Erste Group Bank AG

Thomas Sommerauer - Head of IR Andreas Treichl - Chief Executive Officer Willibald Cernko - Chief Risk Officer Gernot Mittendorfer - Chief Financial Officer

Riccardo Rovere - Mediobanca Magdalena Stoklosa - Morgan Stanley Margarita Streltses - UBS Pawel Dziedzic - Goldman Sachs Gabor Kemeny - Autonomous Research Alan Webborn - Société Générale Brajesh Kumar - Société Générale Andrea Vercellone - Exane BNP Simon Nellis - Citibank Victor Galliano - Barclays Paul Formanko - JP Morgan Johannes Thormann - HSBC Stefan Maxian - RCB Tobias Lukesch - Kepler Cheuvreux

Thank you very much, Sylvia, and a very warm welcome to everybody who is listening in from Vienna. Today's call will follow our usual procedure.

Andreas Treichl, CEO; Gernot Mittendorfer, CFO; and Willibald Cernko, CRO of Erste Group will lead you through a presentation, giving you details about the highlights of the second quarter and the first half of 2017, after which time, we are ready to take your questions. Before handing over to Andreas, I would like to highlight Page #2, which contains the disclaimer.

I won't read it out. But I rather hand over to Andreas to start.

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

Let's start on Page 4. The profit for the first six months is €625 million, down from €842 million for the first six months of '16.

Two main reasons. One is - and the major one, the VISA one-off in the second quarter of 2016 over €140 million, and the higher risk costs based on Croatia, which was booked in the first quarter of this year.

This year however profits increased from the first to the second quarter, slightly better. Other result was offset through higher taxes but higher income, lower expenses and lower risk costs added up for a plus of €100 million from the first to the second quarter.

If you go to Page 5, and you look at the ratios, the net interest income declined by about €50 million. That's less then what we had expected.

And we also saw an improvement in the margin from the first to the second quarter, that in our view, a bit overstated because as you remember in the first quarter, we had increased money market activities in the Czech Republic due to the speculation about the Czech crown development, which actually materialized yesterday. Therefore the operating result is slightly down but slightly better than expected and we saw quite a strong improvement of the real lousy 63% cost-income ratio in the first quarter through not so lousy 58.8% in the second quarter.

Risk cost, I mentioned. And if you look at the ratios, return on equity increased to 11.1% from 8.7% in the first quarter and return on tangible equity increased from 9.8% in the first quarter to 12.6% in the second.

If you look at the balance sheet, you see really strong loan growth. Net loans of €4.5 billion.

So all in all, we are actually slightly ahead of our 5% growth target. But that again is slightly overstated to the €1 billion extraordinary increase that came out of Czech deposits [ph] in the first quarter.

But without that, we are pretty much on track with our group loan growth. Customer deposits are just booming.

We have got another €7.5 billion of deposits in the bank in the Czech Republic, in Slovakia, in Austria. Actually in all countries, deposits are growing.

So we hope finally that our clients will actually, at some point of time, make some money on those deposits. If you look at the key ratios on Page 7.

As a consequence of relatively strong loan growth but even stronger deposit growth, the loan to deposit ratio further improved to. I think, the lowest ever of 92.8%.

NPL coverage, pretty much the same. And the NPL ratio improved to 4.7%, and Willi will say a few words on that later on.

Capital is fine. CET1 stable.

Tangible equity increased by €200 million. Liquidity coverage ratio and leverage ratio are continuing to improve.

So how does the business environment look like now in the beginning of second half of the year? I think overall we can say that the business climate is improving.

Also in Austria it's improving. In Croatia it's improving, despite the major mishap earlier this year.

It's benefiting from strong tourism and the difficult situation in the Greece and Turkey. But you see very solid and I think very well-structured growth in both the Czech Republic and Slovakia.

You see an improving situation also in Hungary, and you see very strong growth in Romania. That all has, I think, a positive effect.

Inflation is growing. Unemployment rates are coming down dramatically in all our religion as a result of real wages.

And in our view the only outlier, real outlier in that picture is Romania because that growth is, in our view, artificially produced through higher wages in the public sector. And you can see that the strong growth in Romania is accompanied with a weak performance on the current account balance and the weak performance on the general government balance.

So very pleasing public debt to GDP ratio of 38% might be - as opposed to the Czech Republic and Slovakia, rather short-term phenomenon in Romania unless politics finally get their acts together in the country, which we were really hoping for in the 10 years but it never happened. If you go to Page 10.

