ERSTE & STEIERMÄRKISCHE BANK d.d. Investor presentation. Zagreb, October 9th, 2018

Transcription

1 ERSTE & STEIERMÄRKISCHE BANK d.d. Investor presentation Zagreb, October 9th, 2018

2 Agenda 1. Erste Bank About us 2. Macroeconomic Update 3. Business Overview 4. Indicative Terms of Bonds 5. Appendix 2

3 Erste Group at a Glance Erste Group Footprint branches London New York Hong Kong Germany Czech Republic # 1 Customers: 4.7m Employees: 10,171 Branches: 510 Slovakia # 1 Customers: 2.2m Employees: 4,250 Branches: 270 Key financials 1H 2018 Total assets Net profit EUR 230bn EUR 774mn Czech Republik Austria Croatia Slovakia Hungary Romania Hungary # 3 Customers: 0.9m Employees: 3,047 Branches: 115 Romania # 1 NPL coverage 72,0% NPL ratio 3,6% CET 1 ratio* 12,5% Total capital ratio* 17,3% Serbia Customers: 3.4m Employees: 7,265 Loan/deposit ratio 92,3% Branches: 508 Leverage ratio 6,4% Austria # 1 Customers: 3.7m Employees: 16,283 Direct presence Branches: 905 Indirect presence # possition on the market based on asset size Croatia # 3 Customers: 1,2m Employees: 3,452 Branches: 153 Serbia # 10 Customers: 0.4m Employees: 1,069 Branches: 85 Credit rating** * Basel 3, fully-loaded ** S&P / Moody s / Fitch A (positive) / A2 (positive) / A- (stable) 3

4 ERSTE&STEIERMÄRKISCHE BANK d.d. - Introduction - Member of Erste Group one of the leading FIs in eastern part of EU - Primary focus on retail clients and SMEs - 3rd Bank in Croatia in terms of assets (14.53% of market share as of June 2018) - More than clients branches - 13 commercial, 8 entrepreneurial and 9 profit centres - More than employees (The whole Group in Croatia more than 3.500) AWARDS - #2 Employer Partner for EBRD Award for the best Bank in Croatia for TFP programme for The Banker and PWM the best private banking services in Croatia for The winner of the Gold Kuna for the most successful Bank in 2005, 2006, 2008, 2010, 2011 and

5 Key events since formation 2003 Acquisition of Riječka banka d.d Formation of ERSTE & STEIERMARKISCHE BANK d.d. through merger of Bjelovarska, Trgovačka and Čakovečka banks 2018 Integration of Erste Factoring into the Bank 2011 Acquisition of shares in Erste Card Club d.d Acquisition of 100% equity stake in Opportunity bank AD Podgorica (now Erste bank AD Podgorica) 5

6 Ownership structure and group members 100% Erste nekretnine d.o.o. 100% Erste bank AD Podgorica Erste Group Bank AG 59.02% 100% Erste Card Club d.o.o. ERSTE & STEIERMARKISCHE BANK 75% Erste factoring d.o.o. Steiermärkische Bank und Sparkassen AG 40.98% 50% Erste&Steiermärkische S-leasing d.o.o. 100% Izbor nekretnina d.o.o. 80% Erste Group IT HR d.o.o. 6

