Erste Bank : Audited financial reporting 2020

AUDITED FINANCIAL REPORTING

26 February 2021

AUDITOR'S REPORT

Management report

Consolidated financial statements

99

AUDITOR'S REPORT

AUDIT OPINION

Report on the Consolidated Financial Statements

Audit Opinion

Sparkassen-Prüfungsverband (Prüfungsstelle) and PwC Wirtschaftsprüfung GmbH, Vienna, - hereinafter referred to as 'we' - have audited the group consolidated financial statements of Erste Group Bank AG, Vienna, and its subsidiaries (the Group), which comprise the consol-idated balance sheet as at December 31, 2020, the consolidated statement of income, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the fiscal year then ended, and the notes to the group financial statements of Erste Group.

In our opinion, the accompanying consolidated financial statements comply with legal requirements and give a true and fair view of the financial position of the Group as at December 31, 2020, and of its financial performance and cash flows for the year then ended in accord-ance with the International Financial Reporting Standards (IFRSs) as adopted by the EU and the additional requirements under Section 59a Austrian Banking Act (BWG) in conjunction with Section 245a Austrian Company Code (UGB).

Basis for Opinion

We conducted our audit in accordance with Regulation (EU) No. 537/2014 (hereinafter EU Regulation) and Austrian generally accepted auditing standards. Those standards require the application of the International Standards on Auditing (ISAs). Our responsibilities under those provisions and standards are further described in the 'Auditor's Responsibilities for the Audit of the Consolidated Financial Statements' section of our report.

We are independent of the Group in accordance with Austrian Generally Accepted Accounting Principles, the provisions of the Austrian Banking Act and professional requirements and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained until the date of this auditor's report is sufficient and appropriate to provide a basis for our opinion by this date.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the fiscal year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

We have structured key audit matters as follows:

• _ Description

• _ Audit approach

• _ Reference to related disclosures

  1. Loss allowances for Loans and Advances to Customers (expected credit losses)

Description

Loss allowances represent management's best estimate of the credit losses expected with respect to the loan portfolio at balance sheet date. For loans and advances to customers in the amount of EUR 164 billion, measured at amortised cost, Erste Group Bank AG has recognised credit loss allowances in the amount of EUR 3.8 billion. Due to the underlying assumptions and estimates, determining of expected credit losses is inherently subject to substantial judgement applied by management.

Erste Group Bank AG has implemented internal guidelines and specific processes to identify significant increases in credit risk and loss events. These processes rely significantly on quantitative criteria and involve management judgement.

The following methods are applied to determine the level of loss allowances using scenario-based discounted cash flow methods as required by IFRS 9:

• _ For non-defaulted loans, loss allowances are generally determined collectively and measured at an amount equal to 12-month expected credit loss. If a significant increase in credit risk has occurred, loss allowances are measured as lifetime expected credit losses. Similarly, the lifetime expected credit losses are measured for those non-defaulted loans and advances whose credit risk at initial recognition could not be determined due to missing data at IFRS 9 first-time adoption.

• _ For defaulted loans with a comparable risk profile that are considered not to be individually significant, expected credit losses are collectively assessed as well.

• _ The collectively measured loss allowances are calculated considering the probability of default, the impact of forward-looking infor-mation and parameters that reflect the expected cash flows as well as the expected proceeds from the realisation of collateral. The applied parameters are estimated based on statistical models.

_ For defaulted loans considered to be significant at customer level, loss allowances are determined on a case-by-case basis. These loss allowances are calculated considering scenario probabilities, expected cash flows as well as expected proceeds from the realisation of collateral. This process involves significant judgement and management estimates.

The models used for determining loss allowances are specific to the types of loan portfolios. There are country-specific features both with regard to products and economic environment that are relevant to the respective loss estimate resulting in heightened complexity of models and input factors.

The uncertainty which is inherent to estimating expected credit losses significantly increased due to the imponderability of economic con-sequences of the Covid-19 pandemic.

To reduce the adverse economic consequences of the Covid-19 pandemic, numerous states have introduced relief programs in a variety of forms (e.g. moratoria, deferral options, support programs, hardship funds etc.). Those programs complicate a timely reflection of a potential deterioration of the loan portfolio and result in artificially low observed default rates. This has a negative effect on the predictive power of statistically determined default rates and the perceptibility of a significant increase in credit risk.

Erste Group Bank AG therefore introduced additional criteria on the basis of which customer groups were identified that potentially were specifically affected by the economic consequences of the pandemic, and individually assessed the customers within those groups as to whether a significant increase in credit risk occurred (Post Model Adjustment). Method and impacts of this portfolio stage transfer due to the Covid-19 pandemic are presented in note 34 of the consolidated financial statements.

With respect to the forward-looking information used for modelling expected credit losses, the heightened uncertainty about the future economic developments that results from the pandemic was reflected by using up-to-date macroeconomic assumptions and adapting the relative weight of the scenarios applied.

In addition to the adjustment of forward looking information, further adjustments to the methodology applied for estimating credit risk parameters were required in Erste Group Bank AG's view with respect to the Covid-19 pandemic and the state relief packages, which are described in note 34 of the consolidated financial statements.

Due to

• _ the substantial judgement to be applied by management in defining the Post Model Adjustments and determining and weighting macro-economic future scenarios,

• _ a high degree of uncertainty due to the economic impact of the Covid-19 pandemic which led to a high degree of the auditor judgement,

• _ the complexity of models and interdependent assumptions and the resulting audit effort and

• _ the significance of credit loss allowances we identified this area to be a key audit matter.

Audit Approach

To assess the appropriateness of the expected credit losses, we:

• _ updated our understanding of the Expected Credit Loss calculation methodology applied by Erste Group Bank AG based on policies, documentation and interviews and re-assessed its compliance with the requirements of IFRS 9. We focused on adjustements to methods and processes made in order to capture the increased uncertainties of the present and future environment due to the Covid-19 pandemic in expected credit losses.

• _ evaluated and critically assessed the control activities in credit risk management and lending business processes and tested key controls, notably with respect to the approval of loans, ongoing monitoring and early warning, especially the changes of processes made by management with respect to the early identification of defaults as well as the assessment of unlikeness to pay.

• _ evaluated control activities and tested key controls in the area of rating models and collateral valuation.

• _ evaluated model governance and validation processes and critically reviewed the information brought to the attention of the management. With the help of our credit risk modelling experts, we evaluated the results of back-testing and model validations.

• _ evaluated the adequacy of credit risk parameters and models taking into consideration possible distortions of currently observed data due to state or private relief programs (e.g. low default rates due to payment moratoria) and local specifics , and critically assessed the plausibility of expectations and estimates that have been introduced due to aforementioned distortions in order to identify significant increases in credit risk of single customers or customer groups.

• _ assessed the correctness of the stage allocation for a sample of loans based on applicable policies.

• _ analyzed impacts of IFRS 9 specific model aspects.

• _ evaluated whether key components of the ECL calculation are correctly incorporated in the models by performing walkthroughs and reviewing steering tables.

• _ evaluated the adequacy and plausibility of forward-looking information integrated into the estimates. In this context, we specifically compared the underlying macro-economic forecasts with external sources of information and critically assessed the individual weights attribute to scenarios.

_ tested, on a sample basis, whether default events have been identified in accordance with applicable policies and evaluated whether events occurred that significantly affect the borrower's ability to repay loans and advances. Furthermore, we tested, on a sample basis, the adequacy of individual loan loss allowances assessing the scenarios adopted and the estimates of expected cash flows made by the Group.

Reference to related disclosures

For further details regarding the process of determining loss allowances as well as regarding the design of the models involved we refer to the management board's disclosures in section Significant accounting policies; b) Covid-19 disclosures and Note 34. Credit Risk in the Notes to the consolidated financial statements.

2. Recoverability of goodwill for Česká Spořitelna a.s

Description

The balance sheet item 'Intangible assets' includes goodwill in the amount of EUR 544 million for the subsidiary Česká Spořitelna a.s., Prague, ('CS'). In the Group, goodwill is subject to an annual impairment test in performed in month of November each year. Additionally, management determined that the significant economic impact of the Covid-19 pandemic in the first and second quarter is an indication that goodwill may be impaired and therefore performed additional impairment tests. No impairment of goodwill resulted from these tests. Ac-cordingly, when compared to the prior year, the goodwill for CS remains unchanged as of December 31, 2020.

To test for impairment, the recoverable amount of CS was determined and compared to the carrying amount of CS's net assets. The recov-erable amount was determined using the dividend discount method ('DDM'). Under the DDM, expected future dividends that are available for the distribution to shareholders ('flows-to-equity') are capitalized in compliance with capital requirements. The determination of future distributions by CS was based on the current business plan prepared by CS management which also reflected the expected impact of the Covid-19 pandemic. The business plan comprises income statements, balance sheet and equity projections for the years 2021 to 2025. The perpetuity for the period not covered by the business plan was derived by assuming a constant growth rate. The flows-to-equity were discounted with the group-specific cost of equity for the business activities of the Group in the Czech Republic, taking into account group wide capital requirements.

Management has to make a large number of assumptions and judgments when preparing a business plan, selecting a discount rate and the assumed growth rate; in this context, he uncertainties inherent in management's expectations regarding the future economic development are much higher than usual due to the Covid-19 pandemic.

Due to

• _ the subjectiveness of the assessments and future expectations that the management must take into account when determining a recover-able amount,

• _ the high degree of auditor judgment required when assessing management's determination of the recoverable amount, and

• _ the potential impact of an impairment loss on the Group's consolidated financial statements, we have identified this area as a key audit matter.

Audit approach

In order to assess the appropriateness of the carrying amount of goodwill for CS, we have, with the support of valuation specialists with the necessary industry knowledge and regional expertise,

• _ examined the key business processes for determining recoverable amounts.

• _ identified and evaluated the internal process for approval and review of the valuation model parameters (e.g. risk-free interest rate, market risk premium, beta factors) as well as the valuation results

• _ tested, on a sample basis, the valuation method used with regard to its technical and mathematical correctness in order to determine whether the valuation method used is in line with the business model of CS as well as that of the Group.

• _ performed, on a sample basis, with respect to the aggregation of planning data for the three budget scenarios (base, best and worst case) that were used as a basis for estimating the value

  • _ followed and assessed the steps taken to ensure the mathematical accuracy of budget data,

  • _ analyzed the key assumptions in the business plan and

    • _ verified the plausibility of the derivation of key value drivers (by means of benchmarking),

    • _ compared the macroeconomic assumptions for the future used with independent macroeconomic forecasts,

    • _ reviewed the planning accuracy for past planning periods by comparing plan vs. actual values and interviewing employees respon-sible for variance analyses.

  • _ critically assessed probability weighting of the three scenarios.

• _ examined how key valuation model parameters were derived as well as whether they are up-to-date and checked their appropriateness using our own independently determined benchmarks by making an independent estimate of the base interest rate, the beta factor, the market risk premium, the country risk premium and the inflation differential.

_ compared, on a sample basis, the appropriateness of planning figures and model parameters used in the valuation model with the ap-proved budget figures and model parameters. Our focus here was particularly on the assumptions related to the perpetuity (especially growth rate and retention).

_ evaluated the appropriateness and accuracy of the presentations and explanations in the notes.

Reference to related disclosures

We refer to the management board's disclosure in section Significant accounting policies; b) Covid-19 disclosures and Note 39. Intangible assets in the Notes to the consolidated financial statements.

3. Recoverability of assets within the scope of IAS 36

Description

The market capitalization of Erste Group Bank AG was below the carrying amount of net assets both during the financial year and at the balance sheet date. According to IAS 36.12 (d), this is an indication that one or more assets may be impaired.

Assets within the scope of IAS 36 account for approximately 2% of the Group's total assets. The vast majority of these assets are property, plant and equipment, investment property or intangible assets.

To determine whether these assets are impaired, the Group calculated the 'recoverable amount', i.e. the higher of fair value less costs to sell and value in use, and compared it to the carrying amount of the asset. Based on these tests, no impairment losses were recognized.

The recoverable amount was determined either at the level of individual assets or, if no cash flows were identified for an individual asset that are largely independent of those of other assets or groups of assets, at the level of cash-generating units ('CGUs').

The recoverable amount of individual assets was verified by means of additional information such as valuation reports or replacement values.

The recoverable amount of a CGU was determined using the dividend discount method ('DDM'). Under the DDM, expected future divi-dends available for distribution to shareholders ('flows-to-equity') are capitalized in compliance with capital requirements.

The determination of future distributions is based on current business plans prepared by the management that also reflect the expected impact of the Covid-19 pandemic. The business plans comprise income statements, balance sheets and equity projections for the years 2021 to 2025. The perpetuity for the period not covered by the respective business plan was derived assuming a constant growth rate. The flows-to-equity were discounted taking into account group wide capital requirements with the specific cost of equity.

Where the recoverable amount of an individual CGU did not cover the carrying amount of the net assets, the recoverability of the significant individual assets in the respective CGU was tested separately.

The determination of the respective recoverable amounts, both for individual assets and for the CGUs, requires numerous assumptions and estimates, in particular with regard to future earnings expectations and discount factors. These are subject to inherent uncertainties regarding the economic development.

Due to _ the subjectiveness of the assessments and future expectations that the management must take into account when determining a recover-able amount, and _ the high degree of auditor judgment required when assessing management's determination of the recoverable amount, we have identified this area as a key audit matter.

Audit Approach

In order to assess the appropriateness of the carrying amounts of assets within the scope of IAS 36, we, used valuation specialists with the required industry knowledge and regional expertise and:

• _ assessed the appropriateness of the definition of CGUs.

• _ examined the key business processes for determining recoverable amounts.

• _ identified and evaluated the internal process for approval and review of the valuation model parameters (e.g. risk-free interest rate, market risk premium, beta factors) as well as the valuation results.

• _ tested, on a sample basis, the valuation method used with regard to its technical and mathematical correctness to determine whether the valuation method used is in line with the business model of the CGU as well as with information available to the Group.

• _ performed, on a sample basis, with respect to the aggregation of planning data for the three budget scenarios (base, best and worst case) that were used as a basis for the calculation of the appraised value, the following: _ followed and assessed the steps taken to ensure the mathematical accuracy of budget data, _ analyzed the key assumptions in the business plan and

• _ verified the plausibility of the derivation of key value drivers (by means of benchmarking),

• _ compared the macroeconomic assumptions for the future used with independent macroeconomic forecasts,

• _ reviewed the planning accuracy for past planning periods by comparing plan vs. actual values and interviewing employees respon-sible for variance analyses.

_ critically assessed probability weighting of the three scenarios.

• _ examined how the key valuation model parameters were derived as well as whether they are up-to-date and checked their appropriate-ness using our own independently determined benchmarks by making an independent estimate of the base interest rate, the beta factor, the market risk premium, the country risk premium and the inflation differential,

• _ compared, on a sample basis, the appropriateness of planning figures and model parameters used in the valuation model with the ap-proved budget figures and model parameters. Our focus here was particularly on the assumptions related to the perpetuity (especially growth rate and retention).

• _ reviewed documentation to determine whether an individual impairment trigger exists for significant assets within the scope of IAS 36.

• _ assessed and validated the methodology, basic data, and parameters used in the documentation received to determine whether individual assets are impaired.

Reference to related disclosure

We refer to the management board's disclosure in the section Significant accounting policies; b) Covid-19 disclosures and Note 39. Intan-gible assets in the Notes to the consolidated financial statements.

4. Total recoverability of deferred tax assets

Description

Erste Group Bank AG, together with its major domestic subsidiaries, forms a corporate tax group in accordance with Section 9 of the Corporate Income Tax Act (KStG). The deferred tax assets as of December 31, 2020 consist of deferred tax assets for future claims from tax loss carry-forwards and temporary differences.

To determine the value of deferred tax assets, which is largely based on assumptions and estimates for the future development of the corporate tax group's tax results, tax planning calculations are prepared together with the entities in the group.

The assumptions and estimates made in the context of preparing the budget are determined by future developments. The uncertainties inherent in the estimates when determining the recoverability of the deferred tax assets have increased significantly due to the uncertainties of the economic implications of the Covid-19 pandemic.

Due to

• _ management's discretion in determining which future scenarios flow into the budget,

• _ the complexity of determining the tax results at the level of the Austrian corporate tax group and the manual steps and adjustments involved, and

• _ the high level of uncertainty due to the economic effects of the Covid-19 pandemic, which involves a high degree of auditor judgment, we have identified this area as a key audit matter.

Audit approach

In order to assess the appropriateness of the recognition of deferred tax assets of Erste Group Bank AG, we have used tax specialists with the necessary industry knowledge and

• _ verified the changes (additions and disposals) of group members in the tax group.

• _ assessed the completeness of the main group members in the summarized tax plan.

• _ identified and assessed the process for determining the temporary differences between the corporate and tax balance sheets, from which the deferred tax assets / liabilities arise.

• _ analyzed the timing of the reversal of the identified temporary differences.

• _ reconciled the profit-and-loss forecasts on which the above-mentioned impairment considerations are based for all material companies in the corporate tax group with budgets approved by the responsible oversight bodies and analyzed the assumptions and significant influencing factors regarding future developments underlying these forecasts, by means of benchmarking in order to judge the appro-priateness and feasibility of the budget.

• _ reviewed the process and the documentation for reviewing historical adherence to budgets and the resulting adjustments of future budg-ets for selected companies.

• _ analyzed, understood and critically assessed the adjustments made to the budget for tax planning.

• _ retraced book-to-tax calculation between the planned UGB and tax results.

• _ analyzed the recognition of losses incurred before the tax group was established for individual group members.

• _ critically assessed and reconciled the determination of the recoverable deferred tax assets with the calculation documents.

• _ inquired about the process for splitting impairments into income-related and non-income-related tax deferrals.

• _ reconciled the determined recoverable deferred tax assets with the posted values. Particular attention was paid to the correct breakdown into income and non-income tax deferrals.

• _ assessed the appropriateness and accuracy of the presentations and explanations of deferred taxes in the notes.

Reference to further information

We refer to the management board's disclosure in Note 13. Income taxes in the notes to the consolidated financial statements.

Other Information

Management is responsible for other information. Other information comprises any information included in the annual report, but does not include the consolidated financial statements, the management report for the Group and the auditor's report.

We obtained the consolidated corporate governance report in accordance with Section 267b UGB prior to the date of this auditor`s report, the rest of the annual report is expected to be made available to us after that date.

Our opinion on the consolidated financial statements does not cover other information and we will not express any form of assurance thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed on the other information that we obtained prior to the date of this auditor's report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and the Audit Committee for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Interna-tional Financial Reporting Standards (IFRSs) as adopted by the EU, and the additional requirements under Section 59a BWG in conjunction with Section 245a UGB, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

The audit committee is responsible for overseeing the Group's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the EU Regulation and with Austrian generally accepted auditing standards, which require the application of ISAs, will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with the EU Regulation and with Austrian generally accepted auditing standards, which require the application of ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit.

We also:

• _ identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risks of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• _ obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circum-stances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.

• _ evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• _ conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence ob-tained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• _ evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

_ obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the audit committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the audit committee with a statement that we have complied with all relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated to the audit committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

COMMENTS ON THE MANAGEMENT REPORT FOR THE GROUP

Pursuant to the Austrian Company Code, the management report for the Group is to be audited as to whether it is consistent with the consolidated financial statements and as to whether the management report for the Group was prepared in accordance with the applicable legal requirements.

Management is responsible for the preparation of the management report for the Group in accordance with the Austrian Company Code and the special legal requirements.

We conducted our audit in accordance with Austrian Standards on Auditing for the audit of the management report for the Group.

Opinion

In our opinion, the management report for the Group was prepared in accordance with the applicable legal requirements, includes accurate disclosures pursuant to Section 243a UGB and is consistent with the consolidated financial statements.

Statement

Based on the findings during the audit of the consolidated financial statements and the obtained understanding concerning the Group and its circumstances no material misstatements in the management report for the Group came to our attention.

Additional Information in accordance with Article 10 of the EU Regulation

Pursuant to Sections 23 and 24 Austrian Savings Bank Act (SpG), Sparkassen-Prüfungsverband (Prüfungsstelle) is the statutory auditor of Erste Group Bank AG, Vienna. In accordance with Section 23 (3) SpG in conjunction with Sections 60 and 61 BWG, the Company is subject to an audit, the consolidated financial statements are also subject to a statutory audit.

At the ordinary general meeting dated May 15, 2019 and pursuant to Section 1 (1) of the Auditing Rules for Savings Banks, Annex to Section 24 SpG, PwC Wirtschaftsprüfung GmbH, Vienna, was appointed as additional auditor for the financial year 2020 and, subsequently, was engaged by the supervisory board. At the ordinary general meeting dated November 10, 2020 PwC Wirtschaftsprüfung GmbH, Vienna, was appointed as additional auditor for the financial year 2021 and was engaged by the Supervisory Board on November 10, 2020. Since 2017 PwC Wirtschaftsprüfung GmbH, Vienna, has constantly been appointed as additional auditor.

We confirm that the audit opinion in the 'Report on the Consolidated Financial Statements' section is consistent with the additional report to the audit committee referred to in Article 11 of the EU Regulation.

We declare that we did not provide any prohibited non-audit services (Article 5 (1) of the EU Regulation) and that we remained independent of the audited company in conducting the audit.

Responsible Engagement Partner

Responsible for the proper performance of the engagement are Mr. Gerhard Margetich, Austrian Certified Public Accountant (Sparkassen-Prüfungsverband), and Ms. Dorotea-E. Rebmann, Austrian Certified Public Accountant (PwC Wirtschaftsprüfung GmbH, Vienna).

We draw attention to the fact that the English translation of this auditor's report according to Section 274 of the Austrian Commercial Code (UGB) is presented for the convenience of the reader only and that the German wording is the only legally binding version.

Vienna, 26 February 2021

Sparkassen-Prüfungsverband

(Prüfungsstelle) (Bank Auditor)

Gerhard Margetich	Stephan Lugitsch
Austrian Certified Public Accountant	Austrian Certified Public Accountant
PwC Wirtschaftsprüfung GmbH
Timo Steinmetz	Dorotea-E. Rebmann
Austrian Certified Public Accountant	Austrian Certified Public Accountant

This report is a translation of the original report in German, which is solely valid. Publication and sharing with third parties of the consoli-dated financial statements together with our auditor's opinion is only allowed if the consolidated financial statements and the management report for the Group are identical with the German audited version. This audit opinion is only applicable to the German and complete consolidated financial statements with the management report for the Group. For deviating versions, the provisions of Section 281 (2) UGB apply.

Management report

ECONOMIC ENVIRONMENT

In 2020, Covid-19 has triggered the deepest global recession in decades. The pandemic induced crisis, which drastically impacted both advanced and emerging markets, has led to an unprecedented contraction in economic activity as more than 85 percent of the countries around the globe experienced shrinking economies. Pol-icy makers have taken extraordinary measures to protect people and national health systems, the economy, and the financial system. To prevent the virus from spreading uncontrollably, most countries imposed stringent lockdown measures in the first half of the year, and with rising infection rates in autumn and winter further lock-downs followed in the last quarter. To contain the immediate eco-nomic damage governments introduced various measures including state guaranteed loans, payment moratoria for private in-dividuals and corporates or subsidies from hardship funds. Central banks have eased monetary policies across the globe, with a bal-ance sheet expansion in the G10 countries of nearly EUR 6.5 tril-lion1, and with more than 20 emerging market central banks deploying asset purchases for the first time. In addition, a fiscal policy response of EUR 10.5 trillion2 globally has provided sub-stantial support to households and corporates.

Most economies faced a substantial slump in economic activity. With its real GDP declining by 3.4%3, the United States outper-formed both Japan and the European Union. Leading European economies like Italy and France recorded a double-digit decline in their GDP. Among emerging and developing regions, China out-performed other major economies. Following a sharp output con-traction in the first quarter 2020, China's economic activity rebounded stronger than in most other countries following the re-laxation of the initial lockdowns. Overall, China's GDP increased by 2.3%4. All other major emerging markets' economies, such as India, Brazil, Russia or Turkey declined substantially. India's econ-omy particularly suffered and fell into its first recession in 40 years. In addition to the Covid-19 crisis, the Russian economy was nega-tively impacted by lower oil prices. Central and Eastern European economies were similarly hit by the virus induced crisis. Overall, global real GDP declined by 3.5%5.

The economic development in the United States was mainly char-acterised by the Covid-19 outbreak, increasing tension between the US and China and the presidential elections in November. The economy plummeted in April and May as a result of the corona-virus induced crisis, and the unemployment rate rose temporarily above 14% in April6. The economy, however, recovered quickly mainly due to robust domestic demand, improving labour market,a very accommodative monetary policy and a large fiscal stimulus. Consequently, the unemployment rate stood at 6.7%7 at the end of the year. Core inflation remained below the Federal Reserve's 2% target. In March 2020, the Fed reduced its benchmark interest rate to zero and launched a new round of quantitative easing. The pro-gramme entailed USD 700 billion worth of asset purchases of Treasury's and mortgage-backed securities as a response to the slowing economy. Overall, the US economy contracted by 3.4%8 in 2020.

The euro area was also significantly impacted. At 7.2%9, economic decline in the euro zone was deeper than in other advanced regions of the world. Government measures implemented as a response to the Covid-19 pandemic - such as nationwide lockdowns, school closures or border restrictions - significantly disrupted domestic economic activity. Tourism, a sector that was virtually shut down completely for many months during the year, suffered significantly. Italy, France and Spain with their very important tourist industries performed poorly with their real GDP declining by double digit figures. The biggest economy of the euro zone, Germany, on the other hand, posted a markedly better performance mainly due to its prudent crisis management and stronger production output. Unem-ployment rates rose across countries. Most euro area governments launched large programmes of public loan guarantees to preserve access to bank loans for businesses. The European Central Bank (ECB) introduced a new Pandemic Emergency Purchase Pro-gramme (PEPP) to counter the serious risks to the monetary policy transmission mechanism and the outlook for the euro area. The pro-gramme amounted to EUR 1.85 trillion10 and was extended until March 2022. The ECB also increased its targeted longer-term refi-nancing operations (TLTROs) to provide low interest rate loans to credit institutions. Overall, EUR 1.7 trillion11 were taken up by 388 banks. The ECB kept its discount rate at zero.

Against this backdrop, Austria's economy was also hit hard. Re-flecting the containment measures and the lockdown in spring, a sharp decline in private consumption led to a fall in GDP. Invest-ments also fell significantly. A solid economic rebound began in the third quarter. The easing of travel restrictions, but most im-portantly a strong domestic Summer tourism led to a partial recov-ery in the economically important tourism sector, with overnight stays in July and August down 15% from 2019 levels, compared to a decline of 60% to 90% in May and June. The unemployment rate increased visibly in the first half of the year, reaching 6.2% in June. In 2020, it stood on average at 5.3%12. Short-time work schemes helped to mitigate the effect of the economic downturn on the la-bour market. The Covid-19 induced crisis has put an abrupt end to

1 IMF:https://www.imf.org/-/media/Files/Publications/GFSR/2020/October/English/foreword.ashx (Download on 19 February 2021, applied exchange rate: 1 EUR=1,147 USD)

2 IMF:https://www.imf.org/-/media/Files/Publications/GFSR/2020/October/English/foreword.ashx (Download on 19 February 2021, applied exchange rate: 1 EUR=1,147 USD)

3 IMF:https://www.imf.org/en/Publications/WEO/Issues/2021/01/26/2021-world-economic-outlook-update (Download on 19 February 2021)

4 IMF:https://www.imf.org/en/Publications/WEO/Issues/2021/01/26/2021-world-economic-outlook-update (Download on 19. February 2021)

5 IMF:https://www.imf.org/en/Publications/WEO/Issues/2021/01/26/2021-world-economic-outlook-update (Download on 19. February 2021)

6 US Labor Statistics:https://www.bls.gov/news.release/pdf/empsit.pdf(Download on 19 February 2021), page 1

• 7 US Labor Statistics:https://www.bls.gov/news.release/pdf/empsit.pdf(Download on 19 February 2021), page 9

• 8 IMF:https://www.imf.org/en/Publications/WEO/Issues/2021/01/26/2021-world-economic-outlook-update

(Download on 19 February 2021)

9 IMF:https://www.imf.org/en/Publications/WEO/Issues/2021/01/26/2021-world-economic-outlook-update (Download on 19 February 2021)

10 ECB:https://www.ecb.europa.eu/mopo/implement/pepp/html/index.en.html (Download am 19 February 2021)

11 Euromoney:https://www.euromoney.com/article/280nvn47uuu2gasjb5534/banking/european-banks-head-for-a-funding-cliff-thanks-to-tltro-iii (Download on 19 February 2021)

12 Statistik Austria:http://www.statistik.at/wcm/idc/idcplg?IdcService=GET_PDF_FILE&RevisionSelectionMethod=LatestRe-leased&dDocName=055370 (Download on 19 February 2021)

the favourable development of Austria's public finances. A crisis management fund launched in March has been covering financial support e.g. to strengthen health care services, fixed cost subsidies or short-time work schemes. Tax deferrals and public guarantees for loans also helped companies to avoid liquidity constraints. The general government deficit stood at 8.9%13 of GDP. Public debt as a percentage of GDP significantly increased to 84.8%14. With the sharp economic downturn and the decrease in energy prices, infla-tion fell from over 2% in the beginning of the year to 1.2%15 at year end. Overall, average inflation stood at 1.4%16 in 2020. Real GDP declined by 7.2%17, with GDP per capita falling to EUR 42,00018 at year-end.

Central and Eastern European economies struggled as well. Con-sumption and investments fell visibly, exports and imports posted a double-digit contraction. The large exposure of CEE economies to manufacturing and exports contributed significantly to the eco-nomic decline in the spring lockdown. After an unprecedented de-cline in economic activity, the CEE region saw a very fast economic rebound. The second wave of lockdowns in autumn im-pacted the regional economies to a much lesser extent, underlying the resilience of CEE industrial production. This time, production was not halted and foreign demand held up well. Serbia proved to be the best performer with its GDP contracting only moderately in 2020. Croatia experienced the deepest GDP decline due to the country's heavy dependency on the tourism sector. Unemployment rates in CEE increased but remained still low compared to many Western European countries. The labour markets benefited from government support programmes and widely used short-time work schemes. As a result of lower revenues and higher expenses, public deficits in the region widened. CEE currencies remained weak dur-ing the year with the Hungarian forint testing all-time lows throughout the year. Despite the FX impact, inflation remained rel-atively moderate. Many of the region's central banks, cut their key rates in the course of the year. The most pronounced were the in-terest rate cuts of the Czech National Bank. Hungary, Romania, and Serbia also cut their policy rates. Overall, CEE economies shrank between 8.8%19 in Croatia and 1.1%20 in Serbia in 2020.

13 OeNB:https://www.oenb.at/dam/jcr:370f2792-c563-4471-93d7-f6530d6c29e0/facts-on-austria_oct-2020.pdf(Download on 19 February 2021), page 4

14 OeNB:https://www.oenb.at/dam/jcr:370f2792-c563-4471-93d7-f6530d6c29e0/facts-on-austria_oct-2020.pdf (Download on 19 February 2021), page 4

15 Statistik Austria:http://www.statistik.at/wcm/idc/idcplg?IdcService=GET_PDF_FILE&RevisionSelectionMethod=LatestRe-leased&dDocName=022832 (Download on 19 February 2021)

16 Statistik Austria:http://www.statistik.at/wcm/idc/idcplg?IdcService=GET_PDF_FILE&RevisionSelectionMethod=LatestRe-leased&dDocName=022832 (Download on 19 February 2021)

PERFORMANCE IN 2020

P&L data of 2020 is compared with data of 2019, balance sheet data as of 31 December 2020 is compared to data as of 31 Decem-ber 2019.

Acquisitions and disposals in Erste Group in 2020 did not have any significant impact and therefore had no effect on the rates of change stated below. Details are provided in the notes to the con-solidated financial statements.

Overview

Net interest income increased - mainly in Austria, but also in Ro-mania and Hungary - to EUR 4,774.8 million (+0.6%; EUR 4,746.8 million). Net fee and commission income decreased to EUR 1,976.8 million (-1.2%; EUR 2,000.1 million). Higher income from the securities business and asset management did not fully compensate for the declines in other fee and commission income categories - most notably in payment services (thereof EUR 19 mil-lion attributable to the impact of the SEPA Payment Services Di-rective). While net trading result declined significantly to EUR 137.6 million (EUR 318.3 million), the line item gains/losses from financial instruments measured at fair value through profit or loss improved to EUR 62.0 million (EUR -24.5 million). The development of both line items was driven by valuation effects due to market volatility amid the Covid-19 pandemic. Operating income decreased to EUR 7,155.1 million (-1.4%; EUR 7,255.9 million). General administrative expenses declined to EUR 4,220.5 million (-1.5%; EUR 4,283.3 million), personnel expenses were slightly lower at EUR 2,520.7 million (-0.6%; EUR 2,537.1 million). Other administrative expenses were reduced to EUR 1,158.9 million (-3.8%; EUR 1,205.1 million). Payments into de-posit insurance schemes included in other administrative expenses rose to EUR 132.2 million (EUR 104.8 million). Depreciation and amortisation was unchanged at EUR 540.9 million (EUR 541.0 mil-lion). Overall, the operating result declined to EUR 2,934.6 mil-lion (-1.3%; EUR 2,972.7 million). The cost/income ratio was unchanged at 59.0% (59.0%).

Due to net allocations, the impairment result from financial in-struments amounted to EUR -1,294.8 million or 78 basis points of average gross customers loans (EUR -39.2 million or 7 basis points). Allocations to provisions for loans as well as for commitments and guarantees given went up in all core markets. The marked rise in allocations to provisions for loans was primarily driven by the dete-rioration in the macroeconomic outlook due to Covid-19. A positive contribution came from high income from the recovery of loans al-ready written off, primarily in Romania and Hungary.

The NPL ratio based on gross customer loans deteriorated to 2.7% (2.5%), the NPL coverage ratio rose to 88.6% (77.1%).

17 OeNB:https://www.oenb.at/dam/jcr:370f2792-c563-4471-93d7-f6530d6c29e0/facts-on-austria_oct-2020.pdf (Download on 19 February 2021), page 4

18 OeNB:https://www.oenb.at/dam/jcr:370f2792-c563-4471-93d7-f6530d6c29e0/facts-on-austria_oct-2020.pdf

(Download on 19 February 2021) and Statistik Austria:https://statcube.at/statistik.at/ext/statcube/jsf/tableView/tableView.xhtml(Download on 19 February 2021)

19 European Commission:https://ec.europa.eu/eurostat/databrowser/view/NAMQ_10_GDP__custom_589433/default/table?lang=en(Download on 19. February 2019), calculation based on Q1-Q3 2020 data

20 Statistical Office of the Republic of Serbia:https://www.stat.gov.rs/en-US/vesti/20201230-ekonomska-kretanja-2020 (Download on 19. February 2021)

Other operating result improved to EUR -278.3 million (EUR -628.2 million). The expenses for the annual contributions to reso-lution funds included in this line item rose - in particular in Austria - to EUR 93.5 million (EUR 75.3 million). The decline in banking and transaction taxes to EUR 117.7 million (EUR 128.0 million) is primarily attributable to the abolition of banking tax in Romania. In the previous year, other operating result included allocations to a provision in the amount of EUR 153.3 million set aside for losses expected from a supreme court decision concerning the business activities of a Romanian subsidiary as well as the write-off of good-will in Slovakia in the amount of EUR 165.0 million.

On 10 November 2020 the annual general meeting resolved to pay a dividend of EUR 0.75 per share for the business year of 2019 (appropriation of net profit), conditional upon no regulatory ECB recommendation to refrain from such payments or no other legal restrictions being in force prohibiting such distributions on 8 February 2021. Based on the ECB recommendations conditions to pay dividend ofd EUR 0.75 per share have not been met as of 8 February 2021 and no dividend was distributed. As a pay out is not possible, the dividend is allocated to retained earnings accord-ing to the resolution taken on the annual general meeting on 10 November 2020.

Taxes on income declined to EUR 342.5 million (EUR 418.7 mil-lion). The minority charge fell to EUR 242.3 million (EUR 440.9 million) due to significantly lower earnings contribution of the sav-ings banks. The net result attributable to owners of the parent declined to EUR 783.1 million (-46.7%; EUR 1,470.1 million).

Cash earnings per share (see glossary for definition) amounted to EUR 1.59 (reported EPS: EUR 1.57) versus EUR 3.25 (reported EPS: 3.23) in the previous year.

Cash return on equity (see glossary for definition), i.e. return on equity adjusted for non-cash expenses such as goodwill impair-ment and straight-line amortisation of customer relationships, stood at 4.7% (reported ROE: 4.7%) versus 10.1% (reported ROE: 10.1%) in the previous year.

Total assets rose to EUR 277.4 billion (EUR 245.7 billion). On the asset side, cash and cash balances increased, primarily in Aus-tria, to EUR 35.8 billion (EUR 10.7 billion), loans and advances to banks decreased to EUR 21.5 billion (EUR 23.1 billion). Loans and advances to customers increased to EUR 166.1 billion (+3.6%; EUR 160.3 billion). On the liability side, deposits from banks grew significantly to EUR 24.8 billion (EUR 13.1 billion) on the back of increased ECB refinancing (TLTROs). Customer deposits rose again - in all core markets, primarily in Austria and the Czech Republic - to EUR 191.1 billion (+9.9%; EUR 173.8 billion). The loan-to-deposit ratio stood at 86.9% (92.2%).

The common equity tier 1 ratio (CET 1, CRR final, see glossary for definition) stood at 14.2% (13.7%), the total capital ratio (see glossary for definition) at 19.7% (18.5%).

Dividend

In the reporting period, Erste Group Bank AG posted a post-tax loss of EUR 118.4 million under the Austrian accounting regulations, which increased its distributable capital accordingly (2019 post-tax profit: EUR 1,327.1 million). The equity decreased (2019: in-creased) accordingly.

On 15 December 2020 the European Central Bank (ECB) has is-sued a recommendation in respect of dividend payouts. The man-agement board of Erste Group will propose a 2020 dividend, in line with the ECB recommendation, of EUR 0.5 per share to the 2021 AGM for payment in May 2021. Furthermore, an additional re-serve of EUR 1.0 per share was created, for payment once the ECB recommendation is withdrawn and subject to profitability and cap-ital performance.

Outlook

Erste Group's goal for 2021 is to increase net profit. Among the factors that will support achievement of this goal are a recovery of the economies of all core markets - the Czech Republic, Slovakia, Hungary, Romania, Croatia, Serbia and Austria - and, on this basis, a reduction of risk costs and an improvement in the operating result. A continuation or further escalation of Covid-19 measures by gov-ernments as well as potential - and as yet unquantifiable - political, regulatory or economic risks may render meeting this goal more challenging. In 2021, the positive development of the economy should be reflected in growth rates (real GDP growth) of between 3% and close to 6% in Erste Group's CEE core markets. The de-velopment of other economic indicators should vary depending on Covid-19 policy measures imposed by authorities and/or the phas-ing out of state support. Unemployment rates are expected to rise but, in the Czech Republic and Hungary, should remain among the lowest in the EU. Inflation rates are forecast to decline in the Czech Republic and Slovakia while the other core markets are likely to see a slight acceleration. In most countries, sustained competitive-ness should again result in solid and, in Slovakia and Romania, stronger current account balances. The fiscal situation should like-wise improve again after the significant budget deficits posted in the year 2020. Public debt is projected to remain largely stable, al-beit at a significantly elevated level.

Against this backdrop, Erste Group expects net loan growth in the low to mid-single digit range. This performance should keep net interest income stable despite negative interest rates in the euro zone. The second most important income component - net fee and commission income - is expected to rise in low single digits. As in 2020, positive momentum should again come from fund manage-ment, the securities business and insurance brokerage. Given the average result seen in 2020, the net trading and fair value result is expected to come in higher. This, however, will depend substan-tially on the financial market environment. The remaining income components are forecast to remain, by and large, stable. Overall, operating income should increase again in 2021. Operating ex-penses are expected to rise slightly in 2021, partly due to re-emerg-ing wage pressure across all Erste Group markets. In addition, Erste Group will continue to invest in IT in 2021, and thus strengthen its competitive position, with a focus on progressive IT modernisation, back-office digitalisation and expansion of the dig-ital platform George. The rollout of George in Hungary and Croatia should be completed in 2021, as a result of which customers will be able to access George in the six largest core markets. Though faced with more challenges in a largely unpredictable environment, Erste Group is striving to make operating income grow faster than costs. This leads Erste Group to project a rise in the operating result in 2021.

Based on the scenario described above, risks costs should decline again in 2021. While precise forecasting is hard in the current Covid-19 environment, Erste Group believes that in 2021 risk costs will not exceed 65 basis points of average gross customer loans. Due to the expected expiry of state support schemes a rise of the NPL ratio to 3-4% is expected though.

Other operating result is expected to remain unchanged in the ab-sence of significant one-off effects. Assuming a tax rate of below 25% and a similar level of minority charges as in the previous year, Erste Group aims to achieve an improvement in net profit. Erste Group's CET1 ratio is expected to remain strong. The management board proposes to the annual general meeting in May - in line with ECB recommendation - a dividend for 2020 of EUR 0.5 per share. An additional EUR 1/share has been reserved for a potential later payment.

Potential risks to the guidance are besides other than expected (geo)political, economic (monetary and fiscal policies) und regu-latory measures and developments also global health risks or changes to the competitive environment. In addition, given the Covid-19 governmental measures and their impact on the eco-nomic development, financial forecasts are still subject to an ele-vated level of uncertainty. Erste Group is moreover exposed to non-financial and legal risks that may materialise regardless of the eco-nomic environment. Worse than expected economic development may put goodwill at risk.

ANALYSIS OF PERFORMANCE

Net interest income

Net interest income increased to EUR 4,774.8 million (EUR 4,746.8 million). While in Austria (Holding) positive impacts came from more favourable ECB refinancing and lower negative interest on deposits with the ECB, net interest income in the Czech Repub-lic declined significantly due to lower interest rates. Included in net interest income are modification losses in the amount of EUR 49.5 million mainly resulting from moratoria on loan re-payments due to Covid-19. The net interest margin (calculated as the annualised sum of net interest income, dividend income and net result from equity method investments over average interest-bearing assets) stood at 2.08% (2.18%).

Net fee and commission income

Net fee and commission income decreased to EUR 1,976.8 million (EUR 2,000.1 million). Declines were recorded in payment ser-vices (thereof EUR 19 million attributable to SEPA, the payment-integration initiative of the European Union) but also in the lending business and insurance brokerage commission income. Significant growth was recorded, however -primarily in Austria -in the secu-rities business and in asset management.

Net trading result & gains/losses from financial instruments measured at fair value through profit or loss Valuation effects have a substantial impact on both positions - net trading result & gains/losses from financial instruments measured at fair value through profit or loss. Debt securities issued measured at FV through profit or loss are particularly impacted - related val-uation results are shown in the line gains/losses from financial in-struments measured at fair value through profit or loss whilevaluation results of corresponding hedges are shown in net trading result - as are financial assets in the fair value and trading portfolios.

