"Bank Austria 2020" initiative launched in response to changes in customer behaviour and market environment as well as rising costs

  • Bank Austria sees itself as a pioneer in the banking industry and is putting its business model on a sustainable basis to emerge as winner from the forthcoming transformation of the banking industry
  • Investments in "SmartBanking" totalling about EUR 100 million will enable Bank Austria to expand and improve its services for all customers
  • At the same time, the impact of steadily rising costs in a stagnant market can only be cushioned through efficiency enhancement and cost reduction
  • The bank levy in Austria has an annual impact of EUR 97 million; additional costs resulting from new regulatory requirements add up to EUR 270 million annually
  • To offset these charges, staff costs and other administrative expenses need to be reduced through an EUR 130 million cost-cutting programme, with staff costs planned to be reduced by EUR 70 million
  • Staff-related measures are planned to be taken primarily in back-office units and in a socially compatible form, with a focus on two areas: positions which become vacant will not be filled, and part-time working models will be adopted. The objective is to achieve the targets without operational layoffs.

Banking business is changing fundamentally. In the near future, it will differ significantly from what it is today. Willibald Cernko, CEO of Bank Austria: "All banks will have to take the changes into account. Those which want to emerge as winners from the transformation will have to adjust their business models to the new circumstances, enhance cost efficiency and invest in a more clearly differentiated range of services tailored to meet customer needs. With our SmartBanking strategy we are the market pioneer, investing about EUR 100 million in expanding our range of services."

Willibald Cernko adds, "In an environment of low interest rates and weak economic growth, earnings opportunities are limited while cost burdens have increased significantly. The only way in which we can respond to these developments is to further reduce our costs if we do not want to pass these costs on to our customers or restrict our lending activities. This year the bank levy in Austria alone is a charge of EUR 97 million in our income statement. These costs will not simply disappear. Weighing this burden against an annual reduction of EUR 35 million in our staff costs, one can clearly see that the bank levy is at the expense of jobs."

Rapid changes in customer behaviour require redesign of the business model
While Bank Austria will adhere to its universal banking strategy, the bank will differentiate more clearly between two directions in response to changes in customer behaviour: The "basic services bank" will offer services such as deposits, consumer loans, cash deposits and withdrawals, and transfers, intensively using technology to provide these services in a highly efficient manner, with perfect execution and at low cost.
The "advisory services bank" will employ experienced specialists to offer its customers added value through advisory services to a greater extent than is available today. Over the next two or three years, Bank Austria will invest about EUR 100 million in this redesign. The bank is thereby preparing for intensifying competition from new competitors such as Amazon or Google, which are entering the banking market with different business models and leaner structures.

Need for action in response to declining earnings opportunities and the increasing impact of external costs
The current market environment characterised by weak economic growth and low interest rates, in combination with a dramatic increase in costs associated with new regulatory requirements and additional taxes, is putting strong pressure on banking business in Austria. According to a forecast by the Boston Consulting Group, earnings opportunities in the entire Austrian retail market will shrink by 1.1 per cent annually. At the same time, costs arising from the new regulatory requirements – i.e. more equity capital, allocations to a resolution fund and the deposit guarantee scheme – are rising steadily and in Bank Austria’s business in Austria they total about EUR 270 million annually. Added to this is the charge for the bank levy of EUR 97 million, which is disproportionately large in an international comparison; measured by the size of the banking sector, the charge is seven times the figure in Germany.

Measures needed to optimise costs
Bank Austria does not want to pass on the additional costs to its customers nor restrict lending activities because this would be harmful for Austria as a business location while further reducing earnings opportunities. Therefore further measures to cut costs are needed. Various measures taken in the past two years have reduced non-staff expenses by almost EUR 44 million on a sustainable basis, and further cost savings of EUR 20 million are planned for the next three years. Overall, reductions of non-staff expenses add up to about EUR 64 million.

While non-staff expenses account for about 40 per cent of overall costs, staff costs make up about 60 per cent of the total. This means that there is also a need to reduce staff costs. In concrete terms, there is a cost-cutting potential of EUR 70 million in the next two years. This will require additional cost savings in addition to the planned reduction of 200 full-time equivalents per year, which will be achieved by not filling positions which become vacant as a result of normal staff turnover. It is not yet possible to quantify the extent of the reduction because this will largely depend on the number of employees who use the various models offered by the bank. The objective is to achieve the targets without operational layoffs.

The planned models are based on the principles of free will and the avoidance of social hardship as far as possible. For example, the bank is planning to focus on part-time working models and offers to employees who wish to pursue different careers. Talks are being held with the Employees' Council of Bank Austria on the concrete shapes which the various instruments will take.

"We are confident that these offers will prove attractive and that we can thereby meet the cost reduction targets which we have defined. In this context we are placing our hopes especially on part-time working models because these offer colleagues the advantage of retaining their jobs while enabling us to reduce costs. In a parallel move, we are screening all our internal processes, administrative expenses and reporting with the objective of eliminating unnecessary items, specifically those which our customers neither see nor need. Yet it is clear that we will not save on customer service. On the contrary, with our SmartBanking approach and additional investments totalling EUR 100 million, we are expanding customer service as can be seen, for example, from the fact that we have extended advisory service hours for SmartBanking customers until 8 p.m.," says Willibald Cernko.

Enquiries: Bank Austria Media Relations Austria
Martin Halama, tel. +43 (0) 50505 - 52371
e-mail: martin.halama@unicreditgroup.at