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Edited Transcript of EBS.VA earnings conference call or presentation 28-Feb-20 8:00am GMT

Vienna Mar 24, 2020 (Thomson StreetEvents) — Edited Transcript of Erste Group Bank AG earnings conference call or presentation Friday, February 28, 2020 at 8:00:00am GMT

* Anna V. Marshall

Stefan Dörfler, Chief Financial Officer of Erste Group; and Alexandra Habeler-Drabek, Chief Risk Officer of Erste Group. They will highlight the main achievements in financial terms for the fourth quarter of last year, 2019, and also for the full year 2019, after which they are ready to take your questions.

Before handing over to the CEO, Bernd Spalt, I would like to point you to the disclaimer on Page 2. And with this housekeeping out of the way, Bernd, please take it away.

Thank you very much. Good morning, ladies and gentlemen. Let me start on Page #4, the group income state performance. And let me drive to this — the chart on the right-hand side on the year-on-year development.

The year-on-year development shows a very good business model in very robust CEE economies. So what you see is an 8.7% in operating results performance, so very good revenues, good cost management in this year. A very sort of strong negative result on the other operating result line, which then translates into a net profit of EUR 1.47 billion at the end of the year.

If we go to Q-on-Q chart on the left-hand side, we see the individual development in Q4. Expense side has, as usual, shown some seasonal updrift on the back of IT and marketing and PEREX are going up slightly. We have booked 17 basis points of risk cost in the fourth quarter, which on an annual basis translates into 7 basis points risk cost. So we’re still seeing a very benign risk environment.

And we see the other results are very much impacted by the increase or the doubling of the slowback banking tax. We’ve been announcing that on the Capital Markets Day last year, when we said that the probability that in the context of the increase of the banking tax, an impairment of the goodwill would be necessary as what you’d see. So on the doubling of the banking tax, we have built an impairment of EUR 165 million on the Slovak goodwill and taking it out completely.

If we go on Slide #5, key income data. You see that net interest income has developed strongly over this year. Margins on a year-on-year basis are still under pressure as expected, quarter-on-quarter to show a stabilization. Operating result, as I’ve said, 8.7% up. And cost/income ratio is now down to 59% on a year-on-year basis. Cost of risk, as I said, still very benign on a yearly basis of 7 basis points and the return on tangible equity will be 13.7% on a yearly basis.

Very quickly on the balance sheet. We have a 3.8% increase of our balance sheet, very much driven by our customer business, both on the asset as well as on the liability side. Loans have increased by 7.1%. Deposits have been increased by 6.9%, so this is reflecting a very strong domestic demand situation on the back of very strong local economies, which we will talk about a little later.

Key balance sheet data on Page #7. Loan-to-deposit ratio at a very, very solid and stable 92%. The NPL coverage ratio is now up to 77% and NPL ratio at a record low level of 2.5%, and we don’t see any kind of trend reversal when it comes to balance sheet composition in terms of risk features.

On the liquidity side, you also see a robust and very solid situation on liquidity coverage ratio and the leverage ratio is now at 6.8%.

Let me turn to Page #9, starting with the — discussing the macro situation of our countries. We’ve been covering that on our Capital Markets Day very deeply. And the picture is, of course, unchanged. So what you see is that our region is the most dynamically growing region in the European context, twice as much growth as Eurozone average. A record sort of growth leader here is Hungary with 4.9% in the last year, but also the other countries developed really well on the back of domestic demand.

We see also a record low unemployment rate levels, which is also then translating into somewhat pressure on the PEREX side. And we see also this — that this growth is supported by very resilient household figures of the state. So when it comes to budget deficit numbers and indebtedness numbers, we see still a very robust and positive picture with a notable exception of Romania, of course.

Now let me go to Page #10, interest rates. Most notably in — I mean, of course, in the Eurozone, the interest rate levels are not getting any better. And we don’t expect any kind of trend reversal either, which I think is broadly in line with the consensus. However, in the other economies, we see a much better picture, of course. And I think it was particularly noteworthy that the Czech National Bank has now increased the rates to 2.25% for the ninth step in a row, which, of course, in terms of supporting our core business is very, very positive.

