Quarterly Report • May 24, 2018
Quarterly Report
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| Profit or loss statement (in € million) |
Q1 2018 |
Q1 2017 |
Change (%) |
Q4 2017 |
Change (%) |
|---|---|---|---|---|---|
| Net interest income | 207.8 | 195.7 | 6.2 | 202.8 | 2.5 |
| Net fee and commission income | 74.5 | 49.8 | 49.6 | 66.1 | 12.7 |
| Core revenues | 282.3 | 245.5 | 15.0 | 268.9 | 5.0 |
| Gains and losses on financial instruments and other | |||||
| operating income and expenses | 15.3 | 18.4 | (16.8) | 100.3 | (84.7) |
| Operating income | 297.6 | 263.9 | 12.8 | 369.2 | (19.4) |
| Operating expenses | (130.0) | (107.4) | 21.0 | (207.7) | (37.4) |
| Regulatory charges | (36.7) | (25.2) | 45.6 | (4.0) | >100 |
| Total risk costs | (15.9) | (11.1) | 43.2 | (18.2) | (12.6) |
| Profit before tax | 116.1 | 121.3 | (4.3) | 140.4 | (17.3) |
| Income taxes | (29.6) | (26.2) | 13.0 | 26.3 | – |
| Net profit | 86.5 | 95.1 | (9.0) | 166.7 | (48.1) |
| Performance ratios | Q1 | Q1 | Change | Q4 | Change |
| (figures annualized) | 2018 | 2017 | (pts) | 2017 | (pts) |
| Return on equity | 9.8% | 12.0% | (2.2) | 19.1% | (9.3) |
| Return on equity (@12% CET1) | 10.9% | 13.5% | (2.6) | 22.5% | (11.6) |
| Return on tangible equity | 11.4% | 13.6% | (2.2) | 21.9% | (10.5) |
| Return on tangible equity (@12% CET1) | 13.0% | 15.6% | (2.6) | 26.6% | (13.6) |
| Net interest margin | 2.15% | 2.22% | (0.07) | 2.24% | (0.09) |
| Cost-income ratio1) | 43.7% | 40.7% | 3.0 | 41.1% | 2.6 |
| Risk costs / interest-bearing assets | 0.16% | 0.13% | 0.03 | 0.20% | (0.04) |
| Share-related figures (in €) |
Q1 2018 |
Q1 2017 |
Change (%) |
Q4 2017 |
Change (%) |
| Pre-tax earnings per share | 1.16 | – | – | 1.40 | (17.3) |
| After-tax earnings per share | 0.87 | – | – | 1.67 | (48.1) |
| Statement of financial position (in € million) |
Mar 2018 |
Dec 2017 |
Change (%) |
Mar 2017 |
Change (%) |
| Total assets | 44,968 | 46,071 | (2.4) | 40,559 | 10.9 |
| Financial assets | 3,650 | 5,314 | (31.3) | 3,844 | (5.0) |
| Customer loans | 30,504 | 30,804 | (1.0) | 28,195 | 8.2 |
| Customer deposits and own issues | 35,563 | 36,611 | (2.9) | 31,654 | 12.3 |
| IFRS equity | 3,568 | 3,609 | (1.1) | 3,216 | 10.9 |
| IFRS tangible equity | 3,060 | 3,102 | (1.4) | 2,834 | 8.0 |
| Risk-weighted assets | 21,243 | 21,491 | (1.2) | 18,961 | 12.0 |
| Balance sheet ratios | Mar 2018 |
Dec 2017 |
Change (pts) |
Mar 2017 |
Change (pts) |
| Common Equity Tier 1 capital ratio (fully loaded) | 14.0% | 13.5% | 0.5 | 14.1% | (0.1) |
| Leverage ratio (fully loaded) | 6.5% | 6.2% | 0.3 | 6.6% | (0.1) |
| Liquidity coverage ratio (LCR) | 162% | 150% | 12 | 185% | (23) |
| NPL ratio | 1.8% | 1.8% | 0.0 | 1.8% | 0.0 |
2 1) Excluding parts of the long-term incentive program (LTIP) recognized in the fourth quarter 2017.
Note: For details on definitions and calculation methodology, please refer to the section entitled "Definitions" on page 73. Prior-year figures were adjusted due to the finalization of the preliminary purchase price allocation according to IFRS 3.45 from the acquisition start:bausparkasse and IMMO-BANK in December 2016.
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.
After a record 2017, BAWAG Group continued to deliver solid results in the first quarter 2018. Profit before tax was € 116 million, which includes front-loaded regulatory charges. Normalizing for regulatory costs, profit before tax was € 142 million, up 5% compared to the first quarter 2017.
BAWAG Group ranks among the most profitable, efficient and best capitalized banks in the DACH region. The return on tangible equity (@12% CET1) was 13.0% (normalized 16.0%), the cost-income ratio 43.7% and the fully loaded CET1 ratio 14.0% (up 50 basis points compared to year-end 2017). We continue to maintain a conservative risk profile, which is best reflected in a risk cost ratio of 16 basis points and an NPL ratio of 1.8% (excluding the legal case with the City of Linz, this would be 1.2%).
Our solid first quarter 2018 was also characterized by strong operational developments and good progress on various strategic initiatives. The BAWAG P.S.K. Retail segment recorded new originations of € 0.3 billion, driven primarily by consumer and housing loans. The shift in transactions from over-the-counter services, down 18% from the first quarter 2017, to online and self-service devices, further continued.
In February 2018, we signed a separation agreement with Austrian Post for a consensual and gradual wind-down of the partnership, working towards a materially complete separation by year-end 2019 (following the letter of intent signed in December 2017). This was a major step forward in our ability to pursue a preferred stand-alone strategy with an optimized cost base and enhanced customer experience and service model. In May 2018 we agreed to an exclusive long-term sales partnership with MediaMarktSaturn Austria, which is set to launch in January 2019. This strategic partnership complements our omni-channel strategy aimed at strengthening our presence in the consumer lending space and leveraging our full offering of banking products.
easygroup further increased its customer base and executed on several strategic initiatives. During the first quarter 2018, we made significant progress in the integration of PayLife, which is currently ahead of plan. easygroup generated new business of € 0.2 billion across the segment, primarily through the easyleasing channel.
An integration and transformation process was launched at Südwestbank during the first quarter, culminating in reaching an agreement with the workers' council on a comprehensive social plan in April. Our transformation plan is designed to improve operating performance across all products and channels with a focus on profitability, efficiency and capital with a goal to deliver results in line with the overall BAWAG Group targets.
International Business generated new business of € 0.9 billion in the first quarter 2018, resulting in net asset growth of 2% to € 5.3 billion compared to year-end 2017. We see a solid pipeline for the remainder of the year, with diversified opportunities generated from our real estate lending business.
The focus of the DACH Corporates & Public Sector business continues to be on maintaining and acquiring sustainable customer relationships in a very competitive and challenging environment. We believe the risk-adjusted returns are currently out of balance. However, we remain patient for a more normalized pricing environment that provides appropriate risk-adjusted returns.
In March 2018, Global Finance, one of the leading magazines for finance and capital market issues, awarded BAWAG Group as "Austria's Best Bank" for the second consecutive year.
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-inclass products and services.
In addition, we will place a clear focus on technology, as this will be one of the key differentiators across the banking landscape given the pace of technological disruption.
On the M&A front, we continue to maintain a robust pipeline of opportunities, but will remain disciplined in following our underwriting guidelines on both strategic fit and value.
All of our team members across BAWAG Group are focused on continuing to deliver value to our customers and shareholders. We will continue to execute on a number of operational and strategic initiatives during 2018.
Our focus remains on driving operational excellence and profitable growth, and we are confident in meeting or exceeding all our 2018 targets.
Anas Abuzaakouk, CEO of BAWAG Group AG
Interim Group Management Report
Equity markets in Europe and the US continued to be supported by a sound economic environment, strong corporate earnings and supportive monetary conditions. After rather stable share price developments in 2017, the first quarter 2018 was characterized by an increase in price volatility. During the first quarter, the Austrian benchmark index ATX remained broadly unchanged (+0.2%), while the European Euro Stoxx 600 decreased by 5% and the US S&P 500 decreased by 1% compared to year-end 2017.
High economic growth rates translated to a solid financial performance of the corporate sector. Earnings per share of the ATX, of the Euro Stoxx 600 and of the S&P 500 increased during the first quarter 2018. With increasing
earnings and rather stable prices, valuation metrics decreased in Europe and in the US during the first quarter. While the price-to-earnings ratio of the ATX and of the Euro Stoxx 600 decreased to 14.5 and to 15.6, respectively, the price-to-earnings ratio of the S&P 500 still remained at more elevated levels of 21.3.
Despite an interest rate hike by the US Federal Reserve in March 2018, global liquidity conditions remained ample in historic comparison on the back of asset purchases by the European Central Bank and the Bank of Japan.
Higher price volatility was caused by discussions around mutual protectionist measures between the US and China that fueled fears of a setback to global trade.
BAWAG Group AG's shares closed the first quarter at a share price of € 44.58 compared to € 44.46 as of year-end 2017, representing an increase of 0.3%. During the same period, the share price high was at € 48.50 and the low at € 43.08.
The Euro Stoxx Banks decreased by 4% during the first quarter. Thus, BAWAG Group AG's shares outperformed the benchmark index for banks in the Euro area.
After the reporting date, in April 2018, BAWAG Group successfully completed its inaugural Additional Tier 1 issuance, underlining its strong access to the capital markets. The € 300 million Additional Tier 1 perpetual issue with the first call date in May 2025 was priced with a coupon of 5.00%. This is an important step in the optimization of BAWAG Group's total capital position planned for 2018.
In the first quarter 2018, members of the Managing Board together with the Investor Relations team met with a number of investors in the US, UK, Germany, Switzerland and Austria. BAWAG Group's strategy and related execution during 2017 was presented and the financial performance discussed.
| Q1 | Q1 | Change | Q4 | Change | |
|---|---|---|---|---|---|
| in € million | 2018 | 2017 | (%) | 2017 | (%) |
| Interest income | 292.7 | 280.0 | 4.5 | 270.0 | 8.4 |
| Interest expense | (86.2) | (84.3) | 2.3 | (68.5) | 25.8 |
| Dividend income | 1.3 | 0.0 | 100 | 1.3 | – |
| Net interest income | 207.8 | 195.7 | 6.2 | 202.8 | 2.5 |
| Fee and commission income | 95.7 | 71.8 | 33.3 | 93.4 | 2.5 |
| Fee and commission expenses | (21.2) | (22.0) | (3.6) | (27.3) | (22.3) |
| Net fee and commission income | 74.5 | 49.8 | 49.6 | 66.1 | 12.7 |
| Core revenues | 282.3 | 245.5 | 15.0 | 268.9 | 5.0 |
| Gains and losses on financial instruments and other operating income and expenses1) |
15.3 | 18.4 | (16.8) | 100.3 | (84.7) |
| Operating income | 297.6 | 263.9 | 12.8 | 369.2 | (19.4) |
| Operating expenses1) | (130.0) | (107.4) | 21.0 | (207.7) | (37.4) |
| Regulatory charges | (36.7) | (25.2) | 45.6 | (4.0) | >100 |
| Operating profit | 130.9 | 131.3 | (0.3) | 157.5 | (16.9) |
| Total risk costs | (15.9) | (11.1) | 43.2 | (18.2) | (12.6) |
| Share of the profit or loss of associates accounted for using the equity method |
1.1 | 1.1 | – | 1.1 | (0.0) |
| Profit before tax | 116.1 | 121.3 | (4.3) | 140.4 | (17.3) |
| Income taxes | (29.6) | (26.2) | 13.0 | 26.3 | – |
| Profit after tax | 86.5 | 95.1 | (9.0) | 166.7 | (48.1) |
| Non-controlling interests | 0.0 | 0.0 | – | 0.0 | – |
| Net profit | 86.5 | 95.1 | (9.0) | 166.7 | (48.1) |
1) In accordance with IFRS, the item Other operating income and expenses also includes regulatory charges in the amount of € 35.8 million for the first quarter 2018. The item Operating expenses includes regulatory charges in the amount of € 0.9 million for the first quarter 2018 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 decreased by € 5.2 million, or 4.3%, to € 116.1 million in the first quarter 2018, mainly due to higher regulatory charges.
Net fee and commission income increased by € 24.7 million, or 49.6%, compared to the first quarter 2017, mainly due to the acquisition of PayLife, which was closed in the fourth quarter 2017.
Net interest income increased by € 12.1 million, or 6.2%, to € 207.8 million in the first quarter 2018, with a net interest margin of 2.15%.
Gains and losses on financial instruments and other operating income and expenses decreased by € 3.1 million, or 16.8%, to € 15.3 million in the first quarter 2018.
Operating expenses increased by 21.0% to € 130.0 million in the first quarter 2018, mainly due to the acquisitions of PayLife and Südwestbank, which were closed in the fourth quarter 2017. Operating expenses in the first quarter 2018 decreased compared to the fourth quarter 2017.
Total risk costs increased by € 4.8 million to € 15.9 million in the first quarter 2018 but were lower than the risk costs in the fourth quarter 2017.
Income taxes amounted to € 29.6 million in the first quarter 2018.
| Mar | Dec | Change | Mar | Change | |
|---|---|---|---|---|---|
| in € million | 2018 | 2017 | (%) | 2017 | (%) |
| Cash reserves | 1,108 | 1,180 | (6.1) | 760 | 45.8 |
| Financial assets | 3,650 | 5,314 | (31.3) | 3,844 | (5.0) |
| Held for trading | 409 | 458 | (10.7) | 546 | (25.1) |
| Fair value through profit or loss | 544 | 448 | 21.4 | 194 | >100 |
| Fair value through OCI | 2,697 | 4,408 | (38.8) | 3,104 | (13.1) |
| At amortized cost | 38,741 | 38,027 | 1.9 | 34,553 | 12.1 |
| Customers | 30,504 | 30,804 | (1.0) | 28,195 | 8.2 |
| Debt instruments | 3,476 | 3,563 | (2.4) | 3,366 | 3.3 |
| Credit institutions | 4,761 | 3,660 | 30.1 | 2,992 | 59.1 |
| Hedging derivatives | 415 | 517 | (19.7) | 583 | (28.8) |
| Tangible non-current assets | 223 | 223 | – | 54 | >100 |
| Intangible non-current assets | 508 | 506 | 0.4 | 383 | 32.6 |
| Tax assets for current taxes | 16 | 12 | 33.3 | 11 | 45.5 |
| Tax assets for deferred taxes | 122 | 102 | 19.6 | 179 | (31.8) |
| Other assets | 185 | 190 | (2.6) | 192 | (3.6) |
| Total assets | 44,968 | 46,071 | (2.4) | 40,559 | 10.9 |
Note: Due to the application of IFRS 9 from 1 January 2018 and the decision to not restate the accounts, as permitted in the regulations, the balance sheet from the first quarter 2018 is not comparable with previous reporting periods. Prior-year figures of 2017 have been presented in accordance with the new categories, without a reclassification or remeasurement according to the new standards.
Financial assets decreased by € 1,664 million, or 31.3%, compared to year-end 2017, amounting to € 3,650 million as of 31 March 2018.
The position at amortized cost increased by € 714 million, or 1.9%, and stood at € 38,741 million as of 31 March 2018.
