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Erste Group Bank AG — Interim / Quarterly Report 2012
Oct 30, 2012
741_rns_2012-10-30_203be463-cca2-4e06-abb4-2f05b0322968.pdf
Interim / Quarterly Report
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Interim Report Third Quarter 2012
KEY FINANCIAL AND SHARE DATA
| in EUR million 1 -9 12 1 -9 11 Income statement Net interest income 3,968.9 4,134.1 Risk provisions for loans and advances -1,465.3 -1,859.2 Net fee and commission income 1,284.3 1,352.0 Net trading result 191.4 37.4 General administrative expenses -2,826.1 -2,891.6 Other result -177.8 -1,548.0 Pre -tax profit/loss 975.4 -775.3 Attributable to owners of the parent 597.3 -973.0 Profitability ratios Net interest margin 2.8% 3.0% Cost/income ratio 51.9% 52.4% Return on equity 6.3% -9.7% Earnings per share 1.26 -2.87 Sep 12 Dec 11 Balance sheet Loans and advances to credit institutions 11,569 7,578 Loans and advances to customers 133,507 134,750 Risk provisions for loans and advances -7,796 -7,027 Trading assets, derivative financial instruments 18,201 16,807 Financial assets 42,601 38,132 Other assets 18,908 19,766 Total assets 216,990 210,006 Deposits by banks 25,524 23,785 Customer deposits 122,249 118,880 Debt securities in issue 29,902 30,782 Trading liabilities, derivative financial instruments 11,293 9,873 Other liabilities 7,329 5,723 Subordinated liabilities 4,293 5,783 Total equity 16,400 15,180 Attributable to non -controlling interests 3,453 3,143 Attributable to owners of the parent 12,947 12,037 Total liabilities and equity 216,990 210,006 Changes in total qualifying capital Risk pursuant to section 22 (1) 1 Banking Act 92,621 97,630 Tier -1 ratio – credit risk (in %) 12.6 12.2 Tie r -1 ratio – total risk (in %) 10.8 10.4 Solvency ratio (in %) 13.7 14.4 1-9 12 1-9 11 Stock market data (Vienna Stock Exchange) High (EUR) 19.76 39.45 Low (EUR) 11.95 17.16 Closing price (EUR) 14.95 19.36 Market capitalisation (EUR billion) 5.89 7.33 |
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A
P - 2
A - 1
A
Ratings at 30 September 2012 Fitch Long term Short term F1 Outlook Stable Moody's Investors Service Long term A3 Short term Outlook Negative Standard & Poor's Long term
Outlook Negative
Short term
Table of Contents
| 2 | Letter from the CEO |
|---|---|
| 3 | Erste Group on the Capital Markets |
| 4 | Interim Management Report |
| 13 | Condensed Consolidated Financial Statements |
Highlights
- _ Net interest income eased to EUR 3,968.9 million in the first nine months of 2012 (1-9 2011: EUR 4,134.1 million) driven by the continuing reduction of non-core assets and subdued credit demand as a result of the economic environment. Net fee and commission income decreased by 5.0% to EUR 1,284.3 million due to weaker securities business. At EUR 191.4 million, the net trading result was significantly higher than in the first nine months of 2011 when at EUR 37.4 million it had been weighed down by valuation effects.
- _ As a result, operating income slightly declined by 1.4% to EUR 5,444.6 million (1-9 2011: EUR 5,523.5 million). Strict cost management led to a decrease in general administrative expenses by 2.3% from EUR 2,891.6 million to EUR 2,826.1 million in the first nine months of 2012. The operating result was almost unchanged at EUR 2,618.5 million (1-9 2011: EUR 2,631.9 million). The cost/income ratio improved to 51.9% (1-9 2011: 52.4%).
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_ Risk costs amounted to EUR 1,465.3 million, or 146 basis points of average customer loans, down 21.2% versus the first nine months of 2011 (EUR 1,859.2 million). Provisioning levels declined or were stable in all core countries, with the exception of Romania and Croatia. Asset quality trends were mixed, with a continued improvement in Austria, the Czech Republic and Slovakia. Compared to the previous quarter, however, NPL formation decreased also in Romania and Hungary. Overall, the NPL ratio remained at 9.2% as of 30 September 2012 (30 June 2012: 9.2%, year-end 2011: 8.5%), while the NPL coverage ratio improved to 63.1% (year-end 2011: 61.0%).
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_ Other operating result increased to EUR -214.0 million in the first nine months of 2012 (1-9 2011: EUR -1,460.4 million). The strong improvement was related to considerably smaller one-off effects with an overall positive impact in 2012. In particular, the buyback of tier 1 and tier 2 instruments had a favourable effect in the amount of EUR 413.2 million. Negative influences came from the adjustment of goodwill for Banca Comercială Română (EUR 210.0 million) and a charge related to FX mortgage interest subsidy legislation in Hungary (EUR 60.6 million). Increased banking taxes levied in Austria, Hungary and Slovakia had a negative impact of EUR 173.0 million (1-9 2011: EUR 140.2 million).
- _ Thus, net profit after minorities1 for the first nine months of 2012 amounted to EUR 597.3 million (1-9 2011: EUR -973.0 million).
- _ Shareholders' equity2 increased significantly to EUR 12.9 billion (year-end 2011: EUR 12.0 billion). The rise in core tier 1 capital to EUR 11.3 billion (year-end 2011: EUR 10.7 billion) led to an increase in the core tier 1 ratio (total risk; Basel 2.5) to 10.4% (year-end 2011: 9.4%). The EBA capital ratio stood at 9.9% (year-end 2011: 8.9%). The continued improvement in capital ratios was supported by a reduction of risk-weighted assets by 4.7% to EUR 108.7 billion as of 30 September 2012 (year-end 2011: EUR 114.0 billion).
- _ The total balance sheet as of 30 September 2012 stood at EUR 217.0 billion, up 3.3% year to date. The rise was primarily due to deposit growth and investments in highly liquid assets while lending volume decreased slightly, by 0.9%, to EUR 133.5 billion. The loan-todeposit ratio improved to 109.2% (year-end 2011: 113.3%).
1 The term "net profit/loss for the period after minorities" corresponds to the term "net profit/loss for the period attributable to the owners of the parent"
2 The term "shareholders' equity" corresponds to the term "total equity attributable to owners of the parent".
Letter from the CEO
Dear shareholders,
Erste Group posted a net profit of EUR 597.3 million for the first nine months of 2012, which is a satisfactory result in an increasingly challenging market environment. This performance was mainly attributable to solid results in the core markets of Austria, the Czech Republic, and Slovakia. A certain degree of stabilisation in Romania was another supportive factor: in the third quarter, margins rose for the first time in six quarters. Erste Group's operating result remained stable at EUR 2,618.5 million, with an improved net trading result offsetting declines in net interest income and net fee and commission income. The cost/income ratio improved to 51.9%.
In Central and Eastern Europe, economic conditions were mixed through the first nine months of 2012. While strains in bond and currency markets caused by the euro zone's sovereign debt crisis eased over the course of the year on the back of growing confidence in the region, the real economy was not entirely unaffected by the prevailing global downtrend. In Austria, household consumption stabilised economic activity but corporate investment remained subdued. In the Czech Republic, the economy, despite a competitive export industry, slowed amid sluggish domestic demand due to government austerity. In Romania, economic activity cooled as the year progressed because of weakness in the agricultural sector and political turmoil leading to the temporary suspension of government investment projects. A positive impact came from salary increases in the Romanian public sector. In Hungary, output declined slightly against the backdrop of erratic economic policies aimed at generating revenue through taxation of specific sectors. The banking tax was extended for another year and, as of 2013, a financial transaction tax will be introduced on ordinary banking business. An agreement with the International Monetary Fund on a credit facility was still not concluded in the third quarter. The best performance was seen in Slovakia: the economy expanded in the first nine months of the year despite government intervention.
The economic uncertainty was also reflected in the development of Erste Group's core business. Credit demand remained subdued in Central and Eastern Europe, with the exception of Slovakia. Consolidated lending volume was therefore down slightly. While the share of mortgage business in the loan book increased, the proportion of consumer loans declined. The scheduled reduction of non-core assets, which was almost completed, additionally contributed to a decrease in net interest income. Net fee and commission income came in 5.0% lower due to declining securities business in Austria amid continuing weakness in customer activity. This development was partly offset by a significantly improved net trading result as the extraordinarily high negative valuation results posted in the previous year did not recur.
Strict cost management, measures to raise efficiency and substantial cost cutting in Hungary and Romania led to a decrease in general administrative expenses. Significant improvement in the item "other operating result" for the first three quarters of 2012 was due to substantially lower one-off charges than in the previous year. The buyback of hybrid capital and subordinated bonds had a positive effect of about EUR 410 million, which offset both a goodwill adjustment for the Romanian subsidiary Banca Comercială Română (EUR 210 million) and the impact of the Hungarian an interest subsidy scheme for retail FX borrowers (approximately EUR 61 million). Banking taxes payable in Austria, Hungary, and Slovakia reduced pre-tax income by EUR 173.0 million.
The positive trend in asset quality continued in Austria, the Czech Republic, and Slovakia. In the third quarter, non-performing loan (NPL) formation declined also in Romania and Hungary. Overall, risk costs, at EUR 1,465.3 million, improved by more than 20% versus the previous year. That their level was still elevated was largely attributable to provisioning requirements in Romania, which are expected to peak this year. Non-performing loans in relation to customer loans had risen to 9.2% year-to-date while the NPL ratio was stable versus the second quarter. The NPL coverage ratio excluding collateral improved to 63.1%, mainly due to an increase in Romania.
The first nine months of 2012 witnessed strong growth in customer deposits, especially in Austria, the Czech Republic, and Slovakia. Overall, customer deposits increased by almost 3% year-to-date to EUR 122.2 billion, improving the loan-to-deposit ratio to 109.2%. Erste Group's funding position was again strong, both in the capital markets and with retail investors. In the third quarter, Erste Group's issuing activities focused on two subordinated bonds (EUR 500 million and USD 500 million, respectively), which were placed successfully with Asian and European investors.
The performance of the first nine months clearly shows that Erste Group is well on track to generate a solid – if perhaps slightly lower than the previous year's – operating result even in an environment of continuing economic uncertainty. A decline in risk costs should in any case have a positive impact on the full-year result for 2012.
Andreas Treichl mp
Erste Group on the Capital Markets
EQUITY MARKET REVIEW
In the third quarter, US indices posted solid gains (Dow Jones Industrial Index +4.3%, Standard & Poor's 500 Index +5.8%) while the Euro Stoxx50 Index gained 8.4% and the broader European Stoxx 600 Index advanced by 6.9%. In Europe, the bestperforming index was the German Dax, which rose by 12.5%. The Austrian Traded Index (ATX) climbed 5.8% to 2,089.74 points. Year on year, all major markets were up, with the exception of Italy and Spain. This positive trend was due above all to the continuation of expansionary monetary policies by the world's most important central banks. Investors' declining risk aversion and a lack of alternatives to equities, as yields of sovereign bonds were low, resulted in increasing flows to stock markets despite subdued economic data.
Slowing economic growth world-wide and further downward revisions of economic forecasts prompted the central banks in Europe, in the US and in Japan to continue their expansionary monetary policies. After cutting its key interest rates to euro zone historic lows, the European Central Bank (ECB) announced unlimited purchases of sovereign bonds of crisis countries that apply for aid under the euro bailout fund and agree to strict reforms and austerity measures. The US central bank (Fed) announced its willingness to buy USD 40 billion worth of mortgage-backed securities per month without any time limit. In addition, it will maintain its low interest rate policy through 2015.
In the third quarter, EU heads of state and government agreed on the establishment of the ESM (European Stability Mechanism), which will enter into force at the beginning of October. The ESM is a treaty between euro zone countries designed to safeguard the euro states' solvency and to replace its predecessor, the EFSF (European Financial Stability Facility). Under the ESM, states in financial difficulty will receive loans from euro states subject to certain economic conditions. Implementation of a single European banking supervision mechanism is expected for 2013.
PERFORMANCE OF THE ERSTE GROUP SHARE
In the third quarter, the Erste Group share recorded a double-digit gain, which more than compensated the setback suffered in the previous quarter. This strong performance was largely due to the global uptrend in equity markets. Another positive factor was the outcome of the stress test conducted by the European Banking Authority (EBA). The Erste Group exceeded the EBA capital requirement significantly. As of the end of June 2012, its EBA capital ratio (excluding retained earnings) stood at 9.9%. By rising 16.2% in the reporting period to EUR 17.365, the Erste Group share has gained 27.8% year to date, outperforming the ATX (+10.5%) and the DJ Euro Stoxx Bank Index (+1.2%).
FUNDING
Erste Group has covered its entire funding needs for 2012. After lively issuing activity in the first half of 2012, which included placement of a EUR 1 billion mortgage covered bond and a
EUR 500 million senior unsecured bond, the focus in the third quarter was initially on issues for the retail market.
Strong investor feedback following road shows in Asia and Europe resulted in two successful capital market transactions. In a supportive market environment, a EUR 500 million tier 2 bond was issued in early October only a few days after a USD 500 million tier 2 bond. Combined with buy-back offers for existing tier 1 and tier 2 instruments (hybrid capital and subordinated bonds) in the first half of the year, these two transactions resulted in an optimisation of the capital structure.
INVESTOR RELATIONS
In the third quarter 2012, Erste Group's management and its investor relations team conducted a large number of one-on-one and group meetings and attended international banking and investor conferences. In talks and conferences, Erste Group presented its strategy and plans against the backdrop of the current economic environment.
As an additional service for investors and analysts, Erste Group launched a free Investor Relations App for iPhone, iPad, and Android. This application enables users to access and download Erste Group Bank AG share price information, the latest investor news, multimedia files, financial reports and presentations as well as an interactive financial calendar and contact details of the Investor Relations team.
Interim Management Report
In the interim management report, financial results from the first nine months of 2012 are compared with those from the first nine months of 2011. Unless stated otherwise, terms such as "in the previous year", "2011" or "as of the first nine months of 2011" accordingly relate to the first nine months of 2011, and terms such as "this year", "2012" or "as of the first nine months of 2012" relate to the first nine months of 2012. The term "net profit after minorities" corresponds with "net profit attributable to owners of the parent".
EARNINGS PERFORMANCE IN BRIEF
The operating result remained stable at EUR 2,618.5 million in the first nine months of 2012 (-0.5% versus EUR 2,631.9 million in the first nine months of 2011) on the back of lower operating income and a reduction of operating expenses.
Operating income amounted to EUR 5,444.6 million in the first nine months of 2012 (1-9 2011: EUR 5,523.5 million). The 1.4% decline was mainly due to lower net interest income (-4.0% to EUR 3,968.9 million) and lower net fee and commission income (-5.0% to EUR 1,284.3 million), which was not fully offset by a rise in the net trading result (from EUR 37.4 million in the first nine months of 2011 to EUR 191.4 million).
General administrative expenses declined by 2.3% to EUR 2,826.1 million (1-9 2011: EUR 2,891.6 million). This resulted in a cost/income ratio of 51.9% (1-9 2011: 52.4%).
Net profit after minorities improved from EUR -973.0 million in the first nine months of 2011 to EUR 597.3 million in the first nine months of 2012 as negative one-off effects of 2011 did not recur in 2012.
Cash return on equity, i.e. return on equity adjusted for noncash expenses such as goodwill impairment and straight-line amortisation of customer relationships was 8.5% for the first nine months of 2012 (reported ROE: 6.3%) versus 0.1% (reported ROE: -9.7%) in the first nine months of 2011.
Cash earnings per share for the first nine months of 2012 amounted to EUR 1.82 (reported EPS: EUR 1.26) versus EUR - 0.26 (reported EPS: EUR -2.87) in the first nine months of 2011.
Total assets, at EUR 217.0 billion, were up 3.3% versus yearend 2011. A strong rise in customer deposits resulted in the investment of excess liquidity into highly liquid financial assets. Risk-weighted assets declined by EUR 5.3 billion to EUR 108.7 billion.
The solvency ratio stood at 13.7% as of 30 September 2012, well above the statutory minimum requirement of 8.0%. The core tier 1 ratio relating to total risk and as defined by Basel 2.5, was 10.4% as of 30 September 2012.
OUTLOOK
Despite weaker macroeconomic prospects across Europe and as a consequence of the continued reduction of non-core assets, decreasing yield levels, the absence of loan growth on an aggregated basis and limited demand in the securities business Erste Group anticipates that the 2012 operating result will be only slightly behind that of 2011.
Risk costs are expected to be about EUR 2.0 billion in 2012, with risk costs peaking in Romania this year. Even so, the Romanian subsidiary Banca Comercială Română is expected to return to profitability in 2013.
Erste Group will comfortably and sustainably meet all capital requirements (EBA, Basel 3).
PERFORMANCE IN DETAIL
| 1-9 12 | 1-9 11 | Change |
|---|---|---|
| -4.0% | ||
| -21.2% | ||
| -5.0% | ||
| >100.0% | ||
| -2.3% | ||
| na | ||
| na | ||
| na | ||
| 37.0% | ||
| 597.3 | -973.0 | na |
| 3,968.9 -1,465.3 1,284.3 191.4 -2,826.1 -177.8 975.4 724.3 127.0 |
4,134.1 -1,859.2 1,352.0 37.4 -2,891.6 -1,548.0 -775.3 -880.3 92.7 |
Net interest income
Net interest income declined from EUR 4,134.1 million in the first nine months of 2011 to EUR 3,968.9 million. Over the same period, the net interest margin (net interest income as a percentage of average interest-bearing assets) contracted from 3.03% to 2.82%. This development was mainly due to subdued credit demand, especially for consumer loans, the reduction of non-core assets, and the inclusion of trading assets into interestbearing assets.