Due to valuation effects resulting from interest rate developments, net trading result decreased significantly to EUR 137.6 million (EUR 318.3 million), despite strong income from the foreign ex-change business. Conversely, gains/losses from financial instru-ments measured at fair value through profit or loss improved to EUR 62.0 million (EUR -24.5 million). In addition to gains from the valuation of debt securities in issue due to the development of interest rates, the valuation result of financial assets in the fair value portfolio was, overall, likewise positive. Gains from the val-uation of the securities portfolio were significantly higher than the valuation losses in the loan portfolio measured at fair value.

General administrative expenses

General administrative expenses decreased to EUR 4,220.5 million (EUR 4,283.3 million). Personnel expenses declined to EUR 2,520.7 million (EUR 2,537.1 million). While personnel expenses were up in Slovakia as a result of a one-off payment agreed through collective bargaining, they declined in all other core markets, in the Czech Republic and Hungary also due to positive currency effects. Other administrative expenses decreased to EUR 1,158.9 mil-lion (EUR 1,205.1 million) on the back of a marked reduction of marketing and consulting costs. Contributions to deposit insurance systems rose to EUR 132.2 million (EUR 104.8 million). In Austria, contributions increased substantially to EUR 95.0 million (EUR 58.4 million), driven by a one-off effect as well as continuing strong deposit growth, but declined in Romania to EUR 4.4 million (EUR 12.7 million). IT expenditure was likewise up. Amortisa-tion and depreciation amounted to EUR 540.9 million (EUR 541.0 million).

Operating result

Due to the significant decline of the net trading and fair value result, operating income decreased to EUR 7,155.1 million (-1.4%; EUR 7,255.9 million). General administrative expenses were reduced to EUR 4,220.5 million (-1.5%; EUR 4,283.3 million). The operating result declined to EUR 2,934.6 million (-1.3%; EUR 2,972.7 mil-lion). The cost/income ratio was unchanged at 59.0% (59.0%).

Gains/losses from derecognition of financial instruments not measured at fair value through profit or loss

Gains from derecognition of financial instruments not measured at fair value through profit or loss amounted to EUR 6.5 million (EUR 23.5 million). This line item includes primarily gains/losses from the derecognition of loans and the sale of securities.

Impairment result from financial instruments

Due to net allocations, the impairment result from financial instru-ments amounted to EUR -1,294.8 million (EUR -39.2 million). Net allocations to provisions for commitments and guarantees given amounted to EUR -159.2 million (net releases of EUR 70.0 mil-lion). The significant rise in allocations to provisions was primarily driven by updated risk parameters with forward-looking infor-mation as well as experts' estimates on the impacts of the Covid-19 pandemic. Positive contributions came from continued high in-come from the recovery of loans already written off - primarily in Romania and Hungary - in the amount of EUR 140.4 million (EUR 154.0 million).

Other operating result

Other operating result improved to EUR -278.3 million (EUR -628.2 million). Levies on banking activities declined to EUR 117.7 million (EUR 128.0 million). Banking tax payable in Austria increased moderately to EUR 25.5 million (EUR 24.3 million). Levies in Slovakia, where they were charged for the last time in the first half of the year, rose to EUR 33.8 million (EUR 32.5 million). Hungarian banking tax increased to EUR 14.5 million (EUR 12.6 million). Together with the financial transaction tax of EUR 44.0 million (EUR 47.6 million), banking levies in Hungary were slightly down, totalling EUR 58.5 million (EUR 60.2 million).

The negative balance of allocations/releases of other provisions de-creased markedly to EUR -18.4 million (EUR -207.0 million). The comparative period was negatively impacted by extraordinary effects - a provision in the amount of EUR 153.3 million had been set aside for losses expected from a supreme court decision con-cerning the business activities of a Romanian subsidiary. Further-more, goodwill in Slovakia in the amount of EUR 165.0 million had been written down. Other operating result also reflects the an-nual contributions to resolution funds in the amount of EUR 93.5 million (EUR 75.3 million). Increases were recorded across all core markets, but above all in Austria, to EUR 43.6 million (EUR 33.4 million).

Profit/loss for the year

The pre-tax result from continuing operations amounted to EUR 1,368.0 million (EUR 2,329.7 million). Taxes on income declined to EUR 342.5 million (EUR 418.7 million). The minority charge decreased to EUR 242.3 million (EUR 440.9 million) due to sub-stantially lower earnings contributions of savings banks. The net result attributable to owners of the parent amounted to EUR 783.1 million (EUR 1,470.1 million).

Loans and advances to customers (net) rose -most notably in Austria -to EUR 166.1 billion (EUR 160,3 billion) driven by loan growth in the corporate and retail segments. In subsidiaries outside the euro zone, the effect of growth in local currency was offset by the depreciation of the local currencies.

Loan loss allowances for loans to customers rose to EUR 4.0 billion (EUR 3.2 billion). The increase reflected the deterioration in the macroeconomic outlook due to Covid-19. The NPL ratio (non-performing loans as a percentage of gross customer loans) deteriorated to 2.7% (2.5%). The NPL coverage ratio (based on gross customer loans) rose to 88.6% (77.1%).

Intangible assets remained unchanged at EUR 1.4 billion (EUR 1.4 billion). Miscellaneous assets amounted to EUR 5.8 billion (EUR 6.0 billion).

Financial liabilities -held for trading increased to EUR 2.6 bil-lion (EUR 2.4 billion).

Deposits from banks, primarily in the form of term deposits, rose to EUR 24.8 billion (EUR 13.1 billion), including EUR 14.1 billion in TLTRO III funds as of the end of December 2020. Deposits from customers increased to EUR 191.1 billion (EUR 173.8 bil-lion) due to strong growth in overnight deposits (the leasing liabil-ities of EUR 0.6 billion were not included in this position). The loan-to-deposit ratio stood at 86.9% (92.2%).

Debt securities in issue increased slightly to EUR 30.7 billion (EUR 30.4 billion).

Miscellaneous liabilities amounted to EUR 5.8 billion (EUR 5.4 billion).

Tax situation

Pursuant to section 9 of the Austrian Corporate Tax Act (KStG), Erste Group Bank AG and its main domestic subsidiaries constitute a tax group. Due to the high proportion of tax-exempt income - par-ticularly income from participating interests - and tax payments for the permanent establishments abroad, no Austrian corporate income tax was payable for the financial year 2020. The current tax loss carried forward increased in 2020.

Taxes on income are made up of current taxes on income calculated in each of the Group companies based on the results reported for tax purposes, corrections to taxes on income for previous years, and the change in deferred taxes. The reported total income tax expense amounted to EUR 342.5 million (EUR 418.7 million).

Total assets grew to EUR 277.4 billion (+12.9%; EUR 245.7 bil-lion). Total equity increased to EUR 22.4 billion (+9.4%; EUR 20.5 billion) including additional tier 1 (AT1) instruments in the amount of EUR 2,733.0 million from five issuances (June 2016, April 2017, March 2019, January 2020 and November 2020). After regulatory deductions and filtering according to the Capital Re-quirements Regulation (CRR) common equity tier 1 capital (CET1, CRR final) rose to EUR 17.1 billion (EUR 16.3 billion). Total own funds (CRR final) went up to EUR 23.6 billion (EUR 22.0 billion) supported by AT 1 issuances. Total risk (risk-weighted assets including credit, market and operational risk, CRR final) rose to EUR 120.2 billion (+1.3%; EUR 118.6 billion) benefitting from a positive impact of the application of the SME support factor in an amount of EUR 4.5 billion.

Balance sheet development

The rise in cash and cash balances to EUR 35.8 billion (EUR 10.7 billion) was primarily due to large cash balances held at cen-tral banks, not least due to increased TLTRO III funds.

Trading and investment securities held in various categories of financial assets increased to EUR 46.8 billion (EUR 44.3 billion).

Loans and advances to banks (net), including demand deposits other than overnight deposits, declined primarily in Austria to EUR 21.5 billion (EUR 23.1 billion).

Consolidated regulatory capital is calculated in accordance with CRR taking into consideration transitional provisions as defined in the Austrian CRR Supplementary Regulation and the Regulation (EU) 2016/445 of the European Central Bank on the exercise of options and discretions available in Union law. These transitional provisions define the percentages applicable to eligible capital in-struments and regulatory deduction items as well as filters. The to-tal capital ratio, total eligible qualifying capital in relation to total risk pursuant to CRR (final), was 19.7% (18.5%), well above the legal minimum requirement. The tier 1 ratio (CRR final) stood at 16.5% (15.0%), the common equity tier 1 ratio (CRR final) at 14.2% (13.7%).

RISK MANAGEMENT

Comments on the risk profile of Erste Group

In light of the business strategy of Erste Group Bank AG, besides participation risk, the main risks included credit risk, market risk, interest-change risk in the banking book, liquidity risk and non-financial risks. In addition, a risk materiality assessment is under-taken on an annual basis. It is ensured that all relevant material risks are covered by Erste Group Bank AG's control and risk man-agement framework. This entails a set of different tools and gov-ernance to ensure adequate oversight of the overall risk profile and sound execution of the risk strategy, including appropriate moni-toring and escalation of issues that could materially impact the risk profile of the group. The main types of risk can be summarised as follows:

• _ Credit risk: is the risk of loss from the potential collapse of counterparties, particularly of borrowers in the conventional lending business, and any related credit losses.

• _ Market risk: describes the risk of loss from unfavourable price changes in marketable and traded products, such as shares, fixed-income securities and derivatives, as well as from inter-est and foreign exchange volatility and fluctuations in raw ma-terial prices.

• _ Liquidity risk: describes the risk of the bank's insufficient li-quidity or inability to make funds available in a timely manner to service its debts.

• _ Non financial risk: includes operational risks and other busi-ness risks. Operational risks are losses as a result of error or malfunction of internal procedures, humans and systems or ex-ternal events. Major sub-categories of other business risks are strategic risks, reputational risks and compliance risks.

With respect to the explanations on substantial financial and non-financial risks at Erste Group as well as the goals and methods of risk management, we would like to draw the reader's attention to the information in Notes 27, 32, 34, 35, 36, 37 and 43 to the con-solidated financial statements.

RESEARCH AND DEVELOPMENT

Erste Group does not engage in any research activities pursuant to section 243 (3) no. 3 UGB, but in 2020 development costs in the amount of EUR 70 million (EUR 76 million) were capitalised in connection with software developed in-house.

In order to drive improvements for retail customers and in the on-going services, Erste Group launched the Innovation Hub. Its pur-pose is to initiate and coordinate across-the-board initiatives with a strong focus on customer experiences. As a multi-disciplinary team consisting of marketing, product and IT as well as design experts, the Innovation Hub is tasked with creating innovations and manag-ing new programme initiatives.

BRANCHES

Erste Group Bank AG maintains branches in London, New York, Hong Kong and Germany (Berlin and Stuttgart) that provide com-mercial lending to foreign banks, leasing companies and sovereign debtors as well as institutional sales. The London branch is ex-pected to be closed in the financial year 2021.

CAPITAL, SHARE, VOTING AND CONTROL RIGHTS

Investor information pursuant to section 243a (1) of the Austrian Commercial Code ('UGB')

With regard to the statutory disclosure requirements related to the composition of the capital as well as the class of shares, special ref-erence is made to Note 44 in the consolidated financial statements.

The interests disclosed in the paragraph below relate to shares in capital. This is different to the ones presented in the Consolidated Financial Statements 2019, in which shares in voting rights have been presented. Therefore comparative figures are slightly differ-ent.

As of 31 December 2020, together with its syndicate partners, DIE ERSTE oesterreichische Spar-Casse Privatstiftung (ERSTE Stiftung), a foundation, controls approx. 31.17% (prior year: 30.39%) of the shares in Erste Group Bank AG and with 16.50% (prior year: 15.96%) is the main shareholder. The ERSTE Stiftung holds 5.90% (prior year: 6.37%) of the shares directly; the indirect participation of the ERSTE Stiftung amounts to around 10.60% (prior year: 9.59%) of the shares held by Sparkassen Beteiligungs GmbH & Co KG, which is an affiliated undertaking of the ERSTE Stiftung. 1.67% (prior year: 1.43%) are held directly by savings bank foundations (Sparkassenstiftungen) respectively saving banks foundations acting together with the ERSTE Stiftung and af-filiated with Erste Group Bank AG through the joint liability scheme/IPS fund. 9.92% (prior year: 9.92%) of the subscribed cap-ital is controlled by the ERSTE Stiftung on the basis of a share-holder agreement with Caixabank S.A. 3.08% (prior year: 3.08%) are held by other partners to the shareholder agreement.

It should also be noted that in addition to the joint liability scheme in place since 2001, from 1.1.2014 onwards Erste Group Bank AG has formed a recognised institutional protection scheme (IPS) in accordance with article 113 (7) CRR together with the Austrian savings banks. The joint liability scheme complies with the re-quirements of article 4 (1) Z 127 CRR, whereby the required indi-vidual services of the individual members of the scheme are subject to an individual and general ceiling. Furthermore, starting in 2014 an IPS ex-ante fund was established and endowed for the following 10 years. The payments of the individual members are recognised in the balance sheet as a share in IPS GesbR, which manages the ex-ante fund and are accounted for as revenue reserve. Due to the contractual terms, this revenue reserve represents a blocked re-serve. The writing off of this blocked reserve may only take place as a result of the mobilisation of the ex-ante fund due to a claim. This reserve can therefore not be utilised internally to cover losses and on member level does not qualify as capital according to the CRR; on a consolidated level, the ex-ante fund does qualify, how-ever.

Additional disclosures pursuant to section 243a (1) UGB

All restrictions on voting rights or the transfer of shares, even if they are included in agreements between shareholders, insofar as they are known to the Management Board pursuant to section 243a (1) no. 2 UGB:

In shareholder agreements ERSTE Stiftung agreed with its partners the following: concerning the appointment of the members of the supervisory board the partners are obliged to vote as required by ERSTE Stiftung. The partners can dispose of shares according to a predefined sale procedure and can purchase shares only within the quotas agreed with ERSTE Stiftung (of a maximum of 2% within 12 months in total); with this regulation an unwanted creeping-in according to takeover law shall be prevented. In addition, the part-ners have committed themselves not to make a hostile takeover bid, nor to participate in a hostile takeover bid nor to act together with a hostile bidder in any other way.

The Articles of Association contain no restrictions in respect of vot-ing rights or the transfer of shares.

Pursuant to section 243a (1) no. 6 UGB not directly prescribed by the law regarding the appointment and dismissal of members of management and supervisory boards as well as on the amendment of the Articles of Association:

This concerns:

• _ Art. 15.1 of the Articles of Association, which provides that ERSTE Stiftung will be granted the right to nominate up to one third of the members of the Supervisory Board to be elected by the shareholders' meeting, as long as ERSTE Stiftung is liable or all present and future liabilities of the company in the case of its insolvency pursuant to Section 92 (9) Banking Act and

• _ Art. 15.4 of the Articles of Association, which provides that a three-quarter majority of valid votes cast and a three-quarter majority of the subscribed capital represented at the meeting considering the proposal are required to pass a motion for re-moval of Supervisory Board members

• _ Art. 19.9 of the Articles of Association, which provides that the Articles of Association, in so far as they do not alter the busi-ness purpose, may be passed by simple majority of votes cast and simple majority of the subscribed capital represented at the meeting considering the amendment. Where higher majority votes are required by individual provisions of the Articles of Association, these provisions can only be amended with the same higher majority vote. Moreover, amendments to Art. 19.9 require a three-quarter majority of the votes cast and a three-quarter majority of the subscribed capital represented at the meeting considering the proposal.

Pursuant to section 243a (1) no. 7 UGB, members of the Manage-ment Board have the right to issue or repurchase shares, where such a right is not prescribed by statutory law:

As per decision of the Annual General Meeting of 15 May 2019: _ the Management Board is entitled to purchase up to 10% of the subscribed capital in treasury shares for trading purposes ac-cording to section 65 (1) no. 7 Austrian Stock Corporation Act (AktG). However, the trading portfolio of these shares may not exceed 5% of the subscribed capital at the end of any calendar day. The consideration for the shares to be purchased must not be less than 50% of the closing price at the Vienna Stock Ex-change on the last trading day prior to the purchase and must not exceed 20% of the closing price at the Vienna Stock Ex-change on the last trading day prior to the purchase. This au-thorisation is valid for a period of 30 months, i.e. until 14 November 2021.

_ the Management Board is entitled, pursuant to section 65 (1) no.

8 as well as (1a) and (1b) Stock Exchange Act and for a periodof 30 months from the date of the resolution, i.e. until 14 No-vember 2021, to acquire own shares of up to 10% of the sub-scribed capital, subject to approval by the Supervisory Board, with the option of making repeated use of the 10% limit, either at the stock exchange or over the counter, likewise to the exclu-sion of the shareholders' right to tender proportional payment. The authorization may be exercised in whole or in part or in several instalments and in pursuit of one or several purposes. The market price per share must not be below EUR 2.00 or above EUR 120.00. Pursuant to section 65 (1b) in conjunction with sec. 171 Stock Corporation Act, the Management Board is authorised, from the date of the resolution, i.e. until 14 May 2024, on approval by the Supervisory Board, to sell or use the company's own shares, also by means other than the stock ex-change or a public offering for any purpose allowed by the law, particularly as consideration for the acquisition and financing of the acquisition of companies, businesses, business divisions or shares in one or several businesses in Austria or abroad to the exclusion of the shareholders' proportional purchase option.

_ The Management Board is authorised to redeem shares without further resolution at the Annual General Meeting with the ap-proval of the Supervisory Board.

_ According to section 65 (1) Z 4 as well as (1a) and (1b) Stock

Exchange Act, the Management Board is authorised for the du-ration of 30 months following the date of resolution, hence un-til 14 November 2021, and with the approval of the Supervisory Board to purchase own shares at an amount equal-ling up to 10% of share capital of the company also under re-peated utilisation of the 10% limit both via the stock market as well as off-market under exclusion of the pro rata tender rights of shareholders for the purpose of granting shares for free or at concessionary terms to Erste Mitarbeiterbeteiligung Privatstif-tung, their beneficiaries, employees, executive employees and members of the board at Erste Group Bank AG as well as affil-iated group companies or other companies according to section 4d (5) Z 1 Income Tax Act. The authorisation may be exercised in whole or in part or in several installments and in pursuit of one or several purposes. The value per share may neither be lower than the floor value of two Euros nor higher than the ceiling of EUR 120.

All sales and purchases were carried out as authorised at the An-nual General Meeting.

According to section 8.3 of the Articles of Association, the Manage-ment Board is authorized, until 24 May 2023 and with the approval of the Supervisory Board, to issue convertible bonds (including con-ditional compulsory convertible bonds according to section 26 Aus-trian Banking Act (BWG)), which grant subscription or conversion rights to the acquisition of company shares, while paying due con-sideration or excluding the subscription right of shareholders. The terms of issue can also set out a conversion obligation at the end of the term or at another point in time in addition or instead of sub-scription or conversion rights. The issue of convertible bonds may only take place to the extent that guarantees the fulfilment of agreed conversion or subscription rights and, in the case of a conversion obligation set out in the conditions of issue, the fulfilment of the corresponding conversion obligations from the conditional capital increase. The issue amount, conditions or issue and the exclusion of shareholders' subscription rights are to be determined by the Man-agement Board with consent of the Supervisory Board.

Significant agreements to which the company is party, and which become effective, are amended or are rendered ineffective when there is a change in the control of the company as a result of a take-over bid, as well as their effects [section 243a (1) no. 8 UGB]:

Agreement in principle of the joint liability scheme

The agreement in principle of the joint liability scheme provides for the possibility of early cancellation for good cause. Good cause allowing the respective other contracting parties to cancel the agreement is deemed to exist if:

• _ one contracting party grossly harms the duties resulting from the present agreement

• _ the ownership structure of a party to the contract changes in such a way - particularly by transfer or capital increase - that one or more third parties from outside the savings bank sector directly and/or indirectly gain a majority of the equity capital or voting rights in the contracting party or

• _ one contracting party resigns from the savings bank sector ir-respective of the reason.

The joint liability scheme's agreement in principle and supplemen-tary agreement expire if and as soon as any entity that is not a mem-ber of the savings bank sector association acquires more than 25% of the voting power or equity capital of Erste Group Bank AG in any manner whatsoever and a member savings bank notifies the joint liability scheme's steering company and Erste Group Bank AG by registered letter within twelve weeks from the change of control that it intends to withdraw from the joint liability scheme.

Directors and Officers Insurance

Changes in control

In the event that any of the following transactions or processes oc-cur during the term of the insurance policy (each constituting a 'change in control') in respect of the insured: _ the insured ceases to exist as a result of a merger or consolida-tion, unless the merger or consolidation occurs between two insured parties, or _ another company, person or group of companies or persons act-ing in consent, who are not insured parties, acquire more than 50% of the insured's outstanding equity or more than 50% of its voting power (resulting in the right to control the voting power represented by the shares, and the right to appoint the Management Board members of the insured),

then the insurance cover under this policy remains in full force and effect for claims relating to unlawful acts committed or alleged to have been committed before this change in control took effect. However, no insurance cover is provided for claims relating to un-lawful acts committed or allegedly committed after that time (un-less the insured and insurer agree otherwise). The premium for this insurance cover is deemed to be completely earned.

In the event that a subsidiary ceases to be a subsidiary during the insurance period, the insurance cover under this policy shall remain in full force and effect for that entity for the remainder of the in-surance period or (if applicable) until the end of the extended dis-covery period, but only in respect of claims brought against an insured in relation to unlawful acts committed or alleged to have been committed by the insured during the existence of this entity as a subsidiary. No insurance cover is provided for claims brought against an insured in relation to unlawful acts committed or alleg-edly committed after this entity ceased to exist.

Cooperation between Erste Group Bank AG and Vienna Insurance Group (VIG)

Erste Group Bank and VIENNA INSURANCE GROUP AG Wie-ner Versicherung Gruppe (VIG) are parties to a general distribution agreement (the 'Agreement') concerning the framework of the co-operation of Erste Group and VIG in Austria and CEE with respect to bank and insurance products. Originally concluded in 2008 (be-tween Erste Group Oesterreich and WIENER STÄDTISCHE Ver-sicherung AG Vienna Insurance Group), the Agreement was renewed and extended in 2018 until the end of 2033. The objective for the renewal and extension was in particular to adapt the Agree-ment to the corporate restructuring of the original parties, to amend some commercial parameters and to align the Agreement with re-cent developments in the legal framework. Already in the original Agreement the parties stipulated that both parties have the right to terminate the Agreement in case of a change of control of one of the parties. A change of control is defined, with respect to Erste Group Bank, as the acquisition of Erste Group Bank by any per-son/entity other than DIE ERSTE österreichische Spar-Casse Privatstiftung or Austrian savings banks of 50% plus one share of Erste Group Bank's voting shares, and with respect to VIG, as the acquisition of VIG by any person/entity other than Wiener Städ-tische Wechselseitiger Versicherungsverein - Vermögensverwal-tung - Vienna Insurance Group of 50% plus one share of VIG's voting shares. Apart from this regulation on the termination of the Agreement, the parties agreed in the renewal and extension of the Agreement for an additional termination for cause if based on new legal or regulatory provisions, the continuation of the Agreement is unreasonable for each or both of the parties.

Erste Group Bank and VIG are furthermore parties to an asset man-agement agreement, pursuant to which Erste Group undertakes to manage certain parts of VIG's and its group companies' securities assets. In case of a change of control (as described above), each party has the termination right. The asset management agreement has been renewed and extended until 2033 concurrently with the renewal and extension of the Agreement outlined above.

INTERNAL CONTROL AND RISK MANAGEMENT SYSTEM

FOR THE GROUP FINANCIAL REPORTING PROCEDURES

Control environment

The management board is responsible for the establishment, struc-ture and application of an appropriate internal control and risk management system that meets the company's needs in its group accounting procedures.

The management in each group unit is responsible for implementing group-wide instructions. Compliance with group rules is monitored as part of the audits performed by internal and local auditors.

Consolidated financial statements are prepared by the Group Con-solidation department. The assignment of powers, the process de-scription and the necessary control procedure are defined in the operating instructions.

Risks relating to the financial reporting procedures

The main risk in the financial reporting procedures is that errors or deliberate action (fraud) prevent facts from adequately reflecting the

company's financial position and performance. This is the case whenever the data provided in the financial statements and notes is essentially inconsistent with the correct figures, i.e. whenever, alone or in aggregate, they are apt to influence the decisions made by the users of financial statements. Such a decision may incur serious damage, such as financial loss, the imposition of sanctions by the banking supervisor or reputational harm.

Furthermore, especially estimates for the determination of the fair value of financial instruments for which no reliable market value is available, estimates for the accounting of risk provisions for loans and advances and for provisions, complex measurement re-quirements for accounting as well as a difficult business environ-ment bear the risk of significant financial reporting errors.

Controls

Group Accounting and Group Performance Management are respon-sible for group reporting and report to Erste Group's CFO. Erste Group issues group policies used for preparation of consolidated financial statements in accordance with IFRS. A summary descrip-tion of the accounting process is provided in Erste Group's IFRS Accounting Manual. All transactions have to be recorded, posted and accounted for in accordance with the accounting and measurement methods set out in this manual. The management of each subsidiary is responsible for the implementation of group policies.

The basic components of the internal control system (ICS) at Erste Group are:

• _ Controlling as a permanent financial/business analysis (e.g. comparison of target and actual data between Accounting and Controlling) and control of the company and/or individual cor-porate divisions.

• _ Systemic, automatic control systems and measures in the for-mal procedure and structure, e.g. programmed controls during data processing.

• _ Principles of functional separation and checks performed by a second person (the four-eye principle).

• _ Internal Audit, as a separate organisational unit, is charged with monitoring all corporate divisions in an independent yet proxi-mate manner, particularly with regard to the effectiveness of the components of the internal control system. The Internal Audit unit is monitored and/or checked by the management board, the audit committee/supervisory board, by external parties (bank supervisor, in individual cases also by an external auditor) as well as through audit's internal quality assurance measures (self-assessments, peer reviews).

Group Consolidation

The data provided by the group entities is checked for plausibility by the Group Consolidation department. The subsequent consoli-dation steps are then performed using the consolidation system (TAGETIK). These include consolidation of capital, expense and income consolidation, and debt consolidation. Lastly, possible in-tragroup gains are eliminated. At the end of the consolidation pro-cess, the notes to the financial statements are prepared in accordance with IFRS, BWG and UGB.

The consolidated financial statements and the group management report are reviewed by the audit committee of the supervisory board and are also presented to the supervisory board for approval. They are published as part of the annual report, on Erste Group's

website and in the Official Journal of Wiener Zeitung and finally filed with the Commercial Register.

Information and communication

Each year, the annual report shows the consolidated results in the form of a complete set of consolidated financial statements. In ad-dition, the management summary provides verbal comments on the consolidated results in accordance with the statutory requirements.

Throughout the year, the group produces consolidated monthly re-ports for group management. Statutory interim reports are pro-duced that conform to the provisions of IAS 34 and are also published quarterly in accordance with the Austrian Stock Corpo-ration Act. Before publication, the consolidated financial state-ments are presented to senior managers and the Chief Financial Officer for final approval and then submitted to the supervisory board's audit committee.

Reporting is almost fully automated, based on source systems and automated interfaces, and guarantees up-to-date data for control-ling, segment reporting and other analyses. Accounting infor-mation is derived from the same data source and is reconciled monthly for reporting purposes. Close collaboration between ac-counting and controlling permits continual target/actual compari-sons for control and reconciliation purposes. Monthly and quarterly reports to the management board and the supervisory board ensure a regular flow of financial information and monitor-ing of the internal control system.

Responsibilities of Internal Audit

Internal Audit is in charge of auditing and evaluating all areas of the bank based on risk-oriented audit areas (according to the annual audit plan as approved by the management board and reported to the audit committee). The main focus of audit reviews is to monitor the completeness and functionality of the internal control system. Internal Audit has the duty of reporting its findings to the group's management board, supervisory board and audit committee several times within one year.

According to section 42 BWG, Internal Audit is a control body that is directly subordinate to the management board. Its sole purpose is to comprehensively verify the lawfulness, propriety and expedi-ency of the banking business and banking operation on an on-going basis. The mandate of Internal Audit is therefore to support the management board in its efforts to secure the bank's assets and pro-mote economic and operational performance and thus in the man-agement board's pursuit of its business and operating policy. The activities of Internal Audit are governed in particular by the cur-rently applicable Rules of Procedure, which were drawn up under the authority of all management board members and approved as well as implemented by them. The Rules of Procedure are reviewed on a regular basis and whenever required and adapted should the need arise.

Audit activities of Internal Audit

In its auditing activities, Internal Audit puts a special focus on:

• _ operating and business areas of the bank;

• _ operating and business processes of the bank;

• _ internal bank standards (policies, guidelines, operating in-structions), also with regard to their compliance and up-to-dateness;

_ audit areas stipulated by the law as they inter alia result from the rules of the Austrian Banking Act (BWG) and the Capital Requirements Regulation (CRR).

Internal Audit performs its responsibilities based on its own discre-tion and in compliance with the annual audit plan as approved by the management board. Once approved, the audit plan is also re-ported to the audit committee.

CORPORATE GOVERNANCE

The (consolidated) corporate governance report is part of the an-nual report of Erste Group (www.erstegroup.com/investor-relations).

(CONSOLIDATED) NON-FINANCIAL DECLARATION

Erste Group decided to prepare and publish a separate non-finan-cial report - integrated in the annual report- in line with an option provided for in the Austrian Sustainability and Diversity Improve-ment Act (NaDiVeG).

With regard to non-financial risks related to the topics environment, social and employee matters, respect for human rights and measures against corruption and bribery, reference is made to the respective sections in the non-financial report; these are summa-rised under opportunities and risks arising from material topics. Upcoming new regulations on sustainability disclosures and risk management obligations: the EU Taxonomy Regulation (EC 2020/852), Sustainability Disclosure Regulation (EC 2019/2088), EBA Guideline on Loan Origination and Monitoring, ECB Guide on climate-related and Environmental Risks are properly taken into account and will be integrated with due care into the business model of Erste Group.

Management Board
Bernhard Spalt mp, Chairman
Ingo Bleier mp, Member	Stefan Dörfler mp, Member
Alexandra Habeler-Drabek mp, Member	David O'Mahony mp, Member
Maurizio Poletto mp, Member	Thomas Schaufler mp, Member

Vienna, 26 February 2021

Group Consolidated Financial Statements 2020 (IFRS)

Management report .............................................................................................................................................. 99

Consolidated financial statements ..................................................................................................................... 99

Consolidated statement of income ................................................................................................................... 120

Consolidated statement of comprehensive income ....................................................................................... 121

Consolidated balance sheet .............................................................................................................................. 122

Consolidated statement of changes in equity ................................................................................................. 123

Consolidated statement of cash flows ............................................................................................................. 125

Notes to the group financial statements of Erste Group ................................................................................ 126

General information ............................................................................................................................................ 126

Significant accounting policies ......................................................................................................................... 126

a) Basis of preparation .................................................................................................................................................................... 126

b) Covid-19 disclosures ................................................................................................................................................................... 126

c) Accounting and measurement methods ...................................................................................................................................... 127

d) Significant accounting judgements, assumptions and estimates ................................................................................................ 128

e) Application of amended and new IFRS/IAS ................................................................................................................................ 129

PERFORMANCE / RETURN ................................................................................................................................ 131

• 1. Segment reporting ................................................................................................................................................................. 131

• 2. Net interest income ................................................................................................................................................................ 139

• 3. Net fee and commission income ............................................................................................................................................ 140

• 4. Dividend income ..................................................................................................................................................................... 141

• 5. Net trading result .................................................................................................................................................................... 141

• 6. Gains/losses from financial instruments measured at fair value through profit or loss ......................................................... 141

• 7. Rental income from investment properties & other operating leases .................................................................................... 141

• 8. General administrative expenses .......................................................................................................................................... 142

• 9. Gains/losses from derecognition of financial assets measured at amortised cost ................................................................ 143

• 10. Other gains/losses from derecognition of financial instruments not measured at fair value through profit or loss ............... 143

• 11. Impairment result from financial instruments ......................................................................................................................... 143

• 12. Other operating result ............................................................................................................................................................ 144

• 13. Taxes on income .................................................................................................................................................................... 145

• 14. Appropriation of profit ............................................................................................................................................................. 148

Financial instruments - Significant accounting policies ............................................................................... 149

Financial instruments held at amortised cost ................................................................................................. 154

• 15. Cash and cash balances ........................................................................................................................................................ 154

• 16. Financial assets at amortised cost ......................................................................................................................................... 154

• 17. Debt instruments subject to contractual modifications .......................................................................................................... 159

• 18. Trade and other receivables .................................................................................................................................................. 159

• 19. Financial liabilities at amortised costs .................................................................................................................................... 160

Financial instruments at fair value .................................................................................................................... 163

• 20. Derivative financial instruments ............................................................................................................................................. 164

• 21. Other financial assets held for trading ................................................................................................................................... 165

• 22. Non-trading financial assets at fair value through profit or loss ............................................................................................. 165

• 23. Other financial liabilities held for trading ................................................................................................................................ 165

• 24. Financial liabilities at fair value through profit or loss ............................................................................................................ 166

• 25. Financial assets at fair value through other comprehensive income ..................................................................................... 168

Financial instruments - other disclosure matters .......................................................................................... 170

• 26. Fair value of financial instruments ......................................................................................................................................... 170

• 27. Hedge accounting .................................................................................................................................................................. 180

• 28. Offsetting of financial instruments .......................................................................................................................................... 185

• 29. Transfers of financial assets - repurchase transactions and securities lending ................................................................... 186

• 30. Collaterals .............................................................................................................................................................................. 188

• 31. Securities ............................................................................................................................................................................... 188

Risk and capital management ........................................................................................................................... 189

• 32. Risk management .................................................................................................................................................................. 189

• 33. Own funds and capital requirements ..................................................................................................................................... 196

• 34. Credit risk ............................................................................................................................................................................... 200

• 35. Market risk .............................................................................................................................................................................. 235

• 36. Liquidity risk ........................................................................................................................................................................... 238

• 37. Operational risk ...................................................................................................................................................................... 241

Non-current assets and other investments ..................................................................................................... 243

• 38. Property, equipment and investment properties .................................................................................................................... 243

• 39. Intangible assets .................................................................................................................................................................... 246

40. Other assets ........................................................................................................................................................................... 250

Leases .................................................................................................................................................................. 251

Accruals, provisions, contingent liabilities and legal proceedings .............................................................. 255

41. Other liabilities ....................................................................................................................................................................... 255

42. Provisions .............................................................................................................................................................................. 255

43. Contingent liabilities ............................................................................................................................................................... 261

Capital instruments, equity and reserves ........................................................................................................ 263

• 44. Total equity ............................................................................................................................................................................. 263

• 45. Non controlling interest .......................................................................................................................................................... 265

Scope of consolidation ...................................................................................................................................... 266

• 46. Subsidiaries ........................................................................................................................................................................... 267

• 47. Investments in associates and joint ventures ........................................................................................................................ 269

• 48. Unconsolidated structured entities ........................................................................................................................................ 270

Other disclosure matters ................................................................................................................................... 273

• 49. Related-party transactions and principal shareholders ......................................................................................................... 273

• 50. Share-based payments .......................................................................................................................................................... 275

• 51. Audit fees and tax consultancy fees ...................................................................................................................................... 276

• 52. Assets held for sale and liabilities associated with assets held for sale ............................................................................... 276

• 53. Assets and liabilities denominated in foreign currencies and outside Austria and return on assets ..................................... 277

• 54. Analysis of remaining maturities ............................................................................................................................................ 278

• 55. Events after the balance sheet date ...................................................................................................................................... 278

• 56. Country by country reporting ................................................................................................................................................. 279

• 57. Details of the companies wholly or partly owned by Erste Group as of 31 December 2020 ................................................ 280

Additional information ....................................................................................................................................... 292

STATEMENT OF ALL MEMBERS OF THE MANAGEMENT BOARD .............................................................. 297

Glossary

Abbreviations

Consolidated statement of income

in EUR million	Notes	1-12 19	1-12 20
Net interest income	2	4,746.8	4,774.8
Interest income	2	5,544.0	5,107.9
Other similar income	2	1,655.2	1,461.7
Interest expenses	2	-1,054.9	-621.2
Other similar expenses	2	-1,397.5	-1,173.6
Net fee and commission income	3	2,000.1	1,976.8
Fee and commission income	3	2,373.5	2,354.5
Fee and commission expenses	3	-373.4	-377.7
Dividend income	4	27.9	19.9
Net trading result	5	318.3	137.6
Gains/losses from financial instruments measured at fair value through profit or loss	6	-24.5	62.0
Net result from equity method investments	17.1	10.4
Rental income from investment properties & other operating leases	7	170.1	173.6
Personnel expenses	8	-2,537.1	-2,520.7
Other administrative expenses	8	-1,205.1	-1,158.9
Depreciation and amortisation	8	-541.0	-540.9
Gains/losses from derecognition of financial assets measured at amortised cost	9	0.9	6.8
Other gains/losses from derecognition of financial instruments not measured at fair value through profit or loss	10	23.5	-0.4
Impairment result from financial instruments	11	-39.2	-1,294.8
Other operating result	12	-628.2	-278.3
Levies on banking activities	12	-128.0	-117.7
Pre-tax result from continuing operations	2,329.7	1,368.0
Taxes on income	13	-418.7	-342.5
Net result for the period	1,911.1	1,025.5
Net result attributable to non-controlling interests	440.9	242.3
Net result attributable to owners of the parent	1,470.1	783.1

Earnings per share

Earnings per share constitute net profit/loss for the year attributable to owners of the parent divided by the average number of ordinary shares outstanding. Diluted earnings per share represent the maximum potential dilution (through an increase in the average number of shares) that would occur if all subscription and conversion rights granted were exercised (also see Note 44 Total equity). As in the previous year no subscription and conversion rights were outstanding during the financial year. Diluted earnings per share were equal to the undiluted.

1-12 19	1-12 20
Net result attributable to owners of the parent	in EUR thousand	1,470,133	783,129
Dividend on AT1 capital	in EUR thousand	-92,081	-114,580
Net result for the period attributable to owners of the parent after deduction of AT1 capital dividend	in EUR thousand	1,378,052	668,549
Weighted average number of outstanding shares	426,565,097	426,324,725
Earnings per share	in EUR	3.23	1.57
Weighted average diluted number of outstanding shares	426,565,097	426,324,725
Diluted earnings per share	in EUR	3.23	1.57

Consolidated statement of comprehensive income

in EUR million	1-12 19	1-12 20
Net result for the period	1,911.1	1,025.5
Other comprehensive income
Items that may not be reclassified to profit or loss	-70.1	62.0
Remeasurement of defined benefit plans	-139.9	-61.0
Fair value reserve of equity instruments	54.1	5.8
Own credit risk reserve	-17.5	127.5
Deferred taxes relating to items that may not be reclassified	33.2	-10.2
Items that may be reclassified to profit or loss	-22.8	-223.4
Fair value reserve of debt instruments	44.6	44.4
Gains/losses during the period	46.3	34.7
Reclassification adjustments	-6.1	-1.2
Credit loss allowances	4.3	10.9
Cash flow hedge reserve	-54.4	99.2
Gains/losses during the period	-29.4	113.5
Reclassification adjustments	-25.0	-14.3
Currency reserve	-13.5	-338.4
Gains/losses during the period	-13.5	-338.4
Income tax relating to items that may be reclassified	0.4	-28.6
Gains/losses during the period	-6.2	-32.3
Reclassification adjustments	6.6	3.7
Share of other comprehensive income of associates and joint ventures accounted for by the equity method	0.1	0.0
Total other comprehensive income	-93.0	-161.4
Total comprehensive income	1,818.1	864.1
Total comprehensive income attributable to non-controlling interests	394.5	215.0
Total comprehensive income attributable to owners of the parent	1,423.6	649.1

For a detailed split of income tax items within other comprehensive income please refer to Note 13 Taxes on income.

