Erste Group Bank AG

Thomas Sommerauer - Investor Relations Andreas Treichl - Chief Executive Officer Gernot Mittendorfer - Chief Financial Officer Andreas Gottschling - Chief Risk Officer

Paul Formanko - JPMorgan Simon Nellis - Citibank Gabor Kemeny - Autonomous Research Pawel Dziedzic - Goldman Sachs Riccardo Rovere - Mediobanca Alan Webborn - Societe Generale Johannes Thormann - HSBC Margarita Streltses - UBS Hadrien de Belle - KBW Stefan Maxian - RCB

Thank you very much, operator and good morning, ladies and gentlemen, also on behalf of Erste Group. Today’s call will be hosted by Andreas Treichl, CEO of Erste Group; Gernot Mittendorfer, CFO of Erste Group; and Andreas Gottschling, Chief Risk Officer of Erste Group.

They will lead you through a brief presentation, detailing the highlights of Q3 and the first 9 months of this year. After this, we are ready to take your questions.

And before handing over to Mr. Treichl, I would like to highlight the disclaimer on Page 2.

And with this, I will ask Andreas to start.

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

Let’s quickly go through the presentation. On Page 4, you see net results for the third quarter being €337 million.

That’s lower than in the first but in the first quarter, we have the one-off of the VISA sale. No major changes out of them.

We have a slightly higher risk cost in the third quarter than in the quarter before. For the 9 months, we are up substantially to €1.179 billion based on the very strong improvement vis-à-vis last year on the risk cost and the other result basis with a slightly declining operating income.

We go to the most important numbers on Page 5. Actually, you see net interest income and margins relatively stable.

If you take out the unwinding effects and the reduced NII from our securities portfolio, actually, NII business wise is doing very well based on loan growth. However, not able to makeup for the unwinding and the reduced net interest income out of the securities portfolio, so a slight decline.

The operating result is down to just slightly under €2 billion for the first 9 months of 2016 and as you can see a dramatic reduction in the cost of risk. On the banking levy side, it’s slightly coming down but you still have the Austrian banking tax included in full.

So we expect the further improvement on that hopefully, next year. Returns are for the 9 months real return on equity, 13.5% and on tangible equity for the first 9 months of this year, 15.5%.

On Page 6, you see the development of the balance sheet from year end to the end of the third quarter. You basically see an increase in the cash position and the quite healthy loan growth.

What’s probably a surprise to most of you is the relatively dramatic increase in our customer deposit base, nearly double of the gross that we had on the lending side and leading into the lowest loan-to-deposit ratio we had on a group level of 96%. And that also tells you a lot of stories about ECB talk on building asset management and capital markets in Europe.

That number alone gives you, I think a very good message on where the interest rate policy of the ECB is leading us to. If you look at the key balance sheet data on Page 7, as I said, loan-to-deposit ratio improving, loans to asset ratio slightly down, but not because the loans as a percentage of total footings are decreasing.

To the contrary, they are actually increasing. That’s only due to the fact that we have built up our cash position on the asset side.

NPL coverage is at 67.7% and the NPL ratio is down to 5.5%. I don’t have to remind you of where we were a year or 2 years ago, so that’s a really nice story.

And I think it’s same on the capital side. What I like very much too also, is the leverage ratio being above 6% now.

If we look at the business environment for 2017, again, the reason will be outperforming Western Europe. So we continue to expect to have higher loan growth than in the rest of Europe.

And it’s not unlikely based on our present outlook for the economic development in the region that we can actually see the 5% loan growth that then would enable us to keep our NII flat. Interest rate development, there’s really nothing on that page where I could paint a positive story.

It sucks all across the region, and it will continue to do so, in my view, unless we have a material change in governments all across Europe, if we look – which we are not going to have unfortunately. If we look on Page 11, limited currency volatility I think, all across the region.

The one question mark that we have here is Czech Republic. Will there be something going on next year or not and how are we going to get there?

Are we going to move into negative interest rate territory? Will we see the Czech crown appreciating?

