Slovenská sporiteľňa, a.s. Investor Presentation. August 2018

Transcription

1 Slovenská sporiteľňa, a.s. Investor Presentation August 2018

2 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 SLOVENSKÁ SPORITEĽŇA, 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. 2

3 Presentation Topics 1. Erste Group / SLSP at Glance 2. Slovak Republic 3. Slovak Banking Market 4. Slovenská sporiteľňa 5. Covered Bonds Framework 6. Covered Bonds and Cover Pool 7. Additional Information 3

4 Erste Group at a Glance Erste Group footprint Key information as of Mar 18 Czech Republic Slovakia Customers: 4.7m Customers: 2.2m Employees: 10,171 Employees: 4,250 Branches: 510 Branches: 270 Total assets EUR 230bn Net profit EUR 403mn Hungary NPL coverage 72.5% Customers: 0.9m Employees: 3,047 NPL ratio 3.7% Branches: 115 Romania CET 1 ratio* 12.6% Customers: 3.4m Employees: 7,265 Total capital ratio* 17.5% Branches: 508 Loan/deposit ratio 91.5% Direct presence Indirect presence Austria Customers: 3.7m Employees: 16,283 Branches: 905 Croatia Customers : 1.2m Employees : 3,201 Branches: 153 Serbia Customers: 0.4m Employees: 1,069 Branches: 85 Leverage ratio 6.3% Credit ratings** A (positive) / A2 (positive) / A- (stable) * Basel 3, phased-in ** S&P / Moody s / Fitch 4

5 Slovenská sporiteľňa at a Glance Slovak market leader with largest distribution network Established in 1825 and 100% Erste Group ownership since 2011 No 1 in total assets, retail loans, total deposits, number of branches (270) and ATMs (803) in Slovakia The largest commercial bank in Slovakia servicing 2.2 million clients Key information as of Mar 18 Total assets EUR 16.7bn Net profit EUR 40.9mn NPL coverage 79.9% Credit Rating of SLSP Issuer / Deposit Covered Bonds NPL ratio 3.5% CET 1 ratio* 14.7% Total capital ratio* 17.6% Moody s A2 stable Aaa Loan/deposit ratio 94.0% Fitch A+ stable ROE 11.4% CIR 50.2% * Basel 3, phased-in 5

6 Presentation Topics 1. Erste Group / SLSP at Glance 2. Slovak Republic 3. Slovak Banking Market 4. Slovenská sporiteľňa 5. Covered Bonds Framework 6. Covered Bonds and Cover Pool 7. Additional Information 6

7 Slovak Republic at a Glance Territory: Population: 49,035 km² 5.4 million GDP per capita: Approx. 15,500 in 2017 Credit ratings: Capital: A2 (positive outlook) / A+ (stable outlook) / A+ (stable outlook) Bratislava Members of the EU End of the Communist regime WTO membership EU accession referendum ERM-2 entry Euro adoption Slovak Republic founded OECD membership NATO and EU membership Schengen area membership Participation in ESM 7

8 Macroeconomic Development Real GDP growth (%) Components of GDP 2.8% 3.9% 3.3% 3.4% 3.9% 4.2% 19.8% 3.0% 1.4% 2.3% 2.6% 3.7% 3.2% 3.4% 7.0% 2.8% 2.9% 1.7% 1.5% f 2019f Source: Statistical Office, SLSP Research -0.4% -0.8% -0.9% -9.0% -8.3% f 2019f Private consumption growth Fixed capital formation growth Source: Statistical Office, SLSP Research Real GDP growth reached 3.4% in 2017; driven by domestic demand and net exports We expect growth to speed up to 3.9% in 2018 and 4.2% in 2019 Acceleration is expected due to higher investments and exports - linked to new car models produced as well as launch of production in the new Jaguar Land Rover plant towards year-end 2018 Risks to growth are mild and balanced: Brexit, protectionism and geopolitical tensions on the one hand; faster investment and Eurozone growth on the other Real household consumption was the key growth driver in 2017 (+3.7% in 2017, its fastest pace since 2008), benefitting from labour market reinvigoration Investment growth picked up after the weak 2016 performance (itself a correction of the EU-funds driven spur in 2015) as gross fixed capital formation went up by 3.2% last year Growth in 2018 should be driven by domestic (household consumption and investment) as well foreign demand 8

