Bank Austria's results for the first nine months of 2015:
Bank Austria posts net profit of € 660 million for the first nine months
- Sound operating performance from customer business despite market interest rates which are at a historically low level and persistently weak economic trends
o Lending volume up by 0.9 % year-on-year to € 117 billion; while total loans in Austrian customer business rise by close to 4 %, lending volume in CEE is more or less unchanged on account of exchange rate effects
o Substantial increase of 11.3 % to a total of € 111 billion in customer deposits in Austria and CEE compared with the first nine months of the previous year; the increase of 14 % in CEE is stronger than in Austria, where customer deposits grow by 8.2 %
- Operating costs continue to decline thanks to strict cost management
- Net write-downs of loans up by 42.2 % to € 757 million
o The increase in the third quarter of 2015 was mainly due to the mandatory conversion, required by law, of CHF loans in Croatia, which had a one-off impact of € 205 million
- Total charge for bank levies and other systemic charges up by € 48 million to € 233 million, a year-on-year increase of 25.7 %; this amount is equal to 10.2 % of total costs and almost one-quarter of profit before tax
- Net profit amounts to € 660 million; the decline of € 529 million compared with the same period of the previous year is due to three factors:
o Net interest was lower and Bank Austria no longer received a share of profits of the Markets subdivision of UniCredit’s CIB Division; these were the main reasons why operating income was down by € 228 million
o Net write-downs of loans rose by € 225 million, mainly on account of the mandatory conversion of foreign currency loans in Croatia
o The item “Total profit or loss after tax from discontinued operations” shows a loss of € 158 million, which also reflects the current loss of Ukrsotsbank
- Total capital ratio up by 77 basis points on year-end 2014, to 14.2 % ; Common Equity Tier 1 capital ratio2 up by 25 basis points to 10.6 %
- Excellent direct-funding ratio underlines the bank’s strong liquidity position
o Loans to customers funded with customer deposits and the bank’s own issues to the extent of 120 %
Items in the income statement
Net interest continued to be the most important income component, accounting for 58.8 % of total operating income. In the first nine month of 2015, net interest was € 2,534 million, down by 4.5 % on the same period of the previous year (1-9 2014: € 2,653 million) on account of the persistently low interest rate environment and despite volume growth.
Dividend income and other income from equity investments amounted € 342 million, down by 2.6 %
(1-9 2014: € 351 million). The decline was mainly due to the sale of various equity interests. This item also includes the contribution of € 220 million from the joint venture in Turkey.
Net fees and commissions continued to develop favourably, increasing by € 42 million or 4.1 % to € 1,064 million compared with the same period of the previous year (1-9 2014: € 1,022 million). Particularly strong growth was seen in Austrian customer business, with net fees and commissions increasing by 8.8 % to € 536 million.
Net trading, hedging and fair value income was € 308 million, down by 23 % on the same period of the previous year (1-9 2014: € 400 million). The decrease was mainly due to the fact that Bank Austria’s participation in profits of the Markets subdivision of UniCredit’s CIB Division, to which Bank Austria was entitled under the terms of the sale of CAIB, ended.
Total operating income amounted to € 4,309 million, down by 5 % on the first nine months of the previous year (1-9 2014: € 4,537 million). This was mainly due to the persistently low interest rate environment, which resulted in a significantly narrower interest margin, and to the expiry of Bank Austria’s participation in profits of the Markets subdivision of UniCredit’s CIB Division.
Operating costs were reduced by 1.6 % to € 2,278 million (1-9 2014: € 2,314 million), thanks to strict cost management and further efficiency enhancement.
At € 2,031 million, operating profit was down by 8.6 % on the same period of the previous year (1-9 2014: € 2,223 million). The decline was due to two effects on the revenue side as mentioned above: first, lower net interest as a result of the historically low level of interest rates; and second, the expiry of Bank Austria’s participation in profits of the Markets subdivision of UniCredit’s CIB Division, which led to lower net trading income.
