Risikomanagement Journalistenakademie

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1 Risikomanagement Journalistenakademie Die Ungewissheit des Risikos Kann man in diesen Zeiten Risiko noch einschätzen und berechnen? Dr. Martin Rohmann 1

2 Agenda 1) Ist die Krise schon vorüber? 2) Was ist Risikomanagement? 3) Warum müssen Banken regulatorisch vorgeschrieben Eigenkapital halten? 4) Welche Folgen haben höhere Eigenkapitalanforderungen? 5) Das Risiko um Staatsanleihen und Liquiditäts- Risikomanagement 6) Welche Rolle erfüllen Stresstests im Risikomanagement? 7) Risikopositionen in der Bilanz am Beispiel der Erste Group 2

3 Grundlagen Bankgeschäft Main function of banks is to act as intermediaries of fund transfers from liquidity providers (holders) towards liquidity buyers Banks within fund transfer activity are managing mismatch in tenor and currency of collected liquidity and demanded credit As intermediary service provider, the banks are taking the risk of debtors and protecting the creditors Main indicator of banks solvency is their capital, which can first absorb losses together with their profit 3

4 Agenda 1) Ist die Krise schon vorüber? 2) Was ist Risikomanagement? 3) Warum müssen Banken regulatorisch vorgeschrieben Eigenkapital halten? 4) Welche Folgen haben höhere Eigenkapitalanforderungen? 5) Das Risiko um Staatsanleihen und Liquiditäts- Risikomanagement 6) Welche Rolle erfüllen Stresstests im Risikomanagement? 7) Risikopositionen in der Bilanz am Beispiel der Erste Group 4

5 ex post Was ist Risikomanagement? Risikomanagement ist die Identifikation, Messung und Steuerung von Risiko. RISIKOMANAGEMENT i.w.s RISIKOIDENTIFIKATION wo existieren Risiken welche Risiken gibt es wie kann ich sie messen RISIKOSTEUERUNG Organisationsform Kapitalallokation Risiko- / Ertragsoptimierung Risikolimitierung Diversifikation Ausbildung Hedging ex ante RISIKOCONTROLLING Quantifizierung Berichtswesen RISIKOMANAGEMENT i.e.s 5

6 How to Manage Credit Risk what is credit risk? example of a plain vanilla exposure debtor loan installments interest fees creditor (bank) Credit risk is a potential loss suffered by creditor by the reason that counterparty (debtor) is not able or willing to pay Credit risk is present in all kind of transactions where an exchange of funds takes place Elements of credit risk: counterparty risk, failure of debtor to meet financial obligations due to reasons related only to the debtor situation transfer risk, the risk that the debtor can not meet financial obligations due to reasons of restricted transfers (country moratorium of convertibility of exchange) settlement risk, failure within the settlement period of exchange of commodities 6

7 Erwarteter und unerwarteter Verlust Erwarteter Verlust Der Verlust, der im statistischen Mittel zu erwarten ist. Betrachtungshorizont: jährlich vs. (Rest-)Laufzeit des Kredites Muss durch risikogerechte Bepreisung verdient werden Standardrisikokosten Muss durch Wertberichtigungen bevorsorgt werden Risikovorsorgen Unerwarteter Verlust Der Verlust, der über den erwarteten Verlust hinausgehen kann. Wird mit einer gewissen statistischen Wahrscheinlichkeit (z.b.: 99.9%) ermittelt. Betrachtungshorizont: üblicherweise 1 Jahr Wird durch die RWAs berechnet Muss durch Eigenkapital abgedeckt werden können Die notwendigen Kapitalkosten müssen verdient werden 7

8 Erwarteter und unerwarteter Verlust 8

9 Empirie vs. Schätzung Historische Ausfallund Verlusterfahrung Prognose der PD, LGD, CCF (EAD) Vergangenheit beobachtet Heute Zukunft erwartet Ausfälle: 1 Jahres PD 1 Jahres Ausfallraten, Anzahl der je Ratingmethode und Ratingklasse Ausfälle und Ratingmigrationen Tilgungen: Tilgungsquotient Tilgungsquote je ausge- je homogenem Segment fallenem und abschlossenem Kunden Sicherheitenerlöse: Sicherheitenerlösquotient Sicherheitenerlösquote je je homogenem Segment vollverwerteter Sicherheit Off-Balance-Ausnützung: CCF Ausnützungsquote des freien je homogenem Segment Rahmens je ausgefallenem Konto LGD 9

