Erste Group Bank AG
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Erste Group Bank AG
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Good day, and welcome to the Erste Group Bank AG Results for the First quarter of 2019 Conference Call. Today's conference is being recorded.
Now I would like to turn the conference over to Mr. Thomas Sommerauer. Please go ahead, sir.
Thank you so much, operator, and also a very warm welcome on behalf of Erste Group to everybody who's listening in. Today's call, as usual, will be hosted by Andreas Treichl, Chief Executive Officer of Erste Group; Gernot Mittendorfer, Chief Financial Officer of Erste Group; and Willi Cernko, Chief Risk Officer of Erste Group. They will lead you through a brief presentation highlighting the achievements of the first quarter 2019. After which time, they are ready to take your questions and answer them.
Before handing over to Andreas, I would once again point you to the disclaimer on Page 2 of the presentation regarding forward-looking statements. And Mr. Andreas, please, take it away.
Good morning, ladies and gentlemen, welcome from my side. Let's quickly go through the presentation. We start on Page 4. The net result for the first quarter this year was EUR 377 million, which, on a year-to-year basis or vis-à-vis the last quarter of 2018, is EUR 188 million lower, of which EUR 118 million is due to taxes, EUR 58 million worse in the other result, which includes the EUR 24 million legal provision in Croatia.
Operating result is EUR 85 million lower than in the last quarter of 2018. We're going to get in detail into that on the NII, and the commission income side and risk costs are better. On a quarter-to-quarter performance, the result is better than in the first quarter 2018 where we had EUR 336 million. So an increase on a net profit basis of 12%, and that mainly due to substantially better operating result than in the first quarter of 2018 based on a stronger NII, a very strong trading fair value result and fee income up by 2%.
If you look at the ratios on Page 5, you see, vis-à-vis the last quarter '18, the net interest income slightly lower and the margin going down from 2.33% to 2.18%. That's basically due to a relatively strong expansion of the balance sheet. In the first quarter, you look at the operating result, as I said before, up 11% vis-à-vis the last quarter and the cost income ratio for the first quarter '19 is 63%. So quite a bit better than in the first quarter of 2018. Risk cost, nothing much to mention, and the return on tangible equity is at 12.5%. So slightly better than in the first quarter of '18 where it was 12%.
If we go through Page 6, you see again a strong growth on the lending side with EUR 3.6 billion in loans to banks, but EUR 2.6 billion net loans to customers, up. And same on the deposit side, EUR 3.5 billion of increased deposits in the group, which brought our total balance sheet to EUR 243 billion.
If you look at Page 7, loan-to-deposit ratio, basically unchanged. If you look at the NPL ratio, no major changes, slight improvement again to 3% and at the same time, an improvement of the NPL coverage going to 74.5%. The core Tier 1 ratio in the first quarter, 13.2% and no changes on the liquidity and the leverage side.
If you look at the business environment in our region, you know that basically across Europe, forecast for growth in '19 and '20 are being revised downwards, not very different in our region. But to a much lesser extent than in Germany and other Western European countries, we still do expect in many of our countries that GDP growth in '20 will be greater than in 2019. Inflation is relatively stable: domestic demand increases; unemployment is coming down across the region; and of course, and particularly in the Czech Republic and in Hungary have an effect on personnel expenses. Other than that, I think you see from the government side, whether we talk about current account balance with the most notable exception of Romania, all countries are doing well and are basically improving vis-à-vis last year, and public debt is coming down in all our countries. And we do expect in the Czech Republic relatively soon that it'll be one of the few countries in Europe where the debt-to-GDP ratio is below 30%.
On the interest rate side, no changes other than yesterday, another hike in the Czech Republic, which in our view will be the last one. But very good news for us for this year, and very good news for our NII. In the Eurozone, Austria and Slovakia, no news and probably no news to be expected this year.
And very little to be said about the foreign exchange side. We would expect to actually the Czech crown to appreciate a little bit throughout the year given that growth rates are strong and the country is performing extremely well.
