A wonderful good morning, ladies and gentlemen, and a cordial welcome to the presentation of the full-year results of Erste Group. Before our board members will start with their presentation, I have two housekeeping remarks. If you'd like to ask a question after the presentation, please wait for the roving microphone so that the international colleagues in the livestream can also understand your question and not only hear the answer. And for all the colleagues who are joining us in the livestream, there will be an English livestream, so you can ask your questions using an online tool after the presentation. Now I'd like to hand over to the Chief Executive Officer of Erste Group, Willibald Cernko.
Thank you, Christian. Allow me to briefly start with one statement. In 2022, we were still seeing a growth in the region that we are active in to the tune of 3.9%, and the Eurozone grew by 3.5% in 2022. What do you see here in 2023? Well, a couple of countries experienced what you might refer to as a mild recession in the Czech Republic, in Austria, and in Hungary. The other markets showed modest growth. But what's essential is looking forward to 2024 and 2025. In 2025, we believe that there will be modest positive growth. In the course of the year, there is an assumption that we may see the dynamic picking up. This is related to the interest rate expectations.
But what we're seeing here is that compared to 2023, in 2024, the region that we are active in will outperform the European average. There are many reasons for that, and among others, this is also characterized by a strong pickup of consumption. Looking forward to 2025, we're seeing a slight but still continued consolidation of growth, and the regions that we are active in will be growing stronger than the Eurozone in general. At the end of my presentation, I'll come back to this point. What we are seeing is that looking forward, it will not be enough in this region to continue this path of convergence infinitely and indefinitely if we only focus on lower wage costs and foreign direct investments and well-qualified staff.
Quite clearly, we are going to have to face two major issues, namely digitization and also the transformation towards a more sustainable and clearly more climate-friendly economy. I'll come back to that. Now let's take a look at new debt. There's the 3% Maastricht Criteria. We are seeing that the markets that we are active in are either below this threshold or are moving closer to this threshold. The same applies to state debt. So public debt in most countries, we are below the 60% threshold in our region, which means that the public households can intervene, and there is a potential of taking action. And this brings me to digitization and the green transition.
So we need to come up with the corresponding and appropriate initiatives. In the course of 2022, and in particular in 2023, we saw something that led to a slowdown of the economy due to high rates of inflation. Looking forward to 2024 and 2025, markets such as the Czech Republic and Hungary in particular, we are back on a path of the assumption that the target of 2% that we're aiming for here in Europe is not too far off, and that gives us some leeway for adaptations of the interest rates. So this gives us some maneuvering space. If we take a look at the markets of Central and Eastern Europe outside of the Eurozone, well, they started reacting sooner, reacting to high rates of inflation.
And now these central banks have already reacted earlier to the already improving situation in terms of interest rates. So Stefan will be coming back to that because this is also relevant in terms of future development. On the basis of the month of February, our estimate is that we assume that in the Eurozone, we are going to see some interest rate cuts of 100 basis points until year-end. We assume that in Romania, we're going to see interest rates to the amount of 125 basis points until year-end. In the Czech Republic, 225 basis points, and in Hungary, 350. We'll come back to a level where the key interest rate in the Eurozone countries should be at 3.50%, in Romania at 5.75%, in the Czech Republic at 4%, and in Hungary at 6.5%.
Another very positive bit of news, and this has carried us through the difficult times, and my colleague Alexandra is going to refer to that, talking about the quality of loans. The labor markets have remained robust. There are no indications that the labor markets might lose in robustness. People have a job. They are able to consume, and they're also capable of supporting a positive outlook. This takes me to Alexandra and the risk costs.
Willibald? Thank you, Willibald. I'd also like to welcome you most cordially. Risk costs. On the left-hand side, you see the risk costs. Most of you know this type of presentation, but I'd like to explain it once more so that there are no misunderstandings. The figures that you see here are no absolute figures. These are the risk costs in terms of basis points. We are measuring the risks as basis points of our credit volume. For the whole year 2023, you see six basis points. That is to say, 0.06% of our credit volume. Although defaults rose in the last quarter, we saw that in Austria in particular, in particular in the Sparkassen sector and also in small and medium-sized building companies, we expected this increase.
But in spite of that, the risk costs remained at a very low level. This is on the one hand due to the fact that, on the one hand, part of our risk-related credit provisions. I'll come back to that later on because part of the risk-related provisions were released, around EUR 200 million. Why did we release EUR 200 million? On the one hand, and you might remember that at the onset of the Ukraine crisis, we had overlays for certain industries, including the energy sector. And these lump sum provisions for the energy sector, due to the lower volatility in the market and diminishing uncertainty, we released credit risk provisions in this segment. And this segment, the energy sector, is doing well at the moment.
A further release is due to FLIs, forward-looking information. FLIs are calculated from macro factors that expect further deterioration of the economic environment. Due to the fact that we have a better view of the future, we adapted our models, and this is why we could release part of the risk-related provisions. At the end of 2023, and this takes me to the right-hand chart, we still have crisis-related provisions of a high volume for future deteriorations of the environment, EUR 740 million.
