Erste Group Bank AG

Thomas Sommerauer - Head of Group Investor Relations Andreas Treichl - Chief Exeutive Officer Andreas Gottschling - Chief Risk Officer Gernot Mittendorfer - Chief Financial Officer

Pawel Dziedzic - Goldman Sachs Johan Ekblom - Bank of America Merrill Lynch Simon Nellis - Citigroup Benjamin Goy - Deutsche Bank Gabor Kemeny - Autonomous Research Riccardo Rovere - Mediobanca Johannes Thormann - HSBC Alan Webborn - Societe Generale Andrea Vercellone - Exane BNP Paribas Hadrien de Belle - Keefe, Bruyette & Woods, Inc. Matthew Clark - Nomura Stefan Maxian - Raiffeisen Centrobank Gilles de Bourrousse - Octo Finances

Thank you very much, operator, and a very warm welcome to everybody who is listening into this year-end conference call of Erste Group. Today’s call will follow the usual routine.

Andreas Treichl, CEO of Erste Group; Gernot Mittendorfer, CFO of Erste Group; and Andreas Gottschling, Chief Risk Officer of Erste Group, will present to you the highlights of the fiscal year 2015, after which management will be ready to take your questions. Before I handing over to Mr.

Treichl, I would like to highlight page 2 of the presentation, which contains the disclaimer. And with this, I hand over to Andreas.

Thank you very much. Ladies and gentlemen, good morning from my side too.

If you hear a funny noise in the background, it’s probably sneezing. So I apologize it would happen.

Let’s start on page 4 with the quarter-on-quarter performance. Fourth quarter net result was down by €73 million to €204 million.

Actually if you look at the component of the operating income, we had a slight increase in net interest income. We had an increase in our commission income, but a relatively sharp reduction from €56 million to €17 million in our trading income.

Costs were in line with the fourth quarter of 2014. However, risk costs were a bit higher and the other results were a bit higher than in the third quarter.

So it came down to €204 million. On an annual basis, our net profit after-tax is €968 million.

Here we show a slight reduction in the operating income, a slight increase in operating expenses. But again, if you look at the component of operating income, net interest income was down about €50 million, which is actually a bit better than we would have expected.

Commission income relatively flat and trading income down by €32 million. And, of course, a dramatic improvement on the risk costs side and also in the other result, although as you know, we were again hit with some rather populistic measures in the last quarter of 2015 in Croatia and in Romania.

So, overall, I think a pretty good result, which you can see on page 5. Net interest margins relatively stable, down for the year from 2.65% to 2.59% by the slight uptick between the third and the fourth quarter.

Cost of risk, as you can see substantial improvements and in the fourth quarter a slight uptick from 44 basis points to 64. Banking levies were a bit lower than in 2014, and hopefully, we can work on that into 2016 and to 2017 and see a further reduction.

Overall, return on equity for the full-year at 9.3%, so I get about the cost of capital, and on tangible equity, the return was a 10.8%. If we go to our balance sheet on page 6 actually only two things really worth mentioning, which is €5 billion plus in net loans and €5 billion plus in customer deposit.

So another step forward in turning our group into plain real economy bank. It’s a good performance, not necessarily for the P&L, but as for liquidity purposes, we’re still suffering from the fact that regulators do not give enough credit for very granular retail deposits, but we’re very satisfied with that performance.

As a consequence, the loan-to-deposit ratios you can see on page 7 increased again a bit loans as a percentage of total assets up to 63%. And I think the most notable ratio on that page is the improvement of the NPL ratio from 8.5%, down to 7.1%, and that’s presale of our NPL portfolio in Romania.

The worsening of the NPL coverage ratio is almost entirely due to the fact that we adopted the EBA rules in 2015 for the first time. Capital ratios were strengthening all across the board.

Our core equity Tier 1 ratio fully loaded up to 12% from 10.6%. and liquidity coverage ratio and leverage ratio both improved quite substantially.

So if we start looking at our business environment on page 9, it doesn’t look too bad for 2016. We see Austria recovering a little bit.

We see Croatia recovering a little bit. We see Slovakia and Romania continuing to perform very strongly.

Czech Republic supposedly GDP growth should be somewhat lower than in 2015, let’s see. We’ve seen upgrades on that throughout the last quarters.

But what’s important for us is that domestic demand contribution also in the Czech Republic space is quite strong. Unemployment rates improved all across the board with exception of Austria, but that’s only political issue.

And in all the remaining, as I think we’re doing relatively fine. What is very pleasing for us is the public debt situation in our three major countries; Czech Republic, Slovakia, and Romania.

They rank top on that in Europe. On page 10, market interest rates not much to be said, same story across the board.

They’re coming down long-term and short-term and make our life difficult, and by the way also the life of our clients. Currency volatility is very low.

We expect no major changes on that front in 2016. And if you look at our market shares, they are actually stable or slightly improving with the exception of Romania where, of course, our market share came down, particularly on the corporate side due to the sale of our NPLs, but other than that no major political or negative developments.

If you look at the composition of loan growth on page 14, actually the only real surprise is that, we saw stronger than expected loan growth in Austria in Erste bank, but also with the savings banks continued strong growth in Slovakia and the best areas pickup in speed in the Czech Republic, almost unchanged in Romania and in Hungary and Croatia. Deposits same story, mainly retail deposits and deposits from small and medium-sized companies, but also growth across the Board and for the first time in five years also growth on the deposit side in Romania and a slight uptick in Hungary.

