PREFACE BY THE
CHAIRMAN OF THE MANAGING BOARD
The year 2011The year 2011 was marked by the continuing debt crisis negatively affecting almost all European economies, the financial markets and the banking sector. The Austrian economy expanded strongly in 2011, particularly in the first half year, but then saw a dramatic slowdown in growth during the second half year. The worsening of the debt crisis manifested itself in considerable turmoil in the financial markets. As a result, the business climate and consumer confidence diminished noticeably. The economic downturn will continue, at least in the first half of 2012, although the domestic economy is likely to be more robust than the euro area as a whole. Further, the competition in the Austrian banking market increased in 2011, with lower business volume growth and decreasing margins. In addition, the banking sector continued to focus on strengthening their capital and liquidity ratios to meet the new regulatory requirements taking effect by the beginning of next year under Basel III and CRD IV / CRR I.
2011 was a successful business year for BAWAG P.S.K. All business units were profitable and contributed to the Bank's overall profit before tax and bank levy of EUR 156 million. The continuation of our growth strategy by investing in businesses with a primary focus on Austria and other Western European countries together with the commitment of our employees made this success possible despite the difficult market environment, increasing competition in the banking sector and a significant increase in the regulatory burden.
Continuation of our business growth strategy
In early 2011 the Bank took the decision to combine our two strong brands with their proven banking traditions and sales focus: "BAWAG" and "PSK" into "BAWAG P.S.K.", which now serves as one strong banking brand in the Austrian market. At the same time, the Bank also initiated a new "Intuitive" banking strategy orienting on customer needs. BAWAG P.S.K. wishes to better serve all our clients, whether retail or corporate clients, by offering its products and services by being: Understandable, fair, anytime and anywhere.
Part of this "Intuitive" banking strategy is delivered through the expansion of our branch network. By the end of 2011, over 330 branches under the new, unique branch concept have been opened and refurbished. In all these branches a wide range of banking services are provided, including the newly developed Kontobox which was launched in the first half of 2011.
This new and unique branch concept has received positive feedback from our clients and by the end of 2012, BAWAG P.S.K.'s network will consist of approximately 500 cutting-edge branches in urban and rural areas providing extended opening hours, exceptional services and products as well as fully equipped self-service capabilities. This unique branch concept was reached through the continuation and revision of the longstanding, good cooperation between BAWAG P.S.K. and Austrian Post AG.
I am especially proud of the new advertising campaign for our retail clients, "MITTEN IM LEBEN", which was ranked in the top three for the best campaign with the greatest impact and hence the strongest advertising appeal according to a Gallup survey. The campaign aims to highlight the proximity to our clients, and is in line with the new intuitive image of the Bank. BAWAG P.S.K. has underlined this campaign with the 2011 founded "MITTEN IM LEBEN-Award for Outstanding Humanitarian Work". This first award goes to Ute Bock for her extraordinary commitment to refugees from around the world.
The successful campaign has also served our corporate clients under the slogan "MITTEN IM BUSINESS", which adds to the Business Solution Partner Concept ("one face to the customer") initiated at the end of 2010. The Business Solution Partner Concept is well received by our corporate clients offering consolidated know-how and customised products and solutions from a single source. The Bank continued and developed this initiative for medium-sized companies in the second half of the year. The range of services for our clients includes the provision of attractive working capital loans, structured finance and capital market solutions, leasing as well as financial analyses and consultations and professional payment solutions, in particular through the newly developed cash management tool that significantly simplifies managing liquidity ("Finance Cockpit").
To meet our clients "always and everywhere", in addition to the expansion of the branch network and the Business Solution Partner Concept, the enhancement of the "electronic branch bank" is an important goal. In 2011, BAWAG P.S.K. expanded and customised its e-banking service to become more user friendly and to provide additional products and services. BAWAG P.S.K. stands for a modern multi-channel bank by combining internet services and retail outlets. With its subsidiary easybank, BAWAG P.S.K. covers 100 per cent of this market. For its outstanding services, easybank was awarded with the Recommender Award 2011 focusing on customer satisfaction and orientation. easybank achieved the highest recommendation rate (46 per cent) in the history of this award.
