Notes to the Annual Financial Statements
Basic Information
The Group's reports were prepared in accordance with the International Financial Reporting Standards (IFRS).
All reports were made using the Guidelines on Financial Reporting (FINREP) framework required for reporting to Oesterreichische Nationalbank (the Austrian National Bank, OeNB), which conforms to the framework recommended by the Committee of European Banking Supervisors (CEBS) for uniform financial reporting by internationally active banks. This framework clearly depicts the measurement categories stipulated in IAS 39.
The Group consists of 57 entities in Austria and abroad (2008: 48). The following material changes occurred during the reporting period:
As part of the reorganisation of the structured credit portfolio, four new companies were established, which are held indirectly (via four holding companies) by the Group parent company. As these eight companies are fully consolidated and no new investments were made, these transactions resulted in no changes for the Group.
Aside from BAWAG P.S.K., the other credit institutions in the Group are easybank, Österreichische Verkehrskreditbank, BAWAG P.S.K. Wohnbaubank, BAWAG P.S.K. Invest, BAWAG Banka d.d. in Slovenia, and BAWAG Malta Bank. Material non-credit institutions are the leasing group, the BAWAG P.S.K. real estate sub-group, the shoe retailer Stiefelkönig and the newly founded entities mentioned above. BAWAG P.S.K. Versicherung is now accounted for using the equity method after a majority stake in the company was sold in 2007.
The Bank's consolidated assets totalled EUR 41,225 million as of 31 December 2009, and remained at virtually the same level as at the end of the prior financial year.
Assets
| in millions of Euros | 2009 | 2008 | Change | |
|---|---|---|---|---|
| Cash reserves | 615 | 717 | -102 | -14.2% |
| Financial assets | 14,543 | 14,367 | +176 | +1.2% |
Fair value through profit or loss |
2,980 | 4,048 | -1,068 | -26.4% |
Available for sale |
3,250 | 2,492 | +758 | +30.4% |
Held to maturity |
6,560 | 5,366 | +1,194 | +22.3% |
Held for trading |
1,753 | 2,461 | -708 | -28.8% |
| Loans and receivables | 24,879 | 25,246 | -367 | -1.5% |
Customers |
21,066 | 20,697 | +369 | +1.8% |
Credit institutions |
3,813 | 4,549 | -736 |
-16.2% |
| Hedging derivatives | 33 | 27 | +6 | +22.2% |
| Tangible non-current assets | 287 | 379 | -92 |
-24.3% |
| Intangible non-current assets | 266 | 295 | -29 | -9.8% |
| Other assets | 602 | 547 | +55 | +10.1% |
| Total assets | 41,225 | 41,578 | -353 | -0.8% |
The reduction in the cash reserve by EUR 102 million (-14.2 per cent) to EUR 615 million is due to lower OeNB minimum reserve requirements on the reporting date.
Financial assets measured at fair value through profit or loss amounted to EUR 2,980 million on 31 December 2009, which is equivalent to a reduction of EUR 1,068 million or 26.4 per cent compared to the end of 2008. In addition to scheduled redemptions and the planned disposal of assets in the structured credit portfolio, this decline was primarily due to a shift to a longer-term investment strategy. Only a negligible EUR 36 million of these assets are measured using Level 3 methodologies.
As a result of this longer-term investment strategy, the available-for-sale financial assets totalled EUR 3,250 million on 31 December 2009, up from EUR 2,492 million at the end of the prior year. In addition to equity holdings totalling EUR 281 million, this item consists primarily of investments in liquid bank bonds.
Investments in the category held to maturity rose by EUR 1,194 million or 22.3 per cent to EUR 6,560 million due to the change of our investment strategy. The Bank primarily invested in Austrian corporate bonds and liquid international bank and corporate bonds.
