CEE Insights LCY bonds* Eurobonds** - Slovenská … Group Research – CEE Insights Fixed Income ... would lower Babis’ chances and increase the likelihood of snap ... with the

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Erste Group Research CEE Insights | Fixed Income | Central and Eastern Europe 22 January 2018

CEE Insights

Fixed Income and Foreign Exchange

Looking ahead this week

Monday Tuesday Wednesday Thursday Friday

HR: Unemployment PL: Unemployment RS: Wages SK: PPI

Click for: this week’s detailed releases/events, market forecasts, macro forecasts

The week ahead of us is practically empty in terms of potentially market-moving macro releases. Markets need to therefore focus on global developments and local political events. As for the latter, the second round of presidential elections will take place in the Czech Republic over the weekend. Milos Zeman is currently supporting parliamentary election-winner Andrej Babis to form a government, despite the struggle to find coalition partners. Therefore, a Zeman victory over the weekend would mean that Babis’s chances of forming a government would be higher, after the failed attempt recently. However, if first round runner-up Jiri Drahos wins the second round, it would lower Babis’ chances and increase the likelihood of snap elections in Czechia. CEE markets could nevertheless also be affected by the ECB sitting, to be held on Thursday.

In case you missed it last week…

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accrued interest FX gain/loss capital gain/loss TOTAL RETURN

LCY bonds* Eurobonds**

Political jitters cooled in Romania after President Iohannis nominated Social Democrat Viorica Dancila as prime minister-designate

MIRS tenders did not fully meet expectations in Hungary, as average rates were only marginally below market rates

Andrej Babis failed at his first attempt to form a government in the Czech Republic, as expected

Serbian Minister of Finance Vujovic indicated that Eurobond issuance is more likely than in previous years For other events last week, please check respective countries: HR, CZ, HU, PL, RO, TR, SI, SK, SR

On Radar

Subdued demand for credit or even deleveraging in some countries resulted in a high accumulation of government bonds on balance sheets of banks over the last decade. Government bond holdings by banks are around an all-time high in CEE now, except for countries where government debt ratios have been rapidly falling or external demand for bonds led to very aggressive pricing (like in CZ from non-residents or in Slovenia and Slovakia as a result of QE), which banks used as an opportunity to sell or discouraged them from reinvesting. The revival of credit growth in CEE, stimulated by much better labor market data and business confidence indicators, opens up the question of funding credit growth and whether there will be any need to liquidate these high government bond holdings in order to create space for credit growth. At this moment, we see that deposit growth has been sufficiently covering funding needs for credit growth and banks have been enjoying a decent liquidity surplus. Given that most of the credit comes in local currency in CEE, the new credits should automatically result in „money creation” and boost the deposit growth. In Hungary, the recent expansion of the monetary policy toolbox will provide extra cheap liquidity for funding more long-term assets. (For further details, see the next page.)

For the exclusive use of Roman DELIKAT (Erste Group)



Credit growth will be sufficiently covered by deposit growth; banks do not need to liquidate their government bond portfolios

Credit growth will be primarily funded by domestic deposit growth 'How will the credit growth be funded? Will it come at the expense of government bond holdings?'

Croatia: After a prolonged period of deleveraging, trends gradually reversed during 2017, as household credit returned to the positive region (1% y/y, November 2017), while corporate credit remained in the red (-1% y/y, November 2017). Though the nominal figures remain impacted by write-offs and ongoing NPL sales, adjusted credit accelerated towards approx. 3.5% y/y. Growth on the deposit side remained more than adequate to fund credit activity (HRK 4.7bn vs. HRK 1.4bn, corporate and households, respectively); hence, banks continued to improve their NFA positions and loan/deposit activity was gradually trending down. Exposure to the government declined robustly (HRK 4.7bn), but not as a result of a lack of risk appetite, but due to the improving fiscal performance and MoF effort to reduce the dependence on bilateral funding via banks. Hence, for 2018, we see loan growth keeping a similar pace (3-4%), despite stricter creditworthiness regulation (lower supply), likely to be fully funded by local deposit growth, while high excess liquidity suggests that banks have large room to maneuver to meet sovereign funding needs (either via govies or bilateral credit) or further extend the deleveraging process. Czech Republic: The Czech National Bank has been and plans to keep raising interest rates. Also, Czech firms have lots of internal funding in the form of retained profits, while households have recently gone through a mortgage binge. We thus believe that credit demand will not be strong and will also face lukewarm credit supply. At the same time, over the last four years, Czech banks have shunned Czech bonds, due to the very low yields, and so now are rather short of bonds and must buy them rather than sell. Under these conditions, banks will be able to finance new loans largely via new deposits. Hungary: The banking sector should have no serious problems with funding for lending in 2018, as massive amount of short-term liquidity is circulating in the domestic money market, due to the MNB’s measures, e.g. the HUF liquidity pump through the FX swap facilities (approx. HUF 1.57tn). As such, the O/N deposit facility holds HUF 812bn worth of excess liquidity (average in the last 30 days) in addition to the amount held in the 3M deposit. Furthermore, the central bank’s newly initiated mortgage bond purchase scheme should help banks to secure additional funding should they be in need of any. Natural deposit growth (especially on the retail side) remains challenged to a great extent by the ÁKK’s attractively priced retail T-bill program. We see a very low chance of banks getting rid of




