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CONTENTThe Volksbank AGManagement ReportThe Five StrategicSegments6 Foreword of theChief Executive Officer8 The network of theVBAG Group10 History11 Strategy and Vision12 The Managing Board of VBAG18 The Economic Environmentin 200720 Summary of the FinancialStatements for 200722 Outlook26 Segment Corporates31 Segment Public Finance33 Segment Retail39 Segment Real Estate42 Segment Financial Markets


Success FactorsFinancial StatementsOfficersand Adresses48 Human Resources49 Marketing52 Communications andPublic Relations53 Organisation and IT54 Risk Management55 Compliance59 Income Statement60 Bilance Sheet as atDecember 31, 200761 Changes in Equity62 Cash Flow Statement64 Noteszum Konzernabschluss132 Auditor´s Report134 Report of the Supervisory Board138 Supervisory Board andManaging Board139 Advisory Board140 VBAG Group in Austria142 VBAG Group in Central andEastern Europe143 Contacts


AGROUPONNEWWINGSThe Volksbank AG.6 Foreword of the Chief Executive Officer8 The Network of the VBAG Group10 History11 Strategy and VisionManaging Board of VBAG/0112 The


VORWORT DES GENERALDIREKTORSLADIESANDGENTLE-MEN,Fiscal 2007 was an excellent year for Volksbank AG. It is a greatpleasure for me to inform you that for the seventh consecutiveyear we achieved a record performance. We were able to raiseour consolidated profit by an impressive 25.4 % to euro 388.1million. The Group´s profit after taxes and minority holdings wentup by 41.6 % to euro 219.7 million. Net interest income climbedby 25.3 % to euro 830.7 million, and Volksbank AG’s total assetsstood at euro 78.6 billion for the first time in its history. Its costincomeratio was 57.6 %, thus remaining below the 60 % markfor the second consecutive year. Being able to realise such a resultdespite the difficult market environment shows that VolksbankAG is well armed for the future and ranks among the leadingproviders of financial services on the domestic financial scene.A top provider of financial servicesin Austria and the CEE regionThanks to our new dynamic image and our significantlybroadened positioning, resulting from the takeover of theInvestkredit sub-group in 2005, we have succeeded in markedlyimproving the position of Volksbank AG and the Volksbank sectoron the Austrian banking scene. Today, Volksbank AG ranksamong the leading providers of financial services in Austria andin the Central and Eastern European countries. We can furnishthe full range of banking services to our customers and at thesame time offer our specialist know-how which had previouslybeen less profound than it is now.Success through diversificationThe difficult climate prevailing in fiscal 2007 demonstrated thesignificance of a strategic structure based on equally importantbusiness segments. Despite turmoil on the financial markets, wewere able to achieve favourable results on account of the balancedstructure of our business segments. All of these five segmentsput up an excellent performance in fiscal 2007. Four of oursegments, i.e. Corporates, Public Finance, Retail, and Real Estatewere able to improve their operating results markedly and thusmade a significant contribution to the Group’s success. Our multipillarstrategy has proved its practical value, which is why I lookto the future with optimism.In the segment Corporates we are confident that an enlargedrange of products as well as our strengthened regional presenceshould offer us opportunities for expanding our business. Cooperationwith regional Volksbanks will also be intensified further.In the financing of energy projects we want to establish ourselvesas a European financial partner vis-à-vis project developers,6THE VOLKSBANK AGForeword of the Chief Executive OfficerMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


operators and funds. Thanks to our in-depth knowledge of thissector, flexibility and creative solutions we can offer ourcustomers added value. In our opinion, the highest potential forgrowth exists, in particular, in the Central European Market. In2008 we will continue to pursue our niche strategy in this region.Our subsidiary Kommunalkredit Austria AG has established itselfas the market leader in the segment Public Finance. In additionto classical public finance business in Austria, Kommunalkreditwill also focus on large-scale projects in the areas trafficinfrastructure, airports and power generation and distribution in2008. Owing to the growing importance of alternative financingmodels, local communities are increasingly offered off-budgetsolutions. In the Central and Eastern European region, large publicsector clients are primarily serviced by Dexia-Kom, a subsidiaryof Kommunalkredit. A higher degree of specialisation, ongoinginnovation and intensive counselling will remain the hallmarks ofthe Kommunalkredit sub-group.In the segment Retail, we continue to energetically pursue organicgrowth in the CEE countries and we intend to strengthen furtherthe leading role of Volksbank International (VBI) on the basis oforganic growth. In addition, selective acquisitions will also bemade.Yields should continue to rise in the real estate markets. By theend of 2008, the higher yields on real estate could go up byanother 40 basis points. The differential between top-grade realestate in prime locations and commercial real estate in lessfavourable locations or with inferior amenities will grow further.We assume that buoyant demand for high-quality real estate inCentral and Eastern Europe will persist.Despite the current turbulence in world markets we continue topursue the highly ambitious business administration goals we haveset ourselves. Against the background of new requirements, thissegment adjusted all operations even more closely to ourcustomers’ needs. As a result, our sound client relationships ofmany years’ standing should be further deepened. By 2011 wewant to be the leading provider of services in all business areas.Committed to our principle of proximity to customers, we will seekto convince them that we are reliable partners by offering the bestsolutions.Increase in the number of outletsand staffFor Volksbank International AG, fiscal 2007 was anothersuccessful year. The number of outlets, which was increased bymore than 50%, now stands at over 500. In the meantime, VBI’sheadcount has risen to more than 5,000. At present, already 6,148staff members of the VBAG Group work outside Austria. In orderto be able to finance the Group’s expansion in Central and EasternEurope, the Supervisory Board approved a capital increase forVBI totalling euro 200 million. Over the past three years VBI hassucceeded in strengthening its market position considerably sothat it has once again been able to report record results, for thethird year in succession.Success through continuityIt is our declared aim not only to gain market share on the basisof our strategic success factors in our five strong segments, butalso to improve continuously the structure of results and theprofitability of our Group. In terms of key indicators, this meansan increase of our pre-tax profit to around 500 million by 2010,an increase in ROE to at least 15% and a marked shift in our coststructure to a cost-income ratio of less than 60%. In our opinion,these are challenging but realistic objectives.Fiscal 2008 will prove a much more demanding year. Markedlyhigher refinancing costs present a challenge for all segments.Against this background, we continue to focus on highly selective,high quality growth. We hope to achieve our goals by bringingto bear the well-known strengths of Volksbanks: offering a superiorlevel of competence and tailor-made solutions to our customers.In fiscal 2008, the Central and Eastern European countries shouldact as an enormously important engine for growth. Reflecting themotto of the present business report “On the wings of success”I am convinced that we are very well equipped for reaching ourfuture targets. At this juncture, I should like to sincerely thank ourdedicated employees for their efforts. Especially during the pastyear, their efforts in this tough, but highly efficient, integrationphase, set the scene for further success. I also wish to expressmy gratitude to my colleagues on the Board, who both assumedresponsibility for, and helped shape, our successful activities inthe past fiscal year.Franz PinklChief Executive OfficerSUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, ComplianceFINANCIAL STATEMENTSIncome Statement, Balance Sheet, Changes inEquity, Cash Flow Statement, Notes, ReportsOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


THE NETWORKOF THE VBAG GROUPThe Volksbank AG Group is one of Austria’s leading providersof financial services. Set up in 1922 as the central institution ofthe country’s industrial credit-co-operatives, this financialinstitution has traditionally played a central role as a partner tothe Austrian business community and as a provider of financeto enterprises of all sizes – from SMEs to large conglomerates.In addition, the VBAG Group is the market leader in public sectorfinance and also occupies a strong position in financing real estateprojects at home and abroad. In 1991, VBAG was one of the firstdomestic banks to expand its operations to Central and EasternEurope. Jointly with the local credit co-operatives and ABVBausparkasse, the VBAG Group forms the Volksbank Group.GERMANYCZECH REPUThe Volksbanks (local credit co-operatives) are regional bankswith deep local roots. Acting as universal banks, they provideservices to local small and medium-sized enterprises as well asto private customers. Maintaining some 600 outlets in Austria,they constitute a dense banking network, thus assuring the localavailability of financial services. The 65 Volksbanks, with a stakeof 58.2 %, are majority shareholders of VBAG and thus of theVBAG Group. Our owners are the DZ Bank Group, which holdsa 25% stake, the Victoria group, which has a holding of 10 %,and RZB which owns 6.1 % of VBAG’s shares. Freely floatingshares account for 0.7 % of the Volksbank Group’s shares.AUSTRIASLOVENIAMALTA8 THE VOLKSBANK AGMANAGEMENT REPORTThe Network of the VBAG GroupEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


RUSSIAPOLANDBLICUKRAINESLOVAKIAHUNGARYROMANIACROATIABOSNIA-HERZEGOVINASERBIACYPRUSSUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, ComplianceFINANCIAL STATEMENTSIncome Statement, Balance Sheet, Changes inEquity, Cash Flow Statement, Notes, ReportsOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


HISTORYVolksbank AG (VBGA) was established in 1992 as the umbrellaorganisation of several regional credit co-operatives and has thusbeen closely linked to the trust of its partners. Over the decades,VBAG’s business philosophy evolved around the principles of trustand partnership. In line with its philosophy, the well-known slogan“United in trust” was devised.In 1930, the Austrian Union of Credit Co-operatives was foundedunder the name Österreichischer Genossenschaftsverband andstructured in accordance with the Schulze-Delitzsch system.In 1950, the Confédération Internationale du Credit Populaire(CICP) was established in Paris which allowed the officers of thecentral institution and the entire sector of co-operative banks toengage in a fruitful exchange of experience.In 1956, following a decision of the general assembly held onDecember 10, 1956, the company name was changed toZentralkasse der Volksbanken Österreichs.In 1991, when the new Articles of Association were adopted,Österreichische Volksbanken AG was converted from a regularcentral institution into a central institution with commercial bankingfunctions. Thanks to the integration of Volksbank Wien intoÖsterreichische Volksbanken-AG, in the same year, the Groupgained access to the business of local credit co-operatives.In the same year, the go-ahead was given for setting up thebanking network in Central and Eastern Europe which has provedextremely successful in the meantime: In 1991, ÖsterreichischeVolksbanken-AG was the first foreign bank to acquire a fullbanking licence in the former Czechoslovakia, under which Ludovabanka a.s. (now Volksbank Slovenska a.s.) was established inBratislava on August 30, 1991. In the next few years, other bankswere set up in Hungary, Slovenia, the Czech Republic, Croatia,Romania, Bosnia-Herzegovina, Serbia and the Ukraine.In 1997, VB-International GmbH was founded, converted into ajoint stock company in 1999 and renamed Volksbank InternationalAG (VBI AG) in 2000. Volksbank AG’s holdings in its foreignsubsidiaries were progressively transferred to VBI AG.In 2001, Volksbank Wien AG was established, to which VBAGcontributed its branch network. The banking operations ofVolksbank für Wien und Klosterneuburg rGmbH were entirelytransferred to Volksbank Wien.In 2002, Volksbanken Holding rGmbH was founded, to whichsubsequently all VBAG shares previously held by VolksbankenHolding GmbH were transferred.The existing co-operation between Volksbanks and/or VBAG andthe ERGO Versicherungsgruppe AG (VICTORIA-Versicherung)was intensified through an increase in the latter’s holding to 10 %.By 2004, the VBAG Group already maintained outlets in elevenCentral and Eastern European countries and, thanks to itsrelations with numerous correspondent banks, was present in allof the world’s major financial centres. In December, BanqueFédérale des Banques Populaires (BFBP), the French group ofcredit-co-operatives on the one hand, and the German DZ BANKAG and WGZ-Bank on the other, declared their intention toacquire a share of 24.5% each in Volksbank International AG. Thistransaction was carried out in 2005.In 2005, Österreichische Volksbanken-AG took over theInvestkredit group with its business segments commercialCustomers, Public Finance (Kommunalkredit Austria AG) and RealEstate (Europolis Real Estate Asset Management GmbH).In 2006, Volksbank AG outperformed Bawag-PSK and, reportinga balance-sheet total of euro 67.4 billion, established itself asAustria’s fourth largest bank.In 1996, Österreichische Volksbanken-AG acquired a holding inNiederösterreichische Landesbank-Hypothekenbank Aktiengesellschaft(Hypo NÖ) thus strengthening its presence on theAustrian banking scene.In May 2007, Volksbank AG launched its new corporate image.The co-operation between “Österreichischer Genossenschaftsverband“and “Deutsche Genossenschaftsbank“ which wasinitiated in the same year led to the acquisition of a 25% stakeby the German DZ Bank AG in VBAG.10 THE VOLKSBANK AGMANAGEMENT REPORTHistory, Strategy and VisionEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


STRATEGY AND VISIONThe strategy of the VBAG Group is based on the values of a cooperativebusiness structure and on the principles of astakeholder business model. Stability and continuity constitutethe main pillars on which this strategy rests. The harsh economicclimate prevailing in 2007 confirmed, in particular, the soundnessof our strategic orientation. Thus we were able to report a newrecord result for the seventh consecutive year.a risk profile that can be controlled. This is why we can reconfirmour objectives for 2010, despite the difficult conditions currentlyprevailing on the capital and financial markets:• Profit before taxes > EUR 500 Mio.• Return on equity (RoE) > 15 %• Cost-income-ratio significantly < 60 %• Tier 1 – ratio in the range 6.8 – 7.2 %Together with the Volksbanks we, as the reliable central institutionof an otherwise decentralised co-operative organisation, attachgreat importance to close cohesion within the Volksbank sector.Only in this way can the Volksbank sector deploy its full strengthand power. Thanks to its decentralised structure, the VolksbankGroup is represented at the regional level and thus has directcontacts with its private customers and SMEs. As we operate inclose proximity to our customers and are familiar with theirconcerns and challenges, we can offer optimum help.Volksbank clients are loyal customers, and we reward them fortheir loyalty by providing good services and devising customisedsolutions for them. Our long-term customer relationshipsconstitute the core of our business activities as a commercial bankboth in Austria, our domestic market, and in the growth marketsof Central and Eastern Europe.Thanks to our ownership structure and our integration into theco-operative sector, we can orient our policies to long-term goalsand are not forced to optimise our operations in the short termat all costs. We are striving for sustainable, profitable businessactivities and value creation, not least in order to strengthen theentire co-operative sector as well as the Volksbank Group.Our customers can justly have confidence in VBAG because ofits reliability and high-quality services. The range of our productsand services is understandable, transparent and innovative,covering all financial service areas. VBAG is, for example, theAustrian market leader for structured capital market products,and has received a number of awards for these.We are responsible partners for our customers, owners and staff.Forming an essential part of the Austrian business community,we are aware of our responsibility and pursue targeted businessand risk policies. We avoid high-volatility products in our portfolio,which is also reflected by the excellent rating (Aa3) assigned tous by Moody’s. In line with our reputation, we, as an internationalprovider of financial services and Austria’s fourth largest bank,are pursuing a strategy of selective and value-oriented growth.This strategy aims at targeted high-profit growth combined withWe will energetically pursue this strategy of sustainable growthin all five segments:The segment Public Finance, which accounts for a 21% shareof VBAG’s risk-weighted assets, is one of the Group’s largestsegments. Thanks to its technical know-how and expertise aswell as innovative financial solutions, Kommunalkredit Austria AG,acting as the domestic market leader, consistently takesadvantage of growth opportunities presenting themselves in theinternational market environment.In the segments Corporates and Real Estate, strong brands, suchas Investkredit, are firmly anchored in Austria, Germany andespecially in Central and Eastern Europe. Through extensiveknow-how and customised solutions we hope to be able to gainand preserve the loyalty of our private and corporate customersover the longer term.The CEE markets constitute a major area of growth in the segmentRetail. Today, VBI’s network covers nine countries. This networkis to be further strengthened and expanded through selectiveorganic growth and minor take-overs. One essential successfactor in the future will be the combination of our proximity to localmarkets and customers with our central, international processand marketing experience. In Austria, VBAG’s market presencewill be further strengthened through our special focus on targetedretail banking in Vienna, Linz and their surrounding areas.The segment Financial Markets, which has established itself asan innovation leader for structured products, will continue to beone of VBAG’s important core operations in the future. Ourassets-liabilities management is committed to keeping VolksbankAG and the entire sector on a stable course.Confirmed by our success in the past few years, we are convincedthat, thanks to our continuity and stability strategy, the VolksbankGroup and Volksbank AG are optimally prepared to hold theirground in a harsh, highly competitive environment in the future.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, ComplianceFINANCIAL STATEMENTSIncome Statement, Balance Sheet, Changes inEquity, Cash Flow Statement, Notes, ReportsOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


THE MANAGING BOARDOF VOLKSBANK AGFrom left to right:Wilfried StadlerMember of the Managing BoardVolksbank AGWolfgang PerdichMember of the Managing BoardVolksbank AGFranz PinklChairman of the Managing BoardVolksbank AGManfred KunertMember of the Managing BoardVolksbank AGErich HacklMember of the Managing BoardVolksbank AG


Franz PinklErich HacklManfred KunertPortfolioCommunicationsGroup DevelopmentAuditingMarketingHuman Resources ManagementLegal AffairsControlling/Accounting/TaxesBoard Support UnitCurriculum VitaePersonal data:Born on March 19, 1956, in TernitzEducation:1970-1973 Commercial Collegein Wiener NeustadtDiploma in accounting awarded by theAustrian Institute of Economic ResearchAttendance at a number of technicalseminars and courses ofÖsterreichische Volksbank AkademieJuly 11, 1982 Management ExaminationProfessional career:1973 Joined VolksbankNiederösterreich Süd1983-1991 Authorised signatoryVolksbankNiederösterreich Süd1991- January 31, 2004Managing Director andDeputy Chairman of theBoard of VolksbankNiederösterreich SüdSince February 1, 2004Chairman of the ManagingBoard of Volksbank AGPortfolioOrganisation and ITBack Office Service für Banken GmbHVolksbank Wien AGVolksbank Linz+Mühlviertel regGenmbHBank für Ärzte und Freie Berufe AGImmo-Bank AGCurriculum VitaePersonal data:Born on September 27,1952, in VoitsbergEducation:1966-1969 Commercial Collegein KöflachProfessional career:1969 Joined Volksbank KöflachrGmbH1977 Appointed ManagingDirector1985 Chairman of the full-timeBoard (from 1992 onwardsdesignated as Volksbankfür die Süd- undWeststeiermark rGmbH)1986-1991 Member of the AdvisoryBoard of Volksbank AG1991-1997 Member of the SupervisoryBoard of Volksbank AGSince 1998 Member of the ManagingBoard of Volksbank AGPortfolioBanks/LiquidityAsset Liability ManagementGroup TreasuryIssuesCapital MarketsVolksbank InvestImmo Kapitalanlage AGCurriculum VitaePersonal data:Born on November 23,1946 in ViennaEducation:1965 School-leaving examination atRealgymnasium (secondaryschool emphasising modernlanguagesBerufslaufbahn:1965 Creditanstalt Bankverein inVienna, bank apprenticeship1968 Bank of America in Vienna,Head of trading activities1975 Privatbankhaus Winter&Co.,Wien, Leiter Handelsbereiche1977 Genossenschaftliche ZentralbankAG in Vienna, chief traderin foreign exchange and eurocurrency-trading1981 Chase Manhattan Bankin Vienna, Treasurer and BoardMember1982 Chase Manhattan Bank,Frankfurt, Treasurer forGermany and Austria1984 DG BANK, Frankfurt, GlobalGeneral Manager TreasuryManaging Director for thebroker firm Carl Kliem GmbH,1992 DG BANK, Frankfurt,Global General ManagerTreasurySince July 1, 1998Member of the ManagingBoard of Volksbank AG14THE VOLKSBANK AGThe Managing Board of VBAGMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


Wolfgang PerdichWilfried StadlerPortfolioGroup Risk/Corporates/BanksGroup Risk Controlling/operational RiskmanagementVB International AGVB Leasing Finanzierungs GmbHVB Leasing International Holding GmbHVolksbank Factoring Bank AGPortfolioInvestkredit Bank AGand its subsidiariesCurriculum VitaePersonal data:Born on January 10, 1958 in ViennaCurriculum VitaePersonal data:Born on May 12, 1951 in SalzburgEducation:1976 AHS (secondary school leaving)certificate1980 Completion of businessadministration studies at theVienna University of EconomicsProfessional career:1981 Basic banking training in theRaiffeisen organisation in Vienna1983 Joined Volksbank AG,Head of Syndicated LoansDepartment1985 Head of the Special FinancingDepartment1987 Establishment of ImmoconsultLeasingges.m.b.H., ChiefExecutive Officer1990 Co-founder and Board Memberof Volksbank Malta (remainedon the Board until 2001)1994 Built up the Project FinancingDepartment1998 Head of Division for the businessareas special financing, realestate leasing and propertydevelopment as well as moveableproperty leasing in Austria andabroadSince 2004Member of the Boardof Volksbank AGEducation:Studied business administration at theVienna University of EconomicsProfessional career:1977 Practical experience in anenterprise owned by theStadler family1983 Economic policy desk atthe Austrian BusinessAssociationSince 1987 Investkredit Bank AG,initially customer servicesofficer for customer lendingSince 1992 Head of the CorporateFinance Department1990-1995 Member of the ManagingBoard of KommunalkreditAustria AGSince 1995 Member of theManaging Board ofInvestkredit Bank AGSince 2002 Chief Executive Officerand Chairman of theManaging Board ofInvestkredit Bank AGSince April 2006Member of the ManagingBoard of Volksbank AGSUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, ComplianceFINANCIAL STATEMENTSIncome Statement, Balance Sheet, Changes inEquity, Cash Flow Statement, Notes, ReportsOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


ONE YEASOARINGALOFTWITH NEWMOMENTManagement Report18 The Economic Environment in 200720 Summary of the Financial Statements for 200722 Outlook/02The


RUM


ECONOMIC DEVELOPMENTS IN CORE MARKETSEconomic developments in core marketsAnnual growth in real terms 2005 2006 2007e 2008eAustria 2.0 % 3.2 % 3.4 % 2.2 %Euro zone 1.3 % 2.7 % 2.6 % 1.9 %Bosnia-Herzegovina 4.3 % 6.2 % 5.0 % 5.0 %Croatia 4.3 % 4.8 % 6.0 % 5.0 %Poland 3.5 % 5.2 % 6.5 % 5.5 %Serbia 6.2 % 5.7 % 6.0 % 5.0 %Romania 4.1 % 6.0 % 5.5 % 5.5 %Slovakia 6.1 % 7.0 % 9.0 % 8.5 %Slovenia 4.1 % 5.7 % 5.5 % 5.0 %Czech Republic 6.1 % 6.0 % 5.8 % 5.0 %Ukraine 2.6 % 6.5 % 7.0 % 6.5 %Hungary 4.2 % 4.0 % 2.1 % 3.1 %Sources: OECD, WIFO (Austrian Economic Research Institute)as at January 2008.The economic environment in 2007Both in the US and in the euro zone as well as in Switzerland,overall economic growth showed a robust pace in 2007. InAustria, too, the level of business activity remained high, withgrowth impetus emanating primarily from buoyant foreigndemand and major company investments.After a strong performance in the third quarter, the US economywas severely affected by the subprime crisis in the fourth quarter.Thus the US economy recorded growth of a mere 0.6 % for theyear as a whole. In Austria and the euro zone overall, growthremained stable in the fourth quarter, but forecast indicatorsalready pointed to a slowdown in growth.The economies of Central and Eastern Europe continued to recordabove-average growth rates. Hungary was the only country in thisregion that suffered a setback, which had to be expected in viewof the far-reaching and urgently needed consolidation of its budgetin 2007. Whereas consumption remained weak, as had beenanticipated, (net) exports followed a positive trend in the courseof the year.which pushed up local food prices strongly, shortages in thelabour markets (particularly in Romania), the ensuing wageincreases and, in most countries, buoyant consumer demand.The financial marketsThe US subprime crisis and its consequences for the internationalcredit market resulting from the increasing number of paymentproblems for mortgage holders were the central issue with whichfinancial markets had to grapple. Uncertainties about theamounts of potential losses from (indirect) exposures in the USmortgage market triggered a crisis of confidence in the inter-bankmarket which led to rising money market rates and increasingmark-ups for risks. Money market rates soared above key lendingrates. The three-month Euribor, which as a rule differs from theECB’s minimum refinancing rate by only approximately 20 basispoints, was 95 basis points above the key lending rate of 4 % inDecember. However, liquidity support given by the Central Bankscontributed to a return to nearly normal conditions whichcontinued to prevail through January and February 2008.In the euro zone and in Switzerland, government bond yieldsshowed a positive evolution. Even after the end of the year,premiums for prime borrowers followed an upward trend. J.P.Morgan’s index for such bonds, which groups together corporateand bank bonds with a maturity of 7 to 10 years and measuresyield premiums as compared to the relevant government bonds,in attaining 100 basis points in early 2008 reached its all-time highof the past five years, in comparison to approximately 20 basispoints in the first quarter of 2007.Investment grade premiums(J.P. Morgan index 7 to 10 years, 2006 until March 7, 2008)16014012010080604020Inflationary pressure, however, mounted tangibly in all coremarkets, and commodities, especially oil prices, played asignificant role in this development. Factors which reinforced this031.01.200628.02.200631.03.200630.04.200631.05.200630.06.200631.07.200631.08.200630.09.200631.10.200630.11.200631.12.200631.01.200728.02.200731.03.200730.04.200731.05.200730.06.200731.07.200731.08.200730.09.200731.10.200730.11.200731.12.200731.01.200829.02.2008trend in some regions were the drought in South-Eastern Europe,THE VOLKSBANK AGForeword, Network, History,Strategy, Managing Board18MANAGEMENT REPORTEconomic Environment in 2007THE FIVE STRATEGIC SEGMENTSSegment Reports


As a result of the lower interest-rate differential between the eurozone and the US and a major euro interest-rate advantage visà-visJapan, the euro’s exchange rate rose significantly againstthe yen and the US dollar. The exchange rate of the Swiss francalso declined vis-à-vis the euro. In Central and Eastern Europe,primarily the Romanian leu and the Serbian dinar were affectedby risks and suffered severe devaluations. Both countries areheavily dependent on foreign lenders. The Hungarian forintremained neutral, whereas the other currencies continued theirupward trend. The Czech crown, which had still been consideredas an attractive financing currency at the beginning of the year,again followed its upward trend due to the Czech Central Bank’sdecision to raise interest rates and the flagging willingness ofinternational investors to take risks. It was revalued by about 6 %against the euro in the fourth quarter. Most money markets ofthis region remained relatively unaffected by the international crisison credit markets. Bulgaria and Croatia reported a significant riseof money market rates which can be attributed to the combinationof fixed exchange rates, which were stabilised by the CentralBanks of these countries, and their sound reserve policy course.In most stock markets, prices soared in the first six months of2007. The stimuli for this development came primarily from thegood performance of listed companies and a large number ofacquisitions. The second half of the year was characterised byuncertainties about the consequences of the US subprime crisis.On the Viennese stock exchange, share prices plummeted andplanned new listings were postponed. In the second half of theyear it was, however, possible to compensate for the temporarydecline of share prices, which can be attributed primarily to interestrate reductions by the US Central Bank.The banking sectorThe Austrian banking scene was little affected directly by the USsubprime crisis. Austrian banks responded to fierce competition,low risk premiums and the flat interest-rate curve, which hardlyallowed the realisation of earnings through maturity transformation,by not moving into more complex instruments coupled to the USmortgage market, but by further consolidating their strong positionin the growth markets of Central and Eastern Europe. This holdsespecially true for Volksbank AG and Volksbank International,which through their organic growth strategy rely more heavily onthe establishment of new branches and the expansion of theirexisting networks than on take-overs, and are hence less stronglyaffected by the revaluation of international banking securities. Asa result of the new valuation, conditions for future growth, whichwill not only be an organic one, have now tended to improve again.Another indirect consequence of the US subprime crisis has,however, given rise to a new challenge for all banks: the rise inrefinancing costs. The second half of 2007 saw enormously highmoney market rates and a strong upward trend of premiums forcredit ratings. Whereas after the beginning of fiscal 2008 themoney market showed signs of easing tensions, the trend towardshigher premiums remained unabated.Streamlining of refinancing termsIn 2007, the confidence crisis of banks gave rise to a strongdivergence between the inter-bank rate (Euribor) and theminimum refinancing rate imposed by the ECB. In the wake ofthe credit market crisis, the ECB ended its cycle of interest rateincreases earlier than originally envisaged with a key lending rateof 4 %.Until May 2007, long-term bank and corporate bonds with BBBor better ratings (investment grade) showed just an average yieldpremium of a good 20 basis points as compared to governmentbonds. By the end of fiscal 2007, this premium had quintupled,attaining 140 basis points in early March 2008.Summary of the Group´sFinancial StatementsRecord performance thanks to expansion in Centraland Eastern EuropeThe VBAG Group once again demonstrated its strength in thedifficult environment of 2007 and was able to significantly improveits results as it had in the previous year. The Group recorded anannual result before taxes of close to euro 388 million, whichcorresponds to an increase of more than 25.4 %, and exceedsthe forecast by 15.5 %. The consolidated net income for the year(after taxes and minority interests) stood at euro 220 million atyear-end. Thus the VBAG Group nearly doubled its income byan impressive 41.6 % as compared to 2006.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, ComplianceFINANCIAL STATEMENTSIncome Statement, Balance Sheet, Changes inEquity, Cash Flow Statement, Notes, ReportsOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


Annual result before taxes (in euro million)309.4219.9143.9118.7388.1Greater security in turbulent timesRisk provisions for lending operations were raised from euro 62million in 2006 to euro 90 million in the year of reporting. Thereasons for this 45.7 % increase were, on the one hand, the strongexpansion of the Group’s retail banking operations in Central andEastern Europe and the effect of the US subprime crisis, on theother. Therefore, in the segment Financial Markets, risk provisionswere raised to euro 33 million. Despite the increase of riskprovisions, the risk/earnings ratio (risk provisions in relation to netinterest income), standing at 10.8 %, continues to be relativelylow as compared to the Group’s competitors.2003 2004 2005 2006 2007Net interest income, which rose by euro 168 million or 25.3 %as against 2006, and amounted to euro 831 million on the balancesheet date, represented the most important source of growth.Net interest income from the Group’s operations in Central andEastern Europe totalling euro 464 million showed a mostimpressive performance in the year of reporting. In Austria, theGroup reported a net interest income of euro 262 million. In theindividual segments, the main drivers of growth were retail bankingoperations in Central and Eastern Europe and real estatetransactions. The business area of retail banking in Central andEastern Europe today ranks amongst the most important growthareas, as was clearly demonstrated in 2007. As compared to theprevious year, the Group was able to virtually double its annualresult before taxes which stood at euro 53 million on the balancesheet date. The segment Real Estate also put up an excellentperformance, recording growth of 40.9 % to euro 167 million.The significantly broader customer base at home and abroad hasyielded positive results in all categories. The VBAG Group’s netcommission income thus went up by 41.6 % from euro 135 millionin the previous year to euro 192 million in 2007. Retail bankingin Central and Eastern Europe was the most important driver ofgrowth in this segment as well (+ euro 38 million). FinancialMarkets was the only segment that suffered a setback in the pastyear. As a result of the worldwide turmoil on stock markets dueto the US subprime crisis, the VBAG Group too showed a lessfavourable performance than a year earlier, recording a declineof euro 56 million to euro 33 million.In 2007, the cash reserve was significantly increased with a viewto assuring liquidity. As against 2006, the cash reserve was raisedby 166.7 % to euro 3.2 billion. The current difficult conditionsprevailing on financial markets necessitate high liquidity reserves.In addition, the VBAG Group has the obligation to assure liquiditysupply to the entire Volksbank sector.In 2007, the VBAG Group reported a trading income of euro 57million. The decline of the trading result as compared to theprevious year can be attributed to the unfavourable marketenvironment. Income from financial investments exceeded theprevious year’s mark by euro 13 million, as in 2006 provisionswere set aside for value adjustments of securities. In the segmentFinancial Markets, valuation losses due to impairment amountedto euro 37 million. In the Kommunalkredit sub-group, income fromfinancial investments went down by euro 15 million from theprevious year’s level.Investments: A denser branch network in the Centraland Eastern European countriesAs a result of the deconsolidation of NÖ Hypo, the Group’sAustrian network was reduced by 29 branches and nowencompasses 49 branches, but in Central and Eastern Europenew branches were again added. Whereas the Group’s branchnetwork in Central and Eastern European countries comprised258 branches in 2006, it consisted of as many as 444 branchesin 2007. This rapid expansion of the VBAG network in theemerging markets of this region has clearly produced positiveresults in the Group’s consolidated balance sheet. Today, theVBAG Group maintains a total of 493 branches in Austria andCentral and Eastern Europe. Taking into account the franchisingsystems and bank shops, which exist in a few countries, the VBAGGroup’s outlets in the CEE countries total 545.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing Board20MANAGEMENT REPORTSummary of the Financial StatementsTHE FIVE STRATEGIC SEGMENTSSegment Reports


The massive expansion in the CEE area is also reflected by theGroup’s increased staff numbers. In this region, the Group’sheadcount rose by 41 % to 6,148 employees. But in Austria newpersonnel was also hired. As compared to 2006, the Group’s staffnumbers declined in the year of reporting, but this can beattributed to the divestment of NÖ Hypo with a headcount of 425employees. If this staff is included in the calculation, it becomesapparent that an impressive 217 jobs were created for highlyqualified staff in Austria. As at December 31, 2007, the Grouphad 8,341 employees on its payroll.Domestic/foreign staff8,3416,7625,9635,1476,1484,6544,3603,7602,727 3,1651,927 1,982 2,203 2,401 2,1932003 2004 2005 2006 2007domesticforeignThe cost/income ratio (ratio of administrative expenses to netinterest, net fee, commission and trading income as well as otheroperating result and the income from financial investments) wasfurther improved in 2007. Whereas the Group managed in 2006to remain below the 60 % mark, recording a cost/income ratioof 59.3 %, it further reduced this ratio to 57.6 % in 2007 whichcorresponds to a decline by nearly a full two percentage points.The return on equity (ROE) also rose continuously over the pastfew years. Whereas ROE climbed from 7.6 % in 2002 to 12.3 %in 2006, VBAG reported an impressive 13.5 % in 2007.Income taxes remained below the previous year’s mark despitesignificantly higher income, as income taxes for 2006encompassed tax payable for previous years amounting to euro17 million. The increase in minority interests came primarily fromthe excellent performance of the Group’s banking subsidiariesin the CEE markets.Geared to growthAs at December 31, 2007, the Group’s total assets stood at euro78.6 billion. This represents an increase of euro 11.2 billion or16.6 % above the previous year’s level. Adjusted for thedivestment of NÖ Hypo representing a value of euro 6.1 billion,growth corresponded to an impressive euro 17.3 billion.The Group not only increased its staff numbers but also steppedup its expenditure for training programmes. In comparison to theprevious year figures, the expenditure for training programmesrose by 38.7 %. Thus VBAG consistently pursues its goal ofsignificantly improving know-how in all fields of business,because knowledge acts as the driving force behind innovationsand sustainable economic success, which in the long runconstitutes a sharp competitive edge against other contenders.Total assets in billions of euro54.867.478.6Major growth with slim administrationThe market growth of income (net interest income and net feeand commission income) and retail banking (branch network,higher staff numbers) did not go hand-in-hand with acorresponding rise in administrative expenses. Administrativecosts rose by a total of 22.7 % to euro 622 million. The expansionin the Central and Eastern European states accounted for thelion’s share of the increase in administrative costs.21.6 23.82003 2004 2005 2006 2007Loans to and receivables from customers accounted for the largestgrowth in the Group’s banking assets, which expanded by as muchas euro 7.9 billion or 25.5 % standing at euro 39.0 billion at yearend.The main drivers of this growth were the Group’s CEE bankingSUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, ComplianceFINANCIAL STATEMENTSIncome Statement, Balance Sheet, Changes inEquity, Cash Flow Statement, Notes, ReportsOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


subsidiaries (+ euro 3.0 billion), the Investkredit sub-group (+ euro1.5 billion) and the Kommunalkredit sub-group (+ euro 1.5 billion).All primary deposits (customer deposits, debts evidenced bycertificates and subordinated liabilities, showed a gratifyingexpansion in the year of reporting. Amounts owed to customers,in particular, advanced by 34.2 % or euro 2.8 billion to euro 10.9billion as compared to 2006. Debts evidenced by certificatescontributed significantly to refinancing the expansion of credits andfinancial investments. Despite the difficult market environment VBAGcontinued its issuing activities vigorously with issues totalling euro33.1 billion, which represents an increase of euro 2.3 billion or 7.3 %.The VBAG Group’s own funds, according to the Austrian BankingAct, stood at euro 4.3 billion on the balance-sheet date and its corecapital amounted to euro 2.8 billion. With an assessment base ofeuro 38.5 billion shown in the investment book, the Group’s tier Icapital ratio corresponded to 7.2 % and its equity ratio to 11.1 %.Accordingly, the VBAG Group exceeded the statutory own fundsrequirement by euro 1.1 billion, as the Austrian Banking Act stipulatesan equity ratio of 8 %.Risk managementAs regards significant risks and uncertainties as well as riskmanagement objectives and methods, please refer to the dataindicated in the Notes to the consolidated financial statements.Outlook 2008Business activity and financial marketsNot least because of the negative repercussions of the USsubprime crisis, the VBAG Group expects a slowdown ineconomic growth both in the euro zone and in the Central andEastern European countries for 2008. Nevertheless, it can beassumed that inflation will decelerate only hesitantly. In the secondhalf of the year, statistical easing effects should increasinglymanifest themselves so that in the euro zone the inflation rateshould approximate the target of close to 2 %, even though itwill not yet entirely reach this percentage.The US Central Bank can be expected to lower its key lendingrate further in the first half of 2008. By the end of the year, anincrease in key lending rates appears possible. In view of theinflation prospects outlined here, the ECB should find it difficultto follow in the footsteps of the US Central Bank, since, inaccordance with its articles of association, it is responsible onlyfor assuring price stability but may not influence economic growth.Nevertheless, it can be expected that in the course of the yearthe minimum refinancing rate will be slightly lowered. In the USand the euro zone, long-term bond yields should rise moderatelyby year-end. In fiscal 2008, European banks have the chance tobenefit from a slight improvement in structural contributions.As the growth potential inherent in the cyclical development ofthe US economy continues to be higher than that of Europe, theVBAG Group expects that after a phase of weak economic growthin the first few months of the year, the US dollar should becomestronger by year-end. Alongside the Polish zloty and the Czechcrown, the Hungarian forint should again follow a positiveexchange rate development vis-à-vis the euro, as the weaknessof the Hungarian economy should now be gradually overcomein the wake of budget consolidation. The Romanian leu remainsvulnerable, but should benefit from more rapid economicgrowth and a more favourable exchange rate in the course of theyear, when foreign exchange should flow more abundantly intothe country, thanks to EU funds, and the consumption-drivenboom will give way to more balanced growth. In 2007, Slovakiamet the convergence criteria for the introduction of the euro andis well on its way towards the introduction of the euro in 2009.According to our expectations, current uncertainties shouldbecome less pronounced only in the second half of the year,market participants should show a higher propensity to assumerisks and thus stock markets should exhibit a more favourablesentiment. In the euro zone, the high exchange rate of the euroconstitutes a risk factor as it jeopardises the competitiveness ofEuropean exports to the dollar area.In some Western European countries, the rise of returnsobserved in 2007 should continue in real estate markets. Topreturns could go up by 40 basis points by year-end. The differentialbetween returns on top-quality real estate and commercialproperty in less favourable locations or with poorer standardsshould, notably, diverge ever more widely. Strong demand forhigh-quality real estate should persist in Central and EasternEurope.Changing conditions for growthThe high risk aversion helped South Eastern European CentralBanks in their efforts to curb the expansion of lending and couldultimately lead to a more balanced growth of these economies.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing Board22MANAGEMENT REPORTOutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


