Preliminary results for the 2014 financial year:
Bank Austria posts net profit of about EUR 1.4 billion
• Sound operating performance from customer business despite persistently weak credit demand, low market interest rates and exchange rate effects
o Increase of 2.4 per cent in lending volume to EUR 133.1 billion despite negative exchange rate effects. Lending volume in Central and Eastern Europe growing, whereas demand in Austria is stagnating
o Customer deposits2 increasing in both Austria and CEE compared with year-end 2013, by a total of 8.1 per cent to EUR 117.3 billion, despite negative exchange rate effects
• Operating costs slightly down by 1.5 per cent thanks to strict cost management
• At EUR 214 million, the total charge for bank levies and financial transaction taxes in Austria and CEE remains extremely high
o Charge for bank levies and financial transaction taxes accounts for 6.4 per cent of total costs
• Net write-downs of loans in Austria and CEE fall by 47.2 per cent to EUR 693 million
• Net profit of EUR 1.4 billion reflects wide diversification and successful development of business model
• Excellent direct funding ratio underlines the bank’s strong liquidity position
o Customer loans are covered by customer deposits and debt securities in issue to the extent of 116 per cent
• Total capital ratio at 13.5 per cent, sound Common Equity Tier 1 capital ratio4 of 10.3 per cent under Basel 3
Bank Austria’s CEO Willibald Cernko: “A net profit of EUR 1.4 billion for the full year, achieved in the market environment prevailing in 2014, is a respectable performance. It is impressive proof that even in challenging times, our broadly diversified business model covering 14 countries produces sustained profitability and is resilient to crises. But this should not obscure the fact that we are still facing massive challenges. Demand in Austria is low as reforms are unacceptably long overdue and there is a lack of impetus to the private business sector. On the other hand, the cost burden resulting from the bank levy in Austria is heavier than in any other country. The combination of these factors is a dangerous mix which has led to absurdly low levels of profitability in the Austrian banking sector. This has been repeatedly criticised by the Austrian supervisory authorities. Danièle Nouy, the EU’s top banking supervisor, also sees low profitability as the biggest risk to the banks supervised by her. In Eastern Europe, on the other hand, geopolitical tensions and currency losses are dampening economic growth but our broadly diversified presence in 13 different markets will continue to pay off. Despite alarmist reports from some quarters, economic growth in CEE is still significantly higher than in Western Europe. And we generate the major part of our profits in the CEE region.”
Items in the income statement
Net interest – still the most important income component, accounting for 58 per cent of operating income – was EUR 3,433 million in 2014. The slight decline of 1.0 per cent compared with the previous year was due to persistently low interest rates and negative exchange rate effects (2013: EUR 3,470 million). At constant exchange rates, net interest rose by 4.3 per cent.
Dividend income and other income from equity investments fell by 35.0 per cent to EUR 496 million (2013: EUR 763 million), mainly because the previous year’s figure included gains of EUR 195 million on the sale of Turkish insurance operations (Sigorta/Emeklilik).
Net fees and commissions reached EUR 1,367 million in 2014, a slight decline of 1.4 per cent from the previous year’s level (2013: EUR 1,386 million). Adjusted for exchange rate movements, net fees and commissions rose by 1.6 per cent.
Net trading, hedging and fair value income was EUR 487 million, down by 38.5 per cent from the previous year (2013: EUR 792 million). The decline was mainly due to substantial depreciation of the Russian rouble and to one-off income from the sale of shares in MICEX, the Russian trading platform, in the previous year.
Overall, operating income was EUR 5,890 million, down by 9.4 per cent from the previous year (2013: EUR 6,503 million). This is partly due to exchange rate effects – at constant exchange rates, operating income declined by only 5.7 per cent – and partly to lower profits in Turkey, reflecting the sale of insurance operations and changes in regulatory requirements (rise in key interest rate, rise in minimum reserve requirements, measures to contain the credit card boom).
Efforts to enhance cost efficiency in 2014 were successful. This is of major significance given the general weakness of operating income in the banking sector, which reflects low levels of economic growth and demand, persistently low interest rates and the parallel increase in fiscal and regulatory burdens. Operating costs in 2014 were EUR 3,336 million, down by 1.5 per cent compared with the previous year (2013: EUR 3,387 million). Adjusted for exchange rate movements, operating costs increased only slightly, by 0.9 per cent.
