Erste Group Bank Ag S/Adr

Welcome to the third quarter 2024 results conference call of ERSTI Group. My name is Sergey and I'll be your coordinator today. Throughout today's recorded presentation, all participants will be in a listen-only mode. Later, we will conduct a Q&A session. You may register for questions at any time by pressing star 1 on your telephone keypad. At this time, I'd like to hand the call over to Mr. Thomas Samarala. Please go ahead, sir.

Thank you very much, Sergei, and good morning to everybody who is listening in from Vienna. Today's call will be hosted, as usual, by Peter Bossek, CEO of Erste Group, Stefan Dörfler, CFO of Erste Group, and Alexandra Habela-Trabek, CRO of Erste Group. They will lead you through a brief presentation, highlighting the achievements of the past quarter, after which they are ready to take your questions. Before handing over to Peter, my usual pinpointing of the disclaimer on page two. Management will make forward-looking statements, of course, during this presentation, and the disclaimer applies to these statements, as usual. And with this, I hand over to Peter.

Good morning, ladies and gentlemen. Welcome again to our quarterly call. Our financial performance in the third quarter was nothing short of outstanding. I am on page 4 of the presentation. Revenues grew across the board, with record NII and fee prints being the most impressive achievements in the past quarter. Costs were very well behaved. Risk costs were somewhat higher than in the second quarter, but well inside our guidance, and return on tangible equity hit almost 20%. All of this without any material one-offs. This quarterly performance, together with the strong first half, puts us firmly on track to go on better this year than in 2023, which I'm sure I don't need to remind anyone was by a long shot our most profitable year ever. If we look at the year-to-date performance, trends were very similar as in the third quarter, as in the first half. Net interest income held up well, particularly in our Central and Eastern European operations, while Austria had to give back some of the strong gains posted over the past two years. Fee income was strong throughout the year, and the third quarter was no different. Cost inflation, in addition to cost discipline, was helped by lower deposit insurance contributions, and risk costs continued to be very moderate, driven by the exceptional strong performance across CEE. In terms of net profit, we already surpassed 2.5 billion euros in the first nine months of 2024, which is an equivalent to a return of tangible equity of almost 18%. It will therefore not come as a big surprise that we are once again improving our financial guidance for 2024. I am on slide 5 in the meantime. On the back of a broadly stable net interest margin year-to-date, we are again upgrading our 2024 NII outlook. We now expect this key revenue line to grow by more than 2% as opposed to remain flat versus 2023. We confirm our cost growth guidance at about 5%. Based on the brighter revenue outlook, the cost-income ratio should come in better at about 48% or less compared to our previous guidance of less than 50%. And consequently, we now expect return on tangible equity to top 16% rather than previously guiding it to 15%. When it comes to balance sheet trends, I'm now on page 6. I reported to you a quarter ago that we saw a first peak up in core business volume growth. This trend slowly improved in the third quarter, particularly driven by better loan growth in CEE, and in terms of business segments, supported by somewhat better retail demand. In Austria, loan demand also improved in the third quarter, especially at Erste Bank Österreich. but still came in somewhat weaker than expected, mainly due to a slightly weaker economic performance in Austria. Despite this, and assuming that current trends continue into the fourth quarter, we will come close to reaching our 5% long growth target for 2024, so no guidance change in this respect. When we look at customer deposits, the third quarter was uneventful. We maintained a strong deposit base and were quite successful in passing on lower interest rates to depositors across our franchise. Stefan will give you more details on the latest deposit trends. In terms of other balance sheet developments on the liability side, the volume of outstanding debt securities increased as we already completed the full year funding plan while the volume of interbank deposits declined due to the almost completed retirement of TLTIO funds. We talk about 6 billion euros here. On the asset side, central bank cash was in part redeployed into interbank lending but also reduced by the already mentioned TLTO retirement. Moving to our key balance sheet indicators on slide 7, as a result of our overall strong business performance, all parameters continued to be excellent. Our loan-to-deposit ratio remained in the customary 85% to 90% range, reflecting balanced loan and deposit growth as already mentioned. Asset quality continued to be very satisfactory with the MPL ratio unchanged quarter on quarter at 2.4%, and only slightly up year-to-date. MPL inflows were again registered primarily in the Austrian segment as the economic performance for 2024 was revised downwards. Defaults in our CE operations continued to be at very low levels. MPL coverage excluding collaterals slipped slightly in the third quarter, mainly on the back of further releases of FLI industry overlays. Our capital generation also remained healthy in the first nine months of 2024, despite the performance CTO-1 ratio hardly moving year-to-date, which is simply explained by business growth and distributions, compromising our pro rata dividend allocations and full deduction of the current share buyback in the amount of 500 million euros. Let us now turn to the operating environment. I'm on slide 9 now. The only minor change in economic forecast since we last reported three months ago was related to Austria. where our economies now project a shallow recession of 2023 to continue into 2024. For the CEE countries, the GDP growth projections for 2024 and 2025 were broadly maintained. Inflation is expected to remain the low to single-digit area across our footprint. Against this backdrop, we expect interest rates to decline further across our region in the next 12 to 18 months. Our economic metrics, such as unemployment, fiscal and external balances, are forecasted to remain in good shape or improve in most of our markets. All of this should support organic growth as we progress into 2025. Talking about organic growth, let's quickly review how the retail business fared over the past quarter. I'm on page 10 in the meantime. The good news is that the moderate recovery in volume growth, and it's true for both housing and consumer loans, Continued in the third quarter, the bad news, if one wants to call it bad news, is that we would have hoped for a more forceful housing loan recovery, but clearly we had some headwinds of the economic front, especially in Austria, which at least partially offset by the positive effect of lower interest rates. Nonetheless, consolidated new business volume in housing loans reached a two-year high, while consumer loan demand also remained healthy. On the liability side, our retail deposit base also increased quarter on quarter. The shift from current accounts to term deposits that played out over the past couple of quarters has almost stopped, with current accounts accounting for approximately 52% of retail deposits. We now have a situation where we see balanced growth among all categories of retail deposits. Our success story in promoting retail security savings plans as means of building long-term wealth also continued. The stock of such savings plans got close to 1.4 million, supporting long-term fee growth in our asset management business. And our market-leading digital retail platform continued to be instrumental for producing efficient growth with 70% of consumer loans and 85% of term deposits already sold digitally. Looking at the developments in the corporate and market business on page 11, loan volume trends were subdued with the third quarter. This was true for both the large corporates as well as the SME segment. A recovery in corporate loan demand would clearly be helped by a more robust economic performance of Germany. On the liability side, deposits in the corporate business remained by a large stable quarter-on-quarter as well as year-to-date. The market business continued to do well, although tracking somewhat below the exceptional strong performance of the previous year. We were involved in the issuance of €123 billion worth of bonds and 198 book-running mandates, generating healthy income in the security business. Asset management built on a good start to the year, with assets under management reaching an all-time high of €83.9 billion, supported in particular by strong net sales in the Czech Republic. And with this, I hand over to Stefan for the presentation of the quarterly operating trends.