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Erste Group – Gaining strength during the crisis
HSBC’s Financial Institutions Conference
25-26 November 2010, Barcelona
Peter Makray, Investor RelationsRenée Bauer, Long Term Funding
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference2
Disclaimer – Cautionary note regarding forward-looking statements
−
THE INFORMATION CONTAINED IN THIS DOCUMENT HAS NOT BEEN INDEPENDENTLY VERIFIED AND NO REPRESENTATION OR WARRANTY EXPRESSED OR IMPLIED IS MADE AS TO, AND NO RELIANCE SHOULD BE PLACED ON, THE FAIRNESS, ACCURACY, COMPLETENESS OR CORRECTNESS OF THIS INFORMATION OR OPINIONS CONTAINED HEREIN.
−
CERTAIN STATEMENTS CONTAINED IN THIS DOCUMENT MAY BE STATEMENTS OF FUTURE EXPECTATIONS AND OTHER FORWARD-LOOKING STATEMENTS THAT ARE BASED ON MANAGEMENT’S CURRENT VIEWS AND ASSUMPTIONS AND INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS, PERFORMANCE OR EVENTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN SUCH STATEMENTS.
−
NONE OF ERSTE GROUP OR ANY OF ITS AFFILIATES, ADVISORS OR REPRESENTATIVES SHALL HAVE ANY LIABILITY WHATSOEVER (IN NEGLIGENCE OR OTHERWISE) FOR ANY LOSS HOWSOEVER ARISING FROM ANY USE OF THIS DOCUMENT OR ITS CONTENT OR OTHERWISE ARISING IN CONNECTION WITH THIS DOCUMENT.
−
THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OR INVITATION TO PURCHASE OR SUBSCRIBE FOR ANY SHARES AND NEITHER IT NOR ANY PART OF IT SHALL FORM THE BASIS OF OR BE RELIED UPON IN CONNECTION WITH ANY CONTRACT OR COMMITMENT WHATSOEVER.
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference3
Presentation topics
−
Erste Group at a glance
−
Business environment
−
Key topics
−
Funding
−
Pfandbrief
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference4
- Erste Group went public in 1997 with a strategy to expand its retail business model into CEE
- Acquisition of more than 10 banks between 1997 and 2008
- Erste Group now runs market leading retail banking operations in the new EU member states, which remain underpenetrated compared to their Western European markets
2000
2001
2005
2006
2007
1997
2004
2003
New holding structure improving Group governance
2008
Erste Group at a glance – Austria’s first savings bank: Founded in 1819
- Erste Group’s customer base grew from 600,000 in 1997 to 17.3 million in 2009
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference5
Erste Group at a glance – Regional strategy: focusing on our strengths
−
Focus on the eastern part of the European Union−
Erste Group is the leading retail bank−
Erste Group is one of the leading corporate banks−
Erste Group is the leading bond originator−
Erste Group is the leading fund management company
Country xxxx
Product category xxxx
Market share
Market position
Retail loans 19% 2Retail deposits 19% 2Assets under mgmt 22% 1Corporate loans 17% 2Retail loans 27% 1Retail deposits 29% 1Assets under mgmt 26% 2Corporate loans 23% 2Retail loans 20% 1Retail deposits 23% 1Assets under mgmt 46% 1Corporate loans 24% 1Retail loans 27% 1Retail deposits 28% 1Assets under mgmt 22% 1Corporate loans 14% 3Retail loans 14% 2Retail deposits 8% 3Assets under mgmt 11% 3Corporate loans 9% 6Retail loans 13% 3Retail deposits 13% 3Assets under mgmt 21% 2Corporate loans 15% 3
Hun
gary
Cro
atia
Aus
tria
Cze
ch
Rep
ublic
Rom
ania
Slov
akia
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference6
Client base: 1.16 million
Upper Austria
Client market share:
Client base: 0.44 Mio
Salzburg
Client market share:
Client base: 1.34 million
Lower Austria
Client market share:
Sparkassen: 33 %
Sparkassen: 19 %
Sparkassen: 26%
Erste Bank: 8 %Client base: 1.42 million
Vienna
Client market share:Sparkassen: 1 %
Erste Bank: 24 %
Client base: 240 thousand
Burgenland
Client market share:Sparkassen: 4 %
Erste Bank: 12 %Client base: 1.02 million
Styria
Client market share:Sparkassen: 27 %
Client base: 470 thousand
Carinthia
Client market share:Sparkassen: 24 %
Client base: 590 thousand
Tyrol
Client market share:Sparkassen: 31 %
Client base: 300 thousand
Vorarlberg