Held for trading covers not only the positions in the trading book, but also all positive fair values of derivative financial instruments, including those held to hedge positions in the banking book but for which hedge accounting is not applied. The decrease of EUR 708 million (-28.8 per cent) to EUR 1,753 million was due to a reduction in our credit derivative holdings as well as to lower values of other derivatives. A similar trend was seen for the trading liabilities.
The item loans and receivables contains loans to customers and credit institutions that are valued at amortised cost. Receivables from customers were virtually unchanged at EUR 21,066 million in the reporting period. The slight increase in this item can be attributed to the roughly EUR 680 million increase in loans to corporates and other large customers.
Receivables from credit institutions fell from EUR 4,549 million in 2008 to EUR 3,813 million at the end of 2009. This was due to the fact that BAWAG P.S.K. invested a greater share of its liquidity in asset classes with medium-term maturities.
The fair values of derivatives in fair-value hedges are recognised in the item hedging derivatives (assets and liabilities). When using a fair-value hedge, an asset or liability is protected against changes in its fair value, and changes in the value of the hedging instrument and the hedged item are recognised as a profit or loss in the income statement in the same period in which they are incurred. For this, the hedging instrument is recognised at its fair value through profit or loss, and all changes in the fair value of the hedged item arising from the risk against which is being hedged are also recognised as a profit or loss in the income statement.
Tangible non-current assets totalled EUR 287 million on 31 December 2009, down from EUR 379 million at the end of 2008. This can be attributed to scheduled depreciation and to the sale of properties no longer used by the Group.
Liabilities
| in millions of Euros | 2009 | 2008 | Change | |
|---|---|---|---|---|
| Financial liabilities | 38,054 | 39,336 | -1,282 | -3.3% |
Fair value through profit or loss |
6,371 | 6,854 | -483 | -7.0% |
Held for trading |
2,198 | 2,526 | -328 | -13.0% |
At amortised cost |
29,485 | 29,956 | -471 | -1.6% |
Customers |
22,674 | 22,585 | +89 | +0.4% |
Credit institutions |
3,468 | 3,668 | -200 | -5.5% |
Issued securities |
3,343 | 3,703 | -360 | -9.7% |
| Hedging derivatives | 60 | 50 |
+10 | +20.0% |
| Provisions | 441 | 462 | -21 | -4.5% |
| Other obligations | 378 | 404 | -26 | -6.4% |
| Equity | 1,919 | 1,138 | +781 |
+68.6% |
| Minorities | 373 | 188 | +185 | +98.4% |
| Total equity and liabilities | 41,225 | 41,578 | -353 | -0.8% |
The item fair value through profit or loss under Financial liabilities comprises the Bank's issued securities and deposits that are reported at fair value and that are not assigned to the category held for trading. These liabilities totalled EUR 6,371 million on 31 December 2009, EUR 483 million or 7.0 per cent less than at the end of the prior year. This decline is due primarily to the redemption of securities issued by BAWAG P.S.K. Deposits in savings products with interest paid depending not only on the general interest rate level, but also on other factors such as the inflation rate or the development of specific indexes, grew by EUR 90 million. Because these products are hedged against the relevant risks using derivative financial instruments, they are recognised at fair value through profit or loss to ensure that they are reported properly.
The held-for-trading financial liabilities fell by EUR 328 million or 13.0 per cent to EUR 2,198 million in 2009. As on the assets side of the balance sheet, this decrease is primarily the result of the reduction in our credit derivative holdings.
Payables to customers came in at EUR 22,674 million, the same level as last year. Savings deposits decreased by EUR 865 million, however, this was more than compensated by a EUR 954 million increase in other deposits, including current accounts and commercial and retail deposits.
Thanks to the growth in customer deposits, payables to credit institutions were reduced by EUR 200 million or 5.5 per cent to EUR 3,468 million in 2009.
The Bank's issued securities that are recognised at amortised cost totalled EUR 3,343 million, EUR 360 million less than at the end of the prior year as a result of redemptions.
The Bank's provisions were down by EUR 21 million to EUR 441 million on 31 December 2009.
