bawag p.s.k. mortgage covered bond update...network in partnership with austrian post with over 1.6m...

15 February 2016 | BAWAG P.S.K. Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse Aktiengesellschaft

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BAWAG P.S.K.

Mortgage Covered Bond Update 15 February 2016


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1. Corporate profile

2. Q3 2015 financials

3. Business segments

4. Mortgage covered bonds

Agenda


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BAWAG P.S.K. corporate profile

1) Based on FMDS (2014) 2) Based on OeNB and Statistik Austria (September 2015) 3) FF = fully fledged

Company overview

• BAWAG P.S.K., founded in 1883, is one of Austria‘s largest

retail banking institutions

• BAWAG P.S.K. operates the largest centrally managed branch

network in partnership with Austrian Post with over 1.6m

customers serviced across the country

• Austrian market share of >16% in current accounts1),

10% in retail consumer loans and 8% in deposits2)

• Major player in the Austrian direct banking market through

easybank … #1 rated direct bank with €3.1b deposits and

545,000 accounts

• International business based in London that is focused on

Western Europe & United States … provides asset, geographic

and earnings diversification

• Minimal CEE exposure (<1% of balance sheet) and planned

full exit … no exposure to Hungary, Russia, Ukraine and other

South Eastern European countries

• No exposure to HETA Asset Resolution AG

• No relevant exposure to province of Carinthia

Key stats

2012 2013 2014 Q1-3 2015

Balance sheet €41b €36b €35b €33b

Net profit €107m €229m €333m €320m

Return on equity 6.5% 11.6% 14.9% 16.9%

Cost-income ratio 70% 66% 53% 47%

CET1 ratio (FF)3) – 9.4% 12.1% 14.9%

NPL ratio 4.9% 3.4% 2.8% 2.2%

Moody‘s upgraded the Bank‘s ratings in July 2015:

• Senior Rating: Baa1 (positive outlook)

• Subordinated: Ba1

• Covered Bonds: Aaa

• Cerberus Capital Management LP (52%)

• Golden Tree Asset Management LP (40%)

Moody’s rating & ownership structure


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Agenda


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Highlights – first three quarters 2015

Financial & business highlights

• Net profit of €320m, up 22% vPY … RoE of 16.9%

• Stable net interest income … NIM up 28bps

to 2.13% vPY

• Continued focus on efficiency … cost-income ratio

down 4.6pts to 46.7% vPY

• Solid risk profile … risk costs down 40% to €31m

• CET1 ratio of 14.9% and total capital ratio of 17.9%,

both on a fully loaded basis

• Taking market share … consumer lending share

up 100bps to 10% vYE

• easybank rated #1 direct bank in Austria …

total accounts up 10% to 545,000 vPY

• Purchase of Volksbanken Leasing completed

Performance vs. targets

FY Targets YTD Performance

Net profit >€400m €320.3m

Return on equity >14% 16.9%

Cost-income ratio <50% 46.7%

NPL ratio <2.5% 2.2%

CET1 ratio (FF) >12% 14.9%

Total capital ratio (FF) >16% 17.9%

Leverage ratio (FF) >6% 6.5%

Liquidity coverage ratio >100% 138%

Consumer lending

market share ≥9% 10%

Delivering results … well on track to outperform 2015 targets


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15.9%

16.9%

Q1-3 '14 Q1-3 '15

1.85%

2.13%

Q1-3 '14 Q1-3 '15

51.3%

46.7%

Q1-3 '14 Q1-3 '15

5.4% 6.5%

Sep '14 Sep '15

11.5%

14.9%

Sep '14 Sep '15

3.2%

2.2%

Sep '14 Sep '15

Performance scorecard Strong results across all key indicators

RoE NIM Cost-income

Leverage (FF) CET1 (FF) NPL

+0.28pts

(4.6pts)

+3.4pts

+1.1pts

+1.0pts

(1.0pts)


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Income statement | € millions Q3 ‘15 Chg. (%) Q1-3 ‘15 Chg. (%)

Net interest income 175.7 0 539.0 9

Net commission income 42.9 (8) 144.8 (6)