The total charge for bank levies and financial transaction taxes in Austria and CEE in the Bank Austria Group's income statement was EUR 214.2 million, an increase of 2.5 per cent compared with the previous year (2013: EUR 209.1 million). In Austria, the bank levy totalled EUR 123.7 million (2013: EUR 96.7 million), an increase of 27.9 per cent. In CEE, the total charge for bank levies and financial transaction taxes was EUR 90.5 million (2013: 112.3 million). Of the total amount, EUR 77.4 million was payable in Hungary, EUR 6.5 million in the Czech Republic and Slovakia, EUR 3.3 million in Romania and EUR 3.3 million in Slovenia.
Bank levies and financial transaction taxes accounted for 13.9 per cent of administrative expenses and 6.4 per cent of total costs.
Operating profit was EUR 2,554 million, down by 18.1 per cent from the previous year (2013: EUR 3,116 million), due to lower operating come and one-off effects in the previous year. Exchange rate effects explain about one-third of the decline; at constant exchange rates, operating profit was down by 12.8 per cent.
Net write-downs of loans and provisions for guarantees and commitments developed favourably in 2014, falling by 47.2 per cent to EUR 693 million (2013: EUR 1,313 million). In Austrian customer business, net write-downs of loans and provisions for guarantees and commitments declined substantially, by 79.4 per cent to EUR 39 million (2013: EUR 190 million), reflecting recoveries on loans in respect of which loan loss provisions were previously recognised, and because additions to impaired loans were lower. Net write-downs of loans and provisions for guarantees and commitments in Central and Eastern Europe declined by 40.3 per cent to EUR 654 million (2013: EUR 1,094 million), due to lower provisioning charges in almost all CEE countries and higher recoveries on loans in several countries. Overall, the cost of risk (net write-downs of loans and provisions for guarantees and commitments as a proportion of the average volume of loans to customers) declined from 112 to 61 basis points in 2014.
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 – was EUR 1,860 million, up by 3.2 per cent (2013: EUR 1,803 million).
The balance of non-operating items between net operating profit and profit before tax added up to minus EUR 82 million in 2014, a significant improvement over the previous year (2013: minus EUR 1,006 million). Provisions for risks and charges declined by 10.3 per cent to EUR 133 million; the figure mainly reflects a provision of EUR 107 million made in response to the most recent statutory measures in connection with foreign currency loans in Hungary. Net income from investments included gains on the sale of real estate, which was largely completed in the first quarter of 2014.
After deduction of the negative balance of non-operating items, profit before tax for 2014 was EUR 1,778 million, more than double the figure for the previous year (2013: EUR 797 million).
The charge for income tax in 2014 was EUR 287 million, down by 33 per cent from the previous year (2013: EUR 428 million) because deferred tax assets had to be additionally written down in 2013, in view of their limited future usability.
In line with the Group strategy of concentrating growth and the required allocation of capital on CEE countries with a better outlook for sustainable growth and earnings while further reducing risk, Ukrsotsbank – the banking subsidiary in Ukraine – was classified as a disposal group held for sale already in the 2013 financial statements. The income statement items of Ukrsotsbank were combined and are included in the item “Total profit or loss after tax from discontinued operations”, together with write-downs and additional expenses as well as the result of the sale foreseeable from a current perspective. Profit or loss of Ukrsotsbank is included in the item “Total profit or loss after tax from discontinued operations”. Together with other consolidation effects, Ukrsotsbank has an impact of minus EUR 152 million on Bank Austria’s net profit.. The item “Total profit or loss after tax from discontinued operations” also reflects Immobilien Holding, which was acquired in the past year and is intended to be sold by autumn 2015.
Net profit attributable to the owners of the parent company amounted to EUR 1,383 million. When comparing this with the figure for the previous year (2013: minus EUR 1,542 million), one should note that the goodwill impairment charge recognised in the 2013 financial statements reduced goodwill relating to all equity interests to nil, leading to a net loss.
The following key financial data have been calculated on the basis of the above-mentioned results:
• The cost/income ratio (without the bank levy) rose slightly, to 53.9 per cent (2013: 49.9 per cent).
• The risk/earnings ratio (provisioning charge as a percentage of net interest income) declined slightly, to 17.6 per cent (2013: 31.0 per cent).
• The total capital ratio (based on all risks) amounts to 13.5 per cent (2013: 13.5 per cent).
• The Common Equity Tier 1 capital ratio (based on all risks) amounts to a sound 10.3 per cent (2013: 11.3 per cent).
