Contents. Half-Yearly Financial Report at 30 June Bank Austria at a Glance 3

Transcription

1 Half-Yearly Financial Report 2013

2 Half-Yearly Financial Report at 30 June 2013 Contents Bank Austria at a Glance 3 Interim Management Report at 30 June The banking environment in mid Introductory remarks 8 Bank Austria in the first half of Overview 9 Quarterly trends 10 Details of the income statement 12 Volume, profitability and resources 17 Financial position and capital resources 18 Development of business segments 20 Outlook 28 Consolidated Financial Statements in accordance with IFRSs 31 Consolidated Income Statement for the first half of Consolidated Statement of Comprehensive Income 32 Statement of Financial Position at 30 June Statement of Changes in Equity 34 Statement of Cash Flows 35 Notes to the Consolidated Financial Statements 36 Notes to the income statement 50 Notes to the statement of financial position 58 Segment reporting 64 Risk report 73 Additional disclosures 79 Statement by Management on the Half-Yearly Financial Report Additional Information 84 Investor Relations, ratings, imprint, notes 84 2

3 Half-Yearly Financial Report at 30 June 2013 Bank Austria at a Glance Income statement figures H H ) +/ Net interest 2,202 2, % Net fees and commissions % Net trading, hedging and fair value income % Operating income 3,555 3, % Operating costs 2,005 1, % Net write-downs of loans and provisions for guarantees and commitments % Net operating profit % Profit before tax % Net profit attributable to the owners of the parent company % Volume figures 30 june dec ) +/ Total assets 201, , % Loans and receivables with customers 136, , % Primary funds 136, , % Equity 18,006 18, % Risk-weighted assets (overall) 125, , % Key performance indicators H ) Return on equity after tax (ROE) 6.8% 2.4% 4) Cost/income ratio (without bank levies) 54.0% 56.1% Provisioning charge/avg. lending volume (cost of risk) 1.02% 0.84% Loans and receivables with customers/primary funds 2) 99.7% 95.5% Leverage ratio 2) 3) Core Tier 1 capital ratio 2) 11.1% 10.6% 4) Tier 1 capital ratio 2) based on all risks 11.3% 10.8% 4) Total capital ratio 2) 13.1% 12.5% 4) 30 june dec ) +/ Bank Austria (full-time equivalent) 54,672 58, % Central Eastern Europe business segment 47,388 47, % Kazakhstan 0 3,314 n.m. Austria (other business segments) 7,284 7, % 30 june dec / Bank Austria 2,805 2, Central Eastern Europe business segment 2,525 2, Kazakhstan Austria (other business segments) ) Comparative figures for 2012 recast to reflect the current structure and methodology. / 2) End of period. / 3) Total assets/equity (without intangible assets). / 4) Original figures. / 5) Employees and offices of companies accounted for under the proportionate consolidation method are included at 100%. 3

4 Interim Management Report at 30 June 2013 The banking environment in mid-2013 While the first half of 2013 saw hardly any signs of an upturn in banking business in our markets (Austria and CEE), there were no major setbacks either. Systemic risk from the European sovereign debt crisis decreased after the European Central Bank (ECB) had pledged to intervene under the OMT programme in summer After the Cypriot bail-in of March 2013, and despite significant fiscal consolidation, the other support programmes have been adjusted on various occasions. The economic recovery which had been forecast failed to materialise, though internal conditions required for a recovery further improved. One of the reasons why the recovery has not yet arrived is globally widening economic divergence, recently also reflected in interest rate expectations. At all levels be it the public sector, households or companies priority is still given to debt reduction, consolidation and the pursuit of financial independence and liquidity. In the final analysis, banks have also been unable to provide a stimulus as regulatory requirements are being tightened, tax burdens are increasing and unpredictable ad-hoc intervention has occurred in several countries. The global economy has stabilised after losing momentum in the course of 2012, especially in the final quarter of the past year. However, a new phenomenon became apparent in the second quarter of 2013: the growth momentum rotates, global regions seem to take turns in the business cycle rather than all moving in the same direction. Growth in the major emerging markets has weakened significantly and unexpectedly, in the year to date, a development which has been seen in Brazil, India, Indonesia, China and on account of declining commodities prices also in Russia. While emerging markets are still strongly supporting the economic momentum (China alone, with growth of about 7½%, accounts for about 0.9 percentage points of the global rate of about 3%), the momentum is slowing, and this affects world trade. Combined growth in the industrial countries, on the other hand, is accelerating. In the US, growth seems to be sustainable, though at a moderate level. The real estate sector has continued to return to more normal conditions, with the resulting gains translating into a lower savings ratio and higher private consumption; this has helped to cope with the automatic public spending cuts. Real GDP in the past two quarters expanded by 1.8% annually. In Japan, monetary policy measures taken at the beginning of April marked an unprecedented effort to get out of deflation within a period of two years (doubling the monetary base through bond purchases, with an inflation rate target of 2%). The yen depreciated against the euro by 13% in the sixmonth period to the end of June 2013, and by 23% compared with June Economic growth is expected to rise to 3.5% year-onyear in the fourth quarter of 2013 (IMF), though this will mean accepting risks. Stock markets reflected the divergence between industrial countries and emerging markets: the MSCI index for BRIC fell by 11% in the six months to the end of June 2013 while the S&P500 for the US rose by 15% and the EuroStoxx more or less stagnated, increasing by 1%. Global economy still at the growth threshold Prices for industrial commodities (S&P GSCI, spot, US$, year-end 2009 = 100) left-hand scale PMI global Purchasing Managers Index (PMI/industry) Core euro countries H1 H = growth threshold PMI euro area Global stock markets: disappointing performance of emerging markets End of 2011 = 100 MSCI euro area MSCI world index Interest rate expectations starting to reverse Yield on 10-year government bonds US Treasuries Euro benchmark Spread CEE countries (Bank Austria perimeter) H CEE BRIC Bonds of highly exposed countries (Portugal, Spain, Ireland and Italy, weighted) Risk premiums (CDS): sovereign debt crisis easing for now

