BAWAG P.S.K. Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse Aktiengesellschaft

EANS-News: BAWAG P.S.K. Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse Aktiengesellschaft
Consolidated Annual Report 2016 (with document)

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annual report


- Net profit of EUR 484 million, +23% versus prior year
- Return on tangible equity of 17.9%, +1.8pts
- Operating income of EUR 991 million, +2%
- Core revenues of EUR 923 million, +2%
- Net interest margin stable at 2.3%
- Operating expenses down 7%
- Cost-income ratio improved to 44.4%, -4.0pts
- Fully loaded CET1 ratio of 15.1%, +2.2pts versus year-end 2015

VIENNA, Austria - February 16, 2017 - BAWAG P.S.K. today releases its
preliminary results for 2016, reporting a record net profit of EUR 484 million,
up 23% versus the prior year. The increase was driven by higher operating
income, lower operating expenses and reduced risk costs. The return on tangible
equity came in at 17.9%, up 1.8pts. The net interest margin remained largely
stable at 2.3%. Operating expenses were down 7% and the cost-income ratio down
4.0pts to 44.4%. Risk costs decreased by 7% to EUR 43 million. The Bank has
increased its fully loaded CET1 ratio by 2.2pts to 15.1%.

"Last year was yet another record year for BAWAG P.S.K. We continued to grow our
business in challenging times by focusing on our customers, applying a
disciplined growth strategy and continuously investing in our future. Despite a
low-interest rate and slow-growth European macro environment, BAWAG P.S.K. again
generated record earnings and outperformed all goals set for 2016, making us one
of the most profitable and best-capitalized banks across Europe and providing us
with a strong basis for further growth. Additionally, the improved rating by
Moody's as well as the initial rating by Fitch make BAWAG P.S.K. the highest
rated bank in Austria by these rating agencies as well as one of the few banks
with two ratings in the single A category across Europe. Our strong results in
2016 reiterate that BAWAG P.S.K. is well prepared to succeed in a competitive
and evolving European banking environment. On the back of our transformation and
our strong results over the past few years, we are in a position to capitalize
on unique opportunities to grow our business, both organically and
inorganically," said Chief Executive Officer Byron Haynes.

"Over the past five years, we have simplified our business model by focusing on
core products, cost efficiency, low leverage and a conservative risk profile. We
will continue to execute on a variety of operational and strategic initiatives
in 2017. Our focus remains on driving efficiency, operational excellence and
profitable growth," said Chief Financial Officer Anas Abuzaakouk.

Strong capital ratios

The management team continues to run the Bank on a fully loaded basis from a
capital standpoint. The fully loaded CET1 ratio improved by 2.2pts to 15.1% (Dec
2015: 12.9%) and the fully loaded total capital ratio also by 2.2pts to 18.0%
(Dec 2015: 15.8%), driven by organic earnings while at the same time funding
acquisitions. Thereby, the capital position significantly exceeded both
regulatory requirements and the Bank's CET1 target ratio of greater than 12%.

In 2016, the minimum CET1 ratio according to the SREP (Supervisory Review and
Evaluation Process) applicable to BAWAG P.S.K. amounted to 9% (including a
systemic risk buffer of 0.25%). For 2017, the regulatory minimum CET1 ratio
applicable to BAWAG P.S.K. according to the SREP will be 8% (including a
systemic risk buffer of 0.50%). In addition to the capital requirement, the SREP
for 2017 for the first time also includes a Pillar 2 guidance, which has been
set at 1% for BAWAG P.S.K. The regulator therefore expects BAWAG P.S.K. to
maintain a CET1 ratio of 9% (8% SREP requirement plus 1% Pillar 2 guidance).

Highlights in 2016

Euromoney, one of the leading magazines for banking, finance and capital market
issues, elected BAWAG P.S.K. as "Austria's Best Bank 2016," emphasizing that we
were "the standout story of the year" and highlighting our "sector-beating
return on equity," efficiency and solid capitalization. The Banker, an
international industry magazine for banks published by the Financial Times,
selected BAWAG P.S.K. as "Bank of the Year" in Austria for the second time in a

BAWAG P.S.K. acquired start:bausparkasse, an Austrian savings and loan
association, as well as IMMO-BANK. This transaction, successfully closed in
December 2016, will grow BAWAG P.S.K.'s domestic retail footprint, extend its
expertise in building society savings and loans and result in a significant
increase in the financing volume with real estate companies and social housing

Moody's again upgraded BAWAG P.S.K.'s long-term deposit, senior unsecured and
issuer ratings by one notch to A3 in 2016. The outlook was maintained as
"positive." Additionally, the Bank's standalone rating as well as its senior
subordinate rating were upgraded to baa2 and Baa3 (investment grade for the
first time), respectively. According to Moody's, the rating upgrades reflect the
Bank's stronger-than-anticipated recovery in profitability, the continued
de-risking of its balance sheet as well as the continued build-up of the Bank's
capital adequacy ratios. The rating assessment indicates further upside
potential for the standalone rating.
In 2016, BAWAG P.S.K. was rated by Fitch for the first time. The long-term
issuer rating and the standalone rating were both set at A- with a stable
outlook. The main rating drivers were, amongst others, the conservative risk
appetite and strong asset quality reflecting the focus on high-quality assets in
developed markets, an established brand and strong retail franchise in Austria
with a good performance record supported by a focus on cost control and general
pricing discipline as well as a strong capitalization and performance in
regulatory stress tests. In early February 2017, Fitch additionally assigned
senior unsecured and subordinated debt ratings of A- and BBB+, respectively.