Tax assets for deferred taxes increased by € 20 million, or 19.6%, to € 122 million as of 31 March 2018.
| Mar | Dec | Change | Mar | Change | |
|---|---|---|---|---|---|
| in € million | 2018 | 2017 | (%) | 2017 | (%) |
| Total liabilities | 41,399 | 42,461 | (2.5) | 37,342 | 10.9 |
| Financial liabilities | 40,120 | 40,965 | (2.1) | 35,814 | 12.0 |
| Fair value through profit or loss | 966 | 726 | 33.1 | 964 | 0.2 |
| Held for trading | 292 | 345 | (15.4) | 505 | (42.2) |
| At amortized cost | 38,862 | 39,894 | (2.6) | 34,345 | 13.2 |
| Customers | 30,475 | 30,947 | (1.5) | 25,480 | 19.6 |
| Issued securities | 4,122 | 4,938 | (16.5) | 5,210 | (20.9) |
| Credit institutions | 4,265 | 4,009 | 6.4 | 3,655 | 16.7 |
| Financial liabilities associated with transferred assets |
0 | 0 | – | 90 | (100) |
| Valuation adjustment on interest rate risk hedged portfolios |
95 | 116 | (18.1) | 175 | (45.7) |
| Hedging derivatives | 120 | 94 | 27.7 | 210 | (42.9) |
| Provisions | 422 | 450 | (6.2) | 397 | 6.3 |
| Tax liabilities for current taxes | 8 | 17 | (52.9) | 20 | (60.0) |
| Tax liabilities for deferred taxes | 10 | 5 | 100 | 24 | (58.3) |
| Other obligations | 624 | 814 | (23.3) | 612 | 2.0 |
| Total equity | 3,569 | 3,610 | (1.1) | 3,217 | 10.9 |
| Shareholders' equity | 3,568 | 3,609 | (1.1) | 3,216 | 10.9 |
| Non-controlling interests | 1 | 1 | – | 1 | – |
| Total liabilities and equity | 44,968 | 46,071 | (2.4) | 40,559 | 10.9 |
Note: Due to the application of IFRS 9 from 1 January 2018 and the decision to not restate the accounts, as permitted in the regulations, the balance sheet from the first quarter 2018 is not comparable with previous reporting periods. Prior-year figures of 2017 have been presented in accordance with the new categories, without a reclassification or remeasurement according to the new standards.
Financial liabilities at amortized cost decreased by € 1,032 million, or 2.6%, to € 38,862 million as of 31 March 2018, but showed an increase of € 4,517 million, or 13.2%, compared to 31 March 2017.
Total equity stood at € 3,569 million as of 31 March 2018.
In February 2018, we signed a separation agreement with Austrian Post for a consensual and gradual wind-down of the partnership, working towards a materially complete separation by year-end 2019 (following the letter of intent which was signed in December 2017). This was a major step forward in our ability to pursue a preferred stand-alone strategy with an optimized cost base and enhanced service model.
The reshaping of our network began in 2016, as we successfully 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. At the end of the first quarter 2018, our advisor per core branch ratio stood at 4.4, up from approximately 3 in 2015, helping to drive growth in sales per FTE over the same time period, and a significant cost reduction. Additionally, we saw strong customer retention through the period in the consolidated branches and an overall increase in new business.
In the first quarter 2018, there continued to be a significant shift in transactions from over-the-counter services, down 18% from the first quarter 2017, to online and self-service devices, as our customers expect to conduct simple transactions with the push of a button anywhere and at all times. At the end of the first quarter, over-the-counter transactions represented only 12% of total transactions, with 88% of our transactions coming through e-banking, mobile and self-service devices.
We continued to recognize additional opportunities to streamline operational processes, reduce costs and enhance customer experience. We are actively engaged in technological developments to our branch network, including investments made to digitize applications
(paperless branch) and drive further automation and security in cash management.
In the first quarter 2018, we continued to grow our consumer lending franchise with new business of € 0.1 billion, which supported net asset growth of 3% compared to a year ago. These results were delivered while maintaining our disciplined underwriting standards. Only 10% of current account customers have a consumer loan, representing an opportunity for growth in a higher-margin focus product.
Our partnership with Spotcap to give small and medium-sized enterprises (SMEs) fully digital and highly automated access to same-day financing is an example of our commitment to innovating via digital channels and offering best-in-class products. Through our "ExpressFinanzierung" product, with a broader release planned in the second half 2018, we are bringing a new product to the Austrian market for SMEs to address unmet needs, while enhancing our digital and analytical ecosystems.
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 as well as expanding our cooperation with retail partners and Fintechs. In May 2018 we agreed to an exclusive long-term sales partnership with MediaMarktSaturn Austria, which is set to launch in January 2019. This strategic partnership complements our omnichannel strategy aimed at strengthening our presence in the consumer lending space and leveraging our full offering of banking products.
| Income metrics (in € million) |
Q1 2018 |
Q1 2017 |
Change (%) |
Q4 2017 |
Change (%) |
|---|---|---|---|---|---|
| Net interest income | 96.9 | 93.4 | 3.7 | 95.1 | 1.9 |
| Net fee and commission income | 42.5 | 35.8 | 18.7 | 39.1 | 8.7 |
| Core revenues | 139.4 | 129.2 | 7.9 | 134.2 | 3.9 |
| Gains and losses on financial instruments | 8.5 | 0.8 | >100 | (2.2) | – |
| Other operating income and expenses | 0.6 | 0.5 | 20.0 | 0.3 | 100 |
| Operating income | 148.5 | 130.5 | 13.8 | 132.3 | 12.2 |
| Operating expenses | (62.2) | (64.4) | (3.4) | (71.0) | (12.4) |
| Regulatory charges | (15.0) | (12.6) | 19.0 | (0.8) | >100 |
| Total risk costs | (16.0) | (12.5) | 28.0 | (17.7) | (9.6) |
| Profit before tax | 55.3 | 41.0 | 34.9 | 42.8 | 29.2 |
| Q1 | Q1 | Change | Q4 | Change | |
| Key ratios Pre-tax return on tangible equity |
2018 30.8% |
2017 22.1% |
(pts) 8.7 |
2017 22.5% |
(pts) 8.3 |
| Pre-tax return on tangible equity (@12% CET1) | 34.9% | 25.3% | 9.6 | 27.4% | 7.5 |
| Net interest margin | 4.07% | 3.84% | 0.23 | 3.98% | 0.09 |
| Cost-income ratio | 41.9% | 49.3% | (7.4) | 53.7% | (11.8) |
| Risk costs / interest bearing assets | 0.67% | 0.51% | 0.16 | 0.74% | (0.07) |
| NPL ratio | 2.1% | 2.2% | (0.1) | 2.4% | (0.3) |
| Business volumes (in € million) |
Mar 2018 |
Dec 2017 |
Change (%) |
Mar 2017 |
Change (%) |
| Assets | 9,507 | 9,502 | 0.1 | 9,668 | (1.7) |
Customer deposits and own issues 18,695 18,954 (1.4) 18,981 (1.5)
Operating income increased by 13.8% to € 148.5 million compared to the first quarter 2017. This results from an improved net interest income, driven by higher margins on lending products, and an increase in net fee and commission income mainly driven by current account products and lower commission expenses paid to Austrian Post.
Gains and losses on financial instruments comprise of income from the sale of non-performing loans in January 2018.
Operating expenses decreased by 3.4% to € 62.2 million.
The increase in regulatory charges stems from the contributions to the deposit guarantee scheme, which represents full-year expenses.
Risk costs amounted to € 16.0 million, translating into a risk cost ratio of 67 basis points, which is stable compared to the fourth quarter 2017.
The segment delivered profit before tax of € 55.3 million and a pre-tax return on tangible equity (@12% CET1) of 34.9%.
Assets remained stable compared to year-end 2017, reflecting the aforementioned sale of non-performing loans in the amount of € 48 million.
Customer deposits decreased by € 0.1 billion compared to year-end 2017, due to a reduction of deposit volumes in fixed-rate savings products.
easygroup's customer base increased to 1.4 million customers with the addition of PayLife and the transition of start:bausparkasse under easygroup management. easygroup consists of all our non-branch related origination channels, which includes easybank, easyleasing, PayLife and start:bausparkasse. All brands originate business through a mix of direct digital channels, dealers, brokers and retail/banking partner relationships.
The easygroup segment ended the first quarter 2018 with customer deposits at € 5.5 billion and total segment assets at € 5.7 billion.
Total easybank customers at the end of the first quarter 2018 amounted to 920,000. This was up 188% versus the first quarter 2017, primarily driven by the acquisition of PayLife in October 2017. Excluding the PayLife acquisition, easybank also continued to have strong organic customer growth, reiterating its leading position in the direct banking market.
During 2017, significant investments were made in our processes and marketing for online consumer lending. New business origination of easybank increased 41% versus prior year, including the best online loan origination in the history of easybank. A significant amount came from loans to new customers, which was up over 5 times versus the first quarter 2017.
Additionally, we saw a positive trend in our online current accounts, with growth in our "easy konto" fee-bearing account of over 5% during the first quarter compared to year-end 2017. This is a significant metric for us as it provides validation that customers are not just coming to our online bank for free and cheap services, but that they are willing to pay for great customer service and convenient banking.
In the first quarter 2018, we successfully provided our customer ecosystem with further financial products. We increased our issued gold credit cards by 46% compared to year-end 2017, driven purely by cross-sales to existing
customers. Additionally, cross-sales of loans to existing customers was up 21% compared to the first quarter 2017.
Providing customers with all financial products they need is a core strategy of easygroup. With the expansion of our customer ecosystem through the PayLife acquisition, this will continue to play a very important role in our growth and success.
In the first quarter 2018, we made tremendous progress in integrating PayLife, with major milestones being achieved without any interruption to daily business. All employees from the acquisition were relocated into easygroup offices and a new internal organizational structure has been set up to effectively assimilate the team and create a centralized hub where payment services expertise can be utilized across BAWAG Group. As we continue to look for new opportunities, we are not losing sight of ensuring past investments are being properly looked after.
During the first quarter 2018, we made a strategic decision to postpone the launch of our German brand Qlick. This decision was made in order to enhance the technology stack we want to create across Germany from a BAWAG Group perspective. With the closing of Südwestbank and our pending closing of Deutscher Ring Bausparkasse, we want to ensure the structure and technology used across the Group is ideal not only for Qlick, but will provide an integrated technology platform for various retail products leveraging the Qlick technology.
In the first quarter 2018, we successfully launched our new easybank website, which was a year in the making. The new website will provide a state-of-the-art responsive design and provide full digital capabilities. Our customers will be able to open a multitude of financial products anywhere at any time. We expect this new facelift to become our largest origination channel and to have a significant uplift to customer acquisition and conversion, which we should start to see materializing over the course of 2018.
| Income metrics (in € million) |
Q1 2018 |
Q1 2017 |
Change (%) |
Q4 2017 |
Change (%) |
|---|---|---|---|---|---|
| Net interest income | 40.4 | 40.4 | – | 39.6 | 2.0 |
| Net fee and commission income | 13.7 | 4.6 | >100 | 14.5 | (5.5) |
| Core revenues | 54.1 | 45.0 | 20.2 | 54.1 | – |
| Gains and losses on financial instruments | 0.0 | 0.0 | – | 2.2 | (100) |
| Other operating income and expenses | 0.0 | (0.1) | 100 | 3.3 | (100) |
| Operating income | 54.1 | 44.9 | 20.5 | 59.6 | (9.2) |
| Operating expenses | (17.2) | (13.1) | 31.3 | (22.6) | (23.9) |
| Regulatory charges | (4.2) | (2.0) | >100 | (0.1) | >100 |
| Total risk costs | (1.1) | 3.7 | – | (4.4) | (75.0) |
| Profit before tax | 31.6 | 33.5 | (5.7) | 32.5 | (2.8) |
| Key ratios | Q1 2018 |
Q1 2017 |
Change (pts) |
Q4 2017 |
Change (pts) |
|---|---|---|---|---|---|
| Pre-tax return on tangible equity | 25.9% | 21.6% | 4.3 | 23.2% | 2.7 |
| Pre-tax return on tangible equity (@12% CET1) | 29.4% | 24.8% | 4.6 | 28.3% | 1.1 |
| Net interest margin | 2.80% | 2.55% | 0.25 | 2.65% | 0.15 |
| Cost-income ratio | 31.8% | 29.2% | 2.6 | 37.9% | (6.1) |
| Risk costs / interest bearing assets | 0.08% | (0.23)% | 0.31 | 0.29% | (0.21) |
| NPL ratio | 1.9% | 2.5% | (0.6) | 1.9% | 0.0 |
| Business volumes (in € million) |
Mar 2018 |
Dec 2017 |
Change (%) |
Mar 2017 |
Change (%) |
|---|---|---|---|---|---|
| Assets | 5,737 | 5,938 | (3.4) | 6,157 | (6.8) |
| Risk-weighted assets | 3,824 | 4,193 | (8.8) | 5,058 | (24.4) |
| Customer deposits and own issues | 5,869 | 5,981 | (1.9) | 6,064 | (3.2) |
Operating income increased by 20.5% to € 54.1 million compared to the same period last year. While net interest income remained stable, the increase in net fee and commission income stems from the integration of the card issuing business PayLife in the early fourth quarter 2017.
Operating expenses were up 31.3% to € 17.2 million due to the PayLife acquisition.
The increase in regulatory charges stems from the contributions to the deposit guarantee scheme, which represents full-year expenses.
Risk costs amounted to € 1.1 million, translating into a risk cost ratio of 8 basis points.
The segment contributed profit before tax of € 31.6 million with a pre-tax return on tangible equity (@12% CET1) of 29.4%.
Assets decreased by € 0.2 billion compared to year-end 2017 due to the run-off of the international mortgage portfolios.
Customer deposits remained largely stable at € 5.5 billion.
In the first quarter 2018, the integration and transformation process was fully launched, culminating in reaching an agreement with the workers' council on a comprehensive social plan in April.
Südwestbank generated new business volume of € 0.3 billion in the first quarter 2018 while continuing to execute across four key strategic pillars:
Operational efficiency: Streamline and digitize core business processes to better and more efficiently serve our customers, including digital archiving, digital credit files and automated workflows in loan origination and servicing.
Capital efficiency: Focus on profitability and risk-adjusted returns at the product, customer and business channel levels. Südwestbank is in the process of launching growth plans for key products and segments and repricing and/or refinancing plans for low-return products.
Grow share of wallet: Expand our business cooperation within profitable customer segments, drive digital initiatives and leverage the digital infrastructure of BAWAG Group to revitalize the consumer retail franchise.
Develop new customer acquisition strategies to reposition Südwestbank into a broader retail franchise with a more comprehensive set of retail products. BAWAG Group is evaluating multiple acquisition targets that would complement Südwestbank's product offering and business model, leverage its infrastructure and create additional economies of scale for growth in the German market.
At the end of the first quarter 2018, Südwestbank's total assets stood at € 4.4 billion, up 5% compared to year-end 2017.
We will continue to execute on our principal strategies of operational efficiency to make our customers' lives easier and our processes more simple and cost-effective. We will focus on capital efficiency to unlock low-returning capital, deleverage our balance sheet and support organic and inorganic growth to extend our customer and geographic reach and expand our German retail franchise. These strategies are designed to improve operating performance across the segment with a focus on profitability, efficiency and capital, with the goal to deliver results in line with overall BAWAG Group targets.
| Income metrics (in € million) |
Q1 2018 |
Q1 2017 |
Change (%) |
Q4 2017 |
Change (%) |
|---|---|---|---|---|---|
| Net interest income | 22.6 | – | – | 5.6 | >100 |
| Net fee and commission income | 8.9 | – | – | 3.0 | >100 |
| Core revenues | 31.5 | – | – | 8.6 | >100 |
| Gains and losses on financial instruments | 0.0 | – | – | 0.0 | – |
| Other operating income and expenses | 0.0 | – | – | 0.0 | – |
| Operating income | 31.5 | – | – | 8.6 | >100 |
| Operating expenses | (19.2) | – | – | (8.0) | >100 |
| Regulatory charges | (2.8) | – | – | (0.1) | >100 |
| Total risk costs | 1.8 | – | – | (0.2) | – |
| Profit before tax | 11.3 | – | – | 0.3 | >100 |
| Key ratios | Q1 2018 |
Q1 2017 |
Change (pts) |
Q4 2017 |
Change (pts) |
|---|---|---|---|---|---|
| Pre-tax return on tangible equity | 10.6% | – | – | 0.6% | 10.0 |
| Pre-tax return on tangible equity (@12% CET1) | 12.0% | – | – | 0.6% | 11.4 |
| Net interest margin | 2.07% | – | – | 1.61% | 0.46 |
| Cost-income ratio | 61.0% | – | – | 93.0% | (32.0) |
| Risk costs / interest bearing assets | (0.16)% | – | – | 0.06% | (0.22) |
| NPL ratio | 1.5% | – | – | 1.6% | (0.1) |
| Business volumes (in € million) |
Mar 2018 |
Dec 2017 |
Change (%) |
Mar 2017 |
Change (%) |
|---|---|---|---|---|---|
| Assets | 4,406 | 4,183 | 5.3 | – | – |
| Risk-weighted assets | 3,591 | 3,349 | 7.2 | – | – |
| Customer deposits and own issues | 6,304 | 6,146 | 2.6 | – | – |
Operating income amounted to € 31.5 million. Customer loans are the main contributor to net interest income. Net commission income stems mainly from securities, loans and payment services.
