Hello everybody. Welcome to everybody that came from [Foreign language]. My name is Margarita Thiel.
My name is Margarita Thiel and I'm heading Enterprise Communication of Erste Group Bank. I will guide you through the press conference today. The results will be presented by CEO Peter Bosek, Alexandra Habeler-Drabek, CRO, and CFO Stefan Dörfler. The presentation will be held in German. You can ask your questions in German as well as in English. I'd like to pass the floor to Peter Bosek.
Good morning. I guess you can still say good morning at 11:00 A.M.
Clock.
Thank you very much for the large turnout, very pleased about the interest coming from other countries outside of Austria, and in particular would like to also welcome our Polish colleagues who are here for the first time for our half year press conference. I think that you are aware of the fact that this has been a very exciting first half year because we have managed to enter the Polish market in autumn of last year. We informed you about the fact that we had completed our strategy and that we had been interested in entering the Polish market for some time. We are very pleased that we were able to announce on the 5th of May that we had agreed with Santander and that the Santander Bank Polska would be acquired. We will acquire 49% of this bank.
This still gives us the possibility of full consolidation, to appoint members of the supervisory board and to name all the board members. In addition, we'll also acquire the asset management company that is in part a subsidiary of the bank and partially belongs to Santander Bank now. It is of course a situation where we will be transformed as a group. As you know, over the past few years we have operated very successfully in seven countries. I think that the figures that Stefan Dörfler will be referring to in more detail, these figures are extremely positive for the first six months of this year. Of course, due to the market entry in Poland, we are now coming to a completely different level. Poland is one of the biggest economies of the European Union. It's our biggest market with 38 million inhabitants.
If you look at Poland and its economic development over the last 30 years, it's been clearly one of the biggest success stories in Europe. Poland has annual growth rates of more than 3% in the past, and the outlook for the years to come will always provide for economic growth of more than 3%. We are in a situation where there's a good internal demand, good domestic demand. There's also a lot of development, research and development, especially in banking. There are very experienced and well trained employees because American banks started operating there very early. On the banking side it's a very interesting market. Poland is definitely a poster child of the European economic development, not only because the training of people there is extremely good and that also their mindset with respect to work is at an extremely high level.
The acquisition of Santander Bank Polska for us, what does it mean? It's the third largest bank in Poland. It is the largest privately owned bank because the first two banks belong to the government. What we have been able to do in our negotiations with Santander is to acquire a 49% stake. Now, if you take a look at the KPIs of the Polish bank, they have six million customers, they have close to 10,000 employees. There's a large credit book there, large loan book. We as a group, after we get all the approvals from the authorities, 2/3 of our customer portfolio will be outside of Austria.
That is quite a strong, significant statement and a strong commitment to this region of Europe because we are convinced that it is the best region to be in Europe, because this is where economic growth is happening and because there's also good long term prospects that are suitable for banking. Polska has a very strong retail arm and a strong corporate arm. I believe that it is worth mentioning what we are focusing on, what we are looking forward to in a positive sense. What you see on this slide is the result of the excellent work of our customers on the markets. On the corporate side in recent years, Erste Bank has always succeeded to be leading in the region in terms of the bond business and the equity business.
This is something that actually happens quite a lot, that we are in the global ratings, but we're the fifth largest when it comes to carbon bonds issuance. We know the league tables of our potential colleagues in Poland who are also leading in the area of debt and capital markets and debt and equity capital markets. What we are going to do is we are going to come up with a capital markets powerhouse in Central Europe, which is very good for us because we know that we are interested in building up capital market infrastructure in the countries where we are operating. We are firmly convinced of the fact that a capital market infrastructure is a prerequisite for long term economic growth.
This puts us in a position where the region that we have been operating in, we now have a good or an excellent position even in Central Europe. I think this is extremely positive for the future outlook. Of course, there's a lot that needs to be done now. I would like to use this opportunity to thank all our employees in the group because the workload has really increased in the past months. We have already achieved a lot and there's a lot that's still ahead of us. Such a major transaction means that we had the signing, of course, and then there's the closing. The closing is when the bank really belongs to us. We have just signed the purchase agreement with Santander and the phase in between is about getting all the required approvals and authorizations.
Also, the approvals of the local Polish supervisory authorities, KNF, and some additional approvals from the European Commission, antitrust approvals, but also other approvals in countries where we are working indirectly through our savings banks. We need the antitrust approvals from them. I can tell you that all the supervisory authorities, including the European Central Bank, that is of course the authority that has the oversight. It's not that they overlook it, they have the oversight. They are all very supportive and I think it's a positive momentum because that's the biggest cross-border M&A acquisition since 2014. In Austria, it's the biggest transaction that our company has been doing in another country.
As far as we can see, we are on track in order to obtain these approvals and we believe that towards the end of the year we can have the closing and then these 49% of Santander Bank Polska will belong to us. We will also have the ownership of the asset manager there. If you take a look at the first half of the year, and of course Stefan Dörfler will be reporting about this in more detail, we are extremely happy that we have managed to build up so much capital. You know that we are refinancing this transaction without the need for any capital increase. That has also been one of the reasons why the capital markets reacted so positively, because we have the same number of shares, 410 million shares, and will have higher profits.
This KPI, the earnings per share, is of course highly relevant for us. This is only possible if we have the possibility of generating capital. We can only generate capital if we have profits. This is why we are so pleased that the Common Equity Tier 1 ratio is now at 17.4%. It's also a very positive fact that the volumes in Central Europe have developed positively in the past 12 months. We already reported that housing finance in the Czech Republic and in Slovakia and partially also in Austria has begun to increase again. In some countries, such as Romania, we are seeing positive growth in consumer lending and that has led to an increase not only in the loan volume, but also the net interest income because the interest rates have developed positively and this has led to a better result.
