Erste Group Bank AG update

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The head of Austria’s largest bank stated that the economies of Central and Eastern Europe will surpass their wealthier Western economies in the post-pandemic recovery, and he believes they will benefit from strong economic fundamentals and better government decision-making.

“The economic rebound in the entire region is very strong,” said Bernd Spalt, CEO of the Erste Group, one of the largest banks in Central and Eastern Europe. “We are back in a situation where we are almost full of employment, full of corporate orders, and consumption has resumed.”

Spalt added that the bankruptcy rate is at a historically low level and credit demand is rising. This is a photo he can’t see anywhere else in Europe: “Everyone has built their own small fence around their country.”

He believes that the performance of the Central and Eastern European economies is likely to be better, partly because the government has provided extensive support for industries that have been hit hard by the new crown pneumonia, such as tourism. In Austria, 80% of the revenue of this sector is subsidized by the government.

We are back to a situation where almost full employment, full corporate orders and consumption have resumed

During the pandemic, the region’s basic economy is tilted towards industry and manufacturing, which will also give it an advantage over the more developed Western economies dominated by service-oriented enterprises.

“The desire of people and businesses to return to normal conditions here is huge,” Spat explained. The less stringent blockade also means that the economic life of the region is not as painfully affected as in the West.

Erste has now revised up its earlier 2021 GDP growth forecast from 4.5% to 7%.

Speaking between Erste’s headquarters in Vienna, the city’s main railway station, and the 18th-century Belvedere Palace (famous for its collection of Klimt paintings), Spat said that the bank expects a substantial increase in revenue .

As we all know, the magnificence of the Erste Campus — the center of a winding low-rise glass office building that intersects with a public square — may ultimately align with the bank’s potential. The headquarters project was conceived in 2007, when the rapid expansion of the Austrian bank into Eastern Europe heralded Vienna’s brilliant future as the Eastern European financial rival of Frankfurt or London.

It quickly became a symbol of arrogance. The financial crisis dealt a heavy blow to Erst. In 2008, the Austrian government Holds 2.7 billion euros of shares Stabilize its balance sheet in the bank.Erst Continue to pile up As the aftershocks of the crisis spread to the entire Eurozone, it suffered huge losses in the following years.

Last January, 53-year-old Spalt was a lifelong employee and trained lawyer of Erste Group. He succeeded Andreas Treichl, who had held this position for more than two decades.

As the pandemic spread within a few months after his appointment, Spat began to reserve for “huge” losses and support Erste’s balance sheet.

But relatively early, liquidity will not dry up, and Central and Eastern Europe are ready to weather the crisis economically.

Beginning in the late 1990s, Erste began to actively expand in Eastern Europe. The bank-including its subsidiaries-is the largest bank in several major economies in the region, including the Czech Republic, Slovakia and Romania. In total, it has more than 2,200 branches and a balance sheet of slightly more than 303 billion euros.

The 2008 curse, the withdrawal of liquidity by lenders and markets worried about Eastern European risk exposure, is now a huge benefit.

In the first-half results announced at the end of July, the bank’s revenue increased by 9.2% year-on-year to 3.8 billion euros, and its net profit was 918 million euros, an increase of 212%. The bank’s stock price rose nearly 40% at the end of August from the beginning of the year.

“We entered this crisis from a strong position,” Spat said. “It’s not that the financial crisis turned into an economic crisis [like 2008], But a health crisis that evolved into an economic crisis. And, from the beginning, the bank was not part of the problem, but the solution. ”

However, he emphasized that there are dark clouds on the horizon.

I still worry that we are too naive to enter the second half of this year, just like last year

The rate of indecision in Eastern Europe about vaccines worries him. “Maybe it is too early to declare victory,” he said. “Everyone said that there will be no further lockdowns, but I still worry that we are too naive to enter the second half of this year. Just like last year, we missed what we need to prepare.”

Economically, rising inflation is also a concern-specifically, the European Central Bank will not act fast enough.

Costs in Central and Eastern Europe are already rising rapidly. “If you have inflation but no interest rate hikes, it is not positive,” Spat said.

“Of course, the European Central Bank [has] Contact experts and [economic] However, I still think we need to pay more attention to inflation and learn more about how the basic drivers of inflation will change over time,” he said.

“I am more skeptical[about writing off inflation risks]… The temporary nature of current inflation may soon become a more permanent nature. ”