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Erste Group –

9th Capital Markets Day

21 November 2019, Vienna

Hungary/Erste Bank Hungary: The comeback kid

Radovan Jelasity, CEO Erste Bank Hungary

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Disclaimer –

Cautionary note regarding forward-looking statements

2

• THE INFORMATION CONTAINED IN THIS DOCUMENT HAS NOT BEEN INDEPENDENTLY VERIFIED AND

NO REPRESENTATION OR WARRANTY EXPRESSED OR IMPLIED IS MADE AS TO, AND NO RELIANCE

SHOULD BE PLACED ON, THE FAIRNESS, ACCURACY, COMPLETENESS OR CORRECTNESS OF THIS

INFORMATION OR OPINIONS CONTAINED HEREIN.

• CERTAIN STATEMENTS CONTAINED IN THIS DOCUMENT MAY BE STATEMENTS OF FUTURE

EXPECTATIONS AND OTHER FORWARD-LOOKING STATEMENTS THAT ARE BASED ON

MANAGEMENT’S CURRENT VIEWS AND ASSUMPTIONS AND INVOLVE KNOWN AND UNKNOWN RISKS

AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS, PERFORMANCE OR EVENTS TO

DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN SUCH STATEMENTS.

• NONE OF ERSTE GROUP OR ANY OF ITS AFFILIATES, ADVISORS OR REPRESENTATIVES SHALL HAVE

ANY LIABILITY WHATSOEVER (IN NEGLIGENCE OR OTHERWISE) FOR ANY LOSS HOWSOEVER

ARISING FROM ANY USE OF THIS DOCUMENT OR ITS CONTENT OR OTHERWISE ARISING IN

CONNECTION WITH THIS DOCUMENT.

• THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OR INVITATION TO PURCHASE OR SUBSCRIBE

FOR ANY SHARES AND NEITHER IT NOR ANY PART OF IT SHALL FORM THE BASIS OF OR BE RELIED

UPON IN CONNECTION WITH ANY CONTRACT OR COMMITMENT WHATSOEVER.

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Presentation topics –

The comeback kid

3

• Executive summary

• The growth story

• Intro

• The macro story

• The micro story

• The digital story

• Conclusion

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The economic turnaround –

From economic basket case to EU growth leader

EU GDP growth leader External debt to GDP halved

4

Improved economic balances

Source: Erste Group Research

81

142

68 72

Public debt External debt

2010 2019e

9.9

0.7

14.5

4.6

GDP/capita

(EUR thsd)

Real GDP

growth (in %)

2010 2019e

GROWTH

-6.5

-7.4

-2.1

2.0

General gov.

balance

Current account

balance

Ø2004-08 Ø2015-19

in % of GDP in % of GDP

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The bank turnaround –

From parent-funded CHF monoline to balanced growth model

Loan book: HUF dominates Intragroup funding fell to zero

5

EBH loan/deposit ratio at 74%

23%

54%

23%

73%

27%

HUF

Other

CHF

EUR

2013

Q3 19

125

209

69 74

Market EBH

2008 Q3 19

GROWTH

4,809

0

-100%

Q3 192010

in EUR m in %

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Fee income leadership –

Strong track record in deposit conversion

Income*: high fee proportion Fee split*: prosperity advice

6

Very strong funds business

*) Adjusted for FTT from 2013

1.1

4.2

3.0

6.1

Investment

funds

Customer deposits

2009 Q3 19

GROWTH

62%74%

59%49%

19%

18%41%

40%

19%8% 11%

20152004 2011 1-9 19

NII Fees Other

20%

15%65%

Securities AM Other

12%

9%

78%

2013

Q3 2019

Prosperityadvice

in EUR bn

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Presentation topics

7

• Executive summary

• The growth story

• Intro

• The macro story

• The micro story

• The digital story

• Conclusion

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Introduction –

Over the last 20 years, many developments have been made in Hungary

Before 1998 2019

8

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Introduction –

…and also in EBH

2009 2019

9

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Presentation topics

10

• Executive summary

• The growth story

• Intro

• The macro story

• The micro story

• The digital story

• Conclusion

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Economic environment –

Hungary is currently the fastest growing EU economy

Key developments

• GDP has mainly been driven by domestic demand since 2013 (avg. 190 bps/year)

• Investments since 2013

• Consumption since 2018

• Very strong investments(avg. 170 bps/year)

