The rate hike cycle is about to kick-off Yesterday the deputy governor of the Central bank of Hungary indicated that preparation for a benchmark rate hike to deal with sustained inflation risks has started and that this could happen as soon as June. As inflation as shifted up a gear in April in all CEE countries (y/y growth rates: Hungary +5.1%, Romania +3.2%, Czech Republic +3.1%, Serbia +2.8%) and CEE currencies are to a degree interconnected, we believe it is only a matter of time before other central banks will follow suit The prospect of a rate hike in the Czech republic as soon as August has in our view materially increased. Increasing estimates further We already increased our EPS estimates considerably on May 3rd, following the publication of a Q1 results. We also upgraded the stock to Outperform and Erste is now one of our top picks in Europe, alongside ISP, CredAg, BBVA and Barclays. ERSTE BANK: Shifting gears. Upgrade to Outperform Today we increase our EPS estimates by a further 2-4% to capture a more widespread and steeper rate hiking cycle across all non-Eurozone/Eurozone linked markets. Our 2022-23e adj. EPS estimates are now 8% above consensus, primarily on higher NII. Profitable, well capitalised and predictable On our revised estimates Erste trades at a relatively small P/E discount vs the sector (4-5%). This is despite a structurally higher ROTE (10.8% in 2023e), a FL CT1 ratio in excess of 14% over the forecast period and strong asset quality metrics. Additional upside could come from small cash funded bolt-on acquisitions which the bank is openly exploring. These should be EPS accretive due to cost synergies and not threaten dividend distributions (assuming a 45% average pay-out ratio in 2021-23e Erste has c.EUR1bn of excess capital). Our EUR37 price target (from EUR35.5) no longer includes the EUR0.50 DPS to be paid at the end of May.