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Strong global growth, significant differences between regions Sharp rise in oil prices prompts only brief uncertainty The Banking Environment in 2005 Global economy and financial markets In 2005 the world economy grew by 41/2% in real terms, continuing the strong performance of the previous year and exceeding the long-term average growth rate of 31/2%. However, there were significant differences between – and within – the world’s major regions. Growth in Europe remained weak as structural problems persisted, except in Central and East European countries – countries in South-East Europe in particular – where the catching-up process continued at a fast pace. The large countries in Asia, especially China and India, achieved growth rates of up to 10 %. This reflects a long-term trend: the vigorous entry of Asian economies into the global division of labour. The “emerged markets” are adding a workforce of 200 million people to the global economy and account for half of world output (calculated at purchasing power parities). In 2005 they were a major factor on both sides, supply and demand, of the global economy. With their high savings ratios, these countries have accumulated substantial foreign exchange reserves and have become major international investors. The resulting increase in global demand for energy and industrial raw materials led to maximum utilisation of capacity in 2005. In view of limited reserves, particularly of oil and oil products, minor local disturbances – whether geopolitical tensions or sabotage, natural catastrophes or technical failures – sufficed to push up commodity prices. Crude oil prices reached an initial high of 57 USD/bl at the end of March and peaked at 68 USD/bl at the end of August, in the wake of devastating hurricanes in the Gulf of Mexico. In the first few months of 2005, the oil price rise led to fears of inflation and recession. As the year progressed it became clear, however, that the general impact on prices was limited. Global integration of production (especially competition from high-growth markets) did not provide any major leeway for price and wage adjustments. And reinvestment of the surpluses earned by oil-exporting countries, including Russia, and Asian economies ensured that financial markets were again able to cope with the major fundamental imbalances in 2005. Worldwide excess liquidity sent long-term interest rates to record lows while accelerating the increase in asset prices, primarily for real estate, in numerous countries. In the US, the Fed therefore steadily raised its key interest rate (from mid- 2004, in 14 steps from 1% to a most recent level of 4.50 %). The differential between US and euro interest rates thus widened considerably in the course of the year, rising from 41 basis points to 209 basis points on 3-month money – although 22 The Banking Environment in 2005 Boom in South-East Asia, sluggishness in Europe, robust growth of US economy. Sharp rise in oil prices has no major impact. in December, the ECB also increased its key interest rate for the first time in two and a half years – and from 63 basis points to 105 basis points on 10-year benchmark yields. The wider interest rate spreads in 2005 supported the US dollar. After fluctuations during the year, the US dollar had appreciated by about 15 % against the euro and the yen by the end of 2005. High-yield bonds continued to attract substantial investments in 2005 and showed a strong year-on-year performance. From March to May, following financial problems at US car companies, corporate bonds experienced a temporary slump which also had an impact on emerging market bonds. Credit spreads rose by over 1 percentage point (BBB rating) but very quickly returned to normal. In Europe, companies seem to have completed their efforts to optimise their balance sheet structures. Increased liquidity, numerous corporate mergers, historically rather low valuations and high dividend yields made European stock markets attractive for international investors (DJ Euro- Stoxx: + 23 %). Stock markets in CEE (CECE index: + 45 %) and the Austrian ATX (+ 51%), which includes many companies with a CEE focus, were again among the top performers. Developments in our core markets Economic trends in Austria were again determined by the structural weakness of major European economies (above all, Germany and Italy) and the impetus to growth coming from CEE countries. After a weak first half-year, rising export demand stimulated industrial activity. Growth accelerated later in the year to almost 3 % on an annualised basis; the average for 2005 was 1.9 %. Although private consumption remained weak, sentiment improved towards year-end as the inflation rate declined. In classic on-balance sheet banking business, margins were under pressure on both sides of the balance sheet. In line with high liquidity levels in the business sector, deposits from companies again rose by about 10 %, and credit demand from businesses increased only slightly (+ 4 %). This contrasted with strong growth in demand for personal loans (+ 6 %) on account of low interest rates and despite weak consumption. Business insolvencies rose by 12 %, a consequence of the large number of mainly small and mediumsized businesses newly established in the past years. Insolvency liabilities fell to € 2.4 bn (average for the past five years: € 2.8 bn) or 0.97 % of GDP, the lowest level seen in the past 15 years.
