AEGON LTD. — Annual Report 2017

Mar 10, 2017

2016 ANNUAL FINANCIAL REPORT FOR THE FINANCIAL YEAR

CONTENT

7 CONSOLIDATED ANNUAL REPORT

• 19 Group Management Report
• 50 Consolidated Financial Statements
• 179 Statement of All Legal Representatives

196 ANNUAL REPORT PURSUANT TO UGB

• 197 Management Report
• 234 Financial Statements
• 282 Statement of All Legal Representatives

Disclaimer:

Certain statements contained in this report may be statements of future expectations and other forward-looking statements that are based on management's current view and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements.

Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance.

Neither BAWAG P.S.K. nor any of its affiliates, advisors or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this report or its content or otherwise arising in connection with this document.

This report does not constitute an offer or invitation to purchase or subscribe for any securities and neither it nor any part of it shall form the basis of or be relied upon in connection with any contract or commitment whatsoever.

The tables in this report may contain rounding differences.

KEY FIGURES

Profit or loss statement(in EUR million)	2016	2015	Change (%)	2014	Change (%)
Net interest income	730.0	722.3	1.1	677.0	7.8
Net fee and commission income	192.9	185.9	3.8	197.8	(2.5)
Core revenues	922.9	908.2	1.6	874.8	5.5
Gains and losses on financial instruments andother operating income and expenses	67.6	75.7	(10.7)	50.2	34.7
Operating income	990.5	983.9	0.7	925.0	7.1
Operating expenses	(435.5)	(457.7)	(4.9)	(477.2)	(8.7)
Regulatory charges	(46.1)	(36.8)	25.3	(24.6)	87.4
Total risk costs	(42.7)	(45.8)	(6.8)	(81.6)	(47.7)
Profit before tax	474.2	448.2	5.8	342.5	38.5
Income taxes	(83.3)	(30.3)	>100	(8.8)	>100
Net profit	390.6	417.9	(6.5)	333.1	17.3

Performance ratios	2016	2015	Change (pts)	2014	Change (pts)
Return on equity	13.9%	16.2%	(2.3)	14.9%	(1.0)
Return on tangible equity	14.6%	16.9%	(2.3)	15.8%	(1.2)
Return on risk-weighted assets	2.33%	2.51%	(0.18)	2.03%	0.30
Return on total assets	1.04%	1.19%	(0.15)	0.94%	0.10
Net interest margin	2.32%	2.36%	(0.04)	2.14%	0.18
Cost-income ratio	44.0%	46.5%	(2.5)	51.6%	(7.6)
Risk costs / loans and receivables	0.15%	0.17%	(0.02)	0.31%	(0.16)

Statement of financial position(in EUR million)	2016	2015	Change (%)	2014	Change (%)
Total assets	39,456	35,515	11.1	34,651	13.9
Financial assets	6,403	6,275	2.0	7,488	(14.5)
Customer loans and receivables	28,500	24,713	15.3	21,779	30.9
Customer deposits	25,998	21,695	19.8	21,135	23.0
Own issues	6,015	4,505	33.5	6,113	(1.6)
IFRS equity	2,846	2,759	3.2	2,405	18.3
IFRS tangible equity	2,705	2,655	1.9	2,302	17.5
Risk-weighted assets	17,075	16,524	3.3	16,792	1.7

Balance sheet ratios	2016	2015	Change (pts)	2014	Change (pts)
Common Equity Tier 1 capital ratio (fully loaded)	15.0%	12.9%	2.1	12.1%	2.9
Total capital ratio (fully loaded)	17.8%	15.8%	2.0	15.8%	2.0
Leverage ratio (fully loaded)	6.3%	6.2%	0.1	5.5%	0.8
Liquidity coverage ratio (LCR)	138%	137%	1	134%	4
NPL ratio	2.0%	2.1%	(0.1)	2.8%	(0.8)

Note: For details on definitions and calculation methodology, please refer to the section entitled "Definitions" on pages 192–194.

BAWAG P.S.K. AT A GLANCE

With more than 2.2 million customers, BAWAG P.S.K. is one of Austria's largest, most profitable and best capitalized banks, operating under a well-recognized national brand. We apply a low-risk, highly efficient, simple and transparent business model with two-thirds of our customer loans within Austria. The remaining customer loans are predominantly in countries such as Germany, the UK, France and the United States.

We serve Austrian retail, small business and corporate customers across the country, offering comprehensive savings, payment, lending, investment, leasing, building society and insurance products and services. Our Austrian business is complemented by international activities focused on retail, corporate, commercial real estate and portfolio lending in Western developed countries. This

strategy provides us with earnings diversification and growth opportunities while maintaining a conservative risk profile with disciplined underwriting.

We run the Bank in a safe and secure manner with a strong balance sheet, low leverage and solid capitalization. Our business segments are BAWAG P.S.K. Retail, easygroup, DACH Corporates & Public Sector, International Business and Treasury Services & Markets. Delivering simple, transparent and best-in-class products and services that meet our customers' needs is our consistent strategy across all business units.

We are 52% owned by Cerberus Capital Management LP and 40% by GoldenTree Asset Management LP.

STRATEGY SUMMARY

• Growth in our core market Our aim is to grow our customer base and business in our core markets, namely Austria and Western developed countries with a focus on the DACH region.
• Making our customers' lives easier We offer our customers the best experience and convenience when banking through our various digital and physical channels to build and maintain successful long-term customer relationships.
• Efficiency is the key to winning Cost efficiency across all businesses and functions is critical to winning in a more complex world with increased competition, more stringent regulatory requirements and prolonged macroeconomic challenges.
• Safe and secure A strong capital position, stable deposits and low and predictable risk costs are fundamental cornerstones for the execution of our strategy.

BUSINESS SUMMARY

BAWAG P.S.K. Retail

The BAWAG P.S.K. Retail segment services 1.8 million private and small business customers through our centralized branch network that we operate in cooperation with Austrian Post as well as our online and mobile sales channels supported by our customer care center.

We are one of the leading omni-channel retail banks in Austria, offering simple, fair and transparent products and services through various physical and digital sales channels with a strong and well-recognized national brand.

Our small business segment supports Austrian companies with annual turnover of up to EUR 50 million and also includes social housing. We provide comprehensive lending and payment services for over 36,000 small business customers.

in EUR million	2016	2015	Change (%)
Assets	11,659	9,178	27.0
Customer deposits	18,058	15,663	15.3
Operating income	496	475	4.4
Profit before tax	169	132	28.6

easygroup

easygroup is Austria's first direct banking group offering a full product suite, ranging from current accounts and savings products to credit cards, consumer and housing loans, auto leases and investment products. easygroup services over 420,000 customers and is comprised of the #1 rated direct bank in Austria, easybank, the #3 auto lessor in Austria, easyleasing, and our international retail

business, consisting of high-quality performing residential mortgage loans in Western Europe.

easygroup is a cornerstone to the overall growth strategy for BAWAG P.S.K. Group. Our goal is to continue being the leading direct bank in Austria and to expand into larger Western markets, such as Germany and the UK.

in EUR million	2016	2015	Change (%)
Assets	4,458	3,644	22.3
Customer deposits	3,893	3,204	21.5
Operating income	125	65	91.0
Profit before tax	87	42	>100

DACH Corporates & Public Sector

DACH Corporates & Public Sector comprises our corporate and public lending activities and other fee-driven financial services, mainly for Austrian customers. Selected client relationships in neighboring countries (primarily Germany

and Switzerland) are included as well. We serve over 5,000 corporate and public sector customers, providing them with loan products and our market-leading payment solutions.

in EUR million	2016	2015	Change (%)
Assets	7,812	7,527	3.8
Customer deposits (incl. other refinancing)	5,284	5,568	(5.1)
Operating income	120	144	(16.4)
Profit before tax	71	81	(11.8)

International Business

International Business includes our international corporate, commercial real estate and portfolio lending outside of the DACH region, with a focus on developed countries within Western Europe as well as the United States. The international corporates portfolio consists primarily of lending to free cash flow generating companies with

defensive business profiles and appropriate capital structures in recession-resilient industries. Our international real estate portfolio focuses on senior loan positions in cash flow generating properties. We have limited exposure in land, development and construction financings.

in EUR million	2016	2015	Change (%)
Assets	5,634	5,748	(2.0)
Operating income	131	136	(3.7)
Profit before tax	102	111	(7.5)

Treasury Services & Markets

Treasury Services & Markets acts as a service center for the Bank's customers, subsidiaries and partners through market execution as well as selective investment activities. Among the key responsibilities of Treasury Services &

Markets is the management of the Bank's liquidity from the core funding franchise, including the liquidity reserve, as well as certain hedging positions.

in EUR million	2016	2015	Change (%)
Assets and liquidity reserve	6,691	6,293	6.3
Operating income	66	72	(7.9)
Profit before tax	50	53	(5.7)

CONSOLIDATED ANNUAL REPORT 2016

8 LETTER FROM THE CHIEF EXECUTIVE OFFICER

11 STRATEGY

11 Our Strategy

14 GOVERNANCE

• 14 Managing Board of BAWAG P.S.K. AG
• 15 Corporate Governance
• 17 Report from the Chairman of the Supervisory Board of BAWAG P.S.K. AG

19 GROUP MANAGEMENT REPORT

• 20 Economic and Regulatory Developments
• 22 Financial Review
• 27 Business Segments
• 42 Risk Management
• 42 Internal Control and Risk Management System
• 44 Human Resources Development
• 46 Corporate Social Responsibility
• 48 Research and Development
• 48 Outlook

50 CONSOLIDATED FINANCIAL REPORT

• 51 Consolidated Accounts
• 60 Notes
• 145 Risk Report
• 179 Statement of All Legal Representatives
• 180 Boards and Officers of BAWAG P.S.K. AG

184 AUDITOR'S OPINION

192 DEFINITIONS

195 GLOSSARY

LETTER FROM THE CEO

Dear Stakeholders,

Last year was yet another record year for BAWAG P.S.K. We continued to grow our business in challenging times by focusing on our customers, applying a disciplined growth strategy and continuously investing in our future. It is only because of the dedication of all our employees that we have been able to build an exceptional organization while providing our customers with simple, transparent and bestin-class products. Today, BAWAG P.S.K. stands as one of the best-performing banks across Europe, an achievement that has been years in the making and is a great source of pride for the organization.

Business segment development

Our successful results were only possible due to our dedicated focus on and further investments in our core business segments, in particular our retail franchise. Our retail franchise continues to be a market leader in Austria with consumer lending market share of 11.9% (up 170 basis points compared to year-end 2015), current account market share of 17.5%, auto leasing market share of 8.7%, building society market share of 9.7% (resulting from the acquisition of start:bausparkasse), retail deposits market share of 9.0% and housing loan market share of 7.3% as of year-end 2016. Our Austrian retail and corporate franchises will benefit significantly from the acquisition of start:bausparkasse and IMMO-BANK. Both transactions closed in December 2016 and will be integral to our domestic growth plans.

BAWAG P.S.K. Retail recorded new originations of EUR 1.2 billion in 2016. In addition to growing our consumer loan franchise and further optimizing our product mix, we continued making progress in our digital transformation and driving transactional productivity. As an example of the rising digital influence, more than 20% of our consumer loan sales were initiated online in 2016. Our mobile banking services continued to experience high growth rates. Mobile banking usage was up 25% over the past

year with over 7 million customer logins per month. Overall, more than 80% of all transactions were completed online or through self-service machines, highlighting the significant shift in customer behavior that is taking place.

easygroup, comprising Austria's #1 direct bank easybank, our auto and mobile leasing business and our residential mortgage portfolios in Western Europe, further increased its customer base and executed on several strategic initiatives. Overall, we recorded strong originations of EUR 460 million in 2016, including EUR 359 million in consumer auto leasing, which was up 9% compared to 2015. In addition, we successfully launched our new brand easyleasing in September. easyleasing will become our "one brand and one face" to the leasing market in Austria. The integration of BAWAG P.S.K. Leasing and Volksbank Leasing, together with various strategic partnerships, provides easygroup with yet another platform to expand its market presence, brand awareness and best-in-class service offering to a range of new customers and segments, domestically and internationally.

The focus of the DACH Corporates & Public Sector business continued to be on maintaining and acquiring sustainable customer relationships, while staying disciplined on pricing despite the competitive landscape. Our International Business segment continued to be focused on international corporate, real estate and portfolio financing outside the DACH region, serviced from our London branch office. Both DACH Corporates & Public Sector as well as International Business maintained their disciplined approach to originating new business with appropriate risk-adjusted returns in a highly competitive environment. Overall, the businesses originated EUR 3.3 billion of new business in 2016.

Highlights in 2016

This past year was a busy year for the Bank, with a number of positive developments. I would like to take this opportunity to mention just a few of them.

In April, Moody's again upgraded BAWAG P.S.K.'s long-term deposit, senior unsecured and issuer ratings by one notch to A3 and the outlook was maintained as "positive." Additionally, the Bank's standalone rating as well as its senior subordinate rating were upgraded to baa2 and Baa3 (investment grade for the first time), respectively. According to Moody's, the rating upgrades reflect the Bank's strongerthan-anticipated recovery in profitability, the continued derisking of its balance sheet as well as the continued build-up of the Bank's capital adequacy ratios. The rating assessment indicates further upside potential for the standalone rating.

As of June, the business segmentation and the related reporting were changed to provide greater insight and transparency and to better reflect our strategic focus as well as the progress of the business units going forward.

In July, Euromoney, one of the leading magazines for banking, finance and capital market issues, elected BAWAG P.S.K. as "Austria's Best Bank 2016," emphasizing that BAWAG P.S.K. was "the standout story of the year" and highlighting its "sector-beating return on equity," efficiency and solid capitalization.

In October, we issued two Swiss franc senior unsecured bonds with a total of CHF 275 million, with one issuance accounting for the lowest ever recorded yield of a newly issued financial bond in CHF on the Swiss financial market (minus 25 basis points).

In November, BAWAG P.S.K. placed a GBP 500 million RMBS transaction backed by high-quality performing UK retail mortgages to gain access to direct GBP funding, representing the first ever RMBS transaction by an Austrian bank.

Furthermore, BAWAG P.S.K. was rated by Fitch for the first time. The long-term issuer rating and the standalone rating were both set at A- with a stable outlook. The main rating drivers were, amongst others, a strong and experienced management team who has demonstrated a track record in realigning the Bank's business model following its restructuring, the conservative risk appetite and strong asset quality reflecting the focus on high-quality assets in developed markets, an established brand and strong retail franchise in Austria with a good performance record supported by a focus on cost control, general pricing discipline as well as a strong capitalization and performance in regulatory stress tests. This rating makes BAWAG P.S.K. the highest rated bank in Austria by Fitch and Moody's as well as one of the few banks with two ratings in the single A category across Europe.

In December, we successfully closed the purchase of start:bausparkasse, a large Austrian savings and loan association, combined with IMMO-BANK. This transaction will grow our domestic retail footprint, extend our expertise in building society savings and loans and results in a significant increase in the financing volume with real estate companies and social housing associations.

We also continued the expansion of our retail business into Western markets through the acquisition of another diversified high-quality performing residential mortgage portfolio.

Lastly, The Banker, an international industry magazine for banks, published by the Financial Times, selected BAWAG P.S.K. as "Bank of the Year" in Austria for the second time in a row. In addition, easybank was again named "Best Direct Bank in Austria" by the Austrian magazine DerBörsianer in December.

Outlook

We believe that the European banking landscape is undergoing a significant transformation and faces headwinds in the form of stagnant growth, low interest rates, increased regulatory costs, structurally inefficient business models and new market entrants in the form of Fintechs. Our Bank has undergone a significant transformation over the past five years and will continue to evolve to meet the needs of this changing landscape. We are also prepared to play a larger role in addressing these challenges and capitalizing on these unique opportunities.

Our strong results in 2016 reiterate that BAWAG P.S.K. is well prepared to succeed in a competitive and evolving European banking environment. We will continue to maintain our Austria / developed market-focused low-risk strategy while providing our customers with simple, transparent and best-in-class products and services. We are proud of our accomplishments in 2016 and will continue our successful path in 2017 to confirm BAWAG P.S.K.'s position as one of the best-performing banks in Europe.

This success was only possible thanks to the dedication and motivation of our employees. I would like to take the opportunity to thank all of them as well as our customers and shareholders for their continuous support.

Byron Haynes CEO and Chairman of the Managing Board of BAWAG P.S.K. AG

OUR STRATEGY

GROWTH IN OUR CORE MARKETS

Austria is BAWAG P.S.K.'s core market with a wellrecognized brand across the country, more than 2.2 million customers and two-thirds of our customer loans in Austria.

This Austria-focused strategy is based on the following unique characteristics:

• A branch network jointly operated with Austrian Post providing a convenient setting for customers to conduct banking and postal transactions.
• Our best-rated direct banking subsidiary, easybank, allowing us to tap a customer base which is complementary to the BAWAG P.S.K. franchise. easybank, as part of easygroup, will be a platform to drive cross-border retail expansion into Western European markets, with a primary focus on the DACH region.
• Our long-standing customer relationship with the Republic of Austria for payments services across various institutions.
• Our lean, centralized organizational structure enabling us to assure consistent service quality to our customers across the country and develop products and services on a timely basis tailored to the needs of all of our customers and businesses.

We are focused predominantly on serving Austrian retail, small business and corporate customers across the country but also growing our international retail business in select markets. We aim to leverage our operating platform as we grow to confirm our position as one of the most efficient banks in Austria and across Europe.

Our Austrian business is complemented by our international corporate financing and real estate financing business in Western developed countries, i.e. Germany, the United Kingdom, France and the United States. This

strategy provides the Bank with a safe avenue for earnings diversification and growth opportunities in countries with stable geopolitical and macroeconomic fundamentals.

We are convinced that consolidation will occur in Austria as well as across the greater European banking landscape. On the back of our transformation and our continued strong results over the past few years, we are in a position to capitalize on unique opportunities to increase our customer base and take market share, both organically and inorganically.

Over the past 15 months, we executed several acquisitions in line with our inorganic growth strategy. We purchased the auto leasing arm of the former Volksbanken, creating the #3 auto lessor in Austria. In addition, we acquired two high-quality performing residential mortgage portfolios in Western Europe that enable us to expand our retail franchise beyond the Austrian borders. We also acquired start:bausparkasse, a large Austrian savings and loan association, combined with IMMO-BANK. This transaction will grow our domestic retail footprint, extend our expertise in building society savings and loans with a market share of 9.7% in Austria and result in a significant increase in the financing volume with real estate companies and social housing associations.

Going into 2017, we plan to grow in the DACH area. The DACH region is one of the wealthiest economic areas in Europe, with over 100 million people, very strong macroeconomic fundamentals, a stable legal system and superior credit quality across retail and corporate lending. We have already made preparations to expand organically into Germany and are planning to start offering direct banking services there through our easygroup platform, with the plan to offer banking products to German customers during the first half 2017. We are currently in the process of looking at a few other inorganic opportunities, mainly in the DACH region, that may help us expedite our growth plans.

MAKING OUR CUSTOMERS' LIVES EASIER

We are dedicated to offering our customers the best and most convenient experience when conducting their banking through our digital and physical channels. Therefore, all of our digital initiatives aim at increasing convenience and satisfaction for our customers.

The following cornerstones are key to building and maintaining successful client relationships and making the lives of our customers easier:

• Simplicity and consistency in our product offering, which supports our orientation towards clear, fair and transparent banking across all of our distribution channels.
• Driving end-to-end digitalization by giving our customers access to the entire range of products and services anywhere they want on a 24/7 basis with seamless switching between the distribution channels.
• Using big data analytics to better understand new and existing customers, enabling us to personalize and customize product offerings.
• Strengthening our already successful partnerships and building new ones mainly in the digital area to continue

developing our retail franchise and enhancing our product offerings and services.

We strongly believe that our customers prefer a bank that is simple and transparent. Therefore, our product offering is geared towards enhancing simplicity for our customers to provide them with clear, fair and transparent banking products and services, both online and offline.

We are continuously investing in all our distribution channels to offer our customers attractive savings, lending, leasing, insurance, building society and investment products and services wherever they want on a 24/7 basis. We focus on intuitive customer interfaces to enhance the overall customer experience when using our products and services and enabling our customers to switch between the different distribution channels more seamlessly.

EFFICIENCY IS THE KEY TO WINNING

The overall banking industry across Europe is still facing several headwinds driven by stagnating economic growth, a multi-year low-interest rate environment, continued pricing pressure, increased regulatory requirements and structurally inefficient business models. Additionally, as more and more companies from outside the traditional financial services industry (Fintechs) are entering the market, taking market share and attacking the traditional revenue streams of banks and financial institutions, the competitive pressure we are confronted with continues to increase.

We are convinced that in this challenging environment, banks have to change their overall business models and cost structure to be more efficient in their operations. This leads us to believe that the traditional paradigm regarding cost in the banking space needs to be challenged to adapt to increased competition from both traditional and nontraditional players.

Going into 2017, our focus continues to be on optimizing our processes and driving operational excellence. The key cornerstones of our process optimization and efficiency approach are:

• Automate and simplify our processes, transition to the digital world, enhance our computing and analytical capabilities and improve the overall customer experience. Our multi-year IT roadmap allows us to continually upgrade our infrastructure and leverage new technologies as they are introduced to enhance the focus on our customers.
• Further rationalization of products, services and processes, resulting in the streamlining and standardization of our online and offline product offerings and the optimization of our footprint.
• Mapping our end-to-end value chain to identify areas of core competency across the front, middle and back offices and leveraging intragroup platforms as well as potential for cooperation.

SAFE AND SECURE

A strong capital position, stable deposits and low and predictable risk costs across our products are fundamental cornerstones for the execution of our business strategy and the achievement of our goals. Management is committed to operating the Bank in a safe and secure way.

Our entire capital base is already fully CRR compliant with no reliance on any transitional elements. Key requirements are strong common and total capital positions and a conservative leverage ratio as we aim to maintain our position as one of the best capitalized banks in Austria and across Europe.

In this respect, we believe our fully loaded CET1 ratio target should be 12% over time, which is a prudent level to manage through various economic cycles and provides us with the flexibility to consistently support all of our growth initiatives. Additionally, we are managing the Bank with low balance sheet leverage compared to our peers, standing at 13.9x or 7.2% equity-to-total assets and a fully loaded regulatory leverage ratio of 6.3% as of year-end 2016.

All of our business and asset allocation decisions are primarily oriented towards achieving and maintaining our capital goals, resulting in a detailed analysis of appropriate risk-adjusted returns on our capital utilization in each business unit.

Retail and corporate deposits have been the core part of our funding strategy over the years and will continue to be the dominant source of funding for our balance sheet. We supplement our deposits with a diversified strategy of wholesale funding. We have issued unsecured bonds, covered bonds secured by mortgage and public sector collateral, and RMBS.

Our long-term goal is to maintain strong deposit funding and diversified wholesale funding. Furthermore, our ratio of secured funding to overall funding stood at 12% as of 31 December 2016, which highlights the low overall encumbrance of our balance sheet assets. Our liquidity coverage ratio was 138% at year-end 2016.

Over the past few years, we have made significant progress in addressing legacy balance sheet issues such as noncore asset sales, impairments of non-core business units, the sale of legacy non-performing loans, the sale of legacy structured products and the rationalization and streamlining of subsidiaries.

As underlined by the low risk costs in 2016, we have addressed our legacy balance sheet issues and are convinced that our risk costs have already normalized at predictable levels to reflect the stable nature of the businesses and markets we are operating in.

MANAGING BOARD OF BAWAG P.S.K. AG

Sat Shah Chief Operating Officer Byron Haynes CEO and Chairman of the Managing Board Anas Abuzaakouk Chief Financial Officer

Corey Pinkston Member of the Managing Board Stefan Barth Chief Risk Officer

CORPORATE GOVERNANCE

AUSTRIAN CODE OF CORPORATE GOVERNANCE

In 2006, BAWAG P.S.K. AG made a voluntary commitment to apply the Austrian Code of Corporate Governance for listed Austrian companies. The Bank has published an annual Corporate Governance Report since 2009 (http://www.bawagpsk.com/CorporateGovernanceReports). Compliance with the Austrian Code of Corporate Governance in 2016 was audited by independent third parties, confirming that all key provisions were fulfilled.

SUPERVISORY BOARD

As of 31 December 2016, the Supervisory Board of BAWAG P.S.K. AG consisted of twelve members.

The Rules of Procedure of the Supervisory Board comprise the rights and obligations of this board and also define the individual committees of the Supervisory Board and their responsibilities. The individual members of the Supervisory Board and the composition of the committees are presented in the chapter "Boards and Officers of BAWAG P.S.K. AG."

Audit and Compliance Committee

The Audit and Compliance Committee reviews the Bank's accounts and the annual financial statements and monitors the Bank's internal control system as well as the independence and work of the external auditor. The annual audit plans and regular reports of Internal Audit and the Compliance Office are submitted to the Audit and Compliance Committee. The Head of Internal Audit and the Compliance Officer have direct access to the Chairperson and members of the Audit and Compliance Committee.

Risk and Credit Committee

The approval of loans and credit (as well as other forms of financing) to individual borrowers or groups of associated customers for the purposes of para 392 of Regulation (EU) no. 575/2013 (exposures that equal 10% or more of the Bank's eligible own funds) has been delegated to the Risk and Credit Committee. A report about large exposures approved by the Risk and Credit Committee is submitted to the Supervisory Board at least once a year. The Risk and Credit Committee also approves transactions with the Bank's affiliated parties pursuant to section 28 BWG and the Bank's material credit policies. It also advises the Supervisory Board on the current and future risk-bearing ability and risk strategy of the Bank and monitors the effectiveness and efficiency of the risk management

systems and compliance with the legal provisions and regulatory requirements.

Nomination Committee

The Nomination Committee deals with Managing Board succession planning and the regular Fit & Proper evaluation of Managing Board members and Supervisory Board members. Among other tasks, this committee is also responsible for the approval of the assumption of executive functions by members of the Managing Board in companies not belonging to the Group.

Remuneration Committee

The Remuneration Committee deals with the general principles of the Bank's remuneration policy. It also monitors the remuneration policy, remuneration practices and remuneration-based incentive structures pursuant to section 39c BWG, except for those pertaining to Managing Board members.

Committee for Management Board Matters

The Committee for Management Board Matters deals with relationships between the Bank and the members of the Managing Board. For example, it decides about the provisions of employment and severance agreements with Managing Board members and about the remuneration paid to members of the Managing Board as well as performance targets. It also monitors the remuneration policy, remuneration practices and remuneration-based incentive structures pursuant to section 39c BWG pertaining to Managing Board members.

Related Parties Special Audit Committee

The Related Parties Special Audit Committee audits whether transactions of BAWAG P.S.K. AG and BAWAG P.S.K. AG's subsidiaries with related parties pursuant to IAS 24 are granted at arm's length terms that are no more

favorable than would be given to non-related parties. Any related parties transactions require the approval of this committee, which shall only be granted if it is determined that the related parties transaction is concluded at arm's length terms that are no more favorable than would be given to non-related parties.

MANAGING BOARD

As of 31 December 2016, the Managing Board of BAWAG P.S.K. AG consisted of five members.

Byron Haynes is Chief Executive Officer and Chairman of the Managing Board. He is also responsible for BAWAG P.S.K. Retail. Corey Pinkston is responsible for DACH Corporates & Public Sector, International Business as well as Treasury Services & Markets. Anas Abuzaakouk is Chief Financial Officer and Stefan Barth Chief Risk Officer. Sat Shah is Chief Operating Officer and also responsible for the easygroup segment.

The Rules of Procedure of the Managing Board define the responsibilities and tasks of this board. According to these Rules of Procedure, the Managing Board has the right to form committees and to issue statutes for these committees. The following executive committees have been formed:

• the Enterprise Risk Meeting for steering the total bank risk;
• the Credit Approval Committee, which decides on financing transactions above a certain threshold; and
• the Strategic Asset Liability Committee, which deals with strategic capital and liquidity planning issues as well as operational aspects of asset and liability management.

COMPLIANCE

The Compliance Office reports directly to the Managing Board. Regular reports are also submitted to the Bank's Audit and Compliance Committee.

The key responsibilities of the Compliance Office are preventing money laundering and combating terrorism financing, monitoring compliance with sanctions, securities compliance as well as the prevention of insider trading, market abuse and conflicts of interest. A series of detailed guidelines have been put into place to ensure compliance with all legal requirements.

In addition to all relevant laws such as the Securities Supervision Act, all employees are also bound by a Code of Conduct that contains, among other things, guidelines for business conduct and customer service, for how conflicts of interest are to be handled and for preventing market abuse and money laundering. A detailed anti-corruption guideline governs the acceptance and awarding of gifts and keeps employees and management abreast of the valid anti-corruption regulations.

BAWAG P.S.K. AG has also been a member of the Austrian chapter of Transparency International (TI-AC) since 2012. This not-for-profit organization seeks to increase general awareness of the need to combat corruption and increase transparency in Austria, and it works to facilitate the implementation of relevant measures and reforms.

REPORT FROM THE CHAIRMAN OF THE SUPERVISORY BOARD OF BAWAG P.S.K. AG

The Supervisory Board of BAWAG P.S.K. AG properly fulfilled all duties incumbent upon it by law, the Bank's Articles of Association and its Rules of Procedure. The Managing Board informed the Supervisory Board of all material issues in a timely and comprehensive manner either in writing or verbally. In addition to periodic meetings, the Chairmen of the Supervisory Board, the Audit and Compliance Committee and the Risk and Credit Committee discussed current business matters with the Managing Board members. Further details regarding the composition of the Supervisory Board and its committees as well as their working procedures are disclosed in the Corporate Governance Report 2016 drawn up by the Managing Board and Supervisory Board. The Managing Board of the Bank was continuously monitored and regularly advised.

SUPERVISORY BOARD

As of December 2016, the Supervisory Board consisted of twelve members. The Supervisory Board focused on the annual financial statements and the consolidated financial statements for 2015. The Supervisory Board discussed the appointment of the external auditors for 2017.

Among other things, the Supervisory Board approved the risk strategy for 2016 and discussed the Corporate Governance Report as well as the Market Abuse Regulation (in particular directors' dealings). Furthermore, the Supervisory Board approved the prolongation of all

Managing Board mandates. During the year, the Supervisory Board also reviewed the HR agenda including talent development, succession and career planning. The Supervisory Board also approved the budget for 2017 and the acquisition of start:bausparkasse and IMMO-BANK.

The agenda of each meeting included the discussion of the business development as well as the capital situation. Regular reports were given on the proceedings regarding City of Linz as well as the integration of Volksbank Leasing, start:bausparkasse and IMMO-BANK.

SUPERVISORY BOARD COMMITTEE MEETINGS

Audit and Compliance Committee

The Audit and Compliance Committee focused on reviewing the Bank's financial statements for 2015 and the external auditor reports as well as on the annual reports by Internal Audit and the Compliance Office. Throughout the year, the committee discussed the recommendation for the appointment of the external auditor. The committee further monitored the independence and work of the external auditor on an ongoing basis. The annual audit process for 2016 was a topic in various meetings.

Besides quarterly reports by Internal Audit and Compliance, the Audit and Compliance Committee approved the audit plans for 2017. The agenda of each meeting included an update on legal issues relevant for the Bank and regulatory topics.

The external auditor as well as the Head of Internal Audit attended all meetings. Furthermore, the committee met in private sessions with the external auditor as well as the Compliance Officer and the Head of Internal Audit without the members of the Managing Board being present.

Risk and Credit Committee

In addition to the approval of loans to individual borrowers or groups of associated customers pursuant to section 28b BWG, the Risk and Credit Committee dealt with the risk strategy for 2016 as well as general credit risk topics, such as the limit prolongations of transactions with affiliated parties and the annual review and renewal of limits for participations.

The results of the OeNB On-Site Review on liquidity risk management, information on the Supervisory Review and Evaluation Process (SREP) 2016, the risk planning guidelines 2017 and the planned implementation of IFRS 9 were presented to the Risk and Credit Committee. The Risk and Credit Committee also approved the purchase of a

high-quality residential mortgage portfolio in Western Europe and reported to the Supervisory Board.

The Group Risk Report of the Bank, which includes the calculation of the Bank's risk-bearing capacity and reports on corporate, retail and market risk, was a regular item on the Risk and Credit Committee's agenda.

Nomination Committee

The Nomination Committee recommended the prolongation of all Managing Board mandates to the Supervisory Board. The annual Fit & Proper evaluations of the Managing Board members and the Supervisory Board members were conducted including the approval of mandates by Managing Board members outside BAWAG P.S.K. Group.

Remuneration Committee

The Remuneration Committee (pursuant to section 39c BWG) dealt with the remuneration policy. Furthermore, the statistical review for 2015 according to the regulations and

the remuneration guidelines as well as the check of the regulatory framework with regard to the remuneration policy and the report of Internal Audit were presented.

Committee for Management Board Matters

The Committee for Management Board Matters discussed and approved the Managing Board compensation. The committee also discussed the Bank's bonus pool for 2016, the regulatory update regarding remuneration, the amendment of the Remuneration Policy and the check of the regulatory framework with regard to the Remuneration Policy and the report of Internal Audit.

Related Parties Special Audit Committee

The Related Parties Special Audit Committee approved various related party transactions and reviewed the whole portfolio in December 2016.

All committees also reported regularly about their discussions and decisions to the entire Supervisory Board.

ANNUAL FINANCIAL STATEMENTS

The annual financial statements and the consolidated annual financial statements for 2016 were audited by KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft. The audit revealed no reason for objections. The legal regulations were complied with in full, and an unqualified auditor's opinion was issued. After an in-depth discussion, the Supervisory Board approved and adopted the annual financial statements in accordance with section 96 para 4 Stock Corporation Act. The consolidated financial statements were noted by the Supervisory Board.

In conclusion, I would like to express my sincere thanks to the Managing Board as well as all employees in the name of the entire Supervisory Board for their performance and sustained commitment in 2016.

Franklin W. Hobbs Chairman of the Supervisory Board of BAWAG P.S.K. AG

Group Management Report

ECONOMIC AND REGULATORY DEVELOPMENTS

ECONOMIC DEVELOPMENTS

Macro trends

Austria's gross domestic product growth accelerated to a rate of 1.5% in 2016, up from 1.0% in 2015, driven by a turn in the investment cycle and solid growth in private consumption. Private consumption was supported by favorable demographics and tax reform legislation in 2016, while net exports made a negative contribution to growth. Since 2015, the key driver of growth in Austria has been private demand as opposed to net exports in prior years. The minimal increase in the unemployment rate to 5.7% has to be seen in the context of continuous growth in employment of approximately 1.5% per year. Corporates as well as private households continued to prove financially sound.

Market developments

Demand for loans to Austrian households increased in 2016 on the back of solid demand for housing products. The volume of private households' deposits increased more pronouncedly than consumer price inflation. Demand for loans to corporates remained stable and thus lagged behind total economic investment activity, which grew substantially in 2016.

Various developments point to a continuation of the strong growth environment in 2017 and beyond. We expect a dynamic investment environment given the turn in the investment cycle. Construction activity is expected to be well supported by improving demographics trends (annual population growth in Vienna of 1.4% expected over the next five years) and by public housing initiatives (a commitment to invest EUR 5.75 billion to add 30,000 additional homes by 2022).

Outlook

The 2017 outlook for the Austrian economy remains optimistic and offers more favorable growth opportunities in various segments compared to recent years. Corporate loan demand will likely be better supported by the dynamic investment environment. Loan demand from the private sector is expected to increase in 2017 on the back of solid demand for housing loans. Given the expected sound financial position of private households, we expect low default rates despite a moderate increase in the unemployment rate. We expect markets to remain significantly influenced by the ample liquidity environment in Europe. With a focus on Austrian retail banking and select Western developed markets, BAWAG P.S.K. is well positioned in the current economic environment.

REGULATORY DEVELOPMENTS1)

The ECB continues its direct oversight of the Eurozone's main credit institutions, including BAWAG P.S.K., under the Single Supervisory Mechanism (SSM). The main priorities in 2016 were capital adequacy (e.g. supervisory stress tests, review of internal models, etc.), liquidity, risk governance and data quality. Preparations for the operational implementation of the second pillar of the Banking Union, the Single Resolution Mechanism (SRM), continued during 2016.

In addition to the minimum requirements under the Capital Requirements Regulation (CRR), the ECB imposes more stringent capital requirements on individual banks pursuant to the Supervisory Review and Evaluation Process (SREP). The minimum CET1 ratio according to the SREP applicable to BAWAG P.S.K. for 2016 amounted to 9% (including a systemic risk buffer of 0.25%). For 2017, the regulatory

minimum CET1 ratio applicable to BAWAG P.S.K. according to the SREP will be 8% (including a systemic risk buffer of 0.50%). In addition to the capital requirement, the SREP for 2017 also includes a Pillar 2 guidance for the first time, which has been set at 1%. The regulator therefore expects to maintain a CET1 ratio of 9% (8% SREP requirement plus 1% Pillar 2 guidance).

BAWAG P.S.K. has managed its capital structure on a fully loaded basis from the very beginning, not taking into account any transitional rules. Our target CET1 ratio in 2016 was greater than 12% on a fully loaded basis. We delivered a much stronger ratio, coming in at 15.0% and thereby significantly exceeding the regulatory requirements. Going forward, we will continue to maintain a fully loaded CET1 ratio above 12%.

The Delegated Act of the European Commission on the leverage ratio has been effective since 2015. Currently there is no minimum leverage ratio requirement defined by the regulators. The leverage ratio stood at 6.3% on a fully loaded basis at year-end 2016. The liquidity coverage ratio (LCR) became fully effective as a binding regulatory requirement in October 2015. The minimum requirement for 2016 was 70%, increasing to 80% for 2017 and subsequently to 100% by 2018. We consider the maintenance of a robust liquidity situation as one of our key priorities and achieved an LCR of 138% at year-end 2016. No additional LCR requirements were imposed on BAWAG P.S.K. as a result of the SREP for 2016 and 2017.

Going into 2017, we expect the pace of regulatory changes for European financial institutions to remain high. In November 2016, the European Commission published proposals for comprehensive reforms to the CRR, the CRD IV and the BRRD. Main components of the reform package are:

• Setting out the regulatory framework for total loss absorbing capacity (TLAC) and minimum required eligible liabilities (MREL)

• Harmonization of insolvency rules in relation to a new class of senior non-preferred instruments

• Binding leverage ratio requirement (currently proposed at 3%)

• Net stable funding ratio (NSFR) to become operational in 2018

The European Commission targets the finalization of the reform package in the course of 2017.

Another important regulatory project which is scheduled for completion in 2017 is the finalization of Basel III by the Basel Committee on Bank Supervision (commonly referred to as the Basel IV package).

The introduction of IFRS 9 as the new accounting standard for financial instruments is another relevant development for the financial services industry. First-time application of the new standard is scheduled for 1 January 2018 and BAWAG P.S.K. is well on track with its preparations.

We will continue to proactively monitor and implement the upcoming regulatory changes on a timely basis and to consider them in our business plans accordingly. Due to its strong capital position and profitable business model, BAWAG P.S.K. considers itself well prepared for the upcoming requirements.

FINANCIAL REVIEW

BAWAG P.S.K. successfully executed its business plans in 2016 and delivered strong results.

A few key highlights include:

• BAWAG P.S.K. posted a profit before tax of EUR 474.2 million in 2016. This represents an increase of 5.8% compared to 2015, driven by higher core revenues, lower operating expenses and reduced risk costs

• Net interest income rose 1.1% to EUR 730.0 million in 2016 compared to 2015, despite a continued lowinterest rate environment.

• The net interest margin remained largely stable at 2.3%, reflecting the Bank's dedicated focus on risk-adjusted pricing and optimizing the liability structure.

• Our dedicated focus on cost efficiency continues to pay off. Operating expenses decreased by 4.9% to EUR 435.5 million in 2016. The cost-income ratio further improved by 2.5 points to 44.0%.

• Regulatory charges, mainly comprising the bank levy as well as contributions to the deposit guarantee scheme and to the single resolution fund, increased by 25.3%, coming in at EUR 46.1 million in 2016.

• Total risk costs decreased by 6.8% to EUR 42.7 million in 2016, resulting from the improved overall credit quality of the individual business segments.

• Our capital base has been further strengthened from an already high level, with a Common Equity Tier 1 capital ratio and total capital ratio (both on a fully loaded basis) of 15.0% and 17.8%, respectively, at 31 December 2016, versus 12.9% and 15.8% at year-end 2015.

ANALYSIS OF PROFIT OR LOSS STATEMENT AND STATEMENT OF FINANCIAL POSITION

Profit or loss statement

in EUR million	2016	2015	Change	Change (%)
Interest income	1,024.5	1,051.3	(26.8)	(2.5)
Interest expense	(297.8)	(339.2)	41.4	(12.2)
Dividend income	3.3	10.2	(6.9)	(67.6)
Net interest income	730.0	722.3	7.7	1.1
Fee and commission income	276.3	292.3	(16.0)	(5.5)
Fee and commission expenses	(83.4)	(106.4)	23.0	(21.6)
Net fee and commission income	192.9	185.9	7.0	3.8
Core revenues	922.9	908.2	14.7	1.6
Gains and losses on financial instruments andother operating income and expenses	67.6	75.7	(8.1)	(10.7)
Operating income	990.5	983.9	6.6	0.7
Operating expenses	(435.5)	(457.7)	22.2	(4.9)
Regulatory charges	(46.1)	(36.8)	(9.3)	25.3
Operating profit	508.9	489.4	19.5	4.0
Provisions and loan-loss provisions	(29.7)	(36.9)	7.2	(19.5)
Impairment losses	(0.4)	(1.1)	0.7	(63.6)
Operational risk	(12.6)	(7.8)	(4.8)	61.5
Share of the profit or loss of associatesaccounted for using the equity method	8.0	4.6	3.4	73.9
Profit before tax	474.2	448.2	26.0	5.8
Income taxes	(83.3)	(30.3)	(53.0)	>100
Profit after tax	390.9	417.9	(27.0)	(6.5)
Non-controlling interests	0.3	0.0	0.3	100
Net profit	390.6	417.9	(27.3)	(6.5)

Profit before tax increased by EUR 26.0 million, or 5.8%, to EUR 474.2 million in 2016. The increase was driven by higher operating income, lower operating expenses and lower risk costs. These positive developments offset the increase in regulatory charges.

Net interest income increased by EUR 7.7 million, or 1.1%, to EUR 730.0 million in 2016, driven primarily by net asset growth and lower funding costs, with a largely stable net interest margin of 2.3%.

Net fee and commission income was up EUR 7.0 million, or 3.8%, and amounted to EUR 192.9 million in 2016.

Gains and losses on financial instruments and other operating income and expenses decreased by EUR 8.1 million, or 10.7%, to EUR 67.6 million in 2016.

Operating expenses decreased by EUR 22.2 million, or 4.9%, to EUR 435.5 million in 2016, driven by a decline in other administrative expenses. This figure includes a EUR

26.4 million restructuring reserve posted during 2016. The cost-income ratio decreased by 2.5 points to 44.0% compared to 2015.

Provisions and loan-loss provisions decreased by EUR 7.2 million, or 19.5%, to EUR 29.7 million in 2016.

Total assets
in EUR million	2016	2015	Change	Change (%)
Cash reserves	1,020	809	211	26.1
Financial assets	6,403	6,275	128	2.0
Available-for-sale	3,196	2,732	464	17.0
Held-to-maturity	2,353	2,290	63	2.8
Held for trading	652	950	(298)	(31.4)
Fair value through profit or loss	202	303	(101)	(33.3)
Loans and receivables	30,825	27,396	3,429	12.5
Customers	28,500	24,713	3,787	15.3
Debt instruments	692	973	(281)	(28.9)
Credit institutions	1,633	1,710	(77)	(4.5)
Hedging derivatives	677	469	208	44.3
Tangible non-current assets	56	63	(7)	(11.1)
Intangible non-current assets	141	104	37	35.6
Tax assets for current taxes	5	9	(4)	(44.4)
Tax assets for deferred taxes	153	238	(85)	(35.7)
Other assets	176	143	33	23.1
Assets held for sale	–	9	(9)	(100)
Total assets	39,456	35,515	3,941	11.1

Financial assets remained largely stable compared to yearend 2015 and amounted to EUR 6,403 million as of 31 December 2016.

Loans and receivables with customers increased by EUR 3,787 million, or 15.3%, to EUR 28,500 million as of 31 December 2016, primarily driven by growth in

consumer loans and the international business as well as the acquisition of start:bausparkasse, IMMO-BANK and another high-quality performing residential mortgage portfolio in Western Europe.

Tax assets for deferred taxes decreased by EUR 85 million net, or 35.7%, to EUR 153 million.

in EUR million	2016	2015	Change	Change (%)
Total liabilities	36,608	32,755	3,853	11.8
Financial liabilities	34,694	30,857	3,837	12.4
Fair value through profit or loss	1,115	1,269	(154)	(12.1)
Issued securities	1,115	1,269	(154)	(12.1)
Held for trading	617	1,071	(454)	(42.4)
At amortized cost	32,962	28,517	4,445	15.6
Customers	25,998	21,695	4,303	19.8
Issued securities	4,900	3,236	1,664	51.4
Credit institutions	2,064	3,586	(1,522)	(42.4)
Financial liabilities associated with transferredassets	300	621	(321)	(51.7)
Valuation adjustment on interest rate risk hedgedportfolios	223	169	54	32.0
Hedging derivatives	260	106	154	>100
Provisions	404	419	(15)	(3.6)
Tax liabilities for current taxes	17	3	14	>100
Tax liabilities for deferred taxes	29	3	26	>100
Other obligations	681	577	104	18.0
Obligations in disposal groups held for sale	–	–	0	–
Total equity	2,848	2,760	88	3.2
Shareholders' equity	2,846	2,759	87	3.2
Non-controlling interests	2	1	1	100
Total liabilities and equity	39,456	35,515	3,941	11.1

Total liabilities and equity

Deposits from customers increased by EUR 4,303 million, or 19.8%, to EUR 25,998 million as of 31 December 2016. The increase mainly results from the acquisition of start:bausparkasse and IMMO-BANK as well as higher deposit account balances.

Issued securities at amortized cost increased by EUR 1,664 million, or 51.4%, to EUR 4,900 million as of 31 December 2016 due to the issue of a EUR 500 million mortgage covered bond in the first quarter 2016 as well as the successful placement of two senior unsecured bonds in the Swiss market for a total of CHF 275 million, the Bank's inaugural UK RMBS placement of GBP 500 million and the acquisition of start:bausparkasse and IMMO-BANK in the fourth quarter 2016.

Total equity increased by EUR 88 million, or 3.2%, to EUR 2,848 million as of 31 December 2016. The change was driven by the net profit for 2016, partially offset by a dividend payment in the amount of EUR 306 million made to BAWAG Holding GmbH earlier in 2016.

CAPITAL AND LIQUIDITY POSITION

The management team continues to run the Bank on a fully loaded basis from a capital standpoint. Since 31 December 2015, the Bank's fully loaded CET1 and total capital ratio further improved by 210 and 200 basis points to 15.0% and 17.8%, respectively, as of 31 December 2016, driven by organic earnings while at the same time funding acquisitions. The capital position thereby significantly exceeded both regulatory requirements as well as our CET1 target ratio of greater than 12%.

At the same time, we maintained an RWA density of 43%, a conservative ratio relative to our European peers. The combination of our strong capital base and conservative RWA density resulted in a fully loaded leverage ratio of 6.3% as of 31 December 2016. Equity-to-total assets stood at 7.2%, which translates into an economic leverage of 13.9%.

Our funding strategy continues to be based on our stable customer deposits. The deposit funding is complemented by a well-diversified wholesale funding strategy. In the first quarter 2016, BAWAG P.S.K. issued a EUR 500 million international benchmark mortgage covered bond with a tenor of six years. In the fourth quarter 2016, BAWAG P.S.K. successfully placed two senior unsecured bonds in the Swiss market for a total of CHF 275 million (CHF 175 million with a tenor of five years and CHF 100 million with a tenor of two years). The CHF 100 million two-year transaction was priced with a yield of minus 0.25%, representing the first negative yield senior unsecured bank issuance in CHF at the time. Additionally, BAWAG P.S.K. placed its inaugural UK RMBS transaction of GBP 500 million with international investors in November 2016.

We maintain a conservative liquidity management strategy, which is reflected in our strong liquidity coverage ratio (LCR) of 138% at year-end 2016.

in EUR million	Q42016	Q32016	Q22016	Q12016	Q42015
Net interest income	177.6	176.1	191.0	185.2	183.3
Net fee and commission income	46.9	43.1	52.1	50.9	41.1
Core revenues	224.5	219.2	243.1	236.1	224.4
Operating income	247.4	238.1	254.7	250.3	252.1
Operating expenses	(124.8)	(100.9)	(108.1)	(101.9)	(125.6)
Total risk costs	(17.8)	(9.0)	(7.2)	(8.6)	(11.3)
Profit before tax	100.4	124.2	125.8	123.7	109.8
Net profit	104.2	94.3	98.4	93.7	97.6
(figures annualized)Return on equity	14.9%	13.3%	13.6%	13.4%	14.4%
Return on tangible equity	15.6%	13.9%	14.1%	13.9%	15.0%
Return on risk-weighted assets	2.53%	2.40%	2.46%	2.28%	2.42%
Return on total assets	1.13%	1.10%	1.13%	1.06%	1.14%
Net interest margin	2.20%	2.30%	2.44%	2.32%	2.39%
Cost-income ratio	50.4%	42.4%	42.4%	40.7%	49.8%
Risk costs / loans and receivables	0.25%	0.14%	0.11%	0.13%	0.17%

KEY PERFORMANCE INDICATORS

Note: For details on definitions and calculation methodology, please refer to the section entitled "Definitions" on pages 192–194.

BUSINESS SEGMENTS

The Management of BAWAG P.S.K. is operating the Group based on the business segments of BAWAG Holding.

As of June 2016, the business segmentation and the related segment reporting were changed to provide greater insight and transparency and to better reflect our strategic focus as well as the progress of the business units going forward.

The former Retail Banking and Small Business segment was split into two segments, BAWAG P.S.K. Retail and easygroup. Similarly, the former Corporate Lending and Investments segment was split into DACH Corporates & Public Sector and International Business.

For further details please refer to the chapter "Segment Reporting" in the Notes section.

BAWAG P.S.K. RETAIL

Strategy

The BAWAG P.S.K. Retail segment services 1.8 million private and small business customers through our centralized branch network that we operate in cooperation with Austrian Post as well as our online and mobile sales channels supported by our customer care center.

We are one of the leading omni-channel retail banks in Austria, offering simple, fair and transparent products and services through our physical and digital sales channels with a strong and well-recognized national brand.

In 2016, we further invested in the development of our retail franchise to ensure high-quality service and advice for our customers. We enhanced customer service quality and increased sales productivity due to our differentiated branch structure, creating more productive advisory teams and specialization in branches. We continued to invest in sales force training and further developed our front-end online sales applications to support a systematic retail banking approach and streamlined distribution.

We continue to be a leader in digital offerings, continually enhancing our customers' experience with new e-banking and mobile features. Our new Security App and one-touch security functions for smartphones are examples of enabling features for our customers to purchase our products and perform transactions anytime and anywhere, safely and securely. Additionally, we are currently live as the first bank in Austria to offer complete online account opening using video legitimation technology, which enables a customer to open a current account with BAWAG P.S.K. seamlessly on a mobile device. We are also building a financial services platform for our customers to make their financial lives easier and simpler.

2016 Business Review

The segment results reflect the success of our continued focus on the following value drivers:

• Growing our consumer lending franchise
• Optimizing our product mix
• Driving organic productivity and inorganic growth
• Transforming to digital

Growing our consumer lending franchise

In 2016, we continued to grow our consumer loan franchise while also capturing market share. At the end of December, our consumer loan market share was 11.4% (excluding easygroup), up 150 basis points from year-end 2015. Total new consumer loan originations in 2016 amounted to EUR 557 million, with net asset growth of 9%. These results were delivered while maintaining our disciplined underwriting standards. Our instant credit decision in our branches, an automated workflow as well as the quality of our advisory and sales processes differentiate us from our competitors. Our continuous investment in data analytics provides a stable flow of leads for our sales force for cross-selling to current customers and new customer acquisition. It shifts our lead generation to a pull approach, as we are in a better position to offer the right products at the right time in our customers' lifecycle.

In addition to the continued growth in consumer loans, we made progress in the migration of our customers towards digital channels. In 2016, 21% of our consumer loan sales were initiated through our digital and customer care channels, which are well received by our customers.

We believe there is continued room for growth in the Austrian consumer loan market as we deepen the relationship with our customer base, which historically has been more oriented towards our deposit products. Our ambition is to grow our consumer loan market share in line with the market share of our current account products (14%).

Asset volume development (in EUR billion)

At year-end 2016, the total assets of the BAWAG P.S.K. Retail segment stood at EUR 11.7 billion, with total new originations of EUR 1.2 billion in 2016 and net asset growth of 27% compared to year-end 2015, which includes the acquisition of start:bausparkasse and IMMO-BANK in December 2016.

Optimizing our product mix

On the liability side, we continued the shift from fixed-rate term deposits to current accounts and daily savings accounts, thus providing for lower funding costs, freeing up sales force capacity and providing our customers with products with greater functionality. Overall, the blended external interest rate on retail deposits stood at 0.28% at year-end 2016. The increase of overall deposits and deposit pricing reflects the acquisition of start:bausparkasse and IMMO-BANK.

Customer deposit volume development (in EUR billion)

As a major initiative concerning fee-generating products, we launched our new KontoBoxes (current accounts) in February 2016. The new generation of KontoBoxes offers our customers a series of enhanced services, such as a debit card "Gold" with mobile phone based payment functionality ("SmartPay") and in particular our new loyalty program "DANKESCHÖN," which rewards customers for the use of our products and payment cards. These valueadded services will drive greater customer usage and have generated more interest in premium current accounts that provide greater functionality and an improved customer experience. The migration of our customer base towards these new account models and services will continue to be a revenue driver going forward. Overall, the new boxes have been well received by our customers and the share of premium models among total KontoBoxes has significantly increased compared to prior-year sales.

The launch of the new KontoBoxes has been supported throughout our channels with an intensive training program for our advisors. In addition to the rollout of the KontoBoxes, we launched new functionalities in our frontend online sales application "GATE," supporting and automating the advisory process for current accounts.

Driving organic productivity and inorganic growth

Our strong results in the BAWAG P.S.K. Retail segment are based on two pillars:

Driving efficiency in the core franchise

We have created a differentiated branch structure to concentrate our full service advisory services in our highest customer demand locations, while maintaining service reach through a network of self-service devices and transaction points. This branch differentiation drives cost efficiency through better resource management and higher sales productivity.

The strong focus of our branch employees on advisory and sales is also supported by the ongoing shift of basic transactions to digital and self-service channels. Compared to 2015, the number of online payment transactions increased by 10% and the share of online transactions via our mobile apps increased by 49%. During the same period, the number of over-the-counter transactions decreased by 11%, reflecting the changing composition of overall payments and the migration to digital and representing the significant shift in customer behavior.

These initiatives result in lower efforts to serve our customers and allow our advisors to focus on advisory and sales. In addition, the continued development of our proprietary front-end tool "GATE" will further enhance our front-end processes and customer advisory experience.

Capitalizing on inorganic growth opportunities

We are continuously evaluating various inorganic growth opportunities. In December 2016, we successfully closed the acquisition of start:bausparkasse and IMMO-BANK. The start:bausparkasse acquisition will give us a significant presence in the building society savings and loans sector, while IMMO-BANK will expand our reach with social housing associations and real estate companies. Both companies combine the expertise and long-standing tradition in the housing and real estate finance sector and will thus make a significant contribution to the expansion of our domestic retail franchise. We also see great crossselling potential in our new customer base coming from both acquisitions.

Transforming to digital

We continue to build our vision of a financial services platform for all of our customers' financial activity. We continue to launch new online and mobile products and service offerings in order to better assist our customers in managing their financial affairs.

Throughout 2016, we made progress in the extension of our online product and service offering. In the first quarter 2016, we launched our core current account offering online. Our accounts can be opened via a 100% digital process, including online identity verification and a digital signature. We also launched our new SmartPay App, enabling payments via NFC-enabled smartphones and making transactions frictionless for those customers. Furthermore, we redesigned the BAWAG P.S.K. website in the first half 2016. The new design incorporates best practices in terms of usability and convenience with a stronger orientation towards interactivity and product sales and has been well received, with a 7% increase in visitors compared to 2015.

In the third quarter 2016, we successfully launched our new Security App, which allows a best-in-class secure TAN procedure for online and mobile banking. This app also offers additional features such as customized transaction notifications tailored to a user's personal needs.

In line with our strategy of creating a platform that simplifies our customers' financial lives, we have entered into collaboration agreements with several Fintech companies including FinReach in the fourth quarter 2016. The services of FinReach make it easier for new consumers to switch bank accounts in a fully digital, frictionless way. Through our collaboration with FinReach, we have taken another important step in bringing best-in-class partners to enhance our innovative digital platform to create substantial added value for our customers. We expect several more announcements similar to this technology collaboration in 2017.

Our complete line of products offered through digital channels makes us a leader in the marketplace, and we continue to enhance our user experience and personalization features across the distribution channels. All our efforts are being rewarded with increasing usage by our customers. As an example, the new online loan origination volume was up 31% compared to 2015. Furthermore, a total of 61% of all logins to our e-banking come from mobile devices, up 8 points from December

1. Engagement with our customers allows us to better anticipate their needs and offer products and services at the appropriate time. Our efforts to grow our customer engagement through investments in data-based analytics will be a driver for increased cross-selling in the future.

Outlook

In 2017, we expect continued strong competition in the Austrian retail banking market. In spite of this challenging environment, we are convinced that we will further grow our business, strengthen our position and optimize our leading customer banking platform.

The growth of our asset base will be driven by several initiatives such as the continued development of our online loan sales portfolio, the enhanced broker channel infrastructure and cooperation as well as the continuous evaluation of potential inorganic opportunities.

We will further streamline our cost-to-serve while also enhancing our overall service and advisory quality and convenience. This will be done by continuing to differentiate our branch structure, investing in both our front-end online sales application "GATE" and our leading digital services platform. We will also continue to further develop our mobile capabilities in order to further strengthen our position as one of the leading omni-channel retail banks in Austria.

This clear focus makes us confident that we will continue to grow our consumer lending franchise and other key asset categories, while further optimizing our cost structure. Additionally, our digital advances allow us to be closer to our customers, with greater engagement, and to deepen our relationships through higher-value products and services.

We are well prepared to meet all our customers' needs and expect to continue our strong performance in 2017, again focusing on our core value drivers: growing our consumer lending franchise, optimizing our product mix, driving organic productivity and inorganic growth as well as transforming to digital.

Financial Results

Income metrics(in EUR million)	2016	2015	Change(%)	Q42016	Q42015	Change(%)
Net interest income	352.3	331.4	6.3	93.7	82.7	13.3
Net fee and commission income	141.1	135.9	3.8	34.8	22.8	52.6
Core revenues	493.4	467.3	5.6	128.5	105.5	21.8
Gains and losses on financial instruments	0.8	6.5	(87.7)	0.0	1.9	(100)
Other operating income and expenses	1.5	1.1	36.4	0.5	0.1	>100
Operating income	495.7	474.9	4.4	129.1	107.6	20.0
Operating expenses	(273.5)	(303.2)	(9.8)	(71.7)	(78.5)	(8.7)
Regulatory charges	(12.3)	(6.3)	95.2	0.0	0.2	100
Total risk costs	(40.8)	(33.9)	20.4	(14.2)	(8.5)	67.1
Profit before tax (= net profit)	169.1	131.5	28.6	43.2	20.8	>100

Key ratios	2016	2015	Change(pts)	Q42016	Q42015	Change(pts)
Return on equity	18.4%	16.3%	2.1	18.5%	9.7%	8.8
Return on risk-weighted assets	4.09%	3.53%	0.56	4.26%	2.13%	2.13
Net interest margin	3.72%	3.56%	0.16	3.71%	3.58%	0.13
Cost-income ratio	55.2%	63.8%	(8.6)	55.5%	73.0%	(17.5)
Risk costs / loans and receivables	0.39%	0.37%	0.02	0.54%	0.37%	0.17
NPL ratio	1.8%	2.2%	(0.4)	1.8%	2.2%	(0.4)

Business volumes(in EUR million)	2016	2015	Change(%)
Assets	11,659	9,178	27.0
Risk-weighted assets	4,432	3,827	15.8
Customer deposits	18,058	15,663	15.3
Own issues	2,990	2,122	40.9

The segment achieved a net profit of EUR 169.1 million in 2016, up 28.6% compared to 2015, and delivering a return on equity of 18.4% and a cost-income ratio of 55.2%. Higher core revenues (up 5.6%) and lower operating expenses (down 9.8%) more than offset the

increase in regulatory charges stemming from the deposit guarantee scheme.

Overall risk metrics reflect the high credit quality of the retail business, with a largely stable risk cost ratio and an NPL ratio of 1.8% (down 40 basis points versus the prior year).

EASYGROUP

Strategy

easygroup is Austria's first direct banking group offering a full product suite, ranging from current accounts and savings products to credit cards, consumer and housing loans, auto leases and investment products.

Unlike traditional banks with physical distribution networks, easygroup operates in a lean manner, distributing products via digital and partner networks. We have become a market leader in innovation with the ability to quickly adapt to new market and consumer trends. We continuously explore new technologies in the banking space and incorporate the best features into our customer offerings. We strive to be the one-stop, easy-to-use, innovative financial services solution provider for our customers.

Consumer behavior has been trending towards easier-tounderstand and simpler banking products that can be accessed anytime and anywhere. easygroup customers can access all banking products 24/7 via smartphones, tablets or their personal computers. For customers who require the "human touch," we are available six days a week via phone even outside normal business hours.

While offering our customers leading-edge technology and outstanding service, we have to remain competitively priced across all of our products. In today's market environment, we continuously focus on efficiency. We believe that cost efficiency is something an organization can never be complacent with and must always strive to improve. In doing so, we can continue to offer our customers the bestpriced products.

easygroup has various go-to-market channels, ranging from direct banking to auto dealers and brokers, and strong partnerships with leading Austrian organizations. easygroup is comprised of

• the #1 rated direct bank in Austria, easybank;
• the #3 auto lessor in Austria, easyleasing; and
• our international retail business, consisting of EUR 3.2 billion of high-quality performing residential mortgages in Western Europe

easygroup is a cornerstone to the overall growth strategy for BAWAG P.S.K. Group. Our goal is to continue being the leading direct bank in Austria and to expand into larger Western markets, such as Germany and the UK.

2016 Business Review

easygroup ended the year with its client base up 8% to approximately 420,000 customers and 710,000 accounts. Customer deposits were at a record high of EUR 3.9 billion, up 22% since December 2015. Our strong results are due to four key pillars:

• Growing our customer base and market share in Austria
• Building and maintaining customer loyalty
• Driving efficiency across the organization
• Expanding internationally into Western European markets

Growing our customer base and market share in Austria

In 2016, easygroup continued to see an inflow of new customers and accounts in Austria. For the total year, we saw an increase of 3% and 6%, respectively, compared to December of last year. Our customer growth is predominantly coming from our online channel and key partnerships. Partnerships such as those with ÖAMTC, Shell and Energie Steiermark give us indirect access to approximately half the Austrian population. As we go forward, we will look to leverage these relationships in order to further increase our customer base.

Overall, we recorded strong originations of EUR 460 million in 2016, including EUR 359 million in consumer auto leasing, which was up 9% compared to 2015. This performance was driven by our ability to provide customers with unique products, a best-in-class sales team, strong relationships and lean processes. We work with approximately 1,000 dealerships, representing roughly 50% of auto dealerships in Austria.

The segment's assets stood at EUR 4.5 billion at year-end 2016, up 22% compared to year-end 2015. Both the domestic and international business continued to see strong growth during 2016.

One of our strategies is to find best-in-class vendors to partner with. In July 2016, we entered into an agreement to be the financing partner of Austria's leading online car sales channel, Autogott. This partnership is a perfect fit for easygroup, combining our ability to market via an online channel with our leasing expertise. The partnership will also help spread brand awareness for easygroup, while leveraging its ability to offer banking services via direct channels.

Building and maintaining customer loyalty

easybank has always been determined to offer its customers the best banking experience. We believe this helps drive customer loyalty. In 2016, easybank's number of current and savings accounts increased by 8%. Given the overall interest landscape, easybank reduced its external interest rate offered to customers, bringing our average deposit cost from 48 basis points in December 2015 to 35 basis points in December 2016.

Customer deposit volume development (in EUR billion)

Driving efficiency across the organization

In 2016, we continued integrating Volksbank Leasing into our existing leasing franchise. In addition to the strong increase in leasing sales, the combination of the two entities enabled us to benefit from economies of scale.

In September, we successfully launched our new brand easyleasing. easyleasing will become our "one brand and one face" to the leasing market in Austria. By combining best-in-class practices from both BAWAG P.S.K. Leasing and Volksbank Leasing, we have created a highly efficient, customer-focused organization.

Expanding internationally into Western European markets

Another driver for our increased performance in 2016 was the acquisition of two high-quality performing residential mortgage portfolios in Western Europe, the first in the fourth quarter 2015, consisting of approximately 20,000 customers and EUR 1.8 billion in assets, and the second in the fourth quarter 2016, consisting of approximately 20,000 customers and EUR 1.4 billion in assets. These acquisitions are in line with our strategy to expand into other Western European markets. We are currently in the process of looking at a few other inorganic opportunities that may help us expedite our growth plans.

Outlook

easygroup will continue to improve its user experience and make its customers' lives easier. We will leverage our existing customer base and partnerships across Austria, while also expanding internationally into Western markets.

In January 2017, we opened our German headquarters based out of Düsseldorf. Our German team has initiated the set-up of operations, and we plan to start offering direct banking services across Germany, starting with loans, during the first half 2017 and credit cards in the second half 2017.

Financial Results

Income metrics(in EUR million)	2016	2015	Change(%)	Q42016	Q42015	Change(%)
Net interest income	115.8	57.1	>100	26.0	21.8	19.3
Net fee and commission income	10.1	8.1	24.7	3.2	2.3	39.1
Core revenues	125.9	65.2	93.1	29.2	24.1	21.2
Gains and losses on financial instruments	0.0	0.0	–	0.0	0.0	–
Other operating income and expenses	(1.4)	0.1	–	(1.3)	(0.2)	>(100)
Operating income	124.5	65.3	90.7	27.9	23.9	16.7
Operating expenses	(30.6)	(23.4)	30.8	(7.3)	(6.1)	19.7
Regulatory charges	(2.4)	0.0	100	0.1	0.0	(100)
Total risk costs	(4.8)	0.1	–	(3.0)	1.9	–
Profit before tax (= net profit)	86.7	42.0	>100	17.7	19.7	(10.2)

Key ratios	2016	2015	Change(pts)	Q42016	Q42015	Change(pts)
Return on equity	24.1%	21.5%	2.6	17.3%	37.7%	(20.4)
Return on risk-weighted assets	4.08%	3.15%	0.93	2.90%	6.89%	(3.99)
Net interest margin	3.46%	7.32%	(3.86)	2.98%	4.51%	(1.53)
Cost-income ratio	24.6%	35.9%	(11.3)	26.2%	25.5%	0.7
Risk costs / loans and receivables	0.12%	0.00%	0.12	0.32%	(0.37)%	0.69
NPL ratio	2.1%	1.1%	1.0	2.4%	1.1%	1.3

Business volumes(in EUR million)	2016	2015	Change(%)
Assets	4,458	3,644	22.3
Risk-weighted assets	2,346	1,897	23.7
Customer deposits	3,893	3,204	21.5
Own issues	585	0	100

The segment achieved a net profit of EUR 86.7 million in 2016 with a return on equity of 24.1% and a cost-income ratio of 24.6%. The underlying performance reflects the acquisition of the Volksbank Leasing business in the fourth quarter 2015 as well as the purchase of two high-quality performing residential mortgage portfolios in Western Europe at the end of 2015 and 2016.

DACH CORPORATES & PUBLIC SECTOR

Strategy

DACH Corporates & Public Sector comprises our corporate and public sector lending activities and other fee-driven financial services, mainly for Austrian customers. Select client relationships in neighboring countries (primarily Germany and Switzerland) are included as well. The DACH Corporates & Public Sector business was realigned to better capitalize on corporate banking opportunities across the DACH region, leveraging our Austrian customer base and relationship managers to address the broader German and Swiss markets. This will provide a broader base of commercial opportunities and complement the international growth of easygroup into Germany.

We service our corporate and public sector customers with a full range of products focusing on financing, investment and payment service products and a dedicated team of sales professionals across Austria. Non-Austrian clients are either serviced entirely from Vienna or with the support of our London office in the case of syndicated deals.

Our focus continues to be on maintaining and acquiring sustainable relationships while staying disciplined on pricing despite the competitive landscape. Additionally, we have rolled out new investment and FX products, which differentiate our offerings from competitors, and entered into a cooperation with an insurance company to leverage our origination capacities in order to drive fee income opportunities.