Nothing much to be said on the interest rate side other than the hike yesterday, which was announced at noon from 5 basis points by 20 basis points to 25 basis points. The reaction on the Czech crown was as expected, but in that the governor [ph] later on announced that he sees further hikes in the Czech rates only likely if there is some action on part of the EU in stopping their purchasing program, so the situation relaxed.

But we hope for it and it's - I think we are actually very happy that it's happened because it will have a positive effects on our results. If you look at the market share environment, we're very happy with the developments practically in all our markets and we are increasing our shares practically in every market, but Hungary and Romania - and in Hungary it's turning around.

In Romania we are still a bit cautious. If you look at the Page 14, you see that we had very substantial loan growth in both the Czech Republic and Slovakia, but also a very strong performance in Hungary and our small little Serbia, which is actually doing quite well.

And due to the reasons mentioned before, growth in the Czech Republic is slightly overstated. But we already see in both countries some sort of worrying signs on part of the economies in the regulatory environment and the Central Bank, and given that they believe that loan growth might turn out to be a bit too strong, fears about bubbles in the real estate area.

We wouldn't call it bubbles. We actually believe that unless we are making a very strong move and that would need to be helped by politics to develop stronger capital markets, so actually that people can invest in the growth of the local economy and can participate in it, it's quite logic that people moving into real estate.

So I don't think it's worrying yet but I believe that those rates will come down a bit more during the next couple of years on the real estate front. Deposits, as you can see, are still growing very strongly.

We've done a pretty good job actually in converting deposits into asset management products for the middle-class. But given that there is relatively limited material available to structure investment products for the middle-class, it's not as much as we could.

If there would be more available, we could increase our fee income dramatically and that's something that we're working on over the next quarters. Page 16.

If you look at the net interest margins in the countries, you see that from the first to the second quarter, they improved more or less across the board, with the exception of Slovakia and Croatia, where we had a slight deterioration. But overall, I think you can call the margin environment in our region, stable to slightly positive.

And based on that, I think our operating income, although slightly lower than in 2017, was a bit better than we all expected in the second quarter of this year and gives hope for a better performance during the next quarters. And I think the same to be said on the operating expense side.

Here also in the second quarter, the performance slightly better than we had expected. And as a consequence of that, of course cost-income ratios improved almost across the board in the group.

And with that, I hand over to Willi, who will continue on Page 20.

Thank you, Andreas. As Andreas already outlined briefly, we had to deal with one, let's say, big corporate case in Croatia.

But despite this syndicate, we are able to show up well above this cost of risk performance. It is expected to remain at a very low level.

We also can see an overall reduced level of releases. This leads to a very comfortable situation.

Let's have a look at the NPLs. The volume is further decreasing.

Last year, we had seen a peak in NPL sales. This year first quarter, it's more than €80 million in the second quarter.

This compares with the first quarter of €120 million, so much lower than last year. But the NPL volume is going down as well as the NPL ratio.

So we see still a very comfortable level with regards to cost of risk. I would like to hand over to Gernot.

So we continue on Page 26. The loan to deposit ratio at 92.8% was already mentioned.

Other than that, same picture as we've seen in over the last couple of quarters. Page 27 shows you the loan development.

The net customer loans growing by 6.1% in the last 12 months, driven by performing loan development very significant, and already mentioned decrease in non-performing loans. Page 28, the NPL flowchart that we are usually showing.

You see a stable development over the last quarter. Again a little bit smaller inflows but overall no major development.

Liquidity coverage ratio continuation on Page 29. We are having 153.8%, an excellent level.

Similar liquidity buffer as we have shown over the last couple of quarters. All in all, the continuation and further strengthening of the development that we've seen over the last couple of quarters.

Page 30 shows you the deposit developments. We have seen 0.6% growth on a quarter basis.

This was lower than in the last couple of quarters, but still showing a growth, and has seen a little bit more balanced growth in the second quarter than we have seen in the quarters before. The deposit development was by far faster than loan development.

Page 31, a slight decrease on the debt securities issued. We have done a second AT1 in the second quarter.

The senior unsecured bonds maturing over time and the only second issuance that we have done was at the start of the mortgage bond of €750 million, other than that completely unchanged. Development.

Inter-bank deposits again growing in the last quarter and vis-à-vis last year development of plus 9%. If we continue on Page 32, the maturity profile of our debt outstanding, so for the remainder of the year still €1.9 billion, easily covered by our cash position and then a very smallest maturity profile over the last next couple of years, the maximum of €3 billion maturities.

Continuing on Page 33, capital position. Again an improvement vis-à-vis the last quarter.