Something that's also very positive is asset management, the development of asset management. That's also a phenomenon of the capital market structure that we are trying to implement and deploy in the region. You know that yesterday, asset management has always played a very strong role. In the past 12 months we made two minor acquisitions in the area of asset management. This is why we now have assets under management to the amount of almost EUR 96 billion. If the markets develop more or less positively, we will probably soon cross the EUR 100 billion limit. Of course, there are also other activities that we consistently pursued, such as you can see here, we are continuing to bet on securities savings plans, investments in asset management products, because we think this is a suitable instrument for our customers so they don't need to worry about the volatility.
If the markets develop positively, they will buy less and if they in the long run, this leads to the best results. We continue to develop additional models that help us facilitate online banking for our customers. In the Czech Republic we developed Hey George, which is a digital assistant which makes online banking easier to handle. We have close to two million customers for Hey George. The feedback is very positive, but you know that we normally use the customer feedback to develop our products further. Step by step we're going to also implement this and bring it out to other countries. Our corporate variant of online banking has also been further developed and we now have more customers and we are also beginning to roll it out to other countries. I believe that essentially this is something that you're already familiar with. This is what we're doing.
This is our day to day efforts to improve our services to our customers. Of course we will continue along this line. This is where we place the emphasis to ensure that the existing customers in the various countries we're operating in will have a better service quality. Now I'd like to hand over to Stefan.
Thank you very much, Peter. Ladies and gentlemen, a cordial welcome. Very nice. Good morning. First of all, I would like to talk about the operating result, the operating income, and talk about the specific figures in the first half year, 2025, and we always compare this period with the same period in 2024. We increased our operating income by 2.7%. We had better net interest income and, in an absolute way, an increase in the fee business, which is very pleasing because this plays a very important strategic role for us. We want to have a balanced field in the medium term. All other fields are negligible. What do we expect for the rest of the year?
In the second half of the year, and I'll come back to that when talking about volumes in the second half of the year, we will benefit from higher loan volumes, which I will describe, higher credit volumes in Central and Eastern Europe. Following the last signals of the central banks, we expect a rather stable interest environment. You know that ECB expected downgrades of interest rates, but an hour ago we saw that the Austrian interest rate is 3.6%. This means that we cannot say goodbye to any inflationary trends. This is why ECB will have to analyze the situation and think about reducing further interest rates below 2.2%. In Eastern Europe, the situation is similar. Just let me highlight the Czech Republic. The prime rates are 3.5% at the moment. Looking at the cost side, of course, this is also influenced by the environment which I just mentioned.
Alexandra will come back to asset quality. In all countries that we're doing business in, we have very strong labor markets. We've reported that in the past years and the situation hasn't changed so far. This also means that we have pressure on the salaries of our employees. This is also reflected in personnel costs, which have also significantly risen in Austria. In absolute terms, we see an increase in costs that can be compared with the increase in operating income. What do we expect for the rest of the year? We expect this trend to level out because in the first half year we have one-off bookings. For example, contribution to deposit organizations are booked in the first half year. It's much too early to give a detailed outlook to 2025, the whole year 2025. We had very promising future-oriented investments in the past one and a half years.
As far as our business is concerned, and also efficiency is concerned, we expect the first effects for 2026 and we'll continue to inform you about that. What is very pleasing for me and what is very important for our group and for controlling and steering our group is that we have a very balanced development as far as loans and deposits are concerned. Asset and liability side, this is the basic prerequisite for serving our customers, our private customers and corporate customers, and supporting them. The liquidity situation and the risk situation is a basic prerequisite for that. I've reported several times that there is a certain feeling where we feel at ease. 90% as far as the loan deposit ratio is concerned is a very pleasing one and we want to do perfect business with our customers.
I personally expect that as far as the loan side is concerned, we hope for certain effects that I will describe later on. That is to say we can use our excellent liquidity situation for business with our customers.
And.
We do hope to support our investment cycle that we expect for the near future. As far as investments are concerned, you know that Erste Group is very strong in all countries and has a very good position in the private customer business and corporate customer business. Let me continue with Peter. Already mentioned, we see the first sign for more sustainable loan growth. What is the reason for that? We see different situations in the individual countries and these different figures depend on the public sector and the large corporate companies basically in our region. What is very pleasing also in Austria is that we see a higher demand in housing loans, which has been subdued for a certain time due to various reasons. In some Central and Eastern European countries, we have double-digit growth rates based on a lower basis.
In Slovakia, for example, the figures were very good last year and we see an increase this year of 7%. This makes us optimistic that in our core business in retail and in housing, we will be successful. This is also supported by consumer lending. This is a very sustainable growth path and I don't want to exaggerate that because interests are much too high at the moment. As far as Austria is concerned, we'll see how the further development will materialize. We have good demand, corporate demand in Austria, but this is not relating to long-term investment, but short-term investments. We do hope to have long-term investments following German investment plans. We have good demands in revolving business on the corporate side. The mortgage business was already mentioned. This is very important for us that it's a sound business, that we have a good asset quality.
This is where Alexandra comes in.
Thank you very much. My colleagues already mentioned that we have a rising credit volume. What is not rising is risk costs. You all know the left bar. It was the COVID crisis, the beginning of the COVID crisis followed by several years which were not characterized by this fault. Not in Austria and not in Central and Eastern Europe. We had extremely low risk costs at the beginning of 2024, a difficult economic environment in Austria and felt that in our portfolio we had 18 basis points. Looking at the first half 2025, that's the green bar at the right-hand side. If you look at this bar, we are slightly below 2024 at 16 basis points at an annualized basis. This means that we book the same risk costs in the second half of the year as in the first half.
We'd have 16 basis points at the end of the year. What is the cause of risk costs in 2024? I told you that in Central and Eastern Europe we had zero risk costs net that were booked and everything was caused by Austria. This is what we expected for 2025. We expected higher risk costs and higher defaults in Austria, but slightly lower than 2024. We expected an excellent risk profile in Central and Eastern Europe, but not this net zero that we saw in 2024. This is what happened in the first half year. The situation in Austria improved. Looking at the first half year 2025 and comparing it with 2024, bookings in NPLs went down in Austria, went down markedly. We remain conscious. The environment in Austria remains to be difficult, you all know that. The economic recovery could take longer than expected or longer than desired.
