interim report at 30 june 2011 · interim report at 30 june 2011 4 the banking environment in the...

Interim Report at 30 June 2011

2Bank Austria · Interim Report at 30 June 2011

Contents

Bank Austria at a Glance 3

Interim Report at 30 June 2011 4The banking environment in the first half of 2011 4Bank Austria in the first half of 2011 7Financial position and capital resources 15Development of business segments 16Outlook 30

Consolidated Financial Statements in accordance with IFRSs 33Statement of Comprehensive Income for the first half of 2011 33Statement of Financial Position at 30 June 2011 35Statement of Changes in Equity 36Statement of Cash Flows 37Notes to the Consolidated Financial Statements 38

Notes to the income statement 41Notes to the statement of financial position 49Segment reporting 55Risk report 62Additional disclosures 63

Statement by Management on the Interim Report 65

Additional Information 66Investor Relations, ratings, imprint, notes 66


Bank Austria at a Glance

Income statement figures(€ m) H1 2011 H1 2010 +/–

Net interest 2,248 2,218 1.3%Net fees and commissions 922 988 –6.7%Net trading, hedging and fair value income 168 234 –28.0%Operating income 3,545 3,601 –1.6%Operating costs –1,941 –1,829 6.1%Operating profit 1,605 1,773 – 9.5%Net operating profit 900 877 2.6%Profit before tax 838 823 1.7%Net profit attributable to the owners of Bank Austria 640 459 39.5%

Key performance indicatorsH1 2011 2010

Return on equity after tax (ROE) 7.5% 4.5%Cost / income ratio 54.7% 52.3%Provisioning charge/avg. lending volume (cost of risk) 1.09% 1.44%Marginal Economic Value Added € 155 m € 194 m Marginal RARORAC 3.14% 2.28%Total capital ratio (based on all risks, end of period) 11.87% 12.13%Tier 1 capital ratio 10.34% 10.35%Tier 1 capital ratio without hybrid capital (Core Tier 1 capital ratio) 10.02% 10.04%

Volume figures(€ m) 30 june 2011 31 dec. 2010 +/–

Total assets 193,844 193,049 0.4%Loans and receivables with customers 131,617 130,093 1.2%Primary funds 128,721 127,839 0.7%Equity 17,998 17,476 3.0%Risk-weighted assets (overall) 125,187 127,906 –2.1%

Staff *)

30 june 2011 31 dec. 2010 +/–

Bank Austria (full-time equivalent) 59,539 59,653 –0.2%Central Eastern Europe business segment 51,495 51,616 –0.2%Other business segments 8,044 8,037 0.1%

Austria 7,896 7,889 0.1%*) Employees of companies accounted for under the proportionate consolidation method are included at 100%.

Offices *)

30 june 2011 31 dec. 2010 +/–

Bank Austria 3,013 3,033 –0.7%Central Eastern Europe business segment 2,715 2,734 –0.7%Other business segments 298 299 –0.3%

Austria 297 298 –0.3%*) Offices of companies accounted for under the proportionate consolidation method are included at 100%.



The strong momentum of the global economy seen in the first few months of the current year weakened temporarily in spring 2011, reflecting the impact of unforeseen events. Growth trends neverthe-less remain intact, with the world economy growing at an annualised rate of about 4%. As world trade expanded strongly in the first half of 2011, it again matched the pre-crisis level of 2008. However, differ-ences in growth rates and economic policies between the various world regions became even more pronounced. Emerging markets, primarily China, continued to drive global growth. Sentiment indicators recently signalled weaker trends here, too, but these resulted from anticyclical economic policies to avoid overheating. In industrial coun-tries, which benefited to varying degrees from the strong momentum of industrial activity, the transition from an export-led catching-up process to a self-sustaining upswing is making slow progress.