10 Agenda 1) Ist die Krise schon vorüber? 2) Was ist Risikomanagement? 3) Warum müssen Banken regulatorisch vorgeschrieben Eigenkapital halten? 4) Welche Folgen haben höhere Eigenkapitalanforderungen? 5) Das Risiko um Staatsanleihen und Liquiditäts- Risikomanagement 6) Welche Rolle erfüllen Stresstests im Risikomanagement? 7) Risikopositionen in der Bilanz am Beispiel der Erste Group 10

11 Die Verlustausgleichsfunktion des Eigenkapitals Eigenkapital ist ein Puffer gegen zukünftige, auch sehr unwahrscheinliche, unerwartete Verluste und muss überdies sicherstellen, dass das notwendige oder angestrebte Kapazitätsniveau notwendiges aufrecht erhalten Mindestkapital Performancemessung werden kann. Risiko Kapital Risikotragfähigkeit 11

12 Die Einflussfaktoren auf die Höhe des Eigenkapitals Risiko Regulatorische Vorschriften Eigentümer Markt Die Höhe des Eigenkapitals 12

13 RWA Kurve Sensitivity of Risk Weights to PDs (unsecured) 200% 180% 160% 140% 120% 100% 80% Risk Weighting CORPORATE SME Potential capital relief for retail 60% 40% OTHER RETAIL 20% PDs 0% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% main Corporate PD area main SME PD area main retail PD area 13

14 A Within the IRB approach, different formulae are applied to different portfolios The value of Asset Value Correlation (AVC) factor/function has a large impact on the risk weights (all other parameters being equal) AVC and risk weight as a function of PD (LGD=45%, M=2.5 years *) ) in the IRB Approach according to Basel II Sovereign, Institute, Corporate SME Corporate (Firm Size 5 mio EUR) Retail Other Retail Mortgage Retail Qualified Revolving Retail STD-Approach Corporate STD-Approach IRB approach Asset Value Correlation Basel II risk weights 24% 300% 22% 275% 20% 250% 18% 225% 16% 200% 14% 175% AVC 12% RW 150% 10% 125% 8% 100% 6% 75% 4% 50% 2% 25% 0% 0% 5% 10% 15% 20% 25% 30% PD *) M parameter in the Basel II formula exists only for non-retail portfolios 14 0% 0% 5% 10% 15% 20% 25% 30% PD

15 D Pronounced differences in Risk Weights of different Banks Retail Mortgages: Possible drivers for relative differences are: LGD input parameters (house prices, ) State guarantees (e.g. in France) PDs portfolio mix Others Retail other (revolving, SME): 15

16 Qualität Eigenmittel (Total Capital, TC) hartes Kernkapital (Common Equity Tier 1, CET1) = Grund- und Stammkapital + einbehaltene Gewinne anderes Kernkapital = Hybridkapital NEU Kernkapital (Tier 1, T1) Ergänzungskapital NEU (Tier 2, T2) nachrangiges Kapital (lower Tier 2) 16

17 Quantität heute Basel III 2019 min Basel III 2019 max Aufsichts-Add-On? SIFI-Surcharge? T2 (2%) T2 (2%) T1 (1,5%) Total:?? T1 (1,5%) antizyklischer Puffer (0-2,5%) Total: 8 % T2 (4%) T1 (2%) Total: 10,5 % Konservierungspuffer (2,5%) CET1 (4,5%) CET1: 7% Konservierungspuffer (2,5%) CET1 (4,5%) CET1 : 9,5% oder höher CET1 (2%) CET1: 2% 17

