VIENNA, Austria – February 27, 2018 – BAWAG Group today releases its preliminary results for 2017, reporting a record profit before tax of €517 million, up 12% versus the prior year. The increase was mainly driven by higher operating income (up 16%) reflecting the continued business transformation, positive impacts of prior-year acquisitions and continued focus on efficiency. The return on tangible equity (@12% CET1) came in at 17.9%. The fully loaded CET1 ratio was 13.5%, fully funding two acquisitions and dividend payments and coming in well above management’s target of 12% and all regulatory requirements. The cost-income ratio improved to 41.6% (excluding the long-term incentive program, LTIP).
“2017 was a remarkable year for our company. We executed the largest IPO in Austria’s history, completed multiple acquisitions and integrations, and continued to execute on our day-to-day operational and strategic initiatives, all while delivering another year of record performance. We delivered €517 million of profit before tax, generated 330 basis points of gross capital while fully funding two acquisitions, dividend payments, and making significant investments allowing us to continue our transformation. Today, BAWAG Group stands as one of the best-performing banks across Europe, an achievement that has been years in the making and is a source of great pride for our team. However, today more than ever, we are laser focused on meeting the ever changing needs of our customers and continuing to adapt to a constantly evolving banking landscape. We continue to see a significant move towards digital platforms, more demand for qualitative sales advisory, and see the many opportunities brought upon by new technologies. Our focus is, and will always be, on driving operational excellence and profitable growth for BAWAG Group in 2018 and the many years ahead,” commented Chief Executive Officer Anas Abuzaakouk.
Delivering strong results
We successfully executed on our business plans in 2017, delivering strong results and outperformed all targets stated for 2017.
|Targets 2017||Performance 2017|
|Profit before tax >€500 million|
|Return on equity (@12% CET1) >15%|
|Return on tangible equity (@12% CET1) >16% |
|Cost-income ratio <43%|
41.6% (excl. LTIP)
|Fully loaded CET1 capital ratio >12%|
|Fully loaded leverage ratio >5%|
Core revenues increased by 9% to €1 billion. Despite a continued low-interest rate environment, net interest income rose 8% to €791 million, primarily driven by core product growth, lower funding costs and the integration of new acquisitions. Net commission income increased by 12% to €217 million mainly due to an increase in income from current accounts and the acquisition of PayLife. The net interest margin was 2.23%, reflecting our dedicated focus on risk-adjusted pricing and optimizing the liability structure.
Operating expenses increased by 20% to €529 million, mainly due the introduction of a long-term incentive program funded in 2017 and higher restructuring reserves. The cost-income ratio was 46.5%, however, excluding the long-term incentive program was 41.6%.
We continued to focus on proactive risk management and maintaining a conservative risk profile. This is best reflected in a risk cost ratio of 18bps and an NPL ratio of 2.0% as of 31 December 2017 (excluding the legal case with the City of Linz: 1.5%). As of year-end 2017, the fully loaded regulatory leverage ratio stood at 6.2%, while the balance sheet leverage was 12.8 times.
We delivered a record profit before tax of €517 million, up 12% compared to last year, primarily driven by higher operating income (up €157 million, or 16%), which more than offset the increase in operating expenses and risk costs.
Loans and receivables with customers increased by 8% to €30.8 billion as of year-end 2017, primarily reflecting the acquisition of Südwestbank. The overall customer loan book comprises approximately 75% exposure to the DACH region, thereof approximately 60% in Austria. The total new origination volume in 2017 amounted to approximately €5 billion.
The funding of BAWAG Group continues to be based on customer deposits, representing more than two-thirds of the overall funding base. Deposits from customers increased by 19% to €30.9 billion as of year-end 2017, primarily driven by the acquisition of Südwestbank. The funding costs continued to decrease as the product mix, volume and pricing were optimized. At the end of December 2017, the blended overall retail deposit rate stood at 0.17%, down 11bps versus a year ago.
We maintained a strong and stable capital position in 2017 despite fully funding two acquisitions and dividend payments. At year-end 2017, our fully loaded CET1 ratio was 13.5% (December 2016: 13.6%). The management runs BAWAG Group on a fully loaded basis from a capital standpoint and has set the target for a CET1 ratio of at least 12% on a fully loaded basis. This ratio takes the current and the expected future regulatory capital requirements into account and is calibrated to leave a conservative buffer above the minimum capital requirements set by the regulator. For 2018, the regulatory minimum CET1 ratio applicable to BAWAG Group according to the SREP is 9.625%. In addition to the capital requirement, the SREP for 2018 also includes a Pillar 2 guidance, which is set at 1% for BAWAG Group. The regulator therefore expects us to maintain a CET1 ratio of 10.625% in total.