their HGB holdings, as a high portion of it is still locked into their balance sheet, due to the already phased-out MNB Self-Financing Program. Poland: Last year, the growth of loans reached around 3.5% y/y, while deposits increased 4.1% y/y (data as of November). Assuming that deposits will keep up a similar pace of growth this year, we would see organic credit growth at around 4% as well. If economic conditions improve further, increasing demand for credit, the liquidity position of the Polish banking sector would allow for additional credit growth funding. Dissolving a liquidity buffer (PLN 48bn at the central bank and PLN 74bn held in CB debt securities) could provide as much as an additional 10pp to the growth dynamics. Further, a 10% reduction of government bond holdings by commercial banks could add another 2pp to the credit growth. However, funding credit growth that way would be costly for banks, as government bonds are exempted from the tax on assets. Romania: In the case of Romania, higher credit demand will most likely be funded from customer deposits: depos have consistently surpassed lending in terms of growth rates since 2012, bringing the Loan-to-Deposit ratio of the banking sector under 80% at the end of 2017. An increase in 2018 customer deposits similar to 2017 could, in principle, fund a 12pp rise in loan balances, which would be the highest yearly credit growth in the post-crisis period. While we expect deposit growth to slow slightly, given the background of an anticipated slowdown in economic growth in 2018, it should still outpace loan growth, so no structural changes in banks' balance sheets are expected from this perspective. Serbia: In 2017, growth of the deposit base outpaced credit growth, as total deposits increased by 5% y/y and loans by 2.5% y/y. In nominal terms, deposits increased by RSD 77bn and loans by RSD 66bn. For 2018, we expect similar dynamics on the deposit side, while demand for loans should be stronger (according to a bank lending survey), so we expect loans to increase by approx. 3-4% y/y, which means that loans would be fully covered by the organic growth of the deposit base. As for the cash reserve, we do not have precise data, but all indicators suggest that there is excess liquidity in the banking system, with the key liquidity ratio standing above 2. Total exposure to the government (claims, including loans and govies) stood at RSD 631bn (18% of total assets) at the end of November 2017, which was around RSD 15bn higher compared to the year before. If we assume that banks will reduce their exposure by 10% this year, it would create an additional RSD 63bn of funding potential, if credit activity picks up. Slovakia: Total loans in 2017 grew by 10% in Slovakia, driven especially by retail loans (+12%). Should total deposits grow by the same rate as in 2017 (i.e. by 6%), it would create space for 6% growth of loans in 2018 (the volume of total deposits and loans matches at EUR 55.4bn in the Slovak banking market). Slovak banks




have more than a EUR 1bn cash reserve in the central bank, which could help finance 2pp of credit growth this year. If we assume that reinvestment of Slovak government bonds will decrease by 10%, this would help finance another 1.4pp of private credit growth. We expect Slovak banks to issue covered bonds to a greater extent this year than in the past, which might add another 2-3pp to the loan growth. Slovenia: Following a prolonged period of subdued activity, a more visible credit growth revival was seen at the beginning of 2017, mainly driven by the household segment, as credit grew on average by 7% y/y (as of October 2017), while on the corporate side we saw a flatter performance (though showing a more pronounced rebound in 2H17). The deposit development kept up a similar pattern, up on average by 7% y/y (as of October 2017), with vivid growth dynamics on both the household and corporate sides, thus more than fully funding credit expansion. Overall, banks have a solid amount of liquidity at their disposal, with the LTD ratio declining from 95% to around 80% in a two-year time span (as of the end of 3Q17). On the other hand, we also saw declining appetite for new government debt absorption, as banks lowered the exposure on their books by approx. 30% y/y in the last year (from EUR 5.5bn to EUR 3.8bn as of October 2017). However, we see this mainly as a response to the ongoing low yield environment. Since 2018 is not seen to be bringing any major deviations vs. 2017, we expect further credit growth to be mainly deposit-funded, with banks’ demand for government bonds remaining steady.