And Basel 3 capital risk-weighted assets, as announced at the last conference call, we were now including the IRB impact of BCR €2.4 billion. This is basically explaining the increase on the credit risk-weighted assets and the rest was driven by customer business.

CET1 ratio fully loaded at 12.8%. This includes the half-year profit and the reduction of the dividend for the first six months, and on the phased-in basis 13.2% CET1 and tier-1 13.8%, very solid numbers.

And with this, I hand over to Andreas for the conclusion.

Thank you very much. For the outlook for 2017, macro looks slightly better than when we talked about it last time, so a bit on the positive side.

On our target of return on tangible equity, the plus-10% is getting a little bit bigger but our assumptions are pretty much in line with our outlook over the last quarters. What are the risks?

And actually we have a positive one yesterday with the move in the Czech Central Bank and if there are one or two more positive movements or an indication that we might see a change in monetary policy on part of the ECB, it might have a positive impact on our outlook in the third quarter. Thanks very much for listening again.

We are now ready to take any questions you might have.

Thanks for taking the question and good morning to everybody. Just two questions from my side.

The first one is on the cost-income ratio. During the AGM in Vienna in mid-May, you flagged the possibility of achieving a 55%, if I remember correctly.

Do you think you can share with us something, at least the initial thoughts on you're going to get there and maybe when you think this 55% could eventually be reached? This is my first question.

The second question I have is one is NII and provisions. NII, anything that you see as not current in the level that you have reported in the second quarter?

And on provisions, I see in your our outlook guidance, the 30 basis point magic number has by magic disappeared. So should we assume that the current levels, which is closer to 10 basis points, could be considered something like more reasonable also in light of what RBI has stated few days ago and on light of UniCredit has reported yesterday, showing write-backs basically in all the countries where you operate too?

Thank you.

Riccardo, question on you. On those three, do you want CFO answer or a CEO answer on those questions, or both?

Well, up to you. I mean, I trust you both so

Let's start with the CFO answer. And if it's too negative, I step in.

Let's start with the NII because you were asking the CEO on the AGM for the 55%. So the one item that is in the TLTRO that we see the first time reflected the minus 40 basis points.

We had it at zero until now. Now we have reached a level of new lending, where we feel comfortable that we will get to minus 40 basis points.

And this would be now in a continuous basis in the quarterly result single-digit million and we had around €50 million reflected in extraordinary in the first quarter and this is for the last periods. The risk costs question, we are happy to have 11 basis points at the moment and we think that we can continue showing similar results.

We are not aware of any corporate event as we've seen in the first quarter. And if this stays with us, then we should be definitely below the 30 basis points that we were guiding at the beginning of the year, somewhere around this levels that we have shown in the first and second quarter.

And now the CEO wants to talk to you.

On the cost-income ratio, I think it's difficult to say because it is based on business decisions that we have to take on the data and the IT side, how long we leave systems running in parallel and how quickly do we shut them off. If I give you a CEO answer, I would say, if we manage to get down to 55% in the last quarter of next year, I would regard it as a success.

If we are not there at the first quarter of 2020, I would regard it as a failure.

Okay, very interesting. So maybe this time we could avoid the usual minus three swing during the call.

Okay. Thanks.

Thank you very much. I've got two questions on Austria and one structural on CEE.

So the first question would be, you've taken €45 million of the provisions on the negative reference rate. Is there any residual either provisions - are there any residual provisions that you think you will have to take on top of that €45 million, and if you could give us a sense what it could be if there are additional ones?

My second question is about, what you actually see on the ground in terms of small business and commercial loan origination in Austria? We have seen almost a second year of quite decent kind of macro numbers.

And I just wonder what you actually see on the ground, what sort of activity, what sort of transactional activity as well? Now on CEE, what we are seeing, I suppose, is the flipside of a very strong kind of GDP growth, is also quite a strong real wage growth, particularly in Hungary and Czech Republic.

And to a degree, I have to kind of speak to myself, but I've spoke about some of those numbers that were kind of stronger than I originally expected. And my question is, how does it feed into your near-term cost plans?

You have given us this 1% to 2% cost inflation for this year. But I just wonder whether some of those on the ground wage increases at the moment may pose slight risks to that.

Thank you very much.

Okay. So the first question on the negative rates in Austria, the €45 million is everything for the past and the effect will be €30 million per annum going forward.

So it is a quarterly reduction of around about €8 million where we had a little bit more than 50% in the savings banks segment and the rest in the core Austria segment. So there is nothing to be expected from the past.