Client market share:Sparkassen: 29 %
Source: FMDS 2009 Client base: bankable population = adults above the age of 15
Erste Group at a glance – The Cross Guarantee System
Clients: 3.1 million
Austria
Retail loans: 19.1%
Retail deposits: 19.0%
Branches: 1,048
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference7
Presentation topics
−
Erste Group at a glance
−
Business environment
−
Key topics
−
Funding
−
Pfandbrief
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference8
−
Economic growth continued to be mainly driven by exports in Q3 2010−
Industrial output has remained strong across the region−
Improved household consumption in selected countries −
More balanced growth forecast for next year with domestic demand expected to pick up in the region
−
Very strong fiscal commitment in CEE−
Fiscal measures in Romania and Hungary aimed at meeting agreed budget deficit targets−
Agreements with international organisations enforce fiscal discipline in selected countries
−
Benchmark interest rates remained at historic lows −
Czech Republic: 0.75%, Romania: 6.25%, Hungary: 5.25%−
Interest rates are not expected to rise in near future
−
More stable exchange rate environment in Romania and Hungary−
RON has stabilized at 4.2-4.3 versus the euro following historic low in June−
HUF has recovered against the euro and CHF since its July trading lows
−
Banking tax in Hungary and Austria to improve budget deficits−
Hungary: implemented banking tax for 2010 and 2011−
Pre-tax impact on Erste Group: ~ EUR 48m p.a.; post-tax: EUR 37m p.a.−
Austria: exact impact of banking tax yet to be determined
Business environment: Economy – What has recently changed in CEE?
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference9
Business environment: Economy – Short-term: Recovery on track in most of CEE
−
Significant improvement in industrial output thanks to rising exports
−
Main driver behind recovery−
Unit labour costs declined in CEE as productivity increased
−
All CEE countries expected to grow in 2011−
Economic recovery has started already in 2010 mainly driven by exports
−
In 2011 more balanced growth is expected supported by increased domestic demand
−
CEE countries to experience different growth patterns in line with level of export dependency and country- specific issues
−
Romania: growth to return in 2011 following negative impacts of VAT increase and public sector pay cuts in 2010
−
Hungary: expected improvement in household consumption to push growth to 2.6% in 2011
−
Croatia: weak domestic demand only partly offset by tourism in 2010
−
Serbia and Ukraine: more balanced growth seen in 2010
−
Czech Republic and Slovakia: growth rates of 2-4% for 2010, significantly ahead of Eurozone average (1.3%)
Source: Erste Group Research
Exports to GDP in CEE
20%
25%
63%
64%
34% 58
%
17% 36
%
0%
20%
40%
60%
80%
Austria CzechRepublic
Romania Slovakia Hungary Croatia Serbia Ukraine
Exports/GDP
Real GDP growth in CEE
2.0%
2.2%
-2.1
%
4.1%
0.9%
-1.5
%
1.3% 4.
3%
1.9%
2.0%
1.2% 4.
0%
2.6%
1.5% 3.
0% 4.5%
-2.9
%
-7.1
% -4.7
%
-6.3
%-3.6
%
-4.0
%
-5.8
%
-15.
1%
-20%-16%-12%
-8%-4%0%4%8%
AT CZ RO SK HU HR SRB UA
2009 2010e 2011e
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference10
Business environment: Banking market – 2011: the return of moderate volume growth
−
CEE lending: the crisis is behind us but growth will not arrive before 2011−
2010 will be a lost year in terms of growth, but valuable in terms of consolidation and digesting the effects of the downturn
−
2011: the return of volume growth, depending on the market, in the mid- to high single digits
−
With margins at highs there is scope for increased competition in CEE−
Retail business: focus is on existing clients with known credit histories and on secured business; higher share of LCY business
−
Corporate business: demand is rising across the region but competition for better rated assets leads to rise in unsecured lending and to relaxation of lending standards
−
Continued strong deposit market
*) Based on Retail & SME segment data.
