Rising Profit at Bank Austria

Bank Austria’s CEO Willibald Cernko: “Our extensive presence in Austria and 18 countries in Central and Eastern Europe has proved to be effective also in the volatile market environment which prevailed in the first six months. While uncertainty on the part of investors continued and credit demand was marked by restraint, we achieved 11.1 per cent growth in our net operating profit. This reflects the sound development of commercial banking business with customers and a further decline in the provisioning charge. The fact that the volume of loans continued to grow shows that we fully meet our core function of financing companies and private households even in challenging times. The European environment means that we will continue to face significant challenges: in view of the stricter regulatory requirements we need to further improve our earnings capacity.”

Items in the income statement

Net interest in the first half of 2012 was € 2,249m. In an environment characterised by low interest rates, net interest remained the most important revenue component, at a level which was marginally above the figure for the same period of the previous year (H1 2011: € 2,241m).

Net fees and commissions showed a weaker trend; at € 786m, they were down by 4 per cent from the first half of the previous year (H1 2011: € 818m). The decline was due to continued restraint on the part of customers, especially in securities business, in view of the volatile market environment.

Net trading, hedging and fair value income rose strongly compared with the previous year. The increase is mainly explained by the gain on the buyback of hybrid instruments in the first quarter of 2012. Overall, net trading, hedging and fair value income for the first six months was € 357m, an increase of 31.4 per cent over the same period of the previous year (H1 2011: € 272m).

Operating income in the first six months of 2012 totalled € 3,512m (H1 2011: EUR 3,501m).

At € 1,947m, operating costs were up by a moderate 2.2 per cent from the comparative figure for the first half of the previous year (H1 2011: € 1,905m); strict cost discipline and continued efficiency enhancement in current operations kept the increase down. In total, the charge for bank levies in Austria and in several CEE countries added up to 3 per cent of operating costs.

The total charge for bank levies payable in the Bank Austria Group in the first half of 2012 was EUR 58.7m, of which € 48.3m relates to Austria, € 4.8m to Slovakia, EUR 0,5m to Romania and € 0.4m to Slovenia. In Hungary, the bank levy amounted to EUR 14m, which was partly offset by a positive one-off effect of € 9.3m because part of the losses resulting from the early repayment programme for foreign currency loans may be offset against the bank levy.

Operating profit was € 1,565m, only slightly lower than in the same period of the previous year (H1 2011: € 1,595m) thanks to sound operating performance and despite the additional burdens resulting from bank levies.

In the first half of 2012, net write-downs of loans and provisions for guarantees and commitments were € 568m, down by a substantial € 130m or 18.6 per cent from the same period of the previous year (H1 2011: € 698m). The provisioning charge was reduced in Austrian customer business and in Central and Eastern Europe. In Austrian commercial banking, the provisioning charge declined by 51.7 per cent to € 88m (H1 2011: € 182m), in CEE by 6.7 per cent to € 481m (H1 2011: € 516m). Overall, the cost of risk (net write-downs of loans and provisions for guarantees and commitments as a proportion of average loans to customers) declined from 108 basis points (bp) in the first half of the previous year to 85 bp in H1 2012.

Net operating profit – i.e. operating profit less net write-downs of loans and provisions for guarantees and commitments, the key measure of operating performance – improved strongly in the first half of 2012, by 11.1 per cent to € 997m, compared with the same period of the previous year (H1 2011: € 898m). This favourable development was driven by a sound operating performance from customer business and by a further decline in the provisioning charge.

Among the non-operating items, provisions for risks and charges were € 67m, significantly higher than in the same period of the previous year (H1 2011: € 31m). The increase was partly due to substantial provisions for the credit card bonus points programme in Turkey and also to provisions for legal proceedings.

The net result from investments was negative, at minus € 63m, representing a significantly larger burden than in the same period of the previous year (H1 2011: minus € 29m). The increase is mainly due to write-downs on Greek, Spanish and Portuguese bonds.

Profit before tax for the first half of 2012 was € 864m, up by 3.4 per cent on the figure for the same period of the previous year (H1 2011: € 836m).

