Good morning, ladies and gentlemen. I'd like to welcome you very cordially to the presentation of our half-year results 2022 of Erste Group. It's great to see that after two years of a pandemic, so many people have found their way to Erste Bank Campus, and welcome to those who join us via the live stream. Before we hand over to the CEO, two housekeeping comments. If at the end of the press conference you would like to put a question, please wait for the roving mic so that all those joining us on the live stream can understand you.
If you want to put a question on the live stream, please use the online tool. For this purpose, I'm going to read the question, and the board members will then answer those questions. Thank you, and I would now like to hand over to Willibald Cernko, the CEO of Erste Bank.
Welcome, and thank you, Christian. Welcome to all of you, ladies and gentlemen. It's great to see that so many of you have joined us here at Erste Bank Campus. It's also great to be your host together with my colleagues. As you can see, life's not over, even when you're 66. I'm experiencing a premiere, and it's great to experience this premiere. Anyway, we're going to present the half-year results 2022 to you. I'll give the introduction, talk about the macroeconomic setting, the environment in which we find ourselves. Alexandra Habeler-Drabek will then deal with risks and costs and also delve into the assumptions made, what are our basic assumptions for the months to come, and we've also, of course, addressed a stress scenario that she's going to elucidate.
Stefan Dörfler, our CFO, will then talk about results. Ingo Bleier, who during the first half year was responsible for corporates as well as, retail, well, he will talk about both of these areas. I will then conclude with three strategic topics, sustainability, housing, and financial health. Anyway, let me now come to the nitty-gritty of our subject. Now, there is no doubt that we live in a very dynamic and very challenging and difficult environment. Now, in the first quarter, and this should not be forgotten, we started out very dynamically. During Q2, we then experienced spillover effects and were able to utilize them. I think that the second half of the year is set to be more moderate and more contained in terms of the developments.
The growth rates across the entire year, well, they're plotted here for the entire year. I don't know about you, but if you watch the news at night and talk to clients during the day, you'll realize that there is no match, there is no fit. Why am I saying this? Because as far as our day-to-day life and business is concerned, well, our signals or the signals that we receive are a lot more positive. The observations that we receive are a lot more upbeat than the news that we watch at night, so there is a mismatch. Now, let's look ahead. 2023, what's our estimate? What are our expectations? Yes, the bottom line is that our growth will be less pronounced. Here too, we should take a differentiated look.
The Czech Republic and Slovakia, well, they will experience positive rates, whereas other markets such as Austria and the euro area, well, they will have lower levels. Why? Well, this is due to the fact that on the one hand, of course, prices have performed very dynamically in terms of commodities, energy, and food. Well, this will reduce, but what about interest? Well, they will have an impact. They will sort of dampen effects. We're talking about five to six months that should be taken into consideration, and after those five or six months, interest rates will have a more pronounced impact. Let's look at the way inflation rates have evolved in the course of time. Well, everything's been said so far. Commodity, energy, and food prices will be more contained. There will be moderate demand.
National governments will come up with different ideas and pursue different policies, trying to lessen the impact, trying to make sure that people and businesses and households will be able to weather the storm and overcome challenges. There are diverse approaches that we could take to this. Now, there might be additional taxes for industries so that windfall profits can be picked up, as it were, or contributions could be made to the notion of solidarity. As far as we're concerned, we're quite clear-cut in our approach. Now, there is widespread agreement on this. We are living in very, very challenging times, and therefore, solidarity is a must and is something that we must take for granted. On the other hand, there's also something else to be taken into consideration. Can the euro be distributed?
Well, it can be distributed only once if you want national economies to have strong and resilient banks that are capable of supporting households and businesses by means of loans on a sustainable basis. Well, if you want this to happen, you need to ask yourselves, "What do banks need in order to make sure that this can happen in the future?" Stefan Dörfler, the CFO, will show to you that credit growth has been quite strong over the past 12-18 months. I think we are in a position to say that we have been supporting businesses as well as private households on a sustainable basis. The first thing that we need to ask ourselves: What comes first? Well, we need to focus on core tasks. That comes first. Let's not, of course, forget the shareholders.
Without their capital, without their commitment, whatever we do will be in vain. All right, this is the right slide. Over the past few weeks and months, we've seen interest-related policies. The ECB, as well as national banks, central banks, have already started pursuing policies. We'll have to wait and see when this will impact the results that we expect. The question is, of course, will future policies be pursued? Just look at the ECB. Well, our estimate is that by the end of the year, interest rates will hover at 1.25%. That's our assumption. In the Czech Republic, where we currently have 7%, we expect minor adaptations, if at all. We think that by the end of 2022 we'll have reductions. Just take a look at Hungary. Levels are currently at 10.75%.
I'm quite sure that there will be sharp increases up to 12.50% by the end of the year, and then in 2023 or in late 2023, significant interest rates reductions will occur. Romania, by the end of the year, we'll see 6.25%, and this will also hold true for 2023. What we're seeing is that things are building up quite dynamically, but there are also clear-cut signals implying that things will revert to more moderate levels. Let's now look at national debt. Well, yes, of course, or public debt and budget deficits. Well, of course, there have been increases across all the countries where we're active, but we do expect things to improve next year.
Having said this, I should also point out the following, something that needs to be taken into consideration as far as future developments go, and that's the NextGenerationEU fund. Now, we're talking about EUR 750 billion in total. That's the fund's communitarized debt to help the countries pursue structural policies without increasing or without this being included in national budget deficits. With this, I would like to hand over to Alexandra.
