Erste Group Bank AG

Peter Makray - IR Manager Andreas Treichl - CEO Andreas Gottschling - CRO Gernot Mittendorfer - CFO

Pawel Dziedzic - Goldman Sachs Gabor Kemeny - Autonomous Cristina Marzea - Barclays Margarita Streltses - UBS Benjamin Goy - Deutsche Bank Johan Ekblom - Bank of America Merrill Lynch Johannes Thormann - HSBC Alan Webborn - Societe Generale Riccardo Rovere - Mediobanca Paul Fenner - Societe Generale Andrea Vercellone - Exane BNP Paribas Stefan Maxian - Raiffeisen Centrobank Hadrien de Belle - KBW Gilles de Bourrousse - Octo Finances Daniel Cowan - Morgan Stanley Ivan Bokhmat - Barclays

Good morning, ladies and gentlemen. Welcome to Erste Group's third quarter 2015 results presentation.

Results will be presented by Andreas Treichl, Chief Executive Officer; Gernot Mittendorfer, Chief Financial Officer; and Andreas Gottschling, Chief Risk Officer. Following the presentation you will have the opportunity to ask questions.

Before I hand it over to Mr. Treichl, I would like to point out that we have a disclaimer on slide 2.

Now I would like to ask Mr. Treichl to start the presentation.

Thank you very much. Good morning, ladies and gentlemen.

Let's start on page 4. The results over the third quarter vis-a-vis second quarter, basically no major events on the operating side.

A slight improvement again on the risk cost side. However, the quarter was hit with a €145 million pre-tax one-off related to a conversion of Croatian Swiss franc loans into euros.

Now, overall, on a net base, a slightly better result than in the second quarter. If you look it on a year-to-year comparison, the first nine months, of course a substantial improvement vis-a-vis last year.

Again, basically flat on the operating side, but of course a substantial reduction in risk costs and in the other result. If we move to page 5, if you look at the ratios, net interest income actually, overall, relatively stable.

So are the margins which we'll see later, that in the business in - with the exception of Hungary and Romania, you see net interest margins actually staying relatively flat. Operating result down 4% and a slight worsening of the cost/income ration.

However, extremely positive if you look at the cost of risk. And provisioning levels have come down again from 58 basis points in the second quarter of 2015 to now 44 basis points, a level that I think we haven't seen for the last 9 or 10 years.

Banking levies, pretty much stable. And you look at the return on equity, notably not the return on tangible equity, the return on equity going from 10.2% to 10.5% in the third quarter.

On tangible equity, return for the first nine months of this year was 11.5%. If you look on the asset and liability side, on page 6, you basically see a further reduction of our trading assets and liabilities.

And for the first time also a long time, a relatively chunky amount on the loan growth side, €3.7 billion additional loans and €2.8 million additional deposits, giving the balance sheet growing again back above the €200 billion mark. If you look at the major ratios, loan-to-deposit ratio relatively flat.

Again, slight increase again of loans as of total assets which we regard as a positive development because that's part of our strategy. Net loans growing by over 3%, whereas credit risk-weighted-assets have gone down, a result of a strong improvement of the portfolio quality.

NPL coverage, again improving to 69.2%. And the non-performing loan ratio again coming down to 7.4%.

On the capital side, in the third quarter we show a Basel 3 fully loaded capital ratio of 11.2%. Gernot will explain later on that this actually should be more since we do have to deduct the risk costs twice.

And profits are not added, so actually we're at 11.6% on a comparable basis to the second quarter. Yes.

Liquidity coverage ratio, again improving. And a slight improvement also of our leverage ratio.

If we look at the business environment, on page 9, we really pretty much - in 2016, slightly lower growth rates. But in principle, we believe that the economic performance in our countries will continue, as in 2015.

So all in all, substantially better than in the rest of the Eurozone, with the exception of Austria and Croatia, where growth rates have been lower than the EU average, but are going to show a slight improvement in 2016. What's good for us is that, more than in past years, GDP growth is triggered by a growth of domestic demand and therefore good for our retail business.

On the rest, I think you see actually improving positive pictures. All our countries are actually in a very good situation based on current account.

And the public-debt-as-of-GDP ratios, with the exception of Austria and Croatia, are good. And in the Czech Republic and Romania, actually even very, very good.

So, on the interest rate side, page 10, not much happened. During the last quarter we saw, both in the euro and in the other currencies, only slight upticks on the long side.

But overall, no major developments on the interest rate side. And the same thing basically to be said on the currency side.

Maybe something will happen on the Czech crown later on next year, but we do not know about that. Now, if we look at the market shares, on page 12, actually if you take out the reduction of corporate - or our market share in corporate loans in Romania, we see actually an improvement.

What's, I think, very positive for us is that the drop in market share in the Czech Republic is leveling off and starting to improve. And in some areas that are important to us, actually we're back on gaining market share slightly, particularly also in Austria.

If we look at page 14, you see that loan growth has been pretty good on - in those areas where we actually would like to have loan growth. Performing loans, overall, grew by 4%.

