Volksbanken Group Result Negatively Impacted by Extraordinary Write-Downs
The Austrian bank posted a consolidated loss of € 689m for the first nine months of the year. The annual result is expected to decrease even further.
Extraordinary write-downs for country risks and participations resulted in a loss for VBAG Group. The consolidated result for the first nine months of 2011 amounts to € -689m (1-9 2010: € 0.3m). A substantial part of the negative impact is attributable to an impairment on the participation in VB Romania and to losses from financial investments (Greece, market value losses on CDS, write-down of participation capital of Kommunalkredit and market value losses of other financial investments with country risks). “These are almost without exception one-off effects, due to which our regulatory capital ratios have declined, but they still remain clearly above legal requirements”, said Chief Executive Officer Gerald Wenzel. On 30 September 2011, the tier I ratio (in relation to credit risk) was 9.5% (31 December 2010: 10.3%) and the equity ratio (in relation to total risk) stood at 12.2% (31 December 2010: 12.8%). As at 30 September 2011, total assets amounted to € 43.6bn, which represents a decrease of € 8.4bn or 16.2% compared with the previous year.
Net interest income amounted to € 342m in the first three quarters of 2011, down € 36m or 10% year-on-year. While net interest income in the Financial Markets segment increased, the Retail segment reported a decline as against the same period of the previous year due to a drop of interest margins in Central and Eastern European countries. Compared with the same period of the previous year, net fee and commission income decreased slightly by € 5m or 6% to € 75m. Net trading income stood at € 13m, reflecting a € 17m decline as against the figure reported for the first three quarters of the previous year. This decline is attributable to the debt crisis, the flight to German government bonds and the associated widening of the Bund swap spread.
Loans and advances to customers amounted to € 13.1bn as of the reporting date and decreased by € 3.9bn year-on-year, € 3.2bn of which is attributable to the deconsolidation of VB RO. In all other segments, there were also reductions in loans and advances to customers due to realignment of the business areas. Amounts owed to customers fell by € 0.5bn to € 2.6bn, of which € 0.6bn relates to the deconsolidation of VB RO.
Debts evidenced by certificates declined by € 1.5bn or 9.4% compared with the end of 2010 and amounted to € 14.4bn at 30 September 2011. This is due to scheduled redemptions which were only partly replaced by new issues.
Despite the difficult economic environment, risk provisions were reduced by approximately 59% year-on-year to € 90m.
The European Banking Authority (EBA) has already stated that the amount of VBAG’s capital requirement is to be understood as a pro forma calculation, as the group is in the middle of a restructuring program. Upon completion of this process VBAG will be a regional bank focused on the Austrian market. However, it will be a challenge for VBAG should it be obligated to achieve the temporary capital cushion of 9% by June 2012, the company stated. In order to keep the additional equity requirement as low as possible, management is working on reducing risk weighted assets as quickly as possible. VBAG’s own, internal calculation of ratios according to EBA methodology shows a core capital ratio of 5.5% and a capital ratio of 8.6%. Final EBA calculations will be published shortly.
Due to the continued volatile market environment and the poor economic conditions in some countries, the annual result is expected to decrease even further. The range announced on 13 October for the loss in the consolidated financial statements under IFRS will increase by at least 10%. In the individual financial statements, the given loss range will likewise be exceeded to a similar degree.
Despite the negative result, regulatory capital ratios will still exceed regulatory requirements at the end of the year. Furthermore, VBAG Group expects a capital strengthening effect from the sale of Volksbank International to Sberbank. After the closing of the sales transaction at year-end, a tier 1 ratio of around 10.4% and an equity ratio of around 13.7% are expected.