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AUDITOR’S REPORT
AUDIT OPINION
Report on the Consolidated Financial Statements
Sparkassen-Prüfungsverband (Prüfungsstelle) and PwC Wirtschaftsprüfung GmbH, Vienna, – hereinafter referred to as “we” – have audited the group consolidated financial statements of Erste Group Bank AG, Vienna, and its subsidiaries (the Group), which comprise the consolidated balance sheet as at December 31, 2022, the consolidated statement of income, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the fiscal year then ended, and the notes to the group financial statements of Erste Group Bank AG.
In our opinion, the accompanying consolidated financial statements comply with legal requirements and give a true and fair view of the financial position of the Group as at December 31, 2022, and of its financial performance and cash flows for the year then ended in accordance with the International Financial Reporting Standards (IFRSs) as adopted by the EU and the additional requirements under Section 59a Austrian Banking Act (BWG) in conjunction with Section 64 BWG and Section 245a Austrian Company Code (UGB).
Basis for Opinion
We conducted our audit in accordance with Regulation (EU) No. 537/2014 (hereinafter “EU Regulation”) and Austrian generally accepted auditing standards. Those standards require the application of the International Standards on Auditing (ISAs). Our responsibilities under those provisions and standards are further described in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements” section of our report.
We are independent of the Group in accordance with Austrian Generally Accepted Accounting Principles, the provisions of the Austrian Banking Act and professional requirements and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained until the date of this auditor’s report is sufficient and appropriate to provide a basis for our opinion by this date.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the fiscal year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have structured key audit matters as follows:
_Description
_Audit approach
_Reference to related disclosures
Impairments of Loans and Advances to Customers (expected credit losses)
Description
Impairments of Loans and Advances represent management's best estimate of the credit losses expected with respect to the loan portfolio at balance sheet date. For loans and advances to customers in the amount of EUR 198 billion, measured at amortized cost, Erste Group Bank AG has recognized credit loss allowances in the amount of EUR 3.8 billion as of December 31, 2022. Due to the underlying assumptions and estimates, determining expected credit losses is inherently subject to substantial judgement applied by management.
Erste Group Bank AG has implemented internal guidelines and specific processes to estimate expected credit losses. These processes rely significantly on quantitative and qualitative criteria and involve management judgement.
The following methods are applied to determine the level of loss allowances using scenario-based discounted cash flow methods as required by IFRS 9:
Collectively assessed impairments
_For non-defaulted loans, impairments are determined collectively and, provided no significant increase in credit risk has occurred, correspond to the expected credit losses in the event of default within the next 12 months. In the event of a significant increase in the credit risk of non-defaulted loans, impairments are determined in the amount of the expected loss over the remaining maturity. Similarly, expected losses over the remaining maturity are determined for those non-impaired loans and advances to which no credit risk could be assigned at the time of initial recognition due to missing data at the time of IFRS 9 transition (2018).
_For defaulted loans and advances with a comparable risk profile that are considered not to be individually significant, expected credit losses are collectively assessed as well.
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_The collectively assessed expected credit losses are calculated considering default probabilities, forward-looking information and parameters that reflect the expected cash flows as well as the expected proceeds from the realization of collateral. The parameters are estimated based on statistical models.
Impairments not collectively assessed
_For defaulted loans and advances considered to be significant at customer level, expected credit losses are determined on a case-by-case basis. These impairments are calculated considering scenario probabilities, expected cash flows as well as expected proceeds from the realization of collateral.
The models used for determining loss allowances are specific to the types of loan portfolios. There are country-specific and forward-looking features both with regard to products and economic environment that are relevant to the respective loss estimate resulting in heightened complexity of models and input factors.
The uncertainty inherent in the estimation of impairments of loans and advances, in particular the consideration of future economic conditions, have increased significantly due to the geopolitical and economic developments of 2022. By the end of the financial year, effects of these developments are not reflected in the model results to the extent that can be expected.
Erste Group Bank AG has taken this into account on two levels:
_On the one hand, customer groups that are potentially particularly affected by the negative economic developments were identified based on expert-based criteria. For these customer groups, it is examined whether there has been a significant increase in credit risk (overlays). Details on the methodology of the applied overlays are presented in Note 40.
_In the case of forward-looking information included in the modelling of expected credit losses, Erste Group Bank AG takes into account the increased uncertainty about future economic developments by adjusting the macroeconomic assumptions and giving a high weighting to the downside scenario used, as further detailed in note 40.
Due to
_the substantial judgement to be applied by the management in designing the overlays and determining and weighting macro-economic future scenarios,
_a high degree of uncertainty of future economic developments, which led to a high degree of the auditor judgement,
_the complexity of models and interdependent assumptions and the resulting audit effort and
_the volume of risk provisions
we identified this area to be a key audit matter.
Audit Approach
To assess the appropriateness of impairments of loans and advances to customers, we:
_updated our understanding of the Expected Credit Loss calculation methodology applied by Erste Group Bank AG based on policies, documentation and interviews and assessed its compliance with the requirements of IFRS 9. We focused on adjustments to methods and processes made in order to capture the increased uncertainties of the present and future environment in expected credit losses.
_evaluated the control activities in credit risk management and lending business processes and tested key controls, in particular with respect to the approval of loans, ongoing monitoring and the early warning system as well as the processes around the early identification of default, as well as understood and evaluated the assessment of unlikeness to pay (“UTP”).
_evaluated control activities and tested key controls in the area of rating models and collateral valuation.
_evaluated model governance and validation processes and critically reviewed the information brought to the attention of the management. We evaluated, with the support from our credit risk modelling experts, the results of back-testing and model validations.
_examined and critically assessed the appropriateness of credit risk parameters and models, taking into account possible structural breaks in the observable data, and assessed the plausibility of expectations and estimates made on the basis of such biases, to identify significant increases in the credit risk of individual customers or groups of customers.
_assessed the correctness of the stage allocation for selected portfolios based on applicable policies.
_analyzed sensitivities and impacts of IFRS 9 specific model aspects.
_evaluated whether key components of the calculation of expected credit losses are correctly incorporated in the models by performing walkthroughs and reviewing steering tables.
_assessed the correctness of the expected credit loss calculation for selected portfolios.
_evaluated the adequacy and plausibility of forward-looking information integrated into the estimates. In particular, we have compared the underlying macro-economic forecasts with external sources of information and critically assessed the individual weights attributed to scenarios.
_tested, on a sample basis, whether default events have been identified in accordance with applicable policies, and evaluated whether events occurred that significantly affect the borrower’s ability to repay loans and advances. Furthermore, we tested, on a sample basis, the adequacy of individual loan loss allowances assessing the scenarios adopted and the estimation of expected cash flows made.
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Reference to related disclosures
For further details regarding the process of determining loss allowances as well as regarding the design of the models involved, we refer to the management’s disclosures in section significant accounting policies point c) Significant judgements, assumptions and estimates and Note 37. Measurement of expected credit loss.
Other Information
Management is responsible for other information. Other information comprises any information included in the annual report, but does not include the consolidated financial statements, the management report for the Group and the auditor’s report.
We obtained the consolidated corporate governance report in accordance with Section 267b UGB as well as the consolidated non-financial report according to Section 267a UGB prior to the date of this auditor`s report, all other parts of the annual report are expected to be made available to us after that date.
Our opinion on the consolidated financial statements does not cover other information and we will not express any form of assurance thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and the Audit Committee for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU, and the additional requirements under Section 59a BWG in conjunction with Section 64 BWG and Section 245a UGB, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
The audit committee is responsible for overseeing the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the EU Regulation and with Austrian generally accepted auditing standards, which require the application of ISAs, will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with the EU Regulation and with Austrian generally accepted auditing standards, which require the application of ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit.
We also:
_identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risks of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
_obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
_evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
_conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
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_evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
_obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with the audit committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the audit committee with a statement that we have complied with all relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated to the audit committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
COMMENTS ON THE MANAGEMENT REPORT FOR THE GROUP
Pursuant to the Austrian Company Code, the management report for the Group is to be audited as to whether it is consistent with the consolidated financial statements and as to whether the management report for the Group was prepared in accordance with the applicable legal requirements.
Management is responsible for the preparation of the management report for the Group in accordance with the Austrian Company Code and the special legal requirements.
We conducted our audit in accordance with Austrian Standards on Auditing for the audit of the management report for the Group.
Opinion
In our opinion, the management report for the Group was prepared in accordance with the applicable legal requirements, includes accurate disclosures pursuant to Section 243a UGB and is consistent with the consolidated financial statements.
Statement
Based on the findings during the audit of the consolidated financial statements and the obtained understanding concerning the Group and its circumstances no material misstatements in the management report for the Group came to our attention.
Additional Information in accordance with Article 10 of the EU Regulation
Pursuant to Sections 23 and 24 Austrian Savings Bank Act (SpG), Sparkassen-Prüfungsverband (Prüfungsstelle) is the statutory auditor of Erste Group Bank AG, Vienna. In accordance with Section 23 (3) SpG in conjunction with Sections 60 and 61 BWG, the Company is subject to an audit, the consolidated financial statements are also subject to a statutory audit.
At the ordinary general meeting dated May 19, 2021 and pursuant to Section 1 (1) of the Auditing Rules for Savings Banks, Annex to Section 24 SpG, PwC Wirtschaftsprüfung GmbH, Vienna, was appointed as additional auditor for the financial year 2022 and, subsequently, was engaged by the supervisory board. At the ordinary general meeting dated May 18, 2022 PwC Wirtschaftsprüfung GmbH, Vienna, was appointed as additional auditor for the financial year 2023 and, subsequently, was engaged by the Supervisory Board. Since 2017 PwC Wirtschaftsprüfung GmbH, Vienna, has constantly been appointed as additional auditor.
We confirm that the audit opinion in the “Report on the Consolidated Financial Statements” section is consistent with the additional report to the audit committee referred to in Article 11 of the EU Regulation.
We declare that we did not provide any prohibited non-audit services (Article 5 (1) of the EU Regulation) and that we remained independent of the audited company in conducting the audit.
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Responsible Engagement Partner
Responsible for the proper performance of the engagement are Mr. Herwig Hierzer, Austrian Certified Public Accountant (Sparkassen-Prüfungsverband), and Ms. Dorotea-E. Rebmann, Austrian Certified Public Accountant (PwC Wirtschaftsprüfung GmbH, Vienna).
We draw attention to the fact that the English translation of this auditor’s report according to Section 274 UGB (Austrian Company Code) is presented for the convenience of the reader only and that the German wording is the only legally binding version.
Vienna, February 28, 2023
Sparkassen-Prüfungsverband
(Prüfungsstelle)
(Bank Auditor)
Herwig Hierzer
Austrian Certified Public Accountant
Gregor Seisser Austrian Certified Public Accountant
PwC Wirtschaftsprüfung GmbH
Dorotea-E. Rebmann
Austrian Certified Public Accountant
This report is a translation of the original report in German, which is solely valid. Publication and sharing with third parties of the consolidated financial statements together with our auditor’s opinion is only allowed if the consolidated financial statements and the management report for the Group are identical with the German audited version. This audit opinion is only applicable to the German and complete consolidated financial statements with the management report for the Group. For deviating versions, the provisions of Section 281 (2) UGB apply.
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Management report
BUSINESS PERFORMANCE AND ECONOMIC SITUATION
Economic environment
After a robust rebound in 2021 economic growth slowed markedly in 2022 primarily on the energy supply shock resulting from the Russia-Ukraine war, fiscal measures to curb inflation and China’s ongoing Covid restrictions. Inflation soared to multidecade highs leading to monetary policy tightening across the world. In addition, Covid remained a headwind to growth, even after most countries lifted restrictions on economic and social activities in the course of the year. Supply chain issues continued to impact the recovery of manufacturing production, albeit to a diminishing extent. Labour markets, on the other hand, remained robust. Overall, global real GDP increased by 3.4%, at the beginning of 2022 it had been forecast at 4.4%.
Among the world’s advanced economies, both the United States and the euro zone saw declining real GDP growth rates. Economic effects of Russia’s invasion of Ukraine, a short-lived hit from the Omicron wave, tighter financing conditions, declining real disposable income driven by fiscal normalisation and high inflation all had an impact on the global economic performance.
The military conflict between Russia and Ukraine and resulting sanctions disrupted exports from the region for commodities like metals, food, oil and gas, pushing up inflation to levels not seen in decades. Against the backdrop of the high dependency of Austria and some core markets on Russian gas natural gas prices declined after summer due to high levels of gas storage and reduced supply from Russian gas. As a response to high inflation non euro central banks already started monetary tightening in 2021, the European Central Bank (ECB) followed in 2022. In addition, governments implemented measures such as price caps, subsidies and tax cuts. Similar to other advanced economies, labour markets in the euro zone remained very strong with unemployment rates declining in most countries. Overall, the euro area economy grew by 3.5%.
Central banks have to cope with the trade-off – intensified by the ongoing geopolitical crisis – between fighting inflation and working to stabilise the economy, financial and public debt. To bring down persistently high inflation rates, the central banks issued clear signals and ended their previously expansionary monetary policies. After rates had been raised in a number of CEE countries and in the United Kingdom, the US Federal Reserve (Fed) likewise started its rate-hike cycle in mid-March. With some time lag, the European Central Bank (ECB) likewise ended its zero-interest-rate policy after more than six years in July by embarking on its first rate hike in 11 years. Overall, the ECB raised its benchmark rate four times to 2.5% at year-end and revised the terms of the targeted longer-term refinancing operations (TLTROs). Rising interest rates and higher volumes in its markets had a positive impact on Erste Group’s net interest income. The revised terms and conditions of TLTRO resulted in an adverse impact on net interest income.
Austria’s economic performance was better than expected during the year, it outperformed the European Union average. Economic growth, visibly more pronounced in the first half of the year, was supported by almost all sectors of the economy, in particular transportation, hospitality, services and manufacturing. In most sectors pre-pandemic levels were reached or even exceeded. Austria’s well developed tourism sector continued to recover as travel restrictions significantly eased. Trade was also a key contributor to this development. The second half of the year, however, saw an economic slowdown in Austria. Growth was significantly impacted by a decline in disposable income due to high inflation. In addition, supply chain disruptions had a negative impact on investments and industrial activity. While most Covid related measures expired during the year, the government launched support packages aimed at easing the effects of surging inflation. Measures included in particular tax benefits and one-off payments, such as climate bonuses. Austria’s gas storage level increased rapidly and was among the highest in the European Union by the start of the winter. Inflation peaked in October at 11.0% while average inflation amounted to 8.6% in 2022. The Austrian labour market proved its resilience once again, the unemployment rate stood at 5.8% and the number of registered long-term unemployed people by the end of 2022 was the lowest since 2014. Overall, the Austrian economy grew by 4.7%.
The Central and Eastern European economies also performed better than expected. Growth expectations were upgraded during the year including countries with – prior to the Russian-Ukrainian war – heavy dependencies from Russian gas, such as the Czech Republic, Slovakia or Hungary. Romania and Croatia, on the other hand, which rely significantly less on Russian natural gas, achieved highest growth rates in the region. Household consumption, which was one of the main drivers of the economic growth, slowed down visibly in the second half of the year. Despite supply chain disruptions, exports grew dynamically. The automotive sector, with its significant volume of backlogs, contributed visibly to economic growth. Croatia was supported by the rebound of its tourism sector.
Inflation rates continued to climb throughout the year with many of the CEE countries exceeding 15% in autumn. In response to soaring prices, central banks moved forward with monetary tightening. Key interest rates went up by more than 3% points in the Czech Republic, almost 5% points in Romania and Poland and 15% points in Hungary. Monetary conditions were also affected through other tools such as reduction of balance via FX intervention in case of the Czech Republic or stricter liquidity management and higher reserve requirements in case of Hungary. Labour markets remained very robust in the region, with unemployment rates at or close to historically low levels in most of the CEE countries. Czech Republic and Hungary were among the countries with the lowest unemployment rates in the European Union.
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CEE governments introduced a range of measures to support households and businesses. These measures included a cap on electricity prices or direct energy subsidies. Windfall profits taxes were also introduced in a number of CEE countries, such as Hungary and Croatia. As for the currency market, the Hungarian forint clearly underperformed regional peers, weakening more than 10% in 2022. Other CEE currencies, such as the Romanian leu or the Czech korona remained broadly stable against the euro. On 1 January 2023, Croatia became the 20th member of the eurozone. Overall, CEE economies achieved GDP growth rates ranging from 1.7% in Slovakia to 6.0% in Croatia in 2022.
Analysis of performance
In the group management report P&L data of 2022 is compared with data of 2021, balance sheet data as of 31 December 2022 is compared to data as of 31 December 2021. The entire development is presented in detail in the notes to the consolidated financial statements.
Profit and Loss Statement
in EUR million
2021
2022
Change
Net interest income
4,975.7
5,950.6
19.6%
Net fee and commission income
2,303.7
2,452.4
6.5%
Net trading result and gains/losses from financial instruments at FVPL
231.8
-47.3
n/a
Operating income
7,742.0
8,570.6
10.7%
Operating expenses
-4,306.5
-4,574.9
6.2%
Operating result
3,435.5
3,995.8
16.3%
Impairment result from financial instruments
-158.8
-299.5
88.6%
Other operating result
-310.5
-398.5
28.3%
Levies on banking activities
-73.5
-187.1
>100.0%
Pre-tax result from continuing operations
2,933.4
3,222.4
9.9%
Taxes on income
-525.2
-556.1
5.9%
Net result for the period
2,408.1
2,666.3
10.7%
Net result attributable to non-controlling interests
484.8
501.6
3.5%
Net result attributable to owners of the parent
1,923.4
2,164.7
12.5%
Net interest income
Net interest income rose significantly in both private and corporate business. The increase in retail business was due to higher market rates in the Czech Republic, Hungary, Romania, Austria and Slovakia as well as growth of loan volumes predominantly in the Czech Republic, Slovakia and Austria driven by housing loans. In the corporate business it improved markedly on the back of continued loan growth in all markets and, most importantly, higher interest rates in particular in the Czech Republic, Hungary and Romania. Group Market’s net interest income also increased due to higher market interest rates, favorable market positioning in interest rate derivatives and higher volumes of money market placements.
Despite one-off effects from the take-up of TLTRO III funds in the amount of EUR -123.2 million (EUR +93.0 million), net interest income was also up in Austria and Slovakia. The net interest margin (calculated as the annualised sum of net interest income, dividend income and net result from equity method investments over average interest-bearing assets) stood at 2.21% (2.05%).
Net fee and commission income
Growth was recorded across all core markets and nearly all fee and commission categories. In all markets, the strongest rises were seen in payment services (based on a higher number of trans-actions as well as price increases) and in asset management, most significantly in Austria and the Czech Republic.
Net trading result & gains/losses from financial instruments measured at fair value through profit or loss
Net trading result as well as the line item gains/losses from financial instruments measured at fair value through profit or loss (fair value result) are materially affected by the fair value measurement of debt securities issued. The related valuation is shown in the fair value result, while the valuation of corresponding hedges is shown in the net trading result.
Due to valuation effects resulting from interest rate developments in the derivatives business, net trading result deteriorated to EUR 778.6 million (EUR 58.6 million). Gains/losses from financial instruments measured at fair value through profit or loss trended in the opposite direction and rose to EUR 731.3 million (EUR 173.2 million). With long-term interest rates up, losses from the valuation of the securities portfolio in Austria (in the Savings Banks segment) and the loan portfolio measured at fair value in Hungary were offset by significantly higher gains from the valuation of debt securities in issue.
General administrative expenses
in EUR million
2021
2022
Change
Personnel expenses
2,578.1
2,668.0
3.5%
Other administrative expenses
1,180.3
1,356.2
14.9%
Depreciation and amortisation
548.0
550.7
0.5%
General administrative expenses
4,306.5
4,574.9
6.2%
Personnel expenses increased most significantly in the Czech Republic but also in Romania and Croatia. General administrative expenses rose across all cost categories. In addition to markedly higher IT expenses in Austria on the back of continuing digitalisation efforts, expenses
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for office space were up in all core markets due to significantly higher energy costs. Contributions to deposit insurance systems increased to EUR 142.9 million (EUR 122.4 million). In Hungary, expenses rose to EUR 18.2 million (EUR 7.1 million) mainly due to a deposit insurance case (Sberbank Europe AG). In Romania, contributions increased to EUR 9.3 million (EUR 3.4 million), in Croatia to EUR 7.5 million (EUR 1.9 million). In Austria, contributions declined to EUR 79.7 million (EUR 85.5 million). The cost/income ratio improved to 53.4% (55.6%).
Gains/losses from derecognition of financial instruments not measured at fair value through profit or loss
Losses from derecognition of financial instruments not measured at fair value through profit or loss amounted to EUR 75.3 million (EUR 32.8 million). This line item includes primarily losses from the sale of securities in the Czech Republic.
Impairment result from financial instruments
The impairment result from financial instruments amounted to EUR -299.5 million (EUR -158.8 million). Net allocations to provisions for loans and advances rose, primarily on the back of allocations in Austria, to EUR 336.4 million (EUR 119.1 million). Positive contributions came from continued high income from the recovery of loans already written off in all segments – primarily in the Czech Republic, Austria and Croatia – in the amount of EUR 82.1 million (EUR 90.8 million). Net allocations for commitments and guarantees declined to EUR 27.6 million (EUR 104.8 million). Net allocations to credit loss allowances were driven mainly by updated credit risk parameters based on the latest macro-scenarios (FLIs) as well as portfolio stage overlays for cyclical and energy intense industries. At the end of December, crisis-induced performing risk provisions stood at EUR 928 million.
Other operating result
Other operating result was largely affected by levies on banking activities in the amount of EUR 187.1 million (EUR 73.5 million). Banking levies payable in Austria were up at EUR 63.0 million (EUR 10.5 million). Half of this rise is due to a one-off effect in 2022. Regular Hungarian banking tax rose marginally to EUR 15.1 million (EUR 15.0 million). Together with financial transaction tax in the amount of EUR 59.1 million (EUR 47.9 million) and a new windfall profit tax of EUR 49.9 million based on the net revenues of the preceding year, banking levies in Hungary totalled EUR 124.1 million (EUR 63.0 million).
The balance of allocations/releases of other provisions improved to EUR 46.3 million (EUR 5.1 million). Legal risks relating to the Romanian building society resulted in expenses in the amount of EUR 46.9 million. In addition, a provision in the amount of EUR 20.1 million was set aside following the held-for-sale classification of a Romanian subsidiary. These negative effects in Romania were partly offset by the release of provisions in the amount of EUR 54.3 million for risks resulting from consumer protection claims. In addition, other operating result also reflects the annual contributions to resolution funds in the amount of EUR 139.1 million (EUR 108.6 million). Increases were recorded above all in Austria, to EUR 73.9 million (EUR 51.5 million), and in the Czech Republic, to EUR 39.2 million (EUR 31.9 million).
Balance sheet
in EUR million
Dec 21
Dec 22
Change
Assets
Cash and cash balances
45,495
35,685
-21.6%
Trading, financial assets
53,211
59,833
12.4%
Loans and advances to banks
21,001
18,435
-12.2%
Loans and advances to customers
180,268
202,109
12.1%
Intangible assets
1,362
1,347
-1.1%
Miscellaneous assets
6,090
6,456
6.0%
Total assets
307,428
323,865
5.3%
Liabilities and equity
Financial liabilities held for trading
2,474
3,264
31.9%
Deposits from banks
31,886
28,821
-9.6%
Deposits from customers
210,523
223,973
6.4%
Debt securities issued
32,130
35,904
11.7%
Miscellaneous liabilities
6,902
6,599
-4.4%
Total equity
23,513
25,305
7.6%
Total liabilities and equity
307,428
323,865
5.3%
Cash and cash balances declined to EUR 35.7 billion (EUR 45.5 billion), mostly due to the early repayment of TLTRO III funds. Trading and investment securities held in various categories of financial assets increased to EUR 59.8 billion (EUR 53.2 billion).
Loans and advances to banks (net), including demand deposits other than overnight deposits, declined to EUR 18.4 billion (EUR 21.0 billion). Loans and advances to customers (net) increased – primarily in Austria and the Czech Republic – to EUR 202.1 billion (EUR 180.3 billion). Loan loss allowances for loans to customers amounted to EUR 4.0 billion (EUR 3.9 billion). The NPL ratio – non-performing loans as a percentage of gross customer loans – improved to 2.0% (2.4%), the NPL coverage ratio (based on gross customer loans) rose to 94.6% (90.9%)
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Financial liabilities – held for trading increased to EUR 3.3 billion (EUR 2.5 billion). The decline in de-posits from banks to EUR 28.9 billion (EUR 31.9 billion) is primarily due to the early repayment of TLTRO III liabilities, the end-of-year carrying value of which was EUR 15.6 billion (EUR 20.9 billion). Deposits from customers rose to EUR 224.0 billion (EUR 210.5 billion), mostly on the back of strong growth in term deposits. The loan-to-deposit ratio stood at 90.2% (85.6%). Debt securities in issue increased to EUR 35.9 billion (EUR 32.1 billion).
Total assets rose to EUR 323.9 billion (EUR 307.4 billion). Total equity increased to EUR 25.3 billion (EUR 23.5 billion). This includes AT1 instruments in the amount of EUR 2.2 billion from four issuances (April 2017, March 2019, January 2020 and November 2020). After regulatory deductions and filtering according to the Capital Requirements Regulation (CRR) common equity tier 1 capital (CET1, CRR final) rose to EUR 20.4 billion (EUR 18.8 billion) as were total own funds (CRR final) to EUR 26.2 billion (EUR 24.8 billion). Total risk – risk-weighted assets including credit, market and operational risk (CRR final) – increased to EUR 143.9 billion (EUR 129.6 billion).
The total capital ratio, total eligible qualifying capital in relation to total risk (CRR final), declined to 18.2% (19.1%), but remained well above the legal minimum requirement. The tier 1 ratio stood at 15.8% (16.2%), the common equity tier 1 ratio stood at 14.2% (14.5%) (both ratios CRR final).
Cash earnings per share amounted to EUR 4.85 in 2022 (EUR 4.18). Earnings per share are EUR 4.83 (EUR 4.17).
The cash return on equity, i.e. the return on equity adjusted for non-cash expenses such as goodwill amortization and straight-line depreciation for the customer relationships, was 12.7% (return on equity: 12.6%) after 11.7% (return on equity: 11.6%) last year.
Branches
Erste Group Bank AG maintains branches in New York, Hong Kong and Germany (Berlin and Stuttgart) that provide commercial lending to foreign banks, leasing companies and sovereign debtors as well as institutional sales.
EXPECTED DEVELOPMENT AND RISKS OF THE GROUP
Long-term growth trends in Central and Eastern Europe
In line with growing economic performances disposable income have risen significantly, in particular in the Czech Republic. In addition, most countries of Central and Eastern Europe have human resources that are at least equivalent to those of Western European countries 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.
A comparison of per capita private debt levels in Central and Eastern Europe with those of advanced economies reveals the gap that exists between these markets. Private debt levels, and particularly household debt, are substantially lower than in the advanced economies. Erste Group firmly believes that credit expansion accompanied by economic growth in this region will prove to be a lasting trend rather than a short-term process that has already peaked.
Over the upcoming 15 to 20 years, on average, the countries of the eastern part of the European Union 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.
Customer banking in Central and Eastern Europe
The of Erste Group's banking business are essentially the business segments of retail business, corporate business and the capital markets business. For further information on the business segments, we refer to Note 1 in the consolidated financial statements.
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 some 16.1 million customers in its markets and operates about 2,100 branches. 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.
In addition, the bank uses and promotes digital distribution channels such as internet and mobile banking not only to meet the increasing importance of digital banking but to actively shape the digital future. George, Erste Group’s digital platform, is already available in Austria, the Czech Republic, Slovakia, Romania, Croatia and Hungary. It will also be rolled out in Serbia.
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
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simple and easy to understand and provide substantial cross-selling potential. Erste Group takes advantage of these factors in all core markets and makes best use of its resulting position of strength by pursuing an omni-channel strategy. Erste Group’s omni-channel approach integrates the various sales and communication channels. Customers decide on how, when and where they do their banking business. Contact centers serve as interfaces between digital banking and traditional branch business. These contact centers offer advice and sales, thus going far beyond the traditional help desk function.
In addition to the expansion of digital sales channels, the branch network remains an important component of the business strategy. Only a retail bank that offers modern digital services and operates an extensive distribution network is able to fund loans in local currency mainly from deposits made in the same currency. 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 differing stages of economic develop-ment, such as Austria, the Czech Republic, Romania, Slovakia, Hungary, Croatia and Serbia.
Corporate business
The second main business line, which also contributes significantly to Erste Group’s earnings, is business with small and medium-sized enterprises, regional and multi-national groups and real estate companies. Erste Group’s goal is to enhance relationships with its clients beyond pure lending business. Specifically, the bank’s goal is for SMEs and large corporate 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 prod-uct expertise with an understanding of regional needs and the experience of the bank’s local customer relationship managers. In view of regulatory interventions, advising and supporting corporate customers in capital market transactions is becoming increasingly important.
Capital markets business
Client-driven capital markets activities are 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 financial markets and its 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 those 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 core 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 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.
Outlook
Erste Group’s goal for 2023 is to achieve a return on tangible equity (ROTE) in the range of 13 to 15%. Four key factors will support achievement of this goal: firstly, positive economic growth in all core markets (Austria, Czech Republic, Slovakia, Romania, Hungary, Croatia and Serbia) despite significant geopolitical and political risks, which, should they materialise, would likely negatively impact economic performance; secondly, an interest rate environment that is characterised by broadly stable central bank rates in such countries as the Czech Republic, Romania and Hungary, as well as euro zone interest rates that rise in line with market expectations (as per mid-February 2023); thirdly, a credit risk environment marked by low default rates as in 2022; and, finally, the continuous ability of Erste Group to innovate and successfully expand its digital offering. Assuming that these conditions are met, operating result and the cost/income ratio are projected to improve, putting Erste Group on a path to achieve its cost/income ratio target of approximately 52% by 2024.
The current expectation (as per mid-February 2023) by economists is for Erste Group’s core markets to avoid recession in 2023 and, in fact, to post real GDP growth in the order of 0 to 3% in 2023. Inflation-ary pressures are expected to subside in 2023, following double digit-levels in 2022 as a result of exceptionally high energy prices. Continued strong labour markets should be supportive of economic performance in all of Erste Group’s markets. Current account balances, which suffered significantly during 2022 on the back of exceptionally high energy prices, are expected to improve again in 2023 benefiting from a reversal in energy prices. Fiscal balances should likewise consolidate again after significant budget deficits in 2022. Public debt to GDP in all Erste Group markets is projected to be broadly stable, and hence remain materially below the euro zone average.
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Against this backdrop, Erste Group expects net loan growth in the mid-single digits. Retail and corporate business should contribute in all markets of Erste Group towards the aim to grow in line with the banking markets. Loan growth as well as interest rate tailwinds, as detailed above, should result in an increase of net interest income of approximately 10%. The second most important income component – net fee and commission income – is expected to rise in the mid-single digits. As in 2022, positive growth momentum should again come from payment services and insurance brokerage fees, while additional contributions form asset management and securities business are dependent on a constructive capital markets environment. The net trading and fair value result, which suffered significantly in 2022 from negative valuation effects tied to strongly rising interest rates mostly in the CEE region but also in the eurozone, should normalise again in 2023 due to less steep interest rate increases in the eurozone. This, however, will depend substantially on the actual interest rate environment. The remaining income components are forecast to remain, by and large, stable. Overall, op6,1erating income should increase in 2023. Operating expenses are expected to rise by 7-8%, and thus at a lower level than operating income – although this is dependent on the foreign-currency developments in the CEE region – resulting in a further cost/income ratio improvement compared to 2022.
Based on the robust macro outlook described above, risk costs should remain at a low level in 2023. While precise forecasting is hard at current low risk cost levels, Erste Group believes that in 2023 risk costs will be below 35 basis points of average gross customer loans.
Other operating result is expected to remain by and large unchanged in the absence of significant one-off effects. Assuming an effective group tax rate of below 20% and similar minority charges as in 2022, Erste Group aims to achieve a ROTE in the range of 13 to 15%. Erste Group’s CET1 ratio is expected to remain strong. Consequently, Erste Group will propose a dividend of EUR 1.90 per share for the 2022 fiscal year to the 2023 AGM. In addition, Erste Group targets a share buy-back in a volume of up to EUR 300 million in 2023, subject to regulatory approval.
Potential risks to the guidance include (geo)political and economic (including monetary and fiscal policy impacts) developments, regulatory measures as well as global health risks and changes to the competitive environment. The evolving Russia-Ukraine conflict does not impact Erste Group directly, as it has no operating presence in those countries. Indirect effects, such as financial market volatility, sanctions-related knock-on effects or the emergence of deposit insurance or resolution cases cannot be ruled out, though. Erste Group is moreover exposed to non-financial and legal risks that may materialise regardless of the economic environment. Worse than expected economic development may put goodwill at risk.
Risk management
With respect to the explanations on substantial financial 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 provided in the Notes 27, 32, 34 et seq, 45, 46, 47 and 55 of the consolidated financial statements.
RESEARCH AND DEVELOPMENT
The pace of digital transformation has accelerated considerably as a result of technological changes, demographic developments, regulatory interventions and also due to the pandemic in recent years. As a result, customer behaviour and customer expectations towards financial products have also changed significantly. Erste Group is convinced that the digital banking business will continue to gain in importance and will be essential for the economic success in the long term and therefore fosters digital innovation with the aim to digitalise banking products end-to-end including associated processes (e.g. onboarding of corporate customers).
Erste Group’s digital strategy is based on its own digital platform, George, including digital market places (ecosystem). It aims at providing customers access to personalised products from Erste Group and also third-party suppliers through application programming interfaces (APIs) in the secure IT environment of a financial platform. APIs enable a wide range of co-operations, whether with fintechs, start-ups or across industries, and can therefore help open up new markets and attract new customers.
The digital platform George was implemented for retail customers in Austria in 2015. In the meantime, it is also running in the Czech Republic, Slovakia, Romania, Croatia and Hungary and is actively used by almost 9 million customers. It will also be rolled out in Serbia. The range of digitally available products and services is being constantly expanded. Customers can activate applications of Erste Group or third parties via plug-ins and use them to manage their finances. In 2022, George reached another evolutionary level. George Business was implemented for corporate customers in Austria, and it will be rolled out in the local banking subsidiaries, by 2024 in Romania and the Czech Republic. It aims at offering group-wide an outstanding digital user experience across all customer segments on one platform.
In 2022, software development costs of EUR 42 million (EUR 51 million) were capitalised.
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REPORTING ON MATERIAL CHARATERISTICS OF THE INTERNAL CONTROL AND RISK MANAGEMENT SYSTEM WITH REGARD TO THE ACCOUNTING PROCESS
Internal Control System Framework Requirements
The internal control system (ICS) is an essential element of the corporate governance system of Erste Group contributing to the safeguarding of shareholders’ investments and company’s assets. Erste Group’s ICS plays a key role in identifying risks associated with the respective internal processes.
The ICS policy provides the framework conditions for the internal control system at Erste Group. It defines current standards concerning general tasks and responsibilities as well as minimum criteria for ICS documentation. In Erste Group, a top-down, risk oriented, decentralised ICS approach is applied, designed based on the local process map, which promotes adequacy by focusing on all material risks. This means, that all material risks identified must be mitigated by key controls which are involved in the ICS process. The following criteria are applied for an adequate ICS:
_Completeness: The process landscape as well as policies and procedures issued within the Group Policy Framework ensure that all identified risks and potential risk scenarios are considered, regulated and managed, aiming to set up a comprehensive and integrated control environment throughout the entity. All material risks must be covered with key controls, to demonstrate the importance at local level.
_Effectiveness and traceability: The functionality of key controls are regularly checked, the optimal control environment is reviewed and challenged during monitoring activity of risk appetite/tolerance.
_Comprehensibility: The process landscape together with local policies and procedures constitute documentation of identified key controls, which ensures that relevant employees are aware of all key controls and their role in the internal control process is transparent and accountable within the entire local entity.
The risk profile, which includes the current and target situation, is monitored by each individual risk function unit and is illustrated in the framework of the consolidated risk reporting (GRR) for the management or relevant risk committee.
Control environment
The Code of Conduct provides orientation for all employees of Erste Group, defines mandatory rules for day-to-day business life, describes the corporate values, affirms the obligation to act responsibly as a company and ensures compliance with legal provisions and internal guidelines (compliance).
The awareness of potential compliance issues and a sustainable risk culture enable risks to be identified quickly and well-considered decision-making when dealing with existing regulations. The main component of the risk culture are internal guidelines and, above all, open communication in order to create the broadest possible awareness of all employees for all risks that Erste Group is confronted with.
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.
Erste Group’s IFRS Accounting Manual provides a comprehensive methodological basis for the preparation and submission of the monthly, quarterly and annual IFRS Group Reporting Packages by Erste Group’s subsidiaries.
The management in each subsidiary is responsible for implementing group-wide instructions. Compliance with group rules is monitored as part of the audits performed by group and local auditors.
Group Accounting and Group Controlling are responsible for preparing the consolidated financial reporting. Both divisions are assigned to the CFO of Erste Group. The preparation of the consolidated financial statements is the responsibility of the Group Accounting department. The assignment of competencies, the process description and the necessary control procedures are defined in the working instructions.
Risk assessment and controls measures
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 if the data provided in the financial statements and notes is materially deviating from the correct figures, i.e. whenever, alone or in aggregate, they could 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 volatile business environment bear the risk of significant financial reporting errors.
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 in subsidiaries have to be recorded, posted and accounted for in accordance with the accounting and measurement methods set out in this manual.
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The basic components of the internal control system (ICS) within Erste Group are:
_systemic, automatic control systems and measures in the formal procedure and structure, e.g. programmed controls during data processing
_principles of functional separation and checks performed by a second person (the four-eye principle)
_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
_highly automated data validation in the group consolidation process
The areas of responsibility assigned to the individual positions are documented and are continuously updated. Special attention is paid to a functioning deputy regulation in order not to jeopardize the ability to meet deadlines if one person is absent.
Group consolidation
The individual financial statements reported by the subsidiaries in the consolidation system are checked by the person responsible for the individual financial statements in Group Accounting as part of the data release process, which provides for extensive, largely automated check routines, and - if necessary - adjustments to the individual financial statements are made in coordination with the individual entities or the auditors. The subsequent consolidation steps are then performed using the consolidation system. These include consolidation of capital, expense and income consolidation, and debt consolidation, any intragroup gains are eliminated. At the end of the consolidation process, the notes to the consolidated financial statements are prepared in accordance with IFRS and BWG/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
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 information is presented to senior managers and the CFO 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.
In addition, when introducing new core banking systems and implementing new products, accounting is in contact with the relevant departments in order to provide information at an early stage on accounting-specific aspects and implications for new product launches.
Monitoring
In order to monitor and at the same time support strong governance and risk management, Erste Group applies three lines of defence to review the structures and processes that enable the achievement of the objectives for their effectiveness.
The first line of defence includes the business lines in which the department heads are responsible for monitoring including internal controls of their business areas. This line is in constant dialogue with the business areas and reports on planned, actual and expected results in connection with the goals of the organisation as well as on risks.
The role of the second line of defence is covered by specific areas of expertise, in addition to providing expertise, support, monitoring and risk management tasks. At Erste Group, these activities are carried out by the departments Risk Management, BWG Compliance, WAG Compliance, Anti Money Laundering Prevention, Group Data and Reporting Governance and Group Security. Above all, the departments should support the business lines in the control steps, validate the actual controls, bring state-of-the-art practices into the organisation and cover tasks related to risk management.
The third line of defence is responsible for providing independent and objective assurance and advice on the adequacy and effectiveness of governance and risk management. 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.
Internal Audit is according to section 42 Austrian Banking Act (BWG) 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
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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.
HOLDINGS, PURCHASE AND SALE OF OWN SHARES
Holdings of own shares
Portfolio as of
Dec 21
Dec 22
Holding
-339,293
-650,932
Affiliates
1,623,493
1,568,971
thereof pledged
0
0.00
As of 31 December 2022, retained earnings include a short position in Erste Group Bank AG shares amounting to 650,932 units with a carrying amount of EUR 19.5 million (prior year: 339,293 units, carrying amount EUR 14,0 million), which is covered by securities lending deals.
The presentation of purchases and sales of own shares follows the disclosure requirements in accordance with the Austrian Stock Corporation Act (AktG).
Purchase of own shares
Erste Group Bank AG
Affiliates of Erste Group Bank AG
Number of shares
Par value of the share capital EUR million
Purchase price in EUR million
Purpose of transaction
Number of shares
Par value of the share capital EUR million
Purchase price in EUR million
Purpose of transaction
January
29,621
0.06
1.28
trading
February
310,000
0.62
10.78
principal shareholder program
February
147,363
0.29
5.32
trading
March
427,833
0.86
12.26
principal shareholder program
March
283,266
0.57
8.65
trading
April
22,000
0.04
0.67
principal shareholder program
April
85,302
0.17
2.75
trading
May
797,681
1.60
22.46
principal shareholder program
May
892,100
1.78
26.78
trading
June
99,587
0.20
2.69
principal shareholder program
June
130,650
0.26
3.47
trading
July
86,900
0.17
2.09
trading
August
127,500
0.26
3.10
principal shareholder program
August
107,426
0.21
2.54
trading
August
1,419,948
2.84
33.59
employee share program
September
20,000
0.04
0.50
principal shareholder program
September
886,946
1.77
22.60
trading
September
98,792
0.20
2.17
employee share program
October
104,120
0.21
2.57
trading
November
270,000
0.54
7.63
principal shareholder program
November
186,383
0.37
5.29
trading
December
49,000
0.10
1.38
principal shareholder program
December
105,640
0.21
2.99
trading
Total
4,564,457
2,123,601
The purpose of trading was in particular "market making" and hedging positions in the Austrian Stock Exchange Index (ATX).
The aim of the principal shareholder program is to strengthen the group structure and cooperation with the savings banks.
For further details on the employee share program, we refer to Note 62 Share-based payments.
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Sale of own shares
Erste Group Bank AG
Affiliates of Erste Group Bank AG
Number of shares
Par value of the share capital EUR million
Selling price in EUR million
Number of shares
Par value of the share capital EUR million
Selling price in EUR million
January
112,944
0.23
4.84
February
196,320
0.39
6.80
March
917,816
1.84
27.73
April
29,588
0.06
0.96
May
57,631
0.12
1.68
887,833
1.78
26.97
June
1,126,468
2.25
30.64
July
102,987
0.21
2.46
August
39,685
0.08
0.94
761,000
1.52
19.14
September
1,942,437
3.88
44.15
October
61,258
0.12
1.48
November
127,021
0.25
3.55
December
161,941
0.32
4.67
529,290
1.06
15.42
Total
4,876,096
2,178,123
For details in respect of capital structure, class of shares and treasury shares please refer to Note 56 of the consolidated financial statements. The mandatory disclosure requirements of Section 243a (1) UGB are met as follows:
_Capital structure and class of shares
As of 31 December 2022, together with its syndicate partners (savings banks, Anteilsverwaltungssparkassen, savings banks foundations and Wiener Städtische Versicherungsverein), DIE ERSTE oesterreichische Spar-Casse Privatstiftung (‘ERSTE Stiftung’), a foundation, controls 24.16% (prior year: 22.25%) of the shares in Erste Group Bank AG and with 17,30% (prior year: 16.50%) is the main shareholder. The ERSTE Stiftung holds 5.78% (prior year: 5.90%) of the shares directly; the indirect participation of the ERSTE Stiftung amounts to around 11.52% (prior year: 10.60%) of the shares held by Sparkassen Beteiligungs GmbH & Co KG, which is an affiliated undertaking of the ERSTE Stiftung. 2.78% (prior year: 1.67%) are held directly by savings bank foundations, savings banks and Erste Mitarbeiterbeteiligung Privatstiftung acting together with the ERSTE Stiftung. 4.08% (prior year: 4.08%) are held by the syndicate partner Wiener Städtische Versicherungsverein.
The Erste Group Bank AG forms a joint liability scheme (Haftungsverbund), together with the Austrian savings banks, in accordance with article 4 (1) Z 127 CRR as well as an institutional protection scheme (IPS) approved by the supervisory authority pursuant to article 113(7) CRR. The required individual services of the individual members of the scheme are in case of an occasion subject to an individual and general ceiling. The applicable amounts are determined by joint liability scheme’s steering company and made known to the paying members.
The payments of the individual members in the IPS Ex-Ante Fund established for support measures are recognised in the financial statements as a share in IPS GesbR, which manages the ex-ante fund and are accounted for as retained earnings. Due to the contractual terms, these retained earnings represent a blocked reserve. The release of this blocked reserve may only take place as a result of the utilisation of the ex-ante fund due to a claim. This reserve can therefore not be utilised internally to cover losses and on member level does not qualify as own funds according to the CRR; on a consolidated level, the ex-ante fund does qualify, however. For details, please refer to the section scope of consolidation and Note 33.
Erste Group Bank AG is the central institution for the associated Austrian savings banks, and together they form a cash pool pursuant to section 27a Austrian Banking Act (BWG). Where necessary, Erste Group Bank AG must supply liquidity to an associated savings bank in accordance with legal and contractual provisions.
_Restrictions of voting rights and of the transfer of shares
In shareholder agreements ERSTE Stiftung 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 ERSTE Stiftung. The partners can dispose of shares according to a predefined sale procedure and can purchase shares only within the quotas agreed with ERSTE Stiftung (of a maximum of 3% per calendar year); with this regulation an unwanted creeping-in according to takeover law shall be prevented. In addition, the partners have committed themselves not to make a hostile takeover bid, neither to participate in a hostile takeover bid nor to act together with a hostile bidder in any other way.
The Articles of Association contain no restrictions in respect of voting rights or the transfer of shares.
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_Direct or indirect shareholdings amounting at least 10 %
Apart from ERSTE Foundation, the Management Board is not aware of any other direct or indirect shareholdings that amount to at least 10%.
_Special rights of control associated with holding shares
There are no shareholders with special control rights.
_Voting rights control in the case of capital participation of employees
The voting rights of shares of employees of corporate employers according to section 4d (5) (1) Income Tax Act (EStG) participating in employee share programs held in trust or by proxy by the Erste Mitarbeiterbeteiligung Privatstiftung are exercised by the Board of Directors of Erste Mitarbeiterbeteiligung Privatstiftung. The members of the Board of Directors are appointed and dismissed by the Advisory Board through resolution with simple majority. Both Erste Group Bank AG as well as the statutory employee representatives of Erste Group Bank AG and Erste Bank der oesterreichischen Sparkassen AG jointly are entitled to appoint a person of their choice to the board of directors. A further member of the Board of Directors to be appointed by the Advisory Board shall be a former member of the management board or a former (freelance) employee of the corporate employers pursuant to section 4d (5) (1) Income Tax Act (EStG). The Advisory Board of Erste Mitarbeiterbeteiligung Privatstiftung comprises of up to five members.
_Special control rights, bodies and amendments of the articles of association
This concerns:
_Art. 15.1 of the Articles of Association, which provides that ERSTE Stiftung will be granted the right to nominate up to one third of the members of the Supervisory Board to be elected by the shareholders’ meeting, as long as ERSTE Stiftung is liable for all present and future liabilities of the company in the case of its insolvency pursuant to Section 92 (9) Banking Act and
_Art. 15.4 of the Articles of Association, which provides that 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
_Art. 19.9 of the Articles of Association, which provides that the Articles of Association, in so far as they do not alter the business purpose, may be passed by simple majority of votes cast and simple majority of the subscribed capital represented at the shareholders 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 three-quarter majority of the votes cast and a three-quarter majority of the subscribed capital represented at the meeting considering the proposal.
_Powers of the Management Board to issue and repurchase shares
As per decision of the Annual General Meeting of 19 May 2021:
_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) (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 the closing price at the Vienna Stock Exchange on the last trading day prior to the purchase by more the 20%. This authorisation is valid for a period of 30 months, i.e. until 18 November 2023.
_the Management Board is entitled, pursuant to section 65 (1) (8) as well as (1a) and (1b) Stock CorporationAct and for a period of 30 months from the date of the resolution, i.e. until 18 November 2023, 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 authorization may be exercised in whole or in part or in several instalments and in pursuit of one or several 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 18 May 2026, 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 several businesses in Austria or abroad to the exclusion of the shareholders’ proportional purchase option.
_the Management Board is authorised to redeem shares without further resolution at the Annual General Meeting with the approval of the Supervisory Board.
_according to section 65 (1) (4) as well as (1a) and (1b) Stock Corporation Act, the Management Board is authorised for the duration of 30 months following the date of resolution, hence until 18 November 2023, and with the approval of the Supervisory Board to purchase own shares at an amount equalling up to 10% of share capital of the company also under repeated utilisation 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 for the purpose of granting shares for free or at concessionary terms to Erste Mitarbeiterbeteiligung Privatstiftung, their beneficiaries,
19
employees, executive employees and members of the board at Erste Group Bank AG or of an affiliated undertaking or of any other undertaking pursuant to section 4d (5) (1) Income Tax Act. The authorisation may be exercised in whole or in part or in several installments and in pursuit of one or several purposes. The value per share may neither be lower than the floor value of two Euros nor higher than the ceiling of 120 Euros.
All sales and purchases were carried out as authorised at the Annual General Meeting.
According to section 8.3 of the Articles of Association, the Management Board is authorised, until 24 May 2023 and with the approval of the Supervisory Board, to issue convertible bonds (including conditional compulsory convertible bonds according to section 26 Austrian Banking Act (BWG)), which grant subscription or conversion rights to the acquisition of company shares, while paying due consideration or excluding the subscription right of shareholders. The terms of issue can also set out a conversion obligation at the end of the term or at another point in time in addition or instead of subscription or conversion rights. The issue of convertible bonds may only take place to the extent that guarantees the fulfilment of agreed conversion or subscription rights and, in the case of a conversion obligation set out in the conditions of issue, the fulfilment of the corresponding conversion obligations from the conditional capital increase. The issue amount, conditions or issue and the exclusion of shareholders’ subscription rights are to be determined by the Management Board with consent of the Supervisory Board.
_Significant agreements which become effective, are amended or are rendered ineffective when there is a change in the control of the company and their effects
Cross-guarantee scheme agreement
The agreement in principle of the cross-guarantee scheme (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 grossly harms the duties resulting from the 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 cross-guarantee scheme’s (Haftungsverbund) 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 cross-guarantee scheme’s (Haftungsverbund) steering company and Erste Group Bank AG by registered letter within twelve weeks from the change of control that it intends to withdraw from the cross-guarantee scheme (Haftungsverbund).
Directors & Officers Insurance
Changes in control
In the event that any of the following transactions or processes occur during the term of the insurance policy (each constituting a ‘change in control’) in respect of the insured:
_the insured ceases to exist as a result of a 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 consent, who are not insured parties, acquire more than 50% of the insured’s outstanding equity or more than 50% of its voting power (resulting in the right to control the voting power represented by the shares, and the right to appoint the Management Board members of the insured),
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 and insurer agree otherwise). The premium for this insurance cover is deemed to be completely earned.
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 in relation to unlawful acts committed or alleged to have been committed by the insured during the existence of this entity as a subsidiary. No insurance cover is provided for claims brought against an insured 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 and Vienna Insurance Group AG Wiener Versicherung Gruppe (VIG) are parties to a general distribution agreement (the Agreement) concerning the framework of the cooperation of Erste Group and VIG in Austria and CEE with respect to bank and insurance products. Originally concluded in 2008 (between Erste Bank der österreichischen Sparkassen AG and Vienna Insurance Group der WIENER STÄDTISCHE Versicherung AG), the Agreement was renewed and extended in 2018 until the end of 2033. The objective for the renewal and extension in particular was to adapt the Agreement to the corporate restructuring of the original parties, to amend some commercial
20
parameters and to align the Agreement with recent developments in the legal framework. Already in the original Agreement the parties stipulated that both parties have the right to terminate the Agreement in case of a change of control of one of the parties. In case of change of control of Erste Group Bank AG, VIG has the right to terminate the Agreement. In case of change of control of VIG, Erste Group Bank AG has the 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/entity other than DIE ERSTE österreichische Spar-Casse Privatstiftung or Austrian savings banks of 50% plus one share of Erste Group Bank AG’s shares or voting rights. In respect to VIG, the aforementioned provisions apply analogously, except for share purchases by Wiener Städtische Wechselseitiger Versicherungsverein – Vermögensverwaltung – Vienna Insurance Group.
Apart from this regulation on the termination of the Agreement, the parties agreed in the renewal and extension of the Agreement for an additional termination for cause if based on new legal or regulatory provisions, the continuation of the Agreement is unreasonable for each or both of the parties.
Erste Group Bank 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 case of a change of control (as described above), each party has a termination right. The asset management agreement has been renewed and extended until 2033 concurrently with the renewal and extension of the Agreement outlined above.
_Indemnification agreements
There are no indemnification agreements in accordance with § 243a (1) Z 9 UGB.
NON-FINANCIAL DECLARATION
The consolidated non-financial declaration of Erste Group is issued as separate consolidated non-financial report and contains the information required according to § 243b UGB and according to the Sustainability and Diversity Improvement Act (NaDiVeG) according to § 267a UGB. The consolidated non-financial report of Erste Group is disclosed and published on the website of Erste Group (www.erstegroup.com/investor-relations).
SUBSEQUENT EVENTS AFTER BALANCE SHEET DATE
For events of particular importance after balance sheet date, we refer to the disclosures in Note 67 in the consolidated financial statements.
Vienna, 28 February 2023
Management board
Willibald Cernko mp, Chairman
Ingo Bleier mp, member
Stefan Dörfler mp, member
Alexandra Habeler-Drabek mp, member
David O‘Mahony mp, member
Maurizio Poletto mp, member
21
Group Consolidated Financial
Statements 2022 (IFRS)
22
23
Notes
1-12 21
1-12 22
Net interest income
2
Interest income
2
Other similar income
2
Interest expenses
2
-483.8
-2,569.2
Other similar expenses
2
-1,125.9
-2,720.5
Net fee and commission income
3
Fee and commission income
3
Fee and commission expenses
3
-418.5
-436.3
Dividend income
4
Net trading result
5
-778.6
Gains/losses from financial instruments measured at fair value through profit or loss
6
Net result from equity method investments
Rental income from investment properties & other operating leases
7
Personnel expenses
8
-2,578.1
-2,668.0
Other administrative expenses
8
-1,180.3
-1,356.2
Depreciation and amortisation
8
-548.0
-550.7
Gains/losses from derecognition of financial assets measured at amortised cost
9
-7.6
-52.0
Other gains/losses from derecognition of financial instruments not measured at fair value through profit or loss
10
-25.2
-23.3
Impairment result from financial instruments
11
-158.8
-299.5
Other operating result
12
-310.5
-398.5
Levies on banking activities
12
-73.5
-187.1
Pre-tax result from continuing operations
Taxes on income
13
-525.2
-556.1
Net result for the period
Net result attributable to non-controlling interests
Net result attributable to owners of the parent
Earnings per share
1-12 21
1-12 22
Net result attributable to owners of the parent
in EUR thousand
Dividend on AT1 capital
in EUR thousand
-147,807
-100,456
Net result for the period attributable to owners of the parent after deduction of AT1 capital dividend
in EUR thousand
Weighted average undiluted number of outstanding shares
Earnings per share
in EUR
Weighted average diluted number of outstanding shares
Diluted earnings per share
in EUR
24
Consolidated statement of comprehensive income2,408.1 2,666.3 116.1 240.2 28.6 99.3 20.4 82.3 239.3 4.8 24.7 1.0 9.9 63.3 271.0 79.0 271.0 79.0 93.5 112.5 94.2 107.2 5.2 0.0 2,402.0 2,547.0 475.9 426.7 1,926.1 2,120.3
1-12 21
1-12 22
Net result for the period
Other comprehensive income
Items that may not be reclassified to profit or loss
Remeasurement of defined benefit plans
Fair value reserve of equity instruments
-33.1
Own credit risk reserve
Income tax relating to items that may not be reclassified
-15.3
-65.3
Items that may be reclassified to profit or loss
-122.2
-359.5
Fair value reserve of debt instruments
-188.3
-560.4
Gains/losses during the period
-191.2
-586.2
Reclassification adjustments
Credit loss allowances
-1.9
Cash flow hedge reserve
-298.4
Gains/losses during the period
-295.3
Reclassification adjustments
-3.1
-53.4
Currency reserve
Gains/losses during the period
Income tax relating to items that may be reclassified
Gains/losses during the period
Reclassification adjustments
-0.6
Share of other comprehensive income of associates and joint ventures accounted for by the equity method
-0.4
Total other comprehensive income
-6.1
-119.3
Total comprehensive income
Total comprehensive income attributable to non-controlling interests
Total comprehensive income attributable to owners of the parent
For a detailed split of income tax items within other comprehensive income please refer to Note 13 Taxes on income.
25
Consolidated balance sheet 45,495.4 35,684.8 6,473.0 7,765.6 2,263.4 1,718.7 4,209.6 6,046.9 372.7 94.4 3,124.4 2,735.3 0.0 0.0 331.9 346.6 1,974.7 1,549.3 9.9 0.0 808.0 839.3 8,881.2 9,559.5 130.2 698.5 132.4 99.2 8,748.8 9,460.4 229,641.2 253,360.0 1,232.4 1,760.9 35,550.8 40,611.7 20,991.4 18,435.5 173,099.1 194,312.8 4,208.5 4,552.9 78.6 158.7 2,645.2 2,618.0 1,344.2 1,372.2 1,362.3 1,347.1 210.9 208.6 135.1 108.9 562.1 628.7 73.0 167.2 2,152.5 2,403.7 1,044.6 1,231.6 307,428.2 323,865.0 2,473.7 3,263.7 1,623.8 2,626.5 849.9 637.2 10,464.1 10,814.5 494.7 1,352.8 9,778.4 9,310.4 190.9 151.2 265,415.5 278,932.5 31,885.6 28,820.8 210,028.7 222,619.7 22,351.7 26,593.4 1,149.4 898.5 588.1 662.1 309.4 372.5 1,985.9 1,676.0 143.6 127.3 18.7 15.6 0.0 114.9 2,515.9 2,581.3 23,513.4 25,304.7 5,516.0 5,957.1 2,236.2 2,236.2 15,761.2 17,111.4 859.6 859.6 1,477.7 1,477.7 13,423.9 14,774.1 307,428.2 323,865.0
Notes
Dec 21
Dec 22
Assets
Cash and cash balances
15
Financial assets held for trading
21, 22
Derivatives
21
Other financial assets held for trading
22
Pledged as collateral
29
Non-trading financial assets at fair value through profit or loss
23
Pledged as collateral
29
Equity instruments
23
Debt securities
23
Loans and advances to banks
23
Loans and advances to customers
23
Financial assets at fair value through other comprehensive income
19, 20
Pledged as collateral
29
Equity instruments
20
Debt securities
21
Financial assets at amortised cost
16
Pledged as collateral
29
Debt securities
16
Loans and advances to banks
16
Loans and advances to customers
16
Finance lease receivables
51
Hedge accounting derivatives
27
Fair value changes of hedged items in portfolio hedge of interest rate risk
27
-3.9
-37.8
Property and equipment
48
Investment properties
48
Intangible assets
49
Investments in associates and joint ventures
59
Current tax assets
13
Deferred tax assets
13
Assets held for sale
64
Trade and other receivables
17
Other assets
50
Total assets
in EUR million
Notes
Dec 21
Dec 22
Liabilities and equity
Financial liabilities held for trading
21, 24
Derivatives
21
Other financial liabilities held for trading
24
Financial liabilities at fair value through profit or loss
25
Deposits from customers
25
Debt securities issued
25
Other financial liabilities
25
Financial liabilities at amortised cost
18
Deposits from banks
18
Deposits from customers
18
Debt securities issued
18
Other financial liabilities
Lease liabilities
52
Hedge accounting derivatives
27
Provisions
54
Current tax liabilities
13
Deferred tax liabilities
13
Liabilities associated with assets held for sale
64
Other liabilities
53
Total equity
56
Equity attributable to non-controlling interests
56
Additional equity instruments
56
Equity attributable to owners of the parent
56
Subscribed capital
56
Additional paid-in capital
56
Retained earnings and other reserves
56
Total liabilities and equity
26
Consolidated statement of changes in equity859.6 1,477.7 14,932.5 114.8 15,761.2 2,236.2 5,516.0 23,513.4 0.0 0.0 11.0 0.0 0.0 0.0 0.0 0.0 11.0 0.0 0.0 11.0 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 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 113.7 89.8 0.0 0.0 0.0 0.1 3.4 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 0.0 0.0 0.0 0.0 0.0 0.5 0.0 0.0 2,164.7 9.0 180.0 78.9 66.8 2,120.3 0.0 426.7 2,547.0 0.0 0.0 2,164.7 0.0 0.0 0.0 0.0 0.0 2,164.7 0.0 501.6 2,666.3 0.0 0.0 0.0 9.0 180.0 78.9 66.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 66.8 66.8 0.0 15.6 82.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 9.0 0.0 0.0 0.0 0.0 9.0 0.0 0.0 8.9 0.0 0.0 0.0 0.0 0.0 0.0 78.9 0.0 78.9 0.0 0.1 79.0 0.0 0.0 0.0 0.0 0.0 180.0 0.0 0.0 180.0 0.0 2.5 182.4 859.6 1,477.7 16,323.7 17,111.4 2,236.2 5,957.1 25,304.7
Subscribed capital
Additional paid-in capital
Retained earnings
Cash flow hedge reserve
Fair value reserve
Own credit risk reserve
Currency reserve
Remeasur-ement of defined benefit plans
Equity attributable to owners of the parent
Additional equity instruments
Equity attributable to non-controlling interests
Total equity
As of 1 January 2022
-205.6
-207.3
-672.5
-538.1
Changes in treasury shares
Dividends paid
-753.6
-753.6
-90.7
-844.2
Capital increase/decrease
-2.0
-2.0
Changes in scope of consolidation and ownership interest
-24.0
-24.0
Reclassification from other comprehensive income to retained earnings
-5.1
-1.6
-7.1
-8.7
Share based payments
-1.3
-1.3
-1.3
Other changes
-0.6
-0.6
-0.2
Total comprehensive income
-379.0
Net result for the period
Other comprehensive income
-379.0
-44.4
-74.9
-119.3
Change from remeasurement of defined benefit plans
Change in fair value reserve
-379.0
-379.0
-93.1
-472.1
Change in cash flow hedge reserve
Change in currency reserve
Change in own credit risk reserve
As of 31 December 2022
-196.6
-264.1
-23.9
-593.6
-471.4
27
Subscribed capital
Additional paid-in capital
Retained earnings
Cash flow hedge reserve
Fair value reserve
Own credit risk reserve
Currency reserve
Remeasur-ement of defined benefit plans
Equity attributable to owners of the parent
Additional equity instruments
Equity attributable to non-controlling interests
Total equity
As of 1 January 2021
-290.3
-941.4
-549.1
Changes in treasury shares
-3.7
-3.7
-3.7
Dividends paid
-756.0
-756.0
-40.0
-795.9
Capital increase/decrease
-496.8
-495.4
Changes in scope of consolidation and ownership interest
-4.7
-4.7
-10.9
-15.6
Reclassification from other comprehensive income to retained earnings
-10.3
Share based payments
Other changes
-20.8
-20.8
-4.3
Total comprehensive income
-241.5
-113.7
Net result for the period
Other comprehensive income
-241.5
-113.7
-8.9
-6.1
Change from remeasurement of defined benefit plans
Change in fair value reserve
-113.7
-113.7
-22.5
-136.2
Change in cash flow hedge reserve
-241.5
-241.5
-0.1
-241.5
Change in currency reserve
Change in own credit risk reserve
-1.5
As of 31 December 2021
-205.6
-207.3
-672.5
-538.1
29
Notes
1-12 21
1-12 22
Net result for the period
Non-cash adjustments for items in net profit/loss for the year
Depreciation, amortisation and net impairment of non-financial assets
48, 49
Net allocation of credit loss allowances and other provisions
12
Gains/losses from measurement and derecognition of financial assets and financial liabilities
9, 10
Other adjustments
Changes in assets and liabilities from operating activities after adjustment for non-cash components
Financial assets held for trading
21, 22
-120.2
-1,336.0
Non-trading financial assets at fair value through profit or loss
23
Equity instruments
23
-14.8
Debt securities
23
Loans and advances to banks
23
-9.9
Loans and advances to customers
23
-154.5
-77.6
Financial assets at fair value through other comprehensive income: debt securities
19
-476.2
-1,115.9
Financial assets at amortised cost
16
Debt securities
16
-5,977.9
-4,991.7
Loans and advances to banks
16
Loans and advances to customers
16
-13,336.3
-21,214.3
Finance lease receivables
51
-70.1
-325.9
Hedge accounting derivatives
27
-114.9
-71.2
Other assets from operating activities
17, 50
-1,025.5
-580.3
Financial liabilities held for trading
21, 24
-537.3
-416.3
Financial liabilities at fair value through profit or loss
25
-1,341.2
Financial liabilities measured at amortised cost
18
Deposits from banks
18
-3,097.6
Deposits from customers
18
Debt securities issued
18
Other financial liabilities
-250.9
Hedge accounting derivatives
27
Other liabilities from operating activities
53
-174.4
Cash flow from operating activities
-8,815.4
Proceeds of disposal
Financial assets at fair value through other comprehensive income: equity instruments
20
Investments in associates and joint ventures
59
-21.4
Property and equipment and intangible assets
48, 49
Investment properties
48
Acquisition of
Financial assets at fair value through other comprehensive income: equity instruments
20
-0.7
Property and equipment and intangible assets
48, 49
-548.0
-478.6
Investment properties
48
-63.0
-100.7
Acquisition of subsidiaries (net of cash and cash equivalents acquired)
-7.2
Cash flow from investing activities
-483.4
-233.1
Capital increase
56
-2.0
Capital decrease
56
-496.8
Changes in ownership interests that do not result in a loss of control
56
-15.6
Dividends paid to equity holders of the parent
56
-756.0
-753.6
Dividends paid to non-controlling interests
56
-40.0
-90.7
Cash flow from financing activities
-1,306.9
-756.5
Cash and cash equivalents at the beginning of the period
15
Cash flow from operating activities
-8,815.4
Cash flow from investing activities
-483.4
-233.1
Cash flow from financing activities
-1,306.9
-756.5
Effect of currency translation
-5.7
Cash and cash equivalents at the end of period
15
Cash flows related to taxes, interest and dividends (included in cash flow from operating activities)
Payments for taxes on income
13
-391.1
-548.5
Interest received
2
Dividends received
4
Interest paid
2
-2,486.5
-5,549.1
Cash and cash equivalents are equal to the amount in the balance sheet line item ’Cash and cash balances’.
30
Notes to the group financial statements of Erste GroupErste Group Bank AG Austria Vienna Stock Exchange. It is also quoted on the Prague Stock Exchange and on the Bucharest Stock Exchange. The registered office of Erste Group Bank AG is located at Am Belvedere 1, 1100 Vienna, Austria .The group of Erste Group Bank AG (hereinafter referred to as ‘Erste Group’ or ‘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.
These consolidated financial statements have been prepared and authorised for issue by the management board as at the signing date of this report. Both, the supervisory board (23 March 2023) and the annual general meeting (12 May 2023) may amend the individual financial statements of Erste Group Bank AG, which in turn may have an impact on these consolidated financial statements. The consolidated financial statements have not been accepted by the supervisory board and the financial statements of Erste Group Bank AG have not been approved by the supervisory board at the date of this report. This is also applicable to the majority of the individual financial statements, which are relevant for the calculation of own funds.
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, market risk (including interest rate and foreign exchange risk), and operational risk.
In addition to the banking entities, some Group companies are subject to regulatory requirements, specifically in relation to asset management.
The consolidated financial statements of Erste Group for the financial year ending on 31 December 2022 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. The requirements of Section 59a of the Austrian Banking Act and Section 245a of the Austrian Commercial Code are fulfilled.
The consolidated financial statements have been prepared on a going concern basis.
Erste Group is subject to regulatory restrictions on capital distributions stemming from the EU-wide capital requirements regulations applicable to all credit institutions based in the EU. 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 abbreviations used in the consolidated financial statements of Erste Group are explained in the appendix ‘Abbreviations’ at the end of this report.
The consolidated financial statements are presented in euro, which is the functional currency of Erste Group Bank AG, the parent company of Erste Group. The functional currency is the currency of the primary business environment in which an entity operates. Each entity in Erste 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 Erste Group entities with the euro as functional currency, these are the European Central Bank reference rates.
31
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 statement of income under the line item ‘Net trading 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, i.e. they do not give rise to exchange differences. Non-monetary items that are measured at fair value (such as equity investments) in a foreign currency are translated using the exchange rates at the date when the fair value is measured, thus the exchange differences are part of the fair value gains or losses.
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 consolidated statement of income and consolidated statement of comprehensive income are translated at the average exchange rate of the respective reporting period calculated on the basis of daily rates. Goodwill, intangible assets (i.e. customer relationships and brand) and fair value adjustments to the carrying amounts of assets and liabilities recognised on acquisition of foreign subsidiaries are treated as assets and liabilities of the foreign subsidiaries and are translated at the closing rate. However, goodwill of Česká spořitelna a.s. is translated at the historical FX rate as allowed by the transitional provisions in IAS 21.59.
Exchange differences arising on translation are recognised in OCI in the line ‘Currency reserve’ of the statement of comprehensive income. The accumulated OCI is presented in equity, specifically under ‘Currency reserve’ in the statement of changes in equity. On disposal of a foreign subsidiary, the cumulative amount of translation differences recognised in other comprehensive income is recognised in the statement of income under the line item ‘Other operating result’.
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 described in the notes of the respective assets and liabilities and relate in particular to:
_Taxes on income and deferred tax assets (Note 13 Taxes on income)
_SPPI assessment of financial instruments (Chapter Financial instruments – Significant accounting policies)
_Business model assessment of financial instruments (Chapter Financial instruments – Significant accounting policies)
_Financial liabilities stemming from the TLTRO programme of the ECB (Chapter Financial instruments – Significant accounting policies, Note 18 Financial liabilities at amortised cost)
_Fair value of financial instruments (Note 26 Fair value of financial instruments)
_Impairment of financial instruments (Chapter Financial instruments – Significant accounting policies, Note 37 Measurement of expected credit losses and Note 40 Scenarios used in forward looking information and crises effects)
_Impairment of non-financial assets (Chapter Non-current assets and other investments)
_Provisions (Note 54 Provisions)
_Defined employees benefit plans (Note 54 Provisions)
_Control of subsidiaries (Note 58 Subsidiaries)
_Significant influence in associates and joint control in joint ventures (Note 59 Investments in associates and joint ventures)
_Interest in structured entities (Note 60 Unconsolidated structured entities)
In 2022 the war in Ukraine, the energy crisis, inflation and interest rates developments brought additional uncertainties for Erste Group’s financial performance and position. In 2021 such additional uncertainties resulted from the Covid-19 pandemic. The potential effects include significant impacts on expected credit losses, on operating income as well as potential impacts on goodwill and other non-financial assets impairment assessments. Erste Group follows the developments closely and recognises the effects in the financial statements as a reasonable information supporting their recognition is available.
The impairment loss in the line item ‘Impairment result from financial instruments’ in the amount of EUR 299.5 million was affected by a release of impairment in the amount of EUR 183.5 million which is directly attributable to full release of the Covid-19 pandemic overlays due to diminishing of those risks during 2022. The impairment loss directly attributable to the changing macro environment and overlays reflecting additional risk in relation with current geopolitical situation – mainly the war in Ukraine and its effects on economy – amounted to EUR 377.7 million. In 2021, changes in macro environment and management actions to identify mostly affected portfolios due to Covid-19 pandemic resulted in an impairment release of EUR 39.1 million. Overall, the incremental loss allowances in the balance sheet for performing credit risk exposures which are attributable to the macro-environment and geopolitical development amount to EUR 927.8 million in 2022 (EUR 733.6 million in 2021). Details about these impacts on the expected credit losses estimation are described in Note 40 Scenarios used in forward looking information and crises effects.
32
The market capitalisation of Erste Group at year-end 2022 was below the carrying amount of the net assets. Therefore, a thorough analysis was performed to ensure the recoverability of the non-financial assets. In the course of this analysis the group has estimated the value in use on the level of the cash-generating units (CGUs). 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 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. The cash flow projection period is five years. Beyond this planning horizon the cash flows are extrapolated to perpetuity based on a terminal growth rate. For those CGUs for which the carrying amount was higher than the value in use, the fair values of the underlying non-financial assets were derived and compared with the respective book values. This analysis did not reveal any need for impairment in addition to the amounts recognised as part of the standard impairment assessment (see Note 48 Property, equipment and investment properties, Note 49 Intangible assets and note 59 Investments in associates and joint ventures).
Further, the annual impairment test on the goodwill of Česká spořitelna a.s. did not result in an impairment loss booking as the calculated recoverable amount exceeds the carrying amount. Details on the goodwill impairment test are described in Note 49 Intangible assets.
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 2022. 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 amendments of standards have become mandatory for the financial year 2022 and have been endorsed by the EU:
_Annual Improvements to IFRSs 2018-2020 Cycle (amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41)
Application of the above mentioned amendments in 2022 did not have a significant impact on Erste Group’s financial statements.
The standards and amendments shown below were issued by the IASB but are not yet effective. All of them are endorsed by the EU:
_IFRS 17: Insurance contracts
_Amendments to IAS 1: Disclosure of Accounting Policies
_Amendments to IAS 8: Definition of Accounting Estimates
_Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction
IFRS 17: Insurance contracts. IFRS 17 was issued in May 2017 and is effective for annual periods beginning on or after 1 January 2023. IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the standard. The objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts. This information gives a basis for users of financial statements to assess the effect that insurance contracts have on the entity's financial position, financial performance and cash flows. Application of these amendments is not expected to have a significant impact on Erste Group’s financial statements.
Amendments to IAS 1: Disclosure of Accounting policies. The amendments to IAS 1 were issued In February 2021 and are effective for annual periods beginning on or after 1 January 2023. The amendments specify that an entity is required to disclose its material accounting policy information. A guidance was added to explain how an entity can identify material accounting policy information and to give examples of when accounting policy information is likely to be material. Application of these amendments is not expected to have a significant impact on Erste Group’s financial statements. However, revisions in the disclosures of the accounting policies may be required.
Amendments to IAS 8: Definition of Accounting Estimates. The amendments to IAS 8 were issued in February 2021 and are effective for annual periods beginning on or after 1 January 2023. The amendments clarify how companies should distinguish changes in accounting policies from changes in accounting estimates. Application of these amendments is not expected to have a significant impact on Erste Group’s financial statements.
Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction. The amendments to IAS 12 were issued In March 2021 and are effective for annual periods beginning on or after 1 January 2023. The amendments specify that the initial recognition exemption stipulated in IAS 12.15(b) and IAS12.24 does not apply to transactions in which equal amounts of deductible and taxable temporary differences arise on initial recognition. Application of these amendments is not expected to have a significant impact on Erste Group’s financial statements.
33
Performance / Return
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 uses a matrix organisational structure with geographical segmentation and business segments. Since the chief operating decision maker performs the steering primarily based on geographical segments, those are defined as operating segments according to IFRS 8. In order to provide more comprehensive information, the performance of the business segments is reported additionally.
Geographical segmentation (operating segments)
For the purpose of segment reporting geographical segments are defined as operating segments, for which the information is presented on the basis of the booking entity's location (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 according to the local management responsibility.
Geographical areas are defined according to the core 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 segment Other that comprises the remaining business activities of Erste Group outside its core markets as well as the reconciliation to the consolidated accounting result.
The geographical area Austria consists of the following three operating 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 includes those savings banks which are members of the Haftungsverbund (cross-guarantee system) of the Austrian savings banks sector and in which Erste Group does not hold a majority stake but which are fully controlled according to IFRS 10. The fully or majority owned Erste Bank Oesterreich, Tiroler Sparkasse, Salzburger Sparkasse, and Sparkasse Hainburg are not part of the Savings Banks segment.
_The Other Austria segment comprises Erste Group Bank AG (Holding) with its Corporates and Group Markets business, Erste Group Immorent GmbH, Erste Asset Management GmbH and Intermarket Bank AG.
The geographical area Central and Eastern Europe (CEE) consists of six operating 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)
_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 service providers (facility management, IT, procurement), 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. intragroup eliminations, dividend eliminations) are also part of the segment Other. Intragroup eliminations are equal to the Intragroup eliminations shown in the business segmentation view (see the table ‘Business segments (2)’).
34
Business segmentation
Apart from geographical segments, which are Erste Group's operating segments, business segments are reported as well.
Retail. The Retail segment comprises the business with private individuals, micros and free professionals within the responsibility of account managers in the retail network. This business is operated by the local banks in cooperation with their subsidiaries such as leasing and asset management companies with a focus on simple products ranging from mortgage and consumer loans, investment products, current accounts, savings products to credit cards and cross selling products such as leasing, insurance and building society products.
Corporates. The Corporates segment comprises business done with corporate customers of different turnover size (small and medium-sized enterprises and Large Corporate customers) as well as commercial real estate and public sector business.
Group Markets. The Group Markets (GM) segment comprises trading and markets services as well as customer business with financial institutions. It includes all activities related to the trading books of Erste Group, including the execution of trade, market making and short-term liquidity management. In addition, it comprises business connected with servicing financial institutions as clients.
Asset/Liability Management & Local Corporate Center. The Asset/Liability Management & Local Corporate Center (ALM & LCC) segment includes all asset/liability management functions – local and of Erste Group Bank AG (Holding) – as well as the local corporate centers which comprise all non-core banking business activities such as internal service providers and reconciliation items to local entity results. The corporate center of Erste Group Bank AG is included in the Group Corporate Center segment.
Savings Banks. The Savings Banks segment is identical to the operating segment Savings banks.
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 service providers (facility management, IT, procurement), 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).
Intragroup Elimination. Intragroup Elimination (IC) is not defined as a segment but is the reconciliation to the consolidated accounting result. It includes 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.
Dividend elimination between Erste Group Bank AG and its fully consolidated subsidiaries is performed in Group Corporate Center. Consolidation differences arising between the segments, which are eliminated over the lifespan of the underlying transaction, are part of Group Corporate Center.
Measurement
The profit and loss statement of the segment report is based on the measures reported to the Erste Group management board for thepurpose of allocating resources to the segments and assessing their performance. Management reporting as well as the segment report of Erste Group are based on IFRS. Accounting standards and methods as well as measurements used in segment reporting are the same as for the consolidated financial statements of accounting.
Interest revenues are not reported separately from interest expenses for each reportable segment. Those measures are reported on the net basis within the position ‘Net interest income’ as interest revenues and interest expenses are neither included into the measure of segment profit or loss reviewed by the chief operating decision maker nor otherwise regularly provided to the chief operating decision maker. Chief operating decision maker relies solely on net interest income to assess the performance of the segments and make decisions about resources to be allocated to the segments. Net fee and commission income and Other operating result are reported on a net basis according to the regular reporting to the chief operating decision maker.
Capital consumption per segment is regularly reviewed by the management of Erste Group to assess the performance of the segments. The average allocated capital is determined by the credit risk, market risk, operational risk and business strategic risk. According to the regular
35
For measuring and assessing the profitability of segments within Erste Group, such key measures as return on allocated capital and cost/income ratio are used. Return on allocated capital is defined as net result for the period before minorities in relation to the average allocated capital of the respective segment. Cost/income ratio is defined 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 result, gains/losses from financial instruments measured at fair value through profit or loss, net result from equity method investments, rental income from investment properties and other operating lease).