Own issues: 
In 2016, BAWAG P.S.K. issued two Swiss franc senior unsecured bonds with a total
of CHF 275 million, with one issuance accounting for the lowest ever recorded
yield of a newly issued financial bond in CHF on the Swiss financial market
(minus 25bps). Furthermore, BAWAG P.S.K. placed an RMBS transaction denominated
in GBP with a total of GBP 500 million backed by high-quality performing UK
retail mortgages to gain access to direct GBP funding, representing the first
ever RMBS transaction by an Austrian bank.

Key business highlights in 2016

BAWAG P.S.K. successfully executed on its business plans in 2016, delivering
strong results and exceeding all its stated goals.

Operating income increased by 2% to EUR 991 million. Despite a continued
low-interest rate environment, net interest income rose 1% to EUR 730 million in
2016 compared to 2015, primarily driven by net asset growth and lower funding
costs. Net commission income increased by 4% to EUR 193 million due to favorable
developments across current accounts and the loan insurance business. The net
interest margin remained stable at 2.3%, reflecting the Bank's dedicated focus
on risk-adjusted pricing and optimizing the liability structure.

Operating expenses decreased by 7% to EUR 439 million, driven primarily by
sustainable long-term measures in non-personnel expenses. The cost-income ratio
further improved by 4.0pts to 44.4%.

Risk costs decreased by 7% to EUR 43 million, resulting from the improved credit
quality of the individual business segments and positive effects from the prior
years' de-risking activities. The Bank continues to maintain a conservative risk
profile with disciplined underwriting and a focus on developed markets in
Austria, Western Europe and the United States. This is best reflected in a low
risk cost ratio of 15bps and an NPL ratio of 2.0%.

Profit before tax was EUR 470 million, up 12% versus 2015. Net profit increased
by 23% to EUR 484 million, driven by higher core revenues, lower operating
expenses and reduced risk costs. In addition, a positive one-time net tax
benefit was recognized in the first quarter, the majority of which reversed by
year-end 2016.

Customer loans increased by 15% to EUR 28.5 billion compared to year-end 2015,
primarily driven by growth in consumer loans and the international business as
well as the acquisition of start:bausparkasse, IMMO-BANK and another
high-quality performing residential mortgage portfolio in Western Europe. The
total new origination volume in 2016 was EUR 5.0 billion. The overall customer
loan book continued to be comprised of two-thirds exposure to Austria and
one-third to Western Europe and the United States. The investments in the Bank's
Austrian retail franchise continued to pay off. As an example, the market share
in consumer lending, one of the Bank's core retail products, grew to 11.9%, up
1.7pts versus year-end 2015.

The funding of BAWAG P.S.K. continued to be based on stable customer deposits
representing two-thirds of the funding base. Customer deposits increased by 20%
to EUR 26.0 billion compared to the previous year. The increase mainly results
from the acquisition of start:bausparkasse and IMMO-BANK as well as higher
deposit account balances. The funding costs continued to decrease as the product
mix, volume and pricing were optimized. At year-end 2016, the blended overall
retail deposit rate stood at 0.28%, down 4bps versus a year ago.

Segment reporting

In 2016, the business segmentation and the related reporting were changed in
order to provide greater insight and transparency and to better reflect our
strategic focus as well as the progress of the business units going forward.

The BAWAG P.S.K. Retail segment, consisting of the Bank's retail and small
business lending to domestic customers, social housing activities and real
estate leasing, also includes start:bausparkasse and parts of IMMO-BANK for the
first time. This segment achieved a net profit of EUR 169 million in 2016, up
29% compared to 2015, while also delivering a return on equity of 18.4% and a
cost-income ratio of 55.2%. Higher core revenues and lower operating expenses
more than offset the increase in regulatory charges. New loan originations were
EUR 1.2 billion. Overall risk metrics reflect the high credit quality of the
retail business, with a largely stable risk cost ratio and an NPL ratio of 1.8%
(down 40bps versus the prior year).

The easygroup segment, comprising Austria's leading direct bank easybank, our
auto and mobile leasing platforms as well as our residential mortgage portfolios
in Western Europe, showed strong results by more than doubling net profit to EUR
87 million in 2016 with a return on equity of 24.1% and a cost-income ratio of
24.6%. New originations were EUR 460 million. The underlying performance
reflects the acquisition of the Volksbank Leasing business in the fourth quarter
2015 as well as the purchase of two high-quality performing residential mortgage
portfolios in Western Europe at the end of 2015 and 2016. During the reporting
year, we entered into a partnership with Autogott, Austria's leading online car
sales channel, which is a perfect fit for easygroup, allowing us to combine our
ability to market via an online channel with our leasing expertise. In addition,
we successfully launched our new brand easyleasing, which serves as our "one
brand and one face" to the leasing market in Austria.

