Annual Financial Statements 2008 of Bank Austria

Consolidated Financial Statements: Management Report of the Group
Management Report 2008 (cONTINUED)
Operating expenses
€ m 2008 2007 +/– % +/– % ADJ.
Austrian customer business 1,224 1,392 – 12 % – 7 %
Cost / income ratio 52.8 % 56.3 % – 3.5 %p – 2.5 %p
CEE 2,234 1,729 + 29 % + 13 %
Cost / income ratio 47.2 % 51.4 % – 4.2 %p – 2.8 %p
Bank Austria as a whole 3,935 3,351 + 17 % + 5 %
Cost / income ratio 54.4 % 52.2 % + 2.2 %p + 3.6 %p
Both adjusted and unadjusted figures for operating expenses indicate
that costs in the three Austrian customer business segments were
reduced in absolute terms (see table). This success underlines the
sustained turnaround in the Retail Division. In the past years we have
separated front-office business from back-office activities, and this
organisational change has proved very effective. The transfer of settlement
and administrative activities to separate subsidiaries within
the Group on the basis of refined service level agreements has created
cost transparency and led to specialisation gains, especially in
cooperation with Administration Services (AS). Moreover, our costsaving
programmes, which were intensified several times during the
second half of 2008, reduced non-staff expenses. On this basis we
reduced the cost / income ratio (operating expenses as a percentage
of operating income) in the three Austrian customer business segments
by 2.5 percentage points (on an adjusted basis), moving closer
to the 50 % mark.
Cost growth of 13 % (adjusted for the first-time consolidation of the
banks in Kazakhstan and Ukraine) in CEE, on the other hand, reflects
business expansion and our investment in organic growth. The 13 %
increase in costs based on the previous perimeter compares with
growth of risk-weighted assets at double the rate (+ 27 % on an adjusted
basis) and revenue growth of 20 %; it should be noted that
total costs included those associated with the branch network expansion
programme which we pursued in 2008. In the old CEE countries
we opened 386 new branches in 2008 and significantly increased
staff numbers in this context, especially in Turkey, Romania and Hungary
(see the section on the CEE business segment). Nevertheless,
the cost / income ratio in CEE (old perimeter) was reduced by 2.8 percentage
points. The decline in the cost / income ratio was even
stronger on an unadjusted basis (– 4.2 percentage points) as the
newly consolidated subsidiaries in Ukraine and Kazakhstan operate at
cost / income ratios of below 40 %.
The cost / income ratio for Bank Austria as a whole does not provide
meaningful information because income reflects the revenue shortfall
in the MIB Division.
� The income statement items leading from operating profit to profit
before tax resulted in a combined charge of € 1,791 m on Bank Austria’s
results for 2008. Some of these items are related to operating
activities – such as net writedowns of loans and provisions for guarantees
and commitments, and parts of net income from investments;
other items are provisions for risks and charges, and valuation
processes with an impact on the income statement, including the
substantial impairment losses on goodwill.
� As a result of the developments in the fourth quarter explained
above, net writedowns of loans and provisions for guarantees and
commitments rose to over one billion euros in 2008 (€ 1,012 m after
€ 483 m). The € 529 m increase for the first time includes a total
provisioning charge of € 214 m for operations in Kazakhstan and
Ukraine. Adjusted for the factors mentioned above, net writedowns of
loans and provisions for guarantees and commitments still rose by a
substantial € 320 m to € 798 m. The risk environment in current
lending business deteriorated in the fourth quarter of 2008, reflecting
economic trends. Another – unprecedented – factor was the large
provisioning charge for banks and counterparties (Lehman Brothers
and banks in Iceland in particular), which is reflected in the results of
the Corporates Division with its Financial Institutions sub-segment
and in Markets & Investment Banking.
Net writedowns of loans and provisions for guarantees
and commitments
€ m 2008 2007 +/– € +/– % +/– % ADJ.
Austrian customer business 308 272 + 36 + 13 % + 17 %
Risk / earnings ratio 1) 21.3 % 19.5 % + 1.8 %p + 1.9 %p
cost of risk 2) 47 bp 43 bp
Central and Eastern Europe 537 211 + 327 >100 % + 51 %
Risk / earnings ratio 17.5 % 9.8 % + 7.7 %p + 2.6 %p
cost of risk 90 bp 51 bp
Markets & Inv. Banking 3) 165 – 1 + 166 n.m.
Bank Austria as a whole 1,012 483 + 529 >100 % + 67 %
Risk / earnings ratio 18.8 % 12.3 % + 6.6 %p + 5.0 %p
cost of risk 80 bp 46 bp
1) Provisioning charge as a percentage of net interest income.
2) Provisioning charge measured as basis points of average lending volume.
3) Key indicators are of limited informative value.
n.m. = not meaningful
Net writedowns of loans and provisions for guarantees and commitments
in the three Austrian customer business segments increased
by 13 % to a combined € 308 m. In the Retail Division, the figure
matched the previous year’s level and the risk / earnings ratio (26.9%)
improved slightly, while remaining above the average for the bank as
Bank Austria · Annual Financial Statements 2008
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