On the SME and commercial loan growth in Austria, we see quite a solid development and solid demand and we are investing in this area, in SME area, to even improve our position there. But overall I think it's reflecting the economic situation.

We've seen an update on the GDP growth. And at the moment it shows a slightly more friendly picture for the Austrian market.

On the real wage growth, we are trying to balance whatever we get as an increased pressure through these effects through cost savings in other areas. Czech Republic, Hungary - we were mentioning in Hungary we were just doing headcount reduction after the integration of the Citibank business and we could again optimize our staffing level.

So this is helping in balancing a little bit the growth. And in the Czech Republic and Slovakia, it's the same.

I mean, in the Czech Republic reflection of the lowest unemployment rate that you see at the moment in the European Union. Definitely wages will be increasing and the pressure will be similar going forward.

But overall we are not - we are reflecting this in our cost guidance and have to make it up somewhere else.

Thank you.

Thank you very much for taking my question. Just a couple of questions from my side.

What impact do you think the rate hike in Czech Republic will have on your P&L, because you gave us some sensitivities through 100 basis points last time. So I don't know if you can probably give us an update on that?

And also I was wondering if you have any updated guidance on the dividends for the next year? That also would be very helpful.

Thank you.

On the rate hike in the Czech Republic, this is an annual impact our €20 million, so €5 million per quarter. And the dividends, we will give an update with the full-year results.

We have reflected in the capital €0.60 for the first six months, so the dividend will be somewhere for this year, the current status between €1.00 and €1.20. So this is what is currently reflected.

I think we will have a look at the capital position at the year-end. At the moment, it looks very solid and we don't see any major deviations there.

So as we've said in the past, we want to have a stable slightly growing dividend payment, and this has not changed in the meantime.

Thank you.

Good morning, and thank you for the presentation. I wanted to come back to NII.

And obviously you did not revise your guidance for this year for total revenues and you still expect them to be flat at best. But can you help us understand how should we think about NII progression from here on?

And I realize there is a TLTRO one-off this quarter but at the same time you mentioned that the volumes are exceptionally strong and so on. So should we expect that from here on this growth should at least offset the margin erosion?

And then the second question that I have is on fees. They were slightly down this quarter and they were particularly weak in Austria.

And if we look at the composition, it seems that some of the decline is associated with brokerage fees and so on. So in the past, you mentioned that the rollout of George help you to boost the supported fees.

Have you seen perhaps that the novelty of that have worn-off a little bit or quite the opposite, it's still going strong? Thank you.

On the net interest income, yes, we see some slight elements that are positively contributing. Overall we are slightly down with our operating income.

I wouldn't exclude that we - I mean, we are 0.7% down. It's possible that we are flat.

Growing we don't see at the moment. I wouldn't exclude it if we see a continuation with a little bit of different business mix in the second half of the year that we could be better than we anticipated.

But right now we are where we have said and we are positive that we are pretty close to last year's income numbers.

Okay. And on the fee income side, that is not really the case.

I would rather say that we have not yet really used the potential that George is offering to us to actually generate enough additional income. For the moment, actually the strongest growth that we have on digital sales is taking place in Slovakia on the mortgage lending from - where we're just in the process of establishing George.

We would expect over the next 12 months that actually George can give us a boost on fee income generation but that probably you will not see before the first quarter of next year. And the reason for - we are not so happy with the fee and commission income because aside from the fact that there are only sort of limited products available to structure asset management vehicles for our broad affluent, mass affluent client base, we've increased our fee income from the securities and asset management quite substantially vis-à-vis last year.

So asset management fees went from €120 million to nearly I think €138 million, so €18 million-plus and securities fees also went up by more than 15%. The area where we are suffering a bit but that's mostly regulatory-related but not dramatic is the payment services where fees remained flat to slightly down and lending.

Lending fees have come down. But overall, I think the performance on the fee income side still gives us hope that we can reach the €2 billion level at some point in time during the next quarters.

Okay?

That is very good to hear that that is going well. And you mentioned before that the George rollout in fee will only start in - after the summer if I remember correctly.

Yes.

So how come that the pickup is already happening in Slovakia? Can you just maybe clarify that for us?

That is not - that has none to do with George. We have started on our own - the Slovak have started on their own to initiate guided digital mortgage lending.

So actually as - and consumer lending - actually as an introduction for our clients into digital sales. So what we actually do is that we take clients who apply or who want to have a mortgage loan or a consumer loan, we guide them on the tablet in the branch or at home through the product.

And with approaching a stage where it's end-to-end - we are not quite there yet because from mortgage lending, the register is not digital yet. But it's coming.