Erste Group's net interest margins in CEE
1.60
% 3.72
%
3.37
%
4.17
%
5.46
%
4.03
%
1.77
% 4.06
%
3.52
%
4.00
% 6.80
%
3.97
%
1.96
% 4.21
%
3.41
%
4.38
% 7.24
%
3.99
%
2.04
% 3.85
%
3.67
%
4.40
% 6.97
%
4.31
%
0%
2%
4%
6%
8%
AT CZ HR HU RO SK2007 2008 2009 1-9 2010
EG segment - retail loan growth rates *(yoy, not adjusted for currency movements)
13.5
11.4
21.7 25
.8
10.6 17
.7
2.4 3.9
13.5
1.8 2.5 8.
2
4.1
1.4
12.3
5.0
0.3
0.3
0
10
20
30
40
50
AT CZ HR HU RO SK
in %
2008 2009 Q3 2010
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference11
Presentation topics
−
Erste Group at a glance
−
Business environment
−
Key topics
−
Funding
−
Pfandbrief
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference12
Erste Group’s customer deposits – Deposit growth continues to outpace loan growth
−
Customer deposits grew by 2.9% ytd
(up 1.8% yoy)−
Mainly based on solid growth in Austria and strong inflows in the Czech Republic
−
Retail & SME deposits increased by 2.9% ytd−
Austria grew by 1.2%, supported by EB Oesterreich (+3.4% ytd) −
CEE enjoyed strong ytd growth (+5.2%): supported by the Czech Republic (+12.0%) driven by inflows from public sector and currency appreciation; other core markets saw stable or slightly declining volumes
−
GCIB deposits declined by 6.2% ytd−
Reversing the positive Q1 2010 trend, as short-term deposits from large corporates were not rolled-over
−
Loan/deposit ratio stable at 114.0% in Q3 2010
(year-end 2009: 115.3%)
Customer deposit trends by subsegments(Retail & SME detail: CEE)
24.0 22.4 24.9 25.0 25.1
7.3 7.3 7.5 7.0 7.2 7.2 7.1 6.9 6.9 7.0 3.4 3.9 4.1 3.9 3.7 3.4 4.1 3.9 4.1 4.1
45.8 45.3 47.8 47.4 47.7
0
10
20
30
40
50
Q3 09 Q4 09 Q1 10 Q2 10 Q3 10
in E
UR
bill
ion
Czech Republic Romania Slovakia Hungary Croatia Andere CEE
Customer deposit trends by main segments
58.2 59.3 59.2 60.4 60.0
45.8 45.3 47.8 47.4 47.7
6.1 6.9 5.8 5.7113.3 112.0 115.6 116.6 115.3
6.3
0
25
50
75
100
125
Q3 09 Q4 09 Q1 10 Q2 10 Q3 10
in E
UR
bill
ion
Retail & SME - Austria Retail & SME - CEE GCIB Group Markets
Customer deposit trends by subsegments(Retail & SME detail: Austria)
32.0 32.5 32.4 32.5 32.3
26.2 26.8 26.8 27.9 27.7
58.2 59.3 59.2 60.4 60.0
0
15
30
45
60
75
Q3 09 Q4 09 Q1 10 Q2 10 Q3 10
in E
UR
bill
ion
Savings Banks Erste Bank Oesterreich
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference13
Erste Group’s loan book – Loan demand across the segments remained subdued
−
Customer loans increased by 1.8% ytd; up 1.2% yoy−
Growth in Retail & SME loans in Austria and CEE ytd and yoy was driven mainly by appreciation of CHF and CEE currencies vs euro
−
GCIB loan book declined by 5.5% ytd, and by 9.5% yoy due to redemptions and lower demand
−
Customer distribution remained broadly unchanged−
Retail continued to increase to 48.7% of portfolio−
SME and large corporates account for 45.7% of the loan book−
Public sector rose to 5.5% of total loans
−
Currency distribution shifted towards EUR and CHF−
No new CHF lending since 2009; existing loan book with conservative debt service to income ratios and LTVs
Quarterly loan book trends(Retail & SME detail: CEE)
17.7 16.7 17.3 17.1 17.9
11.2 11.2 11.4 11.2 11.2