Francesco Giordano, Chief Financial Officer of Bank Austria: “Bank Austria’s financial position is strong and sound: its total capital ratio is 13.5 per cent and the Common Equity Tier 1 capital ratio is a sound 10.3 per cent. IFRS equity stated in the 2014 financial statements hardly changed compared with the previous year. This is explained by the fact that the net profit for 2014 included in the calculation was offset by currency depreciation, especially in Russia and Ukraine, and by a new valuation of pension obligations required in an environment of low interest rates. The leverage ratio is a very conservative 5.6 per cent, which reflects our strong equity capital position and our conservative business model. Moreover, we further improved our long-term liquidity position through an increase in deposits and four successful mortgage bond issues. And the self-financing capacity of our banking subsidiaries in Central and Eastern Europe was also further expanded. The loan/direct-funding ratio is an excellent 85.9 per cent. This means that customer loans are covered by customer deposits and debt securities in issue to an extent of well over 100 per cent.”
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 generated 25 per cent of the Bank Austria Group’s total revenues in 2014, thus accounting for 70 per cent of total operating income from Austrian customer business. Direct funding of EUR 43 billion in Retail & Corporates makes the business segment an important source of funding for the bank.
Retail & Corporates accounts for two-thirds of Austrian interest-bearing business volume and was again very strongly affected by persistently low interest rates in 2014, in combination with declining credit demand. Nevertheless, in this difficult economic environment, the Division achieved success through various initiatives: in the Retail subdivision, new savings deposits increased by over EUR 7.2 billion or 37 per cent. Savings deposits were thus maintained at the level of EUR 13.4 billion (+0.1 per cent compared with 2013). New sales of investment funds reached about EUR 1.2 billion, an increase of 10.5 per cent over the previous year. At Bank Austria, total fund volume in business with retail customers rose by 3.9 per cent to over EUR 5.9 billion compared with the previous year. In lending business, new loans to retail customers amounted to EUR 1.2 billion, an increase of 8.4 per cent over the previous year; the increase in housing construction finance was 12 per cent. As a result, the volume of outstanding loans (EUR 13.6 billion) hardly changed (–1.6 per cent compared with 2013).
In 2014 the Retail & Corporates Division continued to transform Bank Austria’s business model into that of a modern multi-channel bank. Milestones along this path were the openings of the first eight new-style branches, extended opening hours from 9 a.m. to 6 p.m. introduced at 30 branches in Vienna, the ongoing expansion of the online branch to include innovative SmartBanking with personal advisory services via video telephony, telephone, SMS, e-mail, OnlineBanking and MobileBanking, and an online shop where Bank Austria offers a wide range of key products around the clock. SmartBanking is now available to all of Bank Austria’s 1.6 million customers.
Bank Austria is the leading bank for corporate customers in Austria and a strategic financial partner for the entire Austrian business sector, from small businesses to large corporates. Since the end of 2014, multi-channel banking has also been available to corporate customers. Companies can now apply for products online anytime and from anywhere. The range of products offered in this way includes current accounts, investments and finance, and leasing arrangements.
Innovative small and medium-sized businesses are a focus of attention: a number of projects were financed under the Risk Sharing Instrument (RSI), a joint initiative of the European Investment Bank and the European Commission. In view of the great success of the Risk Sharing Instrument and strong demand in this context, funds available under the Risk Sharing Instrument were increased from EUR 120 million to EUR 160 million, available in the period to the end of 2015.
In the real estate segment, Bank Austria’s new business in 2014 reached EUR 3.1 billion, an increase of about 50 per cent over the previous year. Bank Austria is also the undisputed market leader in business with the public sector, with a transaction volume of EUR 12 billion, financings totalling EUR 7 billion and some 3,000 customers.
In 2014, the Retail & Corporates Division achieved a profit before tax of EUR 312 million, an increase of 76.3 per cent over the previous year (2013: EUR 177 million). Various factors contributed to this significant growth: the favourable development of operating income (up by 0.8 per cent) despite the difficult market environment in customer business; strict cost discipline leading to a stable cost trend despite considerable burdens in the form of taxes and regulatory requirements; and especially a significant decline in net write-downs of loans and provisions for guarantees and commitments.
The Corporate & Investment Banking (CIB) Division focuses on serving multinational and large international customers, providing them with capital market services and investment banking solutions tailored to their specific needs. CIB serves banks, asset managers, institutional customers and insurance companies.
In 2014, CIB underlined its leading role as a strategic financial partner and top contact for capital market transactions of companies. The Corporate & Investment Banking Division acted in a leading capacity for ten corporate bonds with a total volume of over EUR 1.8 billion in 2014, thereby holding the clear number one position in the Austrian capital market.