Currencies on Page 11 reflect very strong local economies being stable over time. This has been true for the last years. Hungarian for — is slightly weakening but nothing sort of which we would be too worried about.

If we go to Page #12 and look at the market shares across the region, very stable, very robust. It’s worthwhile mentioning that on the corporate loan side, we are across markets, gaining market share, which I think is something which we also mentioned on the Capital Markets Day and we expect that to continue. Other than that, stability all over the places.

Let me turn to Page #14 on the business performance on the performing loan stock and growth. Here, you see a sort of the reflection of what I said in the beginning, 7.1% loan growth, very much supported by domestic demand. All over the region, we see a very positive picture, which we do not expect to short-term change. So we see, across all the segments, a favorable economic fundamental support of this loan growth going forward.

Same on the deposit side on Page #15. Deposit buildup continues, also over most of the markets and segments. You see a slight reduction on the Czech side, which is not something which is a sort of trend reversal, but rather a momentary reflection of volatile development on the public sector side when it comes to deposits. Other than that, very stable. And deposit inflow continues even on the low interest rate level.

Page #16, net interest income and net interest margin. NII has been increased since year-on-year and also even stronger quarter-on-quarter, which is usually the case from the fourth quarter. We see a stronger increase in NII, which then translated into also a little bit of a better net interest margin. It does not mean that overall, it — we see margin pressure on customer business going away. So the interest rate hike in the Czech Republic, certainly in this context, is a positive, even though at that moment, this doesn’t produce any sort of remarkable positive aspects because we have decided to pass on some of this to the customers’ deposit side. But overall, what you see loan growth translating into NII growth as we have indicated when we talked last.

If you go to Page #17, NIIs and fees sort of are going up. We have indicated that we want to target EUR 2 billion of fee income for the full year 2019. This is where we sort of — what we also have achieved. So I think fee income growth, in line with our strategy and strategic pillars, delivers results and this will continue over the next quarter. So this is something, in terms of revenue streams, you see all revenue streams delivering into an operating income growth.

If we go to Page #18. Costs, as I said, seasonably higher in Q4. But year-on-year, I think, we have shown good cost containment. So in the context overall, probably 5% wage growth, coming in with 2.4% cost process. This is showing that we are really tackling that matter on. So cost seasonally higher in Q4, but coming up with a 59% cost/income ratio, which is also shown on Page #19.

With that, I would like to hand over to Alexandra to cover the risk factors.

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Alexandra Habeler-Drabek, Erste Group Bank AG – Chief Risk Officer & Member of Management Board [3]

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Thank you, Bernd. Good morning, everyone. Risk situation on Page 20. Risk situation remained positive. So with high asset quality still benign risk cost, as already mentioned by Bernd Spalt, decreasing NPLs and increasing coverage.

The Q4 risk costs amount to roughly EUR 80 million, which were mainly driven by parameter updates in the area of the forward-looking indicators. It has a minor impact from the default definition and some coverage increase of existing NPLs. The risk cost for the full year 2019 amount to EUR 39 million. This figure is composed of roughly EUR 100 million net allocations for the on-balance part, which translates into the already mentioned 7 basis points of relative risk costs and minus the EUR 70 million net releases in the off-balance part, we come to the EUR 39 million overall for the full year.

The NPL ratio down to 2.5%, which is not only a record low, as already mentioned, but also considerable improvement from the 2.2% on the year-on-year comparison and from 2.7%, even quarter-on-quarter. NPE ratio is at 1.6%, which compared to year-end 2018 of 2.2% is also a considerable improvement.

Also, the NPL volume in absolute terms decreased further to roughly EUR 4.1 billion, which is a 15% decrease compared to year-end 2018 and still 3.3% decrease compared to the third quarter. The main drivers of the NPL volume decrease are still net recoveries and upgrades. NPL sales do not play a major role. It was roughly EUR 200 million for the full year. The NPL coverage already mentioned amounts to more than 77%. That is an extremely comfortable level.