36
Operating segments: Geographical segmentation – overview
Austria
Central and Eastern Europe
Other
Total Group
in EUR million
1-12 21
1-12 22
1-12 21
1-12 22
1-12 21
1-12 22
1-12 21
1-12 22
Net interest income
2,143.9
2,565.7
2,617.5
3,159.7
214.3
225.2
4,975.7
5,950.6
Net fee and commission income
1,345.9
1,396.3
1,043.9
1,133.6
-86.1
-77.5
2,303.7
2,452.4
Dividend income
14.4
18.3
7.9
4.3
10.9
6.6
33.2
29.1
Net trading result
33.9
-127.5
226.7
325.8
-201.9
-976.9
58.6
-778.6
Gains/losses from financial instruments at FVPL
74.3
51.6
-31.6
-66.8
130.5
746.5
173.2
731.3
Net result from equity method investments
-0.6
2.9
10.8
7.1
5.2
8.0
15.4
18.0
Rental income from investment properties & other operating leases
149.3
140.9
48.1
42.3
-15.1
-15.4
182.3
167.8
General administrative expenses
-2,163.5
-2,195.2
-1,941.3
-2,117.6
-201.7
-262.0
-4,306.5
-4,574.9
thereof depreciation and amortization
-175.0
-159.7
-267.2
-277.4
-105.9
-113.5
-548.0
-550.7
Gains/losses from derecognition of financial assets at AC
-0.8
-0.6
-7.0
-50.5
0.2
-1.0
-7.6
-52.0
Other gains/losses from derecognition of financial instruments not at FVPL
-21.7
-0.3
-1.9
-25.0
-1.5
2.0
-25.2
-23.3
Impairment result from financial instruments
-4.3
-157.6
-163.5
-134.1
9.0
-7.8
-158.8
-299.5
Other operating result
-21.1
-55.8
-175.4
-284.8
-114.0
-58.0
-310.5
-398.5
Levies on banking activities
-9.6
-41.1
-63.0
-124.1
-0.9
-21.9
-73.5
-187.1
Pre-tax result from continuing operations
1,549.5
1,638.7
1,634.2
1,994.0
-250.3
-410.3
2,933.4
3,222.4
Taxes on income
-377.6
-417.7
-330.9
-375.5
183.3
237.1
-525.2
-556.1
Net result for the period
1,171.9
1,221.0
1,303.3
1,618.4
-67.0
-173.2
2,408.1
2,666.3
Net result attributable to non-controlling interests
431.0
442.2
51.5
57.3
2.2
2.0
484.8
501.6
Net result attributable to owners of the parent
740.9
778.8
1,251.7
1,561.1
-69.3
-175.2
1,923.4
2,164.7
Operating income
3,760.9
4,048.1
3,923.3
4,605.9
57.8
-83.4
7,742.0
8,570.6
Operating expenses
-2,163.5
-2,195.2
-1,941.3
-2,117.6
-201.7
-262.0
-4,306.5
-4,574.9
Operating result
1,597.5
1,852.9
1,982.0
2,488.3
-143.9
-345.4
3,435.5
3,995.8
Risk-weighted assets (credit risk, eop)
58,570
62,673
47,178
53,151
2,711
3,458
108,459
119,282
Average allocated capital
8,348
9,712
8,573
9,913
6,308
4,660
23,229
24,284
Cost/income ratio
57.5%
54.2%
49.5%
46.0%
>100%
>100%
55.6%
53.4%
Return on allocated capital
14.0%
12.6%
15.2%
16.3%
-1.1%
-3.7%
10.4%
11.0%
Total assets (eop)
199,308
204,979
134,082
142,554
-25,962
-23,669
307,428
323,865
Total liabilities excluding equity (eop)
161,679
166,197
121,281
129,479
954
2,884
283,915
298,560
Impairments
-9.1
-157.3
-216.2
-196.1
-3.9
-24.0
-229.1
-377.4
Net impairment loss on financial assets AC/FVTOCI and finance lease receivables
34.9
-159.1
-109.5
-93.3
20.6
-19.5
-54.1
-272.0
Net impairment loss on commitments and guarantees given
-39.2
1.5
-54.0
-40.7
-11.6
11.7
-104.8
-27.6
Impairment of goodwill
0.0
0.0
0.0
-5.4
0.0
0.0
0.0
-5.4
Net impairment on investments in subsidiaries, joint ventures and associates
0.0
0.0
-3.9
-5.9
-9.8
-14.7
-13.7
-20.6
Net impairment on other non-financial assets
-4.8
0.4
-48.8
-50.7
-3.1
-1.5
-56.7
-51.8
37
Operating segments: Geographical area Austria
EBOe & Subsidiaries
Savings Banks
Other Austria
Austria
in EUR million
1-12 21
1-12 22
1-12 21
1-12 22
1-12 21
1-12 22
1-12 21
1-12 22
Net interest income
646.4
708.9
1,080.3
1,222.5
417.2
634.3
2,143.9
2,565.7
Net fee and commission income
460.1
480.1
584.5
623.1
301.3
293.1
1,345.9
1,396.3
Dividend income
6.2
6.5
5.2
8.5
2.9
3.3
14.4
18.3
Net trading result
-19.4
-58.2
-8.6
-69.7
61.8
0.4
33.9
-127.5
Gains/losses from financial instruments at FVPL
36.4
57.3
51.1
16.4
-13.3
-22.1
74.3
51.6
Net result from equity method investments
-0.1
3.3
0.0
0.0
-0.5
-0.4
-0.6
2.9
Rental income from investment properties & other operating leases
63.7
52.4
41.7
43.1
43.9
45.3
149.3
140.9
General administrative expenses
-702.7
-688.6
-1,108.8
-1,143.4
-352.0
-363.2
-2,163.5
-2,195.2
thereof depreciation and amortization
-55.7
-42.2
-82.1
-85.1
-37.2
-32.5
-175.0
-159.7
Gains/losses from derecognition of financial assets at AC
-2.0
-0.7
1.2
0.2
0.0
0.0
-0.8
-0.6
Other gains/losses from derecognition of financial instruments not at FVPL
-0.5
0.1
-0.8
0.5
-20.4
-0.9
-21.7
-0.3
Impairment result from financial instruments
-31.5
-31.1
23.8
-62.2
3.4
-64.3
-4.3
-157.6
Other operating result
-32.2
-35.1
-16.3
-25.5
27.4
4.9
-21.1
-55.8
Levies on banking activities
-4.3
-23.3
-5.2
-17.7
-0.1
-0.1
-9.6
-41.1
Pre-tax result from continuing operations
424.3
494.8
653.4
613.6
471.8
530.3
1,549.5
1,638.7
Taxes on income
-97.3
-139.7
-167.8
-157.2
-112.4
-120.8
-377.6
-417.7
Net result for the period
326.9
355.1
485.6
456.4
359.3
409.6
1,171.9
1,221.0
Net result attributable to non-controlling interests
20.3
34.9
402.4
399.5
8.2
7.9
431.0
442.2
Net result attributable to owners of the parent
306.6
320.1
83.2
56.9
351.1
401.7
740.9
778.8
Operating income
1,193.3
1,250.4
1,754.3
1,843.9
813.3
953.9
3,760.9
4,048.1
Operating expenses
-702.7
-688.6
-1,108.8
-1,143.4
-352.0
-363.2
-2,163.5
-2,195.2
Operating result
490.6
561.7
645.5
700.5
461.3
590.6
1,597.5
1,852.9
Risk-weighted assets (credit risk, eop)
15,206
15,454
26,903
27,280
16,461
19,939
58,570
62,673
Average allocated capital
1,995
2,433
3,891
4,665
2,462
2,615
8,348
9,712
Cost/income ratio
58.9%
55.1%
63.2%
62.0%
43.3%
38.1%
57.5%
54.2%
Return on allocated capital
16.4%
14.6%
12.5%
9.8%
14.6%
15.7%
14.0%
12.6%
Total assets (eop)
59,824
59,249
78,539
80,471
60,945
65,259
199,308
204,979
Total liabilities excluding equity (eop)
57,324
56,574
72,828
74,399
31,527
35,223
161,679
166,197
Impairments
-31.5
-30.8
23.0
-61.9
-0.6
-64.5
-9.1
-157.3
Net impairment loss on financial assets AC/FVTOCI and finance lease receivables
-25.8
-33.8
45.5
-67.4
15.2
-57.8
34.9
-159.1
Net impairment loss on commitments and guarantees given
-5.7
2.7
-21.7
5.3
-11.8
-6.5
-39.2
1.5
Impairment of goodwill
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Net impairment on investments in subsidiaries, joint ventures and associates
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Net impairment on other non-financial assets
0.0
0.3
-0.8
0.3
-4.0
-0.2
-4.8
0.4
38
Operating segments: Geographical area Central and Eastern Europe
Czech Republic
Slovakia
Romania
Hungary
Croatia
Serbia
Central and Eastern Europe
in EUR million
1-12 21
1-12 22
1-12 21
1-12 22
1-12 21
1-12 22
1-12 21
1-12 22
1-12 21
1-12 22
1-12 21
1-12 22
1-12 21
1-12 22
Net interest income
1,150.5
1,416.7
434.9
449.5
432.6
530.0
257.2
395.8
269.5
284.7
72.8
83.0
2,617.5
3,159.7
Net fee and commission income
358.2
386.9
174.3
192.2
176.4
191.5
207.4
222.8
107.5
117.2
20.2
23.0
1,043.9
1,133.6
Dividend income
6.5
2.7
0.6
0.6
0.7
0.8
0.1
0.2
0.1
0.0
0.0
0.0
7.9
4.3
Net trading result
67.5
152.2
9.8
23.6
77.4
123.3
37.9
-18.4
29.4
39.5
4.7
5.6
226.7
325.8
Gains/losses from financial instruments at FVPL
-4.0
-17.8
-0.8
2.3
0.5
4.5
-27.9
-54.1
0.6
-1.6
0.0
0.0
-31.6
-66.8
Net result from equity method investments
3.0
3.0
5.9
2.7
0.7
0.2
0.0
0.0
1.1
1.0
0.1
0.2
10.8
7.1
Rental income from investment properties & other operating leases
8.3
8.5
0.3
0.4
22.7
17.8
8.1
7.6
8.7
7.9
0.1
0.2
48.1
42.3
General administrative expenses
-795.3
-868.5
-292.4
-307.1
-339.7
-381.2
-230.7
-246.8
-217.8
-239.6
-65.4
-74.4
-1,941.3
-2,117.6
thereof depreciation and amortization
-106.1
-110.8
-33.4
-34.6
-43.8
-52.1
-45.0
-41.3
-33.1
-32.6
-5.9
-5.9
-267.2
-277.4
Gains/losses from derecognition of financial assets at AC
-9.3
-49.7
0.0
0.0
0.0
0.0
2.4
-0.4
0.0
0.0
-0.1
-0.3
-7.0
-50.5
Other gains/losses from derecognition of financial instruments not at FVPL
-0.2
-25.8
-2.6
-0.5
0.0
0.0
0.8
1.1
0.1
0.1
0.0
0.0
-1.9
-25.0
Impairment result from financial instruments
-69.4
-25.9
-1.1
-32.1
-46.4
-79.8
-16.2
-18.4
-22.2
42.2
-8.2
-20.0
-163.5
-134.1
Other operating result
-66.5
-67.9
-15.5
-11.4
-32.8
-37.3
-60.2
-138.6
5.2
-27.1
-5.6
-2.5
-175.4
-284.8
Levies on banking activities
0.0
0.0
0.0
0.0
0.0
0.0
-63.0
-124.1
0.0
0.0
0.0
0.0
-63.0
-124.1
Pre-tax result from continuing operations
649.3
914.4
313.3
320.2
292.0
369.6
178.9
150.6
182.2
224.4
18.4
14.7
1,634.2
1,994.0
Taxes on income
-145.1
-155.9
-75.4
-70.9
-55.6
-72.7
-22.9
-25.6
-30.9
-49.9
-1.0
-0.6
-330.9
-375.5
Net result for the period
504.2
758.6
237.9
249.3
236.4
297.0
156.0
125.1
151.3
174.5
17.4
14.1
1,303.3
1,618.4
Net result attributable to non-controlling interests
0.1
0.1
0.0
0.0
0.3
0.3
0.0
0.0
47.6
54.1
3.6
2.8
51.5
57.3
Net result attributable to owners of the parent
504.1
758.5
237.9
249.3
236.1
296.6
156.0
125.1
103.7
120.4
13.9
11.2
1,251.7
1,561.1
Operating income
1,589.9
1,952.3
625.0
671.3
710.9
867.9
482.7
553.8
416.9
448.7
97.9
111.9
3,923.3
4,605.9
Operating expenses
-795.3
-868.5
-292.4
-307.1
-339.7
-381.2
-230.7
-246.8
-217.8
-239.6
-65.4
-74.4
-1,941.3
-2,117.6
Operating result
794.6
1,083.8
332.6
364.2
371.2
486.7
252.0
306.9
199.1
209.2
32.4
37.5
1,982.0
2,488.3
Risk-weighted assets (credit risk, eop)
19,634
22,374
8,105
9,232
7,319
8,529
4,272
5,116
6,168
6,071
1,680
1,829
47,178
53,151
Average allocated capital
3,034
3,848
1,282
1,488
1,723
1,800
1,205
1,248
1,071
1,232
259
297
8,573
9,913
Cost/income ratio
50.0%
44.5%
46.8%
45.8%
47.8%
43.9%
47.8%
44.6%
52.2%
53.4%
66.9%
66.5%
49.5%
46.0%
Return on allocated capital
16.6%
19.7%
18.6%
16.8%
13.7%
16.5%
13.0%
10.0%
14.1%
14.2%
6.7%
4.7%
15.2%
16.3%
Total assets (eop)
66,045
68,002
23,157
23,752
18,238
19,972
11,569
12,717
12,262
14,980
2,812
3,132
134,082
142,554
Total liabilities excluding equity (eop)
60,284
62,292
21,104
21,566
16,273
17,738
10,339
11,601
10,792
13,519
2,489
2,763
121,281
129,479
Impairments
-92.6
-71.7
-3.5
-35.8
-68.8
-85.9
-15.6
-24.2
-27.4
41.4
-8.2
-20.0
-216.2
-196.1
Net impairment loss on financial assets AC/FVTOCI and finance lease receivables
-57.2
-29.6
7.3
-35.8
-34.1
-66.7
-16.5
-14.4
-1.0
70.5
-8.0
-17.3
-109.5
-93.3
Net impairment loss on commitments and guarantees given
-12.2
3.7
-8.4
3.7
-12.3
-13.1
0.4
-4.1
-21.2
-28.3
-0.2
-2.7
-54.0
-40.7
Impairment of goodwill
0.0
0.0
0.0
0.0
0.0
0.0
0.0
-5.4
0.0
0.0
0.0
0.0
0.0
-5.4
Net impairment on investments in subsidiaries, joint ventures and associates
0.0
0.0
-3.9
-5.9
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
-3.9
-5.9
Net impairment on other non-financial assets
-23.2
-45.8
1.5
2.2
-22.4
-6.0
0.6
-0.4
-5.2
-0.7
0.0
0.0
-48.8
-50.7
39
Business segments (1)
Retail
Corporates
Group Markets
ALM&LCC
in EUR million
1-12 21
1-12 22
1-12 21
1-12 22
1-12 21
1-12 22
1-12 21
1-12 22
Net interest income
2,102.4
2,643.0
1,190.7
1,541.8
205.8
526.3
223.2
-282.6
Net fee and commission income
1,206.6
1,270.2
332.5
369.9
289.9
289.0
-85.6
-84.0
Dividend income
0.4
0.0
0.5
0.0
0.1
2.7
16.1
11.4
Net trading result
121.6
158.1
100.5
149.2
120.2
55.7
-206.2
-914.9
Gains/losses from financial instruments at FVPL
-30.9
-58.6
-0.7
3.7
-10.1
-33.4
179.8
818.3
Net result from equity method investments
7.0
3.4
0.0
3.3
0.0
0.0
3.1
3.2
Rental income from investment properties & other operating leases
24.0
5.7
109.6
111.1
0.4
0.4
24.7
26.1
General administrative expenses
-2,111.8
-2,227.1
-543.7
-592.4
-237.3
-245.9
-124.1
-122.3
thereof depreciation and amortization
-270.0
-259.2
-63.8
-69.1
-17.5
-13.5
-9.2
-10.8
Gains/losses from derecognition of financial assets at AC
-2.6
-1.7
0.2
0.0
0.0
0.0
-4.3
-50.0
Other gains/losses from derecognition of financial instruments not at FVPL
0.0
0.0
0.6
0.8
-0.1
-0.2
-28.0
-26.1
Impairment result from financial instruments
-122.4
-135.0
-60.0
-105.0
-5.6
0.7
-2.3
6.3
Other operating result
-55.6
-100.9
-12.5
-56.9
-27.5
-34.3
-105.5
-155.1
Levies on banking activities
-41.0
-80.1
-23.2
-39.2
-4.9
-10.1
1.7
-18.1
Pre-tax result from continuing operations
1,138.7
1,557.1
1,117.7
1,425.6
335.8
561.1
-109.0
-769.6
Taxes on income
-217.6
-306.2
-214.9
-280.6
-70.5
-112.6
-27.0
125.2
Net result for the period
921.1
1,251.0
902.8
1,145.0
265.4
448.5
-136.0
-644.4
Net result attributable to non-controlling interests
31.3
33.2
44.4
62.5
4.8
4.6
-0.4
-0.2
Net result attributable to owners of the parent
889.7
1,217.7
858.4
1,082.5
260.6
443.9
-135.6
-644.2
Operating income
3,431.1
4,021.8
1,733.1
2,179.1
606.3
840.7
155.1
-422.3
Operating expenses
-2,111.8
-2,227.1
-543.7
-592.4
-237.3
-245.9
-124.1
-122.3
Operating result
1,319.3
1,794.7
1,189.4
1,586.7
369.0
594.8
31.0
-544.6
Risk-weighted assets (credit risk, eop)
21,808
22,458
47,329
55,858
3,305
3,600
6,704
7,269
Average allocated capital
3,641
3,791
5,330
5,841
1,104
1,102
4,420
5,917
Cost/income ratio
61.5%
55.4%
31.4%
27.2%
39.1%
29.2%
80.0%
-29.0%
Return on allocated capital
25.3%
33.0%
16.9%
19.6%
24.0%
40.7%
-3.1%
-10.9%
Total assets (eop)
71,408
74,941
64,742
76,016
47,772
47,665
84,054
84,692
Total liabilities excluding equity (eop)
111,352
113,825
36,989
41,625
41,902
44,638
60,682
65,218
Impairments
-121.6
-154.0
-83.8
-121.1
-5.6
0.7
-36.8
-20.5
Net impairment loss on financial assets AC/FVTOCI and finance lease receivables
-123.7
-148.4
5.7
-44.5
0.1
1.5
-0.8
3.0
Net impairment loss on commitments and guarantees given
1.4
13.4
-65.7
-60.5
-5.8
-0.8
-1.5
3.2
Impairment of goodwill
0.0
-5.0
0.0
0.0
0.0
0.0
0.0
-0.4
Net impairment on investments in subsidiaries, joint ventures and associates
0.0
-0.2
0.2
-0.1
0.0
0.0
-4.1
-5.6
Net impairment on other non-financial assets
0.8
-13.9
-24.0
-16.0
0.0
0.0
-30.4
-20.7
40
Business segments (2)
Savings Banks
Group Corporate Center
Intragroup Elimination
Total Group
in EUR million
1-12 21
1-12 22
1-12 21
1-12 22
1-12 21
1-12 22
1-12 21
1-12 22
Net interest income
1,080.3
1,222.5
100.5
137.7
72.7
161.8
4,975.7
5,950.6
Net fee and commission income
584.5
623.1
5.9
12.4
-30.1
-28.3
2,303.7
2,452.4
Dividend income
5.2
8.5
10.9
6.6
0.0
0.0
33.2
29.1
Net trading result
-8.6
-69.7
-11.9
-17.0
-57.1
-140.0
58.6
-778.6
Gains/losses from financial instruments at FVPL
51.1
16.4
-15.9
-15.1
0.0
0.0
173.2
731.3
Net result from equity method investments
0.0
0.0
5.2
8.0
0.0
0.0
15.4
18.0
Rental income from investment properties & other operating leases
41.7
43.1
-17.7
-17.9
-0.4
-0.8
182.3
167.8
General administrative expenses
-1,108.8
-1,143.4
-904.2
-963.9
723.4
720.1
-4,306.5
-4,574.9
thereof depreciation and amortization
-82.1
-85.1
-126.6
-134.3
21.1
21.3
-548.0
-550.7
Gains/losses from derecognition of financial assets at AC
1.2
0.2
1.2
-0.4
-3.4
-0.1
-7.6
-52.0
Other gains/losses from derecognition of financial instruments not at FVPL
-0.8
0.5
0.0
1.6
3.2
0.1
-25.2
-23.3
Impairment result from financial instruments
23.8
-62.2
7.7
-4.3
0.0
0.0
-158.8
-299.5
Other operating result
-16.3
-25.5
615.2
687.0
-708.3
-712.8
-310.5
-398.5
Levies on banking activities
-5.2
-17.7
-0.9
-21.9
0.0
0.0
-73.5
-187.1
Pre-tax result from continuing operations
653.4
613.6
-203.3
-165.3
0.0
0.0
2,933.4
3,222.4
Taxes on income
-167.8
-157.2
172.6
175.2
0.0
0.0
-525.2
-556.1
Net result for the period
485.6
456.4
-30.7
9.9
0.0
0.0
2,408.1
2,666.3
Net result attributable to non-controlling interests
402.4
399.5
2.2
2.0
0.0
0.0
484.8
501.6
Net result attributable to owners of the parent
83.2
56.9
-32.9
7.9
0.0
0.0
1,923.4
2,164.7
Operating income
1,754.3
1,843.9
76.9
114.7
-14.8
-7.3
7,742.0
8,570.6
Operating expenses
-1,108.8
-1,143.4
-904.2
-963.9
723.4
720.1
-4,306.5
-4,574.9
Operating result
645.5
700.5
-827.3
-849.1
708.5
712.8
3,435.5
3,995.8
Risk-weighted assets (credit risk, eop)
26,903
27,280
2,411
2,818
0
0
108,459
119,282
Average allocated capital
3,891
4,665
4,843
2,968
0
0
23,229
24,284
Cost/income ratio
63.2%
62.0%
>100%
>100%
>100%
>100%
55.6%
53.4%
Return on allocated capital
12.5%
9.8%
-0.6%
0.3%
10.4%
11.0%
Total assets (eop)
78,539
80,471
3,597
5,464
-42,684
-45,385
307,428
323,865
Total liabilities excluding equity (eop)
72,828
74,399
2,903
4,281
-42,741
-45,426
283,915
298,560
Impairments
23.0
-61.9
-4.4
-20.5
0.0
0.0
-229.1
-377.4
Net impairment loss on financial assets AC/FVTOCI and finance lease receivables
45.5
-67.4
19.1
-16.2
0.0
0.0
-54.1
-272.0
Net impairment loss on commitments and guarantees given
-21.7
5.3
-11.4
11.8
0.0
0.0
-104.8
-27.6
Impairment of goodwill
0.0
0.0
0.0
0.0
0.0
0.0
0.0
-5.4
Net impairment on investments in subsidiaries, joint ventures and associates
0.0
0.0
-9.8
-14.7
0.0
0.0
-13.7
-20.6
Net impairment on other non-financial assets
-0.8
0.3
-2.3
-1.5
0.0
0.0
-56.7
-51.8
41
2.Net interest income
Net interest income is broken down into line items of interest income, other similar income, interest expenses and other similar expenses. The distinguishing factor is whether the EIR method is mandatorily applied for recognition of interest income or expense in accordance with IFRS 9.
‘Interest income’ relates to interest revenue from financial assets measured at amortised cost and at fair value through other comprehensive income. It is calculated using the EIR method as discussed in chapter ‘Financial instruments – Significant accounting policies’.
‘Other similar income’ captures interest-like sources of income resulting from non-derivative financial assets measured at fair value through profit or loss, held for trading derivatives, hedge accounting derivatives, finance lease receivables and negative interest on financial liabilities. Negative interest on financial liabilities also includes fees which are charged on deposits from corporate customers based on a specific percentage of outstanding balances.
‘Interest expenses’ relate to interest expense from financial liabilities measured at amortised cost calculated using effective interest rate as discussed in chapter ‘Financial instruments – Significant accounting policies’.
‘Other similar expenses’ capture interest-like sources of expense resulting from non-derivative financial liabilities measured at fair value through profit or loss, held for trading derivatives, hedge accounting derivatives, negative interest on financial assets, lease liabilities, provisions recognised under IFRS 9 and IAS 37 (unwinding of the time value of the money effect due to passage of time) and net defined liabilities (net interest cost on severance payments, pensions and jubilee obligations) under IAS 19.
As regards types of financial instruments, interest income and other similar income include interest income on loans and advances to banks and customers, on cash balances, on debt securities in all measurement categories of financial assets, on trade and other receivables and on finance lease receivables. Interest expenses and other similar expenses include interest paid on deposits from customers, deposits from banks, debt securities issued and other financial liabilities in all measurement categories of financial liabilities and interest paid on lease liabilities. Net interest income also includes interest on derivative financial instruments.
Interest income also includes modification gains and losses recognised on financial assets in Stage 1. Further, the unamortised balance of the origination fees/transaction costs upon derecognition of assets in Stage 1 and 2 considered in the effective interest rate is presented as interest income at the derecognition date.
1-12 21
1-12 22
Financial assets at AC
4,939.8
8,378.4
Financial assets at FVOCI
169.0
244.3
Interest income
5,108.9
8,622.7
Non-trading financial assets at FVPL
58.0
65.6
Financial assets HfT
1,005.0
2,344.8
Hedge accounting derivatives, interest rate risk
-19.8
-118.7
Other assets
116.7
130.9
Negative interest from financial liabilities
316.5
194.9
Other similar income
1,476.5
2,617.6
Interest and other similar income
6,585.4
11,240.3
Financial liabilities at AC
-483.8
-2,569.2
Interest expenses
-483.8
-2,569.2
Financial liabilities at FVPL
-272.6
-257.3
Financial liabilities HfT
-785.0
-2,367.2
Hedge accounting derivatives, interest rate risk
121.8
38.1
Other liabilities
-19.1
-30.2
Negative interest from financial assets
-170.9
-103.9
Other similar expenses
-1,125.9
-2,720.5
Interest and other similar expenses
-1,609.7
-5,289.7
Net interest income
4,975.7
5,950.6
An amount of EUR 99.9 million (2021: EUR 80.2 million) relating to impaired financial assets is included in interest income.
The amounts disclosed in the line items ‘Negative interest from financial liabilities’ and ‘Negative interest from financial assets’ largely relate to the interbank business, deposits and refinancing with central banks.
In 2022 interest expense on financial liabilities at AC includes catch-up loss from TLTRO III in the amount of EUR 129.3 million. In 2021 negative interest from financial liabilities at AC includes catch-up gains from TLTRO III in the amount of EUR 93.0 million. For more details refer to Note 18 Financial liabilities at amortised costs.
42
3.Net fee and commission income
Erste Group earns fee and commission income from a diverse range of services that it provides to its customers. Fee and commission income is measured based on the consideration specified in the contract with a customer. Erste Group recognises revenue when it transfers a promised service to a customer.
Fees earned for the provision of services over a period of time are accrued over that period. These fees include commitment fees, premiums received for financial guarantees and other fees from lending business, commission income from asset management, custody and other management and advisory fees. Services provided over a period of time also include certain payment services like periodic card fees.
Fee income earned from providing transaction services, such as arranging the acquisition and sale of shares or other securities on behalf of customers or foreign exchange transactions, as well as commission income earned from services such as the sale of collective investments and insurance products, are recognised upon completion of the underlying transaction. Transaction based services also include certain payment services like withdrawal fees.
A contract with a customer that results in the recognition of a financial instrument in the Group’s financial statements may be partially in the scope of IFRS 9 and partially in the scope of IFRS 15. If this is the case, then Erste Group first applies IFRS 9 to separate and measure the part of the contract that is in the scope of IFRS 9 and then applies IFRS 15 to the residual. For example, loan servicing fees agreed in a loan contract that are not integral to the effective interest rate of a financial instrument are included in the net fee and commission income.
43
1-12 21
1-12 22
in EUR million
Income
Expenses
Income
Expenses
Securities
282.2
-57.0
281.6
-56.1
Issues
37.8
-5.4
47.2
-1.3
Transfer orders
229.6
-40.1
216.7
-42.8
Other
14.8
-11.5
17.7
-12.0
Clearing and settlement
1.6
-3.6
1.9
-4.4
Asset management
508.0
-52.9
524.3
-48.8
Custody
133.0
-14.6
123.4
-16.0
Fiduciary transactions
1.3
0.0
1.3
0.0
Payment services
1,212.7
-205.3
1,340.1
-236.5
Card business
351.2
-133.5
406.4
-157.8
Other
861.6
-71.8
933.7
-78.7
Customer resources distributed but not managed
261.9
-8.1
274.1
-8.3
Collective investment
29.1
-2.1
24.2
-1.9
Insurance products
201.2
-1.3
210.7
-0.7
Foreign exchange transactions
29.2
-2.0
36.5
-2.9
Other
2.4
-2.7
2.7
-2.8
Structured finance
1.0
0.0
0.5
0.0
Servicing fees from securitization activities
0.0
-2.0
0.4
-1.1
Lending business
206.2
-46.3
218.2
-38.2
Guarantees given, guarantees received
79.1
-2.4
93.8
-3.4
Loan commitments given, loan commitments received
40.0
-1.0
42.9
-1.3
Other lending business
87.1
-42.9
81.5
-33.4
Other
114.0
-28.6
123.0
-26.9
Total fee and commission income and expenses
2,722.1
-418.5
2,888.7
-436.3
Net fee and commission income
2,303.7
2,452.4
Dividend income is recognised when the right to receive the payment is established. This line item includes dividends from all shares and other equity investments, i.e. from those that are held for trading, non-trading equity instruments at FVPL and at FVOCI.
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 and gains and losses from their derecognition. Further, the net trading result includes any ineffective portions recorded in fair value and cash flow hedge transactions. Also, foreign exchange gains and losses on all monetary assets and liabilities and from spot currency conversions are included here.
44
1-12 21
1-12 22
Result from measurement/sale of financial assets designated at FVPL
-11.0
-18.8
Result from measurement/repurchase of financial liabilities designated at FVPL
207.8
939.6
Result from financial assets and liabilities designated at FVPL
196.7
920.8
Result from measurement/sale of financial assets mandatorily at FVPL
-23.5
-189.5
Gains/losses from financial instruments measured at fair value through profit or loss
173.2
731.3
Rental income from investment properties and other operating leases is recognised on a straight-line basis over the lease term. Operating expenses for investment properties are reported in line item ‘Other operating result’. For further details we refer to Note 12 Other operating result.
Personnel expenses
Personnel expenses include wages and salaries, expenses for variable remuneration, statutory and voluntary social security contributions, staff-related taxes and levies. They also include service costs for severance payments, pension and jubilee obligations and remeasurements of jubilee obligations. Furthermore, restructuring provision expenses may be part of personnel expenses.
Information about remuneration of management including performance-linked remuneration can be found in Note 61 Related-party transactions. Information about share-based payments to the management board and to employees can be found in Note 62 Share-based payments.
Other administrative expenses
Other administrative expenses include primarily information technology expenses, expenses for office space, office operating expenses, advertising and marketing, and expenditures for legal and other consultants. Furthermore, the line item contains deposit insurance contributions. Restructuring provision expenses may also be presented in other administrative expenses.
Depreciation and amortisation
This line item comprises depreciation of property and equipment, depreciation of investment property and amortisation of intangible assets. In the line item ‘Depreciation and amortisation’, also the depreciation of right-of-use assets according to IFRS 16 is disclosed.
45
1-12 21
1-12 22
Personnel expenses
-2,578.1
-2,668.0
Wages and salaries
-1,960.5
-2,049.1
Compulsory social security
-483.3
-487.9
Long-term employee provisions
-14.0
0.5
Other personnel expenses
-120.4
-131.5
Other administrative expenses
-1,180.3
-1,356.2
Deposit insurance contribution
-122.4
-142.9
IT expenses
-433.0
-487.8
Expenses for office space
-156.3
-186.2
Office operating expenses
-121.8
-151.7
Advertising/marketing
-167.5
-192.9
Legal and consulting costs
-118.4
-125.6
Sundry administrative expenses
-60.8
-69.1
Depreciation and amortisation
-548.0
-550.7
Software and other intangible assets
-193.3
-192.4
Owner occupied real estate
-150.0
-160.6
Investment properties
-30.4
-29.3
Customer relationships
-7.6
-7.3
Office furniture and equipment and sundry property and equipment
-166.8
-161.2
General administrative expenses
-4,306.5
-4,574.9
Personnel expenses include expenses of EUR 47.9 million (2021: EUR 44.1 million) for defined contribution plans.
Average number of employees during the financial period (weighted according to the level of employment)
1-12 21
1-12 22
Austria
15,829
15,686
Erste Group Bank AG, Erste Bank Oesterreich and subsidiaries
8,726
8,561
Savings banks
7,103
7,125
Outside Austria
29,305
29,271
Česká spořitelna Group
9,742
9,846
Banca Comercială Română Group
5,480
5,303
Slovenská sporiteľňa Group
3,701
3,618
Erste Bank Hungary Group
3,228
3,272
Erste Bank Croatia Group
3,287
3,240
Erste Bank Serbia Group
1,205
1,212
Savings banks subsidiaries
1,464
1,523
Other subsidiaries and foreign branch offices
1,197
1,257
Total
45,134
44,957
This line item includes selling and other derecognition gains or losses on financial assets measured at amortised cost. However, if such gains/losses relate to derecognition of financial assets in Stage 3, they are included in the line item ‘Impairment result from financial instruments’.
10.Other gains/losses from derecognition of financial instruments not measured at fair value through profit or loss
This line item includes selling and other derecognition gains or losses on financial assets at FVOCI, financial liabilities measured at amortised cost and other financial instruments not measured at FVPL, such as finance lease receivables or financial guarantees. However, if such gains/losses relate to financial assets in Stage 3 they are included in the line item ‘Impairment result from financial instruments’.
1-12 21
1-12 22
Sale of financial assets at FVOCI
-4.8
-24.2
Derecognition of financial liabilities at AC
-20.4
0.9
Other gains/losses from derecognition of financial instruments not measured at fair value through profit or loss
-25.2
-23.3
Net impairment losses on financial instruments comprise impairment losses and reversals of impairment on all kinds of financial instruments, to which the IFRS 9 expected credit loss impairment model applies. The impairment result also includes recoveries on written-off financial
46
1-12 21
1-12 22
Financial assets at FVOCI
2.1
-1.1
Financial assets at AC
-70.0
-292.6
Net allocation to credit loss allowances
-130.8
-355.0
Direct write-offs
-11.8
-8.8
Recoveries recorded directly to the income statement
88.3
78.8
Modification gains or losses
-15.7
-7.6
Finance lease receivables
13.9
21.8
Net allocation to credit loss allowances
11.7
18.6
Direct write-offs
-0.3
-0.2
Recoveries recorded directly to the income statement
2.5
3.3
Credit loss allowances for loan commitments and financial guarantees given
-104.8
-27.6
Impairment result from financial instruments
-158.8
-299.5
In the following table, the change of the credit loss allowance recognised in balance sheet is compared to the impairment result from financial instruments.
Changes of credit loss allowances
in EUR million
Impairment result of financial instruments
Other changes through profit or loss
Changes not affecting profit or loss
Total
Credit loss allowances Jan 22
-4,447.1
Net allocation to credit loss allowances
-378.9
-378.9
Increase due to passage of time (unwinding correction)
-91.2
-91.2
Derecognition due to sales
43.7
43.7
Write-offs
380.6
380.6
Changes in scope of consolidation
-1.9
-1.9
Foreign exchange differences
-10.7
-10.7
Other
-0.7
-0.7
Credit loss allowances Dec 22
-4,506.2
Impairment gains or losses on POCIs without CLA
13.8
Direct write-offs
-8.9
Recoveries recorded directly to the income statement
82.1
Modification gains or losses
-7.6
Impairment result from financial instruments
-299.5
Changes of credit loss allowances
in EUR million
Impairment result of financial instruments
Other changes through profit or loss
Changes not affecting profit or loss
Total
Credit loss allowances Jan 21
-4,446.5
Net allocation to credit loss allowances
-241.7
-241.7
Increase due to passage of time (unwinding correction)
-70.7
-70.7
Derecognition due to sales
62.0
62.0
Write-offs
295.6
295.6
Changes in scope of consolidation
-15.5
-15.5
Foreign exchange differences
-31.5
-31.5
Other
1.2
1.2
Credit loss allowances Dec 21
-4,447.1
Impairment gains or losses on POCIs without CLA
19.9
Direct write-offs
-12.1
Recoveries recorded directly to the income statement
90.8
Modification gains or losses
-15.7
Impairment result from financial instruments
-158.8
47
In addition, the other operating result encompasses the following: resolution fund contributions, expenses for other taxes as well as selling gains and losses on equity investments accounted for using the equity method and gains or losses from derecognition of subsidiaries.
Furthermore, levies on banking activities are considered as part of the other operating result. Erste Group recognises a liability or a provision for the levy when the activity that triggers payment, as identified by the relevant legislation, occurs.
1-12 21
1-12 22
Other operating expenses
-392.8
-520.2
Allocation to other provisions
-198.0
-176.0
Levies on banking activities
-73.5
-187.1
Banking tax
-25.5
-128.0
Financial transaction tax
-48.0
-59.2
Other taxes
-12.7
-12.5
Resolution fund contributions
-108.6
-139.1
Impairment of goodwill
0.0
-5.4
Other operating income
203.1
222.3
Release of other provisions
203.1
222.3
Result from properties and equipment, investment properties and other intangible assets
-24.3
-18.6
Result from other operating expenses/income
-96.5
-81.9
Other operating result
-310.5
-398.5
The increase in banking taxes is due to a new windfall profit tax of EUR 49.9 million in Hungary, which is based on the net revenues of the preceding year, as well as aperiodic effects in Austria.
Operating expenses (including repair and maintenance) for investment properties held for rental income totalled to EUR 36.0 million (2021: EUR 36.1 million).
Income from reversal of impairment for assets held for sale in the amount of EUR 0.0 million (2021: EUR 1.4 million) is recognised under ‘Result from other operating expenses/income’.
Current and deferred taxes are recognised as income or an expense and included in profit or loss for the period. However, they are recognised in other comprehensive income or directly in equity if they arise from a transaction or event which itself is recognised in OCI or equity.
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.
Coupon payments made to the holders of Additional Tier 1 equity instruments issued by Erste Group Bank AG are tax-deductible interest payments under the Austrian Tax Regulations. Since the AT1 coupons are considered as distributions of profit the income tax effects are recognised in profit or loss.
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 (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. In Austria, tax rates are considered substantively enacted when they have been decided by the National Assembly. For subsidiaries, the local tax environments are considered.
48
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.
Significant accounting judgements, assumptions and estimates
The determination of tax bases are underlying a general level of uncertainty by nature, as interpretation of tax legislation might require judgement. 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 they 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.
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.
1-12 21
1-12 22
Current tax expense/income
-545.3
-577.9
current period
-520.7
-569.2
prior period
-24.6
-8.8
Deferred tax expense/income
20.1
21.8
current period
15.5
16.3
prior period
4.5
5.5
Total
-525.2
-556.1
The following table reconciles the income taxes reported in the income statement to the pre-tax result from continuing operations multiplied by the nominal Austrian tax rate.
1-12 21
1-12 22
Pre-tax result from continuing operations
2,933.4
3,222.4
Income tax expense for the financial year at the Austrian statutory tax rate (25%)
-733.3
-805.6
Impact of different foreign tax rates
149.0
161.4
Impact of tax-exempt earnings of investments and other tax-exempt income
127.8
178.5
Tax increases due to non-deductible expenses, additional business tax and similar elements
-170.9
-216.0
Impact on deferred taxes from topics on Group level
-171.8
13.4
Current period's recognition through P&L of DTA from tax losses, assessed non-recoverable at the end of the prior period
313.4
107.8
Current period's impairment of DTA recognized in prior periods through P&L
-2.4
0.0
Current period's recognition through P&L of DTA from temporary differences, assessed non-recoverable at the end of the prior period
0.2
71.6
Impact of current non-recoverable fiscal losses and temporary differences for the year
-6.8
-3.1
Tax expense/income not attributable to the reporting period
-20.0
-3.2
Tax expense/income from changes of the tax rate or the imposition of new taxes
0.0
-21.4
Tax expense/income attributable to other effects
-10.4
-39.5
Total
-525.2
-556.1
The adverse impact of EUR -21.4 million reported in the above effective tax reconciliation table for the financial year 2022 as ‘tax expense/income from changes of the tax rate or the imposition of new taxes’ (2021: EUR 0 million) is triggered by the upcoming decreases in the corporate income tax rate in the Austrian jurisdiction, as legally enacted in January 2022. Thus, in accordance with the related legislative amendments to the Austrian Fiscal Code, the Austrian corporate income tax rate of 25%, which has continued to apply for the fiscal year 2022, is reduced to 24% for the fiscal year 2023 and further reduced to 23% from the fiscal year 2024 onwards. Consequently, the deferred tax income and expenses related to temporary differences arising during the financial year 2022 at the level of the Group entities that are fiscal subjects of the Austrian jurisdiction - as well as the deferred tax positions already recognized by these entities at the end of the year 2021 and expected to become tax effective starting with the year 2023 onwards - have been calculated - and respectively recalculated - using the newly applicable tax rates accordingly. The main reason why the combined ensuing effect is adverse despite the decreasing applicable tax rates consists of the fact that the combined deferred tax position of Group’s Austrian entities at the end of the year 2021 was a deferred tax asset that was downwards adjusted based on the newly applicable future tax rates, mostly 23%.
The main contributing factor to the increase in the adverse impact of the ‘tax expense attributable to other effects’ from EUR -10.4 million (2021) to EUR -39.5 million (2022) is the ‘windfall tax’ on ‘excess-profit’ applicable in the Croatian jurisdiction for the fiscal year 2022 (EUR -12.1 million). There has also been a significant increase in the amount of the local business and innovation tax charged in the Hungarian jurisdiction (from EUR -11.9 million in 2021 to EUR -15.8 million in 2022). The total amount of the ‘tax expense attributable to other effects’ for 2022 additionally includes an adverse effect of EUR -5.6 million arising from the internal offsetting of the single-level current and prior taxable results of the Austrian member entities of the tax group headed by Erste Group Bank AG.
The following table shows the income tax effects relating to each component of other comprehensive income:
49
1-12 21
1-12 22
in EUR million
Pre-tax amount
Income tax
Net-of-tax amount
Pre-tax amount
Income tax
Net-of-tax amount
Fair value reserve of equity instruments
20.4
-5.0
16.4
-33.1
8.5
-24.6
Fair value reserve of debt instruments
-188.3
36.6
-151.6
-560.4
113.4
-447.0
Own credit risk reserve
82.3
-5.7
76.5
239.3
-56.9
182.4
Cash flow hedge reserve
-298.4
56.9
-241.5
9.9
-0.9
8.9
Remeasurement of defined benefit plans
28.6
-4.5
24.1
99.3
-16.9
82.4
Currency reserve
271.0
0.0
271.0
79.0
0.0
79.0
Share of other comprehensive income of associates and joint ventures accounted for by the equity method
0.0
0.0
0.0
-0.4
0.0
-0.4
Other comprehensive income
-84.4
78.3
-5.2
-166.5
47.2
-119.3
Taxes on income within other comprehensive income are influenced by the consideration of the result of recoverability assessments allocated against OCI-related deferred tax assets. The allocation of the result of recoverability assessments is based on Erste Group’s methodology of allocating non-recoverable deferred tax assets per P&L and OCI. This approach proportionately reflects how the underlying temporary differences arose from IFRS-based adjustments of the accounting values of the related items.
Besides, the income tax related to the fair value reserve and the cash flow hedge reserve is influenced by differences of tax rates applicable on contrary changes within the fair value reserve.
Major components of deferred tax assets and deferred tax liabilities
Tax assets
Tax liabilities
Net variance 2022
in EUR million
Dec 22
Jan 22
Dec 22
Jan 22
Total
Profit or loss
Other comprehensive income
Temporary differences related to the following items:
Financial assets and liabilities HfT and non-trading financial assets and liabilities at FVPL
219
202
-317
-233
-68
-11
-57
Financial assets at FVOCI
115
4
-6
-61
167
44
123
Financial assets at AC and finance lease receivables
636
273
-211
-149
301
299
0
Hedge accounting derivatives
80
120
-51
-32
-58
-57
-1
Property, plant and equipment
22
20
-114
-111
-2
-2
0
Equity Investments in subsidiaries, associates and joint-ventures
47
28
-3
-8
23
23
0
Financial liabilities at AC
274
201
-395
-31
-290
-290
0
Long-term employee provisions (tax valuation different)
114
130
-3
-3
-16
0
-17
Other provisions (tax valuation different)
58
72
-2
-2
-14
-14
0
Customer relationships, brands and other intangibles
3
3
-78
-86
8
8
0
Other
146
227
-47
-53
-75
-74
0
Non-recoverable tax position from temporary differences
-94
-147
0
0
53
53
0
Deferred tax position from accumulated tax loss carried forward after recoverability considerations
219
178
0
0
42
42
0
Effect of netting according IAS 12.71
-1,211
-750
1,211
750
0
0
0
Total deferred taxes
629
562
-16
-19
70
22
48
Current taxes
109
135
-127
-144
-10
-578
0
Total taxes
738
697
-143
-162
60
-556
48
Tax assets
Tax liabilities
Net variance 2021
in EUR million
Dec 21
Jan 21
Dec 21
Jan 21
Total
Profit or loss
Other comprehensive income
Temporary differences related to the following items:
Financial assets and liabilities HfT and non-trading financial assets and liabilities at FVPL
202
319
-233
-305
-45
-37
-8
Financial assets at FVOCI
4
0
-61
-62
4
-31
32
Financial assets at AC and finance lease receivables
273
314
-149
-119
-71
-73
0
Hedge accounting derivatives
120
87
-32
-48
49
-8
57
Property, plant and equipment
20
27
-111
-112
-6
-5
0
Equity Investments in subsidiaries, associates and joint-ventures
28
45
-8
-8
-17
-17
0
Financial liabilities at AC
201
214
-31
-38
-6
-7
0
Long-term employee provisions (tax valuation different)
130
148
-3
-3
-19
-14
-5
Other provisions (tax valuation different)
72
104
-2
-2
-32
-32
0
Customer relationships, brands and other intangibles
3
4
-86
-88
1
2
0
Other
227
134
-53
-60
101
101
0
Non-recoverable tax position from temporary differences
-147
-161
0
0
14
12
2
Deferred tax position from accumulated tax loss carried forward after recoverability considerations
178
48
0
0
129
129
0
Effect of netting according IAS 12.71
-750
-823
750
823
0
0
0
Total deferred taxes
562
460
-19
-20
103
20
78
Current taxes
135
175
-144
-58
-125
-545
0
Total taxes
697
635
-162
-79
-21
-525
78
50
Out of the total net deferred tax increase of EUR 70 million (2021: increase EUR 103 million) an amount of EUR 22 million (2021: EUR 20 million) is reflected as deferred tax income in the Group’s income statement for the year 2022, whilst an income amount of EUR 48 million (2021: EUR 78 million) represents the impact in the Group’s other comprehensive income for the year. Furthermore, deferred tax income in the amount of EUR 1.0 million (2021: EUR 1.6 million) representing accumulated OCI in respect of deferred tax recognised for cumulative changes in own credit risk attributable to own issues repurchased during the year has been transferred into retained earnings, consequent to the related temporary differences reversing upon repurchase.
The Group's consolidated deferred tax asset position in amount of EUR 629 million as of 31 December 2022 (2021: EUR 562 million) is expected to be recoverable in the foreseeable future. This is also expected to be the case for deferred tax assets exceeding their deferred tax liabilities by an amount of EUR 10 million as of 31 December 2022 (2021: EUR 12 million) incurred by subsidiaries reporting losses in the current or prior period. 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 accordance with IAS 12.39, no deferred tax liabilities were recognised for temporary differences relating to investments in subsidiaries with an amount of EUR 2,545 million (2021: EUR 2,467 million), as they are not expected to reverse in the foreseeable future. As of 31 December 2022, no deferred tax assets were recognised for tax loss carry-forward and deductible temporary differences with a total amount of EUR 2,926 million (2021: EUR 3,839 million), of which EUR 1,385 million (2021: EUR 2,032 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 1,125 million (2021: EUR 1,218 million) representing temporary differences in connection with investments in subsidiaries no deferred tax assets have been recognised for in accordance with IAS 12.44.
In the reporting period, Erste Group Bank AG posted a post-tax profit of EUR 1,591.2 million under the Austrian accounting regulations, which increased its distributable capital accordingly (2021: EUR 1,782.3 million).
The management board of Erste Group Bank AG will propose a 2022 dividend of EUR 1.90 per share to the 2023 Annual General Meeting (2021: EUR 1.60 per share).
51
Financial instruments – Significant accounting policies
Accounting and measurement methods for financial instruments
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 IFRS 9, 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.
Measurement of financial assets and financial liabilities is subject to two primary measurement methods: at amortised cost and fair value.
i. Amortised cost and effective interest rate
Amortised cost is the amount at which the financial asset or financial liability is measured at initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount. For financial assets the amount is adjusted for any loss allowance.
The effective interest rate (‘EIR’) is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of the financial asset (i.e. its amortised cost before adjusting for any loss allowance) or to the amortised cost of the financial liability. The estimated cash flows consider all the contractual terms of the financial instrument but disregard the expected credit losses. The calculation includes transaction costs, origination fees that are an integral part of the EIR and all other premiums and discounts to the par amount.
For purchased or originated credit-impaired financial assets (‘POCI’, see part ‘Impairment of financial instruments’), credit-adjusted EIR is used. It is the rate that exactly discounts the estimated future cash flows which consider expected credit losses to the amortised cost of a financial asset.
The EIR is used for recognition of interest income and interest expense. Interest income is calculated in the following way:
_EIR applied to the gross carrying amount for financial assets that are not credit-impaired (Stage 1 and Stage 2, see part ‘Impairment of financial instruments’);
_EIR applied to the amortised cost for financial assets that are credit-impaired (Stage 3, see part ‘Impairment of financial instruments’); and
_credit-adjusted EIR applied to the amortised cost for POCI financial assets.
Interest expense is calculated by applying the EIR to the amortised cost of a financial liability.
ii. 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. The definition also applies to fair value measurements of non-financial assets and liabilities. Details on valuation techniques applied for fair value measurement and on the fair value hierarchy are disclosed in Note 26 Fair value of financial instruments.
Initial recognition and measurement
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.
ii. Initial measurement
Financial instruments are measured initially at their fair value including transaction costs (except for financial instruments at fair value through profit or loss, for which transaction costs are recognised directly in profit or loss). In most cases, the fair value at initial recognition equals the transaction price, i.e. the price transferred to originate or acquire a financial asset or the price received to issue or incur a financial liability.
Classification and subsequent measurement of financial assets
In accordance with IFRS 9, the classification and subsequent measurement of financial assets depend on the following two criteria:
(i)The business model for managing the financial assets – the assessment is focused on whether the financial asset is part of a portfolio in which the assets are held in order to collect contractual cash flows, to both collect the contractual cash flows and sell the assets or they are held in other business models.
(ii)The cash flow characteristics of the financial assets – the assessment is focused on whether the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest (‘SPPI’) on the principal amount outstanding. For further details refer to part ‘Significant accounting judgements, assumptions and estimates’ in this chapter.Application of these criteria leads to classification of financial assets into three measurement categories described in the respective note.
_Financial assets at amortised cost
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_Financial assets at fair value through other comprehensive income
_Financial assets at fair value through profit or loss
Classification and subsequent measurement of financial liabilities
Financial liabilities are classified as measured at amortised cost unless they are measured at fair value through profit or loss. Further details on financial liabilities at amortised cost and financial liabilities at FVPL are in the respective notes: Note 18 Financial liabilities at amortised costs and Note 25 Financial liabilities at fair value through profit or loss.
Impairment of financial instruments
Erste Group recognises loss allowances for impairment on its debt instrument financial assets, other than those measured at FVPL, its lease receivables, and its off-balance credit risk exposures arising from financial guarantees and certain loan commitments. The impairment is based on expected credit losses whose measurement reflects:
_an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes;
_the time value of money; and
_reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions.
The amount of the impairment loss is recognised as a loss allowance. For the purpose of the measurement of the amount of expected credit loss and recognition of interest income, Erste Group distinguishes between three stages of impairment.
Stage 1 relates to financial instruments for which no significant increase in credit risk has been recorded since their initial recognition or which are subject to the ‘low credit risk exemption’ allowed by IFRS 9. The impairment is measured in the amount equal to the portion of lifetime expected credit losses that result from default events possible within the next 12 months. Interest income is recognised by EIR applied to the gross carrying amount of the financial asset.
Financial instruments in Stage 2 are subject to significant increase in credit risk since their initial recognition (and the ‘low credit risk exemption’ does not apply). Stage 2 also includes trade receivables without significant financing component to which the ‘simplified approach’ is applied mandatorily based on IFRS 9 requirements. The impairment is measured in the amount of the lifetime expected credit loss. Interest income is recognised by EIR applied to the gross carrying amount of the financial asset (as for Stage 1). In the case of drawings by non-defaulted customers on previously committed credit lines, the whole exposure (on-balance and off-balance) is categorised as either Stage 1 or Stage 2, depending on the development of credit risk between the commitment date and the drawing date.
Financial instruments in Stage 3 are credit-impaired. In respect of applying the ‘credit-impaired’ concept of IFRS 9, Erste Group adopted the approach of aligning it with the regulatory concept of ‘default’ in accordance with guidelines of the European Banking Authority EBA/GL/2016/07 and Commission Delegated Regulation (EU) 2018/171. Erste Group generally applies a customer view for the default definition, which leads to Stage 3 classification of all transactions with the customer even if the customer defaults only on one of several transactions (‘pulling effect’). On the other hand, an upgrade to a non-defaulted rating grade implies that all the transactions with the customer cease to be impaired. The impairment of financial instruments in Stage 3 is measured in the amount of the lifetime expected credit loss. Interest income is recognised by EIR applied to the amortised cost (i.e. the net carrying amount) of the financial asset. From a balance sheet perspective, interest is accrued based on the financial assets’ gross carrying amount. The difference between the interest accrued on the assets and the interest income recognised is reflected through the allowance account (without impacting the impairment loss).
For financial assets that are credit-impaired at initial recognition (POCI financial assets) lifetime expected credit losses are initially reflected in the credit-adjusted EIR. As a result, no loss allowance is recognised at inception. Subsequently, only adverse changes in lifetime expected credit losses after the initial recognition are recognised as loss allowance, whilst favourable changes are recognised as impairment gains increasing the gross carrying amount of the POCI financial assets. No impairment stages are distinguished for the POCI financial assets.
Measurement of expected credit losses includes cash flows expected from collateral and those financial guarantees held by Erste Group which are considered as integral to the contractual terms of financial assets whose risk is guaranteed. Erste Group considers as integral those guarantees which are entered into at or close to the inception of the guaranteed financial assets. If the bank has in a loan contract an option to require provision of a guarantee, it is also considered as integral. Premiums paid for integral financial guarantees and other credit enhancements are considered in the EIR of the related financial assets.
Reimbursement assets from financial guarantees which are not considered integral are recognised under ‘Other assets’ in the balance sheet. In the statement of income they reduce the impairment loss incurred on guaranteed financial assets under ‘Impairment result from financial instruments’. A precondition for this treatment is that it must be virtually certain that the guarantee would reimburse the bank for the loss. Premiums paid for non-integral financial guarantees are presented in the statement of income under the line item ‘Fee and commission expense’ under ‘Net fee and commission income’.
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For financial assets measured at amortised cost, 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. However, for financial assets measured at FVOCI, the loss allowance is recognised in the accumulated OCI, specifically under ‘Fair value reserve’ in the statement of changes in equity. Loss allowances for loan commitments and financial guarantees are presented under the balance sheet line item ‘Provisions’.
Information about the development of the expected credit loss of the respective financial instruments is provided in Note 37 Measurement of expected credit loss.
In the statement of income, impairment losses and their reversals (gains) on all kinds of financial instruments are presented in the line item ‘Impairment result from financial instruments’.
Derecognition of financial instruments including treatment of contractual modifications
i. Derecognition of financial assets
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 risks and rewards connected with ownership of the asset; or
_has neither transferred nor retained substantially all risks and rewards connected with ownership of the asset but has transferred control of the asset.
The difference between the carrying amount of the derecognised asset and the consideration received is presented in the statement of income in the line ‘Gains/losses from derecognition of financial assets measured at amortised cost’ or, for financial assets at FVOCI, in the line ‘Other gains/losses from derecognition of financial instruments not measured at fair value through profit or loss‘. For financial assets measured at FVPL the derecognition gains or losses are recognised together with the measurement result in the lines ‘Net trading result’ or ‘Gains/losses from financial instruments measured at fair value through profit or loss’.
ii. Derecognition criteria with respect to contractual modifications of financial assets
In the normal course of running its lending business and in agreement with the respective debtors, Erste Group may renegotiate or otherwise modify some terms or conditions of the underlying contracts. This can involve either market-driven commercial renegotiations or contractual changes aimed at alleviating or preventing borrower’s financial difficulty. For the purpose of capturing the economic substance and financial effect of such contractual modifications, Erste Group has developed a set of criteria to assess whether or not the modified terms are substantially different from the original terms.
Commercial interest rate adjustments fulfilling specific conditions do not trigger the modification significance assessment. Instead, they result in a recalculation of the EIR of related loans. Such interest rate adjustments relate to performing non-forborne financial assets for which a prepayment/early termination option and a sufficiently competitive refinancing market exist. Furthermore, the costs that the debtor would incur in case of prepayment/early termination would have to be assessed as low. Such conditions introduce an implicit floating rate element to the contract. This kind of interest rate adjustments rarely applies to loan assets in Stage 2.
Substantial modifications lead to derecognition of the original financial asset and initial recognition of the modified financial asset as a new financial instrument. They include following events:
_change of the contractual counterparty (unless this is a formal change such as changes in legal name);
_change in the currency of the contract (unless the change results from exercising an embedded option in the original contract with pre-agreed conditions of the change, or if the new currency is pegged to the original currency);
_introduction of a non-SPPI contractual feature (unless it is intended to improve recoveries from debtors by granting concessions supporting them to recover from financial difficulties); or
_removal of a non-SPPI contractual feature.
Some derecognition criteria distinguish whether contractual modifications are applied to debtors facing financial difficulties. Application of certain modifications to debtors in financial difficulties is not considered as substantial since they are aimed at improving the prospects of the bank to recover the claims by tailoring the repayment schedules to specific financial conditions of those debtors. On the other hand, such contractual modifications applied to performing debtors may be considered as substantial enough to warrant the derecognition, as further detailed below.
From this perspective, the following criteria lead to derecognition unless they are considered as forbearance measures or they are applied to customers in default or they trigger default (i.e. the derecognition occurs if the modification does not relate to financial difficulties):
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_repayment schedule changed in a way that the weighted remaining maturity of the assets is modified by more than 100% and at least two years compared to the original asset;
_change in timing/amount of contractual cash flows resulting in the present value of the modified cash flows (discounted at pre-modification effective interest rate) being different by more than 10% of the gross carrying amount of the asset immediately before the modification (cumulative assessment considering all modifications occurring over the last twelve months); or
_altering a floating interest rate into a fixed interest rate or vice versa for the entire remaining life of the financial asset.
If contractual modifications that qualify as forbearance measures or they are applied to customers in default or they trigger default (i.e. they relate to customers in financial difficulties) are so significant that they are qualitatively assessed as an extinguishment of original contractual rights, they result in derecognition. Examples of such modifications are:
_a new agreement with materially different terms signed up as part of distressed restructuring following a standstill agreement suspending the rights of the original assets;
_consolidation of multiple original loans into one with substantially different terms; or
_transformation of a revolving loan into non-revolving.
Contractual modifications leading to derecognition of the related original assets result in the initial recognition of new financial assets. If the debtor is in default or the significant modification leads to the default, then the new asset will be treated as POCI. The difference between the carrying amount of the derecognised asset and initial fair value of the new POCI asset is presented in the statement of income in the line ‘Impairment result from financial instruments’.
If the debtor is not in default or the significant modification does not lead to default, the new asset recognised after derecognition of the original asset will be in Stage 1. For loans measured at amortised cost, the unamortised balance of the origination fees/transaction costs considered in the effective interest rate is presented in the line item ‘Interest income’ under ‘Net interest income’ at the derecognition date. The release of the credit loss allowance attached to the original asset at the date of that significant modification as well as the credit loss allowance recognised for the new asset are presented in the line ‘Impairment result from financial instruments’. The remaining difference is presented in the line ‘Gains/losses from derecognition of financial assets measured at amortised cost’.
For financial assets measured at FVPL, irrespective of whether they are in default, the derecognition gains and losses are included in the same line items of the statement of income as their measurement result, i.e. in ‘Gains/losses from financial instruments measured at fair value through profit or loss’.
For debt instrument assets not measured at FVPL that are subject to contractual modifications that do not result in derecognition, the gross carrying amount of the asset is adjusted against recognising a modification gain or loss in profit or loss. The modification gain or loss equals the difference between the gross carrying amount before the modification and the present value of the cash flows based on the modified terms discounted with the original EIR. In the statement of income, the modification gain or loss is presented in the line ‘Interest income’ under ‘Net interest income’ if the modification relates to financial assets in Stage 1. For financial assets in Stage 2 and 3 and POCI financial assets, the modification gain or loss is presented in the line ‘Impairment result from financial instruments’. However, to the extent that the contractual modification involves the bank giving up its rights of collecting cash flows in respect of an outstanding amount of the asset, such as waiving (part of) principal or accrued interest amount, it is treated as a write-off.
iii. Write-offs
Erste Group writes off a financial asset or a part of it when it has no reasonable expectations of recovering the respective cash flows. When performing the write-off, the gross carrying amount of the asset is reduced simultaneously with the related loss allowance balance.
Erste Group has specified criteria for writing off the unrecoverable balances in its loan business. Write-off can result from forbearance measures whereby the bank contractually waives part of the existing balance in order to help the customers overcome financial difficulties and thus improve the prospects of recovering the remaining loan balance (normally this relates to going concern scenarios for corporate customers). For more information on Forbearance please refer to Note 41 Restructuring, renegotiation and forbearance.
In gone concern scenarios with corporate customers, write-offs of the unrecoverable exposure parts are triggered by enforcement activities such as filing or termination of legal proceedings (bankruptcy, liquidation, court case). Other write-off triggers may result from decisions about no enforcement due to worthlessness of the claim/collateral or generally from assessment that the receivable is economically lost. For retail customers, the non-recoverability and the timing and amounts of write-off crystallise during the collection process when it becomes evident that the amount due cannot be collected, e.g. due to ongoing bankruptcy proceedings. Residual uncollectable balances are written off after the collection process.
iv. Derecognition of financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. This normally occurs when the liability is repaid or repurchased. Derecognition can also result from a substantial modification of the terms of an existing financial liability or from exchanging debt instruments with substantially different terms between Erste Group and the lender. In this respect the
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substantially modified / substantially different threshold is met when the present value of the cash flows under the new terms discounted using the original EIR is at least 10 per cent different to the carrying amount of the liability before the modification / exchange.
In the statement of income, the difference between the carrying amount of the derecognised financial liability and the consideration paid is presented in the line ‘Other gains/losses from financial instruments not measured at fair value through profit or loss‘, ‘Gains/losses from financial instruments measured at fair value through profit or loss’ and ‘Net trading result’ depending on the measurement category of the derecognised financial liability.
Significant accounting judgements, assumptions and estimates
i. SPPI assessment
The assessment of whether the contractual cash flows of financial assets give rise to cash flows that are solely payments of principal and interest (SPPI) is subject to the application of significant judgements which rely on the guidance in IFRS 9. These judgements are crucial in the IFRS 9 classification and measurement process, as they determine whether the asset must be measured at FVPL or, depending on the business model assessment, at amortised cost or at FVOCI. When taking into consideration specific features of financial assetes in the business of Erste Group, significant areas of judgement are prepayment fees, project financing loans and interest rate adjustments based on the fulfilment of certain ESG-related targets.
The assessment whether the prepayment fees applied to loans can be considered as a reasonable compensation for early terminations or prepayments is based on comparing the level of the fees with the economic costs incurred by the bank upon the early termination. For these purposes, Erste Group uses a quantitative test where the costs relate to the lost interest margin and the lost interest differential due to a potential decrease in the interest rates upon early termination or prepayment. The adequacy of the fees can also be defended on a qualitative basis, such as common market practice regarding the level of prepayment fees and their acceptance by authorities.
For project financing loans Erste Group assesses whether they represent basic loan agreements rather than investments in the financed projects. In this respect, credit rating, level of collateralisation, existing sponsor guarantees and the extent of equity funding of the financed projects are considered.
In the last years financial assets whose interest is adjusted based on meeting certain ESG-linked targets by the borrowers (e.g. meeting specified CO2 emission targets) became part of Erste Group’s business. No specific guidance currently exists in IFRS 9 for assessing the SPPI compliance of such features. Erste Group has concluded that ESG-related interest adjustments have a de minimis effect on the cotractual cash flows of the existing loan portfolio. As a result, they do not affect the SPPI assessment.
ii. Business model assessment
For each SPPI-compliant financial asset at initial recognition, Erste Group must assess whether it is part of a business model where the assets are held in order to collect contractual cash flows, to both collect the contractual cash flows and sell the assets, or they are held in other business models. As a consequence, the critical aspect in distinguishing the business models is frequency and significance of sales of assets in the respective business model. Since asset allocation to business models is based on the initial assessment, it may happen that in subsequent periods cash flows are realised differently than originally expected, and a different measurement method may seem to be appropriate. In accordance with IFRS 9, such subsequent changes do not generally lead to reclassifications or prior period error corrections in respect of existing financial assets. The new information on how cash flows are realised may, however, indicate that the business model, and thus the measurement method changes for newly acquired or newly originated financial assets.
At Erste Group, certain sales or other derecognition events are considered as not contradicting the held to collect contractual cash flows business model. Examples are sales due to increases in credit risk, sales close to assets’ maturity, infrequent sales triggered by a non-recurring event (such as changes in regulatory or tax environment, major internal reorganisation or a business combination, severe liquidity crisis, etc.) or derecognitions resulting from replacements of bonds based on an issuer’s offer. Other kinds of sales carried out in the ‘held to collect’ business model are assessed retrospectively, and if they exceed certain quantitative thresholds, or whenever it is considered necessary with regard to new expectations, Erste Group performs a prospective test. If the outcome was that the carrying amount of assets expected to be sold over the expected life of the current business model portfolio, for reasons other than the cases above, exceeds 10% of the carrying amount of the portfolio, any new acquisitions or originations of assets would be classified in a different business model.
iii. Impairment of financial instruments
The expected credit loss impairment model is inherently based on judgement since it requires assessment of significant increases in credit risk and measurement of expected credit losses without providing detailed guidance. In respect of significant increases in credit risk, Erste Group has determined specific assessment rules consisting of qualitative information and quantitative thresholds. Another area of complexity relates to establishing groups of similar assets when credit risk deterioration has to be assessed on a collective basis before specific information is available at individual instrument level. Measurement of expected credit losses involves complex models relying on historical statistics of probabilities of default and loss rates in case of defaults, their extrapolations in case of insufficient observations, individual estimates of credit-adjusted cash flows and probabilities of various scenarios including forward-looking information. In addition, the life of the instruments has to be modelled in respect of behavioural life of revolving credit facilities.
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Detailed disclosures about identification of significant increases in credit risk including collective assessment and estimation techniques used to measure 12-month and lifetime expected credit losses are provided in Note 34 Credit risk. For further information on the definition of default refer to Note 37 Measurement of expected credit loss. The development of loan loss provisions is described in Note 39 Development of credit loss allowances.
iv. Financial liabilities stemming from the TLTRO programme of the ECB
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Financial instruments held at amortised cost
Financial assets are classified as measured at amortised cost if they are held in a business model whose objective is to collect contractual cash flows, and their contractual cash flows are SPPI.
On the balance sheet, these assets are carried at amortised cost, i.e. the gross carrying amount net of the credit loss allowance. They are presented under the line ‘Financial assets at amortised cost’, ‘Trade and other receivables’ and ‘Cash and cash balances’.
Interest income on these assets is calculated by effective interest method and is included under the line ‘Interest income’ under ‘Net interest income’ in the statement of income. Impairment gains or losses are included in the line ‘Impairment result from financial instruments’. Gains and losses from derecognition (such as sales) of the assets are reported under the line item ‘Gains/losses from derecognition of financial assets measured at amortised cost’.
At Erste Group, financial assets at amortised cost constitute the largest measurement category, which includes the vast majority of loan business to customers (except for certain loans measured at fair value through profit or loss), interbank lending business (including reverse repo transactions), deposits with central banks, investments in debt securities, amounts in the course of settlement, trade and other receivables.
For description of financial liabilities at measured amortised cost refer to Note 18 Financial liabilities at amortised costs.
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. A part of ‘Cash balances at central banks’ represents the mandatory minimum reserve requirement deposits which amounted to EUR 3,989.7 million (2021: EUR 6,355.4 million) at the reporting date. The mandatory minimum reserve requirement is calculated from defined balance sheet items and has to be fulfilled in average through an extended period of time. Therefore, the mandatory minimum reserve requirement deposits are not subject to any restraints.
Debt securities
Investments in debt securities measured at amortised cost may be acquired with different business objectives (such as fulfilling internal/external liquidity risk requirements and efficient placement of the structural liquidity surplus, strategic positions decided by the board of directors, initiation and fostering of client relationships, substitution of loan business or other yield generating activities). Their common attribute is that significant and frequent sales of such securities are not expected. For a description of what sales are considered as compliant with the held to collect contractual cash flows business model, see paragraph ‘Business model assessment’ in chapter ‘Financial instruments - Significant accounting policies’.
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Gross carrying amount
Credit loss allowances
in EUR million
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Carrying amount
Dec 22
Central banks
15
0
0
15
0
0
0
0
15
General governments
32,880
8
0
32,889
-9
0
0
-9
32,880
Credit institutions
6,505
91
0
6,596
-3
-2
0
-5
6,591
Other financial corporations
263
36
1
300
0
-1
-1
-2
298
Non-financial corporations
669
161
3
834
-1
-3
-2
-6
828
Total
40,333
296
4
40,633
-13
-5
-3
-22
40,612
Dec 21
Central banks
13
0
0
13
0
0
0
0
13
General governments
29,887
3
0
29,890
-8
0
0
-8
29,882
Credit institutions
4,707
0
0
4,707
-3
0
0
-3
4,705
Other financial corporations
175
1
0
176
0
0
0
0
176
Non-financial corporations
725
54
0
778
-1
-3
0
-4
774
Total
35,508
57
0
35,565
-12
-3
0
-15
35,551
For information about the development of credit loss allowances refer to Note 39 Development of credit loss allowances.
Loans and advances to banks
Gross carrying amounts and credit loss allowances per impairment buckets
Gross carrying amount
Credit loss allowances
in EUR million
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Carrying amount
Dec 22
Central banks
13,514
0
0
13,514
0
0
0
0
13,513
Credit institutions
4,859
69
0
4,928
-5
0
0
-6
4,922
Total
18,373
69
0
18,441
-6
0
0
-6
18,435
Dec 21
Central banks
16,429
0
0
16,429
-1
0
0
-1
16,428
Credit institutions
4,509
60
0
4,569
-5
-1
0
-5
4,563
Total
20,938
60
0
20,998
-6
-1
0
-6
20,991
There are no POCI assets in this balance sheet item as of 31 December 2022 (31 December 2021).
For information about the development of credit loss allowances refer to Note 39 Development of credit loss allowances.
Loans and advances to customers
Gross carrying amounts and credit loss allowances per impairment buckets
Gross carrying amount
Credit loss allowances
in EUR million
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
Total
Carrying amount
Dec 22
General governments
8,456
642
10
2
9,110
-4
-28
-1
0
-32
9,078
Other financial corporations
4,160
1,017
101
10
5,288
-8
-20
-37
0
-64
5,224
Non-financial corporations
63,081
24,039
2,084
238
89,443
-162
-773
-1,043
-65
-2,043
87,401
Households
80,691
11,821
1,689
100
94,301
-161
-594
-913
-22
-1,690
92,611
Total
156,388
37,519
3,885
350
198,143
-335
-1,415
-1,994
-86
-3,830
194,313
Dec 21
General governments
6,356
730
2
3
7,091
-4
-20
-2
0
-27
7,065
Other financial corporations
3,671
482
45
11
4,209
-10
-14
-16
0
-40
4,169
Non-financial corporations
57,224
17,486
2,039
201
76,950
-211
-666
-1,069
-61
-2,007
74,944
Households
75,926
10,700
1,851
112
88,589
-158
-504
-979
-26
-1,667
86,922
Total
143,177
29,398
3,937
327
176,839
-383
-1,203
-2,066
-88
-3,740
173,099
For information about the development of credit loss allowances refer to Note 39 Development of credit loss allowances.
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17.Trade and other receivables
Gross carrying amounts and credit loss allowances per impairment buckets
Gross carrying amount
Credit loss allowances
in EUR million
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
Total
Carrying amount
Dec 22
Central banks
2
0
0
0
2
0
0
0
0
0
2
General governments
48
15
0
0
63
0
0
0
0
0
63
Credit institutions
43
2
0
0
44
0
0
0
0
0
44
Other financial corporations
87
8
0
0
95
0
0
0
0
0
95
Non-financial corporations
1,364
720
42
1
2,127
-7
-6
-31
-1
-45
2,082
Households
100
23
15
0
137
-2
-5
-12
0
-19
118
Total
1,643
768
57
1
2,469
-9
-11
-44
-1
-65
2,404
Dec 21
Central banks
1
0
0
0
1
0
0
0
0
0
1
General governments
75
33
0
0
107
0
0
0
0
-1
107
Credit institutions
21
2
2
0
25
0
-1
-1
0
-2
23
Other financial corporations
28
3
0
0
31
0
0
0
0
0
31
Non-financial corporations
937
950
61
0
1,949
-9
-3
-50
0
-62
1,887
Households
90
19
18
0
126
-2
-5
-15
0
-22
104
Total
1,151
1,007
81
0
2,239
-12
-9
-66
0
-87
2,152
For information about development of credit loss allowances refer to Note 39 Development of credit loss allowances.
The line item ‘Financial liabilities at amortised cost’ is further broken down into ‘Deposits from banks’, ‘Deposits from customers’, ‘Debt securities issued’ and ‘Other financial liabilities’.
Interest expenses incurred are calculated using effective interest method are reported in the line item ‘Interest expenses’ under ‘Net interest income’ in the statement of income. Gains and losses from derecognition (mainly repurchase) are reported under the line item ‘Other gains/losses from derecognition of financial instruments not measured at fair value through profit or loss’.
Financial liabilities stemming from the TLTRO programme of the ECB are presented under ‘Deposits from banks’. Erste Group assessed an appropriate accounting treatment of the TLTRO. The conclusion was that such instruments do not qualify as below-market interest rate loans and therefore are not related to IAS 20 government grants accounting. The reason was that the TLTRO is considered as a separate market organised by the ECB as part of its monetary policy. As a result, the IFRS 9 amortised cost accounting treatment applies.
In general, the TLTRO interest rate is reduced if banks reach certain lending thresholds over an observation period. At the TLTRO inception, the original effective interest rate is determined by considering the contractual terms and assessing whether the eligibility conditions for the reduced interest will be fulfilled. Subsequently, unless the observation period is over, Erste Group reassesses how the eligibility conditions will be met. The scenario which is considered more likely is used both for the original effective interest rate calculation and for the subsequent reassessment. Any changes in estimates of payments due to the revised assessment of the eligibility conditions are treated as catch-up adjustments. The amount of the catch-up adjustment is determined by discounting the revised estimated payments at the original effective interest rate and comparing it to the gross carrying amount before the adjustment. The catch-up adjustments are presented in the net interest income. In 2021 Erste Group recognised a catch-up adjustment gain in the amount of EUR 93.0 million. This resulted from the assessment that it will meet the 0% lending threshold as the qualifying condition for the interest rate reduction by 50bp in the period between June 2021 and June 2022.
Erste Group treats TLTRO as floating rate instruments in respect of changes in the ECB key rates which are the deposit facility rate (DFR) and the main refinancing operation rate. Whenever the ECB changes the key rates the effective interest rate of the TLTRO is recalculated assuming that the current ECB rate will apply until the end of the respective TLTRO tranche life. If the ECB brings any unconditional changes to the TLTRO interest rate other than changes in the key rates, they are treated as catch-up adjustments and presented in the net interest income. This also includes changes in the calculation of interest rates.
In October 2022 the ECB announced a change in the method for applying the key ECB rates for TLTRO III tranches. For Erste Group this means that the current DFR applies from 23 November 2022 (instead of the average DFR calculated over the entire 3-year life of the TLTRO III tranches). This resulted in a recognition of a catch-up loss in the amount of EUR 129.3 million in 2022. Early redemptions of the tranches in November 2022 resulted in a positive catch up effect amounting to EUR 6.1 million.
60
In 2022 the interest expense recognised for TLTRO III financial liabilities was EUR 141.2 million. It includes mainly the catch-up adjustment loss in the amount of EUR 129.3 million. The negative interest expense related to the period of the year when the effective interest rate was negative amounted to EUR 91.1 million, including the positive catch up effect of EUR 6.1 million from early redemtpions (2021: EUR 208.1 million, including the catch up adjustment gain of EUR 93.0 million).
Deposits from banks
61
Dec 21
Dec 22
Overnight deposits
167,738
171,576
Savings deposits
43,669
46,558
Other financial corporations
173
222
Non-financial corporations
1,985
2,050
Households
41,511
44,286
Non-savings deposits
124,069
125,018
General governments
6,963
7,070
Other financial corporations
7,530
7,991
Non-financial corporations
37,916
37,420
Households
71,660
72,537
Term deposits
41,662
49,646
Deposits with agreed maturity
34,986
43,331
Savings deposits
21,974
21,312
Other financial corporations
742
1,056
Non-financial corporations
1,409
1,813
Households
19,824
18,444
Non-savings deposits
13,012
22,019
General governments
2,970
3,967
Other financial corporations
1,843
4,605
Non-financial corporations
3,265
6,924
Households
4,934
6,523
Deposits redeemable at notice
6,676
6,315
General governments
9
5
Other financial corporations
120
118
Non-financial corporations
294
278
Households
6,253
5,913
Repurchase agreements
628
1,398
General governments
1
12
Other financial corporations
627
1,386
Deposits from customers
210,029
222,620
General governments
9,942
11,054
Other financial corporations
11,037
15,378
Non-financial corporations
44,868
48,485
Households
144,182
147,702
Debt securities issued
Dec 21
Dec 22
Subordinated debt securities issued
1,943
2,945
Senior non-preferred bonds
1,474
1,667
Other debt securities issued
18,935
21,981
Bonds
8,146
7,308
Certificates of deposit
1,264
4,008
Other certificates of deposits/name certificates
148
121
Mortgage covered bonds
9,377
10,544
Debt securities issued
22,352
26,593
In 2022, 132 new bonds (2021: 9) with a total volume of approximately EUR 2,075 million (2021: EUR 110 million) were issued under the Debt issuance Programme (DIP).
Furthermore, 122 (2021:163) new bonds with a total volume of EUR 299 million (2021: EUR 495 million) were issued out of the Structured Notes Programme. Out of the Covered Bonds Programme 4 (2021: 1) new bonds with a total volume of EUR 2.3 billion (2021: EUR 2.0 billion) were issued in 2022. In June 2019, the Capital Guaranteed Structured Notes Programme was implemented, under which 82 (2021: 34) new bonds with a total volume of EUR 305 million (2021: EUR 103 million) were issued in 2022. In December 2019, the Multi Issuer EMTN Notes Programme was implemented, under which 2 (2021: 7) new bonds with a total volume of EUR 1.0 billion (2021: EUR 2.3 billion) were issued in 2022.
Furthermore, senior unsecured registered notes (‘Namensschuldverschreibungen’), were issued with a volume of EUR 225 million (2021: EUR 46 million).
The Euro Commercial Paper and Certificates of Deposit Programme was updated in 2022 with an unlimited total volume. In total, 530 issues (2021: 310) amounting to EUR 145.0 billion (2021: EUR 65.2 billion) were placed in 2022. Issues totaling approximately EUR 144.0 billion (2021: EUR 64.0 billion) were redeemed over the same period.
62
of EUR 6.7 billion (USD 7.6 billion), with a total balance as of 31 December 2022 of EUR 2.8 billion (USD 3.0 billion) and EUR 1.4 billion (USD 1.6 billion) as of 31 December 2021.
63
Financial assets at fair value through other comprehensive income
Debt instrument financial assets are measured at fair value through other comprehensive income (FVOCI) if their contractual cash flows are SPPI-compliant and they are held within a business model whose objective is achieved by both to collect contractual cash flows and sell the assets. On the balance sheet, they are included as ‘Debt securities’ under the line ‘Financial asset at fair value through other comprehensive income’.
Interest income on these assets is calculated using the effective interest method and is included in the line ‘Interest income’ under ‘Net interest income’ in the statement of income. Impairment gains and losses are recognised in profit or loss in the line ‘Impairment result from financial instruments’ with opposite loss allowance entry in OCI rather than against the asset value. As a result, the measurement impact recognised in profit or loss is the same as for financial assets measured at amortised cost.
The difference between the fair value at which the assets are carried in the balance sheet and the amortised cost component is recognised as accumulated OCI in equity specifically under ‘Fair value reserve’ in the statement of changes in equity. The change for the period is reported as OCI in the statement of comprehensive income in the line ‘Fair value reserve of debt instruments’ which also includes the loss allowance OCI entry. When the financial asset is derecognised, the amount previously accumulated in OCI is reclassified to profit or loss and reported under the line ‘Other gains/losses from derecognition of financial instruments not measured at fair value through profit or loss’.
Erste Group classifies investments in debt securities as measured at FVOCI, i.e. no loan business is included in this measurement category. Similarly to investments in debt securities measured at amortised cost, they relate to various business objectives such as fulfilling internal/external liquidity risk requirements and efficient placement of the structural liquidity surplus, strategic positions decided by the board of directors, initiation and fostering of client relationships, substitution of loan business or other yield-enhancement activities. The common attribute for investments in debt instruments at FVOCI is that an active yield optimisation via sales is integral to achieving the objectives. The sales are carried out in order to optimise the liquidity position or to realise fair value gains or losses. As a result, the business objectives are achieved through both collecting contractual cash flows and sales of the securities.
Gross carrying amounts and credit loss allowances per impairment buckets
Gross carrying amount
Credit loss allowances
in EUR million
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Amortised cost
Accumu-lated OCI changes
Fair value
Dec 22
Central banks
0
0
0
0
0
0
0
0
0
0
0
General governments
7,079
242
0
7,321
-4
-7
0
-10
7,311
-295
7,016
Credit institutions
1,293
18
0
1,311
-2
0
0
-3
1,308
-60
1,249
Other financial corporations
197
99
1
297
0
0
-1
-2
295
-11
285
Non-financial corporations
548
449
2
1,000
-1
-8
-1
-10
990
-79
911
Total
9,117
808
3
9,929
-7
-16
-1
-24
9,904
-444
9,460
Dec 21
Central banks
6
0
0
6
0
0
0
0
6
0
6
General governments
6,493
92
0
6,585
-3
-4
0
-7
6,578
60
6,638
Credit institutions
867
0
0
867
-2
0
0
-2
865
25
890
Other financial corporations
164
92
0
256
0
-2
0
-3
253
7
260
Non-financial corporations
536
405
0
941
-1
-10
0
-11
930
24
955
Total
8,066
589
0
8,655
-7
-16
0
-23
8,632
117
8,749
There are no POCI assets in this balance sheet item as of 31 December 2022 (31 December 2021).
For information about the development of credit loss allowances refer to Note 39 Development of credit loss allowances.
For certain investments in equity instruments that are not held for trading, Erste Group makes use of the option to measure them at FVOCI. This election is applied to strategic, significant banking business relationship investments (except for insurance business). The fair value gains or losses for the period are reported as OCI in the line ‘Fair value reserve of equity instruments’ of the statement of comprehensive income. The cumulative gains or losses are included under ‘Fair value reserve’ in the statement of changes in equity. The amount recognised in OCI is never reclassified to profit or loss. However, upon derecognition of the investments in equity instruments at FVOCI the amount accumulated in OCI is transferred to retained earnings. Dividends received on these investments are reported under the line ‘Dividend
64
income’ of the statement of income. On the balance sheet, financial assets measured at fair value through OCI are included as ‘Equity instruments’ under the line ‘Financial asset at fair value through other comprehensive income’.
The carrying amount of Erste Group’s equity instruments at FVOCI as at 31 December 2022 amounts to EUR 99.2 million (2021: EUR 132.4 million), the cumulative fair value change for equity instruments FVOCI before taxes recognised in other comprehensive income amounted to EUR 55.6 million (2021: EUR 88.5 million). During the year 2022, the sales of such instruments amounted to EUR 0.0 million (2021: EUR 17.7 million) and were triggered by strategic business decisions. The cumulative loss (net of tax) that was transferred from accumulated other comprehensive income into retained earnings upon derecognitions of equity instruments at FVOCI amounted to EUR 0.2 million (2021: gain EUR 14.8 million).
65
Financial instruments at fair value through profit or loss
There are various reasons for assigning the fair value through profit or loss (FVPL) measurement category to debt instrument financial assets.
FVPL measurement relates to that are part of residual business models, i.e. they are neither held to collect contractual cash flows nor held to either collect contractual cash flows or sell the assets. These financial assets are generally expected to be sold before their maturity or they are managed and their performance is evaluated on a fair value basis. In the business of Erste Group, such business models are typical of assets that are held for trading (i.e. financial assets held by the trading function of the bank), of assets whose value is expected to be primarily realised through sales, such as investments in securitisations or not yet finalized loan syndications when the loan is offered for sale on the market. Further subject to FVPL measurement are financial assets held by funds consolidated by Erste Group since they are managed and their performance is evaluated on a fair value basis.Another reason for the the FVPL measurement are financial assets whose contractual cash flows are not considered as SPPI. At Erste Group, this concerns certain debt securities and loans to customers.
Erste Group also makes use of the option to designate some financial assets as measured at FVPL at initial recognition. Such a classification is used if it eliminates or significantly reduces an accounting mismatch between fixed interest rate financial assets, which in the absence of such a classification would be measured at amortised cost or at FVOCI, and related derivatives measured at FVPL.
On the balance sheet, debt instrument financial assets measured at FVPL are presented as ‘Financial assets held for trading’, sub-item ‘Other financial assets held for trading’ and ‘Non-trading financial assets at fair value through profit or loss’, sub-items ‘Debt securities’ and ‘Loans and advances to customers’. Non-trading financial assets at FVPL consist of two sub-categories disclosed in Note 23 Non-trading financial assets at fair value through profit or loss which are ‘mandatorily at fair value through profit or loss’ and ‘designated at fair value through profit or loss’. Financial assets are mandatorily measured at fair value through profit or loss either because they are held as part of residual business models that are other than held for trading or their contractual cash flows are not SPPI.
Investments in equity instruments that are held for trading (i.e. financial assets held by the trading function of the bank) are measured at FVPL. They are included in the balance sheet under the line ‘Financial assets held for trading’, sub-item ‘Other financial assets held for trading’. Investments in equity instruments that are not held for trading are also measured at FVPL (unless they are designated at FVOCI). They are presented in the balance sheet under ‘Non-trading financial assets at fair value through profit or loss’, sub-item ‘Equity instruments’, sub-category ‘mandatorily at fair value through profit or loss’ in Note 23 Non-trading financial assets at fair value through profit or loss.
From IFRS 9 perspective all derivatives which are not designated as hedging instruments are considered as held for trading. As a result, they are measured at FVPL. They are described in more detail in Note 21 Derivative financial instruments.
In the statement of income, the profit or loss effects of non-derivative financial assets measured at FVPL are split into interest income or dividend income and fair value gains and losses. The interest income on debt instruments is presented in the line ‘Other similar income’ under ‘Net interest income’ and is calculated by applying the EIR to the amortised cost component of the financial assets. The dividend income on equity instruments is presented in the line ‘Dividend income’. The fair value gains or losses are calculated net of the interest or dividend income, and they also include transaction costs and origination fees. They are reported in the line ‘Net trading result’ for financial assets held for trading and in the line ‘Gains/losses from financial instruments measured at fair value through profit or loss’ in case of non-trading financial assets at FVPL. For investments in funds, which are not consolidated by Erste Group, the interest or dividend component is not separated from the fair value gains or losses.
Financial liabilities at FVPL consist of financial liabilities held for trading and financial liabilities designated at FVPL.
On the balance sheet, financial liabilities at FVPL are presented as ‘Financial liabilities held for trading’, sub-items ‘Derivatives’ and ‘Other financial liabilities held for trading’ and as ‘Financial liabilities at fair value through profit or loss’ which are further broken down into ‘Deposits from customers’, ‘Debt securities issued’ and ‘Other financial liabilities’. Accounting policy related to financial liabilities at FVPL can be found in Note 21 Derivative financial instrument, Note 24 Other financial liabilities held for trading and Note 25 Financial liabilities at fair value through profit or loss.
Derivative financial instruments are used by Erste Group to manage exposures to interest rates, foreign currencies 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.
66
_Derivatives – held for trading; and
_Derivatives – hedge accounting.
Hedge accounting derivatives are discussed in Note 27 Hedge accounting.
Derivative financial instruments are carried at fair value (dirty price) on the balance sheet. 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 that 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 as well as of derivatives designated as hedging instruments in fair value hedges are reported in the statement of income in the line item ‘Net trading result’. Interest income/expense related both to held for trading and hedging derivatives is presented in the statement of income in the line item ‘Other similar income’ or ‘Other similar expenses’ under ‘Net interest income’. Interest income/expense recognition is based on EIR-like accruals in respect of the derivative notional amount and includes amortisation of the inception value of the derivative (e.g. upfront fees, if any).
The effective part of changes in the fair value (clean price) of derivatives in cash flow hedges is reported as OCI in the line ‘Cash flow hedge reserve’ of the statement of comprehensive income. The accumulated OCI is presented under ‘Cash flow hedge reserve’ in the statement of changes in equity. The ineffective part of changes in the fair value (clean price) of derivatives in cash flow hedges is reported in the statement of income under the line item ‘Net trading result’.
Embedded derivatives
Erste Group issues certain financial liabilities which contain structured features. Structured features mean that a derivative is embedded in non-derivative host instruments. Embedded derivatives are separated from the host 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 definition of a 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, these relate to bonds and deposits whose payments are linked to equity prices or FX rates.
In the business of Erste Group, the majority of non-closely related embedded derivatives relates to bonds issued for which fair value option has been applied. As a result, these embedded derivatives are part of the measurement of the entire hybrid instrument at FVPL and thus are not separated.
Derivatives held for trading
Dec 21
Dec 22
in EUR million
Notional value
Positive fair value
Negative fair value
Notional value
Positive fair value
Negative fair value
Derivatives held in the trading book
197,734
3,477
3,623
244,708
6,490
6,607
Interest rate
136,122
2,801
2,876
178,235
5,788
5,508
Equity
491
7
6
669
10
10
Foreign exchange
60,305
638
717
64,992
686
1,084
Credit
598
14
24
551
5
5
Commodity
16
0
0
9
0
0
Other
201
17
0
253
1
1
Derivatives held in the banking book
21,210
919
310
25,626
554
1,003
Interest rate
15,442
776
231
19,178
374
850
Equity
1,236
74
34
1,334
57
80
Foreign exchange
4,168
66
44
4,769
122
68
Credit
223
3
1
155
1
1
Other
141
0
0
190
0
4
Total gross amounts
218,943
4,396
3,933
270,334
7,045
7,610
Offset
-2,132
-2,309
-5,326
-4,983
Total
2,263
1,624
1,719
2,626
Erste Group undertakes a part of interest rate derivative and credit derivative transactions via Clearing Houses. These derivatives and related cash margin balances fulfil the requirements for balance sheet offsetting. For more details on balance sheet offsetting please refer to Note 28 Offsetting of financial instruments.
67
22.Other financial assets held for trading Financial liabilities designated at FVPL are reported on the balance sheet under the line item ‘Financial liabilities at fair value through profit or loss’ and are further broken down into ‘Deposits from customers’, ‘Debt securities issued’ and ‘Other financial liabilities’. Other financial liabilities relate to fund units issued by funds consolidated by Erste Group. Interest incurred is calculated by applying the EIR to the amortised cost of the financial liability and is reported in the statement of income under in line item ‘Other similar expenses’ under ‘Net
Dec 21
Dec 22
in EUR million
Designated
Mandatorily
Designated
Mandatorily
Equity instruments
0
332
0
347
Debt securities
476
1,499
327
1,223
General governments
36
161
35
170
Credit institutions
435
111
286
119
Other financial corporations
5
1,054
5
864
Non-financial corporations
0
173
0
70
Loans and advances to banks
0
10
0
0
Credit institutions
0
10
0
0
Loans and advances to customers
0
808
1
839
General governments
0
1
0
1
Other financial corporations
0
21
0
26
Non-financial corporations
0
48
1
33
Households
0
737
0
779
Financial assets designated and mandatorily at FVPL
476
2,648
328
2,408
Non-trading financial assets at fair value through profit or loss
3,124
2,735
Erste Group has designated debt securities at FVPL. The maximum exposure to credit risk on these securities is its fair value. At the reporting date the change in fair value that is attributable to changes in credit risk amounts to EUR 6.1 million (2021: EUR 19.0 million) cumulatively and EUR -0.7 million (2021: EUR 11.9 million) for the reporting period.
Non-derivative financial liabilities held for trading are those which are incurred principally for the purpose of repurchasing them in the near term. In the business of Erste Group non-derivative held for trading liabilities largely comprise short sales. These arise from obligations to return securities, which are purchased under agreements to resell or are borrowed through securities lending transactions and subsequently sold to third parties. On the balance sheet such liabilities are presented under the line ‘Financial liabilities held for trading’, sub-item ‘Other financial liabilities’. The gains or losses on financial liabilities held for trading are reported in the line ‘Net trading result’ in the statement of income.
Erste Group makes use of the option to designate some financial liabilities as measured at FVPL at initial recognition (referred to as fair value option) if:
_such classification eliminates or significantly reduces an accounting mismatch between fixed interest rate financial liabilities otherwise measured at amortised cost and related derivatives measured at FVPL. Erste Group assesses quantitatively that the designation actually eliminates or significantly reduces the accounting mismatch in respect of fair value changes attributable to interest rate risk; or
_the entire hybrid contract contains a non-closely related embedded derivative.
68
interest income’. Gains and losses resulting from changes in fair value are recognised net of the interest expense under the line item ‘Gains/losses from financial instruments measured at fair value through profit or loss’.
The amount of the fair value change resulting from the credit risk of the financial liability for the period is presented as OCI in the statement of comprehensive income in the line ‘Own credit risk reserve’. The cumulative amount is recognised as accumulated OCI, specifically under ‘Own credit risk reserve’ in the statement of changes in equity. The amount recognised in OCI is never reclassified to profit or loss. However, upon derecognition (mainly repurchases) of the financial liabilities designated at FVPL the amount accumulated in OCI is transferred to retained earnings.
The cumulative amount of the credit risk recognised as accumulated OCI is calculated as the difference between the present value of the liability determined by using the original credit spread and the fair value of the liability. The amount of fair value change attributable to changes in credit risk of the liability for the period which is recognised in OCI is the difference between the cumulative amount of the credit risk at the end of the period and at the beginning of the period. When calculating the present value of the liability by using the original credit spread, the rate used for discounting is the sum of the observed interest rate (swap yield curve) and the original credit spread. The original credit spread is determined at initial recognition of the liability and it equals the difference between the total yield of the liability and the observed interest rate (swap yield curve) at that time.
Carrying amount
Amount repayable
Delta between carrying amount and amount repayable
in EUR million
Dec 21
Dec 22
Dec 21
Dec 22
Dec 21
Dec 22
Deposits
495
1,353
464
1,356
31
-3
Debt securities issued
9,778
9,310
9,509
10,268
270
-958
Other financial liabilities
191
151
191
151
0
0
Financial liabilities at FVPL
10,464
10,814
10,163
11,775
301
-960
Fair value changes that are attributable to changes in own credit risk
For reporting period
Cumulative amount
in EUR million
1-12 21
1-12 22
Dec 21
Dec 22
Deposits
0
-4
0
-3
Debt securities issued
-82
-234
269
31
Financial liabilities at FVPL
-82
-238
269
27
The line ‘Other financial liabilities’ contains fund units issued by investment funds fully consolidated by Erste Group. Their fair value changes are subject to asset-specific performance risk only and are not dependent on changes in the individual own credit risk of the respective investment funds.
Debt securities issued
69
Financial instruments – other disclosure mattersIn rare cases, techniques for non-trading equity instruments may also include comparable company multiple methods. These are valuation techniques that use prices and other relevant information generated by market transactions involving comparable company peers of an investee to derive a valuation multiple from which the indicated fair value of the investee’s equity or enterprise value can be inferred. Liabilities. The fair value of financial liabilities designated at fair value through profit or loss under the fair value option is determined based on quoted prices in active markets, if 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. Significant input factors for the spread adjustment of Erste Group’s
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 listed derivatives as well as liquid OTC bonds.
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. Using of unobservable inputs is particularly relevant for models used for valuations of loans and unquoted equity investments. Disclosures on valuation models, the fair value hierarchy and fair values of financial instruments can be found subsequently.
For all financial instruments the fair value is measured on recurring basis.
Financial instruments carried at fair value
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. For financial instruments which have been converted to the new alternative refernce rates (see Note 69 Interest Rate Benchmark Reform), the new interest rates are considered for the calculation of fair values.
Loans. Not SPPI (solely payments of principal and interest) compliant loans are to be valued at fair value. The methodology to compute fair value of these loans corresponds to the basic present value technique . The credit risk is recognized by adjusting contractual cash flows to come to expected cash flows accounting for customer’s probability of default and loss given default. These adjusted cash flows are then discounted by a yield curve which consists of a risk free rate and a funding spread for senior unsecured issues.
Debt securities. For plain vanilla (fixed and floating rate) 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.
Equity instruments. Non-trading equity instruments which have quoted market prices in an active market are valued by using the quoted market price. For other investments in non-trading equity instruments the fair value is determined by standard valuation models using also unobservable input parameters. These models include the adjusted net asset value method, the simplified income approach, the dividend discount model and the comparable company multiple method.
The adjusted net asset method requires an investor to measure the fair value of the individual assets and liabilities recognized in an investee’s statement of financial position as well as the fair value of any unrecognized assets and liabilities at the measurement date. The resulting fair values of the recognized and unrecognized assets and liabilities should therefore represent the fair value of the investee’s equity.
The dividend discount model assumes that the price of equity instruments issued by an entity equals the present value of all its expected future dividends in perpetuity. Similar to the dividend discount model, the simplified income approach estimates the fair value based on the future income. However, it can be used also when only one year planned income is available. The simplified income approach and the dividend discount model discount future income and dividends using the cost of equity. The cost of equity is dependent on the risk-free rate, the market risk premium, the levered beta and the country risk premium. The levered beta is derived from the industry classification which is published and maintained by Damodaran.
70
own credit risk for the respective seniority class are credit spreads derived from liquid benchmark bonds and additional indications from external investments banks, which are provided on a regular basis. The applied spreads are validated on a regular basis from an independent Risk Management unit. In case of issued securities with structured features, optionality is taken into account as well when calculating the fair value
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-White type 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 simulation. For instruments in less liquid markets, data obtained from less frequent transactions or extrapolation techniques are used. For determining the fair value of collateralised derivatives a discounting interest rate reflecting the interest rate of the corresponding cash collateral is 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 add-on 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 counterparties with CSA-agreements in place no CVA was taken into account for all cases with immaterial threshold amounts.
According to the described methodology the accumulated CVA-adjustments amounted to EUR 11.4 million (2021: EUR 14.5million) and the total DVA-adjustment amounted to EUR 21.0 million (2021: EUR 4.4 million).
Based on an analysis carried out by Erste Group it was decided that for the valuation of OTC derivatives no Funding Value Adjustment (FVA) would be considered.
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. The evaluated fair value can qualify as Level 1 if transactions occur with sufficient frequency, volume and pricing consistency on an ongoing basis.
Level 1 measurements include exchange traded derivatives (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.
71
Level 2 measurements include OTC derivatives, less liquid shares, bonds and funds as well as asset backed securities (ABS), collateralized debt obligations (CDO), own issues and deposits.
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 on the basis of valuation models that rely entirely on observable market data. In these cases individual valuation parameters which are 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. Typically credit spreads derived from internally calculated historical probability of default (PD) and loss given default (LGD) measures are used as unobservable parameters. Furthermore, internally calculated cost of equity and adjustments made on the equity (in the adjusted net asset value method) are unobservable parameters for the valuation of non-trading equity instruments.
The volume of Level 3 financial assets can be allocated to the following categories:
_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, participationsand 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.
_Loans which do not comply with the contractual cash flow criteria.
_Fund units issued by investment funds fully consolidated by Erste Group as well as own issues, if price updates are not provided on a regular basis
_Collateralized mortgage obligation (CMO)
The allocation of the appropriate level of positions is determined at the end of the reporting period.
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.
Classification of financial instruments carried at fair value by levels of the fair value hierarchy
Dec 21
Dec 22
in EUR million
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Assets
Financial assets HfT
1,984
4,443
46
6,473
1,829
5,624
313
7,766
Derivatives
5
2,231
27
2,263
10
1,677
32
1,719
Other financial assets HfT
1,979
2,212
18
4,210
1,820
3,947
281
6,047
Non-trading financial assets at FVPL
1,670
281
1,173
3,124
1,337
200
1,198
2,735
Equity instruments
40
9
283
332
37
33
277
347
Debt securities
1,630
272
72
1,975
1,300
167
82
1,549
Loans and advances
0
0
818
818
0
0
839
839
Financial assets at FVOCI
7,604
807
470
8,881
7,878
1,284
398
9,560
Equity instruments
1
0
131
132
1
0
98
99
Debt securities
7,603
807
339
8,749
7,877
1,283
300
9,460
Hedge accounting derivatives
0
79
0
79
0
155
3
159
Total assets
11,258
5,610
1,689
18,557
11,044
7,263
1,912
20,219
Liabilities
Financial liabilities HfT
774
1,690
9
2,474
585
2,667
12
3,264
Derivatives
5
1,609
9
1,624
8
2,608
11
2,626
Other financial liabilities HfT
769
81
0
850
578
59
1
637
Financial liabilities at FVPL
325
9,894
245
10,464
0
10,663
151
10,814
Deposits from customers
0
495
0
495
0
1,353
0
1,353
Debt securities issued
325
9,399
54
9,778
0
9,310
0
9,310
Other financial liabilities
0
0
191
191
0
0
151
151
Hedge accounting derivatives
0
307
2
309
0
372
0
372
Total liabilities
1,100
11,891
256
13,247
585
13,702
163
14,451
Derivatives transacted via Clearing Houses are presented after netting in compliance with their balance sheet treatment. The netted derivatives are allocated to Level 2.