Nevertheless, we see a recovery in Austria in a year-on-year comparison. Central and Eastern Europe, here the situation is very good and this hasn't changed so far. Let me continue with an NPL ratio. NPL ratio at Group level is 2.5%. This is slightly below the level at the end of 2024. This is also the level that we expect for the end of this year. Looking at the individual countries, you see that the situation is very good in the Central and Eastern European countries, with just one exception, namely Romania. Here we are talking about isolated cases in the agricultural field after drought periods and also hit by the war in Ukraine. These are isolated cases and it's not an indication that our portfolio deteriorates. As far as Austria is concerned, what are NPL inflows in Austria?
It's some cases from commercial real property, but the volumes are lower. We hope and expect that this recovery is continuing, maybe not dramatically, but sustainably, so that we achieve an NPL ratio of 2.5% at the end of the year. Our risk cost guidance was taken back. Originally, we expected up to 25 basis points. In view of the excellent first half of the year, we didn't have to dissolve FLIs and stage overlays. We see a marked improvement year on year and we're very confident. Our risk cost expectations amount to 20 basis points. Back to Stefan.
Thank you very much, Alexandra. These were the components that can be characterized by the waterfall chart 2025. I already said before that operating income and operating expenses are balancing out.
We have slightly higher costs in the first half of the year, and risk costs have already been described so far, and they are slightly higher, lower than last year. We had a slight reduction. In other business, we have a better result than last year. Last but not least, how many of you know that minorities has an ambivalent story? They are green if the savings banks earn less and red if savings banks earn more. What you see here is the reflection of the weaker results in Austria. In total, if we compare 2024 and 2025, not in relation to the net result, which is very good, but year on year it is not spectacular. What is not unspectacular is the development of our equity.
Peter already talked about the basic pillars, and allow me to make a few comments that differ from what I said in the previous years. You know that I am always commenting our capital ratio and in connection with liquidity. I always say that this is the way to support our customers. This is the basis of acting offensively and supporting industrial and private customers. Of course, this is still true, but there is another aspect which I would like to highlight this time. The acquisition in Poland can be done without any capital increase. I don't go into technical detail, but I nevertheless want to explain what the drivers are that will make us fit for the end of the year, for the full integration of Santander Bank Polska without increasing capital. On the one hand, it's of course profitability. This is logical.
The central driver of capital generation is profit, and we see that this materialized in the first half of 2024. Also, the profitability of minorities as far as they are reviewed and audited. The second major input is that we temporarily, and I want to emphasize that we temporarily, reduce profit distributions. We are not having any share buybacks. In 2025, we will pay out a reduced dividend. We accrued up to 10% of our net profit. We will pay out a dividend, but a slightly lower dividend. If we have a net profit of EUR 2 billion, you can calculate that this will be between EUR 0.50 and EUR 0.75 per share. This is the cap, and this was already discussed with the regulator. There are several other issues that are very important in this respect. It is how we steer our balance sheet in the first half year.
We haven't set any measures and in no country will we start our active customer business. What we will do is we will have 81 emissions, which we did in the second quarter. As far as bond positions are concerned, we will strengthen our position. Combined with securitizations, we will aim at achieving the goal earlier than planned by the end of the year. We said that we will have a 13.1% Common Equity Tier 1 ratio, including the consolidated Poland position. Of course, it is not the goal to have 13.51%, but due to good developments in the first half year, we have 18.25% or more for the existing Erste Group. If we deduct 4.6% for the fast consolidation of Santander Bank Polska, we see that we are already higher than 13.6%.
We will see how the situation turns out because you also have to take into account certain risk components. I'm optimistic that we will exceed this figure and start full momentum with our Polish colleagues in the Polish business. Let me close with the guidance for 2025. All the things that you see here have already been mentioned. Nevertheless, let me summarize here. We increase our expectations for credit growth by more than 5%. From 5%, we hope that we can increase interest income. You see, in the first half year it was 2.7%. The second half of 2024 was very strong and we are very conscious and we announce a better result than 2024. Some analysts might know it will be markedly better. We are somewhat more cautious in this respect. Let's have a look at how things develop.
The risk costs have already been mentioned by Alexandra Habeler-Drabek in detail. The return on tangible equity will be more than 15% by the end of 2025. Distribution ratio as a payout ratio has already been mentioned and Common Equity Tier 1 ratio was already described. I think not only in our existing business are we well prepared for the coming months, but we are also very well equipped for the market entry in Poland, which we are looking forward to. I think we have the economic strength to do that market entry. On the other hand, we have high respect in view of this task. It's a large country that we are entering and we have respect as far as this integration is concerned.
Okay, allow me to summarize. At first, we are working intensively to obtain the necessary regulatory approvals until the end of the year. As Stefan Alexandra said, we're looking forward to working with our Polish colleagues. Of course, we are also continuing to implement our strategy. We want to achieve progress in the area of digitization, online banking. We are trying hard to get an even bigger footprint in asset management, because we believe that this is extremely important in this region. We have a large number of activities apart from the acquisition in Poland that we are driving forward in the various countries where we are active. Let me summarize. Of course, this is happening in a geopolitical environment that is quite challenging. As we know, it is characterized not only by volatile markets, but also a lot of problems in terms of communication on other continents.
We are firmly convinced that the region we are operating in still harbors a lot of growth potential and a lot of innovation. There are so many well trained people all over Europe and we really are convinced that Europe deserves to develop a new self-confidence. I think it would be a good idea to not so much follow every tweeter that happens across the Atlantic on the other side of the pond. We should focus on what we can do here on this side of the Atlantic in order to promote the economic development in all of our countries and in Europe in general. We are trying to set a good example and we try to lead the way courageously. We are ready and will continue to invest in Central and Eastern Europe in our region.
We can only do that because we have a good basis of confidence with our customers. We're doing everything to ensure that this stays that way and we are looking forward to, hopefully by the end of the year we'll get the final approvals in the closing. Thank you very much for your attention. We're looking forward to your questions.
Right, let me continue with your questions. If you have a question, please raise your hand and wait until they call you. When answering the question, please use the microphone on your table so that the colleagues that are following the press conference online can also hear you. If you have a question online, please use the chat function and I will read the question in your name. The first question, Piotr Sovolewski from Poland.