5 Interim Management Report at 30 June 2013 The banking environment (CONTINUED) Economic growth in the euro area, though in negative territory, has been moving closer to zero: after shrinking in six successive quarters (more recently by 0.6% in the fourth quarter of 2012 and by 0.3% in the first quarter of 2013), it may have been positive in the second quarter of 2013 (flash estimate in the middle of August). In the euro area as a whole, recent output figures exceeded soft data (surveys, business sentiment indicators), with both showing upward trends. This development was mainly driven by Germany, which benefited in the second quarter of 2013 from catching-up effects after a severe winter. Manufacturing output in the southern countries of the euro area also stabilised, supported by net exports; the trend was surprisingly positive indicating that recession could bottom out in the coming months. A contribution to this trend came from enhanced competitiveness (wages, productivity), though at the price of further rising unemployment. The economies of Spain and Italy continued to shrink significantly year-on-year (Q2 2013: about 2%). The hesitant turn for the better was also reflected in balance-of-payments imbalances within the euro area: Target 2 liabilities of the crisis countries Spain, Italy, Greece, Ireland, Portugal and Cyprus declined from a peak of over one trillion euros in August 2012 to 714 billion in May 2013, with Germany s claims moving in line with this decrease ( 22%). In the interbank sector, excess liquidity held with the ECB has declined by two-thirds, to about 270 billion, from the peak reached in March 2012 after the tenders had been allocated. Since May 2013, financial markets have been characterised by expectations of divergent monetary policies, and this has also involved portfolio shifts in anticipation of policy moves. In May the ECB reduced the key interest rate to a new low of 0.5% and pledged to fully allocate refinancing transactions at least until the middle of At the beginning of May, speculation about a monetary policy turnaround started in the markets when the Federal Reserve linked its bond purchases (QE3) to economic conditions. On 19 June, the Federal Open Market Committee pledged to maintain the policy of low interest rates (0% to 0.25%) as long as the unemployment rate is above 6.5% and expected inflation is below 2.5%. At the same time, it held out the prospect of a possible tapering off of the bond purchase programme (QE3 via monthly purchases of US$85 billion in bonds), starting in 2013 and ending in the middle of 2014, if economic conditions improve as expected. Although the difference between quantitative instruments and interest rate policy was confirmed once more later on, markets remained in the grip of exit fears. An end to the multi-year boom in global bond markets was in sight. Ten-year US Treasuries rose from 1.62% (2 May) to peak at 2.54% (24 June). Euro benchmarks followed suit, though keeping some distance (yields rose from 1.17% to 1.83% in the same period). Emerging markets bonds including bond issues of CEE countries were also affected as capital was withdrawn. Ultimately (year to date/june), US bonds ( 4.7%) and German federal government bonds ( 2.1%) showed a negative performance (price + coupon) for the first time in a long period, and the performance of emerging markets bonds (EMBI: +0.4%) and corporate bonds (Euro/ nonfinancial: +0.6%) was close to nil, after exceptionally high levels seen in 2012 (+21.3% and +13.5%, respectively). Risk premiums (CDS) on government bonds were only slightly higher at the end of June, in the first half of 2013 they remained at more or less the same levels as in the fourth quarter of 2012 (see chart). At the end of June 2013, the average for highly exposed countries (Portugal, Spain, Italy, Ireland) was 237bp, matching the figure at the beginning of the year (peak in June 2012: 517bp). In June 2013, the CEE average (Bank Austria consolidation perimeter), which in 2012 was lower by 100bp, came close to the average for the EU countries on the periphery (222bp). But this was mainly due to higher risks associated with Ukraine and Turkey. The euro held up well in the first half of 2013, appreciating by 2.5% in trade-weighted terms against the currencies of 20 countries (partly reflecting the Japanese currency s weakness) while depreciating by only 0.9% against the US dollar. As the safe-haven boom was coming to an end, this was also reflected in the Swiss franc, which remained significantly below the intervention threshold of 1.20 throughout the first six months of 2013 (lowest level: 1.26 CHF/ EUR). The price of gold fell sharply in April 2013 and then again in June 2013 (low at the end of June: 1,180 US$/oz, close: 1,233 US$ /oz, 26.4%). The Austrian economy stagnated in the past four quarters (Q to Q1 2013), with quarter-on-quarter GDP growth of +0.1%, 0.0%, 0.1% and 0.0% in real terms. This trend seems to have continued in the second quarter of 2013, in which we expect growth to have reached +0.2%. But the chance of a recovery in the second half-year is intact. We maintain our growth forecast of +0.4% for 2013 as a whole, implying an annualised rate of +1.2% (yoy) for the fourth quarter of The weak economic trend is mainly due to domestic demand: unfavourable labour market developments are having an impact on private consumption, whose weakness is reflected