Equity increased by EUR 781 million to EUR 1,919 million. The largest factors behind this were the subscription of EUR 550 million in participation capital by the Republic of Austria and the shareholders' contribution of EUR 205 million The reserves from the valuation of the assets classified as available for sale also increased by EUR 48.3 million.
Income statement
| in millions of Euros | 2009 | 2008 | Change | |
|---|---|---|---|---|
| Net interest income | 564.3 | 652.5 | -88.2 | -13.5% |
| Net fee and commission income | 154.8 | 143.9 | +10.9 | +7.6% |
| Gains and losses on financial assets and liabilities adjusted for minority interests1) | 138.9 | -406.3 | +545.2 | - |
| Other operating income and expenses | 29.9 | 14.1 | +15.8 | >+100% |
| Operating income |
887.9 |
404.2 |
+483.7 |
>+100% |
| Administrative expenses | -517.3 |
-617.4 |
+100.1 |
+16.2% |
| Depreciation and amortisation on tangible and intangible non-current assets | -80.4 |
-87.5 |
+7.1 |
+8.1% |
| Operating expenses | -597.7 |
-704.9 |
+107.2 |
+15.2% |
| Operating profit | 290.2 | -300.7 | +590.9 | >+100% |
| Provisions and impairment losses | -236.7 | -281.4 | +44.7 | +15.9% |
| Share of the profit or loss of associates accounted for using the equity method | -8.0 | -32.5 | +24.5 | +75.4% |
| Profit (loss) before tax adjusted for minority interests1) | 45.5 | -614.6 | +660.1 | - |
| Income taxes | -59.2 | 89.3 | -148.5 | - |
| Gains and losses on financial assets attributable to minorities1) | 186.6 | -189.5 | 376.1 | - |
| Profit (loss) after tax | 172.9 | -714.8 | 887.7 | - |
| Thereof attributable to owners of the parent |
-22.2 | -547.5 | +525.3 | +95.9% |
| Thereof attributable to minority interests | 195.1 | -167.3 | 362.4 | - |
1) Under IFRS, the item Gains and losses on financial assets and liabilities also includes the valuation of securities whose risk is borne by minority shareholders. These securities are subject to substantial fair value fluctuations. In order to improve the comparability of the results, the valuation results attributable to minority shareholders are shown in a separate line. Compared to the income statement presented in the Consolidated Financial Report according to IFRS, the item Gains and losses on financial assets and liabilities is EUR 186.6 million lower (2008: EUR 189.5 million higher). Accordingly, the item Profit (loss) before tax presented above is EUR 186.6 million lower (2008: EUR 189.5 million higher) than the Profit (loss) before tax presented in the Consolidated Financial Report according to IFRS.
Net interest income fell by EUR 88.2 million or 13.5 per cent to EUR 564.3 million in the reporting period, primarily due to lower interest rates, a significant saving deposit margin compression as well as the sale of banking subsidiaries in the previous year.
Net commission income increased by a significant 7.6 per cent compared to the prior year, coming in at EUR 154.8 million. This can be attributed above all to increased commission income from payment transactions and an increase in income from the conclusion of insurance policies and building association savings agreements. Commission income was also up in annual comparison in the Bank's securities and custody business.
The item gains and losses on financial assets and liabilities was influenced primarily by the narrowing of credit spreads, and also by the ongoing restructuring of our investments.
As part of the further de-risking of the structured credit portfolio, high-risk securities were sold in 2009. Due to our conservative valuation as of 31 December 2008 these transactions generated realised profits compared to book value of EUR 45.9 million. Restructuring costs in the amount of EUR 10.0 million were also recognised in the income statement. In addition, the Bank's structured credit portfolio generated fair value gains in the amount of EUR 145.4 million.
Due to the improved risk assessment the spreads narrowed, which caused the fair values of the Bank's issued securities to rise and resulted in expenses of EUR 55.1 million from the securities that are designated at fair value through profit and loss.