In addition to many other mandates, the CIB Division also handled a number of loans against borrower’s notes and it is the clear market leader in the area of syndicated finance transactions in Austria, with a total volume of over EUR 500 million. The market position and placement power of UniCredit – no. 2 in the area of euro bonds in the region of Europe, Middle East and Africa (EMEA), with a volume of almost EUR 54 billion, and no. 3 in finance in the EMEA region with a volume of over EUR 16 billion – offer an excellent platform and underline UniCredit’s capital market expertise.
As a leading export finance bank with the largest network in CEE, Bank Austria handled one-half of the export loans covered by Oesterreichische Kontrollbank in Austria in 2014. Almost every second export letter of credit is routed via Bank Austria, and in the area of foreign guarantees the bank has a market share of 40 per cent.
Profit before tax generated by the CIB Division in 2014 was EUR 230 million 2013: EUR 238 million), down by 3.3 per cent from the previous year. The decrease was mainly due to persistently low interest rates and lower net fees and commissions generated in a weaker economic environment.
Bank Austria’s Private Banking Division, with the two well-known brands Bank Austria Private Banking – the private banking arm of a major bank – and Schoellerbank – a traditional private banking institution – holds the leading position in Austria’s private banking market. Assets under management total EUR 21.4 billion. The Division serves foundations set up under Austrian law and 34,000 high net worth individuals with a minimum investment potential of EUR 500,000.
A wide diversification of assets across different asset classes, geographic regions and investment products, as well as active management, i.e. regular underweighting or overweighting of specific asset classes, are required in an environment of persistently low interest rates to even out fluctuations in currently volatile markets and take advantage of gains in value in other asset classes. Investors therefore increasingly use the services of asset management experts who have real-time access to the necessary market information and have the expertise and know-how required to shift assets quickly and flexibly to investments with the strongest performance.
This explains the disproportionately strong increase of 13 per cent or EUR 840 million to EUR 7.1 billion in assets under management. The trend is also confirmed by the notable success of asset management in 2014, with volume growing by 27 per cent to more than EUR 3 billion. With equities being given a strong weight, even the balanced portfolio of VermögensManagement 5Invest widely diversified in terms of risk achieved a return of 8.14 per cent, more than meeting the objective of maintaining the purchasing power of assets.
In the second quarter of 2015, Bank Austria Private Banking will start offering a new model of closer cooperation between relationship managers and investors also to clients who wish to obtain professional advice while making specific investment decisions themselves.
Bank Austria’s Private Banking Division serves 1,145 out of a total of 3,257 private foundations in Austria and 460 foundations set up by Austrian federal and provincial government agencies. On this basis, Bank Austria is the market leader in services for foundations, with a market share of 31 per cent. Under its special initiative focusing on foundations, Bank Austria is committed to innovation as a factor helping to maintain Austria’s attraction as a business location, an important topic for the Austrian economy. Over a period of six months, numerous expert interviews were conducted with representatives from the spheres of tax and fiscal law, social sciences and economics, civil law and company law, and science and basic research, as well as with practitioners, entrepreneurs and grantors of foundations. These interviews served to collect ideas and demands for modernising Austria’s legislation on foundations and to improve the overall framework for private providers of risk capital. The ideas and demands were then presented to the relevant decision-makers.
Net fees and commissions, traditionally the most important income component in private banking operations, rose by 8.4 per cent to EUR 109 million in 2014. Private Banking generated a profit before tax of EUR 56 million, an increase of 40.8 per cent over the previous year (2013: EUR 40 million).
The CEE Division reported a profit before tax of EUR 1,500 million in 2014, representing a 6.1 per cent increase over the previous year at constant rates, i.e. excluding the effect of unfavourable exchange rates in some countries of the region. At current rates, profit before tax remained more or less at the same level as in the previous year (2013: EUR 1,534 million).
Operating income in 2014 showed a strong development of net interest income amounting to EUR 2,460 million (2013: EUR 2,422 million) and higher net fees and commissions of EUR 755 million (2013: EUR 731 million), while net trading income decreased significantly, to EUR 254 million (2013: EUR 563 million), mainly due to depreciation of the Russian rouble and to the sale of MICEX in 2013. The net contribution of Turkey, reported as income from equity investments within operating income, was lower than in the previous year primarily due to the substantial gain on the sale of the Turkish insurance company in 2013. Including these effects, overall operating income therefore decreased by 6.9 per cent at constant rates and by 12.6 per cent at current rates, to EUR 3,864 million (2013: EUR 4,423 million).
Due to strict cost management the CEE Division was able to reduce operating costs compared with the previous year by 0.8 per cent at constant rates; at current rates, operating costs decreased by 5.7 per cent to EUR 1,600 million (2013: EUR 1,697 million). The cost/income ratio excluding bank levies stood at a sound 40.3 per cent (2013: 37.2 per cent).