As a result of that, net interest income, as I told you already, I think it’s more important to look at the net interest margins, where you see actually a pretty a clear picture, but actually improving – slightly improving margins in Austria and in Croatia. And a deterioration, but nothing dramatic in all the other countries with the exception of Hungary, where saw a steep decline in our margins, but that has, of course, to do with a complete change of our loan portfolio on a currency basis.

If we go to the operating income on page 17, if you look at the geographic components Erste in Austria actually stable. And the other entities savings banks and our other subsidiaries in Austria a slight improvement.

And Czech Republic, Romania, Slovakia basically no change. Also, in Croatia, it was a slight uptick and nearly a reduction by 50% in Hungary, so that’s – that was the dramatic hit in 2015.

Operating expenses flat almost across the board with the exception of Austria and the Czech Republic. So very much the opposite picture than what you saw on the income side.

As a result of that, if you look at our cost income ratio and a slight improvement in Austria stable at the savings banks and strong improvement in the Austrian subsidiaries and a stable was slightly worse in the other countries. That’s about the business performance.

And with that, I hand it to Andy.

[Audio Dip] risk costs have stayed at a reasonable level everywhere year-on-year except segment SME and geographically in Croatia, where the cleaning and the portfolio sales caused a slight increase on the risk cost. Quarter-on-quarter it’s a more varied picture, but generally low levels with some one-off effects such as a surprise default on a commercial real estate item in Slovakia.

Overall, the development in the segment large corporates and retail, as well as the geographies Romania and Hungary are particularly pleasing, especially when you compare it to the 2014 event. Turning to page 21.

The good NPL development with benign inflows despite the change of methodology, adopting the EBA methodology, the main driver of our increase in the nonperforming loan sale was changing of the product due to the client view in two of our major locations, which was Czech and Slovakia. And that drove basically all the NPL up drift.

The – still including this up drift, we could well compensate and achieve a €1.5 billion decline all over. Furthermore, the big Christmas sale of another portfolio in Romania, which has not been recognized in here, because it’s still up to the competition commission to decide before it can be disclosed here will result in a further down drift of the NPL ratio to approximately 6.7%.

This is expected to happen in the first quarter. Turning to page 22.

There the NPL coverage remains at a comfortable level with basically most of the changes relatively coming from the mentioned EBA definition adoption, which of course given the change on the NPL side without the coverage ratio adjustment will change the individual ratios. And with that, I hand over to the CFO.

Good morning, everybody. We continue on page 26, assets and liabilities, an overview on the year-to-date development loan to deposit ratio 98.4%.

And I just focus on the main items. Net loans increasing from €120.8 billion to €125.9 billion year-on-year, second bigger development on the asset side was the cash position going up from €7.8 billion to €12.4.

billion. On the liability side, same development as in the last couple of quarters.

Customer deposits growing by €5 billion year-on-year, so we could cover all our loans, all our increases on the loan side with additional customer deposits. We continue on page 27, the break-down – the regional breakdown.

So you can see also Czech Republic, Slovakia main drivers of the development, as already seen in the last couple of quarters and on the performing loan side similar development. NPL down also up to €9.3 billion, and we hope that we can derecognize the Romanian sale in the first quarter depending on the timing of the approval of the public authorities.

We continue on page 29, liquidity assets and liabilities distribution by geography is a similar picture, as we saw in the last couple of quarters. By debtor type more sovereign developments and equity expense of the banks types are maturing bank investments are not replaced.

And liquidity buffer on the right-hand side chart you see at a very comfortable level and highlighting and confirming our excellent liquidity position. Page 30, the customer, the deposit funding €92 billion coming from households and despite a zero interest rate environment and the majority of our countries still inflow of household deposits and stable development on the other deposit items.

As a consequence of the low interest rate environment and the very small interest rates on term deposit, you see that customers are just simply keeping the liquidity on their current account as overnight deposits. Page 31, on funding similar pictures over the last couple of quarters, an increase on the sub debt and stable development on the covered bond price and as maturing reduction of senior unsecured bonds.

Page 32, shows you the maturity profiles that we have 2016, the last year where we have about €4 billion in maturities here. Remember, we had years, where we had €5 billion to €6 billion and then the decreased issuance activities will reduce he maturities to below €3 billion starting in 2017.

In 2015, we in total issued €2.4 billion, thereof, we did two mortgage covered bond benchmark issues totaling €1 billion. The average maturity is about seven years of the regions activity in 2015.

And this year we’ve done in January €750 million, seven-year mortgage covered bond at mid-swap plus 16 basis points. A quick look at the capital position, page 33, a continuous improvement on our capital buildup combined with a flat development of risk-weighted assets, even a slight reduction, reflecting the improvement in the credit quality leads us to Basel 3 capital ratio at the year-end of 12.3% phased-in and a total capital ratio of 17.9%, and fully loaded Basel 3 ratio of 12%.

And these brings us at the level, where we easily cover the requirements from the SREP assessment that you can see on the right lower-end of the page. So even if we include the systemic risk buffers data, well if for Austria and it will be phased in until 2019, even the 2019 number if the SREPassessment stays as it is, is already covering our current capital position.

And with this, I hand over to our CEO for the outlook.

So on Page 35, as you look at the basic economic environment outlook that we see is actually mildly positive. We see stronger gross of the economies in which we operate.

And in the rest of Europe and that probably could include in 2016, actually all our countries maybe even, including Austria. And given the strong concentration of our retail portfolio, of course, we will benefit if most of the GDP growth is driven by domestic demand, as that fuels consumer lending and mortgage lending.

The return on tangible equity, we expect to about 10% to a 11% in 2016. And based on the capital strengths that we have and our outlook, we expect that we will be able to pay dividends over the next years.