We saw some growth in retail and in the SME. And on a geographic view, in Austria, in the Czech Republic, finally growing, again in Slovakia and stable or slight drops in Romania and Hungary and Croatia.

That again is also a reflection of the improvement of the quality of our loan portfolio. Deposit side, pretty much the same picture.

We're growing on the retail deposit side. We're also growing on the SME deposit side.

That's good for our loan-to-deposit ratio, but it's bad for the economy because it's a clear indication that small- and medium-sized enterprises do not invest, but sit on cash. If we look at net interest income development and net interest margin, basically completely flat overall between the second and the third quarter, slightly lower than in the third quarter 2014.

But if you look at the margins, you see actually in retail it's leveled off, at 4.44%, 4.43% this year, even a slight improvement on the SME side and relatively stable in the other business segments. The uptick that you see in the commercial real estate, that's just a one-off in the second quarter, where we had some fees which were booked in NII.

If you look on the geographic view, in Austria, relatively stable this year. And same actually Romania, a slight drop in Slovakia.

And I think the strongest deterioration of our margin took place in Hungary, where our portfolio has been reduced this year. Operating income, as mentioned in the beginning, relatively flat across the board, slight improvements in Erste Bank Austria.

In the Czech Republic and in Romania, we're back to the level of the third quarter 2014. So no major changes vis-a-vis the second quarter.

And basically the same on operating expense side. So the operating result and the cost/income ratio moved from 55.5% in the second quarter to 56.5%.

In the third quarter, a slight worsening of the cost/income ratio in Austria, also with the savings banks, but improvements in the Czech Republic, in Romania and Slovakia and in Croatia. With that, I hand over to our Chief Risk Officer Andreas Gottschling.

Thank you and good morning and a warm welcome from my side too. Turning to page 20, on the risk side, the situation is not too bad, with risk costs further declining to a normal historic quarterly low.

In a year-on-year view, this holds across all segments and is especially pronounced in Romania on a geographic level, where we took the massive measures for the NPL cleanups a year ago. The slight uptick in SME on a quarterly view is likely to be more of a seasonal phenomenon of the [indiscernible].

Turning to page 21, the NPL ratio has further improved to a five-year low, with the NPL stock finally dropping below the €10 billion mark at Group level. The only segment that bucks the trend somewhat is the commercial real estate, due to declining overall volumes and Croatia on the geographic view, where still some inflow of NPLs on the back of the six-year recession, with relatively poor macro parameters.

On the latter, however, i.e. in Croatia, we have signed several deals in Q4 which will allow us to reduce the NPLs there further.

So turning to page 22, despite the sales-driven cleanup of the portfolio, the coverage has reached a new high, close to 70%. The dynamics seen in Hungary are actually just on the effects of the FX conversion.

And in Croatia, the buildup is due to a catch-up situation, where all banks had a low historic coverage ratio. But we've now reached a comfortable level that we have in the rest of the Group of our CEE banks, where we're north of 60%.

With that, I hand over to the CFO.

Good morning, ladies and gentlemen. We're continuing page 23, the other results.

So the only major event in the Q3 was a FX conversion, already mentioned, in Croatia which was the high negative outlier in the third quarter. Other than that, a normal development on the other operating result line.

Continuing on page 26, assets and liabilities, in the first nine months we could grow net loans to €124.5 billion, a continuation of the trend we've seen in the last four quarters. And at the same time, we could grow our customer deposits, still un-impacted by the literally zero interest rate environment that we're seeing in almost all of our markets.

This brings us to a loan-to-deposit ratio of stable 99.3%, continuation of what we could see over the last couple of quarters. Continuing on page 27, customer net loans growing by 3.3% on a year-on-year basis and a similar, above 3% year to date.

It's a very positive development. And at the same time, the chart in the middle is showing it as performing loans growing faster than net loans.

This is driven by the healthy loan growth in combination with our NPL stock reduction and as already mentioned, non-performing loans for the first time below €10 billion and confirming the trend that we could see. Page 29 shows you our liquidity coverage ratio, our financial and trading assets and liquidity buffers, a similar picture as we have seen in the last couple of quarters.

No major changes, just the own investments showing more and more a picture of sovereigns and bank assets continuously decreasing. Page 30 is showing you the continuation of our excellent funding position.

And as I already mentioned, still mainly driven by household retail deposits. And very stable and continuously building up quarter on quarter.

On page 31, our total debt securities issued. We have finalized our funding plan for 2015 and the picture is a very stable one, with the slightly increasing part of sub-debt and slightly declining senior unsecured.

Recently, we were issuing a 5-years mortgage bond at the level of mid-swap plus 3 basis points. And this is showing the very favorable position that we're in and no major developments over the last couple of quarters.

If we continue on page 32, the maturity profile. Given the lower issuance necessity over the last three years, you see now that the maturing volumes, starting 2017, are significantly lower than we've seen in the last three to four years.