18 Basel III zusätzlicher Kapitalbedarf in Mrd EUR Zusätzlicher Kapitalbedarf der AT Banken unter Basel III Mrd. EUR 4 Mrd EUR max. 3 Mrd EUR 4 6 Mrd EUR Mrd EUR CET1 strengere Basel III Anforderungen CET1 Ersatz staatliches und privates Partizipationskapital Additional Tier 1 Tier 2 Der zusätzliche Kapitalbedarf für den AT Bankensektor beläuft sich auf Mrd EUR Annahmen: -Der Kapitalbedarf beinhaltet Common Equity Tier 1, Additional Tier 1 und Tier 2 Kapital -Der Kapitalbedarf wurde auf Basis Q nach allen Übergangsbestimmungen (Definition per 2022) berechnet. -Es wurden keine Gewinnthesaurierungen und keine Ersatzbeschaffung für das staatliche Partizipationskapital berücksichtigt 18 Quelle: OeNB

19 Agenda 1) Ist die Krise schon vorüber? 2) Was ist Risikomanagement? 3) Warum müssen Banken regulatorisch vorgeschrieben Eigenkapital halten? 4) Welche Folgen haben höhere Eigenkapitalanforderungen? 5) Das Risiko um Staatsanleihen und Liquiditäts- Risikomanagement 6) Welche Rolle erfüllen Stresstests im Risikomanagement? 7) Risikopositionen in der Bilanz am Beispiel der Erste Group 19

20 Mögliche Reaktionen auf Kapitalknappheit Erhöhung Eigenkapital Kürzung Dividendenauszahlung Erhöhung Gewinn / Reduktion Kosten Kapitalerhöhung Reduktion Risiko Abbau der Risikoposition Verkauf / Syndizierung bestehender Geschäfte Einschränkung Neugeschäft Verbesserung der Qualität des Risikos Strengere Bonitätskriterien bei Kreditvergabe Adäquate Risikobepreisung Verstärktes Einfordern von Sicherheiten Technische Optimierungen Optimierung der Rechenlogik im Rahmen der gesetzlichen Rahmenbedingungen Hebung der Datenqualität EB: Für Nicht- Kerngeschäft EB: Wichtigste Maßnahme 20

21 Capital Structure On track for timely EBA compliance EBA core tier 1 ratio at 31 Dec 11: 8.9% EBA capital gap narrowed to about EUR 166m, down from EUR 743 million Supported by 250m earnings in Q RWA decrease by a reduction of noncore business and technical effects Hybrid T1 and LT2 buyback to generate additional capital Approx. EUR 500m of hybrid T1 capital Approx. EUR 330m in lower tier 2 capital Positive capital impact of approx. EUR 200m Replacement with Basel 3 compliant Tier 2 instruments planned in 2012 Basel 2.5 (CRD III) CET 1 ratio at YE 2011 reaches 9.4%, exceeding the Basel II CT1 ratio of 9.2% at YE 2010 Core tier 1 ratio (total risk) = tier 1 capital excl. hybrid and after regulatory deductions divided by total RWA - including credit risk, market and operational risk % Core tier 1 ratio (total risk) 8.3% 9.2% 9.4% Dec 08 Dec 09 Dec 10 Dec % Core tier 1 ratio excl. part capital (total risk) 6.9% 7.7% 7.8% Dec 08 Dec 09 Dec 10 Dec 11

22 Impact of current regulatory reforms (IIF) Europe including CEE will be hit more severe with respect to growth and employments losses than the US, Japan or the Emerging Markets. Europe has the highest dependency ratio on banks Western Europe: 70% credit financed 30% bond financed CEE: over 85% credit financed US: 25% credit financed Requirements to adjust to the new capital and liquidity standards are the largest. Emerging markets: Many emerging economies have benefitted from infusion of foreign equity from mature economies. Basel III will significantly increase the costs of maintaining and increasing such emerging market presence for the foreign owners (as the cost of capital and funding is likely to increase in the home markets). Particularly challenging will be the liquidity requirements as domestic long-term bank funding markets are relatively thin. 22