Whereas the level of indebtedness of these countries remainsmoderate as a whole, the combination of strongly rising wages,the rapid expansion of lending and buoyant consumer demandhas pushed up current account deficits in many of these countries,a trend which can be financed only with difficulty in the long run.Our central scenario is based on a “soft landing”, during whichthe short-term growth potential may be less impressive but moresustainable than in times of a credit boom. Since the extent ofthe subprime crisis and its repercussions on the economies ofthe US and the euro zone countries cannot yet be fully assessed,individual countries, especially those depending on liquidity inflowsfrom abroad, run the risk of suffering from setbacks in theirimpetus for growth or – as in the case in Hungary – of recoveringmore slowly than was assumed in the central scenario, so thatdefault rates could rise.The Group will remain committed to the objectives it has set itselffor the year 2008, although it will become increasingly difficultto attain these under adverse market conditions.Outlook until 2010The VBAG Group is optimally prepared for taking up thechallenges that the future will present. Despite the difficult situationcurrently prevailing on the financial markets, a very favourablebusiness performance can be expected until the year 2010, thanksto earnings and cost synergies.Income before taxes should amount to euro 500 million by thattime. Another objective for the period until 2010 is to reach aconstant 15 % return on equity (ROE). The cost-income ratioshould remain below 60 % in the long run.Although a somewhat less buoyant expansion of lendingappears desirable in view of the economic developments in theCEE countries, this would of necessity also result in a narrowingof the credit markets in this growth region. Combined with themore stringent refinancing terms, this means that the hallmarksof the VBAG Group in Austria will prove increasingly importantin these markets as well: quality, proximity to customers and aprofound knowledge of local markets. A decisive factor will beto what extent more stringent refinancing terms can be passedon and how the “right type” of customers can be found in anarrower playing field, in order to keep default rates low.Outlook for fiscal 2008In line with our medium-term planning, qualitative growth is toremain at the centre of our endeavours. This means calculatedgrowth for existing transactions as well as investments in newbusinesses or new markets. Our efforts to grow further will mainlybe focused on sustainability and a balanced evolution.One priority project for the coming years is the construction ofnew headquarters which should be completed by 2010. Thisstate-of-the-art building complex will cover a net surface area ofsome 22,000 m 2 and accommodate some 650 staff. The buildingcomplex will also house a modern customer centre. Theengineering is based on state-of-the-art technology, thusmeeting the latest sustainability criteria. To us sustainability is notonly a catchword but something we apply to our everydayoperations. We not only translate our ideas concerning a sparinguse of resources, environmental friendliness and corporateresponsibility into reality in our banking activities, but we also seekto apply these principles to the planning and construction of ouroffices.At the beginning of the year, Kommunalkredit Austria AG effecteda capital increase amounting to euro 167 million; thus this subgroupis very well armed for its planned expansion.The VBI sub-group also expects rapid growth, and intends toactively redefine its new role as an important player in the CEEregion. In so doing, it will continue to pursue its organic growthstrategy. In addition, selective acquisitions will be made with dueregard for the region, business opportunities and the profitabilityof acquisition candidates.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, ComplianceFINANCIAL STATEMENTSIncome Statement, Balance Sheet, Changes inEquity, Cash Flow Statement, Notes, ReportsOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


LOTS OFFLIGHTS,ONE DIRECTIONThe Five Strategic Segments26 Segment Corporates31 Segment Public Finance33 Segment Retail39 Segment Real Estate/0342 Segment Financial Markets


SEGMENT CORPORATESCorporate customers of the Österreichische Volksbank AG Groupare mainly looked after by Invest Bank AG. In detail, this refersto the following units: Investkredit Investmentbank AG, InvestkreditInternational Bank p.l.c., Invest Mezzanine Capital ManagementGmbH, VB Malta, VB Factoring Bank, and other companies thatmanage investment transactions on behalf of corporatecustomers. A staff of 426 was employed in this segment as atyear-end.Investkredit sees its role as that of a bank servicing companiesand entrepreneurs. In the domestic market, Investkredit, whichhad originally operated in the long-term finance niche, hasestablished itself in the meantime as a bank with a broad rangeof specialised services focused mainly on corporates. Thisorganisational orientation is also reflected by its market andproduct combinations: lending, cash management, Treasurysales, trade finance, investment banking, debt capital marketsand Group cross-selling. The graph below shows Investkredit´spositioning in the individual markets.ratio was relatively favourable, standing at 11.7 % at year-end.Net commission income rose to euro 11.4 million, which canprimarily be ascribed to higher revenues from lending operations.Results from other operations related to Treasury sales activitiesand financial investments followed a downward trend. In fiscal2007, a series of projects were implemented which led to a reorientationof Investkredit. Despite these extraordinary activities,the ratio between administrative expenses and income showeda disproportionately low increase. Accordingly, the cost-incomeratio improved. Profit before tax climbed by euro 4.4 million toeuro 49.6 million.Owing to the favourable business climate, this segment reporteda satisfactory development in fiscal 2007, with an expansion ofits lending volume to euro 2.5 billion, which corresponds to a riseof 33 %. Primarily in the Central European core market and inGermany, this segment recorded significant increases in thenumber of financing transactions. The range of services offeredcomprises all types of modern corporate finance options.The markets of the segment CorporatesUmsatzEUR 500 Mio.EUR 50 Mio.EUR 10 - 15 Mio.Hauptbankmit spezifischemBeratungsansatzAustriaBusiness BankingKonsortialgeschäftCorporatesForeign Countriesa niche bankCorporate FinanceGermanyCEEIn 2007, the business line Cash Management concentrated ona project for the organisation of Investkredit´s paymenttransactions. The goals of this organisation were the following:defining the distribution of tasks between Back Office Service fürBanken GmbH and Investkredit, preparing the building-up of acustomer service for the entire short-term lending business, andthe estabishment of an organisational unit with productresponsibility for giro and payment transactions. It will be thecentral tasks of these newly established units to present “one faceto the customer”, thus acting as solutions-oriented contact pointsto which corporate customers can address their wishes andrequirements, and to offer sales support to the Group`smarketing departments.As of January 1 st , 2008 the department Cash Management wasentrusted with all of these functions.Business performance in fiscal 2007In the year of reporting, the segment Corporates was able tomarkedly improve net interest earnings from euro 102.4 millionto euro 124.7 million. This rise can be attributed to a strongerconcentration on higher lending margins in Central and EasternEurope as well as Germany, higher returns on investments, andincreased income similar to interest from structured products.After the special situation which had prevailed in 2006, credit riskswere reported at a significantly higher level, but the risk-earningsThe activities of Treasury Sales continued to be successful,generating income of approx. euro 4 million. Against thebackground of the strong appreciation of the euro, interest-ratehedging operations necessitated by the persistently flat eurointerestrate curve as well as considerable uncertainties andvolatility on the financial markets (US subprime crisis), consultingfor corporate customers concentrated on exchange rate hedgingtransactions in 2007. In response to the extreme fluctuations onthe financial markets, some successful optimisation strategiesTHE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, Outlook26THE FIVE STRATEGIC SEGMENTSSegment Corporates


were conceived. The department Treasury Sales was – alsophysically – integrated into VBAG´s Group Treasury. As a resultof its closer proximity to markets, an enlargement of the rangeof professional products and even shorter response times tocurrent market and product developments, the Treasurydepartment benefits from this new structure which offersadvantages in the servicing of commercial clients.In Investkredit, the following main activities were grouped togetheras “structured foreign trade and trade finance” (Trade Finance):• Internationalisation• Investment finance: domestic finance and promotionprogrammes• Documentary trade financing• Structured commodity financing• Structured export financing• Working capital management in foreign tradeThe new unit Structured Commodity Financing has been able tobuild up a portfolio of approx. euro 45 million in the meantime.It entered into the first two skeleton agreements with Chinesebanks, the Export-Import Bank of China, and the Bank ofCommunications. Furthermore, Investkredit was able to granttwo soft loans, one in China and one in Vietnam, in fiscal 2007.With regard to investment banking, Investkredit bundles its M&Acounselling activities and its private equity business in InvestkreditInvestmentbank AG (IKIB). In 2007, IKIB successfully carried outseveral commercial transactions as well as privatisation projectsacting as an advisor to customers engaging in mergers andacquisitions.In the private equity field, IKIB manages investments in privateequity funds and direct equity holdings in companies. In fiscal2007, IKIB was able not only to obtain a mandate for six newparticipations in enterprises but also to expand the volume of fundinvestments.In line with its internationalisation strategy, this segment´s equityfinancing of subsidiaries and outlets of Investkredit´s customersin Romania, Bosnia-Herzogovina, Poland and Croatia achieveda total volume of euro 1.2 billion. Investkredit´s know-how relatingto promotion projects is mirrored, in particular, by the 21 newlyapproved ERP loans and the generation of an additional lendingvolume of euro 40 million.Investkredit ranks amongst the leading ERP trustee banks inAustria. With a view to further heightening its technical expertise,Investkredit had the 6th edition of of its “Handbuch EU-konformerFörderungen” (Manual of EU compliant subsidies) by the authorsHannah Riegler and Angela Platzer published by RedlineWirtschaft publishing house. This manual describes all newprovisions governing EU subsidies in the period from 2007 to 2013.In traditional documentary business, the Bank recorded a strongexpansion of the volume of guarantees for foreign transactions,as well as documentary credit advances for imports and exports,which can be attributed to its stronger market presence and thesuccessful extension of its network of correspondent banks.Alongside Investkredit`s participation in trade financingprogrammes of the European Bank for Reconstruction andDevelopment (EBRD) and the Asian Development Bank (ADB),especially for short- and medium-term lending, the Banksucceeded in joining the Trade Finance Facilitation Programmeof the Inter-American Development Bank in the year of reporting.With regard to corporate finance, Investkredit offers its clients abroad range of services, which comprise the structuring andimplementation of complex financing models for the acquisitionand sale of companies (corporate acquisitions, LBO, MBO, MBIS)and advises its customers on issues relating to businesssuccession. In the course of 2007, demand for the structuringof shareholder buyouts became ever more buoyant. Corporatecustomers in the business segment Corporate Finance aremedium-sized and larger enterprises as well as professionalfinancial investors, such as private equity funds. The Bank servicesnot only the Austrian market from its Vienna headquarters, butalso the countries of Central and Eastern Europe in which theVolksbank Group operates.In the year of reporting, Investkredit succeeded in furtherstrengthening its position as a well-established provider of thefull range of corporate financial services. The large variety offinancing instruments which range from diverse types of equitycapital via mezzanine financing and other subordinated capitalinstruments to classical credits constitutes its prime successfactor. Mezzanine financing is carried out by INVEST MEZZANINwith Investkredit´s corporate finance team making available therequired resources both in terms of business volume and interestincome. INVEST MEZZANIN put up a gratifying performance infiscal 2007.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, ComplianceFINANCIAL STATEMENTSIncome Statement, Balance Sheet, Changes inEquity, Cash Flow Statement, Notes, ReportsOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


Two books published in the year of reporting demonstrateInvestkredit´s aspiration to quality in this business line: RolandMitterhofer´s “Praxishandbuch Aquisitionsfinanzierungen”, Gablerpublishing house and the “Family Business Handbuch” by HannahRieger and Erwin J. Frasl, Linde publishing house.As in previous years, a prevalent feature in the business lineProject Finance was the financing of investments in the energysector. In the wake of high energy prices and the ensuing scarcityof agricultural raw materials, the funding of bio-mass and biogasprojects proved increasingly problematic. Hedginginstruments for these raw materials are not available in the marketin sufficient number and therefore represent a major challengefor bankability. Accordingly, Investkredit gave greater attentionto projects not dependent on raw materials. Fiscal 2007 saw thecompletion of the solar energy project in Spain and a number ofEuropean wind power projects. At the same time, Investkreditwas able to take advantage of attractive business opportunitiesin the funding of infrastructure projects (i.e. Budapest airport andcable-assisted investment projects).In the business line Debt Capital Markets, Investkreditconcentrated on the segment of small and medium-sizedcompanies. It acted as a lead-manager and arranged the issueof four small and medium-volume bonds. The largest issue ofthese is the 5 1/4 % Klausner bond with a life of 7 years. Thanksto its successful placement and taking advantage of the optionto increase the issue volume, the final issue volume totaled euro125 million.The syndication platform www.banks2banks.com is already usednow by 93 banks with 296 contacts. Thus the set of innovativeinstruments for the syndication of illiquid credit positionsfollowed an extremely successful development during the firstthree years. In this period, a total volume of euro 463 million wassyndicated.Business Banking2007 saw a further intensification of VBAG´s successful cooperationwith Volksbanks. The credit volume expanded to euro1.1 billion. Together with its Volksbank partners, Investkreditapproved close to 200 syndicated loans (55% more than in 2006).This corresponds to a financing volume of approx. euro 350 million;a figure surpassing the previous year`s mark by approx. 80 %.Business Banking, providing counselling services to small andmedium-sized enterprises in Austria which realize a turnover ofbetween euro 10 million and euro 50 million in Austria,completed its “trial year” at the end of 2007. For the first time inVBAG´s history, the focus, which had been on the country´s top1,000 companies, was extended to more than 2,000 firms. Atpresent, Business Banking acts as a partner to more than 300small and medium-sized enterprises, most of which operateinternationally with customer and supplier relations worldwide.Customers are using the product know-how and expertise ofBusiness Banking in order to find solutions to questions offinancing and risk hedging, as well as capital market, successionand acquisition issues. In 2007, Business Banking, which hadoriginally been launched as a new concept, became a synonymfor technical competence with a regional focus.Thanks to its innovative capital and working capital structuremanagement, Investkredit was able to offer its corporate clientsproducts for safeguarding their liquidity and hedging themselvesagainst foreign exchange and interest rate risks. One of the Bank`scentral tasks is to accompany Austrian enterprises wishing toexpand their operations into new markets. In November 2007,Investkredit opened its first outlet in Austria in Linz. Through itslocal presence, the Bank underlines the significance it attachesto the Upper Austrian market for domestic financing.Fiscal 2007 was characterised by further regionalisation in Centraland Eastern Europe. For the first time in the history of theexpansion of its network in the CEE region, VBAG opened anoutlet outside a provincial capital when it inaugurated a branchin Temesvar, Romania. Furthermore, the representative office inKiev was officially registered, thus marking the beginning ofInvestkredit´s operations in the Ukraine. After the successfulpreparations for these new Investkredit locations, the officeinfrastructure has been put in place and staff recruited. In all otherSouth and South-eastern European countries, the Bank´sspecialisation in complex and sophisiticated financial services wastaken forward by pursuit of a targeted customer and productorientedstrategy.The Bank´s business in Germany showed an extremely favourabledevelopment. The profits realised in fiscal 2006 were nearlydoubled, thus accounting for roughly half of the income reportedby the segment Corporates.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, Outlook28THE FIVE STRATEGIC SEGMENTSSegment Corporates


In the business line Acquisition Financing of up to euro 100 million,the Group received 16 mandates to act as lead manager and thusranked in third place on the list for the third consecutive year.In this business line, a second team was set up in order to allowthe Bank to expand its arrangement activities. This team wasentrusted with corporate acquisitions and already reported eightmandated lead arrangements in the first year following itsestablishment. In addition, the Bank´s capacity to offerunderwriting for acquisition loans amounting to euro 100 millionor higher sums had a positive impact.In the business line Corporate Lending and Corporate Finance,the Bank, acting as a niche provider, consistently and successfullybuilt up the market for hidden champions.The close meshing of Corporate Finance with StructuredFinancing Germany was as much a focal point as intensified crosssellingto the product specialists in Vienna (especially TreasurySales and Export Financing) and to the financing experts in EasternEurope (supporting German small and medium-sized enterprisesin their efforts to extend their business to Eastern Europe).Factoring and Basel IIEspecially under the Basel II Capital Accord, factoring has proveda creative option for enterprises of all sizes, because it improvesliquidity and equity ratios.The financial flexibility which is achieved through factoring allowscompanies to make better use of discounts for prompt paymentand enhance their cashflows. In connection with Basel II, onedecisive advantage is the impact of factoring on balance-sheetresults. As the sold receivables are no longer recognised in theseller´s balance sheet, total assets are lower, and the equity ratioincreases. By raising their equity ratios, companies can obtainbetter ratings from their principal banks.OutlookInvestkredit plans to continue the expansion of its business volumein 2008. By extending its product range, the Bank hopes to realiseits business potential further.VB Factoring Bank AGThe Volksbank Group´s specialist bank for factoring again put upa very favourable performance in fiscal 2007. With purchasedloans and advances representing a volume of euro 792 million,VB Factoring Bank AG holds a market share of 14.28 %.Its cash management focuses, in particular, on the enlargementof its activities so that this department will establish itself as aprovider of products and services, and thus be able to takeoptimum advantage of the market opportunities presentingthemselves in this line of business in the interest of itscustomers.VB Factoring is a wholly owned subsidiary of VBAG. It wasfounded in 1980, and is domiciled in Salzburg. It maintains arepresentative office on the premises of Investkredit in Vienna.VB Factoring has positioned itself mainly as a financial partnerto small and medium-sized enterprises. Alongside dynamic salesfinancing, the Bank´s range focuses on all services related todebtor management and hedging against payment defaults.Thanks to the Bank´s extensive knowledge of the factoringbusiness, customers are offered financing solutions tailored totheir turnover figures.Hardly any other financial product is following such a dynamicdevelopment worldwide as factoring. The sale of receivables hasincreasingly become an integral part of corporate finance.Wholesalers, production firms and service companies are usingfactoring for financing their exports. This flexible financing modelalso offers an efficient solution to management buyouts andbusiness succession.The Treasury Sales department´s activities are to be intensified.Trade Finance not only concentrates on the regions Russia andTurkey, but also intends to step up the following activities:• Membership in the trade financing programme of theInternational Finance Cooperation (IFC)• Introducing a new processing system for documentary tradefinancing• Concluding skeleton agreements with leading Russian andTurkish banks.• Extension of the portfolio segment structured commodityfinancing• Market drive Working Capital Management in Foreign CountriesIn the area of energy project financing, Investkredit seeks toestablish itself as a major European financial partner for existingclients and project developers, power plant operators and funds.Its in-depth knowledge of the power industry, flexibility andcreative solutions will result in added value for its customers.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, ComplianceFINANCIAL STATEMENTSIncome Statement, Balance Sheet, Changes inEquity, Cash Flow Statement, Notes, ReportsOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


For 2008 Investkredit plans to intensify its co-operation withVolksbanks further.Together with its Volksbank partners, Investkredit will offeroptimum services to customers taking out syndicated loansthrough its Treasury and Trade Finance departments.With a view to strengthening its regional presence, the Salzburgteam is to be strengthened after the opening of the outlet in Linzin 2007. The enlarged premises of the headquarters of VolksbankSalzburg will serve as a location which has optimum prerequisitesfor servicing corporate clients in the region between Salzburg,Rosenheim and Munich. Thus it will be possible to build a bridgeto Western Austria, especially to the rapidly growing companiesin Vorarlberg and Tyrol.Furthermore, the building up of the Western Europe portfolio forleveraged loans is to be taken forward. As at December 31 st , 2007,the Bank´s disbursement potential, calculated on the basis ofcontractually committed loans, internal approvals and ongoingloan processing, exceeds the euro 1.3 billion mark. Investkredithopes that overall, regional and technical expansion willcontribute to strengthening the position of the segmentCorporates and to increasing its income.As a result of Basel II, banks will attach even greater importanceto customer´s ratings in granting loans. Small and medium-sizedAustrian enterprises frequently lack liquidity and a sound equitybase. Hence the advantages of factoring are becomingincreasingly evident.Growth perspectives are especially favourable for the CentralEuropean countries. The Bank will continue to pursue its nichestrategy in this region. In close co-ordination with the affiliatesand subsidiaries of the VBAG Group, corporate clients will beoffered complex financing solutions. Building up competence withregard to leveraged financing options – also arranging suchfinance – is at the heart of Investkredit´s plans in Central andEastern Europe; these efforts will be stepped up by itsdecentralised teams in Poland, the Czech Republik and Romania.In addition, market opportunities should present themselves forcash-flow-driven project financing, structured trade finance andsophisticated Treasury products.In fiscal 2007, the Austrian factoring market grew by 12.07 %,standing at a total turnover of euro 5.3 billion at year-end. Weassume that this market will again show rapid growth in 2008.In Germany, the focus is on strengthening the Bank´s marketposition in acquisition financing.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, Outlook30THE FIVE STRATEGIC SEGMENTSSegment CorporatesSegment Public Finance


SEGMENT PUBLIC FINANCEBusiness orientationThe Kommunalkredit sub-group is the market leader in publicfinance. Approximately two thirds of Austria’s local authorities rankamong its customers. Another core market is Switzerland. Actingas an international niche player, Kommunalkredit provides financeprimarily to local communities, cities and towns, regions andcountries as well as public-sector enterprises in the OECD area.In Central and Eastern Europe, Kommunalkredit operates viaDexia Kommunalkredit Bank, a joint venture of Kommunalkreditand Dexia Crédit Local.Kommunalkredit has been awarded a rating of Aa2 for long-termlending by Moody’s and AA– by the international rating agendyFitch, so Kommunalkredit enjoys the status of the country’sfinancially strongest bank.FinancingDespite fierce competition in public sector finance in Austria andturbulence on the financial market, especially in the second half of2007, Kommunalkredit was able to strengthen its position as themarket leader in the public finance segment even further. Its profoundproduct know-how (i.e. in financial engineering, compliance with theMaastricht criteria, and structured products) as well as its nichestrategy focused on public finance enabled Kommunalkredit to boostits business in terms of volume and income.In fiscal 2007, Kommunalkredit once again concentrated itsbusiness operations on health and education, infrastructure andpublic finance in Austria and Switzerland as well as Central andEastern Europe. In the financing of the public health sector,Kommunalkredit was able to clearly establish itself as a specialistbank thanks to its innovative solutions and expert knowledge. Itsfinancing of infrastructure projects also showed an extremelysuccessful progression. After having provided finance to Viennaairport (in co-operation with the European Investment Bank (EIB)in 2006, Kommunalkredit was also involved in a number of otherinternational airport projects. Furthermore, it actively pursued awide range of activities related to the energy sector as well asroad and rail transport.Kommunalkredit succeeded in establishing itself as a muchsought-after partner of the Austrian Provinces seeking tooptimise budgets through financial management in order to beable to meet the Maastricht criteria. Throughout fiscal 2007,Kommunalkredit also carried on successfully the credit campaignit had launched in 2005. As in previous years, especially smallerlocal communities took advantage of the Bank’s offer to bridgeshort-term financing bottlenecks and increase the liquidity of theirbudgets.In Switzerland, Kommunalkredit has held its own as thestrongest foreign bank providing finance to municipalities and thecantons. The Bank also achieved impressive results as a providerof finance for infrastructure projects and extended its range ofstructured products. Acting as an internationally recognised andappreciated player, Kommunalkredit continued its successful cooperationwith the European Investment Bank (EIB) and theEuropean Bank for Reconstruction and Development (EBRD). TheBank’s investment programmes ¬Municipal Finance Facility (MFF)and Municipal Infrastructure ¬Facility (MIF), destined primarily forCentral and Eastern Europe, were successfully launched.With the aid of Dexia Kommunalkredit Bank (Dexia-Kom), thespecialist bank for the Central and Eastern European market,numerous successful projects were implemented in the CEE area.Its branches in Slovakia, Poland, Romania, Hungary, the CzechRepublic and Bulgaria succeeded in expanding their businessvolume, which should enable them to acquire market leadershipin the public finance sector in the medium-term in these countries.The Bank will take another step in this direction by focusing onthe Adriatic region as well: in 2008, it will concentrate, in particular,on expanding its business operations in Croatia. TheKommunalkredit sub-group’s disbursement of loans to itsclients totalled approximately euro 2.5 billion in fiscal 2007.RefinancingFor public sector financing and own investments, Kommunalkreditraised a total sum of approximately euro 4.2 billion on the capitalmarket. It carried out 103 refinancing transactions which weremostly processed under the debt insurance programme, thecapital of which was increased to euro 23 billion in July 2007.A number of external factors and events influenced Kommunalkredit’sissuing activities in fiscal 2007. In the first half of the year,the rating agency Moody’s applied its new JDA approach to therating of banks, which resulted in the upgrading of Kommunalkredit’s“long-term senior unsecured issue” from Aa3 to Aa2.Furthermore, capital markets were characterised by turmoil fromAugust 2007 onwards in the wake of the US subprime crisis. Inthis situation, Kommunalkredit’s covered bonds (KACB) whichreceived an Aaa rating by Moody’s, proved their high quality asthey showed only relatively small fluctuations in secondary marketspreads during this period.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, ComplianceFINANCIAL STATEMENTSIncome Statement, Balance Sheet, Changes inEquity, Cash Flow Statement, Notes, ReportsOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


In the area of public issues, Kommunalkredit successfully placeda euro-denominated covered bond benchmark issue with a lifeof seven years and a nominal value of euro one billion at thebeginning of the year. Within a few hours, this issue wasoversubscribed more than three times, with the Italian andScandinavian central banks accounting for large shares of theplacement. Fiscal 2007 also saw the issue of two CHFdenominatedbonds with a shorter life (CHF 300 million carryinga fixed interest rate and CHF 150 million as a floater). In addition,Kommunalkredit increased the volume of an outstanding long-termcovered bond issue (maturity date June 2026) by CHF 100 millionin August. The capital of the public GBP denominated issue whichwas first offered in 2006 was also increased by GBP 100 million.Further refinancing transactions involved private placements. Infiscal 2007, Kommunalkredit carried out a total of 98, mainlystructured, but also plain-vanilla-transactions in differentcurrencies. For the first time, the Bank issued funded registeredbonds in the year of reporting.Investment bankingThanks to its investment policy which focuses on the public sectorand top-rate debtors of very good credit standing, Kommunalkreditwas able to avoid an impairment of the quality of assetsin its portfolio in the wake of the turmoil on the international capitalmarkets as well as the high volatility of interest rates which affectednearly the entire banking sector. The Bank made additionalfinancial investments representing a total value of some euro onebillion, and concentrated on purchasing only loans that offer safetyalso in a volatile capital market environment.HoldingsIn fiscal 2007, Dexia Kommunalkredit Bank, Kommunalkredit’ssubsidiary operating in the CEE countries, set itself the objectiveof further consolidating its market presence in Central and EasternEurope. At year-end, Dexia-Kom was present with its own localoutlets in Slovakia, Poland, Romania, Hungary, the CzechRepublic and Bulgaria, and has emerged as the market leaderin some areas in the meantime. In Croatia, a subsidiary is beingestablished in the first quarter of 2008 which will initially servicethe Croatian market but later also be responsible for the entireAdriatic region. With the exception of the Baltic states, which arelooked after by the Polish subsidiary, all other CEE markets willbe serviced from the Bank’s Vienna headquarters.Fitch confirmed its excellent rating AA-/F1+/C of Dexia-Kom,whereas Moody’s accorded it a rating of Aa2/P-1/C. As a result,Dexia-Kom ranks amongst the best rated banks without publicliability in Austria and therefore can rely on an outstanding refinancingbasis for making available long-term loans on excellent terms.Kommunalkredit International Bank was able to strengthen furtherits market position in international public finance. Alongsideinfrastructure projects, its target group comprises primarily localcommunities, divested municipal enterprises, public-sectorservice providers and international banks.Acting as a manager of environmental promotion and climateprotection programmes, as well as consulting projects,Kommunalkredit Public Consulting (KPC) handles all Austrianfederal environmental protection funds and implements theAustrian JI/CDM programme for compliance with the Kyotoobjectives. It does so by purchasing emission reduction unitsunder a mandate of the Federal Ministry of Agriculture, Forestry,Environmental Protection and Water Management (BMLFUW).Kommunalnet E-Government Solutions GmbH (a co-operativescheme with the Austrian Association of Municipalities) offered onlineservices to a total of some 1,844 Austrian local authorities atthe end of 2007. All other subsidiaries of the Kommunalkredit subgroupwere also able to expand their portfolios considerably.OutlookIn Austria, the Bank continues to carry out traditional publicfinancing transactions and seeks to optimise these further.Additional synergies have been created through its intensified cooperationwith VBAG; pro-active customer relationshipmanagement is assured via its broadly-based marketing network.Another focus is on large-scale infrastructure, airport, powergeneration and distribution projects. As a result of the growingimportance of alternative financing models, Kommunalkredit canoffer an increasing number of off-balance sheet financingsolutions. Kommunalkredit will continue to make available itsexpertise to its customers who have to comply with the Maastrichtcriteria. The Bank’s successful co-operation with other marketleaders should result in innovative models for leisure time facilitiesand similar projects (public-private partnerships). Dexia-Kom willbe mainly responsible for servicing major public-sector clients inthe CEE countries. A high degree of specialisation, permanentinnovation and intensive counselling will again be the hallmarksof the Kommunalkredit sub-group in fiscal 2008.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, Outlook32THE FIVE STRATEGIC SEGMENTSSegment CorporatesSegment Retail


SEGMENT RETAILWith its Retail segment, the VBAG Group acts as a competentpartner to its national and international clients. In Austria, itsaffiliates Volksbank Wien AG, Volksbank Linz+Mühlviertel, Bankfür Ärzte und Freie Berufe (Die Ärztebank), Immo-Bank AG as wellas VB Leasing Finanzierungs GmbH are engaged in the Group’sretail operations. In its foreign markets, the VBAG Group isrepresented by Volksbank International AG (VBI) and VB-LeasingInternational Holding GmbH which operate in nine CEE countries.Volksbank Wien AGVolksbank Wien AG, acting as one of the top providers ofconsulting services and operating as the only universal bank ofthe Volksbank Group in Vienna, again put up a successfulperformance in fiscal 2007. With its continuous and intensivemarket development efforts in line with its customer serviceconcept, Volksbank Wien AG scored a great success, reflectedby the constant rise of its balance-sheet results.Volksbank Wien, which maintains a modern network of 32branches, occupies a strong position on the city’s banking scene.In fiscal 2007, it was able to complete the renovation of itsbranches on a large scale. The outlet in Operngasse, newly rented,is currently being redesigned and refurbished in order to becomea flagship branch, to be opened in 2008.The VBAG Group’s marketing activities were characterised by thebuilding up of its new brand image in 2007. All advertisingmaterials and the facades of its branches have been graduallyadapted accordingly. With the new innovative image, theGroup’s proximity to customers is to be underlined more strongly.The interiors of the branches encompass modern self-serviceequipment, multi-media units and comfortable consulting rooms.As a bank providing housing construction services, VolksbankWien was present at the trade fair “Bauen & Energie” (Constructionand Energy) with a special programme for families and informativehousing construction evenings. The concept that the Bank’sexisting general housing construction know-how should be offeredthroughout the branches and expert knowledge be disseminatedat ten specifically designated housing construction centres provedhighly successful.In 2007, Volksbank Wien launched an acquisition drive with a viewto gaining more small and medium-sized enterprises (SMEs) ascustomers. This target group is informed by specialisedconsultants at regular intervals or invited to such events as “Fitfor Business” which is a further training drive for small andmedium-sized companies. The response of such enterprises tothe Bank’s enlarged range was very positive. The technicalpresentations made in the course of the Fit for Business campaignwere very well received by customers. The Bank intends tocontinue this campaign in 2008.Informative and entertaining events destined for SMEs, privateinvestors and families are very popular with customers. Specificbanking topics, artistic and sporting or informative and entertainingevents were organised by Volksbank Wien, thus catering to theinterests of all of its target groups. A wide variety of programmesfeatured on the Bank’s agenda in 2007: e.g. technicalpresentations, a golf tournament, vernissages, wine-tastingparties, topics presented for women by women (i.e. the “frauenbauen” – women as builders -- conference), events for families(a family festival in the Museum of Natural History, an athleticscup for youngsters, an autumn festival with paragliding, an iceskatingafternoon, as well as many other activities.Volksbank Wien – the family bankVolksbank Wien’s positioning as a family bank was furtherstrengthened through the exhibition “Fascinating animals of prey“.More than 6,000 children were enthralled by the head of atyrannosaurus rex, a sabre-toothed cat, a tiger shark, a cone shell,a shrew, a ground beetle and an Argentinian horned frog ondisplay. Tours of the exhibition guided by instructors from theMuseum of Natural History were offered to kindergartens andschools. In a competition, children up to 14 years of age wereinvited to invent a name for the head of the tyrannosaurus rex.Volksbank Wien once again demonstrated its deep socialcommitment by purchasing a dog specially trained for people withspecial needs for a severely handicapped five year old girl andby sponsoring a large variety of charity activities in Vienna andits environs.Volksbank Wien in figuresThe volume of customer deposits expanded by 10.7 % as againstfiscal 2006. Volksbank Wien’s lending policy continues to befocused on qualitative growth. Nevertheless, the Bank succeededin surpassing the previous year’s mark by 11.9 % in its lendingbusiness.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, ComplianceFINANCIAL STATEMENTSIncome Statement, Balance Sheet, Changes inEquity, Cash Flow Statement, Notes, ReportsOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


Standing at a ratio of 59.7%, securities trading (the ratio betweenadjusted lending volume and primary deposits) showed a slightrise above the 2006 level.The volume of securities expanded by 5.7 % to euro 579.4 million,which mirrors the great trust customers have in the Bank. Owingto buoyant demand, the Bank continued the offer of fixed-termnotes, which it had issued in 2006 for the first time, in fiscal 2007.In addition, it also offered two new fixed-term note issuesrepresenting a value of euro 4.4 million. Together with thecontinued issue of fixed-term notes first placed in 2006, the Banksold a volume of euro 5.9 million to its customers in 2007.Furthermore, a complementary bond issue was offered tocustomers for the first time; its placement volume stood at euro792,000 on the balance-sheet date.Thanks to a product “combined savings“ which gives customersthe option to combine a savings book with a maturity of oneyear and carrying a fixed interest rate of 4.5 % with investmentin selected securities, Volksbank Wien was able not only toconsolidate but even raise its market share.The expansion of its business volume and the dynamic trend ofinterest rate developments had a positive impact on the Bank’sinterest income. As a result of the larger business volume, netinterest income rose by approximately 8.6 %.Fees and commissions from securities trading, lending and paymenttransaction activities also followed a favourable progression. Netcommission income, which accounts for 0.8 % of the Bank’s totalassets, went up by 11.4 % as compared to the 2006 figure.In the segment Retail, partnership with customers is applied inpractice through ongoing improvements in the Bank’s customerservices. In order to get to know the needs of our clients, themethod of choice is to hold customer conferences. In an effortto consistently pursue our growth strategy, we are conductingnegotiations with shareholders with a view to strengthening theBank’s equity base.OutlookIn all its operations – be it in its commercial banking, retail bankingor investment banking, Volksbank Wien places its partnershipbasedcustomer relations at the centre of its efforts. The forecastfor fiscal 2008 assumes a continuation of the positive trend whichreflects the success of our business strategy.Volksbank Linz+MühlviertelFor Volksbank Linz+Mühlviertel, fiscal 2007 was a successful year.Intensive customer retention projects as well as successfulcustomer acquisition efforts resulted in an increase in total assetsfrom euro 343.4 million in fiscal 2006 to euro 377.1 million in theyear of reporting. Thanks to the deep commitment of its staff anda range of good products, the volume of securities transactionsexpanded by 13.4 % to euro 89.9 million. The Bank’s lendingpolicy remained oriented to qualitative growth. Lending tocustomers rose to euro 181.5 million, which corresponds to a12.3 % growth as compared to fiscal 2006.Human resources are the most important asset. Therefore, theBank sets great store by basic and further specialised trainingof its staff, as this is the only way to safeguard first-rate customercounselling. In 2007, 61 employees attended 164 seminars atthe Volksbanken Academy, a 31.2 % higher attendance rate thana year earlier. In 2007, seminar costs stood at approximately euro61,000, which represents a 9.9 % increase above the 2006 figure.Alongside technical expertise, we attach great importance to thesocial skills of our staff in their interactions with customers, whichis reflected by the high level of customer satisfaction.Volksbank Linz+Mühlviertel organised a variety of events for thepurpose of customer retention and acquisition. In May, more than170 customers took up the Bank’s invitation to the traditionalbusiness cocktail in the Board rooms in Linz. On this occasionKTM’s new X-BOW was presented for the first time.Together with the Lions Club Linz 2000, the Bank organised thefirst Volksbank Linz+Mühlviertel golf charity tournament in Julyin which 100 golfers participated. The proceeds from thistournament which amounted to euro 8,000 were donated toorphanages in Bulgaria.OutlookThe special emphasis placed on corporate banking, housingconstruction loans and retail banking in 2007 will be constantlyapplied in fiscal 2008 as well. In the core business areas, the Bankseeks to attain further growth which should result in a 10 %increase of its total assets. In addition, it is expected that earningsfrom securities transactions will rise by more than 10% in fiscal2008. The macroeconomic situation for 2008 presents a positivepicture. Hence it is realistic to assume that the Bank should beable to reach the goals it has set itself for the current fiscal year– despite the highly competitive business environment.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, Outlook34THE FIVE STRATEGIC SEGMENTSSegment Retail


Bank für Ärzte undFreie Berufe AG – Die ÄrztebankAs a specialist bank, Ärztebank concentrates on the provisionof financial services to medical doctors. Accordingly, customersrely on the Bank’s outstanding competence, extensive know-how,sophisticated products, great financial strength and trustworthiness.Ärztebank is known as the consulting specialist providing tailormadesolutions and customised concepts. Its counselling, whichis offered at any time and in any place, has provided a strongcompetitive advantage which enabled it to attract many newcustomers. In fiscal 2007, the Bank succeeded in gaining morethan 960 satisfied new clients from the medical profession alone.This success can be ascribed to convincing savings andinvestment products, intensified direct marketing and theendorsements of our satisfied clients. Thus, Bank für Ärzte undFreie Berufe AG has taken a major step towards its declared goalof attaining a market share of 12% by the year 2012.Our customer service staff are familiar with the specific needs ofmedical doctors. We differ significantly from other banks withrespect to our management counselling know-how on theestablishment or taking over of a doctor’s practice and theassessment of initial and subsequent investments on the basisof statistical data and parameters relating to doctors’ offices andfields of specialisation. New special products such as theSteuerinvest, the tax allowance granted since 2007 for investedprofits, and Varimed met with a very favourable response fromour select clients.In fiscal 2007, the number of staff in our eight consulting andcustomer service teams was again augmented. This is aprerequisite for assuring counselling tailored to the specific needsof our clients, because only in this way can we offer our servicesat the highest quality level. Counselling is intended for long periodsof time and is meant as support during all professional and lifecycles of physicians. Our experience of many years allows us tooffer high quality advice to medical doctors in the planning of theirprivate and professional lives. Usually the granting of a creditmarks the beginning of a customer relationship that lasts for manyyears. We draw attention to the need for adequate provisioningearly on in our relationship with our clients so that they will notsuffer from financial constraints once they have given up theirpractice. Hence the Bank assumes considerable responsibilityon the basis of mutual trust, which is shared by all members ofour reliable staff.Alongside presenting ourselves as the “private bank with thestatus of a club” and providing customised counselling, we offerour clients from the medical profession specific giro and savingspackages.Ongoing information programmes and the intensive training ofnew staff members have contributed to improving the quality ofour counselling – especially at a time when the market climatehas become harsher.The “best advice“ given on insurance matters facilitatessignificantly our customers’ choice of their insurer. Our cooperationwith the Volksbanken Versicherungsdienst GesmbH hasproved excellent and will be further improved in the future througha clearer division of labour.In addition to its headquarters, Bank für Ärzte und Freie Berufe AGmaintains branch offices in Graz and Linz, which cover theProvinces Styria and Upper Austria as well as neighbouring regions.OutlookIn 2008 one focus of our activities will be to establish Ärztebankas a universal bank in the circle of customers newly acquired inthe past few years. In the second quarter of the year we will moveour headquarters to Kolingasse 4 in order to be able to offeroptimum quality and customised services to the growingnumber of clients in the future as well. In July 2008, we willinaugurate a branch in the city centre of Innsbruck. Hence wewill be able to intensify and optimise the development of themarket in Western Austria. Our marketing will be primarily orientedto heightening the awareness of Ärztebank among the generalpublic by means of a number of measures, especially informationevents on the topic “Medical doctors as entrepreneurs”addressed to the medical profession.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, ComplianceFINANCIAL STATEMENTSIncome Statement, Balance Sheet, Changes inEquity, Cash Flow Statement, Notes, ReportsOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


