Erste Group’s long-term focus on European Union states in central and southeastern Europe proved to be particularly well judged this year. Other big banks in this region now face billions of euros of losses in Russia and major headaches in managing their operations in that state. Erste is the only major regional lender with negligible direct exposure to Russia.
Even before the invasion of Ukraine, Erste was doing well, thanks to top-tier positions in these EU member countries. Rising local currency interest rates – especially those outside the eurozone, such as the Czech Republic and Romania – have proved a major boost to Erste’s net interest margins. Its net interest income rose by 18.8% in the first quarter of 2022, following a 4.2% rise in 2021.
But Erste’s position as central and eastern Europe’s best bank is not just about the legacy of buying good central European banks 20 years ago. The Austrian lender is well placed because it spent the years after the 2008 crisis de-risking its regional business. It posted record fee income in 2021, up 16.5% on the prior year, thanks to the structural growth of wealth and asset management in central and eastern Europe (CEE).
Coupled with higher interest income and lower provisions, this all led to a sharp recovery in profitability in 2021. Return on equity rose to 11.6% in 2021 and 11.2% in the first quarter of 2022.
Following chief executive Bernhard Spalt’s announcement in May that he would not renew his contract in 2023, chairman of the supervisory board Friedrich Rödler named Willi Cernko as the new CEO, which became effective on July 1. Yet over the past year, Erste has continued to build up its presence, buying Commerzbank’s Hungarian corporate banking subsidiary and Random Capital, an online brokerage company in Hungary.
Erste’s advance in digital banking, as well as its efforts in corporate social responsibility and sustainable finance, have further cemented its regional leadership.
Aside from its own donations, Erste launched a one-click donation function for customers giving to humanitarian charities in Ukraine via its regional digital banking platform, George. InnovX-BCR and Romanian tech startup Jobful also developed a jobs platform for people from Ukraine.
Locally funded sustainability projects include acting as sole underwriter on a financing of more than 50 new electric trains in Slovakia. And at group level, a debut sustainability bond issue was partly to finance projects in Romania. The group also issued Slovakia’s first social housing bond.