2016, with €4.2 billion maturities, and this compares to last years of between €5 billion and €6 billion. This is reflecting the issuance activities of the last couple of years and the situation that we're basically matching all our new loans with new deposits.

On page 33, we come to the capital position of the Group. As already mentioned, we're not including the third quarter profits and deducting the risk costs in the third quarter, as we were doing in the first quarter.

But nevertheless, even without that, our Basel 3 phased-in capital ratio stands at 11.6%. And on a pro-forma calculation, if we would include the profits on a clean basis, the fully loaded CT1 ratio would be at 11.6%.

With this, I hand over to Andreas Treichl for the outlook.

Thank you very much, Gernot. Page 35.

Basically, the outlook that we gave holds and stands, the economic performance of the region is still rather solid. Actually in some countries, particularly the Czech Republic, GDP growth forecasts have to be upgraded throughout the year.

And what's good for us is that the domestic consumption actually is increasing. So consumer confidence, despite a very insecure political environment, seems to be getting better.

In addition, both for Croatia and Austria, we see a slight improvement in 2016 vis-a-vis 2015. So based on that, actually we believe that loan growth has a little chance for positive surprise next year and maybe helping us somewhat to fend off the reduced returns on our securities portfolio and reduce NII that we get from there through maybe stronger loan growth.

We keep our forecast for 2015, of course noting down that the risk cost guidance includes the treatment of the Swiss franc-euro conversion in Croatia being booked in other operating result. On the bank levy side, no bad or positive surprises.

So far the Hungarian tax has been reduced. The Slovakian tax will be further reduced.

We're still in negotiations in Austria. Based on all that, we also keep our forecast on the return on tangible equity being at around 10% for 2015.

Without giving any further details, we see a slight improvement of that for 2016, with an outlook of a return on tangible equity being in the range of 10% to 11%. Ladies and gentlemen, that's our presentation for the third quarter.

We're ready to take any questions you might have.

I have two questions for you. The first one will be on your 2016 guidance of 10% to 11% ROTE.

Firstly, can you please maybe clarify if it's based on the yearend 2015 equity and similar to last time, when you gave us a range in euro terms for 2015? Would that be then equivalent of anything around €1 billion or maybe even a little bit more at the upper range of the guidance in terms of net profit?

And secondly, can you maybe walk us through - without giving too much details I guess at this stage if you can't. But can you walk us through the drivers related to the improvement in earnings?

And I would be particularly interested if you can split them, how much of that is actually operational improvement. And if there is anything you can say about the budget for regulatory cost next year, to what extent it drives the profitability in 2016.

And then I have one follow-up question.

Okay. On the first question, of course that is based on our expectation for the average equity of 2016 which will be higher than in 2015.

But we haven't given the exact numbers, but yes, it's based on a higher equity base than we had in 2015.

On the details, as already mentioned, operating income will see some happenings from the interest rate environment. You see at the moment loan growth in the - a little bit better, low-single digit, in the middle - in the 3% area at the moment.

So we're hoping to make up some of the headwinds through increased business activity from our customers. On the fee side, we have then next year the full impact of the interchange fee regulation by the European Commission.

We see, in certain areas and fee categories, balancing effects and better developments. We will give clearer details on the individual line items with the full-year result.

At the moment, we're looking at the range 10% to 11% on tangible. You can see that this year's basis that we've given as a starting point was just an indication and we were talking about the average.

The similar thing will be next year. But the number you've mentioned is a good indicator for 2016.

My follow-up question would be on Hungary. Can you perhaps give more color on the government plans to impose some additional costs on banks related to the bailout of brokerage firms?

And how would that fit into your intentions to sell minority stake to the government in the Hungarian subsidiary? And I guess if you can make any read across to perhaps guidance for this and next year as well.

Do you incorporate any additional losses on the back of additional charges in 2015 or 2016? And also, how should we think about minorities, how they were treated in your guidance coming from Hungary?

Thank you.

The last question, minorities in Hungary, what do you mean?

I mean the Hungarian situation should be in any way improving next year, because we expect a turnaround in Hungary. So at this year, we have a deduction, 100%.

And then if the transaction materializes, we will see 70% of the profits included in the Group earnings and the 30% going to the minorities.

If you want to look at the situation in Hungary at this point in time, the brokerage case is being dealt with at the constitutional court at the end of this year. So far, the indications that we get, that this will be solved favorably for the banks.

We made it very clear to the Hungarian government that if that case is not being solved amicably between the government and the banks, that there will be no participation. Other than that, we're still working on the contracts in a very friendly atmosphere.

So it's possible that we conclude the transaction, but most likely not this year.

It's Gabor from Autonomous. Thanks for the presentation.

My first question is on the dividend. Now you have a solid capital position.

I guess you are aware of the capital requirements, both EU-wide and the ones in Austria. Can you give us your views how do you think about the dividend payment next year?

And maybe if you can give us a payout range.

Well, as management, we look very positively at paying a dividend for 2015. We also believe that the likelihood that it will happen is increasing strongly.