IMMO-BANK AktiengesellschaftIn fiscal 2007, IMMO-BANK AG was able to strengthen furtherits position as the housing construction specialist within theVolksbank sector and report marked increases in its balance-sheetresults.Thanks to its detailed know-how of all topics related to real estate,this specialist institution has established itself as the competencecentre for housing construction loans in the ÖsterreichischeVolksbanken-AG Group.The main tasks of IMMO-BANK AG, which was founded in 1932and which celebrated its 75th anniversary in September 2007,comprise the financing of real estate projects at home and abroad,as well as raising long-term refinancing funds at favourable termsfor housing construction. Since 1983, the Bank, which enjoys thestatus of a special provider of finance for housing construction,has issued tax-privileged housing construction bonds in the formof convertible debentures.OutlookThanks to the high degree of specialisation and its clearpositioning in the Volksbank sector, IMMO-BANK AG expectsmanifold opportunities for growth and potential for furtherincreases in market share for fiscal 2008. The Bank will continueto support domestic real estate investors in their investmentactivities in Central and Eastern Europe. In addition, theretention of existing large customers and the acquisition ofspecialised market players will be one of the Bank´s priority goals.Volksbank InternationalThird record year in a rowThe Volksbank International sub-group reported record resultsfor the third consecutive year, thus pursuing its successful growthcourse. It managed to raise its net income for the year by 75.7 %to euro 70.5 million.Development of result on ordinary activitiesIts customer base consists primarily of non-profit and commercialproperty developers, real estate brokers, property managers,institutional investors, real estate developers and last but not leastprivate individuals, who seek finance for acquiring their “dreamproperty” and rely on IMMO-BANK AG’s know-how.40.170.5In fiscal 2007, IMMO-BANK AG was able to expand the volumeof housing construction loans to euro 668 million, whichcorresponds to an approximately 27% increase over theprevious year’s figure. The regional credit co-operatives, actingas reliable distribution partners of IMMO-BANK AG, guaranteethe successful sale of such loans to private investors.Fiscal 2007 also saw major rates of growth in subsidised, largescalenew housing construction projects in Vienna and LowerAustria. This gratifying development can be ascribed to the Bank’sstrategic partnerships with state-subsidised housing constructiondevelopers. The volume of lending for financing the refurbishmentof old flats in Austria and abroad (especially in Berlin) also followedan upward trend. The business line of lending for private housingfinance also recorded satisfactory results.20062007Over the past three years, the Bank was able to more thanquadruple its pre-tax profits. This success can, to a great extent,be ascribed to the re-orientation of VBI’s strategy and itsconsistent practical implementation.In fiscal 2007, the Bank’s total assets soard by 60.1 % to euro10.7 billion. Volksbank in Romania, which reported total assetsof euro 3.5 billion, accounted for the lion’s share of this excellentresult. The total assets of the subsidiaries operating in Hungaryand the Czech Republic (each reporting total assets of euro 1.4billion), Slovakia (euro 1.2 billion) and Croatia (euro 1 billion) allreached or surpassed the one billion mark.The volume of outstanding and processed loans was expanded,totalling more than euro 1.9 billion (IMMO-BANK AG andsyndicated shares), which represents an increase of some 21 %above the 2006 mark.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, Outlook36THE FIVE STRATEGIC SEGMENTSSegment Retail


Trend of total assets6.710.7Distribution network strongly expandedIn line with its strategy of continuously setting up its own banksin combination with the acquisition of suitable enterprises andinnovative distribution channels (franchises, bank shops) VBInearly quadrupled the number of its outlets from 143 at the endof 2004 to 545 presently.20062007The lending volume, which expanded by 68.1 % to euro 7.3billion, and total deposits, which grew by as much as 50.5 % toeuro 4,4 billion, followed a similarly dynamic trend over the pasttwelve months.Integration of two banksThe year 2007 was characterised by the acquisition andintegration of two banks into the VBI sub-group: Electron Bankin Western Ukraine, which will be re-named as a Volksbank, andZepter Banka in Republika Srpska which has already operatedas Volksbank Banja Luka for several months.In the meantime, the VBI sub-group consists of ten VBI banksin nine Central and Eastern European countries (Slovakia, theCzech Republic, Hungary, Slovenia, Croatia, Romania, Bosnia-Herzegovina, Serbia, Ukraine) and VBI AG which is domiciled inVienna.As at the balance-sheet date, the VBI sub-group’s staff hadincreased to 5,138.Qualitative growthThe strategy of focusing on qualitative growth through theexpansion of selected lines of business proved highly successful.VBI made massive investments in boosting its marketing powerand heightening the efficiency of internal workflows. Customersperceived these effects in the form of rapid decision-making anda market-oriented range of services.Over the past few years, VBI was able to lower the cost-incomeratio of its banks from 84 % (2004) to 62 % (2007) whichcorresponds to a considerable improvement of 22 percentagepoints. This path of efficient growth will be followed as consistentlyand energetically as in the past in the long-term future as well.The rapid and cost-efficient expansion of its regional presencewas a decisive factor for the acquisition of many new customers.Accordingly, VBI succeeded in more than doubling the numberof customer accounts to over 1.44 million. The highest rates ofgrowth are reported in Romania and Serbia.Proximity to customers in retailand corporate bankingIn retail banking, VBI banks concentrated on standardised retailbusiness. In the course of the past twelve months VBI succeededin boosting its lending to individual customers by 103 % to euro3.9 billion, thus more than doubling the lending volume andsimultaneously expanding the volume of deposits of retailcustomers by 44 % to euro 2.6 billion.Corporate banking focused on small and medium-sizedenterprises, real estate finance and internal transactions. In thereporting period, the business volume expanded by 44 % to euro3.4 billion. The volume of new business acquired in the reportingperiod totalled one billion euro.OutlookThanks to its clear strategy and consistent customer orientationthe VBI sub-group, which had started as a small network, hasestablished itself as a successful medium-sized network. In orderto be able to continue its growth course, VBI’s shareholdersstrengthened its base by increasing its capital by euro 200 millionat year-end.The growth plans of the VBI sub-group for the period from 2008to 2011 are very ambitious. In the year to come, special emphasiswill be placed on taking full advantage of the opportunities forwhich VBI has consistently striven and on actively shaping its newrole as a major player in the CEE markets. In view of its businessperformance in the past few years, Volksbank International canlook to the future with optimism and be confident that it will reachthe goals it has set itself.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, ComplianceFINANCIAL STATEMENTSIncome Statement, Balance Sheet, Changes inEquity, Cash Flow Statement, Notes, ReportsOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


VB-Leasing InternationalHolding GmbHThanks to its successful international network, VB Leasing wasable to defend its position as a market leader in movable propertyleasing in Central and Eastern Europe.In fiscal 2007, VB Leasing International attained record resultsin Poland, the Czech Republic, Slovakia, Hungary, Slovenia,Croatia, Bosnia-Herzegovina, Serbia and Romania. It was alsoable to expand the volume of new business by more than 33 %to approximately euro 1.7 billion as against the previous year. Thisexcellent performance of the VB Leasing sub-group reflects clearlya disproportionately higher growth than that of the market overall,and reflects the high degree of flexibility with which the VB Leasingsub-group responded to the dynamism in the CEE markets. Thisgrowth can be attributed to the VB Leasing sub-group’s strategyof thinking globally and acting locally (“Think Globally, Act Locally“)which allows it to maintain strong vendor partnerships with anational or international background for VBAG and to provide localservices to its partners thanks to its profound know-how ofproducts. Its deep market penetration permits the VB Leasingsub-group to assure its proximity to clients on account of its localpresence and to offer customised financing solutions. The mountingpressure on margins was counteracted by a quality campaign, sothat VB Leasing again held its position as the number one providerof leasing services for national and international investors.and ensuring that vendors are professionally assisted on site, withdue regard for local conditions.The third division, Machinery, which acquired new businessrepresenting a value of euro 320 million and reported growth ofclose to 29 %, impressively rounds off the wide range of productsand services of VB Leasing. The favourable development of thisdivision can be explained by its ability to gain international partnerson the one hand and by the building up of additional productknow-how on the other.OutlookFor fiscal 2008 and the following years VB Leasing assumes thatfurther growth potential will exist and believes it will succeed infurther expanding both the volume of new business and furtherstrengthen its successful national and international businessrelations.Trend of new business in million ‰1,730.71,295.81,018.8806.8In movable property leasing, the specialisation of the Bank’s threedivisions, i.e. Car Lease & Services, Construction & Transport andMachinery constitutes the basis for its record performance:In the first division, Car Lease & Services, the range of fleetmanagement services was widened and full service options wereadded. Due not least to these measures, VB Leasing Internationalacquired new business in fiscal 2007 totalling approximately euro670 million, which surpasses the previous year’s mark by nearly 33 %.The division Construction & Transport expanded the volume ofnew business which totalled more than euro 741 million and thussurpassed the previous year’s mark by more than 36 %. Thisexcellent performance can be ascribed to the ongoingintensification of vendor partnerships for construction machineryand commercial vehicles. This division, in particular, is an exampleof VB Leasing’s dynamic implementation of its corporatestrategy, with the Vienna-based holding company acting as thefirst contact and co-ordinator of all international vendor relations2004 2005 2006 2007Trend of new business number of transactions/contracts65,62455,86545,82638,0872004 2005 2006 2007THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, Outlook38THE FIVE STRATEGIC SEGMENTSSegment RetailSegment Real Estate


SEGMENT REAL ESTATELines of business in the Real Estate segmentFinancing Development Asset ManagementLendingLeasingOutlets Subsidiaries Subsidiaries Regional OfficesPoland Croatia Poland Austria (Headquarters)Romania Poland Romania CroatiaSlovakia Romania PolandCzech Republic Slovakia RomaniaUkraine Czech Republic RussiaHungary Ukraine Czech RepublicHungaryUkraineHungaryInvestkredit and Europolis form the competence cemtre for realestate within the Volksbank Group. To be precise, InvestkreditBank AG, the specialist for real estate, is responsible for providingservices to the Group’s real estate partners, whereas ImmoconsultLeasinggesellschaft m.b.H. engages in real estate loan financingand PREMIUMRED is involved in real estate development. At theend of fiscal 2007, 290 employees were working for the RealEstate segment.In line with its motto “Excellence in Real Estate“ and based onits profound know-how, Investkredit offers a wide range ofservices in all areas related to commercial real estate.In October, the Supervisory Board resolved that the activities ofEuropolis should be disvested from Investkredit Bank AG. Thismove facilitates the expansion of Europolis as an investor andasset manager, thus improving its market opportunities. In thecourse of the restructuring within the Volksbank Group, theholdings in the Europolis companies as well as all lendingoperations in connection with Europolis were transferred to thenewly established Europolis AG.Investkredit, acting as the bank for corporates and real estate, remainsresponsible for real estate loan financing, leasing financing (viaImmoconsult) as well as real estate development (via PREMIUMRED).In 2007, the Volksbank Group once again received prizes andawards for its achievements in the area of real estate. Theinternational financing magazine “Euromoney“ which is based inLondon presented the prestigious “Liquid Real Estate Awards”for the third time in 2007. Once again, Investkredit received toprankings. In the category “Loan Finance“. Investkredit won thefirst prize in Austria, whereas it took second place in the CzechRepublic and Romania, and third place in Hungary. In the category“Investment Banking“ it emerged as the number one in Poland,as in 2006, and as number two in Romania. In four morecategories Investkredit found itself high on the list. The Bank takesgreat pride in these distinctions and considers this as a verygratifying recognition of its activities and its strategic orientationin its core market.Developments in fiscal 2007The Real Estate segment realised higher earnings in fiscal 2007which can be attributed to the expansion of the real estate loanfinancing business and the success of its real estate developmentactivities. Net interest earnings went up from euro 168.5 millionin fiscal 2006 to euro 197.7 million. With regard to its credit riskratio and all other operating results, the Bank recorded significantimprovements. Income from financial investments was markedlyabove the previous year’s figure as a result of the profitable saleof an office building in Prague by PREMIUMRED. GeneralSUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, ComplianceFINANCIAL STATEMENTSIncome Statement, Balance Sheet, Changes inEquity, Cash Flow Statement, Notes, ReportsOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


administrative expenses, which stood at euro 41.3 million a yearearlier, climbed to euro 58.4 million on account of the expansionof the Bank’s business volume, the hiring of new staff and theaddition of new locations. Pre-tax profit totalled euro 167.3 million,thus surpassing the 2006 mark by 40%.Even after a marked increase of its assets, key balance-sheetindicators mirror the high profitability and efficiency of the RealEstate segment’s operations.Investkredit Bank AG –real estate financingInvestkredit develops long-term financing models for commercialreal estate projects in Austria and Central and Eastern Europe.The department Real Estate Loan Financing mainly accountedfor the strong expansion of the segment’s business volume. Morethan 25 % of total balance-sheet assets are now generatedthrough the financing of commercial real estate projects in Austriaas well as Central and Eastern Europe. The main emphasis is onthe financing of project development and the acquisition of office,retail and logistic properties as well as business hotels. Net interestincome in this line of business more than doubled to euro 60million as against fiscal 2006. Investkredit succeeded inexpanding its business volume by more than one billion euros.At present, it is preparing its entry into the Ukrainian real estatemarket. The department Real Estate Financing has a staff of 22in Vienna, five in Warsaw, four in Bucharest, three in Prague, twoeach in Bratislava and Budapest, and one employee in Kiev.ImmoconsultLeasinggesellschaft m.b.H.Immoconsult is a company oriented to the European market,which thanks to its seven subsidiaries operating in Central andEastern Europe has been able to optimise its position in thisregion. With the creation of the department ImmoconsultInternational, the building up and expansion of these subsidiarieswill be given even greater attention in the future. At present,Immoconsult is present with its own local outlets in the CzechRepublic, Romania, Poland, Slovakia, Hungary, Ukraine andCroatia. Immoconsult’s business activities are characterised bythe strategic focus on real estate leasing in Central and EasternEurope. In 2007, Immoconsult was able to finalise 48 financingtransactions totalling a value of approximately euro 425 million.Further leasing financing commitments representing a volume ofeuro 89 million have been approved.Amongst the completed projects, mention should be made of thefinancing of the spa centre Bad Sauerbrunn, for which VAMEDis the lessee. Major financing projects include the redesign of thearea in front of the ferris wheel in the Vienna Prater (in co-operationwith Kommunalkredit) as well as the construction of three newKika furniture stores in Romania (euro 50 million). Immoconsult’sportfolio of current projects comprises the building of a technicalmarket centre in Breclav, Czech Republic, the financing of severalfurniture stores and construction markets in Romania, therefinancing of a portfolio of industrial properties in the CzechRepublic and the financing of exhibition space in Warsaw. InAustria, Immoconsult has 78 employees on its payroll, in theCzech Republic 13, in Poland, Romania, Slovakia and Hungaryeight each, in Croatia two and in Ukraine one.PREMIUMRED Real EstateDevelopment GmbHPREMIUMRED’s services range from the acquisition of land andprojects, to real estate development, from construction planningand execution, to the renting out of properties, as well as propertymanagement and sale to final investors thus covering the entireproduct cycle of properties.PREMIUMRED sold the Prague office building “Smíchov Gate“successfully to a French real estate fund in May. Three further officebuildings, the “Class A“ office tower, the “North Gate“ in Warsaw(lettable floor space approximately 30,100 squ.m), the “PremiumPlaza“ in the centre of Bucharest (lettable floor space approximately8,600 squ.m) and the “Premium Point“ in the central businessdistrict of Bucharest (lettable floor space of approximately 6,500squ.m) are currently under construction and will be completed in2008 (“North Gate“ and “Premium Plaza“) and 2009 (“PremiumPoint“). Shortly before year-end, the building permits wereobtained for factory outlets in Warsaw, Wroclaw and Poznan inPoland (lettable floor space of approximately 25,000 squ.m). Ofthe total staff of 21, 15 are working in Vienna, four in Warsaw andtwo in Bucharest.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, Outlook40THE FIVE STRATEGIC SEGMENTSSegment Real Estate


Europolis AGThe business activities of Europolis were grouped together in asingle joint stock company which directly reports to VolksbankAG. Thus Europolis, the specialist for real estate investments andasset management in the CEE and SEE region has been placedalongside Investkredit.The investor and asset manager Europolis closed the deal for thesale to AXA at the end of February 2007. Thus Europolis´ earningsof euro 63 million in fiscal 2006 resulting from valuations weretopped up by an additional amount exceeding euro 30 million.Europolis’ rental revenues stood at approximately 66 million atyear-end, which corresponds to a rise of around 19% as againstthe previous year. Overall, the Europolis sub-group realisedearnings before taxes amounting to euro 104 million and thusonce again made an essential contribution to the Real Estatesegment’s earnings profile. Europolis recognised real estateassets of around euro 1.4 billion in its balance sheet; anotherapproximately euro 0.9 billion are contractually committedinvestments and developments. In fiscal 2007, Europolis was alsoable to enter the Ukrainian and Russian markets: contracts fora logistics project near Kiev and a shopping centre inSt.Petersburg were concluded with the respective developers.With regard to acquisitions, a project for a logistics park in Aradwas finalised with Chefin Real Estate. Real estate developmentactivities included the D61 Logistics Park in Bratislava and theurban project Harbour City, which made good progress. In severalcountries, Europolis added new properties to its portfolio. Oneexample is the Zagreb Tower, an office building in Croatia coveringa floor space of 26,500 squ.m. Other real estate developmentprojects were taken forward: the first warehouse building in thelogistics park Poland Centre was completed and partly rentedout.OutlookIn the real estate markets, the upward trend in yields alreadymanifest in 2007 in some Western European markets shouldpersist. By the end of 2008, yields for top quality real estate inprime locations could rise by 40 basis points. The yield differentialbetween top-class real estate and commercial properties whichare in less favourable locations or have lower equipmentstandards, in particular, should become much greater. Strongdemand for high-quality real estate in Central and Eastern Europeshould persist. In most countries, price rises for residential realestate were above increases in income levels.For 2008, the Bank plans to continue to pursue the strategy ofreal estate loan financing which it adopted some time ago. Theentire range of services will be offered in the new markets,especially in Romania, South-Eastern Europe and in the newlocation in Ukraine.Immoconsult intends to intensify its market penetration in the CEEregion in 2008 and develop new markets in South Eastern Europe.As in the past, PREMIUMRED will increasingly orient itself toEastern Europe. Acquisitions of new land in Ukraine are alsoplanned.Europolis intends to strengthen further its dominant marketposition and remain the quality leader in real estate managementin Central and Eastern as well as South-Eastern Europe, especiallyin Romania, Russia and Ukraine. In order to be able to reach itsobjectives, it will concentrate its investment activities even morestrongly on project development, where the major challenge isto implement projects professionally and expediently.With regard to the acquisition of real estate, 2008 will, in allprobability, see the acceptance of the first buildings of an officecomplex in Bucharest and the enlargement of the logistics centresin Bucharest and Warsaw. Furthermore, the remaining own fundsavailable for the E3 portfolio are to be invested. The funds of theE3 portfolio will be distributed over several countries, with the maininvestments being concentrated on Russia, Ukraine and Romania.In the business line Real Estate Development, the constructionof Amazon Court in Prague will be carried on. This office buildingof flexible design will enlarge the River City Prague buildingcomplex which currently comprises Danube House and NileHouse. In Poland, construction of additional buildings is to bestarted in the logistics park “Poland Central“. In Bratislava, thefirst development phase of “Harbour City“, which willaccommodate a hotel and an office building, will be taken forward.In Hungary, the enlargement of the M1 logistics park is under way.It is the goal of the business unit Real Estate Asset Managementto keep vacancy rates significantly below the average reportedfor the CEE region.The opening of a regional office in Ukraine is planned for spring2008. The regional office in Moscow which was inaugurated in2006 is to be extended. This will assure professional executionof the newly acquired projects.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, ComplianceFINANCIAL STATEMENTSIncome Statement, Balance Sheet, Changes inEquity, Cash Flow Statement, Notes, ReportsOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


SEGMENT FINANCIAL MARKETSFinancial Markets, which acts as a central organisational unit, isresponsible for short- and long-term liquidity positions, securitiesand foreign exchange trading plus the management of liquidityand market price risks.In addition to some strategically important staff departments, thissegment comprises three profit centres: Group Treasury, CapitalMarkets and VB Invest, the Group’s capital investment company.For Financial Markets, fiscal 2007 proved a very turbulent anddifficult year, not least because of the US subprime crisis. Afterhaving reported an excellent result of euro 88.8 million a yearearlier, the profit centre’s net income amounted to a mere euro33.2 million in fiscal 2007.The segment focuses its operations on national and internationalcustomer-driven business, which is complemented by a fairly largeportion of proprietary trading activities. Alongside the focus onthe region of Central and Estern Europe, the Financial Marketssegment has also acquired and serviced customers on the IberianPeninsula, in France, the Benelux countries and Scandinavia.Acting as a central organisational unit, the Group Treasury Divisiondesigns innovative products and successfully sells these in allmarkets in which VBAG is present. Demand for these productscontinues to soar both in Austria and in the CEE countries. Thewell-known strengths of the Group’s customer service teams lienot only in proven creativity in designing products tailored tocustomer needs but also in the trust of and co-operation as equalpartners with customers which will equally be indispensable inthe future, in order to distinguish our Group from its competitorsin the face of ever fiercer competition.The dynamically growing area of capital-guaranteed andstructured products again put up an excellent performance in fiscal2007.VBAG succeeded in holding its market share of over 40% in theface of cut-throat competition. The extension of the range ofservices certainly was a decisive success factor (i.e. as the firstbank in Austria to do so, VBAG introduced VaR indices for therisk measurement of certificates). In addition, its product lines werere-oriented: SI Classic for the marketing of banking products, BestBalance for providers of financial services, and SI Selection forasset managers. Alongside the further development and definitionof central topics, such as infrastructure, global innovation leadersand South-Eastern Europe, the department StructuredInvestments in 2007 concentrated especially on its expansion inthe Central and Eastern European markets. Structuredinvestments were placed in six CEE countries and are listed onthe Prague Stock Exchange. In 2007, the portfolio of structuredinvestments was raised to more than euro 2.25 billion.The establishment of the Certificate Forum Austria, in which theleading Austrian issuers of structured products co-operate in thepre-competitive phase, underlines the growing significance of themarket. Both the Chairman of the Supervisory Board and theChairman of the Managing Board of this organisation come fromVBAG’s ranks, which reflects the importance of this forum for theAustrian market.Volumsentwicklung Strukturierte Investments in Mio. ‰2,250Group Treasury furnishes the Austrian Volksbank sector with acomprehensive range of services, which also comprise balancesheetstructure management, business segment planning, theorganisation and conduct of special customer events, etc.Furthermore, Group Treasury provides services to numerousnational and international institutional clients, domestic and foreigninstitutions, and it also acts as a hub and liaison office for VBAG’sTreasury units and those of its foreign subsidiaries. As a result,customers in the CEE countries can benefit both from theadvantages a regional bank offers and from the comprehensiverange of services which only a European player can furnish.Alongside the classical set of securities and interest-rateproducts, the range comprises the most diverse types ofderivatives of varying degrees of complexity.1,9011,6509505502003 2004 2005 20062007THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, Outlook42THE FIVE STRATEGIC SEGMENTSSegment Financial Markets


The Group’s own liquidity and capital issues are managed by thedepartment specifically set up for this purpose, whereasresponsibility and competence for corporate bond issuesremains vested in Investkredit Bank AG. The primary focus of issuemanagement is to directly address customers for privateplacements via sales teams. Since August 2007, in particular, thisstrategy has proved valuable with regard to the Bank’s fundingactivities.Proprietary trading in which the Group Treasury engaged mainlyin order to support customer transactions made a significantcontribution to the excellent performance of this segment in fiscal2007. Despite the difficult situation prevailing on the money andcapital markets, the profit centre Group Treasury reported a netincome before taxes of euro 56.7 million on the balance-sheetdate, thus surpassing both the previous year’s result and thetarget figures for 2007. Mid-Office which is independent of thetrading unit monitors permanent compliance with the defined riskparameters.Volksbank Invest continued to consistently steer its course inEastern Europe throughout 2007. Another very important stepwas taken with the start of business operations in Croatia andthe setting up of its own subsidiary there. Volksbank Invest hasa 75 % holding in VB Invest d.o.o., with Volksbank Croatia owingthe remaining shares. Simultaneously with the establishment ofthe subsidiary, Volksbank Invest launched two funds denominatedin the local currency: the money market fund VB Cash and therisk fund VB High Equity. Negotiations on VB Invest’s access tothe markets of Bosnia-Herzegovina, Serbia and Romania wereinitiated.It is not a question of size but primarily a question of strategy andstyle if mandates are to be successfully performed. This formulafor sustainable success which has been applied by VolksbankInvest right from the beginning relies on tailor-made solutions.The Bank hired new staff for the marketing unit Institutional Clientsand also strengthened its market position in Austria andGermany.Within the VBAG Group, Capital Markets is entrusted with themanagement of the Bank’s investment book and the assetmanagement of institutional clients (primarily insurancecompanies, pension funds, staff pension plans).The Bank’s significantly improved product range is widelyaccepted by customers with demand being buoyant. Amongstthe many awards VB Invest received, mention should be madeof VB-Mündel-Rent which won a prize in Germany.Assets under management stood at euro 5.3 billion on thebalance-sheet date; acquisitiuons of new assets were madeextremely selectively in view of the profoundly different marketenvironment in the year of reporting. The outstanding loan volumerecorded in the investment book is widely diversified with regardto products and individual securities and shows risk quality whichis far above the average, with the majority of assets being ratedAAA/AA. Two of the four departments of this segment, namelyAlternative Investments and Corporate Credit, put up anexcellent performance in the year of reporting. The department“Structured Credit“ was obviously not spared from the turmoilon the market. Taking into account the scenario of a persistenglynegative environment, sufficiently large provisions were made.Since the end of 2006, the Group’s capital investment company,formerly designated as VB KAG, has operated under the newbrand name VB INVEST. This change of name became necessaryas a result of the new orientation of the company in line with theGroup’s corporate strategy and the ensuing expansion of itsoperations to all European regions and especially the EasternEuropean countries in which VB International is present.Lipper Fund awarded two gold medals to Volksbank Invest inFebruary. It was one of the highlights when VB Invest was grantedthe Standard & Poor´s Award, which confirms the high level ofcompetence of the Bank’s staff.In the first quarter of the year, the product range wassupplemented by the Volksbank-Total-Return-Cash+, a fundwhich combines the preservation of capital with annual valueincreases. The concept of safeguarding the value of capital wasalso applied somewhat later when the Volksbank-Currency-Fundwas set up. The particular strength of this fund is the generationof constant returns, irrespective of changes in the marketenvironment. VB Invest has always endeavoured to offer riskawareinvestors an option for safe investments in turbulent times.Alongside the successful asset management product Multi-Asset-Portfolio, the Bank’s fund management created a moreaggressive counterpart to it, the Dynamic-Asset-Portfolio. Thisfund combines dynamic and aggressive investment classes andtakes advantage of international know-how or cost-effectivebenefits that normally only large investors enjoy.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, ComplianceFINANCIAL STATEMENTSIncome Statement, Balance Sheet, Changes inEquity, Cash Flow Statement, Notes, ReportsOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


Both for institutional and private investors, realising “returns witha clean conscience” is an issue that is gaining in importance. Inresponse to this market trend, VB Invest set up one sustainabilityfund and one ethics fund, the Volksbank-Ethik-Global as well asthe Volksbank-Mündel-Rent with ethically modified terms.The staff unit Banks/Liquidity is responsible for assuringadequate short-term liquidity for the VBAG Group at any time.Thanks to a state-of-the-art real-time cash management systemit is possible to calculate daily the required cash positions for allcurrencies traded by the Group’s Treasury departments.IMMO Kapitalanlagegesellschaft (Immo KAG), a subsidiary of VBInvest, was first put to an acid test in its history in 2007. The USsubprimecrisis, the extreme scarcity of liquidity among banksand the plunge of real estate share prices triggered turbulencein the market. For the first time, the difference in the nature ofreal estate shares and real estate investment funds manifesteditself very clearly: the units of immofonds I (real estate fund 1) arenot traded on a stock exchange and therefore are not subjectto stock market fluctuations, which in this case were caused byexternal factors on the one hand and by self-inflicted crises ofsome real estate investment companies on the other.Issue and redemption prices of real estate investment fund unitsare calculated on the basis of the net asset value, thus reflectingthe actual value and earnings of properties. Accordingly, the valueof fund units followed a stable trend despite great volatility onthe stock markets. Right from the beginning, Immo KAG has beencommitted to the philosophy of sustainable yields for its openendedproperty fund.The second half of 2007 once again demonstrated the need forcomprehensive and detailed planning of all liquidity flowsconcerning the Group, as interbank business concentratedexclusively on extremely short maturities under the impact ofworldwide uncertainties in the wake of the US subprime crisis.This staff unit is also engaged in minimum reserve managementfor all member banks of the Volksbank sector and is responsiblefor preparing the data sets required for Group auditing pursuantto Section 25 of the Austrian Banking Act. Furthermore, itmanages ECB-eligible collaterals, thus ensuring that the Groupcan have recourse to Central Bank funds in case of need.The staff of the department International Financial Institutions areentrusted with relationship banking functions. The extended scopeof responsibilities of this unit also includes performing analysesof business partners and preparing material for the competentbodies setting interbank limits. Shortly before the end of the year,an internal rating system for banks was introduced.In autumn 2007, Immo KAG shifted its focus towards the Centraland South Eastern European countries and is currently in theprocess of acquiring its first property in Hungary. Its managementis convinced that it will be possible to take advantage of manyopportunities in these markets.In 2007, Immo KAG chalked up another major success with thefull placement of its funds. As a consequence, existing quotason advance selling could be lifted and immofonds1 reached aplacement ratio of approximately 120 %.The organisational unit Assets and Liabilities Management SupportCommittee (ALM Support) was set up in fiscal 2006 and entrustedwith the control of the Group’s market and liquidity risks.In the second half of the year, professional liquidity managementwas also put to an acid test. VBAG’s system proved stable andprofessional under the impact of the US subprime crisis, whichresulted in seven liquidity shortages. In this situation, VBAGbenefitted from the disproportionately high share of long-termliabilities shown in the balance sheet.The staff units of the segment Financial Markets perform functionsfor the entire Group as well as tasks related exclusively to theVolksbank sector.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, Outlook44THE FIVE STRATEGIC SEGMENTSSegment Financial Markets


OutlookDesigned in response to market challenges and customerrequirements, the new structure of the segment Financial Marketshas created an excellent basis for the Group’s performance infiscal 2008 which is expected to be a difficult year. All segmentshave been tailored to the needs of our clients, which allows usto establish sound, sustainable relationships and to ensure cooperationwith our customers.The segment Financial Markets has set itself ambitious businessgoals. The planned expansion is motivated by the challenge toestablish all operational segments as the leading providers offinancial services by 2011. In this context, leading means offeringoptimum solutions and thus be in closest proximity to customers.The prerequisites for attaining these objectives were created inprevious years. The successful reorientation towards a furtherexpansion and the ensuing diversification of operating income isan important factor for the Group’s chances of success in apersistently difficult market environment with ever fiercercompetition.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, ComplianceFINANCIAL STATEMENTSIncome Statement, Balance Sheet, Changes inEquity, Cash Flow Statement, Notes, ReportsOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


TAKEOFFTOSUCCESSSuccess Factors48 Human Resources49 Marketing52 Communications and Public Relations53 Organisation and IT54 Risk Management/0455 Compliance


HUMAN RESOURCESExpansion strategyFor the VBAG Group, fiscal 2007 was characterised by a strongexpansion of its business operations. This was mirrored by amarked increase in staff numbers. The Group’s total staff rosefrom 6,762 in 2006 to 8,341 in 2007. The number of newly hiredemployees reached a record of 1,578, which can be attributed,to a large extent, to the acquisition of new foreign banks in Ukraineand Bosnia-Herzegovina.In Austria, the Group’s staff declined by 425 as a result of thedivestment of NÖ Hypo whereas the number of staff working in allother domestic departments and units went up by more than 200.Owing to new appointments to numerous positions as well asthe need for replacements, more vacancies were available in theGroup which had to be filled. After internal and external jobadvertisements a total of 744 vacancies were filled with highlycompetent staff.Number of staff in Austria and abroad4,6545,1472,727 3,1652003 2004 2005 2006domestic5,9633,7606,7624,3601,927 1,982 2,203 2,401foreign8,3416,1482,1932007Knowledge lends wingsKnowledge is the driving force behind innovations and sustainableeconomic success. Therefore, Volksbank staff benefit fromselective training programmes. The foundation on which ourhuman resources management rests are an appreciation of thedifferences and skills of each individual staff member and targetedtraining as a personal enrichment and a decisive success factorin competition in business life.On the one hand, the Group’s career development and upskillingprogramme for 2007 relied on time-tested co-operation with theVolksbanken Academy. On the other hand, some 20 in-housetraining courses were offered which were designed to improvesoft skills. These courses included, for example, the VBAG coursefor executives and managers as well as 35 group and individualforeign language and EDP training seminars. Another major pillarof this programme were the WIN seminars (Wissen Intern Nutzen– using know-how internally) which aimed at disseminatingspecific, primarily technical expert knowledge. Overall, some 1,400employees participated in WIN seminars which dealt with 66different technical topics. One positive side-effect of these trainingmeasures is their vital contribution to the internal networking ofstaff within our Group. In an effort to assist managers andexecutives in coping with the triple challenges of organisation,profession and work-life balance, a coaching drive was launchedwhich met with a very positive response.New challenges – new opportunitiesIn view of the continuation of the Group’s expansion strategy inthe future, a marked increase in the number of domestic andforeign personnel can be expected for the years to come.Thus the VBAG Group ranks among those domestic banks hiringconsiderable numbers of new staff and hence offering attractivejob opportunities for highly qualified applicants.Our human resources department will be facing new challengesin the coming years because it will be necessary to integrate andlook after newly hired staff and provide promising developmentperspectives for existing personnel.In the course of a human resources transformation , the focusof human resources development will be on a further intensificationof strategic co-operation amongst the individual divisions andsegments. From the perspective of human resources development,the VBAG Group will be optimally supported through the designand introduction of group-wide, integrated HR systems, such as,for example, Talent Management, Executive Management andCompensation & Benefit Management.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


MARKETINGGrowth through continuitySince mid-2007 the Volksbank Group’s dynamism has beenmirrored by its invigorating brand image.Volksbank AG acted asthe engine behind the changes: all of its subsidiaries and some60 Volksbanks were revamped with a new logo and the newdesign. Helene Karmasin, Austria’s leading motivation and opinionresearcher, commented on this change as follows: “The new logoeliminates all problems associated with the old logo, whilepreserving the overall gestalt features of the old one, so that thebrand identity has been preserved. The new logo has a dynamicimage, and at the same time conveys the message of soundnessand perseverance. The script (type font) has been modernised,but does not appear eccentric, but classical and solid.” The newVolksbank advertising campaign had a gratifying impact, with asignificant increase in recognition and recall values. The sloganof the campaign “Mit V wie Flügel” (With V like wings) showedan excellent branding result as of the very first survey. One thirdof the population older than 14 is now aware of the campaignslogan (33 %), and approximately 91 % of the interviewees (i.e.30 % of the population) know who stands behind the slogan.Intensified marketing of the Group and the widening of the rangeof the sector Marketing Services offered to the regionalVolksbanks constitute challenges which must be taken up in orderto assure a successful future.strengthened further the Group’s presence in the market. Duringthis campaign 45,000 visits to the “housing construction” sitewww.volksbank.at were recorded and more than 19,000persons, of whom 50% were not yet Volksbank clients,participated in the related lottery. The Volksbank accommodationchecklist received several awards. At the New York Festival,Volksbank AG, for example, won the silver Midas Award in thecategory “Best Website”.Four weeks after the introductory campaign “Investing andSaving“, VBAG’s Department “Structured Investments” launchedan innovating product: the Spar Garant, carrying a fixed interestrate of 3.375% and offering the perspective of up to 8% interestwith a 100% capital guarantee. This “lighthouse” product waspublicized in all media. Spar Garant is an extremely attractivesavings product for a very broad customer range. The sales figuresrecorded demonstrate the ready acceptance of this product bythe market. Volksbank Invest Kapitalanlagegesellschaft generateda second product highlight. Investment Funds were at the centreof the autumn promotion addressing investors with the slogan:“ … best chance to profit from the economic strength of the wholeworld”. In addition, Volksbank Funds Savings, representing asimple and affordable form of saving with an amount of euro 30monthly, were publicized through classical advertising and directmarketing.Targeted direct marketing drives, promotions and innovativeproduct offers are generated for segmented core target groups.The range of activities comprises classical advertising for theVolksbank Group, co-operation agreements for sports, culturaland economic events, the production of leaflets on specific topicsand technical publications, the presentation of on-line contentsas well as the organisation of seminars, incentives and otherevents.Focus of the campaignsIn the previous year, the following campaigns which were gearedto the four strategic focal points of Volksbank’s brand werecovered by the media: “the new brand image”, “building andhousing”, “investing and saving” as well as “young people”. Highresponse rates to all of these campaigns demonstrate the successof this strategy. Immediate financing of savings and loan projectswas at the centre of the marketing campaign “building andhousing”. In co-operation with the publishing group “NEWS”, themagazine NEWS published a series consisting of four partsentitled “Living Space – A World of Experience”, whichCredits for the creation and maintenance of living space:(Growth in 2007 in %)8.5Total of all banks13.7Volksbanken-sektorSource: OeNBTrend of youth accountsOur co-operation with Summerline, Austria’s largest touroperator for adolescents, added a new dimension to Volksbank’sbusiness with young people. Summer Splash, offering the largestvariety of package tours for secondary school leavers in Europe,49 SUCCESS FACTORSFINANCIAL STATEMENTSHuman Resources, MarketingIncome Statement, Balance Sheet, Changes inEquity, Cash Flow Statement, Notes, ReportsOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


was the main success factor. During a three week period, 12,000secondary school leavers celebrated their graduation fromsecondary school at Side in Turkey. Every student who bookedhis or her trip with an AKTIVCARD received a Volksbank bonusof euro 100. More than 4,500 secondary school leaversbenefited from this attractive Volksbank bonus offer. Thus AustrianVolksbanks gained more than 3,500 new customers!The youth marketing strategy adopted some time ago has provedvery efficient. Overall, the number of “Aktiv” accounts, taking intoaccount adjustments to or changes in existing accounts, wentup by 8,000, which corresponds to 16,5 % since 2004. In thepast 12 months, more than 3,500 new customers opened youthaccounts.Trend of „Aktiv“ accounts:56,60154,32049,86647,8342004 2005 2006 2007Trend of student accounts:11,557Fit for BusinessThe education drive “Fit For Business” consists of a modularsystem of full-day and evening courses and a summer academywhich lasts for several days. Launched in autumn 2005, theprogramme pursues the goal of motivating Volksbank’s coreclients, the representatives of small and medium-sized enterprises,to seek further education for their personal development. In May2007, the summer academy, the highlight of the education drivefor small- and medium-sized enterprises with the title “Learningunder palm trees“ took place on the Turkish Riviera. Roughly 70decision-makers and journalists followed this invitation to furthereducation and thus benefited from active networking far fromeveryday pressures.The segment “Small and Medium-Sized Enterprises” servicesapproximately 58,000 clients whose companies record aturnover of up to euro 10 million and account for 25 % ofVolksbank’s clients. This means that one in every four small andmedium-sized enterprises in Austria is a client of a Volksbank.With a view to contributing successfully to the performance ofthis market segment in the future as well, numerous target-groupspecific activities were organised under the title “VolksbankEntrepreneur Service”.Volksbank in the InternetInnovative approaches to presentating content were adopted inthe course of the rebranding of the Volksbank name . A newpositioning of the logo, a web-design “on wings” and an improvedrouting of users have had a clearly positive effect on the web sitestructure and thus also on visitors. Rising access rates to allwebsites mirror the positive response of users to thesemeasures.9,11410,08610,429Internationally acclaimed online-tools are an extension of the widerange of computing and analysis aids to be found on theVolksbank websites. The “Housing Space Check“ and the “FutureCheck“ address the financing and private provisioning needs ofusers, offering them practical recommendations. Every month,more than 8,500 visitors use these tools which encompass a loancalculation scheme. In accordance with a study of the topic by20042005 20062007Booz, Allen, Hamilton, classical advertising is losing much of itsrelevance in buying decisions. Online marketing is gaining grounddramatically, and professional comunication plans can no longerdo without it. Double digit or more growth rates for online spendingin the financial sector confirm this trend. And it was also mentionedin the large on-line campaigns on “housing”, “investing and privateTHE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


provisioning” as well as “youth”. Thanks to more widespread useof Google AdWords, professional e-mail marketing andcomprehensiuve web-controlling, remarkable results in terms ofnumber of “hits”, higher newsletter subscription figures and thusbetter conversion into business opportunities have beenachieved.Trend of internet bank accounts264,060+ 20.9 %319,216The Volksbank card businessGrowth in this segment continued throughout fiscal 2007, witha total of 850,000 Volkbank cards issued; of which approximately112,000 are credit cards and 510,000 are Maestro cards forautomatic teller machines. Overall, close to 7 million ATM cardsare in circulation in Austria. Jointly with its banking subsidiary,PayLife Bank GmbH, Volksbank concentrates on numerous focalpoints in its marketing. A new diversity of products resulting fromthe change of name of Europay Austria to PayLife Bank GmbHand the acquisition of a licence from Visa, PayLife offers, for thefirst time in Austria, MasterCard and Visa under one roof. Thepackage of the golden MasterCard and golden Visa card withmore comprehensive insurance cover and an attractive annualfee represents one highlight of the new product range. The newUEFA EM 2008 MasterCard and the Prepaid Event-MasterCardhave also contributed to the increase in credit cards.The new automatic teller cardIn 2007 the periodic exchange of all Volksbank Maestro Cardswas carried out. This exchange, which takes place every threeyears, guarantees the maximum attainable security standard forVolksbank cards and, in addition, offers an opportunity for graphicredesign necessitated by the new corporate logo. In 2007, anothermajor step was taken in electronic banking. The popularapplications account and security banking can now be carriedout merely by means of logging-in to a greater extent. Volksbank’sinternet banking has emerged as the hub for routine bankingtransactions. More than 305,000 account holders carry out asmany as five million transactions annually by means of electronicbanking.2006 2007Running close to 800 automatic teller machines, Volksbanks areone of the most important Austrian suppliers of cash. Automaticteller cards are not used only at automatic teller machines, butare becoming ever more popular for payment at point-of-sale.In order to be able to comply with the provisions governing theSingle European Payment Area in the future as well, the EuropayAgreement NEW, which was signed by all Austrian banks in 2007,accurately defines the standard conditions on the basis ofharmonised legislation. Fiscal 2007 also saw major investmentsto improve the security features of Volksbanks in the self-servicearea, and self-service monitoring was introduced.Social responsibilityIn line with its corporate philosophy based on social responsibility,the VBAG Group is fully aware of its social tasks. It has assumedthis social responsibility towards all stakeholders (owners,clients, business partners and staff) as reflected by its trustingand co-operative attitudes displayed in its everyday businessinteractions. This commitment to the cultural and socialenvironment in which the VBAG Group operates is fully in line withstrategy and the values reflected by the co-operative principlesof voluntariness, self-help and self-administration. Furthermore,responsibility also means paying attention to all those who havebeen marginalised by our social and economic systems. Underits well-balanced Corporate Social Responsibility Programme,Volksbank AG sponsors associations, humanitarian organisationsand individuals who through their social commitment contributeto the well-being of society as a whole.51 SUCCESS FACTORSFINANCIAL STATEMENTSMarketingIncome Statement, Balance Sheet, Changes inEquity, Cash Flow Statement, Notes, ReportsOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