On Page 12, you see our market share development, which has been very positive, particularly in Austria. We're also gaining clients across the board with increasing our client share in Austria quite substantially. Part of that is, of course, also reflected in higher expenses. But the income out of the higher market share is hopefully here to stay for long.
If you look at the business performance overall on Page 14, strong loan growth across the region. And on Page 15, also strong deposit growth across the region, and that is reflected on Page 16. Our first quarter NII is at EUR 1.161 billion. That's about EUR 80 million higher than in the first quarter of 2018. And if you compare it to the last quarter of '18, it was EUR 50 million lower. Half of that is due to the fact that we have, in the first quarter, 2 interest days less than in the last quarter that are loan accounts for EUR 25 million. Then we have an adjustment -- an interest rate adjust and accrual of EUR 4 million due to the consumer protection case. Another EUR 6 million is IFRS 9. So EUR 35 million -- I'm sorry, IFRS 16, so EUR 35 million are explained by those items.
If you look at the countries, you have a rather diverging picture in the Czech Republic particularly due to the balance sheet expansion. You have the net interest margin coming down whereas in most other countries, like in Hungary, it's relatively flat. And in Romania, due to the interbank rate hikes, you see the margin actually going up.
On Page 17, you see the result of that. So on a quarter-to-quarter basis, pretty nice performance of the operating income in the first quarter of 2019. Not so nice on the operating expense side. Costs are at EUR 1.160 billion. Of that, quite a bit can be explained simply through an increase in personnel cost. Personnel cost in the first quarter of 2019 were EUR 17 million higher than in the first quarter, which is mainly, almost entirely due to increases in wages notably in most of the Central and Eastern European countries, although personnel has been kept flat, and actually we negotiated pretty well below the average salary increases in the country.
If you look at the cost income ratio, it's usually the worst of the year in the first quarter, which is also due to the fact that we booked the deposit insurances with very few exceptions, almost entirely in the first quarter, but it's better than in the first quarter of 2018. So I think overall, the ratio this year should be better than last year. And you can look at the ratios like we had it in the countries.
And with that, I will pass on to Willi, who will continue on Page 20 with the risk picture of Erste Group.
Yes, thank you. Just a few remarks from my side, talking about Pages 20, 21 and 22. I think if you look at the current development, this is characterized by continuation of a healthy asset quality. NPL volumes are further down by EUR 200 million at the level of EUR 4.7 billion. NPL ratio is at the level of 3% and to be expected to go further down. This comes predominantly from a low level of interim inflows and still benefiting from recoveries.
Looking at the NPL coverage, as already mentioned, it's going up to 74.5%. So we see us in a very positive territory.
With that, I'm going to leave the floor to Gernot.
Good morning from my side. We continue Page 26 and 27. As already mentioned, loan-to-deposit ratio is at 91.4%, so a little bit lower than at the year-end, but stable at this point in time. 27, you see the continuation of the loan growth performing loans, up 7.2% on a year-on-year basis and accompanying a reduction of the nonperforming loans of 14.2% to a stock of EUR 4.7 billion. Performing loans now at EUR 150.7 million.
We continue on Page 28. Liquidity situation of the group, LCR, and liquidity buffers. The usual picture that you could see over the last couple of quarters, no change there and a continuation of the excellent liquidity position of the group.
Page 31 is showing you the maturity profile of our issuances. We were active already this year and issuing in beginning of March a EUR 500 million, AT1. Noncore, 6.5 years, and we are almost filling the 1.5% AT1 81 bucket by this issuance. And in addition, in April, we placed the senior preferred EUR 500 million at 45 basis points and an outstanding interest from investors and a really very granular and big order book.
Page 32 gives you an overview on the MPE resolution strategy of the group. We are planning to issue nonpreferred senior already in 2019. And here, you have the details about the Austrian resolution group and the resolution strategy.
And on Page 33, we come to the capital position. We saw a growth in credit risk-weighted assets partially by regulatory one-offs and IFRS 16 effects of EUR 1.2 billion. The rest is driven by business effects. The capital ratios don't include the first quarter net profit, but anyway, we had 13.2% fully loaded. And here, you see as well a comfortable capital position.