Thank you. I have three questions and as you might guess, they all will concern the acquisition in Poland. Firstly, you have the largest bank in the Czech Republic, Slovakia, Austria. In Poland you will be the third player. That's why I want to know what is your approach to increasing market position in the future? Will Erste Group be open to acquiring other banks in Poland in the future or do you want to focus on organic growth? That's my first question. The second question, the Polish Financial Supervision Authority would like to maintain the practice of dual listing for owners of large Polish banks. Is Erste Group considering a debut in Warsaw? In this case, my last question, Santander Bank Polska has a bancassurance business joint venture actually with Allianz in Poland.
We know that Erste Group has been cooperating with Vienna Insurance Group for years. In every market will that mean a change in bancassurance partner in Poland as well? That's all, thank you.
Okay. On a very short notice. Too early, too early, too early. Coming back to your first part of the question in terms of becoming the third largest bank in your home country, it was always our strategy over the last 20 to 25 years that we would be within the first three biggest banks in the country. We are extremely happy that we got the opportunity to enter the market with taking over this 49% of Santander Bank Polska because it's the third largest bank and the biggest privately owned. So far there was no other possibility. This was by far the best opportunity we got even over the last 20 years to enter Poland because obviously the government still has the view that they would like to keep the other two banks.
Let's see if there will be some kind of market momentum in the future and the government will change its view. From our perspective, it's very clear that for the next two to three years we take very much care about to integrate, so to say, Santander Bank Polska, because it's a huge acquisition. In general, as mentioned before, it's the biggest M&A transaction in Europe since 2014. At this point in time we are definitely not making up our mind for another M&A opportunity important for the next two, three years. Having said that, of course we have a strong belief in inorganic growth. This is what we have been doing in most of our countries. Although you're right, from time to time we also took the opportunity for inorganic growth in our existing countries like Hungary or Czech Republic over the last two to three years.
We believe there is a strong growth momentum in Poland also in retail banking and in corporate banking. We fully rely on the growth capabilities which are definitely proven when you look at the financial results of Santander Bank Polska for organic growth in the next years to come. The second question, dual listing. Too early. I mean, it's clear that we will keep the listing of the local entity. If it makes sense to have a dual listing, let's see. We highly appreciate the role the Vienna Stock Exchange is playing in Europe, because in Central and Eastern Europe it's definitely the leading stock exchange. It has a higher market capitalization than the Austrian Stock Exchange. The Austrian Stock Exchange is a little bit higher in trading volumes, which is very much related to our own share, but too early to judge.
The last part of your question, related insurance business there. It's definitely too early. I think the cooperation between Santander Bank Polska and Allianz is going well. You're absolutely right. In all the other countries we have our preferred partnership with VIG, which is also working very well. We will cross the bridge when we are there.
Next question. Ernst Sweetly, please use the microphone.
I have a question. In your press release you are referring to the fact that the bank taxes have increased by almost 50%. This windfall profit tax or excess profit tax, there's no end in sight in terms of these taxes. Do you believe that this will become a permanent tax, an internal tax, as they are typical in Austria? On the other hand, with such a high tax burden, the profitability will of course be reduced and any opportunities to grow in other Central and Eastern European countries, any further acquisitions will be slowed down. It is not only Erste Bank, but all the Austrian banks will find it harder to acquire other banks in the growth market. I would like to have your comment on that.
The Austrian central bank emphasized in an event about a month ago that the second half of 2025 will be used in order to focus more on the fine tuning of the digital euro. We think there will be an app on the phone and what the consumers expect of this is that it won't cost anything. I have my doubts. Do you have your doubts as well?
Let us move on to the first part of your question. The banking tax. I fully share your view, but there is one thing that I see differently. The Austrian government has promised that this increase of banking tax will be limited to two years' time. I believe that this will be the case. This is a federal government that will live up to its promises. Now, let's take a different look at things, a different perspective.
Of course, you're saying that this will limit us in terms of future acquisitions. Also our competitors will be hampered in making acquisitions. It is not only about that. It is also about how we can support economic growth through activities. I think in Austria it is important because this is the third year running that we have a recession, as we all know. If you take a look at our profit and loss statement, our income statement, it is quite obvious that we have a higher tax burden than we do have risk costs. We paid more than EUR 900 million bank taxes in all countries, including Austria, but we only have EUR 400 million risk costs. It is my understanding of the banking industry that our core competence in terms of economic growth is that we give loans to corporate customers who will then invest and produce economic growth.
If we pay higher taxes than risk costs and risk cost is actually a translation of a transformational risk for borrowed capital. We don't have any equity risk, but we have borrowed capital risk. This is why the risk costs. We're not afraid of those. That's part of our business. If banks have no risk costs, there's something amiss. If you pay twice as much taxes as you have risk costs, you're probably an ATM for the fiscal authorities and not a lender. This is a question that needs to be addressed by those who have implemented these banking taxes. In terms of the digital euro, I think it is quite well known that the digital euro is a solution that has no problems. The cost of implementation, based on a PwC study, is just EUR 22 billion.
I think there is some initial resistance in European Parliament on the subject because they're questioning whether it makes sense to have this digital euro. I think the dynamic doesn't happen in Europe because if you take a look at the development of stablecoins in the United States, I think this can actually change the rules of the game in a completely different way than many people expected in the past two years. I think that this is a situation we need to keep monitoring and whether the digital euro makes sense. I still don't understand whether it made sense, but maybe this is me.
[audio distortion] From Bloomberg area. Adria.
Can you hear me?
Yes.
Yeah, Y.
Okay, so I have two questions. Since I come from Belgrade, I would like to ask do you see any interest in the coming period in strengthening your presence in the Adria region in countries of former Yugoslavia, either through acquisitions in the countries where you are already present or by entering new markets? That would be my first question. The second one is what do you see as the dominant trends in the Serbian banking market over, let's say, next five years in terms of further market consolidation, service development, technology or some
other aspect?
