11.11.2009
Results for the first nine months of 2009:
Bank Austria: profit before tax of EUR 1.2 billion for first nine months
- Operating profit up by 31 per cent to new record level of EUR 2.8 billion
o Operating income up by 9 per cent to EUR 5.5 billion
o Net trading income of EUR 237 million, after a net trading loss in the first nine months of 2008
o Operating expenses down by about 7 per cent due to cost reductions in CEE and efficiency improvements in administrative and back-office activities
- Provisioning charge increased to EUR 1.6 billion reflecting the economic environment, although the quarter-on-quarter trend is decreasing with the exception of Kazakhstan
- Despite record operating performance in customer business, profit before tax down by 40 per cent to EUR 1.2 billion on account of substantially higher provisioning charge
- Consolidated profit of EUR 972 million, close to one billion euro mark
- Tier 1 capital ratio (credit risk) improved to 9.19 per cent without use of state aid and before capital increase
Bank Austria's CEO Willibald Cernko: "After nine months of a year marked by the financial and economic crisis we continue to see a good operating performance in customer business. Growth continued in both Austria and Central and Eastern Europe, customer business is the mainstay of our business model and has proved to be the stabilising factor in the crisis. However, the sluggish economic trend has also taken its toll on our results, the significantly increased provisioning charge reflects the strain on the real economy. But we can easily absorb this exceptionally strong adverse impact on our own and with our operating profit. This demonstrates once more the resilience and profitability of our broadly based business model."
Items in the income statement
Net interest income in the first nine months of 2009 was EUR 3,743 million, up by 3.6 per cent on the same period of the previous year (1-9 2008: EUR 3,615 million), and remained the major revenue component. The growth rate of net interest income was only half the growth rate of net interest in a narrower sense (+8 per cent) because income from dividends and equity investments was significantly lower than in the previous year, as an indirect consequence of the economic environment.
Net fees and commissions for the first nine months amounted to EUR 1,335 million, down by 14.4 per cent from the same period of the previous year (1-9 2008: EUR 1,559 million), due to persistently weak demand in securities and derivatives business.
In the first nine months of 2009,
net trading,
hedging and fair value income was EUR 237 million, compared with a net loss of EUR 279 million for the same period of the previous year. The figure for the third quarter alone would also have been positive; however, an accounting effect
1 – i.e. the reclassification of financial instruments – had a negative impact of EUR 66.5 million on the net trading, hedging and fair value result, which was a net loss of EUR 34 million in the third quarter of 2009.
Overall,
operating income improved significantly, to EUR 5,506 million, an increase of 8.9 per cent over the same period of the previous year (1-9 2008: EUR 5,056 million).
Operating expenses were reduced by 7.3 per cent to EUR 2,693 million compared with the same period of the previous year (1-9 2008: EUR 2,905 million). The cost/income ratio thus improved by 8.6 percentage points to 48.9 per cent. Cost reductions were achieved in all business segments through lower-cost processes and cross-regional synergies in back-office and administrative activities as well as through staff reductions mainly related to the integration of the new banking subsidiaries in Ukraine and Kazakhstan.
As a result of the favourable trend in revenues and sustained cost reductions,
operating profit for the first nine months of 2009 was up by 30.8 per cent on the same period of the previous year, reaching a new record level of EUR 2,813 million (1-9 2008: EUR 2,150 million).
This shows that customer business continues to perform well in Austria and in Central and Eastern Europe despite the negative environment; on the other hand, the persistently weak economic trend is reflected in non-operating expense items, especially in the form of a substantially higher provisioning charge for lending business.
Therefore
net writedowns of loans and provisions for guarantees and commitments more than tripled compared with the same period of the previous year, to EUR 1,612 million (1-9 2008: a charge of EUR 483 million). Default risks in the Austrian business remain within limits and the provisioning charge declined again in the third quarter. Net writedowns of loans required in Central and Eastern Europe also declined quarter-on-quarter in all countries except Kazakhstan. The two countries with the largest provisioning charge are Kazakhstan with EUR 359 million and Ukraine with EUR 177 million. These two countries accounted for 43.8 per cent of net writedowns of loans and provisions for guarantees and commitments in Central and Eastern Europe, which totalled EUR 1,221 million; they also accounted for over one half of the increase compared with the same period of the previous year.