With this, I hand over to Andreas for the outlook 2019.
All right. Thank you. We still look very positively at the year 2019. We believe that in our region, according to all the forecast whether they're in-house, out-of-house, growth in our region will be better than in other places in Europe. We see a lot of signs also that the effects of Brexit will be, however and whenever it happens, will be minor in our region, actually partially positive. Some of the English car manufacturers have just decided to move practically all their production into our region. Of course, the superior economic growth have its effect on the labor market. We see that in some of our countries. I thought you might have read in the paper that Prague, yesterday, was declared the city with the lowest unemployment rate worldwide. That, of course, has effects on wages, but our personnel department actually have worked very well. We're able to retain the best people without paying above market, and actually, we negotiated agreements that were below the market. So in principle, I think 2019 should still be a pretty good year for the group in terms of economic performance of the region, that's why we continue to target a return on tangible equity of above 11% for 2019. And we can reconfirm for this year that we expect revenues to grow faster than cost, and that is based on our expectation that loan growth again will be around 5% or even higher on a group level.
Risk costs, as you have seen, were absent in the first quarter. It's a bit too early for us at that point in time to revise our expectation for the year. We might do that with the half year results if we feel more comfortable that the very positive trend of the first quarter continues.
That being said, thank you very much for listening in. We're now ready to take any questions you might have.
[Operator Instructions] We will take our first question from Anna Marshall of Goldman Sachs.
I have a couple of questions, please. My first one is on the costs. Specifically, could you please provide a little bit more color on your expectations for the rest of the year in terms of year-on-year dynamics for the quarters? Particularly, as part of the growth in Q1, as I understand, it was driven by regulatory charges, which are front-loaded into Q1. My second question is on your digital strategy particularly now that you have an incoming board member focused on the area. Do you have any updates? And also, any comments on George's performance so far will be appreciated, anything quantitative.
Yes. On the cost side, as already mentioned, we see the wages growing at 2.5% to 3%. This is similar situation as we've had in the first quarter. We had some regulatory increases in the first quarter. And on top of that, due to the 200th anniversary, we're having a marketing campaign that started already and kicked off already in January. So there, we have a little bit higher expenses as well coming from these, which should be normalization of the cost base going forward. Second question is --
Okay. Is that okay on the first question or do you want more?
Yes. I was kind of trying to understand this 5% year-on-year seen in Q1, if there is any scope for that to moderate. It sounds there could be some, but just wanted to be sure.
Yes, I mean it will be moderating going forward. It will not be 5% full year cost increase.
Okay. Clear.
Clear. Okay. So on George, as you know, we are now active in Austria, Czech Republic, Slovakia and since October last year, also in Romania. We presently have 4.7 million registered users. We plan the next rollout, hopefully, at the end of the year already or early 2020 in Croatia and in Hungary. The active user growth is about 2.7% month-on-month. Login growth is 13% monthly average users on the George app, which is the fastest growing part of it is 38%. We presently have around EUR 13 million payments a month, and the growth rate there is 6.4% month-on-month. And so the payment volumes presently on a monthly basis is about EUR 6.5 billion. Those numbers should continue, should -- maybe even continue to grow on the present configuration. But of course, once we add the remaining 2 countries, that should give us another pretty strong push. I think it's pretty clear that we have developed a leading position on digital banking.
In different categories from country to country, I think Austria, we're clearly the leading bank with 1.7 million users. In the Czech Republic, we have 1.6 million users. Their competition is quite a bit stronger. And in Romania, we're just starting. We're close to 0.5 million users presently. So I think that -- it should grow nicely during the next years. It helps us to also gain new clients particularly -- that was particularly strong in Austria and is now starting also very strongly in Romania. And we've done a couple of very nice things on that front, part of that is also reflected in higher advertising expenses. Two weeks ago, we were the first bank in Austria and the Czech Republic to offer the Apple Pay, which brought us close to 60,000 users within the first 2 days. So moving very quickly, we're quite happy about it.
We will take our next question from Amandeep-A Singh of Deutsche Bank.