Are they going to keep it at the present level or not? Other than that, we don’t expect anything major to happen.

Page 12, our market shares, basically, I think what you can see is that we are seeing now, the turnaround in most segments, also in Romania and in Hungary, with market shares either stabilizing or again, on the upward trend. And interest, I think I would say, in principle, very positive development.

If we go to the business performance and as you see on Page 14, performing loan volume increased by 3.3% so far this year with loan growth on a year-to-year basis mainly coming from the Czech Republic and Austria and also, as already last year, Slovakia. And you see actually, loan growth now in Hungary and that’s a positive development that we hope to continue to see next year.

Pretty much the same on the deposit side, where they grew in total by 4.7%. Here on Page 16, you actually see what I mentioned at the outset that business margins from new business are not coming down so much.

The decline that you see in Romania and in Hungary isn’t all from new business, but it’s from the sale of high margin nonperforming loans. So, new business margins relatively stable, yes.

And as a result of that, if you look at the operating income, if you look at the country, of course, throughout particularly in Romania, operating income has come down due to the sale of the NPL portfolio. Other than that, I think relatively stable performance.

If you look on the operating expense side, you actually see that the performance of the countries themselves was very much okay and that the majority of the cost increase that we have and will continue to have next year is in the other segment and that is mainly investments in data quality, IT and also of course, in regulation. I think with that, I can end and turn over to Andreas Gottschling, who will start on Page 20.

Good morning and a very warm welcome from my side as well. The risk cost situation is still benign, but the level of recoveries appears to be bottoming out, so I predict that we won’t become a long-term profit center after all.

Nevertheless, we remain at very comfortable historical cost levels with the nice outlier in Romania, produced by the sale of a portfolio that is a tranche from the original Neptune transaction that never then took place and we sold the portfolios in bits and pieces since. And this one was at a very favorable price, hence the positive impact on the risk cost in Romania.

Turning to Page 21, on the NPL sales side, we have been as busy as promised. The de-recognition of the portfolio sale in Romania is still outstanding, but it should be closed before year end, so the 5.5% that you see is not the end of the flagpole yet.

And there is also a Hungarian sale that has been signed and we predict it to be closed somewhere towards the end of the year. However, this is something where they would enter the Q4 number, so the Q1 numbers remains to be seen because of the granularity of the portfolio.

We continue to make progress this way and I would expect to see a four in front of the comma by next year sometime. Turning to Page 22, we can see that provisions are comfortable everywhere and even in the case of Austria other, where there was a sale that’s mentioned on the previous page.

It was at a sufficiently advantageous price that the coverage ratio was not impacted in spite of the sale because usually in the data, you will see that with the large sales comes a decrease of the coverage ratio. However, the market was sufficiently benign that this did not take place in the case of the latest sale in Austria others.

And with that, I will turn over to the CFO.

Good morning, ladies and gentlemen. We continue on Page 26, our loan to deposit ratio, down to 96.2%, a reduction from 98.4%.

This is mainly driven by after inflow of deposits and creation of loans. On Page 27, you see the development on our consumer lending, our customer loans, net customer loans are up 3.6% year-on-year and performing loans are up 4.2% year-on-year.

This was not enough to keep the net interest income stable, but it’s a very solid development and close to the target that we have announced at the beginning of the year. Non-performing loans as a consequence of the portfolio sales and the better portfolio development, down to €7.3 billion.

So a quick look on Page 28. There, you see the allowances and the development for customer loans.

And one of the points that we want to highlight today is the development of the interest income from non-performing loans. You can see the development over the last 3 years and the outlook for 2016.

Just on this item, net interest income is losing €170 million in the last 3 years, but this is a low quality income element because it’s just simply a release of lease provisions to the time really of the provisions for the net interest income item. But we are just highlighting these because this is a low-quality income element and it’s disappearing as a consequence of the reduction of non-performing loans.

We continue on Page 29. LCR at 154.9%, 155% and a very solid liquidity buffer, no major changes, the assets basically gears towards sovereigns in central banks in our region.

