Erste Group 2Q 2010 results: figures slightly below estimates but good core earnings

The weaker qoq performance came mainly from again higher risk costs (especially in the corporate segment) and extra provisioning of around EUR 30 mn (e.g. for Hungarian bank tax). Core earnings (NII & F&C) and also the trading result were above our estimates and also cost control remained strong. From a segmental/regional perspective Group Corporate and IB was the main negative surprise due to significantly higher risk costs (mostly from real estate projects) while segmental earnings were still strong. Also Group Markets was a bit weaker than expected. Erste Bank Austria again topped estimates on good NII and F&C income. Also the CEE retail & SME segment overall was above our and consensus forecasts driven by strong core earnings in CZ and a huge trading result in Romania. Overall higher than expected risk costs in AT and CEE retail & SME segment were covered by better than forecasted NII and F&C income.

Against expections risk costs were again rising qoq (+4.1%). The NPL ratio in relation to customer loans reached 7.3% vs. 6.9% last quarter (exceeding our estimate of 7.1%). The NPL coverage however improved to 59.7% from 59.0% at 1Q 2010. Despite adverse currency effects in CEE loan book was up 0.5% in EUR terms qoq. As deposits increased by 0.8% the loan/deposit ratio improved slightly from 112.7% to 112.4%. Due to dividend payment shareholders equity dropped qoq to EUR 12.9 bn by EUR 0.6 bn. Risk weighted assets were rising at 1.0% qoq as expected exceeding the pace of the loan book development. Core tier 1 ratio improved from 8.5% to 8.6% qoq.

As expected there is still no official guidance. Based on 2Q earnings consensus net profit 2010 (EUR 999 mn, Bloomberg) does not leave too much room for surprise. Still we will adjust our price target for the improved Basel 3 regulation.