7 Agenda 1. Erste Bank About us 2. Macroeconomic Update 3. Business Overview 4. Indicative Terms of Bonds 5. Appendix 7

8 4% 3% 2% 1% 0% -1% 8% 6% 4% 2% 0% -2% -4% Macroeconomic developments Stable mid-term growth prospects, with focus on domestic demand Real GDP growth Components of GDP 3,5% 2,3% 2,9% 2,8% 2,7% 3,8% 6,5% 3,4% 3,6% 3,8% 3,6% 4,9% 2,9% 6,0% 1,0% -0,1% e 2019e -1,6% -2,8% e 2019e Private consumption growth Investments GDP growth shifted into higher gear in 2Q18 and landed at 2.9% y/y vs. 2.5% seen in 1Q18 Detailed structure revealed supportive domestic demand, where both private consumption and investment (3.6% y/y and 3.1% y/y, as follows) kept similar growth pattern as seen in 1Q18. On the other hand, positive surprise came from the external demand side, where stronger exports performance (5.6% y/y) outpaced imports increase (4.7% y/y), thus resulting in marginally positive net exports contribution to the 2Q18 GDP As far as the outlook goes, we see the headline figure remaining supported by sound domestic demand profile going into 2H18, on both private consumption and investments side Net exports contribution is seen, despite positive 2Q18 performance, remaining on FY18 scale overall in modest red amid normalization of growth rates in tourism and more pronounced domestic-demand driven imports pressures. Bottom line, we confirm our FY18 forecast at 2.8% (with risks looking broadly balanced), followed by similar growth performance in next year Source: Croatian Bureau of Statistics, Erste Group Research 8

9 20% 16% 12% 8% 4% 0% -4% 100% 80% 60% 40% 20% 0% -20% Macroeconomic developments Fiscal position expected to remain balanced, with public debt further declining Unemployment and inflation Public debt and general government deficit 17,3% 16,3% 13,1% 11,3% 9,6% 8,7% 84,0% 83,8% 80,6% 78,0% 74,4% 71,4% 1,1% 1,7% 1,8% 0,8% 0,0% -0,2% -0,5% -1,1% -5,1% -3,3% -0,9% -0,5% e 2019e e 2019e Unemployment rate (%) Inflation (%) Public debt (% of GDP) General government deficit (% of GDP) Labor market continues to reflect positive economic trends as unemployment rate is anticipated to move into the single-digit region, while wage growth approached mid-single digit region Though inflation moved in a tight band at the beginning of the 2018, recent months bought more pronounced acceleration as CPI moved above 2% mark, given stronger oil price dynamics we see inflation remaining at close levels also in remainder of the year, with average FY18 seen at 1.7% mark, followed by similar CPI footprint also during 2019 Following 2017 budget surplus of 0.8% of GDP and additional drop in the public debt trajectory, fiscal developments should remain on encouraging track, with 2018 expect to bring balanced budget and continued reduction of public debt towards 75% of GDP. Short-term downside risks are dominantly related to uncertainty over shipyard-related guarantees (negative one-off up to 1.5% of GDP) Improved outlook continued to positively reflect on the rating profile as both Fitch and S&P upgraded the outlook to positive in 2H18, hence increasing the likelihood that Croatia could receive an upgrade to IGR in 2019 Source: Croatian Bureau of Statistics, Erste Group Research 9

10 Agenda 1. Erste Bank About us 2. Macroeconomic Update 3. Business Overview 4. Indicative Terms of Bonds 5. Appendix 10

11 ,00% 80,00% 70,00% 60,00% 50,00% 40,00% 30,00% 20,00% Positive trends in economy affect loan activity Total assets Loans vs. deposits, L/D ratio 56,1 57,2 58,3 83% 80% 81% 44,8 42,0 43,8 34,9 35,1 36, H 2018 Total assets (HRK bn) In 2017 total assets increased by 1.9% y/y, compared to the previous year. The largest contributor to this assets growth in 2017 was the increase of highly liquid assets of HRK 1bn. The excess liquidity is directed towards cash and deposits, which increased by 11.9% y/y and securities that grew by 8.1% y/y compared to 2016, while in the same period loans to financial institutions decreased by 15.4% y/y) In 2018 growth is based on loan activity more details on slide H 2018 Loans to customers (HRK bn) Deposits from customers (HRK bn)* L/D ratio (%) *Bank deposits included *uključuje depozite banaka Loans to customers increased by 0.4% y/y in 2017 based on the increase of loans to corporate and retail segments. The increase in these segments more than compensated significant repayments of loans to the public sector Deposits in 2017 grew by 4.3% y/y compared to with main contributors being retail and corporate segments. The trend of growth in the volume of demand deposits vs. the decrease in the volume of term deposits is notable Loan growth is backed by appropriate growth of deposit base thereby maintaining L/D ratio at adequate level Source: audited non-consolidated financial reports for 2016 and 2017 and non-audited non-consolidated financial reports for 1H 2018 (GFI-KI) 11