2016 Business Review

Muted overall commercial loan demand in the DACH region led to low new lending volumes. This is a result of several factors including flat output, low corporate investment as well as macro risks across Europe. The lower demand and high liquidity available to banks led to pressure on margins. Our business solution teams continued to elevate our strong client relationships across financing products as well as payments and cash management services, while striving to maintain and increase strong risk-adjusted pricing for the

Bank. New business volume followed the market trend. We recorded EUR 650 million of new lending in addition to normal renewals. Overall market share slightly decreased due to early redemptions of selected loans.

Asset volume development (in EUR billion)

The segment's assets stood at EUR 7.8 billion at year-end 2016, up 4% compared to December 2015. This increase was driven by the consolidation of IMMO-BANK and higher short-term lending to municipalities and social insurance companies.

Net fee and commission income – mainly arising from payment activities of our clients – was stable compared to the previous year.

Outlook

We plan for a market that will grow slightly but remain very competitive. At the same time, we do not expect improved margins as overall liquidity in the market is supported by the ECB and investment demand is unlikely to recover in the near term. We have the flexibility and speed necessary for strategic transactions requiring complete debt solutions for clients. Overall, we expect our sales team to achieve higher new lending volumes at stable margins in 2017.

BAWAG P.S.K. CONSOLIDATED ANNUAL REPORT 2014

Financial Results

Income metrics(in EUR million)	2016	2015	Change(%)	Q42016	Q42015	Change(%)
Net interest income	79.5	99.4	(20.0)	20.6	22.4	(8.0)
Net fee and commission income	39.7	39.2	1.3	10.0	9.7	3.1
Core revenues	119.2	138.6	(14.0)	30.6	32.2	(5.0)
Gains and losses on financial instruments	1.0	5.1	(80.4)	(0.1)	1.4	–
Other operating income and expenses	0.0	0.0	–	0.0	0.0	–
Operating income	120.2	143.7	(16.4)	30.5	33.6	(9.2)
Operating expenses	(53.6)	(56.8)	(5.6)	(14.9)	(14.7)	1.4
Total risk costs	4.4	(6.4)	–	1.7	(2.5)	–
Profit before tax (= net profit)	71.0	80.5	(11.8)	17.3	16.3	6.1

Key ratios	2016	2015	Change(pts)	Q42016	Q42015	Change(pts)
Return on equity	13.1%	15.0%	(1.9)	13.0%	11.3%	1.7
Return on risk-weighted assets	2.37%	2.27%	0.10	2.39%	1.99%	0.40
Net interest margin	1.05%	1.18%	(0.13)	1.10%	1.14%	(0.04)
Cost-income ratio	44.6%	39.5%	5.1	48.9%	43.8%	5.1
Risk costs / loans and receivables	(0.06)%	0.08%	(0.14)	(0.09)%	0.13%	(0.22)
NPL ratio	0.7%	1.2%	(0.5)	0.7%	1.2%	(0.5)

Business volumes(in EUR million)	2016	2015	Change(%)
Assets	7,812	7,527	3.8
Risk-weighted assets	2,916	3,087	(5.5)
Customer deposits (incl. other refinancing)	5,284	5,568	(5.1)
Own issues	202	203	(0.5)

The segment contributed EUR 71.0 million to the Bank's net profit and delivered a return on equity of 13.1%. Core revenues were down 14.0%, driven by early redemptions, margin pressure and lower new business volume. This was partly offset by an improvement in operating expenses

(down 5.6%) and positive risk costs. The NPL ratio improved to 0.7% (down 50 basis points), which was a reflection of prior years' de-risking activities and the overall high credit quality of the assets.

INTERNATIONAL BUSINESS

Strategy

International Business includes our international corporate, corporate real estate and portfolio lending outside of the DACH region, with a focus on developed countries within Western Europe as well as the United States.

The international corporates portfolio consists primarily of lending to free cash flow generating companies with defensive business profiles and appropriate capital structures in recession-resilient industries. Our international real estate portfolio focuses on senior loan positions in cash flow generating properties. We have limited exposure in land, development and construction financings.

2016 Business Review

Asset volume development (in EUR billion)

We continued to focus on our loan origination opportunities primarily in select developed Western countries and generated new business of EUR 2.7 billion in 2016.

Dec 2015 Jun 2016 Dec 2016 Real Estate Corporates 5.0 2.9 5.6 2.8 2.8 5.7 2.5 3.2 2.1

Our international corporate lending business continued to be faced with early redemptions arising from competitive

market conditions in a low-interest rate environment. As a consequence, the portfolio experienced an asset volume decrease of 12% to EUR 2.8 billion as of December 2016. Our new business volume primarily consists of investment grade loans with a general focus on defensive industries. Overall blended net leverage of the companies in our international corporate business was 4.6x and for the tranches BAWAG P.S.K. lends to 2.7x.

Our international real estate financing business was also affected by an increased volume of early redemptions and currency movements. These effects were more than compensated by turning a strong pipeline into realized deals. As a consequence, the total asset volume increased by 11% to EUR 2.8 billion. Transaction diversification continued across our commercial real estate lending business on a geographic, asset and industry basis. These transactions focused primarily on traditional real estate financings with attractive LTVs, strong cash flow, shorter weighted expected maturities and solid covenant characteristics. Overall portfolio performance and credit trends remained solid with some shortening of duration as loan amortizations increase ahead of original projections. We are also active in portfolio financing with low loan-to-value (LTV) and low loan-to-cost (LTC) positions against a more diversified portfolio of cash generating real estate assets. The portfolio has strong collateral coverage characteristics (average LTV <60%), provides strong cash flows and is structured to perform well in stressed market conditions, with shorter average durations.

Outlook

We see a solid pipeline with diversified opportunities during 2017 and therefore expect an expanding portfolio size for both the international corporate lending and international real estate financing businesses. Margins will largely remain stable, although competition for defensive, highquality transactions will continue to remain high.

BAWAG P.S.K. CONSOLIDATED ANNUAL REPORT 2014

Financial Results

Income metrics(in EUR million)	2016	2015	Change(%)	Q42016	Q42015	Change(%)
Net interest income	134.0	142.2	(5.8)	32.2	36.8	(12.5)
Net fee and commission income	(0.1)	0.0	(100)	0.0	0.0	–
Core revenues	133.9	142.2	(5.8)	32.2	36.8	(12.5)
Gains and losses on financial instruments	(2.8)	(6.0)	53.3	(0.5)	0.4	–
Other operating income and expenses	0.0	0.0	–	0.0	0.0	–
Operating income	131.1	136.2	(3.7)	31.7	37.3	(15.0)
Operating expenses	(29.9)	(25.7)	16.3	(9.9)	(8.0)	23.8
Total risk costs	1.2	0.2	>100	(1.9)	0.0	(100)
Profit before tax (= net profit)	102.4	110.7	(7.5)	19.9	29.3	(32.1)

Key ratios	2016	2015	Change(pts)	Q42016	Q42015	Change(pts)
Return on equity	17.6%	19.4%	(1.8)	14.5%	19.1%	(4.6)
Return on risk-weighted assets	2.34%	2.53%	(0.19)	2.02%	2.57%	(0.55)
Net interest margin	2.55%	2.64%	(0.09)	2.43%	2.64%	(0.21)
Cost-income ratio	22.8%	18.9%	3.9	31.2%	21.4%	9.8
Risk costs / loans and receivables	(0.02)%	0.00%	(0.02)	0.15%	0.00%	0.15
NPL ratio	0.0%	0.0%	0.0	0.0%	0.0%	0.0

Business volumes(in EUR million)	2016	2015	Change(%)
Assets	5,634	5,748	(2.0)
Risk-weighted assets	4,169	4,565	(8.7)

The segment contributed EUR 102.4 million to the Bank's net profit in 2016, which is a 7.5% decrease compared to the previous year, but still delivered a return on equity of 17.6%. Higher than anticipated redemptions and general

pressure on margins led to a reduction of core revenues by 5.8%. Similar to the DACH business, the international business is characterized by high credit quality assets with no non-performing loans.

TREASURY SERVICES & MARKETS

Strategy

Treasury Services & Markets acts as a service center for the Bank's customers, subsidiaries and partners through market execution as well as selective investment activities.

Among the key responsibilities of Treasury Services & Markets is the management of the Bank's liquidity from the core funding franchise in available-for-sale and held-tomaturity portfolios, including the liquidity reserve as well as certain hedging positions. The investment strategy continues to focus on investment grade securities primarily representing secured and unsecured bonds of financials in Western Europe and the United States as well as select sovereign bond exposures in order to maintain solid diversification.

2016 Business Review

In 2016, Treasury Services & Markets increased investment and designation in held-to-maturity securities slightly to EUR 2.4 billion as of year-end, while at the same time available-for-sale securities and fair value positions increased to EUR 2.9 billion. We continue to pursue the strategy of balancing the investment portfolio between longterm investment in high-quality securities while still maintaining our available-for-sale portfolio to preserve the flexibility of redeployment in other customer loans or receivables, or other balance sheet management activities.

As of 31 December 2016, Treasury Services & Markets managed a total investment portfolio of EUR 5.4 billion and a liquidity reserve of EUR 1.3 billion. The investment portfolio's average maturity was 4.3 years, comprised 96% of investment grade rated securities, of which 80% were rated in the single A category or higher. Exposure to CEE represented less than 2% of the portfolio and was limited to select bonds, with 100% rated in the single A equivalent category or better. As of year-end, the portfolio had no direct exposure to China, Russia, Hungary or South-Eastern Europe. Direct exposure to the UK is moderate and focuses on internationally diversified issuers with solid credit quality. Southern Europe continues to be moderate and comprises shorter-dated, liquid bonds of well-known issuers. This overall composition reflects the Bank's strategy to maintain high credit quality, shorter duration and strong liquidity in the securities portfolio in order to balance the goals of generating incremental net interest income while also minimizing fair value volatility.

Outlook

Treasury Services & Markets will continue to focus on keeping streamlined processes and simple products in support of the Bank's core operating activities and customer needs. Ample liquidity supply and asset purchases by the ECB as well as elevated political risks will remain important factors in financial markets. However, we are committed to maintaining high credit quality, highly liquid investments and solid diversification.

BAWAG P.S.K. CONSOLIDATED ANNUAL REPORT 2014

Financial Results

Income metrics(in EUR million)	2016	2015	Change(%)	Q42016	Q42015	Change(%)
Net interest income	54.3	58.1	(6.5)	12.9	15.0	(14.0)
Net fee and commission income	0.0	0.0	–	0.0	0.0	–
Core revenues	54.3	58.1	(6.5)	12.9	15.0	(14.0)
Gains and losses on financial instruments	11.9	13.8	(13.8)	0.8	12.9	(93.8)
Other operating income and expenses	0.0	0.0	–	0.0	0.0	–
Operating income	66.2	71.9	(7.9)	13.7	27.9	(50.9)
Operating expenses	(16.3)	(19.0)	(14.2)	(4.3)	(4.3)	–
Total risk costs	0.0	0.0	–	0.0	0.0	–
Profit before tax (= net profit)	49.9	52.9	(5.7)	9.4	23.6	(60.2)
Key ratios	2016	2015	Change(pts)	Q42016	Q42015	Change(pts)
Return on equity	13.7%	14.3%	(0.6)	10.2%	26.5%	(16.3)
Return on risk-weighted assets	2.62%	2.57%	0.05	1.93%	5.11%	(3.18)
Net interest margin	0.96%	0.93%	0.03	0.93%	1.10%	(0.17)
Cost-income ratio	24.6%	26.4%	(1.8)	31.4%	15.4%	16.0
Business volumes(in EUR million)	2016	2015	Change(%)
Assets and liquidity reserve	6,691	6,293	6.3
Risk-weighted assets	2,031	1,785	13.8

The segment contributed EUR 49.9 million to the Bank's net profit in 2016, down 5.7% compared to 2015, and delivered a return on equity of 13.7%. Core revenues were down 6.5% as the pressure on yields of high-quality assets remained high. This was only partly compensated by lower operating expenses.

CORPORATE CENTER

2016 Review

The Corporate Center contains central functions for the entire Bank. Accounting entries, e.g. market values from derivatives, represent the largest portion of assets and liabilities. The Bank's equity is also shown here. Restructuring expenses, contributions to the single resolution fund, the bank levy, corporate taxes and other one-off items are included in this segment as well.

In 2016, the segment showed a positive performance, mainly driven by the recognition of deferred tax assets on tax loss carryforwards and the consolidation result related to acquisitions in 2016, partly offset by the additional Austrian bank levy one-time payment and lower net interest income as well as lower gains and losses on financial instruments. Regulatory charges (including the regular bank levy and the contributions to the single resolution fund) remained largely stable compared to 2015. Lower operating expenses in 2016 particularly result from reduced restructuring costs.

In the reporting period, risk-weighted assets decreased while liabilities (equity and other liabilities) remained unchanged.

Financial Results

Income metrics(in EUR million)	2016	2015	Change(%)	Q42016	Q42015	Change(%)
Net interest income	(5.9)	34.1	–	(7.8)	4.6	–
Net fee and commission income	2.1	2.7	(22.2)	(1.2)	6.3	–
Core revenues	(3.8)	36.8	–	(9.0)	10.9	–
Gains and losses on financial instruments	8.2	45.5	(82.0)	(23.6)	19.8	–
Other operating income and expenses	48.4	(2.5)	–	47.2	(8.7)	–
Operating income	52.8	79.8	(33.8)	14.6	22.0	(33.6)
Operating expenses	(35.4)	(42.1)	(15.9)	(13.2)	(17.9)	(26.3)
Regulatory charges	(31.4)	(30.5)	3.0	(6.3)	(7.3)	(13.7)
Total risk costs	(2.7)	(5.8)	(53.4)	(0.4)	(2.2)	(81.8)
Share of the profit or loss of associates accounted forusing the equity method	8.0	(0.5)	–	1.8	(3.5)	–
Profit/loss before tax	(8.7)	0.9	–	(3.5)	(8.9)	60.7
Income taxes	13.4	(24.1)	–	(0.1)	6.0	–
Non-controlling interests	(0.2)	0.0	(100)	0.0	0.0	–
Net profit/loss	4.5	(23.2)	–	(3.6)	(2.9)	(24.1)

Volumes(in EUR million)	2016	2015	Change(%)
Other assets	3,489	3,317	5.2
Risk-weighted assets	1,246	1,373	(9.2)
Equity	3,134	2,956	6.0
Other liabilities	2,748	2,625	4.7

BAWAG P.S.K. CONSOLIDATED ANNUAL REPORT 2014 RISK MANAGEMENT

With respect to the explanations on financial and legal risks at BAWAG P.S.K. as well as the goals and methods of risk

management, please refer to the information in the Notes section.

INTERNAL CONTROL AND RISK MANAGEMENT SYSTEM

INTRODUCTION

The designation "internal control system" refers to all processes designed by management and executed within the Bank to facilitate the monitoring and control of

• the effectiveness and efficiency of its operating activities (including protecting assets against losses resulting from damages or misconduct);
• the reliability of the financial reports; and
• the Bank's compliance with material legal regulations to which it is subject.

The risk management system covers all processes that serve to identify, analyze and measure risks and that serve to determine and implement appropriate measures that will ensure that the Bank can still reach its objectives when risks are incurred.

According to the internationally recognized COSO framework for the design of risk management systems, the internal control system is one part of an organization-wide risk management system. Other aspects include the management and monitoring of risks that can affect the correctness and reliability of the accounting records.

The Bank's management is responsible for the fundamental design, implementation and ongoing adaptation and refinement of the internal control and risk management system as well as for the alignment of these systems and processes with the existing requirements in a way that takes account of the Bank's strategy, the scope of its business and other relevant economic and organizational aspects.

CHARACTERISTICS OF THE INTERNAL CONTROL AND RISK MANAGEMENT SYSTEM

Control Environment

The Code of Conduct that has been adopted by the Bank and the fundamental values described in it apply to every employee of the Group. The Code of Conduct creates a climate rooted in focus on the customer, achievement, mutual respect, teamwork and trust.

The Accounting division is responsible for maintaining the Bank's and its subsidiaries' accounting records. Newly acquired subsidiaries still operate their own accounting departments, which work in close cooperation with the Accounting division. Consolidation into the Accounting division is envisaged in 2017. The primary responsibilities

of the Accounting division are preparing the annual and interim financial statements as well as the annual financial statements of certain subsidiaries, maintaining the financial and consolidated accounts, managing taxes and regulatory reporting.

The Accounting division is responsible for setting directives on all matters of accounting and exercises the authority to ensure the application of uniform standards across the entire Group. To support the operational implementation, corporate guidelines were drawn up. This policy applies to all consolidated subsidiaries. For all other holdings, the adherence to these principles and standards is enforced and implemented as far as possible.

Risk Assessment and Control Measures

Our internal control and risk management systems contain instructions and processes for the accounting workflows

• to ensure the correct and appropriate documentation of business activities, including the use of Group assets;
• to record all information required for the preparation of the period-end financial statements; and
• to prevent unauthorized purchases or sales that could have a material effect on the financial statements.

The Accounting division is integrated into the Bank's entire organizational, structural and operational workflows. Customer and transaction data is generally collected in the market and operating units, and supplementary information is entered by the risk units. The elements of this information that are needed for the accounting records are usually transferred automatically into the Bank's electronic accounting systems. In this, the Accounting division fulfills a control and monitoring function to ensure that the automatically transmitted data is handled properly in accordance with the applicable accounting rules, and also completes the various booking entry and other steps needed to prepare the financial statements.

The accounting of BAWAG P.S.K. and the significant domestic subsidiaries are contained in SAP New GL. The preparation of the consolidated financial statements under IFRS is done in SAP-ECCS, which receives the values of the individual financial statements of consolidated companies through interfaces. The accounting and all upstream

systems are protected by access permission and automatic and obligatory manual control steps provided for in the process.

Information and Communication

A comprehensive report about the balance sheet, the profit or loss statement and other financial and risk data is submitted to the Supervisory Board at least every quarter. Highly detailed reports about this information are also submitted to the Managing Board on a regular (monthly or more frequent) basis.

Monitoring

In order to limit or eliminate operational risks and control deficiencies, risk identification is performed annually through Risk Control Self Assessments (RCSA). If measures to minimize risk are agreed upon, they are tracked proactively by the Operational Risk and Internal Control System department with regard to implementation. Damage incidents are documented separately and are also used to identify necessary improvements in the systems and in the monitoring and control measures.

The Group's Internal Audit division conducts regular accounting system audits. The findings of these audits are also used to make ongoing improvements to the internal control and risk management systems as they pertain to the accounting process.

HUMAN RESOURCES DEVELOPMENT

TRAINING

In order to ensure that the right employees are working in the right positions while having a structured career path, the main training focus in 2016 was again set on career paths and human resource development. To this end, personnel development remained a key aspect and offers each employee the potential to advance in line with their individual focus, for example with the help of the "Retail Academy."

The "Retail Academy" consists of the "Retail Camp," which offers basic technical and sales training for new employees according to their sales functions, as well as advanced, role-specific training for more experienced employees. This training takes place primarily in the three training branches set up for this purpose (replicas of a real branch without customers) in Vienna, Graz and Salzburg. This enables the employees to practice their roles in a realistic setting. The training also includes various modern self-study programs. The success of this approach is evidenced by customer satisfaction surveys.

The Bank has also successfully trained apprentices for many years and has won numerous awards in the process, including for the best apprentice training program in Austria. The Bank takes its responsibility to offer young people worthwhile goals and prospects for the future very seriously. With its apprenticeship program, the Bank effectively meets this challenge and provides high-quality training aimed at enabling the apprentices to transition into a career at the Bank as qualified customer advisors at the end of their apprenticeship. The apprentices are part of a team working together to achieve the Bank's goals. The Bank also supports the "Lehre mit Matura" program, which many students have taken advantage of in recent years to earn a secondary school diploma while completing their apprenticeship.

The Bank is also committed to keeping its employees fit for the daily challenges they face at work. For this reason, all employees are able to choose from a variety of different courses and workshops from IT training to project management and from soft skills development to workshops about self, stress and time management.

LEADERSHIP DEVELOPMENT

Leadership is a constant development process. Accordingly, the leadership development program at BAWAG P.S.K. encompasses a wide range of offerings. The program focuses on a high level of practice-oriented learning, the targeted development of leadership skills, sharpening managers' self-reflection skills and employee guidance and development.

In retail sales, for example, the leadership development activities are based on a regular employee survey and a potential assessment that is supervised by external experts and aimed at identifying an individual's personal strengths and areas for development. On this basis, BAWAG P.S.K. offers a training program that addresses exactly the skills that are needed for leadership.

In 2016, the "LEAD neue Führungskräfte" leadership curriculum was once again held in the Bank's central units. The program provides support and guidance for new members of the management team during their first year in their new function. The 18th group started the program in late 2016.

Experienced leaders and management teams were again supported in 2016 through individual (management) coaching and targeted change management measures. The focus was on individual advice and optimal assistance for the managers (and their teams) from HR Development and selected consultants.

The "After Work Führungskräfte Forum" was continued in 2016. This initiative is a platform where the Bank's managers can learn about new developments in management and also exchange professional knowledge and experiences. The high interest in this event is a testament to its success.

TALENT DEVELOPMENT, SUCCESSION AND CAREER PLANNING

The talent identification and development process that was successfully started in 2014 to find and develop potential successors for key functions was continued in 2016 and completed in the third quarter with the "Talent Review." During this Managing Board meeting, all potential successors were discussed in a targeted manner and a coordinated plan of action was adopted for succession risks.

The sixth iteration of the "Start & Move" graduate program started in September 2016. This one-year program provides support for trainees who join the Bank. It offers a detailed overview of the organization and its processes and allows the new employees to build a solid network for the coming years.

In October 2016, the fifth run of the "forTalents" talent program for the Bank's central units started. As in the previous iterations of this program, participants are

supported in their development and groomed for new management and expert positions.

The "TOP-TEAM Vertrieb" talent program for recruiting branch managers for retail and corporate banking from the Bank's staff was conducted for the seventh time in 2016. The participants are all promising young employees with leadership potential who have been nominated as part of the succession planning process. They go through a challenging program of technical and personal development training to prepare them to manage a branch.

Since agreeing on a written women's promotion plan in 2012, Human Resources has worked consistently to achieve equality between women and men. A key aspect of this has been encouraging women to participate in personnel development programs. For example, seven of the 14 participants in the "forTalents" program in 2016 were women.

MBO PROCESS (MANAGEMENT BY OBJECTIVES)

For BAWAG P.S.K., the "Management by Objectives" (MbO) approach remains a key management tool for supporting the Bank's business strategy. With the start of the new cycle at year-end 2016, this process is again being supported by the "HR ONE" software, which serves as a performance management and learning platform. HR has combined the entire "MbO" process and the associated tracking tool, a virtual learning portal with competence

checks and e-learning programs, and the sales talent management process for retail sales (planned for 2017) on this platform. The range of self-study methods was also expanded with the addition of blended learning (where mixed classes with online units and physical attendance are offered and where a competence check must be completed to qualify for the seminar) and social learning, in which participants learn together and from one another.

CAREER AND FAMILY AUDIT

In 2013, BAWAG P.S.K. was audited and distinguished by the Ministry of Science, Research and Economy as a "family-friendly company." BAWAG P.S.K. is committed to enabling a good work-life balance. Following the expiration of the three-year basic certificate, BAWAG P.S.K. started the re-auditing process in summer 2016. This process was

successfully completed at year-end 2016. The seven new measures that were defined will be implemented by the end of 2019. In conjunction with the "berufundfamilie" career and family audit, BAWAG P.S.K. also joined the "Network of Family-Friendly Companies" in 2016.

CORPORATE SOCIAL RESPONSIBILITY

At BAWAG P.S.K., we strive to live up to our corporate social responsibility (CSR). It is important for companies to strike the right balance between economic, ecological and social objectives. With examples such as the "New Chance"

account, the continuation of the volunteer days and measures for promoting women, BAWAG P.S.K. again showed that sustainability is a cornerstone of the Bank's activities.

BAWAG P.S.K. IN THE COMMUNITY

Sponsoring is an essential part of BAWAG P.S.K.'s public relations efforts. These activities also allow the Bank to fulfill its social responsibility as a good corporate citizen. BAWAG P.S.K. is not only a "part of life," its initiatives also show that "it's possible" to combine the financial needs of our customers and a commitment to civic participation. The focus on the areas of culture, education, social services and crowdfunding (www.crowdfunding.at) sharpens the Bank's image and positively differentiates it from its competitors.

In 2016, BAWAG P.S.K.'s initiative "ES GEHT! / Crowdfunding" celebrated its second birthday. This initiative promotes and supports moral courage and shared commitment of people for a better Austrian society. BAWAG P.S.K. primarily supports projects recognizing social problems and having ideas to contribute to their solutions.

Additionally, every employee is eligible to spend up to two working days per year volunteering for charitable organizations and projects without having to use any of their entitlement to paid holiday leave. This actively promotes and rewards our employees' personal commitment and demonstrates its high value.

NEW CHANCE ACCOUNT

With the "New Chance" account, the Bank has been actively combating social exclusion since 2009. It is a current account without an overdraft facility, including online and mobile banking as well as a featured debit card that allows customers to use cash dispensers and point-ofsale terminals. As of December 2016, approximately 34,000 customers were already using this account.

PROMOTING WOMEN

With the women's promotion program introduced in 2012 and as a signatory of the UN Global Compact Women's Empowerment Principles (WEP), BAWAG P.S.K. has taken another important step towards ensuring equality between women and men. The program focuses on fostering awareness of the importance of equality of opportunity – combined with clearly defined goals:

• Financial equality between women and men for equal performance
• Increasing the number of women in leadership and expert positions
• Promoting a better balance between career and family for women and men, especially the provision of targeted information for employees before, during and after parental leave

BAWAG P.S.K. Women Mentoring Program

The BAWAG P.S.K. Women's Initiative together with Human Resources organizes a one-year women mentoring program for female employees, experts, and leaders of BAWAG P.S.K. Group interested in advancing their professional development and internal networks through a mentoring

relationship. Over the past three years, 49 female mentees have benefited from this program. Based on the large success, BAWAG P.S.K. extended the mentoring program in 2016. 10 new female mentees were provided with top managers from the business world to serve as external mentors.

**Fe-**male Future Day

In 2016, the BAWAG P.S.K. Women's Initiative hosted the "Fe-male Future Day" for employees, executives and external guests for the third time, discussing the "Fe-male Future of Digital Banking."

BAWAG P.S.K. Women's Prize

The EUR 3,000 BAWAG P.S.K. Women's Prize is awarded annually in cooperation with a public or charitable organization to recognize outstanding achievements by women or special commitment to furthering women in

society. With this award, BAWAG P.S.K. aims to motivate women and organizations to tackle challenging and innovative projects.

The prize is awarded to women who set an outstanding example for other women on the basis of their achievements and commitment, especially in the areas of:

• science, journalism and art,
• social commitment,
• intercultural understanding,
• promoting equality of opportunity between women and men, and
• creating awareness for the role of women in the professional world.

In 2016, the prize was awarded to Katharina Norden, founder and Managing Director of Three Coins to honor her special commitment to financial literacy. Three Coins is a team of pioneers developing new forms of teaching responsible money management.

RESEARCH AND DEVELOPMENT

BAWAG P.S.K. does not engage in any research and development activities pursuant to section 243 UGB.

OUTLOOK

The European banking landscape is currently undergoing a significant transformation and faces severe headwinds in the form of stagnant growth, low interest rates, increased regulatory costs, structurally inefficient business models and new market entrants in the form of Fintechs. We are ready to play a larger role in addressing these challenges and capitalizing on these unique opportunities.

We are confident that we have positioned BAWAG P.S.K. to successfully tackle these challenges in order to continue to grow while maintaining a low risk profile based on our strong capital and funding base.

Vienna, 3 March 2017

Byron Haynes CEO and Chairman of the Managing Board

Corey Pinkston Member of the Managing Board

Anas Abuzaakouk Member of the Managing Board

Sat Shah Member of the Managing Board

Stefan Barth Member of the Managing Board

Consolidated Financial Report

CONSOLIDATED FINANCIAL REPORT PREPARED IN ACCORDANCE WITH THE INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

CONTENTS

Consolidated Accounts

Profit or Loss Statement for the Financial Year 2016 Statement of Other Comprehensive Income for the Financial Year 2016 Statement of Financial Position as of 31 December 2016 Statements of Changes in Equity for the Financial Year 2016 Cash Flow Statement

Notes

Notes to the Consolidated Financial Statements

1 | Accounting policies

Details of the Consolidated Profit or Loss Statement

• 2 | Net interest income
• 3 | Net fee and commission income
• 4 | Gains and losses on financial assets and liabilities
• 5 | Other operating income and expenses
• 6 | Administrative expenses
• 7 | Depreciation and amortization on tangible and intangible non-current assets
• 8 | Risk costs
• 9 | Share of the profit or loss of associates accounted for using the equity method
• 10 | Income taxes

Details of the Consolidated Statement of Financial Position

11 | Cash reserves

• 12 | Financial assets designated at fair value through profit or loss
• 13 | Available-for-sale financial assets
• 14 | Held-to-maturity financial investments
• 15 | Financial assets held for trading
• 16 | Loans and receivables
• 17 | Receivables from customers and credit institutions
• 18 | Asset maturities
• 19 | Property, plant and equipment, Investment properties
• 20 | Goodwill, Brand name and customer relationships and Software and other intangible assets
• 21 | Net deferred tax assets and liabilities on Statement of Financial Position
• 22 | Other assets
• 23 | Financial liabilities designated at fair value through profit or loss
• 24 | Financial liabilities held for trading
• 25 | Financial liabilities measured at amortized cost
• 26 | Issued bonds, subordinated and supplementary capital
• 27 | Deposits from customers
• 28 | Liabilities maturities
• 29 | Provisions
• 30 | Other obligations
• 31 | Hedging derivatives
• 32 | Equity

Segment Reporting

Capital Management

Further Disclosures Required by IFRS

33 | Fair value

• 34 | Treatment of day one gain
• 35 | Receivables from and payables to subsidiaries and associates
• 36 | Related parties
• 37 | Major changes in the Group's holdings
• 38 | Assets pledged as collateral
• 39 | Total collateralized debt
• 40 | Genuine repurchase agreements
• 41 | Transferred assets that are not derecognized in their entirety
• 42 | Subordinated assets
• 43 | Offsetting financial assets and financial liabilities
• 44 | Contingent assets, contingent liabilities and unused lines of credit
• 45 | Foreign currency amounts
• 46 | Leasing
• 47 | Derivative financial transactions
• 48 | List of consolidated subsidiaries
• 49 | List of subsidiaries and associates not consolidated due to immateriality
• 50 | Involvement with associated companies
• 51 | Non-consolidated structured entities

Risk Report

52 | Internal Capital Adequacy Assessment Process (ICAAP) and Stress Testing

• 53 | Credit risk
• 54 | Market risk
• 55 | Liquidity risk
• 56 | Operational risk

Disclosures Required by Austrian Law

• 57 | Fiduciary assets
• 58 | Breakdown of securities pursuant to the Federal Banking Act (BWG)
• 59 | Collateral received
• 60 | Human resources
• 61 | Branches
• 62 | Trading book
• 63 | Geographical regions
• 64 | Other disclosures required by BWG and Austrian GAAP (UGB) including remuneration policy
• 65 | Own funds of BAWAG P.S.K. AG (individual financial institution)
• 66 | Date of release for publication
• 67 | Events after the reporting date

Statement of All Legal Representatives

Boards and Officers of BAWAG P.S.K. AG

CONSOLIDATED ACCOUNTS

PROFIT OR LOSS STATEMENT

in EUR million	[Notes]	2016	2015
Interest income		1,024.5	1,051.3
Interest expense		(297.8)	(339.2)
Dividend income		3.3	10.2
Net interest income	[2]	730.0	722.3
Fee and commission income		276.3	292.3
Fee and commission expense		(83.4)	(106.4)
Net fee and commission income	[3]	192.9	185.9
Gains and losses on financial assets and liabilities	[4]	19.1	76.9
Other operating income and expenses	[5]	4.7	(36.4)
Administrative expenses	[6]	(407.1)	(426.7)
Depreciation and amortization on tangible and intangible noncurrent assets	[7]	(30.7)	(32.6)
Risk costs	[8]	(42.7)	(45.8)
Share of the profit or loss of associates accounted for using theequity method	[9]	8.0	4.6
Profit before tax		474.2	448.2
Income taxes	[10]	(83.3)	(30.3)
Profit after tax		390.9	417.9
Thereof attributable to non-controlling interests		0.3	0.0
Thereof attributable to owners of the parent		390.6	417.9

In accordance with IFRS, the item Other operating income and expenses also includes regulatory charges. For further details please refer to Note 5. The item Administrative expenses includes regulatory charges in the amount of

EUR 2.3 million for 2016 as well. However, the Bank's management considers regulatory charges as a separate expense. Accordingly, they are shown in a separate expense line in the Group Management Report.

STATEMENT OF OTHER COMPREHENSIVE INCOME

in EUR million	2016	2015
Profit after tax	390.9	417.9
Other comprehensive income
Items that will not be reclassified to profit or loss
Actuarial gains (losses) on defined benefit plans	(1.9)	16.8
Income tax on items that will not be reclassified	0.5	(4.2)
Total items that will not be reclassified to profit or loss	(1.4)	12.6
Items that may be reclassified subsequently to profit or loss
Cash flow hedge reserve	8.4	–
Thereof transferred to profit (-) or loss (+)	(4.1)	–
Available-for-sale reserve	2.9	(92.5)
Thereof transferred to profit (-) or loss (+)	(15.9)	(61.2)
Share of other comprehensive income of associates accounted for using the equitymethod	(2.3)	2.2
Income tax relating to items that may be reclassified	(4.5)	24.4
Total items that may be reclassified subsequently to profit or loss	4.5	(65.9)
Other comprehensive income	3.1	(53.3)
Total comprehensive income, net of tax	394.0	364.6
Thereof attributable to non-controlling interests	0.3	–
Thereof attributable to owners of the parent	393.7	364.6

The increase of the Available-for-sale-reserve is mainly due to the valuation of securities partly compensated by the transfer to profit or loss due to sales of securities.

For further details, please refer to Note 32 Equity.

STATEMENT OF FINANCIAL POSITION

Total assets

in EUR million	[Notes]	31.12.2016	31.12.2015
Cash reserves	[11]	1,020	809
Financial assets designated at fair value through profit or loss	[12]	202	303
Available-for-sale financial assets	[13]	3,196	2,732
Held-to-maturity investments	[14]	2,353	2,290
Financial assets held for trading	[15]	652	950
Loans and receivables	[16]	30,825	27,396
Customers		28,500	24,713
Securities		692	973
Credit institutions		1,633	1,710
Hedging derivatives	[31]	677	469
Property, plant and equipment	[19]	53	59
Investment properties	[19]	3	4
Goodwill	[20]	1	1
Brand name and customer relationships	[20]	12	–
Software and other intangible assets	[20]	128	103
Tax assets for current taxes		5	9
Tax assets for deferred taxes	[21]	153	238
Associates recognized at equity	[50]	44	41
Other assets	[22]	132	102
Assets in disposal groups		–	9
Total assets		39,456	35,515

The line items Goodwill, Brand name and customer relationships, and Software and other intangible assets are shown under the line item Intangible non-current assets in Note 33.

Total liabilities and equity

in EUR million	[Notes]	31.12.2016	31.12.2015
Total liabilities
Financial liabilities designated at fair value through profit or loss	[23]	1,115	1,269
Financial liabilities held for trading	[24]	617	1,071
Financial liabilities at amortized cost	[25]	32,962	28,517
Customers		25,998	21,695
Issued bonds, subordinated and supplementary capital		4,900	3,236
Credit institutions		2,064	3,586
Financial liabilities associated with transferred assets	[40]	300	621
Valuation adjustment on interest rate risk hedged portfolios		223	169
Hedging derivatives	[31]	260	106
Provisions	[29]	404	419
Tax liabilities for current taxes		17	3
Tax liabilities for deferred taxes	[21]	29	3
Other obligations	[30]	681	577
Obligations in disposal groups		–	0
Total equity	[32]	2,848	2,760
Equity attributable to the owners of the parent		2,846	2,759
Non-controlling interests		2	1
Total liabilities and equity		39,456	35,515

STATEMENTS OF CHANGES IN EQUITY

in EUR million	Subscribedcapital	Capitalreserves	Retainedearningsreserve	AFS reservenet of tax	Cash flowhedge reservenet of tax	Actuarialgains/lossesnet of tax	Equityattributable tothe owners ofthe parent	Noncontrollinginterests	Equityincluding noncontrollinginterests
Balance as of 01.01.2015	250.0	1,636.3	496.5	107.0	–	(84.5)	2,405.3	–	2,405.3
Transactions with owners	–	8.0	–	–	–	–	8.0	–	8.0
Owner's contribution	–	8.0	–	–	–	–	8.0	–	8.0
Dividends	–	–	(19.0)	–	–	–	(19.0)	–	(19.0)
Change in scope of consolidation	–	–	–	–	–	–	–	1.4	1.4
Total comprehensive income	–	–	417.9	(65.9)	–	12.6	364.6	–	364.6
Balance as of 31.12.2015 =01.01.2016	250.0	1,644.3	895.4	41.1	0.0	(71.9)	2,758.9	1.4	2,760.3
Transactions with owners	–	–	–	–	–	–	–	–	–
Owner's contribution	–	–	–	–	–	–	–	–	–
Dividends	–	–	(306.0)	–	–	–	(306.0)	–	(306.0)
Change in scope of consolidation	–	–	–	(0.3)	–	–	(0.3)	–	(0.3)
Total comprehensive income	–	–	390.6	(1.8)	6.3	(1.4)	393.7	0.3	394.0
Balance as of 31.12.2016	250.0	1,644.3	979.9	39.0	6.3	(73.2)	2,846.3	1.6	2,847.9

For further details, please refer to Note 32 Equity.

CASH FLOW STATEMENT

in EUR million[Notes]	2016	2015
I. Profit (after tax, before non-controlling interests)Profit or loss statement	391	418
Non-cash items included in the profit (loss) andreconciliation to net cash from operating activities
Depreciation, amortization, impairment losses, write[7], [8]ups	44	68
Changes in provisions[29]	20	(89)
Changes in other non-cash items	(71)	40
Proceeds from the sale of financial investments,[4], [5]tangible non-current assets, intangible non-currentassets and subsidiaries	(33)	(135)
Share of profit of equity-accounted investees, net ofProfit or loss statementtax	(8)	(5)
Other adjustments (mainly received interest less paidinterest)	(780)	(661)
Subtotal	(437)	(364)
Change in assets and liabilities arising from operatingactivities after corrections for non-cash items
Loans and receivables to customers and creditinstitutions	219	(1,413)
Other financial assets (not including investingactivities)	189	403
Other assets	(16)	94
Deposits from customers and banks	(330)	1,750
Other financial liabilities (not including financingactivities)	723	(1,349)
Other obligations	4	(72)
Interest receipts	1,066	1,065
Dividend receiptsProfit or loss statement	3	10
Dividends from equity-accounted investees	3	3
Interest paid	(298)	(404)
II. Net cash from operating activities	1,126	(276)
Cash receipts from sales of
Financial assets	1,163	1,918
Property, plant and equipment and intangible noncurrent assets	2	24
Cash paid for
Financial assets	(1,694)	(1,129)
Property, plant and equipment and intangible non[19]current assets	(54)	(35)
Cash flow from the sale ofCash receipts from the sale of subsidiariessubsidiaries	91	105
Acquisition of subsidiaries, net of cash acquired[38]	(83)	(30)
III.Net cash used in investing activities	(575)	853
Dividends paidStatement of changes in equity	(306)	(19)
Issuance of subordinated liabilities (including thosedesignated at fair value through profit or loss)	–	2
Redemption of subordinated liabilities (including thosedesignated at fair value through profit or loss)	(34)	(435)

IV. Net cash from financing activities	(340)	(452)
Cash and cash equivalents at end of previous period	809	684
Net cash from operating activities	1,126	(276)
Net cash used in investing activities	(575)	853
Net cash from financing activities	(340)	(452)
Cash and cash equivalents at end of period	1,020	809

The Cash Flow Statement provides information about the current state and development of the Group's cash and cash equivalents as of the reporting date. It shows inflows and outflows of cash broken down by operational activities, investing activities and financing activities. The amount of

cash and cash equivalents reported comprises cash on hand and balances at central banks. The Cash Flow Statement is of low significance for BAWAG P.S.K. It is not a substitute for liquidity or financial planning and is not used as a management tool.

Cash flow from the sale of subsidiaries

In January 2016, BAWAG P.S.K. sold its shares in BAWAG Malta Bank Ltd. after having received all regulatory approvals.

The profit from the sale is shown in the line item Gains and losses on financial assets and liabilities.

in EUR million	2016
Sales proceeds	91
Assets sold	87
Financial assets	9
Other assets	78
Debts sold	–
Net assets sold	87
Profit from the sale	4
Sales proceeds	91
Cash and cash equivalents contained in the assets sold	–
Proceeds from the sale	91

NOTES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1 | Accounting policies

BAWAG P.S.K. Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse Aktiengesellschaft (BAWAG P.S.K. AG) is an Austrian bank, operating predominantly in Austria with additional activities in selected international markets. The registered office of the Bank is located at Georg-Coch-Platz 2, 1018 Vienna.

The consolidated financial statements were prepared applying section 59a BWG, according to Regulation (EC) No. 1606/2002 of the European Parliament and of the Council of 19 July 2002, and in accordance with the provisions of the standards (IFRS/IAS) published by the International Accounting Standards Board (IASB) and the interpretations by the IFRS Interpretations Committee (IFRIC/SIC) as applicable on the reporting date as adopted by the EU and therefore mandatory with respect to the consolidated financial statements as of 31 December 2016.

These consolidated financial statements for BAWAG P.S.K. according to IFRS are based on the individual annual financial statements for all fully consolidated Group companies according to IFRS as of 31 December 2016. All material associates are accounted for using the equity method.

The preparation of consolidated financial statements according to IFRS requires that assumptions and estimates be made about factors that have a material influence on the Group's business operations. These assumptions are regularly reviewed and adjusted whenever needed. Such adjustments are taken into account in the current period and also for future periods when the adjustment has longterm effects.

The recognition and measurement principles described below have been applied uniformly with respect to all of the financial years stated in these consolidated financial statements.

We have maintained the accounting and valuation methods that were applied in the consolidated financial statements as of 31 December 2015.

The reporting currency is euro. Unless indicated otherwise, all figures are rounded to millions of euros. The tables in this report may contain rounding differences.

All monetary figures in foreign currencies are translated at the middle exchange rate on the reporting date.

Scope of Consolidation and Consolidation Principles

The scope of consolidation includes all direct and indirect material equity investments of BAWAG P.S.K.

As of 31 December 2016, the consolidated financial statements included 34 (2015: 31) fully consolidated companies and 2 (2015: 2) companies that are accounted for using the equity method. In the interest of materiality, the criteria for inclusion are both the amount of an entity's assets and its relative contribution to the Group's consolidated profit. All non-consolidated subsidiaries had only a minor influence on the Group's assets, financial position and the results of its operations. Note 48 List of consolidated subsidiaries contains a list of all fully consolidated subsidiaries and associates accounted for using the equity method.

The carrying amount of the associates that are not accounted for using the equity method totaled EUR 19 million (2015: EUR 19 million) on 31 December 2016. Controlled companies with a carrying amount of EUR 22 million (2015: EUR 22 million) were not consolidated because they did not have a material effect on the Group's assets, financial position or the results of its operations.

Further details on the scope of consolidation and major changes in the Group's holdings can be found in Notes 48 and 49.

The acquisition method according to IFRS 3 is used for capital consolidation. Under this method, the acquisition costs for the entity in question must be compared with the value of the net assets at the time of acquisition. The value of the net assets is the fair value of all identifiable assets, liabilities and contingent liabilities assumed at the time of acquisition.

All intragroup receivables and payables, expenses, and income and intragroup profits are eliminated unless they are insignificant.

Capitalized goodwill in the amount of EUR 1 million (2015: EUR 1 million) is recognized under Goodwill on the Statement of Financial Position. In accordance with IFRS 3 in conjunction with IAS 36 and IAS 38, the recognized goodwill of all cash generating units (CGUs) is subject to annual impairment testing in accordance with IAS 36.

Also, all equity investments were tested for indicators for a sustained or material impairment. Impairment tests were carried out if necessary due to the indicators.

All non-consolidated equity instruments are measured according to IAS 39 and categorized as available-for-sale financial assets.

Financial Instruments

Financial instruments are recognized on the date of transaction. The assessment of an "active market" of a given security is derived from a set of defined criteria. Additionally, minimum requirements (e.g. issuance size, exchange listing, etc.) apply. BAWAG P.S.K. uses market data (e.g. quoted volumes, frequency of quotes) to determine the liquidity and market depth of securities.

a) Held-to-Maturity Investments

This category includes all financial instruments with fixed or determinable payments and fixed maturity that are intended to be held to maturity. If securities are assigned to this category, BAWAG P.S.K. has the positive intention and the ability to hold the instruments to maturity.

Held-to-maturity investments are carried at amortized cost. If at the end of a reporting period there is objective evidence for impairment, the recoverable amount is calculated and an impairment is recognized if this amount is lower than the carrying amount. The recoverable amount is calculated by discounting the expected future cash flows with the original effective interest rate of the financial instrument. If this impairment decreases in subsequent

periods, a write-up is recognized up to the amortized cost valid at that time.

Premiums and discounts on securities classified as held-tomaturity investments are recognized pro rata temporis via the effective interest rate. Expenses and revenues were set off against interest income from the same securities.

b) Financial Assets and Liabilities Recognized at Fair Value through Profit or Loss

Held for trading

This category covers financial assets and liabilities held for trading purposes. These financial instruments are recognized at their fair value. All derivatives in the trading and banking book that are not part of a hedging transaction are assigned to this category. Financial liabilities include liabilities from derivative transactions, short positions and repurchase agreements.

Financial assets and liabilities designated at fair value through profit or loss

Certain financial assets and liabilities that do not meet the definition of trading assets and liabilities are designated at fair value through profit or loss using the fair value option. BAWAG P.S.K. exercised the fair value option in the following cases:

• To avoid an accounting mismatch
  • For fixed-income own issues, securities and loans whose fair value on the date of acquisition has been hedged with interest rate derivatives;
  • Investment products whose fair value changes have been hedged with derivatives
• Management on a fair value basis
• Certain securities and loans are managed on a fair value basis by the Strategic Asset Liability Committee, which also decides on the extent of the open interest rate risk exposures. The Managing Board is informed about these positions regularly.
• Presence of embedded derivatives
• Structured financial instruments with embedded derivatives

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c) Loans and Receivables

Loans and Receivables are measured on the Statement of Financial Position at amortized cost inclusive of deferred interest following deduction of impairment allowances.

Premiums and discounts are recognized pro rata temporis via the effective interest rate. Expenses and revenues were set off against interest income from the same loan.

Processing fees are deferred over the term of the loan and recognized in the net interest income after deducting the directly attributable costs.

Please see the Loan Loss Provisions section for information about the formation of provisions.

d) Available-for-Sale Financial Assets

This category covers financial assets which are not classified as

• Loans and receivables;
• Held-to-maturity investments; or
• Financial assets recognized at fair value through profit or loss.

In addition to the securities that BAWAG P.S.K. has assigned to the category Available-for-sale financial assets, this item also includes shares in non-consolidated subsidiaries.

The Available-for-sale financial assets are measured at fair value. Changes in fair value are recognized in other comprehensive income (AFS reserve) until the asset is sold, repaid or impaired. Impairments are recognized in the Profit or Loss Statement under Risk costs – Impairment provisions for financial assets. BAWAG P.S.K. continuously compares the redemption amount with the carrying amount of the available-for-sale financial assets to detect any possible impairments. Potential impairments are reviewed

and – in case of materiality – approved by the responsible Risk Division. When the reasons for the impairment of a debt instrument no longer apply, these impairments are reversed through profit or loss up to the amount of amortized cost. Any reversal of impairment for equity instruments recognized at fair value is recognized directly in other comprehensive income.

If a fair value for unlisted equity instruments cannot be measured reliably, it is measured at cost less necessary impairments. Impairments are not reversed.

Debt instruments are reviewed individually for impairment if objective indications of a loss (such as delayed payment) are incurred after the date of initial recognition that would lead to a reduction in the cash flow arising from them. An impairment exists when the net present value of the expected cash flows is lower than the carrying value of the financial instrument concerned.

Equity instruments are written down if their fair value is either significantly lower (more than 20%) than their historic cost or has been below historic cost for a considerable period (at least nine months). All not publicly traded equity investments are tested for impairment according to IAS 39.66, provided that a preliminary examination has not ruled out impairment indicators.

Premiums and discounts are recognized pro rata temporis via the effective interest rate. Expenses and revenues were set off against interest income from the same securities.

e) Financial Liabilities

In accordance with IAS 39, financial liabilities

• not held for trading or
• designated as Financial liabilities at fair value through profit or loss

are measured at amortized cost.

Reclassifications

Reclassification of Financial Assets into the Category Loans and Receivables

Financial assets can be reclassified from the category available-for-sale to the category of loans and receivables when

• the financial asset meets the requirements for inclusion in the category loans and receivables according to IAS 39 on the date of reclassification and on the date of initial recognition; and
• the entity has the ability and the management has the intention on the reclassification date to hold the reclassified assets for the foreseeable future.

Financial assets are reclassified at their fair value on the reclassification date. The fair value of the financial instrument on the reclassification date is the new amortized cost of the instrument. The expected cash flows of the financial instrument are estimated on the reclassification date, and these estimates are used to calculate the new effective interest rate of the instrument. If the expected future cash flows of the reclassified instrument increase at a later date as a result of a value improvement, the effect of this increase is accounted for by adjusting the effective interest rate and not by adjusting the carrying amount of the instrument at the time that the estimates change. In the event of a subsequent decrease in the expected future cash flows, the instrument is subjected to an impairment test and measured in accordance with the measurement rules for the category loans and receivables.

When available-for-sale assets are reclassified into loans and receivables, the unrealized profit or loss that has been recognized in Other comprehensive income is distributed over the remaining term of the instrument and recognized as interest income or interest expense. Should the instrument be discovered to be impaired at a later date, the unrealized loss of the instrument that is recognized in Other comprehensive income as of that date is recognized immediately in the Profit or Loss Statement under Risk costs – Impairment provisions for financial assets.

Details are presented in Note 16.

Reclassification of Financial Assets into the Category Held-to-Maturity Investments

Financial assets can be reclassified from the category available-for-sale to the category of held-to-maturity investments when the entity has the ability and the management has the intention on the reclassification date to hold the reclassified assets until maturity.

In addition, available-for-sale financial assets may be reclassified to held-to-maturity investments after the expiration of the two-year retention period that is required if more than an insignificant portion of the held-to-maturity investments is sold or reclassified.

Financial assets are reclassified at their fair value on the reclassification date. The fair value of the financial instrument on the reclassification date is the new amortized cost of the instrument. The expected cash flows of the financial instrument are estimated on the reclassification date, and these estimates are used to calculate the new effective interest rate of the instrument. If the expected future cash flows of the reclassified instrument increase at a later date as a result of a value improvement, the effect of this increase is accounted for by adjusting the effective interest rate and not by adjusting the carrying amount of the instrument at the time that the estimates change. In the event of a subsequent decrease in the expected future cash flows, the instrument is subjected to an impairment test and measured in accordance with the measurement rules for the category held-to-maturity investments.

When available-for-sale assets are reclassified into held-tomaturity investments, the unrealized profit or loss that has been recognized in Other comprehensive income is distributed over the remaining term of the instrument and recognized as interest income or interest expense. Should the instrument be discovered to be impaired at a later date, the unrealized loss of the instrument that is recognized in Other comprehensive income as of that date is recognized immediately in the Profit or Loss Statement under Risk costs – Impairment provisions for financial assets.

Reclassification of Financial Assets into the Category Available-for-Sale

IAS 39 and its interpretations state that financial instruments that are classified as loans and receivables can be reclassified as available-for-sale assets when the financial instrument subsequent to its initial classification becomes traded in an active market and therefore the definition of loans and receivables is no longer met.

When an asset is reclassified as available-for-sale, it must be remeasured at its fair value, and any difference between its carrying amount and its fair value must be recognized in Other comprehensive income (AFS reserve).

Hedge Accounting

In line with general regulations, derivatives are classified as financial assets held for trading or financial liabilities held for trading and are recognized at fair value. The valuation result is shown in the line item Gains and losses on financial assets and liabilities as gains (losses) on financial assets and liabilities held for trading. If derivatives are used to hedge risks of non-trading transactions, BAWAG P.S.K. applies hedge accounting if the conditions according to IAS 39 are met.

At inception of the hedge relationship, the relationship between the hedging instrument and the hedged item, the risk management objectives and the method used for assessing hedge effectiveness are documented. Furthermore, BAWAG P.S.K. documents at the inception of the hedge and on each reporting date whether the hedge is highly effective in offsetting changes in fair values of the hedged item and the hedging instrument attributable to the hedged risk.

BAWAG P.S.K. uses fair value hedge accounting for effective hedging relationships that reduce market risk.

Micro Fair Value Hedge

In a micro fair value hedge, a financial asset or financial liability or a group of similar financial assets or financial

liabilities is hedged against changes in its fair value. Changes in the value of the hedged item and the hedging instrument are recognized in the Profit or Loss Statement in the line item Gains and losses on financial assets and liabilities in the same period.

As soon as the hedging instrument is sold, exercised or comes due, or when the eligibility requirements for hedge accounting are no longer met, the hedging relationship is no longer recognized on the Statement of Financial Position.

Any accumulated changes in the value of the former hedged item during the existence of the hedge relationship are recognized through profit or loss distributed over the remainder of the term.

For other types of fair value adjustments and whenever a fair value hedged asset or liability is sold or otherwise derecognized, any basis adjustments are included in the calculation of the gain or loss on derecognition.

Portfolio Fair Value Hedge

BAWAG P.S.K. applies fair value hedge accounting for a portfolio hedge of interest rate risk. In its accounts, the Bank has identified sight deposits in Euros as a portfolio that is to be protected against interest rate risks. These are divided into time buckets in accordance with the expected repayment and interest rate adjustment dates. BAWAG P.S.K. determines an amount of liabilities from the identified portfolio that corresponds to the amount to be hedged as the underlying for the portfolio fair value hedge. Additions and withdrawals are initially allocated to the nondesignated portion of the identified portfolio using the bottom layer approach. For this, BAWAG P.S.K. applies the EU carve-out for IAS 39, which allows sight deposits and similar instruments to be designated as part of a hedging relationship on the basis of the expected withdrawal and due dates. The EU carve-out for IAS 39 also allows the application of the bottom layer approach.

On the balance sheet, the changes in the value of the underlying transactions that can be attributed to the hedged risk are reported under the separate line item Valuation adjustment on interest rate risk hedged portfolios. Changes in the value of the underlying and the hedging transaction are reported on the income statement in the same period under Gains and losses on financial assets and liabilities.

Cash Flow Hedge

Since January 2016, BAWAG P.S.K. has applied cash flow hedge accounting according to IAS 39 for highly probable future cash flows from certain foreign currency portfolios.

The Bank has identified future spread income from GBP and USD assets as underlyings that are to be protected against changes in variability in cash flows from foreign currency rates.

IAS 39 allows parts of highly probable future cash flows to be designated as a hedged item subject to cash flow hedge accounting. In each case, BAWAG P.S.K. designates the first cash flows for a defined period of time as a hedged item.

In other operating income, the changes in the value of the hedging instruments that can be attributed to the hedged risk are reported under Cash flow hedge reserve. Therefore, in 2016 fair value gains in the amount of EUR 8.4 million would have been presented in the line item Gains and losses on financial instruments in the income statement if BAWAG P.S.K. had not applied cash flow hedge accounting.

Loan Loss Provisions

At each reporting date, the Group assesses whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or group of financial assets is impaired and impairment losses are incurred if:

• there is objective evidence of impairment as a result of a loss event that occurred after the initial recognition of the asset and up to the reporting date ("a loss event");
• the loss event had an impact on the estimated future cash flows of the financial asset or the group of financial assets and
• a reliable estimate of the loss amount can be made.

The loan loss provisions cover provisions for loan defaults or counterparty risks and are formed as individual and general provisions on the basis of past experience. The loan loss provisions from lending are netted off against the corresponding receivables on the Statement of Financial Position. Provisions for off-balance-sheet loans are reported as provisions.

To allow management to determine whether a loss event has occurred on an individual basis, all significant counterparty relationships are reviewed periodically. This evaluation considers current information and events related to the counterparty, such as the counterparty experiencing significant financial difficulty or a breach of contract, for example, default or delinquency in interest or principal payments.

The loan loss provision for significant individual counterparty risks is based on expected future recoveries in accordance with the risk analysts' estimates. Provisions for counterparty risks that were not individually significant were accounted for generally, on a percentage basis, with regard to the amounts overdue and based on our historical loss experience.

The approval procedures for impairments and debt waivers are described in the handbook on competencies and authorizations. Receivables are written off in coordination with the respective divisions when all attempts to collect the debt have failed or when there is no intention to actively continue the collection process.

A loan loss provision is accounted for on a portfolio basis in accordance with IAS 39.AG89 for losses incurred but not reported as of the reporting date. The portfolio loan loss provision is recognized for on- and off-balance-sheet receivables of the Group's loan portfolio including securities but excluding items recognized at fair value. For loans backed by a repayment vehicle, which mainly include loans in foreign currencies, a provision based on funding gaps is considered as well. The amount of the IBNR is calculated on the basis of the regulatory Expected Loss Model. The actual loss that has been incurred is extrapolated from the expected loss, taking into account the duration from occurrence to detection of the loss (the loss identification period – LIP). For this reason, financial assets are grouped on the basis of similar credit risk characteristics (IAS 39.AG87). The classification is based on the categories of claims against Banks, Corporates, Sovereigns and Retail. LIP is calculated for each segment and is based on the average time until identification of the 90 days overdue status based on expected cash inflows according to the repayment plans. LIP is calculated as the exposureweighted average in months. Depending on the risk monitoring process, a shorter LIP than calculated based on expected cash flows is anticipated.

Financial Guarantees

Financial guarantees are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of a debt instrument.

In the ordinary course of business, BAWAG P.S.K. provides financial guarantees, consisting of various types of letters of credit and guarantees. Financial guarantees are initially measured at fair value. Subsequent to initial recognition, the financial guarantee contract is reviewed in order to determine whether a provision according to IAS 37 is required.

If BAWAG P.S.K. is a guarantee holder, the financial guarantee is not recorded in the balance sheet but is taken into consideration as collateral when determining impairment of the guaranteed asset.

Methods for Determining the Fair Value of Financial Instruments

Derivatives

To measure exchange-traded instruments such as futures and options on futures, exchange prices are used. Details are presented in Note 33. Some basic information is presented here:

The basic valuation model used for plain vanilla OTC options is the Black-Scholes option price model, which varies according to the underlying instruments and hedged items. Currency options are measured using the Garman-Kohlhagen model, and interest rate options using the Black, Hull-White or Bachelier (in case of negative interest rates for caps, floors and swaptions) model.

For positions in the trading book, the closing costs of the positions (bid/ask spreads) on a net basis are calculated and booked on a regular basis.

The total value of an interest rate swap is derived from the present values of its fixed and variable rate legs. Similarly, the total value of a cross currency swap is derived from the present values of the two cash flows expressed in terms of the functional currency of the Group entity.

In the case of foreign currency forwards and futures, the agreed forward rate, which depends on movements in exchange and interest rates for both currencies, is compared with the forward rate on the reporting date and the result is used to calculate the instrument's value.

Credit default swaps (CDS) are calculated with the Duffie-Singleton model. Based on the credit spread curve, the default probability curve (hazard rate) is calculated, which is used to generate the protection leg. Hence, the total value of a CDS is the sum of the protection and premium leg.

BAWAG P.S.K. determines a credit (CVA) or debt value adjustment (DVA) for the credit risk of OTC derivatives. If available, liquid credit default swap (CDS) spreads are generally used to determine the probability of default (PD) and the recovery rate (REC). If this is not possible, equivalent segments of the CDS market are used.

For the counterparties, a market value + add-on model is used to determine the EPE/ENE (Expected Positive/Negative Exposure). The add-on is calculated separately for each transaction type and currency and is generally derived from observable parameters on the market.

If a netting agreement is in force, netting effects at the customer level within transactions of the same kind and currency are also taken into account.

The CVA is determined from the discount rates, the counterparty PD and loss rate (1-REC) as well as the EPE. The DVA is determined from BAWAG P.S.K.'s PD and loss rate as well as the ENE.

If the risk discount rate cannot be derived from market transactions, it is estimated by the management. This applies especially to non-payment risks arising from legal uncertainty that cannot be derived from the customer's general credit spread. Provided that BAWAG P.S.K. believes that the transaction is legally enforceable, the Bank still reports an asset in the amount of the positive fair value of the transaction with the counterparty even if objections have been lodged.

To value financial assets whose parameters cannot be derived from market transactions, the expected cash flow (including interest on arrears, if contractually agreed) is discounted on the day of valuation and weighted according to the probability of its occurrence. If the legal validity or enforceability of the claim is contested on the basis of possible grounds for annulment or an appeal, these legal considerations are taken into account in the valuation.

In the case of the close-out of a derivative transaction with a customer, the type of claim changes for BAWAG P.S.K. Before the contract is terminated, the asset is a derivative, while after the contract is closed out, the asset is a contractual claim whose value no longer changes depending on market parameters. For this reason, the claim no longer satisfies the definition of a derivative according to IAS 39.9.

In the event of the early termination of a derivative transaction, the variability of the payment flows in terms of amount and time of occurrence are materially changed by the close-out, and the original derivative is replaced with a new asset. This new asset is recognized at its fair value according to IAS 39.43. The fair value corresponds to the carrying amount of the derivative at the time that the agreement is terminated, including any valuation adjustments applied up to the time of termination. A claim arising from the termination of the agreement meets the criteria in IAS 39.9 for categorization under loans and receivables.

This approach was chosen following IAS 39.40 and IAS 39.21, since IAS 39 contains no explicit rules for when a financial instrument first fulfills the characteristics of a derivative and then no longer exhibits these characteristics at a later time. According to IAS 8.10 to 8.12, such gaps in the standards must be closed by applying a similar provision in the IFRS and taking the framework into account.

The method described above was especially important in the transaction with the City of Linz in 2011.

Credit-Linked Notes

For credit-linked notes where no active markets exist, fair values are determined by applying a valuation model. Credit-linked notes (CLNs) are bonds with an embedded credit default swap (CDS) allowing the issuer to transfer a specific credit risk to investors. The valuation model for CLNs uses bond or CDS spreads of the issuer and the reference entity, as well as coupon and maturity.

Valuations by outside experts are also used when measuring complex structures. Appropriate tests and verifications are carried out.

Measurement for Asset-Based Investments

As of 31 December 2016 and 31 December 2015, there is no CLO portfolio.

Transfers of Financial Instruments

Financial assets are derecognized as soon as the Group is no longer entitled to receive the financial rewards from the instruments. As a rule, this occurs when the rights and obligations of the financial instruments pass to a third party by exercise, sale or assignment or if the Group has lost its right of disposal or the rights have lapsed.

When financial assets are transferred and BAWAG P.S.K. has significant continuing rights and obligations under them, such assets are still reported on the Consolidated Statement of Financial Position.

A financial liability is derecognized when the obligation under the liability is discharged or cancelled.

Repurchase agreements, also known as "repos" or "sale and repurchase agreements," are contracts under which financial assets are transferred to a transferee (lender) in return for a cash payment while also specifying that the financial assets must later be transferred back to the transferor (borrower) for an amount of money agreed in advance. The financial assets transferred out by BAWAG P.S.K. Group under repurchase agreements remain on the Group's Statement of Financial Position and are measured according to the rules applicable to the respective Statement of Financial Position item. The liabilities resulting from cash received under repo arrangements are recorded, depending on the purpose of the contract, within liabilities held for trading or financial liabilities associated with transferred assets.

Conversely, under agreements to resell, known as "reverse repos," financial assets are acquired for a consideration while at the same time committing to their future resale. Cash outflows under reverse repos are recorded within trading assets.

In securities lending transactions, the lender transfers ownership of securities to the borrower on the condition that the borrower will retransfer, at the end of the agreed loan term, ownership of instruments of the same type, quality and quantity and will pay a fee determined by the duration of the loan. Securities lent to counterparties are accounted for in the same way as repos: They are retained in the Group's financial statements and are measured in accordance with IAS 39. Securities lending and borrowing transactions are generally collateralized. Collateral

furnished by the securities borrower continues to be recorded in the borrower's financial statements.

Intangible Non-Current Assets, Property, Plant and Equipment

Intangible non-current assets consist mainly of acquired goodwill and related intangible assets such as brand name and customer relationships as well as other acquired and self-developed intangible assets (in particular software) and projects recognized in accordance with IAS 38.

Intangible non-current assets with an indefinite useful life are recognized at cost less impairments. Intangible assets and property, plant and equipment with limited useful lives are recognized at cost less straight-line amortization or depreciation and impairments. Buildings are depreciated at an annual rate of between 2% and 2.5%, while other furniture and equipment are depreciated at annual rates between 5% and 33.3%. Purchased and self-produced software, and other intangible assets and rights (other than goodwill and brand name) are amortized at annual rates between 4.63% and 33.3%. Customer relationships are amortized over approximately 33 years (2015: 33 years) using a linear amortization rate. The amortization method and period are reviewed annually according to IAS 38. For details, please refer to Note 20.

When circumstances change, the useful life is adjusted considering the remaining economic life.

Investment Properties

Investment properties include the real estate that meets the criteria for designation as investment property within the meaning of IAS 40.5. These properties are primarily held to earn rentals. To a limited degree, the Bank also uses some of these properties itself. However, because these portions cannot be sold separately and are insignificant for the purposes of IAS 40.10, the entirety of such properties is included in Investment properties.

Land and buildings held for investment purposes (investment property) are measured at cost less straightline depreciation for buildings and less impairments (IAS 40). Depreciation ranges between 2% and 2.5% per year. In addition to reviewing the method of depreciation and useful lives, impairment tests are also performed as of each reporting date.

Impairment Testing

In accordance with IFRS 3 in conjunction with IAS 36 and IAS 38, the recognized goodwill of all cash generating units (CGUs) is subject to annual impairment testing in accordance with IAS 36. All not publicly traded equity investments were tested for impairment according to IAS 39.66, provided that a preliminary examination did not rule out impairment indicators.

To determine the value in use of the CGU, the present value of the projected pre-tax profits reduced by the nominal tax rate was calculated by using the risk-weighted pre-tax discount rate in the market applicable to the CGU in question. The pre-tax discount rate was derived from the planned pre-tax profits and the above-mentioned valuation result, and served as a target value.

To determine the value in use of the single entity, the present value of the projected after-tax profits was calculated by using the risk-weighted after-tax discount rate in the market applicable to the single entity in question.

As a rule, the planning horizon used for valuation purposes is five years. The long-term growth rates used in the calculation are 1.0%, applying the going concern principle.

The pre-tax discount rate is composed of the risk-free rate, the local market risk premium and the beta factor. As of 31 December 2016, the following parameters are used:

The risk-free rate (1.04%) is the 30-year spot rate calculated in accordance with the Svensson method, based on the parameters published by Deutsche Bundesbank.

• The source for the country-specific market risk premium (6.88% for Austria) is the website Damodaran in conjunction with the recommendation of the Austrian Chamber of Chartered Public Accountants and Tax Consultants, whose working group "Business Valuation" sets a range from 5.5% to 7%. A market risk premium of 6.88% was chosen for Austria.
• The applied beta factor for banks and financial service companies (0.93) is the two-year weekly average beta of ten banks listed on European stock exchanges with retail as their core business. Bloomberg serves as the relevant source. Banks with an R² (coefficient of determination) of at least 0.15 qualify for the peer group. The applied beta factor for non-banks is 1.0, which represents a specific parameter and no general market risk.

Based on the aforementioned assumptions, the value in use of the CGU or equity investment was calculated for the year under review in accordance with IAS 36. Value in use represents the present value of the estimated future cash flows expected from a cash generating unit or a single entity.

The Bank's interest in BAWAG P.S.K. Versicherung Aktiengesellschaft is assessed using the embedded value and an estimation of the future value.

In addition, intangible and tangible assets are tested at the reporting date to determine whether or not there is evidence that they are impaired. If there is evidence for impairment, the recoverable amount is calculated for the asset. This is the higher of the value in use or the net selling price. If the recoverable amount is lower than the carrying amount, an impairment loss in the amount of the difference is recognized according to IAS 36. As of 31 December 2016, no impairments of intangible and tangible assets were accounted for.

In the case of real estate companies and own real estate, current estimated market values of the properties are taken into account. External appraisals are renewed every three years at the latest.

Leasing

A lease is classified as a finance lease if it substantially transfers all the risks and rewards incidental to ownership to the lessee. By contrast, leases that do not substantially transfer all of the risks and rewards to the lessee are classified as operating leases.

BAWAG P.S.K. as Lessor

For finance leases, the rights of claims against the lessee are recognized in the amount of the present value of the contractually agreed payments, taking any residual value into account.

By contrast, operating leases in which BAWAG P.S.K. retains all risks and rewards incidental to ownership of the leased asset are reported under tangible non-current assets. Each leased asset is depreciated as appropriate.

Lease payments received for operating leases and interest payments for finance leases are recognized in the Profit or Loss Statement.

