Erste Group Bank AG

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

Pawel Dziedzic - Goldman Sachs Anna Marshall - JPMorgan Gabor Kemeny - Autonomous Research Matthew Nance - UBS Riccardo Rovere - Mediobanca Johannes Thormann - HSBC Victor Galliano - Barclays

Thank you very much, operator, and a very warm welcome from frosty Vienna to our fiscal year 2017 Preliminary Results Conference Call. And we follow our usual procedure that we do every quarter Andreas Treichl, Gernot Mittendorfer, Willibald Cernko will lead you through a brief presentation highlighting financial developments at the Erste Group.

After which time, we're happy to take your questions before handing over to Andreas Treichl. I would as usual like to highlight the disclaimer on Page number 2 and with Andreas please take it away.

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

Let's start with the presentation on Page 4, development third quarter to fourth quarter of last year in total profits in the fourth quarter is EUR 34 million below the third quarter. We had higher operating expenses and higher risk cost not being offset by higher operating income and lower taxes.

For the full year our profits are up by EUR 51 million to a record EUR 1.316 billion. Operating income almost flat for the full year, expenses up by EUR 130 million, lower risk cost at a much better other resulted in that increase.

If you go to Page 5, you see actually that we have a positive development on the net interest margin side in the last quarter so it seems that the slow margin deterioration could be stopped development that we could actually see continue in 2018 due to the interest rate development in our region most notably of course Czech Republic and Romania but also some positive developments on the Euro side, so far. I'm not going to go into the cost of risk.

I leave that to Willi. So overall we again managed to produce a return on equity of above 10% and return on tangible equity 11.5% for the full year of 2017.

On Page 6, balance sheet development actually rather substantial balance sheet growth fortunately a much stronger growth overall than on the risk weighted asset side. You see net loans growing by nearly EUR 9 billion in 2017 and customer deposits by nearly EUR 13 billion, that's huge growth given the interest rate environment.

But I think in principle it's a very positive sign that so many clients entrusts us their money. If you look on Page 7, of course there's development loan growth being surpassed by the deposit growth resulted again in reduction of the loan to deposit ratio.

We're now I think at an all-time low of 92.4%. you see again an increase in loans as a percentage of total assets to 63% that is an important measure because that directly relates to our leverage ratio and has a huge effect on the fact that.

Basel IV will have very negligible effect for us and much of that is based on the fact that, we do have a very positive development on the leverage ratio side. So net loans are up 6.8% part of that of course is also due to the appreciation of the Czech crown as you will see later on.

We have 70% loan growth in the Czech Republic if you take out the appreciation of the Czech crown then it's slightly over 10%, still a very substantial growth. NPL coverage pretty much flat and we brought the NPL ratio down to 4%.

So we've reduced it now during the last years from nearly 10% to 4% and our guess would be that in - for a long time that you see a 4% from the next year, we're moving towards 3% in from. Capital ratio fully loaded Basel III ratio from 12.8% to 12.9% and also on the liquidity coverage ratio and everything else positive development.

If you look at the business environment, it looks from a numbers point of view it looks all very positive, it's not all very positive. But in principle I think a very good development; Austria's seen a good development.

Czech Republic, Slovakia. Romania a bit of overheating of the economy, too much driven by government investments, too little exports, too little investments from abroad FDI is not really plain story.

It's very much consumption oriented. But still I mean a good development, unemployment is going down dramatically.

Across the region partially a very positive development in Romania, not only a positive development because you also see quite a bit of an exodus of young professionals moving to other countries, tendency that we would like to see reversed. What's very important to look at?

Is that with the exception of Croatia, across the region inflation is above 2% and actually the trend is at present at inflation rates will not come down, but will tend to grow higher. If you go to Page 10, you see the interest rates development quite positive.

Unfortunately you don't have the numbers of dark blue line on top is the 10-Year Gov and the light blue line is three months interbank rate. So you see the positive development in the Czech Republic and in Romania and pretty flat in the Euro and the other currency regions in our Group.

That again you see on Page 11 and if we move to Page 12, the market share development with the exception of Romania where it's still rather flat. We see actually slightly positive tendencies across the board.

