Annual Financial Statements 2011 of Bank Austria

Management Report
Management Report (CONTINUED)
exchange-rate management in business with customers. In Hungary,
which also experienced significant exchange rate movements, net
trading income also improved from nil to € 14 m.
operating costs were € 2,195 m, up by 3.2% (adjusted for
exchange rate movements, 7.5%) on the previous year. The total
amount includes the bank levies in Slovenia and Hungary, which
were lower than in the previous year (€ 22.4 m after € 28.5 m in
2010) as losses from foreign currency conversion in Hungary are
permitted to be offset against the bank levy. Cost growth at constant
exchange rates was strongest in the countries where our banking
operations achieved the strongest performance: in Turkey (offset by
depreciation against the euro) and in Russia, operating expenses
were driven by higher inflation rates and wage/salary increases,
especially in trading-related areas; in the Czech Republic the bank’s
relocation to a new head office building was a significant factor. The
number of branches rose by a net 15 to 2,750, reflecting a larger
number of new offices opened and branches closed in 2011. The
large-scale network expansion programme was suspended for the
time being and replaced by a more targeted approach. At the end of
2011, the number of branches was significantly higher in Turkey
(+37), in the Czech Republic (+26) and in Slovenia (+8) and Serbia
(+5) compared with a year earlier. In several countries the opening of
new branches was accompanied by closures of branches in regions
where the bank maintained a multiple presence. The adjustment of
the branch network and the closure of regional administrative centres
in Ukraine and Kazakhstan led to a combined decline of 62 offices.
Investment in mobile sales channels continued (see the country
reports on the following pages). This was one of the reasons why
staff numbers at the end of 2011 were down by 80 FTEs from a year
earlier. As revenue growth was moderate, the cost/income ratio
increased by 1.1 percentage point to 46.5%. At this level, the cost/
income ratio in the CEE business segment is still almost 10 percentage
points lower than for Bank Austria as a whole (55.9%).
operating profit for 2011 amounted to € 2,527 m, more or less
matching the previous year’s level; at current exchange rates, operating
profit was down by 1.4%; adjusted for exchange rate movements,
it was 3.2% higher than in the previous year.
net write-downs of loans and provisions for guarantees and
commitments in the CEE business segment fell by € 371 m or
26.0% to € 1,055 m. The cost of risk declined from 226 basis points
(bp) in 2010 to 157 bp in 2011. The banking subsidiaries in Kazakhstan
(€ 282 m) 1), in Ukraine (€ 100 m) and in the Baltic countries
(€ 9 m), which accounted for most of the increase in net write-downs
of loans and provisions for guarantees and commitments in the past
1) Including a provisioning charge of € 172 m arising from guarantees assumed by UniCredit
Bank Austria AG. The provisioning charge at the Vienna-based CEE headquarters, which is
part of the CEE Division for segment reporting purposes, in 2011 totalled € 232 m (down by
18% from the previous year), which also includes cross-regional portfolios in commercial real
estate business and structured financings.
years, still accounted for about 37% of the provisioning charge.
But they also made the largest contribution to the decline compared
with the previous year, with a combined decrease of € 253 m out of
€ 371 m (68%). While South-East Europe (SEE) was still lagging
behind in the credit cycle, the situation in SEE has improved in the
meantime (provisioning charge down by 14.5%). In Romania, net
write-downs of loans and provisions for guarantees and commitments
were considerably lower (–20.4%) than in the previous year,
but the cost of risk in 2011 was still relatively high (338 bp). The
situation in Bulgaria also improved (provisioning charge down by
26.8%, cost of risk: 179 bp). In Croatia and Bosnia, the cost of risk
also declined after a strong temporary increase; at 107 bp in both
countries, the levels were lower than in the previous year. In Russia
the situation improved significantly in line with general economic
trends (provisioning charge down by 55.6%, cost of risk at 61 bp).
Turkey, which is far ahead of other countries in the cycle, is a special
case: asset quality in Turkey improved substantially in 2010 as debt
collection efforts were successful. Net write-downs of loans and provisions
for guarantees and commitments continued to decline, in
euro terms even more significantly than in local currency. At 42 bp,
the cost of risk in Turkey is even below the Austrian level (46 bp),
which was particularly low in 2011. In the Central Europe (CE) country
group, Hungary stands out as a special case, with the cost of risk
reaching 239 bp in 2011. The increase of € 15 m or 18.2% in the
provisioning charge was caused by provisions for the settlement of
debt restructuring and mandatory conversion of foreign currency
loans pursuant to rules defined by the government.
When analysing the overall picture, one should note that the reduction
of the provisioning charge – resulting from economic trends,
local restructuring measures and the gradual improvement, or at
CEE loan portfolio: exposure by cost of risk
Customer loans of CEE banking subsidiaries at the end of December 2011
by cost of risk
Turkey 19%
Russia 17%
Czech Rep. 11%
Slovakia 4%
Slovenia 4%
€ 66.3 bn
Average
cost of risk:
157 bp
Cost of risk (provisioning charge as a percentage of average loans to customers)
… below average
… above average
Kazakhstan 5%
Ukraine 4%
Romania 5%
Hungary 5%
Serbia 2%
Bulgaria 6%
Baltics 1%
Bosnia 2%
Croatia 14%
*) including the provisioning charge arising from guarantees by UniCredit Bank Austria AG
in the Vienna-based CEE headquarters
Bank Austria · Annual Financial Statements 2011
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