• Exports, although to a lesser extent, have also contributed to economic growth

• Unemployment rate has declined to the third lowest in the EU

GDP

11

Labour market

Source: Erste Group Research

3.5

5.1

8.9 9.3

11.3

14.5

2000

1.5%

1995

-6.6%

4.3%4.2%

2005 2009

3.5%

2015

4.6%

2019e

10.3

6.47.2

11.2

6.8

3.4

20001995 2019e2005 2010 2015

GROWTH

GDP/capita (in EUR thsd)

Real GDP growth

Unemployment rate

in %

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Economic environment –

From twin deficits to balanced economy

Key developments

• Serious macroeconomic imbalances before 2010

• Hungary faced twin deficits for many years

• Public debt started to decline in 2010 due to stable fiscal position and economic growth

• Currency composition of public debt changed substantially

• Q3 19 only 18.2% in FX

• 28.2% of HUF-based held by households

• External debt was significantly reduced due to improvement of current account balance

Economic balances

12

Public & external debt

Source: Erste Group Research

-8.6

-3.0

-7.8

-4.4

-2.0-1.8

-8.5

0.3

2.8

20051995 2010

-3.4

2000 2015

-7.0

-0.9

2019e

Current account balance

Government balance

84

5560

81 766868 64

80

142

108

72

1995 2019e20102000 20152005

Public debt

External debt

GROWTH

in % of GDP in % of GDP

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Economic environment –

Interest rates close to historical lows

Key developments

• Central Bank has kept the base rate at a historical low of 0.9% since 2016

• Newly implemented 5y retail government bond in 2019is protection for the Hungarian public against inflation while it also reduces foreign indebtedness

• HUF is currently traded close to its historical low versus the EUR due mainly to loose monetary policy and changing current account balance perspectives

Government bond yield

13

Short-term interest rate

Source: ThomsonReuters

0

1

2

3

4

5

6

7

8

9

10

2008 2012 2016 2019

10y year-end rate

0

1

2

3

4

5

6

7

8

9

10

2008 2012 2016 2019

3m BUBOR

GROWTH

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Banking market –

From deleveraging to rapid growth

Key developments

• Loan-to-deposit ratio declined from 128% (2007) to 68% (2018) due to significant deleveraging of the banking market

• The relatively developed Hungarian capital market has played and in important role in in the savings market

• Despite fast growth, penetration rates indicate significant growth potential

Market growth

14

Penetration

Source: National Bank of Hungary

45

52

68

39 37

4

17

32

1715

2000 20102005 2015 2019e

Customer loans

Household loans

-15

-10

-5

0

5

10

15

20

25

20102000 20152005 Q319

Customer loan growth

Customer deposit growth

GROWTH

in % in % of GDP

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Presentation topics

15

• Executive summary

• The growth story

• Intro

• The macro story

• The micro story

• The digital story

• Conclusion

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Customer loans –

After significant deleveraging, sustainable growth has re-emerged

Key developments

• EBH was one of the market leaders in CHF-based lending

• Corporate lending is one of the main priorities of Erste Bank Hungary

• Targeting TOP 3 positions

• SME has already doubled

• Within retail loans substantial shift from secured (17% 12%) to unsecured (6% 14%) market share during 2011-2018

Volume evolution

16

Market shares

9.1

14.1 13.9

11.8 11.8

8.48.9

5.5

7.3 7.5

2005 2010 Q3 192015 2018

Retail loans

Corporate loans

GROWTH

3.9

7.6

3.2

4.04.6

Q3 1920102005 20182015

Customer loans

in EUR bn in %

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Customer deposits and asset management –

Steady growth

Key developments

• Significant deposit inflow despite low interest rate environment

• Continuous market share increase in savings products

• EBH targets to become the leading market player in wealth management

• Government bonds reduced the increase of deposit inflow

Development of volume

17

Market shares

5.9

7.46.0

7.4 7.7

10.3

14.3

16.1

17.8 17.6

20152005 20182010 Q3 19

Customer deposits

Assets under management

2.8

4.0 4.0

5.4

6.1

0.8

1.6

2.83.2

3.0

20152005 2010 2018 Q3 19

Customer deposits

Assets under management

GROWTH

in EUR bn in %

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Net interest income and fee income –

Strong fee generation track record, NII moving north again

Key developments

• Net interest income has increased since 2016

• Supported recently by strongloan growth as well as loan portfolio shift

• NIM has significantly declined from peak level but remained relatively stable since 2016 due to the portfolio composition