And about 80% of, I think, mortgaged loan sales in Slovakia are presently already guided digital sales.

Okay. Understood.

Thank you very much. And I take from it that there is more to come at least on George once the rolled out.

Thank you very much.

Hi. I'd like to come back to you ROE guidance first.

You maintain this 10%-plus guidance but you're running well above 11%, especially if we adjust for the regulatory charges in the first - you booked in the first half. So my question is what makes your relatively cautious still on the full-year outlook?

And secondly, on the Austrian litigation charge which you booked. Can we assume that this was primarily related to the Austrian Swiss franc loss you have?

And could you give us a few more details on this Austrian Swiss franc loan portfolio? So what's your exposure?

Are these primarily bully [ph] type loans? I think the Central Bank warned about the potential funding shortfall at these loans.

What are your thoughts about the asset quality here as the maturities are approaching?

Okay, Gabor, let me answer the first question. I don't think that is cautious.

Our outlook is 10%-plus and the pluses is getting more and more likely. So 13% is also 10%-plus, so I don't think it's cautious.

It's just - I would call it broad but not cautious.

On the second question, this was not related to the Swiss franc loan book. The Swiss franc loan book is normally developing.

And now with the development of the Swiss franc around 1.15, the - should have a positive impact and probably more people than switching to Euro lending. The ruling of the highest court in Austria was related to the variable interest rate mortgages in euros, where banks in Austria have put the floor on the reference rate at zero and changed behavior in the contract in such a way that that excluded negative interest rates from the interest calculation for the customer.

And this was cancelled by the highest court on consumer protection grounds. The argument was basically if you put the floor into a loan contract, you have to have a cap as well.

And so we have to forward to the customers the negative interest rates that are currently in the market. And this would be the case as long as the Euribor is in negative territory.

So this is in essence the whole story. And there were several rulings on this topics but it's mainly exclusively linked to variable interest rate mortgages in euros.

Fixed rate mortgages are not touched. And currently, I mean, the ratio of fixed to variable mortgages is around about 80% grant is fixed.

But this is net impact over the last couple of years. So this is the case.

And on the Swiss franc and the refinancing or whatever you have mentioned, there is no issue at all and the portfolio is developing as it was developing over the last couple of quarters. No significant deviation.

No deterioration. It's just the normal.

It's getting better. And now with the better exchange rate, we think that the reduction of the overall portfolio will be even faster.

That's very clear. And finally, can I ask about how do you stand on your - on centralizing your databases and rationalizing your overall back-office functions, which I understand you think could be the main driver of your cost savings effort?

Yes. The major projects are in line.

We have - besides the data project, we have a couple of projects going live on January 1, including IFRS 9 and there we are on track and we are not expecting any major hiccups. However there is usually, on IT projects, you know better after you switched it on.

The one on and the other one off. So I mean at the moment we are in line.

Can you remind us what impact do you expect from IFRS 9, probably upfront?

Yes, maybe around 40 basis - maximum 40 basis points. This is what we've always said and the calculations are more and more pointing in that direction as we are inside these 40 basis points.

And do you assume you will fully include this charging your capital ratios or do you think you will phase it in over several years?

I think we will reflect it this year. We are always reflecting the things immediately.

Okay. Thanks very much.

Hi, good morning. Thanks for the call.

You touched on your views that the mortgage market may calm down a little bit in the Czech Republic going forward. For the moment, has the change in regulation, in your view, had any impact on volumes or your appetite for business?

How quickly do you think volume growth might slow down? And you also, I think, talked about large corporate and SME demand in the Czech Republic picking up.

So do you think this is going to take up the slack going forward? Do you see a resurgent of investment loans?

So do you think the overall the growth profile in the Czech Republic, even with the different mix, is going to stay reasonably similar over the next year or so, or do you think it's rational to think that loan growth from where we've seen it over the last few quarters is likely overall to flow? That was the first question.

And secondly, now you've been venting a little bit of frustration about Romania. Is that being reflected in your appetite for the business there?

And could you just also tell us what the tax charge was in Romania, which clearly impacted the quarter's numbers? Thank you.

Okay, let me talk about the Czech Republic and then somebody can explain that tax situation in Romania to you. I can't do that without getting annoyed, so somebody else will do it.

I think I wouldn't expect too much in the Czech Republic, nor in Slovakia. Imposing countercyclical buffers or any other measures that the Central Banks have available to curb growth, doesn't really have an effect for the moment because the capitalization and the common-tier-equity-one ratio is not only are vast but also of the other Czech and Slovak banks are way beyond those buffers.