The segment contributed profit before tax of € 11.3 million with a pre-tax return on tangible equity (@12% CET1) of 12.0%.
Assets amounted to € 4.4 billion.
Liabilities amounted to € 6.3 billion.
Operating expenses amounted to € 19.2 million, while risk costs recorded a net release of € 1.8 million.
At the end of the first quarter 2018, asset volumes remained stable at € 6.7 billion compared to year-end 2017, impacted primarily by muted loan demand. Early redemptions were compensated by short-term lending to municipalities and social insurance companies.
We expect the market to remain very competitive. We have the flexibility and speed necessary for strategic transactions requiring complete debt solutions for clients. However, we expect originations in 2018 to come in at a lower level than in 2017.
| Income metrics (in € million) |
Q1 2018 |
Q1 2017 |
Change (%) |
Q4 2017 |
Change (%) |
|---|---|---|---|---|---|
| Net interest income | 16.4 | 20.7 | (20.8) | 17.9 | (8.4) |
| Net fee and commission income | 9.9 | 10.0 | (1.0) | 10.1 | (2.0) |
| Core revenues | 26.3 | 30.7 | (14.3) | 28.0 | (6.1) |
| Gains and losses on financial instruments | 0.1 | 0.5 | (80.0) | (11.4) | – |
| Other operating income and expenses | 0.0 | 0.0 | – | 0.0 | – |
| Operating income | 26.4 | 31.2 | (15.4) | 16.6 | 59.0 |
| Operating expenses | (13.3) | (12.2) | 9.0 | (12.0) | 10.8 |
| Total risk costs | 0.8 | 1.7 | (52.9) | (15.0) | – |
| Profit before tax | 13.9 | 20.7 | (32.9) | (10.4) | – |
| Key ratios | Q1 2018 |
Q1 2017 |
Change (pts) |
Q4 2017 |
Change (pts) |
| Pre-tax return on tangible equity | 14.8% | 18.2% | (3.4) | (9.2)% | 24.0 |
| Pre-tax return on tangible equity (@12% CET1) | 16.8% | 20.8% | (4.0) | (11.2)% | 28.0 |
| Net interest margin | 0.97% | 1.07% | (0.10) | 0.99% | (0.02) |
| Cost-income ratio | 50.4% | 39.1% | 11.3 | 72.3% | (21.9) |
| Risk costs / interest bearing assets | (0.05)% | (0.09)% | 0.04 | 0.83% | (0.88) |
| NPL ratio | 1.3% | 1.0% | 0.3 | 1.4% | (0.1) |
| Business volumes (in € million) |
Mar 2018 |
Dec 2017 |
Change (%) |
Mar 2017 |
Change (%) |
| Assets | 6,706 | 6,725 | (0.3) | 7,891 | (15.0) |
| Risk-weighted assets | 2,108 | 2,410 | (12.5) | 2,790 | (24.4) |
issues 6,377 6,762 (5.7) 7,207 (11.5)
Operating income decreased by 15.4% to € 26.4 million. While net commission income remained stable, the decrease in net interest income stems from lower asset volumes as well as the impact of lower yielding originations than redemptions.
Customer deposits (incl. other refinancing) and own
Operating expenses increased to € 13.3 million, primarily resulting from higher allocated overhead costs.
Risk costs recorded a net release of € 0.8 million.
The segment contributed profit before tax of € 13.9 million with a pre-tax return on tangible equity (@12% CET1) of 16.8%.
Assets remained stable compared to year-end 2017 despite low originations.
Liabilities stood at € 6.4 billion due to a reduction of volumes in short-term deposit.
The segment generated new business of € 0.9 billion in the first quarter 2018, resulting in net asset growth of 2% to € 5.3 billion compared to year-end 2017. This was driven by net asset growth of 11% to € 2.6 billion in our corporate lending business. Our real estate financing business was impacted by early redemptions, with net assets decreasing by 5% to € 2.7 billion.
We see a solid pipeline for the remainder of the year, with diversified opportunities generated from our real estate lending business. Certain transactions, which have already been closed but not yet funded, will also support growth in this segment during the remainder of 2018. However, competition for defensive, high-quality transactions will remain high.
| Income metrics (in € million) |
Q1 2018 |
Q1 2017 |
Change (%) |
Q4 2017 |
Change (%) |
|---|---|---|---|---|---|
| Net interest income | 31.5 | 33.4 | (5.7) | 30.1 | 4.7 |
| Net fee and commission income | 0.1 | 0.0 | 100 | 0.2 | (50.0) |
| Core revenues | 31.6 | 33.4 | (5.4) | 30.3 | 4.3 |
| Gains and losses on financial instruments | 0.0 | 0.3 | (100) | 0.0 | – |
| Other operating income and expenses | 0.0 | 0.0 | – | 0.0 | – |
| Operating income | 31.6 | 33.7 | (6.2) | 30.3 | 4.3 |
| Operating expenses | (7.0) | (8.6) | (18.6) | (7.1) | (1.4) |
| Total risk costs | 0.2 | (3.0) | – | (0.5) | – |
| Profit before tax | 24.8 | 22.1 | 12.2 | 22.7 | 9.3 |
| Q1 | Q1 | Change | Q4 | Change |
| Pre-tax return on tangible equity 23.4% 20.4% 3.0 19.4% 4.0 Pre-tax return on tangible equity (@12% CET1) 26.6% 23.3% 3.3 23.8% 2.8 Net interest margin 2.40% 2.45% (0.05) 2.36% 0.04 |
Key ratios | 2018 | 2017 | (pts) | 2017 | (pts) |
|---|---|---|---|---|---|---|
| Cost-income ratio | 22.2% | 25.5% | (3.3) | 23.4% | (1.2) | |
| Risk costs / interest bearing assets (0.02)% 0.22% (0.24) 0.04% |
(0.06) | |||||
| NPL ratio 0.9% 0.3% 0.6 0.9% 0.0 |
| Business volumes | Mar | Dec | Change | Mar | Change |
|---|---|---|---|---|---|
| (in € million) | 2018 | 2017 | (%) | 2017 | (%) |
| Assets | 5,297 | 5,174 | 2.4 | 5,327 | (0.6) |
| Risk-weighted assets | 4,563 | 4,318 | 5.7 | 4,112 | 11.0 |
Operating income decreased to € 31.6 million compared to the first quarter 2017 but increased compared to the fourth quarter 2017.
Operating expenses decreased by 18.6% to € 7.0 million mainly due to staff cost reductions compared to the prior year.
Risk costs reflect a low-risk profile with no newly provisioned
The segment contributed profit before tax of € 24.8 million with a pre-tax return on tangible equity (@12% CET1) of 26.6%.
Assets increased by 2.4% to € 5.3 billion compared to yearend 2017.
customers.
The Corporate Center contains central functions for BAWAG Group. Hence, the P&L comprises the FTP result as an outcome of the ALM function, one-off and project-related operating expenses, contributions to the single resolution fund, bank levy, corporate taxes and other one-off items. The balance sheet mainly includes non-interest bearing assets, liabilities and equity.
Treasury Services & Markets continued to pursue the strategy of balancing the investment portfolio between long-term
investment in high-quality securities while still maintaining our hold to collect and sell portfolio to preserve the flexibility of redeployment into customer loans or other balance sheet management activities. De-risking measures in the investment book in the amount of € 1.2 billion lead to a decreased investment portfolio amounting to € 5.8 billion and a liquidity reserve of € 4.4 billion at the end of the first quarter 2018. The overall composition of the portfolio 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.
| Income metrics (in € million) |
Q1 2018 |
Q1 2017 |
Change (%) |
Q4 2017 |
Change (%) |
|---|---|---|---|---|---|
| Net interest income | 0.0 | 7.8 | (100) | 14.5 | (100) |
| Net fee and commission income | (0.6) | (0.6) | (0.0) | (0.8) | 25.0 |
| Core revenues | (0.6) | 7.2 | – | 13.7 | – |
| Gains and losses on financial instruments | 6.5 | 16.4 | (60.4) | (20.4) | – |
| Other operating income and expenses | (0.4) | 0.0 | (100) | 128.5 | – |
| Operating income | 5.5 | 23.6 | (76.7) | 121.8 | (95.5) |
| Operating expenses | (11.1) | (9.1) | 22.0 | (87.0) | (87.2) |
| Regulatory charges | (14.7) | (10.6) | 38.7 | (3.0) | >100 |
| Total risk costs | (1.6) | (1.0) | 60.0 | 19.6 | – |
| Share of the profit or loss of associates accounted for using the equity method |
1.1 | 1.1 | – | 1.1 | (0.0) |
| Profit before tax | (20.8) | 4.0 | – | 52.5 | – |
| Income taxes | (29.6) | (26.2) | 13.0 | 26.3 | – |
| Net profit | (50.4) | (22.2) | >(100) | 78.8 | – |
| Volumes (in € million) |
Mar 2018 |
Dec 2017 |
Change (%) |
Mar 2017 |
Change (%) |
| Assets and liquidity reserve | 13,315 | 14,549 | (8.5) | 11,516 | 15.6 |
| Risk-weighted assets | 3,270 | 3,541 | (7.7) | 3,260 | 0.3 |
| Equity | 3,567 | 3,610 | (1.2) | 3,216 | 10.9 |
| Own issues and other liabilities | 4,154 | 4,619 | (10.1) | 5,090 | (18.4) |
Operating income decreased to € 5.5 million driven by lower reinvestment yields in the investment book, higher excess liquidity and lower share of customer assets.
Operating expenses increased to € 11.1 million, covering the costs for the integrated investment book of Südwestbank.
Regulatory charges amounted to € 14.7 million and included the full-year impact of charges to the resolution fund and pro rata charges of bank levy and supervisory charges.
Assets decreased by 8.5% compared to year-end 2017 driven by de-risking activities in the investment book.
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 solid results in the first quarter 2018 and anticipates that this strong performance will continue throughout the remainder of the year.
Our targets for 2018 are as follows:
In addition to these targets for the financial year 2018, we have the following 3-year targets from 2018 through 2020 in place:
Grow profit before tax at more than 5% CAGR and deliver a PBT of greater than € 600 million in 2020
In terms of capital generation and return, we target an annual dividend payout of 50% of net profit and will deploy additional excess capital (above 12% CET1) through 2020 to invest in organic growth and pursue earnings-accretive M&A at returns consistent with our RoTE group targets. To the extent excess capital is not deployed via such organic growth and M&A, we are committed to distributing excess capital to shareholders, based on a yearly assessment, in the form of stock buybacks and/or special dividends.
Consolidated Interim Financial Statements
| in € million | [Notes] | Q1 2018 | Q1 2017 |
|---|---|---|---|
| Interest income | 292.7 | 280.0 | |
| Interest expense | (86.2) | (84.3) | |
| Dividend income | 1.3 | 0.0 | |
| Net interest income | [1] | 207.8 | 195.7 |
| Fee and commission income | 95.7 | 71.8 | |
| Fee and commission expenses | (21.2) | (22.0) | |
| Net fee and commission income | [2] | 74.5 | 49.8 |
| Gains and losses on financial assets and liabilities | [3] | 15.0 | 18.0 |
| Other operating income and expenses | (35.5) | (24.3) | |
| Operating expenses | [4] | (130.9) | (107.9) |
| Provisions and impairment losses | [5] | (15.9) | (11.1) |
| Share of the profit or loss of associates accounted for using the equity method |
1.1 | 1.1 | |
| Profit before tax | 116.1 | 121.3 | |
| Income taxes | (29.6) | (26.2) | |
| Profit after tax | 86.5 | 95.1 | |
| Thereof attributable to non-controlling interests | 0.0 | 0.0 | |
| Thereof attributable to owners of the parent | 86.5 | 95.1 |
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 € 35.8 million (Jan–Mar 2017: € 24.7 million). Expenses for the deposit guarantee scheme and for the single resolution fund comprise the total expected charges for 2018. The bank levy included in this item amounts to € 1.3 million for the first quarter 2018, compared to € 1.2 million for the first quarter 2017.
The item Operating expenses includes regulatory charges (FMA and ECB supervisory charges) in the amount of € 0.9 million (Jan–Mar 2017: € 0.5 million) as well. However, the Bank's management sees regulatory charges as a nonoperating expense. Accordingly, they are shown in a separate expense line in the Interim Group Management Report.
| Q1 2018 | Q1 2017 | |
|---|---|---|
| Net result attributable to owners of the parent (in € million) | 86.5 | 95.1 |
| Net result attributable to owners of the parent after deduction of dividend (in € million) |
86.5 | 95.1 |
| Weighted average number of outstanding shares | 100,000,000 | 100,000,0001) |
| Basic earnings per share (in €) | 0.9 | 1.0 |
| Weighted average diluted number of outstanding shares | 100,000,000 | 100,000,0001) |
| Diluted earnings per share (in €) | 0.9 | 1.0 |
| Q1 2018 | Q1 20171) | |
|---|---|---|
| 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 |
1) 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.
| in € million | [Notes] | Q1 2018 | Q1 2017 |
|---|---|---|---|
| Profit after tax | 86.5 | 95.1 | |
| Other comprehensive income | |||
| Items that will not be reclassified to profit or loss | |||
| Shares, investment funds and other equity investments at fair value through other comprehensive income |
3.3 | ||
| Change in credit spread of financial liabilities | 3.5 | ||
| Income tax on items that will not be reclassified | (1.7) | – | |
| Total items that will not be reclassified to profit or loss | 5.1 | 0.0 | |
| Items that may be reclassified subsequently to profit or loss | |||
| Cash flow hedge reserve | (5.5) | (12.5) | |
| thereof transferred to profit (-) or loss (+) | (2.1) | (1.0) | |
| Debt securities at fair value through other comprehensive income | (27.7) | ||
| thereof transferred to profit (-) or loss (+) | (13.2) | ||
| Available-for-sale reserve | 8.1 | ||
| thereof transferred to profit (-) or loss (+) | 1.0 | ||
| Income tax relating to items that may be reclassified | 8.3 | 1.1 | |
| Total items that may be reclassified subsequently to profit or loss | (24.9) | (3.3) | |
| Other comprehensive income | (19.8) | (3.3) | |
| Total comprehensive income, net of tax | 66.7 | 91.8 | |
| Thereof attributable to non-controlling interests | 0.0 | 0.0 | |
| Thereof attributable to owners of the parent | 66.7 | 91.8 |
| in € million | [Notes] | Mar 2018 | Dec 20171) |
|---|---|---|---|
| Cash reserves | 1,108 | 1,180 | |
| Financial assets at fair value through profit or loss | 544 | 448 | |
| Financial assets at fair value through other comprehensive income | 2,697 | ||
| Available-for-sale financial assets | [6] | 4,408 | |
| Held-to-maturity investments | 2,274 | ||
| Financial assets held for trading | [8] | 409 | 458 |
| At amortized cost | 38,741 | ||
| Customers | 30,504 | ||
| Credit institutions | 4,761 | ||
| Securities | 3,476 | ||
| Loans and receivables | [9] | 35,753 | |
| Customers | 30,804 | ||
| Credit institutions | 3,660 | ||
| Securities | 1,289 | ||
| Hedging derivatives | 415 | 517 | |
| Property, plant and equipment | 103 | 103 | |
| Investment properties | 120 | 120 | |
| Goodwill | 58 | 58 | |
| Brand name and customer relationships | 289 | 291 | |
| Software and other intangible assets | 161 | 157 | |
| Tax assets for current taxes | 16 | 12 | |
| Tax assets for deferred taxes | 122 | 102 | |
| Associates recognized at equity | 43 | 44 | |
| Other assets | 142 | 146 | |
| Total assets | 44,968 | 46,071 |
1) Prior year numbers are compiled according to the requirements of IAS 39. For IFRS 9 figures as of 1 January 2018, please refer to the Note "IFRS 9 Financial Instruments".
