Profile: Erste Group Bank

Erste Group Bank which acquired Citi's structured products business in Hungary in 2015, has steadily increased its share in the country's structured products market over the last two years. The product range offered by the lender includes leverage certificates and capital guaranteed products, with a focus on partially protected products like autocallables and reverse convertibles. The bank also works with other issuers such as Credit Suisse, Societe Generale and Commerzbank, as part of the legacy left by the US bank as a partner of those banks in the distribution of structured products.

Peter Kishazi (pictured), head of markets retail sales, at Erste Investment Hungary says the bank is actively offering structured products for private banking clients only which are available via its internet brokerage platform for self-directed investors as an 'advice free' transaction.

"Erste Bank Hungary offers structured products only for private banking and upper mass affluent clients, this ensures that the clients are sophisticated and they are able to take risks within their portfolio," says Kishazi. "Our goal is to keep the structured products' ratio under 30%."

According to Kishazi, the most successful products in 2017 were mainly 'worst of' products with one- and three-year investment terms, with the reasons for their success being the structure which in "itself is not so complicated".

"We are able to choose well-known companies, offer good return with an acceptable risk [exposure], and the market environment has favoured these products over the last few years," says Kishazi.

SRP data shows that the best performing products during 2017 were the short term 'worst of' soft protected products linked to equity baskets which returned between 5.5% and 9.5% p.a. "We think this structure will stay successful, but we have plans to lower its risk profile," Kishazi says.

Erste offers two "really popular payoffs", according to Kishazi. A one year‚ 'worst of' structure, with a fixed coupon and daily observation, linked to two or three shares, whcih provides physical settlement in case of a negative scenario, and a protection barrier usually set at 60%; and a three year 'worst of' structure also linked to two to three shares, with semi-annual observations redimable from the second observation date which offers a conditional coupon, and provides a coupon barrier of 60-70%, and an autocall barrier at 100%, with physical settlement in case of a negative scenario.

Equities remain the dominant asset class in the domestic structured products market while the preferred wrapper to deliver the products is the structured note, according to Kishazi, who points that the agenda in the short-term will be dictated by regulation.

"It's too early to draw the consequences," says Kishazi. "We are closely monitoring the figures/competitors and the market. We were disclosing the costs also before Mifid 2."

Erste's plan for 2018 is to continue to grow its structured notes range with new structured notes linked to "big, well-known companies" and "equity indices with a worst of and autocallable structures".

"[At a firm level], we will continue to cooperate with with third party issuers," says Kishazi. "If it is these three names or also other names we do not know yet."

For this year's European awards, for which Erste won both 'Best Distributor' and 'Best Performance' in Hungary, SRP has considered 69 tranche - subscription based - products from the bank, consisting of 40 products with strike dates between October 1, 2016, and September 30, 2017, and 29 products that matured during the same period. The striking products were notes with a term between one to three years, with five different structures: reverse convertibles and autocallables on single equity or basket, in a 'worst of' structure. The matured products were a bit more diverse with less autocallables and structures like accrual/range on underlyings like the EUR/HUF exchange rate, Libor and Euribor. Besides reverse convertibles on single or basket equity underlyings.

SRP's 15th European Structured Products & Derivatives Conference 2018 will take place on 7-9 February at the etc.venues, County Hall, London.

Capital protection is a value we would like to keep at a minimum of 90%, K&H Bank

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