BAWAG P.S.K. as Lessee

Expenditure on operating leases is recorded on a straightline basis over the life of the lease agreement and reported under operating expenses.

Finance leases where BAWAG P.S.K. is a lessee are of minor significance.

Income Taxes and Deferred Taxes

According to IAS 12, income taxes must be computed and reported using the liability method. The computation is based on the local tax rates that are legally binding at the time the consolidated financial statements are prepared.

Deferred tax assets and liabilities result from different methods used to measure assets and obligations on the Statement of Financial Position under IFRS and the respective tax code. This generally leads to positive or negative differences in the income tax to be paid for future periods (temporary differences). A deferred tax asset is recognized for the carryforward of unused tax losses when it is probable that future taxable profit will be generated by the same taxable unit. Deferred tax assets and liabilities are not discounted.

Tax expenses allocable to the taxable profit were recognized in the Profit or Loss Statement under Income taxes and broken down into current and deferred income taxes. Other taxes that are not attributable to profit are recognized under Other operating income and expenses.

According to IAS 12.34, a deferred tax asset is recognized for tax loss carryforwards if it is probable that future taxable profit will be available against which the unused tax losses can be utilized. As of 31 December 2016, unused tax losses amounted to EUR 594 million (2015: EUR 868 million) at the level of BAWAG P.S.K., EUR 0 million (2015: EUR 0 million) at the level of members of the tax group included in the consolidated financial statements and EUR 5 million (2015: EUR 66 million) at the level of other companies included in the consolidated financial statements, hence a total of EUR 599 million (2015: EUR 934 million). BAWAG Holding GmbH is the head of the tax group but is not included in the BAWAG P.S.K. Group presented in this Consolidated Annual Report.

The utilizability of unused tax losses and deferred tax assets by BAWAG P.S.K. was tested on the basis of the Group's long-term plan (planning period: five years). The expected utilization of unused tax losses is projected to amount to EUR 599 million (2015: EUR 868 million). In total, deferred tax assets for tax loss carryforwards in the amount of approximately EUR 150 million (2015: EUR 217 million) are recognized within BAWAG P.S.K. Group. If the forecasted taxable results varied by 10% compared to management estimations, deferred tax assets would remain unchanged (2015: would remain unchanged) if results improve and would remain unchanged (2015: would remain unchanged) if forecasted results turn out to be lower than expected.

A tax group pursuant to section 9 KStG was parented by BAWAG Holding GmbH in the financial year. On 31 December 2016, the tax group consisted of the group parent and 21 domestic members, both consolidated and non-consolidated in these financial statements (previous year: 19 members). A tax collection agreement was concluded. The allocation method was chosen for determining the tax allocations. This method is based on the tax result of the group as a whole. The payable tax is allocated to each group member with a positive tax result on the basis of its proportionate share of the group's tax result. An internal tax loss carryforward is taken into account for tax losses allocated to the group parent. If the head of the tax group has to pay a minimum corporate tax, the head of the tax group is able to burden the members of the tax group with a proportion of the minimum corporate tax following the principle of tax causation.

In the financial year 2014, a settlement agreement to the group and tax compensation agreement was concluded between the group parent and each tax group member. This agreement stipulated that an interim settlement of the tax equalization is to be made for the financial years 2010 to 2014, with all tax contributions of these financial years being regarded as offset.

In the financial year 2016, no tax allocations were allocated to members of the tax group included in the consolidated financial statements due to a negative taxable group result (2015: EUR 3 million).

A final settlement for uncredited tax losses must be effected upon dissolution of the tax group or when a member entity leaves the group. As of 31 December 2016, the exit of BAWAG P.S.K. from the tax group and the exit of all other group members, with the exception of the new members in 2015 and 2016, would not result in a corporate income tax back payment as of 31 December 2016 because the minimum period of three years as required by section 9 paragraph 10 KStG was already fulfilled. The new group members who entered the tax group in 2015 and 2016 would incur a corporate income tax back payment in the amount of EUR 5 million (2015: EUR 0 million).

Provisions for Employee Benefits

According to IAS 19, provisions for post-employment and termination benefits and for jubilee benefits are calculated using the projected unit credit method.

The present values of obligations outstanding as of the measurement date are calculated on the basis of actuarial assumptions applying an appropriate discount rate and taking into account the expected rates of increase in salaries and post-employment benefits. They are recognized as a provision in the Consolidated Statement of Financial Position. Actuarial gains and losses relating to provisions for post-employment and termination benefits are recognized in full in the year in which they are incurred in other comprehensive income.

The principal parameters underlying the actuarial calculations are:

Parameters for post-employment pension obligations

	2016	2015
Interest rate	1.75% p.a.	2.05% p.a.
Wage growth	1.50% p.a.	1.75% p.a.
Fluctuation discount	0%−3.74% p.a.	0%−3.22% p.a.

Parameters for severance payments and anniversary bonuses

	2016	2015
Interest rate	1.75% p.a.	2.05% p.a.
Wage growth severance payments	3.10% p.a.	3.10% p.a.
Wage growth anniversary bonuses	2.80% p.a.	2.80% p.a.
Fluctuation discount severance payments	0%−2.14% p.a.	0%−1.75% p.a.
Fluctuation discount anniversary bonuses	0%−9.75% p.a.	0%−5.07% p.a.
Retirement age	57–65 years1)	57–65 years1)

1. The earliest possible individual retirement age as per ASVG was assumed.

The interest rate used in 2016 has been changed from 2.05% in the previous year to 1.75%.

The generation mortality tables AVÖ 2008-P-Angestellte were used when calculating the long-term employee benefit provisions.

The existing post-employment benefit plans in BAWAG P.S.K. that are financed entirely through provisions because they are defined benefit obligations pertain primarily to post-employment benefit rights and future rights of employees of BAWAG P.S.K. AG. The allocated assets disclosed by the pension fund set up for certain beneficiaries are set off against the determined amounts of provisions for post-employment benefits.

These defined benefit plans expose BAWAG P.S.K. to actuarial risks such as interest rate risk and longevity risk.

The post-employment benefit rights of the majority of employees are covered by BONUS Pensionskassen AG and Bundespensionskasse AG (defined contribution plans). The contributions that are made to these pension funds are recognized as expenses in the current period; there are no further obligations.

Other provisions for uncertain obligations to third parties are formed in accordance with the expected amount of the obligation.

Contingent Liabilities and Unused Lines of Credit

For the most part, contingent liabilities are guarantees and unused lines of credit. Guarantees are used when BAWAG P.S.K. guarantees payment to the creditor to fulfill the obligation of a third party. Unused lines of credit are commitments from which a credit risk may occur. Loan loss provisions for contingent liabilities and unused lines of credit are reported under provisions for anticipated losses on pending business.

Equity

Equity is the capital provided by the Bank's owners (issued capital and capital reserves) and the capital generated by the Bank (retained earnings, reserves from currency translation, AFS reserve, cash flow hedge reserve, actuarial gains and losses, profit brought forward and the profit for the period).

Revenue Recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured.

Interest Income and Interest Expense

Interest income consists primarily of interest income from loans and receivables, fixed income securities, variable rate securities and assets held for trading. Furthermore, regular income from equity investments, shares as well as fees and commissions similar to interest income are shown in this item. Interest income and interest expense also include premiums and discounts on securities and loans using the effective interest rate method and the amortization of day one profits. Also, the interest proportion of interest-bearing derivatives, separated into income and expenses, is recognized in interest income and expense.

Interest expense consists mainly of interest for liabilities to credit institutions and customers, issued bonds, subordinated capital and supplementary capital. Interest income and interest expense are recognized on an accrual basis.

Fee and Commission Income and Expense

This item consists mainly of income from and expenses for payment transfers, the securities and custody business, lending and payments to Oesterreichische Post AG for the use of its distribution network. Income and expenses are recognized on an accrual basis.

Gains and Losses on Financial Assets and Liabilities

This item consists mainly of the valuations and sales gains or losses of our investment, sales gains and losses from non-performing loans and issued securities and the result from trading in securities and derivatives. Moreover, hedging inefficiencies and foreign exchange differences are shown within this position.

Other Operating Income and Expenses

The other operating result reflects all other income and expenses not directly attributable to ordinary activities, such as results on the sale of property. In addition, the other operating result encompasses expenses for other taxes and regulatory charges (bank levy, the contributions to the deposit guarantee scheme and to the bank resolution fund), income from the release of other provisions and the reimbursement of expenses to customers as well as consolidation results from business combinations.

Administrative Expenses

General administrative expenses represent personnel and other administrative expenses accrued in the reporting period.

Risk Costs

This item includes allocations to and releases of specific and portfolio risk provisions for loans and advances and for contingent liabilities bearing credit risk. Also reported in this item are direct write-offs of loans and advances as well as recoveries on written-off loans removed from the balance sheet. Furthermore, this line item includes all charges resulting from operational risk events.

In addition, this line item includes impairment losses or reversals of impairment losses of property and equipment and other intangible assets as well as impairment losses on goodwill and non-consolidated equity investments.

Net Gains or Losses on Financial Instruments

Net gains or losses on financial instruments include fair value measurements recognized in the income statement, impairments, impairment reversals, gains realized on disposal and subsequent recoveries on written-down financial instruments classified in the respective IAS 39 categories. The components are detailed for each IAS 39 category in the notes on net interest income, gains and losses on financial assets and liabilities, and risk costs.

Latitude of Judgment and Uncertainty of Estimates

The consolidated financial statements include values which are determined, as permitted, on the basis of estimates and judgments. The estimates and judgments used are based on past experience and other factors, such as planning and expectations or forecasts of future events that are considered likely as far as we know today. The estimates and judgments themselves and the underlying estimation methods and judgment factors are reviewed regularly and compared with actual results.

The measurement of financial instruments and the related estimates in respect of measurement parameters, in particular the future development of interest rates, have a material effect on the results of operations. The parameter values applied by the Bank are derived largely from market conditions prevailing as of the reporting date.

The determination of fair value for financial assets and liabilities for which there is no observable market price requires the use of valuation techniques. For financial instruments that trade infrequently, calculation of fair value requires varying degrees of judgment depending on liquidity, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. Details regarding valuation techniques and uncertainty of estimates regarding unobservable input factors are described in Note 1 Accounting policies and in Note 33 Fair value.

Assessments as to whether or not cash generating units (CGUs) were unimpaired are based on planning calculations. These naturally reflect the management's evaluations, which are in turn subject to a degree of predictive uncertainty. Details on the impairment test and the analysis of uncertainties surrounding the estimation of goodwill are set out in Note 1 Accounting policies and Note 20 Goodwill, Brand name and customer relationships and Software and other intangible assets.

In determining the amount of deferred tax assets, the Group uses historical utilization possibilities of tax loss carryforwards and a multi-year forecast prepared by the management of the subsidiaries and the approved budget for the following year, including tax planning. The Group regularly reevaluates its estimates related to deferred tax assets, including its assumptions about future profitability. Details regarding deferred taxes are set out in Note 1 Accounting policies and in Note 21 Net deferred tax assets and liabilities on Statement of Financial Position.

Pension obligations are measured based on the projected unit credit method for defined benefit pension plans. In measuring such obligations, assumptions have to be made regarding long-term trends for salaries, pensions and future mortality in particular. Changes in the underlying assumptions from year to year and divergences from the actual effects each year are reported under actuarial gains and losses (see Note 1 Accounting policies).

The following items are also subject to the judgment of management:

• assessments of the recoverability of long-term loans are based on assumptions regarding the borrower's future cash flows, and, hence, possible impairments of loans and the recognition of provisions for off-balance-sheet commitments in relation to the lending business
• recognition of provisions for uncertain liabilities
• assessments of legal risks and outcome of legal proceedings

Latitude of Judgment and Uncertainty of Estimates – City of Linz

Uncertainties in estimations also apply to the claim of BAWAG P.S.K. against the City of Linz. On 12 February 2007, the City of Linz and BAWAG P.S.K. concluded a forward financial transaction. This transaction was intended by the City of Linz to optimize a CHF loan.

Because of the development of the Swiss franc exchange rate starting in the autumn of 2009, the City of Linz was obligated to make increased contractual payments to BAWAG P.S.K. On 13 October 2011, the Linz City Council decided that it would make no more payments in connection with the derivative transaction. Consequently, BAWAG P.S.K. exercised its right to close out the derivative transaction.

The City of Linz filed a lawsuit against BAWAG P.S.K. at the Commercial Court of Vienna at the beginning of November 2011 seeking payment of CHF 30.6 million (equaling EUR 24.2 million at the exchange rate at that time). BAWAG P.S.K. filed a (counter) suit against the City of Linz for the fulfillment of its contractual entitlements from the same transaction in the amount of EUR 417.7 million. The court combined the two suits. The first hearings were held in the spring of 2013. In March 2015, the court mandated two experts to prepare an expert opinion assessing several issues relating to the derivative transaction. The expert opinion was submitted to the court in the summer of 2016 and discussed with the experts within the framework of a hearing on 9 December 2016. The expert opinion does not provide all the answers required by the court for its legal assessment of the facts. Currently, a mandate for a supplementary expert opinion is being prepared by the court. BAWAG P.S.K.'s strong legal position remains unchanged and the Bank is well prepared for the forthcoming court hearings. It is difficult to assess how much longer the lawsuit is going to continue. However, based on experience it is assumed that the further legal proceedings until a final judgement is enforceable will take several years.

The Bank has valued the derivative transaction until termination according to the general principles (see Note 1 Accounting policies), and has adequately accounted for the risks associated with the claim arising from this derivative. In particular, management had to estimate the risks that are associated with the transaction, such as non-payment, legal, process and other operational risks and had to make judgments as part of the continuous valuation process; this resulted in the respective valuation adjustments.

After the termination of the transaction, the derivative was derecognized and a receivable was recognized under Receivables from customers (classified under Loans and advances). We base our assessment of the carrying amount of the claim on corresponding legal and other opinions, which support the amount of the claim.

No amounts are being disclosed in application of IAS 37.92 (protective provisions for information in the notes).

Effects of Adopting Amended and New Standards

The following standards, amendments and interpretations to existing standards were mandatory for the first time for the 2016 consolidated financial statements:

The amendments to IAS 1 Disclosure Initiative (Amendments to IAS 1) clarify that the materiality concept is applicable to all parts of an IFRS financial statement, especially the notes. Immaterial information should not be presented, even if a standard explicitly requires a specific disclosure. Furthermore, material information should not be aggregated with immaterial information. Additional subtotals can be added to the Statement of Financial Position and the Statement of Comprehensive Income if this is relevant for a better understanding of the net assets, financial position and earnings situation. Moreover, it is clarified that the share of other comprehensive income of associated or joint ventures accounted for using the equity method should be presented in aggregate as a single line item based on whether it will subsequently be reclassified to profit or loss or not. The amended IAS 1 had no major impact on the presentation of other comprehensive income on the consolidated financial statements of BAWAG P.S.K.

The amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation provide additional guidance on the methods permitted when calculating depreciation or amortization of property, plant and equipment and intangible assets. The clarification had no impact on the consolidated financial statements of BAWAG P.S.K.

The amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants bring bearer plants into the scope of IAS 16. The amendments are not applicable to the consolidated financial statements of BAWAG P.S.K.

The amendments to IAS 27 Equity Method in Separate Financial Statements reinstate the equity method as an accounting option in separate financial statements. IAS 27 is not applicable to the consolidated financial statements of BAWAG P.S.K.

In September 2016, the EU endorsed Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28). Issues which have arisen in the context of applying the consolidation exception for investment entities are addressed. The amendments are not applicable to the consolidated financial statements of BAWAG P.S.K.

The amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations clarify the accounting for acquisitions of an interest in a joint operation when the activity constitutes a business. The clarification had no impact on the consolidated financial statements of BAWAG P.S.K.

Annual Improvements to IFRSs 2012–2014 Cycle, which clarifies the following existing standards: IFRS 5 Noncurrent Assets Held for Sale and Discontinued Operations, IFRS 7 Financial Instruments: Disclosures, IAS 19 Employee Benefits and IAS 34 Interim Financial Reporting. The clarifications had no impact on the consolidated financial statements of BAWAG P.S.K.

The following standards, amendments and interpretations to existing standards were approved by the International Accounting Standards Board (IASB) and endorsed by the EU but are not yet mandatory for the preparation of IFRS financial statements for the period ended 31 December 2016:

Already in July 2014, the IASB published the final version of IFRS 9 Financial Instruments. IFRS 9 establishes three primary measurement categories for financial assets: amortized cost, fair value and fair value through other comprehensive income.

IFRS 9 will become mandatory for reporting periods beginning on or after 1 January 2018. The requirements of IFRS 9 represent a significant change from IAS 39 Financial Instruments: Recognition and Measurement. The new standard brings fundamental changes to the

accounting for financial assets and to certain aspects of the accounting for financial liabilities.

According to IFRS 7, in 2018 the notes of BAWAG P.S.K. Group will contain transitional tables reconciling financial assets and impairment allowances from IAS 39 to IFRS 9. It is not planned to disclose the IFRS 9 figures for the prior year.

The key changes to the Group's accounting policies resulting from its adoption of IFRS 9 are summarized below.

Classification of Financial Assets and Financial Liabilities

Financial Assets

IFRS 9 establishes three principal classification categories for financial assets: measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL).

The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset.

A financial asset is measured at amortized cost only if the object of the entity's business model is to hold the financial asset and the contractual cash flows are solely payments of principal and interest on the principal outstanding (simple loan feature). A financial asset is measured at fair value through other comprehensive income if the asset is held in a business model in which assets are managed both in order to collect contractual cash flows and for sale and the contractual cash flows are solely payments of principal and interest on the principal outstanding (simple loan feature). Financial assets that do not meet these criteria are measured at fair value through profit or loss. Furthermore, embedded derivatives will no longer be separated from the financial host asset. The financial instrument is assessed in its entirety and measured at fair value through profit or loss.

Business Model Assessment

The Group made an assessment of business models for all segments and is currently setting up documentation including:

• policies and objectives for the portfolio
• how the performance of the portfolio is evaluated and reported to the Group's management
• the risks that affect the performance of the business model and how those risks are managed

Assessment Whether Contractual Cash Flows Are Solely Payments of Principal and Interest

The Group analyzed its existing loan portfolio and set up a checklist for SPPI criteria. The Group is currently implementing or adjusting relevant software tools for IFRS 9-compliant reporting. Internal processes are being defined and in-house training of relevant divisions is being performed.

Financial Liabilities

The classification and measurement requirements for financial liabilities are only slightly changed compared to IAS 39. However, under IFRS 9 fair value changes of financial liabilities in the fair value option are generally presented as follows:

• the amount of change in the fair value that is attributable to changes in the credit risk of the liability is presented in OCI; and
• the remaining amount of change in the fair value is presented in profit or loss.

Reclassifications

Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Group changes its business model for managing financial assets.

Modifications

If the terms of a financial asset are modified, the Group evaluates whether the cash flows of the modified asset are substantially different. If the cash flows are substantially different, then the contractual rights to cash flows from the original financial asset are deemed to have expired. In this case, the original financial asset is derecognized and a new financial asset is recognized at fair value.

If the cash flows of the modified asset are not substantially different, then the modification does not result in derecognition of the financial asset. In this case, the Group recalculates the gross carrying amount of the financial asset and recognizes the amount arising from adjusting the gross carrying amount as a modification gain or loss in profit or loss.

The Group is currently evaluating different software solutions for the implementation of an automated treatment of modifications.

Hedge Accounting

IFRS 9 also contains a new general hedge accounting model. This model aligns hedge accounting more closely with operational risk management and allows hedging strategies that are used for the purposes of risk management. The effectiveness test as a requirement for the use of hedge accounting was revised: Instead of the quantitative criterion (bandwidth of 80% to 125%), qualitative and quantitative criteria for a forward-looking effectiveness assessment were introduced. Furthermore, voluntary terminations of hedge relationships are no longer allowed in general, but only if certain requirements are met. Rules for rebalancing were introduced for hedging relationships in which the hedged risk and the risk covered by hedging instruments are not identical. These rules state that the hedge ratio can be adjusted in the event of correlation changes without having to terminate the hedge relationship.

While the macro hedge accounting project is ongoing, adopters of IFRS 9 may, as an accounting policy choice, continue to apply the macro fair value hedge accounting model for interest rate risk in IAS 39.

The Group currently expects no major impacts on the consolidated financial statements resulting from IFRS 9 hedge accounting and will continue to apply the macro fair value hedge accounting model for interest rate risk according to IAS 39. IFRS 9 macro hedge accounting provisions will be evaluated after finalization of the respective requirements by IASB.

Impairment

IFRS 9 requires a bank to determine the expected credit loss (ECL) based on a probability assessment of future cash flows and losses. The ECL is basically defined as the difference between the cash flows that are due to the bank in accordance with the contractual terms of a financial instrument and the cash flows that the bank expects to receive (considering probabilities of default and expected recoveries). The applied methodology is based on the standard-setting document "IFRS 9 Financial Instruments (July 2014)"1). Since this document is formulated in a very general manner (with respect to the model requirements), the following documents, which are more detailed and contain further principles for modelling IFRS 9-compliant lifetime expected loss, are also being taken into account as input for the methodology:

• Global Public Policy Committee (June 2016): "The implementation of the IFRS 9 impairment requirements by banks"
• Basel Committee on Banking Supervision (December 2015): "Guidance on credit risk and accounting for ECL"
• European Banking Authority (July 2016). "Draft guidelines on credit institutions' credit risk management practices and accounting for expected credit losses"

The main drivers in the ECL calculation are the lifetime probability of default (PD), the lifetime loss given default (LGD) and the lifetime exposure at default for different products.

The lifetime PD is assumed to consist of a through-thecycle component and point-in-time component. The through the cycle component represents idiosyncratic characteristics of the borrower whereas the point-in-time stands for business-cycle effects. For the through-the-cycle component our model approach considers – amongst others – the homogenous and non-homogenous continuous Markov approach. For the point-in-time component, the shift factor and a firm-value based approach ("Peridery approach") PD are used. For each relevant business segment, a separate model was developed to forecast the lifetime PDs by considering forecasts of macroeconomic factors. An initial validation ("back testing") was performed for the models of the main business segments in order to quantify the main impact of

life time expected loss. For 2017 a complete validation process is planned in parallel to the current regulation.

The decision as to whether a financial instrument is assigned to stage 1 ("unchanged credit quality") or stage 2 ("significantly deteriorated credit quality") is based on quantitative transfer criteria as well as on qualitative factors. As quantitative criteria, a relative (ratio of relevant life time PDs) and an absolute (difference of relevant life time PDs) criterion are considered. For investment grade ratings, the absolute transfer criterion is applied in substitution to the low risk exemption that can be chosen under the IFRS9 Standard. This allows for more flexibility as stage transfers are also possible for transactions that have an assigned investment grade rating. As soon as the relevant ratios and differences of lifetime PDs exceed defined thresholds, the financial instrument is assigned to stage 2, in which lifetime expected loss numbers are considered as expected credit losses instead of 12-month expected loss numbers.

The qualitative factors include the following tests: 1) whether the financial instrument is 30 days delayed or not, 2) whether the financial instrument is on a watch list or not, 3) whether the financial instrument has a warning signal or not. As soon as one of the qualitative factors is relevant, the financial instrument is assigned to stage 2.

When IFRS 9 is applied for the first time, BAWAG P.S.K. expects the following impact on its financial accounts: The effect on regulatory capital is expected to be around <40 basis points, taking into consideration impacts arising from both Classification & Measurement as well as Impairment.

In September 2016, the EU endorsed IFRS 15 Revenue from Contracts with Customers. IFRS 15 specifies when and how revenue from contracts with customers is to be recognized. IFRS 15 replaces the standards IAS 11 Construction Contracts and IAS 18 Revenue, as well as IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC 31 Revenue – Barter Transactions Involving Advertising Services. IFRS 15 is mandatory for annual reporting periods beginning on or after 1 January 2018 and will have no material impact on the consolidated financial statements of BAWAG P.S.K. from a current perspective.

The following standards and amendments approved by the International Accounting Standards Board (IASB) have not yet been endorsed by the European Union:

The IASB issued Classification and Measurement of Sharebased Payment Transactions (Amendments to IFRS 2) in June 2016. The amendments clarify the accounting for cash-settled share-based payment transactions that include a performance condition, the classification of share-based payment transactions with net settlement features, and the accounting for modifications of share-based payment transactions from cash-settled to equity-settled. The Amendments to IFRS 2 are applicable to annual reporting periods beginning on or after 1 January 2018 and will not be applicable to the consolidated financial statements of BAWAG P.S.K. from a current perspective.

In September 2016, the IASB issued Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts and so two options for entities that issue insurance contracts within the scope of IFRS 4 are provided: overlay approach and deferral approach. The overlay approach permits entities to reclassify, from profit or loss to other comprehensive income, some of the income or expenses arising from designated financial assets. The deferral approach is a temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing contracts within the scope of IFRS 4. The application of both approaches is optional and an entity is permitted to stop applying them before the new insurance contracts standard (IFRS 17; applicable to annual reporting periods beginning on or after 1 January 2021) is applied. The overlay approach should be applied retrospectively to qualifying financial assets when the entity first applies IFRS 9. The deferral approach is applicable to annual reporting periods beginning on or after 1 January 2018. These amendments will have no major impact on the consolidated financial statements of BAWAG P.S.K.

IFRS 14 Regulatory Deferral Accounts permits an entity which is a first-time adopter of the International Financial Reporting Standards to continue to account, with some limited changes, for regulatory deferral account balances in accordance with its previous GAAP. IFRS 14 is applicable to annual reporting periods beginning on or after 1 January 2016 and will have no impact on the consolidated financial statements of BAWAG P.S.K. The European Commission

has decided not to launch the endorsement process of this interim standard and to wait for the final standard.

In April 2016, the IASB issued Clarifications to IFRS 15 Revenue from Contracts with Customers, which address three topics: Identifying performance obligations, Principal versus agent considerations and Licensing and also provide some transition relief for modified contracts and completed contracts. The clarifications to IFRS 15 are applicable to annual reporting periods beginning on or after 1 January 2018 and will not be applicable to the consolidated financial statements of BAWAG P.S.K.

The IASB issued IFRS 16 Leases in January 2016. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer ("lessee") and the supplier ("lessor"). IFRS 16 is effective from 1 January 2019, replaces the previous leases Standard, IAS 17 Leases, and related Interpretations and will be applicable to the consolidated financial statements of BAWAG P.S.K. BAWAG P.S.K. is currently evaluating the effects of IFRS 16 on the consolidated financial statements. One major effect for BAWAG P.S.K. as a lessee in an operating lease contract will be the recognition of a "right-of-use" asset and the related lease liability at commencement of the lease. Furthermore, rental expenses, which so far have been recognized on a straight-line basis, will be replaced by interest expenses for the lease liability and depreciation of the "right-of-use" asset.

The IASB issued Disclosure Initiative (Amendments to IAS 7) in January 2016, which comes with the objective that entities shall provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities. This objective will influence the disclosures concerning changes from financing cash flows, changes arising from obtaining or losing control of subsidiaries or other businesses, the effect of changes in foreign exchange rates and changes in fair value. The amendments state also that changes in liabilities arising from financing activities must be disclosed separately from changes in other assets and liabilities. The Amendments to IAS 7 are applicable to annual reporting periods beginning on or after 1 January 2017 and will lead to an amended disclosure of changes in liabilities arising from financing activities in the cash flow statement of BAWAG P.S.K.

In January 2016, the IASB issued the amendment Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12), which clarify the aspect that regardless of whether the debt instrument's holder expects to recover the carrying amount of the debt instrument by sale or by use, unrealized losses on debt instruments measured at fair value and measured at cost for tax purposes give rise to a deductible temporary difference. The amendment also clarifies that the carrying amount of an asset does not limit the estimation of probable future taxable profits and that estimates for future taxable profits exclude tax deductions resulting from the reversal of deductible temporary differences. An entity should assess a deferred tax asset in combination with other deferred tax assets when tax law restricts the utilization of tax losses. The Amendments to IAS 12 are applicable to annual reporting periods beginning on or after 1 January 2017 and will have an impact on the consolidated financial statements of BAWAG P.S.K.

Annual Improvements to IFRSs 2014–2016 Cycle, which clarifies the following existing standards: IFRS 1 First-time Adoption of International Financial Reporting Standards,

IFRS 12 Disclosure of Interests in Other Entities and IAS 28 Investments in Associates and Joint Ventures. The clarifications will have no impact on the consolidated financial statements of BAWAG P.S.K.

The IASB published Transfers of Investment Property (Amendments to IAS 40) to clarify transfers of property to, or from, investment property. The Amendments to IAS 40 are applicable to annual reporting periods beginning on or after 1 January 2018 and will have no material impact on the consolidated financial statements of BAWAG P.S.K. from a current perspective.

The IASB published IFRIC 22 Foreign Currency Transactions and Advance Consideration developed by the IFRS Interpretations Committee in December 2016 to clarify the accounting for transactions that include the receipt or payment of advance consideration in a foreign currency. IFRIC 22 is effective for annual reporting periods beginning on or after 1 January 2018 and will have no impact on the consolidated financial statements of BAWAG P.S.K. from a current perspective.

DETAILS OF THE CONSOLIDATED PROFIT OR LOSS STATEMENT

2 | Net interest income

in EUR million	2016	2015
Interest income	1,024.5	1,051.3
Cash reserves	–	0.1
Financial assets held for trading	78.8	116.5
Financial assets designated at fair value through profit or loss	3.8	11.0
Available-for-sale financial assets	67.6	89.3
Loans and receivables	699.2	656.4
Held-to-maturity investments	38.2	42.5
Derivatives – Hedge accounting, interest rate risk	134.7	135.3
Other assets	2.2	0.2
Interest expense	(297.8)	(339.2)
Deposits from central banks	(3.0)	(0.5)
Financial liabilities held for trading	(56.5)	(41.1)
Financial liabilities designated at fair value through profit or loss	(29.3)	(49.2)
Financial liabilities measured at amortized cost	(150.9)	(203.6)
Derivatives – Hedge accounting, interest rate risk	(48.6)	(35.0)
Provisions for social capital	(8.0)	(9.8)
Other liabilities	(1.5)	–
Dividend income	3.3	10.2
Available-for-sale financial assets	3.3	10.2
Net interest income	730.0	722.3

Interest income and similar income are recognized on an accrual basis. Interest income also includes, among others, premiums and discounts on securities classified as financial investments as well as premiums and discounts

on acquired loan portfolios which are allocated in accordance with the accruals concept. Interest income on impaired receivables during 2016 amounted to EUR 1.3 million (2015: EUR 2.8 million).

3 | Net fee and commission income

Net fee and commission income can be broken down by BAWAG P.S.K.'s operations as follows:

in EUR million	2016	2015
Fee and commission income	276.3	292.3
Payment transfers	170.0	172.0
Lending	30.1	25.3
Securities and custody business	36.9	58.7
Other services	39.3	36.3
Fee and commission expense	(83.4)	(106.4)
Payment transfers	(39.6)	(38.3)
Lending	(1.6)	(1.9)
Securities and custody business	(3.0)	(4.9)
Others	(39.2)	(61.3)
Net fee and commission income	192.9	185.9

4 | Gains and losses on financial assets and liabilities

in EUR million	2016	2015
Realized gains and losses on financial assets and liabilities not measured at fairvalue through profit or loss, net	9.5	116.2
Available-for-sale financial assets	15.7	62.5
Loans and receivables	(10.5)	3.4
Held-to-maturity investments	9.0	7.2
Financial liabilities measured at amortized cost	(5.7)	(17.3)
Gain from the sale of subsidiaries and associates	11.0	63.8
Other result	(10.0)	(3.4)
Gains (losses) on financial assets and liabilities held for trading, net	2.3	(73.1)
Gains (losses) on financial assets and liabilities at fair value through profit or loss, net	9.7	28.3
Gains (losses) from fair value hedge accounting	0.1	1.0
Fair value adjustment of hedged item	(74.0)	44.6
Fair value adjustment of hedging instrument	74.1	(43.6)
Exchange differences, net	(2.5)	4.5
Gains and losses on financial assets and liabilities	19.1	76.9

The item gains and losses on financial assets and liabilities was influenced primarily by the valuation and sales of our investments, the sales of subsidiaries, issued securities, sales gains and losses from non-performing loans and

derivative transactions for customers. In 2016 and 2015, there were no gains and losses on financial assets and liabilities attributable to non-controlling interests.

5 | Other operating income and expenses

in EUR million	2016	2015
Net income from investment properties	(0.1)	(0.1)
Income from investment properties	0.6	0.8
Expenses relating to investment properties	(0.7)	(0.9)
Gains from the sale of property, plant and equipment	0.2	7.6
Losses from the sale of property, plant and equipment	(3.5)	(6.5)
Regulatory charges	(84.9)	(35.2)
Results from business combinations	90.0	0.1
Other income and expenses	3.0	(2.3)
Other operating income and expenses	4.7	(36.4)

The line item Regulatory charges includes the bank levy (in 2016 also the additional one-time payment) and the contributions to the deposit guarantee scheme and to the bank resolution fund. The remeasurement of the collateral portion regarding the bank resolution fund in the amount of EUR 1.3 million (2015: EUR 2.3 million) is recognized in

the gains and losses on financial assets and liabilities. Rental income from investment properties amounted to EUR 0.6 million in 2016 (2015: EUR 0.8 million); expenses amounted to EUR 0.6 million in 2016 (2015: EUR 0.8 million). Vacancy costs amounted to EUR 0.1 million (2015: EUR 0.1 million).

6 | Administrative expenses

in EUR million	2016	2015
Staff costs	(242.8)	(237.7)
Wages and salaries	(185.4)	(178.7)
Statutory social security contributions	(53.6)	(54.5)
Staff benefit costs	(10.8)	(9.8)
Voluntary fringe benefits	(3.9)	(4.2)
Post-employment benefit costs	(6.9)	(5.6)
Increase of pension provision	(0.4)	(0.3)
Decrease of provision for severance payments	7.6	3.3
Decrease of provision for jubilee benefits	1.5	3.8
Staff benefit fund costs	(1.7)	(1.5)
Other administrative expenses	(139.7)	(157.2)
IT, data, communication	(44.9)	(48.3)
Real estate, utility, maintenance expenses	(38.9)	(47.8)
Advertising	(20.1)	(24.5)
Other general expenses	(11.9)	(14.5)
Other third party fees – legal, outsourcing, etc.	(10.4)	(9.3)
Postage fees	(9.0)	(8.1)
Regulatory projects and audit fees	(4.5)	(4.7)
Restructuring and other one-off expenses	(24.6)	(31.8)
Administrative expenses	(407.1)	(426.7)

The line item Restructuring and other one-off expenses, totaling minus EUR 24.6 million, mainly includes expenses for restructuring costs in 2016, partly offset by the release of a provision for vacation pay.

7 | Depreciation and amortization on tangible and intangible non-current assets

in EUR million	2016	2015
Depreciation and amortization
Software and other intangible assets	(21.0)	(22.3)
Property, plant and equipment	(9.7)	(10.3)
Depreciation and amortization	(30.7)	(32.6)

8 | Risk costs

in EUR million	2016	2015
Loan loss provisions of Loans and receivables	(35.4)	(36.0)
Changes in provisions for off-balance credit risk	5.7	(0.9)
Impairment losses on financial assets	(0.4)	(1.1)
Provisions and expenses for operational risk	(12.6)	(7.8)
Impairment losses on non-financial assets	–	–
Risk costs	(42.7)	(45.8)

Impairment losses on financial assets

in EUR million	2016	2015
Available-for-sale financial assets – equity investments	(0.4)	(1.1)
Available-for-sale financial assets – debt instruments	–	–
Held-to-maturity investments	–	–
Impairment losses on financial assets	(0.4)	(1.1)

9 | Share of the profit or loss of associates accounted for using the equity method

The profit reported for 2016 of EUR 8.0 million (2015: loss of EUR 4.6 million) contains the proportionate shares in BAWAG P.S.K. Versicherung AG and PSA Payment Services Austria GmbH.

The unrecognized share of the losses of entities that were accounted for using the equity method as provided by IFRS 12.22 (c) came to EUR 0.0 million (2015: EUR 0.0 million).

The following table shows key financial indicators for the Bank's associates:

Associates accounted for using the equity method

in EUR million	2016	2015
Cumulated assets	2,472	2,417
Cumulated liabilities	2,326	2,293
Cumulated equity	146	125
Earned premiums (gross)	231	281
Fee and commission income	172	187
Cumulated net profit	34	24

The associates accounted for using the equity method are BAWAG P.S.K. Versicherung Aktiengesellschaft (stake of 25.00%) and PSA Payment Services Austria GmbH (stake of 20.82%). For further details, please refer to Note 36 Related parties.

10 | Income taxes

in EUR million	2016	2015
Current tax expense	(3.4)	(4.5)
Deferred tax expense	(79.9)	(25.8)
Income taxes	(83.3)	(30.3)

The deferred tax expense in 2016 is mainly due to reductions of deferred tax assets on tax loss carry-forwards.

in EUR million	2016	2015
Profit before tax	474.2	448.2
Tax rate	25%	25%
Computed tax expenses	(118.6)	(112.0)
Reductions in tax
Due to tax-exempt income from equity investments	3.0	2.1
Due to gains and losses from the valuation of equity investments	4.1	6.4
Due to first time consolidation	32.4	–
Due to other tax-exempt income	0.6	3.5
Due to differing foreign tax rates	0.0	0.0
Due to use of tax loss carryforwards without recognition of deferred taxes	–	67.7
Due to valuation of deferred taxes on tax loss carryforwards	12.0	20.4
Due to other tax effects	1.2	3.5
Increases in tax
Due to gains and losses from the valuation of equity investments	(0.4)	(0.9)
Due to the sale of equity investments	–	(15.8)
Due to non tax deductible expenses	(8.3)	(3.4)
Due to other tax effects	(5.5)	(1.7)
Income tax in the period	(79.3)	(30.3)
Out-of-period income tax	(4.0)	–
Reported income tax (expense)	(83.3)	(30.3)

The following reconciliation shows the relationship between computed tax expenses and reported tax expenses:

The Group's assets included deferred tax assets accounted for on the grounds of the recognized benefits arising from as yet unused tax losses in the amount of EUR 150 million (2015: EUR 217 million). The tax losses can be carried forward for an unlimited period. The taxed portion of the liability reserve was EUR 372.9 million (2015: EUR 372.9 million). The total liability reserve amounted to EUR 613.7 million as of 31 December 2016 (2015: EUR 613.7 million). As of 31 December 2016, unused tax losses amounted to EUR 594 million (2015: EUR 868 million) at the level of BAWAG P.S.K., EUR 0 million (2015: EUR 0 million) at the level of members of the tax group included in the consolidated financial statements and EUR 5 million (2015: EUR 66 million) at the level of other companies included in the consolidated financial statements, hence a total of EUR 599 million (2015: EUR 934 million).

DETAILS OF THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION

11 | Cash reserves

in EUR million	31.12.2016	31.12.2015
Cash on hand	422	378
Balances at central banks	598	431
Cash reserves	1,020	809

12 | Financial assets designated at fair value through profit or loss

in EUR million	31.12.2016	31.12.2015
Loans and advances to customers	145	159
Bonds and other fixed income securities	54	139
Shares and other variable rate securities	3	5
Financial assets designated at fair value through profit or loss	202	303

The category Financial assets designated at fair value through profit or loss contains all financial instruments that are carried at their fair value through profit or loss because the fair value option defined in IAS 39 has been exercised

for them. Further information on the fair value option can be found in Note 1.

The maximum credit risk of loans and advances to customers equals book value.

13 | Available-for-sale financial assets

in EUR million	31.12.2016	31.12.2015
Debt instruments	3,129	2,661
Bonds and other fixed income securities	3,129	2,661
Public sector debt instruments	510	341
Bonds of other issuers	2,619	2,320
Equity investments	67	71
Recognized at cost
Investments in non-consolidated subsidiaries	22	22
Interests in associates	19	19
Other shareholdings	26	26
Recognized at fair value
Other shareholdings	–	4
Available-for-sale financial assets	3,196	2,732

The following table shows key financial indicators for the Bank's associates:

Associates not accounted for using the equity method due to immateriality

in EUR million	31.12.2016	31.12.2015
Cumulated assets	499	494
Cumulated equity	83	80
Cumulated net profit	7	2

The amounts presented in the table above are based on the latest available financial statements of the respective companies that have been prepared in accordance with the applicable accounting standards. At the time the annual financial statements of BAWAG P.S.K. as of 31 December 2016 were being prepared, financial statements as of 31 December 2015 were available for the majority of the respective entities (prior year: 31 December 2014).

From an economic point of view, we would like to note that the table above does not take the economic share invested into consideration. The average economic share is 39% (2015: 40%).

For further details, please refer to Note 36 Related parties.

14 | Held-to-maturity financial investments

in EUR million	31.12.2016	31.12.2015
Debt instruments	2,353	2,290
Bonds and other fixed income securities	2,353	2,290
Public sector debt instruments	498	574
Bonds of other issuers	1,855	1,716
Held-to-maturity financial investments	2,353	2,290

15 | Financial assets held for trading

in EUR million	31.12.2016	31.12.2015
Derivatives in trading book	230	320
Foreign currency derivatives	20	62
Interest rate derivatives	210	258
Derivatives in banking book	422	630
Foreign currency derivatives	20	152
Interest rate derivatives	402	478
Credit related derivatives	–	0
Financial assets held for trading	652	950

16 | Loans and receivables

The following breakdown depicts the composition of the item Loans and receivables. The financial assets in this category are measured at amortized cost.

Unimpairedassets	Impaired assets(total grosscarrying amount)	individuallyassets	collectivelyimpaired financialassets	Totalnet carryingamount
692	–	–	–	692
91	–	–	–	91
601	–	–	–	601
1,633	–	–	–	1,633
28,158	547	(129)	(76)	28,500
13,361	294	(15)	–	13,640
14,732	253	(114)	(22)	14,849
65	–	–	–	65
–	–	–	–	–
–	–	–	(54)	(54)
30,483	547	(129)	(76)	30,825
				Allowances forAllowances forimpaired financial

1. Allowance for incurred but not reported losses.

31.12.2015in EUR million	Unimpairedassets	Impaired assets(total grosscarrying amount)	Allowances forindividuallyimpaired financialassets	Allowances forcollectivelyimpaired financialassets	Totalnet carryingamount
Securities	973	–	–	–	973
Public sector debtinstruments	94	–	–	–	94
Debt instruments of otherissuers	879	–	–	–	879
Receivables from creditinstitutions	1,710	–	–	–	1,710
Receivables from customers	24,377	571	(170)	(65)	24,713
Corporates and othercustomers	13,491	311	(24)	(2)	13,776
Retail	10,815	260	(146)	(17)	10,912
Central governments	71	–	–	–	71
Other customers	–	–	–	–	–
IBNR portfolio provision1)	–	–	–	(46)	(46)
Total	27,060	571	(170)	(65)	27,396

1. Allowance for incurred but not reported losses.

The Receivables from customers are broken down into the following receivables classes.

The category Central governments includes receivables from central governments, primarily from the Republic of Austria in the case of BAWAG P.S.K.

The Corporates category includes larger enterprises with an exposure in excess of EUR 1 million or revenue of over EUR 50 million, and special financing agreements (project finance). Other customers cover public sector entities, churches and religious groups, political parties, associations and securities trading houses without a banking license.

The Retail category covers receivables from retail banking. This segment comprises individuals and small and medium-sized enterprises with an exposure of less than EUR 1 million or revenue of less than EUR 50 million.

The IBNR portfolio provision represents a provision for losses incurred but not reported yet and is calculated for all portfolios.

The following breakdown depicts the composition of the item Loans and receivables according to the Group's segments.

31.12.2016in EUR million	Unimpairedassets	Impaired assets(total grosscarrying amount)	Allowances forindividuallyimpaired financialassets	Allowances forcollectivelyimpaired financialassets	Totalnet carryingamount
BAWAG P.S.K. Retail	11,499	160	(84)	(19)	11,556
easygroup	4,426	32	(20)	(3)	4,436
DACH Corporates &Public Sector	7,568	34	(21)	0	7,580
International Business	5,392	0	0	0	5,392
Treasury Services & Markets	1,496	0	0	0	1,496
Corporate Center	103	321	(5)	(54)	365
Total	30,483	547	(129)	(76)	30,825

31.12.2015in EUR million	Unimpairedassets	Impaired assets(total grosscarrying amount)	Allowances forindividuallyimpaired financialassets	Allowances forcollectivelyimpaired financialassets	Totalnet carryingamount
BAWAG P.S.K. Retail	8,982	193	(121)	(18)	9,036
easygroup	3,622	22	(14)	0	3,630
DACH Corporates &Public Sector	7,271	53	(34)	0	7,289
International Business	5,429	0	0	0	5,429
Treasury Services & Markets	1,595	0	0	0	1,595
Corporate Center	162	302	0	(46)	418
Total	27,060	571	(170)	(65)	27,396

Reclassifications

BAWAG P.S.K. transferred available-for-sale financial assets to the Statement of Financial Position item Loans and receivables at their fair values in the amount of EUR 1,897 million as of 1 June 2010.

These reclassified assets are private placements and credit surrogates without derivative components. BAWAG P.S.K. is of the opinion that the amortized cost of the reclassified assets offers relevant information for readers of the financial report.

As of 31 December 2016, the carrying amount of these reclassified assets amounted to EUR 40 million (2015:

EUR 60 million). Their fair value amounted to EUR 39 million (2015: EUR 60 million). The decline in comparison to the previous year results primarily from redemptions.

As of 31 December 2016, an AFS reserve in the amount of EUR 1 million (2015: plus EUR 1 million) was recognized for reclassified financial assets. If the assets had not been reclassified, unrealized fair value changes in the amount of EUR 0 million (2015: EUR 0 million) would have been recognized in Other comprehensive income (in the AFS reserve) for available-for-sale financial assets.

After reclassification, the financial assets in question continued to make the following contribution to the pre-tax profit of the respective year:

in EUR million	2016	2015
Interest income	0.7	2.2
Profits from disposals	–	–

Changes in loan loss provisions

		Individual and collective loan lossprovisions		Loan loss provisions for incurred butnot reported losses
in EUR million	Receivables fromcredit institutions	Receivables fromcustomers	Receivables fromcredit institutions	Receivables fromcustomers	Total
Balance as of 01.01.2016	–	189	–	46	235
Additions
Changes in scope ofconsolidation	–	11	–	7	18
Provisions created throughprofit or loss	–	47	–	1	48
Others	–	–	–	–	–
Unwinding pursuant to IAS39	–	1	–	–	1
Disposals
Changes in scope ofconsolidation	–	(1)	–	–	(1)
Used as intended	–	(60)	–	–	(60)
Provisions releasedthrough profit or loss	–	(36)	–	–	(36)
Reclassification	–	–	–	–	–
Balance as of 31.12.2016	–	151	–	54	205

		Individual and collective loan loss	Loan loss provisions for incurred but
		provisions		not reported losses
in EUR million	Receivables fromcredit institutions	Receivables fromcustomers	Receivables fromcredit institutions	Receivables fromcustomers	Total
Balance as of 01.01.2015	–	237	–	41	278
Additions
Changes in scope ofconsolidation	–	16	–	–	16
Provisions created throughprofit or loss	–	64	–	–	64
Others		–		7	7
Unwinding pursuant to IAS39	–	3	–	–	3
Disposals
Changes in scope ofconsolidation	–	–	–	–	–
Used as intended	–	(94)	–	–	(94)
Provisions releasedthrough profit or loss	–	(37)	–	(2)	(39)
Reclassification	–	–	–	–	–
Balance as of 31.12.2015 =01.01.2016	–	189	–	46	235

The loan loss provisions break down by region as follows:

in EUR million	31.12.2016	31.12.2015
Austria	190	223
Abroad	15	12
Western Europe	12	9
Central and Eastern Europe	3	3
Loan loss provisions	205	235

17 | Receivables from customers and credit institutions

The following table depicts the breakdown of receivables from customers and credit institutions by credit type.

Receivables from customers – breakdown by credit type

		Designated at fair valuethrough profit or loss		At amortized cost	Total
in EUR million	31.12.2016	31.12.2015	31.12.2016	31.12.2015	31.12.2016	31.12.2015
Current accounts	–	–	1,331	1,041	1,331	1,041
Cash advances	–	–	667	131	667	131
Loans	145	159	25,300	22,258	25,445	22,417
One-off loans	145	159	25,287	22,257	25,432	22,416
Current account loans	–	–	12	–	12	–
Other	–	–	1	1	1	1
Finance leases	–	–	1,202	1,283	1,202	1,283
Receivables from customers	145	159	28,500	24,713	28,645	24,872

Receivables from credit institutions – breakdown by credit type

		Designated at fair valuethrough profit or loss		At amortized cost	Total
in EUR million	31.12.2016	31.12.2015	31.12.2016	31.12.2015	31.12.2016	31.12.2015
Demand deposits	–	–	219	211	219	211
Time deposits	–	–	1,268	1,358	1,268	1,358
Loans	–	–	145	140	145	140
Other	–	–	1	1	1	1
Receivables from creditinstitutions	–	–	1,633	1,710	1,633	1,710

18 | Asset maturities

The following table contains a breakdown of financial assets (excl. equity investments and derivatives) by

remaining period to maturity. Assets without a defined maturity are classified as "Up to 3 months."

Financial assets – breakdown by remaining period to maturity 2016

31.12.2016in EUR million	Up to3 months	3 monthsup to 1 year	1–5 years	Over 5 years	Total
Financial assets designated at fair valuethrough profit or loss
Receivables from customers	4	57	37	47	145
Bonds and other fixed income securities	–	–	34	20	54
Available-for-sale financial assets
Bonds and other fixed income securities	345	259	1,229	1,296	3,129
Held-to-maturity investments
Bonds and other fixed income securities	53	147	1,234	919	2,353
Loans and receivables
Receivables from customers	1,671	2,602	9,917	14,310	28,500
Receivables from credit institutions	1,490	–	9	134	1,633
Bonds and other fixed income securities	–	50	420	222	692
Total	3,563	3,115	12,880	16,948	36,506

Financial assets – breakdown by remaining period to maturity 2015

31.12.2015in EUR million	Up to3 months	3 monthsup to 1 year	1–5 years	Over 5 years	Total
Financial assets designated at fair valuethrough profit or loss
Receivables from customers	4	61	42	52	159
Bonds and other fixed income securities	41	44	–	54	139
Available-for-sale financial assets
Bonds and other fixed income securities	174	390	1,371	726	2,661
Held-to-maturity investments
Bonds and other fixed income securities	75	154	1,001	1,060	2,290
Loans and receivables
Receivables from customers	2,621	819	8,621	12,652	24,713
Receivables from credit institutions	1,571	8	1	130	1,710
Bonds and other fixed income securities	–	134	593	246	973
Total	4,486	1,610	11,629	14,920	32,645

19 | Property, plant and equipment, Investment properties

Changes in property, plant and equipment and investment properties 2016

in EUR million	Carryingamount31.12.2015	Acquisitioncost01.01.2016	Change inscope ofconsolidationAcquisitioncost	Change inscope ofconsolidationCumulativedepreciation	Change inforeignexchangedifferences	Additions		Disposals Reallocations Write-downs	cumulative	Carryingamount31.12.2016	Depreciation(-),impairments(-) andreversal ofimpairments(+) Financialyear
Property, plant andequipment	59	202	–	–	–	4	(11)	–	(142)	53	(9)
Land and buildings used bythe enterprise for its ownoperations	7	20	–	–	–	–	(2)	–	(11)	7	–
Office furniture andequipment	52	182	–	–	–	4	(9)	–	(131)	46	(9)
Plant under construction	–	–	–	–	–	–	–	–	–	–	–
Investment properties	4	26	–	–	–	–	–	–	(23)	3	–

Changes in property, plant and equipment and investment properties 2015

in EUR million	Carryingamount31.12.2014	Acquisitioncost01.01.2015	Change inscope ofconsolidationAcquisitioncost	Change inscope ofconsolidationCumulativedepreciation	Change inforeignexchangedifferences	Additions		Disposals Reallocations	Writedownscumulative	Carryingamount31.12.2015	Depreciation(-),impairments(-) andreversal ofimpairments(+) Financialyear
Property, plant andequipment	81	268	6	–	–	8	(79)	(1)	(143)	59	(10)
Land and buildings used bythe enterprise for its ownoperations	22	53	–	–	–	–	(33)	–	(13)	7	–
Office furniture andequipment	58	214	6	–	–	8	(46)	–	(130)	52	(10)
Plant under construction	1	1	–	–	–	–	–	(1)	–	–	–
Investment properties	3	25	–	–	–	–	–	1	(22)	4	–

No impairments have been recognized in profit or loss in the financial year 2016 (2015: EUR 0.0 million).

20 | Goodwill, brand name and customer relationships and Software and other intangible assets

Of the total carrying amount for all intangible non-current assets, a major part can be attributed to Allegro projects (BAWAG P.S.K.'s core banking system) carried out in this context. Due to changed circumstances, the useful life was adjusted to 17 years considering the remaining economic life. As a result, depreciation for 2017 is reduced by EUR 1.4 million to EUR 2.1 million.

Changes in Goodwill, Software and other intangible assets 2016

in EUR million	Carryingamount31.12.2015	Acquisitioncost01.01.2016	Change inscope ofconsolidationAcquisition cost	Change inscope ofconsolidationCumulativeamortization	Additions		Disposals Reallocations Write-downs	cumulative	Reclassification to noncurrentassets anddisposalgroupsclassified asheld for sale	Carryingamount31.12.2016	Amortization(-),impairments(+) andreversal ofimpairments(+)Financialyear
Goodwill	1	1	–	–	–	–	–	–	–	1	–
Brand name and customerrelationships	–	–	12	–	–	–	–	–	–	12	–
Software and otherintangible assets	103	511	–	–	50	(7)	–	(426)	–	128	(21)
Software and other intangiblenon-current assets	90	480	–	–	42	(6)	1	(405)	–	112	(19)
Thereof purchased	84	472	–	–	30	(5)	1	(403)	–	95	(17)
Thereof internallygenerated	6	8	–	–	12	(1)	–	(2)	–	17	(2)
Intangible non-current assetsin development	2	2	–	–	6	(1)	(1)	–	–	6	–
Thereof purchased	2	2	–	–	2	(1)	(1)	–	–	2	–
Thereof internallygenerated	–	–	–	–	4	–	–	–	–	4	–
Rights and compensationpayments	11	29	–	–	2	–	–	(21)	–	10	(2)

Changes in Goodwill, Software and other intangible assets 2015

in EUR million	Carryingamount31.12.2014	Acquisitioncost01.01.2015	Change inscope ofconsolidationAcquisition cost	Change inscope ofconsolidationCumulativeamortization	Additions		Disposals Reallocations Write-downs	cumulative	Reclassification to noncurrentassets anddisposalgroupsclassified asheld for sale	Carryingamount31.12.2015	(-),impairments(+) andreversal ofimpairments(+)Financialyear
Goodwill	1	1	–	–	–	–	–	–	–	1	–
Software and otherintangible assets	102	493	–	–	26	(8)	–	(408)	–	103	(22)
Software and other intangiblenon-current assets	88	461	–	–	23	(7)	3	(390)	–	90	(21)
Thereof purchased	84	457	–	–	20	(7)	2	(388)	–	84	(20)
Thereof internallygenerated	4	4	–	–	3	–	1	(2)	–	6	(1)
Intangible non-currentassets in development	3	4	–	–	1	–	(3)	–	–	2	–
Thereof purchased	2	3	–	–	1	–	(2)	–	–	2	–
Thereof internallygenerated	1	1	–	–	–	–	(1)	–	–	–	–
Rights and compensationpayments	11	28	–	–	2	(1)	–	(18)	–	11	(1)

No impairments have been recognized in profit or loss in the financial year 2016 (2015: EUR 0 million). No reversals of impairments have been recognized in the financial year 2016 or in the prior year.

Amortization

Impairment testing for cash generating units with goodwill

For the purposes of impairment testing, goodwill is assigned to the following cash generating unit (CGU) as follows:

in EUR million	31.12.2016	31.12.2015
easybank AG, Vienna	1	1
Goodwill	1	1

The material assumptions made in estimating the recoverable amount of easybank AG are explained below. Material assumptions are based on assessments of future developments in the relevant sectors and are based on information obtained from external and internal sources.

in %	2016	2015
Discount rate	10.2%	10.1%
Sustainable growth rate	1.0%	1.0%
Planned profit growth rate (average for the next five years)	16.7%	2.5%

The discount rate is before taxes and was estimated based on average equity returns in the sector. This discount rate was calculated based on the pre-tax interest rate required in IAS 36, taking into account the substantial tax loss carryforwards of BAWAG P.S.K. The risk-free interest rate used is the yield on government bonds with a remaining term to maturity of 30 years published by the German central bank. This discount rate is adjusted by applying a risk premium that reflects the higher general risk

associated with an equity investment and the specific risk of the individual cash generating unit.

The cash flow projections are based on the annual profits planned by the management of the company for the next five years and a perpetual growth rate thereafter. The sustainable growth rate was determined on the basis of the estimated long-term annual profit growth rate, which matches the assumption that a market participant would make.

Sensitivity analysis as of 31.12.2016

A sensitivity analysis was used to test the robustness of the impairment test for goodwill, which was based on the assumptions outlined above. A change in the discount rate and a change in growth were chosen as the relevant parameters. The table below shows to what extent an

increase in the discount rate or a decline in growth after 2017 could occur without the fair value of the cash generating unit sinking below the carrying value (equity plus goodwill).

	Change in discount rate(in percentage pts)	Change in growth after2017 (in %)
easybank AG, Vienna	3,235	<(100)%

Sensitivity analysis as of 31.12.2015

	Change in discount rate(in percentage pts)	Change in growth after2016 (in %)
easybank AG, Vienna	49	<(100)%

21 | Net deferred tax assets and liabilities on Statement of Financial Position

The deferred tax assets and liabilities reported on the Statement of Financial Position are the result of temporary differences between the carrying amounts pursuant to IFRS and the valuations of the following items according to the tax requirements:

in EUR million	31.12.2016	31.12.2015
Financial liabilities designated at fair value through profit or loss	35	30
Loans and receivables	73	99
Provisions	68	51
Tax loss carryforwards	150	217
Other	6	4
Deferred tax assets	332	401
Financial assets designated at fair value through profit or loss	13	16
Available-for-sale financial assets	23	21
Assets held for trading	50	48
Hedging derivatives	112	76
Internally generated intangible assets	6	2
Other intangible assets	3	–
Property, plant and equipment	1	1
Other	–	2
Deferred tax liabilities	208	166
Deferred tax assets reported on the balance sheet	153	238
Deferred tax liabilities reported on the balance sheet1)	29	3

1. Representing deferred tax liabilities of a newly acquired company which was not part of the tax group as of 31 December 2016.

For each Group member, the deferred tax assets and liabilities pertaining to the same local tax authority were offset against each other and reported under Tax assets or Tax liabilities.

The Group's assets included deferred tax assets accounted for on the grounds of the recognized benefits arising from as yet unused tax losses in the amount of EUR 150 million (2015: EUR 217 million). The tax losses can be carried forward for an unlimited period. The taxed portion of the liability reserve was EUR 372.9 million (2015: EUR 372.9 million). The total liability reserve amounted to EUR 613.7 million as of 31 December 2016 (2015: EUR 613.7 million).

As of 31 December 2016, unused tax losses amounted to EUR 594 million (2015: EUR 868 million) at the level of

BAWAG P.S.K., EUR 0 million (2015: EUR 0 million) at the level of members of the tax group included in the consolidated financial statements and EUR 5 million (2015: EUR 66 million) at the level of other companies included in the consolidated financial statements, hence a total of EUR 599 million (2015: EUR 934 million).

Temporary differences for which no deferred tax liabilities were recognized, as permitted by IAS 12.39, came to EUR 302 million (2015: EUR 108 million). IAS 12.39 stipulates that, in the case of temporary differences associated with investments in subsidiaries, deferred tax liabilities do not have to be recognized if the parent is able to control the timing of the reversal of the temporary difference and it is not probable that the temporary difference will be reversed in the foreseeable future.

22 | Other assets

in EUR million	31.12.2016	31.12.2015
Accruals	18	21
Leasing objects not in operation yet	2	7
Other items	112	74
Other assets	132	102

The other items include accounts relating to payment and miscellaneous other assets.

23 | Financial liabilities designated at fair value through profit or loss

in EUR million	31.12.2016	31.12.2015
Issued bonds, subordinated and supplementary capital	1,115	1,269
Issued bonds (own issues)	190	149
Subordinated capital	109	123
Supplementary capital	–	25
Short-term notes and non-listed private placements	816	972
Financial liabilities designated at fair value through profit or loss	1,115	1,269

The Issued bonds are listed issues. The increase compared to the previous year was mainly driven by the acquisition of IMMO-BANK AG partly compensated by redemptions of own issues.

Financial liabilities designated at fair value through profit or loss include issues of the former P.S.K. which are guaranteed by the Republic of Austria.

The carrying amount of the securities issued by BAWAG P.S.K. and recognized at their fair value as of 31 December 2016 was EUR 79 million above their repayment amount (2015: EUR 77 million above the repayment amount).

24 | Financial liabilities held for trading

in EUR million	31.12.2016	31.12.2015
Derivatives trading book	143	291
Foreign currency derivatives	46	152
Interest rate derivatives	97	139
Derivatives banking book	474	780
Foreign currency derivatives	193	501
Interest rate derivatives	281	279
Financial liabilities held for trading	617	1,071

25 | Financial liabilities measured at amortized cost

in EUR million	31.12.2016	31.12.2015
Deposits from banks	2,064	3,586
Deposits from customers	25,998	21,695
Savings deposits – fixed interest rates	1,928	2,363
Savings deposits – variable interest rates	6,372	4,556
Deposit accounts	6,074	5,490
Current accounts – Retail	7,341	6,488
Current accounts – Corporates	2,505	2,006
Other deposits1)	1,778	792
Issued bonds, subordinated and supplementary capital	4,900	3,236
Issued bonds	3,042	1,264
Subordinated capital	428	410
Supplementary capital	36	5
Short-term notes and unlisted private placements	1,394	1,557
Financial liabilities at amortized cost	32,962	28,517

1. Primarily time deposits.

The bonds issued by BAWAG P.S.K. were listed securities.

26 | Issued bonds, subordinated and supplementary capital

Issued bonds, subordinated and supplementary capital are shown in the category Financial liabilities designated at fair value through profit or loss and in the category Financial

liabilities measured at amortized cost. The total volume amounts to (IFRS book values):

	Recognized at fair value		Recognized at amortized cost				Total
in EUR million	2016	2015	2016	2015	2016	2015
Issued bonds (own issues)	190	149	3,042	1,264	3,232	1,413
Subordinated capital	109	123	428	410	537	533
Supplementary capital	–	25	36	5	36	30
Short-term notes and unlistedprivate placements	816	972	1,394	1,557	2,210	2,529
Total	1,115	1,269	4,900	3,236	6,015	4,505

The following table shows the main conditions of issued bonds exceeding a nominal value of EUR 200 million:

ISIN	Type	Currency	Nominal valuein EUR million	Type of interestpayment	Coupon	Maturity date
XS1514988689	RMBS	GBP	783	Variable	3M LIBOR + 0.7%	15.09.2045
XS0830444039	Covered	EUR	500	Fixed	1.875%	18.09.2019
XS1298418184	Covered	EUR	500	Fixed	0.375%	01.10.2020
XS1369268534	Covered	EUR	500	Fixed	0.375%	23.02.2022
XS0987169637	Lower Tier II	EUR	300	Fixed	8.125%	30.10.2023

27 | Deposits from customers

The following table depicts the breakdown of deposits from customers by product class and business sector.

Deposits from customers – breakdown by product class and business sector

	At amortized cost
in EUR million	31.12.2016	31.12.2015
Savings deposits	8,300	6,919
Savings accounts	4,565	4,389
Building savings deposits	1,786	–
Fixed-term investment savings accounts	1,941	2,384
Savings associations	8	146
Other deposits	17,698	14,776
Retail	11,834	9,946
Corporates	5,006	3,835
Non-credit institutions	669	626
Central governments	189	369
Deposits from customers	25,998	21,695

28 | Liabilities maturities

The following tables depict a breakdown of the financial liabilities (excluding derivatives) by legal maturity.

Financial liabilities – breakdown by remaining period to maturity 2016

31.12.2016in EUR million	Up to3 months	3 monthsup to 1 year	1–5 years	Over 5 years	Total
Liabilities designated at fair value throughprofit or loss
Bonds	9	40	74	67	190
Subordinated capital	–	–	24	85	109
Supplementary capital	–	–	–	–	–
Short-term notes and non-listed privateplacements	15	64	482	255	816
Liabilities at amortized cost
Deposits from customers	20,375	3,425	2,021	177	25,998
Deposits from banks	1,380	71	312	301	2,064
Bonds	75	151	1,552	1,264	3,042
Subordinated capital	1	–	43	384	428
Supplementary capital	5	10	21	–	36
Short-term notes and non-listed privateplacements	36	1	252	1,105	1,394
Total	21,896	3,762	4,781	3,638	34,077

Financial liabilities – breakdown by remaining period to maturity 2015

31.12.2015in EUR million	Up to3 months	3 monthsup to 1 year	1–5 years	Over 5 years	Total
Liabilities designated at fair value throughprofit or loss
Bonds	–	18	98	33	149
Subordinated capital	–	18	21	84	123
Supplementary capital	5	20	–	–	25
Short-term notes and non-listed privateplacements	3	90	404	475	972
Liabilities at amortized cost
Deposits from customers	17,293	2,821	1,416	165	21,695
Deposits from banks	2,144	33	1,091	318	3,586
Bonds	–	12	1,218	34	1,264
Subordinated capital	–	–	29	381	410
Supplementary capital	–	–	5	–	5
Short-term notes and non-listed privateplacements	–	119	272	1,166	1,557
Total	19,445	3,131	4,554	2,656	29,786

29 | Provisions

in EUR million	31.12.2016	31.12.2015
Provisions for social capital	386	390
thereof for severance payments	97	96
thereof for pension provisions	260	265
thereof for jubilee benefits	29	29
Anticipated losses from pending business	8	24
Credit promises and guarantees	8	24
Other items including legal risks	10	5
Provisions	404	419

Provisions for social capital are long-term liabilities. Provisions for anticipated losses on pending business in the amount of EUR 2 million and other risks including legal

risks in the amount of EUR 3 million are expected to be used after more than twelve months.

Changes in social capital

Provisions forpost-employmentbenefits	Provisions forseverancepayments	Provisions forjubilee benefits	Total socialcapital
276	96	29	401
1	5	2	7
6	2	1	8
–	–	–	–
2	3	3	8
(2)	(2)	(4)	(7)
0	(1)	–	(1)
–	–	–	–
(14)	(9)	(3)	(25)
1	6	1	8
(0)	(3)	–	(3)
270	97	29	397
(10)	–	–	(10)
260	97	29	387

	Provisions for	Provisions for	Provisions for	Total social
in EUR million	post-employmentbenefits	severancepayments	jubilee benefits	capital
Defined benefit obligation as of 01.01.2015	371	98	32	501
Service cost	1	5	2	8
Interest cost	7	2	1	10
Actuarial gain/loss
from demographic assumptions	–	–	–	–
from financial assumptions	(6)	–	–	(6)
due to other reasons, mainly experienceresults	(9)	(2)	(4)	(15)
Gain from settlements	(22)	–	–	(22)
Return on plan assets excluding interest incomerecognized in profit or loss	–	–	–	–
Other
Payments	(15)	(8)	(2)	(25)
Payments from settlements	(50)	–	–	(50)
Other	(1)	1	–	–
Defined benefit obligation as of 31.12.2015	276	96	29	401
Fair value of plan assets	(11)	–	–	(11)
Provision as of 31.12.2015	265	96	29	390

At 31 December 2016, the weighted average duration was 14.60 years (2015: 14.98 years) for defined benefit obligations relating to pension plans and 11.07 years

(2015: 11.46 years) for obligations arising from entitlement to severance payments.

Assignable unit-linked pension fund assets

	'n EUR million
--	----------------	--	--

in EUR million	2016	2015
Pension fund assets as of 01.01.2016	11	12
Additions	–	–
Payments	(1)	(1)
Pension fund assets as of 31.12.2016	10	11

The fair value changes contain expected returns on plan assets, actuarial gains and losses, contributions by the

employer, contributions by plan participants and benefits paid.

The Pension fund assets consist of:

in %	2016	2015
Bonds	67%	72%
Equities	16%	14%
Cash and cash equivalents	1%	1%
Other	17%	13%

Bonds issued by BAWAG P.S.K. amount to 0.04% of plan assets.

All equity securities and fixed income bonds have quoted prices in active markets. All fixed income investments are mainly issued by European issuers and have an average rating of A.

The strategic investment policy of the pension fund can be summarized as follows:

• a strategic asset mix comprising 57% government bonds, 15% corporates, 14% equities and 14% other investments;
• the weighting of the investment classes may vary from the long-term strategic asset allocation within a defined range: government bonds: 28%–86%, corporates: 0%– 25%, equities: 0%–20%, other investments: 0%–20%;
• interest rate risk is monitored and managed through active duration risk management of all fixed income assets;
• currency risk is managed with the objective of reducing the risk to a maximum of 30%.

BAWAG P.S.K. expects that payments in the amount of EUR 0.2 million will have to be made to the pension fund in 2017 (2016: EUR 0.3 million).