The slowdown from the first to the second quarter was due to cyclical factors and external shocks. This is reflected, for example, in com-modity prices: driven by strong demand, they rose by about 20% until the beginning of April 2011 and subsequently shed more than one half of that increase (S&P GS Index at the end of June up by 6% in the year to date and 35% higher year-on-year). Crude oil prices peaked at US$ 127.02 per barrel in the middle of April (driven, among other factors, by the risk of delivery shortfalls following major political changes in North Africa) and then fell to US$ 112.48 per barrel at the end of June 2011; at this level, oil prices were 19% higher than at the beginning of the year and 50% up on June 2010. The related absorption of purchasing power was a significant factor contributing to the economic slowdown in the second quarter of 2011. Apart from causing local losses and indirect consequences, the earthquake in Japan in the middle of March led to disruptions via global supply chains, which mainly affected US manufacturers. In more general terms, economic developments in the uS did not convey the impres-sion of a vigorous upswing: private consumption failed to pick up as deleveraging continued, the real estate sector languished and trends in purchasing power and employment were weak. After first quarter figures were revised downwards to almost nil growth (+0.4% on an annualised basis compared with the preceding quarter), real GDP in the second quarter also remained surprisingly low (1.3% p.a.). There-fore US monetary policy continued to be directed towards expansion (key interest rate still 0% to 0.25%).

Economic growth (annualised percentage change over preceding period)

2010 2011

Q1 Q2 Q3 Q4 Q1 Q2e H1e 2011p

USA 3.7 1.7 2.6 3.1 0.4 1.3 0.5 1.8Euro area 1.3 3.9 1.6 1.0 3.4 2.0 2.4 2.1… Germany 2.1 8.7 3.2 1.5 6.1 2.2 4.0 3.5… Austria 0.8 3.1 4.9 4.1 3.6 2.0 3.3 3.1

… e.g. Spain 0.4 1.3 –0.1 0.9 1.2 0.6 0.9 0.8

e) Preliminary figures, partly estimated. / f) UniCredit Research forecast.

Very strong growth in the first quarter of 2011 (+3.4% over Q4 2010, on an annualised basis) was followed by a slowdown in the euro area in the second quarter (to an estimated +2.0% p.a., see table), also due to special factors (weather, construction industry, scrapping premium in France). In the core European countries, led by Germany as the economy’s engine of growth, the effects of export-driven industrial activity spread to domestic demand (capacity utilisa-tion, employment, incomes). Economic growth in southern European countries, on the other hand, was modest (e.g. in Spain, see table). Consolidation programmes weighed down economic growth, not only in Greece. The debt crisis escalated, the banking sector in some countries is highly exposed, and the real divergence continued to exist within the euro area. Nevertheless, as expected, the ECB raised its key interest rate from 1.0% to 1.50% in April and July while main-taining the generous – de facto unlimited – supply of liquidity to banks. The asynchronous pattern of monetary policy affected the US dollar, which followed the expected interest rate differential and depreciated against the euro by 4.7% in the first six months of 2011 (end of June: down by 15.6% year-on-year).

Financial markets reflected the cumulative effects of the eco-nomic slowdown, the sovereign debt crisis and doubts about mone-tary stability. While the first quarter of 2011 saw small gains in the world stock index and most regional indices, including those in emerging markets, the trend reversed in the second quarter. At the end of June 2011, the MSCI World index was only 1% higher than at the beginning of the year. After the reporting period it tumbled in July and August. The government debt crisis led to extreme spreads: in the middle of June, interest rates offered by Greece reached a first peak (+19 percentage points over 5-year benchmark bond/+26% over 2-year) and continued to rise until recently, when various reschedul-ing options came to be seen as possibilities. At the end of June, 2 /5/10-year maturities were quoted at 70.6/53.9/51.7, respectively (in per cent). When the ratings of Portugal and Ireland were down-graded, this caused risk premiums to rise for other highly indebted countries, too – partly regardless of their fundamental data and cur-rent budget situation. With the support package for Greece of 21 July 2011 the crisis eased only temporarily; most recently it threatened to spread to large industrial countries. Long-term interest rates also show the dramatic development of the debt crisis: from the beginning of 2011 to early April, the 10-year euro benchmark yield rose by over 50 basis points to 3.49%. Then the flight to quality sent it down to 3.01% at the end of June and to a level significantly below 2.50% at the beginning of August. As money market rates climbed, the yield curve flattened on both sides after having steepened in the first few months of the year. This translated into lower income from maturity transformation for banks. At the same time, interest rate spreads on bank bonds rose again in the course of the second quarter, making liquidity more expensive. The sharp rise in the price of gold reflected fears among large groups of investors over the relaxed US monetary policy, worldwide

