Annual Financial Statements 2011 of Bank Austria

Management Report
Management Report (CONTINUED)
As a result of weak revenue growth, the cost/income ratio in CEE
rose by 1 percentage point to 46.5% while remaining significantly
lower than the average of 55.9% for the bank as a whole.
At CEE Division level, the number of branches and employees
remained more or less unchanged in 2011 (–0.5% and –0.2%,
respectively) but there were underlying changes and movements:
staff numbers in several countries were expanded in line with strategy,
in Turkey they rose by 496 FTEs (from year-end 2010 to yearend
2011), in Russia by 217 FTEs, and in the Czech Republic by
179 FTEs. This compares with reductions in regions with a multiple
presence. Moreover, the restructuring of administrative centres in
Kazakhstan and Ukraine involved a decline of 317 FTEs and
666 FTEs, respectively. The branch network expansion plan has
been suspended, except for key countries. A significant number of
new branches were added to the networks in Turkey and in the
Czech Republic, but this effect was offset by network streamlining
in Kazakhstan and Ukraine. On balance, the number of branches in
CEE rose by 15 to 2,750. This means that cost growth, adjusted for
exchange rate movements, was mainly due to inflation-induced
wage increases in the growth countries Turkey (business trends
and monetary overheating), Czech Republic (market initiative) and
Russia (capital market-intensive business).
� In the past two years, net write-downs of loans and provisions
for guarantees and commitments declined from the exceptionally
high level recorded in 2009. This trend relieved the burden on
results. Since 2009, a year marked by the combined impact of financial
market crisis and recession, the provisioning charge has fallen
significantly. This means that the favourable trend in operating performance,
though comparatively moderate, feeds through to profits
to a greater extent.
Multi-year comparison of net write-downs of loans and
provisions for guarantees and commitments
2007 2008 2009 2010 2011
Net write-downs of loans and
provisions for guarantees and
commitments, € m 483 1,012 2,267 1,839 1,352
Cost of risk (bp) *) 50 80 178 144 103
*) Provisioning charge as a proportion of annual average loans to customers in basis points
Net write-downs of loans and provisions for guarantees and commitments
in 2011 were € 1,352 m, down by € 488 m or 26.5% from
the previous year. In percentage terms, the decline in Austria more or
less equalled that in CEE; a comparison of absolute figures shows
that CEE accounts for about three-quarters (78%) of the total provisioning
charge, with over one-third of the figure for CEE relating to
Kazakhstan and Ukraine, where the restructuring of the banking sector
is not yet complete. Quarterly figures showed a steady trend in
2011: in the fourth quarter of 2011, the provisioning charge fell to
€ 317 m, the lowest level since the third quarter of 2008.
The improvement is discernible across all regions, with few
exceptions (Serbia, Slovenia and, as a special case, Hungary in
connection with the conversion of foreign currency loans). The provisioning
charge is still relatively high as it concentrates on a few
countries where the situation remains difficult.
Net write-downs of loans and provisions
for guarantees and commitments (€ m)
2011 2010 +/– € m +/– %
Bank Austria as a whole 1) 1,352 1,839 –488 –26.5%
… Austria 1) 297 414 –117 –28.3%
… CEE 1,055 1,426 –371 –26.0%
Cost of risk (basis points) 2)
Bank Austria as a whole 103 bp 144 bp –41 bp
… Austria 1) 47 bp 64 bp –18 bp
… CEE 157 bp 226 bp –69 bp
1) Three customer business segments plus Corporate Center (about € 1 m).
2) Provisioning charge/average loans to customers (net).
In annual average terms, the cost of risk (= current provisioning
charge as a proportion of average lending volume) declined by
41 basis points (bp) to 103 bp (= 1.03%) in 2011; the figure for
the fourth quarter of 2011 was even lower, at 95 bp. This compares
with a peak of 215 bp at the end of 2009 and the low level
of 46 bp seen immediately before the financial market crisis in the
middle of 2008.
In Austria, the provisioning charge in 2011 was € 297 m, down
by 28.3% from the previous year. The CIB Division, which serves
large corporate customers, recorded a very satisfactory trend
resulting from overall economic performance and risk management
in cooperation with customers. Additions to the restructuring
portfolio declined. In 2011, net write-downs of loans and provisions
for guarantees and commitments in this business segment
were € 131 m, down by 10.1% from the previous year. In this
context it should be noted that large-volume loan loss provisions
made in preceding years were reduced already in mid-2010.
In CIB the cost of risk for 2011 declined to a very low level of
31 bp, from 35 bp in the previous year.
The provisioning charge in the F&SmE Division for 2011 was
€ 161 m, down by two-fifths (–39.0%) from the previous year.
The cost of risk fell to 74 bp (2010: 120 bp). The decline in net
write-downs of loans and provisions for guarantees and commitments
is also explained by an adjustment of model parameters
under Basel 2 (in the calculation of risk weights for business with
private customers) which has become possible not least on the
basis of the more favourable risk profile and refined measurement
methodologies. The F&SME business segment has included small
and medium-sized enterprises (SMEs) since the beginning of
2011, figures for 2010 have been adjusted retrospectively. Quality
Bank Austria · Annual Financial Statements 2011
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