Net fee and commission income
| in EUR million | 1-9 12 | 1-9 11 | Change |
|---|---|---|---|
| Lending business | 204.6 | 206.8 | -1.1% |
| Payment transfers | 647.5 | 649.9 | -0.4% |
| Card business | 163.2 | 150.5 | 8.4% |
| Securities transactions | 258.5 | 295.2 | -12.4% |
| Investment fund transactions | 141.3 | 148.6 | -4.9% |
| Custodial fees | 23.7 | 24.8 | -4.4% |
| Brokerage | 93.5 | 121.8 | -23.2% |
| Insurance brokerage | 65.9 | 71.2 | -7.4% |
| Building society brokerage | 22.0 | 27.9 | -21.1% |
| Foreign exchange transactions | 19.0 | 18.1 | 5.0% |
| Investment banking business | 10.6 | 13.3 | -20.3% |
| Other | 56.2 | 69.6 | -19.3% |
| Total | 1,284.3 | 1,352.0 | -5.0% |
Net fee and commission income decreased in the first nine months of 2012 from EUR 1,352.0 million to EUR 1,284.3 million. This development was mostly due to a decline in the securities business (primarily in Austria and the Czech Republic), as well as in building society activity, insurance brokerage and investment banking. Positive contributions came from Erste Group's factoring subsidiary Intermarket Bank AG (consolidated since 1 August 2011) and from the cards business.
Net trading result
The net trading result improved from EUR 37.4 million in the first nine months of 2011 to EUR 191.4 million in the same period of 2012. This was mainly attributable to last year's changes in the fair value of the CDS-investment portfolio (closed out in the meantime), which had had a negative impact of EUR -204.5 million. This was partly offset by the shift of interest income from trading assets, which has been since the fourth quarter 2011 included in net interest income.
General administrative expenses
| in EUR million | 1-9 12 | 1-9 11 | Change |
|---|---|---|---|
| Personnel expenses | -1,702.5 | -1,720.3 | -1.0% |
| Other administrative expenses | -846.9 | -889.8 | -4.8% |
| Depreciation and amortisation | -276.7 | -281.5 | -1.7% |
| Total | -2,826.1 | -2,891.6 | -2.3% |
General administrative expenses declined by 2.3% from EUR 2,891.6 million to EUR 2,826.1 million (currency-adjusted: -0.8%).
Personnel expenses decreased by 1.0% (currency-adjusted: +0.2%) from EUR 1,720.3 million to EUR 1,702.5 million. Major cost savings were achieved in other administrative expenses (mainly in office-related expenses), which declined by 4.8% (currency-adjusted: -2.9%) from EUR 889.8 million to EUR 846.9 million, and in depreciation and amortisation, which was down by 1.7% (currency-adjusted: unchanged) from EUR 281.5 million to EUR 276.7 million.
The headcount declined by 2.1% since year-end 2011 to 49,380 employees. This was mainly due to reorganisation measures in Hungary, Romania and Ukraine.
Headcount as of end of the period
| Sep 12 | Dec 11 | Change | |
|---|---|---|---|
| Employed by Erste Group | 49,380 | 50,452 | -2.1% |
| Erste Group, EB Oesterreich and subsidiaries | 8,622 | 8,773 | -1.7% |
| Haftungsverbund savings banks | 7,444 | 7,416 | 0.4% |
| Česká spořitelna Group | 10,857 | 10,661 | 1.8% |
| Banca Comercială Română Group | 8,537 | 9,245 | -7.7% |
| Slovenská sporiteľňa Group | 4,185 | 4,157 | 0.7% |
| Erste Bank Hungary Group | 2,614 | 2,948 | -11.3% |
| Erste Bank Croatia Group | 2,648 | 2,599 | 1.9% |
| Erste Bank Serbia | 928 | 919 | 1.0% |
| Erste Bank Ukraine | 1,536 | 1,685 | -8.8% |
| Savings banks subsidiaries & foreign branch offices | 1,150 | 1,117 | 3.0% |
| Other subsidiaries and foreign branch offices | 859 | 932 | -7.8% |
.
Operating result
Driven by the declines in net interest income and net fee and commission income, which remained below the levels recorded in the first nine months of 2011, operating income was down 1.4% to EUR 5,444.6 million for the same period in 2012 (1-9 2011: EUR 5,523.5 million). As general administrative expenses were reduced by 2.3% from EUR 2,891.6 million to EUR 2,826.1, the operating result was almost unchanged at EUR 2,618.5 million (1-9 2011: EUR 2,631.9 million).
Risk provisions
Risk provisions (i.e. the balance of the allocation and release of provisions for the lending business together with the costs of direct loan write-offs offset by income received from the recovery of loans already written off) decreased by 21.2% versus the first nine months of 2011, from EUR 1,859.2 million to EUR 1,465.3 million. This was mostly attributable to a decline in risk provisions in Hungary (one-off charge of EUR 450.0 million in the first nine months of 2011) and in the Czech Republic, which more than offset the rise in provisioning requirements in Romania. In the first nine months of 2012, risk costs in relation to the average volume of customer loans were 146 basis points (1-9 2011: 184 basis points).
Other operating result
Other operating result improved from EUR -1,460.4 million in the first nine months of 2011 to EUR -214.0 million in the first nine months of 2012. This was primarily due to significantly lower goodwill adjustments of EUR 210.0 million for Banca Comercială Română versus EUR 1,041.9 million in total for the first nine months of 2011 (of which EUR 692.8 had been for the Romanian, EUR 312.7 million for the Hungarian subsidiaries and EUR 36.4 million for Austrian investments). The changed interest subsidy legislation for foreign currency mortgages in Hungary resulted in a EUR 60.6 million charge. Other taxes rose from EUR 160.5 million to EUR 191.1 million. A large proportion of these comprised banking taxes. In Slovakia, a banking tax was newly introduced in 2012 and resulted in a charge of EUR 14.9 million for the first nine months of 2012. In Hungary, the banking tax amounted to EUR 33.8 million. In Austria, banking tax was raised by 25% and totalled EUR 123.7 million. Other operating result also included straight-line amortisation of intangible assets (i.e. customer relationships) of EUR 49.8 million (1-9 2011: EUR 52.1 million) as well as deposit insurance contributions of EUR 61.9 million (1-9 2011: EUR 65.5 million). Positive contributions came from the buyback of tier 1 and tier 2 instruments, which generated one-off income of EUR 413.2 million, and gains on the sale of properties amounting to EUR 42.7 million.
Results from financial assets
The overall result from all categories of financial assets improved from EUR -87.6 million in the first nine months of 2011 to EUR 36.2 million in the first nine months of 2012. Valuation gains on assets held in the fair value and available-for-sale portfolios more than offset losses on sales of non-core assets and valuation losses in the held-to-maturity portfolios during the first nine months of 2012.
Pre-tax profit and net profit attributable to owners of the parent
Pre-tax profit amounted to EUR 975.4 million in the first nine months of 2012 versus a pre-tax loss of EUR 775.3 million in the comparable period of 2011.
FINANCIAL RESULTS – QUARTER-ON-QUARTER COMPARISON
Net interest income, at EUR 1,317.2 million, was stable in the third quarter of 2012 versus the year's second quarter (EUR 1,314.8 million).
Net fee and commission income decreased by 3.8% from EUR 435.2 million in the second quarter of 2012 to EUR 418.8 million in the third quarter due to lower commission income from lending business (down 15.2% quarter on quarter to EUR 63.0 million).
The net trading result improved by 150.5%, from EUR 27.9 million in the second quarter of 2012 to EUR 69.9 million. This was mainly attributable to an improvement in the securities and derivatives business.
General administrative expenses slightly declined by 0.4% quarter on quarter, from EUR 942.3 million to EUR 938.7 million, as the decrease in personnel expenses (by 0.7% from EUR 568.1 million in the second quarter of 2012 to EUR 563.9 million in the year's third quarter) more than offset the minor rises in other administrative expenses (by 0.1% from EUR 281.7 million to EUR 281.9 million) and in depreciation and amortisation (by 0.4% from EUR 92.5 million to EUR 92.9 million).
The cost/income ratio improved to 52.0% in the third quarter of 2012 versus 53.0% in the second quarter.
Risk provisions for loans and advances rose by 20.5% quarter on quarter, from EUR 401.2 million to EUR 483.5 million. Following statutory changes in Hungary, a large part (EUR 60.6 million) of the risk provisions created in the first quarter in the Net profit after minorities improved to EUR 597.3 million in the first nine months of 2012 in comparison to a net loss after minorities of EUR 973.0 million in the first nine months of 2011.
amount of EUR 75.6 million was reclassified to other operating result in the second quarter.
Other operating result improved to EUR -145.9 million in the third quarter (second quarter of 2012: EUR 199.3 million). The improvement was mainly due to the non-recurrence of one-off effects posted in the second quarter, such as the goodwill writedown for Banca Comercială Română in the amount of EUR 210.0 million. Another negative factor in the second quarter had been a charge of EUR 60.6 million due to legislation on subsidising foreign currency mortgage loans in Hungary. On the other hand, there occurred a positive effect from the buyback of tier 1 and tier 2 instruments in the amount of EUR 162.6 million and gains on properties sales of EUR 42.7 million. Valuation adjustments for property, plant and equipment and other movables, held as financial investments (primarily in the Czech Republic) amounted to EUR -34.3 million in the third quarter of 2012 (second quarter of 2012: EUR -10.8 million).
The overall result from all categories of financial assets improved from EUR 5.5 million in the second quarter of 2012 to EUR 9.9 million in the third quarter. This was mainly attributable to valuation adjustments of assets held in the held-to-maturity portfolio in the second quarter of 2012.
Pre-tax profit improved to EUR 247.7 million in the third quarter of 2012 from EUR 240.6 million in the second quarter of 2012.
Net profit after minorities amounted to EUR 143.7 million in the third quarter of 2012 versus EUR 107.1 million in the second quarter.
Development of the balance sheet
| in EUR million | Sep 12 | Dec 11 | Change |
|---|---|---|---|
| Loans and advances to credit institutions | 11,569 | 7,578 | 52.7% |
| Loans and advances to customers | 133,507 | 134,750 | -0.9% |
| Risk provisions for loans and advances | -7,796 | -7,027 | 10.9% |
| Trading assets, derivative financial instruments | 18,201 | 16,807 | 8.3% |
| Financial assets | 42,601 | 38,132 | 11.7% |
| Other assets | 18,908 | 19,766 | -4.3% |
| Total assets | 216,990 | 210,006 | 3.3% |
| in EUR million | Sep 12 | Dec 11 | Change |
| Deposits by banks | 25,524 | 23,785 | 7.3% |
| Customer deposits | 122,249 | 118,880 | 2.8% |
| Debt securities in issue | 29,902 | 30,782 | -2.9% |
| Trading liabilities, derivative financial instruments | 11,293 | 9,873 | 14.4% |
| Other liabilities | 7,329 | 5,723 | 28.1% |
| Subordinated liabilities | 4,293 | 5,783 | -25.8% |
| Total equity | 16,400 | 15,180 | 8.0% |
| Attributable to non-controlling interests | 3,453 | 3,143 | 9.9% |
| Attributable to owners of the parent | 12,947 | 12,037 | 7.6% |
| Total liabilities and equity | 216,990 | 210,006 | 3.3% |
Loans and advances to credit institutions rose significantly from a low level of EUR 7.6 billion as of 31 December 2011 to EUR 11.6 billion as of 30 September 2012. This increase was largely attributable to excess liquidity deposited with central banks.
Loans and advances to customers decreased slightly from EUR 134.8 billion as of 31 December 2011 to EUR 133.5 billion due to a decline in lending in Hungary as well as currency effects.
Risk provisions increased from EUR 7.0 billion to EUR 7.8 billion due to additional allocations. The NPL ratio (nonperforming loans as a percentage of loans to customers) stood at 9.2% as of 30 September 2012 (8.5% as of 31 December 2011). The NPL coverage ratio improved further, rising from 61.0% at year-end 2011 to 63.1%.
Investment securities held within the various categories of financial assets rose by 11.7% from EUR 38.1 billion at year-end 2011 to EUR 42.6 billion on the back of increased investments into bonds allocated to the available-for-sale and held-to-maturity portfolios. This reflects the acquisition of highly liquid assets in preparing for the new Basel 3 liquidity rules and the investment of excess liquidity.
Customer deposits increased by 2.8% from EUR 118.9 billion to EUR 122.2 billion as of 30 September 2012. This development was driven primarily by real deposit gains in Austria, the Czech Republic and Slovakia as well as by currency effects.
The rise in deposits by banks is mostly attributable to the use of the second tranche of the ECB's 3-year LTRO (longer-term refinancing operation) in the amount of EUR 1.1 billion.
At 109.2%, the loan-to-deposit ratio as of 30 September 2012 was lower than it had been as of 31 December 2011 (113.3%).
Debt securities in issue, in particular bonds and certificates of deposit, declined by 2.9% from EUR 30.8 billion to EUR 29.9 billion as of 30 September 2012.
The significant reduction of subordinated liabilities from EUR 5.8 billion to EUR 4.3 billion as of 30 September 2012 resulted primarily from the buyback of tier 1 and tier 2 instruments in a total notional amount of approximately EUR 1.3 billion.
Erste Group's shareholders' equity rose to EUR 12.9 billion as of 30 September 2012 (year-end 2011: EUR 12.0 billion). This was attributable to profit from the first nine months of 2012 as well as to an improvement in the available-for-sale reserve. Tier 1 capital after the deductions defined in the Austrian Banking Act amounted to EUR 11.7 billion (year-end 2011: EUR 11.9 billion).
Core tier 1 capital (excluding retained earnings for the first nine months of 2012) also improved markedly to EUR 11.3 billion (year-end 2011: EUR 10.7 billion) due to full recognition of collateral for defaulted loans in Romania.
At EUR 108.7 billion, total risk-weighted assets (RWA) as of 30 September 2012 were 4.7% lower than as of 31 December 2011 (EUR 114.0 billion). This decline was due to the sale of non-core assets as well as a number of additional measures taken to meet EBA's 9% equity capital requirement by the end of June 2012.
Total eligible qualifying capital of the Erste Group credit institution group, as defined by the Austrian Banking Act, declined from EUR 16.4 billion at year-end 2011 to EUR 14.9 billion as of 30 September 2012. The coverage ratio with respect to the statutory minimum requirement at the reporting date (EUR 8.7 billion) was 171.3% (year-end 2011: 179.9%).
The tier 1 ratio, which includes the capital requirements for market and operational risk (total risk), improved to 10.8% (year-
SEGMENT REPORTING
Retail & SME
Erste Bank Oesterreich
The Erste Bank Oesterreich segment comprises the retail and SME business of Erste Bank Oesterreich and its subsidiaries, including all the savings banks in which Erste Bank Oesterreich holds majority stakes (savings banks in Salzburg, Tirol, and Hainburg), as well as s Bausparkasse.
The decline in net interest income from EUR 501.8 million in the first nine months of 2011 by EUR 34.3 million, or 6.8%, to EUR 467.5 million in the first nine months of 2012 was primarily due to lower income from the banking book, reflecting the interest rate developments over recent months. Net fee and commission income improved slightly from EUR 239.1 million for the first nine months of 2011 by EUR 1.7 million, or 0.7%, to EUR 240.8 million in the first nine months of 2012, despite a reduction in the securities business. This was primarily attributable to a rise in net fee and commission income from the corporate business as well as to the inclusion of Intermarket Bank AG in August 2011. The decline in the net trading result from EUR 9.8 million in the first nine months of 2011 by EUR 11.7 million to EUR -1.9 million in the same period of 2012 was due to negative valuation results in the first quarter of 2012. The slight rise in operating expenses from EUR 454.5 million by EUR 4.0 million, or 0.9%, to EUR 458.5 million, resulted from the integration of Intermarket Bank AG in August 2011.
The operating result decreased from EUR 296.2 million in the first nine months of 2011 by EUR 48.3 million, or 16.3%, to EUR 247.9 million. The cost/income ratio was 64.9% versus 60.5% in the first nine months of 2011. The further reduction in risk provisions by EUR 11.2 million, or 12.1%, from EUR 92.7 million in the previous year to EUR 81.5 million reflected the continuing stability of the risk profile in the retail and SME portfolios.
Improvement in the "Other result" by EUR 57.6 million to EUR 23.4 in the first nine months of 2012 was mainly driven by income from the sale of securities held in the available-for-sale portfolio and a sale of real estate. In the previous year, other financial assets were also affected by valuation losses. Banking end 2011: 10.4%). The core tier 1 ratio rose to 10.4% as of 30 September 2012 (year-end 2011: 9.4%). The EBA capital ratio was 9.9% as of 30 September 2012 (year-end 2011: 8.9%).
The solvency ratio in relation to total risk (total eligible qualifying capital as a percentage of the assessment base for total risk pursuant to 22 par. 1 of the Austrian Banking Act) at 13.7% as of 30 September 2012 (year-end 2011: 14.4%) was well above the 8.0% statutory minimum requirement..
tax amounted to EUR 7.2 million in the first three quarters of 2012. Net profit after minorities rose from EUR 128.2 million in the first nine months of 2011 by EUR 15.2 million, or 11.9%, to EUR 143.4 million. Return on equity stood at 14.8% versus 15.5% in the previous year.
Haftungsverbund/Savings Banks
The decline in net interest income from EUR 742.0 million by EUR 40.3 million, or 5.4%, to EUR 701.7 million in the first nine months of 2012 was mainly due to the smaller contribution from asset/liability management. Net fee and commission income was slightly up by EUR 0.9 million, or 0.3%, to EUR 291.4 million in the first nine months of 2012. The net trading result improved significantly from EUR -2.1 million in the first nine months of 2011 by EUR 22.2 million to EUR 20.1 million in the first nine months of 2012 due to better valuation results. Operating expenses rose slightly by EUR 3.7 million, or 0.5%, to EUR 706.6 million. The operating result decreased from EUR 327.5 million by EUR 20.9 million, or 6.4%, to EUR 306.6 million. The cost/income ratio stood at 69.7% versus 68.2% in the previous year.
Risk provisions fell substantially by EUR 30.8 million, or 16.2%, from EUR 190.0 million in the first nine months of 2011 to EUR 159.2 million. Improvement in the "Other result" from EUR -49.6 million by EUR 47.5 million to EUR -2.1 million was largely due to gains on disposal in the available-for-sale portfolio in 2012 and valuation losses in the securities portfolio in 2011. Banking tax amounted to EUR 6.3 million in the first nine months of 2012. Net profit after minorities rose from EUR 0.6 million in the first nine months of 2011 by EUR 8.5 million, to EUR 9.1 million in the first nine months of 2012
Central and Eastern Europe
The segment Central and Eastern Europe includes primarily the retail and SME business of Česká spořitelna, Slovenská sporiteľňa, Erste Bank Hungary, Banca Comercială Română, Erste Bank Croatia, Erste Bank Serbia, and Erste Bank Ukraine. Contributions from the divisionalised business areas – Group Corporate & Investment Banking and Group Markets – are reported in the respective segments.