Looking ahead

Time Country Indicator Period Survey Erste Est. Prev. Pre Comment

22. Jan No releases scheduled

23. Jan 11:00 HR Unemployment Rate Dec 12.1%

24. Jan 10:00 PL Unemployment Rate Dec 6.5% 6.4% 6.5% Labor market conditions remain tight

25. Jan 12:00 RS Wages (y/y) Dec 1.2%

26. Jan 9:00 SK PPI (y/y) Dec 1.7% 1.7%Producer price growth likely remained roughly stable at the end of the

year.

Sources: Bloomberg, Reuters




Major markets

This week, on Thursday, the ECB’s governing council will convene for a regular meeting in order to discuss monetary policy. Significant changes are highly unlikely. Nevertheless, in our view, the meeting will be very interesting. The reason is the publication of the accounts from the most recent meeting. Markets reacted strongly to the statement and we believe the interpretation of the accounts is lopsided and the reaction was exaggerated. We thus see a high probability that President Draghi will adjust market expectations during the press conference next week and a corresponding market reaction seems likely.

This week (January 24), the first flash estimate for January’s industry PMI data will be released for Germany, France and the Eurozone. In December 2017, the trend indicator climbed to a multi-annual high with 60.6 index points. This positive development is broadly-based, and even Greece moved to expansive territory with 53.5 index points. The sentiment is underpinned by strong domestic and export demand, which is reflected in strong order intake as well as a high order backlog.

Croatia

December inflation landed at 1.2% y/y, slightly below our call of 1.4% y/y, while also wrapping up the average 2017 CPI performance at 1.1%, which marks it as the first positive rate following three deflationary years. On the monthly level, inflation decreased by 0.3%, which was mostly driven by seasonal effects, i.e. lower prices in the clothing and footwear segment, amid seasonal sales. We anticipate modest inflation acceleration in 2018, but remaining in a comfortable region (around 1.5%) to allow for an ongoing lax monetary policy stance.

We saw no major changes on the markets, with both the exchange rate and bond yields keeping steady weekly movements. In addition, Minister of Finance Maric announced that the government could tap the domestic market with an LCY bond by the end of 1Q18, aiming to further restructure the highway related debt (the first step was EUR 1.275bn in November 2017), as the MoF seeks to refinance in total approx. ¾ of the slightly more than EUR 5bn outstanding.

Czech Republic The government, led by the leader of the ANO movement, Andrej Babis,

failed in its first attempt to gain parliamentary approval. The result was widely expected and thus had no impact on the markets. We expect Babis to be appointed again to try to find support for his government in the Parliament.

CNB bank board member Vojtech Benda said that inflation could unpleasantly surprise. Among bank board members, Benda is considered a hawk; he also voted for a hike at the December meeting. We expect him to again vote for a hike in February.

The koruna appreciated to close to EURCZK 25.35, the strongest level since 1Q13. This was likely triggered by the hawkish comments from Benda, who sees a possibility of higher inflation, and thus greater need for monetary tightening. However, we see the current EURCZK development as not fully intuitive, as some market participants could be overestimating the willingness of the CNB to hike in February, in our view. We expect that the strength of the koruna could be a reason to

Rainer Singer

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Alen Kovac [email protected]

David Navrátil [email protected]


mailto:[email protected]



postpone the hike until March, or even later, if the CZK continues to appreciate.

The current account surplus arrived at CZK 0.04bn in November, as the surplus in trade with goods and services was offset by the development of primary income and higher oil prices.

PPI inflation arrived at 0.3% m/m and 0.7% y/y in December, from the 0.9% y/y reached in November. We expect that PPI inflation in y/y terms is now near its bottom and should start to accelerate in the coming months, mainly due to increasing labor costs and higher oil prices.

Hungary Gross wages in the economy rose by 13% y/y in November. The

average growth rate in the first eleven months of last year was 12.8% y/y in the cases of both gross and net wages. In real terms, the YTD average wage growth was 10.2% y/y. Although at a lesser pace, wage growth should continue this year, driven by tight labor market conditions and further administrative measures (minimum wage increases) carried out by the government.

At the first MIRS tenders of the MNB held on Thursday, bids at both tenders proved enormous, amounting to HUF 573bn altogether, significantly higher than the offered HUF 50bn (the MNB targeted HUF 300bn for 1Q18 altogether). At the 5Y tenor, the MNB allotted HUF 35bn, with an average accepted rate of 0.76%, 30bp higher than the minimum eligible rate. As for the 10Y tenor, the MNB accepted HUF 40bn, with an average accepted rate of 1.46%, 29bp higher than the minimum rate. We think that, next time, the MNB should provide bigger offered amounts and/or even higher discounts on market rates to push rates down.