Thank you very much, Willy. Good morning. Risk costs. The second quarter was marked by the continuously strong quality of our loan portfolio and our credit provisions. What does that mean? We see the first impact of the war, but we see no deterioration of the portfolio and no credit defaults. During the COVID crisis, we set aside provisions for the industries that were hit by corona. These provisions expire, and with the exception of urban hotel industry, we released them, and we also released our portfolios for those parts. We also allocated provisions to those industries who are hit most by the war in Ukraine and the supply side problems.
All this resulted in the net release of risk provisions in the first quarter in the amount of EUR 26 million. It's three basis points of the average gross customer loan portfolio. As far as the rest of 2022 is concerned, we expect twenty basis points for the year 2022. This expectation does not include any negative impacts or further deteriorations of the situation if there might be a complete gas stoppage from Russia. What is important, and I'm sure you can remember that, in 2020, we massively allocated provisions. In total, it amounted to EUR 630 million in terms of lump sum provisions for the crisis, and we still have EUR 500 million available after the net release I already mentioned.
This EUR 500 million can be used for further defaults and deteriorations of the portfolio. As far as the NPL ratio is concerned, it further went down, and at 2.2% it's historically low. The NPL coverage ratio showed increased slightly and amounts to almost 92%, and this is an historical high. Looking at risk costs and the NPL development in the first half, of course, is a look back. Given the current geopolitical situation gives rise to questions relating to the future, in particular, about the further course of the war in Ukraine and a possible stoppage of gas supplies from Russia. There is no doubt that no gas from Russia, such a scenario would be a serious situation and would result in a recession in Europe and also in our region.
Our NPL ratio would increase in such a scenario. Our internal stress tests that we carried out suggest that even such a scenario would be manageable for us, even if we take the most stringent criteria that we laid at the basis of this stress test. This stress scenario is not our base case. Even if this stress scenario materializes, we are prepared thanks to our risk provisions and a strong capitalization, the high quality of our portfolio. Yes, we will be massively challenged to support our customers if such a scenario materializes. Already during the pandemic have we shown that we are a reliable and strong partner, and as the group will remain to be such a strong partner in the current environment. Stefan Dörfler, please.
Thank you very much, Alexandra, and good morning to all of you. I'd like to give a brief overview of the development of our operating business, and then I'll talk about a few countries in particular. Let's start out with operating income for the first 2 quarters. Now, the situation that we see here is true for risks as well as the operating business. Looking back, we realize that there are a lot of basic components that are important to overcome challenges. Supported by a strongly improved interest surplus as well as good provisioning or net fee and commission income, we see that the operating income went up by 9.4% year-on-year.
Net fee and commission income, well, if you look at its components, you will realize that the setup or the composition is a bit different from last year's, and this is what we've also been talking about. We have been supported by strong financial markets. There are a lot of clients out there who have invested in diversified asset management products. This is good for them in the medium term and the long term. They're still there, and I think they will benefit from this in the long run. The new business, of course, has come back somehow. At the same time, there's also payment transactions. 2021, well, Q1 and Q2 were still marked by the lockdown.
This has not been the case this year, which means that there are stronger economic activities, so the net fee and commission income has been quite strong. Interest rate surplus, well, you have higher interests in CE, not in the Euro area as far as our key interests go. As was said by Willibald Cernko, we have also seen stronger demand for loans. I very much corroborate with what Willibald Cernko said. Of course, we're still marked by the crisis. Yes, we have geopolitical developments and threats that are quite imminent. On the other hand, our customers display very positive economic developments. Mr. Bleier will delve into this a bit further. That's the situation that we find ourselves in, and our job is to make sure that we can overcome challenges and respond to challenges accordingly.
We should also be upbeat about the future, and we should support these positive developments. That's the overall scenario for the group. Over the past few years, and also during Q1 and Q2, we've had a diversified and healthy credit business. This applies to all regions and sectors. Overall, what we're seeing is that there has been substantial growth amounting to 6.3% as far as customer loans go. Mr. Bleier will talk about individual segments of it later. Now, inflation is here. It's here to stay. It's hit all of our countries pretty hard, and of course, we're also experiencing this as regards our costs. Direct and indirect costs have been impacted. In the next few months and quarters, those will go up, no question about this. A few of those components have already been addressed and have been felt in 2022.
As the year goes on, this will show an effect or an impact, and many of the indirect effects will stay with us in 2023. Forecasts are quite difficult or even impossible from today's vantage point, but of course, we are able to address cost updrifts by good income, healthy income, and a sound cost management system. Of course, we'll have higher expenditures regarding all components of our cost structures. Now, the net result increase in the first half year, if you look at the three major bars, you will realize what the drivers are. While operating income, of course, is better, half of this updrift has been reduced by higher costs. Of course, you've got slightly better risk costs, actually no cost at all in the first half year. Well, they have also contributed to the situation.
The result, the net result, has been increased by EUR 200 million during the first half year. That's, I think, a very good basis. I think we can now better respond to challenges. Let me briefly talk about individual countries. The Czech National Bank was the first in our region to take interest rate steps as early as June 2021. Now, over the next few months, we'll see whether this early policy will have an impact. Maybe inflation will go down earlier, core inflation, that is to say. We don't really know how this will pan out. The June and July figures as far as the Czech Republic were pretty high, inflation-related figures, that is to say, and we'll wait and see what future developments will hold in store for us.
