Annual Financial Statements 2010 of Bank Austria

Management Report
Management Report (CONTINUED)
Asset quality in the bank as a whole has not yet improved to any
significant extent, but the pace of deterioration slowed in the course
of the past few quarters. Expressed as a percentage of the gross
volume of loans to customers, impaired loans rose from 4.8% at the
end of 2008 to 7.3% at the end of 2009 and 8.7% in the middle of
2010. In the last two quarters of 2010, the impaired loans ratio did
not rise as strongly, reaching 9.0% and 9.1%, respectively. Additions
to impaired loans are tapering off. Moreover, the increase in impaired
loans was seen in the “relatively better” risk categories (past-due,
restructured and doubtful exposures). Having become impaired more
recently, writedowns on such loans represent a lower proportion of
the gross amount than for “old” impaired loans and non-performing
loans. Moreover, restructuring activities made good progress and
some writedowns were thereby avoided. As a result of this structural
effect, the coverage ratio of total impaired loans declined from
51.9% at the end of 2009 to 48.4% at the end of 2010. The NPL
ratio, i.e. non-performing loans as a percentage of loans to customers,
was 4.6% at the end of December 2010, higher than a year
earlier (3.5%), but only slightly above the ratio at the end of June
2010 (4.1%). Continued net additions to loan loss provisions resulted
in 62.6% of NPLs (without taking collateral into account) being covered
by specific writedowns most recently (compared with 69.8% at
the end of 2009). It is not unusual for the coverage ratio to decline in
a post-crisis period, this indicates that the situation will improve.
The other “non-operating” items between operating profit and
profit before tax reflect the strong impact of valuation adjustments in
Results for 2010 compared with 2009
Impairment losses on goodwill offset strong profit improvement (€ m)
Profit before tax 2009 = 1,335
–364
Net interest income – Counterparts
+188
Other net interest income
+139
Net non-interest income
–151
Cost increase
+428
Lower provisioning charge
*) Goodwill impairment, provisions for risks and charges, restructuring costs,
net income from investments
Other non-operating items *)
–428 *)
of which: –360
for goodwill
impairment
Profit before tax 2010 = 1,146
2010: impairment losses on goodwill totalled € 378 m (in 2009:
€ 19 m), of which € 359 m related to our banking subsidiary in
Kazakhstan. (For more details see “Accounting policies” in the notes
to the consolidated financial statements, section A.6 Impairment test,
on page 104.)
Net income from investments in 2010 was positive, at € 62 m, but
significantly lower than in the previous year (€ 113 m) due to the
expiry of Bank Austria’s participation in current profits of the Polish
UniCredit banking subsidiary at the end of 2009 (income from this
item amounted to € 106 m in 2009). Allocations to provisions for
risks and charges in 2010 were € 136 m after € 114 m in the previous
year.
➔ The items between operating profit and profit before tax (“nonoperating
items”) were a net charge of € 2,296 m, exactly the
same amount as in 2009. This means that the positive effect of the
€ 428 m decline in net writedowns of loans and provisions for guarantees
and commitments in 2010 was offset by an additional charge
resulting from the other items.
Profit before tax by business segment (€ m)
2010 2009 ChANgE
… Austrian customer business 792 867 –75 –9%
of which: CIB/Counterparts 329 490 –161 –33%
… Central Eastern Europe 1,064 916 +148 +16%
… Corporate Center –710 –496 –215 +43%
Bank Austria as a whole 1,146 1,335 –189 –14%
� Profit before tax for 2010 was € 1,146 m, down by € 189 m or
14% from 2009 (see table). The decrease resulted from the Corporate
Center (– € 215 m), whose segment result was impacted by
impairment losses on goodwill. Profit before tax generated by the
three divisions of Austrian customer business was down by 9% to
€ 792 m. The decline was not related to commercial banking business
but resulted from an exceptional shift in trading and investment
banking activities. The CEE business segment achieved a 16%
increase in its profit before tax, to a level exceeding one billion euros
(€ 1,064 m), thus confirming its role as an important contributor to
growth and revenue. Income tax on profit before tax for 2010 was
€ 348 m. The effective tax rate rose from 13.7% in 2009 to 30.4%
in the reporting year. Among the reasons were higher non-deductible
expenses (including impairment losses on goodwill) and a swing in
tax-exempt income from a positive to a negative figure.
Net profit amounted to € 798 m, a decrease of 31% from the
previous year. Of the total figure, an unchanged amount of € 51 m
was attributable to non-controlling interests (previously: minority
interests). Consolidated profit (net profit attributable to the owners
of Bank Austria) was € 747 m, down by 32% from the previous year
(€ 1,102 m).
Bank Austria · Annual Financial Statements 2010
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