Annual Financial Statements 2011 of Bank Austria

Management Report of UniCredit Bank Austria AG
Due to the challenging political and economic situation in Hungary,
UniCredit Group has taken prudent risk mitigating measures and is
actively monitoring the situation and its portfolio. UniCredit Group
has also limited business via a watch list strategy. Apart from the
current credit risk evaluation reflected in mark-to-market valuation
an impairment is – in line with applicable accounting standards –
currently not foreseen.
While there is a small exposure to Hungary and Spain, the bank
does not hold any Irish government bonds.
The Italian risk is also centrally monitored and has also been
adjusted via a watch list strategy, mainly focusing on UniCredit, tier
1 banks and the sovereign within assigned counterparty credit and
market risk limits.
Own holdings of government bonds as of 31 December 2011
Own holdings of government bonds as of 31 December 2011
Country Classification Nominal amount Book value Market value
Austria 1,580,000,000.00 1,543,481,597.89 1,684,262,750.00
Fixed assets 1,189,700,000.00 1,150,441,404.57 1,279,780,805.00
Current assets 390,300,000.00 393,040,193.32 404,481,945.00
Italy 1,112,464,078.60 1,101,083,916.37 1,090,228,348.62
Fixed assets 232,464,078.60 233,466,583.65 222,319,348.62
Current assets 880,000,000.00 867,617,332.72 867,909,000.00
Greece 368,137,724.55 93,473,952.51 93,473,952.51
Fixed assets 338,137,724.55 87,298,452.51 87,298,452.51
Current assets 30,000,000.00 6,175,500.00 6,175,500.00
Croatia 92,215,735.70 89,764,280.88 88,915,455.76
Fixed assets 10,000,000.00 10,056,125.12 9,207,300.00
Current assets 82,215,735.70 79,708,155.76 79,708,155.76
Belgium 80,000,000.00 79,989,953.81 83,382,000.00
Fixed assets 80,000,000.00 79,989,953.81 83,382,000.00
Current assets 0 0 0
Portugal 70,000,000.00 69,953,324.73 45,500,000.00
Fixed assets 70,000,000.00 69,953,324.73 45,500,000.00
Current assets 0 0 0
Romania 10,000,000.00 9,968,057.51 9,572,450.00
Fixed assets 10,000,000.00 9,968,057.51 9,572,450.00
Current assets 0 0 0
Other Countries 21,941,022.62 21,777,023.69 21,710,208.40
Fixed assets 21,941,022.62 21,777,023.69 21,710,208.40
Current assets 0 0 0
TOTAL 3,334,758,561.47 3,009,492,107.39 3,117,045,165.29
Credit risk
Net write-downs of loans and provisions for guarantees and
commitments in 2011 continued to improve across all segments
compared with the previous year. This development reflected
significantly higher economic stability, especially in the first half of
the year, and the fact that the economic slowdown which started in
the second half of 2011 did not yet have a strong impact.
In the Corporate & Investment Banking segment (CIB), the decline
in the number of new cases requiring corporate restructuring
activities had a positive influence on additions to loan loss
provisions. At € 128.2 m, net write-downs of loans and provisions
for guarantees and commitments in this business segment were
further reduced, by more than 20%, from the previous year’s level.
In the Family & SME Banking segment (F&SME), net write-downs
of loans and provisions for guarantees and commitments continued
to decline even after the inclusion of the sub-segment comprising
small and medium-sized businesses with a turnover of up to € 50
m. Overall, the provisioning charge in this business segment
amounted to € 157.5 m, an improvement of 25 % over the previous
year which was mainly due to significantly lower additions to loan
loss provisions in the sub-segments of Mass Market and Affluent
customers. The additional write-down on foreign currency loans in
these sub-segments was further increased to take adequate
account of the risk associated with loans with final maturity. Quite
generally, as in the previous year, a large number of additional
advisory talks were held with customers in this segment in several
waves in order to evaluate the new situation and the credit risk
costs arising for the bank from this type of loan on a timely basis.
At any point in time, the risk-focused presentation (credit line in €,
utilisation in currency) shows the amount of the credit line originally
granted to the customer, the currency fluctuation allowed for when
the loan was granted, and the amount currently outstanding.
In the CEE segment, net additions to loan loss provisions in
UniCredit Bank Austria AG in 2011 amounted to € 232.6 m. Most of
this amount related to a provision for the guarantee given for the
Kazahk loan portfolio to support the local subsidiary. Moreover, as
in previous years, write-downs were made on CEE exposures
booked in Vienna, especially in the Real Estate sub-segment.
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.
The various rating and scoring models provide the basis for
efficient risk management of the Bank Austria Group and are
embedded in all decision-making processes relating to risk
management. They are also a key factor for capital required to be
held against risk-weighted assets. Great attention is given to
consistency in the presentation for supervisory purposes and the
requirements of internal control.
All internal rating and scoring systems are monitored on an
ongoing basis. The systems are also subject to regular validation
on an annual basis, including a review to verify if the rating/scoring
system provides a correct representation of the risks to be
measured. All model assumptions are based on multi-year
statistical averages for historical defaults and losses, with
appropriate attention being given to the potential impact of
turbulence in international financial markets.
Bank Austria – Annual Financial Statements 2011 200