Net write-downs of loans and provisions for guarantees and commitments in the first nine months of 2015 were € 757 million, up by 42.2 % on the same period of the previous year (1-9 2014: € 532 million). The significant increase in the third quarter of 2015 was mainly due to the mandatory conversion, required by law, of CHF loans in Croatia, which had a negative impact of € 205 million as a one-off. This is the main reason why net write-downs of loans in CEE rose by 60.1 % to € 753 million (1-9 2014: € 470 million. Without the mandatory conversion, net write-downs of loans in CEE would have increased by only 16.6 %, driven by developments in Russia. Additions to loan loss provisions significantly improved the coverage ratios, measured against the volume of impaired loans, in the bank as a whole and in CEE, where it was increased especially in business relating to Ukraine and Russia but also in the Czech Republic and Romania. A very favourable trend was seen in Austria, where increased recoveries on loans previously written down and the higher quality of the loan portfolio led to a decrease of 93.3 % in the provisioning charge, to € 4 million compared to the same period of the previous year
(1-9 2014: € 62 million). Overall, the cost of risk (net write-downs of loans measured against the average volume of loans to customers) increased from 62 basis points in the first nine months of 2014 to 87 basis points in the first nine months of 2015. The coverage ratio was improved by 123 basis points to currently 55.8 %.
Net operating profit for the first nine months of 2015 was € 1,274 million, down by 24.7 % on the previous year (1-9 2014: € 1,691 million). The decline reflects lower operating income in the market environment described above, as well as the higher provisioning charge in connection with the mandatory conversion of CHF loans in Croatia as a one-off.
While cost growth in the business divisions was contained through strict cost management, cost-cutting efforts were offset by further increases in bank levies and other systemic charges (contributions to resolution funds and deposit guarantee schemes), which are shown on a combined basis in the line “Systemic charges” within non-operating items of the income statement.
The balance of non-operating items in the income statement between net operating profit and profit before tax for the first nine months of 2015 was a charge of € 287 million, up by 9 % on the same period of the previous year (1-9 2014: a charge of € 263 million). Among the non-operating items, bank levies and other systemic charges were again the most significant factor burdening the income statement. They rose to € 233 million (1-9 2014: € 185 million).
Within the item “Systemic charges”, the total charge in Austria amounted to € 126 million, of which € 99 million
(1-9 2014: € 93 million) related to the bank levy and € 26 million related to contributions to the deposit guarantee scheme and the bank resolution fund. In CEE, the total charge was € 107 million, of which bank levies (in Hungary and Slovakia) accounted for € 32 million and other systemic charges totalled € 75 million. Contributions to the bank resolution funds in Hungary and Croatia amounted to € 8 million and the contribution to the local bank resolution fund in Romania was € 3 million. Contributions to deposit guarantee schemes in CEE countries, on a pro-rata basis for the first nine months of the year, totalled € 64 million.
Profit before tax for the first nine months of 2015 was € 987 million, down by 30.9 % on the previous year
(1-9 2014: € 1,428 million). The decline reflects the costs associated with the mandatory conversion of CHF loans in Croatia as a one-off and the combined impact of weak economic growth, the low level of interest rates and significantly higher systemic charges. Total profit or loss after tax from discontinued operations was a loss of € 158 million, reflecting the negative impact from Ukrsotsbank’s loss of € 218 million, which was not offset by income from the sale of real estate.
After deduction of non-controlling interests, net profit attributable to the owners of the parent company was € 660 million, down by 44.5 % on the same period of the previous year (1-9 2014: € 1,190 million).
The following key financial data have been calculated on the basis of the above-mentioned results:
• The cost/income ratio was 52.9 % (1-9 2014: 51 %).
• The risk/earnings ratio (net write-downs of loans as a percentage of net interest income) was 26.3 %
(1-9 2014: 17.7 %).
Results of the Divisions
Bank Austria reports its results in four Divisions: Retail & Corporates, Corporate & Investment Banking (CIB), Private Banking, and Central Eastern Europe (CEE). The bank also shows results for the Corporate Center.
The Retail & Corporates Division’s profit before tax for the first nine months of 2015 was € 224 million, down by 3.6 % compared with the previous year (1-9 2014: € 233 million). Operating income declined by 3.4 %, reflecting the persistently low level of interest rates, although the Division recorded volume growth in deposits and loans. The charge for bank levies and other systemic charges in the Retail & Corporates Division alone totalled € 50 million, an increase of 38.9 % over the same period of the previous year (1-9 2014: € 36 million). A strong improvement in asset quality in retail banking and a net release of loan loss provisions in the Corporates subsegment had a positive effect on net write-downs of loans and provisions for guarantees and commitments in the Retail & Corporates Division, which were down by a substantial 89.7 % compared with the first nine months of the previous year. The cost/income ratio was 74.5 % (1-9 2014: 70.8 %).
