Quarterly Report • Nov 16, 2017
Quarterly Report
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| Profit or loss statement (in EUR million) |
Q3 2017 |
Q3 2016 |
Change (%) |
Jan–Sep 2017 |
Jan–Sep 2016 |
Change (%) |
|---|---|---|---|---|---|---|
| Net interest income | 198.0 | 176.1 | 12.4 | 593.5 | 552.3 | 7.5 |
| Net fee and commission income | 44.8 | 43.1 | 3.9 | 150.8 | 146.1 | 3.2 |
| Core revenues | 242.8 | 219.2 | 10.8 | 744.3 | 698.4 | 6.6 |
| Gains and losses on financial instruments and other operating income and expenses |
9.3 | 18.9 | (50.8) | 29.0 | 44.7 | (35.1) |
| Operating income | 252.1 | 238.1 | 5.9 | 773.3 | 743.1 | 4.1 |
| Operating expenses | (102.8) | (102.9) | (0.1) | (320.4) | (318.1) | 0.7 |
| Regulatory charges | (1.7) | (5.9) | (71.2) | (29.8) | (39.8) | (25.1) |
| Total risk costs | (17.0) | (9.0) | 88.9 | (43.7) | (24.9) | 75.5 |
| Profit before tax | 131.8 | 122.2 | 7.9 | 382.4 | 366.5 | 4.3 |
| Income taxes | (31.2) | (25.9) | 20.5 | (78.3) | 13.5 | – |
| Net profit | 100.5 | 96.3 | 4.4 | 304.0 | 379.8 | (20.0) |
| Performance ratios (figures annualized) |
Q3 2017 |
Q3 2016 |
Change (pts) |
Jan–Sep 2017 |
Jan–Sep 2016 |
Change (pts) |
| Return on equity | 11.9% | 13.0% | (1.1) | 12.4% | 16.9% | (4.5) |
| Return on equity (@12% CET1) | 14.9% | 15.3% | (0.4) | 14.8% | 18.7% | (3.9) |
| Return on tangible equity | 13.4% | 14.6% | (1.2) | 14.0% | 19.0% | (5.0) |
| Return on tangible equity (@12% CET1) | 17.3% | 17.7% | (0.4) | 17.1% | 21.3% | (4.2) |
| Net interest margin | 2.29% | 2.30% | (0.01) | 2.25% | 2.35% | (0.10) |
| Cost-income ratio | 40.8% | 43.2% | (2.4) | 41.4% | 42.8% | (1.4) |
| Risk costs / loans and receivables | 0.22% | 0.14% | 0.08 | 0.19% | 0.12% | 0.07 |
| Statement of financial position (in EUR million) |
Sep 2017 |
Dec 2016 |
Change (%) |
Sep 2016 |
Change (%) |
|
| Total assets | 38,350 | 39,743 | (3.5) | 34,397 | 11.5 | |
| Financial assets | 5,788 | 6,416 | (9.8) | 6,169 | (6.2) | |
| Customer loans and receivables | 27,528 | 28,494 | (3.4) | 23,915 | 15.1 | |
| Customer deposits | 24,671 | 25,998 | (5.1) | 22,722 | 8.6 | |
| Own issues | 5,698 | 6,015 | (5.3) | 4,712 | 20.9 | |
| IFRS equity (after dividend) | 3,395 | 3,134 | 8.3 | 3,027 | 12.2 | |
| IFRS tangible equity (after dividend) | 3,016 | 2,773 | 8.8 | 2,690 | 12.1 | |
| Risk-weighted assets | 17,812 | 19,044 | (6.5) | 16,643 | 7.0 | |
| Balance sheet ratios | Sep 2017 |
Dec 2016 |
Change (pts) |
Sep 2016 |
Change (pts) |
|
| Common Equity Tier 1 capital ratio (fully loaded) | 16.2% | 13.6% | 2.6 | 15.1% | 1.1 | |
| Leverage ratio (fully loaded) | 7.5% | 6.4% | 1.1 | 7.3% | 0.2 | |
| Liquidity coverage ratio (LCR) | 127% | 138% | (11) | 125% | 2 | |
| NPL ratio | 2.0% | 1.7% | 0.3 | 1.9% | 0.1 | |
Note: For details on definitions and calculation methodology, please refer to the section entitled "Definitions" on page 71.
Certain statements contained in this interim 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.
BAWAG Group's interim results are typically not indicative of expected full year results. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance.
Neither BAWAG Group 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 interim report or its content or otherwise arising in connection with this document.
This interim 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 interim report may contain rounding differences.
The past few months have been transformative. On October 25, 2017, BAWAG Group listed on the Vienna Stock Exchange and opened a new chapter in our long and rich 130-year history. The IPO was the largest in Austria's history and represents a turning point for the Bank as we transition from private to public ownership. I want to thank all involved for their tremendous efforts in making this a reality, recognizing in particular our amazing team at the Bank for their commitment and dedication. I also want to extend a special thanks to our shareholders, both old and new, for their trust, confidence and faith in our organization and future. We are now fully focused on continuing our successful journey as a public company, which means continuing to deliver value to our customers and shareholders. We will continue to execute on a variety of operational and strategic initiatives during the fourth quarter 2017. Our focus remains on driving operational excellence and profitable growth.
With that, I'd like to draw your attention to the strong results in the first three quarters 2017. Profit before tax came in at EUR 382 million, up 4% compared to the first three quarters 2016, with the highest reported quarterly profit before tax ever in the third quarter. This increase was primarily driven by higher core revenues and flat operating expenses, despite integration costs from acquisitions completed in the fourth quarter 2016. For comparison purposes, we focus on pre-tax profit in our reporting, as net profit during 2016 was significantly impacted by a one-time net tax benefit. We expect our deferred tax assets on tax loss carryforwards to be fully absorbed over the course of the next 12–18 months.
With a return on tangible equity (@12% CET1) of 17.1%, a cost-income ratio of 41.4% and a fully loaded CET1 ratio of 16.2%, BAWAG Group ranks amongst the most profitable, efficient and best capitalized banks across Europe. We continue to maintain a conservative risk profile characterized by disciplined underwriting, low leverage and a business model focused on developed markets in Austria and Western Europe. This is best reflected in a risk cost ratio of 19 basis points and an NPL ratio of 2.0% (excluding the legal case with the City of Linz: 1.3%). At the same time, we further strengthened our capital position during the first three quarters 2017, improving our fully loaded CET1 ratio to 16.2% (up 260 basis points) compared to year-end 2016.
Our strong first three quarters 2017 were also characterized by solid operational developments. The BAWAG P.S.K. Retail segment recorded new originations of EUR 1 billion, driven primarily by consumer and housing loans. In addition to growing our consumer loan franchise and further optimizing our product mix, we continued to make progress in transforming to digital and driving transactional productivity. Compared to the first three quarters 2016, the number of online payment transactions increased by 8% and the share of online transactions via our mobile apps increased by 60%. During the same period, the number of over-the-counter transactions decreased by 13%, reflecting the continued significant shift in customer behavior that we have observed over the past few years. Our complete line of products offered through digital channels makes us a leader in the marketplace, and we continue to enhance our customer experience across all of our distribution channels. Our efforts are clearly being rewarded with increasing usage by our customers. As an example, 66% of all logins to our eBanking come from mobile devices, up 8 points from September 2016.
On November 9, 2017, we gave notice to Austrian Post, our partner in operating a joint branch network across Austria, to terminate our cooperation agreement. The termination will become effective as of December 31, 2020, unless both parties agree on an earlier termination. Adapting to changing customer behavior, we target, over the mid-term, a smaller but more efficient stand-alone network of approximately 100 branches with larger advisory teams, supported by mobile sales teams and high-quality digital platforms. This approach significantly reduces network costs, creates more productive customer-centric branches and allows us to further invest in the overall customer experience.
easygroup, comprising easybank, one of the leading direct banks in Austria, 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. The integration of our auto leasing platforms, together with various strategic partnerships, provides easygroup with yet another platform to expand its market presence, brand awareness and bestin-class service offering to a range of new customers and segments. During the first three quarters 2017, we recorded strong originations of EUR 339 million, comprised primarily of auto leases, consumer loans and mortgages.
We have created a highly efficient, customer-focused organization with the new easyleasing brand as our "one brand and one face" to the leasing market in Austria. In October 2017, we completed the acquisition of the commercial card issuing business of SIX Payment Services Austria, better known as PayLife. This acquisition enables us to expedite our growth plans, adding over half a million new customers to the segment as well as making easybank a leading credit card issuer in Austria. Integrating and growing this business will be a core focus for the remainder of 2017 and beyond. In addition, we have reached several key milestones in starting our business in Germany, receiving clearance from the regulators to open a branch and developing our operating system and customer-facing digital channels. We target the launch of our new brand Qlick in Germany during the fourth quarter 2017. With this setup, easygroup is well positioned to further develop its asset origination capabilities, both domestically and internationally.
Our International Business segment continues to be focused on international corporate, real estate and portfolio financing outside the DACH region, serviced from our London office. The focus of the DACH Corporates & Public Sector business continues to be on maintaining and acquiring sustainable customer relationships, while staying disciplined on risk-adjusted pricing despite the competitive landscape. Both the DACH Corporates & Public Sector segment and the International Business segment maintained their disciplined approach to originating new business with appropriate risk-adjusted returns. Overall, these two business segments originated EUR 2.3 billion of new business during the first three quarters 2017.
In addition, we recently announced another highlight on the M&A front. We signed an agreement to acquire
Südwestbank, a regional bank with over EUR 7 billion assets and approximately 100,000 retail and business customers headquartered in Stuttgart, Germany. The expertise and long-standing tradition of Südwestbank in Baden-Württemberg, an economically strong region, make the bank an ideal partner to help us expand our footprint and customer base in Germany. This transaction is part of our larger DACH regional strategy and will provide us access to excellent customers in a highly attractive market. We expect this transaction to close in the fourth quarter 2017.
Our continued strong operating results in the first three quarters 2017 reiterate that BAWAG Group is well positioned to win in a competitive European banking environment. We will continue to maintain our low-risk strategy focused on the DACH region, with Austria as our foundation, while providing our customers with simple, transparent and best-in-class products and services. In addition, we will place a clear focus on technology as this will be one of the key differentiators in the constantly evolving banking landscape.
All the successes mentioned earlier have only been possible thanks to the dedication, trust and respect of our employees, customers and shareholders. I would like to take this opportunity to thank all of them for their continued, unwavering support.
Anas Abuzaakouk, CEO of BAWAG Group AG
Interim Group Management Report
BAWAG Group continued to successfully execute on its business plans in the first three quarters 2017 and delivered strong results.
The net interest margin in the third quarter 2017 increased by 6 basis points to 2.29% compared to the second quarter.
Operating expenses in the first three quarters 2017 remained flat compared to the first three quarters 2016 (up 0.7%), despite integration costs from acquisitions completed in the fourth quarter 2016. The cost-income ratio in the first three quarters 2017 further improved by 140 basis points to 41.4%.
| in EUR million | Q3 2017 |
Q3 2016 |
Change (%) |
Jan–Sep 2017 |
Jan–Sep 2016 |
Change (%) |
|---|---|---|---|---|---|---|
| Interest income | 271.7 | 254.4 | 6.8 | 820.7 | 783.0 | 4.8 |
| Interest expense | (73.7) | (78.3) | (5.9) | (234.0) | (232.6) | 0.6 |
| Dividend income | 0.0 | 0.0 | – | 6.8 | 1.9 | >100 |
| Net interest income | 198.0 | 176.1 | 12.4 | 593.5 | 552.3 | 7.5 |
| Fee and commission income | 67.4 | 64.4 | 4.7 | 210.1 | 205.2 | 2.4 |
| Fee and commission expenses | (22.6) | (21.3) | 6.1 | (59.3) | (59.1) | 0.3 |
| Net fee and commission income | 44.8 | 43.1 | 3.9 | 150.8 | 146.1 | 3.2 |
| Core revenues | 242.8 | 219.2 | 10.8 | 744.3 | 698.4 | 6.6 |
| Gains and losses on financial instruments and other operating income and expenses1) |
9.3 | 18.9 | (50.8) | 29.0 | 44.7 | (35.1) |
| Operating income | 252.1 | 238.1 | 5.9 | 773.3 | 743.1 | 4.1 |
| Operating expenses1) | (102.8) | (102.9) | (0.1) | (320.4) | (318.1) | 0.7 |
| Regulatory charges | (1.7) | (5.9) | (71.2) | (29.8) | (39.8) | (25.1) |
| Operating profit | 147.6 | 129.3 | 14.2 | 423.1 | 385.2 | 9.8 |
| Provisions and loan-loss provisions |
(16.7) | (8.2) | >100 | (38.1) | (20.9) | 82.3 |
| Impairment losses | 0.0 | 0.0 | – | (0.3) | (0.8) | (62.5) |
| Operational risk | (0.3) | (0.8) | (62.5) | (5.3) | (3.2) | 65.6 |
| Share of the profit or loss of | ||||||
| associates accounted for using the equity method |
1.2 | 1.9 | (36.8) | 3.0 | 6.2 | (51.6) |
| Profit before tax | 131.8 | 122.2 | 7.9 | 382.4 | 366.5 | 4.3 |
| Income taxes | (31.2) | (25.9) | 20.5 | (78.3) | 13.5 | – |
| Profit after tax | 100.6 | 96.3 | 4.5 | 304.1 | 380.0 | (20.0) |
| Non-controlling interests | (0.1) | 0.0 | 100 | (0.1) | (0.2) | (50.0) |
| Net profit | 100.5 | 96.3 | 4.4 | 304.0 | 379.8 | (20.0) |
1) In accordance with IFRS, the item Other operating income and expenses also includes regulatory charges in the amount of EUR 28.1 million for the first three quarters 2017. The item Operating expenses includes regulatory charges in the amount of EUR 1.7 million for the first three quarters 2017 as well. However, BAWAG Group's management considers regulatory charges as a separate expense. Accordingly, they are shown in a separate expense line in the Interim Group Management Report.
Profit before tax increased by EUR 15.9 million, or 4.3%, to EUR 382.4 million in the first three quarters 2017.
Compared to the second quarter 2017, the net interest margin increased by 6 basis points to 2.29%.
Net interest income increased by EUR 41.2 million, or 7.5%, to EUR 593.5 million in the first three quarters 2017. Net fee and commission income increased by EUR 4.7 million, or 3.2%, compared to the first three quarters 2016 and amounted to EUR 150.8 million.
Gains and losses on financial instruments and other operating income and expenses decreased by EUR 15.7 million, or 35.1%, to EUR 29.0 million in the first three quarters 2017.
Operating expenses increased by 0.7% to EUR 320.4 million in the first three quarters 2017.
The cost-income ratio decreased by 140 basis points to 41.4% compared to the first three quarters 2016.
Provisions and loan-loss provisions increased by EUR 17.2 million to EUR 38.1 million in the first three quarters 2017.
Income taxes in the first three quarters 2017 amounted to EUR 78.3 million. The figure shown for the first three quarters 2016 is not comparable as it included a EUR 99.6 million one-time tax benefit.
| Total assets |
|---|
| in EUR million | Sep 2017 |
Dec 2016 |
Change (%) |
Sep 2016 |
Change (%) |
|---|---|---|---|---|---|
| Cash reserves | 717 | 1,020 | (29.7) | 836 | (14.2) |
| Financial assets | 5,788 | 6,416 | (9.8) | 6,169 | (6.2) |
| Available-for-sale | 2,751 | 3,209 | (14.3) | 2,986 | (7.9) |
| Held-to-maturity | 2,420 | 2,353 | 2.8 | 2,163 | 11.9 |
| Held for trading | 434 | 652 | (33.4) | 817 | (46.9) |
| Fair value through profit or loss | 183 | 202 | (9.4) | 203 | (9.9) |
| Loans and receivables | 30,598 | 30,821 | (0.7) | 25,815 | 18.5 |
| Customers | 27,528 | 28,494 | (3.4) | 23,915 | 15.1 |
| Debt instruments | 1,153 | 692 | 66.6 | 815 | 41.5 |
| Credit institutions | 1,917 | 1,635 | 17.2 | 1,085 | 76.7 |
| Hedging derivatives | 543 | 677 | (19.8) | 841 | (35.4) |
| Tangible non-current assets | 52 | 56 | (7.1) | 58 | (10.3) |
| Intangible non-current assets | 378 | 360 | 5.0 | 337 | 12.2 |
| Tax assets for current taxes | 5 | 10 | (50.0) | 7 | (28.6) |
| Tax assets for deferred taxes | 92 | 203 | (54.7) | 204 | (54.9) |
| Other assets | 177 | 180 | (1.7) | 130 | 36.2 |
| Total assets | 38,350 | 39,743 | (3.5) | 34,397 | 11.5 |
Financial assets decreased by EUR 628 million, or 9.8%, compared to year-end 2016, amounting to EUR 5,788 million as of 30 September 2017.
