Annual Financial Statements 2011 of Bank Austria

Management Report
Management Report (CONTINUED)
� Despite an overall slowdown in economic activity in the
Czech republic with a historic low interest rate environment,
UniCredit Bank Czech republic reported a 5.8% increase in
revenues for Q4 compared to Q3 with similar growth on a y/y
basis. The bank leverages both on the enlarged retail branch
network as well as on the newly established franchising outlets
which both already made sound contributions to total revenue.
Q4 revenues were also supported by trading activities, with the
trading result up by more than 100% on a quarterly basis. In
Q4 the bank completed the relocation of its head office, with
the sale of the building housing the old headquarters making a
positive contribution to overall results. In light of market price
developments the bank however had to take further write-downs
on its Greek bond portfolio. Net profit for the full year is down
62% y/y; excluding the write-down on Greek bonds it was up
by almost 12%. Net volume of customer loans was up by 5.6%
y/y, while customer deposits grew by 2.5% in the same period.
� The relatively strong growth of the Slovak economy was
conducive to the growth of the banking sector primarily in the
first nine months of 2011, with the momentum slowing slightly
only towards the end of the year. The total assets of the banking
sector grew by 2% y/y, driven mainly by both gross customer
loans and deposits. The increasing volume of assets fuelled the
profitability of the banking sector. Net profit after tax recorded
double digit growth, driven by net revenue growth (up 9% y/y)
and limited growth of costs (about 1% y/y).
The net profit of UniCredit Bank Slovakia grew strongly
throughout 2011, rising almost threefold from the 2010 figure.
This remarkable performance comes from an upturn in revenue
(+11% y/y), boosted by the net interest income contribution
from all customer business lines. The bank managed to keep
operating expenses at the level of 2010, while improving efficiency
(cost/income ratio down to 60% from 66% in 2010)
despite the negative effect of a high inflationary environment.
The improved quality of the loan portfolio, reflected in a significant
decline of loan loss provisions (–47% y/y), underpinned
the bank’s outstanding results.
� UniCredit Bank Hungary was successful in handling the
challenging regulatory (ERP – early repayment programme of FX
mortgages) and economic (weak domestic demand) environment,
thus confirming its strong profitability. Total interest revenues
increased by 6.6% y/y, while fee income rose by 4.3%
y/y. The other components of operating profit were impacted by
the actual FX losses from the ERP programme, which amounted
to 7.16 billion Hungarian forint (HUF) in 2011. These losses are
however partly offset by a 30% reduction of the special bank
levy on the cost side, so that operating expenses declined by
3.5% y/y. As a result, the cost/income ratio remained below
50%. Net write-downs of loans and provisions for guarantees
and commitments increased significantly in H2 2011 due to the
booking of the expected remaining loss from the ERP. However,
excluding this effect, loan loss provisions relating to regular
business fell by more than 14% y/y. Net profit as of 31 December
2011 reached HUF 14.5 bn. Without the effect of the ERP,
the increase in profit after tax exceeded 30% y/y. Lending
activity was significantly influenced by FX movements and the
ERP in the last quarter: despite the net repayments in December,
net customer loans rose by 4.9% y/y, driven mainly by the
depreciation of the Hungarian forint. Deposits also showed an
upward trend of 8.4% y/y, supported by campaigns that targeted
retail customers. The net loan/deposit ratio dropped to
108.5% in 2011.
� The Slovenian economy was adversely affected by the deteriorating
external environment, which in addition resulted in
early elections at the end of 2011. Despite difficult market conditions,
UniCredit Bank Slovenia maintained its revenues in
Q4 2011 at about the same level as in Q3 2011 (€ 21 m). On
a y/y comparison, this allowed the bank to surpass the level of
revenue achieved in 2010 by almost 12%. The main driver of
this development was the strong growth in net interest income,
which y/y increased by more than 12%. Operating expenses
rose by 9% q/q mainly as a result of an increase in staffing
levels following the opening of new branches, and partly also
due to the accruals for the new bank levy, which was introduced
in Slovenia in August 2011 and which amounts to
€ 0.8 m. The bank’s gross operating profit in 2011 reached a
level of over € 40 m (+16% compared to 2010). The improved
operating performance was partly offset by higher risk and
impairment costs, still however allowing the bank to achieve
a profit before tax close to the level of the previous year
(€ 15.3 m compared with € 15.6 m in 2010). Among others,
a business focus in Q4 was on marketing activities to attract
new client deposits. Moreover, the bank successfully implemented
a POS acquiring framework providing increased crossselling
opportunities for clients. Retail business continued its
expansion of the branch network by opening 8 (+40%) additional
branches since the beginning of 2011. As an employer,
the bank received a prominent award indicating the bank’s
position as one of the best socially responsible employers in the
category of large companies.
� In Bosnia and Herzegovina (B&H), the economic environment
showed more severe signs of deterioration during the final
quarter of 2011, mainly caused by a stronger development of
external constraints (such as reduced external demand leading
to weaker export activity) accompanied by internal structural
weaknesses. The Group continued to operate with two banks
(UniCredit d.d. mostar and UniCredit a.d. Banja Luka),
Bank Austria · Annual Financial Statements 2011
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