Other operating income and expenses totalled EUR 29.9 million in the 2009 financial year. This comprises inter alia proceeds from the sale of no-longer used properties and proceeds from settlements of indemnities.
Administrative expenses totalled EUR 517.3 million in the reporting period, down by EUR 100.1 million or 16.2 per cent compared to 2008. The decrease can be attributed in large part to a EUR 63.5 million reduction in material costs.
Depreciation and amortisation fell by EUR 7.1 million to EUR 80.4 million because of the sale of further properties.
Expenses for provisions and impairment losses amounted to EUR 236.7 million in 2009. This item includes impairments in the amount of EUR 48.1 million for the parts of the structured credit portfolio that are categorised as held to maturity which is 41.2 per cent lower than in 2008.
The result from the associates accounted for using the equity method (EUR -8.0 million) primarily contains the proportionate loss of BAWAG P.S.K. Versicherung AG and of ZEUS Recovery Fund S.A, which is due to the valuation of investments.
BAWAG P.S.K. achieved a profit before tax of EUR 45.5 million in 2009, after a loss of EUR 614.6 million in 2008.
The tax expenses in the amount of EUR 59.2 million are above all due to a reduction in deferred tax assets. The decline compared to the prior financial year is the result of different measurement approaches according to tax law and IFRS.
Gains and losses on financial assets attributable to minorities refers to fair value fluctuations which are allocated to minorities. In the IFRS income statement presented in the notes, these fair value fluctuations are shown in the item Gains and losses on financial assets and liabilities. In order to improve the comparability of the results, the valuation results attributable to minority shareholders are shown separately in the income statement above.
Profit after tax amounted to EUR 172.9 million compared to a loss after tax of EUR 714.8 million in 2008. Profit (loss) attributable to minority interest (including gains and losses from the valuation of financial assets) amounted to EUR 195.1 million (2008: -167.3 million). Losses attributable to owners of the parent significantly reduced from EUR 547.5 million to EUR 22.2 million.
Consolidated own funds of the BAWAG P.S.K. bank group pursuant to the Austrian Banking Act (BWG)
| in millions of Euros | 2009 | 2008 |
|---|---|---|
| Share and participation capital | 800 | 250 |
| Reserves (including fund for general banking risks) | 954 | 1,007 |
| Goodwill, minorities and deductions | 346 | 232 |
| Core capital (Tier I) | 2,100 | 1,489 |
| Less shareholdings held for investment purposes | -51 | -56 |
| Core capital (Tier I) after deductions | 2,049 | 1,433 |
| Reserve under § 57 BWG, revaluation reserve | 85 | 13 |
| Supplementary and subordinated debt capital | 746 | 790 |
| Additional items (Tier II) | 831 | 803 |
| Less shareholdings held for investment purposes | -51 | -56 |
| Eligible own funds | 2,829 | 2,180 |
| Tier III | 67 |
55 |
| Own funds | 2,896 |
2,235 |
Own funds are calculated on the basis of the results of the members of the bank group according to UGB and BWG. The considerable increase in equity is primarily the result of the subscription of EUR 550 million in participation capital by the Republic of Austria and the EUR 205 million capital contribution from shareholders. As of 31 December 2009, BAWAG P.S.K. recognised a fund for general banking risks according to article 57 paragraph 3 BWG in the amount of EUR 28 million (prior year: EUR 80 million).
Own funds requirement
| in millions of Euros | 2009 | 2008 |
|---|---|---|
| Credit risk | 1,579 | 1,667 |
| Market risk | 67 | 55 |
| Operational risk | 150 | 131 |
| Capital requirements | 1,796 | 1,853 |
This results in a Tier I capital ratio of 10.0 per cent (2008: 6.6 per cent) and an own funds ratio of 13.6 per cent (2008: 9.8 per cent). Both ratios are well above the minimum legal standards. The Tier I capital ratio based on credit risk (excluding operational risk) amounts to 10.4 per cent (2008: 6.9 per cent).