Both on the lending side on the deposit side. Page 14, loan growth here you see a loan growth in Romania only 2.4%.

But in the other segments including Austria rather strong loan growths bit overstated in the Czech Republic. So if you take out the currency appreciation the strongest growth markets were the Slovakia, Hungary, Serbia and the Czech Republic slightly behind and pretty much the same picture on the deposit side.

Positively also you see deposits picking up in Romania finally nearly double-digit in the last quarter of this year. And then if you go to the net interest margin, you see actually that overall a stabilization or slight an uptick.

The only serious drop that you see here in Austria is not a real drop that's a one-off effect based on a change in accrual policy in our [indiscernible] building society. But other than that, the stabilization and slight positive tendency.

Fee income also not too bad, we're trying rather multiple that we were good in the creation of asset management products for the middle class going to pick up non-life insurance premiums. Also should pick up with relatively good trend throughout the region in 2017, I see no reason why that shouldn't change in 2018.

And then on Page 18, the expense side. So I think what we can say is that, the first quarter of last year was a peak in operating expenses due to many reasons finalization of some major regulatory projects requiring investments in IT, personnel, outside the advisors pension we had higher deposit insurance contribution.

We took some provisions for expenses in 2018. So it's a mix back across the board and I think we're very affirming that this was the peak for a very long time to come.

So overall having rather positive result on the business performance I'd like now to hand over to Willi for the risk story.

Thank you Andreas. Allow me to summarize pages 20, 21, 22.

Firstly on the year comparison we see that, we came down from 15 [ph] [technical difficulty] to points in terms of cost of risk. This is simply reflecting further improvement but as of quality.

Already here, we give you from guidance for 2018 we expect a level of up to 20 basis points. So we see still a positive environment.

When it comes to the NPL stuff, we see that NPL inflows over compensated by recoveries and sales. The NPL ratio as Andreas already mentioned is at the level of 4%, I can say we're well on track to achieve a level below 4%.

So this should be achieved already 18%, improvement from that perspective you can see it was new [ph] countries Croatia and we look at the fourth quarter and that coming months is again back on track with regards to NPL. Performance the NPL coverage ratio is still at the very onto the level of close to 70% and I would say that over from my side to give you a view on the quality of our assets.

And I want to hand over to Gernot.

Good morning from my side. We continue on Page 26, as already mentioned the loan to deposit ratio to down to 92.4%.

This was a strong development on the asset side, on the loan side. But even stronger deposit development across the board.

And if you look at Page 27, very positive picture performing loans growing year-on-year by 7.1%. non-performing loans down by 13.5% and I mean, we were not mentioning in our presentation, our unwinding effect, but simply if you look the unwinding factor can be last quarters.

This is a negligible number. Continuing on Page 29, liquid recoveries ratio we are at 145% and the liquidity factor was still growing already from a very solid comfortable level.

So we see that keeping our comfortable liquidity position. Page 31, declining wholesale funding reliance and as a consequence of the still very solid, very strong deposit inflow which leads on Page 32 to our debt maturity profile you see maximum EUR 3 billion redemptions.

We've already issued EUR 1 billion 10-year mortgage covered bond in January. We were the first Austrian issuer.

Again this year and the spread was at mid-swap minus 6 basis points. So we will not have a very program this year of maximum EUR 2.5 billion that needs, that we might be issuing and already in January the big epic [indiscernible].

We come to Page 33, the fully loaded CET1 ratio at 12.9% post dividend proposal for 2017 will be EUR 1.20 and you could see a stabilization on the risk weighted assets in the last quarter and this is an improvement on the CET1 ratio. So again a very positive development and a very solid development.

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

Thank you very much. Gernot and Willi.

If you look at our expectations for economic performance in 2018, we see a continued positive development in our markets. Actually across the board Czech Republic and Slovakia was very strong fundamentals and also very strong investment structure geared for future growth.

Somewhat less strong but still very positive in Hungary, Romania and Croatia and Austria seems to be picking up quite well. So we actually see all the effects of a good economic climate for the moment.

Some of them of course will result in cost pressure like higher wages that we see across the board. But its higher consumption, higher growth and slowly we see pressure building that could result hopefully in a - maybe a bit faster action on the ECB than what is presently being reported.

