Erste Group
Annual Financial Report 2015
Table of contents
1
Annual report 2015
6
Supervisory board report
15
Management report
74
Corporate governance (incl. corporate governance report)
87
110
274
276
283
GRI Index
Consolidated financial statements
Auditors' report (report of the independent auditors)
Statement of all members of the management board
Financial statements
Imprint
Erste Group Bank AG
Am Belvedere 1, 1100 Vienna, Austria
E-Mail: investor.relations@erstegroup.com
Internet: https://www.erstegroup.com/en/investoren
Responsible for the content:
Investor Relations & Accounting Teams, Erste Group
Erste Group
Annual Report 2015
Extensive presence in Central and Eastern Europe
Slovakia
Czech Republic
Branches:291
Customers:2.3 million
Employees:4,205
Branches:621
Customers:4.8 million
Employees:10,501
Austria
Hungary
Branches:952
Customers:3.4 million
Employees:15,646
Branches:128
Customers:0.8 million
Employees:2,813
Croatia
Branches:157
Customers:1.2 million
Employees:2,851
Romania
Branches:511
Customers:2.9 million
Employees:7,065
Serbia
Branches:75
Customers:0.4 million
Employees:1,002
Core markets of Erste Group
Indirect presence in CEE
Key financial and operating data
in EUR million (unless otherwise stated)
2011
2012
2013
2014
2015
Total assets
Loans and receivables to credit institutions
Loans and receivables to customers
Trading, financial assets
Intangibles
Cash & Other assets
Total liabilities and equity
Bank deposits
Customer deposits
Debt securities
Trading liabilities & Other liabilities
Equity attributable to non-controlling interests
Equity attributable to owners of the parent
Own funds pursuant to Basel 3 (Final)
210,006
7,506
127,808
52,981
3,532
18,180
210,006
23,785
118,880
36,564
15,597
3,143
12,037
213,824
9,008
124,353
57,932
2,894
19,637
213,824
21,822
123,053
34,751
17,860
3,483
12,855
200,054
8,377
119,869
51,269
2,441
18,099
200,054
17,299
122,415
33,124
12,494
3,462
11,260
196,287
7,442
120,834
50,131
1,441
16,439
196,287
14,803
122,583
31,140
14,319
3,605
9,838
199,743
4,805
125,897
47,542
1,465
20,035
199,743
14,212
127,946
29,654
13,124
3,802
11,005
Total risk exposure amount
Total own funds
Common equity tier 1 capital (CET1)
Tier 2 capital (T2)
Total capital ratio
CET1 capital ratio
Income statement
Net interest income
Net fee and commission income
Net trading and fair value result
Operating income
Operating expenses
Operating result
Net impairment loss on financial assets not measured at fair value
through profit or loss
Pre-tax result
Net result attributable to owners of the parent
Operating Data
114,019
16,415
10,681
4,092
14.4%
9.4%
105,323
16,311
11,848
3,791
15.5%
11.2%
97,901
15,994
11,199
4,206
16.3%
11.4%
101,870
15,853
10,811
5,042
15.6%
10.6%
100,281
17,284
12,045
5,239
17.2%
12.0%
5,368.7
1,787.2
122.6
7,531.0
-3,971.9
3,559.1
5,041.5
1,720.8
269.8
7,281.1
-3,881.0
3,400.1
4,685.0
1,806.5
218.8
6,995.1
-3,896.1
3,099.0
4,495.2
1,869.8
242.3
6,877.9
-3,787.3
3,090.7
4,444.7
1,861.8
210.1
6,771.8
-3,868.9
2,902.9
-2,365.2
-322.1
-718.9
-2,060.1
801.2
483.5
-1,849.9
302.9
0.9
-2,083.7
-727.7
-1,382.6
-729.1
1,639.1
968.2
Headcount
Number of branches
Number of customers
Share price and key ratios
50,452
3,176
17.0
49,381
3,063
17.0
45,670
2,833
16.5
46,067
2,792
16.2
46,467
2,735
15.8
High (EUR)
Low (EUR)
Closing price (EUR)
Price/earnings ratio
Dividend per share (EUR)
Payout ratio
Dividend yield
Book value per share
Price/book ratio
Total shareholder return (TSR)
Stock market data (Vienna Stock Exchange)
39.45
10.65
13.59
na
0.00
0.0%
0.0%
26.1
0.5
-59.3%
24.33
11.95
24.03
19.6
0.40
32.6%
1.7%
27.9
0.9
76.8%
26.94
19.34
25.33
>100%
0.20
>100%
0.8%
26.2
1.0
7.1%
29.71
17.02
19.235
na
0.00
0.0%
0.0%
22.9
0.8
-23.3%
29.04
18.97
28.91
12.8
0.50
22.2%
1.7%
25.6
1.1
50.3%
390,767,262
377,670,141
5.3
10.9
394,568,647
391,631,603
9.5
7.4
429,800,000
411,553,048
10.9
8.3
429,800,000
427,533,286
8.3
9.3
429,800,000
426,726,297
12.4
10.0
Balance sheet
Shares outstanding at the end of the period
Weighted average number of outstanding shares
Market capitalisation (EUR billion)
Trading volume (EUR billion)
The figures for the comparative periods 2014 and 2013 are restated according to IAS 8. The resulting retrospective changes in the presentation are explained in chapter B on significant accounting policies in the consolidated
financial statements 2015.
The calculation of own funds pursuant to Basel 3 is effective as of 1 January 2014. Until 31 December 2013 the calculation was effected pursuant to Basel 2.5.
The dividend pay-out ratio represents dividends paid to owners of the parent (excluding dividends paid on participation capital) for the respective year divided by net result attributable to owners of the parent.
Shares outstanding include Erste Group shares held by savings banks that are members of the Haftungsverbund (cross-guarantee system).
CaixaBank
4,9
Harbor
International Fund
Cash return on equity (in %)
10.0
2.28
2.17
9.3
7.6
8.0
2.0
2.5
4,1
UNIQA Versicherungsverein
Privatstiftung
1.0
4,0
0.42
BlackRock
Inc.**
0.5
4,90
Harbor
2011
International Fund
-0.5
2012
0.75
9,9
Erste Stiftung, direkt
9,4
Erste Stiftung, indirekt *
9,9
CaixaBank
2014
0,9
2015
Mitarbeiter
2013
6,0
Private Investoren
50,9
-1.0
Institutionelle Investoren
6.0
4.0
37,4
3.0
2.3
2.0
Österreich
0
2014
2011
2012
2013
Sonstige
-4.0
9,7
Großbritannien & Irland
-5.3
Kontinentaleuropa
-6.0
-1.30
24,7
2015
Nordamerika
-2.0
2,9
25,3
-1.5
6,0
Private Investoren
50,9
Institutionelle Investoren
Cash earnings per share (in EUR)
2.5
0,9
Mitarbeiter
The figures for the comparative periods 2014 and 2013 are restated according to IAS 8.
Cost/income ratio (in %)
60.0
37,4
51.5
52.0
Net interest margin (in %)
55.7
55.1
57.1
3.5
Österreich
24,7
40.0
Nordamerika
2,9
Sonstige
20.0
25,3
9,7
Großbritannien & Irland
Kontinentaleuropa
0.5
50.9
0
Institutional
investors
2011
0
2011
2012
2013
2014
2015
Shareholder structure as of 31 December 2015
by investors (in %)
4.1
UNIQA Versicherungsverein
Privatstiftung
4.0
BlackRock Inc. **
4.9
Harbor
International Fund
50.9
Institutional investors
2.98
2.80
3.0
4.1
UNIQA
Versicherungsverein
2.5
Privatstiftung
4.0
2.0
BlackRock Inc. **
1.5
4.9
Harbor
1.0
International Fund
2.69
2.65
2.59
9.9
Erste Stiftung, direct
9.4
Erste Stiftung, indirect *
9.9
CaixaBank
0.9
Employees
6.0
Retail investors
2012
2013
2014
2015
Shareholder structure as of 31 December 2015
by regions (in %)
9.9
Erste Stiftung, direct
9.4
Erste Stiftung, indirect *
9.9
CaixaBank
0.9
Employees
6.0
Retail investors
37.4
Austria
24.7
North America
2.9
Others
9.7
25.3
UK & Ireland
Continental Europe
* Includes voting rights of Erste Foundation, savings banks, savings bank
foundations and Wiener Städtische Wechselseitige Versicherungsverein
**Based on voting rights related to shares
Ratings as of 31 December 2015
Financial calendar 2016
37.4
Austria
24.7
2.9
North America
Others
Fitch
9.7
25.3
Long-termBBB+
Continental Europe
UK & Ireland
Short-termF2
OutlookStable
Moody‘s Investors Service
Long-termBaa2
Short-termP-2
OutlookPositive
Standard & Poor‘s
Long-termBBB+
Short-termA-2
OutlookNegative
DateEvent
4 May 2016
11 May 2016
17 May 2016
19 May 2016
5 August 2016
4 November 2016
Interim report Q1 2016
Annual general meeting
Ex-dividend day
Dividend payment
Half year financial report 2016
Interim report Q3 2016
The financial calendar is subject to change.
The latest updated version is available on Erste Group’s website
(www.erstegroup.com/investorrelations).
Highlights
Net profit substantially improved
_ Net result of EUR 968.2 million
_ Significant decline of risk costs and lower one-off effects
_ Dividend of EUR 0.5 proposed to AGM
Table of contents
TO OUR SHAREHOLDERS
2
Letter from the CEO
4
Management board
6
Report of the supervisory board
7
Erste Group on the capital markets
ERSTE GROUP
Loan growth continues in 2015
_ Performing loans increase to EUR 122.6 billion
_ Retail business as growth driver
_ Growth in Slovakia, Czech Republic and Austria
Asset quality improves substantially
_ NPL ratio improved to 7.1%
_ NPL coverage stood at 64.5%
Solid capital ratios
_ Capital clearly above all regulatory requirements
_ CET 1 ratio (Basel 3, final) increased to 12.0%
_ CET 1 capital (Basel 3, final) rose to EUR 12.0 billion
_ Moderate decline in risk-weighted assets
10
Strategy
15
Management report
29
Segments
29
Introduction
29
Business segments
30
Retail
31
SME
32
Asset/Liability Management & Local Corporate Center
32
Savings Banks
33
Large Corporates
33
Commercial Real Estate
34
Other Corporate
35
Group Markets
35
Group Corporate Center (GCC)
36
Geographical segments
36
Austria
37
Erste Bank Oesterreich & Subsidiaries
39
Savings Banks
39
Operating result declining
_ Revenue decline due to low interest rate environment
_ Slight increase in personnel and other administrative
expenses
_ Cost/income ratio at 57.1%
41
41
Czech Republic
43
Slovakia
46
Romania
48
Hungary
51
Croatia
53
Serbia
55
Excellent funding and liquidity position
_ Strong deposit base is key competitive advantage
_ Loan-to-deposit ratio at 98.4%
Other Austria
Central and Eastern Europe
Other
56
Commitment to society
60
Customers and suppliers
65
Employees
70
Environment
74
Corporate governance (including corporate governance report)
87
GRI Index
97
Regulatory own funds
110
Consolidated financial statements
276
Statement of all management board members
277
Glossary
280
Addresses
1
Letter from the CEO
Dear shareholders,
Erste Group posted a net profit of EUR 968.2 million in 2015
amid a challenging banking environment. This solid result was
largely attributable to a significant decline in risk costs and substantially lower one-off effects than in the previous year, which
had been marked by the clean-up of legacy issues. Improved
economic growth in Central and Eastern Europe supported robust
loan growth of 4.2%. At the same time, asset quality improved
significantly. Non-performing loans as a percentage of loans to
customers (NPL ratio) dropped to 7.1%, the lowest level in five
years. These positive developments should not disguise the fact,
though, that the overall business environment remained challenging for Erste Group and loan growth did not fully offset the impacts of the persistent low-interest-rate environment on net interest income. In 2015, populist measures, this time in Croatia, as
well as banking levies in Austria and Hungary, and to a reduced
extent in Slovakia, weighed again on the result.
Republic, Slovakia and Romania even posted GDP growth in
excess of 3%, while Austria remained at the bottom of the table
with 0.9%. The labour market improved in most of the CEE
economies. The Austrian unemployment rate rose to 5.7% but
was nevertheless again one of the lowest in Europe in 2015. FX
exchange rates versus the euro were largely stable. In view of
very low inflation pressure, the key policy rates in Romania and
Hungary were cut further to new historic lows of 1.75% and
1.35% respectively. In the euro zone and in the Czech Republic,
the base rate remained unchanged at five basis points. In March
2016, the European Central Bank (ECB) lowered its policy rate to
zero percent for the first time. This decision was a severe blow to
savers. Whether further monetary easing will result in more consumer spending is questionable, though. Especially in CEE, most
bank customers must be able to live off savings. They do not have
sufficient resources for investing in shares or other financial
instruments.
Against the backdrop of proliferating regulatory requirements on
European banks, bank capitalisation has become a central concern. It is therefore gratifying and important that Erste Group’s
capital ratios developed very robustly while loan growth accelerated. At the end of December 2015, the common equity tier 1
ratio (Basel 3 fully loaded) stood at 12.0%. It was hence significantly above the minimum ratio of 9.75% required for the year
2016 as a result of the ECB's SREP ratio (set at 9.5% for 2016)
plus the 0.25 percentage point systemic risk buffer imposed by
the Austrian Financial Market Authority for 2016. This systemic
risk buffer will rise year after year until it finally reaches 2 percentage points by 1 January 2019. The total capital ratio (Basel 3
final) amounted to 17.2%. At the annual general meeting, we will
therefore propose to pay a dividend of EUR 0.5 per share.
The generally benign economic environment had a direct impact
on Erste Group’s balance sheet as it supported loan growth:
growth was registered in Slovakia, in the Czech Republic and, in
Austria, by both Erste Bank Oesterreich and the Savings Banks,
specifically in the Retail, SME and Large Corporates segments.
In Hungary, loan volume contracted once again; in Romania, the
performing loan portfolio stabilised. At the same time, customer
deposits increased despite the adverse effects of low interest rates
on savers. This may also be interpreted as a clear sign of our
customers’ trust in Erste Group. At the end of December 2015,
the loan-to-deposit ratio stood at 98.4%. Erste Group’s short and
long-term liquidity position remained excellent.
Domestic demand drives growth in CEE
The economic development of the region underpinned Erste
Group’s solid result and confirmed once again the validity of our
customer-centred business model and our strategy of positioning
Erste Group as the leading retail bank in the European Union’s
Eastern growth area. Higher real wages boosted domestic demand
and hence economic growth in CEE. With the exception of Croatia and Serbia, economic growth in Erste Group’s Eastern European core markets exceeded the 1.9% average of the European
Union’s member states and the euro zone’s 1.6%. The Czech
2
Non-performing loans as a percentage of loans to customers were
down to 7.1%. This decline was attributable, on the one hand, to
the successful sale of NPL portfolios in Croatia and Romania and,
on the other, to the general improvement in asset quality. As we
had done the year before, we again reduced non-performing loans
and added performing loans. This improvement is all the more
remarkable as in the fourth quarter we implemented the EBA
definitions of non-performing loans, which had a negative impact
of 38 basis points on the NPL ratio. This methodological effect
also lowered the NPL coverage ratio to 64.5%.
CEO letter | Management board | Supervisory board report | Capital markets | Strategy | Management report | Segments | Society | Customers | Employees | Environment | Corporate governance | Financial statements
Low-interest rate environment weighs on operating
result
Net interest and net fee and commission income were almost
stable in 2015. Rising demand for loans in Erste Group’s key
markets largely cushioned the adverse impact of low interest rates
on operating income. In Romania, net interest income was negatively impacted by NPL sales, in Hungary by reduced volume
after the conversion of foreign-currency loans. Net fee and commission income remained stable. While the trend in income from
asset management was positive, income from lending decreased.
Together with a lower net trading and fair value result this resulted in a decline in operating income to EUR 6.8 billion. General
administrative expenses increased, ultimately also due to the fact
that the line item other administrative expenses included higher
regulatory expenses such as deposit insurance contributions in the
amount of almost EUR 100 million. As had been anticipated,
operating income decreased in 2015, by 6.1%.
Lower one-off effects
The solid result was due in part to the non-recurrence of the previous year’s substantial negative one-offs, most notably close to
EUR 1 billion in write-downs for goodwill, client relationships and
brand. This resulted in a significant improvement in other operating
result in 2015, even though populist political measures taken in the
run-up to elections again had a negative impact: the recognition of
EUR 129.5 million in provisions for losses resulting from legislation requiring the conversion of the entire Croatian CHFdenominated retail and corporate loan portfolio to euros. Risks
related to consumer protection claims in Romania required further
provisions in the amount of EUR 101.6 million. The sale of a participation had a positive effect in the amount of EUR 38.3 million.
Other recurring issues were political and regulatory costs, which
were again high by international standards. Overall, Erste Group
paid banking levies and financial transaction taxes in three countries in the total amount of EUR 236.2 million. While banking taxes
have already been lowered in Slovakia, Hungary, by an act of
parliament, has committed to a sharp reduction from 2016 onwards.
Levies have remained disproportionately high in Austria. In 2015,
their adverse impact was exacerbated further by the need for initial
payments to European resolution funds in the aggregate amount of
EUR 51.3 million, including EUR 32.1 million in Austria.
Sharp decline in risk costs
The reduction of risk costs contributed substantially to the improved result. Risk costs fell by about two-thirds to EUR 729.1
million or 56 basis points of average loans versus 163 basis
points in 2014. After the successful portfolio clean-up in the
previous year, provisioning requirements were significantly lower
in Romania and Hungary. Impairments were also down in all
Austrian segments. Generally, lower risk costs reflect the continuing positive trend in the asset quality development.
The new world of banking
The focus of the management board was in particular on advancing digitalisation and data quality projects, not least in order to
meet the multitude of regulatory requirements. Our digital platform George, which has even attracted international attention, has
been developed further and, in 2016, will also be rolled out in the
Czech Republic and Slovakia. We invest in our capability to offer
our customers bank products through a variety of channels in the
future by means of digital services that can be accessed from
home or while on the road via mobile devices, at small service
centres in high-frequency locations or in one of the large flagship
branches.
2016 will again be a challenge in view of the impacts of negative
interest rates on the customer business or of consumer protection
issues. For a bank like Erste Group with its almost 200-year
tradition as a savings bank, passing negative interest rates on to
retail clients is one step we want to avoid by all means. Margin
erosion is certainly going to influence banks’ pricing policies as
banks, despite ongoing efficiency and cost-cutting efforts, will
find it increasingly impossible to continue the cross-subsidisation
of services which has been taken for granted so far. Despite these
challenges we are confident that our strategy and market position
will ensure that Erste Group will perform well over the long term
and will be able to earn a premium on its capital costs.
Our success in 2015 is clearly attributable to our many thousand
employees, who I wish to thank very cordially at this point. They
will remain the most important interface to our customers, even
in the digital age.
Andreas Treichl mp
3
Management board
Jozef Síkela, Andreas Gottschling, Andreas Treichl
4
CEO letter | Management board | Supervisory board report | Capital markets | Strategy | Management report | Segments | Society | Customers | Employees | Environment | Corporate governance | Financial statements
Petr Brávek, Gernot Mittendorfer, Peter Bosek
5
Report of the supervisory board
Dear shareholders,
In an environment marked by geopolitical unrest and economic
challenges, Erste Group posted a solid result. Unlike many other
banks, Erste Group achieved lending growth and an improvement
in its capitalisation in 2015. Its business model – serving customers in Central and Eastern Europe – has proved sustainable and
appropriate.
In recognition of this successful performance and as a sign of
continuity, the supervisory board extended Andreas Treichl’s
mandate as management board member early, on 16 September
2015, for a term ending on 30 June 2020 and reappointed him as
chairman of the management board.
The duties and objectives of the supervisory board, particularly the
monitoring of the management of the Group and the risk strategy
were the subject of an in-depth dialogue between the European
Central Bank and the supervisory board. By conducting several talks
with the chairman of the supervisory board, attending one of the
supervisory board meetings as a guest and receiving the meeting
minutes of supervisory board meetings, the ECB collected information about the work of the supervisory board and its committees.
Due to the age limit specified in the articles of association, Georg
Winckler retired from the supervisory board as of the annual
general meeting 2015. He had been a member of the supervisory
board since 1993 and, since 2005, first vice chairman of the
supervisory board. I would like to thank Georg Winckler very
cordially for his many years of successful service. Further changes in the supervisory board in 2015: at the annual general meeting
held on 12 May 2015, Maximilian Hardegg, Gonzalo Gortázar
Rotaeche and Antonio Massanell Lavilla were elected to the
supervisory board; Wilhelm Rasinger was re-elected. Regina
Haberhauer and Jozef Pinter were delegated to the supervisory
board by the employees’ council. I would also like to extend very
heartfelt thanks for many years of collaboration to Bertram Mach,
who has retired and whose delegation was therefore revoked by
the employees’ council.
For details regarding the composition and independence of the
supervisory board, the criteria for its independence, its working
procedures, the number and type of committees and their decision-making powers, the meetings of the supervisory board and
6
the main focus of its activities, please refer to the corporate governance report drawn up by the management board and reviewed
by the supervisory board.
In the course of 44 supervisory board and committee meetings,
the management board promptly and comprehensively informed
the supervisory board. This allowed us to act in accordance with
the mandate laid down by law, the articles of association and the
Austrian Code of Corporate Governance, as well as to ascertain
the proper conduct of business.
The financial statements (consisting of the balance sheet, income
statement and notes), the management report, the consolidated
financial statements and the group management report for 2015
were audited by the legally mandated auditor, SparkassenPrüfungsverband, and by Ernst & Young Wirtschaftsprüfungsgesellschaft m.b.H., as supplementary auditor, and received an
unqualified audit opinion. Ernst & Young Wirtschaftsprüfungsgesellschaft m.b.H. was also contracted to perform a discretionary audit of the corporate governance report 2015. The audit did
not give rise to any qualifications. Representatives of both auditors attended the financial statements review meetings of the
audit committee and the supervisory board and presented their
comments on the audits they had conducted.
Based upon our own review, we endorsed the findings of these
audits and agreed with the proposal for appropriation of the profits. We have approved the financial statements and these have
thereby been duly endorsed in accordance with section 96 para 4
of the Aktiengesetz (Austrian Stock Corporation Act). The management report, consolidated financial statements, group management report and corporate governance report have been reviewed and accepted.
The supervisory board thanks the management board and all
employees of Erste Group for their great personal commitment
and their successful work in the financial year ended.
For the supervisory board:
Friedrich Rödler mp
Chairman of the supervisory board
Vienna, March 2016
CEO letter | Management board | Supervisory board report | Capital markets | Strategy | Management report | Segments | Society | Customers | Employees | Environment | Corporate governance | Financial statements
Erste Group on the capital markets
The year 2015 was a turbulent one for international stock
markets. The main focus was again on the central banks’ interest
rate policies. While the European Central Bank (ECB) engaged in
further easing, the US central bank (Fed) took steps towards a
tightening of its monetary policy, which in December finally led
to the first hike of key interest rates since June 2006. Geopolitical
uncertainties, ranging from Greece to Russia/Ukraine and Syria,
as well as the decelerating economic growth in China and the
resulting impacts on the global economy caused some major
stock market swings. The Erste Group share remained unaffected
by global stock market volatility, and the negative trend in
European banking shares advanced year on year more than 50%
on the back of results that beat market expectations and a steady
improvement in asset quality.
EQUITY MARKET REVIEW
A turbulent year for international stock exchanges
Supported by the ECB’s continued monetary easing and the weak
euro, European stock markets initially continued the rally that had
started at the beginning of the year and maintained their relative
strength versus US stock indices, posting two-digit gains well
into the second quarter. Later in the year, Greek debt talks, concerns over Greece’s ability to keep the euro, the disappointing
development of the Chinese economy and its potential impact on
the global economy as projected by the Organisation for Economic Co-operation and Development (OECD) and the International
Monetary Fund (IMF) resulted in increased volatility and substantially lower international stock markets. In the final quarter of
the year ended, the ECB’s announcement of a further easing of
European monetary policy and the prospect of an initial rate hike
by the Fed, which confirmed its confidence in the positive development of the US economy, led to a brief rebound of stock markets. The Dow Jones Industrials Index closed the year 2.2% down
at 17,425.03 points. The broader Standard & Poor’s 500 Index
was almost unchanged year on year at 2,043.94, down 0.7%.
Most of the European markets ended the period under review
with gains. The Euro Stoxx 600 Index climbed 6.8% to 365.81
points; the Euro Stoxx 50 Index was up 3.8% at 3,267.52.
Monetary policies in Europe and the US
Against the backdrop of the underlying trends in major economies,
the focus of market participants in 2015 was on the central banks’
monetary policies. While Europe pursued an extremely expansionary monetary policy, with the ECB expanding the bond purchasing programme it had launched at the beginning of the year to
a monthly volume of EUR 60 billion and extending it to March
2017, monetary policy in the US was in comparison less expansionary, with the Fed continuing to taper its quantitative easing
programme and finally implementing the first rate hike that had
already been expected for about one year. The US central bank
raised its key interest rate for the first time in almost ten years and
announced additional gradual increases. Since year-end 2008,
which saw the climax of the global financial crisis and the threat
of a meltdown of the US economy, the interest rate for lending to
commercial banks had ranged between 0% and 0.25%. Rates were
finally raised in view of the expected continuation of solid economic growth in the US, the recovery of the US labour market and
the lowest unemployment rate since 2007.
Global economy growing more slowly than expected
Both the IMF and the OECD have revised their forecasts for
global economic growth downwards despite the continuing robust
performance of the US economy on the back of household spending and solid labour market data and the expected continuation of
the moderate economic recovery in the eurozone. This was primarily attributable to the challenging situation in emerging markets, most notably China, which economists believe is heading
for the lowest growth in decades. Additional uncertainty comes
from slow growth in Japan as well as US monetary policy and its
impacts on the US dollar. For the eurozone, the OECD forecasts
economic growth to run at 1.4% in 2015 and 2.1% in 2016. The
IMF projects 1.5% and 1.6% respectively. For the US, the OECD
forecasts 2.0% for 2015 and 2.8% for 2016, the IMF 2.5% and
2.8% respectively.
European bank shares close lower
The positive momentum from the ECB’s continuing loose monetary policy, which in the first quarter had still fuelled double-digit
gains in European banking stocks, later on gave way to an increasingly heated political debate over Greek solvency and a potential
exit of Greece from the eurozone. After the ECB had refused to
increase its emergency liquidity assistance any further, capital
controls were imposed and Greek banks were closed for a couple
7
of weeks. The resulting weakening of European markets dragged
down in particular bank shares, as investors feared a spreading of
Greek turmoil to other eurozone countries and banks. In a volatile
environment, markets tumbled further on the back of negative
news from a number of European banks, tightened regulatory
requirements imposed by the ECB’s supervisory mechanism, the
European Banking Authority (EBA) and the Single Resolution
Mechanism (SRM) with regard to minimum capital ratios and the
resolution of financial institutions. In the year ended, the Dow
Jones Euro Stoxx Bank Index, which is composed of leading
European bank stocks, declined by 4.9% to 127.87 points.
Performance of the Erste Group share and major
indices (indexed)
150
100
Vienna Stock Exchange among top performers
After dropping to its annual low of 2,122.08 points on 14 January,
the Austrian Traded Index (ATX) posted significant gains in the
first half of the year, supported by an easing of the tensions between Russia and Ukraine, lower oil prices and the weakening of
the euro, and hit its annual high at 2,681.44 points on 15 May. In
the third quarter, uncertainty surrounding Greek solvency and the
plunge of the Chinese stock market also triggered market slides in
Vienna, in tandem with the trends in other markets across Europe.
Later in the year, the ATX benefited from the ECB’s announcement of continuing quantitative easing and upbeat corporate news
and had largely recovered by year-end. On the last trading day of
2015, the Austrian benchmark index closed at 2,396.94 points, up
11.0% year on year and among the top-performing European
markets.
Performance of the Erste Group share versus indices
ERSTE GROUP SHARE
IPO … initial public offering, SPO … secondary public offering.
Share price up despite negative industry trends
Despite the trend of European bank shares, the Erste Group share
showed a strong upward performance in the year ended, hitting its
low of EUR 18.97 on 28 January 2015 and marking its high at
EUR 29.04 on 30 November 2015. In the first quarter, the Erste
Group share already traded 19.2% higher, buoyed up by the positive sentiment in European stock markets driven by the launch of
the ECB’s bond purchasing programme. While international stock
indices and some European banking shares suffered significant
losses later in the year, the Erste Group share resisted this trend
and advanced further. Measured against the Euro Stoxx Bank
Index, the Erste Group share was up 11.1% in the second quarter
versus -4.9%, gained 1.8% in the third quarter (-12.4%), and
advanced 11.5% in the fourth quarter (-2.6%). The Erste Group
share’s outperformance was attributable to the release of quarterly
results that consistently beat market expectations, the decline in
risk costs, a steady improvement in asset quality and strong capital
ratios. In view of the positive development of earnings and the
affirmation of the outlook given, a large number of analysts raised
their earnings estimates and target prices for the Erste Group
share. Closing at EUR 28.91 on the last trading day of the year
2015, the share was up 50.3% year on year, against the trend
present among its European peers and significantly outperforming
both the ATX and the Euro Stoxx Bank Index.
8
50
31 December 2015
1 January 2015
Erste Group Share
Since IPO (Dec 1997)
Since SPO (Sep 2000)
Since SPO (Jul 2002)
Since SPO (Jan 2006)
Since SPO (Nov 2009)
2015
Austrian Traded Index (ATX)
DJ Euro Stoxx Banks
Erste Group
share
ATX
DJ Euro
Stoxx Bank
Index
160,9%
146,0%
65,9%
-35,8%
-0,3%
50,3%
83,7%
105,1%
96,5%
-38,5%
-8,0%
11,0%
-63,6%
-49,1%
-66,3%
-43,8%
-4,9%
Number of shares, market capitalisation and trading
volume
The number of shares of Erste Group Bank AG remained unchanged at 429,800,000. Due to the 50% rise of the share price,
the market capitalisation of Erste Group rose to EUR 12.4 billion
at year-end 2015 from EUR 8.3 billion in 2014.
Trading volume on the three stock exchanges (Vienna, Prague,
Bucharest) on which the Erste Group share is listed averaged
910,499 shares per day and accounted for about 46% of the total
trading volume in Erste Group shares. More than half of the
trading activity was executed over the counter (OTC) or through
electronic trading systems.
Erste Group in sustainability indices
The Erste Group share has been included in VÖNIX, the Vienna
Stock Exchange’s sustainability index, since its launch in 2008.
In addition, the Erste Group share has been included in the
STOXX Global ESG Leaders index, which represents the best
sustainable companies on the basis of the STOXX Global 1800.
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DIVIDEND
Since 2005, the Erste Group’s dividend policy has been guided by
the bank’s profitability, growth outlook and capital requirements.
At the annual general meeting held on 12 May 2015 it was decided not to pay any dividends for the financial year 2014. For the
financial year of 2015, the management board of Erste Group will
propose to the annual general meeting to pay a dividend in the
amount of EUR 0.50.
SUCCESSFUL FUNDING
In 2015, the Holding issued close to EUR 2.4 billion in bonds,
including EUR 1 billion in two benchmark-sized mortgage covered bond issues. After Erste Group had not been active at capital
markets in the covered bond format since 2012, the bank used
favourable market conditions in the first and third quarter for
issuing a 10-year and a 5-year mortgage-covered bond. In addition, approx. EUR 700 million in senior unsecured bonds were
placed via private placements and with retail customers. Another
EUR 600 million were funded by issuing subordinated bonds
(tier 2). Overall, the average tenor of new issues was about 7.5
years in 2015.
INVESTOR RELATIONS
As an additional service for investors and analysts, Erste Group
offers a free Investor Relations app for iPhone, iPad and Android
devices. This application enables users to access and download
Erste Group Bank AG share price information, the latest investor
news, multimedia files, financial reports and presentations as well
as an interactive financial calendar and contact details for the
investor relations team. More details on this service and downloading are available at http://www.erstegroup.com/en/
investors/ir-service.
Analyst recommendations
In 2015, 26 analysts regularly released research reports about
Erste Group, including one initial coverage analysis. The Erste
Group Bank AG share was covered by financial analysts at the
following national and international firms: Autonomous, Bank of
America Merrill Lynch, Barclays, Berenberg, Citigroup, Commerzbank, Concorde, Credit Suisse, Deutsche Bank, Exane BNP
Paribas, Goldman Sachs, HSBC, JP Morgan, KBW, Kepler
Cheuvreux, Macquarie, mBank, Mediobanca, Morgan Stanley,
Natixis, Nomura, RCB, SocGen, UBS, VTB Capital and Wood.
As of year-end, 19 recommendations had recently been issued for
the share. Twelve analysts issued buy recommendations and
seven rated the Erste Group share neutral. The average year-end
target price was EUR 31.52. The latest updates on analysts’ estimates for the Erste Group share are posted at
http:www.erstegroup.com/en/investors/share/analyst-estimates.
Open and regular communication with investors and
analysts
In 2015, Erste Group’s management and the investor relations
team met with investors in a total of 376 one-on-one and group
meetings and conducted a large number of teleconferences with
analysts and investors. The presentation of the 2014 annual result
in Vienna was followed by the annual analysts’ dinner and a road
show day with investor meetings in London. A spring road show
was conducted after the release of the first-quarter results and an
autumn road show was held following the release of the thirdquarter results in Europe and in the US. Erste Group presented its
strategy in the current operating environment at international
banking and investor conferences organised by the Vienna Stock
Exchange, Kepler Cheuvreux, UBS, Morgan Stanley, HSBC,
Concorde, RCB, J.P. Morgan, Deutsche Bank, Bank of America
Merrill Lynch, Autonomous, Goldman Sachs, Barclays, UniCredit and Wood. 107 meetings were held to intensify the dialogue with bond investors. A large number of face-to-face meetings with analysts and portfolio managers were held at conferences, road shows and workshops hosted by UBS, Nomura,
Barclays, Danske Bank, ING and Euromoney.
The website http://www.erstegroup.com/investorrelations provides comprehensive information on Erste Group and the Erste
Group share. Investors and the broader public can also follow the
investor relations team on the social media platform Twitter at
http://twitter.com/ErsteGroupIR
and
on
Slideshare
at
http://de.slideshare.net/Erste_Group. These sites provide users
with the latest news on Erste Group on the social web.
9
Strategy
Erste Group aims to be the leading retail and SME bank in the
eastern part of the European Union, including Austria. To achieve
this goal, Erste Group aims to lend responsibly, provide a safe
harbour for deposits and in general support all its customers in
achieving their financial goals, be they retail, corporate or publicsector customers.
In 2015, the management board adopted a statement of purpose to
reaffirm and state in more detail the purpose of Erste Group to
promote and secure prosperity across the region. Building on this
statement of purpose, a code of conduct defines binding rules of
the day-to-day business for the employees and the members of
both the management and supervisory board. At the same time, the
code of conduct underlines that in pursuing its business activities,
Erste Group values responsibility, respect and sustainability. The
code of conduct is an important tool to preserve the reputation of
Erste Group and to strengthen stakeholder confidence. Sustainability in this context means to operate the core business both in a
socially and environmentally responsible manner and economically successful.
As a result of the financial and economic crisis, banks today face
a new and substantially tougher regulatory framework. At the
same time, Erste Group is confronted with a very difficult environment: with persistently low interest rates and no political
support for the task of promoting economic growth in the bank’s
region.
Erste Group pursues a balanced business model focused on
providing the best banking services to each of its customers. Sustainability is reflected in the bank’s ability to fund customer loans
entirely by customer deposits, with most customer deposits being
stable retail deposits. Sustainability of the bank’s strategy is also
reflected in long-term client trust, which underpins strong market
shares in almost all of Erste Group’s core markets. However,
market leadership is not an end in itself. Market leadership only
creates value when it goes hand in hand with sustainable profitability; hence, Erste Group pursues banking business in a socially
responsible manner and aims to earn a premium on the cost of
capital.
10
Long-standing tradition in customer banking
Erste Group has been active in the retail business since 1819.
This is where the largest part of Erste Group’s capital is tied
up, where Erste Group generates most of its income, and funds
the overwhelming part of its other core activities by drawing
on its customers’ deposits. The retail business represents Erste
Group’s strength and its top priority when developing products
such as modern digital banking that enable the bank to meet its
customers’ expectations more effectively.
Offering understandable products and services that meet the
individual needs and objectives of the bank customers at sustainably attractive terms is important to building and maintaining strong long-term customer relationships. Today, Erste
Group serves a total of about 16 million retail customers in its
core markets. The bank’s core activities also include advisory
services and support for its corporate customers with regard to
financing, investment, hedging activities and access to international capital markets. Public sector funding through investing
parts of the bank’s liquidity in infrastructure projects as well as
through acquiring sovereign bonds issued in its region are also
part of the business. To meet the short-term liquidity management needs of the customer business, Erste Group also operates
in the interbank market.
Core markets in the eastern part of the European Union
When Erste Group went public as an Austrian savings bank with
no meaningful foreign presence in 1997, it defined its target
region as consisting of Austria and the part of Central and Eastern
Europe that had realistic prospects of joining the European
Union. Against the backdrop of emerging European integration
and limited potential for growth in Austria, Erste Group acquired
savings banks and financial institutions in countries adjacent to
Austria from the late 1990s onwards.
While the financial and economic crisis has slowed the economic
catching-up process across the countries of Central and Eastern
Europe, the underlying convergence trend continues unabated.
This part of Europe offered and still offers the best structural and
therefore long-term growth prospects.
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Today, Erste Group has an extensive presence in its core markets
of Austria, the Czech Republic, Slovakia, Romania, Hungary and
Croatia – all of which are members of the European Union. Following significant investments in its subsidiaries, Erste Group
holds considerable market positions in most of these countries. In
Serbia, which has been assigned European Union candidate status, Erste Group maintains a minor market presence, but one that
may be expanded through acquisitions or organic growth as the
country makes progress towards European Union integration. In
addition to its core markets, Erste Group also holds direct and
indirect majority and minority banking participations in Slovenia,
Montenegro, Bosnia and Herzegovina, Macedonia and Moldova.
Focus on sustainability and profitability
Earning a premium on the cost of capital in a socially responsible
manner and for the benefit of all stakeholders is a key prerequisite for the long-term survival of any company or bank. For only
a sustainably profitable bank can achieve the following: provide
products and services to customers that support them in achieving
their long-term financial goals; deliver the foundation for share
price appreciation as well as dividend and coupon payments to
investors; create a stable and rewarding work environment for
employees; and, be a reliable contributor of tax revenues to society at large.
Through a combination of stable revenues, low loan loss provisions, and cost efficiency profits can be achieved in the long term.
This is helped by a strong retail-based funding profile. When
growth opportunities are elusive, as they will be from time to
time, or the market environment is less favourable as a result of
factors including high taxation, increased regulation or low interest rates, there will be a stronger focus on cost cutting. When the
operating environment improves, more time will be devoted to
capturing growth in a responsible way. Irrespective of the environment, Erste Group should benefit materially from operating in
the region of Europe that offers the best structural growth opportunities for some time to come.
Erste Groupʼs strategy
Customer banking in Central and Eastern Europe
Eastern part of the EU
Retail banking
Focus on local
currency mortgage and
consumer loans
funded by local
deposits
FX loans (in Euro) only
where funded by local
FX deposits (Croatia
and Serbia)
Savings products,
asset management
and pension products
SME/Corporate banking
SME and local
corporate banking
Advisory services, with
focus on providing
access to capital
markets and corporate
finance
Real estate business
that goes beyond
financing
Focus on CEE, limited exposure to other Europe
Capital markets
Focus on customer
business, incl.
customer-based
trading activities
In addition to core
markets, presences in
Poland, Germany and
London with institutional client focus and
selected product mix
Public sector
Financing sovereigns
and municipalities with
focus on infrastructure
development in core
markets
Any sovereign holdings
are held for marketmaking, liquidity or
balance sheet
management reasons
Interbank business
Focus on banks that
operate in the core
markets
Any bank exposure is
only held for liquidity or
balance sheet management reasons or to
support client business
Building debt and
equity capital markets
in CEE
11
THE STRATEGY IN DETAIL
The basis of Erste Group’s banking operations is the retail and
SME customer business in the eastern part of the European
Union, including Austria. The capital markets and interbank
activities as well as the public sector business are defined more
broadly to be able to meet the bank’s customer needs as effectively as possible.
Retail business
Erste Group’s key business is the retail business, covering the
entire spectrum from lending, deposit and investment products to
current accounts and credit cards. Erste Group’s core competence in retail banking has historical roots. In 1819, wealthy
Viennese citizens donated funds to establish Erste Group’s
predecessor, the first savings bank in Central Europe. It was
their aim to bring basic banking services such as safe savings
accounts and mortgage loans to wide sections of the population. Today, the bank serves a total of 16 million retail customers in its markets and operates about 2,800 branches. In addition, the bank uses and promotes digital distribution channels
such as Internet and mobile banking as Erste Group is convinced that the importance of digital banking will further increase and will substantially change the future of retail business. George, Erste Group’s new digital platform, was launched
in Austria in 2015 and will be rolled out across the group.
Wealthy private clients, trusts and foundations are served by
the bank’s private banking staff and benefit from services that
are tailored to the needs of this target group.
Retail banking is attractive to Erste Group for a number of reasons: It offers a compelling business case that is built on market
leadership, an attractive risk-reward profile and the principle of
self-funding. In addition, it benefits from a comprehensive range
of products that are simple and easy to understand and provide
substantial cross-selling potential. Only a retail bank with an
extensive distribution network is able to fund loans in local
currency mainly from deposits made in the same currency. In
each of its core markets, Erste Group is in such a position of
strength. In short, Erste Group’s retail banking model supports
sustainable and deposit-funded growth even in economically
more challenging times.
Another positive factor is the diversification of the retail business
across countries that are at different stages of economic development, such as Austria, the Czech Republic, Romania, Slovakia,
Hungary, Croatia and Serbia.
SME and corporate business
The second main business line, which also contributes significantly to Erste Group’s earnings, is the business with small and
medium-sized enterprises, regional and multi-national groups,
and real estate companies. Erste Group’s goal is to enhance the
relationships with these clients beyond pure lending business.
Specifically, the bank’s goal is for SMEs and large corporate
12
customers to choose Erste Group as their principal bank and also
route their payment transfers through the Group’s banking entities and, in fact, regard Erste Group as their first point of contact
for any kind of banking service.
Catering to their different requirements, Erste Group serves small
and medium-sized enterprises locally in branches or separate
commercial centres while multinational groups are serviced by
the Group Corporates’ units. This approach permits Erste Group
to combine industry-specific and product expertise with an understanding of regional needs and the experience of the bank’s
local customer relationship managers.
In view of the regulatory interventions, advising and supporting
the bank’s corporate customers in capital market transactions is
becoming increasingly important.
Capital markets business
Client-driven capital markets activities is also part of the comprehensive portfolio of products and services that Erste Group
offers to its retail and corporate customers. The strategic significance of the bank’s centrally governed and locally rooted capital
markets operations consists in supporting all other business areas
in their dealings with the capital markets and, hence, in providing
the bank’s customers with professional access to the financial
markets. Erste Group, therefore, views its capital markets business as a link between the financial markets and the customers.
As a key capital markets player in the region, Erste Group also
performs important functions such as market-making, capital
market research and product structuring.
The capital markets business serves the needs of Erste Group’s
retail and corporate customers as well as of government entities
and financial institutions. Due to Erste Group’s strong network in
the eastern part of the European Union, the bank has a thorough
understanding of local markets and customer needs. In Erste
Group’s capital markets business, too, the bank concentrates on
key markets of the retail, SME and large corporate business:
Austria, the Czech Republic, Slovakia, Romania, Hungary,
Croatia and Serbia. For institutional customers, specialised teams
have been established in Germany and Poland as well as in London, Hong Kong and New York that offer these customers a
tailor-made range of products.
In many countries where Erste Group operates, the local capital
markets are not yet as highly developed as in Western Europe or
in the United States of America. That means Erste Group’s banking subsidiaries are pioneers in some of these markets. Therefore,
building more efficient capital markets in the region is another
strategic objective of Erste Group’s capital markets activities.
Public sector business
Solid deposit business is one of the key pillars of Erste Group’s
business model. Accordingly, customer deposits surpass lending
volume in many of its geographic markets. Erste Group’s banking
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entities make a significant part of this liquidity available as financing to the region’s public-sector entities. In this way, the bank facilitates essential public-sector investment. Erste Group’s public-sector
customers are primarily municipalities, regional entities and sovereigns that the bank additionally supports and advises in capital
market issuance, infrastructure financing and project financing.
Furthermore, Erste Group cooperates with supranational institutions. In terms of sovereign bond investments, Erste Group is
equally focusing on Central and Eastern Europe.
Adequate transport and energy infrastructure and municipal
services are absolute key prerequisites for sustainable economic
growth in the long term. Therefore, Erste Group views infrastructure finance and all associated financial services to be of extreme
importance. Between 2014 and 2020, the European Union has
earmarked about EUR 90 billion from structural and investment
funds for the Czech Republic, Slovakia, Croatia, Hungary and
Romania: This is one quarter of the total allocation under the
European Union’s cohesion policy. In this context, Erste Group’s
commitment to infrastructure development in Romania is to be
highlighted. The Romanian subsidiary Banca Comercială
Română supports investment in essential infrastructure by funding key companies in all sectors.
Interbank business
The interbank business is an integral part of Erste Group’s business model that performs the strategic function to ensure that the
liquidity needs of the bank’s customer business are met. This
involves, in particular, short-term borrowing and lending of
liquid funds in the interbank market.
REGULATORY CHANGES IN BANKING
In the wake of the financial crisis, regulatory requirements for banks
increased significantly with a view to establishing a framework for a
more resilient global financial system. It has become the clear
regulatory aim to prevent tax-payers from having to bail out financial institutions in future. To this effect, the new international regulatory framework for banks has been revised by the Basel Committee on Banking Supervision (Basel 3). The new regime is designed
to strengthen the regulation, supervision and risk management of
the banking sector. Within the European Union the Basel 3 legal
framework is implemented through the Capital Requirements Directive (CRD IV) and the Capital Requirements Regulation (CRR).
The goal behind the reform measures is to improve the banking
sector’s ability to absorb any shocks arising from financial or
economic stress, to strengthen the sector’s transparency and
disclosure requirements and to improve risk management and
governance. Capital requirements have been tightened and minimum liquidity requirements have been introduced. To tackle
potential weaknesses in the loss-absorbing capacity of banks
additional capital buffers (capital conservation buffer, anticyclical buffer, systemic risk buffer) are to be introduced in
various steps. In addition, the quality of equity and own funds
instruments follows stricter rules. In 2015, many of the new rules
were defined through regulations, explanations and recommendations by European and national regulators.
In November 2014, the Single Supervisory Mechanism (SSM)
entered into force. It is based on commonly agreed principles
and standards. The banking supervision is performed by the
European Central Bank (ECB) together with the national supervisory authorities of participating member states of the euro
zone. The ECB is responsible for the effective and consistent
functioning of the SSM. To ensure efficient supervision, credit
institutions are categorised as significant or less significant:
The ECB directly supervises significant banks, whereas national authorities are in charge of supervising less significant
banks. Erste Group has been classified as significant.
Austria, Germany and the UK were the first countries to implement the EU Bank Recovery and Resolution Directive (BRRD).
As of 1 January 2015 the BaSAG (Austrian Recovery and Resolution Act/ Bundesgesetz zur Sanierung und Abwicklung von Banken) entered into force. Beyond the requirement to have recovery
and resolution plans in place, the framework also stipulates an
additional minimum capital requirement to ensure sufficient lossabsorbing capacity, the MREL (Minimum Requirement on Own
Funds and Eligible Liabilities), which will be further specified on
a bank-by-bank basis. In addition, several tools to resolve failing
institutions have been introduced for the newly established resolution authority (i.e. the FMA for Austrian banks).
In August 2015, in the implementation of the directive on deposit
guarantee schemes, the Deposit Guarantee and Investor Compensation Act (Einlagensicherungs- und Anlegerentschädigungsgesetz, ESAEG) was published. Following a transition period
until year-end 2018, it stipulates a new structure and an ex ante
formation of a deposit insurance funds by 2024.
To strengthen the Austrian banking industry, the Financial Markets Authority (FMA) introduced a systemic risk buffer for a
series of Austrian credit institutions by way of ordinance (capital
buffer ordinance). For the Holding, it amounts to 0.25% of riskweighted assets as of 1 January 2016 and will be gradually increased to 2% until 1 January 2019.
As of year-end 2015, Erste Group reported a fully loaded Basel 3
CET1 (common equity tier-1) ratio of 12.0% and a total capital ratio
of 17.2%. Despite increasing regulatory pressure in general and
additional burdens on the capacity of retaining earnings as a result
of bank levies in Austria, Hungary and Slovakia as well as contributions into national deposit insurance and resolutions funds, Erste
Group remained well-capitalised and benefits from an excellent
liquidity position, enabling it to proactively serve customers’ needs.
13
LONG-TERM GROWTH TRENDS IN
CENTRAL AND EASTERN EUROPE
While the financial and economic crisis has slowed the economic
catching-up process across the countries of Central and Eastern
Europe, the underlying convergence trend continues. This is on
the one hand due to the fact that the region has to make up for
almost half a century of communist mismanagement of the economy and on the other hand due to the fact that banking activities
were largely non-existent during that time.
With the exception of deposit-taking, modern banking services
were largely unknown in these countries until some twenty years
ago. On the lending side, this was due to high nominal and real
interest rates and also to disposable incomes that did not support
household credit growth. In addition, a healthy competitive environment was lacking due to extensive state ownership. All this has
changed. In most of the countries, interest rates are in a process of
convergence or have already converged to euro levels. Disposable
incomes have risen strongly on the back of growing gross domestic
products. Most formerly state-owned banks have been sold to
strategic investors that have fostered product innovation and competition. Economic growth, which declined substantially in some
countries in CEE following the economic and financial crisis,
recovered recently. Despite such economic slowdowns and potential temporary negative impacts on the banking markets in Central
and Eastern Europe, these factors will remain the driving force
behind future development.
A comparison of per capita debt levels in Central and Eastern
Europe with those of advanced economies reveals that even
today an enormous gap exists between these markets. Countries
such as the Czech Republic and Slovakia, but also Croatia and
Hungary, are many years away from reaching Austrian or Western European levels of loans per capita; also in relative terms,
these countries differ substantially regarding debt levels common in the West. The contrast to Serbia or Romania is even
more pronounced: Private debt levels, and particularly household debt, are substantially lower than in the advanced economies. Even though the developments of very recent years will
probably lead to a reassessment of what constitutes acceptable
debt levels and to only a gradual rise in lending in Central and
Eastern Europe, Erste Group still firmly believes that credit
expansion accompanied by sustainable economic growth will
prove to be a lasting trend rather than a short-term process that
has already peaked.
Customer loans/capita in CEE (2015) in EUR thousand
42
37.3
36
30
24
18
12
In addition, most countries of Central and Eastern Europe have
human resources that are at least equivalent to those of Western
European countries but do not need to struggle with the unaffordable costs in the long term of the western welfare states and have
labour markets that are considerably more flexible. These advantages are complemented by – on average – highly competitive
export industries that benefit from wage costs that are low relative
to workforce productivity and from investor-friendly tax and welfare systems.
14
9.8
8.4
8.4
6
4.3
2.6
2.2
Romania
Serbia
0
Austria
Czech Rep
Croatia
Slovakia
Hungary
Source: Local central banks, Erste Group
Over the upcoming 15 to 20 years, on average, these countries
are therefore expected to experience higher growth rates than the
countries of Western Europe, even though periods of expansion
may alternate with times of economic stagnation or even setbacks on this long-term path of sustainable growth.
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Management report
ECONOMIC ENVIRONMENT
In 2015, the global macroeconomic environment was particularly
characterised by different money supply policies, which impacted
global economic developments. The loose monetary policy (quantitative easing) pursued in Europe contrasted with the restrictive
policy adopted in the United States. The Federal Reserve (Fed)
eventually terminated the quantitative easing programme, and the
interest rate reversal that had been anticipated for a whole year
finally happened. The Fed’s confidence reflected the positive economic development of the world’s largest economy, consumer
spending and employment visibly improved throughout 2015. The
European Central Bank (ECB), on the other hand, continued its
bond purchase programme initiated at the start of the year. Recovery of the euro zone remained on track as its economies were supported by strengthening domestic demand and exports. Although
emerging markets and developing economies continued to outgrow
advanced markets, their performances disappointed in 2015 – in
particular in China, where decelerating economic growth reflected
the ongoing correction in the property sector, weakness in industrial
activity and slower loan growth. In addition, the Russian economy
experienced an economic downturn due to weakening commodity
prices and political tensions with Ukraine. A possible exit of Greece
from the euro zone and implications of the military actions in Syria
also led to uncertainties in 2015. Overall, the global economy grew
by 3.1%, after 3.4% in 2014.
The United States’ economy performed well in 2015. Solid labour
market conditions continued to support consumption-led growth
with job creation averaging more than 200,000 per month in 2015
and the unemployment rate falling to 5% in the final quarter of
the year. Higher real disposable household income, boosted by
employment gains, declining oil prices and moderate wage
growth, led to rising personal consumption growth despite the
increase in the savings ratio. Investments also developed satisfactorily with the sole exception of the oil sector. Foreign trade, on
the other hand, was the weak spot of the US economy. The decline in net exports was mainly due to the strength of the dollar
against the euro and the softness in external demand, particularly
from large emerging markets. The fall of oil prices in the summer
of the year and the strong currency led inflation to hover around
zero in the second half of 2015. In December 2015, the Fed decided to raise short-term interest rates by 0.25% for the first time
since the financial crisis. The central bank expressed its confidence that the US economy had recovered and job growth had
strengthened sufficiently to allow it to raise the key policy rate.
Altogether, the US economy grew by 2.4% in 2015
The economic performance of the euro zone was satisfactory but
remained uneven in 2015. Germany, Europe’s biggest economy,
was supported by increasing consumption, growing investments
and improved foreign trade. Consumption significantly benefitted
from rising real wages and the low unemployment rate. Investments also contributed to the country’s economic growth, driven
mainly by strong activity in residential housing. The country’s
foreign trade was supported by strong exports, which benefitted
from a weaker euro; this more than compensated for weaker exports to China. Spain was one of the most dynamic economies of
the euro zone as the country benefitted from the comprehensive
reforms that were adopted in the wake of the financial crisis. The
economies of France and Italy, however, lagged behind those of
Spain and Germany. The French government showed little willingness to implement reforms in 2015, while in Italy labour market reforms were implemented. In March 2015, the ECB announced plans to continue its monetary policy by purchasing
public sector bonds, asset-backed securities and covered bonds
with a monthly targeted amount of EUR 60 billion until at least
September 2016. A further enhancement of monetary policy support until March 2017 was decided in December 2015. The ECB
kept interest rates at the historic low of 5 basis points throughout
the year. Overall, the eurozone economy grew by 1.5% in 2015.
The Austrian economy remained well diversified across sectors,
benefitting from a sizeable, high value-added industrial base, its
well-educated workforce and its important service sector. In terms
of GDP per capita of approximately EUR 39,400, Austria remained one of the euro zone’s most prosperous countries in 2015.
Despite the fact that Austria grew less than the euro zone in 2015,
the country’s economic performance met expectations. Activity
across all sectors of the economy rose. While foreign trade was
negatively impacted by a noticeable decline in exports to China
and Russia, the balance of trade remained positive. Domestic
demand also contributed to economic growth despite a relatively
low increase in disposable income. Overall, the country’s economic growth stood at 0.8%. Austria’s unemployment rate increased
for the fourth consecutive year, but at 5.8% was still
15
among the lowest in Europe. The troubled financial institution
HETA Asset Resolution AG, formerly Hypo AlpeAdria International AG, continued to weigh on the fiscal outcome, and the
public sector had to book illiquid assets of Kommunalkredit of
around 2% of GDP, which also contributed to the increase of
public debt in 2015. Public debt, as a percentage of GDP, increased to 87% (2014: 84.2%). As a result of the relatively low
growth and elevated debt burden, Moody’s downgraded the outlook of the country’s sovereign rating in the last quarter of 2015.
Operating income and operating expenses
in EUR million
10,000
7,479
5,000
Despite the relatively weak developments of some of the world’s
major emerging markets, the CEE economies achieved strong
economic growth in 2015. This performance was mainly due to
fiscal tightening packages carried out in previous years, improved
external imbalances, very low inflation and the fact that the region’s countries are net importers of energy. In addition, European Union fund absorption rates significantly improved in CEE,
particularly in Hungary and the Czech Republic, the region’s
fastest growing economy. Overall, consumer confidence improved across the region, and domestic demand proved to be the
main driver of economic growth. The car industry, which was one
of the main contributors to exports, again supported the Czech,
Slovak, Romanian and Hungarian economies. On the back of the
ECB’s monetary policy, the national banks in Hungary and Romania continued to cut their key rates. In the Czech Republic, the
base rate remained at five basis points throughout the year, and
the region’s currencies remained broadly stable against the euro.
The competitive economies of the region and decreasing unemployment rates supported current account balances in 2015. In
addition, the region was characterised by solid public finances, as
almost all countries fulfilled Maastricht criteria. Overall, the CEE
economies grew, with the Czech Republic achieving the highest
growth rate at 4.5%. Croatia, on the other hand, had the weakest
growth at 1.5%, still emerging from a multi-year recession.
PERFORMANCE IN 2015
Acquisitions and disposals in Erste Group in 2015 did not have
any significant impact and therefore had no effect on the rates of
changes stated below. Details are provided in the notes to the
consolidated financial statements.
Overview
Net interest income declined to EUR 4,444.7 million (EUR
4,495.2 million), mainly due to the persistently low interest rate
environment, which was not fully offset by loan growth. Net fee
and commission income declined slightly to EUR 1,861.8
million (EUR 1,869.8 million) due to lower income from lending
business and payment services. The net trading and fair value
result decreased to EUR 210.1 million (EUR 242.3 million).
Operating income went down moderately to EUR 6,771.8
million (-1.5%; EUR 6,877.9 million).
16
7,230
6,995
6,878
6,772
3,787
3,869
7,500
3,851
3,757
2011
2012
3,896
2,500
0
2013
restated
General administrative expenses
2014
2015
Operating income
General administrative expenses rose to EUR 3,868.9 million
(+2.2%; EUR 3,787.3 million). This resulted in a decline of the
operating result to EUR 2,902.9 million (-6.1%; EUR 3,090.7
million). The cost/income ratio amounted to 57.1% (55.1%).
Net impairment loss on financial assets not measured at
fair value through profit or loss (net) fell significantly to EUR
729.1 million or 56 basis points of average gross customer loans
(-65.0%; EUR 2,083.7 million or 163 basis points), primarily due
to a substantial decline in Romania, but also due to a positive
trend in all Austrian segments. The NPL ratio improved further
to 7.1% (8.5%). The NPL coverage ratio stood at 64.5%
(68.9%).
Other operating result amounted to EUR -635.6 million (EUR
-1,752.9 million). The significant positive change was attributable
to the non-recurrence of high negative one-off effects in 2014
(primarily intangible write-downs). Current figures include the
expense of contributions to national resolution funds in the
amount of EUR 51.3 million payable in 2015 for the first time as
well as losses in the amount of EUR 129.5 million resulting from
legislation requiring the conversion of customer loans (Swiss
francs to euro) in Croatia. In addition, provisions were recognised
in the amount of EUR 101.6 million for risks related to Romanian
consumer protection claims. At EUR 236.2 million (EUR 256.3
million), banking and financial transaction taxes were again
significant: EUR 128.6 million (EUR 130.5 million) in Austria,
EUR 23.6 million (EUR 31.5 million) in Slovakia and EUR 84.0
million (EUR 94.2 million) in Hungary.
Due to the good risk development at the Savings Banks and the
turnaround in Romania, the minority charge was high at EUR
307.0 million (EUR 133.4 million). The net result attributable
to owners of the parent rose to EUR 968.2 million (EUR
-1,382.6 million).
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The common equity tier 1 ratio (CET 1, Basel 3 phased-in)
stood at 12.3% (10.6%). The total capital ratio (Basel 3 phasedin) at 17.9% (15.7%).
Operating result and net profit/loss for the year
attributable to owners of the parent
in EUR million
4,500
3,628
3,473
3,091
3,099
2,903
3,000
1,500
968
484
60
0
-719
-1,383
-1,500
2011
2012
Operating result
2014
restated
2013
restated
2015
Net profit for the year attributable
to the owners of the parent
Cash return on equity, i.e. return on equity adjusted for non-
cash expenses such as goodwill impairment and straight-line
amortisation of customer relationships, stood at 9.3% (reported
ROE:-9.3%) in 2015 versus -9.4% (reported ROE:-13.3%) in
2014.
Key profitability ratios in %
65
60
57.1
55.7
55
51.5
50
55.1
52.0
3.8
0
-5.5
40
-11.8
35
2011
2012
Cost/income ratio
Outlook
Operating environment anticipated to be conducive to credit
expansion
In 2016, real GDP growth, driven primarily by robust domestic
demand, of between 1.5% and 3.8% is expected for Erste Group’s
key markets, i.e. Austria, the Czech Republic, Slovakia, Romania,
Hungary and Croatia. As in 2015, the contribution of net exports
to GDP growth will again be less significant in 2016, though.
Inflation will remain negligible in 2016 against the backdrop of a
weak economic environment in Europe and the continuing decline in commodity prices. The economic growth anticipated for
2016 should support a further drop in unemployment in most of
Erste Group’s key countries. In Austria, the unemployment rate is
expected to increase, however. The solid economic development
in Erste Group’s core markets will again be reflected by current
account surpluses in 2016, with the exception of Romania, which
is expected to post a current account deficit of 1.1%. The solid
macroeconomic situation of Central and Eastern Europe is underpinned by continuing moderate levels of government debt in the
Czech Republic, Slovakia and Romania, where public debt ratios
should remain below the Maastricht limit of 60%. Overall, the
2016 economic outlook for Erste Group’s markets in Central and
Eastern Europe should hence be bright. In those circumstances, it
is expected that loan demand should rise further in Erste Group’s
core countries.
9.1
0.5
45
Dividend
A dividend distribution amounting to EUR 0.50 per share will be
proposed at the Annual General Meeting (2014: no dividend
distribution).
2013
restated
2014
restated
2015
Return on equity
Cash earnings per share for the financial year 2015 amounted
to EUR 2.23 (reported EPS: EUR 2.22) versus EUR -1.44 (reported EPS: -3.37) in 2014.
Total assets increased to EUR 199.7 billion (EUR 196.3 billion),
driven mainly by the increase in customer lending volume, with
loans and receivables to customers (net) rising to EUR
125.9 billion (EUR 120.8 billion). Within liabilities, customer
deposits rose to EUR 127.9 billion (EUR 122.6 billion). The
loan-to-deposit ratio stood at 98.4% (98.6%).
Return on tangible equity (ROTE) expected at about 10-11%
in 2016
In 2016, the business of Erste Group should benefit from the
following factors: supported by the solid development of the
overall economy, loan growth should continue and credit quality
should improve amid a favourable risk environment. The sale of a
participation in VISA will result in a positive one-off impact of
about EUR 127 million pre-tax. While higher lending volume has
a positive impact on net interest income, the persistently low
interest rate environment will result in lower returns from investments in government bonds and will also adversely affect the
liabilities side. Banking levies (comprising banking taxes in
Austria, Hungary and Slovakia), the Hungarian financial transaction tax as well as resolution funds and deposit insurance fund
contributions) will have a negative pre-tax impact of about EUR
360 million. In 2016, the bank will continue to pursue the digital
transformation as one of its key business policy objectives: the
newly designed digital platform George will be expanded further
and, after its successful launch in Austria, will also be rolled out
in the Czech Republic. Overall, the bank is expected to continue
17
its positive development, which should lead to a further strengthening of the capital base. The bank therefore assumes that it will
be in a position to pass the stress test announced by the European
Central Bank for 2016.
Net interest margin in %
6
5
Risks to outlook
Risks related to political interventions in the banking market and
risks arising from legal action under consumer protection legislation: in recent years, politically motivated legislation that has
significantly increased the cost of banking operations was passed
in several countries in which Erste Group operates. This included
most notably the introduction of banking levies in Austria, Hungary and Slovakia as well as various laws providing for a refund
of fees and the forced conversion of foreign-currency loans, e.g.
in Hungary and in Croatia. It cannot be ruled out that further
legislative measures may be adopted in the future, including some
of the kind currently being discussed in Romania, under which
consumers are to be allowed to transfer ownership in loan collateral to the bank in return for cancellation of their debt. Erste
Group and its subsidiaries are furthermore involved in various
lawsuits brought by consumer protection organisations, which in
the event of a negative outcome might result in additional costs.
Risks in connection with geopolitical and global economic developments: international political and economic turmoil caused, for
example, by a severe slowdown in global growth, a potential exit
of Great Britain from the European Union or political tensions
within the EU may, individually or collectively, negatively affect
the profitability and growth prospects of Erste Group. The extremely expansionary monetary policies pursued by the central
banks of Western advanced economies also have an ongoing
negative effect on the profitability of the global banking sector.
They reduce banks’ interest income and result in a persistent
decrease in net interest margins. Erste Group Bank AG has already responded to this development by introducing more digital
elements into its business model.
4.21
3.94
3.68
4
2.97
2.80
2.69
3
3.60
3.41
2.65
2.59
1.60
1.73
2014
2015
2
2.09
2.01
1
1.44
0
2011
2013
restated
2012
Central and Eastern Europe
Overall group
Austria
Since 2013 the calculation method for the net interest margin has been based on segment figures. For the
calculation of the average interest-bearing assets five quarterly figures are now used instead of the four in
the past.
Net fee and commission income
Net fee and commission income declined slightly to EUR 1,861.8
million (EUR 1,869.8 million). Consistently strong results from
asset management and the custody business largely offset the
decline in income from the lending business and payment services.
Net fee and commission income, structure and trend
in EUR million
2,400
2,000
1,787
1,807
1,724
1,870
1,862
2014
2015
1,600
1,200
ANALYSIS OF PERFORMANCE
January-December 2015 compared with January-December 2014
Net interest income
Net interest income declined to EUR 4,444.7 million (EUR
4,495.2 million), mainly due to the low interest rate environment
which could not be offset by loan growth of 4.2%. Developments
varied geographically: while net interest income declined significantly in Romania (lower unwinding effect) and Hungary (consumer loan law, lower loan volume), it increased in Austria. Consequently, the net interest margin (net interest income as a percentage of average interest-bearing assets) contracted from 2.65% to
2.59%.
18
800
400
0
2011
2013
restated
2012
Securities business
Other
Asset management (since 2013)
Lending business
Payment business
Customer resources distributed
(since 2013)
Insurance business (till 2012)
Net trading and fair value result
The net trading and fair value result decreased to EUR 210.1 million (EUR 242.3 million), as improved income from foreign exchange transactions and positive valuation results of financial
liabilities – at fair value through profit or loss did not compensate
for the lower contribution of the line item securities and derivatives
trading.
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General administrative expenses
General administrative expenses rose to EUR 3,868.9 million
(EUR 3,787.3 million).
General administrative expenses,
structure and trend, in EUR million
4,500
3,851
3,896
3,757
3,750
3,787
3,869
3,000
2,250
1,500
750
0
2011
2012
Personnel expenses
2013
restated
Other operating
expenses
2014
2015
Headcount as of 31 December 2015
Slovenská sporitel’ňa
Erste Bank Hungary
Erste Bank Croatia
2,851
Erste Bank Serbia
1,002
2,344
4,205
Other
10,501
Česká spořitelna
Banca Comercială Română
7,281
7,065
Erste Group in Austria
8,405
Operating result
Operating income declined to EUR 6,771.8 million (-1.5%; EUR
6,877.9 million) due to lower net interest income, a decline in the
net trading and fair value result and lower dividend income.
General administrative expenses rose to EUR 3,868.9 million
(+2.2%; EUR 3,787.3 million), which led to an operating result in
the amount of EUR 2,902.9 million (-6.1%; EUR 3,090.7 million). The cost/income ratio stood at 57.1% (55.1%).
Gains/losses from financial assets and liabilities not
measured at fair value through profit or loss (net)
Gains/losses from financial assets and liabilities not measured at
fair value through profit or loss (net) rose to EUR 100.9 million
(EUR 18.3 million). This was attributable to positive contributions from the sale of financial assets – available for sale as well
as gains from the repurchase of financial liabilities carried at
amortised cost.
Depreciation of property
and equipment
Personnel expenses increased, partly due to a higher average
headcount, to EUR 2,244.6 million (EUR 2,184.2 million). Other
administrative expenses were up at EUR 1,179.3 million
(EUR 1,136.9 million), depreciation and amortisation declined to EUR 445.0 million (EUR 466.1 million). The line item
other administrative expenses comprised deposit insurance contributions in the amount of EUR 99.6 million (EUR 87.6 million).
The rise in these expenses was attributable to contributions to a
deposit insurance fund in the amount of EUR 21.5 million that
Austrian financial institutions had to pay for the first time in
2015. The line item depreciation and amortisation included the
straight-line amortisation of intangible assets (customer relationships) in the amount of EUR 6.2 million (EUR 37.0 million). The
marked decline was due to the full write-down of customer relationships in BCR in 2014.
2,813
The average headcount increased slightly by 1.1% to 46,496
(45,996).
Cross-guarantee savings bank
Net impairment loss on financial assets not measured
at fair value through profit or loss (net)
Net impairment loss on financial assets declined to EUR 729.1
million (EUR 2,083.7 million). This development was attributable in particular to the decline in the balance of the allocation and
release of provisions for the lending business together with the
costs of direct loan write-offs offset by income received from the
recovery of loans already written off to EUR 666.5 million (EUR
2,044.9 million). The main drivers were declining risk costs in
Austria as well as lower risk costs plus substantial recoveries of
receivables previously written off in Romania after the recognition of extraordinarily high risk provisions in 2014. Consequently, net impairment loss on financial assets not measured at fair
value through profit or loss, based on the average volume of gross
customer loans, improved significantly to 56 basis points (163
basis points). In addition, this line item included a net impairment
loss on held-to-maturity and available-for-sale financial assets in
the amount of EUR -62.6 million (EUR -38.8 million).
Other operating result
The non-recurrence of high negative one-off effects had a positive impact on other operating result, which came in at EUR
-635.6 million (EUR -1,752.9 million). The comparative period
had been affected by substantial write-offs: goodwill write-downs
in the total amount of EUR 475.0 million (thereof EUR 319.1
million in Romania, EUR 61.4 million in Croatia and EUR 94.5
million in Austria). In addition, EUR 489.8 million were written
off in Romania for customer relationships and brand.
Other operating result also included expenses of EUR 336.8 million resulting from a consumer loan law passed by the Hungarian
parliament. The negative net impact of the law and the conversion
of the foreign-currency loans was EUR 312.2 million.
19
Levies on banking activities declined to EUR 236.2 million (EUR
256.3 million). In Hungary, banking levies of EUR 84.0 million
(EUR 94.2 million) included banking tax of EUR 46.2 million
(EUR 47.9 million) and a financial transaction tax of EUR 37.8
million (EUR 46.3 million). Banking levies charged in Austria
amounted to EUR 128.6 million (EUR 130.5 million) and in
Slovakia – after a substantial reduction – to EUR 23.6 million
(EUR 31.5 million).
Other operating result also comprises the allocation/release of
other provisions, including for commitments and guarantees
given, in the amount of EUR 306.0 million (EUR 73.8 million).
This includes provisions in the amount of EUR 129.5 million for
losses resulting from legislation requiring the conversion of
customer loans (Swiss francs to euro) in Croatia as well as EUR
101.6 million for risks related to Romanian consumer protection
claims. In the comparative period, other operating result had
mainly reflected provisions in the amount of EUR 336.8 million
recognised after a consumer loan law had been passed in Hungary. Provisions for commitments and guarantees given amounted
to EUR 63.0 million.
This line item also includes contributions to the national resolution fund payable in 2015 for the first time in the amount of EUR
51.3 million. Impairments of own properties and repossessed
assets of EUR 36.3 million also had a negative impact on this
position.
Profit/loss for the year
The pre-tax result from continuing operations amounted to EUR
1,639.1 million (EUR -727.7 million). Due to the good risk development in Austria and the turnaround in Romania, the minority
charge increased significantly to EUR 307.0 million (EUR 133.4
million). The net result attributable to owners of the parent rose to
EUR 968.2 million (EUR -1,382.6 million).
Balance sheet development
Total assets increased to EUR 199.7 billion (EUR 196.3 billion), driven mainly by the increase in customer lending volume,
with loans and receivables to customers (net) rising to EUR 125.9
billion (EUR 120.8 billion). Within liabilities, customer deposits
rose to EUR 127.9 billion (EUR 122.6 billion). Total risk, i.e.
risk-weighted assets including credit, market and operational risk,
(Basel 3 phased-in) decreased to EUR 98.3 billion (EUR 100.6
billion).
The cash and cash balances amounting to EUR 12.4 billion (EUR
7.8 billion) are a sign of good liquidity.
Trading and investment securities held in various categories
of financial assets were down at EUR 47.5 billion (EUR 50.1
billion), with declines posted in the line items financial assets –
available for sale and financial assets – held for trading (in the
derivatives position).
Loans and receivables to credit institutions (net) decreased
to EUR 4.8 billion (EUR 7.4 billion). Loans and receivables to
customers (net) rose to EUR 125.9 billion (EUR 120.8 billion),
driven by higher volumes in Slovakia, the Czech Republic and
Austria (Erste Bank Oesterreich and Savings Banks).
Loans and advances to customers, structure and
trend, in EUR million
150,000
134,750
131,928
120,000
119,945
120,834
2013
restated
2014
restated
125,897
90,000
60,000
Tax situation
Pursuant to section 9 of the Austrian Corporate Tax Act
(“KStG”), Erste Group Bank AG and its main domestic subsidiaries constitute a tax group. Due to the high proportion of taxexempt income – particularly income from participating interests
– and tax payments for the permanent establishments abroad, no
Austrian corporate income tax was payable in fiscal year 2015.
The current tax loss carried forward increased in 2015.
30,000
0
2011
Public sector
2012
Commercial customers
2015
Private customers and others
Allowances for loans and receivables to customers de-
Taxes on income are made up of current taxes on income calculated in each of the Group companies based on the results reported for tax purposes, corrections to taxes on income for previous
years, and the change in deferred taxes. In 2015, the reported total
income tax expense amounted to EUR 363.9 million (2014: EUR
521.5 million).
clined to EUR 6.0 billion (EUR 7.5 billion), reflecting the steady
improvement in asset quality.
Intangible assets stood at EUR 1.5 billion (EUR 1.4 billion).
Miscellaneous assets declined to EUR 7.7 billion (EUR 8.6
billion).
Financial liabilities – held for trading were lower at EUR 5.9
billion (EUR 7.7 billion), primarily as a result of a decrease in the
line item derivatives.
20
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Balance sheet structure/liabilities and total equity
in EUR million
250,000
210,006
214,071
200,118
200,000
199,743
196,287
150,000
100,000
As of 2014, Erste Group has calculated consolidated regulatory
capital according to Basel 3. The calculation follows the requirements as defined by the capital requirements regulation (CRR)
taking into consideration transitional provisions as defined in the
Austrian CRR Supplementary Regulation. These transitional
provisions define the percentages applicable to eligible capital
instruments and regulatory deduction items as well as filters. The
total capital ratio (Basel 3 phased-in) in relation to the total risk
(total eligible qualifying capital in relation to total risk pursuant to
CRR) was 17.9% (15.7%), well above the legal minimum requirement (8%).
50,000
Solvency ratio and common equity tier 1 capital ratio in %
0
2011
2012
restated
2013
restated
2014
Basel 3
Basel 2.5
2015
20
Deposits by banks
Customer accounts
Debt securities in issue
Total equity and other liabilities
17.9
15.5
16.3
15.7
14.4
15
Deposits from banks declined to EUR 14.2 billion (EUR 14.8
billion). Deposits from customers were up at EUR 127.9
billion (EUR 122.6 billion). The loan-to-deposit ratio stood at
10
11.2
11.4
2012
2013
12.3
10.6
9.4
98.4% (98.6%).
5
Debt securities in issue, mainly bonds, declined to EUR 29.7
billion (EUR 31.1 billion). Miscellaneous liabilities rose to
EUR 7.3 billion (EUR 6.6 billion).
0
2011
Solvency ratio
Erste Group’s total equity increased to EUR 14.8 billion (EUR
13.4 billion). Common equity tier 1 capital (CET 1, Basel 3
phased-in) rose to EUR 12.1 billion (EUR 10.6 billion); total
own funds (Basel 3 phased-in) improved to EUR 17.6 billion
(EUR 15.8 billion). Total risk (risk-weighted assets including
credit, market and operational risk, Basel 3 phased-in) declined to
EUR 98.3 billion (EUR 100.6 billion).
Common equity tier 1 capital (CET 1) according to CRR
in EUR million
Basel 2.5
15,000
11,848
10,681
Basel 3
12,133
11,199
2014
2015
Common equity tier 1 capital ratio
In Basel 2.5: Core tier-1 capital. Basel 3 values are based on CRR transitional rules.
EVENTS AFTER BALANCE SHEET DATE
There were no significant events after the balance sheet date.
RISK MANAGEMENT
With respect to the explanations on substantial financial and nonfinancial risks at Erste Group as well as the goals and methods of
risk management, we would like to draw the reader’s attention to
the information in Notes 44, 45 and 50 to the consolidated financial statements.
10,623
RESEARCH AND DEVELOPMENT
10,000
5,000
0
2011
2012
2013
Common equity tier 1 capital (CET 1)
In Basel 2.5: Core tier-1 capital.
2014
2015
Erste Group does not engage in any research activities pursuant to
section 243 (3) no. 3 UGB, but in 2015 development costs in the
amount of EUR 87 million (EUR 50 million) were capitalised in
connection with software developed in-house. In order to drive
improvements for retail customers and in the ongoing services,
Erste Group Bank AG launched the Innovation Hub in 2012. Its
purpose is to initiate and coordinate across-the-board initiatives
with a strong focus on ”real customer experiences”. As a multidisciplinary team consisting of marketing, product and IT as well
Basel 3 values are based on CRR transitional rules.
21
as design experts, the Innovation Hub is tasked with creating
innovations and managing new programme initiatives.
CORPORATE SOCIAL RESPONSIBILITY
As one of the leading banks in Austria and the eastern part of the
EU, Erste Group has committed itself to strict ethical standards
for all the activities it carries out in its markets. Almost 200 years
ago, the very founding concept of Erste österreichische SparCasse already embraced the idea of contributing to the common
good. It goes without saying that Erste Group Bank AG acts
responsibly towards customers, employees, investors and communities. This is why Erste Group Bank AG has brought in a
wide variety of measures.
Adhering to laws and international initiatives against bribery and
corruption is common practice. Measures are implemented to
fulfil this responsibility, such as a documentation and approval
tool for gifts and a Whistleblowing Office. The Erste Integrity
Line encourages lawful, fair behaviour and enables all employees
to report cases of suspicious misconduct.
Commitment to society
Erste Group has always supported social, cultural, educational
and sports projects, such as Erste Bank Oesterreich’s MehrWERT
sponsorship programme.
Social activities
Erste Group’s social commitment is marked by its long-term
cooperation with local and international organisations providing
practical and swift assistance to people in difficult life situations.
Erste Bank Oesterreich, for instance, has been a partner of Caritas
for many years. Since 2003 Erste Bank Oesterreich, the savings
banks and s Bausparkasse have sponsored Hilfswerk Österreich,
one of the largest non-profit providers of health care, social and
family services in Austria. Additionally, Erste Bank Oesterreich
has also supported the aid organisation lobby.16, which works to
protect the right to education of unaccompanied young refugees
and give them access to education, employment and participation
in social life. Banca Comercială Română operates a platform for
no-fee donations, which promotes approximately 300 listed nongovernmental organisations (NGOs). Approximately 90 projects
and initiatives were supported through partial financing in Serbia
in 2015. Slovenská sporiteľňa continued its support for projects
that create new jobs in sheltered workplaces and for organisations
that work with handicapped people. Young people from children’s
homes have obtained scholarships under a project called Success
through Education.
Arts and culture
Erste Group is dedicated to supporting an understanding of and
appreciation for the arts and culture. One of the cornerstones of
the activities is to enable young and socially disadvantaged people to find access to music and to the performing or the applied
arts. Promoting young talents is another focus of Erste Group’s
22
arts and culture sponsorship programme. Erste Bank Oesterreich
is the main sponsor of the Viennale film festival and Jeunesse,
which supports young artists and the development of innovative
concepts for sharing music. Česká spořitelna is the most dedicated long-term promoter of music in the Czech Republic. The
portfolio includes the biggest multi-genre festivals – Colours of
Ostrava and United Islands. Česká spořitelna is also a patron of
Česká filharmonie, the Czech Philharmonic orchestra. Projects
focusing on social design were financed as part of the Vienna
Design Week in 2015. In addition, a number of music festivals
and art projects have been promoted in Hungary, Slovakia, Serbia
and Croatia.
Financial education
A good understanding of money and finance is of the utmost
importance, because it enables individuals and households to
improve and secure their economic situation. Financial ignorance
limits social, economic and cultural life, which might become a
risk to the individual but also creates problems for communities,
countries and society in general. Erste Group believes that
knowledgeable and financially educated customers are more
likely to make sound appropriate financial decisions. Financially
secure individuals and families will contribute positively to
communities and foster economic growth and development.
Therefore, Erste Group has been engaged in financial education
activities for many years.
A new project is the Financial Life Park (FLiP), a museum and
learning trail focusing on personal finance and basic economics.
The main target group are school classes starting from primary
school. The FLiP, located in the newly built Erste Campus in
Vienna, Erste Group’s headquarters, will open its doors in autumn
2016.
Erste Group also offers workshops in the fields of financial education and debt prevention, especially for younger people. Large
amounts of school and practice materials can be downloaded
from the platform www.geldundso.at, which was developed together with youths. The local banks in the Czech Republic, Hungary and Slovakia support similar education projects.
Corporate volunteering
Erste Group encourages its employees to show social commitment through various initiatives. Thus, the number of participants
in the Time Bank initiative, which was launched in 2012 and in
which employees dedicate some of their free time to social projects, is growing steadily. A broad range of social projects, such
as the renovation of social institutions or support for homeless
people, are supported across the group. Employees of Česká
spořitelna receive two free days for the support of social projects
as part of its Charity Days. The other local banks of Erste Group
also support several similar initiatives.
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In addition to former branch premises at Europaplatz in Vienna,
Erste Group also made available unused space at Erste Campus as
emergency shelter for refugees.
Customers
Erste Group puts customers and their interests at the centre of its
business activities. Only banks that understand the financial
needs of their customers can offer the right solutions at the right
time. Special attention is devoted to the quality of products and
advisory services, as these are key factors for customer satisfaction and, therefore, for building up and maintaining long-term
customer relationships. The focus of Erste Group is clearly on the
relationship with the customer, not on the transaction.
Erste Group believes that, despite technological progress, personal contact with customers remains important. This is why the
modern branch network of Erste Group remains a key element of
its banking business. Customers of Erste Group who require
complex long-term financial services expect sound advice. The
combination of digital channels and traditional sales approaches
enables customer relationship managers to explore customer
needs even more proactively. Accessibility, transparency and
comprehensibility of product information are top priorities. As a
result, the range of multilingual consultation services is constantly expanding. Each branch of Erste Bank Oesterreich features an
ATM machine with braille, and the number of barrier-free
branches is increasing across the group.
Customer retention based on high levels of satisfaction ensures
the bank’s long-term success. The Customer Experience Index
(CXI) is assessed in all Erste Group countries, based on representative and comprehensive surveys. This index also serves as a
bonus criterion for management board members.
In 2015, the main focus of financial inclusion was again on micro
banking and social enterprise financing. Erste Group’s local
banks offer micro-financing models. Good.bee Credit provides
development-oriented financial products for small businesses and
the self-employed in Romania. Start-ups are also supported
through micro-loans in Serbia, Croatia, Slovakia and Austria that
target the financing of social enterprises.
Suppliers
Erste Group’s suppliers must fulfil strict standards in order to
preserve the sustainable business principles. Covering the
entire supply chain, Erste Group Procurement is the sourcing
and procurement company of Erste Group. Its basic objective
is to ensure clear and fair sourcing and procurement activities
and contracts. In addition to governance issues such as trade
ethics, conflicts of interest, bribery and stakeholder commitment, the supplier audit requires responses to questions on
sustainability and social topics such as child labour, and health
and safety.
Employees
Retaining experienced and committed employees is fundamental to the long-term success of every company. Erste Group – as
one of the largest employers in the region – therefore aims to
maintain its position as an employer of choice in Central and
Eastern Europe. The appointment of a Group Diversity Manager
underlines the importance of diversity for Erste Group. In 2015,
the management board of the Holding and the employees’ council signed a company agreement on preventing discrimination
and promoting respectful behaviour in the workplace. An AntiDiscrimination Officer was appointed at the end of 2015; this
person works with management on awareness and prevention
and councils, advises and mediates in matters concerning harassment and discrimination. Further to that, Erste Group signed
the Nestor Gold Charter on generation management in October
2015.
Erste Group regards supporting the development of its employees’ professional and social skills as a top priority to ensure that
the employees are well prepared to act professionally and in a
socially responsible manner. The Erste Leadership Evolution
Centre structures group-wide leadership development offerings.
Erste Group also offers university graduates a very attractive
career start with its Group Graduate Programme.
The focus of the remuneration policy is on an appropriate balance in rewarding the performance, competence and level of
responsibility of the employees and keeping a sustainable personnel cost base. Erste Group offers competitive, but not market-leading, compensation packages. The remuneration schemes
are designed according to the CRD IV requirements on remuneration, ESMA guidelines (European Securities and Markets
Authority) and local bank laws. Erste Group is committed to a
proactive approach towards helping its employees to identify
and manage health risk. Therefore, a multi-professional team of
occupational physicians, industrial psychologists and physiotherapists assists the employees in any matters of health and
well-being.
Environment
Environmental issues affect everyone’s life. An Environmental
Steering Committee consisting of the CEO and COO of Erste
Group Bank AG and the Head of Group Environmental Management was set up to monitor the group-wide implementation of the
environmental strategy.
To improve its ecological footprint, Erste Group introduced farreaching measures to reduce electric energy, heating energy, copy
paper and CO2 emissions. A wide variety of energy-saving programmes has been implemented in all local banking subsidiaries.
In addition, group-wide criteria for choosing heating and electric
energy providers based on their use of renewable energies have
been defined. Erste Campus, the new headquarters in Vienna, has
been awarded preliminary DGNB Gold certification by the Austrian Society for Sustainable Real Estate (ÖGNI), and Erste Asset
23
Management was the first Austrian investment funds company to
sign the Montréal Carbon Pledge.
The Corporate governance report is part of the annual report of
Erste Group (www.erstegroup.com/investorrelations).
CAPITAL, SHARE, VOTING AND CONTROL
RIGHTS
Disclosures pursuant to
section 243a (1) UGB (Austrian Commercial Code)
With regard to the statutory disclosure requirements related to the
composition of the capital as well as the class of shares, special
reference is made to note 36 in the consolidated financial statements.
As of 31 December 2015, DIE ERSTE oesterreichische SparCasse Privatstiftung (“Privatstiftung”), a foundation, controlled
together with its partners to shareholder agreements approximately 29.17% of the shares in Erste Group Bank AG and was the
controlling shareholder with 12.88% of the shares. The Privatstiftung held 9.22% of the shares directly, the indirect participation
of the Privatstiftung amounted to 3.66% of the shares were held
by Sparkassen Beteiligungs GmbH & Co KG, which is an affiliated undertaking of the Privatstiftung. 3.30% were hold by Austrian savings banks and saving banks foundations acting together
with the Privatstiftung and affiliated with Erste Group Bank AG
through the Haftungsverbund. 9.92% of the subscribed capital
was controlled by the Privatstiftung on the basis of a shareholder
agreement with Caixabank S.A., 3.08% were held by other partners to other shareholder agreements.
Furthermore, it should be noted that Erste Group Bank AG – just
as nearly all Austrian savings banks – is a member of the Haftungsverbund of Sparkassengruppe. Sparkassengruppe sees itself
as an association of independent, regionally established savings
banks that strives to bolster its market position by strengthening
common product development, harmonising its market presence
and advertising concepts, pursuing a common risk policy, engaging in co-ordinated liquidity management and applying common
controlling standards.
In addition, the purpose of this scheme is:
_ to identify any business issues of its member banks at an early stage and to provide effective assistance to its members in
the resolution of business issues – this can range from offering technical assistance or giving guarantees to providing
borrowed or qualifying capital, and
_ to provide customers with a deposit guarantee system that
goes beyond the legal deposit guarantee requirement (section
93 et seq. of the Austrian Banking Act (“BWG”), which only
guarantees certain types of customer deposits, by creating a
suitable obligation to service the liabilities of other participating savings banks if the need arises.
24
Haftungsverbund GmbH is responsible for implementing such
measures and analysing the business situation of every member
bank of the Haftungsverbund. Overall, the participating savings
banks hold a maximum stake of 49% (assuming all savings banks
participate) in Haftungsverbund GmbH and Erste Group Bank
AG always holds a minimum stake of 51%.
As required by the BWG, individual members of the Haftungsverbund may need to provide assistance to other members (by
giving liquidity assistance, granting loans or guarantees and
providing equity capital, for instance), and, in any other protection case (insolvency) to service the guaranteed customer deposits
of a Haftungsverbund member. The scope of the individual services to be provided by individual Haftungsverbund members
where needed is subject to an individual and general maximum
limit. Any contributions made by Haftungsverbund members
under the statutory deposit guarantee system pursuant to section
93 et seq. BWG are likewise counted in. The corresponding
amounts are determined by Haftungsgesellschaft and communicated to members liable for contributions.
In 2013, collaboration with savings banks was further strengthened by way of an additional agreement. The purpose of the
agreement concluded in 2013 and effective as of 1 January 2014
is not only to broaden the regulatory options available to Erste
Group Bank AG but also to ensure compliance with point 127 of
Article 4 (1) (1) CRR and Article 113 (7) CRR with a view to
allowing recognition of minority interests at consolidated level in
acc. with Article 84 (6) CRR. Savings banks that are party to the
agreement concluded in 2013 also include Allgemeine Sparkasse
Oberösterreich, which forms an institutional protection scheme as
defined under Article 113 (7) CRR with the other members of the
Haftungsverbund. Owing to the new legal and supervisory requirements, the maximum limits for support mechanisms of the
individual members were raised and an ex ante fund was set up.
Payments to the ex ante fund are made on a quarterly basis over a
period of 10 years. In the financial statements, the payments by
the individual members are recognised as participations in IPS
GesbR – which has been charged with managing the ex ante fund.
There was a shift in retained earnings from untied reserves to tied
reserves. On the basis of the contractual provisions, these retained
earnings represent a tied reserve. These tied retained earnings
may be released only if the ex ante fund is used due to a contingency. Internally, this reserve may therefore not be used to cover
a loss and, at member level, it does not qualify as capital under
the definition of CRR; on a consolidated level, however, the ex
ante fund qualifies as capital.
Additional disclosures pursuant to
section 243a (1) UGB
All restrictions on voting rights or the transfer of shares, even if
they are included in agreements between shareholders, insofar as
they are known to the management board pursuant to section
243a (1) no. 2 UGB:
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In shareholder agreements, the Privatstiftung agreed with its
partners the following: concerning the appointment of the members of the supervisory board, the partners are obliged to vote as
required by the Privatstiftung. The partners can dispose of shares
according to a predefined sale procedure and can purchase shares
only within the quotas agreed with the Privatstiftung (of in total a
maximum of 2% within 12 months); with this regulation an unwanted creeping-in according to the Takeover Act shall be prevented. In addition, the partners have committed themselves not
to make a hostile takeover bid, nor to participate in a hostile
takeover bid, nor to act together with a hostile bidder in any other
way.
Under article 15.1 of the articles of association, for the duration
of its assumption of liability for all current and future debts in the
event of their default on payment, the Privatstiftung is entitled,
pursuant to section 92 (9) of the Austrian Banking Act, to delegate up to one-third of the supervisory board members to be
elected at the annual general meeting. Until now, the Privatstiftung has not exercised this right.
Art. 15.4 of the Articles of Association concerning the appointment and dismissal of members of the management board and the
supervisory board is not directly prescribed by statutory law: a
three-quarter majority of valid votes cast and a three-quarter
majority of the subscribed capital represented at the meeting
considering the proposal are required to pass a motion for removal of supervisory board members. The Articles of Association
contain no restrictions in respect of voting rights or the transfer of
shares. Art. 19.9 of the Articles of Association concerning
amendments to the Articles of Association contains a provision
that is not prescribed directly by statutory law: amendments to the
Articles of Association, in so far as they do not alter the business
purpose, may be passed by a simple majority of votes cast and a
simple majority of the subscribed capital represented at the meeting considering the amendment. Where higher majority votes are
required by individual provisions of the Articles of Association,
these provisions can only be amended with the same higher majority vote. Moreover, amendments to Art. 19.9 require a threequarter majority of the votes cast and a three-quarter majority of
the subscribed capital represented at the meeting considering the
proposal.
Additional disclosures pursuant to
section 243a (1) no. 7 UGB
Pursuant to the following provisions, members of the management board have the right to repurchase shares, where such a
right is not prescribed by statutory law.
As per decision of the annual general meeting of 12 May 2015:
_ the management board is entitled to purchase up to 10% of
the subscribed capital in treasury shares for trading purposes
according to section 65 (1) no. 7 Austrian Stock Corporation
Act (”AktG”). However, the trading portfolio of these shares
may not exceed 5% of the subscribed capital at the end of any
calendar day. The consideration for the shares to be purchased
must not be less than 50% of the closing price at the Vienna
Stock Exchange on the last trading day prior to the purchase
and must not exceed 20% of the closing price at the Vienna
Stock Exchange on the last trading day prior to the purchase.
This authorisation is valid for a period of 30 months, i.e. until
11 November 2017.
_ the management board is entitled, pursuant to section 65 (1)
no. 8 as well as (1a) and (1b) Stock Exchange Act and for a
period of 30 months from the date of the resolution, i.e. until
11 November 2017, to acquire own shares of up to 10% of the
subscribed capital, subject to approval by the supervisory
board, with the option of making repeated use of the 10%
limit, either at the stock exchange or over the counter, likewise to the exclusion of the shareholders’ right to tender proportional payment. The authorisation may be exercised in
whole or in part or in several instalments and in pursuit of one
or more purposes. The market price per share must not be below EUR 2.00 or above EUR 120.00. Pursuant to section 65
(1b) in conjunction with sec. 171 Stock Corporation Act, the
management board is authorised, from the date of the resolution, i.e. until 11 May 2020, on approval by the supervisory
board, to sell or use the company’s own shares, also by means
other than the stock exchange or a public offering for any
purpose allowed by the law, particularly as consideration for
the acquisition and financing of the acquisition of companies,
businesses, business divisions or shares in one or more businesses in Austria or abroad to the exclusion of the shareholders’ proportional purchase option. The authorisation may be
exercised in whole or in part or in several instalments and in
pursuit of one or more purposes. The management board is
authorised to redeem own shares subject to the supervisory
board’s approval without requiring the annual general meeting to adopt any further resolution.
The management board is authorised until 28 June 2017, with the
consent of the supervisory board, to issue convertible bonds,
which have the conversion or subscription right for shares of the
Company, observing or excluding the subscription rights of the
shareholders. The terms and conditions may, in addition or instead of a conversion or subscription right, also provide for the
mandatory conversion at the end of the term or at any other time.
The issuance of the convertible bonds is limited to the extent that
all conversion or subscription rights, and in case of a mandatory
conversion stipulated in terms and conditions, the mandatory
conversion, are covered by conditional capital. The issue amount,
the terms and conditions of the issue of the convertible bonds and
the exclusion of the subscription rights for the shareholders will
be determined by the management board with the consent of the
supervisory board.
Concerning the authorised and conditional capital we are referring to the information given in note 36 to the consolidated financial statements. All sales and purchases were carried out as authorised at the annual general meeting.
25
Significant agreements pursuant to
section 243 a (1) no. 8 UGB
The following paragraphs list important agreements to which the
company is party, and which become effective, are amended or
are rendered ineffective when there is a change in the control of
the company as a result of a takeover bid, as well as their effects:
Haftungsverbund
The agreement in principle of the Haftungsverbund provides for
the possibility of early cancellation for good cause. Good cause
allowing the respective other contracting parties to cancel the
agreement is deemed to exist if
_ one contracting party harms grossly the duties resulting from
present agreement
_ the ownership structure of a party to the contract changes in
such a way – particularly by transfer or capital increase – that
one or more third parties from outside the savings bank sector
directly and/or indirectly gain a majority of the equity capital
or voting rights in the contracting party or
_ one contracting party resigns from the savings bank sector
irrespective of the reason.
The Haftungsverbund’s agreement in principle and supplementary agreement expire if and as soon as any entity that is not a
member of the savings bank sector association acquires more
than 25% of the voting power or equity capital of Erste Group
Bank AG in any manner whatsoever and a member savings bank
notifies the Haftungsverbund’s steering company and Erste
Group Bank AG by registered letter within 12 weeks from the
change of control that it intends to withdraw from the Haftungsverbund.
Directors and officers insurance
Changes in controlling interests
In the event that any of the following transactions or processes
occur during the term of the insurance policy (each constituting a
“change of control”) in respect of the insured party:
_ the insured party ceases to exist as a result of merger or consolidation, unless the merger or consolidation occurs between
two insured parties, or
_ another company, person or group of companies or persons
acting in concert who are not insured parties, acquire more
than 50% of the insured party’s outstanding equity or more
than 50% of its voting power (giving rise to the right to control the voting power represented by the shares, and the right
to appoint the management board members of the insured
party), then the insurance cover under this policy remains in
full force and effect for claims relating to unlawful acts committed or alleged to have been committed before this change
in control took effect. However, no insurance cover is provided for claims relating to unlawful acts committed or allegedly
committed after that time (unless the insured party and insurer agree otherwise). The premium for this insurance cover is
deemed to be completely earned.
26
In the event that a subsidiary ceases to be a subsidiary during the
insurance period, the insurance cover under this policy shall remain in full force and effect for that entity for the remainder of the
insurance period or (if applicable) until the end of the extended
discovery period, but only in respect of claims brought against an
insured party in relation to unlawful acts committed or alleged to
have been committed by the insured party during the existence of
this entity as a subsidiary. No insurance cover is provided for
claims brought against an insured party in relation to unlawful acts
committed or allegedly committed after this entity ceased to exist.
Cooperation between Erste Group Bank AG and Vienna
Insurance Group (“VIG”)
Erste Group Bank AG and Vienna Insurance Group AG Wiener
Versicherung Gruppe (“VIG”) are parties to a General Distribution
Agreement concerning the framework of the cooperation of Erste
Group and VIG in Austria and CEE with respect to bank and
insurance products. In the event of a change of control of Erste
Group Bank AG, VIG has the right to terminate the General Distribution Agreement, and in the event of a change of control of
VIG, Erste Group Bank AG has a reciprocal right. A change of
control is defined, with respect to Erste Group Bank AG, as the
acquisition of Erste Group Bank AG by any person other than DIE
ERSTE österreichische Spar-Casse Privatstiftung or Austrian
savings banks of 50% plus one share of Erste Group Bank AG’s
voting shares, and with respect to VIG, as the acquisition of VIG
by any person other than Wiener Städtische Wechselseitiger Versicherungsverein-Vermögensverwaltung-Vienna Insurance Group of
50% plus one share of VIG’s voting shares. If VIG elects to terminate the General Distribution Agreement after a change of control
of Erste Group Bank AG has occurred, it may choose to ask for a
reduction of the original purchase price that it and its group companies have paid for the shares in the CEE insurance companies of
Erste Group. The rebate corresponds to the difference between the
purchase price and the embedded value and is reduced to zero on a
linear scale from 26 March 2013 to 16 March 2018.
Erste Group Bank AG and VIG are furthermore parties to an Asset
Management Agreement, pursuant to which Erste Group undertakes to manage certain parts of VIG’s and its group companies’
securities assets. In the event of a change of control (as defined
above), each party has a termination right. If Erste Group Bank
AG elects to terminate the Asset Management Agreement following such a change of control of VIG, because the new controlling
shareholders of VIG no longer support the Agreement, it may
choose to ask for a full refund of the purchase price that it has paid
for 95% of Ringturm Kapitalanlagegesellschaft m.b.H., the asset
management company performing the services under the Asset
Management Agreement. The refund decreases on a linear scale
down to zero from October 2013 to October 2018.
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INTERNAL CONTROL AND
RISK MANAGEMENT SYSTEM
FOR THE GROUP FINANCIAL REPORTING
PROCEDURES
Control environment
The management board is responsible for the establishment,
structure and application of an appropriate internal control and
risk management system that meets the company’s needs in its
group accounting procedures.
The management in each group unit is responsible for implementing
group-wide instructions. Compliance with group rules is monitored
as part of the audits performed by internal and local auditors.
Consolidated financial statements are prepared by the Group
Consolidation department. The assignment of powers, the process
description and the necessary control procedure are defined in the
operating instructions.
Risks relating to the financial reporting procedures
The main risk in the financial reporting procedures is that errors or
deliberate action (fraud) prevent facts from adequately reflecting
the company’s financial position and performance. This is the case
whenever the data provided in the financial statements and notes is
essentially inconsistent with the correct figures, i.e. whenever,
alone or in aggregate, they are apt to influence the decisions made
by the users of financial statements. Such a decision may incur
serious damage, such as financial loss, the imposition of sanctions
by the banking supervisor or reputational harm.
Furthermore, especially estimates for the determination of the fair
value of financial instruments for which no reliable market value
is available, estimates for the accounting of risk provisions for
loans and advances and for provisions, complex measurement
requirements for accounting as well as a difficult business environment bear the risk of significant financial reporting errors.
Controls
Group Accounting and Group Performance Management are
responsible for group reporting and report to Erste Group’s CFO.
Erste Group issues group policies used for preparation of consolidated financial statements in accordance with IFRS. A summary
description of the accounting process is provided in Erste Group’s
IFRS Accounting Manual. All transactions have to be recorded,
posted and accounted for in accordance with the accounting and
measurement methods set out in this manual. The management of
each subsidiary is responsible for the implementation of group
policies. The basic components of the internal control system
(ICS) at Erste Group are:
_ Controlling as a permanent financial/business analysis (e.g.
comparison of target and actual data between Accounting and
Controlling) and control of the company and/or individual
corporate divisions.
_ Systemic, automatic control systems and measures in the
formal procedure and structure, e.g. programmed controls
during data processing.
_ Principles of functional separation and the four-eye principle.
_ Internal Audit – as a separate organisational unit – is charged
with monitoring all corporate divisions in an independent yet
proximate manner, particularly with regard to the effectiveness of the components of the internal control system. The
Internal Audit unit is monitored and/or checked by the management board, the audit committee/supervisory board, by external parties (bank supervisor, in individual cases also by an
external auditor) as well as through audit’s internal quality
assurance measures (self-assessments, peer reviews).
Group Consolidation
The data provided by the group entities is checked for plausibility
by the Group Consolidation department. The subsequent consolidation steps are then performed using the consolidation system
(TAGETIK). These include consolidation of capital, expense and
income consolidation, and debt consolidation. Lastly, possible
intragroup gains are eliminated. At the end of the consolidation
process, the notes to the financial statements are prepared in
accordance with IFRS, BWG and UGB.
The consolidated financial statements and the group management
report are reviewed by the audit committee of the supervisory
board and are also presented to the supervisory board for
approval. They are published as part of the annual report, on Erste
Group’s website and in the Official Journal of Wiener Zeitung
and finally filed with the Commercial Register.
Information and communication
Each year the annual report shows the consolidated results in the
form of a complete set of consolidated financial statements. In
addition, the management summary provides verbal comments on
the consolidated results in accordance with the statutory requirements. Throughout the year, the group produces consolidated
monthly reports for group management. Statutory interim reports
are produced that conform to the provisions of IAS 34 and are
also published quarterly in accordance with the Austrian Stock
Corporation Act. Before publication, the consolidated financial
statements are presented to senior managers and the Chief Financial Officer for final approval and then submitted to the supervisory board’s audit committee.
Reporting is almost fully automated, based on source systems and
automated interfaces, and guarantees up-to-date data for controlling, segment reporting, and other analyses. Accounting information is derived from the same data source and is reconciled
monthly for reporting purposes. Close collaboration between
accounting and controlling permits continual target/actual comparisons for control and reconciliation purposes. Monthly and
quarterly reports to the management board and the supervisory
board ensure a regular flow of financial information and monitoring of the internal control system.
27
Responsibilities of Internal Audit
Internal Audit is in charge of auditing and evaluating all areas of
the bank based on risk-oriented audit areas (according to the
annual audit plan as approved by the management board and
reported to the audit committee). The main focus of audit reviews
is to monitor the completeness and functionality of the internal
control system. Internal Audit has the duty of reporting its findings to the group’s management board, supervisory board and
audit committee several times within one year.
According to section 42 BWG, Internal Audit is a control body
that is directly subordinate to the management board. Its sole
purpose is to comprehensively verify the lawfulness, propriety
and expediency of the banking business and banking operation on
an on-going basis. The mandate of Internal Audit is therefore to
support the management board in its efforts to secure the bank’s
assets and promote economic and operational performance and
thus in the management board’s pursuit of its business and operating policy. The activities of Internal Audit are governed in particular by the currently applicable Rules of Procedure, which were
drawn up under the authority of all management board members
and approved as well as implemented by them. The Rules of
Procedure are reviewed on a regular basis and whenever required,
and adapted should the need arise.