12 Pronounced growth of loans volume in 1H 2018 Change of assets structure in 1H 2018 (HRK mn) Change of funding structure in 1H 2018 (HRK mn) /12/17 Cash Loans to fin. inst. Securities & deriv. Loans Other 30/06/18 31/12/17 Loans Deposits Securities issued Subord. Instr. Other Equity 30/06/18 In the first half of 2018 the loan portfolio grew by HRK 1.15 bn. Although the deleveraging of the public sector continued in 2018, the previously mentioned increase in loans to corporate and retail sectors more than compensated for this Highly liquid assets optimization continued in 2018, whereby the spill-over from loans to financial institutions in favor of more profitable securities and loans to clients is notable The deposits growth of HRK 1b was backed by deposits from corporate, retail as well as public sector whereby demand deposits keep increasing further vis-a-vis term deposits that keep decreasing further The growth in equity of HRK 323 mn was based mainly on the profit realized in 1H 2018 Source: audited non-consolidated financial reports for 2016 and 2017 and non-audited non-consolidated financial reports for 1H 2018 (GFI-KI) 12

13 ,00% 18,00% 16,00% 14,00% 12,00% 10,00% 8,00% 6,00% 4,00% 2,00% 0,00% % 14% 12% 10% 8% 6% 4% 2% 0% Stable market position with continuous market share growth Loans volume grows both on corporate and retail side Gross loans to corporate and market share Gross loans to retail and market share 14,62% 16,68% 17,64% 13,33% 13,63% 13,89% 12,38 13,91 15,00 15,6 16,17 16, H H 2018 Corporate loans - ESB (HRK bn) Corporate loans - ESB market share (%) The whole market of loans to corporate was in 2017 under pressure due to the sale of non performing loan portfolios. Hence,the gross loans to corporate decreased by 1.5% y/y compared to the year before, in the Croatian market. ESB recorded an increase of the corporate loan segment of 12.4%, while continuously increasing its market share In 1H 2018 positive macroeconomic developments particularly affected corporate loans growth. The whole market grew by 1.9% compared to the 2017YE figures, while ESB loans to corporate grew by 7.8% in the same period, strong enough to more than compensate public sector deleveraging (trend noticeable in whole banking sector) Retail loans - ESB (HRK bn) Retail loans - ESB market share (%) In 2016 the retail loan segment was characterized by subdued demand for loans, CHF loans conversion and reduction of NPL portfolio In 2017 new loans growth was achieved mainly in mortgage loans segment which has been partially encouraged by state subsidies ( APN ) In 1H 2018 growth of employment and economic activity intensifiesd the credit activity towards retail customers. In the first six month of 2018 the retail loans segment growth of 4.3% was larger than the growth in the entire 2017 (3.7%) Source: Agregated non-consolidated statistic report of credit institutions wich CNB provides to credit institutions 13

14 % 14% 12% 10% 8% 6% 4% 2% % 13% 11% 9% 7% 5% Growth of demand deposits with increase of ESB mkt. share Retail deposits stable, while growth slightly more pronounced on corporate side Retail deposits and market share Corporate deposits and market share 13,67% 13,71% 13,79% 12,59% 13,50% 14,33% 25,7 26,1 26,36 7,32 8,52 8, H H 2018 Retail deposits - ESB (HRK bn) Retail deposits - ESB market share (%) In the period shown, the market is characterized by continuous deposit base growth both on retail and corporate sides. As previously mentioned there is a trend of deposit base transformation from term deposits to demand deposits due to continuous drop in interest rates ESB market share in respect to retail deposits is on a mild upward swing, given the fact that the Croatian market of retail deposits is growing slower than that of the corporate deposits market. Nevertheless, in this category, ESB has also slightly outperformed the total market Corporate deposits - ESB (HRK bn) Corporate deposits - ESB market share (%) The current low interest rate development could encourage clients to direct excess funds into different types of investments (e.g. investment funds). These trends are noticeable, but not to such an extent that it could result in significant deposit base drop, neither in retail nor in corporate clients segment The total amount of corporate deposits of the banking sector were HRK bn in 2017, which is an increase by 8.5% y/y compared to the year before. EBS had outperformed the market with its corporate deposits growth reaching 16.4% in 2017, which resulted with ESB s market share growth Source: Agregated non-consolidated statistic report of credit institutions wich CNB provides to credit institutions 14