Consolidated balance sheet

in EUR million	Notes	Dec 19	Dec 20
Assets
Cash and cash balances	15	10,693.3	35,838.5
Financial assets held for trading	20, 21	5,759.6	6,356.0
Derivatives	20	2,805.4	2,954.4
Other financial assets held for trading	21	2,954.2	3,401.7
Pledged as collateral	29	429.8	68.0
Non-trading financial assets at fair value through profit or loss	22	3,208.3	3,082.8
Pledged as collateral	29	38.6	7.9
Equity instruments	22	390.1	347.3
Debt securities	22	2,334.8	2,048.5
Loans and advances to customers	22	483.4	687.0
Financial assets at fair value through other comprehensive income	25	9,046.5	8,518.8
Pledged as collateral	29	603.2	50.0
Equity instruments	25	210.1	129.8
Debt securities	25	8,836.4	8,389.0
Financial assets at amortised cost	16	204,162.1	210,940.4
Pledged as collateral	29	2,142.0	1,898.5
Debt securities	16	26,763.8	29,578.9
Loans and advances to banks	16	23,054.6	21,466.2
Loans and advances to customers	16	154,343.7	159,895.3
Finance lease receivables	Leases	4,034.4	4,127.1
Hedge accounting derivatives	27	130.1	205.2
Fair value changes of hedged items in portfolio hedge of interest rate risk	27	-3.8	5.3
Property and equipment	38	2,629.2	2,552.1
Investment properties	38	1,265.9	1,280.4
Intangible assets	39	1,368.3	1,358.9
Investments in associates and joint ventures	47	163.0	190.1
Current tax assets	13	80.7	174.7
Deferred tax assets	13	477.1	460.1
Assets held for sale	51	268.9	211.8
Trade and other receivables	18	1,408.1	1,341.0
Other assets	40	1,001.1	750.6
Total assets	245,692.8	277,393.7
in EUR million	Notes	Dec 19	Dec 20
Liabilities and equity
Financial liabilities held for trading	20, 23	2,421.1	2,625.0
Derivatives	20	2,005.4	2,037.5
Other financial liabilities held for trading	23	415.7	587.6
Financial liabilities at fair value through profit or loss	24	13,494.3	12,091.0
Deposits from customers	24	264.8	254.0
Debt securities issued	24	13,010.5	11,656.6
Other financial liabilities	24	219.0	180.4
Financial liabilities at amortised cost	19	204,143.4	235,125.3
Deposits from banks	19	13,140.6	24,771.3
Deposits from customers	19	173,066.1	190,816.4
Debt securities issued	19	17,360.3	19,019.8
Other financial liabilities	576.3	517.7
Lease liabilities	Leases	515.1	559.7
Hedge accounting derivatives	27	269.2	188.7
Fair value changes of hedged items in portfolio hedge of interest rate risk	27	0.0	0.1
Provisions	42	1,918.7	2,081.9
Current tax liabilities	13	60.6	58.5
Deferred tax liabilities	13	17.9	20.0
Liabilities associated with assets held for sale	51	6.2	1.4
Other liabilities	41	2,369.0	2,231.8
Total equity	44	20,477.3	22,410.3
Equity attributable to non-controlling interests	44	4,857.5	5,073.1
Additional equity instruments	44	1,490.4	2,733.0
Equity attributable to owners of the parent	44	14,129.5	14,604.2
Subscribed capital	44	859.6	859.6
Additional paid-in capital	44	1,477.7	1,477.7
Retained earnings and other reserves	44	11,792.1	12,266.9
Total liabilities and equity	245,692.8	277,393.7

Consolidated statement of changes in equity

Equity
Remeasur-	Equity	attributable
Additional	Cash flow	ement of	attributable	Additional	to non-
Subscribed	paid-in	Retained	hedge	Fair value	Own credit	Currency	defined	to owners of	equity	controlling
in EUR million	capital	capital	earnings	reserve	reserve	risk reserve	reserve	benefit plans	the parent	instruments	interests	Total equity
As of 1 January 2020	860	1,478	13,095	-45	260	-399	-610	-509	14,129	1,490	4,857	20,477
Changes in treasury shares	0	0	-58	0	0	0	0	0	-58	0	0	-58
Dividends paid	0	0	-115	0	0	0	0	0	-115	0	-5	-119
Capital increase/decrease	0	0	0	0	0	0	0	0	0	1,243	6	1,249
Changes in scope of consolidation and
ownership interest	0	0	-2	0	0	0	0	0	-2	0	-1	-3
Reclassification from other comprehensive
income to retained earnings	0	0	69	0	-68	-1	0	0	0	0	0	0
Other changes	0	0	0	0	0	0	0	0	0	0	0	0
Total comprehensive income	0	0	783	81	47	110	-332	-40	649	0	215	864
Net result for the period	0	0	783	0	0	0	0	0	783	0	242	1,025
Other comprehensive income	0	0	0	81	47	110	-332	-40	-134	0	-27	-161
Change from remeasurement of
defined benefit plans	0	0	0	0	0	0	0	-40	-40	0	-19	-59
Change in fair value reserve	0	0	0	0	47	0	0	0	47	0	-8	39
Change in cash flow hedge reserve	0	0	0	81	0	0	0	0	81	0	0	81
Change in currency reserve	0	0	0	0	0	0	-332	0	-332	0	-7	-338
Change in own credit risk reserve	0	0	0	0	0	110	0	0	110	0	6	116
As of 31 December 2020	860	1,478	13,773	36	239	-290	-941	-549	14,604	2,733	5,073	22,410

In the column 'Additional equity instruments', Erste Group reports additional tier 1 bonds issued in 2020 with a nominal value of EUR 1,250 million (2019: EUR 500 million). After deduction of costs directly attributable to the capital increase of EUR 7 million (2019: EUR 3 million) the net increase in capital amounted to EUR 1.243 million (2019: EUR 497 million). Additional tier 1 bonds are unsecured and subordinated bonds which are classified as equity under IFRS. For further details, see Note 44 Total equity.

123

124

Equity
Remeasur-	Equity	attributable
Additional	Cash flow	ement of	attributable	Additional	to non-
Subscribed	paid-in	Retained	hedge	Fair value	Own credit	Currency	defined	to owners of	equity	controlling
in EUR million	capital	capital	earnings	reserve	reserve	risk reserve	reserve	benefit plans	the parent	instruments	interests	Total equity
As of 1 January 2019	860	1,477	12,280	-3	229	-435	-598	-428	13,381	993	4,494	18,869
Changes in treasury shares	0	0	-13	0	0	0	0	0	-13	0	0	-13
Dividends paid	0	0	-663	0	0	0	0	0	-663	0	-41	-705
Capital increase/decrease	0	1	0	0	0	0	0	0	1	497	4	502
Changes in scope of consolidation and
ownership interest	0	0	0	0	0	0	0	0	0	0	6	6
Reclassification from other comprehensive
income to retained earnings	0	0	21	0	-48	27	0	0	0	0	0	0
Other changes	0	0	-1	0	0	0	0	0	-1	0	0	0
Total comprehensive income	0	0	1,470	-42	80	9	-12	-81	1,424	0	394	1,818
Net result for the period	0	0	1,470	0	0	0	0	0	1,470	0	441	1,911
Other comprehensive income	0	0	0	-42	80	9	-12	-81	-47	0	-46	-93
Change from remeasurement of
defined benefit plans	0	0	0	0	0	0	0	-81	-81	0	-41	-123
Change in fair value reserve	0	0	0	0	80	0	0	0	80	0	-4	76
Change in cash flow hedge reserve	0	0	0	-42	0	0	0	0	-42	0	0	-43
Change in currency reserve	0	0	0	0	0	0	-12	0	-12	0	-2	-14
Change in own credit risk reserve	0	0	0	0	0	9	0	0	9	0	1	10
As of 31 December 2019	860	1,478	13,095	-45	260	-399	-610	-509	14,129	1,490	4,857	20,477

In the line 'Changes in scope of consolidation and ownership interst' the acquisition of Ohridska Banka AD Skopje is disclosed. The consideration for the acquisition of 91.57% of the shares amounted to EUR 31 million. As a consequence, a non-controlling interest in the amount of EUR 5 million was considered. For further details, see Note 46 Subsidiaries.

Consolidated statement of cash flows

in EUR million	Notes	1-12 19	1-12 20
Net result for the period	1,911.1	1,025.5
Non-cash adjustments for items in net profit/loss for the year
Depreciation, amortisation and net impairment of non-financial assets	38, 39	737.6	614.3
Net allocation of credit loss allowances and other provisions	12	399.9	1,441.2
Gains/losses from measurement and derecognition of financial assets and financial liabilities	9, 10	-89.2	-189.6
Other adjustments	113.5	-277.4
Changes in assets and liabilities from operating activities after adjustment for non-cash components
Financial assets held for trading	20, 21	-147.2	-607.9
Non-trading financial assets at fair value through profit or loss	22
Equity instruments	22	-17.3	42.8
Debt securities	22	489.3	337.1
Loans and advances to customers	22	-194.5	-212.7
Financial assets at fair value through other comprehensive income: debt securities	25	289.1	484.1
Financial assets at amortised cost	16
Debt securities	16	-686.8	-2,816.0
Loans and advances to banks	16	-3,956.9	1,585.3
Loans and advances to customers	16	-10,168.9	-6,790.7
Finance lease receivables	Leases	-269.3	-106.2
Hedge accounting derivatives	27	-40.0	6.2
Other assets from operating activities	18, 40	-305.9	310.3
Financial liabilities held for trading	20, 23	-83.1	308.9
Financial liabilities at fair value through profit or loss	24	-757.3	-1,271.9
Financial liabilities measured at amortised cost	19
Deposits from banks	19	-4,611.5	11,630.8
Deposits from customers	19	10,127.6	17,750.3
Debt securities issued	19	1,067.7	1,659.4
Other financial liabilities	89.2	-58.6
Hedge accounting derivatives	27	-7.8	-80.5
Other liabilities from operating activities	41	-83.0	-291.1
Cash flow from operating activities	-6,193.7	24,493.4
Proceeds of disposal
Financial assets at fair value through other comprehensive income: equity instruments	25	43.5	86.3
Investments in associates and joint ventures	47	4.4	5.0
Property and equipment and intangible assets	38, 39	69.4	147.3
Investment properties	38	17.9	11.5
Acquisition of
Financial assets at fair value through other comprehensive income: equity instruments	25	0.0	-1.1
Investments in associates and joint ventures	47	0.0	0.0
Property and equipment and intangible assets	38, 39	-591.0	-549.5
Investment properties	38	-119.7	-51.1
Acquisition of subsidiaries (net of cash and cash equivalents acquired)	142.4	0.0
Disposal of subsidiaries	0.0	0.0
Cash flow from investing activities	-433.1	-351.6
Capital increase	44	501.7	1,248.7
Capital decrease	44	0.0	0.0
Changes in ownership interests that do not result in a loss of control	44	1.5	-2.8
Dividends paid to equity holders of the parent	44	-663.3	-114.6
Dividends paid to non-controlling interests	44	-41.5	-4.8
Changes in non-controlling interests	44	5.0	0.0
Cash flow from financing activities	-196.6	1,126.5
Cash and cash equivalents at the beginning of the period	15	17,549.2	10,693.3
Cash flow from operating activities	-6,193.7	24,493.4
Cash flow from investing activities	-433.1	-351.6
Cash flow from financing activities	-196.6	1,126.5
Effect of currency translation	-32.5	-123.0
Cash and cash equivalents at the end of period	15	10,693.3	35,838.5
Cash flows related to taxes, interest and dividends (included in cash flow from operating activities)	4,305.6	4,238.4
Payments for taxes on income	13	-468.1	-438.9
Interest received	2	7,800.8	7,233.2
Dividends received	4	27.9	19.9
Interest paid	2	-3,054.9	-2,575.8

Cash and cash equivalents are equal to cash in hand, cash balances at central banks and other demand deposits.

Notes to the group financial statements of Erste Group General information

Erste Group Bank AG is Austria's oldest savings bank and listed on the Vienna Stock Exchange. It is also quoted on the Prague Stock Exchange and on the Bucharest Stock Exchange. The registered office of Erste Group Bank AG is located at Am Belvedere 1, 1100 Vienna, Austria.

The group of Erste Group Bank AG (hereinafter referred to as 'Erste Group' or 'Group') offers a complete range of banking and other financial services, such as savings accounts, asset management (including investment funds), consumer credit and mortgage lending, in-vestment banking, securities and derivatives trading, portfolio management, project finance, foreign trade financing, corporate finance, capital market and money market services, foreign exchange trading, leasing and factoring.

These consolidated financial statements have been prepared and authorised for issue by the management board as at the signing date of this report. Both, the supervisory board (25 March 2021) and the annual general meeting (19 May 2021) may amend the individual financial statements of Erste Group Bank AG, which in turn may have an impact on these consolidated financial statements. The consolidated finan-cial statements have not been accepted by the supervisory board and the financial statements of Erste Group Bank AG have not been approved by the supervisory board at the date of this report.

Erste Group is subject to the regulatory requirements of Austrian and European supervisory bodies (National Bank, Financial Market Au-thority, Single Supervisory Mechanism). These regulations include those pertaining to minimum capital adequacy requirements, categori-sation of exposures and off-balance sheet commitments, credit risk connected with clients of the Group, market risk (including interest rate and foreign exchange risk), and operational risk.

In addition to the banking entities, some Group companies are subject to regulatory requirements, specifically in relation to asset management.

Significant accounting policies

a) Basis of preparation

The consolidated financial statements of Erste Group for the financial year ending on 31 December 2020 and the related comparative infor-mation were prepared in compliance with applicable International Financial Reporting Standards (IFRS) as adopted by the European Union on the basis of IAS Regulation (EC) No. 1606/2002. The requirements of Section 59a of the Austrian Banking Act and Section 245a of the Austrian Commercial Code are fulfilled.

The consolidated financial statements have been prepared on a going concern basis.

Erste Group is subject to regulatory restrictions on capital distributions stemming from the EU-wide capital requirements regulations appli-cable to all credit institutions based in the EU. As a consequence of the Covid-19 crisis, the European Central Bank as well as some local national banks issued recommendations to restrict dividend payouts. As a result, no dividends were paid out by Erste Group and most of the Erste Group subsidiaries did not pay out dividends to the parent Erste Group Bank AG. Erste Group does not have any other significant restrictions on its ability to access or use the assets and settle the liabilities of the Group. Also, the owners of non-controlling interests in Group subsidiaries do not have rights that can restrict the Group's ability to access or use the assets and settle the liabilities of the Group.

Except as otherwise indicated, all amounts are stated in millions of euro. The tables in this report may contain rounding differences. The abbre-viations used in the consolidated financial statements of Erste Group are explained in the appendix 'Abbreviations' at the end of this report.

b) Covid-19 disclosures

In the consolidated financial statements of Erste Group, considerations and significant impacts of the Covid-19 outbreak are presented in those chapters to which they can be assigned thematically. An overview about these disclosures is presented in the following:

• _ The chapter 'c) Accounting and measurement methods' discusses the accounting and measurement methods used for public moratoria and payment holidays, public guarantees and impairment of non-financial assets including significant effects of those topics on the consolidated financial statements in 2020.

• _ The chapter 'd) Significant accounting judgements, assumptions and estimates' contains information about the key sources of estimation uncertainty in the light of the Covid-19 outbreak.

• _ Note 33 Own funds and capital requirements discusses the adjustments to the regulatory framework due to the current Covid-19 crisis.

_ Note 34 Credit risk contains a separate sub-chapter 'Covid-19' which explains the considerations of the pandemic on the ECL measure-ment, sensitivity analyses and information on credit exposures subject to certain Covid 19 measures.

c) Accounting and measurement methods

Foreign currency translation

The consolidated financial statements are presented in euro, which is the functional currency of Erste Group Bank AG, the parent company of Erste Group. The functional currency is the currency of the primary business environment in which an entity operates. Each entity in Erste Group determines its own functional currency, and items included in the financial statements of each entity are measured using that functional currency.

For foreign currency translation, exchange rates quoted by the central banks in each country are used. For Erste Group entities with the euro as functional currency, these are the European Central Bank reference rates.

i. Transactions and balances in foreign currency

Transactions in foreign currencies are initially recorded at the functional currency exchange rate effective as of the date of the transaction. Subsequently, monetary assets and liabilities denominated in foreign currencies are translated at the functional currency exchange rate as of the balance sheet date. All resulting exchange differences that arise are recognised in the statement of income under the line item 'Net trading result'. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as of the dates of the initial transactions, i.e. they do not give rise to exchange differences. Non-monetary items that are measured at fair value (such as equity investments) in a foreign currency are translated using the exchange rates at the date when the fair value is measured, thus the exchange differences are part of the fair value gains or losses.

ii. Translation of the statements of Group companies

Assets and liabilities of foreign operations (foreign subsidiaries and branches) are translated into Erste Group's presentation currency, the euro, at the rate of exchange as of the balance sheet date (closing rate). Their consolidated statement of income and consolidated statement of comprehensive income are translated at the average exchange rate of the respective reporting period calculated on the basis of daily rates. Goodwill, intangible assets (i.e. customer relationships and brand) and fair value adjustments to the carrying amounts of assets and liabilities recognised on acquisition of foreign subsidiaries on the acquisition are treated as assets and liabilities of the foreign subsidiaries and are translated at the closing rate. However, goodwill of Česká spořitelna a.s. is translated at the historical FX rate as allowed by the transitional provisions in IAS 21.59.

Exchange differences arising on translation are recognised in OCI in the line 'Currency reserve' of the statement of comprehensive income. The accumulated OCI is presented in equity, specifically under 'Currency reserve' in the statement of changes in equity. On disposal of a foreign subsidiary, the cumulative amount of translation differences recognised in other comprehensive income is recognised in the state-ment of income under the line item 'Other operating result'.

Accounting treatment of issues related to Covid-19

i. Public moratoria and payment holidays

In light of the spread of Covid-19, a variety of measures have been taken by governments in Erste Group's region aimed at addressing the economic consequences of the outbreak on individuals, households and businesses. Such measures include, for example, public moratoria on repayment of loans, overdraft facilities and mortgages. Further, Erste Group is offering renegotiations of repayment schedules and pay-ment holidays on a voluntary basis to customers facing liquidity shortages.

The public moratoria in general relate to customers which were performing and to their exposures existing before the outbreak of the Covid-19 pandemic. Most of the public moratoria are based on an opt-in approach, meaning that customers have to ask the bank for the payment reliefs. However, there are also cases when all applicable customers are automatically subject to the moratorium with an opt-out possibility. Such opt-out models have been implemented in Hungary and Serbia. The range of payment deferral periods in Erste Group countries was originally enacted between 3 to 9 months. However, prolongations of the moratoria have been provided afterwards in some countries. In Austria the clients can currently postpone payment obligations becoming due till 31 January 2021 for 10 months. Apart from prolongations, also new opt-in moratorium schemes were issued by local governments, for example, in Hungary and Romania. In most cases interest continues to accrue on the outstanding balance during the moratorium period. Nevertheless, in many cases an economic loss is incurred and modification losses are recognised from an accounting perspective. This results from the fact that the interest accrued, instead of being repaid or capitalised at the end of the moratorium, is repaid over the period after the moratorium.

Both public moratoria and voluntarily granted payment holidays modify contractual cash flows of the related financial asset and are therefore treated as contractual modifications within the meaning of IFRS 9. The accounting policies disclosed in chapter 'Financial instruments - Significant accounting policies', part 'Derecognition of financial instruments including treatment of contractual modifications' apply.

The public moratoria and payment holidays applied in Erste Group did not lead to derecognition. In particular, this is because the moratoria and payment holidays are typically below one year and in most cases the contractual interest continues to accrue during the suspension phase. Thus the present value effect of the modification is less than 10%, thus it is below the threshold defined for significant modifications leading to derecognition.

In the statement of income, the modification gain or loss is presented in the line 'Interest income' under 'Net interest income' if the modi-fication relates to financial assets in Stage 1. For financial assets in Stage 2 and 3 and POCI financial assets, the modification gain or loss is presented in the line 'Impairment result from financial instruments'.

With respect to the assessment of significant increases in credit risk (SICR), Erste Group does not consider the public moratoria and payment holidays in itself as automatic SICR triggers, but applies its specific assessment rules consisting of qualitative information and quantitative thresholds. Details on this assessment and other considerations on the expected credit loss estimation in the light of the Covid-19 outbreak are described in Note 34 Credit risk.

In 2020, Erste Group incurred modification losses in total amount of EUR 73.6 million. The vast majority of this impact relates to contrac-tual modifications arising from Covid-19-related to public or private moratoria, as well as to other bilaterally agreed contractual changes aimed at addressing or preventing clients' liquidity shortages or other financial difficulties associated with the Covid-19 crisis. Out of the total modification losses, an amount of EUR 49.5 million was presented in the statement of income in line item 'Net interest income', while the remaining EUR 24.1 million was presented in line item 'Impairment result from financial instruments'. About 70% of the modification losses was incurred by following major CEE banks: Ceska sporitelna, Erste Bank Hungary, Banca Comerciala Romana, Erste Bank Croatia (Erste & Steiermärkische Bank d.d.) and Erste Bank Serbia.

ii. Public guarantees

In their efforts to mitigate the economic effects of Covid-19, some governments and other public institutions in Erste Group's region are providing public guarantees on banks' exposures. The relevant accounting policy for financial guarantees is disclosed in note 42 Provisions, part Financial guarantees. Financial guarantees received in the context of public Covid-19 measures typically related to new credit facilities and are therefore considered as integral. Integral financial guarantees are included in the estimates of expected credit losses from the related financial assets. Premiums paid for integral financial guarantees and other credit enhancements are considered in the EIR of the related financial assets. The existence of such credit enhancements does not affect the SICR assessment.

iii. Impairment of non-financial assets

The market capitalisation of Erste Group at year-end 2020 was below the carrying amount of the net assets. Therefore, a thorough analysis was performed to ensure the recoverability of the non-financial assets. In the course of this analysis the group has estimated the value in use on the level of the cash-generating units (CGUs). The value in use is determined by discounting the cash flows at a rate that takes into account present market rates and the specific risks of the CGU. The discount rates have been determined based on the capital asset pricing model (CAPM). According to the CAPM, the discount rate comprises a risk-free interest rate together with a market risk premium that itself is multiplied by a factor that represents the systematic market risk (beta factor). Furthermore, a country-risk premium component is consid-ered in calculation of the discount rate. The values used to establish the discount rates are determined using external sources of information. The cash flow projection period is five years. Beyond this planning horizon the cash flows are extrapolated to perpetuity based on a terminal growth rate. For those CGUs for which the carrying amount was higher than the value in use, the fair values of the underlying non-financial assets were derived and compared with the respective book values. In addition to the amounts already recognised in the course of the financial statements preparation process (see Note 38 Property, equipment and investment properties and Note 39 Intangible assets), the analysis did not reveal any need for impairment.

Further, the annual impairment test on the goodwill of Česká spořitelna a.s. did not result in an impairment loss booking as the calculated recoverable amount exceeds the carrying amount. Details on the goodwill impairment test are described in Note 39 Intangible assets.

iv. Impairment of financial instruments

The main contributor to the impairment allocation in the line item 'Impairment result from financial instruments' in the amount of EUR 823.4 million (out of overall impairment result in the amount of EUR 1,294.8 million) is directly attributable to changes in macro environment and management actions to identify mostly affected portfolios due to Covid-19 pandemic. Observed deteriorations in credit portfolios, which were also significantly driven by current Covid-19 situation, are the main reason for the remaining impairment allocation.

Details on the effects of Covid-19 on the expected credit loss estimation are described in Note 34 Credit risk.

d) Significant accounting judgements, assumptions and estimates

The consolidated financial statements contain amounts that have been determined on the basis of judgements and by the use of estimates and assumptions. The estimates and assumptions used are based on historical experience and other factors, such as planning as well as expectations and forecasts of future events that are currently deemed to be reasonable. As a consequence of the uncertainty associated with these assumptions and estimates, actual results could in future periods lead to adjustments in the carrying amounts of the related assets orliabilities. The most significant uses of judgements, assumptions and estimates are described in the notes of the respective assets and liabil-ities and relate in particular to:

• _ Taxes on income and deferred tax assets (Note 13 Taxes on income)

• _ SPPI assessment of financial instruments (Chapter Financial instruments - Significant accounting policies)

• _ Business model assessment of financial instruments (Chapter Financial instruments - Significant accounting policies)

• _ Fair value of financial instruments (Note 26 Fair value of financial instruments)

• _ Impairment of financial instruments (Chapter Financial instruments - Significant accounting policies, Note 34 Credit risk)

• _ Impairment of non-financial assets (Chapter Non-current assets and other investments)

• _ Provisions (Note 42 Provisions)

• _ Defined employees benefit plans (Note 42 Provisions)

• _ Control of subsidiaries (Note 46 Subsidiaries)

• _ Significant influence in associates and joint ventures (Note 47 Investments in associates and joint ventures)

• _ Interest in structured entities (Note 48 Unconsolidated structured entities)

The Covid-19 pandemic increased the level of uncertainty. The consequences for the economy as well as the measures taken by governments and regulators are likely to affect Erste Group's financial performance and position. The potential effects include significant impacts on expected credit losses, on operating income as well as impacts of potential goodwill and other non-financial assets impairment assessments. All negative effects that could be reasonable estimated were recognised by 2020 end. Erste Group will continue to follow the developments closely and will recognise any effects as the situation further unfolds.

e) Application of amended and new IFRS/IAS

The accounting policies adopted are consistent with those used in the previous financial year except for standards and interpretations that became effective for financial years beginning after 1 January 2020. As regards new standards and interpretations and their amendments, only those that are relevant for the business of Erste Group are listed below.

Effective standards and interpretations

The following amendments of standards have become mandatory for the financial year 2020 and have been endorsed by the EU:

_Amendments to IFRS 3: Definition of a Business.

_Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform _Amendment to IFRS 16: Leases Covid-19 Related Rent Concessions _Amendments to IAS 1 and IAS 8: Definition of Material

The amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform were applied early in 2019. Related disclosures are provided in Note 27 Hedge Accounting. Application of the above mentioned amendments in 2020 did not have a significant impact on Erste Group's financial statements.

Standards and interpretations not yet effective

The standards and amendments shown below were issued by the IASB but are not yet effective.

Following amendments to standards are already endorsed by the EU: _ Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: Interest Rate Benchmark Reform - Phase 2

Following standards and amendments and interpretations have not yet been endorsed by the EU until 19 February 2021:

• _ IFRS 17: Insurance contracts

• _ Annual Improvements to IFRSs 2018-2020 Cycle

• _ Amendments to IAS 1: Disclosure of Accounting Policies

• _ Amendments to IAS 8: Definition of Accounting Estimates

Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: Interest Rate Benchmark Reform - Phase 2. The amendments were issued in August 2020 and are effective for annual periods beginning on or after 1 January 2021. The amendments introduce a practical expedient that modifications of financial assets and financial liabilities required by the reform are accounted for by updating the effective interest rate. A similar practical expedient is provided for lessee accounting applying IFRS 16. Regarding hedge accounting the hedge designation and documentation is amended and the effects of the benchmark rate change are included in the measurement of the hedging instrument and the hedged item. IFRS 7 disclosures requirements have been extended in order to allow users to understand the nature, extent and management of risks arising from the IBOR reform as well as progress in transitioning to alternative benchmark rates.

Application of these amendments will simplify the treatment compared to previous IFRS requirements which would have led to a more complex modification gain/loss or derecognition accounting or hedge accounting discontinuations. The less complex treatment is not ex-pected to have a significant impact on Erste Group's financial statements. However, the amendments will result in new disclosures.

Erste Group has decided not to apply the amendments early since no replacement of the benchmark rates occurred in 2020. Centrally cleared derivatives were subject to switch in the discounting curve since the cash collateral remuneration changed for the new overnight benchmark rates. However, the valuation effect was compensated by one-off payments without affecting the value of hedging derivatives. Also, there was no change in the designated interest rate risk portion on the hedged items. As a result, the hedge designations and documentations were not considered to be affected by the reform during 2020.

IFRS 17: Insurance contracts. IFRS 17 was issued in May 2017 and is effective for annual periods beginning on or after 1 January 2023. IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the standard. The objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts. This information gives a basis for users of financial statements to assess the effect that insurance contracts have on the entity's financial position, financial performance and cash flows. Erste Group is in process of assessing whether some of its contracts fall in scope of IFRS 17. Erste Group will estimate the effect on its financial statements when this has been clarified.

Annual Improvements to IFRSs 2018-2020 Cycle. In May 2020, the IASB issued a set of amendments to various standards. The amend-ments to IFRS 1, IFRS 9, IFRS 16 and IAS 41 are effective for annual periods beginning on or after 1 January 2022. Application of these amendments is not expected to have a significant impact on Erste Group's financial statements.

Amendments to IAS 1: Disclosure of Accounting policies. The amendments to IAS 1 were issued In February 2021 and are effective for annual periods beginning on or after 1 January 2023. The amendments specify that an entity is required to disclose its material accounting policy information. A guidance was added to explain how an entity can identify material accounting policy information and to give examples of when accounting policy information is likely to be material. Application of these amendments is not expected to have a significant impact on Erste Group's financial statements. However, revisions in the disclosures of the accounting policies may be required.

Amendments to IAS 8: Definition of Accounting Estimates. The amendments to IAS 8 were issued In February 2021 and are effective for annual periods beginning on or after 1 January 2023. The amendments clarify how companies should distinguish changes in accounting policies from changes in accounting estimates. Application of these amendments is not expected to have a significant impact on Erste Group's financial statements.

PERFORMANCE / RETURN

1. Segment reporting

Erste Group's segment reporting is based on IFRS 8 Operating Segments, which adopts the management approach. Accordingly, segment information is prepared on the basis of internal management reporting that is regularly reviewed by the chief operating decision maker to assess the performance of the segments and make decisions regarding the allocation of resources. Within Erste Group the function of the chief operating decision maker is exercised by the management board.

Erste Group uses a matrix organisational structure with geographical segmentation and business segments. Since the chief operating decision maker performs the steering primarily based on geographical segments, those are defined as operating segments according to IFRS 8. In order to provide more comprehensive information, the performance of the business segments is reported additionally.

Geographical segmentation (operating segments)

For the purpose of segment reporting geographical segments are defined as operating segments, for which the information is presented on the basis of the booking entity's location (not the country of risk). In case of information regarding a partial group, the allocation is based on the location of the respective parent entity according to the local management responsibility.

Geographical areas are defined according to the core markets in which Erste Group operates. Based on the locations of the banking and other financial institution participations, the geographical areas consist of two core markets, Austria and Central and Eastern Europe and a residual segment Other that comprises the remaining business activities of Erste Group outside its core markets as well as the reconciliation to the consolidated accounting result.

Erste Group - geographical segmentation - operating segments

Austria

Central and Eastern Europe

Other

EBOe & Subsidiaries

Savings Banks

Other Austria

Czech Republic

Slovakia

Romania

Hungary

Croatia

Serbia

The geographical area Austria consists of the following three operating segments:

• _ The Erste Bank Oesterreich & Subsidiaries (EBOe & Subsidiaries) segment comprises Erste Bank der oesterreichischen Sparkassen AG (Erste Bank Oesterreich) and its main subsidiaries (e.g. sBausparkasse, Salzburger Sparkasse, Tiroler Sparkasse, Sparkasse Hain-burg).

• _ The Savings banks segment includes those savings banks which are members of the Haftungsverbund (cross-guarantee system) of the Austrian savings banks sector and in which Erste Group does not hold a majority stake but which are fully controlled according to IFRS 10. The fully or majority owned Erste Bank Oesterreich, Tiroler Sparkasse, Salzburger Sparkasse, and Sparkasse Hainburg are not part of the Savings Banks segment.

• _ The Other Austria segment comprises Erste Group Bank AG (Holding) with its Corporates and Group Markets business, Erste Group Immorent GmbH, Erste Asset Management GmbH and Intermarket Bank AG.

The geographical area Central and Eastern Europe (CEE) consists of six operating segments covering Erste Group's banking subsidiaries located in the respective CEE countries:

• _ Czech Republic (comprising Česká spořitelna Group)

• _ Slovakia (comprising Slovenská sporitel'ňa Group)

• _ Romania (comprising Banca Comercială Română Group)

• _ Hungary (comprising Erste Bank Hungary Group)

• _ Croatia (comprising Erste Bank Croatia Group)

• _ Serbia (comprising Erste Bank Serbia Group).

The residual segment Other covers mainly centrally managed activities and items that are not directly allocated to other segments. It com-prises the corporate center of Erste Group Bank AG (and thus dividends and the refinancing costs from participations, general administrative expenses), internal service providers (facility management, IT, procurement), the banking tax of Erste Group Bank AG as well as free capital of Erste Group (defined as the difference of the total average IFRS equity and the average economical equity allocated to the segments). Asset/Liability Management of Erste Group Bank AG as well as the reconciliation to the consolidated accounting result (e.g. intercompany eliminations, dividend eliminations) are also part of the segment Other.

Business segmentation

Apart from geographical segments, which are Erste Group's operating segments, business segments are reported as well.

Erste Group - business segments

Retail

Corporates

Group	Management &	Savings	Group Corporate	Intragroup
Markets	Local Corporate	Banks	Center	Elimination
Center

Asset/Liability

Retail. The Retail segment comprises the business with private individuals, micros and free professionals within the responsibility of account managers in the retail network. This business is operated by the local banks in cooperation with their subsidiaries such as leasing and asset management companies with a focus on simple products ranging from mortgage and consumer loans, investment products, current accounts, savings products to credit cards and cross selling products such as leasing, insurance and building society products.

Corporates. The Corporates segment comprises business done with corporate customers of different turnover size (small and medium-sized enterprises and Large Corporate customers) as well as commercial real estate and public sector business.

Group Markets. The Group Markets (GM) segment comprises trading and markets services as well as customer business with financial institutions. It includes all activities related to the trading books of Erste Group, including the execution of trade, market making and short-term liquidity management. In addition, it comprises business connected with servicing financial institutions as clients.

Asset/Liability Management & Local Corporate Center. The Asset/Liability Management & Local Corporate Center (ALM & LCC) segment includes all asset/liability management functions - local and of Erste Group Bank AG (Holding) - as well as the local corporate centers which comprise all non-core banking business activities such as internal service providers and reconciliation items to local entity results. The corporate center of Erste Group Bank AG is included in the Group Corporate Center segment.

Savings Banks. The Savings Banks segment is identical to the operating segment Savings banks.

Group Corporate Center. The Group Corporate Center (GCC) segment covers mainly centrally managed activities and items that are not directly allocated to other segments. It comprises the corporate center of Erste Group Bank AG (and thus dividends and the refinancing costs from participations, general administrative expenses), internal service providers (facility management, IT, procurement), the banking tax of Erste Group Bank AG as well as free capital of Erste Group (defined as the difference of the total average IFRS equity and the average economical equity allocated to the segments).

Intragroup Elimination. Intragroup Elimination (IC) is not defined as a segment but is the reconciliation to the consolidated accounting result. It includes intragroup eliminations between participations of Erste Group (e.g. intragroup funding, internal cost charges). Intragroup eliminations within partial groups are disclosed in the respective segments.

Dividend elimination between Erste Group Bank AG and its fully consolidated subsidiaries is performed in Group Corporate Center. Con-solidation differences arising between the segments, which are eliminated over the lifespan of the underlying transaction, are part of Group Corporate Center.

Measurement

The profit and loss statement of the segment report is based on the measures reported to the Erste Group management board for the purpose of allocating resources to the segments and assessing their performance. Management reporting as well as the segment report of Erste Group are based on IFRS. Accounting standards and methods as well as measurements used in segment reporting are the same as for the consolidated financial statements of accounting.

Interest revenues are not reported separately from interest expenses for each reportable segment. Those measures are reported on the net basis within the position 'Net interest income' as interest revenues and interest expenses are neither included into the measure of segment profit or loss reviewed by the chief operating decision maker nor otherwise regularly provided to the chief operating decision maker. Chief operating decision maker relies solely on net interest income to assess the performance of the segments and make decisions about resources to be allocated to the segments. Net fee and commission income and Other operating result are reported on a net basis according to the regular reporting to the chief operating decision maker.

Capital consumption per segment is regularly reviewed by the management of Erste Group to assess the performance of the segments. The average allocated capital is determined by the credit risk, market risk, operational risk and business strategic risk. According to the regular internal reporting to Erste Group management board, total assets and total liabilities as well as risk weighted assets and allocated capital aredisclosed per segment. Total average allocated capital for the Group equals average total equity of the Group. For measuring and assessing the profitability of segments within Erste Group, such key measures as return on allocated capital and cost/income ratio are used.

Return on allocated capital is defined as net result for the period before minorities in relation to the average allocated capital of the respective segment. Cost/income ratio is defined as operating expenses (general administrative expenses) in relation to operating income (total of net interest income, net fee and commission income, dividend income, net trading result, gains/losses from financial instruments measured at fair value through profit or loss, net result from equity method investments, rental income from investment properties and other operating lease).

134

Operating segments: Geographical segmentation - overview

Austria	Central and Eastern Europe	Other	Total Group
in EUR million	1-12 19	1-12 20	1-12 19	1-12 20	1-12 19	1-12 20	1-12 19	1-12 20
Net interest income	2,101.1	2,158.6	2,549.7	2,475.4	96.0	140.9	4,746.8	4,774.8
Net fee and commission income	1,130.1	1,176.1	955.6	894.8	-85.6	-94.1	2,000.1	1,976.8
Dividend income	17.6	9.8	4.3	3.5	6.0	6.6	27.9	19.9
Net trading result	-1.5	-17.2	268.9	214.9	50.9	-60.1	318.3	137.6
Gains/losses from financial instruments at FVPL	69.6	23.6	8.7	20.1	-102.8	18.3	-24.5	62.0
Net result from equity method investments	-0.4	1.8	11.3	4.7	6.2	3.9	17.1	10.4
Rental income from investment properties & other operating leases	131.3	143.7	50.4	49.8	-11.5	-19.9	170.1	173.6
General administrative expenses	-2,215.3	-2,184.8	-1,900.2	-1,842.6	-167.8	-193.1	-4,283.3	-4,220.5
thereof depreciation and amortization	-177.1	-178.0	-276.8	-265.0	-87.0	-97.8	-541.0	-540.9
Gains/losses from derecognition of financial assets at AC	1.2	7.7	0.0	0.3	-0.3	-1.1	0.9	6.8
Other gains/losses from derecognition of financial instruments not at FVPL	-0.9	-0.6	-1.4	0.7	25.8	-0.5	23.5	-0.4
Impairment result from financial instruments	-12.5	-605.3	-11.9	-711.2	-14.8	21.7	-39.2	-1,294.8
Other operating result	54.4	-35.2	-365.8	-223.0	-316.8	-20.1	-628.2	-278.3
Levies on banking activities	-8.0	-8.5	-103.6	-92.2	-16.4	-17.0	-128.0	-117.7
Pre-tax result from continuing operations	1,274.7	678.3	1,569.5	887.2	-514.5	-197.5	2,329.7	1,368.0
Taxes on income	-280.7	-95.2	-307.1	-188.1	169.2	-59.2	-418.7	-342.5
Net result for the period	994.0	583.1	1,262.4	699.1	-345.4	-256.7	1,911.1	1,025.5
Net result attributable to non-controlling interests	387.7	216.2	45.7	22.0	7.5	4.1	440.9	242.3
Net result attributable to owners of the parent	606.3	366.9	1,216.7	677.2	-352.8	-260.9	1,470.1	783.1
Operating income	3,447.8	3,496.5	3,848.8	3,663.1	-40.7	-4.4	7,255.9	7,155.1
Operating expenses	-2,215.3	-2,184.8	-1,900.2	-1,842.6	-167.8	-193.1	-4,283.3	-4,220.5
Operating result	1,232.5	1,311.7	1,948.6	1,820.4	-208.4	-197.5	2,972.7	2,934.6
Risk-weighted assets (credit risk, eop)	51,812	52,187	43,021	43,346	2,060	2,933	96,894	98,466
Average allocated capital	7,131	6,789	7,025	7,189	5,632	7,467	19,788	21,445
Cost/income ratio	64.3%	62.5%	49.4%	50.3%	>100%	>100%	59.0%	59.0%
Return on allocated capital	13.9%	8.6%	18.0%	9.7%	-6.1%	-3.4%	9.7%	4.8%
Total assets (eop)	158,921	182,528	112,600	119,760	-25,828	-24,894	245,693	277,394
Total liabilities excluding equity (eop)	126,184	146,072	101,011	107,557	-1,979	1,354	225,216	254,983
Impairments	-12.2	-612.3	-38.8	-767.9	-231.7	28.1	-282.8	-1,352.1
Net impairment loss on financial assets AC/FVTOCI and finance lease receivables	-45.2	-516.2	-57.0	-645.0	-7.0	25.6	-109.2	-1,135.6
Net impairment loss on commitments and guarantees given	32.7	-89.1	45.1	-66.2	-7.8	-3.9	70.0	-159.2
Impairment of goodwill	0.0	0.0	0.0	0.0	-165.0	0.0	-165.0	0.0
Net impairment on investments in subsidiaries, joint ventures and associates	0.3	0.0	-0.0	-8.1	-46.1	25.7	-45.8	17.5
Net impairment on other non-financial assets	0.0	-7.0	-27.0	-48.6	-5.8	-19.3	-32.8	-74.8

Operating segments: Geographical area Austria

EBOe & Subsidiaries	Savings Banks	Other Austria	Austria
in EUR million	1-12 19	1-12 20	1-12 19	1-12 20	1-12 19	1-12 20	1-12 19	1-12 20
Net interest income	642.1	638.2	1,052.1	1,069.4	406.9	451.0	2,101.1	2,158.6
Net fee and commission income	398.9	406.6	490.6	519.6	240.7	249.9	1,130.1	1,176.1
Dividend income	6.9	6.4	6.1	4.6	4.5	-1.2	17.6	9.8
Net trading result	16.9	6.5	26.8	8.1	-45.2	-31.7	-1.5	-17.2
Gains/losses from financial instruments at FVPL	12.2	7.3	25.2	8.5	32.2	7.8	69.6	23.6
Net result from equity method investments	1.7	1.6	0.0	0.0	-2.2	0.1	-0.4	1.8
Rental income from investment properties & other operating leases	39.2	59.5	39.3	38.4	52.7	45.7	131.3	143.7
General administrative expenses	-717.1	-711.4	-1,120.1	-1,106.1	-378.1	-367.2	-2,215.3	-2,184.8
thereof depreciation and amortization	-55.1	-54.2	-83.2	-85.0	-38.8	-38.8	-177.1	-178.0
Gains/losses from derecognition of financial assets at AC	0.0	0.1	2.3	0.1	-1.1	7.4	1.2	7.7
Other gains/losses from derecognition of financial instruments not at FVPL	-0.3	-0.1	-0.5	-1.7	0.0	1.2	-0.9	-0.6
Impairment result from financial instruments	-6.0	-135.8	0.7	-267.2	-7.3	-202.3	-12.5	-605.3
Other operating result	-18.6	-9.6	24.5	-2.6	48.5	-23.1	54.4	-35.2
Levies on banking activities	-3.6	-3.7	-4.3	-4.7	-0.1	-0.1	-8.0	-8.5
Pre-tax result from continuing operations	375.9	269.4	547.1	271.2	351.7	137.8	1,274.7	678.3
Taxes on income	-88.4	-11.5	-127.8	-54.3	-64.4	-29.4	-280.7	-95.2
Net result for the period	287.5	257.9	419.2	216.8	287.3	108.3	994.0	583.1
Net result attributable to non-controlling interests	24.3	35.9	354.5	175.2	9.0	5.1	387.7	216.2
Net result attributable to owners of the parent	263.2	222.0	64.8	41.6	278.3	103.2	606.3	366.9
Operating income	1,117.9	1,126.1	1,640.2	1,648.6	689.7	721.8	3,447.8	3,496.5
Operating expenses	-717.1	-711.4	-1,120.1	-1,106.1	-378.1	-367.2	-2,215.3	-2,184.8
Operating result	400.8	414.7	520.1	542.5	311.6	354.5	1,232.5	1,311.7
Risk-weighted assets (credit risk, eop)	12,536	12,578	24,670	24,185	14,607	15,424	51,812	52,187
Average allocated capital	1,756	1,657	3,218	3,063	2,157	2,069	7,131	6,789
Cost/income ratio	64.1%	63.2%	68.3%	67.1%	54.8%	50.9%	64.3%	62.5%
Return on allocated capital	16.4%	15.6%	13.0%	7.1%	13.3%	5.2%	13.9%	8.6%
Total assets (eop)	46,504	52,572	67,360	73,219	45,057	56,737	158,921	182,528
Total liabilities excluding equity (eop)	44,320	50,363	62,276	67,984	19,588	27,726	126,184	146,072
Impairments	-7.1	-135.7	1.8	-271.5	-6.9	-205.1	-12.2	-612.3
Net impairment loss on financial assets AC/FVTOCI and finance lease receivables	-20.2	-124.2	-12.7	-232.9	-12.3	-159.2	-45.2	-516.2
Net impairment loss on commitments and guarantees given	14.2	-11.6	13.4	-34.4	5.0	-43.2	32.7	-89.1
Impairment of goodwill	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Net impairment on investments in subsidiaries, joint ventures and associates	0.0	0.0	0.3	0.0	0.0	0.0	0.3	0.0
Net impairment on other non-financial assets	-1.2	0.1	0.8	-4.3	0.4	-2.8	0.0	-7.0