I have a couple of questions, please. On Czech Republic, first. Czech BMIs are coming in weaker the last few months now. Do you see any signs of impact of this on the business so far? I mean, Czech National Bank, they do this growth expectations usually.
And my second questions would be how has the business changed in Romania? In a sense, you must have seen some impact in 1Q because of the uncertainty. And now there is some clarity evolving. Do you see any changes happening? And how do you see this evolve over the year?
So the Czech side, the problem the economy is facing is the shortage of qualified labor, and so this is impacting the economy and that this is limiting the growth rates there. So we will see a little bit lower growth, and the National Bank has confirmed that. But nonetheless, business is quite okay. What we have seen is, in the first quarter, a reduction on the mortgage lending, but this was due to the measures introduced by National Bank on the 1st of November. And there, we have seen some increased activity ahead of the introduction of the measurements. And as a result of that, then in the next quarter, as we expected, a lower production number. Going forward, it should stabilize and should not have a negative impact throughout the year.
So we're quite hopeful in the Czech Republic that Brexit might have a positive effect with most of the Czechs being kicked out of the U.K. They, hopefully, will come back home and ease pressure on the labor market.
With regards to Romania, as you know, we had a pretty painful story at the end of last year with the attempt to introduce high levies on some of the industries including banking. The outcome of that is quite positive because it substantially -- very, very substantially less painful than we thought it would be. But what remains is a relatively bad taste on the political environment in Romania situation. If you look at the pure numbers, it isn't that bad. The debt-to-GDP ratio in Romania is still very favorably. Growth rates are okay. But the more you look into the details, the more you basically, on a comparative basis, see the difference between the economic development in a country like the Czech Republic or Slovakia where growth rates might be somewhat lower, but the structure of growth is substantially healthier than in Romania where it's mainly consumption-led. And that you can see very easily, if you just look at the current account deficit in the country, that's again widening and is a sign of relative weakness of the Romanian industry, which is not based on a weakness of the industry. Its health is actually relatively strong, but you can see it on all corners of the country that the infrastructure development in Romania continues to lag behind that of other countries in the region whether it's Croatia, Hungary, Slovakia or the Czech Republic. All those countries, infrastructure, in all aspects, is developing rapidly, and Romania continues to fall behind. And if you listen first to the talks of Romanian politicians now that they have the new presidency, it doesn't make you feel a lot more comfortable, quite frankly.
So we're doing fine. We think it's relatively -- I mean, the bank is doing fine. We're gaining pace. Base rate is improving its competitive position in the country, and the bank will do fine. Whether the country will catch up with the star performers in Central and Eastern Europe, that's a big question mark in our mind still.
Our next question comes from Giulia Miotto of Morgan Stanley.
A couple of questions for me as well, please. The first one, so I want to go back to the Czech Republic, but this time on interest rates. Are you starting to see any pressure on interest rates deposits at all? And what would be your estimated impact for the most recent hike? So that's my first question.
And then secondly, banking taxes. So Romania, I mean now we know the impact. Czech Republic, hopefully, at least from what we understand, shouldn't happen. Is there any other geography that worries you or what would you expect any changes on this front?
And then -- actually, finally, sorry, one last point on fees. Fees keep growing and especially payments, less so asset management. Could you please tell us what's driving this and what's the outlook here?
On the interest rate in the Czech Republic, yes, I mean, might be now there's time where banks think about forwarding something of the increase to the customers. What you see is still operation in the mortgage rates and mortgage margins. Deposit side did not move until now. Now we got 200 basis points repo rate that might be the starting point for -- that saving pays off again. On taxes?
On the fee side, basically, you have a slightly increased fee income, which should continue. And as you probably know, we have now lower fees on the current account, but improving fees on the investment products and particularly for Ceska Sporitelna, also insurance fees are increasing. So we would expect a positive trend of the fee income in the Czech Republic during the coming quarters.