in the clear downward trend in retail sales. Employment rose steadily in the first six months of 2013 and increased moderately, by 0.6%, over the previous year; the unemployment rate in Austria is just under 5%, the lowest figure in the EU. Unemployment nevertheless rose strongly (+10% in June yoy). Industrial companies are hesitant to invest in expansion in view of the lacklustre outlook and the current underutilisation of production capacity. Budget consolidation means that the construction industry is not providing any new impetus either. Over the past few months, exports have recovered from their low level around the turn of the year and are now showing a clear upward trend with some fluctuations. This is confirmed by the Bank Austria Purchasing Managers Index, which recently indicated stronger demand for exports. In an environment characterised by weak domestic demand, the significant decline in inflation seen in the first 5

6 Interim Management Report at 30 June 2013 The banking environment (CONTINUED) few months of the year came to a temporary halt in May. But the underlying trend continued, strongly influenced by fluctuations of energy and food prices. In June 2013 the inflation rate was 2.2% yoy, after 2.8% at year-end In view of the weak propensity to consume and invest, liquidity remained high and credit demand low. At mid-year, lending volume was slightly lower than a year earlier, primarily reflecting very weak demand for consumer loans and SME loans; growth of corporate loans and housing loans also slowed noticeably during the first half of Deposits showed stronger growth again towards the middle of the year, after a weaker momentum at the beginning of Growth of deposits from private individuals came close to the levels seen in Corporate deposits grew at a significantly lower rate than in the previous year as economic activity weakened. Uncertainty in bond and equity markets in June 2013 apparently led to net outflows from investment funds; nevertheless, retail funds closed the first half of 2013 with a small net inflow. Markets calmed again after the end of the reporting period. In the first quarter of 2013 the region of Central and Eastern Europe (CEE) overcame the economic weakness experienced at the end of 2012, apart from some special regional features; leading indicators suggest that modest growth more or less continued in the second quarter of Export-induced industrial output seems to be emerging from the cyclical trough which originated in Western Europe. The average level of available Purchasing Managers Indices in the second quarter of 2013 was slightly lower than in the preceding quarter, but up on the low figure for the fourth quarter of 2012 and visibly above the growth threshold. Almost all CEE countries further reduced their public sector deficits, though at the expense of stagnating domestic demand. Current accounts and the external financing gap varied widely. This means that the various countries were also exposed to varying capital market sentiment in different ways. Previously strong portfolio investment inflows reversed in anticipation of monetary policy tightening in May/June/July starting in the US, and this made external funding more expensive. Local banks in some countries had previously reduced their foreign liabilities. Several currencies came under pressure in June, for a number of reasons: after five months of stability, the weighted index (Bank Austriaweighted) showed that CEE currencies depreciated by 2.9% from the end of December 2012 to the end of June 2013, mainly due to exchange rate movements in the Turkish lira ( 6.6%), the Russian rouble ( 5.9%) and the Czech crown ( 3.1%). Analysing developments by region and country, one can see that the Central European countries tracked economic trends in Western Europe, mainly due to the motor vehicle industry, which dominates developments in those countries. But this is where the similarities end. The Czech economy still experienced recession in the first half of 2013, aggravated by the weather in winter and by inventory reduction. Domestic demand declined, which had a favourable effect on the current account. Recently, private consumption showed signs of stabilisation. Sentiment indicators in Slovakia remained poor although industrial production has been recovering. Budget consolidation measures proved successful but had a strong impact on domestic demand. Hungary benefited from the fact that new production capacity in the automotive sector was put into operation. As fiscal targets were achieved by placing burdens on various industries, fiscal pressure on consumers abated, with retail sales rising for the first time after six years of decline. Low inflation (below 2%) made it possible to reduce the key interest rate in several steps, from 7.0% in August 2012 to recently 4.25%. The first six months of 2013 thus saw a modest economic upturn. Volatile capital movements made external financing more difficult, with fiscal burdens also playing a role in this context. Slovenia will probably continue to experience a severe adjustment recession until 2015 as state-owned banks and non-performing loans are being restructured. GDP was down by almost 5% in the first quarter of 2013 compared with the same period of the previous year. However, the envisaged bad-bank solution helped the country to avoid a troika programme. In South-East Europe (SEE), budget consolidation in Romania was successful, permitting the country to exit the EU excessive deficit procedure (EDP). The country is among the best performers in CEE, with growth of about 2% over the previous year. This led to a rating upgrade to investment grade and inclusion in the JPMorgan Bond Index. The basic balance nevertheless continued to show a deficit and short-term capital movements affect the overall picture. The NPL ratio rose (about 19%), one of the reasons being the decline in lending volume. A third IMF programme will soon be signed. Bulgaria achieved economic growth, but the low rate has prompted us to reduce our forecast from 1.7% to 