Czech Republic
Net interest income from the Czech retail and SME business declined from EUR 900.3 million by EUR 57.7 million, or 6.4% (currency-adjusted: -3.3%), to EUR 842.6 million. This development was mainly attributable to shrinking margins in the deposit business coupled with falling market interest rates and subdued credit demand. Net fee and commission income decreased from EUR 372.4 million in the previous year by EUR 37.9 million, or 10.2% (currency-adjusted: -7.2%), to EUR 334.5 million, mainly due to lower income from lending and securities business. The net trading result improved from EUR -19.2 million in the first nine months of 2011 by EUR 33.2 million to EUR 14.0 million, which was attributable to solid underlying customer business and negative valuation effects in the previous year. Operating expenses declined by EUR 12.6 million, or 2.3%, to EUR 531.1 million in the first nine months of 2012. Currency-adjusted, operating expenses increased by 0.9%
The operating result declined from EUR 709.8 million in the first nine months of 2011 by EUR 49.8 million, or 7.0% (currencyadjusted: -3.9%), to EUR 660.0 million. As portfolio quality continued to stabilise, risk provisions declined significantly by EUR 68.1 million, or 36.1% (currency-adjusted: -34.0%), to EUR 120.5 million in the first nine months of 2012. Improvement of the "Other result" from EUR -114.3 million by EUR 57.8 million to EUR -56.5 million was primarily driven by higher income from financial assets and lower revaluation of real estate. At EUR 370.6 million, net profit after minorities was EUR 47.6 million, or 14.7% (currency-adjusted: +18.5%) higher than in the first nine months of 2011 (EUR 323.0 million). The cost/income ratio was 44.6% versus 43.4% in the first nine months of 2011. Return on equity declined from 39.9% to 39.0%.
Romania
The result of the Romanian retail and SME business was again affected by the adverse economic environment. Net interest income declined by EUR 93.9 million, or 18.1% (currencyadjusted: -14.6%), to EUR 423.7 million. This development was mainly driven by weak consumer credit demand and narrowing margins on retail and corporate business. The decline in net fee and commission income by EUR 7.0 million, or 7.2% (currencyadjusted: 3.1%), from EUR 97.5 million in the first nine months of 2011 to EUR 90.5 million in the first nine months of 2012 was mainly attributable to lower income from payment transfers. The increase in the net trading result by EUR 15.7 million from EUR 39.2 million in the first nine months of 2011 to EUR 54.9 million resulted largely from revaluation gains on currency positions. Comprehensive optimisation measures reduced operating expenses by EUR 31.3 million, or 11.1% (currencyadjusted: -7.2%), from EUR 282.7 million in the first nine months of 2011 to EUR 251.4 million in the first nine months of 2012.
Additional provisioning requirements in the corporate and real estate business resulted in an increase in risk costs by EUR 186.4 million, or 49.9% (currency-adjusted: +56.4%), from EUR 373.7 million to EUR 560.1 million in the first nine months of 2012. This led to a rise in the NPL coverage ratio to 57.6% as of 30 September 2012 versus 50.1% at year-end 2011.
The improvement in the item "Other result" from EUR -41.3 million by EUR 11.9 million, or 28.8% (currency-adjusted: +25.7%), to EUR -29.4 million in the first nine months of 2012 was mainly the result of higher income from financial assets and lower revaluation charges in the leasing business. At EUR 206.2 million, net loss after minorities deteriorated by EUR 186.8 million compared to the net loss after minorities of EUR 19.4 million in the previous year. Owing to rigorous implementation of optimisation measures, the cost/income ratio rose only slightly from 43.2% in the previous year to 44.2%.
Slovakia
Net interest income in the Slovak retail and SME business declined by EUR 16.4 million, or 4.9%, from EUR 334.4 million in the first nine months of 2011 to EUR 318.0 million in the first nine months of 2012. This resulted mainly from a change in the investment strategy for financial assets and a slight decline in retail business margins. Net fee and commission income at EUR 82.8 million remained almost unchanged versus the previous year. The net trading result improved from EUR -3.9 million in the first nine months of 2011 by EUR 6.9 million to EUR 3.0 million. Operating expenses rose by EUR 8.1 million, or 4.9%, from EUR 166.6 million to EUR 174.7 million due to higher IT depreciation charges.
Risk provisions reflected an improvement in the market environment versus the first nine months of 2011. The retail and the real estate businesses benefited most, leading to a reduction by EUR 13.3 million, or 23.5%, from EUR 56.7 million in the first nine months of 2011 to EUR 43.4 million. The item "Other result" included the banking tax of EUR 11.3 million. Improvement of the "Other result" by EUR 15.2 million versus the first nine months of 2011 was primarily driven by valuation results from financial assets, lower revaluation of real estate as well as lower deposit insurance contributions. Net profit after minorities declined by EUR 9.7 million, or 7.7%, to EUR 135.2 million. The cost/income ratio increased from EUR 40.3% million in the first nine months of 2011 to EUR 43.3% million in the first nine months of 2012. Return on equity rose from 41.0% to 41.7%.
Hungary
Net interest income in the Hungarian retail and SME business fell by EUR 45.5 million, or 15.0% (currency-adjusted: -7.5%), from EUR 303.1 million in the first nine months of 2011 to EUR 257.6 million in the first nine months of 2012. Declining interest income resulting from the statutory early repayment of FX loans
at non-market rates was partly offset by the shift of interest income from trading assets to net interest income. Net fee and commission income declined by EUR 6.0 million, or 8.1%, to EUR 67.8 million. Currency-adjusted, net fee and commission income was stable, however. The drop in the net trading result from EUR 14.2 million by EUR 22.8 million to EUR -8.6 million in the first nine months of 2012 was largely attributable to a change in reporting of interest income from securities held for trading and lower income from foreign exchange trading. Due to the restructuring measures implemented in the fourth quarter of 2011, operating expenses decreased from EUR 158.1 million in the first nine months of 2011 by EUR 33.1 million, or 20.9% (currency-adjusted: -14.0%), to EUR 125.0 million in the first nine months of 2012. The cost/income ratio improved to 39.5% from 40.4% in 2011 despite very difficult market conditions.
Risk provisions fell from EUR 701.3 million in the first nine months of 2011 by EUR 554.2 million to EUR 147.1 million in the first nine months of 2012. This decline was due to the one-off allocation of additional provisions in the third quarter of 2011 triggered by new legislation permitting conversion of foreigncurrency loans and a challenging economic environment. The deterioration of the "Other result" item from EUR -57.3 million by EUR 50.1 million to EUR -107.4 million in the first nine months of 2012 was attributable to a change in the law on a subsidy scheme for retail FX mortgage loans over the coming five years. In this context, reserves for future additional tax charges were created in the amount of EUR 60.6 million. Net loss after minorities was EUR 64.1 million versus a net loss after minorities of EUR 531.7 million in the first nine months of 2011.
Croatia
In Croatia, net interest income from the retail and SME business decreased from EUR 194.7 million in the first nine months of 2011 by EUR 2.9 million, or 1.5%, to EUR 191.8 million although it remained unchanged in currency-adjusted terms. Reflecting the October 2011 transfer of the credit card processing subsidiary and therefore its allocation to the Corporate Center segment, net fee and commission income declined from EUR 58.5 million in the first nine months of 2011 by EUR 7.5 million, or 12.8% (currency-adjusted: -11.4%) to EUR 51.0 million. The increase in the net trading result from EUR 7.4 million in the first nine months of 2011 by EUR 0.8 million, or 10.8% (currency-adjusted: +12.6%), to EUR 8.2 million resulted largely from revaluation gains.
Operating expenses were down by EUR 6.5 million, or 6.0% (currency-adjusted: -4.4%), from EUR 108.3 million in the first nine months of 2011 to EUR 101.8 million in the first nine months of 2012, which was likewise attributable to the transfer of the credit card processing business. The operating result decreased by EUR 3.1 million, or 2.0% (currency-adjusted: - 0.4%), from EUR 152.3 million to EUR 149.2 million. The cost/income ratio improved to 40.6% versus 41.6% in the first nine months of 2011. Increased risk provisioning requirements in the real estate and corporate business led to a rise in risk costs by EUR 35.3 million, or 48.8% (currency-adjusted: +51.3%), from EUR 72.3 million to EUR 107.6 million in the first nine months of 2012. Net profit after minorities declined from EUR 37.6 million in the first nine months of 2011 by EUR 20.9 million, or 55.6% (currency-adjusted: -54.8%), to EUR 16.7 million. Return on equity was 7.6% versus 19.6% in the first nine months of 2011.
Serbia
At EUR 26.6 million, net interest income at Erste Bank Serbia remained nearly unchanged in the first nine months of 2012 versus the previous year. Currency-adjusted, net interest income was up by 6.9%. This improvement was driven by a rise in lending volumes to retail and corporate clients and higher margins in the retail business. Net fee and commission income improved from EUR 9.0 million by EUR 0.8 million, or 8.9% (currency-adjusted: +18.6%), to EUR 9.8 million. The net trading result rose by EUR 1.4 million on the back of growing income from foreign exchange business.
Currency-adjusted, operating expenses increased by 6.3% to EUR 24.5 million in the first nine months of 2012 due to higher other administrative expenses. The cost/income ratio improved significantly to 64.3% from 69.0% in 2011. Risk costs remained almost unchanged at EUR 6.1 million. Net profit after minorities grew by EUR 1.8 million to EUR 4.8 million. Return on equity was 15.7% versus 9.8% in the previous year.
Ukraine
Net interest income at Erste Bank Ukraine increased from EUR 18.3 million in the first nine months of 2011 by EUR 2.0 million, or 10.9% (currency-adjusted: +3.1%) to EUR 20.3 million. This progress was achieved on the back of higher income from securities business. Greater income from payment transfers led to an improvement in net fee and commission income by EUR 0.8 million to EUR 4.5 million in the first nine months of 2012. Impacted by lower income from foreign exchange and securities businesses, the net trading result declined by EUR 6.7 million from EUR 5.7 million to EUR -1.0 million.
Operating expenses increased by EUR 0.6 million, or 1.7%, to EUR 36.5 million. Currency-adjusted, however, operating expenses fell by 5.5%. The increase in risk provisions by EUR 2.1 million, or 29.6% (currency-adjusted: +20.5%), to EUR 9.2 million resulted from direct write-offs. The item "Other result" deteriorated by EUR 6.7 million to EUR -3.5 million due to losses on disposals related to the available-for-sale portfolio. Net result after minorities deteriorated by EUR 13.3 million to EUR -25.4 million.
Group Corporate & Investment Banking (GCIB)
The Group Corporate & Investment Banking segment includes the large corporate business, the real estate business of Erste Group with large corporate customers, equity capital markets (from the second quarter of 2012 onwards) as well as the investment banking subsidiaries in CEE and the International Business unit (excluding treasury activities). The leasing subsidiary Erste Group Immorent is also included in this segment.
Net interest income was down by EUR 13.0 million, or 3.3%, versus the first nine months of 2011 to EUR 381.0 million. While net interest income from the International Business declined by EUR 22.6 million, or 27.5%, to EUR 59.7 million on lower volumes (as risk-weighted assets had been reduced by 45.4%), net interest income from large corporate business grew by EUR 9.6 million, or 3.1%. Net fee and commission income decreased by EUR 30.1 million, or 32.4%, to EUR 62.9 million. This was attributable to a reduction in new business and declining income from real estate project development activities. The net trading result improved by EUR 151.8 million to EUR 6.2 million. In the first nine months of 2011, the net trading result had been impacted by negative valuation results relating to the International Business unit's CDS investment portfolio, which has meanwhile been closed out completely.
Operating expenses increased by EUR 7.4 million, or 5.4%, to EUR 145.0 million. This development was driven primarily by organisational change (i.e. the shifting of units from the Group Markets segment to Group Corporate and Investment Banking). Risk provisions increased by EUR 60.1 million, or 35.2%, to EUR 230.6 million. This was mainly due to higher risk provisions in the real estate business and in the large corporate business in Romania. The operating result rose from EUR 203.8 million in the first nine months of 2011 by EUR 101.3 million, or 49.7%, to EUR 305.1 million in the first nine months of 2012. Negative valuation results and losses on disposals relating to the real estate business and resulting from the continued reduction of International Business assets led to a decline in the "Other result" item by EUR 36.5 million to EUR -69.1 million. Net result after minorities improved by EUR 3.0 million, from EUR -13.3 million to EUR -10.3 million. The cost/income ratio improved to 32.2% from 40.3% in the first three quarters of 2011.
Group Markets
The Group Markets segment comprises the divisionalised business areas Group Treasury and Capital Markets and includes the treasury activities of Erste Group Bank AG, the CEE subsidiaries, the foreign branch offices in Hong Kong, New York, Berlin, and Stuttgart as well as the result of Erste Asset Management.
The operating income of the Group Markets segment improved by EUR 56.8 million, or 16.0%, from EUR 355.7 million in the first nine months of 2011 to EUR 412.5 million. While net interest income and net trading income were up, net fee and
commission income – especially from the Asset Management unit – declined slightly. The increase in net interest income by EUR 55.4 million, or 55.7%, was mainly attributable to higher income from government bonds and the shifting of funding costs and interest income from securities in the trading book. At EUR 94.9 million, net fee and commission income was EUR 4.0 million, or 4.0%, lower in the first nine months of 2012 than in 2011. Operating expenses, at EUR 159.4 million, were EUR 20.7 million, or 11.5%, lower in the first nine months of 2012 than in 2011. This decline was due to cost-cutting across all business units and to organisational changes (transfer of units from the Group Markets segment to Group Corporate and Investment Banking). The cost/income ratio improved from 50.6% to 38.6%. Net profit after minorities rose by EUR 61.6 million, or 45.9%, to EUR 195.7 million in the first nine months of 2012. Return on equity improved from 57.9% to 73.9%.
Corporate Center
The Corporate Center segment includes the results of those companies that cannot be directly allocated to a business segment, intragroup consolidation between the segments, straight-line amortisation of customer relationships especially for Banca Comercială Română, Erste Card Club, and Ringturm KAG, as well as one-time effects not allocated to any business segment for the sake of consistency and to assist like-for-like comparisons. Furthermore, the asset/liability management of Erste Group Bank AG (Holding) is included in this segment. The results of the local asset/liability management units are allocated to the corresponding business segments.
The rise in net interest income from EUR 101.4 million to EUR 183.3 million was mainly driven by an increase in contributions from asset/liability management. The positive development of net fee and commission income and the increase in operating expenses were largely attributable to intragroup consolidation of banking support operations. The net trading result dropped from EUR -25.8 million to EUR -68.0 million due to lower valuation results in asset/liability management.
The item "Other result" included amortisation of customer relationships in the amount of EUR 49.8 million, a goodwill adjustment for the Romanian subsidiary Banca Comercială Română in the amount of EUR 210.0 million, proceeds from buying back tier 1 and tier 2 instruments (hybrid capital and subordinated bonds) in the amount of EUR 413.2 million, and gains on the sale of real estate in the amount of EUR 38.2 million. Banking tax paid by the Holding (Erste Group Bank AG) in the amount of EUR 110.2 million was also reported in the item "Other result".
