Erste Group Bank Ag S/Adr

for the 2024 Results Conference Call-Off as the group. My name is Caroline, and I'll be your coordinator for today's event. Please note, this call is being recorded, and for the duration of the call, your lines will be on listen-only mode. However, you'll have an opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your questions. If you require assistance at any point, please press star 0, and you'll be connected to an operator. I will now hand over the call to your host, Thomas Samarilla, to begin today's conference. Thank you.

Thank you very much, Caroline, and also a very warm welcome to everybody who is listening in on behalf of the group. We follow our usual conference call routine this time. So the call will be hosted by Willy Czernko, our Chief Executive Officer, Stefan Dörfler, our Chief Financial Officer, and Alexandra Habela-Drabek, our Chief Risk Officer. They will lead you through a brief presentation highlighting the achievements of the first quarter 2024. And after that, they are ready to take your questions. Before I hand over to Willy, my customary remark on forward-looking statements, as usual in this call, management will make forward-looking statements and accordingly the disclaimer on page two of the presentation fully applies to those statements. And with this I hand over to Willy.

Thank you, Thomas. Ladies and gentlemen, good morning and once again welcome to our first quarter 24 conference call. Last year, we have raised the bar as far as financial performance is concerned, and accordingly, I'm proud to report to you that in the first quarter, 24, we continued where we have left off in 23. I'm on page four of the presentation. Both operating profit and net profit are up year on year, as well as quarter on quarter. This was in no small measure due to NRI consolidating close to record levels, fees continuing on their growth path, and net trading and fair value result benefiting from positive valuation effects. Cost inflation was also less pronounced as deposit insurance contributions were significantly lower than in 23. Risk costs remained moderate. Overall, we posted a return on tangible equity of 17.2%, I think an excellent level for this time of the year, bearing in mind the upfront booking of various regulatory costs and banking taxes. To sum it up, we made a strong start to 2024, and accordingly, we are optimistic on delivering the financial goals we have set ourselves at the start of the year. Our excellent P&L performance, and I'm on slide 5 in the meantime, is fully reflected in the P&L dashboard. Net interest margin continued to consolidate around the level of 2.5%. fully in line with our expectations. The cost-income ratio is already well in line with the guidance we provided for the full year, as the risk-cost ratio is at 18 basis points, notably without any release of FLI provisions or overlays. And with all of this, we printed a return on tangible equity in the very healthy double digits in the first quarter of 24, as already mentioned. When it comes to the development of the balance sheet, I'm on page 6 already. Volume trends were muted in the first quarter. In addition, to being negatively affected by FX translation, especially in the Czech Republic and Hungary. A weak loan demand was not unexpected, as you always assume that loan growth will be back-end loaded in 2024, supported by low interest rates, and as far as Austria is concerned, also underpinned by a relaxation of macroprudential measures. and a government support scheme for the construction industry that was passed by Parliament just a week ago. Both should lead to a higher mortgage demand in the rest of the year. Consequently, we stick to our full-year growth target of 5%. Customer deposit volumes increased by 1.1% year-to-date, with our core retail and SME deposits being broadly stable. once again underscoring the strengths of our deposit franchise. Moving to our key balance sheet indicators on slide 7, all readings remained in the optimal range. Our loan-to-deposit ratio declined slightly, reflecting muted loan development and healthy deposit growth, as already mentioned. Asset quality continued to be satisfactory, with the MPL ratio staying flat at 2.3%. In Austria, we saw a mild increase in defaults, primarily at the minority-owned savings banks, while CE continued to perform very well. At the same time, MPL coverage, excluding collateral, remained almost flat at 84%. Our capital generation also remained strong in the first quarter. On a pro forma basis, we posted a C to 1 ratio of 15.5%. The slight quarter-on-quarter decline was driven by somewhat higher risk-weighted asset inflation. In terms of share buybacks, there are no changes to what we already said. We have already applied for a second share buyback in the amount of 500 million euros to the ECB. and hope to complete it successfully by year-end 2024. And with this, let's now have a look at the operating environment. I'm on slide 9 now. For 2024, our economies are projecting a moderate economic recovery in our core markets. Importantly, all markets are expected to do better than in 2023. Inflation should moderate further, providing room for central banks to cut interest rates. When exactly and how much is still a matter of debate, but our expectation certainly is that the downward rate cycle is fully underway in the Czech Republic and Hungary and will also start in the Eurozone in 2024. Other economic metrics, such as unemployment, fiscal and external balances, are expected to remain in good shape across our region in 2024, and all of this should brighten volume growth perspectives as we progress through 2024. Talking about volume growth, and I'm on page 10 in the meantime, let's have a look at the latest trends in our retail business. Housing loan stock remained broadly stable in currency-adjusted terms as the slow recovery in new business volumes continued with health increases seen particularly in the Czech Republic and Hungary. Demand in Austria, on the other hand, remained weak as many customers were holding back to take advantage of a government support package for the construction industry which includes an abolishing of the stamp duty for the first-time homebuyers until a value threshold of €500,000. This package in the meantime has been implemented by the Parliament and consequently we expect to have a positive volume effect in the rest of 2024. On the other hand, consumer loan demand was satisfactory, with strong demand seen particularly in Romania in the past quarter. On the liability side, our retail deposit base was broadly stable year-to-date. As regards deposit pass-through, retail pass-through rates continued moving up in Austria, but still at a moderate speed, and customers, while continuing to shift some overnight deposits into term and savings accounts and to investments, of course, still maintain more than 50% of their deposits in current accounts. This notwithstanding, we continue to see strong growth in the stock of securities savings plans, confirming the positive trend that started in the second half of 2022. Moving to corporates and markets business on page 11. Underlying corporate loan growth was actually somewhat better than reported figures implied on the upper right-hand chart. This was due to the fixed depreciation, shaving off approximately 400 million euros from the euro total, and the minor resegmentation from SME to the retail segment in the amount of 600 million euros. If we take this into account, we actually saw a reasonable start to the year. What is even more reassuring is that the deal buy plan started to build up, budding well for volume development in the remainder of the year. Within the corporate deposit business, we saw some increased activity with public sector entities, but other than that, a pretty uneventful quarter with deposit volumes increasing somewhat year-to-date. The markets business continued its strong performance. We were involved in the issuance of €52 billion worth of bonds and generated healthy income and secured this business. Asset management also enjoyed a good start to the year, with assets under management growing by 4% to €81 billion, with good net sales in Czech Republic, Hungary and Austria. This supported our strong feed performance. On the digital front, not to forget, the corporate business also made good progress. In the meantime, we have, as you know, onboarded almost 40,000 customers to George Business in Austria, and the first 600 in Romania. Now I hand over to Stefan for the presentation of the quarterly operating trends. Stefan, please.

