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The “sustainable” income components – net interest income
and net fee and commission income – together rose steadily
from quarter to quarter in 2005.
� Net interest income – the largest income component,
totalling € 2,611 m – increased by € 170 m or 7 % in 2005.
All of this growth was achieved in the CEE business segment
(+ 31%; adjusted for exchange rate changes: + 22 %), where
interest-bearing business volume expanded strongly and at
satisfactory margins. The strongest growth was recorded in
Poland, followed by countries in South-East Europe (SEE),
where volume growth and margins were the highest. This contrasted
with the Austrian market, where pressure on interest
rates persisted in 2005. In the Private Customers Austria business
segment, the steady decline in margins was largely offset
by a strong increase in new financing business (net interest
income declined by only 1%). Developments in the Large Corporates
and Real Estate segment (net interest income down by
1%) and in the SMEs Austria segment (net interest income
down by 6 %) were characterised by excess liquidity in the
business sector; as a result, the volume of low-margin shortterm
deposits rose while credit demand slackened. Income
from securities and equity interests – including dividends from
non-consolidated subsidiaries – was significantly higher in
2005 than a year earlier.
� The net charge for losses on loans and advances
remained under control in 2005, despite the strong expansion
of business. At the end of the year we applied a refined
methodology and made a one-off adjustment to flat-rate
specific provisions in low-volume lending business. The measures
taken by BA-CA are also in line with UniCredit Group
standards. On balance, this resulted in a charge of € 70 m in
2005. Overall, the net charge for losses on loans and advances
rose by € 96 m or 24 % to € 495 m in 2005.
The provisioning charge in Central and Eastern Europe rose by
36 % to € 117 m (adjusted for exchange rate effects, the
increase was 26 %). By and large, the net charge for losses on
loans and advances expressed as a percentage of net interest
income remained stable (risk/earnings ratio 12.0 % after
11.5 %) and significantly below the level of 18.9 % for the
bank as a whole. The provisioning charge was 55 basis points
(after 51 basis points in 2004) of risk-weighted assets (banking
book). In Croatia, the Czech Republic, Slovakia and
Poland, the net charge for losses on loans and advances was
significantly lower than planned at the beginning of the year.
The figures for Bulgaria and Romania reflect the acquisitions
of Hebros Bank and Banca Tiriac.
Net charge for losses on loans and advances by segment
€ m 2005 Share Change
Bank Austria Creditanstalt 495 100 % + 96 24 %
Austrian customer business 390 79 % + 81 26 %
– Private Customers 234 47 % +160 >100 %
– SMEs 121 25 % – 80 – 40 %
– Large Corporates and Real Estate 35 7 % 0 1%
Central and Eastern Europe (CEE) 117 24 % + 31 36 %
International Markets (INM) –10 – 2 % –10 n.m.
Corporate Center – 2 0 % – 5 –>100 %
By adjusting the provisioning charge in Austria, we took
account of market changes; moreover, progress in risk management
methodologies ahead of the introduction of Basel II
enables us to make a more accurate statistical assessment of
risk in the individual case and to differentiate more clearly
when assigning risks according to our new segmentation. Austrian
insolvency statistics for 2005 confirmed new trends: the
number of insolvencies increased by 14 % while insolvency liabilities
declined slightly. Insolvency liabilities per insolvency fell
by as much as 13 %. The situation among medium-sized and
large companies improved, whereas the number of insolvencies
of private individuals and small businesses rose strongly.
This trend is reflected in the larger number of private individuals
filing a bankruptcy petition (+16 %) and in the recent
boom in newly established small businesses providing services
for companies.
Based on improved tools which differ only little from the
methodologies used for large exposures, we responded to the
above trends:
(1) Through an adjustment to Basel II methodologies we raised
the flat rates for specific provisions made against small loans.
The market situation also enabled us to reduce the provisioning
rate in the SMEs segment. Thus the provisioning charge in
the Private Customers segment was increased by € 73 m in an
initial step, and offset in the SMEs segment.
(2) We increased the provisioning charge for loans put on a
non-accrual basis in the Private Customers segment by € 30 m.
This additional requirement was offset by the roughly equal
amount of a reduction of the provisioning charge for losses
incurred but not reported; this reduction became possible as
the new retail scoring system enables us to identify possible
losses at a much earlier stage.
(3) In response to recent risk trends in retail banking, we
increased the flat-rate specific provisions against small loans in
the Private Customers segment in line with UniCredit Group’s
provisioning policy. This resulted in a one-off increase of € 70 m
in the net charge for losses on loans and advances.
Management Report of the Group 27