We expect that we can release part of these provisions in 2024, and we think that risk costs as compared to 2023 will rise. But if you compare it to the long-term history, up to 25 basis points, this is a relatively good level. Let me have a look back at our historical risk costs, which were 30-50 basis points. Due to the fact that we have been prudent for more than a decade and have very prudent lending standards, we assume that we will not see 30-50 basis points, but we will remain at the level of 25 basis points as we expect for 2024. On the right-hand side, you see the effect of increasing inflows and the pandemic and also following the Ukraine war.
We didn't have defaults. This changed, especially in the fourth quarter of 2023, where we saw an increase in defaults. But this was in line with our expectations, and we could also digest these defaults as far as the volume is concerned. The real estate business is hit by the crisis and by inflation. It relates to small and medium-sized building companies.
Here we have higher volumes of loans, and the impact on the NPL ratio is higher, but the risk is modest because we have good collateralization. This is the reason why the NPL coverage ratio went down. You see that on the right-hand side. The NPL coverage ratio went down from almost 95% to 85%. 85% is a very sound level. Nevertheless, don't forget that we include only provisions and not collaterals for such loans. If you include collaterals, we are way beyond 100%, namely 135%.
We think that in 2024, the NPL ratio will increase by increasing our risk-related provisions and will end up at approximately 90%, also seen in the medium term. Even if the environment deteriorated for especially small-sized market actors, market players. We think that we are in a very good position to show good risk results for the next periods. I'd like to pass over to Mr. Stefan Dörfler.
Alexandra? Thank you, Alexandra. Good morning, ladies and gentlemen. This takes us to the operating income and the outlook. Now, what caused this increase of operating income by almost EUR 2 billion compared to 2022? Well, on the one hand, Willi Cernko has already pointed this out. The net interest result, after many years of low and negative interest rates, of course, the positive interest rates have had a positive impact. Close to EUR 7 billion has been the net interest income.
This is a level which, two or three years ago, was almost unattainable or deemed to be unattainable. Now, the big question is, what about the way forward? We've seen that there have already been some interest rate cuts, and we believe that sometime in the second quarter currently, our research believes that this will happen in June, that the ECB will probably also decide to lower interest rates.
This will, of course, have an impact on our interest landscape and our interest results. We communicated today to the market that we believe that it might be a slight downturn of the net interest income in 2024, so still at a very good level. My colleague Ingo Bleier will give us his opinion on the future loan growth. This will lead to, hopefully, a positive development. But of course, based on the increase of the past two years, the dynamism will be going down again. The second point, and this is rarely mentioned, but today we have to mention it because, in absolute terms, this has been quite impressive, namely the fair value and the trading result. In 2022, due to the rapid rise of interest rates, it was quite weak. In 2023, it was very strong.
In a year-on-year comparison, there was a strong contribution. For 2024, we believe that the situation will normalize again. It will be somewhere in between those two results. Last but not least, and from a strategic point of view, this is really important, the fee and commission income was not only improved year-on-year, but when you compare the period between 2019 to 2023, and I'm convinced also in 2024, there will be a sustainable increase. We're very pleased about this. In all fee types and payment transactions and asset management, we are moving in the right direction.
This is also the case across all countries where we're active. If you're interested, I can talk about some of the details. This is important to us, strategically speaking, to make sure that we are not so much dependent on the net interest income over time.
Now, what about the operating expenses? Now, if you take a look at those, here you see the personnel expenses and other administrative expenses. Well, I think we can safely say that such inflationary pressures and such substantial increases of our costs had not been seen for years or even decades. The costs rose by a bit less than 10%, as some foreign exchange effects contained in that figure. But anyway, this is an enormous increase of clearly above 9%. And the only reason why this did not impact our results so much is that the operating income also rose enormously.
So the question is, what about the way forward? You all know that the collective bargaining logic in Austria is not necessarily helpful when it comes to the development of our costs for 2024. The negotiations are currently underway, so I'm not going to comment on them. We assume that there will hopefully be a balanced and fair agreement, and hopefully quickly. We also believe that personnel expenses will rise in 2024, of course, significantly less quickly than they rose in 2023 because we're already seeing a flattening of the inflationary curve in Eastern Europe, in Central and Eastern Europe. Even in Austria, inflation is finally falling.
We still believe that this will increase by about 5% as far as the total operating expenses for 2024 are concerned. I think that we need to use these good times for investments and these rising personnel expenses. Well, we also invested in future IT personnel, data management, our digital platform, George. All of this is contained in this increase in operating expenses, and this will help us to generate income and to provide good services to our customers.
On this slide, you see some information about the loan growth and growth of deposits, not quite spectacular growth. The macroeconomic and the interest rate environment has already been referred to. Let me only mention two points. Even if when compared to 2021 or 2022, the situation in terms of loan growth in our books is a bit gloomier. But we are one of the few banks in Europe that have a clear net growth in terms of customer loans. If you take a look at the results of our colleagues from other companies and other banks, you will see that this is something that doesn't go without saying. Of course, we're not quite happy with the order of growth. We'd like to have had 5, 6, or 7% growth, but the market environment was quite weak.