9 Macroeconomic Development (Cont d) Unemployment and inflation (%) Public debt and govt. balance (share of GDP) 3.6% 14.0% 14.2% 13.2% 11.5% 1.4% 9.6% 2.5% 2.5% 1.3% 8.1% 6.9% 6.4% -4.3% 52.2% 54.7% 53.5% 52.3% 51.8% -2.7% -2.7% -2.7% 50.9% -2.2% 49.6% 47.9% -1.0% -1.0% -1.3% -0.1% -0.3% -0.5% f 2019f f 2019f Consumer price inflation (ave) Unemployment rate (eop) Public debt General government balance (reversed axis) Source: Statistical Office, SLSP Research Source: Statistical Office, SLSP Research Labour market improvement supports disposable income of households - deposits and retail loan growth Nominal wage growth sped up to 4.6% in 2017, reflecting tighter labour market as employment growth remains good Unemployment rate fell to 7.7% in 4Q17, lowering the 2017 average to 8.1% and may average 7.2% in 2018 Inflation averaged 1.3% last year, mostly on the back of food and service prices; our 2018 forecast stands at 2.2% Eurostat s spring notification: Slovak fiscal deficit fell by 1.2pp to 1% of GDP in 2017, matching the EU average For 2018, we expect fiscal consolidation to continue, and see the budget deficit at around 1% of GDP (state budget: 0.8% of GDP) higher revenues still being the driver behind the consolidation Government debt decreased to 51% of GDP in 2017 and should decrease further in the years ahead 9

10 Presentation Topics 1. Erste Group / SLSP at Glance 2. Slovak Republic 3. Slovak Banking Market 4. Slovenská sporiteľňa 5. Covered Bonds Framework 6. Covered Bonds and Cover Pool 7. Additional Information 10

11 Outstanding Retail Loans and Debt of Household on Slovak Banking Market Development of retail loans (EUR bn) Retail loans to GDP 60% 50% 40% 30% 20% 10% 50.2% 38.6% 31.6% Dec 14 Dec 15 Dec 16 Dec 17 Mar 18 Housing loans Consumer loans Other 0% Czech Republic Hungary Poland Slovakia Eurozone Source: Source: NBS Housing loans constitute the majority of the retail loans in Slovakia Over last 3 years, average annual growth rates were 14% for housing and 15% for consumer We expect the growth to slowdown mildly in coming years, mainly due to stricter regulations and lower overall demand Source: ECB, SLSP Research Indebtedness of households in Slovakia has recently shown the most dynamic development in Eurozone Currently is the highest among peer countries, nevertheless, still below the Eurozone average 11

12 Outstanding Loans and Deposits on Slovak Banking Market Retail and corporate loans (YoY growth) Retail and corporate deposits (YoY growth) 12.0% 12.4% 0.2% 4.2% 13.5% 12.0% 7.2% 6.6% 12.6% 4.7% 4.3% 1.2% 9.0% 7.1% 8.3% 6.3% 4.5% 4.5% 12.0% Dec 14 Dec 15 Dec 16 Dec 17 Mar 18 Retail loans Corporate loans -0.4% Dec 14 Dec 15 Dec 16 Dec 17 Mar 18 Retail deposits Corporate deposits Source: NBS The pace of retail loans growth remained high at 12% y/y in 2017, slightly accelerated in Q also thanks to one-off effect* Total volume of retail loans was EUR 34.3bn as of March 2018 As of March 2018, housing grew by 12% y/y and growth of consumer loans was 19% y/y due to CFH effect (12% without this effect) The volume of corporate loans increased by 5% y/y and reached EUR 21.5bn in March 2018 Source: NBS The growth of customer deposits continued in Q1 18 (+6% y/y) Growth of retail deposits slowed down somewhat in 2017 Retail deposits grew by 4.5% y/y as of Dec 17(+8.3% y/y in Dec 16), same as in Q Volume of retail deposits was EUR 36.2bn as of March 2018 High growth in sight and savings deposits in retail Corporate deposits increased by 6.3% y/y in 2017, then the growth accelerated to 12% y/y (volume EUR 18.4bn as of March 18) * Portfolio of Consumer Finance Holding (CFH), daughter company of VUB, was included in the bank s portfolio as of January It constituted mainly consumer loans and its total value was around EUR 350m. 12