And the range that we would look at presently is somewhere between €.040 and €0.50, but that is a decision to be taken by - not by the management. We can only propose, but that's what our proposal would be from our present point of view, unless something dramatic happens at the rest of the year which we do not expect.

We've included in the half-year result a €0.40 dividend in the - this is deducted from the capital. Depending on the remainder of the year, we will then decide on the full-year dividend proposal.

And do you have a capital ratio in mind below which you would not want to drop or is it also - does it--?

When?

By the end of the year or do you, let's say, prepare for some future growth or what is your thinking behind this payout?

Our thinking behind this payout is to basically meet all the three points that you just mentioned. We would like to pay a dividend to our shareholders for a year which we believe will be a pretty good year.

We need to maintain the capital ratios that are being imposed on us. We're including in that a management buffer that we impose on ourselves.

And we would like to be prepared for our growth in 2016 and 2017. And the result of the considerations of all these three points is that we came to the conclusion that the payout ratio of our dividend will be somewhere between €0.40 and €0.50.

And one other question on the 2016 guidance, I understand that you will elaborate on the assumptions at the Q4 stage, but maybe if you could comment on how do you see asset quality and how do you see provisioning going forward because if I just annualize your provisioning for the first three quarters, I get to higher profitability than the 10%, 11% guidance. I was wondering whether you are cautious on some geographies.

What are the assumptions on credit quality?

No. I think not specifically cautious on some geographies, but now, given the experience of the third quarter, that within a very short time the situation in Croatia was €150 million or €145 million payout.

That for us is still classified as a form of risk cost. We're wary of next year in the sense that we will not just annualize the risk cost line items here, but also we're aware of the two events that we had, one in Hungary and one in Croatia, that were not booked directly under risk costs.

But there is a certain volatility with such events and I would not put it out of the possibility that something similar happens next year. So there is a certain management cautious buffer in there.

Okay. So you include the possibility of some unexpected events here?

We don't know of any, but yes, if your wife cheats on you three times, the fourth time you look at it to be more likely than if she has never cheated on you.

I had a couple of questions, a couple of, hopefully, short ones and one more open-ended. Just on the asset quality, obviously everything is going right, NPLs are coming down, provisioning coming lower than probably your original expectations.

On this better experience in provisioning, could you give us maybe some guidance what was going better? Is this less new inflows than you feared?

In what particular segment? Or did you do much better on collections and recoveries or is this more a timing issue where you're worried about some corporates which haven't yet materialized but you're still wary into next year?

So that would be the first part of the provisioning question. The second one, just in your numbers, it looks like the under-watch category had a bit of an increase, €3.5 billion.

And that seems to have been the FIG segment. Could you explain what was happening there?

And then my final question is maybe early days, but quite a bit of excitement in Romania with the collapse of the current government. Would you have any early thoughts on what could we expect for the next one year?

Okay. Taking it in the order that you put it, on the inflow of the non-performing loans has decreased significantly.

And specifically also in Romania, one has to remember that we put up the separation of the workout unit there in 2013 that got into full swing in 2014. And therefore, yes, recoveries in Romania specifically have improved, both on the basis of that workout unit getting going, as well as the macro parameters there being relatively good.

So that both sides, lower inflows and a better workout, especially in the geography of Romania.

Government.

Okay, on the political situation in Romania, it's too early to say. Whether we can move, based on what happened, into a stable political situation in Romania remains to be seen, much too early to say anything.

Okay.

Sorry and the under-watch category increase?

I think this a quarterly fluctuation on the watch. I wouldn't add too much attention to it at the moment.

If this is - it's a fluctuating trend.

It might reverse.

It might reverse again.

There is nothing specifically going on in the FIG segment that causes us any particular worry.

Right, because historically you've never had such a larger number. I just wanted to make sure we're not missing anything.

Okay. That's great.

Thank you.

I just have two questions left. So one is if you can give us a bit more guidance on cost because this quarter there was a quite significant increase in year-on-year cost.

And maybe if you can just explain what was driving that and how you see the cost development in the next quarter. And also, on capital build, so you were saying that, adjusted for this regulatory time difference, your capital would be 11.6%, so basically flat quarter on quarter.

How do you - basically if you could explain what adjustments you're making, because of course if you just look at the net profit and risk-weighted assets development, you have a bit higher build than just flat on a quarter-on quarter basis. Thank you.

So if you add the third quarter, then we would have an increase from 11.3% to 11.6%, so it was not flat on the quarter. I think this is on a fully loaded basis.

And if we look at the cost side, last year we had a very low third quarter and above €1 billion costs in the fourth quarter. But take the average, then it's comparable on a full-year basis.

The quarter on quarter was flat cost development and similar things I'm expecting for the fourth quarter. Depending on the full-year performance, we might have a higher bonus pool accrual than for last year, given the significant difference in the results.

But other than that, the full-year costs on a full-year comparison will be pretty flat.

And the capital build question, have you checked it against half-year results? Because it was 11.3%, including the review.

And in Q3 we were not doing a review. So this is the reason why it's at 11.2%, a natural reduction.

