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(42e) Net charge for losses on
loans and advances
– completing the inFORM system and taking further steps to commercialise the product,
– conducting scenario analyses for divisions and subsidiaries,
– analysing Bank Austria Creditanstalt’s risk mitigation measures in respect of
operational risk
The net charge for losses on loans and advances in 2005 includes a one-off effect in the
form of a charge of about € 70 m resulting from an adjustment of the provisioning policy.
Almost all of this one-off effect relates to the Private Customers segment. As a result of
the new segmentation introduced in mid-2005 as part of the “Fit for Sales” project,
segment results are comparable with previous years only to a limited extent. If the oneoff
effect is excluded, the net charge for losses on loans and advances in the BA-CA
Group in 2005 was about € 424 m, just under 2 percentage points higher than the
amount of € 417 m (before first-time application effects of amended and new IFRSs) for
the previous year published in the Annual Report and thus significantly lower than the
growth of BA-CA’s lending volume.
This result was achieved although the economic environment, characterised not least by
a further strong increase in bankruptcies of private individuals, again failed to support
domestic customer business. In Austria the number of bankruptcies of private individuals
rose by 15.7 % compared with 2004 to almost 6,500, with estimated insolvency liabilities
up by 7 % and bankruptcy petitions dismissed for lack of funds up by 24.6 %. Business
insolvencies rose by 11.1%, with a slight decrease of 4 % in estimated insolvency liabilities.
In the first half of 2005, Austria was again among the countries leading the European
league table of insolvency growth, which was higher only in Romania (up by
68.8 %) and Slovakia (up by 32.9 %), two countries which are also part of BA-CA’s core
market (source: KSV insolvency statistics).
The sharp rise in bankruptcies of private individuals and a more conservative treatment
of security for loans – in line with the Basel II methodology – are the reasons for the
increase in the provisioning rate for low-volume loans, against which flat-rate specific
provisions are made, and thus for the exceptional burden on the Private Customers
segment in 2005.
The provisioning charge in the SMEs segment in Austria again benefited from the use and
further improvement of procedures for the early recognition of risks, and from the fact
that the year under review again saw no major insolvencies.
In the Private Customers segment, the bank introduced a new retail scoring procedure
and streamlined processes and lending guidelines. Allowing for the normal delay after
which these measures will become fully effective, they should lead to a significant
reduction of the provisioning charge in this segment, too.
Risk trends in Central and Eastern Europe continued to be very satisfactory and better
than expected. Contributions to the favourable risk trend in CEE came especially from the
banking subsidiaries in Croatia, the Czech Republic, Slovakia and Poland, where
provisioning charges were in some cases significantly below budget.
Specific provisions and provisions on the liabilities side are generally made in accordance
with International Financial Reporting Standards. If concrete factors provide strong
indications of a future loss, a loan loss provision is made in the amount of the expected
loss and in the respective loan currency. Flat-rate specific provisions are automatically
made by the system for unsecured portions of exposures below € 50,000, and of loans
to private customers, from the date when the loan is called for repayment or assigned to
the loan recovery unit for further steps; the provisioning rate is based on loan loss
Risk report 165