13 NPL Rates and Profitability of the Sector NPL ratio and NPL coverage Profitability of the sector (EURm / %) 67.8% 70.9% 76.0% 5.5% 5.0% 4.5% 84.7% 96.2% 3.7% 3.7% 7.9% 8.2% 10.0% % 8.4% Dec 14 Dec 15 Dec 16 Dec 17 Mar 18 NPL ratio NPL coverage Q1 18 Net income One-offs ROE Source: NBS Source: NBS Total volume of non-performing loans is on decline in recent years Both retail (despite rapid growth) and corporate contribute positively to this development Loan-to-deposit ratio already reaches 100% Sudden increase in NPL coverage in March 2018 most probably due to IFRS 9 Slovak banks posted net profit of EUR 612m in 2017 Result in 2016 affected by two extraordinary items: Sale of VISA shares Extraordinary dividend received by VUB from its daughter company Consumer Finance Holding In Q1 2018, the net profit reached EUR 170m (+3% y/y) 13

14 Main Players on Slovak Banking Market Customer loan market shares (March 2018) Customer deposit market shares (March 2018) 22.1% 21.5% Total volume: EUR 56.7bn 23.1% Total volume: EUR 56.6bn 16.7% 15.9% 18.0% 17.8% 13.8% 10.2% 10.7% 5.2% 4.3% 4.0% 6.2% 5.5% 4.9% SLSP VUB TATRA CSOB PRIMA PABK PSS Others SLSP VUB TATRA CSOB PABK PRIMA PSS Others Source: Individual financial statements of respective banks, NBS SLSP is the market leader in customer loans In Q1 18, SLSP market share increased by 20bp q/q (mainly thanks to corporate loans) which was the highest among large banks Only two other major banks managed to increase their shares in customer loans VUB (+25bp q/q) and PABK (+9bp q/q) Source: Individual financial statements of respective banks, NBS SLSP remains the number one also in customer deposits SLSP s share in customer deposits increased strongly in Q1 18 (+44bp q/q) and reached 22.8% In total deposits, VUB had the second largest increase (+15bp q/q), followed by CSOB with 9bp q/q; the share of Tatra dropped by 40bp q/q and was overtaken by VUB as #2 14

15 Presentation Topics 1. Erste Group / SLSP at Glance 2. Slovak Republic 3. Slovak Banking Market 4. Slovenská sporiteľňa 5. Covered Bonds Framework 6. Covered Bonds and Cover Pool 7. Additional Information 15

16 Historical Performance of Slovenská sporiteľňa Total assets (EUR m) Net profit (EUR m) CAGR 8.7% ,699 12,969 13,980 14,825 16, Dec 13 Dec 14 Dec 15 Dec 16 Dec Slovenská sporiteľňa remains the long time leader in total asset in Slovak banking sector Customer loans were the main driver of the balance sheet growth Profitability of Slovenská sporiteľňa has been fairly stable over the past years Extraordinary income from sale of VISA shares affected net profit in 2016 Lower operating income and slightly worsened operating expenses were behind the decline in

17 Balance Sheet Performance of Slovenská sporiteľňa YTD total assets reconciliation (EUR m) YTD total liability reconciliation (EUR m) +2.0% 16, ,673 16, , /12/17 Cash Trading, financial assets Loans to banks Net loans Intangibles Other assets 31/03/18 31/12/17 Trading liabilities Bank deposits Customer deposits Debt securities Other liabilities Equity 31/03/18 Customer loans Rapid growth of customer loans continued in Q1 18 (+2.5% YTD) Loans to households has been growing faster (+2% YTD) than loans to non-financial corporations (+0.7% YTD) Financial assets Financial assets down (-1.5% YTD) in Q1 18 also due to IFRS related remeasurement of debt securities previously designated as AFS Total assets grew by 2% YTD in Q1 18 Customer deposits grew strongly in Q1 18 by 4.9% YTD Both households and non-financial corporations contributed positively in Q1 18 Issued debt securities decreased by 8.1% YTD after unusual increase in the last quarter of 2017 Equity decreased by 10% YTD in Q1 18, there was also negative impact of IFRS9 17