Audit activities of Internal Audit
In its auditing activities, Internal Audit puts a special focus on:
_ operating and business areas of the bank;
_ operating and business processes of the bank;
_ internal bank standards (organisational policies, regulations
on the division of powers, guidelines, etc.) as well as operating instructions, also with regard to their compliance,
up-to-dateness and on-going updates;
_ audit areas stipulated by the law, such as the material accuracy
and completeness of notifications and reports to the Financial
Market Authority and Oesterreichische Nationalbank or the
annual audit of rating systems and their effectiveness.
Internal Audit performs its responsibilities based on its own
discretion and in compliance with the annual audit plan as
approved by the management board. Once approved, the audit
plan is also reported to the audit committee.
28
Vienna, 26 February 2016
Management board
Andreas Treichl mp
Chairman
Peter Bosek mp
Member
Petr Brávek mp
Member
Andreas Gottschling mp
Member
Gernot Mittendorfer mp
Member
Jozef Síkela mp
Member
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Segments
Introduction
details, please see Note 37. Additional information is available in
Excel format at www.erstegroup.com.
Erste Group’s segment reporting is based on IFRS 8 Operating
Segments, which adopts the management approach. Accordingly,
segment information is prepared on the basis of internal management reporting that is regularly reviewed by the chief operating decision-maker to assess the performance of the segments and
make decisions regarding the allocation of resources. Within
Erste Group, the function of the chief operating decision-maker is
exercised by the management board.
Erste Group’s segment reporting is based on the matrix organisation (business and geographical information) and provides comprehensive information to assess the performance of the business
and geographical segments.
The tables and information in this chapter provide a brief overview and focus on selected and summarised items. For more
Operating income consists of net interest income, net fee and
commission income, net trading and fair value result as well as
dividend income, net result from equity method investments and
rental income from investment properties & other operating
leases. The latter three listed items are not separately disclosed in
the tables below. Operating expenses equal the position general
administrative expenses. Operating result is the net amount of
operating income and operating expenses. Risk provisions for
loans and receivables are included in the position net impairment
loss on financial assets not measured at fair value through P&L.
Other result summarises the positions other operating result and
gains/losses from financial assets and liabilities not measured at
fair value through profit or loss. Cost/income ratio is calculated
as operating expenses in relation to operating income. The return
on allocated equity is defined as the net result after tax/before
minorities in relation to the average allocated equity.
Business segments
Erste Group – business segments
Retail
SME
ALM &
Local CC
Savings
Banks
Large
Corporates
The Retail segment comprises the entire business with private
individuals, free professionals and micros in the responsibility of
account managers in the retail network of the local banks cooperating with their specialised subsidiaries (such as leasing and asset
management companies). Retail products and services including
current and savings accounts, mortgage and consumer loans,
investment products, credit cards and cross-selling products such
as leasing, insurance, and building society products are offered
via various distribution channels (branch networks and digital
banking).
Commercial
Real Estate
Other
Corporate
Group
Markets
Group
Corporate
Center
Intragroup
Elimination
The SME segment comprises the business with micros, small and
medium-sized enterprises (SMEs), small public sector companies,
and small financial institutions (e.g. third-party leasing companies) in the responsibility of local corporate account managers.
Local banks cooperate with specialised subsidiaries such as factoring and leasing companies. The turnover threshold for SMEs
varies from country to country within the range of EUR 0.7 million and EUR 75 million.
29
The Asset/Liability Management & Local Corporate Center
(ALM & LCC) segment includes all asset/liability management
functions (local and Erste Group Bank AG) as well as the local
corporate centers which comprise internal service providers that
operate on a non-profit basis and reconciliation items to local
entity results. The corporate center of Erste Group Bank AG is
included in the Group Corporate Center segment.
The Savings Banks segment includes the savings banks that are
members of the Haftungsverbund (cross-guarantee system) of the
Austrian savings banks sector except for Erste Bank Oesterreich,
Tiroler Sparkasse, Salzburger Sparkasse and Sparkasse Hainburg.
The Large Corporates (LC) segment comprises the business
with large corporate customers whose annual turnover exceeds a
defined threshold that starts at EUR 25 million and EUR 75
million respectively, depending on the country.
The Commercial Real Estate (CRE) segment covers the real
estate value chain (lending, leasing, real estate investment, project development and construction services as well as infrastructure business) for corporate clients, project developers, real estate
investors, municipalities and other public sector agencies.
The Other Corporate segment consists of two operating segments – International Business and Investment Banking – that are
below the threshold criteria defined by IFRS 8. International
Business comprises all lending and investing activities outside
Erste Group’s core markets (including the branches in London,
Hong Kong and New York) and is responsible for business development with and credit line management for banks and nonbanking financial institutions. Investment Banking covers equityrelated business focusing mainly on corporate finance, equity
capital markets services, equity brokerage (institutional sales) and
merchant banking.
The Group Markets (GM) segment comprises the divisionalised
business units Group Treasury and Capital Markets (except Equity
Capital Markets) and includes the treasury activities of Erste
Group Bank AG, the CEE subsidiaries, foreign branch offices in
Hong Kong, New York, Berlin and Stuttgart as well as the business with institutional clients of Erste Asset Management. The
focus is on client-oriented business with institutional clients.
Group Markets is the internal trading unit for all classic treasury
(such as FX, commodities and money market) and capital market
products (such as bonds, interest rate derivatives, credit products).
The Group Corporate Center (GCC) segment covers mainly
centrally managed activities and items that are not directly allocated to other segments. It comprises the corporate center of Erste
Group Bank AG (and thus dividends and the refinancing costs
from participations, general administrative expenses), internal
non-profit service providers (facility management, IT, procurement), amortisation/write-down of customer relationships and
brand, goodwill impairments, the banking tax of Erste Group
Bank AG as well as free capital of Erste Group (defined as the
difference between the total average IFRS equity and the average
economic equity allocated to the segments).
Comparative figures for 2014 contained several one-off effects
that did not recur in 2015. Thus, in 2014 the write-down of the
entire remaining value of customer relationships and brand in
Romania totaled EUR 470.7 million. Goodwill impairments
amounted to EUR 475.0 million, whereby Romania accounted for
EUR 319.1 million, Croatia for EUR 61.4 million and Austrian
participations for EUR 94.5 million.
Intragroup Elimination (IC) is not defined as a segment but is
the reconciliation to the consolidated accounting result. It includes all intragroup eliminations between participations of Erste
Group (e.g. intragroup funding, internal cost charges). Intragroup
eliminations within partial groups are disclosed in the respective
segments.
RETAIL
Financial review
in EUR million
Net interest income
Net fee and commission income
Net trading and fair value result
Operating income
Operating expenses
Operating result
Cost/income ratio
Net impairment loss on financial assets not measured at fair value through profit or loss
Other result
Net result attributable to owners of the parent
Return on allocated capital
The rise in net interest income was driven by increased loan and
deposit volumes in Austria, accompanied by a repricing of deposits, higher loan volumes in Slovakia as well as increasing mort-
30
2014
2015
Change
2,175.1
1,050.3
59.8
3,317.4
-1,814.3
1,503.1
54.7%
-671.7
-393.2
271.7
13.6%
2,207.7
1,029.1
56.1
3,329.8
-1,856.4
1,473.4
55.8%
-289.7
-277.5
714.6
33.5%
1.5%
-2.0%
-6.3%
0.4%
2.3%
-2.0%
-56.9%
-29.4%
>100.0%
gage loan and current account volumes in the Czech Republic.
These developments more than offset lower contribution from the
lending business in Romania and Hungary. Net fee and commis-
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sion income decreased primarily due to lower current account,
cards and lending fees in the Czech Republic. Increased asset
management and securities fees in Austria partially mitigated this
impact. Net trading and fair value result was negatively impacted
by the one-year Swiss franc exchange rate fixing for retail loans
required by the legislation in Croatia in January 2015. Operating
expenses increased due to the integration of new entities in Austria
as well as due to higher expenses in Austria and Romania. Operating result declined, the cost/income ratio went up. The significant
improvement of net impairment loss on financial assets not measured at FV through profit and loss was driven by lower risk costs
in Romania, where the previous year included high provisions in
connection with the accelerated NPL reduction, while risk costs in
Hungary went up mostly due to method effects. Other result improved significantly due to the non-recurrence of one-time effects,
namely expenses related to the Hungarian consumer loan law in
the amount of EUR 304.4 million. The improvement was partially
offset by provisions for risks related to Romanian consumer protection claims. Overall, the net result attributable to the owners of
the parent improved substantially.
Credit risk
Credit risk exposure in the Retail segment rose strongly to EUR
54.3 billion (+5.1%). The customer loan portfolio increased to
EUR 48.8 billion (+EUR 1.7 billion). The share of the retail
business in Erste Group’s total customer loans was up slightly at
37.0% (36.7%). The collateralisation ratio, which reflects the
ratio of collateral to loan volume, stood at 62.8%.
The quality of the retail customer loan portfolio improved again
significantly. Non-performing loans as a percentage of total retail
customer loans decreased to 5.3% (6.3%). Measured by the NPL
ratio, this segment continued to feature the highest quality of all
business segments with a significant loan portfolio. In addition to
a decline in non-performing loans by EUR 340 million, there was
also a major migration of performing loans to better risk classes.
The share of low-risk loans as a percentage of total retail customer loans rose to 84.4% (81.7%).
SME
Financial review
in EUR million
Net interest income
Net fee and commission income
Net trading and fair value result
Operating income
Operating expenses
Operating result
Cost/income ratio
Net impairment loss on financial assets not measured at fair value through profit or loss
Other result
Net result attributable to owners of the parent
Return on allocated capital
Net interest income remained stable due to higher loan volumes
in Austria offsetting the re-allocation of a part of the Erste Factoring portfolio in Croatia to the Large Corporate segment. Net fee
and commission income decreased mainly in the Czech Republic.
Net trading and fair value result improved as a result of positive
credit value adjustments in the Czech Republic. Operating expenses went up due to higher costs in subsidiaries; the
cost/income ratio rose. Net impairment loss on financial assets
not measured at FV through profit and loss improved substantially on the back of lower risk provisions in Romania and Austria.
Other result deteriorated mainly due to the non-recurrence of oneoff insurance income in Austria. Net result attributable to the
owners of the parent improved significantly.
Credit risk
In the SME business segment, total credit risk exposure declined
to EUR 25.2 billion (-2.3%). This development was mainly at
2014
2015
Change
569.4
198.4
31.9
832.7
-292.8
539.9
35.2%
-461.1
0.6
50.4
3.6%
570.2
190.3
34.8
826.0
-306.9
519.1
37.2%
-187.4
-31.1
230.9
19.6%
0.1%
-4.1%
8.9%
-0.8%
4.8%
-3.9%
-59.4%
n/a
>100.0%
tributable to the transfer of larger SME clients to the Large Corporates segment towards the end of the year. The volume of loans
to customers also decreased to EUR 20.6 billion at year-end.
Measured as a percentage of total loans to customers of Erste
Group, the share of SMEs declined to 15.6% (16.5%). 46%
(50%) of the loans were secured by collateral.
Credit quality in the SME segment improved further. Supported
by write-downs and sales on the secondary market as well as by a
decrease in new bad loans, the portfolio of non-performing loans
fell by EUR 470 million to EUR 1.8 billion. The NPL ratio
dropped by 1.9 percentage points year on year to 8.8% at yearend. The development of credit risk loss provisions was also
positive. The NPL coverage ratio rose to 72.1% (64.3%). Including collateral for defaulted loans, the coverage ratio stood at
109.3% at year-end.
31
ASSET/LIABILITY MANAGEMENT & LOCAL CORPORATE CENTER
Financial review
in EUR million
Net interest income
Net fee and commission income
Net trading and fair value result
Operating income
Operating expenses
Operating result
Cost/income ratio
Net impairment loss on financial assets not measured at fair value through profit or loss
Other result
Net result attributable to owners of the parent
Return on allocated capital
Net interest income declined considerably mainly due to lower
ALM contribution on the back of an unfavourable yield curve
development. The increase in net fee and commission income
was primarily related to a positive impact from lower fee expenses in the Czech Republic. Net trading and fair value result deteriorated substantially due to negative impacts from the yield curve
2014
2015
Change
164.7
-65.3
24.7
184.6
-112.9
71.8
61.1%
1.2
-214.2
-174.8
-9.9%
4.8
-45.8
-53.1
-47.3
-90.9
-138.2
>100.0%
-13.9
-116.0
-204.5
-11.7%
-97.1%
-29.9%
n/a
n/a
-19.5%
n/a
n/a
-45.9%
17.0%
development, hedging and FX effects. The reduction in operating
expenses was mainly attributable to lower costs in Romania and
Austria. Overall, operating result deteriorated. Other result improved especially due to some non-recurring negative effects
booked in 2014 in Romania and Hungary. The net result attributable to the owners of the parent decreased.
SAVINGS BANKS
Financial review
in EUR million
Net interest income
Net fee and commission income
Net trading and fair value result
Operating income
Operating expenses
Operating result
Cost/income ratio
Net impairment loss on financial assets not measured at fair value through profit or loss
Other result
Net result attributable to owners of the parent
Return on allocated capital
The increase in net interest income was attributable to loan growth
and the repricing of deposits due to the persistent low interest rate
environment. Net fee and commission income improved due to
higher fees from securities business and payment services. Net
trading and fair value result increased driven by the valuation
effects of derivatives. Operating expenses went up due to the
increase of payments into deposit insurance funds to EUR 12.2
million (EUR 1.3 million) as well as higher personnel and IT
expenses. Operating result increased while the cost/income ratio
remained stable. Net impairment loss on financial assets not
measured at FV through profit and loss decreased considerably on
the back of a benign risk environment. Other result improved as
the payment into the recovery & resolution fund in the amount of
EUR 8.0 million was more than offset by valuation effects, lower
provisions for contingent credit risk liabilities as well as higher
selling gains for securities. Banking tax decreased slightly to
EUR 15.0 million (EUR 15.9 million). Overall, the net result
attributable to owners of the parent increased.
32
2014
2015
Change
891.8
419.3
1.1
1,379.0
-932.1
446.9
67.6%
-199.4
-15.4
18.4
9.0%
926.4
439.3
3.1
1,432.0
-966.0
466.0
67.5%
-83.6
6.3
40.2
16.9%
3.9%
4.8%
>100.0%
3.8%
3.6%
4.3%
-58.1%
n/a
>100.0%
Credit risk
Total credit risk exposure in the Savings Banks segment increased
to EUR 55.1 billion (53.9 billion) while loans to customers advanced to EUR 39.3 billion (+2.0%). Their share in total customer loans amounted to 29.8% at year-end. In the distribution of
borrowers by customer segments there was a further shift from
medium-sized and large enterprises as well as from the public
sector to retail customers, with robust growth primarily in private
households. Lending to professionals, other self-employed persons and small businesses expanded at 2.0%, the same rate as the
total portfolio. At 17.0% of total loans, the share of this customer
segment is significantly larger than at Erste Group’s subsidiaries
in Central and Eastern Europe. This reflects the structure of Austria’s economy with a very high share of small and medium-sized
enterprises compared with other countries.
Despite the Swiss franc’s strong appreciation versus the euro
(+11.0%), Swiss franc denominated foreign-currency loans declined further to EUR 3.6 billion (-EUR 397 million). The trend
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towards higher collateralisation of loans continued. The quality of
the loan portfolio continued to be very solid. Non-performing
loans as a percentage of total loans to customers decreased by 0.7
percentage points to 5.6%. This development was especially
positive among corporate customers.
LARGE CORPORATES
Financial review
in EUR million
Net interest income
Net fee and commission income
Net trading and fair value result
Operating income
Operating expenses
Operating result
Cost/income ratio
Net impairment loss on financial assets not measured at fair value through profit or loss
Other result
Net result attributable to owners of the parent
Return on allocated capital
Net interest income increased as a result of the reallocation of a
part of the Erste Factoring portfolio in Croatia to the Large Corporates segment (shown fully in the SME segment in 2014)
which, together with higher volumes and margins in the Slovak
Large Corporates portfolio, more than offset the lower income
attributable to unwinding effect and lower margins in Romania.
Net fee and commission income decreased mostly due to lower
fees in the Czech portfolio, lower guarantee fees in Austria and
lower cash management fees in the Hungarian portfolio. Net
trading and fair value result improved due to fixed income derivative business and positive credit value adjustments in Austrian
and Czech portfolios. Operating result increased despite an increase in operating expenses, while cost/income ratio deteriorated. Net impairment loss on financial assets not measured at FV
through profit and loss decreased substantially due to the nonrecurrence of high risk provisions for loans and receivables
booked in Romania in the previous year. Other result deteriorated
due to higher provisions for commitments and guarantees given
in Austria. Net result attributable to the owners of the parent
improved significantly.
2014
restated
2015
Change
214.1
99.2
9.3
322.5
-85.0
237.5
26.4%
-310.7
14.8
-53.8
-7.3%
229.3
89.1
13.5
331.9
-91.4
240.5
27.5%
-11.5
-34.5
144.5
21.9%
7.1%
-10.2%
45.6%
2.9%
7.5%
1.3%
-96.3%
n/a
n/a
Credit risk
Credit risk exposure in the Large Corporates segment rose to
EUR 21.4 billion (+21.5%; EUR 17.6 billion) at year-end. Loans
to customers increased to EUR 12.2 million (+EUR 2.2 billion).
As a percentage of Erste Group’s total loans to customers, they
rose to 9.2% (7.8%). The high growth rates in the Large Corporates segment was mainly driven by a restructuring of customer
relationship management whereby larger customers – primarily
from the public sector – were transferred from regional responsibility to central management. The relatively big difference between credit risk exposure and the customer loan portfolio in the
Large Corporates segment is primarily due to a large volume of
guarantees and unused loan commitments.
Active management of non-performing loans by restructuring,
write-downs and sales resulted in a significant improvement of
the loan quality in the Large Corporates segment. The NPL ratio
dropped to 7.8% (11.8%). The share of low-risk loans rose to
84.7% (78.7%).
COMMERCIAL REAL ESTATE
Financial review
in EUR million
Net interest income
Net fee and commission income
Net trading and fair value result
Operating income
Operating expenses
Operating result
Cost/income ratio
Net impairment loss on financial assets not measured at fair value through profit or loss
Other result
Net result attributable to owners of the parent
Return on allocated capital
2014
2015
Change
150.1
15.8
-6.2
205.7
-88.2
117.5
42.9%
-364.3
-45.9
-279.6
-36.1%
169.3
14.0
4.7
230.4
-86.5
143.9
37.5%
-56.9
-34.0
25.7
4.4%
12.8%
-11.2%
n/a
12.0%
-2.0%
22.4%
-84.4%
-26.0%
n/a
33
The increase in net interest income was mainly attributable to a
one-off income in the Austrian portfolio and higher loan volumes
in the Czech Republic. Net fee and commission income declined
on the back of lower fees in the Czech portfolio. The improvement in the net trading and fair value result was attributable to a
one-off negative effect from FX valuations in 2014. Rental income increased mostly in Immorent. Operating expenses decreased slightly. Consequently, operating result increased and the
cost/income ratio improved. Net impairment loss on financial
assets not measured at FV through profit and loss dropped, mainly driven by Immorent and Austrian portfolios, as well as the
Romanian and Hungarian portfolios. Other result improved due
to a one-off income in Immorent. Overall, net result attributable
to the owners of the parent improved significantly.
Credit risk
Business activity in the Commercial Real Estate segment declined again due to the continued adverse economic situation in
the real estate industry. Over the course of the year, credit risk
exposure decreased to EUR 9.2 billion (-EUR 627 million) while
loans to customers declined to EUR 8.5 billion (-7.8%). The share
of the Commercial Real Estate segment in Erste Group’s total
customer loan portfolio decreased to 6.5% (7.2%).
Loan quality improved noticeably for the first time in several years
due to, among other things, portfolio clean-up measures such as
write-downs and sales. Non-performing loans as a percentage of
total commercial real estate financing decreased to 18.9%
(20.9%). The migration of performing loans to better risk classes
accelerated. The share of low-risk loans rose to 64.5% (59.3%).
OTHER CORPORATE
Financial review
in EUR million
Net interest income
Net fee and commission income
Net trading and fair value result
Operating income
Operating expenses
Operating result
Cost/income ratio
Net impairment loss on financial assets not measured at fair value through profit or loss
Other result
Net result attributable to owners of the parent
Return on allocated capital
The decline in net interest income is attributable to a further
reduction of the International Business loan book in Austria as
well as lower interest income in the Investment Banking portfolio
in London which could not be entirely compensated by the improved performance of the International Business loan portfolio
in New York. Net fee and commission income declined primarily
due to a one-off fee expense related to a sale of private equity
funds and lower guarantee fee income from the International
Business. The decline in net trading and fair value result was
driven by the worsening performance of asset-backed securities
and derivatives in the structured credit business as well as the
mark-to-market valuation of interest rate swaps. Operating result
thus declined and the cost/income ratio deteriorated. Net impairment loss on financial assets not measured at FV through profit
and loss increased on the back of higher risk provisions for loans
and receivables related to Ukrainian customers. Other result
improved significantly due to the sale of private equity funds and
34
2014
2015
Change
75.2
18.9
4.8
99.4
-58.2
41.1
58.6%
-12.9
1.5
22.9
10.9%
74.1
14.8
-2.9
86.1
-58.6
27.4
68.1%
-53.0
25.0
-1.0
-0.5%
-1.4%
-21.6%
n/a
-13.4%
0.7%
-33.3%
>100.0%
>100.0%
n/a
extraordinary income from various credit exposures. Net result
attributable to the owners of the parent declined.
Credit risk
Credit risk exposure in the Other Corporate segment declined
further to EUR 2.8 billion (EUR 3.4 billion) while loans to customers increased to EUR 1.8 billion (+5.5%). The still low share
of customer loans in total credit risk exposure compared with
other business segments is mainly due to the relatively high level
of investments in securities and loans to credit institutions. With a
share of merely 1.4% of the entire group’s customer loan portfolio, the Other Corporate segment is of minor significance overall.
The quality of customer loans deteriorated slightly. The share of
non-performing loans in the loan portfolio rose to 5.4% (4.2%).
Performing loan volume in more risky categories declined while
the share of low-risk loans rose to 88% (82%) of the total customer loan portfolio.
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GROUP MARKETS
Financial review
in EUR million
Net interest income
Net fee and commission income
Net trading and fair value result
Operating income
Operating expenses
Operating result
Cost/income ratio
Net impairment loss on financial assets not measured at fair value through profit or loss
Other result
Net result attributable to owners of the parent
Return on allocated capital
Net interest income declined primarily due to the persistently low
interest rate environment affecting interest-rate-related products.
Net fee and commission income improved significantly due to
increased retail, corporate and institutional sales business as well
as the performance of funds of institutional customers. Net trading and fair value result decreased due to unfavourable market
2014
2015
Change
191.2
102.9
116.1
412.6
-179.1
233.4
43.4%
-0.1
-0.7
185.3
38.3%
182.0
123.3
110.2
417.3
-187.0
230.3
44.8%
2.5
-4.8
176.6
40.5%
-4.8%
19.9%
-5.1%
1.1%
4.4%
-1.4%
n/a
>100.0%
-4.7%
conditions. Although operating income increased, operating result
declined due to higher operating expenses; the cost/income ratio
deteriorated. Other result slipped due to the contribution to the
recovery and resolution funds. Overall, net result attributable to
the owners of the parent declined.
GROUP CORPORATE CENTER (GCC)
Financial review
in EUR million
Net interest income
Net fee and commission income
Net trading and fair value result
Operating income
Operating expenses
Operating result
Cost/income ratio
Net impairment loss on financial assets not measured at fair value through profit or loss
Other result
Net result attributable to owners of the parent
Return on allocated capital
Net interest income increased mainly due to higher contributions
from businesses not allocated to other business lines. Net fee and
commission income declined due to the reallocation of subsidiaries to other segments. Net trading and fair value result improved
due to valuation results. Operating expenses increased mainly due
to higher IT costs. Other result improved considerably due to the
2014
2015
Change
70.2
69.1
-11.3
183.3
-710.5
-527.2
>100.0%
-64.7
-655.7
-1,423.1
-28.7%
104.1
33.4
14.9
210.1
-735.4
-525.4
>100.0%
-35.7
397.7
-158.8
-2.4%
48.3%
-51.7%
n/a
14.6%
3.5%
-0.3%
-44.7%
n/a
-88.8%
non-recurrence of negative effects, namely last year’s goodwill
impairments of EUR 475.0 million and the write-down of the
entire remaining value of customer relationships and brand of
BCR of EUR 470.7 million. Consequently, net result attributable
to the owners of the parent improved significantly.
35
Geographical segments
For the purpose of segment reporting by geographical areas, the
information is presented based on the location of the booking
entity (not the country of risk). In the case of information regarding a partial group, the allocation is based on the location of the
respective parent entity.
Geographical areas are defined according to the country markets in
which Erste Group operates. Based on the locations of the banking
and other financial institution participations, the geographical areas
consist of two core markets, Austria and Central and Eastern Europe and a residual market Other that comprises the remaining
business activities of Erste Group outside its core markets as well
as the reconciliation to the consolidated accounting result.
Erste Group – geographical segmentation
Austria
EBOe &
Subsidiaries
Savings
Banks
Central and Eastern Europe
Other
Austria
Czech
Republic
Slovakia
The geographical area Austria consists of the following three
segments:
_ The Erste Bank Oesterreich & Subsidiaries (EBOe &
Subsidiaries) segment comprises Erste Bank der oesterreichischen Sparkassen AG (Erste Bank Oesterreich) and its
main subsidiaries (e.g. sBausparkasse, Salzburger Sparkasse,
Tiroler Sparkasse, Sparkasse Hainburg).
_ The Savings banks segment is identical to the business
segment Savings banks.
_ The Other Austria segment comprises Erste Group Bank AG
(Holding) with its Large Corporates, Commercial Real Estate,
Other Corporate and Group Markets business, Erste Group
Immorent AG and Erste Asset Management GmbH.
The geographical area Central and Eastern Europe (CEE)
consists of six segments covering Erste Group’s banking subsidiaries located in the respective CEE countries:
_ Czech Republic (comprising Česká spořitelna Group)
_ Slovakia (comprising Slovenská sporitel’ňa Group)
_ Romania (comprising Banca Comercială Română Group)
_ Hungary (comprising Erste Bank Hungary Group)
_ Croatia (comprising Erste Bank Croatia Group) and
_ Serbia (comprising Erste Bank Serbia Group).
The residual segment Other covers mainly centrally managed
activities and items that are not directly allocated to other segments. It comprises the corporate center of Erste Group Bank AG
(and thus dividends and the refinancing costs from participations,
general administrative expenses), internal non-profit service
providers (facility management, IT, procurement), amortisation/write-down of customer relationships and brand, goodwill
impairments, the banking tax of Erste Group Bank AG as well as
free capital of Erste Group (defined as the difference of the total
average IFRS equity and the average economical equity allocated
to the segments). Asset/Liability Management of Erste Group
Bank AG as well as the reconciliation to the consolidated ac-
36
Romania
Hungary
Other
Croatia
Serbia
counting result (e.g. intercompany eliminations, dividend eliminations) are also part of the segment Other.
Austria
Economic review
The Austrian economy remained well diversified across sectors,
benefitting from a sizeable, high value adding industrial base, its
well-educated workforce and its important service sector. In
terms of GDP per capita of EUR 39,400, Austria remained one of
the euro zone’s most prosperous countries. Despite the fact that
Austria grew less than the euro zone in 2015, the country’s economic performance met expectations. Activity across all sectors
of the economy rose. While foreign trade was negatively impacted by a noticeable decline in exports to China and Russia, balance
of trade remained positive. Domestic demand also contributed to
economic growth despite a relatively small increase in disposable
income. Austria’s unemployment rate increased for the fourth
consecutive year, but at 5.7% was still among the lowest in Europe. Overall, the country’s economic growth stood at 0.9%.
The European Central Bank kept its main refinancing rate at
0.05% throughout 2015, and average consumer price inflation
stood at 0.8%, slightly lower than expected. This development was
especially pronounced in the second half of the year, mainly due to
the low oil price. The core inflation rate remained relatively stable
at a level between 1.5% and 2% throughout the whole year. However, in comparison with other euro countries, the Austrian inflation rate was one of the highest, particularly due to the considerable increase in prices in the service sector.
Heta Asset Resolution, the wind-down company owned by the
Republic of Austria whose statutory task is to dispose of the nonperforming portion of Hypo Alpe Adria, continued to weigh on the
fiscal outcome. In addition, the public sector had to book illiquid
assets of Kommunalkredit of around 2% of GDP, which also
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contributed to the increase of public debt. Public debt, as a percentage of GDP, increased to 86.5% (2014: 84.2%). As a result of
the relatively low growth and elevated debt burden, Moody’s
downgraded the outlook of the country’s sovereign rating.
Key economic indicators – Austria
2012
2013
2014
2015e
Population (ave, million)
GDP (nominal, EUR billion)
GDP/capita (in EUR thousand)
Real GDP growth
Private consumption growth
Exports (share of GDP)
Imports (share of GDP)
Unemployment (Eurostat definition)
Consumer price inflation (ave)
Short term interest rate (3 months average)
EUR FX rate (ave)
EUR FX rate (eop)
Current account balance (share of GDP)
General government balance (share of GDP)
8.4
317.2
37.7
0.9
0.5
38.9
41.6
4.9
2.6
0.2
1.0
1.0
1.5
-2.2
8.5
322.6
38.2
0.2
0.1
39.0
40.5
5.4
2.1
0.3
1.0
1.0
1.9
-1.3
8.5
329.3
38.5
0.4
0.0
39.6
40.8
5.6
1.5
0.1
1.0
1.0
2.0
-2.7
8.6
337.2
39.4
0.9
0.4
39.6
40.8
5.7
0.8
0.0
1.0
1.0
3.0
-1.9
Source: Erste Group
Market review
The Austrian banking market, with total assets equivalent to
255% of GDP (total domestic assets of GDP: 180%) in 2015, is a
highly competitive and developed banking market and remained
among the most fragmented ones in Europe. The market continued to be characterised by significantly lower margins than in
Central and Eastern Europe but benefitted from traditionally low
risk costs. Growth rates remained low throughout the year, with
customer loans expanding by 1.8% while deposits rose by 4.2%.
The banking system’s loan-to-deposit ratio stood at 100% at yearend. Although the special banking tax, intended to tackle the
country’s budget deficit, remained unchanged at EUR 625 million
in 2015, capitalisation of the banking system improved further.
As a result of low nominal GDP growth, flat yield curves and
high regulatory burden, the sector’s profitability remained comparatively low.
Erste Bank Oesterreich and the savings banks held on to their
very strong market position in the Austrian market. While the
three largest banks continued to have a combined market share of
approximately 60% in customer loans and deposits, the combined
market share of Erste Bank Oesterreich and the savings banks as
measured by total assets stood at 20% at year-end. Based on their
balanced business models, Erste Bank Oesterreich and the savings banks maintained their market shares between 18% and 20%
in both retail and corporate segments.
Market shares – Austria (in %)
25
20
18
19
18
19
19
20
18
19
19
15
Financial intermediation – Austria (in % of GDP)
10
300
5
225
200
186
0
180
2013
150
Total assets
99
97
94
95
96
2014
Retail loans
2015
Retail deposits
97
75
Source: Oesterreichische Nationalbank, Erste Group
0
2013
Domestic assets
2014
Domestic loans
Source: Oesterreichische Nationalbank, Erste Group
2015e
Domestic deposits
ERSTE BANK OESTERREICH &
SUBSIDIARIES
Business review – Highlights
Innovation in banking. By launching its online platform
George, Erste Bank Oesterreich positioned itself in the market as
an innovation leader in digital banking. This new digital distribution channel has created new standards for the online customer
37
experience. Since December 2015, customers have been able to
apply for consumer loans online and enter into contracts either
electronically or by visiting a branch, depending on their individual preferences. Customers also benefit from a range of useful
and innovative apps, which is steadily being expanded. büro2go
is an app that was developed specifically for corporate customers.
For retail and SME customers, a video advisory service was
created as an additional channel through which they can contact
their relationship managers. The service is easy to use and offers
customers face-to-face advisory sessions while they are at home
or at the office.
Focus on investments. Persistently low interest rates make
investing in securities increasingly attractive for customers as an
alternative to savings products. In the affluent customer segment,
demand for high-quality advisory services has remained solid.
Here, the focus is on the individual needs of customers and,
above all, on the right balance between return expectations and
risk profile. The investment scheme YOU INVEST offers customers great flexibility as well as maximum transparency and again
contributed significantly to business performance. The share of
managed products (e.g. investment funds) rose to 49.9%.
Continuing growth. In view of rising customer expectations, it
is important to position the bank as a reliable provider of financial services and suitable products. The number of newly acquired customers stood at about 30,000, i.e., the same level as in
previous years. In financing, new business volume went up despite subdued market sentiment. New financing volume increased
by 6%. Longer-term fixed-rate products allowed customers to
benefit from low interest rates. Significantly more than half of all
housing loans were granted at fixed interest rates.
Attractive branch concept. Customer needs are constantly
changing and reflect demographic and technological change.
Nowadays, customers expect their bank to offer better accessibility and more flexibility than a few years ago. Branches also have
to offer services in different formats and require a cost-efficient
sales organisation. The roll-out of this new branch concept continued in 2015. As a basic service, cash dispensers are provided
across the country. Simple business is dealt with quickly at newly
designed service centres situated at high-frequency locations,
along people’s daily routes. For more complex customer needs,
Erste Bank Oesterreich offers a wide range of products and services at its large customer support centres. For customers, this
means clearly designed and welcoming branches, rooms for
discrete meetings, faster handling of their requests and proactive
support in the foyers. There is a strong focus on ensuring a consistent customer experience and communicating the brand values
of Erste Bank Oesterreich.
Cost projects. The measures previously initiated to enhance the
focus on quality and customer satisfaction were continued in 2015.
Nonetheless, more efficiency and adjustments to other administrative expenses are needed. The bank is therefore investing in accessibility and in the high quality of its general and advisory services,
optimising work flows and reducing administrative expenses at the
branches, e.g. by integrating other distribution channels.
Financial review
in EUR million
Net interest income
Net fee and commission income
Net trading and fair value result
Operating income
Operating expenses
Operating result
Cost/income ratio
Net impairment loss on financial assets not measured at fair value through profit or loss
Other result
Net result attributable to owners of the parent
Return on allocated capital
The increase in net interest income was primarily attributable to
higher retail loan and deposit volumes, mainly current accounts,
accompanied by a repricing of deposits. Net fee and commission
income increased due to higher securities fees and lower building
society fee expenses. Net trading and fair value result decreased
due to valuation effects of derivatives. Operating expenses increased due to the first time payment into the deposit insurance
fund of EUR 9.2 million as well as higher IT costs, which were
partially compensated for by lower personnel costs mainly from
lower pension fund provisions. Overall, operating result and the
cost/income ratio improved. Net impairment loss on financial
assets not measured at FV through profit and loss decreased
38
2014
2015
Change
613.5
354.9
8.7
1,020.3
-630.7
389.6
61.8%
-104.5
6.2
214.5
20.8%
638.2
370.8
-0.6
1,038.6
-640.3
398.4
61.6%
-59.0
-25.6
230.2
22.4%
4.0%
4.5%
n/a
1.8%
1.5%
2.3%
-43.5%
n/a
7.3%
substantially mainly due to a benign risk environment. The worsening of other result was driven by a one-off income from insurance payments in 2014, higher provisions for contingent credit
risk liabilities, higher provisions for legal expenses as well as the
resolution fund contribution of EUR 4.7 million, which was
partially offset by the selling gain of a participation. Overall, the
net result attributable to owners of the parent increased.
Credit risk
Total credit exposure in the Erste Bank Oesterreich and Subsidiaries geographical segment rose to EUR 38.0 billion (+2.7%).
The volume of customer loans increased to EUR 30.0 billion
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(+3.9%). The share of this segment in Erste Group’s total loan
portfolio rose by 0.2 percentage points to 22.8%. The breakdown
by customer segments showed a slight shift from retail customers
towards medium-sized and larger enterprises. The share of retail
customers in total loan volume decreased to 40.1% (40.5%),
while the share of corporates, including self-employed individuals and small businesses, stood at 53.9% (53.8%). Loans to professionals, the self-employed and small businesses are less significant than they are for the Savings Banks. These loans amounted
to 9.9% of total loans to customers. Owing to the continued targeted advice campaign to promote the conversion of foreign
currency loans to euro, the share of Swiss franc loans in the total
loan portfolio decreased further to 7.9% (8.4%). Without the 11%
appreciation of the Swiss franc, the decline would have been
significantly steeper.
The quality of the loan portfolio improved and non-performing
loans as a percentage of total loans to customers declined by 0.6
percentage points to 2.9%. The development was positive across
all customer segments, but most visible among medium-sized and
larger enterprises. The continued improvement of loan quality
among the self-employed and small businesses was also notable.
The public sector and private households were again the borrower
groups with the fewest defaults.
SAVINGS BANKS
The geographical segment Savings Banks is identical to the business segment Savings Banks (see page 32).
Business review – Highlights
Sales support and innovations. The savings banks are supported by a dedicated service unit of Erste Bank Oesterreich. The
main priorities are the further optimisation of sales potential and
sales management. The development of customers’ business
performance is monitored to permit early identification of any
need for support in financial matters and the initiation of targeted
measures to continually improve the quality of services offered
by the savings banks.
A new group project aims to further improve the customer experience and administrative processes in Austria. Customers have
access to digital channels and a well-positioned branch network.
Measures taken include improvements to service quality and
customer satisfaction. In addition, operational targets have been
defined, including financial ratios such as operating performance
and profitability.
Achieving growth in a challenging environment. Similar to
Erste Bank Oesterreich, the savings banks owe their successful
performance in investment business especially to the YOU INVEST products. This platform allows customers to design their
own investment strategy. The savings banks increased the loans
to customers by 2.0% in the year ended. At 5.0%, growth in
lending to private households was particularly strong.
Cost projects. Measures to optimise other administrative and
personnel expenses resulted in a more efficient use of resources.
A “cost compass” was developed to compare costs among savings banks. It is used to identify any potential need for action to
boost efficiency. Best practice examples help to make processes
safer and leaner. This helps savings banks to identify and exploit
their optimisation potential.
OTHER AUSTRIA
Business review – Highlights
Strong performance of Erste Asset Management. Erste
Asset Management (EAM) co-ordinates and manages all asset
management activities of Erste Group for retail and institutional
customers. YOU INVEST investment products again contributed
significantly to retail business performance. The development of
stock funds such as ESPA Stock Global and ESPA Stock Europe
was likewise positive. EAM expanded its business volume and
maintained its leading market position in Austria and Romania
and was again one of the top three asset management companies
in its other CEE markets. Assets under management rose to
EUR 55.8 billion (+3.6%). Backed by strict cost management,
EAM increased its net profit to EUR 17.6 million (+6.7%).
The performance of EAM was recognised by multiple awards,
among them the Lipper Fund Award, the title Asset Manager of the
Year 2015 in the Czech Republic, and the FNG label for several
sustainable retail investment funds. Created by Forum für Nachhaltige Geldanlagen, the FNG label is the quality standard for sustainable financial investment in German-speaking countries. In 2015,
EAM was the first Austrian asset management company to sign the
Montréal Carbon Pledge, by which it agreed to disclose the CO2
footprint of its retail stock funds annually. The CO2- footprint of
EAM’s sustainable stock funds was calculated to amount to only
41% of the global benchmark stock index (MSCI World Index).
New organisational set-up to improve efficiency. Erste
Group combined Group Large Corporates, Investment Banking
and Corporate Steering to set up the Group Corporates division.
The division now includes all group large corporate coverage
responsibility (for companies with annual sales exceeding
EUR 500 million), the specialised finance and advisory business
(corporate finance), the transaction banking services and the
steering function for the local corporate business in Erste Group’s
banking subsidiaries. The equity capital markets and brokerage
business were transferred to the Group Markets area. These reorganisational measures resulted in an improved cost base and
efficiency gains in the Group Corporates business.
Success with syndicated loans. Erste Group again demon-
strated its syndicated loan capabilities, one example was the financing for the Austria Campus in the proximity of the former
Vienna Nordbahnhof. In addition, the loan syndication desk was
also involved in syndicated facilities for INA in Croatia, KMG
International (the former Rompetrol Group) in Romania and the
39
Austrian Porsche Holding group. In the area of acquisition finance, Erste Group acted as a key syndicate bank in the buy-out of
the Constantia Flexibles Group by the French investment company
Wendel S.A. and financed a number of other small to mid-sized
acquisitions of corporate or private equity clients in Austria and
CEE. Industrial clients like voestalpine or AMAG were granted
long-term loans to expand and modernise production capacity and
thus increase competitiveness further.
Group Markets business. Group Markets sales offer the full
range of treasury services, from simple capital markets products
to structured investments and advice on tailored solutions. While
the corporate customers increased their demand for FX business
solutions, the requests for Money Market products was weaker
due to the extremely low interest rate environment. The investment opportunities offered satisfied the demand for market investments on the condition of sustainable wealth creation.
Equity Capital Market and Debt Capital Markets product teams
within the newly established Group Markets Origination and
Funding unit offer the full range of origination solutions. This
reflects clients’ requests to have the best market opportunities
provided by one department. The success of this set up was proven
and underlined by several transactions like the issue of benchmark
bonds for Austrian and German clients as well as numerous transactions across CEE & SEE under sole and joint lead of Erste
Group. As a result, Erste Group strengthened its position as one of
the most successful partners for emissions within its core region.
Real estate business. A moderate pick-up in all markets support-
ed the successful development of the commercial real estate business, which returned to profitability, as operating income grew
moderately and risk costs declined significantly. Following the
strategy of financing the modernisation of the commercial and
residential infrastructure across CEE, the commercial real estate
business line conducted several projects and deals. The focus was
on the financing of retail, logistic and office real estate, such as
the leading shopping centre in the Slovak town of Nitra, a mixeduse retail and office scheme in Budapest and an office centre in
the Romanian town of Târgu Mures. In addition, several logistic
projects, mainly in the Czech Republic and Romania, were financed. In Austria, Erste Group Immorent was involved in a
variety of projects, for example the construction of the new Rapid
stadium, provided lease finance to build the IST Austria research
institute as well as financed a mixed use retail and office building
in Vienna.
Financial review
in EUR million
Net interest income
Net fee and commission income
Net trading and fair value result
Operating income
Operating expenses
Operating result
Cost/income ratio
Net impairment loss on financial assets not measured at fair value through profit or loss
Other result
Net result attributable to owners of the parent
Return on allocated capital
Net interest income increased on the back of positive one-off
effects in the real estate business and increased corporate lending
business. Net fee and commission income improved primarily
due to higher assets under management volumes and better market performance. Increased corporate, institutional and retail sales
business in Group Markets also contributed positively. The increase in net trading and fair value result was predominantly
attributable to FX business development, partially offset by the
negative impact of mark-to-market valuations in the context of
unfavourable market conditions. Despite increasing operating
expenses, driven mainly by IT costs and higher legal costs, operating result as well as the cost/income ratio improved. Net impairment loss on financial assets not measured at FV through
profit and loss decreased on the back of lower portfolio risk
provisions and improvements in the portfolio structure in real
estate of the Holding and Immorent, despite additional impairments for Ukrainian exposure. Other result included a resolution
fund contribution of EUR 3.4 million. The net result attributable
to the owners of the parent increased significantly.
40
2014
2015
Change
395.4
174.0
3.1
621.5
-323.3
298.1
52.0%
-269.2
-7.2
-31.0
-2.1%
407.1
187.2
4.1
642.4
-325.9
316.5
50.7%
-83.3
-7.9
162.3
12.8%
2.9%
7.6%
31.5%
3.4%
0.8%
6.2%
-69.1%
9.4%
n/a
Credit risk
The credit risk exposure in the Other Austria segment, which is
almost completely made up of the Holding and Erste Group Immorent, declined to EUR 30.4 billion (EUR 33.1 billion) or 14.3%
of Erste Group’s credit risk exposure. A large share of business in
this segment was accounted for by securities and investments with
banks. The share of loans to customers as a percentage of Erste
Group’s total loan portfolio was significantly lower at 9.7%. Loans
to customers rose slightly to EUR 12.7 billion (EUR 12.6 billion),
with loans to large corporates posting above-average growth.
Financing of commercial real estate decreased again sharply, by
10.4%, which reflected the weak economy and the problems of the
real estate industry in most of Erste Group’s core markets.
The share of non-performing loans in the total loan portfolio
declined markedly to 10.5% (11.8%). Expected losses were fully
covered by loss allowances and collateral. Within the category of
performing loans, there was a clear migration to better risk categories, which also indicated improved credit quality.
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Central and Eastern Europe
CZECH REPUBLIC
Economic review
The Czech economy remained one of the most successful in Central and Eastern Europe. The main drivers of the excellent economic performance were domestic demand, which was supported
by higher real wages and an improved labour market, as well as an
improved absorption rate of European Union funds. As a result of
legislative changes related to pre-stocking of tobacco products,
inventories also contributed to economic growth. Exports performed moderately, with the manufacturing sector remaining one
of the bright spots. The Czech economy maintained its strong
position among world automotive producers in terms of per capita
output. Overall, real GDP expanded by 4.5% in 2015, while GDP
per capita stood at EUR 15,800. Reflecting the strong economic
performance, the unemployment rate declined further to 4.8%.
Political stability prevailed in the Czech Republic throughout
2015, with the Social Democrats, the centrist ANO political party
and the centre-right Christian Democrats remaining in coalition
since 2013. This stability supported positive macroeconomic
developments. At 1.5%, the country’s budget deficit remained at a
low level. State revenues were positively affected by higher
excise duties on tobacco, which was offset by the reintroduction
of tax credits for working pensioners and a lower value added tax
rate. Public debt as a percentage of GDP remained one of the
lowest in Central and Eastern Europe and declined even further to
41.0%. Rating agencies acknowledged the performance of the
Czech economy with S&P, Moody’s and Fitch affirming the
countries long-term credit rating at AA, A1, and AA- respectively.
Inflation remained very low, hovering around zero throughout the
year. The average consumer price index was at 0.4%, affected
mainly by the sharp decline in oil prices. Lower regulated energy
prices and falling prices for food also pushed down inflation. The
Czech koruna, supported by the country’s strong fundamentals,
traded within a narrow range of 27 and 28 against the euro. The
Czech National Bank began intervening in 2013 to weaken the
koruna by targeting an exchange rate of 27 against the euro as a
measure against deflation. The Czech National Bank left its base
rate unchanged at 0.05% throughout 2015.
Key economic indicators – Czech Republic
2012
2013
2014
2015e
Population (ave, million)
GDP (nominal, EUR billion)
GDP/capita (in EUR thousand)
Real GDP growth
Private consumption growth
Exports (share of GDP)
Imports (share of GDP)
Unemployment (Eurostat definition)
Consumer price inflation (ave)
Short term interest rate (3 months average)
EUR FX rate (ave)
EUR FX rate (eop)
Current account balance (share of GDP)
General government balance (share of GDP)
10.5
160.5
15.3
-0.8
-1.4
67.4
65.8
7.2
3.3
1.0
25.2
25.6
-1.6
-4.0
10.5
156.8
14.9
-0.5
0.7
68.3
65.7
6.8
1.4
0.5
26.0
27.5
-0.5
-1.3
10.5
154.6
14.7
2.0
1.5
74.0
70.4
5.9
0.4
0.4
27.6
27.9
0.6
-2.0
10.5
166.2
15.8
4.5
3.1
74.2
70.8
4.8
0.4
0.3
27.3
27.1
1.4
-1.5
Source: Erste Group
Market review
The Czech banking market reflected the positive macroeconomic
environment and was characterised by a growing demand for
banking products. Supported by increased household consumption and an improved confidence level, customer loans grew by
5.6%. Growth of the lending market was attributable to both retail
and corporate loans. The 2.5% growth of customer deposits was
also driven by retail and corporate deposits, while public sector
deposits declined due to a change in government liquidity management procedures. Overall, the Czech banking market remained one of the most liquid in Central and Eastern Europe. The
loans to deposits ratio across the banking sector stood at 79% as
of year-end. Moody’s acknowledged the positive developments
and upgraded its outlook for the Czech banking system.
The dynamics of housing and corporate loans prompted the
Czech National Bank to introduce a countercyclical capital buffer
of 0.5% for Czech exposures. In its semi-annual stress test, the
Czech National Bank acknowledged that the banking sector
continues to be sufficiently resilient to potential adverse shocks.
The country’s banking market continued to be well capitalised
with a total capital ratio of 17.3% and remained very profitable.
Asset quality continued to be very strong. Non-performing loans
declined further and stood at 4.4% at the end of the year.
41
Business review – Highlights
Financial intermediation – Czech Republic
(in % of GDP)
150
125
127
128
124
100
81
82
79
75
62
62
62
With My Healthy Finance, the bank launched a unique service for
retail clients at selected pilot branches. The service introduces a
fundamental change in the thinking and overall approach of
advisors to clients to teach them to better manage their household
budgets and effectively helping them to reduce their regular
monthly expenses.
50
25
0
2013
2014
Total assets
Innovation and focus on customer relationships. Česká
spořitelna puts a strong emphasis on the development of digital
banking, on serving clients through the distribution channels that
suit them the most, and on offering customised products and
services in places where they are actually needed. Owing to the
development of internet banking solutions, the number of active
direct banking clients increased to 1.7 million users (+2.0%).
2015e
Customer loans
Customer deposits
Success in mortgage lending. Česká spořitelna’s loans to
Source: Czech National Bank, Erste Group
The three largest banks continued to have a combined market
share of approximately 60% in customer loans and deposits. Česká
spořitelna maintained its market leadership positions across all
major product categories. Its retail market shares ranged from 23%
to 26% while its share in the corporate segment remained lower at
around 20%. Česká spořitelna also retained its number-one position in consumer lending including the credit card market with a
market share of 30%. Overall, its market share measured by total
assets stood at 18.6%. In addition, Česká spořitelna continued to
control more than one quarter of the asset management market.
Market shares – Czech Republic (in %)
35
30
27
20
26
24
25
23
19
18
15
10
5
0
2013
2014
Total assets
Source: Czech National Bank, Erste Group
42
Retail loans
Solid performance in corporate business. Over the years, the
bank has developed specialised programmes for individual industrial sectors focusing on smaller and medium-sized customers,
such as TOP Innovation, with an emphasis on the financing of
innovative projects and development activities of companies.
These TOP programmes constitute a significant competitive
advantage. Largest in terms of volume are TOP Energy and TOP
Automotive. A stable evergreen is TOP Agro, which helped Česká
spořitelna gain a leading position in financing agricultural enterprises. A new hit is TOP Waste Management, focusing on the
rapidly expanding sector of waste processing.
25
23
19
customers (gross) grew by 5.9%, mainly driven by mortgage
loans. The aggregate volume of the bank’s retail mortgage portfolio was up by 11.8%. Faster than market growth in new retail
mortgages led to a strengthening of the market share by two
percentage points to 26.9%. The sound growth in the volume of
loans was supported by declining risk costs.
2015
Retail deposits
International and local recognition. 2015 was an exceptional
year for Česká spořitelna, as the bank celebrated its 190th anniversary and was voted Bank of the Year of the Czech Republic for
the sixth time. For the twelfth consecutive year, the bank also
won the main award from the general public and became Most
Trusted Bank of 2015. Česká spořitelna also won the Company of
2015: Equal Opportunity Award announced by the nongovernmental organisation Gender Studies. Among others, the
bank was also named Best Card Issuer in the Visa Awards, defending its victory in that category from last year.
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Financial review
in EUR million
Net interest income
Net fee and commission income
Net trading and fair value result
Operating income
Operating expenses
Operating result
Cost/income ratio
Net impairment loss on financial assets not measured at fair value through profit or loss
Other result
Net result attributable to owners of the parent
Return on allocated capital
Net interest income in the Czech Republic segment (comprising
Česká spořitelna Group) decreased due to the persistently low
interest rate environment and a change in the balance sheet structure towards a higher proportion of lower-margin housing loans.
Net fee and commission income declined mostly due to lower
private current account, lending as well as card fees. Net trading
and fair value result increased due to a better result from derivatives. Operating expenses increased on the back of higher personnel costs and higher expenses related to group projects including
IT. Operating result decreased, the cost/income ratio went up. The
decline of net impairment loss on financial assets not measured at
FV through profit and loss was attributable to a change in the
provisioning methodology for retail portfolio risks. Other result
deteriorated due to the booking of impairments for own properties. Overall, these developments led to a decrease in the net
result attributable to the owners of the parent.
Credit risk
Total credit risk exposure in the Czech Republic geographical
segment rose to EUR 33.9 billion (+5.2%; EUR 32.2 billion),
which was partially due to the 2.6% appreciation of the Czech
koruna against the euro. Loans to customers rose more strongly,
to EUR 20.3 billion (+8.7%) at year-end, with most of the growth
posted in the corporate business. Customer loans in this segment
as a percentage of Erste Group’s total loans to customers increased to 15.4% (14.6%). Measured by business volume, the
Czech Republic is hence still by far the second most important
market for Erste Group after Austria.
The quality of customer loans was again significantly better than
in other markets in Central and Eastern Europe in which Erste
Group operates. Due to proactive and effective credit risk management, non-performing loans as a percentage of the total customer loan portfolio decreased to 4.1% (4.4%), which continued
the positive development of recent years. Improvements were
seen in all customer segments, but most notably among medium-
2014
2015
Change
924.0
410.6
83.1
1,449.4
-662.2
787.1
45.7%
-135.4
-16.6
506.2
35.8%
911.2
375.8
103.5
1,419.9
-681.2
738.7
48.0%
-97.1
-20.9
490.6
34.5%
-1.4%
-8.5%
24.6%
-2.0%
2.9%
-6.2%
-28.3%
25.7%
-3.1%
sized and larger enterprises. Default rates were again lowest in
the retail segment. Provisioning for non-performing loans by
means of loss allowances declined to 72%.
SLOVAKIA
Economic review
Backed by strong fundamentals, the Slovak economy achieved an
excellent performance. Domestic demand was particularly strong
and investments in construction, which were supported by improved absorption of European Union funds, also contributed to
growth. Household consumption continued to increase on the
back of higher real disposable income. Exports were supported by
the country’s car industry, which, for the first time, produced
more than one million vehicles. Slovakia remained the world’s
top car producer per capita. Overall, real GDP grew by 3.6%,
while GDP per capita stood at EUR 14,400 at year-end. Employment gains remained strong and labour market conditions improved further in line with the favourable economic activity. As a
result, the unemployment rate decreased to 11.5% at year-end.
After exiting the Excessive Deficit Procedure in 2014, the fiscal
stance of Slovakia remained broadly unchanged in 2015. Although tax revenues increased significantly due to the government’s measures against tax evasion, expenditures rose as well.
At the end of the year, fiscal deficit stood at 2.6% of GDP, a level
similar to the previous year. The country’s public debt as a percentage of GDP remained relatively low at 52.8%. Rating agencies acknowledged the performance of the Slovak economy, with
S&P upgrading the sovereign rating with a stable outlook in
summer 2015.
Slovakia experienced a mild deflation. Average consumer prices
were significantly impacted by declining oil prices and stood at 0.3%. Energy prices decreased by almost 4% on average, mainly
due to lower electricity and fuel prices.
43
Key economic indicators – Slovakia
2012
Population (ave, million)
2013
2014
2015e
5.4
5.4
5.4
5.4
GDP (nominal, EUR billion)
72.4
73.8
75.5
78.1
GDP/capita (in EUR thousand)
13.4
13.6
13.9
14.4
1.5
1.4
2.5
3.6
Private consumption growth
-0.4
-0.8
2.4
2.4
Exports (share of GDP)
83.0
84.2
82.8
85.4
Imports (share of GDP)
79.6
80.0
79.0
82.4
Unemployment (Eurostat definition)
13.9
14.2
13.2
11.5
Consumer price inflation (ave)
3.6
1.4
-0.1
-0.3
Short term interest rate (3 months average)
0.6
0.2
0.2
0.0
Current account balance (share of GDP)
0.9
2.0
0.1
-0.5
-4.2
-2.6
-2.8
-2.6
Real GDP growth
General government balance (share of GDP)
Source: Erste Group
Market review
The positive macroeconomic environment continued to favourably impact Slovakia’s banking market. Customer loans grew by
8.8%, with the retail segment leading the way on the back of
further improved consumer confidence, while corporate loan
volumes increased by 4.2%. Customer deposits rose by 9.4%,
which led to a loan-to-deposit ratio of 91%. The reduction of the
special banking tax from 0.4% to 0.2% of liabilities excluding
equity and subordinated debt contributed to the improved profitability of the Slovak banking sector. The three largest banks continued to have a combined market share of approximately 60% in
customer loans and deposits.
significantly lower in the corporate segment than in retail, which
stood at 26.4%.
Market shares – Slovakia (in %)
40
35
30
27
27
26
28
26
26
25
20
21
21
20
15
Financial intermediation – Slovakia (in % of GDP)
10
5
100
80
0
87
83
81
2013
Total assets
60
61
60
54
56
2014
Retail loans
2015
Retail deposits
65
59
Source: National Bank of Slovakia, Erste Group
40
Business review – Highlights
Solid development in retail business. Slovenská sporiteľňa
20
0
2013
Total assets
2014
Customer loans
2015e
Customer deposits
Source: National Bank of Slovakia, Erste Group
In an improved banking market environment, Slovenská
sporitel’ňa retained its leading market positions. Slovenská
sporitel’ňa increased its market shares in all major product categories. The bank controlled more than one-fifth of the country’s
banking market as measured by total assets and also led the market in both customer loans and deposits. In the housing loan
segment, Slovenská sporitel’ňa’s market share increased further
to 27.7%. On the deposit side, at 12.5%, its market share was
44
was again very successful in retail loans. At 16%, the bank grew
faster than the market. While this development was mainly due to
the strong performance in housing loans, the bank also increased
its share in consumer loans.
To better meet customers’ needs, Slovenská sporiteľňa introduced
new savings products. Saving for housing is the first of its kind in
the Slovak market. It combines benefits of saving and mortgage.
Customers who hold such a savings account receive a preferential
interest rate on housing loans when they apply for one. The bank
also introduced a new Savings book for children. To support the
campaign, Slovenská sporiteľňa commissioned a book of short
stories where heroes save money to fulfil their dreams. The book
features stories by popular children’s book authors.
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Digitalisation and launch of a new website. The existing
website was completely redesigned to better reflect current customer needs and to accommodate new trends in mobile marketing.
Users benefit from a simplified information architecture and a
responsive design that adapts to all modern digital devices. The
website now features more concise product information as well as
useful information based on the visitor’s interests in products and
services.
To broaden the bank’s digital sales capabilities and to open up new
opportunities for customers, Slovenská sporiteľňa further enhanced its web services. Customers can now open a current account or apply for a consumer loan virtually from home, without
the need for physical interaction with the bank. For the current
account, client authorisation can be granted via a webcam. Slovenská sporiteľňa is the first Slovak bank capable of opening a
client account without requiring a branch visit or courier services.
duced new accounts for corporate customers. Unlike the past,
when the company size was the main criterion, customers can now
choose an account based on the number of transactions they make
per month. Accounts can be easily switched at any time free of
charge. With the account, customers get access to the new electronic banking service Business 24 and manage their accounts and
make payments online.
A new customer relationship management platform for all corporate segments is designed to further improve customer satisfaction.
International and local recognition. The bank again won
various awards in 2015. For the fourth consecutive year, the bank
won the most prestigious banking award in Slovakia – TREND
TOP Bank of the Year. In addition, the British journal The Banker
named Slovenská sporiteľňa Bank of the Year 2015 in Slovakia,
and for the fifth time in a row the bank won the Euromoney
Awards for Excellence.
Banking for corporate customers. Slovenská sporiteľňa
strengthened its position in corporate business. The bank intro-
Financial review
in EUR million
Net interest income
Net fee and commission income
Net trading and fair value result
Operating income
Operating expenses
Operating result
Cost/income ratio
Net impairment loss on financial assets not measured at fair value through profit or loss
Other result
Net result attributable to owners of the parent
Return on allocated capital
The increase in net interest income in the Slovakia segment
(comprising Slovenská sporitel’ňa Group) was mainly attributable to higher loan volumes, both housing and consumer loans, as
well as a changed deposit structure. These effects were partially
offset by a lower contribution from asset/liability management
due to the low interest rate environment. Net fee and commission
income decreased due to current account, card and securities fees.
The decrease in the net trading and fair value result was driven by
the valuation of derivatives. While total operating income increased, operating expenses remained stable. As a consequence,
operating result and the cost/income ratio improved. Net impairment loss on financial assets not measured at FV through profit
and loss increased due to higher provisions in Large Corporate
and Commercial Real Estate business, partially offset by lower
provisions in Retail and SME. The improvement of other result
was driven by a reduced banking tax in the amount of EUR 23.6
million (EUR 31.5 million) and lower provisions for contingent
credit risk liabilities. The contribution to the resolution fund
amounted to EUR 7.3 million. The net result attributable to the
owners of the parent increased.
2014
2015
Change
451.0
123.4
9.6
593.5
-266.2
327.3
44.9%
-51.4
-43.0
178.7
34.9%
457.5
121.4
8.8
599.6
-266.1
333.5
44.4%
-58.0
-32.5
184.4
34.0%
1.4%
-1.6%
-8.6%
1.0%
-0.1%
1.9%
13.0%
-24.3%
3.2%
Credit risk
Total credit risk exposure in the Slovakia geographical segment
increased to EUR 14.6 billion (+6.9%). Loans to customers rose
at an even faster pace to EUR 9.7 billion (+15.4%) at year-end.
Slovakia was thus one of the most dynamic segments of Erste
Group. Its share of Erste Group’s total loan portfolio increased by
0.4 percentage points to 6.9%.
The breakdown of the portfolio by customer segment remained
relatively unchanged. The share of loans to retail customers was
again substantially higher than in other geographical segments.
Loans to private households accounted for 71.0% of total customer loans, loans to corporates and the public sector only for
29.0%. This customer mix also explains the large share of secured business of almost 60.0% of the entire loan portfolio. The
increase in the NPL ratio by 54 basis points to 5.6% was primarily attributable to the ECB’s modified definition of nonperforming loans. This change affected mostly the retail segment,
which again posted the lowest default rate of all customer segments. The NPL coverage ratio based on loss allowances declined, but risk provisions and collateral together still exceeded
non-performing loan volume significantly.
45
ROMANIA
Economic review
The Romanian economy continued to perform well. The main
performance driver was robust domestic demand fuelled by
strong private consumption and booming private investments. In
addition, construction played an important role in investment
activity throughout the year. Real household disposable income
rose significantly as a result of wage increases and deflation.
Although the absorption of European funds improved further and
reached 70%, it is still low compared to other countries in the
region. Agriculture was negatively impacted by a drought, and
its contribution to the economy was much less than in the previous years. Exports also declined despite the positive contribution
from the car making industry. With a share of 70%, the European
Union continued to represent the main export region of Romania. The country’s labour market showed significant improvements and the unemployment rate declined slightly further to
6.8% at year-end. Overall, real GDP grew by 3.6% while GDP
per capita rose to EUR 8,000.
Romanian politics were characterised by continuous uncertainty.
After the prime minister stepped down in early November 2015,
a new cabinet was formed, which won approval from Parlia-
ment. Romania continued its disciplined fiscal consolidation
programme. The state’s revenues were supported by all important tax categories mainly due to improved tax collection.
Higher revenues allowed the government to reduce value added
taxes for food from 24% to 9% as of June 2015. On the expenditure side, significant savings were achieved due to low public
investments and reduced co-financing of European Union projects. These savings were partly offset by the doubling of child
benefits and the significant increases of the remuneration in
health care and education. Overall, the budget deficit stood at
1.5% of GDP. At 37.6%, the country’s public debt level to GDP
remained one of the lowest in the European Union. Rating agencies also appreciated the performance of the Romanian economy, with Moody’s upgrading the outlook on government bonds
in December 2015.
Romania experienced a deflationary environment mainly attributable to lower energy prices and – owing to the reduction of
VAT – low food prices. Overall, average consumer prices declined by 0.6%. The Romanian National Bank cut the key policy
rate four times in the first half of 2015 to a new historic low of
1.75% by the end of the year. The Romanian Leu did not change
significantly against the euro and stood in the range of 4.4 to 4.5
throughout the year.
Key economic indicators – Romania
2012
2013
2014
2015e
Population (ave, million)
GDP (nominal, EUR billion)
GDP/capita (in EUR thousand)
Real GDP growth
Private consumption growth
Exports (share of GDP)
Imports (share of GDP)
Unemployment (Eurostat definition)
Consumer price inflation (ave)
Short term interest rate (3 months average)
EUR FX rate (ave)
EUR FX rate (eop)
Current account balance (share of GDP)
General government balance (share of GDP)
20.1
133.9
6.7
0.6
1.5
33.7
40.9
6.8
3.3
5.3
4.5
4.4
-4.5
-2.9
20.0
144.2
7.2
3.5
-2.4
34.3
38.3
7.1
4.0
4.2
4.4
4.5
-0.8
-2.2
19.9
150.2
7.5
3.0
3.7
34.9
38.9
6.8
1.1
2.5
4.4
4.5
-0.5
-1.5
19.9
158.5
8.0
3.6
4.5
34.4
39.7
6.8
-0.6
1.3
4.4
4.5
-1.1
-1.5
Source: Erste Group
Market review
Supported by an improved macroeconomic environment, the
Romanian banking developed positively. Customer loans grew
particularly in the retail sector, which was due to an improved
consumer confidence and higher wages. Corporate loans also
increased, but to a lesser extent. Prima Casa, the governmentguaranteed mortgage programme, has been exclusively available
in local currency since August 2013, and local currency lending
increased to 52% of customer loans.
46
Overall, customer loans grew by 3.1%. Customer deposits increased by 9%, mainly driven by higher volumes in the corporate
business. Both retail and corporate deposits were impacted by
higher-yielding investment products in asset management.
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Financial intermediation – Romania (in % of GDP)
80
60
57
40
55
36
35
54
33
37
36
32
20
0
2013
2014
2015e
Customer loans
Total assets
Customer deposits
Continued improvements in asset quality. After the extensive
Despite increasing pressure by regulatory institutions and consumer protection associations, the Romanian banking sector’s profitability improved. The Romanian National Bank maintained its
recommendation to reduce fully provisioned non-performing loans
in an accelerated manner. Following this recommendation, banks
continued to take measures aimed at cleaning up their balance
sheets through write-offs, sales and recoveries. After having
booked significantly higher risk provisions in 2014, these efforts
led to a lower NPL ratio and higher coverage ratios in the country’s banking system. As a result, risk provisions declined visibly
in 2015, playing a significant role in making the country’s banking
sector profitable. The sector’s profitability was also supported by
the implementation of further cost-efficiency measures.
Market shares – Romania (in %)
35
30
25
18
18
Despite losing some market shares on both the lending and deposit side, Banca Comercială Română held on to its leading
position in almost all major product categories. By the end of
2015, the bank was ranked number one based on total assets,
customer loans and asset management. Banca Comercială
Română’s customer loan market share, however, was impacted by
the significant reduction of non-performing loans, most visibly in
the corporate sector in which the market share decreased to
15.6%. Customer deposit market shares remained stable. Overall,
Banca Comercială Română had a market share as measured by
total assets of 15.8% at the end of 2015.
Business review – Highlights
Source: National Bank of Romania, Erste Group
20
taining the limitation rules on tenor, debt-to-income ratio, loan-tovalue ratio and collateral coverage. The banking sector remained
well capitalised with a total capital ratio of 18.7%; the loan to
deposit ratio stood at 87%.
18
18
16
17
16
17
16
15
10
5
portfolio clean-up in 2014, the measures to resolve the nonperforming loan legacy continued through sell-offs, write-offs and
higher cash recoveries. As a result, non-performing loans declined to
EUR 1.7 billion (-24.9%), the NPL ratio to 20.2% (2014: 23.7%).
Banca Comercială Română implemented more measures for
streamlining risk assessment, the underwriting process and collateral management.
Success in local currency retail lending. Building on its
retail network capabilities and a full set of channels on an industry-leading level, the bank focused on financing customers with
good credit ratings and on improving client activation and retention. Banca Comercială Română recorded a significant pickup in
new retail production in local currency. New loan production to
private individuals increased by 9.5%, mainly driven by secured
loan originations. New volumes of cash loans grew by 7.0%. The
positive development in net retail loans was supported by a gradual demand recovery and marketing campaigns. The bank maintained its leadership in retail lending with a 17.2% market share.
Its share in local currency mortgage lending stood at 20.2%.
Return to profitability. Following the turnaround programme
the bank went through until year-end 2014, the profitability improved substantially on the back of lower risk costs. The cost
saving efforts in certain business areas (process/network optimisation) continued jointly with investments in process automation,
data optimisation and staff training.
0
2013
Total assets
2014
Retail loans
2015
Retail deposits
Source: National Bank of Romania, Erste Group
The Romanian National Bank continued to support local funding
and local currency-based lending throughout the year by main-
Focus on data excellence. After setting up a business infor-
mation centre, the bank launched a business intelligence programme to build the framework for integrated reporting and a
more efficient information flow and data quality management.
This business intelligence programme aims at harmonising the
data steering requirements, implementing data quality checks and
streamlining processes and management reporting. By implementing this data excellence, Banca Comercială Română will be
47
able to respond more effectively to regulatory requirements,
create value for the customers and gain a competitive advantage
on the banking market.
Financial review
in EUR million
Net interest income
Net fee and commission income
Net trading and fair value result
Operating income
Operating expenses
Operating result
Cost/income ratio
Net impairment loss on financial assets not measured at fair value through profit or loss
Other result
Net result attributable to owners of the parent
Return on allocated capital
Net interest income in the Romania segment (comprising Banca
Comercială Română Group) decreased mainly due to lower income
from unwinding, lower loan volumes and lower interest rates. Net
fee and commission income increased due to higher insurance
brokerage income. The decline in net trading and fair value result
was mostly attributable to a one-off positive effect from derivatives
in 2014. Operating expenses increased mainly due to higher personnel costs. Operating result declined and the cost/income ratio
deteriorated. Net impairment loss on financial assets not measured
at FV through profit and loss improved significantly after nonperforming loan portfolio clean-up activities in 2014 and more than
offset the decline in operating result. Other result included provisions for risks related to Romanian consumer protection claims and
the contribution to the resolution fund of EUR 5.6 million, whereas
last year was negatively affected by the impairments of intangible
and tangible assets. Consequently, the net result attributable to the
owners of the parent improved markedly.
Credit risk
Due to the continued consolidation strategy, business volumes in
the Romania geographical segment declined further, but less
pronounced than in the previous year. While total credit risk
exposure was reduced to EUR 13.9 billion (-2.5%), loans to
customers contracted to EUR 8.5 billion (-5.8%). This represented a share of 6.4% (7.0%) of Erste Group’s total loans to customers. The decline in the loan portfolio was mainly attributable to
write-downs and sales of non-performing loans.
The loan portfolio of the Romania geographical segment was
made up of 52.4% non-collateralised and 47.6% collateralised
loans. The degree of collateralisation was slightly up year on
year. The share of foreign currency loans decreased by approximately five percentage points to 54.8% and was almost completely denominated in euro.
Due to the clean-up of the portfolio by write-downs and sales, the
NPL ratio declined to 20.2% (23.7%), with non-performing corporate loans down more sharply. Loans to private households contin-
48
2014
restated
2015
Change
484.7
160.0
81.2
732.2
-331.9
400.3
45.3%
-923.5
-117.2
-554.7
-54.4%
428.7
163.2
69.4
672.2
-340.5
331.7
50.7%
16.4
-140.0
178.7
20.5%
-11.5%
2.0%
-14.5%
-8.2%
2.6%
-17.1%
n/a
19.5%
n/a
ued to show the highest quality in the loan portfolio. The NPL coverage ratio based on risk provisions and collateral rose to 110.1%.
HUNGARY
Economic review
After growing at an exceptional rate of 3.7% in 2014, the Hungarian economy grew at a more sustainable rate of 2.9% in 2015.
Domestic demand was supported by higher disposable income,
low inflation and high nominal wage growth. The country’s economic performance benefitted from an exceptionally high absorption of European Union funds. Manufacturing remained strong,
while growth of construction output lost momentum and agriculture contracted in 2015. The National Bank of Hungary extended
its funding for growth programme to support small and mediumsized enterprises. Exports developed positively, supported strongly by the well-performing car industry. High distortionary taxes,
most notably very high additional burdens on the financial sector,
however, remained a drag on economic performance. Overall,
Hungary’s GDP grew by 2.9%, while GDP per capita stood at
EUR 11,000 in 2015. The unemployment rate continued to decline to 6.8%, mainly as a result of the government’s Public Work
Scheme and increased employment in the private sector.
Although the coalition of centre right FIDESZ and the Christian
Democrats lost its two-thirds majority in the parliament, political
stability prevailed in Hungary throughout the year. The government’s target of 2.4% budget deficit was easily achieved, and
special taxes such as in the energy, telecom, retail and financial
sectors remained unchanged. Robust tax revenue dynamics and
declining interest payments were key elements in reducing the
deficit. In addition, strict cost control continued in the public
sector while VAT remained at 27% throughout the year, the highest in the European Union. Although the country’s public debt
ratio improved further to 76.0% it was still above the CEE average. Credit rating agencies left Hungary in non-investment grade,
although major rating agencies upgraded the country’s outlook.
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Inflation hovered around zero mainly due to low oil prices and
regulated price reductions. The average consumer price index
stood at -0.1%. The Hungarian forint remained broadly stable
against the euro, trading at between 295 and 320 throughout the
year. The National Bank of Hungary continued its policy of reducing the base rate and cut it four times up to July 2015, leaving
the main monetary policy rate then unchanged at the historic low
of 1.35% until the end of the year.
Key economic indicators – Hungary
2012
2013
2014
2015e
Population (ave, million)
GDP (nominal, EUR billion)
GDP/capita (in EUR thousand)
Real GDP growth
Private consumption growth
Exports (share of GDP)
Imports (share of GDP)
Unemployment (Eurostat definition)
Consumer price inflation (ave)
Short term interest rate (3 months average)
EUR FX rate (ave)
EUR FX rate (eop)
Current account balance (share of GDP)
General government balance (share of GDP)
10.0
98.9
9.9
-1.7
-2.3
87.0
80.1
10.9
5.7
7.0
289.4
291.3
1.8
-2.2
9.9
101.2
10.1
1.9
0.6
88.0
80.6
10.3
1.7
4.3
296.9
296.9
4.0
-2.4
9.9
104.3
10.5
3.7
1.5
89.6
82.1
7.7
-0.2
2.4
308.6
314.9
2.3
-2.7
9.9
108.7
11.0
2.9
2.6
92.2
83.4
6.8
-0.1
1.5
310.1
313.1
5.0
-2.0
Source: Erste Group
Market review
For the Hungarian banking market, 2015 was another challenging
year. Following the final conversion of foreign-currency household loans to Hungarian forint, the banking sector operated in a
more stable and predictable environment. The profitability of the
industry, however, was still negatively impacted by the banking
tax and the financial transaction tax, both remaining at very high
levels. In addition, the collapse of three brokerage houses in
March 2015 led to an increase of banks’ payments to the national
deposit insurance fund and to the investor protection fund.
was approved back in November 2014 and set fixed or reference
rates for new retail loans, regulated unilateral interest and fee
changes. Overall, the Hungarian banking sector was profitable in
2015.
Market shares – Hungary (in %)
20
16
16
15
14
Financial intermediation – Hungary (in % of GDP)
150
12
8
120
108
103
7
7
6
6
7
6
4
102
90
0
2013
60
51
50
47
51
50
Total assets
2014
Retail loans
2015
Retail deposits
40
30
Source: National Bank of Hungary, Erste Group
0
2013
Total assets
2014
Customer loans
2015e
Customer deposits
Source: National Bank of Hungary, Erste Group
In line with the Memorandum of Understanding signed by Erste
Bank Hungary, the Hungarian government and the European Bank
for Reconstruction and Development (EBRD), the Hungarian
parliament reduced the banking tax with effect from 2016. The
sector’s profitability was also hit by the fair banking law, which
Demand for customer loans remained relatively low throughout
the year. As a result of the Funding for Growth programme by the
Hungarian National Bank, lending to the SME sector increased
but did not offset the significant decline in the large corporate
segment. The government extended its housing subsidy scheme
for the retail sector. The relatively high ratio of distressed household mortgage loans, however, continued to be a significant risk
in the financial system. Adjustments of the personal bankruptcy
conditions and the expansion of the National Asset Management
Agency for mortgage loans helped mitigate this risk by facilitating the resolution of the non-performing portfolio. Overall, cus-
49
tomer loans declined by 11.2%, with shrinking volumes in both
retail and corporate segments. As customer deposits increased by
2.7%, the banking system’s loan-to deposit ratio declined to 79%
at the end of the year.
Despite its significantly shrinking balance sheet and lower market
shares, Erste Bank Hungary continued to be a major market player
in the country. The bank remained loss-making mainly due to
limited client demand and the number of extraordinary government-imposed burdens on banks. The conversion of the foreigncurrency denominated loans into local currency resulted in a considerable change in the currency structure of Erste Bank Hungary’s balance sheet. As part of its strategy, the bank continued to
focus on local currency lending from locally sourced liquidity and
to further reduce parent company funding. Overall, Erste Bank
Hungary’s total assets market share decreased to 5.5%.
Business review – Highlights
Growing presence in retail business. Erste Bank Hungary
acquired the Hungarian consumer banking business of Citibank
Europe comprising its retail banking and investment business as
well as consumer loans and cards businesses. Following the transaction, which is expected to occur in 2016, Erste Bank Hungary
will have the country’s second-largest retail customer portfolio.
New business initiatives. The implementation of a new forintdenominated housing loan product combined with Erste Building
Society has been completed. The advantage of the new product is
that accumulated savings in the building society account can be
used directly for loan payments, resulting in a reduction of
monthly instalments. New sales figures improved in the bank’s
most important product categories, mainly in lending, net savings
and building society sales. Both personal and mortgage new loan
disbursements performed well. New retail loan volumes increased
by 32.2%. The decline of retail deposit volumes in the low interest environment was offset by increasing volumes placed to
investment funds.
Strengthened digital channels. Digitalisation is a key element
of the bank’s efficiency improvement. Erste Bank Hungary closely cooperates with Erste Group’s innovation centre to align with
group-level initiatives. In 2015, the bank implemented the Mobile
Queuing app. The digital service Personal Finance Manager will
be rolled out in 2016.
International and local recognition. Owing to the bank’s
achiements in digital banking, Erste Bank Hungary was named
Most Innovative Bank of the Year 2015 in Hungary. The bank also
won MasterCard’s Bank of the Year Grand Prize.
Financial review
in EUR million
Net interest income
Net fee and commission income
Net trading and fair value result
Operating income
Operating expenses
Operating result
Cost/income ratio
Net impairment loss on financial assets not measured at fair value through profit or loss
Other result
Net result attributable to owners of the parent
Return on allocated capital
Net interest income in the Hungary segment (comprising Erste
Bank Hungary Group) declined mainly due to lower loan volumes, the impact of the consumer loan law as well as the lower
contribution from securities. Net fee and commission income
declined slightly due to lower fees from cash management products and card business. Net trading and fair value result decreased due to the non-recurrence of the positive impact of swaps
entered into with the Hungarian National Bank in 2014 to secure
refinancing of foreign currency loans at a fixed exchange rate.
Operating expenses increased on the back of higher personnel
costs following temporary hiring to execute the FX conversion
program. Consequently, operating result deteriorated significantly, the cost/income ratio went up. Net impairment loss on financial assets not measured at FV through profit and loss decreased
on the back of lower provisioning requirements in commercial
real estate business. Other result improved significantly as expenses related to the Hungarian consumer loan law in the amount
of EUR 336.8 million did not recur. The line item included the
50
2014
2015
Change
263.4
139.3
38.8
442.3
-175.8
266.5
39.7%
-152.2
-434.9
-330.6
-67.5%
194.4
137.5
-0.5
332.5
-179.9
152.6
54.1%
-105.8
-111.6
-72.6
-16.9%
-26.2%
-1.3%
n/a
-24.8%
2.3%
-42.8%
-30.5%
-74.3%
-78.0%
contribution to the resolution fund of EUR 2.1 million. Overall,
the net result attributable to the owners of the parent improved.
Credit risk
In the Hungary geographical segment, credit risk exposure declined further to EUR 61 billion (EUR 6.3 billion) in an environment marked by economic and political challenges for the banking sector. The loan portfolio contracted more sharply, to EUR
3.5 billion (-18.8%). This development was attributable to highly
restrictive lending as well as to the government-mandated conversion of Swiss franc or euro denominated retail mortgage loans
to Hungarian forint. As a result, the share of this segment in Erste
Group’s total loans to customers decreased to 2.7% (3.4%). Due
to the conversion of foreign-currency loans, loans to private
households as a percentage of total loans to customers declined to
65.9% (68.4%). Along with retail loans, lending to the public
sector was also down significantly. Due to the conversion of
foreign-currency loans, the currency composition of the customer
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loan portfolio changed fundamentally; the share of loans denominated in Hungarian forint rose to 80% (33%).
After extensive restructuring of the loan portfolio, loan quality
improved substantially and non-performing loans as a percentage
of total loans to customers declined to 18.7% (26.8%). As a result,
the NPL ratio went down for the first time since the onset of the
financial and economic crisis in 2008. This development was also
supported by sales of non-performing loans – both retail and corporate loans – in the amount of EUR 109 million. Coverage of nonperforming loans by risk provisions and collateral rose to 111.5%.
CROATIA
Economic review
After six years of recession, Croatia’s economy started to recover.
Domestic demand was positively impacted by lower energy
prices. Private consumption was boosted by the reduction in
personal income tax. In addition, investments stabilised and the
country’s well-developed tourism industry also performed well.
Overall, Croatia was still among the most challenging economies
in Central and Eastern Europe, with real GDP increasing by 1.6%
and GDP per capita stood at EUR 10,200 at the end of the year.
The unemployment rate reflected the economic performance and
dropped slightly to 16.7%. Due to political uncertainty prior to
the elections held in November 2015, Croatia’s fiscal position
remained challenging. The general government balance was
negatively impacted by lower personal income tax, which was
partly offset by additional revenues from increased excise duties
and capital gains tax. The conversion of CHF-denominated loans
also had a negative effect as revenues from corporate income tax
of banks declined. The general government deficit stood at 4.4%
and public debt as a percentage of GDP was 87.7%, one of the
highest in the region. S&P’s and Fitch confirmed Croatia’s longterm rating at BB, but downgraded the country’s outlook mainly
due to fiscal challenges and deteriorating debt dynamics.
Inflation remained below zero throughout 2015, with average
consumer prices standing at -0.5% at the end of the year. The
sharp decline in oil prices and low food prices led to a mild deflation. Given the country’s very high use of the euro, the Croatian
National Bank’s main objective remained to preserve nominal
exchange rate stability. As a result, the Kuna traded in the narrow
range of 7.5 to 7.7 against the euro.
Key economic indicators – Croatia
2012
2013
2014
2015e
Population (ave, million)
GDP (nominal, EUR billion)
GDP/capita (in EUR thousand)
Real GDP growth
Private consumption growth
Exports (share of GDP)
Imports (share of GDP)
Unemployment (Eurostat definition)
Consumer price inflation (ave)
Short term interest rate (3 months average)
EUR FX rate (ave)
EUR FX rate (eop)
Current account balance (share of GDP)
General government balance (share of GDP)
4.3
44.0
10.2
-2.2
-3.0
19.7
34.0
15.8
3.4
3.4
7.5
7.5
-0.1
-5.3
4.3
43.6
10.1
-1.1
-1.9
20.5
35.6
17.3
2.3
1.5
7.6
7.6
1.0
-5.4
4.3
43.1
10.0
-0.4
-0.7
22.7
37.4
17.2
-0.2
0.9
7.6
7.7
0.8
-5.7
4.3
43.7
10.2
1.6
1.2
24.7
39.8
16.7
-0.5
1.2
7.6
7.6
4.0
-4.4
Source: Erste Group
Market review
Croatia’s banking market was characterised by a weak demand
for loans, while customer deposits grew strongly by 6.2%. Customer loans fell by 1.7%, resulting in a balanced 102% loan-todeposit ratio. Profitability of the Croatian banking sector was
negatively affected by the substantial expenses in relation to the
conversion of the Swiss-franc denominated loans into euro. Despite this significant burden on banks’ profitability, the level of
capital adequacy remained satisfactory.
Financial intermediation – Croatia (in % of GDP)
150
123
124
123
120
90
87
86
78
76
83
81
60
30
0
2013
Total assets
2014
Customer loans
2015e
Customer deposits
Source: National Bank of Croatia, Erste Group
51
Erste Bank Croatia remained among the top three players in the
market, with a total asset market share of 14.6%. The bank outgrew the market both in customer loans and customer deposits by
growth rates of 0.4% and 8.4% respectively. The bank’s loan-todeposit ratio decreased to 111% by year-end.
Market shares – Croatia (in %)
21
18
15
15
15
15
14
13
14
14
13
Business review – Highlights
Innovations in retail business. The bank has continued its
strong emphasis on digital banking, particularly in the retail
business. Erste Bank Croatia now offers more online and mobile
channels, such as online account pre-openings and online loan
applications. Together with remote advisory services for retail
clients, the bank improved its customer targeting activities. These
efforts, along with the additional centralisation of back office
operations, aim at creating smoother processes and provide an
enhanced level of service to customers, thereby further strengthening the bank’s position as market leader according to customer
satisfaction surveys.
13
12
Focus on improved customer satisfaction. In line with the
bank’s efforts in further strengthening its high quality standards,
areas of activity were identified to improve customer centricity.
The measures taken led to a higher degree of customer satisfaction (ease of opening current accounts, satisfaction with branch
visits, etc.).
9
6
3
0
2013
Total assets
2014
Retail loans
2015
Retail deposits
Source: National Bank of Croatia, Erste Group
Addressing corporate customers. The bank finalised its
customer relationship management projects designed at improving client acquisition and cross-selling in the corporate business.
The acquisition process and customer management were significantly improved, showing in particular positive trends in the
second half of the year. In terms of gross corporate loans, Erste
Bank Croatia holds a market share of 15%.
Financial review
in EUR million
Net interest income
Net fee and commission income
Net trading and fair value result
Operating income
Operating expenses
Operating result
Cost/income ratio
Net impairment loss on financial assets not measured at fair value through profit or loss
Other result
Net result attributable to owners of the parent
Return on allocated capital
Net interest income in the Croatia segment (comprising Erste
Bank Croatia Group) increased due to a change in the deposit
structure towards sight deposits. Net fee and commission income
went up due to higher fees from payment transfers and card business. The net trading and fair value result was negatively impacted
by the Swiss franc exchange rate fixing for retail loans in January
2015 required by legislation as well as negative foreign exchange
differences on the open position in Swiss francs. Operating expenses went up due to increased personnel expenses as well as
higher legal and IT costs. The operating result deteriorated, as did
the cost/income ratio. The increase in net impairment loss on
financial assets not measured at FV through profit and loss was
driven by higher provisions in the SME business aiming at improving NPL coverage. This effect was mitigated by lower provisioning requirements in retail and large corporate businesses.
52
2014
2015
Change
261.2
79.9
24.1
399.3
-183.5
215.9
45.9%
-155.3
-4.4
32.6
10.7%
268.3
84.8
15.9
399.3
-187.0
212.3
46.8%
-167.3
-134.9
-45.5
-14.2%
2.7%
6.2%
-34.2%
0.0%
1.9%
-1.6%
7.8%
>100.0%
n/a
Other result deteriorated significantly due to the booking of provisions resulting from legislation requiring the conversion of customer loans (Swiss francs to euro) in the amount of EUR 129.5
million. The line item included the contribution to the resolution
fund of EUR 4.2 million. Consequently, the net result attributable
to the owners of the parent deteriorated considerably.
Credit risk
In the Croatia geographical segment, credit risk exposure declined to EUR 9.4 billion (-2.4%). Loans to customers decreased
to EUR 6.7 billion (-1.8%). The share of this segment in Erste
Group’s total loans to customers was also slightly lower at 5.1%
(5.3%). The composition of the loan portfolio by customer segments changed only moderately: while lending to large corporates
was slightly down and loans to private households were at the
CEO letter | Management board | Supervisory board report | Capital markets | Strategy | Management report | Segments | Society | Customers | Employees | Environment | Corporate governance | Financial statements
same level as in the previous year, loans to small businesses
increased. Lending to the public sector, especially to municipalities, again played a major role. This group accounted for 19.7%
(19.5%) of the total customer loan portfolio.
Swiss franc denominated loans will be eliminated almost completely in the short to medium term after the passing of legislation
in 2015 permitting their conversion to Croatian kuna or euro. At
the end of December 2015, Swiss franc denominated loans still
amounted to EUR 513 million. At 66%, the majority of loans to
customers are still denominated in euro. The high share of foreign-currency loans is mostly due to the widespread use of the
euro in Croatia. Euro loans are usually matched by corresponding
income or deposits in euro.
Credit quality improved for the first time in several years, with
non-performing loans declining to EUR 1.0 billion (-18.2%) and
the NPL ratio down to 15.3% (18.4%). This positive trend was
initiated primarily by the sale of non-performing loans in the
secondary market, which started to develop in Croatia for the first
time in 2015. Provisioning for non-performing loans by loss
allowances rose to 67.4% (60.4%).
fiscal transfers and declining real wages. Agriculture, on the other
hand, posted a much better performance than in 2014, when
heavy floods impacted the sector. Industrial production also
showed a stronger and faster recovery than expected. Overall,
real GDP increased by 0.7% and GDP per capita stood at
EUR 4,600. Despite some improvements in labour market indicators, in particular new jobs in retail trade and agriculture, the
unemployment rate remained one of the highest in Europe and
stood at 17.9%.
The Serbian government achieved impressive fiscal consolidation
based on its precautionary arrangement with the International
Monetary Fund in the previous year. The government deficit fell
sharply to 3.7% of GDP as considerable savings were achieved
from cuts in public wages and pensions, a reduction of subsidies,
as well as privatisation and restructuring plans for state-owned
enterprises. In addition, the government improved tax collection.
Public debt as a percentage of GDP increased slightly to 73.2%.
Rating agencies acknowledged the positive macroeconomic
developments, such as the economic recovery pick-up, maintenance of the fiscal consolidation path and improved external
imbalances. Fitch kept the sovereign rating unchanged at B+ and
upgraded the outlook in December 2015.
SERBIA
Economic review
The Serbian economy slowly emerged from recession. Investments were one of the key factors of the improved economic
performance, mainly due to reforms implemented in the last two
years resulting in an improved business environment and a stabilisation of the economy. Exports showed a robust performance,
while private consumption dropped slightly as a result of lower
Inflation was high compared to other Central Eastern European
countries and remained below the Serbian National Bank’s target
range of 2.5% to 5.5%. Average consumer price inflation was
impacted by relatively weak domestic demand and falling oil
prices and stood at 1.7% at the end of the year. The Serbian National Bank cut the base rate seven times from 8.0% to 4.5% by
the end of the year.
Key economic indicators – Serbia
2012
2013
2014
2015e
Population (ave, million)
GDP (nominal, EUR billion)
GDP/capita (in EUR thousand)
Real GDP growth
Private consumption growth
Exports (share of GDP)
Imports (share of GDP)
Unemployment (Eurostat definition)
Consumer price inflation (ave)
Short term interest rate (3 months average)
EUR FX rate (ave)
EUR FX rate (eop)
Current account balance (share of GDP)
General government balance (share of GDP)
7.2
31.7
4.4
-1.0
-2.0
26.5
44.3
24.0
7.3
11.6
113.1
113.7
-11.5
-6.5
7.2
33.3
4.6
2.6
-1.5
31.7
44.2
22.1
7.9
10.0
116.5
114.6
-6.1
-5.0
7.2
33.1
4.6
-1.8
-1.5
32.8
44.8
19.4
2.1
8.3
117.3
121.0
-6.0
-6.6
7.2
32.9
4.6
0.7
-0.7
34.2
46.0
17.9
1.7
6.1
120.7
121.5
-5.3
-3.7
Source: Erste Group
53
Market review
The macroeconomic recovery was also reflected in the country’s
banking market developments. Growth was clearly driven by
retail loans, which increased by 4.8%, while corporate loans grew
by 1.9%. The banking system’s strong capital adequacy of 21%
and its favourable liquidity situation were also confirmed by the
asset quality review of the National Bank of Serbia. The high
level of non-performing loans, however, remained a challenge for
the banking system. Asset quality related issues were especially
visible in the corporate segment, with non-performing loans at
26% while it remained below 12% in the retail business. More
than 70% of the system’s customer loans were denominated in
foreign currency, mainly in euro reflecting the country’s high
level of euroisation.
Financial intermediation – Serbia (in % of GDP)
100
86
85
81
80
60
44
40
40
49
48
47
45
attractiveness of the Serbian banking market was also reflected in
new market participants. Turkish Halkbank entered the Serbian
market in October 2015 by taking over Čačanska banka, while
mts Banka, a mobile bank majority-owned by Telekom Srbija,
appeared on the market in May. Foreign-owned banks kept their
dominant position with a market share of approximately 75%.
Erste Bank Serbia remained among the country’s top 15 banks.
Its market share of customer loans increased to 4.3% by achieving retail and corporate market shares of 4.2% and 4.4% respectively. On the deposit side, Erste Bank Serbia’s activities regarding foreign exchange and local currency savings continued. As a
result, the bank’s deposit base remained fairly divided between
euro and dinar deposits. The bank’s market share of customer
deposits stood at 3.8%. Overall, Erste Bank Serbia had a market
share measured by total assets of 3.4%.
Business review – Highlights
Most successful year. In terms of profitability, the year 2015
was the most successful one since Erste Bank Serbia launched its
operations. In addition, the continued inflow of retail deposits
reaffirmed customers’ trust and the bank’s position as a stable
financial institution. Erste Bank Serbia is highly rated by its customers by all parameters of quality: trust, recommendation, satisfaction and ease of doing business with the bank.
Growing retail business. The bank continued to increase its
20
0
2013
Total assets
2014
Customer loans
2015e
Customer deposits
Source: National Bank of Serbia, Erste Group
Overall, customer loans increased by 3.0% and customer deposits
by 6.5%, leading to a decrease in the system’s loan-to-deposit ratio
to 108%. The banking system’s profitability improved in 2015. The
retail market share, both in loans and deposits. The branch network expansion through the express branches concept, which
started in late 2014, continued in 2015 resulting in branches in
cities where the bank was not present before.
Focus on innovation. To meet the financial requirements of its
customers through different channels, the bank continued its
digitalisation projects. The bank also continued to upgrade its
banking solutions with new functionalities such as online application for overdrafts, credit cards and cash loans.
Financial review
in EUR million
Net interest income
Net fee and commission income
Net trading and fair value result
Operating income
Operating expenses
Operating result
Cost/income ratio
Net impairment loss on financial assets not measured at fair value through profit or loss
Other result
Net result attributable to owners of the parent
Return on allocated capital
54
2014
2015
Change
34.4
13.4
2.9
50.5
-38.6
11.9
76.4%
-15.7
-1.3
-5.4
-10.2%
40.8
12.6
3.2
57.1
-39.0
18.1
68.4%
-10.8
-0.6
5.3
7.9%
18.7%
-6.1%
11.1%
13.1%
1.2%
51.5%
-31.3%
-51.8%
n/a
CEO letter | Management board | Supervisory board report | Capital markets | Strategy | Management report | Segments | Society | Customers | Employees | Environment | Corporate governance | Financial statements
Net interest income in the Serbia segment (comprising Erste
Bank Serbia Group) increased due to growing customer loan
volumes in retail and corporate business as well as higher deposit
volumes. Net fee and commission income decreased mostly due
to lower lending fees. The improvement of net trading and fair
value result was mainly driven by foreign exchange transactions.
Operating expenses went up. Net impairment loss on financial
assets not measured at FV through profit and loss declined on the
back of better portfolio quality. As a result, the net result attributable to the owners of the parent improved significantly.
Credit risk
Total credit risk exposure in the Serbia geographical segment rose
substantially to EUR 1.0 billion (+17.2%). Loans to customers
grew at an even faster pace to EUR 719 million (+22.2%). With a
share of 0.5% in total customer loans, this segment was still only
of relatively minor significance for Erste Group. This highly
dynamic development was attributable in particular to expanding
business with medium-sized businesses and larger enterprises.
The share of foreign-currency – almost exclusively eurodenominated – loans in the total loan portfolio stood at 79%
(75%). This is mainly due to the widespread use of the euro in
Serbia as a result of the weakness of the local currency. Euro
loans are usually matched by corresponding income or deposits in
euro.
The clean-up of the loan portfolio by write-downs and sales and a
decline in new non-performing loans resulted in a marked improvement in loan quality. The share of non-performing loans in
the total loan portfolio was down 3.6 percentage points to 10.5%.
This positive trend was seen in all customer segments, with the
improvement being largely attributable to higher quality in corporate loans. NPL coverage by risk provisions excluding collateral
stood at 88.4% (75.8%).
OTHER
Financial review
in EUR million
Net interest income
Net fee and commission income
Net trading and fair value result
Operating income
Operating expenses
Operating result
Cost/income ratio
Net impairment loss on financial assets not measured at fair value through profit or loss
Other result
Net result attributable to owners of the parent
Return on allocated capital
Net interest income decreased moderately. Net fee and commission income declined predominantly due to the reallocation of
subsidiaries to other segments. Net trading and fair value result
improved due to valuation effects. Operating expenses remained
stable. Other result improved significantly due to the non-
2014
2015
Change
175.7
-4.9
-10.3
189.9
-242.9
-53.0
>100.0%
-77.1
-1,100.9
-1,411.2
-24.4%
171.9
-30.8
3.3
178.1
-243.0
-64.9
>100.0%
-80.5
-67.0
-205.3
-2.9%
-2.1%
>100.0%
n/a
-6.2%
0.0%
22.5%
4.4%
-93.9%
-85.5%
recurrence of negative one-off effects, namely goodwill impairments of EUR 475.0 million and the write-down of the entire
remaining value of customer relationships and brand of BCR of
EUR 470.7 million. Net result attributable to the owners of the
parent thus improved significantly.
55
Commitment to society
Almost 200 years ago, the very founding concept of Erste
österreichische Spar-Casse already embraced the idea of
contributing to the common good. Erste Group has expanded its
core activities from those of a traditional savings bank focused on
retail lending and deposit-taking to include those of an
international bank providing financial services to all sectors of
the economy in its core markets. Unlike the operations of
investment banks or many other financial institutions, Erste
Group’s business has always been firmly embedded in the real
economy. Customer savings deposits fund the loans for housing
construction or purchases or investments by companies. This is
how Erste Group creates sustainable value for society. In
conducting its business, bearing corporate responsibility towards
its customers, employees, investors, local communities and
national economies is a defining feature of the bank. As one of
the leading providers of financial services in Central and Eastern
Europe, Erste Group is also an important employer, a customer of
– mostly local – suppliers and a tax payer.
Because of the multitude of projects being pursued in business and
financial education, sponsoring and corporate volunteering in all of
Erste Group’s core markets, only a few selected projects can be
highlighted here. More detailed information on Erste Group projects is available at www.erstegroup.com/commitment and at websites of Erste Group’s subsidiaries in the respective local language
and in some cases also in English.
FINANCIAL LITERACY
A good understanding of money and finance is of the utmost
importance as it enables individuals and households to improve
and secure their economic situation. Financial ignorance limits
social, economic and cultural life. Financial literacy is important
for creating equal opportunities, social inclusion and economic
well-being.
Erste Group believes that knowledgeable and financially educated customers are more likely to make sound appropriate financial
decisions. Financially secure individuals and families will contribute positively to communities and foster economic growth and
development. This in turn supports sustainable economic development in the region and has a positive effect on market stability.
56
Therefore, Erste Group has been engaged in financial education
activities for many years. The main objectives of Erste Group’s
financial education activities are to enable people of all ages to
gain adequate skills and competencies to make informed and
appropriate financial decisions and to assure that the employees
of Erste Group have up-to-date knowledge as well as a comprehensive understanding of financial concepts and recent economic
developments. Detailed knowledge of the range of financial
products offered by the bank is simply not enough. Erste Group’s
employees have to be able to understand the bigger picture and to
advise customers to choose the appropriate financial products.
Erste Group is committed to ensuring that the financial products
and services offered are transparent and easy to understand and
meet the customers’ short- and long-term financial needs.
In line with a recommendation of the Organisation for Economic
Co-operation and Development (OECD) that financial education
should start as early as possible, Erste Group puts a particular
emphasis on financial education projects for children and young
people. The aim is to enable even children to acquire knowledge
and skills to build responsible financial behaviour. Erste Group
wants to empower young people to participate in economic life
and to understand finance as a system that supports everyone in
their day-to-day activities.
Erste Bank Hungary, together with the Foundation Salva Vita,
developed Erste Salva, a programme of financial educational
lessons given by volunteering bank employees in ten schools. The
Contemporary Financial World programme offers a variety of
activities including the interactive board game Financial Freedom in more than sixty schools in the Czech Republic. Slovenská
sporiteľňa supports educational projects in grammar schools and
universities and realised the project Get to Know Your Money
with the Foundation of Children in two hundred schools, educating students about earning, spending and saving money. Erste
Bank Oesterreich developed further modules for teachers on
current economic developments and entrepreneurship education
on the platform www.geldundso.at. The crowdfunding platform
www.startedeinprojekt.at introduced a new workshop format for
teachers of Austrian schools and their students on how to successfully do crowdfunding for their school projects.
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In some of the core markets, workshops are regularly held at
schools on topics such as how to achieve one’s own financial
goals and how to avoid debt traps. In 2015, such workshops were
attended by several thousand pupils and apprentices in Austria
and in the Czech Republic. Through the Seniors Communicate
programme, employees provide free-of-charge training courses to
senior citizens across the Czech Republic on how to use payment
cards and Internet banking.
A new ambitious project is the Financial Life Park (FLiP), a
museum and learning trail focusing on personal finance and basic
economics. The FLiP is designed to raise curiosity and illustrate
the importance of finance. School classes starting from primary
school are the main target group. The FLiP, located in the newly
built Erste Campus in Vienna, Erste Group’s headquarters, will
open its doors in autumn 2016. It will provide space for workshops,
lectures and seminars, especially on entrepreneurship education for
pupils and teachers.
who already hold a work permit are offered a housing account
and hence the chance to enter into a tenancy agreement.
Erste Bank Oesterreich has established itself as the preferred
partner of charity fundraisers in Austria. More than 130 organisations are clients of the bank. Everyone can donate conveniently via
netbanking or at the branches. Participating NGOs have already
promoted more than one hundred regional and supra-regional
fund-raising projects through a new donation app (Hilfreich App).
In Austria, donations total about EUR 600 million annually. Banca
Comercială Română operates www.BursaBinelui.ro, the only
Romanian platform for no-fee donations, which promotes approximately 300 listed non-governmental organisations (NGOs).
Donors know that even small donations fully benefit projects of
the NGOs. Erste Bank Serbia supported around 90 different
projects and initiatives in 2015. The bank continued to reward
and support young, active, talented and creative people who have
achieved outstanding results through a programme called Club
supERSTEp.
SPONSORING
For Erste Group, sponsoring is the voluntary promotion and
support of institutions, initiatives and projects relating to social
welfare, culture and education. The bank also has a long tradition
in supporting specific sports. Erste Group considers sponsoring as
an opportunity to pass on added value earned from business
activities to society. The MehrWERT sponsoring programme of
Erste Bank Oesterreich shows Erste Group’s commitment to
social responsibility and the values it considers worthy of support
beyond its business activities.
SOCIAL ACTIVITIES
Slovenská sporiteľňa continued its support for projects that create
new jobs in sheltered workplaces and for organisations and projects that work with handicapped or homeless people as well as
Roma families. For the past seven years, young people from
children’s homes have obtained scholarships under a project
called Vzdelávaním k úspechu (Success through Education).
Česká spořitelna is the first financial institution in the Czech
Republic to regularly certify its branches and educate employees
in approaching people with disabilities correctly. The bank runs a
Bank without Barriers project. In addition, the new portal
www.bankabezbarier.cz provides information about special services available for handicapped customers including automated
teller machines for use by visually impaired clients. Within the
framework of +1 Act programme, Erste Bank Hungary cooperates with NGOs focusing on social challenges and supports
their projects.
Erste Group’s long tradition of cooperation with established local
and international organisations reflects its commitment to the
promotion of social welfare. The focus is on providing practical
and swift assistance to people in difficult life situations and on
support for initiatives for the long-term personal development of
disadvantaged people and the creation of new opportunities.
ART AND CULTURE
Erste Bank Oesterreich has been a partner of Caritas for many
years. The fight against poverty is a key priority within the wide
range of joint aid projects. Erste Bank Oesterreich sponsored the
annual domestic aid campaigns as well as campaigns in Eastern
Europe. It also continued its support for the youngCaritas project.