Condensed Consolidated Financial Statements
I. Condensed Statement of Comprehensive Income – 1 January to 30 September 2012
Income statement
| in EUR million | Notes | 1-9 12 | 1-9 11 |
|---|---|---|---|
| Interest and similar income | 6,663.4 | 6,926.0 | |
| Interest and similar expenses | -2,703.7 | -2,810.6 | |
| Income from equity method investment | 9.2 | 18.7 | |
| Net interest income | (1) | 3,968.9 | 4,134.1 |
| Risk provisions for loans and advances | (2) | -1,465.3 | -1,859.2 |
| Fee and commission income | 1,665.5 | 1,787.0 | |
| Fee and commission expenses | -381.2 | -435.0 | |
| Net fee and commission income | (3) | 1,284.3 | 1,352.0 |
| Net trading result | (4) | 191.4 | 37.4 |
| General administrative expenses | (5) | -2,826.1 | -2,891.6 |
| Other operating result | (6) | -214.0 | -1,460.4 |
| Result from financial instruments – at Fair Value through profit or loss | (7) | 36.3 | -7.8 |
| Result from financial assets – Available for sale | (8) | 19.2 | -62.8 |
| Result from financial assets – Held to maturity | (9) | -19.3 | -17.0 |
| Pre-tax profit/loss | 975.4 | -775.3 | |
| Taxes on income | (10) | -251.1 | -105.0 |
| Net profit/loss for the period | 724.3 | -880.3 | |
| Attributable to non-controlling interests | 127.0 | 92.7 | |
| Attributable to owners of the parent | 597.3 | -973.0 |
Statement of comprehensive income
| in EUR million | 1-9 12 | 1-9 11 | ||
|---|---|---|---|---|
| Net profit/loss for the period | 724.3 | -880.3 | ||
| Other comprehensive income | ||||
| Available for sale - reserve (including currency translation) | 898.2 | 151.8 | ||
| Gain / loss during the period | 960.9 | 161.9 | ||
| Reclassification adjustments | -62.7 | -10.1 | ||
| Cash flow hedge - reserve (including currency translation) | 4.3 | 29.6 | ||
| Gain / loss during the period | 28.0 | 37.7 | ||
| Reclassification adjustments | -23.7 | -8.1 | ||
| Actuarial gains and losses | 0.0 | 0.0 | ||
| Currency translation | -7.5 | -72.0 | ||
| Deferred taxes on items recognised directly in equity | -209.6 | -25.5 | ||
| Gain / loss during the period | -225.0 | -36.8 | ||
| Reclassification adjustments | 15.4 | 11.3 | ||
| Other comprehensive income – total | 685.4 | 83.9 | ||
| Total comprehensive income | 1,409.7 | -796.4 | ||
| Attributable to non-controlling interests | 420.7 | 111.3 | ||
| Attributable to owners of the parent | 989.0 | -907.7 | ||
Earnings per share
| 1-9 12 | 1-9 11 | ||
|---|---|---|---|
| Net profit/loss for the period attributable to owners of the parent | in EUR million | 597.3 | -973.0 |
| Dividend on participation capital | -105.8 | -105.8 | |
| Net profit/loss for the period attributable to owners of the parent after deduction | |||
| of dividend on participation capital | 491.5 | -1,078.8 | |
| Weighted average number of shares outstanding | Number | 391,429,594 | 376,322,542 |
| Earnings per share | in EUR | 1.26 | -2.87 |
| Weighted average number of shares taking into account the effect of dilution | Number | 393,621,921 | 378,318,605 |
| Diluted earnings per share | in EUR | 1.25 | -2.85 |
Changes in number of shares and participation capital securities
| Shares in units | 1-9 12 | 1-9 11 |
|---|---|---|
| Shares outstanding as of 1 January | 371,443,804 | 361,988,924 |
| Acquisition of treasury shares | -18,810,387 | -16,807,218 |
| Disposal of treasury shares | 18,975,141 | 18,791,450 |
| Capital increases due to ESOP | 0 | 289,663 |
| Capital increase due to acquisition of non controlling interest in BCR | 3,801,385 | 0 |
| Shares outstanding as of 30 September | 375,409,943 | 364,262,819 |
| Treasury shares | 19,158,704 | 14,203,565 |
| Number of shares as of 30 September | 394,568,647 | 378,466,384 |
| Weighted average number of shares outstanding | 391,429,594 | 376,322,542 |
| Dilution due to ESOP | 2,192,326 | 1,996,062 |
| Dilution due to options | 0 | 0 |
| Weighted average number of shares taking into account the effect of dilution | 393,621,921 | 378,318,605 |
| Participation capital securities in units | 1-9 12 | 1-9 11 |
| Participation capital securities outstanding as of 1 January | 1,763,274 | 1,763,478 |
| Acquisition of own participation capital securities | -4,575 | -2,683 |
| Disposal of own participation capital securities | 4,916 | 2,624 |
| Participation capital securities outstanding as of 30 September | 1,763,615 | 1,763,419 |
| Participation capital securities | 129 | 325 |
| Number of participation capital securities as of 30 September | 1,763,744 | 1,763,744 |
Quarterly results
| in EUR million | Q3 11 | Q4 11 | Q1 12 | Q2 12 | Q3 12 |
|---|---|---|---|---|---|
| Net interest income | 1,430.2 | 1,434.9 | 1,336.9 | 1,314.8 | 1,317.2 |
| Risk provisions for loans and advances | -938.4 | -407.7 | -580.6 | -401.2 | -483.5 |
| Net fee and commission income | 445.9 | 435.2 | 430.3 | 435.2 | 418.8 |
| Net trading result | -251.4 | 84.9 | 93.6 | 27.9 | 69.9 |
| General administrative expenses | -965.3 | -959.3 | -945.1 | -942.3 | -938.7 |
| Other operating result | -1,200.2 | -129.5 | 131.2 | -199.3 | -145.9 |
| Result from financial instruments - FV | 12.1 | 8.1 | 41.5 | 0.9 | -6.1 |
| Result from financial assets - AfS | -76.9 | -3.4 | -14.7 | 18.4 | 15.5 |
| Result from financial assets - HtM | -19.0 | -10.1 | -6.0 | -13.8 | 0.5 |
| Pre-tax profit/loss | -1,563.0 | 453.1 | 487.1 | 240.6 | 247.7 |
| Taxes on income | 70.4 | -135.4 | -107.2 | -89.4 | -54.5 |
| Net profit/loss for the period | -1,492.6 | 317.7 | 379.9 | 151.2 | 193.2 |
| Attributable to non-controlling interests | 1.2 | 63.6 | 33.4 | 44.1 | 49.5 |
| Attributable to owners of the parent | -1,493.8 | 254.1 | 346.5 | 107.1 | 143.7 |
| Other comprehensive income | |||||
| Available for sale - reserve (including currency translation) | 98.6 | -216.4 | 396.4 | 119.8 | 382.0 |
|---|---|---|---|---|---|
| Cash flow hedge - reserve (including currency translation) | 50.3 | 1.0 | 3.1 | -2.9 | 4.1 |
| Actuarial gains and losses | 0.0 | -42.7 | 0.0 | 0.0 | 0.0 |
| Currency translation | -196.5 | -160.9 | 124.2 | -154.7 | 23.0 |
| Deferred taxes on items recognised directly in equity | -8.4 | 48.6 | -92.0 | -29.3 | -88.3 |
| Other comprehensive income – total | -56 | -370.4 | 431.7 | -67.1 | 320.8 |
| Total comprehensive income | -1,548.6 | -52.7 | 811.6 | 84.1 | 514.0 |
| Attributable to non-controlling interests | 54.6 | 13.0 | 157.0 | 75.3 | 188.4 |
| Attributable to owners of the parent | -1,603.2 | -65.7 | 654.6 | 8.8 | 325.6 |
II. Condensed Balance Sheet of Erste Group as of 30 September 2012
| in EUR million | Notes | Sep 12 | Dec 11 |
|---|---|---|---|
| ASSETS | |||
| Cash and balances with central banks | (11) | 8,675 | 9,413 |
| Loans and advances to credit institutions | (12) | 11,569 | 7,578 |
| Loans and advances to customers | (13) | 133,507 | 134,750 |
| Risk provisions for loans and advances | (14) | -7,796 | -7,027 |
| Derivative financial instruments | (15) | 13,015 | 10,931 |
| Trading assets | (16) | 5,186 | 5,876 |
| Financial assets - at fair value through profit or loss | (16) | 810 | 1,813 |
| Financial assets - available for sale | (16) | 23,142 | 20,245 |
| Financial assets - held to maturity | (16) | 18,649 | 16,074 |
| Equity method investments | 169 | 173 | |
| Intangible assets | 3,168 | 3,532 | |
| Property and equipment | 2,213 | 2,361 | |
| Current tax assets | 114 | 116 | |
| Deferred tax assets | 542 | 702 | |
| Assets held for sale | 95 | 87 | |
| Other assets | (17) | 3,932 | 3,382 |
| Total assets | 216,990 | 210,006 | |
| LIABILITIES AND EQUITY | |||
| Deposits by banks | (18) | 25,524 | 23,785 |
| Customer deposits | (19) | 122,249 | 118,880 |
| Debt securities in issue | (20) | 29,902 | 30,782 |
| Derivative financial instruments | (21) | 10,934 | 9,337 |
| Trading liabilities | 359 | 536 | |
| Provisions | (22) | 1,539 | 1,580 |
| Current tax liabilities | 63 | 34 | |
| Deferred tax liabilities | 344 | 345 | |
| Other liabilities | (23) | 5,383 | 3,764 |
| Subordinated liabilities | (24) | 4,293 | 5,783 |
| Total equity | 16,400 | 15,180 | |
| Attributable to non-controlling interests | 3,453 | 3,143 | |
| Attributable to owners of the parent | 12,947 | 12,037 | |
| Total liabilities and equity | 216,990 | 210,006 |
III. Condensed Statement of Changes in Total Equity
A) STATEMENT OF CHANGES IN TOTAL EQUITY FOR THE PERIOD ENDED 30 SEPTEMBER 2012
| in EUR million | Subscribed capital |
Additional paid-in capital |
Retained earnings |
Cash flow hedge reserve |
Available for sale reserve |
Currency translation |
Deferred tax |
Total owners of the parent |
Non controlling interests |
Total equity |
|---|---|---|---|---|---|---|---|---|---|---|
| Total equity as of | ||||||||||
| 1 January 2012 | 2,539 | 6,413 | 3,830 | 35 | -316 | -541 | 77 | 12,037 | 3,143 | 15,180 |
| Changes in treasury shares | -7 | -7 | -7 | |||||||
| Dividends | -141 | -141 | -30 | -171 | ||||||
| Capital increases 1) | 8 | 59 | 67 | 67 | ||||||
| Participation capital | 0 | 0 | ||||||||
| Change in interest in subsidiaries |
0 | 0 | ||||||||
| Acquisition of non controlling interest |
2 | 2 | -80 | -78 | ||||||
| Total comprehensive | ||||||||||
| income | 0 | 0 | 597 | 12 | 528 | -30 | -118 | 989 | 420 | 1,409 |
| Net profit/loss for the period |
597 | 597 | 127 | 724 | ||||||
| Other comprehensive income |
12 | 528 | -30 | -118 | 392 | 293 | 685 | |||
| Total equity as of | ||||||||||
| 30 September 2012 | 2,547 | 6,472 | 4,281 | 47 | 212 | -571 | -41 | 12,947 | 3,453 | 16,400 |
1) Capital increase in connection with issuance of new ordinary shares related to acquisition of additional shares in Banca Comerciala Romana SA amounted to EUR 67mn
B) STATEMENT OF CHANGES IN TOTAL EQUITY FOR THE PERIOD ENDED 30 SEPTEMBER 2011
| in EUR million | Subscribed capital |
Additional paid-in capital |
Retained earnings |
Cash flow hedge reserve |
Available for sale reserve |
Currency translation |
Deferred tax |
Total owners of the parent |
Non controlling interests |
Total equity |
|---|---|---|---|---|---|---|---|---|---|---|
| Total equity as of | ||||||||||
| 1 January 2011 | 2,513 | 6,177 | 4,939 | 11 | -278 | -312 | 64 | 13,114 | 3,444 | 16,558 |
| Changes in treasury shares | 75 | 75 | 75 | |||||||
| Dividends | -405 | -405 | -41 | -446 | ||||||
| Capital increases | 1 | 8 | 9 | 9 | ||||||
| Participation capital | 0 | 0 | ||||||||
| Change in interest in subsidiaries |
0 | 41 | 41 | |||||||
| Acquisition of non controlling interest |
0 | 0 | ||||||||
| Total comprehensive income |
0 | 0 | -973 | 26 | 111 | -57 | -14 | -907 | 111 | -796 |
| Net profit/loss for the period |
-973 | -973 | 93 | -880 | ||||||
| Other comprehensive income |
26 | 111 | -57 | -14 | 66 | 18 | 84 | |||
| Total equity as of 30 September 2011 |
2,514 | 6,185 | 3,636 | 37 | -167 | -369 | 50 | 11,886 | 3,555 | 15,441 |
IV. Condensed cash-flow statement
| in EUR million | 1-9 12 | 1-9 11 |
|---|---|---|
| Cash and cash equivalents at end of the previous year | 9,413 | 5,839 |
| Cash flow from operating activities | 3,363 | 1,654 |
| Cash flow from investing activities | -2,765 | -1,403 |
| Cash flow from financing activities | -1,278 | -293 |
| Effect of currency translation | -58 | -54 |
| Cash and cash equivalents at the end of period | 8,675 | 5,743 |
V. Condensed notes to the Financial Statements of Erste Group for the period from 1 January to 30 September 2012
BASIS OF PREPARATION
The condensed consolidated interim financial statements ("interim financial statements") of Erste Group for the period from 1 January to 30 September 2012 were prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union ("EU") and are presented in accordance with the requirements of IAS 34 "Interim Financial Reporting". The Group's application of IFRSs results in no differences between IFRSs as issued by the IASB and IFRSs as endorsed by the EU.
The interim financial statements, which include Erste Group Bank AG and its subsidiaries ("Erste Group"), are presented in euro, the functional and presentation currency of Erste Group. Unless stated otherwise, all numbers are rounded to millions of euro.
ACCOUNTING POLICIES
In the interim financial statements, the same recognition and measurement principles and consolidation methods are applied as in the preparation of the consolidated financial statements as of 31 December 2011. The interim financial statements do not include all the information and disclosures required in the annual consolidated financial statements. Therefore, the interim financial statements should be read in conjunction with Erste Group's consolidated financial statements as of 31 December 2011.
Standards and interpretations to be applied in the EU as from 1 January 2012 on were applied in these interim financial statements. Application of these Standards has no impact on the interim financial statements.
In comparison with the annual financial statements, there were no material changes in accounting policies.
Following amendments become effective in 2012.
| Changed standard | Endorsment by the EU |
Effective date (annual periods beginning on or after) |
|---|---|---|
| Amendments to IFRS 7 – | ||
| Offsetting Financial Assets and | November | 1 July |
| Liabilities | 2011 | 2011 |
| Amendments to IFRS 1: Severe Hyperinflation and Removal of |
||
| Fixed Dates for First Time | Expected in | 1 July |
| Adopters | Q4 2012 | 2011 |
| Amendments to IAS 12 – | ||
| Deferred Tax: Recovery of | Expected in | 1 January |
| Underlying assets | Q4 2012 | 2012 |
These interim financial statements were neither audited nor reviewed by an auditor.
The preparation of interim financial statements under IFRS requires management to make estimates and assumptions for certain categories of assets and liabilities. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the balance sheet date, and the reported amounts of income and expenses during the reporting period. Actual results could differ from management's estimates.
SCOPE OF CONSOLIDATION
Changes in the scope of consolidation in first nine months of 2012 do have neither material impact on the financial position nor on the financial performance of the Group.
| 589 |
|---|
| 5 |
| (19) |
| (11) |
| 564 |
In the third quarter of 2012 the following subsidiaries were included in the consolidation field for the first time (effective 1 January 2012):
Campus Park a.s. Erste Group IT International, spol. s.r.o S-Immobilien Weinviertler Sparkasse GmbH S Slovensko, spol. s r.o. Steiermärkische Verwaltungssparkasse Immobilien & Co KG
BANCA COMERCIALĂ ROMÂNĂ
Erste Group raised its participation in Banca Comercială Română SA from 89.9% by 3.4 percentage points to 93.3% by acquisition of shares from owners of non-controlling interests, mainly from SIF Banat-Crisana and SIF Muntenia resulting from the agreement on acquisition of BCR shares (for details please refer to Note 30 of the annual financial statements of Erste Group as of 31 December 2011).
Based on written options existing at the end of 2011, in February 2012 SIF Banat-Crisana and SIF Muntenia contributed 486.418.882 shares of BCR into Erste Group Bank AG. A total of 3,801,385 new Erste Group Bank AG shares were issued to the two SIFs in the amount of EUR 67 million.
1. Net interest income
| in EUR million | 1-9 12 | 1-9 11 |
|---|---|---|
| Interest income | ||
| Lending and money market transactions with credit institutions | 709.6 | 898.2 |
| Lending and money market transactions with customers | 4,495.1 | 4,833.5 |
| Bonds and other interest-bearing securities | 1,046.8 | 956.6 |
| Other interest and similar income | 7.3 | 6.5 |
| Current income | ||
| Equity-related securities | 41.6 | 74.1 |
| Investments | 30.3 | 22.0 |
| Investment properties | 56.6 | 62.7 |
| Interest and similar income | 6,387.3 | 6,853.6 |
| Interest income from financial assets - at fair value through profit or loss | 276.1 | 72.4 |
| Total interest and similar income | 6,663.4 | 6,926.0 |
| Interest expenses | ||
| Deposits by banks | -471.6 | -516.1 |
| Customer deposits | -1,337.1 | -1,322.2 |
| Debt securities in issue | -702.0 | -747.1 |
| Subordinated liabilities | -147.0 | -204.6 |
| Other | -3.2 | -6.5 |
| Interest and similar expenses | -2,660.9 | -2,796.5 |
| Interest expenses from financial assets - at fair value through profit or loss | -42.8 | -14.1 |
| Total interest and similar expenses | -2,703.7 | -2,810.6 |
| Income from equity method investments | 9.2 | 18.7 |
| Total | 3,968.9 | 4,134.1 |
2. Risk provisions for loans and advances
| in EUR million | 1-9 12 | 1-9 11 |
|---|---|---|
| Allocation to risk provisions for loans and advances | -2,141.7 | -2,379.3 |
| Release of risk provisions for loans and advances | 795.1 | 570.9 |
| Direct write-offs of loans and advances | -158.2 | -81.0 |
| Recoveries on written-off loans and advances | 39.5 | 30.2 |
| Total | -1,465.3 | -1,859.2 |
3. Net fee and commission income
| in EUR million | 1-9 12 | 1-9 11 |
|---|---|---|
| Lending business | 204.6 | 206.8 |
| Payment transfers | 647.5 | 649.9 |
| Card business | 163.2 | 150.5 |
| Securities transactions | 258.5 | 295.2 |
| Investment fund transactions | 141.3 | 148.6 |
| Custodial fees | 23.7 | 24.8 |
| Brokerage | 93.5 | 121.8 |
| Insurance brokerage | 65.9 | 71.2 |
| Building society brokerage | 22.0 | 27.9 |
| Foreign exchange transactions | 19.0 | 18.1 |
| Investment banking business | 10.6 | 13.3 |
| Other | 56.2 | 69.6 |
| Total | 1,284.3 | 1,352.0 |
4. Net trading result
| in EUR million | 1-9 12 | 1-9 11 |
|---|---|---|
| Securities and derivatives trading | 34.5 | -107.9 |
| Foreign exchange transactions | 156.9 | 145.3 |
| Total | 191.4 | 37.4 |
5. General administrative expenses
| in EUR million | 1-9 12 | 1-9 11 |
|---|---|---|
| Personnel expenses | -1,702.5 | -1,720.3 |
| Other administrative expenses | -846.9 | -889.8 |
| Depreciation and amortisation | -276.7 | -281.5 |
| Total | -2,826.1 | -2,891.6 |
6. Other operating result
| in EUR million | 1-9 12 | 1-9 11 |
|---|---|---|
| Other operating income | 552.5 | 105.0 |
| Other operating expenses | -766.5 | -1,565.4 |
| Total | -214.0 | -1,460.4 |
| Result from real estate/movables/properties/software | 7.7 | -47.8 |
| Allocation/release of other provisions/risks | 13.3 | -5.7 |
| Expenses for deposit insurance contributions | -61.9 | -65.5 |
| Amortisation of customer relationships | -49.8 | -52.1 |
| Other taxes | -191.1 | -160.5 |
| Impairment of goodwill | -210.0 | -1,041.9 |
| Result from other operating expenses/income | 277.8 | -86.9 |
| Total | -214.0 | -1,460.4 |
To strengthen its capital structure in 2012, Erste Group repurchased certain issued Tier 1 and Tier 2 subordinated securities. This buyback generated in 2012 income of EUR 413.2 million presented in "Result from other operating expenses/income".