23 Impact on SME financing Higher capital requirements force banks to build up their capital position by either capital increase and/or reduction of RWAs On average SME are relatively high-risk borrowers showing higher probabilities of default compared to sovereigns On average even strong capitalised SME have low or no external ratings due to their size SME depend more or less entirely on banks for external financing because their access to capital markets is limited Regulatory capital standards tend to overestimate the economic capital required in European retail banking (Basel II formulas) SME are more exposed to credit rationing and are hit first in times of credit rationing 23

24 Agenda 1) Ist die Krise schon vorüber? 2) Was ist Risikomanagement? 3) Warum müssen Banken regulatorisch vorgeschrieben Eigenkapital halten? 4) Welche Folgen haben höhere Eigenkapitalanforderungen? 5) Das Risiko um Staatsanleihen und Liquiditäts- Risikomanagement 6) Welche Rolle erfüllen Stresstests im Risikomanagement? 7) Risikopositionen in der Bilanz am Beispiel der Erste Group 24

25 A The special case of Sovereign Exposures (1/2) Standardised Approach Exposures to sovereigns are assigned a Risk Weight depending on the corresponding external OECD rating of the home country OECD-Rating Risk weight 0% 0% 20% 50% 100% 100% 100% 150% Exceptions: Exposures to Sovereigns in EU countries, which are denominated and funded in domestic or EU currency are assigned the risk weight of 0% (e.g. Greece in EUR) Exposures to Sovereigns in non-eu countries but with comparable supervisory regime, which are denominated and funded in domestic currency of the Sovereign are assigned the risk weight of 0% (e.g. Croatia in HRK) Current standardised risk weights of exposures denominated in EU-currencies: Austria, Czech Republic, Slovakia, Hungary, Romania, Croatia (in local currency), Portugal, Greece, Ireland, Spain Serbia Ukraine 0% 100% 150% 25

26 A The special case of Sovereign Exposures (2/2) IRB Approach Generally risk weights are calculated according to the supervisory formula using the parameters: PD internally estimated assigned depending on the internal rating grade LGD, M defined by regulator Exceptions applied in the Erste Group: Exception 1: EU law allows to apply the risk weight of 0% when the risk weight under Standardised Approach is also 0% Exception 2: Bilateral agreement with regulator to apply the risk weight of 0% to Sovereign exposures from Austria, Germany, Slovakia, Czech Republic, Hungary 26

27 Basics Banks have to fulfill LCR and NSFR as of 2015 and need to hold Highly Liquid Assets (HLAs). Assets are considered to be high quality liquid assets if they can be easily and immediately converted into cash at little or no loss of value. Narrow definition of liquid assets comprised of cash, central bank reserves and high quality sovereign paper, as well as a somewhat broader definition which could also include a proportion of high quality corporate bonds and/or covered bonds. at least 60% sovereign or supranational paper up to 40% corporates and covered bonds with 50% haircut It s very likely that in the final CRD IV the definition of HLAs will be softened, allowing also top securitisations and reducing the haircut for corporates. While for LCR calculation also foreign currency denominated paper would qualify, for Survival Period Analysis only ECB eligible paper (euro denominated) is relevant. 27

28 HLA definition There is no clear definition but the following principles shall offer some guidance: Low bid-ask spread Low credit and market risk Ease and certainty of valuation Low correlation with risky assets Active and sizeable market Presence of committed market makers (quotes always available) Low market concentration (diverse group of buyers and sellers) Flight to quality assets (historically) 28

29 The Polygon of Conflicting Targets 1) Not increase risk weights 8) Infrastructure for analysis and admin needed 2) Maximise income 7) Stick to euro denominated assets 3) Keep counterparty and market risk low 6) Excess liquidity in our home market currencies 4) Reduce cluster risk and avoid contagion effects 5) Stick to our core market strategy 29

30 Agenda 1) Ist die Krise schon vorüber? 2) Was ist Risikomanagement? 3) Warum müssen Banken regulatorisch vorgeschrieben Eigenkapital halten? 4) Welche Folgen haben höhere Eigenkapitalanforderungen? 5) Das Risiko um Staatsanleihen und Liquiditäts- Risikomanagement 6) Welche Rolle erfüllen Stresstests im Risikomanagement? 7) Risikopositionen in der Bilanz am Beispiel der Erste Group 30