We've seen it in the first quarter as well.

Three questions, please, the first one would be for Mr. Treichl.

Your contract was extended in September and I was just wondering, what are your three - your strategic priorities. And if you would have to name one topic or one project that is in the focus, that would be interesting to know.

And then secondly, on the loan growth guidance, it's low-single digit so far, but obviously we have a negative effect in Romania and Hungary that drops out in 2016. So would you think you can actually grow above 5% in 2016 on a Group level?

And then lastly, on the bank levies, maybe you can add a bit more detail here why you reduced the guidance from €360 million to €320 million. Thank you.

Okay. On the last question, that's rather easy.

That's a new calculation of our contributions to the European depository insurance and to the restitution fund, so that's going to be a bit lower. It's not a reduction of taxation on a national level.

The reductions in Hungary and in Slovakia have already been reduced on that. So, if you want my priority, if I would have one goal that during the next couple of years we build the strongest and most advanced digital database of any financial institution, in Europe or the world.

And that's a rather important goal, I guess.

On the loan growth, low mid-single digit is current guidance. Too early to say.

We will come back with the full-year results on the 2016 outlook will be depending on the development in the last quarter and where we end up as a baseline, but 5% is - I would not exclude it at this point in time.

Two questions, maybe if we can just follow up a little bit more on the last question on growth. If you look across the geographies, clearly we've seen very strong performance in Slovakia and Czech has really picked up as well and we're finally seeing some growth in Romania.

Do you see - is the potential next year for Romania to really show some acceleration? And maybe if you can comment on Hungary?

There's been some recent proposal that is clearly aimed at kick-starting volume growth there as well, so what's your expectation there? And then, the second question will be just on the cost.

I mean, every now and then we talk about the cost-cutting potential primarily in the domestic business. Is there anything concrete on the table for next year in terms of cost saving plans that you can talk about?

On the first question, this is really one of the key issues, but we can't give you a lot more color on that than we did. What is rather apparent is that we're positively surprised about the resilience of the business and consumers towards inept political leadership.

And that seems to be pretty strong in our region. Whether, next year, the consumer confidence in Romania will increase the confidence of investors around the world will increase in order to take advantage of low taxation, very highly qualified labor and a growing infrastructure, we don't know.

Everything is there. I guess the biggest risk that we have is the political ineptitude and capability of taking advantage of the preferential situation that Central and Eastern Europe is in for the moment and in some countries it seems to be working extremely well.

So I think that's included in every forecast, in every outlook that we give. Of course there is room for a positive surprise, if the political environment really stabilizes and gives hope for investors in the country and outside the country that it's the right thing to invest in these places.

That's the biggest issue of all our forecasts.

On the cost side, for 2016, we will have some areas where we have cost up drifts. On the regulatory side we have quite heavy - we have to quite heavy invest in various areas, because a lot of things are coming into existence in the next two years.

These are quite heavy investments, be it MiFID II, be it IFRS 9, other credit and all these kinds of things; this needs quite significant investments and we're already doing it and we're already working on these projects. Secondly, we will have an effect in the first six months next year because we're moving to the new headquarters and in the first six months we will have double the costs here.

We've sold all our buildings that we were owning and put all our rental contracts to be terminated by the middle of next year, so we will take over the building December 15 this year and will start having the costs of the new headquarters and at the same time having higher rent costs for six months. So there are some headwinds that we're having.

Other than that, normal cost discipline will continue as we've seen it this year, because also we're making heavy investments in the digital area and in the regulatory area we see a pretty flat cost development in 2015 which will be difficult to be repeated in 2016. Personally I think that we will see costs up creep in 2016 slightly because of the effects I was just mentioning and no major cost reductions planned at the moment in our CE network.

Johannes Thormann, HSBC. Three questions if I may?

First of all, what really needs to change on an operating level to be profitable like the rest of the Group in Hungary, in 2016/2017? Secondly, we saw very low cost of risk in Slovakia.

How big is the dependency on specific car manufacturers also for you client base? Do you expect higher provisions in that country next year?

And last, but not least, the consolidation of your Austrian banking market, we have probably one Italian and one private equity seller running around looking for buyers. Would you be interested?

Thank you.

Hungary, what you are seeing at the moment is the impact of the FX, a forced conversion from last year and the law on fair banking. This was putting a cap on the margin and this is now materializing in 2015 and will lower the basis, going forward.

Current business development is picking up slowly. We would need a little bit higher growth in Hungary to bring the country to a similar level as the others.

Our first goal will be to turn profitable in 2016 and then stay there, but we're not expecting miracles from Hungary in 2016.

On the Slovakian risk cost, yes, they are really benign right now and at an unnaturally low level, but we have reviewed the upstream of certain car manufacturers and our dependency on it. We don't fear any disasters from that area.

So if the risk costs would go up a little bit there it is not necessarily attributable to specific car manufacturers.

And then we have a further car manufacturing investment in Slovakia, so if VW and Audi really get into trouble they now have Tata with a huge investment in Range Rover and things like that. So, we checked, of course, given that not only Slovakia but Hungary and the Czech Republic all are rather heavy on the car manufacturing side.

