Erste Group Bank Ag S/Adr

It's quarter 2025 results conference call of ERSI group. My name is Sergei and I will 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 a listen-only mode. However, you will have the 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 question. If you require assistance at any point, please press star 0 and you will be connected to an operator. I will now hand you over to your host, Thomas Sommerauer, to begin today's conference. Thank you.

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 our... Management consisting of Peter Bossek, our Chief Executive Officer, Stefan Dörfler, our Chief Financial Officer, and Alexandra Habela-Trabek, our Chief Risk Officer. They will lead us through a brief presentation detailing the highlights of the first quarter of 2025. And after that, they are ready to take your questions. Before handing over to Peter, my usual reference to page two of the presentation which contains the disclaimer on forward-looking statements. And with this, Peter, I hand over to you.

Thank you very much, Thomas. Good morning, ladies and gentlemen. Welcome again to our first quarter 2025 conference call. I will kick off the presentation with a couple of comments on the main topic of interest over the past days, our discussion with Banco Santander about a potential acquisition of a 49% stake in Santander Bank Polska. First of all, the transaction is by no means certain. But should a deal eventually happen, I can only repeat what we have said all along, that any M&A transaction will have to pass a high hurdle, namely making AERSTE a better bank in terms of profitability and growth, and importantly, also to broadly match profitability of alternative capital deployment options. In my mind, there also can be no doubt about the strategic rationale of a leading CEE bank entering the largest CEE market. Our main focus, therefore, is to put together a transaction that also makes strong financial sense to shareholders, irrespective of whether we talk about EPS accretion, ROE or ROTI uplift or return on investment. Should this transaction not materialize for whatever reason and no other options arise by end of the year, we will go more aggressive on distribution, period. We will not run the bank at a CT1 level above 16% as we currently do. Let me now move to the first quarter. I'm on page four of the presentation now. On top of our Polish considerations, there was a lot of news flow to digest since the start of the year and uncertainty became an even more prominent feature than it was before. But there is one thing that didn't change. Our financial results remained strong. While revenues grew only slightly year on year, quality was much better as growth was driven by core income, essentially net interest income and fees, as opposed to being flattered by one-offs or better trading and valuation income. as was the case a year ago. Operating expenses were up in line with guidance and consequently operating results trailed last year's print by three points, resulting in an efficiency ratio of 48%. But at this level, we are already well inside our full year guidance. If we look at operating performance quarter on quarter, It was exactly the other way around. Our seasonally lower revenues in the first quarter were offset by an even steeper fall in costs with the corresponding improvement in cost-income ratio. But back to the year-on-year analysis, risk costs remained on a moderate level without releasing any overlay or FLI provisions. And even though year on year we had to cope with higher banking taxes and provisions, some of them worn off in nature, as evidenced by the weaker other results, return on tangible equity was already north of our 15% target for 2025. With this first quarter performance, we are well on track to achieve our financial goals for the full year. and confident enough to upgrade our fee guidance, we now expect fees to increase by more than 5% rather than about 5%. When we look at our P&L performance metrics in more detail on page 5, two points deserve mention on top of the comments I just made. One, that the net interest margin yielded to gravity for the first time since the rate cut cycle has started, and two, that banking levies have increased quite a bit. On both topics, Stefan will give you more detail later. But let me say just this. It's the logical consequence of NII consolidating at mid-falling market interest rates, while interest-bearing assets, including customer loans, are still growing, that these margin metrics slip somehow. A level of 2.4% plus minus a couple of basis points is still our best estimate for 2025. When it comes to higher banking levels, these were primarily driven by the new higher banking tax in Austria, which will be enforced this year and next year. The increased financial transaction tax in Hungary also contributed negatively. And the final comment on risk, because risk-cost ratio came down both quarter in quarter as well as year on year. This was mainly due to better performance in Austria. Alexandra will tell you more about this shortly. I have already briefly touched on loan growth and I'm on page six in the meantime, but let me be more specific on balance sheet development in general and customer volume trends in particular. The latter have been encouraging, which is reflected in annual loan growth for the first time topping 5% in almost two years. Year-to-date customer loans grew by 0.9. Looking at the geographic distribution of loan growth, irrespective of whether we do this year-to-date or year-on-year, CEE and especially Czech Republic and Croatia are clearly in the lead, while momentum in Austria was and still is soft as a result of the weak economic backdrop. In terms of business lines, growth was more pronounced this quarter in retail than in corporates driven by CE. All this bodes well for delivering on our loan growth guidance of about 5% in 2025. Customer deposits growth at 1.9 year-to-date and 4.6 year-on-year. was equally reassuring. Year-to-date growth was driven by more volatile deposits from the public sector and financial institutions, while core retail and SME deposits took a little bit of a breather. Year-on-year deposit trends were more in line with what we are used to with core retail and SME deposits outgrowing non-core deposits by a healthy 1.2 percentage point margin. So to sum it up, volume trends are good, growth is well