Morningstar | Erste Group Reports Good Full-Year Results; FVE Unchanged. See Updated Analyst Note from 01 Mar 2019
Erste Group reported solid full-year 2018 results of EUR 1.8 billion in net profit, up 36% compared with the same period last year, as the bank's operating leverage gave a boost to underlying profitability. Indeed, operating income grew 4% to EUR 6.9 billion year over year while expenses added less than 1%. Additionally, Erste enjoys a continued benign credit cost environment across geographies, resulting in a write-back of EUR 59 million versus impairment charges of EUR 132 million last year. Return on equity came in at 13.4%, well above management's guidance of 12% for the full year, partially aided by lower tax charges. We maintain our fair value estimate of EUR 40 per share. Our no-moat and stable trend ratings are unchanged.The Czech Republic, Romania, and Austria have been the driving forces behind the top-line growth. Net interest income increased 5%, owing largely to an improving interest-rate environment in the Czech Republic and Romania as well as healthy volume growth in Austria. Net interest income was mostly stable across other geographies as interest-earning assets growth offset narrower interest spreads. In total, loans and advances to customers came in at EUR 149 billion, up 7% from last year. Net fee and commission income grew 3% to EUR 1.9 billion on higher payment services income and asset-management fees.
Credit risk metrics improved again in 2018. The nonperforming loan ratio dropped to 3.2% from 4% and the coverage ratio improved to 73% from 68.8% last year. Management pointed out, however, that credit risks are at a historic low at this stage and are expected to increase next year, albeit still be low compared with midcycle levels. Impairment charges are expected to fall between 10 and 20 basis points of gross customer loans versus negative 14 basis points in 2018.
Erste Group is a financial services provider based in Austria. As of Dec 31 2015, Co.'s total assets amounted to Euro199,743 million and the number of customers was approximately 16.5 million. Co.'s key business is the retail business, covering the entire spectrum from lending, deposit and investment products to current accounts and credit cards. In addition to providing financial services to private individuals, Co.'s core activities also include advisory services and support for corporate clients in financing, investment and access to international capital markets, public sector funding and interbank market operations.
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