Poland

December inflation was revised marginally up to 2.1% y/y (flash at 2.0% y/y). Inflation was mainly driven by increasing food and dwelling prices. On the other hand, clothing and transport negatively contributed to the figure. We see inflation reaching the central bank target of 2.5% in the middle of the year.

Nominal wage growth arrived at 7.3% y/y in December and employment grew by 4.3% y/y, confirming further labor market tightening. Although 2017 wage growth was close to 6%, with strong growth in 2H17, it did not translate into demand pressure, as core inflation remains low (0.9% y/y in December).

Industrial production grew by 2.7% y/y in December, below our and market expectations. Strong decrease compared to November figure (9.1% y/y) was driven by 8.4% y/y decrease in mining and quarrying and lower number of working days. Retail sales arrived at 6.0% y/y also surprising market to the downside.

Today's data suggest that economic growth in 4Q17 accelerated further and GDP growth dynamics could reach as much as 5% y/y. Industrial output accelerated growing on average 8% y/y vs. 6.3% y/y observed in 3Q17. Retail sales also grew slightly stronger in 4Q17 than in 3Q17 (8% y/y vs. 7.7% y/y observed in 3Q17).

Orsolya Nyeste [email protected]

Gergely Ürmössy [email protected]

Katarzyna Rzentarzewska [email protected]






Romania

With a less than 7-month tenure, PM Tudose stepped down last week, as the Social Democrat Party pulled support after dissention emerged in recent weeks between him and party head Dragnea. Shortly after, President Iohannis nominated Social Democrat Dancila as PM-designate. The president’s decision to appoint Dancila has shattered hopes of early elections, averting political instability less than one year away from Romania taking over the EU council presidency. Dancila is also backed by ALDE and ethnic minorities and she is very likely to gain a vote of confidence in the Parliament on January 29. The EURRON reaction to these political developments was short-lived, with depreciation of 0.4% in the first day after the outburst of events, followed by appreciation. The impact on the bond market was minor (yields headed north by 5bp), mitigated by the positive sentiment towards emerging markets and the liquidity surplus from the local market.

The C/A deficit widened to EUR 6.2bn in November, from EUR 5.8bn in October (12-month rolling sum), as the monthly trade deficit for goods continued to exert pressure (above EUR 1bn per month in November), while the monthly surplus of the services balance fell to a ten-month low. On a positive note, dividend outflows were smaller in November than in the previous months, but this might be explained by a seasonal development, looking at previous years. The C/A deficit will remain on an upward trend this year, reaching approx. 3.8% of GDP, from 3.2% of GDP in 2017.

Serbia

With no major releases last week, the most interesting news came from the Euromoney conference, where FinMin Vujović and debt agency Director Drcelic gave more insights into the planned financing activities. The most notable information is related to the announcement that this year we could see some buybacks of USD and local debt in a total volume of up to EUR 1.5bn. In addition, Eurobond issuance seems more likely than in the years before. However, we are still cautious regarding these announcements, especially the Eurobond story, as Serbia skipped Eurobond issuance for four years, even though it was formally included in the budget every year.

On the FX market, the EUR/RSD continued to move around the 118.5 mark, while the benchmark RSD 2023 bond yield showed some volatility during the week but finally stabilized at around 4.70%.

Slovakia

Consumer prices increased by 1.9% y/y in December (0% m/m, HICP at 2% y/y), meeting our expectations. Food prices rose mildly and service prices mostly marked just a slight monthly increase. Transport prices fell by 0.6% m/m. Core inflation stood at 2.7% y/y, slightly lower than in November. Overall, last year’s inflation averaged 1.3% (HICP: 1.4%). The main drivers were food and service prices, with the latter reflecting the

Eugen Sinca eugen.sinca @bcr.ro

Alen Kovac [email protected] Milan Deskar-Skrbic [email protected]

Katarina Muchova [email protected]






reinvigorated situation on the labor market and higher disposable income. This year, inflation could reach 2% on average, albeit with some volatility.

The Slovak debt management agency conducted two auctions on January 15. Slovakia sold EUR 74.1mn worth of bonds due in January 2027 at an average yield of 0.71%. Another auction saw EUR 101mn of bonds maturing in March 2037 being sold at an average yield of 1.61 %. The bid-cover ratio was high, reaching 6.4 and 5.2, respectively. Yields could increase somewhat, reflecting the gradual return of inflation and the reduction of asset purchases from the ECB from January onwards. However, increases will still be dampened by the longer duration of QE and Slovakia's good fiscal stance. We expect the 10Y government bond yield to be around 0.85% in 1Q18.

Last year saw 1.025mn vehicles being produced in Slovakia, slightly fewer than the 1.040mn the year before. Slovakia is home to three car plants (VW, Kia and Peugout Citroen) and still tops the ranking with the highest per capita car production in the world. A fourth factory, Jaguar Land Rover, should start production towards the end of this year.