Net write-downs on loans in the CEE Division showed a significantly better picture than in 2013 and decreased to EUR 654 million in 2014 (2013: EUR 1,094 million). The cost of risk fell from 191 basis points in 2013 to 116 basis points in 2014. Thus the CEE Division recorded a net operating profit of EUR 1,610 million (2013: EUR 1,631 million), which at constant rates represents an increase of 6.8 per cent.
In a persistently challenging economic environment the broad geographical diversification of the CEE Division over 13 countries has again proved to be a very sustainable business model, which has demonstrated its resilience against adverse effects and its ability to continuously deliver profits every single year since 2008. The pattern of contributions to profit before tax illustrates the broad diversification: 30 per cent was generated in South-East Europe, 30 per cent in Russia, 22 per cent in Turkey and 18 per cent in Central Europe. In 2014 the CEE Division again achieved sound financial results and contributed three-quarters to the overall perfor¬mance of Bank Austria’s business divisions.
“In the last two years we have fundamentally reshaped our operations in Central and Eastern Europe, e.g. by exiting Kazakhstan and purchasing complementary assets in the Czech Republic and Romania. In addition we have launched ‘CEE 2020’, a special programme currently comprising 31 cross-border initiatives, which aims at identifying new ways to create value and build a future-oriented customer business. Due to our ongoing investments in the CEE region we have gained market shares in most countries and intend to continue doing so in the future, while competitors are deleveraging”, says Gianni Franco Papa, outgoing Deputy CEO and Head of the CEE Division at Bank Austria, “Without doubt geopolitical tensions and hesitant recovery in the euro area are going to be the main challenges in the upcoming quarters. In this difficult environment the CEE Division is strongly positioned for future growth and to remain a key contributor to our banking group.”
Bank Austria is UniCredit’s sub-holding company for operations in Central and Eastern Europe. In this function it manages one of the leading banking networks in the region with about 47,000 employees and 2,500 branches in 13 countries.
Statement of financial position
Bank Austria’s total assets as at 31 December 2014 were EUR 189.1 billion, up by 6.3 per cent or EUR 11.2 billion on the year-end 2013 level (31 December 2013: EUR 177.9 billion).
On the assets side, loans and receivables with customers were EUR 113.7 billion, slightly lower – by 0.5 per cent or EUR 0.5 billion – than a year earlier (31 December 2013: EUR 114.3 billion). Loans and receivables with banks rose strongly, by 33.1 per cent, to EUR 30.5 billion (31 December 2013: EUR 22.9 billion).
On the liabilities side, deposits from customers increased by 5.9 per cent or EUR 5.7 billion to EUR 102.3 billion (31 December 2013: EUR 96.6 billion). Debt securities in issue also rose strongly, by 9.9 per cent or EUR 2.7 billion, to EUR 30.0 billion (31 December 2013: EUR 27.3 billion); the increase reflects the successful expansion of new issue activities in Austria and CEE in the past years.
Direct funding, i.e. the sum total of deposits from customers and debt securities in issue, totalled EUR 132.3 billion, an increase of 6.8 per cent or EUR 8.4 billion over the end of the previous year (31 December 2013: EUR 123.9 billion). At this level, direct funding accounts for over two-thirds (70.0 per cent) of total liabilities and equity, giving a loan/direct-funding ratio of 85.9 per cent. This means that customer loans are covered by customer deposits and debt securities in issue to the extent of 116 per cent.
As at year-end 2014, the leverage ratio to be calculated under Basel 3 was a conservative 5.6 per cent in conformity with Basel 3 transitional rules.
As at 31 December 2014, regulatory equity was EUR 17.5 billion, up by EUR 1.4 billion on the end of the previous year (31 December 2013: EUR 16.0 billion).
The total capital ratio based on all risks remained at 13.5 per cent (2013: 13.5 per cent ). The Common Equity Tier 1 capital ratio10 based on all risks was a sound 10.3 per cent (2013: 11.3 per cent).
Staff numbers of the Bank Austria Group including the employees of UniCredit's subsidiaries in Austria were 56,704 full-time equivalents (FTEs) as at 31 December 2014 (31 December 2013: 56,896 FTEs). Of this total, 9,641 FTE were employed in Austria and 47,053 FTEs in CEE countries.
Enquiries: Bank Austria Media Relations
Martin Halama, tel. +43 (0)5 05 05 52371
e-mail: martin.halama@unicreditgroup.at