On the tax side, I think it's rather unlikely that we will see the introduction of a sector taxation in the Czech Republic given the fact that the country is under no pressure to do that because it's -- so basically a populistic call on part of the Czech democratic socialist party, which is very weak in the Czech Republic and with very populistic arguments. So I think what the country would like to see is higher investments. There is, I think, some concern and I think some justified concern on part of the government as it tends to the communication sector in the Czech Republic where fees are relatively high. There are continued discussions on the very high dividend payments of the banks to the parent companies. Those are issues where we're ready to talk and assist, but basically I think the economic performance and the performance of the government presently is so strong that the, I think, fear of that -- whatever taxation would be put on the banks or insurance companies. All it would do is would make products and services more expensive for the people. And so I guess, the likelihood that, that will happen is very, very low.
Our next question today comes from Johannes Thormann of HSBC.
Johannes Thormann of HSBC. Two questions, please. First of all, regarding your net interest income. You mentioned the Czech rate hike. Do you expect the same translation effect that most of the benefits feed through to your NII? Or do you expect that the Czech customer behavior that's changed and you see less of the benefits there? And secondly, for the -- still the existing leases of provisions. Do you see any signs in any of your customer sectors or client groups where you already see deterioration of asset quality? Or is it all currently on green light?
On the net interest income, as I was mentioning already, we are discussing what to do now. Definitely, it will not have a 100% translation as the last net interest -- last rate hikes. But what you could see in the first quarter now, we had the effects of last year's rate hikes in. So it's definitely a positive, but it will -- you cannot add another EUR 20 million to our net interest income from this.
And that has nothing to do with customer behavior, that has to do with our behavior.
Okay. When it comes to the asset quality, currently, we do not see any worsening throughout the various business segments, but also geographies looking at the NPL ratios as it is already and also shown including Croatia. Now we're in all of our countries and all of our geographies where we have presence this year. And we see, in all geographies over the course of business segments, room for further improvements. So currently, no signs for any worsening.
Our next question comes from Gabor Kemeny, Autonomous Research.
I'd like to follow up on Czech NII, please. You mentioned a negative ALM contribution in Czech here. Are you referring here to lower returns from the treasury bonds? And if yes, shall we assume that this is going to be recurring? And if you could also quantify these impacts, please? And regarding the rate hike impact, what is your current utilization of the CMB repos roughly? And have you changed your utilization with the recent rate hikes?
Well, we started last year already in the first half to fully utilize the repos. We were investing heavily as well last year because we were underinvested in the Czech Republic, and we're using every opportunity and location to buy some duration at the levels that we could see in the market. Right now, you've seen in the first quarter, a little bit of the reduction on the longer end. So there, we were a little bit softer in our investment activities. But as you could see on our net interest margin and the growth on interest-bearing assets, this effect is mostly due to the utilization of Czech repos moving out the funds from overnight. And the question on ALM, who mentioned on ALM something, I didn't get that? Who mentioned something on ALM?
It was on your presentation, Page 16.
Okay. Yes. Well, the thing is that we are paying internally from the ALM a certain rate to the retail for overnight deposits, and this is a calculation of short-term and long-term -- an average of short-term and long-term rates. And due to the fact that this was growing quite significantly, the short end -- the transfer pricing is increasing, and this is then slowly reflected in the ALM. And as I was mentioning that we were underinvested and rebuilt that in the last year, and in the first quarter, we were a little bit slower given the market environment. So this is then leading to a negative ALM result.
Okay. And can remind us roughly how much of the CMB repos are you utilizing these days? So what's your move and...
I think it's a high-single digit billion figure in euros.
Okay. Was this similar last year?
It was lower last year in the first quarter because we increased it in the second and third quarter.
[Operator Instructions] Our next question comes from Hadrien De Belle of KBW.
I have a follow-up question in Czech here. I was wondering if you could give us a little bit of some color on what's happening in the consumer finance market? And if some of the margin pressure or the lower NII we saw in Q1 was already some sort of pricing pressure we see in this segment and your expectations going forward?
And second question I have is on fees. You mentioned lower security fees in Austria. It's growing 2% year-on-year. What does it mean in terms of your aspiration to get to EUR 2 billion fees, maybe this year would require quite a bit of an acceleration. So just to have a bit of comment or flavor on that would be useful.
