DIE ERSTE österreichische Spar-Casse ... - ERSTE Stiftung

Interest rate fluctuations may adversely affect the results of the Erste Group
Changes in interest rates (including changes in the difference between the levels of short-
and long-term rates) may adversely affect the Erste Group's operating result and costs of
funding.
As a large part of the activities, assets and customers of the Erste Group are
concentrated in countries in Central and Eastern Europe that are not part of the Euro-
Zone, the Erste Group is exposed to currency risk
A large part of the Erste Group's operations, assets and customers are located in Central and
Eastern European countries that are not part of the Euro-Zone, and financial transactions in
currencies other than the Euro give rise to foreign currency risks that may have material
adverse effects on the Erste Group's business, results of operations and financial position or
prospects and, consequently, material adverse effects on payments of principal and interest
to investors under the Notes.
The members of the Erste Group are subject to liquidity risk
The members of the Erste Group are subject to liquidity risks which may materialise in the
event of a mismatch of cash inflows and outflows. In addition, there may be the risk that the
Erste Group may not or not sufficiently be able to cover its liquidity needs from outside
sources, e.g. if the procurement of liquidity from the ECB is limited or made impossible by a
change in the conditions governing collateral. Failure to adequate management of this
liquidity risk or the lack of suitable collateral for ECB purposes could adversely affect the
Erste Group’s business, financial position and revenue position.
The members of the Erste Group in CEE are subject to the higher political and
economic risks related to the respective countries
The Erste Group has members in a number of Central and East European countries and
generates a large part of its income in this region. As a result, the operations of the Erste
Group are exposed to risks common to all regions undergoing rapid political, economic and
social change, including currency fluctuations, exchange control restrictions, an evolving
regulatory environment as well as the risk of inflation, economic recession, local market
disruption, and labour unrest. Recession, deflation, hyper-inflation or similar macroeconomic
events that might be triggered by the current financial and economic crisis would result in a
rise in customer defaults, which would reduce the income of the Erste Group. The occurrence
of one or several of such events may adversely affect the ability of the Issuer’s clients or
counterparties located in the affected country or region to obtain foreign exchange or credit
and, consequently, their ability to meet their payment obligations towards the members of the
Erste Group. These risks could have an adverse effect on the operations of Erste Group.
The biggest risk for the banking sector in the CEE region is the drying up of capital inflows
from Western Europe. Those CEE countries that struggle with major external imbalances rely
on these inflows in funding their current account deficits and/or their debt service. In these
countries, the drying up of external funding sources could have a direct knock-on effect on
domestic lending. Even those CEE countries that do not have major balance of payments
imbalances are dependent on their foreign export markets. As exports have declined
substantially, the real economy has suffered severe economic contraction in these countries,
which has led to significantly higher unemployment and reduced consumer and corporate
spending. Negative domestic sentiment and more restrictive lending policies impair
investment activity and consumption. In addition, the substantial depreciation of a number of
local currencies has made it more difficult for borrowers to repay loans denominated in foreign
currency. At the same time, interest rates on loans extended in local currency can hardly be
lowered because of poor refinancing options and depreciating local currencies.
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