For our Czech guests and journalists, it's important to know that the Czech Republic now has the EU presidency. It's already pursued a number of policies. Alexandra and Willy have already mentioned a few of those issues. Energy, gas supply, and related issues. Our Czech friends and colleagues, I'm quite sure, will come up with a lot of suggestions in terms of improving and managing the situation properly. Let me briefly talk about Hungary. Now, the customer business is quite positive. There's still good growth across all segments. Our market position has been strengthened after acquiring Commerzbank in Hungary. It's developed favorably.
We should also point out that the currency, not the only currency in our region as far as our countries go, while the currency has been put under pressure, the Hungarian forint lost 10% compared to the euro, and we should not disregard this. It's something which, of course, will have an impact on the Hungarian national economy. We'll see whether interest increases will result in stabilization or not. Last comment, the euro area. As far as interest rates go and the increase of interest rates, well, the euro area will be expanded. Croatia will join the euro area. Progress has been made by our bank. We have prepared for this. Projects or most projects have been finalized, and come January 2023, we'll have Croatia as part of the euro area.
I'm quite convinced that in the medium term and in the long run, this will also be quite good for the national Croatian economy. Let me come to an end as far as my contribution is concerned. Capitalization. Now, in the long run, we're seeing important developments. Ever since the financial crisis, our Common Equity Tier 1 percentage rate, well, at the time it was 8.3, and now it's 14.2%, so there's been an increase. These figures already include the dividend for 2021 on a pro rata basis for the first half year, as well as substantial growth of our credit business, backed by equity.
Finally, let me also point out that this is very important for us. We as a company, as a group, we're strong, we're resilient, and we're entering this phase thanks to this. Financial health, the financial health of our customers can be supported by us. This is our goal, and with this, I would like to hand over to Ingo Bleier, who will deal with the details of our business. Thank you.
Well, thank you. Ladies and gentlemen, welcome to all of you. I would also like to welcome those that join us via the live stream. Let's start with the corporate business. This is displayed here. There's been strong and substantial growth in corporate loans, and this is true for, the SME, the commercial business, the key accounts. Well, this applies to all the countries in which we're active. Let me also point out that during the corona crisis and even though there has been uncertainty, we still have the credit tap open. All the lines have been maintained, all the credit lines have been maintained.
Now, developments, of course, have been pretty volatile over the past few months and years, but we've always been available to our customers. We have always kept our promises, and this means that we can garner a lot of business, especially as far as short-term funding is concerned. Energy prices are very volatile. We need to be strong, we need to be quick, and this has, of course, resulted in quite massive growth. Now, this may come to an end, but a lot of corporate customers out there are now stocking up. They're making advance payments that they will have to make in order to get energy and commodities. Capital markets have also grown. We are a leading bank of issue in our region, as I've already said, and this also applies to other banks on a regional level.
That's why the volumes of all issues, especially bonds, because stocks have been closed for new issues, well, this has grown quite considerably. What we're also seeing is that we are part of the ECM and the bookrunner business, and we've been able to expand our volumes. What is it that we do with the results over and above the fact that we build up capital for the private business? We are investing quite heavily in digitization. Here, a few items, a few areas in which we have taken a strategic approach over the past 1 or 2 years. We're seeing good growth rates, even exceeding the corporate loan business as far as online lending is concerned. This applies in particular to commercial customers, SMEs, and smaller businesses in standardized business.
We have had successful pilot projects in Slovenia, Croatia, and other countries, and in almost all markets, we're seeing that things are moving up. The online market is a market where there is a lot of lending. Now, we've also had a pilot project in Croatia. We comply with the financial health concept, and we want to be as transparent as possible. Our corporate customers find their ratings online. They are able to benefit from our services, and they're able to understand better where the rating drivers come from and how the rating will change if balance sheet figures change. Now, as far as key accounts go, this is not surprising. As far as commercial and SME customers go, this is something new. If we roll out George to the business area, to the business sector, this will also become applicable.
Now, as a corporate customer, you are able to join us digitally. This has been rolled out in Austria and Romania, and this includes all the commitments. Now, as far as asset management goes, well, we are investing in expanding our funds. We have been trailblazers in sustainable fund management, and every quarter, every half year, new funds join the fray, which means that as far as private customers or retail customers go, well, we've been able to maintain our asset management basis. This brings me to the retail business now. Now, let's start with the right-hand graph because I was talking about the asset management. What you see is that new savings plans have gone down, but it's still more than 150,000 savings plans, or security savings plans.
Now, of course, stock prices have been quite diverse, but there are no net outflows. Asset management volumes have remained the same, and actually, they continue to increase in those saving plans. This is something that will smooth the retail business because you can set aside funds every month. You can invest, which means that a smoothing effect occurs, which means that customers, of course, stay with those products. There is still dynamic growth, I would say, as far as housing loans go across the region. That's what we're seeing. Now, because of interest rate developments that have been addressed, we're seeing a leveling in the Czech Republic, but during the first half year, we still saw substantial growth rates. What about the new rules applied by the Austrian National Bank and then customer loans?