When it comes to potential M&A transaction from our side over the next two to three years. As mentioned before, we are now fully focused on the acquisition of Santander Bank Polska. We have a lot of respect in front of this acquisition and this, as Stefan rightly mentioned. We are of course in a situation where we are building up capital and this is necessary to manage our existing portfolio. For the next two, three years, I don't see too many. I don't see activities on our side. The situation when you ask about Serbia in general, I think volume growth has increased over the last years because you see a lot of investments in Serbia. I think if I remember correctly, still the majority of investments, around 55%, is coming from European Union. You have also investments from other continents.
I think that in general the economic development in Serbia is going quite well.
The next question comes from Hosanna Osman .
From Romania from Profit. My questions will be about the results in Romania. We saw some contrasting figures in Romania in some aspects compared to other markets. Can you please explain the decline in loans and deposits, especially in the second quarter in Romania? How was the decline in loans impacted by public sector business volatility despite the fact that actually you had strong growth in consumer loans? Also, why the deposits? What's the explanation for the decline of deposits? What happened with large companies and the public sector, and maybe because we speak a lot about the public sector, what was the overall impact of the public sector problems that we have in Romania with huge deficits? What's the impact on your business? Maybe you will comment also on the fact that the government doubled the banking tax despite the fact that they promised to reduce.
I would start internally with different kindergarten, although being very close to Romania. I mean in general, of course you're right that the economic development in terms of budget deficit and all this kind of environmental stuff is not great, which is of course not a super prerequisite for growing a bank there. Having said that, we are in a situation that Picheri is now a very stable institution and we definitely want to drive organic growth there. This is also the reason why on the retail side we started several campaigns last year which were quite successful. We are investing a lot in kind of loyalty schemes, digital banking. We really try to improve the service level of our offering for retail clients. I think in the corporate area we have always been doing quite well there.
I think it is also in capital backed business and typically corporate banking. You're doing well. Our appetite for other acquisitions as mentioned now for Baikan or for other banks, potential banks in Poland, it's not existing at the moment because we are very much taking care about Polish acquisition when it comes to bit.
Yeah, maybe a couple of very brief comments structured in three parts. First one, specifically your point on the latest developments that we both have been touching upon in the analyst call and also today with the weaker quarterly result in terms of volumes. This is purely due to, one of you touched upon it, in public sector and in large corporates. The underlying trends in Romania on the lending side, and yesterday the retail board member, just as a guest with perfect update, latest numbers, is very strong. We have good growth on the consumer lending side on the back of winning over new clients, as Peter was describing. Also, mortgage lending is doing okay. That's, I would say, okay. It's not the strongest market, obviously, as you can read from the other markets, but it's okay. The second point is, of course, a big topic.
It's absolutely no doubt that the debt levels as we saw them forecasted for Romania of this year, around 8 to 9%. If I'm not misjudging, this is something which everyone knows is not sustainable. Of course, also the Romanian decision makers know that. That's why they have been implementing quite substantial austerity measures. I understand that the markets are starting to win some confidence. I'm very closely watching the spread levels that Romania has in the markets. There was a massive increase and it's now kind of stabilizing. I'm sure if the market gains confidence in the budget deficit management, this will further improve. The third part is on Erste Bank itself in terms of profitability. We are extremely happy with the performance of the Romanian bank. The colleagues have done a tremendous job there, both on the client side as well as on the profitability side.
We try to help the situation in the country on the client side as well as in contact with public decision makers, and hopefully they will manage a turnaround soon.
[Foreign language] Do you have an estimate for the amount you're going to?
I think it's perfectly building on what Peter said. More generally, be it on the Austrian or other banking taxes, I think at this point in time it's very much a part of the overall austerity measures. You know, that it's not, so to say, too much banking specific. Although yes, there is a concrete banking levy, we have it fully incorporated in our outlook, both for the local bank as for the group bank. Let's see how it further evolves. We know that it starts basically, I think with August, if I'm not mistaken, 1st of August it kicks in and at debt levels it's absorbable. We are not happy about it, as you can imagine, but it's at a level that we can, we can swallow and I hope it will not be, let me say, further discussed at debt levels.
Now we simply accept it and move on.
You published a guidance upgrade for the group. Can you say, how is Romania in?
Line.
With this upgrade, do you see the possibility for a bigger loan growth in Romania and also for the net interest income in line with what you expect for the group?
Romania, in terms of financial performance compared to the others, what you mean.
The goals for the targets, how they impacted the target upgrade, that's how I understand.
They're part of it. Excellent performance in the last couple of years. Also on the risk side, I think Alexandra, very, very strong. I think Romania has been, if you look at the history of the Romanian entity in Erste Group, I'm sure you're very well aware I really could hardly be happier about what has been achieved in the last couple of years. Excellent performance also this year. We expect excellent results, I think also both net and operating.
One more for Alexandra, just one. What perspective for the risk costs do you see in Romania? Also, since we had increase in NPLs 3.5%, I think it was the only market because sure of agriculture situation. What measure do you expect to reduce this?
We are constantly having constant measures to manage our NPLs and workout strategies and recoveries. As I've also mentioned, this first half of 2025, we've seen very strong recoveries, mainly in Austria, but also in Romania. We have seen it over the time and we are working and we are quite confident that we will lower this 3.5% NPL ratio in Romania that we have seen by half year, that it will go down until year end with the classical toolbox that you have in restructuring. Working together with the clients, trying to get them up, trying to have them upgraded, recoveries, collection, all these topics. Overall, maybe just one because Stefan also mentioned it. Overall, we think that Romania will be able to also stay within the expected risk cost budget for the full year.
The next question comes from Mirza Nica Rul. I hope I have pronounced it well. We go to the online questions.
Yes, thank you. I think every question I had has already been answered.
Perfect. Please continue raising your hand if you have any questions. There was a whole bunch of questions that arrived from Carolina Wissotta from Grupa VP. It's 27 questions. I apologize that we cannot answer all of them. I will ask only a few of them because most of them are too soon, which were very concrete on the Polish acquisition. I will ask three of them. What are Erste Group's long term plans for the Polish market? Will Poland become the strategic market of the group on par with Austria or the Czech Republic? That's the first question. The second, does the acquisition of the bank of this size pose any risk to Erste Group's financial stability? What safeguards are in place? The third, how would you describe your cooperation with the Polish Financial Supervision Authority? Has the acquisition process been smooth from a regulatory standpoint?