Since 2003, Erste Bank Oesterreich, the savings banks and s
Bausparkasse have been sponsoring Hilfswerk Österreich, one of
the largest non-profit providers of health care, social and family
services in Austria. Additionally, Erste Bank Oesterreich has also
been supporting the aid organisation lobby.16, which works to
protect the right to education of unaccompanied young refugees
and give them access to education, employment and participation
in social life. In Austria, asylum seekers were offered a refugee
account free of charge for the duration of the asylum process, but
for at least one year. In cooperation with Caritas, asylum seekers
Erste Group supports and promotes partnerships between cultural
and social institutions with the aim of jointly developing ideas
and strategies for deepening the understanding and appreciation
of art. Erste Bank Oesterreich is the principal sponsor of Jeunesse, which offers a broad concert programme covering classical, jazz, world and new music as well as children’s concerts. The
focus is on the promotion of young artists by giving them opportunities to perform professionally on stage as well as on the development of new concepts for teaching music appreciation. A
further goal of the cooperation is to give socially disadvantaged
persons a chance to experience music. Erste Group also works
with charitable social organisations such as Caritas to implement
specific activities for bringing music to people. In Slovakia,
Slovenská sporiteľňa is most visibly associated with the Bratislava Jazz Days, but also provided support to the music festival Viva
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musica!, to exhibitions held in a modern art museum, Danubiana,
to the film festival Jeden svet (One World) and to five regional
theatres. Česká spořitelna is the most dedicated long-term promoter of music in the Czech Republic. The portfolio includes the
biggest multi-genre festivals – Colours of Ostrava and United
Islands. Česká spořitelna is also a patron of Česká filharmonie,
the Czech Philharmonic orchestra.
For the twelfth time, Erste Bank Oesterreich acted as the principal sponsor of the Viennale, Austria’s largest international film
festival. For the fifth time, Erste Bank Oesterreich awarded the
MehrWERT Film Prize to a film by an Austrian film director
presented at the Viennale. With the support of Erste Bank Oesterreich, selected designers are offered an opportunity to work on
projects as part of the Vienna Design Week every year. In 2015,
five projects were funded. For the first time, the MehrWERT
Design Prize with a focus on social design was awarded. The
MehrWERT sponsoring programme also provides support to
Klangforum Wien, the Gustav Mahler Youth Orchestra, Wien
Modern, Jazz at Konzerthaus, the Vienna Secession, Tanzquartier
Wien, the ZOOM Children’s Museum, the Vienna Festival, the
International Children’s Film Festival, the socio-cultural project
Hunger auf Kunst und Kultur (Hunger for Art and Culture), the
mirno more peace fleet, Yad Vashem and many other institutions.
Kontakt, Erste Group’s art collection, concentrates on art from
Central, Eastern and Southeast Europe. The collection reflects the
political and historical transformation in Europe and the significance of art against the backdrop of specific cultural, social and
economic developments in the post-Communist countries. Erste
Bank Croatia organised a well-known competition for emerging
artists and art students, called Erste fragments, for the eleventh time
in 2015. The bank purchased the award-winning works of art and
granted a cash prize. Erste Bank Serbia continued to support local
cultural and social initiatives, including NGOs, across the country
through its cultural programme Centrifuge. Assistance was also
provided to the Belgrade Jazz Festival and the Belgrade Guitar Art
Festival as well as to numerous programmes focusing on literature
and the fine arts. Since 2008, Erste Bank Hungary has been the
sponsor of Művészetek Palotája (Palace of Arts), a highly recognised and acclaimed institution both in Hungary and internationally.
CORPORATE VOLUNTEERING
Erste Group facilitates, supports and encourages employees to
actively contribute and volunteer. Donating money is not the only
way of supporting people, communities or non-profit organisations. Employees and managers of Erste Group prove their commitment by providing time and experience.
Erste Group’s Austrian initiative Time Bank is based on the idea
that personal commitment and practical assistance are often
urgently required and as valuable as monetary donations. The
Time Bank initiative was launched in 2012 and is a scheme that
matches employees who want to donate their spare time and skills
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with currently 38 partner organisations. Time Bank has proved
highly successful in providing short-term assistance even on short
notice if needed. In addition, volunteers organised in-kind donations, such as toys and sporting goods, and provided support to
partner organisations by disseminating information on their special events and fundraising activities. Employees of the Holding,
Erste Bank Oesterreich and their subsidiaries, as well as of many
regional savings banks across Austria volunteer their time in their
local communities.
The main focus in 2015 was supporting partner organisations in
dealing with the refugee crisis in Austria. Time Bank provided
employees with a comprehensive overview of volunteer opportunities with organisations and initiatives to help refugees in Austria. It collected hundreds of public transport tickets for Diakonie
and organised a winter clothes collection that provided partner
organisations with over 600 boxes of donated clothing items.
In addition to former branch premises at Europaplatz, Erste Group
also made available as yet unused space at Erste Campus as emergency shelter for refugees. Because of their close vicinity to Vienna’s Central Train Station and Westbahnhof, both shelters with a
total of 350 beds were heavily frequented. The refugees were
supported by teams of 20 employees during working hours. Overall, more than 500 employees were engaged in the bank’s refugee
relief effort. In mid-October, the Europaplatz emergency shelter
was converted into a facility designed to provide basic services for
families with children seeking permanent asylum in Austria.
Employees of Slovenská sporiteľňa took part in numerous voluntary activities aimed at the support of local communities. In 2015,
the bank as well as Erste Bank Hungary introduced the option of
volunteering instead of teambuilding activities. Česká spořitelna
contributes to the development of the Czech non-profit sector by
actively supporting the publicly beneficial volunteer work of its
employees. Since 2007, employees have been granted two working days off each year to volunteer as part of Česká spořitelna’s
Charity Days programme. Česká spořitelna supports a special
volunteering programme for managers, which allows them to
spend up to a week offering their skills to NGOs and charity
organisations. Erste Bank Croatia signed the Charter on recognition of competencies acquired through volunteering, which means
that as a bank, it recognises the importance of competencies
gained through volunteering and that these competencies are
considered during the recruiting process and career progression.
For example, they organised volunteering in children’s shelters
and helping in other socially sensitive areas; there are plans for
further activities in 2016.
354 active and retired employees of Erste Bank Oesterreich and
the savings banks work on a voluntary basis at Zweite Sparkasse.
People with no access to banking services can open an account
without an overdraft facility at Zweite Sparkasse. The accounts
are offered in close co-operation with partners such as Caritas or
debt-counselling centres.
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SPORTS
Erste Group has been supporting amateur and professional sporting events in Austria and Central Europe for many decades. Projects are carried out in a spirit of close partnership with the organisers and hosts of these events. Running, ice hockey and tennis
are given particular emphasis, as is the promotion of activities for
young athletes.
In tennis, activities range from support for amateur initiatives
such as the BCR Tennis Partner Circuit in Romania to professional tennis events such as the Erste Bank Open in Vienna, the
most important tennis tournament in Austria. The Erste Bank
Open, sponsored again by Erste Bank Oesterreich 2015, was
upgraded in 2015 to the level of an ATP World Tour 500 tournament, and with a prize money of EUR 2.4 million it ranks fifth in
Europe.
In 2015, Erste Group sponsored a large number of running
events, including many in support of social projects such as the
erste bank vienna night run in Austria, the Košice Peace Marathon – the oldest European marathon – in Slovakia, the Color run
in Romania and the Homo si Tec Marathon in Croatia. Erste Bank
Sparkasse Running 2015 comprised more than 200 running
events and more than 150,000 participants dashing some million
kilometres through Austria.
Since 2003, Erste Bank Oesterreich has been the name-giving
main sponsor of the national ice hockey league, the Austrian
national ice hockey team and the local Vienna Capitals team. The
Erste Bank Ice Hockey League grew beyond borders; teams from
Czech Republic, Hungary, Slovenia and Italy are now also participating. To support young Austrian ice hockey players, two youth
series – Erste Bank Young Stars League and Erste Bank Juniors
League – were introduced.
Česká spořitelna is the main partner of the Czech Athletics Federation and supports athletes of all performance levels – from the
national teams to young talents. Owing to the athletic youth
programmes, more than ten thousand children have been trained
by licensed instructors and coaches.
For 40 years, Erste Bank Oesterreich and the savings banks have
supported the school leagues in soccer and volleyball. This commitment represents the longest-standing sponsorship of young
athletes in Austrian sports. With more than 1,000 schools participating every year, these are the largest youth competitions in
Austria.
59
Customers and suppliers
FOCUS ON CUSTOMER RELATIONS
Erste Group puts customers and their interests at the centre of its
business activities. Only banks that understand the financial
needs of their customers can offer the right solutions at the right
time. Special attention is devoted to the quality of products and
advisory services as these are key factors for customer satisfaction and, therefore, for building up and maintaining long-term
customer relations. Erste Group strives to offer its customers
appropriate and understandable products and advisory services.
This includes constant efforts to keep service quality and products
aligned to customers’ needs and requirements and to recognise
customers’ needs at an early stage to be able to offer the right
solutions in time. Factors such as financial literacy and experience as well as the financial position and the risk appetite of the
individual customer are taken into account. The high standard of
quality aimed at in advisory services is guaranteed by the continuous training of Erste Group’s employees. The focus of Erste
Group is clearly on the relationship with the customer, not on the
transaction.
The customers decide themselves how they wish to do their
banking. For this reason, in 2015, Erste Group focused on further
improving its digital services and its branch concept. In Austria,
George was launched to start a new era in digital banking and
was warmly welcomed by the customers. The branch concept was
thoroughly overhauled. Simple banking business can now be
done in service branch offices, while newly designed advisory
centres provide in-depth support to meet more complex, longterm needs.
ers of Erste Group who require complex long-term financial
services expect sound advice. Top priorities of product information remain transparency and easy-to-understand products and
services, both in terms of technical details and language. Erste
Bank Oesterreich is therefore continuing to expand its range of
multilingual advisory and other services in English, Turkish,
Serbian, Croatian and Czech. Banca Comercială Română provides information on products and services in Hungarian.
For partially sighted customers, Erste Bank Oesterreich offers
bank cards printed in braille, and each branch of Erste Bank as
well as each VIVA shop (where available) operates at least one
cash dispenser equipped to provide audio instructions. Česká
spořitelna has further increased the number of cash dispensers
designed for use by persons with impaired vision so that by now
already one out of two of all machines boast this feature. In addition, Česká spořitelna has implemented the service e-Scribe in
several branches to facilitate the communication between people
with impaired hearing and bank advisers. In 26 branches the bank
also offers an online subscription service (www.tichalinka.cz),
which is unique on the Czech banking market.
The number of branches with barrier-free access has risen further
across Erste Group. Working with the Prague wheelchair users’
organisation, Česká spořitelna tested all of its branch offices for
barrier-free access. 234 branch offices were classified as being
100% barrier-free. Erste Bank Hungary has already remodelled
more than two thirds of its branches, and access is likewise barrier-free at all new or remodelled branches of Erste Bank Serbia. In
addition, Erste Bank Serbia offers special advisory services to
people who are deaf or hard of hearing.
ACCESSIBILITY
Customer centricity also means providing customers with access
to banking services through many different channels. Customer
expectations of a modern bank are subject to constant change.
Digital channels have become as natural to many customers as
barrier-free access to branches. Today, many customers appreciate being able to conduct their banking transactions at any time,
from anywhere, via their smartphones or on the Internet.
Erste Group believes that, despite technological progress, personal contact with customers remains important in banking. Custom-
60
The websites of the local banks of Erste Group are continuously
updated. In this respect, the focus is on accessibility, usability and
easy–to-understand content. Customers may choose between
three font sizes on the websites of the Holding, Erste Bank Oesterreich, Banca Comercială Română, Slovenská sporiteľňa, Erste
Bank Hungary and Erste Bank Croatia. In addition, the websites
of the Holding, Erste Bank Oesterreich, Erste Bank Serbia, Erste
Bank Croatia and Banca Comercială Română feature responsive
design, which means that the website adapts automatically to
screen size and resolution for optimum display.
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INNOVATION AND PRODUCT QUALITY
Further to developing new products, the aim is to identify and
realise potential for improvement. Assuring the high quality of
the financial products and services offered is an essential element
in product development. The Product Approval Process, implemented for newly developed products, ensures to meet customer
expectations as well as Erste Group’s own quality standards. All
new products are reviewed for marketability prior to their launch.
Standardisation of processes, documentation rules and decisionmaking bodies guarantee consistent product standards and product approval across the group.
To enhance quality even further, it was decided in 2015 to integrate operational risk assessment, including the testing of new
products for potential financial, legal and reputational risks.
CUSTOMER SATISFACTION
High levels of customer satisfaction and thus customer loyalty
secure the bank’s long-term success. The quality of customer
relations ultimately depends on the customers’ experiences in their
day-to-day dealings with the bank. Such experiences may be direct
or indirect, significant or less significant, conscious or subconscious. Customer satisfaction is evaluated by means of representative and extensive surveys conducted across all markets of Erste
Group.
On this basis, the Customer Experience Index (CXI) is calculated,
which assesses the quality of customer relationships and classifies
them in five categories. The CXI is also used to determine the
positioning as well as the strengths and weaknesses of the local
banks of Erste Group relative to the top three competitors in each
country. Furthermore, the CXI is a bonus criterion for both the
management board of Erste Group and the management board
members of the local banks.
In 2015, Erste Group improved in customer experience aspects
across its markets. The positive development is especially visible
in the SME segment. Slovenská sporiteľňa and Erste Bank Hungary were particularly successful in improving customer satisfaction.
In private banking and asset management, Erste Group further
strengthened its position in Central Europe despite the persistent
low-interest-rate environment. The focus of the services offered
was on long-term wealth accumulation, estate planning, asset
management and foundation management. In addition, new
products featuring direct investments in real estate, gold and
diamonds were developed. Besides the continuing strengthening
of the market positions of Erste Group and its local banking
subsidiaries in Central and Eastern Europe, the main priority in
the coming year will be the implementation of the new regulatory requirements under MiFID II. Erste Private Banking will
continue its focus on offering its customers advisory excellence
and transparency.
In 2015, Erste Private Banking was again named Best Private
Bank in CEE by the business magazine The Banker. To maintain
these high standards, all private banking advisers will attend a
new training programme on completion of which they will receive an internationally recognised certificate. The fact that all
banking subsidiaries of Erste Group operate under a brand name
of very high recognition value and trustworthiness represents a
significant competitive advantage in the banking business, which
has manifested itself, among other things, in steady inflows of
deposits and funds under management at times of economic
uncertainty.
SUSTAINABLE INVESTMENT
Erste Asset Management was an early mover in anticipating the
growing needs of investors to increasingly emphasise environmental and socio-ethical aspects in their investment decisions. Over
the past decade, Erste Group has seized this opportunity and developed the most diverse portfolio of sustainable funds in Austria.
Since 2012, all asset management entities of Erste Group have
been operating under the umbrella of Erste Asset Management UN
PRI Signatories and have hence committed themselves to complying with the UN Principles of Responsible Investment (PRI). The
decision not to allow any actively managed mutual fund to invest
in companies engaged in controversial weapons such as land
mines, nuclear weapons or cluster bombs had already been taken
in 2011. By signing the Bangladesh Memorandum in 2013, Erste
Asset Management agreed to refrain from investments in companies and subcontractors of such companies that commit violations
of labour laws or human rights in their countries’ textile industry.
Furthermore, funds are not allowed to engage in food speculation.
Erste Asset Management is an acknowledged and leading provider of sustainable investment funds in Austria and in the CEE
region. In 2015, Erste Asset Management managed assets worth
EUR 55 billion. Its subsidiary Erste-Sparinvest KAG has
strengthened its market leadership position in Austria. Actively
managed funds that are amongst others screened for prohibited
weapons amounted to EUR 23.4 billion. The total volume of
assets managed by sustainable investment funds reached EUR 4
billion in 2015, up 10% versus 2014.
In 2015, sustainable investment remained one of the core competencies of Erste Asset Management. Sustainability experts of
Erste Asset Management managed 28 investment funds in the
categories public funds and special funds/externally mandated
portfolios. The managed public funds comprised seven bond
funds, four regional stock funds, one micro-finance fund of funds,
one theme funds for climate protection and the environment (the
latter two funds were managed jointly with WWF Austria) as well
as one asset allocation fund of funds. Five stock funds were
bundled into two. 2015 was characterised by strong investor
61
demand for funds that invest in emerging market corporate bonds
globally, in conformity with sustainability rules. In addition, a
new public fund, one of the first of its kind, was established that
solely invests in globally certified green, social and climate
awareness bonds.
In 2015, the main focus of financial inclusion was again on micro
banking and social enterprise financing. In addition, local networks promote the training of social entrepreneurs by helping
them acquire the expertise and the skills required for running
their businesses successfully.
In 2015, Erste Asset Management was awarded the newly created
FNG label for several of its sustainable funds. Created by Forum
Nachhaltige Geldanlagen e.V. (FNG), the FNG label is the quality
standard for sustainable financial investment in German-speaking
countries. To qualify for the FNG label, the minimum requirements are transparency and process criteria, the exclusion of
weapons and nuclear energy and meeting standards in four UN
Global Compact categories: human rights, labour law, environmental protection and the fight against corruption and bribery.
Micro financing
All local banks of Erste Group offer micro-financing schemes
customised for their markets. In Austria, the micro-finance initiative was continued in cooperation with the Federal Ministry of
Labour, Social Affairs and Consumer Protection for the sixth
consecutive year. Under this initiative, Erste Bank Oesterreich
offers start-up loans to people who were previously jobless or
threatened by unemployment. So far, more than 480 start-ups
have received funding under this programme from savings banks
and Austria Wirtschaftsservice.
As regards engagement and interaction with investees, business
partners and clients, global companies were contacted on various
subject matters, with the key topics being solutions for climate
change/alternative energy, water supply and energy. Debates were
held with external sustainability experts and analysts, and questions on sustainability were addressed to key representatives of
relevant industries. In 2015, international co-operation (e.g. UN
PRI) was further intensified under the heading of Engagement in
order to be able to approach companies from a position of greater
strength. In this context, action was taken in relation to retail
trade supply chains and the oil industry.
In 2015, the ethics board – the Erste Responsible Advisory Board
– commenced its work and contributed successfully to sustainable
investments of Erste Asset Management. The EAM SRI Universe
Report is a monthly publication that covers the investment universe for the sustainability funds. Erste Asset Management was
the first Austrian asset management company to sign the Montréal Carbon Pledge. Under this scheme, capital market participants
agree to have the CO2 emissions of their stock holdings measured
and to annually disclose their CO2 footprint as well as to support
the efforts of the Paris World Climate Summit to reduce CO2
emissions. In addition, Erste Asset Management continued to be
an active member of Forum Nachhaltige Geldanlagen (Forum for
Sustainable Financial Investments), Eurosif and Verein zur
Förderung von Ethik und Nachhaltigkeit bei der Geldanlage
(Corporate Responsibility Interface Center, CRIC). The FNG
sustainability label for German-speaking countries was implemented in late 2015 and was awarded to five sustainability funds
managed by Erste Asset Management.
FINANCIAL INCLUSION
Offering simple banking services to the otherwise unbanked part
of the population was among the main reasons behind the foundation of Erste österreichische Spar-Casse in 1819. For a variety of
reasons, even today some segments of the population do not have
access to financial services of commercial banks.
62
In Romania, Good.bee Credit offers self-employed persons and
small businesses development-oriented financing products and
supports regional economic development by providing micro
loans. Good.bee Credit mainly aims at small enterprises in rural
areas that have otherwise no access to traditional banking. At
year-end 2015, more than 4,300 loans with a total volume of
EUR 35 million had been granted. In 2015, Erste Bank Serbia
and the NGO Smart Kolektiv continued supERSTEp, a programme designed to support start-ups with capital and training to
help them set up or continue developing their own businesses.
This programme is planned to become part of the standard offering and to achieve substantial growth rates. Erste Bank Croatia
fundamentally changed its micro-lending programme and will
launch it in 2016.
Slovenská sporiteľňa supports micro-entrepreneurs with the aim
of creating and securing jobs. Apart from providing financing in
the start-up phase, the focus is also on the transfer of business
management expertise. The programme is set for nation-wide
roll-out in the first half of 2016. In addition, a separate programme was designed for NGOs including financing models and
financial education. In Hungary, the local good.bee programme,
collaborating with the Budapest Civil Info Center and the Civil
Academy, focused in particular on NGOs. Erste Bank Hungary
increased lending volume in social enterprise finance by 30%
year on year. Annual transaction volume rose to EUR 5 million.
Social enterprise financing
Social entrepreneurship means initiatives of private individuals,
organisations or networks that pursue charitable purposes through
entrepreneurial activities. Besides the areas of work, health and
education, social entrepreneurship also includes the environment
and culture. These initiatives offer products and services as well
as employment opportunities that satisfy fundamental needs in
society or offer alternative approaches that are socially and ecologically more agreeable.
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The local banks of Erste Group stepped up their activities for
social enterprises in 2015. Erste Group has become one of the
leading banking groups in social enterprise financing in CEE, and
the respective loan portfolios grew particularly in Austria, Romania and Hungary.
Erste Bank Oesterreich, for example, supports social enterprise
customers with financing after the start-up phase and also offers
business management consulting services, including access to
business angels (e.g. Idea meets Money or the Impact Hub’s
Investment ready programme in Vienna). The For Best Students
initiative supports students by providing the financial means to
cover tuition fees, living costs, etc. The programme career with
children aims at supporting young families by taking over the
costs for day care for children, thus making it possible to reconcile career and family. In cooperation with debt counselling services, the initiative called betreute Konten (assisted accounts) was
developed further and has proved to be an instrument that may
help many vulnerable people to retain their full legal capacity. It
also helps to prevent homelessness. A care card has been developed jointly with organisations offering care services. This card
enables home care services to spend small amounts on purchases
without needing access to the client’s account. This facilitates the
management of finances for care organisations. Similar social
entrepreneurship initiatives have also been implemented by the
local banking subsidiaries of Erste Group.
SUPPLIERS
Erste Group views suppliers as partners in shaping its business to
be more sustainable. Therefore, procurement decisions include
assessments of the suppliers’ social and environmental impact.
Covering the entire supply chain, Erste Group Procurement is the
sourcing and procurement company of Erste Group. Its basic
objective is to ensure clear and fair sourcing and procurement
activities and contracts. Meeting all the needs of Erste Group
entities for goods and services in time and in accordance with
their particular quality requirements, at the best possible terms
(e.g. price, terms of payment, guarantees and liability), purchased
locally or across borders, therefore represents a key element.
Erste Group’s suppliers are obliged to meet defined standards in
the areas of business ethics, environmental protection and human
rights.
In the course of fulfilling their contractual obligations, suppliers
of materials, equipment and services, selected as group partners,
are expected to:
_ comply with national or local laws, decrees and regulations
_ fulfil all their legal obligations regarding the health and safety
of their employees and their contractors
_ comply determinedly with environmental legislation
_ respect and implement the following basic principles of corporate social responsibility:
_ protection of fundamental human and labour rights
_ protection of the environment
_ promotion of health & safety
_ commitment to fighting against corruption
This is also expressed in the supplier code of conduct that is
publicly available on the website of Erste Group Procurement.
SUPPLY CHAIN
Erste Group’s supply chain comprises mainly indirect expenses
that support the group’s core business. The total amount paid to
companies outside Erste Group was slightly below EUR 1 billion,
and the majority of it is linked to services, operations and marketing (amounting to 40.3% of the total amount spent), followed by IT
(39.6%) and facility management (20.1%). Out of a total of approximately 20,800 suppliers on group level, 80% of the total procurement expenses relate to 643 suppliers. 98.8% of the suppliers (reflecting 97.4% of the expenses) were located in the European
Union, highlighting Erste Group’s focus on its markets in CEE. An
additional 0.54% of the suppliers were located in North America,
0.44% in other European countries and the rest were based in Asia
(0.14%).
Only 13.1% of Erste Group’s purchases were made across borders. This focus on local procurement strengthens the local economies of the countries where Erste Group operates and underlines
the commitment to support these regions.
SUPPLIER SELECTION PROCESS
To ensure that Erste Group’s suppliers meet the group’s corporate
responsibility standards, audit questionnaires are requested for
any purchase of more than EUR 100,000, and regular supplier
business reviews are performed.
The supplier audit questionnaire is an integral part of Erste Group
Procurement’s supply chain and is covered by the eRFx tool. This
operational tool ensures full transparency and allows a timely
assessment and risk identification before entering into contracts
with suppliers.
The results of the audits, which are complemented by supporting
information material, form the basis for the supplier evaluation in
procurement. The results of the evaluation are aggregated in a
supplier scorecard.
The audit and evaluation has to be completed, otherwise the IT
application inhibits any further processing of the respective supplier. Any non-compliance with the supplier code of conduct is
brought forward to compliance delegates, which decide – if required – upon further measures. In addition to the initial evaluation, regular supplier business reviews are performed, covering
the most important or most risk-associated suppliers.
63
Environmental aspects
Based on Erste Group’s efforts towards environmental protection,
environmental aspects are part of EGP’s supplier selection process. The supplier audit questionnaire comprises specific topics
such as the
_ existence of an environmental management system
_ participation in the Carbon Disclosure Project
_ existence of a written environmental policy
_ method of measuring CO2 emissions
_ existence of environmental targets
_ information on fines or charges for environmental infringements
_ description of the supply chain of the supplier
For the procuring of goods, the audit questionnaire is extended by
questions on potentially hazardous chemicals, recycling capabilities of the product, the return policy at the end of the product’s
useful life and ENERGY STAR or similar standards.
Some 20% of the suppliers of new and renewed contracts were
audited according to environmental standards in 2015. No supplier
was subject to a specific environmental impact assessment beyond the standard audit questionnaire nor was any supplier identified as having had significant actual and potentially negative
environmental impacts. No actual and potentially negative environmental impacts were identified in the supply chain. Finally, no
supplier contract had to be terminated as a result of significant
actual and potentially negative environmental impacts.
Social aspects
As the supplier selection process includes social aspects as well,
the supplier audit questionnaire also comprises specific topics
such as the
_ effective abolition of child labour
_ elimination of all forms of forced and compulsory labour
_ elimination of discrimination in respect of employment
_ freedom of association and the right to collective bargaining
_ reasonable working hours and fair remuneration
_ health protection
_ occupational health and safety
_ job restructuring
_ remuneration
_ fair working conditions
_ other social criteria in the supply chain
Some 20% of the suppliers of new and renewed contracts were
audited according to both labour practice standards and human
rights criteria in 2015. No supplier was subject to specific labour
practice or human rights impact assessments beyond the standard
audit questionnaire nor was any supplier identified as having had
significant actual or potentially negative labour practice or human
rights impacts. There were no actual and potentially negative
labour practice or human rights impacts identified in the supply
chain, and no supplier contract had to be terminated as a result of
significant actual and potentially negative labour practice or
human rights impacts.
Further to that, no supplier was found to violate or put at risk the
right to exercise freedom of association and collective bargaining,
nor was any supplier found to have significant risk of child labour
or young workers exposed to hazardous work, nor was found to
have had a significant risk for incidents of forced or compulsory
labour.
64
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Employees
Retaining talented, engaged and experienced employees is fundamental to the long-term success of every company. Erste Group –
as one of the largest employers in the region – therefore aims to
maintain its position as an employer of choice in Central and
Eastern Europe; we encourage our employees to continually strive
for professional and personal development and offers equal opportunities to everyone in the organisation. Competence building and
developing performance-oriented teams as well as organisational
effectiveness and competitiveness through customer centricity,
cost-effective organisation design and process excellence are
cornerstones of the strategy.
employer of choice, Erste Group recognises that a satisfying worklife balance enhances a stable work environment. Employees are
also encouraged to volunteer their time and share their knowledge
and expertise to give back to the society and communities in
which the bank operates.
DIVERSITY AND INCLUSION
Erste Group focuses on operational excellence, marketcompetitive reward and recognition and attracting, developing and
retaining the best people. The leadership culture is engaging and
empowering and fosters a high-performing and inclusive work
environment where every employee has equal opportunities to
develop and advance.
Companies that are committed to diversity and inclusion benefit
from more engaged employees, a better brand image and higher
customer satisfaction. Innovation and sustainable success can
only be achieved by leveraging the skills and abilities of individuals with a broad range of experiences, educational and cultural
backgrounds as well as perspectives. Erste Group sees diversity
as a vital part of its business strategy and key to attracting and
retaining talented employees. The appointment of a Group Diversity Manager underlines the importance of this topic. The management board supports the diversity agenda and its activities.
Erste Group’s people management strategy reflects the changing
demands of the business environment. It is based on three key
pillars:
_ competence
_ culture
_ competitiveness
Erste Group provides a work environment free of discrimination
and harassment and values the work of each and every person
regardless of gender, age, disability, marital status, sexual orientation, skin colour, religious or political affiliation, ethnic background, nationality or any other aspect unrelated to their employment.
Erste Group considers employee engagement as a vital element for
the success of the bank. Systematic and regular group-wide employee engagement surveys allow employees to give feedback on
different aspects of their working experience. In 2015, more than
50 companies across Erste Group participated in the third groupwide survey. Following an in-depth analysis of the results, action
plans, follow-up measures and initiatives are developed and implemented both on a group level and in the local entities. The next
survey is planned for 2017
Erste Group monitors and reports the following diversity indicators: gender balance on all levels including managerial positions,
gender representation in talent programmes and in the succession
pools, age distribution across the group, the share of employees
on parental leave by gender, part-time/flexible working arrangements by gender, the average training days per employee by
gender, employees with disabilities and the cultural mix of employees by entity in the group. Other monitored areas include
gender representation in recruitment to managerial positions and
the gender pay gap. A comprehensive Erste Group Diversity Fact
Sheet is updated on an annual basis.
The most important topics singled out by employees were:
_ diversity and equal opportunity
_ career development opportunities
_ work process improvements
Erste Group places a strong emphasis on ensuring that its employees are provided with a safe and healthy work environment. As an
In 2015, the management board of the Holding and the employees’ council signed a company agreement on preventing discrimination and promoting respectful behaviour in the workplace. It
aims at providing the employees a timely and efficient support
65
mechanism against discrimination, bullying and/or sexual harassment and at preventing or stopping these situations from occurring. An Anti-Discrimination Officer was appointed at the end
of 2015, who works with management on awareness and prevention and councils, advises and mediates in matters concerning
harassment and discrimination.
Further to that, Erste Group signed the Nestor Gold Charter on
generation management in October 2015. Nestor Gold is an initiative of the Austrian Federal Ministry for Labour, Social Affairs
and Consumer Protection. The Charter is a commitment of companies to support intergenerational dialogue and create a corporate
culture where all generations are valued. In 2016, the Holding will
begin with a systematic evaluation of policies, processes and of
the overall environment relating to generation management at the
workplace. The audit will result in a series of recommendations,
concrete goals and action steps, and certification.
Erste Group believes that diverse teams are more creative and
flexible in reacting to changing demands. Valuing and understanding cultural diversity fosters inclusion and integration as
well as better teamwork and cooperation. To promote intercultural understanding, an International Dinner-initiative was launched
in Austria in 2015 providing opportunities for employees from
different cultures to introduce their traditional home country
cuisines.
At the beginning of 2014, Erste Group set a group-wide internal
target of having 35% of positions in top management and on supervisory boards filled by women by 2019. This target applies to the
local banks (excluding other subsidiaries or the savings banks in
Austria). Currently, 28% of positions in top management are filled
by women, which is a 2 percentage point decrease over 2014 resulting from organisational changes. The share of female supervisory
board members increased by 1 percentage point to 24% in 2015. To
increase the number of women in senior management positions,
Erste Group aims for a greater gender and age balance in its talent
pools.
The Erste Women Hub focuses on supporting women advance their
careers, reaching out to female customers and encouraging an
inclusive work environment. Various initiatives in Austria, such as
the WoMentoring programme, Women Financial Lifetime and
Securities Dialogue for Women, were launched.
Česká spořitelna continues its comprehensive diversity and inclusion programme Diversitas. The programme is focused on all
aspects of diversity management, such as supporting the career
advancement of women through mentoring, coaching, leadership
development and networking and offering flexible work arrangements and a parental support programme as well as age management and an intergenerational dialogue.
Attracting and retaining handicapped employees as well as supporting reverse and intergenerational mentoring was another
66
priority at Česká spořitelna. Česká spořitelna continued to offer
internships for handicapped people, e.g. under the Pět statečných
(Five Brave) programme, and provided more ergonomic working
conditions. Česká spořitelna’s Moudrá Sova (Wise Owl) programme supports reverse and intergenerational mentoring for
employees older than fifty and younger than thirty. In 2015, Česká
spořitelna was named Company of the Year: Equal Opportunities
and Diversity for the third time.
Both Slovenská sporiteľňa and Banca Comercială Română offered
workshops dedicated to women in their diversity approach. In
addition, Slovenská sporiteľňa recruits disabled persons for their
call centre, and Erste Bank Hungary agreed with the employees’council to provide an additional 5 days of paid leave for
disabled employees.
The diversity priorities for 2016 are the following:
_ implement concrete measures in the area of generation management
_ implement diversity and anti-discrimination training courses
for managers
_ nominate at least one new female supervisory board member
and increase the number of women in top management by at
least 3 percentage points
_ establish a group-wide diversity policy framework
_ continue to encourage local diversity initiatives across the group
_ take necessary steps to close the gender pay gap by 2025
LEARNING, TALENT MANAGEMENT,
LEADERSHIP AND
COMPETENCY DEVELOPMENT
Erste Group regards supporting the development of its employees’
professional and social skills as a top priority to ensure that the
employees are well prepared to act professionally and in a socially
responsible manner. Erste Group continuously develops and aligns
group-wide training programmes for senior experts and managers.
In 2015 the main focus was on implementing the group-wide
talent management landscape, improving leadership development
and realising the concept of functional competency management.
Erste School of Banking and Finance, the group’s platform for
professional and leadership training, offers executive training
and comprises open enrolment courses including personal development training courses as well as programmes for specific
business areas. In 2015, Erste Group successfully established the
Finance College, where training is offered in four key areas:
controlling, asset/liability management, accounting, and business
data excellence. The training options of the Risk Management
College have been expanded. New courses reflect the regulatory
changes and contribute to bridging functional competency gaps of
employees. The Corporates & Markets College also continued to
offer its learning initiatives, covering topics such as specific
product knowledge or corporate sales abilities.
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The Erste Leadership Evolution Centre structures group-wide
leadership development offerings. Participants of the Group
Leadership Development Programme, Erste Group’s training
programme for members of the key position pool, are trained by
IESE Business School Barcelona. Erste Group’s Talent Management launched three gender-balanced talent pools. The International Talent Pool targets high-performing junior professionals up
to board minus 3 management levels. As of year-end 2015, about
40% of the international talent pool were women. The next level,
the Key Positions Pool, aims at preparing managerial talents for
roles at division head level. This pool comprises 39% women.
The Executive Pool, which identifies and develops top executive
level talent, comprises 27% women.
Erste Group also offers an annual Graduate Programme for university graduates. The aim of the programme is to attract top
graduates and provide fundamental banking and risk management
knowledge.
In 2015, each employee of Erste Group had on average 3.4 training days for professional development. The total group-wide
training budget amounted to EUR 13.9 million (i.e. approximately EUR 386 on average per employee).
The focus for 2016 is the mobilisation of identified talents within the group and to further develop the digital learning offer.
REMUNERATION AND
PEOPLE PERFORMANCE MANAGEMENT
Across Erste Group, the focus of the remuneration policy was on
an appropriate balance in rewarding the performance, competence
and level of responsibility of the employees and keeping a sustainable personnel cost base. Erste Group’s reward system is
consistent, competitive and transparent. The remuneration policy
aims to
_ create an environment where employees can perform, develop
and be engaged
_ reward at the right level to attract and retain employees with
the required competence and skills
_ be cost-competitive and cost-flexible for a sustainable business
_ support leadership and employee behaviour that creates an
engaging and unique customer experience and effective risk
management practices
As a signatory of the Austrian Diversity Charter, Erste Group
committed itself to the principles of equal opportunity and transparency, especially in remuneration. One of the key strategic
priorities is to ensure that total reward schemes are more transparent, market-driven and linked to performance and personal
development. Erste Group offers competitive, but not market
leading, compensation packages. The local banks’ remuneration
practices remain well balanced with the business line needs and
local country pay practices. The remuneration schemes are de-
signed according to all EU and national regulatory requirements
on remuneration.
The fixed remuneration is the core component of any employee’s
remuneration and is based on the job complexity, individual contributions and local market conditions. The fixed salary represents a
sufficiently high proportion of the total remuneration to allow the
operation of a flexible and variable remuneration policy. The total
remuneration is balanced in such a way that it is linked to sustainability and does not promote excessive risk-taking. The variable
remuneration component may be offered to all employees. Awarding a variable salary is based on company, business line and individual performance and also reflects local country practices. On all
these levels, Erste Group uses a balance between financial, business
growth, risk, customer and cost indicators. The overall performance
evaluation also includes the employee’s behaviour and competence.
Retail sales incentive schemes are offered to selected employees
working in the retail business line and are based on company,
business line and individual performance.
Benefits are provided as a means to stimulate well-being in the
work environment and to support an appropriate work-life balance.
Examples of benefits are flexible working time, study leave, parental leave and the health centre expertise. Pension and insurance
schemes aim at ensuring that employees have an appropriate standard of living after retirement. Pension and insurance provisions are
according to local law, regulation and market practice.
The supervisory board annually reviews group and local remuneration policies and practices. The respective group and local
remuneration policies and execution are annually evaluated to
ensure that remuneration practices comply with respective international and national regulations. The evaluation comprises the
entire remuneration process from determining bonus budget
pools, to target setting and performance evaluation, to awarding
bonuses in relation to performance and fixed salary, to the actual
pay-out of bonuses.
The supervisory board has approved a more distinctive change in
the remuneration for top executives, and the long-term incentive
scheme was cancelled to better balance forward-looking and short
term key performance indicators.
HEALTH, SAFETY & WORK-LIFE BALANCE
The workplace offers an ideal setting and infrastructure to support
and promote health issues to large groups of people, thus making
occupational health an important contributor to public health.
Erste Group is committed to a proactive approach towards helping its employees to identify and manage health risks. A multiprofessional team of occupational physicians, industrial psychologists and physiotherapists assists Erste Group’s employees
in any matters of health and well-being. The health centre is a
model of good practice in the prevention of disease: focusing on
risk factors (e.g. prevention of heart disease and stroke) or on
67
changing personal health practices and behavioural patterns (e.g.
smoking and diet), employees are provided with a broad range of
assistance, such as medical check-ups, screening of the carotid
artery for stroke prevention, back therapy training, relaxation
techniques and nutritional consulting.
Mental health is crucial for labour market outcomes and affects
economic growth. In developed countries, mental illness is responsible for one-third to one-half of all long-term sickness and disability among the working-age population. At any given moment, some
20% of the working-age population faces mental health issues and
one in two people will suffer from a mental health condition during
their lifetime. Therefore, it is important that companies and policy
makers address the interplay between mental health and work. The
workplace directly influences the physical, mental, economic and
social well-being of employees, and affects the health of their
families, communities and society.
Consequently, the health centre focused on strengthening its effectiveness on maintaining mental health of the employees in 2015.
The health centre covers a whole variety of preventive measures for
employees such as by providing relaxation techniques or training
courses for managers, supporting employees in personal situations
(caring for young and old, challenging personal circumstances) and
offering quick accessibility to adequate treatment.
Another focus in 2015 was integrating employees after longer
sickness. The longer people are on sick leave, the more difficult it
becomes to reintegrate them into the labour force. This is even
more so for those suffering from mental illness. Erste Group signed
a company agreement on this topic, giving all employees the possibility of a step-by-step integration (in terms of working hours and
activities) after long-term illness.
68
In April 2015, Erste Group’s health centre presented this model in
The Hague at the OECD High-Level Policy Forum Mental Health
and Work. In Austria, it is seen as a best practice model by the
Austrian Federal Ministry for Labour, Social Affairs and Consumer Protection. An evaluation of the impact of these efforts
showed that the rate of long-term illness declined and reintegration
was successful in many more cases than in the past.
Respecting and promoting work-life balance among its employees has been a long-standing priority of Erste Group. Erste Bank
Oesterreich offers a wide variety of family-friendly measures and
evaluates them on a regular basis in order to ensure that they truly
meet the employees’ needs. These measures include flexible work
arrangements, short sabbaticals, regular meetings for employees
on maternity/parental leave, a work-life centre focusing on worklife balance issues and a Family and Women’s Committee to
prepare initiatives and resolutions for the promotion of equal
opportunities to be discussed with the management board. The
Family and Women’s Committee acts as a communication platform and lobby for all employees.
In 2015, the Holding and Erste Bank Oesterreich were re-certified
as family friendly by the Austrian Federal Ministry of Families and
Youth. This certificate is only granted to employers that allow their
employees to successfully balance their work and private life. In
addition to supporting flexible working hours, sabbaticals are
offered and there are processes in place to reintegrate employees
after long-term illnesses or parental leave. As a further measure the
company kindergarten will open its doors at Erste Campus in 2016.
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Staff indicators
Share of female staff
Austria
Czech Republic
Slovakia
Hungary
Croatia
Serbia
Romania
2015
2014
2015
2014
2015
2014
2015
2014
47.9%
70.9%
71.9%
62.4%
69.2%
69.1%
70.2%
55.1%
71.4%
72.0%
63.8%
69.2%
70.7%
71.2%
24.5%
7.9%
0.5%
2.6%
0.9%
0.1%
5.6%
27.5%
8.6%
0.4%
2.4%
0.9%
0.1%
5.6%
83.0%
92.6%
87.0%
81.1%
96.6%
0.0%
79.0%
86.9%
94.0%
89.5%
72.7%
100.0%
0.0%
82.0%
4.2%
0.6%
0.1%
0.5%
0.0%
0.1%
1.2%
8.0%
1.8%
0.3%
1.8%
0.0%
0.3%
3.5%
1.6%
0.9%
0.9%
2.1%
2.7%
2.2%
1.1%
1.5%
0.5%
1.0%
1.4%
2.5%
2.4%
0.9%
Austria
Czech Rep.
Slovakia
Hungary
Croatia
Serbia
Romania
Austria
Czech Rep.
Slovakia
Hungary
Croatia
Serbia
Romania
8.2%
5.6%
8.4%
12.4%
12.8%
14.3%
6.8%
<30 yrs
2014
17.0%
16.5%
25.6%
25.0%
36.5%
37.5%
46.8%
20.9%
25.5%
27.9%
23.7%
35.8%
37.5%
41.5%
Average number of
sick leave days per
employee
2014
27.0%
39.6%
55.7%
53.0%
61.5%
55.0%
57.4%
31-40 yrs
Number of employees
with health disability
2014
30.8%
39.5%
55.5%
51.0%
56.8%
55.9%
55.8%
7.7
7.2
7.1
7.7
10.2
4.8
8.2
41-50 yrs
2014
7.8
5.2
7.1
6.9
5.3
5.3
7.0
110
130
100
6
9
2
20
112
107
82
6
22
2
18
>50 yrs
Total
initiated by
the employee
initiated by
the employer
initiated by
the employee
initiated by
the employer
initiated by
the employee
initiated by
the employer
initiated by
the employee
initiated by
the employer
6.0%
13.9%
13.0%
19.0%
6.1%
4.4%
15.6%
35.4%
23.1%
22.6%
22.3%
14.3%
18.2%
30.7%
3.1%
12.1%
16.2%
7.7%
23.6%
9.1%
7.4%
33.5%
19.6%
13.3%
33.8%
22.4%
34.1%
28.8%
2.4%
13.1%
18.0%
13.0%
19.3%
13.6%
7.7%
15.7%
12.6%
5.2%
9.1%
3.1%
6.8%
11.6%
1.2%
6.1%
11.1%
9.2%
3.1%
6.8%
7.3%
7.1%
6.9%
1.1%
1.3%
0.0%
9.1%
2.5%
1.6%
6.5%
12.6%
3.6%
14.3%
2.3%
4.0%
Total
initiated by
the employee
initiated by
the employer
initiated by
the employee
initiated by
the employer
initiated by
the employee
initiated by
the employer
initiated by
the employee
initiated by
the employer
6.0%
15.9%
14.5%
12.6%
6.4%
5.3%
18.2%
26.6%
25.8%
21.9%
22.1%
13.2%
3.5%
29.3%
1.7%
9.4%
13.3%
2.1%
17.6%
17.5%
16.6%
24.9%
19.6%
13.5%
40.2%
28.9%
15.8%
27.7%
6.8%
12.3%
16.4%
13.9%
15.2%
36.8%
5.7%
18.8%
11.6%
7.4%
10.0%
8.3%
5.3%
11.3%
6.5%
7.4%
14.1%
3.6%
8.3%
10.5%
5.1%
7.7%
9.0%
2.1%
6.3%
1.0%
7.0%
2.2%
7.0%
5.0%
11.2%
1.8%
7.4%
3.5%
2.1%
<30 yrs
Turnover rate
2015
Share of women in
other managerial
positions
Share of women in
executive positions
2014
2014
Share of executive
positions
2014
8.9%
4.8%
8.5%
12.2%
9.5%
13.9%
6.5%
Turnover rate
Share of male parttime staff from total
male workforce
2015
Other managerial
positions
Austria
Czech Republic
Slovakia
Hungary
Croatia
Serbia
Romania
Share of female parttime staff from total
part-time workforce
Share of part-time
staff
31-40 yrs
41-50 yrs
>50 yrs
Executive positions cover all the board and board-1 positions. Other managerial positions cover all the board-2 and board-3 positions.
69
Environment
Environmental issues affect everyone’s life, and the time when
only environmental activists paid attention is long gone. We are
already feeling the effect of climate change and might be the last
generation who can do something about it. Climate change has
become a reality and has started to impact ecosystems, societies
and economies. The only option to limit the negative consequences of the greenhouse gas emissions is to confine global
warming. Even if this is successful, there will be severe and
widespread consequences on all continents due to the rising sea
levels and increasing climate-related hazards.
The direct impact of banks on the environment may be very
limited. But Erste Group recognises its responsibility to also take
into account potential environmental risks related to lending and
investment. Balancing financial and ecological interests will be
one of the main challenges in the upcoming years.
ENVIRONMENTAL STRATEGY
Erste Group’s environmental strategy is built on four pillars:
_ implementation of an Environmental Management System
_ implementation of a Supply Chain Management System for all
products and services needed to run the banking business
_ integration of environmental criteria into banking products and
services (especially financing products)
_ cooperation with environmental NGOs
An Environmental Steering Committee consisting of the CEO and
COO of Erste Group and the Head of Group Environmental
Management was set up to monitor the group-wide implementation
of the environmental strategy. Within each local banking
subsidiary, environmental teams under the direct responsibility of
one Board Member are installed. Over the next few years, it will
become common practice to integrate environmental aspects into
day-to-day banking business wherever appropriate. The Supply
Chain Management System ensures that ecological and commercial
considerations are equally taken into account in purchasing
decisions.
Medium-term priorities
In line with the environmental strategy, the following key priorities were confirmed:
70
_ climate protection and sustainable use of natural resources:
increased use of energy from renewable sources, improvement
of energy efficiency at all office locations and branches across
Erste Group, improving the energy efficiency of data centres,
reduction in the number of business trips supported by increased use of telephone and video conferences
_ ecological impact of procured products and services: further
development and implementation of ecological procurement
criteria
_ waste management: implementation and optimisation of internal waste management and waste separation
_ sustainable banking products: definition of criteria for sustainable financing and investments, participation in international
environmental agreements
ENVIRONMENTAL TARGETS
To improve the environmental footprint of the business activities,
Erste Group defined the following measurable group-wide reduction targets by 2016 compared to 2012 data:
_ Electricity consumption by -10%
_ Heating energy by -10%
_ Copy paper consumption by -20%
_ Carbon dioxide (CO2, scope 1 and 2) emissions by -30%
Development of the environmental footprint in 2015
versus 2012
_ Electric energy:
-16.3% to 155.2 GWh
_ Heating energy:
-22.4% to 125.3 GWh
_ Copy paper:
-14.2% to 1,469 t
_ CO2 emissions (scope 1 and 2): -21.4% to 82,093 t
GROUP-WIDE ACTIVITIES
Reduction of greenhouse gas emissions
Not surprisingly, reducing the consumption of natural resources,
notably heating and electric energy, is key in optimising Erste
Group’s environmental impact. A careful selection of suppliers
and resources with CO2 emissions that are as low as possible is of
utmost importance.
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Erste Group defined the following group-wide criteria for the
selection of heating and electricity suppliers:
_ Whenever available, district heating – preferably from renewable
sources or waste – is to be used followed by natural gas or LNG
(liquefied natural gas), electricity and, finally, heating oil.
_ If available, electricity is to be purchased from 100% renewable
sources or from local suppliers with the highest share of
renewable energy or the lowest CO2/kWh ratio.
Erste Group started to use exclusively green electricity – CO2free, from renewable sources only – in 2012 in Austria. The
contract was renewed in 2015 until the end of 2017. Approximately 50% of the Austrian electric energy demand is covered by
Erste Group’s own hydro power plant in Styria. In 2014, Erste
Bank Croatia switched to purchasing only 100% CO2-free electricity. In the Czech Republic, the purchase of electricity is done
mainly through Česká spořitelna’s energy trading subsidiary Erste
Energy Services, a company selling electricity from renewable
energy sources. Currently, no appropriate local energy providers
selling country-wide CO2-free electricity are operating in other
Erste Group core markets.
The cheapest and most effective way to reduce greenhouse gas
emissions is to reduce energy consumption through energy saving
and increasing energy efficiency.
A wide variety of energy-saving programmes has been implemented in all local banking subsidiaries. Banca Comercială Română and
Erste Bank Hungary take simple but very efficient measures to
reduce energy consumption. These range from the replacement of
lighting by LED to room temperature adjustments. Erste Bank
Hungary achieved an overall reduction in electric energy of some
12%. Slovenská sporitel’ňa continued its ambitioned energy-saving
efforts within its Environmental Action Plan (2014-2016) and
reduced its total energy consumption by 15%. Česká spořitelna
pursued its energy reduction programme for the branch network.
The individual energy consumption of each branch is monitored on
a quarterly basis. The roll-out of the remote monitoring of building
technologies continued, and monitoring devices for energy consumption and management were installed in more than a hundred
buildings. In Croatia, the project PEEP (Project of Electric Energy
savings in Premises) as well as the implementation of an energy
management system in Serbia were continued. The usage of a
special p sun-blocking foil that helped to avoid heating up the room
by sunlight especially in summer.
European Union countries transposed the 2012 Energy Efficiency
Directive into national law establishing a set of binding measures
to help the EU reach its 20% energy efficiency target by 2020.
The Austrian regulations required energy audits for nearly all
local Erste Group entities. With the help of an external advisor, a
representative portfolio of premises of savings banks and Erste
Bank Oesterreich including branches from different provinces
such as Tyrol, Salzburg, Lower Austria, Vienna and Burgenland
was selected to be audited. With Erste Campus, the new head-
quarters in Vienna, and the Austrian data centre, the two buildings
with the highest electric energy consumption were part of the
energy audit. The final report identified and quantified costeffective energy saving opportunities. It also showed that in
general the audited entities used energy efficiently.
Due to the move to the new headquarters in Vienna, which will be
completed in the second quarter 2016 (approximately 4,500
employees will work at Erste Campus) nearly no investments
were undertaken at formerly used office buildings to improve
energy efficiency. Erste Campus has been awarded preliminary
DGNB Gold certification by the Austrian Society for Sustainable
Real Estate (ÖGNI). The re-certification is expected to be confirmed in 2016. Calculations show an expected reduction of 3050% on electric energy compared with the consumption of the
existing buildings used in Vienna.
Erste Asset Management was the first Austrian investment funds
company to sign the Montréal Carbon Pledge. By signing it,
investors commit to measure and publicly disclose the carbon
footprint of their investment portfolios on an annual basis and
support the World Climate Summit in Paris in its effort to reduce
the CO2 emissions.
Measures to reduce office paper consumption
Without doubt, besides measures relating to energy, one of the
greatest direct contributions that a financial institution can make to
protect the environment is cutting paper consumption. The production of recycled paper requires approximately 80% less water and
70% less energy; overall, the CO2 footprint is 50% less.
To minimise the environmental impact of the group-wide paper
consumption Erste Group continuously runs paper-saving initiatives. In addition, group-wide sourcing rules for paper are in place:
_ When purchasing paper, environmental criteria are as important
as other business criteria such as price, availability, product
quality and regulatory requirements.
_ Wherever technically possible, only 100% recycled paper is to
be used, especially in the case of copy paper and all paper used
for internal purposes.
_ If recycled paper cannot be used, only paper certified by the
FSC (Forest Stewardship Council) or PEFC (Programme for the
Endorsement of Forest Certification Schemes) is to be chosen to
prevent the use of paper from illegally harvested wood sources.
Erste Group is already close to reaching the target of 100% recycling paper for copy machines and reduced the total consumption
of copy paper from 2,000 to 1,400 tonnes since 2012. The next
step will be to fully switch to recycled paper also for business
cards, envelopes and other kind of office paper. With this measure
Erste Group shows its commitment to protect natural resources.
To complete the environmental cycle local banking subsidiaries
increased their efforts to collect waste paper. To give one example, Erste Bank Hungary achieved a collection increase of 300%
compared to last year.
71
In Slovakia, the Czech Republic, Hungary, Serbia and Croatia,
the targeted level of 100% recycled copy paper has been almost
reached, and Austria was close with over 80%. Only Romania is
lagging behind with a recycled copy paper share of only 10%.
The overall consumption of copy paper was reduced in 2015 by
additional 24 tonnes to 1,467 tonnes. Since 2011, the total volume
declined by 500 tonnes or 30%. For the first time, the 2014 annual report and the quarterly report of Erste Group were printed on
recycled paper. Furthermore, as more and more readers use the
online version, the number of printed copies declines steadily.
Erste Group’s advanced electronic banking solutions including
different apps for mobile phones and other mobile electronic
devices enable customers to carry out basic banking transactions
wherever and whenever they want. Erste Bank Oesterreich confirmed its innovation leadership by launching a new digital platform called George. Digital banking also helps the environment
as it saves paper – e-statements replace printed statements, and
the handling of payment forms is reduced.
Waste management activities
Erste Group aims at reducing waste as this is the most efficient
and cost saving environmental measure.
Other environmental initiatives
One of the main challenges is to keep the employees informed
about the ecological consequences of their activities. Slovenská
sporitel’ňa developed an e-learning tool for all employees focusing on conscious usage of resources such as energy and paper.
Several local banks including Erste Bank Serbia and Česká
spořitelna provide allocated bike parking areas for employees
commuting by bike to the office or offer free use of electric bikes
for local business trips within the city centres.
One element of Erste Group’s environmental strategy is the cooperation with NGOs. Independent environmental NGOs offer
access to their local and international know-how and provide valuable assistance in Erste Group’s efforts to become an even more
environmentally sustainable company. Erste Group co-operates
with the WWF Climate Group. The aim of the initiative is to mobilise companies to cut global carbon dioxide emissions. Further
information is available at www.climategroup.at. Slovenská
sporitel’ňa started a cooperation with ekoPolis foundation whose
vision is “an advanced civil society with citizens realising their
responsibility for social development and environmental issues. A
society with citizens who are interested in participating in public
policy, have courage to adopt a critical stance and care about avoiding detriment to future generations [...]” (www.ekopolis.sk/en/).
Erste Bank Oesterreich continued its exclusive partnership with
the ELENA-project (European Local ENergy Assistance). This
EU-initiative is designed for local municipalities to finance the
technical advice/planning for projects on energy efficiency such
as implementing LED in street lights and upgrading public buildings for higher energy efficiency. More than 50 applications have
72
been filed, some have already been approved and EU-subsidies
have been paid out; see www.sparkasse.at/erstebank/Gemeinden/
Finanzierung-Leasing/Produkte/Foerderorgramm-ELENA).
Public recognition
In Austria, Erste Group was again awarded by the City of Vienna
with the ÖkoBusinessPlan Wien 2015 for the ongoing commitment to environmental protection. Česká spořitelna was the firstever laureate of the Green Bank Award in the GEEN Zelená
banka survey organised by www.vstricnabanka.cz and
www.bankovnipoplatky.com honouring its commitment in areas
like paper consumption reduction, green energy purchase, recycling and environmentally friendly means of transport.
Erste Group, like in the previous years, reported to the CDP climate change programme and performed with D86 compared with
C71 in 2014 and D58 in 2013. This is a constant improvement in
disclosure score (out of 100 points), but the performance score
decreased from C to D due to stricter criteria.
Impact of procured products and services
Erste Group Procurement (EGP) continued its efforts to include
environmental criteria in its purchasing activities. Since 2014, the
Ethical and Environmental Code of Conduct for Suppliers of
Goods and Services of EGP is used across the group. The supply
audit evaluation includes more than just sustainability and environmental aspects. For further details, please refer to the Customers and Suppliers chapter.
Environmental data
One of the main initiatives of the year 2015 was the final selection and implementation of a new software tool, cr360, to collect
and analyse sustainability data. All environmental data (approximately 150,000-200,000 individual data points) from the years
2011 to 2014 of all local banks in the seven core markets was
transferred from Excel spreadsheets to the new database in the
first half of 2015. In 2016, the focus will be on the continuation
of the group-wide processing of energy and CO2 emission data. In
addition, it is planned to extend the environmental data collection
and to implement additional monitoring processes.
It should be noted that due to the relocation of some 20 locations
in Vienna, which started in the fourth quarter 2015, the most
recently available data for energy consumption in Austria differs
substantially in some cases from those of previous periods.
Therefore, the data cannot be compared with 2014 figures.
The new system uses conversion factors from the UK Department
for Environment, Food & Rural Affairs (Defra) and the International Energy Agency (IEA) while the old one was based on
ecoinvent (www.ecoinvent.org). Within the new system, whenever
possible the reported conversion factors of the energy suppliers
(electricity and heating energy) are used. In all other cases, the
factors for “electricity grids per country” are used. Therefore, CO2
emission data from 2015 cannot be compared with the new data.
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Environmental indicators 2015
Tonnes CO2eq
Heating/ warm water
Electricity
Mobility
Cooling agents
Total
Total
Austria
Croatia
Czech Rep
Hungary
Romania
Serbia
Slovakia
25,265
48,633
6,853
1,341
82,093
1,846
1
1,206
130
3,182
804
47
635
97
1,583
9,505
25,598
2,603
525
38,231
987
3,155
780
23
4,945
9,376
14,186
874
448
24,883
371
1,911
207
118
2,607
2,378
3,736
547
n.a.
6,661
CO2eq = CO2 equivalents (scope 1 and 2)
Relative values
per FTE or m²
Heating
kWh/m²
Electricity
kWh/m²
Copy paper
kg/FTE
CO2eq
t/FTE
Austria
Croatia
Czech Republic
Hungary
Romania
Serbia
Slovakia
68.1
71.1
89.0
70.3
121.6
65.0
61.5
200.6
169.2
95.6
147.8
79.2
90.7
103.1
28.6
35.8
26.9
43.7
96.2
43.5
34.0
0.43
0.63
3.49
1.76
4.17
2.70
1.56
FTE (full-time equivalent) is defined as an employee times his/her employment factor
CO2eq = CO2 equivalents (scope 1 and 2)
Copy paper
2014
Austria
Croatia
Czech Republic
Hungary
Romania
Serbia
Slovakia
2015
total weight
(tonnes)
recycled
%
not-recycled
%
total weight
(tonnes)
recycled
%
not-recycled
%
191.4
95.8
302.4
132.7
584.1
51.4
131.2
79.2
99.9
100.0
100.0
7.6
90.6
95.1
20.8
0.1
0.0
0.0
92.4
9.4
4.9
187.1
97.7
294.4
130.0
573.7
42.0
145.0
76.4
99.2
100.0
100.0
17.0
85.0
96.5
23.6
0.8
0.0
0.0
83.0
15.0
3.5
73
Corporate governance
Corporate governance report
In 2003, Erste Group Bank AG declared its commitment to comply with the rules of the Austrian Code of Corporate Governance
(Austrian CCG) with the objective of ensuring responsible and
transparent corporate governance. In addition, the management
board adopted a Statement of Purpose in 2015. This statement
reaffirms and states in more detail the purpose of Erste Group
Bank AG to promote and secure prosperity throughout the region.
Building on this Statement of Purpose, a Code of Conduct defines
binding rules for the day-to-day business. At the same time, the
Code of Conduct underlines that in pursuing its business activities,
Erste Group values responsibility, respect and sustainability. The
Code of Conduct hence helps to protect the reputation of Erste
Group and to strengthen stakeholder confidence. The Corporate
Governance Report has been prepared in accordance with section
243b of the Austrian Commercial Code and Rules 60 et seq of the
Austrian CCG and also complies with sustainability reporting
guidelines (www.globalreporting.org). The current version of the
Austrian CCG as well as its English translation are publicly available on the website www.corporate-governance.at.
The Austrian CCG is a set of self-regulation rules for Austrian
listed companies supplementing Austrian laws on stock markets
and capital markets. The aim is to establish responsible corporate
management and control to create long-term value. Application of
the Austrian CCG guarantees a high degree of transparency for all
stakeholders including investors, customers and employees. The
Code contains the following sets of rules: L-Rules (Legal Requirements – mandatory legal norms), C-Rules (Comply-or-Explain –
deviations are permitted but must be explained) and R-Rules
(Recommendations – these rules are more similar to recommendations; non-compliance does not need to be disclosed or explained).
In the financial year 2015, Erste Group Bank AG complied with
all L-Rules and R-Rules as well as – with two exceptions – all
C-Rules of the Austrian CCG. The two deviations are described
and explained below.
Pursuant to C-Rule 2 of the Austrian CCG, shares are to be construed in accordance with the principle of one share – one vote, i.e.
investors have one vote per share and no right to nominate members to the supervisory board. Under Erste Group Bank AG’s
74
articles of association (Art. 15.1), DIE ERSTE österreichische
Spar-Casse Privatstiftung is, however, granted the right to nominate up to one third of the members of the supervisory board to be
elected by the shareholder meeting as long as it is liable for all
present and future liabilities of Erste Group Bank AG in case of its
insolvency according to section 92 para 9 of the Austrian Banking
Act. The Privatstiftung has not exercised this right to date.
Pursuant to C-Rule 52a of the Austrian CCG, the number of
supervisory board members (without employees’ representatives)
shall be ten at most. At present, though, Erste Group Bank AG’s
supervisory board consists of twelve shareholder representatives
elected by the 22nd annual general meeting held on 12 May 2015.
The deviation from C-Rule 52a of the Austrian CCG is due to the
size of Erste Group and its market position in seven core markets
in Central and Eastern Europe as well as to the fact that Erste
Group is subject to a multitude of financial market and prudential
regulations, which have increased in recent years and will continue to increase in the future. In addition, the supervisory board has
to meet a rising number of additional review and control requirements under current laws and regulations.
Working methods of the management board and the
supervisory board
Erste Group Bank AG has a two-tier governance structure with a
management board and a supervisory board as management bodies.
The management board is responsible for managing the company
as required for the benefit of the company taking into account the
interests of the shareholders and the employees as well as public
interest. The management board develops the strategic orientation
of the company and aligns it with the supervisory board. It ensures effective risk management and risk control. The management board takes its decisions in compliance with all relevant
legal provisions, the articles of association and its internal rules
of procedure.
The supervisory board advises the management board on its
strategic planning and actions. It takes part in making decisions
as provided for by law, the articles of association and its internal rules of procedure. The supervisory board has the task of
overseeing the management board in the management of the
company.
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Selection and assessment of members of management
bodies
The qualification requirements for members of the management
bodies (management board and supervisory board) of Erste Group
Bank AG are governed by the internal guidelines for the selection
and assessment of members of the management and supervisory
boards. These guidelines define, in accordance with applicable
legal provisions, the internal framework for the selection and
assessment of proposed and appointed members of the management bodies and are also an important tool for ensuring good
corporate governance and control. The assessment of proposed
and appointed members of management bodies is based on the
following criteria: personal reputation, professional qualifications
and experience as well as governance criteria (potential conflicts
of interest, independence, time availability, overall composition of
the management or supervisory board and diversity).
Training and development
To maintain an appropriate level of professional qualification of
members of the management bodies, Erste Group regularly organises events and seminars for its staff and management. Speakers at these events are in-house and outside experts.
MANAGEMENT BOARD
Management board member
Year of birth
Andreas Treichl (Chairman)
Peter Bosek
Petr Brávek
Andreas Gottschling
Gernot Mittendorfer
Jozef Síkela
1952
1968
1961
1967
1964
1967
In the financial year 2015, the management board consisted until
31 March 2015 of five members, since 1 April 2015 of six members.
The supervisory board had already appointed Peter Bosek and
Jozef Síkela (both effective 1 January 2015) and Petr Brávek
Date of initial
appointment
1 October 1994
1 January 2015
1 April 2015
1 September 2013
1 January 2011
1 January 2015
End of current
period of office
30 June 2020
31 December 2017
31 December 2017
30 June 2017
30 June 2017
31 December 2017
(effective 1 April 2015) as new members of the management
board in the financial year 2014.
As of 1 February 2016, the allocation of duties among the
members of the management board is as follows:
Allocation of duties on the management board
Management board member
Andreas Treichl (Chairman)
Peter Bosek
Petr Brávek
Andreas Gottschling
Gernot Mittendorfer
Jozef Síkela
Areas of responsibility
Group Strategy, Group Secretariat, Group Communications, Group Investor Relations, Group Human Resources, Group Audit,
Employees’ Council, Social Banking Development
Erste Hub, Digital Sales, Group Private Banking, Group Brands Communication, Group Customer Experience, Group Retail Steering
a. Projects, Group Retail Strategy
Group Org/IT, Holding Banking Operations, Group COO Governance
Enterprise wide Risk Management, Risk Methods and Models, Op. Risk, Compliance and Security, Group Workout, Group Credit and
Market Risk Management, Group Risk Operating Office, Group Validation, Group Retail and SME Risk Management, Group Legal
Group ALM, Group Controlling and Information Management, Group Accounting, Group Services
Group Corporates, Group Commercial Real Estate, Group Markets, Operating Office C and M, Group Research
Supervisory board mandates and similar functions
In the financial year 2015, the management board members held
the following supervisory board mandates or similar functions in
domestic or foreign companies not included in the consolidated
financial statements:
Andreas Gottschling
Oesterreichische Kontrollbank Aktiengesellschaft (Member)
Andreas Treichl
DONAU Versicherung AG Vienna Insurance Group (Vice Chair),
Sparkassen Versicherung AG Vienna Insurance Group (Chair),
Leoganger Bergbahnen Gesellschaft m.b.H. (Member)
Petr Brávek and Gernot Mittendorfer did not hold any supervisory board mandates or similar functions in domestic or foreign
companies not included in the consolidated financial statements.
Jozef Síkela
Oesterreichische Kontrollbank Aktiengesellschaft (Member)
Peter Bosek
Wiener Städtische Versicherung AG Vienna Insurance Group
(Member), Sparkassen Versicherung AG Vienna Insurance Group
(Member), Wien 3420 Aspern Development AG (Member)
75
SUPERVISORY BOARD
In the financial year 2015, the following persons were members
of the supervisory board.
Position
Year of
birth
Name
Chairman
Friedrich Rödler
1st Vice Chairman
(until 12 May 2015)
Georg Winckler
1st Vice Chairman
(since 12 May 2015)
Jan Homan
2nd Vice Chairwoman
(since 12 May 2015)
Bettina Breiteneder
Member
Elisabeth Bleyleben-Koren
Member
Gonzalo Gortázar Rotaeche
Member
Gunter Griss
Member
Maximilian Hardegg
Member
Elisabeth Krainer Senger-Weiss
Member
Antonio Massanell Lavilla
Member
Brian D. O'Neill
Member
Wilhelm Rasinger
Member
John James Stack
Delegated by the employees' council
Member
Markus Haag
Member
Regina Haberhauer
Member
Andreas Lachs
Member
Bertram Mach
Member
Barbara Pichler
Member
Jozef Pinter
Member
Karin Zeisel
1950
Occupation
Date of initial
appointment
End of the current
period of office
4 May 2004
AGM 2019
1943
Auditor and tax advisor
Former rector of the University of Vienna and
Professor emeritus of Economics
27 April 1993
AGM 2015
1947
General Manager, ret.
4 May 2004
AGM 2019
1970
1948
1965
1945
1966
1972
1954
1953
1948
1946
Entrepreneur
General Manager, ret.
CEO, CaixaBank
Lawyer
Entrepreneur
Lawyer
Deputy Chairman, CaixaBank
Senior Advisor, Lazard Frères & Co
Consultant
CEO, ret.
4 May 2004
21 May 2014
12 May 2015
21 May 2014
12 May 2015
21 May 2014
12 May 2015
31 May 2007
11 May 2005
31 May 2007
AGM 2019
AGM 2019
AGM 2020
AGM 2019
AGM 2020
AGM 2019
AGM 2020
AGM 2017
AGM 2020
AGM 2017
21 November 2011
12 May 2015
9 August 2008
9 August 2008
9 August 2008
25 June 2015
9 August 2008
until further notice
until further notice
until further notice
25 June 2015
until further notice
until further notice
until further notice
1980
1965
1964
1951
1969
1974
1961
Changes in the supervisory board in the financial year: at the
annual general meeting (AGM) held on 12 May 2015, the shareholder representatives Maximilian Hardegg, Gonzalo Gortázar
Rotaeche and Antonio Massanell Lavilla were elected to the supervisory board. The shareholder representative Wilhelm Rasinger
was re-elected on the same date, Regina Haberhauer was delegated
by the employees’ council. A re-election of Georg Winkler at the
AGM was not possible due to the age limit of 70 years defined in
the articles of association. By a letter of 25 June 2015 to the
chairman of the supervisory board, Jozef Pinter was delegated by
the employees’ council and the delegation of Bertram Mach was
revoked.
Membership in supervisory board committees
Committee membership as of 31 December 2015:
Name
Friedrich Rödler
Jan Homan
Bettina Breiteneder
Elisabeth Bleyleben-Koren
Gonzalo Gortázar Rotaeche
Gunter Griss
Maximilian Hardegg
Elisabeth Krainer Senger-Weiss
Antonio Massanell Lavilla
Brian D. O'Neill
Wilhelm Rasinger
John James Stack
Delegated by the employees' council
Markus Haag
Regina Haberhauer
Andreas Lachs
Barbara Pichler
Jozef Pinter
Karin Zeisel
*Financial expert, **Remuneration expert
76
Executive
committee
Nomination
committee
Audit
committee
Risk
committee
Remuneration
committee
Construction/ IT
committee
Chairman
Vice Chairman
Member
Member
Substitute
-
Chairman
Vice Chairman
Member
Member
-
Chairman*
Substitute
Member
Member
Vice Chairman
Member
Member
-
Chairman
Vice Chairman
Member
Member
Member
Substitute
Member
-
Chairman**
Vice Chairman
Member
Substitute
Member
Member
Vice Chairman
Substitute
Chairwoman
Member
Member
Member
-
Substitute
Member
Substitute
Member
Substitute
Member
Substitute
Member
Member
Substitute
Member
Member
Substitute
Member
Substitute
Member
Substitute
Member
Substitute
Member
Member
Substitute
Member
Substitute
Member
Substitute
Member
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Mandates on supervisory boards or similar functions
As of 31 December 2015, the supervisory board members held
the following additional supervisory board mandates or similar
functions in domestic or foreign companies. Listed companies are
marked with *.
Elisabeth Bleyleben-Koren and Elisabeth Krainer Senger-Weiss did
not hold any mandates on supervisory boards or similar functions
in domestic or foreign companies as of 31 December 2015.
Friedrich Rödler
Erste Bank der oesterreichischen Sparkassen AG, Erste Bank
Hungary Zrt.
Regina Haberhauer (since end of AGM HV 2015)
ERSTE-SPARINVEST KAG, Ringturm KAG
Georg Winckler (until end of AGM 2015)
DIE ERSTE österreichische Spar-Casse Privatstiftung (Chair),
Educational Testing Service (ETS), Erste Bank der oesterreichischen Sparkassen AG, UNIQA Versicherungsverein Privatstiftung
(Vice Chair)
Jan Homan
Billerud Korsnäs AB*, Constantia Flexibles Holding GmbH,
Frapag Beteiligungsholding AG (Chair), Slovenská sporiteľňa, a.s.
Bettina Breiteneder
Generali Holding Vienna AG, ZS Einkaufszentren Errichtungsund Vermietungs-Aktiengesellschaft
Gonzalo Gortázar Rotaeche (since end of AGM 2015)
Grupo Financiero Inbursa*, VidaCaixa, S.S. Seguros y Reaseguros (Chair), Repsol S.A.*
Gunter Griss
AVL List GmbH, Bankhaus Krentschker & Co. AG, Steiermärkische Bank und Sparkassen AG
Maximilian Hardegg (since end of AGM HV 2015)
DIE ERSTE österreichische Spar-Casse Privatstiftung, Česká
spořitelna, a.s.
Antonio Massanell Lavilla (since end of AGM 2015)
Mediterránea Beach & Golf Community, S.A.U. (Vice Chair),
SAREB, S.A., Telefónica, S.A.*, Cecabank, S.A. (Chair)
Brian D. O’Neill
Emigrant Bank, Banca Comercială Română S.A., Seven Seas
Water
Wilhelm Rasinger
Friedrichshof Wohnungsgenossenschaft reg. Gen. mbH (Chair),
Gebrüder Ulmer Holding GmbH, Haberkorn Holding AG, Haberkorn GmbH, s IMMO AG*, Wienerberger AG*
John James Stack
Ally Bank, Ally Financial Inc.*, Česká spořitelna, a.s. (Chair),
Mutual of America Capital Management
Delegated by the employees’ council:
Barbara Pichler
DIE ERSTE österreichische Spar-Casse Privatstiftung
Andreas Lachs
VBV-Pensionskasse Aktiengesellschaft
Markus Haag, Bertram Mach (until 25 June 2015), Jozef Pinter
(since 25 June 2015) and Karin Zeisel did not hold any mandates
on supervisory boards or similar functions in domestic or foreign
companies.
Mechanism for shareholders and employees to provide
recommendations and direction to the supervisory board
In accordance with the law and the articles of association, the
Employees’ Council has the right to delegate one member from
among its ranks for every two members appointed by the annual
general meeting (statutory one-third parity rule). If the number of
shareholder representatives is an odd number, then one more
member is appointed as an employee representative.
Measures to avoid conflicts of interest
The members of the supervisory board are annually obligated to
consider the regulations of the Austrian CCG regarding conflicts
of interest. Furthermore, new members of the supervisory board
receive comprehensive information regarding the avoidance of
conflicts of interest when taking up their supervisory board
functions.
Independence of the supervisory board
Pursuant to C-Rule 53 of the Austrian CCG, the majority of the
members of the supervisory board elected by the annual general
meeting or delegated by shareholders in accordance with the
articles of association shall be independent of the company and
its management board. A member of the supervisory board is
deemed to be independent if such person does not have any business or personal relations with the company or its management
that would constitute a material conflict of interest and, therefore,
might influence the member’s conduct. The supervisory board
adheres to the independence criteria guidelines as set out in Annex I of the Austrian CCG.
_ The supervisory board member shall not have been a member
of the management board or a managing employee of the company or of a subsidiary of the company in the past five years.
_ The supervisory board member shall not have or not have had
in the past year any business relations with the company or a
subsidiary of the company to an extent of significance for the
77
supervisory board member. This shall also apply to business
relations with companies in which the supervisory board member has a significant economic interest but not to positions held
in the Group’s managing bodies. The approval of individual
transactions by the supervisory board pursuant to L-Rule 48
does not automatically qualify the respective supervisory board
member as not being independent.
_ The supervisory board member shall not have served as auditor
for the company or been involved in an audit or worked as an
employee of the audit firm that audited the company in the past
three years.
_ The supervisory board member shall not serve as a management
board member at another company in which a member of the
company’s management board is a supervisory board member.
_ The supervisory board member shall not serve on the supervisory board for more than 15 years. This shall not apply to members
of the supervisory board that hold investments with a business
interest or that represent the interests of such a shareholder.
_ The supervisory board member shall not be a close family member (child, spouse, life partner, parent, uncle, aunt, sibling, niece,
nephew) of a member of the management board or of persons
holding one of the positions described in the points above.
Based on the above criteria, all members of the supervisory board
have declared their independence.
No member of the supervisory board holds directly or indirectly
more than 10% of the shares of Erste Group Bank AG. In 2015,
three members of the supervisory board (Georg Winckler, Maximilian Hardegg and Barbara Pichler) served on a management
body of a company holding more than 10% of the shares of Erste
Group Bank AG. One member (Wilhelm Rasinger) represented in
particular the interests of retail shareholders.
Attendance of supervisory board meetings
In 2015, all members of the supervisory board attended more than
half of the supervisory board meetings that took place after their
election to the supervisory board.
Self-evaluation of the supervisory board
The supervisory board performed a self-evaluation of its activity
pursuant to C-Rule 36 of the Austrian CCG. In the supervisory
board meeting of 17 December 2015, it considered the efficiency
of its activity, including in particular its organisation and methods
of work.
Contracts subject to approval pursuant to
section 95 para 5 no 12 Austrian Stock Corporation Act
(C-Rule 49 Austrian CCG)
In 2015, the firm Griss & Partner Rechtsanwälte, in which Gunter
Griss is a senior partner, invoiced companies of Erste Group for
legal representation and consulting services in the total amount of
EUR 8,121.00.
78
SUPERVISORY BOARD COMMITTEES AND
THEIR DECISION-MAKING POWERS
The supervisory board has set up six committees: the risk committee, the executive committee, the audit committee, the nomination committee, the remuneration committee and the construction/IT committee.
Risk committee
The risk committee advises the management board with regard to
the bank’s current and future risk appetite and risk strategy and
monitors the implementation of this risk strategy. The committee
also reviews whether the services and products offered are adequately priced in accordance with the bank’s business model and
risk strategy. Without prejudice to the duties of the remuneration
committee, the risk committee is also responsible for reviewing
whether the incentives offered by the internal remuneration system adequately take into account risk, capital, liquidity and the
probability and timing of profit realisation. The risk committee is
responsible for granting approval in all those cases in which loans
and exposures or large exposures reach an amount exceeding the
approval authority of the management board defined in the approval authority regulation. The approval of the risk committee is
required for any exposure or large exposure as defined in section 28a of the Austrian Banking Act if the carrying value of such
an investment exceeds 10% of the company’s eligible own funds
or of the banking group’s eligible consolidated own funds. In
addition, it may grant advance approvals to the extent permitted
by law. The risk committee is responsible for monitoring the risk
management of Erste Group Bank AG. A report providing key
information about the organisation, structure and operation of the
risk management system in place for the company and major
subsidiaries has to be submitted to the committee at least once a
year. The supervisory board has delegated to the risk committee
the right to approve the establishment and closure of branches, to
grant special statutory power of attorney (Prokura) or commercial
power (Handlungsvollmacht) for all business operations. The
committee is responsible for monitoring the Group’s portfolio of
participations except in cases where this is the responsibility of
the audit committee. The tasks of the risk committee include the
acknowledgement of reports on legal disputes and on the risk
impact and costs of major IT projects as well as of reports on important audits of subsidiaries conducted by regulatory authorities.
Executive committee
The executive committee meets on an ad hoc basis at the supervisory board’s request for the purpose of preparing specific topics for
meetings or for resolutions to be taken by circular. The committee
may also be assigned the power to take final decisions. In case of
imminent danger and to prevent severe damage, the executive
committee may be convened by its chairperson in order to take
action in the interest of the company even without a specific mandate from the supervisory board.
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Audit committee
The audit committee is responsible for overseeing the accounting
process; monitoring the effectiveness of the company’s internal
control system, internal audit system and risk management system;
overseeing the annual audit of single-entity and consolidated
financial statements; reviewing and monitoring the qualification
and independence of the auditor (Group auditor), especially with
regard to additional services rendered for the audited company
and/or consolidated group companies; reviewing and preparing
the adoption of annual financial statements, the proposal for the
appropriation of profits, the management report and the corporate
governance report and submitting a report on the results of the
review to the supervisory board; reviewing the consolidated financial statements of Erste Group and the Group management report;
preparing the supervisory board’s proposal for the selection and
revocation of the auditor; concluding the contract with the appointed auditor for the performance of the annual audit and
agreement on the auditor’s remuneration; acknowledging timely
information on the focal points of the audit and submitting proposals for additional focal points of the audit; taking note of the
annual financial statements of key subsidiaries and of the participations report; acknowledging the audit plan of the company’s
internal audit function; acknowledging information on current
matters relevant for the internal audit of the Group and on the
efficiency and effectiveness of the internal audit; acknowledging
the internal auditors’ report on the audit areas and material audit
findings and the activity report pursuant to section 20 in connection with section 21 (2) of the Austrian Securities Supervisory Act
(Wertpapieraufsichtsgesetz); acknowledging immediate information on material findings of the auditor, the internal audit function or an audit conducted by a regulatory authority; acknowledging immediate information on loss events that could exceed 5% of
consolidated equity or 10% of the budgeted net result; acknowledging reports of the management board on current developments
and compliance regarding corporate governance and anti-money
laundering rules; acknowledging the compliance activity report
pursuant to section 18 in connection with section 21 (2) of the
Austrian Securities Supervisory Act (Wertpapieraufsichtsgesetz).
Nomination committee
Meetings of the nomination committee are held as needed (beginning with 1 January 2014 at least once a year) or when a member of
the committee or of the management board requests a meeting. The
nomination committee submits proposals to the supervisory board
for filling management board mandates that become vacant and
deals with issues of succession planning. The committee decides on
the employment contracts for members of the management board. It
deals with and decides on relationships between the company and
the members of the management board except for resolutions to
appoint members to the management board or revoke such appointments and on the granting of company stock options. Furthermore,
the nomination committee supports the supervisory board in making
proposals to the annual general meeting for filling supervisory board
mandates that have become vacant. In filling vacant management
board and supervisory board mandates, the focus is in particular on
the members’ personal and professional qualifications, a wellbalanced board composition in terms of expertise, a well-balanced
and broad range of knowledge, skills and experience of the members
on each body, and on aspects of diversity. The nomination committee also defines a target quota for the underrepresented gender and
develops a strategy to achieve this target. Furthermore, the nomination committee has to ensure that the management board’s and the
supervisory board’s decision-making processes are not dominated
by one single person or a small group of persons. The nomination
committee periodically assesses the management board’s and the
supervisory board’s structure, size, composition and performance
and submits proposals for changes to the supervisory board, if necessary. In addition, the nomination committee has to conduct periodic assessments of the expertise, skills and experience of both the
management board members and the individual members of the
supervisory board as well as of each body in its entirety and to report
its findings to the supervisory board. As regards the selection for
senior management positions, the nomination committee has to
review the course of action adopted by the management board
and supports the supervisory board in making recommendations
to the management board.
Remuneration committee
The remuneration committee prepares resolutions on remuneration
matters, including resolutions that have an impact on the bank’s
risk and risk management and have to be passed by the supervisory board. The remuneration committee approves the general principles of remuneration policy, reviews them regularly and is also
responsible for their implementation. The committee monitors
remuneration policy, remuneration practices and remunerationlinked incentive programmes in relation to the control, monitoring
and containment of risks, the capital base and liquidity, with due
regard to the long-term interests of the bank’s shareholders, investors and employees as well as the national interest in a wellfunctioning banking system and financial market stability. The
committee monitors the payment of variable remuneration to
members of the management board and to the company’s second
management level as well as to management board members of
major subsidiaries. Furthermore, the remuneration of senior managers in risk management and in compliance functions is reviewed
directly by the remuneration committee. Once a year, the committee is presented with a comprehensive report on the remuneration
system including key performance indicators as well as a report on
the situation regarding personnel and management in the Group.
Construction committee/IT committee
The construction committee is responsible for advising the management board and for preparing resolutions of the supervisory
board with respect to Erste Campus, the headquarters of Erste
Group. The supervisory board may delegate further duties to the
committee, if necessary. Following the completion and handing
over of Erste Campus, the construction committee was renamed
IT committee as of 2 December 2015 and its scope of duties and
internal rules were amended. The IT committee monitors and
supervises IT-related issues and IT strategy in general. The IT
79
committee is also responsible for rendering advise to the management board and for the preparation of any resolutions of the
supervisory board regarding Erste Campus.
MEETINGS OF THE SUPERVISORY BOARD
AND REPORT ON PRINCIPAL ACTIVITIES
Six meetings of the supervisory board were held in the financial
year 2015.
At each ordinary meeting of the supervisory board, the monthly
developments of the balance sheet and the income statement were
presented and reports were given on individual risk types and the
bank’s total risk; the status of individual banking subsidiaries in
Central and Eastern Europe was discussed and quarterly reports
were delivered on the areas audited and on the internal audit department’s material audit findings according to section 42 para 3 of
the Austrian Banking Act. The chairpersons of the committees
reported on the main topics dealt with by the committees since the
last supervisory board meeting. A recurring topic at the supervisory
board meetings in the financial year 2015 was reports on current
regulatory developments in the banking environment and their
impacts on Erste Group, including in particular the status of the
banking supervisory regime at the European level and in Austria.
The management board regularly presented proposals to the supervisory board that require its approval under the law, the articles of
association and the internal rules.
On 12 March 2015, the financial statements and the management
report 2014, the consolidated financial statements and consolidated
management report 2014 as well as the corporate governance report
2014 were reviewed; the bank auditors’ reports were discussed and
the financial statements 2014 were adopted in accordance with the
recommendation of the audit committee. Furthermore, the resolutions proposed for the annual general meeting were discussed and
approved. It was also decided to propose Ernst & Young
Wirtschaftsprüfungsgesellschaft m.b.H. to the annual general meeting on 12 May 2015 as an additional auditor of the (consolidated)
financial statements for the financial year 2016. In addition, reports
were delivered on the development of risk and credit risk, on anticorruption activities and on a project regarding the sale of nonperforming loans of Banca Comercială Română S.A. and a decision
was taken on the re-organisation of the Corporates and Markets
division.
At the meeting of 22 April 2015, which was also attended by staff
members of the European Central Bank (ECB), who answered
questions raised by supervisory board members, reports were
delivered on the current status and the development of the business of Erste Bank Hungary Zrt. A report was also given on the
situation of HETA Asset Resolution AG and its impact on Erste
Group, on capital planning and its implementation as well as on
the restructuring of the COO division. An update was presented
on initiatives and cooperation arrangements, and the report on
directors’ dealings as well as the annual compliance report were
80
discussed. In addition, resolutions were adopted relating to variable remuneration components for the management board.
At the constituent meeting of 12 May 2015 held after the annual
general meeting, Jan Homan was elected first vice chairman and
Bettina Breiteneder second vice chairwoman of the supervisory
board. In addition, supervisory board members were elected to
the respective supervisory board committees and the composition
of the committees was thus realigned. The distribution key for the
remuneration of supervisory board members approved by the
annual general meeting was adopted for 2014.
At the meeting held on 24 June 2015, the report on major participations for 2014 and the first quarter of 2015, the risk development and credit risk report as well as the report on the current
status and the development of the business of the Hungarian
subsidiary Erste Bank Hungary Zrt were discussed.
At the meeting of 16 September 2015, Andreas Treichl was reappointed early as member of the management board for a term
ending 30 June 2020 and his function as chairman of the management board was confirmed at the same time. In addition,
reports were delivered on Česká spořitelna, a.s. and Banca
Comercială Română S.A., on the current status of the Group
Recovery Plan 2015, on the development of risk and on the Credit Risk Remediation programme.
At the meeting of 17 December 2015, the strategy and reorganisation of Group Retail was approved and reports on cyber security,
diversity, large exposures pursuant to section 28b of the Austrian
Banking Act, committee activities and the annual plan for the
financial year 2016 were discussed and taken note of. It was
further decided to propose PwC Wirtschaftsprüfung GmbH to the
annual general meeting on 11 May 2016 as an additional auditor
of the (consolidated) financial statements for the financial year
2017. The findings of the supervisory board’s self-evaluation
were discussed. Maximilian Hardegg was elected as an additional
member of the IT committee (formerly: construction committee).
MEETINGS OF THE COMMITTEES AND
REPORT ON ACTIVITIES
The risk committee held eighteen meetings in 2015, at which it
regularly took decisions on exposures and loans exceeding the
powers of the management board and was briefed on loans granted within the scope of authorisation of the management board.
The committee was regularly informed of the individual risk
types, risk-bearing capacity and large exposures. Furthermore,
reports were given on the situation of specific sectors and industries and resulting effects on the risk strategy, on the audits conducted by supervisory authorities, on various legal disputes and
on risk development in certain countries and subsidiaries. In
2015, reports were delivered repeatedly on developments in
Hungary and Croatia, focusing in particular on foreign-currency
loans and on the impacts of Swiss franc exchange rate fluctua-
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tions. Further topics were the evaluation of remuneration schemes
and salary schemes for workout managers within the Group as
well as the activities of Group Compliance and regulatory developments at the European level and in Austria.
In 2015, a meeting of the executive committee was held to discuss a project regarding the sale of non-performing loans of Banca
Comercială Română S.A.
The audit committee met seven times in 2015. Among other
things, the auditors reported on the audit of the single-entity and
consolidated financial statements for 2014, and the audit committee subsequently conducted the final discussion. The financial
statements and the management report, the consolidated financial
statements and the consolidated management report as well as the
corporate governance report were audited and recommended to
the supervisory board for adoption. The head of the internal audit
department reported on the audit subjects and material audit
findings for the year 2014 and explained the audit plan for 2015.
The internal audit department presented its reports pursuant to
section 42 para 3 of the Austrian Banking Act as well as a report
pursuant to section 39 of the Austrian Banking Act. A report was
given on the assessment of the functionality of the risk management system according to Rule 83 of the Austrian CCG and on
the effectiveness of the internal control system. The audit committee also discussed its work plan for 2016 and defined which
topics were to be placed on the agendas of which meetings. After
completion of a bidding process and evaluation of its results, it
was decided, subject to the approval of the supervisory board, to
propose PwC Wirtschaftsprüfung GmbH to the annual general
meeting on 11 May 2016 as an additional auditor of the (consolidated) financial statements for the financial year 2017. The auditors provided information about the preliminary audit of the
single-entity and consolidated financial statements for 2015.
Further reports were about the audit conducted and the decision
taken by the Austrian Financial Reporting Enforcement Panel
(Österreichische Prüfstelle für Rechnungslegung) as well as about
the outcome of the Asset Quality Review and the findings of an
outside auditor’s review of the internal audit function’s asset
quality assessment. Reports were also delivered on the audit of
Erste Campus, the performance of investments and the internal
control system and the management letter 2014 was discussed.
The nomination committee met three times in 2015 and dealt with
various personnel matters relating to the management board and the
supervisory board. These included, first of all, the election of supervisory board members at the annual general meeting 2014. The
nomination committee assessed the qualifications of the candidates
nominated for first-time or re-election and recommended that the
supervisory board propose to the annual general meeting the firsttime election of Maximilian Hardegg, Gonzalo Gortázar Rotaeche
und Antonio Massanell Lavilla and the re-election of Wilhelm
Rasinger to the supervisory board. The nomination committee also
assessed the qualifications of Andreas Treichl for early reappointment as member and chairman of the management board
and recommended his re-appointment by the supervisory board. In
addition, the nomination committee reviewed the evaluation pursuant to C-Rule 36 of the Austrian CCG and evaluation of the management board and the supervisory board pursuant to section 39 no
6 and 7 of the Austrian Banking Act.
The remuneration committee met five times in 2015 and discussed various remuneration topics relating to Erste Group and its
subsidiaries including the structure of key performance indicators
and the bonus policy concerning the requirements for the payment of variable remuneration components. In addition, the remuneration of members of the supervisory board was discussed,
and decisions regarding the remuneration of management board
members were made. Information was provided about regulatory
developments concerning remuneration and their implementation
by Erste Group, including in particular the impacts of
CRD IV/CRR rules.
The construction committee met three times in 2015. Its main
topics were project planning, project organisation, the budget,
costs and risks as well as procedures relating to tenders, scheduling and developments regarding Erste Campus, the new Erste
Group headquarters building in Vienna. After the successful
completion and acceptance of the Erste Campus project in December 2015, the construction committee was renamed IT committee, its scope of duties was redefined and its internal rules
were amended accordingly. In 2015, a meeting of the IT committee was held, which discussed, among other things, the IT strategy and fundamental strategic COO initiatives.
REMUNERATION OF THE MANAGEMENT
BOARD AND THE SUPERVISORY BOARD
Principles governing the remuneration policy
The principles governing management board remuneration are
specified in the remuneration policy of Erste Group Bank AG,
including in particular the definition and evaluation of performance criteria. The contractual maximum value of performancelinked payments to management board members shall not exceed
100% of the fixed salaries. The method for determining whether
the performance criteria have been met is defined at the beginning of the year by the supervisory board following a proposal of
the responsible organisational units (Group Performance Management, Group Risk Management and Group Human Resources). Management board members have to achieve defined
performance criteria at both company level and individual level.
The first criterion is Erste Group’s overall performance. For the
year 2015, this criterion is measured by reference to three indicators: the SREP ratio, the common equity tier 1 ratio and operating
result minus risk cost. The second performance criterion is the
achievement of individual objectives. These are, for example,
operating result, operating result minus risk costs, return on tangible equity, risk costs to customer loans, the NPL coverage ratio
and the NPL ratio.
81
Since the financial year 2010, the variable part of the management board’s remuneration, including both cash payments and
share equivalents, is distributed over five years in accordance
with legal requirements and is paid out only under certain condi-
tions. Share equivalents are not exchange-traded shares but phantom shares that are paid out in cash after a one-year vesting period based on defined criteria.
Remuneration of management board members
Remuneration in 2015
Performance-linked remuneration
in EUR thousand
Fixed salaries
Other remuneration
for 2014
for previous years
Total
1,335.1
633.0
495.3
633.0
633.0
633.0
4,362.4
1,454.4
84.4
63.6
157.4
86.3
82.2
1,928.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
156.8
0.0
0.0
4.0
27.2
0.0
188.0
2,946.3
717.4
558.9
794.4
746.5
715.2
6,478.7
Andreas Treichl
Peter Bosek
Petr Brávek (since 1 April 2015)
Andreas Gottschling
Gernot Mittendorfer
Jozef Síkela
Total
In 2015, Peter Bosek was a management board member of the
Holding as well as of Erste Bank Oesterreich. Therefore, the
remuneration was split equally between both entities.
share price of Erste Group Bank AG versus a group of peers and
the Dow Jones Euro Stoxx Banks. In 2015, it did not result in any
payment.
The item “Other remuneration” comprises pension fund contributions, contributions to employee provision funds (for new-type
severance payments) and remuneration in kind. In 2015, performance-linked remuneration and share equivalents were paid out
or vested for previous years. No performance-linked remuneration was paid to members of the management board for the financial years 2014 and 2011.
In 2015, EUR 3,140.0 thousand was paid in cash and 8,390 shareequivalents were assigned to former members of management
bodies and their dependants.
Non-cash performance-linked remuneration in 2015
Share equivalents (in units)
Andreas Treichl
Peter Bosek
Petr Brávek (since 1 April 2015)
Andreas Gottschling
Gernot Mittendorfer
Jozef Síkela
Total
for 2014
for previous
years
0
0
0
0
0
0
0
6.953
0
0
168
1.424
0
8.545
Pay-outs will be made in the year 2016 after the one-year vesting
period. Share equivalents are valued at the average weighted
daily share price of Erste Group Bank AG of the year 2015 in the
amount of EUR 25.13 per share.
Long-term incentive programme
A long-term incentive programme (LTI) that was started on
1 January 2010 expired in 2015. It was based on changes in the
82
Principles governing the pension scheme for
management board members
Members of the management board participate in the defined
contribution pension plan of Erste Group on the basis of the same
principles as employees. For one member of the management
board, compensatory payments have to be made to the pension
fund in case the management board member’s tenure ends before
he reaches the age of 65 by no fault of the member.
Principles governing vested benefits and entitlements
of management board members in case of termination
of the position
Regarding vested benefits and entitlements of management board
members in the event of termination of their position, the standard
legal severance benefit provisions of section 23 of the Austrian
Salaried Employees Act (Angestelltengesetz) still apply to one
member of the management board. No other members of the management board are entitled to receive any severance benefits.
The remuneration granted to the management board members
complies with the banking rules on management remuneration.
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Remuneration of members of the supervisory board
in EUR thousand
Friedrich Rödler
Georg Winckler
Jan Homan
Bettina Breiteneder
Elisabeth Bleyleben-Koren
Gonzalo Gortázar Rotaeche
Gunter Griss
Maximilian Hardegg
Elisabeth Krainer Senger-Weiss
Antonio Massanell Lavilla
Juan Maria Nìn Génova
Brian D.O´Neill
Wilhelm Rasinger
John James Stack
Markus Haag
Regina Haberhauer
Friedrich Lackner
Andreas Lachs
Bertram Mach
Barbara Pichler
Jozef Pinter
Karin Zeisel
Total
The 2015 annual general meeting granted the members of the supervisory board remuneration totalling EUR 580,100 for the financial
year 2014. The distribution of this remuneration is at the supervisory
board’s discretion and was approved at the constituent meeting of
the supervisory board on 12 May 2015. In addition, attendance fees
paid to the members of the supervisory board were set at EUR 1,000
per meeting of the supervisory board or one of its committees.
Directors’ and officers’ liability insurance
Erste Group Bank AG has directors’ and officers’ liability insurance. The insurance policy covers former, current and future
members of the management board or managing directors, of the
supervisory board, of the administrative board and of the advisory
board as well as senior management, holders of statutory powers
of attorney (Prokuristen) and management staff of Erste Group
Bank AG and the subsidiaries in which Erste Group Bank AG
holds more than 50% of the shares or voting rights either directly
or indirectly through one or more subsidiaries. The costs are
borne by the company.
MEASURES TAKEN TO PROMOTE WOMEN
ON MANAGEMENT BOARDS, SUPERVISORY
BOARDS AND IN MANAGING POSITIONS
Erste Group was founded on the principles of accessibility and
inclusion. Diversity and equal opportunities are firmly embedded
in Erste Group’s corporate philosophy and corporate culture, thus
providing a solid foundation for building strong and mutually
beneficial relationships between Erste Group, its employees and
the communities and societies in Erste Group’s markets. The
commitment to promoting equal opportunities and diversity was
institutionalised by appointing a Diversity Manager responsible
Meeting fees
for 2015
Supervisory board
compensation
for 2014
Total
46,0
13,0
29,0
27,0
30,0
3,0
10,0
25,0
19,0
9,0
0,0
11,0
34,0
9,0
0,0
0,0
0,0
0,0
0,0
0,0
0,0
0,0
265,0
100,0
75,0
65,5
50,0
30,7
0,0
30,7
0,0
30,7
0,0
47,5
50,0
50,0
50,0
0,0
0,0
0,0
0,0
0,0
0,0
0,0
0,0
580,1
146,0
88,0
94,5
77,0
60,7
3,0
40,7
25,0
49,7
9,0
47,5
61,0
84,0
59,0
0,0
0,0
0,0
0,0
0,0
0,0
0,0
0,0
845,1
for developing a group-wide diversity policy, identifying targets
and measures, and regularly monitoring and reporting on targets.
At the beginning of 2014, Erste Group set a group-wide internal
target of having 35% of positions in top management and on supervisory boards filled by women by 2019. This target applies to the
local banking subsidiaries (excluding the savings banks in Austria).
Currently, 28% of positions in top management are filled by women, which is a 2 percentage point decrease over 2014 resulting from
organisational changes. The share of female supervisory board
members increased by 1 percentage point to 24% in 2015. To increase the number of women in senior management positions, Erste
Group aims for a greater gender and age balance in its talent pools.
The Erste Women Hub focuses on supporting women in advancing
their careers, reaching out to female customers and encouraging an
inclusive work environment. Various initiatives in Austria, such as
the WoMentoring programme, Women Financial Lifetime and
Securities Dialogue for Women, were launched. Česká spořitelna
continues its comprehensive diversity and inclusion programme
Diversitas. The programme is focused on all aspects of diversity
management, such as supporting the career advancement of
women through mentoring, coaching, leadership development
and networking, and offering flexible work arrangements and a
parental support programme as well as age management and an
intergenerational dialogue. Both Slovenská sporiteľňa and Banca
Comercială Română offered workshops dedicated to women in
their diversity approach. In addition, Slovenská sporiteľňa recruits
disabled persons for their call centre, and Erste Bank Hungary
agreed with the employees’council to provide additional 5 days
of paid leave for disabled employees.
83
EXTERNAL EVALUATION
Erste Group Bank AG commissioned an external evaluation of
compliance with the Austrian Code of Corporate Governance in
accordance with C-Rule 62 of the Austrian CCG at least every
three years, most recently in 2015, for the respective preceding
business years. All evaluations reached the conclusion that Erste
Group Bank AG had met all requirements of the Code. Summary
reports on these evaluations are available at the website of Erste
Group Bank AG. An external evaluation for 2017 is scheduled for
spring 2018. A summary report of this evaluation will also be
available at the website.
SHAREHOLDERS’ RIGHTS
Voting rights
Each share of Erste Group Bank AG entitles its holder to one vote
at the annual general meeting. In general, shareholders may pass
resolutions at an annual general meeting by a simple majority of
the votes cast or, in the event that the majority of the share capital
present is required to approve a measure, by a simple majority of
the share capital present, unless Austrian law or the articles of
association require a qualified majority vote. The articles of
association differ from the statutory majority requirements in
three cases: First, the appointment of supervisory board members
can be revoked before the end of their respective term by a resolution of the annual general meeting that requires a majority of
75% of the votes cast and a majority of 75% of the share capital
present at such meeting. Second, the articles of association may
be amended by a resolution of the annual general meeting. Provided that such amendment does not concern the business purpose, this requires a simple majority of the votes cast and a simple majority of the share capital present at such meeting. Third,
any provision regulating increased majority requirements can
only be amended with the same increased majority.
Dividend rights
Each shareholder is entitled to receive dividends if and to the
extent the distribution of dividends is resolved by the annual
general meeting.
Liquidation proceeds
In case of dissolution of Erste Group Bank AG, the assets remaining
after the discharge of liabilities and repayment of supplementary
capital will be distributed pro rata to the shareholders. The dissolution of Erste Group Bank AG requires a majority of at least 75% of
the share capital present at an annual general meeting.
Subscription rights
All holders of shares have subscription rights allowing them to
subscribe to any newly issued shares to maintain their existing
share in the share capital of Erste Group Bank AG. Such subscription rights are in proportion to the number of shares held by such
shareholders prior to the issue of the new shares. The said subscription rights do not apply if the respective shareholder does not exer-
84
cise these subscription rights or subscription rights are excluded in
certain cases by a resolution of the annual general meeting or by a
resolution of the management board and the supervisory board.
The Austrian Stock Corporation Act contains provisions that
protect the rights of individual shareholders. In particular, all
shareholders must be treated equally under equal circumstances
unless the shareholders affected have consented to unequal treatment. Furthermore, measures affecting shareholders’ rights, such
as capital increases and the exclusion of subscription rights,
generally require a shareholders’ resolution.
The articles of association of Erste Group Bank AG do not contain any provisions regarding a change in the share capital, the
rights associated with the shares or the exercise of the shareholders’ rights that differ from statutory requirements.
Stock corporations like Erste Group Bank AG must hold at least
one annual general meeting (ordinary shareholders’ meeting) per
year, which must be held within the first eight months of any
financial year and cover at least the following items:
_ Presentation of certain documents
_ Appropriation of profit
_ Discharge of the members of the management board and the
supervisory board for the financial year ended.
At annual general meetings, shareholders may ask for information about the company’s affairs to the extent that this is
required for the proper assessment of an agenda item.
Vienna, 26 February 2016
Management board
Andreas Treichl mp
Chairman
Andreas Gottschling mp
Member
Peter Bosek mp
Member
Gernot Mittendorfer mp
Member
Petr Brávek mp
Member
Jozef Síkela mp
Member
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ADDITIONAL CORPORATE GOVERNANCE
PRINCIPLES
Erste Group is committed to the highest standards of corporate
governance and responsible behaviour by individuals and conducts its business in compliance with the applicable laws and
regulations. In addition, Erste Group has introduced various
policies and guidelines defining rules and principles for its employees.
Based on our Statement of Purpose, we are determined to develop
our products and services to the highest possible standards. To
achieve these standards, we ask ourselves three questions before
taking a decision. With “Is it legal?” and “Is it profitable?”, we
cover fundamental requirements. But we also want to make sure
that any decision is in the best interest of our customers whilst at
the same time not violating Erste Group’s interest. Therefore, we
ask the third question “Is it the right thing to do?”
Compliance
The responsibility for all compliance issues at Erste Group rests
with Operational Risk, Compliance and Security. In organisational
terms, it is assigned to the Chief Risk Officer but reports directly
to the management board. The compliance rules of Erste Group
are based on the relevant legislation, such as the Austrian Stock
Exchange Act and the Securities Supervision Act; on the Standard
Compliance Code of the Austrian banking industry and on international practices and standards. Conflicts of interest between customers, Erste Group and employees are covered by clear rules
such as Chinese walls, provisions on employee transactions, research disclaimer or gift policy. Further key topics are procedures
and measures to prevent money laundering and terrorist financing
and to monitor sanctions and embargoes, as well as the establishment and coordination of measures to prevent financial crimes
within Erste Group.
Based on different international anti-bribery and anti-corruption
initiatives (e.g. the OECD Anti-Bribery Convention, the United
Nations Convention against Corruption), local national authorities
in many countries have approved laws and regulations that generally prohibit the acceptance of benefits by public officials for the
purpose of obtaining or retaining business or otherwise securing an
improper advantage. All of Erste Group’s businesses are subject to
the laws and regulations in the countries in which the bank operates. Most laws and regulations cover bribery in both the private
and public sector, partly with a global scope (e.g. the Criminal Law
in Austria, the Bribery Act in the UK, the Foreign Corrupt Practices
Act (FCPA) in the US).
