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Erste Group – Bank of America Merrill Lynch Banking Conference 25-26 September 2013, London

Erste Group – Prepared for growth in Central and Eastern Europe Gernot Mittendorfer, CFO, Erste Group

Prepared for growth in CEE BoA ML Banking Conference 25-26 September 2013

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.


3

Presentation topics

−Macroeconomic snapshot

−Erste Group − Balance sheet development − Operating performance − Asset quality review − Update on banking tax − Capital − Update on Romania

−Outlook

−Appendix


-0.8-0.3

0.20.5 0.5

1.8

2.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

HR CZ HU SK AT RS RO

in %

Real GDP growth (2013e)

4

Macroeconomic snapshot – CEE to benefit from strong fundamentals − CEE continuously outgrows the Eurozone

− Growth mainly driven by exports − Eurozone’s weakness still a drag on current economic developments in CEE

− CEE will benefit from its favorable economic fundamentals − CEE is an excellent region for exports with ideal location next to big consumer markets − Strong industrial basis − CEE converges to EU levels of productivity with still low labor costs − Competitiveness expected to improve compared to Western Europe − Relatively low indebtedness

2013 Eurozone avg: -0.3%

Source: Erste Research

22 2534

42

78 7988

0

20

40

60

80

100

HR RS RO AT CZ HU SK

in %

Exports / GDP (2013e)


5

Macroeconomic snapshot – Consumer confidence in CEE has improved in H1 2013

Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013

Consumer confidence in CEE

CZ Eurozone SK HU RO HR

Source: European Commission


6

Macroeconomic snapshot – Falling inflation in a very low interest rate environment − Falling inflation in all CEE countries

− Driven mainly by subdued fuel and food prices − Hungary: inflation is at 38-year low reflecting administrative price reductions and lack of domestic demand − Romania: better agricultural performance expected to drive down food prices in 2013 − Low inflation expected to raise the purchasing power of consumers

− Very low interest rate environment − Historically low base rates in Czech Republic (0.05%), Romania (4.50%), and Hungary (3.80%) − Despite low rates currencies have performed relatively stable − Low rates expected to support economic growth across the region

Source: Erste Research, National banks

0

5

10

15

20

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F

in %

CPI (YE) in CEE

RS RO HU HR SK AT CZ

2013F: RS: 5.4% RO: 4.7% SK: 2.5% HU: 2.3% HR: 2.2% AT: 2.1% CZ: 1.7%

0.05 0.50 0.50

3.804.50

6.00

11.00

0

4

8

12

CZ AT SK HU RO HR RS

in %

Key interest rates in CEE


7

Presentation topics



−Outlook

−Appendix


8

Balance sheet development – Strong customer deposit base − Customer loans are the key asset component, amounting to 62% as of June 2013 − Deposits from private individuals and SMEs represent 93% of customer deposits as of June 2013 − Loan/deposit ratio improved to 106% as of June 2013 (2008: 115%) − Substantial increase of equity (EUR 16.2bn as of June 2013) over time (2008: EUR 11.1bn)

7380

97

114126 129 132 135 132 130

68 73

91100

109 112 117 119 123 123

107% 110% 107%114% 115% 115% 113% 113% 107% 106%

0%

50%

100%

150%

200%

0

40

80

120

160

2004 2005 2006 2007 2008 2009 2010 2011 2012 Jun.13

in E

UR b

n

Balance sheet development

Customer loans Customer deposits Loan/deposit ratio


465

222 61

0

470

571

481

-279

588

335

434

384

340

433

380

531

553

504

433 46

0

461

938

408

581

401

484

515

402

430

996

775

1,114902 1,031 942 659 996 916 836 867 854 835 809

-400

0

400

800

1,200

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

Q312

Q412

Q113

Q213

Operating result(in EUR mn)

Post-provision profit Risk provisions

9

Operating performance – Operating result reflects strict cost control − Sound underlying operating performance

− Cost/income ratio reflects continuous and very strict cost control − Relatively resilient margins despite the very low interest rate environment − Net interest income and net fee income account for 95% of operating income

