Bank Austria’s results for the first three months of 2016:
Bank Austria posts net profit of EUR 59 million for the first quarter
• 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 at a stable EUR 117 billion
o Customer deposits in Austria and CEE total EUR 114 billion, up by 7 % on the same period of the previous year
• Overall operating costs stable on account of strict cost management, down by 2 % in Austria
• Net write-downs of loans down by 31.4 % to EUR 144 million compared with the first quarter of the previous year
• Significant improvement in operating performance: net operating profit up by EUR 47 million or 11 % to
EUR 471 million
• Total charge for bank levies and other systemic charges, which are largely recognised in the first quarter for the full year 2016, rises by 66.7 % to EUR 172 million
• Net profit amounts to EUR 59 million, down by 70.5 % on the Q1 2015 figure, mainly on account of two factors:
o Bank levies and other systemic charges up by EUR 69 million on the same period of the previous year
o Integration/restructuring costs of EUR 206 million reflect an amendment to the Austrian General Social Insurance Act (ASVG) which was passed by the Austrian National Council and required the bank to increase the relevant provision
• Total capital ratio at 15.1 %, up by 27 basis points on year-end 2015; Common Equity Tier 1 capital ratio1 up by
15 basis points to 11.2 %
• 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 121.8 %
Bank Austria’s CEO Robert Zadrazil: “Operating performance in the first quarter of 2016 was satisfactory in a market and interest rate environment which remained challenging. Based on lower write-downs of loans in Austria and CEE and on strict cost management, we achieved a significantly higher net operating profit. Net profit was substantially lower than for the same period of the previous year, reflecting a new record burden of bank levies and other systemic charges totalling EUR 172 million and a special charge resulting from the amendment to the Austrian General Social Insurance Act passed by the Austrian legislator.”
Items in the income statement
Net interest continued to be the most important income component, accounting for 60.3 % of total operating income. In the first quarter of 2016, net interest was EUR 826 million (1-3 2015: EUR 820 million), up by 0.7 %, despite the persistently low interest rate environment.
Dividend income and other income from equity investments increased by 1.6 % to EUR 100 million (1-3 2015: EUR 98 million). Income from the Turkish joint venture is the largest component within this item.
Net fees and commissions were EUR 339 million, a slight decline of 0.7 % from the first quarter of the previous year
(1-3 2015: EUR 341 million).
Net trading, hedging and fair value income was EUR 78 million, down by 27.9 % on the same period of the previous year (1-3 2015: EUR 108 million). The decrease was mainly due to credit value adjustments (CVA) and funding value adjustments (FVA) under the Basel 3 framework.
Total operating income in the first quarter of 2016 was EUR 1,369 million, down by 1.3 % on the first three months of the previous year (1-3 2015: EUR 1,387 million). The main reasons for the decrease were the persistently low interest rate environment and the credit and funding value adjustments pursuant to Basel 3.
Operating costs were more or less constant at EUR 755 million (1-3 2015: EUR 753 million) thanks to strict cost management; operating costs in Austria were further reduced, by 1.8 % to EUR 394 million (1-3 2015:
EUR 401 million).
Operating profit amounted to EUR 615 million and was thus slightly lower, by 3 %, than in the same period of the previous year (1-3 2015: EUR 634 million). The decrease is explained by the historically low level of interest rates and the credit and funding value adjustments required under Basel 3.
Net write-downs of loans and provisions for guarantees and commitments in the first quarter of 2016 were EUR 144 million, down by 31.4 % on the same period of the previous year (1-3 2015: EUR 210 million). The provisioning charge in Austria declined by EUR 31 million to EUR 3 million (1-3 2015: EUR 34 million). Net write-downs of loans in CEE also declined, by EUR 35 million to EUR 140 million (1-3 2015: EUR 175 million). The decrease was mainly due to developments in the Czech Republic, Hungary, Romania, Serbia and Slovenia.
Net operating profit – the key measure of operating performance – for the first quarter of 2016 was
EUR 471 million, an increase of 11 % (1-3 2015: EUR 424 million) which was due to excellent risk management. While cost growth in the business divisions was contained through strict cost management, cost-cutting efforts were offset by a further increase in bank levies and other systemic charges, which had to be largely recognised in the first quarter for the full year 2016 and 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 between net operating profit and profit before tax in the first quarter of 2016 was a net charge of EUR 354 million compared with a net charge of EUR 112 million in the same period of the previous year. Within the non-operating items, the largest item was the increase in the provision for the planned transfer of the defined-benefit obligation for active employees to the state pension system; the provision had to be increased by EUR 444 million following the amendment to the Austrian General Social Insurance Act passed by the Austrian National Council. Integration/restructuring costs therefore amounted to EUR 206 million.
Among the non-operating items, costs were also driven by bank levies and other systemic charges, which rose by a combined 66.7 % or EUR 69 million to EUR 172 million (1-3 2015: EUR 103 million) as a result of the new rules at EU level concerning contributions to bank resolution funds and deposit guarantee schemes and partly because the relevant charges were recognised in the first quarter for the full year 2016.