With this, I hand over to Stefan Dörfler — back to Bernd.

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Bernd Spalt, Erste Group Bank AG – Chairman of the Management Board & CEO [4]

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Thanks, Alexandra. Let me quickly cover the other result on Page #23. As I said, dominated by the goodwill write-down in Slovak Republic. As we have anticipated the banking tax, which have been introduced, was a banking tax which was not limited in time. So we recalculated the expected cash flows and accordingly wrote down the full goodwill of our Slovak participation, which translated into EUR 165 million impairment. We had, on the other side, a EUR 20 million bad will realization on the acquisition of a small Macedonian bank by one of our savings banks. And we have booked EUR 11 million in the — in Romania on the banking tax. So I think other result line has been this year heavily impacted by one-off effect as we see.

Now concluding the business performance on Page #24, but before I hand over to Stefan. If you look at the net profit line, this has been impacted by a positive operating result and negative one-offs. So on a group level, we end the year total by — at EUR 1.47 billion net profit after tax.

With that, I would like to hand over to Stefan, to our CFO, to cover the financial statements.

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Stefan Dörfler, Erste Group Bank AG – CFO & Member of Management Board [5]

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Thank you very much, Bernd. Making reference to the pages 26 and 27, those 2 slides represent very well the healthy business, good business growth that we could achieve throughout the year 2019, healthy in 3 respects. Firstly’s on the basis on how this growth has been funded. You see that the net loans and the customer deposits, both have been growing around about EUR 11 billion year-on-year. And this has been the major part of the balance sheet growth. As already has been mentioned by Alexandra, all that came along with a very healthy risk profile, and equally importantly, we have been able to grow across all the countries and across all the core segments of Erste Group, led particularly by strong growth in Hungary, Slovakia, but also in the savings banks in Austria.

As has been mentioned already, our liquidity situation is very sound. And there has been a good development on LCR side. On Page 28, you’ll find some details with regards to the liquidity buffer, so no big changes there, if any, then, to the debtor. We made use in the year 2019, and here, I’m already on the Page 30, of the very favorable environment for our funding side. And we have been executing both several benchmark transactions. I come to that in a second. And also quite a lot of very successful private placements for our clients in our business throughout the region.

On Page 31, you have a — you find the representation of our maturity profile. Two remarks to our activities in the year 2019 and the year 2020 so far. In the year 2019, we could execute benchmark transactions in all key asset classes, in all the asset classes apart, with the exception of the covered bond area, where we executed 2 transactions. We have executed 1 transaction, EUR 500 million each, which was exactly according to our funding plan. In all cases, we could execute at never-before-seen low and tight spread levels. This has been further prolonged in the year 2020. In January, we were executing a EUR 750 million covered bond issuance. And as for sure, you have been following, we executed our 81 transactions in earlier this year on a 3.38% annual coupon. It’s the second lowest coupon ever executed on — in this asset class in Europe and found a very good response in the market, both in terms of quantity and quality of the book.

As promised, we give you the latest update regarding our MPE resolution strategy. As you know, we have direct presence in 7 geographically connected countries. And as the group’s setup suggest a multiple point of entry resolution strategy. The binding MREL target for the Austrian resolution group are expected in the half year — in the first half of this year.

In the meanwhile — and with that, I’m on Page 33. In the meanwhile, we have already been starting to execute our MREL funding plan. We have done so within — for the first transaction in Romania. And in the meanwhile, have also executed a small transaction in Slovakia. And both of those came in, in even better levels than we already had been expecting.

The final page I want to talk about, and very importantly, of course, is Page 34, where you see all the details with regards to our common equity Tier 1 position. On a fully loaded — Basel III fully loaded level, we are at 13.7%, phased in 13.8% by the end of the year 2019. For the year 2020, as the group does not expect any changes with regards to expected minimum requirements, the current minimum requirements have been confirmed already by the regulator based on an SREP decision. And the only small change refers to 5 basis points lower-than-expected counter-cyclic buffer, starting from July 2020. These results in the clear decision of the management that our common equity Tier 1 ratio target remains unchanged at the level of 13.5%.

