Erste Group, based in Austria, is considered one of the largest financial services providers in Central and Eastern Europe. Although Erste is an experienced entity, having been founded in 1819 in a suburb in the heart of Vienna, it is a new player in the field of today's fiercely competitive financial sector.

The company has taken advantage of the end of communism and has patiently grown in Central and Eastern Europe, where it has a significant presence in Austria, Romania, Slovakia, Moldova, Serbia, Montenegro, Croatia, Hungary and the Czech Republic.

Erste Group Bank, whose market capitalization was worth more than USD 13.46 billion in mid-March 2023, has seen significant growth in the last quarter of 2022. Overall, 2022 was a good year for the bank, benefiting from persistent demand for loans and higher interest rates in regional markets.

While markets and investors seemed to be recovering from the inflationary, geopolitical and sentiment pressures of the past year, Erste Group's shares in March rattled investors. The collapse of Silicon Valley Bank (SVB), which specialised in start-ups, and other banks heightened concerns about the spread of financial downturns across different regions of the world.

Will Erste Group recover from the market pessimism caused by the crisis of local banks?

Recent Performance

The financial services company published its results for the fourth fiscal quarter at the end of February:

- Net profit: EUR 518 million - an increase of 1.5

- Net interest margin: 2.25 % - year-on-year increase of 8

- Cost/income ratio: 51.9% - down 10% year-on-year

Erste Group outperformed its fiscal fourth quarter 2021 results, delivering higher profits while cutting costs in an environment of strong corporate business and rising customer deposits throughout 2022. In recent months, the US Federal Reserve, the European Central Bank (ECB) and other major central banks have eased their monetary policies by raising interest rates by smaller margins or not raising them at all to combat widespread sky-high inflation.

Following the release of the bright results, the company continued to increase in valuation as markets calmed down, but the collapse of Silicon Valley Bank marked the beginning of a further downturn not only for Erste Group but for the banking and financial sector in general.

Following the decline in deposits and high interest rates, SVB had no choice but to sell securities to rationalise its portfolio, exposing problems at other banks including Signature Bank, Silvergate bank and First Republic Bank. This has shaken Erste Group's shares relentlessly recently, but the long-term forecast could be positive. [1]

Erste Group Bank's share performance over the past 5 years. (Source: TradingView) *

Looking at Erste Group Bank (LSIN:OMJK) shares listed on the London Stock Exchange, the company had a tough time in March, plunging nearly 20% in 13 days, specifically in 11 public trading sessions. *

The relevant support level is close to the EUR 29 mark, the current share price is barely above this level. The resistance level at €36 may be achievable in the medium term, given the good results and future prospects.

Future Outlook

Erste Group is looking to bounce back from recent declines and shares a relatively optimistic outlook for 2023, reiterating the pervasive economic challenges facing the European corporation.

The company aims to achieve a return on tangible equity (ROTE) in the range of 13% to 15% in 2023, thanks to three key factors:[2]

1. Stable central bank rates

2. Low default rate in the credit sector

3. positive economic growth in all major markets

If these market characteristics prevail, hand-in-hand with the company's determination to constantly innovate and expand, we may see Erste's weakened shares rise to previous highs seen in early 2022. [3]

Peter Svoreň, executive director of APME FX

[1,2,3] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate or based on the current economic environment, which may change. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.

* Past performance is not a guarantee of future results.