erste group at bank of america merrill lynch banking conference 01-02 october 2014, london

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Delivering shareholder returns by eliminating legacy issues Gernot Mittendorfer, CFO, Erste Group Thomas Sommerauer, Head of IR, Erste Group Simone Pilz, IR Manager, Erste Group

London, 1-2 October 2014

Bank of America Merrill Lynch Banking Conference Low rates and heavy regulation: how to deliver shareholder returns

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Disclaimer – Cautionary note regarding forward-looking statements

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• 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

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• Footprint & business environment • Challenges for banks • Eliminating legacy issues • Outlook

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• Consistent business strategy focused upon real economy ever since foundation in 1819

• Relationship approach

• Leading retail and corporate bank in 7 geographically connected countries

• Favourable mix of mature & emerging markets with low penetration rates

• Potential for cross selling and organic growth in CEE

Footprint – Customer banking in Austria and the eastern part of the EU

Erste Group footprint Highlights

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Direct presence

Indirect presence

Customers : 0.9m

Hungary

Employees : 2,809

Branches: 128

Customers : 3.1m

Romania

Employees : 7,078

Branches: 551

Customers : 0.3m

Serbia

Employees : 988

Branches: 67

Customers : 1.1m

Croatia

Employees : 2,752

Branches: 160

Customers: 5.2m

Czech Republic

Employees : 10,474

Branches : 644

Customers: 2.4m

Slovakia

Employees : 4,228

Branches: 293

Customers: 3.4m

Austria

Employees: 15,658

Branches: 966

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Business environment – Visible macroeconomic improvement across the CEE region

Real GDP growth (in %)

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Dom. demand contribution* (in %) Net export contribution* (in %)

Unemployment rate (eop, in %)

Current account balance (% of GDP)

Gen gov balance (% of GDP)

Consumer price inflation (ave, in %)

Public debt (% of GDP)

• CEE economies grew faster than the euro zone in Q2 2014 (euro zone GDP grew by 0.7% yoy in Q2) • Positive outlook for 2014 supported by Q2 GDP data: AT (+0.1%), CZ (+2.7%), RO (+1.2%), SK (+2.5%), HU (+3.9%) • 2014 GDP yoy estimates improved for most of CEE countries as economies remained driven by exports with visible improvement in domestic demand

• Solid public finances across Erste Group‘s core markets recognised by Moody‘s: Romania upgraded to investment grade (BBB-) in May 14 • Sustainable current account balances, supported by competitive economies; Hungary has announced new austerity package

HR

-1.3 -1.3

HU

3.0

0.7

RO

1.6

-0.9

SK

1.5

-0.8

CZ

2.5

-0.7

AT

1.1

-1.0

2014 2013

HR

-0.5 -0.9

HU

3.3

1.1

RO

2.3 3.5

SK

2.2 0.9

CZ

2.5

-0.9

AT

1.0 0.3

HR

0.2

2.3

HU

0.1

1.7

RO

1.3

4.0

SK

0.3 1.4

CZ

0.5 1.4

AT

1.7 2.1

HR

18.0 17.3

HU

8.8 10.2

RO

7.2 7.2

SK

13.9 14.2

CZ

7.5 7.5

AT

4.9 4.9

HR

1.8 1.3

HU

2.6 3.0

RO

-1.2 -1.1

SK

2.9 2.1

CZ

0.0

-1.5

AT

3.3 2.7

-2.4

RO

-2.5 -2.3

SK

-2.5 -2.8

CZ

-1.7 -1.4

AT

-2.7 -1.5

HR

-5.6 -6.5

HU

-2.9

6779

3955

46

75 7280

3956

45

82

HR HU RO SK CZ AT

* Contribution to real GDP growth. Domestic demand contribution includes inventory change. Source: Erste Group Research, EU Spring Economic Forecast 2014.

