Annual Financial Statements 2011 of Bank Austria

Consolidated Financial Statements in accordance with IFRSs
E – Risk report (CoNTINuED)
Implementation of disclosure requirements pursuant to Sections 26 and 26a of the Austrian Banking Act
(regular disclosure of information on the organisational structure, risk management and risk capital position pursuant to
Sections 2 to 15 of the Austrian Disclosure Regulation)
Within UniCredit Group, comprehensive disclosure (under the Pillar 3 disclosure requirements) is carried out by the parent company UniCredit on its
website, based on the consolidated financial position in its function as EEA parent bank of Bank Austria. Bank Austria is a significant subsidiary pursuant
to Section 26 (4) of the Austrian Banking Act and therefore discloses its supervisory capital structure (Section 4 of the Austrian Disclosure Regulation)
and its capital adequacy requirement (Section 5 of the Austrian Disclosure Regulation); furthermore, the bank discloses information regarding
the use of own estimates for volatility adjustments (comprehensive method) for credit risk mitigation techniques to take account of financial collateral
pursuant to Section 17 of the Austrian Disclosure Regulation and in accordance with the approval by the Austrian Financial Market Authority (FMA).
The disclosure by Bank Austria is available at its website www. bankaustria.at/Investor Relations/Basel II Disclosure Pillar 3.
Current status of Basel 2.5/Basel 3 implementation in the Bank Austria Group
Market risk in the trading book:
The EU rules in the Capital Requirements Directive (CRD III) – which have been adapted in respect of their first-time application, postponing it to the
end of 2011 – have imposed significantly stricter capital requirements on European banks. The main changes relating to the trading book are the new
concepts of stressed VaR, incremental risk charge (IRC) and the new requirements concerning structured securitisations (the latter are not applied in
UniCredit Bank Austria for lack of relevant positions in the trading book). As at year-end 2011, capital requirements for “stressed VaR” and “incremental
risk charge” were for the first time calculated and covered as part of market risk for the Bank Austria Group. A reporting procedure for these
new parameters was set up in MACO, which meets once a week. Moreover, separate IRC limits were introduced for the relevant risk-takers in the
Bank Austria Group. At the global level, besides detailed VaR limits, an S-VaR limit was also implemented for the regulatory trading book
Counterparty risk:
Changes will also take place in the area of counterparty credit risk; from a current perspective, these changes will need to be implemented by the end
of 2012. Key changes include the calculation of a stressed counterparty exposure, comparable to the stressed VaR in market risk. Other new features
are the capital backing for market risk in respect of credit valuation adjustments (CVA market risk charge), stricter standards for collateral management
and margining. The treatment of central counterparties, which act as clearing centres, is also regulated in the Basel Committee proposals and/or was
set out in more detail in the course of 2011 in CAD IV, which is now available. This applies, for example, to the implementation of stress analyses and
regular reviews of model quality as part of backtesting.
Liquidity:
Basel 3 sets liquidity standards under stressed conditions in the short-term maturity range (liquidity coverage ratio = 100%) and in the structural
sector (net stable funding ratio = 1). Although compliance with these rules will not be mandatory before 2015 and 2018, respectively, Bank Austria
made the necessary extensions to the liquidity monitoring system in the course of 2011 and integrated the new regulatory standards in the current
management information process.
E.2 – Market risk
Market risk management encompasses all activities in connection with our Markets & Investment Banking operations and management of the balance
sheet structure in Vienna and at Bank Austria’s subsidiaries. Risk positions are aggregated at least daily, analysed by the independent risk management
unit and compared with the risk limits set by the Management Board and the committees (including MACO) designated by the Management
Board. At Bank Austria, market risk management includes ongoing reporting on the risk position, limit utilisation, and the daily presentation of results of
all positions associated with market risk. Most of the positions held in Bank Austria are attributable to the banking book as Bank Austria continued to
reduce positions attributable to the trading book in the course of 2011. Market risk of the banking book is an important factor also in other Divisions
(the CEE banking subsidiaries, in particular). UniCredit Bank Austria uses uniform risk management procedures for all market risk positions throughout
the Group. These procedures provide aggregate data and make available the major risk parameters for the various trading operations once a day.
Besides Value at Risk (VaR), other factors of equal importance are stress-oriented sensitivity and position limits. Additional elements of the limit system
are loss-warning and stress-warning levels.
In April 2011, Bank Austria AG was granted permission by the Austrian supervisory authorities to use the new IMOD model, which is applied within the
entire UniCredit Group, for the purpose of limiting market risk. The new model has been used for reporting regulatory capital requirements since the
end of April 2011. The new model is based on historical simulation with a 500-day market data time window for scenario generation. It is currently
used on a uniform basis by many UniCredit Group subsidiaries. The model is applied by Market Risk and Risk Integration within Bank Austria and is
being further developed in cooperation with the UniCredit holding company. Further development includes reviewing the model as part of backtesting
procedures, integrating new products, implementing requirements specified by the Management Board and the Market Risk Committee, and adjusting
the model to general market developments.
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