Core revenues 218.6 (2) 683.8 6

Other revenues 11.7 9 36.8 (40)

Operating income 230.3 (1) 720.6 2

Operating expense (111.9) (7) (336.7) (8)

Bank levy (6.0) (3) (17.4) (6)

Risk costs (8.3) (44) (31.2) (40)

Net profit 94.3 7 320.3 22

Key ratios Q3 ’15 Chg. (pts) Q1-3 ‘15 Chg. (pts)

Return on equity 14.4% (0.9) 16.9% 1.0

Return on risk-weighted assets 2.40% 0.31 2.63% 0.51

Net interest margin 2.11% 0.08 2.13% 0.28

Cost-income ratio 48.6% (3.2) 46.7% (4.6)

Balance sheet | € millions Sep ‘15 Chg. (%)1) Sep ’15 Chg. (%)2)

Customer loans and receivables 22,044 1 22,044 0

Customer deposits 20,919 (1) 20,919 2

IFRS equity 2,660 11 2,660 13

Risk-weighted assets 15,677 (7) 15,677 (8)

Financial performance Strong Q3 and YTD 2015 results across the Bank

1) Change vs. Dec. ‘14 2) Change vs. Sep. ‘14

YTD Highlights

• Net profit up 22% vPY … emphasis on

high quality of earnings

• Core revenues up 6% vPY to €684m,

with NII up 9% vPY to €539m

• Operating expenses down 8% vPY …

continued focus on efficiency measures

driving operational excellence

• Risk costs down 40% … reflects low-

risk balance sheet and repositioning of

customer business

• Customer loans increased by €265m,

or 1.2% vYE … new originations of

€3.4b in Retail and International

Business

• Continued favorable trend across key

financial metrics … RoE +1pt,

RoRWA +1pt, CIR -5pts vPY


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175.9 183.1 179.4 183.8 175.7

46.8 43.9 50.5 51.4 42.9

Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15

NII NCI NIM

Core revenues Core revenue growth driven by customer loans and lower funding costs

1) In absolute terms

Core revenues Summary

• NII growth driven by core lending products,

pricing initiatives and lower funding costs

‒ Focus on higher margin consumer and

international lending while re-pricing or exiting

non-core assets

‒ Reduced funding costs … blended deposit rate

down to 0.35% versus 0.55% year-on-year

• Strong quality of earnings

‒ Other revenues as % of operating income on

average only 6% over the last five quarters

2.15% 2.03%

2.11% 2.07% 2.11%

235.2 222.7 227.0 229.9

218.6

Other revenues as % of operating income1)

4.6% 5.2% 12.1% 2.8% 5.1%

€ millions


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Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15

OPEX Cost-income ratio

Operating expenses Restructuring investments paying off

Operating expenses Summary

• Significant progress in fixing structural cost

imbalances ... benefits materializing from prior years’

restructuring program

• Operating expenses down 7% vPY driven by

sustainable long-term measures

• Cost-income ratio of 46.7% in the first three

quarters … down 4.6pts vPY

• Well on track to achieve our net cost-out target

of 5-10% in 2015

• Continued focus on operating efficiency given

overall market dynamics … low growth, low interest

rates and shifting customer behavior away from

physical to digital networks

Active FTEs

2,902 2,836 2,696 2,619 2,565

46.4%

51.8%

55.8%

45.3% 48.6%

106.3

120.8 120.4 118.4 111.9

€ millions


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14.7

20.3

11.0 11.9 8.3

1.9

Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15

LLPs Impairments Risk costs / L&R

Risk costs Proactive risk management to maintain conservative risk profile

Risk costs Summary

• Risk costs materially down due to de-risking

activities and improved credit quality across core

business segments

• Historic balance sheet clean-up efforts behind us …

no impairments YTD

• NPL ratio improved to 2.2% ... coverage ratio

at 57.2%

• Continued focus on proactive risk management

• Proactively reducing CEE loan exposure …

expect exit in near term

‒ Reduced CEE loans from €409m to €184m,

55% decrease vPY … represents less than 0.6% of

total assets

0.18% 0.23%

0.35%

0.17% 0.13%

11.9

14.7

22.2

11.0

8.3

NPL ratio

3.2% 2.8% 2.8% 2.3% 2.2%

€ millions


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Balance sheet Successful repositioning to focus on core customer loans & deposit funding