Tax assets for deferred taxes decreased by EUR 111 million net, or 54.7%, to EUR 92 million due to the usage of deferred tax assets on tax loss carryforwards.
Loans and receivables decreased by EUR 223 million, or 0.7%, and stood at EUR 30,598 million as of 30 September 2017.
| Sep | Dec | Change | Sep | Change | |
|---|---|---|---|---|---|
| in EUR million | 2017 | 2016 | (%) | 2016 | (%) |
| Total liabilities | 34,954 | 36,607 | (4.5) | 31,368 | 11.4 |
| Financial liabilities | 33,764 | 34,694 | (2.7) | 29,828 | 13.2 |
| Fair value through profit or loss | 756 | 1,115 | (32.2) | 1,068 | (29.2) |
| Held for trading | 338 | 617 | (45.2) | 807 | (58.1) |
| At amortized cost | 32,670 | 32,962 | (0.9) | 27,953 | 16.9 |
| Customers | 24,671 | 25,998 | (5.1) | 22,722 | 8.6 |
| Issued securities | 4,942 | 4,900 | 0.9 | 3,644 | 35.6 |
| Credit institutions | 3,057 | 2,064 | 48.1 | 1,587 | 92.6 |
| Financial liabilities associated with transferred assets |
0 | 300 | (100) | 0 | – |
| Valuation adjustment on interest rate risk hedged portfolios |
135 | 223 | (39.5) | 327 | (58.7) |
| Hedging derivatives | 124 | 260 | (52.3) | 217 | (42.9) |
| Provisions | 373 | 404 | (7.7) | 421 | (11.4) |
| Tax liabilities for current taxes | 3 | 19 | (84.2) | 5 | (40.0) |
| Tax liabilities for deferred taxes | 6 | 27 | (77.8) | 0 | 100 |
| Other obligations | 549 | 680 | (19.3) | 570 | (3.7) |
| Total equity | 3,396 | 3,136 | 8.3 | 3,029 | 12.1 |
| Shareholders' equity | 3,395 | 3,134 | 8.3 | 3,027 | 12.2 |
| Non-controlling interests | 1 | 2 | (50.0) | 2 | (50.0) |
| Total liabilities and equity | 38,350 | 39,743 | (3.5) | 34,397 | 11.5 |
Financial liabilities at amortized cost decreased by EUR 292 million, or 0.9%, to EUR 32,670 million as of 30 September 2017, but showed an increase of EUR 4,717 million, or 16.9%, compared to 30 September 2016.
Total equity increased by EUR 260 million, or 8.3%, to EUR 3,396 million as of 30 September 2017. The change was mainly driven by the net profit for the first three quarters 2017.
Maintaining a strong capital position is considered a key strategic priority for BAWAG Group. We have set ourselves the target of maintaining a CET1 ratio of at least 12% on a fully loaded basis. The target CET1 ratio takes the current and the expected future regulatory capital requirements into account and is calibrated to leave a conservative buffer above the minimum capital requirements set by the regulator.
For 2017, the regulatory minimum CET1 ratio applicable to BAWAG Group according to the SREP is 8% (based on the Pillar 1 minimum of 4.50%, a Pillar 2 requirement of 1.75%, a capital conservation buffer of 1.25% and 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 by the regulator at 1% for BAWAG Group. The regulator therefore expects BAWAG Group to maintain a CET1 ratio of 9% (8% SREP requirement plus 1% Pillar 2 guidance).
Based on the draft SREP decision for 2018, we expect the CET1 requirement to increase from 8% to 9.625% (based on the Pillar 1 minimum of 4.50%, a Pillar 2 requirement of 2.25%, the capital conservation buffer of 1.875% and a systemic risk buffer of 1.00%) and including Pillar 2 guidance from 9% to 10.625%1).
The fully loaded CET1 ratio of 16.2% as of 30 September 2017 significantly exceed both the target ratio and the regulatory requirement detailed above. This strong capital position enables significant growth and our capital distribution strategy.
BAWAG Group targets an annual dividend payout of 50% of net profit2). We aim to invest additional excess capital above the CET1 target ratio in organic growth and pursue earnings-accretive M&A at returns consistent with BAWAG Group's RoTE (@12% CET1) target. To the extent excess capital is not deployed via such organic growth and M&A, we aim to distribute to shareholders, subject to regulatory restrictions on the distribution of earnings.
The acquisition of Südwestbank, which is expected to close in the fourth quarter of 2017, is a key element in this growth strategy. Taking both the Südwestbank acquisition and the dividend target into account, we expect the CET1 ratio (FL) at year end 2017, to remain significantly above 12%.
We are also proactively monitoring upcoming regulatory developments, such as IFRS 9, MREL and Basel IV.
The introduction of IFRS 9 as the new accounting standard for financial instruments is a key development for the financial services industry. First-time application of the new standard is scheduled for 1 January 2018, and BAWAG Group is well on track with its preparations. We expect the aggregate negative impact on the CET1 ratio (FL) to be below 40 basis points.
On November 3, 2017, the European Banking Authority (EBA) published its interpretation of certain capital regulations which impacts the total capital ratio of BAWAG Group. The CET1 ratio and the leverage ratio remain unaffected. The EBA interpretation impacts bank holding companies with a high level of total capital as is the case for BAWAG Group. It implies that the portion of outstanding Tier 2 instruments, issued by BAWAG P.S.K., exceeding the minimum own funds requirement, is no longer fully eligible for the consolidated capital ratios of BAWAG Group. This effect is to be reflected in the capital ratios as of the fourth quarter 2017. The impact of the EBA interpretation would lead to a fully loaded total capital ratio of 17.7% for BAWAG Group as of 30 September 2017.
MREL requirements will be introduced for banks in order to ensure that they have a sufficient amount of equity and debt in place that is eligible to absorb losses in resolution and may be used for a bail-in. These requirements will be determined on a case-by-case basis for each banking group by the competent resolution authority, in the case of BAWAG Group the SRB. We expect that the SRB will start to issue individual MREL requirements in 2018. As of 30 September 2017, the SRB has not yet announced any MREL requirements for BAWAG Group. There is also still significant regulatory uncertainty on the precise MREL eligibility criteria for funding instruments.
We are also monitoring the ongoing discussions on Basel IV. Based on latest draft publications, we expect only a de minimis impact due to our conservative RWA density.
Our funding strategy continues to be based on our stable customer deposits, which represent two thirds of our funding base. In addition to our strong deposit base, we issued a EUR 500 million public sector covered bond in the first quarter 2017. In March 2017, we also participated in the ECB's targeted longer-term refinancing operations (TLTRO II), which provides four-year funding at attractive rates.
1) The figures provided for the SREP requirement exclude the counter-cyclical buffer for simplification reasons. As of September 2017, the counter-cyclical buffer amounted to 0.02%.
BAWAG Group maintains a conservative liquidity management strategy, which is reflected in our strong liquidity coverage ratio (LCR) of 127% at the end of the third quarter 2017. No additional LCR requirements were imposed on BAWAG Group as a result of the SREP for 2016 and 2017.
| Q3 | Q2 | Q1 | Q4 | Q3 | |
|---|---|---|---|---|---|
| in EUR million | 2017 | 2017 | 2017 | 2016 | 2016 |
| Net interest income | 198.0 | 198.7 | 196.8 | 177.6 | 176.1 |
| Net fee and commission income | 44.8 | 56.3 | 49.8 | 46.9 | 43.1 |
| Core revenues | 242.8 | 255.0 | 246.6 | 224.5 | 219.2 |
| Operating income | 252.1 | 256.3 | 265.0 | 247.4 | 238.1 |
| Operating expenses | (102.8) | (110.5) | (107.2) | (121.3) | (102.9) |
| Total risk costs | (17.0) | (15.6) | (11.1) | (17.8) | (9.0) |
| Profit before tax | 131.8 | 128.0 | 122.6 | 103.9 | 122.2 |
| Income taxes | (31.2) | (20.6) | (26.5) | (0.1) | (25.9) |
| Net profit | 100.5 | 107.4 | 96.1 | 103.8 | 96.3 |
| (figures annualized) | |||||
| Return on equity | 11.9% | 13.1% | 12.1% | 13.5% | 13.0% |
| Return on equity (@12% CET1) | 14.9% | 15.4% | 13.6% | 15.5% | 15.3% |
| Return on tangible equity | 13.4% | 14.7% | 13.6% | 15.2% | 14.6% |
| Return on tangible equity (@12% CET1) | 17.3% | 17.8% | 15.6% | 17.9% | 17.7% |
| Net interest margin | 2.29% | 2.23% | 2.23% | 2.20% | 2.30% |
| Cost-income ratio | 40.8% | 43.1% | 40.5% | 49.0% | 43.2% |
| Risk costs / loans and receivables | 0.22% | 0.19% | 0.14% | 0.25% | 0.14% |
| Tax rate | 23.7% | 16.1% | 21.6% | 0.1% | 21.2% |
Note: For details on definitions and calculation methodology, please refer to the section entitled "Definitions" on page 71.
The BAWAG P.S.K. Retail segment services 1.8 million private and small business customers through a centralized branch network 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 the first three quarters 2017, we further invested in the development of our retail franchise to ensure a high-quality experience for our customers. We enhanced customer service quality and increased sales productivity through our differentiated branch structure, creating more productive and larger advisory teams and specialization in branches.
This product and distribution strategy is complemented by a data-driven approach to offer targeted products and services to customers in context with their lives and financial needs at the right time. This approach relies on the long history we have with most of our customers, paired with purchasing-probability and trigger-based models used to identify customers' needs. In this context, we have developed a new customer segmentation which combines behavioral insights with the revenue potential of customers, allowing us to better target active customers.
Additionally, we continued to invest in our digital customer experience. This includes further development of our omnichannel customer interaction platform as well as the continued release of new digital banking features, including digital crime security insurance and a peer-to-peer payment capability making online payments easier and worry-free for our customers.
The segment results reflect the success of our continued focus on the following value drivers:
In the first three quarters 2017, we continued to grow our consumer lending franchise by originating EUR 380 million of new consumer loans, which translates into net asset growth of 6% compared to year-end 2016. These results were delivered while maintaining our disciplined underwriting standards.
Our instant credit decisions in our branches, our 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 relevant and contextual leads for our sales force for crossselling to current customers and new customer acquisition. All these activities have resulted in a more than 7% higher average volume per consumer loan compared to last year.
We continue to see high customer interest in housing loans and are investing in our housing finance product platform. The market for home ownership and financing continues to grow domestically, and we are expanding our share with a complete product set and increased distribution for this critical relationship product. In the first three quarters 2017, we originated EUR 510 million of new housing loans, up 23% from the prior year. The acquisition of start:bausparkasse in the fourth quarter 2016 further strengthened our presence in this market.
At the end of the third quarter 2017, the total assets of the BAWAG P.S.K. Retail segment stood at EUR 11.5 billion, with total new originations of EUR 1.0 billion.
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 0.20% at the end of the third quarter 2017. The increase of overall deposits compared to September 2016 reflects the acquisition of start:bausparkasse and IMMO-BANK.
Customer deposit volume development (in EUR billion)
We continue to reap the benefits of a major initiative concerning fee-generating products we launched in 2016. Part of this initiative were the new KontoBox (current accounts) models, which were well received by our customers. More than 63% of our new current account customers selected our premium models in the first three quarters 2017.
We are continuously working on new value-added products and services for our customers through internal development and partnerships, a cornerstone of our strategy. For instance, by providing investment product options to help customers earn better returns in a lowinterest rate environment, we have increased the share of actively managed funds, helping to simultaneously drive higher yields for our customers and provide us with increased fee income.
Additionally, we have introduced a new insurance product "KONZEPT:SCHUTZ" that provides earnings security for our customers in protecting them against risks of disability, unemployment and severe illnesses. We sold EUR 15 million in premiums for this product during the third quarter 2017, and EUR 31 million since the product's introduction in March of this year, contributing to the positive fee income development of the segment.
Our strong results in the BAWAG P.S.K. Retail segment are based on two pillars:
We have created a differentiated branch structure to concentrate advisory services in our core locations with the highest customer frequency, 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, which is evidenced by a 9% increase in sales per advisor in the first three quarters 2017 compared to the prior year.
Additionally, we extended the local responsibility and invested in product and sales training for our advisors. These activities resulted in an improvement of the costincome ratio of the BAWAG P.S.K. Retail segment by 7.3 points to 47.7% compared to the first three quarters 2016. On top, we are testing new formats for completing our
distribution system, ranging from new mobile sales activities to partnerships in the SME segment.
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. With this shift, we are accessible for our clients 24/7 from anywhere. Our customers' activities prove the continuously growing interest in our digital services. Compared to the first three quarters 2016, the number of online payment transactions increased by 8% and the share of online transactions via our mobile apps increased by 60%. During the same period, the number of over-the-counter transactions decreased by 13%.
We are continuously evaluating various inorganic growth opportunities. During the first three quarters 2017, we focused on the integration and onboarding of our new customers resulting from the acquisitions of start:bausparkasse and IMMO-BANK in the fourth quarter 2016. The start:bausparkasse brand and distribution network strengthen our housing loan product range offering and provide us with greater access to a profitable segment of the market.
Over the past years, our focus has been on optimizing existing digital channels through sales and product feature integration into the online customer journeys, while we drove the development of our technical architecture to anticipate the impact of changes in the market.
As a leader in the digital marketplace, we now have a comprehensive core product offering through our digital channels. Additionally, we are continuously optimizing the experience of our customers when banking with us. As an example, the Touch ID (fingerprint) login functionality for our mobile banking app, launched in December 2016, was very well received by our customers with more than 2.8 million logins since launch, thereof 1.1 million within the third quarter 2017. This led to an increasing number of logins to our eBanking coming from mobile devices,
standing at an overall 66% of total logins (up 8 points from September 2016).
As we focus further on shaping the future of our retail franchise, we have kicked off a Bank-wide project to build out a new digital customer experience platform by applying an agile, mobile-first approach to make all of our customers' financial lives easier. The new platform will provide a holistic customer journey with seamless switching between the different sales and service channels as well as a comprehensive set of personalization features, including customization and financial advice based on big data analytics. Additionally, we will continue to round out mobile sales capabilities and further develop our financial service ecosystem. The front-end layer of the platform is integrated to our back-end systems via our public API (application program interface), which will significantly improve our time-to-market and give us full flexibility with enhanced velocity when integrating with fintech and other partners.
On November 9, 2017, we gave notice to Austrian Post, our partner in operating a joint branch network across Austria, to terminate our cooperation agreement. The termination will become effective as of December 31, 2020, unless both parties agree on an earlier termination. Adapting to changing customer behavior, we target, over the mid-term, a smaller but more efficient stand-alone network of approximately 100 branches with larger advisory teams, supported by mobile sales teams and high-quality digital platforms. This approach significantly reduces network costs, creates more productive customer-centric branches and allows us to further invest in the overall customer experience.