Valuation process for financial instruments categorised as Level 3
The valuation of financial instruments categorized 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. Further details regarding input parameters used and the results of the sensitivity analysis are disclosed in the sub-chapter Unobservable inputs and sensitivity analysis for Level 3 measurements below.
72
Changes in volumes of Level 1 and Level 2
Relassification between Level 1 and Level 2 based on balance sheet positions and instruments
Dec 21
Dec 22
in EUR million
Level 1 to Level 2
Level 2 to Level 1
Level 1 to Level 2
Level 2 to Level 1
Financial assets HfT
131
15
34
49
Bonds
131
15
33
48
Funds
0
0
0
0
Shares
0
0
1
1
Non-trading financial assets at FVPL
22
2
15
9
Bonds
21
2
15
6
Funds
1
0
0
2
Shares
0
0
0
1
Financial assets at FVOCI
105
91
407
93
Bonds
105
91
407
93
Total
258
108
456
151
Transfers into and out of Level 1 and Level 2 are caused by changes in market activities and consequently due to the quality and observability of valuation parameters.
73
Movements in Level 3
Development of fair value of financial instruments in Level 3
Gains/losses profit or loss
Gains/losses OCI
Purch-ases
Sales
Settle-ments
Addition to group
Disposal out of group
Transfer into Level 3
Transfer out of Level 3
Currency trans-lation
Jan 22
Dec 22
Assets
Financial assets HfT
46
-27
0
270
-1
0
0
0
42
-17
0
313
Derivatives
27
-22
0
0
0
0
0
0
42
-16
0
32
Other financial assets HfT
18
-5
0
270
-1
0
0
0
0
-1
0
281
Non-trading financial assets at FVPL
1,173
-61
0
862
-42
-671
12
0
23
-39
-58
1,198
Equity instruments
283
-12
0
32
-9
-3
12
0
0
-27
1
277
Debt securities
72
-2
0
12
-3
-10
0
0
23
-11
1
82
Loans and advances
818
-46
0
817
-30
-658
0
0
0
-1
-60
839
Financial assets at FVOCI
470
0
-43
34
-2
-26
0
0
109
-147
3
398
Equity instruments
131
0
-33
0
0
0
0
0
0
0
0
98
Debt securities
339
0
-10
34
-2
-26
0
0
109
-147
3
300
Hedge accounting derivatives
0
3
0
0
0
0
0
0
0
0
0
3
Total assets
1,689
-84
-43
1,165
-46
-697
12
0
174
-203
-55
1,912
Liabilities
Financial liabilities HfT
9
2
0
3
-2
0
0
0
0
0
0
12
Derivatives
9
2
0
0
0
0
0
0
0
0
0
11
Other trading financial liabilities
0
0
0
3
-2
0
0
0
0
0
0
1
Financial liabilities at FVPL
245
-28
0
85
-95
-1
0
0
0
-55
0
151
Debt securities issued
54
0
0
1
0
0
0
0
0
-55
0
0
Other financial liabilities
191
-28
0
84
-95
-1
0
0
0
0
0
151
Hedge accounting derivatives
2
-2
0
0
0
0
0
0
0
0
0
0
Total liabilities
256
-28
0
88
-97
-1
0
0
0
-55
0
163
Jan 21
Dec 21
Assets
Financial assets HfT
85
-14
0
17
-1
0
0
0
1
-42
0
46
Derivatives
75
-14
0
0
0
0
0
0
0
-34
0
27
Other financial assets HfT
10
0
0
17
-1
0
0
0
1
-8
0
18
Non-trading financial assets at FVPL
1,046
-33
0
408
-181
-52
0
0
6
-13
-8
1,173
Equity instruments
282
-8
0
25
-13
0
0
0
2
-6
2
283
Debt securities
77
9
0
3
-15
-3
0
0
4
-5
2
72
Loans and advances
687
-33
0
380
-153
-49
0
0
0
-2
-12
818
Financial assets at FVOCI
376
-2
20
50
-20
-24
0
0
136
-70
5
470
Equity instruments
129
0
20
0
-18
0
0
0
0
0
0
131
Debt securities
248
-2
0
50
-3
-24
0
0
135
-70
5
339
Hedge accounting derivatives
0
0
0
0
0
0
0
0
0
0
0
0
Total assets
1,508
-49
20
475
-202
-77
0
0
143
-126
-3
1,689
Liabilities
Financial liabilities HfT
2
7
0
0
0
0
0
0
0
0
0
9
Derivatives
2
7
0
0
0
0
0
0
0
0
0
9
Other trading financial liabilities
0
0
0
0
0
0
0
0
0
0
0
0
Financial liabilities at FVPL
336
3
1
67
-55
-6
0
0
11
-113
0
245
Debt securities issued
155
0
1
0
0
-1
0
0
11
-113
0
54
Other financial liabilities
180
3
0
67
-55
-5
0
0
0
0
0
191
Hedge accounting derivatives
0
2
0
0
0
0
0
0
0
0
0
2
Total liabilities
338
12
1
67
-55
-6
0
0
11
-113
0
256
Transfers into and out of Level 3 mainly result from changes in valuation models with observable or non-observable parameters.
74
Gains/losses in profit or loss on Level 3 instruments held at the end of the reporting period
1-12 21
1-12 22
Assets
Financial assets HfT
-13.7
-25.0
Derivatives
-13.3
-20.0
Other financial assets HfT
-0.4
-5.0
Non-trading financial assets at FVPL
-31.6
-51.0
Equity instruments
-9.3
-8.0
Debt securities
11.2
3.2
Loans and advances
-33.5
-46.2
Financial assets at FVOCI
-2.8
-3.4
Debt securities
-2.8
-3.4
Hedge accounting derivatives
0.0
3.4
Total
-48.0
-76.1
Liabilities
Financial liabilities HfT
-6.8
-0.6
Derivatives
-6.8
-0.6
Other financial liabilities held for trading
0.0
0.0
Financial liabilities at FVPL
-2.2
25.1
Deposits from customers
0.0
0.0
Debt securities issued
1.4
0.0
Other financial liabilities
-3.5
25.1
Hedge accounting derivatives
-2.3
2.4
Total
-11.2
26.9
Unobservable inputs and sensitivity analysis for Level 3 measurements
In case the fair value measurement 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 were chosen to reflect the market situation at the reporting date.
75
Range of unobservable valuation parameters used in Level 3 measurement
Financial assets
Type of instrument
Fair value in EUR million
Valuation technique
Significant unobservable inputs
Range of unobservable inputs (weighted average)
Dec 22
PD
1.05%-9.81% (5.84%)
Positive fair value of derivatives
Forwards, swaps, options
34.5
Discounted cash flow and option models with CVA adjustment based on potential future exposure
LGD
60%
Fixed and variablecoupon bonds
7.5
Discounted cash flow
Credit Spread
0.17%-2.25% (0.37%)
PD
0.09%-5.95% (2.17%)
Financial assets at FVPL
Loans
839.3
Discounted cash flow
LGD
0%-25.79% (5.16%)
Financial assets at FVOCI
Fixed and variablecoupon bonds
237.7
Discounted cash flow
Credit Spread
0.17%-8.95% (3.22%)
Beta relevered
Industries: Insurance (General) 1.07-1.10Recreation 1.02-1.03
Real Estate (General/Diversified) 0.89-0.90
Real Estate (Development) 0.81
Financial Svcs. (Non-bank & Insurance) 0.4-1.05
Business & Consumer Services 1.09
Health Resort & Gesundheitszentrum GmbH 0.76
Transportation 1.05-1.06
198.6
Dividend Discount Model;
Simplified Income Approach
Country risk premium
Austria 0.34%-0.49%, Croatia 2.13%,
Czech Republic 0.72%
Romania 1.87-2.64%,
Slovakia 1.02%, Hungary 1.62%, North Macedonia 3.06%
Resulting cost of equity based on above inputs: 6.28%-13.53%
127.6
Adjusted Net Asset Value
Adjusted Equity
Depending onaccounting equity of investment.
Financial assets at FVOCI / at FVPL
Non-trading equity instruments (participations)
0.03
Market comparable companies
EV / SALES
EV / EBITDA
EV / EBIT
P/E
P/E (implicit)
P/B
Depending onindustry classification according to Damodaran.
Dec 21
PD
1.17%-100% (5.34%)
Positive fair value of derivatives
Forwards, swaps, options
59.6
Discounted cash flow and option models with CVA adjustment based on potential future exposure
LGD
60%
Fixed and variablecoupon bonds
16.6
Discounted cash flow
Credit Spread
0.45%-2.93% (0.51%)
PD
0.09%-7.27% (3.10%)
Financial assets at FVPL
Loans
817.8
Discounted cash flow
LGD
0%-46.22% (13.62%)
Financial assets at FVOCI
Fixed and variablecoupon bonds
443.7
Discounted cash flow
Credit Spread
0.01%-6.52% (0.90%)
Beta relevered
Industries:
Insurance (General) 1.04-1.10
Recreation 0.96
Real Estate (General/Diversified) 0.78
Real Estate (Operations & Services) 0.63
Financial Svcs. (Non-bank & Insurance) 0.91-1.06
Banks (Regional) 0.57
Health Resort & Gesundheitszentrum GmbH 0.66
249.3
Dividend Discount Model;
Simplified Income Approach
Country risk premium
Croatia 2.21%, Austria 0.33%-0.35%
Czech Republic 0.53%
Romania 1.95%,
Russia 1.82%, Slovakia 0.75%, Hungary 1.95%, North Macedonia 2.97%
Resulting cost of equity based on above inputs: 5.48% 13.03%
147.9
Adjusted Net Asset Value
Adjusted Equity
Depending onaccounting equity of investment.
Financial assets at FVOCI / at FVPL
Non-trading equity instruments (participations)
0.03
Market comparable companies
EV / SALES
EV / EBITDA
EV / EBIT
P/E
P/E (implicit)
P/B
Depending onindustry classification according to Damodaran.
76
In addition to the information above, equity instruments with a fair value in amount of EUR 26.4 million (2021: EUR 23.3 million) are assessed on the basis of expert opinions.
Furthermore, for equity instruments other than participations classified as Level 3, the amount of EUR 40.8 million (2021: EUR 39.5 million) is presented in the statement of financial position using the criteria of availability and quality of broker quotes.
Sensitivity analysis using reasonably possible alternatives per product type
Dec 21
Dec 22
Fair value changes
Fair value changes
in EUR million
Positive
Negative
Positive
Negative
Derivatives
3.1
-5.3
2.9
-3.4
Income statement
3.1
-5.3
2.9
-3.4
Debt securities
21.6
-28.8
10.0
-13.3
Income statement
3.3
-4.4
2.4
-3.2
Other comprehensive income
18.3
-24.4
7.6
-10.1
Equity instruments
106.6
-70.4
64.8
-49.8
Income statement
58.0
-43.8
42.9
-35.4
Other comprehensive income
48.6
-26.6
21.9
-14.4
Loans and advances
17.9
-45.7
15.7
-46.4
Income statement
17.9
-45.7
15.7
-46.4
Total
149.2
-150.2
93.4
-112.9
Income statement
82.3
-99.2
63.9
-88.4
Other comprehensive income
66.9
-51.0
29.5
-24.5
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 fair values. Positive correlation effects between PDs and LGDs were not taken into account in the sensitivity analysis. For non-trading equity instruments increases (decreases) in any of the inputs used for the cost of equity calculation in isolation would result in a lower (higher) fair value.
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 unquoted equity instruments measured by the adjusted net asset value the price range between -10% and +10%
_for unquoted equity instruments measured by dividend discount model/simplified income approach the cost of equity range between -2% and +2%
_for CVA on derivatives PDs rating upgrade/downgrade by one notch, as well as the change of LGD by -5% and +10%
_for loans, the PDs rating upgrade/downgrade by 1%, the change of LGD by -5% and +10% and a range of credit spreads between +100 basis points and 75 basis points.
77
Carrying amount
Fair value
Level 1
Level 2
Level 3
Dec 22
Assets
Financial assets at AC
253,360
240,268
31,703
3,699
204,867
Loans and advances to banks
18,435
18,138
0
0
18,138
Loans and advances to customers
194,313
186,501
0
0
186,501
Debt securities
40,612
35,630
31,703
3,699
228
Finance lease receivables
4,553
4,499
0
0
4,499
Trade and other receivables
2,404
2,389
0
0
2,389
Liabilities
Financial liabilities at AC
278,932
276,200
12,875
12,293
251,032
Deposits from banks
28,821
28,290
0
0
28,290
Deposits from customers
222,620
221,224
0
0
221,224
Debt securities issued
26,593
25,789
12,875
12,293
621
Other financial liabilities
899
898
0
0
898
Financial guarantees and commitments
Financial guarantees
n/a
47
0
0
47
Loan commitments
n/a
529
0
0
529
Dec 21
Assets
Financial assets at AC
229,641
231,575
30,887
3,922
196,766
Loans and advances to banks
20,991
21,193
0
0
21,193
Loans and advances to customers
173,099
175,356
0
0
175,356
Debt securities
35,551
35,026
30,887
3,922
217
Finance lease receivables
4,209
4,214
0
0
4,214
Trade and other receivables
2,152
2,158
0
0
2,158
Liabilities
Financial liabilities at AC
265,415
265,141
10,447
11,262
243,432
Deposits from banks
31,886
31,807
0
0
31,807
Deposits from customers
210,029
209,704
0
0
209,704
Debt securities issued
22,352
22,481
10,447
11,262
772
Other financial liabilities
1,149
1,149
0
0
1,149
Financial guarantees and commitments
Financial guarantees
n/a
4
0
0
4
Loan commitments
n/a
998
0
0
998
In the table above, positive fair values of financial guarantees and commitments are shown with a positive sign whereas negative fair values are shown with a negative sign.
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 debt securities at amortised cost are either taken directly from the market or they are determined by directly observable input parameters (i.e. yield curves).
The fair value of deposits and other liabilities, measured at amortised cost, is estimated by taking into account the current interest rate environment, as well as the own credit spreads. These positions are assigned to the Level 3 category. 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 determined based on quoted prices in active markets, if 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. Significant input factors for the spread adjustment of Erste Group’s own credit risk for the respective seniority class are credit spreads derived from liquid benchmark bonds and additional indications from external investments banks, which are provided on a regular basis. The applied spreads are validated on a regular basis from an independent Risk Management unit. Moreover optionality is taken into account when calculating the fair value.
For off-balance sheet liabilities (i.e. financial guarantees and unused loan commitments) the following fair value approaches are applied:
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Erste Group makes use of derivative instruments to hedge exposures to interest rate risk and foreign currency risk. In order for the derivatives and the exposures to qualify for hedge accounting, 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 considered to be highly effective if the changes in fair value or cash flows attributable to the hedged risk offset the fair value changes of the hedging instrument in a range of 80% to 125%. This is assessed both prospectively, i.e. whether the results are expected to be in the range, and retrospectively, i.e. whether the actual results are in the range. 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 guidance. As permitted by the transitional provisions of IFRS 9, Erste Group has elected to continue to apply the hedge accounting requirements of IAS 39.
On the balance sheet, derivatives designated as hedging instruments are carried at fair value (dirty price). They are presented in the line item ‘Hedge accounting derivatives’ on the asset or liability side depending on whether their fair value is positive or negative.
i. Fair value hedges
For qualifying and designated fair value hedges, the change in the fair value (clean price) of a hedging instrument is recognised in the statement of income under the line item ‘Net trading result’. Interest income and expenses on hedging derivatives are reported in the line item ‘Other similar income’ or ‘Other similar expenses’ under ‘Net interest income’. The change in the fair value of the hedged item attributable to the hedged risk is also recognised in the statement of income under the line item ‘Net trading result’ and adjusts the carrying amount of the hedged item.
Erste Group also applies portfolio fair value hedges of interest rate risk as regulated by IAS 39.AG114-AG132. For this purpose, Erste Group makes use of the relaxation provided by the EU-carve out for so called ‘bottom layer’ hedges. More details are discussed in part ‘Hedges of interest rate risk’ below. The change in the fair value of the hedged items attributable to the hedged interest risk in portfolio fair value hedges is presented on the balance sheet under the line item ‘Fair value changes of hedged items in portfolio hedge of interest rate risk’.
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 until maturity of the financial instrument. In the statement of income the amortisation is presented under ‘Net interest income’ in the line item ‘Interest income’ if the hedged item was a financial asset or in the line item ‘Interest expenses’ if the hedged item was a financial liability. For portfolio fair value hedges of interest rate risk the fair value adjustment related to the terminated hedge is amortised to the statement of income on a straight-line basis in the line item ‘Other similar income’ under ‘Net interest income’.
ii. Cash flow hedges
For designated and qualifying cash flow hedges, the effective portion of the gain or loss on the hedging instrument is recognised as OCI in the line ‘Cash flow hedge reserve’ of the statement of comprehensive income. The accumulated other comprehensive income is presented under ‘Cash flow hedge reserve’ in the statement of changes in equity. The ineffective portion of the gain or loss on the hedging instrument is recognised in the statement of income under the line item ‘Net trading result’. For determination of the effective and ineffective portions, the derivative is considered at its clean price, i.e. excluding the interest component. When the hedged cash flow affects the statement of income, the gain or loss on the hedging instrument is reclassified from other comprehensive income on the corresponding income or expense line item in the statement of income (mainly ‘Other similar income’ or ‘Other similar expenses’ under ‘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.
Hedges of interest rate risk
As an inherent part of its business Erste Group is exposed to interest rate risk arising from the interest characteristics and behavior of assets, liabilities and off balance sheet items. This relates to the existing balance sheet items as well as to expected development of the balance sheet and banking activities. Interest rate risk can generally be defined as a potential deterioration of a bank’s financial condition in reaction to adverse movements in market interest rates.
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Hedge accounting activities relate to interest risk bearing exposures in the banking book. The interest rate risk of the banking book is managed by Group Asset Liability Management (ALM). Interest rate risk management actions of ALM are approved as part of the ALM strategy by Group Asset Liability Committee (ALCO). For hedging relationships qualifying for hedge accounting hedge effectiveness is measured by risk management unit which is independent from ALM as the risk taker.
The objective of the interest rate risk management in the banking book is to optimise the risk and return of interest rate risk exposures. For this purpose and for compliance with external and internal regulations and limitations Erste Group manages the interest rate risk from the earnings and economic value perspectives. The focal point of the interest rate risk analysis from the earnings perspective is the variation in earnings, i.e. the net interest income. The changes in interest rates have an impact on the bank’s earnings via its distinct impact on interest income and interest expenses accrued on assets and liabilities respectively. The economic value perspective views the interest rate risk as changes in the economic value of equity. It can be identified as the present value of cash-flows arising from asset, liability and off-balance-sheet items. Change in interest rates alters both the size of future cash-flows and the value of discount rates applied in the calculation.
Existing balance sheet items and contributions of planned or forecast transactions are analysed through the earnings and economic value based metrics. Erste Group keeps the risk within predefined limits. When actively managing interest rate risk ALM gives preference to entering into bonds and derivatives. In general, the policy of Erste Group is to swap all substantial fixed or structured issued bonds to floating items. In addition of managing the interest rate risk using derivative transactions and investments in bonds, also the intended non-hedging of benchmark issues with derivatives is used for managing the interest rate risk.
Interest rate swaps are the most common derivatives used to manage interest rate. If fixed rate repricing profiles of assets or liabilities do not fit to the interest rate risk management strategy they are swapped into variable rate items (usually 3-month money market rate such as EURIBOR). In other cases, variable rate repricing profiles of assets or liabilities may need to be swapped into fixed rate items.
Erste Group employs hedge accounting to address accounting mismatches resulting from different measurement requirements for derivatives which are measured at fair value through profit or loss and financial assets and liabilities in the banking book measured at amortised cost or at fair value through other comprehensive income. Some of the accounting mismatches are addressed by designating financial assets or financial liabilities as measured at FVPL (fair value option) without the need to use hedge accounting.
Fair value hedges address the risk management activities of swapping fixed rate assets or liabilities into variable rate. On the other hand, cash flow hedges are used when floating rates assets or liabilities are swapped into fixed ones (please refer also to the discussion of proxy hedges below).
For hedges of interest rate risk of portfolios of prepayable fixed rate loans Erste Group applies requirements for portfolio fair value hedges of interest rate risk as regulated by IAS 39.AG114-AG132. For this purpose, Erste Group makes use of the relaxation provided by the EU-carve out and hedges the interest rate risk in respect of so called ‘bottom layer’ amount. The bottom layer amount is expected not to be affected by prepayments of loans (including a margin of conservatism). Thus, it represents a stable fixed interest rate exposure which is hedged by using interest rate swaps. With this approach, any prepayments, other derecognitions and impairments are attributed to the unhedged buffer amount above the designated bottom layer. Thus, they do not affect the hedge effectiveness unless their amount hits the designated hedged bottom layer level.
Fair value hedges are designated in respect of the interest rate risk component of the fair value changes of the hedged fixed rate items. The hedged interest rate risk portion in fair value hedges relates to the observed interest rate (swap yield curve) component. I.e. the fair value volatility resulting from changes in the spread of the hedged fixed rate instrument over the swap yield curve is excluded from hedge accounting and is not accounted for.
Similarly, in cash flow hedges the hedged risk is designated in respect of the variable cash flows portion equal to the interest index of the swap (such as EURIBOR, USD LIBOR). The credit spreads over the swap index are excluded from hedge accounting.
The hedging interest derivatives are economically related to the hedged interest rate risk component of the hedged item. The non-interest components (such as credit spreads) of the hedged items are outside the hedging relationship. As a result, comparable valuation inputs are applied on both sides of the hedging relationship. Thus offsetting effects are recognised to the extent the economic relationship exists without giving rise to artificial volatility in profit or loss. The hedged interest risk component is the most significant factor affecting fair value changes of the hedged item.
For cash flow hedges of deposits with central banks (disclosed under the line ’Interbank loans/repos’ below) no forward looking curve over the hedging period exists for the hedged interest rates (such as DFR of the ECB or two-week repo rate of the CNB). In such cases the hedged risk is replicated by another rate for which the forward-looking curve exists (such as €STR swap curve or 1M PRIBOR swap curve). A proof of a strong correlation between the rates is necessary.
The designated hedging relationships normally correspond to the economic hedges set up by ALM when managing the interest rate risk. However, in some cases, the hedging derivatives may not be directly related to specific assets or liabilities but they manage the overall
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interest risk position. Also, the derivatives may relate to instruments which do not qualify as hedged items under the IFRS hedge accounting requirements. In order to account for risk mitigating effects of such derivatives Erste Group searches for suitable hedged items providing the best fit to the terms of the derivative and designates an effective hedging relationship (so called proxy hedges). Typically cash flow hedges of variable rate assets are designated on such a basis whereby the actual economically hedged risk may result from modelled fixed rate profile of demand deposit liabilities.
The hedge ratio is chosen in compliance with the rules defined in IAS 39. The volume of the hedging instrument which is designated for the hedge relation can never be greater than the volume of the hedged item. If the notional of a hedging derivative is greater than the notional of the hedged item the respective proportion of the derivative is designated as hedging instrument. Further, the tenor of the hedging instrument is never longer than the tenor of the hedged item.
Sources of hedge ineffectiveness can result from:
_designation of hedging instruments and hedged items during their life rather than from their inception
_different discounting curves applied for hedged item and hedging instrument
_different interest tenors of hedging swaps and hedged variable rate items in cash flow hedges
_volatility of present value of floating leg of hedging swaps in fair value hedges
_different trade dates for the hedging instrument and the hedged item
_real prepayments of a loan portfolio deviating from expected prepayments
_credit risk adjustments (CVA, DVA) on the hedging derivatives
Notional amounts of hedged items - hedges of interest rate risk
Notional amount
in EUR million
Type of hedged items
Dec 21
Dec 22
Fair value hedges
Assets
Portfolios of client loans
240
243
Assets
Single loans
303
294
Assets
Bonds at FVOCI
983
1,005
Assets
Bonds at AC
1,064
1,107
Liabilities
Issued bonds
12,931
16,563
Liabilities
Other liabilities/repos
50
47
Cash flow hedges
Assets
Interbank loans/repos
1,337
1,947
Assets
Client loans
1,721
1,764
Portfolio hedges of defined bottom layer amounts (bottom layer hedges) are disclosed in the table with the nominal hedged bottom layer amounts. Client loans hedged in portfolio hedges are disclosed in the balance sheet line item ‘Financial assets measured at amortised cost’, with a carrying amount of EUR 599.6 million (2021: EUR 523.7 million).
Hedges of foreign exchange risk
The objective of foreign exchange risk management in the banking book is to avoid unfavorable market movements of foreign exchange rates which could impact profit or loss of Erste Group. Only a minor part of foreign exchange risk management activities requires using of hedge accounting.
Currently bonds and loans with notional amount of EUR 1,616 million (2021: EUR 946 million) are hedged in cash flow hedges by using cross currency swaps as hedging instruments. FX swaps with notional amount of EUR 151 million (2021: EUR 0.0 million) are used as hedging instrument in hedges of interest accruals on financial assets in foreign currency.
Quantitative disclosures
In the tables below, detailed information related to hedging instruments and hedged items in fair value and cash flow hedges as of 31 December 2022 are reported. The indicated values for fair value hedges include single hedges as well as portfolio hedges, which due to immateriality are not shown separately.
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Hedging instruments
Carrying amount
Timing of the nominal amounts of the instruments
in EUR million
Assets
Liabilities
Change in FV for the period used for calculating hedge ineffectivness
Notional
≤ 3 m
> 3 m and ≤ 1 y
> 1 y and ≤ 5 y
> 5 y
Dec 22
Fair value hedges
403
2,073
-1,600
19,662
869
79
9,903
8,811
Interest rate risk
403
2,073
-1,600
19,662
869
79
9,903
8,811
Cash flow hedges
94
175
70
5,113
176
497
4,171
269
Interest rate risk
7
175
36
3,670
0
339
3,331
0
Foreign exchange risk
87
0
34
1,443
176
158
840
269
Total gross amounts
497
2,248
-1,529
24,776
1,045
576
14,074
9,080
Offset
-338
-1,876
Total
159
372
-1,529
24,776
1,045
576
14,074
9,080
Dec 21
Fair value hedges
319
344
-232
15,988
1,012
17
6,647
8,312
Interest rate risk
319
344
-232
15,988
1,012
17
6,647
8,312
Cash flow hedges
6
183
-305
4,003
182
77
3,280
464
Interest rate risk
0
149
-234
3,057
182
60
2,685
129
Foreign exchange risk
6
35
-71
946
0
16
594
335
Total gross amounts
325
527
-537
19,991
1,195
94
9,927
8,776
Offset
-246
-218
0
0
0
0
0
0
Total
79
309
-537
19,991
1,195
94
9,927
8,776
The hedging instruments are presented in the line ‘Hedge accounting derivatives’ in the balance sheet.
Hedged items in fair value hedges
Hedge adjustments
in EUR million
Carrying amount
included in the carrying amount
Thereof: for the period used for recognition of hedge ineffectiveness
Remaining adjustments for terminated hedges
Dec 22
Financial assets at FVOCI
Interest rate risk
915
-79
-134
8
Financial assets at AC
Interest rate risk
1,807
-303
-324
16
Financial liabilities at AC
Interest rate risk
15,370
-1,892
2,047
73
Dec 21
Financial assets at FVOCI
Interest rate risk
1,040
53
-37
12
Financial assets at AC
Interest rate risk
2,036
19
-100
19
Financial liabilities at AC
Interest rate risk
13,636
90
365
96
The hedged items are disclosed in the following line items in the balance sheet:
_Financial assets at fair value through other comprehensive income / debt securities
_Financial assets at amortised cost / loans and advances to customers
_Financial assets at amortised cost / debt securities
_Financial liabilities at amortised cost / debt securities issued
Hedged items in cash flow hedges
Change in FV for the period used for calculating hedge ineffectiveness
Cash flow hedge reserve for continuing hedges
Cash flow hedge reserve for terminated hedges
Dec 22
Interest rate risk
-36
-29
-207
Foreign exchange risk
-55
4
-10
Total
-91
-25
-217
Dec 21
Interest rate risk
217
-156
-12
Foreign exchange risk
66
-85
0
Total
282
-240
-12
82
Cash flow hedge reclassified to profit or loss because
in EUR million
Hedge ineffectiveness recognised in P&L
Hedging gains/losses recognized in OCI
the hedged item has affected profit or loss
the hedged future cash flows are no longer expected to occur
Dec 22
Fair value hedges
Interest rate risk
-11
0
0
0
Cash flow hedges
Interest rate risk
0
37
-98
0
Foreign exchange risk
0
34
46
0
Total
-11
71
-52
0
Dec 21
Fair value hedges
Interest rate risk
-4
0
0
0
Cash flow hedges
Interest rate risk
-7
-228
-3
0
Foreign exchange risk
-1
-70
0
0
Total
-11
-298
-3
0
Ineffectiveness from both fair value and cash flow hedges is presented under ‘Net trading result’ in the statement of income. The amounts reclassified from the cash flow hedge reserve are presented in the line ‘Other similar income’ under ‘Net interest income’ for hedges of interest rate risk and ‘Net trading result’ for hedges of foreign exchange risk.
Application of the Interest Rate Benchmark Reform for hedge accounting
Interest rate benchmark reform and its impact on Erste Group are described in Note 69 Interest Rate Benchmark Reform. Regarding hedge accounting, Erste Group considers that it is exposed to uncertainties resulting from the reform in respect of its hedges of USD LIBOR interest risk. Hedging instruments with nominal amount USD 50 million (EUR 47 million) (2021: USD 50 million (EUR 44 million)) designated in fair value hedges of bonds acquired and nominal amount USD 150 million (EUR 141 million) (2021: USD 150 million (EUR 132 million)) designated in fair value hedges of debt securities issued are affected. Their hedging period reaches beyond the cessation date of the respective LIBOR rates (30 June 2023 for USD LIBOR 1M, 3M, 6M and 12M tenors).
When it comes to the replacement of USD LIBOR rates, the interest rate swap hedging instruments will be affected both by replacements of the reference rate used for their floating legs USD (3-month LIBOR rate changed into 3-month term SOFR) and the change in the discounting curve. On the hedged items side, the hedged benchmark interest rate risk portion will be affected by change in the discounting curve (LIBOR-based discounting curve changed into overnight SOFR-based discounting curve).
As a result of these uncertainties, Erste Group applies the requirements of IAS 39 which bring some reliefs enabling not to discontinue these hedges as long as uncertainties arising from the reform exist. More specifically, it is necessary to prove that the non-contractually specified benchmark portion of interest rate risk (resulting from the USD LIBOR curve) is separately identifiable only at the hedge inception and not during the hedge life. For testing of prospective effectiveness it is assumed that the hedging instrument and the hedged risk of the hedged item do not change as a result of the reform. If the retrospective effectiveness requirements were not met the hedges would not need to be discontinued. However, any hedge ineffectiveness would be accounted for in profit or loss. Application of these reliefs will cease when there is no longer uncertainty about the USD LIBOR-based cash flows of the hedging instruments and the hedged benchmark interest rate risk portion.
CHF LIBOR rates ceased to be published at the end of 2021 and have been replaced by SARON rates. Hedging instruments with nominal amount of CHF 200 million (EUR 194 million) designated in fair value hedges of debt securities issued were affected by the replacement. In line with the amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: Interest Rate Benchmark Reform – Phase 2 issued in August 2020, the designation and documentation of these hedges was updated and all the impacts from the valuation changes were recognised immediately in profit or loss in 2021 without terminating the hedges.
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28.Offsetting of financial instruments 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
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.
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 and liabilitites subject to offsetting and potential offsetting agreements
Potential effects of netting agreements not qualifying for balance sheet offsetting
in EUR million
Financial assets/liabilities (gross)
Amounts offset (gross)
Financial assets/liabilities in balance sheet (net)
Financial instruments
Cash collateral received/pledged
Other financial collateral received/pledged
Net amount after potential offsetting
Dec 22
Assets
Derivatives
7,542
5,664
1,877
1,111
461
0
305
Variation margin assets
1,448
1,448
0
0
0
0
0
Reverse repurchase agreements
15,169
0
15,169
0
73
15,056
40
Total
24,158
7,112
17,046
1,111
535
15,056
345
Liabilities
Derivatives
9,858
6,859
2,999
1,111
242
192
1,454
Variation margin liabilities
257
253
3
0
0
0
3
Repurchase agreements
3,201
0
3,201
0
8
3,160
33
Total
13,316
7,112
6,204
1,111
250
3,352
1,490
Potential effects of netting agreements not qualifying for balance sheet offsetting
in EUR million
Financial assets/liabilities (gross)
Amounts offset (gross)
Financial assets/liabilities in balance sheet (net)
Financial instruments
Cash collateral received/pledged
Other financial collateral received/pledged
Net amount after potential offsetting
Dec 21
Assets
Derivatives
4,721
2,379
2,342
1,127
729
0
487
Variation margin assets
332
328
4
0
0
0
4
Reverse repurchase agreements
16,777
0
16,777
0
8
16,492
276
Total
21,829
2,707
19,123
1,127
737
16,492
767
Liabilities
Derivatives
4,460
2,527
1,933
1,127
251
70
486
Variation margin liabilities
181
180
1
0
0
0
1
Repurchase agreements
1,586
0
1,586
0
2
1,584
0
Total
6,227
2,707
3,520
1,127
253
1,654
487
Comapred to the 2021 financial statements the tables were amended and the information about the variation margin assets and liabilities which was previously dislosed in the text is provided directly in the tables.
The impact of offsetting is shown in the column ‘Amounts offset (gross)’.
Erste Group undertakes interest rate derivative transactions via London Clearing House and EUREX, credit derivative transactions via ICE Clear Europe Ltd by fulfilling all offsetting requirements according IAS 32. Offsetting is carried out between gross asset and liability derivative positions. The net derivative position is further offset with variation margin amounts. As a result, the offsetting of derivatives has to be viewed in relation to the variation margin assets and liabilities balances. The sum of the amounts offset in the lines ‘Derivatives’ and ‘Variation margin assets’ in the table for financial assets equals the sum of the amounts offset in the lines ‘Derivatives’ and ‘Variation margin liabilities’ in the table for financial liabilities. The variation margin assets are presented under the balance sheet items ‘Cash and cash balances’. The variation margin liabilities are presented under the balance sheet item ‘Financial liabilities measured at amortised cost ’, sub-item ‘Deposits from banks’.
Erste Group employs master netting agreements and repurchase agreements as a means of reducing credit risk of derivative and financing transactions. They qualify as potential offsetting agreements.
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collateral or other financial collaterals the effects are disclosed in columns ‘Cash collateral received / pledged’ and ‘Other financial collateral received / pledged’ respectively.
Repurchase agreements are primarily financing transactions. They are structured as a sale and subsequent repurchase of securities at a pre-agreed price and time. This ensures that the securities remain in the hands of the lender as collateral in case the borrower defaults on fulfilling any of its obligations. Offsetting effects from repurchase agreements are disclosed in the column ‘Other 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 other financial collateral involved in these transactions is restricted from being used by the transferor during the time of the pledge. For further details regarding repurchase and reverse repurchase transactions we refer to Note 29 Transfers of financial assets – repurchase transactions and securities lending.
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29.Transfers of financial assets – repurchase transactions and securities lending
Repurchase and reverse repurchase agreements
Transactions involving sales of securities under an agreement to repurchase them at a specified future date are also known as ‘repos’ or ‘sale and repurchase agreements’. Securities sold in such transactions are not derecognised from the balance sheet, as Erste Group retains substantially all risks and rewards of ownership, because the securities are repurchased at a fixed price when the transaction ends. Furthermore, Erste Group is the beneficiary of all coupons and other income payments received on the transferred assets over the period of the transactions. These payments are remitted to Erste Group or are reflected in the repurchase price.
The cash received upon sale of securities is recognised on the balance sheet with a corresponding obligation to return under the line item ‘Financial liabilities 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 which is accrued over the life of the agreement and recorded in the statement of income in the line item ‘Interest expenses’ under ‘Net interest income’. Financial assets transferred out by Erste Group under repurchase agreements remain on the Group’s balance sheet and are presented separately under the original balance sheet items in the ‘thereof pledged as collateral’ lines. The measurement category of the transferred financial assets does not change.
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 line item ‘Financial assets at amortised cost’, sub-items ‘Loans and advances to banks’ and ‘Loans and advances 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 statement of income in the line item ‘Interest income’ under ‘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 lending. Securities lent are presented separately under the original balance sheet items in the ‘thereof pledged as collateral’ lines. Fee income from securities lending transactions is presented in the statement of income in the line ‘Fee and commission income’ under ‘Net fee and commission income’.
Securities borrowed are not recognised on the balance sheet unless they are then sold to third parties. If such sales occur, the obligation to return the securities is recorded on the balance sheet as a short sale within ‘Financial liabilities held for trading’, sub-item ‘Other financial liabilities’. Fee expense incurred on securities borrowing transactions is presented in the statement of income in the line ‘Fee and commission expenses’ under ‘Net fee and commission income’.
Dec 21
Dec 22
in EUR million
Carrying amount of transferred assets
Carrying amount of associated liabilities
Carrying amount of transferred assets
Carrying amount of associated liabilities
Repurchase agreements
753
739
1,882
1,650
Financial assets at AC
573
559
1,455
1,219
Trading assets
50
50
38
39
Financial assets at FVOCI
130
130
390
392
Securities lendings
982
0
671
0
Financial assets at AC
659
0
306
0
Trading assets
323
0
57
0
Financial assets at FVOCI
0
0
309
0
Total
1,735
739
2,554
1,650
The transferred financial instruments consist of bonds and other interest-bearing securities. The total amount of transferred financial assets represent the carrying amount of financial assets in the respective balance sheet positions for which the transferee has a right to sell or repledge. The associated liabilities from repo transaction, which are measured at amortised cost, represent an obligation to repay the borrowed funds.
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Dec 21
Dec 22
in EUR million
Fair value of transferred assets
Fair value of associated liabilities
Net position
Fair value of transferred assets
Fair value of associated liabilities
Net position
Financial assets at AC
572
559
13
1,297
1,221
76
Trading assets
50
50
0
38
39
-1
Financial assets at FVOCI
130
130
0
390
392
-2
Total
752
739
13
1,724
1,651
73
Carrying amount of financial assets pledged as collaterals
Dec 21
Dec 22
Financial assets at AC
41,386
43,141
Trading assets
380
99
Non-trading financial assets at FVPL
0
25
Financial assets at FVOCI
488
932
Total
42,254
44,196
The financial assets pledged as collateral consist of loans and advances to customers, bonds and other interest-bearing securities. Collaterals were pledged as a result of repurchase transactions, refinancing transactions with the European Central bank (ECB) and the respective National Banks, loans backing issued mortgage bonds and other collateral arrangements.
The fair value of collateral received which may be repledged or resold even without the collateral provider’s default was EUR 16,431.5 million (2021: EUR 18,500.3 million). Collateral with fair value of EUR 3,410.0 million (2021: EUR 1,122.8 million) was resold or repledged. The bank is obliged to return the resold and repledged collateral.
Dec 21
Dec 22
Financial assets
Financial assets
in EUR million
At AC
Trading assets
Mandatorily at FVPL
Designated at FVPL
At FVOCI
At AC
Trading assets
Mandatorily at FVPL
Designated at FVPL
At FVOCI
Bonds and other interest-bearing securities
35,551
4,125
1,499
476
8,749
40,612
5,977
1,223
327
9,460
Listed
33,027
1,841
701
98
6,832
38,587
1,779
614
52
7,714
Unlisted
2,524
2,284
798
379
1,917
2,025
4,198
609
275
1,747
Equity-related securities
0
84
332
0
132
0
70
347
0
99
Listed
0
76
113
0
56
0
64
132
0
41
Unlisted
0
9
219
0
77
0
6
215
0
58
Total
35,551
4,210
1,830
476
8,881
40,612
6,047
1,569
327
9,560
Investment funds units are reported within bonds and other interest bearing securities.
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Risk and capital management
Risk policy and strategy
Erste Group has developed a risk management framework that is forward-looking and tailored to its business and risk profile. This framework is based on a clear risk strategy that sets out general principles according to which risk taking must be performed across the Group. The risk strategy is consistent with the business strategy and incorporates the expected impact of external environment on the planned business and risk development.
The risk strategy describes the current and targeted risk profile, defines risk management principles, strategic goals and initiatives for the main risk types as well as sets strategic limits for the significant financial and non-financial risk types as defined in the Risk Materiality Assessment. The risk strategy is executed within a clearly defined governance structure. This structure also applies to monitoring of risk appetite, additional metrics, as well as to the escalation of limit breaches.
Erste Group uses the Internet as the medium for publishing its disclosures under Article 434 of the Regulation (EU) No. 575/2013 on prudential requirements for credit institutions and investment firms (Capital Requirements Regulation - CRR) and Regulation (EU) No. 876/2019 amending Regulation (EU) No. 575/2013. 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”.
Risk management organisation
Risk monitoring and control is achieved through a clear organisational structure with defined roles and responsibilities, delegated authorities and risk limits.
In 2022 the only organizational change on B-1 level in the CRO area was the transfer of the Group Legal division to the CEO area in order to bundle all legal/regulatory responsibilities within one board area. Other than that, the structure established in 2020 was continued and strengthened.
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 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 on 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:
_Group Liquidity and Market Risk Management;
_Enterprise wide Risk Management;
_Credit Risk Methods;
_Group Compliance;
_Retail Risk Management:
_Credit Risk Portfolio;
_Corporate Risk Management;
_Group Legal (until end of October 2022);
_Cyber Risk Management;
_Local Chief Risk Officers.
The management board regularly deals with risk issues of all risk types in its regular board meetings. Actions are discussed and taken when needed.
Furthermore, certain cross-divisional committees were established with the purpose of carrying out risk management activities in the Erste Group.
_Risk Committee of the Supervisory Board;
_CRO Board;
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_Holding Credit Committee;
_Market Risk Committee;
_Operative Market Risk Committee;
_Strategic Risk Executive Committee;
_Strategic Risk Management Committee;
_Stress Testing Committee;
_Group Resolution Committee;
_United States Risk Committee;
_Regional Operational Conduct Committee;
_Group IT Risk & Security Committee;
_Group Asset/Liability Committee;
_Operational Liquidity Committee;
_Banking Book Committee.
In addition, committees are established at local level, such as the “Team Risikomanagement” in Austria. It is responsible for a common risk approach with the Austrian savings banks.
Group-wide risk and capital management
Enterprise wide Risk Management (ERM) includes as its fundamental component the Internal Capital Adequacy Assessment Process (ICAAP) as required under Pillar 2 of the Basel framework and regulatory guides (e.g., ECB Guide to ICAAP).
The ERM framework is designed to support the management of the bank in managing the risk portfolios as well as the coverage potential and to ensure that the bank holds adequate capital for the nature and magnitude of its risk profile at all times. The framework is tailored to the Erste Group’s business and risk profile and reflects the strategic goal of protecting shareholders and senior debt holders while ensuring the sustainability of the organisation.
ERM framework is a modular and comprehensive management and steering system within Erste Group as well as 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 effective internal steering tool, can be clustered as follows:
_Risk Appetite Statement (RAS), limits and risk strategy;
_portfolio and risk analytics including Risk Materiality Assessment (RMA), concentration risk management, and stress testing;
_Risk-bearing Capacity Calculation (RCC);
_capital allocation and performance management;
_planning of key risk indicators;
_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
Risk appetite defines the maximum level of risk Erste Group is willing to accept in pursuing its business goals. The overall approach includes a risk appetite statement, risk limits, and the roles and responsibilities of those overseeing the implementation and monitoring of the risk appetite framework. Limit framework (i.e., risk appetite framework) of Erste Group includes risk limits set in Risk Appetite Statement and Risk Strategy, industry limits, maximum lending limits and operational limits.
The Group Risk Appetite Statement (Group RAS) represents a strategic statement that expresses the maximum level of risk it is willing to accept in order to deliver its business objectives. The Group RAS acts as a binding constraint to Erste Group’s business activities within its overall risk appetite via triggers and limits approved by the management board and the risk committee of the supervisory board and acknowledged by the supervisory board. It is integrated and embedded into Erste Group’s structural processes; including business and risk strategy, budgeting process, capital and liquidity planning, recovery plan, stress testing and remuneration framework. The Group RAS consists of a set of core risk metrics (capital, liquidity, risk/earnings) providing quantitative direction for overall risk-return steering and qualitative statements in the form of key risk principles that are part of the guidelines for managing risks.
The core risk metrics are set as ultimate boundaries for the Group risk-return target setting. They are also a key part of the annual strategic planning / budgeting process and give an overall picture of capital, liquidity and risk-return trade-offs. 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 target setting;
_support the group’s financial strength and the robustness of its systems and controls.
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is willing to accept. In order to ensure that the group remains within the targeted risk profile, a traffic light system was established and assigned to the core metrics. This approach allows a timely delivery of information to the respective governance and the implementation of effective remediation measures. The RAS traffic light system is defined as follows:
_RAS is green: The target risk profile is within the specified boundaries.
_RAS is amber: The undershooting or overshooting of a pre-defined threshold leads to an escalation to the designated governance and the discussion of potential remediation actions.
_RAS is red: The undershooting or overshooting of a pre-defined limit initiates an immediate escalation to the designated governance and a prompt implementation of remediation actions.
Moreover, stress indicators are defined for selected core metrics and integrated into the assessment of the stress test results. They are reported as early warning signals to the management board to support proactive management of the risk and capital profile.
In addition, supporting metrics and principles are defined by material risk type in the Group Risk Strategy based on Group RAS. These support implementation of the mid- to long-term strategy. Risk management governance ensures full oversight of risk decisions and 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.
Group RAS is also cascaded to local entities. Local RAS is approved by the management board to ensure compliance with the Group RAS and also approved by the local management board to ensure alignment with local regulatory requirements. The Group may also decide to include further compulsory constraints and limits in local RAS to ensure alignment with Group RAS and Group Risk Strategy.
The Group further developed an aggregated and consolidated risk appetite dashboard (Risk Dashboard) illustrating the group and local entities’ risk profile developments by comparing the risk exposure and risk limits. The Risk Dashboard is regularly presented to the management board and to the supervisory board (including risk committee of supervisory board) to support its review, oversight, and monitoring of the group risk profile and the risk profile of its local entities.
Group RAS 2022was approved by the management board and the risk committee of the supervisory board and acknowledged by the supervisory board in the last quarter of 2021.
ESG risks are embedded in the Risk Appetite Statement and in the risk strategy and are also part of Erste Group's Risk Materiality Assessments. They are integrated into Erste Group's risk taxonomy as transversal risks (risk types that have impact and are reflected through more than one key risk category) and are included in the relevant risk categories credit, market, liquidity and operational risk. Erste Group's definition of ESG risk is part of the Group ICAAP guideline and covers a wide range of risks arising from environmental, social and governance factors.
Portfolio and risk analytics
Erste Group uses dedicated infrastructure, systems and processes to actively identify, measure, control, report and manage risks within its portfolio. Portfolio and risk analytics processes are designed to quantify, qualify and discuss risks in order to raise aware-ness to management in a timely manner.
Risk materiality assessment
The Risk Materiality Assessment (RMA) determines the materiality of risk types and consequently the risk profile across Erste Group. RMA is an annual process with the purpose of systematic identification of new and assessment of all risks for the Group. Senior management may require to perform RMA on ad hoc basis in addition, in order to address changing operating environment or emerging risks (e.g., interim RMA performed in the second semester due to Russia-Ukraine war). As such, the RMA is an integral part of the ICAAP and serves as a steering tool for senior management.
Insights generated by the assessment are used to improve risk management practices and further mitigate risks within the Group. The assessment also serves as input for the design and definition of the Group’s risk strategy and Risk Appetite Statement. Key outputs and recommendations of the RMA are considered 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 important 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 is performed on an annual basis covering 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 RMA and to the setting/calibration of Erste Group’s limit system.
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Stress testing
Modelling sensitivities of the group’s assets, liabilities and profit or loss provide management steering information and help to optimise Erste Group’s risk-return profile. Stress tests help to factor in severe but plausible scenarios providing further robustness to measurement, steering and management. 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 process.
Erste Group’s most complex stress testing activities are scenario stress tests that take a comprehensive account of the impact of various economic scenarios, including second-round effects on all risk types (credit, market, liquidity and operational) and effects on the associated volumes of assets and liabilities as well as on profit and loss sensitivities. In addition to the standard scenario-driven stress testing exercises, reverse stress tests are performed 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 or unemployment rate) into risk parameters in order to support the stress testing process, which combines bottom-up and top-down approaches. For adapting the stress parameters, Erste Group additionally leverages the experience of its local professionals and uses, where appropriate, their statistical models to simulate the impacts of macroeconomic variables on the probabilities of default in the respective markets. Special attention is given to account for adequate granularity and special characteristics (i.e., countries and industries) when determining the segmentation in which the stressed parameters are defined.
In 2022, Erste Group participated in the ECB’s first Climate Stress Test, part of the wider “Climate roadmap”. Participation in this stress test was an important learning experience. Following the conclusion of this first climate stress test, Erste Group has taken steps to integrate climate risk into the internal stress testing framework. In particular, both physical risk and transition risk from projected climate change are now included in the internal stress testing framework.
Results from Erste Group’s internal stress tests are analysed in order to decide on appropriate measures and inform the bank steering. The internal comprehensive stress tests performed in 2022 indicated no breach of stressed RAS triggers after the application of scenario contingent measures in the final two years of adverse scenario.
Risk-bearing capacity calculation
The Risk-bearing Capacity Calculation (RCC) describes the methodology of Pillar 2 capital adequacy calculation. In contrast to the normative (regulatory) view of Pillar 1, referring to the Group’s ability to fulfil all of its capital-related regulatory and supervisory requirements and demands, the RCC is based on an economic view of Pillar 1+ approach, assuming continuation of Erste Group as expected by the ECB Guide to ICAAP. The RCC determines whether the Group has sufficient internal capital for covering all (regulatory and economic) risks it is exposed to. Economic and normative perspectives at Erste Group are set in a way to mutually inform each other and are integrated into all material business steering activities and decisions. In addition, with applied Pillar 1+ approach the Group increases efficiency and ensures comparability with the Pillar 1 calculation. Based on the results of the RMA, the economic capital is considered for relevant risk types as approved by the management board. The economic capital requirement is then compared to internally available capital (coverage potential) to cover the Group’s risks in Pillar 2. Both economic capital and coverage potential are computed on the CRR scope of consolidation of Erste Group as ultimate parent entity based on IFRS accounting standards.
Besides the Pillar 1 risk types (credit, market in trading book, FX in banking book and operational risks), interest rate risk in the banking book, credit spread risk in the banking book, risk from repayment vehicles as well as business risk are explicitly considered within the economic capital calculated over a horizon of one year and at a confidence level of 99.92%. For the calculation of the economic capital, Erste Group uses, where possible, more risk sensitive/advanced methodologies tailored to its individual risk profile and specificities of the Group’s individual risk exposures. Diversification effects between risks (inter-risk diversification) are not considered, reflecting the Group’s prudent approach to maintain sufficient internal capital in times when correlations between risks may change dramatically (like in times of stress). The largest portion of economic capital requirements is coming from credit risk, which accounts for 72.3% of total economic capital requirements at the end of 2022.
The calculation of internal capital or coverage potential required to cover Pillar 2 risks/unexpected losses is based on Pillar 1+ approach. Namely, CRR and CRR II (Regulation (EU) No. 575/2013 and Regulation (EU) No. 876/2019 amending Regulation (EU) No. 575/2013) regulatory own funds are adjusted by internal capital components (Pillar 2 adjustments) necessary to come to the internally available capital deemed as risk-bearing and loss absorbing from the economic view (e.g. exclusion of Additional Tier 1 and Tier 2 capital instruments, Pillar 2 IRB expected loss excess/shortfall add-on, year-to-date profit, if not already considered in Pillar 1 capital, etc.).
The coverage potential must be sufficient to absorb Pillar 2 risks/unexpected losses resulting from the Group’s operations at any point in time (normal and stressed), as reflected in the Group’s Risk Appetite through the limits set for Group economic capital adequacy and stressed capital adequacy utilisation. At the end of 2021, the economic capital adequacy was at 65.9%, fully in line with group RAS.
The management board and supervisory board (including risk committee of supervisory board) are briefed quarterly on the results of the ICAAP capital adequacy through the Group Risk Report and the Risk Dashboard. The former includes risk profile developments, available
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Risk planning
Methods and instruments applied
Key risk indicators covered by the Risk Planning framework include indicators that provide an overview of incurred or potential risks, with respect to both portfolio and economic environment developments. Indicators include RWA (and related indicators), port-folio quality indicators (impairments, NPL/NPE and relevant performance indicators etc.), as well as indicators required by the regulatory authorities under the responsibility of the Risk division.
Planning activities are performed in close cooperation with all stakeholders in the group´s overall process and follow a clear governance structure to ensure sound risk planning process.
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. Methodology for allocation reflects risk and controlling processes in order to allocate capital with risk-return considerations.
Erste Group’s aggregate capital requirements by risk type
The following diagrams present the composition of the economic capital requirements according to type of risk:
Other risks include business risk.
Recovery and resolution plans
The Directive (EU) 2014/59 as amended (Bank Recovery and Resolution Directive – BRRD) has been implemented in Austria into national law by the Austrian Recovery and Resolution Act (“Sanierungs- und Abwicklungsgesetz – BaSAG”). On 7 June 2019 a legislative package (EU Banking Package) was published in the Official Journal of the EU. The EU Banking Package comprises the Directive (EU) No 2013/36 (CRD IV), and the Regulation (EU) No 575/2013 (CRR) as well as the BRRD and the Regulation (EU) No 806/2014 as amended (SRMR). The EU Banking Package entered into force on 27 June 2019 and was amended into national legislation in AT on 28 June 2021.
Recovery Planning. In compliance with the current Austrian Banking Recovery and Resolution Law (“Bundesgesetz über die Sanierung und Abwicklung von Banken – BaSAG”), Erste Group annually submits a Group Recovery Plan to Joint Supervisory Team (JST). The Group Recovery Plan is regularly assessed by ECB. The Group Recovery Plan identifies potential options for the replenishment of capital and liquidity resources of the bank in order to cope with a range of severe scenarios including both idiosyncratic and market-wide stress. The Recovery Framework is mainly reconciled with the Risk Appetite Framework across indicators and indicator thresholds, ensuring comprehensive enterprise-wide risk management. It is relevant to demonstrate that in a severe stress, which is close to a failing or likely to fail situation, there is sufficient recovery capacity available in order to be able to recover back into the recovery green zone. The recovery governance described in the plan ensures timely identification and proper management of a recovery situation of Erste Group. Furthermore, the assessment of the Group Recovery Plan and the assessment of the overall recovery capacity are part of the Supervisory Review and Evaluation Process (SREP) assessment.
Resolution Planning. Erste Group collaborates with the 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). The legislative framework allows for a multiple-point-of-entry (MPE) or a single-point-of-entry (SPE) resolution strategy. The Resolution Authorities formed a joint decision in
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MREL. The Bank Recovery and Resolution Directive (BRRD) introduced the Minimum Requirement for Own Funds and Eligible Liabilities (MREL). MREL notifications are provided by the national resolution authorities on the level of resolution groups and relevant individual subsidiaries of resolution entities, reflecting the resolution strategy, based on the MREL joint decision taken by the resolution college. MREL requirements are expressed as a percentage of the total risk exposure amount (TREA) as well as leverage ratio exposure (LRE).
Regulatory Requirements
Since 1 January 2014, Erste Group has been calculating the regulatory own funds and the regulatory capital requirements according to the Capital Requirements Regulation (CRR, Regulation (EU) No. 575/2013) and the Capital Requirement Directive (CRD IV, Directive (EU) 2013/36/EU)1. Both the CRD IV and CRD V2 were transposed into national law in the Austrian Banking Act (ABA).
All requirements as defined in the CRR, the ABA and in technical standards issued by the European Banking Authority (EBA) are applied by Erste Group for regulatory purposes.
Furthermore Erste Group also fulfils capital requirements determined in the Supervisory Review and Evaluation Process (SREP).
Accounting Principles
The financial and regulatory figures published by Erste Group are based on IFRS. Eligible capital components are derived from the balance sheet and income statement which were prepared in accordance with IFRS.
Regulatory scope of consolidation and institutional protection scheme
The consolidated regulatory own funds and the consolidated regulatory capital requirements are calculated based on the scope of consolidation stipulated in the CRR. The definition pursuant to CRR differs from the scope of consolidation according to IFRS, which also includes insurance companies and other entities, that are subject to full consolidation.
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 Erste Group Bank AG and Erste Bank der oesterreichischen Sparkassen AG as well as Bausparkasse der österreichischen Sparkassen AG and all Austrian savings banks form this cross-guarantee system. Based on the cross-guarantee contract these entities are included as subsidiaries in Erste Group´s regulatory scope of consolidation.
Furthermore, Erste Group Bank AG together with the Haftungsverbund entities form an institutional protection scheme (IPS) according to Art. 113 para 7 CRR. Disclosure requirements for the institutional protection scheme according to Art. 113 para 7 e CRR are met by the publication of the consolidated financial statements, which cover all entities included in the institutional protection scheme.
Consolidated own funds
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 amount.
The items of own funds as disclosed are also used for internal capital management purposes, except AT1 and T2 capital instruments. Erste Group fulfilled the capital requirements throughout the reporting period.
1 Both CRD IV and CRR have been amended since the entry into force in 2014 inter alia with directive (EU) 2019/878 (CRD V) as well as regulations (EU) 2019/876 (CRR 2) and (EU) 2020/873 (CRR Quick Fix).
2 CRDV has been transposed by an amendment of the ABA (BGBl I 2021/98; BWG-Novelle) which entered into force on 31 May 2021.
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In addition to minimum capital ratios and capital buffer requirements, institutions also have to fulfil capital requirements determined in the Supervisory Review and Evaluation Process (SREP). As a result of the 2021 SREP process performed by the European Central Bank (ECB) Erste Group applies a Pillar 2 requirement (P2R) of 1.75% as of 31. December 2022.
Following the SREP 2021, Erste Group is expected to meet a Pillar 2 Guidance (P2G) of 1.0% with CET1, valid as of 1 January 2022 onwards.
Overview of capital requirements and capital buffers
Dec 21
Dec 22
Pillar 1
Minimum CET 1 requirement
4.50%
4.50%
Minimum Tier 1 requirement
6.00%
6.00%
Minimum Own Funds requirement
8.00%
8.00%
Combined buffer requirement (CBR)
4.68%
4.91%
Capital conservation buffer
2.50%
2.50%
Countercyclical capital buffer
0.18%
0.41%
Systemic risk buffer
1.00%
1.00%
O-SII capital buffer
1.00%
1.00%
Minimum CET 1 requirement (incl.CBR)
9.18%
9.41%
Minimum Tier 1 requirement (incl.CBR)
10.68%
10.91%
Minimum Own Funds requirement (incl.CBR)
12.68%
12.91%
Pillar 2
1.75%
1.75%
Minimum CET1 requirement
0.98%
0.98%
Minimum T1 requirement
1.31%
1.31%
Minimum Own Funds requirement
1.75%
1.75%
Total CET 1 requirement for Pillar 1 and Pillar 2
10.16%
10.40%
Total Tier 1 requirement for Pillar 1 and Pillar 2
11.99%
12.23%
Total Capital requirement for Pillar 1 and Pillar 2
14.43%
14.66%
Capital structure
Dec 21
Dec 22
in EUR million
Phased-in
Final
Phased-in
Final
Common equity tier 1 capital (CET1)
Capital instruments eligible as CET1
2,337
2,337
2,337
2,337
Retained earnings
14,156
14,156
15,425
15,425
Accumulated other comprehensive income
-1,706
-1,706
-1,820
-1,820
Minority interest recognised in CET1
5,219
5,219
5,866
5,866
Common equity tier 1 capital (CET1) before regulatory adjustments
20,006
20,006
21,808
21,808
Own CET1 instruments
-263
-263
-87
-87
Prudential filter: cash flow hedge reserve
206
206
197
197
Prudential filter: cumulative gains and losses due to changes in own credit risk on fair valued liabilities
207
207
23
23
Prudential filter: fair value gains and losses arising from the institution's own credit risk related to derivative liabilities
-4
-4
-21
-21
Value adjustments due to the requirements for prudent valuation
-86
-86
-104
-104
Securitizations with a risk weight of 1,250%
-33
-33
-31
-31
Goodwill
-550
-550
-556
-556
Other intangible assets
-392
-392
-386
-386
DTA that rely on future profitability and do not arise from temporary differences net of associated tax liabilities
-178
-178
-219
-219
CET1 capital elements or deductions – other
-109
-109
-180
-180
Common equity tier 1 capital (CET1)
18,804
18,804
20,443
20,443
Additional tier 1 capital (AT1)
Capital instruments eligible as AT1
2,236
2,236
2,236
2,236
Instruments issued by subsidiaries that are given recognition in AT1
7
7
6
6
Additional tier 1 capital (AT1) before regulatory adjustments
2,243
2,243
2,243
2,243
Own AT1 instruments
-1
-1
-1
-1
Additional tier 1 capital (AT1)
2,241
2,241
2,241
2,241
Tier 1 capital = CET1 + AT1
21,045
21,045
22,684
22,684
Tier 2 capital (T2)
Capital instruments eligible as T2
3,065
3,065
2,782
2,782
Instruments issued by subsidiaries recognised in T2
173
173
195
195
Transitional adjustments due to grandfathered T2 instruments
50
0
0
0
IRB excess of provisions over expected losses eligible
522
522
575
575
Tier 2 capital (T2) before regulatory adjustments
3,811
3,760
3,552
3,552
Own T2 instruments
-47
-47
-51
-51
Tier 2 capital (T2)
3,763
3,713
3,500
3,500
Total own funds
24,808
24,758
26,184
26,184
Capital requirement
10,196
10,372
11,343
11,514
CET1 capital ratio
14.8%
14.5%
14.4%
14.2%
Tier 1 capital ratio
16.5%
16.2%
16.0%
15.8%
Total capital ratio
19.5%
19.1%
18.5%
18.2%
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The position CET1 elements or deduction – others includes the development of unaudited risk provisions during the year (EU No 183/2014) and insufficient coverage for non-performing exposures (NPE Backstop) covering the requirements from both Art. 36 para 1 (m) CRR in connection with Art. 47(c) CRR and the Addendum to the ECB Guidance to banks on non-performing loans: supervisory expectations for prudential provisioning of non-performing exposures.
Risk structure
Dec 21
Dec 22
in EUR million
Total risk(phased-in)
Capital requirement(phased-in)
Total risk(phased-in)
Capital requirement(phased-in)
Total Risk Exposure Amount
127,448
10,196
141,793
11,343
Risk weighted assets (credit risk)
105,869
8,470
116,730
9,338
Standardised approach
18,869
1,510
20,945
1,676
IRB approach
86,994
6,959
95,780
7,662
Contribution to the default fund of a CCP
7
1
5
0
Settlement Risk
0
0
11
1
Trading book, foreign FX risk and commodity risk
3,671
294
7,027
562
Operational Risk
14,786
1,183
14,831
1,187
Exposure for CVA
390
31
418
33
Other exposure amounts (incl. Basel 1 floor)
2,730
218
2,775
222
Dec 21
Dec 22
in EUR million
Total risk(final)
Capital requirement(final)
Total risk(final)
Capital requirement(final)
Total Risk Exposure Amount
129,647
10,372
143,926
11,514
Risk weighted assets (credit risk)
108,068
8,645
118,863
9,509
Standardised approach
19,809
1,585
21,942
1,755
IRB approach
88,252
7,060
96,916
7,753
Contribution to the default fund of a CCP
7
1
5
0
Settlement Risk
0
0
11
1
Trading book, foreign FX risk and commodity risk
3,671
294
7,027
562
Operational Risk
14,786
1,183
14,831
1,187
Exposure for CVA
390
31
418
33
Other exposure amounts (incl. Basel 1 floor)
2,730
218
2,775
222
The position Other exposure amounts includes a RWA-add-on in view of the calculation of risk-weighted assets for credit risk in Banca Comercială Română (BCR). This RWA increase front-loads the expected difference in BCR between the treatments of exposures under the Standardised Approach compared to the treatment under IRB and is limited in time until the authorization of the IRB-approach in BCR (expected in 2023).
Credit risk strategy
In 2022, management attention was dedicated to the evolving Russia-Ukraine conflict, which poses serious threats to the European but also global economy. Erste Group is not directly impacted, as it has no operating presence in geopolitical region of Russia or Ukraine and also direct exposure to these two markets is immaterial. Still, a number of ad hoc risk management activities was undertaken in order to evaluate, actively steer and mitigate indirect impact on the capital position and risk profile. All stress scenarios, including ”no gas from Russia”, would have manageable impact on the Group risk profile, keeping all capital ratios above the limits.
Environmental, Social and Governance (ESG) risks remained one of the top priorities also in 2022.
Erste Group integrates ESG factors in its risk management and industry strategy framework. In the first place, the Erste Group ESG Factor Heatmap is used as a screening instrument to identify certain segments (out of the existing segmentation) that may be exposed to ESG risk factors and determine those industries which are more vulnerable to ESG risks. Erste Group establishes industry strategies and lending standards to support the steering of the portfolio under considerations of ESG risks; both are the basis for decisions, which determine which clients and transactions fit into the Group's portfolio.
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Secondly, the Group has established an ESG risk framework for the assessment of material ESG factors, related risks and appropriateness of the mitigating strategies in the credit and rating processes. In this manner, the Group takes ESG risk criteria into account, when making credit decisions.
For large corporate, commercial real estate and commercial residential real estate transactions, the Group conducts a systemic ESG analysis via an internal digital ESG Assessment questionnaire. The questionnaire is a mandatory prerequisite in the loan origination and monitoring process. Through this assessment, the Group is able to determine to which extent a client’s ESG strategy is aligned with Erste Group’s respective industry strategies. By providing a comprehensive ESG risk assessment, Erste Group is able to determine how certain ESG factors may have a positive or negative impact on the financial performance of clients. The questionnaire enables the Group to identify clients’ ESG risks or opportunities. Questions cover various dimensions, such as greenhouse gas emissions, impact of carbon prices on profitability, transition related CAPEX, waste, water consumption, biodiversity, physical risk impact, workers and human rights, as well as governance topics, to name a few. For clients that are identified as high ESG risk, a deep-dive assessment is triggered to understand the nature and severity of the risks to which the client is exposed. The questionnaire forms an integral part of the credit application and is updated at least annually, allowing Erste Group to understand the client's business model in the context of carbon transition.
Furthermore, ESG relevant data is collected for certain types of collateral, as defined in the Group Collateral Management Policy for real estate collateral valuations, documentation and reporting purposes. Environmental aspects which affect the value of the collateral have to be included in the real estate valuations, which can lead to a higher or lower valuation result. Moreover, any risks arising from social (e.g., location and transportation, mass urbanisation – being indicators for easy accessibility for people) and governance factors (such as bribery or legal proceedings) have to be considered as well. For commercial real estate assets, the questionnaire additionally includes an assessment of the building’s environmental footprint, providing an internal Technical Object Rating, as well as an assessment of the location sustainability based on ESG relevant criteria.
Regarding internal models a respective project to define and collect relevant climate risk drivers for all rating systems has started in 2022 to ensure the explicit consideration of climate risks in future model development initiatives. For the LGD models, climate risk is indirectly reflected via the collateral value.
Erste Group recognizes additional challenges caused by the ESG (environmental, social and governance) risks. The bank is in the process of analyses how these risks can be incorporated into ECL measurement. In the Risk Materiality Assessment, climate and environment-related risks are overall assessed as medium. This assessment is driven by the “Transition Risk” analysis as a small percentage of the portfolio still has high greenhouse gas emissions and would therefore be exposed to increased risk in the event of a disorderly transition scenario. Disorderly transition scenario was considered in the FLI downside (please see description of comprehensive stress test scenario in the “Measurement of expected credit loss” chapter). Erste Group further analyses if ESG overlays are necessary in the future. Consideration through FLI scenario was deemed sufficient for ECL measurement as of 31 December 2022.
Among the industries presented in the table “Credit risk exposure by industry and risk category” below in this chapter, Erste Group identified in the first step, as part of the strategic climate initiative for the Net Zero Banking Alliance, the Real Estate industry, Private Households (Mortgage Portfolio) and parts of the Energy sector (energy production and heat production) as important levers for setting the interim emission targets for 2030. Further sectors where Erste Group is exposed to high greenhouse gas emissions (due to either the credit risk exposure or its emission intensity) will be subject to the target setting process 2023, thus supporting the migration of “Transition Risk” in Erste Group financed portfolio.
Methods of credit risk management
Credit risk arises from Erste Group’s traditional lending and investment businesses.
Operative credit decisions are made by the credit risk management units in each subsidiary locally and by Corporate Risk Management at the group level.
Credit risk related to retail and SME loan portfolios is managed at the group and at local entity level with a common interest in order to ensure regulatory compliant risk management practices and to provide customers with manageable loan facilities that are within their financial capacities and supported by underlying profitability.
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 at a minimum on an annual basis and adjusted if necessary. They cover the entire lending business, considering 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 credit 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 credit default risk. The internal rating of each
96
customer is updated event-specific, however, at least once a year (annual rating review). Ratings of workout customers are reviewed with a 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, loss allowances and, where applicable, risk-weighted assets under Pillar 1 and 2.
For entities of Erste Group that use the internal ratings-based (IRB) approach, internal ratings are key input for the risk-weighted assets calculation. They are also used in the group’s assessment of the economic capital requirements 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 and each regional portfolio. 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 credit 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 continuously improve internal rating models and risk parameters in cooperation with risk managers. All Pillar 1 and 2, as well as IFRS9 models are subject of an annual review of their estimates, considering the inclusion of most recent data in the estimation of risk parameters, as well as a regular cycle of full model review. 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 prediction and discriminatory ability across its core regions.
The central Model Validation department is responsible for defining the validation methodologies and standards to be applied to all credit risk models within Erste Group as well as for conducting the validation activities across the whole Erste Group. All Pillar 1, material Pillar 2 and IFRS9 models are subject to an annual validation, while for non-material ones a regular validation cycle is implemented. Model Validation employs qualitative as well as quantitative validation methods to challenge conceptual soundness, performance and model use aspects. The validation outcomes are approved by the respective model committees and, in case of IRB models, shared with the regulatory bodies. In addition to the validation process, the group applies a regular monitoring process on the performance of IRB models, reflecting developments in new defaults and early delinquencies.
Approvals of all new models, model changes, changes to risk parameters within the group, changes in group-wide methodological standards and other model-related aspects are following a dual approval process within the Group – corresponding Holding and local model committee structures reflect joint responsibilities for decisions on Pillar 1 IRB and Pillar 2 credit risk models as well as on methodologies related to IFRS9 parameters. Responsibilities are assigned depending on model perimeter (group-wide or locally developed model). In this context, the following committees are established: Strategic Risk Executive Committee and Strategic Risk Management Committee.
Ultimate responsibility for all models used within the Group (at consolidated level) lies with the Group CRO. All model governance, development, validation, data management and monitoring activities are coordinated by the Credit Risk Methods division.
Credit risk classification
For the disclosure of asset quality Erste Group assigns each customer to one of 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, who may have overdue payments or defaults in their credit history or may encounter 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.
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Non-performing. One or more of the default criteria under Article 178 of the CRR are met, which include 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. 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. All non-performing exposures are also defaulted.
The materiality of 90 days past due credit obligation is applied for on-balance exposure at client level and assessed daily against the group-wide defined materiality threshold (except the local regulator has defined different thresholds) for the:
_retail exposure: as an absolute limit on client level of 100 EUR and relative 1% on client level;
_non-retail exposure: as an absolute limit on client level of 500 EUR and relative 1% on client level.
Based on the calibration of internal PDs (probabilities of default) for regulatory purposes to the default rates published by rating agencies, the equivalent external customer rating is used for the assignment to risk categories. For the agency ratings, average one-year default rates resulting from long-term time series are applied.
In 2022, the method of assigning the external customer ratings to the internal PDs was reviewed. The main adjustments were the update of the one one-year default rates for the agency ratings and the redefinition of the internal PD assignment for the different rating methods, resulting in a more stable distribution of exposure to risk categories over time. Compared to the method used for the assignment of credit exposures to risk categories until 2021, the adjusted methodology results in a decrease of the portfolio share of the “Low risk” category by 2.6 percentage points, as of 31 December 2021. The “Management attention” and “Substandard” categories increase by 2.2 and 0.4 percentage points. The “Non-performing” risk category was not affected by the adjustment of the methodology.
Credit risk review and monitoring
Retail Risk Management as well as Credit Risk Portfolio in cooperation with Corporate Risk Management conduct periodical reviews of the loan portfolio for each local entity to ensure an adequate portfolio quality and to monitor the compliance of local portfolios with the principles and parameters as stipulated by Erste Group’s credit risk policies.
All credit limits and the transactions booked within the limits are reviewed at least once a year. Counterparty credit risk limits are monitored daily in an internal limit management system with remedial actions taken in case limits are exceeded.
A group-wide standardised early warning monitoring process is implemented to proactively identify negative developments. The early warning monitoring process for corporate clients is managed at group level by Credit Risk Portfolio and, at subsidiary level, by the local units responsible for corporate risk management, retail risk management and collections, for respective segments. When early warning signals are identified and validated, the overall client exposure and creditworthiness is reviewed, and adequate risk mitigating actions are taken if deemed necessary. Watch list review meetings are held on a regular basis to monitor customers with a poor credit standing and to discuss pre-emptive measures. 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 early warning signals for adverse portfolio developments include, for instance, quality deterioration in new business or a decreasing collections effectiveness and require appropriate countermeasures. Additionally, the monitoring is performed for clients where early warning signals have been identified, even if they are still fulfilling their contractual repayment obligations.
Adverse portfolio developments regarding the non-performing and substandard loans portfolio of Erste Group are monitored, discussed and reported. In case of further negative developments clients are handled in specialized workout units aiming to minimize potential losses.
Credit risk exposure relates to the sum of the following balance sheet items:
_cash and cash balances - demand deposits to credit institutions;
_instruments (derivatives and debt securities) held for trading (HfT);
_non-trading debt instruments at fair value through profit or loss (FVPL);
_debt instruments at fair value through other comprehensive income (FVOCI);
_debt instruments at amortised cost (AC), other than trade and other receivables;
_trade and other receivables (for disclosure purposes in the tabular summaries below, any contract assets are also included in this category);
_finance lease receivables;
_debt instruments held for sale in disposal groups;
_positive fair value of hedge accounting derivatives;
_off-balance sheet exposures (primarily financial guarantees and undrawn loan commitments).
The credit risk exposure equates the gross carrying amount (or nominal value in the case of off-balance sheet positions) excluding:
_credit loss allowances for financial assets;
_credit loss allowances for loan commitments and financial guarantees;
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_provisions for other commitments;
_any collateral held (including risk transfer to guarantors);
_netting effects;
_other credit enhancements;
_credit risk mitigating transactions.
Between the 31 December 2021 and 31 December 2022, the credit risk exposure increased from EUR 312,439 million to EUR 349,166 million. This is an increase of 11.8% or EUR 36,727 million.
99
Reconciliation between the gross carrying amount and the carrying amount of the credit risk exposure components
Credit risk exposure
Credit loss allowances
Adjustments
Net carrying amount
Dec 22
Cash and cash balances - demand deposits to credit institutions
723
-1
0
722
Instruments HfT
7,695
0
0
7,695
Non-trading debt instruments at FVPL
2,389
0
0
2,389
Debt securities
1,549
0
0
1,549
Loans and advances to banks
0
0
0
0
Loans and advances to customers
839
0
0
839
Debt instruments at FVOCI
9,929
-24
-444
9,460
Debt securities
9,929
-24
-444
9,460
Loans and advances to banks
0
0
0
0
Loans and advances to customers
0
0
0
0
Debt instruments at AC
257,217
-3,857
0
253,360
Debt securities
40,633
-22
0
40,612
Loans and advances to banks
18,441
-6
0
18,435
Loans and advances to customers
198,143
-3,830
0
194,313
Trade and other receivables
2,469
-65
0
2,404
Finance lease receivables
4,639
-86
0
4,553
Debt instruments held for sale in disposal groups
154
-4
0
150
Positive fair value of hedge accounting derivatives
159
0
0
159
Off-balance sheet exposures
63,792
-534
0
-
Financial guarantees
7,643
-177
0
-
Loan commitments
48,434
-292
0
-
Other commitments
7,716
-65
0
-
Total
349,166
-4,572
-444
280,892
Dec 21
Cash and cash balances - demand deposits to credit institutions
1,033
-1
0
1,033
Instruments HfT
6,389
0
0
6,389
Non-trading debt instruments at FVPL
2,793
0
0
2,793
Debt securities
1,975
0
0
1,975
Loans and advances to banks
10
0
0
10
Loans and advances to customers
808
0
0
808
Debt instruments at FVOCI
8,655
-23
94
8,749
Debt securities
8,655
-23
94
8,749
Loans and advances to banks
0
0
0
0
Loans and advances to customers
0
0
0
0
Debt instruments at AC
233,402
-3,761
0
229,641
Debt securities
35,565
-15
0
35,551
Loans and advances to banks
20,998
-6
0
20,991
Loans and advances to customers
176,839
-3,740
0
173,099
Trade and other receivables
2,239
-87
0
2,152
Finance lease receivables
4,319
-111
0
4,209
Debt instruments held for sale in disposal groups
0
0
0
0
Positive fair value of hedge accounting derivatives
79
0
0
79
Off-balance sheet exposures
53,529
-544
0
-
Financial guarantees
6,796
-180
0
-
Loan commitments
40,593
-284
0
-
Other commitments
6,141
-80
0
-
Total
312,439
-4,527
94
255,044
Credit loss allowances comprise impairments for financial assets measured at amortised cost (including finance lease and trade and other receivables) and at fair value through other comprehensive income (FVOCI), as well as credit loss allowances and provisions for off-balance sheet exposures. Adjustments refer to the fair value changes of the carrying amount for financial assets at FVOCI; to align with the accounting view, starting with the current reporting period the value presented in adjustments does not include allowances.
Breakdown of credit risk exposure
On the following pages the credit risk exposure is presented according to different segmentation criteria.
100
Credit risk exposure by industry and risk category
Low risk
Management attention
Substandard
Non-performing
Total
Dec 22
Natural Resources & Commodities
9,808
3,103
691
279
13,881
Energy
12,869
1,802
191
49
14,912
Construction and building materials
11,481
3,681
637
311
16,111
Automotive
5,836
1,316
228
335
7,715
Cyclical Consumer Products
6,189
2,465
353
307
9,314
Non-Cyclical Consumer Products
7,618
1,780
388
161
9,947
Machinery
4,688
1,019
324
157
6,188
Transportation
4,656
2,352
273
113
7,394
TMT; Telecommunications, Media, Technology
6,104
970
249
165
7,487
Healthcare & Services
8,662
1,831
407
224
11,123
Hotels & Leisure
6,614
2,019
429
425
9,487
Real Estate
36,434
5,459
844
471
43,208
Public Sector
66,263
602
119
10
66,994
Financial Institutions
26,373
1,274
390
36
28,074
Private Households
85,577
6,955
3,004
1,456
96,992
Other
251
39
44
5
339
Total
299,423
36,667
8,570
4,505
349,166
Dec 21
Natural Resources & Commodities
9,129
2,056
435
333
11,953
Energy
7,700
988
111
89
8,888
Construction and building materials
10,481
1,889
373
364
13,106
Automotive
5,043
650
149
295
6,136
Cyclical Consumer Products
5,389
1,156
264
304
7,113
Non-Cyclical Consumer Products
7,161
1,068
286
186
8,701
Machinery
4,174
772
135
131
5,212
Transportation
4,104
1,538
245
184
6,071
TMT; Telecommunications, Media, Technology
4,779
710
82
90
5,661
Healthcare & Services
7,895
1,572
248
169
9,884
Hotels & Leisure
5,919
2,464
520
472
9,375
Real Estate
31,940
6,172
906
425
39,443
Public Sector
64,103
735
194
0
65,032
Financial Institutions
20,652
1,156
141
31
21,980
Private Households
84,829
4,808
2,046
1,552
93,234
Other
534
47
64
3
648
Total
273,833
27,781
6,199
4,626
312,439
in EUR million
Low risk
Management attention
Substandard
Non-performing
Total
Dec 21
Agriculture and forestry
2,317
944
221
134
3,616
Mining
644
75
10
21
750
Manufacturing
17,211
2,763
644
687
21,306
Energy and water supply
4,525
850
96
48
5,519
Construction
10,455
2,780
316
306
13,856
Development of building projects
5,356
1,218
60
79
6,713
Trade
12,550
2,628
479
456
16,112
Transport and communication
6,880
1,473
299
182
8,834
Hotels and restaurants
3,341
1,673
404
332
5,750
Financial and insurance services
39,654
1,406
168
87
41,316
Holding companies
3,911
433
66
42
4,452
Real estate and housing
29,170
5,277
880
347
35,674
Services
13,962
1,904
362
418
16,646
Public administration
47,115
621
173
1
47,909
Education, health and art
3,108
629
105
61
3,903
Households
82,492
4,725
1,974
1,546
90,736
Other
410
34
67
0
511
Total
273,833
27,781
6,199
4,626
312,439
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From current reporting period Erste Group presents the portfolio industry distribution based on the internal segmentation, instead of previously reported regulatory (FINREP) segmentation, as it more accurately represents the view used for internal steering of the portfolio. For the purpose of comparison, above it is showed both regulatory and internal industry segmentation for year-end 2021. The most significant differences between regulatory and internal industry segmentation refer to segmentation of Services, Financial Institutions and Private Households. Regulatory industry segment Services is internally assigned according to the main activity of the counterparty to Healthcare & services, Hotels & leisure or Cyclical consumer products. In the Financial and insurance services segment, central banking operations are considered under Public sector segment, while collective of private individuals that are flat owners is considered under Private households and not Real Estate (as in regulatory segmentation).
With 85,8%, the low risk exposure has the highest share in total credit risk exposure, while management attention represents 10.5%. The substandard exposure contributes 2.5% and the non-performing category 1.3%.
From industry and financial instrument point of view, the highest exposure is represented by households in loans and advances to customers with EUR 84,825 million, representing 24.3% from total exposure, followed by real estate and housing in loans and advances to customers with an exposure of EUR 37,007 million representing 10.6% from total and public sector in debt securities with an exposure of EUR 30,814 million representing 8.8% from total.
Credit risk exposure by region and risk category
The geographic analysis of credit risk exposure is based on the country of risk of borrowers and counterparties. It 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 operating segments of Erste Group.
Low risk
Management attention
Substandard
Non-performing
Total
Dec 22
Core markets
254,254
33,625
7,531
3,968
299,379
Austria
119,508
12,861
2,599
1,994
136,962
Czech Republic
66,699
6,641
1,304
762
75,406
Slovakia
23,572
4,640
1,514
308
30,034
Romania
19,615
3,041
579
348
23,582
Hungary
12,276
2,417
973
181
15,847
Croatia
9,146
3,398
462
325
13,332
Serbia
3,439
627
100
51
4,217
Other EU
26,629
1,471
548
349
28,997
Other industrialised countries
13,023
215
131
41
13,409
Emerging markets
5,517
1,357
360
147
7,382
Southeastern Europe/CIS
3,158
1,015
243
119
4,537
Asia
1,918
87
21
17
2,043
Latin America
137
58
3
9
207
Middle East/Africa
304
196
93
2
595
Total
299,423
36,667
8,570
4,505
349,166
Dec 21
Core markets
238,499
24,809
5,538
4,049
272,894
Austria
112,060
11,775
1,674
1,866
127,375
Czech Republic
62,361
4,528
1,131
736
68,756
Slovakia
22,793
1,721
1,085
308
25,906
Romania
18,097
1,846
334
428
20,705
Hungary
12,972
1,272
617
204
15,065
Croatia
7,180
3,268
600
466
11,514
Serbia
3,035
400
97
41
3,574
Other EU
22,884
1,444
305
329
24,962
Other industrialised countries
6,973
394
42
68
7,477
Emerging markets
5,477
1,134
314
180
7,105
Southeastern Europe/CIS
3,021
806
186
139
4,152
Asia
1,999
97
30
29
2,155
Latin America
158
15
5
11
189
Middle East/Africa
299
215
93
2
609
Total
273,833
27,781
6,199
4,626
312,439
The credit risk exposure increased by EUR 9,586 million, or 7.5% in Austria, and by EUR 16,898 million, or 11.6% in the CEE core markets. In the other EU member states (EU 27 excluding core markets), the credit risk exposure increased by EUR 4,034 million, or 16.2%, while in other industrialised countries the increase in exposure amounted to EUR 5,932 (79.3%). The emerging markets registered an increase of EUR 276 million or 3.9%. In total, Erste Group’s core markets and the EU accounted for 94.0% (2021: 95.3%) of credit risk exposure. At 2.1% (2021: 2.3%), the share of emerging markets remained of minor importance.
102
Credit risk exposure by reporting segment and risk category
The reporting of operating segments of Erste Group conforms to the internal management and control structure and is based on geographical segments in order to provide more comprehensive information the segmental reporting also comprises business segments.
Credit risk exposure by geographical operating segment and risk category
Low risk
Management attention
Substandard
Non-performing
Total
Dec 22
Austria
160,368
15,346
3,442
2,490
181,647
EBOe & Subs.
44,860
4,991
1,111
624
51,585
Savings Banks
67,138
9,036
1,806
1,380
79,360
Other Austria
48,370
1,319
526
486
50,702
CEE
127,463
21,286
5,128
1,997
155,874
Czech Republic
67,470
6,927
1,402
798
76,597
Slovakia
20,409
4,622
1,576
299
26,906
Romania
17,674
3,083
577
356
21,690
Hungary
9,483
2,353
968
178
12,982
Croatia
9,567
3,696
513
317
14,092
Serbia
2,860
606
91
50
3,607
Other
11,592
35
1
17
11,645
Total
299,423
36,667
8,570
4,505
349,166
Dec 21
Austria
145,492
14,367
2,142
2,426
164,428
EBOe & Subs.
44,404
3,646
558
602
49,210
Savings Banks
63,498
9,009
1,215
1,387
75,109
Other Austria
37,589
1,712
370
438
40,109
CEE
120,294
13,369
4,056
2,183
139,901
Czech Republic
64,315
4,884
1,230
767
71,197
Slovakia
19,538
1,607
1,097
297
22,539
Romania
16,352
1,729
334
458
18,872
Hungary
10,287
1,139
612
200
12,238
Croatia
7,402
3,627
687
421
12,139
Serbia
2,399
382
96
40
2,917
Other
8,048
45
0
17
8,110
Total
273,833
27,781
6,199
4,626
312,439
Credit risk exposure by business segment and risk category
Low risk
Management attention
Substandard
Non-performing
Total
Dec 22
Retail
65,536
10,167
3,280
1,381
80,364
Corporates
92,938
16,584
3,131
1,694
114,347
Group Markets
18,785
533
193
0
19,511
ALM & LCC
54,899
318
160
32
55,409
Savings Banks
67,138
9,036
1,806
1,380
79,360
GCC
127
30
1
17
175
Total
299,423
36,667
8,570
4,505
349,166
Dec 21
Retail
67,049
5,674
2,458
1,507
76,689
Corporates
75,274
12,318
2,359
1,693
91,644
Group Markets
18,398
392
23
2
18,815
ALM & LCC
49,356
359
144
19
49,878
Savings Banks
63,498
9,009
1,215
1,387
75,109
GCC
258
29
0
17
304
Total
273,833
27,781
6,199
4,626
312,439
Recognition of credit collateral
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Collateral Management is integrated in Underwriting Processes department of Credit Risk Portfolio division. The Group Collateral Management Policy Part 1 Credit Collateral defines, among other topics, 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 collateral type and based on the internal work instructions in accordance with the individual supervisory requirements. Whether a type of collateral 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. Credit underwriting monitors adherence to the standard processes stipulated for assigning the acceptable collateral assets to the categories available.
Main types of credit collateral
Mostly, the following types of credit collateral are accepted:
_real estate: residential and commercial real estate;
_financial collateral: securities, cash deposits and life insurance policies;
_guarantees: given by sovereigns, public sector entities, financial institutes, companies and private individuals. All guarantors must have a minimum credit rating, which is reviewed annually;
_movables: equipment, investment goods, machinery and motor vehicles;
_claims and rights: trade account receivables, leasehold rights and shares in a company’s capital.
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.
Real estate valuation may only be performed by qualified valuators who are independent of the credit decision process. The valuation is to be made according to international, European or national standards and has to follow valuation methods defined by the bank. Internal guidelines define criteria of qualification and requirements of independence for the selection of valuators. A valuator may only perform two sequential valuations of the same asset, any further valuation has to result in the rotation of the valuator. For quality assurance purposes, real estate valuators and real estate valuations are supervised 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 discounts are adjusted regularly – at least once a year – to reflect the recoveries under consideration of foreseeable developments (like expected real estate price changes).
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, or when defined triggers are exceeded. Particularly real estate collateral assets in development, showing problems like significant cost or time overrun, as well as assets, collateralizing loans with lower credit quality, are monitored or revalued with higher frequencies.
Concentration risks resulting from credit risk mitigation techniques may affect a single customer, but also a portfolio defined by region, industry, or type of collateral. 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. All guarantee liabilities and loans of a corporate guarantee provider are taken into consideration in the credit application process in order to prevent possible concentrations. Guarantees provided by sovereigns, a public sector entity or financial institutions have to lie within the approved limit of the guarantor. 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 2022, the carrying value of these assets obtained during the reporting period amounted to EUR 4 million (2021: EUR 4 million).
Treasury collateral
The department Trading Book Risk Management is responsible for treasury collateral. The Group Collateral Management Policy Part 2 defines, among other things, uniform valuation standards for treasury collateral across the entire group.
104
Netting agreements make it possible to net all amounts due or payable for each individual transaction under a framework agreement in the case of a credit default, with the result that only the net receivables vis-à-vis the business partner are of relevance for credit risk. Within the scope of these collateral agreements, the portfolio with the respective counterparty is revalued periodically, usually daily, and in case of insufficient coverage additional collateral is requested. The policy restrictions on collateral types ensure that collateral received predominantly consists of cash or securities of investment grade quality. In the case of securities used as collateral, an additional valuation discount (haircut) depending on credit quality and residual maturity is applied.
The following table compares the credit risk exposure broken down by financial instrument to the allocated collateral which corresponds to the accepted value after internal haircuts capped by the exposure amount.