The Private Banking Division achieved an increase of 5 % in its profit before tax for the first nine months of 2015, which rose to € 35 million (1-9 2014: € 33 million). Against the background of persistently low interest rates, Private Banking thus benefited from its strength in asset management while continuing on its growth path. Operating income rose by 5.8 %, mainly driven by fee income from asset management business. The cost/income ratio was 70.1 % (1-9 2014: 70.7 %).
Revenue generated by the Corporate & Investment Banking (CIB) Division in a challenging market environment showed a favourable development in the past quarters. Operating income in the first nine months of 2015 was € 334 million, up by € 4 million or 1.2 % on the same period of the previous year. However, two effects had a negative impact: first, costs rose by 6.1 %, mainly in connection with IT development costs. Second, the net release of loan loss provisions (€ 1 million) was lower than for the same period of the previous year (€ 8 million). Overall, these effects and the charge for the bank levy and other systemic charges (totalling € 24 million) are reflected in profit before tax, which amounted to € 154 million, down by 9.4 % on the figure for the same period of the previous year. The cost/income ratio remained low, at 46.7 % (1-9 2014: 44.5 %).
In the first nine months of 2015 the CEE Division again achieved a strong operating profit of € 1,726 million
(1-9 2014: € 1,807 million) reflecting positive contributions from across the region and despite methodological changes regarding subholding effects in Q2 2015; adjusted for exchange rate movements, the figure was up by 3.6 % compared to the same period of the previous year. Net interest, the trading result and fees and commissions showed a healthy development, whereas operating costs were well contained. Loan loss provisions increased significantly from € 470 million to € 753 million, mainly driven by the mandatory conversion of CHF loans in Croatia as a one-off. Thus profit before tax decreased to € 851 million (1-9 2014: € 1,104 million), also reflecting expenses such as those for bank levies, deposit insurance and resolution fund. The cost/income ratio is currently at remarkable 38.4 % (1-9 2014: 39.0 %).
The CEE Division manages a network of about 2,400 branches (including the Turkish joint venture, which is accounted for using the equity method) in 13 countries in the region with about 47,800 employees. The Group continues to see itself as a long-term investor in this region and will expand its leading market position through sustainable organic growth in the coming years.
In Central and Eastern Europe, the challenging global market environment has further amplified the already significant divergence of countries. Once again, the new EU members in Central Europe (EU-CEE) stand out, with their economies buoyed by the fledgling recovery in the Euro area and financial markets safeguarded by strong external positions and prudent policies. While growth was initially led by exports spurred by the recovery in the EU, it has now shifted towards domestic demand. UniCredit´s near-term projections are based on assumptions about a further slight acceleration in the Euro area and US growth, commodity prices stabilising in 2016 with moderate upward potential, a “soft landing” in China and a gradual path of Fed rate hikes. The ECB is expected to continue with its QE programme as initially planned. Under these assumptions, the global backdrop for CEE should be positive, with EU-CEE being best positioned to benefit from the favourable global environment.
Statement of financial position
Bank Austria’s total assets as at 30 September 2015 were € 194.0 billion , up by 2.6 % or € 4.9 billion on the end of the previous year (31 December 2014: € 189.1 billion).
On the assets side, loans and receivables with customers at the end of September 2015 were € 116.5 billion, up by 2.5 % or € 2.8 billion (31 December 2014: € 113.7 billion). Loans and receivables with banks declined, by 6.2 %, to € 32.4 billion (31 December 2014: € 30.5 billion).
On the liabilities side, deposits from customers rose strongly, by 8.6 % to € 111.0 billion (31 December 2014: € 102.3 billion), reflecting significant increases in Austria and CEE. Debt securities in issue declined by 4 % to € 28.8 billion (31 December 2014: € 30.0 billion) as a result of redemptions. Direct funding – i.e. the sum total of deposits from customers and debt securities in issue – increased by € 7.6 billion or 5.7 % to € 139.8 billion. This gives a loans/direct-funding ratio of 83.3 %, which means that customer loans are covered by customer deposits and debt securities in issue to the extent of 120 %.
