Annual Financial Statements 2011 of Bank Austria

Management Report of UniCredit Bank Austria AG
Major balance sheet items – comparison of year-end levels
2011/2010
On the assets side, cash in hand and balances with central
banks and postal giro offices declined by € 185.9 m or 15.2% to
about € 1 bn. Treasury bills and similar securities eligible for
repurchase transactions declined by € 250.7 m or 7.3% from the
level a year earlier; but at € 3.2 bn, they were a significant liquidity
reserve.
Loans and advances to credit institutions were € 22.9 bn, down
by € 209 m or 0.9% from the year-end 2010 level. This reflects a
reduction of domestic interbank business (–19.2%, mainly
denominated in foreign currency). Loans and advances to foreign
credit institutions, on the other hand, rose slightly (by 1.4%, mainly
denominated in euro) although export credits declined. The
amounts of the changes are small compared with the large total
volume. At the end of 2011, 91% of interbank loans were loans and
advances to foreign credit institutions, reflecting the significance of
funding for banks within the Group.
Loans and advances to customers rose by € 1.4 bn or 2.1% to
€ 68.1 bn after loan loss provisions (the gross amount rose by
2.3% to € 70.6 bn). Overall (domestic and foreign customers, all
currencies), mortgage loans recorded the strongest growth
(+6.1%), followed by local-authority loans (+5.0%). Low-volume
loans to private individuals were down by 9.3%. The total amount
of other loans (€ 47.1 bn or 69% of total lending volume) rose by €
1.5 bn or 3.3%. Export loans remained at a stable level. Domestic
borrowers accounted for three-quarters of total loans and advances
(€ 50.8 bn), slightly more (+1.2%) than at the end of 2010. Loans
and advances to foreign borrowers increased by 7% in 2011.
Foreign currency loans were no longer actively offered by the bank;
the volume of such loans rose as the respective currencies
continued to appreciate (currency translation effects).
Bonds and other fixed-income securities – almost all of which were
securities issued by non-public issuers – rose by € 3.1 bn or 34.2%
to € 12.1 bn. The increase was mainly due to the acquisition of
foreign euro-denominated securities.
On the liabilities side, amounts owed to credit institutions were
up by € 1.7 bn or 5.7% to € 31.9 bn, which mainly reflects the
increase in repurchase transactions.
As at 31 December 2011, amounts owed to customers were
€ 46.3 bn (up by € 381 m or 0.8%). Within the total amount,
savings deposits rose slightly, to € 16.7 bn. The increase of 0.6%
to € 29.6 bn in other liabilities within this item reflects a reduction of
time deposits in favour of deposits repayable on demand. This
development may be explained by declining opportunity cost in
view of the low interest rate environment.
Debts evidenced by certificates rose by € 2.9 bn or 13.8% to
€ 23.9 bn in 2011, mainly as a result of the increase in new issues
of mortgage bonds and public-sector mortgage bonds (previously
local-authority bonds); the total amount of mortgage bonds and
public-sector mortgage bonds rose by € 3.2 bn or almost two-thirds
(+63%). At € 14.6 bn, bonds remained the largest sub-item within
debts evidenced by certificates, but the total amount outstanding
rose at a lower rate (+5%). Mortgage bonds are covered bonds and
were therefore easier to place in the market; they were also seen
as a lower-cost funding alternative by the bank. Money market
instruments such as commercial paper and CDs, which were of
significance in commercial international business in previous years,
continued to decrease substantially (–62%).
Other liabilities, mainly comprising trading liabilities, were down
by € 659.5 m or 41.5% to € 931 m.
Provisions increased by € 472.5 m to € 4.6 bn in the reporting
year. The major part (68%) related to provisions for severance
payments and pension provisions. The total amount of other
provisions (+ € 393.9 m to € 1,467.1 m) included provisions for
taxes, for pending losses on lending and securities business, for
risks associated with equity interests, and for litigation risks and
guarantee obligations.
Subordinated liabilities declined by € 176 m or 6.3% to € 2.6 bn.
As a result of the release of reserves, capital and reserves
(equity) – including subscribed capital, capital reserves and
revenue reserves as well as the reserve pursuant to Section 23 (6)
of the Austrian Banking Act – declined to € 14 bn, which represents
11.2% of the balance sheet total.
Profit and loss account for 2011
Overview: The profit and loss account for the reporting period
reflects various developments: economic trends were positive
although growth weakened as the year progressed; the interest
rate environment became increasingly difficult; the government
debt crisis caused uncertainty among customers; and divergent
business trends at UniCredit Bank Austria AG’s banking
subsidiaries in CEE resulted in lower dividend income. Positive
factors in commercial banking business included the fact that after
the decline in the provisioning charge in the previous year, net
expenses for the disposal and valuation of loans and advances
were again significantly reduced across all customer segments. But
a number of special factors had a strong impact on the profit and
loss account. These included the bank levy (– € 75 m), write-downs
on Greek government bonds (– € 263 m) and adjustments of the
book values of equity interests as part of a general reassessment
of the outlook for several banking subsidiaries (– € 419.4 m net of
income from the valuation and disposal of equity interests). The
above-mentioned non-operating items had a combined negative
impact of almost € 757 m, which was not offset by movements in
the other items.
On the income side, credit demand in 2011 was low after years of
strong growth; this development reflected the economic slowdown,
with low levels of investment activity in the business sector, and the
favourable liquidity position of corporate customers. Moreover, the
yield curve flattened during the year, reducing income generated
from maturity transformation. Against this background, the bank
achieved a significant increase in net interest income in 2011:
although interest expenses rose more strongly than interest income
because of the higher interest rate spreads which banks had to
pay, net interest income rose by 6.2% to € 1,390 m, accounting for
53% of operating income (2010: 46%). But revenue trends were
impacted by uncertainty and risk aversion among institutional and
private investors. In combination with structural factors, including a
further decline in derivatives business, this led to a decrease of
18.0% in net fee and commission income. Dividend income
was also lower, not least because CEE banking subsidiaries’
balance sheets were strengthened. Overall, operating income
declined by € 226 m or 7.9% to € 2,615 m. After deduction of
operating expenses, which rose by 6.8% to € 1,802 m, operating
results amounted to € 812.4 m (down by € 340 m or 29.5%). The
items between operating results and results from ordinary business
activities were a net expense of over one billion euros (€ 1,199 m),
which was composed of net income/expenses from the disposal
and valuation of loans and advances and securities (– € 566 m),
essentially the provisioning charge for lending business, and net
Bank Austria – Annual Financial Statements 2011 189