1.0%. Consumption declined, reflecting high unemployment and low income growth. However, investments have been initiated to enhance competitiveness. Croatia joined the European Union at the beginning of July 2013, bringing the total number of member states to 28. It is expected that membership will not only give the country access to financial assistance programmes but will also put beneficial pressure on it to carry out reforms and achieve convergence. The country has experienced recession since Structural changes are too slow, and regulatory intervention is causing uncertainty among investors. Tourism is currently the mainstay of the economy. Banks and the corporate sector are significantly reducing their foreign liabilities. Bosnia and Herzegovina now shares the longest border with the EU. Production (including energy) developed favourably in the first half of 2013, from a very low level. However, the basic balance shows a large deficit (about 5% of GDP, forecast for 2013), suggesting a need for a new standby agreement with the IMF. The same is true for Serbia (an IMF deal is desirable), where the twin deficits of budget ( 5% of GDP in 2013) and current account ( 6%) are the main problem. Monetary expansion is strong, and inflation recently reached a level of just under 10%. The upward trend in manufacturing is driven by the automotive industry (Fiat 500L). 6

7 Interim Management Report at 30 June 2013 The banking environment (CONTINUED) In contrast to trends elsewhere, economic growth in Russia slowed significantly in the first six months of After a steady rise in commodities prices over the past years, the country is now facing a deterioration or stagnation in the terms of trade. Given weak investment activity, capacity is fully utilised and unemployment is low. Yet the basic balance continued to show a surplus. Capital outflows remained strong. Domestic loans expanded substantially, mainly in retail banking (over 30%) and to a lesser extent in business with companies (about 15%), while the rate of inflation was about 6%. The exchange rate regime was put on a more flexible basis by widening the basket bandwidth. In the year to date, the rouble depreciated by almost 6% against the euro. Ukraine emerged from a technical recession during the first six months of 2013, but economic growth was impeded by weak export demand, also reflected in declining steel prices. In the policy mix, an extremely restrictive monetary policy undermines the large budget and current-account deficits (forecasts for 2013: 5% and 6% of GDP, respectively), the inflation rate is below 2%. Non-performing loans continued to increase. External risks recently also rose as a result of foreign capital movements and shrinking foreign exchange reserves, but the hard-currency policy is given priority. EU association (free-trade agreement) followed by an IMF agreement or membership of the Eurasian free trade zone with the possibility of financing pipelines across Russia are under discussion. In Turkey, strong growth seen in the first quarter of 2013 further accelerated in the second quarter. In contrast to all other countries, growth was driven by strong domestic demand. Problems continued to arise from the high current-account and basic-balance deficits, which had to be covered by short-term external funding of the banking sector. In the first five months of 2013, the country saw substantial portfolio investment inflows, which additionally drove the booming credit creation. The turnaround in capital transactions in June put strong pressure on the currency, which depreciated by 6.6% (year to date) against the euro, despite extensive central bank intervention. In the middle of May, short-term and long-term interest rates started to rise, largely undoing the interest rate reductions of the past three quarters. Political risks also contributed to this development as can be seen from an increase in risk premiums, which have doubled to 200bp, from 100bp in the middle of May. Economic growth (real GDP, % over the previous year) f 2014f World (IMF, PPP) China USA Euro area Austria Czech Republic Slovakia Hungary Slovenia Central Europe (CE) Poland Bulgaria Romania Croatia Bosnia and Herzegovina Serbia South-East Europe (SEE) Estonia Latvia Lithuania Baltic states Russia Ukraine Russia and Ukraine Turkey CEE (with Poland, GDP-weighted) CEE (without Poland, GDP-weighted) CEE (Bank Austria-weighted) *) Bank Austria market (GDP-weighted) Bank Austria market (Bank Austria-weighted) *) *) weighted by contribution of Bank Austria s subsidiaries to operating income in CEE region Source: UniCredit Research. Forecasts: 1 August

8 Interim Management Report at 30 June 2013 Introductory remarks New structure for management and control: As part of a UniCredit-wide initiative (Group Organisation Leaner Design = GOLD project) we changed the Management Board responsibilities and the definitions of business segments for segment reporting purposes as of 1 January The previous Family & SME Banking (F&SME) Division has been combined with the previous CIB departments Corporates II (corporate customers with an annual turnover of over 50 million) and Real Estate as well as with the Public Sector unit. This means that all Austrian commercial banking business with retail and corporate customers is covered by the Retail & Corporates Division, which is headed by a Management Board member. The new structure strengthens regional responsibility; customer service teams can moreover adjust more quickly to local market changes. The Retail & Corporates Division comprises Retail, i.e. business with private individuals, ranging from mass-market to affluent customers; Corporates, the subdivision serving the entire range of business customers, SMEs and medium-sized and large companies which do not access capital markets (including Real Estate and Public Sector); and Factoring, the business conducted by FactorBank AG. The Corporate & Investment Banking (CIB) business segment continues to operate within the network of the global CIB Division, with a