We hope that going forward in 2024, we are going to see a better growth of our loans and that we can support our customers in their investments. But what's also important, and that's the second comment, the overall constellation, if you take a look at loans and deposits, it's quite stable. And Alexandra is very happy with the coverage ratio, and I'm happy with the loan-to-deposit ratio. I'm very satisfied with this ratio, which is around 90%, which is a very healthy level. Now, let's take a look at the reconciliation between 2022 and 2023 in terms of the income statement. We have the operating income, the operating expenses, and the risk costs.
And there is one major block that remains. And even though this is a negative aspect, of course, it is still very positive. This describes the excellent profitability of our Sparkassen savings banks. They have really contributed very much to the operating result in 2023. But due to the ownership structure, they need to be subtracted from the net result. But on the whole, this is a very positive development. And in a year with such a good result as in 2023, of course, we will normally pay higher taxes. That's something that goes without saying. And to conclude, I'd like to talk about a very important point, namely our capitalization.
As you can see in this long-term chart, I really like this chart because it provides us with an overall perspective of the world since the major financial crisis. Our Common Equity Tier 1 ratio has almost been doubled. This is almost incredible. So in the past, the Common Equity Tier 1 ratio was single-digit, and now it's showing a very positive development.
Now, I believe that this is positive for all stakeholders, and it is also quite relevant and significant for our employees, for the public at large, and also for the regulators. This shows that the business model is very sustainable and our business is stable. For our shareholders, of course, this offers an opportunity to invest in a sustainable way and to be able to pay out a good dividend. Last but not least, for our customers, for whom we are a strong partner for their financing projects. Now I'd like to hand over to Ingo Bleier.
Thank you very much, ladies and gentlemen. I can inform you about pleasing developments in the corporate client segments and the capital market business. In spite of low demand for loans, especially in the second half of 2023, the corporate loans volume rose by more than 5.5%. At the moment, the loans amount to EUR 78.2 billion. Corporate loans, this is small and medium-sized enterprises, the public sector, and also the commercial building business. We hope that demand for loans, following a dynamization of the industry, will increase in the second half of 2024. We have a growth rate that is above average. We are very proud of our growth in sustainable loans, sustainable loans, renewable energy projects, wind plants, and also energy-efficient buildings, solar energy. This is why our loan portfolio is becoming more greener.
Following this growth, and also driven by the strong interest income and commission income, we see an increase in the operating result for our corporate client segment, more than 21% in 2023. As far as the capital market is concerned, we are following our path to remain the leading bank in Central and Eastern Europe. We have an emission volume of more than EUR 150 billion in 2023. We are a bank also for other banks, as I say, as we heard before. We issued a lot of bonds last year, and we had a very strong beginning in 2024, have a very strong business in this respect. We were a part of the consortium for the largest IPO in Europe, Hidroelectrica.
It's a leading energy provider, especially renewable energy. It was listed in Bucharest on the Bucharest Stock Exchange last summer, and we were involved here. We also have assets under management, which rose in 2023, of course, caused by an increase in prices at the end of last year. But we also see a net growth as far as the fund volume is concerned, especially in the private customer business, but also in the institutional business. As far as asset management is concerned, we had a stronger growth in sustainable assets. So we see a clear trend, and we hope that this trend will continue as far as our commission income is concerned.
So how can we manage to grow in this respect and to improve our business? Apart from a good consultation service with our customer consultants, we rolled out George for small corporate customers last year. In the meantime, 37,000 companies activated George Business. We also started in Romania in the meantime. The first customers already used George in Romania, and we are preparing the launch of George in the Czech Republic. We want to take care of corporate customers also with George. We also want to offer an internal rating advisor. We want to show our customers our view of their financial standing, and we also want to consult them how they can improve their standing.
It is possible to become an online customer. This is a completely digital operation, and to become part of the George family. All corporate customers also have their advisors, but the digital service that we offer is extended continuously, and this will result in a higher number of customers that use George for their daily banking business. So much for the corporate customer business. I hand over to Willi as far as the private customer business is concerned.
Thank you. I believe that we can safely say that this has brought us back to a really topical subject. Before I get there, I would like to start by talking about the securies savings plans, because that is also a development that we have been seeing that we can be quite rightly proud of. Increasingly, we are managing to convince our customers to think in terms of alternatives when it comes to investments and provision for the future and increasing one's wealth and asset. This is not only relevant here in Austria. If we take a look at this 1,165,000 securities savings plans, well, we can name Česká, the Czech Republic, and also Slovakia, namely Slovenská. Each and every market participates in this campaign to increase the securites savings plans.
If we take a look at the development of prosperity per capita, this is really incredible, a wonderful development. This is something that we like to see for our customers. As far as housing loans, the existing ones and the new ones are concerned, well, this is really a topical issue. I also said that as the Czech person of the industry, we welcome the initiative taken by the federal government quite explicitly so, because in the final analysis, we are talking about a bundle of measures that is being prepared where, apart from the situation in the real estate industry that needs an impetus, but we believe that we should focus on ownership. Renting apartments and also affordable housing is really important. We're also talking about refurbishment of apartments.
Now, if there is one area where we'd like to see a lot more, that is in the area of refurbishment, the discussion about the sealing up of soils and about densification, the discussion about energy efficiency. I believe that you all agree with me that in the final analysis, any piece of property that is not sealed up constitutes a bonus. So refurbishment is really key. And of course, we are pleased about the fact that there are fees and fee income. But anyway, I think that in the long term, we should continue to go in this direction. And then there's the regulatory environment. There's the regulations.