COMMUNICATIONS AND PUBLIC RELATIONSÖsterreichische Volksbanken-AG sets great store by an opencommunications policy and maintains friendly contacts with thedomestic media. In order to ensure optimum public relations, anindependent staff division for communications was set up in 2005reporting directly to the Chief Executive Officer. Previously theMarketing Division had been responsible for public relations.In the past fiscal year, the intensification of internal communicationswas a central theme. With the electronic in-house magazine“VOICE”, communication with staff has been considerablyimproved. VOICE is a medium written by staff members for staffmembers. All of the 105 texts published in the period from Marchto December were authored by our colleagues. On the one hand,this creates a high degree of identification of the authors with themedium, and on the other it guarantees that only those topicsare addressed that are of real interest to the readers.Over the past few years, Volksbank AG has been able to establishitself as one of the leading providers of financial services. However,this fact is not sufficiently well known by many people living inAustria or abroad. Accordingly, the objectives for 2008 have beenclearly defined. After the successful implementation of our strategyof creating new information channels for our employees, this yearwe will endeavour to establish even closer contacts with businessand financial journalists with whom we already maintain goodrelationships. Through intensified personal contacts with decisionmakersin the media and of VBAG’s Board members withjournalists, but also through further improving the quality of thecontents of its press releases and by shortening intervals betweenthese, VBAG will seek to strengthen its presence on the domesticmedia scene in 2008.A survey showed that 90 % of those interviewed feel sufficientlywell or better informed through VOICE. This clearly demonstratesthat the quality of our internal communications was impressivelyimproved in the past year.Outcome of the opinion survey of VOICE.very good40.50 %goodsufficientcould be betterno opinion8.861.275.4943.88Thanks to the installation of new information platforms it was alsopossible to intensify communications with executives andmanagers. Current and future topics are presented anddiscussed at regular meetings of the members of the ManagingBoard and our executive teams. This has led to improvedinformation and the integration of operative staff into strategicallyimportant tasks which in turn has led to improved quality.In 2007, our work with the media was also stepped up. With theaid of close to 100 press releases, Volksbank AG furnished topicalinformation to more than 300 contacts in the world of journalism.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


RISK MANAGEMENTThe overall responsibility for the VBAG Group’s risk managementis assigned to its Managing Board. Together, the BoardMembers take decisions on the risk management methods to beapplied as a matter of principle and determine the basic rules forthe Group’s risk policy.All decisions relating to banking operations are taken on this basis.The code of conduct governing risk management reflects inconcrete terms VBAG’s risk policy approach, which is definedin the Group’s risk strategy adopted by VBAG’s Board. Agroupwide understanding of these risk policy principles constitutesthe basis for uniform risk awareness and a uniform risk culture.Therefore, the management and all staff of the VBAG Group areobliged to comply with these principles and to take their decisionsin conformity with the defined guidelines.The Chief Risk Officer (CRO), who is a member of the Board, isresponsible for all organisational and technical matters in thefollowing areas: strategic risk management, risk analysis, capitalmarkets, risk analysis of corporates and risk analysis of banksand financial institutions. In this function, he regularly submitsreports to all other Managing Board Members and to theSupervisory Board on the current risk exposure situation of theVBAG Group.In fiscal 2007, the VBAG Group set up a new structure for riskmanagement. The tasks, competencies and responsibilities forrisk management processes were redefined and assigned toexperienced staff. This new structure has resulted in improvedrisk management groupwide and reflects the separation of marketand risk assessment and the measurement and control of marketand credit risks stipulated by the Banking Supervisory Authority.The central organisational unit “Strategic Risk Management“ whichacts independently of market operations, as well as its sub-units,is responsible for quantifying risks, assuring adequate risk coverand controlling risks. The unit “Strategic Risk Management“performs the task of developing and implementing the riskmanagement procedures for all types of risks.VBAG’s subsidiaries are actively involved in the continuous furtherdevelopment of risk management methods and processes. In thisway a common understanding of risks is created at an earlyjuncture, and the available risk know-how in the Group is usedefficiently. At the same time, this creates the basis for a consistentmeasurement and control of risks within the VBAG Group.2007 saw the completion of the implementation of Basel II andfull compliance with the requirements for the use of the moresophisticated measurement method (Foundation-Internal Rating-Based Approach and Retail IRB) for assessing credit risks. In orderto be able to meet the relevant banking supervisory criteria, astate-of-the-art risk management system landscape wasdeveloped, with a central data pool acting as its hub. Creditrelevant data from the entire Group are fed into this pool, whichconstitutes the basis for a continuous further development of riskmeasurement methods and improved risk reporting groupwide.A milestone was reached in risk management when the OeNB(Austrian Central Bank) issued its positive expert opinion on theVBAG Group’s application for using the Foundation-InternalRating-Based Approach. Currently the VBAG Group is preparingfor the introduction of the Foundation IRB Approach insubsidiaries and affiliates which are still using the standardapproach to calculating the capital coverage for credit risks.Once the regulatory requirements have been met, internal riskmeasurements will be used in order to assess risks from aneconomic perspective and are to be integrated to a greater extentinto the control of the Group’s banking operations. For anassessment of the risk-opportunities ratio, the VBAG Groupintends to link risk measurement with its income statement soas to be able to control the relationship between risks and profitsand thus achieve a more efficient utilisation of its capital.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


ON THEWINGSOF SUCCESSFinancial Statements59 Income Statement60 Balance sheet as at Dezember 31, 200761 Changes in Equity62 Cash Flow Statement64 Notes132 Auditor´s Report/05134 Report of the Supervisory Board


THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


INCOME STATEMENT1-12/2007 1-12/2006 ChangesNotes in ‰ thousand in ‰ thousand in ‰ thousand %Interest and similar income and expenses 804,339 656,183 148,156 22.58 %Income from companies measured at equity 26,389 6,742 19,647 > 200.00 %Net interest income 4 830,728 662,925 167,803 25.31 %Risk provisions 5 -89,915 -61,729 -28,186 45.66 %Net fee and commission income 6 191,603 135,317 56,286 41.60 %Net trading income 7 57,489 70,597 -13,109 -18.57 %General administrative expenses 8 -622,313 -507,361 -114,953 22.66 %Other operating result 9 762 -1,197 1,959 -163.66 %Income from financial investments 10 234 -12,457 12,690 -101.88 %Income from the disposal group 2 19,533 23,336 -3,803 -16.30 %Annual result before taxes 388,121 309,433 78,688 25.43 %Income taxes 11 -41,085 -47,925 6,840 -14.27 %Income taxes of the disposal group 11 -1,126 1,268 -2,394 -188.78 %Annual result after taxes 345,910 262,776 83,134 31.64 %Profit attributable to shareholdersof the parent company (Consolidated net income) 219,682 155,159 64,523 41.59 %Profit attributable to minority interest(Minority interests) 126,228 107,617 18,611 17.29 %SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance59FINANCIAL STATEMENTSIncome StatementOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


BALANCE SHEET AS AT DECEMBER 31, 2007ASSETSDec. 31, 2007 Dec. 31, 2007 ChangesNotes in ‰ thousand in ‰ thousand in ‰ thousand %Liquid funds 13 3,200,392 1,199,865 2,000,527 166.73 %Loans and advances to credit institutions (gross) 14 11,367,838 6,019,658 5,348,180 88.85 %Loans and advances to customers (gross) 15 39,047,815 31,109,599 7,938,217 25.52 %Risk provisions (-) 16 -502,414 -442,758 -59,656 13.47 %Trading assets 17 1,008,738 1,109,894 -101,156 -9.11 %Financial investments 18 18,195,539 17,172,195 1,023,344 5.96 %Assets for operating lease 19 1,417,796 971,493 446,304 45.94 %Companies measured at equity 20 103,091 84,892 18,199 21.44 %Participations 21 249,417 232,379 17,038 7.33 %Intangible assets 22 455,087 410,367 44,720 10.90 %Tangible fixed assets 23 308,409 262,152 46,257 17.65 %Tax assets 24 141,291 122,425 18,865 15.41 %Other assets 25 3,647,829 3,077,635 570,194 18.53 %Assets of the disposal group 0 6,099,521 -6,099,521 -100.00 %TOTAL ASSETS 78,640,829 67,429,317 11,211,512 16.63 %LIABILITIES AND EQUITYAmounts owed to credit institutions 26 24,200,454 13,382,971 10,817,483 80.83 %Amounts owed to customers 27 10,850,921 8,087,131 2,763,789 34.18 %Debts evidenced by certificates 28 33,108,714 30,845,675 2,263,038 7.34 %Trading liabilities 29 329,024 243,236 85,788 35.27 %Provisions 30, 31 203,763 165,925 37,839 22.80 %Tax liabilities 32 160,770 101,286 59,484 58.73 %Other liabilities 33 4,873,324 4,071,476 801,848 19.69 %Liabilities of the disposal group 0 5,868,299 -5,868,299 -100.00 %Subordinated liabilities 34 1,966,480 1,817,489 148,991 8.20 %Equity 35 2,947,380 2,845,829 101,551 3.57 %Shareholder´s equity 1,600,384 1,516,790 83,594 5.51 %Minority interests 1,346,996 1,329,039 17,957 1.35 %LIABILITIES AND EQUITY 78,640,829 67,429,317 11,211,512 16.63 %THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


CHANGES IN THE GROUP´S EQUITYSub- Capital Retained Currency Valuation reserves Share- Minority Equityscribed reserves earning reserve pursuant to IAS 39 2) holder´s interestsCapital *equityAvailable Hedgingfor sale reservein ‰ thousandreserveAs at January 1, 2006 319,624 492,679 492,241 4,784 44,994 -4,054 1,350,269 921,544 2,271,812Consolidated net income 1) 155,159 155,159 107,617 262,776Dividends paid -25,859 -25,859 -49,148 -75,007Participations certificates 22,450 7,501 29,951 29,951Change in currency reserve -9,713 23,118 13,405 11,751 25,156Valuation pursuantto IAS 39 3) -10,454 9,601 -853 -1,034 -1,887Change in treasury stock -1,956 -6,083 -8,040 -8,040Change in deferred taxesarising from untaxed reserves 1,730 1,730 26 1,755Change due toreclassifications shownunder minority interests 1,029 1,029 338,284 339,313As at December 31, 2006 340,118 494,096 614,587 27,901 34,540 5,547 1,516,790 1,329,039 2,845,829Consolidated net income 1) 219,682 219,682 126,228 345,910Dividends paid -36,081 -36,081 -86,978 -123,059Change in currency reserve -1,313 -8,324 -9,637 -7,839 -17,476Valuation pursuant to IAS 39 3) -94,438 783 -93,655 -37,094 -130,749Change in treasury stock -158 -387 -546 -546Change in deferred taxesarising from untaxed reserves 1,014 1,014 3,018 4,032Change due toreclassifications shownunder minority interests 2,816 2,816 20,623 23,439As at December 31, 2007 339,960 493,709 800,705 19,577 -59,898 6,330 1,600,384 1,346,996 2,947,380* The subscribed capital reported corresponds to the figures reported in the financial statements of Österreichische Volksbanken-AG.1)The currency translation differences amounting to ‰ 278 thousand (2006: ‰ 769 thousand) for shareholder´s equity and ‰ 280 thousand (2006: ‰ 820thousand) for minority interests resulted from the application of the average rates of exchange in the income statement.2)As at Dec. 31, 2007 the available for sale reserve included deferred taxes of ‰ 15,718 thousand (2006: ‰ -10,953 thousand).The hedging reserve contains deferred taxes standing at ‰ -2,022 thousand at the balance sheet date (2006: ‰ -1,841 thousand).3)In 2007, an amount of ‰ 24,728 thousand (2006: ‰ 18,360 thousand) previously recognised in the available for sale reserve was reclassified and shown inthe income statement.An amount of ‰ -1,105 thousand (2006: ‰ 2,547 thousand) relating to cash flow hedges were transferred to profit or loss during the reporting period.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance61FINANCIAL STATEMENTSBalance Sheet, Changes in EquityOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


CASH FLOW STATEMENTin ‰ thousand 2007 2006Annual result (before minority interest) from continued operations 327,503 238,171Non-cash positions in the annual resultDepreciation of, and revaluation gains on financial instruments and fixed assets -28,710 -48,073Allocation to, and release of provisions, including risk provisions 151,558 94,130Gains from the sale of financial investments and fixed assets -31,354 -14,089Non-cash changes in taxes -4,893 4,228Changes in assets and liabilities from operating activities after adjustmentsfor non-cash componentsLoans and advances to credit institutions -5,123,114 112,663Loans and advances to customers -7,779,417 -6,238,428Trading assets 227,262 -446,893Financial investments -681,075 -2,818,276Other assets from operating activities -275,815 -316,714Amounts owed to credit institutions 10,817,484 2,690,877Amounts owed to customers 2,763,788 1,047,748Debts evidenced by certificates 2,379,958 6,544,922Other liabilities 372,775 82,131Other changes 64,550 12,957Cash flow from operating activities 3,180,499 945,354Proceeds from the sale or redemption ofSecurities held to maturity 360,087 152,635Participations 212,854 43,964Fixed assets 12,269 19,162Payments for the acquisition ofSecurities held to maturity -1,189,555 -813,613Participations -308,508 -126,773Fixed assets -122,841 -98,328Acquisition of subsidiaries (less acquired liquid funds) -147,783 0Cash flow from investing activities -1,183,476 -822,952Capital increase 0 29,951Change in treasury stock -546 -8,040Dividends paid -36,081 -25,859Changes in subordinated liabilities 148,991 519,085Other changes -108,860 -49,257Cash flow from financing activities 3,504 465,880THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


in ‰ thousand 2007 2006Cash and cash equivalent at the end of previous period (= liquid funds) 1,199,865 611,582Cash flow from operating activities 3,180,499 945,354Cash flow from investing activities -1,183,476 -822,952Cash flow from financing activities 3,504 465,880Cash and cash equivalent at the end of period (= liquid funds) 3,200,392 1,199,865Payments of taxes, interest and dividendsIncome tax payments -62,613 -58,232Interest received 5,137,095 3,818,946Interest paid -4,185,982 -3,626,734Dividends received 16,640 18,055Acquisition of subsidiariesAcquisition costs 192,604Acquired liquid funds -44,821Cash flow of the business combination less acquired liquid funds 147,783As a result of the deconsolidation of NÖ Hypo the liquid funds declined by ‰ 58,876 thousand.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance63FINANCIAL STATEMENTSCash Flow StatementOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


NOTES TO THE CONSOLIDATED FINANCIAL STATE-MENTS OF ÖSTERREICHISCHE VOLKSBANKEN-AG1) GeneralÖsterreichische Volksbanken-Aktiengesellschaft (VBAG) which hasits registered office at 1090 Vienna, Kolingasse 19, is the centralinstitution of the Austrian commercial credit cooperatives andan international group acting as a financial services provider.Alongside its transactions with the Volksbanken sector, the Groupfocuses on retail and corporate banking. VBAG’s operations areconcentrated both on the domestic market and on the Centraland Eastern European countries.2) Presentation and changes ofconsolidated companiesOn April 2, 2007, the acquisition of OJSC Electron Bank (Electron)which has its registered office in Lviv, Ukraine, by Volksbank InternationalAG (VBI) was concluded. Accordingly, VBI acquireda 98.80 % holding in Electron. The purchase price includingdirectly related transaction costs amounted to ‰ 58,866 thousand.In the VBAG Group, this corresponds to a share of 50.39 % anda pro-rata purchase price of ‰ 30,021 thousand.Volksbanken Holding reg. GenmbH (VB Holding) is the superiorfinancial holding company of VBAG. As superior institution, VBHolding is obliged to draw up consoli-dated financial statements.As VBAG issued participation certificates and listed bonds inaccordance with Section 2, number 37, of the Austrian BankingAct, VBAG is obliged to draw up consolidated financial statementspursuant to Section 245 of the Austrian Commercial Code.VBAG’s consolidated financial statements have been drawn upin euros as this is the Group’s functional currency. All figures areindicated in thousands of euros, unless specified otherwise. Thefollowing tables may contain rounding differences.The closing of the purchase of Volksbank a.d. (previously ZepterKomerc Banca a.d.; VB Banja Luka) domiciled at Banja Luka,Srpska Republic, took place on July 14, 2007. In this transactionVBI Group took over 100 % of the shares of VB Banja Luka at apurchase price including directly related transaction costs of‰ 42,361 thousand. This means that the VBAG Group now hasa holding of 50.97 % which it acquired at a pro-rata purchase priceof ‰ 21,604 thousand.In 2007, capital increases were completed at six VBI banking subsidiaries,in the course of which VBI partially took over the sharesAcquired net assets in the segment retail:Adjustmentsto thein ‰ thsd. Carrying amount fair value Fair valueLiquid funds 44,821 0 44,821Loans and advances to credit institutions 86,629 0 86,629Loans and advances to customers 155,518 0 155,518Risk provisions (-) -6,086 0 -6,086Financial investments and trading assets 2,242 0 2,242Intangible fixed assets 155 0 155Tangible fixed assets 14,880 10,162 25,042Income taxes 538 0 538Other assets 866 0 866Amounts owed to credit institutions 18,230 0 18,230Amounts owed to customers 251,895 0 251,895Provisions 119 0 119Tax liabilities 365 3,952 4,317Other liabilities 2,294 0 2,294Acquired net assets 26,659 6,211 32,870Stake of VBAG Group 16,649Goodwill 34,975Acquisition costs 51,624of which directly related transaction costs 693THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


of third party shareholders. The resulting goodwill amounting to‰ 874 thousand was recognised under assets.In 2007 the sub-group Europolis acquired some new companies.In addition, Europolis repurchased the holdings of the EuropeanBank for Reconstruction and Development (EBRD) in some companies.Subsequently, AXA Investment Managers DeutschlandGmbH increased its shares in these companies. As a result, thequota of minority interest increased from 35 % to 49 %.Acquired net assets in the segment real estate:in ‰ thsd.Fair valueAcquired net assets 87,093Stake of VBAG Group 83,424Goodwill 5,291Acquisition costs 88,715As the acquired net assets comprise only investment property,no additional valuation of the fair value was necessary at the timeof the initial consolidation.The sub-group Kommunalkredit took over all shares of OrosisInvestments Limited and Cymanco Investments Limited inJanuary 2007.Acquired net assets in the segment public finance:Adjustmentsto thefair Fairin ‰ thsd. Carrying amount value valueAcquired net assets 64 2,597 2,661Stake of VBAG Group 1,351Goodwill 0Acquisition costs 1,351thousand. The detailed notes on the Group’s income statementand balance sheet as at December 31, 2006 do not containfigures for NÖ Hypo unless otherwise specified. In various tablesshowing changes in assets and liabilities the disposal of NÖ Hypois recognised in the column changes in the scope of consolidation.Income Statement of the disposal group:in ‰ thsd. 1-6/2007 2006Net interest income 33,301 64,159Risk provisions -3,041 -7,294Net fee and commission income 4,480 8,560Net trading income -3 62General administrative expenses -27,003 -53,831Other operating result 2,530 11,048Income from financial investments 1,148 633Annual result before taxes 11,413 23,336Income taxes -1,126 1,268Annual result after taxes 10,287 24,604During 2007, the Investkredit sub-group was restructured. TheEuropolis sub-group was splitt off from Investkredit and incorporatedinto Europolis AG. At the same time, a portion of InvestkreditBank AG’s real-estate-related lending was transferred to EuropolisAG. The objective of this change of legal form is to takegreater advantage of existing market opportunities thanks to concentrationof the Europolis sub-group’s operations under the directcontrol of VBAG. This restructuring has no effect on the VBAG Group’sincome statement, its consolidated balance sheet or its equity.All other changes in the group of consolidated companies hadno significant effect on the Group’s consolidated financial statements.The adjustment to the fair value of both companies result fromthe revaluation of real estate.The sale of Niederösterreichische Landesbank-HypothekenbankAG (NÖ Hypo) was concluded on July 2, 2007. At this time,control over NÖ Hypo passed to the government of the Provinceof Lower Austria. The Group’s income statement contains aseparate item showing the result of NÖ Hypo for the first half of2007 as well as the deconsolidation result at an amount of ‰ 8,120SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance65FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


Number of consolidated companies:Dec. 31, 2007 Dec. 31, 2006Domestic Foreign Total Domestic Domestic TotalFully consolidated companiesCredit institutions 11 13 24 12 11 23Financial institutions 22 23 45 60 25 85Other enterprises 43 73 116 52 50 102Total 76 109 185 124 86 210Companies measured at equityCredit institutions 1 0 1 3 1 4Financial institutions 1 0 1 24 0 24Other enterprises 3 1 4 5 0 5Total 5 1 6 32 1 33As a result of the deconsolidation of NÖ Hypo, the Group disposed of one fully consolidated credit institution, 36 fully consolidatedfinancial institutions and 9 fully consolidated other enterprises. In addition 2 credit institutions, 23 financial institutions and 2 otherenterprises which were measured at equity were divested.Number of not consolidated companies:Dec. 31, 2007 Dec. 31, 2006Domestic Foreign Total Domestic Domestic TotalAffiliates 80 111 191 88 103 191Associated companies 52 78 130 65 74 139Companies - total 132 189 321 153 177 330The unconsolidated companies, in their entirety, were not deemedmaterial for pre-senting a true and fair view of the net worth orthe financial and earnings position of the Group. The total assetsof unconsolidated companies amounted to 1.4 % (2006: 2.1 %)of the consolidated total assets, the annual result after taxescorresponds to 0.8 % (2006: 3.5 %) of the Group’s annual resultafter taxes. The calculation was based on the latest availablefinancial statements of the companies and the Group’sconsolidated financial statements 2007.The complete list of companies included in the consolidated financialstatements containing detailed information can be foundat the end of the Notes.3) Accounting principlesThe accounting principles described below have been consistentlyapplied to all re-porting periods covered by these financialstatements and without exception have been followed by all consolidatedcompanies.The VBAG Group’s consolidated financial statements for 2007and all respective figures for 2006 have been drawn up in accordancewith the International Financial Reporting Standards(IFRS, previously International Accounting Standards, IAS) andthus fully comply with the provisions set forth in Section 245a ofthe Austrian Commercial Code and Section 59a of the AustrianBanking Act govering consolidated financial statements inaccordance with internationally recognised accountingprinciples.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


The Group’s consolidated financial statements have beendrawn up on the basis of all IFRS/IAS published by the InternationalAccounting Standards Board (IASB) and in force on thebalance sheet date as well as all interpretations (IFRIC/SIC) ofthe International Financial Reporting Interpretations Committeeand the Standing Interpretations Committee respectively asadopted for use in the European Union.The Group’s consolidated financial statements for 2007 havetaken into account all requirements specified by IFRS 7 concerningfinancial investment disclosures and IAS 1 concerning informationabout equity. As a result of the implementation of theprovisions of IFRS 7 and the modifications to IAS 1, the presentationof the figures of the previous reference period had to beadapted. The changes which had no effect on results have ledto enhanced transparency and to easier comparability with subsequentreporting periods.IFRS 8 Operating Segments will be effective for annual periodsbeginning on or after January 1, 2009. For 2007 no prematureapplication was adopted. The application of IFRS 8 will result inchanges of segment reporting.In consolidated financial statements, estimates and assumptionshave to be made to some extent. These have an influence on thefigures reported for assets and liabilities as well as income andexpenses shown in the balance sheet and in the income statement.The actual figures reported later may differ from these estimates.However, the estimates and underlying assumptions are reviewedand adjusted on an ongoing basis. Revisions to accountingestimates are recognised in the period in which the estimate isrevised and in any future periods affected. Assumptions andestimates which have an essential influence on the figures reportedin the consolidated financial statements are described in thefollowing Notes as well as in the Risk Report.a) Consolidation principlesThe consolidated financial statements of VBAG are based on theseparate financial statements of all fully consolidated companiesdrawn up in accordance with IFRS. The figures reported in theindividual financial statements of associated companies measuredat equity have been adapted, if the effect on the Group’s consolidatedfinancial statements was significant.The financial statements of the fully consolidated companies andthe companies consolidated under the equity method wereprepared on the basis of the Group’s balance sheet date ofDecember 31, 2007.Business combinations for which the agreement date is on or afterMarch 31, 2004, are accounted for applying the purchasemethod according to IFRS 3. Therefore, all identifiable assets,liabilities and contingent liabilities are recognised at their fairvalues at the acquisition date. If the cost of acquisition exceedsthe fair value of the identifiable assets, liabilities and contingentliabilities, goodwill is recognised as an asset. Goodwill is not amortisedover the estimated useful life but instead tested for impairmentannually according to IAS 36. Negative goodwill arising onan acquisition is recognised directly in the income statement pursuantto IFRS 3.56.Subsidiaries under direct or indirect control of VBAG are fully consolidated.Propor-tionate consolidation has not been applied toVBAG’s consolidated financial statements. Companies in whichVBAG has an equity stake of between 20 % and 50 % and forwhich controlling agreements do not exist are consolidated underthe equity method.b) Currency translationIn accordance with IAS 21 foreign-currency denominated monetaryassets and debts, non-monetary positions stated at fairvalue and spot transactions not yet settled are translated usingthe spot exchange mean rate, whereas unsettled forward transactionsare translated at the forward exchange mean rate prevailingon the balance sheet date. Non-monetary assets andliabilities which are shown at their amortised cost are carried atthe rate applied on the date of acquisition.The individual financial statements of fully consolidated companiesdrawn up in currencies other than the Euro are translated by applyingthe modified current rate method in compliance with IAS21. Under this method, all assets and liabilities are translated atthe spot exchange mean rate effective on the balance sheet dateand the historical rate is being applied for the translation of equity.Differences resulting from the translation of the financial statementsof foreign subsidiaries are recognised in the currency reserve,without affecting profit or loss. Any goodwill, and any fairvalue adjustments to the carrying amounts of assets and liabilitiesarising from the initial consolidation of foreign subsidiariesmade before January 1, 2005, have been translated at the historicalrates. Any goodwill, and fair value adjustments to thecarrying amounts of assets and liabilities resulting from theSUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance67FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


purchase of companies after January 1, 2005, are reported in thecurrency of the subsidiary and translated at the respective exchangerate on the Group’s balance sheet date (IAS 21.47 and 21.59).Income and expense items are translated at the average spot exchangemean rate for the reporting period, calculated on the basisof the end-of-month rates. Exchange differences between theclosing rate applied for the translation of balance sheet items andthe average rate used for translating income and expense itemsare recognised in the currency reserve, without affecting profitor loss.c) Net interest incomeInterest income and interest expenditure are recognised on anaccrual basis in the income statement. Current or non-recurringincome or expenses similar to interest, such as commitment fee,overdraft commissions, or handling fees, are reported in net interestincome in accordance with the effective interest methodover the entire life of a financial instrument.d) Risk provisionsThe item risk provisions reflects the allocation to and release ofprovisions for im-pairments of loans and advances on individualand portfolio basis. Directly written off loans and advances andredemptions for written off loans and advances are also recognisedin this item. Furthermore, this item shows the allocation toand release of risk provisions for off-balance risks.e) Net fee and commission incomeThis item contains all income and expenditure related to theprovision of services in the VBAG Group as accrued within thereporting period.f) Net trading incomeAll realised and non-realised results of securities, foreign exchangeand derivatives of the trading book are shown under this item.Not only changes in market value but also interest income, dividendpayments and refinancing interest for trading assets arereported here.If it appears rather unlikely that a customer will be able to paythe agreed interest, the relevant asset will be treated as non-interest-bearing.Net interest income consists of:• Interest and similar income from credit and money markettransactions• Interest and similar income from debt securities• Income from equities and other variable-yield securities• Income from affiliated companies and other holdings• Income from companies measured at equity• Income from operating lease contracts: rental income,value adjustments of rental property and depreciation ofrental property• Interest and similar expenses for deposits• Interest and similar expenses for debts evidenced bycertificates and subordinated liabilities• The interest component of derivatives recorded in theinvestment bookThe interest income and expenses of trading assets and liabilitiesas well as their fair value changes are recognised in nettradingincome.The result of the valuation and of the disposal of securities,shares, companies measured at equity and participationsare shown in income from financial investments.Results from the daily valuation of foreign currencies are alsoshown under this item.g) General administrative expensesGeneral administrative expenses contain all expenditure incurredin connection with the Group’s operations.Staff expenses include wages and salaries, statutory social securitycontributions and fringe benefits, payments to pension fundsand internal pension plans as well as all expenses resulting fromseverance and pension payments.Administrative expenses include expenses for premises, communications,public relations and marketing, costs for legal adviceand other consultancy, as well as training and EDP expenditure.Under this item, depreciation of intangible and tangible fixedassets – excluding im-pairment of goodwill – is also reported.h) Other operating resultIn addition to impairments of goodwill and the de-consolidationresult from the dis-posal of subsidiaries, this item recognises allresults from the Group’s other operating activities.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


i) Income from financial investmentsThis item recognises all realised and non-realised results fromfinancial investments at fair value through profit or loss and allderivatives recorded in the investment book.Income and expenses are presented on a net basis only whenpermitted by the accounting standards, or for gains and lossesarising from a group of similar transactions such as in the Group´strading activities.In addition, the result of disposals of available for sale and heldto maturity financial investments and participations is includedin this item. The measurement results attributable to an essentialor lasting impairment are also recorded under this item. Revaluationof debt instruments up to amortised costs are also shownhere.Results from the daily valuation of foreign currencies are recordedin the net trading income.j) Financial assets and liabilitiesRecognitionA financial asset or a financial liability is first recognised in thebalance sheet, when the Group becomes party to the contracton the financial instrument and thus acquires the right to receiveor assumes the legal obligation to pay liquid funds. A financialinstrument is deemed to be added, or disposed of, as at the tradedate. The trade date is relevant for the initial reporting of a financialinstrument in the balance sheet, its measurement in incomestatement and the reporting of its sale.DerecognitionA financial asset is derecognised on the date on which the contractualrights to its cash flow end or once the transfer criteriaas set forth in IAS 39.18 have been met. A financial liability is derecognisedonce it has been redeemed.Amortised costsThe amortised costs of financial assets and liabilities are definedas the amount consisting of the original purchasing price takinginto account redemptions, the spreading of premiums ordiscounts over the maturity range using the effective interestmethod, and value adjustments or depreciation due to impairmentor uncollectability.Fair value assessmentWith regard to financial instruments quoted on a stock exchange,the fair value of financial assets and liabilities corresponds to themarket value. The fair value of all other financial instruments isassessed by means of specific valuation methods. These includethe net present value concept, the discounted cash flow method,comparisons with similar transactions in the market and valuationmodels. The Group uses internationally recognised financemathematical procedures for these calculations. The parametersapplied are always based on data derived from the market.ImpairmentOn every balance sheet date, the Group analyses each financialinstrument for impairment due to the complete or partial uncollectabilityof assets. An impairment occurs if, after the initial recognitionof a financial instrument, objective indications exist thatan event will have an effect on future cash flows from the financialinstrument and if reliable assumptions can be made with regardto the extent of such an effect.The Group carries out transactions in which financial assets aretransferred, but in which the risks or opportunities related to theownership of an asset remain with the Group. If the Group retainsall or the most essential risks and opportunities, the financialasset is not derecognised, but will continue to be reported inthe balance sheet. Such transactions are, for example, securitieslending operations and repurchase agreements.OffsettingFinancial assets and liabilities are set off and the net amount presentedin the balance sheet when, and only when, the Group has alegal right to set off the amounts and intends either to settle on a netbasis or to realise the asset and settle the liability simultaneously.The Group performs value adjustments both for individual assetsand for portfolios. All significant assets are individually analysedfor impairment. Assets that are not individually significant arecollectively assessed for impairment. In this process assets withsimilar risk profiles are grouped together for evaluation. The valuesof all assets for which no objective indication of impairment existsare assessed in the course of portfolio value adjustments dueto impairment which has been incurred but not yet identified.Objective evidence that financial assets are impaired are, forexample, financial difficulties of the debtor; debt rescheduling ofreceivables on terms which would otherwise not be granted;indications that the debtor will enter bankruptcy; theSUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance69FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


disappearance of securities from an active market and otherobservable data in connection with a group of financial assets,such as changes in the payment status of borrowers or economicconditions correlating with defaults suffered by the Group.The amount of an impairment of assets that are valued atamortised costs is calculated from the difference between thecarrying amount and the net present value of future cash flowsdiscounted at the effective interest rate of the asset taking intoaccount collaterals,. The impairment amount is reported in theincome statement. In the event that the cause for impairmentceases to exist at a later date, the impairment loss is reversedthrough profit or loss.• A financial instrument contains an embedded derivative, whichbasically should be reported separately from the generalagreement at fair value.In chapter 36) Financial assets and liabilities the amountsallocated to the category at fair value through profit or loss areindicated for each class of financial assets or liabilities. Thereasons for the designation are described in the Notes of theindividual financial asset and liability.DerivatesDerivatives are always reported at their market value andrecognised in the income statement.The value adjustments of the Group’s portfolio are made forhomogeneous portfolios. The parameters listed below are usedfor assessing the amounts of value adjustments:• Historical loss experience with non-performing loans• The estimated period between the occurrence of the lossand its identification (90 – 180 days)• Management's experienced judgment as to whether thecurrent economic and credit conditions are such that theactual level of inherent losses is likely to be greater or lessthan suggested by historical experience.With available for sale financial assets, impairments correspondto the difference between amortised costs and fair value and aredirectly recorded as write-off in the income statement. Shouldthe reason for the recognition of an impairment cease to exist,the write-off of a debt instrument is reversed. In case of equityinstruments, the reversal of any impairment loss is recognised inthe available for sale reserve, taking into account deferred taxes,and does not affect profit or loss.Designated financial instruments at fair valuethrough profit or lossThe Group makes use of the option to designate financial instrumentsirrevocably at fair value through profit or loss. Allocationto this category is made if one of the criteria described beloware met:• A group of financial assets, financial liabilities or both ismanaged, reported and its performance evaluated on a fairvalue basis, in accordance with a documented risk managementor investment strategy.• Fair value reporting prevents inconsistencies during thevaluation of financial assets and liabilities in a proven manner.Changes in the fair value of derivatives used as fair value hedgesare immediately shown in the income statement under the itemincome from financial investments. Changes in the market valueof the underlying instruments resulting from the hedged risk arealso reported under the item income from financial investments,irrespective of the allocation to the individual categories pursuantto IAS 39. The Group uses fair value hedges with a view to hedgingfixed-interest financial assets and liabilities, assets and liabilitiesdenominated in foreign currency and structured issues.With cash flow hedges, the change in the fair value of a derivativeis recognised in the hedging reserve under equity taking intoaccount deferred taxes. The measurement of the hedgedunderlying instrument is performed on the basis of its allocationto one of the individual categories pursuant to IAS 39. The Groupuses cash flow hedges with a view to hedging interest risk fromvariable-yield financial instruments and currency risk of assets andliabilities denominated in foreign currencies.Embedded derivatives are valued separately irrespective of thefinancial instrument in which they are embedded, unless thestructured investment was designated and allocated to thecategory at fair value through profit or loss.Own equity and debt instrumentsOwn equity instruments are recognised at their acquisition costsand deducted from equity on the liabilities side. Own issuesare deducted from issues at their redemption amounts andshown under liabilities, with the difference between the redemptionamounts and acquisition costs recognised in net interestincome.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


k) Loans and advances to credit institutionsand customersLoans and advances represent non-derivative financial assets withfixed or determinable redemption amounts, which are not tradedon an active stock market.Loans and advances to credit institutions and customers are recognisedat their gross amounts before deductions for impairmentlosses including deferred interest. The total amount of riskprovisions referring to balance sheet receivables is recognisedas a reduction shown on the asset-side of the balance sheet underthe items loans and advances to credit institutions and loansand advances to customers. Risk provisions for off-balancetransactions are contained in the item provisions.If the Group acts as a lessor in a leasing transaction in which themajor part of the risks and opportunities are passed on to thelessee who thus becomes the owner of the leased object, thistransaction is shown under receivables. In this case, instead ofthe leasing asset the net present value of future payments isrecognised taking into account eventual residual values.The initial recognition of the receivables corresponds to themarket value plus all directly related transaction costs. Subsequentmeasurement is made at amortised costs using theeffective interest method, unless a group affiliate designatedthe receivable to categories at fair value through profit or lossor available for sale.l) Risk provisionsProvisions for individual impairment and value adjustments of theportfolio are set aside in order to cover the specific risks inherentin banking. Provisions are also made for potential lossesfrom investments in high-risk countries; these are oriented to thestandard international valuations for such types of investments.For further details, see section j) Financial assets and liabilities.all interest and dividend payments and refinancing costs shownin the trading portfolio are reported in the net trading income.n) Financial investmentsThe initial recognition of financial investments is performed at marketvalues plus directly related transaction costs. Subsequentmeasurements depend on the allocation of the financial assetsto the categories at fair value through profit or loss, available forsale or held to maturity.At fair value through profit or lossThe Group dedicates some securities to this category and showschanges in the fair value of such securities directly in the incomestatement as described in section j) Financial assets andliabilities.Available for saleThis item comprises all financial instruments which are not allocatedto the categories at fair value through profit or loss or heldto maturity, or classified as loans and receivables. This item alsocomprises all equity instruments which have no maturity date,provided that they have not been classified as belonging to thecategory at fair value through profit or loss. Securities which arenot traded on a stock exchange and the fair value of which cannotbe reliably determined, are recognised at acquisition costsless eventual impairments. All other available for sale assets aremeasured at fair value. Changes in market prices are shown underequity until these financial investments are sold or impaired andthe cumulative loss is transferred from equity to the income statement.With regard to debt securities, the difference betweenacquisition costs, including transaction costs and redemptionamounts, is amortised using the effective interest method andshown in the income statement. Accordingly, only the differencebetween amortised costs and the fair value is recognised in theavailable for sale reserve taking into account deferred taxes.m) Trading assets and liabilitiesThe item trading assets includes all financial assets which wereacquired with a view to short-term sale or which form part of ashort-term portfolio which is intended to yield short-term profits.Trading liabilities comprises all negative market values of derivativefinancial instruments used for trading purposes.Both the initial recognition and subsequent measurements aremade at market values. The transaction costs are directlyrecognised under expense. All changes in fair value as well asHeld to maturityThe Group allocates financial instruments to this category if it hasthe positive intention and ability to hold these assets with fixedor determinable payments and fixed maturity until maturity.These financial instruments are recognised at amortised costsapplying the effective interest method. Any sale or reallocationof a substantial part of these financial instruments which doesnot occur on a date close to the redemption date leads to theallocation of all held to maturity financial investments to theSUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance71FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