The banking environment in the first half of 2011





central bank intervention and the outlook for the euro area. The price of gold reached a first peak at the beginning of May, at US$ 1,576 per ounce, before rising further to US$ 1,660 per ounce (+17.0% in the year to date) in the period to the editorial close of this report. The Swiss franc, credited with being a safe haven during a crisis, appreci-ated steadily (end of June 2011: 1.22 CHF/EUR; +2.5% compared with year-end 2010 and +8.9% year-on-year), and subsequently con-tinued to rise to a level below 1.10 CHF/EUR (+13.5% and +19.8%, respectively).

Economic growth in Austria also slowed perceptibly, in line with developments in the country’s major export markets. In the first quar-ter of 2011, real GDP expanded strongly (up by 0.9%, or 3.6% on an annualised basis, on the preceding quarter), thereby exceeding the pre-crisis level much earlier than originally expected. Growth in the second quarter of 2011 is estimated to have reached 0.4% (an annu-alised 1.8%), only about half the rate achieved in the first three months. Exports, which accounted for almost two-thirds of economic growth in the early part of the year, increased more slowly in recent months. While domestic demand showed a stable upward trend, it was not strong enough to maintain economic growth at the export-driven level seen in early 2011. Austrian industry’s buoyant mood in the first few months subsided. Order levels continued to grow, though at steadily declining rates. On the other hand, private consumption recorded significant growth supported by more favourable labour mar-ket data (in the first half of 2011, the number of employed persons rose by 60,000 or 1.8% compared with a year earlier), good income trends and the declining savings ratio. Investment activity has intensi-fied since the middle of 2010, driven by backlog demand for invest-ment in equipment, as the rate of capacity utilisation has already risen above the pre-crisis level. In the first half of 2011, although growth weakened from the first to the second quarter, Austria’s GDP grew by 3.8% in real terms compared with the same period of the previous year (up by an annualised 3.3% on the second half of 2010). This is the highest growth rate seen since the beginning of 2007.

Credit expansion in Austria nevertheless remained moderate and lend-ing volume stagnated in the first six months of 2011 (+2.5% from May 2010 to May 2011; but adjusted for exchange rate movements, lending volume stagnated over the 12-month period). Although the economy was booming, credit demand from the business sector stag-nated as industrial companies’ strong financial position led to a high level of internal financing. Yet the volume of new issues of corporate bonds rose. Consumer loans continued to decline, while housing loans grew by about 1% compared with the end of the previous year and were about 3% higher than a year earlier (both figures adjusted for exchange rate changes). Overall, financial assets held by private households rose modestly; given the low level of interest rates, growth focused on bonds issued by banks. Private households reduced their investments in equities and mutual funds in net terms, a development which reflects uncertainty among investors and may also be an early response to the introduction of the Austrian tax on capital gains.

The economies in central and eastern europe, where the marked catching-up process which characterised 2010 continued in the first quarter of 2011, recorded slightly lower growth in the second quarter of 2011. This slowdown will probably be only temporary. Following strong expansion, industrial output returned to the long-term growth path. In the first six months of 2011, real GDP nevertheless significantly exceeded the figure for the same period of the previous year, suggesting that growth for the year as a whole will exceed 4%. Developments in most countries are characterised by an export-driven upswing while domestic demand is picking up more slowly. While investment in equipment in export-oriented economies has increased, rising inflation rates in a number of countries are having a negative

impact on private purchasing power and consumption. Although government debt levels in CEE (about 40%) are comparatively low, budget consolidation measures have been intensified throughout the region, especially in response to the sovereign debt crisis in the West and also in connection with IMF programmes and several countries’ prospect of EU accession. Capital inflows increased again but their structure deteriorated – more short-term portfolio investments/ less direct investment than in previous years. Measured by risk premiums and interest rate spreads, the CEE countries were hardly affected by the EU government debt crisis.