Public finances are okay, in some countries they're actually really good. One of them actually is Romania with debt to GDP ratio and the third is, however things like that can change very quickly.

But for 2018, we see a continued positive development also on that front. For 2018, we see a good development also for Erste Group.

We're very confident that we can finally see real top line growth, not much but some and we're also very confident that we will bring expenses down in 2018 from 2017 level. So we keep the target for return on tangible equity at 10% plus and maybe the plus is a bit fatter than it was in the past.

What are the risk factors? Actually quite frankly I don't see the interest rate development as a huge risk.

I think that's pretty much given [ph] it's a matter of timing and unless something dramatically happens on the political front. I think it should come in the way we would like it, smooth, slow development with an upside tendency.

Biggest risk still is political as we've seen during the last years. I think we actually now see the effect of stability and political risk and change stable environment very quickly.

So that I would see as the biggest risk factor for the next coming years. With that, again confirming our dividend proposal of one-year 20 [ph].

We're now ready to take all questions you might have, before handing over. I'd just like to mention a personal note.

This is the second time that we produced the best results of the group in our 200-year history. It's not so important, but I just wanted to say.

Thanks very much. Operator.

We're ready to take questions.

I have two questions. The first one is on cost and it's basically, if you can help us understand little bit better how you get from to following cost base next year from I think 7% year-on-year growth in the fourth quarter.

just outlining maybe the steps, are there any items in particular in the fourth quarter that you can point us to that distort the growth either one-offs or effects? Can you also help us understanding quantify the cost base related to regulatory IT project that you believe will not be repeated next year?

and also if you can comment, if you expect any pick up in costs related to project like George or branch upgrades and so on next year. And then the second question is just on George and maybe your comments around top line growth next year.

I think you referred earlier this year to the fact that you now have 2 million customers and you plan to rollout the platform to all your seven markets by the end of 2018. So maybe if you can comment what is your experience so far based on existing implementation.

Can we expect George to be a driver contributing to top line growth in particular fees from here on? Thank you.

I'll start with the cost. In the fourth quarter there are some one-off seen, there is small restricting provisioning.

There's some extraordinary IT expenses, consultancy expenses driven by regulatory project. We will have an easier 2018 in terms of regulatory expenses because benefit to IFRS 9, now live and this is bringing up our depreciation by around EUR 20 million.

But the project cost will be 30%, 40% lower than they have been last year. We will definitely have some cost pressures upwards, wage inflation in some of the countries, but this can be offset by savings in other areas.

Addition with one of our with some expenses related to branch closures in the Czech Republic and various other things that will not be repeated in 2018.

Okay with regards to George will not be a contributor to cost reduction in 2018, so we have to reduce cost further on the back office side because we're continuing to invest in George and to answer your question. I think there are two parts about it.

Number one is, the fact that we built George into across [ph] border digital platform that is open and will allow our clients PSD 2 in the future to load all their bank accounts onto that platform. The strength of that platform is that our client seemed to find it very attractive, easy to deal with.

But in itself, George doesn't produce any additional income other than the fact that we're gaining clients across the region because of George. To really affirm that, you would actually need to ask the clients have you opened up an account with Erste because of George or would you also have opened up the account if we wouldn't have George.

So definitely we see a tendency that George has raised the effectiveness of Erste Group and its banks wherever it has been implemented and we're attracting a lot more young clients than we did in the past. By that itself, we don't make money.

All the information that George is offering is increasing traffic, is increasing client usage, is increasing our ability to actually to sell products via George to our clients. And then we have rather different developments in the region in terms of our strengths to actually sell digitally and there we have different forms, which is pure digital sales, guided digital sales and so on.

All of that is immensely assisted by George because it's a platform that is not only valid for usable for straightforward digital sales, but it's also usable for guided digital sales and there we have seen very good numbers in markets like Slovakia and also the Czech Republic. So it's - we'll not be having the situation where we would be able even if we could to tell you we've made x amount of net profit based on George.

But we can definitely point out to the fact that, it has increased traffic, increased our client base and it has dramatically improved the awareness, the image and the attractiveness of the Erste Banks in every region, every country where George has already been implemented.

Right, that's very clear. Can I just have and maybe a follow-up on cost?