Public officials are subject to the respective domestic laws and
regulations relating to gifts, hospitality and entertainment. Laws
may differ from country to country and are to some extent extremely restrictive. Improper payments or other inducements for
the benefit of a public official, even if made indirectly through an
intermediary, are prohibited. Erste Group under no circumstances
offers anything of value to a public official nor to members of a
public official’s family or any charitable organisation suggested
by a public official for the purpose of influencing the recipient to
take or refrain from taking any official action or to induce the
recipient to conduct business with Erste Group. This also includes
facilitating payments.
In Austria, an anti-corruption law (sections 302, 304 to 311 of the
Austrian Criminal Code) and the Federal Bureau of AntiCorruption and the Economic and Corruption Prosecutor Office
(Wirtschafts- und Korruptionsstaatsanwaltschaft) highlight the
importance of fighting corruption in public and private business.
In 2014 the Economic and Corruption Prosecutor Office investigated 1,359 cases of economic or corruption misconduct. No
figures for 2015 are available yet.
In 2015, Erste Group did not recognise any incident of corruption.
Employees are encouraged to report suspected unethical and/or
unlawful behaviour via a designated tool (Erste Integrity) to the
whistleblowing office. The whistleblowing platform offers the
possibility to file reports and ask questions in case of suspected
misconduct of financial crime (such as fraud, corruption, embezzlement), theft (e.g. concerning assets of customers), securities
and markets issues (e.g. insider trading), money laundering and
terrorism financing, conflicts of interest outside the securities
business (e.g. illegitimate gifts, secondary employment) or regulatory issues (pursuant to section 99g of the Austrian Banking
Act).
To ensure compliance with all laws and regulations group-wide
standards, policies and procedures are evaluated and refined
continuously.
The mandatory compliance training for all new employees includes awareness training and an introduction to prevention of
corruption. For employees in selected business areas regular
compliance training courses are mandatory.
Activities in 2015
_ release of a new group policy for “anti-corruption” to support
public authorities in their course of action against bribery and
corruption
_ implementation of a new reporting tool for gifts and invitations
in Austria to standardise the process and facilitate adequate
compliance monitoring
_ provision of regular information relating to the latest antibribery and anti-corruption laws and regulations as well as
training for employees
_ release of a new group policy establishing a general framework
for managing potential conflicts of interest in different areas
_ introduction of a new local policy in Austria for secondary
employments, participations and additional functions or mandates to manage potential conflicts of interest
85
_ kick-off of roll-out for a whistleblowing tool in Erste Group
entities to ensure an international state-of-the-art process for
potential whistleblowing cases and their documentation. In a
next step, employees will be able to report severe cases of potential misconduct not only in the respective local entity but
also directly to the holding.
Activities started in 2015 with roll out planned for 2016
_ policies for further areas of potential conflicts of interests (e.g.
sponsoring)
_ roll-out of a documentation/approval tool for secondary employments, participations and additional functions or mandates
in Austria
_ continued roll-out of Erste Integrity as a whistleblowing tool in
entities throughout the group.
Directors’ dealings
In accordance with the Austrian Stock Exchange Act and the
Issuer Compliance Regulation of the Austrian Financial
Market Authority (FMA), individual trades by members of the
management board and supervisory board in Erste Group
shares are published on the websites of Erste Group
(www.erstegroup.com/investorrelations) and the FMA.
Transparency
Transparent operations and reporting play a crucial part in establishing and upholding investor confidence. Accordingly, it is one
of the main goals of Erste Group to provide accurate, timely and
comprehensible information about the business development and
financial performance. Erste Group’s financial disclosure adheres
to applicable legal and regulatory requirements and is prepared in
line with best practice.
Risk management
Erste Group’s approach to risk management seeks to achieve the
best balance between risk and return for earning a sustainable
return on equity. A detailed report on risk policy, risk management strategy and organisation, as well as a thorough discussion
of the individual risk categories, is included in the Notes beginning on page 192. In addition, credit risk is analysed in detail in a
separate section starting on page 29, in the “Segments” section of
this report.
86
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G4 index pursuant to the guidelines of the Global Reporting Initiative
Pursuant to the criteria of the Global Reporting Initiative („Core“), the general standard disclosures and the specific standard disclosures
for all aspects of relevance according to the materiality analysis are described in this report on the basis of the G4 indicators. Moreover,
additional indicators are described.
The index lists the G4 indicators, a short description of the respective indicators and a reference, where the information is to be found
(annual report or website of Erste Group Bank AG).
GENERAL STANDARD DISCLOSURES
Strategy und analysis
G4 1
G4 2
Statement from the most senior decision-maker of the organisation
Description of key impacts, risks and opportunities
AR15 Strategy p. 10 et seq.
AR15 Strategy p. 10 et seq.
Organisational profile
G4 9
Name of the organisation
Primary brands, products and services
Location of the organisation's headquarter
Number of countries where the organisation operates, and names of countries
where either the organisation has significant operations or that are specifically
relevant to the sustainability topics covered in the report
Nature of ownership and legal form
Markets served (including geographic breakdown, sectors served, and types of
customers and beneficiaries)
Scale of the organisation
G4 10
Total number of employees by employment contract and gender
G4 11
Percentage of total employees covered by collective bargaining agreements
Description of the organisation's supply chain
Significant changes during the reporting period regarding the organisation’s
size, structure, ownership, or its supply chain
Report whether and how the precautionary approach or principle is addressed
by the organisation
G4 3
G4 4
G4 5
G4 6
G4 7
G4 8
G4 12
G4 13
G4 14
G4 15
Externally developed economic, environmental and social charters, principles,
or other initiatives to which the organisation subscribes or which it endorses
G4 16
Memberships of associations (such as industry associations) and national or
international advocacy organisations
Erste Group Bank AG
AR15 Cover, strategy p. 11
Vienna
AR15 Cover, strategy p. 11, 14
AR15 Cover (shareholder structure, imprint)
AR15 Cover, strategy p. 11, 14, group consolidated financial statements,
segment reporting (note 37) p. 176 et seqq.
AR15 Cover (employees, branches), group consolidated financial statements,
segment reporting (note 37) p. 176 et seqq.
AR15 Management report p. 19 (headcount), employees p. 69
It is differentiated between region, gender and further criteria.
100%, as collective bargaining agreements at all locations
AR15 Customers and suppliers p. 63
No significant changes
AR15 Strategy p. 10 The management board of Erste Group adopted a
statement of purpose and a code of conduct that take the precautionary
approach into account.
AR 15 Environment p. 70
Carbon Disclosure Project since 2010, UN PRI since 2012, GRI guidelines
since 2012, diversity charter since 2014, UN Global Compact and Nestor Gold
Charta since 2015
WSBI (World Savings Banks Institute), ESBG (European Savings Banks
Group), Österreichischer Sparkassenverband, Verband Österreichischer
Banken und Bankiers, OEVFA (Österreichische Vereinigung für Finanzanalyse
und Asset Management), BWG (Bankwissenschaftliche Gesellschaft
Österreich), WIFO (Wirtschaftsforschungsinstitut Österreich), Österreichische
Industriellenvereinigung, RESPACT (Austrian Business Council for
Sustainable Development), ÖGUT (Österreichische Gesellschaft für Umwelt
und Technik), WWF (World Wildlife Fund)
Identified material aspects and boundaries
G4 17
All entities included in the organisation’s consolidated financial statements or
equivalent documents. Report whether any entity included in the organisation’s
consolidated financial statements or equivalent documents is not covered by
the report
G4 18
G4 19
Process for defining the report content and the aspect boundaries
List of material aspects
G4 20
For each material aspect, report the aspect boundary within the organisation
G4 21
For each material aspect, report the aspect boundary outside the organisation
Effect of any restatements of information provided in previous reports, and the
reasons for such restatements
Significant changes from previous reporting periods in the scope and aspect
boundaries
G4 22
G4 23
All companies of Erste Group Bank AG to be consolidated except savings
banks within Haftungsverbund; dissenting from the above definition no
environmental data are available from following organisational units: all
locations of Erste Group outside Austria, the Czech Republic, Slovakia,
Hungary, Croatia, Serbia, Romania (this means in particular the offices in
London and New York).
In addition, there are deviations between the number of employees that are
assigned to specific organisational units and locations.
See analysis of materiality http://www.erstegroup.com/en/investors/reports
Indirect economic impacts, energy, emissions, supplier assessment focusing
on sustainability aspects, employment, health and safety, training and
education, diversity and equal opportunity, anti-corruption, compliance,
products and services labeling
See analysis of materiality http://www.erstegroup.com/en/investors/reports
With the exemption of the KPIs shown under G4 21 all other material KPIs are
within the organisation.
HR4, HR5, HR6
No restatements
None
87
Stakeholder engagement
G4 24
G4 25
G4 26
G4 27
List of stakeholder groups engaged by the organisation
Basis for identification and selection of stakeholders
Approach to stakeholder engagement, including frequency of engagement by
type and by stakeholder group
Key topics and concerns that have been raised through stakeholder
engagement and how the organisation has responded to those key topics and
concerns
Customers, employees, investors, society, environment, suppliers
Topics were selected on internal discussions with the involvement of
managers and employees in the relevant business divisions.
See analysis of materiality http://www.erstegroup.com/en/investors/reports
See analysis of materiality http://www.erstegroup.com/en/investors/reports
Report profile
G4 32
Reporting period (such as fiscal or calendar year) for information provided
Date of most recent previous report
Reporting cycle (such as annual, biennial)
Contact point for questions regarding the report or its content
GRI Content Index
G4 33
Independent assurance report
G4 28
G4 29
G4 30
G4 31
Fiscal year 2015
Fiscal year 2014
Annual
http://www.erstegroup.com/en/investors/ir-contacts
In accordance with "CORE", AR15 p. 87 et seqq. and
http://www.erstegroup.com/en/investors/reports
AR15 p. 92 et seq.
Governance
G4 34 -41 Governance structure and composition
Highest governance body's role in setting purpose, values and strategy
G4 43 -44 Highest governance body's competencies and performance evaluation
G4 45 -47 Highest governance body's role in risk management
G4 48
Highest governance body's role in sustainable reporting
G4 49-50 Highest governance body's role in evaluating economic, environmental and
social performance
G4 51
Remuneration policies for the highest governance body and senior executives
G4 52
Process for determining remuneration
G4 53
How stakeholders’ views are sought and taken into account regarding
remuneration
G4 54
The ratio of the annual total compensation for the organisation’s highest-paid
individual in each country of significant operations to the median annual total
compensation for all employees (excluding the highest-paid individual) in the
same country
G4 55
The ratio of percentage increase in annual total compensation for the
organisation’s highest-paid individual in each country of significant operations
to the median percentage increase in annual total compensation for all
employees (excluding the highest-paid individual) in the same country
G4 42
AR15 Corporate governance (corporate governance report) p. 74 et seqq.
AR15 Corporate governance (corporate governance report) p. 76 et seqq.
AR15 Corporate governance (corporate governance report) p. 76 et seqq.
AR15 Corporate governance (corporate governance report) p. 78
Members of holding board evaluating sustainable parts of annual report
AR15 Corporate governance (corporate governance report) p. 78 et seqq.
AR15 Corporate governance (corporate governance report) p. 81 et seq.
AR15 Corporate governance (corporate governance report) p. 81 et seq.
AR15 Corporate governance (corporate governance report) p. 79, 84
Not reported because of reasons for confidentiality
Not reported because of reasons for confidentiality
Ethics and integrity
G4 56
Organisation’s values, principles, standards and norms of behaviour such as
codes of conduct and codes of ethics
G4 57
Internal and external mechanisms for seeking advice on ethical and lawful
behaviour, and matters related to organisational integrity, such as helplines or
advice lines
Internal and external mechanisms for reporting concerns about unethical or
unlawful behaviour
G4 58
AR15 Strategy p. 10
The management board adopted a statement of purpose and, building on this
statement of purpose, a code of conduct.
AR15 Corporate governance (corporate governance report) p. 85 et seq.
AR15 Corporate governance (corporate governance report) p. 85 et seq.
SPECIFIC STANDARD DISCLOSURES
Management approach (DMA)
DMA EC
DMA EN
DMA LA
DMA HR
88
Economic EC
Overall
Environmental EN
Overall
Labour practices and decent work LA
Overall
Human rights HR
Overall
AR15 Commitment to society p. 56 et seqq. and
customers and suppliers p. 60 et seqq.
AR15 Environment p. 70 et seqq., customers and suppliers p. 60 et seqq. and
http://www.erstegroupprocurement.com/en/services/Procurement/SuppyChain-and-Supplier-Code-of-Conduct
AR15 Employees p. 65 et seqq., customers and suppliers p.63 et seq. and
http://www.erstegroupprocurement.com/en/services/Procurement/SuppyChain-and-Supplier-Code-of-Conduct
AR15 Customers and suppliers p. 63 et seq.
http://www.erstegroupprocurement.com/en/services/Procurement/Suppy-Chainand-Supplier-Code-of-Conduct and
http://www.erstegroup.com/en/About-us/CorporateGovernance (aspects of
responsible conduct)
AR15 Employees p. 65 et seqq.
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DMA SO
DMA PR
Society SO
Overall
Product responsibility PR
Overall
AR15 Corporate governance (corporate governance report) compliance p. 85
et seq. and
http://www.erstegroupprocurement.com/en/services/Procurement/SuppyChain-and-Supplier-Code-of-Conduct and
http://www.erstegroupprocurement.com/en/Downloads/b43acc97-e606-451085d8-54c5cf268199/mc-code-of-conduct-for-suppliers.pd
AR15 Customers and suppliers p. 63 et seq.
Economic
Economic performance
EC1
Direct economic value generated and distributed
EC3
Coverage of the organisation's defined benefit plan obligations
Financial assistance received from government
Indirect economic impacts
EC8
Significant indirect economic impacts, including the extent of impacts
EC4
Procurement practices
EC9
Proportion of spending on local suppliers at significant locations of operation
AR15 Group financial statements, group statement of comprehensive income
and country by country reporting (Note 54) p. 254
AR15 Group consolidated financial statements, provisions (Note 34) p. 170 et
seqq.
There is no financial assistance from the government.
AR15 Commitment to society p. 56 et seqq. and
customers and suppliers (financial inclusion) p. 63 et seq.
AR15 Customers and suppliers p.63
Environmental
Materials
Materials used by weight or volume
AR15 Environment p. 73
EN3
Energy consumption within the organisation
EN5
Energy intensity
EN6
Reduction of energy consumption
AR15 Environment p. 70 et seqq.
Due to the implementation of a new sustainability data software, environmental
data was not audited in 2015. See AR 15 independent assurance report p. 92
et seq.
AR15 Environment p. 73
environmental data was not audited in 2015, see EN3
AR15 Environment p. 70, 73
environmental data was not audited in 2015, see EN3
EN1
Energy
Emissions
EN15
Direct greenhouse gas (ghg) emissions (scope 1)
EN16
Energy indirect greenhouse gas (ghg) emissions (scope 2)
EN18
Greenhouse gas (ghg) emissions intensity
EN19
Reduction of greenhouse gas (ghg) emissions
Effluents and waste
EN23
Total weight of waste by type and disposal method
Compliance
EN29
Monetary value of significant fines and total number of non-monetary sanctions
for non-compliance with environmental laws and regulations
Supplier environmental assessment
EN32
Percentage of new suppliers that were screened using environmental criteria
EN33
Significant actual and potential negative environmental impacts in the supply
chain and actions taken
AR15 Environment p. 70, 73
environmental data was not audited in 2015, see EN3
AR15 Environment p. 70, 73
environmental data was not audited in 2015, see EN3
AR15 Environment p. 70, 73
environmental data was not audited in 2015, see EN3
AR15 Environment p. 70, 73
environmental data was not audited in 2015, see EN3
Waste management data is no longer reported, as waste does not represent a
material aspect for financial instutions and the collection of data is partially
based on estimates (e.g. branches are part of residential buildings)
Neither fines nor sanctions
AR15 Customers and suppliers p. 64
No negative impacts and therefore no actions taken
AR15 Customers and suppliers p. 64
Social
Labour practices and decent work
Employment
LA1
Total number and rates of new employee hires and employee turnover by age
group, gender and region
LA2
Benefits provided to full-time employees that are not provided to temporary or
part-time employees, by significant locations of operation
LA3
Return to work and retention rates after parental leave, by gender
Occupational health and safety
LA6
Type of injury and rates of injury, occupational diseases, lost days, and
absenteeism, and total number of work-related fatalities, by region and by
gender
Training and education
LA9
Average hours of training per year per employee by gender, and by employee
category
LA10
Programmes for skills management and lifelong learning that support the
continued employability of employees and assist them in managing career
endings
AR15 Employees p. 69
Turnover is reported by age and region.
Full-time and part-time employees get the same benefits
Retention rates are currently not provided by the systems. It is planned to
report the retention rates for all countries (except Croatia and Serbia) in 2016.
AR15 Employees p. 67 et seqq. A breakdown by various categories is not
provided by the systems. It is planned to provide data by country in 2016.
AR15 Employees p. 67
AR15 Employees p. 66 et seq.
89
Percentage of employees receiving regular performance and career
development reviews, by gender and by employee category
Diversity and equal opportunity
LA12
Composition of governance bodies and breakdown of employees per
employee category according to gender, age group, minority group
membership, and other indicators of diversity
Equal remuneration for women and men
LA13
Ratio of basic salary and remuneration of women to men by employee
category, by significant locations of operation
Supplier assessment for labour practices
LA14
Percentage of new suppliers that were screened using labour practices criteria
LA15
Significant actual and potential negative impacts for labour practices in the
supply chain and actions taken
Human rights
LA11
Non-discrimination
HR3
Total number of incidents of discrimination and corrective actions taken
Freedom of association and collective bargaining
HR4
Operations and suppliers identified in which the right to exercise freedom of
association and collective bargaining may be violated or at significant risk, and
measures taken to support these rights
Child labour
HR5
Operations and suppliers identified as having significant risk for incidents of child
labor, and measures taken to contribute to the effective abolition of child labour
Forced or compulsory labour
HR6
Operations and suppliers identified as having significant risk for incidents of
forced or compulsory labor, and measures to contribute to the elimination of all
forms of forced or compulsory labour
Supplier human rights assessment
HR10
Percentage of new suppliers that were screened using human rights criteria
HR11
Significant actual and potential negative human rights impacts in the supply
chain and actions taken
Society
Anti-corruption
SO3
Total number and percentage of operations assessed for risks related to
corruption and the significant risks identified
SO4
SO5
SO8
Communication and training on anti-corruption policies and procedures
Confirmed incidents of corruption and actions taken
Monetary value of significant fines and total number of non-monetary sanctions
for non-compliance with laws and regulations
Supplier assessment for impacts on society
SO9
Percentage of new suppliers that were screened using criteria for impacts on
society
SO10
Significant actual and potential negative impacts on society in the supply chain
and actions taken
Product responsibility
Product and service labeling
PR5
Results of surveys measuring customer satisfaction
100%
AR15 Employees p. 67 et seq. and corporate governance (corporate
governance report) p. 76 et seq.
There is no differentiation by gender in the collective bargaining agreement. It
is planned to balance potential differences in total remuneration.
AR15 Customers and suppliers p. 64
No negative impacts and therefore no actions taken
AR15 Customers and suppliers p. 64
As a preventive measure, an anti-discrimination officer was appointed at the
end of 2015, who works with management on awareness and prevention and
councils, advises and mediates in matters concerning harassment and
discrimination. No significant incidents were brought forward to the antidiscrimination officer in Austria in 2015. There is no standardised data
management in the other countries.
No measures necessary for own operations nor for suppliers
No measures necessary for own operations nor for suppliers
No measures necessary for own operations nor for suppliers
AR15 Customers and suppliers p.64
No negative impacts and therefore no actions taken
AR15 Customers and suppliers p. 64
AR15 Corporate governance (corporate governance report) p. 85 et seq.
Erste Group regularly assesses operational risks and effectiveness of controls.
The highest risk is found with customer-events. Therefore, there is regular
contact between the compliance department and the department organizing the
event.
AR15 Corporate governance (corporate governance report) p. 85 et seq.
In 2015, no incidents of corruption were identified.
AR15 Corporate governance (corporate governance report) p. 85
A reporting system to collect all significant fines and monetary sanctions for
non-compliance with laws and regulations is being implemented.
AR15 Corporate governance (corporate governance report) p. 78, 85 et seq.
AR15 Customers and suppliers p. 64
No negative impacts and therefore no actions taken
AR15 Customers and suppliers p. 64 et seq.
AR15 Customers and suppliers p. 61
Sector specific standard disclosures
former
FS1
Policies with specific environmental and social components applied to
business lines
former
FS2
Procedures for assessing and screening environmental and social risks in
business lines
former
FS4
Process(es) for improving staff competency to implement the environmental
and social policies and procedures as applied to business lines
90
AR15 Strategy p. 10
http://www.erstegroup.com/en/about-us/corporate-governance (aspects of
responsible conduct) and
http://www.erstegroupprocurement.com/en/services/Procurement/SuppyChain-and-Supplier-Code-of-Conduct
http://www.erstegroupprocurement.com/en/services/Procurement/Suppy-Chainand-Supplier-Code-of-Conduct
Asset Management: http://www.erste-am.at/de/institutionelle-anleger/unserdenken/nachhaltigkeit
Sustainable Investment: http://www.erste-am.at/de/private_anleger/unsereloesungen/nachhaltige-veranlagung
Voting portal: http://www.erste-am.at/de/institutionelle-anleger/unserdenken/voting
There are additional internal guidelines that are not published.
New employees get training
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former
FS5
Interactions with clients/investees/business partners regarding environmental
and social risks and opportunities
FS6
Percentage of the portfolio for business lines by specific region, size (e.g.
micro/SME/large) and by sector
Monetary value of products and services designed to deliver a specific social
benefit for each business line broken down by purpose
FS7
FS8
former
FS9
FS10
Monetary value of products and services designed to deliver a specific
environmental benefit for each business line broken down by purpose
Coverage and frequency of audits to assess implementation of environmental
and social policies and risk assessment procedures
Percentage and number of companies held in the institution's portfolio with which
the reporting organisation has interacted on environmental or social issues
FS11
Percentage of assets subject to positive and negative environmental or social
screening
former
FS12
Voting polic(ies) applied to environmental or social issues for shares over which
the reporting organisation holds the right to vote shares or advises on voting
Initiatives to improve access to financial services for disadvantaged people
FS14
former
FS15
Policies for the fair design and sale of financial products and services
former
FS16
Initiatives to enhance financial literacy by type of beneficiary
AR15 Customers and suppliers p. 60 et seqq.
According to the business model and the statement of purpose of Erste Group,
exclusion criteria are in place for sustainable investments. In addition, Erste
Group offers a number of social banking and financial inclusion initiatives.
AR15 Group financial statements, segment reporting (Note 37) p. 176 et seqq.
AR15 Customers and suppliers p. 60 et seqq.
http://www.erste-am.at/de/private_anleger/unsere-loesungen/nachhaltigeveranlagung
http://www.erstegroup.com/en/career/commitment
AR15 Environment, other environmental initiatives p. 72 et seqq.
In accordance with the (not published) guidelines, there are regular risk
assessments.
Erste Asset Management deals with this topic within the scope of its
sustainable investment funds http://www.ersteam.at/de/private_anleger/unsere-fonds/nachhaltige-fonds
AR15 Customers and suppliers p. 61 et seq.
Asset Management: Actively managed funds that are amongst others
screened for prohibited weapons amounted to EUR 23.4 billion. The total
volume of assets managed by sustainable investment funds reached EUR 4
billion in 2015.
http://www.erste-am.at/de/institutionelle-anleger/unser-denken/voting
AR15 Commitment to society p. 56 et seqq. and
AR15 Customers and suppliers p. 60 et seq., 62 et seq.
AR15 Strategy p. 10 and
AR15 Customers and suppliers p. 60 et seqq.
Focus on products and services that are easy to understand and improved
accessibility (barrier-free initiatives, digital banking)
AR15 Commitment to society p. 56 et seq.
A number of initiatives are offered and supported. A new ambitious project is
the Financial Life Park (FLiP) that is designed to raise curiosity and illustrate
the importance of finance at all age groups. School classes starting from
primary school and teenager are the main target group.
91
To the Board of Erste Group Bank AG
Independent Assurance Report
Independent assurance over the 2015 sustainability disclosures and data of Erste Group Bank AG
Attention: This letter has been translated from German to English for referencing purposes only. Please refer to the officially legally binding version as
written and signed in German. Only the German version is the legally binding version.
Engagement
Criteria
We were requested to perform a limited assurance engagement over
the 2015 sustainability disclosures and data (hereafter “Reporting”) in
accordance with the GRI G4 CORE Option of Erste Group Bank AG.
The information included in the Reporting was based on the criteria
applicable in the year 2015 (“The Criteria”), consisting of:
The assurance engagement covers the Reporting as follows:
►
►
“Annual Report 2015” in pdf-format concerning information
and references linked from the GRI-Index to sustainability
disclosures and data.
Additional information on the company´s website regarding
materiality analysis, see “GRI materiality analysis 2015”
available at
http://www.erstegroup.com/en/investors/reports
Our assurance engagement solely covers references directly specified
in the GRI-Index. It does not cover any further web references, nor
references made directly in the Reporting.
Our procedures have been designed to obtain a limited level of
assurance on which to base our conclusions. The extent of evidence
gathering procedures performed is less than for that of a reasonable
assurance engagement (such as a financial audit) and therefore a lower
level of assurance is provided.
Limitations to our Review
►
►
The boundaries for the Reporting of Erste Group Bank AG and
our limited assurance were defined as the scope of consolidated
entities with the following exceptions. Not included were savings
banks, which are consolidated via the so called Haftungsverbund
(joint liability).
Furthermore environmental data was not collected for
subsidiaries outside Austria, Czech Republic, Slovakia, Hungary,
Croatia, Serbia and Romania (e.g. the offices in London and New
York).
►
The scope of our review procedures at operational level was
limited to the following site visits: Vienna and Budapest.
►
We did not test data derived from external surveys, we only
verified that relevant disclosures and data are correctly quoted in
the Reporting.
►
The objective of our engagement was neither a financial audit nor
a financial audit review. We did not perform any further
assurance procedures on data, which were subject of the annual
financial audit, the corporate governance report or the risk
reporting. We merely checked that data was presented in
accordance with the GRI Guidelines.
►
Limited assurance over prospective information was not subject
to our engagement.
►
Neither the detection and investigation of criminal offenses, such
as embezzlement or other fraudulent actions, nor the assessment
of effectiveness and efficiency of management were subject to
our engagement.
►
We did not audit energy and CO2-emission data for 2015. Due to
the implementation of a new software tool to collect and analyse
sustainability data of Erste Group the preparation of data could
not be completed on time.
►
GRI Sustainability Reporting Guidelines G4 1
We believe that these criteria are suitable for our assurance
engagement.
Management responsibilities
Erste Group AG’s management is responsible for the Reporting and
that the information therein is in accordance with the criteria mentioned
above. This responsibility includes designing, implementing and
maintaining internal controls. These are essential for the elimination of
material misstatements in the Reporting.
Our responsibilities
It is our responsibility to express a conclusion on the information
included in the Reporting on the basis of the limited assurance
engagement.
Our assurance engagement has been planned and performed in
accordance with the International Federation of Accountants’
ISAE30002 and the Code of Ethics for Professional Accountants, issued
by the International Federation of Accountants (IFAC), which includes
requirements in relation to our independence.
The objective of our engagement is not to account for the interests of
any third parties. Our work solely serves the client and his purpose. Our
engagement is thus not destined to be used as a basis of decisionmaking for third parties.
The “General Conditions of Contract for the Public Accounting
Professions”3, are binding for this engagement. According to that, our
liability is limited and an accountant is only liable for violating
intentionally or by gross negligence the contractual duties and
obligations entered into. In cases of gross negligence the maximum
liability towards Erste Group AG and any third party together is EUR
726,730 in the aggregate.
What we did to form our conclusion
We have performed all the procedures deemed necessary to obtain the
evidence that is sufficient and appropriate to provide a basis for our
conclusions. The assurance engagement was conducted at Erste
Group AG´s head quarter in Vienna and in Budapest. Our main
procedures were:
►
Obtained an overview over the industry as well as the
characteristics and governance of the organisation;
►
Interviewed a selection of Group and functional senior managers
and executives to understand key expectations and identify
systems, processes and internal control processes to support
them;
1https://www.globalreporting.org/reporting/g4/Pages/default.aspx
2International Federation of Accountants’ International Standard for Assurance
Engagements Other than Audits or reviews of Historical Financial Information
(ISAE3000), effective for assurance statements dated after January 1, 2005.
3version of February 21th 2011 (AAB 2011) issued by the Chamber of Public
Accountants and Tax Advisors, section 8
http://www.kwt.or.at/de/PortalData/2/Resources/downloads/downloadcenter/AAB_
2011_englische_Fassung.pdf
92
►
Reviewed Group level, Board and Executive documents to
assess awareness and priority and to understand how progress is
tracked;
►
Examined risk management and governance processes related to
sustainability and critical evaluation of the representation in the
Reporting;
►
Performed analytical procedures at Group level;
►
Performed site visits in Budapest to review progress and obtain
evidence of performance. In addition we reviewed data samples
at site level for completeness, reliability, accuracy and timeliness;
►
Reviewed data and processes on a sample basis to test whether
they had been collected, consolidated and reported appropriately
at Group level. This included reviewing data samples to test
whether the data had been reported in an accurate, reliable and
complete manner;
►
Reviewed the coverage of material issues against the key issues
raised in the stakeholder dialogues, areas of performance
covered in external media reports and the environmental and
social reports of Erste Group AG’s peers;
Our Conclusion Based on the scope of our review nothing has come to our attention
that causes us to believe that the disclosures and data in the Reporting
were not prepared, in accordance with the criteria identified above.
Recommendation
Without restriction the above stated conclusion, we express the
following recommendations to improve your sustainability management
and reporting process:
►
Expansion of report boundaries to all consolidated entities to
ensure consistent reporting and
►
Inclusion of all entities in a consistent and integrated
management and reporting system.
►
Implementation of additional monitoring processes regarding
energy and CO2-emission data.
►
Challenged a sample of statements and claims in the Reporting
against our work steps and the GRI G4 principles and
Vienna, March 18th 2016
►
Reviewed whether the GRI G4 Guidelines were consistently
applied for the CORE Option.
ERNST & YOUNG Wirtschaftsprüfungsgesellschaft m.b.H
Brigitte Frey ppa. Christine Jasch 93
Your Notes
94
Your Notes
95
Your Notes
96
Regulatory own funds
In the following Erste Group fulfils the disclosure requirements according to the Capital Requirements Regulation (CRR), in detail Articles 436 (b) – (e) CRR and Articles 437 (1) (a), (d), (e) and (f) CRR.
The information presented in this chapter relates to the disclosed and audited figures in Note 52 in the financial statements. References to
chapters refer to the financial statements.
Regulatory Requirements
Since 1 January 2014, Erste Group has been calculating the regulatory capital and the regulatory capital requirements according to Basel 3.
The requirements were implemented within the EU by the Capital Requirements Regulation (CRR) and the Capital Requirement Directive
(CRD IV) that were enacted in national law in the Austrian Banking Act (ABA), as well as within various technical standards issued by the
European Banking Authority (EBA).
All requirements as defined in the CRR, the ABA and the aforementioned technical standards are fully applied by Erste Group for regulatory purposes and for the disclosure of regulatory information.
Accounting Principles
The financial and regulatory figures published by Erste Group are based on IFRS regulatory capital components. Eligible capital components derive from the balance sheet and income statement which were prepared in accordance with IFRS. Adjustments to the accounting
figures are considered due to the different definitions in the scopes of consolidation. Further details are explained in the section "Regulatory scope of consolidation". The uniform closing date of the consolidated regulatory figures of Erste Group is the 31 December of the
respective year.
Comparison of consolidation for accounting purposes and regulatory purposes
Disclosure requirements: Article 436 (b) CRR
Scope of Consolidation
Further details regarding the IFRS scope of consolidation are disclosed in chapter “B. Significant accounting policies” under the section
“scope of consolidation”.
The regulatory scope of consolidation is used as a synonym for the scope of consolidation that follows the regulatory requirements for
consolidation as defined by the CRR and the ABA, which introduces the requirements of the CRD IV into national law.
Regulatory scope of consolidation
The regulatory scope of consolidation is defined in Part One, Title II, chapter 2 Section 3 of the CRR. The definition of entities to be
consolidated for regulatory purposes are mainly defined in Article 4 (1) (3) and (16) to (27) CRR in conjunction with the Articles 18 and
19 CRR and Article 30 ABA. Based on the relevant sections in Article 4 CRR, entities to be consolidated are determined based on the
business activity of the relevant entities.
Main differences between the IFRS- and the regulatory scope of consolidation based on the different requirements as defined
in IFRS and CRR as well as the ABA
_ Based on the CRR and ABA, mainly credit institutions pursuant to Article 4 (1) (1) CRR, investment firms pursuant to Article 4 (1)
(2) CRR, ancillary services undertakings pursuant to Article 4 (1) (18) CRR and financial institutions pursuant to Article 4 (1) (26)
CRR have to be considered within the regulatory scope of consolidation. Under IFRS all other entities not required to be consolidated
under CRR, such as insurance undertakings, must be included in the IFRS scope of consolidation.
_ Exclusion of entities from the regulatory scope of consolidation can be applied based on Article 19 CRR. According to Article 19 (1)
CRR, entities can be excluded from the regulatory scope if their total assets and off-balance sheet items are less than the lower amount
of either EUR 10 million or 1% of the total amount and off-balance sheet items of the parent company. Erste Group applies Article 19
(1) CRR.
_ According to Article 19 (2) CRR, entities can also be excluded if the limits defined in Article 19 (1) CRR are exceeded, but are not
relevant for regulatory purposes. Exclusion of entities based on Article 19 (2) CRR needs the prior approval of the competent authorities. For entities that exceed the limits as defined in Article 19 (1) CRR by insignificant amounts, Erste Group applies Article 19 (2)
CRR and follows the requirements for the approval process as defined within this article. Erste Group does not apply Article 19 (2)
CRR for credit institutions and investment firms.
97
Consolidation methods
Main differences between the IFRS- and the regulatory consolidation method, considering regulatory adjustments
For the calculation of consolidated own funds, Erste Group generally applies the same consolidation methods as used for accounting
purposes. The difference relates to Article 18 (4) CRR only, which requires proportional consolidation of entities and financial institutions
managed by an undertaking included in the consolidation together with one or more undertakings not included in the consolidation, where
the liability of those undertakings is limited to the share of the equity held by the institution. Based on Article 18 (4) CRR, Erste Group
applies proportional consolidation for two entities.
Consideration of consolidation methods for the calculation of consolidated own funds according to the CRR
The amounts used for the calculation of the own funds derive from the balance sheet according to IFRS. The amounts that are used as the
basis for the calculation of own funds are recalculated based on the definition of the regulatory scope of consolidation according to the
CRR. The difference between the IFRS balance sheet and the regulatory balance sheet arises from the different scopes of consolidation
(see table regarding balance sheet reconciliation). Amounts that relate to the own shares as well as to the minority interests in fully consolidated entities are therefore determined based on the regulatory scope of consolidation according to CRR. Minority interests are calculated
based on the requirements as defined in Articles 81 to 88 CRR. Minority interests that relate to entities other than credit institutions are
excluded from the own funds. Minority interests that relate to credit institutions are limited to capital requirements that relate to the minority interests in the relevant credit institutions. Erste Group applies Article 84 CRR. According to Austrian transitional provisions, 40%
of the non-eligible minorities have to be excluded from consolidated own funds in 2015. As Erste Group applies the Austrian transitional
provisions on group-level this percentage has been applied to the exclusion of minority interests in own funds as of 31 December 2015.
Amounts that relate to minority interests in other comprehensive income are neither included in the consolidated own funds of Erste
Group according to the final CRR provisions nor during the transitional period.
Consideration of non-consolidated financial sector entities and deferred tax assets that rely on future profitability arising from
temporary differences within the calculation of consolidated common equity Tier 1 of Erste Group
Carrying amounts representing the investments in financial sector entities as defined in Article 4 (27) CRR that are not fully consolidated
or considered by using the at equity method for regulatory purposes have to be deducted from the own funds based on the requirements as
defined in Articles 36 (1) (h), 45 and 46 CRR for non-significant investments and Articles 36 (1) (i) CRR, Article 43, 45, 47 and 48 CRR
for significant investments. For these purposes, non-significant investments are defined as investments in financial sector entities in which
the participation is equal to or less than 10% of common equity Tier 1 (CET 1) of the relevant financial sector entities, while significant
investments are defined as investments that are above 10% of the CET 1 of the relevant financial sector entities. To determine the participation in the relevant financial sector entities, these participations are calculated based on the direct, indirect and synthetic holdings in the
relevant entities.
According to Article 46 (1) (a) CRR, holdings in non-significant investments have to be deducted only if the total amount for such investments, including additional tier 1 items according to Article 56 (c) and 59 CRR and Tier 2 items according to Article 66 (c) and 70
CRR, exceeds a defined threshold of 10% in relation to CET1 of the reporting institution. The deduction shall be applied to the amount
that exceeds the 10% threshold. Amounts that are equal to or less than 10% of the CET1 of the reporting institution are considered with
the applicable risk weights according part 3, title II, chapter 2 respectively chapter 3 and if necessary according to the requirements of part
3, title IV within the RWAs based on the requirements according to Article 46 (4) CRR.
For the deduction of significant investments in the CET1 of financial sector entities, a threshold is defined in Article 48 (2) CRR. According to Article 48 (2) CRR, significant investments in the CET1 of financial sector entities have to be deducted only if they exceed 10% of
the CET1 of the reporting institution. If the 10% threshold is exceeded, the deduction is limited to the amount by which the defined
threshold is exceeded. The remaining amount has to be considered within the calculation of the RWAs. The risk weight (RW) is defined at
250% according to Article 48 (4) CRR.
In addition to the aforementioned threshold, a combined threshold for the deduction of significant investments according to Article 36 (1)
(i) CRR and for deferred tax assets that rely on future profitability and arise from temporary differences according to Article 36 (1) (c)
CRR as well as according to Article 38 CRR is defined in Article 48 (2) CRR. The combined threshold according to Article 48 (2) CRR is
defined at 17.65% of the CET1 of the reporting institution. If the threshold is exceeded, the exceeding amount has to be deducted from the
CET1 of the reporting institution. The remaining amount has to be considered within the RWAs. A 250% risk weight (RW) shall be applied for the amount not exceeding the 17.65% threshold according to Article 48 (4) CRR.
Beside the 17.65% combined threshold, a 10% threshold related to the CET1 capital of the reporting institution is applied for deferred tax
assets that rely on future profitability arising from temporary differences according to Article 48 (3) CRR. In case the amount for deferred
98
tax assets that rely on future profitability and which arise from temporary differences exceeds the threshold of 10% of CET1 of the reporting institution the exceeding amount has to be deducted from the CET1 of the reporting institution. The amount that is equal to or less
than the threshold as defined in Article 48 (3) CRR has to be considered within the calculation of RWAs with a 250% risk weight (RW)
according to Article 48 (4) CRR.
At the reporting date, Erste Group did not exceed any of the aforementioned thresholds. Hence, direct, indirect and synthetic investments
in financial sector entities were not deducted from the consolidated own funds of Erste Group and therefore are considered in RWAs.
Threshold calculations according to Articles 46 and 48 CRR
in EUR million
Dec 15
Non significant investments in financial sector entities
Threshold (10% of CET1)
Holdings in CET1
Holdings in AT1
Holdings in T2
Distance to threshold
1,228
-238
-15
-455
520
Significant investments in financial sector entities
Threshold (10% of CET1)
Holdings in CET1
Distance to threshold
1,228
-254
974
Deferred tax assets
Threshold (10% of CET1)
Deferred tax assets that are dependent on future profitability and arise from temporary differences
Distance to threshold
1,228
-209
1,019
Combined threshold for deferred tax assets and significant investments
Threshold (17.65% of CET1)
Deferred tax assets that are dependent on future profitability and arise from temporary differences and CET1 instruments of financial sector entities
where the institution has a significant investment
Distance to threshold
2,168
-464
1,704
Presentation of the scope of consolidation
Number of entities within the different scopes of consolidation
Dec 15
IFRS
Credit institutions
Financial institutions, financial holding companies
and mixed financial holding companies
Ancillary service undertakings, investment firms and
asset management companies
Others
CRR
Full
Equity
Full
Proportional
De Minimis
Equity
67
2
67
1
0
1
238
34
233
1
48
15
80
111
1
15
52
0
0
0
54
0
1
0
As of 31 December 2015 the number of companies consolidated according to IFRS was 548. The number of companies consolidated
according to regulatory capital requirements, except those entities which are covered by Article 19 (1) and (2) CRR) was 371.
99
Changes within the fully consolidated entities within the regulatory scope of consolidation
As of Dec 14
New
Deconsolidated
Merged
Reclassification
As of Dec 15
67
52
14
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
67
52
14
1
244
155
74
15
7
2
0
5
9
1
8
0
9
8
1
0
0
0
0
0
233
148
65
20
52
19
28
5
4
2
2
0
2
0
2
0
2
1
1
0
0
0
0
0
52
20
27
5
Credit institutions
Austria
CEE
Other
Financial institutions, financial holding companies
and mixed financial holding companies
Austria
CEE
Other
Ancillary service undertakings, investment firms
and asset management companies
Austria
CEE
Other
Impediments to the transfer of own funds
Disclosure requirement: Article 436 (c) CRR
Currently there are no restrictions or significant impediments to the transfer of financial funds or regulatory capital known for Erste
Group. Further details are disclosed in chapter “B. Significant accounting policies”.
Total capital shortfall of all subsidiaries not included in the consolidation
Disclosure requirement: Article 436 (d) (e) CRR
As of 31 December 2015, there was no capital shortfall at any of the companies included in Erste Group's consolidation.
Own funds
For the disclosure of own funds, Erste Group follows the requirements according to Article 437 CRR as well as the requirements defined
in the Implementing Technical Standards (EU) No 1423/2013, which were published in the Official Journal of the European Union on 20
December 2013.
_ Based on the requirements defined by the EBA in the Implementing Technical Standards, the following information must be provided:
_ A full reconciliation of CET1 items - Additional Tier 1 (AT1) items, Tier 2 (T2) items, filters and deductions applied pursuant to Articles 32 36, 56, 66 and 79 - to the own funds of the institution’s balance sheet in accordance with Article 437 (1) (a) CRR (see the following tables: Balance sheet, Total equity, Intangible assets, Tax assets and liabilities, Subordinated liabilities).
_ A table designed by the EBA in order to show the capital structure of regulatory capital. The table includes details on the capital structure of Erste Group including the capital components as well as any regulatory deductions and prudential filters. Disclosures in this
table cover the disclosure requirements as defined in Article 437 (1) (d) CRR, separate disclosure of the nature and amounts of each
prudential filter applied pursuant to Articles 32 to 35 CRR, each deduction according to Articles 47, 48, 56, 66 and 79 CRR as well as
items not deducted in accordance with Articles 47, 48, 56, 66 and 79 CRR.
The tables in the following sections may contain rounding differences.
100
Balance sheet reconciliation
Disclosure requirement: Article 437 (1) (a) CRR
The table below represents the difference between the IFRS - and the regulatory scope of consolidation. Details regarding the number of
entities within the different scopes of consolidation are disclosed in the table "Presentation of the scope of consolidation"
Dec 15
IFRS
Effects - scope
of consolidation
Assets
Cash and cash balances
Financial assets - held for trading
Derivatives
Other trading assets
Financial assets - at fair value through profit or loss
Financial assets - available for sale
Financial assets - held to maturity
Loans and receivables to credit institutions
Loans and receivables to customers
Derivatives - hedge accounting
Changes in fair value of portfolio hedged items
Property and equipment
Investment properties
Intangible assets
Investments in associates and joint ventures
Current tax assets
Deferred tax assets
Assets held for sale
Other assets
Total assets
12,350
8,719
5,303
3,416
359
20,763
17,701
4,805
125,897
2,191
0
2,402
753
1,465
167
119
310
526
1,217
199,743
-35
6
6
0
-40
-525
-1
-52
413
0
0
-98
172
-10
-22
-1
-8
-215
211
-205
12,315
8,725
5,309
3,416
319
20,237
17,700
4,753
126,309
2,191
0
2,304
925
1,454
145
118
303
311
1,428
199,539
Liabilities and equity
Financial liabilities - held for trading
Derivatives
Other trading liabilities
Financial liabilities - at fair value through profit or loss
Deposits from banks
Deposits from customers
Debt securities issued
Other financial liabilities
Financial liabilities measured at amortised costs
Deposits from banks
Deposits from customers
Debt securities issued
Other financial liabilities
Derivatives - hedge accounting
Changes in fair value of portfolio hedged items
Provisions
Current tax liabilities
Deferred tax liabilities
Liabilities associated with assets held for sale
Other liabilities
Total equity
Equity attributable to non-controlling interests
Equity attributable to owners of the parent
Total liabilities and equity
5,867
5,434
434
1,907
0
149
1,758
0
170,787
14,212
127,797
27,896
882
593
966
1,736
90
96
578
2,317
14,807
3,802
11,005
199,743
1
0
1
0
0
0
0
0
-252
303
167
-140
-581
0
0
0
-2
-9
0
100
-42
4
-47
-205
5,869
5,434
434
1,907
0
149
1,758
0
170,535
14,515
127,964
27,756
301
593
966
1,736
88
87
578
2,416
14,765
3,806
10,959
199,539
in EUR million
CRR
The following tables represent, as far as possible, a reconciliation between the IFRS balance sheet items to the items of CET1, AT1 and
T2, as well as information on the regulatory adjustments arising from correction items in accordance with Articles 32 to 35 CRR and the
deductions according to Articles 36, 56, 66 and 79 CRR.
The last column contains a letter that sets the derived amount from IFRS figures with the appropriate eligible amount of own funds
presentation during the transitional provisions in conjunction.
101
Total equity
Dec 15
in EUR million
IFRS
Effects scope of
consolidation
Subscribed capital
Capital reserve
Capital instruments and the related share
premium accounts
Retained earnings
Other comprehensive income (OCI)
Cash flow hedge reserve
Available for sale reserve
60% prudential filter according to 468
CRR
Currency translation
Remeasurement of net liability of defined
pension plans
Deferred tax
Other
Equity attributable to the owners of the
parent
860
1,478
0
0
860
1,478
0
0
0
-2
860
1,476
2,337
9,071
-403
115
688
0
-44
-3
1
-1
2,337
9,026
-405
115
687
0
0
188
6
306
-2
-215
28
-24
-157
2,336
8,811
-190
97
835
a
b
c
g
-2
-761
-20
28
571
-753
h
-759
-334
-112
0
0
0
-334
-112
0
-104
0
0
77
112
-7
-361
0
-7
11,005
-47
10,959
188
-188
10,958
Equity attributable to non-controlling
interests
Total equity
3,802
14,807
4
-42
3,806
14,765
-188
0
-166
-354
3,452
14,410
CRR
IPS
adjustments
Regulatory
adjustments
Own funds
Own funds
disclosure table
- reference
d
IPS adjustments include the amounts for entities that are consolidated due to the Institutional Protections Scheme according to Article 113 (7)
CRR. Further details regarding the development of IFRS equity are disclosed under section III Group Statement of Changes in Total Equity.
Intangible assets
Dec 15
in EUR million
IFRS
Effects - scope
of consolidation
Intangible assets
40% deductible from CET1 acc. to transitional
provisions
60% deductible from AT1 acc. to transitional
provisions
Intangible assets
1,465
-10
1,465
-10
CRR
Regulatory
adjustments
Own funds
1,454
-26
1,428
1,454
-26
Own funds
disclosure table
- reference
571
e
857
1,428
j
Details regarding the development of intangible assets are disclosed under Note 27 Intangible assets.
Deferred Taxes
Dec 15
in EUR million
Deferred tax assets (DTA) that rely on future
profitability and do not arise from temporary
differences net of associated tax liabilities
Related DTA allocated on or after Jan 14 for which
100% deduction is required according to CRR
transitional provisions
Related DTA allocated up to Dec 13 for which
10% deduction from CET1 is required according to
CRR transitional provisions
Deferred tax assets that rely on future profitability
and arise from temporary differences
Deferred tax assets
IFRS
93
217
310
Effects - scope
of consolidation
0
-7
-8
CRR
Regulatory
adjustments
Own funds
Own funds
disclosure table
- reference
93
-42
51
f
47
0
47
46
-42
5
209
303
-209
-251
0
51
Details regarding deferred tax assets are disclosed under Note 28 Tax assets and liabilities.
Based on the threshold definition according to Article 48 CRR deferred tax assets that rely on future profitability and arise from temporary differences are not deductible for Erste Group at year end 2015. In accordance with Article 48 (4) CRR the non-deductible amount is
risk weighted with 250% and considered within the credit risk.
102
Subordinated liabilities
Dec 15
in EUR million
Subordinated issues, deposits and supplementary
capital
Tier 2 capital instruments (including related share
premium) issued by the parent company
Qualifying own funds instruments included in
consolidated Tier 2 capital issued by subsidiaries
and held by third parties
Instruments issued by subsidiaries
subject to phase-out
Hybrid issues
Subordinated liabilities
IFRS
Effects - scope
of consolidation
CRR
Regulatory
adjustments
Own funds
6,053
2
6,055
-915
5,140
354
6,407
4
5
358
6,412
-95
-1,010
Own funds
disclosure table
- reference
4,649
k
491
l
258
263
5,402
m
i
Details regarding subordinated liabilities are disclosed under Note 32 Financial liabilities-at fair value through profit or loss and Note 33
Financial liabilities measured at amortised cost. EUR 169 million subordinated debt in form of deposits are included in the balance sheet
position Financial liabilities measured at amortised cost and are not explicitly shown in Note 33.
Transitional provisions
The Transitional Provisions which are applied by Erste Group, are based on CRR-Supplementary Regulation according to BGBl II Nr.
425/2013.
Own funds template during the transitional period
Disclosure requirements: Art. 437 (1) (d) (e) CRR
Erste Group does not consider Art. 437 (1) (f) CRR for the calculation of consolidated own funds.
The table below presents the composition of the regulatory capital during the transitional period based on the Implementing Technical
Standards on the disclosure of own funds published in the Official Journal of the EU.
In column (A), the current amount, which considers all the transitional requirements, is disclosed. Column (C) discloses the residual
amount, implying full CRR implementation. Column (D) provides information of data comparable figures related to IFRS equity, intangible assets, deferred tax assets and subordinated liabilities as previously displayed.
103
in EUR million
1
2
3
3a
4
5
5a
6
Capital instruments and the related share premium accounts
of which: Ordinary shares
Retained earnings
Accumulated other comprehensive income (and other reserves, to include
unrealised gains and losses under the applicable accounting standards)
Fund for general banking risk
Amount of qualifying items referred to in Article 484 (3) and the related share
premium accounts subject to phase out from CET1
Public sector capital injections grandfathered until Jan 18
Minority interests (amount allowed in consolidated CET1)
Independently reviewed interim profits net of any foreseeable charge or dividend
CET1 capital before regulatory adjustments
(A)
Dec 2015
(B)
Regulation (EU) No
575/2013 article
reference
(C)
Amounts subject
to pre-regulation
(EU) No 575/2013
treatment or
prescribed
residual amount
of regulation
(EU) 575/2013
2,336
2,336
8,811
26 (1), 27, 28, 29,
EBA list 26 (3)
EBA list 26 (3)
26 (1) (c)
0
0
0
a
a
b
-190
0
26 (1)
26 (1) (f)
0
0
c
0
0
3,452
0
14,410
486 (2)
483 (2)
84, 479, 480
26 (2)
0
0
-57
0
-57
-112
-571
34, 105
36 (1) (b), 37, 472 (4)
0
-857
e
-42
0
f
g
(D)
Reference to
reconciliation
tables
d
Common Equity Tier 1 (CET1): regulatory adjustments
7
8
9
10
11
12
13
14
15
16
17
18
Additional value adjustments (negative amount)
Intangible assets (net of related tax liability) (negative amount)
Empty set in the EU
Deferred tax assets that rely on future profitability excluding those arising from
temporary differences (net of related tax liability where the conditions in Article 38
(3) are met) (negative amount)
Fair value reserves related to gains or losses on cash flow hedges
Negative amounts resulting from the calculation of expected loss amounts
Any increase in equity that results from securitised assets (negative amount)
Gains or losses on liabilities valued at fair value resulting from changes in own
credit standing
Defined-benefit pension fund assets (negative amount)
Direct and indirect holdings by an institution of own CET1 instruments (negative
amount)
Holdings of the CET1 instruments of financial sector entities where those entities
have reciprocal cross holdings with the institution designed to inflate artificially the
own funds of the institution (negative amount)
Direct, indirect and synthetic holdings of the CET1 instruments of financial sector
entities where the institution does not have a significant investment in those entities
(amount above 10% threshold and net of eligible short positions) (negative amount)
20a
20b
Direct, indirect and synthetic holdings of the CET1 instruments of financial sector
entities where the institution has a significant investment in those entities (amount
above 10% threshold and net of eligible short positions) (negative amount)
Empty set in the EU
Exposure amount of the following items which qualify for a RW of 1250%, where
the institution opts for the deduction alternative
of which: qualifying holdings outside the financial sector (negative amount)
20c
20d
of which: securitisation positions (negative amount)
of which: free deliveries (negative amount)
19
20
The table is continued on the next page.
104
-88
0
36 (1) (c), 38, 472
(5)
33 (a)
36 (1) (d), 40, 159,
472 (6)
32 (1)
-132
0
-47
0
33 (b)
36 (1) (e), 41, 472 (7)
0
0
-72
36 (1) (f), 42, 472 (8)
0
-51
-97
0
0
0
0
0
0
0
36 (1) (g), 44, 472
(9)
36 (1) (h), 43, 45,
46, 49 (2) (3), 79,
472 (10)
36 (1) (i), 43, 45, 47,
48 (1) (b), 49 (1) to
(3), 79, 470, 472
(11)
0
36 (1) (k)
36 (1) (k) (i), 89 to 91
36 (1) (k) (ii), 243 (1)
(b), 244 (1) (b), 258
36 (1) (k) (iii), 379 (3)
0
0
0
0
0
0
0
0
Continuation of the table
in EUR million
21
22
23
24
25
25a
25b
26
26a
26b
27
28
29
Deferred tax assets arising from temporary difference (amount above 10 %
threshold, net of related tax liability where the conditions in Article 38 (3) are met)
(negative amount)
Amount exceeding the 15% threshold (negative amount)
of which: direct and indirect holdings by the institution of the CET1 instruments of
financial sector entities where the institution has a significant investment in those
entities
Empty set in the EU
of which: deferred tax assets arising from temporary differences
Losses for the current financial year (negative amount)
Foreseeable tax charges relating to CET1 items (negative amount)
Regulatory adjustments applied to Common Equity Tier 1 in respect of amounts
subject to pre-CRR treatment
Regulatory adjustments relating to unrealised gains and losses pursuant to Articles
467 and 468
of which: unrealised losses
of which: unrealised gains
Amount to be deducted from or added to Common Equity Tier 1 capital with regard
to additional filters and deductions required pre CRR
Qualifying AT1 deductions that exceeds the AT1 capital of the institution (negative
amount)
Total regulatory adjustments to Common Equity Tier 1 (CET1)
CET1 capital
(A)
Dec 2015
(B)
Regulation (EU) No
575/2013 article
reference
(C)
Amounts subject
to pre-regulation
(EU) No 575/2013
treatment or
prescribed
residual amount
of regulation
(EU) 575/2013
0
0
36 (1) (c), 38, 48 (1)
(a), 470, 472 (5)
48 (1)
0
0
0
36 (1) (i), 48 (1) (b),
470, 472 (11)
0
0
0
0
36 (1) (c), 38, 48 (1)
(a), 470, 472 (5)
36 (1) (a), 472 (3)
36 (1) (l)
0
0
0
0
(D)
Reference to
reconciliation
tables
0
-571
0
-571
467
468
333
0
333
0
481
0
-663
-2,274
12,136
36 (1) (j)
663
-34
-91
0
0
0
51, 52
0
0
0
263
0
486 (3)
483 (3)
-263
0
1
0
264
85, 86, 480
486 (3)
0
0
-263
h
Additional Tier 1 (AT1) capital: instruments
30
31
32
33
34
35
36
Capital instruments and the related share premium accounts
of which: classified as equity under applicable accounting standards
of which: classified as liabilities under applicable accounting standards
Amount of qualifying items referred to in Article 484 (4) and the related share
premium accounts subject to phase out from AT1
Public sector capital injections grandfathered until Jan 18
Qualifying Tier 1 capital included in consolidated AT1 capital (including minority
interest not included in row 5) issued by subsidiaries and held by third parties
of which: instruments issued by subsidiaries subject to phase-out
AT1 capital before regulatory adjustments
i
Additional Tier 1 (AT1) capital: regulatory adjustments
37
38
39
40
Direct and indirect holdings by an institution of own AT1 instruments (negative
amount)
Holdings of the AT1 instruments of financial sector entities where those entities
have reciprocal cross holdings with the institution designed to inflate artificially the
own funds of the institution (negative amount)
Holdings of the AT1 instruments of financial sector entities where the institution
does not have a significant investment in those entities (amount above 10%
threshold and net of eligible short positions) (negative amount)
Direct, indirect and synthetic holdings of the AT1 instruments of financial sector
entities where the institution has a significant investment in those entities (amount
above 10% threshold and net of eligible short positions) (negative amount)
-4
52 (1) (b), 56 (a), 57,
475 (2)
4
0
56 (b), 58, 475 (3)
0
0
56 (c), 59, 60, 79,
475 (4)
0
0
56 (d), 59, 79, 475
(4)
0
The table is continued on the next page.
105
Continuation of the table
in EUR million
41
41a
41b
41c
42
43
44
45
Regulatory adjustments applied to AT1 in respect of amounts subject to pre-CRR
treatment and transitional treatments subject to phase-out as prescribed in
Regulation (EU) No 585/2013 (ie. CRR residual amounts)
Residual amounts deducted from AT1 with regard to deduction from CET1 during
the transitional period pursuant to article 472 of Regulation (EU) No 575/2013
of which: interim loss
of which: intangible assets
of which: shortfall of provisions to expected loss
Residual amounts deducted from AT1 with regard to deduction from T2 capital
during the transitional period pursuant to article 475 of Regulation (EU) No
575/2013
of which: reciprocal cross holdings in T2 instruments
of which: direct holdings of non-significant investments in the capital of other
financial sector entities
Amount to be deducted from or added to AT1 with regard to additional filters and
deductions required pre- CRR
of which: possible filter to unrealised losses
of which: possible filter to unrealised gains
Qualifying T2 deductions that exceed the T2 capital of the institution (negative
amount)
Total regulatory adjustments to Additional Tier 1 (AT1) capital
Additional Tier 1 (AT1) capital
Tier 1 capital (T1 = CET1 + AT1)
(A)
Dec 2015
(B)
Regulation (EU) No
575/2013 article
reference
0
-923
0
-857
-66
0
0
(C)
Amounts subject
to pre-regulation
(EU) No 575/2013
treatment or
prescribed
residual amount
of regulation
(EU) 575/2013
(D)
Reference to
reconciliation
tables
0
472, 473(3)(a), 472
(4), 472 (6), 472 (8)
(a), 472 (9), 472 (10)
(a), 472 (11) (a)
923
0
857
66
j
477, 477 (3), 477 (4)
(a)
0
0
0
0
0
0
467, 468, 481
0
0
0
0
-927
0
12,136
56 (e)
0
0
927
1
-90
4,649
62, 63
0
0
0
486 (4)
483 (4)
0
0
491
258
408
5,547
87, 88, 480
486 (4)
62 (c) (d)
-258
-258
0
-258
Tier 2 (T2) capital: instruments and provisions
46
47
48
49
50
51
Capital instruments and the related share premium accounts
Amount of qualifying items referred to in Article 484 (5) and the related share
premium accounts subject to phase out from T2
Public sector capital injections grandfathered until Jan 18
Qualifying own funds instruments included in consolidated T2 capital (including
minority interest and AT1 instruments not included in rows 5 or 34) issued by
subsidiaries and held by third parties
of which: instruments issued by subsidiaries subject to phase-out
Credit risk adjustments
Tier 2 (T2) capital before regulatory adjustment
T2 capital: regulatory adjustments
52
53
54
54a
54b
Direct and indirect holdings by an institution of own T2 instruments and
subordinated loans (negative amount)
Holdings of the T2 instruments and subordinated loans of financial sector entities
where those entities have reciprocal cross holdings with the institution designed to
inflate artificially the own funds of the institution (negative amount)
Direct, indirect and synthetic holdings of the T2 instruments and subordinated
loans of financial sector entities where the institution does not have a significant
investment in those entities (amount above 10 % threshold and net of eligible short
positions) (negative amount)
of which: new holdings not subject to transitional arrangements
of which: holdings existing before 1 January 2013 and subject to transitional
arrangements
The table is continued on the next page.
106
-50
63 (b) (i), 66 (a), 67,
477 (2)
0
0
66 (b), 68, 477 (3)
0
0
0
0
66 (c), 69, 70, 79,
477 (4)
0
0
0
k
l
m
Continuation of the table
in EUR million
55
56
Direct, indirect and synthetic holdings of the T2 instruments and subordinated
loans of financial sector entities where the institution has a significant investment in
those entities (net of eligible short positions) (negative amounts)
Regulatory adjustments applied to T2 in respect of amounts subject to pre-CRR
treatment and transitional treatments subject to phase out as prescribed in
Regulation (EU) No 575/2013 (i.e. CRR residual amounts)
57
58
of which: residual amounts deducted from T2 with regard to deduction from CET1
during the transitional period pursuant to article 472 of Regulation (EU) No
575/2013
of which: shortfall of provisions to expected loss
of which: non significant investments
Residual amounts deducted from T2 with regard to deduction from AT1 during the
transitional period pursuant to article 475 of Regulation (EU) No 575/2013
of which: reciprocal cross holdings in T1 instruments
of which: direct holdings of non-significant investments in the capital of other
financial sector entities
Amounts to be deducted from or added to T2 with regard to additional filters and
deductions required pre- CRR
of which possible filter to unrealised losses
of which: possible filter to unrealised gains
Total regulatory adjustments to Tier 2 (T2) capital
Tier 2 (T2) capital
59
Total capital (TC = T1 + T2)
56a
56b
56c
59a
60
Risk weighted assets in respect of amounts subject to pre-CRR treatment and
transitional treatments subject to phase out as prescribed in Regulation (EU) No
575/2013 (i.e. CRR residual amount)
of which: items not deducted from CET1 (Regulation (EU) No 575/2013 residual
amounts) (items to be detailed line by line, e.g. Deferred tax assets that rely on
future profitability net of related tax liability, indirect holdings of own CET1, etc.)
of which: items not deducted from AT1 items (Regulation (EU) No 575/2013
residual amounts) (items to be detailed line by line, e.g. Reciprocal cross holdings
in T2 instruments, direct holdings of non-significant investments in the capital of
other financial sector entities, etc.)
of which: items not deducted from T2 items (Regulation (EU) No 575/2013 residual
amounts) (items to be detailed line by line, e.g. Indirect holdings of own T2
instruments, indirect holdings of non-significant investments in the capital of other
financial sector entities, indirect holdings of significant investments in the capital of
other financial sector entities etc.)
Total risk-weighted assets
(A)
Dec 2015
(B)
Regulation (EU) No
575/2013 article
reference
(C)
Amounts subject
to pre-regulation
(EU) No 575/2013
treatment or
prescribed
residual amount
of regulation
(EU) 575/2013
-0.4
66 (d), 69, 79, 477
(4)
0
0
-66
-66
0
0
0
0
472, 472(3)(a), 472
(4), 472 (6), 472 (8),
472 (9), 472 (10) (a),
472 (11) (a)
0
0
475, 475 (2) (a), 475
(3), 475 (4) (a)
0
0
0
0
-116
5,431
66
66
0
0
0
0
467, 468, 481
17,566
0
0
0
66
-192
-282
0
0
0
472, 472 (5), 472 (8)
(b), 472 (10) (b), 472
(11) (b)
0
0
475, 475 (2) (b), 475
(2) (c), 475 (4) (b)
0
0
98,300
(D)
Reference to
reconciliation
tables
477, 477 (2) (b), 477
(2) (c), 477 (4) (b)
0
1,982
Amounts below the thresholds for deduction (before risk-weighting)
61
62
63
Common Equity Tier 1 (as a percentage of total risk exposure amount)
Tier 1 (as a percentage of total risk exposure amount)
Total capital (as a percentage of total risk exposure amount)
12.3%
12.3%
17.9%
92 (2) (a), 465
92 (2) (b), 465
92 (2) (c)
-0.3%
-0.3%
-0.6%
The table is continued on the next page.
107
Continuation of the table
in EUR million
64
Institution specific buffer requirement (CET1 requirement in accordance with article
92 (1) (a) plus capital conservation and countercyclical buffer requirements plus a
systemic risk buffer, plus systemically important institution buffer expressed as a
percentage of total risk exposure amount)
65
of which: capital conservation buffer requirement
66
of which: countercyclical buffer requirement
67
of which: systemic risk buffer requirement
of which: global Systemically Important Institution (G-SII) or Other Systemically
Important Institution (O-SII) buffer
Common Equity Tier 1 available to meet buffers (as a percentage of risk exposure
amount)
[non-relevant in EU regulation]
[non-relevant in EU regulation]
[non-relevant in EU regulation]
67a
68
69
70
71
(A)
Dec 2015
not yet
implemented
not yet
implemented
not yet
implemented
not yet
implemented
not yet
implemented
not yet
implemented
0
0
0
(B)
Regulation (EU) No
575/2013 article
reference
(C)
Amounts subject
to pre-regulation
(EU) No 575/2013
treatment or
prescribed
residual amount
of regulation
(EU) 575/2013
CRD 128, 129, 140
0
0
0
0
CRD 131
0
CRD 128
0
0
0
0
Amounts below the thresholds for deduction (before risk-weighting)
72
73
74
75
Direct and indirect holdings of the capital of financial sector entities where the
institution does not have a significant investment in those entities (amount below
10% threshold and net of eligible short positions)
Direct and indirect holdings of the CET1 instruments of financial sector entities
where the institution has a significant investment in those entities (amount below
10% threshold and net of eligible short positions)
Empty set in the EU
Deferred tax assets arising from temporary difference (amount below 10 %
threshold, net of related tax liability where the conditions in Article 38 (3) are met)
36 (1) (h), 45, 46, 472
(10)56 (c), 59, 60,
475 (4), 66 (c), 69,
70, 477 (4)
709
0
254
36 (1) (i), 45, 48,
470, 472 (11)
209
36 (1) (c), 38, 48,
470, 472 (5)
0
0
0
62
62
0
0
676
62
0
408
62
0
70%
484 (3), 486 (2) & (5)
0
0
70%
484 (3), 486 (2) & (5)
484 (4), 486 (3) & (5)
0
0
96
70%
484 (4), 486 (3) & (5)
484 (5), 486 (4) & (5)
0
0
0
484 (5), 486 (4) & (5)
0
0
0
Applicable caps on the inclusion of provisions in Tier 2
76
77
78
79
Credit risk adjustments included in T2 in respect of exposures subject to
standardised approach (prior to the application of the cap)
Cap on inclusion of credit risk adjustments in T2 under standardised approach
Credit risk adjustments included in T2 in respect of exposures subject to internal
rating-based approach (prior to the application of the cap)
Cap for inclusion of credit risk adjustments in T2 under internal ratings-based
approach
Capital instruments subject to phase-out arrangements (only applicable between
January 2013 and January 2022)
80
81
82
83
84
85
108
Current cap on CET1 instruments subject to phase-out arrangements
Amount excluded from CET1 due to cap (excess over cap after redemptions and
maturities)
Current cap on AT1 instruments subject to phase-out arrangements
Amount excluded from AT1 due to cap (excess over cap after redemptions and
maturities)
Current cap on T2 instruments subject to phase-out arrangements
Amount excluded from T2 due to cap (excess over cap after redemptions and
maturities)
(D)
Reference to
reconciliation
tables
Own funds development
In 2015 the regulatory own funds developed as follows:
in EUR million
Common Equity Tier 1 (CET-1) development, phase in
CET1 as of 31 Dec 2014
Increase / decrease retained earnings
Increase / decrease accumulated other comprehensive income
Increase / decrease minority interest
Increase / decrease prudential filters
Changes in regulatory deductions
Goodwill
Other intangibles
IRB shortfall
Own Instruments
DTAs that rely on future profitability and do not arise from temporary differences
Change in transitional provisions
Changes in CET1
CET1 as of 31 Dec 2015
10,623
682
135
284
69
24
0
-1
12
10
4
319
1,513
12,136
Additional Tier 1 development, phase in
AT1 as of 31 Dec 2014
Increase / decrease in AT1
Changes in regulatory deduction
Change in transitional provisions
Changes in AT1
AT1 as of 31 Dec 2015
296
1
-569
272
-296
0
Tier 2 development, phase in
T2 as of 31 Dec 2014
Increase / decrease in T2
Changes in regulatory deduction
IRB Excess and SA credit risk adjustments
Change in transitional provisions
Changes in Tier 2
T2 as of 31 Dec 2015
5,216
353
30
-178
9
215
5,431
Total own funds
17,566
109
Group Consolidated Financial
Statements 2015 (IFRS)
III. Group statement of changes in total equity ................................................................................................................................................................................................ 114 IV. Group cash flow statement ........................................................................................................................................................................................................................... 115 V. Notes to the group financial statements of Erste Group ............................................................................................................................................................................ 116 1. Net interest income ................................................................................................................................................................ 144 2. Net fee and commission income ............................................................................................................................................ 145 3. Dividend income..................................................................................................................................................................... 145 4. Net trading and fair value result ............................................................................................................................................. 145 5. Rental income from investment properties & other operating leases .................................................................................... 145 6. General administrative expenses .......................................................................................................................................... 146 7. Gains/losses from financial assets and liabilities not measured at fair value through profit or loss, net .............................. 146 8. Net impairment loss on financial assets not measured at fair value through profit or loss ................................................... 147 9. Other operating result ............................................................................................................................................................ 147 10. Taxes on income .................................................................................................................................................................... 148 11. Appropriation of profit ............................................................................................................................................................. 149 12. Cash and cash balances........................................................................................................................................................ 150 13. Derivatives – held for trading ................................................................................................................................................. 150 14. Other trading assets ............................................................................................................................................................... 150 15. Financial assets - at fair value through profit or loss ............................................................................................................. 150 16. Financial assets - available for sale ....................................................................................................................................... 151 17. Financial assets – held to maturity ........................................................................................................................................ 151 18. Securities ............................................................................................................................................................................... 151 19. Loans and receivables to credit institutions ........................................................................................................................... 152 20. Loans and receivables to customers ..................................................................................................................................... 153 21. Impairment loss for financial instruments .............................................................................................................................. 155 22. Derivatives – hedge accounting ............................................................................................................................................. 155 23. Equity method investments .................................................................................................................................................... 155 24. Unconsolidated structured entities ......................................................................................................................................... 157 25. Non controlling interest .......................................................................................................................................................... 160 26. Property, equipment and Investment properties .................................................................................................................... 161 27. Intangible assets .................................................................................................................................................................... 162 28. Tax assets and liabilities ........................................................................................................................................................ 165 29. Assets held for sale and liabilities associated with assets held for sale ................................................................................ 166 30. Other assets ........................................................................................................................................................................... 167 31. Other trading liabilities ........................................................................................................................................................... 167 32. Financial liabilities – at fair value through profit and loss ...................................................................................................... 167 33. Financial liabilities measured at amortised costs .................................................................................................................. 168 34. Provisions ............................................................................................................................................................................... 170 35. Other liabilities........................................................................................................................................................................ 174 36. Total equity ............................................................................................................................................................................. 174 37. Segment reporting ................................................................................................................................................................. 176 38. Assets and liabilities denominated in foreign currencies and outside Austria and return on assets ..................................... 184 39. Leases .................................................................................................................................................................................... 184 40. Related-party transactions and principal shareholders ......................................................................................................... 185 41. Collaterals .............................................................................................................................................................................. 189 42. Transfers of financial assets – repurchase transactions and securities lending ................................................................... 190 43. Offsetting of financial instruments .......................................................................................................................................... 191 44. Risk management .................................................................................................................................................................. 192 44.1 Risk policy and strategy ................................................................................................................................................ 192 44.2 Risk management organisation .................................................................................................................................... 193 44.3 Group-wide risk and capital management .................................................................................................................... 199 44.4 Credit risk ...................................................................................................................................................................... 202 44.5 Market risk..................................................................................................................................................................... 228 44.6 Liquidity risk .................................................................................................................................................................. 232 44.7 Operational risk ............................................................................................................................................................. 235 45. Hedge accounting .................................................................................................................................................................. 236 46. Fair value of financial instruments ......................................................................................................................................... 237 47. Fair values of non-financial assets ........................................................................................................................................ 245 48. Financial instruments per category according to IAS 39 ....................................................................................................... 246 49. Audit fees and tax consultancy fees ...................................................................................................................................... 247 50. Contingent liabilities ............................................................................................................................................................... 248 51. Analysis of remaining maturities ............................................................................................................................................ 249 52. Own funds and capital requirements ..................................................................................................................................... 249 53. Events after the balance sheet date ...................................................................................................................................... 253 54. Country by country reporting.................................................................................................................................................. 254 55. Details of the companies wholly or partly owned by Erste Group as of 31 December 2015 ................................................ 255 AUDITORS REPORT (REPORT OF THE INDEPENDENT AUDITORS) ............................................................................................................................................................ 274 I. Group statement of comprehensive income of Erste Group for the year ended 31 December 2015 .................................................................................................... 111
II. Group balance sheet of Erste Group as of 31 December 2015 .................................................................................................................................................................. 113
110
I. Group statement of comprehensive income of Erste Group
for the year ended 31 December 2015
Income statement
in EUR thousand
Net interest income
Net fee and commission income
Dividend income
Net trading and fair value result
Net result from equity method investments
Rental income from investment properties & other operating leases
Personnel expenses
Other administrative expenses
Depreciation and amortisation
Gains/losses from financial assets and liabilities not measured at fair value through profit or loss, net
Net impairment loss on financial assets not measured at fair value through profit or loss
Other operating result
Levies on banking activities
Pre-tax result from continuing operations
Taxes on income
Net result for the period
Net result attributable to non-controlling interests
Net result attributable to owners of the parent
Notes
1
2
3
4
5
6
6
6
7
8
9
9
10
1-12 14
restated
1-12 15
4,495,201
1,869,848
74,217
242,259
15,810
180,593
-2,184,224
-1,136,930
-466,113
18,283
-2,083,728
-1,752,936
-256,271
-727,718
-521,486
-1,249,204
133,434
-1,382,638
4,444,657
1,861,768
49,901
210,135
17,510
187,865
-2,244,611
-1,179,329
-444,999
100,911
-729,099
-635,646
-236,222
1,639,064
-363,926
1,275,138
306,974
968,164
For details related to the retrospective change of comparative figures due to the restatement please refer to chapter ‘B. Significant accounting policies’.
Statement of comprehensive income
1-12 14
restated
1-12 15
-1,249,204
1,275,138
Other comprehensive income
Items that may not be reclassified to profit or loss
Remeasurement of net liability of defined pension plans
Deferred taxes relating to items that may not be reclassified
Total
-188,196
47,093
-141,102
100,995
-33,607
67,388
Items that may be reclassified to profit or loss
Available for sale reserve (including currency translation)
Gain/loss during the period
Reclassification adjustments
Cash flow hedge reserve (including currency translation)
Gain/loss during the period
Reclassification adjustments
Currency translation
Gain/loss during the period
Reclassification adjustments
Deferred taxes relating to items that may be reclassified
Gain/loss during the period
Reclassification adjustments
Total
Total other comprehensive income
581,154
574,144
7,011
172,783
224,285
-51,502
-63,062
-63,062
0
-190,587
-193,353
2,765
500,288
359,186
-31,580
-10,077
-21,502
-27,413
11,354
-38,766
90,987
90,987
0
35,869
6,349
29,520
67,864
135,252
Total comprehensive income
-890,019
1,410,389
274,387
-1,164,406
229,740
1,180,650
in EUR thousand
Net result for the period
Total comprehensive income attributable to non-controlling interests
Total comprehensive income attributable to owners of the parent
For details related to the retrospective change of comparative figures due to the restatement please refer to chapter ‘B. Significant accounting policies’.
111
Earnings per share
Earnings per share constitute net profit/loss for the year attributable to owners of the parent divided by the average number of ordinary
shares outstanding. Diluted earnings per share represent the maximum potential dilution (through an increase in the average number of
shares) that would occur if all subscription and conversion rights granted were exercised (also see Note 36 Total equity).
Net result attributable to owners of the parent
Weighted average number of outstanding shares
Earnings per share
Weighted average diluted number of outstanding shares
Diluted earnings per share
in EUR thousand
in EUR
in EUR
1-12 14
restated
1-12 15
-1,382,638
427,533,286
-3.23
427,533,286
-3.23
968,164
426,726,297
2.27
426,726,297
2.27
For details related to the retrospective change of comparative figures due to the restatement please refer to chapter ‘B. Significant accounting policies’.
112
II. Group balance sheet of Erste Group as of 31 December 2015
in EUR thousand
Assets
Cash and cash balances
Financial assets - held for trading
Derivatives
Other trading assets
Financial assets - at fair value through profit or loss
Financial assets - available for sale
Financial assets - held to maturity
Loans and receivables to credit institutions
Loans and receivables to customers
Derivatives - hedge accounting
Property and equipment
Investment properties
Intangible assets
Investments in associates and joint ventures
Current tax assets
Deferred tax assets
Assets held for sale
Other assets
Total assets
Liabilities and equity
Financial liabilities - held for trading
Derivatives
Other trading liabilities
Financial liabilities - at fair value through profit or loss
Deposits from banks
Deposits from customers
Debt securities issued
Other financial liabilities
Financial liabilities measured at amortised cost
Deposits from banks
Deposits from customers
Debt securities issued
Other financial liabilities
Derivatives - hedge accounting
Changes in fair value of portfolio hedged items
Provisions
Current tax liabilities
Deferred tax liabilities
Liabilities associated with assets held for sale
Other liabilities
Total equity
Equity attributable to non-controlling interests
Equity attributable to owners of the parent
Total liabilities and equity
Notes
12
13
14;18
15;18
16;18
17;18
19
20
22
26
26
27
23
28
28
29
30
13
31
32
33
33
33
22
34
28
28
35
01.01.2014
restated
Dec 14
Dec 15
9,300,683
12,283,046
6,342,237
5,940,808
528,984
20,677,648
17,779,013
8,376,688
119,868,987
1,943,645
2,319,501
950,572
2,440,833
207,594
100,398
731,097
74,774
2,470,898
200,054,360
7,835,417
10,530,878
7,173,380
3,357,498
349,583
22,373,356
16,877,214
7,442,288
120,833,976
2,871,607
2,264,041
950,168
1,440,946
194,984
107,310
301,469
291,394
1,622,702
196,287,334
12,350,003
8,719,244
5,303,001
3,416,243
358,959
20,762,661
17,700,886
4,805,222
125,896,650
2,191,175
2,401,868
753,243
1,464,529
166,541
118,786
310,370
526,451
1,216,785
199,743,371
6,474,745
6,086,938
387,807
2,339,171
0
459,964
1,879,207
0
170,785,614
17,299,491
121,955,141
31,244,697
286,286
644,319
733,747
1,447,605
84,519
169,392
0
2,653,713
14,721,534
3,461,883
11,259,651
200,054,360
7,746,381
7,188,386
557,994
2,072,725
0
319,960
1,752,765
0
166,921,248
14,802,602
122,262,612
29,386,741
469,294
725,928
1,225,473
1,652,688
91,050
98,778
0
2,309,605
13,443,457
3,605,371
9,838,086
196,287,334
5,867,450
5,433,865
433,586
1,906,766
0
148,731
1,758,035
0
170,786,703
14,212,032
127,797,081
27,895,975
881,616
592,891
965,583
1,736,367
89,956
95,787
577,953
2,316,601
14,807,313
3,801,997
11,005,316
199,743,371
For details related to the retrospective change of comparative figures due to the restatement please refer to chapter ‘B. Significant accounting policies’.
113
114
III. Group statement of changes in total equity
Equity
attributable to
noncontrolling
interests
Total equity
Subscribed
capital
Capital
reserves
Retained
earnings
Cash flow
hedge reserve
Available for
sale reserve
Deferred tax
Equity
attributable to
owners of the
parent
As of 1 January 2015
Restatement
Restated as of 1 January 2015
Changes in treasury shares
Dividends paid
Capital increases
Participation capital
Changes in the scope of consolidation
Other changes
Acquisition of non-controlling interest
Total comprehensive income
Net result for the period
Other comprehensive income
As of 31 December 2015
860
0
860
0
0
0
0
0
0
0
0
0
0
860
1,478
0
1,478
0
0
0
0
0
0
0
0
0
0
1,478
8,116
0
8,116
2
0
0
0
-15
0
0
968
968
0
9,071
140
0
140
0
0
0
0
0
0
0
-25
0
-25
115
580
0
580
0
0
0
0
0
0
0
107
0
107
688
-849
0
-849
0
0
0
0
0
0
0
90
0
90
-759
-394
0
-394
0
0
0
0
0
0
0
60
0
60
-334
-92
0
-92
0
0
0
0
0
0
0
-20
0
-20
-112
9,838
0
9,838
2
0
0
0
-15
0
0
1,181
968
212
11,005
3,605
0
3,605
0
-40
1
0
6
0
0
230
307
-77
3,802
13,444
0
13,444
2
-40
1
0
-10
0
0
1,410
1,275
135
14,808
As of 1 January 2014
Restatement
Restated as of 1 January 2014
Changes in treasury shares
Dividends paid
Capital increases
Participation capital
Changes in the scope of consolidation
Other changes
Acquisition of non-controlling interest
Total comprehensive income
Net result for the period
Other comprehensive income
As of 31 December 2014
860
0
860
0
0
0
0
0
0
0
0
0
0
860
7,037
0
7,037
0
0
0
0
0
-5,559
0
0
0
0
1,478
4,256
-59
4,197
-77
-171
0
0
-10
5,559
0
-1,383
-1,383
0
8,116
-33
0
-33
0
0
0
0
0
0
0
173
0
173
140
259
0
259
0
0
0
0
0
0
0
321
0
321
580
-785
0
-785
0
0
0
0
0
0
0
-65
0
-65
-849
-277
0
-277
0
0
0
0
0
0
0
-117
0
-117
-394
2
0
2
0
0
0
0
0
0
0
-94
0
-94
-92
11,319
-59
11,260
-77
-171
0
0
-10
0
0
-1,164
-1,383
218
9,838
3,466
-4
3,462
0
-122
0
0
-9
0
0
274
133
141
3,605
14,785
-63
14,722
-77
-292
0
0
-19
0
0
-890
-1,249
359
13,444
in EUR million
Remeasurement
of net liability of
Currency
defined
translation
pension plans
In 2014, in the line ‘Other changes’, the reclassification between capital reserve and retained earnings due to a group internal merger between EGB Ceps Holding GmbH and EGB Ceps
Beteiligungen GmbH with Erste Group Bank is reported.
For further details, see Note 36 Total equity.
IV. Group cash flow statement
1-12 14
restated
1-12 15
Net result for the period
Non-cash adjustments for items in net profit/loss for the year
Depreciation, amortisation, impairment and reversal of impairment, revaluation of assets
Allocation to and release of provisions (including risk provisions)
Gains/(losses) from the sale of assets
Other adjustments
Changes in assets and liabilities from operating activities after adjustment for non-cash components
Financial assets - held for trading
Financial assets - at fair value through profit or loss
Financial assets - available for sale
Loans and receivables to credit institutions
Loans and receivables to customers
Derivatives - hedge accounting
Other assets from operating activities
Financial liabilities - held for trading
Financial liabilities - at fair value through profit or loss
Financial liabilities measured at amortised cost
Deposits from banks
Deposits from customers
Debt securities issued
Other financial liabilities
Derivatives - hedge accounting
Other liabilities from operating activities
Cash flow from operating activities
Proceeds of disposal
Financial assets - held to maturity and associated companies
Property and equipment, intangible assets and investment properties
Acquisition of
Financial assets - held to maturity and associated companies
Property and equipment, intangible assets and investment properties
Acquisition of subsidiaries (net of cash and cash equivalents acquired)
Disposal of subsidiaries
Cash flow from investing activities
Capital increases
Capital decrease
Acquisition of non-controlling interest
Dividends paid to equity holders of the parent
Dividends paid to non-controlling interests
Other financing activities
Cash flow from financing activities
Cash and cash equivalents at beginning of period
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Effect of currency translation
Cash and cash equivalents at end of period
-1,249
1,275
1,612
2,119
-153
-23
567
972
-297
-43
1,902
107
-1,382
-1,186
-890
-755
998
1,272
-266
1,886
23
1,641
1,971
-5,065
655
506
-1,879
-166
-2,497
307
-1,875
183
82
4
-1,691
-591
5,534
-1,478
412
-133
138
5,930
3,078
231
2,385
133
-2,160
-634
0
0
514
0
0
0
-171
-122
0
-292
9,301
-1,691
514
-292
4
7,835
-3,161
-773
0
0
-1,416
1
0
0
0
-40
0
-39
7,835
5,930
-1,416
-39
39
12,350
Cash flows related to taxes, interest and dividends
Payments for taxes on income (included in cash flow from operating activities)
Interest received
Dividends received
Interest paid
4,302
-267
6,301
74
-1,806
4,034
-355
6,733
50
-2,394
in EUR million
Cash and cash equivalents are equal to cash in hand and balances held with central banks.
For details related to the retrospective change of comparative figures due to the restatement please refer to chapter ‘B. Significant accounting policies’.
115
V. Notes to the group financial statements of Erste Group
A. GENERAL INFORMATION
Erste Group Bank AG is Austria’s oldest savings bank and listed on the Vienna Stock Exchange. It is also quoted on the Prague Stock
Exchange (since October 2002) and on the Bucharest Stock Exchange (since February 2008). The registered office of Erste Group
Bank AG is located at Am Belvedere 1, 1100 Vienna, (formerly: Graben 21, 1010 Vienna), Austria.
Erste Group offers a complete range of banking and other financial services, such as savings accounts, asset management (including
investment funds), consumer credit and mortgage lending, investment banking, securities and derivatives trading, portfolio management,
project finance, foreign trade financing, corporate finance, capital market and money market services, foreign exchange trading, leasing
and factoring.
It is planned for the management (following a presentation to the supervisory board) to approve the consolidated financial statements for
publication on 26 February 2016.
Erste Group is subject to the regulatory requirements of Austrian and European supervisory bodies (National Bank, Financial Market
Authority, Single Supervisory Mechanism). These regulations include those pertaining to minimum capital adequacy requirements, categorisation of exposures and off-balance sheet commitments, credit risk connected with clients of the Group, liquidity and interest rate risk,
items denominated in foreign currencies and operating risk.
In addition to the banking entities, some Group companies are subject to regulatory requirements, specifically in relation to asset management.
B. SIGNIFICANT ACCOUNTING POLICIES
a) Basis of preparation
The consolidated financial statements of Erste Group for the financial year ending on 31 December 2015 and the related comparative
information were prepared in compliance with applicable International Financial Reporting Standards (IFRS) as adopted by the European
Union on the basis of IAS Regulation (EC) No. 1606/2002. This satisfies the requirements of Section 59a of the Austrian Banking Act and
Section 245a of the Austrian Commercial Code.
In accordance with the applicable measurement models prescribed or permitted under IFRS, the consolidated financial statements have
been prepared on a cost (or amortised cost) basis, except for financial assets - available for sale, financial assets and liabilities held for
trading (including derivatives), instruments subject to hedge accounting and financial assets and liabilities designated at fair value
through profit or loss, all of which have been measured at fair value.
The consolidated financial statements have been prepared on a going concern basis.
Except for regulatory restrictions on capital distributions stemming from the EU-wide capital requirements regulations applicable to all
financial institutions based in Austria and Central and Eastern Europe, Erste Group does not have any other significant restrictions on its
ability to access or use the assets and settle the liabilities of the Group. Also, the owners of non-controlling interests in Group subsidiaries
do not have rights that can restrict the Group’s ability to access or use the assets and settle the liabilities of the Group.
Except as otherwise indicated, all amounts are stated in millions of euro. The tables in this report may contain rounding differences.
The consolidated financial statements have not been accpeted by the supervisory board and the financial statements of Erste Group
Bank AG have not been approved by the supervisory board yet.
116
b) Basis of consolidation
Subsidiaries
All entities directly or indirectly controlled by Erste Group Bank AG are consolidated in the Group financial statements on the basis of
their annual accounts as of 31 December 2015, and for the year then ended.
Subsidiaries are consolidated from the date when control is obtained until the date when control is lost. Control is achieved when Erste
Group is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns
through its power to direct the relevant activities of the investee. Relevant activities are those which most significantly affect the variable
returns of an entity.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income
from the date of acquisition or up to the date of disposal. The financial statements of the bank’s subsidiaries are prepared for the same
reporting year as that of Erste Group Bank AG and using consistent accounting policies. All intra-Group balances, transactions, income
and expenses as well as unrealised gains and losses and dividends are eliminated.
Non-controlling interests represent those portions of total comprehensive income and net assets that are not attributable directly or indirectly to the owners of Erste Group Bank AG. Non-controlling interests are presented separately in the consolidated statement of comprehensive income and within equity on the consolidated balance sheet. Acquisitions of non-controlling interests as well as disposals of noncontrolling interests that do not lead to a change of control are accounted for as equity transactions, whereby the difference between the
consideration transferred and the share in the carrying amount of the net assets acquired is recognised as equity.
Investments in associates and joint ventures
Investments in associates and joint ventures are accounted for using the equity method. Under the equity method, an interest in an associate or joint venture is recognised on the balance sheet at cost plus post-acquisition changes in the Group’s share of the net assets of the
entity. The Group’s share of the associate’s or joint venture’s result is recognised in the statement of profit or loss and other comprehensive income. Entities accounted for using the equity method are recognised on the basis of annual financial statements as of
31 December 2015 and for the year then ended.
Associates are entities over which Erste Group exercises significant influence (‘associates’). Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies. As a general rule,
significant influence is presumed to mean an ownership interest of between 20% and 50%.
Joint ventures are joint arrangements over which Erste Group exercises control jointly with one or more other venturers, with the venturers having rights to the net assets of the arrangement, rather than to the assets and liabilities relating to the arrangement. Joint control
exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Erste Group is not
involved in joint operations.
Scope of consolidation
As at 31 December 2015, Erste Group Bank AG, as parent entity of Erste Group, includes in its IFRS scope of consolidation a total of 496
subsidiaries (31 December 2015: 528). This includes a total of 47 local savings banks which, alongside Erste Group Bank AG and Erste
Bank der oesterreichischen Sparkassen AG, are members of the Haftungsverbund (cross-guarantee system) of the Austrian savings bank
sector (please refer to ‘d) Significant accounting judgements, assumptions and estimates’ for further details).
In 2014, following the implementation of the new agreements of the cross-guarantee system (please refer to chapter d) Significant accounting judgements, assumptions and estimates) and the related financial support of the members, an ex-ante funds was established. The
fund is managed by a civil law company named IPS GesbR. The assets of the fund – the members of the cross-guarantee system are required to pay into the fund over a period of ten years - are bound and can be used solely for the purpose to cover loss events of members
of the cross-guarantee system. The company IPS GesbR was included in the scope of consolidation in year 2014.
The IFRS scope of consolidation of Erste Group has been increased by a total of 16 (2014: 34) entities. Additionally in 2014, 18 ownmanaged investment funds were included retrospectively as a result of adopting IFRS 10 ‘Consolidated Financial Statements’.
117
Opening balance as of 31 December 2014
Additions
Entities newly added to the scope of consolidation
Disposals
Companies sold or liquidated
Mergers
Closing balance as of 31 December 2015
528
16
-26
-22
496
Further details regarding the scope of consolidation please refer to Note 54 Details of the companies wholly or partly owned by Erste
Group as of 31 December 2015.
Additions in 2015
The following table shows the additions of fully consolidated entities in 2015 with names and country of residence. These additions had
no material impact on the financial position and performance of the Group.
Additions of fully consolidated entities
Entity
QBC Immobilien GmbH & Co Zeta KG
EBB-Epsilon Holding GmbH
Toplice Sveti Martin d.d.
GLL A319 AS LIMITED
GLADIATOR LEASING IRELAND LIMITED
GLL CLASSIC 400 LIMITED
GLL MSN 2118 LIMITED
BeeOne GmbH (EH-Beta Holding)
IPS Fonds
SILO DREI next LBG 57 Liegenschaftsverwertung GmbH & Co KG
Sparkasse Kufstein Immobilien GmbH
STRAULESTI PROPERTY DEVELOPMENT SRL
Sluzby SLSP, s.r.o.
GLL Engine Leasing Limited
ESPA BOND EURO-RESERVA
ESPA CORPORTATE BASKET 2020
Country of residence
Austria
Austria
Croatia
Malta
Ireland
Malta
Ireland
Austria
Austria
Austria
Austria
Romania
Slovakia
Malta
Austria
Austria
Disposals in 2015
The following table shows the disposals of fully consolidated entities in 2015 with names and country of residence. These disposals had
no material impact on the financial position and performance of the Group.
118
Disposals of fully consolidated entities
Entity
Portfolio Kereskedelmi, Szolgaltato es Szamitastechnikai Kft.
IMMORENT BETA, leasing druzba, d.o.o.
S IMMORENT GAMMA drustvo s ogranicenom odgovornoscu za poslovanje nekretninama
QBC Immobilien GmbH & Co Beta KG
QBC Immobilien GmbH & Co Epsilon KG
Immorent Beta s.r.o.
IMMORENT Brno Retail s.r.o.
ESPA ASSET-BACKED
SPARKASSEN 17
RUTAR INTERNATIONAL trgovinska d.o.o.
Smichov Real Estate, a.s.
Immorent-Einrichtungshauserrichtungs- und Grundverwertungsgesellschaft m.b.H.
IMMORENT Cheb s.r.o.
IMMORENT TMIS s.r.o. (vorm. TMIS ALFA s.r.o.)
SPV - Druck Gesellschaft m.b.H
ALPHA IMMORENT DRUSTVO SA OGRANICENOM ODGOVORNOSCU BEOGRAD
CPDP Shopping Mall Kladno, a.s.
IMMOBUL BETA EOOD
IMMORENT LINE BULGARIA EOOD
ERSTE GROUP IMMORENT BULGARIA EOOD
QBC Immobilien GmbH
QBC Immobilien GmbH & Co Alpha KG
QBC Immobilien GmbH & Co Delta KG
QBC Immobilien GmbH & Co Gamma KG
QBC Immobilien GmbH & Co Zeta KG
Trencin Retail Park a.s.
Country of residence
Hungary
Slovakia
Croatia
Austria
Austria
Slovakia
Czech Republic
Austria
Austria
Slovakia
Czech Republic
Austria
Czech Republic
Czech Republic
Austria
Serbia
Czech Republic
Bulgaria
Bulgaria
Bulgaria
Austria
Austria
Austria
Austria
Austria
Slovakia
Additions in 2014
No material additions of new subsidiaries occurred during the year 2014.
Disposals in 2014
As of 1 January 2014, the Czech pension fund entity ‘Transformovaný fond penzijního připojištění se státním příspěvkem Česká spořitelna
– penzijní společnost, a.s.’ (Transformed pension fund) has been deconsolidated. This deconsolidation was triggered by significant
amendments to the fund’s investment strategy (due to changes in the fund’s articles of incorporation) that limited the fund manager’s
decision-making powers over relevant fund activities (please refer to ‘(d) Significant accounting judgements, assumptions and estimates’
for further details). This resulted in a loss of control in accordance with IFRS 10. The impact of deconsolidation was a decrease in Group
assets by EUR 1,702 million (thereof financial assets - available-for-sale EUR 608 million, financial assets - held to maturity
EUR 368 million and loans and receivables to credit institutions EUR 710 million) and decrease of the group liabilities by
EUR 1,853 million (thereof financial liabilities measured at amortised cost – deposits from customers EUR 1,829 million).
c) Accounting and measurement methods
Restatement
Erste Group was audited according to Section 2 (1) 2 of the Law on Financial Reporting Enforcement (audit without particular cause). In
particular the group consolidated financial statements 2013 and half-year financial statements 2014 of Erste Group were audited. The audit
has been completed in December 2015.
During the audit it has become evident, that related to a group of connected customers classified as non-performing in 2014, there has
been objective evidence for impairment according to IAS 39.59 already in 2013. As a consequence, a specific loan loss provision according to IAS 39.63 in the amount of the difference between the carrying amount and the expected cash flows of the respective outstanding
loans should have been recognized in profit or loss for the financial reporting period 2013.
According to IAS 8.41 prior period errors are accounted for retrospectively. The consolidated financial statements including all comparative amounts for prior periods are reported as if the prior period error had never occurred. For that reason in the consolidated financial
statements 2013, a specific loan loss provision in the amount of EUR 86 million is to be allocated for the respective outstanding loans and
the assigned portfolio loan loss provision in the amount of EUR 11 million shall be released. Furthermore for the financial reporting period 2014, the allocation of the specific loan loss provision as well as the release of the corresponding portfolio loan loss provision is to be
reversed accordingly.
119
The effects on the items concerned of the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated cash flow statement and on the allowances for loans and receivables to customers are presented
below:
Income statement
in EUR thousand
1-12 14
published
Net interest income
Net fee and commission income
Dividend income
Net trading and fair value result
Net result from equity method investments
Rental income from investment properties & other operating leases
Personnel expenses
Other administrative expenses
Depreciation and amortisation
Gains/losses from financial assets and liabilities not measured at fair value through profit or loss, net
Net impairment loss on financial assets not measured at fair value through profit or loss
Other operating result
Levies on banking activities
Pre-tax result from continuing operations
Taxes on income
Net result for the period
Net result attributable to non-controlling interests
Net result attributable to owners of the parent
4,495,201
1,869,848
74,217
242,259
15,810
180,593
-2,184,224
-1,136,930
-466,113
18,283
-2,159,242
-1,752,936
-256,271
-803,232
-509,404
-1,312,636
129,357
-1,441,993
75,514
-12,082
63,432
4,077
59,355
4,495,201
1,869,848
74,217
242,259
15,810
180,593
-2,184,224
-1,136,930
-466,113
18,283
-2,083,728
-1,752,936
-256,271
-727,718
-521,486
-1,249,204
133,434
-1,382,638
in EUR thousand
1-12 14
published
Restatement
1-12 14
restated
Net result for the period
-1,312,636
63,432
-1,249,204
Restatement
75,514
1-12 14
restated
Statement of comprehensive income
Total other comprehensive income
Total comprehensive income
Total comprehensive income attributable to non-controlling interests
Total comprehensive income attributable to owners of the parent
359,186
359,186
-953,450
270,310
63,432
4,077
-890,019
274,387
-1,223,760
59,355
-1,164,406
1-12 14
published
Restatement
1-12 14
restated
-3.37
-3.37
0.14
0.14
-3.23
-3.23
1 January 14
published
Restatement
1 January 14
restated
Earnings per share
in EUR thousand
Earnings per share
Diluted earnings per share
Group balance sheet
in EUR thousand
Assets
Loans and receivables to customers
Current tax assets
Not restated items
Total assets
119,944,501
719,015
79,454,276
200,117,792
Liabilities and equity
Not restated items
Total equity
Equity attributable to non-controlling interests
Equity attributable to owners of the parent
Total liabilities and equity
185,332,826
14,784,966
3,465,959
11,319,006
200,117,792
The balance sheet as at 31. December 2014 remains unchanged.
120
-75,514
12,082
-63,432
119,868,987
731,097
79,454,276
200,054,360
-63,432
-4,077
-59,355
-63,432
185,332,826
14,721,534
3,461,883
11,259,651
200,054,360
Cash flow statement restatement
Dec 14
published
in EUR million
Net result of the period
Allocation to and realease of provision (including risk provisions)
Other assets from operating activities
Not restated items
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
-1,313
2,194
986
-3,558
-1,691
514
-292
9,301
7,835
Restatement
64
-75
12
Dec 14
restated
-1,249
2,119
998
-3,558
-1,691
514
-292
9,301
7,835
In 2014 a disclosure shift was done in the line item “cash flow from investing activities” between the dividends paid to non-controlling
interests and to owner of the parent company. Therefore, the amounts of the comparative period were retrospectively adjusted. This adjustment had no impact on the cash reserve per end of 2014.
Allowances for loans and receivables to customers
As of Dec 13
Allocations
Use
Releases
Interest income
from impaired
loans
- 7,102
-9
- 3,522
- 11
2,100
4
1,439
-
202
-
160
3
- 6,723
- 13
- 7,092
- 651
-2
- 3,511
- 583
-0
2,096
-
1,439
512
-
202
-
157
- 47
0
- 6,710
- 768
-2
- 649
- 7,753
- 583
- 4,105
2,100
512
1,951
202
- 48
113
- 766
- 7,491
As of Dec 13
Allocations
Use
Releases
Interest income
from impaired
loans
Exchange-rate
and other
changes (+/-)
As of Dec 14
- 86
-
86
-
-
-
-
-
0
-
- 86
11
-
86
-
-
- 11
-
-
-
0
0
-
11
- 75
86
-
- 11
- 11
-
-
0
0
Exchange-rate
and other
changes (+/-)
As of Dec 14
Published
in EUR million
Specific allowances
Debt securities with customers
Loans and advances
to customers
Collective allowances
Debt securities with customers
Loans and advances
to customers
Total
Restatement
in EUR million
Specific allowances
Debt securities with customers
Loans and advances
to customers
Collective allowances
Debt securities with customers
Loans and advances
to customers
Total
Restated
in EUR million
Specific allowances
Debt securities with customers
Loans and advances to
customers
Collective allowances
Debt securities with customers
Loans and advances to
customers
Total
Exchange-rate
and other
changes (+/-)
As of Dec 14
As of Dec 13
restated
Allocations
Use
Releases
Interest income
from impaired
loans
- 7,188
-9
- 3,436
- 11
2,100
4
1,439
-
202
-
160
3
- 6,723
- 13
- 7,178
- 640
-2
- 3,425
- 583
-0
2,096
-
1,439
501
-
202
-
157
- 47
0
- 6,710
- 768
-2
- 638
- 7,828
- 583
- 4,019
2,100
501
1,940
202
- 48
113
- 766
-7,491
The restatement relates to specific and collective allowances for non-financial corporations.
Restatement of Note 1 Net interest income
Starting with year 2015, following a change of the internal reporting structure, the presentation of interest income from financial assets –
held for trading and interest expense from financial liabilities – held for trading presented in Note 1 Net interest income has been improved to provide more relevant and reliable information on the financial position and performance of the Group. This restatement had no
impact on the income statement of the Group. As it was not possible to restate the comparative figures for 2014 accordingly, the comparison period 2014 has not been adjusted.
121
Foreign currency translation
The consolidated financial statements are presented in euro, which is the functional currency of Erste Group Bank AG. The functional
currency is the currency of the primary business environment in which an entity operates. Each entity in the Group determines its own
functional currency and items included in the financial statements of each entity are measured using that functional currency.
For foreign currency translation, exchange rates quoted by the central banks in each country are used. For Group entities with the euro as
functional currency, these are the European Central Bank reference rates.
i. Transactions and balances in foreign currency
Transactions in foreign currencies are initially recorded at the functional currency exchange rate effective as of the date of the transaction.
Subsequently, monetary assets and liabilities denominated in foreign currencies are translated at the functional currency exchange rate as
of the balance sheet date. All resulting exchange differences that arise are recognised in the income statement under the line item ‘Net
trading and fair value result’. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using
the exchange rates as of the dates of the initial transactions.
ii. Translation of the statements of Group companies
Assets and liabilities of foreign operations (foreign subsidiaries and branches) are translated into Erste Group’s presentation currency, the
euro, at the rate of exchange as of the balance sheet date (closing rate). Their statements of comprehensive income are translated at average exchange rates calculated on the basis of daily rates. Goodwill, intangible assets recognised on acquisition of foreign subsidiaries (i.e.
customer relationships and brand) and fair value adjustments to the carrying amounts of assets and liabilities on the acquisition are treated
as assets and liabilities of the foreign subsidiaries and are translated at the closing rate. Exchange differences arising on translation are
recognised in other comprehensive income. On disposal of a foreign subsidiary, the cumulative amount of translation differences recognised in other comprehensive income is recognised in the income statement under the line item ‘Other operating result’.
Financial instruments – recognition and measurement
A financial instrument is any contract giving rise to a financial asset of one party and a financial liability or equity instrument of another
party. In accordance with IAS 39, all financial assets and liabilities – which also include derivative financial instruments – have to be
recognised on the balance sheet and measured in accordance with their assigned categories.
Erste Group uses the following categories of financial instruments:
_ financial assets or financial liabilities at fair value through profit or loss
_ available-for-sale financial assets
_ held-to-maturity investments
_ loans and receivables
_ financial liabilities measured at amortised cost
The line items as presented on the balance sheet are not necesarilly corresponding with the IAS 39 categories of financial instruments.