18 Balance Sheet Performance of Slovenská sporiteľňa (Cont d) Net customer loans (EUR m) Customer deposits (EUR m) 13.7% 10,566 10,970 11,378 11,720 12, % 11,718 12,114 12,278 12,478 13,087 Mar 17 Jun 17 Sep 17 Dec 17 Mar 18 Mar 17 Jun 17 Sep 17 Dec 17 Mar 18 SLSP customer loans grew by 14% y/y in Q1 18 Only slightly lower pace (13% y/y) was seen in retail loans Rapid growth was supported both by housing loans with 12% y/y increase and consumer loans with 11% y/y growth Corporate & public loans rose even faster (19% y/y) Swift increase in volumes thanks to lending to SME and Large Corporate segments SLSP customer deposits shift up the gear and grew by 12% y/y in Q1 18 Growth of retail deposits was moderate at 6% y/y Current and saving accounts rising in retail Corporate & public deposits soared by 32% y/y in Q1 18 Large Corporate segments contributed the most Net L/D ratio decreased by more than 2pp q/q to 91.8% 18

19 Key Financial Ratios of Slovenská sporiteľňa Cost income ratio Net interest margin Loan/deposit ratio 46.1% 49.7% 50.2% 4.0% 3.7% 3.4% 3.0% 2.8% 91.1% 93.1% 96.8% 94.0% 44.5% 44.3% 87.2% Q Q Q1 18 ROE Risk costs Solvency ratio 14.5% 13.8% 14.0% 10.8% 11.4% 0.7% 0.57% 19.9% 21.8% 21.4% 18.6% 17.6% 0.41% 0.28% 0.2% Q Q Q

20 Operating and Net Results of Slovenská sporiteľňa Operating result development (EUR m) Net result development (EUR m) Q1 16 Q1 17 Q1 18 Operating income Operating expenses Operating result Operating result reached 70m, up by 4.3% q/q, but it was slightly) lower (-3.1% y/y on annual basis On q/q basis, exceptionally high perex at the end of 2017 was behind the increase in Q1 18 On y/y basis, the decrease stems from growing perex (mainly wages and bonuses) Cost-income ratio improved to 50.2% in Q1 18 Cost-income ratio was 49.7% in 2017 Q1 16 Q1 17 Q1 18 In Q1 18, net profit rose by 8.6% q/q, as opex improved visibly In y/y comparison, generally higher operating income and lower risk costs helped to increase net result Return on equity reached 11.4% in Q1 18, up from 10.8 % in 2017 Retail business contributes the most to the net profit in Q (86%) Bank levy contribution at 0.2% in 2018 and going forward (same as in 2017) In Q1 18, SLSP booked 7.3m (27.4m for full year 2017) 20

21 Development of Net Interest Margin of Slovenská sporiteľňa NIM SLSP vs Market Development of NIM in Retail (SLSP) 3.7% 3.1% 3.4% 3.0% 3.0% 2.8% 2.5% 2.5% 4.4% 4.1% 3.7% 3.5% Q1 18 SLSP Market Q1 18 Net interest margin of SLSP is still above market average Increase in interest rates depends on ECB monetary policy decision (expected in 2019 at earliest) Decline in retail NIM to continue, but should decelerate visibly after 2018 Therefore, growing volumes should compensate decline in NII to more extend 21

22 Growth Rates at Slovenská sporiteľňa Loans (YoY growth) Deposits (YoY growth) 35% 16% 15% 20% 13% 13% 12% 24% 9% 26% 11% 13% 7% 6% 0% Dec 15 Dec 16 Dec 17 Mar 18-2% Dec 15 Dec 16 Dec 17 Mar 18 Retail loans Corporate loans Retail deposits Corporate deposits Housing loans will remain the key driver of retail loans growth, although the y/y growth will slow down somewhat at par with market Consumer loans growth rate also slightly down Fast growing corporate loans continued in rapid volume expansion also in Q Retail deposits slowed down in 2017 and although some decrease was seen also in Q1 2018, further significant decrease of growth is not expected Rather volatile corporate deposits soared in Q with 35% y/y increase 22