135

136

Operating segments: Geographical area Central and Eastern Europe

Central and Eastern Europe
Czech Republic	Slovakia	Romania	Hungary	Croatia	Serbia
in EUR million	1-12 19	1-12 20	1-12 19	1-12 20	1-12 19	1-12 20	1-12 19	1-12 20	1-12 19	1-12 20	1-12 19	1-12 20	1-12 19	1-12 20
Net interest income	1,141.1	1,049.0	433.6	438.4	428.0	435.7	213.5	217.9	275.1	270.8	58.4	63.6	2,549.7	2,475.4
Net fee and commission income	334.7	311.6	145.2	147.1	164.5	146.8	188.3	181.1	108.2	92.0	14.7	16.1	955.6	894.8
Dividend income	2.5	2.1	1.0	0.6	0.5	0.7	0.1	0.0	0.2	0.1	0.0	0.0	4.3	3.5
Net trading result	104.0	72.1	20.7	12.2	71.0	70.7	36.4	28.0	31.5	28.0	5.4	4.0	268.9	214.9
Gains/losses from financial instruments at FVPL	5.7	22.6	-2.0	-0.5	3.2	3.0	0.6	-3.3	1.2	-1.8	0.0	0.0	8.7	20.1
Net result from equity method investments	4.1	1.2	6.1	2.9	-0.1	-0.4	0.0	0.0	1.2	1.0	0.0	0.0	11.3	4.7
Rental income from investment properties & other operating leases	8.4	8.1	1.2	0.3	20.8	22.2	7.0	7.7	12.9	11.4	0.1	0.1	50.4	49.8
General administrative expenses	-753.9	-722.4	-288.7	-287.1	-359.0	-344.9	-216.9	-213.3	-223.1	-214.6	-58.7	-60.3	-1,900.2	-1,842.6
thereof depreciation and amortization	-101.4	-103.9	-46.9	-36.5	-51.0	-45.4	-39.2	-40.4	-33.5	-33.3	-4.9	-5.4	-276.8	-265.0
Gains/losses from derecognition of financial assets at AC	0.3	0.0	0.1	0.0	-0.1	0.0	0.0	0.5	-0.1	-0.1	-0.2	-0.1	0.0	0.3
Other gains/losses from derecognition of financial instruments not at FVPL	-1.1	0.0	-0.5	0.0	-6.2	0.0	6.0	0.7	0.2	0.0	0.1	0.0	-1.4	0.7
Impairment result from financial instruments	6.2	-299.8	-42.7	-107.9	13.0	-107.7	18.2	-78.0	-5.8	-104.2	-0.8	-13.5	-11.9	-711.2
Other operating result	-26.8	-25.6	-38.7	-49.3	-194.5	-60.2	-67.3	-66.6	-38.3	-16.7	-0.3	-4.7	-365.8	-223.0
Levies on banking activities	0.0	0.0	-32.5	-33.8	-11.0	0.0	-60.2	-58.4	0.0	0.0	0.0	0.0	-103.6	-92.2
Pre-tax result from continuing operations	825.3	418.8	235.3	156.9	141.2	165.7	185.9	74.6	163.2	66.0	18.7	5.2	1,569.5	887.2
Taxes on income	-158.7	-84.0	-47.5	-41.1	-56.1	-43.2	-12.7	-18.5	-30.8	-1.6	-1.1	0.2	-307.1	-188.1
Net result for the period	666.5	334.8	187.7	115.8	85.1	122.6	173.2	56.1	132.3	64.4	17.6	5.4	1,262.4	699.1
Net result attributable to non-controlling interests	0.0	0.1	0.0	0.0	0.1	0.1	0.0	0.0	42.0	20.5	3.5	1.2	45.7	22.0
Net result attributable to owners of the parent	666.5	334.7	187.7	115.8	85.0	122.4	173.2	56.1	90.3	43.9	14.0	4.2	1,216.7	677.2
Operating income	1,600.5	1,466.6	605.7	601.2	688.0	678.6	445.8	431.4	430.3	401.5	78.5	83.8	3,848.8	3,663.1
Operating expenses	-753.9	-722.4	-288.7	-287.1	-359.0	-344.9	-216.9	-213.3	-223.1	-214.6	-58.7	-60.3	-1,900.2	-1,842.6
Operating result	846.6	744.2	317.0	314.1	329.0	333.7	229.0	218.1	207.2	187.0	19.9	23.4	1,948.6	1,820.4
Risk-weighted assets (credit risk, eop)	17,815	17,666	7,209	7,624	6,521	6,786	4,226	3,967	5,638	5,814	1,612	1,489	43,021	43,346
Average allocated capital	2,504	2,590	1,066	1,103	1,452	1,415	977	967	790	889	237	225	7,025	7,189
Cost/income ratio	47.1%	49.3%	47.7%	47.8%	52.2%	50.8%	48.6%	49.4%	51.9%	53.4%	74.7%	72.0%	49.4%	50.3%
Return on allocated capital	26.6%	12.9%	17.6%	10.5%	5.9%	8.7%	17.7%	5.8%	16.8%	7.2%	7.4%	2.4%	18.0%	9.7%
Total assets (eop)	57,412	58,600	18,614	20,705	15,673	16,841	8,932	10,162	9,905	10,899	2,064	2,553	112,600	119,760
Total liabilities excluding equity (eop)	52,004	52,909	16,999	18,914	13,902	14,921	7,715	8,997	8,601	9,546	1,790	2,269	101,011	107,557
Impairments	4.8	-297.7	-41.8	-116.3	-9.3	-153.5	16.8	-79.3	-8.5	-107.5	-0.8	-13.5	-38.8	-767.9
Net impairment loss on financial assets AC/FVTOCI and finance lease
receivables	-23.9	-282.7	-48.6	-97.0	-0.2	-88.5	16.4	-72.8	-0.1	-90.3	-0.5	-13.8	-57.0	-645.0
Net impairment loss on commitments and guarantees given	30.2	-17.1	6.0	-10.9	13.3	-19.3	1.9	-5.2	-5.8	-13.9	-0.3	0.3	45.1	-66.2
Impairment of goodwill	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Net impairment on investments in subsidiaries, joint ventures and associates	0.0	0.0	0.0	-8.1	-0.0	0.0	-0.0	0.0	0.0	0.0	0.0	0.0	-0.0	-8.1
Net impairment on other non-financial assets	-1.4	2.0	0.9	-0.2	-22.4	-45.7	-1.4	-1.3	-2.6	-3.3	0.0	0.0	-27.0	-48.6

Business segments (1)

Retail	Corporates	Group Markets	ALM&LCC
in EUR million	1-12 19	1-12 20	1-12 19	1-12 20	1-12 19	1-12 20	1-12 19	1-12 20
Net interest income	2,290.1	2,083.7	1,098.7	1,109.4	257.2	252.2	-104.3	86.2
Net fee and commission income	1,094.5	1,047.9	301.1	282.3	228.3	240.9	-84.5	-79.3
Dividend income	3.6	0.0	1.6	0.8	3.0	-2.0	7.6	9.9
Net trading result	112.0	96.2	95.5	76.7	19.9	20.9	117.3	-39.9
Gains/losses from financial instruments at FVPL	0.5	-6.8	5.4	-12.6	28.5	17.6	-78.7	53.1
Net result from equity method investments	6.1	3.9	0.0	0.0	0.0	0.0	4.8	2.6
Rental income from investment properties & other operating leases	23.0	23.9	100.8	104.7	0.0	0.0	30.8	25.5
General administrative expenses	-2,096.2	-2,067.7	-575.3	-535.7	-240.2	-232.0	-110.9	-107.4
thereof depreciation and amortization	-273.8	-261.6	-70.7	-66.4	-14.3	-16.8	-12.3	-13.6
Gains/losses from derecognition of financial assets at AC	-0.3	0.0	-1.1	7.3	0.0	0.0	5.6	-0.4
Other gains/losses from derecognition of financial instruments not at FVPL	0.0	0.0	21.3	0.7	0.0	1.2	-2.3	-0.2
Impairment result from financial instruments	-74.6	-392.2	32.9	-656.0	5.1	-0.8	13.0	-3.0
Other operating result	-226.1	-69.0	-22.5	-73.6	-18.4	-26.9	-93.3	-111.2
Levies on banking activities	-69.2	-61.0	-27.6	-23.6	-4.1	-4.0	-6.4	-7.3
Pre-tax result from continuing operations	1,132.5	720.1	1,058.4	304.1	283.4	271.1	-295.0	-164.2
Taxes on income	-223.3	-121.7	-202.5	-63.1	-52.8	-56.3	46.8	48.8
Net result for the period	909.2	598.4	855.9	241.0	230.6	214.8	-248.1	-115.4
Net result attributable to non-controlling interests	42.8	14.5	41.0	47.3	6.0	3.9	-10.9	-2.7
Net result attributable to owners of the parent	866.4	583.9	814.9	193.7	224.6	211.0	-237.3	-112.7
Operating income	3,529.7	3,248.8	1,603.1	1,561.3	536.9	529.7	-107.1	58.0
Operating expenses	-2,096.2	-2,067.7	-575.3	-535.7	-240.2	-232.0	-110.9	-107.4
Operating result	1,433.5	1,181.2	1,027.8	1,025.6	296.7	297.7	-218.0	-49.4
Risk-weighted assets (credit risk, eop)	19,053	18,451	42,693	43,965	3,321	3,209	5,739	5,932
Average allocated capital	3,446	3,254	4,567	4,746	958	880	3,037	3,210
Cost/income ratio	59.4%	63.6%	35.9%	34.3%	44.7%	43.8%	>100%	>100%
Return on allocated capital	26.4%	18.4%	18.7%	5.1%	24.1%	24.4%	-8.2%	-3.6%
Total assets (eop)	65,277	65,948	57,342	59,531	31,394	43,529	60,971	71,508
Total liabilities excluding equity (eop)	91,572	100,342	28,210	32,706	31,802	37,968	49,244	53,213
Impairments	-74.4	-392.6	20.6	-713.9	5.1	-0.8	-4.6	-22.0
Net impairment loss on financial assets AC/FVTOCI and finance lease receivables	-82.6	-387.9	-20.5	-536.4	4.6	-1.1	10.4	-5.4
Net impairment loss on commitments and guarantees given	8.0	-4.3	53.5	-119.6	0.5	0.3	2.6	2.4
Impairment of goodwill	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Net impairment on investments in subsidiaries, joint ventures and associates	0.0	0.0	-1.3	0.1	0.0	0.0	1.3	-8.3
Net impairment on other non-financial assets	0.2	-0.5	-11.0	-58.0	0.0	0.0	-18.8	-10.8

137

138

Business segments (2)

Savings Banks	Group Corporate Center	Intragroup Elimination	Total Group
in EUR million	1-12 19	1-12 20	1-12 19	1-12 20	1-12 19	1-12 20	1-12 19	1-12 20
Net interest income	1,052.1	1,069.4	70.6	89.1	82.5	85.0	4,746.8	4,774.8
Net fee and commission income	490.6	519.6	-1.3	6.6	-28.5	-41.2	2,000.1	1,976.8
Dividend income	6.1	4.6	6.0	6.6	0.0	0.0	27.9	19.9
Net trading result	26.8	8.1	17.7	35.0	-70.9	-59.4	318.3	137.6
Gains/losses from financial instruments at FVPL	25.2	8.5	-5.5	2.2	0.0	0.0	-24.5	62.0
Net result from equity method investments	0.0	0.0	6.2	3.9	0.0	0.0	17.1	10.4
Rental income from investment properties & other operating leases	39.3	38.4	-22.9	-18.6	-0.9	-0.4	170.1	173.6
General administrative expenses	-1,120.1	-1,106.1	-1,023.9	-1,013.0	883.4	841.3	-4,283.3	-4,220.5
thereof depreciation and amortization	-83.2	-85.0	-116.6	-121.2	29.9	23.8	-541.0	-540.9
Gains/losses from derecognition of financial assets at AC	2.3	0.1	0.4	0.0	-6.0	-0.2	0.9	6.8
Other gains/losses from derecognition of financial instruments not at FVPL	-0.5	-1.7	-1.1	-0.7	6.1	0.2	23.5	-0.4
Impairment result from financial instruments	0.7	-267.2	-16.4	24.4	0.0	0.0	-39.2	-1,294.8
Other operating result	24.5	-2.6	573.3	830.2	-865.6	-825.3	-628.2	-278.3
Levies on banking activities	-4.3	-4.7	-16.4	-17.0	0.0	0.0	-128.0	-117.7
Pre-tax result from continuing operations	547.1	271.2	-396.8	-34.3	0.0	0.0	2,329.7	1,368.0
Taxes on income	-127.8	-54.3	141.0	-96.0	0.0	0.0	-418.7	-342.5
Net result for the period	419.2	216.8	-255.8	-130.2	0.0	0.0	1,911.1	1,025.5
Net result attributable to non-controlling interests	354.5	175.2	7.5	4.1	0.0	0.0	440.9	242.3
Net result attributable to owners of the parent	64.8	41.6	-263.3	-134.4	0.0	0.0	1,470.1	783.1
Operating income	1,640.2	1,648.6	70.9	124.8	-17.7	-16.0	7,255.9	7,155.1
Operating expenses	-1,120.1	-1,106.1	-1,023.9	-1,013.0	883.4	841.3	-4,283.3	-4,220.5
Operating result	520.1	542.5	-953.0	-888.2	865.6	825.3	2,972.7	2,934.6
Risk-weighted assets (credit risk, eop)	24,670	24,185	1,417	2,725	0	0	96,894	98,466
Average allocated capital	3,218	3,063	4,561	6,293	0	0	19,788	21,445
Cost/income ratio	68.3%	67.1%	>100%	>100%	>100%	>100%	59.0%	59.0%
Return on allocated capital	13.0%	7.1%	-5.6%	-2.1%	9.7%	4.8%
Total assets (eop)	67,360	73,219	4,081	2,810	-40,732	-39,152	245,693	277,394
Total liabilities excluding equity (eop)	62,276	67,984	2,869	1,969	-40,759	-39,197	225,216	254,983
Impairments	1.8	-271.5	-231.3	48.8	0.0	0.0	-282.8	-1,352.1
Net impairment loss on financial assets AC/FVTOCI and finance lease receivables	-12.7	-232.9	-8.3	28.1	0.0	0.0	-109.2	-1,135.6
Net impairment loss on commitments and guarantees given	13.4	-34.4	-8.1	-3.6	0.0	0.0	70.0	-159.2
Impairment of goodwill	0.0	0.0	-165.0	0.0	0.0	0.0	-165.0	0.0
Net impairment on investments in subsidiaries, joint ventures and associates	0.3	0.0	-46.1	25.7	0.0	0.0	-45.8	17.5
Net impairment on other non-financial assets	0.8	-4.3	-3.9	-1.3	0.0	0.0	-32.8	-74.8

2. Net interest income

Net interest income is broken down into line items of interest income, other similar income, interest expenses and other similar expenses. The distinguishing factor is whether the EIR method is mandatorily applied for recognition of interest income or expense in accordance with IFRS 9.

'Interest income' relates to interest revenue from financial assets measured at amortised cost and at fair value through other comprehensive income. It is calculated using the EIR method as discussed in chapter 'Financial instruments - Significant accounting policies'.

'Other similar income' captures interest-like sources of income resulting from non-derivative financial assets measured at fair value through profit or loss, held for trading derivatives, hedge accounting derivatives, finance lease receivables and negative interest on financial liabilities.

'Interest expenses' relate to interest expense from financial liabilities measured at amortised cost calculated using effective interest rate as discussed in chapter 'Financial instruments - Significant accounting policies'.

'Other similar expenses' capture interest-like sources of expense resulting from non-derivative financial liabilities measured at fair value through profit or loss, held for trading derivatives, hedge accounting derivatives, negative interest on financial assets, lease liabilities, provisions recognised under IFRS 9 and IAS 37 (unwinding of the time value of the money effect due to passage of time) and net defined liabilities (net interest cost on severance payments, pensions and jubilee obligations) under IAS 19.

As regards types of financial instruments, interest income and other similar income include interest income on loans and advances to banks and customers, on cash balances, on debt securities in all measurement categories of financial assets, on trade and other receivables and on finance lease receivables. Interest expenses and other similar expenses include interest paid on deposits from customers, deposits from banks, debt securities issued and other financial liabilities in all measurement categories of financial liabilities and interest paid on lease liabilities. Net interest income also includes interest on derivative financial instruments.

Interest income also includes modification gains and losses recognised on financial assets in Stage 1. Further, the unamortised balance of the origination fees/transaction costs upon derecognition of assets in Stage 1 and 2 considered in the effective interest rate is presented as interest income at the derecognition date.

in EUR million	1-12 19	1-12 20
Financial assets at AC	5,342.1	4,921.4
Financial assets at FVOCI	201.9	186.6
Interest income	5,544.0	5,107.9
Non-trading financial assets at FVPL	63.4	60.8
Financial assets HfT	1,479.7	1,200.5
Hedge accounting derivatives, interest rate risk	-59.1	-33.6
Other assets	123.0	119.7
Negative interest from financial liabilities	48.2	114.3
Other similar income	1,655.2	1,461.7
Interest and other similar income	7,199.2	6,569.7
Financial liabilities at AC	-1,054.9	-621.2
Interest expenses	-1,054.9	-621.2
Financial liabilities at FVPL	-411.5	-346.7
Financial liabilities HfT	-1,010.2	-855.4
Hedge accounting derivatives, interest rate risk	152.2	142.1
Other liabilities	-52.5	-31.8
Negative interest from financial assets	-75.5	-81.8
Other similar expenses	-1,397.5	-1,173.6
Interest and other similar expenses	-2,452.3	-1,794.8
Net interest income	4,746.8	4,774.8

An amount of EUR 78.4 million (2019: EUR 80.9 million) relating to impaired financial assets is included in interest income. In addition modification gains or losses of financial instruments allocated to Stage 1 in the amount of EUR -36.5 million (2019: EUR 4.7 million) is reported in line item 'Financial assets at AC'.

The amounts disclosed in the line items 'Negative interest from financial liabilities' and 'Negative interest from financial assets' relate to the interbank business, deposits and refinancing with central banks only.

Interest expenses on financial liabilities at AC include also catch-up gains from TLTRO III in the amount of EUR 8.0 million (2019: EUR 0.0 million). For more details refer to Note 19 Financial liabilities at amortised costs.

3. Net fee and commission income

Erste Group earns fee and commission income from a diverse range of services that it provides to its customers. The determination of the timing and amount of income recognition follows the five step model of IFRS 15.

Fee and commission income is measured based on the consideration specified in the contract with a customer. Erste Group recognises revenue when it transfers control over a service to a customer.

Fees earned for the provision of services over a period of time are accrued over that period. These fees include commitment fees, guarantee fees and other fees from lending business, commission income from asset management, custody and other management and advisory fees as well as fees from insurance brokerage, building society brokerage and foreign exchange transactions. Payment services partly include fees for services satisfied over a period of time like periodic card fees.

Fee income earned from providing transaction services, such as arranging the acquisition and sale of shares or other securities on behalf of customers or foreign exchange transactions, as well as commission income earned from services such as the sale of collective investments and insurance products, are recognised upon completion of the underlying transaction. Payment services partly include transaction based fees like withdrawal fees.

A contract with a customer that results in the recognition of a financial instrument in the Group's financial statements may be partially in the scope of IFRS 9 and partially in the scope of IFRS 15. If this is the case, then Erste Group first applies IFRS 9 to separate and measure the part of the contract that is in the scope of IFRS 9 and then applies IFRS 15 to the residual. Fees and commission income that are integral to the effective interest rate of a financial instrument are in the scope of IFRS 9 and are included in the net interest income.

1-12 19	1-12 20
in EUR million	Income	Expenses	Income	Expenses
Securities	206.5	-40.1	242.7	-40.6
Issues	45.5	-8.5	35.9	-1.0
Transfer orders	147.2	-30.3	194.1	-38.3
Other	13.8	-1.4	12.7	-1.3
Clearing and settlement	1.5	-2.4	1.4	-3.2
Asset management	376.0	-41.7	401.2	-39.5
Custody	107.0	-20.0	106.5	-21.4
Fiduciary transactions	2.1	0.0	1.1	-0.1
Payment services	1,137.4	-187.6	1,090.2	-186.8
Card business	374.3	-148.4	334.1	-147.5
Other	763.1	-39.1	756.1	-39.3
Customer resources distributed but not managed	241.4	-14.9	228.0	-7.7
Collective investment	11.3	-1.6	16.7	-1.5
Insurance products	186.9	-2.6	184.8	-2.6
Building society brokerage	14.5	-7.5	0.7	-0.9
Foreign exchange transactions	27.4	-1.5	24.4	-1.3
Other	1.4	-1.7	1.3	-1.3
Structured finance	0.0	-0.1	0.4	-0.1
Servicing fees from securitization activities	0.0	-0.2	0.0	-2.1
Lending business	197.1	-41.4	185.8	-38.6
Guarantees given, guarantees received	71.4	-4.4	74.8	-3.4
Loan commitments given, loan commitments received	21.7	-0.5	27.3	-0.8
Other lending business	104.1	-36.4	83.7	-34.4
Other	104.3	-24.9	97.1	-37.8
Total fee and commission income and expenses	2,373.5	-373.4	2,354.5	-377.7
Net fee and commission income	2,000.1	1,976.8

Asset management, custody and fiduciary transactions fees relate to fees earned by Erste Group on trust and other fiduciary activities in which Erste Group holds or invests assets on behalf of its customers and amount to EUR 447.9 million (2019: EUR 423.4 million). Net fee and commission income above include income of EUR 891.9 million (2019: EUR 354.6 million) relating to financial assets and financial liabilities not measured at FVPL. These figures exclude amounts incorporated in determining the effective interest rate on such financial assets and financial liabilities.

4. Dividend income

Dividend income is recognised when the right to receive the payment is established. This line item includes dividends from all shares and other equity investments, i.e. from those that are held for trading, non-trading equity instruments at FVPL and at FVOCI.

in EUR million	1-12 19	1-12 20
Financial assets HfT	3.4	1.0
Non-trading financial assets at FVPL	15.5	10.6
Financial assets at FVOCI	9.0	8.3
Dividend income	27.9	19.9

5. Net trading result

Results arising from trading activities include all gains and losses from changes in the fair value (clean price) of financial assets and financial liabilities classified as held for trading, including all derivatives not designated as hedging instruments. Further, the net trading result in-cludes any ineffective portions recorded in fair value and cash flow hedge transactions. Also, foreign exchange gains and losses on all monetary assets and liabilities and from spot currency conversions are included here.

The accounting policy for recognition of foreign exchange gains and losses is described in the chapter Significant accounting policies, b) Accounting and measurement methods, Foreign currency translations, i. Transactions and balances in foreign currency. Detailed information relating to hedge accounting can be found in Note 27 Hedge accounting.

in EUR million	1-12 19	1-12 20
Securities and derivatives trading	103.8	-57.2
Foreign exchange transactions	208.3	191.7
Result from hedge accounting	6.2	3.0
Net trading result	318.3	137.6

6. Gains/losses from financial instruments measured at fair value through profit or loss

Changes in fair value (clean price) of non-trading financial assets at fair value through profit or loss, including gains and losses on their derecognition, are presented under this line item. This concerns both non-trading financial assets designated and those mandatorily measured at FVPL. Gains and losses (clean price) of financial liabilities designated at FVPL, including gains and losses on their derecognition, are also presented under this line item. However, the fair value changes resulting from credit risk of the liability are recognised in OCI.

in EUR million	1-12 19	1-12 20
Result from measurement/sale of financial assets designated at FVPL	10.4	13.2
Result from measurement/repurchase of financial liabilities designated at FVPL	-138.8	21.9
Result from financial assets and liabilities designated at FVPL	-128.3	35.0
Result from measurement/sale of financial assets mandatorily at FVPL	103.8	26.9
Gains/losses from financial instruments measured at fair value through profit or loss	-24.5	62.0

In the reporting period, a gain of EUR 1.1 million (2019: loss of EUR 36.1 million) (before taxes) was transferred from own credit risk reserve to retained earnings due to the repurchase of debt securities (own issues) issued.

7. Rental income from investment properties & other operating leases

Rental income from investment properties and other operating leases is recognised on a straight-line basis over the lease term. Operating expenses for investment properties are reported in line item 'Other operating result'. For further details we refer to Note 12 Other operating result.

in EUR million	1-12 19	1-12 20
Investment properties	83.8	99.1
Other operating leases	86.3	74.4
Rental income from investment properties & other operating leases	170.1	173.6

8. General administrative expenses

Personnel expenses

Personnel expenses include wages and salaries, bonuses, statutory and voluntary social security contributions, staff-related taxes and levies. They also include service costs for severance payments, pension and jubilee obligations and remeasurements of jubilee obligations. Fur-thermore, restructuring provision expenses may be part of personnel expenses.

Detailed information about remuneration of management including performance-linked remuneration can be found in Note 49 Related-party transactions and principal shareholders.

Other administrative expenses

Other administrative expenses include primarily information technology expenses, expenses for office space, office operating expenses, advertising and marketing, and expenditures for legal and other consultants. Furthermore, the line item contains deposit insurance contri-butions. Restructuring provision expenses may also be presented in other administrative expenses.

Depreciation and amortisation

This line item comprises depreciation of property and equipment, depreciation of investment property and amortisation of intangible assets. In the line item 'Depreciation and amortisation', also the depreciation of right-of-use assets according to IFRS 16 is disclosed.

in EUR million	1-12 19	1-12 20
Personnel expenses	-2,537.1	-2,520.7
Wages and salaries	-1,924.2	-1,927.1
Compulsory social security	-471.3	-466.2
Long-term employee provisions	-30.6	-25.2
Other personnel expenses	-111.0	-102.3
Other administrative expenses	-1,205.1	-1,158.9
Deposit insurance contribution	-104.8	-132.2
IT expenses	-389.1	-425.4
Expenses for office space	-162.8	-158.9
Office operating expenses	-117.9	-119.6
Advertising/marketing	-200.1	-154.6
Legal and consulting costs	-137.0	-114.2
Sundry administrative expenses	-93.5	-54.0
Depreciation and amortisation	-541.0	-540.9
Software and other intangible assets	-188.8	-181.5
Owner occupied real estate	-139.6	-154.2
Investment properties	-28.8	-28.3
Customer relationships	-8.7	-7.7
Office furniture and equipment and sundry property and equipment	-175.1	-169.1
General administrative expenses	-4,283.3	-4,220.5

Personnel expenses include expenses of EUR 42.8 million (2019: EUR 45.3 million) for defined contribution plans, of which EUR 0.8 mil-lion (2019: EUR 1.6 million) relate to members of the management board.

Employee Share Program 2019 and Erste Mitarbeiterbeteiligung Privatstiftung

Under the Employee Share Program 2019, Erste Group Bank AG has transferred treasury shares free of charge to employees of Erste Group Bank AG, Erste Bank der oesterreichischen Sparkassen AG and the majority-owned Austrian subsidiaries. The shares were granted under the condition that the employees transfer their shares of Erste Group Bank AG under an escrow agreement to the Erste Mitarbeiterbeteiligung Privatstiftung and leave them there for the duration of their employment contract. Erste Group Bank AG limited the grant to one share for each 10 shares transferred by the employee and up to a value of EUR 7,500 per employee.

Erste Group Bank AG awarded a total number of 9,603 shares to employees and incurred expenses in the amount of EUR 0.4 million. The average share price of Erste Group Bank AG was EUR 32.69 during the registration period.

In 2019, Erste Mitarbeiterbeteiligung Privatstiftung has received 5,400 additional treasury shares under an escrow agreement from employ-ees of a subsidiary. It was agreed that employees shall not have access to the shares for a certain period. The majority of the shares have been purchased with a payment of EUR 0.2 million made by the subsidiary to settle an obligation under a defined benefit plan. The settle-ment did not result in a gain or loss.

Average number of employees during the financial period (weighted according to the level of employment)

1-12 19	1-12 20
Austria	16,293	16,144
Erste Group Bank AG, Erste Bank Oesterreich and subsidiaries	9,107	9,027
Haftungsverbund savings banks	7,187	7,117
Outside Austria	31,210	31,084
Česká spořitelna Group	9,873	9,892
Banca Comercială Română Group	6,951	6,729
Slovenská sporiteľňa Group	4,068	3,931
Erste Bank Hungary Group	3,134	3,218
Erste Bank Croatia Group	3,300	3,309
Erste Bank Serbia Group	1,143	1,173
Savings banks subsidiaries	1,610	1,616
Other subsidiaries and foreign branch offices	1,130	1,217
Total	47,503	47,229

9. Gains/losses from derecognition of financial assets measured at amortised cost

This line item includes selling and other derecognition gains or losses on financial assets measured at amortised cost. However, if such gains/losses relate to derecognition of financial assets in Stage 3, they are included in the line item 'Impairment result from financial instruments'.

in EUR million	1-12 19	1-12 20
Gains from derecognition of financial assets at AC	5.1	8.0
Losses from derecognition of financial assets at AC	-4.1	-1.2
Gains/losses from derecognition of financial assets measured at amortised cost	0.9	6.8

10. Other gains/losses from derecognition of financial instruments not measured at fair value through profit or loss

This line item includes selling and other derecognition gains or losses on financial assets at FVOCI, financial liabilities measured at amor-tised cost and other financial instruments not measured at FVPL, such as finance lease receivables or financial guarantees. However, if such gains/losses relate to financial assets in Stage 3 they are included in the line item 'Impairment result from financial instruments'.

in EUR million	1-12 19	1-12 20
Sale of financial assets at FVOCI	6.2	1.2
Sale of financial lease receivables	0.1	0.0
Derecognition of financial liabilities at AC	17.2	-1.6
Other gains/losses from derecognition of financial instruments not measured at fair value through profit or loss	23.5	-0.4

11. Impairment result from financial instruments

Net impairment losses on financial instruments comprise impairment losses and reversals of impairment on all kinds of financial instruments, to which the IFRS 9 expected credit loss impairment model applies. The impairment result also includes recoveries on written-off financial assets. Modification gains and losses recognised on financial assets in Stage 2 and Stage 3 and POCI assets are also included in this line item. Moreover, gains/losses from derecognition of financial assets in Stage 3 and POCI assets are presented as part of the impairment result.

in EUR million	1-12 19	1-12 20
Financial assets at FVOCI	-4.2	-11.0
Financial assets at AC	-112.5	-1,115.7
Net allocation to credit loss allowances	-227.8	-1,219.6
Direct write-offs	-35.7	-27.2
Recoveries recorded directly to the income statement	154.0	140.4
Modification gains or losses	-3.0	-9.3
Finance lease receivables	7.4	-8.9
Credit loss allowances for loan commitments and financial guarantees given	70.0	-159.2
Impairment result from financial instruments	-39.2	-1,294.8

12. Other operating result

The other operating result reflects all other income and expenses not directly attributable to Erste Group's ordinary activities.

In particular this includes impairment losses or any reversal of impairment losses as well as results on the sale of property and equipment, investment property and intangible assets. Any impairment losses on goodwill are also included in this line item. The main reasons for impairment losses to be recognized are summarized hereinafter:

• _ the intention to sell fixed assets and accordingly their re-measurement before reclassifying them based on IFRS 5,

• _ not fully occupied buildings that triggered a lower recoverable amount

• _ recurring measurement for foreclosed assets at the balance sheet date and

• _ recurring measurement for own used items of property at the balance sheet date and

• _ concessions and other intangibles for which measurable economic benefits are no longer expected in the future

In addition, the other operating result encompasses the following: expenses for other taxes; income from the release of and expenses for allocations to provisions, selling gains and losses on equity investments accounted for using the equity method; and gains or losses from derecognition of subsidiaries.

Furthermore, levies on banking activities are considered as part of the other operating result. Erste Group recognises a liability or a provision for the levy when the activity that triggers payment, as identified by the relevant legislation, occurs. In the statement of income levies are reported in under 'Other operating result'.

in EUR million	1-12 19	1-12 20
Other operating expenses	-748.3	-383.6
Allocation to other provisions	-366.0	-153.9
Levies on banking activities	-128.0	-117.7
Banking tax	-80.4	-73.7
Financial transaction tax	-47.6	-44.0
Other taxes	-14.0	-18.4
Recovery and resolution fund contributions	-75.3	-93.5
Impairment of goodwill	-165.0	0.0
Other operating income	159.1	135.5
Release of other provisions	159.1	135.5
Result from properties/movables/other intangible assets other than goodwill	3.3	-57.7
Result from other operating expenses/income	-42.1	27.5
Other operating result	-628.2	-278.3

Operating expenses (including repair and maintenance) for investment properties held for rental income totalled to EUR 29.6 million (2019: EUR 14.1 million).

Income from reversal of impairment for assets held for sale in the amount of EUR 3.4 million (2019: EUR 0.2 million) is recognised under 'Result from other operating expenses/income'.

Recovery and Resolution Fund

In the line 'Recovery and resolution fund contributions' contributions to the national resolution funds in amount of EUR 93.5 million (2019: EUR 75.3 million) are disclosed. The contributions are based on the European Recovery and Resolution Directive, which, inter alia, establishes a financing mechanism for the resolution of credit institutions. As a consequence, banks are required to contribute annually to a resolution fund, which in a first step is installed on a national level. According to these regulations, until 31 December 2024 the available financial means of the resolution funds shall reach at least 1% of the amount of covered deposits of all the credit institutions authorized within the European Union. Therefore the resolution funds have to be built over a period of 10 years, during which the contributions shall be spread out as even as possible until the target level is reached.

Provision for litigations in Romania

As of 31 December 2020 the increase of provision recognized as expense in income statement is shown in the line 'Allocation to other provisions' for risks related to Romanian consumer protection claims Act amounting to EUR 6.2 million (2019: income from release of provision EUR 6.1 million).

Provision in BCR Banca pentru Locuinte SA. (BPL) in 2019

In 2019 an allocation of provision is disclosed in the line 'Allocation to other provisions' in amount of EUR 153.3 million for losses expected from a decision of the Romanian High Court in relation to the business activities of a Romanian subsidiary BPL. For more details please refer to Note 42 Provisions.

Impairment of Goodwill in 2019

In Slovakia, the extension and increase of banking tax due to an amendment of the respective law during the year 2019 led to higher projected future expenses. This resulted in a decrease of the budgeted results and consequently the goodwill for Slovenská sporiteľňa was fully impaired in the amount of EUR 165.0 million in financial year 2019. According to IAS 36 it is not allowed to reverse an impairment loss for goodwill in forthcoming periods, even if the reason for impairment is no longer applicable.

13. Taxes on income

Current and deferred taxes are recognised as income or an expense and included in profit or loss for the period. However, they are recognised in other comprehensive income or directly in equity if they arise from a transaction or event which itself is recognised in OCI or equity.

Current tax

Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amounts are those enacted by the balance sheet date.

Coupon payments made to the holders of Additional Tier 1 equity instruments issued by Erste Group Bank AG are tax-deductible interest payments under the Austrian Tax Regulations. Since the AT1 coupons are considered as distributions of profit the income tax effects are recognised in profit or loss.

Deferred tax

Deferred tax is recognised for temporary differences between the tax bases of assets and liabilities and their carrying amounts as of the balance sheet date. Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences and unused tax losses to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and carry forward of unused tax losses can be utilised. Deferred taxes are not recognised on temporary differences arising from the initial recognition of goodwill.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates (and tax laws) that have been enacted or substantively enacted as at balance sheet date and are expected to apply when the temporary differences are reversed. For subsidiaries, the local tax environments are considered.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right to offset exists and the deferred taxes relate to the same taxation authority.

Significant accounting judgements, assumptions and estimates

The determination of tax bases are underlying a general level of uncertainty by nature, as interpretation of tax legislation might require judgement. Deferred tax assets are recognised in respect of tax losses and deductible temporary differences to the extent that it is probable that taxable profit will be available against which they can be utilised. Judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits, together with future tax planning strategies. For this purpose a planning period of 5 years is used.

Taxes on income are made up of current taxes on income calculated in each of the Group companies based on the results reported for tax purposes, corrections to taxes on income for previous years and the change in deferred taxes.

in EUR million	1-12 19	1-12 20
Current tax expense/income	-465.7	-346.0
current period	-461.9	-353.1
prior period	-3.8	7.2
Deferred tax expense/income	47.0	3.4
current period	51.4	10.0
prior period	-4.4	-6.6
Total	-418.7	-342.5

The following table reconciles the income taxes reported in the income statement to the pre-tax result from continuing operations multiplied by the nominal Austrian tax rate.

in EUR million	1-12 19	1-12 20
Pre-tax result from continuing operations	2,329.7	1,368.0
Income tax expense for the financial year at the Austrian statutory tax rate (25%)	-582.4	-342.0
Impact of different foreign tax rates	135.9	87.6
Impact of tax-exempt earnings of investments and other tax-exempt income	258.7	148.1
Tax increases due to non-deductible expenses, additional business tax and similar elements	-139.3	-163.2
Impact on deferred taxes from topics on Group level	-171.4	-18.4
Current period's recognition through P&L of DTA from tax losses, assessed non-recoverable at the end of the prior period	6.9	5.5
Current period's impairment of DTA recognized in prior periods through P&L	-4.0	-58.5
Current period's recognition through P&L of DTA from temporary differences, assessed non-recoverable at the end of the prior period	137.1	33.1
Impact of current non-recoverable fiscal losses and temporary differences for the year	-28.0	-29.6
Tax expense/income not attributable to the reporting period	-29.9	0.6
Tax expense/income from changes of the tax rate or the imposition of new taxes	2.4	0.0
Tax expense/income attributable to other effects	-4.7	-5.8
Total	-418.7	-342.5

The following table shows the income tax effects relating to each component of other comprehensive income:

1-12 19	1-12 20
Pre-tax	Net-of-tax	Pre-tax	Net-of-tax
in EUR million	amount	Income tax	amount	amount	Income tax	amount
Fair value reserve of equity instruments	54.1	-11.2	42.9	5.8	-0.7	5.0
Fair value reserve of debt instruments	44.6	-11.5	33.1	44.4	-10.6	33.8
Own credit risk reserve	-17.5	27.3	9.8	127.5	-11.9	115.6
Cash flow hedge reserve	-54.4	11.8	-42.6	99.2	-18.0	81.2
Remeasurement of defined benefit plans	-139.9	17.2	-122.8	-61.0	2.4	-58.6
Currency reserve	-13.5	0.0	-13.5	-338.4	0.0	-338.4
Other comprehensive income	-126.6	33.6	-93.0	-122.5	-38.8	-161.3

Taxes on income within other comprehensive income are influenced by the consideration of the result of recoverability assessments allocated against OCI-related deferred tax assets. The allocation of the result of recoverability assessments is based on Erste Group's methodology of allocating non-recoverable deferred tax assets per P&L and OCI. This approach proportionately reflects how the underlying temporary dif-ferences arose from IFRS-based adjustments of the accounting values of the related items.

Besides, the income tax related to the fair value reserve and the cash flow hedge reserve is influenced by differences of tax rates applicable on contrary changes within the fair value reserve.

Major components of deferred tax assets and deferred tax liabilities

Tax assets	Tax liabilities	Net variance 2020
Other comprehensive
in EUR million	Dec 20	Jan 20	Dec 20	Jan 20	Total	Profit or loss	income
Temporary differences related to the following items:
Financial assets and liabilities HfT and
non-trading financial assets and liabilities at FVPL	319	390	-305	-337	-40	-49	9
Financial assets at FVOCI	0	6	-62	-74	6	-1	-11
Financial assets at AC and finance lease receivables	314	191	-119	-34	38	38	0
Hedge accounting derivatives	87	126	-48	-22	-64	-47	-18
Property, plant and equipment	27	35	-112	-125	6	7	0
Equity Investments in subsidiaries, associates and
joint-ventures	45	93	-8	-3	-53	-53	0
Financial liabilities at AC	214	185	-38	-3	-7	-7	0
Long-term employee provisions (tax valuation different)	148	151	-3	-4	-2	-4	2
Other provisions (tax valuation different)	104	67	-2	-4	39	39	0
Customer relationships, brands and other intangibles	4	17	-88	-84	-18	-18	0
Other	134	104	-60	-108	79	79	0
Non-recoverable tax position from temporary differences	-161	-217	0	0	56	77	-20
Deferred tax position from accumulated tax loss carried
forward after recoverability considerations	48	108	0	0	-59	-59	0
Effect of netting according IAS 12.71	-823	-780	823	780
Total deferred taxes	460	477	-20	-18	-18	3	-39
Current taxes	175	81	-58	-61	96	-346	0
Total taxes	635	558	-79	-78	78	-343	-39

r comprehensive income

Tax assets	Tax liabilities	Net variance 2019
Other comprehensive
in EUR million	Dec 19	Jan 19	Dec 19	Jan 19	Total	Profit or loss	income
Temporary differences related to the following items:
Financial assets and liabilities HfT and
non-trading financial assets and liabilities at FVPL	390	371	-337	-341	24	5	18
Financial assets at FVOCI	6	8	-74	-105	30	41	-11
Financial assets at AC and finance lease receivables	191	199	-34	-11	-31	-31	0
Hedge accounting derivatives	126	161	-22	-46	-11	-22	12
Property, plant and equipment	35	47	-126	-26	-111	-111	0
Equity Investments in subsidiaries, associates and
joint-ventures	93	232	-3	-2	-139	-139	0
Financial liabilities at AC	185	37	-3	-1	146	146	0
Long-term employee provisions (tax valuation different)	151	122	-4	-3	28	11	17
Other provisions (tax valuation different)	67	75	-4	-4	-8	-8	0
Customer relationships, brands and other intangibles	17	18	-84	-73	-12	-12	0
Other	104	142	-108	-134	-11	-11	0
Non-recoverable tax position from temporary differences	-217	-314	0	0	97	97	0
Deferred tax position from accumulated tax loss carried
forward after recoverability considerations	108	29	0	0	79	79	0
Effect of netting according IAS 12.71	-780	-724	780	724	0	0	0
Total deferred taxes	477	402	-18	-23	80	44	36
Current taxes	81	101	-61	-99	-466	-466	0
Total taxes	558	504	-78	-122	-386	-422	36

r comprehensive income

The deferred tax assets and liabilities are presented prior to subsidiary-level balance-sheet netting of attributable gross deferred tax assets and gross deferred tax liabilities. The amounts shown in the table are gross amounts before recoverability assessments except for the position deferred tax assets resulting from tax loss carry-forward. The remaining non-recoverable amounts are considered in line 'Non-recoverable tax position from temporary differences' in the table. The position 'Other' comprises all deferred tax positions not being shown as separate positions in the table above.

Out of the total net deferred tax decrease of EUR 18 million (2019: increase EUR 80 million) an amount of EUR 3 million (2019:

EUR 47 million) is reflected as deferred tax income in the Group's income statement for the year 2020, whilst an expense amount of EUR 39 million (2019: income EUR 34 million) represents the impact in the Group's other comprehensive income for the year. Furthermore, a deferred tax expense of EUR 18 million (2019: EUR 11 million) representing accumulated OCI in respect of deferred tax recognized for cumulative changes in the fair value of FVOCI equity instruments sold during the year has been transferred into retained earnings, conse-quent to the related temporary differences reversing upon sale. Similarly in 2019, deferred tax income in the amount of EUR 9 million representing accumulated OCI in respect of deferred tax recognized for cumulative changes in own credit risk attributable to own issues repurchased during the year has been transferred into retained earnings, consequent to the related temporary differences reversing upon repurchase. In addition to this, in 2019 further tax expense in amount of EUR 3 million were recognised directly in retained earnings and reported in column 'Profit or loss'.