Net income from investments in the first nine months of 2009 was EUR 79 million compared with EUR 413 million in the same period of the previous year. The decline was attributable to the lower share of current profits of the Polish banking subsidiary and to a one-off effect in the previous year resulting from the sale of Hypo Stavebni Sporitelna, a Czech building society, and BPH TFI, the Polish asset management business of BPH, and from the sale of the equity interest in the Budapest Stock Exchange.
Profit before tax reflects the decline in net income from investments and the substantially higher provisioning charge, which absorbed more than one half of the operating profit. While profit before tax, at EUR 1,224 million, significantly exceeded the one billion euro mark, it was 40 per cent lower than in the same period of the previous year (1-9 2008: EUR 2,041 million).
Consolidated profit (net profit without minority interests) for the first nine months was EUR 972 million (1-9 2008: EUR 1,633 million).
The following key financial data have been calculated on the basis of the above-mentioned results:
- Return on equity before tax was 11.5 per cent (1-9 2008: 17.6 per cent).
- Return on equity after tax was 9.6 per cent2 (1-9 2008: 14.9 per cent).
- The cost/income ratio improved to 48.9 per cent (1-9 2008: 57.5 per cent).
- The risk/earnings ratio (provisioning charge as a percentage of net interest income) rose significantly, to 43.1 per cent (1-9 2008: 13.4 per cent).
- The Tier 1 capital ratio based on credit risk increased to 9.19 per cent in the first nine months (7.70 per cent as at year-end 2008) under Basel II.
- The Tier 1 capital ratio based on all risks improved to 8.11 per cent (6.82 per cent as at year-end 2008) under Basel II.
- The Core Tier 1 capital ratio (core capital equity exluding hybrid capital equity) rose to 7.76 per cent (6.82 per cent as at year-end 2008)
Results of the Divisions3
From the third quarter of 2009, Bank Austria reports its results in four Divisions: Retail, Private Banking, Corporate & Investment Banking (CIB) and Central Eastern Europe (CEE). The bank also shows results for its Corporate Center.
In the first nine months of 2009, the
Retail Division achieved a profit before tax of EUR 63 million, an increase of 2 per cent over the same period of the previous year (1-9 2008: EUR 62 million). Return on equity before tax was 10.1 per cent (1-9 2008: 10.5 per cent), the cost/income ratio improved to 71.1 per cent (1-9 2008: 74.7 per cent).
The
Private Banking Division was faced with declining margins on deposit business in the first nine months of 2009. Its profit before tax amounted to EUR 23 million (1-9 2008: EUR 37 million). Return on equity before tax reached 19.6 per cent (1-9 2008: 29.6 per cent), the cost/income ratio was 70.9 per cent (1-9 2008: 65.9 per cent).
The newly created
Corporate & Investment Banking (CIB) Division generated a profit before tax of EUR 686 million for the first nine months of 2009 (1-9 2008: EUR 383 million). Return on equity before tax improved to 12 per cent (1-9 2008: 7 per cent), and the cost/income ratio also improved, to 28 per cent (1-9 2008: 44.2 per cent).
The operating profit generated by the
CEE Division further improved by 15 per cent to EUR 2,065 million for the first nine months of 2009. As the provisioning charge increased almost fourfold compared with the same period of the previous year, and also on account of negative exchange rate effects, profit before tax was EUR 827 million, down by 46 per cent from the previous year's level (1-9 2008: EUR 1,538 million). Return on equity before tax was 11.1 per cent (1-9 2008: 22 per cent); nevertheless, the cost/income ratio improved significantly, to 41.1 per cent (1-9 2008: 47.3 per cent).
Bank Austria is the hub for UniCredit Group's leading banking network in Central and Eastern Europe, with more than 52,000 employees and over 2,700 branches. In this challenging period for the banking sector, the focus is on risk management and cost reductions, which also included staff reductions (mainly in Ukraine and Kazakhstan), in order to emerge from the current situation in an even stronger position. Additionally, the weak economic environment led to considerably higher provisioning charges in a year-on-year comparison although they show a declining trend in CEE with the exception of Kazakhstan. However, despite the current market situation all CEE subsidiaries, apart from Kazakhstan, managed to achieve positive results also after three quarters in 2009, thereby contributing substantially to the positive results of our group.
"Central and Eastern Europe is not a homogeneous region and a full recovery from the crisis needs time. However, the long-term potential of the CEE region is unchanged and very high, and our commitment to the region has proved to be right", says Federico Ghizzoni, Deputy CEO of Bank Austria.