SK

-0.3

RO

4.4

0.4

HR AT

0.6

CZ

1.6 0.7

HU

1.2 0.4 0.7

0.0 0.3 0.8

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Business environment – Historic low interest rate environment poses challenges

Austria

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Czech Republic Romania

Slovakia

Hungary

Croatia

• ECB cut discount rate to 0.05% in Sept 14 • Maintains expansionary monetary policy

stance

• National bank maintains ultra-low interest rates since November 2012 at 0.05%

• Central bank cut policy rate to historic low of 3.25% in August 2014

• As part of euro zone ECB rates are applicable in SK

• National bank concluded easing cycle on 22 July 2014 after cutting base rate to historic low of 2.1%

• Central bank maintains discount rate at 7.0% since mid-2011

1-6 14

1.83%

0.30%

1-6 13

1.82%

0.21%

10YR GOV 3M Interbank

1-6 14

2.00%

0.37%

1-6 13

1.86%

0.48%

1-6 14

5.10%

2.60%

1-6 13

5.53%

4.79%

1-6 14

2.31%

0.30%

1-6 13

2.47%

0.21%

1-6 14

5.42%

2.68%

1-6 13

5.92%

5.00%

1-6 14

0.64%

1-6 13

1.07%

Q2 14

1.68%

0.30%

Q1 14

1.98%

0.30%

Q2 14

1.73%

0.36%

Q1 14

2.27%

0.37%

Q2 14

4.84%

2.54%

Q1 14

5.36%

2.66%

Q2 14

2.24%

0.30%

Q1 14

2.38%

0.30%

Q2 14

5.03%

2.54%

Q1 14

5.80%

2.82%

Q2 14

0.62%

Q1 14

0.65%

Source: Bloomberg.

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Presentation topics

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Challenges for banks – Meeting the demands of investors, regulators and customers • Regulators

• ECB vs EBA vs national regulators • Basel 3/ CRD IV, CRR: CET1, LCR, NSFR • Resolution regime, European deposit insurance • Stress tests: data collection • Regulatory compliance is costly

• Investors

• Sustainable ROE above cost of capital (increased due to regulatory demands) • Delivering on business model • Cost discipline • Risk costs

• Customers • Easy to understand products designed to meet customer needs: “solutions instead of product push” • Transition between channels: digital banking, new type of branches • New competition e.g. mobile banking via non-bank payment service providers • Consumer protection, transparency

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Presentation topics

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Eliminating legacy issues – 2014 expected to be final year of one-offs related to pre-crisis issues

One-offs with effect on regulatory capital

• Additional risk provisions of about EUR 400m in Romania

• EUR 80m booked in H1 14; bulk expected to occur in H2 14 as LGD recalibration under way and uncertainty about pricing of NPL sales

• Booked in risk costs of SME and CRE segments (BL) and Romania segment (geo)

• Hungary: consumer loan law (bid-/ask-spread, unilateral interest and fee changes) impact of EUR350-400m • EUR 130.3m in H1 14, remaining impact expected to occur in H2 14 • Booked in other operating result; booking could be reversed into risk

costs, depending on final legislative clarification (cash payback vs principal reduction)

• No clarity yet on potential additional losses in Hungary from FX loan conversion into HUF expected for year-end 2014; hence no provision included in Q2 14 figures

• Negative change in deferred taxes (net) of EUR 164.2m • Minor impact of 4 and 13bps in fully-loaded and phased-in scenario • Accounting standard-induced booking, under Austrian tax regulation

tax losses can be carried forward indefinitely

One-offs with no effect on regulatory capital

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• Write-down of remaining goodwill, value of customer relationships, brand and other intangibles related to Romania • Total impact of EUR 854.2m (cumulative) • Booked in other operating result of Group Corporate Center (BL) and

Other segment (geo)

• Full write-down of remaining goodwill related to Croatia and minor participations • Total impact of EUR 101.8m • Booked in other operating result of Group Corporate Center (BL) and

Other segment (geo)

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Eliminating legacy issues – Significant reduction in intangibles to 13.8% of book value

Quarterly development of intangibles (EUR bn)

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Highlights • Extraordinary intangible write-downs

amounted to EUR 956.4m in Q2 14 • RO goodwill: EUR 319.1m • RO customer relationships: EUR 176.1m • RO brand: EUR 294.6m • RO other intangibles: EUR 64.4m • HR & related: EUR 101.8m

• CZ and SK goodwill are carried in EUR • No goodwill related to Hungary • No goodwill related to Romania • Reduced customer relationship amortisation

expenses booked in operating costs of the Group Corporate Center

30/06/14

1.4

0.0 0.0 0.1

0.5

0.2 0.1

0.5

31/03/14

2.4

0.3

0.3

0.3

0.5

0.2 0.2

0.6

31/12/13

2.4

0.3

0.3

0.3

0.5

0.2 0.2

0.6

30/09/13

2.8

0.6

0.3

0.3

0.5

-41.1%

0.2

0.6

30/06/13

2.8

0.6

0.2

0.3

0.5

0.2

0.2

0.6

0.3

Customer relationships BCR goodwill

Brand (mainly BCR)