The correspondence between the balance sheet line items and categories of financial instruments is described in the table at point (xi).
i. Initial recognition
Financial instruments are initially recognised when Erste Group becomes a party to the contractual provisions of the instrument. Regular
way (spot) purchases and sales of financial assets are recognised at the settlement date, which is the date that an asset is delivered. The
classification of financial instruments at initial recognition depends on their characteristics as well as the purpose and management’s
intention for which the financial instruments were acquired.
ii. Initial measurement of financial instruments
Financial instruments are measured initially at their fair value including transaction costs. In the case of financial instruments at fair value
through profit or loss, however, transaction costs are not included but are recognised directly in profit or loss. Subsequent measurement is
described in the chapters below.
iii. Cash and cash balances
Cash balances include only claims (deposits) against central banks and credit institutions that are repayable on demand. Repayable on
demand means that they may be withdrawn at any time or with a term of notice of only one business day or 24 hours. Mandatory minimum reserves are also shown under this item.
122
iv. Derivative financial instruments
Derivative financial instruments are used by Erste Group to manage exposures to interest rate, foreign currency and other market price
risks. Derivatives used by Erste Group include mainly interest rate swaps, futures, forward rate agreements, interest rate options, currency
swaps and currency options as well as credit default swaps.
For presentation purposes derivatives are split into
_ Derivatives – held for trading; and
_ Derivatives – hedge accounting
Derivative financial instruments are carried at fair value (dirty price) on the Consolidated Balance Sheet - regardless of whether they are
held for trading or hedge accounting purposes. Derivatives are carried as assets if their fair value is positive and as liabilities if their fair
value is negative.
Derivatives – held for trading are those which are not designated as hedging instruments for hedge accounting. They are presented in the
line item ‘Derivatives’ under the heading ‘Financial assets / financial liabilities – held for trading’. All kinds of non-hedging derivatives
without regard to their internal classification, i.e. both derivatives held in the trading book and banking book are presented in this line item.
Changes in the fair value (clean price) of derivatives held for trading are reported in the income statement in the line item ‘Net trading and
fair value result’. Interest income/expense related to derivatives – held for trading is recognised in the income statement under the line
item ‘Net interest income’ if held in the banking book or under the line item ‘Net trading and fair value result’ if held in the trading book.
Derivatives – hedge accounting are those which are designated as hedging instruments in hedge accounting relationships fulfilling the
conditions of IAS 39 (please refer to Hedge Accounting). In the balance sheet, they are presented in the line item ‘Derivatives - hedge
accounting’ on asset or liability side.
Changes in the fair value of derivatives (clean price) in fair value hedges are recognised in the income statement in the line item ‘Net
trading and fair value result’. Interest income/expense related to derivatives in fair value hedges is reported in the income statement in the
line item ‘Net interest income’.
The effective part of changes in the fair value (clean price) of derivatives in cash flow hedges is reported in other comprehensive income
in the line item ‘Cash flow hedge reserve’. The ineffective part of changes in the fair value (clean price) of derivatives in cash flow hedges
is recognised in profit or loss under the line item ‘Net trading and fair value result’. Interest income/expense from hedging derivatives in
cash flow hedges is disclosed in the income statement in the line item ‘Net interest income’.
v. Financial assets and financial liabilities - held for trading
Financial assets and financial liabilities – held for trading comprise derivatives and other trading assets and liabilities. Treatment of derivatives – held for trading is discussed above in (iv).
Other trading assets and liabilities are non-derivative instruments. They include debt securities as well as equity instruments acquired or
issued principally for the purpose of selling or repurchasing in the near term. In the balance sheet, they are presented as ‘Other trading
assets’ or ‘Other trading liabilities’ under the heading ‘Financial assets / financial liabilities – held for trading’ .
Changes in fair value (clean price for debt instruments) resulting from other trading assets and liabilities are reported in the income statement under the line item ‘Net trading and fair value result’. Interest income and expenses are reported in the income statement under the
line item ‘Net interest income’. Dividend income is shown under the line item ‘Dividend income’.
If securities purchased under agreement to resell or borrowed through securities lending transactions are subsequently sold to third parties,
the obligation to return the securities is recorded as a short sale within ‘Other trading liabilities’.
vi. Financial assets or financial liabilities designated at fair value through profit or loss
Financial assets or financial liabilities classified in this category are those that have been designated by management on initial recognition
(fair value option).
Erste Group uses the fair value option in the case of financial assets managed on a fair value basis. In accordance with a documented
investment strategy, the performance of the portfolio is evaluated and regularly reported to the management board. The portfolio contains
mostly items of Asset Backed Securities (predominantly Mortgage Backed Securities), Funds, Financials and Sovereigns.
123
Financial assets - designated at fair value through profit or loss are recorded on the balance sheet at fair value under the line item ‘Financial assets - designated at fair value through profit or loss’, with changes in fair value recognised in the income statement under the line
item ‘Net trading and fair value result’. Interest earned on debt instruments is reported under the line item ‘Net interest income’. Dividend
income on equity instruments is shown under the line item ‘Dividend income’.
Furthermore, Erste Group uses the fair value option in the case of some hybrid financial liabilities. This is relevant when:
_ such classification eliminates or significantly reduces an accounting mismatch between the financial liability otherwise measured at
amortised cost and the related derivative measured at fair value; or
_ the entire hybrid contract is designated at fair value through profit or loss due to the existence of an embedded derivative.
The amount of fair value change attributable to changes in own credit risk for financial liabilities designated at fair value through profit or
loss is calculated by the method described by IFRS 7. This amount is the difference between the present value of the liability and the
observed market price of the liability at the end of the period. The rate used for discounting the liability is the sum of the observed
(benchmark) interest rate at the end of the period and the instrument-specific component of the internal rate of return determined at the
start of the period.
Financial liabilities designated at fair value through profit or loss are reported on the balance sheet under the line item ‘Financial liabilities
designated at fair value through profit or loss’ further broken down into ‘Deposits’ (both from customers and banks), ‘Debt securities
issued’ and ‘Other financial liabilities’. Changes in fair value are recognised in the income statement under the line item ‘Net trading and
fair value result’. Interest incurred is reported under the line item ‘Net interest income’.
vii. Financial assets – available for sale
Available-for-sale financial assets include debt and equity securities as well as other interests in entities with lower than significant influence. Equity investments classified as available for sale are those that are neither classified as held for trading nor designated at fair value
through profit or loss. Debt securities in this category are those that are intended to be held for an indefinite period of time and that may
be sold in response to needs for liquidity or in response to changes in market conditions.
Available-for-sale financial assets are measured at fair value. On the balance sheet, available-for-sale financial assets are disclosed under
the line item ‘Financial assets – available for sale’.
Unrealised gains and losses are recognised in other comprehensive income and reported in the ‘Available for sale reserve’ until the financial asset is disposed of or impaired. If available-for-sale assets are disposed of or impaired, the cumulative gain or loss previously recognised in other comprehensive income is reclassified to profit or loss and reported in the line item ‘Gains/losses on financial assets and
liabilities not measured at fair value through profit or loss, net’ in the case of sale or in the line item ‘Net impairment loss on financial
assets not measured at fair value through profit or loss’ in the case of impairment.
Interest income on available-for-sale financial assets is reported under the line item ‘Net interest income’. Dividend income is reported
under the line item ‘Dividend income’.
If the fair value of investments in non-quoted equity instruments cannot be measured reliably, they are recorded at cost less impairment.
This is the case when the range of reasonable fair value estimates as calculated by valuation models is significant and the probabilities of
the various estimates cannot be reasonably assessed. There is no market for such investments.
viii. Financial assets – held to maturity
Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity and reported
on the balance sheet as ‘Financial assets – held to maturity’ if Erste Group has the intention and ability to hold them until maturity. After
initial recognition, held-to-maturity financial assets are measured at amortised cost. Amortised cost is calculated by taking into account
any discount, premium and/or transaction costs that are an integral part of the effective interest rate.
Interest earned on financial assets held to maturity is reported in the income statement under the line item ‘Net interest income’. Losses
arising from impairment of such financial assets are presented as ‘Net impairment loss on financial assets not measured at fair value
through profit or loss’. Occasional realised gains or losses from selling are recognised in the income statement under the line item
‘Gains/losses on financial assets and liabilities not measured at fair value through profit or loss, net’.
124
ix. Loans and receivables
The balance sheet line items ‘Loans and receivables to credit institutions’ includes financial instruments which are allocated to financial
instrument category loans and receivables with a contractual maturity of more that 24 hours. The balance sheet line items ‘Loans and
receivables to customers’ includes financial instruments which are allocated to financial instrument category loans and receivables with a
contractual maturity of more that 24 hours. Furthermore, finance lease receivables that are accounted for using IAS 17 are presented under
these balance sheet line items.
Loans and receivables are non-derivative financial assets (including debt securities) with fixed or determinable payments that are not
quoted in an active market, other than:
_ those that Erste Group intends to sell immediately or in the near term and those that Erste Group upon initial recognition designates as
at fair value through profit or loss;
_ those that Erste Group, upon initial recognition, designates as available for sale; or
_ those for which Erste Group may not recover substantially all of its initial investment, other than because of credit deterioration.
After initial recognition, loans and receivables are measured at amortised cost. Finance lease receivables are subsequently measured as
specified in the chapter 'Leasing'. Interest income earned is included under the line item ‘Net interest income’ in the income statement.
Impairment losses arising from loans and receivables are recognised in the income statement under the line item ‘Net impairment loss on
financial assets not measured at fair value through profit or loss ’.
x. Financial liabilities measured at amortised cost
Financial liabilities are measured at amortised cost, unless they are measured at fair value through profit or loss.
For presentation on the balance sheet, the line item ‘Financial liabilities measured at amortised cost’ is used. The liabilities are further
broken down by ‘Deposits from banks’, ‘Deposits from customers’, ‘Debt securities issued’ and ‘Other financial liabilities’.
Interest expenses incurred are reported in the line item ‘Net interest income’ in the income statement. Gains and losses from derecognition
(mainly repurchase) of financial liabilities at amortised cost are reported under the line item ‘Gains/losses from financial assets and liabilities not measured at fair value through profit or loss, net’.
xi. Relationships between balance sheet items, measurement methods and categories of financial instruments
Measurement principle
Balance sheet position
ASSETS
Cash and cash balances
Financial assets - held for trading
Derivatives
Other trading assets
Financial assets - at fair value through profit or loss
Financial assets - available for sale
Financial assets - held to maturity
Loans and receivables to credit institutions
thereof Finance lease
Loans and receivables to customers
thereof Finance lease
Derivatives - hedge accounting
LIABILITIES AND EQUITY
Financial liabilities - held for trading
Derivatives
Other trading liabilities
Financial liabilities - at fair value through profit or loss
Financial liabilities measured at amortised cost
Derivatives - hedge accounting
Fair value At amortised cost
x
Other
Nominal value
x
x
x
x
x
x
IAS 17
x
IAS 17
x
n/a / Loans and receivables
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss
Available for sale financial assets
Held to maturity investments
Loans and receivables
n/a
Loans and receivables
n/a
n/a
x
x
x
x
x
Financial instrument category
Financial liabilities - at fair value through profit or loss
Financial liabilities - at fair value through profit or loss
Financial liabilities - at fair value through profit or loss
Financial liabilities measured at amortised cost
n/a
Furthermore, two additional classes of financial instruments which are not presented in the table above are part of IFRS 7 disclosures.
These are financial guarantees and irrevocable credit commitments.
125
Embedded derivatives
Erste Group, as part of its business, is confronted with debt instruments containing structured features. Structured features mean that a
derivative is embedded in the host instruments. Embedded derivatives are separated from the host debt instruments if
_ the economic characteristics of the derivatives are not closely related to the economic characteristics and risks of the host debt instruments;
_ the embedded derivative meets the IAS 39 definition of derivative; and
_ the hybrid instrument is not a financial asset or liability held for trading or designated at fair value through profit or loss.
Embedded derivatives that are separated are accounted for as stand-alone derivatives and presented on the balance sheet under the line
item ‘Derivatives’ in financial assets – held for trading and financial liabilities – held for trading.
At Erste Group, derivatives that are not closely related and are separated are predominantly embedded in issued host debt instruments
recognised as liabilities. The most typical cases are issues of bonds and deposits that contain interest caps, floors or collars in the money,
CMS bonds without appropriate cap, contractual features linking payments to non-interest variables such as FX rates, equity and commodity prices and indices, or third-party credit risk.
In December 2014 as well as during the first half of 2015 some important benchmark interest rates became negative. In the financial year
2015, Erste Group issued floating rate loans (especially interest rates based on EURIBOR and LIBOR benchmarks) with a zero percent
interest rate floor in the area of customer business; hence these contracts were analyzed in greater detail. The further investigation revealed that a separation of embedded derivatives from the underlying transaction is not needed.
Reclassifications of financial assets
IAS 39 provides various possibilities to reclassify financial assets between categories of financial instruments. It also places restrictions
on some reclassifications. Erste Group makes use of reclassification alternatives only in the case of held-to-maturity financial assets. If a
significant credit deterioration in a held-to-maturity financial asset results in a change in the intention and ability to hold the asset until
maturity, the asset is reclassified into the available-for-sale financial assets category. Furthermore, reclassifications are done in case of
sales, which are performed closed to the maturity date. Such reclassifications are not included in the limit that triggers automatic reclassification of the entire held-to-maturity portfolio.
Derecognition of financial assets and financial liabilities
A financial asset (or where applicable part of a financial asset or part of a group of similar financial assets) is derecognised when:
_ the contractual rights to receive cash flows from the asset have expired; or
_ Erste Group has transferred its rights to receive cash flows from the asset
or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either:
_ it has transferred substantially all the risks and rewards connected with the ownership of the asset, or
_ has neither transferred nor retained substantially all the risks and rewards connected with the ownership of the asset but has transferred control of the asset.
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.
Repurchase and reverse repurchase agreements
Transactions where securities are sold under an agreement to repurchase at a specified future date are also known as ‘repos’ or ‘sale and
repurchase agreements’. Securities sold are not derecognised from the balance sheet, as Erste Group retains substantially all the risks and
rewards of ownership because the securities are repurchased when the repo transaction ends. Furthermore, Erste Group is the beneficiary
of all the coupons and other income payments received on the transferred assets over the period of the repo transactions. These payments
are remitted to Erste Group or are reflected in the repurchase price.
The corresponding cash received is recognised on the balance sheet with a corresponding obligation to return it as a liability under the line
item ‘Financial liabilities measured at amortised cost’, sub-items ‘Deposits from banks’ or ‘Deposits from customers’ reflecting the transaction’s economic substance as a loan to Erste Group. The difference between the sale and repurchase prices is treated as interest expense
and recorded in the income statement under the line item ‘Net interest income’ and is accrued over the life of the agreement. Financial
assets transferred out by Erste Group under repurchase agreements remain on the Group’s balance sheet and are measured according to
the rules applicable to the respective balance sheet item.
126
Conversely, securities purchased under agreements to resell at a specified future date are not recognised on the balance sheet. Such transactions are also known as ‘reverse repos’. The consideration paid is recorded on the balance sheet under the respective line items ‘Loans
and receivables to credit institutions’ or ‘Loans and receivables to customers’, reflecting the transaction’s economic substance as a loan by
Erste Group. The difference between the purchase and resale prices is treated as interest income and is accrued over the life of the agreement and recorded in the income statement under the line item ‘Net interest income’.
Securities lending and borrowing
In securities lending transactions, the lender transfers ownership of securities to the borrower on the condition that the borrower will
retransfer, at the end of the agreed loan term, ownership of instruments of the same type, quality and quantity and will pay a fee determined by the duration of the lending. The transfer of the securities to counterparties via securities lending does not result in derecognition.
Substantially all the risks and rewards of ownership are retained by Erste Group as a lender because the securities are received at the end
of the securities lending transaction. Furthermore, Erste Group is the beneficiary of all the coupons and other income payments received
on the transferred assets over the period of the securities lendings.
Securities borrowed are not recognised on the balance sheet unless they are then sold to third parties. In this case, the obligation to return
the securities is recorded as ‘Other trading liability’.
Impairment of financial assets and credit risk losses of contingent liabilities
Erste Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or group of financial assets is
impaired. A financial asset or group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment
as a result of one or more events that have occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event
(or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably
estimated.
Erste Group uses the CRR definition of default as a primary indicator of loss events. Default, as a loss event, occurs when
_ the obligor is more than 90 days past due on any material credit obligation;
_ as a result of specific information or an event, the obligor is unlikely to fulfil its credit obligations in full, without recourse to actions
such as realising security;
_ the obligor is subject to distressed restructuring, i.e. a change in contract terms, for clients in financial difficulties, resulting in a material loss;
_ the obligor is subject to bankruptcy or similar protection proceedings.
For assessment at portfolio level, Erste Group uses the incurred but not reported losses concept. It identifies the time period between the
moment of the loss event causing future problems and actual detection of the problems by the bank at the moment of default.
Credit risk losses resulting from contingent liabilities are recognised if it is probable that there will be an outflow of resources to settle a
credit risk bearing contingent liability that will result in a loss.
i. Financial assets carried at amortised cost
Erste Group first assesses individually for significant loans and held-to-maturity securities whether objective evidence of impairment
exists. If no objective evidence of impairment exists for an individually assessed financial asset, Erste Group includes the asset in a group
of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of
impairment.
If an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and
the present value of estimated future cash flows discounted at the original effective interest rate. The calculation of the present value
of the estimated future cash flows of a collateralised financial asset also reflects the cash flows that may result from foreclosure less
costs for obtaining and selling the collateral.
Impairment losses on financial assets carried at amortised cost are recognised as loss allowance. On the balance sheet, loss allowances
decrease the value of the assets. I.e. the net carrying amount of the financial asset presented on the balance sheet is the difference between
the gross carrying amount and the cumulative loss allowance. This treatment holds for loss allowances for loans and receivables and for
incurred but not reported losses (i.e. portfolio allowances) on held-to-maturity financial assets. Reconciliation of changes in these loss
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allowance accounts is disclosed in the notes. However, individual loss allowances for held to maturity financial assets are treated as direct
reduction of the asset carrying amount and therefore reconciliation of changes is not disclosed in the notes.
In the income statement, impairment losses and their reversals are presented in the line item ‘Net impairment loss on financial assets’.
Loans together with the associated allowance are removed from the balance sheet when there is no realistic prospect of future recovery
and all collaterals have been realised by Erste Group.
If, in a subsequent year, the amount of the estimated impairment loss increases or decreases, the previously recognised impairment loss is
increased or reduced by adjusting the loss allowance.
ii. Available-for-sale financial assets
In cases of debt instruments classified as available for sale, Erste Group assesses individually whether there is objective evidence of impairment based on the same criteria as used for financial assets carried at amortised cost. However, the amount recorded for impairment is
the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that
asset previously recognised in the income statement. On recognising impairment, any loss retained in the other comprehensive income
item ‘Available for sale reserve’ is reclassified to the income statement and shown as an impairment loss under the line item ‘Net impairment loss on financial assets’.
If, in a subsequent period, the fair value of a debt instrument increases, which can be related objectively to an event occurring after the
impairment was recognized, impairmnet loss is reveresed thorugh the income statement under the line item ‘Gains/losses’ Impairment
losses and their reversals are recognized directly against the assets on the balance sheet.
In cases of equity investments classified as available for sale, objective evidence also includes a ‘significant’ or ‘prolonged’ decline
in the fair value of the investment below its cost. For this purpose at Erste Group, ‘significant’ decline means a market price below
80% of the acquisition cost and ‘prolonged’ decline refers to a market price that is permanently below the acquisition cost for a
period of nine months up to the reporting date.
Where there is evidence of impairment on equity investments, the cumulative loss measured as the difference between the acquisition cost
and the current fair value, less any impairment loss on that investment previously recognised in the income statement, is shown as an
impairment loss in the income statement under the line item ‘Net impairment loss on financial assets’. Any loss previously recognised
under the other comprehensive income item ‘Available for sale reserve’ has to be reclassified to the income statement as part of an impairment loss under the line item ‘Net impairment loss on financial assets’.
Impairment losses on equity investments are not reversed through the income statement; increases in the fair value after impairment are
recognised directly in other comprehensive income. Impairment losses and their reversals are recognised directly against the assets on the
balance sheet.
For investment in unquoted equity instruments carried at cost because their fair value cannot be determined reliably, the amount of the
impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future
cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses shall not be reversed.
iii. Contingent liabilities
Provisions for credit losses of contingent liabilities (particularly financial guarantees as well as credit commitments) are included under
the balance sheet line item ‘Provisions’. The related expense or its reversal is reported in the income statement under the line item ‘Other
operating result’.
Hedge accounting
Erste Group makes use of derivative instruments to manage exposures to interest rate risk and foreign currency risk. At inception of a
hedge relationship, the bank formally documents the relationship between the hedged item and the hedging instrument, including the
nature of the risk, the objective and strategy for undertaking the hedge and the method that will be used to assess the effectiveness of the
hedging relationship. A hedge is expected to be highly effective if the changes in fair value or cash flows attributable to the hedged risk
during the period for which the hedge is designated are expected to offset the fair value changes of the hedging instrument in a range of
80% to 125%. Hedge effectiveness is assessed at inception and throughout the term of each hedging relationship. Exact conditions for
particular types of hedges and for testing the hedge effectiveness by Erste Group are specified internally in the hedge accounting policy.
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i. Fair value hedges
Fair value hedges are employed to reduce market risk. For qualifying and designated fair value hedges, the change in the fair value (clean
price) of a hedging instrument is recognised in the income statement under the line item ‘Net trading and fair value result’. Interest income
and expenses on hedging derivatives are reported under the line item ‘Net interest income’. The change in the fair value of the hedged
item attributable to the hedged risk is also recognised in the income statement under the line item ‘Net trading and fair value result’ and
adjusts the carrying amount of the hedged item.
Erste Group also uses portfolio fair value hedges of interest rate risk as regulated by IAS 39.AG114-AG132. Currently only interest rate
risk from issued bonds is being hedged (i.e. no assets are included as hedged items). The change in the fair value of the hedged items
attributable to the hedged interest risk is presented on the balance sheet under the line item ‘Changes in fair value of portfolio hedged
items’. Erste Group does not make use of the relaxation of hedge accounting requirements provided for portfolio fair value hedges by the
EU carve-out.
If the hedging instrument expires, is sold, is terminated or is exercised, or when the hedge no longer meets the criteria for hedge accounting, the hedge relationship is terminated. In this case, the fair value adjustment of the hedged item is amortised to the income statement
under the line item ‘Net interest income’ until maturity of the financial instrument.
ii. Cash flow hedges
Cash flow hedges are used to eliminate uncertainty in the future cash flows in order to stabilise net interest income. For designated and
qualifying cash flow hedges, the effective portion of the gain or loss on the hedging instrument is recognised in other comprehensive
income and reported under the ‘Cash flow hedge reserve’. The ineffective portion of the gain or loss on the hedging instrument is recognised in the income statement under the line item ‘Net trading and fair value result’. For determination of the effective and ineffective
portions, the derivative is considered at its clean price, i.e. excluding the interest component. If the hedged cash flow affects the income
statement, the gain or loss on the hedging instrument is reclassified from other comprehensive income on the corresponding income or
expense line item in the income statement (mainly ‘Net interest income’). As far as accounting for hedged items in cash flow hedges is
concerned there is no change compared to the situation when no hedging is applied.
When a hedging instrument expires, is sold, is terminated, is exercised, or when a hedge no longer meets the criteria for hedge accounting,
the hedge relationship is terminated. In this case, the cumulative gain or loss on the hedging instrument that has been recognised in other
comprehensive income remains in ‘Cash flow hedge reserve’ until the transaction occurs.
Offsetting financial instruments
Financial assets and financial liabilities are offset and the net amount is reported on the balance sheet if, and only if, there is a currently
enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the
liability simultaneously. Since second quarter of 2015, Erste Group undertakes interest rate derivative transactions via London Clearing
House by fulfilling all offsetting requirements according IAS 32. The offsetted amounts are disclosed in Note 13 Derivatives – held for
trading and Note 22 Derivatives – hedge accounting.
Determination of fair value
Fair value is the price that would be received if an asset were sold or paid, if a liability were transferred in an orderly transaction between
market participants on the measurement date.
Details on valuation techniques applied for fair value measurement and on the fair value hierarchy are disclosed in Note 46 Fair value of
assets and liabilities.
Leasing
A lease is an agreement whereby the lessor conveys to the lessee the right to use an asset for an agreed period of time in return for a payment or series of payments. A finance lease at Erste Group is a lease that transfers substantially all the risks and rewards incidental to
ownership of an asset. All other lease agreements at Erste Group are classified as operating leases.
Erste Group as a lessor
The lessor in the case of a finance lease reports a receivable from the lessee under the line item ‘Loans and receivables to customers’ or
‘Loans and receivables to credit institutions’. The receivable is equal to the present value of the contractually agreed payments taking into
account any residual value. Interest income on the receivable is reported in the income statement under the line item ‘Net interest income’.
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In the case of operating leases, the leased asset is reported by the lessor in ‘Property and equipment’ or in ‘Investment properties’ and is
depreciated in accordance with the principles applicable to the assets involved. Lease income is recognised on a straight-line basis over
the lease term in the income statement under the line item ‘Rental income from investment properties & other operating leases’.
Lease agreements in which Erste Group is the lessor almost exclusively comprise finance leases.
Erste Group as a lessee
As a lessee, Erste Group has not entered into any leases meeting the conditions of finance leases. Operating lease payments are recognised
as an expense in the income statement on the line item ‘Other administrative expenses’ on a straight-line basis over the lease term.
Business combinations and goodwill
i. Business combinations
Business combinations are accounted for using the acquisition method of accounting. Goodwill represents the future economic benefits
resulting from the business combination, arising from assets that are not individually identified and separately recognised. Goodwill is
measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests and the fair value of the
previously held equity interest over the net of the acquisition-date amounts of the identifiable assets acquired as well as the liabilities
assumed. At the acquisition date, the identifiable assets acquired and the liabilities assumed are generally recognised at their fair values.
If, after reassessment of all components described above, the calculation results in a negative amount, it is recognised as a bargain purchase gain and reported in the income statement under the line item ‘Other operating result’ in the year of acquisition.
Non-controlling interests that are present ownership interests in the acquiree are measured at the proportionate share of the acquiree’s
identifiable net assets. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in
another IFRS. Acquisition costs incurred are expensed and included under the income statement line item ‘Other operating result’.
ii. Goodwill and goodwill impairment testing
Goodwill arising on acquisition of a business is carried at cost as established as of the date of acquisition of the business less accumulated
impairment losses, if any. Goodwill is tested for impairment annually in November, or whenever there is an indication of possible impairment during the year, with any impairment determined recognised in profit or loss. The impairment test is carried out for each cashgenerating unit (CGU) to which goodwill has been allocated. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
Goodwill is tested for impairment by comparing the recoverable amount of each CGU to which goodwill has been allocated with its carrying amount. The carrying amount of a CGU is based on the amount of net asset value allocated to the CGU taking into account any
goodwill and unamortised intangible assets recognised for the CGU at the time of business combination.
The recoverable amount is the higher of a CGU’s fair value less costs of disposal and its value in use. Where available, the fair value less
costs of disposal is determined based on recent transactions, market quotations or appraisals. The value in use is determined using a discounted cash flow model (DCF model), which incorporates the specifics of the banking business and its regulatory environment. In determining value in use, the present value of future earnings distributable to shareholders is calculated.
The estimation of future earnings distributable to shareholders is based on financial plans for the CGUs as agreed by the management
while taking into account the fulfilment of the respective regulatory capital requirements. The planning period is five years. Any forecasted earnings beyond the planning period are derived on the basis of the last year of the planning period and a long-term growth rate. The
present value of such perpetual earnings growing at a stable rate (referred to as terminal value) takes into consideration macroeconomic
parameters and economically sustainable cash flows for each CGU. Values for the long-term growth rates are disclosed in Note 27 Intangible assets in the subsection ‘Development of goodwill’.
The cash flows are determined by subtracting the annual capital requirement generated by a change in the amount of risk-weighted assets
from the net profit. The capital requirement was defined through the target tier 1 ratio in light of the expected future minimum regulatory
capital requirements.
The value in use is determined by discounting the cash flows at a rate that takes into account present market rates and the specific risks of
the CGU. The discount rates have been determined based on the capital asset pricing model (CAPM). According to the CAPM, the discount rate comprises a risk-free interest rate together with a market risk premium that itself is multiplied by a factor that represents the
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systematic market risk (beta factor). Furthermore, a country-risk premium component is considered in calculation of the discount rate.
The values used to establish the discount rates are determined using external sources of information. Discount rates applied to determine
the value in use are disclosed in Note 27 Intangible assets in the subsection ‘Development of goodwill’.
Where the recoverable amount of a CGU is less than its carrying amount, the difference is recognised as an impairment loss in the income
statement under the line item ‘Other operating result’. The impairment loss is allocated first to write down the CGU’s goodwill. Any
remaining impairment loss reduces the carrying amount of the CGU’s other assets, though not to an amount lower than their fair value
less costs of disposal. No impairment loss is recognised if the recoverable amount of the CGU is higher than or equal to its carrying
amount. Impairment losses relating to goodwill cannot be reversed in future periods.
The goodwill included in the acquisition cost of investments in associates and joint ventures is not tested separately by performing the
recurring impairment assessments applicable to goodwill. Instead, the entire carrying amount of the investment is tested for impairment as
a single asset by comparing its recoverable amount (higher of fair value in use and fair value less costs to sell) with its carrying amount
(after application of the equity method) whenever relevant objective evidence of impairment is identified. Such evidence includes information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environments in which associates and joint ventures operate, indicating that the cost of the investment may not be recovered.
Property and equipment
Property and equipment is measured at cost less accumulated depreciation and accumulated impairment. Borrowing costs for qualifying
assets are capitalised into the costs of property and equipment.
Depreciation is calculated using the straight-line method to write down the cost of property and equipment to their residual values over
their estimated useful lives. Depreciation is recognised in the income statement on the line item ‘Depreciation and amortisation’ and
impairment under the line item ‘Other operating result’.
The estimated useful lives are as follows:
Useful life in years
Buildings
Office furniture and equipment
Passenger cars
Computer hardware
15-50
4-10
4-8
4-6
Land is not depreciated.
Property and equipment is derecognised on disposal or when no future economic benefits are expected from its use. Any gain or loss
arising on disposal of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is
recognised in the income statement under the line item ‘Other operating result’.
Investment properties
Investment property is property (land and buildings or part of a building or both) held for the purpose of earning rental income or for
capital appreciation. In the case of partial own use, the property is investment property only if the owner-occupied portion is insignificant.
Investments in land and buildings under construction, where the future use is expected to be the same as for investment property, are
treated as investment property.
Investment property is measured initially at cost, including transaction costs. Subsequent to initial recognition, investment property is
measured at cost less accumulated depreciation and impairment. Investment property is presented on the balance sheet in the line item
‘Investment properties’.
Rental income is recognised in the line item ‘Rental income from investment properties and other operating leases’. Depreciation is presented in the income statement in the line item ‘Depreciation and amortisation’ using the straight-line method over an estimated useful
life. The useful lives of investment properties are identical to those of buildings reported under property and equipment. Any impairment
losses, as well as their reversals, are recognised under the income statement line item ‘Other operating result’.
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Property Held for Sale (Inventory)
The Group also invests in property that is held for sale in the ordinary course of business or property in the process of construction or
development for such sale. This property is presented as ‘Other assets’ and is measured at the lower of cost and net realisable value in
accordance with IAS 2 Inventories.
The cost of acquiring inventory includes not only the purchase price but also all other directly attributable expenses, such as transportation
costs, customs duties, other taxes and costs of conversion of inventories, etc. Borrowing costs are capitalised to the extent to which they
directly relate to the acquisition of real estate.
Sales of these assets/apartments are recognised as revenues under the income statement line item ‘Other operating result’, together with
costs of sales and other costs incurred in selling the assets.
Intangible assets
In addition to goodwill, Erste Group’s intangible assets include computer software and customer relationships, the brand, the distribution
network and other intangible assets. An intangible asset is recognised only when its cost can be measured reliably and it is probable that
the expected future economic benefits that are attributable to it will flow to the bank.
Costs of internally generated software are capitalised if Erste Group can demonstrate the technical feasibility and intention of completing
the software, the ability to use it, how it will generate probable economic benefits, the availability of resources and the ability to measure
the expenditures reliably. Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition,
intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.
The cost of intangible assets acquired in a business combination is their fair value as of the date of acquisition. In the case of Erste Group,
these are brands, customer relationships and distribution networks, and they are capitalised on acquisition if they can be measured with
sufficient reliability.
Intangible assets with finite lives are amortised over their useful economic lives using the straight-line method. The amortisation period
and method are reviewed at least at each financial year-end and adjusted if necessary. The amortisation expense on intangible assets with
finite lives is recognised in the income statement under the line item ‘Depreciation and amortisation’.
The estimated useful lives are as follows:
Useful life in years
Computer software
Customer relationships
Distribution network
4-8
10-20
5.5
Brands are not amortised as they are assumed to have an indefinite useful life. An intangible asset has an indefinite useful life, if there are
no legal, contractual, regulatory or other factors limiting that useful life. Brands are tested for impairment annually within the cashgenerating unit to which they belong, and impairment is recognised if appropriate. Furthermore, each period brands are reviewed as to
whether current circumstances continue to support the conclusion as to indefinite life. In the event of impairment, impairment losses are
recognised in the income statement under the line item ‘Other operating result’.
Impairment of non-financial assets (property and equipment, investment properties, intangible assets)
The bank assesses at each reporting date whether there is an indication that a non-financial asset may be impaired. Testing for impairment
is done at individual asset level if the asset generates cash inflows that are largely independent of those from other assets. The typical case
is investment property. Otherwise the impairment test is carried out at the level of the cash-generating unit (CGU) to which the asset
belongs. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows
from other assets or groups of assets. For specific rules related to impairment of goodwill and impairment allocation rules for CGUs
please see the chapter ‘Business combinations and goodwill’, part (ii) Goodwill and goodwill impairment testing.
If any indication of impairment exists, or when annual impairment testing for an asset is required, the bank estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of the asset’s or CGU's fair value less costs of disposal and its value in use. If the
carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In measuring value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and the risks specific to the asset.
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At each reporting date an assessment is made as to whether there is any indication that previously recognised impairment losses may no
longer exist or may have decreased. If such an indication exists, the bank estimates the asset’s or CGU’s recoverable amount. The previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable
amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its
recoverable amount or does not exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss
been recognised for the asset in prior years.
Impairments and their reversals are recognised in the income statement under the line item ‘Other operating result’.
Non-current assets and disposal groups held for sale
Non-current assets are classified as held for sale if they can be sold in their present condition and the sale is highly probable within 12
months of classification as held for sale. If assets are to be sold as part of a group that may also contain liabilities (e.g. a subsidiary) they
are referred to as disposal group held for sale.
Assets classified as held for sale and assets belonging to disposal groups held for sale are reported under the balance sheet line item ‘Assets held for sale’. Liabilities belonging to the disposal groups held for sale are presented on the balance sheet under the line item ‘Liabilities associated with assets held for sale’.
Non-current assets and disposal groups that are classified as held for sale are measured at the lower of carrying amount and fair value less
costs to sell. Should the impairment loss in a disposal group exceed the carrying amount of the assets that are within the scope of IFRS 5
measurement requirements, there is no specific guidance on how to treat such a difference. Erste Group recognises this difference as a
provision under the balance sheet line item ‘Provisions’.
Financial guarantees
In the ordinary course of business, Erste Group provides financial guarantees, consisting of various types of letters of credit and guarantees. According to IAS 39, a financial guarantee is a contract that requires the guarantor to make specified payments to reimburse the
holder for a loss it incurs in case a specified debtor fails to make a payment when due in accordance with the original or modified terms of
a debt instrument.
If Erste Group is in a position of being a guarantee holder, the financial guarantee is not recorded on the balance sheet but is taken into
consideration as collateral when determining impairment of the guaranteed asset.
Erste Group as a guarantor recognises financial guarantees as soon as it becomes a contracting party (i.e. when the guarantee offer is
accepted). Financial guarantees are initially measured at fair value. Generally, the initial measurement is the premium received for a guarantee. If no premium is received at contract inception, the fair value of a financial guarantee is nil, as this is the price that would be paid to
transfer the liability in an orderly transaction between market participants. Subsequent to initial recognition, the financial guarantee contract is reviewed for the possibility that provisioning will be required under IAS 37. Such provisions are presented on the balance sheet
under the line ‘Provisions’.
The premium received is recognised in the income statement under the line item ‘Net fee and commission income’ on a straight-line basis
over the life of the guarantee.
Defined employee benefit plans
Defined employee benefit plans operated by Erste Group are for pensions, severance and jubilee benefits. From IAS 19 categorisation
perspective pension and severance benefits qualify as post-employment defined benefits plans whereas jubilee benefits are other longterm employee benefits.
The defined benefit pension plans relate only to retired employees. The pension obligations for current employees were transferred to
external pension funds in previous years. Remaining with Erste Group is a defined-benefit obligation for entitlements of former employees who were already retired as of 31 December 1998 before the pension reform took effect, and for those former employees who retired
only in 1999 but remained entitled to a direct pension from Erste Group under individual agreements. Also included are entitlements to
resulting survivor pensions.
Severance benefit obligations exist in relation to Austrian employees who entered the Group’s employment before 1 January 2003. The
severance benefit is one-time remuneration to which employees are entitled when their employment relationship ends. The entitlement to
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this severance payment arises after three years of employment. Defined-benefit plans include jubilee benefits. Jubilee payments (payments
for long service and/or loyal service) are remuneration tied to the length of an employee’s service to the employer. The entitlement to jubilee
benefits is established by collective agreement, which defines both the conditions and amount of the entitlement.
Obligations ensuing from defined employee benefit plans are determined using the projected unit credit method. Future obligations are
determined based on actuarial expert opinions. The calculation takes into account not only those salaries, pensions and vested rights to
future pension payments known as of the balance sheet date but also anticipated future rates of increase in salaries and pensions.
The liability recognised under a defined-benefit plan represents the present value of the defined benefit obligation less the fair value of the
plan assets available for the direct settlement of obligations. For all plans, the present value of the obligation exceeds the fair value of the
plan assets. The resulting defined benefit liability is reported on the balance sheet under the line item ‘Provisions’. At Erste Group, the
plan assets consist of qualifying insurance policies purchased to back severance and jubilee benefit provisions.
Remeasurements consist of actuarial gains and losses on the defined benefit obligations and the return on plan assets. Remeasurements of
pension and severance defined-benefit plans are recognised in other comprehensive income. Remeasurements of jubilee defined-benefit
plans are recognised in the income statement under the line item ‘Personnel expenses’.
Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event, it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
On the balance sheet, provisions are reported under the line item ‘Provisions’. They include credit risk loss provisions for contingent
liabilities (particularly financial guarantees and loan commitments) as well as provisions for litigation and restructuring. Expenses or
income related to provisions are reported under the line item ‘Other operating result’.
Taxes
i. Current tax
Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the
taxation authorities. The tax rates and tax laws used to compute the amounts are those enacted by the balance sheet date.
ii. Deferred tax
Deferred tax is recognised for temporary differences between the tax bases of assets and liabilities and their carrying amounts as of the
balance sheet date. Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for all
deductible temporary differences and unused tax losses to the extent that it is probable that taxable profit will be available against which
the deductible temporary differences and carry forward of unused tax losses can be utilised. Deferred taxes are not recognised on temporary differences arising from the initial recognition of goodwill.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are
reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the
deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the temporary difference is
reversed or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted as at balance sheet
date and are expected to apply when the temporary differences are reversed. For the subsidiaries, local tax environments apply.
Deferred tax relating to items recognised in other comprehensive income is recognised in other comprehensive income and not in the
income statement.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right to offset exists and the deferred taxes relate to the
same taxation authority.
Treasury shares and contracts on treasury shares
Equity instruments of Erste Group that it or any of its subsidiaries acquire (referred to as treasury shares) are deducted from equity. Consideration paid or received on the purchase, sale, issue or cancellation of Erste Group’s own equity instruments, including transaction
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costs, is recognised directly in equity. No gain or loss is recognised in the statement of comprehensive income on the purchase, sale, issue
or cancellation of its own equity instruments.
Fiduciary assets
The Group provides trust and other fiduciary services that result in the holding or investing of assets on behalf of its clients. Assets held in
a fiduciary capacity are not reported in the financial statements, as they are not the assets of Erste Group.
Dividends on ordinary shares
Dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by Erste Group’s shareholders.
Recognition of income and expenses
Revenue is recognised to the extent that the economic benefits will flow to the entity and the revenue can be reliably measured. The description and revenue recognition criteria of the line items reported in the income statement are as follows:
i. Net interest income
Interest income and interest expense is recorded using the effective interest rate (EIR) method. The calculation includes origination fees
resulting from the lending business as well as transaction costs that are directly attributable to the instrument and are an integral part of
the EIR (apart from financial instruments at fair value through profit or loss), but no future credit losses. Interest income from individually
impaired loans and receivables and held-to-maturity financial assets is calculated by applying the original effective interest rate used to
discount the estimated cash flows for the purpose of measuring the impairment loss.
Interest income includes interest income on loans and receivables to credit institutions and customers, on cash balances and on bonds and
other interest-bearing securities in all financial assets categories. Interest expenses include interest paid on deposits from customers, deposits from banks, debt securities issued and other financial liabilities in all financial liabilities categories.
Net interest income also includes interest on derivative financial instruments held in the banking book. In addition, net interest cost on
severance payment, pension and jubilee obligations is presented here.
Furthermore negative interest from financial liabilities and financial assets are presented in ‘Net interest income’.
ii. Net fee and commission income
Erste Group earns fee and commission income from a diverse range of services that it provides to its customers.
Fees earned for the provision of services over a period of time are accrued over that period. These fees include lending fees, guarantee
fees, commission income from asset management, custody and other management and advisory fees as well as fees from insurance brokerage, building society brokerage and foreign exchange transactions.
Fee income earned from providing transaction services, such as arranging the acquisition of shares or other securities or the purchase or
sale of businesses, is recognised upon completion of the underlying transaction.
iii. Dividend income
Dividend income is recognised when the right to receive the payment is established.
This line item includes dividend from shares and other equity-related securities in all portfolios as well as income from other investments
in companies categorised as available for sale.
iv. Net trading and fair value result
Results arising from trading activities include all gains and losses from changes in the fair value (clean price) of financial assets and financial liabilities classified as held for trading, including all derivatives not designated as hedging instruments. In addition, for derivative
financial instruments held in the trading book, the net trading result also contains interest income or expense. However, interest income or
expenses related to non-derivative trading assets and liabilities and to derivatives held in the banking book are not part of the net trading
result as they are reported as ‘Net interest income’. The net trading result also includes any ineffective portions recorded in fair value and
cash flow hedge transactions as well as foreign exchange gains and losses.
The fair value result relates to changes in the clean price of assets and liabilities designated at fair value through profit or loss.
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v. Net result from equity method investments
The line item contains result from associates and joint ventures recorded by applying the equity method (measured as the investor’s share
of profit or loss in the associates and joint ventures).
However, impairment losses, reversal of impairment losses and realised gains and losses on investments in associates or joint ventures
accounted for using the equity method are reported under the line item ‘Other operating result’.
vi. Rental income from investment properties & other operating leases
Rental income from investment properties and other operating leases is recognised on a straight-line basis over the lease term.
vii. Personnel expenses
Personnel expenses include wages and salaries, bonuses, statutory and voluntary social security contributions, staff-related taxes and
levies. They also include service cost for severance payment, pension and jubilee obligations and remeasurements of jubilee obligations.
viii. Other administrative expenses
Other administrative expenses include information technology expenses, expenses for office space, office operating expenses, advertising
and marketing, expenditures for legal and other consultants as well as sundry other administrative expenses. Furthermore the line item
contains deposit insurance contributions expenses.
ix. Depreciation and amortisation
This line item comprises depreciation of property and equipment, depreciation of investment property and amortisation of intangible assets.
x. Gains/losses on financial assets and liabilities not measured at fair value through profit or loss, net
This line item includes selling and other derecognition gains or losses on available-for-sale and held-to-maturity financial assets, loans
and receivables and financial liabilities measured at amortised cost. However, if such gains/losses relate to individually impaired financial
assets they are included as part of net impairment loss.
xi. Net impairment loss on financial assets not measured at fair value through profit or loss
Net impairment losses on financial assets comprise impairment losses and reversals of impairment on loans and receivables, held-tomaturity and available-for-sale financial assets. Net impairment losses relate to allowances recognised both at individual and portfolio
(incurred but not reported) level. Direct write-offs are considered as part of impairment losses. This line item also includes recoveries on
written-off loans removed from the balance sheet.
xii. Other operating result
The other operating result reflects all other income and expenses not directly attributable to Erste Group’s ordinary activities. Furthermore, levies on banking activities are considered as part of the other operating result.
The other operating result includes impairment losses or any reversal of impairment losses as well as results on the sale of property and
equipment and intangible assets. Also included here are any impairment losses on goodwill.
In addition, the other operating result encompasses the following: expenses for other taxes; income from the release of and expenses for
allocations to provisions; impairment losses (and their reversal if any) as well as selling gains and losses on equity investments accounted
for using the equity method; and gains or losses from derecognition of subsidiaries.
d) Significant accounting judgements, assumptions and estimates
The consolidated financial statements contain amounts that have been determined on the basis of judgements and by the use of estimates
and assumptions. The estimates and assumptions used are based on historical experience and other factors, such as planning as well as
expectations and forecasts of future events that are currently deemed to be reasonable. As a consequence of the uncertainty associated
with these assumptions and estimates, actual results could in future periods lead to adjustments in the carrying amounts of the related
assets or liabilities. The most significant uses of judgements, assumptions and estimates are as follows:
Control
IFRS 10 ‘Consolidated Financial Statements’ defines the investor’s control over an investee in terms of the investor having all of the
following:
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_ power to direct the relevant activities of the investee, i.e. activities that significantly affect the investee’s returns;
_ exposure, or rights, to variable returns from its involvement with the investee; and
_ the ability to use its power over the investee to affect the amount of the investor’s returns.
Hence, assessing the existence of control under this definition may require considerable accounting judgements, assumptions and estimates, notably in non-standard situations such as:
_ power stemming both from voting rights and from contractual arrangements (or mostly from the latter);
_ exposure stemming both from on-balance investments and from off-balance commitments or guarantees (or mostly from the latter); or
_ variable returns stemming both from readily identifiable income streams (e.g. dividends, interest, fees) and from cost savings, economies of scale and/or operational synergies (or mostly from the latter).
In the case of Erste Group, such accounting judgements, assumptions and estimates have been primarily relevant for the assessment of the
following cases:
i. The savings bank members of the Austrian cross-guarantee system (Haftungsverbund)
Erste Group Bank AG is a member of the Haftungsverbund (cross-guarantee system) of the Austrian savings bank sector. As of the balance sheet date, all of Austria’s savings banks, in addition to Erste Group Bank AG and Erste Bank der oesterreichischen Sparkassen AG,
formed part of this cross-guarantee system. The provisions of the agreement governing the Haftungsverbund are implemented by the
steering company Haftungsverbund GmbH. Erste Group Bank AG always holds directly and indirectly at least 51% of the voting rights of
the steering company, through Erste Bank der oesterreichischen Sparkassen AG and through savings banks in which the Group holds the
majority of voting rights.
For all savings banks in which Erste Group holds less than 50% of the voting rights, an assessment of whether control is achieved through
the provisions of the Haftungsverbund agreement has been performed.
Based on the contractual agreement, Haftungsverbund GmbH as the steering company is vested with the following substantive rights
related to the savings banks:
_ participation in the appointment of board members
_ approval of budgets including capital decisions
_ provision of binding guidelines in the areas of risk and liquidity management as well as internal audit
_ determination of thresholds for capital requirement including the payout of dividends
Furthermore, taking into account the magnitude of Erste Group’s involvement with the member banks - whether in the form of synergies,
investments, commitments, guarantees, or access to common resources - the Group has significant exposure to each of the member banks’
variable returns. As Haftungsverbund GmbH is able to affect the variable returns through its power, it has been assessed that Haftungsverbund GmbH has control over the savings banks.
As Erste Group Bank AG controls the steering company, it exercises control over the members of the cross-guarantee system.
ii. Investment funds under own management
The Group has assessed whether the investment funds it manages through its asset management subsidiaries are controlled and hence
shall be consolidated. This assessment has been made on the basis that power over such investment funds is generally conferred based on
the contractual arrangements appointing an Erste Group subsidiary as fund manager, without any substantive removal rights the by fund’s
investors. Furthermore, Erste Group made the conclusive judgement that its exposure to such own-managed funds’ variable returns is
basically considered as significant if, additionally to the exposure through management fees, the Group is also exposed in the form of at
least 20% investment in the fund. Furthermore, in its capacity as fund manager, Erste Group is also able to affect the returns of the funds
through its power. Following this assessment, investment funds under own management in which the Group - directly or through its subsidiaries - has significant unit holdings are deemed to be controlled and included in the scope of consolidation
iii. Pension funds under own management
The Group has assessed whether the contractual arrangements appointing an Erste Group subsidiary as pension fund manager (with no
substantive removal rights by the fund’s participants) are generally expected to confer power over such funds, followed by an assessment
of the Group’s exposure/rights to the pension fund’s variable returns. The relevant legal requirements regulating the activities of such
pension funds in their respective jurisdictions were also considered, notably in assessing the significance of the rights to variable returns
from management fees, as well as of the exposure to losses from any guarantees that the fund manager may be legally bound to.
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As a result of this review, the Czech pension fund ‘Transformovaný fond penzijního připojištění se státním příspěvkem Česká spořitelna –
penzijní společnost, a.s’ (the ‘Transformed pension fund’) has been deconsolidated with effect from with 2014, as a result of significant
statutory changes in the fund’s articles of incorporation. These changes resulted in the narrowing of the fund manager’s investment mandate, limiting the scope of the fund manager’s decision making authority and restricting the manager’s (and therefore Erste Group’s)
exposure to the fund’s variability of returns and other interests (including guarantees).
Joint control and classification of joint arrangements
IFRS 11 ‘Joint Arrangements’ defines joint control as a contractual sharing of control whereby decisions about the relevant activities
require the unanimous consent of the parties sharing control. Furthermore, IFRS 11 distinguishes between joint operations and joint ventures. Joint operations are defined as joint arrangements whereby the parties that have joint control of the arrangement have rights to the
assets and obligations for the liabilities relating to the arrangement. Joint ventures are joint arrangements whereby the parties that have
joint control of the arrangement have rights to the net assets of the arrangement.
Hence, assessing either the existence of joint control or the type of joint arrangement (or both) under these definitions may require considerable accounting judgements, assumptions and estimates.
In the case of Erste Group, such accounting judgements, assumptions and estimates have been primarily relevant for the assessment of the
Group’s involvement in partnerships and ventures in the commercial real estate sector (development, management, leasing), notably
through Erste Group Immorent AG.
As a result of such assessment, only one company has been identified as a joint arrangement in force as at 31 December 2015. This company is structured as a separate vehicle qualifying for treatment as a joint venture under the terms of the aforementioned definitions, and it
has an immaterial carrying amount (below EUR 10 million). For the ensuing IFRS 12-driven disclosure requirements, please refer to Note
23 Equity method investments.
For the ensuing IFRS 12-driven disclosures applicable to joint ventures (and associates), please refer to Note 23 Equity method investments.
Significant influence
IAS 28 ‘Investments in Associates and Joint Ventures’ defines significant influence as the power to participate in the financial and operating policy decisions of the investee without having control or joint control of those policies. Furthermore, IAS 28 indicates that if an
entity holds, directly or indirectly 20% or more of the voting power of the investee, it is presumed that the entity has significant influence,
unless it can be clearly demonstrated that this is not the case.
In the case of Erste Group, all equity method investments are direct or indirect investments in associates and joint ventures over which the
Group exercises significant influence or joint control stemming from voting power higher than 20% up to 50%.
Interests in structured entities
IFRS 12 ‘Interests in Other Entities’ defines structured entities as entities that have been designed so that voting or similar rights are not
the dominant factor in deciding who controls the entity, such as when any voting rights relate to the administrative tasks only and the
relevant activities are directed by means of contractual arrangements. IFRS 12 defines the interests as contractual and non-contractual
involvements exposing an entity to the variability of returns from the performance of the other entity.
Hence, assessing which entities are structured entities, and which involvements in such entities are interests, may require considerable
accounting judgements, assumptions and estimates.
In the case of Erste Group, such accounting judgements, assumptions and estimates have been primarily relevant for assessing involvements with securitisation vehicles and investment funds. In respect to securitisation vehicles, Erste Group assessed that on-balance or offbalance exposures to entities involved in securitisation activities meet the definition of interests in structured entities. For investment
funds, Erste Group concluded that such investment funds would typically satisfy the characteristics of a structured entity - irrespective of
whether they are own-managed funds or third party managed funds. Moreover, the Group reached the conclusion that direct Group investments higher than 0% and management fees varying in relation to the assets under management and are not distributed full to third
parties would typically indicate an interest in these structured entities. In alignment with the accounting judgement described under the
paragraph ‘Investment funds under own management’ above, interests below 20% are not consolidated due to lack of control.
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All on-balance or off-balance exposures to investment funds managed by third parties -mostly in the form of units held in such fundswere considered as being interests in structured entities.
For the ensuing IFRS 12-driven disclosures applicable to structured entities, please refer to Note 24 Unconsolidated structured entities.
Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded on the balance sheet cannot be derived from active markets, they
are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are derived from observable market data where possible, but where observable market data is not available judgement is required to establish
fair values. Disclosures for valuation models, the fair value hierarchy and fair values of financial instruments can be found in Note 46 Fair
value of assets and liabilities.
For the valuation of OTC derivatives no Funding Value Adjustment (FVA) was considered. Erste Group is analyzing the different developments on the market. The observations will be considered in the future methodology.
Impairment of financial assets
Erste Group reviews its financial assets not measured at fair value through profit or loss at each balance sheet date to assess whether an
impairment loss should be recorded in the income statement. In particular, it is required to determine whether there is objective evidence
of impairment as a result of a loss event occurring after initial recognition and to estimate the amount and timing of future cash flows
when determining an impairment loss.
Disclosures concerning impairment are provided in Note 44 Risk management in the ‘Credit risk’ subsection entitled – ‘Non-performing
credit risk exposure, risk provisions and collateral’. The development of loan loss provisions is described in Note 21 Impairment loss for
financial instruments.
Impairment of non-financial assets
Erste Group reviews its non-financial assets at each balance sheet date to assess whether there is an indication of impairment loss that
should be recorded in the income statement. Furthermore, cash-generating units to which goodwill is allocated are tested for impairment
on a yearly basis. Judgement and estimates are required to determine the value in use and fair value less costs of disposal by estimating
the timing and amount of future expected cash flows and the discount rates. Assumptions and estimates used for impairment on nonfinancial asset calculations are described in the parts ‘Business combinations and goodwill’ and ‘Impairment of non-financial assets
(property and equipment, investment property, intangible assets)’ in the Accounting Policies. Inputs used for goodwill impairment testing
and their sensitivities can be found in Note 27 Intangible assets in the section ‘Development of goodwill’.
Deferred tax assets
Deferred tax assets are recognised in respect of tax losses and deductible temporary differences to the extent that it is probable that taxable
profit will be available against which the losses can be utilised. Judgement is required to determine the amount of deferred tax assets that
can be recognised, based upon the likely timing and level of future taxable profits, together with future tax planning strategies. For this
purpose a planning period of 5 years is used. Disclosures concerning deferred taxes are in Note 28 Tax assets and liabilities.
Defined benefit obligation plans
The cost of the defined benefit pension plan is determined using an actuarial valuation. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. Assumptions, estimates and sensitivities used for the defined benefit obligation calculations as well as related amounts are disclosed in Note 34 a
Long-term employee provisions.
Provisions
Recognition of provisions requires judgement with respect to whether Erste Group has a present obligation as a result of a past event and
whether it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. Furthermore,
estimates are necessary with respect to the amount and timing of future cash flows when determining the amount of provisions. Provisions
are disclosed in Note 37 Provisions and further details on provisions for contingent credit liabilities in Note 44.5 Credit risk. Legal proceedings that do not meet the criteria for recognition of provisions are described in Note 49 Contingent liabilities.
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Leases
From Erste Group’s perspective as a lessor, judgement is required to distinguish whether a given lease is a finance or operating lease based
on the transfer of substantially all the risk and rewards from the lessor to the lessee. Disclosures concerning leases are in Note 39 Leases.
e) Application of amended and new ifrs/ias
The accounting policies adopted are consistent with those used in the previous financial year except for standards and interpretations that
became effective for financial years beginning after 1 January 2014. As regards new standards and interpretations and their amendments,
only those that are relevant for the business of Erste Group are listed below.
Effective standards and interpretations
The following standards and their amendments have become mandatory for our financial year 2015, endorsed by EU:
_ IFRIC 21 Levies
_ Annual Improvements to IFRSs 2011-2013 Cycle
IFRIC 21 Levies. IFRIC 21 clarifies that an entity recognises a liability for a levy when the activity that triggers payment, as identified by
the relevant legislation, occurs. These criteria are among otheres applied for recovery & resolution fund which is presented in other operating income. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached. Retrospective application is required for IFRIC 21. This interpretation has no
impact on the Group as it has applied the recognition principles under IAS 37 Provisions, Contingent Liabilities and Contingent Assets
consistent with the requirements of IFRIC 21 in prior years. IFRIC 21 is effective for annual periods beginning on or after
1 January 2014, but in EU for annual periods beginning on or after 17 June 2014.
Annual Improvements to IFRSs 2011-2013 Cycle. In December 2013, the IASB issued a set of amendments to various standards. The
amendments are effective for annual periods beginning on or after 1 July 2014, but in EU for annual periods beginning on or after
1 January 2015. Application of these amendments did not have a significant impact on Erste Group’s financial statements.
Standards and interpretations not yet effective
The standards, amendments and interpretations shown below were issued by the IASB but are not yet effective.
Following standards, amendments and interpretations are not yet endorsed by the EU:
_ IFRS 9: Financial Instruments
_ IFRS 14 Regulatory Deferral Accounts:The European Commission has decided not to launch the endorsement process of this interim
standard and to wait for the final standard.
_ IFRS 15: Revenue from Contracts with Customers including amendments to IFRS 15: Effective date of IFRS 15
_ Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
_ Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities: Applying the Consolidation ExceptionIFRS 16: Leases
_ Amendments to IAS 12: Recognition of deferred tax assets for unrealised losses
_ Amendments to IAS 7: Disclosure Initiative
Following standards, amendments and interpretations are already endorsed by the EU:
_ Amendments to IAS 19 – Defined Benefit Plans: Employee Contributions
_ Annual Improvements to IFRSs 2010-2012 Cycle
_ Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation
_ Amendments to IFRS 11: Accounting for Acquisitions of Interest in Joint Operations
_ Amendments to IAS 1: Disclosure Initiative
_ Annual Improvements to IFRSs 2012-2014 Cycle
IFRS 9: Financial Instruments (IASB Effective Date: 1 January 2018). IFRS 9 was issued in July 2014 and is effective for annual
periods beginning on or after 1 January 2018. IFRS 9 addresses three main areas of accounting for financial instruments: classification and
measurement, impairment and hedge accounting.
IFRS 9 introduces two classification criteria for financial assets: 1) an entity’s business model for managing the financial assets, and 2) the
contractual cash flow characteristics of the financial assets. As a result, a financial asset is measured at amortised cost only if both the
following conditions are met: a) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely pay-
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ments of principal and interest on the principal outstanding and b) the asset is held within a business model whose objective is to hold
assets in order to collect contractual cash flows. Measurement of a fair value through other comprehensive income is applicable to financial assets that meet condition a) but the business model applied to them is focused both on holding the assets to collect contractual cash
flows and selling the assets. All other financial assets are measured at fair value with changes recognised in profit or loss. For investments
in equity instruments that are not held for trading, an entity may make an irrevocable election at initial recognition to measure them at fair
value with changes recognised in other comprehensive income.
IFRS 9 does not change classification and measurement principles for financial liabilities compared to IAS 39. The only change is related
to financial liabilities designated at fair value through profit or loss (fair value option). The fair value changes related to the credit risk of
such liabilities will be presented in other comprehensive income.
The standard provides a uniform impairment model applied to both financial assets and off-balance sheet credit risk bearing exposures
(loan commitments and financial guarantees). At initial recognition of financial instruments loss allowance to reflect credit loss is recognised in the form of 12-month expected credit losses. Lifetime expected credit losses are to be recognised for all instrument whose credit
risk increases subsequently after initial recognition. Furthermore the standard brings new rules for accounting for losses resulting from
modification of contractual conditions of financial assets.
The objective of the new hedge accounting model is to reflect in accounting actual risk management practices of entities hedging risks.
For Erste Group, the following areas are expected to be relevant to achieve this objective: only the prospective effectiveness test is required and the retrospective effectiveness test with the 80%-125% corridor was abandoned; when options are used as hedging instruments, the volatility of the time value is recognised through OCI rather than profit or loss; the possibility of hedging synthetic items containing derivatives.
During the year 2015, Erste Group proceeded with the development of master business concepts and business requirements documentation addressing the changes in policies, procedures, processes and systems, assessed as necessary in preparation for transition to IFRS 9
on 1 January 2018. As part of this effort, iterative financial impact studies (notably with regards to classification/measurement and impairment of financial assets) were started across the Group and are planned to continue throughout 2016, along with gradually moving
from the concept phase to the implementation phase of the documented business requirements.
On this basis, Erste Group upholds its original expectations that this standard will have a significant effect on balance sheet items and
measurement methods for financial instruments. Thus, in the area of classification and measurement, Erste Group identified a risk that
part of its loan portfolio will have to be re-measured at fair value through profit or loss, due to the contractual cash flow characteristics. In
the same time, this risk is already actively managed, notably by mitigation activities which have been planned and partly started across the
Group, in respect of the lending products assessed as being at risk of such re-measurement. On the other hand, some debt securities currently measured at fair value through other comprehensive income may be measured at amortised cost due to the ’held-to-collect contractual cash’ flows business model applied to them. In the area of impairment loss, allowances are expected to increase more than insignificantly for some non-defaulted exposures. Also, the Group expects that the structure of the financial statements (both main components
and explanatory notes) will be have to be adapted, notably in the light of the new reporting and disclosure requirements of IFRS7, as
triggered by IFRS9. Such adaptions would also consider any new regulatory reporting requirements (notably FINREP related) which EU
or national regulators may contemplate as part of preparing for initial application of IFRS 9 at the level of the wider European and national banking sector.
IFRS 9 provides an accounting policy choice in the area of hedge accounting. Thus, upon adoption of IFRS9, entities can either (a) start
with full application of the hedge accounting requirements of IFRS9, (b) start with limited application of the hedge accounting requirements of IFRS9 by continuing to apply IAS39 to the specific case of fair value hedges of interest rate exposure of a portfolio of financial
assets or financial liabilities, or (c) continue with full application of the hedge accounting requirements of IAS39. Erste Group plans to
implement the third choice. However, some actions are expected to be necessary in order to address additional disclosures that will be
required based on IFRS7 after adoption of IFRS9.
IFRS 14 Regulatory Deferral Accounts (IASB Effective Date: 1 January 2016). IFRS 14 Regulatory Deferral Accounts permits an
entity which is a first-time adopter of International Financial Reporting Standards to continue to account, with some limited changes, for
'regulatory deferral account balances' in accordance with its previous GAAP, both on initial adoption of IFRS and in subsequent financial
statements. The European Commission has decided not to launch the endorsement process of this interim standard and wait for the final
standard.
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IFRS 15 Revenue from Contracts with Customers (IASB Effective Date: 1 January 2018). IFRS 15 was issued in May 2014 and
is effective for annual periods beginning on or after 1 January 2018. IFRS 15 specifies how and when an entity recognises revenue from
contracts with customers. It also requires such entities to provide users of financial statements with more informative and more relevant
disclosures. The standard provides a single, principles based five-step model to be applied to all contracts with customers. Also in the
areas of variable considerations and capitalisation of cost IFRS 15 provides modified regulations. As the standard is not focused on recognition of revenues from financial services, application of this standard is not expected to have a significant impact on Erste Group’s financial statements.
Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
(IASB Effective Date: 1 January 2016). Amendments to IFRS 10 and IAS 28 were issued in September 2014 and are effective for annu-
al periods beginning on or after 1 January 2016.These amendments deal with the sale or contribution of assets or subsidiaries in a transaction between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised
only when the assets or the subsidiaries constitute a business, as defined in IFRS 3. Application of these amendments is not expected to
have a significant impact on Erste Group’s financial statements.
Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities: Applying the Consolidation Exception (IASB Effective
Date: 1 January 2016). The amendments confirm that the exemption from preparing consolidated financial statements for an intermediate
parent entity is available to a parent entity that is a subsidiary of an investment entity, even if the investment entity measures all of its subsidiaries at fair value. Also, they clarify that when applying the equity method to an associate or a joint venture, a non-investment entity
investor in an investment entity may retain the fair value measurement applied by the associate or joint venture to its interests in subsidiaries. Application of these amendments is not expected to have a significant impact on Erste Group’s financial statements.
Amendments to IAS 19 – Defined Benefit Plans: Employee Contributions (IASB Effective Date: 1 July 2014; EU Endorsement Effective Date 1 February 2015). Amendments to IAS 19 were issued in November 2013 and are effective for annual periods
beginning on or after 1 July 2014, but in EU for annual periods beginning on or after 1 Febuary 2015. The amendments clarify that contributions from employees or third parties that are linked to service must be attributed to periods of service using the same attribution
method as used for the gross benefit. However, the contribution may be recognised as a reduction in the service cost if the amount of the
contributions is independent of the number of years of service. Application of these amendments is not expected to have a significant
impact on Erste Group’s financial statements.
Annual Improvements to IFRSs 2010-2012 Cycle (IASB Effective Date: 1 July 2014; EU Endorsement Effective Date
1 February 2015). In December 2013, the IASB issued a set of amendments to various standards. The amendments are effective for
annual periods beginning on or after 1 July 2014, but in EU for annual periods beginning on or after 1 Febuary 2015. Application of these
amendments is not expected to have a significant impact on Erste Group’s financial statements.
Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation (IASB Effective
Date: 1 January 2016). Amendments to IAS 16 and IAS 38 were issued in May 2014 and are effective for annual periods beginning on or
after 1 January 2016. The amendments prohibit the use of revenue-based depreciation for property, plant and equipment and significantly
limiting the use of revenue-based amortisation for intangible assets. Application of these amendments is not expected to have a significant
impact on Erste Group’s financial statements.
Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations (IASB Effective Date: 1 January 2016).
Amendments to IFRS 11 were issued in May 2014 and are effective for annual periods beginning on or after 1 January 2016. The amendments specify that the acquirer of an interest in a joint operation in which the activity constitutes a business, as defined in IFRS 3, is required to apply all of the principles on business combinations accounting in IFRS 3 and other IFRSs with the exception of those principles
that conflict with the guidance in IFRS 11. Application of these amendments is not expected to have a significant impact on Erste Group’s
financial statements.
Amendments to IAS 1: Disclosure Initiative (IASB effective date: 1 January 2016). Disclosure Initiative makes the following
changes:
_ Materiality: The amendments clarify that (1) information should not be obscured by aggregating or by providing immaterial information, (2) materiality considerations apply to the all parts of the financial statements, and (3) even when a standard requires a specific disclosure, materiality considerations do apply.
_ Statement of financial position and statement of profit or loss and other comprehensive income: The amendments (1) introduce a clarification that the list of line items to be presented in these statements can be disaggregated and aggregated as relevant and additional
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guidance on subtotals in these statements and (2) clarify that an entity's share of OCI of equity-accounted associates and joint ventures
should be presented in aggregate as single line items based on whether or not it will subsequently be reclassified to profit or loss.
_ Notes: The amendments add additional examples of possible ways of ordering the notes to clarify that understandability and comparability should be considered when determining the order of the notes and to demonstrate that the notes need not be presented in the
order so far listed in paragraph 114 of IAS 1. The IASB also removed guidance and examples with regard to the identification of significant accounting policies that were perceived as being potentially unhelpful.
These changes and clarifications are not expected to trigger significant changes in the presentation of Erste Group’s IFRS consolidated
financial statements.
Amendments to IAS 7: Disclosure Initiative (IASB effective date: 1 January 2017). Amendments to IAS 7 were issued in Janu-
ary 2016 and are effective for annual periods beginning on or after 1 January 2017. The amendments require disclosure of information
enabling users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising
from cash flows and non-cash changes.
The impact on the group financial statements will be evaluated.
Annual Improvements to IFRSs 2012-2014 Cycle (IASB effective date: 1 January 2016). In September 2014, the IASB issued a
set of amendments to various standards. The amendments are effective for annual periods beginning on or after 1 January 2016. Application of these amendments is not expected to have a significant impact on Erste Group’s financial statements.
IFRS 16 Leases (IASB Effective Date: 1 January 2019). In January 2016, the IASB issued IFRS 16 being effective for annual periods
beginning on or after 1 January 2019. IFRS 16 specifies the depiction of lease arrangements in the financial statements. Compared to the
previous standard IAS 17, there is a fundamental alteration in respect of the recognition of operating leasing arrangements for the lessee.
As defined in IFRS 16, the standard requires the lessee to recognize a right of use asset on the debit side of the balance sheet as well as a
corresponding lease liability on the credit side of the balance sheet except for immateriality in cases of short term leasing arrangements
and small ticket leasing arrangements for low-value assets. By contrast, accounting changes for the lessor are only minor compared to
IAS 17. Compared to IAS 17 the notes will be much more comprehensive under IFRS 16.
The impact on the group financial statements will be evaluated.
Amendments to IAS 12 – Recognition of deferred tax assets for unrealised losses (IASB effective date: 1 January 2017).
Amendments to IAS 12 were issued in January 2016 and are effective for annual periods beginning on or after 1 January 2017. The
amendments clarify that unrealised losses on debt instruments measured at fair value in the financial statements but at cost for tax purposes can lead to deductible temporary differences. The amendments also clarify that not the carrying amount but the tax base of an asset is
the relevant base for the estimate of future taxable profits and that the carrying amount is not the ceiling to be used for the calculation.
When comparing deductible temporary differences with future taxable profits, the future taxable profits exclude tax deductions resulting
from the reversal of those deductible temporary differences.
The impact on the group financial statements will be evaluated, but it is not expected that these amendments will have a significant impact.
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C. NOTES TO THE STATEMENT OF COMPREHENSIVE INCOME AND THE BALANCE SHEET
OF ERSTE GROUP
1. Net interest income
in EUR million
1-12 14
1-12 15
Interest income
Financial assets - held for trading
Financial assets - at fair value through profit or loss
Financial assets - available for sale
Financial assets - held to maturity
Loans and receivables
Derivatives - hedge accounting, interest rate risk
Other assets
Total interest income
326.3
3.2
473.6
610.8
4,875.7
-17.3
28.7
6,301.1
817.5
2.9
469.6
580.2
4,447.8
86.7
21.0
6,425.7
-84.3
-39.2
-2,106.9
463.9
-39.4
-1,805.9
-604.1
-43.9
-1,676.1
359.9
-25.7
-1,989.9
0.0
0.0
4,495.2
21.9
-13.1
4,444.7
Interest expenses
Financial liabilities - held for trading
Financial liabilities - at fair value through profit or loss
Financial liabilities measured at amortised cost
Derivatives - hedge accounting, interest rate risk
Other liabilities
Total interest expense
Negative interest from financial liabilities
Negative interest from financial assets
Net interest income
For financial assets or liabilities that are not measured at fair value through profit or loss, the total interest income amounted to
EUR 5,518.6 million (2014: EUR 5,988.9 million) and the total interest expense to EUR 1,701.8 million (2014: EUR 2,146.3 million).
Net interest income for these items is therefore EUR 3,816.8 million (2014: EUR 3,842.7 million).
In December 2014 and during the first half year of 2015, important benchmark interest rates – particularly Euribor – became negative.
Since Euro is the functional currency for Erste Group, this development affected interest income and interes expense of the Group. Negative interest from financial liabilities and financial assets are shown in a separate line, while the impact was insignificant for the comparison period 2014. The amounts relate to the interbank business only.
Starting with year 2015, following a change of the internal reporting structure, the presentation of interest income from financial assets –
held for trading and interest expense from financial liabilities – held for trading has been improved to provide more relevant and reliable
information on the financial position and performance of the Group. As retrospective changes of the comparative figures were not possible, the comparison period 2014 has not been adjusted.
144
2. Net fee and commission income
in EUR million
1-12 14
1-12 15
Securities
Own issues
Transfer orders
Other
Clearing and settlement
Asset management
Custody
Fiduciary transactions
Payment services
Card business
Other
Customer resources distributed but not managed
Collective investment
Insurance products
Building society brokerage
Foreign exchange transactions
Other
Structured finance
Servicing fees from securitization activities
Lending business
Guarantees given, guarantees received
Loan commitments given, loan commitments received
Other lending business
Other
Net fee and commission income
185.4
16.7
153.5
15.1
9.2
217.8
44.3
2.2
896.8
215.1
681.7
180.3
19.7
110.7
18.3
19.4
12.2
0.1
0.0
233.3
43.0
62.0
128.3
100.5
1,869.8
187.8
22.4
159.1
6.2
0.0
251.2
80.5
2.2
887.7
216.9
670.8
168.7
16.3
111.5
17.7
20.3
2.9
0.0
0.0
198.2
62.8
32.6
102.8
85.6
1,861.8
2,354.7
-484.8
2,341.1
-479.3
1-12 14
1-12 15
1.5
3.4
43.8
25.5
74.2
0.5
4.2
38.3
6.9
49.9
1-12 14
1-12 15
314.8
100.7
183.4
30.8
-72.6
8.7
-81.3
242.3
178.2
-82.4
266.9
-6.4
31.9
0.3
31.7
210.1
Fee and commission income
Fee and commission expenses
3. Dividend income
in EUR million
Financial assets - held for trading
Financial assets - at fair value through profit or loss
Financial assets - available for sale
Dividend income from equity investments
Dividend income
4. Net trading and fair value result
in EUR million
Net trading result
Securities and derivatives trading
Foreign exchange transactions
Result from hedge accounting
Result from financial assets and liabilities designated at fair value through profit or loss
Result from measurement/sale of financial assets designated at fair value through profit or loss
Result from measurement/sale of financial liabilities designated at fair value through profit or loss
Net trading and fair value result
The amounts of the fair value changes that are attributable to changes in own credit risk is presented in Note 32 Financial liabilities – at fair
value through profit and loss. Additional information to hedge relationships are described in detail in Note 45 Hedge accounting.
5. Rental income from investment properties & other operating leases
in EUR million
Investment properties
Other operating leases
Rental income from investment properties & other operating leases
1-12 14
1-12 15
85.4
95.2
180.6
80.0
107.9
187.9
145
6. General administrative expenses
in EUR million
1-12 14
1-12 15
Personnel expenses
Wages and salaries
Compulsory social security
Long-term employee provisions
Other personnel expenses
Other administrative expenses
Deposit insurance contribution
IT expenses
Expenses for office space
Office operating expenses
Advertising/marketing
Legal and consulting costs
Sundry administrative expenses
Depreciation and amortisation
Software and other intangible assets
Owner occupied real estate
Investment properties
Customer relationships
Office furniture and equipment and sundry property and equipment
General administrative expenses
-2,184.2
-1,628.4
-423.9
-21.0
-110.9
-1,136.9
-87.6
-262.5
-248.3
-117.2
-167.8
-128.3
-125.3
-466.1
-150.4
-77.4
-103.4
-37.0
-97.8
-3,787.3
-2,244.6
-1,687.3
-433.1
-19.0
-105.2
-1,179.3
-99.6
-286.5
-237.7
-114.6
-167.4
-130.8
-142.7
-445.0
-163.2
-74.4
-105.9
-6.2
-95.4
-3,868.9
Personnel expenses include expenses of EUR 48.9 million (2014: EUR 60.7 million) for defined contribution plans, of which
EUR 1.8 million (2014: EUR 0.9 million) relate to members of the management board.
The increase of contributions to deposit insurance schemes in 2015 is attributable to contributions to a deposit insurance fund in the
amount of EUR 21.5 million that Austrian financial institutions had to pay for the first time in 2015. The impairment of customer relationship decreased in 2015, because the customer relationship of Banca Comerciala Romana was fully impaired in 2014 and the customer
relationship of Erste Card Club d.d. was fully amortised in 2015.
Average number of employees during the financial year (weighted according to the level of employment)
Domestic
Erste Group, EB Oesterreich and subsidiaries
Haftungsverbund savings banks
Abroad
Česká spořitelna Group
Banca Comercială Română Group
Slovenská sporiteľňa Group
Erste Bank Hungary Group
Erste Bank Croatia Group
Erste Bank Serbia Group
Savings banks subsidiaries
Other subsidiaries and foreign branch offices
Total
1-12 14
1-12 15
15,593
8,330
7,263
30,403
10,471
7,066
4,223
2,789
2,714
959
1,149
1,032
45,996
15,579
8,381
7,199
30,917
10,536
7,071
4,232
2,900
2,840
978
1,202
1,158
46,496
7. Gains/losses from financial assets and liabilities not measured at fair value through profit or loss, net
in EUR million
From sale of financial assets available for sale
From sale of financial assets held to maturity
From sale of loans and receivables
From repurchase of liabilities measured at amortised cost
Gains/losses from disposal of financial assets and liabilities not measured at fair value through profit or loss, net
1-12 14
1-12 15
32.2
3.6
-0.8
-16.8
18.3
84.3
1.7
-2.0
17.0
100.9
The carrying amount of investments in equity instruments measured at cost that were sold during the period was EUR 0.4 million
(2014: EUR 2.5 million). The resulting gain on sale was EUR 0.2 million (2014: EUR 0 million). In the line item ‘From sale of financial assets available for sale’ an income from 2015 in the amount of EUR 13.6 million (reclassification of the available for sale reserve
from other comprehensive income) is shown, which was realized due to the sale of shares in a foreign private equity fund.
146
8. Net impairment loss on financial assets not measured at fair value through profit or loss
in EUR million
1-12 14
restated
1-12 15
Financial assets - available for sale
Loans and receivables
Allocation to risk provisions
Release of risk provisions
Direct write-offs
Recoveries recorded directly to the income statement
Financial assets - held to maturity
Net impairment loss on financial assets not measured at fair value through profit or loss
-39.3
-2,044.9
-4,030.9
2,013.1
-227.5
200.5
0.4
-2,083.7
-62.2
-666.5
-2,620.1
1,839.0
-167.0
281.7
-0.4
-729.1
In the line item ‘Financial assets - available for sale’ an impairment of an equity holding is shown in the amount of EUR 30 million.
9. Other operating result
in EUR million
1-12 14
1-12 15
Result from properties/movables/other intangible assets other than goodwill
Allocation to/release of other provisions
Allocation to/release of provisions for commitments and guarantees given
Levies on banking activities
Banking tax
Financial transaction tax
Other taxes
Impairment of goodwill
Result from other operating expenses/income
Other operating result
-580.4
-57.7
-16.2
-256.3
-210.0
-46.3
-26.0
-475.0
-341.5
-1,752.9
-33.0
-243.0
-63.0
-236.2
-198.4
-37.8
-27.6
0.0
-32.8
-635.6
Operating expenses (including repair and maintenance) for ‘Investment properties’ not held for rental income totalled to EUR 1.3 million
(2014: EUR 1.0 million). Operating expenses (including repair and maintenance) for ‘Investment properties’ held for rental income totalled to
EUR 10.9 million (2014: EUR 12.0 million).
The amount of impairment loss on assets held for sale recognised in the result from other operating expenses/income is EUR -3.8 million
(2014: EUR -7.4 million).
Recovery and Resolution Fund
In the line ‘Result from other operating expenses/income’ contributions to the national resolution funds payable in 2015 for the first time
in the amount of EUR 51.3 million (2014: EUR 0 million) are disclosed. The contributions are based on the European Recovery and
Resolution Directive, which, inter alia, establishes a financing mechanism for the resolution of credit institutions. As a consequence,
banks are required to contribute annually to a resolution fund, which in a first step is installed on a national level. According to these
regulations, until December 31, 2024 the available financial means of the resolution funds shall reach at least 1% of the amount of covered deposits of all the credit institutions authorized within the European Union. Therefore the resolution funds have to be built over a
period of 10 years, during which the contributions shall be spread out as even as possible unil the target level is reached. The application
of the Directive in the European member state requires the transposition into national law. In Czech Republic the Recovery and Resolution Directive was not implemented into national law until year end 2015, therefore in 2015 no contribution expense of subsidiaries in
Czech Republic to resolution funds is included.
Foreign currency denominated loans in Croatia
In September 2015 the Croatian Parliament adoted changes in the legislation that allows debtors of Swiss franc loans to convert their
loans into euro loans at an exchange rate, which corresponds to the exchange rate at the time of origination of the loans. The purpose of
these legislative changes is, that the debtors of Swiss franc loans are placed by their banks in the same position that they would have been
in had their loans, from inception, been denominated in euros. The amendments came into force as of September 30, 2015. Due to the
amendments, a provision was built to cover the related expected losses amounting to EUR 129.5 million and is shown in the line ‘Allocation to/release of other provisions’.
147
Provision for litigations in Romania
In addition, an allocation of provision is shown in the balance sheet item ‘additions / reversals - Other provisions’ for risks related to
Romanian consumer protection claims Act amounting to EUR 101.6 million
2014: Foreign currency denominated loans in Hungary
As a result of a law formally passed by the Hungarian Parliament early in July 2014, Erste Bank Hungary is required to compensate its customers in the area of consumer loans provided since May 2004. The compensation refers to bid-ask exchange rate spreads applied by the bank
for disbursements and repayments of foreign exchange denominated loans and unilateral interest rate increases for both FX and HUF loans.
During November and December 2014 the Hungarian National Bank released three decrees stipulating the manner of settlement and
calculation methods for the compensation payments to affected customers. Based on these rules, the expense for compensating customers
regarding the bid-ask exchange rate spreads applied for disbursements and repayments amounts to EUR 304.4 million, disclosed under
other operating result. Thereof EUR 238 million relate to active loans and were netted with the respective exposures. The residual expense
of EUR 66.4 million relating to already closed loans are disclosed under ‘Other provisions’.
In November 2014 the Hungarian parliament issued the Conversion Law stipulating the compulsory conversion of defined fx denominated loans in February 2015 at a fixed exchange rate. As of the balance sheet date, the affected loans were translated with the legally fixed
exchange rate. The application of the law resulted in an expense of EUR 32.4 million shown under other operating result. On the other
hand an income from fx translation amounting to EUR 32.4 million (‘Result from other operating expenses/income’) is reported under net
trading and fair value result.
2014: Impairment of goodwill and other intangibles
Banca Comercială Română SA (BCR) significantly lowered its expectations of recovery for several large packages of non-performing
loans. In addition based on the instructions of the Romanian National Bank the sale of such non-performing portfolios has been accelerated.
In the light of the low price offers received for benchmark sales during the second quarter of 2014 the collaterals for such loans had to be
reassessed. This subsequently led to a significant rise of the risk costs and a decrease in the planned interest income on such nonperforming
loans. Due to these developments the residual goodwill as well as the customer list and the brand were fully impaired in the first half of
2014. In the course of the preparation of the annual report 2014 the underlying assumptions from the first half-year of 2014 have been
reviewed. This did not lead to any changes. Erste Bank Croatia (‘EBC’) had to accommodate local regulations introduced in 2014 regarding
higher capital requirements, therefore indicating a potential decrease in EBC`s future cash-generating capacity and distributable dividends.
This indication was deemed as potentially further affecting the cash generating unit of Steiermärkische Bank und Sparkassen Aktiengesellschaft (‘STMK’), which holds a significant participation in Erste Bank Croatia. As a result the goodwill Erste Bank Croatia (EBC) as well
as the goodwill allocated to Steiermärkische Bank und Sparkassen Aktiengesellschaft (STMK) has already been fully impaired in the first
half of 2014. The goodwill allocated to Girocredit was fully impaired in 2014 as a result of the impairment test performed.
The development of the goodwill of all subsidiaries (cash generating units) is presented in Note 27 Intangible Assets. In addition, the key
parameters and assumptions on which the impairment tests are based are summarized in this note.
Other impairments:
The main classes of assets affected by impairment losses where property plant and equipment, investment properties, intangible assets and
foreclosed assets. The main events that led to the recognition of impairment losses can be summarized as:
_ the intention to sell fixed assets and accordingly their re-measurement before reclassifying them based on IFRS 5,
_ not fully occupied buildings that triggered a lower recoverable amount
_ recurring measurement for foreclosed assets at the balance sheet date and
_ recurring measurement for internally used items of property at the balance sheet date and
_ concessions and other intangibles for which measurable economic benefits are no longer expected in the future
10. Taxes on income
Taxes on income are made up of current taxes on income calculated in each of the Group companies based on the results reported for tax
purposes, corrections to taxes on income for previous years and the change in deferred taxes.
148
in EUR million
Current tax expense / income
current period
prior period
Deferred tax expense / income
current period
prior period
Total
1-12 14
restated
1-12 15
-312.4
-287.8
-367.8
-354.4
-24.5
-13.4
-209.1
3.8
-207.6
4.9
-1.5
-521.5
-1.1
-363.9
The following table reconciles the income taxes reported in the income statement to the pre-tax profit/loss multiplied by the nominal
Austrian tax rate.
in EUR million
Pre-tax profit/loss
Income tax expense for the financial year at the domestic statutory tax rate (25%)
Impact of different foreign tax rates or imposition of new taxes
Impact of tax-exempt earnings of investments and other tax-exempt income
Tax increases due to non-deductible expenses, additional business tax and similar elements
Impact of the goodwill impairment recognized on Group level
Impact from taxable participation impairment / reversal eliminated upon consolidation (before related valuation assessment)
Tax loss carry-forward non-recoverable at the end of the prior period, reducing the current tax expense for the current period
Current period's impairment of deferred tax assets previously recognized through profit or loss in connection with temporary
deductible differences
Current period's impairment of deferred tax assets previously recognized in connection with tax loss carry-forward not yet expired
Current period's impairment of deferred tax assets previously recognized in connection with tax loss carry-forward, due to expiring of
the legally available carry-forward period
Current period's recognition/reversal of impairment through profit or loss of deferred tax assets in connection with temporary
deductible differences non-recoverable at the end of the prior period
Current period's recognition/reversal of impairment of deferred tax assets in connection with not yet used/not expired tax loss carryforward non-recoverable at the end of the prior period
Impact of current non-recoverable fiscal losses and temporary differences for the year
Tax income/(expense) not attributable to the reporting period
Total
1-12 14
restated
1-12 15
-727.7
181.9
-98.8
139.1
-147.0
-118.7
345.8
3.9
1,639.1
-409.8
62.2
108.1
-121.1
0.0
-25.8
9.6
-308.2
-32.2
-24.0
-3.9
-27.2
-0.4
4.7
117.7
0.4
-439.2
-26.0
-521.5
33.1
-95.1
-14.5
-363.9
As shown above Group's effective tax expense for the year 2015 has in contrast to 2014 not been negatively impacted as a whole by writeoffs of deferred tax assets.
The following table shows the tax effects relating to each component of other comprehensive income:
1-12 14
in EUR million
Available for sale-reserve (incl. currency translation)
Cash flow hedge-reserve (including currency translation)
Remeasurement of net liability of defined pension plans
Currency translation
Other comprehensive income
Before-tax
amount
581.2
172.8
-188.2
-63.1
502.7
1-12 15
Tax benefit
Net-of-tax
amount
Before-tax
amount
Tax benefit
Net-of-tax
amount
-180.8
-17.5
54.8
0.0
-143.5
400.4
155.3
-133.4
-63.1
359.2
-31.6
-27.4
101.0
91.0
133.0
27.7
8.2
-33.6
0.0
2.3
-3.9
-19.2
67.4
91.0
135.3
Taxes on income within other comprehensive income referring to the positions net liability of defined pension plans and to available for
sale-reserve are influenced by the consideration of impairment effects. Besides, the change of deferred taxes on the available for salereserve is influenced by differences of tax rates applicable on contrary changes within the available for sale-reserve.
11. Appropriation of profit
For the year 2015, Erste Group Bank AG posted a post-tax profit of EUR 872.7 million under the Austrian accounting regulations, which
increased its distributable capital accordingly (2014: EUR -5,822.8 million post-tax loss). Most of the loss in 2014 (EUR -5,554.0 million)
arose from a group internal merger between EGB Ceps Holding GmbH and EGB Ceps Beteiligungen GmbH with Erste Group Bank AG.
Consequently, a dividend distribution amounting to EUR 0.50 per share will be proposed at the forthcoming annual general meeting of
Erste Group Bank AG (2014 no dividend distribution)
149
12. Cash and cash balances
in EUR million
Cash on hand
Cash balances at central banks
Other demand deposits
Cash and cash balances
Dec 14
Dec 15
2,467
4,509
859
7,835
2,794
7,328
2,228
12,350
A portion of ‘Balances with central banks’ represents mandatory reserve deposits that are not available for use in the day-to-day operations of Erste Group.
13. Derivatives – held for trading
Dec 2014
in EUR million
Derivatives held in the trading book
Interest rate
Equity
Foreign exchange
Credit
Commodity
Other
Derivatives held in the banking book
Interest rate
Equity
Foreign exchange
Credit
Commodity
Other
Total gross amounts
Dec 2015
Notional value
Positive
fair value
Negative
fair value
Notional value
Positive
fair value
Negative
fair value
159,252
127,497
801
29,981
362
402
209
34,726
18,473
1,512
13,588
600
74
478
193,978
6,134
5,450
35
628
1
19
1
1,040
781
83
127
13
2
34
7,173
5,942
5,403
5
508
4
21
0
1,246
928
66
237
12
1
3
7,188
164,243
124,450
820
38,073
532
368
0
36,877
17,552
2,091
16,156
542
47
488
201,119
4,673
4,139
21
476
3
35
0
1,008
737
106
121
13
1
30
5,682
4,360
4,109
6
205
6
35
0
1,524
908
68
534
11
0
2
5,884
0
7,173
0
7,188
.
-379
5,303
-450
5,434
Offset
Total
Since the second quarter of 2015, Erste Group undertakes a part of interest rate derivative transactions via London Clearing House. Consequently, those derivatives are shown net of the respective cash collaterals in the balance sheet in accordance with the criteria described
in Chapter ‘B. Significant accounting policies’.
14. Other trading assets
in EUR million
Equity instruments
Debt securities
General governments
Credit institutions
Other financial corporations
Non-financial corporations
Loans and advances
Other trading assets
Dec 14
Dec 15
185
3,124
2,377
333
154
260
49
3,357
253
3,159
2,393
393
120
254
4
3,416
Dec 14
Dec 15
211
139
6
83
49
1
350
183
176
5
159
12
0
359
15. Financial assets - at fair value through profit or loss
in EUR million
Equity instruments
Debt securities
General governments
Credit institutions
Other financial corporations
Non-financial corporations
Financial assets - at fair value through profit or loss
150
16. Financial assets - available for sale
in EUR million
Dec 14
Dec 15
Equity instruments
Debt securities
General governments
Credit institutions
Other financial corporations
Non-financial corporations
Financial assets - available for sale
1,272
21,102
13,814
3,658
878
2,752
22,373
1,456
19,307
13,169
2,779
796
2,564
20,763
The carrying amount of investments in equity instruments measured at cost is EUR 71 million (2014: EUR 68 million). Of this, Erste
Group intends to dispose of investments in carrying amount of EUR 6 million (2014: EUR 2 million) through direct sales.
17. Financial assets – held to maturity
Gross carrying amount
Collective allowances
Net carrying amount
in EUR million
Dec 14
Dec 15
Dec 14
Dec 15
Dec 14
Dec 15
General governments
Credit institutions
Other financial corporations
Non-financial corporations
Total
15,024
1,024
242
590
16,879
16,050
1,010
194
449
17,703
0
-1
0
-1
-2
-1
-1
0
-1
-2
15,023
1,023
241
590
16,877
16,049
1,009
194
448
17,701
18. Securities
Dec 14
Dec 15
Financial assets
in EUR million
Bonds and other
interest-bearing securities
Listed
Unlisted
Equity-related securities
Listed
Unlisted
Equity holdings at cost
Total
Loans and
advances to
customers
and credit
institutions
694
0
694
0
0
0
0
694
Trading
assets
At fair
value
through
profit or
loss
Available
for sale
3,124
2,475
649
185
57
128
0
3,309
139
98
41
211
44
167
0
350
21,102
18,285
2,817
1,204
716
488
68
22,373
Financial assets
Held to
maturity
Loans and
advances to
customers
and credit
institutions
16,878
15,535
1,343
0
0
0
0
16,878
434
0
434
0
0
0
0
434
Trading
assets
At fair
value
through
profit or
loss
Available
for sale
Held to
maturity
3,159
2,866
293
253
235
18
0
3,413
176
141
35
183
34
149
0
359
19,307
18,209
1,098
1,385
683
702
71
20,763
17,701
16,875
826
0
0
0
0
17,701
Investment funds are disclosed within equity-related securities.
Held-to-maturity financial assets include bonds and other interest-bearing securities that are quoted in active markets and are intended to
be held to maturity.
Securities lending and repurchase transactions are disclosed in Note 42 Transfers of financial assets – repurchase transactions and securities lending.
During the financial year 2015, bond investments with a carrying amount of EUR 349.6 million (2014: EUR 273.4 million) were reclassified
from the category Financial assets – held to maturity to Financial assets – available for sale, of which EUR 334.5 million (2014:
EUR 228.9 million) was sold up to year-end. Reclassifications (and subsequent sales) in the amount of EUR 320.0 (2014: EUR 206.2 million)
were made considering that the related securities were maturing within 3 months from the sale dates (2014: within 2 months).
Consequently, a total adverse net effect of EUR 4.2 million (2014: EUR 0.2 million) was recognised in the income statement for the year,
whilst a further adverse effect of EUR 0.2 million (2014: EUR 3.6 million) was reflected in other comprehensive income in respect of
reclassified bonds not yet sold at year-end.
151
19. Loans and receivables to credit institutions
Loans and receivables to credit institutions
Gross carrying
amount
Specific
allowances
Collective
allowances
Net carrying
amount
As of 31 December 2015
Debt securities
Central banks
Credit institutions
Loans and advances
Central banks
Credit institutions
Total
268
0
268
4,551
1,260
3,290
4,819
0
0
0
-9
0
-9
-9
-1
0
-1
-4
0
-3
-5
267
0
267
4,538
1,260
3,278
4,805
As of 31 December 2014
Debt securities
Central banks
Credit institutions
Loans and advances
Central banks
Credit institutions
Total
442
74
368
7,019
2,163
4,857
7,461
0
0
0
-15
0
-15
-15
-1
0
-1
-3
0
-2
-4
440
74
366
7,002
2,162
4,840
7,442
in EUR million
In the balance sheet, loans and receivables to credit institutions are disclosed with the carrying amount net of any impairments.
Allowances for loans and receivables to credit institutions
in EUR million
Specific allowances
Debt securities
Central banks
Credit institutions
Loans and advances
Central banks
Credit institutions
Collective allowances
Debt securities
Central banks
Credit institutions
Loans and advances
Central banks
Credit institutions
Total
As of
Dec 14
Allocations
Use
Releases
-15
0
0
0
-15
0
-15
-3
-1
0
-1
-2
0
-2
-17
0
0
0
0
0
0
0
-12
0
0
0
-12
-2
-10
-12
5
0
0
0
5
0
5
0
0
0
0
0
0
0
5
1
0
0
0
1
0
1
13
0
0
0
13
2
10
14
Interest
income from
Exchangeimpaired rate and other
loans changes (+/-)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
-2
0
0
0
-2
0
-2
-2
As of
Dec 13
Specific allowances
Debt securities
Central banks
Credit institutions
Loans and advances
Central banks
Credit institutions
Collective allowances
Debt securities
Central banks
Credit institutions
Loans and advances
Central banks
Credit institutions
Total
152
-54
0
0
0
-54
0
-54
-1
0
0
0
-1
0
-1
-55
As of
Dec 15
Amounts
written off
Recoveries
of amounts
previously
written off
-8
0
0
0
-8
0
-8
-5
-2
0
-2
-3
0
-4
-13
-8
0
0
0
-8
0
-8
0
0
0
0
0
0
0
-8
7
0
0
0
7
0
7
0
0
0
0
0
0
0
7
-8
0
0
0
-8
0
-8
0
0
0
0
0
0
0
-8
4
0
0
0
4
0
4
0
0
0
0
0
0
0
4
As of
Dec 14
-5
0
0
0
-5
0
-5
-7
-1
0
-1
-6
0
-6
-12
46
0
0
0
46
0
46
0
0
0
0
0
0
0
46
64
3
0
3
62
1
60
8
0
0
0
8
0
8
73
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
-66
-3
0
-3
-64
-1
-62
-4
0
0
0
-4
0
-4
-70
-15
0
0
0
-15
0
-15
-3
-1
0
-1
-2
0
-2
-17
20. Loans and receivables to customers
Loans and receivables to customers
Gross carrying
amount
Specific
allowances
Collective
allowances
Net carrying
amount
As of 31 December 2015
Debt securities with customers
General governments
Other financial corporations
Non-financial corporations
Loans and advances to customers
General governments
Other financial corporations
Non-financial corporations
Households
Total
183
67
0
116
131,723
7,433
5,030
56,112
63,148
131,906
-14
0
0
-14
-5,262
-6
-154
-3,194
-1,907
-5,276
-2
-1
0
-1
-731
-14
-26
-424
-268
-733
167
66
0
102
125,729
7,412
4,849
52,495
60,973
125,897
As of 31 December 2014
Debt securities with customers
General governments
Other financial corporations
Non-financial corporations
Loans and advances to customers
General governments
Other financial corporations
Non-financial corporations
Households
Total
269
108
25
135
128,056
7,701
5,249
54,319
60,786
128,325
-13
0
0
-13
-6,710
-6
-142
-4,134
-2,428
-6,723
-2
-1
0
-1
-766
-14
-25
-440
-287
-768
254
107
25
122
120,580
7,681
5,082
49,745
58,071
120,834
in EUR million
In the balance sheet, loans and receivables to customers are disclosed with the carrying amount net of any impairments.
153
Allowances for loans and receivables to customers
in EUR million
Specific allowances
Debt securities with customers
General governments
Other financial corporations
Non-financial corporations
Loans and advances to customers
General governments
Other financial corporations
Non-financial corporations
Households
Collective allowances
Debt securities with customers
General governments
Other financial corporations
Non-financial corporations
Loans and advances to customers
General governments
Other financial corporations
Non-financial corporations
Households
Total
As of
Dec 2014
Allocations
Use
-6,723
-13
0
0
-13
-6,710
-6
-142
-4,134
-2,428
-768
-2
-1
0
-1
-766
-14
-25
-440
-287
-7,491
-2,168
-1
0
0
-1
-2,168
-3
-47
-1,272
-846
-439
0
0
0
0
-439
-8
-16
-213
-201
-2,608
2,222
0
0
0
0
2,222
2
22
1,295
904
0
0
0
0
0
0
0
0
0
0
2,222
Interest
income from
Exchangeimpaired rate and other
Releases
loans changes (+/-)
1,347
1
0
0
1
1,346
2
27
897
421
480
0
0
0
0
480
8
18
221
233
1,827
162
0
0
0
0
162
0
4
81
77
0
0
0
0
0
0
0
0
0
0
162
-116
-1
0
0
0
-115
-1
-18
-61
-35
-6
0
0
0
0
-6
0
-3
9
-12
-121
As of
Dec 13
restated
Specific allowances
Debt securities with customers
General governments
Other financial corporations
Non-financial corporations
Loans and advances to customers
General governments
Other financial corporations
Non-financial corporations
Households
Collective allowances
Debt securities with customers
General governments
Other financial corporations
Non-financial corporations
Loans and advances to customers
General governments
Other financial corporations
Non-financial corporations
Households
Total
154
-7,188
-9
0
0
-9
-7,179
-6
-183
-4,681
-2,310
-640
-2
0
0
-2
-638
-11
-16
-353
-258
-7,828
As of
Dec 2015
Amounts
written off
Recoveries
of amounts
previously
written off
-5,276
-14
0
0
-14
-5,262
-7
-154
-3,195
-1,907
-733
-2
-2
0
0
-731
-14
-26
-424
-268
-6,009
-159
0
0
0
0
-159
0
-3
-123
-34
0
0
0
0
0
0
0
0
0
0
-159
274
0
0
0
0
274
0
2
179
93
0
0
0
0
0
0
0
0
0
0
274
-220
-14
0
0
-14
-206
0
-2
-163
-40
0
0
0
0
0
0
0
0
0
0
-220
196
11
0
0
11
185
1
2
149
33
0
0
0
0
0
0
0
0
0
0
196
As of
Dec 14
-3,436
-11
0
0
-11
-3,425
-6
-95
-2,187
-1,137
-583
0
0
0
0
-583
-7
-27
-310
-239
-4,019
2,100
4
0
0
4
2,096
3
91
1,431
572
0
0
0
0
0
0
0
0
0
0
2,100
1,439
0
0
0
0
1,439
3
48
837
551
502
0
0
0
0
502
5
21
226
250
1,940
202
0
0
0
0
202
1
3
109
90
0
0
0
0
0
0
0
0
0
0
202
160
3
0
0
3
157
-1
-5
357
-194
-47
0
-1
0
2
-48
-1
-2
-4
-41
113
-6,723
-13
0
0
-13
-6,710
-6
-142
-4,134
-2,428
-768
-2
-1
0
-1
-766
-14
-25
-440
-287
-7,491
21. Impairment loss for financial instruments
The following table shows impairment losses according to the respective financial instruments. The disclosed amounts comprise allocations of risk provisions and provisions as well as direct write off expenses. However, releases of risk provisions and provisions together
with recoveries on written-off loans are not included.
in EUR million
Dec 14
restated
Dec 15
4,030
2,620
Net impairment loss on financial assets not measured at fair value through profit or loss
228
167
Net impairment loss on financial assets not measured at fair value through profit or loss
4,258
2,787
53
63
Net impairment loss on financial assets not measured at fair value through profit or loss
1
1
Net impairment loss on financial assets not measured at fair value through profit or loss
279
299
4,590
3,150
Allocations to risk provisions
Direct write offs
Impairment of loans and advances to
credit institutions and customers
Financial assets - available for sale
Financial assets - held to maturity
Contingent credit risk liabilities
Total
Position in Statement of Comprehensive Income
Net impairment loss on financial assets not measured at fair value through profit or loss
Other operating result (Note 9)
22. Derivatives – hedge accounting
Dec 14
in EUR million
Fair value hedges
Interest rate
Equity
Foreign exchange
Credit
Commodity
Other
Cash flow hedges
Interest rate
Equity
Foreign exchange
Credit
Commodity
Other
Total gross amounts
Offset
Total
Dec15
Notional value
Positive
fair value
Negative
fair value
Notional value
Positive
fair value
Negative
fair value
29,184
29,142
0
42
0
0
0
4,327
3,760
0
567
0
0
0
33,511
2,689
2,689
0
0
0
0
0
183
181
0
2
0
0
0
2,872
724
712
0
12
0
0
0
2
1
0
1
0
0
0
726
25,430
25,430
0
0
0
0
0
4,547
4,000
0
547
0
0
0
29,977
2,108
2,108
0
0
0
0
0
161
160
0
0
0
0
0
2,269
601
601
0
0
0
0
0
12
10
0
2
0
0
0
614
0
2,872
0
726
-77
2,192
-21
593
Since the second quarter of 2015, Erste Group undertakes a part of interest rate derivative transactions via London Clearing House. Consequently, those derivatives are shown net of the respective cash collaterals in the balance sheet in accordance with the criteria described
in chapter ‘B. Significant accounting policies’.
23. Equity method investments
in EUR million
Credit institutions
Financial institutions
Non-credit institutions
Total
Dec 14
Dec 15
86
45
63
195
87
40
39
167
In 2015, the carrying amount of the equity investment Let's Print Holding AG in the amount of EUR 16 million was reclassified from
balance sheet item ‘Investments in associates and joint venture’ – line ‘credit-institution’ – to item ‘Assets held for sale’.
155
The table below shows the aggregated financial information of companies accounted for using the equity method:
in EUR million
Total assets
Total liabilities
Income
Profit/loss
Dec 14
Dec 15
3,998
3,499
16
-68
4,249
3,761
176
42
None of Erste Group’s investments accounted for using the equity method published price quotations.
Significant equity method investments where the Erste Group has strategic interest
Dec 14
in EUR million
Country of Incorporation
Place of business
Main business activity
Ownership% held
Voting rights held%
IFRS Classification (JV/A)
Reporting currency
Dividend income received
Impairment loss recognized (cumulative basis)
Impairment loss recognized (for the reporting year)
Loan commitments, financial guarantees and other
commitments given
Dec 15
Let's Print VBV - Betriebliche
Holding AG Altersvorsorge AG
Austria
Austria
Austria
Austria
Prvá stavebná
Slovakia
Slovakia
Financing
building society
35%
35%
Associate
Euro
0
0
0
Printing Office
42%
42%
Associate
Euro
0
0
0
0
0
412
2,160
549
1,782
74
19
0
3
22
-3
109
-53
-7
Investee's financial information for the reporting year
Cash and cash balances
Other current assets
Non-current assets
Current liabilities
Non-current liabilities
Operating Income
Post-tax result from continuing operations
Post-tax result from discontinued operations
Other comprehensive income
Total comprehensive income
Depreciation and amortization
Interest income
Interest expense
Tax expense/income
Let's Print VBV - Betriebliche
Holding AG Altersvorsorge AG
Austria
Austria
Austria
Austria
Insurance
30%
27%
Associate
Euro
5
0
0
Prvá stavebná
Slovakia
Slovakia
Financing
building society
35%
35%
Associate
Euro
0
0
0
Printing Office
42%
42%
Associate
Euro
0
0
0
Insurance
30%
27%
Associate
Euro
7
0
0
0
0
0
0
0
6
34
96
29
78
237
4
0
0
4
-8
0
-3
-1
15
8
38
0
7
2
6
0
0
6
0
0
0
0
0
367
2,327
635
1,815
76
25
0
6
31
-4
109
-49
-7
6
34
88
26
68
231
5
0
0
5
-9
0
-2
0
8
9
40
0
2
2
7
0
0
7
0
0
0
0
16
0
0
16
85
0
0
85
14
2
0
16
16
0
0
16
Reconciliation of investee's net assets against equity investment's carrying amount
Net assets attributable to Erste Group
84
Carrying goodwill included in the cost of investment
0
Impairments (cumulative basis)
0
Carrying amount
84
13
6
0
20
The carrying amount of the equity investment Let’s Print Holding AG in the amount of EUR 16 million is disclosed in the balance sheet
under item ‘Assets held for sale’ (please see also Note 29 Assets held for sale and liabilities associated with assets held for sale).