And with that, I hand it back to Bernd Spalt for the outlook.

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Bernd Spalt, Erste Group Bank AG – Chairman of the Management Board & CEO [6]

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Thank you very much. Let me start Page 36 on the key takeaways, and then I get to the outlook.

Key takeaways, as already summarized, up on the back of very strong local economies. We’ve been showing a strong operating results, and as promised, positive jaws for last year. We have improved our cost/income ratio to 59%. Our balance sheet is still very strong. Asset quality is very, very robust. Capital position have stayed from 13.7%, and we have been delivering a return on tangible equity of 11%. So for the fifth consecutive year, we’ve been showing double-digit return on tangible equity. And profitability generally is very robust. On the back of that, we propose to the Annual General Assembly next year a dividend per share of EUR 1.5.

So outlook for 2020, we — yes, we expect a slight economic down — deceleration, but still the economies will be growing above European average. Domestic demand will drive that. We still have the ambition, as indicated on our Capital Markets Day, to show positive jaws, with — which is hard, but still our target for this year.

Net loan growth will be mid-single digit as we see it in all of our economies. And we will continue to accumulate capital for our business, be capital accretive, which will support our CET1 ratio going forward. We still target, of course, a return on tangible equity of double digit going forward.

And with that, I would like to conclude the presentation and hand back for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will now take our first question from Gabor Kemeny from Autonomous.

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Gabor Zoltan Kemeny, Autonomous Research LLP – Research Analyst [2]

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I have a couple of questions. Firstly, on jaws. You mentioned that you aspire to positive jaws in 2020. Since you outlined this guidance, we had a short-term interest rate hikes in Czechia and in Hungary. So what further developments would make you more confident that you can deliver positive jaws? And what has prevented you from making this an explicit guidance so far?

And then secondly, on the recent macro developments, early days probably, but can you give us a sense of how you think about the potential impact from the coronavirus at this stage? I think at the CMD, you gave us your exposures to manufacturing and trade. Are these the segments, which you would be more focused on? And perhaps you could give us a — an idea about your exposure to the Chinese supply chains.

And just finally, what do you think is the likelihood that in — even in the absence of [ultra] and corporate defaults, we could get an uptick in your provisioning in the first quarter or the coming quarters because of more negative macro parameters feeding through to your forward-looking provision models?

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Stefan Dörfler, Erste Group Bank AG – CFO & Member of Management Board [3]

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Thanks for the questions. Gabor, I’ll take the first one with regards to the positive jaws and as you rightly put it, ambition. There are 3 very simple reasons, and I exclude the corona discussion from that. Why we are hesitant to name the positive jaws, the target: number one, the very, very good result in 2019, which simply on operating result basis, it sets a very high level; secondly, of course, the interest rate environment, which is still, and in particular in the Euro area, a significant challenge to all banks operating in this Eurozone; and thirdly, while as was mentioned in our presentation already, we have been very successful in containing the upward drift on wage inflation, we have to monitor. And I’m sure you saw it, the way the inflationary tendencies in some of our core CEE countries, which, of course, limit our ability there to cut down costs or reduce after sale. Though that’s on the one hand. On the other hand, what makes us very optimistic is that we see a very good and very well developing fee business. We’ve been starting off very well in January. And we are very optimistic that we can grow the business based on our strategic goals as envisaged in — on NII. We clearly expect a growth based, again, on volume growth. And of course, the interest rate environment, at least so far, in the CEE countries has been supportive. So overall, we exactly stick to what we have been communicating at the Capital Markets Day. We set ourselves the target to grow the operating result, and we have the ambition to deliver positive jaws. That’s where we stand.

And with that, for the corona question, I turn to Bernd.