In the coming quarters, we will continue to execute on our long-term strategy and continued transformation. We offer our products and customized advisory services to help our customers in their financial lives. We do so by aspiring to a superior customer experience through all channels. As such, we are progressing towards a consolidated, digitally integrated platform across all channels.
| Income metrics (in EUR million) |
Q3 2017 |
Q3 2016 |
Change (%) |
Jan–Sep 2017 |
Jan–Sep 2016 |
Change (%) |
|---|---|---|---|---|---|---|
| Net interest income | 100.6 | 89.2 | 12.8 | 298.1 | 258.6 | 15.3 |
| Net fee and commission income | 35.0 | 31.7 | 10.4 | 117.2 | 106.3 | 10.3 |
| Core revenues | 135.6 | 120.9 | 12.2 | 415.3 | 364.9 | 13.8 |
| Gains and losses on financial instruments | 2.3 | 0.0 | 100 | 3.1 | 0.8 | >100 |
| Other operating income and expenses | 0.6 | 0.0 | 100 | 1.8 | 1.0 | 80.0 |
| Operating income | 138.5 | 120.9 | 14.6 | 420.2 | 366.7 | 14.6 |
| Operating expenses | (65.9) | (65.7) | 0.3 | (200.3) | (201.8) | (0.7) |
| Regulatory charges | 0.0 | 0.0 | – | (14.3) | (12.4) | 15.3 |
| Total risk costs | (14.2) | (9.3) | 52.7 | (30.7) | (26.6) | 15.4 |
| Profit before tax | 58.4 | 45.9 | 27.2 | 174.9 | 125.9 | 38.9 |
| Q3 | Q3 | Change | Jan–Sep | Jan–Sep | Change | |
| Key ratios | 2017 | 2016 | (pts) | 2017 | 2016 | (pts) |
| Pre-tax return on equity | 22.7% | 21.6% | 1.1 | 23.5% | 20.1% | 3.4 |
| Pre-tax return on equity (@12% CET1) | 28.4% | 25.6% | 2.8 | 28.1% | 22.2% | 5.9 |
| Net interest margin | 3.49% | 3.84% | (0.35) | 3.42% | 3.73% | (0.31) |
| Cost-income ratio | 47.6% | 54.3% | (6.7) | 47.7% | 55.0% | (7.3) |
| Risk costs / loans and receivables | 0.49% | 0.40% | 0.09 | 0.35% | 0.38% | (0.03) |
| NPL ratio | 2.2% | 2.4% | (0.2) | 2.2% | 2.4% | (0.2) |
| Business volumes (in EUR million) |
Sep 2017 |
Dec 2016 |
Change (%) |
Sep 2016 |
Change (%) |
|
| Assets | 11,480 | 11,659 | (1.5) | 9,293 | 23.5 | |
| Risk-weighted assets | 4,436 | 4,432 | 0.1 | 3,676 | 20.7 | |
| Customer deposits | 17,704 | 18,058 | (2.0) | 15,788 | 12.1 | |
| Own issues | 2,864 | 2,990 | (4.2) | 2,522 | 13.6 |
The segment achieved a profit before tax of EUR 174.9 million in the first three quarters 2017, up 38.9% compared to the same period last year, and delivered a pre-tax return on equity (@12% CET1) of 28.1% and a cost-income ratio of 47.7%.
Overall risk metrics reflect the high credit quality of the retail business, with a risk cost ratio of 35 basis points (down 3 basis points versus the first three quarters 2016) and an NPL ratio of 2.2% (down 20 basis points versus September 2016).
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 and mobile 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 our call centers.
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
easygroup is a cornerstone to the overall growth strategy for BAWAG Group. Our goal is to continue being the leading
direct bank in Austria and to expand into larger Western markets with focus on the DACH region.
Compared to September 2016, easygroup's client base was up 7% to 428,000 customers and borrowers with 717,000 accounts. easygroup ended the third quarter 2017 with customer deposits of EUR 3.7 billion. The segment's assets stood at EUR 4.0 billion at the end of the third quarter 2017, up 30% compared to September 2016.
Our strong results are due to four key pillars:
easygroup continued to see an inflow of new customers and accounts in Austria. We saw an increase of 3% and 4%, respectively, compared to September 2016. 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, easygroup recorded strong originations of EUR 339 million in the first three quarters 2017. This is comprised primarily of auto leases, consumer loans and mortgages. The 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.
In October 2017, we completed a transaction to acquire the commercial card issuing business of SIX Payment Services Austria, better known as PayLife. This acquisition enables easygroup to expedite its growth plans, adding over half a million new customers to the segment as well as making easybank a leading credit card issuer in Austria. With this acquisition, we have created a center of excellence called easypay that will focus on consolidating all credit card issuing activity across BAWAG Group. The cashless payment space is one of our core activities, which
we will look to for future growth and innovation. By creating the easypay center of excellence, we benefit from economies of scale and ensure a full focus on maintaining our position as the leading Austrian credit card issuer.
easybank has always been determined to offer its customers the best banking experience. We believe this helps drive customer loyalty. Since September 2016, easybank's number of current and savings accounts has increased by 5%. Given the overall interest landscape, easybank reduced its external interest rate offered to customers, bringing our average deposit cost from 37 basis points in September 2016 to 6 basis points in September 2017.
Customer deposit volume development (in EUR billion)
As a testament to our commitment to our customer satisfaction, easybank was given an award by the Financial Marketing Association Austria (FMVÖ) for the seventh consecutive year in 2017. This association conducts a survey each year on customer satisfaction, in which easybank received a Net Promoter Score of 52%, the highest for any bank or insurance company.
During the first three quarters 2017, we continued to heavily invest in easybank's digital architecture. Our goal is to create Austria's first truly digital bank – from front to back. Investing in digitizing the bank will not only benefit our bottom line, but it will also provide noticeable benefits to our customers. All of our investments are aimed towards decreasing the friction currently required for consumers to take out banking products as well as decrease the processing time to deliver on customer demands.
During the first three quarters 2017, we have reached several key milestones in starting our business in Germany, receiving clearance from the regulators to open a branch and developing our operating system and customer-facing digital channels. We view the German market as a great opportunity for growth within easygroup. By utilizing the lean infrastructure and digital culture that has been cultivated in Austria, we expect to tap into the much larger and growing German online market. With these milestones behind us, we plan to launch our new brand Qlick in Germany during the fourth quarter 2017.
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. We are currently developing a brand-new website, mobile app and eBanking platform. These new digital channels will provide a huge overhaul in our customer experience and acquisition capabilities. With the launch of our new website, we will be the only direct bank in Austria with a full suite of financial products that can be opened by consumers within minutes, without them having to leave their homes. The new mobile app and eBanking will be available through the course of 2018 and have a state-ofthe-art look and feel and usability.
The completed acquisition of the PayLife card issuing business is a huge win for the segment. The acquisition brings over half a million new customers, an elite credit card team and important distribution partnerships. Integrating and growing this business will be a core focus for the remainder of 2017 and beyond. The PayLife acquisition was the catalyst for the creation of our easypay hub, which will be a core area of focus for growth in Austria and Germany in the future.
| Income metrics (in EUR million) |
Q3 2017 |
Q3 2016 |
Change (%) |
Jan–Sep 2017 |
Jan–Sep 2016 |
Change (%) |
|---|---|---|---|---|---|---|
| Net interest income | 37.5 | 29.6 | 26.7 | 115.8 | 89.7 | 29.1 |
| Net fee and commission income | 2.8 | 2.4 | 16.7 | 8.2 | 6.9 | 18.8 |
| Core revenues | 40.3 | 32.0 | 25.9 | 124.0 | 96.6 | 28.4 |
| Gains and losses on financial instruments | (2.3) | 0.0 | (100) | (2.3) | 0.0 | (100) |
| Other operating income and expenses | (0.6) | (0.2) | >(100) | (1.1) | (0.1) | >(100) |
| Operating income | 37.4 | 31.8 | 17.6 | 120.6 | 96.5 | 25.0 |
| Operating expenses | (7.9) | (7.6) | 3.9 | (23.7) | (23.3) | 1.7 |
| Regulatory charges | 0.0 | 0.0 | – | (2.4) | (2.5) | (4.0) |
| Total risk costs | (3.8) | 0.2 | – | 1.8 | (1.9) | – |
| Profit before tax | 25.7 | 24.4 | 5.3 | 96.3 | 68.8 | 40.0 |
| Key ratios | Q3 2017 |
Q3 2016 |
Change (pts) |
Jan–Sep 2017 |
Jan–Sep 2016 |
Change (pts) |
| Pre-tax return on equity | 19.3% | 22.0% | (2.7) | 23.3% | 20.5% | 2.8 |
| Pre-tax return on equity (@12% CET1) | 24.2% | 26.0% | (1.8) | 27.7% | 22.7% | 5.0 |
| Net interest margin | 3.75% | 3.81% | (0.06) | 3.69% | 3.62% | 0.07 |
| Cost-income ratio | 21.1% | 23.9% | (2.8) | 19.7% | 24.1% | (4.4) |
| Risk costs / loans and receivables | 0.38% | (0.03)% | 0.41 | (0.06)% | 0.08% | (0.14) |
| NPL ratio | 3.0% | 3.1% | (0.1) | 3.0% | 3.1% | (0.1) |
| Business volumes (in EUR million) |
Sep 2017 |
Dec 2016 |
Change (%) |
Sep 2016 |
Change (%) |
|
| Assets | 3,964 | 4,458 | (11.1) | 3,053 | 29.8 | |
| Risk-weighted assets | 3,274 | 4,249 | (22.9) | 3,231 | 1.3 | |
| Customer deposits | 3,666 | 3,893 | (5.8) | 3,766 | (2.7) | |
| Own issues | 465 | 585 | (20.5) | 0 | 100 |
The segment achieved a profit before tax of EUR 96.3 million in the first three quarters 2017, up 40.0% compared to the same period in 2016, with a pre-tax return on equity (@12% CET1) of 27.7% and a cost-income ratio
of 19.7%. The underlying performance reflects the purchase of a high-quality performing residential mortgage portfolio in Western Europe in December 2016. Quarterover-quarter comparability is therefore limited.
DACH Corporates & Public Sector comprises our corporate and public sector lending activities and other fee-driven financial services, mainly for Austrian customers. Germany and Switzerland are included as well.
We service our Austrian corporate and public sector customers with a full range of products focusing on financing, investment and payment service products. 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 in Austria continues to be on maintaining and acquiring sustainable relationships while staying disciplined on pricing despite the competitive landscape.
A key focus area in 2017 is to combine our domestic and international lending activities to exploit revenue synergies and identify new markets with a focus on building a DACH regional corporate lending platform. To ensure that we always meet the needs of our customers and improve existing solutions, we established a unit that manages daily product activities as well as product development.
The DACH Corporates & Public Sector segment originated EUR 0.9 billion of new business during the first three quarters 2017, up significantly compared to the same period last year. Our business solution teams continued to elevate our strong client relationships across financing products as well as payments and cash management services, while aiming to maintain and increase strong risk-adjusted pricing.
The segment's assets decreased by EUR 0.2 billion to EUR 7.6 billion compared to year-end 2016 due to a decrease in short-term lendings to municipalities and social insurance companies.
Net fee and commission income – mainly arising from payments activities of our clients – was largely stable compared to the first three quarters 2016.
We expect the market to grow slightly but remain very competitive. We have the flexibility and speed necessary for strategic transactions requiring complete debt solutions for clients. The acquired IMMO-BANK portfolio provides a stronger customer base for commercial real estate financing.
| Income metrics (in EUR million) |
Q3 2017 |
Q3 2016 |
Change (%) |
Jan–Sep 2017 |
Jan–Sep 2016 |
Change (%) |
|---|---|---|---|---|---|---|
| Net interest income | 20.8 | 18.6 | 11.8 | 52.7 | 58.9 | (10.5) |
| Net fee and commission income | 9.2 | 9.6 | (4.2) | 29.0 | 29.7 | (2.4) |
| Core revenues | 30.0 | 28.2 | 6.4 | 81.7 | 88.6 | (7.8) |
| Gains and losses on financial instruments | (1.1) | 1.2 | – | 0.6 | 1.1 | (45.5) |
| Other operating income and expenses | 0.0 | 0.0 | – | 0.0 | 0.0 | – |
| Operating income | 28.9 | 29.4 | (1.7) | 82.3 | 89.7 | (8.2) |
| Operating expenses | (14.5) | (12.9) | 12.4 | (35.4) | (38.7) | (8.5) |
| Total risk costs | 1.5 | 1.3 | 15.4 | 7.0 | 2.7 | >100 |
| Profit before tax | 15.9 | 17.8 | (10.7) | 53.9 | 53.7 | 0.4 |
| Q3 | Q3 | Change | Jan–Sep | Jan–Sep | Change |
| Key ratios | 2017 | 2016 | (pts) | 2017 | 2016 | (pts) |
|---|---|---|---|---|---|---|
| Pre-tax return on equity | 11.4% | 14.0% | (2.6) | 13.4% | 13.6% | (0.2) |
| Pre-tax return on equity (@12% CET1) | 14.3% | 16.5% | (2.2) | 16.0% | 15.0% | 1.0 |
| Net interest margin | 1.09% | 1.00% | 0.09 | 0.90% | 1.03% | (0.13) |
| Cost-income ratio | 50.2% | 43.9% | 6.3 | 43.0% | 43.1% | (0.1) |
| Risk costs / loans and receivables | (0.08)% | (0.07)% | (0.01) | (0.12)% | (0.05)% | (0.07) |
| NPL ratio | 1.0% | 1.0% | 0.0 | 1.0% | 1.0% | 0.0 |
| Business volumes (in EUR million) |
Sep 2017 |
Dec 2016 |
Change (%) |
Sep 2016 |
Change (%) |
|---|---|---|---|---|---|
| Assets | 7,624 | 7,812 | (2.4) | 7,647 | (0.3) |
| Risk-weighted assets | 2,917 | 2,916 | 0.0 | 2,868 | 1.7 |
| Customer deposits (incl. other refinancing) | 5,584 | 5,284 | 5.7 | 3,792 | 47.3 |
| Own issues | 699 | 202 | >100 | 201 | >100 |
The segment contributed EUR 53.9 million to BAWAG Group's profit before tax, up 0.4% compared to the first three quarters 2016, and delivered a pre-tax return on equity (@12% CET1) of 16.0%. Core revenues decreased by 7.8% to EUR 81.7 million compared to the same period last year, resulting from the competitive market
environment with continued pressure on margins. The overall quality of the portfolio further improved compared to the first three quarters 2016, which is reflected in positive risk costs and a stable NPL ratio of 1.0%. This is a reflection of the prior years' de-risking activities and the overall high asset quality.
The International Business segment 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 corporate lending business 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 financing business focuses on senior loan positions in cash flow generating properties. We have limited exposure to land, development and construction financings.
We continued to focus on our loan origination opportunities primarily in select developed Western countries. The International Business segment generated new business of EUR 1.4 billion in the first three quarters 2017. Compared to year-end 2016, the FX movement accounts for EUR 270 million of portfolio reduction.
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 business experienced an asset volume decrease of 8% to EUR 2.4 billion as of September 2017 versus September 2016. Our new business volume primarily consists of high-quality loans with a general focus on defensive industries. Overall blended net leverage of the companies in our international corporate business was below 4.0x1) and for the tranches BAWAG Group lends to less than 3.0x1).
Our international real estate financing business was, to a lesser extent, also affected by an increased volume of early redemptions and currency movements. This was more than compensated by a strong realization of new financings on a year-over-year basis. Transaction diversification continued across our commercial real estate lending business on a geographic, asset and industry basis. These transactions focused primarily on real estate financings with attractive LTVs, strong cash flow, shorter weighted expected maturities and solid covenant characteristics. Overall business performance and credit trends remained solid with some shortening of duration as loan amortizations increased 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 business 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.