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 17 of this Consolidated Interim Report.
| in € million | [Notes] | Mar 2018 | Dec 20171) |
|---|---|---|---|
| Total liabilities | 41,399 | 42,461 | |
| Financial liabilities designated at fair value through profit or loss | [10] | 966 | 726 |
| Financial liabilities held for trading | [11] | 292 | 345 |
| Financial liabilities at amortized cost | [12] | 38,862 | 39,894 |
| Customers | 30,475 | 30,947 | |
| Issued bonds, subordinated and supplementary capital | 4,122 | 4,938 | |
| Credit institutions | 4,265 | 4,009 | |
| Valuation adjustment on interest rate risk hedged portfolios | 95 | 116 | |
| Hedging derivatives | 120 | 94 | |
| Provisions | [13] | 422 | 450 |
| Tax liabilities for current taxes | 8 | 17 | |
| Tax liabilities for deferred taxes | 10 | 5 | |
| Other obligations | 624 | 814 | |
| Total equity | 3,569 | 3,610 | |
| Equity attributable to the owners of the parent | 3,568 | 3,609 | |
| Non-controlling interests | 1 | 1 | |
| Total liabilities and equity | 44,968 | 46,071 |
1) Prior-year numbers are compiled according to the requirements of IAS 39. For IFRS 9 figures as of 1 January 2018, please refer to the Note "IFRS 9 Financial Instruments".
| in € million | Subscribed capital |
Capital reserves |
Retained earnings reserve |
Cash flow hedge reserve net of tax |
Actuarial gains/losses net of tax |
Debt securities at fair value through other comprehen sive income net of tax excluding equity associates |
Debt securities at fair value through other comprehen sive income net of tax from equity associates |
Shares, investment funds and other equity investments at fair value through other comprehen sive income net of tax |
Change in credit spread of financial liabilities net of tax |
AFS reserve net of tax excluding equity associates |
AFS reserve net of tax from equity associates |
Equity attributable to the owners of the parent |
Non controlling interests |
Equity including non controlling interests |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance as of 01.01.2017 |
100 | 1,094 1,957 | 6 | (73) | – | – | – | – | 37 | 3 | 3,123 | 2 | 3,125 | |
| Total comprehensive income |
– | – | 95 | (9) | – | – | – | – | – | 6 | – | 92 | 0 | 92 |
| Balance as of 31.03.2017 |
100 | 1,094 2,052 | (3) | (73) | – | – | – | – | 43 | 3 | 3,215 | 2 | 3,217 | |
| Balance as of 31.12.2017 |
100 | 1,146 2,372 | 3 | (77) | – | – | – | – | 62 | 2 | 3,609 | 1 | 3,610 | |
| Effect of the initial application of IFRS 9 |
0 | 0 | (49) | 0 | 0 | 46 | 2 | 13 | (59) | (62) | (2) | (112) | 0 | (112) |
| Balance as of 01.01.2018 |
100 | 1,146 2,323 | 3 | (77) | 46 | 2 | 13 | (59) | – | – | 3,497 | 1 | 3,498 | |
| Transactions with owners |
– | 4 | – | – | – | – | – | – | – | – | – | 4 | – | 4 |
| Owner's contribution |
– | 4 | – | – | – | – | – | – | – | – | – | 4 | – | 4 |
| Total comprehensive income |
– | – | 87 | (4) | – | (21) | – | 2 | 3 | – | – | 67 | 0 | 67 |
| Balance as of 31.03.2018 |
100 | 1,150 2,410 | (1) | (77) | 25 | 2 | 15 | (56) | – | – | 3,568 | 1 | 3,569 |
| in € million | Q1 2018 | Q1 2017 |
|---|---|---|
| Cash and cash equivalents at end of previous period | 1,180 | 1,020 |
| Profit (after tax, before non-controlling interests) | 87 | 95 |
| Non-cash items included in the profit (loss) and reconciliation to net cash from operating activities |
(145) | (207) |
| Change in assets and liabilities arising from operating activities after corrections for non-cash items |
(1,820) | (486) |
| Interest receipts | 304 | 309 |
| Interest paid | (104) | (88) |
| Dividend receipts | 3 | 0 |
| Net cash from operating activities | (1,675) | (377) |
| Cash receipts from sales of | ||
| Financial investments | 1,816 | 502 |
| Tangible and intangible non-current assets | 0 | 0 |
| Cash paid for | ||
| Financial investments | (161) | (369) |
| Tangible and intangible non-current assets | (16) | (12) |
| Net cash used in investing activities | 1,639 | 121 |
| Others | (36) | (4) |
| Net cash from financing activities | (36) | (4) |
| Cash and cash equivalents at end of period | 1,108 | 760 |
The condensed consolidated interim financial statements of BAWAG Group as of 31 March 2018 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 quarter 2018 were prepared in accordance with IAS 34 (Interim Financial Reporting).
The accounting principles used in preparing this interim financial report are, with the exception of the requirements pursuant to IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers, the same as those used for the preparation of the consolidated financial statements as of 31 December 2017.
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:
assessments of the recoverability of long-term loans are based on assumptions regarding the borrower's future cash flows, and, hence, possible impairments of loans and the recognition of provisions for off-balance-sheet commitments in relation to the lending business
As of 31 March 2018, the following new standards are mandatory for periods beginning on 1 January 2018:
Beyond that, no interpretations or amendments to existing standards are mandatory for periods beginning on 1 January 2018.
IFRS 9 became mandatory for BAWAG Group for the reporting period beginning on 1 January 2018. The requirements of IFRS 9 represent a significant change from IAS 39 Financial Instruments: Recognition and Measurement. The new standard IFRS 9 establishes three primary measurement categories for financial assets ‒ amortized cost, fair value and fair value through other riskrehensive income ‒ and brings fundamental changes to the accounting for financial assets and to certain aspects of the accounting for financial liabilities.
Prior-year figures are based on IAS 39. For better comparability, the Notes to the financial statements include a balance sheet with adjusted opening balances according to IFRS 9 as well as the tables required by IFRS 7.
The following tables show the development of the balance sheet in the first quarter 2018 pursuant to IFRS 9:
| Mar 2018 | 01.01.2018 |
|---|---|
| 1,108 | 1,180 |
| 544 | 795 |
| 2,697 | 4,133 |
| 409 | 439 |
| 38,741 | 37,906 |
| 30,504 | 30,571 |
| 4,761 | 3,660 |
| 3,476 | 3,675 |
| 415 | 517 |
| 103 | 103 |
| 120 | 120 |
| 58 | 58 |
| 289 | 291 |
| 161 | 157 |
| 16 | 12 |
| 122 | 139 |
| 43 | 44 |
| 142 | 146 |
| 44,968 | 46,040 |
| in € million | Mar 2018 | 01.01.2018 |
|---|---|---|
| Total liabilities | 41,399 | 42,542 |
| Financial liabilities designated at fair value through profit or loss | 966 | 1,140 |
| Financial liabilities held for trading | 292 | 345 |
| Financial liabilities at amortized cost | 38,862 | 39,563 |
| Customers | 30,475 | 30,947 |
| Issued bonds, subordinated and supplementary capital | 4,122 | 4,607 |
| Credit institutions | 4,265 | 4,009 |
| Valuation adjustment on interest rate risk hedged portfolios | 95 | 116 |
| Hedging derivatives | 120 | 94 |
| Provisions | 422 | 448 |
| Tax liabilities for current taxes | 8 | 17 |
| Tax liabilities for deferred taxes | 10 | 5 |
| Other obligations | 624 | 814 |
| Total equity | 3,569 | 3,498 |
| Equity attributable to the owners of the parent | 3,568 | 3,497 |
| Non-controlling interests | 1 | 1 |
| Total liabilities and equity | 44,968 | 46,040 |
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 are held for a future sale and if 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. If the structured financial asset does not fulfill the SPPI criteria, the financial instrument is assessed in its entirety and measured at fair value through profit or loss.
The Group completed an assessment of business models for all segments and identified the following business models:
Hold to Collect
Financial assets held in this business model are in general designated to be held until maturity and managed to realize cash flows by collecting principal and interest over the lifetime of the instruments. Not all of the financial assets need to be held until maturity. Under certain circumstances, sales are consistent with this business model, independent of their volume and frequency, for example if the asset is sold close to the maturity of the financial asset and the proceeds approximate the collection of the remaining contractual cash flows or the
asset is sold due to an increase in the assets' credit risk, due to changes in tax or regulatory laws, within business combinations or reorganizations or in stress case scenarios. In addition, sales are considered as insignificant independent of their reason when sales volumes and earnings do not exceed 5% of the average book value of the respective portfolio in a year.
Financial assets held in this business model include the entire loan portfolio except for a small municipal loan portfolio and approximately 45% of the bond portfolio held for liquidity needs.
Hold to Collect and Sell
Financial assets that are held in this business model are managed both in order to collect contractual cash flows and for selling. This business model covers a portfolio of predominantly liquid investment grade bonds that can be sold, put up for an ECB tender or used in a repurchase agreement transaction if needed.
Other Financial assets
Financial assets in this business model are held to sell. BAWAG Group designated a small portfolio of loans to the public sector in this business model. These loans are incurred principally for the purpose of selling them in the near term (loans are held for a short timeframe and are then sold).
Assessment Whether Contractual Cash Flows Are Solely Payments of Principal and Interest for Financial Assets
To identify whether a financial asset fulfills the SPPI criteria, BAWAG Group analyzed its portfolio in three steps:
Identifying all financial assets clearly fulfilling the SPPI criteria;
A qualitative or quantitative benchmark test must be performed for financial instruments with possibly harmful conditions. A qualitative benchmark test suffices if the possibly harmful feature is clearly immaterial when comparing cash flows, e.g. certain prior fixings. In this case, a quantitative benchmark test is not necessary and the financial instrument fulfills the SPPI criteria. In all other cases, a quantitative benchmark test is required comparing the cash flow of the financial asset with the harmful feature with a cash flow of a theoretical financial instrument having
the same conditions but without the harmful feature. If the cash flows deviate significantly, the financial asset does not fulfill the SPPI criteria and must be measured at FVPnL.
BAWAG Group has analyzed its existing loan portfolio. When comparing cash flows in the benchmark test, BAWAG Group defined a deviation of 5% when comparing cumulative cash flows and 1% of annual cash flows as immaterial. A portfolio of loans and bonds were identified as failing the SPPI test, mainly due to their interest rate indicator being non-compliant.
The classification and measurement requirements for financial liabilities have only been changed slightly 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.
IFRS 9 requires all equity instruments to be measured at fair value through profit or loss, but allows users to designate equity instruments that are not intended to be "held for trading" at fair value through OCI. This election is made on an instrument-by-instrument basis. If the OCI option is used, all fair value changes including sales from gains are shown in OCI. Gains and losses are not recycled to Profit or Loss (PnL). Only dividends are always recognized in PnL. This designation can only be made at inception and cannot be changed afterwards.
The majority of the Group's equity investments are intended to be long-term investments and BAWAG Group is not focused on realizing short-term sales profits from these investments. Therefore, equity investments are generally classified as FVOCI as the Group regards this presentation
as giving a clearer picture of the Group's profitability. In case the Group plans to sell equity investments in the medium or near term, the use of the FVOCI option is decided on a case-by-case basis.
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 have been introduced. Furthermore, voluntary terminations of hedge relationships are no longer allowed in general, but only if certain requirements are met. Rules for rebalancing were introduced for hedging relationships in which the hedged risk and the risk covered by hedging instruments are not identical. These rules state that the hedge ratio can be adjusted in the event of correlation changes without having to terminate the hedge relationship.
While the macro hedge accounting project is ongoing, adopters of IFRS 9 may, as an accounting policy choice, continue to apply the macro fair value hedge accounting model for interest rate risk in IAS 39.
BAWAG Group currently expects no major impacts on the consolidated financial statements resulting from IFRS 9 hedge accounting and decided to continue applying hedge accounting according to IAS 39.
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 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. Existing internal rating based (IRB) risk models are the starting point for
IFRS 9 parameter estimation. Necessary adjustments to increase the forecast horizon and to consider forwardlooking information were made.
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 is used. Macroeconomic variables predict the short-term future default rate, which result in a shift of the through-the-cycle PD. The long-term default rate is oriented towards the central tendency of the corresponding segment. For each relevant business segment, separate models were developed. The initial validation ("back testing") confirmed the accuracy of the estimates.
The LGD models also consist of a through-the-cycle and a point-in-time component, with the LGD being split into a recovery rate for collaterals and a loss rate for the unsecured exposure. Similar to the shift factor model mentioned above, macroeconomic predictions are used to forecast the loss rate of the unsecured exposure. For Sovereigns and Institutions, the through-the-cycle and point-in-time component for a total LGD model was estimated using an external loss database.
For the committed but not drawn exposures, a Credit Conversion Factor (CCF) for a defaulted and for a nondefaulted scenario was estimated applying a similar methodology as for PD and LGD estimation.
BAWAG Group applies the default definition according to Article 178 of Regulation (EU) No 575/2013 (Capital Requirement Regulation – CRR), which refers to 90 days past due and to unlikeliness-to-pay criteria, consistent for all asset classes and risk models. As a result, all IFRS 9 parameters were estimated and calibrated using the default definition according to the CRR.
Staging Criteria and Significant Increase In Credit Risk as Part of Impairment
The ECL model in BAWAG Group applies to:
Financial assets that are recorded at amortized cost or at fair value through other comprehensive income,
Risk provisioning of expected credit losses in staging concept:
Stage 1: 12-month ECLs
The 12-month calculation applies to all financial instruments at initial recognition (with a few exceptions, e.g. for purchased or originated financial assets that are credit-impaired on initial recognition "POCI", only the cumulative changes in lifetime expected losses since initial recognition are recognized) and those which do not show a significant increase in credit risk since initial recognition.
Stages 2 and 3: Lifetime ECLs
The measurement of the risk provisions for stage 2 and stage 3 positions based on the lifetime Expected Credit Loss model applies when a significant increase in credit risk since initial recognition has occurred. It is to point out, that the stage 3 exposures in BAWAG P.S.K. comply with the default definition according to CRR.
The overall procedure of the stage allocation in BAWAG Group is based on three conditions:
As long as one of these criteria applies, staging transfer occurs. The quantitative criterion measures the cumulative PD change since initial recognition, while the qualitative criterion contributes additional information to assess the significant increase in credit risk. As a backstop criterion, BAWAG Group considers delayed payments which are more than 30 days past due as a significant increase in credit risk as well.
A quantitative criterion of an increase in credit risk is based on two thresholds:
and the exposure will only be considered as stage 2 with a lifetime ECL if both thresholds are exceeded.
BAWAG Group considers the method based on quantile regression to calculate critical values for relative change in PD, i.e. the significance thresholds are set to the empirical quantiles (e.g. 95% quantile) of the response variable (relative change in lifetime PD since initial recognition). This approach has been selected due to economic plausibility, statistical significance of variables, acceptable goodness of fit and a distribution of exposures between two stages as expected. The following variables impact the quantiles of the lifetime PD changes, causing the quantile thresholds to vary:
Qualitative staging criteria factors selected by BAWAG Group are:
If one of these factors is active, the staging transfer is executed.