The Group's consolidated deferred tax asset position in amount of EUR 460 million as of 31 December 2020 (2019: EUR 475 million) is expected to be recoverable in the foreseeable future. This is also expected to be the case for deferred tax assets exceeding their deferred tax liabilities by an amount of EUR 15 million as of 31 December 2020 (2019: EUR 11 million) incurred by subsidiaries reporting losses in the current or prior period. These expectations result from year-end recoverability assessments undertaken by the Group's entities, either at individual level, or at relevant tax group level. Such assessments are comparing net temporary deductible differences and available fiscal losses at year-end - after offsetting with deferred tax liabilities at individual level or at relevant tax group level - with fiscal profit forecasts for a group-wide unified and unchanged time horizon of a maximum 5 years depending on the fiscal jurisdiction and applicable facts and circumstances. If the result of these assessments is negative, the deferred tax asset positions are correspondingly not recorded and the already existing deferred tax asset positions are correspondingly depreciated.

In accordance with IAS 12.39, no deferred tax liabilities were recognized for temporary differences relating to investments in subsidiaries with an amount of EUR 2,021 million (2019: EUR 1,990 million), as they are not expected to reverse in the foreseeable future. As of 31 December 2020, no deferred tax assets were recognized for tax loss carry-forward and deductible temporary differences with a total amount of EUR 4,354 million (2019: EUR 4,060 million), of which EUR 3,225 million (2019: EUR 3,023 million) relates to tax loss carry-forward, as they are not expected to be realized in the foreseeable future. The figure comprises an amount of EUR 485 million (2019:

EUR 508 million) representing temporary differences in connection with investments in subsidiaries no deferred tax assets have been rec-ognized for in accordance with IAS 12.44.

From the total of the not recorded deferred tax assets related to tax loss carry-forward in the following period EUR 1 million will expire (2019: EUR 8 million) and in later periods EUR 5 million (2019: EUR 35 million), EUR 788 million (2019: EUR 669 million) will not expire.

14. Appropriation of profit

In the reporting period, Erste Group Bank AG posted a post-tax loss of EUR 118.4 million under the Austrian accounting regulations, which decreased its distributable capital accordingly (2019 post-tax profit: EUR 1,327.1 million). .

On 15 December 2020 the European Central Bank (ECB) has issued a recommendation in respect of dividend payouts. The management board of Erste Group will propose a 2020 dividend, in line with the ECB recommendation, of EUR 0.5 per share to the 2021 AGM for payment in May 2021. Furthermore, an additional reserve of EUR 1.0 per share was created, for payment once the ECB recommendation is withdrawn and subject to profitability and capital performance.

On 10 November 2020 the annual general meeting resolved to pay a dividend of EUR 0.75 per share for the business year of 2019 (appro-priation of net profit), conditional upon no regulatory ECB recommendation to refrain from such payments or no other legal restrictions being in force prohibiting such distributions on 8 February 2021. Based on the ECB recommendations conditions to pay dividend of EUR 0.75 per share have not been met as of 8 February 2021 and no dividend was distributed. As a pay out is not possible, the dividend is allocated to retained earnings according to the resolution taken on the annual general meeting on 10 November 2020.

Financial instruments - Significant accounting policies

A financial instrument is any contract giving rise to a financial asset of one party and a financial liability or equity instrument of another party. In accordance with IFRS 9, all financial assets and liabilities - which also include derivative financial instruments - have to be recognised on the balance sheet and measured in accordance with their assigned categories.

Measurement methods for financial instruments

Measurement of financial assets and financial liabilities is subject to two primary measurement methods.

i. Amortised cost and effective interest rate

Amortised cost is the amount at which the financial asset or financial liability is measured at initial recognition minus the principal repay-ments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount. For financial assets the amount is adjusted for any loss allowance.

The effective interest rate ('EIR') is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of the financial asset (i.e. its amortised cost before adjusting for any loss allowance) or to the amortised cost of the financial liability. The estimated cash flows consider all the contractual terms of the financial instrument but disregard the expected credit losses. The calculation includes transaction costs, origination fees that are an integral part of the EIR and all other premiums and discounts to the par amount.

For purchased or originated credit-impaired financial assets ('POCI', see part 'Impairment of financial instruments'), credit-adjusted EIR is used. It is the rate that exactly discounts the estimated future cash flows which consider expected credit losses to the amortised cost of a financial asset.

The EIR is used for recognition of interest income and interest expense. Interest income is calculated in the following way:

• _ EIR applied to the gross carrying amount for financial assets that are not credit-impaired (Stage 1 and Stage 2, see part 'Impairment of financial instruments');

• _ EIR applied to the amortised cost for financial assets that are credit-impaired (Stage 3, see part 'Impairment of financial instruments'); and

• _ credit-adjusted EIR applied to the amortised cost for POCI financial assets.

Interest expense is calculated by applying the EIR to the amortised cost of a financial liability.

ii. Fair value

Fair value is the price that would be received if an asset were sold or paid if a liability were transferred in an orderly transaction between market participants on the measurement date. The definition also applies to fair value measurements of non-financial assets and liabilities. Details on valuation techniques applied for fair value measurement and on the fair value hierarchy are disclosed in Note 26 Fair value of financial instruments.

Initial recognition and measurement i. Initial recognition

Financial instruments are initially recognised when Erste Group becomes a party to the contractual provisions of the instrument. Regular way (spot) purchases and sales of financial assets are recognised at the settlement date, which is the date that an asset is delivered.

ii. Initial measurement

Financial instruments are measured initially at their fair value including transaction costs (except for financial instruments at fair value through profit or loss, for which transaction costs are recognised directly in profit or loss). In most cases, the fair value at initial recognition equals the transaction price, i.e. the price transferred to originate or acquire a financial asset or the price received to issue or incur a financial liability.

Classification and subsequent measurement of financial assets

In accordance with IFRS 9, the classification and subsequent measurement of financial assets depend on the following two criteria:

• (i) The business model for managing the financial assets - the assessment is focused on whether the financial asset is part of a portfolio in which the assets are held in order to collect contractual cash flows, to both collect the contractual cash flows and sell the assets or they are held in other business models.

• (ii) The cash flow characteristics of the financial assets - the assessment is focused on whether the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest ('SPPI') on the principal amount outstanding.

Application of these criteria leads to classification of financial assets into three measurement categories described in the respective note.

• _ Financial assets at amortised cost

• _ Financial assets at fair value through other comprehensive income

• _ Financial assets at fair value through profit or loss

Classification and subsequent measurement of financial liabilities

Financial liabilities are classified as measured at amortised cost unless they are measured at fair value through profit or loss. Further details on financial liabilities at amortised cost and financial liabilities at FVPL are in the respective notes: Note 19 Financial liabilities at amortised costs and Note 24 Financial liabilities at fair value through profit or loss.

Impairment of financial instruments

Erste Group recognises loss allowances for impairment on its debt instrument financial assets, other than those measured at FVPL, its lease receivables, and its off-balance credit risk exposures arising from financial guarantees and certain loan commitments. The impairment is based on expected credit losses whose measurement reflects:

• _ an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes;

• _ the time value of money; and

• _ reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions.

The amount of the impairment loss is recognised as a loss allowance. For the purpose of the measurement of the amount of expected credit loss and recognition of interest income, Erste Group distinguishes between three stages of impairment.

Stage 1 relates to financial instruments for which no significant increase in credit risk has been recorded since their initial recognition. The impairment is measured in the amount of the 12-month expected credit loss. Interest income is recognised by EIR applied to the gross carrying amount of the financial asset.

Financial instruments in Stage 2 are subject to significant increase in credit risk since their initial recognition. The impairment is measured in the amount of the lifetime expected credit loss. Interest income is recognised by EIR applied to the gross carrying amount of the financial asset (as for Stage 1).

Financial assets in Stage 3 are credit-impaired. In respect of applying the 'credit-impaired' concept of IFRS 9, Erste Group generally adopted the approach of aligning it with the regulatory concept of 'default' for lending exposures. The impairment for such financial assets is measured in the amount of lifetime expected credit loss. Interest income is recognised by EIR applied to the amortised cost (i.e. the net carrying amount) of the financial asset. From a balance sheet perspective, interest is accrued based on the financial assets' gross carrying amount. The difference between the interest accrued on the assets and the interest income recognised is reflected through the allowance account (without impacting the impairment loss).

More detailed information about identification of significant increases in credit risk including collective assessment, estimation techniques used to measure 12-month and lifetime expected credit losses and definition of default is provided in Note 34 Credit risk.

For financial assets measured at amortised cost, the net carrying amount of the financial asset presented on the balance sheet is the difference between the gross carrying amount and the cumulative loss allowance. However, for financial assets measured at FVOCI, the loss allowance is recognised in the accumulated OCI, specifically under 'Fair value reserve' in the statement of changes in equity. Loss allowances for loan commitments and financial guarantees are presented under the balance sheet line item 'Provisions'.

For financial assets that are credit-impaired at initial recognition (POCI financial assets) lifetime expected credit losses are initially reflected in the credit-adjusted EIR. As a result, no loss allowance is recognised at inception. Subsequently, only adverse changes in lifetime expected credit losses after the initial recognition are recognised as loss allowance, whilst favourable changes are recognised as impairment gains increasing the gross carrying amount of the POCI financial assets. No impairment stages are distinguished for the POCI financial assets.

In the statement of income, impairment losses and their reversals (gains) on all kinds of financial instruments are presented in the line item 'Impairment result from financial instruments'.

Write-offs

Erste Group writes off a financial asset or a part of it when it has no reasonable expectations of recovering the respective cash flows. When performing the write-off, the gross carrying amount of the asset is reduced simultaneously with the related loss allowance balance.

Erste Group has specified criteria for writing off the unrecoverable balances in its loan business. Write-off can result from forbearance measures whereby the bank contractually waives part of the existing balance in order to help the customers overcome financial difficulties and thus improve the prospects of recovering the remaining loan balance (normally this relates to going concern scenarios for corporate customers). In gone concern scenarios with corporate customers, write-offs of the unrecoverable exposure parts are triggered by enforcement activities such as filing or termination of legal proceedings (bankruptcy, liquidation, court case). Other write-off triggers may result from decisions about no enforcement due to worthlessness of the claim/collateral or generally from assessment that the receivable is economically lost. For retail customers, the non-recoverability and the timing and amounts of write-off crystallise during the collection process when it becomes evident that the amount due cannot be collected, e.g. due to ongoing bankruptcy proceedings. Residual uncollectable balances are written off after the collection process.

Derecognition of financial instruments including treatment of contractual modifications i. Derecognition of financial assets

A financial asset (or, where applicable, part of a financial asset or part of a group of similar financial assets) is derecognised when: _ the contractual rights to receive cash flows from the asset have expired; or _ Erste Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement and either: _ it has transferred substantially all risks and rewards connected with ownership of the asset; or _ has neither transferred nor retained substantially all risks and rewards connected with ownership of the asset but has transferred control of the asset.

The difference between the carrying amount of the derecognised asset and the consideration received is presented in the statement of income in the line 'Gains/losses from derecognition of financial assets measured at amortised cost' or, for financial assets at FVOCI, in the line 'Other gains/losses from derecognition of financial instruments not measured at fair value through profit or loss'. For financial assets meas-ured at FVPL the derecognition gains or losses are recognised together with the measurement result in the lines 'Net trading result' or 'Gains/losses from financial instruments measured at fair value through profit or loss'.

ii. Derecognition criteria with respect to contractual modifications of financial assets

In the normal course of running its lending business and in agreement with the respective debtors, Erste Group may renegotiate or otherwise modify some terms or conditions of the underlying contracts. This can involve either market-driven commercial renegotiations or contrac-tual changes aimed at alleviating or preventing borrower's financial difficulty. For the purpose of capturing the economic substance and financial effect of such contractual modifications, Erste Group has developed a set of criteria to assess whether or not the modified terms are substantially different from the original terms.

Commercial interest rate adjustments fulfilling specific conditions do not trigger the modification significance assessment. Instead, they result in a recalculation of the EIR of related loans. Such interest rate adjustments relate to performing non-forborne lending agreements for which a prepayment/early termination option and a sufficiently competitive refinancing market exist. Furthermore, the costs that the debtor would incur in case of prepayment/early termination would have to be assessed as low. Such conditions introduce an implicit floating rate element to the contract. This kind of interest rate adjustments rarely applies to loan assets in Stage 2.

Substantial modifications lead to derecognition of the original financial asset and initial recognition of the modified financial asset as a new financial instrument. They include following events:

• _ change of the contractual counterparty (unless this is a formal change such as changes in legal name);

• _ change in the currency of the contract (unless the change results from exercising an embedded option in the original contract with pre-agreed conditions of the change, or if the new currency is pegged to the original currency);

• _ introduction of a non-SPPI contractual feature (unless it is intended to improve recoveries from debtors by granting concessions sup-porting them to recover from financial difficulties); and

• _ removal of a non-SPPI contractual feature.

Some derecognition criteria distinguish whether contractual modifications are applied to debtors facing financial difficulties. Application of certain modifications to debtors in financial difficulties is not considered as substantial since they are aimed at improving the prospects of the bank to recover the claims by tailoring the repayment schedules to specific financial conditions of those debtors. On the other hand, such contractual modifications applied to performing debtors may be considered as substantial enough to warrant the derecognition, as further detailed below.

From this perspective, the following criteria lead to derecognition unless they are considered as forbearance measures or they are applied to customers in default or they trigger default (i.e. the derecognition occurs if the modification does not relate to financial difficulties):

_ repayment schedule changed in a way that the weighted remaining maturity of the assets is modified by more than 100% and at least two years compared to the original asset; or _ change in timing/amount of contractual cash flows resulting in the present value of the modified cash flows (discounted at pre-modifi-cation effective interest rate) being different by more than 10% of the gross carrying amount of the asset immediately before the modi-fication (cumulative assessment considering all modifications occurring over the last twelve months);

If contractual modifications that qualify as forbearance measures or they are applied to customers in default or they trigger default (i.e. they relate to customers in financial difficulties) are so significant that they are qualitatively assessed as an extinguishment of original contractual rights, they result in derecognition. Examples of such modifications are:

• _ a new agreement with materially different terms signed up as part of distressed restructuring following a standstill agreement suspending the rights of the original assets;

• _ consolidation of multiple original loans into one with substantially different terms; or

• _ transformation of a revolving loan into non-revolving.

Contractual modifications leading to derecognition of the related original assets result in the initial recognition of new financial assets. If the debtor is in default or the significant modification leads to the default, then the new asset will be treated as POCI. The difference between the carrying amount of the derecognised asset and initial fair value of the new POCI asset is presented in the statement of income in the line 'Impairment result from financial instruments'.

If the debtor is not in default or the significant modification does not lead to default, the new asset recognised after derecognition of the original asset will be in Stage 1. For loans measured at amortised cost, the unamortised balance of the origination fees/transaction costs considered in the effective interest rate is presented in the line item 'Interest income' under 'Net interest income' at the derecognition date. The release of the credit loss allowance attached to the original asset at the date of that significant modification as well as the credit loss allowance recognised for the new asset are presented in the line 'Impairment result from financial instruments'. The remaining difference is presented in the line 'Gains/losses from derecognition of financial assets measured at amortised cost'.

For financial assets measured at FVPL, irrespective of whether they are in default, the derecognition gains and losses are included in the same line items of the statement of income as their measurement result, i.e. in 'Gains/losses from financial instruments measured at fair value through profit or loss'.

For debt instrument assets not measured at FVPL that are subject to contractual modifications that do not result in derecognition, the gross carrying amount of the asset is adjusted against recognising a modification gain or loss in profit or loss. The modification gain or loss equals the difference between the gross carrying amount before the modification and the present value of the cash flows based on the modified terms discounted with the original EIR. In the statement of income, the modification gain or loss is presented in the line 'Interest income' under 'Net interest income' if the modification relates to financial assets in Stage 1. For financial assets in Stage 2 and 3 and POCI financial assets, the modification gain or loss is presented in the line 'Impairment result from financial instruments'. However, to the extent that the contractual modification involves the bank giving up its rights of collecting cash flows in respect of an outstanding amount of the asset, such as waiving (part of) principal or accrued interest amount, it is treated as a write-off.

iii. Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. This normally occurs when the liability is repaid or repurchased. In the statement of income, the difference between the carrying amount of the derecognised financial liability and the consideration paid is presented in the line 'Other gains/losses from financial instruments not measured at fair value through profit or loss', 'Gains/losses from financial instruments measured at fair value through profit or loss' and 'Net trading result' depending on the measurement category of the derecognised financial liability.

Significant accounting judgements, assumptions and estimates i. SPPI assessment

The assessment of whether the contractual cash flows of financial assets give rise to cash flows that are solely payments of principal and interest (SPPI) is subject to the application of significant judgements which rely on the guidance in IFRS 9. These judgements are crucial in the IFRS 9 classification and measurement process, as they determine whether the asset must be measured at FVPL or, depending on the business model assessment, at amortised cost or at FVOCI. When taking into consideration specific features of loans in the business of Erste Group, significant areas of judgement are prepayment fees, project financing loans and the benchmark test for loans with interest mismatches features.

The assessment whether the prepayment fees applied to loans can be considered as a reasonable compensation for early terminations or prepayments is based on comparing the level of the fees with the economic costs incurred by the bank upon the early termination. For these purposes, Erste Group uses a quantitative test where the costs relate to the lost interest margin and the lost interest differential due to a potential decrease in the interest rates upon early termination or prepayment. The adequacy of the fees can also be defended on a qualitative basis, such as common market practice regarding the level of prepayment fees and their acceptance by authorities.

For project financing loans Erste Group assesses whether they represent basic loan agreements rather than investments in the financed projects. In this respect, credit rating, level of collateralisation, existing sponsor guarantees and the extent of equity funding of the financed projects are considered.

Interest mismatches features relate to floating rate financial assets where: - the reference rate's (such as Euribor) tenor is different to the rate reset frequency, - time lags arise from interest rates fixed prior to the start of the interest period, or combinations of these features. For this purpose, Erste Group has developed a so called 'benchmark test' to assess whether the interest mismatch feature could result in contractual (undiscounted) cash flows that are significantly different from a benchmark deal which does not have the interest mismatch feature. For assets with interest mismatches resulting only from lagged rates (i.e. with no tenor mismatches), SPPI compliance is considered to be met based on a qualitative assessment if the time lag between the fixation of the rate and the start of the interest period does not exceed one month.

Performing the quantitative benchmark test was particularly important upon transition to IFRS 9 as at 1 January 2018 for the portfolio existing at that time. Subsequently, the issuance of new loans with interest mismatch features was largely restricted so that a quantitative benchmark test applies only in exceptional cases.

ii. Business model assessment

For each SPPI-compliant financial asset at initial recognition, Erste Group must assess whether it is part of a business model where the assets are held in order to collect contractual cash flows, to both collect the contractual cash flows and sell the assets, or they are held in other business models. As a consequence, the critical aspect in distinguishing the business models is frequency and significance of sales of assets in the respective business model. Since asset allocation to business models is based on the initial assessment, it may happen that in subsequent periods cash flows are realised differently than originally expected, and a different measurement method may seem to be appro-priate. In accordance with IFRS 9, such subsequent changes do not generally lead to reclassifications or prior period error corrections in respect of existing financial assets. The new information on how cash flows are realised may, however, indicate that the business model, and thus the measurement method changes for newly acquired or newly originated financial assets.

At Erste Group, certain sales or other derecognition events are considered as not contradicting the held to collect contractual cash flows business model. Examples are sales due to increases in credit risk, sales close to assets' maturity, infrequent sales triggered by a non-recurring event (such as changes in regulatory or tax environment, major internal reorganisation or a business combination, severe liquidity crisis, etc.) or derecognitions resulting from replacements of bonds based on an issuer's offer. Other kinds of sales carried out in the 'held to collect' business model are assessed retrospectively, and if they exceed certain quantitative thresholds, or whenever it is considered necessary with regard to new expectations, Erste Group performs a prospective test. If the outcome was that the carrying amount of assets expected to be sold over the expected life of the current business model portfolio, for reasons other than the cases above, exceeds 10% of the carrying amount of the portfolio, any new acquisitions or originations of assets would be classified in a different business model.

iii. Impairment of financial instruments

The expected credit loss impairment model is inherently based on judgement since it requires assessment of significant increases in credit risk and measurement of expected credit losses without providing detailed guidance. In respect of significant increases in credit risk, Erste Group has determined specific assessment rules consisting of qualitative information and quantitative thresholds. Another area of complex-ity relates to establishing groups of similar assets when credit risk deterioration has to be assessed on a collective basis before specific information is available at individual instrument level. Measurement of expected credit losses involves complex models relying on historical statistics of probabilities of default and loss rates in case of defaults, their extrapolations in case of insufficient observations, individual estimates of credit-adjusted cash flows and probabilities of various scenarios including forward-looking information. In addition, the life of the instruments has to be modelled in respect of behavioural life of revolving credit facilities.

Detailed disclosures about identification of significant increases in credit risk including collective assessment, estimation techniques used to measure 12-month and lifetime expected credit losses and definition of default is provided in Note 34 Credit risk,. The development of loan loss provisions is described in, Note 16 Financial assets at amortised cost, Note 18 Trade and other receivables, Note 25 Financial assets at fair value through other comprehensive income and in chapter Leases for Finance lease receivables.

Financial instruments held at amortised cost

Financial assets are classified as measured at amortised cost if they are held in a business model whose objective is to collect contractual cash flows, and their contractual cash flows are SPPI.

On the balance sheet, these assets are carried at amortised cost, i.e. the gross carrying amount net of the credit loss allowance. They are presented under the line 'Financial assets at amortised cost', 'Trade and other receivables' and 'Cash and cash balances'.

Interest income on these assets is calculated by effective interest method and is included under the line 'Interest income' under 'Net interest income' in the statement of income. Impairment gains or losses are included in the line 'Impairment result from financial instruments'. Gains and losses from derecognition (such as sales) of the assets are reported under the line item 'Gains/losses from derecognition of financial assets measured at amortised cost'.

At Erste Group, financial assets at amortised cost constitute the largest measurement category, which includes the vast majority of loan business to customers (except for certain loans measured at fair value through profit or loss), interbank lending business (including reverse repo transactions), deposits with central banks, investments in debt securities, amounts in the course of settlement, trade and other receiva-bles.

For description of financial liabilities at measured amortised cost refer to Note 19 Financial liabilities at amortised costs.

15. Cash and cash balances

Cash balances include only claims (deposits) against central banks and credit institutions that are repayable on demand. Repayable on demand means that they may be withdrawn at any time or with a term of notice of only one business day or 24 hours. A part of 'Cash balances at central banks' represents the mandatory minimum reserve requirement deposits which amounted to EUR 4,575.2 million (2019: EUR 2,975.6 million) at the reporting date. The mandatory minimum reserve requirement is calculated from defined balance sheet items and has to be fulfilled in average through an extended period of time. Therefore, the mandatory minimum reserve requirement deposits are not subject to any restraints.

in EUR million	Dec 19	Dec 20
Cash on hand	6,032	7,694
Cash balances at central banks	3,466	27,006
Other demand deposits at credit institutions	1,195	1,139
Cash and cash balances	10,693	35,839

16. Financial assets at amortised cost

Debt securities

Investments in debt securities measured at amortised cost may be acquired with different business objectives (such as fulfilling internal/ex-ternal liquidity risk requirements and efficient placement of the structural liquidity surplus, strategic positions decided by the board of directors, initiation and fostering of client relationships, substitution of loan business or other yield generating activities). Their common attribute is that significant and frequent sales of such securities are not expected. For a description of what sales are considered as compliant with the held to collect contractual cash flows business model, see paragraph 'Business model assessment' in chapter 'Financial instruments

- Significant accounting policies'.

Gross carrying amounts and credit loss allowances per impairment buckets

Gross carrying amount	Credit loss allowances
Carrying
in EUR million	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total	amount
Dec 20
Central banks	14	0	0	14	0	0	0	0	14
General governments	25,215	11	0	25,227	-7	0	0	-7	25,220
Credit institutions	3,490	19	0	3,510	-2	0	0	-2	3,508
Other financial corporations	135	11	0	146	0	-1	0	-1	145
Non-financial corporations	667	28	3	698	-1	-2	-1	-5	693
Total	29,521	70	3	29,594	-10	-3	-2	-15	29,579
Dec 19
Central banks	53	0	0	53	-1	0	0	-1	52
General governments	22,483	29	0	22,512	-4	0	0	-4	22,508
Credit institutions	3,287	1	0	3,288	-2	0	0	-2	3,286
Other financial corporations	136	7	0	143	0	-1	0	-1	142
Non-financial corporations	760	17	3	780	-1	-2	-2	-4	776
Total	26,718	53	4	26,774	-7	-2	-2	-11	26,764

There are no purchased or originated credit-impaired (POCI) debt securities at AC as of 31 December 2020.

Movement in credit loss allowances

in EUR million	As of	Additions	Derecognitions	Transfers between stages	Other changes in credit risk (net)	Other	As of
Jan 20	Dec 20
Stage 1	-7	-7	2	0	0	0	-11
Stage 2	-2	0	0	-1	0	0	-3
Stage 3	-2	0	0	0	0	0	-2
Total	-11	-7	2	-1	1	0	-15
Jan 19	Dec 19
Stage 1	-6	-3	0	0	1	0	-7
Stage 2	0	0	0	-1	-1	0	-2
Stage 3	-2	0	0	0	1	0	-2
Total	-8	-3	0	-1	1	0	-11

In column 'Additions' increases of CLA due to the initial recognition of debt securities at AC during the current reporting period are dis-closed. Releases of CLA following the derecognition of the related debt securities at AC are reported in column 'Derecognitions'.

In column 'Transfers between stages' CLA net changes due to changes in credit risk that triggered re-assignments of the related AC debt securities from Stage 1 (at 1 January 2020 or initial recognition date) to Stages 2 or 3 at 31 December 2020 or vice-versa are reported. The effects of transfers from Stage 1 to Stages 2 or 3 on the related CLAs are adverse and presented in lines attributable to Stages 2 or 3. The effects of transfers from Stages 2 or 3 to Stage 1 on the related CLAs are favourable and presented in line 'Stage 1'. The P&L-neutral effect from cross-stage transferring of the related CLA amounts recognized prior to stage re-assignments are presented above in column 'Other changes in credit risk (net)'.

Any other changes in credit risk which do not trigger a transfer between Stage 1 and Stage 2 or 3 or vice-versa are disclosed in column 'Other changes in credit risk (net)'.

The year-end total GCAs of AC debt securities that were initially recognized (purchased) during the year 2020 and not fully derecognized by 31 December 2020 amounts to EUR 5.622,0 million (2019: EUR 4,133.8 million.) The GCA of AC debt securities that were held at 1 January 2020 and derecognized during the year 2020 amounts to EUR 2,524.2 million (2019: EUR 3,257.4 million).

Loans and advances to banks

Gross carrying amounts and credit loss allowances per impairment buckets

Gross carrying amount	Credit loss allowances
Carrying
in EUR million	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total	amount
Dec 20
Central banks	16,763	0	0	16,763	-1	0	0	-1	16,762
Credit institutions	4,669	38	0	4,707	-2	0	0	-3	4,704
Total	21,432	38	0	21,469	-3	0	0	-3	21,466
Dec 19
Central banks	16,109	0	0	16,109	0	0	0	0	16,108
Credit institutions	6,936	17	2	6,955	-6	0	-2	-9	6,946
Total	23,045	17	2	23,063	-7	0	-2	-9	23,055

There are no purchased or originated credit-impaired (POCI) AC loans and advances to banks at 31 December 2020.

Movement in credit loss allowances

in EUR million	As of	Additions	Derecognitions	Transfers between stages	Other changes in credit risk (net)	Other	As of
Jan 20	Dec 20
Stage 1	-7	-27	13	0	17	0	-3
Stage 2	0	0	0	0	0	0	0
Stage 3	-2	0	2	0	-2	2	0
Total	-9	-27	15	0	15	2	-3
Jan 19	Dec 19
Stage 1	-3	-29	27	0	-1	0	-7
Stage 2	-3	0	0	0	3	0	0
Stage 3	-2	0	0	0	0	0	-2
Total	-8	-30	27	0	2	0	-9

In column 'Additions' increases of CLA due to the initial recognition of loans and advances to banks at AC during the current reporting period are disclosed. Releases of CLA following the derecognition of the related loans and advances to banks at AC are reported in column 'Derecognitions'.

Any changes in credit risk which do not trigger a transfer between Stage 1 and Stage 2 or 3 or vice-versa are disclosed in column 'Other changes in credit risk (net)'.

The year-end total GCA of AC loans and advances to banks that were initially recognized during the year 2020 and not fully de-recognized by 31 December 2020 amounts to EUR 20,962.3 million (2019: EUR 21,878.5 million). The GCA of AC loans and advances to banks that were held as of 1 January 2020 and fully de-recognized during the year 2020 amounts to EUR 21,347.1 million (2019: 17,928.4 million).

Loans and advances to customers

Gross carrying amounts and credit loss allowances per impairment buckets

Gross carrying amount	Credit loss allowances
Carrying
in EUR million	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total	amount
Dec 20
General governments	6,455	330	3	3	6,791	-4	-4	-2	-1	-11	6,779
Other financial corporations	2,860	836	19	11	3,727	-8	-38	-6	0	-51	3,676
Non-financial corporations	50,673	18,379	2,075	227	71,354	-186	-657	-1,172	-92	-2,107	69,247
Households	69,241	10,554	1,935	125	81,855	-136	-472	-1,021	-33	-1,662	80,193
Total	129,229	30,100	4,031	367	163,727	-335	-1,171	-2,201	-125	-3,831	159,895
Dec 19
General governments	6,449	325	3	4	6,781	-17	-3	-2	-1	-23	6,757
Other financial corporations	3,342	244	12	13	3,612	-5	-9	-8	0	-22	3,590
Non-financial corporations	60,331	5,618	1,584	242	67,774	-176	-243	-965	-96	-1,479	66,296
Households	70,577	6,538	1,886	145	79,146	-122	-251	-1,029	-43	-1,445	77,701
Total	140,699	12,725	3,484	404	157,312	-320	-506	-2,003	-139	-2,969	154,344

Movement in credit loss allowances

in EUR million	As of	Additions	Derecognitions	Transfers between stages	Other changes in credit risk (net)	Insignificant modifications (net)	Write-offs	Other	As of
Jan 20	Dec 20
Stage 1	-320	-233	64	376	-227	0	0	4	-335
General governments	-17	-5	2	1	15	0	0	0	-4
Other financial
corporations	-5	-10	5	8	-9	0	0	3	-8
Non-financial corporations	-176	-149	41	157	-60	0	0	0	-186
Households	-122	-68	16	210	-173	0	0	2	-136
Stage 2	-506	-133	125	-1,025	361	0	1	6	-1,171
General governments	-3	0	0	-3	2	0	0	0	-4
Other financial
corporations	-9	-2	1	-14	-13	0	0	0	-38
Non-financial corporations	-243	-85	83	-533	116	1	0	4	-657
Households	-251	-46	41	-475	256	-1	1	2	-472
Stage 3	-2,003	-92	245	-129	-507	2	270	12	-2,201
General governments	-2	0	0	0	0	0	0	0	-2
Other financial
corporations	-8	-2	2	0	-2	0	4	0	-6
Non-financial corporations	-965	-51	106	-55	-357	2	143	3	-1,172
Households	-1,029	-40	137	-74	-149	1	123	9	-1,021
POCI	-139	0	15	0	-9	0	6	2	-125
General governments	-1	0	0	0	0	0	0	0	-1
Other financial
corporations	0	0	0	0	0	0	0	0	0
Non-financial corporations	-96	0	9	0	-9	0	3	1	-92
Households	-43	0	6	0	0	0	3	2	-33
Total	-2,969	-458	449	-778	-382	3	278	25	-3,831
Jan 19	Dec 19
Stage 1	-321	-255	75	280	-98	0	0	-1	-320
General governments	-16	-4	1	1	1	0	0	0	-17
Other financial
corporations	-8	-8	7	2	2	0	0	0	-5
Non-financial corporations	-169	-160	50	104	-1	0	0	0	-176
Households	-128	-83	17	174	-101	0	0	-1	-122
Stage 2	-455	-34	79	-486	382	0	3	4	-506
General governments	-10	0	0	-1	8	0	0	0	-3
Other financial
corporations	-5	-1	1	-7	1	0	0	3	-9
Non-financial corporations	-191	-15	44	-185	107	-1	0	-1	-243
Households	-249	-17	35	-293	266	1	3	3	-251
Stage 3	-2,341	-131	362	-111	-272	0	491	-3	-2,003
General governments	-2	0	0	0	0	0	0	0	-2
Other financial
corporations	-40	-9	4	-1	0	0	9	28	-8
Non-financial corporations	-1,133	-78	135	-42	-117	0	300	-30	-965
Households	-1,166	-44	223	-68	-155	0	182	-1	-1,029
POCI	-173	0	28	0	-10	-4	18	1	-139
General governments	0	0	0	0	1	0	0	-2	-1
Other financial
corporations	-3	0	0	0	3	0	0	0	0
Non-financial corporations	-97	0	17	0	-25	-3	11	1	-96
Households	-73	0	11	0	11	-1	7	1	-43
Total	-3,290	-419	545	-316	2	-3	512	1	-2,969

In column 'Additions' increases of CLA due to the initial recognition of loans and advances to customers at AC during the current reporting period are disclosed. CLAs recognized against drawings from non-revolving loan commitments are deemed as additions for the purpose of presenting current period's movement in CLA. Therefore, additions in Stages 2 and 3 reflect transfers from Stage 1 having occurred between commitment and drawing dates of related credit facilities. Releases of CLA following the derecognition of the related loans and advances to customers at AC are reported in column 'Derecognitions'.

In column 'Transfers between stages' CLA net changes due to changes in credit risk that triggered re-assignments of the related AC loans and advances to customers from Stage 1 at 1 January 2020 (or initial recognition date, if later) to Stages 2 or 3 at 31 December 2020 or vice-versa are reported. The effects of transfers from Stage 1 to Stages 2 or 3 on the related CLAs are adverse (incremental year-on-year allocations) and presented in lines attributable to Stages 2 or 3. The effects of transfers from Stages 2 or 3 to Stage 1 on the related CLAs are favourable (incremental year-on-year releases) and presented in line 'Stage 1'. The P&L-neutral effect from cross-stage transferring of the related CLA amounts recognized prior to stage re-assignments are presented above in column 'Other changes in credit risk (net)'.

Any other changes in credit risk which do not trigger a transfer between Stage 1 and Stage 2 or 3 or vice-versa are disclosed in column 'Other changes in credit risk (net)'. This column also captures the passage-of-time adverse effect ('unwinding correction') over the lifetime expected cash shortfalls of AC loans and advances to customers that were assigned to Stage 3 for any period throughout the year, as well as of any POCI loans and advances to customers. This adverse effect amounted to EUR 59.9 million (2019: EUR 71.1 million) cumulatively for the year 2020, which also reflects the unrecognized interest income out of the related AC loans and advances to customers throughout the year.

The column 'Insignificant modifications (net)' reflects the effect on CLA arising from contractual modifications of loans and advances to customers at AC which do not trigger their full derecognition. The use of CLA triggered by full or partial write-offs of AC loans and advances to customers is reported in column 'Write-offs'.

One significant driver of the CLA movements for the year has been the transfer of the related instruments across different impairment stages. The year-end GCA of AC loans and advances to customers that were assigned at 31 December 2020 to a different stage compared to 1 January 2020 (or to the initial recognition date, if originated during the year) are summarized below:

Transfers between	Transfers between	Transfers between	POCI
Stage 1 and Stage 2	Stage 2 and Stage 3	Stage 1 and Stage 3
To Non-
To Defaulted	Defaulted
To Stage 2	To Stage 1	To Stage 3	To Stage 2	To Stage 3	To Stage 1	from Non-	from
in EUR million	from Stage 1	from Stage 2	from Stage 2	from Stage 3	from Stage 1	from Stage 3	Defaulted	Defaulted
Dec 20
General governments	201	89	0	0	0	0	0	0
Other financial corporations	579	65	4	2	8	0	0	0
Non-financial corporations	14,523	1,145	380	49	573	7	2	10
Households	6,549	1,546	287	142	372	41	1	10
Total	21,853	2,845	671	193	954	48	3	20
Dec 19
General governments	120	69	0	0	1	0	0	0
Other financial corporations	157	107	0	1	2	0	0	14
Non-financial corporations	3,925	933	130	37	204	14	10	9
Households	2,928	1,464	269	92	303	51	2	11
Total	7,131	2,572	399	130	509	64	12	34

Detailed information on stage transfers due to Covid-19 measures are described in Note 34 Credit risk.

The year-end total GCA of the AC loans and advances to customers that were initially recognized during the reporting period and not fully de-recognized by 31 December 2020 amounts to EUR 39,706.5 million (2019: EUR 38,982.9 million). The GCA of the AC loans and ad-vances to customers that were held at 1 January 2020 and fully de-recognized during the reporting period amounts to EUR 19,576.4 mil-lion (2019: EUR 16,425.7 million).

The undiscounted amount of the lifetime expected credit losses considered in the initial measurement of the AC loans and advances to customers initially recognized and identified as POCI during the year 2020 amounted to EUR 43.5 million (2019: EUR 32.4 million).

17. Debt instruments subject to contractual modifications

Impact of non-significant contractual modifications of debt instruments AC assigned to Stage 2 and 3

Dec 19	Dec 20
Amortised cost before the	Net modification	Amortised cost before the	Net modification
in EUR million	modification	gains/losses	modification	gains/losses
Loans and advances
General governments	12	0	16	0
Other financial corporations	11	0	131	1
Non-financial corporations	615	-3	4,398	2
Households	489	1	2,929	-13
Total	1,128	-2	7,474	-9

As at 31 December 2020, the total GCA of Erste Group's debt instruments measured at AC, which were impacted by non-significant con-tractual modifications while they were assigned to Stage 2 or 3 and re-assigned to Stage 1 during the year 2020 amounted to EUR 671.0 mil-lion (2019: EUR 306.2 million).

18. Trade and other receivables

Gross carrying amounts and credit loss allowances per impairment buckets

Gross carrying amount	Credit loss allowances
Carrying
in EUR million	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total	amount
Dec 20
Central banks	1	0	0	0	1	0	0	0	0	0	1
General governments	35	20	0	0	55	0	0	0	0	0	55
Credit institutions	27	2	0	0	29	0	0	0	0	-1	29
Other financial corporations	25	2	0	0	28	0	0	0	0	0	27
Non-financial corporations	484	639	39	0	1,162	-4	-5	-29	0	-38	1,124
Households	88	21	21	0	130	-2	-5	-18	0	-24	106
Total	660	684	61	0	1,405	-6	-10	-47	0	-64	1,341
Dec 19
Central banks	1	0	0	0	1	0	0	0	0	0	1
General governments	44	18	0	0	63	0	0	0	0	0	62
Credit institutions	22	2	0	0	25	0	-1	0	0	-1	24
Other financial corporations	24	5	0	0	30	0	0	0	0	0	29
Non-financial corporations	500	680	50	10	1,240	-3	-2	-41	-1	-47	1,193
Households	70	33	19	0	122	-3	-7	-13	0	-23	99
Total	661	738	70	10	1,480	-6	-10	-55	-1	-72	1,408

Movement in credit loss allowances

in EUR million	As of	Additions	Derecognitions	Transfers between stages	Other changes in credit risk (net)	Insignificant modifications (net)	Write-offs	Other	As of
Jan 20	Dec 20
Stage 1	-6	-4	2	1	1	0	0	0	-6
Stage 2	-10	0	2	-4	1	0	0	0	-10
Stage 3	-55	0	5	-1	-6	0	6	4	-47
POCI	-1	0	1	0	0	0	0	0	0
Total	-72	-5	9	-3	-4	0	6	4	-64
Jan 19	Dec 19
Stage 1	-5	-5	1	1	0	0	0	0	-6
Stage 2	-19	0	1	-1	4	0	6	0	-10
Stage 3	-98	-1	9	-3	1	0	37	0	-55
POCI	-1	0	0	0	0	0	0	0	-1
Total	-122	-6	11	-3	5	0	43	0	-72

19. Financial liabilities at amortised costs

The line item 'Financial liabilities at amortised cost' is further broken down into 'Deposits from banks', 'Deposits from customers', 'Debt securities issued' and 'Other financial liabilities'.

Interest expenses incurred are calculated using effective interest method are reported in the line item 'Interest expenses' under 'Net interest income' in the statement of income. Gains and losses from derecognition (mainly repurchase) are reported under the line item 'Other gains/losses from derecognition of financial instruments not measured at fair value through profit or loss'.

Financial liabilities stemming from the TLTRO programme of the ECB are presented under 'Deposits from banks'. Erste Group assessed an appropriate accounting treatment of the TLTRO. The conclusion was that such instruments do not qualify as below-market interest rate loans and therefore are not related to IAS 20 government grants accounting. The reason was that the TLTRO is considered as a separate market organised by the ECB as part of its monetary policy. As a result, the IFRS 9 amortised cost accounting treatment applies.

The carrying amount of the TLTRO III liabilities was EUR 14,088 million at the end of 2020 (2019: EUR 1,035 million). The negative interest expense recognised for the TLTRO III in 2020, including the catch-up adjustment discussed below, was EUR 52.3 million (2019: EUR 0.2 million).

In general, the TLTRO interest rate is reduced if banks reach certain lending thresholds. At the TLTRO inception, the original effective interest rate is determined by considering the contractual terms and assessing whether the eligibility conditions for the reduced interest will be fulfilled. The scenario which is considered more likely is used for the original effective interest rate calculation.

Erste Group assesses on an ongoing basis how it meets the eligibility criteria for the lower interest rate. Any subsequent changes in estimates of payments due to the revised assessment of the eligibility conditions are treated as catch-up adjustments. The amount of the catch-up adjustment is determined by discounting the revised estimated payments at the original effective interest rate and comparing it to the gross carrying amount before the adjustment. The catch-up adjustments are presented in the net interest income.

In 2020, in order to support the provision of credit in the economy hit by the Covid-19 pandemic, the ECB modified the conditions of the TLTRO III by additional reductions of interest rates. In April the interest rate reduction by 50bp during the period between June 2020 and June 2021 was conditional upon reaching the lending threshold of 0% between 1 March 2020 and 31 March 2021. Erste Group considered that the eligibility criteria were fulfilled. This resulted in a recognition of a positive catch-up adjustment in the amount of EUR 8.0 million (2019: EUR 0.0 million). In December 2020 the ECB announced to extend the pandemic-related low interest for the period between June 2021 and June 2022. Erste Group's assessment at 2020 year end was that the lending threshold conditions for this interest rate reduction will not be met. No additional catch-up adjustment was recognised based on this announcement.