We see market conditions with a similar performance to the previous year and therefore expect a stable volume by the end of 2017 compared to September 2017.
| Income metrics (in EUR million) |
Q3 2017 |
Q3 2016 |
Change (%) |
Jan–Sep 2017 |
Jan–Sep 2016 |
Change (%) |
|---|---|---|---|---|---|---|
| Net interest income | 33.6 | 33.9 | (0.9) | 98.9 | 101.7 | (2.8) |
| Net fee and commission income | 0.2 | 0.0 | 100 | 0.2 | (0.1) | – |
| Core revenues | 33.8 | 33.9 | (0.3) | 99.1 | 101.6 | (2.5) |
| Gains and losses on financial instruments | 0.0 | (0.6) | 100 | (0.5) | (2.3) | 78.3 |
| Other operating income and expenses | 0.0 | 0.0 | – | 0.0 | 0.0 | – |
| Operating income | 33.8 | 33.3 | 1.5 | 98.6 | 99.3 | (0.7) |
| Operating expenses | (6.1) | (6.7) | (9.0) | (21.0) | (20.0) | 5.0 |
| Total risk costs | (0.3) | 0.1 | – | (15.8) | 3.1 | – |
| Profit before tax | 27.4 | 26.7 | 2.6 | 61.8 | 82.4 | (25.0) |
| Key ratios | Q3 2017 |
Q3 2016 |
Change (pts) |
Jan–Sep 2017 |
Jan–Sep 2016 |
Change (pts) |
| Pre-tax return on equity | 18.8% | 20.5% | (1.7) | 14.8% | 20.0% | (5.2) |
| Pre-tax return on equity (@12% CET1) | 23.5% | 24.3% | (0.8) | 17.8% | 21.9% | (4.1) |
| Net interest margin | 2.66% | 2.74% | (0.08) | 2.52% | 2.59% | (0.07) |
| Cost-income ratio | 18.0% | 20.1% | (2.1) | 21.3% | 20.1% | 1.2 |
| Risk costs / loans and receivables | 0.02% | (0.01)% | 0.03 | 0.41% | (0.08)% | 0.49 |
| NPL ratio | 1.0% | 0.0% | 1.0 | 1.0% | 0.0% | 1.0 |
| Business volumes (in EUR million) |
Sep 2017 |
Dec 2016 |
Change (%) |
Sep 2016 |
Change (%) |
|
| Assets | 5,139 | 5,634 | (8.8) | 4,954 | 3.7 | |
| Risk-weighted assets | 4,152 | 4,169 | (0.4) | 3,731 | 11.3 |
The segment contributed EUR 61.8 million to BAWAG Group's profit before tax in the first three quarters 2017, down 25.0% compared to the same period last year due to increased operating expenses and higher risk costs, while still delivering a pre-tax return on equity (@12% CET1) of 17.8%. Despite higher-than-anticipated early redemptions and general pressure on margins, core revenues remained
largely stable. The higher risk costs compared to the previous year result from precautionary provisions booked on exposures in the oil & gas sector in the second quarter 2017. Similar to the DACH corporate lending business, the international business is characterized by high-quality assets and a low NPL ratio of 1.0%.
Treasury Services & Markets acts as a service center for our customers, subsidiaries and partners through treasury activities such as ALM, funding, market execution and selective investment activities.
Treasury Services & Markets manages BAWAG Group's liquidity from the core funding franchise in available-forsale and held-to-maturity 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 and high-quality CLOs in order to maintain solid diversification.
During the first three quarters 2017, we continued to pursue the strategy of balancing the investment portfolio between long-term investment in high-quality securities while still maintaining our available-for-sale portfolio to preserve the flexibility of redeployment into customer loans or other balance sheet management activities.
As of 30 September 2017, the investment portfolio amounted to EUR 5.8 billion and the liquidity reserve was EUR 1.7 billion. The investment portfolio's average maturity was five years, comprised 97% of investment grade rated securities, of which 87% 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 30 September 2017, 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. Exposure to Southern Europe continues to be moderate and comprises shorter-dated, liquid bonds of well-known issuers. This overall composition reflects our strategy of maintaining 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.
Treasury Services & Markets will continue to focus on keeping streamlined processes and simple products in support of BAWAG Group's core operating activities and customer needs. The development of liquidity supply and the tapering of the asset purchases by the ECB as well as elevated political risks will remain important factors in the financial markets. However, we are committed to maintaining high credit quality and highly liquid investments with solid diversification.
| Income metrics (in EUR million) |
Q3 2017 |
Q3 2016 |
Change (%) |
Jan–Sep 2017 |
Jan–Sep 2016 |
Change (%) |
|---|---|---|---|---|---|---|
| Net interest income | 12.4 | 13.2 | (6.1) | 37.3 | 41.4 | (9.9) |
| Net fee and commission income | 0.0 | 0.0 | – | 0.0 | 0.0 | – |
| Core revenues | 12.4 | 13.2 | (6.1) | 37.3 | 41.4 | (9.9) |
| Gains and losses on financial instruments | 14.0 | 10.4 | 34.6 | 23.8 | 11.1 | >100 |
| Other operating income and expenses | 0.0 | 0.0 | – | 0.0 | 0.0 | – |
| Operating income | 26.4 | 23.6 | 11.9 | 61.1 | 52.5 | 16.4 |
| Operating expenses | (4.1) | (4.0) | 2.5 | (12.0) | (12.0) | – |
| Total risk costs | 0.0 | 0.0 | – | 0.0 | 0.0 | – |
| Profit before tax | 22.3 | 19.6 | 13.8 | 49.1 | 40.5 | 21.2 |
| Q3 | Q3 | Change | Jan–Sep | Jan–Sep | Change | |
| Key ratios | 2017 | 2016 | (pts) | 2017 | 2016 | (pts) |
| Pre-tax return on equity Pre-tax return on equity (@12% CET1) |
23.2% 29.0% |
22.5% 26.6% |
0.7 2.4 |
18.3% 21.8% |
15.7% 17.4% |
2.6 4.4 |
| Net interest margin | 0.82% | 0.95% | (0.13) | 0.83% | 0.97% | (0.14) |
| Cost-income ratio | 15.5% | 16.9% | (1.4) | 19.6% | 22.9% | (3.3) |
| Business volumes (in EUR million) |
Sep 2017 |
Dec 2016 |
Change (%) |
Sep 2016 |
Change (%) |
|
| Assets and liquidity reserve | 7,479 | 6,691 | 11.8 | 5,905 | 26.7 | |
| Risk-weighted assets | 1,759 | 2,031 | (13.4) | 1,868 | (5.8) |
The segment contributed EUR 49.1 million to BAWAG Group's profit before tax in the first three quarters 2017, up 21.2% compared to the same period in 2016, and delivered a pre-tax return on equity (@12% CET1) of 21.8%. Operating income was up 16.4% to EUR 61.1 million, supported by higher gains on financial instruments.
The Corporate Center contains central functions for BAWAG Group. Market values from derivatives represent the largest portion of assets and liabilities. BAWAG Group's equity is also shown here.
In order to better assess the operational developments in the individual business segments, non-operational items such as restructuring expenses, contributions to the single resolution fund, the bank levy and corporate taxes are shown in the Corporate Center.
Profit before tax was impacted by higher operating expenses as well as lower income on gains and losses on financial
instruments. Furthermore, other operating income and expenses includes a provision for potential fines (including associated tax effects) related to a breach of the large exposure limit of clients within the French residential mortgage portfolio.
The income taxes increased significantly in the first three quarters 2017, mainly driven by a one-time positive tax effect in 2016 which did not repeat in 2017.
Other assets as well as other liabilities significantly decreased due to lower market values from derivatives, while risk-weighted assets remained largely stable during the reporting period.
| Income metrics (in EUR million) |
Q3 2017 |
Q3 2016 |
Change (%) |
Jan–Sep 2017 |
Jan–Sep 2016 |
Change (%) |
|---|---|---|---|---|---|---|
| Net interest income | (6.9) | (8.5) | 18.8 | (9.3) | 2.0 | – |
| Net fee and commission income | (2.4) | (0.5) | >(100) | (3.8) | 3.3 | – |
| Core revenues | (9.3) | (9.0) | (3.3) | (13.1) | 5.3 | – |
| Gains and losses on financial instruments | 13.3 | 9.0 | 47.8 | 18.8 | 31.9 | (41.1) |
| Other operating income and expenses | (16.9) | (0.9) | >(100) | (15.2) | 1.2 | – |
| Operating income | (12.9) | (0.9) | >(100) | (9.5) | 38.4 | – |
| Operating expenses | (4.4) | (5.8) | (24.1) | (28.0) | (22.3) | 25.6 |
| Regulatory charges | (1.7) | (5.9) | (71.2) | (13.1) | (24.9) | (47.4) |
| Total risk costs | (0.2) | (1.3) | (84.6) | (6.0) | (2.2) | >100 |
| Share of the profit or loss of associates accounted for using the equity method |
1.2 | 1.9 | (36.8) | 3.0 | 6.2 | (51.6) |
| Profit before tax | (18.0) | (12.0) | (50.0) | (53.6) | (4.8) | >(100) |
| Volumes | Sep | Dec | Change | Sep | Change |
|---|---|---|---|---|---|
| (in EUR million) | 2017 | 2016 | (%) | 2016 | (%) |
| Other assets | 2,664 | 3,489 | (23.6) | 3,546 | (24.9) |
| Risk-weighted assets | 1,274 | 1,246 | 2.2 | 1,270 | 0.3 |
| Equity | 3,396 | 3,134 | 8.4 | 3,027 | 12.2 |
| Other liabilities | 1,838 | 2,748 | (33.1) | 2,810 | (34.6) |
With respect to the explanations on financial and legal risks at BAWAG Group as well as the goals and methods of risk
management, please read the information in the Notes section.
BAWAG Group delivered strong results in the first three quarters 2017 and anticipates that this strong performance will continue throughout the remainder of the year. For full year 2017, we expect a profit before tax (PBT) of greater than EUR 500 million, a Return on Tangible Equity (RoTE @12% CET1) greater than 16% and a fully loaded CET1 ratio greater than 12% (post Q4 dividend).
Our targets are as follows:
Our capital generation and return policy is as follows:
In respect of the financial year 2017, we target a distribution of 50% of net profit from Q4 2017, calculated on the basis of the average quarterly profits of 2017.
Consolidated Interim Financial Statements
| [Notes] | Jan–Sep | Jan–Sep | Q3 | Q3 | |
|---|---|---|---|---|---|
| in EUR million | 2017 | 2016 | 2017 | 2016 | |
| Interest income*) | 820.7 | 783.0 | 271.7 | 254.4 | |
| Interest expense | (234.0) | (232.6) | (73.7) | (78.3) | |
| Dividend income | 6.8 | 1.9 | 0.0 | 0.0 | |
| Net interest income | [1] | 593.5 | 552.3 | 198.0 | 176.1 |
| Fee and commission income | 210.1 | 205.2 | 67.4 | 64.4 | |
| Fee and commission expenses | (59.3) | (59.1) | (22.6) | (21.3) | |
| Net fee and commission income | [2] | 150.8 | 146.1 | 44.8 | 43.1 |
| Gains and losses on financial assets and liabilities*) |
[3] | 43.5 | 42.6 | 26.2 | 20.0 |
| Other operating income and expenses | (42.6) | (36.4) | (18.0) | (6.6) | |
| Operating expenses | [4] | (322.1) | (319.4) | (103.4) | (103.3) |
| Provisions and impairment losses | [5] | (43.7) | (24.9) | (17.0) | (9.0) |
| Share of the profit or loss of associates accounted for using the equity method |
3.0 | 6.2 | 1.2 | 1.9 | |
| Profit before tax | 382.4 | 366.5 | 131.8 | 122.2 | |
| Income taxes | (78.3) | 13.5 | (31.2) | (25.9) | |
| Profit after tax | 304.1 | 380.0 | 100.6 | 96.3 | |
| Thereof attributable to non-controlling interests | 0.1 | 0.2 | 0.1 | 0.0 | |
| Thereof attributable to owners of the parent | 304.0 | 379.8 | 100.5 | 96.3 |
*) Adjusted for 2016. See Note 3.
In accordance with IFRS, the item Other operating income and expenses also includes regulatory charges (bank levy, contributions to the deposit guarantee scheme and to the single resolution fund) in the amount of EUR 28.1 million (Jan–Sep 2016: EUR 38.5 million). Expenses for the deposit guarantee scheme and for the single resolution fund comprise the total expected charges for 2017. The bank levy included in this item amounts to EUR 3.5 million for the first three quarters 2017, compared to EUR 16.4
million according to the old bank levy regime for the first three quarters 2016.
The item Operating expenses includes regulatory charges (FMA and ECB supervisory charges) in the amount of EUR 1.7 million (Jan–Sep 2016: EUR 1.3 million) as well. However, the Bank's management sees regulatory charges as a non-operating expense. Accordingly, they are shown in a separate expense line in the Interim Group Management Report.
| Jan–Sep 2017 |
Jan–Sep 2016*) |
|
|---|---|---|
| Net result attributable to owners of the parent (in EUR million) | 304.0 | 379.8 |
| Net result attributable to owners of the parent after deduction of dividend (in EUR million) | 304.0 | 379.8 |
| Weighted average number of outstanding shares*) | 100,000,000 100,000,000*) | |
| Basic earnings per share (in EUR) | 3.0 | 3.8 |
| Weighted average diluted number of outstanding shares | 100,000,000 100,000,000*) | |
| Diluted earnings per share (in EUR) | 3.0 | 3.8 |
| Jan–Sep 2017 |
Jan–Sep 2016*) |
|
|---|---|---|
| Shares outstanding at the beginning of the period*) | 100,000,000 100,000,000 | |
| Shares outstanding at the end of the period | 100,000,000 100,000,000 | |
| Weighted average number of outstanding shares*) | 100,000,000 100,000,000 | |
| Weighted average diluted number of outstanding shares | 100,000,000 100,000,000 |
*) Represents a theoretical figure since the former BAWAG Holding GmbH was converted into BAWAG Group AG in August 2017.
Earnings per share represent the net result attributable to ordinary equity holders divided by the weighted average number of ordinary shares outstanding during the reporting period. As no dilutive potential ordinary shares exist, basic earnings per share correspond to diluted earnings per share.
| [Notes] | Jan–Sep | Jan–Sep | Q3 | Q3 | |
|---|---|---|---|---|---|
| in EUR million | 2017 | 2016 | 2017 | 2016 | |
| Profit after tax | 304.1 | 380.0 | 100.6 | 96.3 | |
| Other comprehensive income | |||||
| Items that will not be reclassified to profit or loss |
|||||
| Actuarial gain/loss on defined benefit plans | [12] | 3.9 | (20.3) | – | (4.7) |
| Income tax on items that will not be reclassified |
(1.0) | 5.1 | – | 1.2 | |
| Total items that will not be reclassified to profit or loss |
2.9 | (15.2) | – | (3.5) | |
| Items that may be reclassified subsequently to profit or loss |
|||||
| Cash flow hedge reserve | (2.8) | 14.8 | 3.2 | 4.4 | |
| thereof transferred to profit (-) or loss (+) | (5.0) | (2.6) | (2.4) | (1.8) | |
| Available-for-sale reserve | 10.4 | 12.5 | (5.9) | 22.3 | |
| thereof transferred to profit (-) or loss (+) | (27.5) | (15.9) | (15.9) | (1.8) | |
| Share of other comprehensive income of associates accounted for using the equity method |
– | (3.1) | – | (0.2) | |
| Income tax relating to items that may be reclassified |
(1.9) | (8.4) | 0.7 | (6.6) | |
| Total items that may be reclassified subsequently to profit or loss |
5.7 | 15.8 | (2.0) | 19.9 | |
| Other comprehensive income | 8.6 | 0.6 | (2.0) | 16.4 | |
| Total comprehensive income, net of tax | 312.7 | 380.6 | 98.6 | 112.7 | |
| Thereof attributable to non-controlling interests | 0.1 | 0.2 | 0.0 | 0.0 | |
| Thereof attributable to owners of the parent | 312.6 | 380.4 | 98.6 | 112.7 |
| in EUR million | [Notes] | Sep 2017 | Dec 2016 |
|---|---|---|---|
| Cash reserves | 717 | 1,020 | |
| Financial assets designated at fair value through profit or loss | 183 | 202 | |
| Available-for-sale financial assets | [6] | 2,751 | 3,209 |
| Held-to-maturity investments | 2,420 | 2,353 | |
| Financial assets held for trading | [7] | 434 | 652 |
| Loans and receivables | [8] | 30,598 | 30,821 |
| Customers | 27,528 | 28,494 | |
| Credit institutions | 1,917 | 1,635 | |
| Securities | 1,153 | 692 | |
| Hedging derivatives | 543 | 677 | |
| Property, plant and equipment | 47 | 53 | |
| Investment properties | 5 | 3 | |
| Goodwill | 58 | 58 | |
| Brand name and customer relationships | 170 | 174 | |
| Software and other intangible assets | 150 | 128 | |
| Tax assets for current taxes | 5 | 10 | |
| Tax assets for deferred taxes | 92 | 203 | |
| Associates recognized at equity | 43 | 45 | |
| Other assets | 134 | 135 | |
| Total assets | 38,350 | 39,743 |
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 16 of this Consolidated Interim Report.