We really checked the effect that would have on us, on economic growth in the country and on our performance and for the moment we believe that even if Volkswagen gets into real trouble the real effect on GDP growth in that country, then also on us, will be quite a bit lower than we would have thought, actually. So on the consolidation in Austria, your colleague was asking before what would be my main goal for the next year.

My main goal would be that we really build an outstanding, flexible digital database throughout the Group, based on a common product catalogue and common processes. So that whenever that's done we're able to link in whoever would like to join our Group.

The interest of the Management Board of Erste Group in buying assets in Austria is substantially in the freezing zone. We're not interested in that at all, neither in Austria nor in Kazakh at practically no cost.

Could you talk a little bit about the impact of interchange fees? I mean, I note in Tesco's reporting today they talk about preparation for these changes.

Can you give us some idea about the level, the importance and what we should be thinking about in terms of across the Group of you going from where you are today to where you need to be on that? That would be helpful.

Secondly, on the Czech Republic you talked about some particular focus areas where you now felt you were gaining market share. Perhaps you could tell us in a little bit about where that's happening and what you're happy with in terms of how the Czech Republic is progressing?

And then I suppose the final question would be, in the guidance that you've given are you actually saying to us that margins are going to fall in 2016? The Czech Republic this year you've managed to keep margins pretty flat across three quarters and I just wondered how you feel about, in the Czech Republic and more broadly, how that's going to move forward in 2016?

And I know it's early days, but if there is a change in Czech monetary policy, how do you think that will affect your business? Thank you.

The interchange fee has a full-year impact of €40 million, predominantly Czech Republic. This is just disappearing because we have a cap on the interchange fee and this is gone.

This is what I was mentioning already as a headwind on the fee income side and we tried to make it up someplace else. The areas of focus in the Czech Republic is definitely our retail market shares, where we're working hard to regain some market shares and see this as an area of profitable growth.

On the margin development, what we've highlighted since last year already is the continuous headwinds that we're seeing from our liquidity investments, LCR-driven investments, over liquidity investments, especially in the Czech Republic, where we're majority investing in government bonds and you've seen recently Czech government five-year bonds turning into negative territory. Any maturing bonds that we're having is having a significantly higher yield than any potential reinvestment opportunity that we're having at the moment.

So we have seen this impact into 2015 numbers. We could make up some of this negative development through direct customer business, but next year we will have an impact of similar magnitude that we have seen in 2015.

We're definitely trying to balance this negative impact through increased customer business, but we don't have any better earnings opportunity on the liability side, so we think that a solid development 2016 would be to keep our net interest income in the areas where we're having it right now, given the headwinds that we're facing and we're not expecting any change in the interest rate environment in any of our markets. A potential change in the stance of the Czech National Bank on the Czech ground floor, I think this would have definitely a positive capital impact if the Czech ground be appreciating, but I think, as we recently heard comments, it will be long into 2016 that the Czech National Bank will be maintaining the current 27 floor as an exchange rate.

I have four questions, if I may? First of all, could you give us an idea if you think that there is going to be an impact from Basel IV?

And especially, I would say, on operational risk, if I may? Related to a previous question on, let's say, growing in Austria, you clearly stated that you are not interested in what's going on, but do you see possibilities that the current, let's call it turmoil, among some of your competitors, is going to give you opportunities to grow?

Or is the current situation in Austria, the current economic growth in Austria, so weak that at the end of the day it's not going to make a big difference? Another question that I have I'd be interested in knowing your opinion.

Let's assume rate or let's say QE in your area remains for another couple of years and this will probably track down rates, also in countries that are not part of the euro area; do you think that the headwinds on NII will be more than compensated on the asset quality side or not? And the final question I have is on loan losses in other Austria which came, if I'm not mistaken which came to zero; they were very, very low in the previous quarter, actually zero this quarter.

Just wondering whether this is there to stay just because rates are so low that loan losses are not going to increase materially any time soon? Thank you.

With Basel IV I'm a bit careful because it's a code name for a number of initiatives and I'm not sure which in the end will be covered under Basel IV. There is a possibility of sovereign risk rates, credit floors, new AMA, a fundamental review of the trading book, I'm not particularly worried about because we don't have such a large trading book so the effect will be something which is probably manageable.

From the operational risk perspective I see it quite similarly and from a credit floor and sovereign floor, now that would be to be determined on the detail. It depends for us mostly on what the relative risk weights between then the Western Europe and CEE would be, whether this is a particular issue for us or it's just a change of the basis of risk-weighted assets for all banks in Europe.

But the AMA part in its own, is not something which we're terribly worried about.

Okay, with regards to a competitive situation in Austria, if you look at our core market in Austria, Vienna and the surroundings, Bank Austria and BAWAG together have a market share of about 50%. In my view it's rather unlikely that the deal between UniCredit and BAWAG will actually happen.