Well, we are in fruitful discussions with all stakeholders, and we hope that we will find a solution where we are not going to shake the very foundations of our regulations, but we simply want a simplification of how to handle these regulations. This will give smaller and medium-sized banks more opportunities to use these exceptional contingents. And if we dramatically facilitate and streamline the rules, there is a proposal on the table. I'm confident that on the 12th of March, we will reach a result, and the Financial Market Stabilization Body will give the go-ahead and the green light. So if this is combined with measures that are to be taken at the regional level in order to improve loans and the availability of loans, then we will definitely succeed in overcoming these problems.
There are a lot of things that are praiseworthy, and this gives us confidence looking at the volume of housing loans that in the second half of the year, also due to lower interest rates, we will be seeing some tailwind, and there will be more growth in the area of new housing loans. Ingo Bleier has already referred to digitization and the digital offer in the context of the corporate business. Now, let us return to George for our retail customers. Meanwhile, we have 10 million users across all our markets. I consider this to be really important because a digital offer is only economically successful if we have scalability. So we need to roll this out to all other markets.
And I think that compared to other competitors, we have really one step ahead. So it's not only about our day-to-day business. What we are seeing here is that. What we're trying to do is to work with artificial intelligence, to try out new things, to gather some experiences. What this is about is to use artificial intelligence in order to enable an easy access to financial know-how and knowledge. Talking about the financial health check, for example, we want to provide assistance, support, and advice. So we believe that this will be very helpful. Now, at the end, I would like to talk about two major points. On the one hand, I would like to take a look back at the past 20 years.
Now, why am I talking about 20 years? Well, this is when we had this large round of accession of Eastern European countries to the European Union, the Eastern enlargement. How did the real-term GDP develop? This is a comparison between 2004 and 2022. Well, this is a very positive development, and that goes to show that when we are talking about convergence, about catching up, when we are talking about moving closer to Western Europe, to the EU average, this is quite a success story.
The same applies to the per capita financial assets. Well, enormous developments have taken place here. We also have to say quite clearly that, and I already said this at the beginning of my intervention, that the pillars that this is all built on, namely well-trained, skilled workers, low wage costs, and enormous foreign direct investments, well, we cannot achieve this full convergence indefinitely like that. What we need is a new approach.
I believe that this part of Europe, which has all it takes in order to be the engine of growth of Europe in the future as well, has actively dealt with digitization and the green transition. Of course, this requires strong banks. Stefan Dörfler has said this quite clearly when it comes to looking at our capitalization and when it comes to how important we are as a provider of liquidity. Because when we're talking about financing our economy in a green transition, there are three areas of liquidity. That's equity. That's public funding, whether it's the governments or the European Union, and it's the banks. What's missing, and we're always pointing to that, and this is, of course, work in progress, is the capital markets, the capital market union, which exists on paper and has existed for years.
But we need a capital market that helps us to also bring private capital into and invest it in financing the green transition. We can't do it without private money. I think this is quite a clear insight. So we need private capital, and we will try to make sure that a capital markets union is on the agenda of all governments. I think at the end of the day, there are more positive things. And well, the glass is half full. Yes, it really is half full, and we have every reason to assume that the glass can be even fuller going forward. Thank you.
Thank you very much. We start our question and answer session. Ms. Siebenhofer and Ms. Kern from the Austrian Broadcasting Corporation.
I have two questions. You always said that you will see a decrease of the loan volume in Austria due to the KIM regulation and also increasing interest rates. You show an increase in the volume of loan in Austria and in CE. What's the reason for that? And the second question, you already talked about that, but I'd like you to explain it in more detail. You think there will be a decrease or a cut in interest rates after mid-year. What do you think about interest rate development? What about the key interest rate by the end of the year? Thank you very much for the question.
The decrease in housing funding took place in fall 2022. We saw a decrease of 60%-70%. Since then, we have a lateral movement. That's the fact. And this is also illustrated on the slide, on the chart on the right-hand side. So what are we expecting in this respect? This is what I already said. Falling interest rates. We expect more growth in the future.
Does this answer your question? As far as interest rate expectations are concerned, if you look at the market and if you look at the discussions of economists, what we say here can be different tomorrow. It's a very volatile market. The American Central Bank and the European Central Bank will have to identify the right point in time, the timing, and also the change in interest rates given the current economic development. What do we expect? Our research expects the first cut in interest rates for the June session of the ECB, 25 basis points.
We also expect three further interest rate cuts in the course of the year 2024, 100 basis points, is the current expectations of our researchers. We expect the first interest rate step of the Fed in May. Of course, the markets view that differently here, week after week. Some expect it in May, others in summer. So we expect the first interest rate cut of the Fed in May, in total, 125 basis points in the course of the year 2024. Willi Cernko already talked about Central and Eastern Europe in his presentation.
I have two questions as far as housing loans are concerned. So there are publicly funded or subsidized housing loans. This is what you can't offer to customers, these low interest rates. So you have competition on the part of the public sector. Do you think it is positive, or what is your estimation and what is your perspective on that? Furthermore, we have this promotion program for housing. Do you think that people can't pay back their debt in the course of the maturity of their loans?