| in EUR million | [Notes] | Sep 2017 | Dec 2016 |
|---|---|---|---|
| Total liabilities | 34,954 | 36,607 | |
| Financial liabilities designated at fair value through profit or loss | [9] | 756 | 1,115 |
| Financial liabilities held for trading | [10] | 338 | 617 |
| Financial liabilities at amortized cost | [11] | 32,670 | 32,962 |
| Customers | 24,671 | 25,998 | |
| Issued bonds, subordinated and supplementary capital | 4,942 | 4,900 | |
| Credit institutions | 3,057 | 2,064 | |
| Financial liabilities associated with transferred assets | – | 300 | |
| Valuation adjustment on interest rate risk hedged portfolios | 135 | 223 | |
| Hedging derivatives | 124 | 260 | |
| Provisions | [12] | 373 | 404 |
| Tax liabilities for current taxes | 3 | 19 | |
| Tax liabilities for deferred taxes | 6 | 27 | |
| Other obligations | 549 | 680 | |
| Total equity | 3,396 | 3,136 | |
| Equity attributable to the owners of the parent | 3,395 | 3,134 | |
| Non-controlling interests | 1 | 2 | |
| Total liabilities and equity | 38,350 | 39,743 |
| in EUR million | Subscribed capital |
Capital reserves |
Retained earnings reserve |
AFS reserve net of tax |
Cash flow hedge reserve net of tax |
Actuarial gains/losses net of tax |
Equity attributable to the owners of the parent |
Non controlling interests |
Equity including non controlling interests |
|---|---|---|---|---|---|---|---|---|---|
| Balance as of 01.01.2016 | 100 | 1,094 | 1,793 | 41 | – | (72) | 2,956 | 1 | 2,957 |
| Dividends | – | – | (309) | – | – | – | (309) | – | (309) |
| Total comprehensive income | – | – | 379 | 5 | 11 | (15) | 380 | 1 | 381 |
| Balance as of 30.09.2016 | 100 | 1,094 | 1,863 | 46 | 11 | (87) | 3,027 | 2 | 3,029 |
| Balance as of 01.01.2017 | 100 | 1,094 | 1,967 | 39 | 6 | (73) | 3,134 | 1 | 3,135 |
| Dividends | – | – | (52) | – | – | – | (52) | – | (52) |
| Total comprehensive income | – | – | 304 | 8 | (2) | 3 | 313 | – | 313 |
| Balance as of 30.09.2017 | 100 | 1,094 | 2,219 | 47 | 4 | (70) | 3,395 | 1 | 3,396 |
By way of a resolution dated 7 September 2017, an interim dividend in the amount of EUR 51.6 million was paid to Promontoria Sacher Holding B.V., at the date of the payment the sole shareholder of BAWAG Group AG. The
dividend amounted to EUR 0.52 per share. The dividend was taken into account in the calculation of the regulatory ratios.
| in EUR million | Jan–Sep 2017 |
Jan–Sep 2016 |
|---|---|---|
| Cash and cash equivalents at end of previous period | 1,020 | 809 |
| Profit (after tax, before non-controlling interests) | 304 | 380 |
| Non-cash items included in the profit (loss) and reconciliation to net cash from operating activities |
(608) | (507) |
| Change in assets and liabilities arising from operating activities after corrections for non-cash items |
(986) | (80) |
| Interest receipts | 839 | 787 |
| Interest paid | (187) | (188) |
| Dividend receipts | 7 | 2 |
| Net cash from operating activities | (631) | 394 |
| Cash receipt from sales of subsidiaries | – | 91 |
| Cash receipts from sales of | ||
| Financial investments | 1,481 | 1,115 |
| Tangible and intangible non-current assets | 0 | 1 |
| Cash paid for | ||
| Financial investments | (1,045) | (1,222) |
| Tangible and intangible non-current assets | (42) | (30) |
| Net cash used in investing activities | 394 | (45) |
| Dividends paid | (52) | (309) |
| Others | (14) | (13) |
| Net cash from financing activities | (66) | (322) |
| Cash and cash equivalents at end of period | 717 | 836 |
The condensed consolidated interim financial statements of BAWAG Group as of 30 September 2017 were prepared in accordance with the International Financial Reporting Standards (IFRS) released by the International Accounting Standards Board (IASB) and in accordance with their interpretation by the IFRS Interpretations Committee (IFRIC/SIC) to the extent adopted by the EU.
These interim financial statements for the first three quarters 2017 were prepared in accordance with IAS 34 (Interim Financial Reporting).
The accounting principles used in preparing this interim financial report are the same as those used for the preparation of the consolidated financial statements as of 31 December 2016.
The condensed consolidated interim 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 following items are also subject to the judgment of management:
Since January 2016, BAWAG Group 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 Group designates the first cash flows for a defined period of time as a hedged item.
In other comprehensive 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 the first three quarters 2017, fair value losses in the amount of minus EUR 2.8 million would have been presented in the line item Gains and losses on financial instruments in the income statement if BAWAG Group had not applied cash flow hedge accounting.
Due to BAWAG Group's IPO in October, disclosure requirements according to IAS 33 Earnings per share are included for the first time.
As of 30 September 2017, no new standards, interpretations and amendments to existing standards are mandatory for periods beginning on 1 January 2017.
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 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.
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.
The Group made an assessment of business models for all segments and is currently setting up documentation including:
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.
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:
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.
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.
BAWAG Group has evaluated different software solutions and has decided to use the existing systems to implement the automated treatment of modifications. Currently, the Software Solution is being implemented.
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 portfolio 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 the IASB.
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:
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 lifetime expected loss.
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 lifetime PDs) and an absolute (difference of relevant lifetime 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 IFRS 9 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.
The implementation project of BAWAG Group is at an advanced stage, and parts of the IFRS 9-relevant parameters and models are currently being finally validated. Significant internal and external resources were bundled to ensure a timely implementation of the IFRS 9 project. The governance structure is ensured by the involvement of the CFO and the CRO in the steering committee and to ensure the timely implementation of the project. At the Supervisory Board level, IFRS 9 status updates are provided to the Risk and Credit Committee.
Since June 2017, BAWAG Group performs parallel calculations to test the impacts on the financials and on the process workflows and integrate them into the overall management of BAWAG Group.
When IFRS 9 is applied for the first time, BAWAG Group expects on the basis of the portfolio as of 30 September 2017 and the current project progress the following impacts on its financial accounts: Currently, we expect a slightly negative effect on IFRS equity due to impacts arising from both Classification & Measurement as well as Impairment. Concerning our Common Equity Tier 1 ratio, we expect a negative impact of around 40 basis points.
The disclosed effects are based on the Group's current assessment and may change when IFRS 9 is applied for the first time due to changes in the composition of the portfolio or different economic conditions.
IFRS 15 establishes a framework for determining whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance, including IAS 18 Revenue. IFRS 15 is effective for annual periods beginning on or after 1 January 2018. BAWAG Group has completed an analysis of the impact of the adoption of IFRS 15 on its consolidated financial statements. The analysis focused on fees and commission income, i.e. income that does not form part of the effective interest rate under IAS 39. IFRS 15 will not have a material impact on BAWAG Group, as the timing of the revenue and the presentation does not change except for immaterial amounts.
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 Group. BAWAG Group is currently evaluating the effects of IFRS 16 on the consolidated financial statements. One major effect for BAWAG Group 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.
Accounting for the acquisition of start:bausparkasse AG and IMMO-BANK AG according to IFRS 3 is still based on preliminary results. BAWAG Group expects finalization within the measurement period according to IFRS 3.45. Currently, the Group does not expect any major impacts on its equity.
The valuation principles as of 31 December 2016 were applied again.
As of 30 September 2017, the Group consists of 36 (31 December 2016: 36) fully consolidated entities and 2 (31 December 2016: 2) entities that are accounted for using the equity method in Austria and abroad. In the second quarter 2017, BV Vermögensverwaltung GmbH was included in the scope of consolidation due to materiality. In the third quarter 2017, BAWAG P.S.K. Leasing GmbH ("BPL") as the transferring company was merged with easyleasing GmbH as the absorbing company. Due to the merger, BPL was eliminated from the scope of consolidation.
The interim financial statements for the first three quarters 2017 were not audited or reviewed by an external auditor.
The tables in this report may contain rounding differences.
As no material changes have occurred since year-end 2016, we refer to the Notes to the consolidated financial statements as of 31 December 2016.
On October 7, 2017, BAWAG Group closed the acquisition of PayLife, the card issuing business of SIX Payment Services Austria. Combined with its existing credit and prepaid card business, this acquisition makes BAWAG Group one of the largest card issuers in Austria by number of prepaid and credit cards.
On April 20, 2017, Moody's announced several upgrades to BAWAG P.S.K.'s credit ratings. The long-term senior unsecured debt, issuer and deposit ratings were all raised by one notch to A2. At the same time, BAWAG P.S.K.'s standalone rating (Baseline Credit Assessment) as well as its subordinate debt rating were also upgraded by one notch to baa1 and Baa2, respectively. On October 18, 2017, Moody's affirmed these ratings but changed its outlook for these ratings from "positive" to "stable."
Effective October 30, 2017, Promontoria Sacher Holding B.V. ("PSH") has ceased to be a financial holding company within the meaning of Art. 4 (1) point (20) CRR, a parent financial holding company in a Member State within the meaning of Art. 4 (1) point (30) CRR as well as the EU parent financial holding company of BAWAG Group within the meaning of Art. 4 (1) point (31) CRR. Accordingly, PSH is no longer the super-ordinated financial holding company (übergeordnete Finanzholdinggesellschaft) of BAWAG Group within the meaning of Sec. 73 (3) of the Austrian Banking Act (Bankwesengesetz – "BWG").
On October 25, 2017, the shares of BAWAG Group AG were admitted to the Official Market of the Vienna Stock Exchange and started trading in the prime market segment. Based on the total number of 100,000,000 shares and the offer price of EUR 48.00 per share, the market capitalization of BAWAG Group AG amounted to EUR 4.8 billion. Following the offering, the free float will amount to 35.0% (before exercise of the greenshoe).
On its second trading day, October 27, 2017, BAWAG Group AG was admitted into the ATX (Austrian Traded Index).
| Jan–Sep | Jan–Sep | |
|---|---|---|
| in EUR million Interest income*) |
2017 820.7 |
2016 783.0 |
| Interest expense | (234.0) | (232.6) |
| Dividend income | 6.8 | 1.9 |
| Net interest income | 593.5 | 552.3 |
*) Adjusted for 2016.
| in EUR million | Jan–Sep 2017 |
Jan–Sep 2016 |
|---|---|---|
| Fee and commission income | 210.1 | 205.2 |
| Payment transfers | 129.1 | 127.3 |
| Lending | 22.5 | 22.6 |
| Securities and custody business | 30.0 | 27.6 |
| Other | 28.5 | 27.7 |
| Fee and commission expenses | (59.3) | (59.1) |
| Payment transfers | (28.9) | (29.7) |
| Other | (30.4) | (29.4) |
| Net fee and commission income | 150.8 | 146.1 |
| in EUR million | Jan–Sep 2017 |
Jan–Sep 2016 |
|---|---|---|
| Realized gains on sales of subsidiaries and securities | 57.7 | 33.2 |
| Fair value gains/losses | (14.0) | 16.3 |
| Gains/losses from fair value hedge accounting | 2.0 | (1.0) |
| Others*) | (2.2) | (5.9) |
| Gains and losses on financial assets and liabilities | 43.5 | 42.6 |
*) Adjusted for 2016.
IFRS does not provide guidance on the presentation of amortization of day one profits. Accordingly, it can be shown either in interest income or gains and losses on financial assets and liabilities. Until the end of the third quarter 2016, the disclosure was made in gains and losses on financial assets and liabilities. As the day one profit will be amortized on a systematic basis, BAWAG Group considers this regular amortization as similar to interest
income. Therefore, since the fourth quarter 2016 the amortization of day one profits is shown in interest income to provide greater transparency. Comparative amounts for the previous period were adjusted accordingly. The following table shows the effects in the first three quarters 2017 and the first three quarters 2016 on each item that was reclassified:
| in EUR million | Jan–Sep 2017 |
Jan–Sep 2016 |
|---|---|---|
| Decrease in other gains and losses on financial assets and liabilities | (5.7) | (8.0) |
| Increase in interest income | +5.7 | +8.0 |
| in EUR million | Jan–Sep 2017 |
Jan–Sep 2016 |
|---|---|---|
| Staff costs | (184.6) | (166.6) |
| Other administrative expenses | (103.4) | (108.5) |
| Depreciation and amortization on tangible and intangible assets | (28.4) | (26.6) |
| Restructuring and other one-off expenses | (5.7) | (17.7) |
| Operating expenses | (322.1) | (319.4) |
Last years' acquisitions (start:bausparkasse AG and IMMO-BANK AG) are not included in prior-year comparables, as the closing did not take place until the fourth quarter 2016. The line item Restructuring and other one-off expenses mainly includes expenses for restructuring costs.
| in EUR million | Jan–Sep 2017 |
Jan–Sep 2016 |
|---|---|---|
| Loan-loss provisions and changes in provisions for off-balance credit risk | (38.1) | (20.9) |
| Provisions and expenses for operational risk | (5.3) | (3.2) |
| Impairment losses on financial assets | 0.0 | (0.8) |
| Impairment losses on non-financial assets | (0.3) | – |
| Provisions and impairment losses | (43.7) | (24.9) |
| in EUR million | Sep 2017 | Dec 2016 |
|---|---|---|
| Bonds | 2,677 | 3,129 |
| Bonds of other issuers | 2,550 | 2,619 |
| Public sector debt instruments | 127 | 510 |
| Subsidiaries and other equity investments | 74 | 80 |
| Available-for-sale financial assets | 2,751 | 3,209 |
| in EUR million | Sep 2017 | Dec 2016 |
|---|---|---|
| Derivatives in trading book | 163 | 230 |
| Derivatives in banking book | 271 | 422 |
| Financial assets held for trading | 434 | 652 |
| Sep 2017 in EUR million |
Unimpaired assets | Impaired assets (total gross carrying amount) |
Allowances for individually impaired financial assets |
Allowances for collectively impaired financial assets |
Total net carrying amount |
|---|---|---|---|---|---|
| Receivables from customers | 27,091 | 679 | (164) | (78) | 27,528 |
| thereof IBNR portfolio provision1) |
– | – | – | (41) | (41) |
| Securities | 1,153 | – | – | – | 1,153 |
| Receivables from credit institutions |
1,917 | – | – | – | 1,917 |
| Total | 30,161 | 679 | (164) | (78) | 30,598 |
1) Allowance for incurred but not reported losses.
| Dec 2016 in EUR million |
Unimpaired assets |
Impaired assets (total gross carrying amount) |
Allowances for individually impaired financial assets |
Allowances for collectively impaired financial assets |
Total net carrying amount |
|---|---|---|---|---|---|
| Receivables from customers | 28,152 | 547 | (129) | (76) | 28,494 |
| thereof IBNR portfolio provision1) |
– | – | – | (54) | (54) |
| Securities | 692 | – | – | – | 692 |
| Receivables from credit institutions |
1,635 | – | – | – | 1,635 |
| Total | 30,479 | 547 | (129) | (76) | 30,821 |
1) Allowance for incurred but not reported losses.