Okay, let me start with the last part of the question. The cooperation and the work we are hearing on our table with the Polish regulator is doing great. They are treating us very, very professional with a high level of respect. It's fair to say it's a pleasure to work with them. Point number one. Point number two, you ask the strategic importance of Poland. This is the biggest country.
Financial stability.
Sorry,
financial stability. [crosstalk]
Excuse me,
question number one was about is it a strategic country like Czech Republic? Of course, it's our biggest market, it's the biggest country we are operating in, and it's the biggest investment we ever made. I think this will definitely answer your question and will be an extremely important role in our group. The question of is it adding risk? I mean, of course every kind of investment is related with some kind of risk, but as Stefan and Alexandra and myself mentioned several times, to mitigate this risk it is very much strong to have a very strong capital position, which we succeeded already to build up. Point number one.
Point number two, another kind of mitigation of this risk is that our colleagues in Poland have succeeded to build up a very successful bank in all financial indicators in terms of profitability, in terms of number of client growth, in terms of quality of client service. They are really doing great. Getting the opportunity to buy such a bank which is in such a good shape is also a kind of mitigation of risk in entering another country.
The next question comes from Masay Rutke from Business Insider. How do you assess the Polish banking market? What factors were decisive regarding the acquisition of Santander Bank Polska? What are, in your view, the biggest risk related to the Polish market? For example, what is your take on discussions about windfall tax or legal risks to viable related contracts?
Yeah, I mean, I think we mentioned already several times how positively excited we are about the Polish banking market in general. The reason for the fact that the Polish banking market is very interesting is because the Polish economy is doing so well. This over the last 30 years, and we are 100% sure over the next 30 years, because the structure of the economy and the level of education in the country and the attitude in this country, they are just doing great. Entering another market in the European Union has its typical risks, which are of course always around consumer protection. This is something we experienced in, especially in the retail banking area over the last, let's say, 20, 25 years, that you are always confronted with kind of court decisions when it comes to consumer protection.
To be also very clear, of course it's not our goal to end up with our clients in front of the court. Of course we always try to do all our products and all our terms of conditions in a 100% compliant way. This is our way how we try to mitigate these risks. Of course, from time to time, opinion from courts or the regulator can change. This is nothing we can influence too much. This is kind of part of our normal business. When it comes to banking taxes, I think we already answered it several times that this is something we don't like, but we have to deal with.
Maybe just as a very brief wrap up. Adding to your comments, Peter, and to the colleagues in Poland asking this question on two levels, we have been and will be, are and will be looking at all those risks. On the one hand, of course, on the operating level, locally in Poland, our future colleagues are dealing with all those matters with an enormous level of responsibility. We are aware of those risks. There's always risks associated not only to such an investment, but doing the business there. In the same moment, the upside potential on the opportunity side I regard as much, much higher. The second one I just wanted to add, Peter, from the perspective of the overall Erste Group diversification of risk, this is exactly the feedback that we got very quickly from many analysts. You can read the respective statement.
It's of course an improvement because as I think the other journalist, Margarita, was asking, where do you see it? In a position? Yes, we have a very strong Czech market. Yes, we have a very strong Austrian market, we have a strong Romanian market. Obviously the diversification on different pillars is much significant. It's much more improving with the add on of the Polish market. You will have risks here and there, but the overall risk position is I guess in the long run substantially improving. This way.
We have two questions in the room. First, Christoph Schulte from Rzeczpospolita, please, and then Marton Eder.
Okay, thank you.
Let's talk about Poland once more. What specific synergies can you say between Santander Bank Polska? The second question is what return on this investment you expect and in which time, in which period of time, and you mentioned that you will have an influence on the board. I need to ask you whether you are going to change anything in the board of in the management board
Of Santander Bank Polska?
okay, let me start with the last part of the question. We think that the management team in Santander Bank Polska is doing a great job, so we don't see a need for any change. Second point is the profitability, level of profitability. Given the fact that they are already quite successful in terms of their financial results, we expect that their financial results are kicking in immediately after closing. When you look at the high-level basis on our net profit development, we are now somewhere around a EUR 3 billion net profit company and with the potential impact, of course related to the approvals of authorities, we would come close to becoming a EUR 4 billion company. In terms of return on tangible equity for the whole group, that would mean that we are around 19% return on tangible equity.
In terms of earnings per share, we will see an increase of slightly above 20%. We could be potentially earnings per share a little bit, depending on interest rate curves, around roughly EUR 10 per share. Your question about synergies, there are absolutely no synergies in a way that we have a very successful but very small investment boutique in Poland. This is definitely not a cost synergy case. For us, this is definitely a growth opportunity. It's a huge growth opportunity and not about cost synergies.
Every number. I'm very proud of my CEO. Every number was perfectly correct without looking up any. The only add-on I would say, because I think you also asked about ROI, and this is very, it's sometimes used. It's not, it's a, I would not say so in the overall Erste Group context, not so helpful. To be precise, we had it also assuming a EUR 7 billion overall investment on the perimeter that we are defining. You can calculate with something like an 11% for the upcoming years, assuming a profitability reflecting this number. Everything else exactly as Peter said.
Next question. Marton Eder, Bloomberg.
I have a question on dividends in the last two years. Your guidance in the half year report was announced and I know this year it is a bit less relevant and Stefan has already given us the numbers and his estimates. The question is why is there no dividend guidance?
There is a dividend guidance as up to 10% of net profit and in cooperation with the regulators, we are not announcing any absolute figures during the year. That is a change. The guidance is up to 10% and up to 10% of course is not a concrete number because if you do the numbers, if the net profit is expected to be a bit more than EUR 3 billion, then for 411 million shares that is about EUR 0.50 to EUR 0.75. That is the guidance for this year and for next year.
