I This document constitutes the base prospectus of ... - Volksbank AG

VBAG is active in a number of SEE markets that have or are close to European Monetary Union (the
EMU) membership. Leaving the EMU or potential delays on the path towards EMU accession might
negatively impact CEE/SEE economies and potentially also VBAG's ability to generate profits in this region.
There is a heightened risk of credit losses due to local currency depreciation in CEE/SEE
A significant amount of retail and commercial loans in the CEE/SEE region are denominated in CHF or
EUR. Due to the current economic environment certain CEE/SEE countries might experience depreciation
of their local currency versus CHF or EUR. This might lead to higher default rates and thus reduced profits
by VBAG.
VBAG owns or develops substantial real estate in the CEE and SEE region and is therefore exposed
to price risks in the real estate area
VBAGs substantial real estate holdings in the CEE/SEE region create a special risk that negative fluctuations
in the fair value of its real estate will reduce their income or profits or the balance sheet value of its
assets.
VBAG is financing real estate developers in the CEE/SEE region and is therefore exposed to heightened
credit losses because of the current economic downturn
Because of the current economic crisis the ability of real estate developers active in this region to finalize
and subsequently rent or sell their assets may decrease and might result in a potential for higher credit
losses in this business segment. At the same time the potential risk for reduced real estate values exist
which results in the increase of the loss potential for VBAG in case of a credit event and subsequent sell off
of the asset by VBAG.
General political and economic environment
In the 1990s, the economies in most of the CEE and SEE countries were characterised by relatively high
inflation and correspondingly high interest rates, moderate growth in real gross domestic product, low disposable
income, declining real wages and high national convertible currency debt (in relation to gross domestic
product and convertible currency reserves). However, over the years CEE and SEE countries have
achieved high real GDP growth and the macroeconomic framework has improved (disinflation, high foreign
direct investments), while risks related to external imbalances have emerged in some countries.
The political and legal framework has been continuously developed, institutions, legal and regulatory systems
characteristic of parliamentary democracies were created and accession to the EU was the general
main strategic and political guideline. Poland, the Czech Republic, Slovakia, Hungary and Slovenia joined
the EU on 1 May 2004, Romania and Bulgaria have each been members since 1 January 2007. Slovakia has
been a member of the EMU since 1 January 2009. Croatia intends to accede to the EU in 2009. Instable
political conditions or a negative environment in the CEE or SEE countries including instable political
conditions in neighbouring countries may have a material adverse affect on VBAG.
Risk exposure of the Group
The Group's unsecured exposure is geographically spread as follows:
Countries Unsecured Exposure
(in mn)
Share of total
Austria 17,338 41,58%
EEA including Switzerland 10,398 24,86%
CEE 9,531 22,79%
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