5.7 5.7 5.5 5.6 5.7 7.2 7.3 7.4 7.6 7.6 4.8 4.7 4.7 5.4 5.3
47.5 46.6 47.4 47.9 48.7
0
10
20
30
40
50
Q3 09 Q4 09 Q1 10 Q2 10 Q3 10
in E
UR
bill
ion
Czech Republic Romania Slovakia Hungary Croatia Andere CEE
Customer loans by main segments *
61.4 62.0 62.5 63.6 63.9
47.5 46.6 47.4 47.9 48.7
19.5 19.6 19.0 18.4130.0 129.1 130.3 131.0 131.5
20.3
0
30
60
90
120
150
Q3 09 Q4 09 Q1 10 Q2 10 Q3 10
in E
UR
bill
ion
Retail & SME - Austria Retail & SME - CEE GCIB
*) Segments do not exactly add up to total due to consolidation effects
Customer loans by currency
63.4% 64.1% 63.3%
20.1% 19.2% 19.7% 18.9% 19.7%
12.2% 12.2% 12.4% 12.9% 12.6%2.7% 2.7% 2.8% 2.9% 2.4%
63.5% 63.5%
0%
20%
40%
60%
80%
100%
Sep 09 Dec 09 Mar 10 Jun 10 Sep 10EUR CEE-LCY CHF USD Other
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference14
−
Quarterly operating income again at record levels; EUR 2,010.3 million (up 4.7% yoy)−
Net interest income grew by 4.1% yoy to EUR 1,390.7m on the back substantially higher NIM, offsetting continued low loan demand; NII was up by 2.2% on strong Q2 2010 supported by slightly improved net interest margin
−
Net commission income
increased by 11.9% compared to Q3 2009 reaching EUR 475.7m; fee income declined by 3.6% qoq due to seasonal effects but the strong yoy performance of securities business continues
−
Net trading result recovered in Q3 2010 rising by 45.6% compared to Q2 2010, driven by higher contribution from securities and derivates trading, while income from FX transactions was stable; compared to very strong Q3 2009 net trading result reached EUR 143.9m, down 10.0% yoy
−
Quarterly operating expenses at EUR 973.3 million −
Increase of 2.9% on Q2 2010 mainly driven by rising CEE FX rates and consolidation of IT company at Group level−
Expenses increased by 5.8% yoy as successful implementation of efficiency measures already had a positive impact on Q3 2009
Operating expenses per quarter
539 565 546 545 567
257 314 303 31293 105 94 97 95
920 927 953 945 973
289
0
200
400
600
800
1,000
1,200
Q3 09 Q4 09 Q1 10 Q2 10 Q3 10
in E
UR
mill
ion
Personnel expenses Other expenses Depreciation
1) Operating result = Operating income (NII + net fee & commission income + net trading result) minus general administrative expenses
Operating income per quarter
1,336 1,380 1,324 1,361 1,391
425 460 472 494 47682 141 99 144
1,921 1,922 1,936 1,954 2,010160
0
500
1,000
1,500
2,000
2,500
Q3 09 Q4 09 Q1 10 Q2 10 Q3 10
in E
UR
mill
ion
Net interest income Net fee and commission income Net trading result
Erste Group’s operating performance – Operating result of more than EUR 1 billion in Q3 2010
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference15
Erste Group‘s bottom line performance – Net profit of EUR 736.8 million in 1-9 2010
*) Red bars denote reported EPS and ROE respectively. Cash EPS and EPS calculated on average number of shares: 374.6m (ex treasury shares and shares owned by savings banks with EB participations: 3.5m), adjusted for non cash items amounting to EUR 30.5m in Q3 2010 (linear amortisation of customer relationships after tax and non-controlling interests) and dividend on the participation capital (EUR 105.8m).