31 Stress Tests Stress Tests required by regulator for internal risk steering: Governance Responsibility with management body (most senior / BoD; responsibility not only for ultimate results but also scenario design etc.) Integral to RM framework (e.g. consideration within ICAAP, includes all risk types and leverages knowledge from across the organization, proper staffing, processes & tools) Results shall be actively used for all kinds of management decisions (business strategy, limit framework, capital and funding strategy, risk mitigation management etc.) Methodology Sensitivities for specific portfolios or risks Comprehensive scenarios (risk types, regions, industries ) Exploitation of results Conclusions for capital, balance sheet and P&L Action management ICAAP ST integral to ICAAP with clear message for capital planning Clear link between risk appetite and strategy and stress tests 31

32 Generic Scenario Based Stress Test Stress Scenario (incl. trigger) Euro Zone Crisis a b Greece default Ireland default 2 + x default c Determination of the stress scenario Macro Economy (causal chains) Bank specific universe Banking Market Real Economy Markets (incl. Capital and Liquidity) Banking Book Trading Book P&L Credit Risk LLP, RWA Market Risk BB, TB, haircuts Sovereigns Haircuts, revaluation FIN LLP, revaluation Operational Risk AMA, OR loss P & L Interest, fee, trading Concentration Risk CR, inter-risk, P&L 32 GDP Unemployment Rate FX Rates Interest Rates Capital + liquidity sources / prices Business Strategy Capital Strategy Liquidity Strategy Definition of causal chains and resulting macroeconomic stress parameters Definition of stress parameters for the individual analysis areas of the institute (e.g. credit risk PD, LGD, CCF for regions, industries, customer groups)

33 Stress Testing Governance and Organization Supervisory Board Stress Test Expert Panel Strategic Risk Management Credit Risk Management Market Risk Management Operational Risk Management Liquidity Risk Management Asset Liability Management Economists / Research Group Performance Management Enterprise-wide Risk Management Credit Risk Holding Board (BoD) Market Risk OpRisk Liqui Risk P&L Executive Committees Holding Steering Group Clearly defined stress test process involves a variety of units and groups to exploit available skills and experience as best as possible Group policy for stress testing implemented Clear roles and responsibilities have been defined 33

34 Building blocks of bank-specific stress tests Definition of Macroeconomic Scenarios Translation and Computation Management Discussion and Results Qualification Integration into Steering Group Research and Economists provide macroeco status quo and outlook Stress Test Expert Panel discussion and Selection of stress scenarios Group Research and Economists provide macroeco parameters fitting with selected scenarios Additional definition of risk and P&L sensitivities Management discussion at Holding Board level including all Steering functions (RM, GPM, BSM) Final sign-off of, for example, 2 to 4 stress scenarios Translating macroeconomic forecasts into risk parameters PDs LGDs Cash Outflows Haircuts etc. Differentiated stress for various individual portfolios, e.g.: Foreign-FX denominated loans Illiquid assets Sensitive products Business sectors etc. Computation of impact on ERSTE Group P&L RWAs Capital Ratios ECap etc. ERM s qualification of results Discussion at Holding Steering Group level Derivation of proposed actions Analysis and discussion of results at Holding Board level (including all Steering functions) Decision on action and targets Design of action plan Identification of countermeasures (e.g. hedging) Review of limits Review of business and risk strategies Change dedication of capital etc. RM: Risk Management GPM: Group Performance Management BSM: Balance Sheet Management ERM: Enterprise-wide Risk Management PD: probability of default LGD: loss given default P&L: profit and loss RWA: risk weighted assets ECap: Economic Capital Execution and implementation of selected measures Capital buffer Limit setting Requirement for contingency plan Forecast of Riskbearing Capacity Calculation etc. 34