Well, this volume has also gone up. Also, I've already pointed out that as far as consumer loans go, we have never been the most active ones. We like to fund household needs and real goods. In terms of private debt, we are a bank that is rather cautious. You'll see growth rates, but they will never be substantial. Consumer confidence is now on the wane. Let's return to digitization. Our main investment project is George, as you all know. Now, 8.5 million customers find themselves on this regional platform. It's been rolled out to all the countries where we have regional banks, with the exception of Serbia, where we are in the midst of a large-scale IT project, so things will be a bit slower.
Growth rates, in particular in countries where there has been a recent roll, like Croatia and Hungary, well, growth rates are quite strong, and we're continuously investing in new offers. We're now also offering online insurance products in order to make all of these transactions possible on the platform. Now, thanks to our digital offering, we're quite confident that we can also roll this out to corporate clients, and this will allow us to gain additional market share, and this will now result in positive developments. With this, I'd like to hand over to Willibald Cernko, who will talk about the future.
Let me continue with the strategic direction of the group. Let me start with we build financial health. If we say we are caring about our customers, we wanna support our customers to build and to preserve financial health, this is not lip service or a marketing slogan. It's about offering specific and concrete services. We have three pillars. First, the first pillar is prevention. The images that you might have might have in mind help you understand what we mean. What is prevention in our mind? In the private customer business as well as the corporate business, it's all about preparing people for a situation. We started financial literacy some years ago because we think that it doesn't suffice to produce transparent contracts.
It's necessary to understand what is laid down in the contracts together. That is, we are investing in financial education. Secondly, Ingo Bleier already referred to that as far as corporate customers are concerned, we show our customers via George how we are interpreting their rating, how we are seeing them as far as their credit rating is concerned, and it's not only about providing data, but allow people to understand data and to analyze the company and to compare the company with the peers and to identify weaknesses or areas for improvement. We want to allow people to actively use our services for prevention. The second pillar relates to services and products that we offer. We have a range of products and services that should be used when appropriate. The third pillar is George.
Of course, we want to make that available always and everywhere via George. That is to say no barriers in any access to our systems. Another topic couldn't be better as far as the timing is concerned. You know the FMA guideline according to which we have to abide by rules in housing loans. The own share should be 20%, and no more than 40% of the household income should be used for the repayment of debt. You know, our position is very clear. We think that a rule here is very good because it will contribute to a cooling off on the market. A rule is only as good as it can be circumvented by exceptions, and there might be one exception, and we of course will discuss that with the legislator and the FMA.
It's about young people who want to create housing and all young people dream about acquiring real estate and it's important to help these people. Why is that so? At the other end of the scale, we are discussing affordable housing. I do not want to discuss all the markets in Central and Eastern Europe. If you take the Viennese market, the Viennese real estate market, you will not find any apartment that is freely financed where you pay less than EUR 5,500. When talking about rents, this is not affordable housing anymore. We differentiate between three groups of housing. Social housing, there is a good level of social housing in Austria.
We are talking about 25%-26% of the housing market that falls under the category social housing. In Central and Eastern Europe, we are talking about 2%-8% depending on the country. Social housing doesn't have such an importance in these countries. On the other hand, we are talking about freely financed housing market, and what is affordable housing in these is just in between these two extremes. Affordable housing for people who say, I have a certain basic income, but I am not in a position to acquire a house or whatever on the freely financed market. This is why, and this is also in connection with our funding idea, we say the Austrian model, which has been very successful, the nonprofit model, we want to export this model to Central Europe.
We should never forget that thousands of apartments are built under the heading Affordable Housing. The nonprofit organizations are responsible for that. We and the Sparkassen industry are financing 6,000 flats. This is EUR 1 billion in terms of financing per year. What we are planning in Austria as well as in Central Europe, we want to be an investor, we want to invest equity, and we want to set up dedicated companies. In the Czech Republic and in Slovakia and in other markets are starting to become active in this respect. The legal framework has already been set up, and the first projects have already been initiated. This is what you see here. By 2030, in our core markets, we want to have help to build 15,000 affordable rental flats.
Another topic that is very important to us relates to sustainability and the sustainability goals. We plan to be very committed in this respect. We committed to these goals. This is clear, and we all know that. We also want to help those who have not been as successful as we. We want to offer them something. I'm talking about social finance. It's about allowing people simple access to liquidity. We want to create jobs. You see 200,000 jobs to be created by 2030. 80,000 jobs already have been created. We think that these goals fit closely to our strategy, and this is much more than a capital market-oriented company normally does.
For reasons of time, let me sum up the situation before we continue with the Q&A session. I think we clearly stated that the first half of the year was strong. We are optimistic as far as the second half of this year is concerned, although the development will slow down. We still have a positive forecast always on the basis of what my colleagues already said. Always assuming that gas is continuing to flow from Russia. Is it 40%, 60%, or 20%? That's an open question. But the main thing is that there is a flow of gas and no shutdown of the economy following a gas stoppage will be the consequence. We also want to keep up liquidity, availability for liquidity for private households as well as for corporations.
We are here for our customers. This is also our obligation because we think that this is the core task of our bank. Thank you very much. So much for a summary. We are looking forward to your questions.
Thank you very much. Ms. Kiefer, please. Please wait for the microphone.
Anita Kiefer, Kurier. I have a question relating to the FMA guideline relating to giving out of loans. What will change in your bank? What about the volume of loans that have not been living up to these criteria? And what about the volume of loans that cannot be given at the moment? You said 37% of women by 2025 as part of the executive team. What's the percentage at the moment? The third question, when listening to you are rather optimistic as far as the no gas scenario is concerned. What's the reason for your optimism in this respect? The fourth question, as far as affordable housing is concerned, you a billion in Austria will not be increased, and activities will be taken in other countries.
