Erste Group: Preliminary result 2014
P&L 2014 compared with 2013; balance sheet 31 December 2014 compared with 31 December 2013
Net interest income declined to EUR 4,495.2 million (EUR 4,685.0 million), mainly due to the persistently low interest rate environment and FX translation effects. Net fee and commission income increased to EUR 1,869.8 million (EUR 1,806.5 million) on the back of an improved result from securities business and asset management. The net trading and fair value result rose to EUR 242.3 million (EUR 218.8 million). Operating income amounted to EUR 6,877.9 million (-1.7%; EUR 6,995.1 million).
General administrative expenses declined to EUR 3,787.3 million (-2.8%; EUR 3,896.1 million), mainly due to lower personnel expenses on the back of lower average headcount and decreased depreciation and amortisa-tion. This led to an operating result of EUR 3,090.7 million (-0.3%; EUR 3,099.0 million) and an improved cost/income ratio of 55.1% (55.7%).
Net impairment loss on financial assets not measured at fair value through profit or loss went up to EUR 2,159.2 million or 169 basis points of average customer loans (+21.7%; EUR 1,774.4 million or 137 basis points). This rise was attributable in particular to additional risk costs in Romania incurred in connection with the accelerated NPL reduction. The NPL ratio declined substantially to 8.5% (9.6%) on the back of successful NPL sales in Romania. The NPL coverage ratio improved significantly to 68.9% (63.1%).
Other operating result amounted to EUR -1,752.9 million (EUR -1,008.6 million). This was primarily due to the write-down of goodwill in the amount of EUR 475.0 million as well as of brand and customer relationships in Ro-mania of EUR 489.8 million in total. At EUR 256.3 million (EUR 311.0 million) levies on banking activities were again significant: EUR 130.5 million (EUR 166.5 million) in Austria, EUR 31.5 million (EUR 41.2 million) in Slovakia and EUR 94.2 million (EUR 103.4 million) in Hungary - including EUR 47.9 million in banking tax. In addition, the item other operating result included EUR 336.8 million in expenses resulting from the consumer loan law passed by the Hungarian parliament. The net burden of the law and the conversion of the foreign-currency loans was EUR 312.2 million.
Taxes on income rose to EUR 509.4 million due to a negative change in deferred taxes (net) in the amount of EUR 197.0 million. The net result attributable to owners of the parent amounted to EUR -1,442.0 million (EUR 60.3 million).
Total equity (IFRS) declined to EUR 13.4 billion (EUR 14.8 billion). Common equity tier 1 capital (CET 1, Ba-sel 3 phased-in) decreased to EUR 10.6 billion versus EUR 11.2 billion (Basel 2.5). Total risk (risk-weighted assets including credit, market and operational risk, Basel 3 phased-in) increased to EUR 100.6 billion (EUR 97.9 billion). The common equity tier 1 ratio (CET 1, Basel 3 phased-in) stood at 10.6% versus 11.4% (Basel 2.5). The common equity tier 1 ratio (CET 1, Basel 3 final) increased quarter on quarter from 10.5% to 10.6%. The total capital ratio (Basel 3 phased-in) stood at 15.7% versus 16.3% (Basel 2.5).
Total assets amounted to EUR 196.3 billion (EUR 200.1 billion). Loans and advances to customers (net) increased moderately to EUR 120.8 billion (EUR 119.9 billion). The loan-to-deposit ratio stood at 98.6% (98.0%)
Operating environment anticipated to be conducive to credit expansion
Real GDP growth is expected to be between 2% and 3% in all major CEE markets, except Croatia, driven by rising domestic demand. For Austria, a real GDP growth below 1% is forecast.
Return on tangible equity (ROTE) expected at 8-10% in 2015 (YE 14 TE: EUR 8.4 billion)
Operating result is expected to decline in the mid-single digits on the back of lower but sustainable operating results in Hungary (due to FX conversion related effects of lower average volume and the expected reversal of a positive 2014 trading effect in 2015) and Romania (lower unwinding impact) as well as the persistent low interest rate environment.
For 2015, loan growth in the low single digits and a significant decline in risk costs are anticipated. Banking lev-ies are expected to amount to about EUR 360 million in 2015, including contributions to European bank resolu-tion and deposit insurance funds. Related discussions with the Austrian government are still ongoing.
Risks to guidance
Consumer protection initiatives for example potential pre-election CHF legislation in Croatia as well as geopoliti-cal risks (Eastern Ukraine conflict, Greece) could have a negative impact on Erste Group's operating environ-ment.
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