| Sep 2017 in EUR million |
Unimpaired assets |
Impaired assets (total gross carrying amount) |
Allowances for individually impaired financial assets |
Allowances for collectively impaired financial assets |
Total net carrying amount |
|---|---|---|---|---|---|
| BAWAG P.S.K. Retail | 11,263 | 214 | (106) | (32) | 11,339 |
| easygroup | 3,885 | 79 | (17) | (5) | 3,942 |
| DACH Corporates & Public Sector |
7,415 | 32 | (21) | 0 | 7,426 |
| International Business | 4,898 | 52 | (18) | – | 4,932 |
| Treasury Services & Markets | 2,594 | – | – | – | 2,594 |
| Corporate Center | 106 | 302 | (2) | (41) | 365 |
| Total | 30,161 | 679 | (164) | (78) | 30,598 |
The following breakdown depicts the composition of the item Loans and receivables according to the Group's segments:
| Dec 2016 in EUR million |
Unimpaired assets |
Impaired assets (total gross carrying amount) |
Allowances for individually impaired financial assets |
Allowances for collectively impaired financial assets |
Total net carrying amount |
|---|---|---|---|---|---|
| BAWAG P.S.K. Retail | 11,499 | 160 | (84) | (19) | 11,556 |
| easygroup | 4,426 | 32 | (20) | (3) | 4,435 |
| DACH Corporates & Public Sector |
7,568 | 34 | (21) | 0 | 7,581 |
| International Business | 5,392 | – | – | – | 5,392 |
| Treasury Services & Markets | 1,496 | – | – | – | 1,496 |
| Corporate Center | 99 | 321 | (5) | (54) | 361 |
| Total | 30,479 | 547 | (129) | (76) | 30,821 |
The following table depicts the breakdown of receivables from customers by credit type:
| in EUR million | Sep 2017 | Dec 2016 |
|---|---|---|
| Loans | 24,534 | 25,300 |
| Current accounts | 1,204 | 1,325 |
| Finance leases | 1,175 | 1,202 |
| Cash advances | 615 | 667 |
| Receivables from customers | 27,528 | 28,494 |
| in EUR million | Sep 2017 | Dec 2016 |
|---|---|---|
| Issued debt securities and other securitized liabilities | 643 | 1,006 |
| Subordinated and supplementary capital | 113 | 109 |
| Financial liabilities designated at fair value through profit or loss | 756 | 1,115 |
| in EUR million | Sep 2017 | Dec 2016 |
|---|---|---|
| Derivatives trading book | 65 | 143 |
| Derivatives banking book | 273 | 474 |
| Financial liabilities held for trading | 338 | 617 |
| in EUR million | Sep 2017 | Dec 2016 |
|---|---|---|
| Deposits from banks | 3,057 | 2,064 |
| Deposits from customers | 24,671 | 25,998 |
| Savings deposits – fixed interest rates | 933 | 1,928 |
| Savings deposits – variable interest rates | 6,892 | 6,372 |
| Deposit accounts | 5,650 | 6,074 |
| Current accounts – Retail | 7,879 | 7,341 |
| Current accounts – Corporates | 2,603 | 2,505 |
| Other deposits1) | 714 | 1,778 |
| Issued bonds, subordinated and supplementary capital | 4,942 | 4,900 |
| Issued debt securities and other securitized liabilities | 4,473 | 4,436 |
| Subordinated and supplementary capital | 469 | 464 |
| Financial liabilities measured at amortized cost | 32,670 | 32,962 |
1) Primarily term deposits.
As of 30 September 2017, the line item deposits from banks includes a tranche in the TLTRO II in the amount of EUR 2.0 billion.
| in EUR million | Sep 2017 | Dec 2016 |
|---|---|---|
| Provisions for social capital | 346 | 386 |
| Anticipated losses from pending business | 6 | 8 |
| Other items including legal risks | 21 | 10 |
| Provisions | 373 | 404 |
The line item other items including legal risks includes a provision for possible consequences resulting from inspections of regulatory authorities. Also considering tax effects associated with the payment of potential fines, the Bank expects the impact from such fines (if imposed) on BAWAG Group's profit after tax not to exceed a € million figure in the low teens.
According to IAS 19, provisions for post-employment and termination benefits and for jubilee benefits are calculated using the projected unit credit method. The change of the
interest rate from 1.75% to 1.80%, which took place in the second quarter 2017, resulted in a net impact of EUR 2.3 million in other comprehensive income and EUR 0.1 million in profit.
As of September 2017 and 31 December 2016, the line item other items including risk includes provisions for expected refunds of negative interest due to supreme court rulings regarding negative interest reference rates in Austria in the amount of EUR 1 million.
The following table shows transactions with related parties:
| Sep 2017 in EUR million |
Parent company |
Entities with joint control of, or significant influence over, the entity |
Subsidiaries not consolidated |
At-equity companies |
Other companies |
|---|---|---|---|---|---|
| Loans and receivables – customers | 138 | 510 | 47 | – | 90 |
| Securities | – | 92 | – | 21 | – |
| Other assets (incl. derivatives) | 10 | 0 | 5 | – | – |
| Financial liabilities – customers | – | 0 | 20 | 107 | 4 |
| Other liabilities (incl. derivatives) | – | – | – | 1 | – |
| Guarantees provided | – | – | – | – | 1 |
| Interest income | 1.6 | 20.4 | 0.7 | 0.2 | 1.6 |
| Interest expenses | – | 6.8 | 0.0 | 1.2 | 0.0 |
| Net fee and commission income | – | 0.0 | 0.0 | 10.6 | 0.3 |
As of 30 September 2017, there is a loan from BAWAG Group to Promontoria Sacher Holding N.V. in the amount of EUR 138.1 million which has been fully repaid in October
| Dec 2016 in EUR million |
Parent company |
Entities with joint control of, or significant influence over, the entity |
Subsidiaries not consolidated |
At-equity companies |
Other companies |
|---|---|---|---|---|---|
| Loans and receivables – customers | 6 | 808 | 48 | 0 | 139 |
| Securities | – | 43 | – | 20 | – |
| Other assets (incl. derivatives) | 36 | 0 | 6 | – | – |
| Financial liabilities – customers | – | 0 | 11 | 113 | 10 |
| Other liabilities (incl. derivatives) | – | 0 | – | 1 | – |
| Guarantees provided | – | – | – | – | 1 |
| Interest income | – | 31.6 | 1.7 | 0.3 | 2.6 |
| Interest expenses | 0.0 | 0.8 | 0.0 | 1.5 | 0.0 |
| Net fee and commission income | 0.0 | – | 0.0 | 18.0 | 0.6 |
| Sep 2016 in EUR million |
Parent company |
Entities with joint control of, or significant influence over, the entity |
Subsidiaries not consolidated |
At-equity companies |
Other companies |
|---|---|---|---|---|---|
| Loans and receivables – customers | – | 783 | 49 | 0 | 140 |
| Securities | – | – | – | 20 | – |
| Other assets (incl. derivatives) | 18 | 1 | 6 | – | – |
| Financial liabilities – customers | – | 0 | 11 | 107 | 10 |
| Other liabilities (incl. derivatives) | – | 0 | 0 | 2 | – |
| Guarantees provided | – | – | 0 | – | 1 |
| Interest income | – | 24.1 | 1.3 | 0.2 | 2.0 |
| Interest expenses | – | 0.0 | – | 1.2 | 0.0 |
| Net fee and commission income | – | – | – | 12.7 | 0.5 |
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 of the entity or its parent |
Other related parties | Key management of the entity or its parent |
Other related parties | |
|---|---|---|---|---|
| in EUR million | Sep 2017 | Sep 2017 | Dec 2016 | Dec 2016 |
| Current account deposits | 2 | 2 | 10 | 3 |
| Savings deposits | 1 | 0 | 0 | 3 |
| Loans | 0 | 3 | 1 | 3 |
This information is based on the Group structure as of 30 September 2017.
The segment reporting presents the results of the operating business segments of BAWAG 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 and planned depreciation are assigned to the individual segments according to an allocation factor.
BAWAG Group is managed in accordance with the following six main business and reporting segments:
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 borrowers, including own issues covered with an international mortgage portfolio.
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.
| Jan–Sep 2017 in EUR million |
BAWAG P.S.K. Retail |
easygroup | DACH Corporates & Public Sector |
International Business |
Treasury Services & Markets |
Corporate Center |
Total |
|---|---|---|---|---|---|---|---|
| Net interest income | 298.1 | 115.8 | 52.7 | 98.9 | 37.3 | (9.3) | 593.5 |
| Net fee and commission income |
117.2 | 8.2 | 29.0 | 0.2 | 0.0 | (3.8) | 150.8 |
| Core revenues | 415.3 | 124.0 | 81.7 | 99.1 | 37.3 | (13.1) | 744.3 |
| Gains and losses on financial instruments |
3.1 | (2.3) | 0.6 | (0.5) | 23.8 | 18.8 | 43.5 |
| Other operating income and expenses |
1.8 | (1.1) | 0.0 | 0.0 | 0.0 | (15.2) | (14.5) |
| Operating income | 420.2 | 120.6 | 82.3 | 98.6 | 61.1 | (9.5) | 773.3 |
| Operating expenses | (200.3) | (23.7) | (35.4) | (21.0) | (12.0) | (28.0) | (320.4) |
| Regulatory charges | (14.3) | (2.4) | – | – | – | (13.1) | (29.8) |
| Total risk costs | (30.7) | 1.8 | 7.0 | (15.8) | 0.0 | (6.0) | (43.7) |
| Share of the profit or loss of associates accounted for using the equity method |
– | – | – | – | – | 3.0 | 3.0 |
| Profit before tax | 174.9 | 96.3 | 53.9 | 61.8 | 49.1 | (53.6) | 382.4 |
| Income taxes | – | – | – | – | – | (78.3) | (78.3) |
| Profit after tax | 174.9 | 96.3 | 53.9 | 61.8 | 49.1 | (131.9) | 304.1 |
| Non-controlling interests | – | – | – | – | – | (0.1) | (0.1) |
| Net profit | 174.9 | 96.3 | 53.9 | 61.8 | 49.1 | (132.0) | 304.0 |
| Business volumes | |||||||
| Assets | 11,480 | 3,964 | 7,624 | 5,139 | 7,479 | 2,664 | 38,350 |
| Liabilities | 20,569 | 4,131 | 6,283 | 6 | 2,127 | 5,234 | 38,350 |
| Risk-weighted assets | 4,436 | 3,274 | 2,917 | 4,152 | 1,759 | 1,274 | 17,812 |
| Jan–Sep 2016 in EUR million |
BAWAG P.S.K. Retail |
easygroup | DACH Corporates & Public Sector |
International Business |
Treasury Services & Markets |
Corporate Center |
Total |
|---|---|---|---|---|---|---|---|
| Net interest income | 258.6 | 89.7 | 58.9 | 101.7 | 41.4 | 2.0 | 552.3 |
| Net fee and commission income |
106.3 | 6.9 | 29.7 | (0.1) | 0.0 | 3.3 | 146.1 |
| Core revenues | 364.9 | 96.6 | 88.6 | 101.6 | 41.4 | 5.3 | 698.4 |
| Gains and losses on financial instruments |
0.8 | 0.0 | 1.1 | (2.3) | 11.1 | 31.9 | 42.6 |
| Other operating income and expenses |
1.0 | (0.1) | 0.0 | 0.0 | 0.0 | 1.2 | 2.1 |
| Operating income | 366.7 | 96.5 | 89.7 | 99.3 | 52.5 | 38.4 | 743.1 |
| Operating expenses | (201.8) | (23.3) | (38.7) | (20.0) | (12.0) | (22.3) | (318.1) |
| Regulatory charges | (12.4) | (2.5) | – | – | – | (24.9) | (39.8) |
| Total risk costs | (26.6) | (1.9) | 2.7 | 3.1 | 0.0 | (2.2) | (24.9) |
| Share of the profit or loss of associates accounted for using the equity method |
– | – | – | – | – | 6.2 | 6.2 |
| Profit before tax | 125.9 | 68.8 | 53.7 | 82.4 | 40.5 | (4.8) | 366.5 |
| Income taxes | – | – | – | – | – | 13.5 | 13.5 |
| Profit after tax | 125.9 | 68.8 | 53.7 | 82.4 | 40.5 | 8.7 | 380.0 |
| Non-controlling interests | – | – | – | – | – | (0.2) | (0.2) |
| Net profit | 125.9 | 68.8 | 53.7 | 82.4 | 40.5 | 8.5 | 379.8 |
| Business volumes | |||||||
| Assets | 9,293 | 3,053 | 7,647 | 4,954 | 5,905 | 3,546 | 34,398 |
| Liabilities | 18,310 | 3,766 | 3,993 | 1 | 2,490 | 5,838 | 34,398 |
| Risk-weighted assets | 3,676 | 3,231 | 2,868 | 3,731 | 1,868 | 1,270 | 16,644 |
As the internal and external reporting of BAWAG Group is fully harmonized, the total of reportable segments' measures of profit or loss do not differ from the Bank's
profit or loss. Therefore, no separate reconciliation column is shown in the segment tables.
Other operating income and expenses and Operating expenses are reconciled with the consolidated profit or loss statement as follows:
| in EUR million | Jan–Sep 2017 |
Jan–Sep 2016 |
|---|---|---|
| Other operating income and expenses according to segment report | (14.5) | 2.1 |
| Regulatory charges | (28.1) | (38.5) |
| Other operating income and expenses according to consolidated profit or loss statement |
(42.6) | (36.4) |
| in EUR million | Jan–Sep 2017 |
Jan–Sep 2016 |
|---|---|---|
| Operating expenses according to segment report | (320.4) | (318.1) |
| Regulatory charges | (1.7) | (1.3) |
| Operating expenses according to consolidated profit or loss statement | (322.1) | (319.4) |
Regulatory reporting is performed on the level of BAWAG Group and Promontoria Sacher Holding B.V. Group as the EEA parent financial holding company of the group of credit institutions. The following table shows the breakdown of own funds of Promontoria Sacher Holding B.V. Group and
BAWAG Group applying transitional rules and its own funds requirement as per 30 September 2017 and 31 December 2016 pursuant to CRR applying IFRS figures and the CRR scope of consolidation.
| Promontoria | BAWAG Group | ||||
|---|---|---|---|---|---|
| in EUR million | Sep 20173) | Dec 2016 | Sep 20173) | Dec 2016 | |
| Share capital and reserves (including funds for general banking risk) |
3,106 | 3,121 | 3,160 | 3,158 | |
| Not yet distributed dividend for 20151) | (25) | (25) | – | – | |
| Deduction of intangible assets | (266) | (190) | (266) | (190) | |
| Other comprehensive income | (33) | (30) | (33) | (30) | |
| IRB risk provision shortfalls2) | (47) | (19) | (47) | (19) | |
| Prudent valuation, cumulative gains due to changes in own credit risk on fair valued liabilities, prudential filter for unrealized gains, cash flow hedge reserve |
(36) | (47) | (36) | (47) | |
| Deferred tax assets that rely on future profitability excluding those arising from temporary differences |
(71) | (100) | (71) | (100) | |
| Excess of deduction from AT1 items over AT1 capital | (73) | (133) | (73) | (133) | |
| Common Equity Tier I | 2,555 | 2,577 | 2,634 | 2,639 | |
| IRB risk provision shortfalls2) | (6) | (6) | (6) | (6) | |
| Deduction of intangible assets | (66) | (127) | (66) | (127) | |
| Excess of deduction from AT1 items over AT1 capital | 72 | 133 | 72 | 133 | |
| Additional Tier I | – | – | – | – | |
| Tier I | 2,555 | 2,577 | 2,634 | 2,639 | |
| Supplementary and subordinated debt capital | 476 | 484 | 476 | 484 | |
| Excess IRB risk provisions | – | 24 | – | 24 | |
| Less significant investments, IRB risk provision shortfalls2) |
(27) | (26) | (27) | (26) | |
| Tier II | 449 | 482 | 449 | 482 | |
| Own funds | 3,004 | 3,059 | 3,083 | 3,121 |
1) Dividends for 2015: In the third quarter 2016, BAWAG Group AG paid a dividend of EUR 309 million to Promontoria Sacher Holding B.V., the sole shareholder of BAWAG Group AG. Promontoria Sacher Holding B.V. paid a dividend of EUR 265 million to its shareholders. Another EUR 25 million have not yet been paid but deducted from CET1 as a foreseeable dividend.