23 Housing Loans at Slovenská sporiteľňa Net additions and YoY growth 15.1% 16.7% 16.1% 13.8% 15.2% 12.2% 13.5% 12.9% 12.7% 12.3% Development of volumes 27.8% 27.7% 27.7% 27.7% 27.7% 6,273 6,494 6,706 6,881 7, Mar 17 Jun 17 Sep 17 Dec 17 Mar 18 Net additions (SLSP) Net additions (Others) YoY growth (SLSP) YoY growth (Others) Mar 17 Jun 17 Sep 17 Dec 17 Mar 18 Housing loans Market share In housing loans, SLSP had been growing faster than market until the growths converged in Q Market share decreased slightly in last two quarters, after positive development in Q1-Q We do not expect significant impact from the new regulation by NBS* in 2018, but it should affect the housing loans growth in later years * Stricter LTV limits (max 20% of new production with LTV 80%+, 0% with LTV 90%+) and new DTI limit set at 8 (total debt cannot exceed yearly income more than 8 times) with quarterly phasing. 23

24 Presentation Topics 1. Erste Group / SLSP at Glance 2. Slovak Republic 3. Slovak Banking Market 4. Slovenská sporiteľňa 5. Covered Bonds Framework 6. Covered Bonds and Cover Pool 7. Additional Information 24

25 New Covered Bonds Framework Overview Comprehensive reform of existing system valid from January 2018 Implementing key recommendations of EBA Guidelines, draft law prepared with EBRD involvement Key new features Min. over-collateralization of 5%, voluntary OC enabled; Liquidity safeguards (180d liquidity buffer) Stress testing Soft bullet structure (maturity can be extended my max. 12/23m in case of transfer) Enhanced insolvency regime and safeguards envisage orderly transfer of whole portfolio and cover pool Independent Covered Bonds Administrator/Monitor appointed by the NBS Transparency in line with CRR requirements + additional reporting to the NBS and investors 25

26 New Covered Bonds Framework Cover Pool Base Assets 90% of the Cover Pool; Mortgage loans with max. 30y maturity provided to consumers (not legal entities or entrepreneurs); Secured by mortgage over immovable Mortgaged Property: Residential real property located in Slovakia (finished flat, house or other property designated for residential purposes, including those in construction phase; plot of land designated for residential purposes, in each case transferable as whole) Mortgage must be first ranking security (subject to very limited exemptions, e.g. refinancing) LTV max 80% value is the lowest of: (i) acquisition / purchase price, (ii) external expert valuation and (iii) internal valuation; tested regularly Substitute Assets cash, government bonds in line with CRR; Liquid Assets 180d liquidity buffer; Hedging Derivatives (if any) 26

27 New Covered Bonds Framework Insolvency Regime New rules in Section 195a of the Insolvency Act; No automatic acceleration; General insolvency trustee operates the Covered Bonds programme under NBS supervision; Testing with due care whether operation will not damage Covered Bonds Holders (compared with liquidation scenario); Cascade of steps, although without strict timeline: 1. Transfer of whole programme Preferred option, transferee would be another Slovak bank; Based on NBS consent, soft bullet applies, can be prolonged. 2. Sale of individual assets (loans) to satisfy Covered Bonds claims This does not trigger acceleration of Covered Bonds. 3. Failing all above, ceasing of operation and acceleration of Covered Bonds and mortgage loans NBS can intervene and order or veto acceleration 27