The clear goal is to return to our usual dividend policy which will of course then depend on the profitability and will then be calculated in terms of a concrete number.
Next question online, Susanne Bickel, Depresse.
Two questions. You hope for long-term investments in Germany. What do you expect in specifically? Mr. Bosek last year said that digital services will be changed markedly. What has changed?
The first part of the question, investment from Germany. We do believe that it will have a positive impact on our region. We are seeing that the sentiment in the commercial business is improving in the entire region. It's too early to put it in concrete numbers. I think the federal government are planning to pay this out in steps. It's not a one-time investment to invest EUR 500 billion in infrastructure, but we can see an improvement of the mood and the atmosphere in Germany. The companies are getting ready for this. Of course, if you're going to invest a lot in infrastructure, you also need all the approvals and these things have a certain lead time. We expect this to begin in the coming 12 months and then it'll take several years and it will be invested step by step.
I guess we do believe that all things considered, the activities that are underway in Germany will have a very positive impact on the dynamic in the region and for Europe as a whole. Now when it comes to digital advice, we are tackling this step by step. We will start with this measure that I mentioned in between. Hey George platform that we have, 2 million customers in the Czech Republic. When they use online banking, they get AI support and we will roll this out throughout the group. In parallel, we're working to generate real digital advice, digital advisory services. We have begun to offer this. In the entire group, we interviewed our best customer advisors and we are now trying to structure all this information in order to be able to program it.
Maybe in the coming, maybe 12 months, we'll have the first pilots that we're going to roll out in the
Various countries.
comes from Martin Mesaros from HVG from Hungary.
Thank you so much. Just a quick question again about the bank tax. Can you share with us how.
Does it look by country the amount of bank tax you pay?
Sorry, how much we pay in Hungary or
by country?
Yes,
by country.
By country, we can share this with you.
I think we have it. Give me a couple of seconds, I can look it up. Maybe we can take another question. I'll get back to that.
[crosstalk] Because the structure of the banking fix is different from country to country.
Yeah.
The next question comes from Poland. Eugeniusz Twaróg from Puls Biznesu. Deutsche Bank's merchant solution business is integrating Vero into its payments acceptance offering ahead of the mobile wallet's launch in Germany. It is news from this week. Vero is a competitive solution in the Polish BLIK system which heavily relies on cooperation with Erste. What plans does the group have in this regard?
Yeah, so it's very clear that we will stick to BLIK payments in Poland. This is 100% given because I think this is quite successful in-country payment system if I'm informed correctly. There are also plans to enter other countries but it's a little bit too early for us to judge. BLIK will definitely be part of the BLIK infrastructure. It's completely clear. Vero is a solution which is on the market for already several years in Germany and there is some kind of momentum now going on in Germany, partially also in Austria because as mentioned before there is some skepticism coming up in European Parliament if the implementation of digital euro doesn't make sense at all, especially related to the costs and adding additional burden of above EUR 20 billion on the European banking sector to offer a currency without the European Union. Euro countries was somehow questionable.
The discussion with the European Parliament is going in a direction if the financial service industry could come up with solutions which could be or which could lead to a situation that Europe becomes independent from the international card schemes. This is one of the major drivers behind this political willingness to jump on the digital euro. The issue with Vero and the issue with BLIK is these are local schemes. The question is who will now achieve, so to say, to offer cross-country payments. There are solutions which could enter the market. It's called interoperability. Sounds very technical, but this is sort of say connecting these different local solutions with APIs in a nutshell. This could really be a game changer.
If you could use, for example, in Germany and you could use in Poland BLIK and then you could offer this interoperability then you would have a solution which could make potentially the European Union happy. This is some kind of development. I expect there will be a decision most probably from European Commission and European Parliament. I would expect end of this year or first quarter next year. It's a very dynamic market situation. We will definitely stay with BLIK and we are seriously looking at Vero because it could be a solution for countries like Austria, Germany.
Do we have the answer on tax?
Yes, of course. So Peter was mentioning the overall tax burden that of course includes the ordinary corporate income tax. Then we have very creative different ways of, so to say, imposing the taxes. We have to be a little bit careful. I'll be very concrete on each country. We had last year in typical banking taxes, really bank directed, not elevated corporate income tax. Like for example in Slovakia, where there is elevated corporate income tax for certain sectors. Last year we had EUR 245 million overall in directly banking market related taxes. This year in the half year we have already almost EUR 200 million. The split is as follows. Almost EUR 70 million in Austria and then Romania EUR 20 million. This was before the increase that we discussed with the colleagues before. There will be a significant increase in the second half of the year.
In Hungary, I think you are from Hungary, if I'm not mistaken, we have two big components. The one is the banking levy, the explicit one. This is EUR 48 million, depending always on the fix a little bit the first half year. Then you have the transactional tax, which is, as I believe, also a big burden for the market overall. That amounted to not less than EUR 61 million in the first half of the year. In total, first half year explicit banking market related taxes, almost EUR 200 million. On top of that we have elevated corporate income taxes here and there. Plus the corporate income tax adds up to the, what did you say, I think EUR 900 million.
Right,
EUR 900 million a year.
The next question comes from Robert Brzoza from the Courier Austria.
Hello.
Hello. You said that there's more real estate loans now. The KIM regulations have expired, but not quite so. What can you say about this slight interpretation, this strange interpretation, let's put it that way.
Last autumn I already told you that the housing financing business has improved again in Austria. I'm convinced that this is due to the lower interest rates and due to the lower real estate prices that we are seeing in Austria. Of course, there are various segments and various regions where there are major differences, as we all know. That from my perspective has been the main reason for an increase of demand. As to the continuation of the KIM regulations, the KIM regulations are over in terms of the legal structure that it had.