You mentioned that the cost is going to fall slightly. In the past you mentioned the EUR 4 billion cost basis ambition that you would like to get to.

It would probably mean that you're not going to get there in 2018. Do you believe that's cost base and keep on falling afterwards or let's say the EUR 4 billion is too ambitious?

Well we're not too far away from EUR 4 billion with our ambitions. But it will be depending as well on the digital investments.

How aggressive we're investing there because we don't want to just simply save to reach a certain number and then give up opportunities on the income side. But it's a not completely out of reach target.

But it will not happen this year and next.

So the target of course is not EUR 4 billion, we mentioned that in the past. In the mid-term we have to get our cost base I don't know unless we have huge growth.

But it's not maybe the absolute cost base, but I think in the long run. Even if we aspire to get down to cost income ratio of 55 which we could hopefully manage and in the near term future the next couple of years the ultimate goal has to be to get below 50.

There is no question about that, that's something that we have to work on nearing the next year's with all efforts that we have available.

And maybe just question on that. We can understand that with the fall out of let's say regulatory project this year.

You will be able to cut the cost base. What could be the drivers beyond that?

Would that be branch closures, would that be? What would drive the cost base decline beyond 2018 given the wage inflation and so on?

I think a branch closure is a very simplified form of looking into cost reductions because the cost base of branches is so divergent. It's not the number.

It's what is the total cost of keeping up your brick and mortar system and what can you afford? And there is absolutely no question in our mind that the biggest cost saver is not the digitization of the front office.

The biggest cost saver is the digitization of the back office. Closing branches it's easy, it's just a matter of - do you lose clients or do you not lose clients.

The first step is the full digitization of back offices. Banks that cannot achieve that, they can close branches up to their ears and they will never get efficient.

So that's what we're working on and the branch closure is a different story in Central and Eastern Europe and it is in Austria. In Central and Eastern Europe you can close branches and can also cut your cost immediately when you do that because you very flexible labor markets.

In Austria it's a bit more complicated, but we're getting around it. We're just not making any announcements, but we're reducing our branch network slowly, consecutively, also depends on our ability to make those branches that we intend to keep really attractive if you have also an attractive branch with attractive personnel that offers value to the clients they're willing to travel.

If you offer crap, they're not willing to travel.

That's very clear. Thank you very much.

Two questions please. One on asset quality.

Could you please indicate the magnitude of provision for the single case you mentioned? And is there a need for further provisions there in 2018 or is it fully covered now?

And the second question is on your inorganic growth ambitions potentially. What would be the correct use of potential target and has anything changed here at all?

Thank you.

The single case you're referring to, we have a look at the fourth quarter. If we look not consider this, we would have seen hardly any provisioning in the fourth quarter firstly.

Secondly, I tend to say we're more than sufficiently covered. Gernot?

Yes on the organic growth ambitions. You see equity [ph] and the market share development that we're doing quite well in most of the countries and we think that the rollout of George will definitely help us continuing in our growth patterns and our ambition is definitely to have market share increases across the board and including Romania and Hungary.

And our appetite to buy into brick and mortar is extremely low.

Great. Thank you.

Julia from Morgan Stanley here. Thank you for the presentation and thank you for the detail on the George side.

And I have perhaps is more follow-up on the 2018 investment and the cost angle. So you mentioned that, the biggest cost saving is not perhaps the branch counts, the customer interface, but rather the back office.

So could you give us more little bit that on what you're doing there and which initiatives you think have the highest potential. And then secondly, how much are you investing in IT per year across OpEx and CapEx and what percentage of that is devoted to on the bank versus change the bank?

Thank you very much.

Okay, I think all in all if you look at the most important target for us has to be to basically run Erste Group from a back office point of view with all the regulatory complications that we have given the fact that we operate in seven different countries to do the most, that we possibly can to resemble as Erste Group was operating within one jurisdiction. And to actually streamline all our back office activities from security processing to credit, to accounts, income to everything we do in the most similar fashion that we can possibly do and in the most efficient way.

So this is over the next years also we see hopefully an alignment in regulation throughout the region which should make it simpler for us. And then allowing us to basically leverage the different labor, cost and different tax systems that we have in the group to our advantage.

