Erste Group Bank Ag S/Adr

Ladies and gentlemen, welcome to the Airsta Group third quarter 2025 results conference call. I am Sandra, the course call operator. I would like to remind you that all participants have been listened to in remote and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Thomas Sommerauer, Head of the Group of Investor Relations. Please go ahead, sir.

Thank you very much, Sandra, for the kind introduction and also a warm welcome from my end to this third quarter conference call of Erste Group. We follow our usual procedure according to which Peter Bossek, our executive officer, Stefan Dörfler, our chief financial officer, and Alexander Haveler-Travik, our chief risk officer, will lead you through a brief presentation highlighting the financial achievements of the third quarter and here today, after which time we will be ready to take your questions. Before I hand over to Peter Bossek, the usual presentation, highlighting of the disclaimer on page two in regard to forward-looking statements. With this, I hand over to Peter.

Good morning, ladies and gentlemen. Welcome again to our third quarter 2025 conference call. Let me place two messages right at the start. First, we are progressing well towards first-time consolidation of Santander Polska around here in 2025. We received all competition authority approvals And it's our current expectation that we will get the nod of the Polish regulator K&F by year end. The integration work streams with our future colleagues are also right on track. S is our capital build. Actually, it's progressing even better than we have planned. And this brings me right to my second message. And this is our existing business is doing exceptionally well. We benefit from strong volume growth. dynamics across our region, which translates into healthy top-line performance and good bottom-line profitability. And if you add these two things up, the strength of our existing business and the integration of a leading bank in the largest CE market, Erste will become a real powerhouse in CE banking with an unrivaled profitability and growth profile. And while it's unlikely that we hit the 4 billion profit mark in 2026 on a reported basis due to the booking of customary one-time items that have to be absorbed with first-time consolidation of such transaction, this doesn't change anything in our ambition to get there on a clean basis already in 2026. Such one-time items include purely technical and overtime P&L neutral IFRS effects, such as the measurement of acquired assets at fair value and the resulting immediate recognition of expected credit losses on the newly acquired portfolio. And certainly also one of integration costs, which we still see around 200 million euros. With this, let me highlight a couple of points of our third quarter performance. For the first time ever, we posted quarterly revenues north of 2.9 billion euros. This resulted from a record net interest income of close to 2 billion euros, supported by strong loan growth, a stable interest rate environment, and continued deposit pricing strings. In addition, we printed fees of almost 800 million euros, also a quarterly record. On the cost side, we probably could have done a touch better, but this is definitely an area where we still have a potential going into the fourth quarter. But despite elevated costs, quarterly operating profit was also in record territory by a comfortable margin. Risk costs remained moderate and we are fully in line with our guidance. And we again benefited from a positive warm-off in the other operating result, despite higher banking taxes. Altogether, we achieved an excellent return on tangible equity of 18% flat in the third quarter. Based on these numbers, we slightly tweaked our 2025 guidance. We now see net interest income growing by more than 2% instead of more than 0%. And consequently, we rather see the cost-income ratio at around 48% instead of below 50%. Furthermore, we are raising our year-end CRT1 ratio projection to higher than 18.5% due to continued strong capital build in the case first-time consolidation has not happened by this time. All other 25 guidance items, most of which were already upgraded a quarter ago, are hereby confirmed. When analyzing our P&L metrics, I'm on page five in the meantime, we see continued net interest margin recovery. This was not necessarily driven by an expansion of product spreads, but rather by the factors I already mentioned, like higher NII on back of loan growth. and strong deposit pricing power, in addition to still muted interest-bearing asset inflation. The latter was supported by limited growth in financial assets and interbank assets in the past quarter. Operating efficiency also remained at a sound level, just shy of 47%, as did risk costs at somewhat above 20 basis points. Banking taxes went up in the past quarter due to a doubling of the tax rate in Romania starting in July. Quarterly earnings per share also rose despite reported net profit being down slightly quarter on quarter due to the non-deduction of ATR1 dividends in the third quarter. The same effects also explain the rise of the in-return on tangible equity to 80%. I don't want to sound repetitive, but clearly what had positive effects in our P&L is also reflected in the year-to-date balance sheet development. On page six, you can see the main driver of asset-side growth was higher customer loan volumes. In fact, since the start of the year, added almost 10 billion euros to our loan stock. Stefan will tell you more where it exactly came from later. So for now, I will only say that the positive trends of the previous quarters, good growth across Central and Eastern Europe, and solid growth in Austria and better growth in retail and corporate business continued in the third quarter. Total customer deposits grew by 2.5 year to date, while core retail and SME deposits, which includes deposits held in the savings banks, increased by 2.4% over the same timeframe. The retail segment on its own saw deposit growth by 3.5 since the start of the year. All in all, we are seeing healthy volume growth for the past couple of quarters now, and the third quarter was no exception. So this increasing looks like a sustainable trend. This makes us confident that we will comfortably deliver our full year guidance of growing customer loans by more than 5%. Looking at the same balance sheet metrics on slide seven, my key message to you is that all of them are pretty much in a sweet spot territory. The loan to deposit ratio stands at 92%. Here, we saw a little bit of an uptick since the start of the year due to strong loan growth dynamics and compared to that, somewhat slower growth in deposits. The asset quality backdrop remained excellent in the third quarter. with a stable MPL ratio of 2.5 and unchanged coverage versus the previous quarter of about 74%. Importantly, the asset quality situation in Austria remains stable despite the weak economic backdrop. The activity across Central and Eastern Europe remained very strong and the Czech Republic and Hungary doing particularly well.