Erste Group Bank AG reported an operating result of 1.26 billion euros for the first three months of 2023, a rise of nearly 57 % reflected solid net interest income of 1.77 billion euros (up 27.1 % y/y) on the back of generally favorable interest rate developments and a larger customer loan volume.

Gains in payment services and in asset management led to a 4.4 % y/y rise in net fee and commission income to 643 million euros. Valuation effects saw the net trading result improve to 117 million euros compared to a loss of 257 million euros during the same period a year earlier.

Operating expenses were 0.6 % higher y/y at 1.24 billion euros. The first quarter saw a net release of risk provisions leading to a positive impairment result of 20.7 million euros, which contributed to a net result of 594 million euros for the quarter.

Net interest income increased to EUR 1,769.0 million (+27.1 %; EUR 1,392.1 million) on the back of higher market interest rates – mainly in Austria, Hungary and Romania – as well as larger customer loan volume across all markets.

Net fee and commission income rose to EUR 642.7 million (+4.4 %; EUR 615.3 million). Growth was registered in nearly all core markets, most notably in payment services, but also in asset management.

Net trading result improved to EUR 116.7 million (EUR -256.6 million); the line item gains/losses from financial instruments measured at fair value through profit or loss declined to EUR -81.4 million (EUR 239.7 million).

The development of these two line items was mostly attributable to valuation effects. Operating income increased to EUR 2,498.7 million (+22.7 %; EUR 2,036.2 million).

The impairment result from financial instruments amounted to net releases of EUR 20.7 million or 4 basis points of average gross customers loans (EUR -59.1 million or 13 basis points).

Positive contributions came from net releases of provisions for commitments and guarantees in nearly all segments, as well as from income from the recovery of loans already written off, most notably in Austria and the Czech Republic.

In the first quarter, no changes were undertaken on forward-looking economic indicators (FLIs) or on the application of stage overlays. Overall, crisis-induced performing risk provisions stood unchanged at approximately EUR 900 million as of end of March.

The NPL ratio based on gross customer loans was almost unchanged at 2.1 % (2.0 %). The NPL coverage ratio (excluding collateral) stood at 94.3 % (94.6 %).

The net result attributable to owners of the parent rose to EUR 593.6 million (EUR 448.8 million) on the back of the strong operating result and the net release of risk provisions.

Outlook
The expectation by economists is for Erste Group’s core markets to avoid recession in 2023 and, in fact, to post real GDP growth. Inflationary pressures are expected to subside in 2023, following double digit-levels in 2022 as a result of exceptionally high energy prices.

Continued strong labour markets should be supportive of economic performance in all of Erste Group’s markets. Current account balances, which suffered significantly during 2022 on the back of exceptionally high energy prices, are expected to improve again in 2023 benefiting from a reversal in energy prices.

Fiscal balances should likewise consolidate again after significant budget deficits in 2022. Public debt to GDP in all Erste Group markets is projected to be broadly stable, and hence remain materially below the euro zone average.

Against this backdrop, Erste Group expects net loan growth in the mid-single digits. Loan growth as well as interest rate tailwinds, as detailed above, should result in an increase of net interest income of around 15%.

Based on the robust macro outlook described above, risk costs should remain at a low level in 2023. On the basis of current forecasts, Erste Group expects that risk costs in 2023 will be below 25 basis points of average gross customer loans.