CZ goodwill

SK goodwill Other goodwill Software

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Eliminating legacy issues – Declining non-performing loans volume, declining NPL ratio

Business line view

Geographic view

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• Continued decline of group NPL volume and group NPL ratio on supportive trends in CRE, LC (BL) and RO, HU (geo)

• NPL sales amounted to EUR 134.9m in Q2 14 • Retail: EUR 50.5m • Corporate: EUR 84.4m

• Reallocation of about EUR 800m from SME to LC is key reason for rising NPL ratio in LC and decline in SME; underlying trends stable

• NPL sales mainly in HU (EUR 53.1m), leading to NPL decline in same amount; NPL ratio stable due to declining overall loan volume

• NPL sales of EUR 41.8m in AT/OA (Holding, Immorent) • Minor sales in CZ, SK, RO • RO: First large volume NPL package of about EUR 240m sold in

July 2014 and further significant NPL sales until YE 2014 expected

759994RS

HR 1,242 1,212 1,283

HU 1,306 1,354 1,515

SK 426 405 373

RO 2,933 3,047

3,337

CZ 855 849 992

AT/OA 1,568 1,688

1,334

AT/EBOe 1,018 986 1,050

35OC

106 143

CRE 2,035 2,128 2,022

LC 1,196 1,303

678

AT/SB 2,506 2,557 2,611

SME 2,698 2,657

3,554

Retail 3,420 3,410 3,648

Group 11,996 12,238 12,573

5.9% 8.3%

4.4% 21.7% 21.8%

18.5% 12.9% 14.5%

8.2% 6.6% 6.8% 7.0%

12.5% 12.4%

14.9% 7.3% 7.3% 7.7%

9.4% 9.6% 9.7%

26.6%

5.4%

16.3% 17.4%

13.3% 18.3%

26.4%

5.3%

18.8% 17.7%

26.0%

5.2% 29.3% 30.3%

29.3% 4.6% 4.6% 5.2%

12.9% 14.2%

10.2% 3.6% 3.5% 3.8%

31/03/14 30/06/14

30/06/13

in EUR m in EUR m

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Eliminating legacy issues – NPL coverage rises to multi-year high of 64.0%

Business line view

Geographic view

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• Improving group coverage ratio over the past quarters following significant provisioning in SME and CRE

• LC: decline in coverage driven by reallocation from SME • SME: higher qoq coverage due to higher provisioning of new NPLs

• Continued increase in coverage in HR • AT/OA qoq coverage rise reflects additional provisions in CRE • RO qoq coverage increase on the back of additional provisions for

CRE and SME ahead of accelerated NPL reduction

617471RS

HR 713 675 627

HU 806 841 965

SK 358 354 357

RO 1,894 1,895

2,053

CZ 678 685 725

AT/OA 841 847

718

AT/EBOe 697 673 699

177371

OC

CRE 1,142 1,177 1,076

LC 776 864

462

AT/SB 1,573 1,572 1,551

SME 1,724

1,590 2,166

Retail 2,366 2,363 2,477

Group 7,674 7,660 7,757

66.6% 50.8%

47.1% 56.1% 55.3% 53.2%

64.9% 66.3% 68.1%

62.8% 61.5% 59.4% 63.9%

59.8% 60.9%

69.2% 69.3% 67.9%

64.0% 62.6% 61.7%

75.8% 74.8% 81.9%

57.4% 55.6%

48.9% 61.7% 62.1% 63.7%

83.9% 87.4%

95.8% 64.6% 62.2% 61.5%

79.3% 80.7%

73.1% 53.6% 50.2% 53.8%

68.4% 68.2% 66.5%

30/06/14 31/03/14 30/06/13

in EUR m in EUR m

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Eliminating legacy issues – Banking levies remain drag on profitability and capital generation capacity

Trending down but …

… remaining high by international comparison

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• Austria • New calculation applicable since January 2014 • In negotiation: will payments into resolution fund and

deposit guarantee schemes be deductable?