Income tax for the period was € 185m, up by 65 per cent on the first half of the previous year. As a result, profit for the period declined by 6.1 per cent to € 679m (H1 2011: € 723m). After deduction of non-controlling interests and goodwill impairment, net profit attributable to the owners of Bank Austria rose by 1.2 per cent to € 646m (H1 2011: € 638m).

Francesco Giordano, Chief Financial Officer of Bank Austria: “Bank Austria has a sound balance sheet structure: although total assets increased, the leverage ratio1 continued to decline, to 12.6, a level which reflects our strong equity capital position and our conservative business model. At the same time, thanks to an increase in deposits, we also further improved our liquidity position. The loan / direct funding ratio is exactly 100 per cent. This means that all of our customer loans are covered by customer deposits and the bank’s debt securities in issue.“

The net operating profit generated by the CEE Division in the first half of 2012 amounted to € 752m, up by 3.5 per cent from the comparative figure for the first half of the previous year (H1 2011: € 727m). At constant exchange rates, net operating profit increased by 6.2 per cent. This growth clearly reflects a sound performance in customer business as well as another strong decrease in net write-downs on loans and provisions for guarantees and commitments. At the same time profit before tax was € 747m, 1.7 per cent below the first half of 2011, mainly due to higher provisions for the bonus points programme for Turkish credit card holders and a positive one-off back in 2011. At constant exchange rates and adjusted for the one-off in the first half of the previous year, profit before tax increased by 12.2 per cent.

Despite the Division´s continued business expansion, its cost/income ratio remains at an outstanding level of 47.4 per cent (H1 2011: 46.6 per cent).

Within UniCredit, Bank Austria is the sub-holding company for operations in the region of Central and Eastern Europe. Its banking network comprises around 2,700 branches and roughly 51,000 employees2 in 18 countries. The Group continues to see itself as a long-term investor in the CEE region and aims to expand its leading market position through sustained organic growth in the coming years.

Despite the persistence of the Western European sovereign debt crisis and the prospect of a more gradual recovery in the region, CEE is still set to significantly outperform the euro zone with expected GDP growth of 2.6 per cent this year and 3.4 per cent in 2013. With a plus of only 0.4 per cent qoq, the first three months of 2012 were the weakest quarter since Q2 2009, but the second quarter is shaping up better. As industrial production is improving, the growth outlook remains determined by uncertain prospects for external demand and continued weakness of internal demand. Overall Central and Eastern Europe is in a much better fiscal shape than many EMU countries.

“The CEE countries are currently facing some headwinds caused by the ongoing EMU crisis. Nevertheless, the long-term outlook for regional economic convergence remains unchanged, with local growth differentials being wider than in the past. In the mid-term we expect the region to grow at an above 2 per cent margin compared to Western Europe”, says Gianni Franco Papa, Bank  Austria’s Deputy CEO and Head of CEE Division, “A sound customer business with growing deposits and loan volumes on the one hand, and shrinking cost of risk on the other hand, clearly reaffirm our commitment to the region, which the Group considers as its ‘engine for growth’. We will continue with our business expansion and selective investments in promising markets such as the Czech Republic, Russia and Turkey.”

Bank Austria’s total assets as at 30 June 2012 were € 202.9bn, up by € 3.7bn from the end of the previous year (31 December 2011: € 199.2bn).

As at 30 June 2012, IFRS equity was € 18.7bn, up by € 1bn or 6.2 per cent on the year-end 2011 level (31 December 2011: € 17.7bn).

At the end of June 2012, the Tier 1 capital ratio (which by definition does not include net profit for a period of less than one year) was 10.17 per cent, slightly lower than at year-end 2011 (31 December 2011: 10.88 per cent). The decline reflects the buyback of hybrid instruments and the increase in risk-weighted assets. The Core Tier 1 capital ratio based on all risks was 9.97 per cent, comfortably above the regulatory requirements.

Staff numbers in the Bank Austria Group including the employees of UniCredit’s subsidiaries in Austria totalled 61,023 (full-time equivalents) as at 30 June 2012 (30 June 2011: 62,034 FTEs). Of this total, 10,410 FTEs were employed in Austria and 50,613 FTEs in CEE countries.