Assets

• Customer loan yields stable despite depressed interest rate

environment

• Slightly increasing customer loans despite a challenging market

… customer loans account for greater percentage of total assets

… continue to focus on growing as % of total assets

• Non-earning assets (NEAs) comprised primarily of excess

liquidity positions and positive market value of derivatives

Liabilities & Equity

• Deleveraging wholesale funding & non-core deposits while

shifting of deposit mix and maintaining pricing discipline

• Further opportunity to optimize funding structure to address

low interest rate environment

• Continued focus on simplified capital structure

64% 63% 64% 65% 68%

24% 24% 23% 20% 20%

12% 13% 13% 15% 12%

Sep '14 Dec '14 Mar '15 Jun '15 Sep'15

Customer loans Securities

NEAs Customer loan yield

59% 61% 60% 62% 63%

18% 18% 17% 17% 15%

16% 14% 16% 13% 14%

7% 7% 7% 8% 8%

Sep '14 Dec '14 Mar '15 Jun '15 Sep '15

Deposits Own issues

Others Core equity

Retail deposit costs

2.62% 2.73% 2.73% 2.72%

2.62%

33.8 34.9 34.7 34.6 32.9

0.39% 0.55% 0.50% 0.42% 0.35%

33.8 34.9 34.7 34.6 32.9

€ billions € billions


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Capital Safe & secure, more capital efficient, lower risk and lower leverage

Capital ratios (FF)

• Bank managed on a fully-loaded basis

… very strong capital base

• Capital ratios significantly above target

levels and regulatory requirements

• Capital ratios on a transitional basis

(incl. interim profit):

‒ CET1 ratio 15.8%

‒ Total capital ratio 18.7%

RWA

• Disciplined capital allocation with focus

on risk-adjusted returns

• RWA density of 48% ... conservative

ratio relative to European peers

B/S Leverage

• Running a low leverage business

model ... 8.1% equity / total assets

• Deleveraging non-core assets /

liabilities coupled with organic equity

accretion

• Regulatory leverage ratio on a fully

loaded basis of 6.5%

12.1% 14.9%

Dec '14 Sep '15

CET1 Total capital

16.8

15.7

Dec '14 Sep '15

14.4x

12.4x

Dec '14 Sep '15

15.8% 17.9%

€ billions

+2.1 pts

+2.8pts

(2.0x)

(6.6%)


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Agenda


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124 142

Q1-3 '14 Q1-3 '15

107

143

Q1-3 '14 Q1-3 '15

45 28

Q1-3 '14 Q1-3 '15

Business segments

Retail Banking & Small Business

• Retail net asset growth (+1% vYE) …

led by new consumer lending of €372m …

market share up 100bps to 10%

• Fund sales €1b (+11% vPY) … NCI of all

investment products up 10% vPY

• easybank … customer loans up to €232m (+26%

vPY) and deposits up to €3.1b (+13% vPY) …

total customer assets after integration of

BAWAG P.S.K. and Volksbanken auto leasing

businesses approx. €1b

Corporate Lending & Investments

• International business originations of

>€2.5b in Q1-3 ’15 … driven by portfolio and

real estate financing

• Strong credit profile across international assets

… average LTV of real estate assets <60% and

leverage of corporate assets <4.0x

• Muted loan demand in Austria … focusing on

risk-adjusted returns and repricing

Treasury Services & Markets

• Continued focus on high credit quality, shorter

duration and strong liquidity positions

• 99% investment grade portfolio (100%

investment grade issuer ratings) … no exposure

to HETA, Hungary, Russia, Ukraine and other

South Eastern European countries

V

Core rev. 420 405 (3.5%)

Opex (267) (238) (10.9%)

C/I ratio 63.1% 58.5% (4.6pts)

NPL ratio 3.4% 2.2% (1.2pts)

Cov. ratio 83.7% 91.1% 7.4pts

Core rev. 183 212 15.5%

Opex (58) (62) 6.5%

C/I ratio 31.2% 29.7% (1.5pts)

