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Central and Eastern Europe (CEE)
€ m 2005 2004 Change adjusted
Operating revenues
… after net charge for losses on
1,524 1,190 334 28 % 28 %
loans and advances 1,407 1,104 303 27 % 28 %
General administrative expenses – 824 – 692 –132 19 % 17 %
Operating profit 584 413 171 41% 45 %
Net income before taxes 704 366 339 93 % 65 %
Net income
Net income – share of
588 282 306 108 % 70 %
Group total 55 % 42 % 47 %
Equity – share of Group total 29 % 26 % 29 %
ROE before taxes 33.4 % 21.7 % 28.6 %
ROE after taxes 27.9 % 16.7 % 22.8 %
In 2005, as in the previous year, the Central and Eastern Europe
(CEE) business segment expanded strongly. Bank Austria Creditanstalt’s
early commitment to the region in the 1990s, the
smooth integration of CEE subsidiaries of HVB in 2001 and
2002 as well as successful restructuring in several large countries
created an excellent starting position in 2003. The forward
strategy pursued by our CEE banking subsidiaries helped them
take advantage of the favourable environment in 2004 and
2005 through targeted acquisitions and strong organic growth.
� Risk-weighted assets increased by 26 % in 2005 and were
50 % higher than in 2003. Most of this increase resulted from
organic growth, with targeted acquisitions in South-East
Europe laying the foundations for further organic growth in
this region.
� Operating revenues rose strongly (by 27 % in 2005, after the
provisioning charge). Costs increased by 19 % in 2005, mainly
reflecting new acquisitions. Thus operating profit improved by
41% to € 584 m, more than three times the figure for 2003.
� Net income (before deduction of minority interests) more
than doubled to € 588 m in 2005 and accounted for 55 % of
the total figure for the bank as a whole. A gain of € 123.5 m
was realised as part of the acquisition of a majority interest in
Banca Tiriac mostly by way of an exchange of shares; the allocation
to provisions for restructuring costs amounted to € 7 m.
If these two factors are excluded from the calculation, net
income rose by 70 % to € 480 m, representing 47 % of the
figure for the bank as a whole. Adjusted for the one-off effect,
the ROE reached 28.6 % before taxes and 22.8 % after taxes.
� The CEE business segment was BA-CA’s main value driver:
beyond the cost of capital, added value on equity (AVE) was
€ 285 m, out of € 390 m for the entire bank. Growth and productivity
enhancement were decisive factors in this performance.
In the income statement of the CEE business segment, net
income before taxes was € 704 m, up by 93 % on the previous
year, with the combined results of the banking subsidiaries
36 Management Report of the Group
accounting for € 650 m. Most of the difference between the
combined results of subsidiaries and the segment result is
attributable to gains on the sale of shares (as part of the
acquisition of Banca Tiriac) and offsetting hedging costs as
well as the adjustment resulting from equity standardisation at
business segment level.
Combined net income before taxes of CEE banking
subsidiaries
€ m 2005 Change... exchange ratein
€ m in % adjusted
Subsidiaries 650 163 34 % 24 %
– Poland 321 105 48 % 32 %
– CZ, SK, H, SLO 209 18 9 % 5 %
– SEE 120 41 52 % 45 %
As in 2004, all three regions in CEE and each country made
contributions to the favourable development of the CEE business
segment. While exchange rate effects were a significant
factor especially in the translation of the income statement of
the Polish subsidiary, they had no major impact on the overall
picture (see table). The growth rate for the CEE banks without
Poland is a single-digit figure; this is explained by the fact that
very good results were already achieved in 2004 – the year in
which several CEE countries joined the European Union –
especially in Hungary, and this set a high standard against
which to measure further improvement.
Within the income components of the CEE business segment,
net interest income was just under € 1 bn (€ 977 m),
up by 31% on the previous year; adjusted for exchange rate
effects (primarily in Poland), the increase was still almost 20 %.
This growth was based on business expansion and a level of
margins that remained high overall: as a percentage of the
banking book, net interest income in 2005 was 4.60 % after
4.46 % in the previous year (comparative figure for Austrian
customer business: 3.20 %). This key ratio was above average
in Poland and in SEE; in the Czech Republic, Slovakia and
Slovenia, where business with companies accounts for a larger
proportion, it has already come close to the Austrian level.
The net charge for losses on loans and advances rose by
36 % to € 117 m in 2005. In absolute terms, the increase was
€ 31 m, of which € 9 m resulted from exchange rate effects.
Adjusted for these effects, the provisioning charge in Croatia
and Slovakia was significantly reduced, and kept at a constant
level in Poland. The increase was mainly due to acquisitions,
which also contributed to a rise in the risk/earnings ratio from
11.5 % to 12.0 %, a level that was clearly below the figure of
18.9 % for the bank as a whole. Net interest income after losses
on loans and advances grew by 31%.