balanced across assets and liabilities with likely more even distributions throughout the year than we have seen in 2024. I also believe that we have some growth reserves as far as volumes are concerned, but given all the uncertainties, it's too early to upgrade the loan growth guidance. Moving to our core balance sheet indicators on slide 7, thanks to our overall strong business performance, all parameters continue to be excellent. Our loan-to-deposit ratio of 89 reflects balanced loan and deposit growth as already mentioned. Asset quality continued to be very good, actually improved quarter in quarter, driven by an absolute decline in MPL stock. Something that last happened almost two years ago. This, of course, is good news, all the more as Austria was the main driver for this development. The same Austria that caused us some minor headaches last year, as you will remember, as we saw more defaults amid continued economic weakness. The asset quality situation across Central and Eastern Europe remained outstanding strong. NPL coverage excluding collaterals also improved in the first quarter, supported by lower NPLs on the one hand and the lack of any releases of FLIs and industry overlays on the other. More about asset quality later from Alexander. With regards to capital ratio, the picture turned around in a positive way to compare to year end. Back then, we reported a CRT1 ratio of 15.3, as the deduction of our third share buy break in the amount of 700 million euros was binding into excess capital. Now we report a level of 15.9, while the pro forma ratio stands at 16.2%. and includes first quarter profits. This step up was in large part attributable to Basel IV implementation, which added about 80 basis points. The remainder came from internal capital generation. Consequently, our capital deployment options ranging from M&A to capital return are broadening further going forward. And with this, let us now examine the macro picture. I'm on slide 9 now. With all the news from global trade tensions over the past couple of weeks, it's probably not a big surprise that our economy streamed growth forecast a little. but by less than you or I certainly would have thought, mainly because our region has no big direct trade relationship with the US and potentially could benefit from the German fiscal expansion that was also a key topic over the past two months. Since on this, beyond the headlines, we still know little detail, any positive impact cannot yet be fully reflected in the forecast. But given the fact that CEE is a significant manufacturing hub for the German industry, I would certainly expect some positive spillover effects on our region. All other macro variables didn't change materially since we last reported two months ago. Consumer price inflation is still forecasted to hover in the low mid to single digit in the C region in 2025. Current account balances for most countries are set to remain balanced or even positive, with the only notable exception being Romania and Serbia. In many of our markets, especially in those that reported larger deficits in 2024, the budgetary situation is forecast to improve in 2025, which will help keep public debt in relation to GDP at sustainable levels. Given all the moving parts and also accounting for the uncertainties that are clearly out there, I think macro backdrop is good enough for us to grow the business in a very profitable manner in 2025. And it also carries some potential for things to get better should trade tensions ease. Let's move to page 10, analyzing the performance of our retail business in the first quarter. overall retail loan growth continued to be encouraging at 1.6% year-to-date. Both housing and consumer loans made good contributions Consumer demand was supported by lower rates. Consumer loans at Erste Bank Austria were a bright spot, while business at the savings banks remained sluggish. The opposite can be said about Central and Eastern Europe, where, with the exception of Romania, retail loan business started strongly into 2025. At the same time, the risk profile of our retail portfolio remained excellent. On the liability side, retail customer deposits grew only a bit quarter on quarter. Our success story in promoting regular retail security savings plans as a means of building long-term wealth also continued. The stock of such savings plans exceeded 1.7 million, supporting long-term fee growth in our asset management business. George, our market-leading digital retail platform, also contributed to this success by making it easy and convenient for clients to manage their savings plans. We have onboarded 11 million customers to George, which was instrumental in pushing our digital sales ratio in the retail business to more than 60%. To be precise, it reached 61.4. Roughly two thirds of consumer loans and more than half of insurance products were sold digitally. It's our clear target to build on this success by further developing this platform so that we can provide meaningful financial advice to even more customers. George Invest is a case point. It was launched so far in Austria and Czech Republic. and helps us to attract younger clients. Accordingly, we also plan to make this new offering available in our other markets. In the corporate business, I'm on page 11 now. Loans were up 5.5 year-on-year and 0.7 quarter-on-quarter. The driver of this development was the large corp business, mainly attributable to investment activities in Austria, while the other subsegments like SME were either flat or slightly down in the first quarter. Another highlight in the corporate business is the continuation of a strong fee income performance, confirming our strategy of focusing on recurring services. The market business started strongly into the year. Nonetheless, the performance was lower than the previous year, which was attributable to lower central bank rates. Our customer business, on the other hand, posted another excellent quarter, both in equity capital markets and debt capital markets activities. We are talking about a total of 75 executed deals across all asset classes. Our asset management business always showed a very solid first quarter. Assets under management rose to a new all-time high of 92.5 billion euros. This performance was supported by retail sales and M&A activities. And with this, I hand over to Stefan for the presentation of the quarterly operating trends.