So on the fee side, Andreas is working hard all over the summer. I think we can confirm that. And on the consumer finance market in the Czech Republic, yes, we are seeing market participant, one special market participant, who is rather active in reducing the prices, and this is putting a pressure on the market at the moment. Volumes are good, and people are taking consumer loans. So I hope that this is just a moment and a short period of time where we see increased competition because other than that, the demand -- the underlying demand would be healthy. So on the fee side, yes, I mean, the growth rate in the first quarter is too low for the EUR 2 billion. But we -- as you can see, we are not that far away, and it's not out of reach.
But it will require some effort in the remaining 3 quarters, I agree. But I'm not giving up on that goal yet. I'm going to beat them to that goal.
Our next question comes from Riccardo Rovere of Mediobanca.
Three, 4 questions, if I may. The first one is on funding. I noticed that the total amount of securitization on the liability side has gone down in the quarter. This is not maybe a surprise given the deposits continue, deposits growth continue to outpace loan growth. Now when I look at the slide where you present all the various maturities expiring over the next few years, shall I assume that you might be in the position not to need all those issuances? And more in a short term, is it the amount of securities issue that we see in the balance sheet today will remain more or less stable over the next few quarters? This is the first question.
The second question I have is on the -- I don't see in your outlook mentioned the 55% cost income target. I was wondering whether this still stands.
Third question I have is on the risk-weighted assets. If you see any headwinds in the coming quarters now that you have accounted for IFRS 16. It might be -- could you have any impacts from Prima or any kind of model update, anything like that?
And very final question I have -- I would like to be -- I'm curious to know with regard to George, if I remember well, you mentioned maybe 4.6 million active or registered users. Is it possible to have an idea out of this number? How many are new clients for Erste Bank in all the banks from the group level in the various countries where you have rolled out George?
Okay. I'll start with the funding question. Yes, total funding was going down a little bit this year because we didn't have to replace everything. As you have seen, we were focusing on AT1, and we were issuing one additional senior benchmark because we didn't issue anything since 2013 or as far as I remember. And we wanted to have a reference point in the market in anticipation of senior nonpreferred issuances. The next thing that you can expect from us going forward is mortgage bonds and senior nonpreferred, as I have mentioned.
Given the slide on the resolution that we've added and the necessities that we see on issuances, I think you will see a stable issuance activity from the group, similar to what -- a little bit lower probably than this year, but similar in the amount going forward. And that should, in the next couple of years, cover maturities that we are having. So overall, stable. I mean from the prices, you could see -- and the prices, what we have achieved, I think there were some concern that our funding costs will dramatically increase once we are issuing everything and fulfilling the annual targets. I think, with this, we could mitigate some of the concerns and prove that we'll not be impacted too much. Overall, I think volume should be pretty stable depending on the eligibility of various other balance sheet items. There might be a chance that it goes down in the overall size.
I cover the risk-weighted assets question as well. We are expecting a relief in the next couple of quarters. So the most negative impact that we are expecting is included in Q1, and there will not be additional negative impact as far as we can see it from today. On the cost income?
So a bit on the cost income ratio, good question. We never put the 55% in writing. So we don't do that this year either, but it still remains our target. On the George question, we had, last year across the group in those countries in which George had been introduced, 250,000 new clients. You can assume that 90% of them are entirely due to George new clients. So if you calculate that into our total user base of 4.7 million, you can say about 5% of them are new clients.
Just -- so far, just one thing, 250,000 -- or let's say, 90% of 250,000 new clients in how much time, if I may?
Last year. It doesn't include the first quarter of 2019...
In 1 year.
-- in 1 year, yes.
Okay. In 1 year. All right. Now if that continues like that, basically you will be building up a brand-new bank, let's say, in 2, 3 years if that goes ahead like that, and then we can debate the profitability. But customers-wise, it's like a brand-new bank. Is that a fair assumption of a statement?
