erste group at goldman sachs - 15th annual european financials conference 8 june - 10 june 2011

Goldman Sachs – 15th Annual European Financials Conference 8 June – 10 June 2011, Paris

Erste Group –Prepared to capture re-emerging growth opportunities Andreas Treichl, Chief Executive Officer

GS European Financials Conference9 June 2011

Prepared to capture re-emerging growth opportunities2

Disclaimer – Cautionary note regarding forward-looking statements

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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.

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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.

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NONE OF 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.

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THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OR INVITATION TO PURCHASE OR SUBSCRIBE FOR ANY SHARES 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.



Presentation topics –

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CEE: the investment destination of choice

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Prepared to capture re-emerging growth opportunities

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Conclusion

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Appendix



CEE: the investment destination of choice – FDIs are on the rise again

−

Fastest recovery in countries with close links to export power house Germany

−

CEE countries will remain attractive production locations due to competitive labour costs, high education levels and favourable taxation regimes

−

Investments never stopped but were generally smaller in size, e.g. in 2010:−

Heinzel (Pulp Trading) EUR 70 m, CZ−

Michelin, EUR 120m, RO−

Samsung, EUR 100m, SK −

exceptions: Audi, EUR 900 m, HU & Opel, EUR 500 m, HU

Foreign direct investments (Q109-Q410, % of GDP, rolling 4Q)

-1%0%1%2%3%4%5%6%7%8%

Slov

akia

Hun

gary

Rom

ania

Cro

atia

Ukr

aine

Cze

chR

ep.

1%1%

2%2%

5% 5%




−


−


−

Conclusion

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Appendix



Prepared to capture growth opportunities – Improving operating environment, managable headwinds

Economic rebound as key growth driver

CEE returns to solid growth in 2011Macroeconomy

Support organic growth in CEE

Regulatory requirements vs. market expectationsErste Group‘scapital positions

Comfortable liquidity position – loan/deposit ratio at 111.4% in Q1 11

Successful new issues in January and April 2011Erste Group‘sfunding profile

Declining risk costs

Resilient marginsErste Group‘sasset quality & margins

Building on a strong “through the cycle”- performanceErste Group‘soperating performance

Accelerating demand for banking products after years of consolidation

Taxation and regulatory headwinds remainBanking markets



Forecast real GDP growth in 2011

-4%

-2%

0%

2%

4%

6%

Gre

ece

Portu

gal

Irela

ndSp

ain

Italy

Rom

ania

Euro

zon

eD

enm

ark

UK

Fran

ceN

ethe

rland

sSl

oven

iaC

zech

Rep

.A

ustri

aB

elgi

umG

erm

any

Hun

gary

Bul

garia

Slov

akia

Finl

and

Pola

ndSw

eden

EC forecasts SP/CP forecasts

Economy is a key growth driver – It is not if, but when growth becomes broad-based−

Outlook confirms CEE‘s position as European growth leader−

GDP growth of most CEE economies above eurozone average

−

Return of domestic demand to support export driven growth

−

Romania to turn the corner in 2011−

Industrial production is on the rise, following encouraging order intake in late 2010, early 2011; improving economic sentiment

−

EU subsidised infrastructure projects finally on track, e.g. railway and motorway links to Europe

−

Hungary: tackling home-made issues−

Government has addressed short-term fiscal issues by reform package, long-term success depends on magnitude of economic recovery

−

Domestic demand still weak

Source: EC Spring Forecasts 2011, Stability/Convergence programs 2011, Erste Group Research



Banking markets in CEE – Demand to accelerate in 2011 and beyond

−

Higher loan growth expected for 2011−

Austria: competitive market; gradually improving margins; low risk costs; growth in line with nominal GDP development

−

Czech Republic: both retail and corporate loans to contribute to growth in 2011

−

Romania: government-backed, EUR-based housing loans, increasing demand for consumer loans, and revival in corporate loans (recovery of manufacturing, infrastructure-related loans) to support lending

−

Slovakia: growth to remain driven by housing loans−

Hungary: impacted by abolition of FX lending in July 2010; no significant growth expected in 2011

−

Deposit growth to accelerate too−

Austria: moderate wage growth and higher inflation will limit deposit growth in 2011

−

Czech Republic: deposits to benefit from expected rate hike (currently at a historic low of 0.75%)

−

Romania: deposits to benefit from payment of government arrears and salary increase for public sector employees

−

Slovakia: growth to accelerate as retail deposits continue to rise following post euro adoption outflows; corporate deposits to contribute as well

−

Hungary: lower income tax to support savings

Customer loan market growth in CEE

3% 3% 4% 5% 2%

-10%0%

10%20%30%40%50%60%70%

AT CZ RO SK HU

2006 2007 2008 2009 2010

Customer deposit market growth in CEE

1% 3% 5% 6%

-2%-10%

0%

10%

20%

30%

40%

50%

AT CZ RO SK HU

2006 2007 2008 2009 2010



Banking markets in general – Regulatory headwinds going forward

−

Banking taxes in Austria and Hungary approx. EUR 145 m post tax in 2011

−

Exclusively used to cover fiscal gaps, no earmarking−

Levies are linked to balance sheet and derivatives volume (Austria)−

Decline in Hungarian banking tax not expected before 2012−

Slovakia to introduce levy: marginal impact on Erste Group−

Slow down banks‘ ability to strengthen its capital base

−

Some aspects of Basel III still open

−

Pragmatic solution regarding savings banks minorities seems feasible−

Surcharge of systemically important financial institutions (SIFIs)−

Countercyclical buffer



Erste Group‘s operating performance – Strong and improving through the cycle

Operating resultby segments

1.3 1.9 2.2 2.3

0.7

0.8 0.8 0.9

0.4

0.5 0.6

0.6

0.3

0.2

2.5

3.0

3.8 4.0 0.3 0.5

(0.2)