Page 30, deposit funding, we had a growth of 2.8% on a quarterly basis and 6.8% year-on-year. So we saw an increasing development in this quarter on customer deposits.

The statements made by the CEO, I don’t want to continue but here, you see customer behavior is going into the direction of bringing more money to us. As a consequence of that, Page 31, debt securities issued is slightly going down and the inter-bank deposits as well, so our reliance on these sources of funding is decreasing.

On Page 32, we see the maturity profile. Next year, we have maturities of €3 billion.

The number is half of the number we have seen 3 years, 4 years ago and our issuance activity is basically very low. We have just done a covered bond in January this year and we have done our Q1 transaction in May of this year.

Other than that, given the current circumstances and the current knowledge that we are having of any kind of requirements, we will be not very active in issuance activities. We continue on Page 33, capital ratio, fully loaded CET1 ratio increases to 13% if you include the quarterly net profit and so we see a very solid development this year.

Risk-weighted assets, pretty much stable, a reduction on credit risk-weighted assets driven by an improvement in the portfolio quality, a slight increase on the Op risk side and this is driven the events that we have achieved reflected in our P&L in the last 2 years. Capital ratios on a phased in Basel III, 13.2%.

CET1 total capital, 18.4%, easily covering all the requirements and meeting already the anticipated 2019 capital requirements. So with this, I hand over to Andreas Treichl for the conclusion and the outlook.

Thank you, Gernot. Thank you, Andreas.

The macro outlook for 2017, well, looks it rather okay. Actually, in our region, with all sort of political uncertainty that we have in Europe, we do expect at least 2% to 3% growth in our region, whereas in Austria, pretty much the same what we have in 2016.

There is a chance for an upside potential if the countries that we operate in realize that their strength actually is low taxation and flexible labor markets and all they need is a stable political climate. The public finance situation in the region is mostly improving.

Most of the countries are doing a pretty good job on that. So in principle, I think our outlook on the macroeconomic front for 2017 is rather positive.

The return for this year, we can confirm the 12% plus. And we are, as it is written down, very well on track to pay or to propose the payment of a dividend of €1 for 2016.

The outlook that we give for 2017 in terms of return is 10% plus. That is based on one hand, on the macroeconomic outlook.

On the other hand, that – as we mentioned with the half year results, we will require about 5% net loan growth in order to make up for the lost NII from the securities portfolio and the continuing unwinding effect. And if we can achieve that, we can keep revenues, at least NII flat.

We see lower cost inflation in 2017 than in ‘16, but we expect due to our investments in data management, in our digital front office and in regulation still, a cost inflation of 1% to 2%. That is the basis for our outlook for 2017 of 10% return – 10% plus return on tangible equity for 2017.

That is also based on the fact that we managed to basically prepay the Austrian bank tax already this year and can operate next year on substantially lower banking levy than in 2016. That ends our presentation.

Thanks very much and we are ready to take any questions you have.

Good morning. Three short questions.

Could you please comment on the increase of your operational risk? We see 40% increase year-to-date, is this going to continue?

Second question, what is your expected impact from the Czech koruna for removal and just [indiscernible]? And the third question is on the CHF-euro conversion risk in Romania, what are the latest updates on that?

Thank you.

So first, on the operational risk, no, that is not foreseeably continuing. This comes from the inclusion of some of the events such as – that were politically driven.

But as the FX conversions, this will not repeat itself, hopefully, also due to the historical horizon on which op risk events have to be included. There will be other events that will fall out of the sample next quarter, so we do not expect a jump of op risk of the same magnitude in the foreseeable future.

On the Czech crown floor removal, I mean, any appreciation of the Czech crown will have a positive impact on the capital position of the group because we are having excess capital in Czech crown. If the Central Bank is switching to negative interest rates, this would have a low single-digit or high single-digit million negative impact on net interest income.

I think that’s it. For the time being, it remains to be seen how they will be maneuvering the next couple of quarters.

On the Romanian – yes, okay, Paul?