So it really has no effects on sort of guiding the banks to reduce loan volume because they are reaching capitalization limits. And the second thing is that you don't change client behavior with a 20 basis point interest rate move.

Mortgage loans are still very much on the cheap side. And if you have an environment where you have real wage growth of 4% and beyond, and you have mortgage loans with a total rate that is below your substantially below real wage growth, and you have nothing else to invest because there is nothing else around what do you expect.

So I think - I do not believe in a dramatic slowdown of mortgage lending. What I believe is that you will see a continuous improvement in the quality.

So you might have flatter volumes but you will have higher LTVs and so better quality loans and - but don't know major changes on the volume side.

Romanian tax charges related to the tax inspection that took place in Romania and we received a draft letter. We are expecting to have in the last couple of days the final letter.

We were objecting the findings but we've reflected every possible negative impact in the numbers already. The background to this is the two items.

The one is questioning the tax fixed deductibility of impairments of subsidiaries, where we were booking losses. This is something where we have a complete different opinion than the tax authorities and we were substantiating this by expert opinion.

And the second one is the tax authorities were of the opinion that the finance from the group is too expensive for the local subsidiary, so at the end of the day this is a question where to take the income or the - what's right level of interest rate expenses accepted. This is a discussion between Austrian taxes and Romanian taxes.

Why we reflected it [Technical Difficulty] at the moment is if they put it in the final letter, we have to reflect it in the tax space. We have to pay the tax and then we can appeal.

At the end of the day, if we have to pay a higher tax in Romania, we will have a tax deduction in Austria but we think that because all these calculations are referring to financing and depositing with the various countries, we are using formulas and calculation methods that are widely accepted on both sides and the Romanian tax authorities were the only ones until now who were questioning it. By the way, the ECB was indicating to us that it might be too cheap what we had doing charging the Romanian, so we have two opposite opinions.

We will see. It would take a couple of quarters until we have resolved that.

But we will not see any more negative impact on the quarterly results if we are writing our assessment and we might see a lower tax charge in Romania at a certain point in the future.

Super. Thank you.

Hi, good morning all. Brajesh Kumar from SocGen Credit Research.

Just one question from me, please. What can I expect in terms of funding?

You slight - you got to close to €1 billion senior unsecured maturing in 2018. Is it fair to assume that you look to refinance that and what about sub-debt?

Any plans there? Thank you.

So there is nothing coming this year. The only thing on the senior level might be a follow-up once we have an eminent decision.

But there we are discussing a different category. Sub-debt, we are very well covered at the moment.

We have not finalized our discussions for next year but you should not expect a lot from us going forward.

Okay, fair enough. So fair to say - I mean, last when we spoke I've been told that you might do some €300 million to €400 million in tier-2 in 2017.

So change in plan there? I would expect you don't intent to do anything in rest of 2017.

Is that the plan?

Yes, it is just simply - the only that's our current thinking. We might - we are definitely continuing as we discussing because at these levels, you should consider pre-financing.

At the moment, we affirm that we are not doing anything but if we see at the end of this current cycle, then we might do something earlier at the - in this year already. But this is not the current plan and we would come back to the discussion in September - end of September for the fourth quarter.

Okay. Thank you.

Good morning. Two questions on my side on cost and on NII.

On cost, could you give us a range or an estimate of the current burden that you are bearing from keeping two systems live? Then we obviously don't know when you're going to switch it off.

You haven't decided yet, but at least it would allow us to gauge what the benefit of doing so would be eventually? The second question is on the court ruling on negative rates.

You have already explained the one-off relative to the past. Can you quantify the ongoing drag on NII that you're going to have from this and split it into how much is savings banks related and how much is in Erste Bank Oesterreich?

Thank you.

I answered already this question before. It's €30 million on an annual basis.

And a little bit more than 50% is in the savings banks sector. So the core group is impacted by, let's say, €3 million to €4 million a quarter.

The second question on the cost side, it is extremely difficult to quantify because at the end of the day, I mean, we are having at the moment, all our people in the IT area fully utilized and we - due to the fact that we are running a number of very big project, we have to hire external resources, which is more expensive than internal ones. But we didn't calculate the impact on the whole thing.

It's definitely double-digit million number but I cannot give you a precise number at the moment because we are trying to get the things done and switch to a new and more modern systems as soon as possible and get rid of the legacy. But it's just simply a question when we are in that position.

This has nothing to do with financials because the earlier, the better.

Okay. Thank you.

Thank you very much for taking my follow-up question. Just two.

One is a clarification. If I understand you correctly, in one of the previous answer, Mr.