What you see if you look, of course, at the outlooks that we gave last year, we are not giving any outlook on the operating income and on the operating result side. And let me explain the reasoning behind that.

I guess, we do see a loan growth, we see a potential of loan growth for Erste Group being quite a bit stronger than for most of our competitors given the economic environment in our region and we also see continued improvement of our asset quality also based on the relatively good performance of the countries that we’re in. Let me just tell you what kind of loan growth would be required in order to keep NII flat.

If the interest rate scenarios stays the same – I just heard that some people cannot hear us. And we should be informed shortly.

Let me just continue for those who can hear me. So we need probably about 5% loan growth plus to offset the rundown of net interest income in our securities portfolio.

And it’s very difficult for us to really give an outlook in 2016, given that we don’t know what ECB action is going to be taken. Now, we’re going to move into negative territory in the euro, are we going to move into territory – a more negative territory in Europe and into negative territory in the Czech Republic.

We’re working on it, but of course, the operating income line is very NII sensitive. So on the commission income, we do everything to improve it, particularly working on getting our clients to move into asset management products, where they can earn a return and we can earn – see income.

We see very little chance that we can reduce our operating expense base. So actually we would see operating expenses to grow a little bit, not much, which basically due to the investments that we undertake in the digitization of our data network.

So, on the, I think, basically, you would have to derive your conclusions on the operating results based on the return on tangible equity that we give, which is based on a continued good performance on the risk side and the hope that we might have a better other operating results. As you can see we have one finally a positive one-off coming up in 2016.

We have provided already for potential negative one-off in Romania. We have some success on the banking levies side, and we might have a bit more success on that.

So everything that’s positive on that front, of course, will help us to beat our own budgets. That’s about it.

So we feel quite good about 2016, as it regards our region. We only can hope that politics go normal, sometimes I doubt whether we can hope for that, but we do.

And I think we’re fit to go into even a difficult environment to produce a result in which we can say even in a very difficult environment we can buy now our cost of capital. Thank you very much.

That’s it. We’re ready to take any questions you might have.

Good morning and thank you very much for the presentation. My first question was actually on the thing that you just mentioned, so progression of your operating income into 2016.

I appreciate there’s a lot of volatility about this. But it seems that from everything that you mentioned, you will see a significant pressure both of you on your revenues and a little bit on your cost going forward?

So, I know perhaps you don’t quantify how your operating might move. But would you be able to confirm that from the remark that you’ve made that’s your expected decline in 2016?

And I – maybe we can take that question and I have one follow-up.

From today’s point of view, we would definitely see a decline in our operating result 2016.

Very helpful. Thank you.

And your – you put a negative interest rate as a risk to your guidance, rather than in your guidance, and again this is perfectly understandable. Would you be able to give us an idea about incremental sensitivity of your operating income or your revenues to a more adverse rate environment?

So again, Mittendorfer here. We have various scenarios a slight reduction from the ECB 10 basis points in March wouldn’t have a significant impact.

But there are other potential developments would have a much more significant impact. Negative interest rates in the Czech Republic would be the biggest one.

And nobody knows at this point in time, how Central Banks will be reacting during this year. You could see in the last year, our net interest income kept quite positive and kept quite up in the – in this adverse environment.

The environment didn’t change. And we think that we will have an announcement from ECB that the whole year we’ll see the same environment as we’re currently in, or even worse environment that we’re currently having.

So it’s difficult to assess. The earlier the moves are coming into more significant they had more impact.

But as I said, a small reduction in March will not change anything on the outlook.

Okay. That’s very clear.

And maybe and last very short question. You put a continued dividend payout in your guidance for the next year as well.

Would you be able to give us an idea how do you think about dividend policy? Is that payout in the range of 20%, 25% the same as this year a reasonable assumption?

Thank you.

Yes. Sorry, yes, go ahead Andreas

I think we’re proposing to the general assembly a dividend of €0.50 for this year. And I think that the payout ratio we’ll be paying very much on our capital situation.

And I guess that towards the end of this year, we probably see very clearly what our future straight requirements will be that’s, at least, what we’re being told by the regulators. Once we know that, we know exactly which kind of cushion we have and we need and we would like to require.

And the excess is available for the shareholders. We do not intent to keep excess capital for any potential acquisitions that might happen five, six, seven, eight, 10 years from now.

If we would entertain the idea to do something like that, we would raise capital. So we feel comfortable with our capital position.

We will payout whatever we can to our shareholders.

And just to follow-up on the last point that you mentioned an excess capital. Do you see any regulatory risk, or anything that could potentially impact your capital position in a negative way?

You mentioned on the last call that you’re working on IFRS 9, is the impact of that more clear at this point?

I have raised nine is – our work in progress, and we’re calculating the potential impact in our capital planning. As you’ve seen we were in the half-year result.

We were including in our capital. We were deducting from our capital already €0.40 dividend per share, so we were increasing it now with the full-year results to a proposal of €0.50, because we have reached 12% fully loaded CET1 ratio, and say that it’s valuable if everything stays the same and loan growth will not significantly increase over the next couple of years, dividend payout ratios might be going up.

Okay. That’s very clear.

Thank you.

Thank you. Just a couple of questions.

Firstly, in terms of the top line guidance, I think, you mentioned that Czech Republic is where you have the biggest sensitivity to rate cut. I think you’ve given the sensitivity to rate hikes in the past.

I think as we know it’s not always symmetric when you’re around zero. So can you give us the sensitivity to further rate cuts in Czech Republic?

And secondly, I think you sort of started to mention how much volume growth you needed to offset just the lower reinvestment yield on the portfolio. And I’m not sure if it cut out or if you didn’t mention it, but if you can confirm how much growth that is roughly just to give us an idea?