focus on serving multinational companies and international and institutional real estate customers, which are provided with investment banking solutions and capital market services. Moreover, CIB serves financial institutions such as banks, asset managers, institutional customers and insurance companies. The definitions and tasks of the other customer business segments for segment reporting purposes, i.e. Private Banking and Central Eastern Europe (CEE), have not changed. The Corporate Center comprises equity interests that are not assigned to other segments including the 31.01% shareholding interest in UniCredit Leasing, which is accounted for under the equity method. The inclusion of the Competence Lines, i.e. central steering and administrative units, means that the day-to-day tasks related to corporate management are reflected in the Corporate Center s results. Also included in the Corporate Center are funding costs of consolidated subsidiaries, inter-segment eliminations and impairment losses on goodwill. Moreover, the Corporate Center includes the effects from the sale of ATF Bank, Kazakhstan. Condensed income statement: The commentary in this management report refers to the condensed income statement shown on page 11. The same format is used for segment reporting. This makes it possible to consistently explain the contributions made by the various business segments to the items in the income statement and to Bank Austria s overall development. A reconciliation of the condensed income statement to the mandatory reporting schedule presented in a different format of the consolidated financial statements is given in the notes to the consolidated financial statements on pages 64 and 65. Recast comparative figures: To obtain consistent time series, the comparative figures for 2012 have been recast to reflect the current structure and currently applicable financial reporting standards, and minor changes in the consolidation perimeter have been taken into account. The recasting differences to the totals for the various items of the income statement are shown in the segment reporting tables on pages 68 to 69 in the notes to the consolidated financial statements. The income statement of the business segments for the first half of 2013, with consistent comparative figures for the previous year, and the consistent time series of quarterly figures for all business segments are presented in the segment reporting section on pages 68 to 72. The commentary on the income statement in this interim management report refers to these figures. ATF Bank, Kazakhstan: UniCredit Bank Austria AG completed the sale of its 99.75% equity interest in the Kazakh JSC ATF Bank to KazNitrogenGaz LLP as at 30 April In line with the strategic focus on high-growth and high-profitability CEE countries, the Management Board decided at the end of 2012 to sell the banking business in Kazakhstan. For this reason the equity interest in ATF Bank, Kazakhstan, was classified as a discontinued operation in the reporting and comparative periods, and transferred from the CEE business segment to the Corporate Center. The contributions made by ATF Bank to the income statement are therefore taken from the various items, balanced and shown separately in the item Total profit or loss after tax from discontinued operations together with deconsolidation effects. Deconsolidation took place at the end of April Given Bank Austria s cross-regional perimeter of operations, exchange rate effects from the translation of local financial statements into euro may be a significant factor. To smoothen these influences, which may be volatile from time to time, amounts in the local income statements are translated into euro at average exchange rates for the relevant period. In some of the past years, significant depreciation of CEE currencies made it difficult to assess movements in various income statement items. The comparison of the first half of 2013 with the first half of 2012 is hardly influenced by exchange rate movements (depreciation of CEE currencies in weighted terms: about 1%); reference to this effect is therefore limited to specific countries. Exchange rate effects were stronger for figures, e.g. items in the statement of financial position, where the comparison is made on the basis of the end-of-period levels as at 30 June 2013 and year-end 2012 (CEE currency depreciation in weighted terms in the year to date: about 3%). Major currencies in our CEE perimeter depreciated strongly just before the end of the reporting period (Turkish lira: 6.6% in the year to date, Russian rouble: 5.9%). The business segments (Divisions) covered by segment reporting are frequently combined in various ways in the following commentary: Austrian customer business is defined as the sum total of the Retail & Corporates, Private Banking and Corporate & Investment Banking (CIB) business segments. The CEE business segment is not divisionalised. Customer business encompasses the Austrian Divisions and CEE, i.e. Bank Austria as a whole without the Corporate Center. 8

9 Interim Management Report at 30 June 2013 Bank Austria in the first half of 2013 Overview Bank Austria has adjusted effectively to the changing environment over the past one and a half years, thanks to its broadly based operations as a customer-focused universal bank and its regional diversification. Optimistic expectations at the beginning of the first half of 2012 initially led to stronger credit expansion. When the second wave of the sovereign debt crisis started in May 2012 and economic conditions deteriorated, volume came to stagnate across the entire region in which the bank operates (with only few exceptions), in both Austria and the neighbouring countries in Central and Eastern Europe. Monetary policy measures resulted in market interest rates falling to record lows close to zero. Both developments had an impact on net interest income in Austria and in CEE countries. When financial markets started to stabilise in August (with the ECB s announcement of the OMT programme), interest rates