Cash earnings per share *
2.202.80
4.78
2.06 1.77 2.69
4.67
1.96 1.68
0.01.0
2.03.04.0
5.06.0
1-9 06 1-9 07 1-9 08 1-9 09 1-9 10
in E
UR
Cost/income ratio
60.4% 60.4%58.2%
50.9%48.7%
45%
50%
55%
60%
65%
1-9 06 1-9 07 1-9 08 1-9 09 1-9 10
Cash return on equity *
13.3% 14.0%
22.2%
10.7%7.8%
13.5%
21.7%
10.3%7.5%
0%4%
8%12%16%
20%24%
1-9 06 1-9 07 1-9 08 1-9 09 1-9 10
−
Net profit grew by 2.3% to EUR 736.8 million−
Lower Cash-EPS and Cash-ROE due to substantially enlarged capital base
−
Issuance of participation capital in H1 09 (EUR 1.76bn)−
Issuance of equity in November 2009 (EUR 1.74bn)
−
Stable NIM at 3.08% (1-9 09: 2.98%)−
NIM was stable qoq in CEE (4.59%), with slight improvement registered in Austria (2.04%) supported by solid margins in core customer business
−
Cost/income ratio improved to 48.7%−
Supported by record operating income and strict cost control
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference16
Erste Group’s asset quality – Group trends: declining NPL formation, coverage rises
−
New NPL formation declined in line with target risk costs
−
Excellent performance in Austria both at the savings banks and Erste Bank Oesterreich resulted in reduced NPLs
−
NPL growth in CEE driven by local corporate segment mainly in Romania and Croatia
−
NPLs in Slovakia, Ukraine and Serbia flat or in decline
−
NPL ratio based on customer loans increased to 7.6% (YE 2009: 6.6%)
−
Continued low demand for new loans but downward migration trend in existing portfolio slowed down considerably
−
NPL coverage continued to improve to 60.9% (YE 2009: 57.2%)
−
NPL coverage improved throughout all major segments (Retail & SME as well as GCIB segment)
Erste Group: NPL ratio vs NPL coverage
6.3% 6.6% 6.9% 7.3% 7.6%
56.7% 57.2%59.0% 59.7%
60.9%
0%
5%
10%
15%
20%
25%
30%
Sep 09 Dec 09 Mar 10 Jun 10 Sep 1050%
55%
60%
65%
NPL ratio NPL coverage (exc collateral)
Quarterly NPL growth (absolute/relative)
531403
471 531 505
7.0%
5.0%5.5% 5.9%
5.3%
0
200
400
600
800
1,000
Sep 09 Dec 09 Mar 10 Jun 10 Sep 10
in E
UR
mill
ion
0%
2%
4%
6%
8%
NPL growth (absolute) NPL growth (relative)
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference17
Erste Group’s capital position – Further strengthening of the capital base
−
Total equity (IFRS) increased by EUR 0.9 billion (+5.5%) year-to-date based on:−
Retained earnings and …−
… improved AfS reserve …−
… and positive FX effects−
Dividend payout in May 2010 of EUR 423m to shareholders and owners of participation capital
−
Shareholders’
equity rose by EUR 0.7 billion (+5.4%) ytd
−
Intangibles fluctuate in line with currency movements in CEE (mainly in Romania and Hungary)
Erste Group's intangibles composition
1.8 1.8 1.9 1.8 1.8
0.3 0.3 0.3 0.3 0.30.7 0.6 0.6 0.5 0.5
0.5 0.5 0.5 0.5 0.50.3 0.3 0.3 0.3 0.3
0.5 0.4 0.4 0.4 0.4
0.5 0.7 0.7 0.7 0.7
5.0 4.9 4.9 4.7 4.8
0
1
2
3
4
5
6
Q3 09 Q4 09 Q1 10 Q2 10 Q3 10
in E
UR
bill
ion
BCR goodwill Brand Customer relationshipsCzech goodwill Hungarian goodwill Slovak goodwillOther goodwill Software
Total capital reconciliation
12.7
3.4
0.90.3
3.6
16.1
13.4
0.1 -0.517.0
10
12
14
16
18
TotalcapitalDec 09
Net profit AfS FX-∆ Dividend TotalcapitalSep 10
in E
UR
bill
ion
Equity Minority capital
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference18
Erste Group’s capital position – Further strengthening of capital ratios
1) Tier 1 ratio (total risk) = tier 1 capital incl. hybrid and after regulatory deductions divided by total RWA - including credit risk, market and operational risk.