The DACH Corporates & Public Sector segment includes corporate and public
lending activities and other fee-driven financial services for mainly Austrian
customers and select client relationships in Germany and Switzerland. The
segment contributed EUR 71 million to the Bank's net profit and delivered a
return on equity of 13.1%. Core revenues were down 14%, driven by early
redemptions, margin pressure and lower new business volume. This was partly
offset by an improvement in operating expenses (down 6%) and positive risk
costs. The overall quality of the portfolio further improved, with an NPL ratio
of 0.7%, down 50bps versus the prior year, being a reflection of prior years'
de-risking activities and the overall high credit quality of the assets.

The International Business segment comprises international corporate, real
estate and portfolio lending outside the DACH region, primarily in Western
Europe and the United States. In 2016, new loan originations were EUR 2.7
billion. The segment contributed EUR 102 million to the Bank's net profit in
2016, down 8% compared to the previous year, but still delivered a return on
equity of 17.6% despite higher than anticipated redemptions. Similar to the DACH
business, the international business is characterized by high credit quality
assets with no non-performing loans.

Treasury Services & Markets manages the Bank's investment portfolio of financial
securities of EUR 5.4 billion and a liquidity reserve of EUR 1.3 billion at
year-end 2016. The investment strategy continues to focus on investment grade
securities, primarily representing secured and unsecured bonds of financials in
Western Europe and the United States as well as select sovereign bond exposures
in order to maintain solid diversification. The investment portfolio's average
maturity was 4.3 years, comprising 96% of investment grade-rated securities, of
which 80% were rated single A or higher. As of year-end, the portfolio had no
direct exposure to China, Russia, Hungary or South-Eastern Europe. Direct
exposure to the UK is moderate and focuses on internationally diversified
issuers with solid credit quality. The segment contributed EUR 50 million to the
Bank's net profit in 2016 and delivered a return on equity of 13.7%.


Our strong results in 2016 reiterate that BAWAG P.S.K. is well prepared to
succeed in a competitive and evolving European banking environment. We are
confident that we have positioned the Bank to successfully tackle the challenges
the Austrian and European banking industry are confronted with in order to
continue to grow while maintaining a conservative risk profile based on our
strong capital and funding base. We are ready to capitalize on any opportunities
that might arise from the current significant changes within the European
banking landscape.

Going into 2017, we plan to grow in the DACH region, one of the wealthiest
economic areas in Europe with over 100 million people, very strong macroeconomic
fundamentals, a stable legal system and superior credit quality across retail
and corporate lending. We have already made preparations to expand organically
into Germany and are planning to start offering direct banking services there
through our easygroup platform, with the plan to offer banking products to
German customers during the first half 2017. We are currently in the process of 
looking at a few other inorganic opportunities, mainly in the DACH region, that
will expedite our growth plans.

About BAWAG P.S.K. 
With more than 2.2 million customers, BAWAG P.S.K. is one of Austria's largest,
most profitable and best capitalized banks operating under a well-recognized
national brand. We apply a low-risk, highly efficient, simple and transparent
business model focused on Austria and other developed markets - with two-thirds
of our customer loans within Austria. The remaining customer loans are
predominantly in Western Europe and the United States. We serve Austrian retail,
small business and corporate customers across the country, offering
comprehensive savings, payment, lending, leasing, investment, building society
and insurance products and services. Our Austrian business is complemented by
international activities focused on retail, corporate, commercial real estate
and portfolio lending in Western developed countries. This strategy provides us
with earnings diversification and growth opportunities while maintaining a
conservative risk profile with disciplined underwriting. 

We run the Bank in a safe and secure manner with a strong balance sheet, low
leverage and solid capitalization. Delivering simple, transparent and
best-in-class products and services that meet our customers' needs is our
consistent strategy across all business units.

BAWAG P.S.K.'s Investor Relations website contains
further information about the Bank, including financial and other information
for investors.

BAWAG P.S.K. contacts:
Financial Community:
Benjamin del Fabro (Head of Investor Relations & Communications)
Tel: +43 (0) 5 99 05-22456

This text can also be downloaded from our website:

Note: In this press release, any data is presented on the BAWAG Holding Group
level (referred to as "BAWAG P.S.K." throughout the document) unless stated

For charts please refer to the attached press release (PDF format)
Attachments with Announcement:

Further inquiry note:
T: 43 (0)59905 - 31210
F: 43 (0)59905 - 22007

end of announcement                               euro adhoc 

Attachments with Announcement:

company:     BAWAG P.S.K. Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse Aktiengesellschaft
             Georg-Coch-Platz  2
             A-1018 Wien
phone:       +43 (0) 59905
sector:      Banking
ISIN:        -
stockmarkets: stock market: Luxembourg Stock Exchange, Euronext Amsterdam,
             Frankfurt, Wien, SIX Swiss Exchange 
language:   English

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