Thank you very much. Good morning, everyone. Since Billy already made the most important comments on retail and corporate loan volumes, I would just like to add a couple of points on country performance. Croatia is maintaining the growth pattern that has started after the country joined the Euro at the start of 2023. and we believe there is more good growth to come in this country. Other countries showed a mixed performance, with some being impacted by FX movements such as the Czech Republic and Hungary. In Austria, the demand backdrop remained fairly weak amid expectations of political support measures and the relaxation of regulatory rules related to the mortgage business, both of which were recently implemented. Actually, nothing special to say about Romania, Slovakia and Serbia for the first quarter. Overall, this resulted in a flat loan development in Euro terms, quarter on quarter. For the full year of 2024, we remain optimistic on loan growth as lower rates, the expected moderate economic recovery and some tailwinds in Austria should help us achieve our target growth rate of about 5%. As Willi already mentioned, there is very little to say about deposit volumes since our last reporting end of February. You see the updated numbers on page 14. Loan-to-deposit ratios remain in the high 80s, with end of Q1 number being 88.4%, to be precise, and customer deposits have grown by 1.1% year-to-date. Hence, let's turn to page 15 and let's focus on NRI. We are posting a strong first quarter with NRI greater than 1.85 billion euros. With this, and clean of all effects in Q4, we are trending sideways compared to second half of 2023, which is a very positive development, confirming our picture of a plateauing NRI fully. Q1 NII was a story of two tails, though. CE on the one and Austria on the other hand. With the very strong CE NII, I am particularly happy with the performance of Czech Republic, which proves our resilience in the face of significant rate cuts and validates our balance sheet management strategy. The same is true for Hungary, where rate cuts have been even more pronounced. On the flip side, the Austrian segments performed weaker as deposit pass-through rates have increased for the seventh quarter in a row and have now reached approximately 31%. Still very much in line with our expectations for 2024. And please, do not forget that Austrian NRI has been increasing by 69% for Erste Bank Österreich and 55% in savings banks in 2023, so that this consolidation now was clearly anticipated. What can we expect for the further outlook? Short term, i.e. for Q2, I would expect a confirmation of current trends for most countries, as the ECB will most likely take its first step in June, with limited Q2 effect. and I'm more than happy to address all your questions specifically on certain countries later on in the current day. For the full year 2024, we keep our guidance unchanged based on our assumptions for interest rate developments, volumes both on loan and deposit side, and regulatory environment. Certainly, we'll revisit this forecast based on all facts available when we report half-year one figures on August 2nd. Let's come to fee and commission income on page 16. Fees continued the strong performance, hitting a new quarterly record in Q1 2024. Year on year, we posted growth of 10.8%, and this was attributable to our three core growth drivers. Payment services, securities business, and insurance brokerage. Clearly, we had some tailwind from inflation driven repricing, but we also had a healthy contribution from increasing volumes. Quarter on quarter, fees were up 1.5%, and here it was mostly securities business that drove growth. Consequently, this performance is mostly visible in the other Austria segment. What is remarkable, and I really want to mention that from a strategic standpoint, is the growth of asset management volumes in retail in Czech Republic and Hungary. Hence, with this excellent start to 2024, it makes us optimistic that we will comfortably deliver our guidance for the year of mid-single-digit fee growth. If anything, we believe that this P&L item has, again, good potential for outperformance in 2024. Turning to operating expenses on slide 17, now we can report that the first quarter costs grew by a moderate 3.3% year-on-year. This was mainly due to significantly lower deposit insurance contributions, especially in Austria. Quarter on quarter, we saw an absolute decline of costs, which was attributable to the seasonally higher spend that we usually observe in the fourth quarter. As far as our outlook for 2024 is concerned, we still expect an increase of costs of about 5%, mainly due to the continued inflation-related wage drift in all of our markets. We've been talking about the Austrian effect starting from Q2 a couple of times, while the lower deposit insurance costs should help also for the full-year cost development. Summing it all up for the operating performance, what were the key operating result drivers in Q1? Page 18. Revenue momentum re-accelerated, with NII consolidating near record highs, fees setting another quarterly record, and trading and fair value results also making an exceptionally strong positive contribution. Expenses, as just mentioned, were seasonally lower quarter-on-quarter on decreased personal and other administrative expenses. This combination leads us to reiterate our cost-income ratio expectation, roundabout 50% for the full year 2024, and an overall very solid operating performance for the year. And with this, over to Alexandra for details on credit risk.