Sensitivity analysis

Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have resulted in the following defined benefit obligation for pension and severance

payments. The basis for the calculation is the present value of the defined benefit obligations as of 31 December 2016 in the amount of EUR 367 million:

Sensitivity analysis as of 31 December 2016

	Provisions for post-employmentbenefits and severance payments
in EUR million	Increase ofvariable	Decrease ofvariable
Discount rate – 1 percentage point movement	323	422
Future salary growth – 1 percentage point movement	421	323
Attrition – 1 percentage point movement	352	370
Future mortality – 1 percentage point movement (post-employment benefits only)	270	272

Sensitivity analysis as of 31 December 2015

	Provisions for post-employmentbenefits and severance payments
in EUR million	Increase ofvariable	Decrease ofvariable
Discount rate – 1 percentage point movement	325	429
Future salary growth – 1 percentage point movement	427	325
Attrition – 1 percentage point movement	355	374
Future mortality – 1 percentage point movement (post-employment benefits only)	275	277

Changes in other provisions

in EUR million	Balance01.01.2016	Change inscope ofconsolidation	Added	Used	Released	Balance31.12.2016
Other provisions	29	10	10	(27)	(4)	18
Anticipated losses frompending business	24	–	5	(18)	(3)	8
Other items	5	10	5	(9)	(1)	10

in EUR million	Balance01.01.2015	Change inscope ofconsolidation	Added	Used	Released	Balance31.12.2015
Other provisions	33	–	6	(5)	(5)	29
Anticipated losses frompending business	27	–	4	(3)	(4)	24
Other items	6	–	2	(2)	(1)	5

30 | Other obligations

in EUR million	31.12.2016	31.12.2015
Accounts relating to payment	283	247
Liabilities resulting from restructuring	150	141
Other liabilities	244	181
Accruals	4	8
Other obligations	681	577

31 | Hedging derivatives

in EUR million	31.12.2016	31.12.2015
Hedging derivatives in fair value hedges
Positive market values	595	469
Negative market values	95	106
Hedging derivatives in cash flow hedges
Positive market values	82	–
Negative market values	165	–

BAWAG P.S.K. uses fair value hedge accounting to account for hedges of interest rate risk inherent in fixed-rate financial instruments. Hedging instruments are usually interest rate swaps. The hedged items are securities in the category Available-for-sale financial assets as well as the

Bank's own issues, savings accounts and loans to customers that are recognized at amortized cost. Since January 2016, BAWAG P.S.K. has applied cash flow hedge accounting according to IAS 39 for highly probable future cash flows from certain foreign currency portfolios.

		Notional of hedged items		Net book value ofhedging instruments	Net result of hedged itemand hedging instrument recognized in the financial year
in EUR million	31.12.2016	31.12.2015	31.12.2016	31.12.2015	31.12.2016	31.12.2015
Available-for-sale financialassets	1,562	1,135	(34)	(44)	1	–
Securities	1,562	1,135	(34)	(44)	1	–
Financial instrumentsrecognized at amortized cost	12,576	11,207	534	407	–	1
Securities	90	172	(1)	(7)	–	–
Own issues	3,209	2,462	235	212	(2)	(1)
Savings deposits of customers	1,153	2,552	16	27	–	1
Loans to customers	305	305	(50)	(47)	–	–
Liabilities to customers	7,819	5,716	334	222	2	1
Total	14,138	12,342	500	363	1	1

The effects of changes in the value of the hedging instrument and the hedged item are shown under Note 4 Gains and losses on financial assets and liabilities.

The time periods in which the hedged cash flows are expected to occur and affect profit or loss are:

31.12.2016in EUR million	Within 1 year	1 to 5 years	Over 5 years	Total
	593	1,644	909	3,147

32 | Equity

Share capital

BAWAG P.S.K. has fully paid in share capital of EUR 250 million divided into 250,000,000 shares which remained unchanged compared to the previous year.

Non-controlling interests

The 75% share in ACP-IT Finanzierungs GmbH resulted in non-controlling interests in the amount of EUR 2 million.

Liability reserve (Haftrücklage)

Credit institutions are required to allocate a liability reserve (Haftrücklage) according to section 57 paragraph 5 BWG. The liability reserve may be reversed only insofar as this is required to meet obligations pursuant to section 93 BWG or to cover other losses to be reported in the annual financial statements.

Changes in other comprehensive income

in EUR million	Retainedreserves	AFS reserve	Cash flow hedgereserve net oftax	Actuarial gains/losses	Equity w/o noncontrollinginterests	Non-controllinginterests	Equity includingnon-controllinginterests
Total comprehensive income2016	390.6	(1.8)	6.3	(1.4)	393.7	0.3	394.0
Consolidated profit/loss	390.6	–	–	–	390.6	0.3	390.9
Income and expensesrecognized directly in equity	–	(1.8)	6.3	(1.4)	3.1	–	3.1
Change in cash flow hedgereserve	–	–	8.4	–	8.4	–	8.4
Changes in AFS reserves	–	2.9	–	–	2.9	–	2.9
Income and expensesrecognized directly inequity (before taxes)	–	2.9	–	–	2.9	–	2.9
Share of other comprehensiveincome of associatesaccounted for using theequity method	–	(2.3)	–	–	(2.3)	–	(2.3)
Actuarial gains (losses) ondefined benefit pension plans	–	–	–	(1.9)	(1.9)	–	(1.9)
Income taxes	–	(2.4)	(2.1)	0.5	(4.0)	–	(4.0)

in EUR million	Retainedreserves	AFS reserve	Cash flow hedgereserve net oftax	Actuarial gains/losses	Equity w/o noncontrollinginterests	Non-controllinginterests	Equity includingnon-controllinginterests
Total comprehensive income2015	417.9	(65.9)	–	12.6	364.6	–	364.6
Consolidated profit/loss	417.9	–	–	–	417.9	–	417.9
Income and expensesrecognized directly in equity	–	(65.9)	–	12.6	(53.3)	–	(53.3)
Changes in AFS reserves	–	(92.5)	–	–	(92.5)	–	(92.5)
Income and expensesrecognized directly inequity (before taxes)	–	(92.5)	–	–	(92.5)	–	(92.5)
Share of other comprehensiveincome of associatesaccounted for using theequity method	–	2.2	–	–	2.2	–	2.2
Actuarial gains (losses) ondefined benefit pension plans	–	–	–	16.8	16.8	–	16.8
Income taxes	–	24.4	–	(4.2)	20.2	–	20.2

Deferred income taxes recognized in Other comprehensive income

	Beforetaxes	Income taxes	Aftertaxes	Beforetaxes	Income taxes	Aftertaxes
in EUR million		01.01.–31.12.2016			01.01.–31.12.2015
Cash flow hedge reserve	8.4	(2.1)	6.3	–	–	–
AFS reserve	0.6	(2.4)	(1.8)	(90.3)	24.4	(65.9)
Actuarial gains (losses) ondefined benefit pension plans	(1.9)	0.5	(1.4)	16.8	(4.2)	12.6
Income and expenses recognizeddirectly in equity	7.1	(4.0)	3.1	(73.5)	20.2	(53.3)

SEGMENT REPORTING

This information is based on the Group structure as of 31 December 2016.

The segment reporting presents the results of the operating business segments of BAWAG Holding Group The following segment information is based on IFRS 8 Operating Segments, which follows the management approach. In this, the segment information is prepared on the basis of the internal reports used by the Managing Board to assess the performance of the segments and to make decisions on allocating resources to the segments.

The breakdown of the net interest income and its allocation to the segments in the management report is based on the principles of the market interest rate method, also taking into account allocated liquidity costs and premiums. According to this method, it is assumed that asset and

liability items are refinanced by means of money and capital market transactions with corresponding maturities, and that there is therefore no interest rate risk. The interest rate risk is managed actively through asset and liability management, and the related results are reported in the Corporate Center. The remaining earnings components and the directly allocable costs are assigned to the respective business units on the basis of where they are incurred. The overhead costs are assigned to the individual segments according to an allocation factor.

As of June 2016, certain changes in the business segment reporting were made to be more transparent and better reflect the developments and our progress in the individual business segments going forward. The prior-year figures have been adjusted accordingly. A summary of the major changes and rationale is provided below:

Old reporting	New reporting	Changes
Retail Banking andSmall Business	BAWAG P.S.K. Retail	Segment split to clearly show the BAWAG P.S.K. origination capacities in retail and smallbusiness banking, adding own issues covered with retail assetsand Wohnbaubank bonds from the Corporate Center to combine
	easygroup	directly connected business activities in one business segment our direct bank activities of easybank with its leasing subsidiariesincluding international retail lending activities
Corporate Lending andInvestments	DACH Corporates &Public Sector	Segment split to clearly show direct customer business through the business solution partnersin the DACH region, adding own issues covered with corporate orpublic assets as well as direct refinancings from the Corporate
	International Business	Center to combine directly connected business activities in onebusiness segment international origination business from the London officepredominantly in Western markets
Treasury Services andMarkets	Treasury Services &Markets	 Adding the liquidity portfolio as well as funding activities(unsecured issues, repos and short-term liquidity actions) fromthe Corporate Center
Corporate Center	Corporate Center	 Splitting out assets/liabilities as described above to clearly focuson non business related positions in the Corporate Center

BAWAG Holding Group is managed in accordance with the following six main business and reporting segments:

• BAWAG P.S.K. Retail includes savings, payment, card and lending activities, investment and insurance services for our domestic private customers, small business lending and our social housing activities, building society savings and loans as well as real estate leasing.

• easygroup includes our direct banking subsidiary easybank with a full online product offering, e.g. savings, payments, card and lending activities for private and small business customers, along with our auto and mobile leasing platforms as well as lending to our international retail clients.

• DACH Corporates & Public Sector includes our corporate and public lending business and other feedriven financial services for mainly Austrian customers; as we also support our clients in their cross-border activities, selective client relationships in neighboring countries are included in this segment as well.

• International Business includes lending activities to international corporates as well as international real estate financing activities outside the DACH region originated by our London office.

• Treasury Services & Markets includes any treasury activities associated with providing trading and investment services such as certain asset-liability management transactions (including secured and unsecured funding) and the investment results of our portfolio of financial securities.

• Corporate Center includes unallocated items related to support functions for the entire Bank, accounting positions (e.g. market values of derivatives) and select results related to subsidiary and participation holdings. Regulatory charges (except for deposit guarantee scheme contributions) and corporate taxes are assigned to the Corporate Center.

Our segments are fully aligned with our business strategy as well as our objective of providing transparent reporting of our business units and Bank-wide results while minimizing the financial impact within the Corporate Center.

The segments in detail:

2016in EUR million	BAWAGP.S.K.Retail	easygroup	DACHCorporates& PublicSector	InternationalBusiness	TreasuryServices &Markets	CorporateCenter	BAWAGHoldingGroup	Scope ofconsolidationadjustment	BAWAGP.S.K.Group1)
Net interestincome	352.3	115.8	79.5	134.0	54.3	(5.9)	730.0	0.0	730.0
Net fee andcommissionincome	141.1	10.1	39.7	(0.1)	0.0	2.1	192.9	0.0	192.9
Core revenues	493.4	125.9	119.2	133.9	54.3	(3.8)	922.9	0.0	922.9
Gains andlosses onfinancialinstruments	0.8	0.0	1.0	(2.8)	11.9	8.2	19.1	(0.1)	19.0
Other operatingincome andexpenses	1.5	(1.4)	0.0	0.0	0.0	48.4	48.5	0.1	48.6
Operatingincome	495.7	124.5	120.2	131.1	66.2	52.8	990.5	0.0	990.5
Operatingexpenses	(273.5)	(30.6)	(53.6)	(29.9)	(16.3)	(35.4)	(439.3)	3.8	(435.5)
Regulatorycharges	(12.3)	(2.4)				(31.4)	(46.1)	0.0	(46.1)
Total risk costs	(40.8)	(4.8)	4.4	1.2	0.0	(2.7)	(42.7)	0.0	(42.7)
Share of theprofit or loss ofassociatesaccounted forusing the equitymethod						8.0	8.0	0.0	8.0
Profit beforetax	169.1	86.7	71.0	102.4	49.9	(8.7)	470.4	3.8	474.2
Income taxes						13.4	13.4	(96.7)	(83.3)
Profit after tax	169.1	86.7	71.0	102.4	49.9	4.7	483.8	(92.9)	390.9
Non-controllinginterests						(0.2)	(0.2)	(0.1)	(0.3)
Net profit	169.1	86.7	71.0	102.4	49.9	4.5	483.6	(93.0)	390.6
Businessvolumes
Assets	11,659	4,458	7,812	5,634	6,691	3,489	39,743	(287.0)	39,456
Risk-weightedassets	4,432	2,346	2,916	4,169	2,031	1,246	17,140	(65.0)	17,075

1. The Management is operating the Banking Group on BAWAG Holding Group level only.

2015in EUR million	BAWAGP.S.K.Retail	easygroup	DACHCorporates& PublicSector	InternationalBusiness	TreasuryServices &Markets	CorporateCenter	BAWAGHoldingGroup	Scope ofconsolidationadjustment	BAWAGP.S.K.Group1)
Net interestincome	331.4	57.1	99.4	142.2	58.1	34.1	722.3	0.0	722.3
Net fee andcommissionincome	135.9	8.1	39.2	0.0	0.0	2.7	185.9	0.0	185.9
Core revenues	467.3	65.2	138.6	142.2	58.1	36.8	908.2	0.0	908.2
Gains andlosses onfinancialinstruments	6.5	0.0	5.1	(6.0)	13.8	45.4	64.8	12.1	76.9
Other operatingincome andexpenses	1.1	0.1	0.0	0.0	0.0	(2.4)	(1.2)	0.0	(1.2)
Operatingincome	474.9	65.3	143.7	136.2	71.9	79.8	971.8	12.1	983.9
Operatingexpenses	(303.2)	(23.4)	(56.8)	(25.7)	(19.0)	(42.1)	(470.2)	12.5	(457.7)
Regulatorycharges	(6.3)					(30.5)	(36.8)	0.0	(36.8)
Total risk costs	(33.9)	0.1	(6.4)	0.2	0.0	(5.8)	(45.8)	0.0	(45.8)
Share of theprofit or loss ofassociatesaccounted forusing the equitymethod						(0.5)	(0.5)	5.1	4.6
Profit beforetax	131.5	42.0	80.5	110.7	52.9	0.9	418.5	29.7	448.2
Income taxes						(24.1)	(24.1)	(6.2)	(30.3)
Profit after tax	131.5	42.0	80.5	110.7	52.9	(23.2)	394.4	23.5	417.9
Non-controllinginterests						0.0	0.0	0.0	0.0
Net profit	131.5	42.0	80.5	110.7	52.9	(23.2)	394.4	23.5	417.9
Businessvolumes
Assets	9,178	3,644	7,527	5,748	6,293	3,318	35,708	(193.0)	35,515
Risk-weightedassets	3,827	1,897	3,087	4,565	1,785	1,373	16,534	(10.0)	16,524

1. The Management is operating the Banking Group on BAWAG Holding Group level only.

As the internal reporting and management is performed on BAWAG Holding Group level, the total of reportable segments' measures of profit or loss differs from BAWAG

P.S.K. Group's profit or loss. Therefore, a separate reconciliation column is shown in the segment table. The segment result is reconciled with the Profit or Loss Statement as follows:

in EUR million	2016	2015
Gains and losses on financial instruments according to segment report	19.1	76.9
Gains and losses on financial assets attributable to non-controlling interests	–	–
Gains and losses on financial assets and liabilities according to Consolidated Profitor Loss Statement	19.1	76.9

in EUR million	2016	2015
Other operating income and expenses according to segment report	48.5	(1.2)
Regulatory charges	(43.8)	(35.2)
Other operating income and expenses according to Consolidated Profit or LossStatement	4.7	(36.4)

in EUR million	2016	2015
Profit before tax according to segment report	474.2	448.2
Gains and losses on financial assets attributable to non-controlling interests	–	–
Profit before tax according to Consolidated Profit or Loss Statement	474.2	448.2

CAPITAL MANAGEMENT

The capital management of Promontoria Sacher Holding N.V. Group is based on own funds as defined by the CRR (Capital Requirements Regulation) and the corresponding national regulations (Basel 3 Pillar 1) and the economic capital management approach (Basel 3 Pillar 2) related to the Internal Capital Adequacy Assessment Process (ICAAP).

The ICAAP is modeled taking into account the Group's business and risk profile and is an integral part of the planning and the control system. In the course of the ICAAP, the risk-bearing capacity of the Group is ensured and the efficient use of capital for risk coverage monitored. In addition, stress tests complement the steering process.

As part of the SREP (Supervisory Review and Evaluation Process) within the JRAD (Joint Risk Assessment and Decision) framework and in accordance with the Comprehensive Bank Assessment of the ECB, the overall risk management process of Promontoria Sacher Holding N.V. Group was reviewed in detail. As a result, it was concluded that the level of own funds held within Promontoria Sacher Holding N.V. Group with respect to its financial situation and risk profile is broadly adequate. The official notification also includes the specification of an SREP (Supervisory Review and Evaluation Process) ratio at the level of Promontoria Sacher Holding N.V. Group, which requires the maintenance of minimum capital ratios in pillar 1 to meet the requirements for pillar 2.

In addition to the minimum capital ratios required by the regulators, early warning and recovery levels in Promontoria Sacher Holding N.V.'s recovery plan and the corresponding processes are defined. The warning levels refer to liquidity as well as to regulatory and economic capital figures. The recovery plan was prepared within the framework of BaSAG (Bundesgesetz über die Sanierung und Abwicklung von Banken, "Austrian Banking Resolution and Recovery Act").

The Group constantly monitors its compliance with the warning levels and therefore at the same time with the

stipulated own funds ratios on the basis of the notifications sent to Oesterreichische Nationalbank (the Austrian national bank) and on the basis of current business developments.

The budgeted business volumes are also compared with the expected movements in the eligible own funds at the beginning of every financial year. In addition to the riskweighted assets from credit risk, the calculation also includes the own funds requirement for market and operational risk. Besides regulatory capital management, economic capital limits aligned with the business plan are assigned to the business segments as part of the ICAAP process.

The Group employs a centralized capital management process. The main responsibilities of this function are to continuously monitor the development of the Group's business, to analyze changes in its risk-weighted assets and to reconcile those with the available regulatory own funds or the ICAAP limit and utilizations for each segment.

Additionally, the Capital Management Team tracks all new regulatory changes, e.g. MREL and Basel IV. The impact of the new regulatory changes is estimated and the expected effects on the capital position of the Bank is presented to the respective division heads and board members. This process should ensure that the Bank adapts its capital management procedures to the new prudential requirement in time.

The Group manages its capital position based on a fully loaded CRR environment and therefore without the benefit of any transitional rules regarding capital components and the calculation of risk-weighted assets. The Capital Management Team gives recommendations to the Managing Board for strengthening the own funds coverage when necessary and reports to the Bank's Enterprise Risk Meeting once a month.

Regulatory reporting is performed on the level of BAWAG Holding and Promontoria Sacher Holding N.V. Group as the EU parent financial holding company of the group of credit institutions. The following table shows the breakdown of own funds of Promontoria Sacher Holding N.V. Group

applying transitional rules and its own funds requirement as per 31 December 2016 and 31 December 2015 pursuant to CRR applying IFRS figures and the CRR scope of consolidation.

	Promontoria
in EUR million	31.12.20162)	31.12.2015
Share capital and reserves (including funds for general banking risk)	3,121	2,837
Not yet distributed dividend for 20151)	(25)	(286)
Deduction of intangible assets	(190)	(116)
Other comprehensive income	(30)	(33)
IRB risk provision shortfalls	(19)	(20)
Prudent valuation, cumulative gains due to changes in own credit risk on fair valuedliabilities, prudential filter for unrealized gains, cash flow hedge reserve	(47)	(56)
Deferred tax assets that rely on future profitability excluding those arising fromtemporary differences	(100)	(13)
Excess of deduction from AT1 items over AT1 capital	(133)	(189)
Common Equity Tier I	2,577	2,124
IRB risk provision shortfalls	(6)	(15)
Deduction of intangible assets	(127)	(174)
Excess of deduction from AT1 items over AT1 capital	133	189
Additional Tier I	0	0
Tier I	2,577	2,124
Supplementary and subordinated debt capital	484	477
Excess IRB risk provisions	24	16
Less significant investments, IRB risk provision shortfalls	(26)	(36)
Tier II	482	457
Own funds	3,059	2,581

1. Dividends for 2015: In the third quarter 2016, BAWAG Holding paid a dividend of EUR 309 million to Promontoria Sacher Holding N.V., the sole shareholder of BAWAG Holding GmbH. Promontoria Sacher Holding N.V. paid a dividend of EUR 265 million to its shareholders. Another EUR 25 million have not yet been paid out but deducted from CET1 as a foreseeable dividend.

2. Own funds as of 31 December 2016 differ from those as of 31 December 2015 inter alia because of different CRR transitional rules for 2016 and 2015 for the eligibility of capital (mainly available-for-sale reserve) and deductions from own funds (mainly intangible assets and IRB risk provision shortfall).

Capital requirements (risk-weighted assets) based on a transitional basis

Capital requirements (risk-weighted assets)	17,115	16,468
Operational risk	1,633	1,620
Market risk	59	97
Credit risk1)	15,423	14,751
in EUR million	31.12.2016	31.12.2015
		Promontoria

1. Prior-year figures were adjusted due to the reclassification of Holding customers.

Supplemental information on a fully loaded basis

	Promontoria		BAWAG P.S.K.1)
	31.12.2016	31.12.20152)	31.12.2016	31.12.20152)
Common Equity Tier 1 capital ratio based on total risk	14.8%	12.2%	15.0%	12.9%
Total capital ratio based on total risk	17.6%	15.0%	17.8%	15.8%

1. Only for information purposes. No regulatory relevance.

2. Prior-year figures were adjusted due to the reclassification of Holding customers.

Key figures according to CRR including its transitional rules

	Promontoria		BAWAG P.S.K.1)
	31.12.2016	31.12.20152)	31.12.2016	31.12.20152)
Common Equity Tier 1 capital ratio based on total risk	15.1%	12.9%	15.2%	13.6%
Total capital ratio based on total risk	17.9%	15.7%	18.1%	16.4%

1. For information purposes only. No regulatory relevance.

2. Prior-year figures were adjusted due to the reclassification of Holding customers.

During the financial year 2016, BAWAG P.S.K. always complied with the imposed capital requirement of 4.5% for Common Equity Tier 1 ratio and of 8% for total capital ratio according to CRR.

BAWAG P.S.K. has managed its capital structure on a fully loaded basis from the very beginning, not taking into account any transitional rules. Our target CET1 ratio in 2016 was 12% on a fully loaded basis. We delivered a much stronger ratio, coming in at 14.8%. Going forward, we will continue to maintain a fully loaded CET1 ratio above 12%.

FURTHER DISCLOSURES REQUIRED BY IFRS

33 | Fair value

The following table depicts the fair values of the Statement of Financial Position items. These are the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. If market prices were available on a stock exchange or other functioning market, they were used.

If no current, liquid market values were available, generally accepted, standard state-of-the-art methods of measurement were used. This applies to the category liabilities evidenced by paper (issued by BAWAG P.S.K.), and, in individual cases, other current financial assets in the Bank's trading portfolio where the valuation of plain vanilla securities was performed on the basis of the yield curve plus the current credit spread.

The measurement of fair value of customer business was carried out by applying credit spreads for each customer category. The blanket credit spreads are applied for the following customer categories: credit institutions, commercial customers, public sector and private customers, for which mortgage loans and other loans are considered separately. The credit spreads in customer business are derived by analyzing both external data (market developments and OeNB statistics) and internal default statistics.

Linear derivative financial instruments containing no optional components (such as interest rate swaps, currency forwards and futures) were also measured using a present value technique (discounting of future cash flows applying the current swap curve, derivatives with counterparties with a Credit Support Annex [CSA] agreement are discounted by the OIS/EONIA curve).

Optional instruments were measured using option price models such as Black-Scholes (swaptions, caps, floors), Bachelier (caps, floors and swaptions in currencies with negative interest rates), Garman-Kohlhagen (currency options) or the Hull-White model (swaps with multiple cancellation rights), which were implemented and applied consistently in the front office systems.

The basic parameters on which the models are based (yield curves, volatilities and exchange rates) are input into the system by the Market Risk unit independently of the Treasury division, which ensures the separation of front office functions from back office processing and control.

For more complex derivatives that are held for hedging purposes and that are concluded back to back, external valuations are obtained by the Market Risk unit and input into the systems for correct processing.

Standard providers such as Reuters are used to evaluate the spreads of issued securities recognized at fair value through profit or loss; for this, a BAWAG P.S.K. senior unsecured spread curve is derived from a defined pool of bank bonds, additionally taking into account a liquidity and rating premium. For covered issues, the spread curve is derived from the quotations of BAWAG P.S.K. benchmark bonds. The securities prices for BAWAG P.S.K. issues are then calculated by discounting the swap curve adapted by the spread.

In 2016, the portion of change in fair values of securities issued by BAWAG P.S.K. accounted for solely by changes in our credit spreads was minus EUR 5.9 million (minus EUR 7.3 million as of 31 December 2015). As of 31 December 2016, the cumulative fair value change resulting from changes in our credit rating amounted to EUR 17.7 million (EUR 24.6 million as of 31 December 2015).

A one basis point narrowing of the credit spread is expected to change their valuation by minus EUR 0.2 million (minus EUR 0.3 million as of 31 December 2015).

The cumulative fair value change of receivables recognized at fair value through profit or loss that was recognized due to changes in credit spreads amounted to plus EUR 0.7 million as of 31 December 2016 (minus EUR 0.3 million as of 31 December 2015) and is calculated as the change in the spread between the government yield curve and the swap curve during the observed period. The respective annual fair value change amounted to minus EUR 1.3 million (minus EUR 6.5 million as of 31 December 2015). A one basis point narrowing of the credit spread is expected to change their valuation by plus EUR 0.10 million (plus EUR 0.11 million as of 31 December 2015).

Fair values of selected items on the Statement of Financial Position

The following table depicts a comparison of the carrying amounts and fair values for selected items on the Statement of Financial Position.

	Carryingamount	Fair value	Carryingamount	Fair value
in EUR million	31.12.2016	31.12.2016	31.12.2015	31.12.2015
Assets
Cash reserves	1,020	1,020	809	809
Financial assets designated at fair value through profit or loss	202	202	303	303
Available-for-sale financial assets
Recognized at fair value	3,129	3,129	2,665	2,665
Recognized at cost	67	n/a	67	n/a
Held-to-maturity investments	2,353	2,448	2,290	2,369
Assets held for trading	652	652	950	950
Loans and receivables	30,825	31,302	27,396	27,543
Hedging derivatives	677	677	469	469
Property, plant and equipment	53	n/a	59	n/a
Investment properties	3	5	4	6
Intangible non-current assets	141	n/a	104	n/a
Other assets	334	n/a	390	n/a
Assets in disposal groups	–	n/a	9	n/a
Total assets	39,456		35,515
Equity and liabilities
Financial liabilities designated at fair value through profit or loss	1,115	1,115	1,269	1,269
Liabilities held for trading	617	617	1,071	1,071
Financial liabilities at amortized cost	32,962	33,261	28,517	28,758
Financial liabilities associated with transferred assets	300	300	621	621
Valuation adjustment on interest rate risk hedged portfolios	223	223	169	169
Hedging derivatives	260	260	106	106
Provisions	404	n/a	419	n/a
Other obligations	727	n/a	583	n/a
Obligations in disposal groups	–	n/a	–	n/a
Equity	2,846	n/a	2,759	n/a
Non-controlling interests	2	n/a	1	n/a
Total liabilities and equity	39,456		35,515

The fair values of investment properties were determined by external property valuers having appropriate recognized professional qualifications and recent experience in the location and category of property being valued. The carrying amount of other assets and other obligations is a reasonable approximation of fair value. Therefore, information on the fair value of these items is not shown.

The available-for-sale financial assets include EUR 67 million in investments in private and public limited companies. The fair value of these financial instruments has not been disclosed because their fair value cannot be measured reliably. There is no active market for these financial instruments and future cash flows cannot be calculated reliably. BAWAG P.S.K. does not intend to sell or derecognize significant investments in equity held at the reporting date in the near future.

Securities recognized in the line items Held to maturity investments and Loans and receivables are measured at amortized cost. Therefore, their book value does not include unrealized gains in the amount of EUR 130 million. Furthermore, own issues recognized in the line item Financial liabilities designated at amortized cost do not

Fair value hierarchy

The following table depicts an analysis of the financial instruments recognized at their fair values on the basis of the fair value hierarchy in IFRS 13. The breakdown consists of the following groups:

• Level 1: The value of financial instruments is measured using a quoted price without adjustment. This includes government bonds, bonds with quoted prices and exchange-traded derivatives.
• Level 2: The value is measured using input factors (default rates, costs, liquidity, volatility, interest rates, etc.) to derive values from quoted prices (Level 1). This pertains to prices that are calculated using internal models or using valuation methods, as well as to external price quotes for securities that are traded on markets with limited liquidity and that are demonstrably based on observable market prices. This category includes the majority of the OTC derivative contracts, corporate bonds and other bonds for which no quoted price is available, as well as the majority of the Group's own issues that are recognized at their fair values.

include unrealized losses in the amount of EUR 270 million.

• Level 3: The measurement is based on unobservable input factors that have a material influence on the market value. This pertains primarily to illiquid structured securitization instruments whose value is determined by unobservable assumptions (the outcome of litigation, investor decisions, trigger events, etc.) as well as own issues of BAWAG P.S.K. Wohnbaubank and IMMO-BANK. Loans and receivables and financial liabilities measured at amortized cost are valued using the discounted cash flow method using a spreadadjusted swap curve.
• Other: This pertains to stakes in non-consolidated subsidiaries that are classified as available-for-sale.

For the determination of the credit value adjustment for the credit risk of OTC derivatives, netting effects at the customer level within transactions of the same kind and currency are taken into account.

31.12.2016in EUR million	Level 1	Level 2	Level 3	Others1)	Total
Assets				–
Financial assets designated at fair value throughprofit or loss	2	199	1	–	202
Available-for-sale financial assets	2,949	179	1	67	3,196
Held-to-maturity investments	2,436	12	–	–	2,448
Assets held for trading	–	652	–	–	652
Loans and receivables	–	2,436	28,866	–	31,302
Hedging derivatives	–	677	–	–	677
Investment properties			5		5
Total fair value assets	5,387	4,155	28,873	67	38,482
Liabilities
Financial liabilities designated at fair valuethrough profit or loss	–	638	477	–	1,115
Liabilities held for trading	–	617	–	–	617
Financial liabilities at amortized cost	–	6,654	26,607	–	33,261
Financial liabilities associated with transferredassets		300	–	–	300
Valuation adjustment on interest rate risk hedgedportfolios	–	223	–	–	223
Hedging derivatives	–	260	–	–	260
Total fair value liabilities	–	8,692	27,084	–	35,776

1. Investments in equity that are measured at cost in accordance with IAS 39.AG80–81 because their fair value cannot be measured reliably.

31.12.2015in EUR million	Level 1	Level 2	Level 3	Others1)	Total
Assets				–
Financial assets designated at fair value throughprofit or loss	3	298	2	–	303
Available-for-sale financial assets	2.587	74	4	67	2.732
Held-to-maturity investments	2.364	5	–	–	2.369
Assets held for trading	–	950	–	–	950
Loans and receivables	–	2.134	25.409	–	27.543
Hedging derivatives	–	469	–	–	469
Total fair value assets	4.954	3.930	25.415	67	34.366
Liabilities
Financial liabilities designated at fair valuethrough profit or loss	–	801	468	–	1.269
Liabilities held for trading	–	1.071	–	–	1.071
Financial liabilities at amortized cost	–	5.898	22.860	–	28.758
Financial liabilities associated with transferredassets		621			621
Valuation adjustment on interest rate risk hedgedportfolios		169	–	–	169
Hedging derivatives	–	106	–	–	106
Total fair value liabilities	–	8.666	23.328	–	31.994

1. Investments in equity that are measured at cost in accordance with IAS 39.AG80–81 because their fair value cannot be measured reliably.

BAWAG P.S.K. recognizes transfers between levels as of the end of the reporting period during which the transfer has occurred.

Movements between Level 1 and Level 2

In 2016, seven available-for-sale securities were moved from Level 1 to Level 2 due to subsequent illiquid market prices. In 2015, one available-for-sale security was moved from Level 1 to Level 2 due to subsequent illiquid market prices. Five available-for-sale securities were moved from Level 2 to Level 1 due to a more liquid market.

Movements in Level 3 Financial Instruments Measured at Fair Value

The changes in financial instruments accounted for at fair value in the Level 3 category were as follows:

	Financial
	assets designatedat fair valuethrough profit	Available-for-salefinancial assets	Financialliabilities
in EUR million	or loss
Opening balance as of 01.01.2016	2	4	468
Valuation gains (losses) in line item gains and losses on financialassets and liabilities in profit or loss
for assets held at the end of the period	–	–	(12)
for assets no longer held at the end of the period	–	–	–
Valuation gains (losses) in other comprehensive income
for assets held at the end of the period	–	–	–
for assets no longer held at the end of the period	–	–	–
Purchases	–	1	–
Redemptions	(1)	(4)	(40)
Sales	–	–	–
Foreign exchange differences	–	–	–
Change in scope of consolidation	–	–	61
Transfers into or out of Level 3	–	–	–
Closing balance as of 31.12.2016	1	1	477

	Financial
in EUR million	assets designatedat fair valuethrough profitor loss	Available-for-salefinancial assets	Financialliabilities
Opening balance as of 01.01.2015	4	–	525
Valuation gains (losses) in line item gains and losses on financialassets and liabilities in profit or loss
for assets held at the end of the period	1	–	(19)
for assets no longer held at the end of the period	(1)	–	–
Valuation gains (losses) in other comprehensive income
for assets held at the end of the period	–	4	–
for assets no longer held at the end of the period	–	–	–
Purchases	–	–	–
Redemptions	(2)	–	(38)
Sales	–	–	–
Foreign exchange differences	–	–	–
Transfers into or out of Level 3	–	–	–
Closing balance as of 31.12.2015	2	4	468

Valuation (including the parameterization of observable input factors) is performed by a market-independent back office division within the risk group on a monthly basis. Changes that have occurred are verified, as far as possible, by comparing them to references observable on the market.

Holdings in the amount of EUR 5 million that were reported as Level 3 financial instruments on 31 December 2015 were redeemed in the financial year 2016. Financial liabilities in the amount of EUR 40 million that were reported under Level 3 in 2015 were redeemed in the financial year 2016.

Quantitative and qualitative information regarding the valuation of Level 3 financial instruments

The main unobservable input factor for own issues of BAWAG P.S.K. Wohnbaubank is the spread premium on the swap curve, which is used to determine the riskadjusted discount curve. Subsequently, the fair value is calculated by discounting the future cash flows with the risk-adjusted discount curve. The gross spread premium is currently 100 basis points (prior year: 65 basis points) for all maturities (mid).

In general, the mentioned input parameter is dependent on the general market development of credit spreads within the banking sector and in detail on the credit rating development of the housing banks, with spread increases having a positive effect.

Sensitivity analysis of fair value measurement from changes in unobservable parameters

If the value of financial instruments is dependent on unobservable input parameters, the precise level for these parameters can be drawn from a range of reasonably possible alternatives. Financial liabilities in Level 3 that are measured at fair value through profit or loss relate to own issues of BAWAG P.S.K. Wohnbaubank; BAWAG P.S.K. had Level 3 financial assets recognized at their fair value in the amount of EUR 2 million as of 31 December 2016. If the

34 | Treatment of day one gain

IAS 39.AG76 states that the fair value on initial recognition will normally be equal to the transaction price. If the entity determines that the fair value on initial recognition differs from the transaction price and this fair value measurement is not evidenced by a valuation technique that uses only data from observable markets, the carrying amount of the financial instrument on initial recognition is adjusted. If the fair value of a loan portfolio differs from the transaction price, the initial recognition must be based on the fair value but will be adjusted for any day one profit or loss; this will eventually lead to a book value of the loan portfolio that equals the transaction price.

credit spread used in calculating the fair value of own issues increased by 20 basis points, the accumulated valuation result as of 31 December 2016 would have increased by EUR 2.0 million (31 December 2015: EUR 2.9 million). If the fair value of financial assets decreased by 30%, the accumulated valuation result as of 31 December 2016 would have decreased by EUR 0.6 million (31 December 2015: minus EUR 1.8 million).

The initial recognition is based on the fair value of the acquired loans and receivables determined through a DCFmethod taking into considerations market conditions on the purchase date. Because the fair value and therefore the day one gain is neither evidenced by a quoted price nor based on a valuation technique that uses only data from observable markets, the day one gain must not be realized on day one but must be accrued and the difference is subsequently recognized as a gain or loss only to the extent that it arises from a change in a factor (including time) that market participants would consider in setting a price. IAS 39 does not state how to subsequently measure this difference.

IFRS does not provide guidance on the presentation of the amortization of day one profits. As the day one profit will be amortized on a systematic basis, BAWAG P.S.K. is of the view that this regular amortization income is similar to interest income. From an economic point of view, BAWAG P.S.K. earns a higher margin on the loans acquired.

Consequently, BAWAG P.S.K. presents the systematic amortization of day profits in the line item Interest income.

The following differences will be recognized in income in subsequent years:

in EUR million	31.12.2016	31.12.2015
Balance at the beginning of the period	45	–
New transactions1)	76	45
Amounts recognized in profit or loss during the period	(11)	–
FX effects	(6)	–
Balance at the end of the period	104	45

1. In the fourth quarter 2016, BAWAG P.S.K. acquired a high-quality performing residential mortgage portfolio in Western Europe consisting of EUR 1.4 billion in assets.

35 | Receivables from and payables to subsidiaries and associates

BAWAG P.S.K.'s receivables from and payables to nonconsolidated subsidiaries and associates were as shown below. Business relationships with these entities were subject to normal banking terms and conditions.

Receivables from and payables to subsidiaries

in EUR million	31.12.2016	31.12.2015
Receivables from customers	54	58
Receivables from subsidiaries	54	58
Deposits from customers	11	35
Payables to subsidiaries	11	35

Interest income from business with subsidiaries in 2016 totaled EUR 3 million (2015: EUR 3 million) and interest expense EUR 1 million (2015: EUR 1 million).

Receivables from and payables to associates

in EUR million	31.12.2016	31.12.2015
Receivables from customers	136	142
Securities	20	23
Receivables from associates	156	165
Deposits from customers	44	79
Payables to associates	44	79

36 | Related parties

Owners of BAWAG P.S.K.

99.6% BAWAG Holding GmbH

0.4% Pa-Zweiundsechzigste WT Beteiligungsverwaltungs GmbH

Pa-Zweiundsechzigste WT Beteiligungsverwaltungs GmbH is a 100% subsidiary of BAWAG Holding GmbH. All shares in Pa-Zweiundsechzigste WT Beteiligungsverwaltungs GmbH are held for BAWAG Holding GmbH by a trustee. A company that is controlled by Cerberus Capital Management, L.P. (Cerberus), and a company that is controlled by GoldenTree Asset Management LP (Golden-Tree) each directly hold one share in the Bank, which confers them the right to appoint six members (in the case of Cerberus) and one member (in the case of GoldenTree) to the Supervisory Board of the Bank.

BAWAG Holding GmbH is wholly owned by the Dutch financial holding company Promontoria Sacher Holding N.V. The shareholder structure of Promontoria Sacher Holding N.V. is as follows: (i) 52.14% is held by various funds that are connected with Cerberus, (ii) 39.77% is held by various funds and customer accounts that are managed by GoldenTree, and (iii) the remaining shares are held by a variety of Austrian and non-Austrian minorities.

Major non-fully consolidated subsidiaries, joint ventures and equity investments of BAWAG P.S.K.

BAWAG P.S.K. Versicherung AG

BAWAG P.S.K. indirectly holds 25% plus one share of BAWAG P.S.K. Versicherung AG, Vienna. The majority of this company is owned by Generali Group. BAWAG P.S.K. Versicherung AG is accounted for using the equity method in BAWAG P.S.K.'s accounts. The business dealings between BAWAG P.S.K. and BAWAG P.S.K. Versicherung AG cover insurance products, all of which are offered at standard market terms. The business relations between BAWAG P.S.K. and Generali are governed by contracts with standard market terms, including a cooperation agreement, a license agreement, a commission agreement and others.

PSA Payment Services Austria GmbH

BAWAG P.S.K. holds 20.82% in PSA Payment Services Austria GmbH. PSA is owned by several Austrian banks and banking groups and is engaged in the service and the organization of the ATM card business. PSA is accounted for using the equity method in BAWAG P.S.K.'s accounts.

Other subsidiaries

Please refer to Note 49 for a list of all non-consolidated subsidiaries.

Transactions with related parties

The following table shows transactions with related parties:

31.12.2016in EUR million	Parentcompany	Entities with jointcontrol of, orsignificant influenceover, the entity	Subsidiaries, notconsolidated	At-equity associates	Othercompanies
Loans and receivables –customers	6	808	48	0	139
Securities	–	43	–	20	–
Other assets (incl. derivatives)	29	0	6	–	–
Financial liabilities –customers	–	0	11	113	10
Other liabilities (incl.derivatives)	–	0	–	1	–
Guarantees provided	–	–	–	–	1
Interest income1)	0.1	31.6	1.7	0.3	2.6
Interest expense	0.0	0.8	0.0	1.5	0.0
Net fee and commissionincome	0.0	–	0.0	18.0	0.6

1. Gross income; hedging costs not offset.

Loans and receivables –
–1,13458–customers	145
Securities–––22	–
Other assets (incl. derivatives)20–7–	–
Financial liabilities –3–13155customers	11
Other liabilities (incl.–––2derivatives)	–
Guarantees provided––––	2
Interest income1)–54.91.90.3	3.2
Interest expense––0.12.3	–
Net fee and commission–––25.1income	0.7

1. Gross income; hedging costs not offset.

Consultancy fees to entities with joint control of, or significant influence over, the entity amounted to EUR 0.0 million in 2016 (2015: EUR 0.0 million).

Regarding related party transactions, no write-offs or loan loss provisions were required.

Information regarding natural persons

Key management

Key management of BAWAG P.S.K. refers to the members of the Managing Board and the Supervisory Board. Total personnel expenses for the key management amount to EUR 26.0 million (2015: EUR 24.0 million).

Expenses for remuneration (including accrued and deferred bonuses and payments to the pension fund) relating to active members of the Managing Board during the financial year amounted to EUR 25.6 million (2015: EUR 16.2 million). Of this amount, EUR 4.5 million have been reimbursed by the shareholder Promontoria Sacher Holding N.V. (2015: EUR 4.0 million).

Expenditures for severance pay for the Managing Board came to EUR 0.0 million (2015: EUR 1.4 million).

At 31 December 2016, contractual agreements governing the payment of contributions to pension funds were in force for all Managing Board members.

Payments of post-employment benefits to former members of the Managing Board and their surviving dependents came to EUR 2.0 million (2015: EUR 2.0 million).

As of the reporting date, there was no outstanding lease financing but there were three outstanding loans to members of the Managing Board in the amount of EUR 0.6 million (2015: EUR 0.6 million). In addition there exists an undrawn credit line in the amount of EUR 0.7 million (2015: EUR 0.0 million). Loans or leasing financing to members of the Supervisory Board totaled EUR 0.0 million (2015: EUR 0.1 million). Repayments of loans granted to executives and staff took place as contractually agreed.

Furthermore, Managing Board and Supervisory Board members made use of current account limits in the amount of EUR 0 million (2015: EUR 0 million) as of the reporting date. Turnovers of credit cards guaranteed to third parties by the Bank that belong to Managing Board members

amounted to EUR 0 million in December 2016 (2015: EUR 0 million). Turnovers of guaranteed credit cards that belong to members of the Supervisory Board amounted to EUR 0 million in December 2016 (2015: EUR 0 million).

A list of the Bank's Boards and Officers can be found in an appendix to the Notes.

The remuneration scheme for Supervisory Board members approved at the Annual General Meeting stipulates that the Chairman of the Supervisory Board shall receive EUR 60,000 per calendar year, the Deputy Chairman shall receive EUR 40,000 per calendar year and the members of the Supervisory Board selected at the Annual General Meeting shall each receive EUR 30,000 per calendar year. The chairmen of the Risk and Credit and Audit and Compliance Committees each receive EUR 20,000 and all other members of the Risk and Credit and Audit and Compliance Committees each receive EUR 10,000 (these additional compensation measures do not apply for the Chairman of the Supervisory Board). Remuneration of members of the Supervisory Board of BAWAG P.S.K. AG amounted to EUR 0.4 million in 2016 (2015: EUR 0.4 million). Works Council delegates to the Supervisory Board do not receive any remuneration.

Promontoria Sacher Holding N.V. granted an award agreement for share appreciation rights (SARs) indexed to Promontoria Sacher Holding N.V. stock to the Managing Board members, select senior employees and certain members of the Supervisory Board of the Bank beginning from the financial year 2013. The Bank was not a party to the transaction agreement.

According to IFRS 2.43B, the total value of these SARs was treated as a shareholder contribution (equity settled) with a corresponding increase in compensation expense, as BAWAG P.S.K. had no obligation to settle the share-based payment transaction. The value shown under equity amounts to EUR 24.4 million (2015: EUR 24.4 million), representing the total value of SARs. In the financial year 2016, no expense for SARs was recognized in profit or loss (2015: EUR 8.0 million).

Business relations with related party individuals

The following breakdown depicts the business relations with related individuals and their family members. All

business is conducted at standard industry and group terms for employees or at standard market terms.

	Key management ofthe entity or its parent	Otherrelated parties	Key management ofthe entity or its parent	Otherrelated parties
in EUR million	31.12.2016	31.12.2016	31.12.2015	31.12.2015
Current account deposits	10	3	4	1
Savings deposits	0	3	0	3
Loans	1	3	1	2
Leasing	0	0	0	0
Securities	0	0	0	0
Interest income	0.0	0.0	0.0	0.0
Interest expense	0.0	0.0	0.0	0.0

Not all managerial staff are entitled to post-employment benefits from the Bank. The managerial employees who are entitled to post-employment benefits from the Bank were awarded these entitlements under the provisions of the 1961 pension reform or on the basis of individual

commitments by the Bank. All employees are entitled to pension benefits from a pension fund under the provisions of the collective bargaining agreement for pension funds (defined contribution plan).

37 | Major changes in the Group's holdings

BAWAG Malta

The sale of BAWAG Malta Bank, initiated in 2015, was closed on 29 January 2016.

easybank Group

With effect of 28 September 2016, VB Technologie Finanzierungs GmbH was merged with its parent company VB Leasing Finanzierungsgesellschaft m.b.H. (VBLF) as the absorbing company and with effect of 30 September 2016, VBLF was renamed to easyleasing GmbH.

Acquisition of start:bausparkasse AG and IMMO-BANK AG

Effective 23 June 2016, the signing of the acquisition of 100% of the voting shares in start:bausparkasse AG and 100% of the voting shares in IMMO-BANK AG from Volksbanken-Verbund took place. After the fulfillment of all contractual requirements and customary closing conditions, the acquisition was closed on 1 December 2016, representing the acquisition date according to IFRS. The acquisition of start:bausparkasse will give BAWAG P.S.K. a significant presence in the building society savings and loans sector, while IMMO-BANK will expand the Bank's reach with social housing associations and real estate companies. Both banks combine the expertise and long-standing tradition of two specialists in the housing and real estate finance sector and will thus make a significant contribution to the expansion of the domestic retail franchise.

The following disclosures are based on preliminary results of the accounting for the above described business combination as the closing of the acquisition took place shortly before the balance sheet date. The preliminary parts concern mainly the valuation of intangible assets which is performed by an external advisor. In case that we obtain new information about facts or circumstances that existed as of the acquisition date and that – if known – would have resulted in the recognition of additional assets or liabilities the accounting for the business combination would have to be adapted according to IFRS 3.45. However, currently the Group does not expect any major impacts.

According to IFRS 3, the consolidation result was recognized in the Profit or Loss Statement in the line item Other operating income and expenses.

This gain reflects the recognition of positive temporary net present value effects. The acquired companies recognized restructuring expenses (including restructuring reserves) in the amount of EUR 36 million in December 2016.

The total consideration transferred at the date of acquisition was paid in cash and amounted to EUR 190 million, of which EUR 66 million were paid to start:bausparkasse for their 74.26% share in IMMO-BANK. Of the total

consideration transferred, EUR 124 million were paid to companies outside the Group. EUR 14 million of the total consideration transferred will be paid in 2017.

The Group incurred acquisition-related costs of EUR 0.4 million in legal fees, audit fees and due diligence costs. These costs have been included in the line item Other administrative expenses.

The following table compares the recognized amounts of assets and liabilities at the date of acquisition with the total consideration transferred.

in EUR million	2016
Cash reserves	93
Loans and receivables	3,664
Customers	2,828
Credit institutions	851
Loan loss provisions	(15)
Held-to-maturity investments	3
Intangible non-current assets	12
Tax assets for current taxes	1
Tax assets for deferred taxes	3
Other assets	3
Financial liabilities designated at fair value through profit or loss	89
Financial liabilities held for trading	2
Financial liabilities at amortized cost	3,283
Customers	2,106
Issued bonds, subordinated and supplementary capital	496
Credit institutions	681
Provisions	18
Tax liabilities for current taxes	14
Tax liabilities for deferred taxes	32
Other obligations	26
Total identifiable net assets acquired	316
Total consideration transferred	190
Consolidation result1)	126

1. Recognized in other operating income and expenses.

For the months from the acquisition date until 31 December 2016 (i.e. 1 month), the acquired companies contributed core revenues (net interest income and net commission income) of EUR 1.2 million and profit of EUR 0.5 million (without restructuring expenses). If the acquisition had occurred on 1 January 2016, the companies would have contributed core revenues of EUR 37.2 million and profit of EUR 11.8 million (without restructuring expenses).

The acquired loans and receivables from customers in the amount of EUR 2,813 million represent the fair value as of the acquisition date. Additionally, loans and receivables from credit institutions in the amount of EUR 851 million were acquired. The gross amounts of loans and receivables from customers amounted to EUR 2,828 million and the contractual cash flows not expected to be collected amounted to EUR 15 million.

Other major changes in the Group's holdings

Bodensee Ltd. was dissolved and stricken from the companies register on 27 January 2016.

With effect of 30 September 2016, the two Czech companies BAWAG Real Estate Leasing s.r.o. and BPL CZ One s.r.o. were merged with the Czech-based BAWAG Leasing & fleet s.r.o. as the absorbing company.

In the course of the incorporation of Wohnbauinvestitionsbank GmbH on 1 October 2016, BAWAG P.S.K. Wohnbaubank AG took over a marginal stake of 0.83%.

In November and December 2016, BAWAG P.S.K. sold a total stake of 28.3% in Einlagensicherung der Banken und Bankiers GmbH Group internally as well as to a third party, so that the share of BAWAG P.S.K. decreased to 36.03%.

With effect of 23 December 2016, media.at GmbH purchased the remaining 49% in pilot@media.at GmbH, bringing its share to 100%. BAWAG P.S.K. has a share of approximately 26.3% in media.at GmbH.

For further details, please refer to Notes 48 and 49.

38 | Assets pledged as collateral

in EUR million	31.12.2016	31.12.2015
Receivables and securities assigned to Oesterreichische Kontrollbank AG	409	472
Collateral pledged to the European Investment Bank	376	519
Cover pool for trust savings deposits	22	23
Cover pool for covered bonds	3,077	2,186
Collateral for RMBS	878	–
Collateral for tender facilities	871	2,319
Other collateral	20	16
Cash collateral for derivatives	163	314
Assets pledged as collateral	5,816	5,849

The Group pledges assets for repurchase agreements which are generally conducted under terms that are usual and customary for standard securitized borrowing contracts. In addition, the Group pledges collateral against other borrowing arrangements and for margining purposes on derivative liabilities.

Regarding export financing, receivables and securities assigned to Oesterreichische Kontrollbank AG are pledged. Pledges for trust savings deposits are conducted in accordance with legal regulations (section 68 BWG).

The cover pool for covered bonds is subject to the law on covered bank bonds (FBSchVG).

Additionally, relevant collateral was provided for refinancing at the European Investment Bank.

39 | Total collateralized debt

The collateral listed in the table above corresponded to the following payables of BAWAG P.S.K.:

in EUR million	31.12.2016	31.12.2015
Liabilities to Oesterreichische Kontrollbank secured with assigned receivables	371	472
Payables arising due to refinancing by the European Investment Bank	370	389
Trust savings deposits	19	19
Payables secured by the cover pool for covered bonds	2,078	1,227
RMBS	584	–
Tender facilities	700	1,897
Negative market values of derivatives	105	317
Total collateralized debt	4,227	4,321

40 | Genuine repurchase agreements

in EUR million	31.12.2016	31.12.2015
Lender – receivables from credit institutions	–	–
Repurchaser – payables to credit institutions	300	621
Repurchase agreements	300	621

41 | Transferred assets that are not derecognized in their entirety

	Financial assets designated at fairvalue through profit or loss
in EUR million	31.12.2016	31.12.2015
Carrying amount of transferred assets1)	340	664
Carrying amount of associated liabilities	300	621

1. All of the transferred assets are bonds.

Transferred assets that are not derecognized in their entirety relate to genuine repurchase agreements. Since BAWAG P.S.K. is still the owner of the transferred assets, it remains exposed to market, interest rate, currency and

credit risk with regard to these assets. The transferred assets are blocked for sale and are not taken into account in the liquidity calculation.

42 | Subordinated assets

Line items on the assets side of the Statement of Financial Position included the following subordinated assets:

in EUR million	31.12.2016	31.12.2015
Loans and receivables	8	53
Subordinated assets designated at fair value through profit or loss	6	8
Subordinated assets designated as available-for-sale	153	109
Subordinated assets	167	170

43 | Offsetting financial assets and financial liabilities

BAWAG P.S.K. enters into derivative transactions under International Swaps and Derivatives Association (ISDA) master netting agreements. In general, under such agreements the amounts owed by each counterparty on a single day in respect of all transactions outstanding in the same currency are aggregated into a single net amount that is payable by one party to the other. In certain circumstances – e.g. when a credit event such as a default occurs – all outstanding transactions under the agreement are terminated, the termination value is assessed and only a single net amount is payable in settlement of all transactions.

The ISDA agreements do not meet the criteria for offsetting in the Statement of Financial Position. This is because BAWAG P.S.K. currently does not have any legally enforceable right to offset recognized amounts, because the right to offset is enforceable only on the occurrence of

future events such as a default on the bank loans or other credit events.

Repo and reverse repo transactions are covered by master agreements with netting terms similar to those of ISDA master netting agreements.

The disclosures set out in the tables below include financial assets and financial liabilities that:

• are offset in BAWAG P.S.K.'s Statement of Financial Position; or
• are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in the Statement of Financial Position.

Financial assets

				Amounts not offset in theStatement of Financial Position
31.12.2016in EUR million	Gross amountsof recognizedfinancial assets	Gross amountsof financialliabilities offsetin the Statementof FinancialPosition	Net amounts offinancial assetspresented in theStatement ofFinancialPosition	Financialinstruments	Cash collateralreceived	Net amount
Derivatives(excl. hedging derivatives)	652	–	652	278	254	120
Hedging derivatives	677	–	677	446	207	24
Loans to and receivables fromcustomers	243	127	116	–	–	116
Total	1,572	127	1,445	724	461	260

31.12.2015in EUR million				Amounts not offset in theStatement of Financial Position
	Gross amountsof recognizedfinancial assets	Gross amountsof financialliabilities offset inthe Statement ofFinancialPosition	Net amounts offinancial assetspresented in theStatement ofFinancialPosition	Financialinstruments	Cash collateralreceived	Net amount
Derivatives(excl. hedging derivatives)	950	–	950	476	294	180
Hedging derivatives	469	–	469	346	110	13
Loans to and receivables fromcustomers	682	115	567	–	–	567
Total	2,101	115	1,986	822	404	760

Financial liabilities

31.12.2016in EUR million		Gross amountsof financialassets offset inthe Statement ofFinancialPosition		Amounts not offset in theStatement of Financial Position
	Gross amountsof recognizedfinancialliabilities		Net amounts offinancialliabilitiespresented in theStatement ofFinancialPosition	Financialinstruments	Cash collateralpledged	Net amount
Derivatives(excl. hedging derivatives)	617	–	617	548	50	19
Hedging derivatives	260	–	260	209	50	1
Repo transactions	300	–	300	300	–	–
Customer deposits	127	127	–	–	–	–
Total	1,304	127	1,177	1,057	100	20

				Amounts not offset in theStatement of Financial Position
31.12.2015in EUR million	Gross amountsof recognizedfinancialliabilities	Gross amountsof financialassets offset inthe Statement ofFinancialPosition	Net amounts offinancialliabilitiespresented in theStatement ofFinancialPosition	Financialinstruments	Cash collateralpledged	Net amount
Derivatives(excl. hedging derivatives)	1,071	–	1,071	762	287	22
Hedging derivatives	106	–	106	81	25	–
Repo transactions	621	–	621	621	–	–
Customer deposits	115	115	–	–	–	–
Total	1,913	115	1,798	1,464	312	22

The following tables reconcile the net amounts of financial assets and financial liabilities presented in the Statement of Financial Position to the respective line items in the Statement of Financial Position:

Financial assets

31.12.2016in EUR million	Line item in Statement ofFinancial Position	Carrying amount of lineitem in Statement ofFinancial Position	Thereof withoutoffsetting agreement	Thereof with offsettingagreement
Derivatives(excl. hedging derivatives)	Assets held for trading	652	–	652
Hedging derivatives	Hedging derivatives	677	–	677
Reverse repo transactions	Loans to and receivablesfrom credit institutions	–	–	–
Loans to and receivables fromcustomers	Loans to and receivablesfrom customers	28,500	28,384	116
Total		29,829	28,384	1,445

31.12.2015in EUR million	Line item in Statement ofFinancial Position	Carrying amount of lineitem in Statement ofFinancial Position	Thereof withoutoffsetting agreement	Thereof with offsettingagreement
Derivatives(excl. hedging derivatives)	Assets held for trading	950	–	950
Hedging derivatives	Hedging derivatives	469	–	469
Reverse repo transactions	Loans to and receivablesfrom credit institutions	–	–	–
Loans to and receivables fromcustomers	Loans to and receivablesfrom customers	24,713	24,146	567
Total		26,132	24,146	1,986

Financial liabilities

31.12.2016in EUR million	Line item in Statement ofFinancial Position	Carrying amount of lineitem in Statement ofFinancial Position	Thereof withoutoffsetting agreement	Thereof with offsettingagreement
Derivatives(excl. hedging derivatives)	Liabilities held for trading	617	–	617
Hedging derivatives	Hedging derivatives	260	–	260
Repo transactions	Financial liabilitiesassociated with transferredassets	300	–	300
Customer deposits	Deposits from customers	25,998	25,998	–
Total		27,175	25,998	1,177

31.12.2015in EUR million	Line item in Statement ofFinancial Position	Carrying amount of lineitem in Statement ofFinancial Position	Thereof withoutoffsetting agreement	Thereof with offsettingagreement
Derivatives(excl. hedging derivatives)	Liabilities held for trading	1,071	–	1,071
Hedging derivatives	Hedging derivatives	106	–	106
Repo transactions	Financial liabilitiesassociated with transferredassets	621	–	621
Customer deposits	Deposits from customers	21,695	21,695	–
Total		23,493	21,695	1,798

44 | Contingent assets, contingent liabilities and unused lines of credit

in EUR million	31.12.2016	31.12.2015
Contingent assets	–	–
Contingent liabilities	193	349
Arising from guarantees	193	349
Unused customer credit lines	4,567	5,467
thereof terminable at any time and without notice	3,174	4,196
thereof not terminable at any time	1,393	1,271

45 | Foreign currency amounts

BAWAG P.S.K. Group had assets and liabilities in the following foreign currencies:

in EUR million	31.12.2016	31.12.2015
USD	2,754	2,520
CHF	1,953	2,166
GBP	3,176	3,789
Other	269	93
Foreign currency	8,152	8,568
EUR	31,304	26,947
Total assets	39,456	35,515
USD	423	554
CHF	330	19
GBP	917	154
Other	196	232
Foreign currency	1,866	959
EUR	37,590	34,556
Total liabilities	39,456	35,515

This table includes only Statement of Financial Position items and does not provide information about open currency positions due to off-balance hedging transactions.

46 | Leasing

Finance leasing from the view of BAWAG P.S.K. as lessor

Finance lease receivables are included in the balance sheet position Loans and advances to customers.

BAWAG P.S.K. leases both movable property and real estate to other parties under finance lease arrangements.

The following table shows the reconciliation between gross investment value and present value, broken down according to maturity for all ongoing leasing contracts (without open items):

31.12.2016in EUR million	Up to 1 year	1–5 years	Over 5 years	Total
Total outstanding leasing installments (gross investment value)	434	758	79	1,271
As yet unrealized financial income	27	38	4	69
Receivables from finance leases (net investment value)	407	720	75	1,202
31.12.2015in EUR million	Up to 1 year	1–5 years	Over 5 years	Total
Total outstanding leasing installments (gross investment value)	359	748	108	1,215
As yet unrealized financial income	21	45	6	72
Receivables from finance leases (net investment value)	338	703	102	1,143

As of 31 December 2016, the non-guaranteed residual value amounts to EUR 42 million (2015: EUR 40 million). There were no impairments recognized in respect of irrecoverable minimum lease installments (2015: EUR 0.0 million).

Operating leasing from the view of BAWAG P.S.K. as lessee

The Group leases the majority of its offices and branches under various rental agreements. The lease contracts are made under usual terms and conditions and include price adjustment clauses in line with general office rental market

conditions. The lease agreements do not include any clauses that impose any restriction on the Group's ability to pay dividends, engage in debt financing transactions or enter into further lease agreements.

Future minimum lease payments required under operating leases

in EUR million	31.12.2016	31.12.2015
Future minimum rental payments
Not later than one year	23	23
Over one year and not later than five years	41	64
Over five years	136	96
Total future minimum rental payments	2001)	183
less: Future minimum rentals to be received	1	2
Net future minimum rental payments	199	181
Rental payments for lease agreements	(23)	(24)
Rental income from sublease contracts	2	2

1. Gross future minimum rental payments amount to EUR 242 million.

47 | Derivative financial transactions

Derivative financial transactions as of 31.12.2016

31.12.2016		Nominal amount/maturity1)			Fair value1)
in EUR million				Up to 1 year 1–5 years Over 5 years	Total	Positive	Negative
	Interest rate related business	3,785	16,084	13,044	32,913	1,166	(472)
Thereof	interest rate swaps bankingbook	2,369	12,550	10,963	25,882	909	(343)
	interest rate options bankingbook	20	212	454	686	47	(32)
	forward rate agreementsbanking book	100	–	–	100	–	–
	interest rate swaps trading book	765	2,180	1,422	4,367	168	(74)
	interest rate options tradingbook	531	1,142	205	1,878	42	(23)
	forward rate agreements tradingbook	–	–	–	–	–	–
	Currency related business	4,477	2,512	1,513	8,502	157	(400)
Thereof	currency swaps banking book	471	2,427	1,360	4,258	71	(299)
	foreign currency forwardtransactions and optionsbanking book	2,892	84	153	3,129	66	(55)
	currency swaps trading book	–	–	–	–	–	–
	foreign currency forwardtransactions and options tradingbook	1,114	1	–	1,115	20	(46)
	Securities related business	22	60	38	120	6	(5)
Thereof	securities related businessbanking book	22	60	38	120	6	(5)
Total		8,284	18,656	14,595	41,535	1,329	(877)
Thereof	banking book business	5,874	15,333	12,968	34,175	1,099	(734)
	trading book business	2,410	3,323	1,627	7,360	230	(143)

1. Banking book derivatives include fair value hedging instruments.

Derivative financial transactions as of 31.12.2015

31.12.2015		Nominal amount/maturity1)			Fair value1)
in EUR million				Up to 1 year 1–5 years Over 5 years	Total	Positive	Negative
	Interest rate related business	7,405	15,656	11,338	34,399	1,164	(527)
Thereof	interest rate swaps bankingbook	6,195	10,661	9,134	25,989	889	(374)
	interest rate options bankingbook	12	231	300	543	17	(14)
	forward rate agreementsbanking book	–	–	–	–	–	–
	interest rate swaps trading book	828	3,295	1,468	5,592	205	(103)
	interest rate options tradingbook	370	1,469	436	2,275	53	(35)
	forward rate agreements tradingbook	–	–	–	–	–	–
	Currency related business	9,263	2,795	803	12,861	250	(645)
Thereof	currency swaps banking book	1,275	1,559	659	3,493	20	(436)
	foreign currency forwardtransactions and optionsbanking book	5,419	123	144	5,686	167	(57)
	currency swaps trading book	–	–	–	–	–	–
	foreign currency forwardtransactions and options tradingbook	2,568	1,112	–	3,681	62	(152)
Securities related business		215	76	25	316	5	(5)
Thereof	securities related businessbanking book	215	76	25	316	5	(5)
Total		16,883	18,527	12,166	47,576	1,419	(1,177)
Thereof	banking book business	13,116	12,650	10,262	36,028	1,099	(887)
	trading book business	3,767	5,877	1,904	11,548	320	(290)

1. Banking book derivatives include fair value hedging instruments.

48 | List of consolidated subsidiaries

		31.12.2016		31.12.2015
Banks
BAWAG Malta Bank Limited, Sliema	–	–	F	100.00%
BAWAG P.S.K. Wohnbaubank Aktiengesellschaft, Vienna	F	100.00%	F	100.00%
easybank AG, Vienna	F	100.00%	F	100.00%
IMMO-BANK Aktiengesellschaft, Vienna	F	100.00%	–	–
start:bausparkasse AG, Vienna	F	100.00%	–	–
Real estate
BAWAG P.S.K. IMMOBILIEN GmbH, Vienna	F	100.00%	F	100.00%
BPI Holding GmbH & Co KG., Vienna	F	100.00%	F	100.00%
R & B Leasinggesellschaft m.b.H., Vienna	F	100.00%	F	100.00%
RVG Realitätenverwertungsgesellschaft m.b.H., Vienna	F	100.00%	F	100.00%
Leasing
ACP IT-Finanzierungs GmbH, Vienna	F	75.00%	F	75.00%
BAWAG P.S.K. IMMOBILIENLEASING GmbH, Vienna	F	100.00%	F	100.00%
BAWAG P.S.K. Kommerzleasing GmbH, Vienna	F	100.00%	F	100.00%
BAWAG P.S.K. LEASING GmbH & Co. MOBILIENLEASING KG., Vienna	F	100.00%	F	100.00%
BAWAG P.S.K. LEASING GmbH, Vienna (formerly: BAWAG P.S.K.Autoleasing GmbH)	F	100.00%	F	100.00%
BAWAG P.S.K. LEASING Holding GmbH, Vienna (formerly: BAWAGP.S.K. LEASING GmbH)	F	100.00%	F	100.00%
BAWAG P.S.K. MOBILIENLEASING GmbH, Vienna	F	100.00%	F	100.00%
CVG Immobilien GmbH, Vienna	F	100.00%	F	100.00%
easyleasing GmbH, Vienna (formerly: VB LeasingFinanzierungsgesellschaft m.b.H.)	F	100.00%	F	100.00%
HBV Holding und Beteiligungsverwaltung GmbH, Vienna	F	100.00%	F	100.00%
KLB Baulandentwicklung GmbH, Vienna	F	100.00%	F	100.00%
Leasing-west GmbH, Kiefersfelden	F	100.00%	F	100.00%
M. Sittikus Str. 10 Errichtungs GmbH, Vienna	F	100.00%	F	100.00%
P.S.K. IMMOBILIENLEASING GmbH, Vienna	F	100.00%	F	100.00%
RF 17 BAWAG Immobilienleasing GmbH, Vienna	F	100.00%	F	100.00%
RF fünfzehn BAWAG Mobilien-Leasing Gesellschaft m.b.H., Vienna	F	100.00%	F	100.00%
RF zwölf BAWAG Leasing Gesellschaft m.b.H., Vienna	F	100.00%	F	100.00%
START Immobilienleasing GmbH, Vienna	F	100.00%	F	100.00%
VB Technologie Finanzierungs GmbH, Vienna	–	–	F	100.00%
Other non credit institutions
BAWAG P.S.K. Versicherung Aktiengesellschaft, Vienna	E	25.00%	E	25.00%
E2E Kreditmanagement GmbH, Vienna	F	100.00%	F	100.00%
E2E Service Center Holding GmbH, Vienna	F	100.00%	F	100.00%
E2E Transaktionsmanagement GmbH, Vienna	F	100.00%	F	100.00%
FCT Pearl, Pantin	F	100.00%	–	–
Feldspar 2016-1 Mortgage Holding Limited, London1)	F	0.00%	–	–
Feldspar 2016-1 PLC, London1)	F	0.00%	–	–
PSA Payment Services Austria GmbH, Vienna	E	20.82%	E	20.82%
P.S.K. Beteiligungsverwaltung GmbH, Vienna	F	100.00%	F	100.00%

F … Full consolidation, E … Equity method

1. As these entities are set up for the funding and refinancing of BAWAG P.S.K. and BAWAG P.S.K. determines all contracts and processes, BAWAG P.S.K. has the obligation to consolidate these entities according to IFRS 10.