And whether it happens or not, we have now over 50% of our competition having publicly announced that they want to get rid of their business and that's a pretty nice situation for us to be in, both in terms of being able to attract clients or to attract good people from those institutions, if need be.

In terms of that risk cost in other Austria, this is also where a lot of the commercial real estate is booked and therefore this is basically dominated by large chunks, by either end provisions releases or, like you saw in the previous years, of additional provisions, so that's where most of the chunky business is. I don't think it's directly related to the interest rate environment.

We don't expect anything particularly problematic to come from that, given the current macro situation, but I wouldn't tie it into the interest rate environment directly.

On the QE impact on NII and links to asset quality and various read across, what we're trying to achieve and this is, I mean, you could see in the first nine months of this year, last year we were giving an overview about our government bond portfolio and the average duration and maturity profile. So we had 16%, 17% of the whole thing maturing this year and around about 20% maturing next year.

We could stabilize our net interest income this year through increased customer business. Definitely the improvement in asset quality was helping.

You can see that the share of our healthy loan portfolio going up, but looking at 2016/2017, if you look at our funding and potential developments, I mean, question we'll be going forward, LCR and MRL will be defining certain expense levels that we will be facing on top of this year's baseline and this will go against net interest income. If you are not having any opportunities to invest the money that's an additional drag and an additional headwind vis-a-vis the DCS baseline.

If we have a higher loan growth rate next year, significantly higher than we're seeing this year and in the right composition, not only driven by mortgage lending, then the likelihood that we balance the headwinds will be higher, but as we mentioned already earlier, we will be giving you more concrete thinking about 2016 with our full-year results 2015. I hope this is enough for your question on QE and NII impact?

My question is can you update us on any plans for issuance of the capital instruments away from equity? Either Tier 2 or, more importantly, AT1?

You haven't got any compliance CID4 AT1. Is there any plan to issue that any time soon?

Thank you.

Tier 2 we're just doing smaller private placements at the moment, nothing to be expected. AT1, we have ideas to come - do something next year.

Serve it to say it depends, as well, on the feedback that we're getting from regulators.

Some clarifications first and then I've got one or two questions. The clarifications are, one, on the capital ratio, you provide the fully loaded like-for-like capital ratio at 11.6% core Tier 1.

I was just wondering, since you had then dividend accruals in H1, €0.10 per quarter, have you done €0.10 in Q3 or it's simply included in the full net income of the quarter but not taking out the dividend?

Yes.

Then, the other clarification is on bank levies and deposit guarantee scheme. Did I see correctly that you booked the deposit guarantee scheme costs in Austria in operating costs?

If not, please rectify me. And I was wondering how much of deposit guarantee costs are still to come in Q4 that you haven't booked yet?

Linked to this, you have now given a revised level of bank levels of €320 million for the year. Assuming everything in Austria stays the same, because we don't know, are we looking for a similar amount also for next year, net of Hungary which is dropping down or not?

And then finally, on cost of risks, clearly it's been doing very well for three quarters pretty much everywhere. Are there any countries where you feel that provisions are actually running below what you consider a normalized level?

Thank you.

On the capital ratio the 11.6% does not include €0.10 of quarterly dividend, because we accrued in the half year and we will then reflect it in the full year, so the last quarter there on the fully loaded CT1 ratio this has to be deducted. Then on banking levies, next year will be the same as this year minus the Hungarian impact is there is no change in any other countries.

In terms of risk costs the question should be posed as in are we in a good part of the cycle there? Yes, but that is the main reason why risk costs are below par right now.

I think over the cycle, of course, Romania and Slovakia and the Czech Republic are now in a sweet spot when it comes to risk costs. Romania particularly stands out, but that has to do, also, with our intentional clean-up of last year plus the better-than-expected macro environment of this year, allowed for a few large cases to actually be turned around and work out and not end up in a provisioning field that would have otherwise have looked different.

So that's all basically cyclical effect, so, I wouldn't say that this is under-provisioned for now. It is mainly driven by the macro environment.

Of course we will see risk costs again, when the cycle turns, rise significantly in all aforementioned countries.

Operating costs, the deposit contribution is in the operating costs in Austria, yes.

But that's also within the €320 million, is that correct? So the €320 million includes this charge, right?

Well, two or three things. First, on Hungary, can you give us your view on new central bank initiative program, actually, to support loan growth, especially on the SME front?

And do you see a risk at that the cut that the Bank takes in Hungary might be conditional? That's the one thing.

The other, on Austria, do you see right now a potential for a bank tax reduction at the moment? And finally, on the interchange fees, you flagged this €40 million impact.

Out of this total impact did we see already some impact of this or will we see something this year? Or is that all for next year?

Thank you.

As far as the last situation, Q3 was the first quarter where the limit took place. So it's already included and full-year impact you will see in 2016.

So this year we will have five months, six months and then next year full year.

On Hungary there are discussions. Some people in the government and the central bank would like to link the reduction of the banking levy to loan growth or whatever.

