Annual Financial Statements 2011 of Bank Austria

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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
Management Report Management Report (CONTINUED) ciplined cost control and positive asset quality. Return on equity was 21%, one of the highest among private banks in Turkey. Revenues were recorded at TL 5,802 m (5% y/y), driven by sustained net interest income, a solid fee performance (11% y/y) and positive trading results. Continued tight cost management and efficiency initiatives resulted in a cost/income ratio of 44%. In its lending business, the Group recorded 27% loan growth, driven by a strong emphasis on high-margin local currency retail loans including general purpose (62% y/y) and SME loans (50% y/y). Yapı Kredi increased its support to the economy through project finance loans, especially in the energy sector, which reached a total volume of US$ 5.8 bn in 2011 (vs US$ 3.6 bn in 2010). In credit card business, Yapı Kredi maintained its leading position with an 18.3% 3) market share in outstanding volume and a 13.6% market share in the number of credit card holders. As of the end of December 2011, the bank had a market share of 10.3% in total loans and ranks fifth in the sector. In terms of asset gathering, the Group recorded above-sector deposit growth of 20%. The bank improved its deposit mix by increasing its share of retail deposits and lengthening maturity. As of the end of 2011, the Group increased its market share in total deposits to 9.2% and ranks sixth in the sector. Diversification of funding sources remained a key focus in 2011. In terms of international funding, the bank successfully renewed its syndications totalling US$ 2.7 bn with improved pricing and obtained a new long-term securitisation of US$ 510 m. In terms of domestic funding, the bank issued bonds with a total volume of TL 1.2 bn. The Group maintained a positive asset quality trend driven by a decline in non-performing loans (NPL), successful loan recovery activities, credit infrastructure improvements and dynamic portfolio management including the NPL sale of a TL 290 m credit card and individual portfolio. As a result, Yapı Kredi’s NPL ratio declined to 3.0% from 3.4% at year-end 2010. As of the end of 2011, Yapı Kredi had the fifth-largest branch network in Turkey with 907 branches (+39 net new branches compared with 868 at year-end 2010) and a 9.2% market share. In addition, Yapı Kredi has an effective system of non- 3) All market shares are sourced from Turkish financial authorities branch channels, including the fifth-largest ATM network (2,697 ATMs), award-winning internet banking customised for retail and corporate clients, and 2 call centres. In mobile banking, an area which is becoming an integral part of the service network, Yapı Kredi launched new initiatives in 2011 and became a leading player in this sector with a 15.3% market share. As of the end of 2011, 78% of total banking transactions were realised through non-branch channels. In 2011, Yapı Kredi received many awards including “Bank of the Year in Turkey” (The Banker) and “Turkey’s Best Bank” (World Finance). � russia: The Russian economy showed a positive economic development during 2011. GDP increased by 4.3% y/y and inflation slowed to 6.1% y/y. All this led to a growth of the banking sector, especially in H2 of the year. The volume of total assets grew by 8.3% in Q4 2011 (compared with 0.6% in Q1 2011, 3.6% in Q2 2011 and 9.1% in Q3 2011). In 2011 total assets therefore increased by 23% y/y, with personal loans growing by 36% y/y, while the volume of corporate loans increased by 26% y/y. The banking sector’s profit before tax reached 848 billion Russian rubles (RUR), 48% up on 2010. ZAo UniCredit Bank (UCBr) showed a significant y/y increase in total assets of more than 34% to RUR 15.8 bn, the highest net profit in its history. The bank thus improved its positioning within the top 10 banks ranked by profit before tax according to local accounting standards (from 8th position as per end of 2010 to 5th position as per end of 2011). The bank’s revenues increased steadily during the year, reaching a total amount of RUR 29.5 bn for the full year. At RUR 21.7 bn, net interest income remained the main source of the bank’s revenue – driven by a strong increase in business volume: more than 20% y/y growth in loans and an about 40% y/y increase in deposits contributed to a significant improvement in the loan/ deposit ratio to 102% as of year-end. Operating expenses amounted to RUR 10.4 bn and continued to be strictly monitored, leading to a very efficient cost/income ratio of 35%. This excellent result for 2011, impacted also by a one-off effect from the restructuring of investments in CJSC “MICEX” (Moscow Interbank Currency Exchange), generated a strong return on equity of about 20%. In 2011, the CIB Division maintained its position as the leading business line in UCBR in terms of revenue generation and contribution to the net profit. Customer satisfaction was further improved over 2010. CIB managed to reach a well-balanced development supported by sustained loan growth and an improvement in the loan/deposit ratio. In order to strengthen the historical leadership in cash management services the Bank Austria · Annual Financial Statements 2011 41
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