	31.12.2016	31.12.2015
Real estate
ROMAX Immobilien GmbH, Vienna	100.00%	100.00%
Leasing
BAWAG Leasing & fleet s.r.o., Bratislava	100.00%	100.00%
BAWAG Leasing & fleet s.r.o., Prague	100.00%	100.00%
BAWAG Leasing s.r.o., Bratislava	100.00%	100.00%
BAWAG Real Estate Leasing s.r.o., Prague	–	100.00%
BPLCZ One s.r.o., Prague	–	100.00%
Fides Leasing GmbH, Vienna	50.00%	50.00%
Gara RPK Grundstücksverwaltungsgesellschaft m.b.H., Vienna	100.00%	100.00%
HFE alpha Handels-GmbH, Vienna	50.00%	50.00%
Kommunalleasing GmbH, Vienna	50.00%	50.00%
PT Immobilienleasing GmbH, Vienna	100.00%	100.00%
Realplan Beta Liegenschaftsverwaltung Gesellschaft m.b.H., Vienna	50.00%	50.00%
RF sechs BAWAG P.S.K. LEASING GmbH & Co. KG., Vienna	100.00%	100.00%
Other non credit institutions
AI-ALTERNATIVE INVESTMENTS LTD., St. Helier	100.00%	100.00%
Athena Burgenland Beteiligungen AG, Eisenstadt	38.30%	38.30%
Athena Wien Beteiligungen AG, Vienna	50.00%	50.00%
AUSTOST ANSTALT, Balzers	100.00%	100.00%
AUSTWEST ANSTALT, Triesen	100.00%	100.00%
BAWAG Finance Malta Ltd., Sliema	100.00%	100.00%
BAWAG P.S.K. Datendienst Gesellschaft m.b.H., Vienna	100.00%	100.00%
BAWAG P.S.K. Equity Finance Limited, St. Helier	100.00%	100.00%
Bodensee Limited in Liqu., Sliema	–	51.00%
BV Vermögensverwaltung GmbH, Vienna	100.00%	100.00%
easy green energy GmbH, Vienna	49.00%	49.00%
easy green energy GmbH & Co KG, Vienna	49.00%	49.00%
Einlagensicherung der Banken und Bankiers Gesellschaft m.b.H., Vienna	36.03%	61.64%
media.at GmbH, Vienna	26.30%	26.30%
MediaSelect GmbH, Vienna	26.30%	26.30%
mediastrategen GmbH, Vienna	26.30%	26.30%
MF BAWAG Blocker LLC, Wilmington	100.00%	100.00%
OmniMedia GmbH, Vienna	26.30%	26.30%
OMNITEC Informationstechnologie-Systemservice GmbH, Vienna	50.00%	50.00%
pilot@media.at GmbH	26.30%	12.89%
WBG Wohnen und Bauen Gesellschaft mbH Wien, Vienna	24.00%	24.00%

49 | List of subsidiaries and associates not consolidated due to immateriality

50 | Involvement with associated companies

Investments in associates disclosed in this note are accounted for using the equity method. BAWAG P.S.K. includes two companies that are accounted for using the equity method: BAWAG P.S.K. Versicherung AG,

Vienna, and PSA Payment Services Austria GmbH, Vienna. The table below presents aggregated financial information on the Group's share in associates that are considered to be immaterial compared to the Group's total assets and profit or loss.

in EUR million	31.12.2016	31.12.2015
Carrying amounts of all associates	44	41
Aggregated amount of the Group's share of profit or loss	8.0	4.6
Aggregated amount of the Group's share of other comprehensive income	(2.3)	2.2
Aggregated amount of the Group's share of total comprehensive income	5.7	6.8

51 | Non-consolidated structured entities

A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor for the determination of control over the entity. This is the case, for example, when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. A structured entity often has some or all of the following attributes:

• Restricted activities
• A narrow and well-defined objective
• Insufficient equity
• Financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches)

The entities covered by this disclosure note are not consolidated because the Group does not control them through voting rights, contract, funding agreements or other means. The Bank's exposure to unconsolidated structured entities comprises leasing companies engaging in special leasing to which BAWAG P.S.K. provides the financing.

The Group provides a different measure for the size of structured entities depending on their nature. Regarding other structured entities, the total assets of these entities in the amount of EUR 103 million (2015: EUR 114 million) best measures their size.

The table below sets out an analysis of the carrying amounts of assets and liabilities of unconsolidated structured entities recognized by the Group and income from those structured entities. The maximum exposure to loss is the carrying amount of the assets held.

in EUR million	2016	2015
Carrying amounts of assets in connection with investments in structured entities	51	55
on the balance sheet shown under Loans and receivables	51	55
Carrying amounts of liabilities in connection with investments in structured entities	0	0
Income	0.3	0.4
Interest income	0.3	0.4
Losses incurred during reporting period	0	0
Maximum exposure to loss	51	55

BAWAG P.S.K. neither provided any financial or other support to an unconsolidated securitization vehicle during the financial year nor does it have any current intention to do so.

RISK REPORT

The operational and strategic risk management functions and the relevant committees of BAWAG P.S.K. are responsible for the identification, quantification, limitation, monitoring and steering of all risks the Group is exposed to. At all organizational levels, Market and Risk functions are strictly separated.

The Managing Board defines the overall risk appetite and risk strategy on an annual basis. All risk management principles, the defined limits for all material risks and the established procedures for monitoring these risks are documented in risk manuals and guidelines. The Managing Board is continuously and proactively informed on the overall risk situation. The monthly risk reporting is based on clearly defined risk metrics and encompasses all Pillar I and Pillar II relevant topics as well as operational risk matters and additionally relevant specific risk topics. Quarterly risk reports are submitted to the monitoring and control committees of the Supervisory Board.

Risk management policies are reviewed regularly to reflect changes in regulatory requirements, market conditions as well as products and services offered by the Group.

The following divisions oversee the implementation and execution of risk-related guidelines:

• Strategic Risk
• Commercial and Institutional Risk
• Retail Risk and Administration
• European Retail Risk Management
• Non-Financial Risk Management & Regulatory Compliance

The following risks including their respective sub-risks are considered as material for BAWAG P.S.K.:

• Credit risk
• Market risk
• Liquidity risk
• Operational risk

Furthermore, a risk self-assessment (RSA), which is conducted on an annual basis, provides an overview of the Group's risk situation and the risk management of the individual risk types using quantitative and qualitative evaluation methods, i.e. all potential risks arising in connection with the implementation of the business strategy are evaluated with respect to their relevance, their impact on the Group as well as their coverage through existing risk management procedures. The quantification of these risks is considered in the risk-bearing capability.

The material risks of BAWAG P.S.K. are described on the following pages.

52 | Internal Capital Adequacy Assessment Process (ICAAP) and Stress Testing

The Group's economic risk-bearing capability, which compares the quantified risks with the risk coverage capacity, is evaluated on a monthly basis. The risk quantification is based on a confidence level of 99.9%, which represents the probability of potential losses not exceeding the quantified risks. Limits are determined for all defined limit categories and steering portfolios as part of the risk strategy. Compliance with the limits is monitored in accordance with the established monitoring processes on a monthly basis. If the predefined warning levels are reached or the limits are exceeded, escalation processes are initiated.

In connection with the evaluation of the risk-bearing capability, the individual and material risks are quantified, subsequently aggregated to the total risk and, in a further step, compared with the Group's risk coverage capacity. The following risk types are considered:

• Credit risk: The quantification of credit risk is based on the IRB approach for all portfolio segments. Additional capital surcharges are applied for concentration risk in connection with loans to major customers/to groups of affiliated customers, for the FX-induced credit risk as well as for the risk arising from credit lines not subject to capital requirements under legal regulations.

• Market risk: The Group has identified interest rate risk in the banking book and credit spread risk as the relevant market risks. Interest rate risk is measured using valueat-risk models, whereas a scenario-based approach is used for measuring credit spread risks. The interest rate risk in the banking book and the credit spread risk are aggregated taking conservative correlation assumptions into account.

• Liquidity risk: The structural liquidity risk quantification is based on current liquidity gaps applying assumed potential deteriorations of spreads in connection with a notional spread widening on the market. Dispositive liquidity risks are quantified in Strategic Risk and are controlled operationally in Asset Liability Management.

• Operational risk is quantified using a value-at-risk model.

• Other risks: This risk category includes participation risk, macroeconomic risk, strategic risk, reputation risk, capital risk, compliance risk (including the risk from money laundering and terrorism financing) as well as market liquidity risk. Participation risk is quantified using the PD/LGD approach based on IFRS book values, while capital is held for the macroeconomic risk according to a quantification method of Oesterreichische Nationalbank (OeNB, the Austrian national bank). For all other mentioned risk types, the required economic capital is quantified using simplified valuation models.

The risk-bearing capacity is reported to the Managing Board via the Enterprise Risk Meeting (ERM) on a monthly basis.

The ICAAP stress test is fully integrated into the strategic risk management, capital management and planning processes of BAWAG P.S.K.

The link between the stress test program and capital management is formally defined within the internal risk and capital governance.

The capital ratios defined within the capital planning process and monitored by the Capital Management Meeting are used as a benchmark for stress testing. The capital contingency plan is drawn up to account for extreme stress scenarios. As part of the internal stress tests, senior management reviews whether the stressed capital ratios remain above the recovery levels. A breach of the recovery levels needs to be soundly justified, or measures need to be taken to improve the capital position sufficiently in order to keep the capital ratios above the recovery levels even under a stressed scenario.

Furthermore, results of the ICAAP stress test are reported directly to the ERM. The ERM is in charge of assessing the results of the exercise and defining any corrective action for the risk appetite or business strategy, where necessary.

53 | Credit risk

Credit risk is defined as the risk of loss due to a party in a financial transaction failing to pay its obligation to the other party.

The operative credit risk divisions are specifically set up to ensure functional risk management expertise for both the commercial and institutional and the retail and small business customers. The Strategic Risk division is responsible for the consistent calculation and aggregation of the individual risk metrics within the defined monthly reporting framework.

In the customer segments BAWAG P.S.K. Retail and easygroup, the creditworthiness of private and small business customers is assessed via automated scorecards. The scoring is based on statistical models that cover both application scoring as well as behavioral scoring based on the customer's account usage. In addition, external data (e.g. credit bureau information) is also factored into the customer scoring. The individual customer credit ratings are updated monthly.

In addition to the credit rating, the loss given default (LGD) and the expected utilization of the off-balance-sheet exposure value at the time of default (credit conversion factor, CCF) are also estimated for the customer segments BAWAG P.S.K. Retail and easygroup. The estimate, which is based on data from the observed customer behavior, is calculated using various statistical methods and models.

For each commercial loan application, the borrower's credit rating is assessed using an internal rating method specific to each business segment. The rating methods that have been developed are based on a broad spectrum of quantitative and qualitative factors. Specific rating grades, which represent an individually estimated probability of default, are assigned to each customer using a uniform master scale.

To manage overall concentration risk, exposure limits are defined, monitored and reported to the Managing Board and Supervisory Board on a regular basis.

BAWAG P.S.K., a banking group that applies the Internal Rating-Based (IRB) approach, sets high standards with regards to credit risk methodologies and processes. The risk organization continuously focuses on enhancements to risk quantification methods. Specific standards are in place for all sub-portfolios that are monitored and validated on a regular basis. Due to the centralized structure and coordination of the Group, new risk regulations or changing market situations are considered in a timely manner within the risk management strategies. The following sections provide an overview of the portfolio quality in the segments BAWAG P.S.K. Retail and easygroup (shown by days past due and loan to value ratios) and in the segments DACH Corporates & Public Sector and International Business (shown by the proportion of investment and noninvestment grade).

31.12.2016in EUR million	BAWAGP.S.K. Retail	easygroup	DACHCorporates& PublicSector	InternationalBusiness	TreasuryServices &Markets	CorporateCenter	Totalportfolio
Book value	11,558	4,436	7,344	5,242	1,326	373	30,279
Bonds	0	0	446	392	5,366	23	6,227
Off-balance business	1,108	498	1,123	303	314	714	4,060
Total	12,666	4,934	8,913	5,937	7,006	1,110	40,566
thereof collateralized2)	6,016	3,897	2,403	2,167	193	1	14,677
thereof NPL3) (incl. LLP,gross view)	214	92	50	0	0	255	611

Credit risk and bonds by business segment

31.12.2015in EUR million	BAWAGP.S.K. Retail	easygroup	DACHCorporates& PublicSector	InternationalBusiness	TreasuryServices &Markets	CorporateCenter	Totalportfolio1)
Book value	9,036	3,630	6,935	5,133	1,424	423	26,582
Bonds	0	0	557	615	4,869	22	6,063
Off-balance business	1,334	505	1,198	134	381	386	3,937
Total	10,370	4,135	8,690	5,882	6,674	831	36,582
thereof collateralized2)	6,051	3,067	2,625	1,258	244	24	13,268
thereof NPL3) (incl. LLP,gross view)	186	62	85	0	0	256	588

1. In 2015, the held for sale position is not included. This applies to all tables in the Risk Report.

2. Economic collateral comprises residential and commercial real estate, guarantees, life insurances, etc.

3. Starting from June 2015, a revised definition for non-performing loans is applied. Loans are not included in NPLs if no economic loss is expected.

	Note 16	Notes 12, 13,141)	Risk view		Segment Report
31.12.2016in EUR million	Loans andreceivables (L&R)	Loans and bonds(not part of L&R)	Total loans &bonds	Other assets	Total assets
BAWAG P.S.K. Retail	11,558	0	11,558	101	11,659
easygroup	4,436	0	4,436	22	4,458
DACH Corporates &Public Sector	7,580	210	7,790	22	7,812
International Business	5,392	242	5,634	0	5,634
Treasury Services & Markets	1,496	5,195	6,691	0	6,691
Corporate Center	359	32	392	3,098	3,489
Total	30,821	5,680	36,501	3,242	39,743
Scope of consolidationadjustment	5	0	5	(292)	(287)
BAWAG P.S.K. Group	30,825	5,680	36,505	2,950	39,456

The table below provides reconciliation between book values of loans and receivables, the Risk Report and the Segment Report

	Note 16	Notes 12, 13,141)	Risk view		Segment Report
31.12.2015in EUR million	Loans andreceivables (L&R)	Loans and bonds(not part of L&R)	Total loans &bonds	Other assets	Total assets
BAWAG P.S.K. Retail	9,036	0	9,036	142	9,178
easygroup	3,630	0	3,630	15	3,644
DACH Corporates &Public Sector	7,289	203	7,492	35	7,527
International Business	5,429	319	5,748	0	5,748
Treasury Services & Markets	1,595	4,698	6,293	0	6,293
Corporate Center	418	28	446	2,871	3,317
Total	27,396	5,249	32,645	3,062	35,708
Scope of consolidationadjustment	0	0	0	(193)	(193)
BAWAG P.S.K. Group	27,396	5,249	32,645	2,870	35,515

1. Shares and other variable rate securities (2016: EUR 4 million, 2015: EUR 5 million) are not included.

Geographical distribution of the loan and bond portfolio

Geographical distribution of loans

Geographical distribution of bonds

Geographical distribution of the loan and bond portfolio – Portugal and Greece (peripheral Europe)

The Bank's exposure in other countries of peripheral Europe contains no substantial risks. The Bank has not had any exposure to Greece since 2012. The exposure in

Portugal decreased compared to last year, primarily because non-bank portfolios have been dissolved.

		Book value	Banks		Non-banks		Sovereigns
in EUR million			31.12.2016 31.12.2015 31.12.2016 31.12.2015 31.12.2016 31.12.2015 31.12.2016 31.12.2015
Portugal	19	32	19	24	–	8	–	–
Greece	–	–	–	–	–	–	–	–
Total	19	32	19	24	–	8	–	–

Credit portfolio and bonds by currencies

Consistent with the Bank's overall positioning, the majority of financing is denominated in EUR. The following table

captures the currency distribution of the credit portfolio and bond book of the Bank.

		Book value	in %
in EUR million	31.12.2016	31.12.2015	31.12.2016	31.12.2015
EUR	28,703	24,201	78.6%	74.1%
GBP	2,970	3,775	8.1%	11.6%
USD	2,705	2,473	7.4%	7.6%
CHF	1,863	2,109	5.1%	6.5%
Others	265	87	0.7%	0.3%
Total	36,505	32,645	100.0%	100.0%

Credit quality overview: Loans, provisions, delinquencies and collaterals

The following table captures the days past due, NPL ratio and provisioning of the loan portfolio. The low risk profile is reflected by the low NPL ratio, low delinquency of loan volumes and good provision and collateral coverage across the portfolios. More than 82% (2015: 78%) of the total portfolio can be assigned to an investment grade rating which corresponds to the external rating classes AAA to BBB.

	Book value1)			in %
in EUR million	31.12.2016	31.12.2015	31.12.2016	31.12.2015
Loans and receivables (net)	30,826	27,396	99.5%	99.3%
Total Provisions	205	235	0.7%	0.9%
Loans and receivables (gross)	31,031	27,631	100.2%	100.2%
IBNR	54	46	0.2%	0.2%
Total	30,977	27,585	100.0%	100.0%
thereof performing	30,366	26,997	98.0%	97.9%
thereof non-performing2)	611	588	2.0%	2.1%
NPL LLP coverage ratio2)	–	–	52.4%	62.0%
NPL coverage ratio (collateral + LLP)2)	–	–	96.4%	98.3%
Additional information:
Total unprovisioned outstandings past due	217	335	0.7%	1.2%
1–30 days	58	236	0.2%	0.9%
31–60 days	17	13	0.1%	0.0%
61–90 days	14	8	0.0%	0.0%
91–180 days	10	5	0.0%	0.0%
More than 180 days	117	73	0.4%	0.3%

1. Bonds are not included since the bond portfolio does not show any days past due or any signs of non-performance

2. NPL including City of Linz; NPL LLP coverage ratio and NPL coverage ratio (collateral + LLP) excluding City of Linz.

The following table shows the days past due and the NPL ratio for the segments BAWAG P.S.K. Retail and easygroup as well as DACH Corporates & Public Sector and International Business.

31.12.2016in EUR million	BAWAG P.S.K.Retail	easygroup	DACH Corporates& Public Sector	InternationalBusiness
Total	11,558	4,436	7,790	5,634
1–30 days	0.3%	0.2%	0.2%	–
31–60 days	0.1%	0.2%	–	–
61–90 days	0.1%	0.1%	0.0%	–
NPL ratio1)	1.8%	2.1%	0.7%	–
NPL LLP coverage ratio	52.9%	34.5%	58.0%	–
NPL coverage ratio (collateral + LLP)	92.8%	99.1%	100.0%	–

31.12.2015in EUR million	BAWAG P.S.K.Retail	easygroup	DACH Corporates& Public Sector	InternationalBusiness
Total	9,036	3,630	7,492	5,748
1–30 days	0.4%	0.5%	1.9%	–
31–60 days	0.1%	0.1%	–	–
61–90 days	0.0%	0.1%	–	–
NPL ratio1)	2.2%	1.1%	1.2%	–
NPL LLP coverage ratio	63.5%	50.3%	55.0%	–
NPL coverage ratio (collateral + LLP)	97.3%	100.0%	98.7%	–

1. The NPL ratio reflects a gross perspective.

The following table shows the distribution by ratings for the portfolio which is neither overdue nor impaired. The low

risk profile is stable and shows a positive trend toward investment grade ratings.

31.12.2016in %	Total portfolio	BAWAG P.S.K.Retail	easygroup	DACH Corporates& Public Sector	InternationalBusiness
Rating class 1	12.9%	0.6%	0.4%	45.5%	0.0%
Rating class 2	6.0%	4.6%	0.1%	15.8%	0.1%
Rating class 3	11.1%	14.7%	19.2%	5.5%	6.2%
Rating class 4	46.6%	41.5%	51.7%	21.4%	83.4%
Rating class 5	18.4%	30.0%	20.1%	10.6%	8.5%
Rating class 6	3.7%	6.2%	5.2%	1.1%	1.8%
Rating class 7	1.3%	2.3%	3.2%	0.1%	0.0%

31.12.2015in %	Total portfolio	BAWAG P.S.K.Retail	easygroup	DACH Corporates& Public Sector	InternationalBusiness
Rating class 1	15.4%	0.8%	0.4%	38.4%	0.0%
Rating class 2	6.4%	2.1%	0.1%	17.7%	0.0%
Rating class 3	13.3%	17.1%	28.2%	9.8%	7.2%
Rating class 4	40.5%	39.8%	37.3%	19.9%	80.7%
Rating class 5	20.2%	31.7%	28.0%	12.2%	12.1%
Rating class 6	2.9%	6.1%	3.8%	1.6%	0.0%
Rating class 7	1.4%	2.3%	2.2%	0.4%	0.0%

Internal rating classes correspond to Moody's rating in the following way: Rating class 1 corresponds to Moody's rating Aaa–Aa2, rating class 2 to Aa3–A1, rating class 3 to A2–

A3, rating class 4 to Baa1–Baa3, rating class 5 to Ba1–B1, rating class 6 to B2–Caa2, rating class 7 to Caa3.

Collateral

The following table contains the split of collateral by categories. It shows a strong focus on real estate.

31.12.2016in %	Total portfolio	BAWAG P.S.K.Retail	easygroup	DACH Corporates& Public Sector	InternationalBusiness
Real estate	80.4%	97.1%	85.1%	25.4%	100.0%
thereof residential	81.5%	96.1%	99.8%	27.2%	0.0%
thereof commercial	18.5%	3.9%	0.2%	72.8%	100.0%
Guarantees	16.6%	0.7%	9.4%	73.0%	0.0%
Other collateral	2.2%	0.7%	5.5%	0.3%	0.0%
Financial collateral	0.8%	1.5%	0.1%	1.3%	0.0%

31.12.2015in %	Total portfolio	BAWAG P.S.K.Retail	easygroup	DACH Corporates& Public Sector	InternationalBusiness
Real estate	78.4%	96.1%	88.3%	25.8%	97.8%
thereof residential	80.0%	94.2%	99.8%	29.5%	0.0%
thereof commercial	20.0%	5.8%	0.3%	70.5%	100.0%
Guarantees	16.8%	0.7%	0.0%	72.7%	0.0%
Other collateral	3.5%	1.1%	11.6%	0.3%	2.2%
Financial collateral	1.2%	2.1%	0.1%	1.2%	0.0%

Impaired loans

Provisions are booked on loans for which the probability of full recovery is not fulfilled. The main components of the provisioning framework are shown in the following paragraphs. The volume reported as NPLs includes all claims against customers classified as being in default and against customers for which specific impairment provisions have been formed1). Loans are not included in NPLs if no economic loss is expected.

Manual impairment provision

In cases when exposures are restructured according to internal processes, which may include the extension of forbearance measures, an appropriate impairment test is performed. Derecognition is assessed after a detailed analysis on an individual basis and impairment provisions are formed manually.

Automatic impairment provision

Loan loss provisions are booked automatically in the core banking system for the standard bank products in the case of unpaid balances. This occurs when limits are continuously exceeded on current accounts, installments are continuously not paid on loans and/or when legal action is initiated.

General impairment provisions

A general provision is booked on a portfolio basis for incurred but not reported (IBNR) losses as of the reporting date. The general provision is formed for on- and offbalance-sheet claims in the Group's credit portfolio. This includes bonds, but not positions measured at fair value. As of 31 December 2016, the IBNR portfolio provision amounted to EUR 59 million (incl. EUR 15 million of provision for redemption carrier loans), thereof off-balance items amounted to EUR 5.5 million (31 December 2015: Total IBNR provision was EUR 50.7 million, thereof offbalance provision amounted to EUR 5.0 million).

1. The IBNR portfolio provision does not lead to a classification as "in default." On the other hand, the two further impairment provision types described in the Impaired loans section lead to the immediate default of the customer. All exposure-bearing products of the customer who is defaulted are classified as nonperforming loans.

Non-performing loans (NPLs)

Exposures relating to all customers in default risk class 81) are categorized as non-performing loans, regardless of whether a limit has been exceeded or a payment missed on an individual account. When a material exposure of a customer is greater than 90 days past due, a loan loss provision is allocated or a customer-specific default criterion applies. The customer is considered to be in default across all exposure-related products and is assigned to risk class 8.

Forborne loans and forbearance measures

Measures of forbearance or refinancing are extended if borrowers face financial difficulties and are considered to be unable to meet contractual obligations. The Group has sound and transparent processes in place to define the conditions under which concessions, in the form of modification of terms and conditions, or refinancing, may be granted. In this respect, strictly temporary measures – i.e. a reduction or postponement of as well as transfer to terms of interest only repayments – are in place. In exceptional cases, temporary or permanent reduction of interest rates may be granted. Depending on customer segments, a split of loan agreements or refinancing facilities may be accepted as viable measures.

Measures of forbearance or refinancing are instruments to ultimately reduce the existing risk with respect to debt claims. However, forbearance measures are by no means used to avoid or postpone the recognition of impairment or disguise the level of credit risk resulting from forborne assets.

By implementing forbearance measures, the Group supports clients in maintaining financial stability. One of the positive effects of forbearance is to assist clients on their way back to a sustainable financial situation. If the supporting measure is not successful, exposures will be recognized as non-performing and impaired according to regulatory and accounting standards. For clients or a group of clients where a loss was identified, a provision is booked following internal guidelines.

For reporting as well as internal risk management purposes, the Group implemented processes and methods according to regulatory standards2) in order to identify exposures for which forbearance or refinancing measures have been extended.

Collateral and valuation of residential and commercial real estate

All types of acceptable collateral are listed in the Group Collateral Catalogue. Adequate haircuts are defined for each type of collateral.

The central group Residential Real Estate Appraisal determines the value of all residential properties in Austria on the basis of a standard methodology and valuation tool. The periodic review and updating of property values is automated based on the real estate price index published by the Association of Real Estate and Asset Trustees of the Austrian Federal Economic Chamber (Fachverband der Immobilien- und Vermögenstreuhänder der Wirtschaftskammer Österreich) for Austrian residential properties, on the Halifax House Price Index for residential properties in Great Britain and on the INSEE statistics (L'Institut national de la statistique et des études économiques) for French residential properties.

The values of commercial properties are appraised individually by experts in the central group Commercial Real Estate Appraisal, by selected external appraisers commissioned by the Group or by a syndicate partner after an inspection of the property and completion of a full appraisal report.

Workout group

The workout group is responsible for the processing and administration of troubled and defaulted loan commitments. The primary objective is to minimize losses by providing restructuring expertise and maximizing repayments.

Early recognition of troubled assets

Customers that trigger defined early warning signals for various reasons (i.e. general deterioration of creditworthiness, significant decline in the stock price, rise in CDS spreads, negative press reports/ad-hoc publicity, unusual risk concentrations, etc.) are placed on the Watch List and discussed in the Watch Loan Committee, which is made up of members of the relevant business and risk units. This committee develops and elaborates on risk mitigation actions for single exposures and oversees consistent monitoring of all cases with an elevated probability of default.

BAWAG P.S.K. Retail and easygroup

The BAWAG P.S.K. Retail portfolio is comprised of 58% mortgages (2015: 51%), 29% consumer loans (2015: 30%), 8% social housing (2015: 12%) and 5% small business loans (2015: 7%). The portfolio is characterized by strong collateral coverage in the secured products: 65% LTV across the mortgage portfolio (2015: 68%), 55% in private and small business loans (2015: 58%) and 47% (2015: 49%) across the social housing portfolio. New business volumes were originated primarily from consumer loans and mortgages.

The easygroup portfolio is comprised of 74% mortgages (2015: 67%), 29% consumer loans (2015: 30%) and 1% small business loans (2015: 1%). The portfolio is characterized by strong collateral coverage in the secured products (38% LTV across the mortgage portfolio; 2015: 56%), 63% in the small business loan portfolio; 2015: 70%). New business volumes were originated primarily from consumer loans and mortgages.

The core products have well-defined underwriting standards that focus on collateral coverage, overall customer indebtedness and assessing customers' ability to service the loan. In addition to that, special emphasis is placed on fraud detection via sophisticated techniques and sound processes to proactively prevent inflow of fraudulent new business.

The risk from new business is managed using clear and strict credit guidelines. Decisions at the point of sale are taken on the basis of automated scoring systems or, in certain cases, manual decisions by the Risk department. A key focus in this portfolio is placed on compliance with policies and ensuring high data quality already at the time of application.

For existing business, active portfolio management (i.e. delinquency reporting, trend analysis, regional concentration analysis, NPL remediation) is a key component to proactively manage the risk in this portfolio.

Having well-defined policies, procedures and analytical tools related to portfolio management is essential to managing risk in this flow-oriented business. The credit risk is measured continuously by the following methods:

• Portfolio trends in terms of risk class distribution
• Portfolio trends in terms of overdue/late payments
• Portfolio trends for defaulted loan facilities
• Portfolio trends in terms of losses
• Scorecard performance: Approval rate and manual decisions
• Performance monitoring of fraud detection

The results of the analysis are presented to the Managing Board and the relevant decision makers as part of the established operating rhythm. This process ensures a regular and standardized flow of information and enables the Group to respond directly to changes in risk parameters and market conditions.

Furthermore, the risk from new business is managed using clear and strict credit guidelines. Decisions at the point of sale are taken on the basis of automated scoring systems or, in certain cases, manual decisions by the Risk department. A key focus in this portfolio is on compliance with policies and ensuring high data quality. A central monitoring process ensures ongoing quality assurance.

Credit portfolio and bonds by products

		Book value	NPLratio1)	NPLcoverage ratio	LTV2)
BAWAG P.S.K. Retailin EUR million	31.12.2016	31.12.2015	31.12.2016	31.12.2016	31.12.2016
Mortgage loans	6,675	4,610	1.1%	94.5%	65.6%
Consumer loans	3,345	2,713	2.9%	88.1%	n/a
Social housing loans	985	1,079	–	–	47.2%
Small business loans	552	634	5.0%	91.4%	55.1%
Total	11,558	9,036	1.8%	92.8%	58.9%

		Book value	NPLratio1)	NPLcoverage ratio	LTV2)
easygroupin EUR million	31.12.2016	31.12.2015	31.12.2016	31.12.2016	31.12.2016
Mortgage loans	3,267	2,503	2.9%	98.6%	38.1%
Consumer loans	1,137	1,099	1.6%	100.0%	n/a
Social housing loans	–	–	–	–	n/a
Small business loans	31	28	16.0%	86.4%	62.8%
Total	4,436	3,630	2.1%	99.1%	38.3%

1. The NPL ratio reflects a gross perspective.

2. The LTV for the total unprovisioned outstandings past due is close to the LTVs shown above.

The NPL ratio of the BAWAG P.S.K. Retail portfolio improved from 1.9% to 1.8% compared to the previous year. The NPL coverage ratio of 92.8% (2015: 88.9%) and the LTV of 58.9% (2015: 56.9%) convey the stable risk profile of this portfolio.

The mortgage portfolio of BAWAG P.S.K. Retail is characterized by normal LTVs, a low NPL ratio, a high coverage ratio and good geographic diversification. The weighted average life of the mortgage portfolio is less than 17 years. Mortgages comprise both EUR- and CHFdenominated mortgages. The CHF-denominated mortgage portfolio stands at EUR 1.5 billion at year-end 2016 (2015: EUR 1.6 billion). This is a portfolio that is proactively being managed down and/or converted to EUR-denominated loans. The volume in CHF-denominated mortgages is down by over CHF 1 billion since the discontinuation of the product in 2008 (reduction of more than 40%). Specific programs have been in place for the past few years that were established between the Risk and Market organizations to convert customers to EUR-denominated loans. The LTV of the CHF portfolio was 77% as of year-end 2016 (31.12.2015: 79%).

The consumer loan portfolio is comprised of unsecured one-stop and online loans, overdrafts and a mix of leasing assets (consumer auto, real estate and equipment leasing). The focus has been on developing robust risk scorecards and processes to support the growth of this core segment. The risk profile of the portfolio is characterized by a weighted average life of slightly above six years. All the delinquency trends remained stable.

Small business loans are proactively monitored to ensure the potential identification of weakening credits and if required, countermeasures are initiated.

The NPL ratio of the easygroup portfolio amounts to 2.1% (2015: 1.1%). The NPL coverage ratio amounts to 100% and the LTV to 38.3% (2015: 56.0%).

The acquired UK mortgage portfolio has an exposureweighted remaining term of 14.6 years with an LTV of 64% (2015: 57%). The French portfolio acquired in 2016 has

an exposure-weighted remaining term of 11.3 years with an LTV of 62%.

For both segments, the overall NPL and coverage ratios reflect a stable and low-risk portfolio. Significant resources have been allocated and investments made over the past few years to address legacy NPL portfolios (primarily sold in the past few years), to enhance early and late stage collection processes/capabilities and to develop a proactive approach of dealing with NPLs both from an Operations and Risk standpoint.

	Consumer loans			Mortgage loans		Small business loans		Total
BAWAG P.S.K. Retailin EUR million	31.12.2016	31.12.2015	31.12.2016	31.12.2015	31.12.2016	31.12.2015	31.12.2016	31.12.2015
Forborne assets	117	84	84	71	18	20	218	176
thereof nonperforming	15	12	16	19	4	6	34	38
Impairments	8	6	4	6	1	1	13	13
Collateral	7	6	69	57	12	14	88	78

Forbearance by products

	Consumer loans			Mortgage loans		Small business loans		Total
easygroupin EUR million	31.12.2016	31.12.2015	31.12.2016	31.12.2015	31.12.2016	31.12.2015	31.12.2016	31.12.2015
Forborne assets	6	4	143	13	1	1	149	17
thereof nonperforming	0	0	27	3	0	1	28	3
Impairments	1	0	0	–	0	0	2	0
Collateral	0	0	134	10	0	0	134	10

Days past due – credit quality

The product portfolio is monitored by days past due (i.e. delinquency buckets) on an ongoing basis. The aim is to ensure early identification of negative credit developments within the portfolio and to work with customers on a proactive basis to ensure full repayment of loans.

The BAWAG P.S.K. Retail portfolio is 97.8% (2015: 97.3%) current (i.e. no days past due). The easygroup portfolio is 97.4% (2015: 97.7%) current. Overall, the low days past due volumes, the stable vintages and the product-specific scorecard results reflect the strong credit quality of the portfolio.

	Consumer loans			Mortgage loans		Small business loans		Social housing loans
BAWAG P.S.K. Retailin EUR million	31.12.2016	31.12.2015	31.12.2016	31.12.2015	31.12.2016	31.12.2015	31.12.2016	31.12.2015
Total	3,346	2,713	6,675	4,610	552	634	985	1,079
1–30 days	0.7%	0.9%	0.1%	0.2%	0.9%	0.6%	–	–
31–60 days	0.3%	0.2%	0.0%	0.0%	0.2%	0.2%	–	–
61–90 days	0.2%	0.2%	0.0%	0.0%	–	0.1%	–	–
NPL ratio1)	2.9%	3.6%	1.1%	1.4%	5.0%	5.4%	–	–
NPL LLP coverage ratio	80.7%	86.3%	39.2%	37.6%	47.4%	48.3%	n/a	n/a
NPL coverage ratio(collateral + LLP)	88.1%	98.0%	94.5%	98.1%	91.4%	93.6%	n/a	n/a

	Consumer loans			Mortgage loans		Small business loans		Social housing loans
easygroupin EUR million	31.12.2016	31.12.2015	31.12.2016	31.12.2015	31.12.2016	31.12.2015	31.12.2016	31.12.2015
Total	1,137	1,099	3,267	2,503	31	28	–	–
1–30 days	0.4%	2.5%	0.1%	15.4%	–	–	–	–
31–60 days	0.4%	0.4%	0.1%	–	–	–	–	–
61–90 days	0.4%	0.3%	0.0%	–	–	–	–	–
NPL ratio1)	1.6%	1.7%	2.9%	1.4%	16.0%	14.9%	–	–
NPL LLP coverage ratio	100.0%	100.0%	11.7%	17.9%	71.2%	68.9%	n/a	n/a
NPL coverage ratio(collateral + LLP)	100.0%	100.0%	96.8%	100.0%	86.4%	85.0%	n/a	n/a

1. The NPL ratio reflects a gross perspective.

Retail assets - Regional distribution

	Book value			in %	NPLratio1)	NPLcoverage ratio
BAWAG P.S.K. Retailin EUR million	31.12.2016	31.12.2015	31.12.2016	31.12.2015	31.12.2016	31.12.2016
Vienna2)	4,911	2,477	42.5%	27.4%	2.3%	87.6%
Styria	1,821	1,822	15.8%	20.2%	1.5%	92.7%
Lower Austria	1,818	1,757	15.7%	19.4%	1.1%	93.7%
Upper Austria	784	730	6.8%	8.1%	2.5%	91.0%
Tyrol/Vorarlberg	706	732	6.1%	8.1%	1.6%	93.3%
Carinthia	659	658	5.7%	7.3%	1.9%	92.3%
Salzburg	452	448	3.9%	5.0%	1.5%	91.6%
Burgenland	407	412	3.5%	4.6%	1.3%	96.4%
Total portfolio	11,558	9,036	100.0%	100.0%	1.8%	92.8%

		Book value		in %	NPLratio1)	NPLcoverage ratio
easygroupin EUR million	31.12.2016	31.12.2015	31.12.2016	31.12.2015	31.12.2016	31.12.2016
Vienna	317	306	7.1%	8.4%	1.9%	100.0%
Lower Austria	283	267	6.4%	7.4%	1.3%	100.0%
Tyrol/Vorarlberg	144	130	3.2%	3.6%	1.3%	100.0%
Styria	136	129	3.1%	3.6%	1.9%	100.0%
Upper Austria	127	117	2.9%	3.2%	2.1%	100.0%
Carinthia	118	107	2.7%	3.0%	0.9%	100.0%
Salzburg	68	65	1.5%	1.8%	1.9%	100.0%
Burgenland	29	27	0.7%	0.8%	1.0%	100.0%
Portfolio Austria	1,222	1,149	27.6%	31.7%	1.5%	100.0%
United Kingdom	1,777	2,481	40.1%	68.3%	3.0%	97.8%
France	1,435	–	32.4%	–	1.0%	100.0%
Total portfolio	4,436	3,630	100.0%	100.0%	2.1%	99.1%

1. The NPL ratio reflects a gross perspective.

2. Book values from IMMO-BANK and start:bausparkasse portfolios are grouped in BAWAG P.S.K. Retail – Vienna region.

The BAWAG P.S.K. Retail portfolio is regionally diverse across Austria, with two-thirds of the exposure distributed across the stronger economic regions of Vienna, Lower Austria and Styria similar to 2015. For the easygroup

portfolio, the most significant regions in Austria are Vienna, Lower Austria and Tyrol/Vorarlberg, while the international mortgage portfolio comprises portfolios in UK and France (2015: UK).

	Book value		NPLratio1)	NPLcoverage ratio	Investment grade
in EUR million	31.12.2016	31.12.2015	31.12.2016	31.12.2016	31.12.2016
DACH Corporates &Public Sector	7,790	7,492	0.7%	95.1%	88.2%
International Business	5,634	5,748	–	n/a	89.7%
IB Corporates	2,817	3,179	–	n/a	81.5%
IB Real Estate	2,817	2,569	–	n/a	97.9%
Total	13,424	13,240	0.4%	95.1%	88.8%

DACH Corporates & Public Sector and International Business

1. The NPL ratio reflects a gross perspective.

The segments DACH Corporates & Public Sector and International Business are split between domestic DACH Corporates & Public Sector assets and the International Business assets. The business was characterized by proactive risk management, disciplined growth in stable Western economies, continued exit of non-core CEE assets and maintaining a disciplined approach to risk-adjusted pricing. The overall portfolio is comprised of 88.8% investment grade between both DACH Corporates & Public Sector and International Business assets (2015: 86.3%). The total NPL ratio reflects the very high credit quality of the business and was further reduced by 0.3 percentage points from 0.7% to 0.4% due to active portfolio management. Among the NPL volume, 95.1% are covered (2015: 97.6%).

All material credit decisions are taken within a specific credit committee that meets weekly and is comprised of all Managing Board members. Individual credit applications are thoroughly reviewed, discussed and voted on. The Group's credit risk managers have a diverse and experienced background spanning different asset classes with domestic and international experience. For loan applications below a certain threshold, risk managers are granted authority to approve credits outside of the credit committee.

Corporate exposure in the international business is characterized predominantly by a moderate (net) debt/EBITDA ratio of <4x and a very good risk/return profile. The international real estate finance portfolio has an average LTV of approximately 47% and is very well diversified in terms of regions and asset classes.

		Book value	in %
DACH Corporates & Public Sectorin EUR million	31.12.2016	31.12.2015	31.12.2016	31.12.2015
EUR	7,352	6,969	94.4%	93.0%
USD	111	100	1.4%	1.3%
GBP	43	22	0.6%	0.3%
CHF	250	361	3.2%	4.8%
Others	34	40	0.4%	0.5%
Total	7,790	7,492	100.0%	100.0%

Currency distribution of the credit and bond portfolio

		Book value	in %
International Businessin EUR million	31.12.2016	31.12.2015	31.12.2016	31.12.2015
EUR	1,965	2,313	34.9%	40.2%
USD	2,418	2,185	42.9%	38.0%
GBP	1,069	1,250	19.0%	21.7%
CHF			–	–
Others	182		3.2%	–
Total	5,634	5,748	100.0%	100.0%

Forbearance

	DACH Corporates& Public Sector			International Business	Total
in EUR million	31.12.2016	31.12.2015	31.12.2016	31.12.2015	31.12.2016	31.12.2015
Forborne	102	151	21	6	123	157
thereof non-performing	34	52	–	–	34	52
Impairments	12	20	–	–	12	20
Collateral	70	93	–	–	70	93

Particular risk concentrations in the credit portfolio

A major focus of risk management in the DACH Corporates & Public Sector and International Business segments is centered on managing concentration risk. Concentration risk arises from both large exposures in individual customer segments and large industry/country/foreign currency exposures.

The framework for the management of concentration risk is based on the requirements imposed by the senior management of the Bank in line with the rules and recommendations of national and international regulators. Concentration risks are managed, limited and reported to the Managing Board as part of the overall monthly risk management reporting.

The principles and methodological framework for the measurement and monitoring of these credit risk concentrations are outlined in risk manuals and guidelines. Concentration risks at the level of individual transactions and products are managed in a sub-portfolio category. Country and sector limits are managed using a standard process in accordance with internal guidelines.

Concentration risk at the level of individual borrowers and groups of affiliated customers as well as for sectors, countries and currencies is quantified on the basis of allocated economic capital. Adapted risk-weighted assets form the methodological basis in accordance with IRB standards.

Corresponding limits and warning thresholds are specified for countries, sectors, currencies and groups of customers and form an integral part of the management of overall risk in the Group. All limits are monitored on an ongoing basis and in accordance with the estimated risk potential.

Risk concentrations by industry segmentation

		Book value	in %
DACH Corporates & Public Sectorin EUR million	31.12.2016	31.12.2015	31.12.2016	31.12.2015
Government	2,839	2,342	36.4%	31.3%
Public Sector	1,876	1,733	24.1%	23.1%
Real Estate	691	766	8.9%	10.2%
Automotive	264	237	3.4%	3.2%
Wood & Paper	253	142	3.3%	1.9%
Retail - Food	224	372	2.9%	5.0%
B-2-C Products	196	224	2.5%	3.0%
Gaming & Leisure	171	203	2.2%	2.7%
Pharmaceuticals & Health Care	152	243	1.9%	3.2%
Engineering and B-2-B	146	57	1.9%	0.8%
Social Housing	135	142	1.7%	1.9%
Banks	115	157	1.5%	2.1%
Commodity	102	122	1.3%	1.6%
Services	100	126	1.3%	1.7%
Construction & Building Materials	82	95	1.1%	1.3%
Portfolio	76	22	1.0%	0.3%
Transport	63	107	0.8%	1.4%
Leasing	58	81	0.7%	1.1%
Media	57	29	0.7%	0.4%
NGO	49	48	0.6%	0.6%
Utilities	49	71	0.6%	0.9%
Beverages, Food & Tobacco	42	68	0.5%	0.9%
Hotels	32	0	0.4%	0.0%
Chemicals	9	14	0.1%	0.2%
Telecommunication	8	63	0.1%	0.8%
Mining & Metals	1	28	0.0%	0.4%
Total	7,790	7,492	100.0%	100.0%

	Book value			in %
International Businessin EUR million	31.12.2016	31.12.2015	31.12.2016	31.12.2015
Portfolio	1,367	1,747	24.3%	30.4%
Real Estate	1,278	770	22.7%	13.4%
Services	700	587	12.4%	10.2%
Pharmaceuticals & Health Care	386	517	6.8%	9.0%
B-2-C Products	353	241	6.3%	4.2%
Gaming & Leisure	234	267	4.2%	4.6%
Transport	215	211	3.8%	3.7%
Investment Funds	210	275	3.7%	4.8%
Hotels	188	0	3.3%	0.0%
Telecommunication	181	304	3.2%	5.3%
Commodity	108	176	1.9%	3.1%
Automotive	98	115	1.7%	2.0%
Chemicals	98	111	1.7%	1.9%
Engineering & B-2-B	97	106	1.7%	1.8%
Retail – Food	50	0	0.9%	0.0%
Beverages, Food & Tobacco	33	172	0.6%	3.0%
Wood & Paper	30	30	0.5%	0.5%
Construction & Building Materials	9	47	0.2%	0.8%
Insurance	0	5	0.0%	0.1%
Media	0	65	0.0%	1.1%
Total	5,634	5,748	100.0%	100.0%

Treasury Services & Markets

		Book value1)	Investment grade
in EUR million	31.12.2016	31.12.2015	31.12.2016	31.12.2015
Banks	4,035	3,661	99.0%	99.3%
Sovereigns	1,112	980	100.0%	100.0%
Others	218	228	100.0%	100.0%
Total	5,366	4,869	99.2%	99.5%

1. Investment book only.

Treasury Services & Markets acts as a service center for the Bank's customers, subsidiaries and partners through market execution as well as selective investment activities.

The investment portfolio comprised 98% of investment grade rated securities (2015: 99%), of which 83% were rated in the single A category or higher (2015: 79%). Exposure to CEE represented less than 2% of the portfolio and was limited to selected bonds, with 100% rated in the single A equivalent category or better (2015: 84%). As of 31 December 2016, the portfolio had no direct exposure to China, Russia, Hungary or South-Eastern Europe. Direct exposure to the UK is moderate and focuses on internationally diversified issuers with solid credit quality. Southern Europe continues to be moderate and comprises shorter-dated, liquid bonds of well-known issuers.

Currency distribution of the credit and securities portfolio

		Book value	in %
in EUR million	31.12.2016	31.12.2015	31.12.2016	31.12.2015
EUR	5,176	4,716	96.5%	96.9%
USD	162	153	3.0%	3.1%
Others	28	0	0.5%	–
Total	5,366	4,869	100.0%	100.0%

Geographical distribution of the securities portfolio1)

Geographical distribution of bonds

Corporate Center

The Corporate Center includes unallocated items related to support functions for the entire Bank, accounting positions (e.g. market values of derivatives) and select results related to subsidiary and participation holdings. Regulatory charges (except for deposit guarantee scheme contributions) and corporate taxes are assigned to the Corporate Center. The focus is set on non-business related positions.

Participation risk

Participation risk includes potential losses in the fair value of non-consolidated equity investments, potential impairments and low profitability of non-consolidated equity investments. Participation risk does not include consolidated operating subsidiaries because their risks are

assessed separately according to the specific risk types and accounted for as such. In December 2016 the economic capital amounted to EUR 26 million (Dec. 2015: EUR 25 million).

Impairment tests are conducted every year to validate the values of the equity investments in the Group's portfolio. These impairment tests are predominantly completed on the basis of the planning projections (budgeted financial statements – i.e. cash flow, P&L and balance sheet) prepared for future periods by the management of each entity. The results indicated in the projections are discounted using risk-adjusted rates. The proportionate value of the company based on the Group's shareholding is then compared with the carrying amount of the investment.

165 1) These regions include the United States with 13% (2015: 15%), Great Britain with 15% (2015: 14%), France with 10% (2015: 7%) and Germany with 2% (2015: 3%).

In contrast to the procedure described above, more simplified techniques are adopted for micro-participations and those amounts covered either by pro rata equity, by pro rata capitalized average earnings before taxes of the

54 | Market risk

Market risk is defined as the risk of losses caused by open risk positions in the market and the adverse development of market risk factors (interest rates, foreign exchange rates, equity prices, volatilities, credit spreads). Market risk can arise in conjunction with trading and non-trading activities.

The primary market risk components for BAWAG P.S.K. are interest rate and credit spread risk. Both risk categories are measured via sensitivity, value-at-risk (VaR) and scenariobased approaches. In addition, the financial treatment of the positions is considered in the risk reporting concepts.

In the trading book, only risk mitigating measures are performed if necessary. The monitoring within the framework of ICAAP is carried out using a parametric VaR model. The regulatory capital requirement is calculated using the Standardized Approach. Regulatory capital requirements for specific risk in the trading book are still calculated using the regulatory standard method.

last three years or by other value indicators – e.g. net asset values for real estate companies. The overall results of the impairment tests are reviewed and confirmed by the Participation Risk team.

Market risk in the trading book

The Bank's strategy to discontinue proprietary trading activities resulted in a further reduction in derivative volume in the trading book in 2016. In 2016, the average value-atrisk of the trading book was measured at minus EUR 0.60 million (2015 average: minus EUR 0.78 million) and the value-at-risk as of 31 December 2016 was measured at minus EUR 0.74 million (31 December 2015: minus EUR 0.64 million) based on a confidence interval of 99% and a one-day holding period. The Bank employs the value-atrisk (VaR) approach for internal risk monitoring and steering. The VaR limits are further supplemented by sensitivity and worst-case limits.

The following table depicts the total trading book VaR based on a confidence interval of 99% and a holding period of one day.

VaR trading book

in EUR thousand	31.12.2016	31.12.2015
Average VaR	(602)	(776)
Year-end VaR	(739)	(642)

Market risk in the banking book

The primary components of market risk for BAWAG P.S.K. Group are interest rate risk, credit spread risk and liquidity risk.

Interest rate risk in the banking book

Interest rate risk in the banking book is the potential loss resulting from net asset value changes and the future development of net interest income due to adverse interest rate shifts.

The Strategic Asset Liability Committee (SALCO) has assigned interest rate risk limits to the Treasury Services & Markets division in order to manage the interest rate risk in terms of an optimal risk/return ratio at the Group level as determined by the Controlling/ALM division. The Strategic Risk division reports to the SALCO on a daily basis for some areas as well as monthly at the Group level on limit utilization and the distribution of risk.

The target interest rate risk structure mandated by the SALCO is implemented by the Controlling/ALM and Treasury Services & Markets divisions. Interest rate derivatives are employed to this end in order to manage interest rate risk. BAWAG P.S.K. Group uses interest rate derivatives:

• to implement the interest risk strategy within the requirements and limits defined by the SALCO,
• to manage the sensitivity of the valuation result and the revaluation reserve,
• and to hedge the economic risk position, thereby taking the accounting treatment into consideration.

BAWAG P.S.K. Group uses hedge accounting pursuant to IAS 39. The following fair value hedge accounting methods are currently used to value interest rate risk hedges of the balance sheet:

Micro fair value hedge: hedging against the risk of interest rate changes for fixed-interest instruments held as assets and liabilities

Portfolio fair value hedge ("EU carve-out"): application to sub-portfolios of sight deposits that are available for the long term after derivation of a bottom layer

Interest rate derivatives that are not assigned to a hedge accounting relationship are recognized at their fair values.

Interest rate risk is measured using sensitivities based on the present value of a basis point (PVBP) concept. The PVBP, which is derived from the duration of interestbearing financial instruments, reflects the impact on net asset value resulting from an upward parallel shift of the yield curves by one basis point. The following table depicts the Group's interest rate risk sensitivities as of 31 December 2016 on the basis of the PVBP concept:

31.12.2016in EUR thousand	<1Y	1Y–3Y	3Y–5Y	5Y–7Y	7Y–10Y	>10Y	Total
EUR	(14)	(122)	(97)	(397)	(379)	(287)	(1,295)
USD	7	17	19	6	(8)	(1)	40
CHF	(12)	(13)	(10)	54	11	(38)	(7)
GBP	24	9	(1)	(7)	(5)	(9)	12
Othercurrencies	4	(21)	(3)	0	1	2	(17)
Total	9	(129)	(91)	(344)	(380)	(332)	(1,267)
31.12.2015in EUR thousand	<1Y	1Y–3Y	3Y–5Y	5Y–7Y	7Y–10Y	>10Y	Total
EUR	(198)	(50)	(322)	(172)	(52)	(36)	(830)
USD	(15)	(8)	29	(3)	(1)	0	3
CHF	(17)	(12)	(6)	3	(73)	4	(101)
GBP	5	10	(8)	(1)	(3)	(13)	(8)
Othercurrencies	2	(1)	1	1	1	3	6
Total	(222)	(60)	(307)	(172)	(128)	(42)	(930)

Interest rate sensitivity

The impact upon the Profit or Loss Statement and Other Comprehensive Income of fair value changes arising from interest rate changes is calculated and monitored separately. The sensitivity of financial assets designated at fair value through profit or loss amounted to plus EUR 335 thousand on 31 December 2016 (average 2016: minus EUR 150 thousand, 31 December 2015: minus EUR 191 thousand). For the available-for-sale financial assets, the sensitivity amounted to minus EUR 631 thousand (31 December 2015: minus EUR 461 thousand).

Furthermore, a value-at-risk calculation for the Group is conducted within the framework of the Internal Capital Adequacy Assessment Process (ICAAP) on a monthly basis.

Credit spread risk in the banking book

Credit spread risk in the banking book refers to the risk of decreasing fair values of securities and derivatives due to changes in market credit spreads. The risk management models employed by the Bank to address this risk have been continuously refined. The credit spread risk is measured on the basis of the sensitivities (basis point value). The basis point value reflects the impact on net asset value resulting from an upward parallel shift of the credit spreads by one basis point (0.01%). The following table shows the total credit spread sensitivity of the Bank along with the breakout by accounting categories impacting the Profit or Loss Statement and Other Comprehensive Income:

Credit spread sensitivity

in EUR thousand	31.12.2016	31.12.2015
Total portfolio	(2,304)	(1,965)
Financial assets designated at fair value through profit or loss	302	251
Available-for-sale financial assets	(1,251)	(815)
Held-to-maturity assets & Loans and receivables	(1,355)	(1,401)

The risk indicators "value-at-risk" and "expected shortfall" are also calculated and scenario calculations are run, both on a monthly basis.

Credit spread risk is also taken into account and limited for the Bank as a whole in the ICAAP and is part of the Bankwide stress tests.

All employed models are calibrated regularly and validated at least once per year by assessing the assumptions and by backtesting.

FX risk in the banking book

The extent of open foreign exchange positions in the Group's banking book is managed by conservative limits in order to ensure that only marginal FX risks are carried in the banking book. Compliance with these limits is observed on a daily basis. FX risk from the future margins is mitigated by implementation of the Cash Flow Hedge. Currently, GBP and USD margin cash flows are hedged.

The following table shows sensitivities of foreign currencies due to the open currency positions. None of the currencies poses a significant valuation risk.

in EUR thousand		USD	GBP			CHF	Other FX
FX change (in %)	(10)	10	(10)	10	(10)	10	(10)	10
Impact	(1,033)	1,033	(245)	245	708	(708)	284	(284)

Concentration risk

All essential risk factors are incorporated within VaR models/scenario analyses and stress test calculations which are applied to all trading and bank book positions. Instabilities of correlations which could result in an overestimation of diversification are taken into consideration by the fact that only correlations within a

55 | Liquidity risk

In addition to the risk of not being able to fulfill payment obligations when they become due (dispositive liquidity risk), liquidity risk also relates to the risk of increased refinancing costs, which can influence the Group's earnings situation (structural liquidity risk). Furthermore, liquidity risk includes the risk that transactions cannot be closed or sold, or that they can only be closed or sold at a loss because of insufficient market depth or due to market interruptions (market liquidity risk). The Risk Manual for Liquidity Risks specifies how liquidity risks are to be controlled and includes a contingency liquidity plan. The risk measurement is performed by the market risk department, which is part of the Strategic Risk division.

Short-term operational liquidity management is performed by the Treasury Services & Markets division based on a 30-day rolling forecast that is updated daily, allowing for the close tracking and management of the short-term liquidity position. All measures are closely aligned with Controlling & Asset-Liability Management. Asset-Liability Management is responsible for planning and managing the mid- and longterm funding position. Any important decision on liquidity risk is made within the Strategic Asset Liability Committee, in which all Managing Board members are represented.

Asset-Liability Management also ensures that the Bank holds a sufficiently diversified portfolio of high-quality liquid assets and that the liquidity buffer, which is derived from stress test results, is adequate for the Bank's anticipated needs as well as meeting all regulatory requirements. The central management of the mid- to long-term liquidity risk is performed using a 15-month rolling liquidity forecast and the Free Available Cash Equivalent (FACE) ratio, which considers the regulatory liquidity requirements and limits.

The year 2016 was characterized by a solid liquidity position reflected by stable core funding sources and a balanced term funding structure, with retail customers

specific risk factor (interest, FX, volatility) and (after a comprehensive analysis of empirical coefficients) between interest rate risk in the banking book and credit spread risk are employed, whereas no diversification beyond these is assumed. Stress test results are also divided, calculated, reported and limited by risk factor category in order to identify any correlations within a single risk factor.

providing the majority of funding. Additionally, the Bank once again underpinned its capital markets strength by successfully placing an international EUR 500 million mortgage covered bond as well as two publicly placed CHF-denominated senior unsecured bonds with partly negative yields. Furthermore, a GBP 500 million UK RMBS issue was used to directly get access to GBP funding.

Liquidity management

The liquidity management is performed under a Group perspective.

For managing the short-term liquidity, a 30-day liquidity forecast is prepared daily for ongoing liquidity position management by Treasury Services & Markets. This allows for close tracking and the management of the short-term liquidity position.

For a mid-term perspective, a liquidity forecast for the next 15 months is prepared every month and reported in the SALCO (Strategic Asset Liability Committee). It also takes scenario calculations for planned measures and various assumptions about customer behavior into account. The regulatory and internal liquidity indicators are also projected. The FACE (Free Available Cash Equivalent), a benchmark for the short-term liquidity potential, represents the most important ratio for liquidity purposes.

Liquidity stress tests are used to determine the outflow of liquidity that may be incurred under different stress scenarios (systemic stress, idiosyncratic stress, combined stress) in order to calibrate the liquidity buffer.

Long-term liquidity management is conducted for the coming three years as part of the annual planning process. Strategic measures are also analyzed during the course of the year.

Major decisions regarding liquidity risk are made in the SALCO, in which all board members are represented. The limits applied for liquidity steering are supervised by the Strategic Risk division.

Liquidity buffer

Asset-Liability Management ensures that the Bank holds a well-diversified portfolio of high-quality, liquid assets and that the liquidity buffer, whose volume is derived from

stress testing, fulfills all regulatory requirements and is sufficient for future refinancing purposes. Additionally, Asset-Liability Management centrally manages the liquidity buffer required for LCR purposes in designated portfolios. The market liquidity of the liquidity buffer is tested regularly.

The table below shows the composition of the liquidity buffer on the basis of the market values of unencumbered assets after a component-specific haircut.

Structure of the liquidity buffer

in EUR million	31.12.2016	31.12.2015
Money market	1,456	1,182
Bonds	4,548	3,739
ECB pledged credit claims	1,623	1,344
Short-term liquidity buffer	7,627	6,265
Bonds	915	689
Credit claims available for covered bonds	285	140
Medium-term liquidity buffer	1,200	829
Total	8,827	7,094

31.12.2016in EUR million	Gross nominalinflow/outflow	Less than 1month	1–3 months	3 monthsto 1 year	1–5 years	More than5 years
Assets
Loans to customers	34,920	2,454	943	2,452	12,835	16,235
Bonds	6,681	230	223	471	3,169	2,588
Money market assets	1,643	1,643	0	0	0	0
Subtotal	43,244	4,327	1,166	2,923	16,004	18,823
Liabilities
Deposits from banks	(2,406)	(1,361)	(325)	(127)	(333)	(260)
Deposits from customers	(25,895)	(21,361)	(602)	(1,480)	(1,996)	(457)
Debt securities issued	(6,335)	(70)	(150)	(374)	(2,990)	(2,749)
Subtotal	(34,636)	(22,792)	(1,078)	(1,981)	(5,319)	(3,466)
Derivatives
Inflow	6,868	1,238	1,177	2,258	898	1,297
Outflow	(7,139)	(1,258)	(1,190)	(2,427)	(907)	(1,356)
Other off-balance-sheetfinancial obligations	(1,586)	(1,586)	0	0	0	0
Total	6,751	(20,072)	76	774	10,676	15,298

Maturity analysis of contractual undiscounted cash flows of financial assets and liabilities

31.12.2015in EUR million	Gross nominalinflow/outflow	Less than 1month	1–3 months	3 monthsto 1 year	1–5 years	More than5 years
Assets
Loans to customers	31,510	1,889	637	2,031	10,881	16,072
Bonds	6,314	108	243	744	3,244	1,975
Money market assets	1,063	1,035	10	18	0	0
Subtotal	38,887	3,032	890	2,793	14,125	18,047
Liabilities
Deposits from banks	(4,490)	(1,118)	(1,685)	(69)	(1,340)	(278)
Deposits from customers	(21,519)	(18,799)	(289)	(964)	(1,352)	(116)
Debt securities issued	(5,019)	(17)	(32)	(329)	(2,364)	(2,277)
Subtotal	(31,028)	(19,934)	(2,006)	(1,362)	(5,056)	(2,671)
Derivatives
Inflow	8,363	1,282	1,392	3,473	1,649	568
Outflow	(8,705)	(1,293)	(1,372)	(3,577)	(1,816)	(646)
Other off-balance-sheetfinancial obligations	(1,620)	(1,620)	0	0	0	0
Total	5,897	(18,534)	(1,096)	1,326	8,902	15,298

The table above shows the consolidated nominal (not discounted) cash flows including interest payments on financial assets and liabilities. They are assigned to time buckets on the basis of their contractual maturities. All daily callable loans and deposits were placed into the shortest time bucket. In the case of call or put options, the end of the term equals the next day on which the option can be exercised.

The liquidity management already takes the new regulatory liquidity ratios into account. Due to the robust liquidity position of the Bank, the liquidity coverage ratio of 138% significantly exceeds the regulatory requirements.

The year 2016 was characterized by a solid liquidity situation as well as stable core refinancing sources and a balanced

liability structure. The funding strategy is still focused on retail deposits. This reduces the dependency on international capital markets and interbank funding, which is also reflected in a wholesale funding ratio1) of less than 25% (2015: less than 30%). The strong liquidity situation of the Bank was used for strategic asset investments.

Nevertheless, an international covered bond of EUR 500 million were successfully placed as well as two CHFdenominated senior unsecured bonds with partly negative yields. Furthermore, a GBP 500 million UK RMBS issue was used to directly get access to GBP funding.

56 | Operational risk

The Group continues to apply the Standardized Approach for the calculation of the regulatory own fund requirements according to regulation (EU) No 575/2013 Article 317 to assess operational risk. However, the realized OpRisk losses over the last few years were significantly lower than the regulatory own funds requirements under the Standardized Approach. The OpRisk RWAs are assigned to the segments on the basis of revenues.

For the purpose of internal economic capital steering (ICAAP), a statistical model is used to calculate the valueat-risk based on operational risk losses.

The losses resulting from operational risk are collected in a centrally administrated web-based database within clearly defined regulations and processes.

A new methodology – the Key Risk Indicators (KRI) – was implemented to identify or forecast negative trends or a changed risk profile in company workflows, divisions and subsidiaries in a timely manner. Each KRI is monitored via a traffic light system (green/yellow/red). For KRIs with a red status, the definition and implementation of appropriate countermeasures is mandatorily required.

In addition to recipient-oriented reporting, the risk organization applies a risk control self-assessment (RCSA) concept in managing operational risk. All business units assess their material operational risks and the effectiveness of their control measures on a yearly basis using this uniform framework. This includes the assessment of individual control measures, the estimation of probabilities and the extent of losses arising from individual risks. If the risk potential exceeds a defined limit, the implementation of appropriate measures is required.

A clear organizational structure and authorization levels form the basis of OpRisk governance. Additionally, a consistent guideline and a risk-adequate internal control system (including automated controls embedded in the IT infrastructure) are designed to allow the Group to manage OpRisk.

ADDITIONAL DISCLOSURES REQUIRED BY AUSTRIAN LAW

57 | Fiduciary assets

in EUR million	31.12.2016	31.12.2015
Fiduciary assets	97	126
Receivables from customers	97	126
Fiduciary liabilities	97	126
Deposits from banks	8	19
Deposits from customers	89	107

58 | Breakdown of securities pursuant to the Federal Banking Act (BWG)

The following table breaks securities down in accordance with section 64 paragraph 1 line 10 and line 11 BWG as of 31 December 2016 (IFRS figures):

			Listed		BAWAG
in EUR million	Not listed	Total	Loans andreceivables	Othermeasurements	P.S.K. GroupTotal 2016
Bonds and other fixed income securities	684	3,191	246	2,945	3,875
Shares and other variable income securities	2	2	–	2	4
Shares in associates and other shares	45	–	–	–	45
Shares in non-consolidated subsidiaries	22	–	–	–	22
Total securities	753	3,193	246	2,947	3,946

The difference between carrying amounts and lower repayment amounts for the purposes of section 56 paragraph 2 BWG was EUR 65 million (2015: EUR 74 million). The difference between carrying amounts and higher repayment amounts for the purposes of section 56 paragraph 3 BWG was EUR 9 million (2015: EUR 4 million).

Liabilities amounting to a repayment amount of EUR 345 million will come due under the corresponding contracts in 2017.

Subordinated and supplementary capital liabilities are primarily issued in the form of securities. These securities are all bullet bonds. Supplementary and subordinated capital bonds are subscribed by private Austrian investors and sold to major domestic and international investors.

As of 31 December 2016, the average weighted nominal interest rate on supplementary and subordinated capital bonds was 6.8% (2015: 6.57%), and the average remaining term to maturity was 6.6 years (2015: 7.1 years).

59 | Collateral received

Different types of collateral have been pledged to the Bank as part of its business transactions. To reduce credit risk for derivative instruments, the Bank received consideration

(collateral deals) in the amount of EUR 470 million (2015: EUR 486 million) and paid consideration (collateral deals) in the amount of EUR 163 million (2015: EUR 314 million).

	Collateralized onbalance-sheet	Collateralized offbalance-sheet	Total
in EUR million	claims	claims
Financial collateral
Stocks	16	–	16
Cash deposits	42	759	801
Bonds	11	1	12
Real estate
Commercial properties	501	16	517
Private properties	8,084	64	8,148
Personal collateral
Guarantees	2,116	17	2,133
Other forms of collateral	2	1	3
Assignation of claims	3	–	3
Life insurance policies	198	1	199
Collateral received	10,973	859	11,832

60 | Human resources

Headcount – salaried employees

	31.12.2016	31.12.2015
Number of employees on reporting date	3,525	3,608
Average number of employees	3,612	3,753

Full-time equivalents – salaried employees

	31.12.2016	31.12.2015
Number of employees on reporting date	2,949	3,069
Average number of employees	3,045	3,218
Active employees1)	2,494	2,622

1. Excluding employees on any form of temporary leave or who have entered into an agreement under a social compensation scheme.

61 | Branches

in EUR million	31.12.2016	31.12.2015
Name of branch	BAWAG P.S.K.International	BAWAG P.S.K.International
Business segment	InternationalBusiness	InternationalBusiness
Country of residence	Great Britain	Great Britain
Net interest income	0.0	0.0
Operating revenue1)	11.6	17.8
Number of full-time employees	14	12
Profit/loss before tax1)	(3.5)	8.8
Income tax accrued	2.9	1.8
Government aid received	0	0

1. BAWAG P.S.K. International: income is based on internal funds transfer pricing.

62 | Trading book

BAWAG P.S.K. maintains a securities trading book, which breaks down by volume as follows:

in EUR million	31.12.2016	31.12.2015
Derivative financial instruments in the trading book (nominal value)	7,359	11,548
Money market transactions (book values, recognized under receivables from creditinstitutions and payables to credit institutions)	31	84
Trading book by volume	7,390	11,632

63 | Geographical regions

Gross income of BAWAG P.S.K. relates to the following geographical regions, with the split being based on the domicile of the customer. Income from derivative and

trading transactions is presented as domestic due to the fact that trading is centralized in Vienna and no material country risks arise as most transactions are collateralized.

in EUR million	Domestic	WesternEurope	Central and	Eastern Europe North America	Rest of theworld	Total
Interest and similar income	583.6	298.8	8.7	93.8	39.6	1,024.5
Income from securities andequity interests	3.3	0.0	0.0	0.0	0.0	3.3
Fee and commission income	272.3	2.3	0.6	0.6	0.5	276.3
Gains and losses on financialinstruments	19.1	0.0	0.0	0.0	0.0	19.1
Other operating income	136.0	0.0	0.0	0.0	0.0	136.0

64 | Other disclosures required by BWG and Austrian GAAP (UGB) including remuneration policy

The Statement of Financial Position entry for Land and buildings shows property with a carrying amount of EUR 2 million (2015: EUR 3 million).