Of course, we have to understand each and every detail of this corporate bundle. The provinces can enlarge their existing subsidizing programs. They are getting a limit, a cap, on what they can do. We are currently discussing with the provinces and if this is compatible with the KIM regulation. This is a technical detail. I hope you are not confused about that. There are three pillars in the KIM regulation: maturity, a maximum of 35 years. Furthermore, equity share in a simplified way. And three, repayment must be affordable, a maximum of 40% of the net household income.
So if a federal province grants a direct loan in the amount of 1.5% interest rates, of course, the market, of course, the customer benefits in terms of affordability, and this supports private housing. We are welcoming these developments. We don't see the federal provinces as competitors. The federal provinces have extensive subsidizing programs, and we think that it is good that these programs are extended. We have a limit of EUR 200,000 in this respect. As far as the question is concerned, that people can't pay back their debt, I'll give the floor to Alexandra. If we look at the risk profile of our customers, this hasn't happened in the past, and we don't expect it for the future either. Alexandra, please.
Let me add that we have always had a critical stance on the KIM regulation in the past. This doesn't mean that we are fighting the cautious lending parameters. We have already used these cautious lending parameters before this regulation. What is a problem for us is that we can't include risk-averse investment, and we can't find, and we can't finance young families. We are not concerned about people not being able to pay back their loans. As far as Mr. Cernko already said, due to the labor market, we have a very strong portfolio.
The labor market, of course, supports our efforts, and we don't expect a deterioration of our customer portfolio or the quality of our portfolio. Of course, there are customers that have loans with variable interest rates, although we have a low share of loans with variable interest rates. For such customers, affordability has been a little bit more difficult, but this is a temporary event. And we don't see a deterioration of our portfolio, and this doesn't only apply to Erste Bank but also to the Sparkassen sector. Claudia Haaser, please.
I have two different questions. One of them is directed to Mr. Cianco. You said there is enormous volume of private wealth that is parked somewhere. That private means are needed in the transition of the economy. You talked about the capital market union, but this is slightly too abstract for my audience. Do you have any suggestions how you can make the union capital market happen? I just wanted to mention that because this is discussed publicly. It's the retention period, and how do we deal with such investments? Is this speculation from the very beginning? Or, for example, increase in value will be free of withholding tax, in particular if these investments are made in green investments?
So it would be very easy by tax measures to channel private funds in a direction where they, in a sector where they are urgently needed. There are several studies relating to this factor. We are talking about three-digit billion amounts, which will be needed by 2030 to make the transformation happen. So we want private households to invest in the green sector. We want incentives for such investments, for investments in specific asset classes. Asset classes that support the transformation of the economy. Do you want to add something?
I think you've described that very well.
I'll give you another example. We were involved in the IPO for Hidroelectrica in Romania. From the Anglo-American region, EUR 2 billion came from, EUR 2 billion came from the Anglo-American region. If we have an IPO in America in the amount of EUR 200 billion, no investor from Europe is needed. But if you issue large volumes, you can't do without the Americans. So we have an extremely strong fragmentation of the capital market. We have different tax schemes in the individual countries. We also have different stock exchange laws.
So we don't have a uniform capital market in Europe, but we need long-term capital for the transition. Let's take the energy industry, investments in the grid. So we are not talking about the amortization period of 10-20 years. It's 30-40 years, and this needs equity capital, and this is what we lack in Europe. A question by Paula Londani in writing.
[Foreign language] .
I think this question can be answered easily.
In countries such as the Czech Republic and Hungary, have observed weak consumer confidence since the start of the year despite flattering inflation. How do you expect it to affect Erste Group's operations in 2024? [Foreign language] .
So you won't be surprised that we are not commenting individual commitments that we have, and this applies to Sigma and other companies, but we are relaxed as far as this topic is concerned. If I understood you correctly, it relates to your outlook for Hungary and the Czech Republic given the consumer confidence there? We already talked about that when giving the general picture. We see a subdued economic situation for these countries and in total. Many of you are reporting about the fact how Germany is performing, and Germany is very important for Austria as well as for the region. In Germany, contrary to long history, they had difficulties in coping with the economic factors.
If they overcome these difficulties, of course, it helps us and our countries. We have very good research done by our colleagues, which was also published and which shows the interrelations. As far as Hungary and the Czech Republic is concerned, as far as the financial result is concerned, we have a very good outlook for the Czech Republic. The Czech Republic reacted early as far as interests are concerned in increasing and decreasing interest rates. So many effects that were shown in the interest rate results were already digested in 2023, and we are optimistic that our Czech colleagues will be a driver of a good result as they were before.
In Hungary, the situation is slightly different. In 2023, we had a sensational result in Hungary, on the one hand due to the good results in our core business, but also due to the fair value segment. Hungary was a strong driver in the baby loan business. You might know that from the Orbán government. This helped us as far as the result is concerned. We don't expect that to happen again in 2024. We expect a moderate contribution of Hungary in 2024, not bad and not very good, a sort of neutral.
Michael Bachner vom Kurier, please. Thank you very much. I have two short questions. The net interest income rose by EUR 1.2 billion. Can you say how much comes from loans and how much from deposits?
