Risk provisions wipe out Erste Hungary’s H1 profit
Risk costs highest since 2015
“Not even the coronavirus could stop Erste. We conceded a goal but we will win the game,” President-CEO Radován Jelasity said at the bank’s online press conference on Wednesday. Erste made risk provisions amounting to HUF 17 bn in the first half, the highest since 2015, while its net interest revenue was HUF 2.5 bn lower than a year earlier, which meant
Erste’s H1 after-tax profit dropped to just HUF 27 million.
The bank does not expect substantial further risk provisions this year as it has accounted for the anticipated portfolio deterioration this year in the first half already. Answering a question from Portfolio, Erste said risk provisions were split 60-40 among its corporate and retail business, but were not made with risks already visible in mind.
The bank did not wish to disclose the expected NPL ratio, saying it was still too early to estimate 2021 NPL rates after the current repayment moratorium ends on 31 December.
Erste Hungary’s cost to revenue ratio increased from 48.9% to 52.9% in the first half, with about half the increase attributable to delayed interest revenue due to the moratorium, but the bank plans to decrease the ratio to below 50% for the full year.
Lending at Erste rose above the market average as the stock of loans increased by 22% in the first half, partly as a result of the repayment moratorium and in part due to the performance of prenatal loans. Revenues also rose by 20% compared to H2 2019, also due to the moratorium.
The coronavirus crisis notwithstanding, Erste Hungary’s lending increased by 18% year on year in the first half, with retail lending growing 53% from HUF 91 bn to HUF 139 bn.
Erste considers the prenatal loan to be a crisis-proof product as it exceeded mortgage lending, and there was only a slight decrease in prenatal loans in April, deputy CEO László Harmathy said.
Retail deposits grew 15% compared to the previous half, partly as a result of the repayment moratorium and partly because households and SMEs formed reserves.
Less than half of retail loan contracts were affected by the repayment moratorium in H1, with wdely different ratios for individual products: suspension of payments was highest for revolving credit facilities (more than 80% for credit cards), 57% for prenatal loans, but only 36% in the case of mortgage loans.
The stock of corporate loans grew by 19% in 12 months to HUF 779 bn, Richárd Szabados, head of the corporate division, said at the press conference. All segments contributed to growth, with SME lending increasing by 11% year on year, he added.
The volume of new loans decreased significantly in the second quarter, however, with SME loans down 30% and commercial property loans 57% in H1 as a result.
The NPL ratio of corporate customers was just above 1%, well below the market average.