Net impaired loans declined to € 4.9 billion (–0.7% year to date) while the coverage ratio rose to a sound 55.8 % (+0.3% year to date). This means that asset quality at Bank Austria continued to develop positively. The increase in gross impaired loans in CEE to € 7.7 billion (+2.5% year to date) was offset by a highly favourable development in Austria, where gross impaired loans totalled €3.4 billion (–5.3% year to date). The increase in total write-downs of loans in CEE to € 4.5 billion (+9.1%) resulted mainly from the conversion, required by law, of CHF-denominated loans in Croatia and an increase of provisioning in Russia.
Regulatory capital resources and risk-weighted assets
Regulatory capital, capital requirements and regulatory capital ratios are calculated in accordance with the Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRD IV) to implement Basel 3 in the European Union. Under the Austrian CRR Supplementary Regulation of 11 December 2013, these provisions are not yet fully applicable but will be gradually introduced over several years. For example, new deductions from Common Equity Tier 1 capital or capital components which are no longer eligible for inclusion under Basel 3 are not yet allowed to be fully taken into account pursuant to CRR / CRD IV in the second year of the transition period but to the extent defined for 2015 in the Austrian CRR Supplementary Regulation.
Movements in capital resources: Total regulatory capital was € 18.6 billion, up by € 1.1 billion on year-end 2014. Common Equity Tier 1 capital (CET1) rose by € 0.4 billion to € 13.8 billion.
The increase in Common Equity Tier 1 capital as at 30 September 2015 is mainly due to the inclusion of eligible net profit for the first half of 2015 and the fact that unrealised gains on assets and liabilities measured at fair value were eligible for inclusion for the first time under Section 2 of the Austrian CRR Supplementary Regulation. In addition, Tier 2 capital was strengthened through three eligible new issues totalling € 0.9 billion.
In the first nine months of 2015, the total risk exposure amount (RWAs) increased to € 130.8 billion, up by € 0.5 billion or 0.4%; an increase in credit risk was partly offset by declines in market risk and operational risk.
The risk exposure amount for credit risk was up by € 1.5 billion (+1.4%) to € 114.5 billion. Portfolios under the internal ratings-based approach increased by €1.0 billion and those under the standardised approach were up by € 0.8 billion.
The change relates mainly to the exposure classes “Corporates” (+€ 1.6 billion), “Retail” (+€ 0.5 billion) and “Institutions” (–€ 0.7 billion). In addition to business expansion, the main factor which led to an increase in risk-weighted assets was the discontinuation of the Swiss franc’s link to the Euro in January 2015. The integration of the Croatian and Slovenian leasing companies in the Bank Austria Group also led to an increase in RWAs. Exchange rate movements in the Turkish lira, the Ukrainian hryvnia and the Russian rouble compared with December 2014 had an RWA-reducing effect.
The risk exposure amount for market risk decreased by € 0.8 billion to € 3.8 billion. The decline compared with year-end 2014 was mainly driven by the expiry of hedging transactions for profits of CEE subsidiaries. The risk exposure amount for operational risk was € 12.0 billion, down by € 0.1 billion.
Although the total risk exposure amount was slightly higher, the Common Equity Tier 1 capital ratio rose from 10.3 % to 10.6 %, reflecting an increase in Common Equity Tier 1 capital. The total capital ratio improved from 13.4 % to 14.2 % as total capital resources were strengthened while the total risk exposure amount rose only slightly.
As at 30 September 2015 the leverage ratio, calculated pursuant to the Delegated Regulation (EU) 2015/62 and based on the current status of applicable transitional arrangements, was 5.7 %.
IR release and charts (PDF; 493 KB)
|1||Year-on-year comparisons for customer loans and customer deposits adjusted for changes in the consolidation perimeter.|
|2||Capital ratios have been calculated pursuant to Basel 3 transitional arrangements; net profit for the first six months is included in regulatory capital and in capital ratios.|
|3||To ensure comparability, the figures for the first nine months of 2014 have been adjusted. Most of the leasing activities were transferred to Bank Austria by the UniCredit parent company in the past year and segment reporting has been adjusted to reflect the new structure. Ukrsotsbank continues to be reflected in the income statement item “Total profit or loss after tax from discontinued operations”.|
|4||Comparisons are made with the published figures for the previous year.|
|5||Shareholding interest in Yapı Kredi in Turkey accounted for using the equity method (i.e. included only in the item “Investments in associates and joint ventures”).|
|6||Calculated on an IFRS basis.|
Enquiries: Bank Austria Corporate Relations
Günther Stromenger, phone: +43 (0)50505-57232