Yeah, a very good question. Let me answer it this way. For many years, we had a negative contribution from the deposit side, clearly negative due to the negative interest rates. I think you will remember this. The banks all over Europe, not just Erste Bank, really lost a lot of money with deposits. Of course, now this has turned around, and I wouldn't be able to give you a percentage, but I believe that the deposit side has clearly and significantly contributed maybe to the tune of one-third of the total result. But it's not only about loans and deposits. It's also about the investment book that was in a gloomy situation due to the low interest rate.
We have to hold these high liquid assets, and this has now improved and has generated a few hundred million EUR more. So it's not easy to give you a percentage, but you're completely right with your assumption that the deposit side has contributed positively to our results.
Thank you. The second question. The outlook is a bit too vague as far as I'm concerned. Can you tell us what the net result will be, more or less?
Yes, sure. We had a very detailed analyst call, and the documents are available on the website. So you can look at the risk, and we expect a return on equity of 15%. We had 70.2% in 2023, return on tangible equity, so all the intangibles are subtracted. So depending on our equity position and how it will evolve, we're talking about EUR 2.6 billion-EUR 2.8 billion after the result of EUR 2,990 million for 2023. One question from the livestream before I come back to the colleagues in the room. From Romania.
Romania is in consolidation period. Why isn't Erste going for M&A on the Romanian market? Does the strategy involve only organic growth in Romania?
Well, let us answer this, the two of us. What I think a clear answer I can give you is when it comes to capital allocation, we have a clear hierarchy, how we use our capital and how we use our surplus capital. So the first thing is we want to promote organic growth, the ambition being that we want to perform better in our core markets than our competitors are performing. We are also committed to our dividend policy, our shareholders, offer 40%-50% dividend payout ratio, and we also want to offer a premium of 20%.
That's the second point. The third point, we're talking about inorganic growth and M&A. I'll come back to that. The fourth point is share buybacks. Also, one tool of actively managing our capital allocation. As to the question of Romania, yes, Romania is a core market for us. We do see growth potential there. We are screening the market. We are screening all the markets where we have a presence. And if there is a good opportunity, we will look into it. But currently, this is not the case. Barbara Lenger from APA, please.
Austrian Press Agency. Thank you. I would like to briefly come back to the KIM Regulation. That's the Credit Institutions Real Estate Financing Measures Ordinance. You said that this will be simplified. What exactly are you demanding by way of simplification?
Well, we talked about contingents with exemptions, with different threshold values of 10%-20%. So what we want is to have one contingent that goes across all the cases that have exemptions, namely to the tune of 20%. Why is this so important? Well, that's in the nature of our business. Just imagine that customer Willi Cernko wants a housing loan.
Of course, it's in the nature of things that at first a financing decision is taken. But it's not the case that on the next day, Willi Cernko will be able to get the loan right away. It may take weeks, or it may even take a year. Then he's finally got all the approvals, all the offers. So this is a long drawn-out process. And if a smaller bank has several such reservations in their contingents, then they are blocked, right? So we want there to be a simplified handling, one exemption contingent, and it's easier for us to use it because when the regulators tell us, "Well, you're only using 50% of the facility," well, statistically speaking, that is correct, but that is due to the complexity of handling the regulations.
So we don't want to change anything about the principle as such. This is an Austrian approach, of course, that we simply want to make it easier. I invested a lot of time into this issue in the past 12 months, and I believe that in mid-December we'll have a good solution that will also fit into the package that has been presented by the federal government in the past few days. In light of the presentation of your results, the Social Democratic Party of Austria has also requested you to participate in this package of measures for home builders with up to, well, maybe a maximum interest rate of 3%, up to EUR 300,000. Well, you may not believe this. Allow me to interrupt you. We're already doing that. We have been doing that since December of last year.
I can tell you, even high officials from the trade union have praised us publicly in the Austrian Broadcasting Corporation about this initiative. You may remember that in my capacity as the chairperson of this association, I have tried to take several measures. One has already been implemented. If somebody runs into difficulties in light of the environment that prevailed last year, the banks will not ask for any default interest and fees. They are going to try to help out. I didn't see a single case where any banker failed to comply with this agreement. The second thing is, what can we do in order to proactively contribute to this as a bank? We, as Erste Bank and, of course, also a lot of Sparkassen, savings banks, and Raiffeisen banks followed suit.
So what we offered to young families, up to a volume of EUR 100,000, well, we'll reduce the interest rate by 2%. We'll renounce 2% interest. So a big praise to all my colleagues. We've been doing this since December of last year.
Ingrid Krawarik from Börsianer. I have several questions as to the risk costs for the building companies. Is the worst over because you said that they are running into problems? And the basis points from six to a maximum of 25%, where does that come from? What's the basis of that? And then I have a question on the atmosphere in the capital markets, Mr. Cernko and Ms. Bleier.
Well, the retention period is handed over from one government to the next. The Minister of Finance, Magnus Brunner, said that we need majorities in a democracy. We have not had such a majority in this democracy. And if you listen to what the various parties are saying, in the near or distant future, we're not going to see such an agreement. Well, of course, you can put forward the demand, but at some point, I don't know, you need to come up with a different idea how private capital can be injected in this transformation.