2) Core tier 1 ratio (total risk) = tier 1 capital excl. hybrid and after regulatory deductions divided by total RWA - including credit risk, market and operational risk.
2008 2009 Q3 10
Tier 1 ratio (total risk)1
6.2%
9.2%9.7%
2008 2009 Q3 10
Core tier 1 ratio (total risk)2
5.2%
8.3%8.7%
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference19
Conclusion – Outlook
−
Economies will continue to recover in 2011−
Austria, Czech Republic and Slovakia to lead the way based on rising domestic demand, following export-led growth in 2010
−
Strong year-to-date operating performance to be sustained in Q4 2010−
Positive outlook for 2011 operating performance is based on −
Expectation for mid-single digit loan growth at group level, resilient margins in core business and rising fee income
−
Continued strict cost management
−
Credit risk performance in Q3 2010 confirming outlook for year-end−
H2 2010 will see lower risk costs than H1 2010 −
2011: continued declining risk cost trend based on economic recovery
−
Participation capital can be repaid with no need to raise equity−
Ability to generate retained earnings remains strong−
Common equity ratio in accordance with Basel III comfortably above 7%
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference20
Presentation topics
−
Erste Group at a glance
−
Business environment
−
Key topics
−
Funding
−
Pfandbrief
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference21
TPI
Long-Term Credit Rating
A(negative)
Aa3(negative)
A(stable)
Short-Term Credit Rating A-1 P-1 F1
Public Sector Covered Bond Aaa -4
Mortgage Covered Bond Aaa -3
AA+ Aa1 AA+
AA Aa2 AA+
AA- Aa3 AA-
A+ A1 Bank A Bank B A+
A Bank A Bank B A2 A Bank A Bank B Bank D
A- A3 A-
BBB+ Baa1 Bank C Bank D Bank E BBB+ Bank C
FitchS&P Moody`s
Erste Group’s ratings – Erste Group in comparison to other Austrian banks
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference2222
Erste Group’s funding profile – Retail deposits remain a key pillar in the funding mix
−
Customer deposits remain the main source of funding−
Providing a solid funding base in all local currencies−
Reflected in loan/deposit ratio improvement to 114.0%
−
Short-term funding needs well covered−
Well collateralised and stable share of short-term funding
−
Limited long-term funding required−
Close to 95% of EUR 4 billion funding needs for 2010 already covered
−
Q3 10 funding mix:−
43% private placements: senior unsecured −
7% private placements: Pfandbrief−
50% public benchmark: Pfandbrief−
Continued focus on extension of maturity profile
Evolution of Erste Group's funding mix
54.6% 57.0% 58.9% 59.7%
17.0% 15.9% 15.6% 16.6%19.2% 18.1% 13.8% 11.8%6.2% 5.8% 8.5% 8.8%3.0% 3.2% 3.2% 3.1%
0%
20%
40%
60%
80%
100%
Dec 07 Dec 08 Dec 09 Sep 10Customer deposits Issued bonds & CDs Deposits by banksEquity Subordinated capital
Short-term funding vs collateral coverage
36.232.1
25.7 25.019.1
23.427.6 27.752.7%
72.9%
107.4% 110.5%
0
10
20
30
40
50
60
Dec 07 Dec 08 Dec 09 Sep 10
in E
UR
bill
ion
0%
20%
40%
60%
80%
100%
120%
Short-term funding Collateral Collateral coverage
Redemption profile of Erste Group(Q3 2010)
1.6
4.2
5.14.3
5.0
3.02.2
1.8
0.30.7 0.6 0.7
2.1
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022+
in E
UR
bill
ion
Senior unsecured Covered Bonds Subordinated Debt Debt CEE Subsidiaries
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference23
Presentation topics
−
Erste Group at a glance
−
Business environment
−
Key topics
−
Funding
−
Pfandbrief
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference24
Austrian Covered Bonds
Pfandbriefe
(Mortgage Banking Act) Fundierte Schuldverschreibungen
Hypothekenbankgesetz(Mortgage Banking Act 1899)