Balance sheet
Bank Austria's
total assets as at 30 September 2009 were EUR 204.3 billion, down by EUR 17.8 billion or 8 per cent from the level at the end of the previous year (31 December 2008: EUR 222.2 billion). The reasons for the decrease in the year to date were the reduction of proprietary trading activities in line with strategy, currency effects and the decreasing credit demand. Another major factor was the depreciation of a number of CEE currencies, which was reflected in the consolidation of the balance sheets of our CEE banking subsidiaries.
Like the consolidated balance sheet at 31 December 2008, the interim consolidated balance sheet at 30 September 2009 includes disposal groups classified as held for sale, which are shown in accordance with IFRS 5 in the items Non-current assets and disposal groups classified as held for sale and Liabilities included in disposal groups classified as held for sale. These items show the investment bank UniCredit CAIB AG and UniCredit CAIB Securities UK Ltd. The investment banks in Poland and Russia, which in the previous year were classified as held for sale, will remain within Bank Austria on the basis of a decision made by the Management Board in September 2009. Card Complete GmbH, which was also classified as held for sale at year-end 2008 and in the preceding quarters, is no longer reflected in the above-mentioned items because the sale process was stopped in September 2009. After detailed negotiations with various interested parties, it was not possible to realise a transaction within the expected price range.
On the assets side,
loans and receivables with customers were EUR 123.9 billion as at 30 September 2009, 6 per cent lower than at the end of the previous year (31 December 2008: EUR 132 billion) because of weak demand, lower transaction volumes, a strong increase in writedowns, and not least due to exchange rate effects.
Loans and receivables with banks declined by EUR 1 billion or 5.2 per cent to EUR 18.9 billion (31 December 2008: EUR 20 billion).
On the liabilities side, the contraction of the balance sheet total is explained by the decrease of EUR 9.9 billion in the item Liabilities included in disposal groups classified as held for sale and by the declines in interbank business (down by EUR 7.4 billion or 21 per cent) and in financial liabilities held for trading (down by EUR 1.2 billion).
Deposits from customers rose by EUR 3.5 billion to EUR 98.7 billion (31 December 2008: EUR 95.2 billion) and
debt securities in issue declined by EUR 3.3 billion to EUR 29.3 billion (31 December 2008: EUR 32.6 billion).
Primary funds – i.e. the sum total of these two items – reached EUR 128 billion or 62.6 per cent of the balance sheet total. This means that primary funds covered more than 100 per cent of loans and receivables with customers.
Equity was EUR 14.4 billion, slightly higher than at the end of 2008 (31 December 2008: EUR 14.2 billion).
Capital ratios as at 30 September 2009 improved significantly compared with year-end 2008. The
Tier 1 capital ratio based on credit risk pursuant to Basel II rose to 9.19 per cent (31 December 2008: 7.70 per cent). The Tier 1 capital ratio based on all risks increased to 8.11 per cent (31 December 2008: 6.82 per cent). The
Core Tier 1 capital ratio (Tier 1 capital ratio without hybrid capital) based on all risks was 7.76 per cent (31 December 2008: 6.52 per cent).
Staff numbers in the Bank Austria Group including the employees at UniCredit Group subsidiaries
4 in Austria totalled 63,527 (FTEs) as at 30 September 2009 (30 September 2008: 67,377 employees). Of this total, 10,804 (FTEs) were employed in Austria and 52,722 (FTEs) in CEE countries.
1 In September 2009, part of the asset-backed securities positions which we had reclassified from the trading portfolio into loans and receivables at their fair values in the middle of 2008 were reclassified back to financial assets held for trading. This related to synthetic ABSs, which are not eligible for reclassification pursuant to a clarification issued by the IFRS Board. As a result of this correction, the intermediate valuation losses arising from mark-to-market valuation of these synthetic ABSs had a negative impact on the net trading, hedging and fair value result for the third quarter of 2009. 2 Before deduction of minority interests. 3 Due to changes in the consolidation perimeter (sale of Pioneer, AS, BTS, WAVE within UniCredit Group) the divisional results for 2008 have been restated in order to improve comparability 4 AS (Administration Services), BTS (Banking Transaction Services), Pioneer Austria Investment and WAVE were transferred on an intra-group basis.
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