I guess there are also some local banks who express an interest in that. This is a very clear breach of the MOU and we made that very clear to both the central bank and the government that we would not accept any conditionality, so I hope they will refrain from that.

With regard to Austria I think any comment I would make on that in public at this point in time will be counter our task, so please let me pass on that question.

I just wanted to follow up on the fees in the Czech Republic, so could you give us a little bit of details of what are the fees that you are cutting and how would you measure the commercial success of those kinds of investments, in terms of client gathering or any other measures that you could have? That would be useful.

And second question is very straightforward. Can you cut deposit costs in Romania which are still particularly high, as far as I can see?

So is there scope to reduce cost of deposits in this country? Thank you.

Can you repeat your first question? I didn't understand it.

The fees cuts that are happening in the Czech Republic. Could you give us some details of what kind of fees you are cutting and how would you measure in terms of commercial success?

That could be seen as an investment in terms of client gathering or market share gains or things that could be evident that we could track and perhaps are you going to continue cutting fees into next year? Where do we go from this level?

That was the first question.

Besides seeing the changed fees, the banks - there are banks in the Czech market who are offering products without fees, so we're trying to defend our market position and our customer share and offering, in certain areas, fee reductions as well and we're trying to make that up through cross selling activities. On the one hand we have limitations or limits imposed, like interchange fees and on the other hand we see a market development that is increasing the competition in fee areas.

What you could see in the last quarter, we could stabilize our volumes. We're trying to stabilize our customer shares and probably the income distribution in the Czech Republic will be a little bit different, going forward, than it is right now.

And at the same time we're trying to increase our asset management fees and this is happening quite successfully at the moment. Overall, it will be difficult to maintain the fee levels that we're currently seeing or the fee income levels that we're currently seeing in the Czech Republic, especially given the magnitude of headwinds we're seeing from the interchange fee.

There we saw a reduction from round about 100 basis points to 20 to 30 basis point interchange fee which is a significant cut that we have to swallow, in the next 12 months. Deposit costs in Romania, definitely there's room for improving it.

You could see in all the markets that we were pretty successful having our deposit costs under control. Romania, the bank is quite liquid and we don't need to depend or fight for market shares, so our pricing will be competitive.

At the same time we want to keep market shares in our repo business because we think that we can grow various other areas in the repo business.

So you could cut deposit costs in Romania? That's what you are--?

A little bit we can get it down, yes.

Just a quick follow-up from myself, if I look at Erste Bank Oesterreich the amount of fee income in this quarter has gone up significantly, almost €15 million in the quarter up which is a bit surprising for me. Should we expect, given that you normally have a jump also in Q4 here, looking at your history, was this jump, €15 million jump in Q3, a one-off one?

Should we expect a further jump in the following quarter? Just to have a little bit or more color on this.

Thanks.

I don't think that we will see a jump in the fourth quarter this year. I think we see solid development and we hope to continue this.

I have one question on, you talked at the beginning of the call of the state of the NPL portfolio in Croatia which was signed in Q4 and I was wondering what would be the impact on, in terms of CT1 and NPLs? And do you plan to sell other, I'd say, other portfolios, because for example in the commercial-related business which looks to have quite high NPL ratios?

And secondly, was just a follow-up question on the comments you made on your possible AT1 issue next year. Can you a bit elaborate on what you talked about the feedback of your regulator?

Is it something which is linked to the use of this new AT1 tool? Redeem the outstanding in tier one?

Thank you.

The Croatian will not have an impact on the CET1 or payout ratio, because the transaction was done at book value, so it will be reducing the NPL stock in the first quarter, but this is anyway a continuation of the trains. On the AT1, the feedback I was mentioning has nothing to do with our outstanding.

The feedback is just simply that in the current process the regulator is giving the banks a CET1 target and not a total capital target. This will be something that will be further clarified, I hope, in the beginning of next year and in combination with various other clarifications and this will be the end for us on the point where we will be deciding on the AT1.

And regarding plans for the sales of the commercial real estate or other NPLs, yes, we have those plans and as we iterated in the last quarter also, we will do those sales if they're priced accordingly to our expectation and book values and else we won't.

Just a quick housekeeping question for me, please, I think you sold your stake in the Austrian lottery in Q3. I was just wondering how much, if any capital gain was included in the results and how much that contributed at the pre-tax level, please?

It was €38 million in the Austrian segment, the contribution pre-tax. Yes.

I have a small question related to the recently announced transaction of Visa in the U.S. and Europe.

I was just wondering if you could disclose any potential impact you'd expect to book and are you a shareholder of Visa Europe right now.

Yes, we're. We have various small participations, biggest one in the Czech Republic.

It's too early to give an impact, because that transaction is still subject to regulatory approvals, but it might be next year a positive impact on our 2016 numbers. We will come up with something, most probably with the full-year results announcement.

Are we talking about a magnitude in double-digit million euros?

Low.

Ladies and gentlemen, since there are no more questions, thanks very much for your interest in Erste Group. Thanks very much for your questions.

We hear each other next time the latest on February 26 next year with our full year results 2015. Thanks and have a good day.