7 th Capital Markets Day 4 October 2010, Dubrovnik, Croatia

Transcription

1 , Dubrovnik, Croatia Analysing credit risk Stabilisation in 2010; improvements in asset quality expected in 2011 Bernhard Spalt CRO, Erste Group

2 Presentation topics Drivers of credit risk Erste Group s loan book Structure and medium-term evolution Portfolio performance indicators Illustration of migration dynamics Loan book deep-dive Analysing the corporate portfolio Analysing the retail portfolio Conclusion 2

3 Drivers of credit risk GDP growth, unemployment and FX are key variables Portfolio quality and macroeconomic environment are highly correlated, as expected Real growth in GDP Unemployment rate Real wage growth Foreign exchange rate (where applicable) These parameters are used to model the portfolio developments in order to: Actively steer credit risk Mitigate adverse trends % 6% 4% 2% Dec 07 Correlation between economic and asset quality indicators in Central and Eastern Europe Mar 08 Jun 08 Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 12% 8% 4% -4% -8% NPL (lhs, indexed to Dec 2007) Risk costs (lhs, indexed to Dec 2007) Exposure-weighted GDP growth (rhs) Exposure-weighted unemployment rate (rhs) Jun 05 Sep 05 Example Hungary: Correlation between unemployment rate and default rate Dec Mar Jun SepDec Mar Jun SepDec Mar Jun SepDec Mar Jun Sep Actual default rate (private individuals, lhs) Unemployment rate regression against default rate (private ind., lhs) Risk provisions (rhs) Dec Mar in EUR million 3

4 Erste Group s loan book Structure & medium term evolution Loan growth came to a halt during the course of 2009 and will not reaccelerate before 2011 Lack of growth driven by a deleveraging client base Loan book movements in 2009 and 2010 are mostly explained by FX movements Reacceleration is a function of economic recovery Underlying structure of loan book remained unchanged during the downturn Private individuals are single most important segment; corporate loans are made up of SME (2/3) and large corporate loans (1/3) Stable Austria, Czech Republic and Slovakia make up roughly 75% of the book in EUR billion Customer loans by Basel II customer segments H1 10 Retail - Private individuals Retail - Micros Corporate Municipalities Customer loans by currency Customer loans by reporting segment % 2.7% 2.7% 2.8% 2.9% 12.5% 12.2% 12.2% 12.4% 12.9% 19.9% 20.1% 19.2% 19.7% 18.9% 62.9% 63.4% 64.1% 63.3% 63.5% in EUR billion Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 EUR CEE-LCY CHF USD Other H1 10 Austria Czech Republic Romania Hungary Slovakia Croatia GCIB Other 4

5 Erste Group s loan book Portfolio performance & migration NPL ratio will reach multi-year high in 2010 and should level off thereafter Based on slowly accelerating loan growth in 2011, and careful, but time-consuming workout of NPLs in order to preserve value Declining NPL new formation should support lower P&L risk costs in % 1 5% 98% Erste Group: NPL ratio vs NPL coverage * 74% 72% 75% 77% 78% 73% New BIS II NPL definition, & inclusion of Haftungsverbund 63% 57% 6 4.9% 6.2% 5.7% 5.1% 4.5% 4.2% % 6.6% 7.3% NPL coverage ratio will rise in 2010 As a result of conservative provisioning in all business segments H1 10 NPL ratio (lhs) NPL coverage (excluding collateral, rhs) Customer loan migration since Lehman default Downward migration of portfolio has slowed considerably Low-risk bucket has stabilised at about 7 Mgmt attention and substandard volumes declined slightly over past quarters NPLs still rising due to absence of sales and slow workout *) NPL ratio and NPL coverage based on customer loans as of 2008, prior to 2008 based on Erste Group estimates % 4.7% 5.2% 5.9% 2.9% 6.3% 6.6% 3.4% 6.9% 7.3% 4.7% 4.4% % 5.1% 4.9% 13.4% 15.8% 17.7% 18.5% 17.7% 17.8% 17.6% 17.7% 79.3% 76.1% 72.3% 71.2% 71.1% 70.7% 70.4% 70.2% Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Low risk Mgmt attn Substandard Non-performing 5

6 Erste Group s loan book Illustration of migration dynamics Scenario: a deposit client with regular salary transfer to his account who receives a loan product and based on behaviour migrates through different rating categories over time as follows: Low Risk Mgmnt Attn 1 -regular incoming salary credited -due installments paid regular incoming salary stops - 1 installment not paid - no regular incoming salary - 2 installments not paid 4 - all due installments paid up n Sub standard 3 installments missed n+1 Non-perform. 4 installments missed Timeline 6

7 Presentation topics Drivers of credit risk Erste Group s loan book Structure and medium-term evolution Portfolio performance indicators Illustration of migration dynamics Loan book deep-dive Analysing the corporate portfolio Analysing the retail portfolio Conclusion 7