Within the item “Systemic charges”, the total charge in Austria amounted to EUR 90 million, of which
EUR 34 million (1-3 2015: EUR 33 million) related to the bank levy and EUR 56 million related to contributions to the deposit guarantee scheme and the bank resolution fund. In CEE, the total charge was EUR 82 million, of which bank levies (in Hungary, the Czech Republic and Slovakia) accounted for EUR 14 million and other systemic charges, recognised in the first quarter for the full year, totalled EUR 68 million. Contributions to the bank resolution funds in Hungary, Bulgaria, Croatia, Slovenia, Romania, the Czech Republic and Slovakia totalled EUR 44 million. Contributions in CEE countries to deposit guarantee schemes totalled EUR 23 million for the first three months of the year.
Profit before tax for the first quarter of 2016 was EUR 117 million, down by 62.5 % (1-3 2015: EUR 313 million). The decline reflects the combined impact of weak economic growth, the low level of interest rates, one-off additional provisions for restructuring costs and a further increase in bank levies and other systemic charges. Net profit was EUR 59 million, down by 70.5 % on the same period of the previous year (1-3 2015:
EUR 199 million).
The following key financial data have been calculated on the basis of the above-mentioned results:
• The cost/income ratio was 55.1 % (1-3 2015: 54.3 %).
• The risk/earnings ratio (net write-downs of loans as a percentage of net interest income) improved to 15.5 %
(1-3 2015: 22.8 %).
• The total capital ratio (based on all risks) rose to 15.1 % (year-end 2015: 14.9 %).
• The Common Equity Tier 1 capital ratio3 (based on all risks) improved to 11.2 % (year-end 2015: 11.0 percent).
Mirko Bianchi, Chief Financial Officer of Bank Austria: "Bank Austria significantly improved its capital ratios in the first quarter of 2016 compared with year-end 2015: our total capital ratio is an outstanding 15.1 %, an increase of 27 basis points. Our Common Equity Tier 1 capital ratio has also risen by 15 basis points, or EUR 266 million, to an excellent 11.2 %. In absolute terms, total regulatory capital at the end of the first quarter of 2016 was EUR 19.5 billion, up by EUR 436 million versus the end of the previous year. Our long-term liquidity position has further improved as a result of continued deposit growth. The loan/direct funding ratio is an excellent 82.1 %. This means that our customer loans are more than fully covered by customer deposits and debt securities in issue."
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.
Profit before tax generated by the Retail & Corporates Division in the first quarter of 2016 was EUR 38 million, down by
8.7 % on the same period of the previous year (1-3 2015: EUR 41 million). Operating income was down by 3.8 %, reflecting the persistently low interest rate environment. The decline was only partly offset by measures to reduce costs. Asset quality in retail and corporate banking continued to improve, with the provisioning charge further declining by
EUR 23 million. Net write-downs of loans and provisions for guarantees and commitments in Retail & Corporates were down by a substantial 77.6 % compared with the same period of the previous year. On this basis, net operating profit rose significantly, by 26.1 % to EUR 74 million. The decline in profit before tax is therefore mainly due to the fact that the total charge for the bank levy and other systemic charges rose substantially in Retail & Corporates, by EUR 23 million or 129.3 % to EUR 41 million (1-3 2015: EUR 18 million) compared with the same period of the previous year.
In the first quarter of 2016, the Private Banking Division achieved a profit before tax of EUR 8 million (1-3 2015:
EUR 16 million). The decline was due to various factors: operating income was down by 11.6 % as net interest and net fees and commissions were lower than in the first quarter of the previous year. Moreover, the total charge which Private Banking had to absorb in connection with the bank levy and other systemic charges was EUR 3 million , up by EUR 2 million on the same period of the previous year.
The Corporate & Investment Banking (CIB) Division generated a profit before tax of EUR 22 million for the first quarter of 2016 (1-3 2015: EUR 34 million). Performance was weighed down mainly by three developments: operating income declined by 6.5 % because net fees and commissions and net trading, hedging and fair value income were lower than in the same period of the previous year. On the other hand, operating costs rose by 13.9 %, primarily in connection with higher provisioning needs. Moreover, the bank levy and other systemic charges impacted CIB with EUR 16 million, an increase of 45.1 % over the same period of the previous year.
The Central Eastern Europe (CEE) Division generated a profit before tax of EUR 343 million for the first quarter of 2016 compared to EUR 323 million in the same period of the previous year. Despite adverse currency effects and prolonged geopolitical tensions this is an increase of 6.2 % at current rates. At constant rates, profit before tax grew by 12.4 % in a year-on-year comparison. Net profit amounting to EUR 284 million (1-3 2015: EUR 196 million) was up by 45 % at current rates and 67.7 % at constant rates, being strongly impacted by the net loss from discontinued operations in the first quarter of 2015. Revenues rose soundly in the first three months of 2016, compensating higher operating costs on a constant rate basis. Loan loss provisions were below previous year supported by lower provisioning needs in most of the countries.