Insignificant equity method investments
in EUR million
Investees' aggregated key financial information
Post-tax result from continuing operations
Post-tax result from discontinued operations
Other comprehensive income
Total comprehensive income
Loan commitments, financial guarantees and other commitments given
Carrying amount
156
Dec 14
Dec 15
Associates
Joint
Ventures
Associates
Joint
Ventures
20
0
3
23
0
0
0
0
6
0
0
7
0
0
0
0
0
0
0
0
75
0
58
7
24. Unconsolidated structured entities
Erste Group uses structured entities in the course of its business activity. The definition of structured entities as well as of interests in
structured entities is outlined in chapter ‘B. Significant Accounting Policies’.
Investment funds
Direct investments in own-managed and third-party-managed investment funds as well as management fees earned for the management of
investment funds by subsidiaries of Erste Group are classified as interests unconsolidated structured entities, if they are not consolidated.
Direct investments in investment funds. Erste Group is invested in several mutual funds as well as in private investment funds which
are registered in Austria, Central- and Eastern Europe or other countries. The majority of those funds is managed by subsidiaries of Erste
Group, the smaller part of the funds being managed by independent third parties. The investments in funds held by Erste Group do not
constitute material investments (basically below 20%) and mostly take the form of redeemable fund unit investments. They are measured
at fair value on the Group’s balance sheet, and are disclosed as equity instruments either under line item ‘Financial assets - available for
sale’ or ‘Financial assets - held for trading’.
Management Fees. Moreover, Erste Group earnes management fees for providing investment management services as fund manager
(by subsidiaries of Erste Group); meaning for making the investment decision for the funds under management of the relevant investment
fund.
The magnitude of the Group’s equity interests in unconsolidated investment funds may vary in the future depending on the future performance of their respective underlying assets, relevant market circumstances and opportunities, or regulatory requirements.
In the normal course of business activity, the Group is involved in trading derivative transactions with own-managed unconsolidated
funds. Also, for shorter or longer periods, some of the own-managed unconsolidated funds may make placements in debt securities issued
by Erste Group entities or in bank deposits held with Erste Group banks. In limited instances, Erste Group Bank AG provides capital
performance guarantees to unconsolidated own-managed funds.
Securitization vehicles
Erste Group is also involved as an investor in a number of unconsolidated securitisation vehicles sponsored and managed by unrelated
third parties in foreign jurisdictions. The interests of the Group in these entities mostly take the form of bond investments, the majority of
which are classified as available for sale and therefore measured at fair value on the Group’s balance sheet. Almost 95% of the exposure
on unconsolidated securitisations relates to bond investments maturing beyond 1 year. At year end the remaining, weighted average maturity of those debt securities is slightly more than 7 years.
Others
To a lesser extent, Erste Group is also exposed (notably as lender) to unconsolidated structured entities having other business activities,
primarily real estate project-based.
Maximum exposure to unconsolidated structured entities
Erste Group’s maximum exposure to losses from its interests in unconsolidated structured entities is equal to the total fair value of its fund
units, bond investments, trading derivative assets, provided loans and off-balance sheet commitments and guarantees as of the respective
balance sheet date.
The table below summarises the Group’s business relations to unconsolidated structured entities per balance sheet line item, business
activity and business location. The summary includes the assets identified as impaired at year-end, as well as related net impairment
losses/gains incurred during the year. The carrying amounts of the exposures summarized below are mostly referring to assets already
measured at fair value in the balance sheet of the Group. The carrying amounts of the remaining exposures (notably held to maturity
investments) are materially similar to their fair values.
157
Dec 15
in EUR million
Assets
Equity instruments, thereof:
Available for sale
Fair value through profit or loss
Debt securities, thereof:
Available for sale
Fair value through profit or loss
Held to maturity
Loans and receivables
Trading derivatives
Non-current equities held for sale
Total assets
thereof impaired
Net Impairment (losses)/gains for the year
On-balance sheet exposure analysis per
jurisdiction
Austria
Central and Eastern Europe
Other jurisdictions
Liabilities
Equity Instruments
Debt securities issued
Deposits
Trading derivatives
Total liabilities
Off balance-sheet commitments
Investment Funds
Ownmanaged
Third-party
managed
579
499
80
1
0
0
0
30
13
0
622
0
0
Securitization vehicles
Total
Ownmanaged
Third-party
managed
Total
Other
Total
289
188
100
0
0
0
0
0
0
0
289
0
-4
868
687
180
1
0
0
0
30
13
0
911
0
-4
0
0
0
0
0
0
0
0
0
0
0
0
0
1
1
0
639
0
0
0
0
0
0
639
1
0
1
1
0
639
0
0
0
0
0
0
639
1
0
0
0
0
0
0
0
0
87
3
0
90
0
0
868
688
180
640
0
0
0
117
16
0
1,641
1
-4
579
43
0
622
199
21
69
289
777
65
69
911
0
0
0
0
7
50
583
639
7
50
583
639
0
90
0
90
784
205
652
1,641
1
117
1,104
26
1,248
0
0
0
0
0
1
117
1,104
26
1,248
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
3
14
0
17
1
120
1,118
26
1,265
126
0
126
0
0
0
6
131
In 2015, investments in private equity funds in the amount of EUR 52.8 million were sold due to regulatory reasons (for more details
please refer to Note 29 Assets held for sale and liabilities associated with assets held for sale). The following table for the comparative
period 2014 indicates those investments in the position ‘Non-current equities held for sale’.
The investments in unconsolidated securitization vehicles will presumably be sold in the next years. Some debt securities that are classified as held to maturity were excluded.
158
Dec 14
in EUR million
Assets
Equity instruments, thereof:
Available for sale
Fair value through profit or loss
Debt securities, thereof:
Available for sale
Fair value through profit or loss
Held to maturity
Loans and receivables
Trading derivatives
Non-current equities held for sale
Total assets
thereof impaired
Net Impairment (losses)/gains for the year
On-balance sheet exposure analysis per
jurisdiction
Austria
Central and Eastern Europe
Other jurisdictions
Liabilities
Debt securities issued
Deposits
Trading derivatives
Total liabilities
Off balance-sheet commitments
Investment Funds
Ownmanaged
Third-party
managed
359
308
51
1
1
0
0
0
39
0
399
12
-1
Securitization vehicles
Total
Ownmanaged
Third-party
managed
Total
Other
Total
694
426
268
0
0
0
0
0
0
53
747
20
-2
1,053
734
319
1
1
0
0
0
39
53
1,146
32
-2
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1,221
1,071
38
112
0
0
0
1,221
51
3
0
0
0
1,221
1,071
38
112
0
0
0
1,221
51
3
0
0
0
0
0
0
0
101
4
0
105
0
0
1,053
734
319
1,221
1,072
38
112
101
43
53
2,472
83
0
341
58
0
399
490
30
228
747
830
88
228
1,146
0
0
0
0
0
0
1,221
1,221
0
0
1,221
1,221
0
105
0
105
830
193
1,449
2,472
186
1,134
6
1,326
0
0
0
0
186
1,134
6
1,326
0
0
0
0
0
0
0
0
0
0
0
0
0
14
0
14
186
1,148
6
1,340
87
0
87
0
0
0
6
93
In 2015 Erste Group has extended the classification of interests in unconsolidated structured investment funds. The figures for the comparative period 2014 in the line ‘Deposits’ were adjusted accordingly.
159
25. Non controlling interest
HV Savings Banks, thereof
Dec 15
in EUR million
Country of Incorporation
Place of business
Main business activity
Ownership% held by NCI
Reporting currency
Dividends paid to equity holders of the parent
Net result attributable to non-controlling interests
Accumulated NCI
Subsidiary-level stand-alone key financial information
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Operating income
Profit or loss from continuing operations
Total comprehensive income
Total
Sparkasse
Oberösterreich
Sparkasse
Steiermark
Sparkasse
Kärnten
Austria
Austria
Banking
50.1%-100%
Euro
22
282
3,562
Austria
Austria
Banking
60%
Euro
5
33
454
Austria
Austria
Banking
75%
Euro
4
63
776
Austria
Austria
Banking
75%
Euro
1
15
190
13,643
46,378
35,973
18,913
1,534
382
424
4,071
7,982
8,104
3,101
283
65
84
1.936
10,854
6,447
5,275
312
96
100
475
3,309
1,692
1,818
99
21
28
Total
Sparkasse
Oberösterreich
Sparkasse
Steiermark
Sparkasse
Kärnten
Austria
Austria
Banking
50.1%-100%
Euro
92
179
3,252
Austria
Austria
Banking
60%
Euro
4
17
464
Austria
Austria
Banking
75%
Euro
4
42
729
Austria
Austria
Banking
75%
Euro
0
12
185
18,060
41,328
28,735
25,871
1,482
184
88
4,624
7,590
8,090
3,352
271
29
22
1,285
11,601
2,111
9,803
314
56
72
440
3,331
776
2,748
94
17
20
HV Savings Banks, thereof
Dec 14
in EUR million
Country of Incorporation
Place of business
Main business activity
Ownership% held by NCI
Reporting currency
Dividends paid to equity holders of the parent
Net result attributable to non-controlling interests
Accumulated NCI
Subsidiary-level stand-alone key financial information
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Operating income
Profit or loss from continuing operations
Total comprehensive income
160
26. Property, equipment and Investment properties
a) At cost
Property and equipment - Acquisition and production costs
in EUR million
Balance as of 1 January 2014
Additions in current year (+)
Disposals (-)
Acquisition of subsidiaries (+)
Disposal of subsidiaries (-)
Reclassification (+/-)
Assets held for sale (-)
Currency translation (+/-)
Balance as of 31 December 2014
Additions (+)
Disposals (-)
Acquisition of subsidiaries (+)
Disposal of subsidiaries (-)
Reclassification (+/-)
Assets held for sale (-)
Currency translation (+/-)
Balance as of 31 December 2015
Land and
Office and plant
buildings (used equipment / other
by the Group)
fixed assets
2,783
135
-24
12
-1
-95
-92
-13
2,704
133
-73
15
-1
9
-14
18
2,791
990
48
-57
3
0
1
0
-4
982
128
-59
0
-2
-1
0
4
1,052
IT assets
(hardware)
Movable other
property
Property and
equipment
Investment
properties
645
42
-54
0
0
2
0
-4
632
66
-73
0
-1
-2
0
1
624
419
130
-96
34
-3
49
-10
9
532
165
-124
0
0
-2
-4
15
581
4,837
355
-232
48
-4
-42
-102
-12
4,849
493
-328
15
-3
3
-18
37
5,049
1,444
91
-39
26
-27
-41
-17
-5
1,432
67
-95
18
-116
0
-131
8
1,183
b) Accumulated depreciation
Property and equipment - Accumulated depreciation
in EUR million
Balance as of 1 January 2014
Amortisation and depreciation (-)
Disposals (+)
Acquisition of subsidiaries (-)
Disposal of subsidiaries (+)
Impairment (-)
Reversal of impairment (+)
Reclassification (+/-)
Assets held for sale (+)
Currency translation (+/-)
Balance as of 31 December 2014
Amortisation and depreciation (-)
Disposals (+)
Acquisition of subsidiaries (-)
Disposal of subsidiaries (+)
Impairment (-)
Reversal of impairment (+)
Reclassification (+/-)
Assets held for sale (+)
Currency translation (+/-)
Balance as of 31 December 2015
Land and
Office and plant
buildings (used equipment / other
by the Group)
fixed assets
-1,053
-79
35
-4
1
-13
2
39
2
5
-1,065
-73
48
0
0
-30
3
-5
6
-8
-1,123
-769
-53
59
-2
1
0
0
-17
0
3
-779
-51
29
0
1
-1
0
0
0
-2
-802
IT assets
(hardware)
Movable other
property
Property and
equipment
Investment
properties
-538
-46
52
0
0
-1
0
0
0
4
-530
-46
66
0
0
0
0
2
0
-1
-510
-156
-70
57
-12
3
-1
1
-29
0
-4
-211
-68
64
0
0
-4
2
2
9
-6
-212
-2,516
-248
203
-18
4
-16
3
-7
2
8
-2,585
-238
206
0
2
-34
5
-1
15
-18
-2,647
-494
-30
16
-6
4
-13
4
34
1
2
-481
-26
37
0
37
-9
0
-2
18
-4
-429
IT assets
(hardware)
Movable other
property
Property and
equipment
Investment
properties
101
114
321
369
2,264
2,402
950
753
c) Carrying amounts
Property and equipment - carrying amounts
in EUR million
Balance as of 31 December 2014
Balance as of 31 December 2015
Land and
Office and plant
buildings (used equipment / other
by the Group)
fixed assets
1,639
1,668
203
250
The carrying amount of investment properties includes investment properties under operating leases in the amount of EUR 159 million
(2014: EUR 198 million).
In the reporting period, borrowing costs of EUR 6.3 million (2014: EUR 6.3 million) were capitalised. The related interest rates ranged
from 0.5% to 3.1% (2014: from 0.5% to 1.5%).
161
The carrying amount of expenditures recognised in the items fixed assets and investment properties during their construction is
EUR 51.5 million (2014: EUR 42.9 million). The contractual commitments for purchase of fixed assets and investment properties are
EUR 81.4 million (2014: EUR 123.9 million).
In 2015, the new headquarter of Erste Group Austria has been completed. As a result, EUR 72.5 million in land and buildings and
EUR 38 million in office and plant equipment as well as other fixed assets are recorded as acquisitions during the reporting period. Further acquisitions in office and plant equipment and other fixed assets are related to the new equipment of branches of Erste Bank Oesterreich in the amount of EUR 11.8 million.
In 2015 land and buildings were impaired in the amount of EUR 22 million in Ceská spořitelna a.s.. As of 31 December 2015, the recoverable amount of these impaired assets amounted to EUR 10.7 million.
27. Intangible assets
a) At cost
Intangible assets - Acquisition and production costs
in EUR million
Balance as of 1 January 2014
Additions in current year (+)
Disposals (-)
Acquisition of subsidiaries (+)
Disposal of subsidiaries (-)
Reclassification (+/-)
Assets held for sale (-)
Currency translation (+/-)
Balance as of 31 December 2014
Additions (+)
Disposals (-)
Acquisition of subsidiaries (+)
Disposal of subsidiaries (-)
Reclassification (+/-)
Assets held for sale (-)
Exchange-rate changes (+/-)
Balance as of 31 December 2015
Goodwill
Customer
relationships
Brand
Software
acquired
Self-constructed
software within
the Group
Others
(licenses,
patents, etc.)
Total
3,924
0
0
0
0
0
0
8
3,932
0
0
0
0
0
0
-20
3,912
771
0
0
0
0
0
0
3
774
1
0
0
0
0
0
-6
769
289
0
0
0
3
0
0
-1
291
0
0
0
0
0
0
-3
288
1,237
133
-43
2
4
-53
0
-11
1,268
119
-33
1
-1
-6
0
9
1,356
333
50
-20
0
0
53
0
3
419
87
-12
0
-1
4
0
0
498
411
6
-5
0
2
-3
0
-3
408
6
-23
1
0
-1
-1
6
396
6,965
189
-69
2
9
-3
0
-1
7,092
213
-69
2
-2
-3
-1
-13
7,219
Self-constructed
software within
the Group
Others
(licenses,
patents, etc.)
Total
-248
-28
20
0
0
-6
0
-44
0
0
-306
-37
12
0
0
-4
0
-3
0
0
-338
-263
-18
4
0
-2
-19
0
19
0
3
-276
-18
21
0
0
0
0
-1
0
-6
-280
-4,524
-187
45
-1
-8
-988
0
2
0
10
-5,650
-173
53
0
1
-5
0
3
1
17
-5,753
b) Accumulated depreciation
Intangible assets - Accumulated depreciation
in EUR million
Balance as of 1 January 2014
Amortisation and depreciation (-)
Disposals (+)
Acquisition of subsidiaries (-)
Disposal of subsidiaries (+)
Impairment (-)
Reversal of impairment (+)
Reclassification (+/-)
Assets held for sale (+)
Currency translation (+/-)
Balance as of 31 December 2014
Amortisation and depreciation (-)
Disposals (+)
Acquisition of subsidiaries (-)
Disposal of subsidiaries (+)
Impairment (-)
Reversal of impairment (+)
Reclassification (+/-)
Assets held for sale (+)
Currency translation (+/-)
Balance as of 31 December 2015
162
Goodwill
-2,685
0
0
0
-475
0
0
0
0
-3,161
0
0
0
0
0
0
0
0
20
-3,142
Customer
relationships
Brand
Software
acquired
-480
-37
0
0
0
-193
0
0
0
-2
-712
-6
0
0
0
0
0
0
0
6
-712
0
0
0
0
-3
-291
0
0
0
3
-291
0
0
0
0
0
0
0
0
3
-288
-847
-103
21
-1
-3
-4
0
28
0
7
-904
-112
21
0
1
-1
0
7
0
-6
-994
c) Carrying amounts
Intangible assets - carrying amounts
in EUR million
Balance as of 31 December 2014
Balance as of 31 December 2015
Goodwill
Customer
relationships
Brand
Software
acquired
Self-constructed
software within
the Group
Others
(licenses,
patents, etc.)
Total
771
771
62
57
0
0
364
362
113
159
132
116
1,442
1,464
The contractual commitments for the purchase of intangible assets amount to EUR 18.4 million.
As of 31 December 2015 the customer relationship Ringturm Kapitalanlagegesellschaft m.b.H. amounted to EUR 53 million (2014:
EUR 57 million). The remaining amortization period of the customer relationship in Ringturm Kapitalanlagegesellschaft m.b.H. is 12.8
years.
As of 31 December 2014, the customer relationship and distribution network of Erste Card Club d.d. Croatia was reported in the amount
of EUR 1.2 million in the respective balance sheet item and fully amortized in 2015. The customer relationship and the brand recognized
for Banca Comercială Română were fully impaired in 2014 and consequently amounted to EUR 0 million as of 31 December 2014.
Development of goodwill
The changes in the carrying amount of goodwill, as well as gross amounts and accumulated impairment losses of goodwill, for the years
ended 31 December 2015 and 2014 are shown below by country of subsidiary:
Romania
Czech
Republic
Slovakia
Hungary
Croatia
Austria
Other
countries
Total
Balance as of 1 January 2014
Acquisitions
Disposals
Impairment losses
Exchange rate changes
Balance as of 31 December 2014
Gross amount of goodwill
Cumulative impairment
313
0
0
-319
6
0
2,251
-2,251
544
0
0
0
1
545
545
0
226
0
0
0
0
226
226
0
0
0
0
0
0
0
313
-313
61
0
0
-61
1
0
114
-114
94
0
0
-94
0
0
363
-363
0
0
0
0
0
0
120
-120
1,239
0
0
-475
8
771
3,932
-3,161
Balance as of 1 January 2015
Acquisitions
Disposals
Impairment losses
Exchange rate changes
Balance as of 31 December 2015
Gross amount of goodwill
Cumulative impairment
0
0
0
0
0
0
2,251
-2,251
545
0
0
0
-1
544
544
0
226
0
0
0
0
226
226
0
0
0
0
0
0
0
313
-313
0
0
0
0
0
0
114
-114
0
0
0
0
0
0
363
-363
0
0
0
0
0
0
120
-120
771
0
0
0
-1
771
3,931
-3,161
in EUR million
In the goodwill development summary presented above, all relevant entities (cash generating units) are grouped by country of domicile of
the relevant subsidiaries. The gross amounts of the goodwill elements presented above are the amounts as determined at the time of the
related acquisitions, less accumulated impairments until 31 December 2015, including the effects of exchange rate changes.
The goodwill elements having non-nil carrying amounts as at 31 December 2014 have been assessed for objective evidence of impairment
on a quarterly basis throughout the year 2015. Due to the lack of objective evidence, the goodwill impairment assessment for the year
2015 addressed the following subsidiaries (cash generating units):
_ Česká spořitelna a.s. (‘CSAS’)
_ Slovenská sporiteľňa a.s. (‘SLSP’)
163
The analysis per subsidiary (cash generating unit) of both the carrying goodwill as at 31 December 2015 (1 January 2015) and of the
impairment losses recognised for the year 2015 (2014) is presented in the table below. The table also summarizes the key elements of the
approach taken in designing and performing the goodwill impairment test as at the end of 2015.
CSAS
Carrying amount of goodwill as of 1 January 2015
Effect of exchange rate changes for the year 2015
Basis upon which recoverable amount has been determined
Key input parameters into the discounted cash flow model
Description of approach to determining value
assigned to risk free rate
Description of approach to determining values
assigned to terminal growth rate
Description of approach to determining values
assigned to β factor
Description of approach to determining values
assigned to market risk premium
Period of cash flow projection (years)
Discount rate applied to cash flow projections (pre-tax)
The value assigned to β Factor
Amount of goodwill impairment loss
recognised in profit or loss for the year 2015
Post-impairment carrying amount of goodwill
as of 31 December 2015
SLSP
545
226
0
0
Value in Use (discounted cash flow model based)
Risk Free Rate, Terminal Growth Rate, β Factor, Market Risk Premium
Risk Free Rate has been set at 1.29% p.a. throughout relevant Group's CGUs based on relevant financial
statistics published by Deutsche Bundesbank as at the reference date 31 October 2015
For non-Austrian (CEE) CGUs: Terminal Growth Rate has been equated to 3.00%, representing the
recommended cap level for the Terminal Growh Rate, as per the report ESMA/2013/2 ‘European Enforcers
Review of Impairment of Goodwill and Other Intangible Assets in the IFRS Financial Statements’ published by
the European Securities and Markets Authority (ESMA).
Set as the median value of a group of levered β factors attributable to a sample of ‘peer banks’ representative
of the tested banks (CGUs), as published by Bloomberg as of the reference date 31 October 2015.
Set at 6.5% throughout relevant Group's CGUs based on publicly available evaluations by the Austrian
Chamber of Commerce (Kammer der Wirtschaftstreuhänder).
5 years (2016 -2020); extrapolation to perpetuity based on Terminal Growth Rate
12.45%
12.90%
1.182
1.182
-1
0
544
226
In respect of the assessed cash generating units located outside the eurozone, an inflation differential has been considered in the determination of the discount rates applicable to the related 2016-2020 cash flow projections.
The comparative summary at subsidiary-level as at 31 December 2014 is presented below:
Carrying amount of goodwill
as of 1 January 2014
Effect of exchange rate changes
for the year 2014
Basis upon which recoverable amount has
been determined
Key input parameters into the discounted
cash flow model
Description of approach to determining value
assigned to risk free rate
BCR
CSAS
EBC
SLSP
STMK
GIRO
313
544
61
226
40
54
6
1
1
0
0
0
Value in Use (discounted cash flow model based)
Risk Free Rate, Terminal Growth Rate, β Factor, Market Risk Premium
Risk Free Rate has been set at 1.93% p.a. throughout relevant Group's CGUs based on relevant financial statistics
published by Deutsche Bundesbank as at the reference date 14 November 2014
For Austrian CGUs: Terminal Growth Rate has been equated to 1.00% reflecting the expected Austrian annual average long-term
inflation rate. For non-Austrian (CEE) CGUs: Terminal Growth Rate has been equated to 3.00%, representing the recommended
cap level for the Terminal Growh Rate, as per the report ESMA/2013/2 ‘European Enforcers Review of Impairment of Goodwill
Description of approach to determining values and Other Intangible Assets in the IFRS Financial Statements’ published by the European Securities and Markets Authority
assigned to terminal growth rate
(ESMA).
Description of approach to determining values Set as the median value of a group of levered β factors attributable to a sample of ‘peer banks’ representative of the tested
assigned to β factor
banks (CGUs), as published by Bloomberg as of the reference date 14 November 2014.
Description of approach to determining values Set at 6.25% throughout relevant Group's CGUs based on publicly available evaluations by the Austrian Chamber of
assigned to market risk premium
Commerce (Kammer der Wirtschaftstreuhänder).
Period of cash flow projection (years)
5 years (2015 -2019); extrapolation to perpetuity based on Terminal Growth Rate
Discount rate applied to cash flow projections
(pre-tax)
14.04%
12.17%
14.49%
12.91%
12.28%
15.30%
The value assigned to β Factor
1.121
1.121
1.121
1.121
1.379
1.033
Amount of goodwill impairment loss
recognised in profit or loss for the year 2014
-319
0
-61
0
-40
-54
Post-impairment carrying amount of goodwill
as of 31 December 2014
0
545
0
226
0
0
In connection with those tested cash-generating units for which no goodwill impairment loss was determined as of 31 December 2015, the
table below summarises the outcome of the sensitivity analysis performed to determine by how much the key input parameters into the
applied discounted cash flow models would need to vary adversely in order to cause the unit’s calculated recoverable amount to decrease
down to its related carrying amount:
164
Growth rates
Amount by which recoverable amount exceeds carrying amount
Risk free rate increase that would cause recoverable amount to equal carrying amount (basis points)
Terminal growth rate decrease that would cause recoverable amount to equal carrying amount (basis points)
β factor increase that would cause recoverable amount to equal carrying amount (coefficient value)
Market risk premium increase that would cause recoverable amount to equal carrying amount (basis points)
CSAS
SLSP
2,568
4.52%
-19.23%
0.695
3.82%
668
3.05%
-13.27%
0.469
2.58%
CSAS
SLSP
1,834
3.27%
-14.45%
0.524
2.92%
341
1.69%
-6.24%
0.271
1.51%
As of 31 December 2014, the comparative sensitivity analysis figures were as follows:
Growth rates
Amount by which recoverable amount exceeds carrying amount
Risk free rate increase that would cause recoverable amount to equal carrying amount (basis points)
Terminal growth rate decrease that would cause recoverable amount to equal carrying amount (basis points)
β factor increase that would cause recoverable amount to equal carrying amount (coefficient value)
Market risk premium increase that would cause recoverable amount to equal carrying amount (basis points)
28. Tax assets and liabilities
Net variance 2015
in EUR million
Temporary differences relate to the following items:
Loans and advances to credit institutions and customers
Financial assets - available for sale
Property and equipment (useful life in tax law different)
Amortisation of investments in subsidiaries (tax-effective in
subsequent years)
Financial liabilities measured at amortized cost (deposits and
debt securities issued)
Long-term employee provisions (tax valuation different)
Other provisions (tax valuation different)
Tax loss carry-forward
Customer relationships, brands and other intangibles
Other
Effect of netting gross deferred tax position
Total deferred taxes
Current taxes
Total taxes
Tax assets
2015
Tax assets Tax liabilities Tax liabilities
2014
2015
2014
Total
Through
profit or loss
Through other
comprehensive income
238
12
31
227
2
25
-38
-245
-27
-24
-334
-31
-3
99
11
-3
93
11
0
7
0
47
46
-9
0
-8
-8
0
172
94
56
101
0
629
-1,071
310
119
429
97
117
53
104
3
206
-577
301
107
409
0
-3
-8
0
-15
-822
1,071
-96
-90
-186
0
-3
-7
0
-14
-261
577
-99
-91
-190
75
-23
2
-3
-3
-138
0
12
13
24
75
-1
2
-3
-3
-160
0
4
-368
-364
0
-21
0
0
0
17
0
2
0
2
The deferred tax positions presented above at the granularity level of their respective underlying sources (these are: temporary differences
between the IFRS-accounting and the tax values of assets and liabilities, and accumulated tax losses) are measured prior to subsidiarylevel balance-sheet netting of attributable gross deferred tax assets and gross deferred tax liabilities and before consideration of consolidation effects. Also, except for the deferred tax assets attributable to tax loss carry-forward and to amortisation of investments in subsidiaries
(tax-effective in subsequent years), that the impacts of the impairment recordings of the afore-described recoverability assessments could
be distinctly allocated to, the amounts presented above are before those impacts of impairment recordings on the respective potential
deferred tax asset positions, that are calculated at entity level.
The remaining effects of impairment, that could not be distinctly allocated to the issue-related deferred tax positions in the table above and
also the consolidation effects, are included in the row "Other" together with the other deferred tax positions not being shown separately in
the table above.
Out of the total net amount of EUR 12 million (2014: EUR -359 million) representing the year-on-year variance in the Group’s consolidated net deferred tax position, an amount of EUR 4 million (2014: EUR -209 million) is reflected as net deferred tax expense in the
Group’s income statement for the year 2015, whilst an amount of EUR 2 million (2014: EUR -143 million) represents the impact in the
Grou’s other comprehensive income for the year. The remaining EUR 6 million (2014: EUR -7 million) is attributable to other categories
of variances in the consolidated net deferred tax position, notably due to direct movements in equity, foreign exchange differences, and
changes in the consolidation scope.
165
The Group's consolidated deferred tax asset position in amount of EUR 310 million as at 31 December 2015 (2014: EUR 301 million) is
expected to be recoverable in the foreseeable future. In spite of losses in the current or prior period for the components of the group affected this recoverability is also expected to be the case for their amounts of deferred tax assets which are exceeding their deferred tax
liabilities by an amount of EUR 218 million as at 31 December 2015 (2014: EUR 180 million). These expectations result from year-end
recoverability assessments undertaken by the Group's entities, either at individual level, or at relevant tax group level. Such assessments
are comparing net temporary deductible differences and available fiscal losses at year-end – after offsetting with deferred tax liabilities at
individual level or at relevant tax group level - with fiscal profit forecasts for a group-wide unified and unchanged time horizon of a maximum 5 years depending on the fiscal jurisdiction and applicable facts and circumstances. If the result of these assessments is negative,
the deferred tax asset positions are correspondingly not recorded and the already existing deferred tax asset positions are correspondingly
depreciated.
In 2015 for the Group as a whole there was a slight increase in the deferred tax assets in comparison to 2014. The effect mainly results
from an increase in the Austrian Tax Group and in Croatia as well as from an adverse effect in Romania. The increase in the Austrian Tax
Group is based on a better forecast for the 5 year-planning period. In Croatia, it was possible to capitalize additional deferred tax assets
for tax losses - based on a one time effect in 2015 - due to a still positive forecast. This one time effect is caused by a change in legislation
Hence, it was compulsatory to convert CHF-loans into EUR-loans. In Romania tax losses in 2015 were consumed due to the positive
result. Therefore the deferred tax assets on tax loss carry-forward decreased.
Further information on total tax expense is provided in Note 10.
In accordance with IAS 12.39, no deferred tax liabilities were recognized for temporary differences relating to investments in subsidiaries
with an amount of EUR 1,517 million (31 December 2014: EUR 1,016 million), as they are not expected to reverse in the foreseeable
future. As at 31 December 2015, no deferred tax assets were recognized for tax loss carry-forward and deductible temporary differences
with a total amount of EUR 5,960 million, of which EUR 3,361 million relates to tax loss carry-forward (31 December 2014:
EUR 6,336 million, of which EUR 3,107 million relates to tax loss carry-forward), as they are not expected to be realized in the foreseeable future. The figure comprises an amount of EUR 241 million (31 December 2014: EUR 412 million) representing temporary differences in connection with investments in subsidiaries no deferred tax assets have been recognized for in accordance with IAS 12.44.
From the total of the not recorded deferred tax assets related to tax loss carry-forward in the following period EUR 1 million will expire
(31 December 2014: EUR 1 million) and in later periods EUR 148 million (31 December 2014: EUR 118 million), EUR 620 million
(31 December 2014: EUR 623 million) will not expire.
29. Assets held for sale and liabilities associated with assets held for sale
in EUR million
Assets held for sale
Liabilities associated with assets held for sale
Dec 14
Dec 15
291
0
526
578
As of the end of 2015, ‘Assets held for sale’ include mainly land and buildings in amount of EUR 381 million (2014: EUR 169 million).
The increase in land and buildings is caused by decreased operating activities in the area of leasing within the countries Croatia, Romania
and Slovenia as well as the area of project development. As a result, sales in real estate increase within the countries mentioned above.
As of 31 December 2014, investments in private equity funds in the amount of EUR 53 million as well as movable properties in the
amount of EUR 69 million were presented in the line item ‘Assets held for sale’.
In addition, as of 31 December 2015, the balance sheet items ‘Assets held for sale’ and ‘Liabilities associated with assets held for sale’
include the disposal group Sparkasse Bank Malta plc. The shares in Sparkasse Bank Malta plc. shall be transferred to third parties through
a non-cash distribution.
Having met the qualifying criteria of IFRS 5, Sparkasse Bank Malta plc is presented in Erste Group consolidated financial statement for
the financial year ending 31 December 2015 as a disposal group held for sale. The assets and liabilities of Sparkasse Bank Malta plc are
disclosed under the balance sheet line items ‘Assets held for sale’ and ‘Liabilities associated with assets held for sale’. In compliance with
the disclosure requirements of IFRS 5, the assets and liabilities of Sparkasse Bank Malta plc were not reclassified in the statements of
financial positions of previous periods. Prior to the reclassification as a disposal group held for sale in the consolidated balance sheet of
Erste Group, an impairment test of the non-financial assets of Sparkasse Bank Malta plc according to IAS 36 was performed. According
to this impairment test, no impairment was recognized for the non-financial assets of the disposal group.
166
The carrying amounts of the assets and liabilities of Sparkasse Bank Malta plc as of 31 December 2015 are as follows:
in EUR million
Dec 15
Assets
Cash and cash balances
Financial assets - available for sale
Loans and receivables to credit institutions
Loans and receivables to customers
Property and equipment
Intangible assets
Other assets
Total assets
42
68
12
3
1
1
2
129
Liabilities
Financial liabilities measured at amortised cost
Deposits from banks
Deposits from customers
Current tax liabilities
Other liabilities
Total liabilities
575
3
572
2
0
578
As of 31 December 2015, in ‘Other comprehensive income’ no accumulated income or expense of Sparkasse Malta plc is included.
30. Other assets
in EUR million
Prepayments and accrued income
Inventories
Sundry assets
Other assets
Dec 14
Dec 15
218
471
934
1,623
197
270
750
1,217
‘Sundry assets’ consist mainly of clearing items from the settlement of securities and payment transactions as well as advanced payments
for assets under construction. The decrease in the line item ‘Inventories’ in the amount of EUR 84 million was predominantly caused by
deconsolidation of subsidiaries as well as reclassifications of real estate project developments in the amount of EUR 49 million to the
balance sheet line item ‘Assets held for sale’.
31. Other trading liabilities
in EUR million
Dec 14
Dec 15
422
139
283
47
88
558
382
191
191
51
0
434
Short positions
Equity instruments
Debt securities
Debt securities issued
Sundry trading liabilities
Other trading liabilities
The decrease in other trading liabilities concerns deposits which were classified as financial liabilities held for trading.
32. Financial liabilities – at fair value through profit and loss
Carrying amount
in EUR million
Financial liabilities - at fair value through profit or
loss
Deposits from banks
Deposits from customers
Debt securities issued
Other financial liabilities
Delta between carrying amount
and amount repayable
Amount repayable
Dec 14
Dec 15
Dec 14
Dec 15
Dec 14
Dec 15
2,073
0
320
1,753
0
1,907
0
149
1,758
0
2,503
0
748
1,755
0
1,880
0
150
1,731
0
- 431
0
-428
-3
0
26
0
-1
27
0
167
Fair value changes that are attributable to changes in own credit risk
For reporting period
in EUR million
Financial liabilities - at fair value through profit or loss
Deposits from banks
Deposits from customers
Debt securities issued
Other financial liabilities
Cumulative amount
1-12 14
1-12 15
Dec 14
Dec 15
3.1
0.0
0.5
2.7
0.0
- 8.7
0.0
-0.9
-7.8
0.0
53.2
0.0
-1.2
54.4
0.0
40.5
0.0
0.3
40.3
0.0
In 2015 the fair value of ‘financial liabilities at fair value through profit or loss’ decreased due to changes in own credit risk in the amount
of EUR 8.7 million (2014: increase of EUR 3.1 million). The cumulative increase due to the change of own credit risk amounts to
EUR 40.5 million as of 31 December 2015 (31 December 2014: 53.2 million)
Debt securities issued
in EUR million
Dec 14
Dec 15
276
276
0
0
1,477
1,086
0
77
315
0
0
1,753
423
423
0
0
1,335
953
0
74
308
0
0
1,758
in EUR million
Dec 14
Dec 15
Overnight deposits
Term deposits
Repurchase agreements
Deposits from banks
1,913
11,975
914
14,803
3,272
9,665
1,275
14,212
Subordinated liabilities
Subordinated issues and deposits
Supplementary capital
Hybrid issues
Other debt securities issued
Bonds
Certificates of deposit
Registered bonds/other certificates
Mortgage covered bonds
Public sector covered bonds
Other
Debt securities issued
33. Financial liabilities measured at amortised costs
Deposits from banks
168
Deposits from customers
in EUR million
Dec 14
Dec 15
65,103
17,314
0
165
1,556
15,592
47,790
3,301
3,396
14,576
26,517
56,609
52,013
35,725
0
1,221
1,258
33,246
16,289
1,260
2,965
3,930
8,133
4,595
0
43
108
4,444
550
290
213
48
0
122,263
73,716
19,066
0
191
1,154
17,721
54,651
3,398
4,402
16,625
30,225
53,671
48,842
34,142
0
1,060
1,447
31,635
14,700
1,764
2,153
3,006
7,776
4,829
0
69
163
4,597
410
304
11
95
0
127,797
4,851
8,003
21,476
87,933
5,466
7,886
22,490
91,955
in EUR million
Dec 14
Dec 15
Subordinated liabilities
Subordinated issues and deposits
Supplementary capital
Hybrid issues
Other debt securities issued
Bonds
Certificates of deposit
Other certificates of deposits/name certificates
Mortgage covered bonds
Public sector covered bonds
Other
Debt securities issued
5,482
4,182
942
357
23,905
13,017
281
591
6,911
2,838
266
29,387
5,815
5,068
393
354
22,081
11,355
120
1,138
7,699
1,559
209
27,896
Overnight deposits
Savings deposits
General governments
Other financial corporations
Non-financial corporations
Households
Non-savings deposits
General governments
Other financial corporations
Non-financial corporations
Households
Term deposits
Deposits with agreed maturity
Savings deposits
General governments
Other financial corporations
Non-financial corporations
Households
Non-savings deposits
General governments
Other financial corporations
Non-financial corporations
Households
Deposits redeemable at notice
General governments
Other financial corporations
Non-financial corporations
Households
Repurchase agreements
General governments
Other financial corporations
Non-financial corporations
Households
Deposits from customers
General governments
Other financial corporations
Non-financial corporations
Households
Debt securities issued
In 1998, Erste Group Bank AG launched a EUR 30,000,000,000 Debt Issuance Programme (DIP). The current DIP is a programme for
issuing debt instruments in various currencies and maturities with a limited range of interest rate structures. In 2015, 105 new bonds with
a total volume of approximately EUR 1.7 billion were issued under the DIP.
In July 2014, the Credit Linked Notes Programme was implemented. In 2015, 39 new bonds with a total volume of EUR 42 million were
issued. At the same time the Equity Linked Notes Programme was implemented, under which 99 new bonds with a total volume of
EUR 298 million were issued.
169
Furthermore, secured and senior unsecured registered notes (‘Namenspfandbriefe’ and ‘Namensschuldverschreibungen’), as well as other
bonds that were not part of the above mentioned programmes were issued with a volume of EUR 100 million.
The Euro Commercial Paper and Certificates of Deposit Programme has an overall volume of EUR 10 billion. In all, 15 issues amounting
to EUR 0.6 billion were placed in 2015. Issues totalling approximately EUR 0.6 billion were redeemed over the same period.
34. Provisions
in EUR million
Long-term employee provisions
Pending legal issues and tax litigation
Commitments and guarantees given
Provisions for guarantees - off balance sheet (defaulted customers)
Provisions for guarantees - off balance sheet (non-defaulted customers)
Other provisions
Provisions for onerous contracts
Other
Provisions
Dec 14
Dec 15
1,158
163
241
141
99
91
5
86
1,653
1,010
258
297
179
118
171
5
166
1,736
a) Long-term employee provisions
in EUR million
Pensions
Severance
payments
Jubilee
payments
Total
73
76
76
0
0
0
0
5
2
-6
0
0
0
0
0
11
-1
87
34
53
34
53
1,295
1,309
1,258
0
0
0
-6
17
43
-101
0
189
1
0
11
-1
1,411
253
300
253
1,158
87
0
0
0
0
6
2
-7
0
0
0
0
0
1
-2
87
33
54
33
54
1,411
0
0
0
0
20
29
-96
0
0
-99
-6
0
1
-2
1,258
248
269
248
1,010
Present value of long-term employee benefit obligations 31 Dec 2011
Present value of long-term employee benefit obligations 31 Dec 2012
Present value of long-term employee benefit obligations 31 Dec 2013
Increase from acquisition of subsidiaries
Decrease from disposal of subsidiaries
Settlements
Curtailments
Service cost
Interest cost
Payments
Exchange rate difference
Components recognised in other comprehensive income (Remeasurements)
Actuarial gains/losses arising from changes in financial assumptions
Actuarial gains/losses arising from changes from experience assumptions
Actuarial gains/losses recognised in income
Actuarial gains/losses arising from changes in financial assumptions
Actuarial gains/losses arising from changes from experience assumptions
Present value of long-term employee benefit obligations 31 Dec 2014
Obligations covered by plan assets
Obligations covered by provisions
Less fair value of plan assets
Provisions as of 31 Dec 2014
825
823
787
0
0
0
0
0
27
-69
0
114
1
0
0
858
0
0
0
858
397
410
395
0
0
0
-6
12
14
-26
0
75
2
0
0
0
466
219
247
219
247
Present value of long-term employee benefit obligations 31 Dec 2014
Increase from acquisition of subsidiaries
Decrease from disposal of subsidiaries
Settlements
Curtailments
Service cost
Interest cost
Payments
Exchange rate difference
Components recognised in other comprehensive income (Remeasurements)
Actuarial gains/losses arising from changes in financial assumptions
Actuarial gains/losses arising from changes from experience assumptions
Actuarial gains/losses recognised in income
Actuarial gains/losses arising from changes in financial assumptions
Actuarial gains/losses arising from changes from experience assumptions
Present value of long-term employee benefit obligations 31 Dec 2015
Obligations covered by plan assets
Obligations covered by provisions
Less fair value of plan assets
Provisions as of 31 Dec 2015
858
0
0
0
0
0
17
-69
0
0
-64
-1
0
0
0
741
0
0
0
741
466
0
0
0
0
14
10
-20
0
0
-35
-5
0
0
0
430
215
215
215
215
170
Actuarial assumptions
The actuarial calculation of pension obligations is based on the following assumptions:
in %
Interest rate
Expected increase in retirement benefits
Dec 14
Dec 15
2.0
2.0
2.45
1.7
The expected retirement age for each employee was individually calculated on the basis of the changes set out in the Budget Implementation Act of 2003 (Austrian Federal Law Gazette Vol. I No. 71/2003) regarding the increase in the minimum retirement age. The currently
applicable legislation on the gradual raising of the retirement age for men and women to 65 was taken into consideration.
The actuarial calculation of severance payment and jubilee provisions is based on the following assumptions:
in %
Interest rate
Average increase in salary (incl. career trend and collective agreement trend)
Dec 14
Dec 15
2.0
2.9
2.45
2.6
Obligations were calculated in accordance with the Pagler & Pagler mortality tables entitled ‘AVÖ 2008 P – Rechnungsgrundlagen für die
Pensionsversicherung’.The effects of CEE countries are insignificant compared to Austrian entities for which the data is in the table.
Interest rates in the following ranges were used for these countries 2.25% (previously: 2.25%) to 4.4% (previously: 4.4%).
The movement in plan assets during the reporting period was as follows:
Severance
payments
Jubilee
payments
Total
Fair value of plan assets as of 31 December 2013
Addition
Interest income on plan assets
Contributions by the employer
Benefits paid
Return on plan assets recognised in other comprehensive income (excluding amounts already recognised in
interest income) - remeasurements
Return on plan assets recognised in P&L
Fair value of plan assets as of 31 December 2014
194
0
7
29
-15
32
0
1
5
-4
226
0
8
34
-19
4
0
219
0
0
34
4
0
253
Addition
Interest income on plan assets
Contributions by the employer
Benefits paid
Return on plan assets recognised in other comprehensive income (excluding amounts already recognised in
interest income) - remeasurements
Return on plan assets recognised in P&L
Fair value of plan assets as of 31 December 2015
0
4
8
-13
0
1
3
-5
0
5
11
-18
-3
0
215
0
0
33
-3
0
248
in EUR million
In 2015, the expected contributions for the severance and jubilee benefit obligations will amount to EUR 9.8 million (2015:
EUR 10.3 million). The actual gain (loss) on plan assets amounted to EUR 2.0 million (2014: EUR 12.0 million).
Investment strategy
The primary investment strategy of Erste Group is the continuous optimization of plan assets and the effective coverage of existing entitlements. The Group works with professional fund managers for the investment of plan assets. The Investment Fund Act applies as a
requirement with respect to specific investment guidelines relating to the investment of plan assets.
Additionally, the Investment Committee which is composed of senior staff in the financial sector and representatives of the
s-Versicherung and Erste Asset Management meets once a year.
Erste Group`s severance payments and jubilee provisions are partially covered by the fair value of plan assets, while defined benefit pension plans are not financed with segregated assets. Defined benefit pension plans only exist for already retired employees. More than 90%
of the pension plans are dedicated for former employees of Austrian entities of Erste Group. In total the majority of plans are not matched
with dedicated assets.
171
For the yearly pension provisions of the unfunded defined benefit plans and the unfunded part of severance payment provisions Erste
Group generally takes care within its asset-liability management strategy covering the funding plan and interest rate risk position of the
Group. The payments for 2016 are expected with EUR 77 million for both plans.
The average duration of these provisions are assumed to be 11.17 years for severance payment provisions and 8.05 years for defined
benefit pension provisions.
Control and Risk
The effective allocation of plan assets is determined by the administering body including the relevant existing economic and market conditions as well as considering specific risks of the individual asset classes and the risk profile. Moreover the Investment Committee is
responsible for monitoring the mandate guidelines and the investment structure, the supervision, which may arise from regulatory or other
legal requirements, as well as the monitoring of demographic changes. As an additional steering tool the fund management generates a
report, which is transmitted on a quarterly basis to the Group.
Overall, the Group tries to minimize the impact caused by market movements on the pension plans.
Asset Allocation in the different asset classes
The following table presents the asset allocation of pension plans in the different asset classes:
Dec 14
in EUR million
Cash and cash equivalents
Equity instruments
Investment-grade bonds
Government
Non-government bonds
Non-investment-grade bonds
Government
Non-government bonds
Alternatives
Commodities
Other
Derivatives (Market risk)
Interest rate risk
Credit risk
Equity price risk
Foreign exchange risk
Other
Plan assets
EuropeEMU
Europenon EMU
0
1
Dec 15
USA
Other
countries
Total
EuropeEMU
Europenon EMU
USA
Other
countries
0
1
0
9
Total
0
4
13
15
0
4
0
5
0
7
0
11
23
27
50
40
1
14
1
0
5
0
57
55
92
25
4
18
4
0
8
0
107
43
0
65
0
17
0
5
0
0
0
87
0
12
0
4
11
11
0
2
12
29
0
0
0
1
0
0
0
10
0
12
0
0
0
1
0
0
0
4
0
6
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
14
253
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2
248
In the table above, Investment-grade means BBB and above.
The following table presents profit or loss effects for post- employment defined- benefits plans (pensions and severance payments).
in EUR million
Curtailments
Service cost
Net interest
Total
Dec 14
Dec 15
6
-17
-35
-46
0
-20
-24
-44
Curtailments and service costs are included in the income statement under the line item ‘General administrative expenses’. Net interest is
included in the income statement under the line item ‘Net interest income’. In 2015 the cumulative amount of remeasurements recognised
in other comprehensive income was EUR -471.9 million (2014: EUR -572.9 million).
Sensitivity to Key Assumption
The following table presents, the sensitivity analysis for each significant actuarial assumption showing how the defined benefit obligation
would have been affected by changes in the relevant actuarial assumptions that were reasonably possible at the balance sheet date.
172
in EUR million
Change in discount rate + 1.0%
Change in discount rate -1.0%
Change in future salary increases + 0.5%
Change in future salary increases -0.5 %
Change in future benefit increases + 0.5%
Change in future benefit increases -0.5%
Increase in survival rate by aprox. 10%
Changepensions
Changeseverance
payments
Total
677
801
734
734
711
791
682
365
454
429
385
406
406
406
1,042
1,255
1,163
1,119
1,117
1,197
1,088
Impact on Cash Flows
The following table reflects the benefits expected to be paid by the defined benefit plans in each of the respective periods:
in EUR million
2016
2017
2018
2019
2020
2021-2025
Pensions
Severance
payments
Total
65
63
60
58
56
244
12
15
17
32
37
198
77
78
77
90
93
442
Duration
The following table presents the weighted average duration of the defined-benefit obligations as of year-end 2015:
in years
Pensions
Severance
payments
Total
Duration
8.72
11.17
9.59
Exchange-rate
and other
changes (+/-)
As of Dec 15
b) Sundry provisions
Sundry provisions 2015
in EUR million
Pending legal issues and tax
litigation
Commitments and guarantees
given
Provisions for guarantees off balance sheet
(defaulted customers)
Provisions for guarantees off balance sheet
(non-defaulted customers)
Other provisions
Provisions for onerous contracts
Other
Provisions
As of Dec 14
Allocations
Use
Releases
Interest income
from
impaired loans
164
141
-8
-38
0
-1
258
240
299
-6
-236
1
-2
297
141
172
-5
-129
1
-1
179
99
83
5
77
488
127
255
1
255
695
0
-148
0
-148
-162
-107
-39
0
-39
-313
0
0
0
0
1
-1
20
-1
21
16
118
171
5
166
725
Under position pending legal issues and tax litigations out of lending business, asset management or litigations with customer protection
association, which normally occur in banking business, are disclosed. In 2015, a provision was recognised in the amount of EUR 101.6
million for for risks related to Romanian consumer protection claims Act amounting to EUR 101.6 million. Erste Group does not expect
that these legal cases will have a material impact on the Group’s financial position.
In 2015, among others, provisions wer allocated for expected losses resulting from legislation requiring the conversion of customer loans
(Swiss francs to euro) in Croatia and for contributions to the recovery and resolution fund. For additional detail, please see note 9 Other
operating result.
The level of sundry provisions is the best possible estimate of expected outflow of economic benefits at the reporting date, while taking
into account the risks and uncertainties underlying the commitment to fulfill the obligation. Risks and uncertainties are taken into account
in the estimate.
173
Sundry provisions 2014
As of Dec 13
Allocations
Use
Releases
Interest income
from
impaired loans
172
32
-4
-28
0
-6
164
218
279
-7
-263
1
11
240
119
140
-6
-122
1
9
141
99
25
0
25
415
138
62
5
57
372
0
-5
0
-5
-16
-140
-8
0
-8
-299
0
0
0
0
1
2
9
0
9
14
99
83
5
77
488
Dec 14
Dec 15
233
2,076
2,310
232
2,084
2,317
in EUR million
Dec 14
Dec 15
Subscribed capital
Share capital
Additional paid-in capital
Retained earnings
Owners of the parent
Non-controlling interests
Total
860
860
1,478
7,500
9,838
3,605
13,444
860
860
1,478
8,668
11,005
3,802
14,807
in EUR million
Pending legal issues and tax
litigation
Commitments and guarantees
given
Provisions for guarantees
- off balance sheet
(defaulted customers)
Provisions for guarantees
- off balance sheet
(non-defaulted customers)
Other provisions
Provisions for onerous contracts
Other
Provisions
Exchange-rate
and other
changes (+/-)
As of Dec 14
35. Other liabilities
in EUR million
Deferred income and accrued fee expenses
Sundry liabilities
Other liabilities
Sundry liabilities consist mainly of clearing items from the settlement of securities and payment transactions.
36. Total equity
As of 31 December 2015, subscribed capital (also known as registered capital) consists of 429.800.000 (2014: 429.800.000) voting bearer
shares (ordinary shares). The pro rata amount of registered capital, per no-par value share, was EUR 2.00. Additional paid-in capital (or
share premium) represents the amount by which the issue price of the shares exceeded their par value. Retained earnings and other reserves represent accumulated net profit brought forward, as well as income and expenses recognised in other comprehensive income.
Changes in number of shares and participation capital securities
Shares in units
Dec 14
Dec 15
Shares outstanding as of 1 January
Acquisition of treasury shares
Disposal of treasury shares
Capital increases due to ESOP and MSOP
Capital increase
Shares outstanding as of 31 December
Treasury shares
Number of shares as of 31 December
415,076,934
-26,726,833
21,590,534
0
0
409,940,635
19,859,365
429,800,000
409,940,635
-9,793,323
10,340,502
0
0
410,487,814
19,312,186
429,800,000
Weighted average number of shares outstanding
427,533,286
426,726,297
0
0
0
0
427,533,286
426,726,297
Dilution due to MSOP/ESOP
Dilution due to options
Weighted average number of shares taking into account the effect of dilution
174
Transactions and shares held by the management board and supervisory board
The shares of management- and supervisory board member, whose office term began or ended during the financial year, held as at the
date of inception or termination of their term in office were recognized as additions or disposals.
Information on shares held and transactions in Erste Group Bank AG shares by members of the management board (in number of shares):
Managing board member
Andreas Treichl
Peter Bosek (starting with 1 January 2015)
Petr Brávek (starting with 1 April 2015)
Andreas Gottschling
Franz Hochstrasser (until 31 December 2014)
Herbert Juranek (until 31 December 2014)
Gernot Mittendorfer
Jozef Síkela (starting with 1 January 2015)
Dec 14
Additions
Disposals
Dec 15
164,640
0
0
0
15,260
656
10,000
0
0
1,000
0
0
0
0
0
5,500
0
0
0
0
-15,260
-656
0
0
164,640
1,000
0
0
0
0
10,000
5,500
Supervisory board members held the following numbers of Erste Group Bank AG shares as of the balance sheet date of 31 December 2015:
Supervisory board member
Dec 14
Additions
Disposals
Dec 15
Friedrich Rödler
Georg Winckler (until 12 May 2015)
Jan Homan
Bettina Breiteneder
Elisabeth Bleyleben Koren
Gonzalo Gortàzar Rotaeche (starting with 12 Mai 2015)
Gunter Griss
Maximilian Hardegg (starting with 12 May 2015)
Elisabeth Krainer Senger-Weiss
Antonio Massanell Lavilla (starting with 12 May 2015)
Brian D. O'Neill
Wilhelm Rasinger
John James Stack
Markus Haag
Regina Haberhauer (starting with 12 May 2015)
Andreas Lachs
Bertram Mach (until 25 June 2015)
Barbara Pichler
Jozef Pinter (starting with 25 June 2015)
Karin Zeisel
1,702
2,500
4,400
0
10,140
0
0
0
0
0
0
18,303
32,761
160
0
52
95
281
0
35
0
0
0
0
0
0
0
40
0
0
0
0
0
0
188
0
0
0
0
0
0
-2,500
0
0
0
0
0
0
0
0
0
0
0
0
0
0
-95
0
0
0
1,702
0
4,400
0
10,140
0
0
40
0
0
0
18,303
32,761
160
188
52
0
281
0
35
As of 31 December 2015, supervisory board members did not hold options in Erste Group Bank AG shares. Persons related to members
of the management board or supervisory board held 3,366 shares of Erste Group Bank AG.
Remaining authorised and contingent capital as of 31 December 2015
Clause 5 of the articles of association authorises the management board until 21 May 2019, to increase the registered capital of the company with the consent of the supervisory board – including in several tranches – by an amount of up to EUR 171,800,000 by issuing up to
85,900,000 voting no-par value bearer shares in return for contributions in cash and/or in kind, with the issue price and the issuing conditions being determined by the management board with the consent oft he Supervisory Board.
Furthermore, the management board is authorized to fully or partly exclude the statutory subscription right of the shareholders with the
consent of the supervisory board if the capital increase is in return for a cash contribution and the shares issued while excluding the subscription right of the shareholders, taken together, do not exceed EUR 43,000,000 and/or if the capital increase is in return for contributions in kind.
The measures in sections 5.1.1 (capital increase against cash contribution) to 5.1.2 (capital increase against contributions in kind) can also
be combined. The aggregate pro rata amount of registered capital represented by shares in respect of which the shareholders’ subscription
rights are excluded under this authorization in section 5.1 (authorized capital) together with the pro rata amount of registered capital attributable to shares to which conversion or subscription rights or obligations relate under bonds that were issued and sold on the basis of
the authorization in section 8.3, subject to an exclusion of subscription rights, on or after 21 May 2014 must not, however, exceed the
amount of EUR 171,800,000.
175
Clause 6.3 of the articles of association states that conditional capital based on the resolutions of the management board in 2002 and 2010
with a nominal value of EUR 21,923,264 persists that can be consumed by issuing up to 10,961,632 ordinary bearer shares or ordinary
registered shares (ordinary share) with an issue price of at least EUR 2.00 per share against cash contribution and by excluding the subscription rights of the current shareholders. This conditional capital is used for granting options to staff, management and members of the
management board of the entity o of one of its related undertakings.
Under clause 6.4 of the articles of association, the company has conditional capital of EUR 124,700,000.00 available, which may be
utilized by issuing up to 62,350,000 pieces bearer shares. This conditional capital can be used for granting conversion or subscription
rights to holders of convertible bonds. In case the terms and conditions of the convertible bonds provide for a mandatory conversion, it
shall also serve to cover the mandatory conversion. The issue price and exchange ratio shall be determined pursuant to a recognized pricing method on the basis of accepted finance-mathematical methods and the share price of the company.
According to clause 7 of the articles of association, currently no authorized conditional capital exists.
37. Segment reporting
Erste Group’s segment reporting is based on IFRS 8 Operating Segments, which adopts the management approach. Accordingly, segment
information is prepared on the basis of internal management reporting that is regularly reviewed by the chief operating decision maker to
assess the performance of the segments and make decisions regarding the allocation of resources. Within Erste Group the function of the
chief operating decision maker is exercised by the management board.
Erste Group’s segment reporting is based on the matrix organisation (business and geographical information) and provides comprehensive
information to assess the performance of the business and geographical segments.
Business segmentation
The segment reporting comprises nine business segments reflecting Erste Group’s management structure and its internal management
reporting in 2015.
Erste Group – business segments
Retail
SME
ALM &
Local CC
Savings
Banks
Large
Corporates
Commercial
Real Estate
Other
Corporate
Group
Markets
Group
Corporate
Center
Intragroup
Elimination
Retail
The Retail segment comprises the entire business with private individuals, free professionals and micros in the responsibility of account
managers in the retail network of the local banks cooperating with their specialized subsidiaries (such as leasing and asset management
companies). Retail products and services including current and savings accounts, mortgage and consumer loans, investment products,
credit cards and cross selling products such as leasing, insurance, and building society products are offered via various distribution channels (branch networks and digital banking).
SME
The SME segment comprises the business with micros, small and medium-sized enterprises (SMEs), small public sector companies, and
small financial institutions (e.g. third party leasing companies) in the responsibility of local corporate account managers. Local banks
cooperate with specialized subsidiaries such as factoring and leasing companies. The turnover threshold for SMEs varies from country to
country within the range of EUR 0.7 million and EUR 75 million.
Asset/Liability Management & Local Corporate Center
The Asset/Liability Management & Local Corporate Center (ALM & LCC) segment includes all asset/liability management functions
(local and Erste Group Bank AG) as well as the local corporate centers which comprise internal service providers that operate on a nonprofit basis and reconciliation items to local entity results. The corporate center of Erste Group Bank AG is included in the Group Corporate Center segment.
176
Savings Banks
The Savings Banks segment includes the savings banks which are members of the Haftungsverbund (cross-guarantee system) of the Austrian savings banks sector except for Erste Bank Oesterreich, Tiroler Sparkasse, Salzburger Sparkasse, Sparkasse Hainburg.
Large Corporates
The Large Corporates (LC) segment comprises the business with large corporate customers whose annual turnover exceeds a defined
threshold that starts from EUR 25 million and EUR 75 million respectively, depending on the country.
Commercial Real Estate
The Commercial Real Estate (CRE) segment covers the real estate value chain (lending, leasing, real estate investment, project development and construction services as well as infrastructure business) for corporate clients, project developers, real estate investors, municipalities and other public sector agencies.
Other Corporate
The Other Corporate segment consists of two operating segments – International Business and Investment Banking – that are below the
threshold criteria defined by IFRS 8. International Business comprises all lending and investing activities outside Erste Group’s core
markets (including the branches in London, Hong Kong and New York) and is responsible for business development with and credit line
management for banks and non-banking financial institutions. Investment Banking covers equity-related business focusing mainly on
corporate finance, equity capital markets services, equity brokerage (institutional sales) and merchant banking.
Group Markets
The Group Markets (GM) segment comprises the divisionalised business units Group Treasury and Capital Markets (except Equity Capital Markets) and includes the treasury activities of Erste Group Bank AG, the CEE subsidiaries, foreign branch offices in Hong Kong,
New York, Berlin and Stuttgart as well as the business with institutional clients of Erste Asset Management. The focus is on clientoriented business with institutional clients. Group Markets is the internal trading unit for all classic treasury (such as FX, commodities
and money market) and capital market products (such as bonds, interest rate derivatives, credit products).
Group Corporate Center
The Group Corporate Center (GCC) segment covers mainly centrally managed activities and items that are not directly allocated to other
segments. It comprises the corporate center of Erste Group Bank AG (and thus dividends and the refinancing costs from participations,
general administrative expenses), internal non-profit service providers (facility management, IT, procurement), amortization/write-down
of customer relationships and brand, goodwill impairments, the banking tax of Erste Group Bank AG as well as free capital of Erste
Group (defined as the difference of the total average IFRS equity and the average economical equity allocated to the segments).
Comparative figures for 2014 contained several one-off effects that did not recur in 2015. Thus, in 2014 the write-down of the entire
remaining value of customer relationships and brand in Romania totaled EUR 470.7 million. Goodwill impairments amounted to
EUR 475.0 million, whereby Romania accounted for EUR 319.1 million, Croatia for EUR 61.4 million and Austrian participations for
EUR 94.5 million.
Intragroup Elimination
Intragroup Elimination (IC) is not defined as a segment but is the reconciliation to the consolidated accounting result. It includes all intragroup eliminations between participations of Erste Group (e.g. intragroup funding, internal cost charges). Intragroup eliminations within partial groups are disclosed in the respective segments.
Geographical segmentation
For the purpose of segment reporting by geographical areas the information is presented based on the location of the booking entity (not
the country of risk). In case of information regarding a partial group, the allocation is based on the location of the respective parent entity.
Geographical areas are defined according to the country markets in which Erste Group operates. Based on the locations of the banking
and other financial institution participations, the geographical areas consist of two core markets, Austria and Central and Eastern Europe
and a residual market Other that comprises the remaining business activities of Erste Group outside its core markets as well as the reconciliation to the consolidated accounting result.
177
Erste Group – geographical segmentation
Austria
EBOe &
Subsidiaries
Savings
Banks
Central and Eastern Europe
Other
Austria
Czech
Republic
Slovakia
Romania
Hungary
Other
Croatia
Serbia
The geographical area Austria consists of the following three segments:
_ The Erste Bank Oesterreich & Subsidiaries (EBOe & Subsidiaries) segment comprises Erste Bank der oesterreichischen Sparkassen AG (Erste Bank Oesterreich) and its main subsidiaries (e.g. sBausparkasse, Salzburger Sparkasse, Tiroler Sparkasse, Sparkasse
Hainburg).
_ The Savings banks segment is identical to the business segment Savings banks.
_ The Other Austria segment comprises Erste Group Bank AG (Holding) with its Large Corporates, Commercial Real Estate, Other
Corporate and Group Markets business, Erste Group Immorent AG and Erste Asset Management GmbH.
The geographical area Central and Eastern Europe (CEE) consists of six segments covering Erste Group’s banking subsidiaries located in
the respective CEE countries:
_ Czech Republic (comprising Česká spořitelna Group)
_ Slovakia (comprising Slovenská sporitel’ňa Group)
_ Romania (comprising Banca Comercială Română Group)
_ Hungary (comprising Erste Bank Hungary Group)
_ Croatia (comprising Erste Bank Croatia Group), and
_ Serbia (comprising Erste Bank Serbia Group).
The residual segment Other covers mainly centrally managed activities and items that are not directly allocated to other segments. It
comprises the corporate center of Erste Group Bank AG (and thus dividends and the refinancing costs from participations, general administrative expenses), internal non-profit service providers (facility management, IT, procurement), amortization/write-down of customer
relationships and brand, goodwill impairments, the banking tax of Erste Group Bank AG as well as free capital of Erste Group (defined as
the difference of the total average IFRS equity and the average economical equity allocated to the segments). Asset/Liability Management
of Erste Group Bank AG as well as the reconciliation to the consolidated accounting result (e.g. intercompany eliminations, dividend
eliminations) are also part of the segment Other.
Measurement
The profit and loss statement of the segment report is based on the measures reported to the Erste Group management board for the purpose of allocating resources to the segments and assessing their performance. Management reporting as well as the segment report for
Erste Group, is based on IFRS. Accounting standards and methods as well as measurements used in segment reporting are the same as for
the consolidated financial statement of accounting.
Capital consumption per segment is regularly reviewed by the management of Erste Group to assess the performance of the segments.
The average allocated equity is determined by the credit risk, market risk and operational risk. According to the regular internal reporting
to Erste Group management board, total assets and total liabilities as well as risk weighted assets and allocated equity are disclosed per
segment. For measuring and assessing the profitability of segments, Erste Group also uses the return on allocated equity defined as net
result for the period before minorities in relation to the average allocated equity of the respective segment. In addition the cost/income
ratio is calculated for each segment as operating expenses (general administrative expenses) in relation to operating income (total of net
interest income, net fee and commission income, dividend income, net trading and fair value result, net result from equity method investments, rental income from investment properties and other operating lease).
For measuring and assessing the profitability of segments, Erste Group also uses the return on allocated equity defined as net result for the
period before minorities in relation to the average allocated equity of the respective segment. In addition the cost/income ratio is calculated for each segment as operating expenses (general administrative expenses) in relation to operating income (total of net interest income,
net fee and commission income, dividend income, net trading and fair value result, net result from equity method investments, rental
income from investment properties and other operating lease).
178
Business segments (1)
Retail
SME
ALM & LCC
Savings Banks
Large Corporates
in EUR million
1-12 14
1-12 15
1-12 14
1-12 15
1-12 14
1-12 15
1-12 14
1-12 15
1-12 14
restated
Net interest income
Net fee and commission income
Dividend income
Net trading and fair value result
Net result from equity method investments
Rental income from investment properties & other operating
leases
2,175.1
1,050.3
0.5
59.8
8.2
2,207.7
1,029.1
3.5
56.1
10.4
569.4
198.4
2.5
31.9
0.0
570.2
190.3
0.0
34.8
0.0
164.7
-65.3
22.4
24.7
3.1
4.8
-45.8
10.8
-53.1
3.5
891.8
419.3
24.7
1.1
0.0
926.4
439.3
23.1
3.1
0.0
214.1
99.2
0.0
9.3
0.0
Commercial Real Estate
1-12 15
1-12 14
1-12 15
229.3
89.1
0.0
13.5
0.0
150.1
15.8
5.1
-6.2
0.7
169.3
14.0
1.0
4.7
0.5
23.5
23.1
30.4
30.6
35.0
32.3
42.0
40.0
0.0
0.0
40.3
40.8
General administrative expenses
thereof depreciation and amortization
Gains/losses from financial assets and liabilities not
measured at fair value through profit or loss, net
Net impairment loss on financial assets not measured at
fair value through profit or loss
Other operating result
Levies on banking activities
Pre-tax result from continuing operations
Taxes on income
Net result for the period
Net result attributable to non-controlling interests
Net result attributable to owners of the parent
-1,814.3
-191.1
-1,856.4
-192.4
-292.8
-40.8
-306.9
-41.7
-112.9
-22.9
-90.9
-13.7
-932.1
-75.9
-966.0
-76.3
-85.0
-6.0
-91.4
-7.2
-88.2
-19.7
-86.5
-17.3
0.6
0.0
3.3
0.0
-16.4
32.6
27.7
45.8
0.7
0.0
0.0
0.0
-671.7
-393.7
-59.1
438.2
-158.0
280.2
8.5
271.7
-289.7
-277.5
-44.1
906.2
-195.1
711.1
-3.4
714.6
-461.1
-2.8
-10.6
79.4
-33.2
46.2
-4.2
50.4
-187.4
-31.1
-10.2
300.6
-68.6
232.0
1.1
230.9
1.2
-197.7
-64.2
-141.2
-36.1
-177.3
-2.5
-174.8
-13.9
-148.5
-63.3
-268.1
61.3
-206.7
-2.2
-204.5
-199.4
-43.1
-15.9
232.0
-54.7
177.3
158.9
18.4
-83.6
-39.5
-15.0
388.7
-89.4
299.4
259.1
40.2
-310.7
14.1
-3.2
-58.3
-1.1
-59.5
-5.7
-53.8
-11.5
-34.5
-2.7
194.6
-37.7
156.9
12.4
144.5
-364.3
-45.9
-0.4
-292.7
4.2
-288.5
-8.9
-279.6
-56.9
-34.0
-0.3
53.0
-21.5
31.5
5.8
25.7
Operating income
Operating expenses
Operating result
3,317.4
-1,814.3
1,503.1
3,329.8
-1,856.4
1,473.4
832.7
-292.8
539.9
826.0
-306.9
519.1
184.6
-112.9
71.8
-47.3
-90.9
-138.2
1,379.0
-932.1
446.9
1,432.0
-966.0
466.0
322.5
-85.0
237.5
331.9
-91.4
240.5
205.7
-88.2
117.5
230.4
-86.5
143.9
Risk-weighted assets (credit risk, eop)
Average allocated capital
18,505
2,058
18,771
2,121
14,672
1,291
14,557
1,182
4,480
1,792
4,503
1,770
22,511
1,968
21,955
1,774
9,373
812
9,860
716
9,397
798
8,338
722
Cost/income ratio
Return on allocated capital
54.7%
13.6%
55.8%
33.5%
35.2%
3.6%
37.2%
19.6%
61.1%
-9.9%
>100%
-11.7%
67.6%
9.0%
67.5%
16.9%
26.4%
-7.3%
27.5%
21.9%
42.9%
-36.1%
37.5%
4.4%
Total assets (eop)
Total liabilities excluding equity (eop)
51,438
69,227
53,933
72,027
22,143
12,977
22,793
14,187
51,497
54,011
46,762
50,174
56,704
52,684
57,953
53,835
9,470
4,988
11,056
4,345
10,164
4,668
9,528
4,288
Impairments and risk provisions
Net impairment loss on loans and receivables from credit
institutions and customers
Net impairment loss on other financial assets not measured
at fair value through profit and loss
Allocation/release of provisions for contingent credit risk
liabilities
Impairments from Goodwills
Net impairment loss on other non financial assets
-697.3
-291.0
-473.1
-199.4
-45.1
-54.8
-221.3
-86.9
-299.1
-41.8
-466.2
-137.5
-671.6
-289.7
-460.3
-182.3
-0.8
-9.4
-193.6
-73.9
-316.5
-11.4
-365.5
-23.6
-0.1
0.0
-0.8
-5.1
2.0
-4.5
-5.8
-9.7
5.8
0.0
1.2
-33.3
-4.1
0.0
-21.5
0.6
0.0
-1.9
0.6
0.0
-12.6
-9.0
0.0
-3.0
0.9
0.0
-47.2
-16.3
0.0
-24.5
-18.3
0.0
-3.6
-1.7
0.0
-1.6
11.5
0.0
0.0
-30.3
0.0
0.0
-40.4
0.0
-61.5
-64.0
0.0
-16.5
179
180
Business segments (2)
Other Corporate
Group Markets
Group Corporate Center
Intragroup Elimination
Total group
1-12 14
1-12 15
1-12 14
1-12 15
1-12 14
1-12 15
1-12 14
1-12 15
1-12 14
restated
Net interest income
Net fee and commission income
Dividend income
Net trading and fair value result
Net result from equity method investments
Rental income from investment properties & other operating leases
General administrative expenses
thereof depreciation and amortization
Gains/losses from financial assets and liabilities
not measured at fair value through profit or loss, net
Net impairment loss on financial assets not measured at
fair value through profit or loss
Other operating result
Levies on banking activities
Pre-tax result from continuing operations
Taxes on income
Net result for the period
Net result attributable to non-controlling interests
Net result attributable to owners of the parent
75.2
18.9
0.5
4.8
0.0
0.1
-58.2
-2.0
74.1
14.8
0.0
-2.9
0.0
0.0
-58.6
-2.0
191.2
102.9
2.4
116.1
0.0
0.0
-179.1
-17.7
182.0
123.3
1.8
110.2
0.0
0.0
-187.0
-22.2
70.2
69.1
16.4
-11.3
3.9
35.1
-710.5
-90.0
104.1
33.4
9.9
14.9
3.1
44.7
-735.4
-72.2
-6.6
-38.8
-0.1
12.0
0.0
-25.7
485.9
0.0
-23.3
-25.7
-0.3
28.9
0.0
-23.7
510.2
0.0
4,495.2
1,869.8
74.2
242.3
15.8
180.6
-3,787.3
-466.1
4,444.7
1,861.8
49.9
210.1
17.5
187.9
-3,868.9
-445.0
0.1
18.6
0.0
0.4
-0.9
4.9
3.2
-1.4
18.3
100.9
-12.9
1.5
0.0
29.8
-6.9
22.9
-0.1
22.9
-53.0
6.4
0.0
-0.6
-0.4
-0.9
0.0
-1.0
-0.1
-0.7
-2.1
232.7
-43.9
188.8
3.5
185.3
2.5
-5.2
-1.9
228.0
-46.7
181.3
4.6
176.6
-64.7
-654.7
-100.8
-1,247.5
-191.8
-1,439.4
-16.2
-1,423.1
-35.7
392.8
-98.8
-163.4
34.1
-129.3
29.5
-158.8
0.0
-429.9
0.0
0.0
0.0
0.0
0.0
0.0
0.0
-464.6
0.0
0.0
0.0
0.0
0.0
0.0
-2,083.7
-1,752.9
-256.3
-727.7
-521.5
-1,249.2
133.4
-1,382.6
-729.1
-635.6
-236.2
1,639.1
-363.9
1,275.1
307.0
968.2
Operating income
Operating expenses
Operating result
99.4
-58.2
41.1
86.1
-58.6
27.4
412.6
-179.1
233.4
417.3
-187.0
230.3
183.3
-710.5
-527.2
210.1
-735.4
-525.4
-59.3
485.9
426.6
-44.2
510.2
466.0
6,877.9
-3,787.3
3,090.7
6,771.8
-3,868.9
2,902.9
Risk-weighted assets (credit risk, eop)
Average allocated capital
2,672
209
1,936
175
2,756
493
2,530
448
2,739
5,010
2,248
5,319
0
0
0
0
87,105
14,431
84,698
14,226
58.6%
10.9%
68.1%
-0.5%
43.4%
38.3%
44.8%
40.5%
>100%
-28.7%
>100%
-2.4%
>100%
>100%
55.1%
-8.7%
57.1%
9.0%
Total assets (eop)
Total liabilities excluding equity (eop)
3,656
93
2,968
69
18,022
11,456
19,534
12,161
12,093
11,716
10,955
9,648
-38,899
-38,977
-35,738
-35,799
196,287
182,844
199,743
184,936
Impairments and risk provisions
Net impairment loss on loans and receivables from credit
institutions and customers
Net impairment loss on other financial assets not measured
at fair value through profit and loss
Allocation/release of provisions for contingent credit risk liabilities
Impairments from Goodwills
Net impairment loss on other non financial assets
-13.0
-54.7
-0.1
2.5
-991.0
11.9
0.0
0.0
-3,206.2
-851.5
-17.7
-53.1
-0.2
2.5
-18.7
-25.7
0.0
0.0
-2,044.9
-666.5
4.8
-0.1
0.0
0.0
0.1
-1.7
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
-46.0
33.8
-475.0
-485.1
-10.0
59.4
0.0
-11.8
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
-38.8
-16.2
-475.0
-631.4
-62.6
-63.0
0.0
-59.4
in EUR million
Cost/income ratio
Return on allocated capital
1-12 15
Geographical segmentation - overview
Central and Eastern
Europe
Austria
Other
Total group
in EUR million
1-12 14
1-12 15
1-12 14
restated
Net interest income
Net fee and commission income
Dividend income
Net trading and fair value result
Net result from equity method investments
Rental income from investment properties & other operating leases
General administrative expenses
thereof depreciation and amortization
Gains/losses from financial assets and liabilities not measured at fair value through profit or loss, net
Net impairment loss on financial assets not measured at fair value through profit or loss
Other operating result
Levies on banking activities
Pre-tax result from continuing operations
Taxes on income
Net result for the period
Net result attributable to non-controlling interests
Net result attributable to owners of the parent
1,900.7
948.2
54.6
13.0
2.7
101.5
-1,886.1
-150.5
27.7
-573.1
-44.1
-29.8
545.1
-173.0
372.1
170.2
201.9
1,971.7
997.3
35.2
6.6
1.9
100.3
-1,932.1
-154.1
65.0
-225.9
-92.2
-29.8
927.8
-216.4
711.4
278.7
432.7
2,418.8
926.6
3.4
239.6
9.2
69.7
-1,658.2
-223.2
4.5
-1,433.5
-621.9
-125.7
-41.8
-151.8
-193.7
-20.4
-173.3
2,301.0
895.3
5.0
200.2
12.5
66.6
-1,693.8
-216.5
14.2
-422.6
-454.8
-107.6
923.7
-184.0
739.7
-1.0
740.8
175.7
-4.9
16.2
-10.3
3.9
9.4
-242.9
-92.4
-13.9
-77.1
-1,086.9
-100.8
-1,231.0
-196.6
-1,427.6
-16.4
-1,411.2
171.9
-30.8
9.7
3.3
3.1
20.9
-243.0
-74.4
21.7
-80.5
-88.7
-98.8
-212.4
36.4
-176.0
29.3
-205.3
4,495.2
1,869.8
74.2
242.3
15.8
180.6
-3,787.3
-466.1
18.3
-2,083.7
-1,752.9
-256.3
-727.7
-521.5
-1,249.2
133.4
-1,382.6
4,444.7
1,861.8
49.9
210.1
17.5
187.9
-3,868.9
-445.0
100.9
-729.1
-635.6
-236.2
1,639.1
-363.9
1,275.1
307.0
968.2
Operating income
Operating expenses
Operating result
3,020.7
-1,886.1
1,134.6
3,113.0
-1,932.1
1,180.9
3,667.3
-1,658.2
2,009.1
3,480.7
-1,693.8
1,786.9
189.9
-242.9
-53.0
178.1
-243.0
-64.9
6,877.9
-3,787.3
3,090.7
6,771.8
-3,868.9
2,902.9
Risk-weighted assets (credit risk, eop)
Average allocated capital
51,294
4,540
48,769
4,186
32,565
4,036
33,301
3,886
3,245
5,856
2,627
6,155
87,105
14,431
84,698
14,226
Cost/income ratio
Return on allocated capital
62.4%
8.2%
62.1%
17.0%
45.2%
-4.8%
48.7%
19.0%
>100%
-24.4%
>100%
-2.9%
55.1%
-8.7%
57.1%
9.0%
131,916
108,069
131,151
106,655
75,181
67,132
79,266
70,588
-10,810
7,643
-10,674
7,693
196,287
182,844
199,743
184,936
-668.8
-581.1
8.0
-42.1
0.0
-53.6
-325.6
-206.9
-19.1
-82.2
0.0
-17.5
-1,532.1
-1,432.7
-0.7
-5.9
0.0
-92.7
-486.3
-422.4
-0.2
-33.5
0.0
-30.1
-1,005.4
-31.1
-46.0
31.8
-475.0
-485.1
-39.6
-37.2
-43.3
52.7
0.0
-11.8
-3,206.2
-2,044.9
-38.8
-16.2
-475.0
-631.4
-851.5
-666.5
-62.6
-63.0
0.0
-59.4
Total assets (eop)
Total liabilities excluding equity (eop)
Impairments and risk provisions
Net impairment loss on loans and receivables from credit institutions and customers
Net impairment loss on other financial assets not measured at fair value through profit and loss
Allocation/release of provisions for contingent credit risk liabilities
Impairments from Goodwills
Net impairment loss on other non financial assets
1-12 15
1-12 14
1-12 15
1-12 14
restated
1-12 15
181
182
Geographical area - Austria
EBOe & Subsidiaries
in EUR million
Savings Banks
Other Austria
Austria
1-12 14
1-12 15
1-12 14
1-12 15
1-12 14
1-12 15
1-12 14
1-12 15
613.5
354.9
22.0
8.7
2.1
19.2
-630.7
-38.2
-0.4
-104.5
6.7
-13.8
291.4
-65.1
226.3
11.8
214.5
638.2
370.8
9.4
-0.6
1.4
19.4
-640.3
-40.7
0.1
-59.0
-25.6
-14.9
313.8
-73.5
240.3
10.1
230.2
891.8
419.3
24.7
1.1
0.0
42.0
-932.1
-75.9
27.7
-199.4
-43.1
-15.9
232.0
-54.7
177.3
158.9
18.4
926.4
439.3
23.1
3.1
0.0
40.0
-966.0
-76.3
45.8
-83.6
-39.5
-15.0
388.7
-89.4
299.4
259.1
40.2
395.4
174.0
7.9
3.1
0.7
40.4
-323.3
-36.3
0.4
-269.2
-7.6
0.0
21.7
-53.2
-31.5
-0.5
-31.0
407.1
187.2
2.7
4.1
0.5
40.8
-325.9
-37.1
19.2
-83.3
-27.1
0.0
225.3
-53.5
171.8
9.5
162.3
1,900.7
948.2
54.6
13.0
2.7
101.5
-1,886.1
-150.5
27.7
-573.1
-44.1
-29.8
545.1
-173.0
372.1
170.2
201.9
1,971.7
997.3
35.2
6.6
1.9
100.3
-1,932.1
-154.1
65.0
-225.9
-92.2
-29.8
927.8
-216.4
711.4
278.7
432.7
Operating income
Operating expenses
Operating result
1,020.3
-630.7
389.6
1,038.6
-640.3
398.4
1,379.0
-932.1
446.9
1,432.0
-966.0
466.0
621.5
-323.3
298.1
642.4
-325.9
316.5
3,020.7
-1,886.1
1,134.6
3,113.0
-1,932.1
1,180.9
Risk-weighted assets (credit risk, eop)
Average allocated capital
12,589
1,088
12,482
1,073
22,511
1,968
21,955
1,774
16,194
1,484
14,332
1,339
51,294
4,540
48,769
4,186
Cost/income ratio
Return on allocated capital
61.8%
20.8%
61.6%
22.4%
67.6%
9.0%
67.5%
16.9%
52.0%
-2.1%
50.7%
12.8%
62.4%
8.2%
62.1%
17.0%
Total assets (eop)
Total liabilities excluding equity (eop)
43,106
40,728
40,560
38,821
56,704
52,684
57,953
53,835
32,106
14,657
32,638
13,999
131,916
108,069
131,151
106,655
Impairments and risk provisions
Net impairment loss on loans and receivables from credit institutions and customers
Net impairment loss on other financial assets not measured at fair value through profit and loss
Allocation/release of provisions for contingent credit risk liabilities
Impairments from Goodwills
Net impairment loss on other non financial assets
-106.7
-106.3
1.9
-0.9
0.0
-1.4
-76.6
-49.6
-9.4
-11.7
0.0
-5.9
-221.3
-193.6
-5.8
-18.3
0.0
-3.6
-86.9
-73.9
-9.7
-1.7
0.0
-1.6
-340.7
-281.1
11.9
-22.9
0.0
-48.6
-162.1
-83.4
0.1
-68.9
0.0
-9.9
-668.8
-581.1
8.0
-42.1
0.0
-53.6
-325.6
-206.9
-19.1
-82.2
0.0
-17.5
Net interest income
Net fee and commission income
Dividend income
Net trading and fair value result
Net result from equity method investments
Rental income from investment properties & other operating leases
General administrative expenses
thereof depreciation and amortization
Gains/losses from financial assets and liabilities not measured at fair value through profit or loss, net
Net impairment loss on financial assets not measured at fair value through profit or loss
Other operating result
Levies on banking activities
Pre-tax result from continuing operations
Taxes on income
Net result for the period
Net result attributable to non-controlling interests
Net result attributable to owners of the parent
Geographical area - Central and Eastern Europe
Czech Republic
Romania
Slovakia
Hungary
Croatia
Central and Eastern
Europe
Serbia
1-12 14
1-12 15
1-12 14
restated
1-12 15
1-12 14
1-12 15
1-12 14
1-12 15
1-12 14
1-12 15
1-12 14
1-12 15
1-12 14
restated
1-12 15
924.0
410.6
1.8
83.1
0.0
911.2
375.8
2.5
103.5
0.0
484.7
160.0
0.6
81.2
0.2
428.7
163.2
1.3
69.4
0.6
451.0
123.4
0.7
9.6
6.9
457.5
121.4
0.9
8.8
9.1
263.4
139.3
0.1
38.8
0.0
194.4
137.5
0.2
-0.5
0.0
261.2
79.9
0.2
24.1
2.2
268.3
84.8
0.2
15.9
2.6
34.4
13.4
0.0
2.9
-0.2
40.8
12.6
0.0
3.2
0.2
2,418.8
926.6
3.4
239.6
9.2
2,301.0
895.3
5.0
200.2
12.5
29.9
-662.2
-82.5
26.8
-681.2
-78.9
5.5
-331.9
-39.5
9.1
-340.5
-38.6
1.8
-266.2
-45.1
1.9
-266.1
-44.6
0.8
-175.8
-19.8
0.9
-179.9
-20.7
31.7
-183.5
-33.9
27.6
-187.0
-31.5
0.0
-38.6
-2.3
0.3
-39.0
-2.2
69.7
-1,658.2
-223.2
66.6
-1,693.8
-216.5
5.3
16.5
-0.1
1.1
1.3
0.9
-3.6
-4.7
1.5
0.4
0.0
0.0
4.5
14.2
-135.4
-21.9
0.0
635.1
-124.1
511.1
4.9
506.2
-97.1
-37.3
0.0
620.7
-124.9
495.8
5.3
490.6
-923.5
-117.1
0.0
-640.4
47.7
-592.8
-38.0
-554.7
16.4
-141.2
0.0
208.1
-17.1
191.0
12.3
178.7
-51.4
-44.2
-31.5
233.0
-54.2
178.7
0.0
178.7
-58.0
-33.4
-23.6
243.0
-58.5
184.5
0.0
184.4
-152.2
-431.3
-94.2
-320.6
-10.0
-330.6
0.0
-330.6
-105.8
-106.9
-84.0
-64.8
-7.8
-72.6
0.0
-72.6
-155.3
-6.0
0.0
56.2
-8.9
47.3
14.7
32.6
-167.3
-135.4
0.0
-90.0
24.6
-65.4
-19.9
-45.5
-15.7
-1.3
0.0
-5.1
-2.3
-7.3
-1.9
-5.4
-10.8
-0.6
0.0
6.7
-0.1
6.5
1.2
5.3
-1,433.5
-621.9
-125.7
-41.8
-151.8
-193.7
-20.4
-173.3
-422.6
-454.8
-107.6
923.7
-184.0
739.7
-1.0
740.8
Operating income
Operating expenses
Operating result
1,449.4
-662.2
787.1
1,419.9
-681.2
738.7
732.2
-331.9
400.3
672.2
-340.5
331.7
593.5
-266.2
327.3
599.6
-266.1
333.5
442.3
-175.8
266.5
332.5
-179.9
152.6
399.3
-183.5
215.9
399.3
-187.0
212.3
50.5
-38.6
11.9
57.1
-39.0
18.1
3,667.3
-1,658.2
2,009.1
3,480.7
-1,693.8
1,786.9
Risk-weighted assets (credit risk, eop)
Average allocated capital
13,745
1,429
14,406
1,438
5,676
1,089
5,489
932
4,416
512
4,905
543
3,409
490
3,328
430
4,664
443
4,369
461
655
72
803
82
32,565
4,036
33,301
3,886
Cost/income ratio
Return on allocated capital
45.7%
35.8%
48.0%
34.5%
45.3%
-54.4%
50.7%
20.5%
44.9%
34.9%
44.4%
34.0%
39.7%
-67.5%
54.1%
-16.9%
45.9%
10.7%
46.8%
-14.2%
76.4%
-10.2%
68.4%
7.9%
45.2%
-4.8%
48.7%
19.0%
Total assets (eop)
Total liabilities excluding equity (eop)
32,546
28,798
35,512
31,211
13,747
12,652
13,784
12,486
12,965
11,483
13,978
12,441
5,981
5,419
6,090
5,582
9,114
8,073
8,902
8,002
829
708
1,000
867
75,181
67,132
79,266
70,588
Impairments and risk provisions
Net impairment loss on loans and receivables from credit
institutions and customers
Net impairment loss on other financial assets not
measured at fair value through profit and loss
Allocation/release of provisions for contingent credit risk
liabilities
Impairments from Goodwills
Net impairment loss on other non financial assets
-128.1
-116.9
-1,007.7
0.3
-60.8
-54.9
-161.3
-127.7
-157.4
-176.0
-16.8
-11.1
-1,532.1
-486.3
-135.5
-97.1
-923.5
16.7
-51.4
-58.1
-152.2
-105.8
-154.4
-167.3
-15.7
-10.8
-1,432.7
-422.4
0.1
0.1
0.0
-0.3
0.0
0.0
0.0
0.0
-0.9
0.0
0.0
0.0
-0.7
-0.2
3.6
0.0
3.7
-6.1
0.0
-13.8
-4.0
0.0
-80.2
-6.5
0.0
-9.6
-6.0
0.0
-3.5
3.0
0.0
0.2
1.3
0.0
-10.4
-19.1
0.0
-2.8
-0.3
0.0
-1.8
-4.8
0.0
-3.8
-0.5
0.0
-0.6
0.0
0.0
-0.2
-5.9
0.0
-92.7
-33.5
0.0
-30.1
in EUR million
Net interest income
Net fee and commission income
Dividend income
Net trading and fair value result
Net result from equity method investments
Rental income from investment properties & other
operating leases
General administrative expenses
thereof depreciation and amortization
Gains/losses from financial assets and liabilities not
measured at fair value through profit or loss, net
Net impairment loss on financial assets not measured at
fair value through profit or loss
Other operating result
Levies on banking activities
Pre-tax result from continuing operations
Taxes on income
Net result for the period
Net result attributable to non-controlling interests
Net result attributable to owners of the parent
183
38. Assets and liabilities denominated in foreign currencies and outside Austria and return on assets
Assets and liabilities not denominated in EUR were as follows:
in EUR million
Dec 14
Dec 15
Assets
Liabilities
65,673
51,031
68,004
54,294
The assets and liabilities outside Austria are given below:
in EUR million
Assets
Liabilities
Dec 14
Dec 15
111,167
85,786
112,229
81,713
Return on assets: Return on assets (net profit for the year divided by average total assets) was 0.16% at 31 December 2015 (-0.16% in
31 December 2014 restated).
39. Leases
Finance leases
Finance leases receivables are included under the balance sheet item ‘Loans and advances to customers’.
Erste Group leases both movable property and real estate to other parties under finance lease arrangements. For the finance lease receivables
included in this item, the reconciliation of the gross investment in leases to the present value of the minimum lease payments is as follows:
in EUR million
Outstanding minimum lease payments
Non-guaranteed residual values
Gross investment
Unrealised financial income
Net investment
Present value of non-guaranteed residual values
Present value of minimum lease payments
Dec 14
Dec 15
3,530
824
4,354
514
3,840
721
3,119
3,568
751
4,319
441
3,877
701
3,176
The maturity analysis of gross investment in leases and present values of minimum lease payments under non-cancellable leases is as
follows (residual maturities):
Present value of non-guaranteed
residual values
Gross investment
in EUR million
< 1 year
1 -5 years
> 5 years
Total
Dec 14
Dec 15
Dec 14
Dec 15
703
1,887
1,764
4,354
702
2,093
1,524
4,319
541
1,485
1,093
3,119
545
1,612
1,019
3,176
In the reporting period, the total amount of accumulated allowance for uncollectable minimum lease payments, presented as risk provisions for loans and advances, was EUR 124 million (2014: EUR 191 million). The total amount of contingent rents from finance leases
recognised as income in the period was EUR 33 million (2014: EUR 28 million).
Operating leases
Under operating leases, Erste Group leases both real estate and movable property to other parties.
Operating leases from the view of Erste Group as lessor.
Minimum lease payments from non-cancellable operating leases were as follows:
in EUR million
< 1 year
1 -5 years
> 5 years
Total
Dec 14
Dec 15
61
151
43
255
51
141
32
224
The total amount of contingent rents from operating leases recognised as income in the period was EUR 11 million (2014:
EUR 9 million).
184
Operating leases from the view of Erste Group as lessee.
Minimum lease payments from non-cancellable operating leases were as follows:
in EUR million
< 1 year
1 -5 years
> 5 years
Total
Dec 14
Dec 15
56
126
73
254
45
78
27
150
Lease payments from operating leases recognised as expense in the period amounted to EUR 84.9 million (2014: EUR 88.1 million).
40. Related-party transactions and principal shareholders
In addition to principal shareholders, Erste Group also defines as related parties subsidiaries that are not consolidated due to nonmateriality and associates that are included in the consolidated financial statements by the equity method. Furthermore related parties
consist of management and supervisory board members of Erste Group Bank AG. Moreover, Erste Group defines close family members
of management and supervisory board members of Erste Group Bank AG, as well as companies over which management and supervisory
board members of Erste Group Bank AG have control or significant influence, as other related parties.
Transactions between Erste Group Bank AG and fully consolidated companies are not recognised in the consolidated financial statements
as they have been eliminated.
Principal shareholders
As of 31 December 2015, the foundation DIE ERSTE oesterreichische Spar-Casse Privatstiftung (hereinafter referred to as the ‘Privatstiftung’) held together with its syndicate partners a total of 29.17% interest in Erste Group Bank AG and is controlling shareholder with
12.88% interest. 9.22% of the shares were held directly by the Privatstiftung. Indirect participation of the Privatstiftung was at 3.66% and
is held by Sparkassen Beteiligungs GmbH & Co KG, which is an affiliated undertaking of the Privatstiftung. 3.30% of the shares are
directly held by Austrian savings banks, which act together with the Privatstiftung and are affiliated with Erste Group by virtue of the
Haftungsverbund. 9.92% interest in Erste Group Bank AG was controlled by the Privatstiftung based on the syndication agreement with
CaixaBank S.A. 3.8% belong to other syndicate partners.
In 2015 (for the financial year 2014), the Privatstiftung did not receive a dividend (2014: 12.9 million) on its stake in Erste Group
Bank AG. The purpose of the Privatstiftung, to be achieved notably by way of the participating interest in Erste Group Bank AG, is to
support social, scientific, cultural and charitable institutions as well as to generally promote the guiding principles of the savings bank
philosophy. As of 31 December 2015, Franz Karl Prüller (chairman), Richard Wolf (vice chairman) and Bernhard Spalt were members of
the Privatstiftung management board. The supervisory board of the Privatstiftung had eight members at the end of 2015, two of whom are
also members of the supervisory board of Erste Group Bank AG.
Under article 15.1 of the articles of association, for the duration of its assumption of liability for all current and future debts in the event of
default on payment by the company, the Privatstiftung is entitled, pursuant to Section 92 (9) of the Austrian Banking Act, to delegate up to
one-third of the supervisory board members to be elected at the Annual General Meeting. Until now, the Privatstiftung has not exercised
this right.
As of 31 December 2015, Erste Group had in relation to the Privatstiftung liabilities of EUR 24.8 million (2014: EUR 262.6 million) and
no loans and advances (2014: EUR 26.5 million). In addition, standard derivative transactions for hedging purposes were in place between
Erste Group and the Privatstiftung as of the end of 2015, namely interest rate swaps with caps in the notional amount of
EUR 278.0 million (2014: EUR 282.0 million). As of the end of 2015, the Privatstiftung held bonds issued by Erste Group Bank AG in
the amount of EUR 9.8 million (2014: EUR 0.2 million), and Erste Group held debt securities issued by the Privatstiftung in the amount
of EUR 2.9 million (2014: EUR 3.7 million).
In 2015, the interest income of Erste Group for the reporting period amounted to EUR 12.2 million (2014: EUR 12.5 million) while the
interest expenses amounted to EUR 8.0 million (2014: EUR 8.6 million), resulting from the mentioned loans and advances and liabilities
as well as derivative transactions and debt securities.
As of 31 December 2015 CaixaBank S.A., which is based in Barcelona, Spain, held a total of 42,634,248 (2014: 42,634,248) Erste Group
Bank AG shares, equivalent to 9.92% (2014: 9.92%) of the share capital of Erste Group Bank AG. During the annual general meeting
185
held on May 12, 2015, Mr. Antonio Massanell Lavilla (deputy chairman of CaixaBank S.A.) as well as Mr. Gonzalo Gortázar Rotaeche
(CEO of CaixaBank S.A.) were elected to become members of the supervisory board of Erste Group Bank AG. Both were elected for a
five year term until the annual general meeting in 2020.
In addition, the shareholders' agreement between CaixaBank S.A. and the Erste Foundation, which had been in effect since 2009, was
renewed on 15 December 2014 (Preferred Partnership Agreement). On the basis of this agreement, CaixaBank S.A. joined the ranks of the
core shareholders, which include Erste Foundation as well as the savings banks, their foundations as well as Wiener Städtische Wechselseitige Versicherungsverein – Vermögensverwaltung – Vienna Insurance Group. As member of this syndicate, CaixaBank S.A. will
abide by the recommendations of the Erste Foundation when electing new supervisory board members.
In 2015 (for the financial year 2014), CaixaBank S.A. received no dividend based on its stake in Erste Group Bank AG.
Balances and off-balance exposures with related parties
Dec 14
in EUR million
Investments in
subsidaries not consolidated
Selected financial assets
Equity instruments
Debt securities
Loans and advances
Loans and advances with credit institutions
Loans and advances with customers
of which: Impaired selected assets
Selected financial liabilities
Deposits
Deposits from banks
Deposits from customers
Debt securities issued
Loan commitments, financial guarantees and other commitments given [notional amount]
of which: defaulted
Loan commitments, financial guarantees and other commitments received
Derivatives [notional amount]
Allowances and provisions for impaired debt instruments, defaulted guarantees and
defaulted commitments
Dec 15
Investments in
Investments in
associates and
Investments in
subsidaries joint ventures not consolidated
Investments in
associates and
Investments in
joint ventures
459
128
0
330
32
298
9
42
42
1
41
0
134
1
50
609
11
40
559
98
461
0
98
98
7
91
186
7
-
293
31
0
262
26
235
3
46
46
0
46
55
2
0
17
538
8
37
493
117
376
0
102
102
7
95
184
2
-
10
3
9
3
Expenses/Income generated by transactions with related parties
Dec 14
in EUR million
Interest Income
Fee and commission income
Dividend income
Realised gains on financial assets and liabilities not measured at fair value through profit or loss
Gains on derecognition of non-financial assets
Interest expenses
Fee and commission expenses
Realised losses on financial assets and liabilities not measured at fair value through profit or loss
Losses on derecognition of non-financial assets
Increase during the period in impairment and provisions for impaired debt instruments,
defaulted guarantees and defaulted commitments
Decrease during the period in impairment and provisions for impaired debt instruments,
defaulted guarantees and defaulted commitments
Transactions with related parties are done at arm’s length.
186
Investments in
subsidaries not consolidated
Dec 15
Investments in
associates and
Investments in
Investments in
subsidaries joint ventures not consolidated
Investments in
associates and
Investments in
joint ventures
8
7
-
10
7
26
0
-1
-0
-0
-
6
0
3
-1
9
1
12
-1
-
-3
-3
- 11
-1
2
0
29
1
Remuneration of management and supervisory board members
The remuneration paid to the management board in 2015 is as follows:
Fixed salaries
in EUR thousand
Andreas Treichl
Peter Bosek (starting with 1 January 2015)
Petr Brávek (starting with 1 April 2015)
Andreas Gottschling
Gernot Mittendorfer
Jozef Síkela (starting with 1 January 2015)
Franz Hochstrasser (until 31 December 2014)
Hebert Juranek (until 31 December 2014)
Total
1-12 14
1-12 15
1,334
0
0
633
633
0
792
667
4,059
1,335
633
495
633
633
633
0
0
4,362
Peter Bosek was in 2015 board member of Holding as well as of Erste Bank Oesterreich, the expenses were attributed to both companies by 50%.
Since the financial year 2010, the variable part of the management board’s remuneration, including both cash payments and share-equivalents,
is distributed over five years in accordance with legal requirements and is paid out only under certain conditions. Share-equivalents are not
exchange-traded shares but phantom shares that are paid out in cash after a one-year vesting period based on defined criteria.
In 2015, performance-linked remuneration and share-equivalents were paid out or vested for previous financial years.
Performance-linked remuneration
1-12 14
for 2013
cash
in EUR thousand
Andreas Treichl
Peter Bosek
(starting with 1 January 2015)
Petr Brávek
(starting with 1 April 2015)
Andreas Gottschling
Gernot Mittendorfer
Jozef Síkela
(starting with 1 January 2015)
Franz Hochstrasser
(until 31 December 2014)
Hebert Juranek
(until 31 December 2014)
Total
1-12 15
for previous years
shareequivalents
in units
cash
in EUR thousand
for 2014
shareequivalents
in units
cash
in EUR thousand
for previous years
shareequivalents
in units
cash
shareequivalents
in EUR thousand
in units
225
10,881
122
5,502
0
0
157
6,953
0
0
0
0
0
0
0
0
0
30
69
0
1,285
3,145
0
0
17
0
0
1,005
0
0
0
0
0
0
0
4
27
0
168
1,424
0
0
0
0
0
0
0
0
167
6,918
71
3,083
0
0
0
0
56
548
2,365
24,594
33
243
1,498
11,088
0
0
0
0
0
188
0
8,545
Share-equivalents were valued at the average weighted daily share price of Erste Group Bank AG of the year 2015 in the amount of
EUR 25.13 per share.
No performance-linked remuneration was awarded to members of the management board for the financial years 2014 and 2011.
Long-Term Incentive-Programme
Currently, one long-term incentive programme (LTI), which is based on changes in the share price of Erste Group Bank AG versus a group
of peers and the Dow Jones Euro Stoxx Banks, is still active. It was started on 1 January 2010 but did not result in any payment in 2015.
187
Other remuneration
in EUR thousand
Andreas Treichl
Peter Bosek (starting with 1 January 2015)
Petr Brávek (starting with 1 April 2015)
Andreas Gottschling
Gernot Mittendorfer
Jozef Síkela (starting with 1 January 2015)
Franz Hochstrasser (until 31 December 2014)
Hebert Juranek (until 31 December 2014)
Total
1-12 14
1-12 15
498
0
0
76
88
0
260
92
1,015
1,454
84
64
157
86
82
0
0
1,928
The item ‘Other remuneration’ comprises pension fund contributions, contributions to employee provision funds (for new-type severance
payments) and remunerations in kind.
The remuneration of the members of the management board represented 0.3% (2014: 0.3%) of the total personnel expenses of Erste Group.
In 2015, EUR 3.1 million (2014: EUR 2.1 million) was paid in cash and 8,390 share-equivalents (2014: 2,572) were assigned to former
members of the management bodies and their dependents.
Principles governing the pension scheme for management board members. Members of the management board participate in the
defined contribution pension plan of Erste Group on the basis of the same principles as employees. For one member of the management
board, compensatory payments have to be made to the pension fund in case the management board member's tenure ends before he reaches the age of 65 by no fault of the member.
Principles governing vested benefits and entitlements of management board members in case of termination of the position.
Regarding vested benefits and entitlements of management board members in the event of termination of their position, the standard legal
severance benefit provisions of section 23 of the Austrian Salaried Employees Act (Angestelltengesetz) still apply to one member of the
management board. All other members of the management board are not entitled to receive any severance benefits.
The remuneration granted to the management board members complies with the banking rules on management remuneration.
Breakdown of supervisory board remuneration
in EUR thousand
Supervisory board compensation
Meeting fees
Total
1-12 14
1-12 15
537
233
770
580
265
845
In 2015, the members of the supervisory board of Erste Group Bank AG were paid EUR 845 thousand (2014: EUR 770 thousand) for their
board function. The following members of the supervisory board received the following remuneration for their board function in fully consolidated subsidiaries of Erste Group Bank AG: Friedrich Rödler EUR 38,750.00, Jan Homan EUR 12,600.00, Gunter Griss EUR 52,000.00,
Maximilian Hardegg EUR 39,945.00, Brian D. O’Neill EUR 33,250.00, John James Stack EUR 53,260.00, Georg Winckler EUR 11,750.00.