Obligations arising from the use of tangible non-current assets not recognized on the Statement of Financial Position were expected to come to EUR 25 million for the period subsequent to 2016 (2015: EUR 23 million); the expected amount in the five years following the year under review was EUR 93 million (2015: EUR 88 million).

The Statement of Financial Position as of 31 December 2016 contains accrued interest on supplementary capital bonds in the amount of EUR 0 million (2015: EUR 1 million).

Expenses for subordinated liabilities amounted to EUR 33 million (2015: EUR 48 million).

Expenses for BAWAG P.S.K.'s group auditor in the current financial year amount to EUR 1.7 million and comprise audit fees in the amount of EUR 1.6 million, tax advisory fees of EUR 0.0 million as well as other advisory fees in the amount of EUR 0.1 million.

As of 31 December 2016, the return on total assets in accordance with section 64 paragraph 1 item 19 BWG amounts to 0.99% (2015: 1.18%).

The Company is a member of the consolidated group headed by Promontoria Sacher Holding N.V., which is situated in Baarn, The Netherlands. Promontoria Sacher Holding N.V. is the most senior parent company for which BAWAG P.S.K. as the primary credit institution according to the provisions of section 59 BWG produces consolidated financial statements. The consolidated financial statements of Promontoria Sacher Holding N.V. are prepared in accordance with the International Financial Reporting Standards (IFRS) pursuant to the provisions of section 59a BWG and are available at BAWAG P.S.K.'s headquarters in Vienna.

BAWAG P.S.K. uses the Internet as the medium for publishing disclosures under section 65 BWG and the Disclosure Regulation. Details are available on the website of BAWAG P.S.K. at: www.bawagpsk.com/Financial-Results.

Remuneration policy

BAWAG P.S.K. has a Remuneration Committee, which is a Supervisory Board committee. The Remuneration Committee specifies the remuneration policy, monitors its implementation and submits regular reports on its activities to the full Supervisory Board. The committee consists of the chairman of the Supervisory Board, who heads it, and five further Supervisory Board members, including two members of the Works Council.

BAWAG P.S.K.'s Remuneration Committee has adopted a remuneration guideline that applies to the members of the Managing Board and the employees of the Group and that takes into account the principles of the EU's CRD IV Directive, the EBA guideline on sound remuneration policies and the associated provision of the Austrian Banking Act.

For employees whose activities have a material influence on the Bank's risk profile, this guideline stipulates a remuneration policy that does not impede effective risk management. It is designed to align the objectives of the employees with the long-term interests of the Bank and to ensure an appropriate balance between fixed and variable remuneration components. It also takes into account the legal regulations stipulating that the policy must be applied to the management and to risk purchasers, to employees with controlling duties as well as to employees who are in the same wage group as the management and the risk purchasers and whose activities have a material influence on the risk profile of the Bank.

The annual budget for variable remuneration components is based on the degree to which the Bank achieves its earnings targets.

Approval for the awarding of bonuses to Managing Board members and employees is proposed by the Managing Board and granted by the Committee for Management Board Matters, taking into account the market conditions and development, the appropriateness of bonus payments, the development of risk and the strengthening of the Bank's equity base.

The rules were implemented in the remuneration guideline as follows:

• To ensure risk adequacy, the variable remuneration must not provide an incentive to enter into inappropriate risks.
• To ensure sustainability, success is determined based on a longer-term observation period. For this reason, parts of the bonus are distributed over a period of up to five years. The payment of the retained portions is subject to strict Bank success criteria.
• The appropriateness and market adequacy of remuneration is ensured, applying a balanced relationship between fixed and variable components.

The variable remuneration is determined on the basis of the individual's success (in quantitative and qualitative terms) as well as on the success of the respective organizational unit and the Bank.

For individual matters concerning the remuneration of Managing Board members, a Committee for Management Board Matters has been set up taking into account the framework of the Austrian Labor Constitution Act.

65 | Own funds of BAWAG P.S.K. AG (individual financial institution)

The following table depicts the composition of BAWAG P.S.K. AG's own funds applying transitional rules as of 31 December 2016 and 2015 according to CRR:

in EUR million	31.12.2016	31.12.2015
Share capital and reserves (including funds for general banking risk)	250	250
Reserves including profit for the fiscal year 2016	2,220	1,905
Deduction of intangible assets	(97)	(88)
IRB risk provision shortfalls	(22)	(49)
Common Equity Tier I	2,351	2,018
Supplementary and subordinated debt capital	460	476
Deduction participations	(20)	(15)
Excess IRB risk provisions	25	16
IRB risk provision shortfalls	(6)	(21)
Tier II	459	456
Own funds	2,810	2,474

66 | Date of release for publication

The Group financial statements were approved by the Managing Board for submission to the Supervisory Board on 3 March 2017. The Supervisory Board is responsible for reviewing and acknowledges the Group financial statements.

67 | Events after the reporting date

easybank AG

easybank AG has concluded a demerger and transfer agreement for succession with SIX Payment Services (Austria) GmbH regarding the part business issuing / credit cards / pre-paid cards.

Vienna, 3 March 2017

Byron Haynes CEO and Chairman of the Managing Board

Corey Pinkston Member of the Managing Board

Anas Abuzaakouk Member of the Managing Board

Sat Shah Member of the Managing Board

Stefan Barth

Member of the Managing Board

STATEMENT OF ALL LEGAL REPRESENTATIVES

"We confirm to the best of our knowledge that the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group as required by the applicable accounting standards and that the group management report gives a

true and fair view of the development and performance of the business and the position of the group, together with a description of the principal risks and uncertainties the group faces."

Vienna, 3 March 2017

Byron Haynes CEO and Chairman of the Managing Board

Corey Pinkston Member of the Managing Board

Anas Abuzaakouk Member of the Managing Board

Sat Shah Member of the Managing Board

Stefan Barth Member of the Managing Board

BOARDS AND OFFICERS OF BAWAG P.S.K. AG

MANAGING BOARD OF BAWAG P.S.K. AG AS OF 31 DECEMBER 2016

Byron HAYNES

Member of the Managing Board (from 1 August 2008), Chairman of the Managing Board and CEO (from 16 September 2009)

Anas ABUZAAKOUK

(from 1 January 2014)

Stefan BARTH (from 1 February 2015)

Corey PINKSTON (from 1 January 2013)

Sat SHAH (from 4 March 2015)

SUPERVISORY BOARD OF BAWAG P.S.K. AG AS OF 31 DECEMBER 2016

Chairman

Franklin W. HOBBS (from 12 March 2013 until revoked)

Deputy Chairmen

Cees MAAS

(from 12 March 2013, previously Chairman from 15 October 2009 until 12 March 2013, Member of the Supervisory Board from 27 July 2009 until the end of the Annual General Meeting adopting the Annual Financial Statements for 2016)

Pieter KORTEWEG

(from 15 December 2009, Member of the Supervisory Board from 27 August 2007 until the end of the Annual General Meeting adopting the Annual Financial Statements for 2016)

Keith TIETJEN

(from 4 March 2015, Member of the Supervisory Board from 5 October 2010 until the end of the Annual General Meeting adopting the Annual Financial Statements for 2016)

Members

Walter OBLIN

(from 15 March 2012 until the end of the Annual General Meeting adopting the Annual Financial Statements for 2016)

Frederick HADDAD

(from 12 March 2013 until revoked)

André WEISS

(from 12 March 2013 until the end of the Annual General Meeting adopting the Annual Financial Statements for 2016)

Chad A. LEAT

(from 5 December 2013 until the end of the Annual General Meeting adopting the Annual Financial Statements for 2016)

Works Council Delegates

Ingrid STREIBEL-ZARFL (from 1 October 2005)

Beatrix PRÖLL (from 1 October 2005)

Konstantin LATSUNAS (from 12 March 2013)

Verena SPITZ (from 3 March 2016)

State Commissioner

Beate SCHAFFER (from 1 August 2009, previously Deputy State Commissioner from 1 March 2007 to 31 July 2009)

Deputy State Commissioner

Markus CHMELIK (from 1 March 2010)

COMMITTEES OF BAWAG P.S.K. AG AS OF 31 DECEMBER 2016

Risk and Credit Committee

Chad A. LEAT Chairman

Cees MAAS

Keith TIETJEN

Frederick HADDAD

Ingrid STREIBEL-ZARFL Works Council Delegate

Beatrix PRÖLL Works Council Delegate Audit and Compliance Committee

Keith TIETJEN Chairman

Cees MAAS

Walter OBLIN

Frederick HADDAD

Ingrid STREIBEL-ZARFL Works Council Delegate

Konstantin LATSUNAS Works Council Delegate

Nomination Committee

Franklin W. HOBBS Chairman

Cees MAAS

Pieter KORTEWEG

Frederick HADDAD

Ingrid STREIBEL-ZARFL Works Council Delegate

Beatrix PRÖLL Works Council Delegate

Remuneration Committee

Franklin W. HOBBS Chairman

Cees MAAS

Keith TIETJEN

Frederick HADDAD

Ingrid STREIBEL-ZARFL Works Council Delegate

Beatrix PRÖLL Works Council Delegate

Committee for Management Board Matters

Franklin W. HOBBS Chairman

Cees MAAS

Pieter KORTEWEG

Keith TIETJEN

Frederick HADDAD

Related Parties Special Audit Committee

Franklin W. HOBBS Chairman

Chad A. LEAT

Keith TIETJEN

Frederick HADDAD

Ingrid STREIBEL-ZARFL Works Council Delegate

Beatrix PRÖLL Works Council Delegate

AUDITOR'S OPINION

REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS

Audit Opinion

We have audited the consolidated financial statements of BAWAG P.S.K. Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse Aktiengesellschaft, Vienna, Austria, which comprise the consolidated balance sheet as of 31 December 2016, and the consolidated income statement, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2016, and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with the Austrian commercial and banking law as well as the International Financial Reporting Standards (IFRSs) and the additional requirements in accordance with Section 245a UGB and Section 59a BWG.

Basis for our Opinion

We conducted our audit in accordance with the Austrian Standards on Auditing. These standards require the audit to be conducted in accordance with International Standards on Auditing (ISA). Our responsibilities pursuant to these rules and standards are described in the "Auditors' Responsibility" section of our report. We are independent of the audited entity within the meaning of Austrian commercial and banking law as well as professional regulations, and have fulfilled our other responsibilities under those relevant ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements. Our audit procedures relating to these matters were designed in the context of our audit of the consolidated financial statements as a whole. Our opinion on the consolidated financial statements is not modified with respect to any of the key audit matters described below, and we do not express an opinion on these individual matters.

During the course of the audit, the following key audit matters were identified:

• Valuation of loans and advances to customers
• Valuation of the claims and provisions from litigation with City of Linz
• Initial recognition of assets and liabilities from a business combination
• Recognition of deferred tax assets on tax losses carried forward
• Initial recognition of a loan portfolio acquisition

Valuation of loans and advances to customers

Risk to the Consolidated Financial Statements

The receivables from customers amount to EUR 28.5 billion and are mainly comprised of the segments "BAWAG P.S.K. Retail", "easygroup", "DACH Corporates & Public Sector" and "International Business".

Management describes the approach to determine the risk provisions in Note 1 "Accounting policies" section "Loan Loss Provisions" as well as the section "Latitude of Judgment and Uncertainty of Estimates". A breakdown of loans and receivables as well as loan loss provisions is provided in Note 16 "Loans and receivables".

The bank evaluates in the context of credit risk management whether identifiable risks exist and specific loan loss provisions need to be recognized. This includes an assessment whether customers are able to meet their contractual liabilities in full.

The calculation of the risk provision for defaulted individually significant customers is based on an analysis of the estimated future recoveries. This analysis reflects the assessment of the economic situation and development of the individual customer, the valuation of collateral and the estimation of the amount and timing of future cash flows derived thereof.

The bank calculates the loan loss provision for defaulted individually not significant customers automatically on the basis of unpaid instalments and continuous overdraft of current accounts. This automated general loan loss provision is determined either by days past due or a legal case as well as corresponding general provisioning levels. The parameters used in the valuation model are based on statistical assumptions.

For all non-defaulted loans and off-balance exposures a rating based portfolio loan loss provision is implemented. The portfolio provision is based on the regulatory Expected Loss Model. The incurred loss is derived by application of the average time until detection of the credit event. Individual, customer-specific parameters as well as statistical assumptions and empirical values are used to determine the amount of the provision.

The risk to the consolidated financial statements results from the fact that the identification of impending loan defaults as well as the calculation of the provisioning amounts significantly depend on the assumptions and estimates stated above, leading to margins of discretions and estimate uncertainty with regard to the amount of the provision.

Our Audit Approach

We have analyzed the existing documentation regarding the processes of underwriting, monitoring and the risk provisioning for customer loans and critically assessed whether these processes are suitable to identify impairment triggers and to adequately reflect the valuation of loans and advances to customers. Moreover, we have evaluated the process workflows as well as significant controls by inspecting the IT systems and testing the design and implementation of key controls. Furthermore, we have evaluated the effectiveness of key controls through sample testing.

We have examined individual specific loan loss provision on the basis of a sample of loans and assessed whether indications of credit defaults exist and whether loan loss provisions have been recognized in an adequate amount. The selection of the sample was performed risk-oriented and with special regard to ratings and industries with higher probability of default risk. In the case of identified impairment triggers we assessed the bank's assumptions with respect to conclusiveness, consistency and freedom

from contradictions. In order to determine the amount and timing of repayments from liquidation of real estate collateral, we have consulted our real estate experts to analyze appraisal reports or valuation calculations obtained from the bank by applying benchmark tests, market comparisons and external data.

With regard to automated specific loan loss provisions and the portfolio provision we have analyzed the models used as well as the parameters used. Based on the bank's backtesting of provisions and validations of actual parameters, we have evaluated the adequacy of the assumptions regarding the customers or the customer portfolio. We have consulted our valuation experts when analyzing the models and backtesting reports. Our IT experts have analyzed the system's automated processes in calculating automatic provisions, the programmed calculation process flow as well as the application of the correct reference fields from the systems of the bank. We have tested the calculation of the provision amount through re-calculations.

Furthermore, we have evaluated the adequacy of the disclosures on the valuation of loans and advances to customers in the notes.

Valuation of claims and provisions from litigation with City of Linz

Risk to the Consolidated Financial Statements

Management describes the uncertainty of estimates and the course of the litigation with regard to a Swiss Franc swap with the City of Linz in the Note 1 "Accounting principles" section "Latitude of Judgment and Uncertainty of Estimates – City of Linz". Since the lawsuit is ongoing, no amounts are being disclosed in the notes.

Since November 2011, BAWAG P.S.K. is engaged in a lawsuit with the City of Linz in connection with this Swiss Franc swap. City of Linz has filed a lawsuit at the Commercial Court of Vienna (Handelsgericht Wien) against BAWAG P.S.K. claiming a payment of CHF 30.6 million. BAWAG P.S.K. filed a (counter)suit against the City of Linz to enforce its contractual entitlements in the amount of EUR 417.7 million.

The claim against the City of Linz is presented under the receivables from customers and amounts to the market value of the swap on the date of early termination. The assessment of the carrying amount of the receivables was based on management estimate taking into consideration the risks related to this assessment. These estimates comprise the duration and costs of the lawsuit as well as its outcome, especially from negligent actions from one of the parties as well as assumptions regarding claims resulting thereof. Management based its assessment for the valuation and the related uncertainties on legal opinions from external legal counsels, who represent the bank legally, as well as opinions of the internal legal department and the analysis of the professional opinions of the appointed court experts.

The risk to the consolidated financial statements results from the assessment of the above-mentioned factors, especially the probability of success of the ongoing litigation and the amount and timing of cash flows arising from the outcome of the litigation. Moreover, the lawsuit has gained increased public and political interest. The proceeding, which is already ongoing for several years, has not been decided by the court of first instance. Thus the valuation of the claims and provisions from the lawsuit against the City of Linz are affected by estimate uncertainties.

Our Audit Approach

We have evaluated whether the valuation of the claims against the City of Linz as well as provisions connected to the lawsuit have been determined adequately and whether the estimates with regard to this litigation are appropriate.

We have critically assessed the estimations of the board and of the bank's internal and external legal experts. We have obtained and analyzed statements of the involved law firms addressing the state of the lawsuit as of 31 December 2016. We have analyzed whether the amount of the claim is consistent with the contractual terms and the market parameters on the closure date as well as whether the assumptions for the valuation of the claim on the reporting date are consistent with the current assessment of the progress of the litigation and current market parameters.

We have consulted our internal legal experts to analyze the experts' statements provided.

Moreover, we have assessed the assumptions and calculation for provisions connected to the lawsuit as well as the assumptions used for determining an adequate discount rate by analyzing the market and industry specific benchmarks.

Finally, we have evaluated whether the disclosures in Note 1 "Accounting principles" section "Latitude of Judgment and Uncertainty of Estimates – City of Linz" are adequate. Since the litigation is ongoing, the bank makes use of IAS 37.92 (protective clause) and does not disclose any amounts or information with regard to the valuations.

Initial recognition of assets and liabilities from a business combination

Risk to the Consolidated Financial Statements

On 1 December 2016 (date of acquisition) the bank acquired 100 % of the shares of start:bausparkasse AG, Vienna and of IMMO-BANK Aktiengesellschaft, Vienna, for a preliminary purchase price of EUR 124 million. The bank describes this transaction in Note 37 "Major changes in the Group's holdings". Further disclosure on the determination of fair values is given in Note 1 "Accounting policies" section "Latitude of Judgment and Uncertainty of Estimates".

The identification and determination of fair values of assets and liabilities on the acquisition date depend on management's estimates, assumptions and valuation models. Such estimates and assumptions in particular include the valuation of receivables from and payables to customers and credit institutions, the valuation of issued securities as well as intangible assets identified in the course of the purchase price allocation. For the determination of the fair values of intangible assets management's assessment is based on calculations from external experts.

The risk to the consolidated financial statements results from the recognition and the valuation of the identified assets and liabilities acquired in connection with the purchase price allocation, which are significantly influenced by management's estimate and margins of discretions.

Our Audit Approach

We have analyzed the purchase agreements and assessed whether the criteria of power over the acquired companies start:bausparkasse AG, Vienna and IMMO-BANK Aktiengesellschaft, Vienna and the definition as a business combination is fulfilled on the acquisition date.

We have consulted with our valuation experts for the analysis of the assumptions and estimates as well as the valuation models applied for determining the fair values of the acquired positions. In this course we also assessed whether the budgeted figures and the underlying planning assumptions were conclusive and consistent, the cash flows calculations reflect the respective payment schedules and the discount rates applied can be derived from publicly available information and market data within a reasonable range. Moreover, we have verified on a sample basis the mathematical accuracy of the valuation models used to determine the fair values.

Finally, we have analyzed the adequacy of the disclosure in connection with the business combination provided in the notes to the consolidated financial statements.

Recognition of deferred tax assets on tax losses carried forward

Risk to the Consolidated Financial Statements

The consolidated financial statements include deferred tax assets in the amount of EUR 150 million that mainly result from unused tax losses carried forward. Management provides disclosures on these deferred tax assets in Note 1 "Accounting policies" section "Income taxes and deferred taxes" as well as in Note 21 "Net deferred tax assets and liabilities on the Statement of Financial Positions".

Deferred tax asset based on unused tax losses have to be recognized in the amount that is probable to be offset against future taxable income. The amount of tax losses carried forward that can be used to offset future taxable income has to be grounded on the business forecast and tax planning. The recognition of the deferred tax assets on tax losses carried forward therefore highly depends on management's assumptions in respect to business forecast and the realization of sufficient taxable income.

The risk to the consolidated financial statements results from the uncertainty connected to estimates and discretionary judgements for determining the future taxable income that forms the basis of the recognition of a respective deferred tax asset from tax losses carried forward.

Our Audit Approach

We have evaluated the assumptions and significant parameters for forecasting the future taxable income with regard to derivability from externally available data, such as macroeconomic forecasts and the banks own historical data and operating results. Moreover, we have analyzed whether corporate planning is consistent with the Bank's corporate and risk strategy. We have tested the consistency of management's assumptions used for corporate planning with the assumptions used for tax planning calculation and have evaluated the planning quality by determining whether the tax planning calculation is reliable. We have tested this by comparing the observable ranges of deviations of actual versus budgeted figures and planned inverse effects from deferred tax assets. We have analyzed the tax planning calculation, which leads to the realization of deferred tax assets based on unused tax losses, and have verified the mathematical accuracy of the calculation.

We have analyzed the tax planning strategies, which lead to the realization of deferred tax assets based on unused tax losses. We have acknowledged the tax collection agreement and have verified the mathematics of the tax allocation calculations based on the contractually determined guidelines.

Furthermore, we have evaluated the adequacy of the disclosures in the notes regarding the recognition of deferred tax assets based on unused tax losses.

Initial recognition of a loan portfolio acquisition

Risk to the Consolidated Financial Statements

Management describes the acquisition of a portfolio of French retail residential mortgages loans in section "Business segment development in 2016" of the Risk Report. Accounting of the day 1 gain from this transaction is disclosed in Note 34 "Treatment of day one gain". Methods for determining fair values are presented in Note 1 "Accounting policies" section "Latitude of Judgment and Uncertainty of Estimates". This acquired loan portfolio is presented in the reporting segment "easygroup".

The initial recognition of the acquired loans and receivables is based on the fair value determined through a DCF method considering market conditions on the purchase date. The fair value of the portfolio determined by the bank exceeds the transaction price. The difference results from changes in market condition as well as in timing between the contractually defined purchase price and the value of the credit portfolio on the purchase date. The bank evaluated whether the day 1 gain on the purchase date resulted from change of factors that market participants would consider in determining the price of the obtained asset. The bank has accrued the determined day 1 gain.

In the context of the initial valuation of the portfolio, management performed a detailed analysis and calculation of the initial recognition of individual loans via a DCF method, in order to assess the fair value of each loan for the initial recognition. For this purpose the bank analyzed the following parameters and employed assumptions: probability of default, remaining maturity, discount rate including credit spread, product specification and current interest curves.

The risk to the consolidated financial statements from the initial recognition of the acquired loan portfolio results from the determination of the fair value of the loans on an individual level using non-observable market parameters as well as the identification of a day 1 gain on the purchase date and the related uncertainty of estimates and discretionary judgements.

Our Audit Approach

We have accessed the contracts and internal documentation of the purchase transaction to verify the purchase price, the notional of the portfolio and the total balance as of the acquisition date and to analyze whether the risks have been transferred to the acquirer.

We have included our valuation experts in the assessment of the adequacy of the valuation models applied by the bank to determine the fair value of the acquired loans on the acquisition date.

In this course we have evaluated management's assessment of the amount and timing of future cash flows by analyzing a sample of individual loans. We further evaluated the assumptions on interest curves, credit spread and discount rates and model parameters through reconciliation with market data and publicly available information and assessed whether the values applied and the underlying assumptions are within a reasonable range.

Moreover, we have assessed the internal procedures and key controls to ensure the complete integration of the loan portfolio in the systems of the bank. Key controls were tested for design, implementation and effectiveness.

We have assessed the methodology of determining premiums and discounts for individual loans on the acquisition date. Finally, we have assessed the management's decision on the accounting treatment of the day 1 gain and evaluated the adequacy of the disclosures provided.

Management's Responsibility and Responsibility of the Audit Committee for the Consolidated Financial Statements

The Company's management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Austrian commercial and banking law as well as the International Financial Reporting Standards (IFRSs) as adopted by the EU and the additional requirements in Section 245a UGB. Further, management is responsible for internal controls as determined necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Management is also responsible for assessing the Group's ability to continue as a going concern, and, where appropriate, to disclose matters that are relevant to the Group's ability to continue as a going concern and to apply the going concern assumption in its financial reporting, except in circumstances in which liquidation of the Group or closure of operations is planned or cases in which such measures appear unavoidable.

The audit committee is responsible for overseeing the Group's financial reporting process.

Auditors' Responsibility

Our aim is to obtain reasonable assurance about whether the consolidated financial statements as a whole are free of material misstatements, whether due to fraud or error, and to issue an audit report that includes our opinion. Reasonable assurance represents a high degree of assurance, but provides no guarantee that an audit conducted in accordance with the EU Regulation and with Austrian Standards on Auditing, which require the audit to be performed in accordance with ISA, will always detect a material misstatement when it exists. Misstatements may result from fraud or error and are considered material if they could, individually or in the aggregate, reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with the EU Regulation and with Austrian Standards on Auditing, which require the audit to be performed in accordance with ISA, we exercise professional judgment and retain professional skepticism throughout the audit.

Moreover:

We identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, we plan and perform procedures to address such risks and obtain sufficient and appropriate audit evidence to serve as a basis for our audit opinion. The risk that material misstatements due to fraud remain undetected is higher than that of material misstatements due to error, since fraud may include collusion, forgery, intentional omissions, misleading representation or override of internal control.

• We obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.

• We evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates as well as related disclosures made by management.

• We conclude on the appropriateness of management's use of the going concern assumption and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity's ability to continue as a going concern. In case we conclude that there is a material uncertainty about the entity's ability to continue as a going concern, we are required to draw attention to the respective note in the financial statements in our audit report or, in case such disclosures are not appropriate, to modify our audit opinion. We conclude based on the audit evidence obtained until the date of our audit report. Future events or conditions however may result in the Company departing from the going concern assumption.

• We evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• We obtain sufficient appropriate audit evidence regarding the financial information of the entities and business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

• We communicate with the audit committee regarding, among other matters, the planned scope and timing of our audit as well as significant findings including any significant deficiencies in internal control that we identify in the course of our audit.

• We report to the audit committee that we have complied with the relevant professional requirements in respect of

our independence and that we will report any relationships and other events that could reasonably affect our independence and, where appropriate, related measures taken to ensure our independence.

From the matters communicated with the audit committee we determine those matters that required significant auditor attention in performing the audit and which are therefore key audit matters. We describe these key audit matters in our audit report except in the circumstances where laws or other legal regulations forbid publication of such matter or in very rare cases, we determine that a matter should not be included in our audit report because the negative effects of such communication are reasonably expected to outweigh its benefits for the public interest.

REPORT ON OTHER LEGAL REQUIREMENTS

Group Management Report

In accordance with Austrian Generally Accepted Accounting Principles the group management report is to be audited as to whether it is consistent with the consolidated financial statements and as to whether it has been prepared in accordance with legal requirements.

The legal representatives of the Company are responsible for the preparation of the group management report in accordance with Austrian Generally Accepted Accounting Principles.

We have conducted our audit in accordance with generally accepted standards on the audit of group management reports as applied in Austria.

Opinion

In our opinion, the group management report has been prepared in accordance with legal requirements and is

consistent with the consolidated financial statements. The disclosures pursuant to Section 243a UGB (Austrian Commercial Code) are appropriate.

Statement

Based on our knowledge gained in the course of the audit of the consolidated financial statements and the understanding of the Group and its environment, we did not note any material misstatements in the group management report.

Other Information

The legal representatives of the Company are responsible for other information. Other information comprises all information provided in the annual report, with the exception of the consolidated financial statements, the group management report, and the auditor's report thereon.

Our opinion on the consolidated financial statements does not cover other information, and we will not provide any kind of assurance on it.

In conjunction with our audit, it is our responsibility to read this other information as soon as it becomes available, and to assess whether it contains any material inconsistencies with the consolidated financial statements and our knowledge gained during our audit, or any apparent

material misstatement of fact. Should we, based on the preformed audit, come to the conclusion that the other information is materially misstated, we would have to report this fact. In this regard, we have nothing to report.

Auditor in Charge

The auditor in charge is Mr. Bernhard Mechtler

Vienna, 3 March 2017

KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft

signed by: Mag. Bernhard Mechtler Wirtschaftsprüfer (Austrian Chartered Accountant)

This report is a translation of the original report in German, which is solely valid. The financial statements together with our auditor's opinion may only be published if the consolidated financial statements and the management report are identical with the audited version attached to this report. Section 281 paragraph 2 UGB (Austrian Commercial Code) applies.

DEFINITIONS

Key performance indicator	Definition / Calculation	Explanation
Common EquityTier 1 (CET1) capital	Based on IFRS CRR regulatoryfigures (BAWAG P.S.K. Group),excluding any transitional capital(fully loaded)	CET1 capital is defined by the CRR and represents thehighest quality of capital. It therefore only comprises capitalinstruments that are available to the bank for unrestrictedand immediate use to cover risks or losses as soon as theyoccur. The higher the bank's CET1 capital, the higher itsresilience against such risks or losses.
Common EquityTier 1 (CET1) ratio	Common Equity Tier 1 (CET1)capital / risk-weighted assets	The CET1 ratio is one of the most important regulatorymetrics and demonstrates the bank's financial strength byproviding a measure for how well a bank can withstandfinancial stress. The ratio is consistently monitored by themanagement to ensure compliance with regulatoryminimum requirements. Before any business opportunitiesare entered into, they are thoroughly assessed with regardto their impact on the CET1 ratio.
Core revenues	The total of net interest incomeand net fee and commissionincome	Core revenues total the line items net interest income andnet fee and commission income and demonstrate thesuccess of the bank in its core activities.
Cost-income ratio	Operating expenses / operatingincome	The cost-income ratio shows the company's operatingexpenses in relation to its operating income. The ratio givesa clear view of operational efficiency. BAWAG P.S.K. usesthe cost-income ratio as an efficiency measure for steeringthe bank and for easily comparing its efficiency with otherfinancial institutions.
FACE	Free Available Cash Equivalent(liquidity buffer)	Internally defined liquidity buffer which is divided intoshort- and mid-term
IFRS equity	Equity attributable to the ownersof the parent; excluding minorities	IFRS equity as presented in the consolidated financialstatements
IFRS tangible equity	IFRS equity reduced by thecarrying amount of intangibleassets	IFRS tangible equity is another viability indicator for banksand facilitates the comparison of equity figures excludingintangible assets. It is used as the denominator of thereturn on tangible equity calculation (see below).
Investment grade	Rating that indicates that acorporate or municipality has arelatively low risk of default	BAWAG P.S.K. refers to the rating of Moody's, with aminimum rating of Baa.
Leverage ratio	Common Equity Tier 1 (CET1)capital / total exposure(calculation according to CRR,based on Promontoria SacherHolding N.V. Group) – as ofSeptember 2016, the totalexposure calculation was adaptedfrom three-month averages to anend-of-period figure in line withchanged regulatory requirements	The leverage ratio is a regulatory metric and – similar to theCET1 ratio – expresses the relationship between the bank'sCET1 capital and its total exposure, where total exposureincludes on-balance and certain off-balance exposures butnot on a risk-weighted basis. The ratio provides a metric tojudge how leveraged a bank is. The higher the leverageratio, the lower a bank is leveraged and the higher thelikelihood of a bank withstanding negative shocks to itsbalance sheet.
Liquidity coverage ratio(LCR)	Liquid assets / net liquidityoutflows (calculation according toCRR, based on PromontoriaSacher Holding N.V. Group)	The liquidity coverage ratio is a regulatory metric thatensures that banks maintain adequate levels of liquidity, i.e.sufficient highly liquid assets, to meet short-term obligationsunder stressed conditions. In keeping with this, the bankshall sustain any possible imbalance between liquidityinflows and outflows under stressed conditions over a periodof thirty days. The ratio is consistently monitored by themanagement to ensure compliance with regulatory

		minimum requirements and short-term liquidity needs.
Loan-to-Value (LTV)	Mortgage loans / appraised value(market value) of the property	The Loan-to-Value ratio is a financial term to express theratio of a mortgage loan in relation to the value of theproperty.
Net interest margin	Net interest income / averageinterest-bearing assets – as ofyear-end 2016, the ratio'sdenominator was changed fromaverage total assets to averageinterest-bearing assets andapplied retroactively	The net interest margin is a performance measure and isexpressed as a percentage of what a bank earns on loansand other assets in a time period less the interest it pays ondeposits and other liabilities divided by average interestbearing assets. It is used for external comparison with otherbanks as well as internal profitability measurement ofproducts and segments.
Net profit	Profit after tax attributable toowners of the parent	This profitability measure represents the profit after tax inabsolute amounts for the respective period as presented inthe consolidated financial statements that is available forprofit distribution to the shareholders.
NPL	Non-performing loans; loans arenot included in NPLs if noeconomic loss is expected	All customer exposures in default risk class 8, regardless ofwhether a limit has been breached or the customer is inarrears on an individual account or not.
NPL ratio	Non-performing loans (NPLs) /loans and receivables (includingprovisions)	The NPL ratio is an economic ratio to demonstrate theproportion of loans that have been classified as "nonperforming" in relation to the entire loan portfolio. Thedefinition of non-performing has been adopted fromregulatory standards and guidelines and comprises ingeneral those customers where repayment is doubtful, arealization of collateral is expected and which thus havebeen moved to a defaulted customer rating segment. Theratio reflects the quality of the loan portfolio of the bank andof the bank's credit risk management.
NPL coverage ratio	Loan loss provisions and collateral/ NPL	The total of impairment write-downs and collateral relativeto the NPL exposure
NPL LLP coverage ratio	Loan loss provision / NPL	Impairment write-downs relative to the NPL exposure
Operating income	The total of core revenues, gainsand losses on financialinstruments and other operatingincome and expenses	As presented in the respective line item in the incomestatement
Operating profit	Operating income less operatingexpenses and regulatory charges	As presented in the respective line item in the incomestatement
Return on equity	Net profit / average IFRS equity	These metrics provide a profitability measure for both
Return on risk-weightedassets	Net profit / average risk-weightedassets	management and investors by expressing the net profit aspresented in the income statement as a percentage of the
Return on tangibleequity	Net profit / average IFRS tangibleequity	respective underlying (either equity related or assetrelated). Return on equity and return on tangible equitydemonstrate profitability of the bank on the capital invested
Return on total assets	Net profit / average total assets	by its shareholders and thus the success of theirinvestment. Return on total assets or return on riskweighted assets is a business indicator and a measure foreconomic success of the management's business activities.The "Return on …" measures are useful for easilycomparing the profitability of the bank with other financialinstitutions.
Risk-weighted assets	Based on IFRS CRR regulatoryfigures (BAWAG P.S.K. Group,	The calculation of risk-weighted assets is defined in theCRR. The figure describes the total amount of exposure at

	fully loaded)	risk for a bank and includes both on-balance and offbalance positions. When calculating the amount, the bankcan consider risk-mitigating elements (e.g. collateral) andhas to derive regulatory risk weights for each positiondepending on the (external) credit rating of thecounterparty or customer. Risk-weighted assets are usedas the denominator for calculating the CET1 ratio (seeabove). "Fully loaded" refers to the full application of theCRR without any transitional rules.
Risk costs / loans andreceivables	Provisions and loan-lossprovisions, impairment losses andoperational risk (total risk costs) /average loans and receivables(including provisions)	This ratio is a measure for the quality of credit riskmanagement and the loan portfolio itself. It provides arelative view of the risk costs for the period based on theaverage balance of the loan portfolio and allowsbenchmarking with other banks. Low risk costs may resultfrom a high collateralization and/or a close monitoring ofthe credit rating of the customers. As a result, this impliesthat there are only few actual credit losses and little needfor provisioning.
RWA density		Risk-weighted assets / total assets The RWA density is a metric to obtain an "average riskweight" for a bank's balance sheet, i.e. the bank's totalrisk-weighted assets (see above) compared to the totalassets. The ratio indicates the average risk weightings ofthe assets based on their regulatory assessment, which canbe impacted by asset quality, the collateralization level orthe applied models for assessing the risk weights.
Sensitivity (BPV)	Sensitivity (Basis Point Value)denotes the change in the price ifthe risk factor changes one basispoint value (0.01 %)
Total capital	Based on IFRS CRR regulatoryfigures (BAWAG P.S.K. Group),excluding any transitional capital(fully loaded)	Total capital and total capital ratio are regulatory metricsand compare to CET1 capital and the CET1 ratio in a waythat the eligible capital for this purpose is extended byother instruments (e.g. Additional Tier 1 and Tier 2
Total capital ratio	Total capital / risk-weighted assets	instruments) not falling within the strict Common EquityTier 1 definition. The total capital ratio is consistentlymonitored by the management to ensure compliance withregulatory minimum requirements. However, CET1 capitalis of higher significance as it is also the base for prudentialthresholds such as the SREP requirement. Therefore,BAWAG P.S.K. focuses more on CET1 capital and theCET1 ratio.
Value-at-risk (VaR)	Measure of risk of investments	A method for quantifying risks that measures the potentialmaximum future losses that can occur within a specificperiod and with a certain probability.

GLOSSARY

Associatedcompany	A company over which a material influence is exerted in terms of its business or financial policy andthat is recognized in the consolidated accounts using the equity method.
Backtesting	A method for verifying projected VaR values by comparing them with the actual developments.
Banking book	All risk-bearing on- and off-balance-sheet positions of a bank that are not assigned to the trading book.
CDS	Credit default swap; a financial instrument that securitizes credit risks, for example those associatedwith loans or securities.
CLO	Collateralized loan obligation; securities that are collateralized by a pool of credit claims.
Cross-selling	The active selling of complementary products and services to existing customers.
CRR	Capital requirements regulation; Regulation (EU) No 575/2013 of the European Parliament and of theCouncil of 26 June 2013 on prudential requirements for credit institutions and investment firms andamending Regulation (EU) No 648/2012 Text with EEA relevance.
Derivatives	Financial instruments whose value depends on the value of an underlying asset (such as stocks orbonds). The most important derivatives are futures, options and swaps.
Fair value	Price that would be received to sell an asset or paid to transfer a liability in an orderly transactionbetween market participants on the measurement date.
Fair value hedge	Assets or liabilities, generally with fixed interest rates, are protected against changes in their fair valueusing derivatives.
Futures	Standardized, exchange-traded forward agreements in which an asset must be delivered or purchasedat a specific time and at a price that is agreed in advance.
	Hedge accounting An accounting technique that aims to minimize the effects that the opposing developments in the valueof a hedge transaction and its underlying transaction have on the income statement.
Hedging	Protecting against the risk of disadvantageous interest rate and price changes
HICP	Harmonized Index of Consumer Prices; basis for a comparative measurement of inflation in Europeand for evaluating the stability of monetary values within the Eurozone
IBNR	Allowance for incurred but not reported losses.
ICAAP	Internal Capital Adequacy Assessment Process; an internal procedure to ensure that a bank hassufficient own funds to cover all material types of risk.
Investmentproperties	Properties held as financial investments, primarily to generate rental income.
Loss identificationperiod (LIP)	The time span from the default of the client until the recognition of the default in the Bank.
Monte Carlosimulation	A numerical method for solving mathematical problems by modelling random values.
Option	The right to buy (call) or sell (put) an underlying reference asset at an agreed price within a specificperiod of time or at a fixed point in time
OTC	Over the counter; trade with non-standardized financial instruments directly between the marketparticipants instead of through an exchange.
Swap	A financial instrument that is generally used to exchange payment flows between two parties.
Trading book	All positions that a bank holds in financial instruments for the purpose of sale again in the short termwhen the best result can be achieved depending on the development of prices and interest rates.Positions that are not assigned to the trading book are managed in the banking book.

ANNUAL REPORT 2016 PURSUANT TO UGB

197 MANAGEMENT REPORT

• 198 Economic and Regulatory Developments
• 200 BAWAG P.S.K. at a Glance
• 200 Strategy
• 201 Financial Review
• 205 Business Segments
• 211 Corporate Governance
• 213 Changes in the Group's Holdings
• 214 Risk Report
• 226 Internal Control and Risk Management System
• 228 Human Resource Development
• 230 Corporate Social Responsibility
• 232 Research and Development
• 232 Outlook

234 FINANCIAL STATEMENTS

• 235 Statement of Financial Position
• 238 Income Statement
• 240 Notes
• 282 Statement of All Legal Representatives

283 AUDITOR'S REPORT

Management Report

ECONOMIC AND REGULATORY DEVELOPMENTS

ECONOMIC DEVELOPMENTS

Macro trends

Austria's gross domestic product growth accelerated to a rate of 1.5% in 2016, up from 1.0% in 2015, driven by a turn in the investment cycle and solid growth in private consumption. Private consumption was supported by favorable demographics and tax reform legislation in 2016, while net exports made a negative contribution to growth. Since 2015, the key driver of growth in Austria has been private demand as opposed to net exports in prior years. The minimal increase in the unemployment rate to 5.7% has to be seen in the context of continuous growth in employment of approximately 1.5% per year. Corporates as well as private households continued to prove financially sound.

Market developments

Demand for loans to Austrian households increased in 2016 on the back of solid demand for housing products. The volume of private households' deposits increased more pronouncedly than consumer price inflation. Demand for loans to corporates remained stable and thus lagged behind total economic investment activity, which grew substantially in 2016.

Various developments point to a continuation of the strong growth environment in 2017 and beyond. We expect a dynamic investment environment given the turn in the investment cycle. Construction activity is expected to be well supported by improving demographics trends (annual population growth in Vienna of 1.4% expected over the next five years) and by public housing initiatives (a commitment to invest EUR 5.75 billion to add 30,000 additional homes by 2022).

Outlook

The 2017 outlook for the Austrian economy remains optimistic and offers more favorable growth opportunities in various segments compared to recent years. Corporate loan demand will likely be better supported by the dynamic investment environment. Loan demand from the private sector is expected to increase in 2017 on the back of solid demand for housing loans. Given the expected sound financial position of private households, we expect low default rates despite a moderate increase in the unemployment rate. We expect markets to remain significantly influenced by the ample liquidity environment in Europe. With a focus on Austrian retail banking and select Western developed markets, BAWAG P.S.K. is well positioned in the current economic environment.

REGULATORY DEVELOPMENTS

The ECB continues its direct oversight of the Eurozone's main credit institutions, including BAWAG P.S.K., under the Single Supervisory Mechanism (SSM). The main priorities in 2016 were capital adequacy (e.g. supervisory stress tests, review of internal models, etc.), liquidity, risk governance and data quality. Preparations for the operational implementation of the second pillar of the Banking Union, the Single Resolution Mechanism (SRM), continued during 2016.

In addition to the minimum requirements under the Capital Requirements Regulation (CRR), the ECB imposes more stringent capital requirements on individual banks pursuant to the Supervisory Review and Evaluation Process (SREP). The minimum CET1 ratio according to the SREP1) applicable for 2016 amounted to 9% (including a systemic risk buffer of 0.25%). For 2017, the regulatory minimum CET1 ratio applicable to BAWAG P.S.K. according to the

SREP will be 8% (including a systemic risk buffer of 0.50%). In addition to the capital requirement, the SREP for 2017 also includes a Pillar 2 guidance for the first time, which has been set at 1% for BAWAG P.S.K. The regulator therefore expects BAWAG P.S.K. to maintain a CET1 ratio of 9% (8% SREP requirement plus 1% Pillar 2 guidance).

BAWAG P.S.K. has managed its capital structure on a fully loaded basis from the very beginning, not taking into account any transitional rules. Our target CET1 ratio in 2016 was greater than 12% on a fully loaded basis. We delivered a much stronger ratio, coming in at 15.1% and thereby significantly exceeding the regulatory requirements. Going forward, we will continue to maintain a fully loaded CET1 ratio above 12%.

The Delegated Act of the European Commission on the leverage ratio has been effective since 2015. Currently

there is no minimum leverage ratio requirement defined by the regulators. The leverage ratio stood at 6.5% on a fully loaded basis at year-end 2016. The liquidity coverage ratio (LCR) became fully effective as a binding regulatory requirement in October 2015. The minimum requirement for 2016 was 70%, increasing to 80% for 2017 and subsequently to 100% by 2018. We consider the maintenance of a robust liquidity situation as one of our key priorities and achieved an LCR of 138% at year-end 2016. No additional LCR requirements were imposed on BAWAG P.S.K. as a result of the SREP for 2016 and 2017.

Going into 2017, we expect the pace of regulatory changes for European financial institutions to remain high. In November 2016, the European Commission published proposals for comprehensive reforms to the CRR, the CRD IV and the BRRD. Main components of the reform package are:

• Setting out the regulatory framework for total loss absorbing capacity (TLAC) and minimum required eligible liabilities (MREL)

• Harmonization of insolvency rules in relation to a new class of senior non-preferred instruments

• Binding leverage ratio requirement (currently proposed at 3%)

• Net stable funding ratio (NSFR) to become operational in 2018

The European Commission targets the finalization of the reform package in the course of 2017.

Another important regulatory project which is scheduled for completion in 2017 is the finalization of Basel III by the Basel Committee on Bank Supervision (commonly referred to as the Basel IV package).

We will continue to proactively monitor and implement the upcoming regulatory changes on a timely basis and to consider them in our business plans accordingly. Due to its strong capital position and profitable business model, BAWAG P.S.K. considers itself well prepared for the upcoming requirements.

BAWAG P.S.K. AT A GLANCE

With more than 2.2 million customers, BAWAG P.S.K. is one of Austria's largest, most profitable and best capitalized banks, operating under a well-recognized national brand. We apply a low-risk, highly efficient, simple and transparent business model with two-thirds of our customer loans within Austria. The remaining customer loans are predominantly in countries such as Germany, the UK, France and the United States.

We serve Austrian retail, small business and corporate customers across the country, offering comprehensive savings, payment, lending, investment, leasing, building society and insurance products and services. Our Austrian business is complemented by international activities focused on retail, corporate, commercial real estate and portfolio lending in Western developed countries. This

strategy provides us with earnings diversification and growth opportunities while maintaining a conservative risk profile with disciplined underwriting.

We run the Bank in a safe and secure manner with a strong balance sheet, low leverage and solid capitalization. Our business segments are BAWAG P.S.K. Retail, easygroup, DACH Corporates & Public Sector, International Business and Treasury Services & Markets. Delivering simple, transparent and best-in-class products and services that meet our customers' needs is our consistent strategy across all business units.

We are 52% owned by Cerberus Capital Management LP and 40% by GoldenTree Asset Management LP.

STRATEGY

• Growth in our core market Our aim is to grow our customer base and business in our core markets, namely Austria and Western developed countries with a focus on the DACH region.
• Making our customers' lives easier We offer our customers the best experience and convenience when banking through our various digital and physical channels to build and maintain successful long-term customer relationships.
• Efficiency is the key to winning Cost efficiency across all businesses and functions is critical to winning in a more complex world with increased competition, more stringent regulatory requirements and prolonged macroeconomic challenges.
• Safe and secure A strong capital position, stable deposits and low and predictable risk costs are fundamental cornerstones for the execution of our strategy.

FINANCIAL REVIEW

BAWAG P.S.K.'s net assets totaled EUR 34,991 million as of 31 December 2016, a significant increase compared with the prior reporting period. This increase was primarily the

result of new investments in a portfolio of high-quality performing residential loans in Western Europe.

Assets

	Balance	Share of total	Balance	Share of total
in EUR million		31.12.2016		31.12.2015		Change
Loans and advances to customers	23,840	68%	24,957	74%	(1,117)	(4.5)%
Securities	7,095	20%	5,069	15%	2,026	40.0%
Loans and advances to creditinstitutions	2,070	6%	1,843	5%	227	12.3%
Equity interests and shares insubsidiaries	472	1%	345	1%	127	36.8%
Other assets	1,514	4%	1,697	5%	(183)	(10.8)%
Total	34,991	100%	33,911	100%	1,080	3.2%

Receivables from customers decreased by EUR 1,117 million or 4.5% to EUR 23,840 million resulting from redemptions and primarily FX movements in foreign consumer loans and due to the first time recognition of the portfolio loan loss provision (IBNR).

BAWAG P.S.K.'s securities portfolio increased by EUR 2,026 million or 40.0% to EUR 7,095 million mainly due to a purchase of a portfolio of high-quality performing residential loans in Western Europe.

Receivables from credit institutions slightly increased by EUR 227 million and came to EUR 2,070 million.

Equity interests and shares changed due to the purchase of two local banks (start:bausparkasse und IMMO-BANK) and the sale of a foreign bank.

Other assets slightly decreased by EUR 183 million to EUR 1,514 million mainly due to a reduction of positive fair values of derivatives.

Liabilities

	Balance	Share of total	Balance	Share of total
in EUR million		31.12.2016		31.12.2015		Change
Savings deposits	6,423	18%	6,871	20%	(448)	(6.5)%
Other liabilities to customers	14,287	41%	11,631	34%	2,656	22.8%
Securities issued by BAWAGP.S.K.	3,960	11%	3,163	9%	797	25.2%
Amounts owed to creditinstitutions	6,242	18%	7,932	23%	(1,690)	(21.3)%
Other liabilities	1,609	5%	1,853	5%	(244)	(13.2)%
Equity incl. retained earnings	2,470	7%	2,461	7%	9	0.4%
Total	34,991	100%	33,911	100%	1,080	3.2%

In line with the Bank's strategy, predominantly fixedinterest savings deposits decreased by EUR 448 million, offset by a EUR 2,656 million increase in other customer deposits with variable interest rates.

Securities issued by BAWAG P.S.K. increased by EUR 797 million or 25.2% to EUR 3,960 million, due to the issue of a EUR 500 million mortgage covered bond in the first quarter 2016 as well as the successful placement of two senior unsecured bonds in the Swiss market for a total of CHF 275 million.

Amounts owed to credit institutions decreased by EUR 1,690 million to EUR 6,242 million.

Equity increased by EUR 9 million to EUR 2,470 million. The change was driven by the net profit in the amount of EUR 321 million for 2016, partially offset by a dividend payment in the amount of EUR 306 million made to Promontoria Sacher Holding N.V., the sole shareholder of BAWAG Holding, earlier in 2016.

in EUR million	2016	2015	Change	Change (%)
Net interest income including income from	635	614	21	3.4
securities
Net income from equity interests	61	78	(17)	(21.8)
Net commission income	168	175	(7)	(4.0)
Net profit from trading activities	1	10	(9)	(90.0)
Other operating income	34	20	14	70.0
Net operating income	899	897	2	0.2
Administrative expenses	(421)	(420)	(1)	0.3
Depreciation and amortization	(27)	(30)	3	(10.1)
Operating expenses (without restructuringexpenses)	(448)	(449)	2	(0.4)
Other operating expenses	(12)	(14)	2	(12.9)
Restructuring and sundry one-off expenses	(26)	(38)	12	(31.6)
Operating profit	413	396	17	4.4
Allocation of credit risk loan loss provisions	(42)	(39)	(3)	7.7
Valuation and sale proceeds from securities(current assets)	4	(23)	27	–
Valuation and sale proceeds from financialassets	28	60	(31)	52.3
Result before special items	404	393	10	2.6
Return on equity	16.4%	17.2%	–	–
Premerger costs	(10)	–	(10)	100
Regulatory expenses	(21)	(13)	(8)	61.5
First recognition IBNR	(34)	–	(34)	100
Profit on ordinary activities	339	380	(42)	(11.0)
Result of extraordinary items	–	–	–	–
Taxes	(18)	(25)	7	(28.0)
Profit before changes in reserves	321	355	(35)	(9.8)
Changes in reserves, retained earnings, advancepayment	221	172	49	–
Profit after changes in reserves	542	527	15	2.8

Breakdown of the Income statement

Net profit decreased by EUR 35 million, or 9.8%, to EUR 321 million in 2016. The increase was driven by higher regulatory expenses.

Net interest income was increased by EUR 21 million or 3.4% to EUR 635 million, driven primarily by net asset growth and lower funding costs.

On the face of the income statement net income from equity investments was reduced by minus EUR 17 million to EUR 61 million.

The net commission income remained almost stable compared to prior year at EUR 168 million.

The net profit from trading activities amounted to EUR 1 million and was influenced by the valuation of our investments, securities and derivative transactions conducted for customers.

Administrative expenses remained mostly unchanged.

Credit risk and loan loss provisions amount to EUR 42 million for the financial year 2016 compared to EUR 39 million in 2015.

The valuation and sales proceeds from securities shows a gain of EUR 4 million in 2016. In 2015 the negative result in the amount of EUR 23 million was influenced by the effects from realizing negative market values of derivatives which are offset by profits from sale of securities that are held as non-current assets.

The valuation and sales proceeds from financial assets amount to EUR 28 million in 2016 and include predominantly profits from sale of securities held as noncurrent assets.

The tax expenses consist primarily of the bank levy in the amount of EUR (58) million and deferred taxes in the amount of EUR 41 million.

CAPITAL AND LIQUIDITY POSITION

Since 31 December 2015, the Bank's CET1 and total capital ratio (taking into account transitional rules) further improved by 290 basis points to 15.0% and 17.9%, respectively, as of 31 December 2016, driven by organic earnings while at the same time funding acquisitions. The capital position thereby significantly exceeded both regulatory requirements as well as our CET1 target ratio of greater than 12%.

The combination of our strong capital base and conservative RWA density resulted in a fully loaded leverage ratio of 6.6% as of 31 December 2016.

Our funding strategy continues to be based on our stable customer deposits. The deposit funding is complemented by a well-diversified wholesale funding strategy. In the first

quarter 2016, BAWAG P.S.K. issued a EUR 500 million international benchmark mortgage covered bond with a tenor of six years. In the fourth quarter 2016, BAWAG P.S.K. successfully placed two senior unsecured bonds in the Swiss market for a total of CHF 275 million (CHF 175 million with a tenor of five years and CHF 100 million with a tenor of two years). The CHF 100 million two-year transaction was priced with a yield of minus 0.25%, representing the first negative yield senior unsecured bank issuance in CHF at the time. Additionally, BAWAG P.S.K. placed its inaugural UK RMBS transaction of GBP 500 million with international investors in November 2016.

We maintain a conservative liquidity management strategy, which is reflected in our strong liquidity coverage ratio (LCR) of 128% at year-end 2016.

Own funds

in EUR thousand	31.12.2016	31.12.2015
Share capital	250,000	250,000
Reserves including profit for the fiscal year 2016	2,219,816	1,905,126
Deduction of intangible assets	(97,089)	(87,754)
Deduction participations	–	–
Shortfall IRB risk provisions	(21,948)	(49,488)
Common Equity Tier I (CRR) / Core Tier I (BWG)	2,350,779	2,017,884
Supplementary and subordinated debt capital	459,575	475,765
Deduction participations	(19,753)	(14,446)
Excess IRB risk provisions	24,519	15,818
Shortfall IRB risk provisions	(5,487)	(21,209)
Supplementary Capital – Total Tier II (CRR/BWG)	458,854	455,928
Own funds	2,809,633	2,473,812
Own funds ratio	17.9%	16.4%

BUSINESS SEGMENTS

BAWAG P.S.K. RETAIL

Strategy

The BAWAG P.S.K. Retail segment services 1.8 million private and small business customers through our centralized branch network that we operate in cooperation with Austrian Post as well as our online and mobile sales channels supported by our customer care center.

We are one of the leading omni-channel retail banks in Austria, offering simple, fair and transparent products and services through our physical and digital sales channels with a strong and well-recognized national brand.

In 2016, we further invested in the development of our retail franchise to ensure high-quality service and advice for our customers. We enhanced customer service quality and increased sales productivity due to our differentiated branch structure, creating more productive advisory teams and specialization in branches. We continued to invest in sales force training and further developed our front-end online sales applications to support a systematic retail banking approach and streamlined distribution.

We continue to be a leader in digital offerings, continually enhancing our customers' experience with new e-banking and mobile features. Our new Security App and one-touch security functions for smartphones are examples of enabling features for our customers to purchase our products and perform transactions anytime and anywhere, safely and securely. Additionally, we are currently live as the first bank in Austria to offer complete online account opening using video legitimation technology, which enables a customer to open a current account with BAWAG P.S.K. seamlessly on a mobile device. We are also building a financial services platform for our customers to make their financial lives easier and simpler.

2016 Business Review

In addition to the continued growth in consumer loans, we made progress in the migration of our customers towards digital channels. In 2016, 21% of our consumer loan sales were initiated through our digital and customer care channels, which are well received by our customers.

Expanding internationally into Western Europe

Another driver for our increased performance in 2016 was the acquisition of two high-quality performing residential mortgage portfolios in Western Europe, the first in the fourth quarter 2015, consisting of approximately 20,000 customers and EUR 1.8 billion in assets, and the second in the fourth quarter 2016, consisting of approximately 20,000 customers and EUR 1.4 billion in assets. These acquisitions are in line with our strategy to expand into other Western European markets. We are currently in the process of looking at a few other inorganic opportunities that may help us expedite our growth plans.

Optimizing our product mix

On the liability side, we continued the shift from fixed-rate term deposits to current accounts and daily savings accounts, thus providing for lower funding costs, freeing up sales force capacity and providing our customers with products with greater functionality.

As a major initiative concerning fee-generating products, we launched our new KontoBoxes (current accounts) in February 2016. The new generation of KontoBoxes offers our customers a series of enhanced services, such as a debit card "Gold" with mobile phone based payment functionality ("SmartPay") and in particular our new loyalty program "DANKESCHÖN," which rewards customers for the use of our products and payment cards. These valueadded services will drive greater customer usage and have generated more interest in premium current accounts that provide greater functionality and an improved customer experience. The migration of our customer base towards these new account models and services will continue to be a revenue driver going forward. Overall, the new boxes have been well received by our customers and the share of premium models among total KontoBoxes has significantly increased compared to prior-year sales.

The launch of the new KontoBoxes has been supported throughout our channels with an intensive training program for our advisors. In addition to the rollout of the KontoBoxes, we launched new functionalities in our frontend online sales application "GATE," supporting and automating the advisory process for current accounts.

Driving efficiency in the core franchise

We have created a differentiated branch structure to concentrate our full service advisory services in our highest customer demand locations, while maintaining service reach through a network of self-service devices and transaction points. This branch differentiation drives cost efficiency through better resource management and higher sales productivity.

The strong focus of our branch employees on advisory and sales is also supported by the ongoing shift of basic transactions to digital and self-service channels. Compared to 2015, the number of online payment transactions increased by 10% and the share of online transactions via our mobile apps increased by 49%. During the same period, the number of over-the-counter transactions decreased by 11%, reflecting the changing composition of overall payments and the migration to digital and representing the significant shift in customer behavior.

These initiatives result in lower efforts to serve our customers and allow our advisors to focus on advisory and sales. In addition, the continued development of our proprietary front-end tool "GATE" will further enhance our front-end processes and customer advisory experience.

Transforming to digital

We continue to build our vision of a financial services platform for all of our customers' financial activity. We continue to launch new online and mobile products and service offerings in order to better assist our customers in managing their financial affairs.

Throughout 2016, we made progress in the extension of our online product and service offering. In the first quarter 2016, we launched our core current account offering online. Our accounts can be opened via a 100% digital process, including online identity verification and a digital signature. We also launched our new SmartPay App, enabling payments via NFC-enabled smartphones and making transactions frictionless for those customers. Furthermore, we redesigned the BAWAG P.S.K. website in the first half 2016. The new design incorporates best practices in terms of usability and convenience with a stronger orientation towards interactivity and product sales and has been well received, with a 7% increase in visitors compared to 2015.

In the third quarter 2016, we successfully launched our new Security App, which allows a best-in-class secure TAN procedure for online and mobile banking. This app also offers additional features such as customized transaction notifications tailored to a user's personal needs.

In line with our strategy of creating a platform that simplifies our customers' financial lives, we have entered into collaboration agreements with several Fintech companies including FinReach in the fourth quarter 2016. The services of FinReach make it easier for new consumers to switch bank accounts in a fully digital, frictionless way. Through our collaboration with FinReach, we have taken another important step in bringing best-in-class partners to enhance our innovative digital platform to create substantial added value for our customers. We expect several more announcements similar to this technology collaboration in 2017.

Our complete line of products offered through digital channels makes us a leader in the marketplace, and we continue to enhance our user experience and personalization features across the distribution channels. All our efforts are being rewarded with increasing usage by our customers. Engagement with our customers allows us to better anticipate their needs and offer products and services at the appropriate time. Our efforts to grow our customer engagement through investments in data-based analytics will be a driver for increased cross-selling in the future.

Outlook

In 2017, we expect continued strong competition in the Austrian retail banking market. In spite of this challenging environment, we are convinced that we will further grow our business, strengthen our position and optimize our leading customer banking platform.

The growth of our asset base will be driven by several initiatives such as the continued development of our online loan sales portfolio, the enhanced broker channel infrastructure and cooperation as well as the continuous evaluation of potential inorganic opportunities.

We will further streamline our cost-to-serve while also enhancing our overall service and advisory quality and convenience. This will be done by continuing to differentiate our branch structure, investing in both our front-end online

sales application "GATE" and our leading digital services platform. We will also continue to further develop our mobile capabilities in order to further strengthen our position as one of the leading omni-channel retail banks in Austria.

This clear focus makes us confident that we will continue to grow our consumer lending franchise and other key asset categories, while further optimizing our cost structure. Additionally, our digital advances allow us to be closer to our customers, with greater engagement, and to deepen our relationships through higher-value products and services.

We are well prepared to meet all our customers' needs and expect to continue our strong performance in 2017, again focusing on our core value drivers: growing our consumer lending franchise, optimizing our product mix, driving organic productivity and inorganic growth as well as transforming to digital.

DACH CORPORATES & PUBLIC SECTOR

Strategy

DACH Corporates & Public Sector comprises our corporate and public sector lending activities and other fee-driven financial services, mainly for Austrian customers. Select client relationships in neighboring countries (primarily Germany and Switzerland) are included as well. The DACH Corporates & Public Sector business was realigned to better capitalize on corporate banking opportunities across the DACH region, leveraging our Austrian customer base and relationship managers to address the broader German and Swiss markets.

We service our corporate and public sector customers with a full range of products focusing on financing, investment and payment service products and a dedicated team of sales professionals across Austria. Non-Austrian clients are either serviced directly from Vienna or with the support of our London office in the case of syndicated deals.

Our focus continues to be on maintaining and acquiring sustainable relationships while staying disciplined on pricing despite the competitive landscape. Additionally, we have rolled out new investment and FX products, which differentiate our offerings from competitors, and entered into a cooperation with an insurance company to leverage our origination capacities in order to drive fee income opportunities.

2016 Business Review

Overall commercial loan demand in Austria continued to show lower new lending volumes compared to 2015. This is a result of several factors including flat domestic output, lower corporate investment as well as macro risks across Europe. The lower demand and high liquidity available to banks led to pressure on margins. Our business solution teams continued to elevate our strong client relationships across financing products as well as payments and cash management services, while striving to maintain and increase strong risk-adjusted pricing for the Bank. New business volume followed the market trend.

Outlook

We plan for a market that will grow slightly but remain very competitive. At the same time, we do not expect improved margins as overall liquidity in the market is supported by the ECB and investment demand is unlikely to recover in the near term. We have the flexibility and speed necessary for strategic transactions requiring complete debt solutions for clients. Overall, we expect our sales team to achieve higher new lending volumes at stable margins in 2017.

INTERNATIONAL BUSINESS

Strategy

International Business includes our international corporate, real estate and portfolio lending outside of the DACH region, with a focus on developed countries within Western Europe as well as the United States.

The international corporates portfolio consists primarily of lending to free cash flow generating companies with defensive business profiles and appropriate capital structures in recession-resilient industries. Our international real estate portfolio focuses on senior loan positions in cash flow generating properties. We have limited exposure in land, development and construction financings.

2016 Business Review

We continued to focus on our loan origination opportunities primarily in select developed Western countries.

Our international corporate lending business continued to be faced with early redemptions arising from competitive market conditions in a low-interest rate environment. As a consequence, the portfolio experienced an asset volume decrease.

Our international real estate financing business was also affected by an increased volume of early redemptions and currency movements. These effects were more than compensated by turning a strong pipeline into realized deals. As a consequence, the total asset volume increased by 11% to EUR 2.8 billion. Transaction diversification continued across our commercial real estate lending business on a geographic, asset and industry basis. These transactions focused primarily on traditional real estate financings with attractive LTVs, strong cash flow, shorter weighted expected maturities and solid covenant characteristics. Overall portfolio performance and credit trends remained solid with some shortening of duration as loan amortizations increase ahead of original projections. We are also active in portfolio financing with low loan-tovalue (LTV) and low loan-to-cost (LTC) positions against a more diversified portfolio of cash generating real estate assets. The portfolio has strong collateral coverage characteristics (average LTV <60%), provides strong cash flows and is structured to perform well in stressed market conditions, with shorter average durations.

Outlook

We see a solid pipeline with diversified opportunities during 2017 and therefore expect an expanding portfolio size for both the international corporate lending and international real estate financing businesses. Margins will largely remain stable, although competition for defensive, highquality transactions will continue to remain high.

TREASURY SERVICES & MARKETS

Strategy

Treasury Services & Markets acts as a service center for the Bank's customers, subsidiaries and partners through market execution as well as selective investment activities.

Among the key responsibilities of Treasury Services & Markets is the management of the Bank's liquidity from the core funding franchise in available-for-sale and held-tomaturity portfolios, including the liquidity reserve as well as certain hedging positions. The investment strategy continues to focus on investment grade securities primarily representing secured and unsecured bonds of financials in Western Europe and the United States as well as select sovereign bond exposures in order to maintain solid diversification.

2016 Business Review

We continue to pursue the strategy of balancing the investment portfolio between long-term investment in highquality securities while still maintaining our available-forsale portfolio to preserve the flexibility of redeployment in other customer loans or receivables, or other balance sheet management activities.

This overall composition reflects the Bank's strategy to maintain high credit quality, shorter duration and strong liquidity in the securities portfolio in order to balance the goals of generating incremental net interest income while also minimizing fair value volatility.

Outlook

Treasury Services & Markets will continue to focus on keeping streamlined processes and simple products in support of the Bank's core operating activities and customer needs. Ample liquidity supply and asset purchases by the ECB as well as elevated political risks will remain important factors in financial markets. However, we are committed to maintaining high credit quality, highly liquid investments and solid diversification.

CORPORATE GOVERNANCE

AUSTRIAN CODE OF CORPORATE GOVERNANCE

In 2006, BAWAG P.S.K. AG made a voluntary commitment to apply the Austrian Code of Corporate Governance for listed Austrian companies. The Bank has published an annual Corporate Governance Report since 2009 (http://www.bawagpsk.com/CorporateGovernanceReports). Compliance with the Austrian Code of Corporate Governance in 2016 was audited by independent third parties, confirming that all key provisions were fulfilled.

SUPERVISORY BOARD

As of 31 December 2016, the Supervisory Board of BAWAG P.S.K. AG consisted of twelve members.

The Rules of Procedure of the Supervisory Board comprise the rights and obligations of this board and also define the individual committees of the Supervisory Board and their responsibilities. The individual members of the Supervisory Board and the composition of the committees are presented in the chapter "Boards and Officers of BAWAG P.S.K. AG."

Audit and Compliance Committee

The Audit and Compliance Committee reviews the Bank's accounts and the annual financial statements and monitors the Bank's internal control systems as well as the independence and work of the external auditors. The annual audit plans and regular reports of Internal Audit and the Compliance Office are submitted to the Audit and Compliance Committee. The Head of Internal Audit and the Compliance Officer have direct access to the Chairperson and members of the Audit and Compliance Committee.

Risk and Credit Committee

The approval of loans and credit (as well as other forms of financing) to individual borrowers or groups of associated customers for the purposes of para 392 of Regulation (EU) no. 575/2013 (exposures that equal 10% or more of the Bank's eligible own funds) has been delegated to the Risk and Credit Committee. A report about large exposures approved by the Risk and Credit Committee is submitted to the Supervisory Board at least once a year. The Risk and Credit Committee also approves transactions with the Bank's affiliated parties pursuant to section 28 BWG and the Bank's material credit policies. It also advises the Supervisory Board on the current and future risk-bearing ability and risk strategy of the Bank and monitors the

effectiveness and efficiency of the risk management systems and compliance with the legal provisions and regulatory requirements.

Nomination Committee

The Nomination Committee deals with Managing Board succession planning and the regular Fit & Proper evaluation of Managing Board members and Supervisory Board members. Among other tasks, this committee is also responsible for the approval of the assumption of executive functions by members of the Managing Board in companies not belonging to the Group.

Remuneration Committee

The Remuneration Committee deals with the general principles of the Bank's remuneration policy. It also monitors the remuneration policy, remuneration practices and remuneration-based incentive structures pursuant to section 39c BWG, except for those pertaining to Managing Board members.

Committee for Management Board Matters

The Committee for Management Board Matters deals with relationships between the Bank and the members of the Managing Board. For example, it decides about the provisions of employment and severance agreements with Managing Board members and about the remuneration paid to members of the Managing Board as well as performance targets. It also monitors the remuneration policy, remuneration practices and remuneration-based incentive structures pursuant to section 39c BWG pertaining to Managing Board members.

Related Parties Special Audit Committee

The Related Parties Special Audit Committee audits whether transactions of BAWAG P.S.K. AG and BAWAG P.S.K. AG's subsidiaries with related parties pursuant to IAS 24 are granted at arm's length terms that are no more

favorable than would be given to non-related parties. Any related parties transactions require the approval of this committee, which shall only be granted if it is determined that the related parties transaction is concluded at arm's length terms that are no more favorable than would be given to non-related parties.

MANAGING BOARD

As of 31 December 2016, the Managing Board of BAWAG P.S.K. AG consisted of five members.

Byron Haynes is Chief Executive Officer and Chairman of the Managing Board. He is also responsible for BAWAG P.S.K. Retail. Corey Pinkston is responsible for DACH Corporates & Public Sector, International Business as well as Treasury Services & Markets. Anas Abuzaakouk is Chief Financial Officer, Stefan Barth Chief Risk Officer, Sat Shah is Chief Operating Officer and also responsible for the easygroup segment.