In accordance with IAS 36 we have reviewed whether there would be indications for testing goodwill for impairment. Due to the half year result of BCR the impairment test was performed for June 2012 and led to an impairment charge of EUR 210 million. The main factor attributing to this reduction in value was the revised financial plan reflecting a deterioration of the forecasted profitability.
7. Result from financial instruments – at fair value through profit or loss
| in EUR million | 1-9 12 | 1-9 11 |
|---|---|---|
| Gain / (loss) from measurement / sale of financial instruments at fair value through profit or loss | 36.3 | -7.8 |
8. Result from financial assets – available for sale
| in EUR million | 1-9 12 | 1-9 11 |
|---|---|---|
| Gain / (loss) from sale of financial assets available for sale | 35.5 | 26.3 |
| Impairment / reversal of impairment of financial assets available for sale | -16.3 | -89.1 |
| Total | 19.2 | -62.8 |
9. Result from financial assets – held to maturity
| in EUR million | 1-9 12 | 1-9 11 |
|---|---|---|
| Income | ||
| Income from sale of financial assets held to maturity | 6.1 | 2.1 |
| Reversal of impairment loss of financial assets held to maturity | 0.0 | 2.9 |
| Expenses | ||
| Loss from sale of financial assets held to maturity | -14.3 | -16.0 |
| Impairment of financial assets held to maturity | -11.1 | -6.0 |
| Total | -19.3 | -17.0 |
10. Taxes on income
Income tax expense is recognised based on the best estimate of the average annual income tax rate expected for the full financial year.
11. Cash and balances with central banks
| in EUR million | Sep 12 | Dec 11 |
|---|---|---|
| Cash in hand | 2,003 | 2,164 |
| Balances with central banks | 6,672 | 7,249 |
| Total | 8,675 | 9,413 |
12. Loans and advances to credit institutions
| in EUR million | Sep 12 | Dec 11 |
|---|---|---|
| Loans and advances to domestic credit institutions | 959 | 726 |
| Loans and advances to foreign credit institutions | 10,610 | 6,852 |
| Total | 11,569 | 7,578 |
13. Loans and advances to customers
| in EUR million | Sep 12 | Dec 11 |
|---|---|---|
| Loans and advances to domestic customers | ||
| Public sector | 2,939 | 3,027 |
| Commercial customers | 37,457 | 37,541 |
| Private customers | 25,039 | 25,148 |
| Unlisted securities | 251 | 256 |
| Other | 310 | 268 |
| Total loans and advances to domestic customers | 66,240 | |
| Loans and advances to foreign customers | ||
| Public sector | 3,485 | 3,487 |
| Commercial customers | 33,747 | 34,313 |
| Private customers | 29,460 | 29,728 |
| Unlisted securities | 523 | 689 |
| Other | 296 | 293 |
| Total loans and advances to foreign customers | 67,511 | 68,510 |
| Total | 133,507 | 134,750 |
14. Risk provisions
Development in risk provisions as of 30 September 2012
| in EUR million | Dec11 | Acquisition/ disposal of subsidiaries |
Currency translation |
Allocations | Use | Releases | Interest income from impaired loans |
Reclassifi cation |
Sep12 |
|---|---|---|---|---|---|---|---|---|---|
| Specific loan loss provisions | 6,113 | 12 | 51 | 1,923 | -540 | -412 | -138 | 3 | 7,012 |
| Loans to credit institutions |
64 | 0 | 0 | 10 | -4 | -10 | 0 | 0 | 60 |
| Loans and advances to customers |
6,049 | 12 | 51 | 1,913 | -536 | -402 | -138 | 3 | 6,952 |
| Portfolio loan loss provisions | 914 | 4 | 4 | 161 | 0 | -304 | 0 | 5 | 784 |
| Loans to credit institutions |
9 | 0 | 0 | 2 | 0 | -5 | 0 | 0 | 6 |
| Loans and advances to customers |
891 | 4 | 4 | 159 | 0 | -290 | 0 | 5 | 773 |
| Financial assets - held to maturity |
14 | 0 | 0 | 0 | 0 | -9 | 0 | 0 | 5 |
| Risk provisions for loans and advances1) |
7,027 | 16 | 55 | 2,084 | -540 | -716 | -138 | 8 | 7,796 |
| Other risk provisions2) | 130 | 0 | 2 | 9 | -9 | -20 | 0 | -2 | 110 |
| Provisions for contingent credit risk liabilities |
186 | 0 | 1 | 49 | -15 | -59 | 0 | 6 | 168 |
| Total | 7,343 | 16 | 58 | 2,142 | -564 | -795 | -138 | 12 | 8,074 |
1) Risk provisions for loans and advances are recognised in the balance sheet as a deduction from assets.
2) Other risk provisions mainly include provisions for legal proceedings in the course of the lending business.
Development in risk provisions as of 30 September 2011
| in EUR million | Dec10 | Acquisition/ disposal of subsidiaries |
Currency translation |
Allocations | Use | Relea ses |
Interest income from impaired loans |
Reclassi fication |
Sep11 |
|---|---|---|---|---|---|---|---|---|---|
| Specific loan loss provisions | 5,315 | -1 | -31 | 1,774 | -547 | -390 | -138 | 9 | 5,991 |
| Loans to credit institutions |
67 | 0 | -1 | 11 | -1 | -9 | 0 | 0 | 67 |
| Loans and advances to customers |
5,248 | -1 | -30 | 1,763 | -546 | -381 | -138 | 9 | 5,924 |
| Portfolio loan loss | |||||||||
| provisions | 804 | 0 | 0 | 545 | 0 | -149 | 0 | -2 | 1,198 |
| Loans to credit institutions |
18 | 0 | 0 | 7 | 0 | -8 | 0 | 0 | 17 |
| Loans and advances to customers |
785 | 0 | 0 | 538 | 0 | -141 | 0 | -2 | 1,180 |
| Financial assets - held to maturity |
1 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 1 |
| Risk provisions for loans and advances1 |
6,119 | -1 | -31 | 2,319 | -547 | -539 | -138 | 7 | 7,189 |
| Other risk provisions2 | 116 | 0 | 1 | 18 | -1 | -4 | 0 | -12 | 118 |
| Provisions for contingent | |||||||||
| credit risk liabilities | 186 | 0 | -1 | 42 | -4 | -28 | 0 | 6 | 201 |
| Total | 6,421 | -1 | -31 | 2,379 | -552 | -571 | -138 | 1 | 7,508 |
1) Risk provisions for loans and advances are recognised in the balance sheet as a deduction from assets.
2) Other risk provisions mainly include provisions for legal proceedings in the course of the lending business.
15. Derivative financial instruments – positive market value
| in EUR million | Sep 12 | Dec 11 |
|---|---|---|
| Derivatives held for trading | 9,642 | 7,948 |
| Derivatives held in banking book | 3,373 | 2,983 |
| Fair value hedges | 1,471 | 1,680 |
| Cash flow hedges | 121 | 133 |
| Other derivatives | 1,781 | 1,170 |
| Total | 13,015 | 10,931 |
16. Securities
| Financial assets | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| in EUR million | Loans and advances to CI and NCI Sep 12 |
Dec 11 | Trading assets Sep 12 |
Dec 11 | At fair value through profit or loss Sep 12 |
Dec 11 Sep 12 | Available for Sale Dec 11 |
Sep 12 | Held to maturity Dec 11 |
Sep 12 | Total Dec 11 |
|
| Bonds and other interest-bearing securities |
1,334 | 1,705 | 4,878 | 5,461 | 575 | 1,502 | 20,881 | 17,654 | 18,649 | 16,074 | 46,317 | 42,396 |
| Listed | 0 | 0 | 4,512 | 4,253 | 516 | 1,375 | 19,333 | 16,457 | 17,794 | 15,150 | 42,155 | 37,235 |
| Unlisted | 1,334 | 1,705 | 366 | 1,208 | 59 | 127 | 1,548 | 1,197 | 855 | 924 | 4,162 | 5,161 |
| Equity-related securities |
0 | 0 | 308 | 406 | 235 | 311 | 1,749 | 2,109 | 0 | 0 | 2,292 | 2,826 |
| Listed | 0 | 0 | 92 | 119 | 235 | 311 | 564 | 474 | 0 | 0 | 891 | 904 |
| Unlisted | 0 | 0 | 216 | 287 | 0 | 0 | 1,185 | 1,635 | 0 | 0 | 1,401 | 1,922 |
| Equity holdings | 0 | 0 | 0 | 0 | 0 | 0 | 512 | 482 | 0 | 0 | 512 | 482 |
| Total | 1,334 | 1,705 | 5,186 | 5,867 | 810 | 1,813 | 23,142 | 20,245 | 18,649 | 16,074 | 49,121 | 45,704 |
17. Other assets
| in EUR million | Sep 12 | Dec 11 |
|---|---|---|
| Accrued commissions | 181 | 125 |
| Deferred income | 290 | 224 |
| Investment properties | 1,086 | 1,139 |
| Sundry assets | 2,375 | 1,894 |
| Total | 3,932 | 3,382 |
18. Deposits by bank
| in EUR million | Sep 12 | Dec 11 |
|---|---|---|
| Deposits by domestic credit institutions | 8,837 | 7,865 |
| Deposits by foreign credit institutions | 16,687 | 15,920 |
| Total | 25,524 | 23,785 |
19. Customer deposits
| Domestic | Domestic | Abroad | Abroad | Total | Total | |
|---|---|---|---|---|---|---|
| in EUR million | Sep 12 | Dec 11 | Sep 12 | Dec 11 | Sep 12 | Dec 11 |
| Savings deposits | 42,329 | 41,508 | 14,192 | 13,229 | 56,521 | 54,737 |
| Other deposits | ||||||
| Public sector | 826 | 908 | 3,394 | 2,814 | 4,220 | 3,722 |
| Commercial customers | 12,611 | 12,450 | 13,155 | 12,893 | 25,766 | 25,343 |
| Private customers | 5,519 | 5,505 | 29,504 | 28,888 | 35,023 | 34,393 |
| Sundry | 341 | 318 | 378 | 367 | 719 | 685 |
| Total other deposits | 19,297 | 19,181 | 46,431 | 44,962 | 65,728 | 64,143 |
| Total | 61,626 | 60,689 | 60,623 | 58,191 | 122,249 | 118,880 |
20. Debt securities in issue
| in EUR million | Sep 12 | Dec 11 |
|---|---|---|
| Bonds | 17,028 | 18,656 |
| Certificates of deposit | 919 | 1,420 |
| Other certificates of deposits/name certificates | 2,284 | 2,033 |
| Mortgage and municipal bonds | 11,716 | 11,652 |
| Other | 19 | 18 |
| Own issues repurchased | -2,064 | -2,997 |
| Total | 29,902 | 30,782 |
21.Derivative financial instruments – negative market value
| in EUR million | Sep 12 | Dec 11 |
|---|---|---|
| Derivatives held for trading | 9,210 | 7,690 |
| Derivatives held in banking book | 1,724 | 1,647 |
| Fair value hedges | 700 | 576 |
| Cash flow hedges | 11 | 23 |
| Other derivatives | 1,013 | 1,048 |
| Total | 10,934 | 9,337 |
22.Provisions
| in EUR million | Sep 12 | Dec 11 |
|---|---|---|
| Long-term employee provisions | 1,084 | 1,101 |
| Provisions for contingent credit risk liabilities | 168 | 186 |
| Other risk provisions | 110 | 130 |
| Other provisions | 177 | 163 |
| Total | 1,539 | 1,580 |
23.Other liabilities
| in EUR million | Sep 12 | Dec 11 |
|---|---|---|
| Deferred income | 502 | 343 |
| Accrued commissions | 50 | 14 |
| Sundry liabilities | 4,831 | 3,407 |
| Total | 5,383 | 3,764 |
24. Subordinated liabilities
| in EUR million | Sep 12 | Dec 11 |
|---|---|---|
| Subordinated issues and deposits | 2,668 | 3,090 |
| Supplementary capital | 1,296 | 1,510 |
| Hybrid issues | 375 | 1,239 |
| Own issues repurchased | -46 | -56 |
| Total | 4,293 | 5,783 |
25. Segment reporting
The segment reporting of Erste Group follows the presentation and measurement requirements of IFRS.
Segment structure
Following the structure of Erste Group, the segment reporting is divided into four primary segments based on class of business: Retail & SME, Group Corporate & Investment Banking, Group Markets and Corporate Center.
The geographical information regarding segments is based on the internal reporting structure. The Retail & SME segment is divided between Austria (Erste Bank Oesterreich and Saving Banks) and the CEE countries (Czech Republic, Romania, Slovakia, Hungary, Croatia, Serbia and Ukraine). The other three segments are directed from the Group's perspective and thus are not split into additional geographical segments.
The basis for Erste Group's management of individual segments is the average attributed equity as well as the average riskweighted assets (credit risk). For measuring and assessing the profitability of segments, return on equity as well as cost/income ratio is used.
The return on equity is calculated as net profit/loss attributable to owners of the parent divided by the average attributed equity allocated to the segment.
The average attributed equity of each segment represents the economic capital of the segment, which is assigned on the basis of credit risk, market risk and operational risk.
Retail & SME
The Retail & SME segment includes the individual, retailfocused regional banks of Erste Group. To enhance transparency, the Austria division is divided into two subsegments, Erste Bank Oesterreich (including local subsidiaries) and Savings Banks. The latter subsegment consists of those savings banks which as a result of their membership in the Haftungsverbund are consolidated into the Erste Group accounts. In the segment Central and Eastern Europe, the individual subsidiaries are reported separately.
Group Corporate & Investment Banking
The Group Corporate & Investment Banking segment (GCIB) includes all large corporate customers operating in the markets of Erste Group and having revenue of more than EUR 175 million. Also part of the Group Corporate & Investment Banking segment is the International Business Division excluding treasury activities; the real estate business of Erste Group including the leasing subsidiary, Erste Group Immorent; and investment banking (including equity capital markets) as well as the capital markets activities of the investment banking subsidiaries Erste Securities Polska, Erste Securities Zagreb (merged with Erste Bank Croatia in 2011) and Erste Securities Istanbul.
Group Markets
The Group Markets (GM) segment comprises the divisionalised business units Group Treasury and Capital Markets (which includes all capital markets activities except equity capital markets). In addition to Erste Group Bank's own treasury activities, it also includes the capital market units of the CEE subsidiaries and of the foreign branches in Hong Kong, New York, Berlin and Stuttgart as well as the asset management activities of Erste Asset Management GmbH.
Corporate Center segment
The Corporate Center segment includes group-wide services in the Marketing, Organisation, Information Technology and other departments that support the implementation of corporate strategy at group level. Consolidation effects and non-operating exceptional items are also recorded in this segment. Additionally, the Balance Sheet Management unit forms part of the Corporate Center segment. The results of the local asset/liability business units are reported in the individual subsegments.
| Retail & SME | GCIB | Group Markets | Corporate Center | Total Group | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| in EUR million | 1-9 12 | 1-9 11 | 1-9 12 | 1-9 11 | 1-9 12 | 1-9 11 | 1-9 12 | 1-9 11 | 1-9 12 | 1-9 11 |
| Net interest income | 3,249.8 | 3,539.3 | 381.0 | 394.0 | 154.8 | 99.4 | 183.3 | 101.4 | 3,968.9 | 4,134.1 |
| Risk provisions for loans | ||||||||||
| and advances | -1,234.7 | -1,688.7 | -230.6 | -170.5 | 0.0 | 0.0 | 0.0 | 0.0 | -1,465.3 | -1,859.2 |
| Net fee and commission | ||||||||||
| income | 1,173.1 | 1,227.8 | 62.9 | 93.0 | 94.9 | 98.9 | -46.6 | -67.7 | 1,284.3 | 1,352.0 |
| Net trading result | 90.4 | 51.4 | 6.2 | -145.6 | 162.8 | 157.4 | -68.0 | -25.8 | 191.4 | 37.4 |
| General administrative | ||||||||||
| expenses | -2,410.1 | -2,477.8 | -145.0 | -137.6 | -159.4 | -180.1 | -111.6 | -96.1 | -2,826.1 | -2,891.6 |
| Other result1 | -194.4 | -333.1 | -69.1 | -32.6 | 4.4 | 9.5 | 81.3 | -1,191.8 | -177.8 | -1,548.0 |
| Pre-tax profit/loss | 674.1 | 318.9 | 5.4 | 0.7 | 257.5 | 185.1 | 38.4 | -1,280.0 | 975.4 | -775.3 |
| Taxes on income | -169.3 | -177.5 | -5.1 | -5.1 | -56.1 | -42.2 | -20.6 | 119.8 | -251.1 | -105.0 |
| Net profit/loss for the | ||||||||||
| period | 504.8 | 141.4 | 0.3 | -4.4 | 201.4 | 142.9 | 17.8 | -1,160.2 | 724.3 | -880.3 |
| Attributable to non | ||||||||||
| controlling interests | 120.7 | 86.7 | 10.6 | 8.9 | 5.7 | 8.8 | -10.0 | -11.7 | 127.0 | 92.7 |
| Attributable to | ||||||||||
| owners of the | ||||||||||
| parent | 384.1 | 54.7 | -10.3 | -13.3 | 195.7 | 134.1 | 27.8 | -1,148.5 | 597.3 | -973.0 |
| Average risk-weighted | ||||||||||
| assets | 70,643.3 | 75,770.2 | 21,358.3 | 24,808.7 | 2,738.5 | 2,703.9 | 9.1 | 852.7 | 94,749.2 104,135.3 | |
| Average attributed equity | 4,931 | 4,139 | 2,137 | 1,986 | 353 | 309 | 5,248 | 6,913 | 12,669 | 13,347 |
| Cost/income ratio | 53.4% | 51.4% | 32.2% | 40.3% | 38.6% | 50.6% | na | na | 51.9% | 52.4% |
| Return on equity2 | 10.4% | 1.8% | na | na | 73.9% | 57.9% | 0.7% | na | 6.3% | na |
1) Other result consists of four income statement items: other operating result, result from financial instruments at fair value through profit or loss, result from financial assets available for sale, and result from financial assets held to maturity.