Erste Group Bank AG did not conclude other legal transactions with its members of the supervisory board.
Pursuant to the decision at the annual general meeting of 12 May 2015, the supervisory board adopted in its constituent meeting the following
remuneration structure for the financial year 2014:
in EUR
President
Vice Presidents
Members
Total
Number
1
2
8
11
Allowance
per person
Total
allowance
100
75
50
100,000
150,000
400,000
650,000
The supervisory board consists of at least three and a maximum of twelve members elected by the Annual General Meeting. Unless the
Annual General Meeting has determined a shorter term of office for individual, several or all supervisory board members on the occasion
of their appointment, the term of office of the members of the supervisory board ends at the close of the Annual General Meeting that
188
resolves on the approvals of their actions for the fourth business year following their election; re-election is permitted. In addition, membership of the supervisory board ceases upon death, revocation, resignation or in the event of an impediment defined in the Articles of
Association. Revocation requires a majority of three quarter of valid votes cast and a majority of three quarters of the registered capital
represented at the time of the resolution.
Banking transactions with key management employees and persons and companies related to key management
employees
As of the end of 2015, loans and advances granted to members of the management board and supervisory board totalled EUR 2,852 thousand. Deposits of members of the management board and supervisory board at Erste Group amounted to EUR 4,678 thousand in total. As
of 31 December 2015, members of the management and supervisory board held bonds issued by Erste Group in the amount of EUR 385
thousand. Loan commitments and financial guarantees, issued in favour of members of the management and supervisory board totalled
EUR 1,803 thousand as of the end of 2015. From banking transactions with members of the management board and supervisory board
Erste Group received interest income and fee income of EUR 23 thousand in total, and paid interest expense of EUR 16 thousand.
Loans and advances to close family members of key management employees and companies over which key management employees
have control or significant influence (hereinafter referred to ‘other related parties’) totalled EUR 735 thousand as of 31 December 2015.
As of the end of 2015, deposits of other related parties at Erste Group amounted to EUR 3,094 thousand in total. As of 31 December 2015
other related parties held bonds issued by companies of Erste Group in the total amount of EUR 11,599 thousand. Loan commitments and
financial guarantees, issued in favour of other related parties totalled EUR 295 thousand as of the end of 2015. From banking transactions
with other related parties Erste Group received interest income and fee income of EUR 30 thousand in total, and paid interest expense of
EUR 21 thousand.
The applicable interest rates and other terms (maturity dates and collateral) represent market conditions.
41. Collaterals
The following assets were pledged as collateral for liabilities:
in EUR million
Dec 14
Dec 15
Loans and advances to credit institutions
Loans and advances to customers
Trading assets
Financial assets - at fair value through profit or loss
Financial assets - available for sale
Financial assets - held to maturity
Total
199
16,943
25
12
1,713
2,723
21,614
61
18,983
93
0
1,721
1,237
22,095
The financial assets pledged as collateral consist of loan receivables, bonds and other interest-bearing securities.
Collaterals were pledged as a result of repo transactions, refinancing transactions with the European Central Bank, loans backing issued
mortgage bonds and other collateral arrangements.
The fair value of collaterals received which may be repledged or resold even without default of the owner of the collateral was
EUR 3,506 million (2014: EUR 2,993 million). Prior year figure was adjusted. Collaterals with fair value of EUR 114 million (2014:
EUR 180 million) were resold. Collaterals with fair value of EUR 130 million (2014: EUR 32) were repledged. The bank is obliged to
return the resold and repledged collaterals.
189
42. Transfers of financial assets – repurchase transactions and securities lending
Dec 14
Dec 15
Carrying
amount of
transferred
assets
Carrying
amount of
associated
liabilities
Carrying
amount of
transferred
assets
Carrying
amount of
associated
liabilities
Repurchase agreements
Loans and advances to credit institutions
Loans and advances to customers
Trading assets
Financial assets - at fair value through profit or loss
Financial assets - available for sale
Financial assets - held to maturity
Total - repurchase agreements
0
0
5
0
1,285
424
1,714
0
0
5
0
1,025
434
1,464
0
0
74
0
1,164
397
1,636
0
0
69
0
995
480
1,544
Securities lendings
Loans and advances to credit institutions
Loans and advances to customers
Trading assets
Financial assets - at fair value through profit or loss
Financial assets - available for sale
Financial assets - held to maturity
Total - securities lendings
0
0
4
0
179
0
182
0
0
0
0
0
0
0
0
0
0
0
16
0
16
0
0
0
0
0
0
0
1,896
1,464
1,652
1,544
in EUR million
Total
The transferred financial instruments consist of bonds and other interest-bearing securities.
The total amount of EUR 1,652 Mio (2014: EUR 1,896 Mio) equals the carrying amount of financial assets disclosed in the respective
balance sheet positions for which the transferee has a right to sell or repledge.
Liabilities from repo transaction in the amount of EUR 1,544 Mio (2014: 1,464 Mio), which are measured at amortised cost, represent an
obligation to repay the borrowed funds.
The following table shows fair values of the transferred assets and associated liabilities for repo transactions with an existing recourse
right only on the transferred assets.
Dec 14
in EUR million
Loans and advances to credit institutions
Loans and advances to customers
Trading assets
Financial assets - at fair value through profit or loss
Financial assets - available for sale
Financial assets - held to maturity
Total
190
Fair value of
transferred
assets
Fair value of
associated
liabilities
0
0
5
0
1,305
479
1,789
0
0
5
0
955
434
1,394
Dec 15
Net position
Fair value of
transferred
assets
Fair value of
associated
liabilities
Net position
0
0
0
0
350
45
394
0
0
74
0
1,164
497
1,735
0
0
69
0
995
480
1,544
0
0
5
0
170
17
191
43. Offsetting of financial instruments
The following table shows netting effects on the balance sheet of Erste Group as well as the impacts of offsetting financial instruments
which are subject to offsetting agreements.
Financial assets subject to offsetting and potential offsetting agreements
2015
in EUR million
Derivatives
Reverse repurchase agreements
Total
Potential effects of netting agreements not
qualifying for balance sheet offsetting
Financial assets
(gross)
7,950
1,966
9,916
Financial assets
Amounts offset in balance sheet
(gross)
(net)
-456
0
-456
7,494
1,966
9,461
Financial
instruments
3,057
0
3,057
Non-cash
Cash collateral financial collateral
received
received
1,497
0
1,497
35
1,676
1,711
Net amount
after potential
offsetting
2,906
291
3,196
Financial liabilities subject to offsetting and potential offsetting agreements
2015
in EUR million
Derivatives
Repurchase agreements
Total
Potential effects of netting agreements not
qualifying for balance sheet offsetting
Financial
liabilities (gross)
Amounts offset
(gross)
Financial
liabilities in
balance sheet
(net)
6,497
1,685
8,182
-471
0
-471
6,026
1,685
7,711
Financial
instruments
3,057
0
3,057
Non-cash
Cash collateral financial collateral
provided
provided
300
0
300
23
1,645
1,668
Net amount
after potential
offsetting
2,647
39
2,686
Financial assets subject to offsetting and potential offsetting agreements
2014
in EUR million
Derivatives
Reverse repurchase agreements
Total
Potential effects of netting agreements not
qualifying for balance sheet offsetting
Financial assets
(gross)
10,045
1,435
11,480
Financial assets
Amounts offset in balance sheet
(gross)
(net)
0
0
0
10,045
1,435
11,480
Financial
instruments
5,655
0
5,655
Non-cash
Cash collateral financial collateral
received
received
2,378
0
2,378
0
1,074
1,074
Net amount
after potential
offsetting
2,012
360
2,373
Financial liabilities subject to offsetting and potential offsetting agreements
2014
in EUR million
Derivatives
Repurchase agreements
Total
Potential effects of netting agreements not
qualifying for balance sheet offsetting
Financial
liabilities (gross)
Amounts offset
(gross)
Financial
liabilities in
balance sheet
(net)
Financial
instruments
7,914
1,464
9,379
0
0
0
7,914
1,464
9,379
5,655
0
5,655
Non-cash
Cash collateral financial collateral
provided
provided
605
0
605
0
1,431
1,431
Net amount
after potential
offsetting
1,655
33
1,688
Since the second quarter of 2015, Erste Group undertakes a part of interest rate derivative transactions via a London Clearing House.
Consequently, those derivatives are shown net of the respective cash collaterals in the balance sheet in accordance with the criteria described in chapter ‘B. Significant accounting policies’. The impact of offsetting is shown in the column ‘Amounts offset’.
Erste Group employs repurchase agreements and master netting agreements as a means of reducing credit risk of derivative and financing
transactions. They qualify as potential offsetting agreements.
Master netting agreements are relevant for counterparties with multiple derivative contracts. They provide for the net settlement of all the
contracts in the event of default of any counterparty. For derivatives transactions the values of assets and liabilities that would be set off as
a result of master netting agreements are presented in the column Financial instruments. If the net position is further secured by cash
collateral or non-cash financial collaterals the effects are disclosed in columns Cash collateral received/pledged and Non-cash financial
collaterals received/pledged respectively.
Repurchase agreements are primarily financing transactions. They are structured as a sale and subsequent repurchase of securities at a preagreed price and time. This ensures that the securities remain in the hands of the lender as collateral in case the borrower defaults on
191
fulfilling any of its obligations. Offsetting effects from repurchase agreements are disclosed in the column Non-cash financial collateral
received / pledged respectively. Collateral is presented at the fair value of the transferred securities. However, if the fair value of collateral
exceeds the carrying amount of the receivable/liability from the repo transaction the value is capped at the level of the carrying amount.
Remaining position may be secured by cash collateral. Cash and non-cash financial collateral involved in these transactions is restricted
from being used it by the transferor during the time of the pledge.
44. Risk management
44.1 Risk policy and strategy
It is a core function of every bank to take risks in a conscious and selective manner and to manage such risks professionally. Erste Group’s
proactive risk policy and strategy aims at achieving balanced risk and return in order to generate a sustainable and adequate return on
equity.
Erste Group uses a risk management and control system that is forward-looking and tailored to its business and risk profile. This system is
based on a clear risk strategy that is consistent with the group’s business strategy and focused on early identification and management of
risks and trends. In addition to meeting the internal goal of effective and efficient risk management, Erste Group’s risk management and
control system has been developed to fulfil external and, in particular, regulatory requirements.
Given Erste Group’s business strategy, the key risks for Erste Group are credit risk, market risk, interest rate risk in the banking book,
liquidity risk, and operational risk. In addition, a risk materiality assessment is undertaken on an annual basis. It is ensured that all relevant material risks are covered by Erste Group’s control and risk management framework. This entails a set of different tools and governance to ensure adequate oversight of the overall risk profile and sound execution of the risk strategy, including appropriate monitoring and
escalation of issues that could materially impact the risk profile of the group. The bank always seeks to enhance and complement existing
methods and processes in all areas of risk management.
In 2015, the management focus was concentrated on critical portfolios, including active management and sales of non-performing exposures, and further strengthening of the risk profile. This has been particularly demonstrated by the continuous increase of the performing
portfolio and decrease of non-performing loans and risk costs for several quarters. Management actions resulted in improved profitability,
asset quality, lending and capital levels. In addition, like last year, emphasis was put on strengthening risk governance and ensuring compliance with regulatory requirements.
Erste Group Bank AG uses the Internet as the medium for publishing disclosures of Erste Group under Article 434 of the Regulation (EU)
No. 575/2013 on prudential requirements for credit institutions and investment firms (Capital Requirements Regulation - CRR). Details
are available on the website of Erste Group at www.erstegroup.com/ir. Relevant disclosures are included in the annual report in the section “Reports” or published as separate documents in the section “Regulatory disclosure”.
192
44.2 Risk management organisation
Risk monitoring and control is achieved through a clear organisational structure with defined roles and responsibilities, delegated authorities and risk limits.
The following chart presents an overview of Erste Group’s risk management organisation.
Risk management organisation
Erste Group Bank AG (Holding)
Enterprise-wide
Risk
Management
Group Credit &
Market Risk
Management
Group EGI Real
Estate Risk
Management
Group Risk
Operating
Office
Group
Workout
Operational Risk,
Compliance and
Security
Risk Methods
and
Models
Group
Legal
Group Retail
and SME Risk
Management
Group
Validation
Group CRO
Subsidiaries
Local CRO
Local Boards and Committees
(e.g. Risikomanagementbeirat
in Austria)
Local Risk Management
Divisions
Overview of risk management structure
The management board, and in particular Erste Group’s Chief Risk Officer (Group CRO) perform the oversight function within Erste
Group’s risk management structure. Risk control and risk steering within Erste Group are performed based on the business strategy and risk
appetite approved by the management board. The Group CRO, working together with the chief risk officers of the subsidiaries, is responsible for the implementation of and adherence to the risk control and risk management strategies across all risk types and business lines.
The management board and, in particular, the Group CRO ensure the availability of appropriate infrastructure and staff as well as methods, standards and processes to that effect; the actual identification, measurement, assessment, approval, monitoring, steering and limit
setting for the relevant risks are performed at the operating entity level within Erste Group.
At group level, the management board is supported by several divisions established to perform operating risk control functions and exercise strategic risk management responsibilities. The following risk management functions report directly to the Group CRO:
_ Enterprise-wide Risk Management
_ Group Credit & Market Risk Management
_ Group EGI Real Estate Risk Management
_ Group Risk Operating Office
_ Group Workout
_ Operational Risk, Compliance and Security
_ Risk Methods and Models
_ Group Legal
_ Group Retail and SME Risk Management
_ Group Validation
_ Local Chief Risk Officers
193
Enterprise-wide Risk Management
Enterprise-wide Risk Management (ERM) enables an increased focus on holistic risk management and ensures comprehensive, cross-risk
Group-wide risk portfolio steering.
ERM drives key strategic cross-risk initiatives to establish greater cohesion between the risk strategy including the risk appetite, limit
steering and operational execution. ERM works with all risk functions and key divisions to strengthen risk oversight group-wide, covering
capital (RWA and ICAAP), credit, liquidity (ILAAP), market, operational and business risk. This division is responsible for the group’s
Internal Capital Adequacy Assessment Process (ICAAP) including internal and external stress testing, and furthermore for the proper
calculation of risk-weighted assets (RWA), the group-wide risk portfolio steering with respect to material risks, risk planning and risk
input into capital planning, risk appetite and limit management, and liquidity and market risk steering including liquidity risk reporting as
well as cross-divisional coordination of regulatory requests.
Group Credit & Market Risk Management
Group Credit & Market Risk Management is the operative risk management function for medium-sized and large customers as well as for
institutional clients and counterparties. This division ensures that only credit and market risk in line with the risk appetite, the risk strategy
and limits set by ERM are taken on the books of Erste Group. It consists of five departments: Group Corporate Analysis, Credit Underwriting Corporates, Credit Underwriting Financial Institutions & Sovereigns, Corporate Portfolio Monitoring & Management, and Market
Risk Control & Infrastructure.
Group Corporate Analysis performs corporate analyses for Erste Group Bank AG and Erste Group Immorent (EGI) and is responsible for
the Group financial analysis tool SABINE. Credit Underwriting Corporates is responsible for the group-wide underwriting of credit risks
associated with major corporate customers and for the management of credit applications and training activities. It is the first-line risk
management unit for all corporate business booked in Erste Group Bank AG and the second-line risk management unit for corporate
business booked in Erste Group’s subsidiaries and the “Haftungsverbund”. Corporate Portfolio Monitoring & Management is responsible
for corporate risk policies and procedures along with the credit process and the operative monitoring of credit risk (counterparty & country limit management, credit monitoring and early warning signal monitoring). Credit Underwriting Financial Institutions & Sovereigns is
responsible for ratings, analysis, the operational credit risk management (risk assessment, approval of transactions and limits, policies,
watch lists and early warning systems) and the workout activities related to financial institutions (banks, insurance companies and funds),
regional governments, sovereigns, and structured products. Market Risk Control & Infrastructure is responsible for the group-wide risk
and limit monitoring of all trading book positions, the end-of-day market data process that ensures validated market data for the valuation
of all capital market products, independent price verification, the market conformity check of new trades, and the maintenance and support of all tools used by Market Risk Management.
Group EGI Real Estate Risk Management
The Group EGI Real Estate Risk Management department is responsible primarily for the real estate risk policies, in particular for Commercial Real Estate and risk operations, and for the support of the continuous development of operative real estate credit risk management
in Erste Group. It supports and manages the credit application and approval process, as well as the setup and implementation of appropriate standards, and operating instructions across the group. It is the first line risk management unit for all real estate business booked in
Erste Group Bank AG and in Erste Group Immorent AG; furthermore it is the second-line risk management unit for primarily commercial
real estate business booked in the subsidiaries and exceeding defined thresholds.
Group Risk Operating Office
Group Risk Operating Office provides the infrastructure and general management across all functions within the risk organisation and is
responsible for the budget and staff of the entire CRO division.
In detail, the covered business areas comprise the following units: Risk Data and Reporting, including Credit Risk Reporting and Market
Risk Reporting, as well as Project Hub, Group Risk Regulatory Management and the Group Risk Administration Office. Risk Data and
Reporting provides credit and market risk relevant data and reports for the CRO division, i.e. for internal, external and regulatory reporting purposes. In addition, the focus of the Group Risk Operating Office is on long-term infrastructure enhancements and proper project
implementation which is managed by the Risk Project Hub. Group Risk Regulatory Management is a central information hub for regulatory issues within the CRO division; for upcoming legislation as well as existing legislation in the field of credit, operational, liquidity and
market risk; for the facilitation of communication towards the supervisor; for providing regulatory interpretations; and for facilitating and
supporting regulatory implementation initiatives and the monitoring and tracking of regulatory findings and their closure.
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Group Workout
The Group Workout function has group-wide responsibility for clients allocated to the business segments Large Corporates, Commercial
Real Estate and Other Corporate that are rated substandard or non-performing or are specifically defined as workout clients. It undertakes
the direct workout management function for corporate workout clients of Erste Group Bank AG and additionally performs the (secondline) risk management function for corporate workout clients of the subsidiaries exceeding local management’s authorisation level.
Based on regulatory requirements, Group Workout is responsible for generating group-wide workout policies, the design of guidelines for
the preparation of local workout reports and the preparation of Erste Group Bank AG workout reports. Additionally, the division organises
expert training programmes as well as workshops to ensure knowledge transfer across Erste Group entities.
Another important task of the division is its responsibility for group-wide collateral management. This includes the set-up of standards for
collateral management, the framework for a group collateral catalogue, and principles for collateral evaluation and revaluation.
Operational Risk, Compliance and Security
Operational Risk, Compliance and Security is responsible for the management of operational risks, compliance risks and security issues.
The business area comprises Group Operational Risk Management, Group Compliance and Group Security Management.
Group Operational Risk Management acts as the central and independent risk department for identification, measurement and steering of
operational risk within Erste Group.
Compliance risks are those of legal or regulatory sanctions, material financial loss or loss of reputation that Erste Group might suffer as a
result of failure to comply with laws, regulations, rules or standards. Core competencies in the handling of compliance risks are exercised
by Group Compliance in the context of the Austrian Securities Supervision Act, the Austrian Stock Exchange Act and the Austrian Banking Act as well as the respective community law.
The Group Security Management unit protects and preserves the safety and security of bank personnel and assets (including information
assets). Group Security Management is responsible for the definition of security standards, quality assurance and the monitoring and
further development of security-related issues at Erste Group.
Risk Methods and Models
The Risk Methods and Models division is responsible for specific aspects of the management of credit, market and liquidity risk, especially the modelling aspects. This area provides adequate risk measurement methodologies and tools as well as an appropriate framework for
relevant risk policy and control.
The Credit Risk Methods and Models unit, which is structured on the basis of competence centres, covers the topics of rating models, risk
parameters and other credit risk methods.
The responsibilities covered by Market and Liquidity Risk Methods and Models are the development of risk models related to Basel III
Pillar 1 (specifically the calculation of the regulatory capital requirements for market risk in the trading book) and Pillar 2 capital requirements as well as other internal steering purposes.
Group Legal
Group Legal, with its three sub-units Banking Legal, Markets Legal and Corporate Legal, acts as the central legal department of Erste
Group Bank AG. Group Legal provides legal support and counsel for the management board, the business units and the central functions,
and mitigates legal risk; it also attends to legal sourcing and to dispute resolution and litigation.
Legal support for the business activities of the banking subsidiaries in the respective jurisdictions in which they operate is performed by
separate locally established legal departments. While reporting to the local management, typically the local CRO, the heads of the local
legal department also report to the head of Group Legal in a functional dotted line matrix responsibility.
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Group Retail and SME Risk Management
Group Retail and SME Risk Management is responsible for steering Erste Group’s retail lending portfolios. It defines the group-wide
retail lending and analytical framework that serves as a basis for monitoring local banks´ retail lending practices and for identifying potential adverse portfolio developments early on. This department comprises three sub-units:
_ Group Retail Risk Policy and Collections,
_ Group Retail Risk Analytics,
_ Retail and SME Risk Control.
Group Retail Risk Policy and Collections defines the policy rules for the entire retail lending cycle including underwriting, portfolio
management, early and late collection. This unit ensures implementation of and compliance with these policies whereby countries’ local
lending practices are reviewed against the group-wide policy rules and the differences - if justified - are individually approved by the
Head of Group Retail and SME Risk Management and/or the Group CRO. The unit also reviews and assesses local entities’ new lending
products and lending criteria changes in order to ensure that these are prudent and are in line with group-wide retail lending policies. In
addition, this unit in addition ensures retail lending specific knowledge transfer across Erste Group entities offering a tailor-made, retail
lending curriculum.
Group Retail Risk Analytics ensures oversight and independent management control through providing regular, operative retail risk management information. This unit defines the operative reporting requirements across the group and ensures regular monitoring of underlying retail loan portfolio dynamics and identifying risk mitigation if required. This unit also provides topical, pro-active, analyses in order
to support decision making and background information related to key retail risk management developments in Erste Group.
Group Retail and SME Risk Control is a new unit (since 2014) that was established to ensure further strengthening of the existing groupwide operative steering and oversight of the SME loan portfolio. This unit defines, implements and operates a reporting and portfolio
quality review mechanism to provide actionable management information of underlying SME loan portfolio dynamics for both business
and risk management.
Group Validation
The objective of Group Validation is to comply with regulatory requirements to perform validations (initial and annual) of all models and
methodologies (internal or external vendor) for credit ratings, scorecards, and risk parameters as well as models and methodologies for
derivatives and securities valuation, asset liability management (ALM), pricing and internal steering in Erste Group.
Group Validation consists of three units. Group Credit Risk Validation is responsible for the independent review of credit risk methods
and models developed internally by Erste Group. This unit validates all new models prior to initiation of the internal approval process and
supports the local banks by ensuring prudential validation of all models. It also performs the annual validations, ensuring that the regulatory requirements for all validations are met.
Group Market Risk, ALM and Pricing Model Validation is responsible for the independent review and validation of: (1) VaR-related
Market Risk methods and models, (2) internal or external vendor software or models for Derivatives or Securities Valuation and related
functionality, (3) ALM related models either internally or externally developed as well as all ALM acquired software and (4) stress testing, back-testing and other methodologies for scenario analysis.
Group Steering Models and Operational Risk Validation is responsible for the validation of internal risk management systems that are
based on (or complemented by) non-statistical techniques. This includes the integrity of processes, data quality and use test issues. Furthermore, operational risk validation, steering models validations, steering parameters and risk adjusted pricing methodology component
validations are within the scope of this unit.
Local Chief Risk Officers
In addition to the risk management activities performed by Erste Group Bank AG in its role as the holding company, each subsidiary also
has risk control and management units, the responsibilities of which are tailored to the local requirements and which are headed by the
respective entity’s chief risk officer.
Group coordination of risk management activities
The management board deals regularly with risk issues of all risk types in its regular board meetings. Actions are discussed and taken
when needed.
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Furthermore, certain cross-divisional committees were established with the purpose of carrying out risk management activities in Erste
Group. They are shown in the following diagram:
Risk Management Committee of the Supervisory Board
Management Board
GCC
GREC
GOCC
HSG
ALCO
Group Credit
Committee
Group Risk
Executive Committee
Group Operational
Conduct Committee
Holding Steering
Group
Group Asset Liability
Committee
MARA
Market Risk
Committee
GERMC
HMC
Group ERM
Committee
Holding Model
Committee
CRO Board
HSTC
OLC
Holding
Stress Testing
Committee
Operational
Liquidity
Committee
GRRC
ROCC
Group Risk
Reg. Committee
Regional Oper.
Conduct Comm.
Enforcement (local rollout) of approved global
policies, methods and
models
The Risk Management Committee of the Supervisory Board is responsible for granting approval in all cases in which loans and
exposures reach an amount exceeding the approval authority of the management board according to the Credit Risk Approval Authority
Regulations. It is in charge of granting approval to large exposures pursuant to Article 392 CRR, if such a claim is equal to or exceeds
10% of the eligible capital of a credit institution. Within the competence assigned to it, the Committee may grant advance approvals to the
extent permitted by law.
In addition, it is responsible for supervising the risk management of Erste Group Bank AG. The Risk Management Committee meets
regularly. As the central risk control body, the Risk Management Committee is regularly briefed on the risk status across all risk types.
The CRO Board is responsible for the consistent coordination and implementation of risk management activities within Erste Group. The
CRO Board consists of the Group CRO and the chief risk officers of the subsidiaries within Erste Group. Chaired by the Group CRO, the
CRO Board has responsibility for group-wide coordination of risk management and for ensuring uniformity of risk management standards
across Erste Group.
The Group Credit Committee (GCC) is responsible for deciding on transactions according to the current credit risk approval regulations. The GCC decides on credit risk exposures totalling up to EUR 300 million per group of connected clients. Exposures in excess of
EUR 300 million must be decided upon by the Risk Management Committee on the basis of a recommendation by the Group Credit
Committee. The GCC is headed by the Group CRO. Further members are the board member responsible for Corporates & Markets, the
head of Group Credit & Market Risk Management, the head of Group Workout and the head of the requesting business line. Each local
bank has its local credit committee established along the same principles.
The Group Risk Executive Committee (GREC) is the central forum for all joint resolutions and acknowledgements in the Erste Group
Bank CRO division across all its departments and staff units. Its purpose is the division-wide coordination of all the risk management
functions of Erste Group Bank AG. It discusses and decides on key risk management issues and topics; in particular it defines the division’s strategy and ensures implementation of common risk management standards (e.g. pertaining to processes, systems, reporting and
governance).
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The Group Operational Conduct Committee (GOCC) is an executive-level committee responsible for enforcement of the Code of
Conduct and regulatory compliance as well as management of the Erste Group’s operational and reputational risk profile. Moreover, it
serves as an escalation and decision-making committee for the ROCC.
The Holding Steering Group (HSG) is responsible for the regular monitoring of the group’s Risk Appetite Statement (especially with
regard to capital and liquidity adequacy, under both normal and stressed conditions), the review of proposed group and local capital
measures and the proposal of remediation actions. Furthermore, it monitors recovery triggers and indicators and, when appropriate advises
the management board to trigger recovery governance. The oversight of the implementation of the risk-return strategy and the proposal of
actions to reinforce the risk-return steering also belong to the HSG’s tasks and responsibilities.
The Holding Stress Testing Committee (HSTC) is the sole forum for all joint resolutions, decisions and acknowledgements in the
stress testing area for group-wide stress testing activities.
The Group Asset/Liability Committee (ALCO) manages the consolidated Erste Group balance sheet, focusing on trade-offs between
all affected consolidated balance sheet risks (interest rate, exchange rate and liquidity risks), and takes care of the setting of group standards and limits for the members of Erste Group. In addition, it approves policies and strategies for controlling liquidity risk as well as
interest rate risk (net interest income) and examines proposals, statements and opinions of ALM, risk management, controlling and accounting functions. The approved investment strategy complies with the guidelines agreed with Risk Management.
The Operational Liquidity Committee (OLC) is responsible for the day-to-day management of the global liquidity position of Erste
Group. It analyses the liquidity situation of Erste Group on a regular basis and reports directly to the ALCO. It also proposes measures to
the ALCO within the scope of the management policies and principles laid down in the Liquidity Risk Management Rule Book. Furthermore, members of the Group OLC are points of contact for other departments or Erste Group members for liquidity-related matters. Each
local bank has its own local operational liquidity committee.
The Market Risk Committee (MARA) is the main steering body for market risk and trading book related issues of Erste Group. The
Market Risk Committee meets quarterly, approves group-wide market risk limits and elaborates on the current market situation. The
members of the MARA are the Group CRO, the board member heading the Group Corporates and Markets division and the Group Chief
Financial Officer (CFO) as well as the heads of the units Group Capital Markets, Group ALM, Group Credit & Market Risk Management,
Risk Methods and Models, Enterprise-wide Risk Management and Group Validation.
The Group ERM Committee (GERMC) is the sole forum for all joint decisions and acknowledgements in the Enterprise-wide Risk
Management (ERM) area across all Erste Group entities and Erste Group Bank AG. Its purpose is the group-wide coordination of the
ERM functions, in particular on ICAAP and economic capital, stress testing, RWA, risk appetite and limit steering, risk strategies and
alignment of risk input for capital planning, liquidity and market risk steering as well as pricing/provisioning. Furthermore, the GERMC
ensures alignment on key ERM topics and the group-wide implementation of common ERM standards. Group Loan Loss Provisions
Backtesting Committee (GLLPBC), as a subcommittee of GERMC, agrees and approves back-testing results and remedial actions.
The Holding Model Committee (HMC) is the steering and control body for the model development and validation process. All new
models and changes of models and risk parameters in the group as well as group-wide methodology standards are reviewed by the Holding Model Committee and require its approval.
The Group Risk Regulatory Committee (GRRC) deals with all kinds of regulatory issues in the CRO area, i.e. implementation of new
regulatory requirements, proper closure of regulatory findings, information about new regulatory initiatives, reports about regulatory
communication and decisions on interpretative questions. The GRRC takes place at least on a quarterly basis.
The objective of the Regional Operational Conduct Committee (ROCC) is to decide on business applications based on the risk return
evaluation, the implementation of group-wide corrective measures and risk mitigation actions to manage the Operational, Reputational,
Compliance, Legal, Information and Communication Technology (ICT) and Security risks (collectively called non-financial risks). Furthermore, it defines group-wide standards for Non-Financial Risk topics. The ROCC is a forum for joint alignments, decisions, escalations
and acknowledgements in the Non-Financial Risk areas across Erste Group entities and Erste Group Bank AG itself.In addition, committees are established at local level, such as the “Risikomanagementbeirat” in Austria. This implements a common risk approach with the
Austrian savings banks.
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44.3 Group-wide risk and capital management
As in prior years, Erste Group’s risk management framework has been continuously strengthened. In particular, Enterprise-wide Risk
Management (ERM) has continued to strengthen its comprehensive framework. This includes as its fundamental pillar the Internal Capital
Adequacy Assessment Process (ICAAP), as required under Pillar 2 of the Basel framework.
The ERM framework is designed to support the bank’s management in managing the risk portfolios as well as the coverage potential to
ensure that the bank holds at all times adequate capital for the nature and magnitude of the bank’s risk profile. ERM is tailored to the Erste
Group’s business and risk profile, and it reflects the strategic goal of protecting shareholders and senior debt holders while ensuring the
sustainability of the organisation.
ERM is a modular and comprehensive management and steering system within Erste Group and is an essential part of the overall steering
and management instruments. The ERM components necessary to ensure all aspects, in particular to fulfil regulatory requirements and to
provide an internal added value, can be clustered as follows:
_ Risk appetite statement
_ Portfolio & risk analytics, including:
_ Risk materiality assessment
_ Concentration risk management
_ Stress testing
_ Risk-bearing capacity calculation
_ Risk planning & forecasting, including:
_ Risk-weighted asset management
_ Capital allocation
_ Recovery and resolution planning
In addition to the ICAAP’s ultimate goal of assuring capital adequacy and sustainability at all times, the ERM components serve to support the bank’s management in pursuing its strategy.
Risk appetite
Erste Group defines its risk strategy and Risk Appetite Statement (RAS) through the annual strategic planning process to ensure appropriate alignment of risk, capital and performance targets. The Group RAS represents a strategic statement expressing the maximum level of
risk that Erste Group is prepared to accept in order to achieve its business objectives. It consists of a set of core metrics providing quantitative direction for risk steering, from which a top-down boundary for target and limit setting is derived, creating a holistic perspective on
optimising capital, funding and risk-return trade-offs, and qualitative statements in the form of key risk principles that form part of the
strategic guidelines for managing risks. The key objective of the RAS is to:
_ ensure that Erste Group has sufficient resources to support its business at any given point in time and absorb stress events
_ set boundaries for the Group’s risk-return target setting
_ preserve and promote the market’s perception of the group’s financial strength and the robustness of its systems and controls
In 2015, the Group RAS framework was enhanced to (1) streamline core capital (common equity tier 1 ratio, solvency ratio, economic
adequacy ratio, leverage ratio), liquidity (survival period analysis, liquidity coverage ratio, net stable funding ratio) and risk/earnings
metrics (risk earnings ratio), (2) reinforce key risk principles that form part of guidelines for managing risks, (3) strengthen internal governance responsible for oversight of the risk profile development, (4) embed RAS into strategic planning and budgeting processes as well
as day-to-day management, and (5) ensure timely management actions in case of adverse developments.
The Group sets its RAS on a forward-looking basis to foster risk-return steering and ensure proactive management of the risk profile.
External constraints such as regulatory requirements form the ultimate boundary for the RAS and the amount of risk the Group is willing
to accept. However, in order to avoid any breach of the regulatory requirements, the Group defines triggers (early warnings) and limits,
which allow for appropriate lead time to enact effective countermeasures. A trigger (amber in RAS) describes a level or event that if
breached requires an escalation to the designated governance and discussion of potential remediation actions. A limit (red in RAS) defines
a level or event that if breached, requires an immediate escalation to the designated governance and immediate implementation of remediation actions.
In addition, strategic risk limits and principles are defined by material risk type based on the Group RAS in the Group Risk Strategy.
These support implementation of the mid- to long-term strategy. Risk management governance ensures full oversight of risk decisions and
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sound execution of the Group Risk Strategy. Mitigating actions are undertaken as part of the regular risk management process to ensure
that the group remains within its RAS.
Moreover, stress triggers are defined for selected core metrics and integrated into the assessment of the stress testing results, which are
reported to the management board to provide early warning signals and support proactive management of the risk and capital profile.
The Group RAS is also broken down to local entities under consideration of the approved proportionality guidelines. The local RAS is
approved by the management board to ensure alignment with Group RAS. The group may also decide to include further compulsory
constraints and limits in the local RAS to ensure alignment with the Group RAS and Group Risk Strategy.
In 2015, core capital, liquidity and risk-earnings metrics were developed within the tolerances defined in the Group RAS. Consistent
follow-up on the Group RAS and limits with management actions implemented as part of the regular risk management and decisionmaking processes resulted in an improved group risk profile.
Portfolio and risk analytics
Erste Group uses dedicated infrastructure, systems and processes to actively identify, control and manage risks within its portfolio. Portfolio and risk analytics processes are designed to quantify, qualify and discuss risks in order to raise awareness to management in a timely
manner.
Risk materiality assessment
The risk materiality assessment is an annual process with the purpose of systematically identifying new and assessing existing material
risks for Erste Group. The process uses a combination of quantitative and qualitative factors in the assessment of each risk type.
This assessment represents the starting point of the ICAAP process, as identified material risk types need to be considered either directly
by dedicating economic capital or indirectly through adequate consideration within other ICAAP framework elements. Insights generated
by the assessment are used to improve risk management practices and further mitigate risks within the group. The assessment also serves
as an input for the design and definition of Erste Group’s Risk Strategy and Risk Appetite Statement. Key outputs and recommendations
of the risk materiality assessment are used in the scenario design and selection of the comprehensive and reverse stress tests.
Risk concentration analysis
Erste Group has implemented a process to identify, measure, control and manage risk concentrations. This process is essential to ensure
the long-term viability of Erste Group, especially in times of an adverse business environment and stressed economic conditions.
The risk concentration analysis at Erste Group covers credit risk, market risk, operational risk, liquidity risk and inter-risk concentrations.
Identified risk concentrations are considered in the scenario design of the comprehensive stress test and measured under stressed conditions.
The output of the risk concentration analysis additionally contributes to the identification of material risks within the risk materiality
assessment as well as to the Risk Appetite Statement and to the setting/calibration of Erste Group’s limit system.
Stress testing
Modelling sensitivities of the group’s assets, liabilities and profit or loss provide management and steering impulses and help in optimising Erste Group’s risk-return profile. The additional dimension of stress tests helps to factor in severe but plausible scenarios and provide
further robustness to the measuring, steering and management system. Risk modelling and stress testing are vital forward-looking elements of the ICAAP. Finally, sensitivities and stress scenarios are considered within the Group’s planning and budgeting process as well
as in the risk-bearing capacity calculation.
Erste Group’s most complex stress test is a scenario stress test that takes comprehensive account of the impact of various economic scenarios, including second-round effects on all risk types (credit, market, liquidity and operational) and in addition impacts on the associated
volumes of assets and liabilities as well as on profit and loss sensitivities. In addition to the standard stress testing exercises, reverse stress
tests are used to identify a scenario or a combination of scenarios in which viability of the current business model can be questioned.
Erste Group has developed specific tools to translate macroeconomic variables (e.g. GDP, unemployment rate development) into risk
parameters in order to support the stress testing process, which combines bottom-up and top-down approaches. In addition, Erste Group
leverages the specific knowledge of its professionals located in the different regions to further calibrate the model-based stress parame-
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ters. Special attention is given to taking into account adequate granularity and special characteristics when defining the stress parameters
(e.g. the particular developments in the respective region, industry, product type or segment).
Results from all of Erste Group’s stress tests are assessed with regard to their explanatory power in order to decide on appropriate
measures. Taking into account the progressive implementation of the capital requirements according to Basel III (phase-in CET1 ratio), all
stress tests performed in the reporting period indicated sufficient capital adequacy.
Risk-bearing capacity calculation
The risk-bearing capacity calculation (RCC) defines the capital adequacy required by the ICAAP. Within the RCC, all material risks are
quantified, aggregated and compared to the coverage potential and the bank’s own funds. The integral forecast, risk appetite limit and a
traffic light system support management in its discussions and decision processes.
The traffic light system embedded in Erste Group’s RCC helps to alert the management in case there is a need to decide on, plan and
execute actions either to replenish the capital base or to take measures for reducing risk.
The management board and risk management committees are briefed on a quarterly basis in relation to the results of the capital adequacy
calculation. The report includes movements in risks and available capital and coverage potential after consideration of potential losses in
stress situations, the degree of the risk limit utilisation and the overall status of capital adequacy according to the traffic light system. The
Group Risk Report also includes a comprehensive forecast of risk-weighted assets and capital adequacy.
Besides the Pillar 1 risk types (credit, market and operational risks), in the context of Pillar 2, interest rate risks in the banking book,
foreign exchange risks arising from equity investments, credit spread risks in the banking book, risks from foreign currency loans as well
as business and strategic risks are explicitly considered within the economic capital requirement via internal models. During 2015 the
utilisation of the economic capital was between 58% and 64%. The methodologies that are applied for the different risk types are diverse
and range from historic simulations and other value at risk approaches to the regulatory approach for residual portfolios. Moreover, calculations for portfolios under the standardised approach for credit risk are extended by risk parameters from the internal ratings-based approach in order to give a better economic view.
In addition to the risk-bearing capacity calculation, liquidity, concentration and macroeconomic risks in particular are managed by means
of a proactive management framework that includes forward-looking scenarios, stress testing, trigger levels and traffic light systems.
Credit risk accounts for approximately 70% of the total economic capital requirement. Reflecting Erste Group’s conservative risk management policy and strategy, the group does not offset diversification effects between these three risk types. The economic capital requirement
for unexpected losses is computed on a one-year time horizon with a 99.95% confidence level, which reflects the implied default risk consistent with a long-term credit rating of AA as well as Erste Group’s conservative approach and high risk management standards.
The capital or coverage potential required to cover economic risks and unexpected losses is based on Basel III fully loaded regulatory
own funds adjusted by held-to-maturity reserves and the year-to-date profit. The coverage potential must be sufficient to absorb unexpected losses resulting from the group’s operations at any point in time.
Risk planning and forecasting
The responsibility for risk management within the group and each subsidiary includes ensuring sound risk planning and forecasting processes. The forecasts determined by risk management are the result of close cooperation with all stakeholders in the group’s overall planning process and in particular with Group Controlling, Asset Liability Management and the business lines. The risk planning and forecasting process includes both a forward- and backward-looking component, focusing on both portfolio and economic environment changes.
Risk-weighted asset management
As risk-weighted assets (RWA) determine the actual regulatory capital requirement of a bank and influence the capital ratio as a key performance indicator, particular emphasis is devoted to meeting targets and to the planning and forecasting capacity for this parameter.
Insights from monthly RWA analyses are used to improve the calculation infrastructure and the quality of input parameters and data as
well as the most efficient application of the Basel framework. There is a process in place for tracking compliance with RWA targets, forecasting their future development and thereby defining further targets. Deviations are brought to the attention of the board within a short
time frame. In addition to discussions in Group ERM Committee (GERMC), the group’s management board is regularly informed about
the current status, and findings are taken into account in the context of Erste Group’s regular steering process. Furthermore, RWA targets
are included in the Risk Appetite Statement.
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Capital allocation
An important task integral to the risk planning process is the allocation of capital to entities, business lines and segments. This is done
with close cooperation between Risk Management and Controlling. All insights from the ICAAP and controlling processes are used to
allocate capital with a view to risk-return considerations.
Erste Group’s aggregate capital requirement by risk type
The following diagrams present the composition of the economic capital requirement according to type of risk:
Economic capital allocation
in %, 31.12.2015
Economic capital allocation
in %, 31.12.2014
14.2
8.7
Market risk
Market risk
Operational risk
Operational risk
Other risks
6.6
70.5
Credit risk
14.7
8.9
Other risks
6.7
69.7
Credit risk
Other risks include the risk from foreign currency loans and the business and strategic risk.
Leverage ratio
The leverage ratio represents the relationship between core capital (tier 1) and leverage exposure according to Article 429 CRR. Essentially, the leverage exposure represents the sum of unweighted on- and off-balance-sheet positions considering valuation and risk adjustments
as defined within the CRR.
Based on the revised framework for the calculation and disclosure of the leverage ratio published by the Basel Committee on Banking
Supervision (BCBS) in January 2014, the European Commission prepared a delegated regulation ((EU) 2015/62 of 10 October 2014),
which was published in the Official Journal of the European Union on 17 January 2015. The revised requirements for calculation and
disclosure of the leverage ratio within the European Union were implemented in Erste Group during the course of 2015.
Recovery and resolution plans
In compliance with the Austrian Banking Recovery and Resolution Law (“Bundesgesetz über die Sanierung und Abwicklung von Banken
– BaSAG”) in force since 1 January 2015, Erste Group has submitted an updated Group Recovery Plan to ECB in September 2015. The
Group Recovery Plan identifies options for restoring financial strength and viability if Erste Group comes under severe economic stress.
The plan specifies potential options for the replenishment of capital and liquidity resources of the bank in order to cope with a range of
scenarios including both idiosyncratic and market-wide stress.
Erste Group collaborates with the newly established resolution authorities in the drawing up of resolution plans as required by BaSAG
and EU Regulation No 806/2014 establishing the Single Resolution Mechanism (SRM Regulation).
44.4 Credit risk
Definition and overview
Credit risk arises in Erste Group’s traditional lending and investment businesses. It involves losses incurred as a result of default by borrowers and the need to set aside allowances as a result of the deteriorating credit quality of certain borrowers as well as due to counterparty risk from trading in instruments and derivatives bearing market risk. Country risk, too, is recognised in the calculation of credit risk.
Operative credit decisions are made by the credit risk management units in each of the banking subsidiaries locally and by Group Credit
& Market Risk Management and Group EGI Real Estate Risk Management at group level. A detailed explanation of the role and respon-
202
sibilities of Group Credit & Market Risk Management and Group EGI Real Estate Risk Management is covered in the section “Risk
management organisation”.
The central database used for credit risk management is above all the Group data pool. All data relevant to credit risk management, performance management and determination of risk-weighted assets and the regulatory capital requirement is regularly loaded into this database. Relevant subsidiaries not yet integrated into the Group data pool regularly deliver reporting packages.
The Group Risk Data and Reporting department uses mainly the Group data pool for centralised credit risk reporting. This ensures centralised analysis and application of ratios according to unified methods and segmentation across Erste Group as a whole. Credit risk reporting
comprises regular reports on Erste Group’s credit portfolio for external and internal recipients and permits continuous monitoring of credit
risk developments, thus enabling management to take control measures. In-house recipients of these reports include, above all, the supervisory and management boards of Erste Group Bank AG as well as the risk managers, business unit directors and internal audit staff.
The Credit Limit System organisational unit, which is part of Group Credit & Market Risk Management, is in charge of operating, supervising and continuously improving the group-wide online limit system for the control of counterparty credit risk arising from treasury transactions, as well as for the monitoring of credit risk from exposures in the asset classes Corporates, Financial Institutions and Sovereigns.
Internal rating system
Erste Group has business and risk strategies in place that govern policies for lending and credit approval processes. These policies are
reviewed and adjusted regularly, at a minimum on an annual basis. They cover the entire lending business, taking into account the nature,
scope and risk level of the transactions and the counterparties involved. Credit approval considers individual information on the creditworthiness of the customer, the type of credit, collateral, covenant package and other risk mitigation factors involved.
The assessment of counterparty default risk within Erste Group is based on the customer’s probability of default (PD). For each credit
exposure and lending decision, Erste Group assigns an internal rating, which is a unique measure of the counterparty default risk. The
internal rating of each customer is updated at least on an annual basis (annual rating review). Ratings of workout customers are reviewed
with higher frequency.
The main purpose of the internal ratings is to support the decision-making for lending and for the terms of credit facilities. Internal ratings
also determine the level of credit-approval authority within Erste Group and the monitoring procedures for existing exposures. At a quantitative level, internal ratings influence the level of required risk pricing, risk allowances and risk-weighted assets under Pillar 1 or 2.
For entities of Erste Group that use the internal ratings-based (IRB) approach, internal ratings are a key input into the risk-weighted assets
calculation. They are also used in the group’s assessment of the economic capital requirement according to Pillar 2. For these purposes, a
distinct PD value is assigned to each rating grade for its IRB portfolios within a calibration process that is performed individually for each
rating method. PD values reflect a 12-month probability of default based on long-term average default rates per rating grade. The bank
assigns margins of conservatism to the calculated PDs.
Internal ratings take into account all available significant information for the assessment of counterparty default risk. For non-retail borrowers, internal ratings take into account the financial strength of the counterparty, the possibility of external support, flexibility in corporate
financing, general company information and external credit history information, where available. For retail clients, internal ratings are based
mainly on payment behaviour versus the bank and, where applicable, credit bureau information, supplemented with information provided
by the respective client and general demographic information. Rating ceiling rules on credit quality are applied based on membership in a
group of economically related entities and the country of main economic activity (applicable to cross-border financing facilities).
Internal specialist teams develop and improve internal rating models and risk parameters in cooperation with risk managers. Model development follows an internal group-wide methodological standard and utilises relevant data covering the respective market. In this way,
Erste Group ensures the availability of rating models with the best possible predictiveness across its core regions.
All rating models and their components (scorecards), whether retail or non-retail, are regularly validated by the central validation unit
based on a group-wide standard methodology. Validation uses statistical techniques to evaluate the accuracy of default prediction, rating
stability, data quality, completeness and relevance and reviews the quality of documentation and degree of user acceptance. The results of
this validation process are reported to the management and regulatory bodies. In addition to the validation process, the group applies a
regular monitoring process on the performance of rating tools, reflecting developments in new defaults and early delinquencies.
203
A Holding Model Committee is established as the primary steering and control body for the model development and validation process.
The Holding Model Committee reports to the Group Risk Executive Committee (GREC). All new models, model changes and changes to
risk parameters in the group as well as group-wide methodology standards are reviewed by the Holding Model Committee and require its
approval. This ensures group-wide integrity and consistency of models and methodologies. Furthermore, the Holding Model Committee
organises the group-wide validation process, reviews validation results and approves remedial actions. All development and validation
activities are coordinated by the Risk Methods and Models division with responsibility for validation in the independent Group Validation
unit.
Risk grades and categories
The classification of credit assets into risk grades is based on Erste Group’s internal ratings. Erste Group uses two internal risk scales for
risk classification: for customers that have not defaulted, a risk scale of 8 risk grades (for private clients) and 13 risk grades (for all other
segments) is used. Defaulted customers are classified into a separate risk grade.
For the purpose of external reporting, internal rating grades of Erste Group are grouped into the following four risk categories:
Low risk. Typically regional customers with well-established and rather long-standing relationships with Erste Group or large internationally recognised customers. Very good to satisfactory financial position and low likelihood of financial difficulties relative to the respective market in which the customers operate. Retail clients having long relationships with the bank, or clients with a wide product pool
use. No relevant late payments currently or in the most recent 12 months. New business is generally done with clients in this risk category.
Management attention. Vulnerable non-retail clients that may have overdue payments or defaults in their credit history or may encoun-
ter debt repayment difficulties in the medium term. Retail clients with possible payment problems in the past triggering early collection
reminders. These clients typically have a good recent payment history.
Substandard. The borrower is vulnerable to short term negative financial and economic developments and shows an elevated probability
of failure. In some cases, restructuring measures are possible or already in place. As a rule, such loans are managed in specialised risk
management departments.
Non-performing. One or more of the default criteria under Article 178 of the CRR are met: among others, full repayment unlikely, interest or principal payments on a material exposure more than 90 days past due, restructuring resulting in a loss to the lender, realisation of a
loan loss, or initiation of bankruptcy proceedings. As from 2015, Erste Group applies the customer view for all customer segments, including retail clients; if an obligor defaults on one deal then the customer’s performing transactions are classified as non-performing as
well. Furthermore, non-performing exposures also comprise non-performing forborne transactions even in cases where the client has not
defaulted. Until 2014, the product view was used in the retail segment in some subsidiaries in CEE, so that only the product actually in
default is counted as a non-performing exposure whereas the other products of the same customer are considered performing. This
amendment had no significant impact for Erste Group.
Credit risk review and monitoring
In order to manage the credit risk for large corporates, banks, sovereigns and country risk, credit limits are established to reflect the maximum exposure that Erste Group is willing to have towards a particular customer or group of connected clients. An upper boundary for
such limits is given by the entity-specific maximum lending limit (MLL), which is derived from the respective group and local Risk Appetite Statement (RAS). All credit limits and the transactions booked within the limits are reviewed at least once a year.
For smaller enterprises (micro) and retail customers, the monitoring and credit review are based on an automated early warning system. In
retail risk management the following early warning signals indicate potential adverse portfolio developments, if left unaddressed:
_ Deterioration of new business quality, and
_ Decreasing collections efficiency.
The early warning signals are monitored at group level by Group Retail and SME Risk Management and locally by local Retail
Risk/Collections Management. Adverse developments identified during the monitoring are discussed and the need for risk mitigation is
addressed jointly.
Credit portfolio reports for asset classes and business lines are prepared on a regular basis. Watch-list meetings and remedial committee
meetings are held on a regular basis to monitor customers with a poor credit standing and to discuss pre-emptive measures to help a particular debtor avoid default.
204
Credit risk exposure
Credit risk exposure relates to the following balance sheet items:
_ Cash and cash balances - other demand deposits,
_ Financial assets - held for trading (without equity instruments),
_ Financial assets - at fair value through profit or loss (without equity instruments),
_ Financial assets - available for sale (without equity instruments),
_ Financial assets - held to maturity,
_ Loans and Receivables to credit institutions,
_ Loans and receivables to customers,
_ Positive fair value of derivatives, and
_ Off balance sheet credit risks (primarily financial guarantees and undrawn irrevocable credit commitments).
The credit risk exposure comprises the gross carrying amount (or nominal value in the case of off-balance-sheet positions) without taking
into account loan loss allowances, provisions for guarantees, any collateral held (including risk transfer to guarantors), netting effects,
other credit enhancements or credit risk mitigating transactions. The credit risk exposure of Erste Group increased by 0.6% or
EUR 1,267 million from EUR 210.9 billion as of 31 December 2014 to EUR 212.2 billion as of 31 December 2015.
Reconciliation between the gross carrying amount and the carrying amount of the separate components of the
credit risk exposure
in EUR million
Gross carrying amount
Allowances
Carrying amount
As of 31 December 2015
Cash and cash balances – other demand deposits
Loans and receivables to credit institutions
Loans and receivables to customers
Financial assets - held to maturity
Financial assets - held for trading
Financial assets - at fair value through profit or loss
Financial assets - available for sale
Positive fair value of derivatives
Contingent liabilities
Total
2,228
4,819
131,906
17,703
3,163
176
19,307
7,494
25,415
212,211
0
14
6,009
2
0
0
0
0
297
6,322
2,228
4,805
125,897
17,701
3,163
176
19,307
7,494
180,771
As of 31 December 2014
Cash and cash balances – other demand deposits
Loans and receivables to credit institutions
Loans and receivables to customers
Financial assets - held to maturity
Financial assets - held for trading
Financial assets - at fair value through profit or loss
Financial assets - available for sale
Positive fair value of derivatives
Contingent liabilities
Total
859
7,461
128,325
16,879
3,173
139
21,102
10,045
22,963
210,944
0
18
7,491
2
0
0
0
0
241
7,752
859
7,442
120,834
16,877
3,173
139
21,102
10,045
180,471
Concerning contingent liabilities the gross carrying amount refers to the nominal value, and allowances refer to provisions for guarantees.
A carrying amount is not presented in the case of contingent liabilities.
Breakdown of credit risk exposure
The credit risk exposure is presented below divided into the following classes:
_ by Basel 3 exposure class and financial instrument,
_ by industry and financial instrument,
_ by risk category,
_ by industry and risk category,
_ by region and risk category,
_ by business segment and risk category, and
_ by geographical segment and risk category
205
Thereafter, a breakdown is presented of
_ contingent liabilities by region and risk category,
_ contingent liabilities by product,
_ credit risk exposure to sovereigns by region and financial instrument, and
_ credit risk exposure to institutions by region and financial instrument
This is followed by presentation of
_ non-performing credit risk exposure by business segment and credit risk provisions,
_ non-performing credit risk exposure by geographical segment and credit risk provisions,
_ the composition of allowances,
_ credit risk exposure, forbearance exposure and credit risk provisions,
_ the types of forbearance exposure,
_ the development of forbearance exposure and credit risk provisions,
_ credit quality of forbearance exposure by geographical segments,
_ credit risk exposure by business segment and collateral,
_ credit risk exposure by geographical segment and collateral,
_ credit risk exposure by financial instrument and collateral, and
_ credit risk exposure past due and not covered by specific allowances by financial instruments and collateralisation
and a breakdown of
_ loans and receivables to customers by business segment and risk category,
_ loans and receivables to customers by geographical segment and risk category,
_ non-performing loans and receivables to customers by business segment and coverage by loan loss allowances and collateral,
_ non-performing loans and receivables to customers by geographical segment and coverage by loan loss allowances and collateral,
_ loans and receivables to customers by business segment and currency, and
_ loans and receivables to customers by geographical segment and currency.
Credit risk exposure by Basel 3 exposure class and financial instrument
The assignment of obligors to Basel 3 exposure classes is based on legal regulations. For reasons of clarity, individual Basel 3 exposure
classes are presented in aggregated form in the table below and in other tables in the section “Credit risk”. The aggregated exposure class
“sovereigns” also contains regional and local governments as well as public sector entities in addition to central governments, central
banks, international organisations and multinational development banks. Institutions include banks and recognised investment firms.
Debt securities
Cash and cash Loans and
balances – receivables
Loans and
other demand
to credit
receivables
deposits institutions to customers
in EUR million
Financial
assets held to
maturity
Financial
Financial
assets - at
assets fair value
held for
through
trading profit or loss
at amortised cost
Financial
assets available
for sale
Positive fair
value of
derivatives
Contingent
liabilities
Gross
exposure
at fair value
As of
31 Dec 2015
Sovereigns
Institutions
Corporates
Retail
Total
11
2,211
6
0
2,228
1,271
3,008
540
0
4,819
7,414
197
58,727
65,569
131,906
16,479
820
405
0
17,703
2,393
398
373
0
3,163
13
73
91
0
176
14,998
2,151
2,158
0
19,307
338
6,647
508
1
7,494
1,231
333
17,738
6,113
25,415
44,147
15,836
80,546
71,682
212,211
As of
31 Dec 2014
Sovereigns
Institutions
Corporates
Retail
Total
0
848
11
0
859
2,277
5,164
20
0
7,461
6,676
78
57,752
63,819
128,325
15,302
1,041
536
0
16,879
2,471
391
311
0
3,173
12
79
47
0
139
15,674
2,983
2,445
0
21,102
352
9,040
650
4
10,045
1,230
366
15,938
5,428
22,963
43,994
19,989
77,710
69,251
210,944
206
Credit risk exposure by industry and financial instrument
Debt securities
Cash and cash
balances –
other demand
deposits
Loans and
receivables
to credit
institutions
in EUR million
Loans and
receivables
to customers
Financial
assets - held
to maturity
Financial
assets - held
for trading
at amortised cost
Financial
assets - at
fair value
through
profit or loss
Financial
assets available for
sale
Positive fair
value of
derivatives
Contingent
liabilities
Gross
exposure
at fair value
As of 31 December 2015
Agriculture and forestry
Mining
Manufacturing
Energy and water supply
Construction
Development of building projects
Trade
Transport and communication
Hotels and restaurants
Financial and insurance services
Holding companies
Real estate and housing
Services
Public administration
Education, health and art
Private households
Other
Total
0
0
0
0
0
0
0
0
0
2,228
0
0
0
0
0
0
0
2,228
0
0
0
0
0
0
0
0
0
4,819
0
0
0
0
0
0
0
4,819
2,384
409
9,607
3,339
6,329
3,557
7,860
3,621
3,678
5,165
3,288
21,082
5,728
6,765
2,635
53,251
54
131,906
0
0
30
0
153
0
0
206
7
1,540
45
6
40
15,714
0
0
8
17,703
0
52
6
13
14
1
1
98
0
511
21
13
29
2,382
0
0
42
3,163
0
0
0
0
0
0
0
0
0
172
0
0
0
5
0
0
0
176
0
26
218
87
308
32
23
1,066
2
4,372
208
161
163
12,513
2
0
366
19,307
4
1
78
90
10
6
12
43
6
6,872
44
129
35
201
11
1
2
7,494
217
333
4,179
782
3,148
938
2,777
1,751
452
2,232
1,641
2,258
1,438
995
377
4,184
291
25,415
2,606
821
14,120
4,311
9,961
4,534
10,673
6,785
4,144
27,912
5,247
23,649
7,433
38,574
3,026
57,436
763
212,211
As of 31 December 2014
Agriculture and forestry
Mining
Manufacturing
Energy and water supply
Construction
Development of building projects
Trade
Transport and communication
Hotels and restaurants
Financial and insurance services
Holding companies
Real estate and housing
Services
Public administration
Education, health and art
Private households
Other
Total
0
0
0
0
0
0
0
0
0
859
0
0
0
0
0
0
0
859
0
0
0
0
0
0
0
0
0
7,461
0
0
0
0
0
0
0
7,461
2,121
362
9,322
3,148
6,208
3,305
7,903
3,539
3,642
5,888
3,511
20,558
4,895
6,127
2,623
51,807
181
128,325
0
0
31
37
242
87
0
222
8
1,517
45
5
37
14,772
0
0
8
16,879
0
0
55
19
8
2
4
121
0
539
64
14
56
2,352
0
0
5
3,173
0
0
0
0
0
0
0
0
0
132
0
0
0
5
0
0
1
139
1
21
156
54
373
81
14
733
2
5,598
239
176
146
13,385
1
0
444
21,102
5
3
97
112
8
7
17
30
11
9,392
47
133
34
177
15
4
6
10,045
207
155
4,086
781
2,933
555
2,405
943
469
2,434
1,828
2,087
1,293
858
310
3,377
626
22,963
2,333
541
13,747
4,152
9,772
4,038
10,343
5,587
4,131
33,820
5,735
22,974
6,461
37,676
2,948
55,187
1,270
210,944
207
Credit risk exposure by risk category
in EUR million
Total exposure as of 31 Dec 2015
Share of credit risk exposure
Total exposure as of 31 Dec 2014
Share of credit risk exposure
Change in credit risk exposure in 2015
Change
Low risk
Management
attention
Substandard
Non-performing
Gross exposure
181,644
85.6%
177,474
84.1%
18,091
8.5%
18,284
8.7%
2,663
1.3%
3,825
1.8%
9,813
4.6%
11,362
5.4%
212,211
4,170
2.4%
-193
-1.1%
-1,162
-30.4%
-1,549
-13.6%
1,267
0.6%
210,944
From 31 December 2014 to 31 December 2015, only the share of credit risk exposure in the best category increased, while it decreased in
the remaining three categories. Non-performing claims as a percentage of total credit risk exposure (i.e. the non-performing exposure
ratio, NPE ratio) fell from 5.4% to 4.6%. Of Erste Group’s total credit risk exposure as of year-end 2015, 85.6% fell into the best risk
category and approximately 8.5% was in the management attention category. The combined proportion of the two weakest risk categories
declined by 1.4 percentage points from 7.2% to 5.8% of total credit risk exposure between 31 December 2013 and 31 December 2014.
Credit risk exposure by industry and risk category
Low risk
Management
attention
Substandard
Non-performing
Gross exposure
As of 31 December 2015
Agriculture and forestry
Mining
Manufacturing
Energy and water supply
Construction
Development of building projects
Trade
Transport and communication
Hotels and restaurants
Financial and insurance services
Holding companies
Real estate and housing
Services
Public administration
Education, health and art
Private households
Other
Total
1,870
601
11,193
3,616
7,537
3,609
7,809
6,021
2,370
26,787
4,853
19,244
5,652
37,929
2,242
48,356
417
181,644
506
88
1,584
477
1,090
411
1,662
505
994
710
100
2,771
1,022
602
414
5,658
7
18,091
44
10
213
40
195
84
177
56
213
99
42
322
260
21
38
648
325
2,663
186
121
1,129
178
1,138
429
1,024
203
567
316
253
1,311
499
22
332
2,773
14
9,813
2,606
821
14,120
4,311
9,961
4,534
10,673
6,785
4,144
27,912
5,247
23,649
7,433
38,574
3,026
57,436
763
212,211
As of 31 December 2014
Agriculture and forestry
Mining
Manufacturing
Energy and water supply
Construction
Development of building projects
Trade
Transport and communication
Hotels and restaurants
Financial and insurance services
Holding companies
Real estate and housing
Services
Public administration
Education, health and art
Private households
Other
Total
1,596
435
10,283
3,442
6,856
3,003
7,340
4,785
2,230
32,370
5,226
18,422
4,933
37,148
2,129
45,024
482
177,474
429
63
1,559
435
1,367
472
1,605
450
967
855
126
2,778
976
487
453
5,849
10
18,284
46
5
282
79
133
35
174
69
208
107
50
510
133
14
43
1,265
755
3,825
262
38
1,623
196
1,416
527
1,224
283
726
488
333
1,264
420
27
323
3,049
24
11,362
2,333
541
13,747
4,152
9,772
4,038
10,343
5,587
4,131
33,820
5,735
22,974
6,461
37,676
2,948
55,187
1,270
210,944
in EUR million
208
Credit risk exposure by region and risk category
The geographic analysis of credit exposure is based on the country of risk of borrowers and counterparties and also includes obligors
domiciled in other countries if the economic risk exists in the respective country of risk. Accordingly, the distribution by regions differs
from the composition of the credit risk exposure by geographical segments of Erste Group.
Low risk
Management
attention
Substandard
Non-performing
Gross exposure
As of 31 December 2015
Core markets
Austria
Croatia
Romania
Serbia
Slovakia
Czech Republic
Hungary
Other EU
Other industrialised countries
Emerging markets
South-Eastern Europe/CIS
Asia
Latin America
Middle East/Africa
Total
151,849
81,288
7,104
11,430
749
15,898
29,622
5,758
23,255
3,629
2,912
1,328
1,054
68
461
181,644
16,353
8,499
1,125
2,022
366
782
2,802
757
1,080
144
513
357
97
30
29
18,091
2,441
1,440
205
219
5
131
284
157
110
12
100
98
1
0
1
2,663
8,767
2,865
1,237
1,927
180
684
1,017
856
632
79
335
321
1
3
10
9,813
179,409
94,091
9,671
15,599
1,300
17,495
33,725
7,528
25,077
3,864
3,860
2,104
1,153
102
501
212,211
As of 31 December 2014
Core markets
Austria
Croatia
Romania
Serbia
Slovakia
Czech Republic
Hungary
Other EU
Other industrialised countries
Emerging markets
South-Eastern Europe/CIS
Asia
Latin America
Middle East/Africa
Total
145,678
78,523
6,889
11,234
706
14,838
28,309
5,180
24,954
3,928
2,914
1,340
1,068
102
404
177,474
16,445
8,542
1,234
1,960
313
775
2,562
1,059
1,262
92
485
394
32
21
38
18,284
3,358
1,554
339
465
81
242
426
252
376
17
74
73
1
0
0
3,825
10,148
3,121
1,584
2,309
175
581
1,025
1,352
695
80
439
407
14
4
13
11,362
175,629
91,741
10,045
15,967
1,275
16,436
32,322
7,843
27,287
4,117
3,911
2,214
1,115
127
455
210,944
in EUR million
Between 31 December 2014 and 31 December 2015, the credit risk exposure increased by EUR1,267 million to approximately EUR 212.2
billion. While a growth of almost EUR 2,350 million, or 2.6%, was experienced in Austria, it increased by EUR 1,430 million, or almost
1.7% in the CEE core markets. In the other EU member states (EU 28 excluding core markets), the credit risk exposure declined by
EUR 2,210 million, or 8.1%, from EUR 27.3 billion to EUR 25.1 billion between the two balance sheet dates. A decrease could be observed
as well in other industrialised countries (- EUR 253 million) and in emerging markets (- EUR 51 million). In total, the countries of Erste
Group’s core market and the EU accounted for 96.4% of credit risk exposure as of 31 December 2015. At 1.8%, the share of emerging
markets remained of minor importance. Russia and Ukraine do not belong to the core markets of Erste Group and, as part of emerging
markets, are included in the region “South-Eastern Europe/CIS”. Due to the continuing difficult economic situation the credit risk exposure
was reduced further in both markets during the year 2015. In Ukraine the credit risk volume decreased from EUR 404 million in December 2014 to EUR 274 million in December 2015. Corporate and Commercial Real Estate customers accounted for the bulk of the exposure.
At the end of 2015, the provisions for credit risks amounted to EUR 97 million (2014: EUR 151 million). Of the total credit risk exposure as
of year-end 2015, borrowers resident in Ukraine accounted for EUR 98 million (2014: EUR 150 million) and Ukrainian debtors domiciled
outside of Ukraine accounted for EUR 178 million (2014: EUR 254 million). In Russia, the credit risk exposure declined from
EUR 178 million as of 31 December 2014 to EUR 149 million as of 31 December 2015. The majority of the credit risks consisted of claims
on big commercial banks and corporate customers. As of year-end 2015, the provisions for credit risks amounted to EUR 4 million (2014:
EUR 16 million). Of the total credit risk exposure, Russian borrowers domiciled outside Russia accounted for EUR 10 million (2014:
EUR 15 million), and receivables of EUR 55 million (2014: EUR 64 million) were covered by guarantees issued by foreign guarantors. As
of year-end 2015, the credit risk exposure to Greek borrowers, including the Greek government, amounted to EUR 32 million (2014:
EUR 21 million). The Greek government only accounted for EUR 106 thousand (2014: EUR 126 thousand).
209
Credit risk exposure by reporting segment and risk category
The segment reporting of Erste Group is based on the matrix organisation by business segment as well as by geographical segment. The
geographical segmentation follows the country markets in which Erste Group operates and the locations of the banking and other financial
institutions participations.
Credit risk exposure by business segment and risk category
Low risk
Management
attention
Substandard
Non-performing
Gross exposure
As of 31 December 2015
Retail
Small and Medium Enterprises
Asset/Liability Management and Local Corporate Center
Savings Banks
Large Corporates
Commercial Real Estate
Other Corporate
Group Markets
Group Corporate Center
Total
46,280
19,996
24,281
44,880
18,842
6,022
2,543
16,998
1,802
181,644
4,810
3,055
346
6,837
1,293
1,120
191
399
40
18,091
588
321
131
986
95
427
7
7
100
2,663
2,622
1,860
15
2,381
1,124
1,675
106
8
22
9,813
54,300
25,233
24,773
55,084
21,354
9,245
2,847
17,412
1,964
212,211
As of 31 December 2014
Retail
Small and Medium Enterprises
Asset/Liability Management and Local Corporate Center
Savings Banks
Large Corporates
Commercial Real Estate
Other Corporate
Group Markets
Group Corporate Center
Total
42,679
20,176
29,072
43,570
14,860
5,861
2,947
16,935
1,375
177,474
4,853
2,908
226
6,806
1,253
1,546
283
320
88
18,284
1,178
402
219
974
108
464
37
25
417
3,825
2,963
2,341
67
2,530
1,352
2,001
87
3
18
11,362
51,674
25,826
29,585
53,879
17,573
9,872
3,355
17,282
1,899
210,944
Low risk
Management
attention
Substandard
Non-performing
Gross exposure
As of 31 December 2015
Austria
Erste Bank Oesterreich & Subsidiaries
Savings Banks
Other Austria
Central and Eastern Europe
Czech Republic
Romania
Slovakia
Hungary
Croatia
Serbia
Other
Total
105,975
33,805
44,880
27,289
66,143
30,146
10,019
13,341
4,817
7,149
671
9,527
181,644
11,020
2,839
6,837
1,344
7,024
2,687
1,911
604
530
1,013
280
46
18,091
1,706
401
986
319
857
222
176
124
116
215
3
100
2,663
4,700
913
2,381
1,405
5,054
856
1,825
565
685
1,046
77
59
9,813
123,401
37,959
55,084
30,359
79,078
33,911
13,931
14,635
6,148
9,423
1,031
9,732
212,211
As of 31 December 2014
Austria
Erste Bank Oesterreich & Subsidiaries
Savings Banks
Other Austria
Central and Eastern Europe
Czech Republic
Romania
Slovakia
Hungary
Croatia
Serbia
Other
Total
105,421
32,588
43,570
29,264
62,702
28,811
9,833
12,403
4,171
6,926
559
9,350
177,474
11,355
2,817
6,806
1,732
6,757
2,173
1,837
577
784
1,156
230
172
18,284
1,893
449
974
469
1,515
393
408
218
194
294
7
417
3,825
5,238
1,115
2,530
1,593
6,064
843
2,210
489
1,161
1,279
83
60
11,362
123,908
36,970
53,879
33,059
77,037
32,220
14,288
13,687
6,310
9,653
879
9,999
210,944
in EUR million
Credit risk exposure by geographical segment and risk category
in EUR million
210
Contingent liabilities by region and risk category
Low risk
Management
attention
Substandard
Non-performing
Gross exposure
As of 31 December 2015
Core markets
Austria
Croatia
Romania
Serbia
Slovakia
Czech Republic
Hungary
Other EU
Other industrialised countries
Emerging markets
South-Eastern Europe/CIS
Asia
Latin America
Middle East/Africa
Total
19,676
12,285
744
1,184
117
1,163
3,404
779
2,167
267
345
220
86
0
38
22,454
1,792
921
92
287
18
74
356
44
92
11
74
38
24
12
1
1,970
502
421
20
11
0
31
18
0
18
0
8
8
0
0
0
527
382
161
17
113
19
24
18
31
77
3
1
1
0
0
0
464
22,351
13,787
873
1,594
155
1,292
3,796
855
2,353
281
428
267
110
13
39
25,415
As of 31 December 2014
Core markets
Austria
Croatia
Romania
Serbia
Slovakia
Czech Republic
Hungary
Other EU
Other industrialised countries
Emerging markets
South-Eastern Europe/CIS
Asia
Latin America
Middle East/Africa
Total
17,710
11,462
652
926
121
1,291
2,860
397
1,580
270
295
174
84
1
36
19,855
1,733
903
98
270
15
35
314
99
88
8
85
61
4
18
2
1,914
617
518
15
41
1
15
26
2
152
0
12
12
0
0
0
781
354
187
23
56
0
67
14
7
29
0
30
30
0
0
0
413
20,414
13,070
788
1,292
137
1,408
3,213
505
1,849
278
421
276
88
19
38
22,963
Dec 2014
Dec 2015
6,862
16,101
22,963
6,288
19,127
25,415
in EUR million
Contingent liabilities by product
in EUR million
Financial guarantees
Irrevocable commitments
Total
211
212
Credit risk exposure to sovereigns by region and financial instrument
The credit risk exposure to sovereigns is broken down by region and financial instrument. The assignment of obligors to sovereigns is based on Basel 3 exposure classes.
Debt securities
Cash and cash
balances –
other demand
deposits
Loans and
receivables
to credit
institutions
in EUR million
Loans and
receivables
to customers
Financial
assets - held
to maturity
Financial
assets - held
for trading
at amortised cost
Financial
assets - at
fair value
through
profit or loss
Financial
assets available for
sale
Positive fair
value of
derivatives
Contingent
liabilities
Gross
exposure
at fair value
As of 31 December 2015
Core markets
Austria
Croatia
Romania
Serbia
Slovakia
Czech Republic
Hungary
Other EU
Other industrialised countries
Emerging markets
South-Eastern Europe/CIS
Asia
Latin America
Middle East/Africa
Total
0
0
0
0
0
0
0
0
11
0
0
0
0
0
0
11
1,267
2
518
1
4
0
0
742
0
0
5
0
0
0
5
1,271
7,007
3,767
1,284
985
11
235
654
70
66
0
341
188
148
0
5
7,414
14,871
3,143
137
2,269
67
3,437
4,900
918
1,136
413
59
59
0
0
0
16,479
2,056
54
266
777
137
182
224
416
308
0
28
17
0
0
11
2,393
13
1
0
0
0
0
12
0
0
0
0
0
0
0
0
13
11,152
4,710
560
1,504
31
1,969
2,192
185
3,121
578
147
142
1
2
4
14,998
210
74
0
0
0
0
124
11
128
0
0
0
0
0
0
338
1,195
824
59
3
4
4
10
290
2
0
34
29
4
0
0
1,231
37,771
12,576
2,824
5,539
254
5,828
8,118
2,632
4,773
991
613
435
153
2
24
44,147
As of 31 December 2014
Core markets
Austria
Croatia
Romania
Serbia
Slovakia
Czech Republic
Hungary
Other EU
Other industrialised countries
Emerging markets
South-Eastern Europe/CIS
Asia
Latin America
Middle East/Africa
Total
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1,501
0
597
1
0
0
0
904
28
740
8
0
0
3
5
2,277
6,291
3,748
1,279
25
17
254
637
332
58
0
327
193
127
0
7
6,676
14,361
3,313
183
1,941
64
3,524
4,627
709
914
0
27
24
3
0
0
15,302
2,289
187
266
852
88
203
312
382
135
9
37
23
0
0
14
2,471
12
1
0
0
0
0
12
0
0
0
0
0
0
0
0
12
12,412
4,986
571
1,412
23
2,016
3,340
64
2,715
392
154
149
0
2
3
15,674
261
27
0
0
0
17
193
24
90
0
0
0
0
0
0
352
1,187
857
15
126
6
8
172
2
3
0
40
40
0
0
0
1,230
38,315
13,119
2,910
4,358
197
6,022
9,292
2,417
3,945
1,141
594
430
130
5
29
43,994
Credit risk exposure to institutions by region and financial instrument
The credit risk exposure to institutions is broken down by region and financial instrument. The assignment of obligors to institutions is based on Basel 3 exposure classes.
Debt securities
Cash and cash
balances –
other demand
deposits
Loans and
receivables
to credit
institutions
in EUR million
Loans and
receivables
to customers
Financial
assets - held
to maturity
Financial
assets - held
for trading
At amortised cost
Financial
assets - at
fair value
through
profit or loss
Financial
assets available for
sale
Positive fair
value of
derivatives
Contingent
credit risk
liabilities
Gross
exposure
At fair value
As of 31 December 2015
Core markets
Austria
Croatia
Romania
Serbia
Slovakia
Czech Republic
Hungary
Other EU
Other industrialised countries
Emerging markets
South-Eastern Europe/CIS
Asia
Latin America
Middle East/Africa
Total
502
415
4
43
0
1
35
4
1,578
66
64
1
62
2
0
2,211
849
370
43
55
1
96
269
16
1,708
71
379
17
346
4
13
3,008
180
106
7
2
0
0
0
65
16
0
0
0
0
0
0
197
432
45
0
0
0
19
353
14
325
44
18
0
18
0
0
820
268
251
0
0
0
0
4
12
120
10
0
0
0
0
0
398
23
19
0
4
0
0
0
0
7
9
34
0
34
0
0
73
808
400
0
52
0
25
248
82
1,108
223
12
0
9
3
0
2,151
663
511
0
1
0
6
133
12
5,815
167
2
0
2
0
0
6,647
236
88
13
25
0
26
84
0
81
6
11
0
8
0
3
333
3,961
2,205
67
182
1
174
1,125
206
10,758
596
521
18
479
9
16
15,836
As of 31 December 2014
Core markets
Austria
Croatia
Romania
Serbia
Slovakia
Czech Republic
Hungary
Other EU
Other industrialised countries
Emerging markets
South-Eastern Europe/CIS
Asia
Latin America
Middle East/Africa
Total
320
237
2
37
4
0
40
0
235
261
32
1
29
2
1
848
1,173
611
79
67
1
109
234
72
2,856
105
1,031
45
716
50
220
5,164
58
28
4
0
0
0
0
26
0
15
4
4
0
0
0
78
503
130
0
240
0
19
114
0
454
84
0
0
0
0
0
1,041
238
222
0
0
0
0
12
4
141
11
0
0
0
0
0
391
31
29
0
0
0
0
1
0
42
7
0
0
0
0
0
79
789
486
0
223
0
43
37
0
1,997
196
1
0
0
1
1
2,983
636
473
0
1
0
8
123
32
8,149
253
1
0
1
0
0
9,040
177
134
0
0
0
26
15
2
95
6
88
25
27
0
36
366
3,927
2,351
86
569
5
206
576
135
13,968
938
1,156
75
773
52
257
19,989
213
Non-performing credit risk exposure and credit risk provisions
For the definition of credit risk exposure classified as non-performing, please refer to the description of risk categories in the subsection
“Internal rating system”. Credit risk provisions include specific and collective allowances and provisions for guarantees.
Credit risk allowances (specific and collective allowances) and provisions for guarantees covered 64.4% (2014: 68.2%) of the reported
non-performing credit risk exposure as of 31 December 2015. For the portion of the non-performing credit risk exposure that is not covered by allowances, Erste Group assumes there are sufficient levels of collateral and expected other recoveries.
During the 12 months ended 31 December 2015, the non-performing credit risk exposure decreased by EUR 1,549 million, or more than
13.6%, from EUR 11,362 million as of 31 December 2014 to EUR 9,813 million as of 31 December 2015. The credit risk allowances and
provisions for guarantees decreased by EUR 1,430 million, or 18.4%, from EUR 7,752 million as of 31 December 2014 to EUR 6,322
million as of 31 December 2015. These movements resulted in a decrease, from 68.2% to 64.4%, in the coverage of the non-performing
credit risk exposure by credit risk provisions.
The following tables show the coverage of the non-performing credit risk exposure across the reporting segments by credit risk provisions
(without taking into consideration collateral) as of 31 December 2015 and 31 December 2014 respectively. The differences in provisioning levels for the segments result from the risk situation in the respective markets, different levels of collateralisation, as well as the local
legal environment and regulatory requirements.
The non-performing exposure ratio (NPE ratio) is calculated by dividing non-performing credit risk exposure by total credit risk exposure.
The non-performing exposure coverage ratio (NPE coverage ratio) is calculated by dividing the credit risk provisions by non-performing
credit risk exposure. Collateral or other recoveries are not taken into account.
Non-performing credit risk exposure by business segment and credit risk provisions
Gross exposure
Non-performing
Gross exposure
Total credit risk
provisions
NPE ratio
NPE coverage
(excl. collateral)
As of 31 December 2015
Retail
Small and Medium Enterprises
Asset/Liability Management and Local Corporate Center
Savings Banks
Large Corporates
Commercial Real Estate
Other Corporate
Group Markets
Group Corporate Center
Total
2,622
1,860
15
2,381
1,124
1,675
106
8
22
9,813
54,300
25,233
24,773
55,084
21,354
9,245
2,847
17,412
1,964
212,211
1,785
1,352
32
1,366
783
898
64
2
41
6,322
4.8%
7.4%
0.1%
4.3%
5.3%
18.1%
3.7%
0.0%
1.1%
4.6%
68.1%
72.7%
215.6%
57.4%
69.6%
53.6%
60.5%
21.5%
185.9%
64.4%
As of 31 December 2014
Retail
Small and Medium Enterprises
Asset/Liability Management and Local Corporate Center
Savings Banks
Large Corporates
Commercial Real Estate
Other Corporate
Group Markets
Group Corporate Center
Total
2,963
2,341
67
2,530
1,352
2,001
87
3
18
11,362
51,674
25,826
29,585
53,879
17,573
9,872
3,355
17,282
1,899
210,944
2,378
1,508
26
1,644
970
1,156
46
1
23
7,752
5.7%
9.1%
0.2%
4.7%
7.7%
20.3%
2.6%
0.0%
1.0%
5.4%
80.3%
64.4%
38.3%
65.0%
71.8%
57.8%
52.6%
35.2%
125.5%
68.2%
in EUR million
214
Non-performing credit risk exposure by geographical segment and credit risk provisions
Gross exposure
Non-performing
Gross exposure
Total credit risk
provisions
NPE ratio
NPE coverage
(excl. collateral)
As of 31 December 2015
Austria
Erste Bank Oesterreich & Subsidiaries
Savings Banks
Other Austria
Central and Eastern Europe
Czech Republic
Romania
Slovakia
Hungary
Croatia
Serbia
Other
Total
4,700
913
2,381
1,405
5,054
856
1,825
565
685
1,046
77
59
9,813
123,401
37,959
55,084
30,359
79,078
33,911
13,931
14,635
6,148
9,423
1,031
9,732
212,211
2,682
588
1,366
728
3,557
619
1,379
371
409
710
68
83
6,322
3.8%
2.4%
4.3%
4.6%
6.4%
2.5%
13.1%
3.9%
11.1%
11.1%
7.5%
0.6%
4.6%
57.1%
64.4%
57.4%
51.8%
70.4%
72.4%
75.5%
65.6%
59.8%
67.9%
88.4%
140.2%
64.4%
As of 31 December 2014
Austria
Erste Bank Oesterreich & Subsidiaries
Savings Banks
Other Austria
Central and Eastern Europe
Czech Republic
Romania
Slovakia
Hungary
Croatia
Serbia
Other
Total
5,238
1,115
2,530
1,593
6,064
843
2,210
489
1,161
1,279
83
60
11,362
123,908
36,970
53,879
33,059
77,037
32,220
14,288
13,687
6,310
9,653
879
9,999
210,944
3,276
736
1,644
896
4,415
664
1,803
367
744
773
64
61
7,752
4.2%
3.0%
4.7%
4.8%
7.9%
2.6%
15.5%
3.6%
18.4%
13.2%
9.4%
0.6%
5.4%
62.5%
66.0%
65.0%
56.2%
72.8%
78.8%
81.6%
75.0%
64.1%
60.4%
77.9%
102.8%
68.2%
in EUR million
The general principles and standards for credit risk provisions within Erste Group are described in internal policies. Credit risk provisions
are calculated
_ for financial assets carried at amortised cost (loans and receivables, financial assets held to maturity) in accordance with IAS 39, and
_ for contingent liabilities (financial guarantees, loan commitments) in accordance with IAS 37.
Credit risk provisions are created in a process performed on customer level. The process includes the identification of default and impairment and the type of assessment (individual or collective) to be applied. “On customer level” means in this context that if one of the customer’s exposures is classified as defaulted, typically all of this customer’s exposures are classified as defaulted. Depending on the characteristics of the exposure and the respective expected cash flows (e.g. considering collateral), some exposures may not be impaired.
The bank distinguishes between
_ specific allowances calculated for exposures to defaulted customers that are deemed to be impaired, and
_ collective allowances (allowances for incurred but not reported losses) calculated for exposures to non-defaulted customers or defaulted customers that are not deemed to be impaired.
For the calculation of specific allowances, the discounted cash flow method is applied. This means that a difference between gross carrying amount and net present value (NPV) of the expected cash flows leads to an impairment and defines the amount of any allowance
requirement. All estimated interest and redemption payments as well as estimated collateral recoveries and costs for selling and obtaining
collateral are considered as expected cash flows. The effective interest rate is used as the discount rate in the calculation of the NPV of the
expected cash flows.
The calculation of specific allowances is performed either on an individual basis or as a collective assessment (rule-based approach). In
the case of significant customers, expected cash flows are estimated individually by workout or risk managers. A customer is considered
as significant if the total exposure defined as the sum of all on- and off-balance-sheet exposures exceeds a defined materiality limit. Otherwise, the customer is considered as insignificant and a rule-based approach is used for the calculation of the specific allowance. Under
this approach, specific allowances are calculated as the product of carrying amount and loss given default (LGD), where LGD depends on
relevant characteristics such as time in default or the stage of the workout process.
215
Collective allowances are calculated on on- and off-balance-sheet exposures to non-defaulted customers for which a default has not been
detected or reported. The level of collective allowances depends on the gross carrying amount, the probability of default (PD), the loss
given default (LGD), the credit conversion factors (CCF) in case of off-balance-sheet exposures, and the loss identification period (LIP).
The LIP corresponds to the average period between the occurrence and the detection of the loss and ranges from four months to one year.
The result of discounting future cash flows to their present values is taken into consideration in the LGD calculation.
Generally, risk parameters used in the calculation of collective allowances may be different to the Basel III Pillar 1 or Pillar 2 risk parameters if the properties of the respective portfolio in combination with IAS/IFRS standards necessitate this.
Collective allowances are also calculated in case of exposures to defaulted customers that are not identified as impaired. For these customers, no specific allowances are allocated. Collective allowances are calculated based on the historical loss experience for the relevant
customer segment.
Erste Group regularly reviews its specific and collective allowances. These exercises comprise the parameters and methodologies used in
its provision calculation. Adjustments can take place in the context of specific reviews (in view of specific allowances), routine maintenance of parameters (such as regular calibration) or in the case of specific events (e.g. improved knowledge about recovery behaviour,
back-testing results). In 2015, no material adjustments were made due to validation results.
Credit risk provisions divided into specific and collective allowances and provisions for guarantees
in EUR million
Specific allowances
Collective allowances
Provisions for guarantees
Total
Dec 2014
Dec 2015
6,737
774
241
7,752
5,284
741
297
6,322
Restructuring, renegotiation and forbearance
Restructuring means contractual modification of any of the customer’s loan repayment conditions including tenor, interest rate, fees,
principal amount due or a combination thereof. Restructuring can be business restructuring (in retail) and commercial renegotiation (in
corporate) or forbearance in line with EBA requirements in both segments.
Business restructuring and renegotiation
Restructuring as business restructuring in the retail segment or as commercial renegotiation in the corporate segment is a potential and
effective customer retention tool involving re-pricing or the offering of an additional loan or both in order to maintain the bank’s valuable,
good clientele.
Forbearance
The definition of “forbearance” is included in Regulation (EU) 2015/227. A restructuring is considered “forbearance” if it entails a concession towards a customer facing or about to face financial difficulties in meeting their contractual financial commitments. A borrower is
in financial difficulties if any of the following conditions are met:
_ the customer was more than 30 days past due in the past 3 months or
_ the customer would be 30 days past due or more without receiving forbearance or
_ the customer is in default or
_ the modified contract was classified as non-performing or would be non-performing without forbearance or
_ the contract modification involves total or partial cancellation by write-off of the debt on any of the customer’s credit obligations
while at customer level open credit exposure still remains.
Forborne exposure is assessed at loan contract level and means only the exposure to which forbearance measures have been extended and
excludes any other exposure the customer may have, as long as no forbearance was extended to these.
Concession means that any of the following conditions are met:
_ modification/refinancing of the contract would not have been granted, had the customer not been in financial difficulty;
_ there is a difference in favour of the customer between the modified/refinanced terms of the contract and the previous terms of the
contract;
_ the modified/refinanced contract includes more favourable terms than other customers with a similar risk profile would have obtained
from the same institution.
216
Forbearance can be initiated by the bank or by the customer (on account of loss of employment, illness etc.). Components of forbearance
can be instalment reduction, tenor extension, interest reduction or forgiveness, principal reduction or forgiveness, revolving exposure
change to instalment and/or others.
Forbearance measures are divided and reported as:
_ performing forbearance (incl. performing forbearance under probation that was upgraded from non-performing forbearance) and
_ non-performing forbearance (incl. non-performing forbearance and defaulted/impaired forbearance)
Forborne exposures are considered performing when
_ the exposure did not have non-performing status at the time the extension of or application for forbearance was approved and
_ granting the forbearance has not led to classifying the exposure as non-performing or default
Performing forborne exposures become non-performing when during the monitoring period of a minimum of 2 years following forbearance classification
_ an additional forbearance measure is extended and in the past the customer was in the non-performing forbearance category or
_ the customer becomes more than 30 days past due on forborne exposure and in the past the customer was in the non-performing forbearance category or
_ the customer meets any of the default event criteria defined in the default definition
The performing forbearance classification can be discontinued and the account can become a non-forborne account when all of the following conditions are met:
_ a minimum of 2 years have passed from the date of classifying the exposure as performing forbearance (probation period);
_ under the forborne payment plan, at least 50% of the original (pre-forbearance) instalment has been regularly repaid at least during
half of the probation period (in the case of retail customers) or
_ regular repayments in a significant amount during at least half of the probation period have been made (in the case of corporate customers);
_ none of the exposure of the customer is more than 30 days past due at the end of the probation period.
The non-performing forbearance classification can be discontinued and reclassified as performing under probation when all of the following conditions are met:
_ one year has passed from the date of classifying the exposure as non-performing forbearance
_ the forbearance has not led the exposure to be classified as non-performing
_ retail customers: the customer has demonstrated the ability to comply with the post-forbearance conditions by either of the following
_ the customer has never been more than 30 days past due during the last 6 months and there is no delinquent amount or
_ the customer has repaid the full past due amount or the written-off amount (if there was any);
_ corporate customers: analysis of the financial development, which leaves no concern about future compliance with post-forbearance
terms and conditions. Furthermore, the customer has never been more than 30 days past due during the monitoring period and there is
no delinquent amount.
In the corporate segment, recognition of forbearance measures typically leads to the involvement of the responsible local workout unit.
The largest part of the forbearance measures are set within the responsibility of the local workout units and the affected clients are managed and monitored according to the internal regulations and standards for the workout involvement. Forbearance measures are defined as
trigger events for carrying out impairment tests according to the internal regulations and standards based on the IFRS requirements.
The above rules and definitions were defined in Erste Group in Q3 2014 and the related IT-implementation was completed throughout
Erste Group in 2015.
217
Credit risk exposure, forbearance exposure and credit risk provisions
in EUR million
Loans and
receivables Financial assets
Other balancesheet positions
Contingent
liabilities
Total
As of 31 December 2015
Gross exposure
thereof gross forborne exposure
Performing exposure
thereof performing forborne exposure
Credit risk provisions for performing exposure
thereof credit risk provisions for performing forborne exposure
Non-performing exposure
thereof non-performing forborne exposure
Credit risk provisions for non-performing exposure
thereof credit risk provisions for non-performing forborne exposure
136,725
3,705
127,392
1,221
700
57
9,333
2,484
5,323
1,203
40,349
0
40,342
0
2
0
7
0
0
0
9,722
0
9,713
0
0
0
9
0
0
0
25,415
105
24,951
54
118
3
464
51
179
15
212,211
3,810
202,398
1,276
820
61
9,813
2,535
5,502
1,218
As of 31 December 2014
Gross exposure
thereof gross forborne exposure
Performing exposure
thereof performing forborne exposure
Credit risk provisions for performing exposure
thereof credit risk provisions for performing forborne exposure
Non-performing exposure
thereof non-performing forborne exposure
Credit risk provisions for non-performing exposure
thereof credit risk provisions for non-performing forborne exposure
135,785
3,632
124,882
1,034
947
43
10,903
2,598
6,562
1,442
41,292
1
41,289
1
2
0
3
0
0
0
10,904
0
10,861
0
0
0
43
0
0
0
22,963
67
22,550
29
100
1
413
38
141
1
210,944
3,699
199,582
1,063
1,048
44
11,362
2,636
6,704
1,443
Gross forborne
exposure
Modification in
terms and
conditions
Refinancing
As of 31 December 2015
Loans and receivables
Financial assets
Contingent liabilities
Total
3,705
0
105
3,810
3,493
0
89
3,583
212
0
15
227
As of 31 December 2014
Loans and receivables
Financial assets
Contingent liabilities
Total
3,632
1
67
3,699
3,598
1
67
3,665
33
0
0
34
Types of forbearance exposure
in EUR million
218
Credit quality of forbearance exposure by geographical segments
in EUR million
Gross forborne Neither past due
exposure
nor impaired
Past due but
not impaired
Impaired
Collateral
Credit risk
provisions
As of 31 December 2015
Austria
Erste Bank Oesterreich & Subsidiaries
Savings Banks
Other Austria
Central and Eastern Europe
Czech Republic
Romania
Slovakia
Hungary
Croatia
Serbia
Other
Total
2,021
376
986
659
1,785
255
790
239
190
293
19
4
3,810
897
181
497
219
563
64
217
107
83
91
2
0
1,461
123
27
48
48
82
6
25
16
9
25
2
0
206
1,000
167
441
392
1,139
184
548
117
98
177
16
4
2,144
950
203
558
189
609
104
209
141
34
111
9
0
1,558
552
95
228
230
723
84
420
66
62
80
12
4
1,279
As of 31 December 2014
Austria
Erste Bank Oesterreich & Subsidiaries
Savings Banks
Other Austria
Central and Eastern Europe
Czech Republic
Romania
Slovakia
Hungary
Croatia
Serbia
Other
Total
2,015
465
808
742
1,669
226
858
176
119
273
19
15
3,699
928
157
160
611
402
90
131
79
9
88
6
14
1,343
31
6
24
0
88
4
20
28
7
28
1
0
119
1,056
302
623
131
1,179
133
707
69
102
157
12
1
2,237
633
140
320
174
385
77
230
0
56
17
5
0
1,018
746
221
413
112
741
65
533
37
42
57
8
0
1,487
Collateral
Recognition of collateral
The Collateral Management department is a staff unit within the Group Workout division. The Group Collateral Management Policy
defines, among other things, uniform valuation standards for credit collateral across the entire group. It ensures that the credit risk decision processes are standardised with respect to accepted collateral values.
All collateral types acceptable within the group are contained in the Group Collateral Catalogue. Locally permitted collateral is defined by
the respective bank in accordance with applicable national legal provisions. The valuation and revaluation of collateral is done according
to the principles defined in the Group Collateral Catalogue broken down by class and based on the internal work instructions in accordance with the individual supervisory requirements. Whether a type of security or a specific collateral asset is accepted for credit risk mitigation is decided by Enterprise-wide Risk Management after determining if the applicable regulatory requirements are met. Adherence to
the standard work processes stipulated for assigning the acceptable collateral assets to the categories available is monitored by operational
risk management.
Main types of collateral
The following types of collateral are the most frequently accepted:
_ Real estate: this includes both private and commercial real estate.
_ Financial collateral: this category primarily includes securities portfolios and cash deposits as well as life insurance policies.
_ Guarantees: guarantees are provided mainly by governments, banks and corporates; all guarantors must have a minimum credit rating,
which is reviewed annually.
Other types of collateral, such as collateral in the form of movable property or the assignment of receivables, are accepted less frequently.
Protection by credit default swaps is only marginally used in the banking book.
Collateral valuation and management
Collateral valuation is based on current market prices while taking into account an amount that can be recovered within a reasonable
period. The valuation processes are defined and their IT-supported technical application is performed by Collateral Management at group
level and by authorised staff in each country with the assistance of software applications. The allocated collateral values are capped by the
amount of the secured transaction; imputed excess collateral values are therefore not possible. Only independent appraisers not involved
219
in the lending decision process are permitted to conduct real estate valuations, and the valuation methods to be applied are defined. For
quality assurance purposes, the real estate valuations are validated on an ongoing basis.
The methods and discounts used for valuations are based on empirical data representing past experience of the workout departments and
on the collected data on recoveries from realising collateral. The valuation methods are adjusted regularly – at least once a year – to reflect current recoveries. Financial collateral assets are recognised at market value.
The revaluation of collateral is done periodically and is automated as far as possible. In the case of external data sources, the appropriate
interfaces are used. The maximum periods for the revaluation of individual collateral assets are predefined and compliance is monitored
by risk management using software applications. Apart from periodic revaluations, collateral is assessed when information becomes available that indicates a decrease in the value of the collateral for exceptional reasons.
Concentration risks resulting from credit risk mitigation techniques may affect a single customer, but also a portfolio defined by region,
industry or type of security. Erste Group is a retail bank, and, due to its customer structure and the markets in which it operates, it does not
have any concentrations with respect to collateral from customers. Concerning other areas of a potentially detrimental correlation of risks,
the collateral portfolios are analysed using statistical evaluations for, among other things, regional or industry-specific concentrations
within the scope of portfolio monitoring. The response to those risks identified includes, above all, the adjustment of volume targets,
setting of corresponding limits and modification of the staff’s discretionary limits for lending.
Collateral obtained in foreclosure proceedings is made available for sale in an orderly fashion, with the proceeds used to reduce or repay
the outstanding claim. Generally, Erste Group does not occupy repossessed properties for its own business use. The main part of assets
taken onto its own books is commercial land and buildings. In addition, residential real estate properties and transport vehicles are taken
into Erste Group’s possession. As of 31 December 2015, the carrying value of these assets amounted to EUR 148 million (2014:
EUR 86 million).
The following tables compare the credit risk exposure broken down by business and geographical segments to the collateral received.
Credit risk exposure by business segment and collateral
Collateralised by
in EUR million
As of 31 December 2015
Retail
Small and Medium Enterprises
Asset/Liability Management and Local Corporate
Center
Savings Banks
Large Corporates
Commercial Real Estate
Other Corporate
Group Markets
Group Corporate Center
Total
As of 31 December 2014
Retail
Small and Medium Enterprises
Asset/Liability Management and Local Corporate
Center
Savings Banks
Large Corporates
Commercial Real Estate
Other Corporate
Group Markets
Group Corporate Center
Total
220
Gross exposure
Collateral total
Guarantees
Real estate
Other
Credit risk
exposure net
of collateral
54,300
25,233
31,271
10,184
618
1,342
27,829
6,473
2,825
2,369
23,029
15,049
24,773
55,084
21,354
9,245
2,847
17,412
1,964
212,211
1,127
24,818
4,146
5,580
1,123
3,755
76
82,081
682
1,515
2,541
739
225
71
51
7,784
7
19,893
950
4,683
3
2
11
59,850
438
3,410
656
158
895
3,682
14
14,446
23,646
30,266
17,208
3,665
1,724
13,657
1,888
130,131
51,674
25,826
30,547
11,411
1,138
2,142
26,843
6,855
2,566
2,414
21,126
14,415
29,585
53,879
17,573
9,872
3,355
17,282
1,899
210,944
1,201
24,397
3,543
5,696
430
3,458
108
80,791
720
1,569
1,973
345
336
189
80
8,491
5
19,070
779
4,566
4
0
15
58,137
475
3,758
791
786
90
3,270
13
14,163
28,384
29,482
14,031
4,176
2,924
13,824
1,791
130,153
Credit risk exposure by geographical segment and collateral
Collateralised by
Gross exposure
Collateral total
Guarantees
Real estate
Other
Credit risk
exposure net
of collateral
As of 31 December 2015
Austria
Erste Bank Oesterreich & Subsidiaries
Savings Banks
Other Austria
Central and Eastern Europe
Czech Republic
Romania
Slovakia
Hungary
Croatia
Serbia
Other
Total
123,401
37,959
55,084
30,359
79,078
33,911
13,931
14,635
6,148
9,423
1,031
9,732
212,211
56,512
21,331
24,818
10,363
24,691
8,693
4,421
5,923
2,092
3,270
293
877
82,081
5,448
2,011
1,515
1,923
1,921
642
178
63
251
758
30
415
7,784
40,445
16,870
19,893
3,682
19,394
7,339
2,660
5,651
1,637
1,922
184
11
59,850
10,619
2,450
3,410
4,759
3,376
713
1,582
208
203
591
79
452
14,446
66,889
16,628
30,266
19,996
54,387
25,218
9,510
8,712
4,056
6,153
738
8,855
130,131
As of 31 December 2014
Austria
Erste Bank Oesterreich & Subsidiaries
Savings Banks
Other Austria
Central and Eastern Europe
Czech Republic
Romania
Slovakia
Hungary
Croatia
Serbia
Other
Total
123,908
36,970
53,879
33,059
77,037
32,220
14,288
13,687
6,310
9,653
879
9,999
210,944
54,592
21,033
24,397
9,161
25,254
9,526
4,861
5,169
2,166
3,292
241
945
80,791
5,211
1,970
1,569
1,673
2,837
943
1,015
71
33
739
36
443
8,491
38,784
16,423
19,070
3,291
19,339
7,636
2,602
4,907
1,834
2,221
139
15
58,137
10,597
2,641
3,758
4,198
3,079
947
1,244
191
298
333
66
487
14,163
69,316
15,936
29,482
23,898
51,783
22,694
9,427
8,518
4,144
6,361
638
9,054
130,153
in EUR million
221
222
Credit risk exposure by financial instrument and collateral
Collateralised by
Credit risk
exposure
Collateral total
Guarantees
Real estate
Other
Credit risk
exposure
net of collateral
Neither
past due nor
impaired
Past due but
not impaired
Impaired
As of 31 December 2015
Cash and cash balances – other demand deposits
Loans and receivables to credit institutions
Loans and receivables to customers
Financial assets - held to maturity
Financial assets - held for trading
Financial assets - at fair value through profit or loss
Financial assets - available for sale
Positive fair value of derivatives
Contingent liabilities
Total
2,228
4,819
131,906
17,703
3,163
176
19,307
7,494
25,415
212,211
764
1,394
72,829
286
45
0
883
2,052
3,829
82,081
0
143
5,495
283
45
0
873
0
945
7,784
0
0
57,974
3
0
0
0
0
1,873
59,850
764
1,251
9,360
0
0
0
10
2,052
1,010
14,446
1,464
3,425
59,078
17,417
3,117
176
18,425
5,442
21,586
130,131
2,224
4,797
119,982
17,703
3,163
176
19,300
7,489
25,015
199,849
4
4
3,126
1
0
0
0
0
72
3,207
0
18
8,798
0
0
0
7
5
327
9,155
As of 31 December 2014
Cash and cash balances – other demand deposits
Loans and receivables to credit institutions
Loans and receivables to customers
Financial assets - held to maturity
Financial assets - held for trading
Financial assets - at fair value through profit or loss
Financial assets - available for sale
Positive fair value of derivatives
Contingent liabilities
Total
859
7,461
128,325
16,879
3,173
139
21,102
10,045
22,963
210,944
0
1,405
71,814
363
170
0
962
2,548
3,528
80,791
0
131
6,227
359
159
0
952
0
663
8,491
0
0
56,104
4
0
0
0
0
2,029
58,137
0
1,273
9,483
0
12
0
10
2,548
836
14,163
859
6,056
56,510
16,516
3,002
139
20,139
7,497
19,435
130,153
859
7,435
113,056
16,878
3,173
139
21,089
10,045
22,963
195,636
0
3
4,302
1
0
0
2
0
49
4,355
0
23
10,967
0
0
0
12
0
201
11,203
in EUR million
In the case of contingent liabilities, the impaired credit risk exposure corresponds to positions for which provisions for credit risks were created. No values were shown for contingent
liabilities in the consolidated financial statements 2014.
Credit risk exposure past due and not covered by specific allowances by financial instrument and collateralisation
Gross exposure
in EUR million
As of 31 December 2015
Cash and cash balances – other demand
deposits
Loans and receivables to credit institutions
Loans and receivables to customers
Financial assets - held to maturity
Financial assets - held for trading
Financial assets - at fair value through profit
or loss
Financial assets - available for sale
Positive fair value of derivatives
Contingent liabilities
Total
As of 31 December 2014
Cash and cash balances – other demand
deposits
Loans and receivables to credit institutions
Loans and receivables to customers
Financial assets - held to maturity
Financial assets - held for trading
Financial assets - at fair value through profit
or loss
Financial assets - available for sale
Positive fair value of derivatives
Contingent liabilities
Total
Thereof collateralised
Total
thereof
1-30 days
past due
thereof
31-60 days
past due
thereof
61-90 days
past due
thereof
91-180 days
past due
thereof
more than
180 days
past due
Total
thereof
1-30 days
past due
thereof
31-60 days
past due
thereof
61-90 days
past due
thereof
91-180 days
past due
thereof
more than
180 days
past due
4
4
3,126
1
0
4
3
2,145
0
0
0
0
581
0
0
0
0
226
0
0
0
0
40
0
0
0
1
134
1
0
0
0
1,678
0
0
0
0
1,033
0
0
0
0
383
0
0
0
0
160
0
0
0
0
24
0
0
0
0
78
0
0
0
0
0
72
3,207
0
0
0
55
2,207
0
0
0
14
596
0
0
0
2
228
0
0
0
0
41
0
0
0
1
136
0
0
0
35
1,713
0
0
0
31
1,065
0
0
0
3
386
0
0
0
0
160
0
0
0
0
24
0
0
0
0
79
0
3
4,302
1
0
0
2
2,772
0
0
0
0
739
0
0
0
0
376
0
0
0
0
168
0
0
0
0
246
1
0
0
0
2,124
0
0
0
0
1,234
0
0
0
0
436
0
0
0
0
228
0
0
0
0
128
0
0
0
0
99
0
0
0
2
0
49
4,355
0
0
0
49
2,823
0
0
0
0
739
0
0
0
0
376
0
0
0
0
169
0
2
0
0
249
0
0
0
0
2,124
0
0
0
0
1,234
0
0
0
0
436
0
0
0
0
228
0
0
0
0
128
0
0
0
0
99
In the case of contingent liabilities, the impaired credit risk exposure corresponds to positions for which provisions for credit risks were created. No values were shown for contingent
liabilities in the consolidated financial statements 2014.