35 Agenda 1) Ist die Krise schon vorüber? 2) Was ist Risikomanagement? 3) Warum müssen Banken regulatorisch vorgeschrieben Eigenkapital halten? 4) Welche Folgen haben höhere Eigenkapitalanforderungen? 5) Das Risiko um Staatsanleihen und Liquiditäts- Risikomanagement 6) Welche Rolle erfüllen Stresstests im Risikomanagement? 7) Risikopositionen in der Bilanz am Beispiel der Erste Group 35

36 Income statement (IFRS) FY 2011 performance affected by one-off items in Q3 in EUR million Change Comment Net interest income 5, , % Solid performance of core business Risk provisions for loans (2,266.9) (2,021.0) 12.2% Up in HU, down or flat all other segments Net fee and commission income 1, ,842.5 (3.0%) Reduced securities business Net trading result (62.0%) Written CDS in International Business General administrative expenses (3,850.9) (3,816.8) 0.9% Other operating result (1,589.9) (439.3) >100.0% Goodwill, banking taxes Result from financial instruments - FV 0.3 (6.0) na Result from financial assets - AfS (66.2) 9.2 na Impairment & selling losses Result from financial assets - HtM (27.1) (5.5) >100.0% on peripheral bonds Pre-tax profit/loss (322.2) 1,324.2 na Taxes on income (240.4) (280.9) (14.4%) Net profit/loss for the period (562.6) 1,043.3 na Non-controlling interests (5.0%) Owners of the parent (718.9) na Additional comments for year-on-year comparison: Impairment of goodwill EUR 1,064.6m for RO, HU and Austrian subsidiaries Written CDS (IB) negative impact on trading of EUR 182.6m in 2011 Additional risk provisions of EUR 450m in Hungary for FX conversion and to raise coverage ratio in Q3 Other taxes (mainly Austrian banking tax) increased to EUR 163.5m 36

37 Balance sheet (IFRS) Successful RWA reduction in non-core business in EUR million Dec 11 Dec 10 Change Comment Cash and balances with central banks 9,413 5, % Temporary additional liquidity from LTRO Loans and advances to credit institutions 7,578 12,496 (39.4%) Reduced non-core business Loans and advances to customers 134, , % Increase in AT, SK Risk provisions for loans and advances (7,027) (6,119) 14.8% Driven by Hungary Derivative financial instruments 10,931 8, % Trading assets 5,876 5, % Financial assets - FV 1,813 2,435 (25.5%) Financial assets - AfS 20,245 17, % Basel 3, excess liquidity and deposit Financial assets - HtM 16,074 14, % growth invested (bonds, CEE region) Equity holdings in associates (22.4%) Intangible assets 3,532 4,675 (24.4%) Impairment of goodwill Property and equipment 2,361 2,446 (3.5%) Current tax assets % Deferred tax assets % Assets held for sale % Other assets 3,382 4,626 (26.9%) Total assets 210, , % Risk-weighted assets 114, ,844 (4.9%) Additional comments: RWA were reduced by 4.9% on cut back of non-core activities Financial assets rose yoy as a result of preparatory actions to meet Basel III liquidity requirements as of 2014 (e.g. LCR) and because of investing surplus liquidity in CEE bonds 37

38 Asset quality review New NPL formation declined yoy New NPL formation declined yoy New formation mainly in Hungary (deterioration of corporate and real estate portfolio) and Romania (weak SME business) Qoq: New NPL formation down from EUR 499m in Q3 to EUR 275m in Q4 30% 25% 20% 15% Erste Group: NPL ratio vs NPL coverage 63.9% 61.4% 60.0% 60.6% 61.0% 65% 60% NPL coverage ratio slightly up to 61.0% 10% 7.6% 7.7% 7.9% 8.2% 8.5% 55% Migration trends still mixed While low risk share is increasing and substandard further decreasing, new NPL formation still significant 5% 0% Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 NPL ratio NPL coverage (exc collateral) 50% Customer loans by risk class Quarterly NPL growth (absolute/relative) 100% 80% 60% 40% 20% 0% 7.6% 7.7% 7.9% 8.2% 8.5% 4.6% 4.4% 3.9% 3.3% 3.2% 17.1% 16.5% 17.6% 18.0% 17.2% 70.7% 71.4% 70.6% 70.5% 71.1% in EUR million 1,600 1, % 5 2.4% % % % 275 8% 4% 0% -4% Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Low risk Management attn Substandard Non-performing NPL growth (absolute) NPL growth (relative) 38