Thank you, Stefan, and good morning once again from Vienna. I'm continuing now on page 19. As Willy has already mentioned, risk costs came in at 18 basis points for the quarter without any releases of FLI provisions or industry overlays. With this, we remained comfortably within our guidance. On the left-hand chart, it is clearly visible that the minority-owned savings banks, as in Q4, accounted for the majority of the bookings, but even with this, the savings banks maintained a historically strong level of profitability. Overall, the trend of slight increases in new defaults continued at a slower pace in the first quarter of 2024, pretty much in line with what we expected and also communicated a quarter ago. Looking at Central and Eastern Europe, the risk performance there continues to be excellent. In Croatia, we again posted net releases thanks to rating upgrades and improved collections. In terms of overlays and FLI provisions, as shown on the slide and also mentioned, we still have approximately 750 million on the books, and hence we are fully confirming our 2024 guidance of lower than 25 basis points of risk costs. Let's now turn to asset quality on page 20. The NPL ratio and NPL coverage ratio stayed at comfortable levels. While we continue to see some further NPL inflows, especially again as mentioned at the minority-owned savings banks in Austria, but also at Erste Bank Österreich, the situation in Central and Eastern Europe remained exceptionally strong, with NPL ratios even improving year-to-date in several countries, such as Croatia, Romania, or Hungary. This is really very reassuring. NPL coverage was broadly stable year-to-date. Going forward, given the high collateral of the new NPL inflows, we expect coverage to remain around current levels for 2024. And with this, I hand already back to Stefan.

Thank you very much. We're turning to page 21. and spent a couple of comments on the other result, which came in significantly improved both year-on-year and quarter-and-quarter, in both cases around about 150 million euros better. The main year-on-year drivers, as already highlighted in the Q4 call, were the 110 million euros roundabout lower resolution fund contributions due to no payments in 2024 in the Eurozone countries Austria, Slovakia and Croatia. In addition to that, the banking tax burden affecting other results was also lower, as extra profit tax in Hungary was cut in half And this positive development was partly offset by the first-time booking of such tax in Romania in the amount of around 9 to 10 million euros for the quarter. Please be aware that the quarterly banking tax in Slovakia of about 21 million euros is actually reflected in the tax line, not in other result. For the quarter-on-quarter comparison, the main differentiator are the Q4 bond sales and some other effects that have, of course, not reoccurred in Q1. Summing it up for the P&L on page 2022 for Q1. The strong quarter-on-quarter and year-on-year operating performance driven by top-line growth, continued moderate risk costs, and the strongly improved year-on-year and quarter-on-quarter other result results in a net profit after minorities of €783 million. Given all components of our outlook, we confirm our return on tangible equity target for the year 2024 of about 15%. With this, let's spend a few minutes on wholesale funding and capital, turning to page 24. Wholesale funding volumes went up in the first quarter, on the usual start of the year issuance activity, in our case mostly driven by covered bond issuance, and in addition we were more active in the CD market, in Euro and US Dollars, as pricing was advantageous. And this is the reason behind the increase in debt securities. The rise was partly offset by lower volumes of interbank deposits on account of the continued reduction of the TLTRO balance. Overall, of course, our strong funding profile was still primarily built on retail deposits as described earlier. On page 25, I guess, yes, page 25, we are showing the latest update of our MREL issuance execution. As you can see from the list of the transactions in Q1 2024, we have done another ChessGuard 500 million non-preferred senior and a 400 million Euro Erste Croatia preferred senior issuance. Let me use the opportunity to mention that the various capital markets activities of my colleagues across the different resolution groups which are very much supporting the excellent progress in delivering on the group-wide MREL funding plan. Looking at the ERSTE Group debt maturity profile on page 26, we registered total issuance of a little bit above 2.5 billion euros in the first quarter. In January 24, we issued a 1 billion covered bond benchmark, seven years. maturity at mid-swaps plus 50 and another 1 billion later on then in March, just short of 10 years at the levels of mid-swap plus 55. With this, we are mostly done for this asset class with our funding plan and also for the other bond types we are well advanced already early in the year. TLTRO redemptions happen as scheduled and let me remind you, that the maturity profile does not include AT1 instruments, as we do not implicitly guide for future calls. Reported own funds, and we are already on page 27, came down slightly quarter on quarter. As for C81, quarterly profits are not yet included, and we called an 81 tranche in Q1. Risk-rated assets were up year-to-date, in equal measure driven by business growth, most of which corporate off-balance sheet business, and, worth mentioning, increased operational risk on the back of the regular annual severity recalibration. This updrift in operation risk is a non-recurring effect, of course. Finally, for my part, let's look at the CET1 waterfall on page 28. As a result of the capital and risk-weighted asset developments I just presented, our reported fully loaded CET1 ratio came in at 15.2%. On a performer basis, we stand at 15.5%, i.e. just slightly down from year-end due to the FX translation to OCI and before-mentioned RWA effects. In terms of capital return, there are no changes to our plans. Subject to approval by the Annual General Meeting in May, we will pay a regular annual dividend of 2.7 euros for the business year 2023. With the half-year 2024 numbers, already together with the new CEO Peter Poseck, we will inform you about the intended dividend for the business year 2024. And as we have already communicated two months ago, we are targeting a buyback in the amount of 500 million euros. To this end, we have already filed an application with the ECB and still hope to conclude the transaction by year-end 2024. With this, I hand back to Billy for the outlook.