And then thirdly, just on the guidance, I guess, since you gave this 10% to 11% with the Q3 numbers, we’ve moved the, at least, part of the Romania charge into the 2015 results? We have the VISA gain.

So, all in all, that’s well over €200 million. Should we read what you’re saying today as to the – your expected profits for 2016 is €200 million lower today than it was three months ago, or is this extra buffers that makes you comfortable, or how should we view that change?

You should not read it that it’s €200 million lower. First of all, the average tangible equity, where we were basing our 2015 guidance was €8.9 billion.

And now we are having a starting point of €9.5 billion, and the average will be higher, because we have a buildup during the years just from the higher capital levels. We need €100 million more net profit to keep the return at the same as it was in 2015.

Romania is not a – the Romanian charge is not a – seem that we were taking from 2016 to 2015. Romania is just simply the consequence of the refinancing of our mortgage portfolios, where we were offering the customers new contracts to avoid the potential threat coming from consumer protection initiatives and legal actions.

And this is just assuming that the rest of the customers will move to the new contracts as well and this is the impact that we were closing. So we wanted to keep this mortgage portfolio refinancing campaign close in terms of recession 2015.

But as one consequence of the whole thing going forward, because we have lower rates on these mortgages and this will put a pressure on the net interest income on the Romanian entity. So the one-off VISA, this is a nice positive one-off.

But I mean if you look at 2015, I mean, we were giving a guidance. We didn’t know that Croatians will be introducing and a bit slow.

We don’t know what politicians will be doing in our region in this year. Don’t forget, we have some countries, where we have elections, and election years are always good for surprises for us.

So, basically, to stay at the same returns as we had in 2015, just simply as a consequence of the capital buildup, we have to show a higher profit in this year.

And then on the – are you having the sensitivity rates in Czech Republic?

Yes, I mean, higher rates would be definitely positive for us. But I think…

I’m more worried of lower rates?

Nobody is calculating higher rates, and I didn’t expect this question. So are the lower rates…

No, I think you’ve given guidance in the past, as to the impact of higher rates in Czech Republic?

Yes.

But it’s often not an asymmetric effect, if you’re at zero. So negative rates tend to be more painful than an equivalent move upwards.

So what’s your sensitivity to a 25 basis point rate cut in Czech Republic?

So the Czech Republic, I mean we have still a positive deposit rate of 5 basis points of the National Bank. If this is – turn to zero or negative, this will have an impact of round about €15 million.

If Prima is moving to negative territory, this is a much more significant negative impact, because then we have the question of what happens to the margins, and we have a lot of business especially in the corporate area linked to Prima rates. And there’s just a question how deep it goes into negative territory.

And the question is, I mean, we’re flooring the business at zero and including the margin, but these are untested areas, and we have to see holiday business we will be developing in other margin situation we will be developing. It’s extremely difficult to make a statement about the situation we’ve never seen before.

Are you able to reprise existing contracts if you see negative rates?

Well, we have prepared for a negative rate scenario, by flooring indicators. But you can expect that one or the other thing will be challenged when the situation arises.

So we are very careful and cautious making statements in this area, because it’s – as I mentioned it in untested territory. If it’s just that the deposit rate of the National Bank, this is nothing we are worrying about.

But we can see scenarios this year that have much more severe impacts way you can just guess today what might be happening in the markets. Equation as well, how – when we would be – would have to start to charge customers for deposits and what would be the consequences out of this.

But this is something I don’t want to speculate at the moment, because it’s not our base case. And we think that as I said near-term, we have moderate adaptations to the current situation that will not have severe impact on our earnings.

Thank you.

Hello, thank you for the presentation. Most of my questions have been answered.

I guess, I just ask one on asset quality, seem that your mining exposure the MPE has gone up quite significantly, I guess it’s something that large. But I’m just wondering if you could give anymore color what’s going on there, the coverage ratio fell quite substantially?

And if you could also provide any further color on your energy exposure in general? And then also in Romania, if you could comment on whether you think the provisions you’ve taken on these consumer protection issue is sufficient.

So I think we’ve – the Romanians also considering making mortgages potentially nonrecourse, I’m wondering if that could require additional provisions at some point? Thank you.

It’s really an absurdly stupid thing to do, what the Romanian Parliament presently is planning, because they’re trying to move against the banks. In reality, they’re moving against their young people in the country.

And it’s – that is a much more serious effect on our business, because it will hamper mortgage lending growth and the economic performance of the country.

Well, we are still searching for the mining part on the energy sector and the direct exposure, so we feel very comfortable. We have things around 4 billion in energy directly and indirectly.

This is all very contained scenario. We’re not exposed to the part of the U.S.

energy sector that is repeatedly being noted as being in credit problems. And therefore, I think there’s nothing there that we foresee for 2016 to be an out of turn defaults charge.

All right. And maybe just one other question on what are your plans in terms of AT1 issuance?

I think we’ve been hearing that the threshold on the total capital basis for MDA will probably start to include pillar 2 next year and I think your – you don’t have too much headroom over that?

This is something we will get more clarity in the course of this year. Initially, we were planning to issue AT1 in 2016.

We think that we will in total need 1.5 billion AT1. And initial plan was to issue this year and the next – and the following next two years.

Given the current capital position on the CET1 level, there’s no pressure for us. And we’re looking at the market developments and that to get more clarity on the capital composition, how it will be moving into – in 2016.

And in terms of covering, a coupon coverage available distributable rights since there was a more than enough buildup in 2015 to support an AT1 issuance. So timing will be decided once you see we have more clarity.

