Annual Financial Statements 2011 of Bank Austria

Management Report
Management Report (CONTINUED)
least not continued deterioration, in asset quality – is well-founded.
However, the decline seen in the past few quarters cannot be
expected to continue at the same pace. In some countries, methodological
factors (IFRS harmonisation, Basel 2 implementation)
also had a non-recurrent favourable effect. Other countries will yet
experience a turn for the better in terms of asset quality. But the
favourable effect resulting from the development of the provisioning
charge will be sustainable. After the improvement in 2011,
countries where the cost of risk is disproportionately low account
for 72% of the CEE loan portolio; if Bulgaria, which is close to the
average, is included in the calculation, the percentage rises to
78%. At the other end, three countries where the cost of risk
exceeds 300 bp account for about 15% of the loan portfolio but
46% of net write-downs of loans and provisions for guarantees
and commitments. This means that the provisioning charge concentrates
on a few countries.
net operating profit (€ 1,472 m) in 2011 was up by € 335 m or
29.5% (adjusted for exchange rate movements, +37.8%) on the
previous year. The balance of non-operating items to be deducted
from this figure to obtain profit before tax was slightly negative
(– € 10 m, after +€ 6 m in 2010). The swing in net non-operating
items is explained by net additions to provisions for risks and
charges (– € 14 m), which were down by € 22 m from the previous
year’s figure. Net income from investments in the CEE Division
was € 6 m, compared with € 46 m in 2010. The decline reflects
various factors: write-downs on the Greek government bonds held
by our banking subsidiary in the Czech Republic and by a subsidiary
of the bank in Turkey amounted to € 119 m. This charge
was almost fully offset by other items including the revaluation
gain from the restructuring of the Moscow Interbank Currency
Exchange (MICEX) Group, in which our Russian banking subsidiary
holds an equity interest, and gains on the sale of administrative
buildings (Czech Republic) and real estate (Turkey).
In 2011, CEE generated a profit before tax of € 1,462 m; the
figure was 28.0% up on the previous year (at constant exchange
rates, +36.4%). Excluding the write-downs on Greek government
bonds, the year-on-year increase would have amounted to over
38%, also in euro terms. As profit before tax increased at a rate
that was a multiple of the rate of change of average equity
(+8.2%), return on equity before tax improved by 1.9 percentage
points to 12.3%. Despite the high level of equity allocated to
the CEE business segment, its contribution to Bank Austria’s
overall results for 2011 was both positive and significant in terms
of value creation: Economic Value Added (marginal EVA) was
€ 378 m (after € 116 m in the previous year). Risk-adjusted return
on risk-adjusted capital was 5.75%.
Countries and country groups
TUrKEY rUSSIA
CEnTrAL
EUroPE1) SoUTH-
EAST
EUroPE2) EASTErn
EUroPE 3)
Bank Austria · Annual Financial Statements 2011
CEE
dIvISIon 4)
Average riskweighted
assets (€ bn) 17.4 12.7 17.8 20.6 9.2 81.5
Change on prev. year
in % +13% +21% +5% +9% –9% +8%
Change on prev. year
in % at constant
exchange rates +32% +23% +4% +10% –5% +13%
operating income
(€ m) 1,016 724 913 1,449 447 4,722
Change on prev. year
in % –10% +6% +5% +3% +9% +1%
Change on prev. year
in % at constant
exchange rates +6% +8% +5% +4% +5% +5%
net operating profit
(€ m) 505 407 275 476 10 1,472
Change on prev. year
+€ 196 m
in % –14% +30% +9% +21%
5) Change on prev. year
in % at constant
+29%
exchange rates +1% +32% +8% +23% +38%
1) Central Europe (CE) = Czech Republic, Slovakia, Hungary and Slovenia. / 2) Bulgaria and Romania;
Croatia, Bosnia and Herzegovina, and Serbia. / 3) Kazakhstan, Ukraine and Baltic countries. /
4) Difference compared with total for banking subsidiaries = CEE headquarters in Vienna. /
5) Swing of € 196 m from net operating loss to net operating profit.
Reports on CEE banking subsidiaries
� Turkey: In 2011, Turkey maintained solid macroeconomic
fundamentals. Domestic demand continued to be strong, leading
to 8% 2) GDP growth in 2011, one of the highest in the
world. On the inflation front, following historically low singledigit
levels in the first half of the year, inflation increased in the
last few months and reached 10.4% as of the end of 2011,
impacted by currency depreciation as well as increased prices
and taxes on certain consumption goods. Throughout 2011, the
Central Bank of Turkey adopted an unconventional monetary
policy which varied significantly from quarter to quarter to
manage the current account deficit, inflation, currency depreciation
and growth. As of the end of 2011, the policy rate was
maintained at its low level of 5.75%.
Koç Financial Services (KFS), the financial holding company
controlling 81.8% of Yapı Kredi, achieved healthy growth and
sustained profitability in 2011 through proactive management
in a changing and complex operating environment. In 2011,
KFS recorded 1,960 million Turkish lira (TL) consolidated net
profit (after minority interests) (8% y/y), reflecting a continued
focus on customer business, healthy core revenue growth, dis-
2) Yapı Kredi Economic Research estimate
40