• Slovakia • From 2015 onwards banking levies reduced to 0.2% on

corporate and retail deposits instead of 0.4% as total amount already paid in reached EUR 500m by 25 July 2014

• Further reduction to 0.1% when next threshold of EUR 750m is reached

• No banking levy payable in Q4 2014

• Hungary • Calculation of banking tax still based on balance sheet as

of 2009 (approx. 50% higher than current balance sheet total)

• Financial transaction tax introduced in 2013 • No indication for reduction plans yet

in EUR m

49103

104

32

41

31

165 167125

-16% +27%

2014e

260

2013

311

2012

246

Austria Hungary Slovakia

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Eliminating legacy issues: improved capital position – CET 1-ratio (fully loaded) at 10.8%, as impairments do not impact capital ratios

Basel 2.5/Basel 3 capital (EUR bn)

Risk-weighted assets (EUR bn)

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Basel 2.5/Basel 3 capital ratios

• Lower qoq deductions from capital due to negative DTA change

• QOQ normalisation of RWAs due to: • Benefit from SME support factor: EUR 1.2bn • Benefit from negative DTA change: EUR

0.4bn • Exposure reductions: EUR 0.5bn • Migration to default: EUR 0.5bn

• Basel 3 CET1 ratio (final) equalled 10.8% at 30 June 2014 (YE 2013: 10.8%) • Driven by ytd stability in capital and RWA

31/03/14

15.9

11.3

0.0 4.5 0.0

31/12/13

16.0

11.2

0.4 4.2 0.2

30/09/13

15.7

10.8

0.4 4.3 0.2

30/06/13

16.8

11.9

0.4 4.2 0.3

30/06/14

16.1

11.5

4.7 0.0

0.0

CET1 AT1 Tier 2 Tier 3

31/03/14

102.2

87.9

11.0 3.3

31/12/13

97.9

84.9

10.2 2.9

30/09/13

99.0

86.6

9.3 3.0

30/06/13

100.9

87.3

10.1 3.5

30/06/14

98.0

84.9

10.4 2.7

Credit RWA Op risk Trading risk

15.5

%

31/03/14

11.1

%

11.1

%

31/12/13

16.3

%

11.8

%

11.4

%

30/09/13

15.8

%

11.2

%

10.9

%

30/06/13

16.6

%

12.2

%

11.8

%

30/06/14

11.7

%

11.7

% 16

.5%

Tier 1 CET1 Total capital

Basel 2.5 Basel 3 Phased-in



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Presentation topics

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Conclusion – Outlook • For Erste Group (consolidated):

• A group operating result, which – despite stable underlying group operating trends – could be pushed slightly below guidance in 2014 due to weaker operating results in Romania and Hungary;

• Risk costs of EUR 2.1 – 2.4bn, depending on booking of Hungarian consumer loan law impact in risk provisions or other operating result;

• A net loss for 2014 of EUR 1.4-1.6bn; • A CET 1-ratio (fully loaded, based on current definitions) of about 10.0% at year-end; • Strongly improved post-provision result and net profit (ROTE: 8-10%) in 2015, despite still disproportionate

banking levies. • For the geographic segment Romania: a full normalisation of risk costs at 100-150bps of average

gross customer loans starting in 2015, accompanied by an accelerated NPL reduction (down about EUR 800 million or 25%, compared to year-end 2013) already in 2014; a significant rise in the NPL coverage ratio; a lower, but sustainable operating result due to a lower unwinding impact on net interest income

• For the geographic segment Hungary: a gradual normalisation of risk costs to 150-200bps (by 2016) of average gross customer loans based on the assumption that all government actions will be completed in 2014; a lower, but sustainable operating result due to lower net interest income

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Investor relations details

• Erste Group Bank AG, Milchgasse 1 (mezzanine floor), 1010 Vienna Fax : +43 (0)5 0100-13112 E-mail: [email protected] Internet: http://www.erstegroup.com/investorrelations

http://twitter.com/ErsteGroupIR http://www.slideshare.net/Erste_Group Erste Group IR App for iPad, iPhone and Android http://www.erstegroup.com/de/Investoren/IR_App

Reuters: ERST.VI Bloomberg: EBS AV Datastream: O:ERS ISIN: AT0000652011

• Contacts Thomas Sommerauer Tel: +43 (0)5 0100 17326 e-mail: [email protected] Peter Makray Tel: +43 (0)5 0100 16878 e-mail: [email protected] Simone Pilz Tel: +43 (0)5 0100 13036 e-mail: [email protected] Gerald Krames Tel: +43 (0)5 0100 12751 e-mail: [email protected]

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erste group at bank of america merrill lynch banking conference 01-02 october 2014, london

Investor Relations