We have some hybrids outstanding, where we have a call in September this year and the decision on these will be then consequently drive our decision on the AT1.

The answer to the mining question is that, this is as far as I recall a result of the EBA definition was nonperforming for balance being adopted there for a couple of SMEs

Right. So that you don’t see a need to top-up the provision coverage back to the 70% level that you had before?

No

No. Okay, thank you.

Yes, good morning. One question on risk costs.

Obviously, your asset quality is generally improving and you has the Romanian NPL sale coming up in Q1? Could you give us an indication how you think about releases from the shrinking non-performing portfolio for the group and Romania, in particular, and what would risk costs could be for Romania, and yes, for the group maybe whether you might be able to keep that stable year-on-year.

And the second question is on capital. Should we expect that your risk rates continues to decline given kind of the new business should have a better quality to end the stock and just the loan to support your CET1 ratio?

Thank you.

So first of all the sale of the Romanian NPLs already happened, that was done just pre-Christmas. So this is just the de-recognition part requires a number of steps, i.e., the closing and the competition commission.

So the sale actually already happened as far as that goes. Do we expect a large right backs?

No, we don’t. I think we feel that we’re adequately priced the sales, so far not brought us into a huge windfall profit.

We’re lucky to say that so far we’ve always gotten a little bit back, but we’re talking about tiny amounts there. So that will not be a game changer that we expect in anyway.

Do we think we can keep the risk cost stable for this year? Yes.

On the pure risk costs side, this is X any political intervention and surprises, such as the Croatian issue or the aforementioned issues that could arise in Romania. But on a true credit risk, I would feel relatively comfortable for this year, as it goes so far.

The average risk rate should – the trend that we are seeing at the moment should be continued in smaller improvements steps, because the better they keep things stock, the smaller the incremental help.

Okay. Very clear.

Thank you.

Hi, this is Gabor from Autonomous. A question on taxes, your tax charge was very low in Q4.

But I think if we annualize, if you look at it on a full-year basis, your effective tax rate was like 22%. Shall we consider this now your normalized tax rate?

And the other one is actually a follow-up on credit quality. You mentioned that you adopted the customer definition for NPLs in Czech Republic and Slovakia.

Can we assume that you have yet to adopt it in Romania, Hungary, and some other geographies. And can you maybe give us a sense how would that impact your credit quality metrics?

So on the tax ratio, it was specifically low this year, because we had a positive effect from improvements throughout the group and better tax position, because better outlook. So this was a year with lower than expected tax rate.

We should move back to the 25% tax ratio in 2015. You remember, we had – when we were above the 25 and this was causing us write-offs of tax assets.

And increasing the tax ratio, we have seen a slight release on this in 2015, but should go back to normalized levels in 2016.

Regarding the credit quality, the EBA definition and timeframe in which it was to be implemented forced us to change this. And this is mainly a systems issue.

And there’s no other country that still have the product view, they’re all on customer view. So there’s going to be zero impact from that.

Okay, very clear. Thank you.

Yes, good morning to everybody. Three questions, if I may.

The first one is just kind of a follow on, but just want to be 100% sure that the €130 million pre-tax gain from VISA is included in the 11% – the 10%, 11% ROTE target that you mentioned. I think you could eventually give us the post-tax effect.

This is the first one. The second one, if you go to please list all the regulatory pending regulatory issues that make you difficult to provide us with a little bit more clarity on what could be the dividend payout in the future?

And finally, given that the – given that your capital is growing nicely quarter-after-quarter. We remember Mr.

Treichl’s comment on potential external expansion, let’s call it this way. I was just wondering whether anything has changed?

Did you see opportunities and more opportunities or lower opportunities to expand within your core markets, or maybe eventually outside your core markets? Thank you.

For the VISA, it’s a pre-tax number and then it just it takes the average tax rate as I was mentioning 25% any of the post-tax number. And we have recognized the 80% of this are in the capital position, because it’s in AFS position for 2015.

So it would have a P&L impact, but smaller capital impact. And if you…

Sorry to interrupt, but the P&L impact is included in the 10%, 11% ROTE guidance you provide in 2016?

Yes.

Okay, okay. Thanks.

Okay. With regards to future dividend payments, I guess, the regulatory uncertainty is not only pertaining to the final total of capitalization that we will have to hold at the performance, where we hope, but we don’t know that this year we’ll get sort of maybe the final number for the next coming years.

But don’t forget that a lot of the regulatory issues being Basel 3 driven, or EBA driven, or audit driven now having also an impact on our business. IFRS is not only an accounting issue, it has an – IFRS 9 has an impact on our business.

MiFID II has an impact on our business, and not necessarily positive impact. So I think that is something that requires us to be very cautious.

Now, with regards to our willingness to acquire something. And let’s assume, we feel comfortable enough with our capital position that we can pay dividends, keep our required ratios, and would have room left to acquire something instead of paying it out to our shareholders.

I think very cautious on that for the moment. As you know we have been interested in the past on maybe acquiring a small entity in Poland.

And when we were interested in that, it was too expensive. Now actually it’s even lower in price than what we would have been waiting for.

I wouldn’t touch it for the moment not because the bank is bad, the bank is great. But you only go to Poland tomorrow and you want to make moves – moving into a market where you pay 1.5 times book for a bank.

And then you have the parliament convening and passing a couple of laws there a week later, you would even pay 50 bps for the bank. So it’s very volatile for the moment.

So we’re going to wait and see whether politicians come to their senses. And if we have the feeling, they will, we might make a move again.

And then we’re hopefully not wrong on our judgment on politics.