All claims presented in the table above were classified as non-performing if they were more than 90 days past due. Allowances are, as a rule, established for assets that are more than 90
days past due. However, specific allowances are not established if the loans and other receivables are covered by adequate collateral.
223
Loans and receivables to customers
The following tables present the customer loan book excluding loans to financial institutions and commitments, broken down by reporting
segment and risk category.
Loans and receivables to customers by business segment and risk category
Low risk
Management
attention
Substandard
Non-performing
Gross customer
loans
As of 31 December 2015
Retail
Small and Medium Enterprises
Asset/Liability Management and Local Corporate Center
Savings Banks
Large Corporates
Commercial Real Estate
Other Corporate
Group Markets
Group Corporate Center
Total
41,143
15,811
147
30,451
10,317
5,513
1,595
202
229
105,409
4,460
2,668
26
5,825
868
1,048
116
47
1
15,060
567
277
3
830
45
370
7
0
23
2,123
2,598
1,806
9
2,219
953
1,615
98
0
17
9,314
48,769
20,562
186
39,326
12,183
8,545
1,816
250
270
131,906
As of 31 December 2014
Retail
Small and Medium Enterprises
Asset/Liability Management and Local Corporate Center
Savings Banks
Large Corporates
Commercial Real Estate
Other Corporate
Group Markets
Group Corporate Center
Total
38,417
16,123
68
29,325
7,835
5,499
1,417
85
159
98,928
4,537
2,457
16
5,986
889
1,409
201
19
39
15,552
1,152
358
56
816
57
422
31
0
74
2,967
2,938
2,275
21
2,441
1,170
1,942
72
0
18
10,878
47,044
21,213
162
38,568
9,952
9,271
1,721
104
290
128,325
in EUR million
Loans and receivables to customers by geographical segment and risk category
Low risk
Management
attention
Substandard
Non-performing
Gross customer
loans
As of 31 December 2015
Austria
Erste Bank Oesterreich & Subsidiaries
Savings Banks
Other Austria
Central and Eastern Europe
Czech Republic
Romania
Slovakia
Hungary
Croatia
Serbia
Other
Total
67,075
26,500
30,451
10,124
38,052
17,153
5,031
8,478
2,236
4,609
544
281
105,409
9,316
2,468
5,825
1,023
5,744
2,118
1,574
560
490
904
97
1
15,060
1,339
254
830
255
761
198
163
93
116
187
3
23
2,123
4,414
861
2,219
1,334
4,848
834
1,712
540
655
1,032
75
53
9,314
82,144
30,082
39,326
12,736
49,404
20,303
8,481
9,671
3,498
6,732
719
358
131,906
As of 31 December 2014
Austria
Erste Bank Oesterreich & Subsidiaries
Savings Banks
Other Austria
Central and Eastern Europe
Czech Republic
Romania
Slovakia
Hungary
Croatia
Serbia
Other
Total
63,779
25,219
29,325
9,235
34,966
15,798
4,982
7,212
2,278
4,286
412
184
98,928
9,895
2,442
5,986
1,468
5,581
1,693
1,544
545
681
1,032
87
75
15,552
1,507
291
816
400
1,385
365
343
203
194
273
7
74
2,967
4,936
1,012
2,441
1,483
5,883
821
2,138
422
1,157
1,262
83
60
10,878
80,117
28,963
38,568
12,585
47,815
18,676
9,007
8,383
4,308
6,853
588
392
128,325
in EUR million
224
In the tables below, the non-performing loans and receivables to customers subdivided by reporting segment are contrasted with allowances for customer loans (specific and collective allowances) and the collateral for non-performing loans (NPL). The NPL ratio, the NPL
coverage ratio and the NPL total coverage ratio are also included. The NPL total coverage ratio specifies the coverage of non-performing
loans by specific and collective allowances as well as by collateral for non-performing loans.
Non-performing loans and receivables to customers by business segment and coverage by loan loss allowances
and collateral
in EUR million
As of 31 December 2015
Retail
Small and Medium Enterprises
Asset/Liability Management and
Local Corporate Center
Savings Banks
Large Corporates
Commercial Real Estate
Other Corporate
Group Markets
Group Corporate Center
Total
As of 31 December 2014
Retail
Small and Medium Enterprises
Asset/Liability Management and
Local Corporate Center
Savings Banks
Large Corporates
Commercial Real Estate
Other Corporate
Group Markets
Group Corporate Center
Total
Non-performing
Gross
customer loans
Allowances for
customer loans
NPL ratio
NPL coverage
(excl. collateral)
Collateral
for NPL
NPL
total coverage
2,598
1,806
48,769
20,562
1,760
1,301
5.3%
8.8%
67.7%
72.0%
1,081
682
109.3%
109.8%
9
2,219
953
1,615
98
0
17
9,314
186
39,326
12,183
8,545
1,816
250
270
131,906
4
1,281
673
884
55
1
51
6,009
4.6%
5.6%
7.8%
18.9%
5.4%
0.0%
6.3%
7.1%
46.4%
57.7%
70.7%
54.7%
56.1%
3,546.7%
299.3%
64.5%
0
984
197
811
36
0
4
3,795
46.4%
102.1%
91.3%
105.0%
92.9%
3546.7%
322.8%
105.3%
2,938
2,275
47,044
21,213
2,360
1,462
6.2%
10.7%
80.3%
64.3%
995
772
114.2%
98.2%
21
2,441
1,170
1,942
72
0
18
10,878
162
38,568
9,952
9,271
1,721
104
290
128,325
24
1,561
898
1,135
43
1
7
7,491
13.1%
6.3%
11.8%
20.9%
4.2%
0.1%
6.2%
8.5%
113.2%
64.0%
76.7%
58.4%
59.4%
814.7%
38.2%
68.9%
0
1,056
296
805
29
0
0
3,954
115.2%
107.2%
102.0%
99.9%
100.3%
814.7%
38.2%
105.2%
225
Non-performing loans and receivables to customers by geographical segment and coverage by loan loss
allowances and collateral
in EUR million
As of 31 December 2015
Austria
Erste Bank Oesterreich &
Subsidiaries
Savings Banks
Other Austria
Central and Eastern Europe
Czech Republic
Romania
Slovakia
Hungary
Croatia
Serbia
Other
Total
As of 31 December 2014
Austria
Erste Bank Oesterreich &
Subsidiaries
Savings Banks
Other Austria
Central and Eastern Europe
Czech Republic
Romania
Slovakia
Hungary
Croatia
Serbia
Other
Total
Non-performing
Gross
customer loans
Allowances for
customer loans
NPL ratio
NPL coverage
(excl. collateral)
Collateral
for NPL
NPL
total coverage
4,414
82,144
2,492
5.4%
56.5%
1,950
100.7%
861
2,219
1,334
4,848
834
1,712
540
655
1,032
75
53
9,314
30,082
39,326
12,736
49,404
20,303
8,481
9,671
3,498
6,732
719
358
131,906
539
1,281
672
3,433
604
1,326
355
386
695
66
84
6,009
2.9%
5.6%
10.5%
9.8%
4.1%
20.2%
5.6%
18.7%
15.3%
10.5%
14.7%
7.1%
62.6%
57.7%
50.4%
70.8%
72.4%
77.4%
65.7%
59.0%
67.4%
88.4%
160.6%
64.5%
328
984
639
1,805
156
559
279
344
444
24
40
3,795
100.7%
102.1%
98.3%
108.0%
91.1%
110.1%
117.3%
111.5%
110.5%
119.6%
236.6%
105.3%
4,936
80,117
3,120
6.2%
63.2%
2,011
104.0%
1,012
2,441
1,483
5,883
821
2,138
422
1,157
1,262
83
60
10,878
28,963
38,568
12,585
47,815
18,676
9,007
8,383
4,308
6,853
588
392
128,325
697
1,561
862
4,325
654
1,758
348
740
762
63
45
7,491
3.5%
6.3%
11.8%
12.3%
4.4%
23.7%
5.0%
26.8%
18.4%
14.1%
15.2%
8.5%
68.9%
64.0%
58.1%
73.5%
79.7%
82.2%
82.4%
64.0%
60.4%
75.8%
75.6%
68.9%
340
1,056
614
1,925
316
386
203
454
542
25
18
3,954
102.5%
107.2%
99.5%
106.2%
118.2%
100.3%
130.4%
103.2%
103.3%
106.0%
106.6%
105.2%
The “NPL ratio” in this section (loans and receivables to customers) is calculated by dividing non-performing loans and receivables by
total loans and receivables to customers. Hence, it differs from the “NPE ratio” in the section “Credit risk exposure”.
The loan loss allowances that are shown in the tables above in the amount of EUR 6,009 million as of 31 December 2015 (2014:
EUR 7,491 million) are composed of specific provisions amounting to EUR 5,276 million (2014: EUR 6,723 million) and portfolio provisions amounting to EUR 733 million (2014: EUR 768 million). Collateral for non-performing loans mainly consists of real estate.
226
Loans and receivables to customers by business segment and currency
in EUR million
As of 31 December 2015
Retail
Small and Medium Enterprises
Asset/Liability Management and Local Corporate
Center
Savings Banks
Large Corporates
Commercial Real Estate
Other Corporate
Group Markets
Group Corporate Center
Total
As of 31 December 2014
Retail
Small and Medium Enterprises
Asset/Liability Management and Local Corporate
Center
Savings Banks
Large Corporates
Commercial Real Estate
Other Corporate
Group Markets
Group Corporate Center
Total
EUR
CEE-local
currencies
CHF
USD
Other
Gross
customer loans
27,956
13,666
18,135
6,275
2,524
425
23
177
132
19
48,769
20,562
119
34,918
9,684
7,403
105
125
237
94,214
65
0
1,551
428
16
117
18
26,606
0
3,531
21
256
0
0
4
6,762
2
84
619
88
1,667
8
10
2,678
0
792
307
370
27
0
0
1,647
186
39,326
12,183
8,545
1,816
250
270
131,906
27,149
14,239
15,377
6,300
4,357
472
24
156
137
46
47,044
21,213
128
33,819
7,722
8,033
245
12
218
91,566
32
0
1,552
443
0
54
15
23,774
0
3,929
32
322
3
0
4
9,119
1
99
307
93
1,403
37
54
2,174
1
721
338
379
69
0
0
1,692
162
38,568
9,952
9,271
1,721
104
290
128,325
Loans and receivables to customers by geographical segment and currency
EUR
CEE-local
currencies
CHF
USD
Other
Gross
customer loans
As of 31 December 2015
Austria
Erste Bank Oesterreich & Subsidiaries
Savings Banks
Other Austria
Central and Eastern Europe
Czech Republic
Romania
Slovakia
Hungary
Croatia
Serbia
Other
Total
72,267
27,497
34,918
9,852
21,638
2,095
4,436
9,634
509
4,419
545
309
94,214
0
0
0
0
26,571
18,063
3,832
0
2,807
1,716
152
35
26,606
6,071
2,387
3,531
154
686
1
0
0
157
513
16
4
6,762
2,243
56
84
2,102
425
85
213
18
25
79
6
10
2,678
1,562
143
792
627
84
59
0
19
0
5
0
0
1,647
82,144
30,082
39,326
12,736
49,404
20,303
8,481
9,671
3,498
6,732
719
358
131,906
As of 31 December 2014
Austria
Erste Bank Oesterreich & Subsidiaries
Savings Banks
Other Austria
Central and Eastern Europe
Czech Republic
Romania
Slovakia
Hungary
Croatia
Serbia
Other
Total
70,136
26,309
33,819
10,007
21,110
1,584
5,263
8,334
894
4,615
419
320
91,566
0
0
0
0
23,759
16,996
3,578
0
1,425
1,612
148
15
23,774
6,565
2,421
3,929
216
2,549
4
0
0
1,972
557
16
4
9,119
1,788
63
99
1,626
332
65
158
22
17
64
5
54
2,174
1,628
170
721
736
64
27
7
26
0
4
0
0
1,692
80,117
28,963
38,568
12,585
47,815
18,676
9,007
8,383
4,308
6,853
588
392
128,325
in EUR million
In the geographical segment Croatia, loans and receivables denominated in Swiss francs amounting to approximately EUR 480 million as
of 31 December 2015 are subject to a government-decreed currency conversion into euros or Croatian kunas. The settlement of this conversion at favourable rates for the borrowers takes place in 2016.
227
Securitisations
As of 31 December 2015, Erste Group held a conservative portfolio of securitisations; there were no new investments undertaken and all
repayments were made as scheduled in 2015.
As at year-end 2015, the carrying amount of Erste Group’s securitisation portfolio totalled EUR 513 billion, which was EUR 581 million
lower than at the year-end 2014. Changes in the carrying amount were due to repayments, currency effects, changes in prices and predominantly disposals of assets. More than 99% of the securitisation portfolio was rated investment grade at the year-end 2015.
As of 31 December 2015 and 31 December 2014 respectively, the composition of the total portfolio of securitisations according to products and balance sheet line items was as follows:
Composition of the total portfolio of securitisations
Loans and receivables to
credit institutions
Carrying
amount
As of 31 December 2015
Prime RMBS
CMBS
SME ABS
Leasing ABS
Other ABS
CLOs
Other RMBS
Total ABS / CDO
Student Loans
Total securitisations
As of 31 December 2014
Prime RMBS
CMBS
SME ABS
Leasing ABS
Other ABS
CLOs
Other RMBS
Total ABS / CDO
Student Loans
Total securitisations
in EUR million
Financial
assets at fair value
through
profit or loss
Financial assets held to maturity
Financial
assets available for
sale
Fair value
Carrying
amount
Fair value
Fair value
Fair value
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
18
0
0
0
0
0
0
18
0
18
17
0
0
0
0
0
0
17
0
17
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
146
24
5
2
0
0
0
176
0
176
142
23
5
2
0
0
0
172
0
172
2
1
0
0
1
32
2
37
1
38
Financial
assets - held
for trading
Total
Fair value
Carrying
amount
Fair value
9
0
0
0
0
389
0
398
97
495
0
0
0
0
0
0
0
0
0
0
27
0
0
0
0
389
0
416
97
513
26
0
0
0
0
389
0
406
97
503
78
28
19
1
3
602
17
748
98
846
20
0
2
0
0
6
5
33
0
33
245
53
26
3
4
640
24
995
99
1,094
241
52
26
3
4
640
24
990
99
1,089
If not mentioned explicitly the carrying amount corresponds to the fair value.
Collateralised loan obligations (CLOs)
CLOs are securitisations backed by pools of corporate loans. Erste Group is invested in US CLOs.
Other securitisations
Erste Group holds securitisations of lease receivables (Leasing ABS) and Prime RMBSs, which are backed by mortgages on residential
real estate.
Erste Group is further invested in securitisations of US student loans, all of which are triple-A-rated securities. These securitisations carry
the guarantee of the US Department of Education for 97% of their value while the remaining 3% is covered by subordination. Their associated credit risk is therefore considered very low.
44.5 Market risk
Definition and overview
Market risk is the risk of loss that may arise due to adverse changes in market prices and to the parameters derived from them. These
market value changes might appear in the profit and loss account, in the statement of comprehensive income or in hidden reserves. At
Erste Group, market risk is divided into interest rate risk, credit spread risk, currency risk, equity risk, commodity risk and volatility risk.
This concerns both trading and banking book positions.
228
Methods and instruments employed
At Erste Group, potential losses that may arise from market movements are assessed using the value at risk (VaR). The calculation is done
according to the method of historic simulation with a one-sided confidence level of 99%, a holding period of one day and a simulation
period of two years. The VaR describes what level of losses may be expected as a maximum at a defined probability – the confidence
level – within a certain holding period of the positions under historically observed market conditions.
Back-testing is used to constantly monitor the validity of the statistical methods. This process is conducted with a one-day delay to monitor if the model projections regarding losses have actually materialised. At a confidence level of 99%, the actual loss on a single day
should exceed the VaR statistically only two to three times a year (1% of around 250 workdays). This shows one of the limits of the VaR
approach: on the one hand, the confidence level is limited to 99%, and on the other hand, the model takes into account only those market
scenarios observed in each case within the simulation period of two years, and calculates the VaR for the current position of the bank on
this basis. In order to investigate any extreme market situations beyond this, stress tests are conducted at Erste Group. These events include mainly market movements of low probability.
The stress tests are carried out according to several methods: stressed VaR is derived from the normal VaR calculation. But instead of
simulating only over the two most recent years, an analysis of a much longer period is carried out in order to identify a one-year period
that constitutes a relevant period of stress for the current portfolio mix. According to the legal framework, that one-year period is used to
calculate a VaR with a 99% confidence level. This enables Erste Group on the one hand to hold sufficient own funds available for the
trading book even in periods of elevated market volatility, while on the other hand also enabling it to incorporate these resulting effects
into the management of trading positions.
In the extreme value theory, a Pareto distribution is fitted to the extreme end of the loss distribution. In this manner, a continuous function
is created from which extreme confidence levels such as 99.95% can be evaluated. Furthermore, standard scenarios are calculated in
which the individual market factors are exposed to extreme movements. Such scenarios are calculated at Erste Group for interest rates,
stock prices, exchange rates and volatilities. Historic scenarios are a modification of the concept of standard scenarios. In this case, risk
factor movements after certain events such as “9/11”or the “Lehman bankruptcy” form the basis of the stress calculation. In order to
calculate historical probabilistic scenarios, the most significant risk factors for the current portfolio are determined and their most adverse
movement during the last years is applied. For the probabilistic scenarios, shifts of important market factors are determined for various
quantiles of their distributions, and these values are then used to calculate stress results. These analyses are made available to the management board and the supervisory board within the scope of the monthly market risk reports.
The VaR model was approved by the Financial Market Authority (FMA) as an internal market risk model to determine the own funds
requirements of the trading book of Erste Group pursuant to the Austrian Banking Act.
Erste Group is upgrading the Internal Market Risk Model with respect to infrastructure and methodology. The application of the changes
in calculation of own funds requirement for market risk is subject to a regulatory approval process.
Methods and instruments of risk mitigation
At Erste Group, market risks are controlled in the trading book by setting several layers of limits. The overall limit on the basis of VaR for
the trading book is allocated by the management board in the Risk Appetite Statement while taking into account the risk-bearing capacity
and projected earnings. A further breakdown is done by the Market Risk Committee on the basis of a proposal from the Market Risk
Control & Infrastructure unit.
All market risk activities of the trading book are assigned risk limits that are statistically consistent in their entirety with the overall VaR
limit. The VaR limit is assigned in a top-down procedure to the individual trading units. This is done down to the level of the individual
trading groups or departments. Additionally, in a bottom-up procedure, sensitivity limits are assigned to even smaller units all the way
down to the desk level. These are then aggregated and applied as a second limit layer to the VaR limits.
Limit compliance is verified at two levels: by the appropriate local decentralised risk management unit and by the Market Risk Control &
Infrastructure unit. The monitoring of sensitivity limits is performed on both intraday and end of day basis. On demand, limit reports can
also be triggered by individual traders or chief traders on an ad hoc basis. The VaR is calculated every day at group level and made available to the individual trading units as well as to the superior management levels all the way up to the management board.
Banking book positions are subjected to a monthly VaR analysis. In this manner, the total VaR is determined with exactly the same methodology as for the trading book. In addition to VaR, a long-horizon risk measure is used to gauge the interest rate risk, credit spread risk of
229
the banking book and foreign exchange risk of equity participations. For this purpose, a historical simulation approach looking back five
years and with a one-year holding period was chosen. The result of these calculations is presented in the monthly market risk report that is
made available to the management and supervisory boards.
Analysis of market risk
The following tables show the VaR amounts at the 99% confidence level using equally weighted market data and with a holding period of
one day.
Value at Risk of banking book and trading book
in EUR thousand
Total
Interest
Currency
Shares
Commodity
Volatility
As of 31 December 2015
Erste Group
Core Group
Banking book
Trading book
42,507
50,297
51,729
2,873
43,132
50,893
51,671
2,142
614
614
204
572
1,101
1,101
3
1,101
128
128
0
128
466
466
32
466
As of 31 December 2014
Erste Group
Core Group
Banking book
Trading book
17,574
20,639
17,579
4,035
15,582
19,038
17,708
1,881
733
733
265
887
2,439
2,439
2
2,440
217
217
0
217
302
302
1
302
In the above table, “Erste Group” comprises the entire group, and “Core Group” comprises all units that are directly or indirectly majority-owned by Erste Group Bank AG. The method used is subject to limitations that may result in the information not fully reflecting the
fair value of the assets and liabilities involved. This restriction applies to the inclusion of credit spreads in the calculation of the VaR.
Credit spreads are only applied to sovereign issuers. For all other positions, only the general market risk is considered.
Interest rate risk in the banking book
Interest rate risk is the risk of an adverse change in the fair value of financial instruments caused by a movement in market interest rates.
This type of risk arises when mismatches exist between assets and liabilities, including derivatives, in respect of their maturities or of the
timing of interest rate adjustments. In order to identify interest rate risk, all financial instruments, including transactions not recognised on
the balance sheet, are grouped into maturity bands based on their remaining terms to maturity or terms to an interest rate adjustment.
Positions without a fixed maturity (e.g. demand deposits) are included on the basis of modelled deposit rates that are determined by means
of statistical methods.
The current low or in certain countries even negative interest rate environment poses a challenge for the interest rate risk measurement of
banks. Until 2015, a floor at 0% was applied in interest rate risk calculations; nevertheless, this approach was revised during the year.
Consequently, from the first quarter of 2016 the floor will be abandoned in the internal risk calculations, while according to the “Guidelines on the management of interest rate risk arising from non-trading activities” issued by the European Banking Authority for the calculation of the regulatory interest rate risk measure it has to be kept.
The following tables list the open fixed-income positions held by Erste Group in the four currencies that carry a significant interest rate
risk: EUR, CZK, HUF and RON. Only the open fixed-income positions that are not allocated to the trading book are presented. Positive
values indicate fixed-income risks on the asset side, i.e. a surplus of asset items; negative values represent a surplus on the liability side.
Open fixed-income positions not assigned to the trading book
in EUR million
1-3 years
3-5 years
5-7 years
7-10 years
Over 10 years
As of 31 December 2015
Fixed-interest gap in EUR positions
Fixed-interest gap in CZK positions
Fixed-interest gap in HUF positions
Fixed-interest gap in RON positions
-3,474.3
1,837.0
83.7
636.4
3,008.5
915.6
109.1
263.4
-509.3
-1,157.0
-247.1
26.1
582.3
-2,784.2
-275.5
-228.5
2,781.5
86.4
0.0
0.9
As of 31 December 2014
Fixed-interest gap in EUR positions
Fixed-interest gap in CZK positions
Fixed-interest gap in HUF positions
Fixed-interest gap in RON positions
-2,841.1
666.5
196.5
1,000.8
869.2
1,539.7
4.7
288.0
1,638.5
-1,703.5
-173.9
50.2
1,648.0
-1,758.9
-225.8
-273.7
1,791.9
242.8
0.0
0.9
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Credit spread risk
Credit spread risk is the risk of an adverse movement in the fair value of financial instruments caused by a change in the creditworthiness
of an issuer perceived by the market. Erste Group is exposed to credit spread risk with respect to its securities portfolio, both in the trading
as well as in the banking book.
In order to identify credit spread risk, all securities are grouped into maturity bands based on their remaining terms to maturity or terms to
an expected call date on the one hand, and assigned to risk factors reflecting the riskiness of their issuer on the other hand.
Exchange rate risk
The bank is exposed to several types of risks related to exchange rates. These concern risks from open foreign exchange positions and others.
Risk from open foreign exchange positions is the risk related to exchange rates that derives from the mismatch between assets and liabilities, or from currency-related financial derivatives. These risks might originate from customer-related operations or proprietary trading
and are monitored and managed on a daily basis. Foreign currency exposure is subject to regulatory and internal limits. The internal limits
are set by the Market Risk Committee.
Erste Group separately measures and manages other types of risks relating to the group’s balance sheet and earnings structure. The translation risk related to the valuation of the balance sheet items, earnings, dividends and participations/net investments in local currency or
foreign exchange has an impact on consolidated earnings and consolidated capital. Erste Group is also reducing the negative impact related to volatility of foreign exchange rates on asset performance (for example as a result of foreign exchange lending in the CEE countries
that was stopped for clients not having sufficient regular income in the respective loan currency).
In order to manage its multi-currency earnings structure, Erste Group regularly discusses hedging opportunities and takes decisions in the
Group Asset Liability Committee (ALCO). Asset Liability Management (ALM) uses as the usual source of information the current financial results and the financial budget prepared for the upcoming period to obtain as much information as possible on the future foreign
currency cash flows. The proposal, which mainly includes the volume, hedging level, hedge ratio and timeline of the hedging, is submitted by ALM to ALCO. The impact of translation on consolidated capital is monitored and reported to ALCO. The ALCO decisions are
then implemented by ALM and the implementation status is reported on a monthly basis to ALCO.
The following table shows the largest open exchange rate positions of Erste Group as of 31 December 2015 and the corresponding open
positions of these currencies as of 31 December 2014 respectively (excluding foreign exchange positions arising from equity participation).
Open exchange rate positions
in EUR thousand
Czech koruna (CZK)
US dollar (USD)
Hungarian forint (HUF)
British Pound (GBP)
Romanian Lei (RON)
Swiss franc (CHF)
Croatian Kuna (HRK)
Japanese yen (JPY)
Dec 2014
Dec 2015
-19,314
-7,349
-8,979
5,081
22,126
-54,188
23,327
-4,108
-141,134
-14,157
-12,865
10,746
9,753
-7,874
-5,694
-3,961
Hedging
Banking book market risk management consists of optimising Erste Group’s risk position by finding the proper trade-off between the
economic value of the balance sheet and forecasted earnings. Decisions are based on the balance sheet development, economic environment, competitive landscape, fair value of risk, effect on net interest income and appropriate liquidity position. The steering body responsible for interest rate risk management is ALCO. ALM submits proposals for actions to steer the interest rate risk to ALCO and implements ALCO’s decisions.
In order to achieve the goals of risk management, hedging activities focus on the two main control variables: net interest income and
market value of equity risk. In a broader sense, hedging refers to an economic activity that mitigates risk but does not necessarily qualify
for hedge accounting under IFRS rules. IFRS hedge accounting is applied, if possible, to avoid accounting mismatches due to hedging
activity. Within the scope of IFRS-compliant hedge accounting, cash flow hedges and fair value hedges are used. If IFRS-compliant hedge
accounting is not possible, the fair value option is applied, where appropriate, for the hedging of market values. Most of the hedging
within Erste Group concerns hedging of interest rate risk. The remainder is hedging of foreign exchange rate risk.
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44.6 Liquidity risk
Definition and overview
The liquidity risk is defined in Erste Group in line with the principles set out by the Basel Committee on Banking Supervision and the
Austrian regulators (“Kreditinstitute-Risikomanagement-Verordnung – KI-RMV”). Accordingly, a distinction is made between market
liquidity risk, which is the risk that the group entities cannot easily offset or close a position at the market price because of inadequate
market depth or market disruption, and funding liquidity risk, which is the risk that the banks in the group will not be able to meet efficiently both expected and unexpected current and future cash flow and collateral needs without affecting either daily operations or the
financial condition of the group members.
Funding liquidity risk is further divided into insolvency risk and structural liquidity risk. The former is the short-term risk that current or
future payment obligations cannot be met in full and on time in an economically justified manner, while structural liquidity risk is the
long-term risk of losses due to a change in the Group’s own refinancing cost or spread.
Liquidity strategy
In 2015, client deposits remained the primary source of funding for Erste Group: the volume of client deposits increased to EUR 127.9
billion as of year-end 2015, amounting to 64% of the balance sheet total. The loan-to-deposit ratio stands at 98%, which is in line with the
targeted level.
With regards to own issuance, Erste Group issued EUR 2.36 billion in bonds in 2015 which was in accordance with the size of the budgeted figure. EUR 1 billion was collected via two mortgage covered bonds in benchmark size. EUR 731 million was collected by issuing
senior unsecured bonds via private placements or the retail network. Subordinated debt (Tier 2) issuance was in the size of
EUR 600 million. The average tenor of all new issues in 2015 is approximately 7.4 years.
Since 2014, the ECB supports bank lending to the non-financial sector through a series of targeted longer-term refinancing operations
(TLTROs) with a maturity of up to four years and an early repayment option. At group level, Erste Group’s total TLTRO participation
increased slightly in 2015 to EUR 1,96 billion (2014: EUR 1,78 billion).
Methods and instruments employed
Short-term insolvency risk is monitored by calculating the survival period for each currency on both entity and group levels. This analysis
determines the maximum period during which the entity can survive a severe combined market and idiosyncratic crisis while relying on
its pool of liquid assets. The monitored worst-case scenario simulates very limited money market and capital market access and at the
same time significant client deposit outflows. Furthermore, the simulation assumes increased drawdown on guarantees and loan commitments dependent on the type of customer, as well as the potential outflows from collateralised derivative transactions estimating the effect
of collateral outflows in the case of adverse market movements. To reflect the reputational risk from callable own issues, the principal
outflows from these liabilities are modelled to the next call date in all stress scenarios.
Additional to QIS monitoring according to BCBS guidelines and reporting of Liquidity Coverage Ratio (LCR) and Net Stable Funding
Ratio (NSFR) according to CRR, Erste Group is reporting LCR internally according to the Delegated Act (Regulation (EU) 2015/61) since
October 2015. The ratios are monitored at both entity and group level, and since 2014 LCR is part of the internal Risk Appetite Statement,
targeting to be above 100% at group level ahead of the regulatory requirement.
Legal lending limits exist in all CEE countries where Erste Group is represented. As they restrict liquidity flows between Erste Group’s
subsidiaries in different countries they are taken into account for the assessment of liquidity risk in the survival period model as well as in
the calculation of the Liquidity Coverage Ratio at group level.
Additionally, the traditional liquidity gaps (depicting the going concern maturity mismatches) of the subsidiaries and the group as a whole
are reported and monitored regularly. Funding concentration risk is continuously analysed with respect to counterparties. Erste Group’s
funds transfer pricing (FTP) system has also proven to be an efficient tool for structural liquidity risk management.
Last year’s improvements of the internal stress testing methodology have been successfully completed. At the same time Erste Group is
continuing its ongoing project activities to improve the framework for group-wide liquidity risk reporting and liquidity risk measurement.
Aside from the adoption of changed and additional regulatory reporting requirements, current projects focus on improving data quality
and granularity used in the internal and regulatory risk measurement as well as increasing flexibility in reporting.
232
Methods and instruments of risk mitigation
Short-term liquidity risk is managed by limits resulting from the survival period model, internal stress testing and by internal LCR targets
at both entity and group level. Limit breaches are reported to the Group Asset Liability Committee (ALCO). Another important instrument
for managing the liquidity risk within Erste Group Bank AG and in relation to its subsidiaries is the FTP system. As the process of planning funding needs provides important information for liquidity management, a detailed overview of funding needs is prepared on a quarterly basis for the planning horizon across Erste Group.
The Comprehensive Contingency Plan of the Erste Group ensures the necessary coordination of all parties involved in the liquidity management process in case of crisis and is reviewed on a regular basis. The contingency plans of the subsidiaries are coordinated as part of
the plan for Erste Group Bank AG.
Analysis of liquidity risk
Liquidity gap
The long-term liquidity position is managed using liquidity gaps on the basis of expected cash flows. This liquidity position is calculated
for each material currency and based on the assumption of ordinary business activity. Fulfilment of the internal and regulatory liquidity
risk requirements as well as the current and expected market environment are also taken into account.
Expected cash flows are broken down by contractual maturities in accordance with the amortisation schedule and arranged in maturity
ranges. All products without contractual maturities (such as demand deposits and overdrafts) are shown in the first time bucket, irrespective of the statistically observed client behaviour.
The following table shows the liquidity gaps as of 31 December 2015 and 31 December 2014:
< 1 month
in EUR million
Liquidity GAP
1-12 months
1-5 years
> 5 years
Dec 2014
Dec 2015
Dec 2014
Dec 2015
Dec 2014
Dec 2015
Dec 2014
Dec 2015
-7,590
-19,075
-21,032
-15,177
-2,486
6,092
31,109
28,160
An excess of assets over liabilities is indicated by a positive value, while an excess of liabilities over assets is indicated by a negative
value. The callable own issues are modelled to their next call dates. The cash inflows from liquid securities amounting to EUR 36.6 billion (2014: EUR 33.5 billion), which are accepted as collateral by the central banks to which Erste Group has access, are taken into account in the first time bucket rather than considering them at their contractual maturity.
Counterbalancing capacity
Erste Group regularly monitors its counterbalancing capacity, which consists of cash, excess minimum reserves at the central banks as
well as unencumbered central bank eligible assets and other liquid securities, including impacts from repos, reverse repos and securities
lending transactions. These assets can be mobilised in the short term to offset potential cash outflows in a crisis situation. The term structure of the group’s counterbalancing capacity as of year-end 2015 and year-end 2014 are shown in the tables below:
Term structure of counterbalancing capacity
in EUR million
< 1 week
1 week-1 month
1-3 months
3-6 months
6-12 months
As of 31 December 2015
Cash, excess reserve
Liquid assets
Other central bank eligible assets
Thereof retained covered bonds
Thereof credit claims
Counterbalancing capacity
6,908
32,743
5,820
3,546
2,274
45,471
843
180
0
0
0
1,023
0
530
0
0
0
530
0
89
0
0
0
89
0
344
350
0
350
694
As of 31 December 2014
Cash, excess reserve
Liquid assets
Other central bank eligible assets
Thereof retained covered bonds
Thereof credit claims
Counterbalancing capacity
3,998
31,730
7,090
4,353
2,737
42,819
-156
439
98
0
98
382
0
73
247
0
247
320
0
136
-5
0
-5
131
0
1,092
-9
0
-9
1,082
The figures above show the total amount of potential liquidity available for the group in a going concern situation, taking into account the
applicable central bank haircuts. In a crisis situation adverse market movements and legal transfer restrictions among group members can
233
decrease this amount. Taking into account these effects, the initial counterbalancing capacity available at group level is reduced by additional haircuts and liquidity transfer constraints (e.g. legal lending limits). Negative figures are maturing positions of the counterbalancing
capacity. Positive figures after 1 week are positions not immediately available as counterbalancing capacity.
Financial liabilities
Maturities of contractual undiscounted cash flows from financial liabilities as of 31 December 2015 and 31 December 2014 respectively,
were as follows:
Carrying
amounts
Contractual
cash flows
< 1 month
1-12 months
1-5 years
> 5 years
As of 31 December 2015
Non-derivative liabilities
Deposits by banks
Customer deposits
Debt securities in issue
Subordinated liabilities
Derivative liabilities
Contingent liabilities
Financial guarantees
Irrevocable commitments
Total
171,714
14,212
127,797
23,947
5,758
6,027
0
0
0
177,741
175,495
14,322
128,449
25,832
6,892
6,126
25,415
19,126
6,288
207,036
82,046
6,826
74,623
568
28
424
25,415
19,126
6,288
107,884
37,374
1,942
29,694
4,911
827
1,597
0
0
0
38,971
36,419
4,176
19,115
10,584
2,544
3,018
0
0
0
39,438
19,656
1,378
5,016
9,768
3,494
1,087
0
0
0
20,743
As of 31 December 2014
Non-derivative liabilities
Deposits by banks
Customer deposits
Debt securities in issue
Subordinated liabilities
Derivative liabilities
Contingent liabilities
Financial guarantees
Irrevocable commitments
Total
168,225
14,803
122,263
25,402
5,758
7,914
0
0
0
176,140
173,996
15,127
123,803
28,027
7,038
7,964
22,963
6,862
16,101
204,923
65,122
5,929
58,793
388
12
484
22,963
6,862
16,101
88,569
42,372
2,720
33,755
5,614
283
1,724
0
0
0
44,096
40,467
3,825
21,915
12,923
1,804
3,982
0
0
0
44,449
26,035
2,654
9,340
9,102
4,939
1,775
0
0
0
27,809
in EUR million
As of year-end 2015, the currency composition of the non-derivative liabilities consisted of approximately 73% EUR, 15% CZK, 4%
RON, 4% USD and the rest 4% in other currencies.
Besides the contingent liabilities from unused credit lines and guarantees, material potential cash outflow is estimated from the collateralised derivative transactions for the stress testing, which amounted to EUR 667.4 million in the worst-case scenario as of
31 December 2014 (2014: EUR 338.6 million).
As of 31 December 2015, the volume of customer deposits due on demand amounted to EUR 64.6 billion (2014: EUR 50.6 billion). Observation of customer behaviour has shown that 95% of this volume is stable during the ordinary course of business. This means that only
a minor part of the on-demand portfolio is withdrawn by the customer, whereas the major part generally remains in the bank.
According to customer segments, the customer deposits are composed as follows: 70% private individuals, 13% large corporates, 9%
small and medium-sized enterprises, 4% non-banking financial institutions and 4% public sector The deposits by banks include the top
five providers of funds.
Liquidity ratios
With the implementation of the CRR at the beginning of 2014, new liquidity ratios, the Liquidity Coverage Ratio (LCR) and the Net
Stable Funding Ratio (NSFR) have been introduced as ratios relevant for reporting purposes. For the LCR, the European Commission
released a delegated regulation (EU) 2015/61 of 10 October 2014, published in the Official Journal of the European Union on
17 January 2015, specifying details on the ratio and setting a binding minimum requirement for the ratio as of 1 October 2015. The LCR
represents a ratio of highly liquid assets vis-à-vis net cash outflows over a 30 day time horizon. The minimum ratio has been set at 60%
for 2015 (from 1 October), 70% for 2016, 80% for 2017 and 100% from 2018. The NSFR remains for the time being a reporting requirement only, with a binding minimum requirement potentially introduced from 2018.The NSFR represents a ratio of available stable funding vis-à-vis required stable funding within a 12 month time horizon. Both ratios have been implemented within Erste Group.
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44.7 Operational risk
Definition and overview
In line with Article 4 Section 52 of regulation (EU) 575/2013 (CRR), Erste Group defines operational risk as the risk of loss resulting
from inadequate or failed internal processes, people and systems, or from external events, including legal risks. Both quantitative and
qualitative methods are used to identify operational risks. Consistent with international practice, the responsibility for managing operational risk rests with the line management.
Methods and instruments employed
The quantitative measurement methods are based on internal loss experience data, which is collected across Erste Group using a standard
methodology and entered into a central data pool. Additionally, in order to be able to model losses that have not occurred in the past but
are nonetheless possible, scenarios and external data are also used. Erste Group sources external data from a leading non-profit risk-loss
data consortium.
Erste Group received regulatory approval for the Advanced Measurement Approach (AMA) in 2009. AMA is a sophisticated approach to
measuring operational risk. Pursuant to AMA, the required capital is calculated using an internal VaR model, taking into account internal
data, external data, scenario analysis, business environment and internal risk control factors. In 2011, Erste Group received approval to
use insurance contracts for mitigation within the AMA pursuant to Article 323 CRR.
Methods and instruments of risk mitigation
In addition to quantitative methods, qualitative methods are also used to determine operational risk, such as risk assessment surveys. The
results of and suggestions for risk control in these surveys, which are conducted by experts, are reported to the line management and thus
help to reduce operational risks. Erste Group also reviews certain key indicators periodically to ensure early detection of changes in risk
potential that may lead to losses.
Erste Group uses a group-wide insurance programme, which, since its establishment in 2004, has reduced the cost of meeting Erste
Group’s traditional property insurance needs and made it possible to buy additional insurance for previously uninsured bank-specific
risks. This programme uses a captive reinsurance entity as a vehicle to share losses within the group and access the external market.
The quantitative and qualitative methods used, together with the insurance strategy and the modelling approaches described above, form
the operational risk framework of Erste Group. Information on operational risk is periodically communicated to the management board
via various reports, including the quarterly top management reports, which describe the recent loss history, loss development, qualitative
information from risk assessments and key risk indicators as well as the operational VaR for Erste Group.
Distribution of operational risk events
Detailed below is the percentage composition by type of event of operational risk sources as defined by Article 324 CRR. The observation
period is from 1 January 2011 to 31 December 2015.
The event type categories
_ Internal fraud: losses due to acts of a type intended to defraud, misappropriate property or circumvent regulations, the law or company
policy, excluding diversity or discrimination events that involve at least one internal party.
_ External fraud: losses due to acts by a third party of a type intended to defraud, misappropriate property or circumvent the law.
_ Employment practices and workplace safety: losses arising from acts inconsistent with employment, health or safety laws or
agreements, from payment of personal injury claims, or from diversity or discrimination events.
_ Clients, products and business practices: losses arising from unintentional or negligent failure to meet a professional obligation
to specific clients (including fiduciary and suitability requirements) or from the nature or design of a product.
_ Damage to physical assets: losses arising from loss of or damage to physical assets caused by natural disaster or other events.
_ Business disruption and system failures: losses arising from disruption of business or system failures.
_ Execution, delivery and process management: losses from failed transaction processing or process management. Losses pertaining to relationships with trading counterparties and vendors or suppliers.
235
Event type categories (in %)
Execution, delivery and process management
Internal fraud
1.8
25.0
1.6
14.0
51.0
External fraud
1.4
Employment practices and workplace safety
5.2
Clients, products and business practices
Damage to physical assets
Business disruption and system failures
45. Hedge accounting
The interest rate risk of the banking book is managed by Group ALM. Preference in managing interest rate risk is given to using bonds,
loans or derivatives, with hedge accounting for derivatives usually applied in accordance with IFRS. The main guideline for interest rate
risk positioning is the Group Interest Rate Risk Strategy that is approved by the Group ALCO for the relevant time period.
Fair value hedges are employed to reduce interest rate risk of issued bonds, purchased securities, loans or deposits on the Erste Group
balance sheet. In general, Erste Group policy is to swap all substantial fixed or structured issued bonds to floating items and as such to
manage the targeted interest rate risk profile by other balance sheet items. Interest rate swaps are the most common instruments used for
fair value hedges. Concerning loans, purchased securities and securities in issuance, fair value is also hedged by means of cross-currency
swaps, swaptions, caps, floors and other types of derivative instruments.
A minor part of the cash flow hedge relationship have been terminated in 2015 because of inneficiencies caused by the zero procent floors
in the client loan contracts.
Cash flow hedges are used to eliminate uncertainty in future cash flows in order to stabilise net interest income. The most common such
hedge in Erste Group consists of interest rate swaps hedging variable cash flows of floating assets into fixed cash flows. Floors or caps are
used to secure the targeted level of interest income in a changing interest rate environment.
In the reporting period, EUR 38.8 million (2014: EUR 51.5 million) was taken from the cash flow hedge reserve and recognised as income in the consolidated income statement; while EUR 11.4 million (2014: EUR 224.3 million) was recognised directly in other comprehensive income. The majority of the hedged cash flows are likely to occur within the next five years and will then be recognised in the
consolidated income statement. Ineffectiveness from cash flow hedges amounting to EUR 0.1 million (2014: EUR -0.2 million) is reported in the net trading result.
Fair value hedges in 2015 resulted in losses of EUR 366.1 million (2014: gain of EUR 497.4 million) on hedging instruments and gains of
EUR 359.6 million on hedged items (2014: loss of EUR 466.4 million).
Fair values of hedging instruments are disclosed in the following table:
Dec 14
in EUR million
Hedging instrument - fair value hedge
Hedging instrument - cash flow hedge
236
Dec 15
Positive
fair value
Negative
fair value
Positive
fair value
Negative
fair value
2,689
183
724
2
2,031
161
581
12
46. Fair value of financial instruments
All financial instruments are measured at fair value on recurring basis.
Financial instruments carried at fair value
The measurement of fair value at Erste Group is based primarily on external sources of data (stock market prices or broker quotes in
highly liquid market segments). Financial instruments for which the fair value is determined on the basis of quoted market prices are
mainly listed securities and derivatives as well as liquid OTC bonds.
Description of valuation models and parameters
Erste Group uses valuation models that have been tested internally and for which the valuation parameters (such as interest rates, exchange rates, volatilities and credit spreads) have been determined independently. In 2015, as a consequence of the negative interest environment, valuation models of interest rate options for the respective currencies were adjusted. Log-normal valuation models were replaced by standard market models which are based on a shifted log-normal distribution or a standard distribution. For such models negative interest rates are no restriction.
Securities. For plain vanilla (fixed and floating) debt securities the fair value is calculated by discounting the future cash-flows using a
discounting curve depending on the interest rate for the respective issuance currency and a spread adjustment. The spread adjustment is
usually derived from the credit spread curve of the issuer. If no issuer curve is available the spread is derived from a proxy instrument and
adjusted for differences in the risk profile of the instruments. If no close proxy is available, the spread adjustment is estimated using other
information, including estimation of the credit spread based on internal ratings and PDs or management judgment. For more complex debt
securities (e.g. including option-like features such as callable, cap/floor, index-linked) the fair value is determined using combinations of
discounted cash-flow models and more sophisticated modeling techniques including methods described for OTC-derivatives. The fair
value of financial liabilities designated at fair value through profit or loss under the fair value option is determined in consistency with
similar instruments held as assets. The spread adjustment for Erste Group’s own credit risk is derived from buy-back levels of own issuances. Techniques for equity securities may also include models based on earnings multiples.
OTC-derivative financial instruments. Derivative instruments traded in liquid markets (e.g. interest rate swaps and options, foreign
exchange forward and options, options on listed securities and indices, credit default swaps and commodity swaps) are valued by using
standard valuation models. These models include discounting cash flow models, option models of the Black-Scholes- and Hull-Whitetype as well as hazard rate models. Models are calibrated on quoted market data (including implied volatilities). Valuation models for
more complex instruments also use Monte-Carlo-techniques. For instruments in less liquid markets, data obtained from less frequent
transactions or extrapolation techniques are used.
Erste Group values derivatives at mid-market levels. To reflect the potential bid-ask-spread of the relevant positions an adjustment based
on market liquidity is performed. The adjustment parameters depend on product type, currency, maturity and notional size. Parameters are
reviewed on a regular basis or in case of significant market moves. Netting is not applied when determining the bid-ask-spread adjustments.
Credit value adjustments (CVA) for counterparty risk and debit value adjustments (DVA) for own default credit risk are applied to OTC
derivatives. For the CVA the adjustment is driven by the expected positive exposure of all derivatives and the credit quality of the counterparty. DVA is driven by the expected negative exposure and Erste Group’s credit quality. Erste Group has implemented an approach,
where the modeling of the expected exposure is based on option replication strategies. For products where an option replication is not
feasible the exposure is computed with Monte-Carlo simulation techniques. One of the two modeling approaches is considered for the
most relevant portfolios and products. The methodology for the remaining entities and products is determined by market value plus addon considerations. The probability of default by counterparties that are not traded in an active market is determined from internal PDs
mapped to a basket of liquid titles present in the central European market. Market based valuation concepts are incorporated for this.
Counterparties with liquid bond or CDS markets are valued by the respective single-name market based PD derived from the prices. Erste
Group’s probability of default has been derived from the buy-back levels of Erste Group’s issuances. Netting has only been considered for
a few counterparties where the impact was material. In these cases, netting has been applied for both CVA and DVA. For collateralised
derivatives the effect of collateral received is considered and reduces the amount of CVA accordingly. For counterparties with CSAagreements in place no CVA was taken into account for all cases with immaterial threshold amounts.
According to the described methodology the accumulated CVA-adjustments amounts to EUR 43.9 million (2014: EUR -52.8 million) and
the total DVA-adjustment amounts to EUR 12.0 million (2014: EUR 12.7 million).
237
Validation and control
The responsibility for valuation of financial instruments measured at fair value is independent of the trading units. In addition, Erste
Group has implemented an independent validation function in order to ensure separation between units responsible for model development, fair value measurement and validation. The aim of independent model validation is to evaluate model risks arising from the models’
theoretical foundation, the appropriateness of input data (market data) and model calibration.
Fair value hierarchy
Financial assets and financial liabilities measured at fair value are categorized under the three levels of the IFRS fair value hierarchy.
Level 1 of the fair value hierarchy
The fair value of financial instruments assigned to level 1 of the fair value hierarchy is determined based on quoted prices in active markets for identical financial assets and liabilities. More particular, the evaluated fair value can qualify as level 1 if transactions occur with
sufficient frequency, volume and pricing consistency on an ongoing basis.
These include exchange traded derivatives (futures, options), shares, government bonds as well as other bonds and funds, which are traded in highly liquid and active markets.
Level 2 of the fair value hierarchy
In case a market quote is used for valuation but due to restricted liquidity the market does not qualify as active (derived from available
market liquidity indicators) the instrument is classified as level 2. If no market prices are available the fair value is measured by using
valuation models which are based on observable market data. If all the significant inputs in the valuation model are observable the instrument is classified as level 2 of the fair value hierarchy. For level 2 valuations typically yield curves, credit spreads and implied volatilities
are used as observable market parameters.
These include OTC derivatives, less liquid shares, bonds and funds as well as asset backed securities (ABS), collateralized debt obligations (CDO) and own issues.
Level 3 of the fair value hierarchy
In some cases, the fair value can be determined neither on the basis of sufficiently frequent quoted market prices nor of valuation models
that rely entirely on observable market data. In these cases individual valuation parameters not observable in the market are estimated on
the basis of reasonable assumptions. If any unobservable input in the valuation model is significant or the price quote used is updated
infrequently the instrument is classified as level 3 of the fair value hierarchy. For level 3 valuations besides observable parameters typically credit spreads derived from internally calculated historical probability of default (PD) and loss given default (LGD) measures are used
as unobservable parameters
These include shares and funds not quoted, illiquid bonds as well as illiquid asset backed securities (ABS) and collateralized debt obligations (CDO).
A reclassification from level 1 into level 2 or level 3 as well as vice versa will be performed if the financial instrument does no longer
meet the criteria described above for the respective level.
The following table shows the classification of financial instruments carried at fair value with respect to levels of the fair value hierarchy.
238
Dec 14
in EUR million
Assets
Financial assets - held for trading
Derivatives
Other trading assets
Financial assets - at fair value
through profit or loss
Financial assets - available for sale
Derivatives - hedge accounting
Assets held for sale
Total assets
Liabilities
Financial liabilities - held for trading
Derivatives
Other trading liabilities
Financial liabilities - at fair value
through profit or loss
Deposits from customers
Debt securities issued
Other financial liabilities
Derivatives - hedge accounting
Total liabilities
Dec 15
Quoted
market
prices in
active
markets
(Level 1)
Marked to
model based
on
observable
market data
(Level 2)
Marked to
model based
on nonobservable
inputs
(Level 3)
Total
Quoted
market
prices in
active
markets
(Level 1)
Marked to
model based
on
observable
market data
(Level 2)
Marked to
model based
on nonobservable
inputs
(Level 3)
Total
2,363
1
2,361
8,038
7,048
990
130
124
6
10,531
7,173
3,357
2,801
2
2,798
5,768
5,158
611
150
143
7
8,719
5,303
3,416
52
16,915
0
0
19,330
258
4,963
2,866
53
16,178
39
428
6
0
603
350
22,306
2,872
53
36,111
221
17,759
0
0
20,780
88
2,306
2,191
0
10,353
50
627
0
0
827
359
20,692
2,191
0
31,961
339
4
336
7,407
7,184
222
0
0
0
7,746
7,188
558
363
14
349
5,503
5,418
85
1
1
0
5,867
5,434
434
0
0
0
0
0
339
2,073
320
1,753
0
726
10,206
0
0
0
0
0
0
2,073
320
1,753
0
726
10,545
0
0
0
0
0
363
1,907
149
1,758
0
593
8,002
0
0
0
0
0
1
1,907
149
1,758
0
593
8,367
The chosen method for the allocation of positions to levels is the following: all the levels and level changes are reflected at the end of the
reporting period.
Valuation process for financial instruments categorisied as level 3
The valuation of financial instruments categorisid as level 3 involves one or more significant inputs that are not directly observable on the
market. Additional price verification steps need to be done. These may include reviewing relevant historical data and benchmarking for
similar transactions, among others. This involves estimation and expert judgment.
Changes in volumes of level 1 and level 2
This paragraph describes the changes in volumes of level 1 and level 2 of financial instruments carried at fair value in the balance sheet.
Movements on asset side between level 1 and level 2
Dec 14
in EUR million
Securities
Net transfer from level 1
Net transfer from level 2
Net transfer from level 3
Purchases/Sales/Expiries/Changes in Fair Value
Changes in derivatives
Total year-to-date change
Dec 15
Level 1
Level 2
Level 1
Level 2
0
416
64
2,049
-14
2,515
-416
0
-152
-3,015
1,740
-1,843
0
839
-6
617
1
1,451
-839
0
-58
-2,363
-2,565
-5,825
Movements in 2015. In 2015 the total amount of level 1 financial assets increased by EUR 1,451 million. The change in volume of level 1
securities (increase by EUR 1,450 million) was determined on the one hand by matured or sold assets in the amount of EUR 2,693 million
and on the other hand by new investments in the amount of EUR 2,869 million. The increase in volume for securities that were allocated to
level 1 at both reporting dates (2015 and 2014) amounted to EUR 542 million (due to partial purchases and sales and fair value changes
caused by market movements). Due to improved market liquidity, assets in the amount of EUR 1,039 million could be reclassified from
level 2 to level 1. This applied mainly to securities issued by financial institutions (2015: EUR 703 million), but also to securities issued by
governments (2015: EUR 63 million) and other corporates (2015: EUR 273 million). Due to lower market activity and change to modelled
fair value, securities in total of EUR 200 million have been moved from level 1 to level 2. This applies mainly to securities issued by financial institutions (2015: EUR 74 million) and other corporates (2015: EUR 65 million) as well as securities issued by governments (2015:
EUR 61 million). Level 1 instruments in the amount of EUR 6 million were reclassified to level 3. The remaining decrease in the amount of
EUR 101 million was due to partial sales and fair value changes of reclassified instruments.
239
As of 31 December 2015, no significant liabilities measured at fair value are reported in level 3.
Movements in 2014. In comparison to 2013, in 2014, the total amount of level 1 financial assets increased by EUR 2,515 million. The
change in volume of level 1 securities (increase by EUR 2,529 million) was determined on the one hand by matured or sold assets in the
amount of EUR 1.9 billion and on the other hand by new investments in the amount of EUR 2.4 billion. The increase in volume for securities that were allocated to level 1 at both reporting dates (2014 and 2013) amounted to EUR 2.2 billion (due to partial purchases and
sales and fair value changes caused by market movements). Due to improved market liquidity, assets in the amount of EUR 1.1 billion
could be reclassified from level 2 to level 1. This applied mainly to securities issued by governments (2014: EUR 525 million), but also to
securities issued by financial institutions (2014: EUR 470 million) and other corporates (2014: EUR 127 million). Due to lower market
activity and change to modelled fair value, securities in total of EUR 0.7 billion have been moved from level 1 to level 2. This applies
mainly to securities issued by financial institutions (EUR 496 million) and other corporates (2014: EUR 167 million) as well as securities
issued by governments (EUR 43 million). The remaining decrease in the amount of EUR 0.6 billion was due to partial sales and fair value
changes of reclassified instruments.
The reclassifications between level 1 and level 2, broken down to measurement categories and instruments, are shown below:
in EUR million
Financial assets - available for sale
Bonds
Funds
Other
Stocks
Financial assets - at fair value through profit or loss
Funds
Bonds
Financial assets - held for trading
Bonds
Funds
Other
Stocks
Total
in EUR million
Financial assets - available for sale
Bonds
Funds
Other
Shares
Financial assets designated at fair value through profit or loss
Bonds
Funds
Financial assets - held for trading
Bonds
Funds
Other
Shares
Total
From level 1
From level 1
to level 2 in 2014 to level 2 in 2015
588
71
481
10
26
82
82
0
36
8
18
2
8
706
176
175
0
0
1
1
0
1
23
23
0
0
0
200
From level 2
From level 2
to level 1 in 2014 to level 1 in 2015
962
945
0
17
0
30
30
0
130
125
0
4
0
1,122
782
361
342
12
65
78
0
78
179
35
1
0
143
1,039
Movements in 2015. The total value of level 2 financial assets decreased between 2015 and 2014 by EUR 5,825 million. The level 2
securities fair value change (down by EUR 3,260 million) can be explained for the most part by matured or sold positions in the amount
of EUR 2,838 million and new investments in the amount of EUR 925 million. The reduction in volume for securities that have been
allocated to level 2 at both reporting dates 2015 and 2014 amounted to EUR 204 million (due to partial sales and purchases and fair value
changes caused by market movements).
Due to reduced market depth a total volume of EUR 200 million was reclassified from level 1 to level 2 in 2015. As previously outlined,
this applies mainly to bonds issued by financial institutions and other corporates. Securities in the amount of EUR 1,039 million were
reclassified from level 2 to level 1 for the reporting date. Due to the use of significant non-observable valuation parameters a total volume
of EUR 151 million was reclassified from level 2 to level 3. Participations as well as securities issues by financial institutions are affected
by this reclassification. Due to a change to valuation models with significant observable parameters a total volume of EUR 94 million was
240
reclassified from level 3 to level 2. As a consequence of the sale of assets which were held for sale the level 2 position decreased by
EUR 53 million. The remaining decrease in the amount of EUR 193 million was due to partial sales and fair value changes of reclassified
instruments. The decrease on the asset side derivatives in level 2 by EUR 2,565 million are caused by changes in market values and by
netting effects.
On the liability side, as far as securities are concerned, there were no significant movements between the levels. Changes in the amounts
were caused either by purchases, sales or changes in market value. The changes of derivatives were mainly caused by changes in the
market value and netting effects.
Movements in 2014. The total value of level 2 financial assets decreased between 2014 and 2013 by EUR 1,843 million. The level 2
securities fair value change (down by EUR 3,631 million) can be explained for the most part by matured or sold positions in the amount
of EUR 5.2 billion and new investments in the amount of EUR 2.3 billion. The reduction in volume for securities that have been allocated
to level 2 at both reporting dates 2014 and 2013 amounted to EUR 70 million (due to partial sales and purchases and fair value changes
caused by market movements).
Due to reduced market depth a total volume of EUR 0.7 billion was reclassified from level 1 to level 2 in 2014. As previously outlined,
this applies mainly to bonds issued by financial institutions and other corporates. Securities in the amount of EUR 1.1 billion were reclassified from level 2 to level 1 for the reporting date. Due to the use of significant non-observable valuation parameters a total volume of
EUR 0.2 billion was reclassified from level 2 to level 3. This applies mainly to securitizations and securities issued by financial institutions. Due to a change to valuation models with significant observable parameters a total volume of EUR 0.1 billion was reclassified from
level 3 to level 2. The remaining decrease in the amount of EUR 0.2 billion was due to partial sales and fair value changes of reclassified
instruments. The decrease on the asset side in derivatives in level 1 by EUR 14 million represented only a very small contribution to the
overall changes.
On the liability side, as far as securities are concerned, there were no movements between the levels. Changes in the amounts were caused
either by purchases, sales or changes in market value. The changes of derivatives were mainly caused by changes in the market value.
Movements in level 3 of financial instruments carried at fair value
The following tables show the development of fair value of financial instruments in level 3 categorie:
in EUR million
As of
Dec 14
Gain/loss
in other
Gain/loss comprein profit
hensive
or loss
income
Purchases
Additions
to the
Sales Settlements
group
Disposals
out of the
group
Transfers
into
level 3
Transfers
out of
level 3
Currency
translation
As of
Dec 15
Assets
Financial assets held for trading
Derivatives
Other trading
assets
Financial assets at fair value through
profit or loss
Financial assets available-for-sale
Derivatives - hedge
accounting
Total assets
130
124
20
21
0
0
7
4
-1
0
-3
-2
0
0
0
0
15
14
-19
-19
1
1
150
143
6
-1
0
2
-1
0
0
0
1
0
0
7
39
-2
0
0
-10
0
0
0
22
0
0
50
428
-5
114
58
-5
-100
0
-1
337
-199
0
627
6
603
-3
11
0
114
0
65
0
-16
0
-102
0
0
0
-1
0
374
-3
-222
0
1
0
827
Dec 13
Assets
Financial assets held for trading
Derivatives
Other trading
assets
Financial assets at fair value through
profit or loss
Financial assets available-for-sale
Derivatives - hedge
accounting
Total assets
Dec 14
96
96
15
17
0
0
8
0
-5
-1
0
0
0
0
0
0
57
52
-41
-41
0
0
130
124
0
-2
0
8
-5
0
0
0
5
0
0
6
56
-3
0
1
-6
0
0
0
10
-19
0
39
248
3
3
13
-49
0
0
0
297
-88
1
428
0
401
0
14
0
3
0
22
0
-60
0
0
0
0
0
0
6
369
0
-148
0
1
6
603
241
The profit or loss of level 3 financial instruments classified as ‘Financial assets – held for trading’, ‘Financial assets – at fair value through
profit or loss’ and ‘Derivatives – hedge accounting’ is disclosed in the income statement line item ‘Net trading and fair value result’. Profit
or loss from derecognition of ‘Financial assets – available for sale’ is shown in the income statement line item ‘Gains/Losses from financial assets and liabilities not measured at fair value through profit or loss, net’. Impairments of ‘Financial assets – available for sale’ is
disclosed in the line item ‘Net impairment loss on financial assets not measured at fair value through profit or loss’. Gains or losses in
other comprehensive income of level 3 financial instruments disclosed in the balance sheet line item ‘Financial assets – available for sale’
are reported directly in equity under ‘Available for sale reserve’.
Movements in 2015. The reclassification of securities to level 3 was caused by a decrease in market liquidity and was based on an indepth analysis of broker quotes. In addition to the assessment of the parameters used for the fair value determination, the external market
values of securitizations were subject to an internal validation process, which is based on observable market inputs. Based on the described analysis securities in the amount of EUR 151 million were reclassified from level 2 to level 3. The change is coming from securities issued by corporates (EUR 68 million), securities from financial institutions (EUR 58 million) and securities from sovereigns in the
amount of EUR 25 million. On the other hand securities in the amount of EUR 94 million were reclassified from level 3 to level 2. Thereof EUR 46 million are securities issued by corporates, EUR 35 million from financial institutions and EUR 13 million are securities issued by sovereigns. Out of level 1 EUR 6 million were reclassified to level 3. The additional increase in level 3 positions was on the one
hand caused by an increase in derivative exposure of EUR 20 million and on the other hand caused by the purchase, sale and market value
change of securities in the amount of EUR 140 million.
The increase of level 3 market values in the category Financial Assets – Available for Sale is based on the fair value valuation of the VISA
Europe participation as of 31st December 2015. The revaluation of the participation was necessary due to a purchase offer posted by VISA
Inc. The proposed offer is a combination of an initial cash payment combined with preferred shares of VISA Inc. and a potential earn out
payment in 2020. All these elements have been considered in the determination of the fair value. As significant input parameters for the
fair value determination could not be derived from external observable parameters it was necessary to include assumptions and estimations in the determination of the fair value. In total this revaluation led to an increase within the category ‘Financial Assets – Available for
Sale’ amounting to EUR 127 million.
The cash payment was accounted for with its present value as of 31st December 2015. The preferred shares, which are issued as part of the
initial purchase price can only be sold after a minimum holding period of 12 years. In addition to that the preferred shares are subject to
conditions for which a non-fulfilment would affect the conversation into market tradable VISA Inc. shares. Based on these restrictive
conditions the preferred shares were subject to a discount compared to tradable VISA Inc. shares. Moreover the amount of the potential
earn out payment is influenced by external specification for which the probability of fulfilment cannot be derived from external observable parameters. As a consequence the potential earn out payment was derived from estimated assumptions.
Movements in 2014. The reclassification of securities to level 3 was caused by a decrease in market liquidity and was based on an indepth analysis of broker quotes. In addition to the assessment of the parameters used for the fair value determination, securitisations were
subject to a market liquidity analysis based on market data provider scoring. The issues with insufficient score were moved from level 2 to
level 3. The move to level 3 mainly affects securitizations (EUR 146 million), where significant valuation parameters were no longer
observable, as well as issues from financial institutions (EUR 42 million). In contrast, the reclassification of securities from level 3 to
level 2 in 2014 was mainly due to a change to modelled prices with observable input parameters.
An amount of EUR 117 million shown within ‘Transfers into level 3’ is related to investments in equity instruments which have been
measured at cost according to IAS 39.46 (c) in the past. In 2014 these investments have been measured at fair value for the first time and
have therefore been added to the category ‘Available for Sale’.
Gains or losses on level 3 instruments held at the reporting period’s end and which are included in profit or loss are as follow:
in EUR million
Assets
Financial assets - held for trading
Derivatives
Other trading assets
Financial assets designated at fair value through profit or loss
Derivatives hedge accounting
Total
242
Dec 14
Dec 15
-14.5
-13.8
-0.7
0.9
0.0
-13.6
22.2
22.5
-0.3
-1.6
-2.7
17.9
The volume of level 3 financial assets can be allocated to the following two categories:
_ Market values of derivatives where the credit value adjustment (CVA) has a material impact and is calculated based on unobservable
parameters (i.e. internal estimates of PDs and LGDs).
_ Illiquid bonds, shares and funds not quoted in an active market where either valuation models with non-observable parameters have
been used (e.g. credit spreads) or broker quotes have been used that cannot be allocated to level 1 or level 2.
Unobservable inputs and sensitivity analysis for level 3 measurements
In case the fair value of a financial asset is retrieved from input parameters which are not observable in the market, those parameters can
be retrieved from a range of alternative parameters. For the preparation of the balance sheet the parameters where chosen to reflect the
market situation at the reporting date.
The range of unobservable valuation parameters used in level 3 measurements is shown in the following table.
Financial assets
Type of instrument
Fair value
in EUR million
Significant
Range of
unobservable unobservable inputs
inputs
(weighted average)
Valuation technique
As of 31 December 2015
Positive fair value of derivatives
Financial assets at fair value through profit or loss
Financial assets available for sale
Forwards, swaps, options
142.9
Discounted cash flow and option
models with CVA adjustment
based on potential future exposure
PD
LGD
Fixed and variable coupon bonds
10.9
Discounted cash flow
Credit spread
Fixed and variable coupon bonds
270.9
Discounted cash flow
Credit spread
129.5
Discounted cash flow and option
models with CVA adjustment
based on potential future exposure
PD
LGD
0.96% -100%
(11.7%)
60%
0.1% -1.5%
(0.4%)
0.1% -9.9%
(2.2%)
As of 31 December 2014
Positive fair value of derivatives
Financial assets at fair value through profit or loss
Financial assets available for sale
Forwards, swaps, options
Fixed and variable coupon bonds
11.9
Discounted cash flow
Credit spread
Fixed and variable coupon bonds
291.3
Discounted cash flow
Credit spread
1.21% -100%
(15.5%)
60%
0.1% -7.5%
(0,7%)
0.1% -9.9%
(1.5%)
The following table shows the sensitivity analysis using reasonably possible alternatives per product type.
Positive fair value changes when
applying alternative valuation
parameters
in EUR million
Derivatives
Income statement
Other comprehensive income
Debt securities
Income statement
Other comprehensive income
Equity instruments
Income statement
Other comprehensive income
Total
Income statement
Other comprehensive income
Negative fair value changes when
applying alternative valuation
parameters
Dec 14
Dec 15
Dec 14
Dec 15
10.2
10.2
0.0
23.3
0.9
22.4
1.3
0.4
0.9
34.8
10.5
10.5
0.0
13.5
0.6
12.9
9.9
1.1
8.7
33.8
-11.5
-11.5
0.0
-31.1
-1.2
-29.9
-2.7
-0.8
-1.9
-45.3
-8.8
-8.8
0.0
-18.0
-0.8
-17.2
-19.7
-2.3
-17.4
-46.5
11.5
23.3
12.2
21.6
-13.5
-31.8
-11.9
-34.7
In estimating these impacts, mainly changes in credit spreads (for bonds), PDs, LGDs (for CVA of derivatives) and market values of
comparable equities were considered. An increase (decrease) of spreads, PDs and LGDs result in a decrease (increase) of the corresponding market values. Positive correlation effects between PDs and LGDs were not taken into account in the sensitivity analysis.
The following ranges of reasonably possible alternatives of the unobservable inputs were considered in the sensitivity analysis table:
_ for debt securities range of credit spreads between +100 basis points and -75 basis points,
_ for equity related instruments the price range between -10% and +5%,
_ for CVA on derivatives PDs rating upgrade/downgrade by one notch, as well as the change of LGD by -5% and +10%.
243
Financial instruments not carried at fair value with fair value disclosed in the notes
The following table shows fair values and the fair value hierarchy of financial instruments for which fair value is disclosed in the notes.
2015
Marked to model Marked to model
based on
based on
observable non-observable
market data
inputs
level 2
level 3
Carrying amount
Fair value
Quoted market
prices in
active markets
level 1
Assets
Cash and cash balances
Financial assets - held to maturity
Loans and receivables to credit institutions
Loans and receivables to customers
12,350
17,701
4,805
125,897
12,350
19,514
4,881
129,000
0
18,539
0
0
0
920
173
154
0
56
4,708
128,846
Liabilities
Financial liabilities measured at amortised costs
Deposits from banks
Deposits from customers
Debt securities issued
Other financial liabilities
0
170,787
14,212
127,797
27,896
882
0
173,274
14,493
128,719
29,238
825
0
9,326
0
0
9,326
0
0
19,338
0
0
19,338
0
0
144,610
14,493
128,719
573
825
n/a
n/a
-14
-25
0
0
0
0
-14
-25
in EUR million
Financial guarantees and commitments
Financial guarantees
Irrevocable commitments
2014
Marked to model Marked to model
based on
based on
observable non-observable
market data
inputs
level 2
level 3
Carrying amount
Fair value
Quoted market
prices in
active markets
level 1
Assets
Cash and cash balances
Financial assets - held to maturity
Loans and receivables to credit institutions
Loans and receivables to customers
7,835
16,877
7,442
120,834
7,835
18,876
7,974
124,560
6,976
17,542
0
0
0
1,255
266
199
859
79
7,707
124,361
Liabilities
Financial liabilities measured at amortised costs
Deposits from banks
Deposits from customers
Debt securities issued
Other financial liabilities
166,921
14,803
122,263
29,387
469
166,976
15,035
122,087
29,372
482
6,461
0
0
6,461
0
17,989
0
0
17,989
0
142,526
15,035
122,087
4,922
482
n/a
n/a
-346
-155
0
0
0
0
-346
-155
in EUR million
Financial guarantees and commitments
Financial guarantees
Irrevocable commitments
The fair value of loans and advances to customers and credit institutions has been calculated by discounting future cash flows while taking into consideration interest and credit spread effects. The interest rate impact is based on the movements of market rates, while credit
spread changes are derived from PDs and LGDs used for internal risk calculations. For the calculation of fair value loans and advances
were grouped into homogeneous portfolios based on rating method, rating grade, maturity and the country where they were granted.
The fair values of financial assets held to maturity are either taken directly from the market or they are determined by directly observable
input parameters (i.e. yield curves).
For liabilities without contractual maturities (e.g. demand deposits), the carrying amount represents the minimum of their fair value.
The fair value of issued securities and subordinated liabilities measured at amortized cost is based on market prices or on observable
market parameters, if these are available. For issued securities where the fair value cannot be retrieved from quoted market prices, the fair
value is calculated by discounting the future cash flows. The applied discount rate is based on the interest rates at which instruments with
comparable characteristics could have been issued at the balance sheet date. Moreover optionality is taken into account when calculating
the fair value. The fair value of other liabilities, measured at amortised cost, is estimated by taking into account the current interest rate
environment, as well as the own credit spreads. This positions are assigned to the level 3 category.
244
The fair value of off-balance sheet liabilities (i.e. financial guarantees and unused loan commitments) is estimated with the help of regulatory credit conversion factors. The resulting loan equivalents are treated like other on-balance sheet assets. The difference between the
calculated market value and the notional amount of the hypothetical loan equivalents represents the fair value of these contingent liabilities.
In case of the total market value being higher than the notional amount of the hypothetical loan equivalents the fair value of these contingent liabilities is presented with a negative sign.
47. Fair values of non-financial assets
The following table shows fair values and fair value hierarchy of non-financial instruments.
2015
in EUR million
Assets whose fair value is disclosed in the notes
Investment property
Assets whose fair value is presented in the balance sheet
Assets held for sale (IFRS 5)
Marked to model Marked to model
based on
based on
observable non-observable
market data
inputs
level 2
level 3
Carrying amount
Fair value
Quoted market
prices in
active markets
level 1
539
607
1
326
280
194
218
0
57
161
Carrying amount
Fair value
Quoted market
prices in
active markets
level 1
950
988
0
461
528
1
1
0
0
1
2014
in EUR million
Assets whose fair value is disclosed in the notes
Investment property
Assets whose fair value is presented in the balance sheet
Assets held for sale (IFRS 5)
Marked to model Marked to model
based on
based on
observable non-observable
market data
inputs
level 2
level 3
Investment property is measured at fair value on recurring basis. Assets held for sale are measured at fair value on non-recurring basis
when their carrying amount is impaired down to fair value less costs to sell.
The fair values of non-financial assets are determined by experts with recognised and relevant professional qualification.
Fair values of non-financial assets owned by Erste Group through Austrian companies which are located in developed and active real
estate markets such as Austria, Czech Republic and Slovakia are based on valuation reports relying essentially on observable market
inputs (such as selling price per square meter charged in recent market observable transactions for similar assets). Such measurements are
disclosed as level 2 of the fair value hierarchy. If fair values of non-financial assets result from valuation models using expected future
rental income method they are presented in level 3 of the fair value hierarchy.
For non-financial assets owned by Erste Group through subsidiaries located in CEE countries the valuations are carried out mainly using
the comparative and investment methods. Assessment is made on the basis of a comparison and analysis of appropriate comparable investment and rental transactions, together with evidence of demand within the vicinity of the relevant property. The characteristics of such
similar transactions are then applied to the asset, taking into account size, location, terms, covenant and other material factors. Such
measurements are presented in level 3 of the fair value hierarchy.
The book value related to investment property for which no disclosure according to IFRS 13 is required amounts to EUR 214 million. as
at 31 December 2015. The corresponding fair value amounts to EUR 217 million.
The book value related to assets held for sale for which no disclosure according to IFRS 13 is required amounts to EUR 333 million as at
31 December 2015. The corresponding fair value amounts to EUR 376 million.
245
48. Financial instruments per category according to IAS 39
Dec 2015
Category of financial instruments
Available
for sale
Other
financial
assets
Derivatives
designated
as hedging
instruments
Finance
lease
according
to IAS 17
Loans and
receivables
Held to
maturity
Cash and cash
balances
9,556
0
0
0
0
0
2,794
0
0
12,350
Loans and receivables
to credit institutions
4,805
0
0
0
0
0
0
0
0
4,805
Loans and receivables
to customers
in EUR million
Designated
Trading at fair value
Financial
liabilities
at amortised
cost
Total
ASSETS
122,146
0
0
0
0
0
0
0
3,751
125,897
Derivatives hedge accounting
0
0
0
0
0
0
0
2,191
0
2,191
Financial assets held for trading
4
0
8,716
0
0
0
0
0
0
8,719
Financial assets at fair value through
profit or loss
0
0
0
359
0
0
0
0
0
359
Financial assets available for sale
0
0
0
0
20,763
0
0
0
0
20,763
Financial assets held to maturity
0
17,701
0
0
0
0
0
0
0
17,701
136,511
17,701
8,716
359
20,763
0
2,794
2,191
3,751
192,785
-668
1
37
0
22
0
0
-6
0
-615
0
0
0
0
-32
0
0
0
0
-32
Financial liabilities held for trading
0
0
-5,867
0
0
0
0
0
0
-5,867
Financial liabilities at fair value through
profit or loss
0
0
0
-1,907
0
0
0
0
0
-1,907
Financial liabilities
measured at amortised
cost
0
0
0
0
0
-170,787
0
0
0
-170,787
Derivatives hedge accounting
0
0
0
0
0
0
0
-593
0
-593
Total financial
liabilities
0
0
-5,867
-1,907
0
-170,787
0
-593
0
-179,154
Net gains / losses
recognized through
profit or loss
0
0
37
32
0
17
0
0
0
-86
Total financial assets
Net gains / losses
recognized through
profit or loss
Net gains / losses
recognized through OCI
LIABILITIES
Net gains/losses recognised through profit or loss include impairments.
246
Dec 2014
Category of financial instruments
in EUR million
ASSETS
Cash and cash balances
Loans and receivables
to credit institutions
Loans and receivables
to customers
Derivatives hedge accounting
Financial assets held for trading
Financial assets at fair value through
profit or loss
Financial assets available for sale
Financial assets - held
to maturity
Total financial assets
Net gains / losses
recognized through
profit or loss
Net gains / losses
recognized through OCI
LIABILITIES
Financial liabilities held for trading
Financial liabilities at fair value through
profit or loss
Financial liabilities
measured at amortised
cost
Derivatives hedge accounting
Total financial
liabilities
Net gains / losses
recognized through
profit or loss
Designated
Trading at fair value
Financial
liabilities
Available at amortised
for sale
cost
Derivatives
Other designated
financial as hedging
assets instruments
Finance
lease
according
to IAS 17
Total
Loans and
receivables
Held to
maturity
5,368
0
0
0
0
0
2,467
0
0
7,835
7,442
0
0
0
0
0
0
0
0
7,442
117,185
0
0
0
0
0
0
0
3,649
120,834
0
0
0
0
0
0
0
2,872
0
2,872
0
0
10,531
0
0
0
0
0
0
10,531
0
0
0
350
0
0
0
0
0
350
0
0
0
0
22,373
0
0
0
0
22,373
0
129,996
16,877
16,877
0
10,531
0
350
0
22,373
0
0
0
2,467
0
2,872
0
3,649
16,877
189,115
-2,120
4
182
9
7
0
0
31
-1,888
0
0
0
0
581
0
0
0
581
0
0
-7,746
0
0
0
0
0
0
-7,746
0
0
0
-2,073
0
0
0
0
0
-2,073
0
0
0
0
0
-166,921
0
0
0
-166,921
0
0
0
0
0
0
0
-726
0
-726
0
0
-7,746
-2,073
0
-166,921
0
-726
0
-177,466
0
0
-32
-81
0
-17
0
0
0
-130
Net gains/losses recognised through profit or loss include impairments.
49. Audit fees and tax consultancy fees
The following table contains fundamental audit fees and tax fees charged by the auditors (of Erste Group Bank AG and subsidiaries; the
auditors primarily being Sparkassen-Prüfungsverband, Ernst & Young and Deloitte) in the financial years 2015 and 2014:
in EUR million
Audit fees
Other services involving the issuance of a report
Tax consultancy fees
Other services
Total
Dec 14
Dec 15
13.8
4.5
3.7
5.8
27.7
15.7
3.3
3.9
5.3
28.1
For auditing services provided by the Group’s auditors EUR 9.1 million (2014: EUR 8.9 million) was paid by Erste Group. The Group’s
auditors also performed tax consultancy for Erste Group with a value of EUR 1.0 million (2014: EUR 0 million).
247
50. Contingent liabilities
To meet the financial needs of customers, the bank enters into various irrevocable commitments and contingent liabilities. Even though
these obligations may not be recognised on the balance sheet, they do involve credit risk and are therefore part of the overall risk of the
Bank (see Note 44.5 Credit risk).
Legal proceedings
Erste Group Bank and some of its subsidiaries are involved in legal disputes, most of which have arisen in the course of ordinary banking
business. These proceedings are not expected to have a significant negative impact on the financial position or profitability of Erste Group
or Erste Group Bank. Erste Group is also subject to the following ongoing proceedings, some of which, if adversely adjudicated, may
have a significant impact on the financial position or profitability of Erste Group or Erste Group Bank:
Consumer protection claims
Several banking subsidiaries of Erste Group in CEE have been named in their respective jurisdictions as defendants in a number of lawsuits and in regulatory proceedings, filed by individual customers, regulatory authorities or consumer protection agencies and associations. Some of the lawsuits are class actions. The lawsuits mainly relate to allegations that certain contractual provisions, particularly in
respect of consumer loans, violate mandatory consumer protection laws and regulations and that certain fees charged to customers in the
past must be repaid. The allegations relate to the enforceability of certain fees as well as of contractual provisions for the adjustment of
interest rates and currencies. In some jurisdictions the legal risks in connection with loans granted in the past to consumers are also increased by the enactment of politically motivated laws impacting existing lending relationships, which may result in repayment obligations towards customers, and a level of unpredictability of judicial decisions beyond the level of uncertainty generally imminent in court
proceedings. The following consumer protection issues are deemed particularly noteworthy: In Romania, BCR is, besides being a defendant in a substantial number of individual law suits by consumers, among several local banks pursued by the consumer protection authority
for alleged abusive clauses pertaining to pre-2010 lending practices. In connection therewith, BCR is currently a defendant in eight individual litigation claims filed by the local consumer protection authority, in each case on behalf of a single or several borrowers. So far the
court of first instance took a decision only in one of these eight cases, and decided in favour of BCR, against which an appeal was filed. In
most of these cases the proceeding have been suspended until the Constitutional Court rules on whether the legal provisions on which the
actions were grounded are compliant with the Romanian Constitution. If one of these cases on the validity of certain clauses becomes
adversely adjudicated, this may have the impact of invalidating such clauses also in agreements of BCR with several other consumers. In
Hungary, foreign currency loan related invalidity lawsuits by consumers against banks, including EBH, have been suspended by the regulations of the 2014 consumer loan law until the completion of the settlement and refund process towards the customers concerned. While
some plaintiffs may not pursue further their claims, it is expected that EBH will remain a defendant in a number of these litigations and
that consumers will continue and initiate further court cases even upon the completion of the refund process set out in the 2014 consumer
loan law, creating a level of legal uncertainty which makes it impossible to quantify the potential financial impact in the case of adverse
adjudications. In Croatia, in a case instituted by a consumer protection organization against several local banks, among them EBC, the
Supreme Court in the second quarter 2015, while rejecting some other requests by plaintiffs, declared null and void contractual provisions
used over a certain period in the past which allowed banks to change unilaterally the variable interest rates in CHF denominated consumer
loans approved in the period from 2004 - 2008. EBC submitted a constitutional complaint before the Constitutional Court of the Republic
of Croatia contesting the part of the decision referring to the illegality of unilateral change of the variable interest. In addition, in spite of
the long term practice of foreign currency denominated lending, recognized and confirmed by courts of all instances in Croatia, laws have
been enacted in the fourth quarter of 2015 that forced banks to accept requests from clients that are consumers or individual professionals
to convert their CHF denominated loans into EUR with retroactive effect. Legal steps have been taken to challenge such forced retroactive conversion.
Corporate Bond investors`s prospectus claims
Since 2014 a number of investors in corporate bonds, issued by a large Austrian construction group in the years 2010, 2011 and 2012,
have filed claims with the courts of Vienna against Austrian banks, among them Erste Group Bank, requesting compensation for their
losses as bond-holders following the bankruptcy of the issuer in 2013. The plaintiffs argue in essence that the defendant banks, who acted
as joint-lead managers in the issuing of the respective bond, already knew of the insolvency status of the issuer at such time and should be
liable for the issuing prospectus failing to state this. Erste Group Bank, together with a second Austrian bank, acted as joint-lead manager
of the bond issuance in 2011. Erste Group Bank rejects the claims.
Claim by an Austrian sub-sovereign
In Austria, Land Salzburg, a sub-sovereign, which had engaged in derivatives transactions with international and Austrian banks, among
them EBOe, for several years until 2012, when its government made public having suffered losses in the region of EUR 350 million from
248
such transactions, announced that it would hold the respective counterparties liable for the losses it had allegedly suffered from such
transactions, arguing among others miss-counselling on the part of the banks and a lack of authority on the level of the sub-sovereign to
enter into speculative financial transactions. Following a review of its own transactions, EBOe refused to enter into an out-of-court settlement with the sub-sovereign and rejected the request to grant a temporary waiver of statute of limitations. In July 2015 Land Salzburg
filed a legal action against EBOe with a claims amount of EUR 88.6 million. EBOe rejects the claim.
BCR Banca pentru Locuinte dispute
In 2015, the Romanian Court of Accounts (‘CoA’) conducted an audit review in BCR Banca Pentru Locuinte (‘BpL’) in order to assess
whether the Bank has allocated the state subsidies to its clients in accordance with the applicable legal provisions. Following the review,
the CoA claims that several deficiencies were identified and that conditions for state subsidies have not been met. BpL did not accept the
position taken by the CoA and initiated a contestation process which is currently ongoing. An obligation of repayment of subsidies will, if
any, be determined pursuant to an irrevocable court decision, which has not been issued yet.
51. Analysis of remaining maturities
Dec 14
in EUR million
Cash and cash balances
Financial assets - held for trading
Derivatives
Other trading assets
Financial assets - designated at fair value through profit or loss
Financial assets - available-for-sale
Financial assets - held to maturity
Loans and receivables to credit institutions
Loans and receivables to customers
Derivatives - hedge accounting
Property and equipment
Investment properties
Intangible assets
Investments in associates and joint ventures
Current tax assets
Deferred tax assets
Assets held for sale
Other assets
TOTAL ASSETS
Finanacial liabilities - held for trading
Derivatives
Other trading liabilities
Financial liabilities designated at fair value through profit or loss
Deposits from banks
Deposits from customers
Debt securities issued
Other financial liabilities
Financial liabilities measured at amortised cost
Deposits from banks
Deposits from customers
Debt securities issued
Other financial liabilities
Derivatives - hedge accounting
Changes in fair value of portfolio hedged items
Provisions
Current tax liabilities
Deferred tax liabilities
Liabilities associated with assets held for sale
Other liabilities
TOTAL LIABILITIES
Dec 15
< 1 year
> 1 year
< 1 year
> 1 year
7,835
2,491
1,240
1,251
178
4,500
2,103
7,052
29,249
363
0
0
0
0
107
0
291
1,294
55,465
1,446
1,315
131
242
0
197
44
0
91,363
11,001
75,459
4,440
463
33
138
210
91
0
0
2,000
95,522
0
8,039
5,933
2,107
172
17,873
14,774
391
91,585
2,509
2,264
950
1,441
305
0
301
0
219
140,823
6,300
5,874
427
1,831
0
123
1,708
0
75,558
3,862
46,499
25,173
25
693
1,088
1,336
0
99
0
417
87,322
12,350
2,217
1,035
1,182
53
2,487
1,769
4,196
21,416
280
0
0
0
0
119
0
526
989
46,403
1,203
1,193
10
239
0
134
105
0
99,750
9,910
84,511
4,464
866
48
98
245
90
0
578
1,939
104,189
0
6,502
4,268
2,234
306
18,275
15,932
609
104,480
1,911
2,402
753
1,465
167
0
310
0
228
153,340
4,665
4,241
423
1,668
0
15
1,653
0
71,036
4,302
43,286
23,432
16
545
868
1,491
0
96
0
378
80,747
52. Own funds and capital requirements
Own funds according to CRR consist of common equity tier 1 (CET1), additional tier 1 (AT1) and tier 2 (T2). In order to determine the
capital ratios, each respective capital component - after application of all regulatory deductions and filters - is considered in relation to the
total risk.
249
The minimum capital ratios amount to 4.5% for CET1, 6% for tier 1 capital (sum from CET1 and AT1) and 8% for total own funds. In
addition to minimum capital ratios, institutions also have to fulfil additional capital requirements determined in the Supervisory Review
and Evaluation Process (SREP) and capital buffer requirements.
Capital buffer requirements are set out in sections 23 (capital conservation buffer), 23a (countercyclical buffer), 23b (G-SII buffer), 23c
(O-SII buffer) and 23d (systemic risk buffer) of the ABA and further specified in the regulation of the Financial Market Authority (FMA)
on the establishment and recognition of the countercyclical buffer rate in accordance with section 23a para 3 ABA, on the establishment
of the systemic risk buffer in accordance with section 23d para 3 ABA as well as on the detailed definition of the bases of calculation in
accordance with section 23a para 3 clause 1 ABA and section 24 para 2 ABA (capital buffers regulation). All capital buffers, accept the
countercyclical buffer, have to be met entirely with CET1 capital, and relate to total risk.
Sections 23, 23a, 23b and 23c of the ABA as well as the capital buffers regulation enter into force on 1 January 2016. As of the reporting
date 31 December 2015, Erste Group was not subject to any capital buffer requirements.
According to section 23 para 1 ABA, Erste Group has to establish a capital conservation buffer in the amount of 2.5%.
The transitional provisions for capital conservation buffers are regulated in section 103q para 11 of the ABA as follows:
_ For the period from 1 January 2016 until 31 December 2016 by way of derogation from the requirements under section 23 ABA the
capital buffer requirement for the capital conservation buffer amounts to 0.625%;
_ For the period from 1 January 2017 until 31 December 2017 by way of derogation from the requirements under section 23 ABA, the
capital buffer requirement for the capital conservation buffer amounts to 1.25%;
_ For the period from 1 January 2018 until 31 December 2018 by way of derogation from the requirements under section 23 ABA, the
capital buffer requirement for the capital conservation buffer amounts to 1.875%.
According to section 23a ABA the capital buffer requirement for the countercyclical capital buffer is regulated in section 4 capital buffers
regulation as follows:
_ The institution specific requirement for the countercyclical buffer in accordance with section 23a para 1 ABA results from the
weighted average of the rates of the countercyclical capital buffer that apply in the jurisdictions where significant credit risk positions
are situated in accordance with section 5 of the credit institution, multiplied by the total amount of risk in accordance with Art. 92 (3),
of the Regulation (EU) no. 575/2013
_ For the calculation of the weighted average according to para 1, the countercyclical buffer quota for the national area as defined by the
respective authority is multiplied with the result out of the comparison of the capital requirement related to significant credit risk positions within the national area and the total capital requirement as defined within Part 3, Title II and IV of Regulation (EU) no.
575/2013.
_ Starting from 1 January 2016 is for the purposes of section 23a para 3 clause 2 ABA the capital buffer rate for the home country allocated, significant credit risk positions 0%.
_ If the competent authority of another member state or a third country for the national legal area determines a rate of over 2.5% for the
purposes of para 1 for significant credit risk positions in this legal area, a rate of 2.5% has to be applied.
_ If the responsible third country authority establishes a national buffer rate, this rate is valid twelve months after the date on which the
relevant third country authority has announced a change in the buffer rate.
The transitional provisions for the countercyclical are regulated in section 103q para 11 of the ABA as follows:
_ For the period from 1 January 2016 until 31 December 2016 by way of derogation from the requirements under section 23a ABA the
capital buffer requirement for the countercyclical buffer requirement amounts to a maximum of 0.625%;
_ For the period from 1 January 2017 until 31 December 2017 by way of derogation from the requirements under section 23a ABA, the
capital buffer requirement for the countercyclical buffer requirement amounts to a maximum of 1.25%;
_ For the period from 1 January 2018 until 31 December 2018 by way of derogation from the requirements under section 23a ABA, the
capital buffer requirement for the countercyclical buffer requirement amounts to a maximum of 1.875%.
Erste Group is not subject to a G-SII or O-SII buffer in line with sections 23b and 23c ABA.
With respect to the systemic risk buffer under section 23d ABA, the capital buffers regulation specifies:
_ According to section 7 para 1 b capital buffers regulation, Erste Group has to establish a capital buffer for systemic vulnerability in
the amount of 1%.
_ According to section 7 para 2 a capital buffers regulation, Erste Group has to establish a capital buffer for the systemic concentration
risk in the amount of 1%.
250
In accordance with section 10 capital buffers regulation the buffer rates for systemic vulnerability and for systemic concentration risk
respectively are phased in according to the schedule below:
_ from 1 January to 31 December 2016 with 0.25%,
_ from 1 January to 31 December 2017 with 0.5%,
_ from 1 January to 31 December 2018 with 1%.
As a result of the 2015 SREP performed by the European Central Bank (ECB), Erste Group on a consolidated level is required to meet a
transitional Common Equity Tier 1 (CET1) ratio of 9.5% as of 1 January 2016. This minimum CET1 ratio of 9,5% includes Pillar 1, Pillar
2 and capital conservation buffer requirements. In addition, the systemic risk buffer required by the Austrian Financial Markets Authority
(FMA) to be applied on top of the SREP ratio is equal to 0.25% for the Group from 1 January 2016, resulting in a prudential capital requirement of 9.75% relating to total risk, for Erste Group as of 1 January 2016. The systemic risk buffer will increase in the following
years to 0.5% (2017), 1% (2018) and 2% (2019).
The Austrian savings banks are included as subsidiaries in Erste Group’s regulatory scope of consolidation based on the cross-guarantee
contract of the ‘Haftungsverbund’. Furthermore, Erste Group Bank AG together with the savings banks forms an institutional protection
scheme (IPS) according to Article 113 (7) CRR. Disclosure requirements for the institutional protection scheme according to Article 113
(7) e CRR are met by the publication of the consolidated financial statements, which cover all entities included in the institutional protection scheme.
Erste Group determines the not eligible, unrealized gains (according to instrument-by-instrument approach) per AFS instrument with a
positive market value. An offsetting with a negative market value (portfolio approach) is not conducted. For Basel 3 Final, a haircut of
25% is considered.
Capital structure according to the EU directive 575/2013 (CRR)
Dec 14
in EUR million
Article pursuant to CRR
Dec 15
Phased-in
Final
Phased-in
Final
2,336
-82
8,130
-325
3,078
102
-118
2,336
-82
8,130
-325
3,078
0
-118
2,336
-72
8,811
-190
3,395
57
-97
2,336
-72
8,811
-190
3,395
0
-97
-54
-54
-38
-38
-16
-113
-992
-771
-654
-16
-113
-248
-771
-654
-9
-112
-571
-771
-657
-9
-112
-238
-771
-657
-103
-249
1,398
617
523
199
-103
-249
0
0
0
0
-93
-220
1,030
462
394
132
-93
-220
0
0
0
0
58
-944
10,623
0
0
10,811
42
-663
12,136
0
0
12,045
Common equity tier 1 capital (CET1)
26 (1) (a) (b), 27 to 30, 36
Capital instruments eligible as CET1
(1) (f), 42
Own CET1 instruments
36 (1) (f), 42
Retained earnings
26 (1) (c), 26 (2)
Accumulated other comprehensive income
4 (1) (100), 26 (1) (d)
Minority interest recognised in CET1
4 (1) (120) 84
Transitional adjustments due to additional minority interests
479, 480
Prudential filter: cash flow hedge reserve
33 (1) (a)
Prudential filter: cumulative gains and losses due to changes in
own credit risk on fair valued liabilities
33 (1) (b)
Prudential filter: fair value gains and losses arising from the
institution's own credit risk related to derivative liabilities
33 (1) (c), 33 (2)
Value adjustments due to the requirements for prudent valuation
34, 105
Regulatory adjustments relating to unrealised gains and losses (60%)
467, 468
Goodwill
4 (1) (113), 36 (1) (b), 37
Other intangible assets
4 (1) (115), 36 (1) (b), 37 (a)
Deferred tax assets that rely on future profitability and do not
arise from temporary differences net of associated tax liabilities
36 (1) (c), 38
IRB shortfall of credit risk adjustments to expected losses
36 (1) (d), 40, 158, 159
Other transitional adjustments CET1
469 to 472, 478, 481
Goodwill (60%)
Other intangible assets (60%)
IRB shortfall of provisions to expected losses (60%)
Deferred tax assets that rely on future profitability and do not
arise from temporary differences net of associated tax
liabilities (90%)
Excess of deduction from AT1 items over AT1
36 (1) (j)
Common equity tier 1 capital (CET1)
50
The table will be continued on the next page.
Retained earnings include EUR 718 million of total comprehensive income attributable to owners of the parent.
Minority interest recognized in CET1 include EUR 199 million of total comprehensive income attributable to non-controlling interests.
251
Continuation of the table:
Dec 15
Dec 14
in EUR million
Additional tier 1 capital (AT1)
Capital instruments eligible as AT1
Own AT1 instruments
Instruments issued by subsidiaries that are given recognition in AT1
Transitional adjustments due to grandfathered AT1 instruments
AT1 instruments of financial sector entities where the institution has
a significant investment
Other transitional adjustments AT1
Goodwill (60%)
Other intangibles (60%)
IRB shortfall of provisions to expected losses (30%)
Excess of deduction from AT1 items over AT1
Additional tier 1 capital (AT1)
Tier 1 capital - total amount of common equity tier 1 (CET1) and
additional tier 1 (AT1)
Tier 2 capital (T2)
Capital instruments and subordinated loans eligible as T2
Own T2 instruments
Instruments issued by subsidiaries recognised in T2
Transitional adjustments due to additional recognition in T2 of
instruments issued by subsidiaries
Transitional adjustments due to grandfathered T2 instruments and
subordinated loans
IRB excess of provisions over expected losses eligible
Standardised approach general credit risk adjustments
Other transitional adjustments to T2
IRB shortfall of provisions to expected losses (30%)
T2 instruments of financial sector entities where the institution has a
significant investment
Tier 2 capital (T2)
Total own funds
Capital requirement
CET1 capital ratio
Tier 1 capital ratio
Total capital ratio
252
Article pursuant to CRR
Phased-in
Final
Phased-in
Final
0
-4
0
300
0
0
0
0
0
-4
1
263
0
0
1
0
36 (1) (j)
61
0
-1,240
-617
-523
-100
944
0
0
0
0
0
0
0
0
0
-923
-462
-394
-66
663
0
0
0
0
0
0
0
1
25
10,623
10,811
12,136
12,046
62 (a), 63 to 65, 66 (a), 67
63 (b) (i), 66 (a), 67
87, 88
4,197
-71
332
4,197
-71
332
4,649
-50
233
4,649
-50
233
480
483 (6) (7), 484, 486, 488,
490, 491
62 (d)
62 (c)
476, 477, 478, 481
227
0
191
0
47
410
175
-99
-100
0
410
175
0
0
67
408
0
-66
-66
0
408
0
0
0
4 (1) (27), 66 (d), 68, 69, 79
71
4 (1) (118) and 72
-0.4
5,216
15,839
0
5,042
15,853
-0.4
5,431
17,566
0
5,239
17,284
92 (3), 95, 96, 98
92 (2) (a)
92 (2) (b)
92 (2) (c)
8,047
10.6%
10.6%
15.7%
8,150
10.6%
10.6%
15.6%
7,864
12.3%
12.3%
17.9%
8,023
12.0%
12.0%
17.2%
51 (a), 52 to 54, 56 (a), 57
52 (1) (b), 56 (a), 57
85, 86
483 (4) (5), 484-487, 489, 491
4 (1) (27), 56 (d), 59, 79
474, 475, 478, 481
Risk structure according to EU Regulation 575/2013 (CRR)
Dec 2014
in EUR million
Article pursuant to CRR
Total Risk Exposure Amount
Risk weighted assets (credit risk)
Standardised approach
IRB approach
Settlement Risk
92 (3), 95, 96, 98
92 (3) (a) (f)
Calculation base /
total risk
(phased-in)
Dec 2015
Capital Calculation base /
requirement
total risk
(phased-in)
(phased-in)
100,590
85,556
17,244
68,313
0
8,047
6,845
1,379
5,465
0
98,300
83,445
15,528
67,917
0
7,864
6,676
1,242
5,433
0
3,209
10,277
1,548
0
257
822
124
0
2,847
10,755
1,252
0
228
860
100
0
Trading book, foreign FX risk and commodity risk
Operational Risk
Exposure for CVA
Other exposure amounts incl. Basel 1 floor
92 (3) (c) (ii), 92 (4) (b)
92 (3) (b) (i) and (c) (i) and
(iii), 92 (4) (b)
92 (3) (e), 92 (4) (b)
92 (3) (d)
3, 458, 459, 500
in EUR million
Calculation base /
total risk
Article pursuant to CRR
(final)
Dec 2014
Total Risk Exposure Amount
Risk weighted assets (credit risk)
Standardised approach
IRB approach
Settlement Risk
Trading book, foreign FX risk and commodity risk
Operational Risk
Exposure for CVA
Other exposure amounts incl. Basel 1 floor
92 (3), 95, 96, 98
92 (3) (a) (f)
92 (3) (c) (ii), 92 (4) (b)
92 (3) (b) (i) and (c) (i)
and (iii), 92 (4) (b)
92 (3) (e), 92 (4) (b)
92 (3) (d)
3, 458, 459, 500
Capital
requirement
(phased-in)
Dec 2015
Capital Calculation base /
requirement
total risk
(final)
(final)
Capital
requirement
(final)
101,870
86,836
17,244
69,593
0
8,150
6,947
1,379
5,567
0
100,281
85,427
15,528
69,899
0
8,023
6,834
1,242
5,592
0
3,209
10,277
1,548
0
257
822
124
0
2,847
10,755
1,252
0
228
860
100
0
The capital structure table above shows only those positions which are relevant for Erste Group. Basel 3 final figures (fully loaded) are
calculated based on the current requirements according to the CRR. Changes are possible due to final Regulatory Technical Standards
(RTS) that are not available yet.
The consolidated financial statements have not been reviewed and noticed by the Supervisory Board and the financial statements of Erste
Group Bank AG have not been reviewed by the Supervisory Board yet.
Likewise financial statements of single entities within the group have not been noticed by the Supervisory Board yet. In addition, no
resolution on the appropriation of the profit has yet been made by the general meeting of the single entity.
53. Events after the balance sheet date
There are no significant events after the balance sheet date.
253
54. Country by country reporting
Starting with 2015 Erste Group publishes information about Group’s country by country activities as required by Article 89 of the EU
Capital Requirements Directive IV, as follows:
2015
in EUR million
Operating
income
Pre-tax result
from continuing
operations
Taxes on
income
Taxes paid
Austria
Croatia
Czech Republic
Hungary
Romania
Serbia
Slovakia
Other locations
Total
2,838
466
1,409
365
755
71
611
257
6,772
406
-29
660
-27
311
17
241
59
1,639
-146
21
-136
-13
-21
0
-64
-4
-364
-89
-21
-135
-11
-12
0
-84
-3
-355
in EUR million
Operating
income
Pre-tax result
from continuing
operations
Taxes on
income
Taxes paid
Austria
Croatia
Czech Republic
Hungary
Romania
Serbia
Slovakia
Other locations
Total
2,662
467
1,440
482
830
66
703
227
6,878
-125
28
643
-279
-1,422
7
327
17
-803
-414
-11
-139
-14
134
1
-64
-2
-509
-33
-14
-156
-19
-3
0
-42
-1
-267
2014
Further details about the content of each country category could be found in Note 55 Details of the companies wholly or partly owned by
Erste Group as of 31 December 2015, where the information about the relevant country of residence of each fully consolidated entity is
presented.
For the reported periods above, Erste Group hasn’t been subject to any kind of public or state subsidies.
Information about the geographical split of the average number of headcounts employed in Erste Group throughout 2015 is disclosed in
the Note 6 General administrative expenses.
254
55. Details of the companies wholly or partly owned by Erste Group as of 31 December 2015
The table below presents material, fully consolidated subsidiaries, investments in associates accounted for at equity and other investments.
Interest of Erste Group in %
Dec 14
Dec 15
Company name, registered office
Fully consolidated subsidiaries
Credit institutions
Allgemeine Sparkasse Oberösterreich Bankaktiengesellschaft
Banca Comerciala Romana Chisinau S.A.
Banca Comerciala Romana SA
Banka Sparkasse d.d.
Bankhaus Krentschker & Co. Aktiengesellschaft
Bausparkasse der österreichischen Sparkassen Aktiengesellschaft
BCR Banca pentru Locuinte SA
Ceska sporitelna, a.s.
Die Zweite Wiener Vereins-Sparcasse
Dornbirner Sparkasse Bank AG
Erste & Steiermärkische Bank d.d.
ERSTE BANK AD NOVI SAD
ERSTE BANK AD PODGORICA
Erste Bank der oesterreichischen Sparkassen AG
Erste Bank Hungary Zrt
Erste Group Bank AG
Erste Lakas-Takarekpenztar Zartkoruen Mukodo Reszvenytarsasag
Kärntner Sparkasse Aktiengesellschaft
KREMSER BANK UND SPARKASSEN AKTIENGESELLSCHAFT
Lienzer Sparkasse AG
s Wohnbaubank AG
Salzburger Sparkasse Bank Aktiengesellschaft
Slovenska sporitelna, a. s.
Sparkasse Baden
Sparkasse Bank dd Bosna i Hercegovina
SPARKASSE BANK MAKEDONIJA AD SKOPJE
Sparkasse Bank Malta Public Limited Company
Sparkasse Bludenz Bank AG
Sparkasse Bregenz Bank Aktiengesellschaft
Sparkasse der Gemeinde Egg
Sparkasse der Stadt Amstetten AG
Sparkasse der Stadt Feldkirch
Sparkasse der Stadt Kitzbühel
Sparkasse Eferding-Pe