But at the end, I think nothing different for us than for any banks that unless banks are able to create really extremely well-functioning digitally based databases throughout the group. Banks will not be able to become efficient and those who do the best on that, will be the banks that have the most power to invest in their client business.

On the IT expenses, we're spending in the Group around EUR 1 billion per year on IT and 20% out of that for change the bank. I mean it's always equation what you treat as change the bank because I mean a test system is something that you have and we treat is around the bank.

But in essence you just need it for a change the bank initiatives. But this is roughly the ratio that we're showing.

Thank you.

Hi Gabor from Autonomous. A couple of questions on revenues, one on the guidance and one on Czechia please.

On the Group guidance if we just annualized the fourth quarter net interest income, we would get to a 3% increase. So when you guide for a slight increase in 2018, how do you think about the drive here.

So in other words, what makes you assume roughly stable NII from here? The secondly on Czechia, with clearly the number one driver of your net interest income growth.

Is this growth coming from the customer business or rather your utilization of the reverse repos with the Central Bank? And are you positioning yourself for further rate increases that is, are you increasing your utilization of the Central Bank reverse repos.

Okay on the net interest income. Gabor you've seen we've upgraded our guidance vis a vis the last quarter because last time we set flat to slightly up, now we're saying slightly up and 3% is in that range.

So we'll be definitely driven by Czech development and stabilization or turnaround in other markets as well. On the Czech side, yes it's the repos that are helping us and we're still seeing no movement on the deposit rates also, three months prior move quite significantly up.

So this is a positive environment and should be supportive of net interest income.

Okay and shall we expect like stable NII over the coming quarters, would that be reasonable?

What stable NII over the next quarters?

Yes.

Stable [technical difficulty] what?

From the fourth quarter.

Let's say this is a very good starting point.

Okay, understand. Thanks.

Yes, good morning. Matthew here from UBS.

Two questions please. First one on, loan growth.

You have the 5% plus loan growth guidance for next year. And I'm just wondering where do you actually see loan growth accelerating, which markets of segments.

And when I'm asking this, I'm looking at the [indiscernible] for Romania for example where you clearly have been when a little bit slower than the market. Can you share views regarding Romania and potentially where you could see some pick up at the loan growth in 2018 and beyond and then why you shouldn't grow a bit faster in these markets?

And the second one is on, on the capital and dividend and I appreciate these are early days. But given your capital position being close to 13% target and looks like some of the RWA initiatives are on track.

If you could share your views or outlook on 2018 dividends or payout ratios which are paying in 2019 that would be much appreciated. Thank you.

We still have to get the approval of the General Assembly for our 2017 dividend. But if you saw the relay of the tonality of our outlook into future dividend policy.

I think you can take your own conclusion, that we would expect dividends to continue to go up. But we will not give sort of number on that neither for the absolute dividend that we expect for 2019 nor the payout ratio.

I wouldn't exclude that we will give you any indication on that, later in 2018, but not today.

Okay.

On the loan growth. Yes.

Have mentioned already Romania where we were slower than the market in our development, we think we can make that up and can grow there again with the market and we will tick above the 5% in 2017, if take out the currency development and I think if these things continuously at the moment and which we've looked at the market environment that should be supportive. It will be a broad based across the board growth and we feel quite comfortable with the 5%.

Okay, thank you.

Three questions if I may. The first one is on risk cost.

If I understand it correctly, you mentioned your risk costs to be in the region of 20 basis points in next year. This year you reported around 10 basis points, it was actually less than that.

so I was wondering why you think the risk cost should go double, considering that the outlook you depict for most of the countries where you operate with the possible exception of Croatia seems to be relatively reassuring, so I was wondering what could drive it up. The second question I have is on IFRS 9, if you could give us an idea what should be the impact on the equity not on the common equity Tier 1, on the equity on the 1 January, 2018 and if this is somehow included in your 10% guidance ROTE, which is based on the average equity of 2018 if I understand it correctly.

The third question I have is on IT spending George in general. If I understand it correctly, you mentioned you want to spend roughly EUR 1 billion over the next few years if I understood, if I got it right.

