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Risk Management
In recent years risk management at Bank Austria Creditanstalt
has become one of the fundamental success factors of the
banking group. By using the most modern methods of risk
management BA-CA has been able to sustainably improve its
profitability and reliability in the interests of both customers
and shareholders.
We perceive one of our most important functions as a bank to
be not in the avoidance of risks but in assessing risks and taking
them deliberately into our books. A risk culture is necessary
to create a total transparency of risks – for our customers in
particular – and to make sure that risks are entered into after
careful deliberation, weighing risk and return against one
another and optimising capital allocation in the Group.
The provisioning charge in 2005 has to be assessed from the
point of view of BA-CA’s profitability and reliability: at € 495 m,
the net charge for losses on loans and advances was € 96 m
higher than in 2004 (€ 78 m over the 2004 level if IFRS firsttime
application effects for 2004 are taken into account). This
increase basically resulted from a one-off effect in the amount
of about € 70 m. As described in the management report, this
was caused by improved methods and a one-off adjustment in
the area of small-volume loans business which is in line with
UniCredit Group standards.
Almost all of this one-off effect applied to the Private Customers
segment where provisions were noticeably higher. In
addition to a growing number of insolvencies of private individuals,
a further reason for the increase was a change in the
parameters used in calculating flat-rate specific provisions. In
the Private Customers segment, the application of the new
retail scoring system and the streamlining of processes and
lending guidelines have already laid the cornerstone for a significant
reduction of the provisioning charge in this segment,
too, within the normal time frame required for these measures
to take effect.
Bank Austria Creditanstalt was not affected by large-scale bankruptcies
in 2005. The application and further improvement of
procedures to recognise risks at an early stage once again had a
positive effect on the provisioning requirement for corporate
business. Due to the high market share in SME business in Austria,
Bank Austria Creditanstalt is usually affected by economic
developments in this sector. However, provisions were made in
past years for possible loan losses resulting from the higher
number of insolvencies in 2005 compared with 2004.
92 Risk Management
Risk trends in Central and Eastern Europe continued to be very
satisfactory and were again better than expected. Contributions
to this favourable development came from our banking
subsidiaries in Croatia, the Czech Republic, Slovakia and
Poland, where provisioning charges were in some cases significantly
below budget.
A detailed description of the risk management principles
applied, the organisational structure and the risk measurement
and monitoring processes can be found in the “Risk report”
contained in the notes to the consolidated financial statements
from page 150.
Increase in number of insolvencies in Austria
BA-CA achieved a good credit risk result in 2005 although
customer business in Austria was negatively influenced by the
economy in general and also by the renewed strong increase
in insolvencies of private individuals. Compared with 2004, the
number of private insolvencies rose by 15.9 % (estimated volume
of insolvency liabilities up by 9.5 %) to close to 6,500; the
number of bankruptcy petitions dismissed for lack of assets
even increased by 23.7 %.
The number of business insolvencies increased by 11.7 %. The
estimated volume of insolvency liabilities in this area was 4 %
lower.
Marginal increase in credit risk ratios
The previously mentioned one-off effect in risk provisioning
was reflected in the development of credit risk ratios. From
2001 to 2004, we were able to continually reduce the provisioning
charge, but in 2005 it rose slightly. In September 2005
the risk/earnings ratio was 16.4 %, due to the measures taken
in the fourth quarter of 2005 it rose to 18.9 %. The trend
in the provisioning charge as a percentage of average riskweighted
assets (RWA) was similar: after the first nine months
of 2005 it evidenced 57 basis points, for the year as a whole
it rose to 67 basis points.