Okay. That’s clear.

Thanks.

Good morning, everybody. Johannes Thormann of HSBC.

Some follow-up questions. Could you specify first of all where you see the biggest loan growth in 2016, and where you see the weakest?

And then also in terms of loan loss provision in a more qualitative way to get a feeling how you see it. What could – what factors and which country should be worse in 2016?

And where you expect still an improvement of asset quality and then loan loss provision? And last but not least, even the German savings banks are now talking about more consolidation.

Is your move to expected among the Austrian Savings Banks and your other – and your Austrian Savings Bank segment?

Well, maybe let me start on that. That depends on what you discuss and the way you consider consolidation creating bigger Savings Banks necessarily does not make a better banks.

So we have some very small Savings Banks who run at a cost income ratio of 47, and then we have very large Savings Banks who run at a cost income ratio of 74. So being a large and doesn’t automatically mean that you’re better.

The real question is, how far can we take the Savings Banks taking part in the centralization and digitalization of our data network, and how far can we completely eliminate back-office expenses in the Savings Bank sector and hold them as really strong as independent sales offices? If we can achieve that I don’t care whether we have 50, 60 or 20 Savings Banks in Austria as long as they’re profitable and well run.

On the loan growth equation again we see Slovakia, Czech Republic, Austria as drivers weakest areas still Hungary and depending on if we see that and solution going forward in Romania, you can expect that mortgage lending growth rates will be collapsing in the country. But I mean if we look at situation as ease with no changes, I would say that the north will be the driving path and then some pickup in the center and south areas and a turnaround hopefully in Hungary and so positive impact from Citibank portfolio acquisition that should be coming in the last quarter this year.

And in terms of asset quality, I think the country that was mentioning that the growth drivers are continuously showing very solid asset quality trends and if we look at the GDP outlook that we are having and then the components of it, there is no worry about the deterioration of asset quality and underwriting quality in these countries.

When it comes to asset quality over the course of 2016, I would say that we will have a slightly larger volume, a slightly better base from the macro parameters inflow i.e. lower inflow, new NPLs, the question pertains to the NPL levels that we currently see in the ratios.

We will continue given the market environment to reduce those, because these are still a lot of old stock, well not a lot anymore. But we will continue to get rid of old stock.

The inflows, a total volume probably the same based on a larger loan book and a slightly better quality, it’s my best guess for 2016 now.

Thank you.

Hi, thanks for the call. Could you talk a little bit about the loan dynamics currently in Romania, in terms of performing loans, mortgages and also unsecured consumer lending and also whether you feel that any pickup in new corporate lending?

Just to give an idea in terms of what the momentum in the economy is looking like and given the sort of macro gross rate that we’re seeing and just to compare that with the fact that clearly you will – those customer loans continue to shrink that would be useful? Secondly, have you quantified the impacts of the change in mortgage rates that will happen as a result of this €100 million provision that you’re taking and so this over I can understand you provisioning it early, but over what period you’re seeing that impact will come?

Is it 10% or 20% of the net interest income that you’re going to lose? Just to give us some idea of action and the timing.

And then on Hungary, is the level of net interest income that we saw in Q4, after this run rate now or is it likely just sort of to be more attrition as we go through next year. And then final question on the banking levy to sort of €360 million view that you give for 2016?

Is that equivalent to the €230 million that you are talking about for 2015 or are there other things involved in that? Just to give an idea of what the year-on-year like comparison is?

And clearly in your outlook statement, you are suggesting that there are going to be a number of hits to the first quarter and obviously you could just sort of maybe clarify that a little bit, because am I right in what you’re saying is that there’s going to be heavy other operation cost hitting the first quarter, I mean some of that we already know, but could you tell us, what else we should be expecting this year as opposed to last year? Thank you.

So, I’ll start with your last question, as usual we will be – as last year we will be booking the – all the newly established contributions in the first quarter. The only thing that is coming in addition in comparison to last year is the deposit insurance contribution in Austria.

I guess this was a starting into second-half of 2015. So that will be a part of it, the reduction we will see from the Hungarian banking takes in the first quarter, because this is lowest past already.

So like for like we see there is similar hit from the other operating results line in 2016 and the first quarter as we have seen in 2015. On the net interest income in Hungary run rate is one extra negative in the fourth quarter around €9 million that is a one-off and this was concerning unwinding, which is a reduction in the net interest income and opposite booking in the risk cost line and this is explaining the risk cost deviation in Hungary in the fourth quarter.

On loan dynamics in Romania, what we are seeing in the last two weeks is quadrupling of the Prima Casa application, because people have already said that they will not quantify anymore after potential datio in solutum, law will be passed by the parliament. So this is a one-time effect and will be just temporary and this is just shifting of normal production earlier weeks.

Other than that, we see a normal and solid development at the moment. With the disclaimer from our side that we will definitely change our lending conditions if the laws are passed in the current proposed ways, and this would be then having a negative impact.

On the refinancing of our mortgage portfolio in Romania, you remember, we were saying that overall impact over the lifetime of the portfolio, which is an average 15 years going forward would be a gross figure of €200 million, which you cannot just simply divide that €200 million by 15, because the impact would be a little bit higher in the earlier years and a little bit lower in the later years. So a normalized impact in 2016 should be round about €20 million on our net interest income just for the position.

We’ll be depending how the other parts of our loan books are developing and how are we develop especially in the first two quarters this year, because this will be offsetting a negative impact from the refinancing of the portfolio. On the backing levies, the €360 million also includes the payments into the European and the local deposit insurance and into the restitution fund.

