Austria-based Erste Group is regarded as one of the behemothic financial services providers in Central and Eastern Europe. While Erste is quite the seasoned & experienced entity, being founded as early as 1819 in a suburb in central Vienna, the company is a new player in the playground that is the fiercely-competitive finance sector of today.
Capitalizing on the demise of communism, the company patiently stretched across Central and Eastern Europe to be then split up in 2008 into two entities, with one being the successful Erste Group Bank AG we know today which has a notable presence in Austria, Romania, Slovakia, Moldova, Serbia, Montenegro, Croatia, Hungary, and the Czech Republic.
Worth over $13.46 billion in market capitalization as of mid-March 2023, Erste Group Bank enjoyed tremendous growth in the final quarter of 2022; it had a strong year overall, benefiting from rising demand for credit and higher interest rates across regional markets.
As markets and investors seemed to be recovering from the inflationary, geopolitical and sentimental pressures of last year, Erste Group has entered a new dome of demise in March. The collapse of startup-lender Silicon Valley Bank (SVB) and other banks heightened worries regarding the spread of financial downturns across different regions of the world.
Will Erste Group recover from the contagion-fueled market pessimism?
Recent Performance
The financier shared its fourth fiscal quarter results towards the end of February:
- Net profit: €518 million – up 1.5% year over year
- Net interest margin: 2.25% – up 8% year over year
- Cost/income ratio: 51.9% – down 10% year over year
Erste Group outperformed its results from the fourth fiscal quarter of 2021, generating higher profits while cutting costs amid robust corporate business and growing customer deposits throughout 2022. In the past few months, the US Federal Reserve, the European Central Bank (ECB) and other major central banks loosened their monetary policies by raising interest rates by smaller margins, or not raising them at all, to combat the widespread sky-high inflation.
After the release of the bright results, the company continued to bank increased valuation as markets calmed, yet, the collapse of Silicon Valley Bank marked the start of yet another downturn for not just Erste Group, but the banking and finance sectors in general.
Following a decline in deposits and high interest rates, SVB had no choice but to sell securities in order to realign its portfolio, which repercussed to other banks including Signature Bank, Silvergate bank and First Republic Bank. This has recently rattled the Erste Group stock relentlessly, but the long-term projection could be positive. [1]
Technical View
Looking at the London Stock Exchange-listed Erste Group Bank stock (LSIN: OMJK), the firm sustained quite the hardship in March, sharply collapsing by almost 20% in a matter of 13 days, or in specific, 11 public trading sessions. *
The relevant support level hovers near the €29 mark, which is quite worrying for short-term traders as the current stock price is barely above this level. The resistance level by €36 may be revisited in the long-run, as the liquid stock is quite the admired one for investors, given the bright future outlook of the company.
Future Outlook
Erste Group is aiming to rebound from recent plummets, sharing a relatively-optimistic guidance for 2023 while reiterating the omnipresent economic challenges faced by the European corporation.
The company aims to achieve a tangible equity (ROTE) in 2023 between 13 to 15%, driven by three pivotal factors: [2]
- Stable central bank rates
- Low default rates in the credit realm
- Positive economic growth in all core markets
Should these market characteristics prevail, hand-in-hand with the company’s determination to continuously innovate and expand, we may witness growth in the battered Erste stock to the previous peaks marked in early 2022. [3]
Peter Svoreň, executive director 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 is subject to change. Such statements are not guaranteeing of future performance. They involve risks and other uncertainties which are difficult to predict. Results could differ materially from those expressed or implied in any forward-looking statements.
* Past performance is no guarantee of future results.
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