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Bernd Spalt, Erste Group Bank AG – Chairman of the Management Board & CEO [4]

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Thank you very much. On the corona sort of virus, I think it’s very early days, and there is no degree of certainty where we can predict and which kind of industries would be affected. However, clearly, there will be companies which have supply chain logics, which will be impacted and which will then also have a negative impact on EBITDA and cash flows. We’re talking individually to the large corporate customers, where we understand the exposure of also infectious or affected regions. So there is no sector-specific, I think, approach. It’s rather a sort of a business-logic approach, which drives the potential affection. Overall, we think our economies themselves are very resilient and sort of very robust. And of course, it’s very early days to give an overall interpretation on a macroeconomic level.

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Alexandra Habeler-Drabek, Erste Group Bank AG – Chief Risk Officer & Member of Management Board [5]

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There was one last question, Gabor, or — yes, let’s just finish this one. Adding on this, what Bernd Spalt just said, we stick to the risk-cost guidance for 2020 of maximum 20 basis points. And we currently do not expect a noticeable uptick in provisioning. I already mentioned that before that already in Q4, of course, we have implemented the new parameters in the SLI. So we see the impact of the SLIs. What makes me confident that the hike will not be strong is that we still see very sound recoveries on our NPL portfolio and on the written-off stock, which is offsetting these impacts on the portfolio loan loss provisions.

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Operator [6]

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We will now take our next question from Andrea Vercellone from Exane.

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Andrea Vercellone, Exane BNP Paribas, Research Division – European Banks Analyst [7]

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Just a question or a series of questions on capital. You got several model change approved in Q4, which led to lower RWAs as you had been guided for. Is there any more model changes in the pipeline for 2020 that still need validation? Or you’re done? And do you still expect further benefits from that when they come through, if there’s any?

Still related to RWAs. You have been having quite good positive tailwinds due to positive rating migrations over the past 1 or 2 years. You just mentioned that you see no problems with asset quality, at least in the immediate future. So shall we expect tailwinds on that front as well in 2020?

And finally, vis-à-vis your capital target. Are you already in a position to have a view as to whether you will fund part of the pillar to a requirement with hybrid capital? Or you remain on the view that you’ll continue to fund it with common equity Tier 1?

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Alexandra Habeler-Drabek, Erste Group Bank AG – Chief Risk Officer & Member of Management Board [8]

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So I will start with the model changes. Currently, we have already out 2 models for approval. The one is the [SL] model where we expect the approval on short term and where we expect some relief on the capital add-on that we are having.

The second one which is out is the HD model, where we would not expect a final approval for 2020 and there is no impact. And also on the PCR IRB, we would not expect any impact this year. So we will file end of March and, yes, then on-site approval process, which takes long.

Second question on the rating migrations. Also in the last quarter, despite of the — not overall so-super-friendly economic environment, we have not seen a downward shift of rating migrations. To be very realistic, do I expect tailwinds also going forward? No, but also no major headwinds. So we are expected our solid asset quality will remain at least what can be said as of today.

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Stefan Dörfler, Erste Group Bank AG – CFO & Member of Management Board [9]

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Andrea, I will take the question regarding capital impact and then of the Pillar 2 requirements. So I reiterate what I said already in the presentation. For 2020, there is absolutely no change from the regulatory front, not only to be expected, but this is firmly communicated and based on the asset decision.

However, yes, for 2021 and given the communication by the ECB for the new Article 104a of the CRD V, concerning the split of Pillar 2 requirements, we would expect a certain corresponding reduction of Erste Group’s common equity Tier 1 minimum requirements. However, and I’m sure you remember the discussions that we had in Q4 around this particular point, the overall CET1 minimum requirements reduction is also subject to the Austrian implementation of the CRD V with regards to additive treatment of [OCII] and the (inaudible). So we currently are slightly optimistic there could — that there could be a certain reduction in the requirements on the Pillar 2 level for 2021. But it’s definitely too early to say what the concrete impact will be. We hope that we can get more clarity on the buffer regime until the middle of this year, so middle of 2020. This is currently the time line that we expect. And we’ll, of course, keep you updated on developments on the regulatory front.

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Operator [10]

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We will now take our next question from Anna Marshall from Goldman Sachs.

