Erste Group Bank AG's per-share dividend payout for the financial year 2017 should be between €1 and €1.20 based on current capital levels and expectations for the rest of the year, CFO Gernot Mittendorfer told analysts during a first-half earnings call.
"We will look at the capital position at year-end," he said. "At the moment, it looks very solid and we don't see any major deviations there. We have said in the past we want to have a steady, slowly growing dividend payments, and this has not changed in the meantime."
Erste Group expects to achieve its target of paying a higher dividend in 2017 than it paid last year, when the Austrian lender doubled the payout year over year to €1 per share. It is also confident of meeting its goal for a 10% or higher return on tangible equity in 2017 after achieving 11.2% ROTE in the first half of the year. On the other hand, the bank projected a 1% to 2% rise in costs this year as a result of "regulatory projects and digitalization," and a further increase in risk costs.
Erste Group reported operating costs of some €2 billion for the first half, up from €1.98 billion a year earlier. This was largely due to the bank's ongoing IT restructuring program as it aims to improve service efficiency. CEO Andreas Treichl said it was difficult to predict when exactly Erste would reach a 55% cost-to-income ratio, as targeted in its 2020 strategy. The ratio edged up to 60.8% at June-end from 59.7% a year earlier.
"We have to make decisions on the data and the IT side — how long do we leave systems running in parallel, and how quickly do we shut them off," he told analysts. "I would say, if we manage to get down to 55% in the last quarter of next year, I would regard it as a success; if we are not there in the first quarter of 2020, I would regard it as a failure."
At 15 basis points of average gross loans, risk costs quadrupled year over year in the first six months, but the bank noted that this was still well below the long-term average. Mittendorfer said Erste is happy with risk costs at the moment and should be able to continue "showing similar results" going forward, with the bank not aware of any possible events that would affect those costs. "If this [remains the case], then we should definitely be below the 30 basis points that we were guiding at the beginning of the year," he added.
The low interest rate environment helped Erste Group drive down its nonperforming loan ratio to 4.7% at June-end from 5.8% a year earlier, the bank said in its first-half financial report. An NPL ratio of around 3% is achievable within the next couple of years, Mittendorfer said during the call.
Erste Group's phased-in common equity Tier 1 ratio under Basel III rules was 13.2% at June-end, compared to 13.0% at March-end and 13.4% at the end of 2016. The ratio could decline by up to 40 basis points as a result of the implementation of the new international accounting rules, known as IFRS9, from Jan. 1, 2018.
"Maximum 40 basis points — this is what we have always said, and the calculations are pointing more and more that we are inside these 40 basis points," Treichl said.
The expected CET1 ratio charge will be assumed in full rather than phased in over several years, he added, saying: "We will reflect it this year. We are always reflecting these things immediately."