Credit risk exposure by financial instrument and collateral
Collateralised by
IFRS 9 impairment relevant
in EUR million
Total credit risk exposure
Collateral total
Guarantees
Real estate
Other
Credit risk exposure net of collateral
Neither past due nor credit impaired
Past due but not credit impaired
Credit impaired
Dec 22
Cash and cash balances - demand deposits to credit institutions
723
81
0
0
81
642
694
29
0
Instruments HfT
7,695
171
171
0
0
7,525
0
0
0
Non-trading debt instruments at FVPL
2,389
832
662
169
1
1,557
0
0
0
Debt instruments at FVOCI
9,929
587
587
0
0
9,341
9,917
9
3
Debt instruments at AC
257,217
135,090
11,794
101,418
21,878
122,127
250,718
2,584
4,070
Debt securities
40,633
1,629
1,629
0
0
39,004
40,625
4
4
Loans and advances to banks
18,441
16,654
1,854
0
14,801
1,787
18,441
0
0
Loans and advances to customers
198,143
116,807
8,311
101,418
7,077
81,336
191,651
2,580
4,066
Trade and other receivables
2,469
62
43
1
18
2,407
1,545
866
58
Finance lease receivables
4,639
2,679
72
215
2,392
1,960
4,350
201
88
Debt instruments held for sale in disposal groups
154
0
0
0
0
154
0
0
0
Positive fair value of hedge accounting derivatives
159
0
0
0
0
159
0
0
0
Off-balance sheet exposures
63,792
7,426
230
3,781
3,415
56,366
51,932
453
202
thereof other commitments
7,716
1,199
0
163
1,036
6,517
0
0
0
Total
349,166
146,928
13,559
105,584
27,785
202,238
319,156
4,141
4,421
Dec 21
Cash and cash balances - demand deposits to credit institutions
1,033
106
0
0
106
928
1,015
18
0
Instruments HfT
6,389
97
96
1
0
6,292
0
0
0
Non-trading debt instruments at FVPL
2,793
796
614
174
8
1,996
0
0
0
Debt instruments at FVOCI
8,655
666
666
0
0
7,989
8,657
0
0
Debt instruments at AC
233,402
121,873
10,865
88,142
22,866
111,529
227,157
2,144
4,101
Debt securities
35,565
1,596
1,596
0
0
33,969
35,566
0
0
Loans and advances to banks
20,998
17,670
1,379
0
16,291
3,328
20,997
0
0
Loans and advances to customers
176,839
102,607
7,891
88,142
6,574
74,233
170,594
2,144
4,101
Trade and other receivables
2,239
75
61
1
13
2,165
1,532
622
82
Finance lease receivables
4,319
2,467
57
227
2,182
1,852
4,034
134
151
Debt instruments held for sale in disposal groups
0
0
0
0
0
0
0
0
0
Positive fair value of hedge accounting derivatives
79
0
0
0
0
79
0
0
0
Off-balance sheet exposures
53,529
6,567
191
3,518
2,857
46,963
47,178
27
185
thereof other commitments
6,141
976
2
139
834
5,165
0
0
0
Total
312,439
132,646
12,551
92,064
28,031
179,793
289,573
2,946
4,519
The collateral attributable to exposures that are credit-impaired as of 31 December 2022 amounts to EUR1,986 million (2021: EUR 2,075 million).
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37.Measurement of expected credit loss
The general principles and standards for credit loss allowances are governed by internal policies in Erste Group. According to IFRS 9, credit loss allowances are calculated for all components of credit risk exposures which are measured at amortised cost (AC) or at fair value through other comprehensive income. They include debt securities, loans and advances, demand deposits on nostro accounts with commercial banks as well as finance lease and trade receivables. In addition, credit loss allowances are calculated for loan commitments and financial guarantees if they meet the applicable IFRS 9 definitions.
Classification into stages and definition of credit-impaired financial instruments
There are three main stages outlined for expected credit loss (ECL) determination. The stages approach applies to financial instruments within the scope of the impairment requirements of IFRS 9 and those that are not categorised as purchased or originated credit impaired financial assets (POCI), which form a category of their own. Depending on the impairment status and the assessment of the development of credit risk, these financial instruments are assigned to one of the three stages, as described in the chapter “Financial instruments – Significant accounting policies”, in the section “Impairment of financial instruments”
Significant increase in credit risk determination
Assessment of significant increase in credit risk (SICR) of financial instruments as at the reporting date since initial recognition is one of the key drivers affecting the amount of the ECL recognised based on IFRS 9 requirements. In this respect, across portfolios and product types, quantitative and qualitative indicators are defined for assessing SICR, including the indicator of 30 days-past-due (DPD).
Erste Group methodology allows introduction of the cure periods for migrations back to Stage 1 from Stage 2 in addition to those already established in general credit risk practices (forbearance, watch lists, default). They are rarely applied, only in specific countries for specific criteria without significant effect on the overall expected credit loss or Stage 2.
Quantitative criteria. Quantitative SICR indicators include adverse changes in lifetime probability of default with significance being assessed by comparison to the thresholds. The bank has established thresholds for significant increases in credit risk based on both a percentage (relative) and absolute change in PD compared to initial recognition. SICR occurs for a particular financial instrument, when both the relative and the absolute thresholds are breached.
The relative measure is calculated as a ratio between current annualised LT PD and annualised LT PD value on initial recognition, considering remaining maturity of the instrument. Cumulative LT PD comparison can be used for simplification according to Erste Group methodology; however, such approach is rarely used. The breach means that such ratio has reached or is higher than the established threshold. These relative thresholds for SICR assessment are established at PD segment level or client rating level for each consolidated entity, as necessary, and are subject to initial and on-going validation.
Relative thresholds for SICR assessment by geographical operating segment
Threshold interval (x times)
Min
Max
Dec 22
Austria
1.13
2.60
EBOe & Subs.
1.13
2.60
Savings Banks
1.13
2.60
Other Austria
1.13
2.60
CEE
1.03
4.08
Czech Republic
1.13
3.59
Slovakia
1.13
4.08
Romania
1.13
3.37
Hungary
1.13
3.21
Croatia
1.13
3.13
Serbia
1.03
3.47
Total
1.03
4.08
Dec 21
Austria
1.13
2.37
EBOe & Subs.
1.13
2.37
Savings Banks
1.13
2.37
Other Austria
1.13
2.37
CEE
1.03
4.08
Czech Republic
1.13
3.59
Slovakia
1.13
4.08
Romania
1.13
3.37
Hungary
1.13
3.21
Croatia
1.13
3.13
Serbia
1.03
3.47
Total
1.03
4.08
107
Thresholds might seem to show high dispersion, but they are driven mainly by regional and rating diversity. Regions with higher credit quality portfolios have lower thresholds than those with lower credit quality portfolios. The minimal threshold in almost all regions of 1.13 refers to sovereign rating classes that are centrally established. The average threshold of the Group is between 2 and 3.
There are certain portfolios where SICR quantitative criteria are assessed based on the ratings rather than PDs. Predefined rating notches’ downgrade leads to SICR recognition. These rules are applied primarily to leasing and factoring business receivables.
Erste Group has not significantly recalibrated relative thresholds since IFRS9 implementation. They are kept stable as one of the most significant estimates in ECL measurement. Validation finding or significant change of PD models would lead to thresholds’ recalibration. There were re-estimations only for individual entities and portfolios.
The absolute threshold refers to difference of LT PD on initial recognition and current LT PD (annualized or cumulative values). It is set to a maximum of 50 bps and serves as a backstop for migrations between the best ratings (LT PDs considered for remaining maturity). In such cases, relative thresholds may be breached, however overall LT PD is very low, and therefore SICR is not triggered.
Qualitative criteria. Qualitative SICR indicators include forbearance-type flags (identification of regulatory forbearance), work-out transfer flags (when the account starts being monitored by the work-out department), information from the early-warning system (if it is not sufficiently considered in the rating) and fraud indicators. The assignment of some of the qualitative indicators inherently relies on experienced credit risk judgment being exercised adequately and in a timely manner. The related group-wide and entity-level credit risk controlling policies and procedures (adapted as necessary in the light of transition to IFRS 9) ensure the necessary governance framework. These indicators are used internally for identification of insolvency or increased probability that a borrower will enter bankruptcy and there is increased risk of default in the foreseeable future.
Besides the qualitative indicators defined on a client level, the assessment of a significant increase in credit risk is performed on a portfolio level if the increase in credit risk on individual instruments or at a client level is available only with a certain time lag or is observable exclusively on a portfolio level.
Examples are Stage 2 overrides for parts of Swiss franc retail portfolio or in case of high LTV loans resulting from a specific law in Romania (clients are allowed to give up on real estate collateral against waiver of principal).
Erste Group has introduced additional portfolio level SICR assessment criteria due to the war in Ukraine (implemented in 2022) and related economic impacts. Similarly, from 2020 till Q3-2022 portfolio assessment due to the Covid-19 pandemic was established. For more details refer to “Collective assessment” in the next chapter.
Considering the war in Ukraine, Erste Group started with a portfolio screening in local entities to identify customers affected by the secondary effects of the geopolitical risk (Erste Group has only very limited exposure towards the affected region, therefore no significant primary effects recognized). In combination with an early warning classification, “Watch” and ”Intensified”, these customers are transferred into Stage 2 and lifetime ECL are calculated. As of 31 December 2022, the corresponding groupwide exposure to these customers amounted to EUR 349 million, with EUR 16 million of allocated credit loss allowances (a significant part is overlapping with stage overlays defined in the ”Collective assessment” chapter).
Backstop. A backstop is applied, and the financial instruments are considered to have experienced a SICR if the borrower is more than 30 days past due on contractual payments. As observed during validation, this does not represent a major trigger for Stage 2 classification.
Low credit risk exemption. The “Low credit risk exemption” allowed by IFRS 9 for “Investment grade” assets or other assets deemed “Low risk” (and resulting in 12 months expected credit losses being calculated irrespective of SICR quantitative measures) has been implemented with limitations in Erste Group. Thus, the potential activation of this exemption is limited to particular types of debt instruments and counterparty categories, and only if supported by sufficient “Low risk” evidence. On this basis, the “Low risk exemption” is applied in special cases to debt security exposures and only exceptionally to loans.
As of 31 December 2022, low credit risk exemption is applied only to debt securities in the Czech subsidiary (Česká spořitelna) and sovereign exposures in the Romanian subsidiary (Banca Comercială Română). In Česká spořitelna, the corresponding exposure amounted to EUR 15.3 billion (2021: EUR 14.2 billion) with PDs interval of 0.01%-0.4%. In Banca Comercială Română, the respective exposure amounted to EUR 6.2 billion (2021: EUR 5.1 billion) with PD 0.1%.
Measuring ECL – explanation of inputs and measurement
Credit loss allowances are calculated individually or collectively.
The individual calculation approach is applied in case of exposures to significant defaulted customers in Stage 3 or POCI. It consists in the individual assessment of the difference between the gross carrying amount and the present value of the expected cash flows, which are estimated by workout or risk managers. The discounting of the cash flows is based on the effective interest rate (POCI: credit-adjusted
108
effective interest rate). However, the discount rate for financial guarantees shall reflect the current market assessment of the time value of money and the risks that are specific to the cash flows which in Erste Group’s implementation means using a risk-free rate as a proxy.
A defaulted customer is classified as individually significant if the total on- and off-balance exposure exceeds a predefined materiality limit. Otherwise, the customer is considered insignificant, and a rule-based (collective) approach is used for the calculation of the related credit loss allowance as the product of gross carrying amount and LGD, where the LGD depends on characteristics such as time in default or the stage of the workout process.
For exposures to non-defaulted customers (i.e., in Stage 1 and Stage 2), collective allowances are calculated according to a rule-based approach irrespective of the significance of the customer. The calculation of collective allowances requires grouping the related exposures into homogenous clusters on the basis of shared risk characteristics. The grouping criteria may differ based on the customer segment (retail, corporate) and include product type, collateral type, repayment type, loan to value band, and credit rating band.
The calculation of credit loss allowances is done on a monthly basis on a single exposure level and in the contractual currency of the exposure. To compute the collective credit loss allowance, Erste Group applies an expected credit loss (ECL) model based on a three-stage approach that leads to either a 12-month ECL or to a lifetime ECL. ECL is the discounted product of exposure at default (EAD) that also includes a credit conversion factor in the case of off-balance sheet exposures, probability of default (PD) and loss given default (LGD), defined as follows:
_PD represents the likelihood of a borrower defaulting on its financial obligation (per definition of default below), either over next 12 months (1Y PD) for Stage 1 exposures or over the remaining lifetime (LT PD) for Stage 2 and 3 and POCI exposures.
_EAD is based on the amounts Erste Group expects to be owed at the time of default, over next 12 months (1Y EAD) for Stage 1 exposures, or over the remaining lifetime (LT EAD) for Stage 2 and 3 and POCI exposures. The estimation includes current balance, expected repayments and expected drawings up to the current contractual limit by the time of default.
_LGD represents the Erste Group’s expectation of the extent of loss on a defaulted exposure. LGD varies by type of counterparty, type and seniority of claim and availability of collateral or other credit support. LGD is expressed as a percentage loss per unit exposure at the time of default (EAD).
Life-time parameters
The LT PD is developed through observation of historical defaults from initial recognition through the lifetime of the loans. It is assumed to be the same across all assets in the same portfolio and rating band.
The 1Y and LT EADs are determined based on the expected payment profiles, which vary by product type. The LT EAD calculation utilises repayment schedule or repayment type (annuity, linear, bullet). In the case of undrawn commitments, credit conversion factor is estimated for reflecting the expected credit exposure in the EAD.
The LGD is estimated as a lifetime curve for any point in time, based on historical loss observations.
The risk parameters used in the ECL calculation take into account available information at the reporting date about past events, current conditions and forecasts on future economic trends. Generally, the risk parameters applied in the calculation of collective allowances differ from the risk parameters compliant with capital requirement regulations, calculated on a through-the-cycle basis, if the characteristics of the respective portfolio in combination with IFRS standards necessitate this.
109
38.Credit Risk Exposure by IFRS 9 Stage and ECL
Credit risk exposure: overview of IFRS 9 treatment by region
Stage 1
Stage 2
Stage 3
POCI
Credit risk exposure (AC and FVOCI)
Not subject to IFRS 9 impairment
Total
Dec 22
Core markets
236,852
44,711
3,724
361
285,649
13,730
299,379
Austria
106,644
25,306
1,944
54
133,948
3,014
136,962
Czech Republic
62,388
7,644
688
46
70,766
4,639
75,406
Slovakia
25,640
3,294
292
125
29,352
682
30,034
Romania
17,501
4,060
307
58
21,925
1,657
23,582
Hungary
11,768
1,510
146
47
13,472
2,375
15,847
Croatia
9,943
2,453
299
29
12,724
608
13,332
Serbia
2,967
444
48
2
3,462
755
4,217
Other EU
22,010
3,956
330
10
26,306
2,691
28,997
Other industrialised countries
7,769
1,618
40
11
9,438
3,971
13,409
Emerging markets
4,880
1,301
143
1
6,325
1,056
7,382
Southeastern Europe/CIS
2,978
933
115
1
4,028
509
4,537
Asia
1,354
144
17
0
1,515
528
2,043
Latin America
181
15
9
0
205
2
207
Middle East/Africa
366
209
2
0
577
18
595
Total
271,511
51,587
4,237
383
327,718
21,448
349,166
Dec 21
Core markets
226,304
32,447
3,839
349
262,938
9,956
272,894
Austria
103,493
18,810
1,831
42
124,176
3,199
127,375
Czech Republic
61,074
5,411
679
41
67,206
1,550
68,756
Slovakia
22,553
2,347
299
113
25,312
595
25,906
Romania
16,133
2,628
388
57
19,206
1,499
20,705
Hungary
11,202
1,283
163
66
12,714
2,351
15,065
Croatia
8,996
1,684
440
28
11,148
366
11,514
Serbia
2,853
283
38
2
3,177
397
3,574
Other EU
18,699
2,879
290
11
21,879
3,083
24,962
Other industrialised countries
5,391
848
47
11
6,297
1,180
7,477
Emerging markets
4,890
855
178
1
5,924
1,181
7,105
Southeastern Europe/CIS
3,020
516
137
1
3,675
477
4,152
Asia
1,273
168
29
0
1,470
685
2,155
Latin America
156
19
9
0
184
5
189
Middle East/Africa
442
152
2
0
595
14
609
Total
255,284
37,029
4,352
373
297,038
15,400
312,439
Stage 1 and Stage 2 comprise not impaired credit risks while Stage 3 includes impaired credit risks. POCI (purchased or originated credit impaired) consists of credit risks already impaired when purchased or originated.
The defaulted part of POCI amounted to EUR 184 million (2021: EUR 167 million), the non-defaulted part to EUR 199 million (2021: EUR 206 million).
110
Credit risk exposure and IFRS 9 treatment by geographical operating segment
Credit risk exposure
Credit loss allowances
NPE coverage ratio
in EUR million
Stage 1
Stage 2
Stage 3
POCI
Not subject to IFRS 9 impairment
Stage 1
Stage 2
Stage 3
POCI
Stage 2
Stage 3
POCI
Dec 22
Austria
135,236
32,407
2,430
66
11,508
-169
-772
-996
-1
2.4%
41.0%
0.9%
EBOe & Subs.
43,281
7,179
614
12
499
-43
-169
-210
0
2.4%
34.2%
0.0%
Savings Banks
61,345
14,565
1,336
54
2,060
-91
-434
-579
-1
3.0%
43.3%
1.1%
Other Austria
30,611
10,663
480
0
8,949
-36
-170
-207
0
1.6%
43.3%
0.0%
CEE
124,821
19,079
1,790
317
9,868
-300
-975
-1,181
-93
5.1%
66.0%
29.4%
Czech Republic
63,049
8,032
714
54
4,748
-99
-332
-466
-20
4.1%
65.4%
36.3%
Slovakia
22,712
3,062
286
126
720
-49
-122
-168
-37
4.0%
58.7%
28.9%
Romania
15,924
3,771
311
58
1,626
-71
-314
-236
-11
8.3%
75.8%
19.3%
Hungary
9,986
1,250
143
47
1,556
-30
-62
-89
-12
4.9%
62.5%
25.1%
Croatia
10,670
2,612
290
29
491
-37
-127
-192
-13
4.9%
66.1%
46.0%
Serbia
2,479
352
47
2
727
-15
-18
-30
0
5.2%
64.4%
22.6%
Other
11,454
100
17
0
72
-4
-3
-12
0
2.8%
69.1%
0.0%
Total
271,511
51,587
4,237
383
21,448
-474
-1,750
-2,190
-94
3.4%
51.7%
24.5%
Dec 21
Austria
127,109
24,314
2,360
55
10,590
-221
-663
-1,007
-1
2.7%
42.7%
1.7%
EBOe & Subs.
40,962
7,070
597
6
574
-48
-157
-218
0
2.2%
36.5%
0.2%
Savings Banks
59,909
11,496
1,355
48
2,300
-135
-349
-595
-1
3.0%
43.9%
1.9%
Other Austria
26,238
5,748
408
0
7,715
-38
-157
-194
0
2.7%
47.5%
0.0%
CEE
120,208
12,699
1,975
318
4,700
-327
-823
-1,288
-99
6.5%
65.2%
31.1%
Czech Republic
63,519
5,610
697
52
1,318
-118
-288
-435
-20
5.1%
62.3%
38.0%
Slovakia
19,402
2,130
291
113
602
-49
-119
-167
-33
5.6%
57.3%
29.4%
Romania
14,675
2,337
396
57
1,407
-69
-220
-304
-14
9.4%
76.7%
23.7%
Hungary
10,069
928
159
66
1,016
-24
-65
-86
-17
7.0%
54.5%
25.9%
Croatia
10,156
1,535
395
28
24
-55
-118
-273
-15
7.7%
69.0%
52.8%
Serbia
2,387
159
37
2
332
-13
-13
-24
0
8.2%
64.7%
21.4%
Other
7,966
16
17
0
111
-2
0
-16
0
0.3%
91.9%
0.0%
Total
255,284
37,029
4,352
373
15,400
-550
-1,486
-2,311
-100
4.0%
53.1%
26.7%
Credit risk exposure and IFRS 9 treatment by business segment
Credit risk exposure
Credit loss allowances
NPE coverage ratio
in EUR million
Stage 1
Stage 2
Stage 3
POCI
Not subject to IFRS 9 impairment
Stage 1
Stage 2
Stage 3
POCI
Stage 2
Stage 3
POCI
Dec 22
Retail
67,843
10,180
1,339
91
911
-162
-627
-796
-23
6.2%
59.4%
25.7%
Corporates
77,131
26,181
1,513
238
9,285
-180
-677
-786
-70
2.6%
52.0%
29.3%
Group Markets
10,398
250
0
0
8,862
-20
-3
0
0
1.1%
54.7%
60.3%
ALM & LCC
54,711
409
32
0
257
-19
-10
-16
0
2.5%
51.5%
21.3%
Savings Banks
61,345
14,565
1,336
54
2,060
-91
-434
-579
-1
3.0%
43.3%
1.1%
GCC
83
2
17
0
72
-2
0
-12
0
5.6%
69.1%
0.0%
Total
271,511
51,587
4,237
383
21,448
-474
-1,750
-2,190
-94
3.4%
51.7%
24.5%
Dec 21
Retail
65,736
8,584
1,458
105
806
-175
-515
-839
-28
6.0%
57.5%
27.0%
Corporates
68,263
16,615
1,501
220
5,045
-207
-613
-841
-71
3.7%
56.1%
32.1%
Group Markets
11,738
206
2
0
6,868
-17
-3
-1
0
1.6%
49.5%
0.0%
ALM & LCC
49,443
126
19
0
290
-15
-5
-19
0
4.2%
99.7%
0.0%
Savings Banks
59,909
11,496
1,355
48
2,300
-135
-349
-595
-1
3.0%
43.9%
1.9%
GCC
195
2
17
0
90
-1
0
-16
0
1.9%
91.9%
0.0%
Total
255,284
37,029
4,352
373
15,400
-550
-1,486
-2,311
-100
4.0%
53.1%
26.7%
The following tables give an overview over the development of credit loss allowances per balance sheet line item.
In column ‘Additions’ increases of CLA due to the initial recognition of financial instruments during the current reporting period are disclosed. Releases of CLA following the derecognition of the related financial instruments are reported in column ‘Derecognitions’.
In column ‘Transfers between stages’ CLA net changes due to changes in credit risk that triggered re-assignments of the related financial instruments from Stage 1 (at 1 January 2022 or initial recognition date) to Stages 2 or 3 at 31 December 2022 or vice-versa are reported. The effects of transfers from Stage 1 to Stages 2 or 3 on the related CLAs are adverse and presented in lines attributable to Stages 2 or 3. The effects of transfers from Stages 2 or 3 to Stage 1 on the related CLAs are favourable and presented in line ‘Stage 1’. The P&L-neutral effect from cross-stage transferring of the related CLA amounts recognised prior to stage re-assignments are presented above in column ‘Other changes in credit risk (net)’.
111
Any other changes in credit risk which do not trigger a transfer between Stage 1 and Stage 2 or 3 or vice-versa are disclosed in column ‘Other changes in credit risk (net)’.
As of
Additions
Derecognitions
Transfers between stages
Other changes in credit risk (net)
Other
As of
Jan 22
Dec 22
Stage 1
-12
-6
4
2
-2
1
-13
Stage 2
-3
0
0
-6
3
0
-5
Stage 3
0
0
0
-1
-2
0
-3
Total
-15
-6
4
-5
-1
1
-22
Jan 21
Dec 21
Stage 1
-11
-5
3
2
-1
0
-12
Stage 2
-3
0
0
-2
2
0
-3
Stage 3
-2
0
1
0
0
0
0
Total
-15
-5
5
0
1
0
-15
The year-end total GCAs of AC debt securities that were initially recognised (purchased) during the year 2022 and not fully derecognised by 31 December 2022 amounts to EUR 9,135.7 million (2021: EUR 9,631.6 million.) The GCA of AC debt securities that were held at 1 January 2022 and derecognised during the year 2022 amounts to EUR 3,987.1 million (2021: EUR 3,356.2 million).
As of
Additions
Derecognitions
Transfers between stages
Other changes in credit risk (net)
Other
As of
Jan 22
Dec 22
Stage 1
-6
-17
12
0
5
0
-6
Stage 2
-1
0
2
0
-2
0
0
Stage 3
0
0
0
0
0
0
0
Total
-6
-17
15
0
3
0
-6
Jan 21
Dec 21
Stage 1
-3
-17
18
0
-3
0
-6
Stage 2
0
0
3
-2
-2
0
-1
Stage 3
0
0
0
0
0
0
0
Total
-3
-18
21
-1
-5
0
-6
The year-end total GCA of AC loans and advances to banks that were initially recognised during the year 2022 and not fully de-recognised by 31 December 2022 amounts to EUR 15,641.1 million (2021: EUR 19,475.4 million). The GCA of AC loans and advances to banks that were held as of 1 January 2022 and fully de-recognised during the year 2022 amounts to EUR 18,259.8million (2021: 20,901.7 million).
112
Movement in credit loss allowances – loans and advances to customers
As of
Additions
Derecognitions
Transfers between stages
Other changes in credit risk (net)
Write-offs
Other
As of
Jan 22
Dec 22
Stage 1
-383
-320
77
643
-348
0
-5
-335
General governments
-4
-3
1
4
-1
0
0
-4
Other financial corporations
-10
-12
4
18
-7
0
0
-8
Non-financial corporations
-211
-201
49
328
-128
0
1
-162
Households
-158
-103
23
293
-211
0
-5
-161
Stage 2
-1,203
-143
183
-1,055
799
1
4
-1,415
General governments
-20
-8
2
-12
11
0
0
-28
Other financial corporations
-14
-1
3
-30
24
0
-1
-20
Non-financial corporations
-666
-113
113
-553
442
0
2
-773
Households
-504
-20
65
-460
322
1
3
-594
Stage 3
-2,066
-27
213
-124
-356
375
-9
-1,994
General governments
-2
0
0
0
0
1
0
-1
Other financial corporations
-16
0
1
0
-20
4
-5
-37
Non-financial corporations
-1,069
-16
115
-64
-228
223
-3
-1,043
Households
-979
-10
97
-60
-108
148
-1
-913
POCI
-88
0
8
0
-12
4
0
-86
General governments
0
0
0
0
0
0
0
0
Other financial corporations
0
0
0
0
0
0
0
0
Non-financial corporations
-61
0
6
0
-12
3
0
-65
Households
-26
0
2
0
0
1
1
-22
Total
-3,740
-490
482
-536
83
381
-9
-3,830
Jan 21
Dec 21
Stage 1
-335
-305
78
462
-276
0
-9
-383
General governments
-4
-2
1
1
0
0
0
-4
Other financial corporations
-8
-13
4
21
-14
0
0
-10
Non-financial corporations
-186
-190
51
175
-58
0
-3
-211
Households
-136
-100
23
265
-204
0
-6
-158
Stage 2
-1,171
-140
171
-710
651
1
-5
-1,203
General governments
-4
-2
1
-7
0
0
-6
-20
Other financial corporations
-38
-1
3
-21
40
0
2
-14
Non-financial corporations
-657
-110
106
-275
278
0
-7
-666
Households
-472
-27
61
-406
333
1
6
-504
Stage 3
-2,201
-46
250
-80
-290
292
8
-2,066
General governments
-2
0
0
0
0
0
0
-2
Other financial corporations
-6
0
1
-1
-20
10
0
-16
Non-financial corporations
-1,172
-26
123
-35
-108
130
18
-1,069
Households
-1,021
-20
126
-44
-162
152
-10
-979
POCI
-125
0
15
0
18
4
1
-88
General governments
-1
0
0
0
0
0
0
0
Other financial corporations
0
0
0
0
0
0
0
0
Non-financial corporations
-92
0
11
0
17
2
1
-61
Households
-33
0
4
0
1
1
0
-26
Total
-3,831
-490
514
-328
103
297
-4
-3,740
CLAs recognised against drawings from non-revolving loan commitments are deemed as additions for the purpose of presenting current period’s movement in CLA. Therefore, additions in Stages 2 and 3 reflect transfers from Stage 1 having occurred between commitment and drawing dates of related credit facilities. They also reflect deals for which the CLA initial recognition in accounting occurred after those deals having been already assigned to Stage 2 as a result of applying the SICR collective assessment overlays further described in Note 40.
The column ‘Other changes in credit risk (net)’ also captures the passage-of-time adverse effect (‘unwinding correction’) over the lifetime expected cash shortfalls of AC loans and advances to customers that were assigned to Stage 3 for any period throughout the year, as well as of any POCI loans and advances to customers. This adverse effect amounted to EUR 89.6 million (2021: EUR 68.8 million) cumulatively for the year 2022, which also reflects the unrecognised interest income out of the related AC loans and advances to customers throughout the year.
The use of CLA triggered by full or partial write-offs of AC loans and advances to customers is reported in column ‘Write-offs’.
One significant driver of the CLA movements for the year has been the transfer of the related instruments across different impairment stages. The year-end GCA of AC loans and advances to customers that were assigned at 31 December 2022 to a different stage compared to 1 January 2022 (or to the initial recognition date, if originated during the year) are summarized below:
113
Transfers between Stage 1 and Stage 2
Transfers between Stage 2 and Stage 3
Transfers between Stage 1 and Stage 3
POCI
in EUR million
To Stage 2 from Stage 1
To Stage 1 from Stage 2
To Stage 3 from Stage 2
To Stage 2 from Stage 3
To Stage 3 from Stage 1
To Stage 1 from Stage 3
To Defaulted from Non-Defaulted
To Non-Defaulted from Defaulted
Dec 22
General governments
389
497
10
0
0
0
0
0
Other financial corporations
883
303
14
0
30
0
0
0
Non-financial corporations
14,882
6,722
404
133
357
6
5
8
Households
6,105
3,379
301
182
198
40
3
6
Total
22,259
10,901
728
315
585
46
8
15
Dec 21
General governments
461
39
0
0
0
0
0
0
Other financial corporations
321
375
32
0
2
0
0
0
Non-financial corporations
6,757
4,837
400
45
187
5
6
1
Households
4,598
2,716
363
177
216
55
2
7
Total
12,137
7,966
794
223
405
60
8
9
Detailed information on stage transfers due to Covid-19 measures are described in Note 34 Credit risk.
The year-end total GCA of the AC loans and advances to customers that were initially recognised during the reporting period and not fully de-recognised by 31 December 2022 amounts to EUR 51,949.0 million (2021: EUR 45,011.4 million). The GCA of the AC loans and advances to customers that were held at 1 January 2022 and fully de-recognised during the reporting period amounts to EUR 18,338.3 million (2021: EUR 17,982.5 million).
The undiscounted amount of the lifetime expected credit losses considered in the initial measurement of the AC loans and advances to customers initially recognised and identified as POCI during the year 2022 amounted to EUR 107.4 million (2021: EUR 54.4 million).
As of
Additions
Derecognitions
Transfers between stages
Other changes in credit risk (net)
Write-offs
Other
As of
Jan 22
Dec 22
Stage 1
-12
-13
9
1
6
0
0
-9
Stage 2
-9
-1
2
-2
-3
1
1
-11
Stage 3
-66
0
22
-1
-5
7
0
-44
POCI
0
0
0
0
-1
0
0
-1
Total
-87
-14
33
-2
-3
7
1
-65
Jan 21
Dec 21
Stage 1
-6
-12
6
2
2
0
-2
-12
Stage 2
-10
0
3
-1
-1
0
1
-9
Stage 3
-47
0
7
-1
-9
7
-23
-66
POCI
0
0
0
0
0
0
0
0
Total
-64
-13
16
0
-8
8
-24
-87
As of
Additions
Derecognitions
Transfers between stages
Other changes in credit risk (net)
Other
As of
Jan 22
Dec 22
Stage 1
-7
-5
1
4
-1
0
-7
Stage 2
-16
0
0
-4
5
0
-16
Stage 3
0
0
0
-1
0
0
-1
Total
-23
-5
2
-2
4
0
-24
Jan 21
Dec 21
Stage 1
-9
-2
2
5
-2
0
-7
Stage 2
-16
-1
1
-5
6
0
-16
Stage 3
0
0
0
0
0
0
0
Total
-25
-3
2
-1
3
0
-23
One significant driver of the above presented CLA movements for the year has been the transfer of the related instruments across different stages. The year-end GCAs of FVOCI debt securities that were assigned at 31 December 2022 to a different stage compared to 1 January 2022 (or to the initial recognition date, if purchased during the year) are summarized in the table below:
114
Transfers between Stage 1 and Stage 2 – debt instrument financial assets
Dec 21
Dec 22
Transfers between Stage 1 and Stage 2
To Stage 2 from Stage 1
149
370
To Stage 1 from Stage 2
157
185
Transfers between Stage 1 and Stage 3
To Stage 3 from Stage 1
0
3
Movement in credit loss allowances – finance lease receivables
As of
Additions
Derecognitions
Transfers between stages
Other changes in credit risk (net)
Write-offs
Other
As of
Jan 22
Dec 22
Stage 1
-17
-7
1
7
-1
0
0
-17
Stage 2
-27
0
2
-9
6
0
0
-28
Stage3
-67
0
4
-5
20
7
0
-41
POCI
0
0
0
0
0
0
0
0
Total
-111
-7
7
-7
25
7
0
-86
Jan 21
Dec 21
Stage 1
-17
-7
1
7
-1
0
0
-17
Stage 2
-12
0
10
-10
-11
0
-4
-27
Stage3
-78
0
8
-4
16
5
-14
-67
POCI
0
0
0
0
0
0
0
0
Total
-108
-7
19
-7
4
5
-18
-111
The column ‘Other changes in credit risk (net)’ captures the passage-of-time adverse effect (‘unwinding correction’) over the lifetime expected cash shortfalls of finance lease receivables that were assigned to Stage 3 for any period throughout the year, as well as of any POCI finance lease receivables. This adverse effect amounted to EUR 1.1 million (2021: EUR 1.9 million) cumulatively for the year 2022, which also reflects the unrecognised interest income out of the related finance lease receivables throughout the year.
The use of CLA triggered by full or partial write-offs of finance lease receivables is reported in column ‘Write-offs’.
One significant driver of the CLA movements for the year has been the transfer of the related instruments across impairment stages. The year-end GCA of finance lease receivables that were assigned at 31 December 2022 to a different stage compared to 1 January 2022 (or to the initial recognition date, if originated during the year) are summarized below:
Dec 21
Dec 22
Transfers between Stage 1 and Stage 2
To Stage 2 from Stage 1
155
322
To Stage 1 from Stage 2
146
89
Transfers between Stage 2 and Stage 3
To Stage 3 from Stage 2
10
10
To Stage 2 from Stage 3
3
53
Transfers between Stage 1 and Stage 3
To Stage 3 from Stage 1
15
16
To Stage 1 from Stage 3
12
2
The year-end total GCA of the finance lease receivables that were initially recognised during the reporting period and not fully de-recognised by 31 December 2022 amounts to EUR 1,103.8 million (2021: EUR 1,085.9 million). The GCA of the finance lease receivables that were held at 1 January 2022 and fully de-recognised during the year 2022 amounts to EUR 446.9 million (2021: EUR 410.7 million).
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Loan commitments and financial guarantees
Movement in credit loss allowances – loan commitments and financial guarantees
As of
Additions
Derecognitions
Transfers between stages
Other changes in credit risk (net)
Other
As of
Jan 22
Dec 22
Stage 1
113
229
-80
-191
9
0
81
Stage 2
228
0
-93
285
-142
-4
274
Stage 3
111
0
-20
12
-3
7
107
POCI
12
1
-1
0
-5
0
6
Total
464
229
-193
106
-141
3
469
Jan 21
Dec 21
Stage 1
83
202
-76
-127
35
-5
113
Stage 2
211
0
-74
169
-75
-4
228
Stage 3
102
0
-13
30
-6
-1
111
POCI
2
0
-10
0
19
0
12
Total
399
202
-173
71
-26
-10
464
The column ‘Other changes in credit risk (net)’ captures the passage-of-time adverse effect (‘unwinding’) over the lifetime expected cash shortfalls of defaulted loan commitments and financial guarantees.
One significant driver of the CLA movements for the year has been the transfer of the related instruments across different stages. The year-end notional amounts of loan commitments and financial guarantees that were assigned at 31 December 2022 to a different stage compared to 1 January 2022 (or to the initial recognition date, if originated during the year) are summarized below:
Transfers between stages – loan commitments and financial guarantees
Dec 21
Dec 22
Transfers between Stage 1 and Stage 2
4,050
10,631
To Stage 2 from Stage 1
1,969
7,907
To Stage 1 from Stage 2
2,081
2,724
Transfers between Stage 2 and Defaulted
86
71
To Defaulted from Stage 2
55
52
To Stage 2 from Defaulted
31
19
Transfers between Stage 1 and Defaulted
61
68
To Defaulted from Stage 1
30
66
To Stage 1 from Defaulted
31
2
The year-end nominal amounts of unused off-balance commitments and financial guarantees that were initially recognised during the year 2022 and not fully de-recognised by 31 December 2022 amounts to EUR 18,050.6 million (2021: EUR 19,193.5 million). The nominal amounts of unused off-balance commitments or financial guarantees that were held at 1 January 2022 and fully de-recognised during the year 2022 amounts to EUR 11,360.4 million (2021: EUR 10,130.0 million).
Overview on scenarios used in forward-looking information
Incorporation of forward-looking information
Parameters are determined to reflect the risk as a “point-in-time” measure and with consideration of forward-looking information (FLI). This results in using a baseline forecast and several alternative scenarios for selected macroeconomic variables. The alternative scenarios are derived, together with their weights of scenario outcome, as a deviation from baseline forecasts. The baseline forecasts are, with a few exceptions, internally determined by Erste Group’s research department. Given multiple scenarios, the “neutral” PDs (and, with a few exceptions, also LGDs) are adjusted using macro models that link relevant macroeconomic variables with risk drivers. The same macro-shift models as for external and internal stress test are used. Forward-looking information is incorporated for first three years of ECL measurement. Measurement of the parameters for the remaining lifetime returns to through-the-cycle observations immediately in year four.
Thus, the unbiased scenario weighted ECL considering FLI is derived using the weights representing the outcome of each macroeconomic scenario. Typical macroeconomic variables may include real gross domestic product, unemployment rate, inflation rate, production index as well as market interest rates. The selection of variables also depends on the availability of reliable forecasts for the given local market. The main indicator of the estimated economic development and basis for alternative scenario derivation is the GDP. In addition, economic effects of the war in Ukraine came along with the increases of the inflation and/or the interest rates. Erste Group adjusted macro-shift models to reflect expected effects of those into credit risk parameters. In the tables below we are disclosing expected development of the GDP for all regions, all scenarios and scenario weights, as main indicator of the macro-economic situation. Additionally, we are disclosing explanatory variables for the main models and regions with the most significant portfolios, share in expected credit loss and the biggest impact of the forward-looking information. Disclosures are based on the relevancy in the macro-shift model.
116
Erste Group reviewed the FLI in the fourth quarter of 2022 according to the disclosed forecasts for baseline, downside, and upside scenarios. Erste Group decided to assign 40% scenario weight to baseline forecast and added assumptions from comprehensive stress test scenario to downside scenario design. These model adjustments took place to address the increased uncertainty of the macro-economic forecasts, higher downside risks and effects of those on ECL resulting from the unstable geopolitical situation – war in Ukraine. The main assumptions of the baseline scenario as well risks and assumption of the comprehensive stress test scenario, that was added to the modelled downside, are described in the corresponding chapters below. Scenario weights are disclosed in the table below per each region.
In December 2021, the specific situation of the Covid-19 pandemic was addressed in FLI via the lagging of the macroeconomic variables in credit risk parameters, i.e., variables of 2020 and 2021 were included as additional predictors for future values of credit risk parameters. Considering the improvement of the situation, Erste Group decided to update FLI based on the forecasts for years 2023-2025, i.e., no lagging is applied; however GDP’ historical development was adjusted for the Covid-19 period (2020-2021) in order to reflect compensatory effect of the state support measures.
The bank is disclosing sensitivity of the staging and ECL on macro scenarios in the “Collective assessment” section below.
Erste Group expects the Eurozone economy to bottom out in the first quarter 2023 followed by a gradual recovery of the economy from the second quarter 2023. The main factor supporting the constructive baseline outlook for the Eurozone in 2023 and 2024 is easing inflationary pressures on a domestic and as well as on global level. European gas- and electricity prices have dropped substantially and easing pressures from global supply chains are expected to ease inflationary pressures in the coming months even further. Erste Group forecasts that in this environment we will see a gradual acceleration of consumption and investments as the year progresses. In this environment Erste Group expects the ECB to gradually slow down its pace of monetary tightening in the course of the year.
Risks to the baseline scenario and comprehensive stress test scenario as considerations added to downside scenario
The fast rise of interest rates is a threat for the investment activity of companies and consumers and could lead to lower investments than currently anticipated for our base case scenario. If Europe fails to secure enough liquefied natural gas for the next winter, we could see another spike of electricity and gas prices harming industrial activity and hurting the consumers purchasing power. The war in Ukraine remains significant risk factor. If it escalates further this could potentially harm the sentiment of global investors vs the Eurozone with potential dampening effects on growth. Russia could cut off gas supply to an increased number of “unfriendly” countries. Energy security becomes a priority for EU policymakers who regard the momentum to become less dependent from Russian commodities and to accelerate the transition to a low carbon economy. This goal triggers an energy policy shock, whereby the price of CO2 emissions skyrocket in the first year, crystalizing a disorderly transition risk. The energy policy shock exacerbates the increase in energy/consumer prices and de anchors inflation expectations; prompting the ECB to tighten monetary policy aggressively (affecting the entire yield curve) to keep inflation under control. Higher Harmonized Index of Consumer Prices (HICP), especially electricity/gas bills, reduces disposable income and contracts consumption. Given the high debt inherited from the pandemic, increasing military spending and expansive fiscal policies to mitigate higher energy prices/influx of refugees make investors to question debt sustainability.
Macro-shift FLI models are recalibrated regularly to reflect the most relevant macro-variables. Recalibration is performed by the local entities, and variables with the highest statistical relevance are included. Below we are summarizing the most relevant variables for the macro-shift model in the most significant regions. Additionally, baseline and weighted scenario outcome for the major variables is disclosed in the tabular format for the years 2023-2025.
Austria, Czech Republic, Slovakia, and Romania are presented as they have the highest share of credit risk exposure, expected credit loss and the highest share of FLI component in the expected credit loss measurement.
Macro-shift models are calibrated for the three main sub-portfolios: private individuals, micro enterprises, and other corporate business.
Models’ calibration and variables disclosed below are incorporated into expected credit loss measurement as of 31 December 2022.
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Baseline, upside and downside scenarios of GDP growth by geographic region
Scenario weights
GDP growth in %
Scenario
2023-2025
-
2023
2024
2025
Dec 22
Upside
1%
2.9
3.5
3.9
Austria
Baseline
40%
0.6
1.2
1.6
Downside
59%
-4.6
-1.9
0.1
Upside
1%
3.4
6.2
5.9
Czech Republic
Baseline
40%
0.9
3.7
3.4
Downside
59%
-4.9
-0.3
0.9
Upside
1%
3.6
4.7
4.1
Slovakia
Baseline
40%
1.5
2.6
2.0
Downside
59%
-4.6
-2.2
1.1
Upside
1%
5.7
8.3
7.8
Romania
Baseline
40%
2.7
5.3
4.8
Downside
59%
-3.0
0.2
2.8
Upside
1%
2.7
6.7
5.9
Hungary
Baseline
40%
0.2
4.2
3.4
Downside
59%
-6.5
0.5
1.8
Upside
1%
3.2
4.7
6.1
Croatia
Baseline
40%
1.0
2.5
2.5
Downside
59%
-3.9
-1.0
0.4
Upside
1%
4.7
5.7
5.8
Serbia
Baseline
40%
3.0
4.0
4.1
Downside
59%
-2.7
0.1
2.4
Dec 21
2021-2023
2020
2021
2022
2023
Upside
1%
-6.2
5.9
6.1
3.8
Austria
Baseline
40%
-6.2
4.4
4.6
2.3
Downside
59%
-6.2
-1.7
2.0
0.1
Upside
11%
-5.8
4.1
5.7
6.4
Czech Republic
Baseline
40%
-5.8
2.4
4.0
4.7
Downside
49%
-5.8
-2.3
0.5
1.8
Upside
17%
-4.8
4.9
6.1
5.6
Slovakia
Baseline
40%
-4.8
3.0
4.2
3.7
Downside
43%
-4.8
-2.5
-0.0
0.8
Upside
14%
-3.7
9.0
6.6
7.6
Romania
Baseline
40%
-3.7
6.4
4.0
5.0
Downside
46%
-3.7
-1.7
-0.5
2.0
Upside
6%
-5.0
7.8
5.8
5.6
Hungary
Baseline
40%
-5.0
6.7
4.7
4.5
Downside
54%
-5.0
0.1
1.3
2.3
Upside
1%
-8.0
12.4
10.8
9.9
Croatia
Baseline
40%
-8.0
8.7
4.8
4.5
Downside
59%
-8.0
-1.0
-1.2
1.0
Upside
9%
-1.0
8.6
6.1
6.1
Serbia
Baseline
40%
-1.0
7.0
4.5
4.5
Downside
51%
-1.0
0.4
1.1
2.5
Baseline and scenario weighted values of the main variables in the most significant regions
Baseline scenario
Scenario weighted outcome
2023
2024
2025
2023
2024
2025
Dec 22
Austria
GDP growth
0.6
1.2
1.6
-2.4
-0.6
0.7
Inflation
5.2
2.8
2.0
6.3
3.5
2.3
Yields_10Y
2.2
2.2
2.2
2.6
3.0
3.3
Czech Republic
Unemployment Rate
3.3
3.4
3.4
3.8
4.5
4.4
Inflation (PPI)
144.2
146.6
149.6
146.2
148.7
151.7
Slovakia
Unemployment Rate
6.5
6.5
6.3
7.6
7.9
7.6
Inflation
9.3
4.5
3.5
10.5
5.9
4.3
Romania
GDP growth
2.7
5.3
4.8
-0.6
2.3
3.7
Interest Rate (ROBOR 3M)
7.3
6.0
4.5
9.3
8.9
8.1
Inflation (CPI)
10.5
5.8
3.4
11.8
7.6
4.2
As of December 2022, in addition to standard SICR assessment, Erste Group applied collective SICR assessment (“stage Overlays”), i.e., transfer into Stage 2 based on pre-defined portfolio characteristics, due to the uncertainty caused by the war in Ukraine and the energy crisis. This approach was aligned with all affected entities and business lines and approved by the respective governance bodies of Erste Group.
118
It requires, after the assessment of the outliers from the common portfolio characteristics, to have exemptions from the collective SICR assessment, if properly documented why they would behave differently than the rest of the portfolio.
Until fourth quarter of 2022, Erste Group had in place overlays addressing Covid-19 as well. Improved pandemic situation over 2022 enabled discontinuation of Covid-19 related overlays, resulting in the release of EUR 184 million during 2022.
War in Ukraine and energy crisis
The Ukraine-Russia war, intensified challenges for both risk and business divisions: a rally in energy prices on the one hand and disruptions in supply chains on the other hand. The first ones had implications on various industries, mainly those with energy intensive production processes, but also impacting segments with high fuel cost shares. Issues with supply chains are managed by affected clients with diverse measures aiming to safeguard the business activity and liquidity (amongst others: active working capital management, targeted stocking-up, output adaptation, renegotiations with off takers etc.), in some cases also by ensuring backup/liquidity financing. Developments as mentioned above are reflected in the regular updates of the industry strategies.
In June 2022, Erste Group implemented rules for collective staging assessment due to the war in Ukraine (UA war overlays) as a combination of industries with correlation to economic downturn (cyclical industries) and one-year IFRS PD. These rules were defined on top of existing criteria mentioned in the section “Significant increase in credit risk determination – Qualitative criteria” (Stage 2 identification based on the early warning signal and negative information about geopolitical risk).
In addition to cyclical industries, from September 2022 Erste Group has introduced additional Energy stage overlay due to the current distortions in the energy market with implications on gas/energy availability and price. Two-folds effects were identified. Effects of gas rationing/shortage on clients either due to energy intensive production processes or relying on gas as a primary input in their business processes. Vulnerability is driven by gas dependency, (limited) substitution possibilities and implications of a substitution on financials, hedging and price mechanisms. Within the industry Natural Resources and Commodities, Metals and Chemical subindustries were identified as being most affected. All companies belonging to the Energy sector as the whole industry can potentially be affected by the massive shortages and distortions in the current energy market: price volatility, margin calls, price caps, weaknesses of the European energy infrastructure, fixed off-take contracts (putting off-takers at risk when stopped and/or limiting producers of renewable energy profiting from the higher prices), etc. All customers belonging to these industries/sub-industries were migrated to Stage 2. However, certain business models in the energy sector rather benefit from the current situation and, thus, do not match the overall portfolio characteristics as energy sector is widely defined. Such entities, are, in line with the requirements of IFRS 9 B.5.5.5, excluded.
Out of the overall credit risk exposure of EUR 349 billion (2021: EUR 312 billion) portfolio under collective staging assessment represents:
_EUR 90.6 billion of cyclical industries, out of which EUR 17.4 billion is in Stage 2;
_EUR 22.2 billion of energy intensive industries, out of which EUR 17.9 billion is in stage 2.
In the Czech Republic and Croatia, local risk management assessed that the re-calibration of private individuals’ macro shift FLI model did not bring feasible results and therefore does not sufficiently address current situation. Therefore, the additional SICR collective assessment on Private individual side was introduced, triggering additional migration of the exposure of EUR 1.6 billion to Stage 2 as of 31 December 2022. This resulted in EUR 21 million ECL increase.
Effect on expected credit loss
The analysis tables below present the effects of the portfolio overlays and FLI on both exposure migration to Stage 2 and the resulting increase of ECL. Additional sensitivities to the baseline, upside and downside scenarios are simulated. Effects on geographical segments are disclosed.
The discontinuation of Covid-19 related overlays in fourth quarter of 2022 led to the zero additional transfers into Stage 2 (EUR 10,726 million in December 2021) and ECL allocation (EUR 184 million in December 2021) due to Covid-19.
Exposure in Stage 2 due to the application of the rules for Ukraine war collective SICR assessment stood at for cyclical industries EUR 7,092 million in December 2022 and EUR 17,345 million for energy overlays in December 2022, with additional ECL allocated in the amount of EUR 184 million for cyclical industries and EUR 150 million for energy overlays.
As described above, FLI were re-assessed based on the latest macro-scenarios in the fourth quarter of 2022. Effects of the macro-environment development compensated for the Covid-19 crisis year lagging. Therefore, Stage 2 exposure due to FLI increased slightly to EUR 5,554 million as of December 2022 (EUR 5,203 million in December 2021). The increase of the Stage 2 exposure and PD levels affected the level of ECL allocated in Stage 2 due to FLI: EUR 572 million as of December 2022 versus EUR 550 million as of December 2021.
Scenario simulation presents sensitivity analyses taking into consideration only changes due to the different values of PDs, if baseline, upside or downside FLI scenarios had 100% weight. Sensitivities of these scenarios are calculated in comparison to current production -
119
weighted scenarios FLI shifted - PDs (weights and scenarios are disclosed in the ”Incorporation of forward-looking information” section above). Both staging and resulting ECL were simulated with the scenario PDs.
The incorporation of 100% baseline scenario instead of the currently applied weighted scenario outcome would lead to a decrease of Stage 2 exposure by EUR 3,771 million (2021: EUR 4,239 million), resulting in an ECL drop by EUR 296 million (2021: EUR 334 million).
The downside scenario would lead to additional EUR 3,121 million of exposure migration to Stage 2 in comparison with scenario weighted FLI (2021: EUR 4,612 million), resulting in ECL increase of EUR 238 million (2021: EUR 315 million).
For the ECL change a positive sign (+) equals a release while a negative sign (-) equals an allocation. Values presented sensitivities are results of internal simulations.
Forward looking information (FLI) and stage overlays due to the Covid-19 pandemic and the war in Ukraine
Impact on credit risk exposure by geographical operating segment
Current status - parameters (FLI shifted)
Simulations - difference to FLI shifts effect
Stage 2 impact by
Collective assessment due to
in EUR million
Stage 1
Stage 2
Total
Covid-19
UA war - Cyclical
UA war - Energy
UA war - PI
FLI shifts
Upside scenario
Baseline scenario
Downside scenario
Dec 22
Austria
135,236
32,407
167,643
+0
+4,976
+11,352
+0
+3,489
-3,727
-2,598
+1,889
EBOe & Subs.
43,281
7,179
50,460
+0
+927
+1,340
+0
+828
-883
-632
+363
Savings Banks
61,345
14,565
75,910
+0
+3,906
+2,440
+0
+1,578
-1,716
-1,073
+964
Other Austria
30,611
10,663
41,273
+0
+143
+7,571
+0
+1,083
-1,128
-893
+562
CEE
124,821
19,079
143,900
+0
+2,116
+5,993
+1,628
+2,065
-1,905
-1,173
+1,232
Czech Republic
63,049
8,032
71,081
+0
+851
+2,109
+1,286
+715
-601
-269
+261
Slovakia
22,712
3,062
25,774
+0
+283
+1,129
+0
+18
-121
-114
+212
Romania
15,924
3,771
19,695
+0
+311
+1,138
+0
+1,104
-1,012
-669
+558
Hungary
9,986
1,250
11,236
+0
+224
+677
+0
+157
-113
-77
+69
Croatia
10,670
2,612
13,282
+0
+427
+767
+342
+12
-3
-2
+4
Serbia
2,479
352
2,831
+0
+19
+174
+0
+61
-55
-42
+128
Other
11,454
100
11,555
+0
+0
+0
+0
+0
+0
+0
+0
Total
271,511
51,587
323,098
+0
+7,092
+17,345
+1,628
+5,554
-5,632
-3,771
+3,121
Dec 21
Austria
127,109
24,314
151,423
+8,179
+0
+0
+0
+3,291
-4,734
-3,486
+3,382
EBOe & Subs.
40,962
7,070
48,032
+2,405
+0
+0
+0
+654
-1,076
-712
+826
Savings Banks
59,909
11,496
71,405
+4,197
+0
+0
+0
+1,333
-2,086
-1,467
+1,694
Other Austria
26,238
5,748
31,986
+1,577
+0
+0
+0
+1,304
-1,572
-1,306
+862
CEE
120,208
12,699
132,908
+2,548
+0
+0
+0
+1,912
-1,226
-753
+1,230
Czech Republic
63,519
5,610
69,129
+716
+0
+0
+0
+872
-416
-323
+354
Slovakia
19,402
2,130
21,532
+823
+0
+0
+0
+57
-277
-151
+414
Romania
14,675
2,337
17,012
+241
+0
+0
+0
+851
-442
-214
+364
Hungary
10,069
928
10,997
+245
+0
+0
+0
+76
-30
-16
+19
Croatia
10,156
1,535
11,691
+439
+0
+0
+0
+29
-41
-33
+63
Serbia
2,387
159
2,546
+82
+0
+0
+0
+26
-20
-16
+16
Other
7,966
16
7,982
+0
+0
+0
+0
+0
+0
+0
+0
Total
255,284
37,029
292,313
+10,726
+0
+0
+0
+5,203
-5,960
-4,239
+4,612
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Impact on credit loss allowances by geographical operating segment
Current status - parameters (FLI shifted)
Simulations - difference to FLI shifts effect
Out of which:
Collective assessment due to
in EUR million
Stage 1
Stage 2
Total
Covid-19
UA war - Cyclical
UA war - Energy
UA war - PI
FLI shifts
Upside scenario
Baseline scenario
Downside scenario
Dec 22
Austria
-169
-772
-942
+0
-104
-85
+0
-205
+201
+129
-98
EBOe & Subs.
-43
-169
-211
+0
-19
-10
+0
-50
+49
+32
-21
Savings Banks
-91
-434
-525
+0
-83
-29
+0
-105
+104
+66
-48
Other Austria
-36
-170
-206
+0
-2
-46
+0
-49
+48
+32
-29
CEE
-296
-975
-1,271
+0
-80
-65
-21
-368
+280
+166
-140
Czech Republic
-99
-332
-431
+0
-33
-14
-16
-87
+59
+24
-20
Slovakia
-49
-122
-171
+0
-11
-9
+0
-15
+12
+8
-5
Romania
-67
-314
-381
+0
-14
-16
+0
-198
+171
+110
-93
Hungary
-30
-62
-91
+0
-5
-3
+0
-38
+27
+17
-12
Croatia
-37
-127
-164
+0
-18
-19
-6
-21
+3
+2
-1
Serbia
-15
-18
-33
+0
-0
-4
+0
-8
+7
+5
-7
Other
-4
-3
-7
+0
+0
+0
+0
+0
+0
+0
+0
Total
-470
-1,750
-2,220
+0
-184
-150
-21
-572
+481
+296
-238
Dec 21
Austria
-221
-663
-883
-97
+0
+0
+0
-233
+361
+234
-189
EBOe & Subs.
-48
-157
-204
-30
+0
+0
+0
-45
+76
+48
-39
Savings Banks
-135
-349
-484
-58
+0
+0
+0
-112
+178
+114
-96
Other Austria
-38
-157
-195
-10
+0
+0
+0
-76
+107
+72
-54
CEE
-327
-823
-1,151
-86
+0
+0
+0
-317
+158
+99
-126
Czech Republic
-118
-288
-406
-18
+0
+0
+0
-108
+22
+16
-19
Slovakia
-49
-119
-168
-16
+0
+0
+0
-20
+36
+22
-30
Romania
-69
-220
-289
-11
+0
+0
+0
-128
+56
+27
-48
Hungary
-24
-65
-88
-6
+0
+0
+0
-30
+9
+5
-5
Croatia
-55
-118
-173
-32
+0
+0
+0
-24
+31
+28
-22
Serbia
-13
-13
-26
-4
+0
+0
+0
-6
+4
+2
-3
Other
-2
0
-2
+0
+0
+0
+0
+0
+0
+0
+0
Total
-550
-1,486
-2,036
-184
+0
+0
+0
-550
+520
+334
-315
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. 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.
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;
_the customer would be 30 days past due or more without receiving forbearance;
_the customer is in default;
_the customer would default without receiving forbearance.
Additional criteria for non-retail segment:
_early warning signals for this customer identified;
_customer has deteriorated financial figures, which led to decline of the rating grade;
_customer has increased probability of default.
Forbearance concession triggers the performing forbearance classification and 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;
_activation of embedded forbearance clause of the contract;
_any waiver of a material financial or non-financial covenant.
The performing forbearance classification can be discontinued and the account can become a non-forborne account when all the following conditions are met:
121
_a minimum of two years has 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 (significant repayment) at least during half of the probation period (in the case of retail customers);
_regular repayments in a significant amount during at least half of the probation period have been made (in the case of non-retail customers);
_significant repayment includes amount previously past-due (if any) or written-off (if no-past due amounts) for both segments retail and non-retail;
_none of the exposure of the customer is more than 30 days past due at the end of the probation period.
Performing forborne exposures become non-performing when one of the following forbearance classifications is fulfilled during the monitoring period of a minimum two years:
_the contract modification involves total or partial cancellation of the debt by (partial) write-off;
_an additional forbearance measure is extended;
_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;
_the customer meets any of the default event criteria defined in the default definition;
_for corporate customers, when a final restructuring agreement cannot be concluded within 18 months after the first forbearance measure.
The non-performing forbearance classification can be discontinued and reclassified as performing under probation when all the following conditions are met:
_one year has passed from the date of classifying the exposure as non-performing forbearance or from the latest of the following events:
_the moment of extending the restructuring measure;
_the end of the grace period included in the restructuring agreement;
_the moment when the exposure has been classified as defaulted.
_the forbearance has not led the exposure to be classified as non-performing;
_the customer is not classified as defaulted according to the definition of default;
_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 12 months prior to the reclassification and there is no delinquent amount;
_the customer has repaid the full past due amount or the written-off amount (if there was any).
_corporate customers: significant amount has been paid in regular repayments, analysis of financial development that 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 12 months prior to the reclassification and there is no delinquent amount.
Credit risk exposure, forbearance exposure and credit loss allowances
Loans and advances
Debt securities
Other positions
Loan commitments
Total
Dec 22
Gross exposure
224,531
52,111
24,090
48,434
349,166
thereof gross forborne exposure
4,088
0
1
128
4,218
Performing exposure
220,309
52,104
23,961
48,287
344,661
thereof performing forborne exposure
2,524
0
0
89
2,613
Credit loss allowances for performing exposure
-1,849
-41
-152
-246
-2,288
thereof credit loss allowances for performing forborne exposure
-105
0
0
-3
-109
Non-performing exposure
4,222
8
129
146
4,505
thereof non-performing forborne exposure
1,564
0
1
39
1,605
Credit loss allowances for non-performing exposure
-2,139
-5
-95
-46
-2,284
thereof credit loss allowances for non-performing forborne exposure
-675
0
-1
-20
-696
Dec 21
Gross exposure
205,213
46,195
20,437
40,593
312,439
thereof gross forborne exposure
3,786
0
0
119
3,904
Performing exposure
200,843
46,195
20,311
40,464
307,813
thereof performing forborne exposure
2,141
0
0
79
2,220
Credit loss allowances for performing exposure
-1,677
-38
-172
-214
-2,101
thereof credit loss allowances for performing forborne exposure
-100
0
0
-3
-103
Non-performing exposure
4,371
0
126
129
4,626
thereof non-performing forborne exposure
1,644
0
0
40
1,684
Credit loss allowances for non-performing exposure
-2,267
0
-89
-69
-2,426
thereof credit loss allowances for non-performing forborne exposure
-763
0
0
-28
-791
122
Types of forbearance exposure
Gross forborne exposure
Modification in terms and conditions
Refinancing
Dec 22
Loans and advances
4,088
3,771
317
Debt securities
0
0
0
Loan commitments
128
113
15
Total
4,216
3,885
332
Dec 21
Loans and advances
3,786
3,519
267
Debt securities
0
0
0
Loan commitments
119
102
17
Total
3,904
3,620
284
Loans and advances also include lease, trade and other receivables.
Impact of non-significant contractual modifications of debt instruments AC assigned to Stage 2 and 3
Dec 21
Dec 22
in EUR million
Amortised cost before the modification
Net modification gains/losses
Amortised cost before the modification
Net modification gains/losses
Loans and advances
General governments
15
0
16
0
Other financial corporations
201
0
95
0
Non-financial corporations
3,381
-1
1,545
1
Households
1,754
-11
862
-11
Total
5,350
-12
2,518
-10
As of 31 December 2022, the total GCA of Erste Group’s debt instruments measured at AC, which were impacted by non-significant contractual modifications while they were assigned to Stage 2 or 3 and re-assigned to Stage 1 during the year 2022 amounted to EUR 1,606 million (2021: EUR 1,366 million).
For the definition of credit risk exposure classified as non-performing, please refer to the description of risk categories in the subsection “Credit risk classification”. Credit risk allowances include credit loss allowances for financial assets, credit loss allowances for loan commitments and financial guarantees (all allowances within the scope of IFRS 9) and provisions for other commitments.
Credit loss allowances (all stages combined) covered 102.1% (2021: 98.4%) of the reported non-performing on-balance and off-balance credit risk exposure.
During 2022, the non-performing credit risk exposure decreased by EUR -121 million, or -2.6%, while the credit loss allowances for loans and advances together with credit loss allowances for loan commitments and financial guarantees slightly increased (EUR 61 million or 1.4%). This development resulted in a moderate increase of 3.6 percentage points in the coverage of non-performing credit risk exposure by credit risk allowances.
The following tables show the coverage of the non-performing credit risk exposure by credit loss allowances (without taking into consideration collateral) as of 31 December 2022 and 31 December 2021. The differences in the credit allowance levels between the reporting 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 as the non-performing credit risk exposure divided by total credit risk exposure while the NPE coverage ratio is computed as total credit loss allowances (all allowances within the scope of IFRS 9) divided by non-performing credit risk exposure at AC and FVOCI. Collateral is not taken into account in the NPE coverage ratio.
123
Non-performing credit risk exposure by geographical operating segment and coverage by credit loss allowances and collateral
Non-performing
Credit risk exposure
Credit loss allowances
Collateral for NPE
NPE ratio
NPE coverage ratio
NPE collateralisation ratio
in EUR million
Total
AC and FVOCI
Total
AC and FVOCI
AC and FVOCI
Total
AC and FVOCI
Total
AC and FVOCI
AC and FVOCI
Total
AC and FVOCI
Dec 22
Austria
2,490
2,473
181,647
170,139
-1,939
1,245
1,244
1.4%
1.5%
78.4%
50.0%
50.3%
EBOe & Subs.
624
624
51,585
51,086
-421
378
378
1.2%
1.2%
67.5%
60.6%
60.6%
Savings Banks
1,380
1,370
79,360
77,299
-1,104
738
737
1.7%
1.8%
80.6%
53.5%
53.8%
Other Austria
486
480
50,702
41,753
-413
129
129
1.0%
1.1%
86.2%
26.6%
26.8%
CEE
1,997
1,928
155,874
146,007
-2,549
739
736
1.3%
1.3%
132.2%
37.0%
38.2%
Czech Republic
798
760
76,597
71,849
-917
239
239
1.0%
1.1%
120.6%
29.9%
31.4%
Slovakia
299
297
26,906
26,186
-375
147
147
1.1%
1.1%
126.4%
49.2%
49.5%
Romania
356
338
21,690
20,064
-632
120
120
1.6%
1.7%
187.0%
33.6%
35.5%
Hungary
178
173
12,982
11,426
-192
77
74
1.4%
1.5%
111.5%
43.4%
43.1%
Croatia
317
314
14,092
13,601
-370
145
145
2.2%
2.3%
117.9%
45.7%
46.1%
Serbia
50
47
3,607
2,880
-64
11
11
1.4%
1.6%
135.8%
23.2%
24.5%
Other
17
14
11,645
11,572
-19
9
6
0.2%
0.1%
132.4%
51.3%
41.0%
Total
4,505
4,416
349,166
327,718
-4,507
1,992
1,986
1.3%
1.3%
102.1%
44.2%
45.0%
Dec 21
Austria
2,426
2,391
164,428
153,838
-1,891
1,259
1,258
1.5%
1.6%
79.1%
51.9%
52.6%
EBOe & Subs.
602
600
49,210
48,635
-422
349
349
1.2%
1.2%
70.4%
58.1%
58.2%
Savings Banks
1,387
1,383
75,109
72,809
-1,080
747
746
1.8%
1.9%
78.1%
53.8%
54.0%
Other Austria
438
408
40,109
32,394
-389
163
162
1.1%
1.3%
95.3%
37.2%
39.7%
CEE
2,183
2,112
139,901
135,201
-2,538
818
812
1.6%
1.6%
120.2%
37.5%
38.5%
Czech Republic
767
745
71,197
69,878
-860
220
220
1.1%
1.1%
115.5%
28.6%
29.5%
Slovakia
297
297
22,539
21,936
-368
152
152
1.3%
1.4%
124.1%
51.2%
51.2%
Romania
458
419
18,872
17,465
-606
141
141
2.4%
2.4%
144.8%
30.8%
33.7%
Hungary
200
191
12,238
11,222
-192
110
104
1.6%
1.7%
100.4%
55.0%
54.4%
Croatia
421
421
12,139
12,114
-461
186
186
3.5%
3.5%
109.3%
44.2%
44.2%
Serbia
40
39
2,917
2,586
-50
9
9
1.4%
1.5%
128.6%
23.0%
23.3%
Other
17
14
8,110
7,999
-18
8
6
0.2%
0.2%
122.7%
48.4%
38.6%
Total
4,626
4,517
312,439
297,038
-4,446
2,085
2,075
1.5%
1.5%
98.4%
45.1%
45.9%
Non-performing credit risk exposure by business segment and coverage by credit loss allowances and collateral
Non-performing
Credit risk exposure
Credit loss allowances
Collateral for NPE
NPE ratio
NPE cove-rage ratio
NPE collateralisation ratio
in EUR million
Total
AC and FVOCI
Total
AC and FVOCI
AC and FVOCI
Total
AC and FVOCI
Total
AC and FVOCI
AC and FVOCI
Total
AC and FVOCI
Dec 22
Retail
1,381
1,375
80,364
79,453
-1,609
564
561
1.7%
1.7%
117.0%
40.8%
40.8%
Corporates
1,694
1,624
114,347
105,062
-1,713
675
674
1.5%
1.5%
105.5%
39.8%
41.5%
Group Markets
0
0
19,511
10,648
-22
0
0
0.0%
0.0%
>500.0%
6.2%
13.9%
ALM & LCC
32
32
55,409
55,152
-45
7
7
0.1%
0.1%
142.8%
22.2%
22.3%
Savings Banks
1,380
1,370
79,360
77,299
-1,104
738
737
1.7%
1.8%
80.6%
53.5%
53.8%
GCC
17
14
175
103
-14
9
6
10.0%
14.0%
95.4%
51.3%
41.0%
Total
4,505
4,416
349,166
327,718
-4,507
1,992
1,986
1.3%
1.3%
102.1%
44.2%
45.0%
Dec 21
Retail
1,507
1,501
76,689
75,882
-1,557
616
610
2.0%
2.0%
103.7%
40.9%
40.6%
Corporates
1,693
1,598
91,644
86,598
-1,732
712
711
1.8%
1.8%
108.4%
42.1%
44.5%
Group Markets
2
2
18,815
11,947
-22
2
2
0.0%
0.0%
>500.0%
88.2%
88.4%
ALM & LCC
19
19
49,878
49,588
-40
0
0
0.0%
0.0%
207.5%
0.0%
0.0%
Savings Banks
1,387
1,383
75,109
72,809
-1,080
747
746
1.8%
1.9%
78.1%
53.8%
54.0%
GCC
17
14
304
214
-17
8
6
5.6%
6.7%
116.9%
48.4%
38.6%
Total
4,626
4,517
312,439
297,038
-4,446
2,085
2,075
1.5%
1.5%
98.4%
45.1%
45.9%
The tables on the following pages present the structure of the customer loan book, excluding loans to central banks and credit institutions broken down by different categories. Loans and advances to customers comprise:
_loans and advances to customers at FVPL;
_loans and advances to customers at AC;
_finance lease receivables;
_trade and other receivables.
The presentation is by gross carrying amount excluding loan loss allowances and collateral.
124
Loans and advances to customers by geographical operating segment and currency
EUR
CEE-LCY
CHF
USD
Other
Total
Dec 22
Austria
111,966
0
2,027
2,930
2,543
119,466
EBOe & Subs.
39,117
0
871
44
34
40,066
Savings Banks
55,657
0
1,110
54
1,151
57,972
Other Austria
17,193
0
46
2,832
1,358
21,429
CEE
37,491
47,552
12
133
87
85,274
Czech Republic
6,424
32,193
1
62
64
38,744
Slovakia
18,246
0
0
7
23
18,275
Romania
3,482
8,186
0
40
0
11,708
Hungary
1,857
4,008
0
6
0
5,873
Croatia
5,913
2,668
10
15
0
8,607
Serbia
1,568
496
0
3
0
2,067
Other
1,274
36
4
8
27
1,349
Total
150,731
47,589
2,043
3,070
2,657
206,090
Dec 21
Austria
101,287
0
2,300
2,913
1,972
108,472
EBOe & Subs.
36,283
0
999
69
58
37,409
Savings Banks
51,407
0
1,257
38
1,114
53,816
Other Austria
13,597
0
43
2,806
800
17,246
CEE
30,885
44,491
18
153
75
75,621
Czech Republic
4,377
29,978
0
58
47
34,459
Slovakia
16,204
0
0
4
27
16,236
Romania
3,011
7,123
0
71
0
10,204
Hungary
1,245
3,960
1
5
0
5,211
Croatia
4,665
2,922
16
11
0
7,614
Serbia
1,384
509
0
3
0
1,897
Other
33
42
4
5
0
84
Total
132,205
44,533
2,322
3,071
2,047
184,177
“CEE-LCY” refers to the CEE geographical segment view where the local currency is the currency of the respective country (e.g., CZK in Czech Republic, RON in Romania etc.).
Loans and advances to customers by geographical operating segment and risk category
Low risk
Management attention
Substandard
Non-performing
Total
Dec 22
Austria
101,474
12,717
2,947
2,328
119,466
EBOe & Subs.
34,092
4,426
960
587
40,066
Savings Banks
47,599
7,468
1,602
1,304
57,972
Other Austria
19,783
823
385
437
21,429
CEE
64,138
15,209
4,052
1,876
85,274
Czech Republic
32,167
4,655
1,188
735
38,745
Slovakia
13,177
3,526
1,281
290
18,275
Romania
8,975
1,993
413
327
11,708
Hungary
3,151
1,861
694
167
5,873
Croatia
5,120
2,757
423
307
8,607
Serbia
1,548
417
52
49
2,067
Other
1,324
8
0
17
1,349
Total
166,936
27,934
7,000
4,220
206,090
Dec 21
Austria
92,988
11,371
1,826
2,286
108,472
EBOe & Subs.
33,266
3,074
501
568
37,409
Savings Banks
44,147
7,290
1,070
1,309
53,816
Other Austria
15,575
1,008
255
409
17,246
CEE
59,613
10,456
3,487
2,065
75,621
Czech Republic
28,806
3,854
1,078
722
34,459
Slovakia
13,647
1,353
941
295
16,236
Romania
8,340
1,172
292
400
10,204
Hungary
3,572
917
529
194
5,211
Croatia
3,830
2,816
553
415
7,614
Serbia
1,418
345
94
39
1,897
Other
43
23
0
17
84
Total
152,645
21,851
5,313
4,368
184,177
125
Loans and advances to customers by business segment and risk category
Low risk
Management attention
Substandard
Non-performing
Total
Dec 22
Retail
57,514
9,391
3,007
1,362
71,274
Corporates
59,381
10,975
2,217
1,512
74,084
Group Markets
939
6
45
0
990
ALM & LCC
1,471
89
129
26
1,715
Savings Banks
47,599
7,468
1,602
1,304
57,972
GCC
33
6
0
17
56
Total
166,936
27,934
7,000
4,220
206,090
Dec 21
Retail
57,845
5,036
2,285
1,489
66,655
Corporates
49,866
9,466
1,859
1,549
62,740
Group Markets
698
8
3
0
709
ALM & LCC
60
41
96
4
201
Savings Banks
44,147
7,290
1,070
1,309
53,816
GCC
28
10
0
17
55
Total
152,645
21,851
5,313
4,368
184,177
In the following tables, the non-performing loans and advances to customers divided by segments are contrasted with allowances for customer loans (all allowances for loans and advances to customers within the scope of IFRS 9) and the collateral for non-performing loans (NPL). The NPL ratio, the NPL coverage ratio (excluding collateral), and the NPL collateralisation ratio are also included.
Non-performing loans and advances to customers by geographical operating segment and coverage by loan loss allowances and collateral
Non-performing
Customer loans
Loan loss allowances
Collateral for NPL
NPL ratio
NPL cove-rage ratio
NPL collateralisation ratio
in EUR million
Total
AC
Total
AC
AC
Total
AC
Total
AC
AC
Total
AC
Dec 22
Austria
2,328
2,321
119,466
119,405
-1,637
1,223
1,221
1.9%
1.9%
70.5%
52.5%
52.6%
EBOe & Subs.
587
587
40,066
40,059
-362
370
370
1.5%
1.5%
61.7%
63.0%
63.0%
Savings Banks
1,304
1,303
57,972
57,968
-959
723
723
2.2%
2.2%
73.6%
55.5%
55.5%
Other Austria
437
431
21,429
21,378
-316
129
129
2.0%
2.0%
73.2%
29.6%
29.8%
CEE
1,876
1,873
85,274
84,497
-2,331
719
716
2.2%
2.2%
124.5%
38.3%
38.2%
Czech Republic
735
735
38,744
38,744
-863
228
228
1.9%
1.9%
117.4%
31.0%
31.0%
Slovakia
290
290
18,275
18,275
-352
147
147
1.6%
1.6%
121.3%
50.5%
50.5%
Romania
327
327
11,708
11,708
-560
116
116
2.8%
2.8%
171.4%
35.5%
35.5%
Hungary
167
164
5,873
5,096
-172
76
73
2.8%
3.2%
104.6%
45.3%
44.5%
Croatia
307
307
8,607
8,607
-325
142
142
3.6%
3.6%
105.9%
46.1%
46.1%
Serbia
49
49
2,067
2,067
-59
11
11
2.4%
2.4%
119.8%
23.2%
23.2%
Other
17
14
1,349
1,349
-14
9
6
1.3%
1.1%
96.3%
52.0%
41.7%
Total
4,220
4,208
206,090
205,251
-3,981
1,951
1,944
2.0%
2.1%
94.6%
46.2%
46.2%
Dec 21
Austria
2,286
2,256
108,472
108,400
-1,568
1,233
1,232
2.1%
2.1%
69.5%
53.9%
54.6%
EBOe & Subs.
568
568
37,409
37,400
-353
344
344
1.5%
1.5%
62.0%
60.5%
60.5%
Savings Banks
1,309
1,309
53,816
53,809
-918
726
726
2.4%
2.4%
70.2%
55.5%
55.5%
Other Austria
409
379
17,246
17,191
-297
163
162
2.4%
2.2%
78.2%
39.8%
42.7%
CEE
2,065
2,059
75,621
74,888
-2,352
802
796
2.7%
2.7%
114.2%
38.8%
38.7%
Czech Republic
722
722
34,459
34,459
-804
213
213
2.1%
2.1%
111.3%
29.5%
29.5%
Slovakia
295
295
16,236
16,236
-342
152
152
1.8%
1.8%
115.9%
51.4%
51.4%
Romania
400
400
10,204
10,204
-553
137
137
3.9%
3.9%
138.2%
34.4%
34.4%
Hungary
194
188
5,211
4,477
-179
107
102
3.7%
4.2%
95.4%
55.4%
54.1%
Croatia
415
415
7,614
7,614
-426
184
184
5.5%
5.5%
102.5%
44.2%
44.2%
Serbia
39
39
1,897
1,897
-49
9
9
2.1%
2.1%
124.4%
23.4%
23.4%
Other
17
14
84
81
-17
8
6
20.4%
17.6%
116.1%
48.4%
38.6%
Total
4,368
4,330
184,177
183,369
-3,936
2,043
2,034
2.4%
2.4%
90.9%
46.8%
47.0%
Total gross customer loans, total non-performing loans, and total collateral include both AC and FVPL portfolios.
The NPL ratio of loans and advances to customers is calculated by dividing the gross carrying amount of non-performing loans and advances to customers by the total gross carrying amount of loans and advances to customers. Consequently, it differs from the NPE ratio in section “Credit risk exposure”. Collaterals for non-performing loans mainly consist of real estates.
The NPL coverage ratio is calculated by dividing total loss allowances by the gross carrying amount of the non-performing loans and advances to customers. Collateral is not considered.
126
Non-performing loans and advances to customers by business segment and coverage by loan loss allowances and collateral
Non-performing
Customer loans
Loan loss allowances
Collateral for NPL
NPL ratio
NPL cove-rage ratio
NPL collateralisation ratio
in EUR million
Total
AC
Total
AC
AC
Total
AC
Total
AC
AC
Total
AC
Dec 22
Retail
1,362
1,359
71,274
70,496
-1,560
559
556
1.9%
1.9%
114.8%
41.0%
40.9%
Corporates
1,512
1,506
74,084
74,028
-1,429
652
652
2.0%
2.0%
94.9%
43.1%
43.3%
Group Markets
0
0
990
990
-2
0
0
0.0%
0.0%
>500.0%
28.8%
28.8%
ALM & LCC
26
26
1,715
1,715
-18
7
7
1.5%
1.5%
67.5%
27.0%
27.0%
Savings Banks
1,304
1,303
57,972
57,968
-959
723
723
2.2%
2.2%
73.6%
55.5%
55.5%
GCC
17
14
56
55
-13
9
6
31.0%
25.9%
94.0%
52.0%
41.7%
Total
4,220
4,208
206,090
205,251
-3,981
1,951
1,944
2.0%
2.1%
94.6%
46.2%
46.2%
Dec 21
Retail
1,489
1,483
66,655
65,921
-1,505
612
606
2.2%
2.2%
101.5%
41.1%
40.9%
Corporates
1,549
1,520
62,740
62,675
-1,488
697
696
2.5%
2.4%
97.9%
45.0%
45.8%
Group Markets
0
0
709
709
-2
0
0
0.0%
0.0%
>500.0%
0.0%
0.0%
ALM & LCC
4
4
201
201
-6
0
0
2.2%
2.2%
129.1%
0.1%
0.1%
Savings Banks
1,309
1,309
53,816
53,809
-918
726
726
2.4%
2.4%
70.2%
55.5%
55.5%
GCC
17
14
55
53
-17
8
6
30.8%
26.9%
116.1%
48.4%
38.6%
Total
4,368
4,330
184,177
183,369
-3,936
2,043
2,034
2.4%
2.4%
90.9%
46.8%
47.0%
Loans and advances to customers at ACand coverage by loan loss allowances by geographical operating segment and IFRS 9 treatment
Loans to customers
Loan loss allowances
Coverage ratio
in EUR million
Stage 1
Stage 2
Stage 3
POCI
Not subject to IFRS 9 impairment
Stage 1
Stage 2
Stage 3
POCI
Stage 2
Stage 3
POCI
Dec 22
Austria
92,420
24,642
2,277
65
61
-123
-603
-910
-1
2.4%
40.0%
0.9%
EBOe & Subs.
33,461
6,008
577
12
7
-33
-139
-190
0
2.3%
32.9%
0.0%
Savings Banks
44,419
12,227
1,269
53
4
-71
-360
-527
-1
2.9%
41.5%
1.1%
Other Austria
14,539
6,408
431
0
50
-19
-103
-193
0
1.6%
44.8%
0.0%
CEE
68,048
14,428
1,734
287
777
-237
-851
-1,156
-87
5.9%
66.6%
30.3%
Czech Republic
31,524
6,478
688
54
1
-80
-307
-456
-20
4.7%
66.2%
36.4%
Slovakia
15,628
2,267
280
100
0
-44
-111
-166
-32
4.9%
59.2%
31.8%
Romania
8,759
2,593
301
54
0
-54
-266
-230
-10
10.3%
76.4%
17.7%
Hungary
4,007
908
134
47
777
-20
-54
-86
-12
5.9%
63.8%
25.1%
Croatia
6,443
1,851
283
29
0
-28
-96
-188
-13
5.2%
66.4%
46.0%
Serbia
1,687
331
47
2
0
-11
-18
-30
0
5.3%
64.5%
22.6%
Other
1,327
4
17
0
1
-2
0
-12
0
2.9%
68.6%
0.0%
Total
161,795
39,074
4,029
352
839
-361
-1,454
-2,078
-87
3.7%
51.6%
24.8%
Dec 21
Austria
85,834
20,286
2,227
54
72
-152
-488
-927
-1
2.4%
41.6%
1.5%
EBOe & Subs.
30,887
5,942
565
6
10
-33
-118
-201
0
2.0%
35.6%
0.0%
Savings Banks
42,784
9,696
1,282
47
7
-99
-273
-546
-1
2.8%
42.6%
1.7%
Other Austria
12,163
4,648
379
0
55
-21
-96
-180
0
2.1%
47.3%
0.0%
CEE
62,150
10,541
1,923
274
734
-259
-750
-1,256
-87
7.1%
65.3%
31.8%
Czech Republic
29,306
4,428
674
52
0
-98
-264
-422
-20
6.0%
62.6%
38.2%
Slovakia
13,924
1,951
290
72
0
-43
-111
-166
-22
5.7%
57.3%
30.6%
Romania
7,865
1,907
377
55
0
-54
-198
-288
-13
10.4%
76.4%
24.4%
Hungary
3,413
844
155
66
734
-16
-61
-85
-17
7.2%
54.9%
25.9%
Croatia
5,940
1,257
389
28
0
-37
-104
-270
-15
8.3%
69.4%
52.6%
Serbia
1,702
155
37
2
0
-11
-13
-24
0
8.4%
64.7%
21.4%
Other
49
15
17
0
2
-1
0
-16
0
0.3%
91.9%
0.0%
Total
148,033
30,842
4,167
327
808
-412
-1,238
-2,198
-88
4.0%
52.8%
26.8%
Stage 1 and Stage 2 comprise not credit impaired loans and advances while Stage 3 includes credit impaired loans and advances. POCI (purchased or originated credit impaired) consists of loans already credit impaired when purchased or originated.
The defaulted part of POCI loans amounted to EUR 181 million (2021: EUR 165 million), the non-defaulted part to EUR 172 million (2021: EUR 162 million).
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Loans to customers
Loan loss allowances
Coverage ratio
in EUR million
Stage 1
Stage 2
Stage 3
POCI
Not subject to IFRS 9 impairment
Stage 1
Stage 2
Stage 3
POCI
Stage 2
Stage 3
POCI
Dec 22
Retail
59,702
9,385
1,321
88
779
-151
-598
-788
-23
6.4%
59.7%
26.1%
Corporates
55,126
17,294
1,397
211
56
-135
-494
-736
-64
2.9%
52.7%
30.3%
Group Markets
836
153
0
0
0
-1
-1
0
0
0.8%
38.0%
60.3%
ALM & LCC
1,675
14
26
0
0
-1
-1
-15
0
7.7%
58.3%
21.3%
Savings Banks
44,419
12,227
1,269
53
4
-71
-360
-527
-1
2.9%
41.5%
1.1%
GCC
36
2
17
0
1
-1
0
-12
0
6.9%
68.6%
0.0%
Total
161,795
39,074
4,029
352
839
-361
-1,454
-2,078
-87
3.7%
51.6%
24.8%
Dec 21
Retail
56,634
7,746
1,440
101
734
-160
-488
-830
-28
6.3%
57.6%
27.6%
Corporates
47,819
13,255
1,423
178
65
-151
-475
-802
-59
3.6%
56.4%
33.2%
Group Markets
580
129
0
0
0
-1
-1
0
0
0.9%
18.5%
0.0%
ALM & LCC
183
14
4
0
0
-1
-1
-4
0
5.5%
99.5%
0.0%
Savings Banks
42,784
9,696
1,282
47
7
-99
-273
-546
-1
2.8%
42.6%
1.7%
GCC
34
2
17
0
2
-1
0
-16
0
2.3%
91.9%
0.0%
Total
148,033
30,842
4,167
327
808
-412
-1,238
-2,198
-88
4.0%
52.8%
26.9%
The NPL exposures above exclude any write-offs recognised in accordance with IFRS 9. Erste Group distinguishes between contractual write-offs (debt forgiveness towards the defaulted client, either unconditional or subject to conditions) and technical write-offs (claim removal from the books due to no reasonable expectation of recovery, whereby the legal claim towards the customer remains). Both types of write-offs have as a pre-condition that all reasonable workout measures and late collections tools have been applied for optimal recovery. In case of collateralised loans, write-off prior to the realisation of the collateral is not allowed unless specific circumstances apply. Additional technical write-off triggers include enforcement, worthlessness of claim/collateral, legally binding bankruptcy/liquidation or other economic loss of the rights to claim/sale. The amount written off during 2022, which is still subject to enforcement activity, totals EUR 113 million (2021: EUR 157 million).
As of 31 December 2022, Erste Group held a further reduced residual portfolio of investment-grade rated securitisations; there were no new investments undertaken. The carrying amount of Erste Group’s securitisation portfolio totalled EUR 1.9 million.
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.
Methods and instruments employed
At Erste Group, potential losses that may arise from market movements are assessed using the value at risk (VaR) methodology. 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
The VaR calculation for the trading book is based on the methodology of historical simulation with a one-sided confidence level of 99%, a holding period of one day, and a look back period of two years.
Back-testing for the trading book is used to constantly monitor the validity of the internal market risk model. 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 given day should exceed the VaR estimate statistically only two to three times a year (1% of around 250 workdays).
The VaR calculation for banking book positions (BB-VaR) is based on the methodology used for ICAAP calculation of Erste Group where 250.000 historical scenarios (starting with 2010) are calculated with a theoretical holding period of 1 year and a confidence level of 99.92%. The same calculation is used for the BB-VaR with a 1 day holding period and a 99% confidence level, consistent with the trading book methodology. The results of both calculations, ICAAP and BB-VaR are presented in the Group ALCO to the management board.
128
of the bank. To address this limitation and to investigate any extreme market situations not reflected in the VaR approach, stress tests are conducted at Erste Group. These stress tests are designed to cover market movements of low probability and high impact.
The stress tests are carried out according to several methods: for the trading book, a stressed VaR (SVaR) 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 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 stressed 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.
Standard scenarios are also defined, in which selected market risk factors are subject 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 modelled after certain crisis events such as “Covid-19 crisis” or “Lehman bankruptcy” form the basis of the stress calculation. In addition, hypothetical stress test scenarios are defined based on analysis of the current economic environment and projections of adverse developments of key market risk drivers. These analyses are made available to the Market Risk Committee within the scope of the regular market risk reporting. Banking book positions are considered in the comprehensive stress test.
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 risk-weighted assets (RWAs) 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 in VaR, SVaR, and sensitivity limits is done by the Market Risk Committee on the basis of a proposal from the Trading Book Risk Management unit.
All market risk activities of the trading book are assigned risk limits that are entirely consistent with the overall RWA limit. The RWA limit is broken down into dedicated VaR and SVaR limits and assigned in a top-down procedure to the individual trading units. Additionally, in a bottom-up procedure, sensitivity limits are assigned on trading desk level in order to control exposures to individual risk drivers and ensure sufficient diversification. These are then aggregated and applied as a second-limit layer to the VaR and SVaR limits.
Limit compliance is verified at two levels: by the appropriate local risk management unit and by the Trading Book Risk Management 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 the trading units or risk management on an ad-hoc basis.
Trading book VaR and SVaR are calculated daily at group level and reported to all key stakeholders including the relevant board members. In case of a limit breach, the escalation procedure ensures the timely remediation of the limit breach.
In Banking Book, limits are implemented top-down from Group to individual entity covering change in economic value and in net interest income as well as limits on market risk Pillar 2 RWA. Limit monitoring is done by respective local risk management and Group Banking Book Risk Management. Dedicated escalation procedure is in place in case of limit breaches.
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. The figures do not cover exposures which are accounted for in the standardized approach (e.g., FX risks in the banking book, specific position risk):
Value at Risk of banking book and trading book
Total
Interest
Credit spread
Currency
Shares
Commodity
Volatility
Dec 22
Erste Group
85,976
87,202
16,356
980
1,583
211
1,064
Banking book
81,705
82,929
16,356
-
-
-
-
Trading book
4,271
4,273
-
980
1,583
211
1,064
Dec 21
Erste Group
52,336
51,925
16,431
1,140
2,216
247
1,012
Banking book
47,130
48,119
16,431
-
-
-
-
Trading book
5,206
3,806
-
1,140
2,216
247
1,012
The table above is adjusted compared to the annual report of 2021. It is due to change in representation of VaR for the banking book as it is now showing worst case result per Risk sub component. It is with the same confidence interval of 99% and 1 day holding period as the Total VaR for which the representation remains unchanged. With this approach it is aligned with the representation of the Trading Book VaR results. Therefore, the December 2021 figures were restated in order to be comparable.
