Bancherul - BANCI / ENGLISH / Erste Group increases net profit by 5.2% to EUR 496.3 million in first half of 2011

Highlights:

- Erste Group posted stable operating income for the first half of 2011:net interest income totalled EUR 2,689.8 million (H1 2010: EUR 2,684.8 million), supported by record quarterly net interest income of EUR 1,394.1 million in Q2 2011. Net commission income of EUR 954.9 million declined only marginally compared with the good performance of EUR 965.0 million in H1 2010. The net trading result improved from EUR 240.0 million to EUR 248.7 million (+3.6% compared to H1 2010).

- Despite rising inflation operating expenses rose by only 1.5% to EUR 1,926.3 million in the first half of 2011. The recorded operating result was EUR 1,967.1 million, down slightly (-1.2%) compared to H1 2010. Reflecting continuing cost discipline, this resulted in a cost/income ratio of 49.5% (H1 2010: 48.8%).

- Risk costs declined by 13.3% from EUR 1,084.2 million (167 basis points of average customer loans) in H1 2010 to EUR 940.0 million, or 141 bps, in the first half of 2011. While credit quality improved significantly in the Czech Republic, Slovakia and Austria, it continued to be under pressure in markets with slower economic recovery like Hungary and Romania. The NPL ratio in relation to customer loans increased to 7.9% at the end of the first half of 2011 (at 31 December 2010: 7.6%). The NPL coverage ratio improved to 60.6%, compared to 60.0% at year-end 2010.

- Net profit after minorities0F[1] rose to EUR 496.3 million for the first half of 2011. That was up 5.2% year on year, mainly due to the solid operating result and lower risk costs. The bottom line was burdened by additional charges of EUR 95.6 million (pre-tax) for banking taxes in Austria and Hungary.

- Total assets were up by 4.0% from EUR 205.9 billion to EUR 214.2 billion. The loan-to-deposit ratio improved from 113.4% at 31 December 2010 to 111.0% at 30 June 2011. While customer deposits continued to increase (+3.2% to EUR 120.8 billion), loan demand remained subdued. Deposits developed particularly well in Austria and in the Czech Republic, while loan business performed best in Slovakia.

- Erste Group’s shareholders’ equity[2] increased to EUR 13.9 billion (year-end 2010: EUR 13.6 billion), and core tier 1 capital to EUR 11.4 billion (year-end 2010: EUR 11.0 billion). As loan growth picked up only slowly, risk-weighted assets remained almost flat at EUR 119.7 billion compared to year-end 2010. Prior to the inclusion of retained earnings, this resulted in a tier 1 ratio (total risk) of 10.5%, compared to 10.2% at year-end 2010, and a core tier 1 ratio (total risk) of 9.5% (year-end 2010: 9.2%).

“In the second quarter of 2011, Erste Group built upon its good start to the financial year. The operating result increased by 6.3% quarter on quarter on the back of record net interest income and a stable cost base,” said Andreas Treichl, CEO of Erste Group Bank AG, at the presentation of the first half 2011 results. “Market volatility connected to the Greek sovereign debt crisis and the progressing macroeconomic recovery in Central and Eastern Europe characterised the second quarter’s business environment. While some of our markets, namely the Czech Republic, Slovakia and Austria, performed very well, banking markets in Hungary and Romania were still showing weak growth patterns”, Treichl added. “Overall, the results of the second quarter confirmed Erste Group’s strong ability to generate capital despite a banking tax burden that is extraordinarily high by international comparison,” Treichl concluded.

[1] The term “net profit after minorities” corresponds to the term “net profit attributable to owners of the parent”.

[2] The term “shareholders’ equity” corresponds to the term “total equity attributable to owners of the parent”.