You -- it's a very sympathetic assumption, you can basically put it that way. I mean, the good thing is that the number of nonclients that joined Erste because of George is increasing, and it still doesn't include as is the number of last year, Romania, Hungary, Croatia and Serbia. So there is more bees in that as we introduced George last -- late last year in Romania, and we plan to introduce them late this year or early next year in the remaining countries.
And then I'll stop, I promise. If -- from a managerial perspective, does the management of Erste see George as a valid alternative of traditional M&A.? From your wording, I would say yes, but I will prefer to hear it from you.
Yes, yes, yes.
Yes, yes, yes. It can not be clearer than that...
It's not an alternative to traditional M&A. It's definitely our preferred solution vis-à-vis traditional M&A.
Our next question will come from Alan Webborn, Societe Generale.
A couple of small points and 1 or 2 questions. What was the EUR 24 million negative in the other income in Croatia in the first quarter?
Secondly, in the Austrian business -- in your own Austrian business, the costs in Q1 were quite high in the first quarter, how much of that comes down to the sort of 200th anniversary marketing costs because that's quite a high number? And also, in Romania, in the first quarter, costs also looked high. I wonder if that's related to the rollout of George. So if you could answer those 3, that would be great.
More specifically on the -- your own bank in Austria. In the first quarter, you had a 10% ROE. We haven't seen such a low number for quite a long time, and I wondered what you feel about the performance of that business. I mean fees are flat, NII isn't really moving and obviously the costs were quite high. So could you give us a bit of a view as to how that business that's been a consistently strong performer over the last number of quarters? What we should be thinking about that going forward?
And then one last question on staff numbers. I can see in 1 or 2 geographies, there's a very slight reduction in staff members at the beginning of the year. Elsewhere, you're actually adding staff. And in this sort of this preferred digital route that you're taking, we are well on the sort of the way to -- more than half a way to achieving what were the 2-year program in terms of digitalization. Do we get to a point where your ability to reduce FTEs becomes more obvious? I mean there are some banks in Eastern Europe that are seeing quite significant reductions in FTEs as a result of digitalization. We're not really seeing that at Erste at the moment. When do you think that's going to happen?
Do you want to start and...
Let's start with the EUR 24 million in Croatia. This is legal -- an all legal case that we were winning in the first instance and losing in the second instance and half is substance, half is interest and cost. So we were -- because we had a negative decision, we had to reflect it in the quarter. We appeal it. We think that we are going to -- finally, we are going to win. But if you have a second court instance decision in-house, you need to reflect it in your earnings. So the cost situation in Austria, yes, it's not brilliant in the first quarter. The additional marketing cost is a low million number.
It's a number. It's a one-off. We're celebrating our 200th anniversary. This year, we've added a marketing campaign for that, that is causing -- all in all, will be up to EUR 9 million. This year, we introduced Apple Pay in the first quarter with a major advertising campaign, and we have added personnel in Austria on the IT side. Again, we would have liked to do it in other countries particularly also on the George front-office side and on AI. But some of the people that we wanted to get and not a small number, but 80% of that wanted to have their working place in Vienna and not in Bratislava or Prague, which we would have preferred, which would also have been cheaper for us from a taxation point of view. But the numbers are really relatively low. But I agree, we have in the CEE region, we have small personnel reductions in all countries, but Serbia. And the only country where you see a very slight increase is in Austria. I pretty fair to say that this was the last time you see anything like that, and that will -- of course, working very hard on being able to transform the back offices on a digital basis, a lot of that has been achieved already during the past month. We made big steps forward. But it's correct, you don't really see it on the expense side yet, but that is one of the main targets and goals of the management this year and the years after. So we're working on it and be very positive that we will achieve it. And you can rest assured that the cost income ratio of the remaining quarters this year will be quite a bit better than the first quarter. And also if you look at Austria, at the end of the year, the cost performance for the full year in Austria will be substantially better than what you have seen in the first quarter.
We will take our next question from Máté Nemes of UBS.
I have 2 more questions left. Firstly, on cost of risk. So it seems like asset quality remains still very healthy, very strong. At this point, based on the year-to-date trends, would you expect to be closer to the lower end of your 10 to 20 basis point guidance range for the full year? And then also related to that, if you could give us the gross number for cost of risk or for provisioning, so without the write-backs, that will be helpful.