category available for sale for the two subsequent fiscal years.In 2007 and 2006 no securities of the category held to maturitywere reallocated.o) Assets for operating leaseAssets used for operating lease transactions are ascribed to thelessor’s assets and reported under the item assets for operatinglease in the balance sheet.costs. In the event of permanent impairment, corresponding writeoffshave been made.q) Intangible and tangible fixed assetsIntangible assets are carried at acquisition or production cost lessregular deprecia-tion in accordance with the straight-line methodand less impairment. This item primarily comprises acquiredgoodwill, brand rights and software.Starting with January 1, 2005, all land and buildings that meetthe criteria of IAS 40 concerning investment properties arereported at fair value. In the case of domestic land and buildings,measurement takes place internally according to the standardsof the RICS (Royal Institution of Chartered Surveyors). Valuationsare prepared by external experts for land and buildings inother countries according to guidelines recognised by both IVSC(International Valuation Standards Committee) and TEGOVA (TheEuropean Group of Valuers’ Associations). The gross rentalmethod is used in calculations, in the form of the hard core/topslice procedure, the term and reversion and the rack-rent procedures,on the basis of current rental lists and assumptionsconcerning market developments and interest rates. Kingsturge,American Appraisal and Cushman & Wakefield are mandated toact as independent experts for assessing the value of foreigninvestment properties.Leasing and rental income is recognised under income in accordancewith the term of the respective leasing and rental contractsapplying the straight-line method and shown under the item interestand similar income. Changes in the fair value of investmentproperties are also reported under this item. Depreciation of otheroperating lease assets is calculated in accordance with theprinciples applying to the respective fixed asset and is also shownunder interest and similar income.p) ParticipationsThe Group establishes subsidiaries and acquires participationswith a view to reaching its strategic goals or making financial investments.Strategic participations exist in companies operatingin the Group’s lines of business or companies supporting theGroup’s business activities.Companies in which the Group exercises significant control aremeasured at equity. All other holdings are recognised at theirrespective values. Participations the value of which cannot bedetermined without a major work input are recorded at acquisitionGoodwill is not depreciated according to the straight-line method,but instead, in ac-cordance with IAS 36, is examined onceannually for impairment, or more frequently should events oraltered circumstances indicate that impairment may have occurred.This impairment test is carried out for the respective cash generatingunits (CGUs), to whom goodwill is allocated. The plannedresult of the CGU for the following three years is employed forthe calculation of the expected cash flow and is discounted witha risk-adjusted interest rate. This interest rate corresponds to along-term, risk-free interest rate, which is raised by an equity premium,multiplied by a branch beta, and adjusted by country riskpremiums.The proportional shareholder value determined according to theprinciples listed above is offset against the proportional equityof the CGU plus existent goodwill. Should the proportional shareholdervalue be lower than the sum of the proportional equity andthe already existent goodwill, the difference will be recognisedas impairment.The impairment tests carried out on the balance sheet date didnot lead to any significant impairment.In the course of the acquisition of Investkredit Bank AG in fiscal2005 the “Investkredit” and “Kommunalkredit” brands wererecognised as intangible fixed assets. In line with IAS 38.88, anintangible asset is to be seen by the company as having anunlimited period of use, if, on the basis of an analysis of all relevantfactors, there is no predictable limit on the period in which theasset is likely to generate net cash flow for the company. Thefactors considered to determine the expected useful life of thebrand names “Investkredit” and “Kommunalkredit” primarilyinclude the probable use of these assets by the VBAG Group,the changes in the overall demand for services, which can beproduced using these assets, as well as the amount of theexpenditure for retention necessary for the attainment of theTHE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


probable, future economic benefits derived from the asset andthe ability and intention of VBAG to achieve this level.As a result of the analyses undertaken, from a current perspective,it can be continued to assume that the “Investkredit”and “Kommunalkredit” brand names have an unlimited useful life,which is in line with the intentions of the VBAG management regardingthe retention of both the “Investkredit” and “Kommunalkredit”brands. Impairment tests were conducted in fiscal 2007,which did not lead to any impairment.Tangible fixed assets are carried at their acquisition or productioncosts, which in the case of depreciable assets are written off overtheir estimated useful life in accordance with the straight linemethod.Any impairment that is expected to persist leads to a special writeoff.When the circumstances that led to such an impairment ceaseto exist, a write-up is made up to the amount of amortisedacquisition or production costs.The useful life is the period of time over which an asset isexpected to be used by the Group and is calculated as follows:Office furniture and equipmentup to 10 yearsEDP hardware (including calculators, etc.) up to 5 yearsEDP software up to 4 yearsVehicles up to 5 yearsStrongrooms and safesup to 20 yearsBuildings, reconstructed buildings, rental rights up to 50 yearsit is probable that future taxable profit will be available againstwhich the tax relief from the depreciation of goodwill can beutilised. In the current year the asset was released in the amountof the tax-deductible depreciation.Deferred tax assets in respect of the carryforward of unused taxlosses are recognised to the extent that it is probable that futuretaxable profit will be available in the same company against whichthe unused tax losses can be utilised, or if sufficient taxabletemporary differences exist. Deffered tax assets from unused taxlosses are impaired, if it is not likely that the tax benefit can berealised. Deferred taxes are not discounted.s) Other assetsUnder other assets all deferred items and other assets are recognisedat their acquisition costs. In case of impairments, valueadjustments are made. This item also includes all positive fairvalues of derivatives reported in the investment book at their fairvalues. Changes in fair value – with the exception of derivativesfor cash flow hedges, which are directly recognised under equity– are shown under income from financial investments.t) LiabilitiesThe initial recognition of amounts owed to credit institutions andcustomers as well as debts evidenced by certificates andsubordinated liabilities is made at their fair value plus directlyrelated transaction costs. Subsequent measurements are madeat amortised costs applying the effective interest method, unlessan affiliated company has allocated such a liability to the categoryat fair value through profit or loss.r) Tax assets and liabilitiesIn this position current as well as deferred tax assets and liabilitiesare shown. According to the liability method of IAS 12, deferredtaxes are derived from all temporary differences between the taxbase of an asset or liability and its carrying amount in the balancesheet prepared in accordance with IFRS. Deferred taxes arecalculated for subsidiaries on the basis of the tax rates that applyor have been announced in the individual countries on the balancesheet date. Deferred tax assets are offset against deferred taxliabilities for each individual subsidiary.At the initial consolidation of Investkredit Group in 2005 the taxadvantage due to the depreciation of goodwill according toSection 9 para. 7 of the Austrian Corporation Tax Act has beenrecognised as an asset according to IAS 12.34 to the extent thatu) Employee benefitsPayments to the funds of defined contribution plans arerecognised as expenditure in the current periods. Irregularpayments are deferred in the respective reporting period.The VBAG Group has committed itself to defined benefit plansfor individual staff members under which the amounts of futurebenefits are fixed. All of these plans are partly unfunded, i.e. thefunds required as cover are retained, and the VBAG Group setsaside the necessary provisions. In the Investkredit, Europolis andKommunalkredit sub-groups, staff pension entitlements weretransferred to a pension fund in previous years and are shownas plan assets.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance73FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


In accordance with the projected unit-credit method, liabilities forpension and severance payments are calculated on the basis ofgenerally recognised actuarial principles for determining thepresent value of the overall entitlement and additional claimsacquired in the reporting period. For severance payment thisprocedure takes into account retirement because of attainmentof pension age, incapacity to exercise the occupation orprofession, disability or death, and recognises vested rights ofsurviving dependents.Actuarial gains and losses are treated in accordance with the socalledcorridor method, which means that once the cumulativeunrecognised actuarial gains or losses exceed 10 % of the presentvalue of the defined benefit obligation or severance payobligation or the fair value of eventually available external planassets, contributions are recognised in the income statement. In2007, actuarial gains and losses exceeding the corridor wererecognised in the income statement.Principal actuarial assumptions2007 2006 2005Discount rate 5.00 % 4.50 % 4.50 %Future salary increase 3.50 % 3..50 % 3.50 %Future pension increase 2.00 % 2.00 % 2.00 %Fluctuation rate none none noneThe basic biometric actuarial assumptions of the latest Austrianscheme by Pagler and Pagler for calculating pension insurancefor salaried employees are used as a calculation basis (AVÖ 1999P- Rechnungsgrundlagen – Pagler&Pagler, Angestell-tenverband).In these calculations, the retirement age limits are generally takeninto account. It is assumed that, as a rule, men retire at the ageof 65 years and women at the age of 60 years. Any transitionarrangements are disregarded. For staff not employed inAustria, the usual retirement age stipulated in the respectivecountry is employed as a calculation basis.Pension obligations comprise claims of employees who were inactive service for the Group on the valuation date as well asentitlements of pension recipients. These entitlements are definedin special agreements and in the Group’s Articles of Association,and represent legally binding and irrevocable claims.v) Other provisionsOther provisions are set aside if an event in the past has givenrise to a present obligation and if, in all probability, meeting suchan obligation will result in an outflow of resources. Other provisionscorrespond to the most probable future claims, taking intoaccount all identifiable risks also arising from contingent liabilities,which are recognised under the item provisions for risks. A contingentliability is reported if an eventual obligation exists and ifan outflow of resources does not appear probable or if no reliableestimate of the amount of the obligation can be made. Provisionsare not discounted due to insignificance of the effect on the timevalue of money.w) Other liabilitiesOther liabilities representing deferred items or other obligationsare stated at their amortised costs. Furthermore, this item includesall negative market values of derivatives reported in theinvestment book at their fair values. With the exception ofderivatives for cash flow hedges, which are directly recognisedunder equity, changes in fair values are shown under the itemincome from financial investments.x) EquityFinancial instruments issued by the VBAG Group which do notcarry a contractual obligation to transfer cash or another financialassets to another company or to ex-change financial assetsor liabilities with another entity under conditions that are po-tentiallyunfavourable to the issuer are shown under equity.The Group is subject to external provisions governing its equityrequirements. The relevant capital adequacy provisions imposedby the Austrian Banking Supervisory Authority are based on therecommendations of the Basel Committee for Banking Supervision,the secretariat of which is provided by the Bank for InternationalSettle-ments (BIS), as well as on the guidelines of theEuropean Council which have been transposed into national law.The capital ratio defined by the Bank for International Settlementsconstitutes the central parameter for assessing the capitaladequacy of international banks. This ratio reflects the relationshipbetween a bank’s own funds as stipulated by the BankingSupervisory Authority and counterparty and market risks. Thecounterparty risk is determined by grouping together on-balanceand off-balance sheet exposures which are broken down by theirrelative risks in separate categories to which the correspondingrisk weightings are assigned. The market risk component of theGroup is a multiple of the computed value at risk, which isTHE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


calculated for the purposes of banking supervision on the basisof the Group’s internal calculation models. These models forcalculating the market risk components of the Group’s overall riskexposure have been approved by the Austrian BankingSupervisory Authority.y) Capital reservesAccording to IAS 32, transaction costs of an equity transactionare accounted for as a deduction from equity, taking into accountdeferred taxes, to the extent that they are incremental costs directlyattributable to the equity transaction.A bank’s own funds as stipulated by the Banking SupervisoryAuthority can be broken down into three elements:• Core capital or tier I capital• Supplementary capital or tier II capital• Short-term subordinated liabilities or tier III capital.z) Retained earningsAll legal and statutory reserves as well as other reserves,provisions against a specific liability as defined in Section 23,para. 6, of the Austrian Banking Act, untaxed reserves and allother undistributed profits are shown under retained earnings.The core capital or tier I capital consists of subscribed capital,capital reserves and retained earnings as well as hybrid capitalcomponents minus intangible fixed assets.Supplementary capital or tier II capital consists of long-termsubordinated liabilities, unrealised profits from securities listed ona stock exchange and provisions for risks inherent in lendingoperations.Tier III capital consists of short-term subordinated liabilities andmay only be used to cover market risks.Banks may also use tier I and tier II capital exceeding the minimumrequirement for covering counterparty risks (surplus tier I and tierII capital) for covering market risks. The minimum equity ratio asstipulated by the Bank for International Settlements (total of tierI, tier II and tier III capital) corresponds to 8 % of total risk exposure.The minimum core capital ratio (tier I capital) in accordance withthe definition of the Bank for International Settlementscorresponds to 4 % of a bank’s risk-weighted assets. Theminimum core capital ratio for the entire risk exposure thereforedepends on the weighted average of risk-weighted positions andthe market risk equivalent.aa) Trustee transactionsTransactions in which an affiliate of the VBAG Group acts as atrustee or in any other trusteeship function and thus managesor places assets on a third party account are not shown in thebalance sheet. Commission payments from such transactions arereported under the item net fee and commission income.bb) Repurchasing transactionsUnder repurchase agreements, the Group sells assets to acontractual partner and simultaneously undertakes to repurchasethese at the agreed price on a predefined date. The assets arereported in the Group’s consolidated balance sheet and arevalued in accordance with the rules applying to the respectivebalance sheet items. At the same time, the received payment isrecognised under liabilities.Subject to the guidelines of the Bank for International Settlements,subordinated liabilities can be counted towards tier II capital onlyup to 50 % of tier I capital. The total tier II capital is limited to100 % of tier I capital. Tier III capital is restricted to 250 % of tier Icapital not required for covering counterparty risk.The VBAG Group’s own funds are described in Chapter 35)Equity. In the reporting period, the Group complied with therelevant supervisory requirements, with its own funds significantlyexceeding the minimum requirement.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance75FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


4) Net interest incomein ‰ thsd. 2007 2006Interest and similar income 5,170,684 3,768,376Interest and similar income from 4,951,002 3,586,012liquid funds 38,431 40,095credit and money market transactions with credit institutions 320,759 213,791credit and money market transactions with customers 1,854,774 1,194,919debt securities 1,023,687 757,058derivatives (investment book) 1,713,351 1,380,148Current income from 55,968 36,483equities and other variable-yield securities 12,797 6,844other consolidated affiliates 10,790 9,029companies measured at equity 26,389 6,742holdings in other companies 5,993 13,868Operating lease operations (including investment property) 163,714 145,881rental income 70,716 56,821unrealised income / expenses from investment property 97,311 92,970depreciation of operating lease assets -4,314 -3,910Interest and similar expenses of -4,339,956 -3,105,451deposits from credit institutions (including central banks) -765,242 -439,568deposits from customers -348,351 -212,685debts evidenced by certificates -1,347,539 -968,193subordinated liabilities -98,526 -78,005derivatives (investment book) -1,780,297 -1,407,001Net interest income 830,728 662,925The item interest and similar income from debt securities comprises interest income from securities of the held to maturity categoryamounting to ‰ 191,949 thousand (2006: ‰ 129,258 thousand). This item includes interest and similar income from financialinvestments which do not belong to the category at fair value through profit or loss totalling ‰ 4,624,913 thousand (2006: ‰ 3,159,272thousand) and interest and similar expenses standing at ‰ 4,330,149 thousand (2006: ‰ 3,097,062 thousand).The item net interest income contains income from financial leasing amounting to ‰ 203,139 thousand (2006: ‰ 159,261 thousand).THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


5) provisionsin ‰ thsd. 2007 2006Allocation to risk provisions -213,178 -149,685Release of risk provisions 126,833 101,494Allocation to off-balance risk provisions -11,328 -8,928Release of off-balance risk provisions 6,291 5,018Direct write-offs of loans and advances -2,976 -12,666Income from loans and advances previously written off 4,443 3,038Risk provisions -89,915 -61,7296) Net fee and commission incomein ‰ thsd. 2007 2006Fee and commission income from 264,398 200,155lending operations 44,008 37,996securities businesses 66,346 60,920payment transactions 81,945 49,183foreign exchange, foreign notes and coins transactions 33,426 19,915other banking services 38,674 32,142Fee and commission expenses from -72,795 -64,838lending operations -15,959 -18,980securities businesses -22,053 -20,519payment transactions -11,978 -3,881foreign exchange, foreign notes and coins transactions -17,638 -10,802other banking services -5,167 -10,656Net fee and commission income 191,603 135.317The item net fee and commission income comprises yields from financial investments not belonging to the category at fair valuethrough profit or loss standing at ‰ 264,253 thousand (2006: ‰ 200,155 thousand) and commission expenditure from financial investmentsnot belonging to the category at fair value through profit or loss totalling ‰ 72,789 thousand (2006: ‰ 64,838 thousand).Under the item net fee and commission income, management fees for trust agreements were recognised representing an amountof ‰ 1,057 thousand (2006: ‰ 1,126 thousand).7) Net trading incomein ‰ thsd. 2007 2006Equity related transactions 13,852 22,601Exchange rate related transactions 28,198 28,228Interest rate related transactions 15,348 22,335Credit related transactions 91 -2,431Other trading activities 0 -136Net trading income 57,489 70,597SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance77FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


8) General administrative expensesin ‰ thsd. 2007 2006Staff expenses -322,006 -260,850Wages and salaries -240,171 -196,292Expenses for statutory social security -59,718 -47,897Fringe benefits -6,410 -5,657Expenses for retirement benefits -4,793 -4,701Allocation to provision for severance payments and pensions -10,914 -6,304Other administrative expenses -257,457 -208,681Depreciation of fixed tangible and intangible assets -42,850 -37,829Pro-rata temporis -41,758 -37,338Impairment -1,092 -491General administrative expenses -622,313 -507,361Staff expenses include payments to defined contribution plans totalling ‰ 3,931 thou-sand (2006: ‰ 4,240 thousand). Under theitem General administrative expenses ‰ 21,464 thousand (2006: ‰ 16,384 thousand) are recognised for the management ofoperating lease agreements.Information on compensation for and loans granted to board membersin ‰ thsd. 2007 2006Total compensationSupervisory board 97 81Managing board 1,979 1,879Former board members and their surviving dependents 763 734Expenses for severance payments and pensionsManaging board 121 348Loans and advances granted to members of the managing boardand the supervisory boardOutstanding loans and advances 197 200Redemptions 34 63Interest payments 7 6The figures concerning the managing board include employees employed by the parent company.In the VBAG Group, the board members of the parent company are classified as management members in key positions.Expenses for severance payments and pensions for the senior management of the parent company account for ‰ 1,504 thousandfor the reporting period (2006: ‰ 1,014 thousand).THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


Number of staff employed during 2007Average numberNumber of staffof staffat yearend2007 2006 2007 2006Domestic 2,294 2,328 2,193 2,401Foreign 5,411 4,060 6,148 4,360Total 7,705 6,388 8,341 6,762The average staff number includes 214 employees of the NÖ Hypo sub-group as the deconsolidation of NÖ Hypo took place onJuly 2, 2007. The yearend as well as the average staff number for 2006 took into account 425 employees of NÖ Hyposub-group.9) Other operating resultin ‰ thsd. 2007 2006Other operating income 45,816 36,236Other operating expenses -47,292 -36,441Proceeds from deconsolidation of subsidiaries 3,472 1,154Impairment of goodwill -1,234 -2,146Other operating result 762 -1,197Starting in 2007, hire purchase transactions as well as operating expenses and insurance contributions which are passed on tocustomers were netted at ‰ 221,281 thousand (2006: ‰ 102,572 thousand) and recognised under the item other operating income,as this procedure presents a fairer view of the economic nature of these transactions. The figures for 2006 have been adjusted accordingly.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance79FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


10) Income from financial investmentsin ‰ thsd. 2007 2006Result from financial investments at fair value through profit or loss / macro hedges -266 -3,999Result from financial investments at fair value through profitor loss and from underlying instruments for macro hedges -172,406 -231,575Loans and advances to credit institutions and customers -155,919 -179,353Debt securities -40,822 -61,982Equities and other variable-yield securities 17,202 978Amounts owed to credit institutions and customers 64 -18Debts evidenced by certificates 518 3,335Subordinated liabilities 6,551 5,464Result from revaluation of derivatives 172,140 227,577Result from fair value hedges -2,354 -1,490Result from revaluation of underlying instruments 94,510 6,434Loans and advances to credit institutions and customers -54,580 -179,500Debt securities -65,831 -277,728Amounts owed to credit institutions and customers 65,761 92,823Debts evidenced by certificates 146,112 360,526Subordinated liabilities 3,047 10,313Result from revaluation of derivatives -96,864 -7,924Result from revaluation of derivatives (investment book) 361 -25,869Equity related transactions 67 -49Exchange rate related transactions -3,706 -7,480Interest rate related transactions 9,304 -18,398Credit related transactions -5,185 0Other transactions -119 58Result from available for sale financial investments -16,643 -4,228Result from held to maturity financial investments -18,845 6,800Result from partcipating interests and operating lease assets 37,981 16,328Income from financial investments 234 -12,457In 2006 the item result from revaluation of derivatives comprises an amount of ‰ 16,327 thousand resulting from the closing ofa cash flow hedge.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


11) Income taxesin ‰ thsd. 2007 2006Current income taxes -47,125 -26,813Deferred income taxes 4,893 -4,228Income taxes NÖ Hypo -1,126 1,268Income taxes for the current fiscal year -43,358 -29,773Income taxes from previous periods 1,147 -16,884Income taxes -42,211 -46,657In 2006 the item income taxes from previous periods includes subsequent tax pay-ments resulting from tax audits of two fullyconsolidated companies.The reconciliation calculation below shows the relationship between the imputed and reported tax expenditure:in ‰ thsd. 2007 2006Annual result before taxes - continued operations 368,588 286,096Annual result before taxes - NÖ Hypo 19,533 23,336Pre-tax profit for the year - Total 388,121 309,433Computed income tax 25 % 97,030 77,358Tax relief resulting fromtax-exempt investment income -29,647 -33,162investment allowances -1,174 -3,463other tax-exempt earnings -17,555 -5,205release of tax asset Section 9 para, 7 Austrian Corporation Tax Act 3,971 3,971non-tax deductible impairment of goodwill 308 536changes in tax rates -1,100 312different foreign tax rates -16,465 -16,671other differences 7,991 6,095Reported income taxes 43,358 29,773of which NÖ Hypo 1,126 -1,268Effective tax rate - continued operations 11,46 % 10,85 %Effective tax rate - including NÖ Hypo 11,17 % 9,62 %Deferred taxes totalling ‰ 1,757 thousand (2006: ‰ 33,636 thousand) were directly offset against equity in the year of reporting.No provision for deferred taxes was made from tax losses carried forward amounting to ‰ 9,535 thousand (2006: ‰ 36,947 thousand).As a result of the deconsolidation of NÖ Hypo, tax losses carried forward amounting to ‰ 21,288 thousand, for which no deferredtaxes were set aside, are no longer reported. In 2007, no value adjustments were made to deferred taxes on tax losses carried forward,as in the opinion of the management it appears probable that these tax losses carried forward can be offset against profit.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance81FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


12) Earnings per share (excluding own shares)Continued operations:in ‰ or units 2007 2006Consolidated net income - continued operations 207,321,529 145,605,759less preferential dividends *) -11,774,227 -10,602,519Retained income for the year 195,547,303 135,003,240of which pertaining to shares 188,444,950 130,131,792of which pertaining to participation capital 7,102,353 4,871,449Average number of shares outstanding 42,102,379 42,247,586Average number of participation certificate outstanding 158,746 158,218Earnings per share 4.48 3.08Earnings per participation certificate 44.74 30.79*)for preferred shares and participation capitalIncluding NÖ Hypo:in ‰ or units 2007 2006Consolidated net income - including NÖ Hypo 219,682,129 155,158,692less preferential dividends *) -11,774,227 -10,602,519Retained income for the year 207,907,903 144,556,173of which pertaining to shares 200,356,608 139,340,017of which pertaining to participation capital 7,551,295 5,216,156Average number of shares outstanding 42,102,379 42,247,586Average number of participation certificate outstanding 158,746 158,218Earnings per share 4.76 3.30Earnings per participation certificate 47.57 32.97*) for preferred shares and participation capitalAs no contingent rights to convertible bonds or warrants were outstanding on the balance sheet dates of fiscal 2006 and fiscal2007, the need for calculating diluted earnings per share did not arise.Dividend payment including participation capitalin ‰ thsd. 2007 2006Dividends voting capital 23,092 17,348Dividends non voting capital 12,989 8,511Total 36,081 25,859At the General Meeting to be held on May 29, 2008, the Managing Board of VBAG will propose that ‰ 0.5816 per share entitled todividend plus a dividend of ‰ 3.635 or ‰ 5.853 per preference share (depending on the tranche) be paid. For participation certificatesentitled to dividend of tranches untill 1988 the Managing Board of VBAG will propose that a dividend of ‰ 9.00 and for participationcertificates issued 2006 and entitled to dividend a dividend of 3,851.6116 for each be paid.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


Notes to the Consolidated Balance Sheet13) Liquid fundsin ‰ thsd. Dec. 31, 2007 Dec. 31, 2006Cash in hand 135,777 96,663Balances with central banks 3,064,615 1,103,202Liquid funds 3,200,392 1,199,86514) Loans and advances to credit institutionsin ‰ thsd. Dec. 31, 2007 Dec. 31, 2006measured at fair value through profit or loss 213,067 370,697measured available for sale 412,304 234,448measured at amortised costs 10,742,467 5,414,514Loans and advances to credit institutions 11,367,838 6,019,658Breakdown by residual lifein ‰ thsd. Dec. 31, 2007 Dec. 31, 2006on demand 813,150 840,909up to 3 months 5,530,520 2,224,841up to 1 year 683,272 1,220,569up to 5 years 2,168,186 1,013,364more than 5 years 2,172,710 719,975Loans and advances to credit institutions 11,367,838 6,019,65815) Loans and advances to customersin ‰ thsd. Dec. 31, 2007 Dec. 31, 2006measured at fair value through profit or loss 3,532,287 3,822,200measured available for sale 1,487,605 850,229measured at amortised costs 34,027,923 26,437,170Loans and advances to customers 39,047,815 31,109,599Breakdown by residual lifein ‰ thsd. Dec. 31, 2007 Dec. 31, 2006on demand 1,857,124 1,374,252up to 3 months 1,851,520 2,223,316up to 1 year 2,972,824 2,067,487up to 5 years 9,914,595 8,222,780more than 5 years 22,451,752 17,221,764Loans and advances to customers 39,047,815 31,109,599SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance83FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


Financial lease operationsmorein ‰ thsd. up to 1 year up to 5 years than 5 years Total2007Total gross investment 1,203,017 2,070,891 561,320 3,835,228Less payed non-interest bearing deposits -970 -7,164 -5,136 -13,270Less unearned financial income -162,495 -247,684 -186,844 -597,023Present value of minimum lease payments 1,039,552 1,816,043 369,340 3,224,935Total residual value not guaranteed 57,7112006Total gross investment 1,001,080 1,638,057 360,777 2,999,914Less payed non-interest bearing deposits -3,339 -11,434 -314 -15,086Less unearned financial income -142,010 -188,042 -113,787 -443-839Present value of minimum lease payments 855,731 1,438,581 246,676 2,540,988Total residual value not guaranteed 43.777The present value of minimum lease payments is measured at amortised costs and recognised under the items loans and advancesto credit institutions and customers.The present value of minimum lease payments corresponds to the fair value of financial leasing transactions, as such contracts arebased on a variable interest rate.Loans and advances to credit institutions and to customers measured at fair value through profit or lossLoans and advances to credit institutions and to customers have been designated to the category at fair value through profit or lossas the Group manages these receivables on a fair value basis in accordance with its investment strategy. Internal reporting andperformance measurement of these receivables are conducted on a fair value basis.On December 31, 2007, the maximum credit risk for loans and advances measured at fair value through profit or loss stood at‰ 3,745,354 thousand (2006: ‰ 4,192,896 thousand).In 2007 and 2006 no credit risk changes occured in the fair value of loans and ad-vances to credit institutions and customers measuredat fair value through profit and loss.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


16) Risk provisionsIndividual Individualimpairment credit impairment Portfolioin ‰ thsd. institutions customers allowance TotalAs at Jan. 1, 2006 2,481 420,136 14,960 437,577Changes in the scope of consolidation 0 -37,868 -1,866 -39,734Currency translation -58 4,002 229 4,173Reclassification 0 3,372 -123 3,249Used 0 -18,689 0 -18,689Released -86 -94,221 -14,966 -109,272Addition 1,500 143,156 20,798 165,454As at Dec, 31, 2006 3,838 419,887 19,033 442,758Changes in the scope of consolidation 0 1,658 1,690 3,348Currency translation -69 443 442 816Reclassification 31 1,153 -1,029 154Used 0 -31,007 -1 -31,007Released -3,049 -105,416 -18,368 -126,833Addition 16 148,066 65,096 213,178As at Dec. 31, 2007 766 434,785 66,863 502,414The amount of used risk provisions includes also the unwinding effect amounting to ‰ -2,603 thousand (2006: ‰ -2,435 thousand)which is shown under net interest income. Loans and advances to customers comprise non-interest bearing receivables amountingto ‰ 204,492 thousand (2006: ‰ 174,691 thousand). The column Reclassification reflects the regrouping of provisions for risks.17) Trading assetsin ‰ thsd. Dec. 31, 2007 Dec. 31, 2006Debt securities 434,262 692,668Equity and other variable-yield securities 29,767 12,474Positive fair value from derivatives 544,710 404,751foreign exchange transactions 46,378 28,568interest rate related transactions 405,161 264,279credit related transactions 12,969 2,358other transactions 80,201 109,547Trading assets 1,008,738 1,109,894Breakdown by residual lifein ‰ thsd. Dec. 31, 2007 Dec. 31, 2006up to 3 months 7,037 1,975up to 1 year 21,080 30,217up to 5 years 151,413 344,434more than 5 years 254,732 316,043Debt securities 434,262 692.668SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance85FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


18) Financial investmentsin ‰ thsd. Dec. 31, 2007 Dec. 31, 2006Financial investments at fair value through profit or loss 6,695,786 9,479,042Debt securities 6,438,079 9,265,396Equity and other variable-yield securities 257,707 213,645Financial investments available for sale 7,463,369 4,492,723Debt securities 7,422,153 4,318,578Equity and other variable-yield securities 41,215 174,145Finanzinvestitionen held to maturity 4,036,384 3,200,431Financial investments 18,195,539 17,172,195In 2007, debt securities designated to the category at fair value through profit or loss were increasingly sold. Following the reorientationof the VBAG Group's hedging strategy, newly acquired debt securities will be covered by micro hedges from now on and willbe assigned to the category available for sale.Under the item financial investments held to maturity, deferred interest of ‰ 93,343 thousand (2006: ‰ 78,380 thousand) is reportedin 2007.Breakdown by residual lifein ‰ thsd. Dec. 31, 2007 Dec. 31, 2006up to 3 months 759,030 188,244up to 1 year 1,169,067 756,444up to 5 years 6,045,935 6,058,246more than 5 years 9,922,585 9,781,471Debt securities 17,896,617 16,784,405Breakdown of debt securities in accordance with the Austrian Banking Act(fiscal 2006: including the figures of NÖ Hypo).in ‰ thsd. Dec. 31, 2007 Dec. 31, 2006Listed securities 16,177,013 14,667,240Securities dedicated to fixed assets 9,689,776 7,864,279Securities eligible for rediscounting 8,255,840 5,439,001Financial investment measured at fair value through profit or lossFinancial investments have been designated to the category at fair value through profit or loss as the Group manages these investmentson a fair value basis in accordance with its investment strategy. Internal reporting and performance measurement of theseinvestments are conducted on a fair value basis.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


19) Assets for operating leaseOtherInvestmentoperatingin ‰ thsd. properties lease assets TotalAcquisition costs as at Jan. 1, 2006 721,680 22,177 743,857Changes in the scope of consolidation -8,926 -2,923 -11,849Currency translation -24,636 539 -24,096Additions, including transfers 142,682 9,935 152,617Disposals, including transfers -25,605 -2,631 -28,236Acquisition costs as at Dec. 31, 2006 805.196 27.098 832.293Changes in the scope of consolidation 0 -5.833 -5.833Currency translation -26.023 24 -25.999Additions, including transfers 376.598 26.855 403.453Disposals, including transfers -46.278 -4.296 -50.573Acquisition costs as at Dec. 31, 2007 1,109,493 43,848 1,153.341OtherInvestmentoperatingin ‰ thsd. properties lease assets Total2007Acquisition costs as at Dec. 31, 2007 1,109,493 43,848 1,153,341Cumulative write-offs and write-ups 273,557 -9,101 264,456Carrying amount as at Dec. 31, 2007 1,383,050 37,747 1,417,796Write-offs in fiscal year 0 -4,314 -4,314Write-ups in fiscal year 97,311 0 97,3112006Acquisition costs as at Dec. 31, 2006 805,196 27,098 832,293Cumulative write-offs and write-ups 144,985 -5,785 139,200Carrying amount as at Dec. 31, 2006 950,180 21,312 971,493Write-offs in fiscal year 0 -3,910 -3,910Write-ups in fiscal year 92,999 0 92,999Carrying amount as at Jan 1, 2006 743,910 18,612 762.522Under the item investment properties, 27 real estate objects (2006: 23 objects) are reported, which are primarily located in thecountries of Central and Eastern Europe.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance87FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


20) Companies measured at equityAdditional information on companies measured at equity:in ‰ thsd. 2007 2006Total assets added at Dec. 31 8,284,107 6,518,015Equity added as at Dec, 31 312,189 192,784Net income added 26,217 17,12021) Participationsin ‰ thsd. Dec. 31, 2007 Dec. 31, 2006Investments in affiliates not consolidated 143,252 59,686Participating interests 81,922 80,248Investments in other companies 24,244 92,445Participations 249,417 232,379Companies measured at equity and participations comprise divestments of holdings in 2007, totalling a carrying amount of ‰ 74,086thousand (2006: ‰ 37,831 thousand). Proceeds from these divestments amounted to ‰ 27,853 thousand (2006: ‰ 6,780 thousand)and are shown under income from financial investments.All participations are valued at amortised costs. No participation is listed on a stock exchange.22) Intangible fixed assetsin ‰ thsd. Software Goodwill Other TotalAcquisition costs as at Jan. 1, 2006 60,317 315,111 52,398 427,826Changes in the scope of consolidation -3,444 0 -3 -3,447Currency translation 1,296 433 39 1,769Additions, including transfers 8,091 36,950 448 45,490Disposals, including transfers -1,463 -3,331 -780 -5,574Acquisition costs as at Dec. 31, 2006 64,798 349,164 52,103 466,064Changes in the scope of consolidation 829 0 0 829Currency translation 426 -2,034 6 -1,603Additions, including transfers 14,795 42,373 1,031 58,199Disposals, including transfers -1,416 -1,760 -262 -3,438Acquisition costs as at Dec. 31, 2007 79,431 387,743 52,877 520.051THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


in ‰ thsd. Software Goodwill Other Total2007Acquisition costs as at Dec. 31, 2007 79,431 387,743 52,877 520,051Cumulative write-offs and write-ups -55,146 -7,540 -2,279 -64,964Carrying amount as at Dec. 31, 2007 24,285 380,203 50,599 455,087Depreciation in fiscal year -8,303 0 -697 -9,001Impairment in fiscal year -579 -1,234 0 -1,8132006Acquisition costs as at Dec. 31, 2006 64,798 349,164 52,103 466,064Cumulative write-offs and write-ups -46,269 -7,840 -1,589 -55,697Carrying amount as at Dec. 31, 2006 18,529 341,323 50,514 410,367Depreciation in fiscal year -8,809 0 -543 -9,352Impairment in fiscal year -1 -2,146 0 -2,147Carrying amount as at Jan. 1, 2006 19,546 307,097 51,156 377.798Under the item goodwill, primarily the goodwill of the Investkredit sub-group is reported at a carrying amount of ‰ 31,563 thousand(2006: ‰ 31,563 thousand), and the Kommunalkredit sub-group at a carrying amount of ‰ 125,497 thousand (2006: ‰ 125,723thousand) and the Europolis sub-group at a carrying amount of ‰ 177,310 thousand (2006: ‰ 172,203 thousand).23) Tangible fixed assetsOfficeEDP furnitureLand and equipment andin ‰ thsd. buildings (hardware) equipment Other TotalAcquisition costs as at Jan. 1, 2006 244,096 45,232 145,982 22,650 457,959Changes in the scope of consolidation -39,722 -4,240 -22,743 -2,288 -68,993Currency translation 3,194 1,652 2,239 385 7,470Additions, including transfers 44,927 12,257 18,201 10,555 85,940Disposals, including transfers -27,751 -3,306 -8,601 -4,998 -44,656Acquisition costs as at Dec. 31, 2006 224,742 51,595 135,079 26,304 437,720Changes in the scope of consolidation 24,177 436 1,445 3,656 29,715Currency translation 1,115 497 696 156 2,464Additions, including transfers 21,201 14,651 19,184 11,234 66,270Disposals, including transfers -7,266 -3,561 -11,792 -5,394 -28,014Acquisition costs as at Dec. 31, 2007 263,969 63,618 144,611 35,956 508,154SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance89FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


OfficeEDP furnitureLand and equipment andin ‰ thsd. buildings (hardware) euipment Other Total2007Acquisition costs as at Dec. 31, 2007 263,969 63,618 144,611 35,956 508,154Cumulative write-offs and write-ups -53,713 -39,848 -91,893 -14,291 -199,745Carrying amount as at Dec. 31, 2007 210,256 23,771 52,718 21,665 308,409Depreciation in fiscal year -8,070 -7,756 -13,103 -3,830 -32,758Impairment in fiscal year -242 -159 -108 -4 -5132006Acquisition costs as at Dec. 31, 2006 224,742 51,595 135,079 26,304 437,720Cumulative write-offs and write-ups -44,743 -32,478 -86,819 -11,527 -175,568Carrying amount as at Dec. 31, 2006 179,999 19,117 48,259 14,777 262,152Depreciation in fiscal year -7,254 -6,379 -14,510 -3,070 -31,213Impairment in fiscal year -324 -6 -117 -43 -490Carrying amount as at Jan. 1, 2006 181,230 13,909 54,552 12,736 262,42724) Tax assetsin ‰ thsd. Dec. 31, 2007 Dec. 31, 2006Current income tax assets 39,674 33,392Deferred income tax assets 101,616 89,033Tax assets 141,291 122,425THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


The table below shows the differences resulting from the balance sheet figures re-ported in accordance with Austrian tax legislationand in accordance with IFRS, leading to deferred tax assets:in ‰ thsd. Dec. 31, 2007 Dec. 31, 2006Loans and advances to credit institutions 28,200 21,522Loans and advances to customers, including risk provisions 40,962 24,565Trading assets 84 186Financial investments 12,507 1,723Participations 1,271 1,347Intangible and tangible fixed assets 48,079 52,069Amounts owed to credit institutions 0 691Amounts owed to customers 0 1,220Debts evidenced by certificates 10,880 34,718Trading liabilities 3,319 689Provisions for pensions, severance payments and other provisions 13,626 17,541Other assets and liabilities 484,857 479,505Other balance sheet items 0 254Tax losses carried forward 28,103 31,995Deferred taxes before netting 671,889 668,028Offset against liabilities-side deferred taxes -570,273 -574,367Reported deferred income tax claims 101,616 93,660of which NÖ Hypo 0 4,627Deferred tax assets and deferred tax liabilities can be offset only within the same company.25) Other assetsin ‰ thsd. Dec. 31, 2007 Dec. 31, 2006Deferred items 34,793 27,187Other receivables and assets 1,218,483 956,557Positive fair value from derivatives (investment book) 2,394,553 2,093,892Other assets 3,647,829 3,077,635The table below indicates the fair values of derivatives which are used in hedge ac-counting in accordance with IFRS.Dec. 31, 2007 Dec. 31, 2006in ‰ thsd. Fair value hedge Cash flow hedge Fair value hedge Cash flow hedgeExchange rate related transactions 86,319 0 207,786 5,423Interest rate related transactions 1,036,976 2,987 1,040,676 4,372Other transactions 249,936 0 257,446 0Positive fair value from derivates 1,373,231 2,987 1,505,907 9,795SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance91FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