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In 2021 the model multiplier for Erste Group was increased from 3.0 to 3.25 by the ECB based on the observation that until first quarter 2021 Erste Group did not have a systematic process for capturing Risks Not In The Model (RNIME). A regulatory compliant framework was implemented starting with June 2021. In February 2022 Erste Group received regulatory approval to reduce the multiplier back to 3.0 based on the implemented RNIME framework. As of year-end 2022 the number of VaR backtesting outliers is 6 and hence the regulatory multiplier has a value of 3.5. Three of the outliers were clustered in late February and early March and were related to market reaction to the war in the Ukraine. The remaining three outliers were caused by sharp market moves related to central bank intervention or market expectations regarding inflation and interest rates.
Interest rate risk in the banking book (IRRBB)
Interest rate risk is the risk of an adverse change in both, the earnings and economic 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 off-balance instruments are used to calculate the impact of certain interest rate scenarios on their economic value and their earnings. Limits and thresholds are implemented for both aspects of the IRRBB, the change in economic value as well as the change in earnings. Positions without contractually defined maturity or repricing structures, such as demand deposits or overdrafts are modelled accordingly. For positions where the customer has the right to prepay his debt prepayment models are applied.
In order to reflect newest data, behavioural models for on-demand deposits and loan prepayments have been reviewed and updated for major entities (Erste Bank Österreich, Sparkassen, Ceska Sporitelna, Slovenska Sporitelna) during 2022.
For internal risk calculations and for the regulatory interest rate risk measures, the maximum downward shock is floored according to the Annex III of the EBA guidelines on the management of interest rate risk arising from non-trading activities (EBA/GL/2018/02). With increasing yield curves, especially in EUR, USD and CZK, these embedded floors have become less relevant.
Exchange rate risk
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. In the trading book, these risks might originate from customer-related or trading operations and are monitored and managed on a daily basis. Foreign currency exposure is subject to regulatory and internal limits. The internal limits for the trading book 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 and 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 foreign currency positions of Erste Group (including structural FX positions for 2022, excluding positions in HRK due to Croatia joining the eurozone as of 1st of January 2023). The inclusion of structural FX positions in the table below as of 2022 is in line with the EBA guideline on the treatment of structural FX (EBA/GL/2020/09) which requires banks to calculate own funds for FX positions resulting from participations in foreign subsidiaries. The inclusion of structural FX positions leads to overall significantly higher open positions in the core market currencies:
130
Open Position
Dec 22
Czech Koruna (CZK)
2,940,118
Romanian Leu (RON)
1,346,093
Hungarian Forint (HUF)
530,802
Serbian Dinar (RSD)
376,336
Macedonian Denar (MKD)
227,258
Bosnia and Herzegovina Convertible Mark (BAM)
181,863
US Dollar (USD)
84,819
Polish Zloty (PLN)
25,771
British Pound (GBP)
9,020
Swiss Franc (CHF)
6,093
Dec 21
US Dollar (USD)
41,318
Croatian Kuna (HRK)
25,591
Czech Koruna (CZK)
12,442
Serbian Dinar (RSD)
11,298
Hungarian Forint (HUF)
11,123
Polish Zloty (PLN)
10,676
Romanian Leu (RON)
4,368
Japanese Yen (JPY)
3,984
Swiss Franc (CHF)
-3,687
British Pound (GBP)
2,981
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.
For the trading book, credit spread risk for government bonds is part of the general market risk covered by VaR and SVaR. Corporate bonds are allocated to benchmark spread curves depending on sector, rating, and currency as part of the general risk covered by VaR and SVaR. The issuer specific risk is covered by the standardised approach for Pillar 1 of regulatory capital requirements. For the issuer specific risk of the trading book in Pillar 2, the spread risk is broken down into a systematic and a residual part risk and reported on an aggregated level.
Quantifying the credit spread risk of the securities in the banking book is based on a historical simulation. The maximum (hypothetical) drawdown that can be attributed to credit related risk factors over a one-year horizon is calculated. It is based on credit spread sensitivities (CR01) and the risk factors used are mainly asset swap spreads for sovereigns and iTRAXX CDS indices for financials and corporates. The resulting amount is used as part of the ICAAP calculations to determine the capital consumption of the banking book portfolio.
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. Balance Sheet Management Division (BSM) is responsible for the interest rate risk management of the banking book and respective hedging actions. ALCO committee is informed by BSM on a regular basis about the interest rate risk of the banking book and required approvals (e.g., for strategic positions, the BSM strategy, pouvoir for investments, etc.) by the members of the ALCO committee.
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, fair value hedges and cash flow hedges are used. In addition, the fair value option is used for hedging the market risk from the economic perspective. Most of the hedging within Erste Group concerns hedging of interest rate risk. The remainder is hedging of foreign exchange rate risk.
Recent Developments
In 2022, Erste Group further developed and enhanced its liquidity risk calculation and reporting system in the new technical environment. With these improvements, all liquidity metrics are now well established on this technical environment.
The implementation of some of these liquidity metrics was accompanied by a re-design of these metrics. So have the long-term Structural Liquidity Ratio (STRL) and the Stress-Testing metric Survival Period Analysis (SPA) been reviewed in the process of the implementation and certain re-designs and improvements have been implemented as well.
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In 2022, customer deposits remained the primary source of funding for Erste Group. The growth in loan volume surpassed inflows of customer deposits, leading to the reduction of short term placements.
With regards its own issuance, Erste Group Bank AG issued EUR 6.1 billion in bonds in 2022 (2021: EUR 3.1 billion) which in net terms was approx. EUR 2.1 billion above the original plan at the beginning of the year due to pre-funding activities. EUR 3.4 billion (2021: EUR 2.6 billion) was collected by issuing senior preferred bonds, of which EUR 0.5 billion (2021: 0.5 billion) was printed via a benchmark sized transaction. Tier 2 subordinated debt issuance amounted to EUR 0.5 billion (2021: EUR 0.5 billion). This was offset by repurchases of EUR 70 million (2021: EUR 37 million). The average tenor of all new issues in 2022 is approximately 6.3 years (2021: 7.0 years).
Erste Group’s total TLTRO participation in 2022 decreased to EUR 15.5 billion (2021: 21.2 billion).
Liquidity Metrics and Reports
The liquidity risk in Erste Group is defined in line with the principles set out by the Basel Committee on Banking Supervision as well as the European and Austrian regulations Regulation (EU) No 575/2013 (CRR), Regulation (EU) 2015/61 and the Council and the “Kreditinstitute-Risikomanagement-Verordnung - KI-RMV” in their current versions. 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.
The regulatory liquidity ratios LCR and NSFR are well implemented in Erste Group which uses the above-mentioned technical environment to calculate the LCR accordingRegulation (EU) No 2015/61 as well as the NSFR according to the Regulation (EU) No 575/2013 in their currently valid versions.
Erste Group calculates LCR on a daily basis on solo and group level and reports it on a monthly basis to the authorities. Furthermore, the LCR is part of the internal Risk Appetite Statement (RAS). LCR limits are defined in the RAS targeting to be well above the regulatory requirement of 100%. 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 LCR at group level.
The NSFR is calculated on a monthly basis on solo and group level and is reported on a quarterly basis to the authorities. Same as the LCR, the NSFR is part of the internal RAS and limits are defined in the RAS targeting to be well above the regulatory requirement of 100%
Short-term insolvency risk is monitored by calculating the survival period analysis (SPA) on both entity and group levels. This analysis determines the maximum period during which the entity can survive a set of defined scenarios, including 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. The SPA is covering a stress horizon of up to 12 months. It is calculated on a monthly basis at entity and group level.
Structural liquidity is monitored with the internal Structural Liquidity Ratio (STRL), depicting the going concern maturity mismatches of the subsidiaries and the group as a whole. The STRL is calculated on a monthly basis both on solo entity level and on group level.
All above mentioned reports (LCR, NSFR, SPA and STRL) are reported to the Operational Liquidity Committee (OLC) as well as to the management board during the Group Asset and Liability Committee (Group ALCO).
Additionally, concentration risks in the funding structure and “Counterbalancing Capacity” (CBC) are regularly monitored and reported to the regulator. Erste Group’s funds transfer pricing (FTP) system has also proven to be an efficient tool for structural liquidity risk management.
Methods and instruments of risk mitigation
Apart from the reporting of liquidity metrics to the OLC and the Group ALCO, another important instrument for managing the liquidity risk within Erste Group and in relation to its subsidiaries is the FTP system. Important information for liquidity management can be obtained by the process of planning funding needs. Therefore, a detailed overview of funding needs is prepared on a quarterly basis for the planning horizon across Erste Group.
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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.
Analysis of liquidity risk
In Erste Group, the liquidity risk is analysed by the following methods.
Liquidity coverage ratio. Erste Group uses the regulatory LCR for internal monitoring and steering of the liquidity position. To keep the LCR according LCR DA above both limits, the regulatory limit and the internal limit, Erste Group closely monitors its short-term liquidity inflows and outflows as well as its available counterbalancing capacity (CBC).
Erste Group has continued to actively reduce surplus liquidity which results in a lower LCR ratio in comparison to previous year. However, Erste Group is still having a comfortable buffer well above internal and external limits.
Liquidity coverage ratio
Dec 21
Dec 22
Liquidity buffer
71,566
72,877
Net liquidity outflow
40,361
52,825
Liquidity coverage ratio
177.3%
138.0%
Structural liquidity gaps. The long-term liquidity position is managed using structural liquidity gaps on the basis of contractual and partially behavioural cash flows of all liquidity relevant components of the balance sheet (on-balance and off-balance). This liquidity position is calculated for each material currency.
Cash flows are broken down by contractual maturities in accordance with the amortisation schedule and arranged in maturity ranges. All customer products without contractual maturities (such as demand deposits and overdrafts) are included according to a going concern maturity profile using model based on statistically observed client behaviour.
In order to reflect newest data and significant changes in many yield curve levels, behavioural models for on-demand deposits have been reviewed and updated for all major entities during 2022 same as for interest rate risk in the banking book.
The figures for December 2022 in the tables below (structural liquidity gap) are extracted from the new technical environment as described in the section ‘recent developments’ whereas the figures for December 2021 are based on the old technical environment which was still in use back then. Increase in assets is partially mitigated by increase of liabilities in the first time band resulting in a decreased gap of 10 bn EUR mostly due to updates of behavioural model and the therewith connected conservative shift of deposits to earlier time bands whereas loans to later ones as well as due to improved data quality in the new environment.
Structural liquidity gap
0-12 months
1-3 years
3-5 years
> 5 years
in EUR million
Dec 21
Dec 22
Dec 21
Dec 22
Dec 21
Dec 22
Dec 21
Dec 22
Liquidity gap
37,894
10,857
-7,021
7,829
-10,414
2,076
-21,690
-25,452
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 cash inflows from liquid securities amounting to EUR 41.8 billion (2021: EUR 30.7 billion), which are accepted as collateral by the central banks to which Erste Group has access, are considered 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.
133
Term structure of counterbalancing capacity
< 1 week
1 week-1 month
1-3 months
3-6 months
6-12 months
Dec 22
Cash, excess reserve
8,743
0
0
0
0
Liquid assets
42,165
-2,434
-2,258
-1,730
-4,331
Other central bank eligible assets
2,622
-58
118
4,904
3,304
Thereof retained covered bonds
-227
0
285
3,860
2,816
Thereof credit claims
1,476
0
85
969
621
Counterbalancing capacity
53,530
-2,492
-2,140
3,174
-1,027
Dec 21
Cash, excess reserve
29,074
0
0
0
0
Liquid assets
37,951
-6,126
-1,134
-1,447
-2,252
Other central bank eligible assets
1,119
-43
328
-267
499
Thereof retained covered bonds
-86
0
470
0
500
Thereof credit claims
331
0
0
0
243
Counterbalancing capacity
68,144
-6,170
-806
-1,714
-1,753
The figures above show the total amount of potential liquidity available for the group in a going concern situation considering the applicable central bank haircuts. In a crisis situation, adverse market movements can decrease this amount. The initial counterbalancing capacity available at group level is reduced by additional stressed haircuts. Negative figures are maturing positions of the counterbalancing capacity. Positive figures after one week are positions not immediately available as counterbalancing capacity.
The decrease in cash, excess reserve can be explained by entities starting to place their surplus liquidity to central banks as a loan which is not considered as part of the counterbalancing capacity anymore.
Financial liabilities. The table below shows the undiscounted principal cash flows for all financial liabilities and it contains interest cash flows.
Financial liabilities
Carrying amounts
Contractual cash flows
< 1 month
1-12 months
1-5 years
> 5 years
Dec 22
Non-derivative liabilities
288,697
301,416
222,121
24,450
34,361
20,484
Deposits by banks
28,821
33,173
7,048
11,059
12,026
3,041
Customer deposits
223,973
229,398
212,922
10,983
4,380
1,113
Debt securities in issue
29,300
33,818
2,012
1,940
16,120
13,747
Subordinated liabilities
6,603
5,027
140
468
1,835
2,583
Derivative liabilities
2,999
5,905
-37
1,523
3,540
878
Derivatives liabilities with netted Cash Flows
0
4,877
21
836
3,181
839
Derivatives liabilities with gross Cash Flow (net)
0
1,028
-58
688
359
39
Outflows
0
77,798
54,323
17,090
5,727
658
Inflows
0
-76,770
-54,381
-16,402
-5,367
-619
Contingent liabilities
0
63,792
63,792
0
0
0
Financial guarantees
0
7,643
7,643
0
0
0
Commitments
0
56,150
56,150
0
0
0
Other financial liabilities
1,687
1,687
1,687
0
0
0
Total
293,383
372,800
287,563
25,973
37,901
21,362
Dec 21
Non-derivative liabilities
274,539
278,718
209,599
11,005
39,401
18,714
Deposits by banks
31,886
33,427
4,176
3,315
23,147
2,790
Customer deposits
210,523
213,550
204,311
3,581
4,213
1,445
Debt securities in issue
25,295
26,091
1,088
2,731
10,104
12,169
Subordinated liabilities
6,835
5,650
25
1,377
1,938
2,310
Derivative liabilities
1,933
1,953
-32
729
1,018
239
Derivatives liabilities with netted Cash Flows
0
1,406
105
282
788
231
Derivatives liabilities with gross Cash Flow (net)
0
547
-137
446
229
8
Outflows
0
44,997
27,760
10,706
5,534
995
Inflows
0
-44,449
-27,897
-10,260
-5,305
-987
Contingent liabilities
0
53,529
53,529
0
0
0
Financial guarantees
0
6,796
6,796
0
0
0
Commitments
0
46,734
46,734
0
0
0
Other financial liabilities
2,190
2,190
2,190
0
0
0
Total
278,663
336,391
265,286
11,733
40,419
18,953
As of year-end 2022, the currency composition of the non-derivative liabilities consisted of approximately 69% EUR, 17% CZK, 4% RON, 4% USD, and 6% in other currencies (2021: 71% EUR, 17% CZK, 4% RON, 3% USD, and 5% in other currencies ).
Besides the contingent liabilities from unused credit lines and guarantees, material potential cash outflow is calculated from the collateralised derivative transactions for the stress testing, following a historical lookback approach, which amounted to EUR 1.8 billion (2021: EUR 1.2 billion) in the severe combined idiosyncratic and market crisis scenario as of 31 December 2022.
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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 risk, model risk and information and communication technology risk, but not strategic and reputational risk. 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 are 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 calculates capital requirements for operational risk based on the Advanced Measurement Approach (AMA) that is subject to regulatory approval. AMA is a sophisticated approach for 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. Additionally, Erste Group received the 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 and control assessments through expert panels. Additional methods include setting of key risk indicators and risk assessments in connection with product approvals, outsourcing assessments and risk return decisions. The results of these assessments and processes are reported to line management along with mitigation measures and thus help to reduce operational risks. In order to ensure early detection of changes in the risk profile that may lead to losses, Erste Group monitors a number of key risk indicators such as system availability, staff turnover, and customer complaints.
Erste Group uses a group-wide insurance program that has reduced the cost of meeting Erste Group’s traditional property insurance needs. Freed-up resources made it possible to buy additional insurance for previously uninsured bank-specific risks. This program uses a captive reinsurance entity as a vehicle to share losses within the group and access the external market.
135
Non-current assets and other investments
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 statement of income in the line item ‘Depreciation and amortisation’ and impairment in the line item ‘Other operating result’.
Useful lives in years
Buildings
30-50
Re-buildings on own and foreign real estates
15-50
Office furniture and equipment
4-10
Passenger cars
4-8
Computer hardware
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 statement of income 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 or both. 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 when 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 statement of income in the line item ‘Rental income from investment properties and other operating leases’. Depreciation is presented in the statement of income in the line item ‘Depreciation and amortisation’ using the straight-line method over an estimated useful life. The useful lives of investment properties are in the range of 15-100 years. Any impairment losses, as well as their reversals, are recognised under the line item ‘Other operating result’.
Impairment
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.
Impairments and their reversals are recognised in the statement of income under the line item ‘Other operating result’.
136
Acquisition and production costs
Own property, equipment and investment properties
Land and buildings
Office and plant equipment/other fixed assets
IT assets (hardware)
Movable other property
Property and equipment
Investment properties
Jan 21
2,393
970
557
410
4,331
1,684
Additions
120
73
55
132
380
83
Disposals
-40
-66
-64
-94
-265
-15
Acquisition of subsidiaries
0
0
0
0
0
0
Disposal of subsidiaries
0
0
0
0
0
-1
Reclassification
-2
-37
39
0
0
0
Assets held for sale
-4
0
0
26
21
-21
Currency translation
32
5
5
5
48
6
Dec 21
2,498
945
593
479
4,515
1,736
Additions
81
81
81
46
290
107
Disposals
-60
-57
-83
-71
-270
-16
Acquisition of subsidiaries
11
0
0
0
11
0
Disposal of subsidiaries
0
0
0
-150
-150
-2
Reclassification
16
11
1
0
28
-28
Assets held for sale
-25
-2
-1
0
-28
-11
Currency translation
17
2
1
5
24
1
Dec 22
2,538
980
591
309
4,419
1,788
Accumulated depreciation
Own property, equipment and investment properties
Land and buildings
Office and plant equipment/other fixed assets
IT assets (hardware)
Movable other property
Property and equipment
Investment properties
Jan 21
-1,021
-674
-395
-164
-2,253
-459
Amortisation and depreciation
-66
-55
-63
-48
-231
-28
Disposals
27
63
62
45
197
3
Acquisition of subsidiaries
0
0
0
0
0
0
Disposal of subsidiaries
0
0
0
0
1
1
Impairment
-21
-1
0
-21
-44
-6
Reversal of impairment
5
0
0
0
5
1
Reclassification
-1
18
-16
0
1
-1
Assets held for sale
11
0
0
0
11
6
Currency translation
-18
-3
-3
-3
-27
-3
Dec 21
-1,084
-651
-415
-190
-2,340
-484
Amortisation and depreciation
-71
-54
-63
-39
-228
-27
Disposals
30
50
82
50
213
8
Acquisition of subsidiaries
0
0
0
0
0
0
Disposal of subsidiaries
1
0
0
36
37
2
Impairment
-16
-2
0
0
-19
-17
Reversal of impairment
3
0
0
0
3
1
Reclassification
-7
0
0
0
-7
7
Assets held for sale
9
1
1
0
11
5
Currency translation
-8
-1
0
-3
-12
-2
Dec 22
-1,143
-658
-396
-145
-2,342
-506
Carrying amounts
Own property, equipment and investment properties
137
Land and buildings (used by the Group)
Office and plant equipment/other fixed assets
IT assets (hardware)
Movable other property
Property and equipment
Investment properties
Dec 21
455
3
0
11
470
93
Dec 22
518
4
0
18
541
91
Total carrying amounts
Land and buildings (used by the Group)
Office and plant equipment/other fixed assets
IT assets (hardware)
Movable other property
Property and equipment
Investment properties
Dec 21
1,869
297
178
301
2,645
1,344
Dec 22
1,913
327
196
182
2,618
1,372
For details related to right of use assets capitalized in balance sheet arising from leases where Erste Group is lessee, please see Note 52 Leases where the Group is a lessee.
The carrying amount of investment properties include properties subject to operating leases in the amount of EUR 1,300.6 million (2021: EUR 1,273.3 million). Investment properties with a carrying amount of EUR 596.0 million (2021: EUR 443.6 million) are pledged as collaterals. Investment properties with a carrying amount of EUR 635.7 million (2021: EUR 567.0 million) are subject to the Austrian Non-Profit Housing Act (Wohnungsgemeinnützigkeitsgesetz) and hence are subject to the specific rules in respect of sale and use of these properties. The carrying amount of property and equipment includes properties subject to operating leases in the amount of EUR 210.9 million (2021: EUR 334.3 million).
In the reporting period, expenditures in the amount of EUR 88.6 million (2021: EUR 185.0 million) are capitalised in the carrying amount of fixed assets and investment properties during their construction. The contractual commitments for purchase of fixed assets are EUR 17.1 million (2021: EUR 54.9 million).
In 2022, land and buildings were impaired in the amount of EUR 13.9 million in Czech Republic (2021: EUR 15.8 million). As of 31 December 2022, the recoverable amount of these impaired assets amounted to EUR 14.2 million (2021: EUR 40.6 million).
As of 31 December 2022 the fair value of investment properties with a carrying amount of EUR 1,372 million (2021: EUR 1,344 million) amounts to 1,597 million (2021: EUR 1,518 million) and is classified as level 3 of the fair value hierarchy.
The fair values are determined by experts with recognised and relevant professional qualification. Fair values of commercial real estate in Austria and CEE owned by Erste Group through Austrian companies are based on valuation reports relying essentially, but not solely, on observable market inputs (such as selling price per square meter charged in recent market observable transactions for similar assets). For all other property 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.
Goodwill
Goowill arises from business combinations whereby a subsidiary is acquired. Subsequently, goodwill is carried at cost as established on the acquisition date, less accumulated subsequent impairment losses, if any. For more details on measurement of goodwill at the acquisition date refer to Note 58 Subsidiaries.
Other intangible assets
Erste Group’s intangible assets other than goodwill include computer software and customer relationships, the brand 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.
Intangible assets are measured on initial recognition at cost, including transaction costs. 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. 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 acquisition date. In the case of Erste Group, these are brands and customer relationships, and they are capitalised on acquisition if they can be measured with sufficient reliability.
138
Useful lives in years
Computer software
4-10
Customer relationships
10-20
Impairment of intangible assets including goodwill
Impairment of intangible assets is based on the same requirements as described in Note 48 Property, equipments and investment properties. It is typical of intangible assets that they do not generate cash inflows that are largely independent of those from other assets. As a result, the impairment test is carried out at the level of the cash-generating unit (CGU) to which the asset belongs.
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 cash-generating 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 intangible assets recognised at the time of business combination if they are allocated to the CGU.
The recoverable amount is the higher of a CGU’s fair value less costs of disposal and its value in use. When 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.
The cash flows are determined by subtracting the annual capital requirement generated by a change in the amount of risk-weighted assets from the estimated future earnings. 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 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.
When the recoverable amount of a CGU is less than its carrying amount, the difference is recognised as an impairment loss in the statement of income 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 remaining individual assets of the CGU, 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. Instead, the entire carrying amount of the investment is tested for impairment as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposal) 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.
The analysis on the recoverability of non-financial assets is explained in section ‘Significant accounting policies’ in the chapter ‘Significant accounting judgements, assumptions and estimates.
139
Goodwill
Customer relationships
Brand
Software acquired
Self-constructed software within the Group
Others (licenses, patents, etc.)
Total
Jan 21
662
159
0
1,644
549
353
3,367
Additions
6
0
0
131
51
14
202
Disposals
-8
0
0
-55
-10
-22
-96
Acquisition of subsidiaries
0
0
0
1
0
0
1
Disposal of subsidiaries
0
0
0
0
0
0
0
Reclassification
0
0
0
9
-4
-5
0
Assets held for sale
0
0
0
0
0
0
0
Currency translation
0
0
0
33
-1
3
36
Dec 21
660
159
0
1,763
585
343
3,510
Additions
12
0
0
131
42
9
194
Disposals
0
0
0
-86
-9
-16
-111
Acquisition of subsidiaries
0
0
0
0
0
0
0
Disposal of subsidiaries
0
0
0
-1
0
0
-1
Reclassification
0
0
0
4
-4
0
0
Assets held for sale
0
0
0
-1
0
0
-1
Exchange-rate changes
-1
-2
0
5
0
1
4
Dec 22
671
157
0
1,815
614
338
3,596
Accumulated depreciation
Goodwill
Customer relationships
Brand
Software acquired
Self-constructed software within the Group
Others (licenses, patents, etc.)
Total
Jan 21
-118
-117
0
-1,191
-311
-272
-2,008
Amortisation and depreciation
0
-8
0
-109
-60
-25
-201
Disposals
8
0
0
51
14
24
98
Acquisition of subsidiaries
0
0
0
0
0
0
0
Disposal of subsidiaries
0
0
0
0
0
0
0
Impairment
0
0
0
-7
0
-3
-10
Reversal of impairment
0
0
0
0
0
0
0
Reclassification
0
0
0
-4
0
4
0
Assets held for sale
0
0
0
0
0
0
0
Currency translation
0
0
0
-23
0
-3
-26
Dec 21
-110
-124
0
-1,284
-356
-274
-2,148
Amortisation and depreciation
0
-7
0
-108
-62
-22
-200
Disposals
0
0
0
85
9
16
110
Acquisition of subsidiaries
0
0
0
0
0
0
0
Disposal of subsidiaries
0
0
0
1
0
0
1
Impairment
-5
0
0
-3
0
0
-9
Reversal of impairment
0
0
0
0
0
0
0
Reclassification
0
0
0
0
0
0
0
Assets held for sale
0
0
0
1
0
0
1
Currency translation
0
2
0
-5
0
-1
-4
Dec 22
-115
-129
0
-1,313
-409
-282
-2,248
Carrying amounts
Goodwill
Customer relationships
Brand
Software acquired
Self-constructed software within the Group
Others (licenses, patents, etc.)
Total
Dec 21
550
35
0
480
229
69
1,362
Dec 22
556
27
0
502
205
56
1,347
The contractual commitments for the purchase of intangible assets amounted to EUR 2.9 million (2021: EUR 1.9 million). As of 31 December 2022 the customer relationship Ringturm Kapitalanlagegesellschaft m.b.H. amounted to EUR 24.0 million (2021: EUR 28.0 million). The remaining amortization period of the customer relationship in Ringturm Kapitalanlagegesellschaft m.b.H. was 5.8 years.
Goodwill
The additions of goodwill in the amount of EUR 11.9 million relate to the acquisition of Commerzbank Zrt. For further details please see section ‚Scope of consolidation‘.
140
Carrying amount and material parameters used for the impairment test per subsidiary (CGU) for significant goodwills
CSAS
Carrying amount of goodwill as of 1 January 2022 (in EUR million)
544
Effect of exchange rate changes for the year 2022 (in EUR million)
0
Basis upon which recoverable amount has been determined
Value in Use (discounted cash flow model based)
Key interest input parameters into the discounted cash flow model
Risk Free Rate, Terminal Growth Rate, β Factor, Market Risk Premium
Description of approach to determining value assigned to risk free rate
Risk Free Rate has been set at 2.16% p.a. throughout relevant Group's CGUs based on relevant financial statistics published by Deutsche Bundesbank as at the reference date 31 October 2022.
Description of approach to determining values assigned to terminal growth rate
For non-Austrian (CEE) CGUs: Terminal Growth Rate has been equated to 3%, representing the recommended cap level for the Terminal Growth 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).
Description of approach to determining values assigned to β factor
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 Capital IQ as of the reference date 31 October 2022.
Description of approach to determining values assigned to market risk premium
Set at 7.77% throughout relevant Group's CGUs based on published evaluations by
Period of cash flow projection (years)
5 years (2023 - 2027); extrapolation to perpetuity based on Terminal Growth Rate
Discount rate applied to cash flow projections (pre-tax)
16.1%
The value assigned to β Factor
1.18
Amount of goodwill impairment loss recognised in profit or loss for the year 2022 (in EUR million)
0
Post-impairment carrying amount of goodwill as of 31 December 2022 (in EUR million)
544
Carrying amount of goodwill as of 1 January 2021 (in EUR million)
544
Effect of exchange rate changes for the year 2021 (in EUR million)
0
Basis upon which recoverable amount has been determined
Value in Use (discounted cash flow model based)
Key interest input parameters into the discounted cash flow model
Risk Free Rate, Terminal Growth Rate, β Factor, Market Risk Premium
Description of approach to determining value assigned to risk free rate
Risk Free Rate has been set at 0.13% p.a. throughout relevant Group's CGUs based on relevant financial statistics published by Deutsche Bundesbank as at the reference date 31 October 2021.
Description of approach to determining values assigned to terminal growth rate
For non-Austrian (CEE) CGUs: Terminal Growth Rate has been equated to 3%, representing the recommended cap level for the Terminal Growth 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).
Description of approach to determining values assigned to β factor
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 Capital IQ as of the reference date 31 October 2021.
Description of approach to determining values assigned to market risk premium
Set at 7.67% throughout relevant Group's CGUs based on published evaluations by the Austrian Chamber of Commerce (Kammer der Steuerberater und Wirtschaftsprüfer).
Period of cash flow projection (years)
5 years (2022 - 2026); extrapolation to perpetuity based on Terminal Growth Rate
Discount rate applied to cash flow projections (pre-tax)
12.9%
The value assigned to β Factor
1.17
Amount of goodwill impairment loss recognised in profit or loss for the year 2021 (in EUR million)
0
Post-impairment carrying amount of goodwill as of 31 December 2021 (in EUR million)
544
For cash generating units outside the euro-zone, an inflation differential has been considered when determining the discount rates applicable to the related 2023-2027 cash flow projections.
The outcome of the sensitivity analysis shows by how much the key input parameters into the applied discounted cash flow models would need to vary in order to cause the unit’s calculated recoverable amount to equal its related carrying amount:
CSAS
Amount by which recoverable amount exceeds/fall short the carrying amount (in EUR million)
2,715
Risk free rate increase/decrease that would cause recoverable amount to equal carrying amount (basis points)
528
Terminal growth rate increase/decrease that would cause recoverable amount to equal carrying amount (basis points)
-5,223
β factor increase/decrease that would cause recoverable amount to equal carrying amount (coefficient value)
Market risk premium increase/decrease that would cause recoverable amount to equal carrying amount (basis points)
448
Dec 21
Amount by which recoverable amount exceeds/fall short the carrying amount (in EUR million)
3,371
Risk free rate increase/decrease that would cause recoverable amount to equal carrying amount (basis points)
582
Terminal growth rate increase/decrease that would cause recoverable amount to equal carrying amount (basis points)
-6,188
β factor increase/decrease that would cause recoverable amount to equal carrying amount (coefficient value)
Market risk premium increase/decrease that would cause recoverable amount to equal carrying amount (basis points)
496
141
Dec 21
Dec 22
Prepayments
112
135
Inventories
149
94
Sundry assets
784
1,003
Other assets
1,045
1,232
In the line ‘Inventories’ real estate project developments and repossessed assets (mainly real estate) are disclosed.
The impairment of inventories, shown as expense in the reporting period amounts to EUR 2.5 million (2021: EUR 5.7 million). The carrying amount of inventories carried at fair value less costs to sell amounts to EUR 23.3 million (2021: EUR 35.6 million). The cost of inventories recognised as expense in the reporting period amounts to EUR 8.5 million (2021: EUR 16.3 million).
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.
142
Leases
A lease is a contract, or part of a contract, that conveys the right to use an asset for a period of time in exchange for consideration.
On the side of the lessor, a distinction is made between finance leases and operating leases. A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. In the case of a finance lease, Erste Group reports a receivable from the lessee under the line item ‘Finance lease receivables’. 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 statement of income in the line item ‘Other similar income’ under ‘Net interest income’.
In the case of operating leases, which are leases other than finance leases, the leased asset is reported 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 statement of income under the line item ‘Rental income from investment properties and other operating leases’.
Erste Group is mitigating the risk associated with any rights it retains in underlying assets. This is achieved especially by means of residual value guarantees, variable lease payments for use in excess of specified limits and buy-back agreements with third parties.
Erste Group (intermediate lessor) accounts for the head lease and the sublease as two separate contracts. The intermediate lessor is required to classify the sublease as a finance or operating lease by reference to the right-of-use asset arising from the head lease.
The vast majority of lease agreements in which Erste Group operates as a lessor are finance leases.
Finance leases
Erste Group leases both movable property and real estate to other parties under finance lease arrangements. For 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:
Dec 21
Dec 22
Outstanding lease payments
4,297
4,841
Non-guaranteed residual values
171
165
Gross investment
4,468
5,006
Unrealised financial income
245
365
Net investment
4,223
4,641
Present value of non-guaranteed residual values
154
137
Present value of outstanding lease payments
4,069
4,504
Maturity analysis by residual maturities
Dec 21
Dec 22
in EUR million
Gross investment
Present value of outstanding lease payments
Gross investment
Present value of outstanding lease payments
< 1 year
1,105
1,014
1,372
1,248
1-2 years
962
896
1,054
968
2-3 years
798
749
889
819
3-4 years
639
598
674
602
4-5 years
422
371
405
374
> 5 years
541
441
612
494
Total
4,468
4,069
5,006
4,504
During 2022, Erste Group recognised interest income on finance lease receivables in the amount of EUR 128.6 million (2021: EUR 115.7 million). Gains/losses from derecognition of finance lease receivables are recognised in line item ‘Other gains/losses from derecognition of financial instruments not measured at fair value through profit or loss’ (Note 10).
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Finance lease receivables
Gross carrying amounts and credit loss allowances per impairment buckets
Gross carrying amount
Credit loss allowances
in EUR million
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
Total
Carrying amount
Dec 22
General governments
254
10
0
0
264
-1
-1
0
0
-2
262
Credit institutions
1
0
0
0
1
0
0
0
0
0
1
Other financial corporations
88
1
0
0
89
0
0
0
0
0
88
Non-financial corporations
2,654
691
74
1
3,420
-12
-25
-36
0
-73
3,347
Households
790
62
13
0
866
-4
-2
-5
0
-11
854
Total
3,787
765
87
1
4,639
-17
-28
-41
0
-86
4,553
Dec 21
General governments
278
7
0
0
285
0
-2
0
0
-2
283
Credit institutions
3
0
0
0
3
0
0
0
0
0
3
Other financial corporations
83
1
0
0
84
0
0
0
0
0
84
Non-financial corporations
2,568
381
139
0
3,088
-13
-23
-61
0
-97
2,991
Households
797
50
12
0
859
-3
-2
-6
0
-11
848
Total
3,729
439
151
0
4,319
-17
-27
-67
0
-111
4,209
For information about development of credit loss allowances refer to Note 39 Development of credit loss allowances.
Operating leases
Under operating leases, Erste Group leases both real estate and movable property to other parties.
Maturity analysis of lease payments from operating leases
Dec 21
Dec 22
< 1 year
176
254
1-2 years
121
102
2-3 years
96
93
3-4 years
79
73
4-5 years
63
60
> 5 years
94
136
Total
630
718
During 2022, Erste Group recognised income relating to variable lease payments in the amount of EUR 4.2 million (2021: EUR 4.7 million). For information about rental income please refer to Note 7 Rental income from investment properties and other operating leases.
Under IFRS 16, Erste Group as a lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases (less than 12 months) and leases of low-value items.
The right-of-use asset is initially measured at cost. The cost comprises the amount of the initial measurement of the lease liability and also includes other elements such as initial direct costs. Subsequently, the right-of-use asset is depreciated to the earlier of the end of its useful life or the end of the lease term. Erste Group uses the straight-line method of depreciation. The right-of-use assets are presented on the balance sheet as part of ‘Property and equipment’ or, if they are subleased to third parties, for operating leases as part of ‘Investment properties’ and for finance leases as a ‘Finance lease receivable’.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if the rate cannot be readily determined, the incremental borrowing rate. Lease payments comprise fixed lease payments, variable lease payments that depend on an index or a rate, amounts expected to be payable under a residual value guarantee. Additionally, the exercise price under a purchase option and lease payments in an optional renewal period are considered if Erste Group is reasonably certain to exercise the options. Extension and termination options are included in a number of real estate leases across Erste Group. The use of extension and termination options gives Erste Group added flexibility in case more suitable premises in terms of costs and/or location are identified or in case it is considered favourable to remain in a location beyond the original lease term.
Subsequently, the carrying amount of the lease liability is increased by interest accrued using the applicable discount rate, reduced by lease payments made and remeasured to reflect any reassessment or lease modification. The incremental borrowing rate for movables consists of EURIBOR as a base rate, adjusted by a surcharge based on the entity’s rating, the amount of funds borrowed, the term of the lease and the collateral provided. The determination of the incremental borrowing rate for property leases is based on two components, the market rate and the single property rate. The market rate considers the lease term, creditworthiness and the base rate EURIBOR and is derived from
144
existing bank data. The single property rate represents a surcharge to the market rate based on the quality of the single property. On the balance sheet the lease liabilities are presented in the line item ‘Lease liabilities’.
Erste Group primarily rents real estates such as buildings and land for headquarters, branches and parking lots. In addition, movables such as IT equipment and ATMs are rented for business operations.
Rights of Use Assets
Land and buildings
Property and equipment
Dec 22
Carrying amount
518
541
Additions
169
179
Depreciation
-89
-93
Dec 21
Carrying amount
455
470
Additions
74
86
Depreciation
-84
-86
Maturity analysis of lease liabilities based on undiscounted cash flows
During 2022, interest expenses on lease liabilities were recognised in the amount of EUR 9.2 million (2021: EUR 7.2 million). In addition expenses in the amount of EUR 4.5 million (2021: EUR 4.2 million) relating to short term leases and expenses amounting to EUR 7.4 million (2021: EUR 7.5 million) relating to leases of low value items, for which the recognition exemption of IFSR 16 applies, were recognised. Gains arising from sale and leaseback transactions in the amount of EUR 0.0 million (2021: EUR 7.9 million) were recognised. Total cash outflow for leases in 2022 was EUR 115.7 million (2021: EUR 111.3 million).
145
Accruals, provisions, contingent liabilities and legal proceedingsEmployees of Austrian entities who started their employment before 1 January 2003, are entitled to receive a severance payment if their employment is terminated by the employer or if they retire. The amount to be paid depends on the number of years of service and the
Dec 21
Dec 22
Deferred income
106
116
Sundry liabilities
2,410
2,465
Other liabilities
2,516
2,581
Deferred income outstanding at 31 December 2022 includes ‘contract liabilities’ in accordance with IFRS 15 in amount of EUR 107 million (2021: EUR 101 million). Revenue recognised in the reporting year 2022 that was included in the contract liability balance at the beginning of the period amounts to EUR 55 million (2021: EUR 48 million).
The item ‘Sundry liabilities’ mainly contains outstanding settlement liabilities as well as other liabilities from employee benefits.
Provisions are liabilities with uncertain timing or amount. The balance sheet line item ‘Provisions’ includes:
_provisions for defined employee benefit plans recognised based on requirements of IAS 19
_provisions for expected credit losses from loan commitments and financial guarantees recognised based on requirements of IFRS 9; and
_remaining classes of provisions recognised in accordance with IAS 37 such as provisions or litigation, restructuring, commitments and guarantees not in scope of IFRS 9.
Significant accounting judgements, assumptions and estimates
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. Further details on provisions for off-balance credit risk exposures are explained in Notes 35 Credit risk exposure and 39 Development of credit loss allowances. Legal proceedings that do not meet the criteria for recognition of provisions are described in Note 55 Contingent liabilities.
Following classes of provision can be distinguished in the business of Erste Group:
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 long-term employee benefits.
In Austria, the defined benefit pension plans relate largely to retired employees. The pension obligations for current employees were transferred to external pension funds. 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. In addition, an already closed plan for a small number of active entitled employees exists entitling them to defined benefits from Erste Group upon reaching pension age.
In the case of defined benefit pension plans in other countries, the commitments for active employees are primarily dependent on future salary increases, as well as on the expected entitlement date. Due to the nature of the commitment to the defined benefit pensioners, the future, regularly expected pension adjustments according to the collective agreement and the state pension are estimated and taken into consideration as deduction from the total pension. The inflation rate is not indicated separately, but implicitly represented in the assumption for the future collective agreement development.
146
Defined benefit plans include jubilee benefits. Jubilee provisions are special one-off payments stipulated in the collective agreement which are dependent on remuneration and duration of service. Eligibility is conditioned on a certain minimum duration of the employment.
In addition, there are defined employee benefit plans for foreign subsidiaries and branches, mainly in Romania, Croatia, Serbia and Slovakia.
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. Plan assets for pension provision are held by a long-term employee benefit fund.
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 as accumulated OCI in equity specifically under ‘Remeasurement of defined benefit plans’ in the statement of changes in equity. The change for the period is reported as OCI in the statement of comprehensive income in the line ‘Remeasurement of defined benefit plans’. Remeasurements of jubilee defined benefit plans are recognised in the statement of income under the line item ‘Personnel expenses’.
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 the section ‘Long-term employee provisions’.
Long-term employee provisions
Pensions
Severance payments
Jubilee benefits
Total
Present value of long-term employee benefit obligations − Dec 18
750
445
97
1,292
Present value of long-term employee benefit obligations − Dec 19
791
497
113
1,400
Present value of long-term employee benefit obligations − Dec 20
774
493
119
1,386
Settlements/curtailments
0
0
0
0
Service cost
1
12
8
22
Interest cost
5
3
1
8
Payments
-60
-41
-5
-107
Exchange rate difference
3
0
0
3
Other changes
6
-1
0
5
Actuarial gains/losses recognised in OCI
-10
-18
0
-28
Actuarial gains/losses recognised in PL
0
0
-8
-8
Present value of long-term employee benefit obligations − Dec 21
720
447
115
1,282
Obligations covered by plan assets
34
234
64
332
Obligations covered by provisions
686
213
51
951
Less fair value of plan assets
34
234
64
332
Provisions − Dec 21
686
213
51
951
Present value of long-term employee benefit obligations − Dec 21
720
447
115
1,282
Settlements/curtailments
1
0
0
1
Service cost
1
10
7
19
Interest cost
8
5
1
15
Payments
-60
-41
-5
-106
Exchange rate difference
3
0
0
3
Other changes
-2
0
0
-1
Actuarial gains/losses recognised in OCI
-62
-54
0
-116
Actuarial gains/losses recognised in PL
0
0
-21
-21
Present value of long-term employee benefit obligations − Dec 22
609
367
98
1,074
Obligations covered by plan assets
27
191
55
272
Obligations covered by provisions
582
176
43
802
Less fair value of plan assets
27
191
55
272
Provisions − Dec 22
582
176
43
802
Actuarial assumptions
For Austrian entities the actuarial calculation of pension obligations is based on the following assumptions:
147
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.
For Austrian entities the actuarial calculation of severance payment and jubilee benefits is based on the following assumptions:
Dec 21
Dec 22
Interest rate
1.05
3.75
Average increase in salary (incl. career trend and collective agreement trend)
3.30
4.00
The interest rate applied for the calculation of the long-term employee provisions is derived from the yield of a portfolio of AA-rated corporate bonds. For this purpose the weighted average yield of the underlying portfolio with a corresponding duration is determined.
For the non-Austrian subsidiaries and branches interest rates between 1.0% (2021: 0.3%) and 7.6% (2021: 4.5%) were used. The legal retirement age is in a range between 60 years for women and 65 years for men.
Obligations were calculated based on mortality tables entitled ‘AVÖ 2018–P – Rechnungsgrundlagen für die Pensionsversicherung’ or comparable mortality tables.
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 payments are partially covered by the fair value of plan assets, while defined benefit pension plans are not financed with segregated assets. Majority of defined benefit pension plans only exist for already retired employees. Majority of pension plans are dedicated to former employees of Austrian entities of Erste Group and are unfunded. Major part of the plans (sum over severance payments, defined benefit pension plans and jubilee payments) are not matched with dedicated assets.
For the yearly pension payments of the unfunded defined benefit plans and the unfunded part of severance payments 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 2023 are expected with EUR 82 million (2022: EUR 78 million) for both plans.
The average duration of these provisions are assumed to be for severance payments 10,04 years (2021: 11.31 years) and 7.30 years (2021: 8.60 years) for defined benefit pension plans.
Movements in plan assets
Pensions
Severance payments
Jubilee benefits
Total
Fair value of plan assets − Dec 20
28
251
65
344
Addition
2
0
0
2
Interest income on plan assets
1
1
0
2
Contributions by the employer
0
14
5
20
Benefits paid
-1
-30
-8
-38
Actuarial gains/losses recognised in OCI
3
-2
1
1
Actuarial gains/losses recognised in PL
0
0
0
0
Fair value of plan assets − Dec 21
34
234
64
332
Addition
2
-1
0
0
Interest income on plan assets
1
2
1
4
Contributions by the employer
0
7
4
12
Benefits paid
-1
-29
-7
-37
Actuarial gains/losses recognised in OCI
-9
-8
0
-17
Actuarial gains/losses recognised in PL
0
0
-1
-1
Fair value of plan assets − Dec 22
27
205
60
293
In 2023, the expected contributions for the severance and jubilee benefit obligations will amount to EUR 7.2 million (2022: EUR 8.0 million). The contributions shown in the table include not only regular contributions but also one-time payments at the end of the year. The total gain on plan assets amounted to EUR 14.6 million (2021: gain EUR 3.5 million).
148
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
Dec 21
Dec 22
in EUR million
Europe-EMU
Europe-non EMU
USA
Other countries
Total
Europe-EMU
Europe-non EMU
USA
Other countries
Total
Cash and cash equivalents
50
70
Equity instruments
1
1
27
9
38
1
1
21
11
34
Investment-grade bonds
Government
2
0
1
9
12
3
0
0
0
3
Non-government bonds
8
7
4
7
26
10
3
3
1
17
Non-investment-grade bonds
Government
2
0
0
5
7
1
0
0
7
8
Non-government bonds
88
30
29
49
196
97
16
9
38
160
Derivatives (market risk)
Other
4
2
Plan assets
332
293
In the table above, Investment-grade refers to BBB and above. The plan assets shown in the table above include mainly assets that are quoted and traded on active markets. As of 31 December 2022, the plan assets did not include material amounts of securities issued by the Group or other claims upon it. Moreover none of the mortgage securities used by the Group are included.
Effects of defined post-employment benefit plans in profit or loss and other long-term employee benefits
Settlements and curtailments as well as service costs are included in the income statement in the line item ‘Personnel expenses’. Net interest includes interest expenses for long-term employee benefits as well as the expected return on plan assets.These are disclosed in the income statement in the line item ‘Other similar income’ and ‘Other similar expense’ under ‘Net interest income’. As of 31 December 2022, the cumulative amount of remeasurement from defined benefit plans, recognised in other comprehensive income amounted to EUR 716.0 million before tax (2021: EUR -815.2 million).
Sensitivity to key assumption
The following table presents a sensitivity analysis for each significant actuarial assumptions 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.
Dec 21
Dec 22
in EUR million
Pensions
Severance payments
Total
Pensions
Severance payments
Total
Change in discount rate +0.5%
689
423
1,112
588
349
937
Change in discount rate -0.5%
750
473
1,223
632
386
1,018
Change in future salary increases +0.5%
718
472
1,190
609
386
995
Change in future salary increases -0.5%
718
423
1,141
609
349
958
Change in future benefit increases +0.5%
768
447
1,215
645
367
1,012
Change in future benefit increases -0.5%
671
447
1,118
575
367
942
Increase in survival rate by approx. 10%
778
447
1,225
655
367
1,022
149
Benefits expected to be paid by the defined benefit plans in each of the respective periods
Pensions
Severance payments
Total
2023
60
22
82
2024
57
15
72
2025
53
18
71
2026
50
21
71
2027
47
23
70
2028-2032
192
132
324
Duration
Weighted average duration of the defined-benefit obligations
The weighted average duration is affected by changes in longevity and in the mortality table.
Loan commitments and financial guarantees given in scope of IFRS 9
In the ordinary course of business, Erste Group provides financial guarantees, consisting of various types of letters of credit and guarantees. 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.
Erste Group as a guarantor recognises financial guarantees as soon as it becomes a contracting party. Financial guarantees are initially measured at fair value. Generally, the initial measurement is the premium received for a guarantee. This amount is subsequently amortised to fee income. If no premium is received at contract inception (i.e. the initial transaction price is zero), this is the price that would be paid to transfer the liability in an orderly transaction between market participants. As a result, the fair value of such a financial guarantee and thus the initial measurement is nil. Subsequent to initial recognition, provisions are recognised based on the expected credit loss impairment model if the amount is higher than the unamortised balance of the initial premium.
Loan commitments are firm commitments to provide credit under prespecified terms and conditions. Loan commitments are generally not recognised in the balance sheet before they are drawn. If it is probable that the bank will enter into the loan agreement loan commitment fees received are deferred and adjust the effective interest rate of the loan when the commitment is drawn. Loan commitments result in recognition of provisions based on the expected credit loss impairment model.
Expenses or income related to provisions for loan commitments and financial guarantees are reported in the statement of income under the line item ‘Impairment result from financial instruments’.
For information about development of credit loss allowances for provision for financial guarantees and loan commitments refer to Note 39 Development of credit loss allowances, part ‘Loan commitments and financial guarantees’: table ‘Movement in credit loss allowances – loan commitments and financial guarantees’.
Based on the requirement of IAS 37, 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 the amount of the obligation can be estimated reliably. Expenses or income related to these provisions are reported in the statement of income under the line item ‘Other operating result’.
150
Jan 22
Allocations
Use
Releases
Unwind of discount
Exchange rate and other changes
Dec 22
Pending legal issues and tax litigation
332
56
-12
-85
0
-3
288
Commitments and guarantees given out of scope of IFRS9
80
111
0
-128
0
1
65
Other provisions
159
33
-130
-9
0
0
53
Provisions
571
200
-142
-222
0
-1
406
Jan 21
Dec 21
Pending legal issues and tax litigation
359
108
-47
-90
0
2
332
Commitments and guarantees given out of scope of IFRS9
76
62
0
-72
0
14
80
Other provisions
206
29
-33
-43
0
-1
159
Provisions
641
199
-80
-204
0
15
571
Under position ‘Pending legal issues and tax litigation’ provisions related to litigations from lending business, asset management or litigations related to customer protection topics, which normally occur in banking business, are disclosed. In 2022, a release of provisions for risks related to Romanian Consumer Protection Claims Act was recognised in the income statement in the amount of EUR 54.3 million (2021: allocation of EUR 1.2 million). The total amount of the provision as of 31 December 2022 was EUR 73.5 million (2021: EUR 127.8 million).
The majority of the provision allocated for losses expected in relation to the business activities of the Romanian building society subsidiary BCR Banca pentru Locuinte SA (BPL) regarding whether state subsidies had been disbursed to building society’s clients in accordance with the applicable legal provisions was used in order to pay the principal of the claim to the Romanian State. In December 2022 the remaining provision in the amount of EUR 31.7 million was used for the recognition of a liability amounting in total to EUR 78.6 million for outstanding penalties. Accordingly, as of 31 December 2022, the provision was amounting to EUR 0.0 million (2021: EUR 126.5 million).
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 35 Credit risk exposure and 39 Development of Credit loss allowances).
Legal proceedings
Erste Group Bank AG 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 AG. 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 AG. Any possible financial impacts of these proceedings are not disclosed, as neither the duration nor the outcome can be reliably estimated and to avoid influencing the outcome of the various proceedings.
Consumer protection claims
Several subsidiaries of Erste Group 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 proceedings mainly relate to allegations that certain contractual provisions, particularly in respect of consumer loans, violate mandatory consumer protection laws and regulations and principles of general civil law and that certain fees or parts of interest payments charged to customers in the past must be repaid. The allegations relate to the enforceability of certain fees as well as to contractual provisions for the adjustment of interest rates and currencies. In some jurisdictions, the legal risks in connection with loans granted in the past are also increased by the enactment of politically-motivated laws impacting existing lending relationships, which may result in repayment obligations towards customers. The following consumer protection issues are deemed noteworthy.
In Romania, BCR is - aside from being a defendant in a number of individual law suits initiated by consumers regarding alleged violations of applicable consumer protection laws - among several local credit institutions pursued by the consumer protection authority for allegedly abusive clauses pertaining to pre-2010 lending practices. In connection therewith, BCR is currently a defendant in individual litigation claims filed by the local consumer protection authority, in each case on behalf of a single or several borrowers. Only a part of these cases have so far been finally decided by the courts, only few of them with an adverse result for BCR and with rather limited impact so far. Adverse judgments on the validity of certain clauses may have the impact of invalidating such clauses also in other similar agreements concluded by BCR with other consumers.
In Croatia, the Supreme Court, in a proceeding initiated by a local consumer protection association against several credit institutions (‘Collective Case’), among them Erste Bank Croatia (‘EBC’), declared in 2015 that Swiss Franc (CHF) clauses in loan agreements with
151
consumers are valid, but contractual provisions permitting unilateral change of the variable interest rates in CHF denominated consumer loans, used by the majority of credit institutions until 2008, are null and void. In 2016, the Croatian Constitutional Court rescinded the part of the Supreme Court of Croatia decision relating to the validity of CHF clauses. After the case had been returned for a retrial with respect to the CHF clause to the court of second instance, such court delivered its decision in 2018, declaring in essence the nullification of the CHF currency clause, holding that collective and individual consumer rights were breached. However, no specific obligation of the bank was ordered by the verdict. In 2019 the Supreme Court rejected the appeal of the credit Institutions against the 2018 decision. As the subsequent constitutional claim against such decision was rejected by the Constitutional Court in 2021, EBC filed a request to the European Court of Human Rights (‘ECHR’), that was dismissed at the end of 2022.
The impact of the rulings in the Collective case on legal disputes with individual clients related to CHF denominated loan agreements is still difficult to predict. In December 2022, the Supreme Court reached a legal standing according to which clients who have converted their CHF denominated loans to EUR denominated loans (in accordance with applicable laws enacted in 2015) are entitled to default interest for overpaid amounts taken into account by a credit institution when converting.. Aforementioned legal standing of the Supreme Court was released after a procedure initiated at the European court of Justice regarding the interpretation of relevant provisions of EU’s Directive 93/13).
Due the legal standing of the Supreme Court in Croatia a provision amounting to EUR 11.5 million was recognised. However, a local consumer protection association –declared its willingness to pursue further actions before the Constitutional Court against the legal standing. In addition, the specific impact of the legal standing to the court practices in individual cases are difficult to predict.
CSAS minority shareholders claims
Following the completion of a squeeze-out procedure in CSAS resulting in Erste Group Bank AG becoming the sole shareholder of CSAS, some former minority shareholders of CSAS filed legal actions with the courts in Prague against Erste Group Bank AG. Aforementioned court proceeding is still in an early stage. The court proceedings initiated against CSAS regarding the alleged invalidity of the shareholders´ resolution approving the squeeze-out was ultimately settled in summer 2022 by the High Court in Prague in favor of CSAS. In the proceedings against Erste Group Bank AG the plaintiffs allege in essence that the share price of 1.328 CZK (then approx. EUR 51 per share) paid by Erste Group Bank AG in the squeeze-out of the CSAS minority shareholders in 2018 was unfair and too low and should be increased. In case the courts find there should be an increase, this would affect all minority shareholders squeezed-out. In the squeeze-out performed in 2018 Erste Group Bank AG acquired a total of 1.03% of minority shares for a consideration of approx. EUR 80 million. Erste Group Bank AG views that the purchase price, established by a valuation done by professional external experts, was correct and fair.
152
Dec 21
Dec 22
Subscribed capital
860
860
Additional paid-in capital
1,478
1,478
Retained earnings and other reserves
13,424
14,774
Owners of the parent
15,761
17,111
Additional equity instruments
2,236
2,236
Non-controlling interests
5,516
5,957
Total
23,513
25,305
As of 31 December 2022, subscribed capital (also known as registered capital) consists of 429,800,000 (2021: 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.
Additional equity instruments
In addition Erste Group Bank AG issued additional tier 1 capital (AT1 bonds). AT1 bonds are unsecured and subordinated bonds. AT1 bonds are perpetual and can be cancelled only by the issuer at predetermined dates. The bonds include discretionary non-cumulative coupon payments. Due to this features they are classified as equity under IFRS.
AT1 bonds issued
Currency
Issue
Initial fixed rate
Reset rate after the first call date
Coupon payments
First and subsequent calls dates
500 million
EUR
April 2017
6.5%
5Y swap +6,204%
Semi-annually on 15th April and 15th October
15.04.2024+ coupon dates thereafter
500 million
EUR
March 2019
5,125%
5Y swap +4,851%
Semi-annually on 15th April and 15th October
15.10.2025+ coupon dates thereafter
500 million
EUR
January 2020
3,375%
5Y swap +3,433%
Semi-annually on 15th April and 15th October
15.04.2027+ coupon dates thereafter
750 million
EUR
November 2020
4.25%
5Y swap +4,646%
Semi-annually on 15th April and 15th October
15.10.2027+ coupon dates thereafter
If common equity tier 1 ratio of Erste Group or Erste Group Bank AG falls below 5.125% (i.e. a trigger event occurs) the principal amount will be written down (fully or partially) on a temporary basis. The issuer may, at its sole discretion, write up the amount (fully or partially) provided a positive profit has been recorded and the trigger event no longer exists.
In 2022 there was no redeemed AT1 bond. In 2021 Erste Group redeemed AT1 bonds with a nominal value of EUR 500.0 million. After deduction of costs directly attributable to the capital increase of EUR 3.2 million the net decrease in additional equity instruments amounted to 496.8 million.
Distributions on own equity instruments
Distributions on own equity instruments are recognised as a liability and deducted from equity when their payment is confirmed. For dividends on common shares the decision is taken by the Annual General Meeting. For coupons on additional tier 1 instruments the payouts do not need approvals but an event of non-payment would require a decision of Erste Group Bank AG Board.
Changes in number of outstanding shares
Dec 21
Dec 22
Shares outstanding as of 1 January
405,470,710
405,434,710
Acquisition of treasury shares
-9,624,711
-8,454,712
Disposal of treasury shares
9,588,711
10,195,840
Shares outstanding as of 31 December
405,434,710
407,175,838
Treasury shares
24,365,290
22,624,162
Number of shares issued as of 31 December
429,800,000
429,800,000
Weighted average undiluted number of outstanding shares
426,246,662
427,019,261
Weighted average diluted number of outstanding shares
426,246,662
427,492,890
In addition to the calculation of the annual average number of shares outstanding by incorporation of acquisitions and disposals of treasury shares during the year, the line items ‘weighted average number of outstanding shares’ and ‘weighted average diluted number of outstanding shares’ consider a proportionate allocation of the treasury shares held by non-controlling interests.
153
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 recognised as additions or disposals.
Shares and related dividends held by management board
Dec 21
Additions
Disposals
Dec 22
Dividends received in 2022 (in EUR)
Cernko Willibald (Chairman) (since 1 July 2022)
0
7,206
0
7,206
11,504
Spalt Bernhard (Chairman) (until 30 June 2022)
15,000
5,000
20,000
0
32,000
Bleier Ingo
3,111
1,000
0
4,111
6,578
Dörfler Stefan
1,500
2,956
0
4,456
6,400
Habeler-Drabek Alexandra
72
1,256
0
1,328
1,395
O’Mahony David
0
5,456
0
5,456
0
Poletto Maurizio
0
456
0
456
0
Shares and related dividends held by supervisory board
Dec 21
Additions
Disposals
Dec 22
Dividends received in 2022 (in EUR)
Rödler Friedrich (Chairman)
2,502
1,300
0
3,802
4,483
Homan Jan (1st Vice Chairman) (until 18 May 2022)
4,400
0
4,400
0
7,040
Hardegg Maximilian (1st Vice Chairman since 18 May 2022, before 2nd Vice Chairman)
240
0
0
240
384
Krainer Senger-Weiss Elisabeth (2nd Vice Chairwoman since 18 May 2022)
0
0
0
0
0
Catasta Christine (since 1 July 2022)
0
0
0
0
0
Egerth-Stadlhuber Henrietta
0
0
0
0
0
Ersek Hikmet (since 18 May 2022)
0
3,966
0
3,966
490
Flatz Alois (since 18 May 2022)
0
0
0
0
0
Grießer Martin (since 1 July 2022)
0
120
0
120
22
Haag Markus (until 11 January 2022, then again since 18 May 2022)
176
141
0
317
282
Haberhauer Regina
188
106
0
294
301
Khüny Marion
0
0
0
0
0
Kühnel Mariana (since 18 May 2022)
0
583
0
583
933
Lachs Andreas
0
106
0
106
0
Pichler Barbara
309
244
0
553
494
Pinter Jozef
0
106
0
106
0
Santner Friedrich
0
0
0
0
0
Schuster Michael
0
30
0
0
48
Simor András
0
0
0
0
0
Sutter-Rüdisser Michèle F.
0
2,222
0
2,222
0
Zeisel Karin
38
16
0
54
61
As of 31 December 2022, supervisory board members did not receive any Erste Group Bank AG shares or options for such shares as part of their remuneration. Persons related to members of the management board or supervisory board held 1,518 shares (2021: 111 shares) of Erste Group Bank AG.
Remaining authorised and contingent capital as of 31 December 2022
Clause 5 of the articles of association authorises the management board to increase the registered capital with the consent of the supervisory board until 18 May 2027 – also in several tranches – by an amount of up to EUR 343,600,000 by issuing up to 171,800,000 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 of the 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 85,960,000; 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 new 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 new shares which serve to fulfill subscription rights, conversion rights, and conversion obligations arising from convertible bonds issued with the exclusion of subscription rights from 18 May 2022 onwards pursuant to section 8.3, and which are issued
154
Clause 6.3 of the articles of association states that conditional capital based on the resolutions of the management board in 2002 and 2010 (both approved by the supervisory board) 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 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 recognised 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.
Haftungsverbund Savings Banks, thereof:
in EUR million
Total
Sparkasse Oberösterreich
Sparkasse Steiermark
Sparkasse Kärnten
Dec 22
Country of incorporation
Austria
Austria
Austria
Austria
Place of business
Austria
Austria
Austria
Austria
Main business activity
Banking
Banking
Banking
Banking
Ownership% held by NCI
50.1%-100%
81%
75%
75%
Reporting currency
EUR
EUR
EUR
EUR
Dividends paid to equity holders of the parent
94
40
11
29
Net result attributable to non-controlling interests
404
49
94
16
Accumulated NCI
5,260
691
1,284
234
Subsidiary-level stand-alone key financial information
Current assets
28,470
6,310
6,002
1,625
Non-current assets
54,565
9,105
12,145
3,381
Current liabilities
62,482
10,286
14,740
4,051
Non-current liabilities
13,153
4,129
1,556
569
Operating income
1,966
328
445
129
Profit or loss from continuing operations
685
99
157
45
Total comprehensive income
189
-6
77
10
Dec 21
Country of incorporation
Austria
Austria
Austria
Austria
Place of business
Austria
Austria
Austria
Austria
Main business activity
Banking
Banking
Banking
Banking
Ownership% held by NCI
50.1%-100%
60%
75%
75%
Reporting currency
EUR
EUR
EUR
EUR
Dividends paid to equity holders of the parent
35
9
11
6
Net result attributable to non-controlling interests
403
56
81
17
Accumulated NCI
4,864
586
1,177
250
Subsidiary-level stand-alone key financial information
Current assets
29,576
7,737
5,811
1,949
Non-current assets
51,767
8,678
11,509
3,270
Current liabilities
59,673
9,880
14,025
3,906
Non-current liabilities
14,382
5,400
1,508
898
Operating income
1,795
318
377
114
Profit or loss from continuing operations
775
136
224
47
Total comprehensive income
1,018
181
256
76
155
As at 31 December 2022, Erste Group Bank AG, as parent entity of Erste Group, includes in its IFRS scope of consolidation a total of 314 subsidiaries (31 December 2021: 335). These comprise a total of 50 entities, which are members of the Haftungsverbund (cross-guarantee system) of the Austrian savings bank sector. Alongside Erste Group Bank AG, local savings banks, Bausparkasse der österreichischen Sparkassen Aktiengesellschaft, Erste Bank der oesterreichischen Sparkassen AG and Zweite Wiener Vereins-Sparcasse are members of the Haftungsverbund (cross-guarantee system).
In 2014, following the implementation of the new agreements of the cross-guarantee system (please refer to Note 58 Subsidiaries) and the related financial support of the members, an ‘ex-ante fund’ 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 until 31 December 2031 – 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.
Additions and disposals 2022. On 17 December 2021 Erste Bank Hungary (EBH) has signed a sale and purchase agreement with Commerzbank AG to acquire 100% of the share capital (306.016 shares) in its Hungarian subsidiary Commerzbank Zrt (‘CBK’). This acquisition enables EBH to significantly strengthen its existing market position in Hungary.
The transaction was effectuated as of 30 November 2022, with the approval of National Bank of Hungary. At year-end 2022, the measurement process has not yet been finalized. Due to the complexity of the deal and the focus on the rapid implementation to maintain the daily operations, the purchase price allocation was carried out on a preliminary basis. As a consequence, amounts recognized as of reporting date are considered as provisional and will be adjusted when updated information is available.
The net equity as of the acquisition date amounted to EUR 62.0 million. Assets and liabilities recognized in first consolidation are as follows:
in EUR million
Carrying amount
Cash and cash balances
180.4
Financial assets at fair value through profit or loss
48.9
Financial assets at fair value through other comprehensive income
118.2
Financial assets at amortised cost
395.6
Property and equipment
4.5
Tax assets
1.3
Other assets
0.5
Total Assets
749.4
Financial liabilities at fair value through profit or loss
37.2
Financial liabilities at amortised cost
646.1
Provisions
1.5
Tax liabilities
0.1
Other liabilities
2.5
Total Liabilities
687.4
Subscribed capital
62.0
Total Equity
62.0
Total Liabilities and Equity
749.4
The fair value of the acquired loans at the acquisition date amounted to EUR 395.6 million. The best estimate at the acquisition date of the contractual cash flows from acquired loans not expected to be collected amounts to EUR 4.9 million.
In course of its analysis EBH identified items subject to fair value adjustment, mainly related to a building which served as headquarter of CBK. The adjusted net equity equals to EUR 67.7 million. The preliminary purchase price allocation results in a goodwill of EUR 11.9 million. This amount is calculated as the difference of adjusted net equity and preliminary purchase price and is not deductible for tax purposes. The cash consideration transferred currently amounts to EUR 79.6 million, but this amount might be subject to change.
Since the acquisition date, CBK’s contribution to Erste Group’s operating income amounted to EUR 1.7 million. The contribution to the net result for the period amounted to EUR 1.6 million. If CBK had already been included in the Erste Group’s consolidated financial statements as of 1 January 2022, the contribution to the operating income would have been EUR 42.8 million and the contribution to net result for the period would have been EUR -2.1 million.
The other additions and disposals had no material impact on the financial position and performance of the Group.
Additions and disposals 2021. Additions and disposals had no material impact on the financial position and performance of the Group.
For further details regarding the scope of consolidation please refer to Note 71 Details of the companies wholly or partly owned by Erste Group as of 31 December 2022.
156
A subsidiary is an entity controlled by another entity. 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 2022, 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 income and 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 neither directly nor indirectly attributable to the owners of Erste Group Bank AG. Non-controlling interests are presented separately in the consolidated statement of income, 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 non-controlling 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 in equity.
Control
IFRS 10 ‘Consolidated Financial Statements’ defines the investor’s control over an investee in terms of the investor having all of the following:
_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, Erste Bank der oesterreichischen Sparkassen AG and Bausparkasse der österreichischen Sparkassen Aktiengesellschaft, 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. The indirect voting rights are held through Erste Bank der oesterreichischen Sparkassen AG and through other savings banks in which companies of Erste Group hold 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; and
_determination of thresholds for capital requirement including the payment of dividends.
157
As Erste Group Bank AG controls the steering company, it exercises control over the members of the cross-guarantee system.
In 2022, the existing cross-guarantee agreements were combined into one cross-guarantee agreement based on an ECB decision and signed by all cross-guarantee members. The combination of the agreements has no impact on the scope of consolidation of Erste Group Bank AG.
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 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, Erste 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 Erste Group – directly or through its subsidiaries – has significant unit holdings (i.e. holds at least 20% of the units issued by the fund) are deemed to be controlled and included in the scope of consolidation.
iii. Pension funds under own management
Business combinations
Business combinations are accounted for using the acquisition method. 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 statement of income under the line item ‘Other operating result’ in the year of acquisition.
Upon business combinations, non-controlling interests 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 statement of income line item ‘Other operating result’.
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 consolidated 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 consolidated statement of income in line item Net result from equity method investments. The line item contains the 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’. Entities accounted for using the equity method are recognised on the basis of annual financial statements as of 31 December 2022 and for the year then ended.
Associates are entities over which Erste Group exercises significant influence (‘associates’). 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 greater than 20% up to 50%.
158
Carrying amounts of at equity measured entities
Aggregated financial information of at equity measured entities
Dec 21
Dec 22
Total assets
4,932
5,253
Total liabilities
4,244
4,511
Income
388
520
Profit/loss
46
54
None of Erste Group’s investments accounted for using the equity method published price quotations.
Selected equity method investments where the Erste Group has strategic interest
Dec 21
Dec 22
in EUR million
Global Payments s.r.o.
Prvá stavebná
VBV - Betriebliche Altersvorsorge AG
Global Payments s.r.o.
Prvá stavebná
VBV - Betriebliche Altersvorsorge AG
Country of Incorporation
Czech Republic
Slovakia
Austria
Czech Republic
Slovakia
Austria
Place of business
Czech Republic
Slovakia
Austria
Czech Republic
Slovakia
Austria
Main business activity
Payment services
Financing building society
Insurance
Payment services
Financing building society
Insurance
Ownership held %
49%
35%
32%
49%
35%
32%
Voting rights held %
49%
35%
29%
49%
35%
29%
IFRS Classification (JV/A)
Associate
Associate
Associate
Associate
Associate
Associate
Reporting currency
CZK
EUR
EUR
CZK
EUR
EUR
Investee's financial information for the reporting year
Cash and cash balances
28
1
9
21
0
9
Other current assets
69
159
57
118
189
80
Non-current assets
106
2,779
48
118
2,766
65
Current liabilities
66
2,371
0
112
2,370
0
Non-current liabilities
25
284
50
23
292
79
Operating Income
43
74
12
69
74
18
Post-tax result from continuing operations
7
17
13
7
8
18
Total comprehensive income
7
17
13
7
9
18
Depreciation and amortization
-6
-6
0
-7
-6
0
Interest income
0
93
8
0
86
8
Interest expense
-1
-30
0
-2
-24
0
Tax expense/income
-1
-6
0
-1
-5
0
Reconciliation of investee's net assets against equity investment's carrying amount
Net assets attributable to Erste Group
55
99
21
60
102
24
Accumulated impairment
0
-42
0
0
-62
0
Carrying amount
55
57
21
60
40
24
The classification of current and non-current financial assets and liabilities is based on the expected remaining maturities of assets and liabilities.
In 2022 carrying amount of Prvá stavebná was impaired in the amount of EUR 20.6 million (2021: impairment of EUR 13.7 million).
Aggregated financial information of other equity method investments
159
60.Unconsolidated structured entities 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 in unconsolidated structured entities, if they are not consolidated.
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.
Assessing which entities are structured entities, and which involvements in such entities are interests, may require considerable accounting judgements and assumptions. In the case of Erste Group, such accounting judgements, assumptions and estimates have been primarily relevant for assessing involvements with investment funds and securitisation vehicles.
For investment funds, Erste Group reached the conclusion that direct Group exposure would typically indicate an interest in these structured entities, irrespective of whether such exposure comes from on-balance financial assets – mostly in the form of units held in such funds, off-balance commitments given or management fees varying in relation to the assets under management (for own-managed funds in general). As described under Note 58 Subsidiaries above, own-managed funds where the Group cumulatively holds less than 20% of the related fund units in issue are not consolidated due to lack of control and thus are subject to specific disclosures for unconsolidated structured entities.
Erste Group uses following structured entities in the course of its business activity.
Investment funds
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 debt securities either under line item ‘Non-trading financial assets at fair value through profit or loss’ 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.
Beside the management fees for the services as fund manager Erste Group also receives distributions for their investments in fund units. On the other side stand expenses for the administration of investment funds and fees for the business activity of investment funds, especially custodian fees and fees for securities trading transactions. In the normal course of business activity Erste Group enters into derivative transactions with own-managed unconsolidated investment funds. Moreover, own-managed unconsolidated investment funds are also invested - over different time periods - in debt securities issued by or deposits of Erste Group. In restricted cases Erste Group offers capital guarantees for own-managed unconsolidated investment funds.
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.
Others
To a lesser extent, Erste Group is also exposed (notably as lender) to unconsolidated structured entities having other business activities. The respective loans and advances are either measured at amortised cost or at fair value through profit or loss, depending whether they are SPPI-compliant or not. Debt securities include investments in Collateralised Mortgage Obligations as well as securitizations.
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 maximum exposure corresponds to the carrying amounts after risk provisions as of the balance sheet date. For off-balance sheet loan commitments and guarantees the maximum exposure corresponds to the respective nominal value.
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 ‘Loans and advances’) are materially similar to their fair values.
160
Investment Funds
in EUR million
Own-managed
Third-party managed
Total
Other
Total
Dec 22
Assets
Equity instruments, thereof:
0
0
0
13
13
at FVPL
0
0
0
13
13
Debt securities, thereof:
575
172
747
33
780
Financial assets HfT
0
121
121
0
121
at FVPL
575
51
626
33
659
Loans and advances
10
0
10
90
100
Trading derivatives
2
0
2
0
2
Total assets
588
172
760
136
896
thereof impaired
0
0
0
0
0
On-balance sheet exposure analysis per jurisdiction
Austria
574
0
574
0
574
Central and Eastern Europe
14
16
30
103
133
Other jurisdictions
0
156
156
33
190
Liabilities
Equity instruments
148
0
148
0
148
Debt securities issued
268
0
268
0
268
Deposits
1,952
0
1,952
0
1,952
Trading derivatives
99
0
99
0
99
Total liabilities
2,467
0
2,467
0
2,467
Off balance-sheet commitments
80
0
80
0
80
Dec 21
Assets
Equity instruments, thereof:
0
0
0
0
0
at FVPL
0
0
0
0
0
Debt securities, thereof:
678
143
821
39
861
Financial assets HfT
1
88
89
0
89
at FVPL
677
55
732
39
771
Loans and advances
16
0
16
65
81
Trading derivatives
18
0
18
0
18
Total assets
712
143
855
104
959
thereof impaired
0
0
0
0
0
On-balance sheet exposure analysis per jurisdiction
Austria
700
0
700
0
700
Central and Eastern Europe
12
19
30
65
95
Other jurisdictions
0
125
125
39
164
Liabilities
Equity instruments
142
0
142
0
142
Debt securities issued
259
0
259
0
259
Deposits
2,022
0
2,022
0
2,022
Trading derivatives
25
0
25
0
25
Total liabilities
2,447
0
2,447
0
2,448
Off balance-sheet commitments
71
0
71
0
71
161
Other disclosure matters
In the course of its ordinary business activity Erste Group enters into business relationships with related persons and entities. Shareholders of Erste Group Bank AG are classified as related parties if they have significant influence over Erste Group. In addition, Erste Group also defines as related parties subsidiaries that are controlled but not consolidated due to non-materiality as well as associated entites and joint ventures that are included in the consolidated financial statements by the equity method. Transactions between Erste Group Bank AG and fully consolidated companies are not recognised in the consolidated financial statements as they have been eliminated. Furthermore, related persons consist of key management personnel, i.e. 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 which are controlled or significantly influenced by management and supervisory board members of Erste Group Bank AG, as other related parties. Banking transactions with related persons and entities are done at arm’s length.
Transactions with shareholders of Erste Group Bank AG
Erste österreichische Spar-Casse Privatstiftung
In addition to its shareholding of the subscribed capital of Erste Group Bank AG, there are other factors giving Erste österreichische Spar-Casse Privatstiftung (ERSTE Stiftung) significant influence over Erste Group. As of 31 December 2022, Erste Group had liabilities toward ERSTE Foundation of EUR 18.6 million (2021: EUR 29.2 million). In addition, ERSTE Foundation held bonds issued by Erste Group Bank AG in the amount of EUR 0.1 million (2021: EUR 0.2 million). The mentioned transactions resulted in interest expenses of EUR 0.0 million (2021: EUR 0.1 million). Furthermore, Erste Group received fee and commission income of EUR 0.1 million as well as rental income from operating leasing of EUR 0.3 million. In 2022, ERSTE Foundation received a dividend of EUR 78.0 million (2021: EUR 72.5 million) on its shareholding in Erste Group Bank AG.
Under article 15.1 of the articles of association of Erste Group Bank AG, for the duration of its assumption of liability for all current and future debts in the event of default on payment by Erste Group Bank AG, the ERSTE Foundation 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 of Erste Group Bank AG.
Transactions with not consolidated subsidiaries, associated entitees and joint ventures
Balances and off-balance exposures
Dec 21
Dec 22
in EUR million
Subsidiaries, not consolidated
Associated entities
Joint ventures
Subsidiaries, not consolidated
Associated entities
Joint ventures
Financial assets
115.7
535.5
234.6
86.3
598.1
386.3
Equity instruments
83.1
65.2
18.4
55.0
61.6
17.5
Debt securities
0.0
5.5
0.0
0.0
52.1
0.0
Loans and advances
32.7
464.8
216.2
31.3
484.4
368.7
Loans and advances credit institutions
0.0
0.0
0.0
0.0
0.0
0.0
Loans and advances customers
32.7
464.8
216.2
31.3
484.4
368.7
of which impaired
0.0
0.0
0.0
2.4
0.0
0.0
Financial liabilities
43.8
168.8
14.3
28.9
192.3
12.3
Deposits
43.8
168.8
14.3
28.9
192.3
12.3
Deposits from banks
0.6
0.0
0.2
0.9
0.0
0.0
Deposits from customers
43.2
168.8
14.1
28.0
192.3
12.3
Other financial instruments
Loan commitments, financial guarantees and other commitments given (notional amount)
9.2
224.9
100.1
4.9
144.4
110.8
of which defaulted
0.0
0.0
0.0
0.1
0.1
0.0
Loan commitments, financial guarantees and other commitments received (notional amount)
0.0
1.2
0.0
0.0
0.5
0.0
Credit loss allowances and provisions
26.7
-5.0
0.0
8.9
-5.2
0.0
162
1-12 21
1-12 22
in EUR million
Subsidiaries, not consolidated
Associated entities
Joint ventures
Subsidiaries, not consolidated
Associated entities
Joint ventures
Interest income
0.6
6.1
3.1
0.8
7.3
4.2
Fee and commission income
0.0
1.0
0.3
0.2
1.3
2.0
Dividend income
8.1
3.6
1.1
4.2
4.4
0.9
Interest expenses
0.0
-0.1
0.0
0.0
0.0
0.0
Fee and commission expenses
-1.5
-2.7
0.0
-2.0
-2.4
-0.2
Expenses from impairment of financial instruments
-0.3
-0.7
0.0
0.0
0.0
-0.1
Impairment result from financial instruments
0.5
0.6
0.0
2.9
1.2
3.0
Remuneration of management and supervisory board members
The following table shows total remuneration of the members of the management and supervisory board. The expenses were recognised on an accrual basis in line with the respective rules of the underlying standards IAS 19 and IFRS 2. The amounts disclosed correspond to the estimated disbursement as of the balance sheet date and may deviate from the ones which will be finally paid.
1-12 21
1-12 22
in EUR million
Management board
Supervisory board
Total
Management board
Supervisory board
Total
Short-term employee benefits
6.5
1.6
8.1
7.3
1.4
8.7
Post-employment benefits
0.8
0.8
1.2
1.2
Other long-term benefits
1.6
1.6
1.4
1.4
Share-based payment
4.8
4.8
2.2
2.2
Total
13.7
1.6
15.3
12.1
1.4
13.6
Short-term employee benefits. Under this category salaries, benefits in kind, social security contributions and other short-term benefits are included. Further, this category includes variable remuneration to be settled in cash within one year. Disclosed remuneration for supervisory board members comprises supervisory board compensation, meeting fees as well as remuneration for board functions in fully consolidated subsidiaries.
Post-employment benefits. The members of the management board participate in the defined contribution pension plan of Erste Group according to the same principles as the employees of the Group (see Note 54 Provisons). Post-employment benefits shown in the table above contain contribution payments to pension schemes and to severance schemes (‘Mitarbeitervorsorgekasse’).
Other long-term benefits. This category includes variable remuneration to be settled in cash, but payable - deferred over several years - only after one year. In addition, net allocations to provisions for jubilee payments (see Note 54 Provisions) are also reported under this category.
Share-based payment transactions. Expenses for variable share-based payments are disclosed under this line (refer to Note 62 Share-based payments, Share-based payment for the management board of Erste Group Bank AG).
On 31 December 2022 the outstanding amount of liability for variable remuneration towards members of the management board amounts to EUR 7.4 million (2021: EUR 12.9 million). This amount includes liabilities resulting from the Share-based Payment Program for the management board of Erste Group Bank AG (for the performance year 2021 for the first time) and liabilities from unpaid deferred tranches from the Phantom Shares Program (for performance years up to 2021). For further details please refer to Note 62 Share-based payments.
The members of the management board of Erste Group were granted a remuneration of 0.5% (2021: 0.5%) of the total personnel expenses for their activities in the financial year 2022.
In 2022, EUR 2.7 million (2021: EUR 4.7 million) was paid in cash and EUR 57,669 (2021: EUR 83,868 ) share-equivalents were assigned to former board members and their dependents.
Banking transactions with key management personnel
163
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 4.5 million (2021: EUR 46.0 million) as of 31 December 2022. As of the end of 2022, deposits of other related parties at Erste Group amounted to EUR 71.9 million (2021: EUR 88.0 million) in total. Loan commitments and financial guarantees, issued in favour of other related parties totalled EUR 0.1 million (2021: EUR 23.0 million) as of the end of 2022. From banking transactions with other related parties Erste Group received interest income and fee income of EUR 0.0 million (2021: EUR 1.5 million) in total, and paid interest and fee expenses of EUR 0.0 million (2021: EUR 0.1 million).
The total expense recognised during the reporting period arising from share-based payment transactions amounts to EUR 32.9 million (2021: EUR 38.9 million), thereof EUR 31.3 million (2021: EUR 16.1 million) relate to equity-settled share-based payment transactions. At the end of the reporting period the liability arising from share-based payment transactions amounts to EUR 32.2 million (2021: EUR 45.1 million). The intrinsic value of the liability is EUR 33.8 million (2021: EUR 52.1 million).
Share-based payment for the management board of Erste Group Bank AG
The share-based remuneration plan for the executive board of Erste Group Bank AG comprises short-term and long-term variable remuneration components. The total amount of variable compensation is determined in the following year by a resolution of the supervisory board.
Upfront share-based remuneration. 20% of the bonus will be converted into shares on the date of this supervisory board resolution and is transferred to the participant’s securities deposit after one year.
Deferred share-based remuneration. 30% of the bonus is converted into performance share units (PSUs) on the day of the supervisory board resolution using the average share price of the last 30 trading days. A PSU represents an unsecured, conditional right to receive shares of Erste Group Bank AG in the future. In the following five years, the initial number of PSUs is adjusted in a range from 120% to 0% to the group’s performance based on performance criteria, which the supervisory board reviews on a yearly basis and adjusts in exceptional cases. The final number of PSUs corresponds to the number of shares, which is transferred to the participant’s securities deposit after a retention period of another year.
The awarded shares and PSUs are equity-settled share-based payments that vest by the end of the performance year. The determination of the grant date requires an assessment of all the circumstances. As the supervisory board has significant discretionary powers in connection with the assessment of the performance in the performance year, the grant is made with the resolution of the supervisory board on the bonus awarded for the past performance year.
For the performance year 2022, it is expected that 30,959 shares and 46,439 PSUs (2021: 26,012 shares and 39,019 PSUs) will be granted to participants. The fair value of PSUs on the measurement date is calculated based on a Monte Carlo simulation model considering the achievement level of Erste Group performance over the next five years and the share price of Erste Group Bank AG. The estimated fair value on the balance sheet date is EUR 2.0 million (2021: EUR 2.4 million). In 2022 in total personnel expenses of EUR 2.2 million (2021: EUR 2.4 million) and a corresponding retained earnings reserve were recognised.
Phantom shares program
Erste Group grants selected employees every year a bonus for services rendered in the past year (vesting period). If the individual bonus exceeds a certain limit, the final payout amount of at least 25% depends on the development of the average, volume-weighted, daily price of Erste Group shares in subsequent years (phantom share program). The program applies to Erste Group entities in different countries, with different amounts and share equivalents. The share equivalents (phantom shares) are divided into several tranches, which differ in the duration of the observation period for the development of the Erste Group share price.
The phantom share program meets the criteria for cash-settled share-based payments in accordance with IFRS 2.
The estimated fair value of variable compensation for share equivalents is recognised in profit or loss. The liability for stock equivalents that have not yet been paid out is continuously measured at fair value until payment is made. Fair value changes and changes of the final allocation in subsequent years are recognised in profit or loss. To determine the fair value, the number of share equivalents not yet paid out as at the balance sheet date is multiplied by the estimated average price of Erste Group shares for the respective payout year. The fair values of the share equivalents for the respective payout year are determined using an option pricing model (Black-Scholes model). The main parameters are the share price of the Erste Group share on the balance sheet date and the dividend payments expected until payment.
164
WeShare by Erste Group program
The WeShare by Erste Group-Participation program and the WeShare by Erste Group-Investment Plus program are equity-settled share-based payment transactions. Both programs are offered to employees of Erste Group provided that specific requirements (e.g. capital and liquidity requirements, payment of dividends, ECB approval) are met.
Under the WeShare by Erste Group-Investment Plus program all employees, who had been employed by an entity of the Erste Group, from March/April 2022 until September 2022 could voluntarily invest in Erste Group shares and receive free shares depending on the amount of their personal investment. The WeShare by Erste Group-Investment Plus program was settled in September 2022. The number of free shares, which were granted under this program for the reporting period, is 966,742. Personnel expenses in the amount of EUR 22.2 million were recorded.
Under the WeShare by Erste Group-Participation program all employees, who have been employed by an entity of the Erste Group for at least six months in year 2022 and are still employed until the transfer of the shares to the employees in June 2023 are entitled to receive shares in an equivalent amount of EUR 350. The expected number of free shares, which are granted under this program for the period, is 544,374 (2021: 384,721). Based on the number of entitled employees, personnel expenses in the amount of EUR 6.9 million (2021: EUR 13.6 million) were recorded and a corresponding reserve in retained earnings was created.
The following table contains fees charged by the auditors of Erste Group Bank AG and subsidiaries for the financial years 2022 and 2021; the auditors being Sparkassen-Prüfungsverband (auditing agency) and Price Waterhouse Coopers. The values for PricewaterhouseCoopers comprise the services of ‘PwC Wirtschaftsprüfung GmbH’ as well as the PwC network. The amounts in the table include value-added tax.
Dec 21
Dec 22
Statutory audit of financial statements/consolidated financial statements
13.2
14.1
Audit fees - PwC
5.5
6.2
Audit fees - Sparkassen-Püfungsverband
7.6
7.9
Other assurance services
2.9
2.5
Other assurance services - PwC
1.6
1.6
Other assurance services - Sparkassen-Püfungsverband
1.3
0.9
Tax consulting
0.0
0.0
Tax consulting - PwC
0.0
0.0
Tax consulting - Sparkassen-Püfungsverband
0.0
0.0
Other services
0.2
0.6
Other services - PwC
0.2
0.6
Other services - Sparkassen-Püfungsverband
0.0
0.0
Total
16.3
17.2
The Sparkassen-Prüfungsverband (Austrian Savings Bank Auditing Association) provided audit services for an amount of EUR 1.8 million (2021: EUR 1.8 million) to Erste Group Bank AG and EUR 6.1 million (2021: EUR 5.7 million) for the subsidiaries. For other assurance services EUR 0.0 million (2021: EUR 0.0 million) were charged to the subsidiaries of Erste Group Bank AG while EUR 0.0 million (2021: EUR 0.0 million) is the amount for other services provided to the subsidiaries. The amounts in the table above include also fees for services provided by SPV Wirtschaftsprüfungsges.m.b.H.
The auditor ‘PwC Wirtschaftsprüfung GmbH’ provided audit services to Erste Group Bank AG for EUR 1.4 million (2021: EUR 1.3 million) and to the subsidiaries for EUR 0.7 million (2021: EUR 0.6 million). An amount of EUR 4.1 million (2021: EUR 4.0 million) was charged for audit services of the PricewaterhouseCoopers network to the subsidiaries. The total amount for other assurance services provided by ‘PwC Wirtschaftsprüfung GmbH’ is EUR 0.5 million (2021: EUR 0.3 million).
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’.
165
Dec 21
Dec 22
Assets held for sale
73
167
Liabilities associated with assets held for sale
0
115
In 2022 entity Banca Comerciala Romana Chisinau S.A. met the criteria for the classification as a disposal group held for sale. It consists of assets held for sale in the amount of EUR 152.3 million and liabilities associated with assets held for sale in the amount of EUR 114.9 million. The fair value less costs to sell was lower than the carrying amount of the disposal group. The difference was first allocated to non-financial assets in scope of IFRS 5 measurement requirements and resulted in an impairment loss of EUR 2.3 million and the remaining amount of EUR 20.1 million was recognised as a provision.
As of the end of 2022, ‘Assets held for sale’ other than those belonging to the disposal group held for sale include mainly land and buildings in amount of EUR 13.8 million (2021: EUR 24.1 million). 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 are determined by experts with recognised and relevant professional qualification.
Fair values and fair value hierarchy
65.Assets and liabilities denominated in foreign currencies and outside Austria and return on assets
Assets and liabilities not denominated in EUR
Assets and liabilities outside Austria
Return on assets (net profit for the year divided by average total assets) was 0.84% at 31 December 2022 (2021: 0.82%).
166
Expected remaining maturities of assets and liabilities
Dec 21
Dec 22
in EUR million
< 1 year
> 1 year
< 1 year
> 1 year
Cash and cash balances
45,495
0
35,685
0
Financial assets HfT
3,945
2,528
5,636
2,129
Derivatives
808
1,455
819
900
Other financial assets held for trading
3,138
1,072
4,818
1,229
Non-trading financial assets at FVPL
1,117
2,007
350
2,385
Equity instruments
9
323
21
325
Debt securities
1,090
885
299
1,251
Loans and advances to customers
18
790
30
809
Financial assets at FVOCI
1,111
7,771
2,283
7,276
Equity instruments
-12
144
0
99
Debt securities
1,123
7,626
2,283
7,177
Financial assets at AC
52,485
177,156
56,358
197,002
Debt securities
3,543
32,008
3,790
36,821
Loans and advances to banks
18,765
2,227
15,689
2,747
Loans and advances to customers
30,177
142,922
36,879
157,434
Finance lease receivables
472
3,737
499
4,054
Hedge accounting derivatives
17
61
49
110
Fair value changes of hedged items in portfolio hedge of interest rate risk
0
-4
-1
-37
Property and equipment
0
2,645
0
2,618
Investment properties
0
1,344
0
1,372
Intangible assets
0
1,362
0
1,347
Investments in associates and joint ventures
0
211
0
209
Current tax assets
135
0
109
0
Deferred tax assets
0
562
0
629
Assets held for sale
73
0
167
0
Trade and other receivables
2,083
70
2,268
136
Other assets
934
111
1,171
61
Total Assets
107,867
199,561
104,575
219,290
Financial liabilities HfT
1,058
1,416
1,538
1,726
Derivatives
733
891
1,441
1,185
Other trading liabilities
325
525
97
541
Financial liabilities at FVPL
2,671
7,793
2,677
8,138
Deposits
429
66
1,299
54
Debt securities issued
2,052
7,727
1,226
8,084
Other financial liabilities
191
0
151
0
Financial liabilities at AC
185,750
79,665
207,389
71,543
Deposits from banks
12,542
19,344
16,886
11,934
Deposits from customers
167,837
42,192
184,047
38,572
Debt securities issued
4,244
18,108
5,569
21,024
Other financial liabilities
1,128
21
886
13
Lease liabilities
61
527
58
604
Hedge accounting derivatives
231
79
133
240
Fair value changes of hedged items in portfolio hedge of interest rate risk
0
0
0
0
Provisions
563
1,423
428
1,248
Current tax liabilities
144
0
127
0
Deferred tax liabilities
0
19
0
16
Liabilities associated with assets held for sale
0
0
115
0
Other liabilities
1,860
656
1,968
614
Total Liabilites
192,339
91,576
214,432
84,128
There are no significant events after the balance sheet date.