So we see €210 million of – €260 million that remain – some include €210 million of banking levies of which about €125 million in Austria, the rest in Hungary and in Slovakia, where we expect reductions in the future. And the 150 about equally divided between local deposit insurance, European deposit insurance and payments into the restitution fund, so about €50 million each resolution from there.

Okay?

That’s super. Thanks very much.

Good morning. Two questions on NII from me.

And again one clarification on the banking levies. Let’s start with this one, because this is just a follow-up on the previous question.

I think 360 compares to 320, which is what you booked in 2015. Where is the delta coming from – negative delta given that we know that Hungary is going down, it’s – something else is clearly going up?

And then the other questions on NII, wondering just a detail, if you can explain what happened in the NII of the Savings Banks in Q4, which was rather high, if there’s anyone else, or if that is a new run rate that we should take into account? And then if you can give us a rough indication as to what was in 2015, the contributions from your bond portfolio for the group?

And by how much you expect it to come down in 2016, as a consequence of maturities? And which countries are most affected by this?

Thank you.

Banking levy side, we have – if we take the 2015 basis, the deposit insurance contribution in Austria started in the third quarter, because the law was issued in or valid from July onwards. And the resolution fund contribution in the Czech Republic is starting this year, because again the Legislation was late.

So this is the different. And the offsetting factor, which is a small one is the same as the Austrian contribution basically €20 million is reduction in Hungarian and banking picks.

So we’ll have a slight up drift because of the timing differences, we have six months vis-à-vis full-year, and late legislation. So this is explaining the difference.

But overall it should be at similar level as it was in 2016 – 2015, sorry.

The reduction in bond portfolio contribution was about €60 million from 2015 to 2016 expected. And the countries most affected will be the Czech Republic and Slovakia, again, because they have the biggest holdings thereof.

And, excuse me, and the NII in the Savings Banks in Q4?

There is not – there’s no one-off that we are conscious off at the current time. So we can expect this to be a reasonable result of the Savings Banks.

However, the Savings Banks have – has also had a very pessimistic view of things in previous years, so maybe I’ll just call it a bit of beta factor for them.

Okay. Thank you very much.

Good morning. Thank you for the call.

I have two questions. The first is on fees and commission.

We have seen this year in the Czech Republic a 9% – could it 9% downward trend indices. Do you think we are going to have a similar trend or lower in 2016?

And in the past it was nicely offset by fees in Austria and elsewhere and in the fourth quarter, it looks like it was a bit weakest. I was wondering if you can give us a bit of a trend of fees in Austria this year and in the Czech Republic, that will be my first question.

And I would have a follow-up on that.

Fees in the Czech Republic were impacted by the introduction of the cap on interchange fees on – done by the European Commission, and this was starting in the middle of last year. So half of the impact we could – we were suffering already in 2015.

And the first six months of this year, we’ll see a reduction on this line, vis-à-vis the first-half of 2015, because we still have the higher interchange fees. And this is not only for Czech Republic, but also for the other countries, but most significant reduction is coming from the Czech Republic, because there we had the highest interchange fees and the highest number of transactions from our customers.

Other headwinds in the Czech market are competition driven. And then and you will see a pressure on fee income by these extraordinary items.

And if the baseline then resets, we will see a better development. Austrian fee income was quite stable and nice in 2015, mainly driven by asset management fees and insurance product fees.

Nevertheless, it was almost enough to offset the negative trends in other countries, but not 100%. So given the fact that we have half of the extraordinary impacts already reflected in the baseline and we could have set something then we should have hopefully a little bit better developments 2016 vis-à-vis 2015 then 2015 vis-à-vis 2014 on the overall growth.

Okay. So fees – the decline should be reduced in the Czech Republic versus this year and a bid of growth in Austria, so that should be – they’re still flattish fees or slightly up for the group in 2016?

Flattish with some headwinds, yes.

Okay. And now follow-up question is on NII.

You just mentioned two things. You need 5% to grow – to maintain your NII flat.

And the reason – the main impact is that when they get this impact from – on the bond portfolio that you quantify at €60 million. So on the fourth quarter of this year, we have a full 5% run rate in the loan book.

But you have a pretty negative view on the operating income for the year. So I’m just trying to reconcile here?

Do you expect the loan growth to materially decline this year, or any other impact, any other thing that should materially impact the NII for the full-year?

I already understand your question. This is a very ballpark figure, because of course, it depends on the composition of loan growth, and that again depends on developments that we presently do not have entirely under our control.

We see two markets, where we see above average loan growth for 2016, that’s the Czech Republic and Slovakia. The – and either we generate all of that loan growth will depend pretty much on how much of that loan growth will be retailed, and within retail how much of that will be mortgage lending and how much of that will be lending.

If the law is being passed in March or whenever in Romania datio in solutum, you’ll see a major breakdown of the mortgage lending market. And therefore, we do not expect a lot to happen there.

This is a very simple calculation there. If we – 5% loan growth for the moment about €6 billion, so you take a margin on the average, which is €3 billion and then you can calculate how much margins you need in order to recover €60 million that you loose on your bond portfolio.

I mean, in addition, we have a legislation now passed in Slovakia that customers can repay their mortgages and banks can charge fees, but maximum 1% as a prepayment fee. So, if this is triggering a massive refinancing of the back book, then we have additional headwinds and lower margins on all going forward.

So things like that are driving our cautious assessment of the current environment and our cautious outlook. After the first quarter going into second quarter, we’ll have much more clarity on various items that are still – might have an impact on our business performance, but we cannot quantify it at the moment.

So we will give you updates every quarter besides then we will have much more clarity.

Okay. No, I understand it’s the beginning of the year and you want to be cautious on this sort.