Slovenia

Due to the usual calendar reshuffling at the beginning of the year, this week (like the last) had little to offer in terms of data releases, as the only news to attract interest was the unemployment rate release. According to preliminary results, the headline figure recorded a mild drop on the monthly level to 8.7% in November, while still trending close to 2pp lower on the annual level. These trends continue to positively reflect the consumption pattern, further underlining its importance in the growth profile.

Yields on the bond market showed a mild upside move during the week, with the benchmark EUR 2027 curve edging slightly above the 0.9% mark.

Alen Kovac [email protected]




Capital market forecasts Government bond yields

current 2018Q1 2018Q2 2018Q3 2018Q4

Croatia 10Y 2.36 2.30 2.30 2.40 2.50

spread (bps) 178 175 163 166 161

Czech Rep. 10Y 1.88 1.86 1.89 1.92 1.93

spread (bps) 130 131 122 118 104

Hungary 10Y 2.16 2.00 2.00 2.00 2.00

spread (bps) 158 145 133 126 111

Poland 10Y 3.31 3.40 3.45 3.71 3.91

spread (bps) 273 285 278 297 302

Romania10Y 4.10 4.60 4.80 5.10 5.20

spread (bps) 352 405 413 436 431

Slovakia 10Y 0.75 0.85 0.90 0.95 1.10

spread (bps) 18 30 23 21 21

Slovenia 10Y 1.04 0.90 1.10 1.20 1.30

spread (bps) 46 35 43 46 41

Serbia 7Y 4.59 4.85 4.85 4.90 4.95

DE10Y (BBG)* 0.57 0.55 0.67 0.74 0.89

3M Money Market Rate

current 2018Q1 2018Q2 2018Q3 2018Q4

Croatia 0.52 0.40 0.40 0.40 0.40

Czech Republic 0.77 0.89 1.11 1.11 1.34

Hungary 0.02 0.02 0.03 0.03 0.03

Poland 1.72 1.73 1.75 1.75 1.99

Romania 1.99 2.15 2.45 2.70 2.70

Serbia 3.10 3.00 3.00 3.00 3.00

Eurozone -0.33 -0.30 -0.30 -0.30 -0.30

FX

current 2018Q1 2018Q2 2018Q3 2018Q4

EURHRK 7.43 7.45 7.35 7.45 7.50

forwards 7.44 7.44 7.44 7.44

EURCZK 25.43 25.40 25.30 25.10 25.00

forwards 25.45 25.45 25.45 25.45

EURHUF 309.4 315.0 315.0 315.0 315.0

forwards 312.5 312.5 312.5 312.5

EURPLN 4.17 4.25 4.23 4.21 4.20

forwards 4.17 4.17 4.17 4.17

EURRON 4.66 4.65 4.65 4.70 4.73

forwards 4.66 4.66 4.66 4.66

EURRSD 118.5 120.0 120.5 120.0 121.5

forwards - - - -

EURUSD 1.23 1.13 1.11 1.10 -

Key Interest Rate

current 2018Q1 2018Q2 2018Q3 2018Q4

Croatia 0.50 0.30 0.30 0.30 0.30

Czech Republic 0.5 0.75 1.00 1.00 1.25

Hungary 0.90 0.90 0.90 0.90 0.90

Poland 1.50 1.50 1.50 1.50 1.75

Romania 2.00 2.25 2.50 2.75 2.75

Serbia 3.50 3.50 3.50 3.50 3.50

Eurozone 0.00 0.00 0.00 0.00 0.00

Macro forecasts

Real GDP growth (%) 2016 2017f 2018f 2019fCroatia 3.2 3.0 2.8 2.9Czech Republic 2.5 4.4 3.4 2.9Hungary 2.2 3.9 3.5 3.3Poland 2.8 4.6 3.7 3.0Romania 4.8 7.1 4.1 2.4Serbia 2.8 1.8 2.9 3.0Slovakia 3.3 3.3 3.9 4.2Slovenia 3.1 4.6 4.0 3.5CEE8 average 3.1 4.6 3.6 3.0

Average inflation (%) 2016 2017f 2018f 2019fCroatia -1.1 1.2 1.6 1.8Czech Republic 0.7 2.5 2.3 2.0Hungary 0.4 2.3 3.0 3.5Poland -0.6 2.0 2.2 2.3Romania -1.5 1.3 4.0 3.0Serbia 1.6 3.3 3.7 4.3Slovakia -0.5 1.3 2.0 2.3Slovenia -0.1 1.4 1.6 1.8CEE8 average -0.4 1.9 2.6 2.5