39 Asset quality review Austria, Czech Republic and Slovakia improved, Hungary and Romania still mixed Stable NPL ratio in Austria Slight reduction of NPLs in savings banks Further reduction of CHF loans due to conversion into EUR loans Czech Republic and Slovakia improved Czech Republic: reduction of NPL ratio mainly due to write-offs and NPL sales Slovakia: Healthy demand for new loans; good new booking quality led to increase of low risk category 25% 20% 15% 10% 5% 0% NPL ratios in key segments 22.7% 21.1% 8.0% 5.6% 5.5% 6.4% Austria Czech R Romania Slovakia Hungary GCIB Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Hungary and Romania remain challenging countries Romania shows diverging development Still rising NPL ratio due to real estate and SME business New loans booked in retail is mainly low risk business Hungary still problematic Local corporate and real estate business drove new NPL formation NPL coverage ratio down due to usage of provisions for FX conversion 100% 80% 60% 40% 20% 0% NPL coverage ratios in key segments (excluding collateral) 61.4% 69.7% 50.1% 79.2% 70.3% Austria Czech R Romania Slovakia Hungary Dec 10 Mar 11 Jun 11 Sep 11 Dec % GCIB 39

40 Status quo Hungary and Romania Operating in a challenging environment - Still fragile economic outlook for Hungary; Banking market is still very challenging - All three major rating agencies downgraded Hungary to non-investment grade IMF-agreement on financial assistance program (EUR 15-20bn) to be expected in H1 2012; agreement would lead to more sustainable economic measures and more stable currency National Bank of Hungary to introduce 2-year variable-rate refinancing credit facility with the aim of supporting lending activity - EBH to reach profitability in 2014 based on its new strategy Focus on local currency lending from locally sourced liquidity; Reduce dependence on parent company funding Smaller size reflects market circumstances 15% headcount reduction, Network reduction by 43 branches GDP growth surprised on the upside in 2011; fiscal reforms and structural adjustments to be continued Real GDP up 2.5% yoy supported by agriculture, industry and exports New government will not deviate from the agreement with the IMF-EC Target 2012: restructuring state-owned enterprises and selling state stakes in energy and transport companies BCR: Results impacted by sluggish loan growth; lower margins and still high provisioning SIF transaction update: 4 SIFs signed binding agreements; By the end of February 2012 EGB share in BCR is 92.3% Still sound efficiency benefiting from economies of scale and strict cost control Strategic aim to build profitable business with core customers, improve asset structure and actively manage capital 40

41 CEE growth potential Twice as high as in Eurozone - Adjusted for cyclical component, CEE countries (apart from Hungary) have twice as high potential growth than the Eurozone (2-4% vs. 1%) in the following two years - Exports and investments will be the main growth drivers - In Hungary, pending reforms of the labor market, unorthodox policy decisions and a relatively high tax burden have an adverse effect on potential growth 6% 5% 4% 3% 2% 1% 0% -1% -2% Greece Portugal Spain Ireland Average growth of potential output (according to the European Commission) Italy Hungary Slovenia Denmark F Euro area UK Netherlands France Finland Belgium Austria Germany Czech Rep. Sweden Romania Slovakia Poland Source: European Commission, Economic Forecasts Autumn

42 Erste Group in 2012 Focus on retail and corporate business in CEE Despite subdued growth outlook for CEE, underlying macroeconomic data in core markets points towards stronger GDP growth than in most other EU countries Austria, Czech Republic and Slovakia are well positioned to weather a potential recession in EU Romania remains on track despite slow economic recovery Hungary: improved market confidence due to planned IMF negotiations Operating result expected to increase slightly in 2012 Despite ongoing reduction in non-core assets Selective loan growth in our core markets Unchanged cost basis Risk costs to decrease as 2011 extraordinary effects expected not to recur EBA capital ratio to exceed 9% beyond 30 June