But by keeping on making the same demands and speaking the same thoughts and ideas, well, I don't know whether things are going to change going forward. Let me answer the second question first, the capital markets, and then Ingo and myself are going to refer to the other question. I agree with you. It's no use if you keep on making the same demands, and the retention period is just a little piece of the puzzle.
So that is just to make it clear and so that everybody can understand it. No, we put forward a lot of concrete ideas in a document that, well, what we believe we can do in order to provide easy access to the capital markets. You can get this document if you like. I can provide you with it. And I went to Commissioner Dombrovskis's and did some lobbying there, handed over this document to him as well. So these are just two little examples of what we are doing. Yes, we are not only putting forward our same old demands, but we have concrete ideas, and we're trying to also promote this at the European level the way we also do in other countries where we have a presence.
Yes, I would like to add one more thing. I agree with you. We need to do our homework first. We need to provide advice, do research, and make sure that we have a broad-based information offer because we believe that this is a significant contribution we can make in order to mobilize more capital. At the end of the day, you have to decide for yourself, of course, but I think we are quite active in terms of that. We have a lot to offer. As to the risk questions, I'm sorry.
As far as the risk questions are concerned. If we already overcame the peak, we believe, yes, but we have to take care. Is it digested on the balance sheet by building up risk provisions? Yes. Here, the answer is yes. This doesn't mean that at a later point in time, there might be defaults and will then be disclosed in the media. It will depend on the development of the interest rate level.
The interest rate expectations that are on the basis of our strategy were already explained by Stefan. Of course, this is also decisive for the building industry. The development of interest rates is decisive for the building industry. We have a detailed insight in our building portfolio. We have been watching the building portfolio since the onset of the crisis. We looked at the portfolio in Vienna. We looked at the office market in Budapest. Because defaults are rising, they are not of our portfolio. We looked at the German market. So all these partial portfolios, they are small. They wouldn't have a major impact on the balance sheet. But in general, I think we are understanding the situation, and we have the right amount of provisions. What will happen, you never know, of course.
Increase from six to 25 basis points, this sounds much, but if you have a triple value from almost zero, this is not much. And so, for example, if you take defaults of companies where the figure triples from zero to something, this same applies to our NPL ratio. And an increase from six to 25 basis points, this is not a massive increase given the economic situation. And we also say up to 25 basis points. And we think that we have to be cautious, and we shouldn't be too aggressive as far as our risk cost expectations concerning [Foreign language] from Presse.
I have a question relating to the interest rate subsidies and the waiver of fees that you explained. What about the customers? What about the number of customers? What about the private customer business, Mr. Dörfler and Mr. Bleier? You say that in the second half of the year, private customer loans will increase. I think you said that because you assume that interest rates will be cut after mid-year. Austria, of course, has to follow ECB policy. I'd like to explain Poland and the fragmented policy in the Eastern European countries. Can you say something about Swiss franc credits and the political discussions and the political decisions that had a major impact on the banks in Central and Eastern Europe? I'm also talking about the banking tax. Mr. Cernko, the end of your mandate is coming soon. Is it difficult for you to discontinue your activities?
I'll start with what you said last. You know my date of birth. I am really committed to my work in this bank. I am going to do that until the last day of my tenure. And, secondly, I'll do my best to find the best successor. And this has happened. What I'm going to do afterwards, God knows. Let's continue with the third question. Poland and Swiss franc loans, we are not affected by this topic in Poland. Of course, we observe what happens in Poland, but the Swiss franc loans is a topic that belongs to the past. Let me answer your question together with Ingo.
Your question related to the portfolio growth in private customer loans. Of course, a lot of that is based upon assumptions, on the money talks we had with our customers. But a very specific development we saw in the Czech Republic in the fourth quarter of last year. I think Ingo talked to our colleagues in the Czech Republic.
We see clear signs of an increasing demand in the corporate customer business as far as mortgage lending is concerned. We also see an upward development at a rather low level. Of course, this is a consequence of a combination of the investment climate, which Christian already mentioned in terms of Hungary and the Czech Republic. These countries are waiting for an improvement in confidence and, on the other hand, an expectation as far as interest rates are concerned. So not only private customers wait, also corporate customers wait for interest rates to change because they also have to repay their loans, and this must be affordable for them as well. For the first half year, we have moderate expectations. I'd like to ask Ingo to answer this question because he is even closer to the customers than I am.
Of course, the interest rate development is very important. People expect a cut after mid-year. Of course, we expect a more dynamic development in the loan sector after mid-year. We expect higher demands from corporate customers. It's not that we don't have any demand. We just had a weaker demand than in the past. We have an ongoing wise granting of loans to customers. The question is, what about the growth in net loans? It's also good that loans are paid back. So the pipeline is not bad. We see some takeovers, which is also driving loan volumes if companies take over others. I think we'll see a more dynamic development in the second half of the year in the corporate customer segment. As far as the services sector is concerned, the situation is rather rosy.