15 18% 17% 16% 15% 14% 13% 12% 11% 10% 9% 8% 67% 65% 63% 61% 59% 57% 55% NPL share below market average NPL share (Bank vs. Sector) NPL coverage (Bank vs. Sector) 16,65% 14,88% 13,80% Share of NPL - ESB Share of NPL - SECTOR NPL coverage ratio - ESB NPL coverage ratio - SECTOR 63,70% 61,60% 64,60% 61,50% 65,30% 10,38% 11,35% 11,19% 9,96% 8,75% 58,20% 56,90% 59,70% H H 2018 ESB is outperforming the market average in terms of loan portfolio quality and NPL coverage The downward path of NPL share in ESB started earlier than in the banking sector in Croatia due to earlier initiated activities towards NPL reduction. At the same time NPL coverage is gradually and consistently growing to satisfactory levels During 2017 the NPL share did not significantly change compared to 2016 since the one-off effect of developments linked to Agrokor and its related suppliers was balanced with better collection of NPLs as well as slower pace of other loans inflow into NPL status. In parallel, the sector recognizes pronounced decrease of NPL share, primarily due to activities linked to sale of NPL portfolio, whereby the market is lagging behind ESB During 1H 2018 the trend of improved credit portfolio that was initiated in 2017 continues Source: Statistical reports of CNB (Credit quality per sectors, Credit quality per currencies) and internal data of ESB 15

16 0,9 0,8 0,7 0,6 0,5 0,4 0,3 0,2 14% 12% 10% 8% 6% 4% 2% 0% % 45% 40% 35% 30% 25% 20% Positive operating result trend highlighted in 1H 2018 Net profit and ROE 13,8% Operative P&L, Cost Income ratio 9,7% 9,4% 44% 46% 45% 0,63 0,65 0,51 2,28 2,33 1 1,06 1,18 0, H 2018 Net profit (HRK bn) ROE (%) With stable operating result, ROE is growing in 1H2018 due to lower impairments and provisions for losses Impairments and provisions for losses decreased in the first half of 2018 by HRK 191 mn vs. HRK 196 mn on June 30 of the previous year and amount to HRK 5 mn on June 30, H 2018 Operating income (HRK mn) Cost/income ratio (%) Operating expenses (HRK mn) Operating revenues are growing backed by intensified lending activities and interest cost optimization, despite the constant decreasing of interest rates on loans to customers. In 2017 net interest income increased by 4.7% y/y compared to the year before. The positive trends continued in 2018 as well. In the first half, net interest income grew by 3.9% compared to the first half of Net fees and commission income increased as well. In 2017 they grew by 8.5% y/y compared to 2017 and in 1H % compared to the 1H of Cost / Income ratio is demonstrating stability in the period observed Source: audited non-consolidated financial reports for 2016 and 2017 and non-audited non-consolidated financial reports for 1H 2018 (GFI-KI) 16