Deposits from banks

in EUR million	Dec 19	Dec 20
Overnight deposits	1,951	2,115
Term deposits	9,613	21,728
Repurchase agreements	1,577	927
Deposits from banks	13,141	24,771

Deposits from customers

in EUR million	Dec 19	Dec 20
Overnight deposits	121,651	144,864
Savings deposits	31,476	37,265
Other financial corporations	150	185
Non-financial corporations	1,992	2,457
Households	29,334	34,623
Non-savings deposits	90,174	107,599
General governments	5,339	5,806
Other financial corporations	5,705	6,936
Non-financial corporations	27,245	33,312
Households	51,886	61,544
Term deposits	49,910	44,684
Deposits with agreed maturity	43,508	38,142
Savings deposits	28,248	25,996
Other financial corporations	1,098	1,050
Non-financial corporations	1,323	1,331
Households	25,826	23,615
Non-savings deposits	15,261	12,146
General governments	3,294	2,832
Other financial corporations	2,488	1,890
Non-financial corporations	3,493	2,285
Households	5,985	5,140
Deposits redeemable at notice	6,402	6,543
General governments	12	1
Other financial corporations	86	110
Non-financial corporations	163	256
Households	6,140	6,175
Repurchase agreements	1,505	1,269
General governments	9	2
Other financial corporations	1,431	1,260
Non-financial corporations	65	6
Deposits from customers	173,066	190,816
General governments	8,655	8,642
Other financial corporations	10,958	11,431
Non-financial corporations	34,281	39,648
Households	119,173	131,097

Debt securities issued

in EUR million	Dec 19	Dec 20
Subordinated debt securities issued	1,439	1,477
Senior non-preferred bonds	505	669
Other debt securities issued	15,417	16,874
Bonds	2,929	4,680
Certificates of deposit	81	520
Other certificates of deposits/name certificates	237	178
Mortgage covered bonds	10,796	10,977
Public sector covered bonds	0	0
Other	1,374	519
Debt securities issued	17,360	19,020

In 1998, Erste Group Bank AG launched a EUR 30 billion Debt Issuance Programme (DIP). Since then other issuance programmes had been set up to fulfill high standards of specific seniorities and investor classes. In 2020, 17 DIP new bonds (2019: 49) with a total volume of approximately EUR 165 million (2019: EUR 1.8 billion) were issued under the DIP.

In 2020, 120 (2019: 173) new bonds with a total volume of EUR 184 million (2019: EUR 414 million) were issued out of the Structured Notes Programme. In November 2018 the Covered Bonds Programme was implemented, under which 2 (2019: 3) new bonds with a total volume of EUR 2.3 billion (2019: EUR 1.0 billion) were issued. In June 2019, the Capital Guaranteed Structured Notes Programme was implemented, under which 36 (2019: 16) new bonds with a total volume of EUR 129 million (2019: EUR 70 million) were issued. In December 2019, the Multi Issuer EMTN Notes Programme was implemented, under which 5 new bonds with a total volume of EUR 2.7 bil-lion were issued.

Furthermore, senior unsecured registered notes ('Namensschuldverschreibungen'), were issued with a volume of EUR 69 million (2019: EUR 107 million).

Starting with August 2008, the Euro Commercial Paper and Certificates of Deposit Programme has an overall volume of EUR 10.0 billion. In total, 56 issues (2019: 34) amounting to EUR 3.7 billion (2019: EUR 1.4 billion) were placed in 2020. Issues totaling approximately EUR 3.7 billion (2019: EUR 1.8 billion) were redeemed over the same period.

Erste Group Bank AG, through its branch in NY and through its fully consolidated subsidiary Erste Finance Delaware LLC, issues com-mercial papers and certificates of deposit into the US money market. The total balance as of 31 December 2020 of the Dollar Certificate of Deposit Program of the New York branch amounted to EUR 519 million (USD 635 million) and as of 31 December 2019 EUR 38 million (USD 43 million). The Dollar Commercial Paper Program of Erste Finance Delaware LLC has a maximum issuance volume of EUR 6.7 bil-lion (USD 7.5 billion), with a total balance as of 31 December 2020 of EUR 521 million (USD 637 million) and EUR 1.4 billion

(USD 1.5 billion) as of 31 December 2019.

Financial instruments at fair value

FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

There are various reasons for assigning the fair value through profit or loss (FVPL) measurement category to debt instrument financial assets.

FVPL measurement relates to that are part of residual business models, i.e. they are neither held to collect contractual cash flows nor held to either collect contractual cash flows or sell the assets. These financial assets are generally expected to be sold before their maturity or they are managed and their performance is evaluated on a fair value basis. In the business of Erste Group, such business models are typical of assets that are held for trading (i.e. financial assets held by the trading function of the bank), of assets whose value is expected to be primarily realised through sales, such as investments in securitisations or of failed loan syndications when the loan is offered for sale on the market. Further subject to FVPL measurement are financial assets held by funds consolidated by Erste Group since they are managed and their performance is evaluated on a fair value basis.Another reason for the the FVPL measurement are financial assets whose contractual cash flows are not considered as SPPI. At Erste Group, this concerns certain debt securities and loans to customers.

Erste Group also makes use of the option to designate some financial assets as measured at FVPL at initial recognition. Such a classification is used if it eliminates or significantly reduces an accounting mismatch between fixed interest rate financial assets, which in the absence of such a classification would be measured at amortised cost or at FVOCI, and related derivatives measured at FVPL.

On the balance sheet, debt instrument financial assets measured at FVPL are presented as 'Financial assets held for trading', sub-item 'Other financial assets held for trading' and 'Non-trading financial assets at fair value through profit or loss', sub-items 'Debt securities' and 'Loans and advances to customers'. Non-trading financial assets at FVPL consist of two sub-categories disclosed in Note 22 Non-trading financial assets at fair value through profit or loss which are 'mandatorily at fair value through profit or loss' and 'designated at fair value through profit or loss'. Financial assets are mandatorily measured at fair value through profit or loss either because they are held as part of residual business models that are other than held for trading or their contractual cash flows are not SPPI.

Investments in equity instruments that are held for trading (i.e. financial assets held by the trading function of the bank) are measured at FVPL. They are included in the balance sheet under the line 'Financial assets held for trading', sub-item 'Other financial assets held for trading'. Investments in equity instruments that are not held for trading are also measured at FVPL (unless they are designated at FVOCI). They are presented in the balance sheet under 'Non-trading financial assets at fair value through profit or loss', sub-item 'Equity instruments', sub-category 'mandatorily at fair value through profit or loss' in Note 22 Non-trading financial assets at fair value through profit or loss.

From IFRS 9 perspective all derivatives which are not designated as hedging instruments are considered as held for trading. As a result, they are measured at FVPL. They are described more detail in the Note 20 Derivative financial instruments.

In the statement of income, the profit or loss effects of non-derivative financial assets measured at FVPL are split into interest income or dividend income and fair value gains and losses. The interest income on debt instruments is presented in the line 'Other similar income' under 'Net interest income' and is calculated by applying the EIR to the amortised cost component of the financial assets. The dividend income on equity instruments is presented in the line 'Dividend income'. The fair value gains or losses are calculated net of the interest or dividend income, and they also include transaction costs and origination fees. They are reported in the line 'Net trading result' for financial assets held for trading and in the line 'Gains/losses from financial instruments measured at fair value through profit or loss' in case of non-trading financial assets at FVPL. For investments in funds, which are not consolidated by Erste Group, the interest or dividend component is not separated from the fair value gains or losses.

Financial liabilities at FVPL consist of financial liabilities held for trading and financial liabilities designated at FVPL.

On the balance sheet, financial liabilities at FVPL are presented as 'Financial liabilities held for trading', sub-items 'Derivatives' and 'Other financial liabilities held for trading' and as 'Financial liabilities at fair value through profit or loss' which are further broken down into 'Deposits from customers', 'Debt securities issued' and 'Other financial liabilities'. Accounting policy related to financial liabilities at FVPL can be found in Note 20 Derivative financial instrument, Note 23 Other financial liabilities held for trading and Note 24 Financial liabilities at fair value through profit or loss.

20. Derivative financial instruments

Derivative financial instruments are used by Erste Group to manage exposures to interest rates, foreign currencies and other market price risks. Derivatives used by Erste Group include mainly interest rate swaps, futures, forward rate agreements, interest rate options, currency swaps and currency options as well as credit default swaps.

For presentation purposes, derivatives are split into: _ Derivatives - held for trading; and _ Derivatives - hedge accounting.

Hedge accounting derivatives are discussed in Note 27 Hedge accounting.

Derivative financial instruments are carried at fair value (dirty price) on the balance sheet. Derivatives are carried as assets if their fair value is positive and as liabilities if their fair value is negative.

Derivatives - held for trading are those that are not designated as hedging instruments for hedge accounting. They are presented in the line item 'Derivatives' under the heading 'Financial assets/Financial liabilities held for trading'. All kinds of non-hedging derivatives without regard to their internal classification, i.e. both derivatives held in the trading book and banking book, are presented in this line item.

Changes in the fair value (clean price) of derivatives - held for trading as well as of derivatives designated as hedging instruments in fair value hedges are reported in the statement of income in the line item 'Net trading result'. Interest income/expense related both to held for trading and hedging derivatives is presented in the statement of income in the line item 'Other similar income' or 'Other similar expenses' under 'Net interest income'. Interest income/expense recognition is based on EIR-like accruals in respect of the derivative notional amount and includes amortisation of the inception value of the derivative (e.g. upfront fees, if any).

The effective part of changes in the fair value (clean price) of derivatives in cash flow hedges is reported as OCI in the line 'Cash flow hedge reserve' of the statement of comprehensive income. The accumulated OCI is presented under 'Cash flow hedge reserve' in the state-ment of changes in equity. The ineffective part of changes in the fair value (clean price) of derivatives in cash flow hedges is reported in the statement of income under the line item 'Net trading result'.

Embedded derivatives

Erste Group issues certain financial liabilities which contain structured features. Structured features mean that a derivative is embedded in non-derivative host instruments. Embedded derivatives are separated from the host instruments if

• _ the economic characteristics of the derivatives are not closely related to the economic characteristics and risks of the host debt instru-ments;

• _ the embedded derivative meets the definition of a derivative; and

• _ the hybrid instrument is not a financial asset or liability held for trading or designated at fair value through profit or loss.

Embedded derivatives that are separated are accounted for as stand-alone derivatives and presented on the balance sheet under the line item 'Derivatives' in financial assets held for trading and financial liabilities held for trading. At Erste Group, these relate to bonds and deposits whose payments are linked to equity prices or FX rates.

In the business of Erste Group, majority of non-closely related embedded derivatives relates to bonds issued for which fair value option has been applied since 2018. As a result, these embedded derivatives are part of the measurement of the entire hybrid instrument at FVPL and thus are not separated.

Derivatives held for trading

Dec 19	Dec 20
Notional	Positive	Negative	Notional	Positive	Negative
in EUR million	value	fair value	fair value	value	fair value	fair value
Derivatives held in the trading book	189,747	3,068	3,305	206,411	3,524	3,606
Interest rate	122,129	2,609	2,728	139,393	2,742	2,829
Equity	311	11	3	435	4	3
Foreign exchange	66,888	423	571	65,541	740	748
Credit	226	3	3	820	15	25
Commodity	10	0	0	16	0	0
Other	183	23	0	205	23	0
Derivatives held in the banking book	28,048	1,353	341	27,229	1,330	409
Interest rate	16,891	1,254	226	16,836	1,233	246
Equity	5,823	52	36	5,202	41	64
Foreign exchange	4,812	41	78	4,742	52	98
Credit	348	6	1	305	4	1
Other	174	1	0	144	0	0
Total gross amounts	217,794	4,422	3,646	233,640	4,854	4,015
Offset	0	-1,616	-1,640	-1,900	-1,977
Total	0	2,805	2,005	2,954	2,037

Erste Group undertakes a part of interest rate derivative and credit derivative transactions via Clearing Houses. These derivatives and related cash margin balances fulfil the requirements for balance sheet offsetting. For more details on balance sheet offsetting please refer to Note 28 Offsetting of financial instruments.

21. Other financial assets held for trading

in EUR million	Dec 19	Dec 20
Equity instruments	65	34
Debt securities	2,889	3,368
General governments	1,918	2,628
Credit institutions	803	606
Other financial corporations	57	57
Non-financial corporations	111	76
Other financial assets held for trading	2,954	3,402

22. Non-trading financial assets at fair value through profit or loss

Dec 19	Dec 20
in EUR million	Designated	Mandatorily	Designated	Mandatorily
Equity instruments	0	390	0	347
Debt securities	664	1,671	603	1,446
General governments	77	258	63	214
Credit institutions	563	160	524	101
Other financial corporations	25	1,062	16	983
Non-financial corporations	0	191	0	148
Loans and advances to customers	0	483	0	687
General governments	0	2	0	1
Other financial corporations	0	1	0	0
Non-financial corporations	0	137	0	107
Households	0	344	0	579
Financial assets designated and mandatorily at FVPL	664	2,544	603	2,480
Non-trading financial assets at fair value through profit or loss	3,208	3,083

Erste Group has designated debt securities at FVPL. The maximum exposure to credit risk on these securities is its fair value. At the reporting date the change in fair value that is attributable to changes in credit risk amounts to EUR 2.9 million (2019: EUR 1.4 million) cumulatively and EUR 7.7 million (2019: EUR 3.4 million) for the reporting period.

23. Other financial liabilities held for trading

Non-derivative financial liabilities held for trading are those which are incurred principally for the purpose of repurchasing them in the near term. In the business of Erste Group non-derivative held for trading liabilities largely comprise short sales. These arise from obligations to return securities, which are purchased under agreements to resell or are borrowed through securities lending transactions and subsequently sold to third parties. On the balance sheet such liabilities are presented under the line 'Financial liabilities held for trading', sub-item 'Other financial liabilities'. The gains or losses on financial liabilities held for trading are reported in the line 'Net trading result' in the statement of income.

in EUR million	Dec 19	Dec 20
Short positions	368	521
Equity instruments	35	135
Debt securities	333	386
Debt securities issued	48	66
Other financial liabilities held for trading	416	588

24. Financial liabilities at fair value through profit or loss

Erste Group makes use of the option to designate some financial liabilities as measured at FVPL at initial recognition (referred to as fair value option) if: _ such classification eliminates or significantly reduces an accounting mismatch between fixed interest rate financial liabilities otherwise measured at amortised cost and related derivatives measured at FVPL. Erste Group assesses quantitatively that the designation actually eliminates or significantly reduces the accounting mismatch in respect of fair value changes attributable to interest rate risk; or _ the entire hybrid contract contains a non-closely related embedded derivative.

Financial liabilities designated at FVPL are reported on the balance sheet under the line item 'Financial liabilities at fair value through profit or loss' and are further broken down into 'Deposits from customers', 'Debt securities issued' and 'Other financial liabilities'. Other financial liabilities relate to fund units issued by funds consolidated by Erste Group. Interest incurred is calculated by applying the EIR to the amor-tised cost of the financial liability and is reported in the statement of income under in line item 'Other similar expenses' under 'Net interest income'. Gains and losses resulting from changes in fair value are recognised net of the interest expense under the line item 'Gains/losses from financial instruments measured at fair value through profit or loss'.

The amount of the fair value change resulting from the credit risk of the financial liability for the period is presented as OCI in the statement of comprehensive income in the line 'Own credit risk reserve'. The cumulative amount is recognised as accumulated OCI, specifically under 'Own credit risk reserve' in the statement of changes in equity. The amount recognised in OCI is never reclassified to profit or loss. However, upon derecognition (mainly repurchases) of the financial liabilities designated at FVPL the amount accumulated in OCI is tran-sferred to retained earnings.

The cumulative amount of the credit risk recognised as accumulated OCI is calculated as the difference between the present value of the liability determined by using the original credit spread and the fair value of the liability. The amount of fair value change attributable to changes in credit risk of the liability for the period which is recognised in OCI is the difference between the cumulative amount of the credit risk at the end of the period and at the beginning of the period. When calculating the present value of the liability by using the original credit spread, the rate used for discounting is the sum of the observed interest rate (swap yield curve) and the original credit spread. The original credit spread is determined at initial recognition of the liability and it equals the difference between the total yield of the liability and the observed interest rate (swap yield curve) at that time.

Carrying amount	Amount repayable
in EUR million	Dec 19	Dec 20	Dec 19	Dec 20	Dec 19	Dec 20
Deposits	265	254	248	243	17	11
Debt securities issued	13,011	11,657	12,415	11,230	596	427
Other financial liabilities	219	180	219	180	0	0
Financial liabilities at FVPL	13,494	12,091	12,882	11,653	613	438

Delta between carrying amount and amount repayable

Fair value changes that are attributable to changes in own credit risk

For reporting period	Cumulative amount
in EUR million	1-12 19	1-12 20	Dec 19	Dec 20
Deposits	-1	-2	2	0
Debt securities issued	19	-126	484	358
Other financial liabilities	0	0	0	0
Financial liabilities at FVPL	18	-127	486	358

The line 'Other financial liabilities' contains fund units issued by investment funds fully consolidated by Erste Group. Their fair value changes are subject to asset-specific performance risk only and are not dependent on changes in the individual own credit risk of the respective investment funds.

Debt securities issued

in EUR million	Dec 19	Dec 20
Subordinated debt securities issued	4,539	3,944
Other debt securities issued	8,471	7,713
Bonds	5,386	4,784
Other certificates of deposits/name certificates	872	854
Mortgage covered bonds	1,961	1,858
Public sector covered bonds	252	216
Debt securities issued	13,011	11,657

FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

25. Financial assets at fair value through other comprehensive income

Debt instrument financial assets are measured at fair value through other comprehensive income (FVOCI) if their contractual cash flows are SPPI-compliant and they are held within a business model whose objective is achieved by both to collect contractual cash flows and sell the assets. On the balance sheet, they are included as 'Debt securities' under the line 'Financial asset at fair value through other comprehen-sive income'.

Interest income on these assets is calculated using the effective interest method and is included in the line 'Interest income' under 'Net interest income' in the statement of income. Impairment gains and losses are recognised in profit or loss in the line 'Impairment result from financial instruments' with opposite loss allowance entry in OCI rather than against the asset value. As a result, the measurement impact recognised in profit or loss is the same as for financial assets measured at amortised cost.

The difference between the fair value at which the assets are carried in the balance sheet and the amortised cost component is recognised as accumulated OCI in equity specifically under 'Fair value reserve' in the statement of changes in equity. The change for the period is reported as OCI in the statement of comprehensive income in the line 'Fair value reserve of debt instruments' which also includes the loss allowance OCI entry. When the financial asset is derecognised, the amount previously accumulated in OCI is reclassified to profit or loss and reported under the line 'Other gains/losses from derecognition of financial instruments not measured at fair value through profit or loss'.

Erste Group classifies investments in debt securities as measured at FVOCI, i.e. no loan business is included in this measurement category. Similarly to investments in debt securities measured at amortised cost, they relate to various business objectives such as fulfilling inter-nal/external liquidity risk requirements and efficient placement of the structural liquidity surplus, strategic positions decided by the board of directors, initiation and fostering of client relationships, substitution of loan business or other yield-enhancement activities. The common attribute for investments in debt instruments at FVOCI is that an active yield optimisation via sales is integral to achieving the objectives. The sales are carried out in order to optimise the liquidity position or to realise fair value gains or losses. As a result, the business objectives are achieved through both collecting contractual cash flows and sales of the securities.

For certain investments in equity instruments that are not held for trading, Erste Group makes use of the option to measure them at FVOCI. This election is applied to strategic, significant banking business relationship investments (except for insurance business). The fair value gains or losses for the period are reported as OCI in the line 'Fair value reserve of equity instruments' of the statement of comprehensive income. The cumulative gains or losses are included under 'Fair value reserve' in the statement of changes in equity. The amount recognised in OCI is never reclassified to profit or loss. However, upon derecognition of the investments in equity instruments at FVOCI the amount accumulated in OCI is transferred to retained earnings. Dividends received on these investments are reported under the line 'Dividend income' of the statement of income. On the balance sheet, financial assets measured at fair value through OCI are included as 'Equity instruments' under the line 'Financial asset at fair value through other comprehensive income'.

Equity instruments

The carrying amount of Erste Group's equity instruments at FVOCI as at 31 December 2020 amounts to EUR 129.8 million (2019: EUR 210.1 million), the cumulative fair value change for equity instruments FVOCI before taxes recognized in other comprehensive in-come amounted to EUR 85.9 million (2019: EUR 166.1 million). During the year 2020, the sales of such instruments amounted to EUR 85.7 million (2019: EUR 43.6 million) and were triggered by strategic business decisions. The cumulative gain (net of tax) that was transferred from accumulated other comprehensive income into retained earnings upon such sales amounted to EUR 68.2 million (2019: EUR 48.9 million).

Debt instruments

Gross carrying amounts and credit loss allowances per impairment buckets

Gross carrying amount	Credit loss allowances
Accumu-
Amortised	lated OCI	Fair
in EUR million	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total	cost	changes	value
Dec 20
Central banks	5	0	0	5	0	0	0	0	5	0	5
General governments	5,757	241	0	5,998	-3	-5	0	-9	5,989	212	6,202
Credit institutions	944	0	0	944	-3	0	0	-3	941	43	985
Other financial corporations	122	83	0	205	0	-4	0	-4	201	10	211
Non-financial corporations	655	301	0	957	-3	-7	0	-9	947	39	987
Total	7,483	626	0	8,109	-9	-16	0	-25	8,084	305	8,389
Dec 19
Central banks	0	0	0	0	0	0	0	0	0	0	0
General governments	6,232	8	0	6,240	-3	0	0	-3	6,237	189	6,426
Credit institutions	1,073	27	0	1,099	-1	-1	0	-2	1,097	19	1,116
Other financial corporations	135	46	0	181	0	-1	0	-2	179	9	188
Non-financial corporations	933	137	0	1,070	-2	-5	0	-7	1,062	45	1,107
Total	8,373	217	0	8,590	-6	-8	0	-14	8,575	261	8,836

As defined in IFRS 9, the gross carrying amount of debt instruments at FVOCI equals the amortised cost before deducting any credit loss allowances. The accumulated OCI changes combine the effects of credit loss allowances booked in other comprehensive income and fair value accounting through other comprehensive income, as required by IFRS9 in respect of debt instruments measured at FVOCI

There are no purchased or originated credit-impaired (POCI) debt securities at FVOCI as of 31 December 2020.

Movement in credit loss allowances

in EUR million	As of	Additions	Derecognitions	Transfers between stages	Other changes in credit risk (net)	Other	As of
Jan 20	Dec 20
Stage 1	-6	-2	1	1	-4	1	-9
Stage 2	-8	0	3	-10	-1	0	-16
Stage 3	0	0	0	0	0	0	0
Total	-14	-2	4	-8	-4	1	-25
Jan 19	Dec 19
Stage 1	-8	-3	2	0	3	0	-6
Stage 2	-2	-1	0	-5	0	0	-8
Stage 3	0	0	0	0	0	0	0
Total	-10	-4	2	-5	3	0	-14

In column 'Additions' increases of CLA due to the initial recognition of debt securities at FVOCI during the current reporting period are disclosed. Releases of CLA following the derecognition of the related debt securities at FVOCI are reported in column 'Derecognitions'.

In column 'Transfers between stages' CLA net changes due to changes in credit risk that triggered re-assignments of the related FVOCI debt securities from Stage 1 (at 1 January 2020 or initial recognition date) to Stages 2 or 3 at 31 December 2020 or vice-versa are reported. The effects of transfers from Stage 1 to Stages 2 or 3 on the related CLAs are adverse and presented in lines attributable to Stages 2 or 3. The effects of transfers from Stages 2 or 3 to Stage 1 on the related CLAs are favourable and presented in line 'Stage 1'. The P&L-neutral effect from cross-stage transferring of the related CLA amounts recognized prior to stage re-assignments are presented above in column 'Other changes in credit risk (net)'. Any other changes in credit risk which do not trigger a transfer between Stage 1 and Stage 2 or 3 or vice-versa are disclosed in column 'Other changes in credit risk (net)'.

One significant driver of the above presented CLA movements for the year has been the transfer of the related instruments across different stages. The year-end GCAs of FVOCI debt securities that were assigned at 31 December 2020 to a different stage compared to 1 January 2020 (or to the initial recognition date, if purchased during the year) are summarized in the table below:

Transfers between Stage 1 and Stage 2

in EUR million	Dec 19	Dec 20
To Stage 2 from Stage 1	98	429
To Stage 1 from Stage 2	7	11

Financial instruments - other disclosure matters

26. Fair value of financial instruments

Where the fair values of financial assets and financial liabilities recorded on the balance sheet cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are derived from observable market data where possible, but where observable market data is not available judgement is required to establish fair values. Using of unobservable inputs is particularly relevant for models used for valuations of loans and unquoted equity investments. Disclosures on valuation models, the fair value hierarchy and fair values of financial instruments can be found subsequently. Based on an analysis carried out by Erste Group it was decided that for the valuation of OTC derivatives no Funding Value Adjustment (FVA) would be considered.

For all financial instruments the fair value is measured on recurring basis.

Financial instruments carried at fair value

The measurement of fair value at Erste Group is based primarily on external sources of data (stock market prices or broker quotes in highly liquid market segments). Financial instruments for which the fair value is determined on the basis of quoted market prices are mainly listed securities and derivatives as well as liquid OTC bonds.

Description of valuation models and parameters

Erste Group uses valuation models that have been tested internally and for which the valuation parameters (such as interest rates, exchange rates, volatilities and credit spreads) have been determined independently. In 2015, as a consequence of the negative interest environment, valuation models of interest rate options for the respective currencies were adjusted. Log-normal valuation models were replaced by standard market models which are based on a shifted log-normal distribution or a standard distribution. For such models negative interest rates are no restriction.

Loans. Not SPPI (solely payments of principal and interest) compliant loans are to be valued at fair value. The methodology to compute fair value of these loans corresponds to the basic present value technique where expected cash flows of assets are discounted by the full rate including risk premium required for non-market risk based part of the interest rate to be compliant with fair value definition. The credit risk is recognized by adjusting contractual cash flows to come to expected cash flows accounting for customer's probability of default and loss given default. These adjusted cash flows are then discounted by a yield curve which consists of a risk free rate and a funding spread.For a limited number of profit-participating loans, the expected cash flows are discounted using a risk-adjusted discount rate. This risk-adjusted rate is determined applying the Capital Assets Pricing Model (CAPM) on the basis of comparable listed entities.

Debt securities. For plain vanilla (fixed and floating rate) debt securities the fair value is calculated by discounting the future cash flows using a discounting curve depending on the interest rate for the respective issuance currency and a spread adjustment. The spread adjustment is usually derived from the credit spread curve of the issuer. If no issuer curve is available the spread is derived from a proxy instrument and adjusted for differences in the risk profile of the instruments. If no close proxy is available, the spread adjustment is estimated using other information, including estimation of the credit spread based on internal ratings and PDs or management judgment. For more complex debt securities (e.g. including option-like features such as callable, cap/floor, index-linked) the fair value is determined using combinations of discounted cash flow models and more sophisticated modeling techniques including methods described for OTC-derivatives.

Equity instruments. Non-trading equity instruments which have quoted market prices in an active market are valued by using the quoted market price. For other investments in non-trading equity instruments the fair value is determined by standard valuation models using also unobservable input parameters. These models include the adjusted net asset value method, the simplified income approach, the dividend discount model and the comparable company multiple method. The adjusted net asset method requires an investor to measure the fair value of the individual assets and liabilities recognized in an investee's statement of financial position as well as the fair value of any unrecognized assets and liabilities at the measurement date. The resulting fair values of the recognized and unrecognized assets and liabilities should therefore represent the fair value of the investee's equity. The dividend discount model assumes that the price of equity instruments issued by an entity equals the present value of all its expected future dividends in perpetuity. Similar to the dividend discount model, the simplified income approach estimates the fair value based on the future income. However, it can be used also when only one year planned income is available. The simplified income approach and the dividend discount model discount future income and dividends using the cost of equity. The cost of equity is dependent on the risk-free rate, the market risk premium, the levered beta and the country risk premium. The levered beta is derived from the industry classification which is published and maintained by Damodaran. In rare cases, techniques for non-trading equity instruments may also include models based on multiples. The comparable company multiple method is a valuation technique within the market approach that uses prices and other relevant information generated by market transactions involving comparable company peers of an investee to derive a valuation multiple from which the indicated fair value of the investee's equity or enterprise value can be inferred.

Liabilities. The fair value of financial liabilities designated at fair value through profit or loss under the fair value option is determined based on quoted prices in active markets, if available. For issued securities where the fair value cannot be retrieved from quoted market prices, the fair value is calculated by discounting the future cash flows. Significant input factors for the spread adjustment of Erste Group'sown credit risk for the respective seniority class are credit spreads derived from liquid benchmark bonds and additional indications from external investments banks, which are provided on a regular basis. The applied spreads are validated on a regular basis from an independent Risk Management unit. Moreover optionality is taken into account when calculating the fair value.

OTC-derivative financial instruments. Derivative instruments traded in liquid markets (e.g. interest rate swaps and options, foreign exchange forward and options, options on listed securities and indices, credit default swaps and commodity swaps) are valued by using standard valuation models. These models include discounting cash flow models, option models of the Black-Scholes and Hull-White type as well as hazard rate models. Models are calibrated on quoted market data (including implied volatilities). Valuation models for more complex instruments also use Monte-Carlo simulation. For instruments in less liquid markets, data obtained from less frequent transactions or extrapolation techniques are used. For determining the fair value of derivatives collateralised in EURO a discounting interest rate reflect-ing the interest rate of the corresponding cash collateral is used. As a result of the IBOR reform it has been decided that the so far used EONIA (Euro Over Night Index Average) will be replaced by ESTER (Euro Short-Term Rate) with a transition phase until 31 December 2021. In Erste Group all contracts with CCP's (Central Counter Parties), LCH (London Clearing House) and EUREX have been converted in 2020 and for the respective collaterals ESTER is used as interest rate. Furthermore, the conversion for a significant part of unsecured derivatives was done in November 2020. The fair value of these derivatives is already determined using ESTER as discount rate. Further-more, the conversion for the most part of unsecured derivatives was done in November 2020. The valuation difference resulting from the conversion has been offset by a compensation payment. The change for all bilateral contracts and CSA's (Credit Support Annex) is in process and will take place the same way as for CCP's contracts.

Erste Group values derivatives at mid-market levels. To reflect the potential bid-ask-spread of the relevant positions an adjustment based on market liquidity is performed. The adjustment parameters depend on product type, currency, maturity and notional size. Parameters are reviewed on a regular basis or in case of significant market moves. Netting is not applied when determining the bid-ask-spread adjustments.

Credit value adjustments (CVA) for counterparty risk and debit value adjustments (DVA) for own default credit risk are applied to OTC derivatives. For the CVA the adjustment is driven by the expected positive exposure of all derivatives and the credit quality of the counter-party. DVA is driven by the expected negative exposure and Erste Group's credit quality. Erste Group has implemented an approach, where the modeling of the expected exposure is based on option replication strategies. For products where an option replication is not feasible the exposure is computed with Monte-Carlo simulation techniques. One of the two modeling approaches is considered for the most relevant portfolios and products. The methodology for the remaining entities and products is determined by market value plus add-on considerations. The probability of default by counterparties that are not traded in an active market is determined from internal PDs mapped to a basket of liquid titles present in the central European market. Market based valuation concepts are incorporated for this. Counterparties with liquid bond or CDS markets are valued by the respective single-name market based PD derived from the prices. Erste Group's probability of default has been derived from the buy-back levels of Erste Group's issuances. Netting has only been considered for a few counterparties where the impact was material. In these cases, netting has been applied for both CVA and DVA. For counterparties with CSA-agreements in place no CVA was taken into account for all cases with immaterial threshold amounts.

According to the described methodology the accumulated CVA-adjustments amounted to EUR 17.6 million (2019: EUR 15.7 million) and the total DVA-adjustment amounted to EUR 3.1 million (2019: EUR 2.8 million).

Validation and control

The responsibility for valuation of financial instruments measured at fair value is independent of the trading units. In addition, Erste Group has implemented an independent validation function in order to ensure separation between units responsible for model development, fair value measurement and validation. The aim of independent model validation is to evaluate model risks arising from the models' theoretical foundation, the appropriateness of input data (market data) and model calibration.

Fair value hierarchy

Financial assets and financial liabilities measured at fair value are categorized under the three levels of the IFRS fair value hierarchy.

Level 1 of the fair value hierarchy

The fair value of financial instruments assigned to Level 1 of the fair value hierarchy is determined based on quoted prices in active markets for identical financial assets and liabilities. More particular, the evaluated fair value can qualify as Level 1 if transactions occur with suffi-cient frequency, volume and pricing consistency on an ongoing basis.

These include exchange traded derivatives (futures, options), shares, government bonds as well as other bonds and funds, which are traded in highly liquid and active markets.

Level 2 of the fair value hierarchy

In case a market quote is used for valuation but due to restricted liquidity the market does not qualify as active (derived from available market liquidity indicators) the instrument is classified as Level 2. If no market prices are available the fair value is measured by using valuation models which are based on observable market data. If all the significant inputs in the valuation model are observable the instrumentis classified as Level 2 of the fair value hierarchy. For Level 2 valuations typically yield curves, credit spreads and implied volatilities are used as observable market parameters.

These include OTC derivatives, less liquid shares, bonds and funds as well as asset backed securities (ABS), collateralized debt obligations (CDO), own issues and deposits.

Level 3 of the fair value hierarchy

In some cases, the fair value can be determined neither on the basis of sufficiently frequent quoted market prices nor on the basis of valuation models that rely entirely on observable market data. In these cases individual valuation parameters which are not observable in the market are estimated on the basis of reasonable assumptions. If any unobservable input in the valuation model is significant or the price quote used is updated infrequently the instrument is classified as Level 3 of the fair value hierarchy. For Level 3 valuations besides observable param-eters typically credit spreads derived from internally calculated historical probability of default (PD) and loss given default (LGD) measures are used as unobservable parameters. Furthermore, internally calculated cost of equity and adjustments made on the equity (in the adjusted net asset value method) are unobservable parameters for the valuation of non-trading equity instruments.

These include shares, participations and funds not quoted, illiquid bonds as well as collateralized mortgage obligations (CMO) as well as loans. Furthermore, fund units issued by investment funds fully consolidated by Erste Group as well as own issues are reported in this category.

A reclassification from Level 1 into Level 2 or Level 3 as well as vice versa will be performed if the financial instrument does no longer meet the criteria described above for the respective level.

Classification of financial instruments carried at fair value by levels of the fair value hierarchy

Dec 19	Dec 20
in EUR million	Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
Assets
Financial assets HfT	2,209	3,457	93	5,760	2,390	3,881	85	6,356
Derivatives	7	2,720	79	2,805	4	2,875	75	2,954
Other financial assets held for trading	2,202	737	14	2,954	2,385	1,007	10	3,402
Non-trading financial assets at FVPL	1,985	302	922	3,208	1,805	232	1,046	3,083
Equity instruments	55	5	330	390	59	7	282	347
Debt securities	1,929	297	109	2,335	1,747	225	77	2,048
Loans and advances	0	0	483	483	0	0	687	687
Financial assets at FVOCI	7,745	845	457	9,047	7,347	795	376	8,519
Equity instruments	1	0	209	210	1	0	129	130
Debt securities	7,744	845	247	8,836	7,346	795	248	8,389
Hedge accounting derivatives	0	129	1	130	0	205	0	205
Total assets	11,939	4,733	1,473	18,144	11,542	5,113	1,508	18,163
Liabilities
Financial liabilities HfT	371	2,045	5	2,421	500	2,123	2	2,625
Derivatives	3	1,997	5	2,005	3	2,032	2	2,037
Other financial liabilities held for trading	368	48	0	416	496	91	0	588
Financial liabilities at FVPL	366	12,821	308	13,494	347	11,408	336	12,091
Deposits from customers	0	265	0	265	0	254	0	254
Debt securities issued	366	12,556	89	13,011	347	11,154	155	11,657
Other financial liabilities	0	0	219	219	0	0	180	180
Hedge accounting derivatives	0	269	0	269	0	189	0	189
Total liabilities	736	15,135	313	16,185	846	13,720	338	14,905

Derivatives transacted via Clearing Houses are presented after netting in compliance with their balance sheet treatment. The netted deriva-tives are allocated to Level 2.

The allocation of the appropriate level of positions is determined at the end of the reporting period.

Valuation process for financial instruments categorised as Level 3

The valuation of financial instruments categorized as Level 3 involves one or more significant inputs that are not directly observable on the market. Additional price verification steps need to be done. These may include reviewing relevant historical data and benchmarking for similar transactions, among others. This involves estimation and expert judgment. Further details regarding input parameters used and the results of the sensitivity analysis are disclosed in the sub-chapter Unobservable inputs and sensitivity analysis for Level 3 measurements below.

Changes in volumes of Level 1 and Level 2

Changes in Level 1 and Level 2 volumes of financial instruments carried at fair value in the balance sheet

Dec 19	Dec 20
in EUR million	Level 1	Level 2	Level 1	Level 2
Securities
Net transfer from Level 1	-60	-5
Net transfer from Level 2	60	5
Net transfer from Level 3	3	146	0	-7
Purchases/sales/expiries	507	-670	-400	163
Changes in derivatives	4	-256	-2	230
Total year-to-date change	574	-840	-397	381

Movements in 2020. The total amount of Level 1 financial assets decreased by EUR 397 million compared to last year. The volume of Level 1 securities decreased by EUR 395 million. The main changes are caused by matured or sold assets in the amount of EUR 3,212 million and by new investments in the amount of EUR 2,474 million. Furthermore, the increase in volume for securities that were allocated to Level 1 at both reporting dates (2020 and 2019) amounted to EUR 344 million (due to partial purchases and sales and fair value changes caused by market movements). Due to improved market liquidity, assets in the amount of EUR 108 million have been reclassified from Level 2 to Level 1. This applied mainly to securities issued by governments (EUR 77 million), but also to securities issued by financial institutions (EUR 29 million) and other corporates (EUR 2 million). Due to lower market activity and changes to modelled fair value, securities in total of EUR 103 million have been moved from Level 1 to Level 2. This applies mainly to securities issued by governments (EUR 50 million), financial institutions (EUR 45 million) as well as securities issued by other corporates (EUR 8 million). The remaining negative change in the amount of EUR 6 million was due to partial sales and fair value changes of reclassified in-struments. The volume of derivatives decreased by EUR 2 million.

Movements in 2019. The total amount of Level 1 financial assets increased by EUR 574 million compared to last year. The volume of Level 1 securities increased by EUR 569 million. The main changes are caused by matured or sold assets in the amount of EUR 3,164 million and by new investments in the amount of EUR 2,530 million. Furthermore, the increase in volume for securities that were allocated to Level 1 at both reporting dates (2019 and 2018) amounted to EUR 1,125 million (due to partial purchases and sales and fair value changes caused by market movements). Due to improved market liquidity, assets in the amount of EUR 79 million could be reclassified from Level 2 to Level 1. This applied mainly to securities issued by governments (EUR 32 million), but also to securities issued by other corporates (EUR 24 million) and financial institutions (EUR 23 million). Due to lower market activity and changes to modelled fair value, securities in total of EUR 19 mil-lion have been moved from Level 1 to Level 2. This applies mainly to securities issued by governments (EUR 13 million), other corporates (EUR 4 million) as well as securities issued by financial institutions (EUR 2 million). Level 3 instruments in the amount of EUR 2 million were reclassified to Level 1. The remaining positive change in the amount of EUR 6 million was due to partial sales and fair value changes of reclassified instruments. The volume of derivatives increased by EUR 5 million.

Relassification between Level 1 and Level 2 based on balance sheet positions and instruments

Dec 19	Dec 20
Level 1	Level 2	Level 1	Level 2
in EUR million	to Level 2	to Level 1	to Level 2	to Level 1
Financial assets HfT	14	11	15	23
Bonds	14	9	15	23
Funds	0	2	0	0
Non-trading financial assets at FVPL	3	4	16	3
Bonds	3	4	14	3
Funds	0	0	2	0
Financial assets at FVOCI	2	64	72	82
Bonds	2	64	72	82
Total	19	79	103	108

Movements in 2020: Financial Assets. The total value of Level 2 financial assets increased between 2020 and 2019 by EUR 380 million. The Level 2 fair value change of securities and other receivables (in total up by EUR 150 million) can be explained for the most part by matured or sold positions in the amount of EUR 835 million and new investments in the amount of EUR 1,056 million. The decrease in volume for securities that have been allocated to Level 2 at both reporting dates 2020 and 2019 amounted to EUR 59 million due to pur-chases or sales in volumes and changes in market values. Due to reduced market depth a total volume of EUR 103 million was reclassified from Level 1 to Level 2 in 2020. This applies mainly to securities issued by governments (EUR 50 million), securities issued by financial institutions (EUR 45 million) and other corporates (EUR 8 million). Securities in the amount of EUR 108 million were reclassified from Level 2 to Level 1 for the reporting date. Due to the use of significant non-observable valuation parameters a total volume of EUR 13 million was reclassified from Level 2 to Level 3. Due to a change to valuation models with significant observable parameters a total volume of EUR 6 mil-lion was reclassified from Level 3 to Level 2. The increase on the asset side derivatives in Level 2 by EUR 230 million are caused by changes in market values and by netting effects.

Movements in 2020: Financial Liabilities. The total Level 2 financial liabilities decreased by EUR 1,415 million. Whereas the fair value of derivatives decreased by EUR 46 million, the portfolio of securities decreased by EUR 1,358 million. The fair value of client deposits decreased by EUR 11 million.

Movements in 2019: Financial Assets. The total value of Level 2 financial assets decreased between 2019 and 2018 by EUR 840 million. The Level 2 fair value change of securities and other receivables (down by EUR 584 million) can be explained for the most part by matured or sold positions in the amount of EUR 1,472 million and new investments in the amount of EUR 793 million. The increase in volume for securities that have been allocated to Level 2 at both reporting dates 2019 and 2018 amounted to EUR 21 million due to purchases or sales in volumes and changes in market values. Due to reduced market depth a total volume of EUR 19 million was reclassified from Level 1 to Level 2 in 2018. This applies mainly to securities issued by governments (EUR 13 million), securities issued by other corporates (EUR 4 million) and financial institutions (EUR 2 million). Securities in the amount of EUR 79 million were reclassified from Level 2 to Level 1 for the report-ing date. Due to the use of significant non-observable valuation parameters a total volume of EUR 4 million was reclassified from Level 2 to Level 3. Due to a change to valuation models with significant observable parameters a total volume of EUR 150 million was reclassified from Level 3 to Level 2. The remaining decrease in the amount of EUR 12 million was due to partial sales and fair value changes of reclassified instruments. The decrease on the asset side derivatives in Level 2 by EUR 256 million are caused by changes in market values and by netting effects.