Is that - is this EUR 1 billion let's say in alternative to kind of M&A to buy in other banks or somewhere else or maybe in the countries where you already operate. So this is brand new go ahead to grab clients rather than so getting them through IT channels rather than buying banks.

And if I may the very final question is again on ROTE guidance. Mr.

Treichl, if I understand it correctly you said above 10%, but you also stated the plus is a bit faster than in the past. If I understood it right, now don't get me wrong, but when we read - at least when I read your guidance's sometime I like reading Nostradamus what does it mean big factor then in the past.

Because it's a very vague guidance and if you could add a little bit color on this 10% plus. Thanks.

Calling me Nostradamus will not entice me to give you a different number than the one that we've given you in the outlook, if that's your choice then I have to stick being compared with Nostradamus because that already was much more specific than we usually give. So what do you see in the outlook is 10% plus and I gave you sort of a little color of my own personal expectations on that.

But we're not going to get more specific on that at this point in time. When you talk about a EUR 1 billion in investments in IT, that is not what Gernot said, this is our total spend in one year and quite frankly, our total investment in IT, particularly on the front office side will also depend on the success of our strategy.

And here you can basically look at two parts, now so number one and our number one priority with George is, that we are as fast as possible to make George available to all our banks in our present region. We now have it in Austria and the Czech Republic and in Slovakia and we want to expand it into Romania and Hungary and Croatia ASAP including Serbia.

One of the regions why I think you see Romania underperforming in terms of growth some of our competitors in that country, is simply also the fact that what we have to offer in terms of digital sales is not up to what Erste Group has to offer in other markets. So if we want to increase our revenues on the retail side, we better be very fast to implement George also in those countries, Romania and Hungary, that's our number one target.

Number two and that will be very much determining of how much we will invest, will be based on our judgment of whether we can take George as a base, as an indigenous digital bank to moving to another market and those are issues that we're contemplating in 2018. And which might go parallel, with investments in our present region, but just to make very clear our number priority is the rollout of George and loading George was basically making it completely compatible to our analog systems in our present region, opening up for product offerings from others and concentrating on where we are right now.

If we have the capacity and if we see a good chance and we have the resources both financial and human resources to move into another market and we see that George could be attractive enough that we can attract a strong client base without having a physical presence in one of the neighboring countries we're going to do it.

When it comes to cost of risk as outlined, we expect up to 20 basis points for 2018 and this is up to 20 basis points and if we compare this with 2017, 9 basis points. Let's take it this is not a sustainable level looking at our business model.

Looking at our growth ambitions especially when it comes to [indiscernible] business. We have simply to consider risk cost will come along with this.

Secondly, we still have to make a question mark with regards to IFRS 9, what are the effects on that. And thirdly, it is our policy to take a cautious approach and believe made my personal ambition is to stay below 20 basis points.

On the IFRS 9 question and the IFRS 9 impact on the CET 1 will be below 20 basis points and there will be an impact on the tangible equity, so and it will be having an impact on going forward. We will see slight fluctuations of the tangible equity throughout the year, but initiative - whatever the development will be the target will be 10 plus return on the average tangible equity for 2018.

Okay given that you have around EUR 190 million short fall expect that [indiscernible] shortfall to expect that loss and given that this is reasonably going to go away with IFRS 9, should I? Is it fair to assume that the impact on the equity should be the 20 basis point on tangible equity plus the IRB shortfall is that fair assumption?

That's included already. The IRB shortfall is included in the 20 basis points.

Yes exactly, so but given that is included in the common equity, it should be also included in - and the equity should be larger than the one on the common equity, common equity is already crashed [ph] EUR 190 million, right? Okay fine that's it, that's it.

Okay.

Quick question on the net interest income in Austria, this quarter. You had a pretty big drop in the EBU subsidiary, can you comment what happened there and how recurring that is?

That will be useful. Thank you.

That's a change in the accrual policy in the building society, so that's a one-off [indiscernible] that is the main reason why the net interest margin dropped to [indiscernible]. That will be not repeated this year.

Okay, that's not the EUR 150 million also for the quarter is not the new base that's we're going to get back up.

Yes.

Thank you.

Three questions if I may. First of all regarding the reversals we've seen in the past in Hungary, his this not done what level of first provisions can be expected in the country.