Apart from focusing on investments for business growth, the efficiency and productivity programme started in 2010 continued throughout 2011. The projected cost savings are to be realised by the end of 2013. By year end 2011, the Bank was well on track to meet its targets. By simplifying processes and improving technology an important goal of this initiative will be reached: the reduction of processing time ("time-to-market") and the improvement of our customer service.
During 2011 the Bank also continued to execute and deliver a number of regulatory projects including Basel 2.5 and the implementation of a state-of-the-art Anti Money Laundering detection software as well as new Asset Liability Management-Tool.
A successful 2011 for BAWAG P.S.K.
Profit before tax (without bank levy and excluding minorities) for the financial year 2011 of EUR 156.0 million compares very favourably with the profit before tax for 2010 of EUR 138.1 million (without bank levy and excluding minorities); a profit growth of 13 per cent.
- Core revenues of EUR 853.8 million (comprising net interest income of EUR 677.9 million and net commission income of EUR 175.9 million) increased compared to 2010 by 5.5 per cent (EUR 44.5 million). The total operating revenues for 2011 amounted to EUR 923.7 million.
- The Bank's tight cost management continues to show satisfactory results. Despite the significant investments made in 2011, total operating expenses (without bank levy) of EUR 613.2 million are in line with the costs of the previous year.
- The cost-income ratio slightly increased compared to the year end 2010 due to lower income from gains and losses on financial instruments and is at 66.4 per cent.
- Provisions and impairment losses amounted to EUR 154.8 million, which is 22.5 per cent lower than the amount for the previous year (EUR 199.7 million). The decrease in loan loss provisions and defaults, despite the difficult economic environment, shows the continued relatively conservative risk profile of the Bank's loan portfolio.
- Net profit 2011 of EUR 122.5 million (including a bank levy charge of EUR 20.2 million) also compares favourably with the net profit for the full year 2010 of EUR 121.8 million (no bank levy charges were made in 2010). On a comparable basis this represents a 17.2 per cent growth year on year.
Improvement of capital and liquidity ratios
Basel III provides for mandatory higher capital and liquidity ratios for banks. BAWAG P.S.K. already complies with the Basel III criteria, and is confident to meet these criteria at the time of its introduction in 2013.
During 2011 BAWAG P.S.K. continued to focus on further strengthening its capital and liquidity position. Our capital position has been strengthened through disciplined capital management and realisation of risk-weighted asset reductions while at the same time enhancing profitability. BAWAG P.S.K. continued preparing for the introduction of Basel III and CRD IV / CRR I throughout 2011.
The Group Capital Tier 1 ratio (including total risk-weighted assets) of 9.6 per cent has improved from 8.9 per cent in December 2010. The Group Own funds ratio of 12.3 per cent has also significantly improved from 11.8 per cent at year end 2010. Total regulatory liquidity remains strong at EUR 5.2 billion (31 December 2010: EUR 5.3 billion).
In 2011 BAWAG P.S.K. passed the annual stress tests of the Austrian National Bank. These stress tests were similar to the European Banking Authority (EBA) stress tests performed at the same time.
Commitment of our employees
The continued commitment of our employees throughout the year made a major contribution to BAWAG P.S.K.'s success. Employee development remains a key priority and a very important initiative for BAWAG P.S.K. Focus in 2011 was set on maintaining an internal job market together with a general education programme, a talent and trainee concept, succession planning and developing programmes for future, newly appointed and existing managers. The efforts of BAWAG P.S.K. were awarded with the Golden Career's Best Recruiter 2011/2012-Prize. The prize is granted on the basis of an independent study, in which both the employer brand as well as the recruiting process of over 500 top companies in 22 industries are assessed.
The European debt crisis not only dominates the review of the past year, but also clouds the outlook for 2012. Although the political decisions in December of last year are to be welcomed in principle, it remains to be seen how these will be legally implemented and how the financial markets will respond. We face a difficult year with the regulatory burden to further increase substantially, however, due to our financial strength, our strong liquidity position and our dedicated employees, we are well prepared for the upcoming opportunities and challenges and will continue focusing on our clients' needs.
Above all, I would like to thank the employees of BAWAG P.S.K. for their outstanding achievements and their continued commitment in realising our objectives and in addressing the identified challenges during 2011. The commitment and loyalty of the employees of BAWAG P.S.K. will contribute a significant part in the further success of the Bank in the year 2012.
Byron Haynes m.p.
Chairman of the Managing Board and CEO
Vienna, March 2012