2) September 2017: According to CRR, LLPs as of 31 December 2016 including disposals until 30 September 2017.
3) Own funds as of 30 September 2017 differ from those as of 31 December 2016 inter alia because of different CRR transitional rules for 2017 and 2016 for the eligibility of capital and deductions from own funds.
| Promontoria | BAWAG Group | ||||
|---|---|---|---|---|---|
| in EUR million | Sep 2017 | Dec 2016 | Sep 2017 | Dec 2016 | |
| Credit risk | 16,088 | 17,326 | 16,159 | 17,329 | |
| Market risk | 50 | 59 | 50 | 59 | |
| Operational risk | 1,580 | 1,633 | 1,580 | 1,633 | |
| Capital requirements (risk-weighted assets) | 17,718 | 19,018 | 17,789 | 19,021 |
| Promontoria | BAWAG Group | ||||
|---|---|---|---|---|---|
| Sep 2017 | Dec 2016 | Sep 2017 | Dec 2016 | ||
| Common Equity Tier I capital ratio based on total risk | 15.9% | 13.3% | 16.2% | 13.6% | |
| Total capital ratio based on total risk | 18.7% | 15.9% | 19.0% | 16.2% |
| Promontoria | BAWAG Group | ||||
|---|---|---|---|---|---|
| (excl. interim profit) Total capital ratio based on total risk (excl. interim profit) (incl. interim profit) Total capital ratio based on total risk (incl. interim |
Sep 2017 | Dec 2016 | Sep 2017 | Dec 2016 | |
| Common Equity Tier I capital ratio based on total risk | 14.4% | n/a | 14.8% | n/a | |
| 17.0% | n/a | 17.3% | n/a | ||
| Common Equity Tier I capital ratio based on total risk | 16.0% | 13.6% | 16.3% | 13.9% | |
| profit) | 18.7% | 16.1% | 19.0% | 16.4% |
The European Central Bank conducted an onsite inspection with focus on credit risk in respect to BAWAG Group's international business activities. As a result of the onsite inspection, the false application of certain CRR requirements was identified, in particular in connection with the application of preferred regulatory risk weights for the international residential mortgage portfolios. As a consequence, the respective exposure had to be reclassified in respect to their specific regulatory risk weight category, which led to an increase in risk-weighted assets of the Group. The following tables present the restatements of the disclosures affected:
| Jun 2017 | Mar 2017 | Dec 2016 | Sep 2016 | |||||
|---|---|---|---|---|---|---|---|---|
| in EUR million | adjusted | published | adjusted | published | adjusted published | adjusted | published | |
| Credit risk RWAs on a transitional basis | 16,333 | 15,203 | 17,323 | 15,486 | 17,326 | 15,423 | 14,981 | 14,291 |
| Capital requirements (risk-weighted assets) on a transitional basis |
17,958 | 16,828 | 18,943 | 17,106 | 19,019 | 17,115 | 16,685 | 15,995 |
| Common Equity Tier 1 capital ratio based on total risk (incl. interim profit) on a fully loaded basis |
15.0% | 16.0% | 13.8% | 15.3% | 13.3% | 14.8% | 15.0% | 15.6% |
| Total capital ratio based on total risk (incl. interim profit) on a fully loaded basis |
17.7% | 18.9% | 16.3% | 18.1% | 15.9% | 17.6% | 17.9% | 18.7% |
| Common Equity Tier I capital ratio based on total risk (excl. interim profit) on a transitional basis |
14.1% | 15.1% | 13.5% | 14.9% | n/a | n/a | 12.3% | 12.8% |
| Total capital ratio based on total risk (excl. interim profit) on a transitional basis |
16.7% | 17.8% | 15.9% | 17.6% | n/a | n/a | 15.2% | 15.9% |
| Common Equity Tier 1 capital ratio based on total risk (incl. interim profit) on a transitional basis |
15.1% | 16.2% | 13.9% | 15.4% | 13.6% | 15.1% | 15.3% | 16.0% |
| Total capital ratio based on total risk (incl. interim profit) on a transitional basis |
17.8% | 19.1% | 16.5% | 18.2% | 16.1% | 17.9% | 18.2% | 19.0% |
| Jun 2016 | Mar 2016 | Dec 2015 | ||||
|---|---|---|---|---|---|---|
| in EUR million | adjusted | published | adjusted published | adjusted | published | |
| Credit risk RWAs on a transitional basis | 14,734 | 13,989 | 15,425 | 14,373 | 15,670 | 14,751 |
| Capital requirements (risk-weighted assets) on a transitional basis | 16,447 | 15,702 | 17,159 | 16,106 | 17,388 | 16,468 |
| Common Equity Tier 1 capital ratio based on total risk (incl. interim profit) on a fully loaded basis |
13.6% | 14.3% | 12.4% | 13.2% | 11.6% | 12.2% |
| Total Capital ratio based on total risk (incl. interim profit) on a fully loaded basis |
16.5% | 17.3% | 15.1% | 16.1% | 14.3% | 15.0% |
| Common Equity Tier I capital ratio based on total risk (excl. interim profit) on a transitional basis |
12.4% | 13.0% | 12.0% | 12.7% | n/a | n/a |
| Total capital ratio based on total risk (excl. interim profit) on a transitional basis |
15.1% | 15.8% | 14.6% | 15.5% | n/a | n/a |
| Common Equity Tier 1 capital ratio based on total risk (incl. interim profit) on a transitional basis |
14.1% | 14.8% | 13.0% | 13.8% | 12.2% | 12.9% |
| Total capital ratio based on total risk (incl. interim profit) on a transitional basis |
16.9% | 17.7% | 15.7% | 16.7% | 14.8% | 15.7% |
| Jun 2017 | Mar 2017 | Dec 2016 | Sep 2016 | |||||
|---|---|---|---|---|---|---|---|---|
| in EUR million | adjusted | published | adjusted | published | adjusted published adjusted | published | ||
| Credit risk RWAs on a transitional basis | 16,398 | 15,269 | 17,315 | 15,479 | 17,329 | 15,426 | 14,977 | 14,287 |
| Capital requirements (risk-weighted assets) on a transitional basis |
18,024 | 16,894 | 18,936 | 17,099 | 19,021 | 17,118 | 16,643 | 15,991 |
| Common Equity Tier 1 capital ratio based on total risk (incl. interim profit) on a fully loaded basis |
15.4% | 16.5% | 14.1% | 15.7% | 13.6% | 15.1% | 15.1% | 15.7% |
| Total capital ratio based on total risk (incl. interim profit) on a fully loaded basis |
18.1% | 19.3% | 16.7% | 18.5% | 16.2% | 18.0% | 18.0% | 18.8% |
| Common Equity Tier I capital ratio based on total risk (excl. interim profit) on a transitional basis |
14.4% | 15.4% | 13.8% | 15.3% | n/a | n/a | 13.1% | 13.7% |
| Total capital ratio based on total risk (excl. interim profit) on a transitional basis |
16.9% | 18.1% | 16.3% | 18.0% | n/a | n/a | 16.0% | 16.7% |
| Common Equity Tier 1 capital ratio based on total risk (incl. interim profit) on a transitional basis |
15.5% | 16.7% | 14.3% | 15.9% | 13.9% | 15.4% | 15.4% | 16.1% |
| Total capital ratio based on total risk (incl. interim profit) on a transitional basis |
18.2% | 19.5% | 16.9% | 18.7% | 16.4% | 18.2% | 18.2% | 19.1% |
| Jun 2016 | Mar 2016 | Dec 2015 | |||||
|---|---|---|---|---|---|---|---|
| in EUR million | adjusted | published | adjusted published adjusted | published | |||
| Credit risk RWAs on a transitional basis | 14,733 | 13,988 | 15,421 | 14,369 | 15,666 | 14,747 | |
| Capital requirements (risk-weighted assets) on a transitional basis | 16,446 | 15,701 | 17,155 | 16,102 | 17,383 | 16,464 | |
| Common Equity Tier 1 capital ratio based on total risk (incl. interim profit) on a fully loaded basis |
14.5% | 15.1% | 13.2% | 14.0% | 12.3% | 12.9% | |
| Total capital ratio based on total risk (incl. interim profit) on a fully loaded basis |
17.3% | 18.1% | 15.9% | 16.9% | 15.0% | 15.8% | |
| Common Equity Tier I capital ratio based on total risk (excl. interim profit) on a transitional basis |
13.2% | 13.8% | 12.7% | 13.5% | n/a | n/a | |
| Total capital ratio based on total risk (excl. interim profit) on a transitional basis |
15.9% | 16.6% | 15.3% | 16.3% | n/a | n/a | |
| Common Equity Tier 1 capital ratio based on total risk (incl. interim profit) on a transitional basis |
14.9% | 15.6% | 13.7% | 14.6% | 12.9% | 13.7% | |
| Total capital ratio based on total risk (incl. interim profit) on a transitional basis |
17.7% | 18.6% | 16.4% | 17.5% | 15.6% | 16.4% |
| Jun 2017 | Mar 2017 | Dec 2016 | Sep 2016 | |||||
|---|---|---|---|---|---|---|---|---|
| in EUR million | adjusted | published | adjusted | published | adjusted published | adjusted | published | |
| Risk-weighted assets easygroup1) | 3,407 | 2,278 | 4,190 | 2,354 | 4,249 | 2,346 | 3,231 | 2,541 |
| Risk-weighted assets Retail Banking and Small Business1) |
n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a |
| Total risk-weighted assets BAWAG Group AG | 18,024 | 16,894 | 18,936 | 17,099 | 19,021 | 17,118 | 16,643 | 15,991 |
| Jun 2016 | Mar 2016 | Dec 2015 | ||||
|---|---|---|---|---|---|---|
| in EUR million | adjusted | published | adjusted published | adjusted | published | |
| Risk-weighted assets easygroup1) | 2,594 | 1,849 | n/a | n/a | n/a | n/a |
| Risk-weighted assets Retail Banking and Small Business | n/a | n/a | 5,760 | 4,708 | 5,675 | 4,756 |
| Total risk-weighted assets BAWAG Group AG1) | 16,446 | 15,701 | 17,155 | 16,102 | 17,383 | 16,464 |
The following table depicts a comparison of the carrying amounts and fair values for selected items on the statement of financial position:
| Carrying amount | Fair value | Carrying amount | Fair value | |
|---|---|---|---|---|
| in EUR million | Sep 2017 | Sep 2017 | Dec 2016 | Dec 2016 |
| Assets | ||||
| Cash reserves | 717 | 717 | 1,020 | 1,020 |
| Financial assets designated at fair value through profit or loss |
183 | 183 | 202 | 202 |
| Available-for-sale financial assets | ||||
| Recognized at fair value | 2,678 | 2,678 | 3,129 | 3,129 |
| Recognized at cost | 73 | n/a | 80 | n/a |
| Held-to-maturity investments | 2,420 | 2,495 | 2,353 | 2,448 |
| Financial assets held for trading | 434 | 434 | 652 | 652 |
| Loans and receivables | 30,598 | 30,828 | 30,821 | 31,298 |
| Hedging derivatives | 543 | 543 | 677 | 677 |
| Property, plant and equipment | 47 | n/a | 53 | n/a |
| Investment properties | 5 | 5 | 3 | 5 |
| Intangible non-current assets | 378 | n/a | 360 | n/a |
| Other assets | 274 | n/a | 393 | n/a |
| Total assets | 38,350 | 39,743 | ||
| Equity and liabilities | ||||
| Financial liabilities designated at fair value through profit or loss |
756 | 756 | 1,115 | 1,115 |
| Financial liabilities held for trading | 338 | 338 | 617 | 617 |
| Financial liabilities at amortized cost | 32,670 | 32,927 | 32,962 | 33,261 |
| Financial liabilities associated with transferred assets |
– | – | 300 | 300 |
| Valuation adjustment on interest rate risk hedged portfolios |
135 | 135 | 223 | 223 |
| Hedging derivatives | 124 | 124 | 260 | 260 |
| Provisions | 373 | n/a | 404 | n/a |
| Other obligations | 558 | n/a | 726 | n/a |
| Equity | 3,395 | n/a | 3,134 | n/a |
| Non-controlling interests | 1 | n/a | 2 | n/a |
| Total liabilities and equity | 38,350 | 39,743 |
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 73 million in equity 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 Group 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. As of September 30, 2017, their fair value is EUR 78 million higher than their book value. The fair value of own issues recognized in the line item Financial liabilities at amortized cost is, as of September 30, 2017, EUR 255 million higher than their book value.
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:
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.
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.
| Sep 2017 in EUR million |
Level 1 | Level 2 | Level 3 | Others1) | Total |
|---|---|---|---|---|---|
| Assets | |||||
| Financial assets designated at fair value through profit or loss |
2 | 180 | 1 | – | 183 |
| Available-for-sale financial assets | 2,581 | 96 | 1 | 73 | 2,751 |
| Financial assets held for trading | 0 | 434 | – | – | 434 |
| Hedging derivatives | – | 543 | – | – | 543 |
| Total fair value assets | 2,583 | 1,253 | 2 | 73 | 3,911 |
| Liabilities | |||||
| Financial liabilities designated at fair value through profit or loss |
– | 389 | 367 | – | 756 |
| Financial liabilities held for trading | – | 338 | – | – | 338 |
| Valuation adjustment on interest rate risk hedged portfolios |
– | 135 | – | – | 135 |
| Hedging derivatives | – | 124 | – | – | 124 |
| Total fair value liabilities | – | 986 | 367 | – | 1,353 |
1) Investments in equity that are measured at cost in accordance with IAS 39.AG80-81 because their fair value cannot be measured reliably.
| Dec 2016 in EUR million |
Level 1 | Level 2 | Level 3 | Others1) | Total |
|---|---|---|---|---|---|
| Assets | |||||
| Financial assets designated at fair value through profit or loss |
2 | 199 | 1 | – | 202 |
| Available-for-sale financial assets | 2,949 | 179 | 1 | 80 | 3,209 |
| Financial assets held for trading | – | 652 | – | – | 652 |
| Hedging derivatives | – | 677 | – | – | 677 |
| Total fair value assets | 2,951 | 1,707 | 2 | 80 | 4,740 |
| Liabilities | |||||
| Financial liabilities designated at fair value through profit or loss |
– | 638 | 477 | – | 1,115 |
| Financial liabilities held for trading | – | 617 | – | – | 617 |
| Valuation adjustment on interest rate risk hedged portfolios |
– | 223 | – | – | 223 |
| Hedging derivatives | – | 260 | – | – | 260 |
| Total fair value liabilities | – | 1,738 | 477 | – | 2,215 |
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 Group recognizes transfers between levels as of the end of the reporting period during which the transfer has occurred.
In the first three quarters 2017, two available-for-sale securities (2016: seven) were moved from Level 1 to Level 2 due to subsequent illiquid market prices. Six availablefor-sale securities (2016: five) were moved from Level 2 to Level 1 due to a more liquid market.
The changes in financial instruments accounted for at fair value through profit or loss in the Level 3 category were as follows:
| in EUR million | Financial assets designated at fair value through profit or loss |
Available-for-sale financial assets |
Financial liabilities |
|---|---|---|---|
| Opening balance as of 01.01.2017 | 1 | 1 | 477 |
| Valuation gains (losses) in profit or loss | |||
| for assets held at the end of the period | – | – | (9) |
| 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 | – | – | – |
| Redemptions | – | – | (101) |
| Sales | – | – | – |
| Foreign exchange differences | – | – | – |
| Transfers into or out of other levels | – | – | – |
| Closing balance as of 30.09.2017 | 1 | 1 | 367 |
| in EUR million | Financial assets designated at fair value through profit or loss |
Available-for-sale financial assets |
Financial liabilities |
|---|---|---|---|
| Opening balance as of 01.01.2016 | 2 | 4 | 468 |
| Valuation gains (losses) in line item gains and losses on financial assets 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 other levels | – | – | – |
| Closing balance as of 31.12.2016 | 1 | 1 | 477 |
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.
In the first three quarters 2017, the financial liabilities reported under Level 3 in 2016 decreased by a total of EUR 110 million, mainly due to redemptions.