Thank you, Stefan. I'm concluding this presentation with our detailed guidance for 2024 on page 30. or I should rather say the full confirmation of what we have said a quarter ago. If anything, we are more optimistic today to fully achieve all targets we have set ourselves two months ago and consequently I would not be surprised if the guidance will be reviewed at half year. But for now, if we look at the net interest income, numbers are pretty much developing as we expected. For the time being, we see consolidation at the top and expect a minor decline when interest rates are cut in the Eurozone. Hence, we maintain our guidance of approximately 3% decline in 2024. We also believe that the loan book will grow by about 5% this year, but that growth will mostly happen in the second half of the year. We are confident that the cost-income ratio will remain at a strong level of about 50%. We again expect risk costs to be moderate at less than 25 basis points in 2024 and benefiting from further releases and impacted only by a small deterioration in asset quality. And, of course, we are confident that we will achieve a return on tangible equity of about 15%. In terms of capital return, Stefan has already said everything there is to say about the dividends or planned share buyback. Combined with our long-term growth profile, we believe that this represents an attractive proposition to investors. And this, ladies and gentlemen, concludes our presentation remarks. Thanks for your attention. We are now ready to take your questions.

Sure. Thank you. As a reminder, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. We will take the first question from Lion Benoit, Petrock Farm, Kaplan. The line is open now. Please go ahead.

Yes, good morning. It's Bruno Petrac from Kepler Chevreux. Thanks for taking my questions. So, yeah, the first one will be on the past rate in Austria. So you mentioned 31%. I think it's up 5 percentage point quarter on quarter. So what do you expect going forward? And I think you mentioned that this is still well embedded into your 24 guidance, but just wanted to check where you think we might end up going. in the current interest rate cycle. Actually, linked to that question, the number two will be on this new federal savings product, the bonus charts. So what is your expectation in terms of, you know, customer flow I know it's a bit early days, but do you have already seen any customer reaction and obviously, how do you expect your pricing strategy to potentially move with that new product? a new competitor um and then the the last question is on on the very strong ni in ce um you know what what are moving parts uh playing in in the q1 i think loan growth was was limited so i guess it's it's many deposit margin um but you know what do you expect in the in the coming quarters in in central eastern europe on ni and you know a strong performance sustainable thank you very much

Right. Thanks very much, Benoit. I would take the first and the third question and then leave it to Willi, who is very deeply into this Austrian topic, for commenting on that other question. Yes, the deposit pass-throughs have been accelerating upwards, and if you look at the ECB statistics, you will find Austria together, I think, if I read it correctly, Portugal or so, among those countries which had an acceleration of deposit better upwards. I don't expect it to go much, much further from here, but it's very hard to predict. We think that in the Q2 we will have a reconfirmation of the trends, but then it should be stabilizing, especially once the rates come down and the absolute interest expenses will start to go lower. But I can only confirm your assumption in the question that this is all still exactly in line with what we have been including in our overall guidance. And INCE, yes, I definitely think it's sustainable, especially when loan volumes would kick in as expected. I would even expect... further towards the end of the year and going into 2025 that we should see some support from the volume side. Obviously, there are always some specific events here and there on one or the other country development which can change that. For example, Hungary, I'm not so extremely optimistic for the second quarter, to be honest, because we've had a substantial rate cut and obviously this will eat a little bit into our over-liquidity situation. returns. But all in all, yep, CE, NRI, stable, strong, and definitely also for the outlook, a very, very good path forward.

To your second question, first of all, and I think this is broadly shared within the banking industry in Austria, this is very well perceived. We see this as a positive contribution to competition. And secondly, what is more important is it creates awareness for the securities business. But it's still too early to say to what extent this is really going to impact the deposit business with retail customers. But definitely, we are not worried about that.

Okay, thank you very much for that.

Thank you. We will take the next question from line. Meet names from UBS. The line is open now. Please go ahead.

Yes, good morning. And thank you for the presentation. I have three questions, please. The first one would be on the long growth outlook. It sounds like the long growth assumption of 5% increase year on year is to a large extent dependent on the pickup in growth in Austria. I was just wondering if you could provide any further color on that, maybe on perhaps the retail segment. And also I'm wondering to what extent are you confident hitting the minus 3% NII growth expectation should the loan growth disappoint materially? That's number one. Apologies. The second question would be on... RTOV inflation, the oppressed severity recalibration seems quite material in terms of the increase. Could you provide any further color on this, anything that we should be aware of? And the third question would be on risk cost and risk cost outlook. I was wondering what led you to change the overlay release assumption for the guidance. I think it used to be one-third release of the FLI and sector overlays. Now it's 200 million. Any color on that would be appreciated. Thank you.