NPL ratio 1.9% 0.7% (1.2pts)

Cov. ratio 85.3% 99.2% 13.9pts

Core rev. 40 42 6.6%

Opex (16) (15) (8.6%)

C/I ratio 26.6% 34.4% 7.8pts

NPL ratio 0% 0% -

Cov. ratio n/a n/a -

V V

€ millions € millions € millions Profit before tax Profit before tax Profit before tax

+34% +14%

(37%)


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Agenda


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Mortgage covered bonds Mortgage cover pool with 100% Austrian collateral

Data as of December 2015

• “Aaa” rating by Moody‘s

• 100% Austria … cover pool size €1,573m (90% Residential | 10% Commercial)

• High granularity … 16,986 loans, largest asset 0.78% of total cover pool

• Cover pool size only calculated on LTV of 60%, total dedicated loan notional of €1.9b (31.12.2015)

• LTV calculation is based on the historical evaluation of mortgages … based on current market values, hidden reserves provide

additional cushion

• Contractually committed OC of 5.5%, although currently not required by Moody’s to keep Aaa rating

• Currently considering to dedicate up to €300m of non-profit housing loans to cover pool

• Since the last reporting date, BAWAG P.S.K. has dedicated additional collateral volume to the mortgage cover pool in form of Austrian

Aaa HQLA securities with a notional of €199m to secure the overcollateralization levels … these securities are expected to be replaced

by high grade Austrian mortgages in due course

Cover pool composition Regional distribution Maturity profile (months)

Commercial

Residential

150

1,423

in €m

4 9

26

10 5

20

4

21

Burgenland

Carinthia

Lower Austria

Upper Austria

Salzburg

Styria

Tyrol

Voralberg

Vienna

6

91

≤ 12

12-36

36-60

60-120

≥ 120

in % in %


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4 9

26

10 5

20

4

21 Burgenland

Carinthia

Lower Austria

Upper Austria

Salzburg

Styria

Tyrol

Voralberg

Vienna

6

93

<1 Y

1-2 Y

2-3 Y

3-5 Y

5-10 Y

>10 Y

9

26

61

3

0-20,000

20-50,000

50-100,000

100-300,000

>300,000

Mortgage covered bonds Mortgage cover pool – residential assets

in € million, as of December 2015 1) in % of total mortgage cover pool

Regional distribution Loan volume

Lower Austria 355.3

Styria 293.6

Vienna 301.7

Upper Austria 138.7

Carinthia 127.1

Salzburg 73.8

Burgenland 53.8

Tyrol 49.5

Vorarlberg 29.60

Total 1,423.2

Maturities Loan volume

<1 Y 3.9

1-2 Y 1.0

2-3 Y 4.9

3-5 Y 13.8

5-10 Y 80.7

>10 Y 1,318.9

Total 1,423.2

Granularity Loan volume

0-20,000 20.0

20-50,000 126.6

50-100,000 369.9

100-300,000 861.7

>300,000 45.0

Total 1,423.2

Asset type – residential Loan volume

Houses 960.3

Apartments 421.6

Partial commercial use 7.1

Others 34.2

Total 1,423.2

10 largest residential assets

No.

Loan

volume in €m

in %1) Maturity Asset type

1 1.2 0.07 40.2 Residential property










7.3

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in %

in %


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2 7

14

6 3

11 8

48

Burgenland

Carinthia

Lower Austria

Upper Austria

Salzburg

Styria

Tyrol

Voralberg

Vienna

4 9

11

75

<1 Y

1-2 Y

2-3 Y

3-5 Y

5-10 Y

>10 Y

12

26

8 8

29

16

0,0-0,1m

0,1-0,3m

0,3-0,5m

0,5-1,0m

1,0-5,0m

>5,0m

Mortgage covered bonds Mortgage cover pool – commercial assets

in € million, as of December 2015 1) in % of total mortgage cover pool

Regional distribution Loan volume

Vienna 71.3

Lower Austria 21.5

Styria 16.1

Carinthia 11.3

Upper Austria 8.9

Tyrol 11.7

Salzburg 4.4

Burgenland 3.6

Vorarlberg 1.4

Total 150.2

Maturities Loan volume

<1 Y 5.8

1-2 Y 0.7

2-3 Y 1.1

3-5 Y 13.3

5-10 Y 16.9

>10 Y 112.4

Total 150.2

Granularity Loan volume

0,0-0,1m 17.6

0,1-0,3m 39.5

0,3-0,5m 12.4

0,5-1,0m 12.3

1,0-5,0m 43.8

>5,0m 24.6

Total 150.2

10 largest commercial assets

No.