All financial instruments with payment delays of more than 30 days past due fulfill the backstop staging transfer criteria of BAWAG Group, provided they have not been defaulted (meaning in stage 3).
As long as no staging factor is active, the exposure is automatically reassigned to stage 1. A default cure period of 30 days for financial instruments in stage 3 is in place complying with the default definition according to CRR.
Business model: The Group holds a small portfolio of loans to the public sector with a book and also fair value of € 5 million as of 1 January 2018 as hold to sell ("other" business model). All other loans are classified in the business model hold to collect, thus leading to no
impact as these loans have been accounted for as loans and receivables under IAS 39.
With regard to a bond portfolio – with a book value of € 117 million as of 1 January 2018 – that was classified as available for sale under IAS 39 and held within the business model hold to collect under IFRS 9, an impact on equity in the amount of minus € 4 million before taxes arises. With the new business model, these bonds are measured at amortized cost.
Accounting for all other bonds based on the business model remains unchanged, meaning that bonds that were classified as available for sale under IAS 39 are in the business model hold to collect and sell under IFRS 9, and bonds that were classified as held to maturity or as loans and receivables under IAS 39 are held within the business model hold to collect under IFRS 9. Thus, the total impact from changed classification and measurement rules on equity amounts to minus € 4 million.
SPPI test: Loans with a book value of € 190 million as of 1 January 2018 failed the SPPI test due to their interest rate indicator being non-compliant. These loans show a hidden reserve in the amount of € 1 million. With regard to the bond portfolio, a portfolio with a book value of € 91 million must be reclassified from available-forsale under IAS 39 to fair value, as these loans do not fulfill the SPPI criteria.
In addition, under IAS 39 separated embedded floors of loans at amortized cost are reversed, as rules for separation no longer exist under IFRS 9 and as the loans pass the SPPI test under IFRS 9. This leads to an impact of minus € 9 million. Therefore, the total impact on equity arising from financial assets failing the SPPI test and reversing embedded floors amounts to minus € 8 million.
Changes in fair value option: The fair value option is newly applied for an own issue (Tier II; XS0987169637) where an accounting mismatch exists with a nominal value of € 300 million, leading to an impact of minus € 82 million on equity due to changes in own credit spread. The maturity of the own issue is the fourth quarter 2023.
Equity instruments: BAWAG Group designated all participations except for a portfolio with a book value of € 28 million at fair value through OCI. This led to a reclassification of an AFS reserve to retained earnings in the amount of € 1 million. All other participations and equity instruments are classified at fair value through OCI.
The total impact for accounting of classification and measurement under IFRS 9 thus leads to an impact of minus € 95 million (thereof € 82 million due to the new application of the fair value option for the Tier II own issue mentioned before) before taxes on equity when applying IFRS 9 for the first time as of 1 January 2018.
The ECL as of 31 December 2017 for stage 1 and 2 amounts to minus € 102 million. Of this amount, € 4 million belong to bonds or loans in the hold to collect and sell business model, and therefore are accounted for equity neutral, thus leading to an impact on equity of minus € 98 million. This impact is counterbalanced by the release of the IBNR in the amount of € 44 million, leading to a total impact from changes in loan loss provision accounting in the amount of minus € 54 million. BAWAG Group has no significant impact from changes in stage 3.
| in € million | on balance | off balance | on+off balance |
|---|---|---|---|
| Stage 1 | 57 | 7 | 64 |
| Stage 2 | 38 | 0 | 38 |
| Total | 95 | 7 | 102 |
The Group will continue to apply hedge accounting including the portfolio fair value hedge accounting model for interest rate risk according to IAS 39. Therefore, no impacts from changes in hedge accounting arise.
Including an impact from deferred taxes in the amount of plus € 37 million, this leads to a total impact on equity of minus € 112 million.
| Equity under IAS 39 | |
|---|---|
| Changes in accounting for impairment | (54) |
| Changes in accounting of classification and measurement | (95) |
| Overall deferred taxes | 37 |
| Total impact | (112) |
| Equity under IFRS 9 | 3,497 |
The fully loaded CET1 ratio under IFRS 9 as of 1 January 2018 amounts to 13.4% compared to 13.5% under IAS 39. CET1 decreases only slightly as the impact from expected credit loss is counterbalanced by a smaller shortfall deducted from CET1. RWAs increase slightly, mainly due to higher DTAs.
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. This focused on fees and commission income, i.e. income that does not form part of the effective interest rate under IAS 39 or IFRS 9.
IFRS 15 does not have a material impact on BAWAG Group.
BAWAG Group receives fee and commission income from various services provided to customers.
Fees and commissions for services performed over a certain period of time are collected over the period in which the service is performed. This includes commissions from lending and current account business, liability commissions and other management and custody fees. In cases where an associated financial instrument exists, fees that are an integral part of the effective interest rate of this financial instrument are reported as part of interest income.
Fees associated with providing a particular service or the occurrence of a certain event (transaction-related services) are recognised when the service has been provided in full
or the significant event has occurred. Commissions from the performance of transaction-related services include securities transactions, the brokerage of insurance policies and building society savings contracts as well as foreign exchange transactions.
Expenses that are directly and incrementally related to the generation of commission income are shown under commission expenses.
Fee and commission income is measured based on consideration specified in a legally enforceable contract with a customer, excluding amounts such as taxes collected on behalf of third parties. Consideration received is allocated to the separately identifiable performance obligations in a contract. Consideration can include both fixed and variable amounts. Variable consideration includes refunds, discounts, performance bonuses and other amounts that are contingent on the occurrence or non-occurrence of a future event. Variable consideration that is contingent on an uncertain event is only recognized to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue for a contract will not occur.
Note 2 shows a breakdown of commission income and expenses by business segment.
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. Major impacts from the application of IFRS 16 are expected in connection with rented real estate – i.e. the Group's premises and branches. The Bank currently does not expect major impacts in accounting for its lease business, where it acts as a lessor. BAWAG Group will apply IFRS 16 as of its effective date.
Accounting for the acquisitions of Südwestbank Aktiengesellschaft and SIX Payment Services GmbH 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 2017 were applied again.
As of 31 March 2018, the Group consists of 45 (31 December 2017: 44) fully consolidated entities and 2 (31 December 2017: 2) entities that are accounted for using the equity method in Austria and abroad. In the first quarter 2018, BAWAG P.S.K. Datendienst Gesellschaft m.b.H. was included in the scope of consolidation.
The interim financial statements for the first quarter 2018 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 2017, we refer to the Notes to the consolidated financial statements as of 31 December 2017.
After the reporting date, in April 2018, BAWAG Group successfully completed its inaugural Additional Tier 1 issuance. The € 300 million Additional Tier 1 perpetual issue with the first call date in May 2025 was priced with a coupon of 5.00%.
In May 2018, we have agreed to an exclusive sales partnership with MediaMarktSaturn Austria. The collaboration will start on 1 January 2019 and is set for the long term.
.
| in € million | Q1 2018 | Q1 2017 |
|---|---|---|
| Interest income | 292.7 | 280.0 |
| Interest expense | (86.2) | (84.3) |
| Dividend income | 1.3 | – |
| Net interest income | 207.8 | 195.7 |
| Q1 2018 in € million |
BAWAG P.S.K. Retail |
easygroup | Südwestbank | DACH Corporates & Public Sector |
International Business |
Treasury Services & Markets |
Corporate Center |
BAWAG Group |
|---|---|---|---|---|---|---|---|---|
| Fee and commission income |
53.5 | 21.3 | 10.6 | 10.2 | 0.1 | 0.0 | 0.0 | 95.7 |
| Payment transfers | 32.9 | 17.9 | 2.0 | 7.8 | – | – | 0.0 | 60.6 |
| Lending | 5.4 | 0.9 | 0.9 | 0.9 | 0.1 | – | 0.0 | 8.2 |
| Securities and custody business |
9.6 | 0.4 | 6.0 | 1.1 | – | – | 0.0 | 17.1 |
| Other | 5.6 | 2.1 | 1.7 | 0.4 | – | – | – | 9.8 |
| Fee and commission expenses |
(11.0) | (7.6) | (1.7) | (0.3) | 0.0 | 0.0 | (0.6) | (21.2) |
| Payment transfers | (7.5) | (7.3) | (0.3) | – | – | – | – | (15.1) |
| Lending | (0.3) | (0.2) | (0.2) | (0.3) | – | – | – | (1.0) |
| Securities and custody business |
0.0 | 0.0 | (1.0) | – | – | – | (0.6) | (1.6) |
| Other | (3.2) | (0.1) | (0.2) | 0.0 | 0.0 | – | 0.0 | (3.5) |
| Net fee and commission income |
42.5 | 13.7 | 8.9 | 9.9 | 0.1 | 0.0 | (0.6) | 74.5 |
| Q1 2017 in € million |
BAWAG P.S.K. Retail |
easygroup | Südwestbank | DACH Corporates & Public Sector |
International Business |
Treasury Services & Markets |
Corporate Center |
BAWAG Group |
|---|---|---|---|---|---|---|---|---|
| Fee and commission income |
55.0 | 6.3 | – | 10.3 | 0.0 | 0.0 | 0.2 | 71.8 |
| Payment transfers | 31.7 | 2.6 | – | 8.5 | – | – | 0.1 | 42.9 |
| Lending | 6.4 | 0.9 | – | 1.1 | – | – | 0.1 | 8.5 |
| Securities and custody business |
10.5 | 0.5 | – | 0.6 | – | – | 0.0 | 11.6 |
| Other | 6.4 | 2.3 | – | 0.1 | – | – | – | 8.8 |
| Fee and commission expenses |
(19.2) | (1.7) | – | (0.3) | 0.0 | 0.0 | (0.8) | (22.0) |
| Payment transfers | (7.2) | (1.5) | – | (0.1) | – | – | 0.0 | (8.8) |
| Lending | (0.3) | – | – | (0.2) | – | – | 0.0 | (0.5) |
| Securities and custody business |
0.0 | 0.0 | – | 0.0 | – | – | (0.6) | (0.6) |
| Other | (11.7) | (0.2) | – | 0.0 | 0.0 | – | (0.2) | (12.1) |
| Net fee and commission income |
35.8 | 4.6 | – | 10.0 | 0.0 | 0.0 | (0.6) | 49.8 |
| in € million | Q1 2018 | Q1 2017 |
|---|---|---|
| Realized gains on sales of subsidiaries and securities | 20.9 | 5.1 |
| Fair value gains/losses | (8.8) | 10.6 |
| Gains/losses from fair value hedge accounting | (0.6) | 2.0 |
| Others | 3.5 | 0.3 |
| Gains and losses on financial assets and liabilities | 15.0 | 18.0 |
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 quarter 2018, fair value losses in the amount of € 5.5 million (Q1 2017: losses in the amount of € 12.5 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.
| in € million | Q1 2018 | Q1 2017 |
|---|---|---|
| Staff costs | (72.6) | (63.0) |
| thereof one-off expenses | (0.2) | (2.2) |
| Other administrative expenses | (47.4) | (35.4) |
| thereof one-off income/expenses | 0.2 | (0.8) |
| Depreciation and amortization on tangible and intangible assets | (10.9) | (9.5) |
| Operating expenses | (130.9) | (107.9) |
| Operating expenses excluding one-off expenses | (130.9) | (104.9) |
Last year's acquisitions (Südwestbank Aktiengesellschaft and SIX Payment Services GmbH) are not included in
prior-year comparables, as the closing took place in the fourth quarter 2017 only.
| in € million | Q1 2018 | Q1 2017 |
|---|---|---|
| Loan loss provisions and changes in provisions for off-balance credit risk | (15.3) | (10.4) |
| Provisions and expenses for operational risk | (0.6) | (0.7) |
| Impairment losses on financial assets | – | 0.0 |
| Provisions and impairment losses | (15.9) | (11.1) |
| in € million | Mar 2018 | Dec 2017 |
|---|---|---|
| Debt instruments | 2,521 | |
| Bonds and other fixed income securities | 2,521 | |
| Bonds of other issuers | 2,340 | |
| Public sector debt instruments | 181 | |
| Subsidiaries and other equity investments | 176 | |
| Financial assets at fair value through other comprehensive income | 2,697 | |
| Debt instruments | 4,308 | |
| Bonds and other fixed income securities | 4,294 | |
| Bonds of other issuers | 3,981 | |
| Public sector debt instruments | 313 | |
| Other variable rate securities | ||
| Investment certificates | 14 | |
| Subsidiaries and other equity investments | 100 | |
| Available-for-sale financial assets | 4,408 |
| Mar 2018 | Dec 2017 | |
|---|---|---|
| Financial assets designated at fair value through profit or loss | 119 | 448 |
| Financial assets mandatorily at fair value through profit or loss | 425 | |
| Financial assets at fair value through profit or loss | 544 | 448 |
| in € million | Mar 2018 | Dec 2017 |
|---|---|---|
| Derivatives in trading book | 140 | 143 |
| Derivatives in banking book | 269 | 315 |
| Financial assets held for trading | 409 | 458 |
The following breakdown depicts the composition of the item "At amortized cost" according to the Group's segments. Prior-year values for the segments BAWAG
P.S.K. Retail and easygroup were adapted. For details, please refer to Note 15.
| Mar 2018 in € million |
Total gross carrying amount |
Impairments Stage 1 |
Impairments Stage 2 |
Impairments Stage 3 |
Total net carrying amount |
|---|---|---|---|---|---|
| BAWAG P.S.K. Retail | 9,366 | (5) | (5) | (123) | 9,233 |
| easygroup | 5,734 | (3) | (4) | (51) | 5,676 |
| Südwestbank | 4,294 | (11) | (3) | 1 | 4,281 |
| DACH Corporates & Public Sector |
6,530 | (5) | (14) | (31) | 6,480 |
| International Business | 5,210 | (15) | (14) | (18) | 5,163 |
| Treasury Services & Markets | 7,491 | 0 | 0 | – | 7,490 |
| Corporate Center | 418 | 0 | 0 | 0 | 418 |
| Total | 39,043 | (39) | (40) | (222) | 38,741 |
| Dec 2017 in € 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 | 9,296 | 206 | (104) | (28) | 9,370 |
| easygroup | 5,835 | 100 | (43) | (7) | 5,884 |
| Südwestbank | 4,124 | – | – | – | 4,124 |
| DACH Corporates & Public Sector |
6,521 | 42 | (27) | 0 | 6,536 |
| International Business | 4,934 | 50 | (21) | – | 4,964 |
| Treasury Services & Markets |
4,488 | – | – | – | 4,488 |
| Corporate Center | 116 | 317 | 0 | (45) | 387 |
| Total | 35,314 | 715 | (195) | (81) | 35,753 |
The following table depicts the breakdown of receivables from customers by credit type:
| in € million | Mar 2018 | Dec 2017 |
|---|---|---|
| Loans | 26,877 | 27,466 |
| Current accounts | 1,532 | 1,581 |
| Finance leases | 1,199 | 1,159 |
| Cash advances | 375 | 291 |
| Money market | 521 | 307 |
| Receivables from customers | 30,504 | 30,804 |
| in € million | Mar 2018 | Dec 2017 |
|---|---|---|
| Issued debt securities and other securitized liabilities | 455 | 606 |
| Subordinated and supplementary capital | 505 | 114 |
| Deposits from customers | 6 | 6 |
| Financial liabilities designated at fair value through profit or loss | 966 | 726 |
| in € million | Mar 2018 | Dec 2017 |
|---|---|---|
| Derivatives trading book | 51 | 64 |
| Derivatives banking book | 241 | 281 |
| Financial liabilities held for trading | 292 | 345 |
| in € million | Mar 2018 | Dec 2017 |
|---|---|---|
| Deposits from banks | 4,265 | 4,009 |
| Deposits from customers | 30,475 | 30,947 |
| Savings deposits – fixed interest rates | 896 | 968 |
| Savings deposits – variable interest rates | 6,914 | 6,945 |
| Deposit accounts | 5,662 | 5,649 |
| Current accounts – Retail | 9,524 | 9,909 |
| Current accounts – Corporates | 4,318 | 5,288 |
| Other deposits1) | 3,161 | 2,188 |
| Issued bonds, subordinated and supplementary capital | 4,122 | 4,938 |
| Issued debt securities and other securitized liabilities | 4,010 | 4,479 |
| Subordinated and supplementary capital | 112 | 459 |
| Financial liabilities measured at amortized cost | 38,862 | 39,894 |
1) Primarily term deposits.
| in € million | Mar 2018 | Dec 2017 |
|---|---|---|
| Provisions for social capital | 345 | 375 |
| Anticipated losses from pending business | 23 | 20 |
| Other items including legal risks | 54 | 55 |
| Provisions | 422 | 450 |
According to IAS 19, provisions for post-employment and termination benefits and for jubilee benefits are calculated using the projected unit credit method.
