Erste Bank profits hit by sector-specific extra profit taxes in Q1 2025
Results
The Austrian Erste Group's net profit decreased by 5.1% year-on-year in January-March 2025 due mostly to
a 35 million euro increase in sector-specific special taxes,
as highlighted in the earnings report.
Levies on banking activities had to be paid by Erste on four markets to the tune of EUR 121 millon, against EUR 86 million in the same period of 2024. This figure is reported on the 'other operating results' line. Of this, the Hungarian operation paid EUR 78 million (up from EUR 67 mn in Q1 2024), EUR 34 mn was paid in Austria (a temporary surge after EUR 10 mn a year earlier), while the share of Slovakia and Romania was EUR 15 mn and EUR 10 mn, respectively.
On the earnings side, shareholders have nothing to complain about, although the growth in net interest income has now slowed considerably. Compared to a year ago,
- net interest income rose by 1.1% and
- net commission income by 9.5%.
The growth in net interest income was attributable primarily to Romania, the Czech Republic and Slovakia, on the back of lower interest expenses on customer deposits. Net fee and commission income grew across all core markets and income categories. Significant rises were recorded in payment services, driven by a larger number of transactions and repricing, as well as in asset management.
Operating income edged up 0.5% yr/yr to EUR 2.8 billion, while operating profit declined 3.2% to EUR 1.46 bn.
Operating expenses increased by 4.8%, with higher personnel expenses – due to inflation – and IT costs remaining the driving factors. The decrease in operating profit was mainly driven by an increase in personnel costs due to collective wage agreements and an increase in IT costs. Operating expenses in the first quarter were 4.8% higher than a year earlier. The cost/income ratio deteriorated to 48.0% from 46.0%.
Meanwhile, risk costs decreased both year-on-year and quarter-on-quarter to € 85 million, mainly due to a decline in defaults in Austria. The Group's NPL ratio decreased slightly to 2.5% from 2.6% at the end of December, while the NPL coverage ratio increased to 74.6% from 72.5% at the end of last year.
Among the individual markets, Austria and the Czech Republic were again the most profitable, with the Romanian subsidiary coming in third. The Hungarian subsidiary came last with a profit of € 33 million, which is not surprising given the accounting of the annual special bank tax at the beginning of the year. However, the profit is still almost just half the € 64 million posted a year earlier.
Erste Group's loan book stood at EUR 220.1 billion at the end of the first quarter of 2025, up 0.9% year-on-year, or 5.8% compared to the end of 2024, mainly thanks to the Czech and Croatian markets. The latter exceeded 5% for the first time since the second quarter of 2023. Deposits also grew by 1.9% quarter-on-quarter and 4.6% year-on-year. The loan-to-deposit ratio fell to 89.4% from 90.2%.
Erste's capital position is strong, with the common equity tier 1 ratio (CET1, phased-in) up at 15.9% from 15.3%, and the total capital ratio up at 20.7% from 19.7%.
Comments
“In times like these, reliability is important and our results underscore this. We were able to improve the quality of our results and to keep our risk costs low. At the same time, we have posted growth in both our loan and deposit volumes and have remained a reliable partner to our customers. In addition, we have further strengthened our capital position, which enables us to both meet the challenges of a dynamic market environment and to make the most of opportunities that arise,” said Peter Bosek, CEO of Erste Group.
“We were able to achieve a solid operating performance in the first quarter despite all the volatility and uncertainties in the global economic system. This strong foundation allows us to maintain our outlook for the full year 2025 and to even slightly increase our guidance for fee income growth,” said Stefan Dörfler, CFO of Erste Group.
Outlook
Erste Group’s goals for 2025 are
- ROTE of at least 15%;
- loan growth of about 5%;
- broadly stable operating result compared to 2024, with flat net interest income and fee and commission income growth of over 5%;
- operating expenses to grow by about 5%, with cost/income ratio expected to be below 50%;
- risk costs to increase slightly to about 25 basis points of average customer loans (moderate worsening).
"The adjusted net profit of 2024 (net profit after deduction of AT1-dividends) allows Erste Group to propose a regular dividend of EUR 3.00 per share, as well as the execution of a third share buyback in the amount of EUR 700 million, subject to regulatory approval," Erste said.
Cover photo: Portfolio