in CEE countries declined further in the wake of extensive capital inflows. As the economic slowdown persisted, loan loss provisions had to be increased again, reversing the pronounced downward trend seen after the recession was overcome in And finally, temporary uncertainty in June was one of the factors that led to portfolio shifts which were reflected in customer business and in funding. Quarterly trends show that Bank Austria s net operating profit (operating profit less net write-downs of loans and provisions for guarantees and commitments) weakened from the middle of 2012, a development which was noticeable in both Austria and CEE. In the first quarter of 2013, however, Bank Austria again generated a sound pretax profit, after the bank s performance in the fourth quarter of 2012 had been affected by various special factors. Profit before tax for the first quarter of 2013 was well above (+8%) the quarterly average in the previous year (see table). In the second quarter of 2013, profit before tax rose by 8% to 384 million, up by 14% on a year earlier. Net profit attributable to the owners of the parent company, at 281 million, more or less matched the level of the preceding quarter and was 16% higher than for the second quarter of the previous year. Quarterly trends ( million, 2012 recast) Q1 12 1) Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Customer business 2) Operating profit Net operating profit 3) Bank as a whole Profit before tax Net profit 4) ) Includes one-off gains on the buyback of hybrid instruments in March 2012 ( 124 million). / 2) Customer business (business divisions) = Bank Austria without the Corporate Center. / 3) Operating profit less net write-downs of loans and provisions for guarantees and commitments. / 4) Net profit attributable to the owners of the parent company. In the first half of 2013, net operating profit (operating profit less net write-downs of loans and provisions for guarantees and commitments) generated by Bank Austria in its customer business, in a partly unfavourable environment, exceeded one billion euros ( 1,039 million). While operating profit rose strongly, by 155 million or 10%, net write-downs of loans and provisions for guarantees and commitments also increased, by 202 million or 41%. Net operating profit from customer business was therefore down by 45 million or 4% on the same period of the previous year. At overall bank level (including the Corporate Center), net operating profit was down by 120 million or 12% from the previous year. All of the decrease was due to a special effect: in March 2012, Bank Austria recorded gains of 124 million on the buyback of hybrid instruments. The gains were included in net trading, hedging and fair value income of the Corporate Center. Adjusted for this one-off effect which is not to be seen as an operating item operating profit of the bank as a whole exceeded the previous year s figure by 205 million or 15%, and net operating profit also rose slightly (+ 4 million/+08%). Half-year results for H compared with H ACTUAL H CHANGE OVER PREV. YEAR +/ million +/ % ( million, 2012 recast) WITHOUT HYBRID EFFECT 1) +/ million +/ % Customer business 2) Operating profit 1, % Net operating profit 3) 1, % Bank as a whole Profit before tax % +1 +0% Net profit 4) % % 1) Adjusted for one-off gains on the buyback of hybrid instruments in March 2012 ( 124 million). / 2) Customer business (business divisions) = Bank Austria without the Corporate Center. / 3) Operating profit less net write-downs of loans and provisions for guarantees and commitments. / 4) Net profit attributable to the owners of the parent company. Overall, the charge resulting from non-operating items (provisions for risks and charges, integration/restructuring costs, net income from investments) hardly changed compared with the same period of the previous year although the charge for legal risks was higher. At 740 million, profit before tax for the first half of 2013 therefore matched the figure for the first six months of the previous year without the hybrid effect. Net profit was 566 million, down by 12% from the previous year on an unadjusted basis and up by 3% on the adjusted figure for the first half of Return on equity (ROE after tax) for the first half of 2013 was 6.8% after 7.5%. At the end of June 2013, consolidated total assets of Bank Austria were billion, down by 5.8 billion or 2.8% from year-end More than half of the decrease was due to the deconsolidation of ATF Bank, Kazakhstan; moreover, loans and receivables with banks, financial investments and hedging derivatives were reduced. The leverage ratio thus declined from 13.0 to Loans and receivables with customers increased by 3.6 billion, or 2.7% year-on-year, to 136 billion. On the other hand, risk-weighted assets (RWAs, all risks) were reduced by 4.9 billion or 3.7% to billion. For this reason, and as net capital resources rose by 1.5%, capital ratios as defined in the Austrian Banking Act continued to improve. Moreover, the deconsolidation of ATF Bank, Kazakhstan, contributed to the improvement of capital ratios. The Core Tier 1 capital ratio (Tier 1 capital ratio without hybrid capital) based on all risks rose from 10.6% to 11.1% as at 30 June The total capital ratio improved from 12.5% to 13.1%. 9