Let me start with the billion that you just mentioned. So EUR 1 billion, EUR 1.1 billion, or EUR 1.2 billion, it's a question of supply and demand. That's what we've seen over the past years. What we have seen in nonprofit organizations due to increasing prices of construction material, people are rather reluctant. Some projects have been put on hold. People wait until construction or production costs go down again. You know that nonprofit institutions have three pillars.
Real property must be available at affordable conditions. Secondly, construction costs must remain in a certain framework. The rents may not exceed a certain limit. All these three pillars must be balanced, and if one of these pillars shows an extreme, then the nonprofit organizations wait until the three pillars are balanced out again. There is a rather defensive approach at the moment, and if the volumes get more, of course, we are willing to finance.
As far as Russian gas is concerned, both parties should be interested in keeping the gas flowing through the pipelines because on the one hand, Russia needs the income, and secondly, I don't think that there are countries that are deeply depending on gas from Russia, although the degrees of dependence is varying. I don't think any country would say they are going to do without the gas from Russia. The discussion about that needs to be continued. We will see what the situation brings in the coming months. Once this crazy war is over, there should be a way to stop the war and to start talks that in the end will result in peace.
Before I go into more details as far as the female ratio is concerned, and the gender split is concerned, at the moment, we have not achieved our goal, but I'm confident that we will achieve it. Let me come back to FMA rules as far as giving out loans is concerned. The individual measures are not new. In the past, we made sure that the annuity is in a reasonable relationship with the income. We also had rules as far as the own share, and there are 20%-25% of the loans that will not fulfill the guidelines.
This doesn't mean that part of the customers could have fulfilled these criteria in the past, and it is difficult to say what the effects of these new rules will be, and it will of course have an influence on new business. Let me add that, as far as housing for young people is concerned, we have less stringent criteria as far as own funds are concerned. We also always had realistic criteria, and people that are at the beginning of their professional careers are expected to earn more in future times, and this is why we continued with that model. In future, this will have to be booked under expectations, and this of course hurts.
Okay. Are there further questions? Please go ahead.
Hello. Christoph Eisele from Börsianer Magazin. Two short questions also related to the women's quota and HR. What about the former Chief Retail Officer, Thomas Schaufler? What about his successor? And then interest rate developments. Do you have specific figures or forecasts if the key interest rate were to increase, let's say 1%, and what would be the impact on the result?
Well, I've already talked about the women's quota. We are quite diligent. We're quite tenacious. We want the quota to be fulfilled, and we can even exceed our targets. Why not? As far as the chief retail officer's successor is concerned, well, let me put it this way. I think I can be quite optimistic, and I think that we'll be able to send out quite positive signals in the future. Stefan, over to you as far as interest rates go.
Well, we had an analyst call. We did and performed analyses and shared those with the market. Now, the interest steps that we saw in July, well, this has already been included in our forecast for the end of the year. This is a relatively contained effect of EUR 80 million-EUR 90 million. Why? Well, just think about the issue at large. Just think about the zero interest line. A few components, of course, only become active above 0%. As far as the next percentage rate is concerned, in terms of our simulations, this is no certainty. It's a simulation. Well, we'll see an effect of a bit more than EUR 300 million on the entire operative result.
A third or a bit more than one-third of this would be seen in the Austrian savings banks. That's the best estimate that I could come up with as far as interest rate sensitivity is concerned. I think that you alluded to this with your question. Of course, it'll be very difficult to forecast. Will the next interest steps actually be taken by ECB at all? Will they have an effect? Everything hinges on the way markets will respond, including us. What about deposits? What about the pricing of loans? Depends on many factors, but as far as the first percentage rate is concerned, well, that is the first indication that I can give you.
Thank you.
All right. Thank you. Further questions you'd like to put to the team.
Hello. Jiří Zatloukal from Czech Republic. Your economic outlook remains quite optimistic, I see. How do you evaluate the chance of housing prices decline? Is there something you can say on this?
I would say this is very much depend by country. Let's focus, first of all, on the Austrian market. Yes, there is an expectation that we are not going to see the same developments as we have seen it over the last 10, 15 years, but house prices will further increase. I would say this is also the same in other countries. When it comes to the Czech Republic and the interest rates that are now currently in place, in any case, it is putting pressure on the house prices. On the other hand, we should not expect that prices will fall or any other worse case scenario. This would be my assumption. Stefan, would you like to add?
Yeah, a couple of words on that. Thank you very much, Willy. I think what we've seen, and I'm sure you know this in much more detail than we do, there has been an enormous dynamic in the Czech housing market. Really enormous. I think, if I'm not mistaken, it's worldwide, but definitely in Europe, one of the most dynamic market in terms of price increases. On the back of that, and it was for sure one of the drivers of the Czech National Bank to act early, on the back of that, one should assume a certain stabilization.
That's definitely something that we saw already a little bit in the last couple of months in terms of slightly reduced production on the mortgage side, and definitely also stabilization on the housing prices. However, it's very hard to predict how the dynamics will develop insofar as the labor market, and that's, I think, very important and very good for the Czech economy, is holding up well. We have pretty much, especially around the centers, we have basically full employment. I think as long as the income dynamics are holding up well, I would say that overall, we should not expect, just as Willibald Cernko mentioned, we should not expect a harsh drop.