Unemployment (%) 2016 2017f 2018f 2019fCroatia 13.1 10.9 10.0 9.2Czech Republic 4.0 3.0 2.8 3.2Hungary 5.1 4.2 4.0 3.9Poland 8.9 7.4 7.2 7.3Romania 6.0 5.4 5.5 5.5Serbia 15.3 12.8 11.6 11.1Slovakia 9.7 8.2 7.5 6.8Slovenia 8.0 6.7 5.8 5.1CEE8 average 7.7 6.4 6.1 6.0

Public debt (% of GDP) 2016 2017f 2018f 2019fCroatia 82.7 79.3 76.2 73.0Czech Republic 36.8 34.9 32.8 31.9Hungary 73.9 72.0 70.7 69.7Poland 54.4 54.9 54.1 53.2Romania 37.6 36.9 37.0 37.7Serbia 72.9 65.0 63.8 62.1Slovakia 51.8 51.2 50.1 47.6Slovenia 78.3 74.2 72.5 69.0CEE8 average 53.5 52.4 51.2 50.1

C/A (%GDP) 2016 2017f 2018f 2019fCroatia 2.5 4.1 2.5 1.5Czech Republic 1.1 0.9 0.7 0.5Hungary 6.1 3.5 3.0 2.4Poland -0.3 -0.2 -0.5 -1.2Romania -2.3 -3.1 -3.7 -3.6Serbia -4.2 -4.7 -5.4 -6.7Slovakia -0.7 0.0 0.8 1.2Slovenia 5.2 6.4 6.1 5.4CEE8 average 0.5 0.2 -0.1 -0.6

Budget Balance (%GDP) 2016 2017f 2018f 2019fCroatia -0.8 -0.5 -0.5 -0.5Czech Republic 0.5 0.2 0.1 -0.2Hungary -1.8 -2.0 -2.5 -2.5Poland -2.4 -2.1 -2.5 -2.3Romania -3.0 -3.0 -3.4 -2.9Serbia -1.3 0.0 -0.8 -0.8Slovakia -2.2 -1.5 -1.0 -0.6Slovenia -1.8 -0.8 -0.3 0.0CEE8 average -1.8 -1.6 -1.9 -1.7

Note:*Information on past performance is not a reliable indicator for future performance. Forecasts are not a reliable indicator for future performance.




Appendix

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Aug

-14

Oct-

14

Dec-1

4

Fe

b-1

5

Apr-

15

Jun-1

5

Aug

-15

Oct-

15

Dec-1

5

Fe

b-1

6

Apr-

16

Jun-1

6

Aug

-16

Oct-

16

Dec-1

6

Fe

b-1

7

Apr-

17

Jun-1

7

Aug

-17

Oct-

17

Dec-1

7

BELI3M Serbia 10Y

-1

0

1

2

3

4

5

6

7

8

De

c-12

Ma

r-13

Jun

-13

Sep

-13

De

c-13

Ma

r-14

Jun

-14

Sep

-14

De

c-14

Ma

r-15

Jun

-15

Sep

-15

De

c-15

Ma

r-16

Jun

-16

Sep

-16

De

c-16

Ma

r-17

Jun

-17

Sep

-17

De

c-17

EUR003M Slovakia 10Y Slovenia 10Y

Note:*Information on past performance is not a reliable indicator for future performance. Forecasts are not a reliable indicator for future performance.