2) ROE = return on equity = Net profit/loss attributable to owners of the parent divided by average attributed equity.
| EB Oesterreich | Savings banks | Austria | CEE | Retail & SME | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| in EUR million | 1-9 12 | 1-9 11 | 1-9 12 | 1-9 11 | 1-9 12 | 1-9 11 | 1-9 12 | 1-9 11 | 1-9 12 | 1-9 11 |
| Net interest income | 467.5 | 501.8 | 701.7 | 742.0 | 1,169.2 | 1,243.8 | 2,080.6 | 2,295.5 | 3,249.8 | 3,539.3 |
| Risk provisions for | ||||||||||
| loans and advances | -81.5 | -92.7 | -159.2 | -190.0 | -240.7 | -282.7 | -994.0 | -1,406.0 | -1,234.7 | -1,688.7 |
| Net fee and | ||||||||||
| commission income | 240.8 | 239.1 | 291.4 | 290.5 | 532.2 | 529.6 | 640.9 | 698.2 | 1,173.1 | 1,227.8 |
| Net trading result | -1.9 | 9.8 | 20.1 | -2.1 | 18.2 | 7.7 | 72.2 | 43.7 | 90.4 | 51.4 |
| General administrative |
||||||||||
| expenses | -458.5 | -454.5 | -706.6 | -702.9 | -1,165.1 | -1,157.4 | -1,245.0 | -1,320.4 | -2,410.1 | -2,477.8 |
| Other result1 | 23.4 | -34.2 | -2.1 | -49.6 | 21.3 | -83.8 | -215.7 | -249.3 | -194.4 | -333.1 |
| Pre-tax profit/loss | 189.8 | 169.3 | 145.3 | 87.9 | 335.1 | 257.2 | 339.0 | 61.7 | 674.1 | 318.9 |
| Taxes on income | -41.8 | -37.2 | -37.1 | -22.2 | -78.9 | -59.4 | -90.4 | -118.1 | -169.3 | -177.5 |
| Net profit/loss for | ||||||||||
| the period | 148.0 | 132.1 | 108.2 | 65.7 | 256.2 | 197.8 | 248.6 | -56.4 | 504.8 | 141.4 |
| Attributable to non controlling interests |
4.6 | 3.9 | 99.1 | 65.1 | 103.7 | 69.0 | 17.0 | 17.7 | 120.7 | 86.7 |
| Attributable to owners of the parent |
143.4 | 128.2 | 9.1 | 0.6 | 152.5 | 128.8 | 231.6 | -74.1 | 384.1 | 54.7 |
| Average risk weighted assets |
13,120.3 | 13,916.9 | 23,581.0 | 24,604.7 | 36,701.3 | 38,521.6 | 33,942.0 | 37,248.5 | 70,643.3 | 75,770.2 |
| Average attributed | ||||||||||
| equity | 1,291.0 | 1,104.7 | 364.2 | 301.8 | 1,655.3 | 1,406.6 | 3,276.2 | 2,732.2 | 4,931.5 | 4,138.8 |
| Cost/income ratio | 64.9% | 60.5% | 69.7% | 68.2% | 67.8% | 65.0% | 44.6% | 43.5% | 53.4% | 51.4% |
| Return on equity2 | 14.8% | 15.5% | 3.3% | 0.3% | 12.3% | 12.2% | 9.4% | -3.6% | 10.4% | 1.8% |
1) Other result consists of four income statement items: other operating result, result from financial instruments at fair value through profit or loss, result from financial assets available for sale, and result from financial assets held to maturity.
2) ROE = return on equity = Net profit/loss attributable to owners of the parent divided by average attributed equity.
| Czech Republic | Romania | Slovakia | Hungary | Croatia | Serbia | Ukraine | CEE | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| in EUR million | 1-9 12 | 1-9 11 | 1-9 12 | 1-9 11 | 1-9 12 | 1-9 11 | 1-9 12 | 1-9 11 | 1-9 12 | 1-9 11 | 1-9 12 | 1-9 11 | 1-9 12 | 1-9 11 | 1-9 12 | 1-9 11 |
| Net interest income | 842.6 | 900.3 | 423.7 | 517.6 | 318.0 | 334.4 | 257.6 | 303.1 | 191.8 | 194.7 | 26.6 | 27.1 | 20.3 | 18.3 | 2,080.6 | 2,295.5 |
| Risk provisions for loans and | ||||||||||||||||
| advances | -120.5 | -188.6 | -560.1 | -373.7 | -43.4 | -56.7 | -147.1 | -701.3 | -107.6 | -72.3 | -6.1 | -6.3 | -9.2 | -7.1 | -994.0 | -1,406.0 |
| Net fee and commission | ||||||||||||||||
| income | 334.5 | 372.4 | 90.5 | 97.5 | 82.8 | 83.3 | 67.8 | 73.8 | 51.0 | 58.5 | 9.8 | 9.0 | 4.5 | 3.7 | 640.9 | 698.2 |
| Net trading result | 14.0 | -19.2 | 54.9 | 39.2 | 3.0 | -3.9 | -8.6 | 14.2 | 8.2 | 7.4 | 1.7 | 0.3 | -1.0 | 5.7 | 72.2 | 43.7 |
| General administrative | ||||||||||||||||
| expenses | -531.1 | -543.7 | -251.4 | -282.7 | -174.7 | -166.6 | -125.0 | -158.1 | -101.8 | -108.3 | -24.5 | -25.1 | -36.5 | -35.9 | -1,245.0 | -1,320.4 |
| Other result1 | -56.5 | -114.3 | -29.4 | -41.3 | -16.6 | -31.8 | -107.4 | -57.3 | -0.9 | -6.9 | -1.4 | -0.9 | -3.5 | 3.2 | -215.7 | -249.3 |
| Pre-tax profit/loss | 483.0 | 406.9 | -271.8 | -43.4 | 169.1 | 158.7 | -62.7 | -525.6 | 40.7 | 73.1 | 6.1 | 4.1 | -25.4 | -12.1 | 339.0 | 61.7 |
| Taxes on income | -101.1 | -80.2 | 53.0 | 15.0 | -33.7 | -33.2 | -1.4 | -6.4 | -7.2 | -13.3 | 0.0 | 0.0 | 0.0 | 0.0 | -90.4 | -118.1 |
| Net profit/loss for the period | 381.9 | 326.7 | -218.8 | -28.4 | 135.4 | 125.5 | -64.1 | -532.0 | 33.5 | 59.8 | 6.1 | 4.1 | -25.4 | -12.1 | 248.6 | -56.4 |
| Attributable to non | ||||||||||||||||
| controlling interests | 11.3 | 3.7 | -12.6 | -9.0 | 0.2 | 0.0 | 0.0 | -0.3 | 16.8 | 22.2 | 1.3 | 1.1 | 0.0 | 0.0 | 17.0 | 17.7 |
| Attributable to owners of | ||||||||||||||||
| the parent | 370.6 | 323.0 | -206.2 | -19.4 | 135.2 | 125.5 | -64.1 | -531.7 | 16.7 | 37.6 | 4.8 | 3.0 | -25.4 | -12.1 | 231.6 | -74.1 |
| Average risk-weighted assets |
12,524.6 | 13,114.4 | 8,281.8 | 9,137.4 | 4,173.6 | 4,928.9 | 3,645.0 | 4,357.9 | 4,089.4 | 4,402.9 | 485.8 | 578.6 | 741.8 | 728.5 | 33,942.0 | 37,248.5 |
| Average attributed equity | 1,268.6 | 1,078.8 | 791.5 | 522.6 | 432.2 | 408.5 | 372.8 | 362.0 | 291.4 | 255.9 | 40.9 | 40.9 | 78.8 | 63.5 | 3,276.2 | 2,732.2 |
| Cost/income ratio | 44.6% | 43.4% | 44.2% | 43.2% | 43.3% | 40.3% | 39.5% | 40.4% | 40.6% | 41.6% | 64.3% | 69.0% | 153.4% | 129.6% | 44.6% | 43.5% |
| Return on equity2 | 39.0% | 39.9% | na | na | 41.7% | 41.0% | na | na | 7.6% | 19.6% | 15.7% | 9.8% | na | na | 9.4% | na |
1) Other result consists of four income statement items: other operating result, result from financial instruments at fair value through profit or loss, result from financial assets available for sale, and result from financial assets held to maturity.
2) ROE = return on equity = net profit/loss attributable to owners of the parent divided by average attributed equity.
26. Risk management
It is a core function of every bank to take risks in a conscious and selective manner and to professionally manage such risks. In addition to meeting the internal goal of effective and efficient risk management, Erste Group's control and risk management systems have been developed to fulfil external and, in particular, regulatory requirements.
Concerning risk policy and strategy as well as regarding risk management organisation, reference is made to the chapter of the same name in the Annual Report 2011.
Current regulatory topics
Since 2010, Erste Group has been scrutinising the impacts of the planned regulatory changes commonly known as Basel 3. The Group has established a group-wide Basel 3 programme, which ensures that all requirements arising from the Capital Requirements Directive IV (CRD IV) and from related national and international regulations are implemented in time and completely within the whole Group. The programme includes a stream covering capital requirements (including deductions from own funds), changes in risk-weighted asset (RWA) calculations, counterparty credit risk (CCR), and the new capital charge for credit value adjustments (CVA). Further streams focus on new disclosure requirements, the new liquidity rules and and the planned introduction of a leverage ratio.
Due to the established programme structure, Erste Group has an integrated view on all requirements arising from Basel 3. Furthermore, a close alignment is being undertaken with programmes focusing on other internal or regulatory requirements in the areas of risk and accounting, such as the IFRS 9 project.
Regarding changes in risk-weighted assets according to Basel 3, since 2010 Erste Group has actively participated in the semiannual Quantitative Impact Study (QIS) which is co-ordinated by Austrian and European regulatory authorities. In future, Erste Group will also participate in the quarterly exercises. The bank has completed several calculations to evaluate the impact of the new accord on its risk-weighted assets, both within and beyond the scope of the QIS exercises.
Erste Group calculated as well the Basel 3 compliant liquidity ratios which also will be collected within the scope of the planned exercises. The Group has made several calculations to assess the status of the entities with regards to these ratios, and the preparation for the future regulatory reporting is currently underway.
Regulatory changes for the internal model approach to market risk according to the Capital Requirements Directive III (CRD III) became effective for Erste Group at year-end 2011. The inclusion of stressed VaR and event risk (for equity-related risks) into the internal model was developed and received approval from regulators after a successful audit by the Austrian regulator in the fourth quarter of 2011.
The capital question has once again moved centre stage, as the European Union is aiming to resolve the ongoing sovereign debt crisis. The European Banking Authority (EBA) has defined a capital threshold of 9% (according to EBA definition) that had to be met by June 2012.
According to an initial calculation with figures as of 30 September 2011, Erste Group required additional capital amounting to EUR 743 million (EUR 166 million at year-end 2011). Due to full recognition of collateral for defaulted loans in Romania, the regulatory core tier-1 increased by approx. EUR 700 million. Continued reductions in non core business and successful RWA optimisation resulted in a decrease of approx. EUR 5.1 billion within total RWA compared to year-end 2011. The core capital ratio based on the EBA calculation's logic therefor increased to 9.9% as of 30 June 2012. The capital surplus as per end of June 2012 amounted to EUR 950 million. The interim profit as well as the private participation capital are not included within this capital surplus.
On 3 October 2012, the European Banking Authority (EBA) published the final results of the EBA-excercise with data as per end of June 2012 and confirmed the fulfilment of the requirements and the achievement of the 9.9% EBA-ratio by Erste Group. As per end of September 2012 the core capital ratio of Erste Group based on EBA calculation logic remains at 9.9%.
The switching of the calculation of regulatory capital ratios to comply with IFRS is planned for the beginning of 2013. Based on pro-forma figures as of year-end 2011, the negative effect on core capital is expected to be approximately EUR 350 million.
Current economic topics
As stated in the tables below, Erste Group's net exposure to European countries which are particularly affected by the sovereign debt crisis was reduced further in the third quarter 2012. The net exposure to Greece, Ireland, Italy, Portugal and Spain decreased from EUR 3.1 billion at year-end 2011 to EUR 1.9 billion as of 30 September 2012. In particular, since 31 December 2011 the exposure to Italy was reduced by roughly EUR 606 million, and the exposure to Spain by EUR 307 million. The exposure to sovereign obligors in Greece and Portugal was eliminated almost completely. In Q3 2012, declines resulted exclusively from repayments and amortisations. There have been no new investments in bonds of sovereign issuers in the named countries.
The following tables show the net exposure to sovereigns and institutions in selected European countries as of 30 September 2012 and 31 December 2011, respectively. The net exposure includes all on- and off-balance-sheet positions after counterparty netting and risk transfer to guarantors. Derivatives are netted (ISDA Master Agreement with netting agreement) and collateral for derivatives reduces the exposure, provided that respective contracts are in force (Credit Support Annex to ISDA Master Agreement). In the case of repo transactions, the book value of the securities sold under repurchase agreements is recognised as exposure of the issuer. Moreover, an exposure of the counterparty amounting to the difference between the funds received and a potentially higher market value of the securities sold plus a percentage of the nominal value is considered in order to account for price fluctuations. In the case of reverse repurchase agreements, the respective counterparty risk is considered as for repurchase agreements (the difference between the funds placed and a potentially lower market value of the securities purchased plus a percentage of the nominal value in order to account for price fluctuations), but the issuer risk is not taken into account. The net exposure represents the net risk view. It differs from the credit risk exposure, which is treated in the 'Credit risk' chapter, primarily by applying the risk transfer to guarantors, by the deduction of collateral and by taking into consideration of netting agreements. Therefore, the two are not comparable. The sovereign net exposure includes central banks, central governments and institutions which are explicitly guaranteed by the central government.
Net exposure to selected European countries
| Total | Sovereign | Bank | Other1 | Total | |||||
|---|---|---|---|---|---|---|---|---|---|
| in EUR million | Sep 12 | Dec 11 | Sep 12 | Dec 11 | Sep 12 | Dec 11 | Sep 12 | Dec 11 | |
| Greece | 1 | 4 | 0 | 58 | 6 | 8 | 7 | 70 | |
| Ireland | 83 | 47 | 42 | 204 | 39 | 78 | 164 | 329 | |
| Italy | 70 | 473 | 599 | 807 | 586 | 582 | 1,255 | 1,861 | |
| Portugal | 3 | 6 | 47 | 94 | 10 | 13 | 60 | 113 | |
| Spain | 19 | 24 | 152 | 282 | 253 | 426 | 425 | 732 | |
| Total | 177 | 553 | 841 | 1,445 | 894 | 1,106 | 1,912 | 3,105 |
1) Other includes securisations and claims against corporates
| Sovereign | Fair Value | Available for Sale | At amortised cost | Total | |||||
|---|---|---|---|---|---|---|---|---|---|
| in EUR million | Sep 12 | Dec 11 | Sep 12 | Dec 11 | Sep 12 | Dec 11 | Sep 12 | Dec 11 | |
| Greece | 0 | -9 | 1 | 10 | 0 | 3 | 1 | 4 | |
| Ireland | 0 | 0 | 69 | 32 | 15 | 15 | 83 | 47 | |
| Italy | -12 | 400 | 70 | 71 | 0 | 2 | 70 | 473 | |
| Portugal | -17 | 0 | 3 | 6 | 0 | 0 | 3 | 6 | |
| Spain | -23 | -27 | 41 | 39 | 2 | 12 | 19 | 24 | |
| Total | -52 | 364 | 183 | 157 | 16 | 31 | 177 | 553 |
Without taking into account credit protection, such as guarantees from third parties, or in particular credit default swaps, the claims against Spanish sovereign obligors increase by EUR 23.3 million as of 30 September 2012. The short positions for sovereigns in Italy and Portugal as of 30 September 2012 mature before the corresponding long positions. Therefore, they are not offset in the exposure figures above.
| Bank | Fair Value | Available for Sale | At amortised cost | Total | |||||
|---|---|---|---|---|---|---|---|---|---|
| in EUR million | Sep 12 | Dec 11 | Sep 12 | Dec 11 | Sep 12 | Dec 11 | Sep 12 | Dec 11 | |
| Greece | 0 | 0 | 0 | 0 | 0 | 58 | 0 | 58 | |
| Ireland | 22 | 99 | 5 | 92 | 16 | 13 | 42 | 204 | |
| Italy | 69 | 234 | 138 | 181 | 392 | 393 | 599 | 807 | |
| Portugal | 1 | 9 | 16 | 30 | 30 | 55 | 47 | 94 | |
| Spain | 40 | 62 | 22 | 65 | 90 | 156 | 152 | 282 | |
| Total | 133 | 404 | 180 | 367 | 528 | 674 | 841 | 1,445 |
Credit risk
The classification of credit assets into risk grades is based on Erste Group's internal ratings. For the purpose of external reporting, Erste Group has developed a framework to map the risk grades into four different risk categories, as follows:
Low risk: The borrower possesses a strong repayment capacity. New business is generally done with clients in this risk category.
Management attention: Although the financial situation of the obligor is good, the repayment capacity may be affected negatively by adverse economic conditions. New business with customers of this risk category requires an adequate structuring of credit risk (collateral).
Substandard: The borrower is vulnerable to negative financial and economic developments. Such loans are managed in specialised risk management departments.
Non-performing: One or more of the default criteria under Basel II are met by the borrower: full repayment unlikely, interest or principal payments on a material exposure more than 90 days past due, restructuring resulting in a loss to the lender, realisation of a loan loss, or initiation of bankruptcy proceedings.
For purposes of analysing non-performing positions, Erste Group applies the 'customer view' in Austria. Accordingly, if an Austrian customer defaults on one product then all of that customer's performing products are classified as non-performing. For corporate borrowers in CEE, the customer view is also applied. However, in the retail and SME segment in CEE, Erste Group uses the 'product view', so that only the product actually in default is counted as a NPL whereas the other products of the same customer are considered performing.
Credit risk exposure
Credit risk exposure relates to the following balance sheet items:
-loans and advances to credit institutions;
-loans and advances to customers;
-debt securities held for trading, at fair value through profit or loss, available for sale and held-to-maturity;
-derivatives; and
-credit risks held off balance sheet (primarily financial guarantees and irrevocable undrawn credit commitments).