Would you expect some impact then on the asset quality as a result of the Czech crown potential appreciation?

We don’t expect any significant impact. We have a very solid credit quality in the Czech Republic and don’t think that there will be any impact.

Okay. On Romania, yes, that’s – we are watching it.

We are not affected by it since we do not have any Swiss franc exposure in the country. And we – I would not completely exclude, but I would find it rather unlikely that they will basically also make a move on the euro front.

Thank you. Thanks a lot.

Hello. Thanks for the call.

I was just wondering if you could give a little more guidance on the longer term outlook for dividends. I think on Slide 33, you mentioned that you see your SREP requirement in 2019 at 11.5% and you’re well above that.

Could you just kind of elaborate a bit on how you see your ability to return capital? And I guess it’s also dependent on Basel IV, so I would be interested in your thoughts or what you are hearing about how Basel IV might be implemented and what the impact would be on Erste?

Thank you.

Okay. Let’s start with the Basel IV part.

According to our view on this, this will be surely an impact, but it wouldn’t be as dramatic as with banks that have a much larger trading and mark-to-market type exposure. On the credit side, the impact would be quite [indiscernible].

I would say it’s probably in the 10% to 20%, something in that order of magnitude. The operational risk, you can calculate for yourself because that’s pretty much across the board, very similar to all banks.

And on the market risk, even a tripling of our market risk risk-weighted assets would not be a particularly large event on the scale of the risk-weighted assets because we are mostly a credit bank. So from that perspective, anything that is currently discussed and we can calculate appear something that we can handle with the rate of capital generation that we currently have.

Okay. And on the – so dividend outlook front, first of all, we have got to be careful because we have the ECB watching us and sort of commenting on every outlook that we give.

But even if we say, okay, let them watch us, we would like to give our investors a guidance. I think in principal, I mean you would expect that our ability to pay out dividends in the range that we proposed for 2016 should continue.

However, I think it’s a bit too early, given that we do expect ‘17, ‘18 and ‘19 bringing about substantial changes in the banking landscape in Europe. I will actually like to say that I think that our ability to pay out dividend is not so much depending on regulatory requirements, but on our ability to actually develop an omni-channel system in our region, based on a fully compatible digital data network and a fully compatible digital and analog distribution network that will allow us to beat our competition.

That’s what we’re working on, that’s what we’re spending money on, and that’s the main reason why we still expect a 1% increase in cost in 2017 because we’re investing heavily in that. If we are right on that front you can expect very high dividends for the next 10 years.

If we are wrong on that front, you cannot. That’s I think, in my view, much more important than everything that’s on the regulatory front.

It appears for the moment that we can do that from a relatively comfortable situation, but that’s the view from the end of 2016 and views can change very quickly these days.

Right. Okay, thank you.

Hi. Another question on the dividend, just to clarify, were you kind of suggesting that the payout ratio could stay close to what we have this year or could you potentially increase it?

That is basically a question of our comfort in the sustainability of our results. So we feel very comfortable for the moment, but I think we need a couple more years to say is that level of profitability that we presently have a level that can continue in the long-term.

We would like to go for a stable dividend payout. We have in our view reached the capital levels that we would like to have.

We hope that the regulators don’t change their view on that. And yes of course, we made one statement that irrespective of what happens in the European banking industry and maybe I doubt it, but maybe the days will come back when actually, you can create value by having a cross-border banking network in Europe if those days come back.

Even then, we would not like to keep excess capital on our books because we believe that if the environment changes so much, that we would actually be on the buying side again, we are going to raise capital in the market. So is our capital levels are at where they are right now, is that sufficient and if our profitability stays where we are, yes you can see payout ratios maybe even rise.

Okay. Because it seems that you do have some earnings visibility, you guide for a double-digit ROE next year, you have a – and you also have a comfortable capital position, still your payout ratio is not too far from 30% this year, so clearly to grow as much as you grow now, you wouldn’t need to retain two-thirds of your profit, is that fair to say?

All I can say, there is an upside potential.