167
68.Country by country reporting
The following country by country breakdown complies with the disclosure requirements of Article 89 of the EU Capital Requirements Directive IV:
Operating income
Pre-tax result from continuing operations
Taxes on income
Taxes paid
Dec 22
Austria
4,040
1,283
-142
-197
Croatia
414
213
-48
-31
Czech Republic
1,617
615
-172
-153
Hungary
721
338
-27
-23
Romania
840
408
-83
-69
Serbia
129
27
-1
0
Slovakia
588
260
-66
-69
Other locations
221
79
-17
-5
Total
8,571
3,222
-556
-549
Dec 21
Austria
3,660
1,117
-166
-101
Croatia
399
179
-30
-4
Czech Republic
1,444
550
-154
-145
Hungary
501
217
-26
-14
Romania
765
402
-65
-41
Serbia
118
34
-1
-1
Slovakia
621
346
-75
-85
Other locations
234
89
-8
-2
Total
7,742
2,933
-525
-391
For information regarding the country of residence of each fully consolidated entity refer to Note 71 Details of the companies wholly or partly owned by Erste Group as of 31 December 2022.
Information about the geographical split of the average number of headcounts employed in Erste Group throughout 2022 is disclosed in Note 8 General administrative expenses.
On 31 December 2021 publication of the CHF, GBP, JPY LIBOR rates for all tenors and USB LIBOR rates for 1-week and 2-month tenors was ceased. Remaining USD LIBOR rates representing the more liquid tenors (overnight, 1-month, 3-month, 6-month, 12month) will be ceased on 30 June 2023.
Regarding other IBOR-linked financial instruments, Erste Group considers that EURIBOR interest rates which have been reformed and are EU Benchmark Regulation compliant are not currently affected. Also, other local IBOR rates used in Erste Group member countries are considered not to be affected (PRIBOR for CZK, BUBOR for HUF, ROBOR for RON, BELIBOR for RSD).
Erste Group has a dedicated project addressing the interest rate benchmark reform. For LIBOR rates ceased on 31 December 2021 LIBOR-based new business was stopped in 2021 and necessary changes in systems, risk management, communication and accounting as well as the transition of legacy contracts have been executed.
New business in USD LIBOR was allowed until the end of 2021. New alternative reference rates (ARR) are licensed and systems are ready for new ARR-linked business. Fallback plans related to establishing processes for interest benchmark replacements were created by the end of 2021. Regarding USD LIBOR the amendment of fallback language in contracts is in progress. The transition of USD LIBOR legacy contracts will be executed by mid of 2023.
ARRs replacing LIBOR are overnight rates. There are significant differences between the LIBOR and ARRs. LIBOR is a ‘term rate’ published at a start of a borrowing period with certain tenor (such as 3 months), i.e. it is ‘forward-looking’. ARRs are generally overnight ‘backward-looking’ rates resulting from actual transactions. Following ARRs are in place for the respective currencies:
_SOFR (Secured Overnight Financing Rate) for USD
_SONIA (Sterling Overnight Index Average) for GBP
_SARON (Swiss Average Rate Overnight) for CHF
_TONAR (Tokyo Overnight Average Rate) for JPY
168
LIBOR rates in general include a credit spread component reflecting the riskiness of lending on the interbank market for the respective tenors. As a result, the ARRs, when replacing LIBOR rates, must include a spread adjustment to ensure economic equivalence addressing the tenor, credit risk and other differences. The total amount of government grants recognised in the group adds up to EUR 8.1 million (2021: EUR 6.3 million). Out of this total amount, EUR 2.4 million (2021: EUR 3.5 million) are related to an investment program in Austria (‘Investitionsprämie’), which was offered to support the economy due to the Covid-19 crisis. Using this opportunity, Erste Group invested in tangible and intangible depreciable fixed assets and the government refunded 7% or 14% (in case of digitalisation projects) of the investment. Further, some Austrian entities applied for a reimbursement of the remuneration paid to their employees during quarantine and childcare leave (‘Personalkostenzuschuss’) and received around EUR 3.8 million (2021: EUR 1.3 million).
For USD, GBP and JPY also forward-looking term rates are available. They are derived from interest rate derivative markets indexed to the overnight ARRs. They are mandatorily applied in the consumer protected loan business of Erste Group where the rates have to be known at the beginning of interest periods.
For CHF forward-looking term rates are not available. Commission Implementing Regulation (EU) 2021/1847 stipulates statutory replacement rates in the area of consumer, mortgage and small business floating rate loans with CHF LIBOR reference rates to which Erste Group is significantly exposed. 1-month CHF LIBOR rates are replaced by 1-month SARON compound rate, as observed over the 1-month period preceding the interest period and 3-month, 6-month and 12-month CHF LIBOR rates by 3-month SARON Compound Rate, as observed over the 3-month period preceding the interest period (including adjustment spreads).
Regarding the accounting treatment of the interest rates replacement a practical expedient has been provided by the Interest Rate Benchmark Reform – Phase 2 amendments of IFRS 9 issued in August 2020. It requires that changes in the rates resulting from the interest rate bench-mark reform are reflected by adjusting the effective interest rate of the instruments. No immediate gain or loss is recognised. This expedient is only applicable to changes that are required by interest rate benchmark reform, i.e. and only if:
_the change is necessary as a direct consequence of interest rate benchmark reform; and
_the new basis for determining the contractual cash flows is economically equivalent to the previous basis (including a fixed spread necessary to compensate for the basis difference between the LIBOR rates and the ARR rates).
The LIBOR rate replacements for ARRs in Erste Group business qualify for application of this practical expedient.
By 2022 year end all financial instruments with GBP, JPY and CHF LIBOR-linked interest transitioned to the ARRs.
Volume of LIBOR-linked financial instruments which have transitioned to the new ARRs by 2022
Financial assets Carrying amount
Financial liabilities Carrying amount
DerivativesNotional amount
CHF LIBOR
2,267
12
2,419
GBP LIBOR
52
9
60
JPY LIBOR
94
2
50
Volume of LIBOR-linked financial instruments held on 31 December 2022 which are yet to transition to the new ARRs
Financial assets
Financial liabilities
Loans and advances to customers
Loans and advances to banks
Debt securities
Deposits from customers
Deposits from banks
Debt securities issued
Derivatives
in EUR million
Carrying amount
Carrying amount
Notional amount
USD LIBOR
1,786
113
401
549
72
0
4,255
Disclosures regarding application of the interest rate benchmark reform in the area of hedge accounting can be found in Note 27 Hedge Accounting.
A government grant is recognised in Erste Group’s financial statements, when there is reasonable assurance that it will be received and that Erste Group will comply with the conditions attached to it. Grants that compensate for the acquisition of assets are presented as deduction from the cost of the related asset and are recognised in profit or loss over the periods and in the proportions, in which depreciation and amortisation expenses on those assets are recognised. Grants that compensate for expenses incurred are presented as deduction of relevant expenses in the period in which the expenses are incurred.
169
71.Details of the companies wholly or partly owned by Erste Group as of 31 December 2022
The table below presents material, fully consolidated subsidiaries, investments in associates accounted for at equity and other investments.
Interest of Erste Group in %
Company name, registered office
Dec 21
Dec 22
Fully consolidated subsidiaries
Credit institutions
Allgemeine Sparkasse Oberösterreich Bankaktiengesellschaft
Linz
39.2
19.0
Banca Comerciala Romana Chisinau S.A.
Chisinau
99.9
99.9
Banca Comerciala Romana SA
Bucharest
99.9
99.9
Banka Sparkasse d.d.
Ljubljana
28.0
28.0
Bausparkasse der österreichischen Sparkassen Aktiengesellschaft
Wien
100.0
100.0
BCR Banca pentru Locuinte SA
Bucharest
99.9
99.9
Ceska sporitelna, a.s.
Praha
100.0
100.0
Die Zweite Wiener Vereins-Sparcasse
Wien
0.0
0.0
Dornbirner Sparkasse Bank AG
Dornbirn
0.0
0.0
Erste & Steiermärkische Bank d.d.
Rijeka
69.3
69.3
ERSTE BANK AD PODGORICA
Podgorica
69.3
69.3
ERSTE BANK AKCIONARSKO DRUŠTVO, NOVI SAD
Novi Sad
80.5
80.5
Erste Bank der oesterreichischen Sparkassen AG
Wien
100.0
100.0
Erste Bank Hungary Zrt
Budapest
100.0
100.0
Erste Group Bank AG
Wien
0.0
0.0
ERSTE Jelzálogbank Zártkörüen Müködö Részvénytársaság
Budapest
100.0
100.0
Erste Lakas-Takarekpenztar Zartkoruen Mukodo Reszvenytarsasag
Budapest
100.0
100.0
Kärntner Sparkasse Aktiengesellschaft
Klagenfurt
25.0
25.0
KREMSER BANK UND SPARKASSEN AKTIENGESELLSCHAFT
Krems
0.0
0.0
Lienzer Sparkasse AG
Lienz
0.0
0.0
Salzburger Sparkasse Bank Aktiengesellschaft
Salzburg
100.0
100.0
Slovenska sporitelna, a. s.
Bratislava
100.0
100.0
Sparkasse Baden
Baden
0.0
0.0
Sparkasse Bank AD Skopje
Skopje
23.9
24.1
Sparkasse Bank dd Bosna i Hercegovina
Sarajevo
25.0
25.0
Sparkasse Bludenz Bank AG
Bludenz
0.0
0.0
Sparkasse Bregenz Bank Aktiengesellschaft
Bregenz
0.0
0.0
Sparkasse der Gemeinde Egg
Egg
0.0
0.0
Sparkasse der Stadt Amstetten AG
Amstetten
0.0
0.0
Sparkasse der Stadt Feldkirch
Feldkirch
0.0
0.0
Sparkasse der Stadt Kitzbühel
Kitzbühel
0.0
0.0
Sparkasse Eferding-Peuerbach-Waizenkirchen
Eferding
0.0
0.0
Sparkasse Feldkirchen/Kärnten
Feldkirchen
0.0
0.0
SPARKASSE FRANKENMARKT AKTIENGESELLSCHAFT
Frankenmarkt
0.0
0.0
Sparkasse Hainburg-Bruck-Neusiedl Aktiengesellschaft
Hainburg
75.0
75.0
Sparkasse Haugsdorf
Haugsdorf
0.0
0.0
Sparkasse Herzogenburg-Neulengbach Bank Aktiengesellschaft
Herzogenburg
0.0
0.0
Sparkasse Horn-Ravelsbach-Kirchberg Aktiengesellschaft
Horn
0.0
0.0
Sparkasse Imst AG
Imst
0.0
0.0
Sparkasse Korneuburg AG
Korneuburg
0.0
0.0
Sparkasse Kufstein Tiroler Sparkasse von 1877
Kufstein
0.0
0.0
Sparkasse Lambach Bank Aktiengesellschaft
Lambach
0.0
0.0
Sparkasse Langenlois
Langenlois
0.0
0.0
Sparkasse Mittersill Bank AG
Mittersill
0.0
0.0
Sparkasse Mühlviertel-West Bank Aktiengesellschaft
Rohrbach
40.0
40.0
Sparkasse Mürzzuschlag Aktiengesellschaft
Mürzzuschlag
0.0
0.0
Sparkasse Neuhofen Bank Aktiengesellschaft
Neuhofen
0.0
0.0
Sparkasse Neunkirchen
Neunkirchen
0.0
0.0
SPARKASSE NIEDERÖSTERREICH MITTE WEST AKTIENGESELLSCHAFT
St. Pölten
0.0
0.0
Sparkasse Pöllau AG
Pöllau
0.0
0.0
Sparkasse Pottenstein N.Ö.
Pottenstein
0.0
0.0
Sparkasse Poysdorf AG
Poysdorf
0.0
0.0
Sparkasse Pregarten - Unterweißenbach AG
Pregarten
0.0
0.0
Sparkasse Rattenberg Bank AG
Rattenberg
0.0
0.0
Sparkasse Reutte AG
Reutte
0.0
0.0
Sparkasse Ried im Innkreis-Haag am Hausruck
Ried
0.0
0.0
Sparkasse Salzkammergut AG
Bad Ischl
0.0
0.0
Sparkasse Scheibbs AG
Scheibbs
0.0
0.0
Sparkasse Schwaz AG
Schwaz
0.0
0.0
Sparkasse Voitsberg-Köflach Bankaktiengesellschaft
Voitsberg
4.2
4.2
Stavebni sporitelna Ceske sporitelny, a.s.
Praha
100.0
100.0
Steiermärkische Bank und Sparkassen Aktiengesellschaft
Graz
25.0
25.0
Tiroler Sparkasse Bankaktiengesellschaft Innsbruck
Innsbruck
75.0
75.0
Waldviertler Sparkasse Bank AG
Zwettl
0.0
0.0
Wiener Neustädter Sparkasse
Wiener Neustadt
0.0
0.0
170
Interest of Erste Group in %
Company name, registered office
Dec 21
Dec 22
Financial institutions
"Die Kärntner" Trust- Vermögensverwaltungsgesellschaft m.b.H. & Co KG
Klagenfurt
25.0
25.0
"Die Kärntner" Trust-Vermögensverwaltungsgesellschaft m.b.H.
Klagenfurt
25.0
25.0
"Nare" Grundstücksverwertungs-Gesellschaft m.b.H.
Wien
100.0
100.0
ACP Financial Solutions GmbH
Wien
75.0
75.0
Alea-Grundstückverwaltung Gesellschaft m.b.H.
Wien
100.0
100.0
AVION-Grundverwertungsgesellschaft m.b.H.
Wien
51.0
51.0
BCR Leasing IFN SA
Bucharest
99.9
99.9
BCR Payments Services SRL
Sibiu
99.9
99.9
BCR Social Finance IFN S.A.
Bucharest
79.5
79.5
DENAR-Immorent Grundverwertungsgesellschaft m.b.H.
Wien
62.5
62.5
DIE ERSTE Leasing Grundbesitzgesellschaft m.b.H.
Wien
100.0
100.0
DIE ERSTE Leasing Grundstückverwaltungsgesellschaft m.b.H.
Wien
100.0
100.0
DIE ERSTE Leasing Immobilienbesitzgesellschaft m.b.H.
Wien
100.0
100.0
DIE ERSTE Leasing Immobilienverwaltungs- und -vermietungsgesellschaft m.b.H.
Wien
100.0
100.0
EB Erste Bank Internationale Beteiligungen GmbH
Wien
100.0
100.0
EB-Grundstücksbeteiligungen GmbH
Wien
100.0
100.0
EKZ-Immorent Vermietung GmbH
Wien
100.0
100.0
Epsilon Immorent s.r.o.
Praha
100.0
100.0
Erste & Steiermärkische S-Leasing drustvo s ogranicenom odgovornoscu za leasing vozila i strojeva
Zagreb
47.1
47.1
Erste Bank und Sparkassen Leasing GmbH
Wien
100.0
100.0
ERSTE CARD CLUB d.o.o.
Zagreb
69.3
69.3
ERSTE CARD poslovanje s kreditnimi karticami, d.o.o.
Ljubljana
69.3
28.0
Erste Finance (Delaware) LLC
Wilmington
100.0
100.0
Erste Group Immorent CR s.r.o.
Praha
100.0
100.0
Erste Group Immorent GmbH
Wien
100.0
100.0
Erste Group Immorent International Holding GmbH
Wien
100.0
100.0
Erste Group Immorent Lízing Zártkörüen Müködö Részvénytársaság
Budapest
100.0
100.0
ERSTE GROUP IMMORENT LJUBLJANA, financne storitve, d.o.o.
Ljubljana
100.0
100.0
Erste Social Finance Holding GmbH
Wien
60.0
60.0
Eva-Realitätenverwaltungsgesellschaft m.b.H.
Wien
100.0
100.0
F & S Leasing GmbH
Klagenfurt
100.0
100.0
Factoring Ceske sporitelny a.s.
Praha
100.0
100.0
GIROLEASING-Mobilienvermietungsgesellschaft m.b.H.
Wien
62.5
62.5
Holding Card Service s.r.o.
Praha
100.0
100.0
Hotel- und Sportstätten-Beteiligungs-, Errichtungs- und Betriebsgesellschaft m.b.H. Leasing KG
St. Pölten
54.6
54.6
Immo Smaragd GmbH
Schwaz
0.0
0.0
Immorent - Immobilienleasing Gesellschaft m.b.H.
Wien
100.0
100.0
ImmoRent Einkaufszentren Verwaltungsgesellschaft m.b.H.
Wien
100.0
100.0
IMMORENT EPSILON, leasing druzba, d.o.o.
Ljubljana
50.0
50.0
Immorent Oktatási Ingatlanhasznosító és Szolgáltató Kft.
Budapest
56.0
56.0
IMMORENT PPP Ingatlanhasznosító és Szolgáltató Korlátolt Felelösségü Társaság
Budapest
100.0
100.0
IMMORENT RIED GmbH
Wien
100.0
100.0
IMMORENT-ANUBIS Grundverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
Immorent-Clio-Grundverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
Immorent-Gamma-Grundstücksverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
IMMORENT-GREKO Grundverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
Immorent-Grundverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
Immorent-Kappa Grundverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
IMMORENT-LEANDER Grundverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
IMMORENT-MOMO Grundverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
IMMORENT-NERO Grundverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
IMMORENT-PAN Grundverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
IMMORENT-Raiffeisen Fachhochschule Errichtungs- und BetriebsgmbH
Wien
55.0
55.0
IMMORENT-RASTA Grundverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
IMMORENT-REMUS Grundverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
IMMORENT-RIALTO Grundverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
IMMORENT-RIO Grundverwertungsgesellschaft m.b.H.
Wien
55.0
55.0
IMMORENT-RIWA Grundverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
IMMORENT-RONDO Grundverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
IMMORENT-RUBIN Grundverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
Immorent-Theta-Grundverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
IMMORENT-TRIAS Grundverwertungsgesellschaft m.b.H.
Wien
62.5
62.5
Immorent-WBV Grundverwertungsgesellschaft m.b.H.
Wien
50.0
50.0
IMNA-Immorent Immobilienleasing GmbH
Wien
100.0
100.0
Intermarket Bank AG
Wien
93.8
93.8
IR Beteiligungsverwaltungsgesellschaft mbH
Wien
100.0
100.0
IR REAL ESTATE LEASING d.o.o. u likvidaciji
Zagreb
92.5
92.5
Kärntner Sparkasse Vermögensverwaltungsgesellschaft m.b.H.
Klagenfurt
25.0
25.0
Leasing Ceské sporitelny, a.s.
Praha
100.0
100.0
MEKLA Leasing Gesellschaft m.b.H.
Wien
100.0
100.0
NAXOS-Immorent Immobilienleasing GmbH
Wien
100.0
100.0
NÖ-Sparkassen Beteiligungsgesellschaft m.b.H.
St. Pölten
2.5
2.5
171
Interest of Erste Group in %
Company name, registered office
Dec 21
Dec 22
Ölim-Grundverwertungsgesellschaft m.b.H.
Graz
25.0
25.0
OMEGA IMMORENT s.r.o.
Praha
100.0
100.0
OREST-Immorent Leasing GmbH
Wien
100.0
100.0
Österreichisches Volkswohnungswerk, Gemeinnützige Gesellschaft mit beschränkter Haftung
Wien
100.0
100.0
PAROS-Immorent Grundverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
PREDUZECE ZA FINANSIJSKI LIZING S-LEASING DOO, BEOGRAD
Belgrade
66.6
66.6
RHEA-Immorent Holding GmbH
Wien
100.0
100.0
s Autoleasing SK, s.r.o.
Bratislava
100.0
100.0
S IMMORENT OMIKRON drustvo s ogranicenom odgovornoscu za poslovanje nekretninama
Zagreb
100.0
100.0
s Wohnbaubank AG
Wien
100.0
100.0
SCIENTIA Immorent GmbH
Wien
100.0
100.0
Sieben Tiroler Sparkassen Beteiligungsgesellschaft m.b.H.
Kufstein
0.0
0.0
S-Leasing Immobilienvermietungsgesellschaft m.b.H.
Wiener Neustadt
33.3
33.3
Sparfinanz-, Vermögens-, Verwaltungs- und Beratungs- Gesellschaft m.b.H.
Wiener Neustadt
0.0
0.0
SPARKASSE IMMORENT Grundverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
Sparkasse Leasing društvo sa ogranicenom odgovornošcu za leasing nekretnina, vozila, brodova i mašina, Sarajevo
Sarajevo
25.0
25.0
Društvo za leasing Sparkase Lizing d.o.o. Skopje
Skopje
24.5
24.6
Sparkasse Leasing S, družba za financiranje d.o.o.
Ljubljana
28.0
28.0
Sparkassen IT Holding AG
Wien
31.6
28.8
Sparkassen Leasing Süd GmbH
Graz
25.0
25.0
Strabag Oktatási PPP Ingatlanhasznosító és Szolgáltató Korlátolt Felelösségü Társaság
Budapest
70.0
70.0
Subholding Immorent GmbH
Wien
100.0
100.0
TAURIS-Immorent Grundverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
Theuthras-Immorent Grundverwertungsgesellschaft m.b.H.
Wien
62.5
62.5
UBG-Unternehmensbeteiligungsgesellschaft m.b.H.
Wien
100.0
100.0
Vorarlberger Sparkassen Beteiligungs GmbH
Dornbirn
0.0
0.0
WIESTA-Immorent Immobilienleasing GmbH
Wien
100.0
100.0
172
Interest of Erste Group in %
Company name, registered office
Dec 21
Dec 22
Other
"DIE EVA" Grundstückverwaltungsgesellschaft m.b.H.
Wien
100.0
100.0
Asset Management Slovenskej sporitelne, správ. spol., a. s.
Bratislava
91.1
91.1
BCR Fleet Management SRL
Bucharest
99.9
99.9
BCR Pensii, Societate de Administrare a Fondurilor de Pensii Private SA
Bucharest
99.9
99.9
BOOTES-Immorent Grundverwertungs-Gesellschaft m.b.H.
Bucharest
100.0
100.0
BP Budejovicka, s. r. o.
Praha
100.0
100.0
BP Olbrachtova, s. r. o.
Praha
100.0
100.0
BP Polackova, s. r. o.
Praha
100.0
100.0
BRS Büroreinigungsgesellschaft der Steiermärkischen Bank und Sparkassen Aktiengesellschaft Gesellschaft m.b.H.
Graz
25.0
25.0
BTV-Beteiligungs-, Treuhand-, Vermögens-Verwaltungsgesellschaft m.b.H.
Klagenfurt
25.0
25.0
Budejovicka development, s. r. o.
Praha
100.0
100.0
CEE Property Development Portfolio 2 a.s.
Praha
100.0
100.0
CEE Property Development Portfolio B.V.
Amsterdam
20.0
20.0
Ceska sporitelna - penzijni spolecnost, a.s.
Praha
100.0
100.0
Cinci-Immorent Grundverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
Collat-real Korlátolt Felelösségü Társaság
Budapest
100.0
100.0
Commerzbank Zrt.
Budapest
0.0
100.0
CPDP 2003 s.r.o.
Praha
100.0
100.0
CPP Lux S. 'ar.l.
Luxembourg
20.0
20.0
CS NHQ, s.r.o.
Praha
100.0
100.0
CS Seed Starter, a.s.
Praha
100.0
100.0
Czech and Slovak Property Fund B.V.
Amsterdam
100.0
100.0
DIE ERSTE Leasing Grundaufschließungs- und Immobilienvermietungsgesellschaft m.b.H. in Liqu.
Wien
100.0
100.0
DIE EVA - Liegenschaftsverwaltungsgesellschaft m.b.H. in Liqu.
Wien
100.0
100.0
DIE EVA-Gebäudeleasinggesellschaft m.b.H.
Wien
100.0
100.0
DIE EVA-Immobilienleasing und -erwerb Gesellschaft m.b.H.
Wien
100.0
100.0
Dienstleistungszentrum Leoben GmbH
Wien
51.0
51.0
Dostupné bydlení Ceské sporitelny, a.s.
Praha
0.0
100.0
EBB Beteiligungen GmbH
Wien
100.0
100.0
EB-Restaurantsbetriebe Ges.m.b.H.
Wien
100.0
100.0
Erste Asset Management d.o.o.
Zagreb
91.1
91.1
Erste Asset Management GmbH
Wien
91.1
91.1
Erste Asset Management Ltd. (vm Erste Alapkezelo Zrt.)
Budapest
91.1
91.1
Erste Befektetesi Zrt.
Budapest
100.0
100.0
ERSTE CAMPUS Immobilien AG & Co KG
Wien
100.0
100.0
Erste Digital GmbH
Wien
82.8
82.1
Erste Grantika Advisory, a.s.
Brno
100.0
100.0
Erste Group Card Processor d.o.o.
Zagreb
100.0
100.0
ERSTE GROUP IMMORENT HRVATSKA drustvo s ogranicenom odgovornoscu za upravljanje
Zagreb
100.0
100.0
ERSTE GROUP IMMORENT POLSKA SPOLKA Z OGRANICZONA ODPOWIEDZIALNOSCIA W LIKWIDACJI
Warsaw
100.0
100.0
Erste Group Immorent Slovensko s.r.o.
Bratislava
100.0
100.0
Erste Group IT HR društvo s ogranicenom odgovornošcu za usluge informacijskih tehnologija
Bjelovar
75.4
75.4
Erste Group Services GmbH
Wien
100.0
100.0
Erste Group Shared Services (EGSS), s.r.o.
Hodonin
100.0
100.0
ERSTE Immobilien Kapitalanlagegesellschaft m.b.H.
Wien
68.7
68.7
Erste Ingatlan Fejleszto, Hasznosito es Mernoki Kft.
Budapest
100.0
100.0
ERSTE NEKRETNINE d.o.o. za poslovanje nekretninama
Zagreb
69.3
69.3
Erste Reinsurance S.A.
Luxembourg
100.0
100.0
Erste Securities Polska S.A.
Warsaw
100.0
100.0
Eva-Immobilienverwaltungsgesellschaft m.b.H.
Wien
100.0
100.0
FUKO-Immorent Grundverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
George Labs GmbH
Wien
100.0
100.0
GLADIATOR LEASING IRELAND DESIGNATED ACTIVITY COMPANY
Dublin
100.0
100.0
Gladiator Leasing Limited
Pieta
100.0
100.0
GLL A319 AS LIMITED
Pieta
100.0
100.0
GLL MSN 2118 DESIGNATED ACTIVITY COMPANY (in Liqui)
Dublin
100.0
100.0
Graben 21 Liegenschaftsverwaltung GmbH
Wien
100.0
100.0
Haftungsverbund GmbH
Wien
64.3
63.8
HBM Immobilien Kamp GmbH
Wien
100.0
100.0
Hotel- und Sportstätten-Beteiligungs-, Errichtungs- und Betriebsgesellschaft m.b.H. in Liqu.
Wien
100.0
100.0
HP Immobilien Psi GmbH
Wien
100.0
100.0
HT Immobilien Tau GmbH
Wien
100.0
100.0
HT Immobilien Theta GmbH
Wien
100.0
100.0
HV Immobilien Hohenems GmbH
Wien
100.0
100.0
IBF-Anlagenleasing 95 Gesellschaft m.b.H.
Wien
100.0
100.0
IGP Industrie und Gewerbepark Wörgl Gesellschaft m.b.H.
Kufstein
0.0
0.0
ILGES - Immobilien- und Leasing - Gesellschaft m.b.H.
Rohrbach
40.0
40.0
Immobilienverwertungsgesellschaft m.b.H.
Klagenfurt
25.0
25.0
IMMORENT - ANDROMEDA Grundverwertungsgesellschaft m.b.H. "in Liqu."
Wien
41.9
41.9
Immorent - Weiko Grundverwertungsgesellschaft m.b.H. in Liqu.
Wien
100.0
100.0
IMMORENT DELTA, leasing druzba, d.o.o.
Ljubljana
50.0
50.0
IMMORENT Österreich GmbH
Wien
100.0
100.0
173
Interest of Erste Group in %
Company name, registered office
Dec 21
Dec 22
Immorent Singidunum d.o.o.
Belgrade
100.0
100.0
IMMORENT Térinvest Ingatlanhasznosító és Szolgáltató Korlátolt Felelösségü Társaság
Budapest
100.0
100.0
IMMORENT-ASTRA Grundverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
IMMORENT-HATHOR Grundverwertungsgesellschaft m.b.H.
Wien
62.5
62.5
IMMORENT-KRABA Grundverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
IMMORENT-MÖRE Grundverwertungsgesellschaft m.b.H. in Liqu.
Wien
69.5
59.3
IMMORENT-Objektvermietungsgesellschaft m.b.H.
Wien
100.0
100.0
IMMORENT-OSIRIS Grundverwertungsgesellschaft m.b.H. in Liqu.
Wien
100.0
100.0
IMMORENT-RAMON Grundverwertungsgesellschaft m.b.H.
Wien
62.5
62.5
IMMORENT-SARI Grundverwertungsgesellschaft m.b.H. in Liqu.
Wien
100.0
100.0
IPS Fonds Gesellschaft bürgerlichen Rechts
Wien
64.4
62.6
IR CEE Project Development Holding GmbH
Wien
100.0
100.0
IZBOR NEKRETNINA D.O.O. ZA USLUGE
Zagreb
69.3
69.3
Jura GrundverwertungsgmbH
Graz
25.0
25.0
KS - Dienstleistungsgesellschaft m.b.H.
Klagenfurt
25.0
25.0
KS-Beteiligungs- und Vermögens-Verwaltungsgesellschaft m.b.H.
Klagenfurt
25.0
25.0
LANED a.s.
Bratislava
100.0
100.0
Lassallestraße 7b Immobilienverwaltung GmbH
Wien
100.0
100.0
LIEGESA Immobilienvermietung GmbH Nfg OG
Graz
25.0
25.0
MCS 14 Projektentwicklung GmbH & Co KG
Wien
100.0
100.0
OM Objektmanagement GmbH
Wien
100.0
100.0
Österreichische Sparkassenakademie GmbH
Wien
45.8
44.4
ÖVW Bauträger GmbH
Wien
100.0
100.0
Pischeldorfer Straße 221 Liegenschaftsverwertungs GmbH in Liqu.
Wien
100.0
100.0
Procurement Services CZ s.r.o.
Praha
99.9
99.9
Procurement Services GmbH
Wien
99.9
99.9
Procurement Services HR d.o.o.
Zagreb
99.9
99.9
Procurement Services HU Kft.
Budapest
99.9
99.9
Procurement Services RO srl
Bucharest
99.9
99.9
Procurement Services SK, s.r.o.
Bratislava
99.9
99.9
Project Development Vest s.r.l
Bucharest
100.0
100.0
QBC Management und Beteiligungen GmbH
Wien
65.0
65.0
QBC Management und Beteiligungen GmbH & Co KG
Wien
65.0
65.0
Real-Service für oberösterreichische Sparkassen Realitätenvermittlungsgesellschaft m.b.H.
Linz
68.6
59.9
Real-Service für steirische Sparkassen, Realitätenvermittlungsgesellschaft m.b.H.
Graz
61.7
61.7
REICO investicni spolecnost Ceske sporitelny, a.s.
Praha
100.0
100.0
RND Solutions Informatikai Fejleszto és Szolgáltató Zrt.
Budapest
100.0
100.0
s ASG Sparkassen Abwicklungs- und Servicegesellschaft mbH
Graz
25.0
25.0
s REAL Immobilienvermittlung GmbH
Wien
100.0
100.0
s ServiceCenter GmbH
Wien
58.5
56.2
s Wohnbauträger GmbH
Wien
100.0
100.0
s Wohnfinanzierung Beratungs GmbH
Wien
100.0
100.0
SAI Erste Asset Management S.A.
Bucharest
91.1
91.1
sBAU Holding GmbH
Wien
100.0
100.0
Schauersberg Immobilien Gesellschaft m.b.H.
Graz
25.0
25.0
sDG Dienstleistungsgesellschaft mbH
Wien
58.8
100.0
S-Invest Beteiligungsgesellschaft m.b.H.
Wien
70.0
70.0
SK - Immobiliengesellschaft m.b.H.
Krems
0.0
0.0
SK Immobilien Epsilon GmbH
Wien
100.0
100.0
SKT Immobilien GmbH
Kufstein
0.0
0.0
SKT Immobilien GmbH & Co KG
Kufstein
0.0
0.0
sMS Marktservice für Sparkassen GmbH
Krems
0.0
0.0
SLSP Seed Starter, s.r.o.
Bratislava
0.0
100.0
SLSP Social Finance, s.r.o.
Bratislava
84.2
84.2
SPARDAT - Bürohauserrichtungs- und Vermietungsgesellschaft m.b.H.
Wien
100.0
100.0
Sparkasse Mühlviertel-West Holding GmbH
Rohrbach
40.0
40.0
Sparkasse Oberösterreich Kapitalanlagegesellschaft m.b.H.
Linz
37.9
20.7
Sparkassen Real Vorarlberg Immobilienvermittlung GmbH
Dornbirn
50.0
50.0
Sparkassen-Haftungs GmbH
Wien
64.3
63.8
Sparkassen-Real-Service für Kärnten und Osttirol Realitätenvermittlungs-Gesellschaft m.b.H.
Klagenfurt
57.6
57.6
Sparkassen-Real-Service -Tirol Realitätenvermittlungs-Gesellschaft m.b.H.
Innsbruck
68.7
68.7
SPK OÖ Immobilien GmbH
Linz
0.0
19.0
S-Real, Realitätenvermittlungs- und -verwaltungs Gesellschaft m.b.H.
Wiener Neustadt
0.0
0.0
S-RENT DOO BEOGRAD
Belgrade
35.5
35.5
Steiermärkische Verwaltungssparkasse Immobilien & Co KG
Graz
25.0
25.0
STRAULESTI PROPERTY DEVELOPMENT SRL
Bucharest
100.0
100.0
Suport Colect SRL
Bucharest
99.9
99.9
Toplice Sveti Martin d.o.o.
Sveti Martin
100.0
100.0
VIA Immobilien Errichtungsgesellschaft m.b.H.
Wien
100.0
100.0
WEVA - Veranlagungs- und Beteiligungsgesellschaft m.b.H.
Linz
39.2
19.0
XENIA-Immorent Grundverwertungsgesellschaft m.b.H.
Wien
100.0
100.0
Z3 Ingatlanhasznosító Kft.
Budapest
0.0
100.0
ZWETTLER LEASING Gesellschaft m.b.H.
Zwettl
0.0
0.0
174
175
Interest of Erste Group in %
Company name, registered office
Dec 21
Dec 22
Equity method investments
Credit institusions
Prva stavebna sporitelna, a.s.
Bratislava
35.0
35.0
SPAR-FINANZ BANK AG
Salzburg
50.0
50.0
Financial institutions
Adoria Grundstückvermietungs Gesellschaft m.b.H.
St. Pölten
24.5
24.5
Esquilin Grundstücksverwaltungs Gesellschaft m.b.H.
St. Pölten
24.5
24.5
Fondul de Garantare a Creditului Rural IFN SA
Bucharest
33.3
33.3
FORIS Grundstückvermietungs Gesellschaft m.b.H.
St. Pölten
24.5
24.5
Global Payments s.r.o.
Praha
49.0
49.0
HOSPES-Grundstückverwaltungs Gesellschaft m.b.H.
St. Pölten
33.3
33.3
Immorent-Hypo-Rent Grundverwertungsgesellschaft m.b.H.
Innsbruck
49.0
49.0
LITUS Grundstückvermietungs Gesellschaft m.b.H.
St. Pölten
24.5
24.5
Neue Eisenstädter gemeinnützige Bau-, Wohn- und Siedlungsgesellschaft m.b.H.
Eisenstadt
50.0
50.0
NÖ Bürgschaften und Beteiligungen GmbH
Wien
14.4
14.4
NÖ-KL Kommunalgebäudeleasing Gesellschaft m.b.H.
Wien
33.4
33.4
O.Ö. Kommunalgebäude-Leasing Gesellschaft m.b.H.
Linz
40.0
40.0
Quirinal Grundstücksverwaltungs Gesellschaft m.b.H.
Wien
33.3
33.3
Steirische Gemeindegebäude Leasing Gesellschaft m.b.H.
Wien
50.0
50.0
Steirische Kommunalgebäudeleasing Gesellschaft m.b.H.
Wien
50.0
50.0
Steirische Leasing für Gebietskörperschaften Gesellschaft m.b.H.
Wien
50.0
50.0
STUWO Gemeinnützige Studentenwohnbau Aktiengesellschaft
Wien
50.5
50.5
SWO Kommunalgebäudeleasing Gesellschaft m.b.H.
Wien
50.0
50.0
TKL V Grundverwertungsgesellschaft m.b.H.
Innsbruck
33.3
33.3
TKL VIII Grundverwertungsgesellschaft m.b.H.
Innsbruck
24.5
24.5
VALET-Grundstückverwaltungs Gesellschaft m.b.H.
St. Pölten
24.5
24.5
VBV - Betriebliche Altersvorsorge AG
Wien
29.8
29.5
VOLUNTAS Grundstückvermietungs Gesellschaft m.b.H.
St. Pölten
35.0
35.0
Other
APHRODITE Bauträger Aktiengesellschaft
Wien
50.0
50.0
Aventin Grundstückverwaltungs Gesellschaft m.b.H. in Liqu.
St. Pölten
24.5
24.5
CIT ONE SA
Bucharest
33.3
33.3
Dostupny Domov j.s.a.
Nitra
42.0
42.0
Epsilon - Grundverwertungsgesellschaft m.b.H. in Liqu.
Wien
50.0
50.0
ERSTE d.o.o.
Zagreb
45.2
45.2
Erste ÖSW Wohnbauträger GmbH
Wien
50.5
50.5
Flottenmanagement GmbH
Wien
51.0
51.0
GELUP GmbH
Wien
33.3
33.3
Gemdat Niederösterreichische Gemeinde-Datenservice Gesellschaft m. b. H.
Korneuburg
0.8
0.8
Hochkönig Bergbahnen GmbH
Mühlbach
47.4
53.2
Investown Technologies s.r.o.
Zlatníky-Hodkovice
0.0
26.0
KWC Campus Errichtungsgesellschaft m.b.H.
Klagenfurt
13.6
13.6
Monilogi s.r.o.
Bratislava
0.0
26.0
SILO DREI next LBG 57 Liegenschaftsverwertung GmbH & Co KG
Wien
49.0
49.0
Slovak Banking Credit Bureau, s.r.o.
Bratislava
33.3
33.3
Steirische Leasing für öffentliche Bauten Gesellschaft m.b.H.
Wien
50.0
50.0
TRABITUS Grundstückvermietungs Gesellschaft m.b.H.
Wien
25.0
25.0
Vorarlberger Kommunalgebäudeleasing Gesellschaft m.b.H. in Liqu.
Dornbirn
33.3
33.3
Other investments
Credit institusions
Oesterreichische Kontrollbank Aktiengesellschaft
Wien
12.9
12.9
ALTA BANKA AD BEOGRAD
Belgrade
0.0
0.0
Public Joint-stock company commercial Bank "Center-Invest"
Rostov
9.1
9.1
EUROAXIS BANK AD Moskva
Moscow
1.6
1.6
Südtiroler Sparkasse AG
Bozen
0.1
0.1
Financial institutions
"Österreichisches Siedlungswerk" Gemeinnützige Wohnungsaktiengesellschaft
Wien
1.0
1.0
"Wohnungseigentum", Tiroler gemeinnützige Wohnbaugesellschaft m.b.H.
Innsbruck
19.1
19.1
"Wohnungseigentümer" Gemeinnützige Wohnbaugesellschaft m.b.H.
Mödling
20.3
20.3
ARWAG Holding-Aktiengesellschaft
Wien
19.3
19.3
Central Securities Depository AD Skopje
Skopje
5.7
4.6
CONATUS Grundstückvermietungs Gesellschaft m.b.H.
St. Pölten
24.5
24.5
CULINA Grundstücksvermietungs Gesellschaft m.b.H.
St. Pölten
25.0
25.0
Diners Club International Belgrade d.o.o. Beograd in bankruptcy
Belgrade
69.3
69.3
Diners Club International Montenegro d.o.o. in Podgorica
Podgorica
69.3
69.3
Erste Asset Management Deutschland GmbH
Vaterstetten
91.1
91.1
Erste Private Capital GmbH
Wien
91.1
91.1
EUROPEAN INVESTMENT FUND
Luxembourg
0.1
0.1
EWU Wohnbau Unternehmensbeteiligungs-GmbH
St. Pölten
20.2
20.2
Fondul Roman de Garantare a Creditelor pentru Intreprinzatorii Privati SA
Bucharest
9.5
9.5
Garantiqa Hitelgarancia Zrt.
Budapest
1.8
2.0
GEBAU-NIOBAU Gemeinnützige Baugesellschaft m.b.H.
Mödling
19.2
19.2
176
Interest of Erste Group in %
Company name, registered office
Dec 21
Dec 22
Gemeinnützige Bau- und Siedlungsgenossenschaft "Waldviertel" registrierte Genossenschaft mit beschränkter Haftung
Raabs
0.0
0.0
Gemeinnützige Wohn- und Siedlungsgesellschaft Schönere Zukunft, Gesellschaft m.b.H.
Wien
15.0
15.0
Gemeinnützige Wohnungsgesellschaft "Austria" Aktiengesellschaft
Mödling
20.0
20.0
GWS Gemeinnützige Alpenländische Gesellschaft für Wohnungsbau und Siedlungswesen m.b.H.
Graz
7.5
7.5
KERES-Immorent Immobilienleasing GmbH
Wien
25.0
25.0
LBH Liegenschafts- und Beteiligungsholding GmbH
Innsbruck
75.0
75.0
Lorit Kommunalgebäudeleasing Gesellschaft m.b.H.
Wien
26.7
26.7
LV Holding GmbH
Linz
35.4
20.7
MIGRA Gemeinnützige Wohnungsges.m.b.H.
Wien
19.8
19.8
O.Ö. Kommunal-Immobilienleasing GmbH
Linz
40.0
40.0
Oberösterreichische Kreditgarantiegesellschaft m.b.H.
Linz
5.6
3.3
ÖSW Wohnbauvereinigung Gemeinnützige Gesellschaft m.b.H.
Salzburg
15.6
15.6
ÖWB Gemeinnützige Wohnungsaktiengesellschaft
Innsbruck
26.3
26.3
ÖWGES Gemeinnützige Wohnbaugesellschaft m.b.H.
Graz
2.5
2.5
PSA Payment Services Austria GmbH
Wien
18.5
18.5
Salzburger Kreditgarantiegesellschaft m.b.H.
Salzburg
18.2
18.2
Seilbahnleasing GmbH
Innsbruck
33.3
33.3
SREDISNJE KLIRINSKO DEPOZITARNO DRUSTVO D.D.(CENTRAL DEPOZITORY & CLEARING COMPANY Inc.)
Zagreb
0.1
0.1
TKL II. Grundverwertungsgesellschaft m.b.H.
Wien
26.7
26.7
TKL VI Grundverwertungsgesellschaft m.b.H.
Innsbruck
33.3
33.3
TKL VII Grundverwertungsgesellschaft m.b.H.
Innsbruck
33.3
33.3
WBV Beteiligungs- und Vermögensverwaltungsgesellschaft m.b.H.
Feldkirch
0.0
0.0
WKBG Wiener Kreditbürgschafts- und Beteiligungsbank AG (vorm.Kapital-Beteiligungs Aktiengesellschaft)
Wien
14.4
14.4
Other
"Die Kärntner" - Förderungs- und Beteiligungsgesellschaft für die Stadt Friesach Gesellschaft m.b.H.
Friesach
25.0
25.0
"Die Kärntner" - Förderungsgesellschaft für das Gurktal Gesellschaft m.b.H.
Gurk
25.0
25.0
"Die Kärntner"-Förderungs- und Beteiligungsgesellschaft für den Bezirk Wolfsberg Gesellschaft m.b.H.
Wolfsberg
25.0
25.0
"Gasthof Löwen" Liegenschaftsverwaltung GmbH & Co., KG
Feldkirch
0.0
0.0
"Photovoltaik-Gemeinschaftsanlage" der Marktgemeinde Wolfurt
Wolfurt
0.0
0.0
"S-PREMIUM" Drustvo sa ogranicenom odgovornoscu za posredovanje i zastupanje u osiguranju d.o.o. Sarajevo
Sarajevo
25.0
25.0
"Stolz auf Wien" Beteiligungs GmbH
Wien
0.0
0.0
"TBG" Thermenzentrum Geinberg Betriebsgesellschaft m.b.H.
Geinberg
1.5
0.7
"THG" Thermenzentrum Geinberg Errichtungs-GmbH
Linz
1.5
0.7
AB Banka, a.s. v likvidaci
Mladá Boleslav
4.5
4.5
Achenseebahn-Aktiengesellschaft in Abwicklung
Jenbach
0.0
0.0
Achtundsechzigste Sachwert Rendite-Fonds Holland GmbH & Co KG
Hamburg
0.0
0.0
AD SPORTSKO POSLOVNI CENTAR MILLENNIUM VRŠAC
Vršac
0.2
0.2
Agrargemeinschaft Kirchschlag
Kirchschlag
0.0
0.0
AKCIONARSKO DRUŠTVO ZA PROIZVODNJU DELOVA ZA MOTORE GARANT, FUTOG - U STECAJU
Futog
6.2
6.2
ALBA Services GmbH
Wien
50.0
50.0
Alpbacher Bergbahn Gesellschaft m.b.H. & Co.KG.
Alpbach
0.0
0.0
ALPENDORF BERGBAHNEN AG
St. Johann
0.0
0.0
AREALIS Liegenschaftsmanagement GmbH
Wien
50.0
50.0
Argentum Immobilienverwertungs Ges.m.b.H. in Liqu.
Linz
39.2
19.0
AS LEASING Gesellschaft m.b.H.
Linz
39.2
19.0
AS Support GmbH
Linz
39.2
19.0
ASEF S.C.Sp.
Senningerberg
0.0
5.3
AS-WECO Grundstückverwaltung Gesellschaft m.b.H.
Linz
39.2
19.0
Austrian Reporting Services GmbH
Wien
14.3
14.3
aws Gründerfonds Beteiligungs GmbH & Co KG
Wien
5.1
5.1
Bankovní identita, a.s.
Praha
17.0
17.0
Bäuerliches Blockheizkraftwerk reg. Gen.m.b.H.
Kautzen
0.0
0.0
BCR Asigurari de Viata Vienna Insurance Group SA
Bucharest
5.5
5.5
beeex GmbH
Pöllau
0.0
0.0
Beogradska Berza, Akcionarsko Drustvo Beograd
Belgrade
12.6
12.6
Berg- und Schilift Schwaz-Pill Gesellschaft m.b.H.
Schwaz
0.0
0.0
Bergbahn Aktiengesellschaft Kitzbühel
Kitzbühel
0.0
0.0
Bergbahn Lofer GmbH
Lofer
7.1
7.1
Bergbahnen Oetz Gesellschaft m.b.H.
Oetz
0.0
0.0
Bergbahnen Westendorf Gesellschaft m.b.H.
Westendorf
0.0
0.0
BGM - EB-Grundstücksbeteiligungen GmbH & Co KG
Wien
0.0
0.0
Biogenrohstoffgenossenschaft Kamptal und Umgebung registrierte Genossenschaft mit beschränkter Haftung
Maiersch
0.0
0.0
Biomasse Heizwerk Zürs GmbH
Zürs
0.0
0.0
Biroul de Credit SA
Bucharest
19.4
19.4
Biroul de Credit SRL
Chisinau
9.1
9.1
Brauerei Murau eGen
Murau
0.7
0.7
Bregenz Tourismus & Stadtmarketing GmbH
Bregenz
0.0
0.0
Budapesti Értéktozsde Zártköruen Muködo Részvénytársaság
Budapest
2.0
2.0
Burza cennych papierov v Bratislave, a.s.
Bratislava
3.9
3.9
Camelot Informatik und Consulting Gesellschaft m.b.H.
Wien
4.1
4.1
177
Interest of Erste Group in %
Company name, registered office
Dec 21
Dec 22
CAMPUS 02 Fachhochschule der Wirtschaft GmbH
Graz
1.5
1.5
capital300 EuVECA GmbH & Co KG
Wien
2.6
1.3
Capriel Investment S.A.
Luxembourg
0.0
9.4
Cargo-Center-Graz Betriebsgesellschaft m.b.H
Werndorf
1.6
1.6
Cargo-Center-Graz Betriebsgesellschaft m.b.H. & Co KG
Werndorf
1.6
1.6
Casa Romana de Compensatie Sibiu
Sibiu
0.4
0.4
CBCB-Czech Banking Credit Bureau, a.s.
Praha
20.0
20.0
Clearing House KIBS AD Skopje
Skopje
4.4
4.5
CRNOMEREC CENTAR D.O.O. ZA PROJEKTIRANJE GRAÐENJE I NADZOR
Zagreb
0.0
0.0
D.C. Travel d.o.o Beograd u stecaju
Belgrade
69.3
69.3
Dachstein Tourismus AG
Gosau
0.0
0.0
Dateio s.r.o.
Praha
22.2
25.8
Die Kärntner Sparkasse - Förderungsgesellschaft für den Bezirk Hermagor Gesellschaft m.b.H.
Hermagor
25.0
25.0
Digital factory s.r.o.
Brno
15.0
15.0
DINESIA a.s.
Praha
100.0
100.0
Dolomitencenter Verwaltungs GmbH
Lienz
50.0
50.0
Dornbirner Seilbahn AG
Dornbirn
0.0
0.0
DRUŠTVO ZA KONSALTING I MENADŽMENT POSLOVE TRŽIŠTE NOVCA A.D. BEOGRAD (SAVSKI VENAC)
Belgrade
0.8
0.8
EBB-Delta Holding GmbH
Wien
100.0
100.0
EBV-Leasing Gesellschaft m.b.H.
Wien
51.0
51.0
EC Energie Center Lipizzanerheimat GmbH
Bärnbach
0.0
0.0
Egg Investment GmbH
Egg
0.0
0.0
E-H Liegenschaftsverwaltungs-GmbH
Etsdorf
0.0
0.0
Einlagensicherung AUSTRIA Ges.m.b.H.
Wien
0.4
1.8
ELAG Immobilien AG
Linz
1.6
0.8
Energie AG Oberösterreich
Linz
0.2
0.1
Erste Diversified Private Equity I
Senningerberg
0.0
0.0
ERSTE Immobilien Alpha "WE-Objekte" GmbH & Co KG
Wien
0.0
0.0
ERSTE Immobilien Alpha APS 85 GmbH & Co KG
Wien
0.0
0.0
ERSTE Immobilien Alpha Baufeld Omega GmbH & Co KG
Wien
0.0
0.0
ERSTE Immobilien Alpha Brünner Straße 124 Liegenschaftsverwaltung GmbH & Co KG
Wien
0.0
0.0
ERSTE Immobilien Alpha Eggenberger Gürtel GmbH & Co KG
Graz
0.0
0.0
ERSTE Immobilien Alpha Favoritenstraße 92 GmbH & Co KG
Wien
0.0
0.0
ERSTE Immobilien Alpha GmbH
Wien
68.7
68.7
ERSTE Immobilien Alpha Kerensstraße GmbH & Co KG
Wien
0.0
0.0
ERSTE Immobilien Alpha Lastenstraße GmbH & Co KG
Wien
0.0
0.0
ERSTE Immobilien Alpha Monte Laa GmbH & Co. KG
Wien
0.0
0.0
ERSTE Immobilien Alpha Paragonstraße GmbH & Co KG
Wien
0.0
0.0
ERSTE Immobilien Alpha Ulmgasse GmbH & Co. KG
Wien
0.0
0.0
ERSTE Immobilien Alpha W175 GmbH & Co KG
Wien
0.0
0.0
ERSTE Immobilien Aspernbrückengasse 2 GmbH & Co KG
Wien
0.1
0.1
ERSTE Immobilien Beta GmbH
Wien
68.7
68.7
ERSTE Immobilien Beta GS 131 GmbH & Co KG
Wien
0.0
0.0
ERSTE Immobilien Gamma Breitenfurter Straße 235 GmbH & Co KG
Wien
0.0
0.0
ERSTE Immobilien Gamma GmbH
Wien
68.7
68.7
ERSTE Immobilien Gamma Hilde-Spiel-Gasse GmbH & Co KG
Wien
0.0
0.0
ERSTE Immobilien Gamma Lemböckgasse GmbH & Co KG
Wien
0.0
0.0
ERSTE Immobilien Gamma Seepark Campus West GmbH & Co KG
Wien
0.0
0.0
Erste Private Capital S.a r.l.
Senningerberg
0.0
91.1
Erste Private Capital S.C.A. SICAV-RAIF
Senningerberg
0.0
0.0
Finanzpartner GmbH
Wien
51.1
51.1
Flourish d.o.o Podgorica
Podgorica
0.0
3.5
Fortenova Group STAK Stichting
Amsterdam
0.3
0.3
Freizeitpark Zell GmbH
Zell
0.0
0.0
Freizeitzentrum Zillertal GmbH
Fügen
0.0
0.0
Fund of Excellence Förderungs GmbH
Wien
45.0
45.0
FWG-Fernwärmeversorgung Engelbrechts registrierte Genossenschaft mit beschränkter Haftung
Kautzen
0.0
0.0
FWG-Fernwärmeversorgung Raabs a.d. Thaya registrierte Genossenschaft mit beschränkter Haftung
Raabs
0.0
0.0
Gasteiner Bergbahnen Aktiengesellschaft
Bad Hofgastein
13.4
13.4
GEMDAT OÖ GmbH
Linz
10.6
6.2
GEMDAT OÖ GmbH & Co KG
Linz
11.8
6.9
Gerlitzen - Kanzelbahn - Touristik Gesellschaft m.b.H. & Co KG
Sattendorf
0.0
0.0
Gewerbe- und Dienstleistungspark der Stadtgemeinde Bad Radkersburg KG
Bad Radkersburg
12.5
12.5
Gladiator Aircraft Management Limited
Pieta
100.0
100.0
Golfclub Bludenz-Braz GmbH
Bludenz-Braz
0.0
0.0
Golfclub Brand GmbH
Brand
0.0
0.0
Golfclub Pfarrkirchen im Mühlviertel GesmbH
Pfarrkirchen
0.2
0.2
Golfplatz Hohe Salve - Brixental Errichtergesellschaft m.b.H. & Co KG
Westendorf
0.0
0.0
Golfresort Haugschlag GmbH & Co KG
Litschau
0.0
0.0
Großarler Bergbahnen Gesellschaft mit beschränkter Haftung & Co. KG.
Großarl
0.2
0.2
GW St. Pölten Integrative Betriebe GmbH
St. Pölten
0.0
0.0
GXT Vermögensverwaltung GmbH & Co KG
Wien
0.0
0.4
HAPIMAG AG
Baar
0.0
0.0
178
Interest of Erste Group in %
Company name, registered office
Dec 21
Dec 22
Harkin Limited
Dublin
100.0
100.0
Haus für Senioren 1 Fischamend Errichtungsgesellschaft m.b.H. & Co KG
Wien
0.0
0.0
Hauser Kaibling Seilbahn- und Liftgesellschaft m.b.H. & Co. KG.
Haus
0.4
0.4
HDL Fiecht GmbH
Vomp
0.0
0.0
Heiltherme Bad Waltersdorf GmbH
Bad Waltersdorf
4.5
4.5
Heiltherme Bad Waltersdorf GmbH & Co KG
Bad Waltersdorf
4.1
4.1
Hinterstoder-Wurzeralm Bergbahnen Aktiengesellschaft
Hinterstoder
0.4
0.2
Hrvatski olimpijski centar Bjelolosica d.o.o. (Kroatisches Olympiazentrum) in bankruptcy
Jesenak
1.2
1.2
Hrvatski registar obveza po kreditima d.o.o. (HROK)
Zagreb
7.3
7.3
HV-Veranstaltungsservice GmbH
St. Lorenzen
100.0
100.0
IMMORENT S-Immobilienmanagement GesmbH
Wien
100.0
100.0
Immorent-Hackinger Grundverwertungsgesellschaft m.b.H. in Liqu.
Wien
11.3
11.3
JAVNO SKLADIŠTE SLOBODNA CARINSKA ZONA NOVI SAD AD NOVI SAD
Novi Sad
4.1
4.1
JUGOALAT-JAL AD NOVI SAD
Novi Sad
5.0
5.0
Kaiser-Ebersdorfer Straße 8 GmbH & Co KG
Wien
0.0
0.0
Kapruner Freizeitzentrum Betriebs GmbH
Kaprun
0.0
0.0
Kapruner Promotion und Lifte GmbH
Kaprun
6.5
6.5
K-Businesscom Banking Services GmbH
Wien
0.0
0.3
Kitzbüheler Anzeiger Gesellschaft m.b.H.
Kitzbühel
0.0
0.0
Kleinkraftwerke-Betriebsgesellschaft m.b.H.
Wien
100.0
100.0
KOOPERATIVA poistovna, a.s. Vienna Insurance Group
Bratislava
1.5
1.5
Kooperativa pojistovna, a.s. Vienna Insurance Group
Praha
1.6
1.6
'KULSKI ŠTOFOVI' FABRIKA ZA PROIZVODNJU VUNENIH TKANINA I PREDIVA AKCIONARSKO DRUŠTVO IZ KULE - U STECAJU
Kula
6.1
6.1
Kur- und Fremdenverkehrsbetriebe Bad Radkersburg Gesellschaft m.b.H.
Bad Radkersburg
0.3
0.3
ländleticket marketing gmbh
Dornbirn
0.0
0.0
Langenloiser Liegenschaftsverwaltungs-Gesellschaft m.b.H.
Langenlois
0.0
0.0
Lebens.Resort & Gesundheitszentrum GmbH
Ottenschlag
0.0
0.0
Lienzer-Bergbahnen-Aktiengesellschaft
Gaimberg
0.0
0.0
Liezener Bezirksnachrichten Gesellschaft m.b.H.
Liezen
1.1
1.1
LOCO 597 Investment GmbH
Egg
0.0
0.0
Macedonian Stock Exchange AD
Skopje
5.9
5.9
Maissauer Amethyst GmbH
Maissau
0.0
0.0
MAJEVICA HOLDING AKCIONARSKO DRUŠTVO, BACKA PALANKA
Bacčka Palanka
5.2
5.2
Mayer Property Alpha d.o.o.
Zagreb
100.0
100.0
Mayrhofner Bergbahnen Aktiengesellschaft
Mayrhofen
0.0
0.0
MCG Graz e.gen.
Graz
1.4
1.4
MEG Hausgemeinschaft "Bahnhofstraße 1, 4481 Asten"
Asten
0.0
0.0
Mittersiller Golf- und Freizeitanlagen Gesellschaft m.b.H.
Mittersill
0.0
0.0
Montfort Investment GmbH
Götzis
0.0
0.0
Mühlbachgasse 8 Immobilien GmbH
Langenlois
0.0
0.0
MUNDO FM & S GmbH
Wien
100.0
100.0
Murauer WM Halle Betriebsgesellschaft m.b.H.
Murau
3.1
3.1
Nahwärme Frankenmarkt eGen
Frankenmarkt
0.0
0.0
Neo Investment B.V.
Amsterdam
0.0
0.0
Neuhofner Bauträger GmbH
Neuhofen
0.0
0.0
Oberösterreichische Unternehmensbeteiligungsgesellschaft m.b.H.
Linz
5.6
3.3
Oberpinzgauer Fremdenverkehrsförderungs- und Bergbahnen - Aktiengesellschaft
Neukirchen
0.0
0.0
Obertilliacher Bergbahnen-Gesellschaft m.b.H.
Obertilliach
0.0
0.0
ÖKO-Heizkraftwerk Pöllau GmbH
Pöllau
0.0
0.0
ÖKO-Heizkraftwerk Pöllau GmbH & Co KG
Pöllau
0.0
0.0
Old Byr Holding ehf.
Reykjavik
1.5
1.5
Omniasig Vienna Insurance Group SA
Bucharest
0.1
0.1
OÖ HightechFonds GmbH
Linz
7.8
4.6
Ortswärme Fügen GmbH
Fügen
0.0
0.0
Österreichische Wertpapierdaten Service GmbH
Wien
32.6
32.6
Osttiroler Wirtschaftspark GesmbH
Lienz
0.0
0.0
Planai - Hochwurzen - Bahnen Gesellschaft m.b.H.
Schladming
0.7
0.7
Planung und Errichtung von Kleinkraftwerken GmbH
Wien
100.0
100.0
POSLOVNO UDRUŽENJE DAVAOCA LIZINGA "ALCS" BEOGRAD
Belgrade
8.3
8.3
PREDUZECE ZA PRUŽANJE CONSULTING USLUGA BANCOR CONSULTING GROUP DOO NOVI SAD
Novi Sad
2.6
2.6
Prvni certifikacni autorita, a.s.
Praha
23.3
23.3
Radio Osttirol GesmbH
Lienz
0.0
0.0
Rätikon-Center Errichtungs- und Betriebsgesellschaft m.b.H.
Bludenz
0.0
0.0
Realitäten und Wohnungsservice Gesellschaft m.b.H.
Köflach
4.0
4.0
REGIONALNA AGENCIJA ZA RAZVOJ MALIH I SREDNJIH PREDUZECA ALMA MONS D.O.O.
Novi Sad
3.3
3.3
Riesneralm - Bergbahnen Gesellschaft m.b.H. & Co. KG.
Donnersbach
0.0
0.0
Rolling Stock Lease s.r.o.
Bratislava
3.0
3.0
RTG Tiefgaragenerrichtungs und -vermietungs GmbH
Graz
25.0
25.0
S - Leasing und Vermögensverwaltung - Gesellschaft m.b.H.
Peuerbach
0.0
0.0
S IMMOKO Leasing GesmbH
Korneuburg
0.0
0.0
S Servis, s.r.o.
Znojmo
100.0
100.0
SALIX-Grundstückserwerbs Ges.m.b.H.
Eisenstadt
50.0
50.0
179
Interest of Erste Group in %
Company name, registered office
Dec 21
Dec 22
SALZBURG INNENSTADT, Vereinigung zur Förderung selbständiger Unternehmer der Salzburger Innenstadt, registrierte Genossenschaft mit beschränkter Haftung in Liquidation
Salzburg
2.0
2.0
S-AMC1 DOOEL Skopje
Skopje
23.9
24.1
Schweighofer Gesellschaft m.b.H. & Co KG
Friedersbach
0.0
0.0
S-City Center Wirtschaftsgütervermietungsgesellschaft m.b.H.
Wiener Neustadt
0.0
0.0
S-COMMERZ Immobilienvermittlung GmbH
Neunkirchen
0.0
0.0
SEG Sport Event GmbH
Hohenems
0.0
0.0
Seniorenresidenz "Am Steinberg" GmbH
Graz
25.0
25.0
S-Finanzservice Gesellschaft m.b.H.
Baden
0.0
0.0
SILO DREI Komplementärgesellschaft m.b.H.
Wien
49.0
49.0
SILO II Komplementärgesellschaft m.b.H.
Wien
49.0
49.0
SILO II LBG 57 – 59 Liegenschaftsverwertung GmbH & Co KG
Podgorica
49.0
0.0
Silvrettaseilbahn Aktiengesellschaft
Ischgl
0.0
0.0
SK 2 Properties s.r.o.
Bratislava
0.0
0.0
Skilifte Unken - Heutal Gesellschaft m.b.H. & Co, KG
Unken
0.0
0.0
Skilifte Unken Heutal Gesellschaft m.b.H.
Unken
2.2
2.2
Smart City GmbH
Eferding
0.0
0.0
SOCIETATEA DE TRANSFER DE FONDURI SI DECONTARI TRANSFOND SA
Bucharest
3.2
3.2
Society for Worldwide Interbank Financial Telecommunication scrl
La Hulpe
0.3
0.3
Sparkasse Amstetten Service- und Verwaltungsgesellschaft m. b. H.
Amstetten
0.0
0.0
Sparkasse Bludenz Beteiligungsgesellschaft mbH
Bludenz
0.0
0.0
Sparkasse Bludenz Immobilienverwaltungsgesellschaft mbH
Bludenz
0.0
0.0
Sparkasse Imst Immobilienverwaltung GmbH
Imst
0.0
0.0
Sparkasse Imst Immobilienverwaltung GmbH & Co KG
Imst
0.0
0.0
Sparkassen Bankbeteiligungs GmbH
Dornbirn
0.0
0.0
Sparkassen Beteiligungs GmbH & Co KG
Wien
7.8
3.5
Sparkassen Facility Management GmbH
Innsbruck
75.0
75.0
Speedinvest III EuVECA GmbH & Co KG
Wien
2.5
1.8
SPES GmbH & Co. KG
Schlierbach
0.0
0.0
SPKB Beteiligungs- und Verwaltungsgesellschaft m.b.H.
Bregenz
0.0
0.0
SPKR Liegenschaftsverwertungs GmbH
Reutte
0.0
0.0
Sport- und Freizeitanlagen Gesellschaft m.b.H.
Schwanenstadt
12.9
6.3
SPRON ehf.
Reykjavik
4.9
4.9
Stadtgemeinde Weiz - Wirtschaftsentwicklungs KG
Weiz
0.0
0.0
Stadtmarketing-Ternitz GmbH
Ternitz
0.0
0.0
Sternstein Sessellift Gesellschaft m.b.H.
Bad Leonfelden
7.2
7.2
Stoderzinken - Liftgesellschaft m.b.H. & Co. KG.
Gröbming
0.4
0.4
SVB Lambach Versicherungsmakler GmbH
Lambach
0.0
0.0
SWAB Poststraße GmbH & Co KG
Bregenz
0.0
0.0
SZG-Dienstleistungsgesellschaft m.b.H.
Salzburg
100.0
100.0
Tannheimer Bergbahnen GmbH & Co KG
Tannheim
0.0
0.0
Tauern SPA World Betriebs- Gmbh & Co KG
Kaprun
11.1
11.1
Tauern SPA World Betriebs-GmbH
Kaprun
12.2
12.2
Tauern SPA World Errichtungs- GmbH & Co KG
Kaprun
11.1
11.1
Tauern SPA World Errichtungs-GmbH
Kaprun
12.2
12.2
TAUROS Capital Investment GmbH & Co KG
Wien
40.4
40.4
TAUROS Capital Management GmbH
Wien
44.6
44.6
TDG Techn. Dienstleistungs- und Objektservicegesellschaft m.b.H.
Wien
100.0
100.0
TECH21 Bürohaus und Gewerbehof Errichtungs- und Betriebsgesellschaft mbH & Co KG
Wien
0.1
0.1
Technologie- und Dienstleistungszentrum Ennstal GmbH
Reichraming
0.0
0.0
TECHNOLOGIE- und GRÜNDERPARK ROSENTAL GmbH
Rosental
0.3
0.3
Technologie- und Innovationszentrum Kirchdorf GmbH
Schlierbach
0.0
0.0
Technologiezentrum Inneres Salzkammergut GmbH
Bad Ischl
0.0
0.0
Technologiezentrum Salzkammergut GmbH
Gmunden
0.6
0.3
Technologiezentrum Salzkammergut-Bezirk Vöcklabruck GmbH
Attnang-Puchheim
0.0
0.0
Techno-Z Ried Technologiezentrum GmbH
Ried
0.0
0.0
Tennis-Center Hofkirchen i. M. GmbH
Hofkirchen
7.3
7.3
Therme Wien Ges.m.b.H.
Wien
15.3
15.3
Therme Wien GmbH & Co KG
Wien
15.3
15.3
Tiefgarage Anger, Gesellschaft m.b.H. & Co. KG.
Lech
0.0
0.0
TIZ Landl - Grieskirchen GmbH
Grieskirchen
0.0
0.0
Tourismus- u. Freizeitanlagen GmbH
Hinterstoder
0.0
0.0
Tourismusgenossenschaft Ramsau am Dachstein eGen
Ramsau am Dachstein
0.4
0.5
TSG EDV-Terminal-Service Ges.m.b.H.
Wien
0.1
0.1
UNION Vienna Insurance Group Biztosito Zrt.
Budapest
1.2
1.2
VERMREAL Liegenschaftserwerbs- und -betriebs GmbH
Wien
25.6
25.6
VISA INC.
San Francisco
0.0
0.0
VIVEA Bad Schönau GmbH
Bad Schönau
0.0
0.0
VIVIThv GmbH
St. Pölten
20.0
20.0
VIVITimmo GmbH
St. Pölten
20.0
20.0
VMG Versicherungsmakler GmbH
Wien
5.0
5.0
Waldviertler Leasing s.r.o.
Jindrichuv Hradec
0.0
0.0
Wassergenossenschaft Mayrhofen
Mayrhofen
0.0
0.0
180
Interest of Erste Group in %
Company name, registered office
Dec 21
Dec 22
WBC Sparkasse Korneuburg GmbH
Korneuburg
0.0
0.0
WE.TRADE INNOVATION DESIGNATED ACTIVITY COMPANY
Dublin
3.2
3.2
Web Value GmbH
Wien
0.0
0.0
WEB Windenergie AG
Pfaffenschlag
0.0
0.0
Weißsee-Gletscherwelt GmbH
Uttendorf
0.0
0.0
WET Wohnbaugruppe Service GmbH
Mödling
19.9
19.9
wflow.com Czech Republic s.r.o.
Praha
0.0
17.0
WG PROJEKTIRANJE, investiranje in inženiring d.o.o.
Ljubljana
100.0
100.0
Wien 3420 Aspern Development AG
Wien
24.5
24.5
Wiener Börse AG
Wien
11.8
11.7
Wiener osiguranje Vienna Insurance Group dionicko društvo za osiguranje
Zagreb
1.1
1.1
WIENER STÄDTISCHE VERSICHERUNG AG Vienna Insurance Group
Wien
2.2
2.2
WIEPA-Vermögensverwaltungsgesellschaft m.b.H.
Dornbirn
0.0
0.0
Wirtschaftspark Kleinregion Fehring Errichtungs- und Betriebsgesellschaft m.b.H.
Fehring
1.3
1.3
WNI Wiener Neustädter Immobilienleasing Ges.m.b.H.
Wiener Neustadt
0.0
0.0
WW Wohnpark Wehlistraße GmbH
Wien
100.0
100.0
Zagreb Stock Exchange, Inc.
Zagreb
2.3
2.3
Zweite Beteiligungsgesellschaft Reefer-Flottenfonds mbH & Co KG
Hamburg
0.0
0.0
181
GLOSSARY
Book value per share
Equity (attributable to owners of the parent) divided by the number of outstanding shares at the end of the period.
Cash return on equity (cash RoE)
Net profit for the period attributable to the owners of the parent less dividends for Additional Tier 1 capital (AT1), adjusted for non-cash items such as goodwill amortisation and amortisation of customer relationship as a percentage of the average equity attributable to the owners of the parent. The average is calculated on the basis of final quarterly values.
Cash earnings per share
Net profit for the period attributable to owners of the parent, less dividends for Additional Tier 1 capital (AT1), adjusted for non-cash items such as goodwill impairment and amortisation of customer relationship divided by the weighted average number of outstanding shares.
CEE (Central and Eastern Europe)
Abbreviation for the economic area Central and Eastern Europe. Includes the new EU member states of the enlargement rounds 2004 and 2007 as well as the successor states of Yugoslavia and the Soviet Union as well as Albania.
CET1
Common equity Tier 1.
CET1 ratio
Common equity Tier 1 as a percentage of the total risk (according to CRR).
CRR
Capital Requirements Regulation: one of the two legal acts containing the new Capital Requirements.
Cost/income ratio
General administrative expenses or operating expenses as a percentage of operating income.
Dividend yield
Dividend distribution of the financial year as a percentage of the year-end closing price or the most recent price of the share.
Earnings per share
Net profit for the period attributable to owners of the parent, less dividends for Additional Tier 1 capital (AT1), divided by the weighted average number of outstanding shares.
Interest-bearing assets
Total assets less cash and cash balances, derivatives – held for trading, hedge accounting derivatives, property and equipment, investment properties, intangible assets, current and deferred tax assets, assets held for sale and other assets.
Loan to deposit ratio
Loans and receivables to customers (net) in relation to deposits from customers.
Miscellaneous assets
The total of hedge accounting derivatives, property and equipment, investment properties, investments in associates and joint ventures associates, current and deferred tax assets, assets held for sale and other assets.
Miscellaneous liabilities
The total of other financial liabilities at fair value through profit or loss, other financial liabilities at amortised cost, hedge accounting derivatives, changes in fair value of portfolio hedged items, provisions, current and deferred tax liabilities, liabilities associated with assets held for sale and other liabilities.
Net interest margin
Net interest income as a percentage of average interest-bearing assets. The average is calculated on the basis of quarterly values.
182
Operating expenses (general administrative expenses)
The total of personnel expenses, other administrative expenses and depreciation and amortisation.
Operating income
Total of net interest income, net fee and commission income, dividend income, net trading result, gains/losses from financial instruments measured at fair value through profit or loss, net result from equity method investments and rental income from investment properties & other operating leases.
Operating result
Operating income less operating expenses.
Own funds
Own funds according to CRR consist of Common equity Tier 1 (CET1), Additional Tier 1 capital (AT1) and the supplementary capital (T2).
Price/earnings ratio
Ratio between closing price of the financial year and earnings per share of the financial year.
Market capitalisation
Total value of a company which results from multiplying the share price by the number of shares outstanding (share capital).
Non-performing exposure (NPE) collateralisation ratio
Collateral for non-performing credit risk exposure as a percentage of non-performing credit risk exposure.
Non-performing exposure (NPE) coverage ratio
Credit risk allowances for credit risk exposure (all allowances in scope of IFRS 9 and provisions for other commitments) as a percentage of non-performing credit risk exposure.
Non-performing exposure (NPE) ratio
Non-performing credit risk exposure as a percentage of total credit risk exposure.
Non-performing loans (NPL) collateralisation ratio
Collateral for non-performing loans and advances to customers as a percentage of non-performing loans and advances to customers.
Non-performing loans (NPL) coverage ratio
Credit risk allowances for loans and advances to customers as a percentage of non-performing loans and advances to customers.
Non-performing loans (NPL) ratio
Non-performing loans and advances to customers as a percentage of total loans and advances to customers.
Return on equity (RoE)
Net profit for the period attributable to owners of the parent, less dividends for Additional Tier 1 capital (AT1) as a percentage of the average equity attributable to the owners of the parent. The average is calculated on the basis of final quarterly figures.
Return on equity excluding intangible assets (ROTE)
Net profit for the period attributable to owners of the parent, less dividends for Additional Tier 1 capital (AT1) as a percentage of average equity attributable to owners of the parent and adjusted for intangible assets. The average is calculated on the basis of quarterly final values.
Risk Appetite Statement (RAS)
The RAS is a strategic document, which concludes the maximum risk an organization is willing to take in order to reach any given target.
Risk categories
Risk categories classify the risk exposures of Erste Group based on the internal ratings of Erste Group. There exist three risk categories for performing risk exposures and one risk category for non-performing risk exposures.
Risk category – 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.
183
Risk category – management attention
Vulnerable non-retail clients, which may have overdue payments or defaults in their credit history or may encounter 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.
Risk category – 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.
Risk category – 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. 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.
Share capital
Total equity attributable to owners of the parent subscribed by the shareholders.
Tax ratio
Taxes on income as a percentage of pre-tax profit from continuing operations.
Texas ratio
Total capital according to IFRS dividends for Additional Tier 1 capital (AT1), and intangible assets plus allowances for loans and advances to customers as a percentage of non-performing loans.
T 1 ratio
Tier 1 as a percentage of the total risk (according to CRR).
Total capital ratio
Total of own funds as a percentage of the total risk (according to CRR).
Total risk (risk-weighted assets, RWA)
Includes credit, market and operational risk (according to CRR).
Total shareholder return
Performance of an investment in Erste Group Bank AG shares within one year including all distributions, such as dividends, as a percentage of the share price at the end of the previous year.
184
ABBREVIATIONS
Austrian Banking Act
AC
Amortised cost
ALCO
Asset Liability Committee
ALM
Asset Liability Management
AMA
Advanced Measurement Approach
AT1
Additional Tier 1
BCR
Banca Comercialǎ Romȃnlǎ S.A.
CEE
Central and Eastern Europe
CET1
Common Equity Tier 1
CGU
Cash-Generating Unit
CLA
Credit Loss Allowance
CMO
Collateralised Mortgage Obligation
CRD
Capital Requirements Directive
CRO
Chief Risk Officer
CRR
Capital Requirements Regulation
CSAS
Česká spořitelna, a.s.
CVA
Credit Value Adjustments
DFR
Deposit Facility Rate
DTA
Deferred Tax Asset
DVA
Debit Value Adjustment
EAD
Exposure At Default
EBA
European Banking Authority
EBC
Erste Bank Croatia
EBH
Erste Bank Hungary Zrt.
EBOe
Erste Bank Oesterreich
ECB
European Central Bank
ECL
Expected Credit Loss
EIR
Effective interest rate
eop
end of period
ERM
Enterprise wide Risk Management
ESG
Environmental Social Governance
ESMA
European Security and Markets Authority
FLI
Forward Looking Information
FVOCI
Fair value through other comprehensive income
FVPL
Fair value through profit or loss
FX
Foreign exchange
GCA
Gross Carrying Amount
GCC
Group Corporate Markets
HFT
Held for trading
IAS
International Accounting Standards
IC
Intercompany
ICAAP
Internal Capital Adequacy Assessment Process
IFRS
International Financial Reporting Standards
LCC
Local Corporate Center
LGD
Loss Given Default
LT PD
Lifetime Probability of Default
MREL
Minimum Requirement for Own Funds and Eligible Liabilities
NCI
Non Controlling Interest
NFR
Non Financial Risk
NPE
Non Performing Exposure
NPL
Non Performing Loans
OCI
Other comprehensive income
O-SII
Other Systemic Important Institution
OTC
Over the Counter
P&L
Profit or loss
P2G
Pillar 2 Guidance
P2R
Pillar 2 Requirement
PD
Probability of Default
POCI
Purchased or originated credit impaired
PSU
Performance Share Unit
RAS
Risk Appetite Statement
RWA
Risk Weighted Assets
SICR
Significant increase in credit risk
SLSP
Slovenská sporiteľňa
Sparkasse Kärnten
Kärntner Sparkasse Aktiengesellschaft
Sparkasse Oberösterreich
Allgemeine Sparkasse Oberösterreich Bankaktiengesellschaft
Sparkasse Steiermark
Steiermärkische Bank und Sparkassen Aktiengesellschaft
SPPI
Solely payments of principal and interest
SREP
Supervisory Review and Evaluation Process
T1
Tier 1
T2
Tier 2
TLTRO
Target Longer-Term Refinancing Operations
UGB
Unternehmensgesetzbuch; Austrian Company Code
VAR
Value at Risk
185
Management Board
Willibald Cernko mp, Chairman
Ingo Bleier mp, Member
Stefan Dörfler mp, Member
Alexandra Habeler-Drabek mp, Member
David O‘Mahony mp, Member
Maurizio Poletto mp, Member
Vienna, 28 February 2023
186
STATEMENT OF ALL MEMBERS OF THE MANAGEMENT BOARD
We confirm that to the best of our knowledge the consolidated financial statements give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Group as required by the applicable accounting standards and that the Group management report gives a true and fair view of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties to which the Group is exposed.
Management Board
Willibald Cernko mp, Chairman
Ingo Bleier mp, Member
Stefan Dörfler mp, Member
Alexandra Habeler-Drabek mp, Member
David O‘Mahony mp, Member
Maurizio Poletto mp, Member
Vienna, 28 February 2023
187
Important addresses
ERSTE GROUP BANK AG
Am Belvedere 1
A 1100 Vienna
Tel: +43 (0) 50100 10100
SWIFT/BIC: GIBAATWGXXX
E-Mail: contact@erstegroup.com
Website: www.erstegroup.com
AUSTRIA
Erste Bank der oesterreichischen Sparkassen AG
(Erste Bank Oesterreich)
Am Belvedere 1
A 1100 Vienna
Tel: +43 (0) 50100 20111
SWIFT/BIC: GIBAATWWXXX
E-Mail: service@s-servicecenter.at
Website: www.erstebank.at
CZECH REPUBLIC
Česká spořitelna, a.s.
Olbrachtova 1929/62
CZ 140 00 Prague 4
Tel: +420 956 777901
SWIFT/BIC: GIBACZPX
E-Mail: csas@csas.cz
Website: www.csas.cz
SLOVAKIA
Slovenská sporiteľňa, a.s.
Tomášikova 48
SK 832 37 Bratislava
Tel: +421 2 582681 11
SWIFT/BIC: GIBASKBX
E-Mail: info@slsp.sk
Website: www.slsp.sk
ROMANIA
Banca Comercială Română S.A.
159 Calea Plevnei, Business Garden Bucharest, Building A
RO 060013 Bucharest 6
Tel: +40 21 4074200
SWIFT/BIC: RNCBROBU
E-Mail: contact.center@bcr.ro
Website: www.bcr.ro
HUNGARY
Erste Bank Hungary Zrt.
Népfürdő u. 24 26
H 1138 Budapest
Tel: +36 12980222
SWIFT/BIC: GIBAHUHB
E-Mail: erste@erstebank.hu
Website: www.erstebank.hu
CROATIA
Erste&Steiermärkische Bank d.d.
(Erste Bank Croatia)
Jadranski trg 3A
HR 51000 Rijeka
Tel: +385 51 365591
SWIFT/BIC: ESBCHR22
E-Mail: erstebank@erstebank.hr
Website: www.erstebank.hr
SERBIA
Erste Bank a.d. Novi Sad
(Erste Bank Serbia)
Bulevar oslobođenja 5
SRB 21000 Novi Sad
Tel: +381 0800 201 201
SWIFT/BIC: GIBARS22XXX
E-Mail: info@erstebank.rs
Website: www.erstebank.rs
188
Your Notes
190
Table of Contents
Erste Group Bank AG...................................................................................................................................................................................185
Financial Statements 2022.........................................................................................................................................................................185
Table of Contents......................................................................................................................................................................................186
I. Balance Sheet of Erste Group Bank AG as of 31 December 2022........................................................................................................188
II. Income Statement of Erste Group Bank AG for the year ended 31 December 2022...........................................................................190
III. Notes to the Financial Statements 2022..............................................................................................................................................191
A. General Information.........................................................................................................................................................................191
B. Notes on accounting and measurement methods..............................................................................................................................191
C. Notes on the balance sheet and income statement............................................................................................................................198
1.Maturity structure of loans and advances as well as liabilities to credit institutions and customers (by residual time to maturity)................................................................................................................................................................................198
2.Debt securities due within one year.......................................................................................................................................198
3.Assets and liabilities in foreign currencies............................................................................................................................198
4.Loans and advances as well as liabilities to affiliated companies and companies in which participating interests are held199
5.Subordinated assets...............................................................................................................................................................199
6.Fiduciary business.................................................................................................................................................................199
7.Securities...............................................................................................................................................................................199
8.Trading Book.........................................................................................................................................................................200
9.Participating interests and shares in affiliated companies.....................................................................................................201
10.Fixed assets............................................................................................................................................................................202
11.Other assets............................................................................................................................................................................204
12.Accrued and deferred items...................................................................................................................................................204
13.Deferred tax assets.................................................................................................................................................................204
14.Securitised liabilities.............................................................................................................................................................204
15.Other liabilities......................................................................................................................................................................205
16.Provisions..............................................................................................................................................................................205
17.Subordinated liabilities..........................................................................................................................................................205
18.Tier 2 capital pursuant to Part 2 Title I Chapter 4 of Regulation (EU) No 575/2013...........................................................206
19.Additional core capital..........................................................................................................................................................206
20.Subscribed capital..................................................................................................................................................................206
21.Authorised and conditional capital as of 31 December 2022................................................................................................206
22.Major shareholders................................................................................................................................................................207
23.Reserves.................................................................................................................................................................................207
24.Resolution Fund, deposit guarantee fund, IPS fund..............................................................................................................208
25.Own funds and capital requirement.......................................................................................................................................210
26.List of assets pledged as collateral for liabilities (acc. to section 64 [1] no. 8 Austrian Banking Act).................................211
27.Total volume of unsettled derivatives...................................................................................................................................211
28.Derivative financial instruments and fixed-asset financial instruments................................................................................214
29.Market value for securities in inactive markets.....................................................................................................................216
30.Reclassification in securities positions..................................................................................................................................217
31.Hedging transactions.............................................................................................................................................................217
32.Consideration of CVA/DVA in derivative valuation............................................................................................................217
33.Risk provisions......................................................................................................................................................................218
34.Contingent liabilities.............................................................................................................................................................218
35.Credit Risk.............................................................................................................................................................................218
36.Gross income – regional breakdown.....................................................................................................................................218
37.Net interest income................................................................................................................................................................218
38.Income from participating interests and shares in affiliated companies...............................................................................219
39.Other operating income.........................................................................................................................................................219
40.Personnel expenses................................................................................................................................................................219
41.Other administrative expenses...............................................................................................................................................219
42.Other operating expenses......................................................................................................................................................219
43.Value adjustments as well as results from purchases and sales in respect of participating interests and shares in affiliated Companies.............................................................................................................................................................................220
191
44.Taxes on profit and loss.........................................................................................................................................................220
45.Other taxes.............................................................................................................................................................................220
46.Branches on a consolidated basis..........................................................................................................................................220
47.Return on assets.....................................................................................................................................................................221
48.Events after balance sheet date..............................................................................................................................................221
D. Information on board members and employees...............................................................................................................................222
E. Appropriation of profit......................................................................................................................................................................225
F. Management bodies of Erste Group Bank AG as of 31 December 2022.........................................................................................225
IV. Management Report............................................................................................................................................................................228
Economic environment and business development...............................................................................................................................228
Risk Management..................................................................................................................................................................................232
Research and Development...................................................................................................................................................................235
Holdings, purchase and sale of own shares...........................................................................................................................................238
Claim pursuant to section 243B commercial code (UGB)....................................................................................................................241
Events after balance sheet date..............................................................................................................................................................241
Glossary..............................................................................................................................................................................................242
V. Auditors’ Report...................................................................................................................................................................................244
VI. Statements of all members of the management board........................................................................................................................249
192
I. Balance Sheet of Erste Group Bank AG as of 31 December 2022
Dec 22
Dec 21
Assets
1. Cash in hand, balances with central banks
16,992,966,763.64
18,859,482
2. Treasury bills and other bills eligible for refinancing with central banks
6,317,150,081.10
5,405,455
a) treasury bills and similar securities
6,317,150,081.10
5,405,455
b) other bills eligible for refinancing with central banks
0.00
0
3. Loans and advances to credit institutions
27,162,034,332.32
22,928,850
a) repayable on demand
2,835,433,087.49
1,250,790
b) other loans and advances
24,326,601,244.83
21,678,060
4. Loans and advances to customers
23,145,479,142.13
19,075,169
5. Debt securities and other fixed-income securities
9,065,584,083.18
4,810,130
a) issued by public bodies
1,507,443,346.11
750,281
b) issued by other borrowers
7,558,140,737.07
4,059,848
of which: own debt securities
4,049,825,159.81
1,587,532
6. Shares and other variable-yield securities
1,298,073,669.84
1,185,302
7. Participating interests
112,043,128.08
130,696
of which: in credit institutions
30,511,590.50
49,336
8. Shares in affiliated companies
8,322,655,065.48
8,454,525
of which: in credit institutions
7,568,546,630.47
7,681,807
9. Intangible fixed assets
23,420,887.95
22,612
10. Tangible fixed assets
174,193,095.90
141,214
of which: land and buildings used by the credit institution for its own business operations
3,575,088.00
4,193
11. Shares in a controlling company
0.00
0
of which: par value
0.00
0
12. Other assets
4,320,352,130.93
3,267,535
13. Subscribed capital called but not paid
0.00
0
14. Prepayments and accrued income
104,752,709.70
107,116
15. Deferred tax assets
281,177,067.03
238,463
Total assets
97,319,882,157.28
84,626,549
Off-balance sheet items
1. Foreign assets
53,716,205,152.44
45,732,039
193
Dec 22
Dec 21
Liabilities and equity
1. Liabilities to credit institutions
38,149,231,804.67
35,907,602
a) repayable on demand
5,531,787,199.98
5,281,583
b) with agreed maturity dates or periods of notice
32,617,444,604.69
30,626,019
2. Liabilities to customers (non-banks)
10,936,770,977.93
7,806,405
a) savings deposits
0.00
0
aa) repayable on demand
0.00
0
bb) with agreed maturity dates or periods of notice
0.00
0
b) other liabilities
10,936,770,977.93
7,806,405
aa) repayable on demand
4,270,164,109.51
4,897,317
bb) with agreed maturity dates or periods of notice
6,666,606,868.42
2,909,088
3. Securitised liabilities
26,480,945,348.15
20,197,388
a) debt securities issued
25,286,096,956.38
18,935,466
b) other securitised liabilities
1,194,848,391.77
1,261,922
4. Other liabilities
4,410,028,054.91
3,584,143
5. Accruals and deferred income
238,882,747.99
230,373
6. Provisions
497,656,270.58
581,014
a) provisions for severance payments
0.00
0
b) provisions for pensions
244,579,060.09
288,400
c) provisions for taxes
33,223,576.31
65,810
d) other
219,853,634.18
226,805
6a. Special fund for general banking risks
0.00
0
7. Tier 2 capital pursuant to Part 2 Title I Chapter 4 of Regulation (EU) No 575/2013
4,079,018,914.32
4,692,446
8. Additional Tier 1 capital pursuant to Part 2 Title I Chapter 3 of Regulation (EU) No 575/2013
2,272,788,135.50
2,272,771
of which: Compulsory convertible bonds pursuant to § 26 Austrian Banking Act (BWG)
0.00
0
8b Instruments without a vote pursuant to § 26a Austrian Banking Act (BWG)
0.00
0
9. Subscribed capital
859,600,000.00
859,600
10. Capital reserves
1,628,111,165.08
1,628,111
a) committed
1,628,111,165.08
1,628,111
b) uncommitted
0.00
0
10a. Reserves for share-based payments
4,956,005.47
3,196
11. Retained earnings
6,093,973,645.22
5,324,521
a) statutory reserve
1,537,900,000.00
1,537,900
b) reserves provided for by the articles
0.00
0
c) other reserves
4,205,355,284.17
3,485,741
d) other restricted reserves
350,718,361.05
300,880
13. Net profit or loss for the year
816,620,000.00
687,680
14. Investment grants
299,087.46
299
Total Liabilities and equity
97,319,882,157.28
84,626,549
Off-balance sheet items
1. Contingent liabilities of which
5,442,226,544.14
4,455,783
a) acceptances and endorsements
0.00
0
b) guarantees and assets pledged as collateral security
5,052,020,813.26
4,116,054
c) credit derivatives
390,205,730.88
339,729
2. Commitments
14,104,101,661.47
11,676,641
of which: commitments arising from repurchase agreements
0.00
0
3. Liabilities arising out of fiduciary activities
157,366.35
175
4. Own funds pursuant to Part 2 of Regulation (EU) No 575/2013
13,980,554,106.14
13,552,266
of which: Tier 2 capital pursuant to Part 2 Title I Chapter 4 of Regulation (EU) No 575/2013
2,806,729,248.68
3,106,481
5. Own funds requirements pursuant to Art 92 of Regulation (EU) No 575/2013 of which: capital required pursuant to Art 92 (1) of Regulation (EU) No 575/2013
39,431,425,899.45
34,553,589
a) Common Equity Tier 1 capital ratio
22.67%
23.66%
b) Tier 1 capital ratio
28.34%
30.23%
c) Total capital ratio
35.46%
39.22%
6. Foreign liabilities
15,467,340,752.52
10,205,774
194
II. Income Statement of Erste Group Bank AG for the year ended 31 December 2022
1-12 22
1-12 21
1. Interest and similar income
4,928,069,137.64
2,044,309
of which: from fixed-income securities
411,700,858.16
205,615
2. Interest and similar expenses
-4,445,326,135.58
-1,758,348
I. NET INTEREST INCOME
482,743,002.06
285,960
3. Income from securities and participating interests
1,877,997,559.07
703,511
a) income from shares, other ownership interests and variable-yield securities
53,339,992.04
63,145
b) income from participating interests
6,976,043.52
7,632
c) income from shares in affiliated companies
1,817,681,523.51
632,733
4. Commissions income
204,731,074.34
194,183
5. Commissions expenses
-144,176,410.17
-138,302
6. Net profit or loss on financial operations
-112,730,322.58
14,165
7. Other operating income
133,401,283.00
89,919
II. OPERATING INCOME
2,441,966,185.72
1,149,435
8. General administrative expenses
-545,268,202.58
-536,126
a) staff costs
-264,305,776.76
-266,965
aa) wages and salaries
-205,609,044.00
-215,483
bb) expenses for statutory social security contributions and compulsory contributions related to wages and salaries
-42,570,751.12
-43,554
cc) other social expenses
-2,243,609.55
-1,903
dd) expenses for pensions and assistance
-9,948,762.73
-6,560
ee) release / allocation to the provision of pensions
0.00
3,547
ff) expenses for severance payments and contributions to severance and retirement funds
-3,933,609.36
-3,011
b) other administrative expenses
-280,962,425.82
-269,161
9. Value adjustments in respect of assets items 9 and 10
-8,693,348.09
-10,421
10. Other operating expenses
-78,396,031.17
-31,755
III. OPERATING EXPENSES
-632,357,581.84
-578,302
IV. OPERATING RESULT
1,809,608,603.88
571,134
11./12. Income/expenses from value adjustments of loans and advances as well as individual provisions for liabilities and credit risks
-72,217,652.85
821
13./14. Income/expenses from value adjustments of transferable securities held as financial fixed assets, participating interests and shares in affiliated companies
-274,413,563.77
994,122
V. PROFIT ON ORDINARY ACTIVITIES
1,462,977,387.26
1,566,077
15. Extraordinary income
4,825,116.60
15,577
of which: withdrawals from the special fund for general banking risks
0.00
0
16. Extraordinary expenses
0.00
0
of which: allocation to the special fund for general banking risks
0.00
0
17. Extraordinary result (sub-total of items 15 and 16)
4,825,116.60
15,577
18. Tax on profit or loss
145,686,880.67
202,068
19. Other taxes not reported under item 18
-22,316,027.83
-1,400
VI. PROFIT FOR THE YEAR AFTER TAX
1,591,173,356.70
1,782,322
20. Changes in reserves
-774,553,356.70
-1,094,642
of which: allocation to liability reserve pursuant to section 23 -6 of the Austrian Banking Act (BWG)
0.00
0
of which: reversal of liability reserve pursuant to section 23 -6 of the Austrian Banking Act (BWG)
0.00
0
VII. PROFIT FOR THE YEAR AFTER DISTRIBUTION ON CAPITAL
816,620,000.00
687,680
21. Profit brought forward from previous year
0.00
0
22. Profit transferred on the basis of profit transfer agreement
0.00
0
VIII. PROFIT FOR THE YEAR
816,620,000.00
687,680
195
III. Notes to the Financial Statements 2022
Erste Group Bank AG is listed on the Vienna Stock Exchange. It is also quoted on the Prague Stock Exchange and on the Bucharest Stock Exchange. Erste Group Bank AG is registered in the company register at the Commercial Court of Vienna under FN 33209m. The address of its registered office is: Am Belvedere 1, 1100 Vienna, Austria.
