central Bank's longer-term refinancing operations (TLTRO III) in Austria and Slovakia. Net fee and commission income rose by nearly 15% to 1.10 billion euros, reflecting increases posted across all fee and commission categories and core markets. Significant fees growth was seen most notably in payment services, as well as in asset management and in the securities business. Valuation effects helped lift the total revenues attributable to the net trading result and the line item gains/losses from financial instruments measured at fair value to 127 million euros, compared to 9 million euros a year earlier. Collectively, these developments led operating income in the first half of 2021 to increase by 9.2% year-on-year to 3.79 billion euros.

EXPENSES UNDER CONTROL

Thanks to strict cost management, general administrative expenses were reduced by 0.6% year-on-year to 2.10 billion euros, supported by a 1.3% decline in personnel expenses to 1.25 billion euros. Headcount (on a FTE basis) declined by 1.2% YTD to 45,124 at the end of June 2021. Other administrative expenses were slightly (0.4%) lower at 581 million euros despite a 18% rise in payments into deposit insurance schemes to 109 million euros. Most of the contributions expected for 2021 have already been posted upfront. Depreciation and amortisation rose by 2.6% to 273 million euros.

NET PROFIT: STRONG OPERATING RESULT, LOWER RISK COSTS

The operating result increased by over 24% year-on-year to 1.69 billion euros and the cost/income ratio improved to 55.5% (H1/2020: 60.9%). Due to net allocations, the impairment result from financial instruments (“risk costs”) amounted to -83 million euros, or 10 basis points of average gross customers loans; this compares to risk costs of -675 million euros (or 82 basis points) during the same period in 2020. Net allocations to provisions for loans, as well as for commitments and guarantees, were posted in all core markets with the exception of Austria, but these allocations remained generally at a low level. The NPL ratio based on gross customer loans improved to 2.5% (December 2020: 2.7%), while the NPL coverage ratio increased to 91.4% (88.6%).

Other operating result amounted to -172 million euros in the first half of 2021, compared to -170 million euros a year earlier. Expenses for the annual contributions to resolution funds for the full year 2021 included in this line item rose – most strongly in Austria and Romania – to 108 million euros (H1/2020: 94 million euros). The 37% year-on-year decline in banking levies to 52 million euros is primarily attributable to the abolition of banking tax in Slovakia. At present, banking levies are payable in two core markets: in Hungary, banking tax for the full financial year amounted to 14.9 million euros (14.3 million euros) and transaction tax for the first six months to an additional 23.3 million euros (22.3 million euros). In Austria, banking tax equalled 13.9 million euros (12.6 million euros).

Taxes on income increased by 105% year-on-year to 287 million euros. The minority charge rose by 202% year-on-year to 230 million euros due to the significantly higher earnings contributions of the savings banks. On the back of the strong operating result and low risk costs, the net result attributable to owners of the parent rose to 918 million euros (294 million euros).

ERSTE GROUP RETURNS TO PROGRESSIVE DIVIDEND POLICY

Following the resolution of the Annual General Meeting held in May 2021, a cash dividend of 0.50 euro per share was paid out already on 27 May 2021 for the 2020 financial year. In addition, Erste Group intends to pay out a further 1.00 euro per share in the fourth quarter of 2021, in line with the ECB's recommendations and subject to the approval provided by an Extraordinary General Meeting. For the financial year 2021, Erste Group currently plans to pay a dividend of 1.60 euro per share. For the current financial year, 0.80 euro per share has already been taken into account in the regulatory capital. 

LENDING AND DEPOSIT VOLUMES CONTINUE TO GROW

Total assets increased by 9.4% since the start of the year to 303.4 billion euros. On the asset side, cash and cash balances increased, primarily in Austria, to 48.4 billion euros (December 2020: 35.8 billion euros), while loans and advances to banks rose to 24.5 billion euros (21.5 billion euros). Loans and advances to customers rose by 3.7% in the reporting period to 172.1 billion euros.

On the liability side, deposits from banks grew by nearly 40% to 34.6 billion euros as a result of increased ECB refinancing (TLTRO III). Customer deposits rose again, namely by 7.9%, in all core markets – most strongly in Austria and the Czech Republic – to 206.3 billion euros. The loan-to-deposit ratio declined to 83.4% from 86.9% at the end of 2020. The bank’s common equity tier 1 ratio (CET1, final) stood at 14.2% at the end of June.