10 Interim Management Report at 30 June 2013 Bank Austria in the first half of 2013 (CONTINUED) Quarterly trends In the past one and a half years, Bank Austria s operating activities were characterised by a steady upward trend of lending volume and by weak margin trends. The overall picture reflects wide regional differences. The average volume of loans to customers (moving average of end-of-quarter levels) rose steadily, with only a short pause in the fourth quarter of Lending volume grew by 3.6% year-on-year (Q2 2013/Q2 2012), exclusively driven by CEE (+6.7%); the strongest expansion in CEE was seen at our banks in Turkey and Russia (up by a combined 11.6%) while the other banking subsidiaries in CEE achieved growth at the average rate for the bank as a whole (+3.9%). Lending volume even declined in several countries. In the other business segments (Austria + Corporate Center) the average volume of loans to customers remained at the previous year s level (+0.2%); within the total figure, slight declines were seen in lending volume in Austrian retail banking and in loans to large customers of the CIB Division, but not in loans to small and medium-sized businesses. As the interest margin (net interest measured against customer loans) in Austria was deteriorating and no longer improved in CEE from the third quarter of 2012, volume trends also had an impact on net interest, the most important revenue component. The persistent narrowing of margins in Austrian customer business mirrored movements in market interest rates, with some time lag. Although this effect was offset by an increase in CEE, net interest has stagnated since the good third quarter of On this basis, net interest generated by customer business in the second quarter of 2013 matched the Q figure. This weakness more or less reflected economic trends and was partly offset by the other revenue components. Net fees and commissions, in particular, showed an upward trend in the past six quarters in both CEE and Austria; net fees and commissions in the customer business segments for the second quarter of 2013 was 11% higher than in the same period of the previous year. Total operating income, including net trading, hedging and fair value income, increased by 3% in the second quarter of 2013 compared with the preceding quarter. This gives a 6% increase year-on-year. Operating costs declined in the year to date, the figure for the second quarter of 2013 was only 4% higher than a year earlier. Operating profit of the customer business segments in the second quarter of 2013 rose by 8% to 896 million, an increase of 9% over the same period of the previous year (see chart). This improvement compared with an increase in net write-downs of loans and provisions for guarantees and commitments: the provisioning charge reached a low exactly a year ago and started to rise in the subsequent quarters. The figure for the second quarter of 2013 was 391 million (customer business), up by a substantial 93 million or 31%. As net write-downs of loans and provisions for guarantees and commitments in Austria remained unchanged in the second quarter, the additional charge resulted from the CEE business segment, mainly from two countries: in Ukraine, provisions for problem loans were substantially increased to improve the coverage ratio, and Croatia saw a deterioration in the general risk profile. At 391 million in the second quarter of 2013, the provisioning charge was up by 61% on the second quarter of Net operating profit (operating profit less net write-downs of loans and provisions for guarantees and commitments) in customer business therefore declined by 5% compared with the preceding quarter and was 13% lower than in the same period of the previous year. Apart from some fluctuations, net operating profit has been moving sideways at a fairly high level over the past 10 quarters (see chart). The non-operating items of the income statement between net operating profit and profit before tax had a comparatively small combined impact on Bank Austria s results for the past two quarters, following the goodwill impairment charge in the fourth quarter of 2012 and special expenses recognised in the same quarter in connection with preparations for the sale of ATF Bank. The largest items to be deducted from net operating profit were provisions for legacy burdens and, to a smaller extent, integration/restructuring costs. The net result from investments turned slightly positive in the second quarter of Profit before tax was 384 million, up from 355 million for the preceding quarter. The charge for income tax also rose. Quarterly trends 1) million Average volume of loans to customers 0 Large non-operating items to be deducted, mainly goodwill impairment ) ATF Bank, Kazakhstan, included in net profit but not in the other items. / 2) Net profit/bank as a whole = net profit attributable to the owners of the parent company billion Operating profit customer business Net operating profit customer business Net profit/ bank as a whole 2) 10

11 Interim Management Report at 30 June 2013 Bank Austria in the first half of 2013 (CONTINUED) As the other items showed little change, Bank Austria achieved a sound net profit (attributable to the owners of the parent company) of 285 million for the first quarter of 2013 and 281 million for the second quarter of This is an increase of 16% over the figure of 243 million for the second quarter of the previous year. Return on equity (ROE after tax) was 6.7% (Q2 2013) compared with 6.8% for the first quarter. While this level is higher than a year earlier (5.7%) it is well below our targets. Condensed income statement of Bank Austria 1) RECAST 2) QUARTERLY FIGURES HALF-YEAR FIGURES CHANGE OVER PREVIOUS YEAR Q Q = H H / +/ % Net interest 1,103 1,099 2,202 2, % Dividend income and other income from equity investments % Net fees and commissions % Net trading, hedging and fair value income % Net other expenses/income % Operating income 1,737 1,818 3,555 3, % Payroll costs % Other administrative expenses % Recovery of expenses >100% Amortisation, depreciation and impairment losses on intangible and tangible assets % Operating costs 1, ,005 1, % Operating profit ,550 1, % Net write-downs of loans and provisions for guarantees and commitments % Net operating profit % Provisions for risks and charges % Integration/restructuring costs % Net income from investments n.m. Profit before tax % Income tax for the period % Total profit or loss after tax from discontinued operations n.m. Profit for the period % Non-controlling interests % Net profit before PPA 3) % Purchase Price Allocation effect 4) % Goodwill impairment % Net profit 3) % n.m. = not meaningful. /1) Bank Austria s income statement as presented in this table is a reclassified format corresponding to the format used for segment reporting. / 2) Recast to reflect the consolidation perimeter and business structure in / 3) Attributable to the owners of the parent company. 4) PPA effects Russia. 11