CIR: 52.8% as of H1 2013 NIM: 2.67% as of H1 2013


10

Asset quality – Declining risk costs but pressure on net interest margin

1.64% 1.69% 1.54% 1.31% 1.38% 1.37%2.77%

1.20% 1.72% 1.19% 1.45% 1.56% 1.23% 1.33%

0%

2%

4%

6%

8%

Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13

Risk cost development

Group Austria CEE

3.05% 3.07% 3.16% 3.05% 2.90% 3.08% 3.17% 3.13% 2.87% 2.78% 2.82% 2.73% 2.74% 2.62%

1%

2%

3%

4%

5%

Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13

Net interest margin development

Group Austria CEE


11

Update on banking tax – Banking taxes have a significant impact on Erste Group

50 53 47

132 165

32

50

185

244

0

50

100

150

200

250

2010 2011 2012

in E

UR

mill

ion

Development of banking taxes

Slovakia

Austria

Hungary

In 2011, banking tax in Hungary was offset by the costs of repayment of foreign currency loans at non-market rates


12

Capitalisation – Strong and vastly improved capitalisation − Switch to IFRS in calculation of qualifying capital as of Mar 13; no material impact due to improved AfS reserve − Final decision on regulatory treatment of savings banks minorities under Basel 3 passed by European

Parliament: full recognition of minorities

Core tier 1 ratio (CT1 ratio) = tier 1 capital excl. hybrid and after regulatory deductions divided by total RWA, including credit risk, market and operational risk. Based on Basel 2.5.

1.1 1.1 1.4 2.0 2.2 2.6 3.15.2 5.8 5.6 6.6 7.0

2.2 2.3 2.22.2 2.7 2.8

3.1

3.33.4 3.3

3.4 3.2

3.3 3.3 3.74.2

4.9 5.46.2

8.59.3 8.9

10.1 10.2

0

3

6

9

12

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Jun13

in E

UR b

n

Development of CT-1 capital (excluding hybrid and adjusted for participation capital)

Core tier-1 excl. minorities Minorities

CT1 (Basel 2.5, Jun 2013) excl. part cap, including capital increase: 10.7%


13

Capitalisation – Capital position after capital increase − Capital increase in the amount of EUR 660.6 million conducted in July 2013

− First Austrian bank which fully repaid the entire participation capital – demonstrating strength of Erste Group

− Full repayment of government and private participation capital was executed on 8 August 2013

− Erste Group expects to comfortably meet its targeted 10% fully loaded Basel 3 common equity tier-1 ratio from

the end of 2014 onwards

− Full repayment of government and private participation capital combined with the recent capital increase will be EPS accretive from 2014 onwards

Core tier 1 ratio (CT1 ratio) = tier 1 capital excl. hybrid and after regulatory deductions divided by total RWA, including credit risk, market and operational risk. Based on Basel 2.5.

10.1%

10.7%10.3%

8%

9%

10%

11%

Basel 2.5, expart cap

Basel 2.5, ex partcap, incl. cap

increase

Basel 3 fullyloaded, incl. cap

increase

Core Tier 1 ratio (total risk)as at 30 June 2013

− Fully loaded Basel 3 CET1 at 10.3% (pro forma as of June 13, after capital increase)

− Transition in Romania for the calculation of RWA from standardised approach to IRB approach is expected to take effect in 2015 with a negative impact of approx. 40bps


14

Update on BCR – Restructuring well under way

4.8%4.3% 4.5%

4.9% 4.9%5.0%

44.8% 45.6%42.1%

53.8%

42.2%39.2%

0%

10%

20%

30%

40%

50%

60%

0%

2%

4%

6%

8%

Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13

BCR: NIM and CIR

Net interest margin Cost income ratio

− Operating income to grow in the mid-single digits in 2013 − Strict deposit pricing discipline − New current account product launched in Q4 2012; 215,000 bundles sold by June 2013 − Focus on transaction banking and fee business