As of March 2018 and 31 December 2017, 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 € 1 million.
The following table shows transactions with related parties:
| Mar 2018 in € million |
Parent company |
Entities with joint control of, or significant influence over, the entity |
Subsidiaries not consolidated |
Associates | Joint ventures | Other companies |
|---|---|---|---|---|---|---|
| Receivables from customers | – | 466 | 37 | 1 | 84 | 0 |
| Unutilized credit lines | – | 168 | 7 | 1 | 27 | 0 |
| Securities | – | 33 | – | 21 | 0 | – |
| Other assets (incl. derivatives) | 0 | 0 | 5 | – | 0 | – |
| Financial liabilities – customers | – | 0 | 14 | 93 | 1 | 0 |
| Other liabilities (incl. derivatives) | – | – | – | 1 | 0 | – |
| Guarantees provided | – | – | 0 | – | 1 | 0 |
| Interest income | – | 4.4 | 0.2 | 0.0 | 0.1 | 0.0 |
| Interest expense | – | 1.6 | 0.0 | 0.4 | 0.0 | 0.0 |
| Net fee and commission income | – | – | 0.0 | 2.7 | 0.0 | 0.0 |
| Dec 2017 in € million |
Parent company |
Entities with joint control of, or significant influence over, the entity |
Subsidiaries not consolidated |
Associates | Joint ventures | Other companies |
|---|---|---|---|---|---|---|
| Receivables from customers | – | 413 | 37 | 1 | 86 | – |
| Unutilized credit lines | – | 240 | 7 | 1 | 28 | – |
| Securities | – | 34 | – | 22 | – | – |
| Other assets (incl. derivatives) | – | – | 5 | – | – | – |
| Financial liabilities – customers | – | 0 | 17 | 160 | 1 | 0 |
| Other liabilities (incl. derivatives) | – | 0 | – | 1 | – | – |
| Guarantees provided | – | 0 | 0 | – | 1 | 0 |
| Interest income | – | 23.3 | 0.9 | 2.4 | 0.3 | 0.0 |
| Interest expense | 0.0 | 9.0 | 0.1 | 2.1 | 0.0 | 0.0 |
| Net fee and commission income | 0.0 | – | 0.0 | 15.5 | 0.0 | 0.0 |
| Other companies |
|---|
| – |
| – |
| – |
| – |
| 1 |
| – |
| – |
| 0.0 |
| 0.0 |
| 0.0 |
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 |
Other related parties | Key management of the entity |
Other related parties | |
|---|---|---|---|---|
| in € million | 31.03.2018 | 31.03.2018 | 31.12.2017 | 31.12.2017 |
| Current account deposits | 2 | 3 | 2 | 2 |
| Savings deposits | 0 | 3 | 0 | 3 |
| Loans | 0 | 3 | 0 | 3 |
| Building savings deposits | – | – | – | 0 |
| Leasing | – | 0 | – | 0 |
| Securities | 0 | 0 | 0 | 0 |
| Interest income | 0.0 | 0.0 | 0.0 | 0.0 |
| Interest expense | 0.0 | 0.0 | 0.0 | 0.0 |
| Key management of the entity |
Other related parties |
Key management of the entity |
Other related parties |
||
|---|---|---|---|---|---|
| Number of shares | 31.03.2018 | 31.03.2018 | 31.12.2017 | 31.12.2017 | |
| Shares of BAWAG Group AG | 24,173 | 267 | 24,173 | 147 |
This information is based on the Group structure as of 31 March 2018.
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 are assigned to the individual segments according to allocation keys.
As of December 2017, certain changes in the business segment reporting were made to reflect the acquisitions of Südwestbank AG and the card issuing business of PayLife:
As of March 2018, certain changes in the business segment reporting have been made to better reflect the developments and our progress in the individual business segments going forward. The prior year's figures have been adjusted accordingly. The changes comprise the following topics:
BAWAG Group is managed in accordance with the following seven business and reporting segments:
estate financing activities outside the DACH region originated by our London office.
positions (e.g. market values of derivatives), tangible and intangible assets as well as select results related to subsidiary and participation holdings and reconciliation positions. Regulatory charges (except for deposit guarantee scheme contributions) and corporate taxes are assigned to the Corporate Center.
Our segments are fully aligned with our business strategy as well as our objective of providing transparent reporting of our business units and Bank-wide results while minimizing the financial impact within the Corporate Center.
| Q1 2018 in € million |
BAWAG P.S.K. Retail |
easygroup | Südwest bank |
DACH Corporates & Public Sector |
International Business |
Treasury Services & Markets |
Corporate Center |
Total |
|---|---|---|---|---|---|---|---|---|
| Net interest income | 96.9 | 40.4 | 22.6 | 16.4 | 31.5 | 11.6 | (11.6) | 207.8 |
| Net fee and commission income | 42.5 | 13.7 | 8.9 | 9.9 | 0.1 | 0.0 | (0.6) | 74.5 |
| Core revenues | 139.4 | 54.1 | 31.5 | 26.3 | 31.6 | 11.6 | (12.2) | 282.3 |
| Gains and losses on financial instruments |
8.5 | 0.0 | 0.0 | 0.1 | 0.0 | 21.3 | (14.8) | 15.1 |
| Other operating income and expenses |
0.6 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | (0.4) | 0.2 |
| Operating income | 148.5 | 54.1 | 31.5 | 26.4 | 31.6 | 32.9 | (27.4) | 297.6 |
| Operating expenses | (62.2) | (17.2) | (19.2) | (13.3) | (7.0) | (7.5) | (3.6) | (130.0) |
| Regulatory charges | (15.0) | (4.2) | (2.8) | – | – | - | (14.7) | (36.7) |
| Total risk costs | (16.0) | (1.1) | 1.8 | 0.8 | 0.2 | (0.3) | (1.3) | (15.9) |
| Share of the profit or loss of associates accounted for using the equity method |
– | – | – | – | – | – | 1.1 | 1.1 |
| Profit before tax | 55.3 | 31.6 | 11.3 | 13.9 | 24.8 | 25.1 | (45.9) | 116.1 |
| Income taxes | – | – | – | – | – | – | (29.6) | (29.6) |
| Profit after tax | 55.3 | 31.6 | 11.3 | 13.9 | 24.8 | 25.1 | (75.5) | 86.5 |
| Non-controlling interests | – | – | – | – | – | – | 0.0 | 0.0 |
| Net profit | 55.3 | 31.6 | 11.3 | 13.9 | 24.8 | 25.1 | (75.5) | 86.5 |
| Business volumes | ||||||||
| Assets | 9,507 | 5,737 | 4,406 | 6,706 | 5,297 | 10,152 | 3,163 | 44,968 |
| Liabilities | 18,695 | 5,869 | 6,304 | 6,377 | 2 | 2,411 | 5,310 | 44,968 |
| Risk-weighted assets | 3,887 | 3,824 | 3,591 | 2,108 | 4,563 | 1,662 | 1,608 | 21,243 |
| Net interest income 93.4 40.4 20.7 33.4 12.6 (4.8) Net fee and commission income 35.8 4.6 10.0 0.0 0.0 (0.6) Core revenues 129.2 45.0 30.7 33.4 12.6 (5.4) Gains and losses on financial 11.3 0.8 0.0 0.5 0.3 5.1 instruments Other operating income and 0.0 0.5 (0.1) 0.0 0.0 0.0 expenses Operating income 130.5 44.9 31.2 33.7 17.7 5.9 Operating expenses (64.4) (13.1) (12.2) (8.6) (4.8) (4.3) Regulatory charges (12.6) (2.0) – – – (10.6) Total risk costs (12.5) 3.7 1.7 (3.0) (0.1) (0.9) Share of the profit or loss of 1.1 associates accounted for using the – – – – – equity method Profit before tax 41.0 33.5 20.7 22.1 12.8 (8.8) Income taxes – – – – – (26.2) Profit after tax 41.0 33.5 20.7 22.1 12.8 (35.0) Non-controlling interests – – – – – 0.0 Net profit 41.0 33.5 20.7 22.1 12.8 (35.0) Business volumes Assets 9,668 6,157 7,891 5,327 8,405 3,111 Liabilities 18,981 6,064 7,207 1 2,510 5,796 Risk-weighted assets 3,741 5,058 2,790 4,112 2,024 1,236 |
Q1 2017 in € million |
BAWAG P.S.K. Retail |
easygroup | Südwest bank |
DACH Corporates & Public Sector |
International Business |
Treasury Services & Markets |
Corporate Center |
Total |
|---|---|---|---|---|---|---|---|---|---|
| 195.7 | |||||||||
| 49.8 | |||||||||
| 245.5 | |||||||||
| 18.0 | |||||||||
| 0.4 | |||||||||
| 263.9 | |||||||||
| (107.4) | |||||||||
| (25.2) | |||||||||
| (11.1) | |||||||||
| 1.1 | |||||||||
| 121.3 | |||||||||
| (26.2) | |||||||||
| 95.1 | |||||||||
| 0.0 | |||||||||
| 95.1 | |||||||||
| 40,559 | |||||||||
| 40,559 | |||||||||
| 18,961 |
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 € million | Q1 2018 | Q1 2017 |
|---|---|---|
| Other operating income and expenses according to segment report | 0.3 | 0.4 |
| Regulatory charges | (35.8) | (24.7) |
| Other operating income and expenses according to consolidated profit or loss statement |
(35.5) | (24.3) |
| in € million | Q1 2018 | Q1 2017 |
| Operating expenses according to segment report | (130.0) | (107.4) |
| Regulatory charges | (0.9) | (0.5) |
| Operating expenses according to consolidated profit or loss statement | (130.9) | (107.9) |
Regulatory reporting is performed on the level of BAWAG Group. The following table shows the breakdown of own funds of BAWAG Group applying transitional rules and its own funds requirement as per 31 March 2018 and 31 December 2017 pursuant to CRR applying IFRS figures and the CRR scope of consolidation.
| in € million | Mar 2018 | Dec 2017 |
|---|---|---|
| Share capital and reserves (including funds for general banking risk | 3,464 | 3,492 |
| Deduction of intangible assets | (430) | (343) |
| Other comprehensive income | (91) | 9 |
| IRB risk provision shortfalls | (17) | (38) |
| Prudent valuation, cumulative gains due to changes in own credit risk on fair valued liabilities, prudential filter for unrealized gains, cash flow hedge reserve |
51 | (33) |
| Deferred tax assets that rely on future profitability excluding those arising from temporary differences |
(78) | (91) |
| Excess of deduction from AT1 items over AT1 capital | 0 | (90) |
| Common Equity Tier I | 2,899 | 2,906 |
| IRB risk provision shortfalls | 0 | (5) |
| Deduction of intangible assets | 0 | (85) |
| Excess of deduction from AT1 items over AT1 capital | 0 | 90 |
| Additional Tier I | – | – |
| Tier I | 2,899 | 2,906 |
| Supplementary and subordinated debt capital | 315 | 347 |
| Tier II capital in grandfathering | 10 | 15 |
| Excess IRB risk provisions | 3 | 35 |
| Less significant investments, IRB risk provision shortfalls | (21) | (27) |
| Tier II | 307 | 370 |
| Own funds | 3,206 | 3,276 |
Changes between year-end 2017 and March 2018 result primarily from the change in accounting from IAS 39 to
IFRS 9 and other transitional- and phase-in rules according to CRR.
| in € million | Mar 2018 | Dec 2017 |
|---|---|---|
| Credit risk | 19,515 | 19,716 |
| Market risk | 48 | 52 |
| Operational risk | 1,716 | 1,705 |
| Capital requirements (risk-weighted assets) | 21,278 | 21,473 |
| Mar 2018 | Dec 2017 | |
|---|---|---|
| Common Equity Tier I capital ratio based on total risk | 14.0% | 13.5% |
| Total capital ratio based on total risk | 15.5% | 15.2% |
| Mar 2018 | Dec 2017 | |
|---|---|---|
| Common Equity Tier I capital ratio based on total risk (excl. interim profit) | 13.6% | n/a |
| Total capital ratio based on total risk (excl. interim profit) | 15.1% | n/a |
| Common Equity Tier I capital ratio based on total risk (incl. interim profit) | 14.0% | 13.5% |
| Total capital ratio based on total risk (incl. interim profit) | 15.5% | 15.3% |
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 € million | Mar 2018 | Mar 2018 | Dec 2017 | Dec 2017 |
| Cash reserves | 1,108 | 1,108 | 1,180 | 1,180 |
| Financial assets designated at fair value through profit or loss |
119 | 119 | 448 | 448 |
| Financial assets mandatorily at fair value through profit or loss |
425 | 425 | ||
| Financial assets at fair value through other comprehensive income |
2,697 | 2,697 | ||
| Available-for-sale financial assets | 4,408 | 4,408 | ||
| Held-to-maturity investments | 2,274 | 2,347 | ||
| Financial assets held for trading | 409 | 409 | 458 | 458 |
| At amortized cost | 38,741 | 39,011 | ||
| Loans and receivables | 35,753 | 35,929 | ||
| Hedging derivatives | 415 | 415 | 517 | 517 |
| Property, plant and equipment | 103 | n/a | 103 | n/a |
| Investment properties | 120 | 121 | 120 | 121 |
| Intangible non-current assets | 508 | n/a | 506 | n/a |
| Other assets | 323 | n/a | 304 | n/a |
| Total assets | 44,968 | 46,071 | ||
| Financial liabilities designated at fair value through profit or loss |
966 | 966 | 726 | 726 |
| Financial liabilities held for trading | 292 | 292 | 345 | 345 |
| Financial liabilities at amortized cost | 38,862 | 38,977 | 39,894 | 40,176 |
| Valuation adjustment on interest rate risk hedged portfolios |
95 | 95 | 116 | 116 |
| Hedging derivatives | 120 | 120 | 94 | 94 |
| Provisions | 422 | n/a | 450 | n/a |
| Other obligations | 642 | n/a | 836 | n/a |
| Equity | 3,568 | n/a | 3,609 | n/a |
| Non-controlling interests | 1 | n/a | 1 | n/a |
| Total liabilities and equity | 44,968 | 46,071 |
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.
BAWAG Group does not intend to sell or derecognize significant investments in equity held at the reporting date in the near future.
The fair value of securities recognized in the line item At amortized cost is € 74 million higher than their book value (2017: € 94 million higher) as of 31 March 2018. The fair value of own issues recognized in the line item Financial liabilities at amortized cost is, as of 31 March 2018, € 125 million higher than their book value (2017: € 254 million higher).
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:
price is available, as well as the majority of the Group's own issues that are recognized at their fair values.
Level 3: The measurement is based on unobservable input factors that have a material influence on the market value. This pertains primarily to illiquid structured securitization instruments whose value is determined by unobservable assumptions (the outcome of litigation, investor decisions, trigger events, etc.) as well as own issues of BAWAG P.S.K. Wohnbaubank and IMMO-BANK. Loans and receivables and financial liabilities measured at amortized cost are valued using the discounted cash flow method using a spreadadjusted swap curve.