28 Covered Bonds Frameworks across Europe Mortgage CBs AUT - HypBG GER FRA - OH SVK Issuer Universal credit institution Universal credit institution Specialized credit institution Universal credit institution Ordinary cover assets Mortgage loans Mortgage loans Residential mortgage loans (incl. Residential mortgage loans guaranteed RE loans); Securitization of above mentioned assets (subject to specific rules and criteria) Geographical scope EEA; Switzerland EEA; Switzerland; USA; Canada; Japan; Australia; New Zealand; Singapore EEA and other top rated countries Slovakia LTV limits Limit for substitute cover assets Maturity structure Primary method for the mitigation of market and refinancing risks 60% based on the updated sustainable property value Up to 15% of CB volume outstanding Hard bullet; but recently also soft bullet covered bonds issued Natural matching - Hedging derivatives might be registered in the cover pool 60% based on the mortgage lending value Up to 10% of CB volume outstanding (another 10% may consist of cover assets suitable for German Public Sector Covered Bonds) Hard bullet Max. liquidity gap over the next 180 days must be covered; Hedging derivatives might be registered in the pool 80% based on market values; 100% LTV for state-guaranteed RE loans Up to 15% of CB volume outstanding Most OHs have been issued with soft bullet structures (usually 12 months) 180 day liquidity coverage; Use of derivative hedging instruments OLTV of 80% based on the lower of market price or expert valuation - CLTVs >100% will be excluded Up to 10% of the cover pool Soft bullet (maturity extention by up to 24 months) - acceleration in the event of insolvency possible The issuer is obliged to cover the maximum liquidity gap over the next 180 days; Hedging derivatives possible Overcollateralization 2% on nominal basis 2% on NPV and 2% on stressed 5% on nominal basis 5% on nominal basis NPV basis; by law the supervisor will be able to request cover addons for individual cover pools Independent cover pool monitor Yes Yes Yes Yes Art. 52(4) UCITS compliant Yes Yes Yes Yes Art. 129 CRR compliant (generally) Yes Yes Yes Yes 28

29 Presentation Topics 1. Erste Group / SLSP at Glance 2. Slovak Republic 3. Slovak Banking Market 4. Slovenská sporiteľňa 5. Covered Bonds Framework 6. Covered Bonds and Cover Pool 7. Additional Information 29

30 Funding of Slovenská sporiteľňa Source of Funding SLSP Funding Mix ( ) Historically very stable funding mix Further sustainable balance sheet growth expected Covered Bonds Rating: Aaa by Moody s Committed OC of 7.5% Documentation: EUR 5,000,000,000 Debt Issuance Programme Governing Law: Slovak Listing: Bratislava Stock Exchange / Wienner Borse UCITS compliant: Yes CRR Art.129 and Solvency II compliance; LCR eligibility; ECB CBPP3 eligibility Retail Own Issues Corporate FI and CI Maturity Profile (EUR m) Covered bonds Senior, IC T2, AT1 30

31 Cover Pool Overview Structure of Cover Pool as per Structure of Cover Pool Total volume 3,186.4 m Number of loans 88,338 Number of borrowers 77,174 Average LTV 51.2% Average seasoning 3.2 years Average remaining life 19.9 years Note: - Liquidity Buffer ( 110 m) - Slovak Government Bonds Covered bonds Issues Cover Pool Total volume (m ) 1, ,186.4 Average maturity (yrs) 3.1 Over-collaterisation 182.0% Covered Bond Rating (Moody's) Aaa Distribution by Loan Purpose 22.5% 30.5% 6.9% 3.1% Purchase Remortgage Renovation Construction Other Regional Distribution Banská Bystrica 8.6% Košíce 11.5% Prešov 9.5% Bratislava 24.6% Trnava 12.6% 37.1% Žilina 12.7% Trenčín 11.1% Nitra 9.4% 31

32 Cover Pool Overview (Cont d) Structure of Cover Pool per Distribution by Remaining Life (volume) 32.4% 20.4% 1.6% 11.2% 18.6% 15.8% <=5Y >5Y <=10Y >10Y <=15Y >15Y <=20Y >20Y <=25Y >25Y Distribution by Remaining Life (number of loans) 15.9% 24.1% 3.9% 17.3% 19.7% 19.0% <=5Y >5Y <=10Y >10Y <=15Y >15Y <=20Y >20Y <=25Y >25Y Distribution by Volume (volume) Distribution by LTV (volume) 22.6% 9.7% 5.9% 5.1% 18.6% 38.1% <= > <= > <= > <= > <= > % 12.7% 22.8% 7.8% 9.5% 11.2% <=40 >40<=45 >45 <=50 >50 <=55 >55 <=60 >60 <=70 32