Despite the recent turbulence in global financial markets, Central and Eastern Europe (CEE) entered 2016 on a strong note, with economic activity gaining pace and financial markets resilient. With growth in the euro area expected to hold up well, the ECB embarking on another round of quantitative easing, and the Fed adopting a dovish stance, growth should spread to all CEE countries this year and continue at a similar pace in 2017. Output expansion will be mainly driven by the ongoing recovery in domestic demand. However, growth will vary by pace and sustainability from country to country. In CEE-EU real GDP rose at its fastest pace since the global financial crisis last year and looks on track to repeat this performance also in 2016.
“Against a benign short-term outlook, our banks in Central and Eastern Europe show a solid operating performance. In the first quarter of 2016 revenues have exceeded our expectations, mainly driven by net interest income and fees. Cost of risk has dropped significantly”, says Carlo Vivaldi, Deputy CEO and Head of the CEE Division of Bank Austria. “The implementation of the new Strategic Plan, which also includes the transfer of CEE shareholdings from Vienna to Milan until year-end 2016, is well on track laying the foundation for a leaner governance structure and more effective capital and liquidity management within the Group.”
The CEE Division manages a network of about 2,300 branches (including the Turkish joint venture, which is accounted for using the equity method) in 13 countries in the region with about 47,600 employees. The Group continues to see itself as a long-term investor in this region and will expand its leading market position through sustainable growth in the coming years.
Statement of financial position
Bank Austria’s total assets as at 31 March 2016 were EUR 197.8 billion , up by 2.2 % or EUR 4.2 billion on the end of the previous year (31 December 2015: EUR 193.6 billion).
On the assets side, loans and receivables with customers at the end of March 2016 were EUR 117.0 billion, up by 0.6 % or EUR 0.6 billion (31 December 2015: EUR 116.4 billion). Loans and receivables with banks increased by 5.1 % to EUR 33.9 billion (31 December 2015: EUR 32.2 billion).
On the liabilities side, deposits from customers rose by 3.2 % to EUR 113.8 billion (31 December 2015: EUR 110.3 billion), reflecting growth in Austria and CEE. Debt securities in issue declined slightly, by 1.7 % to EUR 28.3 billion
(31 December 2015: EUR 28.8 billion) as a result of redemptions. Direct funding, i.e. the sum total of deposits from customers, debt securities in issue and financial liabilities at fair value, increased by EUR 2.9 billion or 2.1 % to
EUR 142.6 billion. This gives an excellent loans/direct-funding ratio of 82.1 %, which means that customer loans are covered by customer deposits and debt securities in issue to the extent of 121.8 %.
Net impaired loans declined to EUR 4.3 billion (-4.9 % year to date) while the coverage ratio rose to a sound 57.5%
(+1.2 percentage points year to date). This means that asset quality at Bank Austria continued to develop positively. Gross impaired loans (EUR 10.2 billion) declined both in CEE (EUR 7.1 billion, -1.5 % year to date) and – due to a continuously favourable development - in Austria, where gross impaired loans totalled EUR 3.0 billion (-3.7 % year to date). The share of non-performing loans was 8,2 % (gross) resp. 3,7 % (net) and also was lower both in CEE and in Austria than as of the end of the previous year.
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 2016 in the Austrian CRR Supplementary Regulation.
Total regulatory capital was EUR 19.5 billion, up by EUR 0.4 billion on year-end 2015.
As at 31 March 2016, the total capital ratio based on all risks improved to 15.1 % (31 December 2015: 14.9 %).
The Common Equity Tier 1 capital ratio based on all risks rose to an excellent 11.2 % (31 December 2015: 11.0 %).
Risk-weighted assets (RWA) increased by EUR 0.4 billion resp. +0.5 % to EUR 128.9 billion. This increase is mainly due to higher market risk, mitigated by a decrease in operational risk.
Credit RWA increased by EUR +0.1 billion to EUR 113.3 billion (portfolios under the IRB approach were up by
EUR +0.4 billion, portfolios under the standard approach were down by EUR -0.3 billion), with currency effects compensating each other (appreciation of the Russian Rouble while currencies in Turkey and Ukraine depreciated).
The risk exposure amount for market risk was up by EUR 0.8 billion to EUR 4.7 billion. This increase is partly due to larger security positions in CEE. The risk exposure amount for operational risk was down by EUR 0.3 billion to EUR 10.5 billion.
As at 31 March 2016, the leverage ratio to be calculated under Basel 3 was an excellent 5.8 % in conformity with Basel 3 transitional rules.
IR release + tables(PDF; 388 KB)
Enquiries: Bank Austria Corporate Relations
Günther Stromenger, phone: +43 (0)50505-57232