Corporate Governance

Supervisory Board

The Supervisory Board of BAWAG P.S.K., which is responsible for supervising but also supporting the Managing Board, consists of six national and international representatives elected by the Shareholder Meeting (currently only five persons are appointed). An additional three members are delegated by the Works Council. (The members of the Supervisory Board and the composition of its committees are listed in the section Boards and Officers.)

The Rules of Procedure of the Supervisory Board comprise the rights and obligations of this board and also define the individual committees of the Supervisory Board and their responsibilities. As part of the amendment of the Supervisory Board's Rules of Procedure, some of the provisions were simplified and harmonised.

Responsibility for the approval of loans and other forms of financing and credit to individual borrowers or groups of connected customers for the purposes of section 27 of the Banking Act (exposures that equal 10 per cent or more of the Bank's eligible own funds) has been delegated to the Credit Committee that was set up by the Supervisory Board. An annual report about the large exposures approved by the Credit Committee is submitted to the Supervisory Board. The Credit Committee is also responsible for approving transactions with the Bank's affiliated parties (except for transactions with members of the Supervisory Board or Managing Board that are delegated to the Remuneration Committee) and for approving material credit policies. It also advises the Managing Board in basic credit risk policy issues.

The Audit Committee is responsible for reviewing the Bank's accounts and the annual financial statements, and monitoring the Bank's risk management and internal control systems. This committee is also in regular contact with the external auditor, the Internal Audit division and the Compliance Office. The annual audit plans and reports about the activities of the Internal Audit division and the Bank's Compliance Office are also submitted to the Audit Committee.

While the Nomination Committee deals with succession planning and selecting suitable candidates for the Managing Board,, the Remuneration Committee deals with relationships between the Bank and the members of the Managing Board. For example, it decides the performance targets for the Managing Board and also the remuneration paid to and contracts signed with the members of the Managing Board. The Remuneration Committee is also responsible for approving transactions with members of the Supervisory Board and Managing Board.

The Related Parties Special Audit Committee reviews all financing commitments and transactions above a certain amount involving companies with controlling influence as defined in IAS 24 or companies related to these controlling companies. The Related Parties Special Audit Committee is intended to ensure transparency in all transactions involving the Bank's shareholders.

Managing Board

At the beginning of 2009, the Managing Board consisted of six members. Currently, the Board has five members, following the retirement of Chairman David Roberts.
The Rules of Procedure of the Managing Board define the responsibilities and tasks of this board. According to these Rules of Procedure, the Managing Board has the right to form committees and to issue statutes for these committees. The following executive committees have been formed:

• The Enterprise Risk Meeting for managing risk for the entire Bank;
• The Credit Policy Committee, which focuses on credit guidelines and strategies;
• The Credit Approval Committee, which decides on financing agreements above a certain amount;
• The strategic Asset Liability Committee, which deals with strategic capital and liquidity planning issues;
• The tactical Asset Liability Committee; and
• The Retail & SME Committee.

The Bank also established a series of additional non-executive committees. These include:

• The Exposure Review Committee, which was set up in 2009 for the ongoing analysis of certain credit exposures;
• The Capital Management Meeting, which monitors the development of the regulatory capital ratios and the changes in the risk-weighted assets; and
• The Capital Expenditure Committee, which decides on investments above a certain amount.

Proactive Risk Management

Top priority was again assigned to risk management in 2009. After the credit risk management system was divided into two groups, Retail and SME Risk and Corporate and Institutional Risk, in the prior financial year, the focus in 2009 was placed on improving the relevant systems and processes. In response to the difficult economic environment, the systems for monitoring credit exposures were expanded significantly. Additionally, forward-looking monitoring mechanisms were also introduced for the portfolio. A number of measures were implemented to lower the level of risk in the structured credit portfolio, including the sale of assets, restructuring and hedging.

Code of Corporate Governance

BAWAG P.S.K. voluntarily adopted the Austrian Code of Corporate Governance for listed companies in 2006. In the 2009 financial year, amendments were made to the Austrian Code of Corporate Governance which were subsequently incorporated into BAWAG P.S.K.'s individual Code.

The Bank prepared its first-ever annual corporate governance report for the 2009 financial year which will published on the Internet.

Compliance with the Code of Corporate Governance was audited by independent third parties in 2009 and revealed that all key provisions of the Code were fulfilled with the exception of those that do not apply to a bank with a closed shareholder structure.

Compliance

The Compliance Office is a sub-unit of BAWAG P.S.K.'s Legal division but reports directly to the Managing Board. Regular reports are also submitted directly to the Bank's Audit Committee.

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

In addition to all relevant laws such as the Securities Supervision Act, all employees are also bound by a Code of Conduct that contains, among other things, guidelines for business conduct and customer service, for how conflicts of interest are to be handled, and for preventing market abuse and money laundering.

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Corporate Social Responsibility

Every business enterprise strives to achieve success and to create value. For BAWAG P.S.K., success also means meeting its social responsibility.

To this end, the sustainability and corporate social responsibility programme the Bank launched in 2007 was continued and expanded throughout the organisation in 2009.

In April 2009, the Bank's first CSR report was published in tandem with the 2008 annual report. We are releasing our second CSR report this year together with the 2009 annual report to document our work and achievements in the area of sustainability.

The CSR Report 2009 can be accessed at www.bawagpsk-annualreport.com. We decided to forgo a printed version of this report to save paper.