Let me start with the first question you raised when it comes to loan growth guidance of 5%. Two remarks to that. The first one, when we look at corporate business, we see a well, let's say, developing pipeline. So there is confidence that we can meet our targets. And secondly, when it comes to retail mortgages, again, please bear in mind we have established a very well and broad established support package for private households. So there is the expectation that beginning with the third quarter, this business is going to pick up. So we are pretty confident.

Let me just add to this question, especially the part on NRI. The volume growth is of course a factor, but it's definitely more forward-looking, a factor ranging into 2025 and forth following. I don't think that whether we will have 3.5% or 5.2% loan growth at the end of the year will change the game so dramatically for 2024. And let's not forget, That for CE and AI, we have also the fixed rate assets maturities and repricing. We've been talking about the duration a couple of times. So it's not only the loan side, but also the securities portfolio. So hence, yes, volumes play a role. We will need good volume development in the long term. Short term for 2024, it's not so much depending on one percentage point up or down.

Then I will take over on RWA op risk. As you rightly recall, this was a recalibration. So first of all, which is very important to state, this is not showing a deterioration of the loss profile. So this does not mean that recently the losses from op risk have increased. What happened, and you might know from the methodology, there is this 10-year rolling window in OPRISC, in the calculation, and in this 10-year rolling window, some smaller tail losses dropped from the calculation, while larger ones from the past, including, when you recall, it's quite some years ago, the FX conversion that went in Hungary with 300 million and 50 million, Erste Bank Croatia, they are still in. And by the fact that smaller events dropped, these remaining bigger events gained more weight, and this led to this updraft. But this does not mean that loss rates have increased. Second, on risk-cost outlook, there has not been a change. To be very open, we always accounted for 200, 250 million of FLI and overlay releases, and this assessment has not changed. So current expectation is 200. It can also be, yeah, what we said, between 200 and 250. So no material change in any assumption.

That's perfect. Thank you very much.

Thank you. We will take the next question from line Jonas Dorman from HSBC. The line is open now. Please go ahead.

Good morning, everybody. Jonas Dorman, HSBC. All those three questions, please. First of all, on the savings plan. It seems that the growth is accelerating as the numbers of new savings plans are actually increasing. So any marketing push behind it or what is driving this growth and what are the average investments? Secondly, on the risk cost follow-up on the FLI, the 500 to 550 million remaining FLI after this year, will this be a base you always need to have, or is there still some amount which could be released in 2025? And what kind of sectors are you borrowing? Any changes to those industries or still the old typical names? And last but not least, just a simple one on the tax rate for 24. Any changes due to the shift of the Slovakian banking tax into the tax rate? Thank you.

I would take the savings banks cost question. If I got it right, Johannes, you have to help me because the line was a little bit weak. I think it was savings banks costs, right? OPEX.

No, no, the tax rate.

No, no, tax rate was the third question. This is easy. Tax rate I can... But the very first question you had. The savings plans. Ah, savings plans, okay.

Okay, Johannes, I want to take this. Sorry. Okay, good. This is a well-established initiative. We kicked it off already in 22. Meanwhile, we have 1,235,000 so-called security savings plans sold. And the good thing is this is well-established in all core countries. lead it by Czech Republic with more than 500,000 and so on and so forth. In Austria, we're talking about 110,000 plants. The average amount on a monthly basis in Austria, we're talking about 150 euros in CE, on average 90. No special campaign is well established in the network.

And I put away the tax question very quickly before I hand over to Alexandra. Yes, it is in the tax line. Yes, it has, of course, a certain updrift effect. We are applying a 20% net tax rate for the first quarter. And we will, of course, update you as we go throughout the year where we will land for the full year.

On FLI, Johannes, the plant remaining 550 by year end 2024, we do not expect that this is the stock. Of course, you know, FLI moves with macro, but we would expect also for 2025 that we could... Release some 150 to 200 and the remaining part we then would consider an FLI stock. On the typical suspects in terms of industries, we still have some energy overlays left, not so much. Those we expect we will fully release over this year. Cyclicals, we also regularly review and chemistry and metals we currently would not see a big change. And of course, we are, as we started many quarters ago, regularly monitoring all the industries. But as of today, we do not see any other industry which would qualify, let me call it like this, for additional overlays.

Okay, thank you.

We will take the next question from Ryan Krishnan and then from Barclays. The line is open now. Please go ahead.

Hi. Thanks for taking my question actually. I have three questions actually. First on the NII, actually could you talk about the other NII which has increased quarter and quarter and what are the drivers and what could we typically see going forward and for the year? And also in the past, you have been kind enough to provide the guidance for the 100 basis point movements on the rates for different geographies, if you could update us on that. The second question is on the fees side. I think you talked about you could have better performance in the fees and you could do better than the 5% guidance period. Are you putting it up or you're just talking about why performance about it? And third is on the risk cost primarily. This is for Alexandra. So if you could just break down the FLIs by geographies or by divisions, that would be helpful.

Okay, Krishna, I take the two operating performance questions. So really nothing special on other Austria and I, a little bit of an effect in Q4 there. So there's definitely nothing special to mention in terms of overall developments, everything just business as normal. And no, we are not upgrading the C overall growth. I think it's 5%. Sorry? I think the question was about volumes in CE, right, Krishna?

No, fees and commission.