0.8

1.8

2.8

3.8

4.8

2007 2008 2009 2010

in E

UR

bill

ion

Retail & SME: CEE Retail & SME: ATGCIB Group MarketsCorporate Center

Operating income by segments

3.0 3.8 3.9 4.1

2.2

2.3 2.4 2.4 0.5

0.6 0.7 0.7

0.5

0.4 6.2

7.0 7.6 7.8

0.6 0.7

(1.0)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

2007 2008 2009 2010

in E

UR

bill

ion

Retail & SME: CEE Retail & SME: AustriaGCIB Group MarketsCorporate Center



Erste Group’s asset quality & margins – Declining risk costs, resilient margins

Risk cost development

0.56% 0.74% 0.70%1.48% 1.17%

1.64% 1.73% 1.89% 1.64% 1.69% 1.54% 1.34% 1.38%0.59%

2.49%

0%

1%

2%

3%

4%

Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11Group Austria CEE

Net interest margin development

2.8% 2.7% 2.9% 3.0% 2.9% 3.0% 3.1% 3.2% 3.0% 3.0% 3.1% 3.0% 2.9%1.9%

4.3%

1%2%3%4%5%6%

Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11Group Austria CEE

11



Erste Group‘s funding mix – Successful new issues in 2011

−

Loan/deposit ratio improvement to 111.4%−

Customer deposits remain primary source of funding

−

Favourable track record for mid- and long-term funding−

Public benchmark transactions, private placements, retail & private banking issues

−

2011 to date: EUR 3.6 bn issued−

January: EUR 1 bn 10-year jumbo covered bond ms + 72 bps−

April: EUR 750 m 5-year senior unsecured bond ms + 120 bps

Short-term funding vs collateral coverage

32.1

25.7 24.028.627.6 27.9

31.9

23.4

116.3% 111.6%

72.9%

107.4%

0

10

20

30

40

50

60

2008 2009 2010 Mar 11

in E

UR

bill

ion

0%

20%

40%

60%

80%

100%

120%

140%

Short-term funding Collateral Collateral coverage

Evolution of Erste Group's funding mix

57.0% 58.9% 61.1% 59.5%

5.8% 8.5% 9.0% 8.8%15.9%

15.6% 16.3% 16.8%

18.1% 13.8% 10.5% 12.1%

2.8%3.0%3.2%3.2%

0%

20%

40%

60%

80%

100%

2008 2009 2010 Mar 11Customer deposits Equity Subordinated capitalIssued bonds & CDs Deposits by banks



Erste Group’s capital position – Supports future organic growth in CEE

−

Regulatory requirements vs. market expectation−

How much comfort does a percentage point add?−

Does the business model count at all?

−

Clear preference to continue build-up via retained earnings

−

Application for repayment of participation capital provided by Austrian government (EUR 1.2 bn) already filed

2009 2010 Q1 011 2009 2010 Q1 11

Tier 1 ratio (total risk)

9.2%

10.2% 10.4%

Core tier 1 ratio (total risk)

8.3%9.2% 9.4%

2009 2010 Q1 11

Core tier 1 ratio excl. participation capital

(total risk)

6.9%7.7% 8.0%




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−


−

Conclusion

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Appendix



Conclusion – Outlook for 2011: Looking ahead with confidence

−

Well positioned to benefit from accelerating CEE banking market growth on the back of the continuing economic recovery

−

On track to deliver strong operating performance based on:−

Resilient margins and expected mid-single digit loan growth at group level yoy−

Rising fee income on the back of increased demand for asset management and insurance products as well as debt capital markets transactions

−

Continued cost discipline – costs to rise below inflation rate

−

Credit risk performance in Q1 2011 supports positive outlook for the year−

Risk costs will remain elevated in Romania and Hungary−

In all other markets risk costs are expected to decline by 10-20%

−

Earnings generation ability to remain strong−

Leading to continuously rising capital ratios−

Capital position allows Erste Group to finance organic growth in core markets




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−


−

Conclusion

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Appendix



Erste Group at a glance – Clear focus on the eastern part of the EU

Clients: 0.9m

Hungary

Retail loans: 14.1%Retail dep.: 7.7%

Branches: 184

Clients: 0.2m

Ukraine

Retail loans: 1.7%

Retail dep.: 0.3%

Branches: 133

Clients: 4.6m

Romania


Branches: 667

Clients: 0.3m

Serbia


Branches: 66

Clients: 0.8m

Croatia

Retail loans: 13.6% Retail dep.: 12.8%

Branches: 141

Clients: 5.3m

Czech Republic


Branches: 670

Clients: 2.4m

Slovakia


Branches: 292

Clients: 3.2m

Austria


Branches: 1,044

EU or EU candidate

Non-EU or non-EU-candidate

Indirect presence

−

Leading retail bank with 17.7 m customers in 8 geographically connected countries

−

Long term relationships with retail, SME and corporate customers

−

Favourable mix of mature & emerging markets with low penetration rates

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Potential for cross selling and organic growth in CEE

erste group at goldman sachs - 15th annual european financials conference 8 june - 10 june 2011

Economy & Finance