17 3,5% 3,0% 2,5% 2,0% 1,5% 2,0% 1,5% 1,0% 0,5% 0,0% Stable net interest margin throughout the period. Net interest margin (%) Risk cost (impairment and provision for losses / avegare loans to customers) 3,0% 3,1% 3,2% 1,4% 1,4% 0,0% H H 2018 The increase in net interest margin has been achieved by interest costs optimization and growth in the volume of loans to clients, despite the continuously downward pressures on active interest rates The increase of net interest margin is the result of the decrease of the average interest rate on total deposits, that is achieved to a greater extent than the decrease of average interest rates on loans The decrease in risk cost in 1H2018 is the result of better loan portfolio quality due to better payment discipline and decrease of NPL share in the portfolio Source: audited non-consolidated financial reports for 2016 and 2017 and non-audited non-consolidated financial reports for 1H 2018 (GFI-KI) 17

18 % 20% 15% 10% 5% 0% 25% 20% 15% 10% 5% 0% 14,00 12,00 10,00 8,00 6,00 4,00 2,00 0,00 14,00 12,00 10,00 8,00 6,00 4,00 2,00 0,00 25,0% 20,0% 15,0% 10,0% 5,0% 0,0% 25,0% 20,0% 15,0% 10,0% 5,0% 0,0% Emphasis on maintenance of adequate capital level CET 1 capital - ESB Regulatory capital - ESB 18,0% 18,8% 17,0% 21,6% 22,4% 19,9% 10% 13,5% 6,11 6,54 6,81 7,35 7,77 7,95 YE 2016 YE 2017 HY 2018* CET1 (HRK bn) CET 1, % CET1 Pillar 1 regulatory minimum,% YE 2016 YE 2017 HY 2018* Regulatory capital (HRK bn) Total capital ratio, % Pillar 1 regulatory minimum,% CET 1 capital ESB group Regulatory capital ESB group 15,6% 16,6% 15,3% 13,5% 15,6% 16,6% 17,7% 10% 6,72 7,14 7,35 7,94 8,36 8,49 YE 2016 YE 2017 CET1 (HRK bn) HY 2018* CET 1, % CET1 Pillar 1 regulatory minimum,% YE 2016 YE 2017 HY 2018* Regulatory capital (HRK bn) Total capital ratio, % Pillar 1 regulatory minimum,% Source: internal data of ESB * HY 2018 profit not included in regulatory capital, while write-offs are included ** Pillar 1 regulatoy minimum includes combined protection level of capital, while it doesn t include SREP add-on 18

19 Agenda 1. Erste Bank About us 2. Macroeconomic Update 3. Business Overview 4. Indicative Terms of Bonds 5. Appendix 19

20 Indicative terms & conditions of planned transaction Issuer Instrument Offer Principal repayment ERSTE & STEIERMÄRKISCHE BANK d.d. Unsubordinated and unsecured bond, sixth level of higher priority in accordance to article 274 of Credit institutions law Exclusively to professional investors and eligible counterparties Bullet, after 5 years from issue date Nominal size and currency Up to HRK ,00 Denomination Coupon Reference yield Margin Listing Settlement Law ,00 HRK Fixed, semi-annual payment Bid yied of RHMF-O-23BA bond [ ] bps Official Market of ZSE CCDC Law of Republic of Croatia Expected timing October Subscription period 1 day 20

21 Agenda 1. Erste Bank About us 2. Macroeconomic Update 3. Business Overview 4. Indicative Terms of Bonds 5. Appendix 21

22 Erste bank non-consolidated P&L ESB HRK mn Interest income Interest expense Net interest income ( ) Fees and comissions income Fees and comissions expense Net fees and comissions income ( ) Gains/ losses from trading activities Gains / losses from assets which are not traded, but are designated at fair value through profit or loss Gains / losses from activities related to assets available for sale Gains from investment in subsidaries, associates and joint ventures Income from other equity instruments Gains / losses from foreign exchange Other income Other expenses General administrative expenses and amortization Profit (loss) from operations before impairment and provisions for losses ( do ) Impairment and provisions for losses PROFIT / LOSS BEFORE TAXES ( ) INCOME TAX EXPENSE PROFIT / LOSS FOR THE PERIOD ( )