12 Interim Management Report at 30 June 2013 Bank Austria in the first half of 2013 (CONTINUED) Details of the income statement Over the past half-years, Bank Austria s operating income has remained stable in a volatile environment which has become generally more difficult. Operating income in the first half of 2013 was up by over 5% on the second half of Even if the special write-down on the shareholding interest in Leasing, which had an adverse impact on revenues in the second half of 2012, is excluded from the calculation, operating income came very close to the H level ( 1%). Operating income for the first half of 2013 was 3,555 million, up by 5% on the first half of A multi-year comparison shows that operating income has been moving sideways, with slight fluctuations around the half-year average ( 3,418 million), since the second half of In the first half of 2013, operating income from customer business (i.e. without the net expense of the Corporate Center) totalled 3,625 million, with the Austrian customer business segments accounting for 30% of the total and the Central Eastern Europe (CEE) Division contributing 70%. Operating income ( million, 2012 recast) H H change % Austrian customer business 1,080 1, % Central Eastern Europe (CEE) 2,546 2, % of which Turkey and Russia 1, % of which other countries 1,392 1, % Corporate Center n.m. Bank Austria as a whole 3,555 3, % without buyback of hybrid instruments *) 3,555 3, % *) Gains of 124 million on the buyback of hybrid instruments were recognised in the Corporate Center in the first quarter of n.m. = not meaningful A comparison with the previous year shows that operating income generated by Austrian customer business stagnated ( 2%) while the CEE business segment achieved growth of 13%. CEE was the main contributor to operating income, with growth of 286 million (see table). In this context, the wide regional diversification of operations again proved to be a major advantage. Revenue growth was mainly accounted for by the banks in Turkey and Russia, countries where the economic environment is least dependent on trends in Western Europe. While combined operating income of the other banks in our CEE perimeter was higher, the rate of revenue growth which they achieved, at 4%, was low by CEE standards. These markets are also affected by the persistent economic weakness (as described in the introductory section on economic trends) and/or experience special problems (banking sectors in Ukraine, Slovenia, Croatia). The net expense in the Corporate Center, which resulted mainly from net interest (funding costs), was a charge reducing operating income by 70 million. If the figure for the first half of the previous year is adjusted for the gains on the buyback of hybrid instruments, which added 124 million to net trading, hedging and fair value income in that period, the negative contribution from the Corporate Center is almost one-third lower (+ 33 million/ 32%). Net interest in the first half of 2013 amounted to 2,202 million, accounting for more than 60% of total operating income; the figure was only slightly higher, by 29 million or 1%, than for the same period of the previous year. This reflects the interest rate policy, as a result of which interest rates have been close to zero from the summer of 2012 without leading to any significant increase in volumes in the euro area. Interest rates available to customers in the Austrian banking sector are currently the lowest in Europe. In several CEE countries, too, interest rates and margins came under pressure, though at a high level. The slight increase in net interest reflects wide regional divergence: in Austrian customer business, net interest was down by 97 million or 13%, due to volume and margin trends; a large part of the decline was accounted for by net interest of Markets/Counterparts in the CIB Division. Net interest generated by the CEE Division, on the other hand, rose by 112 million or 7%. Growth was driven by Turkey and Russia, where net interest rose by a combined 137 million or 22%. The other CEE countries recorded a slight decline in net interest (down by a combined 25 million or 3%), mainly attributable to developments in Croatia and Ukraine. The Corporate Center benefited from the low level of interest rates as interest expense declined by 10%. Average lending volume at Bank Austria increased by an overall 3% compared with the previous year; the rise was disproportionately strong in CEE. Average primary funds rose faster, by 5% (CEE +9%). On the basis of lending volume, the interest margin narrowed by 6 basis points (bp); measured against the total volume on the assets and liabilities sides, the interest margin declined by 9 bp. Net interest was impacted by the combined effect of a slight decline in volume ( 2%) in current Austrian customer business, and a pronounced narrowing of the interest margin ( 26 bp measured against lending volume/ 34 bp measured against total volume). The increase in deposit volume was more than offset by narrowing margins, while on the assets side a slight decline in volume was also accompanied by a moderate narrowing of margins. In the CEE Division, the continued expansion of lending volume in the aforementioned countries resulted in improved net interest; net interest margins remained unchanged. Improvements in the net interest margin were only seen in Turkey and Russia (besides Serbia, Romania and Slovakia). In the first half of 2013, dividends and other income from equity investments came to 63 million after 82 million in 2012 ( 23%). Equity investments in Austrian special and regional banks, in CA Immobilienanlagen AG, and dividend income in Turkey and Russia provide a steady source of revenue. The year-on-year decline is primarily due to the negative results of UniCredit Leasing, in which Bank Austria has a 31.01% shareholding interest accounted for under the equity method. 12