Pfandbriefgesetz(Pfandbrief Law 1938)
Law from 1905
Erste Group BankBank Austria Creditanstalt
LandeshypothekenbankenPfandbriefstelle
BAWAGKommunalkredit
Legal Framework in Austria – Mortgage and Public Sector Pfandbrief
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference25
Pfandbriefe
– Legislation comparison
Criteria of Pfandbrief
law Austria (Pfandbriefe)1
Germany France Spain Norway
Pfandbrief law in place
Mortgage and public sector collateral assets in separate pools
X X2
Cover register X
Collateral assets limited to Europe X X XLegally required minimum over- collateralization
X
Cover Pool monitoring (Trustee) X
Special proceedings in case of insolvency
Pfandbriefe remain outstanding in case of issuer‘s bankruptcy
NPV matching 3 X X
1) Hypothekenpfandbriefgesetz
2) Several single cover pools possible 3) If included in the articles of association of the respective credit institution which is the case for EGB
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference26
Focus: residential real estate – Austria benefits from stable real estate markets
−
Residential real estate prices developed in line with economy in
Austria−
Sufficient availability of affordable housing thanks to high share of state-subsidised cooperative and council housing
−
Home ownership is still comparatively low at 20-25% compared to Western as well as Eastern Europe due to limited incentives to purchase homes
−
Vienna enjoyed bursts of growth in the late 1980ies and since 2005−
But overall CAGR (1986-2009) remained at a sustainable 5.1%−
City of Vienna is largest landlord managing 220,000 council flats; roughly a third of Vienna’s population live in such council flats
−
Prices should continue to rise based on immigration and gradual shift towards home ownership
Real estate prices in Austria
-10-505
1015202530
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Q1
10
Q2
10Q
3 10
020406080100120140160
YOY change in % - Austria ex Vienna (lhs)YOY change in % - Vienna (lhs)Index (2000 = 100) Austria ex Vienna (rhs)Index (2000 = 100) Vienna (rhs)
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference27
Overview of Erste Group – Mortgage Cover Pool - Key characteristics
−
Aaa
Rating from Moody’s
−
Strong and long existing legal framework for Austrian Pfandbriefe−
Highest LTV allowed by law is 60%
−
Low average LTV of 48.8%
−
First-ranking mortgage loans of mostly Austrian properties−
92% Austria and 8% Germany
−
Stable real estate market in Vienna
−
Solid mortgage origination through own savings bank network
−
Quarterly updates on our homepage−
www.erstegroup.com
– Investor Relations – Debt Investors
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference28
Distribution Data
Structure
of Cover Pool per 30.09.2010 Rating: Aaa
Moody´sPfandbriefCover Pool
Regional distribution Distribution by property
type
Total volume EUR 5.033 mnNumber of loans 22.965 Number of borrowers 17.352 Number of properties 32.533 Avg. LTV 48,8% Fixed rate assets 13,0% Average seasoning 4,5 yrsAverage remaining life 17,3 yrs
Pfandbrief Cover Pool(in EUR mn equivalent) Issues (Deckungsstock)Total Volume 3.829 5.033thereof:
530Average Maturity 4,9 17,3Over-collaterisation 53%
ECB Collateral
Germany 8%
Tyrol 10%
Vienna 33%
Lower Austria
18%Styria 12%
Other Austria
18%
Mixed use 3% Office 3% Retail 13%
Residential assets 33%
Multi-Family assets 40%
Other commercial assets 8%
Overview of Erste Group – Mortgage Cover Pool
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference29
Distribution by Volume
Cluster Volume
per 30.09.2010
Cluster LTV per 30.09.2010
Distribution by LTV
