Erste: Guidance upgrade on strong H1

Erste’s reported net income came to EUR 896 mln in the second quarter, up by
30% y-o-y on the back of stellar operating results and lower risk provisioning.
Results came out better than market consensus of EUR 747 mln and our
estimate of EUR 738 mln due to impairment reversals and lower charges under
the other results line (reversal of resolution funds and HU bank tax).
 Net interest income grew further by 1% while NIM was slightly down by 4bps.
On a geographical breakdown Austria remained strong and CZ too (partially on
Sberbank acquisition) while in HU, there was a neutral shift to net
trading+interest caps resulted in a very low NII. Net trading as a result of this
was up substantially (+175% q-o-q). Net fees on the other hand was weaker qo-q in Austria compensated by stronger CEE (y-o-y+5%).
 Costs were down 1% q-o-q but note that the previous quarter contained
negative one-offs. On a yearly basis expenses were up by 17% y-o-y, adjusted
for Sberbank positive one-off growth was 12% driven by mainly AT wage
increases. Nevertheless higher revenues granted a low, 46% cost-to-income
ratio in the quarter.
 Asset quality remained benign with net releases in the quarter on ongoing
recoveries, NPL ratio stood at 2% with coverage above 90%. The Bank still
has EUR 900 mln FLI&Stage overlays as a room for risk cost, most of them can
be used until 2024.
 Lending was weak in the quarter in Austria compensated by SK, HR while CZ
growth was solely attributed to the consolidation of Sberbank business (+4%
q-o-q). Overall, we see this item at risk in the 5% loan growth guidance, as others are likely to be achieved. Deposits on the other hand still remained very
strong giving flexibility for Erste in pricing.