Annual Financial Statements 2011 of Bank Austria

Consolidated Financial Statements in accordance with IFRSs
E – Risk report (CoNTINuED)
CEE
The favourable trend in net write-downs of loans and provisions for guarantees and commitments seen at the subsidiaries in CEE in 2010 continued
in 2011. The provisioning charge declined to about € 1,055 m (2010: € 1,426 m).
While net write-downs of loans and provisions for guarantees and commitments in 2010 showed a very favourable trend especially in the second
half of the year, 2011 saw a positive development throughout the year. The figure for each quarter was significantly lower than that for the comparative
period in 2010; the downward trend was most pronounced in the second quarter of 2011, with € 246 m (2010: € 324 m), and in the fourth
quarter, with € 296 m (2010: € 449 m).
A regional analysis shows that as in the previous year, the provisioning charge further declined especially in the difficult CIS region, where it fell to
€ 442 m (2010: € 719 m). The strong decline in net write-downs of loans and provisions for guarantees and commitments in 2011 was mainly
driven by Kazakhstan with a provisioning charge of € 282 m 2) (2010: € 425 m), Russia with € 60 m (2010: € 138 m) and Ukraine with € 100 m
(2010: € 156 m). Nevertheless, the repercussions of the crisis in this region should not be underestimated: in Kazakhstan, the real estate sector
and the construction industry remained under pressure, and in Ukraine the difficult political climate was also a significant factor.
On the positive side, it should also be mentioned that the Baltic states and Romania, which were the main drivers of the provisioning charge in the
previous year, recovered from the crisis, recording a significant decline in net write-downs of loans and provisions for guarantees and commitments
in 2011, to € 9 m 3) (2010: € 65 m) and € 85 m 4) (2010: € 115 m), respectively.
On the negative side, net write-downs of loans and provisions for guarantees and commitments in Hungary were up by € 15 m on the previous
year, reaching € 95 m in 2011 mainly as a result of the Early Repayment Programme (ERP) introduced by the Hungarian government. Before the
ERP was announced, the provisioning charge was expected to be significantly lower than in the previous year. The country’s unforeseeable fiscalpolicy
rules and a partial loss of credibility in financial markets are significant factors in Hungary.
Impaired loans and the impaired loans ratio (impaired loans as a percentage of total loans to customers) at the CEE banking subsidiaries in the
2011 financial year showed a continued increase over the previous year. A significant portion of the increase is due to a methodological change in
the classification of impaired loans in the first quarter. The new classification (five risk classes instead of previously three) – a change required by
Austria’s central bank and by Banca d’Italia, Italy’s central bank – creates a standard framework for all CEE units but resulted in an increase of
€ 848 m in impaired loans. Based on the “real risk trend” (i.e. if the original classification is used for the calculation), impaired loans would have
increased by € 849 m instead of the actual € 1,697 m. On this basis, impaired loans in the 2011 financial year as a whole would have increased
at a significantly lower rate, by 40 bp to 14.0%, rather than the actual 165 bp.
Kazakhstan and Ukraine were again the main drivers in 2011 while the Baltic states (one of the main drivers in 2010) recorded a marked decline.
Another positive feature was the recovery in Turkey and Russia in the area of impaired loans, with the impaired loans ratio further declining
compared with the previous year.
Mortgages are the main type of collateral used; other types of collateral accepted are guarantees and suretyships.
Credit risk methods and instruments
Very important factors in the credit approval process are a detailed assessment of risk associated with each loan exposure, and the customer’s
credit rating in particular. Every lending decision is based on a thorough analysis of the loan exposure, including an evaluation of all relevant factors.
Following the initial loan application, the bank’s loan exposures are reviewed at least once a year. If the borrower’s creditworthiness deteriorates
substantially, shorter review intervals are obligatory.
For internal credit assessment in Austria and by Bank Austria’s banking subsidiaries in CEE, the bank uses various rating and scoring models – for
calculating the parameters PD (probability of default), LGD (loss given default) and EAD (exposure at default) – on the basis of models specifically
developed for these purposes for the customer/ business segments to be assessed, in line with the various asset classes pursuant to Section 22b
of the Austrian Banking Act, the Solvency Regulation and Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006
relating to the taking up and pursuit of the business of credit institutions. There are country-specific or region-specific models (e.g. for corporate
customers, private and business customers) and global models (e.g. for sovereigns, banks, multinational corporates). The assessment of a loan
exposure is based on data from the respective company’s financial statements and on qualitative business factors.
2) Of which € 110 m booked locally and € 172 m booked in Vienna.
3) Of which € 5 m booked locally and € 4 m booked in Vienna.
4) In addition, € 21 m provisions for guarantees were booked for loans transferred to Vienna.
Bank Austria · Annual Financial Statements 2011
152