• Fee and commission income represents relatively high share of revenues

• Driven by asset management business and increased number of active clients

NII & NIM

18

Net fee and commission income

GROWTH

65

106

137

170

138

20152005 2010 2018 1-9 19

201

405

200 215168

4.5%

3.1% 2.9%2.8%

2005 1-9 1920152010

4.1%

2018

Net interest margin

Net interest income (in EUR m)

in EUR m

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Operating result –

Revenues rise again & strict cost control: CIR back to below 50%

Key developments

• Massive deleveraging impacted revenues in 2011-2015

• CIR improved to below 50%

• Recent increase of operating expenses is due to substantial investments and wage inflation

• EBH’s CIR is on declining path as opposed to banking market CIR

Operating income & expenses

19

Operating result & CIR

324

559

337

435

342

186222

180212

162

2005 2010 1-9 192015 2018

Operating income

Operating expenses

138

337

157

223

180

57.5%53.3%

48.8% 47.3%

1-9

19

39.8%2010

2005

2015

2018

Operating result (in EUR m)

Cost/income ratio (in %)

GROWTH

in EUR m

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Asset quality and risk costs –

Complete clean-up of the loan book has taken place since 2013

Key developments

• Lending policy and favourable macroeconomic developments have supported asset quality improvement

• Recoveries, write-offs, andNPL sales have contributed tothe significant reduction of the NPL book since 2013

• Coverage ratio increased from 59% (2015) to 91% (Q3 19)

Asset quality*

20

Risk costs

106

-18

2011 2015 1-9 19

813

1,577

655

24.9%18.7%

2.6%

64.2%

91.1%

2012

59.0%

Q3 192015

121

NPL (in EUR m)

NPL ratio

NPL coverage*) Asset quality based on segment reporting

in EUR m

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Net result –

Sustainable profitability since 2016

Key developments

• Net profit has continuously increased since 2016

• Net losses of previous years were due mainly to conversion of CHF-based loans and high risk provisions

• Effect of loss carry forward expected to gradually decrease until 2023

• Net result has been impacted by introduction of banking tax in 2010 and financial transaction tax in 2013

• Banking tax has been cut significantly since 2015

• 2015 banking tax: EUR 46m

• 2018 banking tax: EUR 14m

• Financial transaction tax has been stable

• 2018 FTT: EUR 45m

• Significant part of FTT has been reflected in fee income

Net result evolution

21

2776 88 98

12984

1

-529

-22

-84

-328

-71

139177 183

130

1-9

19

2004 20162007 2010 2013

GROWTH

in EUR m

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Presentation topics

22

• Executive summary

• The growth story

• Intro

• The macro story

• The micro story

• The digital story

• Conclusion

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Digital snapshot –

Digital has already been at the core of EBH‘s growth strategy

Key developments

• Branch network optimisation with implementation of new layout has been ongoing

• EBH‘s branches account for 6% of the total 2,000 branches in Hungary

• Digital banking increasingly contributes to product sales, e.g. E2E digital personal loan for existing clients offered since spring 2019

• Chabot as a service channel launched in 2018, further expansion planned

• MobilePay and Apple Pay offered by EBH since 2019

Number of branches and clients

23

Number of digital users

2015 Q3 19

319

410

DIGITAL

204

135

111

Q3 192009 2013

Active digital users

2015

4

Q3 19

146

Active mobile banking users

Share of active users

44%

in thsd

373

523

2013 Q3 19

Number of branches

Number of salary clients

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Digital timeline –

George goes to Hungary in 2020

Introduction of George in 2020 Digital aspirations until 2024

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• Tablet based on-boarding in February 2020,

extension to basic products in 2020

• Online on-boarding in 2020

• ~60% E2E digital sales as % of total sales

for simple products to be reached by 2024

(e.g. cash loan)

• 35% E2E digital share of cash loan total sales

to be reached by 2024

• Fully paperless sales and advisory processes

in branches by 2024

• 75% active digital share to be reached by 2024

DIGITAL

Q4 19

George silent launch for EBH employees

Q2-Q3 20

George public launch for all clients

Q4 20-Q2 21

Full migration from current Netbank andMobileBank to George

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Presentation topics

25

• Executive summary

• The growth story

• Intro

• The macro story

• The micro story

• The digital story

• Conclusion

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Conclusion –

Outlook Hungary/Erste Bank Hungary

26

Erste Bank

Hungary

Digitalisation

Macro

Banking market

• Revenues to be supported by loan growth & high share of fee income

• Costs to remain under strict control, target of CIR below 45%

• High-single digit loan growth to continue after years of deleveraging

• More asset management products instead of deposits

• Strong economic performance expected to continue

• Main driver of growth to remain consumption and investments

• George rollout to Hungary in 2020

• High share of digitally active clients