Erste Quarterly Profit Soars as Romania, Hungary Provisions FallBoris Groendahl
Erste Group Bank AG, Austria’s biggest bank, said first-quarter profit more than doubled as provisions for souring loans in Hungary and Romania plummeted from last year’s record.
Net income rose to 225.8 million euros ($257 million) in the three months through March from 103.3 million euros in the year-earlier period, the Vienna-based bank said in a statement Thursday. That beat the 187.1 million-euro average estimate of 15 analysts surveyed by the company.
“We had a strong start to 2015 and are showing a solid net profit,” Chief Executive Officer Andreas Treichl said in the statement. “The economic rebound is bringing about a pick-up in lending, while bad loans costs are declining as expected. We are confident that economic growth in central and eastern Europe will continue at a steady rate, increasingly driven by domestic demand.”
Eighteen years after first venturing beyond Austria’s borders, Erste is the third-biggest bank in eastern Europe after UniCredit SpA and Raiffeisen Bank International AG. It is betting on a return to profit in Hungary and Romania after the 2008 financial crisis and the ensuing global economic slowdown set back for years its plans to make money by expanding in the former communist part of the continent.
Provisions for bad loans halved to 183.1 million euros in the period, driven by sharp declines in Hungary and Romania, Erste said. Those charges, and repayments to Hungarian clients forced by courts and lawmakers, threw Erste into a record loss of 1.44 billion euros last year. Erste said the decline in the first quarter was partly driven by seasonal effects and provisions may rise again in subsequent quarters.
Net interest income, the bank’s biggest revenue source, declined in line with analysts’ estimates after the bank cut assets, again mainly in Hungary and Romania. Total revenue was little-changed as fee and commission as well as trading income made up for the decline in lending revenue.
The bank reiterated its promise to report net income of at least 8 percent of its tangible equity this year. That stood at 8.4 billion euros at the end of last year, putting the profit target at more than 672 million euros.
Erste has risen 31 percent in Vienna this year, the fifth-best performer in the Euro Stoxx banks index. With a market value of 10.8 billion euros, it trades at about 5 percent less than its book value, compared with an average 12 percent discount for the Euro Stoxx banks index.