The credit risk exposure comprises the gross amount without taking into account loan loss provisions, any collateral held (including risk transfer to guarantors), netting effects, other credit enhancements or credit risk mitigating transactions.
The credit risk exposure of Erste Group increases by 2.4% or about EUR 5 billion from EUR 219.5 billion as of 31 December 2011 to EUR 224.6 billion as of 30 September 2012.
Erste Group's credit risk exposure is presented below divided into the following classes:
- -by Basel II exposure class and financial instrument,
- -by industry and risk category,
- -by region and risk category, and
- -by business segment and risk category.
Furthermore, a breakdown of loans and advances to customers is presented
-by business segment and risk category, and
-by business segment and currency.
The following tables include Erste Group's credit risk exposure broken down by Basel 2 exposure class and financial instrument as of 30 September 2012 and 31 December 2011, respectively. The assignment of obligors to Basel 2 exposure classes is based on legal regulations. For reasons of clarity, individual Basel 2 exposure classes are presented in aggregated form in the tables below and in other tables in the chapter 'credit risk'. The aggregated exposure class 'sovereigns' also contains regional and local governments as well as public sector entities in addition to central governments, central banks, international organisations and multinational development banks.
Credit risk exposure by Basel II exposure class and financial instrument as of 30 September 2012
| Debt instruments | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| in EUR million | Loans and advances to credit institutions |
Loans and advances to customers |
Held to maturity |
Trading assets |
At fair value through profit or loss |
Available for Sale |
Positive fair value of derivative financial instruments |
Contingent credit liabilities |
Credit risk exposure |
| At amortised cost | Fair Value | ||||||||
| Sovereigns | 3,922 | 7,515 | 16,007 | 4,285 | 272 | 13,166 | 215 | 1,073 | 46,455 |
| Institutions | 7,537 | 107 | 1,725 | 390 | 224 | 4,879 | 11,960 | 293 | 27,114 |
| Corporates | 110 | 61,715 | 917 | 203 | 79 | 2,836 | 837 | 14,889 | 81,586 |
| Retail | 0 | 64,170 | 0 | 0 | 0 | 0 | 3 | 5,305 | 69,478 |
| Total | 11,569 | 133,507 | 18,649 | 4,877 | 575 | 20,881 | 13,015 | 21,560 | 224,633 |
Credit risk exposure by Basel II exposure class and financial instrument as of 31 December 2011
| Debt instruments | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| in EUR million | Loans and advances to credit institutions |
Loans and advances to customers |
Held to maturity |
Trading assets |
At fair value through profit or loss |
Available for Sale |
Positive fair value of derivative financial instruments |
Contingent credit liabilities |
Credit risk exposure |
| At amortised cost | Fair Value | ||||||||
| Sovereigns | 1,556 | 8,247 | 12,427 | 4,638 | 928 | 9,230 | 166 | 1,276 | 38,468 |
| Institutions | 6,008 | 174 | 2,388 | 573 | 309 | 5,432 | 9,853 | 509 | 25,246 |
| Corporates | 13 | 61,968 | 1,259 | 259 | 265 | 2,992 | 904 | 15,932 | 83,592 |
| Retail | 0 | 64,361 | 0 | 0 | 0 | 0 | 7 | 7,782 | 72,150 |
| Total | 7,578 | 134,750 | 16,074 | 5,471 | 1,502 | 17,654 | 10,931 | 25,499 | 219,457 |
Erste Group has introduced a more stringent group-wide differentiation between irrevocable and revocable commitments. Due to this change, irrevocable unused commitments and total contingent credit liabilities have been reduced by almost EUR 4 billion.
Credit risk category by industry and risk category
The following tables present the credit risk exposure of Erste Group broken down by industry and risk category as of 30 September 2012 and 31 December 2011, respectively.
| Credit risk exposure by industry and risk category as of 30 September 2012 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Management | Non | Credit risk | |||
|---|---|---|---|---|---|
| in EUR million | Low risk | attention | Substandard | performing | exposure |
| Agriculture and forestry | 1,622 | 591 | 62 | 262 | 2,537 |
| Mining | 359 | 146 | 7 | 82 | 594 |
| Manufacturing | 9,457 | 2,690 | 588 | 1,786 | 14,520 |
| Energy and water supply | 2,824 | 415 | 84 | 239 | 3,561 |
| Construction | 6,643 | 1,752 | 327 | 1,642 | 10,363 |
| Trade | 7,919 | 2,091 | 317 | 1,357 | 11,683 |
| Transport and communication | 3,776 | 696 | 69 | 439 | 4,979 |
| Hotels and restaurants | 2,443 | 1,063 | 317 | 843 | 4,665 |
| Financial and insurance services | 41,955 | 1,871 | 111 | 434 | 44,372 |
| Real estate and housing | 17,473 | 3,243 | 615 | 1,385 | 22,715 |
| Services | 5,143 | 1,072 | 162 | 550 | 6,926 |
| Public administration | 36,677 | 1,058 | 17 | 29 | 37,781 |
| Education, health and art | 2,274 | 540 | 57 | 143 | 3,015 |
| Private customers | 42,904 | 7,536 | 1,737 | 3,533 | 55,709 |
| Sundry | 443 | 96 | 633 | 39 | 1,212 |
| Total | 181,909 | 24,860 | 5,102 | 12,762 | 224,633 |
Credit risk exposure by industry and risk categoy as of 31 December 2011
| in EUR million | Low risk | Management attention |
Substandard | Non performing |
Credit risk exposure |
|---|---|---|---|---|---|
| Agriculture and forestry | 1,459 | 603 | 60 | 241 | 2,362 |
| Mining | 439 | 68 | 4 | 67 | 578 |
| Manufacturing | 9,709 | 3,305 | 423 | 1,735 | 15,172 |
| Energy and water supply | 2,722 | 585 | 86 | 151 | 3,544 |
| Construction | 6,670 | 1,901 | 477 | 1,132 | 10,179 |
| Trade | 7,954 | 2,398 | 312 | 1,364 | 12,028 |
| Transport and communication | 3,369 | 1,017 | 125 | 460 | 4,970 |
| Hotels and restaurants | 2,399 | 1,285 | 317 | 784 | 4,785 |
| Financial and insurance services | 39,335 | 1,224 | 131 | 398 | 41,088 |
| Real estate and housing | 17,860 | 3,562 | 565 | 1,278 | 23,265 |
| Services | 5,284 | 1,040 | 186 | 587 | 7,098 |
| Public administration | 31,493 | 995 | 36 | 47 | 32,571 |
| Education, health and art | 2,284 | 500 | 41 | 132 | 2,957 |
| Private households | 44,032 | 8,447 | 1,842 | 3,362 | 57,683 |
| Other | 416 | 107 | 591 | 63 | 1,177 |
| Total | 175,424 | 27,037 | 5,194 | 11,800 | 219,457 |
Credit risk exposure by region and risk category
The geographic analysis of credit exposure is based on the risk country of the borrower. Accordingly, the distribution among Erste Group entities of the credit risk exposure by geography differs from the composition of credit risk exposure in terms of reporting segments of Erste Group.
The following tables present the credit risk exposure of Erste Group divided by region as of 30 September 2012 and 31 December 2011, respectively.
Credit risk exposure by region and risk category as of 30 September 2012
| in EUR million | Low risk | Management attention |
Substandard | Non performing |
Credit risk exposure |
|---|---|---|---|---|---|
| Core market | 146,790 | 23,130 | 4,791 | 11,906 | 186,616 |
| Austria | 75,793 | 9,500 | 1,588 | 3,275 | 90,156 |
| Croatia | 6,162 | 1,994 | 499 | 1,229 | 9,885 |
| Romania | 10,662 | 3,505 | 989 | 3,473 | 18,630 |
| Serbia | 788 | 266 | 26 | 73 | 1,153 |
| Slovakia | 13,053 | 1,099 | 243 | 537 | 14,933 |
| Slovenia | 1,411 | 237 | 137 | 271 | 2,055 |
| Czech Republic | 31,212 | 4,216 | 756 | 1,095 | 37,279 |
| Ukraine | 215 | 722 | 82 | 187 | 1,206 |
| Hungary | 7,493 | 1,590 | 472 | 1,765 | 11,320 |
| Other EU | 27,072 | 1,241 | 220 | 528 | 29,062 |
| Other industrialised countries | 5,803 | 151 | 40 | 140 | 6,133 |
| Emerging markets | 2,244 | 339 | 51 | 188 | 2,822 |
| Southeastern Europe / CIS | 1,282 | 258 | 50 | 144 | 1,734 |
| Asia | 618 | 14 | 0 | 20 | 653 |
| Latin America | 85 | 24 | 0 | 8 | 117 |
| Middle East / Africa | 259 | 42 | 1 | 16 | 318 |
| Total | 181,909 | 24,860 | 5,102 | 12,762 | 224,633 |
Credit risk exposure by region and risk category as of 31 December 2011
| in EUR million | Low risk | Management attention |
Substandard | Non performing |
Credit risk exposure |
|---|---|---|---|---|---|
| Core market | 142,947 | 25,055 | 4,889 | 10,822 | 183,714 |
| Austria | 76,513 | 9,114 | 1,686 | 3,316 | 90,629 |
| Croatia | 5,954 | 2,417 | 466 | 982 | 9,818 |
| Romania | 10,641 | 4,924 | 869 | 2,813 | 19,247 |
| Serbia | 587 | 365 | 16 | 71 | 1,039 |
| Slovakia | 10,299 | 1,412 | 260 | 539 | 12,509 |
| Slovenia | 1,519 | 264 | 167 | 236 | 2,187 |
| Czech Republic | 29,197 | 4,128 | 693 | 1,039 | 35,058 |
| Ukraine | 423 | 574 | 136 | 230 | 1,362 |
| Hungary | 7,812 | 1,858 | 598 | 1,597 | 11,864 |
| Other EU | 25,336 | 1,466 | 170 | 613 | 27,584 |
| Other industrialised countries | 4,181 | 204 | 46 | 178 | 4,610 |
| Emerging markets | 2,960 | 313 | 89 | 186 | 3,549 |
| Southeastern Europe / CIS | 1,298 | 222 | 47 | 148 | 1,714 |
| Asia | 714 | 14 | 40 | 22 | 791 |
| Latin America | 167 | 8 | 2 | 9 | 186 |
| Middle East / Africa | 782 | 69 | 0 | 7 | 858 |
| Total | 175,425 | 27,038 | 5,194 | 11,800 | 219,457 |
The growth in credit risk exposure by EUR 5.2 billion from 31 December 2011 to 30 September 2012 reflected an increase of EUR 2.9 billion, or 1.6%, in the core markets, coupled with an increase of more than EUR 1.5 billion, or 33%, in other industrialised countries, and of almost EUR 1.5 billion, or 5.4%, in the other EU member states (EU 27 excluding core markets), and a decrease of EUR 727 million, or 20.5%, in emerging markets. The countries of Erste Group's core market and the EU accounted for 96% of credit risk exposure as of 30 September 2012. At 1.3%, credit risk exposure in emerging markets remained of minor significance.
Credit risk exposure by business segment and risk category
The following tables show the credit risk exposure of Erste Group broken down by reporting segment and risk category as of 30 September 2011 and 31 December 2010, respectively.
| in EUR million | Low risk | Management attention |
Substandard | Non performing |
Credit risk exposure |
|---|---|---|---|---|---|
| Retail & SME | 128,024 | 20,533 | 3,785 | 11,388 | 163,730 |
| Austria | 72,904 | 10,064 | 1,448 | 3,826 | 88,243 |
| EB Oesterreich | 31,440 | 2,892 | 336 | 1,104 | 35,772 |
| Savings Banks | 41,464 | 7,172 | 1,113 | 2,722 | 52,471 |
| Central and Eastern Europe | 55,120 | 10,469 | 2,337 | 7,562 | 75,487 |
| Czech Republic | 28,009 | 3,251 | 602 | 1,031 | 32,894 |
| Romania | 8,401 | 2,948 | 643 | 3,155 | 15,147 |
| Slovakia | 9,309 | 840 | 202 | 490 | 10,841 |
| Hungary | 3,248 | 1,452 | 391 | 1,657 | 6,747 |
| Croatia | 5,422 | 1,487 | 434 | 1,038 | 8,382 |
| Serbia | 480 | 183 | 23 | 62 | 748 |
| Ukraine | 251 | 308 | 41 | 129 | 729 |
| GCIB | 20,850 | 3,943 | 948 | 1,363 | 27,103 |
| Group Markets | 23,839 | 225 | 73 | 8 | 24,144 |
| Corporate Center | 9,197 | 159 | 297 | 3 | 9,656 |
| Total Group | 181,909 | 24,860 | 5,102 | 12,762 | 224,633 |
Credit risk exposure by business segment and risk category as of 31 December 2011
| in EUR million | Low risk | Management attention |
Substandard | Non performing |
Credit risk exposure |
|---|---|---|---|---|---|
| Retail & SME | 125,950 | 22,282 | 4,275 | 10,395 | 162,902 |
| Austria | 75,183 | 9,928 | 1,632 | 3,854 | 90,597 |
| EB Oesterreich | 33,193 | 2,973 | 401 | 1,148 | 37,716 |
| Savings Banks | 41,990 | 6,955 | 1,231 | 2,706 | 52,881 |
| Central and Eastern Europe | 50,767 | 12,355 | 2,642 | 6,541 | 72,305 |
| Czech Republic | 24,962 | 3,739 | 608 | 975 | 30,284 |
| Romania | 7,542 | 3,844 | 734 | 2,579 | 14,699 |
| Slovakia | 8,553 | 916 | 223 | 498 | 10,189 |
| Hungary | 3,655 | 1,648 | 517 | 1,504 | 7,324 |
| Croatia | 5,184 | 1,825 | 443 | 764 | 8,216 |
| Serbia | 416 | 228 | 15 | 59 | 718 |
| Ukraine | 455 | 155 | 101 | 161 | 873 |
| GCIB | 23,330 | 4,411 | 569 | 1,398 | 29,708 |
| Group Markets | 18,987 | 176 | 3 | 3 | 19,169 |
| Corporate Center | 7,158 | 169 | 348 | 4 | 7,679 |
| Total group | 175,425 | 27,038 | 5,194 | 11,800 | 219,457 |
Loans and advances to customers by business segment and risk category
The following tables present the customer loan book as of 30 September 2012 and 31 December 2011, broken down by business segment and risk category.
Loans and advances to customers by business segment and risk category as of 30 September 2012
| in EUR million | Low risk | Mgmt attention |
Substandard | Non performing |
Total loan book |
|---|---|---|---|---|---|
| Retail & SME | 82,378 | 17,697 | 3,384 | 10,980 | 114,439 |
| Austria | 52,408 | 8,657 | 1,168 | 3,660 | 65,893 |
| EB Oesterreich | 24,569 | 2,384 | 224 | 1,026 | 28,203 |
| Savings Banks | 27,838 | 6,273 | 945 | 2,634 | 37,691 |
| Central and Eastern Europe | 29,970 | 9,040 | 2,216 | 7,319 | 48,546 |
| Czech Republic | 13,618 | 2,699 | 526 | 988 | 17,831 |
| Romania | 4,655 | 2,575 | 632 | 2,984 | 10,846 |
| Slovakia | 4,966 | 794 | 194 | 481 | 6,435 |
| Hungary | 3,061 | 1,422 | 388 | 1,652 | 6,523 |
| Croatia | 3,127 | 1,353 | 415 | 1,024 | 5,919 |
| Serbia | 355 | 102 | 20 | 62 | 539 |
| Ukraine | 188 | 95 | 41 | 129 | 453 |
| GCIB | 13,406 | 3,252 | 857 | 1,264 | 18,779 |
| Group Markets | 117 | 12 | 0 | 0 | 129 |
| Corporate Center | 120 | 39 | 0 | 1 | 160 |
| Total | 96,020 | 21,001 | 4,241 | 12,245 | 133,507 |
Loans and advances to customers by business segment and risk category as of 31 December 2011
| Mgmt | Non | Total loan | |||
|---|---|---|---|---|---|
| in EUR million | Low risk | attention | Substandard | performing | book |
| Retail & SME | 80,952 | 19,513 | 3,779 | 10,112 | 114,355 |
| Austria | 51,910 | 8,948 | 1,287 | 3,658 | 65,803 |
| EB Oesterreich | 24,248 | 2,630 | 270 | 1,051 | 28,199 |
| Savings Banks | 27,662 | 6,318 | 1,018 | 2,607 | 37,604 |
| Central and Eastern Europe | 29,042 | 10,565 | 2,491 | 6,454 | 48,552 |
| Czech Republic | 12,733 | 2,997 | 511 | 947 | 17,187 |
| Romania | 4,709 | 3,204 | 714 | 2,533 | 11,160 |
| Slovakia | 4,661 | 845 | 215 | 496 | 6,217 |
| Hungary | 3,461 | 1,615 | 513 | 1,499 | 7,088 |
| Croatia | 3,080 | 1,654 | 424 | 759 | 5,917 |
| Serbia | 316 | 99 | 13 | 58 | 486 |
| Ukraine | 82 | 152 | 101 | 161 | 497 |
| GCIB | 14,376 | 3,663 | 490 | 1,275 | 19,805 |
| Group Markets | 204 | 20 | 0 | 0 | 225 |
| Corporate Center | 313 | 36 | 15 | 1 | 365 |
| Total group | 95,845 | 23,233 | 4,284 | 11,388 | 134,750 |
In the tables below the non-performing loans and advances to customers subdivided by business segment are contrasted with risk provisions as of 30 September 2012 and 31 December 2011, respectively.