26) Amounts owed to credit institutionsBreakdown by residual lifein ‰ thsd. Dec. 31, 2007 Dec. 31, 2006on demand 3,189,598 3,915,317up to 3 months 11,950,990 6,508,592up to 1 year 2,821,821 1,580,118up to 5 years 2,317,936 601,513more than 5 years 3,920,109 777,431Amounts owed to credit institutions 24,200,454 13,382,97127) Amounts owed to customersin ‰ thsd. Dec. 31, 2007 Dec. 31, 2006measured at fair value through profit or loss 10,253 1,111measured at amortised costs 10,840,668 8,086,021Savings deposits 1,468,830 1,372,500Other deposits 9,371,838 6,713,521Amounts owed to customers 10,850,921 8,087,131Amounts owed to customers have been designated to the category at fair value through profit or loss as the Group manages thesefinancial liabilities on a fair value basis in accordance with its investment strategy or because derivatives are embedded in theseliabilities. Internal reporting and performance measurement of these liabilities are conducted on a fair value basis.The carrying amount of the amounts owed to customers designated at fair value through profit or loss is ‰ 44 thousand (2006: ‰ 24thousand) higher than the contractual amount at maturity.Breakdown by residual lifein ‰ thsd. Dec. 31, 2007 Dec. 31, 2006on demand 4,578,316 3,998,270up to 3 months 3,121,347 1,893,950up to 1 year 1,372,650 845,548up to 5 years 450,657 400,731more than 5 years 1,372,950 948,632Amounts owed to customers 10,850,921 8,087,131THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


28) Debts evidenced by certificatesin ‰ thsd. Dec. 31, 2007 Dec. 31, 2006measured at fair value through profit or loss 161,310 151,578measured at amortised costs 32,947,403 30,694,098Debts evidenced by certificates 33,108,714 30,845,675Debts evidenced by certificates have been designated to the category at fair value through profit or loss as the Group managesthese financial liabilities on a fair value basis in accordance with its investment strategy or because derivatives are embedded inthese liabilities, Internal reporting and performance measurement of these liabilities are conducted on a fair value basis.The carrying amount of debts evidenced by certificates which are reported at fair value through profit or loss exceeds the redemptionamount at the end of the life of such certificates by ‰ 8,838 thousand (2006: ‰ 1,584 thousand).In 2007 the valuation of liabilities, which is recognised directly in the income statement, includes a change of fair value amountingto ‰ 2,480 thousand (2006: none), which can be attributed to a change in credit risk.in ‰ thsd. Dec. 31, 2007 Dec. 31, 2006Mortgage and local authority bonds 168,634 85,761Bonds 32,881,112 30,704,137Medium-term notes 58,967 55,777Debts evidenced by certificates 33,108,714 30,845,675Breakdown by residual lifein ‰ thsd. Dec. 31, 2007 Dec. 31, 2006up to 3 months 5,302,494 4,855,517up to 1 year 5,474,655 4,369,307up to 5 years 11,586,412 12,374,673more than 5 years 10,745,151 9,246,178Debts evidenced by certificates 33,108,714 30,845,67529) Trading liabilitiesin ‰ thsd. Dec. 31, 2007 Dec. 31, 2006Negative fair value from derivativesExchange rate related transactions 47,656 38,364Interest rate related transactions 200,557 94,987Credit related transactions 13,276 2,755Other transactions 67,535 107,130Trading liabilities 329,024 243,236SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance93FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


30) ProvisionsProvisionsOtherin ‰ thsd. for risk provisions TotalAs at Jan. 1, 2006 33,039 54,932 87,971Changes in the scope of consolidation -210 -4,027 -4,237Currency translation 46 70 116Reclassification -1,991 -1,241 -3,232Used -393 -35,103 -35,496Released -5,669 -6,911 -12,580Addition 9,116 39,154 48,270As at Dec. 31, 2006 33,939 46,873 80,812Changes in the scope of consolidation 59 -21 39Currency translation 11 242 254Reclassification -150 0 -150Used -1,132 -19,997 -21,129Released -6,291 -1,952 -8,243Addition 11,328 51,716 63,044As at Dec. 31, 2007 37,764 76,863 114,627The item other provisions comprises provisions set aside for obligations which are likely to lead to an outflow of resources in thefuture. These provisions are set aside for projects due to regulatory obligations, and pending legal proceedings.31) Long-term employee provisionsProvisions ProvisionsProvisions for for severance for anniversaryin ‰ thsd. pensions payments bonuses TotalLong-term employee provisions as at Jan. 1, 2006 114,234 38,773 5,013 158,020Current service costs 1,070 3,321 426 4,817Interest costs 5,721 2,051 242 8,013Payments -7,472 -2,438 -238 -10,148Actuarial gains or losses 12,738 3,984 -134 16,588Net present value as at Dec. 31, 2006 126,290 45,692 5,309 177,291Unrecognised actuarial gains or losses -12,629 -3,984 0 -16,613Long-term employee provisions as at Dec. 31, 2006 113,661 41,708 5,309 160,678Changes in the scope of consolidation -23,829 -7,501 -877 -32,207Current service costs 974 2,825 391 4,191Interest costs 4,534 1,744 214 6,492Payments -5,253 -2,552 -216 -8,021Actuarial gains or losses 12,312 -700 -220 11,392Net present value as at Dec. 31, 2007 102,399 35,524 4,602 142,524Unrecognised actuarial gains or losses -10,240 700 0 -9,540Long-term employee provisions as at Dec. 31, 2007 92,159 36,224 4,602 132,985The divestment of NÖ Hypo in 2007 is shown under changes in the scope of consolidation.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


Net present value of plan assets:Provisionsin ‰ thsd.for pensionsNet present value of plan assets as at Jan. 1, 2006 42,314Return on plan assets 1,587Contributions 2,097Payments -1,572Actuarial gains or losses -1,085Net present value of plan assets as at Dec. 31, 2006 43,341Return on plan assets 1,203Contributions 2,159Payments -1,615Actuarial gains or losses -1,239Net present value of plan assets as at Dec. 31, 2007 43,848Provisions forforProvisions for servance anniversaryin ‰ thsd. pensions payments bonuses TotalDec. 31, 2007Long-term employee provisions 92,159 36,224 4,602 132,985Net present value of plan assets -43,848 0 0 -43,848Net liability recognised in balance sheet 48,311 36,224 4,602 89,136Dec. 31, 2006Long-term employee provisions 113,661 41,708 5,309 160,678Net present value of plan assets -43,341 0 0 -43,341Net liability recognised in balance sheet 70,320 41,708 5,309 117,337of which NÖ Hypo 23,829 7,519 877 32,225Historical informationin ‰ thsd. 2007 2006 2005 2004 2003Net present value of the obligation 142,524 177,291 175,025 83,884 81,601Net present value of plan assets 43,848 43,341 42,314 0 0SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance95FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


32) Tax liabilitiesin ‰ thsd. Dec. 31, 2007 Dec. 31, 2006Current income tax liabilities 30,996 25,065Deferred income tax liabilities 129,774 76,221Tax liabilities 160,770 101,286The table below shows the differences resulting from the balance sheet figures re-ported in accordance with Austrian tax legislationand IFRS, leading to deferred in-come tax liabilities:in ‰ thsd. Dec. 31, 2007 Dec. 31, 2006Loans and advances to credit institutions 69 232Loans and advances to customers, including risk provisions 29,647 90,877Trading assets 6,737 983Financial investments 5,683 4,362Assets for operating lease 82,044 37,369Participations 9,268 4,999Intangible and tangible fixed assets 21,866 18,095Amounts owed to credit institutions 28,987 16,887Amounts owed to customers 27,197 169Debts evidenced by certificates 146,092 164,842Provisions for pensions, severance payments and other provisions 2,608 3,652Other assets and liabilities 315,350 286,485Other balance sheet items 24,498 44,397Deferred income tax liabilities before netting 700,047 673,349Offset against asset-side deferred income taxes -570,273 -574,367Reported deferred income tax liabilities 129,774 98,982of which NÖ Hypo 0 22,76033) Other liabilitiesin ‰ thsd. Dec. 31, 2007 Dec. 13, 2006Deffered items 57,743 54,274Other liabilities 1,450,944 1,025,656Negative fair value from derivatives (investment book) 3,364,637 2,991,546Other liabilities 4,873,324 4,071,476The table below indicates the fair values of derivatives which are used in hedge ac-counting in accordance with IFRS.Dec. 31, 2007 Dec. 31, 2006in ‰ thsd. fair value hedge cash flow hedge fair value hedge cash flow hedgeExchange rate related transactions 197,573 13,792 159,665 5,430Interest rate related transactions 1,627,476 1,135 1,668,526 1,658Other transactions 281,468 0 180,876 93Negative fair value from derivatives 2,106,517 14,927 2,009,067 7,181THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


34) Subordinated liabilitiesin ‰ thsd. Dec. 31, 2007 Dec. 31, 2006measured at fair value through profit or loss 1,338,282 1,195,630measured at amortised costs 628,198 621,859Subordinated capital 1,966,480 1,817,489Subordinated liabilities have been designated to the category at fair value through profit or loss as the Group manages these financialliabilities on a fair value basis in accordance with its investment strategy or because derivatives are embedded in these liabilities.Internal reporting and performance measurement of these liabilities are conducted on a fair value basis. The carrying amount of thesubordinated capital measured at fair value through profit or loss with an amount of ‰ 6,989 thousand is below the redemptionamount at the end of maturity (2006: carrying amount exceeds the redemption amount with ‰ 9,858 thousand).in ‰ thsd. Dec. 31, 2007 Dec. 31, 2006Subordinated liabilities 57,511 74,358Supplementary capital 1,908,969 1,743,131Subordinated liabilities 1,966,480 1,817,489The item subordinated liabilities comprises hybrid tier one capital standing at ‰ 422,442 thousand (2006: ‰ 424,606 thousand) onthe balance sheet date.Breakdown by residual lifein ‰ thsd. Dec. 31, 2007 Dec. 31, 2006up to 3 months 9,320 189,100up to 1 year 50,675 110up to 5 years 787,562 140,414more than 5 years 1,118,923 1,487,866Subordinated liabilities 1,966,480 1,817,48935) EquityAs at December 31, 2007, the share capital of VBAG, before deduction of treasury stocks, stood at ‰ 311,095 thousand. It consistsof individual share certificates as indicated below:in ‰ thsd.10 registered shares 040,124,990 bearer shares 291,7092,666,666 non-voting preferred bearer shares 19,386311,095In return for waiving their voting rights, holders of preferred bearer shares receive a special dividend, the amount of which will bedetermined by VBAG’s business performance.In addition to its share capital, VBAG reported participation capital at a nominal value of ‰ 34,078 thousand (2006: ‰ 34,078 thousand).The participation certificates are made out to bearers, their terms of issue and the contributions paid correspond to the provisionsof Section 23, para 4, of the Austrian Banking Act.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance97FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


Changes in subscribed capitalDec. 31, 2007 Dec. 31, 2006ParticipationParticipationNumber of units Shares certificates Shares certificatesShares and participation certificates outstanding as at Jan. 1 42,102,698 159,812 42,394,875 157,054Disposal of treasury stocks and participation certifcates 0 3,195 0 3,929Addition of treasury stocks and participation certifcates -633 -5,309 -292,177 -1,620Capital increase 0 0 0 449Shares and participation certificates outstanding as at Dec. 31 42,102,065 157,698 42,102,698 159,812Treasury stocks and participation certificates 689,601 2,751 688,968 637Shares and participation certificates as at Dec. 31 42,791,666 160,449 42,791,666 160,449In accordance with the resolution adopted by the general meeting on May 24, 2006, the board was authorised to raise VBAG’sshare capital by ‰ 32 million by May 31, 2011 through the issue of new shares against cash payment subject to the consent of thesupervisory board.The own funds of the VBAG Group of credit institutions which were calculated pursu-ant to the Austrian Banking Act can be brokendown as follows (the figures as at December 31, 2006 include the figures of NÖ Hypo):in ‰ thsd. Dec. 31, 2007 Dec. 31, 2006Subscribed capital (less treasury stocks) 330,853 331,626Open reserves (including differential amounts and minority interests) 2,447,604 2,342,487Funds for general banking risks 21,730 16,515Intangible assets -25,251 -20,286Net loss -8,171 -6,574Core capital (tier I capital) 2,766,765 2,663,768Supplementary capital 540,056 517,640Eligible subordinated liabilities 910,464 910,705Hidden reserves pursuant to Section 57, para, 1 of the Austrian Banking Act 115,702 105,943Revaluation reserves 1,612 4,237Supplementary capital (tier II capital) 1,567,834 1,538,525Short-term subordinated liabilities (tier III capital) 6,772 2,094Total equity (qualifying capital) 4,341,371 4,204,387Less amounts pursuant to Section 23, para. 13, and Section 29,para. 1 and 2 of the Austrian Banking Act -83,540 -89,898Eligible qualifying capital 4,257,831 4,114,489Capital requirement 3,138,259 2,762,810Surplus capital 1,119,572 1,351,679Core capital ratio (tier I) (in relation to the assessment base pursuant to Section 22, para. 2 of the Austrian Banking Act) 7,19 % 7,86 %Equity ratio (solvency ratio) (in relation to the assessment base pursuant to Section 22, para. 2 of the Austrian Banking Act) 11,06 % 12,14 %Core capital ratio (tier I) (incl. capital requirement pursuant to Section 26 and Section 22b, para. 1 of the Austrian Banking Act) 7,05 % 7,71 %Equity ratio (solvency ratio) (incl. capital requirement pursuant to Section 26 and Section 22b, para. 1 of the Austrian Banking Act) 10,85 % 11,91 %The item open reserves includes the hybrid tier one capital totalling ‰ 422,442 thousand (2006: ‰ 424,606 thousand).THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


The risk-weighted assessment base as defined in the Austrian Banking Act and the ensuing equity requirement showed the followingchanges:in ‰ thsd. Dec. 31, 2007 Dec. 31, 2006Risk-weighted assessment base pursuant to Section 22 para. 2 of the Austrian Banking Act 38,502,339 33,894,500of which minimum capital requirement of 8 % 3,080,187 2,711,560Capital requirement for the open foreign exchange position pursuant to Section 26of the Austrian Banking Act 4,888 9,453Capital requirement for the securities trading book pursuant to Section 22b,para. 1 of the Austrian Banking Act 53,184 41,797Total capital requirement 3,138,259 2,762,810It is worth noting that in accordance with IFRS reporting, the scope of consolidation differs from the group of consolidated companiesunder the Austrian Banking Act as the IFRS provides for the inclusion of other enterprises not belonging to the banking sector, whereasthe Austrian Banking Act stipulates that the group of consolidated companies should consist exclusively of credit and financial institutionsas well as banking-related auxiliary service providers. According to the Austrian Banking Act, credit institutions, financial institutionsand subsidiaries providing banking related auxiliary services under control are fully consolidated. The carrying amount of financialinstitutions and subsidiaries providing banking related auxiliary services under control but not significant for the presentation of thegroup of credit institutions according to Section 24 para. 3a of the Austrian Banking Act is deducted from own funds. Subsidiarieswhich are managed jointly with non-Group companies are proportionate consolidated. Holdings in credit and financial institutionswith a share between 10 % and 50 %, which are not under joint management, are also deducted from own funds, unless they arenot voluntarily included on a pro-rata basis. Holdings of lower than 10 % in credit and financial institutions are deducted from ownfunds only if the exemption threshold is crossed. All other participating interests are taken into account in the assessment base attheir carrying amounts.In 2007 no substantial, practical or legal obstacles existed which would have prevented the transfer of equity or the repayment ofliabilities between the senior institution and institutions subordinated to the former.36) Financial assets and liabilitiesThe table below shows the classification of financial assets and liabilities in accordance with their individual categories and their fairvalues.Some financial investments and liabilities are assigned to categories, in which the changes in their fair values are not shown in theincome statement. However, such financial instruments are underlying instruments for fair value hedging as regards interest rateand currency risks. Hence these instruments are measured at fair values as regards hedged interest rate and currency risk.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance99FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


Carrying amounts of underlyings to fair value hedges:in ‰ thsd. Interest-rate risk Currency riskDec. 31, 2007Loans and advances to credit institutions 509,833 0Loans and advances to customers 4,822,844 13,786Financial investments 3,883,158 0Amounts owed to credit institutions 1,077,865 0Amounts owed to customers 1,224,449 0Debts evidenced by certificates 22,948,210 211,685Subordinated liabilities 280,732 0Dec. 31, 2006Loans and advances to credit institutions 560,105 0Loans and advances to customers 3,752,135 13,203Financial investments 1,096,674 0Amounts owed to credit institutions 315,832 132,465Amounts owed to customers 867,216 0Debts evidenced by certificates 17,380,538 110,179Subordinated liabilities 0 0At fair valueCarryingHeld for through Held to Available Amortised amount -in ‰ thsd. Note trading profit or loss maturity for sale costs Total Fair valueDec. 31, 2007Liquid funds 13 0 0 0 0 3,200,392 3,200,392 3,200,392Loans and advancesto credit institutions 14 0 213,067 22,724 412,304 10,719,742 11,367,838 11,365,814Loans and advances to customers 15 0 3,532,287 31,075 1,487,605 33,996,848 39,047,815 38,336,873Trading assets 17 1,008,738 0 0 0 0 1,008,738 1,008,738Financial investments 18 0 6,695,786 4,036,384 7,463,369 0 18,195,539 17,962,957Assets for operating lease 19 0 0 0 0 1,417,796 1,417,796 1,417,796Companies measuredat equity, participations 20, 21 0 0 0 0 352,508 352,508 387,400Derivatives - investment book 25 2,394,553 0 0 0 0 2,394,553 2,394,553Financial assets - Total 3,403,291 10,441,140 4,090,184 9,363,278 49,687,287 76,985,181 76,074,523Amounts owed to credit institutions 26 0 0 0 0 24,200,454 24,200,454 24,122,410Amounts owed to customers 27 0 10,523 0 0 10,840,668 10,850,921 10,833,969Debts evidenced by certificates 28 0 161,310 0 0 32,947,403 33,108,714 32,434,186Trading liabilities 29 329,024 0 0 0 0 329,024 329,024Derivatives - investment book 33 3,364,637 0 0 0 0 3,364,637 3,364,637Subordinaded liabilities 34 0 57,511 0 0 1,908,969 1,966,480 1,845,198Financial liabilities - Total 3,693,661 229,073 0 0 69,897,495 73,820,229 72,929,425THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


At fair valueCarryingHeld for through Held to Available Amortised amount -in ‰ thsd. Note trading profit or loss maturity for sale Costs Total Fair valueDec. 31, 2006Liquid funds 13 0 0 0 0 1,199,865 1,199,865 1,199,865Loans and advances to credit institutions 14 0 370,697 8,703 234,448 5,405,811 6,019,658 5,992,865Loans and advances to customers 15 0 3,822,200 32,718 850,229 26,404,451 31,109,599 30,641,679Trading assets 17 1,109,894 0 0 0 0 1,109,894 1,109,894Financial investments 18 0 9,479,042 3,200,431 4,492,723 0 17,172,195 17,186,123Assets for operating lease 19 0 0 0 0 971,493 971,493 971,493Companies measuredat equity, participations 20, 21 0 0 0 0 317,271 317,271 342,516Derivatives - investment book 25 2,093,892 0 0 0 0 2,093,892 2,093,892Financial assets - Total 3,203,786 13,671,938 3,241,852 5,577,400 34,298,891 59,993,867 59,538,327Financial assets of the disposal group 2 53,272 0 176,145 1,075,099 4,783,220 6,087,736 6,097,971Amounts owed to credit institutions 26 0 0 0 0 13,382,971 13,382,971 13,320,400Amounts owed to customers 27 0 1,111 0 0 8,086,021 8,087,131 8,157,924Debts evidenced by certificates 28 0 151,578 0 0 30,694,098 30,845,675 30,622,575Trading liabilities 29 243,236 0 0 0 0 243,236 243,236Derivatives - investment book 33 2,991,546 0 0 0 0 2,991,546 2,991,546Subordinaded liabilities 34 0 74,358 0 0 1,743,131 1,817,489 1,846,026Financial liabilities - Total 3,234,781 227,046 0 0 53,906,220 57,368,048 57,181,707Financial liabilities of the disposal group 2 0 0 0 0 5,736,515 5,736,515 6,183,953SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance101FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


37) Cash flow hedgesIn cash flow hedge accounting, interest rate swaps and cross currency swaps are used with a view to hedging the interest rate riskas well as the foreign currency risk of loans and receivables denominated in foreign currencies and carrying variable interest rates.Periods in which cash flows can be expected to occur are indicated below:Exchange rate related Interest rate relatedin ‰ thsd. transactions transactionsDec. 31, 2007up to 3 months -12 -747up to 1 year 1,358 -4,079up to 5 year 924 -31,452more than 5 years 0 -725Total 2,270 -37,004Dec. 31, 2006up to 3 months -17 -602up to 1 year 1,316 -4,588up to 5 year 2,087 -2,839more than 5 years 0 -3,456Total 3,386 -11,485Periods in which the cash flows are expected to affect profit or loss:Exchange rate related Interest rate relatedin ‰ thsd. transactions transactionsDec. 31, 2007up to 3 months -6 -790up to 1 year 1,353 -3,968up to 5 year 934 -31,118more than 5 years 0 -1,059Gesamt 2,281 -36,935Dec. 31, 2006up to 3 months 112 -1,810up to 1 year 1,526 -5,822up to 5 year 2,118 -3,403more than 5 years 0 -383Total 3,756 -11,417THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


38) Assets and liabilities denominated in foreign currenciesOn the balance sheet date, assets denominated in foreign currencies (non-MUM currencies) totalled ‰ 27,621,834 thousand (2006:‰ 22,035,462 thousand), whereas liabilities denominated in foreign currencies stood at ‰ 21,102,004 thousand (2006: ‰ 17,120,644thousand). Differences in the amounts of foreign currency denominated assets and liabilities are compensated for by derivativetransactions.39) Assets from trust transactionsin ‰ thsd. Dec. 31, 2007 Dec. 31, 2006Assets from trust transactionsLoans and advances to credit institutions 67 49,118Loans and advances to customers 196,018 135,696Financial investments 727 727Mutual funds 4,166,182 4,873,559Liabilities arising from trust transactionsAmounts owed to credit institutions 1,831 50,747Amounts owed to customers 194,980 134,794Mutual funds 4,166,182 4,873,55940) Subordinated assetsin ‰ thsd. Dec. 31, 2007 Dec. 31, 2006Loans and advances to credit institutions 124,320 3,022Loans and advances to customers 22,470 28,067Financial investments 139,888 87,80441) Assets pledged as security for the Group’s liabilitiesin ‰ thsd. Dec. 31, 2007 Dec. 31, 2006Assets pledged as securityLoans and advances to credit institutions 28,756 18,040Loans and advances to customers 422,159 558,674Financial investments 195,689 125,444Liabilities for which assets have been pledged as securityAmounts owed to credit institutions 596,642 679,362Other liabilities 20,140 18,040The secured party is not entitled to sell or repledge the collateral assets.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance103FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


42) Contingent liabilities and credit risksin ‰ thsd. Dec. 31, 2007 Dec. 31, 2006Contingent liabilitiesAcceptances and endorsements 199,141 183,074Liabilities arising from guarantees and assets pledged as collateral 14,330,115 10,107,779Others (amount guaranteed) 29,197 11,435CommitmentsLiabilities arising from sales with an option to repurchase 117,942 181,036Unutilised loan commitments 10,180,167 5,109,667The financial guarantees do not show any significant fair value.43) Repurchasing transactions and other transferred assetsOn December 31, 2007, VBAG as pledgor assumed buy-back commitments under repurchasing agreements representing an amountof ‰ 3,468,516 thousand (2006: ‰ 1,412,258 thousand).The balance sheet does not show any financial assets, for which chances and risks were retained.44) Data on business relationships with related partiesCompanies inCompanies whichwhich thethrough their holdings,Non Group has exercise a significantconsolidated participating Associated influence on thein ‰ thsd. affiliates interests companies parent companyDec. 31, 2007Loans and advances to credit institutions 1,785 285,526 617,491 19,500Loans and advances to customers 436,328 218,072 110,175 0Debt securities 0 0 623 956Amounts owed to credit institutions 2,404 640,522 29,399 1,258,563Amounts owed to customers 115,212 60,238 36,877 0Dec. 31, 2006Loans and advances to credit institutions 2,360 308,489 0 30,342Loans and advances to customers 207,729 109,455 3,770 0Debt securities 0 0 623 956Amounts owed to credit institutions 4,927 606,779 0 105,751Amounts owed to customers 15,320 59,030 12,384 0Settlement prices between the VBAG Group and its associated companies correspond to the usual market practices.The two shareholders, Volksbanken Holding reg. GenmbH and DZ Bank AG Deutsche Zentral-Genossenschaftsbank, exercisea significant influence on Österreichische Volksbanken-AG.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


45) Data on mortgage banking in accordance with the Austrian MortgageBank Act including covered bondsDebts evidenced byin ‰ thsd. Covering loans certificates Surplus coverDec. 31, 2007Mortgage bonds 273,475 167,424 106,051Public sector guaranteed debentures 0 0 0Covered bonds 9,451,691 8,222,993 1,228,698Total 9,725,166 8,390,417 1,334,748Dec. 31, 2006Mortgage bonds 467,190 121,436 345,754Public sector guaranteed debentures 1,702,569 177,324 1,525,246Covered bonds 6,710,698 6,458,388 252,310Total 8,880,458 6,757,148 2,123,310In 2006 liabilities totalling ‰ 33,960 thousand were included in mortgage bonds and liabilities totalling ‰ 177,324 thousand in publicsector guaranteed debentures which in accordance with IFRS 5 are recognised in the balance sheet as a disposal group.The required coverage for debts evidenced by certificates includes a 2 % surplus cover, calculated on the basis of the face valueof all outstanding mortgage bonds and public sector guaranteed debentures, and a 2 % surplus cover, calculated on the basis ofthe net present value of all outstanding covered bonds.46) BranchesDec. 31, 2007 Dec. 31, 2006Domestic 49 79Foreign 444 258Branches 493 337As a result of the deconsolidation of NÖ Hypo the number of domestic branches declined by 29.47) Events occurring after the balance sheet dateIn January 2008, Kommunalkredit Austria AG Wien increased itsequity by ‰ 166,765 thousand through the issue of 52,500 bearershares at a price of ‰ 3,176.47 each. The VBAG Groupparticipated in this capital increase to the extent of its existingholding of 50.78 %. In addition Kommunalkredit issued a coveredbond representing a value of ‰ 1 billion in January 2008.In addition, no events having a significant impact on the Group’sfinancial statements as at December 31, 2007, occurredbetween the balance sheet date and the approval of the Group’sfinancial statements on February 27, 2008 by the managing board.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance105FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


48) Segment reportingSegment reporting serves the purpose of giving a survey of themost essential business fields and markets of the VBAG Groupand its profitability. The strategic divisions which are, in particular,oriented to the Group’s internal management, constitute the basisfor the format of primary segmentation. The Group’s internalmanagement is based on the organisation of business units as profitcentres, which means that all results are allocated to businessunits irrespective of whether these profit centres are organisedas independent legal entities within business units or whetherthese results are realised by the parent company.In essence, the subsidiaries which are managed as profit centresrepresent the individual business areas.Real Estate:This segment comprises the business areas real estate leasingand lending of Investkredit Bank AG as well as real estateleasing and project development activities of the ImmoconsultLeasing Group. The real estate asset management of the Europolissub-group also falls within the scope of this segment.Financial Markets:All activities relating to raising liquidity in the money and capitalmarkets as well as medium and long-term strategic investmentsin national and international markets are concentrated in thissegment. The money and securities trading division is responsiblefor the management of VBAG’s trading book and offers clientsthe full range of standard money market products.Public Finance:This segment assures the provision of finance to the public sectorvia Kommunalkredit Austria AG.Corporates:This segment comprises the business areas small and mediumsizedcompanies, corporates and international business, withInvestkredit Bank AG being responsible for operativemanagement. Furthermore Volksbank Malta Limited and VBFactoring Bank AG are included in this segment from 2007onwards. The comparative figures have been adaptedaccordingly.Retail: The Retail segment consists of the business areasdomestic retail, retail Central and Eastern Europe, and movableproperty leasing. The domestic retail division groups together theactivities of Volksbank Wien AG, Volksbank Linz-MühlviertelrGmbH, Bank für Ärzte und Freie Berufe AG as well as IMMO-Bank AG. Retail CEE consists of Volksbank International AG withits subsidiaries in Slovakia, the Czech Republic, Hungary,Slovenia, Croatia, Bosnia and Herzegovina, Serbia , Romania,Republika Srpska as well as Ukraina. The domestic movableproperty leasing companies forming part of the VB LeasingFinanzierung Group and the Central and Eastern Europeancompanies affiliated with the VB Leasing International Groupoperate within the “movable property leasing” division.Other Operations:This segment is entrusted with consolidations and all otheractivities which cannot be clearly assigned to any one of thesegments described above. This segment includes NiederösterreichischeLandesbank-Hypothekenbank AG, which inaccordance with IFRS 5 is recognised as a discontinuedoperation.Secondary segment reporting is based on the geographicalmarkets in which the VBAG Group operates. All activities focusedon Austria as well as Central Europe are mapped. Other marketswhich do not constitute a major part of the Group’s businessoperations are grouped together under other operations. Ingeographical segment reporting, the location of the company seatof a subsidiary or affiliate is used as a basis.The results indicated represent the results of the individual legalentities or results attributable in accordance with the marketinterest method. The intragroup settlement prices for investments,refinancing or services rendered correspond to the usual marketconditions.In addition Group overheads have been divided among thesegments according to the solvency assessment base as wellas cost and income ratios. From 2007 onwards, costs of Groupprojects will be allocated to the individual segments. The previousyear's figures have been adapted accordingly.The amortisation or impairment of goodwill is allocated to therespective business segment.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


a) Segment reporting by business fieldsPublic Real Financial Otherin ‰ thsd. Finance Corporates Retail Estate Markets Operations TotalNet interest income2007 85,356 124,702 422,580 197,745 58,621 -58,276 830,7282006 75,379 102,409 328,419 168,468 45,946 -57,696 662,925Risk provisions2007 6,485 -13,090 -64,865 -3,768 -33,359 18,683 -89,9152006 -1,296 -1,875 -45,343 -16,801 -1,842 5,429 -61,729Net fee and commision income2007 15,743 11,448 111,676 9,414 34,547 8,775 191,6032006 14,175 9,927 66,392 2,981 32,649 9,192 135,317Trading income2007 1,607 4,055 11,143 -2,111 38,679 4,117 57,4892006 1,704 4,468 17,985 630 49,387 -3,577 70,597General administrative expenses2007 -43,441 -71,978 -376,046 -58,421 -50,499 -21,927 -622,3132006 -39,536 -67,152 -305,098 -41,296 -44,888 -9,391 -507,361Other operating result2007 4,529 1,959 -2,675 762 314 -4,127 7622006 -2,332 1,405 10,304 -5,448 158 -5,284 -1,197of which impairment of goodwill2007 0 -457 0 -776 0 0 -1,2342006 0 0 0 -2,146 0 0 -2,146Income from financial investments2007 2,395 -7,477 1,923 23,704 -15,077 -5,235 2342006 17,598 -3,955 -8,703 10,257 7,369 -35,022 -12,457Result of dicontinued operations - NÖ Hypo2007 0 0 0 0 0 19,533 19,5332006 0 0 0 0 0 23,336 23,336Annual result before taxes2007 72,673 49,619 103,735 167,325 33,225 -38,456 388,1212006 65,691 45,227 63,956 118,792 88,779 -73,012 309,433Total assets2007 32,824,325 11,058,629 19,334,235 6,454,152 5,909,094 3,060,394 78,640,8292006 26,808,703 8,495,013 13,663,812 4,412,708 3,848,176 10,200,905 67,429,317Loans and advances to customers2007 13,518,307 6,961,958 14,066,074 3,627,259 430,710 443,506 39,047,8152006 11,972,049 5,605,220 9,925,853 3,241,530 327,010 37,937 31,109,599Amounts owed to customers2007 659,684 913,751 6,881,289 1,060,064 1,640,351 -304,218 10,850,9212006 560,025 1,020,047 5,160,892 446,111 790,650 109,406 8,087,131Debts evidenced by certificates, including subordinated liabilities2007 20,185,403 2,664,896 1,057,728 854,782 0 10,312,385 35,075,1942006 20,372,794 3,455,263 716,650 53,013 0 8,065,445 32,663,165SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance107FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


) Segment reporting by geographical marketsCentral andOtherin ‰ thsd. Austria Eastern Europe Markets TotalNet interest income2007 261,577 463,589 105,562 830,7282006 213,206 362,022 87,697 662,925Risk provisions2007 -2,859 -52,825 -34,231 -89,9152006 -27,265 -32,788 -1,676 -61,729Net fee and commision income2007 92,596 100,773 -1,766 191,6032006 88,731 41,786 4,800 135,317Trading income2007 50,364 6,758 367 57,4892006 51,938 17,085 1,574 70,597General administrative expenses2007 -253,583 -328,252 -40,478 -622,3132006 -215,249 -258,516 -33,595 -507,361Other operating result2007 2,730 -2,862 894 7622006 578 -673 -1,102 -1,197Income from financial investments2007 11,570 2,002 -13,338 2342006 -14,725 -3,132 5,401 -12,457Result from discontinued operations - NÖ Hypo2007 19,533 0 0 19,5332006 23,336 0 0 23,336Annual result before taxes2007 181,929 189,183 17,009 388,1212006 108,854 125,784 74,795 309,433THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


49) Risk reportVBAG performs the central task of implementing and managingthe processes and methods used for identifying, controlling,measuring and monitoring all relevant risk factors within VBAGGroup.For the purpose of internal risk management, VBAG divides themonitoring and controlling processes associated with riskmanagement into the following categories:• Credit risk, including counterparty risk andconcentration risk,• Market risk, including interest rate risk, currency risk,volatility risk, commodity risk and price risk• Operational risk• Liquidity risk• Real estate and other risksa) VBAG´s risk strategyThe Risk Management Committee reporting to VBAG´s managingboard reassesses and determines the Group-wide risk strategyevery year taking into account the findings of the Internal CapitalAdequacy Assessment Process (ICAAP). This strategy constitutesthe basis for uniform risk management within the entire Group.Further developments regarding to the methods of riskmeasurement and risk management are considered in the annualupdating process of the risk strategy.Risk policy principlesVBAG´s risk policy principles comprise all standards applied torisk management within the Group and are defined, together withthe Group`s willingness to take risks (risk appetite) by themanaging board. A Group-wide uniform understanding of riskmanagement constitutes the basis for heightening risk awarenessand building up a corporate risk culture.Clear organisational structures:Special emphasis is placed on the separation of risk taking onthe one hand and risk measurement, plus risk standards forcontrolling and risk management on the other. A clear separationof these functions within the VBAG Group underpins theavoidance of conflicts of interest.Systems and methods:Thanks to uniform risk management methods, comparability andrisk aggregation are assured in the VBAG Group. In addition, thesesystems and methods represent a vital element in VBAG´s internaldevelopment of efficient limit structures and the calculation of thedegree of limit utilisation. Attention is also strongly focused onuniform risk management systems with a view to achieving costefficiency and lean use of available resources. Throughcontingency planning the required availability of all systems isassured.Limit control:In principle, all quantifiable risks are subject to a uniform Groupwidelimit structure, which is constantly monitored for alloperations. The VBAG Group adheres to the principle that no riskis assumed without setting a limit. Risks for whose measurementno sufficiently accurate methods and tools have yet beenconceptually developed are either assessed on the basis ofregulatory capital requirements, of conservative calculationmethods taking into account stress parameters or of safetybuffers; in all of these cases the principle of prudence is applied.Risk reporting:Central, regular and comprehensive risk reporting among otherthings in the form of a Group risk report has been implementedin the VBAG Group. This risk report constitutes a vital elementfor identifying, measuring, controlling and monitoring risks withinthe Group. Such risk reports, which are drawn up each quarter,cover the major risk categories (market risk, interest rate risk,liquidity risk, credit risk and operational risk). The managing boardis thus periodically informed about the Group´s risk situation viathese risk reports which focus on a quantitative analysis of allparameters relevant for risk control in the different risk categoriesand are supplemented by brief assessments of the situation and,if necessary, also contain data on the quality of risks. Duringpreparing these risk reports, special emphasis is placed on dataquality so that significant results can be generated.Processes:Smoothly functioning processes constitute the basis for riskmanagement. Therefore, the risk management of VBAG performsthe central task of designing and integrating such processes intothe everyday workflows within the Group.The introduction of new products:A sophisticated process for the introduction of new treasuryproducts in VBAG guarantees the correct modelling for riskcontrolling, in all relevant risk systems minimising risk. With regardto derivatives, special attention is given to the need forindependent valuation, also for closed positions. Hence theSUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance109FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


statutory provisions governing the calculation of the counterpartycredit risk are met. The uniform process for the introduction ofnew products guarantees also the correct recognition incontrolling, accounting and in external reporting. A standardisedproduct introduction process for all new products across theGroup is currently being designed.Backtesting:Since the assessment of the parameters regarding the variablesPD (probability of default), LGD (loss given default), EAD(exposure at default) and CCF (credit conversion factor) as wellas VaR (value at risk) calculations represent estimates related tothe past, these are always validated through backtesting. In theVBAG Group, backtesting reports are always drawn up for creditrisk and market risk. The frequency of such reports depends onthe risk category, but at least one report must be prepared foreach category on a yearly basis. The backtesting results aresubmitted to the managing board within the shortest possibleperiod of time. In case of disquieting findings, such as a statisticallyexcessive number of outliers, the Group promptly conductsanalyses of the computation methods or models used.Stresstesting:Credit risks, market risks and operational risks are stress testedat regular intervals, with crisis scenarios designed in such a wayas to permit the simulation of the occurrence of highly improbableyet not impossible events. By using this approach, atypical taillosses can be identified and analysed. This method is a usefulsupplement to the VaR methodology, especially in the event offat tails. The results of stresstesting are considered in the riskbearing capacity calculation.b) Risk management structureVBAG has put in place the necessary organisational precautionsin order to meet the requirements of modern risk management.A clear distinction is made between the banking business andthe evaluation, measurement and monitoring of risks. With a viewto maximum security and avoidance of conflicts of interest, thesetasks have been assigned to different organisational units.activities of the VBAG Group are concentrated in this newlycreated field of responsibility for a board member: i.e. strategicrisk management with the department Basel II competence center,credit risk, market risk and operational risk management andoverall banking risk management as well as the limit-controlledcentrally organised operative risk management. For reasons ofcost efficiency and optimisation of redemptions, creditmanagement is decentralised, with the respective sub-groups andsubsidiaries being responsible for this function.c) Risk hedging and risk mitigationThe VBAG Group views the use of collaterals for loans and theirmanagement as a core element of credit risk management.Alongside the creditworthiness of borrowers, this is the decisivefactor for assessing the credit risk of an exposure. The primarysignificance of collaterals for loans consists in the provisioningfor unforeseeable lending risks in the future and thus in limitingthe risk of loss from loan exposures in the case of insolvency orrestructuring on the part of the borrower’s business entity.The types of collateral accepted by the VBAG Group are definedin detail in the collaterals catalogue which is broken down intodifferent categories of hedging transactions and underlying typesof collaterals. This catalogue provides information that indicatesfor every type of collateral whether it is eligible under Basel II forlowering the regulatory minimum capital requirement.One key condition in the selection of collaterals is matching thetype of collateral with the loan to be secured. If collaterals areprovided for a loan, these have to be measured objectively inaccordance with the binding valuation rules that must be observedby all Group divisions and subsidiaries. In addition, the VBAGGroup has elaborated clearly defined guidelines and proceduresfor the provision, administration and utilisation of collaterals forloans. Every loan collateral is regularly checked for its value, withaudit intervals depending essentially on the type of collateral andit must comply with the rules of VBAG´s collaterals manualapplying Group-wide under Basel II.In 2006, for the first time, a member of the managing board wasappointed as Chief Risk Manager: Mr. Perdich is now responsiblefor the overall risk management within the VBAG Group, andbecause of the concentration of corporate clients and real estateoperations in Investkredit he also performs the same functionthere. All centrally controlled and defined risk managementTHE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