The following is an overview of some of the efforts we undertook in 2009. More extensive information can be found in the CSR Report 2009.

New Chance Account

On 1 April 2009, PSK BANK became the first bank in the country to offer a basic current account to any customer regardless of their credit rating. This "New Chance Account" (Neue Chance Konto) does not include an overdraft facility and is available in all of Austria. This product is designed for the roughly 50,000 people in Austria who otherwise have no access to one of the most important banking services, electronic payment transactions, because of their credit history.

The "New Chance Account" has generated a great deal of positive response. At the end of 2009, only nine months after the launch, an impressive 3,500 customers were already using this product. The "New Chance Account" is one of the fruits of our proactive commitment to human rights, and for us is a way to counter discrimination and social exclusion.

Human Rights Matrix

To the best of our knowledge, BAWAG P.S.K. is the first bank in Austria that has evaluated the issue of human rights in connection with its area of business in such an extensive manner and that also systematically takes human rights into account and incorporates their protection into its daily operations.

Human rights are the only binding system of rules that are valid around the world and that apply not only to governments, but also to business enterprises. At BAWAG P.S.K., we decided to assess where the Bank actually stands in these terms. To this end, we drew up a human rights matrix and completed a gap analysis to identify the areas in which we need to improve. For example, our credit policies now also include ethical and antidiscriminatory guidelines for the awarding of loans. A Supplier Code of Conduct has also been developed which requires BAWAG P.S.K.'s service providers and suppliers to commit themselves to respecting human rights in their operations, in addition to other obligations.

The BAWAG P.S.K. Human Rights Matrix was presented to the UN's special envoy on human rights and business, Prof. John Ruggie, and the human rights activist and former president of Ireland, Mary Robinson, during a workshop in June 2009.

UN Global Compact

BAWAG P.S.K. joined the UN Global Compact in the middle of March 2009. As a result of this, the CSR Report 2009 also includes a Communication on Progress (COP). Our CSR officer is also a member of the UN Global Compact Network Austria.

BAWAG P.S.K. Women's Initiative

The BAWAG P.S.K. Women's Initiative was launched in May 2009 under the patronage of Managing Board member Regina Prehofer and Works Council Chairwoman Ingrid Streibel-Zarfl. The goal of this initiative is to create a working environment in which every female employee can achieve success in accordance with her own abilities and performance. Key focuses in this are the harmonisation of salaries and training opportunities, as well as increasing the number of women in key, specialist and management positions.

Diversity

Throughout the 2009 financial year, a number of different campaigns, workshops, podium discussions and a diversity survey were conducted and a newsletter distributed to increase awareness for the issue of diversity - social variety - within BAWAG P.S.K. One project was launched to examine all aspects of diversity and to define concrete measures by the beginning of 2010 that will enable the Bank to derive benefits from the diversity within it and to ensure equal opportunities for all.

Temporary Assistance for Unemployment after Bankruptcies

When a business goes bankrupt, this not only affects the company's owners and suppliers, but also all of its employees. Such employees are entitled to benefits from the bankruptcy compensation fund, but it can take several months for these benefits to be paid out. Based in part on advice provided by the Austrian Trade Union Federation and in response to the economic crisis, BAWAG P.S.K. created an unbureaucratic and nationwide aid package in 2009 for people who have lost their job because of the bankruptcy of their employer.

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Personnel Development

Management and Personnel Development; Succession and Career Planning

A key focus in the Bank's personnel development activities in 2009 was the Leadership Development Initiative. Under this initiative, the Bank held workshops for all of its managers with the goal of discussing what is expected of these managers and how they see their own roles, and to introduce the revised "Management by Objectives" (MBO) process as a key leadership and management instrument.

In addition to continuously improving the skills of its management personnel, the Bank also attaches considerable importance to providing development paths for talented individuals so that it can fill key positions from within its staff. One measure to this end was the creation of the EMERGE programme for potential managers and specialists who are to be given new positions with greater responsibilities in the coming years.

The programme began with a careful selection process, and a number of candidates are now completing a one-year programme that will significantly improve their professional and personal skills. EMERGE is built up around the completion of strategic business projects to facilitate learning by doing. Flanking measures include mentoring, leadership and technical specialist training, 360-degree feedback with subsequent coaching, and an internal career workshop that is designed to show the specific advancement paths available in the Bank and that ends with the creation of individual career and development plans.

In addition to this, the retail sales programme for future managers, "TopTeam Vertrieb", was launched in December 2009, and a succession planning project was started in Operations.

Personnel Training

The Bank adapted and updated its personnel training system in 2009 to bring it in line with the changed operating conditions resulting from various restructuring efforts, process improvements and modified job profiles. Specifically developed seminars were held in the larger organisational units to fill gaps in the staff's qualifications and to better enable people to fill new roles in some cases. At the same time, the foundation was laid for a new, structured training system at BAWAG P.S.K.

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Sponsoring

BAWAG P.S.K.'s focus on the areas of the arts, education and social issues and the ways in which it combines these areas with its business activities make it a pioneer in sponsoring. The objective of these activities is to reposition the Bank through projects focusing on innovation and sustainability, and through the promotion of contemporary art. BAWAG P.S.K.'s support for the renowned jazz club Porgy&Bess earned it the 2009 "maecenas" art sponsoring prize for the best art sponsoring project by a large corporation. We will continue on this path in 2010.

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