Erste Group at Goldman Sachs European Financials Conference

Goldman Sachs European Financials Conference 13-15 June 2012, Brussels

Erste Group – Customer banking in Central and Eastern Europe Andreas Treichl, CEO, Erste Group

GS European Financials Conference 13-15 June 2012

Customer banking in CEE 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

−Clear strategy: customer business in Central and Eastern Europe − Customer loans and deposits dominate Erste Group’s balance sheet − Retail deposits are the key pillar in funding mix − Strong and vastly improved capitalisation

−Strong start into 2012 − Net profit of EUR 346.5mn in Q1 2012

−Macroeconomic snapshot −Outlook −Appendix



4

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 where funded by local FX deposits (RO & HR) 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 marekts 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



Customer loans / Total assets

52% 53% 53% 57%63% 64% 64% 64% 62%

0%

20%

40%

60%

80%

2004 2005 2006 2007 2008 2009 2010 2011 Mar 12

Balance sheet structure – Asset side

− Customer loans (March 2012: EUR 135bn) are the key asset (EUR 217bn) component − Loans to private individuals and SMEs represent 85% of customer loans − Share of customer loans within assets has substantially increased over time

− Decline in Mar 2012 is mainly due to rising assets on investing surplus liquidity

*Source: Bloomberg (YE 2011)

Avg of Barclays, BNP, DB, HSBC, ING, Santander*

39%



Customer deposit + Total equity / Total assets

53% 52%56% 56%

60% 63% 65% 64% 64%

0%

20%

40%

60%

80%

2004 2005 2006 2007 2008 2009 2010 2011 Mar 12

Balance sheet structure – Liability side

− Customer deposits (March 2012: EUR 122bn) dominate the liability side − Strong deposit inflow in Q1 2012 leads to further improvement of loan to deposit ratio (110.2%) − Deposits from private individuals and SMEs represent 92% of customer deposits

− Substantial increase of total equity (March 2012: EUR 16bn) over time

Avg of Barclays, BNP, DB, HSBC, ING, Santander*

41%

*Source: Bloomberg (YE 2011)



Evolution of Erste Group's funding mix

55% 57% 59% 61% 61% 61%

17% 16% 16% 16% 16% 16%

13%6% 6% 8% 9% 8% 8%3% 3% 3% 3% 3% 2%

19% 18% 14% 11% 12%

0%

20%

40%

60%

80%

100%

Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Mar 12Customer deposits Issued bonds & CDs Deposits by banksEquity Subordinated capital

Funding mix – Retail deposits remain a key pillar in funding mix

− Providing a solid funding base in all local currencies − Limited long-term funding required due to decrease of non-core business

− 10yr EUR 1bn Pfandbrief in February 2012 (MS + 130bps) − 5yr EUR 500mn Senior Unsecured in March 2012 (MS + 175bps) − Total issuance of EUR 3bn ytd



Short-term funding vs collateral coverage

3632

26 24 22 212328 28

32 32

19

107% 116%

142% 148%

53%73%

0

10

20

30

40

50

60

Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Mar 12

in E

UR

bill

ion

0%

40%

80%

120%

160%

S-t funding Unencumbered collateral Collateral coverage

Short term funding – Vastly improved short-term funding profile

− Declining reliance on short-term funding − Short-term funding needs are well covered by collateral − Investment in highly liquid assets emphasized by continuously rising collateral

coverage of short-term funding needs



Development of Core Tier 1 capital (excluding hybrid)

2,595 3,109

6,946 7,589 7,359 8,0852,8313,083

3,3303,430 3,322

3,340

5,4266,192

10,27611,019 10,681

11,425

0

3,000

6,000

9,000

12,000

15,000

Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Mar 12

in E

UR

mill

ion

Core tier-1 excl. minorities Minorities

Capital position – Strongly enhanced capital ratios as of March 2012

Mar 2012 EBA CET1 ratio: 9.7%

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

2010 2011 Mar 12

2010 2011 Mar 12

Core tier 1 ratio (total risk)1

Core Tier 1 ratio – excluding part capital

(total risk)

9.2% 9.4% 10.2%

7.7% 7.8% 8.6%



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Presentation topics

−Clear strategy: customer business in Central and Eastern Europe − Customer loans and deposits dominate Erste Group’s balance sheet

− Retail deposits are the key pillar in funding mix

− Strong and vastly improved capitalisation





Operating performance – Solid revenues and strict cost control

− Sound underlying operating performance − Net interest income and net fee and commission income account for 95% of operating income (Q1 12)

− Q1 2012 risk costs mainly driven by extraordinary items in Hungary and Romania

Erste Group's operating profit history (pre-provision profit)

614 597 510 484334 468 416 443 387 465

222

610 470 571 481

-279

588335

119 163 221 218 469370 522 557 607 531

553

504

433460

461

938

408581

732

761

731

703 80

4

839 93

8 1,00

1

995

996

775

1,11

4

902 1,

031

942

659 996

916

-300

0

300

600

900

1,200

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

in E

UR

mill

ion

Post-provision profit Risk provisions

.