Contacts Group Research Head of Group Research

Friedrich Mostböck, CEFA +43 (0)5 0100 11902 Major Markets & Credit Research Head: Gudrun Egger, CEFA +43 (0)5 0100 11909 Ralf Burchert, CEFA (Agency Analyst) +43 (0)5 0100 16314 Hans Engel (Senior Analyst Global Equities) +43 (0)5 0100 19835 Christian Enger, CFA (Covered Bonds) +43 (0)5 0100 84052 Margarita Grushanina (Economist AT, Quant Analyst) +43 (0)5 0100 11957 Peter Kaufmann, CFA (Corporate Bonds) +43 (0)5 0100 11183 Stephan Lingnau (Global Equities) +43 (0)5 0100 16574 Carmen Riefler-Kowarsch (Covered Bonds) +43 (0)5 0100 19632 Rainer Singer (Senior Economist Euro, US) +43 (0)5 0100 17331 Bernadett Povazsai-Römhild (Corporate Bonds) +43 (0)5 0100 17203 Elena Statelov, CIIA (Corporate Bonds) +43 (0)5 0100 19641 Gerald Walek, CFA (Economist Euro, CHF) +43 (0)5 0100 16360 Macro/Fixed Income Research CEE Head CEE: Juraj Kotian (Macro/FI) +43 (0)5 0100 17357 Zoltan Arokszallasi, CFA (Fixed income) +43 (0)5 0100 18781 Katarzyna Rzentarzewska (Fixed income) +43 (0)5 0100 17356 CEE Equity Research Head: Henning Eßkuchen +43 (0)5 0100 19634 Daniel Lion, CIIA (Technology, Ind. Goods&Services) +43 (0)5 0100 17420 Michael Marschallinger +43 (0)5 0100 17906 Christoph Schultes, MBA, CIIA (Real Estate) +43 (0)5 0100 11523 Vera Sutedja, CFA, MBA (Telecom, Steel) +43 (0)5 0100 11905 Thomas Unger, CFA (Banks, Insurance) +43 (0)5 0100 17344 Vladimira Urbankova, MBA (Pharma) +43 (0)5 0100 17343 Martina Valenta, MBA +43 (0)5 0100 11913 Editor Research CEE Brett Aarons +420 956 711 014 Research Croatia/Serbia Head: Mladen Dodig (Equity) +381 11 22 09178 Head: Alen Kovac (Fixed income) +385 72 37 1383 Anto Augustinovic (Equity) +385 72 37 2833 Milan Deskar-Skrbic (Fixed income) +385 72 37 1349 Magdalena Dolenec (Equity) +385 72 37 1407 Ivana Rogic (Fixed income) +385 72 37 2419 Davor Spoljar, CFA (Equity) +385 72 37 2825 Research Czech Republic Head: David Navratil (Fixed income) +420 956 765 439 Head: Petr Bartek (Equity) +420 956 765 227 Vit Machacek (Fixed income) +420 956 765 456 Jiri Polansky (Fixed income) +420 956 765 192 Michal Skorepa (Fixed income) +420 956 765 172 Pavel Smolik (Equity) +420 956 765 434 Jan Sumbera (Equity) +420 956 765 218 Research Hungary Head: József Miró (Equity) +361 235 5131 Gergely Ürmössy (Fixed income) +361 373 2830 András Nagy (Equity) +361 235 5132 Orsolya Nyeste (Fixed income) +361 268 4428 Tamás Pletser, CFA (Oil&Gas) +361 235 5135 Research Poland Director of Research: Tomasz Duda (Equity) +48 22 330 6253 Deputy Director: Magdalena Komaracka, CFA (Equity) +48 22 330 6256 Marek Czachor (Equity) +48 22 330 6254 Mateusz Krupa (Equity) +48 22 330 6251 Karol Brodziński (Equity) +48 22 330 6252 Research Romania Head: Horia Braun-Erdei +40 3735 10424 Mihai Caruntu (Equity) +40 3735 10427 Dumitru Dulgheru (Fixed income) +40 3735 10433 Eugen Sinca (Fixed income) +40 3735 10435 Dorina Ilasco (Fixed Income) +40 3735 10436 Research Slovakia Head: Maria Valachyova, (Fixed income) +421 2 4862 4185 Katarina Muchova (Fixed income) +421 2 4862 4762 Research Turkey Ender Kaynar (Equity) +90 212 371 2530 Efe Kalkandelen (Equity) +90 212 371 2537

Treasury - Erste Bank Vienna

Group Markets Retail Sales Head: Christian Reiss +43 (0)5 0100 84012 Markets Retail a. Sparkassen Sales AT Head: Markus Kaller +43 (0)5 0100 84239 Equity a. Fund Retail Sales Head: Kurt Gerhold +43 (0)5 0100 84232 Fixed Income a. Certificate Sales Head: Uwe Kolar +43 (0)5 0100 83214 Markets Corporate Sales AT Head: Christian Skopek +43 (0)5 0100 84146

Fixed Income Institutional Sales

Group Markets Financial Institutions Head: Manfred Neuwirth +43 (0)5 0100 84250 Bank and Institutional Sales Head: Jürgen Niemeier +49 (0)30 8105800 5503 Institutional Sales Western Europe AT, GER, FRA, BENELUX Head: Thomas Almen +43 (0)5 0100 84323 Charles-Henry de Fontenilles +43 (0)5 0100 84115 Karin Rattay +43 (0)5 0100 84118 Rene Klasen +49 (0)30 8105800 5521 Bernd Bollhof +49 (0)30 8105800 5525 Bank and Savingsbanks Sales Head: Marc Friebertshäuser +49 (0)711 810400 5540 Sven Kienzle +49 (0)711 810400 5541 Michael Schmotz +43 (0)5 0100 85542 Ulrich Inhofner +43 (0)5 0100 85544 Klaus Vosseler +49 (0)711 810400 5560 Andreas Goll +49 (0)711 810400 5561 Mathias Gindele +49 (0)711 810400 5562 Institutional Sales CEE and International Head: Jaromir Malak +43 (0)5 0100 84254 Central Bank and International Sales Head: Margit Hraschek +43 (0)5 0100 84117 Christian Kössler +43 (0)5 0100 84116 Bernd Thaler +43 (0)5 0100 84119 Institutional Sales PL and CIS Pawel Kielek +48 22 538 6223