Its history and the recommendations of the Austrian Financial Market authorities, even though some colleagues may be upset me saying that, that it's not so off the mark. We need a certain amount of equity capital. If you want to take out a loan, of course you need to be able to pay your bills, so that's reasonable, right? Of course, the KIM regulations, there's also some exceptional contingents. There are some companies who take out a loan even though they have enough capital, capital of their own. Of course, it is a different matter. These exceptional contingents have added a level of bureaucracy. We don't want that. Of course, that's not great. The supervisory authorities should worry how banks award loans and that they should behave normally. I think this is not really surprising. [audio distortion]
Next question. Ingrid Croik
I have a question relating to Poland. I have a look at the population. Poland is four times as large as Austria and double the size of Romania, and that's huge. In all the other countries you already have an established position, but this is another world. How do you approach the process? Do you approach everything differently? We already had questions relating to risk and we have a very large single market, so things can happen. What is your approach as far as the risk is concerned? The next question relates to the management board. Do you plan to change the composition of the management board?
[audio distortion] Okay, let me start and then you can come in. In terms of the structure of the transaction, of course it is completely different. The last big transaction was, well, a long time ago, but in the past we bought some banks that had been previously owned by banks. We then transferred, formed them. It took a while and then we were able to operate successfully in those countries. This time it's different. It's a private bank that we are acquiring. It is listed on the stock exchange. Majority owner was Santander and it's not a restructuring case. It's a very successful bank. As mentioned repeatedly, if you take a look at the financial KPIs, they are really doing an extremely good job.
Now what this means for us when we enter such a big country, it's about rebranding and we know in a situation where we need to try to understand the market and what we can do there, because again, this bank is very successful and Erste as an institution is known to some, but not to all. Rebranding will be an issue and we have started dealing with that intensively. In terms of the local management, you can see this in all our countries in the group, we always want to have a strong local management in the various countries, because we believe that we need to have entrepreneurial people in these management functions. Of course, if you grow up in a country, you understand it better. We are great fans of local management and that's how we see it.
[audio distortion] Let me add, you said stock listed. It was part of a large banking group which was under the supervision of the ECB and had to follow very strong rules. We are entering the market at a very high level of comfort, so to speak, as a new owner.
Yes. One more thing I would like to add. You talked about the atmosphere previously. Yes. That's the questions that we have been asking ourselves, and we are still asking ourselves. This acquisition, of course, will change our group, there's no doubt about that. Of course, that was also clear when it came to earlier acquisitions. It's a long time ago, but some of us may have forgotten this. This is highly specific and we talked about the risk situation, the financials and all that. Two things are specific and we need to consider this. We are not taking over controlling stakeholders. We're not taking over the entire bank. For all the other international owners in Poland, it's the same. Why is that? All the major Polish banks are listed on the stock exchange. Also, the previously mentioned two state-owned companies are listed on the stock exchange.
Even if we had wanted to, we couldn't have acquired 100% of the bank because the Polish regulators, the supervisory authority, asked for a listing. Santander had a maximum of 68%. They never had more than 68% of the local group. The minority shareholders, of course, do play a role. Another point that may have been lost in today's debate, and Peter addressed it in his presentation, is the opportunity to further strengthen the capital market in Central and Eastern Europe. To develop it further can only be done in a combination by Austria, Poland, and a few other countries who are beginning to go in this direction. This is what our Polish future colleagues have already started. This is extremely helpful and this is going to strengthen our position in terms of that.
Like I said at the beginning, our approach and our mindset is that we are going into this with a lot of confidence, but also with a lot of respect, because this step will change the entire group. There is no doubt.
I think there are no further questions in the room. There is one. Please ask your question.
[Foreign language]
Alexandra [Kirkij] from Business Portal in Belgrade. [Foreign language]
From the beginning of this year has kept its three key interest rates unchanged. Can you tell me, how do you comment on this from the perspective of your business and what are your expectations in this regard for the future? The second question is about Serbia. How satisfied are you with operations in our country? Is there any particular segment that you would like to highlight? Thank you.
Maybe I start to answer the question how happy we are with Serbia. Henry, Stefan can take over interest rates, European Central Bank. As mentioned before, the volumes in Serbia, especially in the corporate banking, are growing because there are a lot of foreign investments in Serbia going on. Of course, this is a kind of prerequisite for growth for the overall country. We are quite happy with our operation in Serbia.
Yeah.
On the interest front, I briefly also touched upon it already in the presentation, but to be more precise, our analysts were one of the few who had for a long time already the anticipation that the ECB will hold at the 2% level even for the rest of the year. Let's see, this depends. It was relatively expected that they will hold on July. Let's see for the further meetings where they will go. Given current inflation prints, I would personally expect that for the next one or two meetings a hold is likely. How good is this for us? Very good. I mean, we are not depending too much on the sensitivity, but if I could choose, I would prefer the 2%, but that's very personal opinion.
If there are no further questions, please go ahead.
In Poland, you also acquired an asset management company. Can you say some words about the size of the company and compare it with asset management?
Asset management?
Yes, the asset management subsidiary has assets under management worth EUR 6 billion, more or less. It's still early days to say how this works, technically speaking, with Erste Asset Management , but of course we are looking at the asset management on the group level. There will be strong cooperation there, definitely. We do believe that in Poland, in terms of asset management, there's still a lot of room for growth compared to other countries where we are operating. We believe that there's still some room for improvement. There's potential there and we're looking forward to the market opportunities there. Like Stefan Dörfler said, the regulators have always tried to ensure that the banking infrastructure is listed. The activities that we have in Poland to build up a capital market are actually disproportionately good and have also worked really well in the past.
There's pension funds, pension fund business there. There's also institutional investors there. These institutional investors are also a basic prerequisite for a well-functioning capital market because they have the deep pockets.
We are taking the last few questions but need to close. There is one from Masay Rudka from Business Insider Poland. Santander Bank Polska has a good track record of combining quite high dividends with organic growth. Should minority shareholders expect a change of that approach?
No.
No, it's not a very long answer, but no.
Okay, good. There was a question on rebranding and what the new name will be, but far too early given that we're working on regulatory approvals. Thank you very, very much for your attendance. [Foreign language] If there's anything we can help you with, please contact us. Also, for those that have traveled from far abroad, if we can make your stay here nicer, let us know. We are very, very happy to support. [Foreign language]
Thank you very much for coming, and we'll be available for questions anytime. Thank you.