Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Erste Group Bank AG. (EBKDY, Financial) posted another strong quarter with core revenues, NII, and fees up year on year.
- The bank upgraded its full-year guidance for both NII and fees, expecting NII to stay flat and fees to grow by 10%.
- The cost-to-income ratio is expected to remain comfortably below 50% for the second year in a row.
- Risk costs were limited to 6 basis points for the quarter, confirming the excellent quality of the loan book.
- The bank plans to complete a EUR500 million share buyback by year-end, complemented by a dividend of EUR3 per share for 2024.
Negative Points
- Overall revenues came in somewhat light in the second quarter due to one-off leasing income in the first quarter.
- The NPL coverage ratio excluding collaterals went down to about 80%, mainly due to releases of FLI and industry overlays.
- The CET1 ratio declined slightly since the start of the year due to the share buyback and pro rata dividend for 2024.
- The Austrian business showed sluggish demand in the second quarter, impacting overall loan growth.
- Other results were significantly worse than a year ago due to a one-off provision related to a possible EU court decision on VAT exemption.
Q & A Highlights
Q: On your point on inorganic growth, can you give us -- on what attributes would you see as attractive in a banking market? And having so much experience in CEE banking, what attributes would you rather avoid? Just given that there are not too many EU countries in Eastern Europe, I wondered what your thoughts were on adding Poland to expand CEE footprint. The other topic I would like to ask about, please, is Czech NII, which declined in Q2. My understanding is that you were positively exposed to falling interest rates in Czech here. I understand Stefan's point on the timing issue around repricing. But given the further decline in Czech rates, maybe you could give us some thoughts on how you expect the second half of the year to shape up? Thank you.
A: (Peter Bosek, CEO) So may I start with your part of the question related to inorganic growth. And you're absolutely right, this group was built up for getting the footprint in the eastern part of the European Union 25 years ago, and we have always been interested in Poland, as you rightly mentioned. The special situation with Poland was always, in terms of pricing, it was quite costly. The issue is, this is still true. So of course, we would be interested in Poland, but we definitely don't want to run in a situation where we are not creating shareholder value. So the good thing is we are not under pressure to jump on inorganic growth. We are open-minded. When it comes to debt, we are definitely interested to enter Poland, but I can't tell you when, because we are not in a situation that we can drive this part of market development. (Stefan Dorfler, CFO) All right. Czech NII, Gabor, is as follows: You will remember there was a small one-off in the first quarter. I think it was just double digit, around about this. And secondly, please don't underestimate the FX effect in the second quarter kicking in, in euro terms, also played a role. We are seeing, clearly, a positive overall run rate creeping up slightly. Of course, always taking into account, you're absolutely right, and I can confirm to you that we are still seeing a clearly positive NII sensitivity on falling rates in Czech Republic. However, let's not forget that the not insignificant part of the Czech balance sheet on the lending side in corporates and so on is Europe. And total of the sum, overall, we are very satisfied with the NII development in Czech Republic.
Q: Maybe building on Gabor's question, and thank you, Peter, for sharing our strategic priorities. It sounds like a lot of this builds on what Erste has been doing so well recently, of course, in a positive way. But I wanted to understand better what you think could change at the bank over the next few years under your leadership, if at all, be it strategic or operational, especially also taking into account your recent experience at another group, in another market. Would really appreciate any color there. And maybe another topic that I wanted to get your views on is loan growth. Very encouraging to see the recovery in the second quarter. But it looks like Austria is still a bit sluggish. And if I remember correctly, this is one of the big assumptions for the second half in terms of the improvement to reach the 5% growth target. So could you tell us how the dynamics are there currently? Stefan, you mentioned a couple of things, but I'd love to understand better if you're still comfortable with Austria improvement in the second half.
A: (Peter Bosek, CEO) I'll take the first part of the question. So what I will be focusing on over the next years to come. And it's very clear that we have a very good starting position when it comes to digital banking. And it's also very clear that technology opens up a lot of opportunities over the next years to come. And what I'm strongly convinced is that we will be able, at a certain point in time, to offer digital advice to our retail clients and partially also to our corporate clients. Typically, retail bank these days is capable to handle roughly about 25% of their retail clients in handing over or giving advice in a way how I would like to see it for much more of our clients. But today, for 75% of our clients, we are just reactive, because this is very much about efficiency. And using the opportunity of offering digital advice can really be a game changer in retail banking because you could offer simple advice to roughly up to 100% of your clients. Of course, only to clients who are interested in using this kind of digital advice. And this could be really a game changer in terms of transforming financial health of our clients, but for us, also, of course, opening up a lot of fee income potential, as I mentioned during the presentation, related to asset management, pension products, things like that. Besides this importance of digital banking, where we are willing to invest in terms of technology, it's very clear that we will further broaden and build up our asset management perception, so to say. This is an extremely important part of our business. This is extremely important in terms of change in demography, especially in our region. We will see much bigger demand over the next years to come in terms of asset management. We would like to broaden our product offering, we would like to strengthen communication, especially with younger clients. So there are a lot of things to be done in this space. It will also deal with pension fund related products and make up our mind how we can broaden our footprint in this space. And when it comes to inorganic growth, of course, as mentioned before, we are open-minded to the eastern part of European Union. Poland would be great, but very much depending on an opportunity, which is not adding too much complexity on our table. We want to avoid headache, of course, and also only do a transaction when we can create shareholder value. But the way how we look at the footprint of our group is we are already in a great situation. So there is no need to jump desperately on any kind of deal. In the near future, if a great opportunity will come, it will come. And at the end of the day, due to the lack of capital markets in our region, I would put ourselves in a situation that every investor who is interested in this Eastern part of European Union should invest in Erste Bank shares, because then you get the full leverage of this region. And I think then you have a great investment in a region where you have a very high level of entrepreneurial spirit. (Stefan Dorfler, CFO) So turning to your loan growth question, Mehmet, thanks for that, because it gives the opportunity to fine-tune a little bit the information. First of all, as I indicated with my presentation statement, it really took a long time until everything was, so to say, ratified with regards to the legal environment of the supportive measures in Austria, so that we only could benefit from it towards the end of the second quarter, i.e., June numbers were already a little better. You saw on page 14, we put Austrian retail demand still slow in Q2 2024,
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