Okay. And just on NII, on net interest income, I recall you guided earlier this year that NII could stay roughly flat if you can grow the net loan book by 4%, 5%, we are nearly there and NII is still down 2% on a year-over-year comparison, I guess we were aware of the unwinding impact related to the NPLs earlier this year, so why – I guess my question is why are you confident that if you grow 5% next year, then you can keep your NII flat?

Because the unwinding effect will be quite a bit lower next year than it was – it has been declining every year and it’s going to continue to decline next year. So we need less and less growth to make up for it.

So if we are very close to now, we are going to be about equal next year and the year after even, we would have a surplus.

Okay. And just finally on the outlook...

The unwinding of the unwinding effect.

Okay, all clear. And just finally on the outlook statement, you mentioned the timing of the Austrian bank levy cart is a kind of uncertainty, can you elaborate a bit on this, is there a chance that the bank levy cart will want to come through by next year?

Yes. There is a chance.

In today’s politics, everything is uncertain until it has been decided and then it remains uncertain because decisions are being changed all the time. So my trust in the reliability on political decisions has been diminished dramatically during the last year, so we are very cautious and we will only call it done when we have finalized the deal.

And even then, it can be reverted. So we all have to remain cautious.

My guess is it will be done. I am very, very positive that it will be done and we can do it this year.

I see. Thanks very much.

Hi, good morning and tank you for the presentation. I wanted to ask about fees because if we look at your outlook statement and you talk about revenues flat at best and we compare – and we contrast it with also with your comments, on a potentially flat NII, we get essentially a message or maybe I am getting it wrong, but we get a message where your outlook for fees for next year is also muted and I was hoping if you can comment why do you see that, why would your fee income lack to perform if you are growing at 5% your loan book and you say that other than unwinding effect and low rates, your business momentum on NII is relatively strong?

Maybe Gernot would like to mention something on that, too. Could be that we are cautious on that, but we have experienced a substantial interference from consumer protection during the last years.

We felt that very painfully last year in the Czech Republic. We see the effects of the 1% prepayment fine in Slovakia, which immediately has an effect on our business.

So it also reflects our rather negative view on sort of the combination of regulatory consumer protection and political activities in Europe for the moment. You have the discussion on the ATM fee that needs to be regulated by government.

You have attempts by politicians to force banks to make their infrastructure available for free. So it’s partially our cautionary view, based on the fact that we believe that we are moving into a period where credit risk is being replaced by political risk and that is substantially more difficult to judge.

And part of that political risk is affecting fee income. The second reason is – and you have seen that on our balance sheet, that we find it rather difficult as most of our competitors in the mass market and in mass affluent segments to convert deposits into fee generating products.

And the very simple reason for that is that it is very difficult to create mass market retail asset management products that have an attractive yield so that we can actually advise our clients to get out of the deposit and move into those products. Yes, if we continued to gain market shares and if we continued to increase our number of clients, we might be too negative on that and we can see fee income rise.

And we would be very happy if our outlook is too conservative.

Thank you for that. And can I just ask maybe one more question and this is on your cost, you make a point that digitalization is very important and you are going to invest for the next few years in order to secure the future, but are you looking separately to that, at any potential cost cutting opportunities across your group being at Austria or elsewhere that actually could help you to offset some of the revenue pressure and keep the cost contained?

Of course, we are. Of course, we are fully aware of the fact that our total cost base is about at least €300 million higher than it should be.

In the long-term, we are working on every corner of the bank, trying to identify ways on how we can cut costs. We are not in the announcement mode simply, because we find it that whatever cost measures you take, whether it’s reduction of your staff, closing of branches, we are much better off in dealing with labor representatives, unions and politicians if we don’t talk about it too much and if we don’t make announcements in the public that we are going to do this or that, but we are fully working on it.

And is the impact of any of those measures that are going on in the background captured by your 1% to 2% growth targets of operating expenses next year? Would that be an incremental surprise?