My personal expectation is that it's going to be very much depending on the labor market, on the dynamics around the interest rate front, and our base case would be a stabilization in the next couple of months. Of course, forecasts going into 2023, I'm sure you will understand, that are very hard to do, to make. For us, maybe just to add that, because it's extremely important, the Czech market is a perfect example why the initiatives around affordable housing are of utmost importance. Because the so to say, the possibility of financing an own home or only a rented home, I think, and you know that in the around Brno or around Prague, is really an enormous challenge for young families.
That's why we are fully standing behind the initiative of Česká spořitelna and the activities there, which I think are well perceived also in the Czech market. I'm very hopeful that we can act quickly, so that in the next couple of quarters, we will see first projects really materializing.
What about Romania? Maybe I will shoot them all. At group level, you had the provision releases. Beyond COVID, it seems kind of counterintuitive to have releases given the market environment. Maybe you can elaborate a little more. In Romania, actually it's the only country where you created provisions, not releases. What amount of was moratorium related in case you front-loaded them in Q2? Actually, what impact on provisions for the new moratorium you had? This is a unique situation in European Union without EBA approval. Speaking of special political and regulatory risk in Romania, there was another law in the past, still effective today, for datio in solutum. I'm sure you remember when the rate increases more than 50% because of depreciation or interest rate.
BCR was not affected much in the past during the Swiss loan crisis since it didn't have such loans. In this new environment with higher interest rates for loans in local currency, do you see a risk from this direction in the near future? Also, you have a large exposure in Romania on government bonds. With interest rates and sovereign bond yields rising, do you see losses? What are the risks for the portfolio? Also, can you give a perspective for your own issuance? Do you anticipate that MREL and other issuance to become more costly? Another question about affordable housing loans. The project that you said is in preparation in Romania is also with the government as a partner, like in Slovakia.
Are you aware of the past experience of the Romanian government in such projects? There was a national agency for affordable loans, and you also have an experience with Bauspar in Romania. Speaking of Bauspar, what are you going to do with it? The activity is pretty much dead there because of legislation also. The last one for Mr. Cernko, it's not too much about the long-term strategy of the bank. There was a difference in vision that Mr. Bernd Spalt invoked when decided to leave the group and at the last shareholder meeting he gave some explanation that it was the speed of the transformation that or the difference was about. That he thought that the speed was too fast. What exactly do you want to speed up, in what pillar of the transformation that Mr. Spalt consider it is too fast? Thank you.
We will take it in the order of that you were presenting and hopefully covering everything. Let me start with risk provisions. You're fully right, it's not intuitive that in this very severe environment, the general provisions are released. Let me point out once again, we only released a part of the general provisions. From the overall EUR 630 million that we had and that we booked on a really, I even say conservative level, still EUR 500 million are left. Why did we still release? First, as I said, phasing out of the COVID overlays, and we need to and hope and thank God we can acknowledge that the impact from the COVID industries, from the COVID crisis do no longer need an industry general provision.
This does not mean that some companies are not or have not been affected, but there the provision is already booked on the individual client level. A general provision for COVID, we see no longer as necessary. At the same time, we introduce new overlays for the new crisis, covering the impact of the war, supply chain disruptions, and high energy prices. The main driver of the overall release is that from the FLI calculation. This is now a little bit technical, but this is the macro parameter. We were not only requested by the auditors, but as well we excluded from the data series the COVID years. We did not change the macro outlook. We did also not change our conservative assumptions, so we still put 60% probability to the downside case.
The driver for the release were twofold, one, taking out the COVID years, as also requested by auditors, and second, that the phasing out of the COVID overlays was a little bit bigger than the new risk cost booking for the new overlays. Second, to your concrete question on moratoria. Yes, you're right, you rightly observed in B3, we booked in Q2 EUR 32 million of risk provisions, and thereof EUR 20 million are related to front-load the impacts of the new moratorium.
Thank you very much, Alexandra. I follow up on the list I noted down with your question on interest rates, if I was correct, and you were at the beginning referring to the Swiss franc components and so.
No.
No, no.
Datio in solutum.
Okay.
The impact on local currency loans.
Yeah, yeah.
Yeah, because.
Understood that.
Thank you.
As you well know, in Romania, we have never been granting any kind of Swiss franc loans to private individuals. Also the problem overall is solved in Erste Group in the countries the likes of Hungary, Croatia and so on for a long time. That's very good given the level of Euro-Swiss franc interest, Euro-Swiss franc FX rate, just to mention that on the side. Generally speaking, Alexandra will for sure confirm that we are not doing any whatsoever kind of foreign denominated currency lending to private individuals.
The only area where we of course are granting euro loans or international currency loans is in the corporate business with companies that have a cash flow of course in their respective balance sheets, income or costs that are matching the respective debt.
Can I-
Yeah
add on this? In case there's no natural hedge, there's a strict stress calculation so that clients can really afford to pay it back.
Absolutely. When it comes to our government bond portfolio in Romania, you are of course right. We are holding, like in every other country, a significant level of so-called highly liquid assets. That's not only regulatory obligatory, but it's also of course liquidity eligible with the respective central bank. We are following a very strict, so to say, share of balance sheet guideline here, and this is very similar in all our bigger countries. So in that sense, you can expect if the balance sheet is growing, the absolute amount of respective government position is higher, and vice versa.