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Anna V. Marshall, Goldman Sachs Group Inc., Research Division – Equity Analyst [11]

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To follow-up on the capital topic, also regarding CRD V, what are your expectations regarding the treatment of intangible deduction related to software, whether you expect any positive impact from that?

And my second question is on tax. Could you please provide more color behind the quite low effective tax rate in Q4?

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Bernd Spalt, Erste Group Bank AG – Chairman of the Management Board & CEO [12]

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So I can reply immediately to the tax question. So this is typically a Q4 effect. And based on the planning of 20 — for the full year 2020, we have this, as I regard, relatively limited effect. Other than that, no changes on the principal levels of the tax rate.

With regards to intangible, is it on CRD V? To be very honest, this is rather a minor topic in the context of the overall CRD V discussion. We do not have any estimates on that, in that respect. And we believe that compared to the potential split effect out of the split that I have been referring to before, this should be rather minor.

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Operator [13]

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We will now take our next question from Johannes Thormann from HSBC.

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Johannes Thormann, HSBC, Research Division – Global Head of Exchanges and Analyst [14]

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Johannes Thormann, HSBC. Just one question concerning your risk situation. As you confirmed the cost of risk guidance for 2020, what is needed? And what is needed to happen to bring your cost of risk back to, say, 30 or 50 bps? What deterioration do you need to see in your models, and of course, in the real economy?

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Alexandra Habeler-Drabek, Erste Group Bank AG – Chief Risk Officer & Member of Management Board [15]

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I mean, this is coming back to the coronavirus topic. It’s honestly, no one can seriously assess for the time being what the impact will be. So also answering to this question, what should happen to go up from 30 to 50 bps, this is so much about speculation. And in fact, I cannot comment on this more. I mean, from a purer calculation perspective, you need 3 [big] default slide, but why should this happen? So this is — we stick to the 20 basis points guidance for 2020.

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Operator [16]

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We will now take our next question from Tobias Lukesch from Kepler Cheuvreux.

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Tobias Lukesch, Kepler Cheuvreux, Research Division – Equity Research Analyst [17]

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Three questions from my side as well. Firstly, you mentioned the market share gains in the corporate loan space. Could you a bit — please shed a bit more light on the reason for this? Is it on pricing? Is it on taking higher risk?

And secondly, on the risk cost. I mean, you mentioned the higher NPL coverage ratio, which is up nicely now to 77%, up from 73%. Is the kind of ceiling what you see with regards to collateral, which is also — has to be taken into account when creating the cash buffer? Is there any ceiling, 80%, 90%, something like that?

And lastly, again, on the core Tier 1 ratio development, you had some model effects that you mentioned EUR 3.2 billion, if I’m not mistaken, in RWA around 30 bps. If we net this with the goodwill impact maybe on the capital, you could argue for a [15-bp] positive effect here with regards to the strong loan growth you have of close to 8%. Now you’re guiding, again, for mid-single digit like you did for ’19. Can we expect that you grow capital — equate Tier 1 capital towards the 14%? And do you have a clear target here with regards to 2020?

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Stefan Dörfler, Erste Group Bank AG – CFO & Member of Management Board [18]

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Okay. Let me start with corporate loan market share growth. Where does it come from? It comes from our SME business and large corporates business. The one thing which I can tell you, it’s not because we softened our underwriting standards, rather to the contrary because as sort of discussed last time, we do not think that at a relatively late stage of economic cycle will be the time to build in weaker structures. So we hold up on our underwriting standards, and we gained market share still on SME and on the large corporate side. We’re not sort of intending to get any market shares on the commercial real estate side.

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Alexandra Habeler-Drabek, Erste Group Bank AG – Chief Risk Officer & Member of Management Board [19]

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So the question of the coverage ratio. So first, the NPE coverage is net of collateral. Yes, so this is purely provisions. When it comes to collateral, this would come on top. So adding collateral, we would have the coverage of above 100%.

And of course, we have 2 big haircuts on collateral. But when it comes to — where do we stop the calculating the ceilings, so this not in place. But of course, we are applying our haircuts to the different types of collateral that we have.