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
| Mar 2018 in € million |
Level 1 | Level 2 | Level 3 | Total |
|---|---|---|---|---|
| Assets | ||||
| Financial liabilities designated at fair value through profit or loss |
– | 119 | – | 119 |
| Financial assets mandatorily at fair value through profit or loss |
60 | 106 | 259 | 425 |
| Financial assets at fair value through other comprehensive income |
2,564 | 78 | 55 | 2,697 |
| Financial assets held for trading | 0 | 409 | – | 409 |
| Hedging derivatives | – | 415 | – | 415 |
| Total fair value assets | 2,624 | 1,127 | 435 | 4,186 |
| Liabilities | ||||
| Financial liabilities designated at fair value through profit or loss |
– | 701 | 265 | 966 |
| Financial liabilities held for trading | – | 292 | – | 292 |
| Valuation adjustment on interest rate risk hedged portfolios |
– | 95 | – | 95 |
| Hedging derivatives | – | 120 | – | 120 |
| Total fair value liabilities | – | 1,208 | 265 | 1,473 |
| Dec 2017 in € million |
Level 1 | Level 2 | Level 3 | Total |
|---|---|---|---|---|
| Assets | ||||
| Financial liabilities designated at fair value through profit or loss |
267 | 180 | 1 | 448 |
| Available-for-sale financial assets | 4,077 | 210 | 121 | 4,408 |
| Financial assets held for trading | – | 458 | – | 458 |
| Hedging derivatives | – | 517 | – | 517 |
| Total fair value assets | 4,344 | 1,365 | 122 | 5,831 |
| Liabilities | ||||
| Financial liabilities designated at fair value through profit or loss |
– | 363 | 363 | 726 |
| Financial liabilities held for trading | – | 345 | – | 345 |
| Valuation adjustment on interest rate risk hedged portfolios |
– | 116 | – | 116 |
| Hedging derivatives | – | 94 | – | 94 |
| Total fair value liabilities | – | 918 | 363 | 1,281 |
BAWAG Group recognizes transfers between levels as of the end of the reporting period during which the transfer has occurred.
In the first quarter 2018, no securities at fair value through other comprehensive income (Available-for-sale 2017: one) were moved from Level 1 to Level 2 due to subsequent
illiquid market prices. One security at fair value through other comprehensive income (Available-for-sale 2017: five) was 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 € million | Financial assets mandatorily at fair value through profit or loss |
Financial assets designated at fair value through profit or loss |
Financial assets at fair value through other comprehensive income |
Financial liabilities |
|---|---|---|---|---|
| Opening balance as of 01.01.2018 | 310 | 0 | 55 | 363 |
| Valuation gains (losses) in profit or loss | ||||
| for assets held at the end of the period | 4 | – | – | (2) |
| for assets no longer held at the end of the period |
1 | – | – | – |
| Valuation gains (losses) in other comprehensive income |
||||
| for assets held at the end of the period | – | – | 1 | 1 |
| for assets no longer held at the end of the period |
– | – | – | – |
| Purchases | – | – | – | – |
| Redemptions | (46) | – | – | (97) |
| Sales | (10) | – | – | – |
| Foreign exchange differences | – | – | – | – |
| Change in scope of consolidation | – | – | (1) | – |
| Transfers into or out of other levels | – | – | – | – |
| Closing balance as of 31.03.2018 | 259 | 0 | 55 | 265 |
| in € 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 line item gains and losses on financial assets and liabilities in profit or loss |
|||
| for assets held at the end of the period | – | – | (13) |
| 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 | – | – | – |
| Change in scope of consolidation | – | 39 | 0 |
| Transfers into or out of other levels | – | 81 | – |
| Closing balance as of 31.12.2017 | 1 | 121 | 363 |
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.
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.
For Südwestbank funds that could not be sold in time for the published net asset values, a discount is applied as an input factor which is not directly observable, taking the expected selling price into account. The fair value is subsequently calculated as the difference between the net asset values and this liquidity discount.
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 € 314 million as of 31 March 2018 (31 December 2017: € 122 million).
If the credit spread used in calculating the fair value of own issues increased by 100 basis points, the accumulated valuation result as of 31 March 2018 would have increased by € 1.2 million (31 December 2017: € 1.3 million).
If the credit spread used in calculating the fair value of loans increased by 100 basis points, the accumulated valuation result as of 31 March 2018 would have decreased by € 10.8 million (31 December 2017: no fair value loans in Level 3).
If the liquidity discount of Südwestbank funds is increased by 10 percentage points, the valuation result as of 30 March 2018 would have decreased by € 3.0 million (31 December 2017: € 4.2 million).
For a significant part of the investments in equity instruments, the dividend discount and discounted earnings methods is applied. The main input parameters are the discount factor and dividend income or earnings. If the discount rate for investments in equity instruments decreased by 100bps, the fair value would increase by € 6.4 million; whereas if the discount rate increased by 100bps, the fair value would decrease by € 4.8 million. If dividend income or earnings rose by 20%, the fair value of those assets would rise by € 2.2 million; if dividend income or earnings declined by 20%, the fair value would decrease by € 2.1 million.
A smaller portion is valued based on external price indications. If these indications were 10% lower, the fair value of this portion would decrease by € 2.8 million. If these indications were 10% higher, the fair value of this portion would increase by € 2.8 million.
The smallest portion is valued at pro rata equity. If the equity were 10% lower, this would result in a decrease of € 1.3 million, whereas if the equity were 10% higher, there would be an increase of € 1.3 million.
| in € million | (i) IAS 39 carrying amount 31 December 2017 |
(ii) Reclassifications | (iii) Remeasurements | (iv) = (i) + (ii) + (iii) IFRS 9 carrying amount 1 January 2018 |
(v) = (iii) Retained earnings effect on 1 January 2018 before taxes |
|---|---|---|---|---|---|
| Carrying amount 31.12.2017 IAS 39 – Financial assets designated at fair value through profit or loss, Financial assets held for trading, Hedging derivatives |
1,423 | – | – | 1,423 | – |
| Additions: | |||||
| From available for sale (IAS 39) – Equity investments |
– | 28 | – | 28 | – |
| From available for sale (IAS 39) – required reclassification - Debt instruments |
– | 130 | – | 130 | – |
| From amortised cost (IAS 39) – required reclassification - Receivables from customers |
– | 189 | 1 | 190 | 1 |
| Subtractions: | |||||
| To amortised cost (IFRS 9) – reclassifications due to embedded derivatives |
– | – | (19) | (19) | (19) |
| Total change to fair value through profit or loss | 1,423 | 347 | (18) | 1,751 | (18) |
| Carrying amount 31.12.2017 IAS 39 – Available-for-sale financial assets |
4,408 | – | – | 4,408 | – |
| Subtractions: | |||||
| To fair value through profit or loss (IFRS 9) – required reclassification - Equity investments |
– | (28) | – | (28) | – |
| To fair value through profit or loss – required reclassification - Debt instruments |
– | (130) | – | (130) | – |
| To amortised cost – Debt instruments | – | (117) | – | (117) | – |
| Total change to fair value through other comprehensive income |
4,408 | (275) | – | 4,133 | – |
| Carrying amount 31.12.2017 IAS 39 – Cash reserves, Loans and receivables, Held-to maturity investments |
39,207 | – | – | 39,207 | – |
| Additions: | |||||
| From available for sale (IAS 39) – Debt instruments |
– | 117 | (4) | 113 | (4) |
| From fair value through profit or loss (IAS 39) – required reclassification – changes due to embedded derivatives |
– | – | 10 | 10 | 10 |
| Subtractions: | |||||
| To fair value through profit or loss – required reclassification – Receivables from customers |
– | (189) | – | (189) | – |
| Total change financial assets at amortized cost | 39,207 | (72) | 6 | 39,141 | 6 |
| Total financial asset balances, reclassifications and remeasurements at 1 January 2018 |
45,038 | – | (12) | 45,026 | (12) |
| in € million | (i) IAS 39 carrying amount 31 December 2017 |
(ii) Reclassifications | (iii) Remeasurements | IFRS 9 carrying amount 1 January 2018 |
earnings effect on 1 January 2018 before taxes |
|---|---|---|---|---|---|
| Carrying amount 31.12.2017 IAS 39 – Financial liabilities designated at fair value through profit or loss, Financial liabilities held for trading, Hedging derivatives, Valuation adjustment on interest rate risk hedged portfolios |
1,281 | – | – | 1,281 | – |
| Additions: | |||||
| From amortised cost (IAS 39) – fair value option elected at 1 January 2018 |
– | 331 | 82 | 414 | (82) |
| Total change to financial liabilities designated at fair value through profit or loss |
1,281 | 331 | 82 | 1,695 | (82) |
| Carrying amount 31.12.2017 IAS 39 – Financial liabilities at amortized cost |
39,894 | – | – | 39,894 | – |
| Subtractions: | |||||
| To fair value through profit or loss (IFRS 9) – fair value option elected at 1 January 2018 |
– | (331) | – | (331) | – |
| Total change financial liabilities at amortized cost |
39,894 | (331) | – | 39,563 | – |
| Total financial liability balances, reclassifications and remeasurements at 1 January 2018 |
41,175 | – | 82 | 41,257 | (82) |
(iv) = (i) + (ii) + (iii)
(v) = (iii) Retained
| Measurement category IAS 39 | Carrying amount IAS 39 |
Measurement category IFRS 9 |
Carrying amount IFRS 9 before measurement |
Measurement IFRS 9 |
Carrying amount IFRS 9 |
|---|---|---|---|---|---|
| Loans and receivables | 36,933 At amortized cost | 39,135 | 6 | 39,141 | |
| Held-to-maturity investments | 2,274 | Financial Assets at fair value through other comprehensive income - Subsidiaries and other equity investments |
72 | – | 72 |
| Available-for-sale financial assets | 4,408 | Financial Assets at fair value through other comprehensive income - Debt securities |
4,061 | – | 4,061 |
| Financial assets designated at fair value through profit or loss |
448 | Financial assets designated at fair value through profit or loss |
310 | – | 310 |
| Financial assets held for trading | 458 | Financial assets mandatorily at fair value through profit or loss |
943 | (18) | 924 |
| Hedging derivatives | 517 Hedging derivatives | 517 | – | 517 | |
| Financial assets | 45,038 | 45,038 | (12) | 45,026 |
| Measurement category IAS 39 | Carrying amount IAS 39 |
Measurement category IFRS 9 |
Carrying amount IFRS 9 before measurement |
Measurement IFRS 9 |
Carrying amount IFRS 9 |
|---|---|---|---|---|---|
| Financial liabilities designated at fair value through profit or loss |
726 | Financial liabilities designated at fair value through profit or loss |
1,057 | 82 | 1,140 |
| Financial liabilities held for trading | 345 Financial liabilities held for trading |
345 | – | 345 | |
| Financial liabilities at amortized cost | 39,894 Financial liabilities at amortized cost |
39,563 | – | 39,563 | |
| Valuation adjustment on interest rate risk hedged portfolios |
116 | Valuation adjustment on interest rate risk hedged portfolios |
116 | – | 116 |
| Hedging derivatives | 94 Hedging derivatives | 94 | – | 94 | |
| Financial liabilities | 41,175 | 41,175 | 82 | 41,257 |
| Class | Measurement category IAS 39 Measurement category IFRS 9 IAS 39 carrying | amount | Reclassi fications |
Remea sure ments |
Carrying amount IFRS 9 |
|
|---|---|---|---|---|---|---|
| Cash reserves |
Loans and receivables | At amortized cost | 1,180 | – | – | 1,180 |
| Receivables from credit |
institutions Loans and receivables | At amortized cost | 3,660 | – | – | 3,660 |
| Receivables from |
customers Loans and receivables | At amortized cost | 30,804 | (189) | 10 | 30,626 |
| Financial assets designated at fair value through profit or loss |
Financial assets designated at fair value through profit or loss |
128 | – | – | 128 | |
| Financial assets mandatorily at fair value through profit or loss |
189 | 1 | 190 | |||
| Debt instruments |
Financial assets designated at fair value through profit or loss |
Financial assets designated at fair value through profit or loss |
52 | 130 | – | 182 |
| Available-for-sale financial assets |
Financial Assets at fair value through other comprehensive income - Debt securities |
4,308 | (247) | – | 4,061 | |
| Held-to-maturity investments At amortized cost | 2,274 | – | – | 2,274 | ||
| Loans and receivables | At amortized cost | 1,289 | 117 | (4) | 1,402 | |
| Financial assets mandatorily at fair value through profit or loss |
– | |||||
| Equity investments |
Available-for-sale financial assets |
Financial Assets at fair value through other comprehensive income - Subsidiaries and other equity investments |
100 | (28) | – | 72 |
| Financial assets designated at fair value through profit or loss |
Financial assets mandatorily at fair value through profit or loss |
268 | 28 | – | 296 | |
| Derivatives in trading book |
Financial assets held for trading |
Financial assets held for trading |
143 | – | – | 143 |
| Derivatives in banking book |
Financial assets held for trading |
Financial assets held for trading |
315 | – | (19) | 296 |
| Hedging derivatives | Hedging derivatives | 517 | – | – | 517 | |
| Financial assets |
45,038 | – | (12) | 45,026 |
| in € million | ||||||
|---|---|---|---|---|---|---|
| Class | Measurement category IAS 39 |
Measurement category IFRS 9 |
IAS 39 carrying amount |
Reclassi fications |
Remea surements |
Carrying amount IFRS 9 |
| Issued bonds, subordinated and supplementary capital |
Financial liabilities designated at fair value through profit or loss |
Financial liabilities designated at fair value through profit or loss |
726 | 331 | 82 | 1,140 |
| Financial liabilities at amortized cost |
Financial liabilities at amortized cost |
4,938 | (331) | – | 4,607 | |
| Derivatives in trading book |
Financial liabilities held for trading |
Financial liabilities held for trading |
64 | – | – | 64 |
| Derivatives in trading book |
Financial liabilities held for trading |
Financial liabilities held for trading |
281 | – | – | 281 |
| Hedging derivatives | Hedging derivatives | 94 | – | – | 94 | |
| Deposits from banks |
Financial liabilities at amortized cost |
Financial liabilities at amortized cost |
4,009 | – | – | 4,009 |
| Deposits from customers |
Financial liabilities at amortized cost |
Financial liabilities at amortized cost |
30,947 | – | – | 30,947 |
| Valuation adjustment on interest rate risk hedged portfolios |
Valuation adjustment on interest rate risk hedged portfolios |
116 | – | – | 116 | |
| Financial liabilities | 41,175 | – | 82 | 41,257 |
| FV-loss, if the financial assets had not been reclassified | |||||
|---|---|---|---|---|---|
| in € million | Fair Value as of 31 March 2018 | At fair value through profit or loss |
At fair value through other comprehensive income net of tax |
||
| Financial assets at amortized cost | |||||
| Additions: | |||||
| From available for sale (IAS 39) - Debt instruments |
117 | – | (2) |
The following table reconciles the closing impairment allowance for financial assets in accordance with IAS 39 and provisions for loan commitments and financial guarantee contracts in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets as at 31 December 2017 to the opening ECL allowance determined in accordance with IFRS 9 as at 1 January 2018:
| in € million | 31 December 2017 | Reclassifications | Remeasurements | 1 January 2018 |
|---|---|---|---|---|
| Loans and receivables and held to maturity securities under IAS 39/Financial assets at amortised cost under IFRS 9 |
254 | – | 54 | 307 |
| Available for sale debt investment securities under IAS 39/debt financial assets at FVOCI under IFRS 9 |
– | – | 4 | 4 |
| Finance lease receivables | 22 | – | 3 | 25 |
| Loan loss provisions for financial assets | 276 | – | 60 | 336 |
| Provisions for credit promises and guarantees | 20 | – | (2) | 18 |
| Total | 296 | – | 58 | 354 |
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 non-financial 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 adjustments to the business strategy, regulatory requirements as well as market conditions. Particular attention is paid to the need for adjustment as part of the Group's expansion strategy.