No, the 1% to 2% target for next year for 2017 is based on the assumption that in 2017, we will still be in the preparatory phase and that in 2017, the work that we are doing on cost-cutting will have no impact on the P&L yet.

That’s very clear. Thank you.

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

First of all, I want to just get back one second to the dividend. Correct me if I am wrong, what I understand from your previous comments is the following.

Your SREP ratio in ‘19 is 11.5%. Today, you are at 13%.

You stated that the Basel IV should not be too much of a problem for what is under discussion today. If I understood it correctly, your aspiration is not to retain the excess capital to pay back the excess capital to shareholders one day.

Now my question here is, is the ECB telling you a priori that excess capital cannot be returned to shareholders, doesn’t matter what? This is – I am sorry for being brutal but otherwise, it’s a little bit confusing all the messages that you have been conveying so far.

Second question I have is on deposits growth. At the start of the conference, you mentioned that this could be, if you will, asset management.

So I was wondering how much of that excess deposits could be switched into AUM. And the third question I have is on the €3 billion of debt that is going to mature next year and probably you will reissue or maybe reissue a part of it, what is the possible lower cost of funding that you might get when you issue again the €3 billion or less than the €3 billion?

Thanks.

So, I will start with the cost of funding. You see the senior unsecured is the biggest part of debt maturing next year.

It will be depending on the composition of our issuance. If the issuance is like we have done it this year, I mean, we would definitely get a reduction because we are issuing less than is maturing.

But if we are going for Tier 2, probably AT1 might be depending on how the MREL discussion and all the discussions will be evolving. Then if we go for AT1 issuance next year, we will have an increase.

If we are going for normal activities this year, there will be a slight positive contribution to NII next year. On the dividend, I mean, we are always told by the regulators not to give too long promises and guidances on dividend payment and issuances.

The regulators like us to keep money and build up capital, but there’s no restriction once you have reached your capital levels and capital targets in distribution. So basically, it depends on our assessment once we are declaring the dividends of how much capital we need to keep inside to fund the underlying business growth.

But our dividend policy that we have put together can be changed, and this is something that we have to inform. This is a factor that we need to inform the regulators.

And then it remains to be seen. We have not seen any interference until now in our dividend discussions.

I think also, Riccardo, I mean, the way you stated it was very clear and very straightforward. But may I come back with a question to you?

Do you or are you certain that the regulatory requirements that we see today will be the same once we have reached 2019? Do you feel comfortable if you look at the relation between the SSM, ECB, EBA and the European Parliament and you look at the discussion of there were two capital requirements.

You look at the alignment of regulators with the accounting boards and you look at the development of IFRS 9 and what that could have on capital. Do you feel comfortable at this point in time that we actually know what the composition of equity will be in 2019?

And don’t you think it will be prudent to sort of keep a little bit of a cushion above the current regulatory stated levels?

No, no, I don’t have any argument against what you are saying. What I personally believe is that myself and from the tune of some questions of my four colleagues former, I think we are just a little bit confused.

And I am not saying it’s your fault. I hear what you say.

Actually, it’s reasonable what you say. I’m just saying that, let’s say, transparency and clarity on how that piece of the business, which is the equity and the return of [indiscernible] shareholders remuneration across the whole continent is not getting any better.

We are just trying to find some transparency from you because you have discussion and conversations with the SSM, with ECB and so on. And I tell you, this not a problem just for you, anyway...

Yes, okay. I mean, quite frankly, when we issued the outlook, we discuss the wording with our regulatory department and we ask them, is that okay?

And some of that you see reflected in our communication to investors that we don’t get a nasty letter from the ECB, how can you communicate something like that without asking us. That’s going to be an interesting issue for us, for all banks during the next 2 to 3 years.

We are going to have very serious discussions with our regulators on how do we communicate with them in the future.

Right. I don’t want to abuse the time of the call.

Thanks.

Hi, good morning. Thanks for the call.