Ah, fees and commission income. Yes, we see potential there. Sorry, thanks very much, Thomas, for helping me. No, we definitely have a very optimistic outlook there. Obviously, we need to get a little bit more evidence in the second quarter where some of the of the trends are reconfirmed, because obviously at the beginning of the year, there are some sales activities, some campaigns, which could maybe dilute a little bit the longer-term trend. But if we get a reconfirmation of the trends in the second quarter, we definitely will consider an upgrade of the guidance in this income line. Definitely right.

On your question, let me repeat if I understood correctly. So you're asking this 200 to 250 release on FLI and release of Sage Overlist. We are planning where we would see it. Let me start. Yes. The FLI out of these 750, 500 is FLI, and the SE status is that roughly 220 are booked for Austria and 285 for CE. And as mentioned and as you know, the FLI moves with macro. So where we would see the release will strongly depend on the macro development. But as we see that CEE is really doing very well, I would expect as of today a little bit more in the FLI of CEE than in Austria. But we will do the FLI update in second quarter and then we will know more.

Thanks a lot, and I think just the 100 basis point rate moment, what do you think on the NI sensitivity, actually?

I think there is not a big change to this, and it just gives me the opportunity to emphasize that we always should look at currency sensitivities, not so much country sensitivities, reminding you of a significant share of Euro balance sheet in countries like the Czech Republic. and Czech Republic and Romania. So I just can reconfirm around about 300 million NIS sensitivity, but for a full year of a 1% move in Euro rates. Let's not forget that around about 40% of this would be showing up in the savings banks. And I think the Q1 already has been showing that our sensitivity indications on the Czech currency are quite accurate and that we are benefiting from the rate cut cycle that the Czech National Bank has been kicking off.

Thank you. Thanks a lot.

Thank you. As a reminder, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. We will take the next question from line. We have met Samim from J.P. Morgan. The line is open now. Please go ahead.

Good morning. Thanks for your time. I have just two questions, please. Firstly, on NII, and I know, Stefan, you actually implied this during your comments, but the full-year guidance does seem to imply that NII will go down a lot in the second half of the year if you take into account the first quarter run rate and also what you said on the second quarter. So can I ask what you're feeling about the second half NII at this point in the cycle, maybe without even thinking about about guidance. But, you know, in terms of the rate expectations, growth, etc., what do you think NII will look like in the second half of the year? And maybe one follow-up on Czech Republic, actually. Could you talk about what's driving the resilience in Czech NII in this declining interest rate environment? I know you said euro rates are still supportive, but in terms of the deposit costs, for example, there, after the 125 basis points cuts, Have you started repricing your deposits down? And if yes, what kind of reaction have you seen from your core customers? And how do you expect that to continue? Maybe any color on that would be helpful. And finally, on CRE and the savings bank's risk costs, it seems like you've done quite a visible allocation this quarter to CRE there, as you had signaled before. But could you give us more color on the state of business in this segment and what is driving it and how do you expect the next few quarters to look like? Thanks very much.

Yeah. First, Mehmet, let me remind you what is our current expectation when it comes to ECB key rates. We assume, which probably is very much the market opinion at the moment, we assume a 25 basis points cut in June. And then one can read from the statements of the ECB council member that members that I think their idea is to cut three more times than in September, October and December. I think that's on their minds. However, there is a certain risk to this assumption for two reasons. First, U.S. dollar rates. It seems very much that the Fed is... definitely open for for what happens in 24 i mean you you need read the market comments as much as i do so there is there is definitely a factor which they cannot completely ignore on the ecb side and the second thing is obviously what will happen to core inflation but also the energy component later on in the year in Q3 and so on. So I think while the June is more or less a done deal, at least we read it that way, the further path is very much depending on developments in summer or with, let's say, Q2, Q3 figures. Having said this, Everything you hear from us in terms of NI outlook is currently built on the base case of these four cuts, and this would mean that we would see a deterioration in terms of displayed NI in Austria. On the back of that, a little bit of pressure on the other Euro countries, but much less so, leading to a Q3, Q4 on the Austrian activities, which is substantially lower than Q2 and Q1. That's on that front. Of course, should this change or should the deposit pass-throughs slow down or stuff like that, it should only get better from here. And I, in Czech Republic, maybe two things. First, Q4 was relatively weak, Q1 was relatively good, but we are overall on the path of this rate cut cycle on the right end. And discussing the deposits, the repricing has been starting, and we don't see any changes there in terms of pressure from the market. We are very well positioned. Our liquidity position gives us the comfort to be market followers. And we are benefiting, actually, from some of the, let me see, signs of, I wouldn't call it stress in any form, but some signs of pressure on P&L in other houses. So I'm very optimistic with the combination of good volume development and overall right balance sheet management position to deliver a very good NRI in Czech Republic in 2024.

Then I will take over on your question on commercial real estate. Let me start that commercial real estate in the classical sense, so meaning shopping centers, office, logistics, and hotels, is all doing very, very well across the board, also in Austria. What we are seeing in Austria is residential real estate and this mainly residential real estate developments in Vienna. undertaken by smaller and medium-sized developers. These are developers where Erste Bank Österreich did not do so much business with, some Sparkassen did, and we see exactly the same pattern that we have seen in Q423. We have seen the NPL inflow has a little bit slowed down in Q1. I would not rule out that it will now stop immediately, but I'm quite confident that in the second half of this year, those weaker market participants will yeah we have seen them all yeah to be to be very blunt but this is really focused on a small segment residential real estate in vienna of course not the non-profit housing associations they are doing excellently and are also a big share in our portfolio as you know and i would expect a slowdown in the second half and yes you're right we have booked risk costs But when you look at the absolute amounts of 90 million and take into account that we have not yet released any of these 200, 250, the overall picture is not so dark.