When it comes to our, so to say, P&L on the government bonds, those are of course not trading or whatsoever fair value positions, those are positions that are held for maturity, meaning that whatever kind of changes, like in the last couple of years with the even lower rates, we had significant gains in, so in the market value, but that was not shown in the P&L and vice versa. Of course, now with the higher rates, that's not shown in the P&L either. Those positions typically are reflected in the so-called capital area, and parts of that fluctuation is in the OCI, as you see if you go in the details of the capital position. When it comes to the funding costs, yes, they are increasing.
This is absolutely clear. The funding costs are increasing, and that obviously also needs to be reflected in the pricing of the respective loan products. We have been relatively strict in passing on the funding costs on the asset side in both directions. We have been reflecting the spreads that are out there in the market in a fair and very, I would say, balanced way. There is of course an adjustment necessary when interest rates like in Romania are increased by 4% or 5% in the market, then you cannot stick to the same level of your loan prices.
We believe that the funding costs of BCR overall also in the context of the MREL regulation I'm sure you know about that are manageable for us. We have been in the second quarter issuing successfully on the local market the respective bonds. That's pretty much what comes to my mind. I hope I've been addressing your questions on interest rates and hand over to Willy for the strategic part.
Yeah. Two key answers on that. The first one is, the strategy as such is discussed, decided, and confirmed. Reconfirmed when I got nominated as a successor of Bernd Spalt. This is given. Secondly, the approach I'm following it up is a very simple one, is to create as many use cases as possible across the three pillars I mentioned during the presentation, meaning as many use cases along prevention, concrete product, and offers, but also when it comes to the various channels, and this is relevant for all countries. It is giving back the responsibility to the line management, and to follow up on the existing strategy so that we can demonstrate to our customers the way they are benefiting from this strategy.
I said to my colleagues, in 2-3 years from now, I don't want to explain anymore what do we mean by financial health because it is, it is perceived, it is experienced. Second question, related to M&A / how do we wanna manage our surplus capital? Also here to be very outspoken and concrete. Firstly, first priority always gets the ordinary business, meaning organic growth. I think we were able to demonstrate, to show you during the course of the first quarter, but also in the past already, we are present to support companies, corporates, as well as private households, firstly. Secondly, whenever it comes to an M&A opportunity, there is a key question to get addressed. Is it supporting our strategy, meaning to become a financial health company, or is it, let's say, producing and supporting, obviously, the contrary?
Thirdly, whenever there's an opportunity in one of our core markets, to enlarge our footprint, to get access to an interesting business, as long we are able to add value within a short period of time, low complexity when it comes to integration, we are totally fine with that. At the end of the day, if there is something left over, a share buyback program might be considered. What is not on our agenda, any cross-border M&A activity and not entering any new market.
Thank you very much. Looking at the clock, I would like to allow 2 more questions. There is one question about Spain and a windfall tax for banks. Do you think there will be similar taxes in Austria?
This is not surprising. This topic is discussed in all countries, and we are not the industry that is hit by such questions. There are several industries that are said to benefit from the crisis. We have a very simple approach. In difficult times, it is solidarity that counts, and we abide by this principle. Another question must be put first. What is our core task? Our core task is to support households and companies. To put it simply, 1 euro can only be distributed once.
We will always, and we have been showing that we're doing that, we will always fulfill our core task first. Against such a difficult environment, it is important that we support households with liquidity and don't leave the loan tap open. Maybe some temporary measures might make sense, and this is a discussion which we have to face, but there is other industries that face the same problem. I think we live in extraordinary times. As long as we're talking about temporary measures, as long as it is tailored measures, and as long it makes sense, we will of course be open to discussions.
Another question by Erich Brenner from Gewinn. It's actually three questions. What about demand for ETFs in Austria and CEE? Will you increase your supply? Question two, Austrians are interested in cryptocurrencies. What about the development, and what will Erste offer to its customers? And thirdly, as far as capitalization, which measures will be taken, and what will be the target groups in Austria as well as in all countries?
ETFs' demand is fluctuating. If you look at the index fluctuations of the first half year, you will not be surprised that there is a dampened demand. You can buy ETFs online via George without any problem. We are an active fund manager, and we don't have any plans to increase our offer in this respect. But customers buy ETFs. They continue to buy ETFs in Austria as well as in Central Europe. Investments in cryptocurrencies.
Will Erste offer cryptocurrencies, and what is your stance in this respect?
We are rather reluctant. We have one certificate in Bitcoins. The sales volume is relatively low due to the losses that we saw in the recent past. We see a recovery in value at the moment. This is a purely speculative investment. We can't do any research in this respect. We can't give any advice. There are no fundamental data about that, and Erste Bank will remain to be reluctant as far as cryptocurrencies are concerned. As far as financial literacy is concerned, Erste Group, as well as our main shareholder, ERSTE Foundation, is very comprehensive. It starts with FLiP in our company as well as other literacy activities in Austria. I would like to pick two initiatives in Southeastern Europe.
In Romania, we have a program which had 1,100 listeners, and this was entered in the Guinness Book of Records. In other countries we have more than 500,000 participants in our instruments. In Serbia, for example, we cooperate with the Ministry of Education and have organized financial literacy activities together with the ministry, and I think we can't do enough in this respect. Whoever is interested, we are here to help and to give you more details.
Thank you very much. A final question.