The VBAG Group uses the following credit risk mitigationapproaches for computing regulatory capital:• the (comprehensive) credit risk standard approach (USA)• the internal ratings-based approach for corporates (FIRB)• the internal ratings-based approach for retail customers(IRB retail)The same conditions must be met for the recognition of the CRRT(credit risk reduction techniques) Group-wide both with the IRBretail approach and the FIRB approach.To be precise, the qualitative prerequisites for the eligibility of theindividual types of collateral are fulfilled in agreement with theprovisions of the Solvability Regulation (Sections 102 to 116).Measurement of loan collateralsThe respective current market, nominal or repurchase valuesconstitute the basis for calculating the value of collaterals for thepurpose of determining regulatory capital and performinginternal risk management functions. Subsequently, thecorresponding deductions are made from this value in the courseof credit risk mitigation. The value of the different types ofcollaterals is assessed on the basis of the following initial values:CollateralsBasic valueFinancial collateralsFair value / Nominal valueReal estate collateralsFair value / Market valueAccounts receivablesFair valueAccounts receivablesNominal valueLife insuranceRepurchaseGuaranteesNominal valueCredit derivativesNominal valueThe initial value based method for assessing the value of acollateral is documented in an appropriate form together with theoutcome of such assessment.Major types of collateralsLoan collaterals should correspond to the type of loan to besecured. Hence investment loans should in principle be securedby the assets to be financed, provided that they will retain theirvalue and be available to the assignor during the entire durationof the loan. In selecting loan collaterals, the cost-benefit ratioshould be taken into consideration and hence collaterals thatretain their value, require a low processing input and are not costintensiveas well as loan collaterals that can be utilised shouldbe given preference. For this reason collaterals based on physicalassets such as real estate and financial collaterals, such as cashor securities, are given priority.With regard to real estate that is to be provided as collateral, thequalitative criteria for the eligibility of commercial real estate (CRE)and residential real estate (RRE) are identical with those definedin the standard approach as well as the IRB approaches and havebeen applied in the VBAG Group pursuant to Sections 92, 103,104 and 110 of the Solvability Regulation. In accordance with theprovisions set forth in the Solvability Regulation, the followingcollaterals are currently recognised as eligible:• mortgages on real estate entered in the Land Register, buildingserected on land owned by a third party, and construction rights• letters of lien eligible for incorporation concerning the abovementionedinstruments, provided such letters of lien can beincorporated at any time and the Bank holds a ranking orderof properties for the intended mortgaging• Assignments of real estate as security• Leasing property in accordance with the criteria set forth in Section110 of the Solvability RegulationThe VBAG Group recognises financial collaterals for both banksthat have already adopted the IRB approach and others that arestill using the standard approach in the comprehensive procedurefor obtaining financial collaterals.The assessment of the value of financial collaterals is made onthe basis of the current market value of the security (i.e. the pricequoted on the stock exchange).The legal prerequisites for the recognition of a financial securitywhich are defined in the collateral arrangements must be met.In the course of the monitoring and use of a financial collateralit must also be ensured that the minimum requirements definedin Section 102 of the Solvability Regulation have been properlycomplied with.Liability instruments which are regarded as eligible personalcollateral to a great extent guarantee the beneficiary the right tohave direct recourse to the guarantor if a borrower fails to repaythe loan.The eligibility of a collateral for recognition depends largely onthe quality of the provider of such collateral. Therefore,SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance111FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


guarantees issued by private individuals cannot be regarded asmitigating the credit risk in accordance with the SolvabilityRegulation.The following liability instruments are used by the VBAG Groupfor the computation of its regulatory capital requirement:Personal collateralAbstract guaranteesGuarantees and payer liability(acc. Section 1357 General Civil Code)Deficiency guarantee (acc. Section 1356 General Civil Code)Draft guaranteeStrict letter of comfortWhen accepting guarantees, the VBAG Group complies with theprovisions of Section 96 of the Solvability Regulation as well asthe steps of the audit procedure set forth in Section 111 of theSolvability Regulation.The passive and active portfolio management in the VBAG Groupallows, in addition to the use of collaterals, the application ofeffective techniques for risk coverage and risk minimisation (forfurther information see loan portfolio management).d) Trends in internal risk managementBy pursuing an active portfolio management policy the Groupseeks to transform its role of a static risk taker into that of adynamic risk manager. This process goes hand in hand withoptimum capital allocation based on economic criteria andcomprises the implementation of risk-adjusted performancemeasurement methods.Risk measurement and economic capitalThe identification and measurement of risk is of crucial importancein the VBAG Group: The required risk capital is computed on thebasis of an assessment of the individual and aggregated risks.The Group seeks to implement value-at-risk methods on thebroadest possible scale as procedure for risk measurement. Theterm risk capital denotes the Economic Capital required as a resultof a risk assessment from a management perspective. TheEconomic Capital is calculated simultaneously with the regulatorycapital requirement for operations giving rise to risks and offsetagainst the funds available for hedging risks. The assignment ofEconomic Capital to the individual lines of business is determinedon the basis of individual risk exposures which permits sustainable,value-oriented risk-return management at Group level.By linking risk measurement to the income statement, riskadjusted earnings control is possible. Standard performancemeasurement methods, such as return on equity (ROE) are addedby the significant Return on Economic Capital (ROEC) whichreflects risks adequately, hence the performance of different linesof business can be more easily compared.Loan portfolio managementBy adopting a number of successive measures, the VBAG Grouphas achieved efficient control and monitoring of all banking-relatedrisks. A distinction is made between passive and activeinstruments of loan portfolio management.Passive loan portfolio management is primarily focused on newlending operations by setting limits. As a rule, the managementof existing loans is restricted to the termination of relationshipswith individual customers.Active credit-portfolio managementIn the second half of 2007 a project was launched for active loanportfolio management. The active management of risk-weightedassets is a core element of VBAG´s risk strategy. The project teamfor active portfolio management analyses the question as towhether and in what form counterparty risks can be efficientlypassed on to the capital market. In this process, optimisation ofthe risk-return ratio will be the main goal.e) The implementation of Basel II in the VBAG GroupThe harmonisation of relevant legal provisions has broughtmembers of the Group ever more closely together. This trend wasaccelerated by the implementation of the legal provisions of theBasel II Capital Accord.To the VBAG Group this meant a change of vital core processeson the part of all Group companies and affiliates. Therefore, thedecision was taken to work out an implementation programmewhich comprises a project’s market risk, operational risk, interestrisk and credit risk.The objectives of the Basel II implementation programme asdefined in the resolution of the Managing Board were not only incompliance with the minimum capital requirements but also theimplementation of internal models, with due regard to profitability,in order to improve the risk management systems for all typesof risks on an on-going basis. To this end, the following targetswere set for the individual projects:THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


• IRB basic approach for credit risk measurement(see roll-out plan)• The standard approach (with some exceptions basis indicatorapproach) for operational risk measurement from January 1,2008• The net present value approach for interest rate riskmeasurement on the basis of SAP introduced(exception: new acquisition in 2007 –OJSC Electron Bank and Volksbank a.d. Banja Luka)• Internal model for the calculation of equity for market risk measurementin the trading book applied since January 1, 2005The Basel II implementation programme was completed followingthe positive recommendation made by the Austrian Central Bankto apply the IRB approach.Roll-out plan for credit risk measurementFor several years, the division Corporate Services has carried outprojects dealing with methods for credit rating. Accordingly, theVBAG Group decided to implement the provisions concerning thecapital requirements for lending operations issued by theAustrian Financial Market Supervisory Authority, i.e. the IRBapproach in accordance with Section 21a of the AustrianBanking Act. The following laws, regulations and directives aredirectly or indirectly legally binding for the VBAG Group:• The Austrian Banking Act, as amended• The regulation issued by the Austrian Financial Market Supevisory Authority which governs the implementation of the AustrianBanking Act with regard to the solvability of credit institutions(Solvability Regulation), as amended• Directive 2006/48/EC of the European Parliament and of the Councilof June 14, 2006 concerning the taking up and pursuit of thebusiness of credit institutions (Banking Directive), as amended• The Regulation of the Austrian Financial Market SupervisoryAuthority governing the implementation of the Banking Act withregard to the disclosure requirements of credit institutions (the“Disclosure Regulation”)In order to be able to meet the supervisory requirements set forthin these legal instruments, the Group has built up a modern riskmanagement system landscape with the central data pool actingas the hub. All risk-relevant data available in the Group areentered into this data base. Thus the basis for a further developmentof statistics on the procedures and methods used has beencreated, and the risk reporting in the Group can be significantlyimproved.In this process, the following steps will be taken to comply withthe provisions of Section 22b, para. 7 of the Austrian Banking Act.• For loans and advances to retail customers the internal assessment procedures will be applied to the parameters PD,LGD and CLF.• For loans and advances to other customers, the PD is estimatedinternally, whereas the assessment parameters defined by theCapital Market Supervisory Authority will be applied to the measurementof CLF and LCD.The VBAG Group has acquired a separate rating system for banksthrough which credit institutions have been rated from headquarterssince the end of 2007. All members of the VBAG Groupwill take over the rating system developed by VBAG. From July 1,2009 onwards, the FIRB approach will be applied for the categoryloans and advances to credit institutions.The roll-out plan for the approval of the IRB approach setsseparate deadlines for Österreichische Volksbanken-AG and thefollowing subsidiaries:April 1, 2008 Jan. 1, 2011 Jan. 1, 2012 Jan. 1, 2013(Banks per July 1, 2009))Volksbank AG VB International VB Czech Republic VB BosniaKommunalkredit Austria VB Slovakia VB Croatia VB Banja LukaKommunalkredit International VB Romania Ljudska Banka VB SerbiaÄrztebank VB Hungary Electron BankVolksbank LinzVB Leasing InternationalVolksbank WienIMMO-BankVolksbank MaltaInvestkreditInvestkredit InternationalSUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance113FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


Permanent partial use applies to the entire VBAG Group in thecategory of loans and advances to States and central banks aswell as associations, insurance companies and leasing enterprises.The following additional special provisions apply to Group memberswhich intend to use the internal ratings-based approach:• Special financing activities will be treated in accordance withthe slotting approach (Section 74, para. 3 of the SolvabilityRegulation).• The simple risk-weighting approach will be used for participationson the basis of grandfathering methods (Section 103e,number 11 of the Austrian Banking Act).For debts evidenced by certificates VBAG uses the rating-basedapproach according to section 166 of the solvency regulation.In the case of VB Factoring Bank AG and Kommunalkredit DepotbankAG, the credit institutions of the Kommunalkredit – subgroupsand IK Investmentbank AG, permanent partial use is assumedpursuant to Section 22, para.2, number 2, of the AustrianBanking Act.f) The internal capital adequacy assessmentprocess (ICAAP)The internal capital adequacy assessment process imposes theobligation on banks to take all required measures in order toassure at any time sufficient capital resources for current orplanned future business activities and for hedging the risksinherent in such transactions. In this process, methods and proceduresmay be employed which were developed internally bythe banks themselves. In the elaboration of the strategies, methodsand systems required for the implementation of the ICAAP,the volume and complexity of the business transacted by a bankplays a significant role (principle of proportionality).The ICAAP is a revolving closed control circuit which starts withthe definition of the risk strategy, the identification, quantificationand aggregation of risks, the determination of risk absorption capacity,the allocation of capital and the setting of limits as wellas on-going risk monitoring. The individual activities carried outin this control circuit vary as regards their frequency (daily measurementof the market risk in the trading book, quarterly assessmentof the risk absorption capacity, annual risk assessment andrisk strategy). All activities taking place in the circuit are checkedannually for topicality and adequacy and adjusted to the prevailingconditions, if necessary.In line with this principle, the VBAG Group conducted risk assessmentsin all divisions in order to identify existing risks in itseveryday business operations and analyse the significance andthreat potential for it of such risks. In this process, not only a quantitativeassessment of the individual types of risk was made, butthe available methods and systems for controlling risks were alsoevaluated for their quality. The risk-assessment concept is basedon a scoring procedure which gives a comprehensive picture ofthe VBAG Group’s overall risk situation.The findings of the risk assessments were used for drawing upa risk map with the individual types of risks being rated for theirimpact on the Group. On the basis of this risk map, the Group’srisk strategy was devised with a view to defining and recordinggeneral and Group-wide consistent pre-conditions and principlesfor risk management in a comprehensible and traceable way, aswell as designing the relevant processes and organisationalstructures.The risk absorption capacity calculation constitutes the coreelement of the quantitative approach to the implementation ofICAAP in the VBAG Group. By using this calculation, sufficientcover for the risks assumed by means of adequate risk coverfunds can be demonstrated at any time and can be assured forthe future. For this purpose, all individual risks are aggregatedinto the overall risk for banking operations. Subsequently, thisoverall risk is compared to the existing, pre-defined risk coverfunds. Depending on the risk appetite of the bank, a portion ofthe risk cover funds is set aside as a safety buffer which is notavailable for current business operations (i.e. such cover fundsare not allocated).Through risk monitoring, compliance with the set limits is checked,the risk absorption capacity computed and the Group’s RiskReport drawn up. Once limits are reached or changes haveoccurred in the general economic environment, a series ofmeasures is taken (i.e. risk reduction, reallocation of capital,capital optimisation techniques).THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


g) Credit riskIn the VBAG Group, credit risk comprises the general credit anddefault risk, the counterparty default risk in derivative transactionsand the concentration risk.Rating systemsFor every customer, the expected probability of default is estimatedby means of the VB rating family and recorded in line withthe VB master scale.General credit riskCredit risk is defined as potential losses due to default or deteriorationof the financial standing of business partners. Controlof this risk is based on the interaction of the structural organisation,established methods and individual exposure assessment.Credit risk management also calls for sophisticated models andsystems tailored to individual bank portfolios in order to structureand improve decision-making on loan commitments. At the sametime, these instruments and the results achieved constitute thebasis for portfolio management. During the roll-out of thesesystems, it was ensured that all rating systems used in the Groupshow a comparable probability factor of default and are linkedto the VB master scale which comprises a total set of 25 ratingcategories. The PD band that is applied not only permits a comparisonof ratings with those of external rating agencies but, moreimportantly, also a comparison of ratings across countries andcustomer segments.At present, the VB rating family consists of the following systems:SystemTarget groupsVB Corporate RatingEnterprises that compilea full financial statementVB Rating – Private customers Private customersVB Behavioral RatingPrivate customersVB Rating – Statement of Enterprises that compile arevenues and expenditures statement of revenuesexpendituresVB Rating – FounderNewly establishedof a new businessenterprisesVB Rating – Income Producing Real estate projectsReal EstateVB Rating –Other customersOther customers 1)1)The VB rating – other customers should merely be seen as aseparate rating system which in itself, however, consists of severalrating instruments.The percentage distribution of exposures mapped on categoriesrelated to the VB master scale is to be outlined as follows:Dec. 31, 2007 Dec. 31, 2006best quality 55.37 % 57.92 %excellent quality 8.96 % 8.46 %very good quality 10.53 % 11.39 %good to medium quality 18.36 % 15.74 %poor quality 2.46 % 2.10 %Watch List & Default 1.84 % 1.69 %no rating 2.48 % 2.70 %total 100.00 % 100.00 %SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance115FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


The group-wide use of uniform credit risk instruments and theconsistent application of standard methods constitute vital elementsin calculating expected losses. Thanks to the systematicrecording of default events and the recovery rates of collaterals,an increasing number of models can be developed in the futureon the basis of statistical backtesting results, thus improving thequality of calculations regarding the magnitude of anticipatablelosses.The Group Credit Risk ManualThe Group Credit Risk Manual defines binding standard principlesto be applied throughout the VBAG Group. This manual containsdescriptions of existing procedures and methods for controlling,measuring and monitoring credit risks in the Group.The Group Credit Risk Manual serves the purpose of defining,in a comprehensive and traceable manner, general, consistentconditions and principles for measuring and handling credit risksas well as devising procedures and operational structures. TheManual constitutes the basis for the implementation of the Group’srisk strategy with regard to credit risk and, starting from therespective focus of business operations, sets the standard riskparameters and limits according to which all business decisionsmust be oriented.Unless otherwise specified, the manual applies to all fully consolidatedcompanies, as well as to all new fully consolidated companiesas soon as these acquire the legal status of members ofthe VBAG´s Group of fully consolidated companies.In line with their general obligation to exercise due diligence, allmembers of VBAG´s Managing Board and the managing directorsof all Group members acting in the interest of all companies mustensure without exception or restriction that the Group Credit RiskManual is formally and de facto applied. The Manual takes effecteither if all of the principles laid down in it are implementedby a company or if its provisions are incorporated into a company’sown credit risk manual. In principle, general deviations fromthe Group’s standards may be admissible because of specialisedbusiness operations or specific local conditions, but must beapproved by VBAG´s Managing Board.The Group Credit Risk Manual is a “living document” which is regularlyenlarged and adjusted to current events and changeswithin the VBAG Group.The development and description of rating procedures, riskparameter assessments and their validation are not the purposeand object of the Manual. These are illustrated and defined asbinding standards in separate documents.Credit Value at Risk (CVaR)The term economic capital refers to the risk capital required fora company’s operations as indicated by the outcome of a riskassessment. Like regulatory capital, economic capital is used ascover for the difference between unexpected losses and expectedlosses. In the future, the economic capital required for hedgingthe credit risk is to be calculated using the credit value–at–risk(CVaR) method. For this purpose, VBAG opted for an analyticalcomputation method using an actuarial approach. For modellingdefault risk in the loan portfolio, a Credit Risk+ model, adjustedto the Group’s internal needs, will be used. Such a tool is currentlyin its implementation phase and will come on stream in mid-2008.In the future, the CVaR calculation will be used by the Group forthe following functions:• Calculation of economic capital• Identification of portfolio concentration• Assuring comparability of risk situations for varying risk categories(i.e. credit risk and market risk)• Basis for computing risk-adjusted success indices (i.e. ROEC)• Basis for capital allocationThe results of the CVaR calculations serve the purpose of obtainingadditional information for portfolio analyses and management.The CVaR is computed at Group level.Thanks to the early identification of risks, the application of creditrisk assessment methods and tools primarily serves the purposeof avoiding losses. However, special attention is paid to the factthat – first and foremost – these systems serve as a decision–making aid for Group staff. Therefore, special emphasis is placednot only on the quality of methods but also on the training, qualificationsand experience of staff.Credit Risk ReportingIn 2006, risk reporting was introduced so that the Managing Boardis periodically informed about the Group’s risk position. The sectionof the Group Risk Report dealing with credit risk gives a detaileddescription of VBAG’s current credit risk as at the reference date.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


The contents and format of the Group Risk Report are clearlydefined and focused on a quantitative analysis of credit riskmanagement relevant data which are supplemented by a briefevaluation of the current situation and, if necessary, furtherqualitative information. The Report comprises the followinganalyses:• Portfolio distribution• Break-down of customers´ credit standing• Analyses of country groups• Customer segments (customer segment split)• Break-down by trading fields (commercial)• Clusters of credit risksThese analyses are conducted on the basis of various parametersand indices: unsecured exposure, total exposure (includingin-house credit facilities), expected loss, risk provisions setaside and budgeted risk provisions as well as average costs ofrisk. In future, this report is to be extended so as to include theresults of the portfolio model calculation of the risk capital for theloan portfolio.Counterparty riskThe VBAG Group defines counterparty risk as the risk that a businesspartner fails to meet his contractual obligations or meetsthese only partially in an over-the-counter (OTC) derivative transactionso that the VBAG Group incurs an actual loss resultingfrom the positive market value of the derivative (repurchasing risk).As an approximation function for calculating the potential futureexposure with regard to counterparty risk, add-on factors areemployed which are determined by the maturity and type of theunderlying derivate transaction (interest rates, currencies, shares,commodities) and correspond to a percentage of the nominalvalue. The sum-total of the positive market value and the respectivevalue is used for the calculation of potential future exposure.The setting of counterparty limits (off-balance sheet limits) forderivative transactions with banks and credit institutions dependson the following criteria.• The counterparty’s equity• The equity of the Group company• The intensity of the business relationship with the counterparty(strategically important, few transactions, sporadic transactions)For trading operations, the monitoring of the counterparty limitswhich are broken down into varying maturity bands is carried outby the division Market Risk Management. As mentioned earlier,derivative transactions are credited towards off-balance sheet linesin accordance with the above-mentioned formula of positivemarket value plus maturity-driven add-ons. With institutionalcounterparties, the amounts of such add-ons will be determinedpursuant to Section 234, para.2, of the Solvability Regulationcredit institutions with non-conservative mark-ups applied ininternal risk management.Obviously, transactions made are counted towards limits in realtime. Reports on utilization or eventual overdrafts of limits are sentdaily to the credit departments and trader desks concerned.Collateral managementThe internal risk management of the VBAG Group compares transactionsconcluded in accordance with the rules of the ISDA(International Swaps and Derivatives Association) or in the formof credit support annex contracts on a daily basis with themarket values of derivatives with approximately 50 partners. Ifthe market values exceed certain contractually fixed thresholdvalues, these excessive amounts must be covered by collaterals.The repro arrangements with more than 70 contracting partiesare also checked for the amounts of collaterals provided. Afteragreed-upon margin calls, in most cases the assignment ofcollaterals takes place in the form of cash transactions or governmentbonds denominated in euros.At present, the only Group company engaging in netting agreementsis Kommunalkredit Austria AG which applies the provisionsof Section 22, para. 7 and 8 of the Austrian Banking Act concerningmarket values from derivatives.Settlement riskThe settlement risk is defined as the risk that a counterparty cannotmeet its obligation on the settlement date. Settlement limitsform an integral part of the lending process and set a limit fortransactions with a certain counterparty which fall due on aparticular date. The limits themselves and their utilisation can beaccessed by traders online. Overdraft reports are dawn up on adaily basis.The maturities for off-balance sheet limits are fixed with dueregard for counterparty risks.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance117FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


Concentration risksFor the monitoring, control and restriction of cluster risks, twotypes of limits are applied within the VBAG Group:• credit limits for groups of VBAG-associated customers• portfolio limitsDifferent limits are set for the group of VBAG-associated customersdepending on whether these are States, banks or otherclients, which also include retail customers. These limits are set,depending on the rating class and/or the equity of the counterparty,the maximum remaining life of a transaction as well as theequity and earnings position of the subsidiaries. The operationalrisk management of the Group companies actively monitors compliancewith these limits for all lines of business on an ongoingbasis and complements these data by means of central evaluations.The group-wide quantification and assessment of the cluster risksare made quarterly when Group risk reports are drawn up andcomprise examples of cluster risks for enterprises, banks andpublic sector clients.In the context of portfolio limits, at present, the VBAG Groupmainly considers country risk limits broken down into six countryrisk categories. Using external ratings, countries are primarilyassigned to one of the six categories, but the Managing Boardmay, however, decide to shift individual countries to higher orlower limit categories or resolve to adopt different regroupingmeasures for strategic reasons.The cluster risk associated with inherent portfolio structures ismeasured quarterly, when the risk reports are drawn up and assessedin accordance with the areas in which they arise andshown in diagrams. The diagrams below are extracts from theGroup’s Risk Report illustrating exposures for each line of business,broken down by country groups and customer segments.The following table exhibits the regional distribution of exposures:Dec. 31, 2007 Dec. 31, 2006Austria 28,27 % 31,91 %EEA inc. Switzerland 36,64 % 32,74 %CEE/SEE 21,10 % 17,20 %Non EU-europe 4,22 % 6,80 %Other 9,76 % 11,35 %Total 100,00 % 100,00 %Subsequent illustration reflects portfolio concentrations on thebasis of customer segments:Dec. 31, 2007 Dec. 31, 2006Banks 24,14 % 20,76 %Public authorities 32,81 % 33,95 %Corporates (>50 Mio.) 16,48 % 17,09 %Specialized lending 5,66 % 4,97 %Retail / SME (


The plausibility and reliability of risk parameters are monitoreddaily by means of backtesting. The backtesting results for 2007have confirmed the quality of the internal model. Market turmoilin summer due to wide interest rate fluctuations resulted in twooutliers (the loss of one day exceeds the VaR estimate). Withextreme market fluctuations and a confidence interval of 99 %such outliers can certainly be expected). Therefore the best possiblemultiplier of 3 will continue to be applied to the calculationof the Group’s own resources.Backtesting results recorded in the trading book 20071.5001.2501.0007505002500-250-500-750-1.000-1.250-1.50001/200702/200703/200704/200705/200706/200707/200708/200709/200710/200711/200712/2007Changes in valueValue-at-RiskA hierarchically structured system of limits approved by theManaging Board constitutes the central element in market riskcontrol. The desirable high degree of portfolio diversification andaction strategies are important parameters for conceiving this limitstructure. In addition to the VaR, a range of other key risk parametersare calculated daily down to departmental level. Basically,these consist of interest rate sensitivities and risk measures foroptions (delta, gamma, vega, rho).Volume limits for all currencies and product groups also reducethe liquidity risk, while management action triggers and stop losslimits are also applied. Comprehensive position data managementand daily monitoring of market data safeguard the efficiency ofthe Group’s hedging strategies. Alongside the risk engine KVaR+,the front office systems Kondor and Bloomberg TS are used indaily risk controlling. In addition, the external pricing softwareUnRisk is available for assessing structured products.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance119FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


As the impact of extreme situations on results cannot be assessedby means of the VaR methodology, monthly or eventdrivenstress tests using approximately 80 historical and portfoliolinkedworst case scenarios are carried out. The results whichare also subject to limits are analysed at least quarterly by a bodyof experts. These quarterly reports are also made available to thesupervisory authorities (the Austrian Financial Market Authorityand OeNB, the Austrian Central Bank.Streamlined and efficient processes and procedures representan important element in risk management. In this respect, the processapplied to the introduction of new products, which is an additionalresponsibility of the Group’s Market-Risk-ManagementDepartment, also plays a significant role.All rules and organizational processes governing the measurementand monitoring of market risks are described in VBAG´sMarket Risk Manual. The structure of limits and escalation procedures,which are applied whenever limits are exceeded, arealso explained in this manual.Interest rate risk as shown in the investment bookIn the future, the overall financial condition of the VBAG Groupwill possibly be influenced by unfavourable interest rate movements.Assuming this risk is an entirely normal procedure in bankingand represents a major source of income. However, excessiveinterest rate risks may pose a significant threat to a bank’searnings and equity position. Accordingly, an efficient interest raterisk management which monitors and limits risks which have tobe commensurate with the business volume is an essential prerequisitefor preserving the bank’s capacity to absorb risks.It is the declared objective of VBAG’s risk management unit toidentify all major interest rate risks associated with assets, liabilities,and off-balance sheet items recorded in the investmentbook. To this end, it is necessary to analyse the effect of interestrate changes both on income and the present value with the aidof simulation scenarios in the form of static and dynamic reportswhich also cover new transactions.risk management which monitors and limits risks which have tobe commensurate with the business volume is an essential prerequisitefor preserving the bank’s capacity to absorb risks.It is the declared objective of VBAG’s risk management unit toidentify all major interest rate risks associated with assets, liabilities,and off-balance sheet items recorded in the investmentbook. To this end, it is necessary to analyse the effect of interestrate changes both on income and the present value with the aidof simulation scenarios in the form of static and dynamic reportswhich also cover new transactions.Structure and organisation of risk management functionsA functional separation exists between units assuming interestrate risks and those monitoring these risks. VBAG´s Asset LiabilityManagement Committee (ALCO) acts as the co-ordinatingbody for controlling all ALM processes and meets at regular intervalsseveral times a year as provided for in the Group’s rulesof internal procedure.The Group’s Asset Liability Management (ALM) is responsible forassuring an adequate organisation of its functions. ALM preparesall relevant materials and makes evaluations which serve as a basisfor decision-making and its head chairs all ALM meetings.The ALM Support unit is entrusted with defining risk measurementmethods and their on-going further development. This unitis also responsible for preparing and analysing reports, for definingparameters and monitoring limits. The reports producedserve as a decision-making tool for ALCO’s managementfunctions.Risk reporting and measuring systemsThe Gap Report, which also constitutes the basis for preparinginterest rate statistics in accordance with the interest rate fixingbalance method is one building block of the Group’s reportingsystem. In order to determine the gaps, interest-rate sensitive productsare assigned to maturity bands on the basis of residual lifeand/or the date on which the interest rate was fixed.In the future, the overall financial condition of the VBAG Groupwill possibly be influenced by unfavourable interest rate movements.Assuming this risk is an entirely normal procedure in bankingand represents a major source of income. However, excessiveinterest rate risks may pose a significant threat to a bank’searnings and equity position. Accordingly, an efficient interest rateTHE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


Net positions are broken down by currencies for different maturity bands:in ¤ thsd.moreCurrency up to 3 months up to 1 year up to 5 years than 5 years Total2007EUR 226,357 554,534 -641,630 387,383 526,644USD -1,106,864 1,159,498 191,748 136,666 381,048CHF 953,401 -750,287 -127,958 128,722 203,878JPY -16,243 -70,022 4,183 87,598 5,515GBP 14,917 32,565 10,356 -541 57,296CAD 8,066 1,482 869 -1,839 8,579Other 85,909 -49,199 6,654 148,443 191,808Total 165,542 878,572 -555,779 886,433 1,374,7682006EUR 1,691,330 -685,693 -964,435 -22,400 18,801USD -493,261 684,527 46,319 106,525 344,110CHF 381,941 -742,482 105,956 133,420 -121,165JPY -72,452 -15,829 4,064 93,259 9,043GBP 125,910 11,871 66 9,465 147,312CAD -866 -262 947 -1,568 -1,749sonstige 9,444 91,422 65,251 83,543 249,660Total 1,642,046 -656,447 -741,831 402,244 646,011The 2006 data do not include VBI banks. The 2007 data onlyinclude VBI AG, VB Slovakia, VB Hungary, VB Czech Republicand Lujdska banka.After the net positions have been determined and weighted bymeans of their respective weighting factors, the initial risk indicesare obtained. If the present value risk calculated in this manneris correlated with the bank’s own resources, another index isobtained.Subsequently a gap report can be drawn up which approximatesthe basic risk, i.e. of positions which are tied to secondary marketyields by using replicating fixed-interest rate portfolios.Additional present value reports which comprise various simulations,such as parallel shifts and inversions of interest-ratecurves, are prepared with a view to generating additional parameters.These scenarios and stress tests are regularly checkedfor their validity and may be supplemented or replaced by othermethods.At present the following scenarios are analysed• parallel shift by +1 bp• parallel shift by –1 bpStress testing means that scenarios for extreme market situationsare worked out. Interest rate shocks which could lead to extraordinarylosses for a bank constitute an integral part of the Group’srisk management.At present the following stress tests are being conducted• parallel shift by +200 bp• parallel shift by –200 bp• inversion/money market +1,000 bp capital market –1,000 bpGuidelines for risk hedging and risk mitigationReporting and thus measuring the general position risk inherentin debt instruments and other interest-rate related instrumentstakes place monthly and also ad hoc, whenever necessary. Thelimit system has the function of making available a control instrumentfor monitoring and limiting risk exposures. This limitsystem, which is based on tolerance ranges and limits, allowson-going control of risk exposures and measurement of risks thathave been assumed.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance121FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


For the VBAG Group and each of the individual banks belongingto its network the maximum limit is reached once equity has declinedby 20% and the interest-rate curve has shifted by +200bp (Section 69, para. 3, of the Austrian Banking Act). The currentlimit utilisation rates are mostly far below this level.in ‰ thsd. 2007 2006% of own % of ownresourcesresourcesInterest require- Interest require-Currency rate-risk ment rate-risk mentUSD 43,226 1.02 % 24,182 0.59 %EUR 29,886 0.70 % 92,236 2.24 %CHF 12,741 0.30 % 14,659 0.36 %JPY 7,772 0.18 % 9,712 0.24 %GBP 293 0.01 % 300 0.01 %CAD 220 0.01 % 208 0.01 %sonstige 21,639 0.51 % 17,226 0.42 %Total 115,778 2.73 % 158,522 3.87 %The figures for 2006 do not include the VBI banks, whereas the2007 data include only VBI AG, VB Slovakia, VB Hungary, VBCzech Republic and Lujdska banka.VBAG offers structured issues, the repayment of which is orientedto market indices and/or guaranteed repayment amounts whichcorrespond to the nominal value of the bonds. The Group alsooffers interest set-down bonds, conferring upon issuers call rightsthat may be exercised on predefined dates.All embedded derivatives monitored by the Group’s Market RiskManagement Department and hedged by the Treasury withsuitable products.Derivative financial instrumentsNominal valueFair valuemore than Dec. 31, Dec. 31,in ¤ thsd. up to 1 year up to 5 years 5 years Total 2007 2006Interest rate related transactions 23,654,647 33,642,309 51,207,496 108,504,452 -718,976 -825,570Caps&Floors 438,122 1,428,868 800,642 2,667,632 -2,315 2,852Forward rate agreements 1,963,929 0 0 1,963,929 560 -70Futures 860,462 172,500 0 1,032,962 285 26Interest rate swaps 20,376,133 31,256,775 46,780,658 98,413,566 -677,729 -828,129Swaptions 16,000 784,166 3,626,196 4,426,363 -39,777 -249Foreign exchange transactions 26,882,427 3,376,903 1,998,322 32,257,653 -172 60,553Cross currency swaps 765,135 2,680,562 1,882,407 5,328,104 -49,808 81,372FX options 1,302,820 623,140 115,499 2,041,460 2,039 -266Forward exchange transactions 24,814,471 73,201 416 24,888,088 47,597 -20,553Other transactions 708,931 5,063,713 3,152,724 8,925,369 -134,483 -84,478Total 51,246,005 42,082,926 56,358,543 149,687,473 -853,631 -849,495With the exception of futures, all derivative financial instruments are traded over the counter (OTC products).THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


Real estate risk and other market risksVBAG recognises the real estate risk as “other market risk” anddefines it as the risk of loss in value due to market price fluctuationsas well as the risk of loss in value due to market-inducedchanges in real estate yields. The focus is on the real estate riskassumed by the Group’s asset management units (especially Europolis).Market price fluctuations of real estate held by the VBAGGroup for operative use are of secondary importance. With regardto project management companies special attention mustbe given to overlaps with investment portfolio risk and credit risk.i) Operational riskOver the past few years, VBAG has prepared for compliance withthe requirements of the standardised approach for operationalrisk management systems. From January 2008 onwards, own resourceswill be calculated on the basis of the standardised approach(gross earnings assigned to eight pre-defined businesslines) and in exceptional cases - for a timely limited period – onthe basis of the basic indicator approach.Central, pro-active control of operational risks is a prerequisitefor VBAG`s capacity to achieve two important goals it has set itself:learning from past mistakes and identifying potential risksat the earliest possible time. These efforts go hand in hand withan open error culture and an intensive exchange of informationwithin the Group.by the OpRisk Control function performed by the Group’s strategicRisk Management unit.Since 2004, operational events have been recorded group-wideemploying a standard format. The ensuing transparency of eventsthat have occurred permits a risk assessment based on historicaldata. Workshops and expert interviews serve the purpose ofdrawing up risk maps and making risk and control assessmentswhich are reported to line managers, the risk management departmentand managing directors or Board members. Close cooperationwith other Group units performing core functions, suchas the internal Audit Department, the Compliance Department,the Legal Affairs Department as well as the Security and InsuranceManagement Department, allows optimum comprehensivecontrol of operational risks. At this juncture mention should bemade of human resources training, the assurance of confidentiality,the availability and integrity of retail customer and corporatedata, as well as operational contingency planning and, in particular,the clear assignment of responsibilities as well as compliancewith the principle of dual control as management instruments.These internal control and management measureswhich are integrated into all business processes of the Group assurean adequate and generally accepted risk level.The efficiency of operational risk management is demonstratedby periodic, independent audits.VBAG defines operational risks as “imminent losses that couldoccur due to the inadequacy or failure of internal procedures,human resources and systems, or the occurrence of events beyondthe Group’s control”. Accordingly, breakdowns in IT-systems,damage to property, processing errors or cases of fraud are scrutinisedin a detailed risk measurement and control procedure.VBAG’s definition of the term operational risk is wider than thatof the Basel Capital Accord, as reputation risks resulting from theinterruption of business operations are also taken into accountin risk measurement.VBAG´s risk strategy is oriented to the goal of optimizing a balancedrelationship between risks and earnings and is characterisedby a conservative approach to risks inherent in banking operations.For the measurement of operational risks, the Group employs bothquantitative and qualitative methods. The line managers responsiblefor operational risk management are optimally supportedBy continuously developing OpRisk procedures, the Group iscreating key risk indicators which serve as an early warningsystem and is analysing in detail scenarios assuming threats tothe survival of an enterprise. Special emphasis is placed on theoptimum integration of these key risk indicators and risk scenariosinto the procedures of the overall risk management system.j) Liquidity riskShort-term liquidity risk liquidity managementThe service department Banks/Liquidity utilizes, amongst otherthings, reporting instruments in order to control compliance withstatutory provisions and assure the Group’s short-term liquiditysupply.Through daily liquidity planning on the basis of the minimum reserverequirement, known future cash flows and expected paymentflows, the department works out liquidity forecast for aSUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance123FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


60-day period. These data are adjusted daily to cash managementparameters and target figures.Building up a liquidity pool: The liquidity pool of the VBAG Grouprepresents a total value of some four billion euro.Modern real-time cash management gives a survey of the currentcash positions in all currencies. Thanks to the functionalityof this system, it is possible to calculate and take decisions onthe use of aggregate balances of available cash in all currenciesvia all nostro accounts maintained by VBAG. The cash managementdata are compared on an ongoing basis with the plannedtarget figures. The cash management system also monitors largevolume payment transactions and the SSP (Single SharedPlatform) which is the payment transactions system of the EuropeanCentral Bank and the Group’s account with OeNB (theAustrian Central Bank).The Group’s Liquidity Management unit is also entrusted with themanagement of ECB-eligible collaterals (securities which areaccepted by the European Central Bank as collateral for loans),including the granting and utilization of ECB refinancing facilities.One of the main tasks of the Liquidity Management unit is to controlcompliance with the provisions of Section 25 of the AustrianBanking Act, which influences measures to control the short-termand long-term liquidity supply of the Group. The ALM takes intoaccount all findings of calculations showing the Group’s liquidityneeds.The pool consists of securities which can be deposited with thirdparties at any time for refinancing purposes. Roughly 50% of thesesecurities meet the collateral criteria defined by the ECB.Optimisation of the refinancing structure of ALCO: ALCO plansthe Group’s issuing business four times a year for a time horizonof 12 months. Both the 12 month forecast for short-term liquiditymanagement and the gap-analysis conducted by the Group’sALM support unit which describes liquidity oversupply across allmaturity bands serve as a basis for these plans. The objectiveof issue planning is to limit the utilisation of money market linesas will in all probability prove necessary.Long-term control by means of indices: A positive cover ratio ofliabilities which will fall due within the coming 12 months is to beachieved in relation to asset items falling due within the sameperiod, and enlarged by the liquidity pool. At present, the netfunding requirement amounts to more than 400 million euro.Monitoring the Group’s compliance with its minimum reserverequirement rounds out the picture of VBAG´s liquidity managementfunctions. This mirrors the bundling of all activities aimedat safeguarding and controlling the Group’s short-term liquidityrequirements in a single unit.Long-term liquidity planningVBAG´s long-term liquidity planning rests on four pillars. First, ithas a strongly diversified refinancing basis, secondly it is continuouslybuilding up a liquidity pool consisting of securities, thirdly,ALCO performs the 12 months planning and finally, it controlslong-term liquidity by means of indices.Diversified funding sources: The VBAG Group started many yearsago to increase the share of long-term liabilities by expandingthe volume of its issuing activities. As a result of the large proportionof the Group’s capital market financing, VBAG is shelteredfrom eventual, stress-induced fluctuations of deposits.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


The table below shows the future cash flows on the liabilities side, broken down by maturity dates.AmountsDeptsowed to Amounts evidenced Sub- Loancredit owed to by ordinated commitin‰ thsd. institutions customers certificates liabilities Derivates mentsDec. 31, 2007Carrying amount 24,200,454 10,850,921 33,108,714 1,966,480 3,364,637 10,180,167Undiscounted cash flows 27,176,065 11,985,645 42,004,576 2,313,583 349,180 10,433,050up to 3 months 15,308,554 7,589,524 5,365,051 34,979 34,952 6,650,481up to 1 year 3,211,382 1,498,945 6,455,061 96,691 -22,656 3,061,039up to 5 years 3,812,655 834,315 16,781,986 798,757 128,274 467,582more than 5 years 4,843,475 2,062,860 13,402,477 1,383,156 208,610 253,948Dec. 31, 2006Carrying amount 13,382,971 8,087,131 30,845,675 1,817,489 2,991,546 5,109,667Undiscounted cash flows 13,838,660 9,050,420 36,408,808 2,442,396 514,447 6,154,571up to 3 months 10,194,090 5,925,946 5,234,092 31,952 113,189 3,621,264up to 1 year 1,537,102 1,037,831 4,998,124 31,361 41,508 1,574,211up to 1 year 1,276,640 694,699 14,731,038 330,051 -94,013 697,702up to 5 years 830,827 1,391,944 11,445,553 2,049,032 453,763 261,394k) Other risksIn the VBAG Group, other risks comprise the strategic risk, thereputation risk, the equity risk and the business risk. Whereasthe Group seeks to quantify the business risk by applying a VaRapproach, such a measurement is not possible for the other risksub-groups. Accordingly, a capital buffer is defined as a hedgeagainst other risks. For managing other risks, primarilyorganisational measures have been implemented.In 2002, the EU Commission informed VBAG of its decision onthe pending EU competition proceedings, to which a plea forannulment was lodged with the second instance of the EuropeanCourt of Justice. Provisions set aside for this purpose wereutilised. According to the current status of these proceedings,the setting-aside of additional provisions appears unnecessaryas at the balance sheet date.As of December 31, 2007, the VBAG Group had not issuedletters of comfort to non-Group companies (2006: ‰ 4,716thousand). VBAG is responsible for ensuring that Back OfficeService für Banken GmbH can meet its contractual obligations.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance125FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