And secondly, a follow-up on expenses. I know there's a significant step-up in depreciation and amortization about EUR 20 million year-on-year. There's also clearly upper pressure on personnel expenses across the region. So if you could perhaps elaborate a little bit more what you can do in the next few quarters to contain and perhaps partly offset this pressure, that would be helpful.
So the EUR 20 million additional depreciation, EUR 16 million out of that is IFRS 16. So this is just a shift from other administrative costs to depreciation. So that's the not new normal run rate. As already mentioned, I mean, underlying, we are seeing personnel cost 2.5% to 3% and a little bit elevated marketing expenses vis-à-vis last year. It will be flattening vis-à-vis last year's quarters because we are usually having the highest marketing spending in Q4, and we don't -- usually, don't have such a higher marketing spend in Q1 as we are having this year. So the base effect will have a dampening impact going forward on the cost side. So the cost of risk question is...
Yes. When it comes to cost of risk. As already, let's say, outlined by Andreas, there is room for a positive deviation to be at the lower end of our outlook. It wouldn't be a surprise to me. But when it comes to the releases, this is solely coming from corporate.
Our next question comes from Simon Nellis of Citi.
I have a question on the Romanian bank tax and a related question on Romanian margin. I'm assuming that your EUR 20 million bank tax charge assumption is based on getting some kind of discount, right, if you roll your loan book a certain level or if you restrict your margins in Romania, if you could just confirm that.
No, it's not the case.
Oh, it's not the case.
This is not the case. So this is the upper end of the Romanian bank tax charge. It might be below that.
So it could be below that if you -- can you just remind us how you can reduce that? You have to grow your loan book, I think, by 8%. I guess, it's not like...
Yes.
Would you to try to do that? Or would you...
We're not planning to reduce our margins to achieve a tax reduction because the tax payment is a onetime, the margin is forever.
And loan growth?
Loan growth, we will see how the economies developing and demand is developing. We are not going aggressively out just because there's a tax incentive.
Yes.
So the margin gain that you achieved is sustainable and will continue? And can it go up further actually, the margin from any?
I mean, I think rates are pretty stable. Central Bank did not indicated they are changing something. We'll see how the market develops going forward.
And you can raise the -- definitely assure that we're not going to grow our loan book because of a tax incentive, and don't ask us to qualify that legislation that you can reduce the tax if you grow your volume. It speaks for itself.
[Operator Instructions] We will take our next question from Stefan Maxian of RCB.
Two questions remaining. Actually, one, could you share your expectations regarding the fee impact from the restriction on cross-border SEPA payment, which will become effective, I think, in the fourth quarter this year?
And second, now with PSD2 now becoming reality and [indiscernible] boxes or the trial is now open, I think, since March, do you already have a better feel on the impact on your revenues or on your business? Or would you change anything based on that?
I can tell you sort of on the PSD2 side, it has 0 impact so far. And I think you will see the impact only then when you have really full oversight of transactions -- third-party transactions that can be done on yours or somebody else's platform, which really doesn't work yet for the fledge, but it will. And quite frankly, this is where we see, with George as a platform, that we have a competitive advantage vis-à-vis most of our competitors as it is, an incredibly attractive platform to utilize for third-party bank accounts and do the transactions on -- from one platform. So basically when it's fully fledged, we see that as a strong positive for us. And what's the second question on SEPA?
Yes. On this restriction for cross-border, please.
What the impact on the P&L will be?
Right.
I don't know. I got to get back to you. I really don't -- I don't know. I haven't looked into that in detail. We'll write you something on that.
It appears we have no further questions at this time. Mr. Treichl, I would like to turn the conference back to you for any additional or closing remarks.
Well, thank you very much for listening in. Thanks very much for your interest in our group and your questions. Next round will be on July 31 with the half year results. If we don't see or hear each other again until then, enjoy May, June and July, all the best.
This concludes today's conference call. Thank you for your participation, you may now disconnect.