23 Erste bank non-consolidated assets ESB Bank HRK mn ASSETS 1. Cash and deposits with CNB Deposits with banking institutions Ministry of Finance Treasury bills and CNB Treasury bills Securities and other financial instruments held for trading Securities and other financial instruments held for sale Securities and other financial instruments held to maturity Derivative financial assets Loans to financial institutions Loans to other customers Investments in subsidiaries, associates and joint ventures Foreclosed assets Tangible assets(minus amortization) Interest, fee and other assets A) TOTAL ASSETS ( do 016)

24 Erste bank non-consolidated liabilities ESB Bank HRK mn LIABILITIES 1. Loans from financial institutions ( ) Deposits Other loans Derivate financial liabilities and other traded financial liabilities Issued debt securities Issued subordinated instruments Interest, fee and other liabilities B) TOTAL LIABILITIES ( ) EQUITY 1. Share capital Profit (loss) for the current year Retained earnings (loss) Legal reserves Statutory and other capital reserves Unrealised gain (loss) fon value adjustment of available-for-sale financial assets C) TOTAL EQUITY (036 do 042) D) TOTAL LIABILITIES AND EQUITY ( )

25 Erste bank consolidated P&L ESB Group HRK mn Interest income Interest expense Net interest income ( ) Fees and comissions income Fees and comissions expense Net fees and comissions income ( ) Gains/ losses from trading activities Gains / losses from assets which are not traded, but are designated at fair value through profit or loss Gains / losses from activities related to assets available for sale Gains from investment in subsidaries, associates and joint ventures Income from other equity instruments Gains / losses from foreign exchange Other income Other expenses General administrative expenses and amortization Profit (loss) from operations before impairment and provisions for losses ( do ) Impairment and provisions for losses PROFIT / LOSS BEFORE TAXES ( ) INCOME TAX EXPENSE PROFIT / LOSS FOR THE PERIOD ( )

26 Erste bank consolidated assets ESB Group HRK mn ASSETS 1. Cash and deposits with CNB Deposits with banking institutions Ministry of Finance Treasury bills and CNB Treasury bills Securities and other financial instruments held for trading Securities and other financial instruments held for sale Securities and other financial instruments held to maturity Derivative financial assets Loans to financial institutions Loans to other customers Investments in subsidiaries, associates and joint ventures Foreclosed assets Tangible assets (minus amortization) Interest, fee and other assets A) TOTAL ASSETS ( do 016)

27 Erste bank consolidated liabilities ESB Group HRK mn LIABILITIES 1. Loans from financial institutions ( ) Deposits Other loans Derivative financial liabilities and other traded financial liabilities Issued debt securities Issued subordinated instruments Interest, fee and other liabilities B) TOTAL LIABILITIES ( ) EQUITY 1. Share capital Profit (loss) for the current year Retained earnings (loss) Legal reserves Statutory and other capital reserves Unrealised gain (loss) on value adjustment of available-for-sale financial assets C) TOTAL EQUITY (036 do 042) D) TOTAL LIABILITIES AND EQUITY ( )

28 Formulas for calculation of alternative performance measures CIR ratio, % Cost income ratio (Operating expenditures (bullet 19. of P&L) / Operating income (sum of bullets 3., 6., 8., 11., 14., 15., 16. in P&L)) ROE, % Return on equity (profit/loss for the period (bullet 24. of P&L) / average capital and reserves (average of bullet C of liabilities for the period observed and end of the year before) NIM, % Net interest margin (net interest income (bullet 3. of P&L) / average interest bearing assets (average of bullets 2., 3., 5., 6., 9. i 10. of assets for the period observed and end of the year before) Cost of risk, % L/D ratio, % Impairment and provisions for losses (bullet 21. of P&L) / weighted loans to other customers - net (average of bullet 10. of assets for the period observed and the period before) Loan to deposit ratio (loans to other customers (bullet 10. of assets) / deposits (bullet 2. of liabilities) 28

29 Disclaimer 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&STEIERMÄRKISCHE BANK, 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 OR DEBT SECURITIES 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. 29