50) Fully consolidated companies 1) Equity Share in Nominal capitalCompany names and headquarters Type* interest voting rights in ‰ thsd."Poland Central Unit 1" Sp. z o.o.; Warszawa SO 75.00 % 75.00 % 3,270"VBRO Services" SRL; Bukarest HD 50.46 % 50.46 % 8"VBV iota" - IEB Holding GmbH; Wien SO 33.33 % 33.33 % 363V-Immobilien Errichtungs-GmbH; Wien HD 100.00 % 100.00 % 354P - Immo. Praha s.r.o.; Praha SO 75.00 % 75.00 % 8ACP IT-Finanzierungs GmbH; Wien FI 75.00 % 75.00 % 150AWP Liegenschaftsverwaltung GmbH; Wien HD 100.00 % 100.00 % 145Back Office Service für Banken GmbH; Wien HD 98.89 % 98.89 % 327Bank für Ärzte und Freie Berufe Aktiengesellschaft; Wien KI 86.14 % 86.14 % 9,698Bedellan Properties Limited; Nicosia SO 58.50 % 58.50 % 10BEVO-Holding GmbH; Wien SO 51.00 % 51.00 % 35Blonie Land Company Sp.z.o.o.; Blonie SO 58.50 % 58.50 % 157BNT Delta s.r.o.; Praha SO 75.00 % 75.00 % 8CD Centrum a.s.; Brno SO 49.50 % 49.50 % 376Cefin Logistic Park Beta SRL; Bukarest SO 65.00 % 65.00 % 5,673Cefin Real Estate Beta S.R.L.; Bukarest SO 65.00 % 65.00 % 1,688Cefin Real Estate BV SRL; Bukarest SO 52.00 % 52.00 % 13,000Cefin Real Estate Gamma SRL; Bukarest SO 65.00 % 65.00 % 0Com Park Kft.; Budapest SO 65.00 % 65.00 % 12CYMANCO Investments Limited; Limassol SO 50.78 % 50.78 % 31E 30 Industrial Center VI Sp.z.o.o.; Blonie SO 58.50 % 58.50 % 14E 30 Industrial Center VII Sp.z.o.o.; Blonie SO 58.50 % 58.50 % 14E 30 Industrial Center VIII Sp.z.o.o.; Blonie SO 58.50 % 58.50 % 14E 30 Industrial Center X Sp.z.o.o.; Blonie SO 58.50 % 58.50 % 14E 30 Industrial Center XI Sp.z.o.o.; Blonie SO 58.50 % 58.50 % 14E.I.A. eins Immobilieninvestgesellschaft m.b.H.; Wien SO 100.00 % 100.00 % 36EPC Kappa Limited; Limassol SO 100.00 % 100.00 % 9EPC Lambda Limited; Limassol SO 75.00 % 75.00 % 10EPC Ledum Limited; Limassol SO 100.00 % 100.00 % 10EPC Omikron Limited; Limassol SO 65.00 % 65.00 % 53EPC Platinum Limited; Limassol SO 100.00 % 100.00 % 1EPC Three Limited; Limassol SO 65.00 % 65.00 % 2,437EPC Two Limited; Limassol SO 65.00 % 65.00 % 897Eurobalt Commerce Ltd.; Nicosia SO 48.10 % 48.10 % 17Europolis ABP Kft.; Budapest SO 51.00 % 51.00 % 227Europolis AG; Wien SO 100.00 % 100.00 % 5,000Europolis Bitwy Warszawskiej Sp.z.o.o.; Warszawa SO 51.00 % 51.00 % 14EUROPOLIS CE Alpha Holding GmbH; Wien HD 65.00 % 65.00 % 36EUROPOLIS CE Amber Holding GmbH; Wien SO 100.00 % 100.00 % 35EUROPOLIS CE Gamma Holding GmbH; Wien HD 65.00 % 65.00 % 35EUROPOLIS CE Kappa Holding GmbH; Wien HD 100.00 % 100.00 % 35SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance127FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


Equity Share in Nominal capitalCompany names and headquarters Type* interest voting rights in ‰ thsd.EUROPOLIS CE Lambda Holding GmbH; Wien HD 75.00 % 75.00 % 35EUROPOLIS CE Ledum Holding GmbH; Wien HD 100.00 % 100.00 % 35Europolis CE My Holding GmbH; Wien HD 75.00 % 75.00 % 35EUROPOLIS CE Omikron Holding GmbH; Wien HD 65.00 % 65.00 % 35EUROPOLIS CE Pi Holding GmbH; Wien HD 65.00 % 65.00 % 35EUROPOLIS CE Rho Holding GmbH; Wien HD 65.00 % 65.00 % 35Europolis CE Sigma Holding GmbH; Wien HD 65.00 % 65.00 % 35Europolis CE Tau Holding GmbH; Wien HD 65.00 % 65.00 % 35Europolis City Gate Kft.; Budapest SO 65.00 % 65.00 % 51Europolis E30 Sp.z.o.o.; Warszawa SO 58.50 % 58.50 % 56Europolis Harbour City s.r.o.; Bratislava SO 65.00 % 65.00 % 26Europolis InfoparkIngatlanüzemeltö Kft.; Budapest SO 51.00 % 51.00 % 21Europolis IPW Kft.; Budapest SO 65.00 % 65.00 % 197Europolis Lipowy Office Park Sp.z.o.o.; Warszawa SO 100.00 % 100.00 % 14Europolis M1 Kft.; Budapest SO 51.00 % 51.00 % 217Europolis Property Holding TzOV; Kiev SO 65.10 % 65.10 % 26Europolis Real Estate Asset Management GmbH; Wien SO 100.00 % 100.00 % 35Europolis Real Estate Asset Management Kft.; Budapest SO 100.00 % 100.00 % 12Europolis Real Estate Asset Management LLC; Moscow SO 99.99 % 99.99 % 621EUROPOLIS REAL ESTATE ASSET MANAGEMENT LTD.; Limassol SO 100.00 % 100.00 % 2Europolis Real Estate Asset Management S.R.L.; Bukarest SO 100.00 % 100.00 % 125Europolis Real Estate Asset Management s.r.o.; Praha SO 100.00 % 100.00 % 38Europolis Real Estate Asset Management Sp. z o.o.; Warszawa SO 100.00 % 100.00 % 139Europolis Saski Crescent Sp.z.o.o.; Warszawa SO 51.00 % 51.00 % 14Europolis SaskiPoint Sp. z o.o.; Warszawa SO 51.00 % 51.00 % 14EUROPOLIS Selini Holding GmbH; Wien SO 100.00 % 100.00 % 35Europolis Sienna Center Sp. z o.o.; Warszawa SO 51.00 % 51.00 % 1,275EUROPOLIS Technopark s.r.o.; Praha SO 51.00 % 51.00 % 8Gefinag-Holding AG; Wien HD 100.00 % 100.00 % 436IC Investment Corporation Limited; Valetta HD 100.00 % 100.00 % 7IKIB Mittelstandsfinanzierung AG; Wien SO 100.00 % 100.00 % 7,300IMMO-Bank Aktiengesellschaft; Wien KI 96.59 % 96.59 % 11,298Immocon Alpha Leasinggesellschaft m.b.H.; Wien FI 100.00 % 100.00 % 18Immocon Beta Leasinggesellschaft m.b.H.; Wien FI 100.00 % 100.00 % 18Immocon Delta Leasinggesellschaft m.b.H.; Wien FI 100.00 % 100.00 % 36Immocon Gamma Leasinggesellschaft m.b.H.; Wien FI 100.00 % 100.00 % 36Immocon Psi Leasinggesellschaft m.b.H.; Wien FI 100.00 % 100.00 % 18Immocon Rho Leasinggesellschaft m.b.H.; Wien FI 100.00 % 100.00 % 18Immoconsult "Citycenter" Leasinggesellschaft m.b.H.; Wien FI 51.00 % 51.00 % 18Immoconsult Asset Leasing GmbH; Wien FI 100.00 % 100.00 % 18Immoconsult drei Liegenschaftsvermietung Gesellschaft m.b.H.; Wien FI 100.00 % 100.00 % 36Immoconsult eins Liegenschaftsvermietung Gesellschaft m.b.H.; Wien FI 100.00 % 100.00 % 18Immoconsult Leasinggesellschaft m.b.H.; Wien FI 100.00 % 100.00 % 3,270THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


Equity Share in Nominal capitalCompany names and headquarters Type* interest voting rights in ‰ thsd.Immoconsult neun Liegenschaftsvermietung Gesellschaft m.b.H.; Wien FI 100.00 % 100.00 % 19Immoconsult Projektentwicklung GmbH; Wien HD 100.00 % 100.00 % 18Immoconsult zwei Liegenschaftsvermietung GesmbH.; Wien SO 100.00 % 100.00 % 18Immoslov Gama s.r.o.; Bratislava FI 100.00 % 100.00 % 6Imobilia Ken-Pru s.r.o.; Praha FI 100.00 % 100.00 % 8Imobilia Kik s.r.o.; Praha FI 100.00 % 100.00 % 8Imobilia Spa s.r.o.; Praha FI 100.00 % 100.00 % 15Investkredit Bank AG; Wien KI 100.00 % 100.00 % 46,000Investkredit Funding II Ltd.; St. Helier FI 18.46 % 18.46 % 10Investkredit Funding Ltd.; St. Helier FI 18.46 % 18.46 % 10Investkredit International Bank p.l.c.; Sliema KI 18.46 % 100.00 % 65,000Investkredit Investmentbank AG; Wien KI 100.00 % 100.00 % 5,088Investkredit-IC Holding alpha GmbH; Wien SO 100.00 % 100.00 % 35Investkredit-IC Holding beta GmbH; Wien SO 100.00 % 100.00 % 35Kommunalkredit Austria AG; Wien KI 50.78 % 50.78 % 18,531KOMMUNALKREDIT Beteiligungs- und Immobilien GmbH; Wien HD 50.78 % 50.78 % 1,817Kommunalkredit Capital I Ltd.; St. Helier FI 50.78 % 50.78 % 0Kommunalkredit Depotbank AG; Wien KI 50.78 % 50.78 % 5,087Kommunalkredit International Bank Ltd; Limassol KI 50.78 % 50.78 % 34,000Kommunalkredit Public Consulting GmbH; Wien SO 45.70 % 45.70 % 35Leasing-west Gesellschaft m.b.H. & Co. KG; Kufstein FI 100.00 % 100.00 % 1,124Leasing-west Gesellschaft m.b.H.; Kufstein FI 100.00 % 100.00 % 36Leasing-west GmbH, BRD; Kiefersfelden FI 100.00 % 100.00 % 51Levade S.A.; Luxemburg HD 100.00 % 100.00 % 70Logistyk-Tsentr A; Kiev SO 65.10 % 65.10 % 5Magyarországi Volksbank zrt; Budapest KI 47.09 % 45.33 % 35,471Mithra Holding Gesellschaft m.b.H.; Wien SO 67.00 % 67.00 % 18Mithra Unternehmensverwaltung Gesellschaft m.b.H.; Wien SO 100.00 % 100.00 % 18OJSC Electron Bank; Lviv KI 50.86 % 50.86 % 15,485OLYMPIA Mladá Boleslav s.r.o.; Praha SO 51.00 % 51.00 % 75OLYMPIA Teplice s.r.o.; Praha SO 51.00 % 51.00 % 75OOO Europolis Baltic RUS; St. Petersburg SO 48.10 % 48.10 % 0Oprah Enterprises Limited; Limassol SO 100.00 % 100.00 % 2OROSIS Investments Limited; Limassol SO 50.78 % 50.78 % 17ÖVAG FINANCE (JERSEY) LIMITED; St. Helier HD 83.50 % 83.50 % 0Pet Plus Usluge drustvo s ogranicenom odgovornoscu za usluge;Zagreb FI 50.06 % 50.06 % 546PREMIUMRED Real Estate Development GmbH; Wien SO 100.00 % 100.00 % 18Privatinvest d.o.o.; Ljubljana HD 48.70 % 48.39 % 2,296RCP Alfa s.r.o.; Praha SO 51.00 % 51.00 % 38RCP Beta s.r.o.; Praha SO 65.00 % 65.00 % 2,772RCP Delta s.r.o.; Praha SO 65.00 % 65.00 % 38RCP Epsilon s.r.o.; Praha SO 65.00 % 65.00 % 38SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance129FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


Equity Share in Nominal capitalCompany names and headquarters Type* interest voting rights in ‰ thsd.RCP Gama s.r.o.; Praha SO 65.00 % 65.00 % 3,640RCP ISC s.r.o.; Praha SO 65.00 % 65.00 % 38Terminál Közép Európai Kft.; Budapest SO 75.00 % 75.00 % 12TK Czech Development IX s.r.o.; Praha SO 75.00 % 75.00 % 4UBG Netherlands Holding & Finance B.V.; Amsterdam SO 100.00 % 100.00 % 114Unternehmensbeteiligungs GmbH; Wien SO 100.00 % 100.00 % 73VB Factoring Bank Aktiengesellschaft; Salzburg KI 100.00 % 100.00 % 2,907VB Jármü Pénzügyi Lízing Zrt.; Budapest FI 69.21 % 69.21 % 236VB Leasing CZ, spol.s.r.o.; Brno FI 50.00 % 50.00 % 8,223VB LEASING d.o.o.; Zagreb FI 50.11 % 50.11 % 10,203VB Leasing doo Beograd; Beograd FI 49.72 % 49.72 % 5,435VB Leasing Finanzierungsgesellschaft m.b.H.; Wien FI 100.00 % 100.00 % 18VB LEASING POLSKA S.A.; Wroclaw FI 50.00 % 50.00 % 2,238VB Leasing Services, spol. s r.o.; Brno FI 50.00 % 50.00 % 383VB LEASING SK, spol. s.r.o.; Bratislava FI 49.14 % 49.14 % 3,722VB Lízing Kft.; Budapest FI 69.21 % 69.21 % 434VB Partner-Kapital Beteiligungs AG; Wien SO 100.00 % 100.00 % 8,000VB Pénzügyi Lízing Zrt.; Budapest FI 69.21 % 69.21 % 236VB Technologie Finanzierungs GmbH; Wien FI 100.00 % 100.00 % 100VB-Holding Aktiengesellschaft; Wien SO 100.00 % 100.00 % 73VBI Beteiligungs GmbH; Wien SO 51.00 % 51.00 % 35VBKA-Holding GmbH; Wien SO 100.00 % 100.00 % 35VBL BROKER DE PENSII PRIVATE S.R.L.; Bukarest SO 50.09 % 50.09 % 7VBL BROKER IN ASIGURARI S.R.L.; Bukarest SO 50.09 % 50.09 % 7VBL SERVICES DOO BEOGRAD; Beograd FI 50.00 % 50.00 % 105VB-Leasing International Holding GmbH; Wien SO 50.00 % 50.00 % 5,603VBS Leasing d.o.o.; Ljubljana FI 49.81 % 49.81 % 6,973VBS Leasing HISA d.o.o.; Ljubljana FI 49.81 % 49.81 % 626VBV Anlagenvermietungs- und Beteiligungs-Aktiengesellschaft; Wien FI 100.00 % 100.00 % 13,444VBV beta Anlagen Vermietung Gesellschaft m.b.H.; Wien FI 100.00 % 100.00 % 18VBV Holding GmbH; Wien FI 100.00 % 100.00 % 36VBV Holding GmbH & Co Secunda OHG; Wien HD 100.00 % 100.00 % 10VBV Holding GmbH & Co Tertia OHG; Wien HD 100.00 % 100.00 % 10VBV Vermögensanlagen und Beteiligungen Verwaltungs-Gesellschaft m.b.H. Investitionsgüter-Vermietungs OG.; Wien FI 100.00 % 100.00 % 2,907V-Dat Informatikai Szolgáltató és Kereskedlmi Kft.; Budapest HD 47.09 % 48.34 % 1,588Verwaltungsgenossenschaft der IMMO-BANK reg. Gen.m.b.H., Wien SO 86.76 % 86.76 % 2,891VIBE-Holding GmbH; Wien SO 100.00 % 100.00 % 35Victoria International Property SRL; Bukarest SO 65.00 % 65.00 % 0VOBA-Holding GmbH; Wien SO 100.00 % 100.00 % 36VOGEVA - Gebäudevermietung Gesellschaft m.b.H.; Wien FI 100.00 % 100.00 % 36Volksbank a.d.; Beograd KI 49.42 % 49.42 % 57,748Volksbank a.d. Banja Luka; Banja Luka KI 50.97 % 50.97 % 9,698THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


Equity Share in Nominal capitalCompany names and headquarters Type* interest voting rights in ‰ thsd.VOLKSBANK BH d.d.; Sarajewo KI 48.68 % 45.85 % 24,031Volksbank CZ, a.s.; Praha KI 49.86 % 49.11 % 63,197Volksbank d.d.; Zagreb KI 50.58 % 50.30 % 83,978Volksbank Ingatlankezelö Kft; Budapest HD 47.09 % 48.34 % 6,502Volksbank International AG; Wien KI 51.00 % 51.00 % 64,385Volksbank Invest Kapitalanlagegesellschaft m.b.H.; Wien KI 100.00 % 100.00 % 2,500Volksbank Leasing BH d.o.o.; Sarajewo FI 49.36 % 49.36 % 2,124Volksbank Leasing Romania IFN S.A.; Bukarest FI 50.09 % 50.09 % 283Volksbank Linz - Mühlviertel reg. Gen.m.b.H.; Linz KI 97.20 % 97.20 % 14,932Volksbank Malta Limited; Sliema KI 83.50 % 83.50 % 167,821Volksbank Romania S.A.; Bukarest KI 50.46 % 49.66 % 102,684VOLKSBANK Slovensko, a.s.; Bratislava KI 46.41 % 44.92 % 29,777Volksbank Wien AG; Wien KI 82.81 % 82.81 % 43,637Volksbank-Ljudska banka d.d.; Ljubljana KI 48.70 % 48.70 % 31,377Volksin d.o.o.; Zagreb HD 51.00 % 51.00 % 248Warsaw Towers Sp. z o.o.; Warszawa SO 51.00 % 51.00 % 14Zagrebtower d.o.o.; Zagreb SO 65.00 % 65.00 % 2,09351) Companies valued at equityEquity Share in Nominal capitalCompany names and headquarters Type* interest voting rights in ‰ thsd.Dexia Kommunalkredit Bank AG - Konzern; Wien KI 24.96 % 24.96 % 100,000GEF Beteiligungs-AG; Wien SO 49.94 % 49.94 % 7,300INVEST EQUITY Beteiligungs-AG; Wien SO 29.85 % 29.85 % 7,300Kommunalleasing GmbH; Wien FI 25.39 % 25.39 % 1,500TRASTONA HOLDINGS LIMITED; Nicosia SO 40.00 % 40.00 % 2VBV delta Anlagen Vermietung Gesellschaft m.b.H.; Wien SO 40.00 % 40.00 % 361)All fully consolidated companies are under direct or indirect control of VBAG* AbbreviationsKI ..... credit institutionsFI ..... financial institutionsHD ... banking related auxiliary servicesSO ... other enterprisesSUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance131FINANCIAL STATEMENTSNotesOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


INDEPENDENT AUDITOR'S REPORTReport on the ConsolidatedFinancial StatementsWe have audited the accompanying consolidated financialstatements of Österreichische Volksbanken-Aktiengesellschaft,Wien, for the financial year from 1 January to 31 December 2007.These consolidated financial statements comprise the balancesheet as at 31 December 2007, and the income statement,statement of changes in equity and cash flow statement for thefinancial year 2007, and a summary of significant accountingpolicies and other explanatory notes.THE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


Management’s responsibility for thefinancial statementsManagement is responsible for the preparation and fairpresentation of these consolidated financial statements inaccordance with International Financial Reporting Standards(IFRSs) as adopted by the EU. This responsibility includes:designing, implementing and maintaining internal control relevantto the preparation and fair presentation of financial statementsthat are free from material misstatements, whether due to fraudor error; selecting and applying appropriate accounting policies;and making accounting estimates that are reasonable in thecircumstances.Auditor's responsibilityOur responsibility is to express an opinion on these consolidatedfinancial statements based on our audit. We conducted our auditin accordance with laws and regulations applicable in Austria andAustrian Standards on Auditing and International Standards onAuditing, issued by the International Auditing and AssuranceStandards Board (IAASB) of the International Federation ofAccountants (IFAC). Those standards require that we comply withethical requirements and plan and perform the audit to obtainreasonable assurance whether the consolidated financialstatements are free from material misstatements.OpinionOur audit did not give rise to any objections. Based on the resultsof our audit in our opinion the consolidated financial statementspresent fairly, in all material respects, the financial position of theGroup as of 31 December 2007 and of its financial performanceand its cash flows for the fiscal year as reported in accordancewith International Financial Reporting Standards (IFRSs) asadopted by the EU.Report on other legal requirementsLaw and regulation applicable in Austria require us to performaudit procedures in order to establish whether the GroupManagement Report is consistent with the consolidated financialstatements and whether other disclosures made in the Groupmanagement report do not give rise to misconception of theposition of the Group.In our opinion, the Group Management Report is consistent withthe consolidated financial statements.Vienna, 10 March 2008KPMG Austria GmbHWirtschaftsprüfungs- und SteuerberatungsgesellschaftAn audit involves performing procedures to obtain audit evidenceabout the amounts and disclosures in the consolidated financialstatements. The procedures selected depend on the auditor’sjudgement, including the assessment of the risks of materialmisstatements of the consolidated financial statements, whetherdue to fraud or error. In making these risk assessments, theauditor considers internal control relevant to the entity’spreparation and fair presentation of the consolidated financialstatements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the entity’s internalcontrol. An audit also includes evaluation of the appropriatenessof accounting policies used and the reasonableness of accountingestimates made by management, as well as evaluating the overallpresentation of the financial statements.signedDDr. Martin Wagner ppa Mag. Renate ValaCertified Public Accountant Certified Public Accountant(Austrian Chartered Accountants)We believe that the audit evidence we have obtained is sufficientand appropriate to provide a basis for our audit opinion.SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, Compliance133FINANCIAL STATEMENTSAuditor´s ReportOFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


HERESUCCESSIS ATHOMEOfficers and Adresses.138 Supervisory Board and Managing Board139 Advisory Board140 The VBAG Group in Austria142 The VBAG Group in Central and Eastern EuropeContacts/06143


MEMBERS OF THE BOARD OF ÖSTERREICHISCHEVOLKSBANKEN-AKTIENGESELLSCHAFTSupervisory Board:ChairmanWalter ZANDANELLChairman of the Managing Board ofVolksbank Salzburg e. Gen.First Deputy ChairmanFranz GATTERBAUERChairman of the Managing Board ofVolksbank Alpenvorland rGmbH(until May 24, 2007)Gerald WENZELChairman of the Managing Board ofVolksbank Baden e. Gen.(from May 24, 2007)Hans HOFINGERSyndic and Chairman of theManaging Board of ÖsterreichischenGenossenschaftsverbandes(Schulze-Delitzsch)Herbert HUBMANNDebuty Chairman ofADEG Österreich Großeinkaufder Kaufleute rGmbHWolfgang KIRSCHChairman of the Managing BoardDZ BANK AGDeutsche Zentral-GenossenschaftsbankState CommissionersSenior Legal Secretary Doris RADLSenior Legal Secretary Viktor LEBLOCHDeputy State CommissionerDelegated by theStaff CouncilChairman of the Staff CouncilHans LANGRichard PREISSLERRosa PROHASKAChristian RUDORFERDieter SEYSERMatthäus THUN-HOHENSTEINChristian WERNERSecond Deputy ChairmanFranz FRISCHLINGChairman of the Managing Board ofVolksbank Vöcklamarkt-MondseerGmbHMembersHarald BERGERChairman of the Managing Board ofVolksbank Südburgenland rGmbHThomas BOCKChairman of the Managing Board ofVolksbank Vorarlberg e. Gen.Thomas DUHNKRACKMembers of the Boardof DZ BANK AGDeutsche Zentral-GenossenschaftsbankRainer KUHNLEMember of theManaging Board ofVolksbank Krems-Zwettl AGEdwin REITERChairman of theManaging Board ofVolksbank Oberkärnten rGmbHWalter ROTHENSTEINERChairman of the Managing Board ofRaiffeisen Zentralbank Österreich AGDaniel VON BORRIESMember of the Managing Board ofERGO Versicherungsgruppe AGThomas WIESERChairman of the Managing Board ofAllgemeine Bausparkasse rGmbHManaging BoardChief Executive OfficerFranz PINKLMember of the Managing BoardErich HACKLMember of the Managing BoardManfred KUNERTMember of the Managing BoardWolfgang PERDICHMember of the Managing BoardWilfried STADLERTHE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


ADVISORY COUNCILBeiratDirektor KR Dkfm. Werner EIDHERRGerhard REINERChairman of the Managing Board ofChairman of the Advisory CouncilVolksbank Graz-Bruck rGmbHPresident of the Advisory Councilof the Federation of Austrian CreditOthmar SCHMIDCo-operatives (Schulze-Delitzsch)Member of the Managing Board ofChairman of the Managing Board ofÖsterreichische Apothekerbank rGmbHVolksbank Kufstein rGmbHGerhard SCHWAIGERJohannes JELENIKChairman of the Managing Board ofDeputy Chairman of the AdvisoryVolksbank Tirol Innsbruck-Schwaz AGCouncilDeputy ChairmanClaudius SEIDLof the Managing Board ofChairman of the Managing Board ofVolksbank Kärnten Süd e.Gen.VR-Bank Rottal-Inn eG.(until August 30, 2007)Andreas DICHTLChairman of the Managing Board ofPeter SEKOTVolksbank Raiffeisenbank OberbayernDeputy Chairman of theSüdost eGManaging Board of(until June 14, 2007)Volksbank Marchfeld e.Gen.Johannes FLEISCHERBernd SPOHNChairman of the Managing Board ofDeputy Chairman of theWeinviertler Volksbank rGmbHManaging Board of theFederation of Austrian CreditHermann GEISSLERCo-operatives (Schulze-Delitzsch)LawyerJosef TREMLFranz KNORChairman of the Managing Board ofDeputy Chairman of theVolksbank Vöcklabruck-GmundenManaging Board ofe.Gen.Volksbank Südburgenland rGmbHBR KR Sonja ZWAZLMichael PESCHKAPresident of Chamber of CommerceChairman of the Managing Board ofof Lower AustriaVolksbank Eferding-GrieskirchenrGmbHSUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, ComplianceFINANCIAL STATEMENTSIncome Statement, Balance Sheet, Changes inEquity, Cash Flow Statement, Notes, Reports139OFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


DER VBAG GROUP IN AUSTRIAHeadquartersÖsterreichische Volksbanken-AG1090 Wien, Kolingasse 19Telephone: +43 (0)50 4004 - 0Fax: +43 (0)50 4004 - 3682e-mail: info@volksbank.comInternet: www.volksbank.comSelected Subsidiariesand Holdings:Allgemeine Bausparkasse rGmbH1091 Wien, Liechtensteinstraße 111-115Telephone: +43 (0)50 40046 - 0Fax: +43 (0)50 40046 - 209e-mail: service@abv.atInternet: www.abv.atBack Office Service für Banken GmbH1090 Wien, Kolingasse 19Telephone: +43 (0)50 4004-3367und -3549Fax: +43 (0)50 4004-3139und -3523e-mail: bogservices@volksbank.comBank für Ärzte und Freie Berufe AG1072 Wien, Zieglergasse 5Telephone: +43/1/52107 - 0Fax: +43/1/52107 - 157e-mail: info@aerztebank.atInternet: www.aerztebank.atEuropolis Real Estate AssetManagement GmbH1010 Wien, Kohlmarkt 8-10Telephone: +43/1/319 72 00Fax: +43/1/319 72 00 - 111e-mail: vienna@europolis.comInternet: www.europolis.comBranches in Prague, Warsaw, Budapestand BucharestIMMO-BANK AG1010 Wien, Stadiongasse 10Telephone: +43/1/40434 - 0Fax: +43/1/40434 - 697e-mail: info@immobank.atInternet: www.immobank.atImmoconsult Leasing GmbH1090 Wien, Wasagasse 2Telephone: +43 (0)50 4004 - 7193Fax: +43 (0)50 4004 - 3639e-mail: office@immoconsult.bizInternet: www.immoconsult.atBranches in Belgrade, Bratislava,Prague, Budapest, Bucharest, Sofia,Warsaw, Ljubljana, Tel AvivImmo Kapitalanlage AG1220 Wien, Leonard-Bernstein-Straße 10Telephone: +43 (0)50 4004 - 3938Fax: +43 (0)50 4004 - 3767e-mail: info@immokag.atInternet: www.immokag.atInvestkredit Bank AG1013 Wien, Renngasse 10Telephone: +43/1/53 1 35 - 0Fax: +43/1/53 1 35 - 983e-mail: invest@investkredit.atInternet: www.investkredit.atBranches in Germany, Poland, Romania,Slovakia, Czech Republic, HungaryInvestkredit Investmentbank AG1013 Wien, Renngasse 10Telephone: +43/1/53 1 35 - 0Fax: +43/1/53 1 35 - 929e-mail: office@ikib.atInternet: www.ikib.atKommunalkredit Austria AG1090 Wien, Türkenstraße 9Telephone: +43/1/31 6 31 - 0Fax: +43/1/31 6 31 - 105e-mail: kommunal@kommunalkredit.atInternet: www.kommunalkredit.atPREMIUMRED Real EstateDevelopment GmbH1090 Wien, Wasagasse 2Telephone: +43 (0)50 4004 - 3310Fax: +43 (0)50 4004 - 3305e-mail: office@premiumred.atInternet: www.premiumred.atVB Factoring Bank AG5033 Salzburg, Thumegger Straße 2Telephone: +43/662/623553 - 0Fax: +43/662/623553 - 160e-mail: info@vb-factoring-bank.atInternet: www.vb-factoring-bank.atVB Leasing Finanzierungs GmbH1090 Wien, Wasagasse 2Telephone: +43 (0)50 4004 - 7266Fax: +43 (0)50 4004 - 7265e-mail:office@vbleasing.atInternet: www.vbleasing.atBranches in St. Pölten, Amstetten, Graz,Linz, Klagenfurt, Salzburg und KufsteinVB-Leasing InternationalHolding GmbH1090 Wien, Kolingasse 12Telephone: +43 (0)50 4004 - 7123Fax: +43 (0)50 4004 - 7121e-mail: office@vbleasing.comInternet: www.vbleasing.comLeasing companies in Slovakia,Slovenia, Czech Republic, Croatia,Bosnia and Herzegovina, Romania,Hungary, Poland, Serbia andMontenegroTHE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


VB ManagementBeratung GmbH1090 Wien, Kolingasse 19Telephone: +43 (0)50 4004 - 3376Fax: +43 (0)50 4004 - 3331e-mail:infoservice@vb-managementberatung.atVolksbank Wien AG1090 Wien, Peregringasse 2Telephone: +43/1/40137 - 0Fax: +43/1/40137 - 7600e-mail: filialen@wien.volksbank.atInternet: www.wien.volksbank.at33 Branches in Vienna, Gerasdorf,Klosterneuburg, Pressbaum andPurkersdorfVICTORIA-VOLKSBANKENVorsorgekasse AG1013 Wien, Schottengasse 10Telephone: +43/1/31341 - 0Fax: +43/1/31341 - 165e-mail: abfertigung@victoria.atInternet: www.bav.victoria.atVolksbank InvestKapitalanlagegesellschaft m.b.H.1220 Wien, Leonard-Bernstein-Straße 10Telephone: +43(0)50 4004 - 3638Fax: +43(0)50 4004 - 3191e-mail: office@volksbankinvest.comInternet: www.volksbankinvest.comVolksbank Linz-Mühlviertel rGmbH4018 Linz, Hamerlingstraße 40Telephone: +43/732/2000Fax: +43/732/2000 - 133e-mail: office@linzmv.volksbank.atInternet: www.linzmv.volksbank.at11 Branches in Linz (4), Bad Leonfelden,Freistadt, Gallneukirchen, Perg,Rohrbach, St. Oswald and TragweinVICTORIA-VOLKSBANKENPensionskassen AG1013 Wien, Schottengasse 10Telephone: +43/1/31341 - 0Fax: +43/1/31341 - 241e-mail: bav@victoria.atInternet: www.bav.victoria.atDachverbandÖsterreichischer Genossenschaftsverband(Schulze-Delitzsch)1013 Wien, Löwelstraße 14Telephone: +43 (0)50 40041 - 0Fax: +43 (0)50 40041 - 450e-mail:hermann_fritzl@oegv.volksbank.atInternet: www.oegv.infoVICTORIA-VOLKSBANKENVersicherungs AG1013 Wien, Schottengasse 10Telephone: +43/1/31341 - 0Fax: +43/1/31341 - 216e-mail: office@victoria.atInternet: www.victoria.atSUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, ComplianceFINANCIAL STATEMENTSIncome Statement, Balance Sheet, Changes inEquity, Cash Flow Statement, Notes, Reports141OFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


THE VBAG GROUP IN CENTRAL AND EASTERNEUROPEBanking SubsidiariesVolksbank International AG1090 Wien, Kolingasse 19Telephone: +43 (0)50 4004 – 3903Fax: +43 (0)50 4004 – 3905e-mail: office@vbi.atInternet: www.vbi.atVBI´s Subsidiaries inCentral and EasternEuropeSlovakiaVolksbank Slovensko, a.s.Vysoká 9SK-810 00 BratislavaTelephone: +4212/5965 1111Fax: +4212/5441 2453e-mail: market@volksbank.skInternet: www.volksbank.skCzech RepublicVolksbank CZ, a.s.Lazarská 8CZ-120 00 PragTelephone: +420/221/969 911Fax: +420/221/969 951e-mail: mail@volksbank.czInternet: www.volksbank.czHungaryMagyarországi Volksbank Zrt.Rákóczi út 7H-1088 BudapestTelephone: +361/328 6666Fax: +361/328 6660e-mail: volksbank@volksbank.huInternet: www.volksbank.huSloveniaVolksbank-Ljudska banka d.d.Dunajska 128 aSLO-1000 LjubljanaTelephone: +3861/5307 400Fax: +3861/5307 555e-mail: info@volksbank.siInternet: www.volksbank.siCroatiaVolksbank d.d.Varsavska 9HR-10000 ZagrebTelephone: +3851/4801 300Fax: +3851/4801 365e-mail: info@volksbank.hrInternet: www.volksbank.hrRomaniaVolksbank Romania s.a.Str. Mihai Bravu 171-173RO-021323 Bukarest, Sector 2Telephone: +4021/209 44 55Fax: +4021/209 44 90e-mail: marketing@volksbank.roInternet: www.volksbank.roBosnia-HerzegovinaVolksbank BH d.d.Fra Andela Zvizdovica 1BiH-71 000 SarajevoTelephone: +387/33 2956 01Fax: +387/33 2956 03e-mail: info@volksbank.baInternet: www.volksbank.baVolksbank a.d., Banja LukaJevrejska ulica bbBiH-78 000 Banja LukaTelephone: +387/51 2411 00Fax: +387/51 2133 91e-mail: office@volksbank-bl.baInternet: www.vollksbank.bl.baSerbiaVolksbank a.d.Bulevar Mihaila Pupina 165gRS-11070 BeogradTelephone: +381/ 11 201 3200Fax: +381/ 11 201 3270e-mail: info@volksbank.co.yuInternet: www.volksbank.co.yuUkraineOJSC Electron BankGrabovskogo 11UA-79000 LembergTelephone: 00380/32 297 13 82Fax: 00380/32 297 13 82e-mail: contact@elbank.lviv.uaInternet: www.elbank.com.uaVBAG´s SubsidiariesMaltaVolksbank Malta Limited53 Dingli StreetSliema SLM 1902Telephone: +356/27 77 7777Fax: +356/21 33 60 90e-mail: info@volksbank.com.mtInternet: www.volksbank.com.mtTHE VOLKSBANK AGForeword, Network, History,Strategy, Managing BoardMANAGEMENT REPORTEconomic Environment in 2007,Summary of the Financial Statements, OutlookTHE FIVE STRATEGIC SEGMENTSSegment Reports


CONTACTSÖsterreichische Volksbanken-AG1090 Wien, Kolingasse 19Address: 1011 Vienna, P.O.B. 95Telephone: +43 (0)50 4004 - 0Fax: +43 (0)50 4004 - 3682e-mail: info@volksbank.comInternet: www.volksbank.comCorporates andBusinessReinhard Hönig(Corporates)e-mail: r.hoenig@investkredit.atTelephone: +43/1/53 135 - 529Fax +43/1/5330504529Ulrich Zacherl(Small and Medium-Sized Enterprises)e-mail: zacherl@investkredit.atTelephone: +43/1/53 1 35 - 164Fax: +43/1/53 1 35 - 948Thorsten Paul(International Corporates andMarkets CEE)e-mail: paul@investkredit.atTelephone: +43/1/53 1 35 - 103Fax: +43/1/53 1 35 - 947Roland Mittendorfer(International Corporates Germany)e-mail: r.mittendorfer@investkredit.deTelephone: +49/69/788096 - 11Fax: +49/69/788096 - 29Real EstateKlaus Scheitz(Real Estate Leasing)e-mail: k.scheitz@investkredit.atTelephone: +43 (0)50 4004 - 7400Fax: +43 (0)50 4004 - 7410Gerhard Höfler(Real Estate Leasing)e-mail: gerhard.hoefler@immoconsult.atTelephone: +43 (0)50 4004 - 7900Fax: +43 (0)50 4004 - 3639Leopold Deufl(Real Estate Development)e-mail: deufl@premiumred.atTelephone: +43 (0)50 4004 - 3944Fax: +43 (0)50 4004 - 3305Bernhard Mayer(Asset Management)e-mail: b.mayer@europolis.comTelephone: +43/1/3197200 - 101Fax: +43/1/3197200 - 111Public FinanceCornelia Schragl-Kellermayere-mail: c.schragl@kommunalkredit.atTelephone: +43/1/31 6 31 - 532Fax: +43/1/31 6 31 - 99532Marcus Mayere-mail: m.mayer@kommunalkredit.atTelephone: +43/1/31 6 31 - 593Volksbank InternationalFriedhelm Boscherte-mail: friedhelm.boschert@vbi.atTelephone: +43 (0)50 4004 - 3143Fax: +43 (0)50 4004 - 3905Group TreasuryMartin Fuchsbauer, MBAe-mail:martin.fuchsbauer@volksbank.comTelephone: +43 (0)50 4004 - 3757Fax: +43 (0)50 4004 - 3199International FinancialInstitutionsMichaela Holube-mail: michaela.holub@volksbank.comTelephone: +43 (0)50 4004 - 3146Fax 0504004 - 83146MarketingKurt Kaiser Msc.e-mail: kurt.kaiser@volksbank.comTelephone: +43 (0)50 4004 - 3181Fax: +43 (0)50 4004 - 3682CommunicationWalter Gröblingere-mail:walter.groeblinger@volksbank.comTelephone: +43 (0)50 4004 - 3864Fax: +43 (0)50 4004 - 83864SUCCESS FACTORSHuman Resources, Marketing, Communication,Organisation & IT, Risk Management, ComplianceFINANCIAL STATEMENTSIncome Statement, Balance Sheet, Changes inEquity, Cash Flow Statement, Notes, Reports143OFFICERS AND ADRESSESSupervisory Board, Advisory Board,Branches, Contacts


IMPRINT:Publisher:Österreichische Volksbanken-AG1090 Vienna, Kolingasse 19Telephone: +43(0)50 4004-0E-Mail: info@volksbank.comResponsible for the contents:Public Relation UnitDesign Concept:Demner, Merlicek und Bergmann1061 Vienna, Lehárgasse 9-11Production:Back Office Service für Banken GmbH1090 Vienna, Kolingasse 19

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