8 Loan book deep dive: Corporate Analysing the corporate portfolio (1/2) Total volume: EUR 60.3 billion as of June 2010 YTD volume growth was negative due to redemptions and lower demand Well-balanced mix of industries Commercial real estate portfolio is concentrated in Austria (>5) and Czech Republic; ¾ of portfolio is income-producing NPL coverage ratio for corporate portfolio continued to improve compared to both H as well as Q due to conservative risk provisioning 2 15% 1 5% Corporate loans: NPL ratio vs NPL coverage * 10 69% % 56% 53% 52% 54% 55% 6 3.6% 4.1% 4.7% 5.7% % 7.3% 7.8% 4 2 Sep 08Dec 08 Mar 09 Jun 09Sep 09Dec 09 Mar 10 Jun 10 NPL ratio (lhs) NPL coverage (excluding collateral, rhs) Corporate loans by industries (H1 10: EUR 60.3 billion) Corporate loans by risk category (H1 2010: EUR 60.3 billion) 5% 5% 4% 6% 29% 6% 8% 5% 8% 11% 11% 16% Real estate & housing Manufacturing Financial services Trade Construction Transport & comms Services Hotels & restaurants Energy & water supply Other 23% Low risk Substandard 63% Management attention Non-performing *) Corporate loans, excluding loans to public sector clients. 8

9 Loan book deep dive: Corporate Analysing the corporate portfolio (2/2) More than three-quarters of portfolio originates from economically stable markets (AT, CZ, SK, other EU) 87% of portfolio is in core markets Nearly 85% of portfolio in EUR or local CEE currency Czech Republic: ahead of the recovery curve Flat loan growth and stabilisation of new NPL formation expected in H2 10, recovery of the economy will lead to rating improvements during 2011 Time intensive restructuring process; no re-defaults occurred on restructured loans Slovakia benefits from improving outlook Robust economy, falling portfolio volume, improving NPL and risk cost situation Hungary will not improve before 2011 Weak economy and FX-volatility drive asset quality Another difficult year for the corporate segment Romania shows a mixed picture Large corporates: credit quality stabilisation SME: Hit hard by economic contraction, continuing difficult situation with no improvement in risk costs in the near future Corporate loans by country of origination (H1 2010: EUR 60.3 billion) 6% 4% 3% 11% 2% 5% 1 12% Austria Czech Republic Romania Hungary Slovakia Croatia Oth. core markets Other EU/OECD Other Corporate loans by currency (H1 2010: EUR 60.3 billion) 5% 2% 13% 6% 47% 74% CEE-LCY CHF EUR USD Other 9

10 Loan book deep dive: Retail Conservative country and product mix Erste Group: retail loans - country split (H1 2010: EUR 54.8 billion) Erste Group: retail loans - product split (H1 2010: EUR 54.8 billion) 8% 7% 5% 1% 19% 9% 4% 1% 45% 11% 5 18% Austria Czech Rep Romania Hungary Slovakia Croatia Other 22% Mortgages Micro lending Unsecured loans Home equity loans Overdrafts Cards Purpose loans Retail/private individual secured loans - FX split (H1 2010: EUR 29.4 billion) Retail/private individual unsecured loans - FX split (H1 2010: EUR 13.3 billion) 13% 2% 6% 7% 1% 5 35% 86% LCY CHF EUR Other LCY CHF EUR Other *) Retail loan analysis excludes building society business in Austria and subsidiaries of CEE entities. 10

11 Loan book deep dive: Retail Portfolio performance and FX exposure NPL ratio has stabilised since Q3 09 while NPL coverage has improved significantly The main retail loan currency is local currency CHF-based loans represent 26% of retail loans to private individuals; EUR-based loans make up 11% The largest share of the CHF portfolio is in low risk Austria followed by Hungary and Croatia, while Romania has the largest share in the EUR book 2 15% 1 5% Retail loans: NPL ratio vs NPL coverage 10 67% 8 65% 61% 6 64% 64% 64% 55% 6 5.4% 5.7% 6.3% 6.7% 7.2% 7.3% 7.3% 7.6% 4 2 Sep 08Dec 08 Mar 09 Jun 09 Sep 09Dec 09 Mar 10 Jun 10 NPL ratio (lhs) NPL coverage (excluding collateral, rhs) Retail/private individual EUR loans - country split (H1 2010: EUR 4.9 billion) Retail/private individual CHF loans - country split (H1 2010: EUR 11.2 billion) 19% 11% 2% 27% 5% 68% 68% Romania Croatia Hungary Serbia Ukraine Austria Hungary Croatia Serbia 11