I think we hear you quite clearly in terms of what you are saying about the pressures of a low interest rate environment. And I wanted to sort of check the correct message is that looking at 2017 against 2016 it is a continuation of the impact of the reinvestment yield and obviously, slightly less unwinding that is going to cause you the drag in terms of net interest income against loan growth in terms of flattish revenues or do you think that there are, for example, in corporate lending is going to be continuing – there is going to be pressure on that side or not?

So that could be interesting. But in your – what you said about the new credit risk this political risk, it’s clear the credit risk has almost disappeared in many parts of your core business.

And is the answer not in fact, to grow faster and certainly I think since we talked in August, the macro support, particularly on retail in your core markets appears, if anything to be getting stronger and certainly, there is an investment hiatus in a number of CEE countries related to new fund investment right now that, that could pick up quite nicely next year. And I just wondered whether you are being also very prudent on your loan growth in 2017 and is the answer, given the fact that loan growth is, to some extent, a choice related to risk reward, that you shouldn’t be putting the foot on the gas a little bit more in terms of growing your loan book a bit faster to offset some of these negative impacts and I just wondered how you felt about that idea.

And I suppose the other question was, do you now have too many deposits and do you get a point where if nobody wants to put them into funds, should you start charging for them, not necessarily charging for the deposits, but not allowing people to leave money in an account without charging them for the cost of the account? Thanks.

Okay. First, to the loan pertaining question, you are right that the continuation from ‘15 to ‘16, that’s a low interest rate environment rate phenomenon.

Yes, one could step on the gas, but be clear that we have got enough liquidity to go around the structures, especially in the large corporate loans get dangerously thin when it comes to things like covenants. And therefore on that case, we are definitely remaining prudent and that is probably something which is short-term, hindering some possible growth, but it will prevent the book from turning on fire when the interest rate environment changes which eventually, it will.

And for the second question, I will turn over to the CFO.

Yes. The positive element this quarter was definitely faster than in the last quarters.

And if this trend continues and ECB will continue in the current behavior and the current development, then definitely we have to intensively discuss on measures how to avoid a significant reduction in our long-term deposit ratio, because at the end of the day, you have seen our maturity profile of our long-term funding, you have seen our loan development and we are increasing our cash balances. And this is not – if this was a single quarter we are fine, if this is a new trend that we are growing that fast in deposits, we have to really seriously discuss what do we do.

Okay. Thank you.

Good morning everybody and it’s Johannes Thormann from HSBC. Three questions, first of all, a follow-up on the Austrian banking tax, how would you rate the likelihood of the tax happening this year and will it be rather a lumpy payment or several years payment as the underperformance in the Austrian banking market surely want this payment to be stretched.

Secondly, we heard that you are looking into Serbia, could you give us an update on the situation there. And last but not least, where do you feel comfortable that – or which market could reach more than 5% loan growth next year?

Thank you.

Okay. First on the banking levy, I think the major finance was very accommodating to the different demands of the banks.

You are right, I mean we are very much on wanting to prepay the banking levy this year. Whereas, some other banks would like to have it stretched and the treatment will allow for both options.

That’s also one of the reasons why it took so long. On Serbia, I don’t know from which sources you hear that we are interested in expanding in Serbia.

And I am not so sure about that myself, whether that could be something that we would actually like to do or not. And what’s the third question?

Where you see more than 5% loan growth?

5% are Czech Republic, Slovakia, Romania, Croatia, Hungary, Serbia. I am just stretching the – all have a chance, yes.

Austria, I don’t think so.

Okay. Thank you.

Thank you. Margarita Streltses from UBS.

Thank you very much for the presentation. Just a couple of quick questions, can I just clarify whether you include the charge for the Austrian banking tax into this year ROTE guidance or you treat it as one-off and you don’t include it in any guidance.

And also, another question, where would you see the risk cost normalizing for the group after we are through this low cost of risk period? Thank you.

The ROTE is included – or the banking tax prepayment is included in the ROTE guidance for this year, so we said 12% plus and on top of that, we are paying the – we are covering the prepayment.