Is it back to a more normalized risk environment? Secondly regarding your tax rate in 2018, can you give an outlook after the volatile development in 2017?

And if I remember correctly, historically some people work for your company said that the payout ratio should continue to increase over the next years. Is this guidance still valid or can we consider this as cancel?

Thank you.

No, if the wording is, the payout ratio should increase over the next years. It's a correct.

Will that will, it's a different story but it should and a lot of the parameters point to direction that this might actually also happen. If you look I mean risk cost in Hungary.

Risk cost in Hungary in 2017 we were benefiting from net releases and when it comes to 2018, we would not expect any significant risk costs.

On the tax rate 2018, 22% is what we're saying from today's perspective. But you could see that we have a very low tax ratio in Q4 because some of the calculations and effect such as booked once a year and then we can just simply calculate the impact on the taxes.

In January we have to say the better we're doing in Austria, the lower the tax ratio. And it will be depending on how we're doing in the Austrian business segment.

The rest is pretty stable in terms of tax ratios, but 22% should be the upper end.

Okay, thank you.

Couple of questions from me. Just on interest rate sensitivity and maybe if you could give us some sort of indication of the impact of 100 basis parallel shift in terms of your NII.

And looking specifically on the Austria side, just a couple of questions on the business that how you see it in terms of you made some positive noises about Austria. What are you seeing there are you seeing sort of firmer demand?

Are you seeing firmer rates? Can you give us a bit of color there and perhaps where the demand is, is it mortgages and in consumer?

And just one other question on OpEx, wage inflation. Where do you think the biggest risk for wage inflation is in your geographies?

Thank you.

Wage inflation is predominantly Czechoslovakia and Hungary, so the Northern part more than the rest. I mean even in Romania you've seen since [indiscernible] already shortages building up, but the situation is more pronounced in long [indiscernible] results in Czech and Slovak Republic.

On the interest rates sensitivity, I mean we were always giving in numbers for specific countries and portfolios as I was mentioning already. We don't see it at the moment repricing pressure on the deposit site building up in the Czech Republic.

But it is difficult to estimate guess the customer behavior from going forward from here. So that's the reason why we was talking about effects of rate increases like EUR 20 million net interest income plus in the Czech market by 25 basis points rate increase.

But this effect will be lower the higher market rates are going, so that's the reason why we're not disclosing more than we've done. On the Austrian business development you could see volume wise very positive and solid development.

We think that we can do a little bit more on the mortgage business in Austria and started contained here as well, started digital offering in consumer loans. But this is starting from relatively low levels and show some nice contributions, we will see how the impact on the overall portfolio will be.

Okay?

Okay, thanks. In terms of sort of spreads in Austria, are you seeing any stabilization there?

Yes.

Okay, thanks.

Thank you very much, just a brief follow-up. I've noticed in the other result in Q4 some provisions about 50, if I remember correctly EUR 52 million I was wondering what that was related to?

Branches in the Czech Republic.

Branches in the Czech Republic and some smaller other items. So this is, I mentioned it already in the presentation.

Okay, sorry. Okay, thanks.

Just on follow-up question there and this is on your remarks that you might use George as a platform to expand into other countries. Can you give us the sense, what's the timeline for making decision that George is right to do so?

If you keep on that's expanding in your core markets in 2018, is it more of a decision for 2019, 2020 or perhaps sooner. And I guess just maybe comment on your side, in the past you mentioned that out of all the Central European markets you're missing Poland, is this potentially one market that you will target?

I don't want to make any comments on that for the moment. Poland is one of the, the most advanced digital banking markets in Europe.

But if we take a decision this year that we believe we can do that and we can do that alongside finalizing the rollout of George in our present region, then it would be something for 2019, 2020. So I wouldn't exclude that we're actually advancing at good speed in our present market with rollout of George that we can actually move ahead and take the decision this year that we have the resources available to go into another market which then would be something that we could think about implementing in 2019 or 2020.

Okay, that's very clear. Thank you.

Thank you very much. Ladies and gentlemen.

Thank you very much for your interest in Erste Group. We will be back on May 4, so exactly 10 weeks from now with our first quarter 2018 results.

Until then have a great time and enjoy the cold and banking. Thank you very much.