Cluster Volume EUR mn Nr.under 100.000 652 12.117100.000 - 300.000 1.287 8.063300.000 - 500.000 431 1.107500.000 - 1.000.000 657 9371.000.000 - 5.000.000 1.249 670over 5.000.000 638 71Total 4.913 22.965
13%
25%13%
13%26%
9%
under 100.000
100.000 - 300.000
300.000 - 500.000
500.000 - 1.000.000
1.000.000 - 5.000.000
over 5.000.000
Cluster LTV EUR mn Nr.under 40 % 1.683 7.14440 - 50 % 839 2.54450 - 60 % 2.392 13.277Total 4.913 22.965
49%
17%
34%under 40 %
40 - 50 %
50 - 60 %
Overview of Erste Group – Mortgage Cover Pool
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference30
Overview of Erste Group – Public Sector Cover Pool - Key characteristics
−
Aaa
Rating from Moody’s
−
Strong and long existing legal framework for Austrian Pfandbriefe
−
97% of the Cover Pool assets are originated in Austria, 3% are in Europe
−
Public Sector loans represent 97% of the Cover Pool
−
Average exposure per entity is less than €
2mn
−
Average seasoning is 5 years
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference31
Cover Pool
Structure
of Cover Pool per 30.09.2010 Rating: Aaa
Moody´sPfandbriefe
Total volume € 3.106 mn
Number of loans 6.258
Number of borrowers 1.776
Average exposure per borrower € 1,7 mn
Avg. seasoning 5,0 yrs
Avg. remaining life 14,1 yrs
Volume of bonds issued € 2.715 mn
thereof ECB collateral € 950 mn
Average remaining maturity 4,5 yrs
Over-collaterisation 76%
Number of covered bonds 78
Average size of issue € 22,6 mn
Overview of Erste Group – Public Sector Cover Pool
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference32
(Primary) Loans Cover Pool by Rating
Regional DistributionRegional distribution Austrian
regional distribution
Austria97%
EU3%
Other provinces
25%
Vienna (incl.
central govt)16%
Lower Austria
23%Styria19%
Salzburg17%
A-Rating2%
Aa-Rating1%
Aaa-Rating
97%
Bonds3%
Loans97%
Overview of Erste Group – Public Sector Cover Pool
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference33
Stand per 30.09.2010
Collateral Pool – Risk Management features
in EUR Notional
Yield curve unchanged
NPV Yield curve unchanged
NPV Yield Curve
-100bp
NPV Yield Curve
+100bp Mortgage Cover Pool 5.033.436.520 5.147.815.380 5.190.593.412 5.106.028.558
Mortgage Covered Bonds 2.828.302.395 3.007.337.639 3.167.478.304 2.855.454.326
Overcollateralisation 2.205.134.125 2.140.477.741 2.023.115.108 2.250.566.232
in % of outstanding Mortgage Covered Bonds
78,0% 71,2% 63,9% 78,8%
in EUR Notional
Yield curve unchanged
NPV Yield curve unchanged
NPV Yield Curve
-100bp
NPV Yield Curve
+100bp Public Sector Cover Pool 3.106.257.098 3.140.781.431 3.167.828.026 3.115.651.191
Public Sector Covered Bonds 1.769.935.582 1.870.724.731 1.950.915.718 1.793.329.595
Overcollateralisation 1.336.321.516 1.270.056.700 1.216.912.308 1.322.321.596in % of outstanding Public Covered Bonds 75,5% 67,9% 62,4% 73,7%
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference34
Conclusion – Erste Group Bank’s Pfandbriefe
−
Safe investment
−
Stable economic situation in Austria
−
Stable real estate market conditions
25-26 November 2010Barcelona
HSBC’s Financial Institutions Conference35
Contacts
−
Erste Group Bank AG, Börsegasse 14, 1010 Vienna
E-mail: EMTN0369@erstegroup.comInternet: www.erstegroup.com
/ Investor Relations
/ Bond
Investors
−
Investor RelationsGabriele Werzer Tel: +43 (0)5 0100-11286 e-mail: gabriele.werzer@erstegroup.com
Thomas Sommerauer Tel: +43 (0)5 0100-17326 e-mail: thomas.sommerauer@erstegroup.comPeter Makray Tel: +43 (0)5 0100 16878 e-mail: peter.makray@erstegroup.com
−
Debt
Capital Markets/ Long Term FundingChristian Reiss Tel: +43 (0)5 0100-84012 e-mail: christian.reiss@erstegroup.comRenée Bauer Tel: +43 (0)5 0100-84013 e-mail: renee.bauer@erstegroup.com
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