Operating performance – Development of CIR and NIM

− Cost income ratio represents a continuous and very strict cost control − Declining CIR in CEE; stable in Austria

− Resilient margins even in a low interest rate environment − Recent decrease in CEE is mainly due to Hungary (FX loan repayment) and Romania (Prima Casa)

Cost/income ratio

57%50% 50% 51% 51%

67% 65% 65% 64% 66%

44%49%

44%44%43%

0%

20%

40%

60%

80%

2008 2009 2010 2011 1-3 12

Group Austria CEE

Net interest margin

2.8%3.0% 3.1% 3.0% 2.9%

1.8% 2.0% 2.1% 2.1% 2.1%

4.7%4.6%

4.0%4.2%4.6%

0%

1%

2%

3%

4%

5%

2008 2009 2010 2011 1-3 12

Group Austria CEE



− Austria: stable development in saving banks as well as Erste Bank Oesterreich − Hungary and Romania have remained challenging − Slovakia: good quality loan growth − Czech Republic: new production mainly in low risk mortgage business

Erste Group: NPL ratio vs NPL coverage

7.7% 7.9% 8.2% 8.5% 8.8%

61.4% 60.6%

63.9%61.0% 61.9%

0%

5%

10%

15%

20%

25%

30%

Mar 11 Jun 11 Sep 11 Dec 11 Mar 1240%

45%

50%

55%

60%

65%

70%

NPL ratio NPL coverage (exc collateral)

NPL ratios in key segments

5.6% 5.6%

24.3%

8.0%

23.5%

6.7%

0%

5%

10%

15%

20%

25%

30%

AU CZ RO SK HU GCIBMar 11 Jun 11 Sep 11 Dec 11 Mar 12

Asset quality review – Stable NPL ratio in Austria; CEE still mixed



− GCIB: demand is growing in GLC business − Increase of risk cost mainly driven by Hungary and Romania in Q1 2012

− One-off risk provisions of EUR 75.6m in Hungary related to the interest subsidy scheme − Extraordinary risk provisions of EUR 98.6m in Romania which resulted in increased NPL cov. ratio

− Long-term improvement trend of risk costs in AT, SK and CZ

Risk costs in key segments

460 461

938

408

581

0

200

400

600

800

1,000

Q1 11 Q2 11 Q3 11 Q4 11 Q1 12

in E

UR

mill

ion

Austria Czech Republic Romania Slovakia Hungary GCIB Other

Asset quality review – Risk costs increased in Hungary and Romania



Development of net profit – Strong start into 2012

Return on Equity

9.6%11.2%

1-3 11 1-3 12

Net profit(in EUR m)

321347

1-3 11 1-3 12

+17% +7.8%



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Presentation topics








Growth outlook in CEE – CEE continuously outgrows the euro zone

Source: Erste Research

Real GDP growth in CEE

2.3 2.6

-1.6

4.2

1.33.

1

1.7 2.

5 3.3

1.7

0.9

0.5 1.2 1.4

-0.5

-4.5-3.8

-6.8-4

.9

-6.6

-10-8-6-4-202468

AT CZ RO SK HU

in %

2009 2010 2011 2012e

2012 euro zone avg. 0.0%


Customer banking in CEE

Interest rate environment in Europe – Development of 10y government bonds (%)

18

0

2

4

6

8

10

12

14

16

18

20

0

2

4

6

8

10

12

14

16

18

20

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Germany Austria France

Italy Spain Ireland

Portugal

Greece

Euro Lehman


Customer banking in CEE

109 110 110127

160

197 208225 226 227

243 254274

318

0

50

100

150

200

250

300

350R

O CZ

SK PL SL HU

GE FR BE AT

GR IT SP PT

in %

Debt to GDP*

Public Private

19

Manageable indebtedness in CEE – Private and public debt levels across Europe

*Source: Eurostat Private sector data include households and non-financial corporations



20

Presentation topics








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Conclusion – Outlook

− Erste Group focuses on customer banking in Central and Eastern Europe − Customer loans and customer deposits dominate the balance sheet − Real economy related business remains the key priority

− Comfortable liquidity position

− Retail deposits are the key pillar in funding − Significantly improved short-term funding profile

− Strong capitalisation

− Erste Group expects to comfortably and sustainably meet all capital requirements (EBA, Basel 3) − Basel 2.5 CET1 ratio reaches 10.2%, EBA CET1 ratio rises to 9.7% as of March 2012