− Operating expenses to decline in the mid-single digits in 2013 with full effect of restructuring to be seen in 2014 − Ongoing simplification and improvement of all structures in headquarter and subsidiaries − Branch network optimisation; Group headcount target of 7,500 FTE by end of 2013

-81 -74 -87 -88

1 25

191 174 195 177111

94

11099

10890

112 120

-100

-50

0

50

100

150

200

Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13

BCR: Operating result(in EUR mn)

Post-provision profit Risk provisions


15

Update on BCR – Strong decline in risk costs − Significant improvement of net result on lower risk costs and on release of deferred tax liability in Q2 13

− Deferred tax liability amounted to EUR 127.7m − Strong decline in risk costs

− Absolute NPL volume to peak and modestly decline in 2013 − 6th consecutive quarter of improving NPL provisioning coverage; 60.4% as of June 2013 − Risk provisions expected to decline significantly in 2013

-72 -68 -66-88

-4

120

-100

-50

0

50

100

Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13

in E

UR m

n

BCR: Net profit after minorities


16

Presentation topics


−Erste Group − Balance sheet development − Operating performance − Asset quality review − Update on banking tax − Capital − Update on Romania and Hungary

−Outlook

−Appendix


17

17

Conclusion – Outlook

− Erste Group expects a slight improvement in economic performance for Central and Eastern Europe in H2 2013, even though growth will remain moderate

− For 2013 Erste Group expects operating result to decline up to 5% compared to 2012

− Lower operating income as a result of moderate loan demand and low interest rates − Partially offset by lower operating costs

− Group risk costs are expected to decline by 10-15% in 2013 − Mainly due to declining risk costs in Romania

− BCR is expected to return to profitability in 2013

− Irrespective of extraordinary tax-effect


18

Presentation topics



−Outlook

−Appendix


19

19

Strategy – A real customer need is the reason for all business

Retail banking

Corporate banking

Capital markets

Public sector

Interbank business

Customer banking in Central and Eastern Europe

Eastern part of EU Focus on CEE, limited exposure to other Europe

Focus on local currency mortgage and consumer loans funded by local deposits FX loans only in EUR for clients with EUR income (or equivalent) and where funded by local FX deposits (RO, HR & RS) Savings products, asset management and pension products Potential future expansion into Poland

Focus on customer business, incl. customer-based trading activities In addition to core markets, presences in Poland, Turkey, Germany and London with institutional client focus and selected product mix Building debt and equity capital markets in CEE

Financing sovereigns and municipalities with focus on infrastructure development in core markets Any sovereign holdings are only held for market-making, liquidity or balance sheet management reasons

Large, local corporate and SME banking Advisory services, with focus on providing access to capital markets and corporate finance Real estate business that goes beyond financing Potential future expansion into Poland

Focus on banks that operate in the core markets Any bank exposure is only held for liquidity or balance sheet management reasons or to support client business


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Strategy – Customer banking in the eastern part of the EU

Clients: 0.9m

Hungary

Retail loans: 15.6% Retail dep.: 8.2%

Branches: 136

Clients: 3.4m

Romania


Branches: 562

Clients: 0.3m

Serbia


Branches: 68

Clients: 1.0m

Croatia


Branches: 150

Clients: 5.3m

Czech Republic


Branches: 653

Clients: 2.4m

Slovakia


Branches: 296

Clients: 3.3m

Austria


Branches: 981

EU or EU candidate

Indirect presence

− Leading retail and corporate bank with 16.6m customers in 7 geographically connected countries

− Favourable mix of mature & emerging markets with low penetration rates

− Potential for cross selling and organic growth in CEE


21

21

Valuation of banks – Valuations differ significantly across Europe

0.40.5 0.5 0.5 0.6 0.6

0.8 0.8 0.8 0.9

1.81.9

2.02.2

0.0

0.4

0.8

1.2

1.6

2.0

UNI IS CA

Rai

f

SG DB

OTP

DAN SA

N

EG

KO

M

BRE

PEK

AO

BZW

BK

Selected European banks: P/BV

Light blue indicates CEE banks Source: Bloomberg; EG adjusted for capital increase and redemption of participation capital

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