33 Collateral Management Collateral Valuation/Monitoring/Revaluation Initial Valuation - Valuation by certified contracted or external appraisal expert according to Slovak Legal Standards (incl. onsite visit + additional internal supervision if deemed necessary) Annual Collateral Value Monitoring on RRE (Residential RE Portfolio) - By application of statistically validated Value Indexation Model developed on collected appraisal data (main parameters: property attributes, market development and economics) Revaluation - In case of identified substantial changes to the collateral or its value (same quality as Initial Valuation) Main Principles Strict rules for appraisal acceptance, supervision, monitoring + rating of appraisal experts - Over 500 contracted, certified + regularly trained experts Collateral Valuation + Monitoring Process is part of the Internal Risk Assessment Lending Value Approach (Loan-to-Value / LTV for underwriting process) - Methodology on risk/rating-based approach - The lowest amount of expert valuation (external expert opinion), supervised value by internal expert or purchase price - Max. LTV-limits stipulated + monitored by regulator Property Value Expert valuation (incl. on-site visit) Value/Price Purchase price Expert valuation Internal supervision = Lending value Annual Collateral Value Monitoring Acceptance Value 33

34 Domestic Residential Real Estate Market Overview Property prices development (EUR/M2) 3,000 Bratislava region Slovakia 2,500 Other regions (excl. Bratislava) 2,000 1,500 1, Construction of new flats (number) 8,000 Newly started construction 7,000 Finished flats and houses 6,000 5,000 4,000 3,000 2,000 1,000 0 Source: National Bank of Slovakia Source: National Bank of Slovakia After drop in 2008 and subsequent stagnation, property prices started to increase in 2Q 2016 driven by Bratislava region (well behind the real economy development) Real estate prices grew by 4% in 2017, after increase by 6% in 2016 Economic growth and growth of disposable income, coupled with low interest rates, are the main causes behind the property prices increase 34

35 Presentation Topics 1. Erste Group / SLSP at Glance 2. Slovak Republic 3. Slovak Banking Market 4. Slovenská sporiteľňa 5. Covered Bonds Framework 6. Covered Bonds and Cover Pool 7. Additional Information 35

36 Additional Information Balance Sheet of Slovenská sporiteľňa in mln. EUR 12/ /2018 Y-o-Y Cash and cash balances Financial assets held for trading - Derivatives Non-trading financial assets at fair value through profit or loss Debt securities Equity instruments Financial assets at fair value through other comprehensive income Debt securities Equity instruments Financial assets at amortised cost 15,267 15, Loans and advances to banks Loans and advances to customers 11,576 11, Debt securities 3,519 3, Finance lease receivables Derivatives Hedge accounting Property and equipment Investment property Intangible assets Investments in joint ventures and associates Current tax assets Deferred tax assets Assets held for sale Trade and other receivables Other assets Total assets 16,278 16,

37 Additional Information Balance Sheet of Slovenská sporiteľňa (Cont d) in mln. EUR 12/ /2018 Y-o-Y Financial liabilities held for trading Derivatives Financial liabilities measured at amortised cost 14,620 15, Deposits from banks Deposits from customers 12,473 13, Debt securities issued 1,567 1, Other financial liabilities Derivatives Hedge accounting Provisions Current tax liabilities Deferred tax liabilities Other liabilities Total equity - Equity attributable to owners of the parent 1,476 1, Total equity - Equity attributable to non-controlling interests Total liabilities and equity 16,278 16,

38 Additional Information Income Statement of Slovenská sporiteľňa Operating income Operating expenses 12/ /2018 in mln. EUR YTD YTD Y-o-Y Net interest income Interest income Interest expense Net fee and commission income Fee and commission income Fee and commission expense Dividend income Net trading result Gains/losses from financial instruments measured at FVTPL Net result from equity method investments Rental income from investment properties & other operating leases Personnel expenses Other administrative expenses thereof: Deposit insurance fund Depreciation and Amortization Gains/losses from derecognition of financial assets measured at amortise Other gains/losses from derecognition of financial instruments not measured at fair value through profit or loss Net impairment loss on financial instruments Other operating result thereof: Levies on banking activities Pre-tax profit from continuing operations Taxes on income Post-tax profit from continuing operations Profit from discontinued operations net of tax Net profit of the year attributable to non-controlling interests attributable to owners of the parent Operating income Operating expense Operating result

39 Investor Relations Details Slovenská sporiteľňa Mária Valachyová Tel: valachyova.maria@slsp.sk Matej Bašták Tel: bastak.matej@slsp.sk Erste Group Thomas Sommerauer, Head of Group Investor Relations Tel: thomas.sommerauer@erstegroup.com Peter Makray, Investor Relations Manager Tel: peter.makray@erstegroup.com 39