− Erste Group expects a stable operating result in 2012

− Supported by selective loan growth in core markets and further cost reductions

− Risk costs expected to decline to about EUR 2.0 billion in 2012 − Impacted by one-off provisioning requirements in Hungary (EUR 75.6 million in Q1 2012) and by the

slow economic recovery in Romania

− Net income will be further supported in Q2 2012 − By one-off income of EUR 160m (pretax) from the buyback of additional tier 1- and tier 2-instruments



22

Presentation topics








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Indirect Presence Non-EU or non-EU-candidate country

EU or EU candidate country

Strategy – Customer banking in the eastern part of the EU

Clients: 5.2m

Czech Republic

Retail loans: 24.2% Retail dep.: 28.3%

Branches: 654

Clients: 2.4m

Slovakia


Branches: 292

The leading retail bank with 16.9 m customers

One of the leading corporate banks

Erste Group

Clients: 0.9m

Hungary


Branches: 143

Clients: 0.2m

Ukraine


Branches: 121

Strong capital markets presence

Clients: 3.6m

Romania

Retail loans: 18.0% Retail dep.: 22.2% Branches: 667 Clients: 0.3m

Serbia

Retail loans: 3.3% Retail dep.: 2.5% Branches: 66

Clients: 1.0m

Croatia

Retail loans: 13.9% Retail dep.: 13.0% Branches: 146

Clients: 3.2m

Austria


Branches: 1,050



Drill-down on selected asset classes – No meaningful sovereign exposure to peripheral Europe

Total net exposure of Erste Group (incl. savings banks) to selected European countries:in EUR million

Dec 10 Dec 11 Mar 12 Dec 10 Dec 11 Mar 12 Dec 10 Dec 11 Mar 12 Dec 10 Dec 11 Mar 12Greece 602.2 4.4 3.9 172.0 57.9 15.1 7.7 7.6 7.6 781.9 69.9 26.7Ireland 88.6 46.5 61.1 252.2 204.4 107.4 81.7 78.2 67.1 422.6 329.1 235.6Portugal 234.6 5.6 3.8 280.5 94.0 70.1 14.3 13.0 9.6 529.5 112.6 83.5Spain 114.2 23.8 5.8 734.6 282.2 400.7 383.6 425.6 328.5 1,232.4 731.6 735.0Italy 1,075.8 472.6 70.7 1,164.8 806.8 720.5 1,082.0 582.0 619.4 3,322.6 1,861.4 1,410.6Sum total 2,115.5 553.0 145.2 2,604.2 1,445.2 1,313.8 1,569.3 1,106.4 1,032.2 6,288.9 3,104.6 2,491.3

Sovereign net exposure by country and portfolio:in EUR million

Dec 10 Dec 11 Mar 12 Dec 10 Dec 11 Mar 12 Dec 10 Dec 11 Mar 12 Dec 10 Dec 11 Mar 12Greece 456.5 -8.5 1.3 77.5 10.3 2.6 68.2 2.6 0.0 602.2 4.4 3.9Ireland 59.7 0.0 0.0 25.3 31.8 46.4 3.6 14.7 14.7 88.6 46.5 61.1Portugal 168.4 0.0 0.0 10.6 5.6 3.8 55.6 0.0 0.0 234.6 5.6 3.8Spain 35.1 -27.1 -26.2 51.6 38.7 29.8 27.5 12.2 2.2 114.2 23.8 5.8Italy 907.2 399.9 0.0 149.1 70.9 70.7 19.5 1.8 0.0 1,075.8 472.6 70.7Sum total 1,627.0 364.3 -25.0 314.1 157.3 153.3 174.4 31.3 16.9 2,115.5 553.0 145.2

Bank net exposure by country and portfolio:in EUR million

Dec 10 Dec 11 Mar 12 Dec 10 Dec 11 Mar 12 Dec 10 Dec 11 Mar 12 Dec 10 Dec 11 Mar 12Greece 0.1 0.0 2.2 0.0 0.0 0.0 171.9 57.9 13.0 172.0 57.9 15.1Ireland 141.8 99.4 64.8 90.4 92.0 38.7 20.0 13.0 3.9 252.2 204.4 107.4Portugal 71.7 9.4 15.3 56.4 29.7 0.0 152.4 54.9 54.8 280.5 94.0 70.1Spain 341.0 61.9 166.8 163.6 64.5 56.1 229.9 155.8 177.8 734.6 282.2 400.7Italy 322.8 233.6 28.1 152.7 180.6 186.6 689.2 392.6 505.8 1,164.8 806.8 720.5Sum total 877.5 404.3 277.2 463.3 366.8 830.1 1,263.4 674.2 755.2 2,604.2 1,445.2 1,313.8

FV

FV AfS

AfS

Total net exposureSovereign Bank Other

At amortised cost

At amortised cost

Total net exposure

Total net exposure

Erste Group at Goldman Sachs European Financials Conference

Economy & Finance

Transcript of Erste Group at Goldman Sachs European Financials Conference