And on the risk cost, certainly as long as we keep this type of interest rate environment, we will have extraordinary low corporate risk costs and that will stay. And how long these monetary policies stays in place, nobody around the table knows.

However, in what is a normalized risk cost in this bank depends, of course on the combination between basically, consumer loans, retail loans and corporate loans. And they will probably be in the mid double-digits in the long run.

It is very hard to predict right now what the composition of the loan book is because of that monetary policy and loan demand.

Thank you.

Hello. Thank you for the presentation.

I think I would like to come back a little bit on the fee line and if you could comment on what’s going on in Romania, Slovakia and the Czech Republic because we are starting to see either an acceleration in the decline or no improvement as we would have expected in the third quarter, so I am just trying to see what are the trends in those three markets? Thank you.

Well, in Czech Republic, you see a market-driven behavior because the market participants were offering accounts without – free of charge and it is putting pressure on the normal development. In addition, we are seeing a reduction in lending fees because again, market driven, they are much lower than they have been couple of years ago.

And this is a trend that is continuing. In Slovakia, you could see refinancing or early repayment of mortgage books.

This was driven by consumer, but it’s the implementation of the mortgage directive. And we have mentioned that in the first quarter already that this will have a significant negative impact on the business, on the bank book.

And we see a continuous re-pricing of the bank book. Romania, this is driven by [indiscernible] business at the moment.

And there were a number of consumer protection initiatives in Romania that you will recall over the last few quarters that ended up with Supreme Court verification. And those have also led, for example, the mortgage market to decline massively.

So the activities on the mostly legal side in Romania that have been ongoing for the last 12 months that has all had an impact, slow but steady, to decrease the activity that we can do there.

So the fees in those three markets, they are not going to get better. If anything, they may fall a bit further.

Is that a fair statement?

Yes. I mean, in the Czech Republic, this year now, a full year without the lower contribution of fee income on interchange fees, so there’s a reset on the baseline.

But the pressure on the normal fee generation, market-driven and due to the competitive environment is there, and I don’t see any signs of improvement.

Right. And that’s for the Czech market and then for Slovakia and Romania as those two combined?

Romania should be – now, we have a clarification on what you can charge and business initiatives and new production are pointing in the right direction. That will be definitely recurring in Romania.

Slovakia, we have seen, besides the interchange fee, also other regulatory initiatives. I don’t expect miracles on the income side from the Slovak market in 2017.

Thank you very much.

Yes, thank you for the presentation. Just a few smaller questions.

One on those new mortgage directors in the Czech Republic limiting the loan-to-value, do you expect any impact on your mortgage book there or on the mortgage growth there? Then second maybe on Romania, I think the Constitutional Court actually is again dealing with this walk-away law.

Could we see some positive effects potentially out of that as you have already provisioned for that? I mean, maybe on the risk cost, we briefly – for next year, we briefly discussed it before and you said, okay, it will be higher than 2016 which seems quite obvious, but if you could narrow down that guidance maybe a little bit?

And last, if you could already share the potential impact of IFRS 9 with us? Thank you.

On the IFRS 9 potential impact, no, we can’t share that yet because it is not finalized and the range of IFRS 9 estimates that has been submitted is significantly large enough that we wouldn’t want to pick a point in that wide range. Regarding the walkaway law and the dealing of the Supreme Court in Romania, that I would think is, yes, it might result in a little bit of a positive surprise.

But I don’t think that it will cause any large rise back because they impact was relatively small for us. And what was the other one?

Actually in the Czech Republic, we don’t see major impacts on the development, because the business that we underwrite at the moment is almost hitting into that category. There will be some restrictions planned.

There are some restrictions planned in Slovakia as well. And in general, those markets that are growing faster, there’s some tendency to have the growth under control.

But I don’t – we don’t expect significant negative impact.

Okay. Ladies and gentlemen, thanks very much for participating in our third quarter results presentation.

Our next presentation will be on the full year preliminary for 2016 and that will take place on the February 28, 2017. And I wish you a very enjoyable time in between and hopefully an enjoyable February 28 for all of us.

Thank you very much.