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.
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).
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 row.
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 associations.
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.
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.
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.
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.
BAWAG Group’s Investor Relations website https://www.bawaggroup.com/IR/EN contains further information about the Bank, including financial and other information for Investors.
Benjamin del Fabro (Head of IR & Communications)
Tel: +43 (0) 5 99 05-22456
Georgia Schütz-Spörl (Press Officer)
Tel: +43 (0) 5 99 05-31210
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 otherwise.