The main unobservable input factor for own issues of BAWAG P.S.K. Wohnbaubank and IMMO-BANK is the spread premium on the swap curve, which is used to determine the risk-adjusted discount curve. Subsequently, the fair value is calculated by discounting the future cash flows with the risk-adjusted discount curve. The gross spread premium for own issues of BAWAG P.S.K. Wohnbaubank is currently 100 basis points (31 December 2016: 100 basis points) for all maturities (mid). For issues of IMMO-BANK, the spreads depend on the seniority of the bond and the maturity.
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.
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 and IMMO-BANK; BAWAG Group had Level 3 financial assets recognized at their fair value in the amount of EUR 2 million as of 30 September 2017 (31 December 2016: EUR 2 million). If the credit spread used in calculating the fair value of own issues increased by 20 basis points, the accumulated valuation result as of 30 September 2017 would have increased by EUR 1.5 million (31 December 2016: EUR 2.0 million). If the fair value of financial assets decreased by 30%, the accumulated valuation result as of 30 September 2017 would have decreased by EUR 0.6 million (31 December 2016: minus EUR 0.6 million).
The operational and strategic risk management functions and the relevant committees of BAWAG Group 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:
The following risks including their respective sub-risks are considered as material for BAWAG Group:
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 capacity.
The material risks of BAWAG Group are described on the following pages.
The Group's economic risk-bearing capacity, 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 capacity, 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:
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 as well as market and liquidity risk are quantified in Market & Liquidity Risk Controlling and are controlled operationally in Liquidity & Funding Management.
The risk-bearing capacity is reported to the Managing Board via the Enterprise Risk Meeting (ERM) on a monthly basis.
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 division is specifically set up to ensure functional risk management expertise for commercial and institutional as well as retail and small business customers. The division Enterprise Risk Management is responsible for the consistent calculation and aggregation of the individual risk metrics within the defined monthly reporting framework.
For retail and small business customers, the creditworthiness 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 expected loss given default (LGD) and the expected utilization of the offThe ICAAP stress test is fully integrated into the strategic risk management, capital management and planning processes of BAWAG Group.
The link between the internal stress tests 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.
balance-sheet exposure value at the time of default (credit conversion factor, CCF) are also estimated for retail and small business customers in the BAWAG P.S.K. Retail 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 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 Group's risk and business strategy are aligned to focus on maintaining a low-risk balance sheet, focusing on developed economies, maintaining strong levels of capital, low levels of leverage and pursuing profitable/disciplined growth defined on a risk-adjusted return basis.
The BAWAG P.S.K. Retail segment focuses on the core products consumer, mortgage and small business finance along with a proactive risk management. Significant efforts were undertaken to further develop overall underwriting standards and processes through automated and continuously enhanced underwriting models and processes.
The easygroup segment includes our direct banking subsidiary easybank, our auto and mobile leasing platforms as well as our performing residential mortgage portfolios in Western Europe. These portfolios consist of a UK and French performing mortgage portfolio (outstanding balance of GBP 1.3 billion and EUR 1.2 billion, respectively, as of September 30, 2017).
The risk policy of easygroup is defined in accordance with BAWAG Group's guidelines and is characterized by a conservative, low risk appetite with an emphasis on riskadjusted returns. The leasing business focuses on leasing of motor vehicles and related business managed in the segment easygroup. The risk policy of the leasing companies is closely aligned to the guidelines of BAWAG Group. The risk systems, which have been adapted to the special requirements of the leasing business, are part of the overall risk architecture of BAWAG Group.
The segments DACH Corporates & Public Sector as well as International Business were characterized by proactive risk management, disciplined lending in developed markets and maintaining a disciplined approach on risk-adjusted pricing. Consequently, exposures with unfavorable risk profiles (i.e. "watch loans") are actively managed and reduced within the Group's early warning process. This is exemplified in the Bank's exposure to the oil & gas sector, which – in light of decreasing commodity prices – has been under review since 2015 and has led to a majority of customers being put on the watchlist. As a result, the total credit volume in the oil & gas sector was reduced by 33%, from EUR 324 million in 2015 to EUR 216 million as of September 30, 2017, which currently represents less than 1% of the total corporate book.
The Treasury Services & Markets segment includes interest rate and currency risk positions as well as capital market activities and comprises the BAWAG Group's investment portfolio. The investment strategy continues to focus on investment grade securities predominantly representing secured and unsecured bonds of financials in Western Europe and the United States as well as select sovereign bond exposures. In addition, the Bank also selectively invests in structured credits (CLOs) with high credit quality (AAA and AA), which show a high degree of diversification with respect to countries and industries.
The Corporate Center is comprised primarily of positive market values from derivatives and non-core participations.
| Sep 2017 in EUR million |
BAWAG P.S.K. Retail easygroup |
DACH Corporates & Public Sector |
International Business |
Treasury Services & Markets |
Corporate Center |
Total portfolio |
|
|---|---|---|---|---|---|---|---|
| Book value | 11,339 | 3,942 | 7,419 | 4,796 | 1,708 | 366 | 29,572 |
| Bonds | 3 | 0 | 184 | 325 | 5,771 | 19 | 6,302 |
| Off-balance business | 1,119 | 645 | 560 | 238 | 212 | 769 | 3,542 |
| Total | 12,461 | 4,587 | 8,163 | 5,360 | 7,692 | 1,154 | 39,417 |
| thereof collateralized1) | 6,450 | 3,484 | 2,579 | 2,207 | 180 | 0 | 14,901 |
| thereof NPL (incl. LLP, gross view) |
278 | 139 | 79 | 51 | 0 | 255 | 802 |
1) Collateral comprises residential and commercial real estate, guarantees, life insurance, etc.
| Dec 2016 in EUR million |
BAWAG P.S.K. Retail easygroup |
DACH Corporates & Public Sector |
International Business |
Treasury Services & Markets |
Corporate Center |
Total portfolio |
|
|---|---|---|---|---|---|---|---|
| Book value | 11,558 | 4,436 | 7,344 | 5,242 | 1,326 | 368 | 30,274 |
| 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 | 1,105 | 40,561 |
| thereof collateralized1) | 6,016 | 3,897 | 2,403 | 2,167 | 193 | 1 | 14,677 |
| thereof NPL (incl. LLP, gross view) |
214 | 92 | 50 | 0 | 0 | 255 | 611 |
1) Collateral comprises residential and commercial real estate, guarantees, life insurance, etc.
| Note 8 | Risk view | Segment report | |||
|---|---|---|---|---|---|
| Sep 2017 in EUR million |
Loans and receivables (L&R) |
Loans and bonds (not part of L&R)1) |
Total loans & bonds |
Other assets | Total assets |
| BAWAG P.S.K. Retail | 11,339 | 3 | 11,343 | 138 | 11,480 |
| easygroup | 3,942 | 0 | 3,942 | 22 | 3,964 |
| DACH Corporates & Public Sector |
7,426 | 177 | 7,603 | 21 | 7,624 |
| International Business | 4,932 | 190 | 5,122 | 18 | 5,139 |
| Treasury Services & Markets | 2,594 | 4,885 | 7,479 | 0 | 7,479 |
| Corporate Center | 365 | 21 | 386 | 2,277 | 2,663 |
| Total | 30,598 | 5,276 | 35,874 | 2,476 | 38,350 |
The table below provides a reconciliation between book values of loans and receivables, the risk report and the segment report.
1) Shares and other variable-rate securities (Sep 2017: EUR 4.1 million, Dec 2016: EUR 4.4 million) are not included.
| Note 8 | Risk view | Segment report | |||
|---|---|---|---|---|---|
| Dec 2016 in EUR million |
Loans and receivables (L&R) |
Loans and bonds (not part of L&R)1) |
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 |
1) Shares and other variable-rate securities (Sep 2017: EUR 4.1 million, Dec 2016: EUR 4.4 million) are not included.
The geographical distribution of the loan portfolio is in line with the Group's strategy to focus on stable geographies and currencies. A total of 98% (as of 31.12.2016: 98%) of the loan portfolio1) and 84% (as of 31.12.2016: 84%) of the bond portfolio2) is located in Western Europe and North America.
2) This includes Great Britain with 14% (Dec 2016: 14%), the United States with 11% (Dec 2016: 13%), %), Austria with 11% (Dec 2016: 11%), France with 7% (Dec 2016: 8%) and Germany with 1% (Dec 2016: 3%).
Geographical distribution of loans
Geographical distribution of bonds
| Book value | Relative value | |||
|---|---|---|---|---|
| in EUR million | Sep 2017 | Dec 2016 | Sep 2017 | Dec 2016 |
| EUR | 29,121 | 28,698 | 81.2% | 78.6% |
| GBP | 2,711 | 2,970 | 7.5% | 8.1% |
| USD | 2,220 | 2,705 | 6.2% | 7.4% |
| CHF | 1,622 | 1,863 | 4.5% | 5.1% |
| Others | 201 | 265 | 0.6% | 0.7% |
| Total | 35,874 | 36,501 | 100.0% | 100.0% |
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).
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.
Loan-loss provisions are booked automatically in the core banking system based on defined standards in the case of overdue 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.
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 30 September 2017, the IBNR portfolio provision amounted to EUR 45.0 million (as of 31 December 2016: EUR 59.0 million).
Non-performing loans (NPLs) are defined as all customer exposures in default in accordance with Article 178 CRR (internal risk class 8).
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.
2) Commission Implementing Regulation (EU) 2015/227, Annex V, Art. 145–183.
| in EUR million Sep 2017 Dec 2016 Sep 2017 Dec 2016 Real Estate 2,619 1,969 20.6% 14.7% Government 2,582 2,839 20.3% 21.1% Public Sector 1,397 1,876 11.0% 14.0% Portfolio Financing 1,087 1,443 8.5% 10.8% Services 816 801 6.4% 6.0% Retail – Food 533 303 4.2% 2.3% B-2-C Products 450 578 3.5% 4.3% Pharmaceuticals & Health Care 401 486 3.2% 3.6% Investment Funds 380 210 3.0% 1.6% Automotive 374 362 2.9% 2.7% Gaming & Leisure 324 386 2.5% 2.9% Telecommunication 312 188 2.5% 1.4% Engineering and B-2-B 172 268 1.4% 2.0% Hotels 165 220 1.3% 1.6% Commodity 163 223 1.3% 1.7% Social Housing 129 146 1.0% 1.1% Wood & Paper 127 226 1.0% 1.7% Transport 120 278 0.9% 2.1% Banks 94 135 0.7% 1.0% Chemicals 90 107 0.7% 0.8% Media 82 57 0.6% 0.4% Construction & Building Materials 79 91 0.6% 0.7% Leasing 76 58 0.6% 0.4% Beverages, Food & Tobacco 75 76 0.6% 0.6% NGO 45 49 0.4% 0.4% Utilities 32 49 0.2% 0.4% Insurance 0 0 0.0% 0.0% Mining & Metals 0 1 0.0% 0.0% Total 12,725 13,424 100.0% 100.0% |
Book value Relative value |
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|---|---|---|---|---|
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 Group are interest rate and credit spread risk.
Both risk categories are measured via sensitivity, value-at-risk (VaR) and scenario-based approaches, and are fully embedded in the Bank's ICAAP framework. The accounting
treatment of the positions is considered in the risk reporting concepts.
In the trading book, risk mitigating measures are performed only if deemed necessary. The risk quantification, limitation and monitoring within the ICAAP framework is carried out using a parametric VaR model. In the first three quarters of 2017, the average value-at-risk of the trading book was measured at minus EUR 0.49 million (Jan–Sep 2016 average: minus EUR 0.56 million) and the value-at-risk as of 30 September 2017 was measured at minus EUR 0.45
million (30 December 2016: minus EUR 0.74 million) based on a confidence interval of 99% and a one-day holding
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). Risk measurement is performed by the Market & Liquidity Risk Controlling division.
Liquidity management, compring intraday and short-term operational liquidity management, liquidity planning and forecasting, structural liquidity management as well as liquidity buffer management, is performed by Liquidity & Funding Management, which is part of the Treasury Services & Markets division. The short-term operational liquidity management is based on a 30-day rolling forecast that is updated daily, allowing the close tracking and management of the short-term liquidity position. All measures are closely aligned with Market & Liquidity Risk Controlling. Liquidity & Funding Management is responsible for planning and managing the mid- and longterm funding position. Any important decision on liquidity
period. The regulatory capital requirement is calculated using the Standardized Approach.
risk is made within the Strategic Asset Liability Committee, in which all Managing Board members are represented.
Liquidity & Funding 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 longterm 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 first three quarters of 2017 were characterized by a very solid liquidity position by stable core funding sources and a balanced term funding structure, with retail customers providing the majority of funding. Additionally, the Bank once again underpinned its capital market strength by successfully placing an international EUR 500 million public sector covered bond, the first Austrian public sector covered bond since 2014. Furthermore, BAWAG Group participated with EUR 2 billion in the final call of the ECB's TLTRO activities.
The Group continues to apply the Standardized Approach for the calculation of the regulatory own fund requirements 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 based on the 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 and risk potential resulting from the risk control self-assessments.
The losses resulting from operational risk are collected in a centrally administrated web-based database within clearly defined regulations and processes.
Key Risk Indicators (KRI) were implemented as additional steering instruments to identify and forecast negative trends or a changed risk profile in company workflows and 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) are in place to manage the Group's OpRisk.
| Common Equity Tier 1 capital (CET1) |
Based on IFRS CRR regulatory figures (BAWAG Group) including interim profit and year-to-date loan-loss provision movements, excluding any transitional capital (fully loaded) |
|---|---|
| Common Equity Tier 1 ratio | Common Equity Tier 1 capital (CET1) / risk-weighted assets |
| Core revenues | The total of net interest income and net fee and commission income |
| Cost-income ratio | Operating expenses / operating income |
| IFRS equity | Equity attributable to the owners of the parent; excluding minorities |
| IFRS tangible equity | IFRS equity reduced by the carrying amount of intangible assets |
| Leverage ratio | Common Equity Tier 1 capital (CET1) / total exposure (calculation according to CRR, based on BAWAG Group); as of September 2016, the total exposure calculation was adapted from three-month averages to an end-of-period figure in line with changed regulatory requirements |
| Liquidity coverage ratio (LCR) | Liquid assets / net liquidity outflows (calculation according to CRR, based on Promontoria Sacher Holding B.V. Group) |
| Net interest margin | Net interest income / average interest-bearing assets; as of year-end 2016, the ratio's denominator was changed from average total assets to average interest-bearing assets and applied retroactively |
| Net profit | Profit after tax attributable to owners of the parent |
| NPL ratio | Non-performing loans (NPLs) / exposure; as of June 2017, the ratio's denominator was adapted from loans and receivables incl. provisions to exposure in line with changed regulatory requirements and applied retroactively |
| Operating income | The total of core revenues, gains and losses on financial instruments and other operating income and expenses |
| Operating profit | Operating income less operating expenses and regulatory charges |
| Return on equity | Net profit / average IFRS equity |
| Return on equity (@12% CET1) | Return on equity calculated at a fully loaded CET1 ratio of 12% |
| Return on tangible equity | Net profit / average IFRS tangible equity |
| Return on tangible equity (@12% CET1) |
Return on tangible equity calculated at a fully loaded CET1 ratio of 12% |
| Risk-weighted assets | Based on IFRS CRR regulatory figures (BAWAG Group, fully loaded) |
| Risk costs / loans and receivables Provisions and loan-loss provisions, impairment losses and operational risk (total risk costs) / average loans and receivables (including provisions) |
|
| RWA density | Risk-weighted assets / total assets |
| Total capital | Based on IFRS CRR regulatory figures (BAWAG Group) including interim profit and year-to-date loan-loss provision movements, excluding any transitional capital (fully loaded) |
| Total capital ratio | Total capital / risk-weighted assets |
OWNER AND PUBLISHER
BAWAG Group AG Wiesingerstraße 4, A-1010 Vienna, Austria Companies Registry number: 269842b EU VAT number: ATU72252867 Telephone: +43 (0)5 99 05-0 Internet: www.bawaggroup.com
Investor Relations: [email protected]
Media: [email protected]
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