Treichl you stated that at some point you hope you aspire to get to a fee income run rate - bringing fee income to €2 billion, roughly to €2 billion. Did I get it right?

This is my first question. And the second question I have is, I see some Bloomberg report in some of your statements on QE.

We expect the ECB to wind down this mid-next - to start winding down QE mid-next year. What do you think should happen to sovereign yields and how and what - how should I think about the almost €26 billion of liquidity that is part in cash in Central Bank account, which account for roughly 12% of your balance sheet?

Should we continue to assume that this number is going to stay as it is or maybe growing even more if deposits continue to grow at this pace, or do you think you can move it to somewhere else ahead of winding down QE?

Okay, let me do the first question on the fee income side. Well, presently sort of our quarterly run rate is €450 million, €450 million-plus, with an increasing trend on asset management securities and fiduciary transactions.

And if we can sort of flatten the payment side and if we have no further consumer protection or regulatory action on the lending side, so we can keep that flat or grow it with volume growth. I think over the time we should make up the 10% that would bring us to a quarterly run rate of €500 million, which would then translate into €2 billion.

I'm sure that we are going to get there. I just can't tell you exactly when.

On the Central Bank deposits and the bank deposits, the number is a little bit inflated by the situation in the Czech Republic, where we've seen huge inflows of getting on the appreciation of the Czech crown. If we exclude this then pickup, it's probably €4 billion, €5 billion lower than you're currently seeing.

And these number will see stable at the moment. You've seen in the last quarter a pretty stable development in favorable [ph] deposits and loans.

It would be interesting to see the third quarter last year, we had huge inflows. So we are currently monitoring the situation if the second quarter is not a new trend or it was just seem an outlier and we will see you again further deposit inflows.

But overall I think - personally I think that the time of these big jumps is all when will see now more moderate development in this area. And then as a consequence, as long as we have surplus deposits, we have, as mentioned, €1.9 billion maturities this year, so should be a more moderate development going forward on this balance sheet item.

If I understand you correctly, this amount of money you are not thinking about moving it maybe to the current rate portfolios to sovereign exposures in countries that are not your core countries with higher yields. That is not going to happen, if I understand your wording?

Yes, you understand it completely right. We were disciplined over the last years and we are not planning to change course.

Thank you very much. Thanks.

Thanks very much. My question would be about Austrian lending.

I see that you're growing loans around 1% at the EBO division and 1% at Austria other. I'm just curious why the savings banks are showing faster growth?

And also what's the outlook for growth for the Austrian lending market? And then related to that, what are you seeing in terms of competition in spreads for lending in Austria?

Thanks very much.

So I think the stronger growth on the savings banks side is quite easy to explain. You just have to compare loan growth of Erste Bank - so in the [indiscernible] segment and their NPL ratio to the savings bank's growth rates and their NPL ratio which is about double of Erste Bank's.

So they are just a bit more aggressive on the lending side, therefore they have stronger growth. Whether they can actually make up by higher margin, the higher provision levels, I'm not so sure.

So it's a different policy. Both of them work for the moment.

We are in Austria on 2.5% NPL, and the savings banks are 4.5% to 5%. That's it.

Yes. And the outlook for growth?

Slightly better. Slightly improving for both.

Yes. And in terms of spreads in competition, what are you seeing on the market?

On the macro SME and on the mortgage lending side, flat margins. Our big ticket business, large corporate international, high competition, high liquidity, uninteresting.

Okay. And then maybe just one last question, maybe you've already answered it.

Apologies if you have. But the TLTRO impact, what's the ongoing impact?

It was €50 million.

It was the booking that we've reflected for the past. And I think €2 million on a quarterly basis, €2 million to €3 million.

€2 million to €3 million. Super.

Thank you.

Yes.

Hi, good morning. Thanks for the call.

Just a quick question for me on NPL ratio. You continue to bring that down overall quite nicely.

Can you give us some sort of indication of where you think this could go over the medium term? And maybe if you could give us some color in terms of where you think there is best potential for this to come down?

Obviously over the medium-term, Croatia should see much lower levels. But if you can give us some idea in terms of country or region where you see more potential for improvement?

Thank you.

Yes, the NPL ratio mid-term would like come closer to 3%. This seems to be achievable across all the countries where we are in, including Croatia.

We should not forget this exceptional case but let's say if we can keep this for a moment is that was in Croatia plus this trend the current situation supports this idea that this can be achieved within the next couple of years.

Okay. Thanks very much.

Thank you and good morning. Could you please indicate you agro core exposure coverage after the second quarter, please?