The Rules of Procedure of the Managing Board define the responsibilities and tasks of this board. According to these Rules of Procedure, the Managing Board has the right to form committees and to issue statutes for these committees. The following executive committees have been formed:

• the Enterprise Risk Meeting for steering the total bank risk;
• the Credit Approval Committee, which decides on financing transactions above a certain threshold; and
• the Strategic Asset Liability Committee, which deals with strategic capital and liquidity planning issues as well as operational aspects of asset and liability management.

COMPLIANCE

The Compliance Office reports directly to the Managing Board. Regular reports are also submitted to the Bank's Audit and Compliance Committee.

The key responsibilities of the Compliance Office are preventing money laundering and combating terrorism financing, monitoring compliance with sanctions, securities compliance as well as the prevention of insider trading, market abuse and conflicts of interest. A series of detailed guidelines have been put into place to ensure compliance with all legal requirements.

In addition to all relevant laws such as the Securities Supervision Act, all employees are also bound by a Code of Conduct that contains, among other things, guidelines for business conduct and customer service, for how conflicts of interest are to be handled and for preventing market abuse and money laundering. A detailed anti-corruption guideline governs the acceptance and awarding of gifts and keeps employees and management abreast of the valid anti-corruption regulations.

BAWAG P.S.K. AG has also been a member of the Austrian chapter of Transparency International (TI-AC) since 2012. This not-for-profit organization seeks to increase general awareness of the need to combat corruption and increase transparency in Austria, and it works to facilitate the implementation of relevant measures and reforms.

CHANGES IN THE GROUP'S HOLDINGS

BAWAG Malta

The sale of BAWAG Malta Bank, initiated in 2015, was closed on 29 January 2016.

Acquisition of start:bausparkasse AG and IMMO-Bank AG

Effective 23 June 2016 the signing of the acquisition of 100% of the voting shares in start:bausparkasse AG and 100% of the voting shares in IMMO-BANK AG from Volksbanken-Verbund took place. After the fulfillment of all contractual requirements and customary closing conditions the acquisition was closed on 1 December 2016.

The start:bausparkasse acquisition will give BAWAG P.S.K. a significant presence in the building society savings and loans sector, while IMMO-BANK will expand the bank's reach with social housing associations and real estate companies. Both banks combine the expertise and long-standing tradition of two specialists in the housing and real estate finance sector and will thus make a significant contribution to the expansion of the domestic retail franchise.

The total consideration transferred at the date of acquisition is done in cash and amounts to EUR 190 million, of which EUR 66 million were paid to start:bausparkasse for their 74.26% share in IMMO-BANK. Of the total consideration transferred EUR 124 million were paid to companies outside the Group. EUR 14 million of the total consideration transferred will be paid in 2017.

Other Major Changes in the Group's Holdings

With 28 September 2016 Salzburger Unternehmensbeteiligungsgesellschaft (BAWAG P.S.K. share 4.76%) was stricken from the companies register.

In course of the incorporation of Wohnbauinvestitionsbank GmbH on 1 October 2016 BAWAG P.S.K. Wohnbaubank AG took over a marginal stake of 0.83%.

In November and December 2016 BAWAG P.S.K. sold in total 28.3% in Einlagensicherung der Banken und Bankiers GmbH Group internal as well as to a third party, so that the share of BAWAG P.S.K. decreased to 32.71%.

BRANCHES

Since November 2014 BAWAG P.S.K. maintains a branch in London, which originates and structures loans to international customers for the benefit of BAWAG P.S.K.

RISK REPORT

The operational and strategic risk management functions and the relevant committees of BAWAG P.S.K. are responsible for the identification, quantification, limitation, monitoring and steering of all risks the Bank is exposed to. At all organizational levels, Market and Risk functions are strictly separated.

The Bank's Managing Board defines the overall risk appetite and risk strategy on an annual basis. All risk management principles, the defined limits for all material risks and the established procedures for monitoring these risks are documented in risk manuals and guidelines. The Managing Board is continuously and proactively informed on the overall risk situation. The monthly risk reporting is based on clearly defined risk metrics and encompasses all Pillar I and Pillar II relevant topics as well as operational risk matters and additionally relevant specific risk topics. Quarterly, risk reports are submitted to the Supervisory Board's monitoring and control committees.

Risk management policies are reviewed regularly to reflect changes in regulatory requirements, market conditions as well as products / services offered by the Bank.

The following divisions oversee the implementation and execution of risk-related guidelines:

• Strategic Risk
• Commercial and Institutional Risk
• Retail Risk and Administration
• European Retail Risk Management
• Non Financial Risk Management & Regulatory Compliance

The following risks and subrisks are considered as material for BAWAG P.S.K:

• Credit risk
• Market risk
• Liquidity risk
• Operational risk

The material risks of BAWAG P.S.K. are described in the following pages.

CREDIT RISK

Credit risk is defined as the risk of loss due to a party in a financial transaction failing to pay its obligation to the other party.

The operative credit risk divisions are specifically set up to ensure functional risk management expertise for the DACH Corporates & Public Sector and International Business and BAWAG P.S.K Retail. The strategic risk division is responsible for the consistent calculation and aggregation of the individual risk metrics within the defined monthly reporting framework.

In the business segment BAWAG P.S.K. Retail, the creditworthiness of private and small business customers is assessed via automated scorecards. The scoring is based on statistical models which cover both application scoring as well as behavioral scoring based on the customer's account usage. In addition, external data (e.g. credit bureau information) is also factored into the customer scoring. The individual customer credit ratings are updated monthly.

In addition to the credit rating, the expected loss given default (LGD) and the expected utilization of the offbalance-sheet exposure value at the time of default (credit conversion factor, CCF) are also estimated for the BAWAG P.S.K. segment. The estimate, which is based on data from the observed customer behavior, is calculated using various statistical methods and models.

For each commercial loan application, the borrower's credit rating is assessed using an internal rating method unique to each customer business segment. The rating methods that have been developed by BAWAG P.S.K. are based on a broad spectrum of quantitative and qualitative factors. Specific rating grades are assigned to each customer by using a uniform master scale and represent an individually estimated probability of default. No external ratings (i.e. rating agency data) are available for the majority of commercial customers.

To manage overall concentration risk, exposure limits are defined, monitored and reported to the Managing Board and Supervisory Board on a regular basis.

BAWAG P.S.K., a bank that applies the Internal Rating-Based (IRB) approach, sets high standards with regards to credit risk methodologies and processes. The risk organization continuously focuses on enhancements to risk quantification methods. Specific standards are in place for

all sub-portfolios that are monitored and validated on a regular basis. Due to the centralized structure and coordination of the Bank, new risk regulations or changing market situations are considered in a timely manner within the risk management strategies.

31.12.2016in EUR million	BAWAGP.S.K. Retail	IMP3)	DACHCorporates &Public Sector	InternationalBusiness	TreasuryServices andMarkets	CorporateCenter	Total portfolio
Book value1)	8,909	1,824	6,827	5,241	1,870	466	25,136
Bonds	0	199	442	385	5,156	188	6,369
Off balance sheetitems	310	572	798	300	161	8	2,149
Total	9,219	2,594	8,066	5,926	7,187	661	33,654
thereofcollateralized2)	5,861	1,542	1,858	2,327	95	2	11,684
thereof NPL (incl.LLP, gross view)	192	61	78	0	0	254	586

Credit risk by business segment (excluding variable rate securities)

31.12.2015in EUR million	BAWAGP.S.K. Retail	IMP3)	DACHCorporates &Public Sector	InternationalBusiness	TreasuryServices andMarkets	CorporateCenter	Total portfolio
Book value1)	8,808	2,487	6,373	5,592	0	2,740	25,999
Bonds	0	0	390	766	4,471	376	6,003
Off balance sheetitems	349	583	1,285	131	0	0	2,348
Total	9,157	3,070	8,047	6,490	4,471	3,116	34,350
thereofcollateralized2)	5,938	2,114	2,086	1,390	0	4	11,532
thereof NPL (incl.LLP, gross view)	191	45	85	0	0	254	576

1. The book value represents a gross perspective.

2. Economic collaterals comprise residential and commercial real estate, guarantees, life insurances, etc.

3. International Mortgage Portfolio.

Geographical distribution of the loan portfolio

Geographical distribution of loans

Geographical distribution of bonds

Credit portfolio by currencies

Consistent with the Bank's overall positioning, the majority of financing is denominated in EUR. The following table

captures the currency distribution of the credit portfolio and of the Bank.

		Book value	Relative value
in EUR million	31.12.2016	31.12.2015	31.12.2016	31.12.2015
EUR	23,510	23,557	74.6%	73.6%
GBP	3,168	3,779	10.1%	11.8%
USD	2,702	2,470	8.6%	7.7%
CHF	1,862	2,110	5.9%	6.6%
Others	264	87	0.8%	0.3%
Total	31,505	32,002	100.0%	100.0%

Impaired loans

Provisions are booked on loans for which the probability of collection will not be fulfilled.

Manual impairment provisions are formed individual after a detailed analysis. In cases when exposures are restructured according to internal processes, which may include the extension of forbearance measures, an appropriate impairment test is performed. The derecognition is assessed on an individual basis.

Automatic impairment provisions are booked automatically in the core banking system in the case of unpaid balances. This occurs when limits are continuously exceeded on current accounts, installments are continuously not paid on loans and/or when legal action is initiated.

The volume reported as NPL includes all claims against customers classified as being in default and against customers for which specific impairment provisions have been formed1).

Non-performing loans (NPLs)

Exposures relating to all customers in default risk class 82) are categorized as non-performing loans, regardless of whether a limit has been exceeded or a payment missed on an individual account. When a material exposure of a customer is greater than 90 days past due, a loan loss provision is allocated or a customer-specific default criterion applies. The customer is considered to be in default across all exposure-related products and is assigned to risk class 8.

Forbearance

In BAWAG P.S.K. measures of forbearance or refinancing are extended if borrowers face financial difficulties and are considered to be unable to meet contractual obligations.

The Bank has sound and transparent processes in place to define the conditions under which concessions, in the form of modification of terms and conditions, or refinancing, may be granted. In this respect, strictly temporary measures – i.e. a reduction or postponement of as well as transfer to terms of interest only repayments are in place. In exceptional cases, temporary or permanent reduction of interest rates may be granted. Depending on customer segments, a split of loan agreements or refinancing facilities may be accepted as viable measures.

The description of different responsibilities for managing and monitoring forbearance measures is covered by detailed guidelines.

Measures of forbearance or refinancing are instruments to ultimately reduce the existing risk with respect to debt claims. However, forbearance measures are by no means used to avoid or postpone the recognition of impairment or disguise the level of credit risk resulting from forborne assets. By implementing forbearance measures, the Bank supports clients in maintaining financial stability. One of the positive effects of forbearance is to assist clients on their way back to a sustainable financial situation. If the supporting measure is not successful, exposures are recognized as non-performing and impaired according to regulatory and accounting standards. For clients or a group

of clients where a loss was identified, a provision is booked following internal guidelines.

For reporting as well as internal risk management purposes, the Bank implemented processes and methods according to regulatory standards1) in order to identify exposures for which forbearance or refinancing measures have been extended and also the respective reclassification of forbearance measures is considered.

Collateral and valuation of residential and commercial real estate

All types of acceptable collateral are listed in the Collateral Catalogue. Adequate haircuts are defined for each type of collateral.

The central group Residential Real Estate Appraisal determines the value of all residential properties in Austria on the basis of a standard methodology and valuation tool. The periodic review and updating of property values is automated based on the real estate price index published by the Association of Real Estate and Asset Trustees of the Austrian Federal Economic Chamber (Fachverband der Immobilien- und Vermögenstreuhänder der Wirtschaftskammer Österreich) for Austrian residential properties and on the Halifax House Price Index for residential properties in Great Britain.

The values of commercial real estate properties are appraised individually by experts in the central real estate appraisal department, by select external appraisers commissioned by the Bank, or by a syndicate partner after an inspection of the property and completion of a full appraisal report.

Workout group

The Workout group is responsible for the processing and administration of troubled and defaulted loan commitments. The primary objective is to minimize losses by providing restructuring expertise and maximizing repayments.

Early recognition of troubled assets

Customers that trigger defined early warning signals for various reasons (i.e. general deterioration of creditworthiness, significant decline in the stock price, rise in CDS spreads, negative press reports / ad-hoc publicity, unusual risk concentrations etc.) are placed on the Watch List and discussed in the Watch Loan Committee which is made up of members of the relevant business and risk units. This committee develops and elaborates on risk mitigation actions for single exposures and oversees consistent monitoring of all cases with elevated probability of default.

BAWAG P.S.K. Retail

The core products have well-defined underwriting standards that focus on collateral coverage, overall customer indebtedness and assessing customer's ability to service the loan. Additionally, active portfolio management (i.e. delinquency reporting, trend analysis, regional concentration analysis, NPL remediation) is a key component to proactively manage the risk in this portfolio.

Having well defined policies, procedures and analytical tools around portfolio management are essential to managing risk in this retail, flow-oriented business.

The credit risk is measured continuously by the following methods:

• Portfolio trends in terms of risk class distribution

• Portfolio trends in terms of overdue/late payments

• Portfolio trends for defaulted loan facilities

• Portfolio trends in terms of losses

• Scorecard performance: approval rate and manual decisions

• Performance monitoring of fraud detections

The results of the analysis are presented to the Managing Board and the relevant decision makers as part of the overall operating rhythm. This process ensures a regular and standard flow of information and enables the Bank to respond directly to changes in risk parameters and market conditions.

Furthermore, the risk from new business is managed using clear and strict credit guidelines. Decisions at the point of sale are taken on the basis of automated scoring systems or in certain cases manual decisions by the Risk

department. A key focus in this portfolio is on compliance with policies and ensuring high data quality. A central monitoring process ensures ongoing quality assurance.

The mortgage portfolio is characterized by normal LTVs, low NPL ratio, high coverage ratio and good geographic diversification. Mortgages comprise EUR-, CHF- and GBPdenominated mortgages. The CHF-portfolio is proactively being managed down and/or converted to EUR denominated loans. The volume in CHF denominated mortgages was further reduced in 2016. Specific programs have been in place for the past few years that were established between the Risk and Market organizations to convert customers to EUR denominated loans.

The consumer loan portfolio is comprised of unsecured one-stop and online loans and overdrafts. The focus has

DACH Corporates & Public Sector and International Business

The corporate business is split into the segments DACH Corporates & Public Sector and International Business and was characterized by proactive risk management, disciplined growth in stable international Western countries, continued exit of non-core CEE assets and maintaining disciplined approach to risk-adjusted pricing.

All material credit decisions are taken within a specific credit committee that meets weekly and is comprised of the majority of Managing Board members. Individual credit applications are thoroughly reviewed, discussed and voted on. The Bank's credit risk managers have a diverse and experienced background spanning different asset classes with domestic and international experience. For loan applications below a certain threshold, risk managers are granted authority to approve credits outside of the formal credit committee.

The growth in international business has been characterized by high quality individual credits, solid credit metrics (e.g. LTV and debt yield for real estate / portfolio transactions and leverage ratios for corporate transactions). been on developing robust risk scorecards and processes to support the growth of this core segment.

Small business loans are proactively monitored to ensure the potential identification of weakening credits and, if required, countermeasures are initiated.

The British mortgage portfolio which was acquired in the fourth quarter of 2015 displays low LTVs.

The overall NPL and coverage ratios reflect a stable and low risk portfolio. Significant resources have been allocated and investments made over the past few years to address legacy NPL portfolios (primarily sold in the past few years), to enhance early and late stage collection processes/ capabilities, and to develop a proactive approach of dealing with NPLs both from an Operations and Risk standpoint.

Particular risk concentrations in the credit portfolio

A large focus of risk management in the segments DACH Corporates & Public Sector and International Business is centered on managing concentration risk. Concentration risk arises from both large exposures in individual customer segments or large industry/country/foreign currency exposures.

The framework for the management of concentration risk is based on the requirements imposed by the senior management of the Bank in line with the rules and recommendations of national and international regulators. Concentration risks are managed, limited and reported to the Managing Board as part of the overall monthly risk management reporting.

The principles and methodological framework for the measurement and monitoring of these credit risk concentrations are outlined in risk manuals and guidelines. Concentration risks at the level of individual transactions and products are managed in a sub-portfolio category. Country and sector limits are managed using a standard process in accordance with internal guidelines.

Concentration risk at the level of individual borrowers and groups of affiliated customers as well as for sectors, countries and currencies is quantified on the basis of allocated economic capital. Adapted risk-weighted assets form the methodological basis in accordance with IRB standards.

Treasury Services & Markets

Treasury Services & Markets acts as a service center for the Bank's customers, subsidiaries and partners through market execution as well as selective investment activities.

Corporate Center

Corporate Center includes unallocated items related to support functions for the entire Bank, accounting positions

Participation Risk

Participation risk includes potential losses in the fair value of equity investments, potential impairments and low profitability of equity investments. Impairment tests are conducted every year to validate the values of the equity investments in the Bank's portfolio. These impairment tests are predominantly completed on the basis of the planning projections (budgeted financial statements – i.e. cash flow,

P&L and balance sheet) prepared for future periods by the management of each entity. The results indicated in the projections are discounted using risk-adjusted rates. The proportionate value of the company based on the Bank's

Corresponding limits and warning thresholds are specified for countries, sectors, currencies and groups of customers and form an integral part of the management of overall risk in the Bank. All limits are monitored on an ongoing basis and in accordance with the estimated risk potential.

The portfolio consists primarily of investments in Europe and the United States.

(e.g. market values of derivatives) and select results related to subsidiary and participation holdings.

shareholding is then compared with the carrying amount of the investment.

In contrast to the procedure described above, more simplified techniques are adopted for micro-participations and those amounts covered either by pro rata equity, by pro rata capitalized average earnings before taxes of the last three years or by other value indicators – e.g. net asset values for real estate companies.

The overall results of the impairment tests are reviewed and confirmed by the Participation Risk team.

MARKET RISK

Market risk is defined as the risk of loss caused by open risk positions in the market and the adverse development of market risk factors (interest rates, foreign exchange rates, equity prices, volatilities, credit spreads). Market risk can arise in conjunction with trading and non-trading activities.

Particular emphasis is placed upon market risk identification, measurement, analysis and management performed by the Strategic Risk division for all market related risks in the Bank. The applied market risk limits consist of value-at-risk, sensitivity, volume and worst-case limits and are approved by the Bank's Managing Board.

Market risk in the trading book

The Bank's strategy to discontinue proprietary trading activities resulted in a further reduction in derivative volume in the trading book in 2016.

With respect to capital adequacy the internal model was discontinued subsequently to the ECB decision (1 September 2015) and the regulatory standard method was adopted. Regulatory capital requirements for specific risk in the trading book are still calculated using the regulatory standard method.

The Bank will continue to employ the Value-at-Risk approach for internal risk monitoring and steering. The VaR limits are further supplemented by sensitivity and worstcase limits.

The following table depicts the total trading Book VaR based on a confidence interval of 99% and a holding period of one day.

VaR trading book

in EUR thousand	31.12.2016	31.12.2015
Average VaR	(602)	(776)
Year-end VaR	(739)	(642)

Market risk in the banking book

The primary components of market risk for the BAWAG P.S.K. are interest rate risk, credit spread risk and liquidity risk.

Interest rate risk in the banking book

Interest rate risk in the banking book is the potential loss resulting from net asset value changes and the future development of net interest income due to adverse interest rate shifts.

The Strategic Asset Liability Committee (SALCO) has assigned interest rate risk limits to the Treasury Services and Markets division to manage the interest rate risk in terms of an optimal risk/return ratio at group level as determined by the Controlling/ALM division. The Strategic Risk division reports to the SALCO on a daily basis for some areas and monthly at the Bank level on limit utilization as well as on the distribution of risk.

The target interest rate risk structure mandated by the SALCO is created by the Controlling/ALM and Treasury Services and Markets divisions. Interest rate derivatives are used to this end to control the interest rate risk. The BAWAG P.S.K. uses interest rate derivatives to

implement the interest risk strategy within the requirements and limits defined by the SALCO,

• manage the sensitivity of the valuation result and the revaluation reserve,
• and to hedge the economic risk position considering the accounting treatment.

Interest rate risk is measured using sensitivities based on the present value of a basis point (PVBP) concept. The PVBP, which is derived from the duration of interestbearing financial instruments, reflects the impact on net asset value resulting from an upward parallel shift by one basis point.

The following table depicts the Bank's interest rate risk sensitivities as of 31 December 2016, on the basis of the PVBP concept:

Interest rate sensitivity

in EUR thousand	<1Y	1Y–3Y	3Y–5Y	5Y–7Y	7Y–10Y	>10Y	Total
EUR	(65)	(202)	(216)	(241)	(39)	188	(576)
USD	7	17	19	6	(8)	(1)	40
CHF	(12)	(13)	(10)	54	11	(38)	(7)
GBP	24	9	(1)	(7)	(5)	(9)	12
Other currencies	4	(21)	(3)	-	1	2	(17)
Total 31.12.2016	(42)	(210)	(211)	(188)	(40)	142	(548)
Total 31.12.2015	(226)	(57)	(333)	(150)	(135)	(39)	(941)

Furthermore, a value-at-risk calculation for the Bank is conducted within the framework of the Internal Capital

Adequacy Assessment Process (ICAAP) on a monthly basis.

FX risk in the banking book

The extent of open foreign exchange positions in the banking book is managed by conservative limits in order to ensure that only marginal FX risks are carried in the

banking book. Compliance with these limits is observed on a daily basis.

LIQUIDITY RISK

The Asset-Liability Management (ALM) department is responsible for central liquidity management of the Bank. The quantification of liquidity risk and the administration of the limit system is performed by the market risk department, part of the Strategic Risk division.

Liquidity management

The liquidity management is performed under a Group perspective.

For managing the short-term liquidity a 30-day liquidity forecast is prepared daily for ongoing liquidity position management by Treasury Services and Markets. This

grants a close tracking and the management of the shortterm liquidity position.

For a mid-term perspective, a liquidity forecast for the next 15 months is prepared every month and reported in the SALCO (Strategic Asset Liability Committee). It also takes

scenario calculations for planned measures and various assumptions about customer behavior into account. The regulatory and internal liquidity indicators are also projected. The FACE (Free Available Cash Equivalent), a benchmark for the short-term liquidity potential, represents the most important ratio for liquidity purposes.

Liquidity stress tests are used to determine the outflow of liquidity that may be incurred under different stress scenarios (systemic stress, idiosyncratic stress, combined stress) in order to calibrate the liquidity buffer.

Liquidity buffer

The Asset Liability Management takes care that the bank is holding a well-diversified portfolio of high-quality, liquid assets and that the liquidity buffer, whose volume is derived from stress testing, fulfills all regulatory requirements and is sufficient for future refinancing purposes. Additionally, Asset Liability Management centrally manages the liquidity buffer required for LCR (Liquidity Coverage Ratio) purposes Long-term liquidity management is conducted for the coming three years as part of the annual planning process. Strategic measures are also analyzed during the course of the year.

Major decisions regarding liquidity risk are done in the SALCO in which all board members are represented. The limits applied for liquidity steering are supervised by the division Strategic Risk.

in designated portfolios. The market liquidity of the liquidity buffer is tested regularly.

The table below shows the composition of the liquidity buffer on the basis of the market values of unencumbered assets after a component-specific haircut.

in EUR million	31.12.2016	31.12.2015
Money market shorther than 1 month	1,085	1,182
Central bank eligible securities	4,548	3,739
ECB pledged credit claims	1,623	1,344
Short term Liquidity Buffer	7,256	6,265
Other securities	915	689
Credit claims available for covered bonds	285	140
Medium-term liquidity buffer	1,200	829
Total	8,456	7,094

Structure of the liquidity buffer

Maturity analysis of contractual undiscounted cash flows of financial assets and liabilities

31.12.2016in EUR million	Gross nominalinflow/outflow	Less than 1month	1-3 months	3 months to1 year	1-5 years	More than 5years
Assets
Loans	31,422	2,565	839	2,493	11,229	14,296
Securities	6,635	233	232	497	3,136	2,537
Money market assets	1,085	1,085	0	0	0	0
Subtotal	39,142	3,883	1,071	2,990	14,365	16,833
Liabilities
Deposits from banks	(6,706)	(1,688)	(461)	(473)	(2,169)	(1,913)
Deposits from customers	(19,847)	(17,075)	(561)	(1,347)	(816)	(47)
Debt securities issued	(4,414)	(11)	(72)	(240)	(2,295)	(1,797)
Subtotal	(30,967)	(18,774)	(1,094)	(2,060)	(5,281)	(3,758)
Derivatives
Inflow	6,868	1,238	1,177	2,258	898	1,297
Outflow	(7,139)	(1,258)	(1,190)	(2,427)	(907)	(1,356)
Other off-balance-sheet financialobligations	(1,586)	(1,586)	0	0	0	0
Total	6,318	(16,497)	(35)	760	9,075	13,016

31.12.2015in EUR million	Gross nominalinflow/outflow	Less than 1month	1-3 months	3 months to1 year	1-5 years	More than 5years
Assets
Loans	31,077	1,796	685	2,288	10,475	15,833
Securities	6,438	108	244	778	3,322	1,985
Money market assets	1,182	1,182	0	0	0	0
Subtotal	38,697	3,086	929	3,067	13,798	17,818
Liabilities
Deposits from banks	(8,499)	(1,355)	(1,881)	(404)	(2,785)	(2,075)
Deposits from customers	(18,374)	(15,751)	(281)	(942)	(1,284)	(116)
Debt securities issued	(3,851)	(3)	(25)	(311)	(2,051)	(1,461)
Subtotal	(30,723)	(17,108)	(2,187)	(1,657)	(6,120)	(3,652)
Derivatives
Inflow	8,363	1,282	1,392	3,473	1,649	568
Outflow	(8,705)	(1,293)	(1,372)	(3,577)	(1,816)	(646)
Other off-balance-sheet financialobligations	(1,620)	(1,620)
Total	6,012	(15,654)	(1,238)	1,305	7,511	14,088

The table above shows the nominal (not discounted) cash flows including interest payments on financial assets and liabilities. They are assigned to time buckets on the basis of their contractual maturities. All daily callable loans and

deposits were placed into the shortest time bucket. In case of call or put options the end of the term equals the next day on which the option can be exercised.

OPERATIONAL RISK

The Bank continues to apply the Standardized Approach for the calculation of the regulatory own fund requirements according to regulation (EU) No 575/2013 Article 317 to assess operational risk. However, the realized OpRisk losses over the last few years were significantly lower than the regulatory own funds under the Standardized Approach.

For the purpose of internal economic capital steering (ICAAP), a statistical model is used to calculate the valueat-Risk based on operational risk losses.

The losses resulting from operational risk are collected in a centralized administrated web-based database within clear defined regulations and processes.

A new methodology – the Key Risk Indicators (KRI) – was implemented to identify resp. forecast negative trends or a changed risk profile in company work flows and divisions and subsidiaries in a timely manner. Each KRI is monitored via a traffic light system (green/yellow/red). For Key Risk

Indicators with a red status, the definition and implementation of appropriate counter-measures is mandatorily required.

In addition to recipient-oriented reporting, the risk organization applies a risk control self-assessment (RCSA) concept in managing operational risk. All business units assess their material operational risks and the effectiveness of their control measures on a yearly basis using this uniform framework. This includes the assessment of individual control measures, the estimation of probabilities and the extent of losses arising from individual risks. If the risk potential exceeds a defined limit, the implementation of appropriate measures is required.

A clear organizational structure and authorization levels form the basis of OpRisk governance. Additionally, a consistent guideline and a risk-adequate internal control system (including automated controls embedded in the IT infrastructure) are designed to allow the Bank to manage OpRisk.

INTERNAL CONTROL AND RISK MANAGEMENT SYSTEM

INTRODUCTION

The designation "internal control system" refers to all processes designed by management and executed within the Bank to facilitate the monitoring and control of

• the effectiveness and efficiency of its operating activities (including protecting assets against losses resulting from damages or misconduct);
• the reliability of the financial reports; and
• the Bank's compliance with material legal regulations to which it is subject.

The risk management system covers all processes that serve to identify, analyze and measure risks and that serve to determine and implement appropriate measures that will ensure that the Bank can still reach its objectives when risks are incurred.

According to the internationally recognized COSO framework for the design of risk management systems, the internal control system is one part of an organization-wide risk management system. Other aspects include the management and monitoring of risks that can affect the correctness and reliability of the accounting records.

The Bank's management is responsible for the fundamental design, implementation and ongoing adaptation and refinement of the internal control and risk management system as well as for the alignment of these systems and processes with the existing requirements in a way that takes account of the Bank's strategy, the scope of its business and other relevant economic and organizational aspects.

CHARACTERISTICS OF THE INTERNAL CONTROL AND RISK MANAGEMENT SYSTEM

Control Environment

The Code of Conduct that has been adopted by the Bank and the fundamental values described in it apply to every employee of the Group. The Code of Conduct creates a climate rooted in focus on the customer, achievement, mutual respect, teamwork and trust.

The Accounting division is responsible for maintaining the Bank's and its subsidiaries' accounting records. Newly acquired subsidiaries still operate their own accounting departments, which work in close cooperation with the Accounting division. Consolidation into the Accounting division is envisaged in 2017. The primary responsibilities of the Accounting division are preparing the annual and interim financial statements as well as the annual financial statements of certain subsidiaries, maintaining the financial and consolidated accounts, managing taxes and regulatory reporting.

The Accounting division is responsible for setting directives on all matters of accounting and exercises the authority to ensure the application of uniform standards across the entire Group. To support the operational implementation, corporate guidelines were drawn up. This policy applies to all consolidated subsidiaries. For all other holdings, the

adherence to these principles and standards is enforced and implemented as far as possible.

Risk Assessment and Control Measures

Our internal control and risk management systems contain instructions and processes for the accounting workflows

• to ensure the correct and appropriate documentation of business activities, including the use of Group assets;
• to record all information required for the preparation of the period-end financial statements; and
• to prevent unauthorized purchases or sales that could have a material effect on the financial statements.

The Accounting division is integrated into the Bank's entire organizational, structural and operational workflows. Customer and transaction data is generally collected in the market and operating units, and supplementary information is entered by the risk units. The elements of this information that are needed for the accounting records are usually transferred automatically into the Bank's electronic accounting systems. In this, the Accounting division fulfills a control and monitoring function to ensure that the automatically transmitted data is handled properly in accordance with the applicable accounting rules, and also

completes the various booking entries and other steps needed to prepare the financial statements.

The accounting of BAWAG P.S.K. and the significant domestic subsidiaries are contained in SAP New GL. The preparation of the consolidated financial statements under IFRS is done in SAP-ECCS, which receives the values of the individual financial statements of consolidated companies through interfaces. The accounting and all upstream systems are protected by access permission and automatic and obligatory manual control steps provided for in the process.

Information and Communication

A comprehensive report about the balance sheet, the profit or loss statement and other financial and risk data is submitted to the Supervisory Board at least every quarter. Highly detailed reports about this information are also

submitted to the Managing Board on a regular (monthly or more frequent) basis.

Monitoring

In order to limit or eliminate operational risks and control deficiencies, risk identification is performed annually through Risk Control Self Assessments (RCSA). If measures to minimize risk are agreed upon, they are tracked proactively by the Operational Risk and Internal Control System department with regard to implementation. Damage incidents are documented separately and are also used to identify necessary improvements in the systems and in the monitoring and control measures.

The Group's Internal Audit division conducts regular accounting system audits. The findings of these audits are also used to make ongoing improvements to the internal control and risk management systems as they pertain to the accounting process.

HUMAN RESOURCES DEVELOPMENT

TRAINING

In order to ensure that the right employees are working in the right positions while having a structured career path, the main training focus in 2016 was again set on career paths and human resource development. To this end, personnel development remained a key aspect and offers each employee the potential to advance in line with their individual focus, for example with the help of the "Retail Academy."

The "Retail Academy" consists of the "Retail Camp," which offers basic technical and sales training for new employees according to their sales functions, as well as advanced, role-specific training for more experienced employees. This training takes place primarily in the three training branches set up for this purpose (replicas of a real branch without customers) in Vienna, Graz and Salzburg. This enables the employees to practice their roles in a realistic setting. The training also includes various modern self-study programs. The success of this approach is evidenced by customer satisfaction surveys.

The Bank has also successfully trained apprentices for many years and has won numerous awards in the process, including for the best apprentice training program in Austria. The Bank takes its responsibility to offer young people worthwhile goals and prospects for the future very seriously. With its apprenticeship program, the Bank effectively meets this challenge and provides high-quality training aimed at enabling the apprentices to transition into a career at the Bank as qualified customer advisors at the end of their apprenticeship. The apprentices are part of a team working together to achieve the Bank's goals. The Bank also supports the "Lehre mit Matura" program, which many students have taken advantage of in recent years to earn a secondary school diploma while completing their apprenticeship.

The Bank is also committed to keeping its employees fit for the daily challenges they face at work. For this reason, all employees are able to choose from a variety of different courses and workshops from IT training to project management and from soft skills development to workshops about self, stress and time management.

LEADERSHIP DEVELOPMENT

Leadership is a constant development process. Accordingly, the leadership development program at BAWAG P.S.K. encompasses a wide range of offerings. The program focuses on a high level of practice-oriented learning, the targeted development of leadership skills, sharpening managers' self-reflection skills and employee guidance and development.

In retail sales, for example, the leadership development activities are based on a regular employee survey and a potential assessment that is supervised by external experts and aimed at identifying an individual's personal strengths and areas for development. On this basis, BAWAG P.S.K. offers a training program that addresses exactly the skills that are needed for leadership.

In 2016, the "LEAD neue Führungskräfte" leadership curriculum was once again held in the Bank's central units. The program provides support and guidance for new members of the management team during their first year in their new function. The 18th group started the program in late 2016.

Experienced leaders and management teams were again supported in 2016 through individual (management) coaching and targeted change management measures. The focus was on individual advice and optimal assistance for the managers (and their teams) from HR Development and selected consultants.

The "After Work Führungskräfte Forum" was continued in 2016. This initiative is a platform where the Bank's managers can learn about new developments in management and also exchange professional knowledge and experiences. The high interest in this event is a testament to its success.

TALENT DEVELOPMENT, SUCCESSION AND CAREER PLANNING

The talent identification and development process that was successfully started in 2014 to find and develop potential successors for key functions was continued in 2016 and completed in the third quarter with the "Talent Review." During this Managing Board meeting, all potential successors were discussed in a targeted manner and a coordinated plan of action was adopted for succession risks.

The sixth iteration of the "Start & Move" graduate program started in September 2016. This one-year program provides support for trainees who join the Bank. It offers a detailed overview of the organization and its processes and allows the new employees to build a solid network for the coming years.

In October 2016, the fifth run of the "forTalents" talent program for the Bank's central units started. As in the previous iterations of this program, participants are

supported in their development and groomed for new management and expert positions.

The "TOP-TEAM Vertrieb" talent program for recruiting branch managers for retail and corporate banking from the Bank's staff was conducted for the seventh time in 2016. The participants are all promising young employees with leadership potential who have been nominated as part of the succession planning process. They go through a challenging program of technical and personal development training to prepare them to manage a branch.

Since agreeing on a written women's promotion plan in 2012, Human Resources has worked consistently to achieve equality between women and men. A key aspect of this has been encouraging women to participate in personnel development programs. For example, seven of the 14 participants in the "forTalents" program in 2016 were women.

MBO PROCESS (MANAGEMENT BY OBJECTIVES)

For BAWAG P.S.K., the "Management by Objectives" (MbO) approach remains a key management tool for supporting the Bank's business strategy. With the start of the new cycle at year-end 2016, this process is again being supported by the "HR ONE" software, which serves as a performance management and learning platform. HR has combined the entire "MbO" process and the associated tracking tool, a virtual learning portal with competence

checks and e-learning programs, and the sales talent management process for retail sales (planned for 2017) on this platform. The range of self-study methods was also expanded with the addition of blended learning (where mixed classes with online units and physical attendance are offered and where a competence check must be completed to qualify for the seminar) and social learning, in which participants learn together and from one another.

CAREER AND FAMILY AUDIT

In 2013, BAWAG P.S.K. was audited and distinguished by the Ministry of Science, Research and Economy as a "family-friendly company." BAWAG P.S.K. is committed to enabling a good work-life balance. Following the expiration of the three-year basic certificate, BAWAG P.S.K. started the re-auditing process in summer 2016. This process was

successfully completed at year-end 2016. The seven new measures that were defined will be implemented by the end of 2019. In conjunction with the "berufundfamilie" career and family audit, BAWAG P.S.K. also joined the "Network of Family-Friendly Companies" in 2016.

CORPORATE SOCIAL RESPONSIBILITY

At BAWAG P.S.K., we strive to live up to our corporate social responsibility (CSR). It is important for companies to strike the right balance between economic, ecological and social objectives. With examples such as the "New Chance"

account, the continuation of the volunteer days and measures for promoting women, BAWAG P.S.K. again showed that sustainability is a cornerstone of the Bank's activities.

BAWAG P.S.K. IN THE COMMUNITY

Sponsoring is an essential part of BAWAG P.S.K.'s public relations efforts. These activities also allow the Bank to fulfill its social responsibility as a good corporate citizen. BAWAG P.S.K. is not only a "part of life," its initiatives also show that "it's possible" to combine the financial needs of our customers and a commitment to civic participation. The focus on the areas of culture, education, social services and crowdfunding (www.crowdfunding.at) sharpens the Bank's image and positively differentiates it from its competitors.

In 2016, BAWAG P.S.K.'s initiative "ES GEHT! / Crowdfunding" celebrated its second birthday. This initiative promotes and supports moral courage and shared commitment of people for a better Austrian society. BAWAG P.S.K. primarily supports projects recognizing social problems and having ideas to contribute to their solutions.

Additionally, every employee is eligible to spend up to two working days per year volunteering for charitable organizations and projects without having to use any of their entitlement to paid holiday leave. This actively promotes and rewards our employees' personal commitment and demonstrates its high value.

NEW CHANCE ACCOUNT

With the "New Chance" account, the Bank has been actively combating social exclusion since 2009. It is a current account without an overdraft facility, including online and mobile banking as well as a featured debit card

34,000 customers were already using this account.

that allows customers to use cash dispensers and point-ofsale terminals. As of December 2016, approximately

PROMOTING WOMEN

With the women's promotion program introduced in 2012 and as a signatory of the UN Global Compact Women's Empowerment Principles (WEP), BAWAG P.S.K. has taken another important step towards ensuring equality between women and men. The program focuses on fostering awareness of the importance of equality of opportunity – combined with clearly defined goals:

Financial equality between women and men for equal performance

• Increasing the number of women in leadership and expert positions
• Promoting a better balance between career and family for women and men, especially the provision of targeted information for employees before, during and after parental leave

BAWAG P.S.K. Women Mentoring Program

The BAWAG P.S.K. Women's Initiative together with Human Resources organizes a one-year women mentoring program for female employees, experts, and leaders of BAWAG P.S.K. Group interested in advancing their professional development and internal networks through a mentoring relationship. Over the past three years, 49 female mentees have benefited from this program. Based on the large success, BAWAG P.S.K. extended the mentoring program in 2016. 10 new female mentees were provided with top managers from the business world to serve as external mentors.

Fe-male Future Day

In 2016, the BAWAG P.S.K. Women's Initiative hosted the "Fe-male Future Day" for employees, executives and external guests for the third time, discussing the "Fe-male Future of Digital Banking."

BAWAG P.S.K. Women's Prize

The EUR 3,000 BAWAG P.S.K. Women's Prize is awarded annually in cooperation with a public or charitable organization to recognize outstanding achievements by women or special commitment to furthering women in society. With this award, BAWAG P.S.K. aims to motivate women and organizations to tackle challenging and innovative projects.

The prize is awarded to women who set an outstanding example for other women on the basis of their achievements and commitment, especially in the areas of:

• science, journalism and art,
• social commitment,
• intercultural understanding,
• promoting equality of opportunity between women and men, and
• creating awareness for the role of women in the professional world.

In 2016, the prize was awarded to Katharina Norden, founder and Managing Director of Three Coins to honor her special commitment to financial literacy. Three Coins is a team of pioneers developing new forms of teaching responsible money management..

RESEARCH AND DEVELOPMENT

BAWAG P.S.K. does not engage in any research and development activities pursuant to section 243 UGB.

OUTLOOK

BAWAG P.S.K. (group) had a very successful year in 2016. We delivered strong, record-breaking results and exceeded all our stated goals.

The European banking landscape is currently undergoing a significant transformation and faces severe headwinds in the form of stagnant growth, low interest rates, increased regulatory costs, structurally inefficient business models and new market entrants in the form of Fintechs. We are ready to play a larger role in addressing these challenges and capitalizing on these unique opportunities.

We are confident that we have positioned BAWAG P.S.K. to successfully tackle these challenges in order to continue to grow while maintaining a low risk profile based on our strong capital and funding base.

Our goals for 2017 are as follows:

• Consolidated profit before tax >EUR 500 million, return on equity (@12% CET1) >15% and return on tangible equity (@12% CET1) >16%
• Cost-income ratio (Group) <43%
• Fully loaded CET1 ratio (Group) >12%
• Fully loaded leverage ratio (Group) >5%

Vienna, 1 March 2017

Byron Haynes CEO and Chairman of the Managing Board

Corey Pinkston Member of the Managing Board

Anas Abuzaakouk Member of the Managing Board

Sat Shah Member of the Managing Board

Stefan Barth Member of the Managing Board

Financial Statements

STATEMENT OF FINANCIAL POSITION

Total assets

		in EUR	in EUR thousand
		31.12.2016		31.12.2015
1. Cash on hand, balances at centralbanks		597,713,421.49		690,885
2. Public sector debt instrumentsapproved by the central bank forrefinancing		1,042,129,783.88		912,618
3. Loans and advances to creditinstitutions		2,070,103,893.20		1,843,217
a) On demand	203,267,601.27		209,046
b) Other receivables	1,866,836,291.93		1,634,171
4. Loans and advances to customers		23,839,628,830.18		24,957,116
5. Bonds and other fixed-incomesecurities		4,446,680,917.02		4,031,782
a) From public-sector issuers	-		–
b) From other issuers	4,446,680,917.02		4,031,782
Thereof bonds issued by the Bank	559,073.97		1,433
6. Shares and other variable-ratesecurities		1,606,524,259.81		124,339
7. Equity interests		43,575,128.93		42,302
Thereof in credit institutions	19,851,086.10		19,851
8. Subsidiaries		428,909,378.49		303,082
Thereof in credit institutions	286,801,928.72		162,812
9. Intangible fixed assets		97,089,257.19		87,754
10. Tangible fixed assets		44,355,918.22		51,025
Thereof land and buildings used bythe enterprise for its own operations	3,442,938.70		3,633
11. Other assets		729,760,128.11		825,831
12. Prepaid expenses		44,657,139.37		40,759
Total assets		34,991,128,055.89		33,910,710
Off balance sheet items
1. Foreign assets		15,872,705,361.90		14,944,006

Total liabilities

	in EUR		in EUR thousand
		31.12.2016	31.12.2015
1. Amounts owed to credit institutions		6,241,901,299.61		7,931,630
a) On demand	882,082,101.21		866,079
b) With agreed maturities or noticeperiod	5,359,819,198.40		7,065,552
2. Amounts owed to customers		20,710,624,365.29		18,502,397
a) Savings deposits - thereof:		6,423,254,776.67		6,871,159
aa) On demand	2,589,530,775.84		2,432,339
bb) With agreed maturities ornotice period	3,833,724,000.83		4,438,820
b) Other liabilities to customers -thereof:		14,287,369,588.62		11,631,238
aa) On demand	12,011,463,823.63		10,575,842
bb) With agreed maturities ornotice period	2,275,905,764.99		1,055,396
3. Issued securities		3,476,815,775.02		2,639,542
a) Issued bonds	2,110,460,559.60		1,409,719
b) Other debts evidenced bycertificates	1,366,355,215.42		1,229,823
4. Other liabilities		980,194,002.10		1,233,869
5. Deferred income		62,989,986.15		55,909
6. Provisions		565,720,338.20		562,413
a) Provisions for severance payments	68,424,653.00		62,950
b) Provisions for post-employmentbenefits	203,563,635.00		204,462
c) Provisions for taxes	1,608,827.57		1,800
d) Other provisions	292,123,222.63		293,201
7. Supplementary capital according topart 2 title I chapter 4 of theregulation (EU) No. 575/2013		483,066,799.41		523,823
8. Subscribed capital		250,000,000.00		250,000
9. Capital reserves		619,748,514.10		626,273
a) Committed	301,069,989.55		301,070
b) Uncommitted	318,678,524.55		325,203
10. Revenue reserves		444,101,614.14		444,102
a) Statutory revenue reserves	425,101,614.14		425,102
b) Other revenue reserves	19,000,000.00		19,000
11. Reserve pursuant to section 57para. 5 BWG		613,754,463.10		613,754
12. Accumulated profit		542,210,898.77		526,997
13. Untaxed reserves		0.00		–
Valuation reserve for non-scheduledwrite-downs	0.00		–
Total liabilities		34,991,128,055.89		33,910,710

		in EUR	in EUR thousand
		31.12.2016	31.12.2015
Off balance sheet items
1. Contingent liabilities		170,941,799.82		333,249
Thereof liabilities arising fromguarantees and obligations fromproviding collateral	170,941,799.82		333,249
2. Commitments		3,550,779,124.04		4,475,134
Thereof liabilities from repurchaseagreements	–		–
3. Liabilities from trust transactions		95,979,622.44		119,221
4. Eligible own funds pursuant to part 2of regulation (EU) No. 575/2013		2,809,632,574.33		2,473,812
Thereof: own funds pursuant to part 2title I chapter 4 of regulation (EU) No.575/2013	458,854,257.58		455,928
5. Own funds requirements pursuant toarticle 92 of regulation (EU) No.575/2013		15,701,487,812.18		15,082,427
Thereof required own funds pursuantto article 92 (1) lit. a to c of regulation(EU) No. 575/2013 (CRR), includingtransitional rules
Common Equity Tier 1 capital ratio	15.0%		13.4%
Tier 1 capital ratio	15.0%		13.4%
Total capital ratio	17.9%		16.4%
6. Foreign liabilities		5,323,839,034.60		3,913,084

INCOME STATEMENT

	in EUR		in EUR thousand
		2016		2015
1. Interest and similar income		739,657,214.63		743,286
Thereof from fixed-income securities	73,866,840.50		97,450
2. Interest and similar expense		(123,193,580.95)		(136,037)
I. NET INTEREST INCOME		616,463,633.68		607,249
3. Income from securities and equityinterests		69,826,842.21		84,442
a) Income from shares, otherownership interests and variable-ratesecurities	8,837,977.00		6,509
b) Income from equity interests	3,588,865.21		4,380
c) Income from subsidiaries	57,400,000.00		73,553
4. Fee and commission income		256,223,345.46		274,147
5. Fee and commission expense		(88,713,474.23)		(98,864)
6. Net profit from trading activities		935,167.82		10,314
7. Other operating income		34,336,808.99		19,862
II. OPERATING INCOME		889,072,323.93		897,150
8. General administrative expenses		(467,976,993.65)		(470,637)
a) Staff costs	(262,205,696.51)		(270,663)
Thereof:
aa) Wages and salaries	(178,976,264.94)		(187,769)
bb) Expenses for statutory socialsecurity contributions andcompulsory contributions related towages and salaries	(45,951,279.30)		(47,663)
cc) Other employee benefits	(3,246,387.32)		(3,521)
dd) Expenses for retirementbenefits	(18,143,480.86)		(18,521)
ee) Allocation to pension provision	239,876.00		(2,703)
ff) Expenses for severancepayments and payments toemployee severance-paymentfunds	(16,128,160.09)		(10,487)
b) Other administrative expenses	(205,771,297.14)		(199,973)
9. Depreciation and amortisation of assetitems 9 and 10		(26,774,946.60)		(29,825,586)
10. Other operating expenses		(12,104,763.92)		(13,890,156)
III. OPERATING EXPENSES		(506,856,704.17)		(514,352,248)
IV. OPERATING RESULT		382,215,619.76		382,797,830

	in EUR	in EUR thousand
	2016	2015
IV. OPERATING RESULT	382,215,619.76	382,798
11./12. Net income/expenses from thedisposal and valuation of loans andadvances, securities as well ascontingent liabilities and commitments	(71,309,257.94)	(62,434)
13./14. Net income/expenses from thedisposal and valuation of securitiesvalued as financial fixed assets, and ofshares in subsidiaries and associates	28,304,750.23	59,635
V. RESULTS FROM ORDINARYBUSINESS ACTIVITIES	339,211,112.05	379,999
15. Extraordinary income	0.00	–
Thereof: relocation to the fund forgeneral banking risks	–	–
16. Extraordinary expenses	0.00	–
17. Extraordinary result (subtotal of items15 and 16)	0.00	–
18. Taxes on income	38,304,634.74	(1,802)
19. Other taxes not included under item18	(56,301,404.35)	(23,274)
VI. ANNUAL SURPLUS	321,214,342.44	354,923
20. Movements in reserves	0.00	(8,554)
Thereof: allocation to the liabilityreserve	–	–
Thereof: release from the liabilityreserve	–	–
VII. PROFIT FOR THE YEAR	321,214,342.44	346,369
21. Profit brought forward from previousyear	220,996,556.33	199,628
22. Advance payment pursuant tosection 54a AktG	0.00	(19,000)
VIII. ACCUMULATED PROFIT	542,210,898.77	526,997

BAWAG P.S.K. Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse Aktiengesellschaft

The Managing Board

Haynes m.p. Pinkston m.p. Abuzaakouk m.p. Shah m.p. Barth m.p.

NOTES

The annual financial statements were prepared in accordance with the provisions of the Uniform Commercial Code (UGB) and the relevant provisions of the Austrian Banking Act (BWG) and the Austrian Stock Corporation Act (AktG). The breakdown of the balance sheet and income statement corresponds to the forms specified in Annex 2 to section 43 BWG. All information about the BWG refer to the law as it was valid on 31 December 2016. The financial statement presentation did not change in comparison with the previous year. The numbers of the previous year are comparable.

SCOPE OF CONSOLIDATION AND CONSOLIDATED FINANCIAL STATEMENTS

The Company is a member of the consolidated group headed by Promontoria Sacher Holding N.V., which is domiciled in Baarn in the Netherlands. Promontoria Sacher Holding N.V. is the most senior parent company for which BAWAG P.S.K. as the primary credit institution according to the provisions of section 59 BWG prepares consolidated financial statements. The consolidated financial statements of Promontoria Sacher Holding N.V. are prepared in accordance with the International Financial Reporting Standards (IFRS) pursuant

to the provisions of section 59a BWG and are available at BAWAG P.S.K.'s headquarter in Vienna.

BAWAG P.S.K. prepares consolidated financial statements according to the International Financial Reporting Standards (IFRS) pursuant to the provisions of section 59a BWG. These annual financial statements are published on the Internet (www.bawagpsk.com/BAWAGPSK/IR/EN/Financial-Results) and are available at BAWAG P.S.K.'s headquarter in Vienna.

RECOGNITION AND MEASUREMENT PRINCIPLES

The annual financial statements were prepared according to generally accepted accounting principles and provide a true and fair view of the Company's financial and earnings position. The values of the assets and liabilities were measured individually under the assumption that the Bank is a going concern. The principle of prudence was applied, taking account of the specific characteristics of the banking business.

The accounting and valuation principles have been adapted in the financial statements 2016 due to the "Rechnungslegungsänderungsgesetz 2014" (RÄG 2014) coming into force as of 1 January 2016. Changes are illustrated in the following explanations.

Receivables from credit institutions and customers are

generally recognized using the nominal value of the receivable. In the case of identifiable risks, individual impairment provisions are made, which especially in retail banking are formed according to common criteria for each individual risk item.

Taking into account section 201 paragraph 7 UGB a portfolio based loan loss provision for losses incurred but not reported as of the reporting date ("IBNR") has been recognized for the first time in the financial year 2016. The portfolio loan loss provision is recognized for on- and offbalance-sheet receivables of the loan portfolio including securities. The amount of the IBNR is calculated on the basis of the regulatory Expected Loss Model.

Securities in the banking book held for purposes of ongoing business are classified as financial investments and recognized as such on the balance sheet. Premiums and discounts are amortized using the effective interest rate method pursuant to section 56 paragraph 2 or 3 BWG. Securities classified as financial investments are written down to their lower fair value because of the application of the diluted lower value principle only in case of a nontemporary decrease in fair value.

Securities and derivatives in the trading book are valued at their fair values, and securities and derivatives classified as other current assets at the lower of cost or market.

RÄG 2014 implemented a general obligation to reverse impairments in case of value increases. Beginning with the financial year 2016 a write-up is recognized up to the amortized cost valid at that time if the impairment recognized for securities classified as current or assets or financial investments decreases in subsequent periods.

Equity investments and subsidiaries are valued at cost. Corresponding impairments are recognized when a nontemporary decrease in value has been determined. If this impairment decreases in subsequent periods, a write-up is recognized up to the cost of acquisition.

To determine the value in use of the single entity, the present value of the projected after-tax profits was calculated by using the risk-weighted after-tax discount rate in the market applicable to the single entity in question. As a rule, the planning horizon used for valuation purposes is five years. The long-term growth rates used in the calculation are 1.0%, applying the going concern principle.

For leasing companies without new business the net asset value has been taken into account in calculating the value.

Intangible non-current assets and tangible non-current

assets are recognized at cost less scheduled straight-line amortization or depreciation. The depreciation rates for buildings range from 2% to 2.5%, those for other tangible non-current assets range from 5% to 33.3%; the amortization rates for intangible non-current assets range from 4,63% to 33.3%. When conditions change, the amortization or depreciation period is adjusted in accordance with the assessed remaining economic useful life. Acquisitions in the first half of the year are written down using the full annual rate, acquisitions made in the second half of the year are written down using half the annual rate. Low-value assets with an individual purchase cost of EUR 400 or less are written down in full in their year of acquisition. No reversal of impairment was made in 2016.

Due to changes of the Austrian Commercial Code (UGB) with RÄG 2014 deferred taxes have to be recognized as of 1 January 2016. Deferred taxes are computed using the liability method according to § 198 Abs 9 UGB. The computation is based on the local tax rates that are legally binding at the time the financial statements are prepared.

Deferred tax assets and liabilities result from different methods used to measure assets and obligations on the Statement of Financial Position under UGB and the respective tax code. This generally leads to positive or negative differences in the income tax to be paid for future periods (temporary differences).No deferred tax asset is recognized for the carryforward of unused tax losses. Deferred tax assets and liabilities are not discounted.

Liabilities are valued at their repayment amount in accordance with the principle of prudence. Premiums and discounts on securities issued by BAWAG P.S.K. are recognized pro rata temporis using the effective interest method.

Provisions for severance payments as of 31 December 2016 were calculated based on actuarial assumptions (discount rate 3.25%, salary increase 3.10%, individual fluctuation discount) using the projected unit credit method in accordance with expert opinion of AFRAC 27. The discount rate equals the 7 year average interest rate for a duration of 15 years.

In the prior year provisions for severance payments were calculated using discounted methods (interest rate 1.9%, entry age normal method, fluctuation discount 3%) in accordance with expert opinion KFS RL 2 of the Board of Experts in the Austrian Chamber of Public Accountants (Fachsenat für Handelsrecht und Revision) using the amendments adopted on 5 May 2004.

The change in the valuation method (when applying the same interest rate) resulted in an increase of the provision in the amount of EUR 5,230 thousand as of 1. January 2016. The effect of changing the valuation method has been fully recognized in the financial result 2016.

Provisions for post-employment benefits as of 31 December 2016 were calculated based on actuarial assumptions (discount rate 3.25%, salary increase 1.50%, individual fluctuation discount) using the projected unit credit method in accordance with expert opinion of AFRAC 27. The discount rate equals the 7 year average interest rate for a duration of 15 years.

Post-employment benefit rights and future rights of defined benefit obligations have partly been transferred to a pension fund. The allocated assets of the pension fund are set off against the determined amounts of provisions for post-employment benefits.

In the prior year provisions for post-employment benefits were calculated using actuarial assumptions (interest rate 1.9%, entry age normal method) in accordance with expert opinion KFS RL 3 of the Board of Experts in the Austrian Chamber of Public Accountants (Fachsenat für Handelsrecht und Revision) using the amendments adopted on 5 May 2004. In 2015 the changes in the provision were mainly due to voluntary early pension settlements and changing actuarial assumptions.

The change in the valuation method (when applying the same interest rate) resulted in a decrease of the provision in the amount of EUR 6,816 thousand as of 1. January 2016. The effect of changing the valuation method has been fully recognized in the financial result 2016.

Provisions for jubilee benefits as of 31 December 2016 were calculated based on actuarial assumptions (discount rate 3.25%, salary increase 2.80%, individual fluctuation discount) using the projected unit credit method in accordance with expert opinion of AFRAC 27. The discount rate equals the 7 year average interest rate for a duration of 15 years.

In the prior year provisions for jubilee benefits were calculated using discounted methods (interest rate 1.9%, entry age normal method, fluctuation discount 3%) in accordance with expert opinion KFS RL 2 of the Board of Experts in the Austrian Chamber of Public Accountants (Fachsenat für Handelsrecht und Revision) using the amendments adopted on 5 May 2004.

The change in the valuation method (when applying the same interest rate) resulted in a decrease of the provision in the amount of EUR 5,882 thousand as of 1. January 2016. The effect of changing the valuation method has been fully recognized in the financial result 2016.

The other provisions were formed in line with the expected obligations. They take into account all recognizable risks.

Receivables and liabilities denominated in foreign currencies are principally translated at the middle

exchange rate on the balance sheet date. Pending futures contracts are recognized at the future rate.

Derivatives in the banking book that are not part of an effective hedging relationship are recognized at the lower of cost or market. Negative fair values of strategic derivatives in the banking book are provided for by means of a provision for pending losses. Positive fair values of strategic derivatives in the banking book are not recognized. The majority of the Bank's derivatives in the banking book are part of effective hedging relationships in which case compensatory valuation of the hedged item and the hedging instrument takes place.

For further information about the derivatives held by BAWAG P.S.K., please see Information on Financial Derivatives and Hedging Transactions.

Recoverable trust assets are presented off balance sheet in accordance with section 48 (1) BWG.

The reporting currency is EUR. Unless indicated otherwise, all figures are shown rounded in thousands of Euros. The following tables may contain rounding differences.

Calculation of fair value of Financial Derivatives

Quoted prices are used for the valuation of exchangetraded instruments such as futures and options on futures.

The basic valuation model used for plain vanilla OTC options was the Black-Scholes option price model, which varies according to the underlying instruments and hedged items. Currency options were measured using the Garman-Kohlhagen model (adapted Black-Scholes model), and interest rate options using the Black or Hull-White model. For caps/floors and Swaptions in foreign currencies with negative interest the Bachelier model is used.

The total value of an interest rate swap is the sum of the present values of its fixed and variable-rate legs. Similarly, the total value of a cross currency swap is the sum of the present values of the two cash flows expressed in terms of the functional currency of the Bank.

In the case of foreign currency forwards and futures – i.e. agreements to exchange currency amounts at a future date – the agreed forward rate, which depends on movements in exchange and interest rates for both currencies, is

compared with the forward rate on the balance sheet date and the result used to calculate the instrument's value.

Credit default swaps (CDS) are calculated with the Duffie-Singleton model. Based on the credit spread curve the default probability curve (hazard rate) is calculated, which is used to generate the protection leg. Hence, the total value of a CDS is the sum of the protection and premium leg.

BAWAG P.S.K. determines a credit value adjustment (CVA) for the credit risk of OTC derivatives. If available, liquid credit default swap (CDS) spreads are generally used to determine the probability of default (PD) and the recovery rate (REC). If this is not possible, equivalent segments of the CDS market are used.

For the counterparties, a market value + add-on model is used to determine the EPE/ENE (Expected Positive/Negative Exposure). The add-on is calculated separately for each transaction type and currency and is generally derived from observable parameters on the market.

If a netting agreement is in force, netting effects at the customer level within transactions of the same kind and currency are also taken into account.

The CVA is determined from the discount rates, the counterparty PD and loss rate (1-REC) and the EPE.

If the risk discount cannot be derived from market transactions, it is estimated by the management. This applies especially to non-payment risks arising from legal uncertainty that cannot be derived from the customer's general credit spread. Provided that BAWAG P.S.K. believes that the transaction is legally enforceable, the Bank still reports an asset value from the positive fair value of the transaction with the counterparty even if objections have been lodged.

Calculation of fair values of securities

If market prices were available on a stock exchange or other functioning market, they were used.

If no current, liquid market values were available, generally accepted, standard state-of-the-art methods of measurement were used. This applies in individual cases,

for securities classified as current financial assets; for plain vanilla securities the valuation was performed on the basis of the yield curve plus the current credit spread.

The valuation of credit linked notes for which there is no active market is completed using valuation models. Credit linked notes (CLNs) are bonds whose repayment amount is dependent on contractually agreed events. These are generally bonds that bear the synthetic default risk of another reference bond (via a credit default swap) in addition to the default risk of the issuer. CLNs are valued on the basis of the bond and CDS spreads of the issuer and the reference bond, the coupon, and the remaining term to maturity.

Valuations by external experts are also used for the valuation of complex structures after being subjected to a plausibility check.

Latitude of Judgment and Uncertainty of Estimates

The measurement of financial instruments and the related estimates in respect of measurement parameters, in particular the future development of interest rates, have a material effect on financial results. The parameter values applied by the Bank are derived largely from market conditions prevailing as of the reporting date.

The determination of the market value for financial assets and liabilities that are not traded on an active market requires the use of valuation techniques. For financial instruments that trade infrequently, calculation of the fair value requires varying degrees of judgment depending on liquidity, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.

The following items are also subject to the judgment of management:

• assessments of the recoverability of long-term loans are based on assumptions regarding the borrower's future cash flows, and, hence, possible impairments of loans and the recognition of provisions for off-balance-sheet commitments in relation to the lending business
• recognition of provisions for uncertain liabilities.
• assessments of legal risks and outcome of legal proceedings

Latitude of Judgment and Uncertainty of Estimates – City of Linz

Estimation uncertainties also apply to the claims of BAWAG P.S.K. against the city of Linz. On 12 February 2007, the City of Linz and BAWAG P.S.K. concluded a derivative financial transaction. This transaction served the City of Linz to optimize a CHF loan in the same amount it had taken out with another bank.

The derivative resulted from an agreement with City of Linz, which entitled the City of Linz to receive a variable interest rate in Swiss francs (the six-month CHF Libor) and obligated the City of Linz to pay to BAWAG P.S.K. a fixed interest rate in Swiss francs in the amount of 0.065% plus a premium that depended on the exchange rate between the Euro and the Swiss franc. The premium was based on the difference between a reference rate of 1.54 Swiss francs/Euro and the prevailing exchange rate: premium = {(1.54 - ECB exchange rate)/ECB exchange rate} x 100 in per cent.

Because of the development of the Swiss franc exchange rate starting in autumn 2009, the City of Linz was obligated to make increased contractual payments to BAWAG P.S.K. On 13 October 2011, the Linz City council decided that it would make no more payments in connection with the derivative transaction. Consequently, BAWAG P.S.K. exercised its right to close out the derivative transaction.

The City of Linz filed a lawsuit against BAWAG P.S.K. at the Commercial Court of Vienna in November 2011 seeking payment of CHF 30.6 million (then equal to EUR 24.2 million at the exchange rate at that time). BAWAG P.S.K. filed a (counter)suit against the City of Linz for the fulfilment of its contractual entitlements from the same transaction in the amount of EUR 417.7 million. It is assumed that the legal proceedings will take further around 3 years.

The Bank has valued the derivative transaction until termination according to the general principles (see Information on Financial Derivatives and Hedging Transactions), and has adequately accounted for the risks associated with the claim arising from this derivative. In particular, management had to estimate the risks that are associated with the transaction, such as non-payment, legal, process and other operational risks and had to make judgments as part of the continuous valuation process; this resulted in the respective valuation adjustments.

After closing out of the position in the trading book, the receivable was transferred to the banking book in the year 2011. The claim is still valued at the carrying amount of the derivative upon termination of the agreement.

We base our assessment of the carrying amount of the claim on corresponding legal and other opinions, which support the amount of the claim.

The claim of BAWAG P.S.K. against the City of Linz in connection with the transaction discussed was reported under Receivables from customers on 31 December 2016, as in the previous financial year.

In light of the ongoing legal proceedings, no information will be provided on the current carrying value of the claim against the city of Linz or the employed valuation measures.

NOTES AND ADDITIONAL INFORMATION

Additional information on assets

• 3 | Loans and advances to credit institutions and
• 4 | Loans and advances to customers

Additional information on liabilities

• 1 | Amounts owed to credit institutions
• 2 | Amounts owed to customers

Breakdown of loans and advances to credit institutions and customers by maturity

in EUR thousand	31.12.2016	31.12.2015
Up to 3 months	1,670,751	3,086,039
More than 3 months to 1 year	2,869,945	895,853
More than 1 year to 5 years	8,983,558	8,814,551
More than 5 years	11,360,546	12,953,502
Total	24,884,799	25,749,945

Breakdown of amounts owed to credit institutions and customers by maturity

in EUR thousand	31.12.2016	31.12.2015
Up to 3 months	2,595,289	3,448,167
More than 3 months to 1 year	3,409,148	3,117,153
More than 1 year to 5 years	2,810,013	3,895,734
More than 5 years	2,654,998	2,098,714
Total	11,469,449	12,559,768

Receivables from and payables to subsidiaries and associates

in EUR thousand	31.12.2016	31.12.2015
Loans and advances to credit institutions
From subsidiaries	391,070	34,565
From associates	32,639	33,087
Loans and advances to customers
From subsidiaries	472,048	870,637
From associates	151,805	177,154

in EUR thousand	31.12.2016	31.12.2015
Amounts owed to credit institutions
To subsidiaries	3,867,644	3,730,766
To associates	404,978	503,042
Amounts owed to customers
To subsidiaries	57,131	98,650
To associates	44,367	78,870

The receivables from and payables to associates pertain to indirect equity investments entailing a stake of over 20% and all direct equity investments irrespective of the stake. Loans and advances to credit institutions are securitized in the amount of EUR 6,388 thousand (2015: EUR 15,483

thousand). Loans and advances to customers are completely not securitized. Amounts owed to credit institutions and to customers are also completely not securitized.

Disclosures Concerning Related Parties pursuant to Section 237 Item 8b UGB

Financing for subsidiaries is provided under the internal terms with the passing on of the refinancing costs. Financing agreements with associates are concluded at standard market terms as of the time of the transaction. Derivatives and other transactions are also concluded at standard market terms.

Subordinated Receivables

in EUR thousand	31.12.2016	31.12.2015
Subordinated receivables from credit institutions
From subsidiaries	13,086	13,099
From associates	–	–
Other subordinated receivables	7,500	7,500
Subordinated receivables from customers
From subsidiaries	36	36
From associates	–	–
Other subordinated receivables	–	45,630

The receivables include amounts collateralized by bills of exchange:

	in EUR thousand

in EUR thousand	31.12.2016	31.12.2015
Loans and advances to credit institutions	–	–
Loans and advances to customers	–	14,825

Additional information on assets

5 | Bonds and other fixed-income securities and

6 | Shares and other variable-rate securities

Breakdown of securities into non-current and current assets

in EUR thousand	31.12.2016	31.12.2015
Non-current assets
Bonds and other fixed-income securities	4,446,122	4,030,349
Shares and other variable-rate securities	1,587,899	109,753
Total of non-current assets	6,034,021	4,140,102
in EUR thousand	31.12.2016	31.12.2015
Current assets
Bonds and other fixed-income securities	559	1,433
Shares and other variable-rate securities	18,626	14,585
Total of current assets	19,185	16,018

The breakdown of securities into non-current and current assets is based on the Bank's intention and ability to hold the instruments indefinitely. In the current financial year there were no reallocations between these two categories.

Breakdown of securities admitted for trading into listed and unlisted securities

in EUR thousand	31.12.2016	31.12.2015
Admitted bonds and other fixed-income securities
Listed	4,446,681	4,026,114
Unlisted	–	5,668
Total	4,446,681	4,031,782
in EUR thousand	31.12.2016	31.12.2015
Admitted shares and other variable-rate securities
Listed	145,518	109,856
Unlisted	–	–
Total	145,518	109,856

Amounts expected to come due in the following year

in EUR thousand	Due in 2017	Due in 2016
Bonds and other fixed-income securities	625,497	725,278
Shares and other variable-rate securities	–	103
Total	625,497	725,381

Securities issued by Group companies and associates

in EUR thousand	31.12.2016	31.12.2015
Bonds and other fixed-income securities	–	–
Shares and other variable-rate securities	1,454,107	11,813
Total	1,454,107	11,813

Subordinated securities

in EUR thousand	31.12.2016	31.12.2015
Bonds and other fixed-income securities	29	10
Shares and other variable-rate securities	157,115	112,065
Total	157,144	112,075
thereof issued by subsidiaries and associates	6,501	2,199

Genuine repurchase agreements

The carrying amount of assets transferred under genuine repurchase agreements was as follows at the end of the reporting period:

in EUR thousand	31.12.2016	31.12.2015
Carrying amount of assets transferred under genuine repurchase agreements	336,582	649,855
Carrying amount of assets recognized under genuine repurchase agreements	–	–

The assets are still recognized as assets and amounts received are recognized as obligations.