The Non-performing loans ratio (NPL ratio) and the Nonperforming loans coverage ratio (NPL coverage ratio) referring to loans and advances to customers are also included. The NPL ratio is calculated by dividing non-performing loans and advances by total loans and advances. The NPL coverage ratio is calculated by dividing risk provisions by non-performing loans and advances to customers. Collateral or other recoveries are not taken into account
Non-performing loans and advances to customers by business segment and coverage by risk provisions as of 30 September 2012
| in EUR Mio | Non performing |
Total loans and advances to customers |
Risk provisions |
NPL Ratio | NPL coverage ratio |
|---|---|---|---|---|---|
| Retail & SME | 10,980 | 114,439 | 6,831 | 9.6% | 62.2% |
| Austria | 3,660 | 65,893 | 2,280 | 5.6% | 62.3% |
| EB Oesterreich | 1,026 | 28,203 | 709 | 3.6% | 69.1% |
| Savings Banks | 2,634 | 37,691 | 1,571 | 7.0% | 59.6% |
| Central and Eastern Europe | 7,319 | 48,546 | 4,551 | 15.1% | 62.2% |
| Czech Republic | 988 | 17,831 | 720 | 5.5% | 72.9% |
| Romania | 2,984 | 10,846 | 1,718 | 27.5% | 57.6% |
| Slovakia | 481 | 6,435 | 396 | 7.5% | 82.3% |
| Hungary | 1,652 | 6,523 | 1,047 | 25.3% | 63.4% |
| Croatia | 1,024 | 5,919 | 513 | 17.3% | 50.1% |
| Serbia | 62 | 539 | 54 | 11.4% | 87.7% |
| Ukraine | 129 | 453 | 103 | 28.4% | 80.5% |
| GCIB | 1,264 | 18,779 | 892 | 6.7% | 70.6% |
| Group Markets | 0 | 129 | 1 | 0.0% | na |
| Corporate Center | 1 | 160 | 1 | 0.9% | na |
| Total Group | 12,245 | 133,507 | 7,725 | 9.2% | 63.1% |
Non-performing loans and advances to customers by business segment and coverage by risk provisions as of 31 December 2011
| in EUR million | Non performing |
Total loans and advances to customers |
Risk provisions |
NPL Ratio | NPL coverage ratio |
|---|---|---|---|---|---|
| Retail & SME | 10,112 | 114,355 | 6,244 | 8.8% | 61.7% |
| Austria | 3,658 | 65,803 | 2,245 | 5.6% | 61.4% |
| EB Oesterreich | 1,051 | 28,199 | 688 | 3.7% | 65.4% |
| Savings Banks | 2,607 | 37,604 | 1,557 | 6.9% | 59.7% |
| Central and Eastern Europe | 6,454 | 48,552 | 3,999 | 13.3% | 62.0% |
| Czech Republic | 947 | 17,187 | 660 | 5.5% | 69.7% |
| Romania | 2,533 | 11,160 | 1,268 | 22.7% | 50.1% |
| Slovakia | 496 | 6,217 | 393 | 8.0% | 79.2% |
| Hungary | 1,499 | 7,088 | 1,054 | 21.1% | 70.3% |
| Croatia | 759 | 5,917 | 419 | 12.8% | 55.2% |
| Serbia | 58 | 486 | 52 | 11.9% | 89.9% |
| Ukraine | 161 | 497 | 154 | 32.5% | 95.3% |
| GCIB | 1,275 | 19,805 | 697 | 6.4% | 54.6% |
| Group Markets | 0 | 225 | 0 | 0.0% | na |
| Corporate Center | 1 | 365 | 1 | 0.1% | na |
| Total group | 11,388 | 134,750 | 6,942 | 8.5% | 61.0% |
The following tables show the loans and advances to customers broken down by business segment and currency as of 30 September 2012 and 31 December 2011, respectively.
| Loans and advances to customers by business segment and currency as of 30 September 2012 | ||
|---|---|---|
| Local | Other | Total loans and advances |
||||
|---|---|---|---|---|---|---|
| in EUR Mio | EUR | Currencies | CHF | USD | currencies | to customers |
| Retail & SME | 74,128 | 24,752 | 13,193 | 692 | 1,674 | 114,439 |
| Austria | 54,652 | 0 | 9,376 | 217 | 1,648 | 65,893 |
| EB Oesterreich | 24,132 | 0 | 3,537 | 87 | 446 | 28,203 |
| Savings Banks | 30,520 | 0 | 5,838 | 131 | 1,201 | 37,691 |
| Central and Eastern Europe | 19,475 | 24,752 | 3,817 | 475 | 26 | 48,546 |
| Czech Republic | 610 | 17,187 | 4 | 25 | 5 | 17,831 |
| Romania | 6,697 | 3,995 | 0 | 138 | 16 | 10,846 |
| Slovakia | 6,425 | 0 | 0 | 7 | 3 | 6,435 |
| Hungary | 1,437 | 2,009 | 3,071 | 6 | 0 | 6,523 |
| Croatia | 3,895 | 1,287 | 723 | 12 | 1 | 5,919 |
| Serbia | 403 | 114 | 18 | 4 | 0 | 539 |
| Ukraine | 8 | 159 | 0 | 283 | 2 | 453 |
| GCIB | 14,733 | 1,375 | 278 | 1,381 | 1,011 | 18,779 |
| Group Markets | 37 | 17 | 6 | 51 | 19 | 129 |
| Corporate Center | 157 | 1 | 0 | 0 | 3 | 160 |
| Total Group | 89,055 | 26,144 | 13,477 | 2,124 | 2,707 | 133,507 |
Loans and advances to customers by business segment and currency as of 31 December 2011
| Total loans | ||||||
|---|---|---|---|---|---|---|
| in EUR milliono | EUR | Local Currencies |
CHF | USD | Other currencies |
and advances to customers |
| Retail & SME | 72,266 | 23,988 | 15,625 | 858 | 1,619 | 114,355 |
| Austria | 52,815 | 0 | 11,172 | 223 | 1,594 | 65,803 |
| EB Oesterreich | 23,598 | 0 | 4,061 | 73 | 468 | 28,199 |
| Savings Banks | 29,217 | 0 | 7,112 | 150 | 1,125 | 37,604 |
| Central and Eastern Europe | 19,451 | 23,988 | 4,453 | 636 | 25 | 48,552 |
| Czech Republic | 637 | 16,497 | 2 | 44 | 7 | 17,187 |
| Romania | 6,765 | 4,208 | 0 | 176 | 10 | 11,160 |
| Slovakia | 6,199 | 0 | 5 | 9 | 4 | 6,217 |
| Hungary | 1,559 | 1,860 | 3,654 | 13 | 2 | 7,088 |
| Croatia | 3,936 | 1,192 | 772 | 14 | 2 | 5,917 |
| Serbia | 346 | 116 | 18 | 4 | 0 | 486 |
| Ukraine | 8 | 114 | 0 | 376 | 0 | 497 |
| GCIB | 15,615 | 1,124 | 331 | 1,841 | 894 | 19,805 |
| Group Markets | 126 | 13 | 22 | 35 | 29 | 225 |
| Corporate Center | 363 | 0 | 0 | 0 | 2 | 365 |
| Total group | 88,369 | 25,125 | 15,978 | 2,735 | 2,543 | 134,750 |
Analysis of market risk
Value at risk of trading book
The following table show the VaR amounts as of 30 September 2012 and 31 December 2011 at the 99% confidence level using equally weighted market data and with a holding period of one day:
| in EUR thousand | Total | Interest | Currency | Shares | Commodity | Volatility |
|---|---|---|---|---|---|---|
| Sep 12 | ||||||
| Trading book | 3,353 | 2,884 | 855 | 1,037 | 408 | 1,018 |
| in EUR thousand | Total | Interest | Currency | Shares | Commodity | Volatility |
| Dec 11 | ||||||
| Trading book | 7,799 | 4,358 | 1,826 | 4,071 | 646 | 1,811 |
The method used is subject to limitations that may result in the information's not fully reflecting the fair value of the assets and liabilities involved.
Analysis of liquidity risk
As the planned new long-term funding has been secured already until the end of the second quarter 2012, partly by the issuance of a 10-year benchmark covered bond in February in the volume of EUR 1 billion and a 5-year senior unsecured bond in the volume of EUR 500 million, in the third quarter Erste Group concentrated its issuance activity mainly on the demand from retail investors. Moreover, the successful issuance of private placements ensured an additional diversification of the investor base for the long-term refinancing. The issuance of a Lower Tier 2 bond in the amount of USD 500 million in September 2012 further improved the funding profile. Compared to the previous quarter, client deposits remained stable at a high level which continues to support the positive trend of the Group's liquidity ratios.
27. Related party transactions
As of 30 September 2012, Erste Group had outstanding liabilities of EUR 136.9 million (31 December 2011: EUR 120.1 million) and amount receivable of EUR 84.2 million (31 December 2011: EUR 87.0 million) in relation to DIE ERSTE österreichische Spar-Casse Privatstiftung. Furthermore, as of 30 September 2012 there existed between Erste Group and DIE ERSTE österreichische Spar-Casse Privatstiftung standard derivative transactions for hedging purposes on usual market terms. These were interest rate swaps with caps in a notional amount of EUR 282.0 million (31 December 2011: EUR 185.0 million) as well as cross currency swaps in a notional amount of EUR 29.4 million (31 December 2011: EUR 30.9 million).
28. Contingent liabilities – litigations
There have not been any material changes since year-end 2011 in the assessment of the influence of the outcome of the litigation cases in which Erste Group Bank and some of its subsidiaries are involved with respect of the financial and/or earnings situation of Erste Group.
29. Fair value hierarchy
| Quoted market prices in active markets Level 1 |
Marked to model based on observable market data Level 2 |
Marked to model based on non-observable inputs Level 3 |
Total | |||||
|---|---|---|---|---|---|---|---|---|
| in EUR million | Sep 12 | Dec 11 | Sep 12 | Dec 11 | Sep 12 | Dec 11 | Sep 12 | Dec 11 |
| Loans to credit | ||||||||
| institutions | 0 | 0 | 0 | 0 | 0 | 4 | 0 | 4 |
| Financial assets - available for sale |
15,122 | 13,574 | 7,441 | 6,092 | 117 | 148 | 22,680 | 19,814 |
| Financial assets - at fair value through |
||||||||
| profit or loss | 319 | 722 | 464 | 1,064 | 27 | 27 | 810 | 1,813 |
| Trading assets - | ||||||||
| securities | 1,741 | 2,087 | 3,445 | 3,789 | 0 | 0 | 5,186 | 5,876 |
| Positive market value | ||||||||
| - derivatives | 2 | 2 | 13,013 | 10,929 | 0 | 0 | 13,015 | 10,931 |
| Total assets | 17,185 | 16,385 | 24,363 | 21,874 | 144 | 179 | 41,692 | 38,438 |
| Negative market | ||||||||
| value - derivatives | 0 | 0 | 10,932 | 9,335 | 2 | 2 | 10,934 | 9,337 |
| Customer deposits | 0 | 0 | 659 | 553 | 0 | 0 | 659 | 553 |
| Debt securities in | ||||||||
| issue | 81 | 85 | 1,485 | 696 | 0 | 0 | 1,566 | 781 |
| Subordinated | ||||||||
| liabilities | 0 | 0 | 225 | 215 | 0 | 0 | 225 | 215 |
| Trading liabilities | 0 | 0 | 359 | 536 | 0 | 0 | 359 | 536 |
| Total liabilities and equity |
81 | 85 | 13,660 | 11,335 | 2 | 2 | 13,743 | 11,422 |
30. Average number of employees during the financial period (weighted according to the level of employment)
| Average | 1-9 12 | 1-9 11 |
|---|---|---|
| Employed by Erste Group | 49,520 | 50,410 |
| Domestic | 16,088 | 16,031 |
| Erste Group, EB Oesterreich and subsidiaries | 8,663 | 8,550 |
| Haftungsverbund savings banks | 7,425 | 7,481 |
| Abroad | 33,432 | 34,379 |
| Česká spořitelna Group | 10,677 | 10,274 |
| Banca Comercială Română Group | 8,806 | 9,299 |
| Slovenská sporiteľňa Group | 4,205 | 4,078 |
| Erste Bank Hungary Group | 2,635 | 2,935 |
| Erste Bank Croatia Group | 2,613 | 2,635 |
| Erste Bank Serbia | 933 | 929 |
| Erste Bank Ukraine | 1,578 | 1,721 |
| Savings banks subsidiaries & foreign branch offices | 1,122 | 1,097 |
| Other subsidiaries and foreign branch offices | 863 | 1,411 |
31. Own funds and capital requirement
CHANGES IN TOTAL QUALIFYING CAPITAL
| in EUR million | Sep 12 | Dec 11 |
|---|---|---|
| Subscribed capital | 2,553 | 2,545 |
| Share capital | 789 | 781 |
| Participation capital | 1,764 | 1,764 |
| Reserves | 9,240 | 9,181 |
| Deduction of Erste Group Bank shares held within the Group | -636 | -627 |
| Consolidation difference | -2,549 | -3,074 |
| Non-controlling interests (excluding hybrid tier-1 capital pursuant to section 23 (4a) and (4b) Austrian Banking Act) |
3,321 | 3,322 |
| Intangible assets | -499 | -505 |
| 50% deduction for non consolidated credit and financial institutions pursuant to section 23 (13) 3 and 4 Austrian Banking Act |
-108 | -125 |
| 50% deduction of IRB-shortfall pursuant to section 23 (13) 4c Austrian Banking Act | 0 | 0 |
| 50% deduction of securitisations pursuant to section 23 (13) 4d Austrian Banking Act | -13 | -36 |
| Core tier-1 capital | 11,309 | 10,681 |
| Hybrid tier-1 capital pursuant to section 23 (4a) and (4b) Austrian Banking Act | 375 | 1,228 |
| Tier-1 capital | 11,684 | 11,909 |
| Eligible subordinated liabilities | 3,109 | 4,018 |
| Excess risk provisions | 45 | 397 |
| Qualifying supplementary capital (Tier-2) | 3,154 | 4,415 |
| 50% deduction for non consolidated credit and financial institutions pursuant to section 23 (13) 3 und 4 Austrian Banking Act |
-108 | -125 |
| 50% deduction of IRB-shortfall pursuant to section 23 (13) 4c Austrian Banking Act | 0 | 0 |
| 50% deduction of securitisations pursuant to section 23 (13) 4d Austrian Banking Act | -13 | -36 |
| 100% deductions of holdings in insurances pursuant to section 23 (13) 4a Austrian Banking Act | -159 | -162 |
| Short-term subordinated capital (Tier- 3) | 338 | 414 |
| Total eligible qualifying capital | 14,896 | 16,415 |
| Capital requirement | 8,694 | 9,122 |
| Surplus capital | 6,202 | 7,293 |
| Cover ratio (in %) | 171.3 | 179.9 |
| Tier-1 ratio – credit risk (in %) 1) | 12.6 | 12.2 |
| Core tier-1 ratio – total risk (in %) 2) | 10.4 | 9.4 |
| Tier-1 ratio – total risk (in %) 3) | 10.8 | 10.4 |
| Solvency ratio (in %) 4) | 13.7 | 14.4 |
1) Tier-1 ratio - credit risk is the ratio of tier-1 capital (including hybrid capital pursuant to section 23 (4a) and (4b) Banking Act) to the risk weighted assets pursuant to section 22 (2) Banking Act.
2) Core tier-1 ratio – total risk is the ratio of core tier-1 capital to the calculation base for the capital requirement pursuant to section 22 (1) Banking Act.
3) Tier-1 ratio – total risk is the ratio of tier-1 capital to the calculation base for the capital requirement pursuant to section 22 (1) Banking Act.
4) Solvency ratio is the ratio of total qualifying capital to the calculation base for the capital requirement pursuant to section 22 (1) Banking Act.
The risk-weighted basis pursuant to section 22 (1) of the Banking Act and the resulting capital requirement are as follows:
| Sep 12 | Dec 11 | |||
|---|---|---|---|---|
| in EUR million | Calculation base/total risk 1) |
Capital requirement 2) |
Calculation base/total risk 1) |
Capital requirement 2) |
| Risk pursuant to section 22 (1) 1 Banking Act(3) | 92,621 | 7,410 | 97,630 | 7,811 |
| a) Standardised approach | 23,202 | 1,856 | 26,461 | 2,117 |
| b) Internal ratings based approach | 69,419 | 5,554 | 71,169 | 5,694 |
| Risk pursuant to section 22 (1) 2 Banking Act4) | 4,111 | 329 | 5,060 | 405 |
| Risk pursuant to section 22 (1) 3 Banking Act5) | 112 | 9 | 119 | 9 |
| Risk pursuant to section 22 (1) 4 Banking Act6) | 11,827 | 946 | 11,210 | 897 |
| Total | 108,671 | 8,694 | 114,019 | 9,122 |
1) Internal calculation base used for calculation of the tier-1 ratio, core tier-1 ratio and the solvency ratio (capital requirement multiplied by 12.5).
2) Capital requirement pursuant to the Banking Act.
3) Risk weighted assets – credit risk.
4) Market risk (trading book).
6) Operational risk.
5) Commodities risk and foreign exchange-risk, including the risk arising from gold positions, each for positions outside the trading book.
32. Events after the Reporting Date
There are no significant events after the balance sheet date.
SHAREHOLDER EVENTS
| 28 February 2013 | Full-year preliminary results 2012 |
|---|---|
| 29 March 2013 | Annual report 2012 |
| 29 April 2013 | Results Q1 2013 |
| 16 May 2013 | Annual General Meeting |
| 30 July 2013 | Results H1 2013 |
| 30 October 2013 | Results for the first three quarters of 2013 |
GROUP INVESTOR RELATIONS
Erste Group Bank AG, Milchgasse 1, A-1010 Vienna
| Phone: | +43 (0) 50 100 – 17 693 |
|---|---|
| Fax: | +43 (0) 50 100 – 913 112 |
| Email: | [email protected] |
| Internet: | www.erstegroup.com/en/Investors |
Thomas Sommerauer
| Phone: | +43 (0) 50 100 – 17 326 |
|---|---|
| Email: | [email protected] |
Peter Makray
| Phone: | +43 (0) 50 100 – 16 878 |
|---|---|
| Email: | [email protected] |
Michael Oplustil
Phone: +43 (0) 5 0100 – 17 764 Email: [email protected]
Simone Pilz
Phone: +43 (0) 5 0100 – 13 036 Email: [email protected]
Gerald Krames
Phone: +43 (0) 5 0100 – 12 751 Email: [email protected]
TICKER SYMBOLS
| Reuters: | ERST.VI |
|---|---|
| Bloomberg: | EBS AV |
| Datastream: | 0:ERS |
| ISIN: | AT0000652011 |