Loan

volume in €m

in %1) Maturity Asset type

1 12.3 0.78 14.7 Industrial building



4 4.9 0.31 13.2 Others (commerce)







50.6

Asset type – commercial Loan volume

Office building 5.3

Retail spaces 8.7

Mixed use 2.7

Properties 5.2

Commerce 12.4

Hotels 7.9

Industrial 25.6

Apartments 40.3

Apartments in rent 28.6

Others 13.5

Total 150.2

in %

in %

in %


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IMPORTANT DISCLAIMER: This presentation is prepared solely for the purpose of providing general information about BAWAG P.S.K. Bank für Arbeit und Wirtschaft

und Österreichische Postsparkasse Aktiengesellschaft, Georg-Coch-Platz 2, 1018 Wien (“BAWAG P.S.K.“). The information does not constitute investment or other

advice or any solicitation to participate in investment business. This presentation does not constitute an offer or recommendation to purchase any securities or other

investments or financial products. In respect of any information provided past performances do not permit reliable conclusion to be drawn as to the future

performances. BAWAG P.S.K. does not make any representation, express or implied, as to the accuracy, reliability or completeness of the information contained in this

presentation. BAWAG P.S.K. disclaims all warranties, both express and implied, with regard to the information contained in this presentation. Actual results may vary

from forecasts and variations may be materially positive or negative. In no event shall BAWAG P.S.K. be liable for any loss, damages, costs or other expenses of any

kind (including, but not limited to, direct, indirect, consequential or special loss or loss of profit) arising out of or in connection with any use of, or any action taken in

reliance on, any information contained in this presentation. BAWAG P.S.K. assumes no obligation for updating the provided information in this presentation. The

content in this presentation are not to be relied upon as a substitute for professional advice. This presentation shall not be forwarded to any third party.


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Annex: Definitions

1) For prior reporting dates please refer to the definitions in the respective annual and quarterly reports.

B/S leverage Total assets / IFRS equity

Common Equity Tier 1 capital (CET1) Based on IFRS CRR regulatory figures (BAWAG P.S.K. Group) including

interim profit and year-to-date loan-loss provision movements,

excluding any transitional capital (fully loaded)

Common Equity Tier 1 capital ratio Common Equity Tier 1 capital (CET1) / risk-weighted assets

Cost-income ratio (C/I ratio) Operating expenses (OPEX) / operating income

IFRS equity Equity attributable to the owners of the parent; excluding participation

capital and minorities

Net interest margin (NIM) Net interest income (NII) / average total assets

NPL ratio Non-performing loans (NPLs) / loans and receivables (incl. provisions);

loans are not included in NPLs if no economic loss is expected1)

Regulatory leverage ratio Common Equity Tier 1 capital (CET1) / total exposure (calculation

according to CRR, based on Promontoria Sacher Holding N.V. Group)

Return on equity (RoE) Net profit / average IFRS equity

Return on risk-weighted assets (RoRWA) Net profit / average risk-weighted assets

Risk costs / loans and receivables (L&R) Provisions and loan-loss provisions as well as impairment losses

(total risk costs) / average loans and receivables (including provisions)

Risk-weighted assets (RWA) Based on IFRS CRR regulatory figures (BAWAG P.S.K. Group, fully loaded)

RWA density RWA / total assets

Total capital Based on IFRS CRR regulatory figures (BAWAG P.S.K. Group) including

interim profit and year-to-date loan-loss provision movements,

excluding any transitional capital (fully loaded)

Total capital ratio Total capital / risk-weighted assets

bawag p.s.k. mortgage covered bond update...network in partnership with austrian post with over 1.6m...

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