More than I think greatly covered.

Okay. So more than 50% or 60%?

By far more than.

More than. So that would suggest that you should be going back to roughly €100 million net profit run rate in Croatia over the next couple of quarters.

Would that be a fair assumption?

Yes.

Thank you.

Good morning, everybody. Johannes Thormann, HSBC.

Two questions left from my side. First of all, are there any indications that we will see another reversal of risk provisions in Hungary in the next quarters, or do you think that's done now?

And secondly, I don't want to provoke around from UCL [ph] but the most promising market in your region so far and the most flourishing market for what reasons in your view?

With regards to Hungary risk provision, it's done.

Okay.

You want to get me into trouble or

No, not much but at least get an honest opinion.

Okay. I think for the moment, I am the most - irrespective of what the political front will bring in October, the most promising market by far is the Czech Republic.

And the most insecure market for me for the moment is Romania.

Okay, understood. Thank you.

Hello, thank you. Just two short questions remaining.

One on our other income. You had some one-offs obviously in Austria Other and in Hungary, if you can just say what they are referring to?

And the second just on your AT1 strategy. You now have roughly €1 billion.

Are you happy with that or would you probably increase that next year? Thank you.

The AT1 strategy, we will go for another €500 million over the next 24 months, not necessarily next year. We are looking at the maturity profile as well.

We have now a five year long call-out and a seven year long call-out, and we want to build 1.5% full bucket and roughly €1.5 billion. We've done €1 billion.

And when we do the last one, we have not finally decided. The overall general plan was '17, '18, '19, €0.5 billion every year.

We've done two transactions already in '17 and we have time now with the last one. And on the other income…

On the other income, you basically have in other - in [indiscernible] in the savings bank, you have the provisions for quarter that have been set aside based on the negative interest rates. You have an improvement in Hungary based on the provisions on booking of the banking levy in the first quarter but that's every year that way.

And the others are really just positive one-offs in the second quarter resulting from property sales. So there is really nothing very special in there.

All right. Thank you.

Yes, hello. Good morning.

Thanks for taking my questions. I have two questions.

One on the cost side and one on the cash side again. On costs, you gave the example with regards to a cost-income ratio of 55% and you also referred to the timing.

However could you again please elaborate a bit on the absolute number? Is it still the 10% assumption we can - where we can then derive a €400 million impact?

And second question on the cash side. You said, okay, this is inflated.

It might be go down by €4 billion to €5 billion. However I think then you would be still a bit underinvested with regards to your own plans.

So what would have to happen actually to see you reducing that kind of cash position further - well, having in mind this kind of rather rising interest rate environment, which would then maybe a bit heard kind of actually sort of some bond [ph] investments on that side? Thank you.

We are, at the moment, underinvested. This is what we know but we have not invested at all and have maturities in our portfolios.

So we're waiting until we have received higher levels and then we will be investing. I think it's the wrong thing to do now to go out very long.

We know we are paying at the moment. But going out very long and then have an immediate capital impact once interest rates are rising is something we don't want to do.

So what would have to happen that we are deploying more of our cash, rate levels have to be higher.

Okay. So that would then happened after 100 bps or 200 bps - or I mean, if we see the 100 bps maybe we see, we are on the road to 200 bps.

So when do you think then there is the timing to be more active?

Well, you know [indiscernible] were the first ones to call for 10 years to reach 101% at the end of this year. And this is a level where we start thinking.

Okay. And on the cost side, sorry?

What are you looking for? You want absolute levels of cost or

Exactly, so that would be very good guidance. I mean, you elaborated on the cost-income ratio but then you have a top line and you have the cost side but just to focus really on the cost, just the cost?

Okay, I'm going to give you an incredibly precise answer on that of course. Our cost level on an annual basis are around €4 billion.

It ain't going to change much over the next quarters, and I'll leave it up there. It ain't going to change much down or up.

It will change, so that's where we are. Keep in mind that the cost-income ratio consists not only of cost but also of income.

And that in the second quarter of this year we were at 58%, so it's not such a long/short to get to 55% in reality.

You still see the kind of 10% potential, so that is unchanged, yes, on the cost side?

I see potential, yes. Of course I do, yes.

Okay. Thank you.

Thank you very much. Thank you very much, ladies and gentlemen for listening in.

Thank you very much for your interest in Erste Group. Today is the August 4.

Exactly three months from now, we will present to you the third quarter results, on November 3. So that will be interesting.

Again, I hope for you all the best. Enjoy the summer and keep up the good spirit.

Thanks very much.