12 Loan book deep dive: Retail Romania drilldown: status quo & strategic actions State-guaranteed, EUR-based mortgage loans are key growth driver Growth update: total new bookings amount to about EUR 250 million per quarter, lagging slightly behind redemptions; focus is on secured business Composition update: Mortgages recorded good growth at the expense of consumer loans resulting in an increased share of secured EUR FX loans (59% of total portfolio) Foreclosure update: minimal foreclosures (currently less than 1% of NPL portfolio) as focus is on rescheduling, collections and restructuring in order to build customer loyalty for long-term relationships and preserve value Expanded collection activities and reinforced lending processes Implementation of state-of-the-art collection system to enhance existing early collection processes Improvement of accuracy and coverage of rating / scoring models e.g. behavioral scoring Application scoring cut-off increased for all products types and channels and changed approval process Smart and tailor-made restructuring agreements even for defaulted customers to maintain payment 12% 1 8% 6% 4% 2% 22% 5.3% Romania: retail loans - product split (H1 2010: EUR 5.8 billion) 13% Romania - Retail delinquency trends 6.8% 2.3% 2.7% 4.2% 2%2% 29% 32% Unsecured loans Mortgages Home equity loans Micro lending Cards Overdrafts Purpose loans 9.8% 10.5% 10.1% 9.3% 9.3% % 4.6% 4.2% 3.2% 4.2% Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 30d - 180d overdue 90d - 180d overdue 12

13 Loan book deep dive: Retail Hungary drilldown: status quo & strategic actions Focus on HUF loans amid limited demand Growth update: new bookings amount to about EUR 80 million a quarter, broadly covering redemptions on a currency-adjusted basis New business is almost entirely HUF-based Composition update: Despite high share of CHF loans (H1 2010: 71%), the retail book benefits from very high share of secured loans; EUR loans amount to 13% and HUF loans amount to 16% of book Foreclosure update: almost no foreclosures due to government-initiated moratorium on seizing owneroccupied residential properties until April % Hungary: retail loans - product split (H1 2010: EUR 4.2 billion) 4% 62% Mortgages Home Equity Loans Unsecured Loans Micro lending Overdrafts Cards Purpose Loans Enhanced early collection measures, tighter lending standards Expansion of collection capacities, with particular focus on early collection processes Tighter maximum indebtedness and lower LTV ratios in line with new regulatory requirements Implementation of new rating systems and rating scale in order to further improve decision making 1 8% 6% 4% 2% Hungary - Retail delinquency trends 6.5% 6.9% 7.5% 7.2% 7.6% 8.4% 4.8% 4.5% 2.4% 1.8% % 2.2% 2.4% 2.4% 1.3% Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 30d - 180d overdue 90d - 180d overdue 13

14 Loan book deep dive: Retail Key risk mitigants Higher volumes in lower risk countries Growing local currency/euro based portfolio Increasing share of secured loans Country DSR/ Secured * DSR/ Unsecured * LTV Czech Republic 45.3% 23.2% 62.9% Croatia 30.8% 24.1% 80. Hungary 50.5% 35.5% 56.3% Unsecured loans are dominated by local currency (85%), no CHF exposure in unsecured products Safe debt service ratios and low LTV ratios Selective restructuring programmes Available to customers with reduced repayment ability (vs. anybody) Aimed at providing relief vs. postponing potential performance issues Regular stress-testing of portfolio The effects of selected macro economic indicators directly affecting customers repayment ability are regularly simulated *) DSR = Debt service ratio. Figures are portfolio-level averages, calculated on evidenced net income. Romania % 59. Serbia 39.4% 26.4% 70. Slovakia 33.6% 27.8% 56.3% Risk cost increase Example Hungary - Correlation between CHF and risk costs in 2010 * 196 (+5%) 205 (+1) 214 (+15%) 224 (+2) 233 (+25%) 242 (+3) 252 (+35%) 261 (+4) 270 (+45%) 280 (+5) 289 (+55%) 298 (+6) 308 (+65%) 317 (+7) HUF/CHF FX rate change Secured lending Unsecured lending Total retail 326 (+75%) 14

15 Presentation topics Drivers of credit risk Erste Group s loan book Structure and medium-term evolution Portfolio performance indicators Illustration of migration dynamics Loan book deep-dive Analysing the corporate portfolio Analysing the retail portfolio Conclusion 15

16 Conclusion Improving economic outlook and declining unemployment rates will translate into improved portfolio quality and risk costs Corporate segment to recover sooner with retail lagging somewhat behind However, there are diverging developments within Erste s core markets Some fragility remains in Romania and Hungary where the impact of the austerity packages and political actions could hamper the recovery process Positive asset quality developments are expected in Austria, the Czech Republic and Slovakia Customer loan split (H1 2010: EUR billion) 32% AT + CZ + SK 68% Other The development of FX and unemployment rates will continue to be important drivers of retail portfolio quality and risk costs Risk costs in 2010 will be at last year s level, gradual decline in risk costs expected as of Q4 10; further improvements expected in 2011 in line with economic recovery 16