Growth in Austria slightly above EU-15 average; banking business characterised by low interest rates. CEE achieves strong growth and makes further progress in stabilisation and convergence. Financial intermediation accelerates, but there is still considerable business potential. In a difficult environment, economic growth in Central and Eastern Europe (CEE) exceeded 4 %, reaching three times the level achieved in the euro area. After a slow start to the year – which partly reflected strong growth in 2004, the year in which several CEE countries joined the European Union – CEE again lived up to its image as a growth market in the second half of 2005. Poland, the largest market in this group of countries, saw a recovery in private consumption; the upswing in the other new EU member states in Central Europe (Hungary, the Czech Republic, Slovakia, Slovenia) was mainly due to external trade. The new EU countries benefited from their favourable competitive position. After entering markets in the euro area, which were affected by persistently weak growth, they successfully intensified trade links with markets recording higher growth, including the EU accession candidates as well as Russia and Ukraine. Economic integration among the European emerging markets made further progress. Monetary convergence made fast progress in 2005. Growing competition in retail trade stabilised price levels despite the oil price increases. In the EU member states, the inflation rate was as low as 2.5 %, down from 4.2 % in 2004. This means that Poland, the Czech Republic and Slovenia meet the relevant Maastricht criterion for joining the euro. As (long-term) interest rates declined on the back of falling inflation and substantial capital inflows, all CEE-5 countries except Hungary meet this Maastricht criterion, too. Stabilisation and growth prospects combined to make CEE stock markets the top performers in Europe. For these reasons, CEE currencies were firm; the Polish, Czech and Romanian currencies appreciated by more than 5 % against the euro in the course of the year. The CEE banking market again experienced strong growth of 15 % in 2005. Expressed in national currencies, loans expanded by 21% and deposits increased by 15 % (these figures compare with 8 % and 6 %, respectively, for the euro area). Particularly strong growth, averaging 33 % for the region, was again seen in demand for personal loans. Given that the average per capita volume of personal loans is below € 1,000, and the total amount is 15 % of GDP, this sector continues to offer considerable potential (comparative figures for the euro area: € 13,600 per person, 52 % of GDP). 6 5 4 3 2 1 0 65 60 55 50 45 40 35 30 25 1.10 1.15 1.20 1.25 1.30 1.35 1.40 200 180 160 140 120 100 80 60 40 20 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 2004 2005 2004 2005 340 320 300 280 260 240 220 Economic growth real GDP, % change on previous year CEE-11 Austria Euro area USA Crude oil prices Brent, USD/bl. US dollar appreciates again USD per EUR, inverted scale showing appreciation and depreciation of the US dollar against the euro Share prices and corporate spreads DJ EuroStoxx (right scale) Risk premium on corporate bonds (FTSE BBB-rated eurobonds, in basis points) Interest rates in % p.a. 10-year US Treasury bonds 10-year euro benchmark bonds 3-month money in euro ECB key interest rate The Banking Environment in 2005 23
Page 1 and 2: Annual Report Bank Austria Creditan
Page 3 and 4: The Bank Austria Creditanstalt Shar
Page 5 and 6: Annual Report Bank Austria Creditan
Page 8 and 9: Highlights 2005 Awards 2005 1 Janua
Page 10 and 11: A word of thanks to our employees T
Page 12 and 13: 8 Letter from the CEO of the new Un
Page 14: 4 pages reserved for illustrations
Page 17 and 18: “As a member of UniCredit Group w
Page 19 and 20: as an organisational principle has
Page 21 and 22: We attach great importance to human
Page 23: International Markets Willi Hemetsb
Page 27 and 28: � Net income up by 60 %. 21% incr
Page 29 and 30: The “sustainable” income compon
Page 31 and 32: Net trading result € m 2005 2004
Page 33 and 34: higher revenue without significant
Page 35 and 36: In 2005 our multi-year Fit for Sale
Page 37 and 38: from classic on-balance sheet produ
Page 39 and 40: Net fee and commission income in CE
Page 41 and 42: employees’ qualification levels a
Page 43 and 44: Outlook Global economic environment
Page 45 and 46: Outlook for Bank Austria Creditanst
Page 47 and 48: Other shareholders 0.2% Austria 0.9
Page 50 and 51: IPO targets met ahead of time Finan
Page 52 and 53: Austrian Customer Business Bank Aus
Page 54 and 55: Linking sales channels � Mix of s
Page 56 and 57: Lowering the proportion of lending
Page 58 and 59: Loans to private customers grow mor
Page 60 and 61: Flexible products for closing the p
Page 62 and 63: Cards for young people Security - a
Page 64 and 65: Network bank for international corp
Page 66 and 67: Corporate finance, not just for lar
Page 68 and 69: International Markets (INM) The Int
Page 70 and 71: Record year on the Vienna Stock Exc
Page 72: 4 pages reserved for illustrations
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“The upswing experienced by the C
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In the retail/private customers seg
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Our efforts to offer products meeti
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Slovakia - HVB Bank Slovakia € m
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Outlook With the planned expansion
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International Markets Business deve
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Following the big success of the pr
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Acquisition of Eksimbanka By acquir
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“As a bank with growing business
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Risk structure by region and busine
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“The higher the level of standard
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Basel II The roll-out of the module
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“Today we expect our bank employe
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manager, the higher his classificat
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Consolidated Financial Statements i
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Income statement of the Bank Austri
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Statement of changes in shareholder
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Notes to the Consolidated Financial
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IFRSs applied Title Application App
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Loans and receivables are carried i
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Accounting for leases as lessee: in
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The present value of pension obliga
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as the identification of intangible
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€ m 2005 2004 Staff costs 1,491 1
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€ m 2005 2004 Bonds and other fix
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Leasing business Total gross and ne
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Movements in investments in 2005
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In 2005, deferred taxes were partly
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Liabilities evidenced by certificat
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€ m 2005 2004 Negative fair value
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Emoluments of members of Bank Austr
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Most of the trading assets and trad
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Segment reporting € m Private SME
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€ m 2005 2005 2004 2004 Assets Li
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In the 2005 financial year, aggrega
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Market risk management encompasses
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VaR of the Bank Austria Creditansta
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Basis point values of the Bank Aust
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High-yield portfolio: composition o
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Market risk limit utilisation in CE
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Liquidity ratios of the Bank Austri
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Operational risk is defined as the
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experience in the past. Moreover, s
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Total volume of outstanding financi
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The following tables show the capit
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Report of the Auditors We have audi
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Report of the Supervisory Board In
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Corporate Governance Bank Austria C
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Supervisory Board and Managing Boar
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Income Statement of our Consolidate
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Balance Sheets of our Consolidated
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Glossary Important concepts and ter
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General administrative expenses div
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In 1988, the Basel Capital Accord (
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Office Network of the Bank Austria
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Central and Eastern Europe Bosnia a
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Other Countries 196 Office Network
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Investor Relations Investor Relatio
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