That's very clear. Thanks very much.

Thank you. We will take the next question from line Gabo Kemi from Autonomous Research. The line is open now. Please go ahead.

Hi, just two quick questions from me, please. On Hungary NII, firstly, you seem to be indicating that we should expect a gradual decline with falling rates. Any color you can give us on the Hungary NII evolution, please? And the other one is on what Alexander just discussed on some of the savings banks being exposed to real estate losses. developers, the problematic real estate developer, are any of them exposed to the extent that they might require support from the cross-guarantee system in your view? What is the likelihood of that? Thank you.

I can start with this one with a clear no. So really high collateral levels throughout all these financing. So absolutely no reason of concern in that respect that you indicated.

Got it. Thank you.

Yeah, and on the Hungarian question, Gabor, well, we are expecting, like probably the whole market, further rate cuts, and hence the income from placement of excess liquidity will be lower, as mentioned before. In addition, I think you're aware that the rate cap for corporate deposits has ended with the end of Q1, and therefore in my short-term outlook, I was mentioning Hungary to be a little bit of a risk on the NRI performance. We had a positive effect in the first quarter of around about 9 million in Euro terms of that factor. So let's see how this further develops. So we are not negative on Hungarian NRI by any means, but this excellent performance we saw in the first quarter might not repeat in the same way. Very clear. Thanks.

We will take the next question from line. Riccardo Rori from Mediobanca Group. The line is open now. Please go ahead.

Thanks. Thanks for taking my question. Two or three if I may. The first one is a sort of curiosity on how. you think about FLIs when it comes to decide your capital distribution plans, because you are now at 15.5%, including the profits of the period, which is 150 basis points above. Your very high internal target at 14%, and you have not used a single penny of the 750. So, technically, one could claim that the capital is at 16%. So, I'm not just asking any update on the guidance, nothing like that. Just curious to know if you can see that 750 is part of your capital or not. The second question I have is, again, on an AI, if I may. When you look at the past experiences of 2009, 8, 9, maybe a bit of 2010, Because of the deposits in Austria, when rates plateaued, they kept going up for a while, which is what is happening now. But then when rates started falling, you know, the cost of deposits in 2009 started falling almost immediately. I was wondering whether, you know, the lesson from the past, you think, can be an indication also for the future. And somehow related to that, when you look at C, it looks like that even if the rates are so high or were so high in Czech Republic, in Romania, in Hungary, you know, it was easy, at least at the beginning, you know, to transfer on the cost of the deposit the rate cuts because we were starting from 7% or well above 7% in Hungary. to what extent, to what level of rights do you think you can keep doing this in Eastern Europe? So if I, in Czech Republic, do go to 3%, would you still be able to pass most of the rate cuts on the cost of the deposit? Thanks.

Let me very generally, Ricardo, take the last question, because listening to you, I was going through all the impressions I've had from my business colleagues from the countries and so on. So it very much obviously depends on the business mix that you have in the deposits. And here I can definitely confirm to you that we have very fast adjusting portfolio there. We have been providing to our customers quite attractive deposit rates, as you know, from the years 2022 and especially also 2023. We were also suffering in terms of NRI in Czech Republic, but we are now also able to reprice very quickly downwards. The market is doing that. Therefore, both in terms of competitive situation as well as product mix, we are able to reprice quite quickly. How this will exactly play out in the Austrian scenario, I can't tell you yet, obviously, because we might only be starting in June with the... with the rate cut cycle. But given the maturity profile of our, so to say, of the term deposits, especially on the retail front, I would be quite optimistic that the delay from central bank and key rate cuts to actually really also having a relief on our interest expenses will be relatively short. So that would be my comments on that. And, well, I don't know, Alexander, do you want to talk about the FLI as part of capital? Should I? Should Willi?

Maybe let me start only by recalling. You said we did not use yet, so FLI and stage overlay was higher even in the past. We had 900 plus. We used part of it to counterbalance real default influence already in 23. For this year, we plan the release of the already mentioned 200, 250, which also means that we are using what we provisioned for in previous periods for a deteriorating environment. Some bases, as also already mentioned today, will remain. So there will be a base of FLI. But other than that, I would pass it on to Stefan for the capital distribution.

Look, as a general comment, not any kind of risk technicalities on my end. Let's not forget that there are very, very, very different expectations between, so to say, the regulatory view on those discussion points and the investors' view on the discussion points, and we have to sail and we have to manage, so to say, between those very different expectations, of course, also always fully complying with all the audit and accounting rules. So I would simply say, to be very fair here, Ricardo, we have, in any case, plenty of excess capital. That's absolutely clear. Even if we do not account a substantial part of FLIs to it, We have substantial excess capital. We are very much talking about this. You know that this level of 15.5 plus minus is a new level to us. We know and we have already, Willy has already discussed this also with his successor very openly, that this will be a point for discussion with you latest and also in summer. We have a clear path forward for distributing via the share buyback and in particular our regular dividend share. what we always have been communicating, should that leave us still with substantial excess capital, communication about how to deploy this excess capital will definitely have to follow. That's my general comment, independent from 100 million up or down on FLIs here and there.