What I wanted to reconcile is flattish NII, because the loan growth is there for growing fees, cost a little bit up, and just a bit decline in operating profit. So I just wanted to square and be sure that I don’t miss anything, but I get to your point.

Maybe on the cost side the – some of the 360 million shares that you said in – will be levies and all this, will be in the operating expenses for the year as well. So perhaps that that should come into equation as well, can you confirm that to me please?

Yes, some of the deposit insurance contributions are already part of our operating result calculation. We ill always give an extra line on banking levies and resolution fund contributions that you have a clarity how this number is developing going forward.

And your increasing cost for the year does include some sort of all those additional levies that will be in operating expense?

Yes. One thing is, I mean, what we had in 2015 is vis-à-vis 2014.

Given the result development, we were increasing our bonus pools and we are expecting that we deliver our budgets already as well 2016. So there’s some variable thought in the whole thing.

But we would see also regulatory investments that are driving, of course, in 2016 and 2017, and they cannot be fully offset by cost savings initiatives in other areas.

Okay. Thank you.

Good morning. Just a follow-up on the cost commentary.

So you said there’s not lot more you can do. Does that mean that with these kind of ROE – this kind of volume growth that comment holds in future year.

So you’re reasonably happy with your cost level and you don’t think it’s appropriate to take a more aggressive action. And what would – could have to happen in order to make you look at your cost base more aggressively and try to cost in absolute terms?

Thanks.

I mean, it’s not – we’re not saying, we’re happy with our cost base, as it is currently, but we have areas where we need to invest. This is on a data digitalization and we think it’s the right time to invest in the customer business as well.

And you could see that, especially our digital platform George was developing extremely successful in Austria the last year and we will roll it off to Czech Republic and Slovakia. This year and all the investments that we are doing in our infrastructure will lead to cost reductions in 2018/2019, but we have cost of parallel ones.

The same as we’re having in the first six months in 2016, because today, we’re sitting already in our new headquarters and we were – and we’re moving in this weekend, the next 1,000 people to this building and we’re having in the first six months still that of course, because we started depreciating the building here. And after six months we still have rent costs in Vienna and then second-half of this year we would have a release of the cost as well.

Okay. Can you quantify the 2020, 2018, 2019 benefit when some of these duplicated cost fall out?

Thank you very much. Nice try, well, definitely we will not do that.

But I think to make that very clear given the way you phrased your question. Every investment that we’re undertaking in 2016 and 2017 in our infrastructure, our all investments in order to make sure that as of 2018, we will be put into a position that we can excel in our client service in a much more efficient way.

I’m absolutely convinced that the banks will only be able to survive if they do some really, really serious cost-cutting. In the future, capital requirements are not going to be lower.

In the future, regulatory pressure will not seize to exist. And just earning your cost of capital is not enough.

So in the zero interest rate scenario with relatively loan growth, we’re fortunate to be in a relatively strong growth region. That’s why we have a chance.

But this is going to be the number one change – banks have to get substantially more efficient and those who do not manage to do that will go under.

Maybe I can turn the words in your mouth another way, just about trying to create future operating leverage rather than that being opportunity to take out costs in an absolute way, is that the way to think about it?

That’s a good way to think about it.

Okay. Thank you.

Hello, thank you. Just three short questions.

First, can you just remind us just how large the NPL sale in Romania was in the first quarter? Then second, can you give us an update on Hungary with regard to the minority sale of your banks there?

And third, do you still see a chance for a bank tax cut in Austria? That’s it.

NPL sale of Romania as of being effective year end is about €500 million. It is a – the perimeter was in the originally €1.2 billion was most of it being or majority of it being off-balance by the end of the year.

So the remaining impact from the on-balance sheet is on the €500 million part.

Okay.

Thank you.

Pleasure.

Okay. Yes, please.

Good morning, gentlemen. Thank you for call.

Just one or two questions about the loan portfolio in the main markets. I like to know what is the proportion of the loans, which are floating rates, I mean in Austria, Czech Republic and Slovakia.

What is the – what – do you have floor closes on these loans?

What, foreclosure?

Floor closes, I mean in the end of the rates coming down?

Yes, we have floors on the new loans. The floating rate constantly going down.

customers are more and more taking fixed rates and going out and then the maturities. So now the 3 to 5 years fixed rate is very popular.

And so it’s increasing on a quarterly basis. Last year at the beginning of the year, we had 20% fixed rates in Austria, and now we are already about 50% and customers are more and more going to fixed rates.

Okay. I know, and in Czech Republic and in Slovakia what is the…

Czech is – Cezech and Slovakia, the majority is five years fixed.

Okay.

And similar developments. But there’s hardly any floating rates on the mortgage rate portfolios and as well on the consumer lending it’s – majority is fixed rate.

Okay. I have other question as well on your net exposure, which rose, I think it’s around €800 million end of 2015.

The impact of ratio as was in the lots, and I wanted to know what explain sort of an explanation on the trend. And if you intent to take any action to actually to correct this impact trend?

[indiscernible]

Because if I look at your excel filed it’s – you’re around or roughly at €800 million of exposure, and while the NP ratio on the – on this sector is around 15%?

We answered that question earlier.

We answered that question earlier.

I’m sorry.

Were you not in the conference call?

Sorry?

Did you just join or, because we answered those questions.

Okay. I’m sorry maybe I missed it.

Okay, well, thank you very much.

Yes, thank you very much for taking your time to talk to us. Have a great day.

And we’ll hear again 4th of May with the first quarter results, it’s going to be exciting. Thanks a lot for listening.

Enjoy the day.