The 2022 financial statements of Erste Group Bank AG have been prepared in accordance with the regulations of the Commercial Code (Unternehmensgesetzbuch, UGB) and in conjunction with the applicable provisions of the Austrian Banking Act (Bankwesengesetz, BWG).
Pursuant to section 59a Austrian Banking Act (BWG), Erste Group Bank AG has prepared the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) on the same balance sheet date. The Erste Group consolidated financial statements have been filed with the commercial register at the Commercial Court of Vienna.
Erste Group Bank AG forms together with the Austrian savings banks a cross-guarantee scheme (Haftungsverbund) in accordance with article 4 (1) Z 127 CRR as well as an institutional protection scheme (IPS) approved by the supervisory authority pursuant to article 113(7) CRR, whereby the contributions of the members, in case of the triggered event, are subject to an individual and general cap. The applicable amounts are determined by the cross-guarantee steering company that notifies the contributing members.
The contributions of the IPS members in the IPS ex-ante fund, that is set up for support measures, are recognised in the balance sheet as a participating interest in IPS GesbR, which manages this ex-ante fund, and are accounted for as retained earnings. Due to the contractual terms, these retained earnings represent a blocked reserve. This reserve can be utilised only in case of a claim by ex-ante fund and therefore cannot be used internally to cover losses. It qualifies as capital according to the CRR only on a consolidated level, but not on the single entity level. Further explanations can be found in chapter C 24 Resolution Fund, deposit guarantee fund, IPS fund.
Furthermore, Erste Group Bank AG is the central institution for the associated Austrian savings banks, and together they form a liquidity compound pursuant to section 27a Austrian Banking Act (BWG). Where necessary, Erste Group Bank AG must supply liquidity to an associated savings bank in accordance with the legal and contractual provisions.
Ongoing legal cases
Erste Group Bank AG is party to lawsuits that mostly relate to ordinary banking business. The outcome of these proceedings is not expected to have a significant negative impact on the financial position and profitability of Erste Group Bank AG. Erste Group Bank AG is currently involved in the following legal case:
Lawsuit filed by minority shareholders in Česká Spořitelna a.s.:
Following the completion of a squeeze-out procedure in Česká Spořitelna a.s. resulting in Erste Group Bank AG becoming the sole shareholder of Česká Spořitelna a.s., some former minority shareholders of Česká Spořitelna a.s. filed a lawsuit with the courts in Prague. Proceedings against Česká Spořitelna a.s regarding the annulment of the squeezeout resolution of the general assembly of Česká Spořitelna a.s. was legally decided in favor of Česká Spořitelna a.s. in summer 2022. In the proceedings against Erste Group Bank AG, the plaintiffs allege in essence that the share price of CZK 1,328.00 (at that time around EUR 51.00) paid by Erste Group Bank AG in the squeeze-out procedure was unfair and too low and should be increased. If the courts were to decide there ought to be an increase, this would affect all minority shareholders squeezed out. In the squeeze-out performed in 2018, Erste Group Bank AG acquired 1.03% of minority shares for a total amount of EUR 80,327,547.67. Erste Group Bank AG considers the purchase price determined by an external valuation expert as correct and fair.
Disclosure
Erste Group Bank fulfills the publishing disclosure requirements according to Part 8 of the regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms (Capital Requirements Regulation – CRR) published on the Internet. Details are available on the website of Erste Group at www.erstegroup.com/ir. The consolidated capital as well as consolidated capital requirements are published in Erste Group’s consolidated financial statements. Further disclosures can be found in the Erste Group annual report in the section ‘reports’ or they are published as separate documents in the section ‘regulatory disclosure’.
Large enterprise according to section 221 Commercial Code (UGB)
Pursuant to section 221 (3) Commercial Code (UGB) in connection with section 189a Commercial Code (UGB), Erste Group Bank AG is the subject to the legal regulations for large companies for the financial year ending 31 December 2022.
196
Generally accepted accounting principles
The financial statements were prepared in accordance with the generally accepted accounting principles and according to the standard principle that the financial statements should provide a fair and accurate view of the company's financial position, income and expenses. In the preparation of the financial statements, the principle of completeness was applied. The principle of individual measurement was applied in assessing the company’s assets and liabilities, and the assumption was that the company would continue to operate (going concern). In applying the principle of prudence, the particularities of the banking business were considered.
Receivables and liabilities in foreign currencies were measured at the ECB reference rates applicable at the balance sheet date. The currencies for which ECB did not publish a reference rate were recognised at the mid-rate published by Erste Group Bank AG applicable at the balance sheet date. Foreign exchange forward transactions and foreign exchange swaps were priced at the forward exchange rate.
The valuation approach for participating interests and shares in affiliated companies is the modified lower of cost or market principle.
The fair value is determined based on expert assessments of the corporate value and recent transactions or market values. In general, the value is determined using a discounted cash-flow model (DCF model), which incorporates the specifics of the banking business and its regulatory environment. For this purpose, Erste Group Bank AG performs an annual impairment test at the balance sheet date, although an impairment test is also carried out during the year if evidence exists that might indicate depreciation. Methodologically, this is carried out following International Accounting Standards (IAS) 36.
The estimation of future earnings distributable to shareholders is based on financial plans (budgets) as agreed by the management of the subsidiaries while considering the fulfillment of the respective regulatory capital requirements. The corporate value determination is based on different budget scenarios to reflect the uncertainty about the future macroeconomic development and the development of the risk costs. The base scenario uses the approved budgets. The downside scenario takes a more conservative view of the macroeconomic data. The scenarios are weighted with their expected probability of occurrence.
Any forecast beyond the planning period is derived based on the last year of the planning period and a long-term growth rate (perpetual annuity). If the implicit return on equity is higher than the equity capital costs at the end of the planning period, the return on equity for the perpetuities is aligned with the equity capital costs. The present value of perpetual earnings growing at a stable rate (referred to as terminal value) takes macroeconomic parameters estimates and economically sustainable cash flows into consideration.
The interest rate used for calculation was determined based on the CAPM (Capital Asset Pricing Model). Key input factors include:
_A risk-free interest rate (Source: Svensson yield curve method for 30-year German government bonds)
_Market risk premium
_Beta factor
_Weighted country risk premium (Source: Damodaran).
Dividend earnings from participating interests and shares in affiliated companies are reported according to the resolution on dividend pay-outs and shown in the profit and loss category 3 Income from securities and participating interests.
Credit loans and advances to credit institutions and customers were measured in accordance with the provisions set out in the provision paper by the AFRAC (Austrian Financial Reporting and Auditing Committee) of 14 June 2021 using the effective interest rate method. Default risks, which were recognised at the balance sheet date, were covered by loan loss provisions. Write-ups from the release of loan loss provisions were carried out. Methodologically, the calculation of loan loss provisions is conducted using the IFRS 9 impairment models set out in the Commercial Code (UGB).
Securities
Securities are valued according to their classification either as trading assets, current assets, fixed assets, or receivables and similar financial instruments (Forderungen und forderungsähnliche Finanzinstrumente (FFI)). FFI are debt instruments which are intended to be kept until their maturity and for which the value is not potentially affected by risk and income structures that differ significantly from the instrument’s default risks.
_trading assets at market value, even above the acquisition cost
_current assets at amortised cost or at the market price if lower. If the market price cannot be determined, they are valued according to the acquisition cost or fair value if lower. Repurchased own listed bonds (retained covered bonds) are valued at the redemption amount.
_securities, which are FFI, are valued at amortised cost less impairment for default risks. Only securities held as fixed assets are FFI.
_debt instruments held as fixed assets, that are not FFI, are written down to the lower fair value when the permanent impairment can be presumed („ the moderated lower of cost or market principle “). Other securities held as fixed assets are valued at the lower of amortized cost or fair value („ the strict lower of cost or market principle “). Securities in the asset class 6 are valued according to the strict lower of cost or market principle without exception.
197
The allocation of securities to trading assets, current assets or fixed assets and the determination of the intention to hold them until maturity is done in accordance with the organisational policies adopted by the management board. The fair value is the price that can be achieved by selling or buying a financial instrument in an active market. Market prices are used for the assets’ valuation where available. The valuation methods, especially the present value method, are used for assets without market prices.
Amortized cost and Effective Interest Rate Method
The amortised cost of financial assets is the amount at which the asset is measured at the initial recognition minus redemptions, plus or minus the cumulated amortisation between the original amount and the amount redeemable at maturity using the effective interest rate method. In the lending business, fees, and commission similar in nature to interest as well as changes in estimates are amortised on a pro rata basis using the effective interest method.
The effective interest rate is the interest rate that discounts the estimated future cash flows over the expected life of the asset or liability to the amortized cost. The estimated cash flows take into consideration all contract conditions. The expected credit losses, however, are not considered. Furthermore, the calculation includes transaction costs and handling fees, if these are distributable, as well as all other premiums or discounts.
Pursuant to section 56 (2) and (3) Austrian Banking Act (BWG) in connection with section 198 (7) Commercial Code (UGB), the difference between acquisition cost and redemption amount for fixed-income securities with the characteristics of the financial investments as well as for securitised liabilities is amortised on a pro rata basis. The distribution of the difference takes place in line with AFRAC statement 14 “Accounting of non-derivative financial instruments” according to the effective interest rate method either until the call date, or until the redemption date.
Lending business
Interest-related fees and commissions, as well as changes in estimates in the lending business, are amortized on a pro rata basis using the effective interest method.
Should the nominal interest rate change during the life of a variable interest rate loan and this change is not due to contractual modification, the changes to the contractual future cash flows are taken into consideration by recalculating the effective interest rate. Any caps and floors agreed on the nominal interest rate are also considered.
If the expected contractual future cash flows of a loan change during the contract term and the change is neither due to contractual modification nor to an adjustment to the nominal interest rate, nor to a deterioration in creditworthiness, the amortised cost of the asset is adjusted by a changed estimate. This changed estimate corresponds to the difference between the amortised cost before the change in the expected cash flows and the present value of the newly expected contractual cash flows discounted by the original effective interest rate. The changed estimate is reflected in the interest income in the profit and loss statement.
Market-based adjustments to interest conditions, which fulfil specific conditions, are considered by recalculating the effective interest rate. Such changes to the interest conditions usually concern loans, which have no forbearance status and for which there is a prepayment option and a sufficiently competitive refinancing market. Moreover, the costs, which are incurred by the debtor in the case of prepayment or early termination, must be low.
A contractual modification occurs if a contract is modified in a way that was not specified in the contract. Contractual modifications are mainly made in the lending business. These contractual modifications are split into significant and non-significant modifications, depending on qualitative and quantitative aspects.
A contractual modification is significant if, following qualitative and quantitative assessment, there is a significant change which adjusts the asset’s economic substance significantly. A contractual modification can be classified as significant for performing loans if it leads to a borrower change, a currency conversion (if this was not stipulated in the contract), certain changes to the interest clause, a change in present value, or a change to the weighted residual maturity of a certain magnitude. Significant contractual modifications lead to the derecognition of the original financial asset and to the initial recognition of a new financial asset in accordance with the contractual modifications. If the debtor has defaulted or the significant contractual modification leads to a default, the new asset is treated as a defaulted asset. The difference between the carrying value of the derecognised asset and the fair value of the new asset is initially recognised in profit and loss category 11 or 12.
If the debtor has not defaulted and the significant contractual modification does not lead to default, the new asset is classified in stage 1 following the derecognition of the original asset. Stage 1 includes financial assets at initial recognition (provided they are not already impaired at the time of acquisition) and financial assets that, regardless of their credit rating, have not shown a significant increase in credit risk since initial recognition. The non-amortised amount of handling fees/transaction costs, which were reflected in the effective interest rate, is booked at the time of derecognition in the interest result. The reversal of impairments, which were recorded for the original asset
198
until the contract has been significantly modified, as well as the booking of impairments for the new asset are shown in profit and loss category 11 or 12. The remaining difference between the old book value following the release of the amortized handling fees and transaction costs and the fair value of the new asset is shown in other operating income or expenses (profit and loss category 7 or 10).
A contractual adjustment is non-significant if, following qualitative and quantitative assessment, there is no significant change and the asset’s economic substance is only insignificantly adjusted. Non-significant contractual modifications are accounted for according to general corporate law principles.
Impairments for default risks are recognised for receivables and similar financial instruments. Impairments for default risks are particularly recognised for credit claims, certain securities held as fixed assets, and off-balance sheet credit risks from financial guarantees and certain loan commitments.
For credit claims, the book value of the asset recorded in the balance sheet corresponds to the difference between the amortised cost and the cumulated impairment. Impairment for loan commitments and financial guarantees are reported in the balance sheet item “Other provisions”. In the profit and loss statement, impairment losses and income are recorded in profit and loss category 11/12 or 13/14 for all assets in accordance with section 53 Austrian Banking Act (BWG).
The calculation of impairment is carried out by using the IFRS 9 model in the Commercial Code (UGB) in accordance with AFRAC statement 14 (June 2021). The impairment model is based on expected credit loss and considers the “statistically determined empirical values from similar facts and circumstances” in Section 201 (2) Z 7 Commercial Code (UGB), which are also necessary for the valuation of expected credit loss in the Commercial Code (UGB).
Expected credit loss (ECL) reflects the following:
_an unbiased probability-weighted amount, which is determined by a series of possible scenarios,
_the time value of money, and
_plausible and comprehensible information about past events and current conditions, as well as prognoses about future economic developments.
Three Stage Model
An impairment model based upon a three-stage approach is used for the calculation of the risk provisions:
_Stage 1 includes financial assets at initial recognition (provided they are not already impaired at the time of acquisition) and financial assets that, regardless of their credit rating, have not shown a significant increase in credit risk since initial recognition.
_Stage 2 includes financial assets which have shown a significant increase in credit risk since initial recognition, however for which there is not yet any impairment at the time of report. Stage 2 also includes non-impaired assets, which credit risk could not be assessed at the time of acquisition due to missing data in the framework of the IFRS 9 transition. There exist specific rules for the classification of initial utilisation of the approved credit lines. Dependent on the development of credit risk between approval and initial utilisation, the loan is classified at stage 1 or stage 2.
_Stage 3 includes financial assets that are impaired on the reporting date. A financial asset is principally impaired if the customer defaults.
Across the Erste Group, the definition used for loan default is based on European Banking Authority requirements in EBA/GL/2016/07 “Guidelines on the application of the definition of default under Article 178 of Regulation (EU) number 575/2013” and “Commission Delegated Regulation (EU) 2018/171 of 19 October 2017 on supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards for the materiality threshold for credit obligations past due.” The definition lays out the rules for “default contagion” in groups of connected customers and establishes the concept of technical overdue. When applying the definition of default, Erste Group generally takes an overall customer view, which leads to an impairment of all receivables, even if the default occurs in only one of several transactions (pulling effect). On the other hand, an upgrade from the default status results in the loss of the impaired creditworthiness for all risk positions.
In stage 1 risk provisions are calculated based on the expected credit losses over 12 months. In stages 2 and 3 risk provisions are calculated based on the lifetime expected credit losses.
Significant Increase in Credit Risk
Concerning the modelling of the expected credit losses (ECL) and the calculation of the risk provisions for credit risks resulting therefrom, the identification of a significant increase in credit risk (SICR) since the recognition of the credit claim is one of the substantial determinants for the expected impact. For this purpose, quantitative and qualitative indicators for the estimation of a SICR are defined for all portfolios and product types, including receivables overdue by more than 30 days.
Quantitative indicators include adverse changes in the probability of default (PD) over the lifetime, whereby the significant increase is determined by means of a combination of relative and absolute change threshold levels. Generally, the indicators for the PD are defined to
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represent the risk in consideration of forward-looking information (FLI) as a point-in-time measurement. The PD threshold levels are defined for customer segments or (individual) customer rating and are subject to continuous validation.
Qualitative indicators for calculating a SICR include forbearance measures and the transfer of the customer to the workout department as well as early warning indicators (if these are not already sufficiently considered in the rating) and indications of fraud. The setting of qualitative indicators is based inherently on the expert evaluation of credit risks, which is to be carried out in an appropriate and timely manner. The group-wide and institution-specific guidelines and processes concerning this ensure the required governance framework. Besides the qualitative determinants on a customer level, the calculation of a SICR is carried out at portfolio level if the increase to the credit risk on a business or customer level occurs only after some delay or if the increase is only noticeable at portfolio level. Due to the war in Ukraine and Covid-19 pandemic and the resulting economic impacts, additional criteria were introduced for the determination of a significant increase in the credit risk on a portfolio level. Please see the explanations further down in the chapter titled “War in Ukraine and Energy Crisis”.
Calculation of Risk Provisions
The calculation of risk provisions for defaulted customers is generally carried out on an individual level. The individual method is used for significantly defaulted customers and comprises an individual definition of those restructuring or liquidation scenarios deemed currently possible, their probability of occurrence, and the expected recoveries per scenario (amortisations and collateral proceeds) by the workout risk manager. The present value is determined by discounting the expected cash flows using the original effective interest rate. The required risk provision is the difference between the gross carrying amount and the present value of the expected cash flows in a scenario, that is the probability weighted calculation of all scenarios. A customer is classified as significant if the total receivables and off-balance sheet items are above a certain materiality threshold.
Otherwise, the customer is classified as “insignificant”, whereby a rule-based approach is applied for the calculation of the individual risk provision. Statistically calculated risk parameters are used for the expected loss calculation of a customer classed as “insignificant”, depending on the length of recovery and the status of the restructuring and workout process, the potential restructuring and settlement scenarios, their probability of occurrence, and the associated expected returns. The risk provisions are calculated by taking the gross carrying amount, minus the cash-flows discounted by the effective interest rate per scenario, calculated over all probability weighted scenarios.
The calculation of risk provisions for receivables for not defaulted customers follows a rule-based approach. The credit risk parameters used in the calculation include the gross carrying amount at default, the probability of default (PD), the loss given default (LGD), and the conversion factor (CCF) for off-balance sheet items. When determining the loss given default, the result of discounting future cash flows to the present value is considered. For the calculation of rule-based risk provisions, the applicable risk positions are grouped into homogeneous clusters based upon common risk characteristics. The criteria for this grouping can be different depending on the customer segment (private customers, corporate customers) and include type of product, type of security, type of repayment, loan-to-value ratios, or rating classes.
The risk parameters applied in the calculation of the expected credit loss consider both the information available on past events and current conditions on the reporting date, as well as future-related information in the form of forecasts concerning future economic developments. Depending on the characteristics of each portfolio and in consideration of the IFRS rules, the risk parameters which are used in the calculation of the rule-based risk provisions can differ from the risk parameters used to calculate the capital requirements.
War in Ukraine and Energy Crisis
Due to the uncertainty caused by the war in Ukraine and the energy crisis, Erste Group applied at the end of December 2022, in addition to the standard assessment of forward-looking information, a collective assessment of the significant increase in credit risk (stage overlays), i.e., the shift to stage 2 based on predefined portfolio characteristics. This procedure was coordinated with all affected subsidiaries and business areas and approved by the respective management bodies of Erste Group. Exemptions from the collective assessment of significant increase in credit risk were required when anomalies were identified and properly documented as to why they behaved differently from the rest of the portfolio.
Up until the fourth quarter of 2022, Erste Group also had stage overrides in place for the Covid-19 pandemic. The improvement in the situation over the course of 2022 allowed the termination of the Covid-19 related stage overrides.
The war between Ukraine and Russia compounded the challenges posed by a rally in energy prices on the one hand and supply chain disruptions on the other. The energy price development had an impact on different sectors, especially those with energy-intensive production processes, but also on those with high fuel cost shares. Therefore, rules for stage overlays due to the war in Ukraine (Ukraine War Overlays) were introduced as a combination of cyclical sectors and one-year default probabilities under IFRS.
Due to the current turmoil in the energy market affecting the availability and prices of gas and other forms of energy, Erste Group introduced in September 2022 a collective stage assessment for energy dependency in addition to the cyclical sectors. Two-fold effects were identified: Consequences of gas rationing and gas shortages for customers either due to energy-intensive production processes or due to the dependence on gas as the primary input in their business processes. The vulnerability is caused by gas dependency, (limited) substitution opportunities
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and the impact of substitution on financial, hedging and pricing mechanisms. In the raw materials sector, the metal and chemical sub-sectors were identified as being most affected. All companies in the energy sector, the entire industry, can potentially be affected by the massive congestion and distortions in the current energy market: price volatility, margin calls, price caps, weaknesses in the European energy infrastructure, fixed purchase agreements (which endanger customers if they are terminated, and / or prevent renewable energy producers from benefiting from the higher prices), etc. All customers belonging to these industries/sub-industries have been moved to Stage 2. However, certain business models in the energy sector are more likely to benefit from the current situation and therefore do not fit the general portfolio characteristics (due to the broad definition of the energy sector). Such entities are excluded in accordance with the requirements of IFRS 9 B.5.5.5.
Intangible and tangible assets were measured at purchase or production cost less depreciation and impairment. Straight-line depreciation has been applied. The useful life is 25 to 50 years for buildings, 4 to 20 years for business and office equipment and 4 to 15 years for intangible assets. Low-value assets were fully written off in the year of acquisition.
Liabilities
Liabilities were recognised in the balance sheet at their settlement values.
Issuing costs for securities were expensed immediately; premiums and discounts on issued securities were amortised on a pro rata basis using the effective interest rate method.
Provisions
Defined benefit plan
Defined benefit plans of Erste Group Bank AG comprise provisions for pension, severance and jubilee benefits. In Austria, defined pension plans now only apply to retired employees. The pension obligations for active employees were transferred to VBV-Betriebliche Altersvorsorge AG in the previous years. Remaining with Erste Group Bank AG is a defined-benefit obligation for entitlements of former employees who had already retired by 31 December 1998 before the pension reform took effect, and for those former employees who did not retire until 1999 but continued to be entitled to a direct pension from Erste Group Bank AG under individual agreements. Entitlements to resulting survivor pensions also remained with the Erste Group Bank AG. Severance entitlements continue to be applicable for employees whose employment contract with Erste Group Bank AG commenced prior to 1 January 2003. Severance pay is a one-off payment which employees are entitled to when their employment is terminated. Entitlement to this severance pay arises after three years of employment. Defined benefit plans include jubilee benefits. The amount of jubilee benefits (payments for long-term service/loyalty to the company) is determined by the length of employment with the employer. The entitlement to jubilee benefits is established by a collective agreement, which defines both the conditions and amount of the entitlement.
Obligations under defined benefit plans for employees are determined using the projected unit credit method. Future obligations are determined based on actuarial reports. The calculation takes into account not only the known salaries, pensions and entitlements to future pension payments but also expected salary and pension increases.
The interest rate applied for the calculation of long-term personnel provisions is derived from the current interest rate of a portfolio of high-quality (AA-rating) corporate bonds. For this purpose, the weighted average of the yield of the underlying portfolio is determined with a corresponding duration.
Tax provisions and other provisions
Unless the amounts were small, provisions were set aside on the best estimate basis. Tax provisions and other provisions with a term of more than a year were discounted at a market interest rate of corporate bonds with an AA rating. Depending on the applicable remaining duration, interest rates between 0.0% and 3.82% were applied.
Separable trust assets were declared off-balance sheet in accordance with section 48 (1) Austrian Banking Act (BWG).
Derivatives in a hedge relationship under AFRAC-statement 15 (December 2020) are treated as a valuation unit, thus the fair value neither of the derivative nor of the hedged item is part of the balance sheet. Derivatives in the Banking Book, which are not in a hedge relationship under AFRAC statement 15 (December 2020) are recognised based on the imparity principle in profit and loss as provisions for contingent losses with the expected loss exceeding the book value. The interest income/expenses as well as possible financial compensation from the current period are accrued based on the effective interest rate. These are shown in the interest result.
Derivatives in the trading book are shown in the balance sheet for each contract based on mark-to-market valuations.
The fair value is the amount which could be achieved in an active market from the sale of a financial instrument, or the amount which would need to be paid for a purchase. If market rates were available, these were used for valuation. If market rates were not available, valuation
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models, especially the net present value method, were used. Fair values for options were calculated using the recognised option price models. Amongst others, the valuation models include the Black-Scholes model, binomial model, Hull-White model, local volatility model and Vanna-Volga model.
Credit Value Adjustment (CVA) and Debt Value Adjustment (DVA) are used for the calculation of the fair value of derivatives.
Derivatives with the same counterparty and a netting agreement, which comply with the requirements for offsetting (central counterparts), are netted in the balance sheet.
Deferred tax assets are recognised to the extent of convincing substantial evidence that sufficient taxable income will be available in future against which tax-deductible temporary differences and tax losses can be offset. Valuation is carried out using those tax rates (and tax laws), which are already in force on the balance sheet date or have been decided by the National Assembly and are expected to be in force at the time of reversal of the temporary differences. The valuation methods were based on expected results for all larger incorporated companies in the tax group.
The calculation of deferred tax assets of Erste Group Bank AG as group parent of the group of companies, which includes only group members in Austria, was completed in accordance with AFRAC-Statement 30 “Deferred Tax Assets in single and consolidated financial statements” (December 2020).
In repurchase agreements / securities lending transactions, the underlying assets continue to be recognised in the balance sheet. A liability is presented against the pledgee in the amount received for the transfer. In reverse repurchase agreements / securities lending transactions, the assets taken over are not part of the balance sheet. The amount owed by the pledgor is recognised as a receivable in the amount paid for the transfer.
Investment grants
Investment grants, as defined by the law on investment grants (InvPrG), which were mainly capitalised for tangible assets, are recognised, in accordance with the gross method, on the liabilities side of the balance sheet under investment grants and recognised in profit and loss according to the respective useful lives of the subsidised capital assets.
Further to the already mentioned adaptions in other chapters, the following change has been applied.
The ECB has decided in accordance with Article 24 (2) CRR that Erste Group Bank AG shall carry out the valuation of assets and off-balance sheet items and the determination of own funds on an individual basis in accordance with the International Accounting Standards in accordance with Regulation (EC) No. 1606/2002. The off-balance sheet items “Eligible own funds according to Part 2 of Regulation (EU) No. 575/2013” and “Own funds requirements according to Art. 92 of Regulation (EU) No. 575/2013” will be determined for the first time as of December 31, 2022, using values, that would result from preparing separate financial statements in accordance with IAS 27 and IFRS as adopted by the EU. The previous year's figures for these items are determined based on Commercial Code (UGB)/Austrian Banking Act (BWG) values and are therefore only comparable to a limited extent.
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C. NOTES ON THE BALANCE SHEET AND INCOME STATEMENT
Unless otherwise indicated, amounts for the reporting year are stated in Euros, for the previous year in thousand Euros. The tables in this report may contain rounding differences.
72.Maturity structure of loans and advances as well as liabilities to credit institutions and customers (by residual time to maturity)
Dec 22
Dec 21
Loans and advances to credit institutions
27,162,034,332.32
22,928,850
payable on demand
2,835,433,087.49
1,250,790
0-3 months
11,313,110,739.92
11,275,857
3-12 months
4,797,661,182.50
2,344,761
1-5 years
5,388,108,261.45
6,020,203
>5 years
2,827,721,060.96
2,037,239
Loans and advances to customers
23,145,479,142.13
19,075,169
payable on demand
1,139,716,975.03
1,705,268
0-3 months
3,472,306,678.37
1,773,557
3-12 months
2,923,191,586.10
1,856,626
1-5 years
10,439,355,744.23
7,229,918
>5 years
5,170,908,158.40
6,509,801
Liabilities
Dec 22
Dec 21
Liabilities to credit institutions
38,149,231,804.67
35,907,602
payable on demand
5,531,787,199.98
5,281,583
0-3 months
18,284,657,576.72
15,836,800
3-12 months
8,133,783,306.22
1,010,377
1-5 years
5,290,202,490.67
12,296,878
>5 years
908,801,231.08
1,481,964
Liabilities to customers (non-banks)
10,936,770,977.93
7,806,405
Savings deposits
0.00
0
Other Liabilities
10,936,770,977.93
7,806,405
payable on demand
4,270,164,109.51
4,897,317
0-3 months
6,337,631,341.97
2,630,467
3-12 months
140,437,372.93
20,484
1-5 years
61,232,676.52
109,580
>5 years
127,305,477.00
148,557
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75.Loans and advances as well as liabilities to affiliated companies and companies in which participating interests are held
Loans and advances to affiliated companies
Loans and advances to participating interests
in EUR or in EUR thousand
Dec 22
Dec 21
Dec 22
Dec 21
Treasury bills and other bills eligible for refinancing with central banks
0.00
0
0.00
0
Loans and advances to credit institutions
14,929,690,705.51
17,405,050
0.00
0
Loans and advances to customers
575,741,672.00
1,125,514
6,120,796.44
5,229
Debt securities and other fixed-income securities (incl. securitised loans and advances to credit institutions)
281,394,153.29
396,235
0.00
0
Shares and other variable-yield securities
1,068,020,620.45
1,008,260
3,477,574.34
3,517
Liabilities to affiliated companies
Liabilities to participating interests
in EUR or in EUR thousand
Dec 22
Dec 21
Dec 22
Dec 21
Liabilities to credit institutions
21,194,451,683.07
18,594,034
5,799,713.52
1,641
Liabilities to customers (non-banks)
3,048,184,117.77
1,657,880
1,859,794.96
1,153
Securitised liabilities
270,238,684.98
316,367
0.00
0
Tier 2 capital pursuant to Part 2 Title I Chapter 4 of Regulation (EU) No 575/2013
518,093.33
2,073
0.00
0
Business with affiliated companies is conducted at arm’s length.
Dec 22
Dec 21
Loans and advances to credit institutions, thereof
914,000,916.19
499,613
to affiliated companies
908,399,022.84
476,880
to companies with participating interests
0.00
0
Loans and advances to customers, thereof
105,207.62
535
to affiliated companies
0.00
0
to companies with participating interests
23,620.80
113
Shares and other fixed-income securities, thereof
430,793,591.77
166,197
to affiliated companies
4,583,404.19
0
to companies with participating interests
0.00
0
No fiduciary business without the right of disposal was disclosed as of the balance sheet date.
Listed
Not listed
in EUR or in EUR thousand
Dec 22
Dec 21
Dec 22
Dec 21
Shares and other fixed-income securities
9,065,584,083.18
4,810,130
0.00
0
Shares and other variable-yield securities
221,212,596.62
166,877
5,416,004.42
6,612
Participating interests
0.00
0
0.00
0
Shares in affiliated companies
0.00
0
0.00
0
Total
9,286,796,679.81
4,977,007
5,416,004.42
6,612
Fixed assets
Current assets
in EUR or in EUR thousand
Dec 22
Dec 21
Dec 22
Dec 21
Shares and other fixed-income securities
3,922,238,707.30
2,239,591
4,010,465,583.79
1,525,569
Shares and other variable-yield securities
21,032,872.77
52
11,747,011.47
6,610
Total
3,943,271,580.07
2,239,642
4,022,212,595.26
1,532,179
Securities that are listed on a non-regulated market, for example those on the third market of the Vienna Stock Exchange, are considered as approved for trading on the stock market, yet they are not publicly listed.
Allocation pursuant to section 64 (1) no. 11 Austrian Banking Act (BWG) was carried out in accordance with the organisational policies adopted by the management board, with positions being included under fixed assets that are held for strategic purposes of liquidity. As of 31 December 2022, the difference to the redemption value – items A2 to A6 - resulting from the pro rata write-downs pursuant to section 56 (2) Austrian Banking Act (BWG) amounts to EUR 159,906,280.00 (prior year: EUR 180,473 thousand), whereas the difference to the
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redemption value from the pro rata write-ups pursuant to section 56 (3) Austrian Banking Act (BWG) amounts to EUR 92,448,928.14 (prior year: EUR 39,996 thousand).
The carrying amount of assets subject to sale and repurchase agreements amounts to EUR 3,449,865,542.66 on the balance sheet date (prior year: EUR 1,355,889 thousand).
Differences of the securities listed for trade on the stock exchange not held as financial fixed assets
The difference between the booked higher market value on the balance sheet date and the cost of purchase pursuant to section 56 (5) Austrian Banking Act (BWG) amounts to EUR 0.00 (prior year: EUR 1,929 thousand). The right to book the securities at the higher market value pursuant to section 56 (5) Austrian Banking Act (BWG) was no longer exercised as of 31 December 2022.
The difference between the higher market value on the balance sheet date and the booked cost of purchase pursuant to section 56 (4) Austrian Banking Act (BWG) amounts to EUR 282,334.70 (prior year: EUR 0.00 thousand).
Dec 22
Dec 21
Issued by public-sector issuers
1,507,443,346.11
750,281
Own issues
4,049,825,159.81
1,587,532
Bonds - domestic credit institutions
149,320,140.24
39,357
Bonds - foreign credit institutions
2,108,243,338.21
1,409,247
Mortgage and municipal securities
1,074,534,108.31
872,190
Convertible bonds
0.00
0
Other bonds
176,217,990.50
151,523
Total position A5
9,065,584,083.18
4,810,130
Erste Group Bank AG kept a trading book pursuant to Art. 102 CRR throughout the financial year. As of 31 December 2022, the securities
portfolio (assets and liabilities) assigned to the trading book was EUR 8,188,899,866.32 (prior year: EUR 12,604,947 thousand). Money market instruments worth EUR 28,928,343,486.82 (prior year: EUR 7,834,911 thousand) were assigned to the trading book as of 31 December 2022.
As of 31 December 2022, the volume of other financial instruments in the trading book had a nominal value of EUR 297,639,315,837.01 (prior year: EUR 237,533,809 thousand).
The disclosure of other financial instruments includes external transactions as well as booked internal transactions concerning hedge relationships. Further information on internal transactions can be found in section 28 of this chapter.
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80.Participating interests and shares in affiliated companies
The amounts for equity and result are denominated in euro and, as a rule, are, on behalf of a timely reporting, derived from the IFRS financial statements prepared for consolidation purposes according to uniform group guidelines. The share indicated below represents direct and indirect shares.
Interest of Erste Group in %
Equity
Result
Balance sheet date
Credit institutions according to CRR
Banca Comercială Română S.A., Bucharest
99.89
2,203,540,129.00
371,064,501.00
31 Dec 22
Banka Sparkasse d.d., Ljubljana
28.00
147,858,057.00
11,664,404.00
31 Dec 22
Česká Spořitelna a.s., Prague
100.00
5,337,161,093.00
828,217,347.00
31 Dec 22
Erste & Steiermärkische Bank d.d., Rijeka
69.26
1,193,476,745.00
129,695,335.00
31 Dec 22
ERSTE BANK AD NOVI SAD, Novi Sad
80.50
361,967,247.00
19,965,594.00
31 Dec 22
Erste Bank der oesterreichischen Sparkassen AG, Vienna
100.00
1,964,355,926.00
273,684,564.00
31 Dec 22
Erste Bank Hungary Zrt, Budapest
85.00
1,032,090,100.00
96,016,544.00
31 Dec 22
Prva stavebna sporitelna, a.s., Bratislava
35.00
-292,589,287.67
-8,412,365.07
31 Dec 22
Public Joint-stock company commercial Bank "Center-Invest", Rostow on Don
9.09
194,842,123.82
11,583,176.47
31 Dec 20
Slovenska sporitelna, a. s., Bratislava
100.00
2,157,180,330.00
244,559,269.00
31 Dec 22
SPAR-FINANZ BANK AG, Salzburg
50.00
5,376,632.76
85,695.19
31 Dec 22
Financial institutions
EB Erste Bank Internationale Beteiligungen GmbH, Vienna
100.00
26,564,933.00
3,162,434.00
31 Dec 22
Erste Finance (Delaware) LLC, Wilmington
100.00
28,062.00
-10,881.00
31 Dec 22
Erste Group Immorent GmbH, Vienna
100.00
343,840,869.00
24,244,352.00
31 Dec 22
ERSTE GROUP IMMORENT LJUBLJANA, financne storitve, d.o.o., Ljubljana
100.00
-57,213.00
-101,549.00
31 Dec 22
EUROPEAN INVESTMENT FUND, Luxembourg
0.07
3,974,049,165.00
564,357,382.00
31 Dec 21
Holding Card Service s.r.o., Prague
100.00
44,916,863.00
-2,438.00
31 Dec 22
Intermarket Bank AG, Vienna
93.79
115,131,771.00
5,387,001.00
31 Dec 22
Other
ASEF S.C.Sp., Senningerberg
5.32
24,355,140.00
9,543,576.00
31 Dec 21
Austrian Reporting Services GmbH, Vienna
14.29
115,804.74
3,838.33
31 Dec 21
aws Gründerfonds Beteiligungs GmbH & Co KG, Vienna
5.11
55,189,879.13
-729,619.29
31 Dec 21
Dateio s.r.o., Prague
25.80
3,347,196.07
292,872.56
31 Dec 21
EB-Restaurantsbetriebe Ges.m.b.H., Vienna
100.00
2,224,038.00
-38,767.00
31 Dec 22
Erste Asset Management GmbH, Vienna
91.06
136,401,502.00
64,880,538.00
31 Dec 22
ERSTE CAMPUS Immobilien AG & Co KG, Vienna
100.00
100,388,658.00
7,532,103.00
31 Dec 22
ERSTE d.o.o., Zagreb
45.19
16,135,390.74
2,205,679.47
31 Dec 22
Erste Digital GmbH, Vienna
82.13
108,031,848.00
-7,522,411.00
31 Dec 22
Erste Group Card Processor d.o.o., Zagreb
100.00
17,136,316.00
1,776,362.00
31 Dec 22
Erste Group Services GmbH, Vienna
100.00
411,751.00
118,561.00
31 Dec 22
Erste Group Shared Services (EGSS), s.r.o., Hodonin
100.00
868,762.00
94,211.00
31 Dec 22
Erste Reinsurance S.A., Luxembourg
100.00
58,667,998.00
3,029,461.00
31 Dec 22
George Labs GmbH, Vienna
100.00
1,795,052.00
306,095.00
31 Dec 22
Graben 21 Liegenschaftsverwaltung GmbH, Vienna
100.00
850,166.00
-6,387,896.00
31 Dec 22
Haftungsverbund GmbH, Vienna
63.81
727,434.00
1,935.00
31 Dec 22
IPS Fonds Gesellschaft bürgerlichen Rechts, Vienna
62.60
206,189,992.00
4,661.00
31 Dec 21
OM Objektmanagement GmbH, Vienna
100.00
31,228,384.00
1,114,313.00
31 Dec 22
Österreichische Wertpapierdaten Service GmbH, Vienna
32.56
303,649.16
37,412.12
31 Dec 21
Procurement Services GmbH, Vienna
99.86
1,057,706.00
244,460.00
31 Dec 22
Society for Worldwide Interbank Financial Telecommunication scrl, La Hulpe
0.26
601,053,166.00
108,754,722.00
31 Dec 21
Speedinvest III EuVECA GmbH & Co KG, Vienna
1.82
67,547,134.38
-3,311,947.18
31 Dec 21
TAUROS Capital Investment GmbH & Co KG, Vienna
40.43
6,169,490.72
-633,010.80
31 Dec 21
Therme Wien GmbH & Co KG, Vienna
15.33
24,002,941.14
107,854.33
31 Dec 21
VBV - Betriebliche Altersvorsorge AG, Vienna
29.46
74,902,249.35
18,267,623.46
31 Dec 22
WE.TRADE INNOVATION DESIGNATED ACTIVITY COMPANY, Dublin
3.18
1,893,156.00
-8,045,709.00
31 Dec 20
Wiener Börse AG, Vienna
11.67
170,454,375.94
35,226,143.97
31 Dec 21
WIENER STÄDTISCHE VERSICHERUNG AG Vienna Insurance Group, Vienna
2.15
559,208,510.25
64,934,921.83
31 Dec 21
In 2016, the European Bank for Reconstruction and Development (EBRD) and Corvinus Nemzetközi Befektetési Zártkörüen Müködö Részvénytársaság (Corvinus) each acquired 15% of the shares in Erste Bank Hungary Zrt. (EBH) from Erste Group Bank AG. At the same time, call-put option agreements were entered into for the acquisition of the overall 30% of the shares between Erste Group Bank AG and the EBRD and with Corvinus. Due to the different structures of these option agreements, 15% of the shares that were sold to the EBRD are still included as investments in affiliated companies in the Erste Group Bank AG’s annual financial report, at the same time a financial
206
liability in the value of the expected exercise price is accounted for. For the remaining part (Corvinus), the put-call agreements were recognised off-balance as options.
There are open payment obligations to the nominal capital amounting to EUR 4,000,000.00 EUR (prior year: EUR 4,000 thousand) to the EUROPEAN INVESTMENT FUND, Luxembourg.
The carrying amount of developed land was EUR 6,758,201.35 as of 31 December 2022 (prior year: EUR 6,758 thousand). The carrying amount as of 31 December 2022 did not include leased assets. For the next financial year, Erste Group Bank AG will have expenses from the use of tangible assets not disclosed in the balance sheet (rental and leasing contracts) of EUR 19,182,060.35 (prior year: EUR 15,770 thousand), and of EUR 96,441,220.20 for the next five financial years (prior year: EUR 79,943 thousand).
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Statement of changes in fixed and long-term assets 2022
1 January 2022
Additions
Disposals
Reclassification
Currency translation (+/-)
31 December 2022
Participating interests
208,036,705.04
11,403,588.75
7,892,674.62
0.00
0.00
211,547,619.17
Shares in affiliated companies
10,951,918,070.84
21,264,093.36
1.00
0.00
0.00
10,973,182,163.20
Intangible fixed assets
104,041,490.99
5,429,918.99
0.00
0.00
0.00
109,471,409.98
Tangible assets
175,052,347.55
39,060,876.27
2,455,593.05
0.00
0.00
211,657,630.77
Securities
10,427,746,418.27
4,650,494,183.56
1,407,269,308.27
0.00
39,537,242.72
13,710,508,536.28
Treasury bills and similar securities
4,926,213,726.44
1,271,863,767.11
377,662,580.00
0.00
0.00
5,820,414,913.55
Loans and advances to credit institutions
1,244,130,997.88
781,766,584.10
227,855,538.51
-10,949,359.66
14,286,405.93
1,801,379,089.74
Loans and advances to customers
1,035,103,267.48
432,820,679.28
397,725,895.18
296,280.07
2,797,689.55
1,073,292,021.20
Bonds and other fixed-income securities
2,216,248,359.30
1,989,943,153.07
404,025,294.58
10,653,079.59
22,453,147.24
3,835,272,444.62
Shares and other non-fixed-income securities
1,006,050,067.17
174,100,000.00
0.00
0.00
0.00
1,180,150,067.17
Total
21,866,795,032.69
4,727,652,660.93
1,417,617,576.94
0.00
39,537,242.72
25,216,367,359.40
1 January 2022
Write-ups (-)
Write-downs (+)
Additions / Disposals (-/+)
Currency translation (+/-)
31 December 2022
Participating interests
77,340,679.95
1,114,364.12
23,595,758.65
317,583.39
0.00
99,504,491.09
Shares in affiliated companies
2,497,392,612.43
77,755,796.07
230,890,281.36
0.00
0.00
2,650,527,097.72
Intangible fixed assets
81,429,141.88
0.00
4,621,380.15
0.00
0.00
86,050,522.03
Tangible assets
33,838,582.38
0.00
4,071,967.94
-446,015.45
0.00
37,464,534.87
Securities
11,290,003.72
18,904,366.92
121,428,952.66
-14,164,835.09
-130,633,351.23
-30,983,596.86
Treasury bills and similar securities
49,818,691.88
7,196,694.60
14,831,383.96
-41,162,580.00
0.00
16,290,801.24
Loans and advances to credit institutions
-816,054.28
1,285,007.51
3,891,545.86
9,566,499.76
-32,978,194.48
-21,621,210.65
Loans and advances to customers
-22,322,303.62
4,678,905.77
943,569.13
3,625,425.19
-37,616,395.25
-60,048,610.32
Bonds and other fixed-income securities
-15,370,135.51
5,743,753.10
3,762,954.89
13,805,819.96
-60,038,761.50
-63,583,875.26
Shares and other non-fixed-income securities
-20,194.75
5.94
97,999,498.82
0.00
0.00
97,979,298.13
Total
2,701,291,020.36
97,774,527.11
384,608,340.76
-14,293,267.15
-130,633,351.23
2,842,563,048.85
Carrying amount
Clean Price
Contractual interest accrual
31 December 2022
1 January 2022
Participating interests
112,043,128.08
0.00
112,043,128.08
130,696,025.09
Shares in affiliated companies
8,322,655,065.48
0.00
8,322,655,065.48
8,454,525,458.41
Intangible fixed assets
23,420,887.95
0.00
23,420,887.95
22,612,349.11
Tangible assets
174,193,095.90
0.00
174,193,095.90
141,213,765.17
Securities
13,741,492,133.14
83,034,013.83
13,824,526,146.97
10,473,376,340.64
Treasury bills and similar securities
5,804,124,112.31
33,975,230.82
5,838,099,343.13
4,909,634,183.12
Loans and advances to credit institutions
1,823,000,300.39
8,766,275.85
1,831,766,576.24
1,249,467,346.55
Loans and advances to customers
1,133,340,631.52
6,549,821.22
1,139,890,452.74
1,062,855,451.82
Bonds and other fixed-income securities
3,898,856,319.88
23,382,387.42
3,922,238,707.30
2,239,590,603.80
Shares and other non-fixed-income securities
1,082,170,769.04
10,360,298.52
1,092,531,067.56
1,011,828,755.35
Total
22,373,804,310.55
83,034,013.83
22,456,838,324.38
19,222,423,938.42
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82.Other assets
Dec 22
Dec 21
Securities transactions
318,392,308.68
136,080
Derivatives
3,535,650,403.54
2,832,414
Accrued income
11,263,262.05
9,017
Receivables from participating interests and affiliated companies
140,463,894.29
82,371
Other payments and settlements
314,582,262.37
207,653
Other assets
4,320,352,130.93
3,267,535
The carrying amounts for derivatives are shown post offsetting with central counterparties. Derivative assets and liabilities as well as provided and received cash collateral to cover the market values of outstanding derivatives are included in offsetting. Offsetting is carried out according to clearing agent, central clearer and currency.
The balance sheet item other assets include derivatives with a reduced carrying amount of EUR 5,138,245,493.57 (prior year: EUR 2,241,095 thousand). In the balance sheet item loans to credit institutions, the carrying amounts were reduced by EUR 201,208,006.90 (prior year: EUR 234,350 thousand).
Prepayments and accrued income decreased to EUR 104,752,709.70 as of 31 December 2022 (prior year: EUR 107,116 thousand). Of these, EUR 87,574,780.68 (prior year: EUR 77,149 thousand) were accruals in connection with securities and derivative instruments and EUR 11,803,277.01 (prior year: EUR 23,607 thousand) were prepayments on commissions.
In accordance with Section 198 Paragraph 9 of the Austrian Commercial Code (UGB) deferred tax assets amount to EUR 281,177,067.03 (prior year: EUR 238,463 thousand), thereof EUR 213,078,382.90 (prior year: EUR 168,552 thousand) are based on recognition of tax losses and EUR 68,098,684.13 (prior year: EUR 69,911 thousand) arising from temporary differences. The increase in deferred tax assets in comparison to the prior year, is attributable to higher anticipated tax results in the plan years. The right to recognise tax losses carried forward is used, as - according to multiannual tax planning - taxable profits are expected in the future against which the tax losses carried forward can be offset. Thus, from today’s perspective, a tax advantage seems achievable. To calculate deferred taxes, the local tax rate in Austria in the amount of 24.0% for 2023 and 23.0% for 2024 ongoing is applied for the parent company as well as for branches with tax credit method according to the double taxation agreement. For the branch in Hong Kong (double taxation agreement with tax exemption method), the local tax rate in the amount of 16.5% is applied.
Dec 22
Dec 21
Non-covered loans and bank bonds
11,634,454,771.16
8,934,691
Mortgage and municipal bonds
13,651,642,185.22
10,000,775
Certificates of deposits
1,194,848,391.77
1,261,922
Securitised liabilities
26,480,945,348.15
20,197,388
Erste Group Bank AG issues commercial papers and certificates of deposit for the US money market via the New York branch and the fully consolidated subsidiary Erste Finance Delaware LLC. The New York branch’s Dollar Certificates of Deposit Program had reached EUR 18,774,313.44 as of 31 December 2022 (prior year: EUR 17,659 thousand). The Dollar Commercial Paper Program of Erste Finance Delaware LLC is fully secured by Erste Group Bank AG. The framework program amounted to EUR 7,031,689,480.59 as of 31 December 2022 (prior year: EUR 6,621,932 thousand), of which commercial papers are in circulation in the amount of EUR 2,811,659,889.86 (prior year: EUR 1,386,005 thousand) for which the issue amount was immediately transferred to Erste Group Bank AG and are recognised in the item liabilities to customers.
209
86.Other liabilities
Dec 22
Dec 21
Securities transaction
7,539,584.97
55,194
Derivatives
3,515,584,581.58
2,475,201
Accrued income
2,310,667.36
2,752
Other liabilities and settlements
884,593,221.00
1,050,997
Other Liabilities
4,410,028,054.91
3,584,143
The carrying amounts for derivatives are shown post offsetting with central counterparties. Derivative assets and liabilities as well as provided and received cash collateral to cover the market values of outstanding derivatives are included in offsetting. Offsetting is carried out according to clearing agent, central clearer and currency.
The balance sheet item other liabilities includes derivatives with a reduced carrying amount of EUR 5,084,883,922.24 (prior year: EUR 2,391,654 thousand). In the balance sheet item liabilities to credit institutions, the carrying amounts were reduced by EUR 252,764,134.91 (prior year: EUR 83,791 thousand). The balance sheet item other provisions include derivatives with a reduced carrying amount of EUR 1,805,443.32 (prior year: EUR 0 thousand).
Dec 22
Dec 21
Provisions for pensions
244,579,060.09
288,400
Provisions for taxation
33,223,576.31
65,810
Provisions for contingent liabilities
98,227,199.72
94,552
Provisions for derivatives in the bank book
3,167,945.68
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Other
118,458,488.78
132,132
Provisions
497,656,270.58
581,014
Dec 22
Dec 21
Interest rate
3.75%
1.05%
Expected increase in pension benefits (including career- and collective agreement trend)
4.00%
2.40%
The expected retirement age was individually calculated per employee due to the amendments determined in the Ancillary Budget Act 2003 (BGBl I 71/2003) concerning the raising of the earliest possible retirement age. The currently applicable legislation specifying a gradual rise of the retirement age for men and women to 65 was taken into consideration.
An interest rate of 4.90% (prior year: 2.82%) was used for the calculation of pension obligations in the New York branch.
The pension entitlements for the New York branch are outsourced to Milliman Inc. The calculated pension obligations amount to EUR 35,810,277.52 (prior year: EUR 43,185 thousand). As of 31 December 2022, the balance at the bank dedicated to the fulfilment of the outsourced pension obligations amounted to EUR 26,922,747.98 (prior year: EUR 33,657 thousand).
Dec 22
Dec 21
Interest rate
3.75%
1.05%
Average salary rise (including career- and collective agreement trend)
4.00%
3.30%
The obligations were calculated in accordance with the Association of Actuaries’ (AVÖ) mortality table "AVÖ 2018 – Rechnungsgrundlagen für die Pensionsversicherung".
Severance and anniversary entitlements are outsourced to Wiener Städtische Versicherung AG. Severance entitlements measured in accordance with commercial law and based on the above parameters amount to EUR 30,711,768.03 (prior year: EUR 38,572 thousand), respectively EUR 16,079,183.69 (prior year: EUR 17,938 thousand) for jubilee benefits obligations and are posted as a contingent liability off-balance. The credit intended for the performance of outsourced severance entitlements with the insurer as of 31 December 2022 amounted to EUR 33,594,824.51 (prior year: EUR 38,801 thousand) and the amount defined for jubilee benefits obligations is EUR 18,005,106.83 (prior year: EUR 18,054 thousand).
The outsourcing of severance/jubilee benefits entitlements to Wiener Städtische Versicherung AG has not resulted in any change to employee claims against Erste Group Bank AG, which continues to be liable for the severance/jubilee benefits entitlements of eligible employees.
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88.Subordinated liabilities
Subordinated debt (subordinated liabilities and supplementary capital) amounted to EUR 6,870,908,795.03 as of 31 December 2022 (prior year: EUR 7,484,319 thousand). Out of the subordinated liabilities taken by Erste Group Bank AG (including supplementary capital), one issue with a nominal value amounting to EUR 750,000,000.00 was above the 10% limit for total subordinated liabilities. This issue from 2020, denominated in Euros, currently carries a 4.25% coupon, and does not have a specific expiry date. It is an Additional Tier 1 bond according to article 52 CRR. The nominal value will be reduced as soon as the core capital ratio falls below 5.125%. Conversion into shares is not planned. The terms of all subordinated liabilities in the value of EUR 4,079,018,914.32 (prior year: EUR 4,692,446 thousand) are in compliance with the requirements set forth in section 62 until 71 CRR (corresponds to Part 2 Title I Chapter 4 of Regulation (EU) No 575/2013).
Movements in total subordinated liabilities were as follows:
1-12 22
1-12 21
Opening balance
7,484,318,815.83
7,881,922
Increase due to new issues
511,342,465.76
502,789
Decrease due to redemption
-1,137,751,352.76
-942,495
Decrease due to partial extinguishment
-6,351,287.14
-15
Changes in carrying amount of bonds, of accrued interest and of FX valuation
19,350,153.35
42,118
Closing balance
6,870,908,795.03
7,484,319
Supplementary capital liabilities are primarily issued in the form of securities. The securities are due at the end of the term. Supplementary capital bonds are sold to international institutional customers and private customers.
In the upcoming year, securitised supplementary capital liabilities in the value of EUR 477,397,208.83 (prior year: EUR 1,139,562 thousand) are due for repayment due to maturity.
The weighted average interest rate of supplementary capital bonds was 3.0% as of 31 December 2022 (prior year: 2.9%) and the average remaining term was 6,0 years (prior year: 5,0 years).
The term “subordinated” is defined in accordance with section 45, paragraph 4 and section 51, paragraph 9 of the Austrian Banking Act.
In 2022, Erste Group Bank AG's expenses for subordinated liabilities amounted to EUR 254,479,453.38 (prior year: EUR 283,888 thousand).
As of the 2022 balance sheet date, the carrying amount of supplementary capital is EUR 4,079,018,914.32 (prior year: EUR 4,692,446 thousand). Thereof amounts the repurchased supplementary capital from own issues of Erste Group Bank AG with a carrying amount including interest accruals in the amount to EUR 6,563,860.06 (prior year: EUR 24,538 thousand).
In the reporting year 2022, Erste Group Bank AG issued no further bonds (prior year: EUR 0 thousand) as part of its Additional Tier 1 programme from 20 April 2016.
Article 52 (1) lit n CRR provides for the loss absorbency of financial instruments of additional core capital (write-down or conversion). A trigger event for the write-off or conversion of additional core capital is deemed to occur according to Article 54 Section 1 lit a CRR if the core capital ratio of the Erste Group Bank AG falls below 5.125% or below another higher value defined by the Erste Group Bank AG. In 2022 no write-downs occurred.
Subscribed capital on 31 December 2022 was EUR 859,600,000.00 (prior year: EUR 859,600 thousand), represented by 429,800,000 voting bearer shares (ordinary shares). Erste Group Bank AG held no own shares on the balance sheet date.
According to clause 5 of the Articles of Association, the management board is authorised to increase the registered capital of the Company until 18 May 2027 subject to the supervisory board’s consent - also in several tranches - by an amount of up to EUR 343,600,000.00 by
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issuing up to 171,800,000 voting no-par value bearer shares in return for contributions in cash and/or in kind, with the issue price and issuing conditions being determined by the management board subject to the supervisory board’s consent.
Furthermore, the management board is authorised to fully or partly exclude the shareholders' statutory subscription right subject to the supervisory board’s consent (exclusion of the subscription right):
if the capital increase is in return for contributions in kind; or
if the capital increase is in return for a cash contribution and the shares issued to the exclusion of the subscription right of the shareholders, taken together, do not exceed EUR 85.960.000,00.
These two measures may also be combined.
The pro rata amount of registered capital attributable to the new shares (i) for which the shareholders‘ subscription rights in the case of capital increases in kind and in cash are excluded under the referenced authorization, (ii) which serve to fulfil subscription rights, conversion rights and conversion obligations from convertible bonds, which had been issued after 18 May 2022 according to clause 8.3 of the Articles of Association with the exclusion of the subscription rights, and (iii) which had been issued to fulfil stock options by employees, executives and members of the board of the company or an affiliated company from conditional capital in accordance with clause 6.3 of the Articles of Association must not exceed a total of 10% of the share capital.
Pursuant to clause 6.3 of the Articles of Association, conditional capital based on the management board resolutions in 2002 and 2010 (both approved by the supervisory board) with a nominal value of EUR 21,923,264.00 persists, which can be consumed by issuing up to 10,961,632 ordinary bearer shares or ordinary registered shares 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. According to clause 6.4 of the Articles of Association, the Company has additional conditional capital from the general meeting’s resolution of 12 May 2009 of EUR 124,700,000.00 from the issuance of up to 62,350,000 ordinary bearer shares. This conditional capital serves to grant conversion or subscription rights to investors of convertible bonds. In the case of a specified conversion obligation in the terms of issue of convertible bonds, it should also serve to fulfil this conversion obligation. The issue amount and conversion ratio are to be determined according to financial calculation methods as well as the company’s share prices in a recognised pricing procedure.
According to clause 7 of the Articles of Association no authorisation currently exists to grant conditional capital.
As of 31 December 2022, together with its syndicate partners (savings banks, share management savings banks – “Anteilsverwaltungssparkassen”, and savings bank foundations – “Sparkassenstiftungen”), DIE ERSTE oesterreichische Spar-Casse Privatstiftung (“ERSTE Stiftung”), a foundation, controls approx. 24.16% (prior year: 22.25%) of the shares in Erste Group Bank AG and with 17.30% (prior year: 16.50%) is the main shareholder. The ERSTE Stiftung holds 5.78% (prior year: 5.90%) of the shares directly; the indirect participation of the ERSTE Stiftung amounts to around 11.52% (prior year: 10.60%) of the shares held by Sparkassen Beteiligungs GmbH & Co KG, which is an affiliated undertaking of the ERSTE Stiftung. 2.78% (prior year: 1.67%) are held directly by savings bank foundations, savings banks, and the Erste employee share participation foundation (Erste Mitarbeiterbeteiligungsstiftung), acting together with the ERSTE Stiftung. 4.08% (prior year: 4.08%) are held by a syndicate partner, Wiener Städtische Versicherungsverein.
On 18 May 2022, a decision was made at the annual general meeting in favour of paying a dividend in the amount of EUR 1.60 per share. According to its share in Erste Group Bank AG, a dividend was paid for the ERSTE Stiftung amounting to EUR 78,019,129.60 (prior year: EUR 72,543 thousand) in the financial year 2022.
The purpose of the ERSTE Stiftung, to be achieved notably by way of holding interests in Erste Group Bank AG, is to support social, scien-tific, cultural as well as charitable institutions and to promote the guiding principles of the savings bank philosophy. As of 31 December 2022, Boris Marte (CEO), Wolfgang Schopf (CFO), Martin Wohlmuth (COO) and Eva Höltl were appointed as board members of the ERSTE Stiftung. The ERSTE Stiftung’s supervisory board had nine members at the end of 2022, two of whom also serve as members of the supervisory board of Erste Group Bank AG.
In accordance with clause 15.1 of the Articles of Association, and for the time in which the ERSTE Stiftung assumes liability for all current and future debts in the event of their default on payment, it is entitled, pursuant to section 92 (9) Austrian Banking Act, to nominate up to one-third of the supervisory board members for election at the annual general meeting. So far, the ERSTE Stiftung has not exercised this right.
The ERSTE Stiftung did not hold as of 31 December 2022 bonds of Erste Group Bank AG (prior year: EUR 150 thousand). With the exception to the facts already mentioned in this section, there were, as in the prior year, no further business relations between Erste Group Bank AG and ERSTE Stiftung.
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In 2022, the reserves of Erste Group Bank AG developed as follows:
31 December 2021
Allocations (+)
Releases (-)
Reclassification
31 December 2022
Capital reserves
1,628,111,165.08
0.00
0.00
0.00
1,628,111,165.08
committed
1,628,111,165.08
0.00
0.00
0.00
1,628,111,165.08
uncommitted
0.00
0.00
0.00
0.00
0.00
Reserves for share-based payments
3,195,660.37
0.00
0.00
1,760,345.10
4,956,005.47
Retained earnings
5,324,520,962.35
774,553,356.70
0.00
-5,100,673.83
6,093,973,645.22
statutory reserve
1,537,900,000.00
0.00
0.00
0.00
1,537,900,000.00
reserves provided for by the articles
0.00
0.00
0.00
0.00
0.00
other reserves
3,485,740,882.99
724,715,075.01
0.00
-5,100,673.83
4,205,355,284.17
blocked reserves
300,880,079.36
49,838,281.69
0.00
0.00
350,718,361.05
From the purchase and sale of treasury shares in the long position, Erste Group Bank AG recorded capital loss in the amount of EUR 5,100,673.83, which were booked as a deduction from other reserves in retained earnings pursuant to section 229 (1a and 1b) of the Commercial Code (UGB). In the prior year, a profit of EUR 6 thousand had been booked in committed capital reserves.
The allocation of retained earnings amounted to EUR 774,553,356.70 (prior year: EUR 1,094,642 thousand) and concerned other reserves amounting to EUR 724,715,075.01 (prior year: EUR 928,659 thousand) as well as blocked reserves amounting to EUR 49,838,281.69 (prior year: EUR 165,983 thousand). The latter includes allocation to the ex-ante-fund (see Annex chapter C point 24) in the amount of EUR 7,124,460.62 (prior year: EUR 7,279 thousand) as well as the allocation of deferred tax assets amounting to EUR 43,237,793.32 (prior year: EUR 159,008 thousand) in Austria and EUR 19,324.98 (prior year: EUR 134 thousand) at the Hong Kong branch, and the release of deferred tax assets in the amount of EUR 543,297.23 (prior year: EUR 438 thousand) at the New York branch.
The capital contributed to the ex-ante fund is reported under blocked reserves, which, on a member level, does not qualify as own funds according to article 26 (1) CRR, as well as amounts from the capitalisation of deferred taxes which, pursuant to section 235 (2) Commercial Code, are subject to a payout block. Due to the restricted right of disposal, disclosure is carried out separately to the remaining equity items.
Resolution Fund
EU directive 2014/59/EU (Bank Recovery and Resolution Directive, BRRD) was transposed into Austrian law via the Austrian Banking Restructuring and Resolution Act (BaSAG). BaSAG became effective on 1 January 2015. The law governs a number of aspects, including the creation of financing mechanisms for the resolution of credit institutions that provide for the annual payment of contributions by banks to a joint European resolution fund (Single Resolution Fund, SRF).
BaSAG defines the target level of the Austrian Resolution Fund and the contribution payable by the Austrian credit institutions. The law requires that the Resolution Fund be endowed with at least 1% of the secured deposits of all credit institutions authorised in Austria by 31 December 2024. Therefore, the fund shall be set up over a period of 10 years and, to the extent practicable, contributions will be equally distributed over the entire period.
The contributions to be made by the credit institutions are calculated as a ratio of their respective liabilities (exclusive of own funds) less secured deposits to the aggregate liabilities (exclusive of own funds) less secured deposits of all institutions authorised in Austria, distributed over a period of 10 years. Furthermore, these contributions will be weighted in accordance with the risk profile of the credit institution. The amount payable as contribution is thus determined not only by the respective credit institution's unsecured liabilities, but also significantly influenced by the unsecured liabilities held by all Austrian institutions and the risk weighting. The resolution authority is tasked with determining the risk weighting. In 2022, Erste Group Bank AG paid EUR 41,858,928.79 (prior year: EUR 28,105 thousand), which is included in the item other operating expenses.
Deposit guarantee fund
The deposit guarantee scheme, based on an EU directive (2014/49/EU), serves to protect customer deposits held at credit institutions. This EU directive was transposed into national law in Austria by way of the Act on Deposit Guarantee Schemes and Investor Compensation (ESAEG) and came into effect on 14 August 2015.
Every guarantee scheme has its own deposit guarantee fund consisting of available financial resources amounting to no less than 0.8% of the sum of covered deposits held at the member institutions (target level). This target level is to be achieved over a period of 10 years.
As long as the target level has not been reached, the guarantee schemes will require their member institutions to pay an annual contribution. The contributions payable by the member institutions are calculated based on the volume of covered deposits (0.8% of the covered deposits
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distributed over a 10-year period) and are determined in relation to the nature of the risks to which each relevant member institution is specifically exposed. The method used to determine the risk weighting must be approved by the FMA. In 2022, Erste Group Bank AG paid a total of EUR 74,225.27 (prior year: EUR 120 thousand), which is included in the item other administrative expenses.
IPS fund (ex-ante-fund)
The IPS fund is an ex-ante-fund of the Austrian savings banks’ institutional guarantee system (IPS) that is intended to secure financial support to members facing economic difficulties. The IPS fund is a "Gesellschaft bürgerlichen Rechts" (IPS Fonds GesBR - a partnership under civil law) – the low-risk, readily available investment of the ex-ante-fund is recognised as a special asset. Shareholders with a stake in the assets are Erste Group Bank AG, Erste Bank der oesterreichischen Sparkassen AG, the building society of österreichische Sparkassen AG, and all other Austrian savings banks. Cross-guarantee scheme (Haftungsverbund) GmbH is an active partner but not obliged to make a capital contribution.
By means of annual allocations from the member institutes, the ex-ante fund will be built up until 31 December 2031. The aim is to achieve a volume amounting to 0.5% of the total risk exposure amount of Erste Group on a consolidated level, in accordance with article 92 (3) CRR. Cross-guarantee scheme (Haftungsverbund) GmbH is tasked with determining the amount of the respective payment due. The contributions (deposits) are to be taken from the annual financial result, with other reserves being released where necessary. Erste Group Bank AG created a reserve of EUR 7,124,460.62 (prior year: EUR 7,279 thousand) in 2022, which corresponds to the amount of the contributions made (deposits).
214
96.Own funds and capital requirement
These unconsolidated financial statements of Erste Group Bank AG have yet to be approved by the supervisory board. Erste Group Bank AG applies the transitional provisions regarding own funds requirements, market risk and credit risk according to the CRR accompanying regulation as well as EU Regulation No. 2016/445 of the European Central Bank on the use of options and discretions under European Union law, ECB/2016/4. The values were determined for the first time in accordance with IFRS as of 31 December 2022.
Own funds - Capital structure according to Regulation (EU) No 575/2013 (CRR)
CRR
in EUR or in EUR thousand
Article pursuant to CRR
Dec 22
Dec 21
Common equity tier 1 capital (CET1)
Prudential filter: cumulative gains and losses due to changes in own credit risk on fair valued liabilities
22,577,767.14
0
Prudential filter: fair value gains and losses arising from the institution's own credit risk related to derivative liabilities
10,740,945.68
-2,141
Deferred tax assets dependent upon future profitability and not temporary differences net of associated tax liabilities
-215,124,238.31
-168,552
Additional tier 1 capital (AT1)
AT1 instruments of financial sector entities where the institution has a significant investment
0.00
0
Tier 1 capital - total amount of common equity tier 1 (CET1) and additional tier1 (AT1)
11,173,824,857.46
10,447,873
Tier 2 capital (T2)
0
Capital instruments and subordinated loans eligible as T2
2,751,438,579.82
2,991,549
Transitional adjustments due to additional recognition in T2 of instruments issued by subsidiaries
0.00
0
Transitional adjustments due to grandfathered T2 instruments and subordinated loans
0.00
56,522
T2 instruments of financial sector entities where the institution has a significant investment
0.00
0
Total own funds
13,980,554,106.14
13,552,266
215
Capital Requirements - Risk structure according to Regulation (EU) No 575/2013 (CRR)
Dec 22
Dec 21
in EUR or in EUR thousand
Article pursuant to CRR
Calculation base/total risk (phased-in)
Capital requirement (phased-in)
Calculation base/total risk
Capital requirement
Risk weighted assets (credit risk)
34,012,813,297.44
2,721,025,063.80
29,074,233
2,325,939
Standardised approach
4,375,179,773.97
350,014,381.92
4,439,838
355,187
IRB approach
29,632,550,295.80
2,370,604,023.66
24,627,406
1,970,193
Default fund contributions to a central counterparty
5,083,227.67
406,658.21
6,990
559
Trading book, foreign FX risk and commodity risk
4,272,111,407.51
341,768,912.60
4,337,432
346,995
Other amounts receivable (regulatory Add-On)
0.00
0.00
0
0
In the columns "phased-in", the figures are shown under the currently valid CRR provisions, taking into account the incremental tax regulations.
For the preparation of consolidated capital and consolidated capital requirements, reference is made to the corresponding statements in the Erste Group’s Consolidated Financial Statements 2022. Erste Group Bank AG has filed an application for early recognition of year-end profits according to Art. 26 para. 2 CRR.
97.List of assets pledged as collateral for liabilities (acc. to section 64 [1] no. 8 Austrian Banking Act)
in EUR or in EUR thousand
Dec 22
Dec 21
Liability description
Balance sheet item
OeNB asset pool (tender)
Fixed-income securities
233,992,783.59
277,591 *
Refinancing by OeNB / ECB
Liability 1
Total
233,992,783.59
277,591
Collateral pool for municipal and mortgage bonds
Loans and advances to customers
677,508,928.30
703,481
Issued municipal and mortgage bonds
Liability 3
Total
677,508,928.31
703,481
Cash Collateral for OTC-derivatives
2,226,357,161.12
668,822
Other liabilities
Liability 4
Cash Collateral for exchange traded derivatives
7,050,153.17
4,980
margin requirement
Blocked securities account as collateral for OTC- and exchange traded derivatives
1,017,484,005.63
618,850
Other liabilities / margin requirement
Liability 4
Total
3,250,891,319.91
1,292,651
Coverage for the pension provisions
Pension provisions § 11 BPG
201,349,754.77
202,861
Coverage for the pension provisions
Liability 6
Total
201,349,754.77
202,861
Pledge agreements
Securities loan
242,311,640.85
260,093
Guarantees and contingent liabilities pledged as collateral
Total
242,311,640.85
260,093
Total
4,606,054,427.44
2,736,678
*The prior year was adjusted by EUR 10,500,222,891.87 (prior year: EUR 10,777,814 thousand). The adjustment was made to be consistent with the assets reported on the balance sheet and is primarily due to collaterals in the form of retained covered bonds that are not reported on the balance sheet.
216
Remaining maturity nominals
in EUR
< 1 year
1-5 years
> 5 years
Total
Interest rate contracts
82,195,639,814.95
106,974,915,935.64
51,467,934,284.69
240,638,490,035.28
OTC products
81,886,652,997.95
106,974,915,935.64
51,467,934,284.69
240,329,503,218.28
Options
1,831,232,215.07
5,984,967,635.22
1,006,052,892.59
8,822,252,742.88
Other (f.i.: Interest rate swaps)
80,055,420,782.88
100,989,948,300.42
50,461,881,392.10
231,507,250,475.40
Exchange-traded products
308,986,817.00
0.00
0.00
308,986,817.00
Options
0.00
0.00
0.00
0.00
Other (f.i.: Futures)
308,986,817.00
0.00
0.00
308,986,817.00
Securities related business
1,402,433,479.91
3,737,687,648.48
749,215,725.59
5,889,336,853.98
OTC products
805,035,277.73
3,736,334,644.16
749,215,725.59
5,290,585,647.48
Options
440,116,041.94
1,885,333,487.25
123,644,680.32
2,449,094,209.51
Other (f.i.: Stock swaps)
364,919,235.79
1,851,001,156.91
625,571,045.27
2,841,491,437.97
Exchange-traded products
597,398,202.18
1,353,004.32
0.00
598,751,206.50
Options
259,713,960.66
1,342,504.32
0.00
261,056,464.98
Other (f.i.: Futures)
337,684,241.52
10,500.00
0.00
337,694,741.52
Currency contracts
58,935,207,813.23
15,274,818,300.65
2,104,203,481.93
76,314,229,595.81
OTC products
58,923,879,013.77
15,274,818,300.65
2,104,203,481.93
76,302,900,796.35
Options
1,215,722,622.54
289,924,676.59
160,956,060.63
1,666,603,359.76
Other (f.i.: Currency swap)
57,708,156,391.23
14,984,893,624.06
1,943,247,421.30
74,636,297,436.59
Exchange-traded products
11,328,799.46
0.00
0.00
11,328,799.46
Options
0.00
0.00
0.00
0.00
Other (f.i.: Futures)
11,328,799.46
0.00
0.00
11,328,799.46
Credit derivatives
110,948,000.00
932,041,448.08
0.00
1,042,989,448.08
OTC products
110,948,000.00
932,041,448.08
0.00
1,042,989,448.08
Credit default options
0.00
0.00
0.00
0.00
Other (f.i.: Credit Default Swaps)
110,948,000.00
932,041,448.08
0.00
1,042,989,448.08
Exchange-traded products
0.00
0.00
0.00
0.00
Options
0.00
0.00
0.00
0.00
other
0.00
0.00
0.00
0.00
Commodity contracts
8,808,166.14
0.00
0.00
8,808,166.14
OTC products
0.00
0.00
0.00
0.00
Options
0.00
0.00
0.00
0.00
Other (f.i.: Commodity swaps)
0.00
0.00
0.00
0.00
Exchange-traded products
8,808,166.14
0.00
0.00
8,808,166.14
Options
0.00
0.00
0.00
0.00
Other (f.i.: Futures)
8,808,166.14
0.00
0.00
8,808,166.14
other
84,500,000.00
711,393,487.87
448,709,071.98
1,244,602,559.85
OTC products
84,500,000.00
711,393,487.87
448,709,071.98
1,244,602,559.85
Options
8,500,000.00
84,000,000.00
85,000,000.00
177,500,000.00
Other (f.i.: Inflation swaps)
76,000,000.00
627,393,487.87
363,709,071.98
1,067,102,559.85
Exchange-traded products
0.00
0.00
0.00
0.00
Options
0.00
0.00
0.00
0.00
other
0.00
0.00
0.00
0.00
Total
142,737,537,274.23
127,630,856,820.72
54,770,062,564.19
325,138,456,659.14
OTC products
141,811,015,289.45
127,629,503,816.40
54,770,062,564.19
324,210,581,670.04
Exchange-traded products
926,521,984.78
1,353,004.32
0.00
927,874,989.10
The nominal values were presented without netting the transactions with central counterparties.
217
Remaining maturity nominals
in EUR thousand
< 1 year
1-5 years
> 5 years
Total
Interest rate contracts
54,965,308
79,787,644
52,292,366
187,045,318
OTC products
54,758,106
79,787,644
52,292,366
186,838,116
Options
1,415,228
5,500,347
1,322,956
8,238,531
Other (f.i.: Interest rate swaps)
53,342,879
74,287,297
50,969,410
178,599,585
Exchange-traded products
207,202
0
0
207,202
Options
0
0
0
0
Other (f.i.: Futures)
207,202
0
0
207,202
Securities related business
1,193,328
3,105,424
801,017
5,099,769
OTC products
783,925
3,103,863
801,017
4,688,805
Options
356,583
1,698,391
216,665
2,271,640
Other (f.i.: Stock swaps)
427,342
1,405,471
584,352
2,417,165
Exchange-traded products
409,403
1,562
0
410,964
Options
121,154
1,012
0
122,166
Other (f.i.: Futures)
288,248
550
0
288,798
Currency contracts
51,718,461
13,321,770
2,293,534
67,333,765
OTC products
51,704,723
13,321,770
2,293,534
67,320,027
Options
800,732
322,541
101,031
1,224,304
Other (f.i.: Currency swap)
50,903,990
12,999,229
2,192,504
66,095,723
Exchange-traded products
13,739
0
0
13,739
Options
0
0
0
0
Other (f.i.: Futures)
13,739
0
0
13,739
Credit derivatives
173,871
1,075,432
11,540
1,260,843
OTC products
173,871
1,075,432
11,540
1,260,843
Credit default options
0
0
0
0
Other (f.i.: Credit Default Swaps)
173,871
1,075,432
11,540
1,260,843
Exchange-traded products
0
0
0
0
Options
0
0
0
0
Other
0
0
0
0
Commodity contracts
15,808
0
0
15,808
OTC products
0
0
0
0
Options
0
0
0
0
Other (f.i.: Commodity swaps)
0
0
0
0
Exchange-traded products
15,808
0
0
15,808
Options
0
0
0
0
Other (f.i.: Futures)
15,808
0
0
15,808
Other
40,000
442,464
499,181
981,645
OTC products
40,000
442,464
499,181
981,645
Options
40,000
37,500
140,000
217,500
Other (f.i.: Inflation swaps)
0
404,964
359,181
764,145
Exchange-traded products
0
0
0
0
Options
0
0
0
0
Other
0
0
0
0
Total
108,106,776
97,732,733
55,897,638
261,737,148
OTC products
107,460,625
97,731,172
55,897,638
261,089,435
Exchange-traded products
646,151
1,562
0
647,713
218
99.Derivative financial instruments and fixed-asset financial instruments
Notional amount
Carrying amount
Fair value
in EUR
thereof sells
Assets (+) / Liabilities (-)
Positive
Negative
Interest rate contracts
240,638,490,035.28
4,593,467,431.29
92,658,645.50
7,652,863,306.56
-9,270,318,963.14
OTC products
240,329,503,218.28
4,593,467,431.29
92,658,645.50
7,652,863,306.56
-9,270,318,963.14
Options
8,822,252,742.88
4,593,467,431.29
19,128,833.94
159,466,054.07
-140,575,161.01
Other (f.i.: Interest rate swaps)
231,507,250,475.40
73,529,811.56
7,493,397,252.49
-9,129,743,802.13
Exchange-traded products
308,986,817.00
0.00
0.00
0.00
0.00
Options
0.00
0.00
0.00
0.00
0.00
Other (f.i.: Futures)
308,986,817.00
0.00
0.00
0.00
Securities related business
5,889,336,853.98
1,171,954,493.27
148,142,174.01
283,242,974.34
-306,620,931.74
OTC products
5,290,585,647.48
1,031,982,634.81
148,782,237.29
274,542,358.59
-297,280,252.71
Options
2,449,094,209.51
1,031,982,634.81
49,257,140.62
141,237,701.29
-163,939,685.76
Other (f.i.: Stock swaps)
2,841,491,437.97
99,525,096.67
133,304,657.30
-133,340,566.95
Exchange-traded products
598,751,206.50
139,971,858.46
-640,063.28
8,700,615.75
-9,340,679.03
Options
261,056,464.98
139,971,858.46
-640,063.28
8,700,615.75
-9,340,679.03
Other (f.i.: Futures)
337,694,741.52
0.00
0.00
0.00
Currency contracts
76,314,229,595.81
1,130,104,746.96
-421,992,258.07
907,108,713.16
-1,339,557,471.55
OTC products
76,302,900,796.35
1,130,104,746.96
-421,992,258.07
907,108,713.16
-1,339,557,471.55
Options
1,666,603,359.76
1,130,104,746.96
-23,400,405.84
20,449,679.84
-44,344,113.65
Other (f.i.: Currency swap)
74,636,297,436.59
-398,591,852.23
886,659,033.32
-1,295,213,357.90
Exchange-traded products
11,328,799.46
0.00
0.00
0.00
0.00
Options
0.00
0.00
0.00
0.00
0.00
Other (f.i.: Futures)
11,328,799.46
0.00
0.00
0.00
Credit derivatives
1,042,989,448.08
47,678,013.69
-470,158.78
8,807,710.11
-9,463,600.14
OTC products
1,042,989,448.08
47,678,013.69
-470,158.78
8,807,710.11
-9,463,600.14
Credit default options
0.00
0.00
0.00
0.00
0.00
Other (f.i.: Credit Default Swaps)
1,042,989,448.08
47,678,013.69
-470,158.78
8,807,710.11
-9,463,600.14
Exchange-traded products
0.00
0.00
0.00
0.00
0.00
Options
0.00
0.00
0.00
0.00
0.00
other
0.00
0.00
0.00
0.00
Commodity contracts
8,808,166.14
0.00
0.00
0.00
0.00
OTC products
0.00
0.00
0.00
0.00
0.00
Options
0.00
0.00
0.00
0.00
0.00
Other (f.i.: Commodity swaps)
0.00
0.00
0.00
0.00
Exchange-traded products
8,808,166.14
0.00
0.00
0.00
0.00
Options
0.00
0.00
0.00
0.00
0.00
Other (f.i.: Futures)
8,808,166.14
0.00
0.00
0.00
other
1,244,602,559.85
4,250,000.00
12,126,207.61
14,491,459.17
-18,747,606.02
OTC products
1,244,602,559.85
4,250,000.00
12,126,207.61
14,491,459.17
-18,747,606.02
Options
177,500,000.00
4,250,000.00
459,914.30
459,914.30
0.00
Other (f.i.: Inflation swaps)
1,067,102,559.85
11,666,293.31
14,031,544.87
-18,747,606.02
Exchange-traded products
0.00
0.00
0.00
0.00
0.00
Options
0.00
0.00
0.00
0.00
0.00
other
0.00
0.00
0.00
0.00
Total
325,138,456,659.14
6,947,454,685.21
-169,535,389.73
8,866,514,163.34
-10,944,708,572.59
thereof external/internal deals
external deals
301,494,262,775.83
6,402,353,225.73
-432,304,395.25
7,783,490,568.78
-9,861,684,978.03
internal deals
23,644,193,883.31
545,101,459.48
262,769,005.52
1,083,023,594.56
-1,083,023,594.56
thereof OTC/Exchange-traded products
OTC products
324,210,581,670.04
6,807,482,826.75
-168,895,326.45
8,857,813,547.59
-10,935,367,893.56
Exchange-traded products
927,874,989.10
139,971,858.46
-640,063.28
8,700,615.75
-9,340,679.03
thereof trading book/banking book
Trading Book
297,639,315,837.01
6,653,878,739.35
-55,535,471.08
8,433,730,604.34
-8,456,363,248.65
Banking Book
27,499,140,822.13
293,575,945.86
-113,999,918.65
432,783,559.00
-2,488,345,323.94
thereof hedges
26,542,105,530.97
106,546,249.16
-76,521,814.68
432,355,241.71
-2,450,906,631.53
Nominal Values and fair values are presented without netting transactions with central counterparties.
The carrying amounts of derivatives are reported after netting transactions with central counterparties. The netting includes derivatives on the asset and liability side as well as cash collateral provided or received to cover the fair values of derivatives not yet matured (cash collaterals). Netted carrying amounts are shown on the balance sheet on other assets or other liabilities.
219
Notional amount
Carrying amount
Fair value
in EUR thousand
thereof sells
Assets (+) / Liabilities (-)
Positive
Negative
Interest rate contracts
187,045,318
4,133,969
217,557
4,398,376
-4,092,679
OTC products
186,838,116
4,133,969
217,557
4,398,376
-4,092,679
Options
8,238,531
4,133,969
26,627
140,555
-113,607
Other (f.i.: Interest rate swaps)
178,599,585
190,930
4,257,821
-3,979,072
Exchange-traded products
207,202
0
0
0
0
Options
0
0
0
0
0
Other (f.i.: Futures)
207,202
0
0
0
Securities related business
5,099,769
1,122,503
42,414
183,577
-143,689
OTC products
4,688,805
1,051,673
43,457
179,685
-138,755
Options
2,271,640
1,051,673
53,653
113,602
-71,359
Other (f.i.: Stock swaps)
2,417,165
-10,196
66,083
-67,395
Exchange-traded products
410,964
70,830
-1,043
3,892
-4,935
Options
122,166
70,830
-1,043
3,892
-4,935
Other (f.i.: Futures)
288,798
0
0
0
Currency contracts
67,333,765
673,363
-67,149
764,519
-837,414
OTC products
67,320,027
673,363
-67,149
764,519
-837,414
Options
1,224,304
673,363
-2,552
13,182
-16,347
Other (f.i.: Currency swap)
66,095,723
-64,597
751,336
-821,067
Exchange-traded products
13,739
0
0
0
0
Options
0
0
0
0
0
Other (f.i.: Futures)
13,739
0
0
0
Credit derivatives
1,260,843
25,153
152
21,630
-29,099
OTC products
1,260,843
25,153
152
21,630
-29,099
Credit default options
0
0
0
0
0
Other (f.i.: Credit Default Swaps)
1,260,843
25,153
152
21,630
-29,099
Exchange-traded products
0
0
0
0
0
Options
0
0
0
0
0
other
0
0
0
0
Commodity contracts
15,808
0
0
0
0
OTC products
0
0
0
0
0
Options
0
0
0
0
0
Other (f.i.: Commodity swaps)
0
0
0
0
Exchange-traded products
15,808
0
0
0
0
Options
0
0
0
0
0
Other (f.i.: Futures)
15,808
0
0
0
other
981,645
24,250
-28,905
66,788
-50,452
OTC products
981,645
24,250
-28,905
66,788
-50,452
Options
217,500
24,250
146
146
0
Other (f.i.: Inflation swaps)
764,145
-29,050
66,642
-50,452
Exchange-traded products
0
0
0
0
0
Options
0
0
0
0
0
other
0
0
0
0
Total
261,737,148
5,979,239
164,070
5,434,888
-5,153,332
thereof external/internal deals
external deals
239,687,977
5,442,359
386,575
4,704,738
-4,423,182
internal deals
22,049,171
536,880
-222,505
730,150
-730,150
thereof OTC/Exchange-traded products
OTC products
261,089,435
5,908,408
165,113
5,430,997
-5,148,398
Exchange-traded products
647,713
70,830
-1,043
3,892
-4,935
thereof trading book/banking book
Trading Book
237,533,809
5,632,777
231,937
4,772,529
-4,757,813
Banking Book
24,203,338
346,462
-67,867
662,360
-395,519
thereof hedges
23,488,208
131,332
-55,289
662,360
-383,158
220
Book values are represented in the following balance sheet items:
Dec 22
thereof internal trades
Dec 21
A12 Other assets
3,535,650,403.54
875,229,623.68
2,832,414
A14 Prepayments and accrued income
9,063,767.94
8,689,378.83
8,514
P04 Other liabilities
3,515,584,581.58
490,442,357.99
2,475,201
P05 Accruals and deferred income
195,497,033.95
129,762,179.78
201,537
P06 Provisions
3,167,945.68
945,459.22
121
Notional amount
Fair value
in EUR
Positive
Negative
Securities related business
1,384,449,485.73
125,204,420.64
-16,890,929.29
Credit derivatives
122,851,000.00
3,448,531.48
-2,374,404.24
Other
235,000,000.00
9,491,284.39
-378,308.12
Total
1,742,300,485.73
138,144,236.51
-19,643,641.65
Embedded derivatives are reported together with the underlying liability in accordance with AFRAC Statement 15 (2020), as the embedded derivatives are fully hedged. Therefore, the table does not include any book values. Due to the initial application of AFRAC Statement 15 there are no reconcilable figures available.
