Erste Group Bank AG

For the full-year 2020, Erste reported significantly lower net profits than 2019, mainly because of its forward-looking provisioning (cost of risk) of 78 basis points (bps). This has translated into a return on average equity of 5.5% in 2020. That said, historically, Erste's profitability has been somewhat higher than that of rated peer banks' and we expect this to persist going forward (see chart 4), supported by higher margins and better efficiency in foreign markets. Assuming a normal level of dividend payments over 2022-2023 of €1.0-€1.5 per share and risk-weighted asset growth of about 5%-6%, we expect the bank's risk-adjusted capital (RAC) ratio to move between 9.5%-9.75% over 2021-2023, after having reached 10.4% in 2020 in light of accrued dividends.

...We expect Erste Bank Group AG (Erste) to maintain its leading market position in Austria and six core strategic countries in CEE markets. Erste has a well-established business model with sustainable franchises in retail, small and midsize enterprises (SMEs), and corporate banking in these regions (see chart 1). With total assets of 305 billion at March 31, 2021, Erste is one of the top three banks in Austria (see chart 2) and a leader in some domestic segments. Thanks to its widespread operations, we think it will continue to benefit from good geographic diversification of revenues, although we acknowledge some correlation among CEE countries and between CEE and Austria....

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