Exceptional items in Q4 2017
The fourth quarter 2017 includes exceptional items related to the execution of our strategy. The first-time consolidation of two acquisitions, Südwestbank and PayLife, had a positive net impact on profit before tax of approximately €230 million, mainly comprising badwill, valuation effects and restructuring reserves. A key strategic development for the branch network transformation was the signing of the separation agreement with Austrian Post. The agreed one-time upfront payment to address the partnership costs over the next two years as well as related restructuring reserves totaled approximately €110 million and were fully accounted for in 2017. The costs for implementing a long-term incentive program for the Managing Board and senior leadership team, initiated in the fourth quarter, amounted to approximately €55 million. Restructuring and legal reserves were increased by approximately €60 million to execute on a number of transformation initiatives.
|Segment||PBT (€ million)||Pre-tax RoTE (@12% CET1)||Cost-income ratio|
|BAWAG P.S.K. Retail|
|International Business |
|DACH Corporates & Public Sector|
The BAWAG P.S.K. Retail segment, comprising BAWAG Group’s retail and small business lending to domestic customers, social housing activities, real estate leasing as well as start:bausparkasse, delivered record profit before tax of €225 million in 2017, up 33% versus 2016, and a pre-tax return on tangible equity (@12% CET1) of 29.8%. The segment recorded new originations of €1.4 billion, driven primarily by consumer and housing loans.
In February 2018, we signed an agreement with Austrian Post with retroactive effect as of 1 January 2018 on an accelerated wind-down of our partnership, working towards a materially complete separation by year-end 2019, twelve months earlier than expected. This agreement will allow us to rapidly right-size our branch network by targeting a smaller but more efficient stand-alone network of approximately 100 branches with larger advisory teams, supported by mobile sales teams and high-quality digital platforms. This approach enhances the customer experience by offering locations focused on financial advisory, significantly reduces network costs and creates more productive customer-centric branches. Austrian Post was a solid partner over many years, and we will work closely together to ensure a seamless separation over the next two years that ensures minimal impact to customers and our respective businesses.
The easygroup segment comprises easybank, one of Austria’s leading direct banks; easyleasing, the #3 auto lessor in Austria; easypay (including PayLife), a leading credit card issuer in Austria; and our international retail business consisting of high-quality performing residential mortgages in Western Europe. The acquisition of the credit card issuing business PayLife was successfully completed in October 2017, contributing approximately 600,000 customers. The segment achieved a profit before tax of €126 million in 2017, up 46% compared to 2016, driven by higher net commission income following the PayLife acquisition, and delivering a pre-tax return on tangible equity (@12% CET1) of 32.2%.
The International Business segment comprises international corporate, real estate and portfolio lending outside the DACH region, primarily in Western Europe and the United States. The segment contributed €85 million to BAWAG Group’s profit before tax in 2017 while delivering a pre-tax return on tangible equity (@12% CET1) of 22.5% and new originations of €2.1 billion. Average asset volume was €5.1 billion, which was flat on a year-over-year basis. The core revenues in the business remained fairly stable, but the business performance was impacted by provisions booked against two oil and gas exposures in the first half 2017. The business pipeline for portfolio financing opportunities remains solid and we continue to focus on maintaining disciplined underwriting with a focus on risk-adjusted returns.
The DACH Corporates & Public Sector segment includes corporate and public lending business and other fee-driven financial services for mainly Austrian customers and select client relationships in Germany and Switzerland. The segment contributed €42 million to BAWAG Group’s profit before tax and delivered a pre-tax return on tangible equity (@12% CET1) of 11.3% and new originations of €1.0 billion. The business performance was impacted by losses from two corporate exposures that were de-risked / provisioned during the fourth quarter.
Additional highlights in 2017
Outlook, targets and capital policy
BAWAG Group’s strategy focuses on growth in Austria and more broadly the DACH region, both organically and inorganically. We aim to grow our market share in core products in Austria, establish a meaningful presence in Germany and build a best-in-class customer franchise throughout the DACH region while leveraging our position as one of the most profitable and efficient banks across Europe.
Going into 2018, we plan to continue delivering on our growth strategy:
Our targets for 2018 are as follows:
In addition, we have the following 3-year targets from 2018 through 2020 in place:
Our capital generation and return policy is as follows:
The Managing Board will propose to the Annual General Meeting (AGM) to pay a dividend for the fourth quarter 2017 of €0.58 per share (calculated as 50% of the average quarterly net profit generated in the financial year 2017). The AGM will take place on May 7, 2018.
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