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Tobias Lukesch, Kepler Cheuvreux, Research Division – Equity Research Analyst [20]

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And sorry, how much leeway…

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Alexandra Habeler-Drabek, Erste Group Bank AG – Chief Risk Officer & Member of Management Board [21]

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Does that answer you?

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Tobias Lukesch, Kepler Cheuvreux, Research Division – Equity Research Analyst [22]

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Yes. Maybe how much leeway would you have in, let’s say, bringing collateral values down in order to increase the catch collateral?

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Bernd Spalt, Erste Group Bank AG – Chairman of the Management Board & CEO [23]

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Can you ask it again? We didn’t hear this.

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Tobias Lukesch, Kepler Cheuvreux, Research Division – Equity Research Analyst [24]

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Okay. Thank you. All right.

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Operator [25]

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We will now take our next question from Alan Webborn from Societe Generale.

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Alan Ramsey Webborn, Societe Generale Cross Asset Research – Equity Analyst [26]

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I think in your November presentation on the CMD, you talked about capping costs at a low single-digit level in 2020. I mean, you didn’t repeat that specifically in the outlook. But could you just confirm that is what your aspirations are? And — or is there any sort of nuance of change in terms of the cost outlook between then and now? That was the first question.

Second question. I mean, should we be expecting sort of after clearly, a very good margin performance at group level in Q4, that seasonally you will see a slightly weaker NIM in Q1? Just give us an idea of how you think that’s going.

Thirdly, the — was there anything unusual at all in the sort of — in the combination of the trading and fair value results in Q4? I get what you’re saying and you repeated that what you said in the Investor Day about that result being lower in 2020, but just if there was anything particular there.

And then just a couple of points of detail. There seems to be quite a big other operating income result in the savings banks in Q4. Could you tell me what that is? Was there anything specific either in the other Austria impairments or the Romania impairments in Q4? And there also seemed to be a bit of a negative in Croatia in the other operating result, and could you tell me what that is?

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Bernd Spalt, Erste Group Bank AG – Chairman of the Management Board & CEO [27]

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All right. Okay. I will try to answer your questions. Cost first. No change whatsoever to what we’ve been communicating. And implicitly, it has been mentioned with our — of course, with our target on growing the operating result and the ambition to achieve positive jaws. This will not be possible unless we are also successfully delivering what we have been indicating on the cost growth side. So to repeat it in real numbers, we definitely want to land below EUR 4.4 million overall operating expenses or even better. So we will below a growth of EUR 100 million in operating expenses year-on-year ’19 to ’20.

Regards to the margin, you were spot on. Yes, Q1 is to be expected a tick lower there. That’s exactly correctly observed. Regarding the fair value expectation, fair value in trading result, always looking at those 2 lines together. It’s effect that 2019 has been showing a very good result that therefore, we are a little bit cautious in the outlook. Of course, if interest rates develop like the last few days and for well-known reasons, that could also repeat on this particular, the EUR 12 billion of fair value bond portfolio.

However, it’s of course, at this part of the year, much too early to say how this will develop in the course of 2020. Therefore, we took a rather cautious approach there. We don’t expect this to be much better than in 2019. I think that it’s fair to say.

Last but not least, regarding the savings banks area in 2019 Q4, I think it was mentioned, but it was not explicitly, so to say, put in relation to the other operating income. Ohridska Banka was acquired by Steiermaärkische Sparkasse in there. I use this term here a bit will, so to say, in the sense of a positive impact on our income could be booked due to the level at which this bank has been acquired by Steiermärkische Sparkasse and consolidated in the group. I hope this answers these points.

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Alan Ramsey Webborn, Societe Generale Cross Asset Research – Equity Analyst [28]

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Okay. And it was just — and the Croatian — there’s a Croatian other operating result negative in Q4? (inaudible)

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Bernd Spalt, Erste Group Bank AG – Chairman of the Management Board & CEO [29]

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The EUR 10 million?

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Alan Ramsey Webborn, Societe Generale Cross Asset Research – Equity Analyst [30]

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Yes.