Omitted reversal of impairments

Due to changes in the Austrian Commercial Code it is no longer possible to omit the reversal of impairments in the financial year 2016. Therefore, reversals of impairments

that were not made for tax reasons in the prior year in the amount of EUR 5,227 thousand have been recognized in the financial result 2016.

Securities classified as current and non-current financial investments that are traded on inactive markets

A market is assumed to be inactive when tradable prices for the relevant security are formed only infrequently, trading volume is small or current prices are not available. The difference between book value and market value on the inactive market amounts to EUR 8,343 thousand (2015: EUR 5,591 thousand) as of 31 December 2016, including only securities for which current market values have been available.

Information about differences in carrying and repayment amounts for bonds and other fixed-income securities

The difference between carrying amounts of bonds and	pursuant to section 56 paragraph 2 BWG. The differences
other fixed-income securities with the characteristics of	to be allocated over the remaining maturities were as
financial investments and the lower repayment amounts is	follows at the end of the reporting period:
written down according to the effective interest method

in EUR thousand	31.12.2016	31.12.2015
	65,475	73,853

The difference between carrying amounts of bonds and other fixed-income securities with the characteristics of financial investments and the higher repayment amounts is written up according to the effective interest method

pursuant to section 56 paragraph 3 BWG. The differences to be allocated over the remaining maturities were as follows at the end of the reporting period:

in EUR thousand	31.12.2016	31.12.2015
	9,157	3,915

Certain securities that do not have the characteristics of financial investments and that are admitted for trading on a recognized exchange were recognized at cost in spite of the fact that their fair value was higher pursuant to section 56 paragraph 4 BWG. The difference was:

in EUR thousand	31.12.2016	31.12.2015
	–	–

The difference between the acquisition cost and fair value of securities that do not have the characteristics of financial investments, that are admitted for trading on a recognized

exchange and that were recognized at their higher fair value pursuant to section 56 paragraph 5 BWG was as follows:

in EUR thousand	31.12.2016	31.12.2015
	–	–

Financial instruments classified as financial investments whose book value exceeds fair value (section 237a paragraph 1 item 2– section 237 item 8a UGB)

in EUR thousand	31.12.2016	31.12.2015
Carrying amount of these securities	515,183	970,437
Lower fair value of these securities	507,346	953,517
Interests in associates and subsidiaries	–	–

No impairments have been recognized on these securities because the repayment of the full nominal value is contractually agreed upon maturity and the full repayment of this nominal amount is assumed because of the issuer's good credit rating.

Additional information on assets

• 7 | Equity interests and
• 8 | Subsidiaries

in EUR thousand	31.12.2016	31.12.2015
Balance	472,485	345,384
thereof listed	–	–

BAWAG P.S.K. does not directly engage in any leasing transactions, but offers such transactions through direct and indirect subsidiaries.

A list of all companies in which BAWAG P.S.K. directly or indirectly holds 20% or more pursuant to section 238 item 2 UGB can be found in Annex 2. There is no existence of intercompany participations. Between subsidiaries no profit and loss agreements were signed.

Additional information on assets

9 | Intangible fixed assets

10 | Tangible fixed assets

The fixed assets movement schedule can be found in the annexes.

The balance sheet entry for land and buildings shows property with a carrying amount of:

in EUR thousand	31.12.2016	31.12.2015
Carrying amount of property	1,109	1,113

In the current financial year, intangible assets in the amount of EUR 4,404 thousand (2015: EUR 2,339 thousand) have been acquired from subsidiaries.

Obligations arising from the use of tangible non-current assets not recognized on the balance sheet were expected to come to:

in EUR thousand	31.12.2016	31.12.2015
For the coming year	23,040	22,898
For the coming 5 years	85,593	87,578

Additional information on assets 11 | Other assets

in EUR thousand	31.12.2016	31.12.2015
Positive fair values of interest rate derivatives in the trading book	250,974	290,890
Positive fair values of FX derivatives in the trading book	20,085	62,229
Positive fair values of credit-based derivatives in the trading book	–	–
Interest rate derivatives in the banking book	42,603	35,766
FX derivatives in the banking book	90,072	142,839
Credit-based derivatives in the banking book	–	–
Deferred interest from interest rate derivatives (banking book and trading book)	150,871	154,232
Deferred interest from FX derivatives (banking book and trading book)	132	122
Deferred interest from credit-based derivatives (banking book and trading book)	–	7
Settlement receivables from Group companies	100,968	105,155
Other receivables and assets	74,056	34,590
Total	729,760	825,831

Other Assets in amount of EUR 421,698 thousand have a maturity less than one year. The amounts (revenue) in the table above include EUR 289,219 thousand (2015: EUR 290,471 thousand) that will become payable after the reporting date and concern settlement receivables from group companies and derivative activities.

Settlement receivables from Group companies include amongst others receivables from in-phase dividends in the amount of EUR 57,400 thousand (2015: EUR 66,053 thousand).

Information on liabilities

3 | Issued securities

7 | Supplementary capital

Subordinated and supplementary capital liabilities are primarily issued in the form of securities. These securities are all bullet bonds. Supplementary and subordinated capital bonds are subscribed by private Austrian investors and sold to major domestic and international investors.

Debts evidenced by certificates and supplementary capital bonds totaling a nominal amount of EUR 282,507 thousand (2015: EUR 245,668 thousand) will come due

for redemption as contractually agreed during the coming financial year.

As of 31 December 2016, the average weighted nominal interest rate on supplementary and subordinated capital bonds was 6.8% (2015: 6.57%), and the average remaining term to maturity was 6.6 years (2015: 7.1 years).

The subordinated ranking is defined pursuant to section 45 paragraph 4 and section 51 paragraph 9 BWG.

Obligations evidenced by paper and subordinated obligations to Group companies and associates

in EUR thousand	31.12.2016	31.12.2015
Obligations evidenced by paper
To subsidiaries	351,000	1,000
To associates	–	–
Subordinated obligations
To subsidiaries	–	–
To associates	–	–

In the current financial year there were no borrowings according to section 64 (1) Z5 and Z 6 BWG.

Information on liabilities

4 | Other liabilities

in EUR thousand	31.12.2016	31.12.2015
Negative fair values of interest rate derivatives in the trading book	141,988	189,760
Negative fair values of FX derivatives in the trading book	45,838	151,986
Negative fair values of credit-based derivatives in the trading book	–	–
Interest rate derivatives in the banking book	23,231	29,629
FX derivatives in the banking book	355,345	488,997
Credit-based derivatives in the banking book	–	51
Deferred interest from interest rate derivatives (banking book and trading book)	60,454	70,039
Deferred interest from FX derivatives (banking book and trading book)	2,959	3,239
Deferred interest from credit-based derivatives (banking book and trading book)	–	–
Short sales of securities	48	–
Payable taxes and other mandatory contributions	51,581	15,114
Deferred interest on the supplementary capital bonds	–	–
Other liabilities	298,749	285,055
Total	980,194	1,233,869

Other liabilities with an amount of EUR 560,107 Thousand have a maturity less than one year and EUR 420,087 Thousand a maturity more than one year. Of the amounts (expenses) in the table above, EUR 413,475 thousand

(2015: EUR 371,746 thousand) will become payable after the reporting date and concern mainly derivative transactions and settlement liabilities from group companies.

Information on liabilities

6 | Provisions

The actuarial calculation of the provisions for postemployment benefits (discount rate 3.25%, PuC) on 31 December 2016 showed the following provision requirement:

in EUR thousand	31.12.2016	31.12.2015
Provision requirements for post-employment benefits	203,564	204,462

The income for provision requirements for post-

employment benefits amounts in the current financial year EUR 240 thousand (2015: expense EUR 2,703 thousand.

The actuarial calculation of the provisions for severance payments (discount rate 3.25%, PuC) on 31 December 2016 showed the following provision requirement:

in EUR thousand	31.12.2016	31.12.2015
Provision requirement for severance payments	68,425	62,950

The actuarial calculation of the provisions for jubilee benefits (discount rate 3.25%, PuC) on 31 December 2016 showed the following provision requirement:

in EUR thousand	31.12.2016	31.12.2015
Provision requirement for jubilee benefits	21,488	27,493

The income for provision requirement for jubilee benefits amounts in the current financial year EUR 6,159 thousand (2015: expense EUR 200 thousand).

Provisions have also been formed for operation risks, for credit risks including loans backed by a repayment vehicle, for legal risks and for human resources purposes.

The other provisions in the amount of EUR 270,635 thousand (2015: EUR 265,708 thousand) include the following, among other items:

in EUR thousand 31.12.2016 31.12.2015 Provision for off-balance-sheet transactions 4,871 18,873 Provisions for pre-retirement part-time work / restructuring 106,529 125,885 Other staff provisions 63,010 45,850

The other provisions include restructuring provisions that were allocated in the amount of EUR 27,568 thousand (2015: EUR 53,908 thousand) in the financial year 2016.

NOTES ON OWN FUNDS

Share Capital

BAWAG P.S.K. has share capital of EUR 250 million divided into 250,000,000 bearer shares.

Dividends

The Managing Board decided to propose to the general assembly that no dividend shall be paid for the financial year 2016.

Own Funds of BAWAG P.S.K. AG (individual financial institution)

The following table depicts the composition of BAWAG P.S.K.'s own funds applying transitional rules as well as the required own funds as of 31 December 2016 and as of 31 December 2015 according to CRR. All figures are based on

the accounting standards applicable for solo accounts defined by Austrian GAAP (UGB) and Austrian Banking Act (BWG).

Own Funds (individual financial institution)

in EUR thousand	31.12.2016	31.12.2015
Share capital	250,000	250,000
Reserves including profit for the fiscal year 2016	2,219,816	1,905,126
Deduction of intangible assets	(97,089)	(87,754)
Deduction participations	–	–
Shortfall IRB risk provisions	(21,948)	(49,488)
Common Equity Tier I (CRR) / Core Tier I (BWG)	2,350,779	2,017,884
Supplementary and subordinated debt capital	459,575	475,765
Deduction participations	(19,753)	(14,446)
Excess IRB risk provisions	24,519	15,818
Shortfall IRB risk provisions	(5,487)	(21,209)
Supplementary Capital – Total Tier II (CRR/BWG)	458,854	455,928
Own funds	2,809,633	2,473,812

Capital requirements (risk weighted assets) based on a transitional basis:

in EUR thousand	31.12.2016	31.12.2015
Credit risk	14,250,542	13,632,476
Market risk	58,921	97,363
Operational risk	1,392,025	1,352,588
Capital requirement (risk weighted assets)	15,701,488	15,082,427

Supplementary information on a fully loaded basis

	31.12.2016	31.12.2015
Common Equity Tier I capital ratio based on total risk	14.4%	12.5%
Total capital ratio based on total risk	17.3%	15.5%

Key figures according to CRR including its transitional rules

	31.12.2016	31.12.2015
Common Equity Tier I capital ratio based on total risk	15.0%	13.4%
Total capital ratio based on total risk	17.9%	16.4%

Securities Trading Book

BAWAG P.S.K. maintains a large securities trading book, which breaks down by volume as follows:

in EUR thousand	31.12.2016	31.12.2015
Derivative financial instruments in the trading book (nominal value)	7,359,301	11,547,907
Securities in the trading book (book value)	12	12
Money market transactions (book values, recognized under receivables from creditinstitutions and payables to credit institutions)	30,847	84,474

Consolidated own funds of BAWAG P.S.K. group

The following table shows the breakdown of the Group's own funds applying transitional rules and its own funds requirement pursuant to CRR applying IFRS figures and the CRR scope of consolidation (Promontoria Sacher N.V. Group). Since 2014, regulatory reporting has been done on the level of BAWAG Holding and Promontoria Sacher N.V. Group.

Consolidated own funds

	Promontoria
in EUR million	31.12.20163)	31.12.2015
Share capital and reserves (including funds for general banking risk)	3,121	2,837
Not yet distributed dividend for 20151)	(25)	(286)
Deduction of intangible assets	(190)	(116)
Other comprehensives income	(30)	(33)
IRB risk provision shortfalls	(19)	(20)
Prudent valuation, cumulative gains due to changes in own credit risk on fair valuedliabilities, prudential filter for unrealized gains, cash flow hedge reserve	(47)	(56)
Deferred tax assets that rely on future profitability excluding those arising fromtemporary differences2)	(100)	(13)
Excess of deduction from AT1 items over AT1 capital	(133)	(189)
Common Equity Tier I	2,577	2,124
IRB risk provision shortfalls	(6)	(15)
Deduction of intangible assets	(127)	(174)
Excess of deduction from AT1 items over AT1 capital	133	189
Additional Tier I	0	0
Tier I	2,577	2,124
Supplementary and subordinated debt capital	484	477
Excess IRB risk provisions	24	16
Less significant investments, IRB risk provision shortfalls	(26)	(36)
Tier II	482	457
Own funds	3,059	2,581

1. Dividends for 2015: In the third quarter 2016, BAWAG Holding paid a dividend of EUR 309 million to Promontoria Sacher Holding N.V., the sole shareholder of BAWAG Holding GmbH. Promontoria Sacher Holding N.V. paid a dividend of EUR 265 million to its shareholder. Another EUR 25 million have not yet been paid out but deducted from CET 1 as a foreseeable dividend.

2. For the changes in deferred tax assets that rely on future profitability excluding those arising from temporary differences, please see the description on page 29 of the Group Management Report..

3. Own funds as of 31 December 2016 differ from those as of 31 December 2015 inter alia because of different CRR transitional rules for 2016 and 2015 for the eligibility of capital (mainly available - for - sale reserve) and deductions from own funds (mainly intangible assets and IRB risk provision shortfall).

Capital requirements (risk weighted assets) based on a transitional basis

		Promontoria
in EUR million	31.12.2016	31.12.2015
Credit risk1)	15,423	14,751
Market risk	59	97
Operational risk	1,633	1,620
Capital requirements (risk-weighted assets)	17,115	16,468

1. Prior year´s figures were adjusted due to the reclassification of Holding customers.

Supplementary information on a fully loaded basis

	Promontoria		BAWAG Holding1)
	31.12.2016	31.12.20152)	31.12.2016	31.12.20152)
Common Equity Tier 1 capital ratio based on total risk	14.8%	12.2%	15.1%	12.9%
Total capital ratio based on total risk	17.6%	15.0%	18.0%	15.8%

1. Figures as shown in the Group Management Report.

2. Prior year´s figures were adjusted due to the reclassification of Holding customers.

Key figures according to CRR including its transitional rules

	Promontoria		BAWAG Holding
	31.12.2016	31.12.20151)	31.12.2016	31.12.20151)
Common Equity Tier 1 capital ratio based on total risk	15.1%	12.9%	15.4%	13.7%
Total capital ratio based on total risk	17.9%	15.7%	18.2%	16.4%

1. Prior year´s figures were adjusted due to the reclassification of Holding customers.

During the financial year 2016 BAWAG P.S.K. always

complied with the imposed capital requirement of 4.5% for Common Equity Tier I ratio and of 8% for Total capital ratio according to Article 1 of the Austrian CRR Supplementary Regulation.

BAWAG P.S.K. has managed its capital structure on a fully loaded basis from the very beginning, not taking into account any transitional rules. Our target CET1 ratio in 2016 was 12% on a fully loaded basis. We delivered a much stronger ratio, coming in at 14.8%. Going forward, we will continue to maintain a fully-loaded CET1 ratio above 12%.

TAXES

Due to RÄG 2014 deferred tax assets based on the temporary concept have been capitalized in the financial year 2016 for the first time.

Deferred tax assets and liabilities are formed for all temporary differences between the carrying amounts pursuant to UGB and the valuations according to the tax requirements. The asset-side overhang of deferred taxes in the amount of EUR 34,582 thousand (2015: EUR 0 thousand) is shown in the position "Other assets".

For tax claims in the future no deferred income tax assets on tax loss carry forwards were formed. Deferred tax liabilities from former refoundings in the amount of EUR 6,525 thousand (2015: EUR 0 thousand) were not recognized in the profit and loss statement, but they were offset against reserves. BAWAG P.S.K. does not intend to utilize the option according to section 906 (33) and (34) UGB.

Deferred taxes have been recognized using the enacted tax rate of 25%.

On 1 January 2010, a new tax group was formed pursuant to section 9 KStG; this group is headed by BAWAG Holding GmbH and includes BAWAG P.S.K. AG, among other entities. A tax allocation agreement was concluded. The allocation method was chosen for determining the tax allocations. This method is based on the tax result of the group as a whole. The tax payable is allocated to each group member with a positive tax result on the basis of its proportionate share of the group's tax result. In this, an internal loss carryforward is taken into account for tax losses allocated to the group parent. If the master of the tax group is required to pay a minimum corporate income tax amount, it is entitled to allocate this minimum corporate

income tax to each of the group members in accordance with the portion of this tax incurred by each entity.

A final settlement for uncredited tax losses must be effected upon dissolution of the tax group or when a member entity leaves the group. As of 31 December 2016, the exit of BAWAG P.S.K. from the tax group would not result in a corporate income tax payment for the years 2010 to 2016 because the minimum period of three years as required by section 9 paragraph 10 KStG has already been fulfilled.

In 2014 a settlement agreement to the group and tax compensation agreement was concluded between the group parent and each tax group member. This agreement stipulates that an interim settlement of the tax equalization is to be made for the financial years 2010 to 2014, whereby all tax contributions of these financial years are regarded as offset.

The tax income for BAWAG P.S.K. amounted to EUR 38.305 thousand (2015: tax expense EUR 1,802 thousand) and concerns with an amount of EUR 2.802 thousand the tax expenses for the branch in London (2015: EUR 1.802 thousand) and in the amount of EUR 41.106 thousand (2015: EUR 0 thousand) the tax income for deferred taxes concerning the financial year 2016. The tax income completely relates to the results from ordinary business activities. In the reporting period there is no tax expense from the tax group compensation payments.

The item Other taxes includes the bank stability levy in the amount of EUR 21,624 thousand (2015: EUR 22,656 thousand) and a single special payment to the bank stability levy in amount of EUR 36,439 thousand (2015: EUR 0 thousand).

Deferred taxes

The deferred taxes can be broken down in the current financial year as follows (see table below):

in EUR thousand	31.12.2016	31.12.2015
Reductions in tax
due to provisions	61,305	43,864
due to social capital	100,557	96,423
due to other tax effects	2,904	3,242
Increases in taxes
due to valuation of real estate	(2,551)	(2,613)
due to valuation of equity investments	(23,888)	(23,888)
Total	138,327	117,028
Assets deferred tax	34,582	0

FURTHER INFORMATION ON STATEMENT OF FINANCIAL POSITION

Assets pledged as collateral

Assets pledged as collateral pursuant to section 64 paragraph 1 item 8 BWG break down as follows:

in EUR thousand	31.12.2016	31.12.2015
Cover pool for covered bonds	3,076,913	2,186,090
Collateral for the ECB tender	871,377	2,318,895
Cover pool for trust savings deposits	21,393	23,052
Receivables and securities assigned to Oesterreichische Kontrollbank AG	370,540	472,392
Collateral pledged in favor of the European Investment Bank	374,545	512,266
Collateral for the RMBS Feldspar	877,575	–
Other collateral	19,825	15,885
Total	5,612,168	5,528,580

Collateralized debt

These assets are linked to the following obligations, which are reported in the balance sheet items for debts evidenced by certificates, savings deposits and amounts owed to credit institutions and customers.

in EUR thousand	31.12.2016	31.12.2015
Covered bonds	2,077,812	1,226,474
ECB tender	700,000	1,896,981
Trust savings deposits	19,574	19,326
Oesterreichische Kontrollbank AG refinancing	370,540	472,392
RMBS Feldspar	782,546	–
European Investment Bank refinancing	370,160	388,759
Total	4,320,631	4,003,932

Statement of financial position items in foreign currencies

The assets and liabilities that are denominated in foreign currencies were as follows:

in EUR thousand	31.12.2016	31.12.2015
Assets in foreign currencies	8,127,238	8,568,117
Liabilities in foreign currencies	1,791,516	959,345

Trust transactions not eligible for segregation

in EUR thousand	31.12.2016	31.12.2015
Loans and advances to credit institutions	–	826
Loans and advances to customers	–	1,573
Amounts owed to customers	–	2,399

Collateral received

Different types of collateral have been pledged to the Bank as part of its business transactions. The following breakdown is based on the eligibility criteria for collateral under Basel II.

31.12.2016	Collateralized on	Collateralized off	Total
in EUR thousand	balance-sheet claims	balance-sheet claims
Financial collateral
Stocks	15,262	55	15,317
Cash deposits	40,155	758,579	798,734
Gold	65	–	65
Investment funds	–	–	–
Bonds	11,378	679	12,057
Real estate collateral
Commercial properties	424,413	16,069	440,483
Private properties	7,980,946	61,233	8,042,179
Personal collateral
Guarantees	2,112,682	16,967	2,129,649
Credit derivatives	–	–	–
Other forms of collateral
Life insurance policies	197,095	1,063	198,158
Others	4,195	851	5,046
Total	10,786,191	855,496	11,641,687

31.12.2015in EUR thousand	Collateralized onbalance-sheet claims	Collateralized offbalance-sheet claims	Total
Financial collateral
Stocks	20,223	644	20,868
Cash deposits	55,511	1,097,843	1,153,354
Gold	–	–	–
Investment funds	–	–	–
Bonds	13,299	1,230	14,529
Real estate collateral
Commercial properties	539,980	7,633	547,613
Private properties	7,639,533	56,959	7,696,491
Personal collateral
Guarantees	1,731,089	27,129	1,758,218
Credit derivatives	–	–	–
Other forms of collateral
Life insurance policies	218,756	4,165	222,920
Others	2,732	516	3,248
Total	10,221,123	1,196,118	11,417,241

Collateral received and pledged in connection with derivative transactions

Derivative transactions are secured by collateral deals (received or paid):

in EUR thousand	31.12.2016	31.12.2015
Collateral received	470,293	486,012
Collateral pledged	163,004	314,017
Net negative market values of collateralized derivatives	(116,254)	(312,479)

Margins are paid. There is no existence of pledging financial instruments for collateral issues.

Contingent liabilities and credit risks

The contingent liabilities, which consist primarily of liabilities from guarantees and of collateral pledged, contain guarantees and letters of comfort for associated companies in the amount of EUR 72 thousand (2015: EUR 75 thousand).

Aside from unsecured guarantees and credit risks with a nominal value of EUR 2,815 thousand (prior year EUR 3,475 thousand), for which a provision of EUR 535 thousand (prior year: EUR 2,153 thousand) has been formed, the commitments include no significant individual obligations that are relevant to the overall operations of the Bank. The commitments consist primarily of unutilized lines of credit. Important off balance sheet transactions according to section 238 UGB did not occur.

Pending futures contracts

The volume of pending futures contracts as of 31 December 2016 is shown in Annex 3.

Events after the reporting date

In course of the integration of IMMO-BANK AG into BAWAG P.S.K. Group, the banking business of IMMO-BANK to BAWAG P.S.K. shall be demerged to BAWAG P.S.K. As a

consequence of the demerger, the assets and legal relations of IMMO-BANK pertaining to the banking business, subject to certain exceptions, will pass to BAWAG P.S.K. The demerger of the banking business of IMMO-BANK to BAWAG P.S.K. serves in particular the purpose of simplifying the organisational structure of BAWAG P.S.K. Group.

With demerger and transfer agreement dated 26 January 2017 the respective companies have agreed that the transferring entity IMMO-BANK AG transfers its banking business by way of a demerger to an existing entity, pursuant to sections 1 subsection 2 no. 2, 17 of the Austrian Demerger Act (SpaltG) and applying article VI of the Austrian Reorganisation Tax Act (UmgrStG), as of the effective demerger date 30 June 2016, to the transferee BAWAG P.S.K. On 20 February 2017 the shareholders of IMMO-BANK and BAWAG P.S.K. have approved the demerger and transfer Agreement and resolved to effect the demerger.

In course of the demerger BAWAG P.S.K. takes over a significant part of the banking business of IMMO-BANK. The assets and liabilities remaining with IMMO-BANK consist of the obligations of IMMO-BANK arising from the residential construction bonds issued by the entity and of a receivable against the transferee BAWAG P.S.K. by reason of a dedicated deposit (Widmungseinlage) effected by IMMO-BANK with BAWAG P.S.K.

Branches

in EUR thousand	31.12.2016	31.12.2015
Name of branch	BAWAG P.S.K.International	BAWAG P.S.K.International
Business segment	InternationalBusiness	InternationalBusiness
Country of residence	Great Britain	Great Britain
Net interest income in thousand EUR	0	0
Operating income in thousand EUR1)	11,559	17,844
Profit before tax in thousand EUR1)	(3,487)	8,827
Income tax accrued in thousand EUR	2,860	1,800
Number of full-time employees	14	12
Government aid received	none	none

1. Income is based on internal funds transfer pricing.

NOTES TO THE PROFIT OR LOSS STATEMENT

Net interest income increased by EUR 9,215, whereas income from equity investments decreased by EUR 14,615 thousand. This reduction in income from equity investments resulted primarily from lower in-phase dividends from subsidiaries.

Gross income of BAWAG P.S.K. relates to the following geographical regions whereby the split is based on the domicile of the customer. Income from derivative and trading transactions is presented as domestic due to the fact that trading is centralized in Vienna and no material country risks arise as most transactions are collateralized.

2016in Tsd. EUR	Domestic	WesternEurope	Central andEasternEurope	North America Rest of the	world	Total
1. Interest and similar income	307,322	290,182	8,680	93,836	39,638	739,657
3. Income from securities andequity interests	61,277	8,550	0	0	0	69,827
4. Fee and commission income	252,136	2,341	616	639	490	256,223
6. Net profit from trading activities	935	0	0	0	0	935
7. Other operating income	28,083	6,254	0	0	0	34,337

2015in Tsd. EUR	Domestic	WesternEurope	Central andEasternEurope	North America Rest of the	world	Total
1. Interest and similar income	322,211	312,598	11,489	86,343	10,645	743,286
3. Income from securities andequity interests	74,500	9,942	0	0	0	84,442
4. Fee and commission income	270,973	1,447	643	313	771	274,147
6. Net profit from trading activities	10,314	0	0	0	0	10,314
7. Other operating income	19,862	0	0	0	0	19,862

Expenditures on subordinated liabilities (the item Interest and similar expenses) came to EUR 33,197 thousand (2015: EUR 48,324 thousand). In the net interest income negative interest with an amount of EUR 2,843 thousand (2015: EUR 279 thousand) income and EUR 1,444 thousand (2015: EUR 50 thousand) expenses are included.

The net income from equity interests in the amount of EUR 60,989 thousand (2015: EUR 77,933 thousand) includes

income from Group companies in the amount of EUR 57,400 thousand (2015: EUR 73,553 thousand), of which EUR 57,400 thousand were assumed in-phase in the financial year (2015: EUR 66,053 thousand).

The other operating income in the amount of EUR 34,337 thousand (2015: EUR 19,862 thousand) includes, among others, the following items:

in EUR thousand	2016	2015
Income from release of other provisions	13,552	11,256
Income from dormant accounts	6,085	4,346
Income from the sale of tangible non-current assets	175	3,052
Income from other compensation	14,525	1,207

The operating expenses decreased substantially by EUR 7,495 thousand compared with the previous year. Staff costs decreased by EUR 8,457 thousand to EUR 262,206 thousand and include an allocation to restructuring provisions in the amount of EUR 27,568 thousand.

Operating expenses include payments for deposit guarantee insurance and resolution fund in the amount of EUR 20,686 thousand.

Expenses for rendered and expected services in connection with the lawsuit with the City of Linz were recognized on the income statement. Due to the pending lawsuits, we are not disclosing any specific amounts at this time.

Pursuant to section 237 item 14 UGB, expenses for the financial auditor in the period are presented in the consolidated financial statements.

Other operating expenses came to EUR 12,105 thousand (2015: EUR 13,890 thousand) and include EUR 2,464 thousand (2015: EUR 6,124 thousand) due to losses from the sale of non-current assets as well as allocations to a provision for pending losses relating to derivatives in the amount of EUR 6,832 thousand (2015: EUR 1,934 thousand).

The net expenses from the disposal and valuation of receivables, from securities held as current assets, and from contingent liabilities and commitments for the financial year come to minus EUR 71,309 thousand (2015: minus EUR 62,434 thousand) driven primarily by the first

time recognition of the portfolio loan loss provision (IBNR) in the amount of EUR 34,038 thousand.

As in the previous year, this item does not include any expenses from the transaction with the City of Linz. For further information about our claim against the City of Linz, please see Information on Latitude of Judgment and Uncertainty of Estimates.

Item 13/14 includes gains from the sale of securities classified as non-current assets in the amount of EUR 20,217 thousand (2015: EUR 46,251 thousand). The result from equity interests and subsidiaries in the amount of EUR 8,088 thousand (2015: EUR 13,384 thousand) includes from results from valuation and sales of subsidiaries.

Return on Assets according to § 64 Abs 1 Z 19 BWG

Net profit after tax expressed in proportion to total assets as of the reporting date amounted to 0,92% (2015: 1.05%).

STAFF, BOARDS AND OFFICERS

Our average headcount (including active personnel, staff on maternity leave and with pre-retirement arrangements) during the 2016 financial year was 2,819 (2015: 3,091 employees), all of whom were salaried employees or federal employees. This headcount includes 79 employees who were employed by BAWAG P.S.K. but were seconded to subsidiaries (2015: 100). The number of active full time equivalents as of 31 December 2016 came to 1,876 (2015: 2,119).

The expenses for severance pay and staff benefit fund contributions in financial year 2016 include severance payments in the amount of EUR 9.182 thousand (2015: EUR 8,317 thousand).

Expenses for remuneration (including accrued and deferred bonuses and payments to pension fund) relating to active members of the Managing Board during the financial year for 2016 came to EUR 25,595 thousand (2015: EUR 16,319 thousand). Thereof EUR 4,500 thousand have been reimbursed by the indirect shareholder Promontoria Sacher Holding N.V. (2015: EUR 4,000 thousand).

Pension benefits totaling EUR 1,513 thousand (2015: EUR 1,524 thousand) were paid to former Managing Board members and their surviving dependents. Changes in pension provisions amounted to an allocation of EUR 1,147 thousand in the period (2015: release of EUR 2,290 thousand).

The members of the Managing Board received no remuneration for their work for subsidiaries.

Remuneration of members of the Supervisory Board came to EUR 397 thousand (2015: EUR 380 thousand).

Expenditures for severance pay and post-employment benefits (excluding payments to pension funds for active members of the Managing Board) for the Managing Board and key management personnel (including former members) came to EUR 12,129 thousand (2015: EUR 6,290 thousand). Expenditures with respect to other employees came to EUR 22,579 thousand (2015: EUR 24,443 thousand).

Contributions to pension funds have been made for all management board members based on contractual agreements.

As of the reporting date, there were three outstanding loans amounting to EUR 572 thousand for one member of the Managing Board (2015: EUR 555 thousand). In addition there exists an undrawn credit line in the amount of EUR 732 thousand. Loans respective lease financings to members of the Supervisory Board totaled EUR 12 thousand (2015: EUR 130 thousand). Repayments of loans granted to Managing Board members took place as contractually agreed.

Furthermore, one of the Managing Board members made use of current account limits in the amount of EUR 0 (2015: EUR 32 thousand) as of the reporting date. In total, the current account limits made use of by members of the Supervisory Board amount to EUR 0 (2015: EUR 10 thousand). Outstanding balances on credit cards guaranteed to third parties by the Bank that are held by Managing Board members amounted to EUR 21 thousand in December 2016 (2015: EUR 23 thousand). Outstanding balances on guaranteed credit cards held by members of the Supervisory Board amounted to EUR 0 thousand in December 2016 (2015: EUR 0 thousand).

A list of the boards and officers of BAWAG P.S.K. can be found in Annex 4 to the notes.

INFORMATION ON FINANCIAL DERIVATIVES AND HEDGING TRANSACTIONS

Hedging Transactions

Parts of the securities held as assets (issued by sovereigns, financials and international corporates), loans, savings accounts and issued securities are hedged against interest rate and currency risk using derivatives. The underlying transactions always involve a fixed interest rate agreement. Derivatives in the banking book are also hedged with counter derivatives.

Interest rate swaps and cross currency swaps are the primary hedging instruments. Interest rate options (caps and floors) are also used in a limited number of cases. The interest-rate-based value fluctuations from the underlying transactions are offset by the interest-rate-based value fluctuations from the derivatives. Hedges are set up for individual transactions and at the portfolio level. The retrospective effectiveness is measured using the dollar offset method. The hedging period generally runs from the inception of the hedging relationship to the maturity of the respective underlying transaction or portfolio.

The fair values of the employed derivatives amounted to EUR 290,034 thousand (2015: EUR 277,528 thousand) as of the reporting date. Of this, the Bank recognized market values of EUR 357,123 thousand (2015: EUR 358,832 thousand) for hedging instruments for the above underlying transactions on the liability side. The market values of the derivatives for the above underlying transactions on the asset side came to EUR (67,088) thousand (2015: EUR (81,304) thousand).

BAWAG P.S.K. also uses interest rate derivatives to set up a macro hedge for the interest rate risks of the banking book as a whole. This covers interest-bearing transactions that are not covered by a micro or portfolio hedge. If these interest management derivatives have a negative fair value, they are compared with the interest-rate-related value increases in the underlying transactions. If this comparison yields a negative net result, a provision is formed for imminent losses from pending contracts; positive fair values are not taken into account.

In the current financial year there was no premature termination of effective hedging transactions through cash settlements or realization of the derivative.

Macro hedge information

BAWAG P.S.K. accounts for a macro hedge as defined by the FMA circular "derivatives used for interest rate risk management", which came into force on 31 December 2013.

The following table shows the total of the negative and positive fair values of the derivatives used for interest rate hedging purposes per functional unit in thousands of Euros.

Currency	Pos. FV	Neg. FV	2016	2015	Change
EUR1)	533,677	(530,970)	2,707	14,020	(11,313)
CHF	174	(135,358)	(135,185)	(230,709)	95,524
USD	8,141	(161,616)	(153,476)	(158,204)	4,728
GBP	70,423	(5,935)	64,488	(27,453)	91,941
Total	612,414	(833,880)	(221,465)	(402,345)	180,880

1. Other foreign currencies will be presented due to immateriality not separately but under EUR.

The valuation result (including foreign currency exchange rate differences) from derivatives used for hedging interest rate risk amounts to EUR 180,880 thousand (2015: EUR 206,047 thousand). This is offset by balancing payments for derivatives in the amount of minus EUR 88,424 thousand (2015: minus EUR 97,448 thousand) which predominantly relate to foreign exchange differences.

The total fair value of derivatives used for hedging interest rate risk decreased significantly due to foreign currency derivatives concerning the currencies CHF and USD. Taking into account the counter balancing effect of the fair value movement of the hedged items the total valuation result increased by EUR 443 thousand (2015: minus EUR 8,971 thousand). As of 31 December 2016 BAWAG P.S.K. recognized a provision for pending losses relating to the

macro hedge in the amount of EUR 902 thousand (2015: EUR 1.345 thousand).

The interest rate risk position is influenced predominately by our Euro portfolio.

BAWAG P.S.K. has entered into several bi- and trilateral portfolio compression agreements to optimize its derivatives portfolio. In total, these transactions resulted in net negative market values in the currencies EUR und CHF.

To manage the interest rate and valuation result, corresponding hedges have been terminated early when securities have been sold or loans have been repaid early by customers.

For the portfolios assigned to the macro hedge, BAWAG P.S.K. pursues the goal of closing fixed-interest gaps and completely neutralizing interest-rate-based fair value changes resulting from underlying and hedging

transactions (interest rate derivatives). This is intended to create parity between an economic risk position and its recognition for accounting purposes.

BAWAG P.S.K. uses the following instruments as hedges:

• Interest Rate Swaps (Plain Vanilla)
• Callable/Puttable Interest Rate Swaps
• FX swaps
• Money market futures
• Forward Rate Agreements
• Constant Maturity Swaps
• Cross Currency Swaps
• Capital market futures
• Caps/Floors/Collars

On 31 December 2016, the designated volume of interest rate hedges came to EUR 23,799 million (2015: EUR 22,486 million).

in EUR million	2016	2015	Change
Nominal value of the designated derivatives in the macro hedge	23,799	22,486	1,312

All interest-bearing transactions that are not already part of a (micro) hedge relationship or managed as a strategic interest rate risk position of the Asset Liability Committee form the underlying transactions for the macro hedge. The macro hedge does not cover non-interest-bearing transactions or the associated hedges.

Interest risk management and hedge adjustment are completed on a continuous basis by means of individual

Breakdown of derivative instruments in the trading and banking books

Only one side of interest rate swaps and basic swaps is recognized in the reported volumes. For futures and options on interest-based index contracts, the nominal values of all bought and sold instruments are taken into account in the calculation. Only one side of currency and interest rate swaps with multiple currencies (CRS) is included in the total nominal value. For currency forwards and futures, the nominal value of the purchase and sale contracts is included in the total for derivative instruments. The same applies to foreign exchange options. For CDS,

offsetting and in any case every month on the basis of the interest rate risk reports to ensure the current and future effectiveness of the interest rate hedges.

Open and strategic interest rate positions require the approval of the Asset Liability Committee (ALCO) of the overall bank. If these derivatives have a negative fair value, a provision is formed for anticipated losses on pending business; positive market values are not taken into account

the nominal of the purchased CDS and of the sold CDS is included in the calculation of the derivative volume. Only one side of the remainder of the derivatives is included in the calculation.

For further information on the derivative financial transactions of BAWAG P.S.K., please refer to the tables ("Derivatives in the banking book" and "Derivatives in the trading book") in Annex 3.

INFORMATION ABOUT THE REGULATORY DISCLOSURE PURSUANT TO ARTICLE 431 CRR

All information about the organizational structure, risk management and the risk capital situation is disclosed on the Internet at www.bawagpsk.com/FinancialResults (in German and English).

Vienna, 1 March 2017

Byron Haynes CEO and Chairman of the Managing Board

Corey Pinkston Member of the Managing Board

Anas Abuzaakouk Member of the Managing Board

Sat Shah Member of the Managing Board

Stefan Barth Member of the Managing Board

CHANGES IN FIXED ASSETS PURSUANT TO SECTION 226 PARA.1 UGB

	Cost of purchase or construction
in EUR thousand	Balance01.01.2016	Additions2016	Reallocation2016	Disposals 2016	Balance31.12.2016
Financial investments
Public sector debt instruments	914,228	5,362,735	50,000	(5,278,451)	1,048,512
Loans and advances to credit institutions	99,941	314,682	0	(342,242)	72,381
Loans and advances to customers	815,484		761,498 (44,839)	(907,279)	624,864
Bonds and other fixed-income securities		4,007,695 17,820,473	(5,161)	(17,375,271)	4,447,737
Stocks and other securities	107,899	1,639,285	0	(162,418)	1,584,766
Equity interests	56,241	0	44	(186)	56,099
Shares in subsidiaries	1,475,802	215,290	(44)	(100,370)	1,590,678
Intangible fixed assets	482,392	29,181	0	(5,508)	506,065
Tangible fixed assets
Land and buildings used for Bank operations	13,475	0	0	(1,567)	11,908
Other tangible fixed assets	170,944	4,042	0	(7,805)	167,181
Total		8,144,102 26,147,185	0	(24,181,097) 10,110,190

	Cumulative write-downs							Carrying amount
in EUR thousand	Balance01.01.2016	Write-downs2016	Write-ups2016	Re-allocation2016	Disposals2016	FX 2016	Balance31.12.2016	Balance31.12.2016	Balance31.12.2015
Financial investments
Public sector debtinstruments	11,229	6,326	(194)	0	(1,957)	0	15,404	1,033,108	902,999
Loans and advancesto credit institutions	(572)	687	(194)	0	1,513	42	1,476	70,906	100,513
Loans and advancesto customers	8,003	1,766	(5,386)	447	5,375	223	10,428	614,436	807,482
Bonds and otherfixed-incomesecurities	42,142	27,064	(2,266)	(447)	(10,793)	12	55,712	4,392,025	3,965,554
Stocks and othersecurities	0	105	(675)	0	5	0		(565) 1,585,331	107,899
Equity interests	13,939	70	(1,486)	0	0	0	12,523	43,575	42,302
Shares insubsidiaries	1,172,719	2,162	(4,043)	0	(9,070)	0	1,161,768	428,909	303,082
Intangible fixed assets	394,638	18,258	0	0	(3,920)	0	408,976	97,089	87,754
Tangible fixed assets
Land and buildingsused for Bankoperations	9,842	119	0	0	(1,496)	0	8,465	3,443	3,633
Other tangible fixedassets	123,552	8,398	0	0	(5,682)	0	126,268	40,913	47,392
Total	1,775,493	64,955	(14,244)	0	(26,025)	276	1,800,455 8,309,735		6,368,609

ENTITIES IN WHICH BAWAG P.S.K. HOLDS AT LEAST 20%

	Shareholdingin %	Equity incl.untaxed	Annualsurplus/(loss)	Cons.	VATgroup	Figures as of
in EUR thousand		reserves
Banks
BAWAG P.S.K. Wohnbaubank Aktiengesellschaft, Vienna	100.00%	16,397	602	C		31.12.2015
easybank AG, Vienna	100.00%	95,493	30,778	C	V	31.12.2015
IMMO-BANK Aktiengesellschaft, Vienna	100.00%	88,699	11,150	C		31.12.2015
start:bausparkasse AG, Vienna	100.00%	86,488	1	C		31.12.2015
Non credit institutions
AUSTOST ANSTALT, Balzers	100.00%	431	(39)			31.12.2015
AUSTWEST ANSTALT, Triesen	100.00%	7,016	(23)			31.12.2015
BAWAG Finance Malta Ltd., Sliema	100.00%	222	1,198			31.12.2015
BAWAG P.S.K. Datendienst Gesellschaft m.b.H., Vienna	100.00%	704	0			31.12.2015
BAWAG P.S.K. Equity Finance Ltd., Jersey	100.00%	240	3,951			31.12.2015
BAWAG P.S.K. IMMOBILIEN GmbH, Vienna	100.00%	9,787	3,841	C		31.12.2015
BAWAG P.S.K. LEASING Holding GmbH, Vienna	100.00%	44,887	1,532	C	V	31.12.2015
E2E Service Center Holding GmH, Vienna	100.00%	2,331	(22)	C	V
Einlagensicherung der Banken und BankiersGesellschaft m.b.H., Vienna	32.71%	77	0			31.12.2015
Leasing-west GmbH, Kiefersfelden	100.00%	3,650	1,510	C		31.12.2015
PSA Payment Services Austria (vormals ADF ServiceGmbH), Vienna	20.82%	40,286	14,826	at equity		31.12.2015
P.S.K. Beteiligungsverwaltung GmbH, Vienna	100.00%	87,326	7,621	C		31.12.2016
P.S.K. IMMOBILIENLEASING GmbH, Vienna	100.00%	12,139	(76)	C		31.12.2015
RVG, Realitätenverwertungsgesellschaft m.b.H., Vienna	100.00%	3,641	1,152	C		31.12.2015

OTHER SIGNIFICANT SUBSIDIARIES AND ASSOCIATES

	Shareholdingin %	Equity incl.untaxedreserves	Annualsurplus/(loss)	Cons.	VATgroup	Figures as of
Consolidated enterprises
ACP IT-Finanzierungs GmbH, Vienna	75.00%			C
BAWAG P.S.K. IMMOBILIENLEASING GmbH, Vienna	100.00%			C
BAWAG P.S.K. Kommerzleasing GmbH, Vienna	100.00%			C
BAWAG P.S.K. LEASING GmbH, Wien	100.00%			C	V
BAWAG P.S.K. LEASING GmbH & Co. MOBILIENLEASINGKG., Vienna	100.00%			C
BAWAG P.S.K. MOBILIENLEASING GmbH, Vienna	100.00%			C
BAWAG P.S.K. Versicherung Aktiengesellschaft, Vienna	25.00%			at equity
BPI Holding GmbH & Co. KG., Vienna	100.00%			C
CVG Immobilien GmbH, Vienna	100.00%			C
easyleasing GmbH, Vienna	100.00%			C	V
E2E Kreditmanagement GmbH, Vienna	100.00%			C	V
E2E Transaktionsmanagement GmbH, Vienna	100.00%			C	V

OTHER SIGNIFICANT SUBSIDIARIES AND ASSOCIATES

Shareholding in % Consolidated enterprises HBV Holding und Beteiligungsverwaltung GmbH, Vienna 100.00% KLB Baulandentwicklung GmbH., Vienna 100.00% M. Sittikus Str. 10 Errichtungs GmbH., Vienna 100.00% R & B Leasinggesellschaft m.b.H., Vienna 100.00% RF 17 BAWAG Immobilienleasing GmbH, Vienna 100.00% RF fünfzehn BAWAG Mobilien-Leasing Gesellschaft m.b.H., Vienna 100.00% RF zwölf BAWAG Leasing Gesellschaft m.b.H., Vienna 100.00% START Immobilienleasing GmbH, Vienna 100.00% Selected unconsolidated enterprises ATHENA Burgenland Beteiligungen AG, Eisenstadt 38.30% Athena Wien Beteiligungen AG, Vienna 50.00% BAWAG Leasing & fleet s.r.o., Prague 100.00% BAWAG Leasing & Fleet s.r.o., Bratislava 100.00% BAWAG Leasing s.r.o., Bratislava 100.00% BV Vermögensverwaltung GmbH, Vienna 100.00% easy green energy GmbH, Vienna 49.00% easy green energy GmbH & Co KG, Vienna 49.00% Fides Leasing GmbH, Vienna 50.00% Gara RPK Grundstücksverwaltungsgesellschaft m.b.H., Vienna 100.00% HFE alpha Handels-GmbH, Vienna 50.00% Kommunalleasing GmbH, Vienna 50.00% media.at GmbH, Vienna 26.30% OMNITEC Informationstechnologie-Systemservice GmbH, Vienna 50.00% PT Immobilienleasing GmbH, Vienna 100.00% Realplan Beta Liegenschaftsverwaltung Gesellschaft m.b.H., Vienna 50.00% RF sechs BAWAG P.S.K. LEASING GmbH & Co. KG., Vienna 100.00% ROMAX Immobilien GmbH, Vienna 100.00% WBG Wohnen und Bauen Gesellschaft mbH, Vienna 24.00%

TOTAL DERIVATIVES OF BAWAG P.S.K. AS OF 31 DECEMBER 2016

Derivatives in the banking book

		Nominal values by maturity		Total	Fair purchase and selling value
in EUR thousand	Up to 1 year	1–5 years	Over 5 years			Pos. fair value Neg. fair value
Interest rate derivatives
a) Interest rate swaps (with a singlecurrency)	2,321,458	11,520,040	10,971,294	24,812,792	876,110	(345,888)
b) Base swaps	46,920	1,030,210	228,345	1,305,475	64,036	(14,254)
c) Interest rate futures and interest-ratebased index contracts	100,000	–	–	100,000	–	–
d) Options on interest-rate based indexcontracts	20,361	211,528	454,026	685,915	18,841	(32,153)
FX transactions and gold-basedtransactions
a) Currency and interest rate swaps (withmultiple currencies)	470,765	2,427,383	1,360,167	4,258,315	70,516	(299,025)
b) Forwards	2,794,835	80,362	–	2,875,197	26,966	(51,447)
c) Exchange-traded forwards andcurrency-based index contracts	4,052	4,052	153,160	161,264	35,203	–
d) Currency options	92,838	–		92,838	3,938	(3,938)
Index and asset value contracts
a) Forwards in asset values and othersecurities-price-based index forwards	–	–	8,059	8,059	666	–
b) Index forwards in asset values andother securities-based index forwards	–	–	13,760	13,760	2,310	–
Commodities contracts (excluding preciousmetal contracts)
a) Purchased commodities options	5,965	7,839	–	13,804	880	–
Credit derivatives
a) Single name credit event/defaultswaps		33,204	–	33,204	–	–
Other futures, options and comparabletransactions that cannot be assigned to thecategories above	16,450	18,500	16,409	51,359	1,777	(5,143)
Total nominal value in banking book				34,411,982	1,101,243	(751,848)

Futures are included in the item Interest rate futures and interest-rate-based index contracts. No fair values are given for the futures because they are compensated for by the continual variation margin payments.

Credit derivatives: only notional of a Credit Link Note Internal deals are not included.

Derivatives in the trading book

	Nominal values by maturity			Fair purchase and selling value
in EUR thousand	Up to 1 year	1–5 years	Over 5 years	Total		Pos. fair value Neg. fair value
Interest rate derivatives
a) Interest rate swaps (with a singlecurrency)	765,344	1,868,149	1,396,715	4,030,208	171,453	(72,778)
b) Base swaps	–	312,000	25,000	337,000	669	(543)
d) Options on interest-rate based indexcontracts	530,659	1,141,696	205,402	1,877,757	41,669	(23,211)
FX transactions and gold-basedtransactions
a) Currency and interest rate swaps (withmultiple currencies)	84	–	–	84	4	–
b) Forwards	295,414	–	–	295,414	11,685	(10,024)
c) Currency options	818,338	500	–	818,838	8,396	(35,814)
Total nominal value in the trading book				7,359,301	233,876	(142,370)
Total nominal value				41,771,283	1,335,119	(894,218)

Futures are included in the item Interest rate futures and interest-rate-based index contracts. No fair values are given for the futures because they are compensated for by the continual variation margin payments.

Internal deals are not included.

TOTAL DERIVATIVES OF BAWAG P.S.K. AS OF 31 DECEMBER 2015

Derivatives in the banking book

	Nominal values by maturity		Total	Fair purchase and selling value
in EUR thousand	Up to 1 year	1–5 years	Over 5 years			Pos. fair value Neg. fair value
Interest rate derivatives
a) Interest rate swaps (with a singlecurrency)	5,920,908	9,587,956	8,869,657	24,378,521	827,720	(355,884)
b) Base swaps	273,640	1,072,819	264,333	1,610,792	75,108	(19,359)
d) Options on interest-rate based indexcontracts	11,925	231,271	300,247	543,443	17,185	(14,459)
FX transactions and gold-basedtransactions
a) Currency and interest rate swaps (withmultiple currencies)	1,275,359	1,559,111	658,261	3,492,731	19,974	(435,830)
b) Forwards	4,607,284	25,430	–	4,632,714	109,764	(33,896)
c) Exchange-traded forwards andcurrency-based index contracts	–	11,444	144,198	155,642	34,450	–
d) Currency options	811,786	86,000	–	897,786	23,146	(23,195)
Index and asset value contracts
a) Forwards in asset values and othersecurities-price-based index forwards	–	–	–	–	–	–
b) Index forwards in asset values andother securities-based index forwards	12,200	–	13,760	25,960	1,844	(37)
Commodities contracts (excluding preciousmetal contracts)
a) Purchased commodities options	–	13,804	–	13,804	1,090	–
Credit derivatives
a) Single name credit event/defaultswaps	131,890	32,148	–	164,038	154	–
Other futures, options and comparabletransactions that cannot be assigned to thecategories above	71,403	29,600	11,312	112,315	1,555	(5,531)
Total nominal value in banking book				36,027,746	1,111,990	(888,191)

Futures are included in the item Interest rate futures and interest-rate-based index contracts. No fair values are given for the futures because they are compensated for by the continual variation margin payments.

Internal deals are not included.

Derivatives in the trading book

	Nominal values by maturity			Fair purchase and selling value
in EUR thousand	Up to 1 year	1–5 years	Over 5 years	Total		Pos. fair value Neg. fair value
Interest rate derivatives
a) Interest rate swaps (with a singlecurrency)	828,464	2,983,388	1,443,025	5,254,877	204,121	(102,872)
b) Base swaps	–	312,000	25,000	337,000	1,000	(635)
d) Options on interest-rate based indexcontracts	370,093	1,468,816	435,913	2,274,822	52,624	(35,086)
FX transactions and gold-basedtransactions
a) Currency and interest rate swaps (withmultiple currencies)	–	421	–	421	96	–
b) Forwards	652,801	293,570	–	946,371	46,243	(27,130)
c) Currency options	1,915,578	818,838	–	2,734,416	15,891	(124,855)
Total nominal value in the trading book				11,547,907	319,975	(290,578)
Total nominal value				47,575,653	1,431,965	(1,178,769)

Futures are included in the item Interest rate futures and interest-rate-based index contracts. No fair values are given for the futures because they are compensated for by the continual variation margin payments.

Internal deals are not included.

MANAGING BOARD OF BAWAG P.S.K. AS OF 31 DECEMBER 2016

Byron HAYNES

Member of the Managing Board (from 1 August 2008), Chairman of the Managing Board and CEO (from 16 September 2009)

Anas ABUZAAKOUK

(from 1 January 2014)

Stefan BARTH (from 1 February 2015)

Corey PINKSTON

(from 1 January 2013)

Sat SHAH (from 4 March 2015)

SUPERVISORY BOARD OF BAWAG P.S.K. AS OF 31 DECEMBER 2016

Chairman

Franklin W. HOBBS

(from 12 March 2013 until revoked)

Deputy Chairmen

Cees MAAS

(from 12 March 2013, previously Chairman from 15 October 2009 until 12 March 2013, Member of the Supervisory Board from 27 July 2009 until the end of the Annual General Meeting adopting the Annual Financial Statements for 2016)

Pieter KORTEWEG

(from 15 December 2009, Member of the Supervisory Board from 27 August 2007 until the end of the Annual General Meeting adopting the Annual Financial Statements for 2016)

Keith TIETJEN

(from 4 March 2015, Member of the Supervisory Board from 5 October 2010 until the end of the Annual General Meeting adopting the Annual Financial Statements for 2016)

Members

Walter OBLIN

(from 15 March 2012 until the end of the Annual General Meeting adopting the Annual Financial Statements for 2016)

Frederick HADDAD

(from 12 March 2013 until revoked)

André WEISS

(from 12 March 2013 until the end of the Annual General Meeting adopting the Annual Financial Statements for 2016)

Chad A. LEAT

(from 5 December 2013 until the end of the Annual General Meeting adopting the Annual Financial Statements for 2016)

Works Council Delegates

Ingrid STREIBEL-ZARFL (from 1 October 2005)

Beatrix PRÖLL (from 1 October 2005)

Konstantin LATSUNAS (from 12 March 2013)

Verena SPITZ (from 3 March 2016)

State Commissioner

Beate SCHAFFER (from 1 August 2009, previously Deputy State Commissioner from 1 March 2007 to 31 July 2009)

Deputy State Commissioner

Markus CHMELIK (from 1 March 2010)

COMMITTEES OF BAWAG P.S.K. AS OF 31 DECEMBER 2016

Risk and Credit Committee

Chad A. LEAT Chairman

Cees MAAS

Keith TIETJEN

Frederick HADDAD

Ingrid STREIBEL-ZARFL Works Council Delegate

Beatrix PRÖLL Works Council Delegate

Audit and Compliance Committee

Keith TIETJEN Chairman

Cees MAAS

Walter OBLIN

Frederick HADDAD

Ingrid STREIBEL-ZARFL Works Council Delegate

Konstantin LATSUNAS Works Council Delegate

Nomination Committee

Franklin W. HOBBS Chairman

Cees MAAS

Pieter KORTEWEG

Frederick HADDAD

Ingrid STREIBEL-ZARFL Works Council Delegate

Beatrix PRÖLL Works Council Delegate

Remuneration Committee

Franklin W. HOBBS Chairman

Cees MAAS

Keith TIETJEN

Frederick HADDAD

Ingrid STREIBEL-ZARFL Works Council Delegate

Beatrix PRÖLL Works Council Delegate

Committee for Management Board Matters

Franklin W. HOBBS Chairman

Cees MAAS

Pieter KORTEWEG

Keith TIETJEN

Frederick HADDAD

Related Parties Special Audit Committee

Franklin W. HOBBS Chairman

Chad A. LEAT

Keith TIETJEN

Frederick HADDAD

Ingrid STREIBEL-ZARFL Works Council Delegate

Beatrix PRÖLL Works Council Delegate

STATEMENT OF ALL LEGAL REPRESENTATIVES

"We confirm to the best of our knowledge that the financial statements of BAWAG P.S.K. Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse Aktiengesellschaft give a true and fair view of the assets, liabilities, financial position and profit or loss of the company as required by

the applicable accounting standards and that the management report gives a true and fair view of the development and performance of the business and the position of the company, together with a description of the principal risks and uncertainties the company faces."

Vienna, 1 March 2017

Byron Haynes CEO and Chairman of the Managing Board

Corey Pinkston Member of the Managing Board

Anas Abuzaakouk Member of the Managing Board

Sat Shah Member of the Managing Board

Stefan Barth Member of the Managing Board

AUDITOR'S REPORT

REPORT ON THE FINANCIAL STATEMENTS

Audit Opinion

We have audited the financial statements of

BAWAG P.S.K. Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse Aktiengesellschaft, Vienna, Austria

that comprise the statement of financial position as of 31 December 2016, the income statement for the year then ended, and the notes.

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of 31 December 2016 and its financial performance for the year then ended in accordance with Austrian Generally Accepted Accounting Principles and other legal or regulatory requirements.

Basis for our Opinion

We conducted our audit in accordance with Austrian Standards on Auditing. These standards require the audit to be conducted in accordance with International Standards on Auditing (ISA). Our responsibilities pursuant to these rules and standards are described in the "Auditors' Responsibility" section of our report. We are independent of the Company within the meaning of Austrian commercial law and professional regulations, and have fulfilled our other responsibilities under those relevant ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements. Key audit matters are selected from the matters communicated with the audit committee, but are not intended to represent all matters that were discussed with them. Our audit procedures relating to these matters were designed in the context of our audit of the consolidated financial statements as a whole. Our opinion on the financial statements is not modified with respect to any of the key audit matters described below, and we do not express an opinion on these individual matters.

In the course of our audit we have identified two key audit matters.

Valuation of loans and advances to customers

Risk to the financial statements

The receivables from customers amount to EUR 23.8 billion and are mainly comprised of the segments "BAWAG P.S.K. Retail", "DACH Corporates & Public Sector" and "International Business".

Management describes the approach to determine the risk provisions in the notes in section "Recognition and Measurement Principles" as well as in the management report in section "Credit Risk".

The bank evaluates in the context of credit risk management whether identifiable risks exist and specific loan loss provisions need to be recognized. This includes an assessment whether customers are able to meet their contractual liabilities in full.

The calculation of the risk provision for defaulted individually significant customers is based on an analysis of the estimated future recoveries. This analysis reflects the assessment of the economic situation and development of the individual customer, the valuation of collateral and the estimation of the amount and timing of future cashflows derived thereof.

The bank calculates the loan loss provision for defaulted individually not significant customers automatically on the basis of unpaid instalments and continuous overdraft of current accounts. This automated general loan loss provision is determined either by days past due or a legal case as well as corresponding general provisioning levels. The parameters used in the valuation model are based on statistical assumptions.

For all non-defaulted loans and off-balance exposures a rating based portfolio loan loss provision is implemented. The portfolio provision is based on the regulatory Expected Loss Model. The incurred loss is derived by application of the average time until detection of the credit event. Individual, customer-specific parameters as well as statistical assumptions and empirical values are used to determine the amount of the provision.

The risk to the financial statements results from the fact that the identification of impending loan defaults as well as the calculation of the provisioning amounts significantly depend on the assumptions and estimates stated above, leading to margins of discretions and estimate uncertainty with regard to the amount of the provision.

Our audit approach

We have analyzed the existing documentation regarding the processes of underwriting, monitoring and the risk provisioning for customer loans and critically assessed whether these processes are suitable to identify impairment triggers and to adequately reflect the valuation of loans and advances to customers. Moreover, we have evaluated the process workflows as well as significant controls by inspecting the IT-Systems and testing the design and implementation of key controls. Furthermore, we have evaluated the effectiveness of key controls through sample testing.

We have examined individual specific loan loss provision on the basis of a sample of loans and assessed whether indications of credit defaults exist and whether loan loss provisions have been recognized in an adequate amount. The selection of the sample was performed risk-oriented and with special regard to ratings and industries with higher probability of default risk. In the case of identified impairment triggers we assessed the bank's assumptions with respect to conclusiveness, consistency and freedom from contradictions. In order to determine the amount and timing of repayments from liquidation of real estate collateral, we have consulted our real estate experts to analyze appraisal reports or valuation calculations obtained from the bank by applying benchmark tests, market comparisons and external data.

With regard to automated specific loan loss provisions and the portfolio provision we have analyzed the models used as well as the parameters used. Based on the bank's backtesting of provisions and validations of actual parameters, we have evaluated the adequacy of the assumptions regarding the customers or the customer portfolio. We have consulted our valuation experts when analyzing the models and backtesting reports. Our ITexperts have analyzed the system's automated processes in calculating automatic provisions, the programmed calculation process flow as well as the application of the correct reference fields from the systems of the bank. We have tested the calculation of the provision amount through re-calculations.

Furthermore, we have evaluated the adequacy of the disclosures on the valuation of loans and advances to customers in the notes.

Valuation of claims and provisions from litigation with City of Linz

Risk to the financial statements

Management describes the uncertainty of estimates and the course of the litigation with regard to a Swiss Franc swap with the City of Linz in the notes in section "Recognition and Measurement Principles" subchapter "Latitude of Judgment and Uncertainty of Estimates – City of Linz". Since the lawsuit is ongoing, no amounts are being disclosed in the notes.

Since November 2011, BAWAG P.S.K. is engaged in a lawsuit with the City of Linz in connection with this Swiss Franc swap. City of Linz has filed a lawsuit at the Commercial Court of Vienna (Handelsgericht Wien) against BAWAG P.S.K. claiming a payment of CHF 30.6 million. BAWAG P.S.K. filed a (counter)suit against the City of Linz to enforce its contractual entitlements in the amount of EUR 417.7 million.

The claim against the City of Linz is presented under the receivables from customers and amounts to the market value of the swap on the date of early termination. The assessment of the carrying amount of the receivables was based on management estimate taking into consideration the risks related to this assessment. These estimates comprise the duration and costs of the lawsuit as well as its outcome, especially from negligent actions from one of the parties as well as assumptions regarding claims resulting thereof. Management based its assessment for the valuation and the related uncertainties on legal opinions from external legal counsels, who represent the bank legally, as well as opinions of the internal legal department and the analysis of the professional opinions of the appointed court experts.

The risk to the consolidated financial statements results from the assessment of the above-mentioned factors, especially the probability of success of the ongoing litigation and the amount and timing of cash flows arising from the outcome of the litigation. Moreover, the lawsuit has gained increased public and political interest. The proceeding, which is already ongoing for several years, has not been decided by the court of first instance. Thus the valuation of the claims and provisions from the lawsuit against the City of Linz are affected by estimate uncertainties.

Our audit approach

We have evaluated whether the valuation of the claims against the City of Linz as well as provisions connected to the lawsuit have been determined adequately and whether the estimates with regard to this litigation are appropriate.

We have critically assessed the estimations of the board and of the bank's internal and external legal experts. We have obtained and analyzed statements of the involved law firms addressing the state of the lawsuit as of 31 December 2016. We have analyzed whether the amount of the claim is consistent with the contractual terms and the market parameters on the closure date as well as whether the assumptions for the valuation of the claim on the reporting date are consistent with the current assessment of the progress of the litigation and current market parameters. We have consulted our internal legal experts to analyze the experts' statements provided.

Moreover, we have assessed the assumptions and calculation for provisions connected to the lawsuit as well as the assumptions used for determining an adequate discount rate by analyzing the market and industry specific benchmarks.

Finally, we have evaluated whether the disclosures in the section "Recognition and Measurement Principles" subchapter "Latitude of Judgment and Uncertainty of Estimates – City of Linz" in the notes are adequate. Since the litigation is ongoing, the bank makes use of Section 242 para 2 UGB (protective clause) and does not disclose any amounts or information with regard to the valuations.

Management's Responsibility and Responsibility of the Audit Committee for the Financial Statements

The Company's management is responsible for the preparation and fair presentation of these financial

statements in accordance with Austrian Generally Accepted Accounting Principles and other legal or regulatory requirements and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Management is also responsible for assessing the Company's ability to continue as a going concern, and, where appropriate, to disclose matters that are relevant to the Company's ability to continue as a going concern and to apply the going concern assumption in its financial reporting, except in circumstances in which liquidation of the Company or closure of operations is planned or cases in which such measures appear unavoidable.

The audit committee is responsible for the oversight of the financial reporting process of the Company.

Auditors' Responsibility

Our aim is to obtain reasonable assurance about whether the financial statements taken as a whole, are free of material – intentional or unintentional– misstatements and to issue an audit report containing our audit opinion. Reasonable assurance represents a high degree of assurance, but provides no guarantee that an audit conducted in accordance with Austrian Standards on Auditing, which require the audit to be performed in accordance with ISA, will detect a material misstatement, if any. Misstatements may result from fraud or error and are considered material if they could, individually or as a whole, be expected to influence the economic decisions of users based on the financial statements.

As part of an audit in accordance with Austrian Standards on Auditing, which require the audit to be performed in accordance with ISA, we exercise professional judgment and retain professional skepticism throughout the audit.

Moreover:

• We identify and assess the risks of material misstatements – intentional or unintentional – in the financial statements, we plan and perform procedures to address such risks and obtain sufficient and appropriate audit evidence to serve as a basis for our audit opinion. The risk that material misstatements due to fraud remain undetected is higher than that of material misstatements due to error, since fraud may include collusion, forgery, intentional omissions, misleading representation or override of internal control.
• We consider internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.
• We evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates as well as related disclosures made by management.
• We conclude on the appropriateness of management's use of the going concern assumption and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity's ability to continue as a going concern. In case we conclude that there is a material uncertainty about the entity's ability to continue as a going concern, we are required to draw attention to the respective note in the financial statements in our

audit report or, in case such disclosures are not appropriate, to modify our audit opinion. We conclude based on the audit evidence obtained until the date of our audit report. Future events or conditions however may result in the Company departing from the going concern assumption

• We assess the overall presentation, structure and content of the financial statements including the notes as well as whether the financial statements give a true and fair view of the underlying business transactions and events.
• We communicate to the audit committee the scope and timing of our audit as well as significant findings including significant deficiencies in internal control that we identify in the course of our audit.
• We report to the audit committee that we have complied with the relevant professional requirements in respect of our independence and that we will report any relationships and other events that could reasonably affect our independence and, where appropriate, related measures taken to ensure our independence.
• From the matters communicated with the audit committee we determine those matters that required significant auditor attention in performing the audit and which are therefore key audit matters. We describe these key audit matters in our audit report except in the circumstances where laws or other legal regulations forbid publication of such matter or in very rare cases, we determine that a matter should not be included in our audit report because the negative effects of such communication are reasonably expected to outweigh its benefits for the public interest.

REPORT ON OTHER LEGAL REQUIREMENTS

Management Report

In accordance with Austrian Generally Accepted Accounting Principles the management report is to be audited as to whether it is consistent with the financial statements and as to whether it has been prepared in accordance with legal requirements.

The legal representatives of the Company are responsible for the preparation of the management report in accordance with Austrian Generally Accepted Accounting Principles and other legal or regulatory requirements.

We have conducted our audit in accordance with generally accepted standards on the audit of management reports as applied in Austria.

Opinion

In our opinion, the management report has been prepared in accordance with legal requirements and is consistent with the financial statements. The disclosures pursuant to Section 243a UGB (Austrian Commercial Code) are appropriate.

Statement

Based on our knowledge gained in the course of the audit of the financial statements and the understanding of the Company and its environment, we did not note any material misstatements in the management report.

Vienna, 1 March 2017

KPMG Austria GmbH Wirtschaftsprüfungsund Steuerberatungsgesellschaft

signed by: Mag. Bernhard Mechtler

Wirtschaftsprüfer (Austrian Chartered Accountant)

Other Information

The legal representatives of the Company are responsible for the other information. Other information comprises all information provided in the annual report, with the exception of the financial statements, the management report, and the auditor's report thereon.

Our opinion on the financial statements does not cover other information, and we will not provide any assurance on it.

In conjunction with our audit, it is our responsibility to read this other information and to assess whether it contains any material inconsistencies with the financial statements and our knowledge gained during our audit, or any apparent material misstatement of fact. If on the basis of our work performed, we conclude that there is a material misstatement of fact in the other information, we must report that fact. We have nothing to report with this regard.

Auditor in Charge

The auditor in charge is Mr. Bernhard Mechtler.

This report is a translation of the original report in German, which is solely valid. The financial statements together with our auditor's opinion may only be published if the financial statements and the management report are identical with the audited version attached to this report. Section 281 Paragraph 2 UGB (Austrian Commercial Code) applies

BAWAG P.S.K. ANNUAL FINANCIAL REPORT 2016

OWNER AND PUBLISHER

BAWAG P.S.K.

Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse Aktiengesellschaft Georg-Coch-Platz 2, A-1018 Vienna, Austria Companies Registry number: 205340x Data Protection Authority number: 1075217 VAT number: ATU51286308 Telephone: +43 (0)5 99 05-0 Internet: www.bawagpsk.com

Investor Relations: investor.relations@bawagpsk.com

Media: press@bawagpsk.com

Typesetting: In-house using firesys

www.bawagpsk.com