Movements in 2019: Financial Liabilities. The total Level 2 financial liabilities decreased by EUR 114 million. Whereas the fair value of derivatives increased by EUR 4 million, the portfolio of securities decreased by EUR 171 million. The fair value of client deposits in-creased by EUR 53 million.

Movements in Level 3 of financial instruments carried at fair value

Development of fair value of financial instruments in Level 3

in EUR million	Gains/ losses profit or loss	Gains/ losses OCI	Purch-ases	Sales	Settle-ments	Addition to Group	Disposal out of Group	Transfer into Level 3	Transfer out of Level 3	Currency trans-lation
Jan 20	Dec 20
Assets
Financial assets HfT	93	10	0	1	-5	0	0	0	6	-20	-1	85
Derivatives	79	11	0	0	-1	0	0	0	6	-20	-1	75
Other financial assets held for trading	14	-1	0	1	-4	0	0	0	0	0	0	10
Non-trading financial assets at FVPL	922	5	0	371	-122	-70	0	0	2	-15	-47	1,046
Equity instruments	330	2	0	19	-62	0	0	0	1	-5	-1	282
Debt securities	109	11	0	6	-14	-24	0	0	1	-9	-2	77
Loans and advances	483	-8	0	346	-46	-46	0	0	0	0	-43	687
Financial assets at FVOCI	457	3	7	91	-105	-62	0	0	11	-22	-3	376
Equity instruments	209	0	7	0	-86	-1	0	0	0	0	0	129
Debt securities	247	3	0	91	-20	-61	0	0	11	-21	-2	248
Hedge accounting derivatives	1	-1	0	0	0	0	0	0	0	0	0	0
Total assets	1,473	18	7	464	-233	-132	0	0	19	-56	-50	1,508
Liabilities
Financial liabilities HfT	5	2	0	0	-4	0	0	0	0	-1	0	2
Derivatives	5	2	0	0	-4	0	0	0	0	-1	0	2
Financial liabilities at FVPL	308	8	-2	73	-78	-41	0	0	140	-72	0	336
Debt securities issued	89	3	-2	0	0	-2	0	0	140	-72	0	155
Other financial liabilities	219	5	0	72	-78	-38	0	0	0	0	0	180
Total liabilities	313	10	-2	73	-82	-41	0	0	140	-72	0	338
Jan 19	Dec 19
Assets
Financial assets HfT	80	25	0	4	-5	-2	0	0	2	-11	0	93
Derivatives	61	26	0	3	-5	-1	0	0	2	-7	0	79
Other financial assets held for trading	19	0	0	2	-1	-1	0	0	0	-5	0	14
Non-trading financial assets at FVPL	778	23	0	768	-298	-182	0	0	1	-162	-6	922
Equity instruments	317	5	0	40	-5	-9	0	0	1	-20	0	330
Debt securities	174	14	0	55	-4	-15	0	0	0	-116	0	109
Loans and advances	287	4	0	672	-290	-158	0	0	0	-26	-6	483
Financial assets at FVOCI	502	1	66	6	-50	-59	19	0	21	-47	-2	457
Equity instruments	239	0	53	0	-43	-47	0	0	9	-1	0	209
Debt securities	263	1	13	6	-7	-11	19	0	12	-46	-2	247
Hedge accounting derivatives	1	0	0	1	0	0	0	0	0	-1	0	1
Total assets	1,361	50	66	779	-354	-242	19	0	24	-222	-8	1,473
Liabilities
Financial liabilities HfT	14	-7	0	0	0	-1	0	0	0	0	0	5
Derivatives	14	-7	0	0	0	-1	0	0	0	0	0	5
Financial liabilities at FVPL	561	22	0	143	-85	-6	0	-318	87	-96	-1	308
Debt securities issued	96	5	0	0	0	-2	0	0	87	-96	-1	89
Other financial liabilities	464	17	0	143	-85	-4	0	-318	0	0	0	219
Total liabilities	574	15	0	143	-85	-7	0	-318	87	-96	-1	313

Movements in 2020. The reclassification of securities to Level 3 was caused by a decrease in market liquidity and was based on an in-depth analysis of broker quotes. Based on the described analysis securities in the amount of EUR 13 million were reclassified from Level 2 to Level 3. The change is coming from securities issued by other corporates (EUR 9 million), as well as securities issued by financial institutions (EUR 2 million) and securities issued by governments (EUR 2 million). On the other hand, securities that were on the balance at both reporting dates (2020 and 2019) were reclassified from Level 3 to Level 2 in the amount of EUR 6 million. Thereof, EUR 6 million are securities issued by financial institutions. Loans and advances which are measured at fair value under IFRS 9 in-creased by EUR 204 million, mainly by purchases. The additional change in Level 3 positions was on the one hand caused by a decrease in derivative exposure of EUR 4 million and on the other hand by a decrease caused by the purchase, sale and market value change of securities in the amount of EUR 172 million.

Movements in 2019. The reclassification of securities to Level 3 was caused by a decrease in market liquidity and was based on an in-depth analysis of broker quotes. Based on the described analysis securities in the amount of EUR 4 million were reclassified from Level 2 to Level 3. The change is coming from securities issued by financial institutions (EUR 4 million). On the other hand securities in the amount of EUR 150 million were reclassified from Level 3 to Level 2. Thereof EUR 113 million are securities issued by financial insti-tutions, EUR 34 million are securities issued by other corporates and EUR 3 million are issued by central governments. The movement from Level 3 to Level 1 amounted to EUR 2 million. Loans and advances which are measured at fair value under IFRS 9 increased by EUR 197 million. The additional change in Level 3 positions was on the one hand caused by a increase in derivative exposure of EUR 17 million and on the other hand by an increase caused by the purchase, sale and market value change of securities of EUR 46 million.

Gains/losses in profit or loss on Level 3 instruments held at the end of the reporting period

in EUR million	1-12 19	1-12 20
Assets
Financial assets HfT	26.4	15.0
Derivatives	26.6	16.0
Other financial assets held for trading	-0.2	-1.0
Non-trading financial assets at FVPL	24.5	0.3
Equity instruments	6.0	-1.2
Debt securities	14.8	9.1
Loans and advances	3.7	-7.6
Financial assets at FVOCI	-2.7	0.4
Debt securities	-2.7	0.4
Hedge accounting derivatives	0.0	-0.7
Total	48.1	15.0

For financial liabilities designated at FVPL in Level 3 a valuation of EUR -5,6 million was posted via income statement for the end of the reporting period (2019: EUR -6.7 million).

The volume of Level 3 financial assets can be allocated to the following categories:

• _ Market values of derivatives where the credit value adjustment (CVA) has a material impact and is calculated based on unobservable parameters (i.e. internal estimates of PDs and LGDs).

• _ Illiquid bonds, shares and funds not quoted in an active market where either valuation models with non-observable parameters have been used (e.g. credit spreads) or broker quotes have been used that cannot be allocated to Level 1 or Level 2.

• _ Loans which do not comply with the contractual cash flow criteria.

Unobservable inputs and sensitivity analysis for Level 3 measurements

In case the fair value measurement of a financial asset is retrieved from input parameters which are not observable in the market, those parameters can be retrieved from a range of alternative parameters. For the preparation of the balance sheet the parameters where chosen to reflect the market situation at the reporting date.

Range of unobservable valuation parameters used in Level 3 measurements

Financial assets	Type of instrument	Fair value in EUR million	Valuation technique	Significant unobservable inputs	Range of unobservable inputs (weighted average)
Dec 20
Discounted cash flow and option	PD	0.60%-100% (4.12%)
Positive fair value of derivatives	Forwards, swaps, options	75.5	models with CVA adjustment	LGD	60%
based on potential future exposure
Financial assets at FVPL	Fixed and variable coupon bonds	6.1	Discounted cash flow	Credit Spread	0.81%-6.10% (4.51%)
PD	1,16%-6,10% (2,38%)
Loans	687.0	Discounted cash flow
LGD	0%-68,22% (27,94%)
Financial assets at FVOCI	Fixed and variable coupon bonds	132.3	Discounted cash flow	Credit Spread	0.86%-6.52% (2.18%)
Financial assets at FVOCI / at FVPL	Non-trading equity instruments (participations)	236.0	Dividend Discount Model; Simplified Income Approach	Industries: Insurance (General) 0.90-0.95 Recreation 0.96 Real Estate (General/Diversified) 0.78
Beta relevered	Real Estate (Operations &
Services) 0.49
Financial Svcs. (Non-bank & Insurance) 0.91-1.10 Banks (Regional) 0.51 Health Resort & Gesundheitszentrum GmbH 0.74
Croatia 4.45%, Austria 0.36%- 0.5% Czech Republic 0.90%
Country risk	Romania 3.26%,
premium	Russia 2.58%, Slovakia 1.26%, Hungary 3.26% Resulting cost of equity based on above inputs: 4.19%-12.83%
183.6	Adjusted Net Asset Value	Adjusted Equity	Depending on accounting equity of investment.
33.0	Market comparable companies	EV / SALES EV / EBITDA EV / EBIT P/E P/E (implicit) P/B	Depending on industry classification according to Damodaran.
Dec 19
Discounted cash flow and option	PD	0.66%-100% (4.40%)
Positive fair value of derivatives	Forwards, swaps, options	75.8	models with CVA adjustment	LGD	60%
based on potential future exposure
Financial assets at FVPL	Fixed and variable coupon bonds	6.1	Discounted cash flow	Credit Spread	0.81%-6.21% (3.29%)
PD	0%-39.70% (0.81%)
Loans	483,4	Discounted cash flow
LGD	0%-79.30% (25.18%)
Financial assets at FVOCI	Fixed and variable coupon bonds	140.9	Discounted cash flow	Credit Spread	1.23%-7.27% (4.31%)
Financial assets at FVOCI / at FVPL	Non-trading equity instruments (participations)	214.8	Dividend Discount Model; Simplified Income Approach	Industries: Insurance (General) 0.92-0.96 Recreation 0.93
Beta relevered	Real Estate (General/Diversified)
0.75
Financial Svcs. (Non-bank & Insurance) 0.93-1.02 Banks (Regional) 0.58
Country risk premium	Croatia 2.79%, Austria 0.37% Czech Republic 0.65% Romania 2.04%, Russia 2.04%, Slovakia 0.79%, Spain 1.48%, Hungary 2.04% Resulting cost of equity based on above inputs: 6.32%-11.01%
191.7	Adjusted Net Asset Value	Adjusted Equity	Depending on accounting equity of investment.
159.0	Market comparable companies	EV / SALES EV / EBITDA EV / EBIT P/E P/E (implicit) P/B	Depending on industry classification according to Damodaran.

In addition to the information above, equity instruments with a fair value in amount of EUR 21.6 million (2019: EUR 147.9 million) are assessed on the basis of expert opinions.

Furthermore, for equity instruments other than participations classified as Level 3, the amount of EUR 49.9 million (2019: EUR 25.6 mil-lion) is presented in the statement of financial position using the criteria of availability and quality of broker quotes.

Sensitivity analysis using reasonably possible alternatives per product type

Dec 19	Dec 20
Fair value changes	Fair value changes
in EUR million	Positive	Negative	Positive	Negative
Derivatives	2.2	-2.8	2.4	-2.3
Income statement	2.2	-2.8	2.4	-2.3
Debt securities	45.3	-60.3	11.7	-15.6
Income statement	23.7	-31.5	2.1	-2.8
Other comprehensive income	21.6	-28.8	9.6	-12.8
Equity instruments	71.6	-52.8	113.0	-73.4
Income statement	36.2	-31.6	73.1	-49.9
Other comprehensive income	35.4	-21.2	39.9	-23.5
Loans and advances	9.5	-24.8	16.7	-35.4
Income statement	9.5	-24.8	16.7	-35.4
Total	128.6	-140.7	143.8	-126.7
Income statement	71.6	-90.7	94.3	-90.4
Other comprehensive income	57.0	-50.0	49.5	-36.3

In estimating these impacts, mainly changes in credit spreads (for bonds), PDs, LGDs (for CVA of derivatives) and market values of com-parable equities were considered. An increase (decrease) of spreads, PDs and LGDs result in a decrease (increase) of the corresponding fair values. Positive correlation effects between PDs and LGDs were not taken into account in the sensitivity analysis. For non-trading equity instruments increases (decreases) in any of the inputs used for the cost of equity calculation in isolation would result in a lower (higher) fair value.

The following ranges of reasonably possible alternatives of the unobservable inputs were considered in the sensitivity analysis table:

• _ for debt securities range of credit spreads between +100 basis points and -75 basis points

• _ for equity related instruments the price range between -10% and +5%

• _ for unquoted equity instruments measured by the adjusted net asset value the price range between -10% and +10%

• _ for unquoted equity instruments measured by dividend discount model/simplified income approach the cost of equity range between -2% and +2%

• _ for CVA on derivatives PDs rating upgrade/downgrade by one notch, as well as the change of LGD by -5% and +10%.

• _ for loans, the PDs rating upgrade/downgrade by 1%, the change of LGD by -5% and +10% and a range of credit spreads between +100 basis points and -75 basis points

Financial instruments not carried at fair value with fair value disclosed in the notes

in EUR million	Carrying amount	Fair Value	Level 1	Level 2	Level 3
Dec 20
Assets
Cash and cash balances	35,839	35,839	0	0	0
Financial assets at AC	210,940	218,023	27,326	3,768	186,929
Loans and advances to banks	21,466	21,502	0	0	21,502
Loans and advances to customers	159,895	165,257	0	0	165,257
Debt securities	29,579	31,264	27,326	3,768	170
Finance lease receivables	4,127	4,124	0	0	4,124
Assets held for sale	4	4	0	0	4
Trade and other receivables	1,341	1,338	0	0	1,338
Liabilities
Financial liabilities at AC	235,125	235,688	10,255	8,707	216,725
Deposits from banks	24,771	24,763	0	0	24,763
Deposits from customers	190,816	191,098	0	0	191,098
Debt securities issued	19,020	19,309	10,255	8,707	346
Other financial liabilities	518	518	0	0	518
Financial guarantees and commitments
Financial guarantees	n/a	5	5
Irrevocable commitments	n/a	895	895
Dec 19
Assets
Cash and cash balances	10,693	10,693	0	0	0
Financial assets at AC	204,162	208,412	25,273	2,637	180,503
Loans and advances to banks	23,055	23,072	0	0	23,072
Loans and advances to customers	154,344	157,342	0	0	157,342
Debt securities	26,764	27,998	25,273	2,637	89
Finance lease receivables	4,034	4,024	0	0	4,024
Assets held for sale	0	0	0	0	0
Trade and other receivables	1,408	1,412	0	0	1,412
0	0	0
Liabilities
Financial liabilities at AC	204,143	204,392	10,472	6,631	187,289
Deposits from banks	13,141	13,337	0	0	13,337
Deposits from customers	173,066	172,948	0	0	172,948
Debt securities issued	17,360	17,531	10,472	6,631	428
Other financial liabilities	576	577	0	0	577
Financial guarantees and commitments
Financial guarantees	n/a	82	82
Irrevocable commitments	n/a	357	357

In the table above, positive fair values of financial guarantees and commitments are shown with a positive sign whereas negative fair values are shown with a negative sign.

The fair value of loans and advances to customers and credit institutions has been calculated by discounting future cash flows while taking into consideration interest and credit spread effects. The interest rate impact is based on the movements of market rates, while credit spread changes are derived from PDs and LGDs used for internal risk calculations. For the calculation of fair value loans and advances were grouped into homogeneous portfolios based on rating method, rating grade, maturity and the country where they were granted. The fair values of debt securities at amortised cost are either taken directly from the market or they are determined by directly observable input parameters (i.e. yield curves).

The fair value of deposits and other liabilities, measured at amortised cost, is estimated by taking into account the current interest rate environment, as well as the own credit spreads. These positions are assigned to the Level 3 category. For liabilities without contractual maturities (e.g. demand deposits), the carrying amount represents the minimum of their fair value.

The fair value of issued securities and subordinated liabilities measured at amortized cost is determined based on quoted prices in active markets, if available. For issued securities where the fair value cannot be retrieved from quoted market prices, the fair value is calculated by discounting the future cash flows. Significant input factors for the spread adjustment of Erste Group's own credit risk for the respective seniority class are credit spreads derived from liquid benchmark bonds and additional indications from external investments banks, which are provided on a regular basis. The applied spreads are validated on a regular basis from an independent Risk Management unit. Moreover optionality is taken into account when calculating the fair value.

For off-balance sheet liabilities (i.e. financial guarantees and unused loan commitments) the following fair value approaches are applied:the fair value of unused loan commitments is estimated using regulatory credit conversion factors. The resulting loan equivalents are treated like other on-balance sheet assets. The difference between the calculated total fair value and the notional amount of the hypothetical loan equivalents represents the fair value of the unused loan commitments. In case of the total fair value being higher than the notional amount of the hypothetical loan equivalents the unused loan commitments have a positive fair value. The fair value of financial guarantees is estimated in analogy to credit default swaps. The fair value of the guarantee is the sum of the present value of the protection leg and the present value of the premium leg. The value of the protection leg is estimated using the PDs and LGDs of the respective customers, whereas the value of the premium leg is estimated by the present value of the future fee payments to be received. If the protection leg is higher than the premium leg, financial guarantees have a negative fair value.

27. Hedge accounting

Erste Group makes use of derivative instruments to hedge exposures to interest rate risk and foreign currency risk. In order for the derivatives and the exposures to qualify for hedge accounting, at inception of a hedge relationship, the bank formally documents the relationship between the hedged item and the hedging instrument, including the nature of the risk, the objective and strategy for undertaking the hedge and the method that will be used to assess the effectiveness of the hedging relationship. A hedge is considered to be highly effective if the changes in fair value or cash flows attributable to the hedged risk offset the fair value changes of the hedging instrument in a range of 80% to 125%. This is assessed both prospectively, i.e. whether the results are expected to be in the range, and retrospectively, i.e. whether the actual results are in the range. Hedge effectiveness is assessed at inception and throughout the term of each hedging relationship. Exact conditions for particular types of hedges and for testing the hedge effectiveness by Erste Group are specified internally in the hedge ac-counting guidance. As permitted by the transitional provisions of IFRS 9, Erste Group has elected to continue to apply the hedge accounting requirements of IAS 39. On the balance sheet, derivatives designated as hedging instruments are carried at fair value (dirty price). They are presented in the line item 'Hedge accounting derivatives' on the asset or liability side depending on whether their fair value is positive or negative.

i. Fair value hedges

For qualifying and designated fair value hedges, the change in the fair value (clean price) of a hedging instrument is recognised in the statement of income under the line item 'Net trading result'. Interest income and expenses on hedging derivatives are reported in the line item 'Other similar income' or 'Other similar expenses' under 'Net interest income'. The change in the fair value of the hedged item at-tributable to the hedged risk is also recognised in the statement of income under the line item 'Net trading result' and adjusts the carrying amount of the hedged item.

Erste Group also applies portfolio fair value hedges of interest rate risk as regulated by IAS 39.AG114-AG132. For this purpose, Erste Group makes use of the relaxation provided by the EU-carve out and hedges the interest rate risk of prepayable loans in respect of the so called 'bottom layer' amount. With this approach, prepayments, other derecognitions and impairments are considered as not affecting the hedge effectiveness unless their amount hits the designated hedged bottom layer level. The change in the fair value of the hedged items attributable to the hedged interest risk is presented on the balance sheet under the line item 'Fair value changes of hedged items in portfolio hedge of interest rate risk'.

If the hedging instrument expires, is sold, is terminated or is exercised, or when the hedge no longer meets the criteria for hedge accounting, the hedge relationship is terminated. In this case, the fair value adjustment of the hedged item is amortised until maturity of the financial instrument. In the statement of income the amortisation is presented under 'Net interest income' in the line item 'Interest income' if the hedged item was a financial asset or in the line item 'Interest expenses' if the hedged item was a financial liability. For portfolio fair value hedges of interest rate risk the fair value adjustment related to the terminated hedge is amortised to the statement of income on a straight-line basis in the line item 'Other similar income' under 'Net interest income'.

ii. Cash flow hedges

For designated and qualifying cash flow hedges, the effective portion of the gain or loss on the hedging instrument is recognised as OCI in the line 'Cash flow hedge reserve' of the statement of comprehensive income. The accumulated other comprehensive income is presented under 'Cash flow hedge reserve' in the statement of changes in equity. The ineffective portion of the gain or loss on the hedging instrument is recognised in the statement of income under the line item 'Net trading result'. For determination of the effective and ineffective portions, the derivative is considered at its clean price, i.e. excluding the interest component. When the hedged cash flow affects the statement of income, the gain or loss on the hedging instrument is reclassified from other comprehensive income on the corresponding income or expense line item in the statement of income (mainly 'Other similar income' or 'Other similar expenses' under 'Net interest income'). As far as accounting for hedged items in cash flow hedges is concerned, there is no change compared to the situation when no hedging is applied.

When a hedging instrument expires, is sold, is terminated, is exercised, or when a hedge no longer meets the criteria for hedge accounting, the hedge relationship is terminated. In this case, the cumulative gain or loss on the hedging instrument that has been recognised in other comprehensive income remains in 'Cash flow hedge reserve' until the transaction occurs.

Hedges of interest rate risk

As an inherent part of its business Erste Group is exposed to interest rate risk arising from the interest characteristics and behavior of assets, liabilities and off balance sheet items. This relates to the existing balance sheet items as well as to expected development of the balance sheet and banking activities. Interest rate risk can generally be defined as a potential deterioration of a bank's financial condition in reaction to adverse movements in market interest rates.

Hedge accounting activities relate to interest risk bearing exposures in the banking book. The interest rate risk of the banking book is managed by Group Asset Liability Management (ALM). Interest rate risk management actions of ALM are approved as part of the ALM strategy by Group Asset Liability Committee (ALCO). For hedging relationships qualifying for hedge accounting hedge effectiveness is measured by risk management unit which is independent from ALM as the risk taker.

The objective of the interest rate risk management in the banking book is to optimise the risk and return of interest rate risk exposures. For this purpose and for compliance with external and internal regulations and limitations Erste Group manages the interest rate risk from the earnings and economic value perspectives. The focal point of the interest rate risk analysis from the earnings perspective is the variation in earnings, i.e. the net interest income. The changes in interest rates have an impact on the bank's earnings via its distinct impact on interest income and interest expenses accrued on assets and liabilities respectively. The economic value perspective views the interest rate risk as changes in the economic value of equity. It can be identified as the present value of cash-flows arising from asset, liability and off-balance-sheet items. Change in interest rates alters both the size of future cash-flows and the value of discount rates applied in the calculation.

Existing balance sheet items and contributions of planned or forecast transactions are analysed through the earnings and economic value based metrics. Erste Group keeps the risk within predefined limits. When actively managing interest rate risk ALM gives preference to entering into bonds and derivatives. In general, the policy of Erste Group is to swap all substantial fixed or structured issued bonds to floating items. In addition of managing the interest rate risk using derivative transactions and investments in bonds, also the intended non-hedging of benchmark issues with derivatives is used for managing the interest rate risk.

Interest rate swaps are the most common derivatives used to manage interest rate. If fixed rate repricing profiles of assets or liabilities do not fit to the interest rate risk management strategy they are swapped into variable rate items (usually 3-month money market rate such as Euribor). In other cases, variable rate repricing profiles of assets or liabilities may need to be swapped into fixed rate items.

Erste Group employs hedge accounting to address accounting mismatches resulting from different measurement requirements for deriva-tives which are measured at fair value through profit or loss and financial assets and liabilities in the banking book measured at amortised cost or at fair value through other comprehensive income. Some of the accounting mismatches are addressed by designating financial assets or financial liabilities as measured at FVPL (fair value option) without the need to use hedge accounting.

Fair value hedges address the risk management activities of swapping fixed rate assets or liabilities into variable rate. On the other hand, cash flow hedges are used when floating rates assets or liabilities are swapped into fixed ones (please refer also to the discussion of proxy hedges below).

For hedges of interest rate risk of portfolios of prepayable fixed rate loans Erste Group applies requirements for portfolio fair value hedges of interest rate risk as regulated by IAS 39.AG114-AG132. For this purpose, Erste Group makes use of the relaxation provided by the EU-carve out and hedges the interest rate risk in respect of so called bottom layer amount. The bottom layer amount is expected not to be affected by prepayments of loans (including a margin of conservatism). Thus, it represents a stable fixed interest rate exposure which is hedged by using interest rate swaps. With this approach, any prepayments, other derecognitions and impairments are attributed to the un-hedged buffer amount above the designated bottom layer. Thus, they do not affect the hedge effectiveness unless their amount hits the designated hedged bottom layer level.

Fair value hedges are designated in respect of the interest rate risk component of the fair value changes of the hedged fixed rate items. The hedged interest rate risk portion in fair value hedges relates to the observed interest rate (swap yield curve) component. I.e. the fair value volatility resulting from changes in the spread of the hedged fixed rate instrument swap yield curve is excluded from hedge accounting and is not accounted for.

Similarly, in cash flow hedges the hedged risk is designated in respect of the variable cash flows portion equal to the interest index of the swap (such as Euribor, Libor). The credit spreads over the swap index are excluded from hedge accounting.

The hedging interest derivatives are economically related to the hedged interest rate risk component of the hedged item. The non-interest components (such as credit spreads) of the hedged items are outside the hedging relationship. As a result, comparable valuation inputs are applied on both sides of the hedging relationship. Thus offsetting effects are recognised to the extent the economic relationship exists without giving rise to artificial volatility in profit or loss. The hedged interest risk component is the most significant factor affecting fair value changes of the hedged item.

The designated hedging relationships normally correspond to the economic hedges set up by ALM when managing the interest rate risk. However, in some cases, the hedging derivatives may not be directly related to specific assets or liabilities but they manage the overall interest risk position. Also, the derivatives may relate to instruments which do not qualify as hedged items under the IFRS hedge accounting requirements. In order to account for risk mitigating effects of such derivatives Erste Group searches for suitable hedged items providing the best fit to the terms of the derivative and designates an effective hedging relationship (so called proxy hedges). Typically cash flow hedges of variable rate assets are designated on such a basis whereby the actual economically hedged risk may result from modelled fixed rate profile of demand deposit liabilities.

Notional amounts of hedged items

Notional amount
in EUR million	Type of hedged items	Dec 19	Dec 20
Fair value hedges
Assets	Portfolios of client loans	319	234
Assets	Single loans	383	356
Assets	Bonds at FVOCI	543	432
Assets	Bonds at AC	600	925
Liabilities	Issued bonds	9,412	11,679
Liabilities	Other liabilities/repos	54	0
Cash flow hedges
Assets	Interbank loans/repos	1,580	1,527
Assets	Client loans	1,608	1,125
Assets	Corporate/government bonds	94	53

Portfolio hedges of defined bottom layer amounts (bottom layer hedges) are disclosed in the table with the nominal hedged bottom layer amounts. Client loans hedged in portfolio hedges are disclosed in balance sheet line item 'Financial assets measured at amortised cost', with a carrying amount of EUR 388,0 million (2019: EUR 419.9 million).

The hedge ratio is chosen in compliance with the rules defined in IAS 39. The volume of the hedging instrument which is designated for the hedge relation can never be greater than the volume of the hedged item. If the notional of a hedging derivative is greater than the notional of the hedged item the respective proportion of the derivative is designated as hedging instrument. Further, the tenor of the hedging instru-ment is never longer than the tenor of the hedged item.

Sources of hedge ineffectiveness can result from:

• _ designation of hedging instruments and hedged items during their life rather than from their inception

• _ different discounting curves applied for hedged item and hedging instrument

• _ different interest tenors of hedging swaps and hedged variable rate items in cash flow hedges

• _ volatility of present value of floating leg of hedging swaps in fair value hedges

• _ different trade dates for the hedging instrument and the hedged item

• _ real prepayments of a loan portfolio deviating from expected prepayments

• _ credit risk adjustments (CVA, DVA) on the hedging derivatives

Hedges of foreign exchange risk

The objective of foreign exchange risk management in the banking book is to avoid unfavorable market movements of foreign exchange rates which could impact profit or loss of Erste Group. Only a minor part of foreign exchange risk management activities requires using of hedge accounting. Currently fixed rate corporate or government bonds with notional amount of EUR 596 million (2019: EUR 252 million) are hedged in cash flow hedges by using cross currency swaps as hedging instruments.

Quantitative disclosures

In the tables below, detailed information related to hedging instruments and hedged items in fair value and cash flow hedges as of 31 De-cember 2020 are reported. The indicated values for fair value hedges include single hedges as well as portfolio hedges, which due to immateriality are not shown separately.

Hedging instruments

Carrying amount	Timing of the nominal amounts of the instruments
Change in FV for the period used for calculating hedge	> 3 m and	> 1 y and
in EUR million	Assets	Liabilities	ineffectivness	Notional	≤ 3m	≤ 1y	≤ 5y	>5y
Dec 20
Fair value hedges	537	291	77	13,540	1,175	137	5,612	6,617
Interest rate risk	537	291	77	13,540	1,175	137	5,612	6,617
Cash flow hedges	86	15	116	3,300	19	116	2,651	513
Interest rate risk	83	8	124	2,704	19	116	2,397	171
Foreign exchange risk	2	7	-8	596	0	0	254	342
Total gross amounts	623	306	193	16,840	1,194	253	8,263	7,130
Offset	-418	-117
Total	205	189	193	16,840	1,194	253	8,263	7,130
Dec 19
Fair value hedges	460	296	181	11,234	33	1,093	4,952	5,155
Interest rate risk	460	296	181	11,234	33	1,093	4,952	5,155
Cash flow hedges	21	81	-25	3,532	10	61	2,162	1,299
Interest rate risk	20	79	-20	3,280	0	39	2,094	1,147
Foreign exchange risk	1	2	-4	252	10	21	68	152
Total gross amounts	481	377	156	14,766	43	1,154	7,114	6,455
Offset	-350	-107
Total	130	269	156	14,766	43	1,154	7,114	6,455

The hedging instruments are presented in the line 'Hedge accounting derivatives' in the balance sheet.

Hedged items in fair value hedges

Hedge adjustments
Thereof: for the
period used for	Remaining
included in the	recognition of hedge	adjustments for
in EUR million	Carrying amount	carrying amount	ineffectiveness	terminated hedges
Dec 20
Financial assets at FVOCI
Interest rate risk	487	90	-3	17
Financial assets at AC
Interest rate risk	1,992	122	4	23
Financial liabilities at AC
Interest rate risk	12,189	445	-80	121
Dec 19
Financial assets at FVOCI
Interest rate risk	600	91	0	25
Financial assets at AC
Interest rate risk	1,632	115	20	24
Financial liabilities at AC
Interest rate risk	9,900	361	-199	148

The hedged items are disclosed in the following line items in the balance sheet:

• _ Financial assets at fair value through other comprehensive income / debt securities

• _ Financial assets at amortised cost / loans and advances to customers

• _ Financial assets at amortised cost / debt securities

• _ Financial liabilities at amortised cost / debt securities issued

Hedged items in cash flow hedges

in EUR million	Change in FV for the period used for calculating hedge ineffectiveness	Cash flow hedge reserve for continuing hedges	Cash flow hedge reserve for terminated hedges
Dec 20
Interest rate risk	-111	55	4
Foreign exchange risk	7	-13	0
Total	-104	42	4
Dec 19
Interest rate risk	25	-65	18
Foreign exchange risk	5	-6	0
Total	29	-71	18

Effects of hedge accounting in profit or loss and other comprehensive income

Cash flow hedge reclassified to profit or loss because
the hedged future
Hedge ineffectiveness	Hedging gains/losses	the hedged item has affected	cash flows are no longer
in EUR million	recognised in P&L	recognized in OCI	profit or loss	expected to occur
Dec 20
Fair value hedges
Interest rate risk	-2	0	0	0
Cash flow hedges
Interest rate risk	4	120	-14	0
Foreign exchange risk	1	-8	0	0
Total	3	111	-14	0
Dec 19
Fair value hedges
Interest rate risk	2	0	0	0
Cash flow hedges
Interest rate risk	4	-25	-25	0
Foreign exchange risk	0	-4	0	0
Total	6	-29	-25	0

Ineffectiveness from both fair value and cash flow hedges is presented under 'Net trading result' in the statement of income. The amounts reclassified from the cash flow hedge reserve are presented in the line 'Other similar income' under 'Net interest income' for hedges of interest rate risk and 'Net trading result' for hedges of foreign exchange risk.

Application of the Interest Rate Benchmark Reform IAS 39 amendments

Erste Group considers that it is exposed to uncertainties resulting from interest rate benchmark reform in respect of its hedges of CHF LIBOR and USD LIBOR interest risk. Hedging instruments with nominal amount of CHF 200 million (EUR 182.2 million) (2019: CHF 200 million (EUR 184.3 million)) designated in fair value hedges of debt securities issued and USD 50 million (EUR 40.7 million) desig-nated in fair value hedges of bonds acquired are affected. Their hedging period reaches beyond 2021 the expected end date of the respective LIBOR rates (in general 31 December 2021 but for USD LIBOR 1M, 3M, 6M and 12M tenors 30 June 2023).

When CHF LIBOR and USD LIBOR rates cease to be quoted they are assumed to be replaced by SARON (Swiss Average Rate Overnight for CFH) and SOFR (Secured Overnight Financing Rate for USD) rates. There are significant differences between the LIBOR and SA-RON/SOFR rates. LIBOR is a 'term rate' published at a start of a borrowing period with certain tenor (such as 3 months), i.e. it is 'forward-looking'. SARON and SOFR are overnight rates resulting from actual transactions. The LIBOR term rates used as floating leg reference rates in interest derivative markets will fall back to SARON or SOFR term rates on a 'backward-looking' basis. For example a 3-month SARON or SOFR term rate would be based on a compounded average of overnight SARON or SOFR rates over the 3-month period calculated at its end. Moreover, LIBOR rates in general include a credit spread component reflecting the riskiness of an interbank market for respective tenors. As a result, the replacement rates will have as a foundation the term SARON or SOFR rate and on top a spread adjustment to ensure economic equivalence addressing the tenor, credit risk and other differences.

When it comes to the replacement, the CHF and USD interest rate swap hedging instruments will be affected both by replacements of the reference rate used for their floating legs (LIBOR rate changed into term SARON or SOFR) and the change in the discounting curve. On the hedged items side, the hedged benchmark interest rate risk portion will be affected only by change in the discounting curve (LIBOR-based discounting curve changed into overnight SARON- or SOFR-based discounting curve).

As a result of these uncertainties, Erste Group applies the amendments to IAS 39 Interest Rate Benchmark Reform (issued in September 2019 - Phase 1 of the Interest Rate Benchmark Reform IASB project) which bring some reliefs enabling not to discontinue these hedges as long as uncertainties arising from the reform exist. More specifically, it is necessary to prove that the non-contractually specified benchmark portion of interest rate risk (resulting from the CHF and USD LIBOR curve) is separately identifiable only at the hedge inception and not during the hedge life. For testing of prospective effectiveness it is assumed that the hedging instrument and the hedged risk of the hedged item do not change as a result of the reform. If the retrospective effectiveness requirements were not met the hedges would not need to be discontinued. However, any hedge ineffectiveness would be accounted for in profit or loss. Application of these reliefs will cease when there is no longer uncertainty about the CHF and USD LIBOR-based cash flows of the hedging instruments and the hedged benchmark interest rate risk portion.

Erste Group also hedges interest rate risks in EUR and CZK . However, for these currencies it does not consider to be exposed to uncertain-ties resulting from the reform. For EUR all the hedges relate to EURIBOR interest rates which have been reformed and are EU Benchmark Regulation compliant. The same applies in CZK for PRIBOR, whose calculation methodology was strengthened in 2020 while continuing to measure the same underlying interest.

Erste Group has established an internal project led by Asset-Liability Management to manage and oversee the implications resulting from the the interest rate benchmark reform with the aim to minimize the potential disruption to business and to mitigate operational and conduct risks and possible financial losses. This transition project will include changes to systems, processes, risk management and valuation models, as well as managing related tax and accounting implications.

Erste Group decided not to apply early the amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: Interest Rate Benchmark Reform - Phase 2 issued in August 2020. The reasons are discussed in the part Application of amended and new IFRS/IAS of Significant accounting policies.

28. Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported on the balance sheet if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously. Erste Group undertakes interest rate derivative transactions via London Clearing House and EUREX, credit deriv-ative transactions via ICE Clear Europe Ltd by fulfilling all offsetting requirements according IAS 32. Offsetting is carried out between asset and liability derivative positions, while the net position is further offset with variation margin amounts.

The following table shows netting effects on the balance sheet of Erste Group as well as the impacts of offsetting financial instruments which are subject to offsetting agreements.

Financial assets subject to offsetting and potential offsetting agreements

Potential effects of netting agreements not qualifying for balance sheet offsettingFinancial assets

Other financialFinancial assetsAmounts offsetin balance sheetFinancialCash collateralcollateralin EUR million

(gross)

(gross)

(net)instrumentsreceivedreceivedNet amount after potential offsetting

Dec 20

Derivatives

Reverse repurchase agreements Total

5,477 17,869 23,346

2,318

0 2,318

3,159 17,869 21,028

1,476

0 1,476

1,121 2 1,123

0 17,390 17,390

563 476 1,040

Dec 19

Derivatives

Reverse repurchase agreements Total

4,902 20,778 25,680

1,967

0 1,967

2,936 20,778 23,713

1,520

0 1,520

849 7 856

0 20,604 20,604

567 167 734

Financial liabilities subject to offsetting and potential offsetting agreements

Potential effects of netting agreements

not qualifying for balance sheet offsetting

Financial

Financial liabilities

liabilities in

Other financialNet amountAmounts offsetbalance sheetFinancialCash collateralcollateralafter potentialin EUR million

(gross)

(gross)

(net)instruments

pledged

pledgedoffsetting

Dec 20

Derivatives

Repurchase agreements Total

4,321 2,196 6,517

2,095

0 2,095

2,226 2,196 4,422

1,476

0 1,476

359 12 371

49 2,180 2,228

343

4 348

Dec 19

Derivatives

Repurchase agreements Total

4,022 3,082

1,748 0

7,104

1,748

2,275 3,082 5,357

1,520 0

270 14

1,520

284

5 2,859 2,865

479 209

688

The impact of offsetting is shown in the column 'Amounts offset (gross)'. The net position between the offset derivative amounts EUR 223 million (2019: EUR 219 million) is further offset with variation margin balances presented under balance sheet items 'Cash and cash balances' in amount EUR 62 million (2019: EUR 58 million) and 'Financial liabilities measured at amortised cost ', sub-item 'Deposits from banks' in amount of EUR 285 million (2019: EUR 277 million).

Erste Group employs repurchase agreements and master netting agreements as a means of reducing credit risk of derivative and financing transactions. They qualify as potential offsetting agreements. Master netting agreements are relevant for counterparties with multiple deriv-ative contracts. They provide for the net settlement of all the contracts in the event of default of any counterparty. For derivatives transactions the values of assets and liabilities that would be set off as a result of master netting agreements are presented in the column 'Financial instruments'. If the net position is further secured by cash collateral or other financial collaterals the effects are disclosed in columns 'Cash collateral received / pledged' and 'Other financial collateral received / pledged' respectively.

Repurchase agreements are primarily financing transactions. They are structured as a sale and subsequent repurchase of securities at a pre-agreed price and time. This ensures that the securities remain in the hands of the lender as collateral in case the borrower defaults on fulfillingany of its obligations. Offsetting effects from repurchase agreements are disclosed in the column 'Other financial collateral received / pledged' respectively. Collateral is presented at the fair value of the transferred securities. However, if the fair value of collateral exceeds the carrying amount of the receivable/liability from the repo transaction the value is capped at the level of the carrying amount. Remaining position may be secured by cash collateral. Cash and other financial collateral involved in these transactions is restricted from being used it by the transferor during the time of the pledge. For further details regarding repurchase and reverse repurchase transactions we refer to Note 29 Transfers of financial assets - repurchase transactions and securities lending

29. Transfers of financial assets - repurchase transactions and securities lending

Repurchase and reverse repurchase agreements

Transactions involving sales of securities under an agreement to repurchase them at a specified future date are also known as 'repos' or 'sale and repurchase agreements'. Securities sold in such transactions are not derecognised from the balance sheet, as Erste Group retains sub-stantially all risks and rewards of ownership, because the securities are repurchased at a fixed price when the transaction ends. Furthermore, Erste Group is the beneficiary of all coupons and other income payments received on the transferred assets over the period of the transactions. These payments are remitted to Erste Group or are reflected in the repurchase price.

The cash received upon sale of securities is recognised on the balance sheet with a corresponding obligation to return under the line item 'Financial liabilities at amortised cost', sub-items 'Deposits from banks' or 'Deposits from customers' reflecting the transaction's economic substance as a loan to Erste Group. The difference between the sale and repurchase prices is treated as interest expense which is accrued over the life of the agreement and recorded in the statement of income in the line item 'Interest expenses' under 'Net interest income'. Financial assets transferred out by Erste Group under repurchase agreements remain on the Group's balance sheet and are presented sepa-rately under the original balance sheet items in the 'thereof pledged as collateral' lines. The measurement category of the transferred financial assets does not change.

Conversely, securities purchased under agreements to resell at a specified future date are not recognised on the balance sheet. Such trans-actions are also known as 'reverse repos'. The consideration paid is recorded on the balance sheet under the line item 'Financial assets at amortised cost', sub-items 'Loans and advances to banks' and 'Loans and advances to customers' reflecting the transaction's economic substance as a loan by Erste Group. The difference between the purchase and resale prices is treated as interest income and is accrued over the life of the agreement and recorded in the statement of income in the line item 'Interest income' under 'Net interest income'.

Securities lending and borrowing

In securities lending transactions, the lender transfers ownership of securities to the borrower on the condition that the borrower will re-transfer, at the end of the agreed loan term, ownership of instruments of the same type, quality and quantity and will pay a fee determined by the duration of the lending. The transfer of the securities to counterparties via securities lending does not result in derecognition. Sub-stantially all the risks and rewards of ownership are retained by Erste Group as a lender because the securities are received at the end of the securities lending transaction. Furthermore, Erste Group is the beneficiary of all the coupons and other income payments received on the transferred assets over the period of the securities lending. Securities lent are presented separately under the original balance sheet items in the 'thereof pledged as collateral' lines. Fee income from securities lending transactions is presented in the statement of income in the line 'Fee and commission income' under 'Net fee and commission income'.

Securities borrowed are not recognised on the balance sheet unless they are then sold to third parties. If such sales occur, the obligation to return the securities is recorded on the balance sheet as a short sale within 'Financial liabilities held for trading', sub-item 'Other financial liabilities'. Fee expense incurred on securities borrowing transactions is presented in the statement of income in the line 'Fee and commis-sion expenses' under 'Net fee and commission income'.