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Bernd Spalt, Erste Group Bank AG – Chairman of the Management Board & CEO [31]

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Sorry, I forgot this one. EUR 10 million based on provisioning for the Swiss franc issues in the Croatian market in our portfolio.

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Operator [32]

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We will now take our next question from Stefan Maxian from RCB.

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Stefan Maxian, Raiffeisen CENTROBANK AG, Research Division – MD & Chief Analyst [33]

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Just 2 or 3 questions remaining. One, referring to the corporate center and to the other result in the corporate center. It’s actually like around EUR 240 million, I understand that EUR 165 million of that is the goodwill impairment. But is there anything special in this remaining EUR 75 million negative in there?

Second, just on your NIM development, you just said that in the first quarter, you expect the NIM, again, to tick down slightly. But like going forward, would you assume the NIM to be roughly stable? Or would you expect further pressure there?

And finally, just on a clarification, you have the wording in the presentation of a dividend per share of up to EUR 1.5. Is there any reason why you say up to? Or is the proposal clearly EUR 1.5?

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Stefan Dörfler, Erste Group Bank AG – CFO & Member of Management Board [34]

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Okay. Stefan, I take right away the dividend question because that’s simply a word, I would say, a semantic issue. It goes up to — not up to in the sense of at maximum, but it augment that from last year. So thanks for the — all right. So EUR 1.5 is the proposal of the Board, so the Supervisory Board, respectively, then further on to the general assembly. So no changes there at all.

And regarding the participation, regarding the change in the — our operating income beyond the goodwill write-down of Slovenská sporitelna, there was an overall EUR 45 million participation valuation that is every year. As you know, we need to revalue all the participations and the effect in Q4, was a total of EUR 45 million, which then adds up with the goodwill to the EUR 200 million roundabout effect. Then, Bernd, if you can take the NIM?

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Bernd Spalt, Erste Group Bank AG – Chairman of the Management Board & CEO [35]

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Yes. On the net interest margin, we expect, if interest rate levels do not change, which we think is the base case, we would still expect pressure on the net interest margin side a slight one, so this will sort of certainly continue next couple of quarters.

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Operator [36]

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(Operator Instructions) We will now take our next question from Hadrien De Belle from KBW.

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Hadrien De Belle, Keefe, Bruyette & Woods Limited, Research Division – Analyst [37]

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Just 2 quick question on my side. Sorry if you already spoke about it. But any update on AML in Romania and what could happen there? And second question is, can you talk a little bit about the competitive environment in the Czech market now? Your NII was very strong. And particularly on — with the rate hikes, do you see more migration to term deposits or pressure to pay more for deposits? And how is it reflective on the asset side? And that should be it.

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Alexandra Habeler-Drabek, Erste Group Bank AG – Chief Risk Officer & Member of Management Board [38]

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So I take the AML topic. So as of today and as of now, according to the available information, the National Bank of Romania did not initiate a formal investigation against the bank in relation to possible money laundering. We are expecting requests, but as any — like any request that we received from the authorities in relationship with money laundering, we will treat with utmost care. And we will, of course, provide our entire support to the authorities.

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Bernd Spalt, Erste Group Bank AG – Chairman of the Management Board & CEO [39]

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On the Czech market and the competitive situation there, our Czech Republic continues to be very busy in competitive market. Apart from the large players, almost all of the new banks and alternative providers are there. So, yes, we see high competition.

On deposit side, we have, for the first time after many, many interest rate hikes, has decided to pass on some of the last hike toward — to a part of our deposit — retail depositors. Overall, I would say that this competitive situation will not ease. Still, as you — if you look at the market share side, we’re able to hold up and defend our market shares on all of the segments.

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Operator [40]

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As there are no further questions at this time, I’d like to turn the call back for any additional or closing remarks.

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Bernd Spalt, Erste Group Bank AG – Chairman of the Management Board & CEO [41]

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If there’s no more questions, then thank you very much for taking the time to participate in the call. We will have our Q1 results announced on the 30th of April. Thank you very much, and talk to you then. Bye-bye.

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Operator [42]

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Thank you. That will conclude today’s conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.

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