Fixed assets instruments
In the following table the figures are displayed without contractual interest accruals.
Dec 21
in EUR thousand
Carrying amount
Positive fair value
Hidden losses
Hidden reserves
Treasury bills
1,456,245
1,397,995
-58,250
3,420,150
3,606,162
186,012
Loans and advances to credit institutions
251,366
248,995
-2,371
993,581
1,008,251
14,670
Loans and advances to customers
212,905
211,877
-1,028
844,521
887,623
43,103
Debt securities
655,727
649,509
-6,218
1,575,892
1,616,701
40,809
Shares
748,600
737,736
-10,864
257,470
330,410
72,939
Financial instruments carried as fixed assets
3,324,843
3,246,112
-78,731
7,091,614
7,449,147
357,533
Fixed assets were not written down because the impairments are not expected to be permanent. Analyses in this regard showed that there were no credit rating related impairments in the reporting period. Interest induced impairments are not realized because there is an ability and intention to hold these securities until maturity. Fair value is the amount that could be obtained in an active market through the sale of a financial instrument, or correspondingly the amount that would be payable for its purchase. If market prices were available, these are used to determine fair value. In the absence of market prices, valuation models, in particular the present value method, were used.
Erste Group Bank AG calculates theoretical prices for securities in an inactive market. A market is assumed to be inactive when prices for the relevant securities are formed only sporadically, there is only small-volume trading or no current prices are available.
Dec 22
in EUR
Carrying amount
Positive fair value
Hidden losses
Hidden reserves
Treasury bills
5,425,854,644.04
4,630,925,103.31
-794,929,540.73
378,269,468.27
384,475,659.60
6,206,191.33
Loans and advances to credit institutions
1,348,139,666.94
1,279,906,723.48
-68,232,943.46
474,860,633.45
514,420,719.51
39,560,086.06
Loans and advances to customers
1,057,341,744.37
1,004,381,156.34
-52,960,588.03
75,998,887.14
77,055,784.50
1,056,897.36
Debt securities
3,694,013,107.93
3,368,015,500.87
-325,997,607.06
204,843,211.93
206,113,445.14
1,270,233.21
Shares and other variable-yield securities
266,228,586.72
266,201,155.06
-27,431.66
815,942,182.32
874,030,387.44
58,088,205.12
Financial instruments carried as fixed assets
11,791,577,750.00
10,549,429,639.06
-1,242,148,110.94
1,949,914,383.11
2,056,095,996.19
106,181,613.08
221
Of securities traded on stock exchanges and valued at market price, theoretical prices were used for the following volumes. The values shown in the following tables do not include contractual accrued interest.
Fair value on the basis of the price in the inactive market
Difference 2022
201,359,554.14
187,887,630.54
-13,471,923.61
Fair value on the basis of the price in the inactive market
Difference 2021
220,414
197,801
-22,613
The last available rates are used as rates for inactive markets. Out of the difference from the reporting year in the amount of EUR 13,471,923.61, 19,671,38.82 (prior year: EUR 23,095 thousand) can be attributed to a zero-coupon bond (for which the last available market price dates from 2001) with a term of 30 years, from which further nominal values were acquired in the financial year 2022.
In 2022 no need for reclassification of security positions to the current asset portfolio occurred.
Erste Group Bank AG uses interest rate swaps, cross currency swaps, credit derivatives and options in order to hedge against the market risk (interest-change risk and price risk) from balance sheet assets (bonds, long-term repurchase agreements on asset side) and liabilities (own issues) on an individual basis.
Derivatives are used as specified by the hedging strategy in accordance with the Commercial Code (UGB) to hedge the fair value or the variable future cash flow of underlying transactions and thereby reducing the interest rate risk of Erste Group Bank AG to the level defined under the interest risk strategy.
Erste Group Bank AG uses interest rate swaps to hedge the interest rate risk of the variable future cash flows from the ECB deposit facility.
Dec 22
Dec 21
Change
Fair value hedge
Positive market value fair value hedge
403,644,438.84
547,537,765.95
-143,893,327.11
Negative market value fair value hedge
-2,340,977,410.19
-279,709,184.11
-2,061,268,226.08
Cash flow hedge
Positive market value cash flow hedge
0.00
0.00
0.00
Negative market value cash flow hedge
-23,346,650.54
0.00
-23,346,650.54
Total
Total positive market values
403,644,438.84
547,537,765.95
-143,893,327.11
Total negative market values
-2,364,324,060.73
-279,709,184.11
-2,084,614,876.62
The table above represents the proportion of the fair value (Dirty Price) of derivatives in a hedging relationship that were not recognized in the balance sheet (prior to netting). As of 31 December 2021, fair value hedges with maturity up to 2051 and cash flow hedges with maturity up to 2024 were held.
The negative fair values (without taking into account accrued interest) of derivatives used to hedge cash flows were not recognized in the annual financial statements because these cash flows are with almost certain probability offset by cash flows from the underlying ECB deposit facility.
The Commercial Code hedging efficiency measurement is carried out for Erste Group Bank AG for the year 2022 in form of a critical term match and for cash flow hedges within the framework of a regression test.
There are 34 hedging derivatives with USD-LIBOR interest rates with a nominal volume of EUR 166,127,882.99 for hedging the fair value of own issues. A further 77 hedging derivatives with USD-LIBOR interest rates with a nominal volume of EUR 290,399,399.96 serve to hedge the fair value of bonds held assets. These hedging relationships are currently still subject to an uncertainty in connection with the exact definition of the new benchmark rates indicator.
Credit value adjustments (CVA) for counterparty default risks and debt value adjustments (DVA) for own credit risk are applied for all OTC derivatives. No CVA was recognized for counterparties fully backed by credit support annex – agreements (CSA). The CVA adjustment depends on the expected positive exposure and the counterparty’s credit worthiness. DVA is determined by the expected negative
222
exposure and by the credit quality of Erste Group Bank AG. The calculation of expected exposure is based on a model that relies on replicated options and on a Monte Carlo simulation, respectively, the probability of default is based on market information.
For portfolios that are marked-to-market, both CVA and a DVA in the amount of EUR -3,277,410.63 (prior year: EUR -4,715 thousand) and EUR 11,289,120.21 (prior year: EUR 2,141 thousand), respectively were recognized. For the banking book portfolio as in prior years, no CVA (prior year: EUR 0 thousand) was recognized, since hedging transactions are carried out via a central counterparty whereby trades are collateralized.
Changes in risk provisions (loans and advances to credit institutions and to customers, receivables and similar financial instruments to credit institutions, receivables and similar financial instruments to customers, and contingent liabilities):
1-12 22
1-12 21
Opening balance
412,633,274.20
420,811
Allocations / Releases (-)
80,190,335.10
21,722
Use
-65,066,717.01
-38,286
Reclassification
0.00
0
Exchange rate changes
5,325,282.21
8,385
Closing balance
433,082,174.50
412,633
Within the off-balance item contingent liabilities in the amount of EUR 5,442,226,544.14 (prior year: EUR 4,455,783 thousand) necessary provisions were deducted. The largest part of the amount totaling EUR 5,052,020,813.26 (prior year: EUR 4,116,054 thousand) relates to liabilities and guarantees from collateralization. This amount also includes comfort letters in the amount of EUR 433,169,852.00 (prior year: EUR 440,248 thousand). A large part of this sum totaling EUR 303,973,900.00 (prior year: EUR 309,187 thousand) was issued by Erste Group Bank AG in 2015 for affiliated companies in case they do not meet their rent payment obligations for the Erste Campus. Moreover, this item also includes credit derivatives in the amount of EUR 390,205,730.88 (prior year: EUR 339,729 thousand).
There is credit risk in the amount of EUR 13,851,143,596.03 (prior year: EUR 11,340,692 thousand) primarily for loan and guarantee commitments which have not yet been exercised. These amounts are net of the appropriate provisions.
Gross income of Erste Group Bank AG was broken down as follows (according to the location of branches):
1-12 22
1-12 21
in EUR or in EUR thousand
Domestic
Abroad
Total
Domestic
Abroad
Total
Interest and similar income
4,365,581,006.67
562,488,130.97
4,928,069,137.64
1,977,779
66,530
2,044,309
Income from securities and participating interests
1,877,997,559.07
0.00
1,877,997,559.07
703,511
0
703,511
Fee and commission income
204,684,499.61
46,574.73
204,731,074.34
194,101
82
194,183
Net profit or loss on financial operations
-82,227,196.63
-30,503,125.95
-112,730,322.58
9,541
4,624
14,165
Other operating income
131,441,264.81
1,960,018.19
133,401,283.00
87,018
2,901
89,919
Gross income
6,497,477,133.53
533,991,572.94
7,031,468,706.47
2,971,950
74,136
3,046,086
Erste Group Bank AG recognizes negative interest charged on loans from money market claims, particularly with central banks (assets) in the amount of EUR 95,567,444.78 (prior year: EUR 169,162 thousand) under interest and similar expenses. Negative interest on deposits, in particular from TLTRO III operations (liabilities) in the amount of EUR 132,276,089.00 (prior year: EUR 213,007 thousand) is
223
recognized under interest and similar income. Securities (assets) show negative interest in the amount of EUR 2,837,650.59 (prior year: EUR 21,615 thousand) under interest and similar expenses. Securities (liabilities) show negative interest in the amount of EUR 11,230,568.54 (prior year: EUR 9,164 thousand) under interest and similar income.
The balance sheet item income from participating interests and shares in affiliated companies includes EUR 349,413,936.85 (prior year: EUR 145,767 thousand) and the balance sheet item extraordinary income includes EUR 4,781,725.80 (prior year: EUR 15,545 thousand) from group members, which are subsidiaries belonging to the fiscal group of Erste Group Bank AG within the framework of the group taxation regulations which came into power in 2005.
Other operating income of EUR 133,401,283.00 (prior year: EUR 89,919 thousand) included income from personnel and other administrative expenses passed on to group members in the amount of EUR 77,457,795.20 (prior year: EUR 81,228 thousand), income from the release of pension provisions in the amount of EUR 22,264,215.42 (prior year: 0 thousand) as well as income from the termination of derivatives without an underlying transaction in the amount of EUR 15,346,204.25 (prior year: 0 thousand).
In terms of personnel expenses, the position expenses for severance payments and payments to severance-payment funds included expenses for severance payments in the amount of EUR 1,562,429.30 (prior year: income EUR 842 thousand).
Expenses for pensions are accounted for as follows:
For defined pension payments in the amount of EUR 22,264,215.42 as income from the release of pension provisions included in the other operating income position (prior year: EUR 3,547 thousand in personnel expenses) and interest expenses in the amount of EUR 3,242,884.26 (prior year: 1,933 thousand) as interest costs.
Current pension fund contributions in the amount of EUR 9,349,132.12 (prior year: EUR 6,100 thousand) also as personnel costs.
Other administrative expenses include fees paid for auditing and tax advisory services. The table below lists the fees or charges, including value added tax, charged by the external auditors (Sparkassen-Prüfungsverband and PwC Wirtschaftsprüfung GmbH):
1-12 22
1-12 21
Fees charged for auditing the financial statements
3,181,032.62
3,092
Fees charged for audit-related services
1,162,282.07
1,455
Fees charged for tax advisory services
0.00
5
Fees charged for other services
51,260.88
84
Total
4,337,445.79
4,635
As statutory auditors, Sparkassen-Prüfungsverband (auditing agency) provided auditing services for affiliated companies of Erste Group Bank AG in the amount of EUR 6,063,415.00 (prior year: EUR 5,710 thousand). Other advisory services were charged to other affiliated companies in the amount of EUR 42,042.00 (prior year: EUR 40 thousand). The amount charged for other services for affiliated companies came up to EUR 0,00 (prior year: EUR 0 thousand).
224
Other operating expenses in the amount of EUR 78,396,031.17 (prior year: EUR 31,755 thousand) mainly comprise expenses for the Resolution Fund in the amount of EUR 41,858,928.79 (prior year: EUR 28,105 thousand), expenses from the termination of derivatives without underlying transaction in the amount of EUR 11,181,787.24 (prior year: 0 thousand) as well as the expenses for the Operational Risk Insurance Program in the amount of EUR 6,886,671.56 (prior year: EUR 6,864 thousand).
114.Value adjustments as well as results from purchases and sales in respect of participating interests and shares in affiliated Companies
In 2022, the balance from value adjustments as well as results from sales of participating interests and shares in affiliated companies results in a write-down of EUR 174,499,081.43 (prior year: write-up EUR 1,001,078 thousand). This amount is largely attributable to the write-down of Erste Bank Hungary Zrt. of EUR 192,900,000.00 (prior year: write-up EUR 266,500 thousand) as well as the write-up of Banca Comercială Română S.A. of EUR 68,000,000.00 (prior year: EUR 743.00 thousand).
For group members (subsidiaries that are considered a tax group with Erste Group Bank AG under the group taxation regulations of 2005) revaluation requirements in the amount of EUR 32,093,922.00 (prior year: EUR 4,750 thousand) and write-ups amounting to EUR 9,755,796.07 (prior year: EUR 4,000 thousand) are included in this item. As in the prior year, no group members were sold in the reporting year.
The item taxes on profit or loss shows income amounting to EUR 145,686,880.67 (prior year: EUR 202,068 thousand). This includes income in the amount of EUR 138,179,385.72 (prior year: EUR 97,908 thousand) from the current tax allocation, an expense of EUR 1,840,146.87 (prior year: income EUR 773 thousand) from the retroactive accounting of prior years according to section 9 Corporate Tax Act on group taxation, as well as an income of EUR 42,525,749.95 (prior year: EUR 158,519 thousand) from deferred tax assets. For current corporate income tax to Austrian tax authority, an expense amounting to EUR 19,661,052.98 (prior year: EUR 55,600 thousand) was recorded, as well as an aperiodic corporate income tax expense of EUR 5,881,947.78 (prior year: EUR 0 thousand).
Since 2005, Erste Group Bank AG and its main domestic subsidiaries have formed a tax group in accordance with section 9 Corporate Tax Act, with Erste Group Bank AG as parent company of the group. Group and tax equalisation agreements were concluded with all affiliated companies. Under these agreements, affiliated companies allocate amounts equivalent to the corporation tax on taxable profits to Erste Group Bank AG. Since tax losses from prior years are recorded and offset against their current tax liability by the affiliated companies themselves, there is no obligation to make tax allocation payments to Erste Group Bank AG. Moreover, Erste Group Bank AG undertakes to make compensatory payments for any tax losses utilized up to that point to any affiliated company leaving the Group.
Foreign income taxes and other foreign income related taxes are expenses of EUR 8,030,106.69 (prior year: EUR 46 thousand).
The balance sheet item other taxes not shown under item 18 in the amount of EUR 22,316,027.83 (prior year: EUR 1,400 thousand) includes mainly the bank levy to the amount of EUR 21,886,158.23 (prior year: EUR 929 thousand).
Commercial lending to foreign banks, leasing companies and sovereign debtors
Institutional sales-business
Branches
London
New York
Hong Kong
Berlin, Stuttgart
Country of domicile
Great Britain
USA
China
Germany
Net interest income in EUR
0.00
63,295,882.71
-6,814,076.49
1,683.74
Operating result in EUR
0.00
64,703,231.15
-8,548,439.53
3,420.86
Headcount / as of reporting date
0
22
24
12
Profit or loss from ordinary activities in EUR
0.00
54,264,316.42
-16,520,879.99
-3,783,605.17
Taxes on income in EUR
0.00
-8,445,617.17
-270,726.54
-25,806.35
Public benefits received
none
none
none
none
The consolidated negative result before tax of Hong Kong branch is due to internal trades with Vienna headquarter for the purpose of refinancing and hedging. These trades are to be eliminated for the presentation of the table. The overall unconsolidated branch result is positive.
Erste Group Bank AG closed London branch as of 30 June 2021.
225
Commercial lending to foreign banks, leasing companies and sovereign debtors
Institutional sales-business
Branches
London
New York
Hong Kong
Berlin, Stuttgart
Country of domicile
Great Britain
USA
China
Germany
Net interest income in EUR
-48,754.37
35,773,702.16
12,337,516.49
-2,030.34
Operating result in EUR
2,396,754.29
37,429,192.19
9,233,697.48
-1,593.92
Headcount / as of reporting date
0
22
24
12
Profit or loss from ordinary activities in EUR
198,716.95
36,315,343.39
2,185,653.38
-3,379,846.83
Taxes on income in EUR
0.00
-1,227,095.57
723,109.38
-31,789.24
Public benefits received
none
none
none
none
Profit for the year after tax before changes in reserves expressed in proportion to the average total assets was at balance sheet date 1.7% in 2022 (prior year: 2.2%).
There were no significant events after the balance sheet reporting date.
226
D. INFORMATION ON BOARD MEMBERS AND EMPLOYEES
The average number of employees at Erste Group Bank AG (weighted, excluding employees on leave and management board members) was 1,860 during the financial year 2022 (previous year: 1,865).
In 2022, 121 employees (previous year: 140) worked at other companies against reimbursement of expenses. The reimbursement costs of EUR 25,732,649.79 (previous year: EUR 17,466 thousand) are included in other operating income.
Overview remuneration of management and supervisory board members The following table displays the total remuneration of the management board and the supervisory board. The expenses were recognised on an accrued basis. The amounts indicated correspond to the expected payments on the balance sheet date and can deviate from those amounts, which are actually paid out.
The distribution of remuneration to active members of the management and supervisory boards is as follows:
1-12 22
1-12 21
in EUR or in EUR thousand
Management Board
Supervisory Board
Total
Management Board
Supervisory Board
Total
Short-term benefits
7,256,011.61
1,856,912.58
9,112,924.19
6,539
1,609
8,148
Post-employment benefits
1,422,664.15
0.00
1,422,664.15
1,622
0
1,622
Other long-term benefits
1,229,222.21
0.00
1,229,222.21
765
0
765
Termination benefits
0.00
0.00
0
0
0
Share-based payments
2,240,385.43
0.00
2,240,385.43
4,779
0
4,779
Total
12,148,283.41
1,856,912.58
14,005,195.99
13,706
1,609
15,314
Neither in 2022 nor in the previous year, Erste Group Bank AG granted loans directly to members of the board or supervisory board. Remuneration paid to board members, who left during this financial year, is reported as active board members. The members of the management board of Erste Group Bank AG were granted a total compensation of 0.5% (previous year: 0.5%) related to Erste Group’s total personnel expenses for their activities in the financial year. Total remuneration of EUR 2,729,262.70 (previous year: EUR 4,742 thousand) was granted to former board members and their surviving dependents in the financial year 2022 and 57,669 (previous year: 83,868) share equivalents were awarded.
Short-term benefits
This category includes salaries, payments in kind, social security contributions and other short-term benefits. These also include variable remuneration components, which are paid in cash within a year. The supervisory board remuneration indicated includes supervisory board remuneration, attendance fees and remuneration for serving on the boards of affiliated companies.
Post-employment benefits
The members of the management board participate in the defined contribution pension plan of Erste Group Bank AG according to the same principles as the employees of the Group (see Annex chapter C point 16). Termination benefits primarily include contributions paid to pension funds and employee provision funds.
Other long-term benefits
These primarily include variable remuneration components, which are paid in cash only after a year and distributed over several years. Moreover, expenses for provisions for jubilee benefits (see Annex chapter C point 16) are presented in this category.
Share-based payments
This category includes expenses for share-based variable compensation components.
The supervisory board consists of at least three and a maximum of fourteen members elected in the annual general meeting. Unless the annual general meeting has determined a shorter term of the mandate 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 resolves on the approvals of their actions for the fourth financial 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 a defined impediment. Revocation requires a majority of three quarters of valid votes cast and a majority of three-quarters of the registered capital represented at the time of the resolution.
Breakdown of supervisory board remuneration Pursuant to the decision passed at the annual general meeting of 18. May 2022, the supervisory board adopted in its constituent meeting the following yearly remuneration structure for the financial year 2021 and the following years:
227
Number
Allowance per person
Total allowance
Chairman
1
180,000.00
180,000.00
1st Vice Chairman
1
95,000.00
95,000.00
2nd Vice Chairman
1
80,000.00
80,000.00
Member
10
65,000.00
650,000.00
Total
13
1,005,000.00
In addition, the chairmen of the risk and the audit committee each receive further annual compensation of EUR 20,000.00 (previous year: EUR 10 thousand), the chairman of the IT committee of EUR 15,000.00 (previous year: EUR 10 thousand) and the chairmen of the remuneration, nomination and strategy and sustainability committee each of EUR 10,000.00 (previous year: EUR 5 thousand). If there is no personal identity between the financial expert and the chairperson of the audit committee, the former also receives an additional annual remuneration of EUR 20,000.00.
The additional attendance fee to be paid to the members of the supervisory board was set at EUR 1,200.00 (previous year: EUR 1 thousand) per meeting of the supervisory board or one of its committees.
Erste Group Bank AG did not conclude other legal transactions with its members of the supervisory board.
Transactions and shares held by management board and supervisory board members The tables below provide information on Erste Group Bank AG shares held by management board and supervisory board members as well as transactions carried out with Erste Group Bank AG shares (numbers of shares). Erste Group Bank AG shares held by management board and supervisory board members, whose office term began or ended during the financial year, as at the date of inception or termination of their term in office were recognised as additions or disposals.
31 December 2021
Additions
Disposals
31 December 2022
Bleier Ingo
3,111
1,000
0
4,111
Cernko Willibald (Chairman from 1 July 2022)
0
7,206
0
7,206
Dörfler Stefan
1,500
2,956
0
4,456
Habeler-Drabek Alexandra
72
1,256
0
1,328
O'Mahony David
0
5,456
0
5,456
Poletto Maurizio
0
456
0
456
Spalt Bernhard (Chairman until 30 June 2022)
15,000
5,000
20,000
0
Supervisory board members did not receive any options on Erste Group Bank AG shares for exercising their mandate.
31 December 2021
Additions
Disposals
31 December 2022
Catasta Christine (from 1 July 2022)
0
0
0
0
Egerth-Stadlhuber Henrietta
0
0
0
0
Ersek Hikmet (from 18 May 2022)
0
3,966
0
3,966
Flatz Alois (from 18 May 2022)
0
0
0
0
Grießer Martin (from 1 July 2022)
0
120
0
120
Haag Markus (until 11 January 2022 and from 18 May 2022)
176
141
0
317
Haberhauer Regina
188
106
0
294
Hardegg Maximilian
240
0
0
240
Homan Jan (until 18 May 2022)
4,400
0
4,400
0
Khüny Marion
0
0
0
0
Kühnel Mariana (from 18 May 2022)
0
583
0
583
Krainer Senger-Weiss Elisabeth
0
0
0
0
Lachs Andreas
0
106
0
106
Pichler Barbara
309
244
0
553
Pinter Jozef
0
106
0
106
Rödler Friedrich (Chairman)
2,502
1,300
0
3,802
Santner Friedrich
0
0
0
0
Schuster Michael
0
30
0
30
Simor András
0
0
0
0
Sutter-Rüdisser Michèle F.
0
2,222
0
2,222
Zeisel Karin
38
16
0
54
Persons related to management board or supervisory board members held 1,518 pieces (previous year: 111 pc.) of Erste Group Bank AG shares as of 31 December 2022.
Share-based payments
The total expense recognised during the reporting period arising from share-based payment transactions amounts to EUR 1,862,986.66 (previous year: EUR 15,334 thousand), thereof EUR 4,963,609.54 (previous year: EUR 3,196 thousand) relates to equity-settled share-based payment transactions. At the end of the reporting period, the provision arising from share-based payment transactions amounts to EUR 17,206,413.16 (previous year: EUR 27,297 thousand). The intrinsic value of the provision is EUR 18,637,069.80 (previous year: EUR 31,149 thousand).
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Share-based payment for the Management Board of Erste Group Bank AG
The outstanding amount for variable compensation components to members of the Management Board as of 31 December 2022 amounts to EUR 7,382,453.20 (previous year: EUR 12,937 thousand). This amount includes amounts from the Long Term Incentive Plan (LTI) program (first for the performance year 2021) as well as tranches not yet disbursed from the phantom share program (for performance years before 2020).
In 2021, a new remuneration plan in shares applies to the Executive Board of Erste Group Bank AG. The plan comprises short-term and long-term variable remuneration components. The total amount of variable compensation is determined in the following year by a resolution of the supervisory board.
Upfront share-based remuneration: 20% of the bonus will be converted into shares on the date of this supervisory board resolution and is transferred to the participant’s securities deposit after one year.
Deferred share-based remuneration: 30% of the bonus is converted into performance share units (PSUs) on the day of the supervisory board resolution using the average share price of the last 30 trading days (Long Term Incentive Plan). A PSU represents an unsecured, conditional right to receive shares of Erste Group Bank AG in the future. In the following five years, the initial number of PSUs is adjusted in a range from 120% to 0% to the group’s performance based on performance criteria, which will be determined by the supervisory board. The final number of PSUs corresponds to the number of shares, which is transferred to the participant’s securities deposit after a retention period of another year.
The shares and PSUs granted are equity-settled share-based payments that vest by the end of the performance year. The share-based payments are recognized at the fair value of the shares or PSUs at the grant date, i.e., the date when the parties on both sides have a common understanding of all the terms and conditions. The determination of the grant date requires the judgment of all circumstances. As the Supervisory Board has significant discretionary powers in connection with the assessment of performance in the performance year, the grant date is the date of the supervisory board's resolution on the bonus awarded for the past performance year.
For the performance year 2022, it is expected that 30,959 shares and 46,439 PSUs (previous year: 26,012 shares and 39,019 PSUs) will be granted to participants. The fair value of PSUs on the measurement date is calculated based on a Monte Carlo simulation model considering the achievement level of Erste Group performance over the next five years and the share price of Erste Group Bank AG. The estimated fair value on the balance sheet date is EUR 1,990,323.24 (previous year: EUR 2,424 thousand). Personnel expenses of EUR 2,240,835.43 (previous year: EUR 2,424 thousand) and a corresponding reserve for share-based remuneration was recognised.
Erste Group Bank AG awards selected employees every year a bonus for services rendered in the past year (vesting period). If the individual bonus exceeds a certain limit, the final payout amount of at least 25% depends on the development of the average, volume-weighted, daily price of Erste Group shares in subsequent years (phantom share program). The share equivalents (phantom shares) are divided into several tranches, which differ in the duration of the observation period for the development of the Erste Group share price.
The phantom share program meets the criteria for cash-settled share-based payments in accordance with AFRAC 3.
The estimated fair value of variable compensation for share equivalents is recognised in profit or loss. The provision for stock equivalents that have not yet been paid out is continuously measured at fair value until payment is made. Fair value changes and changes of the final allocation in subsequent years are recognised in profit or loss. The fair values of the share equivalents for the respective payout year are determined using an option pricing model (Black-Scholes model). The main parameters are the share price of the Erste Group Bank AG on the balance sheet date and the dividend payments expected until payment.
For 2022, it is expected that 69,782 (previous year: 58,407) share equivalents with a fair value of EUR 1,891,388.47 (previous year: EUR 2,218 thousand) will be granted to eligible employees. The total income recognised in the reporting period for the phantom share program amounts to EUR 3,100,622.88 (previous year: expense EUR 12,138 thousand), the carrying amount of the provision at the balance sheet date is EUR 17,206,413.16 (previous year: EUR 27,297 thousand). The intrinsic value of the provision from unpaid share equivalents is EUR 18,637,069.80 (previous year: EUR 31,149 thousand).
Employee share programs
The WeShare by Erste Group-Participation program and the WeShare by Erste Group-Investment Plus program are equity-settled share-based payment transactions. Both programs are offered to employees of Erste Group provided that specific requirements (e.g. capital and liquidity requirements, payment of dividends, ECB approval) are met.
Under the WeShare by Erste Group-Investment Plus program all employees, who had been employed by an entity of the Erste Group, from March/April 2022 until September 2022 could voluntarily invest in Erste Group shares and receive free shares depending on the amount of their personal investment. The WeShare by Erste Group-Investment Plus program was settled in September 2022. The number of free
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shares, which were granted under this program for the reporting period, is 101,385. Personnel expenses in the amount of EUR 2,431,785.20 were recorded.
Under the WeShare by Erste Group-Participation program all employees, who have been employed by an entity of the Erste Group for at least six months in year 2022 and are still employed until the transfer of the shares to the employees in June 2023 are entitled to receive shares in an equivalent amount of EUR 350. The expected number of free shares, which are granted under this program for the period, is 25,384 (previous year: 18,920). Based on the number of entitled employees, personnel expenses in the amount of EUR 291,438.91 (previous year: EUR 771 thousand) were recorded and a corresponding reserve in retained earnings was created.
Severance payments and pensions
Income for severance payments and pensions for members of the management board and managers amounted to EUR 3,770,976.99 (previous year: EUR 1,906 thousand). Expenses for severance payments and pensions for other employees amounted to EUR 4,610,866.34 (previous year: expenses EUR 7,930 thousand). Expenses for surviving dependents and pensioners are included in the reported amounts. In accordance with section 239 (2) Commercial Code, statements regarding members of the executive and supervisory boards are disclosed separately in the annex.
At the annual general meeting, the board will suggest that a dividend in the amount of EUR 1,90 per share (prior year: EUR 1,60 per share) be paid to the shareholders from the total net retained earnings. The amount blocked according to section 235 (1) Commercial Code is EUR 0,00 (prior year: EUR 0 thousand).
Supervisory Board
Name
Year of birth
Occupation
Date of initial appointment
Expiration date of current period
Chairman
Rödler Friedrich
1950
Auditor and tax advisor
4 May 2004
AGM 2025
1st Vice Chairman (until 18 May 2022)
Homan Jan
1947
General manager, ret.
4 May 2004
AGM 2022
1st Vice Chairman (from 18 May 2022)¹
Hardegg Maximilian
1966
Entrepreneur
12 May 2015
AGM 2025
2nd Vice Chairman (from 18 May 2022) 2
Krainer Senger-Weiss Elisabeth
1972
Laywer
21 May 2014
AGM 2024
Member
Catasta Christine
1958
Auditor and tax advisor
1 July 2022
AGM 2026
Member
Egerth-Stadlhuber Henrietta
1971
Managing Director of Österreichische Forschungs-förderungsgesellschaft
26 June 2019
AGM 2026
Member
Ersek Hikmet
1960
CEO, ret.
18 May 2022
AGM 2026
Member
Flatz Alois
1966
Investor
18 May 2022
AGM 2025
Member
Khüny Marion
1969
Consultant
17 May 2017
AGM 2026
Member
Kühnel Mariana
1983
Deputy general secretary, Austrian Chamber of Commerce
18 May 2022
AGM 2025
Member
Santner Friedrich
1960
Entrepreneur
10 November 2020
AGM 2023
Member
Schuster Michael
1980
Investor
19 May 2021
AGM 2024
Member
Simor András
1954
Former Senior Vice President, CFO and COO
10 November 2020
AGM 2023
Member
Sutter-Rüdisser Michèle F.
1979
Professor in an Institute for finance, finance law, law and economy
15 May 2019
AGM 2026
Delegated by the employees' council
Member
Grießer Martin
1969
-
26 June 2019
until further notice
Member
Haag Markus
1980
-
21 November 2011
until further notice
Member
Haberhauer Regina
1965
-
12 May 2015
until further notice
Member
Lachs Andreas
1964
-
9 August 2008
until further notice
Member
Pichler Barbara
1969
-
9 August 2008
until further notice
Member
Pinter Jozef
1974
-
25 June 2015
until further notice
Member
Zeisel Karin
1961
-
9 August 2008
until further notice
1 prior to that 2nd Vice Chairman
2 prior to that Member
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Representatives of the supervisory authority
Position
Bartsch Wolfgang
State Commissioner
Kremser Michael
Deputy State Commissioner
BINDER GRÖSSWANG Rechtsanwälte GmbH (since 1 September 2022)
Deputy trustee under the Mortgage Bank Act (Pfandbriefgesetz)
Niedrist Clemens Wolfgang (until 31 August 2022)
State Controller for Premium Reserve
Moser Erhard (until 31 August 2022)
Deputy State Controller for Premium Reserve
Kienzl Irene (until 31 August 2022)
Deputy trustee under the Mortgage Bank Act (Hypothekenbankgesetz)
Offner Gabriela (until 31 August 2022)
Deputy trustee under the Mortgage Bank Act (Hypothekenbankgesetz)
Management Board
Year of birth
Date of initial appointment
Expiration date of current period
Bleier Ingo
1970
1 July 2019
30 June 2026
Cernko Willibald (Chairman from 1 July 2022)
1956
1 July 2022
31 December 2024
Dörfler Stefan
1971
1 July 2019
31 December 2023
Habeler-Drabek Alexandra
1970
1 July 2019
31 December 2023
O'Mahony David
1965
1 January 2020
31 December 2026
Poletto Maurizio
1973
1 January 2021
31 December 2023
Spalt Bernhard (Chairman until 30 June 2022)
1968
1 July 2019
30 June 2022
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Vienna, February 28, 2023
Management board
Willibald Cernko e.h.
Chairman
Ingo Bleier e.h.Stefan Dörfler e.h.
MemberMember
Alexandra Habeler-Drabek e.h.David O`Mahony e.h.MemberMember
Maurizio Poletto e.h.
Member
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IV. Management Report
After a robust rebound in 2021 economic growth slowed markedly in 2022 primarily on the energy supply shock resulting from the Russia-Ukraine war, fiscal measures to curb inflation and China’s ongoing Covid restrictions. Inflation soared to multi-decade highs, leading to monetary policy tightening across the world. In addition, Covid remained a headwind to growth, even after most countries lifted restrictions on economic and social activities in the course of the year. Supply chain issues continued to impact the recovery of manufacturing production, albeit to a diminishing extent. Labour markets, on the other hand, remained robust. Overall, global real GDP increased by 3.4%, at the beginning of 2022 it had been forecast at 4.4%.
Among the world’s advanced economies, both the United States and the eurozone saw declining real GDP growth rates. Economic effects of Russia’s invasion of Ukraine, a short-lived hit from the Omicron wave, tighter financing conditions, declining real disposable income driven by fiscal normalisation and high inflation, all had an impact on the global economic performance.
The military conflict between Russia and Ukraine and resulting sanctions disrupted exports from the region for commodities like metals, food, oil and gas, pushing up inflation to levels not seen in decades. Against the backdrop of the high dependency of Austria and some core markets on Russian gas natural gas prices declined after summer due to high levels of gas storage and reduced supply from Russian gas. As a response to high inflation non euro central banks already started monetary tightening in 2021, the European Central Bank (ECB) followed in 2022. In addition, governments implemented measures such as price caps, subsidies and tax cuts. Similar to other advanced economies, labour markets in the eurozone remained very strong, with unemployment rates declining in most countries. Overall, the euro area economy grew by 3.5%.
Central banks have to cope with the trade-off – intensified by the ongoing geopolitical crisis – between fighting inflation and working to stabilise the economy, financial and public debt. To bring down persistently high inflation rates, the central banks issued clear signals and ended their previously expansionary monetary policies. After rates had been raised in a number of CEE countries and in the United Kingdom, the US Federal Reserve (Fed) likewise started its rate-hike cycle in mid-March. With some time lag, the European Central Bank (ECB) likewise, ended its zero-interest-rate policy after more than six years in July by embarking on its first-rate hike in 11 years. Overall, the ECB raised its benchmark rate four times to 2.5% at year-end and revised the terms of the targeted longer-term refinancing operations (TLTROs). Rising interest rates and higher volumes in its markets had a positive impact on Erste Group’s net interest income.
Austria’s economic performance was better than expected during the year, it outperformed the European Union average. Economic growth, visibly more pronounced in the first half of the year, was supported by almost all sectors of the economy, in particular transportation, hospitality, services and manufacturing. In most sectors, pre-pandemic levels were reached or even exceeded. Austria’s well-developed tourism sector continued to recover as travel restrictions significantly eased. Trade was also a key contributor to this development. The second half of the year, however, saw an economic slowdown in Austria. Growth was significantly impacted by a decline in disposable income due to high inflation. In addition, supply chain disruptions had a negative impact on investments and industrial activity. While most Covid related measures expired during the year, the government launched support packages aimed at easing the effects of surging inflation. Measures included in particular tax benefits and one-off payments, such as climate bonuses. Austria’s gas storage level increased rapidly and was among the highest in the European Union by the start of the winter. Inflation peaked in October at 11.0% while average inflation amounted to 8.6% in 2022. The Austrian labour market proved its resilience once again, the unemployment rate stood at 4.8% and the number of registered long-term unemployed people by the end of 2022 was the lowest since 2014. Overall, the Austrian economy grew by 4.7%.
The Central and Eastern European economies also performed better than expected. Growth expectations were upgraded during the year including countries with – prior to the Russian-Ukrainian war – heavy dependencies from Russian gas, such as the Czech Republic, Slovakia or Hungary. Romania and Croatia, on the other hand, which rely significantly less on Russian natural gas, achieved the highest growth rates in the region. Household consumption, which was one of the main drivers of the economic growth, slowed down visibly in the second half of the year. Despite supply chain disruptions, exports grew dynamically. The automotive sector, with its significant volume of backlogs, contributed visibly to economic growth. Croatia was supported by the rebound of its tourism sector.
Inflation rates continued to climb throughout the year, with many of the CEE countries exceeding 15% in autumn. In response to soaring prices, central banks moved forward with monetary tightening. Key interest rates went up by more than 3% points in the Czech Republic, almost 5% points in Romania and Poland and 15% points in Hungary. Monetary conditions were also affected through other tools such as reduction of balance via FX intervention in case of the Czech Republic or stricter liquidity management and higher reserve requirements in case of Hungary. Labour markets remained very robust in the region, with unemployment rates at or close to historically low levels in most of the CEE countries. Czech Republic and Hungary were among the countries with the lowest unemployment rates in the European Union. CEE governments introduced a range of measures to support households and businesses. These measures included a cap on electricity prices
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or direct energy subsidies. Windfall profits taxes were also introduced in a number of CEE countries, such as Hungary and Croatia. As for the currency market, the Hungarian forint clearly underperformed regional peers, weakening more than 10% in 2022. Other CEE currencies, such as the Romanian leu or the Czech korona remained broadly stable against the euro. On 1 January 2023, Croatia became the 20th member of the eurozone. Overall, CEE economies achieved GDP growth rates ranging from 1.7% in Slovakia to 6.1% in Croatia in 2022.
The economic development of 2022 is reflected in the income statement – above all in the position income from securities and participating interest respectively income/expenses from allowances of securities that are valued as financial assets, as well as on investments and shares in affiliated companies – and is described in the subchapter Details on Earnings.
Analysis of business development
Notes on the balance sheet development
The balance sheet total as of 31 December 2022 increased by 15.0% from EUR 84.6 billion to EUR 97.3 billion compared to year-end 2021. The individual positions developed as follows:
The item cash in hand, balances with central banks decreased by 9.9% from EUR 18.9 billion to EUR 17.0 billion, which was mainly attributable to a reduced cash balance as well as a lower demand deposit with central banks. Purchases of fixed assets led to a 16.9% increase to EUR 6.3 billion (previous year: EUR 5.4 billion) in public-sector debt instruments. The 18.5% increase in loans and advances to credit institutions from EUR 22.9 billion in the previous year to EUR 27.2 billion resulted from higher balances with credit institutions, which was only partially offset by sales of unlisted securities in foreign currencies from the trading portfolio. Primarily new business with domestic and foreign customers in euro increased loans and advances to customers by 21.3% to EUR 23.1 billion compared to year-end 2021 (previous year: EUR 19.1 billion). Debt Securities and other fixed-income securities increased by 88.5% from EUR 4.8 billion to EUR 9.1 billion compared to the previous year, on the one hand caused by EUR 2.5 billion more repurchased listed own issues (due to an increased need for collaterals) and on the other hand due to higher listed bond holdings of foreign banks in fixed assets. The book values of participating interests and shares in affiliated companies remained stable compared to the previous year, decreasing by only 1.8% from EUR 8.6 billion to EUR 8.4 billion as of 31 December 2022. Other assets of EUR 4.3 billion (previous year: EUR 3.3 billion) increased by 32.2%, which was mainly due to the 24.8% increase in receivables from derivative products, which now account for 81.8% (previous year: 86.7%) of the item.
The 6.2% increase in liabilities to credit institutions to EUR 38.1 billion (previous year: EUR 35.9 billion) is mainly due to a higher business volume in connection with repurchase agreements. The main reason for the 40.1% increase in the item liabilities to customers from EUR 7.8 billion to EUR 10.9 billion is the increase in time deposits of Erste Finance Delaware LLC by EUR 1.4 billion as well as further increases in foreign time deposits in EUR. Due to the increased issuance of bonds as well as repurchased listed own issues (increased need for collaterals), securitised liabilities increased by 31.1% to EUR 26.5 billion (previous year: EUR 20.2 billion). As the 25.4% decline in short positions (by EUR 0.2 billion) did not offset the 42.0% increase in derivatives (by EUR 1.0 billion), other liabilities rose by 23.0% to EUR 4.4 billion (previous year: EUR 3.6 billion). Due to scheduled redemptions, which were only partially offset by new issues, the supplementary and additional tier capital items decreased by 8.8% to EUR 6.4 billion (previous year: EUR 7.0 billion).
After applying the deductions and filters set out in the CRR, Tier 1 capital (CET 1 and AT1) amounted to EUR 11.2 billion (previous year: EUR 10.4 billion) and Common Equity Tier 1 capital (CET 1) to EUR 8.9 billion (previous year: EUR 8.2 billion). The eligible own funds of Erste Group Bank AG according to Part 2 of EU Regulation No 575/2013 (primarily core and supplementary capital) amounted to EUR 14.0 billion as of 31 December 2022 (previous year: EUR 13.6 billion). The Common Equity Tier 1 capital ratio (CET 1) was 22.7% (previous year: 23.7%) and the total capital ratio was 35.5% (previous year: 39.2%).
Details on Earnings
Net interest income of Erste Group Bank AG increased significantly by 68.8% to EUR 482.7 million (previous year: EUR 286.0 million). This was mainly due to a rising interest rate environment, which had a positive impact on the deposit and lending business. In addition, interest expenses for AT1 capital decreased by EUR 34.9 million due to early repayments in 2021. The significant increase in income from securities and participating interests by 166.9% to EUR 1,878.0 million (previous year: EUR 703.5 million) was mainly due to the distribution of Ceska sporitelna a.s., Erste Bank der oesterreichischen Sparkassen AG, Banca Comerciala Romana S.A. and Erste Bank Hungary Zrt - all affiliated companies. The fee and commission income and expenses increased by 8.4% from EUR 55.9 million in the previous year to EUR 60.6 million in the financial year 2022, which was mainly attributable to an improved lending business. Net profit or loss on financial operations turned around from EUR 14.2 million in income in the previous year to EUR 112.7 million in expenses in 2022, mainly due to losses from derivatives trading that could not be compensated with gains from foreign exchange, notes and coins trading. Other operating income increased by 48.4% to EUR 133.4 million (previous year: EUR 89.9 million). Overall, this resulted in a 112.4% improvement in operating income to EUR 2,442.0 million in 2022 (previous year: EUR 1,149.4 million).
In addition to fixed and variable salary costs and statutory levies, personnel expenses also include costs from long-term social provisions and expenses from the payment of pension fund contributions. Overall, personnel expenses recorded a marginal decrease of 1.0% to EUR 264.3 million (previous year: EUR 267.0 million) and thus remained almost at the same level as in the previous year.
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The headcount of Erste Group Bank AG (part-time employees weighted proportionally) increased by 1.5% compared to 31 December 2021 and is as follows compared to the previous year:
31 December 2022
31 December 2021
Domestic
1,973.8
1,944.5
Foreign branches
59.0
58.0
New York
22.0
22.0
Hong Kong
24.0
24.0
Berlin, Stuttgart
13.0
12.0
Total
2,032.8
2,002.5
thereof maternity/paternity leave
107.5
128.9
Other administrative expenses rose by 4.4% to EUR 281.0 million (previous year: EUR 269.2 million). This also includes rising energy costs as well as aid from Erste Group Bank AG for Ukraine. Significantly lower impairment losses led to a 16.6% reduction in depreciation and amortisation of property, plant and equipment and intangible assets from EUR 10.4 million to EUR 8.7 million. Other operating expenses increased by 146.9% to EUR 78.4 million (previous year: EUR 31.8 million) due to higher expenses for the Resolution Fund (due to increased covered deposits) and valuation effects from derivatives. Consequently, operating expenses increased by 9.3% to EUR 632.4 million (previous year's value: EUR 578.3 million).
After deducting total operating expenses from operating income, the operating result for the 2022 financial year was EUR 1,809.6 million (previous year: EUR 571.1 million). The cost/income ratio (operating expenses as a percentage of operating income) of 25.9% was significantly below the previous year's value of 50.3%. Due to the dividend effects mentioned above, this key figure is only comparable to a limited extent with the previous year.
Erste Group Bank AG reported net expenses for risk provisions on loans and advances of EUR 68.5 million (previous year: EUR 0.8 million) (including write-offs of loans and advances, netted with income from recoveries on written-off loans and advances). Due to the economic situation in 2022 and the related increase in energy prices, the risk management of Erste Group Bank AG decided to reclassify cyclical industries and energy-dependent companies affected by the Ukraine war to Stage 2. As a result, provisions were calculated in the amount of expected credit losses over the remaining lifetime, which led to a significant increase in risk provisions. The result from securities held as current assets (valuation and realized profit and loss) as well as from the items income and value adjustments on participations and securities held as fixed assets amounted to negative EUR 278.2 million in 2022 (previous year: positive EUR 995.8 million). The valuation expense of Additional Tier 1 bonds issued by subsidiaries was also reported in this item. Although these were purely interest-induced devaluations, this valuation effect was recognised as an expense, as these securities are not fixed-interest bonds and are therefore reported at the strict lower of cost or market principle in the balance sheet item A6. The positive result from the previous year was mainly due to the catch-up effect from the write-offs of investments in 2020 caused by the Covid 19 pandemic.
Consequently, the result from ordinary activities in 2022 is positive at EUR 1,463.0 million (previous year: EUR 1,566.1 million).
As Erste Group Bank AG received profit distributions - not resulting from operating income - extraordinary income amounted to EUR 4.8 million in the reporting year 2022 (previous year: EUR 15.6 million). In particular, the income from the current tax allocation contributed to positive taxes on income and earnings in the amount of EUR 145.7 million (previous year: EUR 202.1 million). In 2022, as in the previous year, there was a taxable profit, 75% of which was offset against tax loss carryforwards in accordance with the statutory regulation. For the remaining 25%, a current corporate income tax expense was recognised. Other taxes increased by EUR 20.9 million to EUR 22.3 million in 2022, as the bank levy in the previous year only amounted to the minimum amount due to the inclusion of the net loss for 2020.
After taking into account the allocation in reserves (see Appendix Chapter C point 23) of EUR 774.6 million (previous year: allocation EUR 1,094.6 million), the net profit of the year amounted to EUR 816.6 million (previous year: EUR 687.7 million).
Branches
Erste Group Bank AG maintains branches in New York, Hong Kong and Germany (Berlin and Stuttgart) that provide commercial lending to foreign banks, leasing companies and sovereign debtors as well as institutional sales. For further quantitative information, please refer to the notes, Chapter C point 46.
ANTICIPATED DEVELOPMENT AND RISKS OF BUSINESS
Long-term growth trends in CEE
In line with growing economic performances disposable income have risen significantly, in particular in the Czech Republic. In addition, most countries of Central and Eastern Europe have human resources that are at least equivalent to those of Western European countries 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.
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A comparison of per capita private debt levels in Central and Eastern Europe with those of advanced economies reveals the gap that exists between these markets. Private debt levels, and particularly household debt, are substantially lower than in the advanced economies. Erste Group firmly believes that credit expansion accompanied by economic growth in this region will prove to be a lasting trend rather than a short-term process that has already peaked.
Over the upcoming 15 to 20 years, on average, the countries of the eastern part of the European Union 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.
Customer business in Central and Eastern Europe
Erste Group’s banking business is mainly built on the business segments Retail, Corporate and Capital Markets.
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 some 16.1 million customers in its markets and operates about 2,100 branches. 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.
In addition, the bank uses and promotes digital distribution channels such as internet and mobile banking not only to meet the increasing importance of digital banking but to actively shape the digital future. George, Erste Group’s digital platform, is already available in Austria, the Czech Republic, Slovakia, Romania, Croatia and Hungary. It will also be rolled out in Serbia.
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 crossselling potential. Erste Group takes advantage of these factors in all core markets and makes best use of its resulting position of strength by pursuing an omni-channel strategy. Erste Group’s omni-channel approach integrates the various sales and communication channels. Customers decide on how, when and where they do their banking business. Contact centers serve as interfaces between digital banking and traditional branch business. These contact centers offer advice and sales, thus going far beyond the traditional help desk function.
In addition to the expansion of digital sales channels, the branch network remains an important component of the business strategy. Only a retail bank that offers modern digital services and operates an extensive distribution network is able to fund loans in local currency mainly from deposits made in the same currency. 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 differing stages of economic development, such as Austria, the Czech Republic, Romania, Slovakia, Hungary, Croatia and Serbia.
Corporate business
The second main business line, which also contributes significantly to Erste Group’s earnings, is business with small and medium-sized enterprises, regional and multi-national groups and real estate companies. Erste Group’s goal is to enhance relationships with its clients beyond pure lending business. Specifically, the bank’s goal is for SMEs and large corporate 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 regulatory interventions, advising and supporting corporate customers in capital market transactions is becoming increasingly important.
Capital markets business
Client-driven capital markets activities are 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 financial markets and its 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 those 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 core 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 Hong Kong and New York that offer these customers a tailor-made range of products.
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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. Building more efficient capital markets in the region is another strategic objective of Erste Group’s capital markets activities.
Outlook
Erste Group’s goal for 2023 is to achieve a return on tangible equity (ROTE) in the range of 13 to 15%. Four key factors will support achievement of this goal: firstly, positive economic growth in all core markets (Austria, Czech Republic, Slovakia, Romania, Hungary, Croatia and Serbia) despite significant geopolitical and political risks, which, should they materialise, would likely negatively impact economic performance; secondly, an interest rate environment that is characterised by broadly stable central bank rates in such countries as the Czech Republic, Romania and Hungary, as well as euro zone interest rates that rise in line with market expectations (as per mid-February 2023); thirdly, a credit risk environment marked by low default rates as in 2022; and, finally, the continuous ability of Erste Group to innovate and successfully expand its digital offering. Assuming that these conditions are met, operating result and the cost/income ratio are projected to improve, putting Erste Group on a path to achieve its cost/income ratio target of approximately 52% by 2024.
The current expectation (as per mid-February 2023) by economists is for Erste Group’s core markets to avoid recession in 2023 and, in fact, to post real GDP growth in the order of 0 to 3% in 2023. Inflationary pressures are expected to subside in 2023, following double digit-levels in 2022 as a result of exceptionally high energy prices. Continued strong labour markets should be supportive of economic performance in all of Erste Group’s markets. Current account balances, which suffered significantly during 2022 on the back of exceptionally high energy prices, are expected to improve again in 2023 benefiting from a reversal in energy prices. Fiscal balances should likewise consolidate again after significant budget deficits in 2022. Public debt to GDP in all Erste Group markets is projected to be broadly stable, and hence remain materially below the euro zone average.
Against this backdrop, Erste Group expects net loan growth in the mid-single digits. Retail and corporate business should contribute in all markets of Erste Group towards the aim to grow in line with the banking markets. Loan growth as well as interest rate tailwinds, as detailed above, should result in an increase of net interest income of approximately 10%. The second most important income component – net fee and commission income – is expected to rise in the mid-single digits. As in 2022, positive growth momentum should again come from payment services and insurance brokerage fees, while additional contributions form asset management and securities business are dependent on a constructive capital markets environment. The net trading and fair value result, which suffered significantly in 2022 from negative valuation effects tied to strongly rising interest rates mostly in the CEE region but also in the eurozone, should normalise again in 2023 due to less steep interest rate increases in the eurozone. This, however, will depend substantially on the actual interest rate environment. The remaining income components are forecast to remain, by and large, stable. Overall, operating income should increase in 2023.
Operating expenses are expected to rise by 7-8%, and thus at a lower level than operating income – although this is dependent on the foreign-currency developments in the CEE region – resulting in a further cost/income ratio improvement compared to 2022.
Based on the robust macro outlook described above, risk costs should remain at a low level in 2023. While precise forecasting is hard at current low risk cost levels, Erste Group believes that in 2023 risk costs will be below 35 basis points of average gross customer loans.
Other operating result is expected to remain by and large unchanged in the absence of significant one-off effects. Assuming an effective group tax rate of below 20% and similar minority charges as in 2022, Erste Group aims to achieve a ROTE in the range of 13 to 15%. Erste Group’s CET1 ratio is expected to remain strong. Consequently, Erste Group will propose a dividend of EUR 1.90 per share for the 2022 fiscal year to the 2023 AGM. In addition, Erste Group targets a share buy-back in a volume of up to EUR 300 million in 2023, subject to regulatory approval.
Potential risks to the guidance include (geo)political and economic (including monetary and fiscal policy impacts) developments, regulatory measures as well as global health risks and changes to the competitive environment. The evolving Russia-Ukraine conflict does not impact Erste Group directly, as it has no operating presence in those countries. Indirect effects, such as financial market volatility, sanctions-related knock-on effects or the emergence of deposit insurance or resolution cases cannot be ruled out, though. Erste Group is moreover exposed to non-financial and legal risks that may materialise regardless of the economic environment. Worse than expected economic development may put goodwill at risk.
Risk profile of Erste Group Bank AG
In light of the business strategy of Erste Group Bank AG, besides participation risk, the main risks included credit risk, market risk, interest-change risk in the banking book, liquidity risk and non-financial risks. 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 Bank AG’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.
Participation Risk
Participation risk refers to the risk of potential value losses from providing equity, as current-value write-offs, capital losses from sales, omissions of dividends or decline of hidden reserves as well liability risks from letters of comfort or capital payment commitments. The
237
majority of direct and indirect participations are fully consolidated in the group balance sheet and thus these risks are recorded ascertained. Consequently, potential risks of investments are usually covered by other types of risks and correspondingly considered in their monitoring and control methods.
The participations entered into by Erste Group Bank AG took place in line with the strategic objective to invest in retail banking whereby own experience and expertise could be contributed. In order to participate more in growth markets, geographic diversification was increased by investing in central and eastern European states. In order to reduce the political, legal and economic risks, the management focuses on countries within the EU or on potential EU candidate countries.
Risk management, including risk management objectives and -methods related to the use of financial instruments
In 2022, management attention was dedicated to the evolving Russia-Ukraine conflict, which poses serious threats to the European but also global economy. Erste Group is not directly impacted, as it has no operating presence in geopolitical region of Russia or Ukraine and also direct exposure to these two markets is immaterial. Still, a number of ad hoc risk management activities were undertaken in order to evaluate, actively steer and mitigate indirect impact on the capital position and risk profile. All stress scenarios, including “no gas from Russia”, would have manageable impact on the Group risk profile, keeping all capital ratios above the limits.
Business and industry strategies in 2022 were mainly influenced by the impact of geopolitical risks, the energy crisis and environmental, social and governance (ESG) factors. ESG is assessed as a material risk in the Group Risk Materiality Assessment, and the qualitative assessment of ESG factors and their effects on credit strategy became an integral part of Industry Strategy Assessments in 2022.
Potential ESG impacts on various economic activities are also covered by the ESG Factor Heatmap, which is implemented as a risk assessment and management tool to identify segments that could be exposed to high ESG risk factors in our home markets over the medium term.
ESG factors, in particular energy efficiency and physical risks, are also taken into account when assessing real estate collateral. For this purpose, the information from the energy certificates of buildings is systematically collected and stored. Progress in data collection is regularly monitored centrally for the Group.
To improve and uniformly record physical risks, cooperation with external provider was started in 2022, which can provide information on main categories of physical risk based on geocoordinates. In 2023, a project will be launched for the technical connection and management of external data, which will then be used centrally for various tasks such as reporting, stress testing and made available to local banks for real estate valuation. This minimizes manual queries and ensures a uniform database.
For credit risk, the most important risk category, Erste Group Bank AG applies the internal ratings-based (IRB) approach according to the Capital Requirements Regulation (CRR) and adopts this approach also for the assessment of economic capital requirements according to Pillar 2. Furthermore, all methods and processes affiliated with and necessary for this approach are applied. At Erste Group Bank AG, all essential internal models are validated annually and revised if necessary, whereby both observations made by the supervisory authorities and foreseeable future amendments to the legal requirements are taken into consideration.
The market risks in the trading book are backed by equity capital on the basis of an internal model. In order to hedge the market risk from balance sheet assets (bonds, repurchase agreements on the asset side) and liabilities (own issues), the bank uses interest swaps, currency swaps, credit derivatives and options as hedging instruments in micro-hedge relationships. Together with the hedged underlying transaction, these hedging instruments are recorded in the balance sheet as a valuation unit based on section 201 Commercial Code (UGB).
Value at risk values (confidence level 99%, equally weighted market data, holding period 1 day)
in EUR bzw. in EUR Tsd
Total
Interest
Credit spread
Currency
Shares
Commodity
Volatility
Dez 22
Erste Group Bank AG
4,329,998.79
4,272,934.00
-
979,779.00
1,582,710.30
210,566.00
1,063,663.00
Banking Book
-
-
-
-
-
-
-
Trading Book
4,329,998.79
4,272,934.00
-
979,779.00
1,582,710.30
210,566.00
1,063,663.00
Dec 21
Erste Group Bank AG
4,330
4,273
-
980
1,583
211
1,064
Banking Book
-
-
-
-
-
-
-
Trading Book
4,330
4,273
-
980
1,583
211
1,064
The requirements for the generation of valuation units are fulfilled by the fair value hedge accounting processes which are applied at Erste Group Bank AG. Details on these processes are presented in the notes to the financial statement, section C note 31.
In accordance with the Advanced Measurement Approach (AMA), operational risk for Erste Group Bank AG is backed by equity.
In order to provide a comprehensive overview of current and future risk and the cover pools of the Bank, the bank’s risk-bearing capacity is determined by the Internal Capital Adequacy Assessment Process (ICAAP). The risk-bearing capacity provides regular updates on the risk profile and capital adequacy, forming the basis for defining and implementing any measures that may be necessary.
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Erste Group Bank AG defines its risk strategy and risk appetite within the framework of the annual strategic planning process, during which adequate orientation of the risk, capital and results and earnings targets is ensured. Strategic limits and principles are defined for all types of risk on the basis of the RAS in the risk strategy. These limits and principles support the implementation of medium and long-term risk decisions. Risk Management governance ensures the comprehensive overview of all risk decisions and the proper execution of the risk strategy. Risk-reducing measures are carried out as part of the ordinary risk management process in order to make sure that the Group acts in accordance with the defined risk appetite.
Statements concerning value adjustments for credit risks can be found in Annex section C note 33 and concerning off-balance sheet risk items in Annex section C note 34 of this financial statement. Litigations are dealt with in Annex section A (Ongoing legal cases).
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RESEARCH AND DEVELOPMENT
Erste Group Bank AG ´s business purpose is to provide banking services. The production process of a bank is therefore not connected with research and development in an industrial sense. However, development work impacts permanently the current business of the bank.
Digitalisation in Erste Group
The pace of digital transformation has accelerated considerably as a result of technological changes, demographic developments, regulatory interventions and also due to the pandemic in recent years. As a result, customer behaviour and customer expectations towards financial products have also changed significantly. Erste Group is convinced that digital banking business will continue to gain in importance and will be essential for the economic success in the long term and therefore fosters digital innovation. Intra-group, interdisciplinary teams develop innovative solutions with the aim to digitalise banking products end-to-end including associated processes (e.g. onboarding of corporate customers).
Erste Group’s digital strategy is based on its own digital platform, George, including digital market places (ecosystem). It aims at providing customers access to personalised products from Erste Group and also third-party suppliers through application programming interfaces (APIs) in the secure IT environment of a financial platform. APIs enable a wide range of co-operations, whether with fintechs, start-ups or across industries, and can therefore help open up new markets and attract new customers.
The digital platform George was implemented for retail customers in Austria in 2015. In the meantime, it is also running in the Czech Republic, Slovakia, Romania, Croatia and Hungary and is actively used by almost 9 million customers. It will also be rolled out in Serbia. The range of digitally available products and services is being constantly expanded. Customers can activate applications of Erste Group or third parties via plug-ins and use them to manage their finances. In 2022, George reached another evolutionary level. George Business was implemented for corporate customers in Austria, and it will be rolled out in the local banking subsidiaries, by 2024 in Romania and the Czech Republic. It aims at offering group-wide an outstanding digital user experience across all customer segments on one platform.
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REPORTING ON MATERIAL CHARACTERISTICS OF THE INTERNAL CONTROL AND RISK MANAGEMENT SYSTEM WITH REGARD TO THE ACCOUNTING PROCESS
The internal control system (ICS) is an essential element of the corporate governance system contributing to the safe-guarding of shareholders’ investments and company’s assets. Erste Group’s ICS plays a key role in identifying risks associated with the respective internal processes.
The ICS policy provides the framework conditions for the internal control system at Erste Group. It defines current standards concerning general tasks and responsibilities as well as minimum criteria for ICS documentation. In Erste Group, a top-down, risk oriented, decentralized ICS approach is to be applied, designed based on the local process map, which promotes adequacy by focusing on all material risks. This means, that all material risks identified have to be mitigated by key controls which are involved in the ICS process. The following criteria are applied for an adequate local ICS:
_ Completeness: The process landscape as well as policies and procedures issued within Group Policy Framework ensure that all identified risks and potential risk scenarios are considered, regulated and maintained, aiming to set up a comprehensive and integrated control environment throughout the entity. All material risks must be covered with key controls, which constitute the relevancy.
_ Effectiveness and traceability: Functionality of key controls are regularly checked, optimal control environment is reviewed and challenged during monitoring activity of risk appetite/tolerance.
_ Comprehensibility: Process landscape together with local policies and procedures constitute documentation of identified key controls, which ensures that relevant employees are aware of all key controls and their role in the internal control process in transparent and accountable way within the entire local entity.
The risk profile, which includes the current and target situation, is monitored by each individual risk function unit and is illustrated in the framework of the consolidated risk reporting (GRR) for the management or relevant risk committee.
Control environment
The control environment provides the framework for the introduction, implementation and monitoring of IKS principles, procedures and measures. The management board of Erste Group Bank AG 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 Code of Conduct provides orientation for all employees of Erste Group, defines mandatory rules for day-to-day business life, describes the corporate values, affirms the obligation to act responsibly as a company and ensures compliance with legal provisions and internal guidelines (compliance).
The awareness of potential compliance issues and a sustainable risk culture enable risks to be identified quickly and well-considered decision-making when dealing with existing regulations. The main component of the risk culture are internal guidelines and, above all, open communication in order to create the broadest possible awareness of all employees for all risks that Erste Group is confronted with.
Accounting AT & Group Statutory Reporting, which are part of Group Accounting, coordinate and verify the final accounts’ compilation for Erste Group Bank AG. The assignment of powers, the process description and the necessary control procedures are defined in the operating instructions.
Risk assessment and controls measures
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 if 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.
The relevant units are obliged to comply with the accounting and measurement principles that are applicable for capturing, posting and accounting transactions and laid out in the operating instructions relating to the UGB and in the IFRS Accounting Manual. The basic components of the internal control system (IKS) at Erste Group Bank AG 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 checks performed by a second person (the four-eye principle).
The areas of responsibility assigned to the individual positions are documented and are continuously updated. Special attention is paid to a functioning deputy regulation in order not to jeopardize the ability to meet deadlines if one person is absent. The annual financial statements including the management report are reviewed by the audit committee of the supervisory board and are also presented to the supervisory board for approval. It is published in the Official Journal of Wiener Zeitung and finally filed with the Commercial Register.
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Information and communication
In accordance with Austrian Commercial Code (UGB)/Austrian Banking Act (BWG), the final accounts are prepared in a standardized format and in compliance with the control measures described above. Before being passed on to the Audit Committee of the Supervisory Board, the financial statements to be published are submitted to the managers and CFO for approval. During the year the UGB-result is presented to the responsible board member (CFO) on a quarterly basis.
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.
In addition, when introducing new core banking systems and implementing new products, accounting is in contact with the relevant departments in order to provide information at an early stage on accounting-specific aspects and implications for new product launches.
Monitoring
In order to monitor and at the same time support strong governance and risk management, Erste Group Bank AG applies three lines of defense to review the structures and processes that enable the achievement of the objectives for their effectiveness.
The first line of defense includes the business lines in which the department heads are responsible for monitoring including internal controls of their business areas. This line is in constant dialogue with the business areas and reports on planned, actual and expected results in connection with the goals of the organization as well as on risks.
The role of the second line of defense is covered by specific areas of expertise, in addition to providing expertise, support, monitoring and risk management tasks. At Erste Group, these activities are carried out by the departments Risk Management, BWG Compliance, WAG Compliance, Anti Money Laundering Prevention, Group Data and Reporting Governance and Group Security. Above all, the departments should support the business lines in the control steps, validate the actual controls, bring state-of-the-art practices into the organization and cover tasks related to risk management.
The third line of defense is responsible for providing independent and objective assurance and advice on the adequacy and effectiveness of governance and risk management. 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.
Internal Audit is according to section 42 Austrian Banking Act (BWG) 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.
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HOLDINGS, PURCHASE AND SALE OF OWN SHARES
Holdings of own shares
Dec 22
Dec 21
Holding
-650,932
-339,293
Affiliated companies
1,568,971
1,623,493
thereof pledged
0
0
As of 31 December 2022, other liabilites include a short position in Erste Group Bank AG shares amounting to 650,932 units (prior year: 339,293 units) with a carrying amount of EUR 19,462,867.88 (prior year: carrying amount EUR 14,029 thousand), which is covered by securities lending deals.
The presentation of purchases and sales of own shares follows the disclosure requirements of the AktG.
Purchase of own shares
Erste Group Bank AG
Affiliated companies of Erste Group Bank AG
Number of shares
Portion of share capital
Purchase price in EUR
Purchase intension
Number of shares
Portion of share capital
Purchase price in EUR
Purchase intension
January
29,621
59,242.00
1,284,297.17
Securities trading
February
310,000
620,000.00
10,780,970.81
Core shareholder program
February
147,363
294,726.00
5,322,739.84
Securities trading
March
427,833
855,666.00
12,263,175.85
Core shareholder program
March
283,266
566,532.00
8,651,852.10
Securities trading
April
22,000
44,000.00
670,888.83
Core shareholder program
April
85,302
170,604.00
2,750,621.87
Securities trading
May
797,681
1,595,362.00
22,458,092.93
Core shareholder program
May
892,100
1,784,200.00
26,780,689.30
Securities trading
June
99,587
199,174.00
2,691,349.00
Core shareholder program
June
130,650
261,300.00
3,465,596.66
Securities trading
July
86,900
173,800.00
2,087,795.31
Securities trading
August
127,500
255,000.00
3,100,042.05
Core shareholder program
August
107,426
214,852.00
2,537,165.88
Securities trading
August
1,419,948
2,839,896.00
33,585,904.21
Employee participation program
September
20,000
40,000.00
496,000.00
Core shareholder program
September
886,946
1,773,892.00
22,602,639.10
Securities trading
September
98,792
197,584.00
2,174,295.85
Employee participation program
October
104,120
208,240.00
2,573,917.11
Securities trading
November
270,000
540,000.00
7,633,652.76
Core shareholder program
November
186,383
372,766.00
5,286,848.92
Securities trading
December
49,000
98,000.00
1,380,961.61
Core shareholder program
December
105,640
211,280.00
2,992,800.17
Securities trading
Total
4,564,457
2,123,601
The purpose of trading was in particular "market making" and hedging positions in the Austrian Stock Exchange Index (ATX).
The aim of the principal shareholder program is to strengthen the group structure and cooperation with the savings banks.
For further details on the employee share program, please refer to Chapter D Share-based payments.
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Sale of own shares
Erste Group Bank AG
Affiliated companies of Erste Group Bank AG
Number of shares
Portion of share capital
Selling price in EUR
Number of shares
Portion of share capital
Selling price in EUR
January
112,944
225,888.00
4,841,335.14
February
196,320
392,640.00
6,802,296.66
March
917,816
1,835,632.00
27,730,326.29
April
29,588
59,176.00
957,957.54
May
57,631
115,262.00
1,679,375.99
887,833
1,775,666.00
26,972,337.00
June
1,126,468
2,252,936.00
30,642,739.31
July
102,987
205,974.00
2,460,272.29
August
39,685
79,370.00
943,041.92
761,000
1,522,000.00
19,139,150.00
September
1,942,437
3,884,874.00
44,154,648.95
October
61,258
122,516.00
1,483,579.37
November
127,021
254,042.00
3,549,054.82
December
161,941
323,882.00
4,666,574.43
529,290
1,058,580.00
15,418,217.70
Total
4,876,096
9,752,192.00
129,911,202.71
2,178,123
4,356,246.00
61,529,704.70
Erste Group Bank AG generated no capital gains (previous year: EUR 6 thousand) from the purchase and sale of its own shares in the long portfolio, which were recognized as an addition to the commited capital reserve. In course of the employee share program, Erste Group Bank AG recorded capital losses of EUR 2,513,867.38 (prior year: 0), which were reclassified to retained earnings.
The mandatory disclosure requirements of Section 243a (1) UGB are met as follows:
Capital structure and class of shares (No 1)
Subscribed capital on 31 December 2022 was EUR 859,600,000.00 (prior year: EUR 859,600 thousand), represented by 429,800,000 voting bearer shares (ordinary shares). For additional information reference is made to the notes, section C 20, respectively section A. General Information regarding details to the cross-guarantee scheme (Haftungsverbund).
Restrictions of voting rights and of the transfer of shares (No 2)
The Articles of Association do not contain any restrictions affecting voting rights or the transfer of shares.
In several shareholder agreements ERSTE Stiftung – which held together with its syndicate partners share of 24.16% as of 31 December 2022 (prior year: 22.25%), agreed with its syndicate partners the following: concerning the appointment of the members of the supervisory board the partners are obliged to vote as required by ERSTE Stiftung. The partners can dispose of shares according to a predefined sale procedure and can purchase shares only within the quotas agreed with ERSTE Stiftung (of a maximum of 3% per calendar year); with this regulation an unwanted creeping-in according to takeover law 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.
Apart from ERSTE Foundation, the Management Board is not aware of any other direct or indirect shareholdings that amount to at least 10%. For additional information please refer to the notes to the financial statements, section A and section C 20.
Special rights of control associated with holding shares (No 4)
There are no shareholders with special control rights.
Voting rights control in the case of capital participation of employees (No 5)
The voting rights of shares of employees of corporate employers according to section 4d (5) (1) Income Tax Act (EStG) participating in employee share programs held in trust or by proxy by the Erste Mitarbeiterbeteiligung Privatstiftung are exercised by the Board of Directors of Erste Mitarbeiterbeteiligung Privatstiftung. The members of the Board of Directors are appointed and dismissed by the Advisory Board through resolution with simple majority. Both, Erste Group Bank AG as well as the statutory employee representatives of Erste Group Bank AG and Erste Bank der oesterreichischen Sparkassen AG, are jointly entitled to appoint a person of their choice to the board of directors. A further member of the Board of Directors to be appointed by the Advisory Board shall be a former member of the management board or a former (freelance) employee of the corporate employers pursuant to section 4d (5) (1) Income Tax Act (EStG). The Advisory Board of Erste Mitarbeiterbeteiligung Privatstiftung comprises of up to five members.
Special control rights, bodies and amendments of the articles of association (No 6)
This concerns:
Art. 15.1 of the Articles of Association, which provides that ERSTE Stiftung will be granted the right to nominate up to one third of the members of the Supervisory Board to be elected by the shareholders’ meeting, as long as ERSTE Stiftung is liable for all present and future liabilities of the company in the case of its insolvency pursuant to Section 92 (9) Banking Act,
244
Art. 15.4 of the Articles of Association, which provides that 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, and
Art. 19.9 of the Articles of Association, which provides that the Articles of Association, in so far as they do not alter the business purpose, may be passed by simple majority of votes cast and simple majority of the subscribed capital represented at the shareholders 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 three-quarter majority of the votes cast and a three-quarter majority of the subscribed capital represented at the meeting considering the proposal.
Powers of the Management Board to issue and repurchase shares (No 7)
As per decision of the Annual General Meeting of 19 May 2021:
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) (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 the closing price at the Vienna Stock Exchange on the last trading day prior to the purchase by more the 20%. This authorisation is valid for a period of 30 months, i.e. until 18 November 2023.
The Management Board is entitled, pursuant to section 65 (1) (8) as well as (1a) and (1b) Stock CorporationAct and for a period of 30 months from the date of the resolution, i.e. until 18 November 2023, 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 authorization may be exercised in whole or in part or in several instalments and in pursuit of one or several 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 18 May 2026, 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 several businesses in Austria or abroad to the exclusion of the shareholders’ proportional purchase option.
_The Management Board is authorised to redeem shares without further resolution at the Annual General Meeting with the approval of the Supervisory Board.
_According to section 65 (1) (4) as well as (1a) and (1b) Stock Corporation Act, the Management Board is authorised for the duration of 30 months following the date of resolution, hence until 18 November 2023, and with the approval of the Supervisory Board to purchase own shares at an amount equalling up to 10% of share capital of the company also under repeated utilisation 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 for the purpose of granting shares for free or at concessionary terms to Erste Mitarbeiterbeteiligung Privatstiftung, their beneficiaries, employees, executive employees and members of the board at Erste Group Bank AG or of an affiliated undertaking or of any other undertaking pursuant to section 4d (5) (1) Income Tax Act. The authorisation may be exercised in whole or in part or in several installments and in pursuit of one or several purposes. The value per share may neither be lower than the floor value of two Euros nor higher than the ceiling of 120 Euros.
All sales and purchases were carried out as authorised at the Annual General Meeting.
According to section 8.3 of the Articles of Association, the Management Board is authorized, until 18 May 2027 and with the approval of the Supervisory Board, to issue convertible bonds (including conditional compulsory convertible bonds according to section 26 Austrian Banking Act (BWG)), which grant subscription or conversion rights to the acquisition of company shares, while paying due consideration or excluding the subscription right of shareholders. The terms of issue can also set out a conversion obligation at the end of the term or at another point in time in addition or instead of subscription or conversion rights. The issue of convertible bonds may only take place to the extent that guarantees the fulfilment of agreed conversion or subscription rights and, in the case of a conversion obligation set out in the conditions of issue, the fulfilment of the corresponding conversion obligations from the conditional capital increase. Point 5.3 of the Articles of Association applies to the issue of convertible bonds with the exclusion of subscription rights. The issue amount, conditions or issue and the exclusion of shareholders’ subscription rights are to be determined by the Management Board with consent of the Supervisory Board.
Significant agreements which become effective, are amended or are rendered ineffective when there is a change in the control of the company and their effects (No 8)
Cross-guarentee scheme agreement
The agreement in principle of the cross-guarantee scheme (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 grossly harms the duties resulting from the 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.
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The cross-guarantee scheme’s agreement in principle and supplementary agreements 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 cross-guarantee scheme’s steering company and Erste Group Bank AG by registered letter within twelve weeks from the change of control that it intends to withdraw from the cross-guarantee scheme.
Directors & Officers-Insurance
In the event that any of the following transactions or processes occur during the term of the insurance policy (each constituting a ‘change in control’) in respect of the insured:
the insured ceases to exist as a result of a 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 consent, who are not insured parties, acquire more than 50% of the insured’s outstanding equity or more than 50% of its voting power (resulting in the right to control the voting power represented by the shares, and the right to appoint the Management Board members of the insured),
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 and insurer agree otherwise). The premium for this insurance cover is deemed to be completely earned.
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 in relation to unlawful acts committed or alleged to have been committed by the insured during the existence of this entity as a subsidiary. No insurance cover is provided for claims brought against an insured 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 (the Agreement) concerning the framework of the cooperation of Erste Group and VIG in Austria and CEE with respect to bank and insurance products. Originally concluded in 2008 (between Erste Bank der österreichischen Sparkassen AG and Vienna Insurance Group der WIENER STÄDTISCHE Versicherung AG), the Agreement was renewed and extended in 2018 until the end of 2033. The objective for the renewal and extension in particular was to adapt the Agreement to the corporate restructuring of the original parties, to amend some commercial parameters and to align the Agreement with recent developments in the legal framework. Already in the original Agreement the parties stipulated that both parties have the right to terminate the Agreement in case of a change of control of one of the parties. In case of change of control of Erste Group Bank AG, VIG has the right to terminate the Agreement. In case of change of control of VIG, Erste Group Bank AG has the 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/entity other than DIE ERSTE österreichische Spar-Casse Privatstiftung or Austrian savings banks of 50% plus one share of Erste Group Bank AG’s shares or voting rights. In respect to VIG, the aforementioned provisions apply analogously, except for share purchases by Wiener Städtische Wechselseitiger Versicherungsverein – Vermögensverwaltung – Vienna Insurance Group.
Apart from this regulation on the termination of the Agreement, the parties agreed in the renewal and extension of the Agreement for an additional termination for cause if based on new legal or regulatory provisions, the continuation of the Agreement is unreasonable for each or both of the parties.
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 case of a change of control (as described above), each party has the termination right. The asset management agreement has been renewed and extended until 2033 concurrently with the renewal and extension of the Agreement outlined above.
Indemnification agreements (No 9)
There are no indemnification agreements in accordance with § 243a (1) Z 9 UGB.
Non-financial reporting for Erste Group Bank AG pursuant to Section 243b of the Commercial Code (UGB) is published together with the Group's separately consolidated non-financial report in the financial statement of Erste Group. The separate non-financial report is disclosed in the financial statement on the homepage at www.erstegroup.com/ir.
For events of particular importance that occurred after the end of the fiscal year, please refer to the notes, Chapter C point 48.
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GLOSSARY
CEE (Central and Eastern Europe)
English abbreviation also commonly used in German applied to the economic area of Central and Eastern Europe. Includes the new EU member states from expansion in 2004 and 2007 as well as the successor states to Yugoslavia and the Soviet Union and Albania.
Cost-Income Ratio
Operating expenses as a % of the operating income.
Common Equity Tier 1 Capital Ratio
Common Equity Tier 1 capital (CET1) according to Article 50 CRR expressed in % of the total risk amount according to Article 92 (3) CRR.
Erste Group Bank AG as single corporation.
Erste Group
Erste Group as group of affiliated companies.
Forbearance
Concessions to the debtor due to financial difficulties.
Operating Expenses
Sum of general administrative expenses, value adjustments in respect of assets items 9 and 10 as well as other operating expenses.
Operating Income
Sum of net interest income, net commissions income, income from securities and participating interests, net profit or loss on financial operations and other operating income.
Operating Result
Operating income less operating expenses.
Return on Assets
The annual net profit before allocation to reserves divided by the average balance sheet total (average of the last 5 quarterly cut-off
dates).
Return on Tangible Equity (ROTE)
Results from profit or loss for the year after tax before changes in reserves divided by the average equity adjusted for intangible assets. The average is calculated on the basis of quarterly final values.
Risk Appetite Statement (RAS)
The RAS is a strategic explanation that describes the maximum risk that a company is prepared to take to achieve its goals.
Tier 1 Capital Ratio
Tier 1 Capital according to Article 25 CRR in % of the total risk amount according to Article 92(3) CRR.
Total Capital Ratio
The total eligible own capital according to Article 72 CRR expressed in % of the total risk amount according to Article 92 (3) CRR.
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Vienna, February 28, 2023
Management board
Willibald Cernko e.h.
Chairman
Ingo Bleier e.h.Stefan Dörfler e.h.
MemberMember
Alexandra Habeler-Drabek e.h.David O`Mahony e.h.MemberMember
Maurizio Poletto e.h.
Member
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We draw attention to the fact that the English translation of this auditor’s report according to Section 274 of the Austrian Company Code (UGB) is presented for the convenience of the reader only and that the German wording is the only legally binding version.
V. Auditors’ Report
Audit Opinion
The Sparkassen-Prüfungsverband (Prüfungsstelle) and PwC Wirtschaftsprüfung GmbH, Vienna, – hereinafter referred to as “we” – have audited the financial statements of Erste Group Bank AG, Vienna, which comprise the balance sheet as of December 31, 2022, the income statement for the fiscal year then ended, and the notes.
In our opinion, the accompanying financial statements comply with legal requirements and give a true and fair view of the financial position of the Company as of December 31, 2022, and of its financial performance for the fiscal year then ended in accordance with the Austrian Company Code and the special legal requirements.
Basis for Opinion
We conducted our audit in accordance with Regulation (EU) No. 537/2014 (hereinafter EU Regulation) and Austrian generally accepted auditing standards. Those standards require the application of the International Standards on Auditing (ISAs). Our responsibilities under those provisions and standards are further described in the “Auditor’s Responsibilities for the Audit of the Financial Statements” section of our report.
We are independent of the Company in accordance with Austrian Generally Accepted Accounting Principles, the provisions of the Austrian Banking Act and professional requirements and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained until the date of this auditor’s report is sufficient and appropriate to provide a basis for our opinion by this date.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the fiscal year. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have structured key audit matters as follows:
Description
Audit approach
Reference to related disclosures
Impairments of Loans and Advances to Customers (expected credit losses)
Description
Impairments of Loans and Advances represent management's best estimate of the credit losses expected with respect to the loan portfolio at balance sheet date. The calculation of impairments is carried out in line with the AFRAC 14 (June 2021) by using the IFRS 9 model in the Austrian Company Code (UGB).
For loans and advances to customers in the amount of EUR 23 billion, measured at amortized cost, Erste Group Bank AG has recognized credit loss allowances in the amount of EUR 0,3 billion as of December 31, 2022 to cover impairments. Due to the underlying assumptions and estimates, determining expected credit losses is inherently subject to substantial judgement applied by management.
Erste Group Bank AG has implemented internal guidelines and specific processes to estimate expected credit losses. These processes rely significantly on quantitative and qualitative criteria and involve management judgement.
The following methods are applied to determine the level of loss allowances using scenario-based discounted cash flow methods as required by IFRS 9:
Collectively assessed impairments
For non-defaulted loans, impairments are determined collectively and, provided no significant increase in credit risk has occurred, correspond to the expected credit losses in the event of default within the next 12 months. In the event of a significant increase in the credit risk of non-defaulted loans, impairments are determined in the amount of the expected loss over the remaining maturity. Similarly, expected losses over the remaining maturity are determined for those non-impaired loans and advances to which no credit risk could be assigned at the time of initial recognition due to missing data at the time of IFRS 9 transition (2018).
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For defaulted loans and advances with a comparable risk profile that are considered not to be individually significant, expected credit losses are collectively assessed as well.
The collectively assessed expected credit losses are calculated considering default probabilities, forward-looking information and parameters that reflect the expected cash flows as well as the expected proceeds from the realization of collateral. The parameters are estimated based on statistical models.
Impairments not collectively assessed
For defaulted loans and advances considered to be significant at customer level, expected credit losses are determined on a case-by-case basis. These impairments are calculated considering scenario probabilities, expected cash flows as well as expected proceeds from the realization of collateral.
The models used for determining loss allowances are specific to the types of loan portfolios. There are country-specific and forward-looking features both with regard to products and economic environment that are relevant to the respective loss estimate resulting in heightened complexity of models and input factors.
The uncertainty inherent in the estimation of impairments of loans and advances, in particular the consideration of future economic conditions, have increased significantly due to the geopolitical and economic developments of 2022. By the end of the financial year, effects of these developments are not reflected in the model results to the extent that can be expected.
Erste Group Bank AG has taken this into account on two levels:
On the one hand, customer groups that are potentially particularly affected by the negative economic developments were identified based on expert-based criteria. For these customer groups, it is examined whether there has been a significant increase in credit risk (overlays). Details on the methodology of the applied overlays are presented in the notes under the sub-item "Impairments for default risks”
In the case of forward-looking information included in the modelling of expected credit losses, Erste Group Bank AG takes into account the increased uncertainty about future economic developments by adjusting the macroeconomic assumptions and giving a high weighting to the downside scenario used.
Due to
the substantial judgement to be applied by the management in designing the overlays and determining and weighting macro-economic future scenarios,
a high degree of uncertainty of future economic developments, which led to a high degree of the auditor judgement,
the complexity of models and interdependent assumptions and the resulting audit effort and
the volume of risk provisions
we identified this area to be a key audit matter.
Audit Approach
To assess the appropriateness of impairments of loans and advances to customers, we:
updated our understanding of the Expected Credit Loss calculation methodology applied by Erste Group Bank AG based on policies, documentation and interviews and assessed its compliance with the requirements of IFRS 9. We focused on adjustments to methods and processes made in order to capture the increased uncertainties of the present and future environment in expected credit losses.
evaluated the control activities in credit risk management and lending business processes and tested key controls, in particular with respect to the approval of loans, ongoing monitoring and the early warning system as well as the processes around the early identification of default, as well as understood and evaluated the assessment of unlikeness to pay (“UTP”).
evaluated control activities and tested key controls in the area of rating models and collateral valuation.
evaluated model governance and validation processes and critically reviewed the information brought to the attention of the management. We evaluated, with the support from our credit risk modelling experts, the results of back-testing and model validations.
examined and critically assessed the appropriateness of credit risk parameters and models, taking into account possible structural breaks in the observable data, and assessed the plausibility of expectations and estimates made on the basis of such biases, to identify significant increases in the credit risk of individual customers or groups of customers.
assessed the correctness of the stage allocation for selected portfolios based on applicable policies.
analyzed sensitivities and impacts of IFRS 9 specific model aspects.
evaluated whether key components of the calculation of expected credit losses are correctly incorporated in the models by performing walkthroughs and reviewing steering tables.
assessed the correctness of the expected credit loss calculation for selected portfolios.
evaluated the adequacy and plausibility of forward-looking information integrated into the estimates. In particular, we have compared the underlying macro-economic forecasts with external sources of information and critically assessed the individual weights attributed to scenarios.
tested, on a sample basis, whether default events have been identified in accordance with applicable policies and evaluated whether events occurred that significantly affect the borrower’s ability to repay loans and advances. Furthermore, we tested, on a sample basis, the adequacy of individual loan loss allowances assessing the scenarios adopted and the estimation of expected cash flows made.
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Reference to related disclosures
For further details regarding the process of determining loss allowances as well as regarding the design of the models involved we refer to the management’s disclosures under item B. Credit Loss Allowances.
Other Information
Management is responsible for other information. Other information comprises any information included in the annual report, but does not include the financial statements, the management report and the auditor’s report.
We obtained the corporate governance report in accordance with Section 243c UGB and the non-financial report according to Section 243b UGB prior to the date of this auditor`s report, all other parts of the annual report are expected to be made available to us after that date.
Our opinion on the financial statements does not cover other information and we will not express any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and the Audit Committee for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with the Austrian Company Code and the special legal requirements, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
The audit committee is responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the EU Regulation and with Austrian generally accepted auditing standards, which require the application of ISAs, will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with the EU Regulation and with Austrian generally accepted auditing standards, which require the application of ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit.
We also:
identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risks of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
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We communicate with the audit committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the audit committee with a statement that we have complied with all relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated to the audit committee, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
Comments on the Management Report for the Company
Pursuant to the Austrian Company Code, the management report is to be audited as to whether it is consistent with the financial statements and as to whether the management report was prepared in accordance with the applicable legal requirements.
Management is responsible for the preparation of the management report in accordance with the Austrian Company Code and the special legal requirements.
We conducted our audit in accordance with Austrian Standards on Auditing for the audit of the management report.
Opinion
In our opinion, the management report for the Company was prepared in accordance with the applicable legal requirements, includes accurate disclosures pursuant to Section 243a UGB and is consistent with the financial statements.
Statement
Based on the findings during the audit of the financial statements and the obtained understanding concerning the Company and its circumstances no material misstatements in the management report came to our attention.
Additional Information in accordance with Article 10 of the EU Regulation
Pursuant to Sections 23 and 24 Austrian Savings Bank Act (SpG), the Sparkassen-Prüfungsverband (Prüfungsstelle) is the statutory auditor of Erste Group Bank AG, Vienna.
At the ordinary annual general meeting dated May 19, 2021 and pursuant to Section 1 (1) of the Auditing Rules for Savings Banks, Annex to Section 24 SpG, PwC Wirtschaftsprüfung GmbH, Vienna, was appointed as additional auditor for the financial year 2022 and, subsequently, was engaged by the supervisory board. At the ordinary annual general meeting dated May 18, 2022 PwC Wirtschaftsprüfung GmbH, Vienna, was appointed as additional auditor for the financial year 2022 and, subsequently, was engaged by the supervisory board. Since 2017 PwC Wirtschaftsprüfung GmbH, Vienna, has constantly been appointed as additional auditor.
We confirm that the audit opinion in the “Report on the Financial Statements” section is consistent with the additional report to the audit committee referred to in Article 11 of the EU Regulation.
We declare that we did not provide any prohibited non-audit services (Article 5 (1) of the EU Regulation) and that we remained independent of the audited company in conducting the audit.
Responsible Engagement Partner
Responsible for the proper performance of the engagement are Mr. Herwig Hierzer, Austrian Certified Public Accountant (Prüfungsstelle des Sparkassen-Prüfungsverbandes), and Ms. Dorotea-E. Rebmann, Austrian Certified Public Accountant (PwC Wirtschaftsprüfung GmbH, Vienna).
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Vienna, February 28, 2023
Sparkassen-Prüfungsverband
Prüfungsstelle
(Bank Auditor)
MMag. Herwig Hierzer, MBADr. Gregor Seisser, CFA
Austrian Certified Public Accountant Austrian Certified Public Accountant
PwC Wirtschaftsprüfung GmbH
Dipl.Kfm.Univ. Dorotea-E. Rebmann
Austrian Certified Public Accountant
This report is a translation of the original report in German, which is solely valid. Publication and sharing with third parties of the consolidated financial statements together with our auditor’s opinion is only allowed if the financial statements and the management report are identical with the German audited version. This audit opinion is only applicable to the German and complete financial statements with the management report. For deviating versions, the provisions of Section 281 (2) UGB apply.
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VI. Statements of all members of the management board
We confirm to the best of our knowledge that the separate financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the parent company as required by the applicable accounting standards and that the management report gives a true and fair view of the development and performance of the business and the position of the company, together with a description of the
principal risks and uncertainties the company faces.
Vienna, Februaray 28, 2023
Management board
Willibald Cernko e.h.
Chairman
Ingo Bleier e.h.Stefan Dörfler e.h.MemberMember
Alexandra Habeler-Drabek e.h.David O`Mahony e.h.MemberMember
Maurizio Poletto e.h.
Member