Michal Jarmakowicz +43 50100 85611 Institutional Sales Slovakia Head: Sarlota Sipulova +421 2 4862 5619 Monika Smelikova +421 2 4862 5629 Institutional Sales Czech Republic Head: Ondrej Cech +420 2 2499 5577 Milan Bartos +420 2 2499 5562 Barbara Suvadova +420 2 2499 5590 Institutional Asset Management Sales Czech Republic Head: Petr Holecek +420 956 765 453 Martin Perina +420 956 765 106 Petr Valenta +420 956 765 140 David Petracek +420 956 765 809 Blanca Weinerova +420 956 765 317 Institutional Sales Croatia Head: Antun Buric +385 (0)7237 2439 Željko Pavičić +385 (0)7237 1494 Natalija Zujic +385 (0)7237 1638 Institutional Sales Hungary Head: Peter Csizmadia +36 1 237 8211 Attila Hollo +36 1 237 8209 Gabor Balint +36 1 237 8205 Institutional Sales Romania Head: Ciprian Mitu +43 (0)50100 85612 Stefan Mortun Racovita +40 373 516 531 Business Support Bettina Mahoric +43 (0)50100 86441




Disclaimer This publication was prepared by Erste Group Bank AG or any of its consolidated subsidiaries (together with consolidated subsidiaries "Erste Group") independently and objectively as other information pursuant to the Circular of the Austrian Financial Market Authority regarding information including marketing communication pursuant to the Austrian Securities Supervision Act. This publication serves interested investors as additional source of information and provides general information, information about product features or macroeconomic information without emphasizing product selling marketing statements. This publication does not constitute marketing communication pursuant to Art. 36 (2) Austrian Securities Supervision Act as no direct buying incentives were included in this publication, which is of information character. This publication does not constitute investment research pursuant to § 36 (1) Austrian Securities Supervision Act. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. The information only serves as non-binding and additional information and is based on the level of knowledge of the person in charge of drawing up the information on the respective date of its preparation. The content of the publication can be changed at any time without notice. This publication does not constitute or form part of, and should not be construed as, an offer, recommendation or invitation to subscribe for or purchase any securities, and neither this publication nor anything contained herein shall form the basis of or be relied on in connection with or act as an inducement to enter into any contract or inclusion of a security or financial product in a trading strategy. Information provided in this publication are based on publicly available sources which Erste Group considers as reliable, however, without verifying any such information by independent third persons. While all reasonable care has been taken to ensure that the facts stated herein are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable, Erste Group (including its representatives and employees) neither expressly nor tacitly makes any guarantee as to or assumes any liability for the up-to-dateness, completeness and correctness of the content of this publication. Erste Group may provide hyperlinks to websites of entities mentioned in this document, however the inclusion of a link does not imply that Erste Group endorses, recommends or approves any material on the linked page or accessible from it. Neither a company of Erste Group nor any of its respective managing directors, supervisory board members, executive board members, directors, officers of other employees shall be in any way liable for any costs, losses or damages (including subsequent damages, indirect damages and loss of profit) howsoever arising from the use of or reliance on this publication. Any opinion, estimate or projection expressed in this publication reflects the current judgment of the author(s) on the date of publication of this document and do not necessarily reflect the opinions of Erste Group. They are subject to change without prior notice. Erste Group has no obligation to update, modify or amend this publication or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. The past performance of securities or financial instruments is not indicative for future results. No assurance can be given that any financial instrument or issuer described herein would yield favorable investment results or that particular price levels may be reached. Forecasts in this publication are based on assumptions which are supported by objective data. However, the used forecasts are not indicative for future performance of securities or financial instrument. Erste Group, its affiliates, principals or employees may have a long or short position or may transact in the financial instrument(s) referred to herein or may trade in such financial instruments with other customers on a principal basis. Erste Group may act as a market maker in the financial instruments or companies discussed herein and may also perform or seek to perform investment services for those companies. Erste Group may act upon or use the information or conclusion contained in this publication before it is distributed to other persons. This publication is subject to the copyright of Erste Group and may not be copied, distributed or partially or in total provided or transmitted to unauthorized recipients. By accepting this publication, a recipient hereof agrees to be bound by the foregoing limitations. © Erste Group Bank AG 2018. All rights reserved. Published by:

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