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 BAWAG Group's risk coverage capacity. The following risk types are considered:
interest rate risk in the banking book and the credit spread risk are aggregated taking conservative correlation assumptions into account.
The 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.
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 (non-retail) as well as retail and small business customers (retail). The division Enterprise Risk Management is responsible for the consistent calculation and aggregation of the individual risk metrics within the defined monthly reporting framework.
In addition to clearly defined lending guidelines 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 loss given default (LGD) and the expected utilization of the off-balance-sheet exposure value at the time of default (credit conversion factor, CCF) are also estimated for retail and small business customers. 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 monthly 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 lending along with 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, start:bausparkasse, our auto and mobile leasing platforms as well as our performing residential mortgage portfolios in Western Europe. This portfolio consists of UK and French performing mortgage portfolios (outstanding balance of GBP 1.2 billion and € 1.1 billion, respectively, as of 31 March 2018).
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.
Südwestbank focuses on both retail and corporate customers mostly in the region of Baden-Württemberg. For 2018, the integration and transformation process has been fully launched. With regard to loan processing, the focus this year will be on the full integration into the BAWAG Group risk steering framework. Additionally, there will be further alignment and harmonization of risk processes, models, reporting and policies.
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.
Treasury Services & Markets acts as a service center for BAWAG Group's customers, subsidiaries and partners through treasury activities such as ALM, funding, market execution and select investment activities. 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.
| Mar 2018 in € million |
BAWAG P.S.K. Retail easygroup |
Südwest bank |
DACH Corporates & Public Sector |
International Business |
Treasury Services & Markets |
Corporate Center |
Total portfolio |
|
|---|---|---|---|---|---|---|---|---|
| Book value | 9,374 | 5,676 | 4,308 | 6,538 | 4,936 | 4,340 | 416 | 35,588 |
| Securities | 0 | 3 | 53 | 118 | 314 | 5,811 | 12 | 6,311 |
| Off-balance business |
1,082 | 3,248 | 1,062 | 450 | 378 | 556 | 932 | 7,708 |
| Total | 10,457 | 8,927 | 5,424 | 7,106 | 5,628 | 10,707 | 1,360 | 49,608 |
| thereof collateralized1) |
6,366 | 5,075 | 3,824 | 790 | 2,136 | 51 | 328 | 18,572 |
| thereof NPLs (gross view)2) |
223 | 169 | 83 | 91 | 51 | 0 | 255 | 871 |
1) Collateral comprises residential and commercial real estate, guarantees, life insurance, etc.
2) Taking into consideration the fair value of Südwestbank at initial recognition according to IFRS 3.
The NPLs as of 31.03.2018 without IFRS 3 effect for Südwestbank would have been as follows: € 179 million and Total € 967 million.
| Dec 2017 in € million |
BAWAG P.S.K. Retail easygroup |
Südwest bank |
DACH Corporates & Public Sector |
International Business |
Treasury Services & Markets |
Corporate Center |
Total portfolio |
|
|---|---|---|---|---|---|---|---|---|
| Book value | 9,370 | 5,884 | 4,124 | 6,536 | 4,831 | 3,456 | 388 | 34,588 |
| Securities | 0 | 3 | 59 | 162 | 323 | 7,641 | 7 | 8,195 |
| Off-balance business |
1,097 | 3,121 | 1,381 | 463 | 205 | 255 | 1,107 | 7,628 |
| Total | 10,467 | 9,008 | 5,564 | 7,159 | 5,359 | 11,352 | 1,502 | 50,411 |
| thereof collateralized1) |
6,380 | 5,188 | 3,722 | 1,009 | 2,390 | 57 | 404 | 19,150 |
| thereof NPLs (gross view)2) |
251 | 172 | 91 | 97 | 50 | 0 | 255 | 917 |
1) Collateral comprises residential and commercial real estate, guarantees, life insurance, etc.
2) Taking into consideration the fair value of Südwestbank at initial recognition according to IFRS 3.
The NPLs as of 31.12.2017 without IFRS 3 effect for Südwestbank would have been as follows: € 187 million and Total € 1,013 million.
| Note 9 | Risk view | Segment report | |||
|---|---|---|---|---|---|
| Mar 2018 in € million |
At amortized cost | Loans & bonds FVPL & FVOCI |
Total loans & bonds |
Other assets | Total assets |
| BAWAG P.S.K. Retail | 9,233 | 142 | 9,374 | 133 | 9,507 |
| easygroup | 5,676 | 3 | 5,679 | 58 | 5,737 |
| Südwestbank | 4,281 | 80 | 4,361 | 44 | 4,406 |
| DACH Corporates & Public Sector |
6,480 | 175 | 6,656 | 50 | 6,706 |
| International Business | 5,163 | 87 | 5,250 | 47 | 5,297 |
| Treasury Services & Markets | 7,490 | 2,661 | 10,151 | 1 | 10,152 |
| Corporate Center | 418 | 9 | 427 | 2,736 | 3,163 |
| Total | 38,741 | 3,158 | 41,899 | 3,069 | 44,968 |
The table below provides a reconciliation between book values of loans and receivables, the risk report and the segment report.
| Note 9 | Risk view | Segment report | |||
|---|---|---|---|---|---|
| Dec 2017 in € million |
Loans and receivables (L&R) |
Loans, bonds, investment funds (not part of L&R) |
Total loans & bonds |
Other assets | Total assets |
| BAWAG P.S.K. Retail | 9,370 | 0 | 9,370 | 132 | 9,502 |
| easygroup | 5,884 | 3 | 5,887 | 50 | 5,938 |
| Südwestbank | 4,124 | 59 | 4,183 | 0 | 4,183 |
| DACH Corporates & Public Sector |
6,536 | 162 | 6,698 | 27 | 6,725 |
| International Business | 4,964 | 190 | 5,154 | 21 | 5,174 |
| Treasury Services & Markets | 4,488 | 6,608 | 11,096 | 41 | 11,137 |
| Corporate Center | 387 | 7 | 395 | 3,017 | 3,412 |
| Total | 35,753 | 7,030 | 42,783 | 3,289 | 46,071 |
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 31.12.2017: 98%) of the loan portfolio1) and 83% (as of 31.12.2017: 86%) of the bond portfolio2) is located in Western Europe and North America.
68 1) The major shares are Austria with 59% (Dec 2017: 58%), Germany with 18% (Dec 2017: 19%), Great Britain with 8% (Dec 2017: 8%), the United States with 5% (Dec 2017: 5%) and France with 4% (Dec 2017: 4%).
2) The major shares are Great Britian with 12% (Dec 2017: 13%), Austria with 8% (Dec 2017: 9%), France with 8% (Dec 2017: 7%), the United States with 7% (Dec 2017: 10%) and Germany with 6% (Dec 2017: 10%).
| Book value | in % | |||
|---|---|---|---|---|
| in € million | Mar 2018 | Dec 2017 | Mar 2018 | Dec 2017 |
| EUR | 35,563 | 36,306 | 84.9% | 84.9% |
| GBP | 2,471 | 2,545 | 5.9% | 5.9% |
| USD | 2,200 | 2,215 | 5.3% | 5.2% |
| CHF | 1,476 | 1,525 | 3.5% | 3.6% |
| Others | 189 | 192 | 0.5% | 0.4% |
| Total | 41,899 | 42,783 | 100.0% | 100.0% |
| Book value | in % | |||
|---|---|---|---|---|
| in € million | Mar 2018 | Dec 2017 | Mar 2018 | Dec 2017 |
| Real Estate | 4,247 | 4,224 | 29.2% | 29.3% |
| Government | 2,363 | 2,182 | 16.2% | 15.1% |
| Services | 2,222 | 2,338 | 15.3% | 16.2% |
| Public Sector | 972 | 963 | 6.7% | 6.7% |
| Engineering & B(2)-B | 572 | 600 | 3.9% | 4.2% |
| Beverages, Food & Tobacco | 491 | 420 | 3.4% | 2.9% |
| Banks | 438 | 210 | 3.0% | 1.5% |
| Pharmaceuticals & Health Care | 423 | 309 | 2.9% | 2.1% |
| Utilities | 342 | 332 | 2.3% | 2.3% |
| Telecommunication | 341 | 219 | 2.3% | 1.5% |
| Gaming & Leisure | 305 | 314 | 2.1% | 2.2% |
| Chemicals | 285 | 305 | 2.0% | 2.1% |
| Retail - Food | 235 | 236 | 1.6% | 1.6% |
| Automotive | 229 | 240 | 1.6% | 1.7% |
| Leasing | 188 | 506 | 1.3% | 3.5% |
| B(2)-C Products | 163 | 149 | 1.1% | 1.0% |
| Social Housing | 154 | 155 | 1.1% | 1.1% |
| Wood & Paper | 119 | 116 | 0.8% | 0.8% |
| Commodity | 75 | 78 | 0.5% | 0.5% |
| Investment Funds | 65 | 157 | 0.4% | 1.1% |
| Construction & Building Materials | 65 | 53 | 0.4% | 0.4% |
| Transport | 55 | 49 | 0.4% | 0.3% |
| Media | 55 | 87 | 0.4% | 0.6% |
| Insurance | 45 | 62 | 0.3% | 0.4% |
| Hotels | 43 | 49 | 0.3% | 0.3% |
| Mining & Metals | 40 | 41 | 0.3% | 0.3% |
| NGO | 15 | 18 | 0.1% | 0.1% |
| Total | 14,550 | 14,410 | 100.0% | 100.0% |
As of 1 January 2018, BAWAG Group calculates allowances for non-impaired loans according to IFRS 9. The expected economic credit loss over the next 12 months or over the remaining life of the facility in case of a significant credit deterioration determines the allowance of each nonimpaired facility. IRB models form the basis of the IFRS 9 estimates, and the conservativity was removed where necessary and the models were adjusted to produce pointin-time estimates.
Provisions are booked on loans for which full recovery is unlikely. 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 formed.
Loan loss provisions are booked automatically in the core banking system based on defined standards in the case of 90 days past due or when legal action is initiated.
For exposures, which are not subject to automatic loan loss provisioning, an appropriate impairment test is performed. The extent of impairment is assessed after a detailed analysis on an individual basis and loan loss provisions are formed manually.
Non-performing loans (NPLs) are defined as all customer exposures in default in accordance with Article 178 CRR (internal risk class 8).
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.
Measures of forbearance 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 may be granted. Depending on the customer segment, possible measures include the temporary postponement or reduction of interest or principal payments, the restructuring of credit facilities or other forbearance measures. In exceptional cases, a temporary or permanent reduction of interest rates may be granted.
Measures of forbearance or refinancing are instruments to ultimately reduce the existing risk and avoid default with respect to debt claims, if it is expected that a default can thereby be forestalled. However, forbearance measures are by no means used to avoid or postpone the recognition of an unavoidable impairment or disguise the level of credit risk resulting from forborne assets.
By implementing forbearance measures appropriate in terms of time and scope, the Group supports clients in maintaining financial stability. If the supporting measures are not successful, exposures will be recognized as nonperforming and impaired according to regulatory and accounting standards. For clients or a group of clients where a default is identified, a provision is booked in accordance with internal guidelines.
For reporting as well as internal risk management purposes, the Group implemented processes and methods according to regulatory standards1) in order to identify exposures for which forbearance measures have been extended. These are classified as forborne.
Both risk categories are measured via sensitivity, value-atrisk (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 quarter of 2018, the average value-at-risk of the trading book was measured at minus € 0.47 million (Jan–Mar 2017 average: minus € 0.69 million) and the value-at-risk as of 31 March 2018 was
measured at minus € 0.44 million (31 December 2017: minus € 0.45 million) based on a confidence interval of 99% and a one-day holding period. The regulatory capital requirement is calculated using the Standardized Approach.
In addition to the risk of not being able to fulfill payment obligations when they become due (dispositive liquidity risk), liquidity risk also relates to the risk of increased refinancing costs, which can influence the Group's earnings situation (structural liquidity risk). Furthermore, liquidity risk includes the risk that transactions cannot be closed or sold, or that they can only be closed or sold at a loss because of insufficient market depth or due to market interruptions (market liquidity risk). The risk measurement is performed by the Market & Liquidity Risk Controlling division.
Liquidity management, comprising of intraday and shortterm 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 & 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 long-term funding position. Any
important decision on liquidity 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 quarter of 2018 was characterized by a solid liquidity position by stable core funding sources and a balanced term funding structure, with retail customers providing the majority of funding. The liquidty risk metric LCR (liquidity coverage ratio) has improved significantly to 162% at the end of the first quarter compared to 150% at year-end 2017, which is mainly a result of adjustments to the securities portfolio of the bank.
The Group continues to apply the Standardized Approach for the calculation of the regulatory own fund requirements according to Regulation (EU) No 575/2013 Article 317 to assess operational risk. However, the realized OpRisk losses over the last few years were significantly lower than the regulatory own funds requirements under the Standardized Approach. The OpRisk RWAs are assigned to the segments based on revenues.
For the purpose of internal economic capital steering (ICAAP), a statistical model is used to calculate the value-at-risk based on operational risk losses and risk potential resulting from the risk control self-assessments (RCSAs).
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) are implemented as additional steering instruments to identify and forecast negative trends or a changed risk profile in company workflows and divisions/ 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 an 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.
Additionally, the division Non-Financial Risk Management & Regulatory Compliance ensures the comprehensive and integrated management of all non-financial risks. This setup helps to address and mitigate potentially upcoming or
Group's economic riskcyber risk, integration risk) in a timely manner and to optimally use synergies when implementing risk preventing measures. The Managing Board receives monthly reports about current developments in the dedicated Non-Financial Risk Committee (NFRC).
A clear organizational structure and authorization levels form the basis of OpRisk governance. Additionally, a consistent guideline and a risk-adequate internal control system (including automated controls embedded in the IT infrastructure) are in place to manage the Group's operational risk/non-financial risk.
| After-tax earnings per share | Net profit / weighted average number of shares outstanding | ||
|---|---|---|---|
| Book value per share | IFRS equity / number of shares outstanding | ||
| Common Equity Tier 1 (CET1) 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); no dividend accruals considered |
||
| Common Equity Tier 1 (CET1) ratio Common Equity Tier 1 (CET1) capital / 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 (CET1) capital / total exposure (calculation according to CRR) | ||
| Liquidity coverage ratio (LCR) | Liquid assets / net liquidity outflows (calculation according to CRR) | ||
| Net interest margin | Net interest income / average interest-bearing assets | ||
| 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 changed from loans and receivables (incl. provisions) to exposure in line with regulatory requirements and applied retroactively |
||
| NPL coverage ratio | Loan loss provisions and collateral / NPL | ||
| 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 | ||
| Pre-tax earnings per share | Profit before tax / weighted average number of shares outstanding | ||
| Return on equity | Net profit / average IFRS equity – average equity based on 1 January 2018 due to IFRS 9 implementation |
||
| Return on Equity (@12% CET1) | Return on equity calculated at a fully loaded CET1 ratio of 12% – average equity based on 1 January 2018 due to IFRS 9 implementation |
||
| Return on tangible equity | Net profit / average IFRS tangible equity – average equity based on 1 January 2018 due to IFRS 9 implementation |
||
| Return on tangible equity (@12% CET1) |
Return on tangible equity calculated at a fully loaded CET1 ratio of 12% – average equity based on 1 January 2018 due to IFRS 9 implementation |
||
| Risk-weighted assets | Based on IFRS CRR regulatory figures (BAWAG Group, fully loaded) | ||
| Risk costs / interest bearing assets; (risk cost ratio) |
Provisions and loan loss provisions, impairment losses and operational risk (total risk costs) / average interest bearing assets |
||
| 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]
Typesetting: In-house using firesys
www.bawaggroup.com
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