Download - Volksbank AG

Increase in business
volume and earnings
Significant increase
in operating earnings
Higher expenses for
risk provisions
New employees to
support expansion
DEVELOPMENT OF EARNINGS
Management discussion
INCREASE IN EARNINGS. The Bank for Corporates’ efforts to further develop its service range led to
an increase in both business volume and earnings. The Bank’s operating earnings grew significantly;
however, the economic slowdown entailed higher investment in risk provisions.
NET INTEREST INCOME. In the financial year, Development of net interest income
net interest income was even reinforced in its 1997 – 2001
position as the most important source of
Net interest income in EUR m
earnings. As compared with 2000, net interest
income rose by EUR 20 m or 27% to
Net interest margin
1.10 % 1.02 % 1.02 % 0.98 %
96.9
0.97 %
EUR 96.9 m with the increase in total assets by
76.4
29% being mainly responsible for this develop-
62.1
ment. Income from lending business, securities
and investments in real estate also grew
accordingly. Because of a steeper interest rate
49.3 51.1
curve in the second half of the year, interest
contributions relating to maturity transforma-
1997 1998 1999 2000 2001
tions improved. The interest margin, i.e. the ratio of net interest income to the average amount of
total assets, thus dipped from 0.98% to 0.97%. This development was due to the relative increase in
local government financing in which lower margins and lower credit risks outweigh.
OTHER OPERATING RESULTS. Net fee and commission income amounted to EUR 5.0 m and thus
decreased by 15% as compared with 2000. This development was caused by higher expenditure in
the securities sector. The most significant items of income came once again from environmental aid
administered by Kommunalkredit for the Republic of Austria on a trust basis. In the financial year,
total risk provision for loans in the lending business increased by 30% thus reaching an amount of
EUR 8.5 m. The economic development, furthermore, led to higher expenses concerning value adjustment
of corporate financing. On the whole, total risk provision for the lending business rose by
EUR 4.7 m or 7% to EUR 69.0 m. At EUR 0.3 m, direct write-offs, however, remained on a very low
level in the financial year. With EUR 3.0 m, the net trading result reached the same amount as in the
previous year. Securities trading recorded a rather dissatisfying loss of EUR 1.4 m whereas derivatives
trading achieved an amount of EUR 3.9 m thus improving on the previous year’s result. Financial
investments were hit by the strongest decline due to the assessment of marketable securities and
the declining credit quality of a bond reported as fixed asset. Due to the write-down of the Bank’s
interest in INVEST EQUITY Beteiligungs-AG, the net result from investments also contributed to a total
minus of EUR 22.0 m.
GENERAL ADMINISTRATIVE EXPENSES. Due to the Group’s strong expansion, general administrative
expenses rose by 21% to EUR 44 m. An increase in personnel expenses by EUR 7.3 m to
EUR 27.5 m was caused by both higher provisions for retirement which rose by EUR 4 m and the
rather unfavourable market development for pension schemes. The number of employees increased
by 30 to 320 (disregarding the Board of Management and staff on maternity leave) which entailed a
rise in current wage costs of EUR 2.6 m or 16%. Other administrative expenses rose by 2% from
EUR 13.4 m to EUR 13.7 m, proportionately less than income. Depreciation and value adjustment of
property and equipment increased only slightly to EUR 2.6 m. In the past year, investments in property
and equipment focused on computer hardware and securities software. On the whole, general administrative
expenses rose by a total of 22% from EUR 36.2 m to EUR 44.3 m. The cost-income ratio
(the ratio of general administrative expenses to income) remained at the previous year’s level of 42%
thus resting far behind the average obtained in the banking sector.
THE BANK FOR CORPORATES
17