Erste Group Bank AG is well positioned to achieve its upgraded 2021 financial targets as the economies of its core markets gradually recover from a coronavirus-prompted downturn, analysts said.
The Austrian bank’s first-half net result attributable to owners of the parent jumped 212% year over year to €918.0 million, an improvement that led it to upgrade its goals for the full year. Erste is now targeting a return on tangible equity in the double-digit region, growth in both net interest income and net fee and commission income, and an overall 2021 net result that is significantly higher than in the previous year. Risk costs — a key factor affecting the bank’s profitability now more than ever — are also expected to drop significantly.
CEO Bernhard Spalt said that the double-digit ROTE guidance should mean somewhere around 11%. The bank’s ROTE in 2020 fell to 5.1% from 11.2% in 2019. Erste was forced to suspend its 2020 targets at the onset of the pandemic last year.
Analysts are agreed that Erste should be able to meet most of its new targets. Barclays has modeled a 10.2% ROTE, analyst Krishnendra Dubey told S&P Global Market Intelligence, while Erste’s solid operational profitability, track record of cost discipline and availability of provisions will support its pursuit of these goals, according to Andrea Wehmeier, vice president and senior analyst at Moody’s.
This upbeat outlook is anchored primarily on an expected economic rebound in central and Eastern Europe, a core market for Erste. It expects GDP in the region to grow by between 3% and 7% this year. With a macro recovery in the region “in full swing,”
Spalt said during a July 30 earnings presentation that “what could have been achieved so far has been achieved, and there’s a very, very strong recovery taking place.”
The region’s economic development will be key in achieving the targets, Wehmeier said, adding that “a sustainable recovery will support loan demand, limit cost of risk and [support] somewhat rising rates in CEE countries.”