Right. Thank you. Thank you very much. And maybe a quick follow-up on OPRIST. This is an update that happened right at the beginning of the year, so technically OPRIST should stay more or less at this level for the rest of 2024, right?

Yes.

Okay.

Thank you. We will take the next question from line Robert Rosa from PKOBP Securities. The line is open now. Please go ahead.

Good morning, everyone. I have three quick questions partially covered in the discussion, in the earlier discussion. First of all, On the residential exposure, as I understand, mostly concentrated in Vienna, could you share how much of the provisioning has been targeted to cover that exposure? from previous calls, I recall we were always referring to the residential exposure as relatively well collateralized. So I'm just wondering what happened that it didn't work out as originally planned and whether that could have any negative implications on the timing of the overlays, the releases in the coming quarters. So that's First question. And the second question is more generic. How do you see the competition in digital banking? I'm here referring to George and Revolut. As we can see, Revolut is having a major marketing push across the region. How does it impact the fee schedule? Do you plan to offer flat fee plans for customers? Do you plan any changes? How do you see the state of the competition across the region? The reason it's not just Revolut, but a new, for example, digital bank from Transylvania in Romania, new mid-size banks being set up in the Czech Republic. What's the impact on your core business there? Thank you.

Yeah, let me start. So we do not expect from the fact that the one or the other small and medium-sized developer being active in Vienna is trying any impact on the timing of the release of overlays. So no, a clear no on this. A clear yes on your statement on the high level of collateral. Yes, this is true. And when you look at the 95 million overall, which is not only coming from Vienna residential real estate, so it's run business as usual in retail, we did not have... any bigger counter effects in this first quarter. But basically, this 95 million is not so huge. And when you dedicate, let's say, very roughly half of it to some residential real estate projects, you can see that the collateral level is really high because 45 million, let's say, for 10 real estate projects is not so huge.

Okay, let me take the retail question. I think you are fully aware that it is our intention when it comes to retail as well as to corporate, we want to be among the top three in all our core countries. And this is not just achieved, we're heading to be on top of the competition in each of our core countries. With George, and this is one of the key arguments, George And with George being present in all our core countries, this gives us access to scalability, firstly. Secondly, it is meanwhile used by more than 10 billion customers. And we should not forget that today more than every second retail product is bought digitally. So this is a tremendous development. we have seen over the last few years, and this is an ongoing process, seen also by further alignment across the board. We should not forget, besides that, we have a well-established brand in all our core countries. This supports a lot, this helps a lot to get access to new customers, to attract new, especially young customers. And thirdly, not to forget, we have a well-established branch network, a franchise with well-trained and motivated people. And we're seeing this throughout the crisis when we talk about COVID. when competitors who were just present digitally were not able, let's say, to meet customers' expectations. We were able to do that. So, all in all, I have to say, I think we are well established. We are leading the back when it comes to digital solutions. We have a network that is well established. We have motivated people and we have a brand that is seen as young, innovative and prepared for the future. So I'm very optimistic when I look ahead.

Thank you.

Thank you. As a reminder, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. We will take the next question from Benoit Petrac from Kepler. The line is open now. Please go ahead.

Yes, sorry. It's Benoit from Kepler. Just two follow-up questions quickly. Now, just thinking about rate cuts potentially, so could you remind us how you edge your viable loan book in Austria? It seems that your management has been... very strong in CE, looking at the Q1 results, but just wanted to know a bit more on your edge on the variable loan book. You know, UK banks are doing this structural edge. You know, I was wondering if you try to anticipate also a bit of... rate cuts potentially impacting the yield on the loan book. And the second one is obviously we have this wage inflation coming in in Austria. I was just wondering here what plans you have to address the wage inflation. AI, is that something you consider as well to optimize also the cost base going forward and maybe reduce FTS? Thank you very much.

I tried to address the points as accurately as I can. So firstly, we are, as I mentioned before in a detailed answer, we are actually exactly basing our assumptions currently along the expectations on ECB rate path forward. And this is at least short term, 2024. a certain impact on NAI. This was the one part. In terms of overall repricing, I think I gave you already a couple of insights what we expect on the Austrian side. When it comes to costs, well, it's very clear that we will have an updrift starting from the second quarter. We have mentioned that very often in the light of the collective bargaining, which was resulting in this roundabout 8% increase, as you can see. as you can read from the overall coverage, also communication and press. We are definitely expecting overall operational improvements and efficiency measures. And your question on AI, we have a lot of activities mainly targeted, to be honest, on the customer front, but also on process optimization, which are kicking off. To be fair, we are users. We believe that we can benefit from the new technology very much. We have a lot of young people, especially taking care of pushing us ahead. I really just mentioned that also in the context of of the customer services. That's the plan going forward. Short term, to be honest, I would not dare to say it will have an effect on managing the costs in 2024. I would not dare to say that, Benoit, to be honest.

Thank you very much for that.

Thank you. It appears no further question at this time. I'll hand it back over to your host, Mr. Vili Cenkut, for closing remarks. Thank you.

Ladies and gentlemen, as there is no further question at this time, and this is my last quarterly presentation to you, the half-year presentation on the 2nd of August, 24, will already be hosted by my successor, Peter Pasek. I would like to thank you. for the many insightful conversations we had over the past two years and your continued commitment towards Erste Group. It was a pleasure to work with you over the past two years. Thank you very much, and bye-bye.

Thank you for joining today's call. You may now disconnect.