Then it's about a waiver of interest and fees. We need responsible politicians. We also want to please our customers. We want to satisfy our customers. This is what we promised to them. I can only answer this question from two perspectives. On the one hand, seeing the industry, the banking industry, there's no customer that hasn't benefited from such measures. For us as the bank, there is no such thing that we don't give customers a default of interest and fees. What about the necessity of such measures? There was public debate which said, "Okay, we expect such things to happen." There are signs that people can't pay back their loans. We actively reacted. We said, "If this is the case," and I already said back then that we don't have such cases.
And we said, "If this happens, each person that has a loan with Erste Bank can expect that there is a 12-month time to find an individual solution, that there will be no fees for not paying back the loans." But we haven't seen such incidents. Of course, there are individual cases. Individual cases have always happened. Okay, then there is a last question by Bettina Pflüger from The Standard. She says, "Interest rates rose more for those people who take out loans than for people who save. And the savings interest rates are going down before ECB set a step.
Why is it always to the detriment of the people that save? Is it the politicians? So what is the future task of our government apart from your capital union and also tax reliefs for retirement provision? We see that loan conditions are coming back. If you apply for a housing loan, you will have a price of 350 for 20-30 years. So we are ahead of the market. So what we expected in fall is already reflected by the current situation. So the expectation is always included in the interest rates. We also made sure that we are transparent. This is something that is installed at the Austrian National Bank. This is a normal process. So we are part of a much bigger picture.
What else can we do? It is important that the program that was announced is implemented immediately. We have to make sure that it becomes effective in summer. People build in spring, summer, and fall. We shouldn't wait until fall. Why is this so important? In large-scale housing, we have preparatory intervals that are rather long. And I'm talking about residential housing and not infrastructure projects.
So, residential houses expect a 1.5-year problem area because there are projects that haven't been finalized in terms of planning because there are no projects that have been planned as well as approved. So you have different preparatory phases. And it is very important that private housing initiatives can be started immediately. So much for my first comment, that we implement everything quickly. And secondly, there are certain modules as far as the European Capital Market Union is concerned.
And we have to implement the modules. And the transformation of the economy is important. What can we do? What must be done in order to make sure that people don't experience this as a red-tape monster? But we set initiatives that people understand that it is worth investing in such projects. Thank you very much. No further questions.
Oh, yeah. Mr. Sweety, one final question. Actually, three questions. The second one is directed to Mr. Cernko, just like the first one. As far as the retail segment is concerned, you said that it's a very positive fact that the prosperity and the assets of Austrians are going up. So can you give us some details? By how much has the wealth of Austrians increased? And where? Is it in stocks or shares or savings accounts? And how do Austrians save? And how does this compare to other European countries?
The second question is, you talked about the Eastern enlargement of the European Union that started 20 years ago. You talked about this positive development. This is true for all the countries indicated here in this diagram in Eastern Europe. But the opposite is true for Austria, which is not so positive. And talking about costs and expenses. So how has the number of branch offices changed in the past year or in the past period so that we can see the trend?
Let me start by answering the last question first. We at Erste Group have about 2,000 branch offices. Don't ask me about the trend exactly, but I think we have halved the number of branch offices in the past 20 years. That's a ballpark figure. But what we can say about the future is that it is not so much the question how many branch offices we will have to have in future, but the question that we need to ask is, what formats will we have to develop? I think this is widely held and shared opinion that the banking of the future will be digital. However, this is a basic prerequisite in order to be eligible in future.
What will make a difference is people. We need our physical presence. What we are discussing in our group is, how should this physical presence look in future? We know that people essentially want to conduct their normal banking business 24/7 from the comfort of their home. But we also know there are some issues where you need a personal conversation. We know that people at an advanced age want a different level of comfort. They want a lot more personal advice. We have a clear commitment to this physical presence, the brick-and-mortar presence. But we also need to think about how this should be going forward. Will it be the branch offices that we used to from previous decades, or should it be something else? We are experimenting with that in the various countries.
For example, in the Czech Republic, we have about 370 branch offices, and half of those are cashless. So you will not find any cash there. Don't get me wrong. It's not that we are in favor of cash. Of course, we are in favor of cash. But we also need to come up with different forms and formats where we no longer have a traditional branch office with a cashier and a safe. So this is too costly.
We are not always going to have such a brick-and-mortar presence. So we are committed to physical presence and personal advice, even though this is often supported by artificial intelligence and other tools. Talking about the situation of prosperity and wealth, well, rather than telling you just any old story, I'll hand over to Stefan. And of course, we can also share with you any more detailed data bilaterally.
I'm sure that you are referring to this chart, this downturn here. Well, there are two things that we need to differentiate. That's what's so tricky about percentages. As soon as you look at the EU average and our Central and Eastern European countries, but also some Southwestern European countries, have seen a clear increase. So in percentage terms, when you relate this to the average of the EU countries, of course, it will be negative. So I think this is the real GDP per capita. And the one of Germany and France have come down more than the GDP per capita in Austria. And if you take a look at the increase of prosperity, well, it is sort of at the EU average level here in Austria. And of course, you also need to look at inflation as well.
We have selected this chart, which is quite impressive, in order to show what enormous potential lies in this convergence of Central and Eastern European countries. Of course, the development of Austria needs to be seen as related to the other Western European countries. That's my comment on that. All right. Now there are no questions left. Thank you very much for coming. Thank you for being with us. Have a nice afternoon. Thank you.