Dec 19	Dec 20
in EUR million	Carrying amount Carrying amount Carrying amountof transferred assetsof associated liabilitiesof transferred assets	Carrying amount of associated liabilities
Repurchase agreements	1,703	1,645	754	754
Financial assets at AC	741	717	664	666
Trading assets	383	381	40	39
Non-trading financial assets at FVPL	2	2	0	0
Financial assets at FVOCI	578	545	50	49
Securities lendings	1,510	0	1,270	0
Financial assets at AC	1,401	0	1,235	0
Trading assets	47	0	28	0
Non-trading financial assets at FVPL	37	0	8	0
Financial assets at FVOCI	26	0	0	0
Total	3,214	1,645	2,024	754

The transferred financial instruments consist of bonds and other interest-bearing securities. The total amount of transferred financial assets represent the carrying amount of financial assets in the respective balance sheet positions for which the transferee has a right to sell or repledge. The associated liabilities from repo transaction, which are measured at amortised cost, represent an obligation to repay the bor-rowed funds.

The following table shows fair values of the transferred assets and associated liabilities for repo transactions with an existing recourse right only on the transferred assets:

Dec 19	Dec 20
Fair value of transferredFair value of associated	Fair value of transferred	Fair value of associated
in EUR million	assetsliabilitiesNet position	assets	liabilities	Net position
Financial assets at AC	791 718 73	767	665	101
Trading assets	383 381 2	40	39	2
Non-trading financial assets at FVPL	2 2 0	0	0	0
Financial assets at FVOCI	578 545 32	50	49	1
Total	1,753 1,646 107	857	753	104

30. Collaterals
Carrying amount of financial assets pledged as collaterals
in EUR million	Dec 19	Dec 20
Financial assets at AC	24,390	40,641
Trading assets	430	181
Non-trading financial assets at FVPL	97	57
Financial assets at FVOCI	862	776
Total	25,780	41,654

The financial assets pledged as collateral consist of loans and advances to customers, bonds and other interest-bearing securities. Collaterals were pledged as a result of repurchase transactions, refinancing transactions with the European Central bank (ECB) and the respective National Banks, loans backing issued mortgage bonds and other collateral arrangements.

The fair value of collateral received which may be repledged or resold even without the collateral provider's default was EUR 19,156.9 mil-lion (2019: EUR 23,776.3 million). Collateral with fair value of EUR 1,532.3 million (2019: EUR 1,654.5 million) was resold. Collateral with fair value of EUR 29.9 million (2019: EUR 400.6 million) was repledged. The bank is obliged to return the resold and repledged collateral.

31. Securities

Dec 19

Dec 20

Financial assets

Financial assets

Trading	Mandatorily	Designated	Trading	Mandatorily	Designated
in EUR million	At AC	assets	at FVPL	at FVPL	At FVOCI	At AC	assets	at FVPL	at FVPL	At FVOCI
Bonds and other interest-
bearing securities	26,764	2,889	1,671	664	8,836	29,579	3,368	1,446	603	8,389
Listed	25,663	2,114	844	620	7,123	28,095	2,454	685	164	6,367
Unlisted	1,101	774	826	44	1,714	1,484	914	761	439	2,022
Equity-related securities	0	65	390	0	210	0	34	347	0	130
Listed	0	62	142	0	120	0	28	124	0	43
Unlisted	0	4	248	0	90	0	6	223	0	87
Total	26,764	2,954	2,061	664	9,047	29,579	3,402	1,793	603	8,519

Investment funds units are reported within bonds and other interest bearing securities.

Risk and capital management

32. Risk management

Risk policy and strategy

A core function of a bank is taking risks in a conscious and selective manner and professionally steering those risks. Adequate risk policy and risk strategy is essential to a bank's fundamental financial health and operational business success.

Erste Group has developed a risk management framework that is forward-looking and tailored to its business and risk profile. This frame-work is based on a clear risk strategy that sets out general principles according to which risk taking must be performed across the Group. The risk strategy is consistent with the business strategy and incorporates the expected impact of external environment on the planned business and risk development.

The risk strategy describes the current risk profile, defines risk management principles, strategic goals and initiatives for the main risk types as well as sets strategic limits for the significant financial and non-financial risk types as defined in the Risk Materiality Assessment. The risk strategy is executed within a clearly defined governance structure. This structure also applies to monitoring of risk appetite, additional metrics, as well as to the escalation of limit breaches.

In 2020, when the Covid-19 pandemic has been the central topic worldwide - and hence also in our core markets, management has continued to steer credit portfolio, including active management of non-performing exposures to further strengthen the risk profile. A forward-looking approach was implemented in the Group and significant provisions were set aside to reflect the expected deterioration in asset quality as a result of worsening in the macroeconomic outlook due to Covid-19.

Erste Group Bank AG uses the Internet as the medium for publishing its disclosures under Article 434 of the Regulation (EU) No. 575/2013 on prudential requirements for credit institutions and investment firms (Capital Requirements Regulation - CRR) and Regulation (EU) No. 876/2019 amending Regulation (EU) No. 575/2013. Details are available on the website of Erste Group atwww.erstegroup.com/ir. Relevant disclosures are included in the annual report in the section 'Reports' or published as separate documents in the section 'Regulatory disclosure'.

Risk management organisation

Risk monitoring and control is achieved through a clear organisational structure with defined roles and responsibilities, delegated authorities and risk limits.

The following chart presents an overview of Erste Group's risk management organisation:

Erste Group Bank AG - CRO Division

GroupCRO

Group Liquidity and	Enterprise wide	Credit Risk	Group
Market Risk Mgmt.	Risk Management	Methods	Compliance
Retail Risk	Cyber Risk
Management	Management

Credit Risk PortfolioCorporate Risk Management

Group Legal

At the beginning of 2020, the management boards of Erste Group Bank AG (EGB) and Erste Bank der oesterreichischen Sparkassen AG (EBOe) decided to consolidate the risk management structures of EGB and EBOe in order to establish a more focused support for the corporate and retail business as well as improved processes and collaboration. In April 2020, the common structure was implemented for the areas of operative credit risk management, i.e. the Corporate Risk Management, Retail Risk Management and Credit Risk Portfoliodivisions. Furthermore, as of 1 October 2020, EGB and EBOe merged their strategic risk management units and form a uniform compliance function to improve cooperation and processes based on existing synergies. The reorganization included the merger of the enterprise-wide risk management functions and security risk management units as well as the merger of the credit risk methods and models. This step will improve the cooperation and ensures coordinated processes and standards being implemented. In addition, the new structure will enable a standardized data collection and processing and target a harmonized IT infrastructure. The staff unit Group Sustainability Office was transferred to the area of responsibility of the Chief Executive Officer and a new staff unit, Cyber Risk Management, was created.

Risk management structure

The management board and in particular Erste Group's Chief Risk Officer (Group CRO) perform the oversight function within Erste Group's risk management structure. Risk control and risk steering within Erste Group are performed based on the business strategy and risk appetite approved by the management board. The Group CRO, working together with the chief risk officers of the subsidiaries, is responsible for the implementation and adherence to the risk control and risk management strategies across all risk types and business lines.

The management board and, in particular, the Group CRO ensure the availability of appropriate infrastructure and staff as well as methods, standards and processes to that effect; the actual identification, measurement, assessment, approval, monitoring, steering and limit setting for the relevant risks are performed on the operating entity level within Erste Group.

At group level, the management board is supported by several divisions established to perform operating risk control functions and exercise strategic risk management responsibilities. The following risk management functions report directly to the Group CRO:

_

Group Liquidity and Market Risk Management;

• _ Enterprise wide Risk Management;

• _ Credit Risk Methods;

• _ Group Compliance;

• _ Retail Risk Management:

• _ Credit Risk Portfolio;

• _ Corporate Risk Management;

• _ Group Legal;

• _ Cyber Risk Management;

• _ Local Chief Risk Officers.

Group Liquidity and Market Risk Management

The division Group Liquidity and Market Risk Management comprises all market and liquidity risk functions in Erste Group. This division is responsible for steering, measuring, and controlling liquidity and market risk. It covers both banking book and trading book and ensures the development and validation of liquidity and market risk models for regulatory as well as for internal steering purposes.

Enterprise wide Risk Management

Enterprise wide Risk Management (ERM) focuses on holistic risk management and ensures comprehensive cross-risk group-wide risk portfolio steering, monitoring, analysis, and reporting. ERM drives key strategic initiatives to establish greater cohesion between risk strat-egy (including risk appetite and limit steering) and operational execution. It also comprises recovery & resolution planning as well as the management of non-financial risk. ERM works together with all risk functions and key divisions to strengthen risk oversight group-wide, covering capital, credit, liquidity, market, operational, and business risk.

Credit Risk Methods

The responsibilities of the area comprise the development, maintenance and validation of credit risk models in accordance with the regula-tory requirements for the internal ratings-based approach. A dedicated organisational unit takes care of model risk governance and the strategic planning of model changes.

Group Compliance

In line with Austrian and European Union legislations, Group Compliance ensures the implementation and steering of measures to prevent money laundering, terrorism financing and fraud. Furthermore, it is responsible for standards and measures to comply with financial sanc-tions and embargoes. Another central task consists in the implementation and enforcement of regulatory provisions for insider trading, market manipulation and other misconduct in securities business.

Retail Risk Management

Retail Risk Management covers the operational credit decisions and the collection and workout activities for retail clients of EBOe. The credit decision and collection systems are developed, validated and adapted to the new requirements for EBOe and savings banks. In order to ensure the sustained performance of the retail loan portfolio, Retail Risk Management defines group-wide framework conditions and requirements for lending within the Group's risk/return profile.

Credit Risk Portfolio

Credit Risk Portfolio monitors the development of the overall loan portfolio of EBOe, Erste Group Bank AG and the Group with a specific focus on non-retail clients. Active steering ensures the operative implementation of the Group's credit risk strategies. The division is also in charge of continuously improving underwriting processes as well as for corporate and retail risk management projects with a particular focus on digital initiatives. Credit Risk Portfolio is also responsible for rating control, real estate valuations and credit analytics.

Corporate Risk Management

Corporate Risk Management is responsible for credit underwriting, restructuring (including sales of non-performing loans) for corporate and real estate clients, financial institutions, sovereigns and municipalities in EBOe and Erste Group Bank AG as well as group-wide for the local customers if their local credit limits are exceeded.

Group Legal

Group Legal acts as the central legal department of Erste Group Bank AG. This division provides legal support and counsel for the man-agement board, the business units and the central functions, and mitigates legal risk. It also attends to legal sourcing and to dispute resolution and litigation.

Cyber Risk Management

Cyber Risk Management is a risk control unit segregated from IT and security operations, responsible for managing and overseeing cyber risks, monitoring and controlling adherence to cyber risk management framework.

Local Chief Risk Officers

Each subsidiary has separate risk control and management units with responsibilities tailored to the local requirements, which are headed by the respective local chief risk officer (Local CRO).

Group coordination of risk management activities

The management board regularly deals with risk issues of all risk types in its regular board meetings. Actions are discussed and taken when needed.

Furthermore, certain cross-divisional committees were established with the purpose of carrying out risk management activities in Erste Group. They are shown in the following diagram:

Risk Committee Supervisory Board

Holding Board

CRO BoardHCC

Holding Credit

Committee

MRC

Market Risk Committee

HMC

Holding Model Committee

SRMC

Strategic Risk Mgmt. Committee

HSTC

Holding Stress Testing

Committee

USRC

U.S. Risk Committee

ROCC

Regional Op.Conduct Committee

ALCO

Group Asset

Liability Committee

OMRC

Operative Market Risk Committee

OLC

Oper. Liquidity

Committee

The Risk Committee of the Supervisory Board is responsible for granting approval in all cases in which loans and exposures reach an amount exceeding the approval authority of the management board according to the Credit Risk Approval Authority Regulations. It is in charge of granting approval to large exposures pursuant to Article 392 CRR, if such a claim is equal to or exceeds 10% of the eligible capital of a credit institution. Within the competence assigned to it, the committee may grant advance approvals to the extent permitted by law.

In addition, it is responsible for supervising the risk management of Erste Group Bank AG. The risk committee meets regularly. As the central risk control body, the Risk Management Committee is regularly briefed on the risk status across all risk types.

The CRO Board is responsible for the coordination and implementation of risk management activities within Erste Group. The CRO Board consists of the Group CRO, the chief risk officers of major subsidiaries within Erste Group and the B-1 managers of the Holding CRO division. Chaired by the Group CRO, the CRO Board is the primary body for aligning on strategically relevant topics of the risk division across Erste Group entities, including (but not limited to) the group-wide strategic planning, the project portfolio and Change the Bank (CtB) investments. The CRO Board ensures a consistent flow of information from and to the group functions and supports the setting of the overall risk agenda.

The Holding Credit Committee (HCC) is the highest operative decision-making body for approvals of credit risks according to the valid credit risk approval authority regulations. Based on the advice of HCC, decisions of significant exposures and extended risks are decidedby the risk management board of the supervisory committee. It also approves the relevant corporate industry strategies. The HCC is headed by the Group CRO and comprises the board member of Corporates & Markets, the head of Corporate Risk Management, Head of Credit Risk Portfolio and the head of the requesting business line. Each subsidiary has their own local credit committee established by the same principles.

The Market Risk Committee (MRC) is the main steering body for market risk and trading book related issues of Erste Group. MRC approves group-wide market risk limits and elaborates on the current market situation. In addition, it approves market risk methodologies and models, model changes, and related validation results.

The Operative Market Risk Committee (OMRC) prepares decisions for the MRC and approves sensitivity and notional limits which do not require VaR/SVaR limit adjustments.

The Holding Model Committee (HMC) is chaired by the Chief Risk Officer of Erste Group and is the steering and control body for Pilar 1 IRB and Pillar 2 Credit Risk model development, validation and monitoring. All new or changed models and model related aspects (e.g. risk parameters (PD, LGD, CCF, ELBE), group-wide methodology standards, IFRS 9 parameter methodologies) are reviewed by the Hold-ing Model Committee and require its approval.

The Strategic Risk Management Committee (SRMC) chaired by the Head of Enterprise-wide Risk Management and consisting of selected B-1 managers of the Holding CRO division, holds the delegated decision authority from the Holding Board with respect to strategic risk management functions. Its responsibility area covers the approach to credit RWA calculation and economic capital calculation method-ology, design of Forward-Looking Information (FLI) adjustments and scenarios for IFRS 9 parameters, monitoring of IFRS 9 models, defining scenarios, staging and expected credit loss (ECL) methodologies, the back-testing of loan loss provisions, and the remedy actions resulting from reporting of credit risk control units on rating system performance.

The Holding Stress Testing Committee (HSTC) is the sole forum for all joint resolutions, decisions and acknowledgements in the stress testing area for group-wide stress testing activities.

The United States Risk Committee (USRC) has been established to meet the requirements of the United States Federal Reserve Board (FRB) regulation, which has been in force since 1 July 2016. The objective is to involve the management board as key governance and control function for the U.S. trade portfolio which has been specified in the Combined U.S. Operations (CUSO) guidance.

The Regional Operational Conduct Committee (ROCC) decides on business applications and implements group-wide corrective measures to steer non-financial risks (NFR). This is done based on a risk-return evaluation. Furthermore, ROCC defines group-wide stand-ards for non-financial risk topics. The ROCC is a forum for joint alignments, decisions, and escalations in non-financial risk areas across Erste Group entities and Erste Group Bank AG itself.

The Group Asset/Liability Committee (ALCO) manages the consolidated Erste Group balance sheet, focusing on trade-offs between all affected consolidated balance sheet risks (interest rate, exchange rate and liquidity risks), and takes care of the setting of group standards and limits for the members of Erste Group. In addition, it approves policies and strategies for controlling liquidity risk as well as interest rate risk (net interest income) and examines proposals, statements and opinions of ALM, risk management, controlling and accounting functions. The approved investment strategy complies with the guidelines agreed with Risk Management.

The Operational Liquidity Committee (OLC) is responsible for the day-to-day management of the global liquidity position of Erste Group. It analyses the liquidity situation of Erste Group on a regular basis and reports directly to the ALCO. It also proposes measures to ALCO within the scope of the management policies and principles laid down in the Liquidity Risk Management Rule Book. Furthermore, members of the OLC are points of contact for other departments or Erste Group members for liquidity-related matters. Each local bank has its own local operational liquidity committee.

In addition, committees are established at local level, such as the 'Team Risikomanagement' in Austria. It is responsible for a common risk approach with the Austrian savings banks.

Group-wide risk and capital management

Enterprise wide Risk Management (ERM) includes as its fundamental component the Internal Capital Adequacy Assessment Process (ICAAP) as required under Pillar 2 of the Basel framework and regulatory guides (e.g. ECB Guide to ICAAP).

The ERM framework is designed to support the bank's management in managing the risk portfolios as well as the coverage potential to ensure that the bank holds adequate capital for the nature and magnitude of its risk profile at all times. The framework is tailored to the Erste Group's business and risk profile and reflects the strategic goal of protecting shareholders and senior debt holders while ensuring the sustainability of the organisation.

ERM framework is a modular and comprehensive management and steering system within Erste Group as well as an essential part of the overall steering and management instruments. The ERM components necessary to ensure all aspects, in particular to fulfil regulatory re-quirements and to provide an effective internal steering tool, can be clustered as follows:

• _ Risk Appetite Statement (RAS), limits and risk strategy;

• _ portfolio and risk analytics including Risk Materiality Assessment (RMA), concentration risk management, and stress testing;

• _ Risk-bearing Capacity Calculation (RCC);

• _ Capital allocation and performance management;

• _ planning of key risk indicators;

• _ recovery and resolution planning.

In addition to the ICAAP's ultimate goal of assuring capital adequacy and sustainability at all times, the ERM components serve to support the bank's management in pursuing its strategy.

Risk appetite

Erste Group defines the maximum level of risk it is willing to accept in order to meet its business objectives within the Group's risk appetite (Group RAS). The Group RAS acts as a binding constraint to Erste Group's business activities within its overall risk appetite via triggers and limits approved by the management board. It is integrated and embedded into Erste Group's structural processes; including business and risk strategy, budget process, capital and liquidity planning, recovery plan, stress testing and remuneration framework. The Group RAS consists of a set of core risk metrics providing quantitative direction for overall risk-return steering and qualitative statements in the form of key risk principles that are part of the guidelines for managing risks. The core risk metrics (capital, liquidity, risk/earnings) are set as ultimate boundaries for the Group risk-return target setting. They are also a key part of the annual strategic planning / budgeting process and give an overall picture of capital, liquidity and risk-return trade-offs. The key objective of the RAS is to:

• _ ensure that Erste Group has sufficient resources to support its business at any given point in time and absorb stress events;

• _ set boundaries for the Group's risk target setting;

• _ support the group's financial strength and the robustness of its systems and controls.

To foster risk-return steering and ensure proactive management of the risk profile, Erste Group creates its RAS on a forward-looking basis.

External constraints such as regulatory requirements create the floor and ceiling for the RAS and therefore the amount of risk Erste Group is willing to accept. In order to ensure that the group remains within the targeted risk profile, a traffic light system was established and assigned to the core metrics. This approach allows a timely delivery of information to the respective governance and the implementation of effective remediation measures. The RAS traffic light system is defined as follows:

• _ RAS is green: The target risk profile is within the specified boundaries.

• _ RAS is amber: The undershooting or overshooting of a pre-defined threshold leads to an escalation to the designated governance and the discussion of potential remediation actions.

• _ RAS is red: The undershooting or overshooting of a pre-defined limit initiates an immediate escalation to the designated governance and a prompt implementation of remediation actions.

Moreover, stress indicators are defined for selected core metrics and integrated into the assessment of the stress test results. They are reported as early warning signals to the management board to support proactive management of the risk and capital profile.

In addition, supporting metrics and principles are defined by material risk type in the Group Risk Strategy based on Group RAS. These support implementation of the mid- to long-term strategy. Risk management governance ensures full oversight of risk decisions and sound execution of the Group risk strategy. Mitigating actions are undertaken as part of the regular risk management process to ensure that the Group remains within its RAS.

Group RAS is also broken down into local entities. Local RAS is approved by the management board to ensure compliance with the Group RAS and also approved by the local management board to ensure alignment with local regulatory requirements. The Group may also decide to include further compulsory constraints and limits in local RAS to ensure alignment with Group RAS and Group Risk Strategy.

The Group further developed an aggregated and consolidated risk appetite dashboard (Risk Dashboard) illustrating the group's and local enti-ties' risk profile developments by comparing the risk exposure and risk limits. The Risk Dashboard is regularly presented to the management board and to the supervisory board (including risk committee of supervisory board) to support its review, oversight, and monitoring of the group risk profile and the risk profile of its local entities.

Group RAS for 2020 was approved by the management board and acknowledged by the risk committee of supervisory board and supervisory board in the last quarter of 2019. On the back of global developments related to Covid-19, as well as changed regulatory requirements/expec-tations towards credit institutions, in the first half of 2020, interim revisions of Group RAS and Risk Strategy, as well as local entities RAS were conducted and approved by the designated governance.

Portfolio and risk analytics

Erste Group uses dedicated infrastructure, systems and processes to actively identify, measure, control, report and manage risks within its portfolio. Portfolio and risk analytics processes are designed to quantify, qualify and discuss risks in order to raise awareness to management in a timely manner.

Risk materiality assessment

The Risk Materiality Assessment (RMA) determines the materiality of risk types and consequently the risk profile across Erste Group and its entities. RMA is an annual process with the purpose of systematically identification of new and assessment of all risks for the Group. As such, the RMA is an integral part of the ICAAP and serves as a steering tool for top and senior management.

Insights generated by the assessment are used to improve risk management practices and further mitigate risks within the Group. The assessment also serves as input for the design and definition of the Group's risk strategy and Risk Appetite Statement. Key outputs and recommendations of the RMA are considered in the scenario design and selection of the comprehensive and reverse stress tests.

Risk concentration analysis

Erste Group has implemented a process to identify measure, control and manage risk concentrations. This process is important to ensure the long-term viability of Erste Group, especially in times of an adverse business environment and stressed economic conditions.

The risk concentration analysis at Erste Group is performed on an annual basis covering credit risk, market risk, operational risk, liquidity risk and inter-risk concentrations. Identified risk concentrations are considered in the scenario design of the comprehensive stress test and measured under stressed conditions. The output of the risk concentration analysis additionally contributes to the identification of material risks within the RMA and to the setting/calibration of Erste Group's limit system.

Stress testing

Modelling sensitivities of the group's assets, liabilities and profit or loss provide management steering information and help to optimise Erste Group's risk-return profile. Stress tests help to factor in severe but plausible scenarios providing further robustness to measurement, steering and management. Risk modelling and stress testing are vital forward-looking elements of the ICAAP. Finally, sensitivities and stress scenarios are considered within the group's planning process.

Erste Group's most complex stress testing activities are scenario stress tests that take a comprehensive account of the impact of various economic scenarios, including second-round effects on all risk types (credit, market, liquidity and operational) and effects on the associated volumes of assets and liabilities as well as on profit and loss sensitivities. In addition to the standard scenario-driven stress testing exercises, reverse stress tests are performed to identify a scenario or a combination of scenarios in which viability of the current business model can be questioned.

Erste Group has developed specific tools to translate macroeconomic variables (e.g. GDP or unemployment rate) into risk parameters in order to support the stress testing process, which combines bottom-up and top-down approaches. For adapting the stress parameters, Erste Group additionally leverages the experience of its local professionals and uses, where appropriate, their statistical models to simulate the impacts of macroeconomic variables on the probabilities of default in the respective markets. Special attention is given to account for adequate granularity and special characteristics (i.e. countries and industries) when determining the segmentation in which the stressed parameters are defined.

Results from Erste Group's internal stress tests are analysed in order to decide on appropriate measures. The internal comprehensive stress tests performed in 2020 indicated no breach of stressed RAS triggers after the application of scenario contingent measures in the last year of adverse scenario.

Risk-bearing capacity calculation

The Risk-bearing Capacity Calculation (RCC) describes the methodology of Pillar 2 capital adequacy calculation. In contrast to the regu-latory view of Pillar 1, the RCC is based on an economic view of Pillar 1+ approach, assuming continuation of Erste Group as expected by the ECB Guide to ICAAP, and determines whether the Group has sufficient capital to cover all relevant risks it is exposed to. With this Pillar 1+ approach the Group increases efficiency and ensures comparability with the Pillar 1 calculation. Based on the results of the RMA, economic capital is considered for relevant risk types as approved by the management board. The economic capital requirement is then compared to internally available capital (coverage potential) to cover the Group's risks in Pillar 2. Both economic capital and coverage potential are computed on the CRR scope of consolidation of Erste Group as ultimate parent entity based on IFRS accounting standards.

Besides the Pillar 1 risk types (credit, market and operational risks), interest rate risk in the banking book, foreign exchange risk arising from equity investments, credit spread risk in the banking book, risk from repayment vehicles as well as business risk are explicitly consid-ered within the economic capital calculated over a horizon of one year and at a confidence level of 99.92%. For the calculation of the economic capital, Erste Group uses, where possible, more risk sensitive/advanced methodologies tailored to Erste Group's individual risk profile and specificities of the Group's individual risk exposures. Diversification effects between risks (inter-risk diversification) are not considered, reflecting the Group's prudent approach to maintain sufficient internal capital in times when correlations between risks maychange dramatically (like in times of stress). The largest portion of economic capital requirements is coming from credit risk, which accounts for 73.2% of total economic capital requirements at the end of 2020.

The calculation of internal capital or coverage potential required to cover Pillar 2 risks/unexpected losses is based on Pillar 1+ approach. Namely, CRR and CRR II (Regulation (EU) No. 575/2013 and Regulation (EU) No. 876/2019 amending Regulation (EU) No. 575/2013) regulatory own funds are adjusted by internal capital components which reflect economic view (e.g. year-to-date profit (if not already considered in Pillar 1 capital), exclusion of Tier 2 capital instruments, Pillar 2 IRB expected loss excess/shortfall add-on, etc.).

The coverage potential must be sufficient to absorb Pillar 2 risks/unexpected losses resulting from the group's operations at any point in time (normal and stressed), as reflected in the Group's Risk Appetite through the limits set for Group economic capital adequacy and stressed capital adequacy utilisation. At the end of 2020, the economic capital adequacy was at 55.0%.

The management board, risk management committees and supervisory board are briefed quarterly on the results of the ICAAP capital adequacy through the Group Risk Report and the Risk Dashboard. The former includes risk profile developments, available capital (cover-age potential), consideration of potential losses in stress situations, the degree of the risk limit utilisation and the overall status of capital adequacy. The latter outlines risk profile development in relation to risk appetite.

Risk planning

Group Risk Planning framework is essential for the capital allocation and overall financial planning processes and supports the adequate reflection of risks within the strategy, steering and management processes of the group.

Methods and instruments applied

Key risk indicators covered by the Risk Planning framework include indicators that provide an overview of incurred or potential risks, with respect to both portfolio and economic environment developments. Indicators include RWA (and related indicators), portfolio quality indi-cators (impairments, NPL/NPE and relevant performance indicators etc.), as well as indicators required by the regulatory authorities under the responsibility of the Risk division.

Planning activities are performed in close cooperation with all stakeholders in the group´s overall process and follow a clear governance structure to ensure sound risk planning process.

Capital allocation

An important task integral to the risk planning process is the allocation of capital to entities, business lines and segments. This is done with close cooperation between Risk Management and Controlling. Methodology for allocation reflects risk and controlling processes in order to allocate capital with risk-return considerations.

Erste Group's aggregate capital requirements by risk type

The following diagrams present the composition of the economic capital requirements according to type of risk:

Economic capital allocation (in %) 31 December 2019

Economic capital allocation (in %) 31 December 2020

Market risk	Market risk
Operational risk	Operational risk
4.7 Other risks	4.4 Other risks

11.5 10.4

73.4 Credit risk 12.0

73.2 Credit risk

Other risks include business risk.

Recovery and resolution plans

In compliance with the Austrian Banking Recovery and Resolution Law ('Bundesgesetz über die Sanierung und Abwicklung von Banken - BaSAG') Erste Group submits an updated Group Recovery Plan to ECB every year.

The Group Recovery Plan identifies options for restoring financial strength and viability in case Erste Group comes under severe economic stress. The plan specifies potential options for the replenishment of capital and liquidity resources of the bank in order to cope with a range of scenarios including both idiosyncratic and market-wide stress (in 2020 one Covid-19 scenario was requested by ECB). The recovery governance described in the plan ensures timely identification and proper management of any recovery situation. Furthermore, the assessmentof the Group Recovery Plan and the recently addressed assessment of the overall recovery capacity are part of the Supervisory Review and Evaluation Process (SREP) assessment. It is relevant to demonstrate that, in a severe stress which is close to a failing or likely to fail situation, there is sufficient recovery capacity available.

Erste Group collaborates with the resolution authorities in the drawing up of resolution plans based on BaSAG and EU Regulation No 806/2014 establishing the Single Resolution Mechanism (SRM Regulation). Based on a joint decision taken in the Resolution College, Erste Group in April 2020 received notification of the preferred Multiple Point of Entry (MPE) resolution strategy on cross-country level, but a Single Point of Entry (SPE) resolution strategy within a country. This results in being MPE in Austria, the Czech Republic, Croatia, Hungary, Romania and Slovakia.

The Bank Recovery and Resolution Directive (BRRD) introduced the Minimum Requirement for own funds and Eligible Liabilities (MREL), which is - in case of Erste due to the MPE resolution strategy - set on Resolution Group level. Based on the MREL joint decision, the requirement is binding as of the date of the notification in case of notified MREL surplus, however in case of an MREL shortfall the requirement becomes binding at the end of a transition period to be set between 2 and 4 years, at the latest by the end of 2023. MREL is expressed as the amount of own funds and eligible liabilities expressed as a percentage of the total liabilities and own funds (TLOF).

In June 2019 the new banking reform package was published, which includes the Bank Recovery and Resolution Directive (BRRD2). The transposition into national law (BaSAG) is set with up to 18 months. Nevertheless, the Austrian Lawmaker delayed the national transposition. The publication of the final text is expected for Q1 2021. Key changes include the MREL expression in terms of Risk Weighted Assets (RWA) and Leverage Ratio Exposure (LRE) instead of TLOF, adapted transition arrangements (binding intermediate MREL target as of 01.01.2022 and a common deadline of 01.01.2024 to meet the final MREL target) as well as tighter eligibility criteria. Hence, MREL target setting will be subject to further changes. Potential changes in the MREL requirement will be reflected in Erste Group Bank AG's funding plan as to ensure compliance with MREL and subordination targets.

33. Own funds and capital requirements

Among others, Erste Group fulfils hereinafter the disclosure requirements according to the Capital Requirements Regulation (CRR), in detail Art. 437 para 1 (a), (d) and (e) CRR. References to chapters refer to the financial statement.

Regulatory Requirements

Since 1 January 2014, Erste Group has been calculating the regulatory capital and the regulatory capital requirements according to the CRR and the Capital Requirement Directive (CRD IV). The CRD IV was enacted in national law in the Austrian Banking Act (ABA). Erste Group applies these rules and calculates the capital ratios on the one hand by taking into consideration the Austrian transitional provisions which are defined in the CRR 'Begleitverordnung', published by the Austrian regulator. On the other hand Erste Group also applies the European Regulation on the exercise of options and discretions available in Union law which entered into force 1 Octo-ber 2016. All requirements as defined in the CRR, the ABA , in technical standards issued by the European Banking Authority (EBA) and EBA guidelines are applied by Erste Group for regulatory purposes and for the disclosure of regulatory information.

Accounting Principles

The financial and regulatory figures published by Erste Group are based on IFRS. Eligible capital components are derived from the balance sheet and income statement which were prepared in accordance with IFRS. Adjustments to the accounting figures are considered due to the different definitions in the scopes of consolidation. Further details are explained in the section 'Regulatory scope of consolidation and institutional protection scheme'. The uniform closing date of the consolidated regulatory figures of Erste Group is the 31 December of the respective year.

Regulatory scope of consolidation and institutional protection scheme

The consolidated regulatory own funds and the consolidated regulatory capital requirements are calculated based on the scope of consoli-dation stipulated in the CRR. Based on Art. 4 para 1 (3), (16) to (27) CRR in line with Art. 18 and 19 CRR and para 30 ABA, the scope consists of credit institutions, investment firms, financial institutions and ancillary service undertakings. In addition, the following update according to Art 18 (7) applies: Where an institution has a subsidiary which is an undertaking other than an institution, a financial institution or an ancillary services undertaking or holds a participation in such an undertaking, it shall apply to that subsidiary or participation the equity method. That method shall not, however, constitute inclusion of the undertakings concerned in supervision on a consolidated basis. The definition pursuant to CRR differs from the scope of consolidation according to IFRS, which also includes insurance companies and other entities, that are subject to full consolidation.

The Austrian savings banks are included as subsidiaries in Erste Group's regulatory scope of consolidation based on the cross-guarantee contract of the 'Haftungsverbund'. Furthermore, Erste Group Bank AG together with the savings banks forms an institutional protection scheme (IPS) according to Art. 113 para 7 CRR. Disclosure requirements for the institutional protection scheme according to Art. 113 para 7 e CRR are met by the publication of the consolidated financial statements, which cover all entities included in the institutional protection scheme.

Consolidated own funds

Own funds according to CRR consist of CET1, additional tier 1 (AT1) and tier 2 (T2). In order to determine the capital ratios, each respective capital component - after application of all regulatory deductions and filters - is considered in relation to the total risk amount.

The items of own fundsas disclosed are also used for internal capital management purpose, except T2 capital instruments Erste Group fulfilled the capital requirements. The regulatory minimum capital ratios including the capital buffers as of 31 December 2020 amount to

• _ 9.18% for CET1 (4.5% CET1, +2.5% capital conservation buffer, +2.0% buffer for systemic vulnerability and for systemic concentra-tion risk and +0.18% countercyclical capital buffer),

• _ 10.68% for tier 1 capital (sum of CET1 and AT1) and

• _ 12.68% for total own funds.

Capital buffer requirements are set out in sections 23 (capital conservation buffer), 23a (countercyclical buffer), 23b (Global Systemic Important Institution (G-SII) buffer), 23c (Other Systemic Important Institution (O-SII) buffer) and 23d (systemic risk buffer) of the ABA and further specified in the regulation of the Financial Market Authority (FMA) on the establishment and recognition of the countercyclical buffer rate in accordance with section 23a para 3 ABA, on the establishment of the systemic risk buffer in accordance with section 23d para 3 ABA as well as on the detailed definition of the bases of calculation in accordance with section 23a para 3 clause 1 ABA and section 24 para 2 ABA (capital buffers regulation). All capital buffers have to be met entirely with CET1 capital and relate, except the countercyclical buffer, to total risk.

In addition to minimum capital ratios and capital buffer requirements, institutions also have to fulfil capital requirements determined in the Supervisory Review and Evaluation Process (SREP).

The ECB Banking Supervision adjusted the SREP approach for 2020 in light of the Covid-19 crisis. Therefore the ECB has not issued a SREP decision 2020, but rather chose a pragmatic SREP 2020 approach which keeps the SREP 2019 decision in place and confirms a Pillar 2 requirement (P2R) of 1.75%. The adjustments made to the regulatory framework on 12 March 2020 to stabilize the financial markets remain in place. The originally envisaged relief for 2021 regarding the composition of capital for the Pillar 2 requirement under article 104a (4) CRD V can be applied directly by credit institutions under the supervision of the ECB. Therefore, the minimum CET1 ratio of 5.48% encompasses the Pillar 1 minimum requirement of 4.5% and the Pillar 2 requirement of 0.98% (56.25% of 1.75%) as of 31 December 2020.

The regulatory minimum capital ratios including the capital buffers ans SREP requirements as of 31 December 2020 amount to

• _ a CET1 requirement of 10.16%

  (Pillar 1 requirement of 4.5%, combined capital buffers of 4.68% and 56.25% of 1.75% Pillar 2 requirement),

• _ a T1 requirement of 11.99%

  (CET1 requirement plus Pillar 1 AT1 requirement of 1.5% and 18.75% of 1.75% Pillar 2 requirement) and

• _ a total own funds requirement of 14.43%

  (Tier 1 requirement plus Pillar 1 T2 requirement of 2.0% and 25% of 1.75% Pillar 2 requirement).

Following the SREP 2019, Erste Group is expected to meet a Pillar 2 Guidance (P2G) of 1.0% valid as of 1 January 2020 onwards. The ECB press release of 12 March 2020 also indicated that the Pillar 2 Guidance need not be fully complied with temporarily by credit insti-tutions during the current Covid-19 crisis. The Pillar 2 Guidance is not MDA (maximum distributable amount) relevant.

Overview of capital requirements and capital buffers

Dec 19	Dec 20
Pillar 1
Minimum CET 1 requirement	4,50%	4,50%
Minimum Tier 1 requirement	6,00%	6,00%
Minimum Own Funds requirement	8,00%	8,00%
Combined buffer requirement (CBR)	4,91%	4,68%
Capital conservation buffer	2,50%	2,50%
Countercyclical capital buffer	0,41%	0,18%
Systemic risk buffer	2,00%	2,00%
O-SII capital buffer	2,00%	2,00%
Minimum CET 1 requirement (incl.CBR)	9,41%	9,18%
Minimum Tier 1 requirement (incl.CBR)	10,91%	10,68%
Minimum Own Funds requirement (incl.CBR)	12,91%	12,68%
Pillar 2	1,75%	1,75%
Minimum CET1 requirement	1,75%	0,98%
Minimum T1 requirement	n.a.	1,31%
Minimum Own Funds requirement	n.a.	1,75%
Total CET 1 requirement for Pillar 1 and Pillar 2	11,16%	10,16%
Total Tier 1 requirement for Pillar 1 and Pillar 2	12,66%	11,99%
Total Capital requirement for Pillar 1 and Pillar 2	14,66%	14,43%

The combined buffer requirement is the sum of the capital conservation buffer, the countercyclical capital buffer and the maximum of the O-SII capital buffer or the systemic risk buffer.

As announced by the European Central Bank (ECB) in its press release on 12 March 202021, Erste Group is not obliged to fully comply with the capital conservation buffer of 2.5% during the current Covid-19 crisis. In the 'Frequently Asked Questions - FAQs'22 published on 20 March 2020, however, the ECB states that the incomplete fulfillment of the combined buffer requirement leads to restrictions on distri-butions and banks are only allowed to make distributions within the limits of the maximum distributable amount (MDA).

Taking into account ECB's communication on the temporary capital relief measures with regard to the Pillar 2 requirement, the full usage of the capital conservation buffer as well as the Pillar 2 guidance (P2G), Erste Group's CET1 requirement amounts to 7.66%, its T1 require-ment amounts to 9.49% and its total own funds requirement amounts to 11.93%.

Capital structure according to EU regulation 575/2013 (CRR)

Dec 19	Dec 20
in EUR million	CRR articles	Phased-in	Final	Phased-in	Final
Common equity tier 1 capital (CET1)
26(1)(a)(b), 27-30,
Capital instruments eligible as CET1	36(1)(f), 42	2.337	2.337	2.337	2.337
Retained earnings	26(1)(c), 26(2)	12.238	12.238	13.002	13.002
Accumulated other comprehensive income	4(1) (100), 26(1) (d)	-1.458	-1.458	-1.690	-1.690
Minority interest recognised in CET1	4(1) (120), 84	4.448	4.448	4.891	4.891
Common equity tier 1 capital (CET1) before regulatory adjustments	17.565	17.565	18.540	18.540
Own CET1 instruments	36(1) (f), 42	-68	-68	-63	-63
Prudential filter: cash flow hedge reserve	33(1) (a)	45	45	-36	-36
Prudential filter: cumulative gains and losses due to changes in own credit
risk on fair valued liabilities	33(1) (b)	406	406	289	289
Prudential filter: fair value gains and losses arising from the institution's own
credit risk related to derivative liabilities	33(1) (c), 33(2)	-3	-3	-3	-3
Value adjustments due to the requirements for prudent valuation	34, 105	-85	-85	-58	-58
Regulatory adjustments relating to unrealised gains (0%)	468	0	0	0	0
Regulatory adjustments relating to unrealised losses (0%)	467	0	0	0	0
Securitizations with a risk weight of 1.250%	36(1) (k)	-45	-45	-29	-29
Goodwill	4(1) (113), 36(1) (b), 37	-544	-544	-544	-544
Other intangible assets	4(1) (115), 36(1) (b), 37(a)	-741	-741	-720	-720
DTA that rely on future profitability and do not arise from temporary
differences net of associated tax liabilities	36(1) (c), 38	-102	-102	-48	-48
IRB shortfall of credit risk adjustments to expected losses	36(1) (d), 40, 158, 159	-158	-158	0	0
CET1 capital elements or deductions - other	-17	-17	-270	-270
Common equity tier 1 capital (CET1)	50	16.252	16.252	17.057	17.057
Additional tier 1 capital (AT1)
Capital instruments eligible as AT1	51(a) ,52-54, 56(a), 57	1490	1490	2.733	2.733
Instruments issued by subsidiaries that are given recognition in AT1	85, 86	8	8	7	7
Additional tier 1 capital (AT1) before regulatory adjustments	1.498	1.498	2.740	2.740
Own AT1 instruments	52(1)(b), 56(a), 57	-2	-2	-2	-2
Transitional adjustments due to grandfathered AT1 instruments	483(4)(5),484-487,489, 491	0	0	0	0
AT1 instruments of financial sector entities where the institution has a
significant investment	4(1) (27), 56(d), 59, 79	0	0	0	0
Additional tier 1 capital (AT1)	61	1.497	1.497	2.738	2.738
Tier 1 capital = CET1 + AT1	25	17.749	17.749	19.795	19.795
Tier 2 capital (T2)
Capital instruments and subordinated loans eligible as T2	62(a), 63-65, 66(a), 67	3.660	3.660	3.222	3.222
Instruments issued by subsidiaries recognised in T2	87, 88	267	267	209	209
Transitional adjustments due to additional recognition in T2 of instruments
issued by subsidiaries	480	0	0	0	0
Transitional adjustments due to grandfathered T2 instruments and	483(6) (7), 484, 486, 488,
subordinated loans	490, 491	0	0	0	0
IRB excess of provisions over expected losses eligible	62(d)	328	328	467	467
Tier 2 capital (T2) before regulatory adjustments	4.255	4.255	3.899	3.899
Own T2 instruments	63(b)(i), 66(a), 67	-44	-44	-50	-50
Standardised approach general credit risk adjustments	62(c)	0	0	0	0
Tier 2 capital (T2)	71	4.211	4.211	3.848	3.848
Total own funds	4(1) (118) and 72	21.961	21.961	23.643	23.643
Capital requirement	92(3), 95, 96, 98	9.448	9.484	9.440	9.612
CET1 capital ratio	92(2) (a)	13,8%	13,7%	14,5%	14,2%
Tier 1 capital ratio	92(2) (b)	15,0%	15,0%	16,8%	16,5%
Total capital ratio	92(2) (c)	18,6%	18,5%	20,0%	19,7%

• 21 ECB Banking Supervision:https://www.bankingsupervision.europa.eu/press/pr/date/2020/html/ssm.pr200312~43351ac3ac.en.html

• 22 ECB Banking Supervision:https://www.bankingsupervision.europa.eu/press/pr/date/2020/html/ssm.pr200320_FAQs~a4ac38e3ef.en.html