Annual Financial Statements 2011 of Bank Austria

Management Report
Management Report (CONTINUED)
Development of business segments
Family & SME Banking (F&SME)
(€ m) 2011 2010 CHAngE
Operating income 1,177 1,151 +26 +2.3%
Operating costs – 910 –851 –60 +7.0%
Operating profit 267 300 –33 –11.1%
Net write-downs of loans –161 –264 +103 –38.9%
Net operating profit 106 37 +70 >100%
Profit before tax 112 43 +69 >100%
Loans to customers (avg.) 21,697 22,028 –331 –1.5%
Risk-weighted assets (avg.) 2) 13,162 14,335 –1,173 –8.2%
Average equity 3) 1,137 754 +383 +50.8%
1) For segment reporting purposes, the comparative figures for 2010 were recast to
reflect the structure and methodology of the 2011 reporting period (see the segment
reporting section in the notes to the consolidated financial statements on pages 124 to
132 of this report. / 2) Average risk-weighted assets under Basel 2 (all risks). /
3) Standardised capital; capital allocation to subsidiaries reflects actual IFRS capital.
The difference compared with the consolidated equity of the Bank Austria Group is shown in
the Corporate Center. See segment reporting section on pages 126 to 127.
This information applies to all business segment tables.
Since the beginning of 2011 the Family & SmE Banking (F&SME)
business segment has comprised SMEs (small and medium-sized
enterprises) in addition to the Mass Market, Affluent and Small
Businesses customer sub-segments. The SME target group includes
businesses with a turnover between € 3 m and € 50 m, which are of
special significance for the economy. With total loans of € 21.7 bn
and deposits totalling € 23.3 bn (annual averages for 2011) and operating
income of € 1.2 bn, F&SME is a major pillar of Bank Austria.
The Division’s network of 338 branches and sales units and
3,976 employees (FTEs) give Bank Austria high visibility.
� Overall, and measured by results, F&SME had a good year in
2011. Operating income increased by 2.3% although credit demand
and transaction volume were low. Profit before tax for 2011 was
€ 112 m, over two and a half times the 2010 figure and matching
the 2008 level. The € 69 m improvement resulted from revenue
growth in current business and from lower net write-downs of loans
and provisions for guarantees and commitments (down by € 103 m),
with results again more strongly reflected in profit before tax.
The market and banking environment varied considerably in 2011
and this is reflected in divergent trends in income components. The
major factors – in a generally stagnating and overbanked market –
were the change from expectations of higher interest rates in the
early months of the year to an unexpectedly strong decline in interest
rates across all maturities and the flattening of the yield curve which
started in the summer. These developments had a widely varying
influence on interest income from the assets side and the liabilities
side. There was strong competition for deposits in the entire banking
sector, leading to favourable terms for customers while also resulting
in rising interest income from reference rate developments. On the
lending side, margins remained under pressure. The persistent debt
crisis and partly also deep fears of expansionary countermeasures
taken by economic policymakers were the main topic and the major
source of uncertainty in business with customers, reflected in their
preference for liquidity, the price of gold and the strong appreciation
of the Swiss franc. Investors showed a pronounced risk aversion
and a strong preference for bank deposits and easy-to-understand
bank bond issues, which enabled us to achieve good placement
results.
� operating income in 2011 was € 1,177 m, up by 2.3% on the
previous year, with the combined increase in net interest and dividend
income and other income from equity investments more than
offsetting the decline in net fees and commissions. net interest
increased by € 20 m or 2.8% to € 724 m. Average lending volume
was more or less unchanged (down by 1.5% at business segment
level, unchanged in the Bank Austria sales network). While consumer
loans were significantly lower, volume was supported by the
increase in construction and housing loans, which rose by about
6% as a successful marketing campaign led to lively new business
(+14%). Terms and conditions for customers remained stable,
while the interest margin narrowed on the assets side because of
reference rate developments. At business segment level (including
subsidiaries), total deposits (direct deposits) declined slightly compared
with the previous year (–1.2%) while remaining unchanged
in the branch network. Although interest rates on customer deposits
were higher, interest margins improved significantly as a result of
reference rate developments. Sight and savings deposits made the
strongest contribution to revenue growth; demand for time deposits
declined in response to lower market interest rates.
net fees and commissions decreased slightly in 2011, by 1.9%
to € 434 m, but they still accounted for a substantial 37% of operating
income. As in previous years, net fees and commissions generated
by commercial banking services including account maintenance
and payments as well as safe-custody business were lower.
Net fees and commissions from share trading and safe-custody
business in 2011 were also down compared with the previous year.
Among the investment products, sales of insurance contracts and,
even more significantly, mutual fund business declined. 2011 was a
poor year for mutual fund business in Austria. In new business, PIA
guarantee bonds, PIA Focus Invest products and Real Invest Austria,
an open-ended real estate fund, were particularly attractive to investors,
clearly reflecting their current preferences. Good placement
results for the bank’s own issues strongly supported net fees and
commissions in 2011. In addition to tax-privileged Wohnbauanleihe
bonds, the bank issued ErfolgsAnleihe bonds featuring easy-tounderstand
and transparent terms and conditions, mortgage bonds
and structured bond issues with an inflation and capital guarantee,
which took account of the current interest rate environment and
investors’ strong preference for security. The average volume of
bonds outstanding in 2011 was up by 9% on the previous year.
Bank Austria · Annual Financial Statements 2011
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