Romanian, Ziarul Financiar. The first question, you put Romania next year with 5% growth, 4% growth. How come? If your perspective is so good, what are the weaknesses in Romanian market? The second question, it's about BCR, the strength and the weakness of BCR right now. The third question, how you see the development banking market in Romania? I think in Romanian market, banking market, it's in the weak position compared with assets versus GDP. Do you see any potential to increase the banking system in Romania or Romanian market will be a good market with high margin but no development?
Let's get started with the way we look at.
How do you see the Romanian market, I mean economy.
The Romanian economy, I would say for us it's practically a core market, and we see opportunities, growth opportunities in the Romanian market, especially when it comes. This is what I learned from a number of discussions with Austrian corporates that are invested in Romania. There's definitely a need for further investments in infrastructure. To be more competitive. On the other hand, what they seen very positive is there are a number of universities and clusters in the Romanian market where there is a great potential especially when it comes to new technology, where corporates tend to establish cooperation with those institutions. This is confirmed by many of our partners, a very interesting market, a huge market with huge potential.
Probably takes a bit of time, but there are many good reasons to stay, but also to be part of a further integration and consolidation of the Romanian market.
Let me add a couple of details. I guess you were mentioning the ratio of, so to say, financial penetration, if I may say so.
Yes.
Right?
Yes.
In that of course there's two elements, right? There's positives and negatives. Let me start with the critical part, of course. Given the lower financial penetration in various respects, there is the absolute return on assets or whatsoever is lower than in other countries. The asset management penetration is much lower. We have hardly a second or third pillar in the pension system. That's the one way to look at it. The other way to look at it is, of course, the potential, right?
I think it's completely crystal clear if you look at the trends of the last three to five years in particular, after BCR has been solving some of its, you know, key internal problems, it has been a growth engine in the Erste Group portfolio, significantly. I think it was next to Czech Republic, it was the main driver, both in absolute and relative growth. Despite all the geopolitical difficulties around us, this is something which we definitely expect also going forward. We expect the convergence story to hold up. Of course, it will be a bumpy road, given what's going on around us, but we are absolutely sure that the Romanian economy overall is going to perform towards the European Union averages over time.
There is two elements I would like to add when you were asking about plus and minus. I think when it comes to the country as well as BCR in particular, with regards to the digital, so to say, maturity, it's much better than the average overall maturity of the country and the economy. That, from my point of view, is a strong basis for accelerating the growth, both in banking but also in the overall activities in the economy. We believe that we can be a strong driver and supporter of that with our George footprint. You see also in the presentation, you see the growth rates in the activities on the digital front there. This is very much a source of hope.
One thing that cannot be ignored when it comes about Romania is demographics. I mean, we have been seeing a brain drain, which is really only comparable to maybe one or two other countries in our geography. We see ourselves as one. It's one piece of the puzzle, not more, let's be realistic. As one contributor of helping that there is a future in the country, that there are people who can make their good living inside the country, and that the intelligence, the talented young people are seeing their future after maybe studying abroad or whatsoever in the country. I think that's absolutely essential because the forecasts on the demographic front are not looking very nicely. Yeah. Those will be my couple of remarks there.
Development in the Romanian banking market is always a little bit tricky to comment because that means talking about others, which we try to avoid. What is crystal clear, there is a mix between, you know, European players, the like of Société Générale, Raiffeisen, ourselves, who have very, very important local banks. Of course there is a market-leading local player, Banca Transilvania. I think those banks are dominating pretty much the scene. There is a couple of smaller players in the market, which I think also Willibald Cernko was probably thinking of when there is a consolidation in the market. I don't see it short term, but medium term it could be. Those might be interesting targets, also for BCR if they fit to our overall strategic footprint.
Those would be my couple of remarks, and I hope I could address your questions properly.
Okay. Last question for Mr. Cernko. You are a banker for 40 years, yeah?
End of 2024.
What kind of crisis is the crisis right now? We don't see any restructuring. We don't see any layoffs. The people are spending.
This is a discussion.
What will be the end of this crisis?
It's an interesting question because I tried to address this at the very beginning because there are two performances. On the one hand, based on the discussions we have with our customers, you get the impression everything is fine because they're always the same six topics to be addressed when I talk to corporate customers. The first one is growth and best case inorganic growth opportunities, simply to be part of a consolidation process to drive the consolidation. The second topic is related to ESG. Can ESG be seen as a growth opportunity, as a business opportunity? Yes, it is seen as a growth opportunity, and it is top of the agenda of each and every company. The third topic is related to supply chain matters. Now it's improving a bit.
They learn to deal with that, to build up storages here and there, buffers here and there, simply to keep the chain performing. The fourth question is related to interest rate expectations, fifth, to inflation. The sixth question is the most prominent question, and this can be seen as a party crasher whenever we talk about future performances, is the labor market, because there is a shortage of qualified and skilled labor force across all industry, across all countries. This is the common denominator more or less we are dealing with. On the other hand, talking to analysts, talking to you among ourselves, we have to deal with how could potentially a worst case scenario look like. This is part of our business.
We have to look at both possibilities. As already said a couple of times today, we believe, we are convinced that the no gas scenario is not gonna take place. We believe that the situation as it is, it is a bumpy ride still. This will stay, and I think we all wish that this is turning to the best, especially for those there in the middle of the crisis.
Well, thanks for these nice words of conclusion. Thanks for joining us, and we wish you all a very nice remaining day. Thank you.