Economic trends continued to vary widely in the individual regions and countries, depending on their respective focal areas of produc-tion. Turkey has reached an advanced stage of the business cycle: most recently, economic growth may have slowed to between 9% and 10%, from 11% in the first quarter of 2011. In Turkey, wages and salaries are rising more strongly than in other countries, and domestic demand is booming across all sectors. As export perform-ance is weak, however, the country’s current account shows a large deficit. The Turkish central bank is using an unorthodox policy mix to reduce credit expansion from about 35% to 25% (by raising mini-mum reserve ratios, among other measures) while also fending off

Weekly; 5-year CDS. 1) Tradable SovX CDS index for 15 countries including 9 AAA-rated countries; including UK and Norway. / 2) Tradable SovX CDS index 15 CEEMEA countries including Abu Dhabi, Dubai, Qatar, Israel and South Africa; from May 2010, previously major CEE countries

0

50

100

150

200

250

300

CDS Western Europe (SovX WE)1)

CDS CEE (SovX CEEMEA)2)

2011Q3 Q4Q1 Q2 Q1 Q2

2010

CDS spreads – Western Europe and CEEMEA



undesirable short-term capital inflows (e.g. through low interest rates and intervention). The Turkish banking industry operates in a difficult environment but in a market characterised by strong growth.

The economy in the CIS countries benefited from worldwide increases in energy and commodity prices in the first half of 2011 (although the resulting inflationary pressure adversely affected private households). Russia was still lagging behind the general recovery. Real incomes in the country stagnated in the first six months of 2011, as a result of repercussions of the crop failure in the previous year, energy price increases and temporarily also increases in tax rates. In Ukraine, economic growth was driven by domestic demand. Significant wage increases, growing investments, capital inflows and structural reforms carried out to meet conditions imposed by the IMF supported the econ-omy. Domestic demand was the mainstay of growth in Kazakh stan, too, where the economy is expected to expand by 6.5% in 2011 (after 7.0% in the previous year). Based on the strong commodity industry and gov-ernment programmes for modernisation, infrastructure improvement and industrialisation, large wage increases boosted consumption and invest-ments. The country’s budget and its current account show significant surpluses, and foreign direct investment is increasing. But loan losses are still at a high level, with the NPL ratio exceeding 30%, and lending volume is hardly growing, despite the inflationary environment.

The economic momentum in the Central European EU member coun-tries weakened slightly, after a very dynamic first quarter of 2011. Industrial output nevertheless remained at a high level. Investment projects which were postponed in the past are now being imple-mented, also with the use of EU financial assistance. Growth was mainly driven by the strong performance of export-oriented companies. Domestic demand recovered hesitantly in the first half of 2011 as gov-ernments undertook consolidation efforts (especially the Czech Repub-lic) or carried out tax reforms (primarily Hungary) and private house-holds’ indebtedness was at a high level (Slovenia). Inflows of direct investment started to rise again with the implementation of major long-term projects in the automotive industry. Credit expansion, though accelerating somewhat in connection with growing investment in equipment, remained weak overall. Hungary’s current account surplus continued to rise; the local banking sector recently felt the impact of the Swiss franc’s strength, despite effective currency appreciation.

Among the countries in South-East Europe (SEE), Romania gradually recovered from the crisis, with positive economic growth driven by exports while domestic demand remained weak; as a result, the coun-try’s current account deficit declined. There is strong catching-up potential in the area of infrastructure. The government is considering reforms and liberalisation steps, also in response to conditions imposed by the IMF. Privatisation projects are intended to attract direct investors. The general trend towards consolidation made it possible to raise the rating to investment grade. In Bulgaria, economic develop-ments are also too strongly dependent on international export demand. This led to the usual weakening of growth in the first six months of

2011. Labour market problems and inflation have an adverse impact on domestic business activity. Capital inflows have so far been dis-appointing, despite the currency board and although the country’s income tax rate is the lowest in Europe; therefore, international bor-rowing by the corporate sector is at a high level. Croatia’s economic performance improved slightly in the second quarter of 2011. Invest-ment activity picked up. The country is carrying out structural adjust-ments, hoping that accession to the EU will give impetus to the economy. Private households are making efforts to reduce their debt (deleveraging), real incomes are declining and the government contin-ues to pursue consolidation (after taking over ailing industries). In Bosnia and Herzegovina, industrial output recovered while inflationary pressure and the current account deficit rose. Interrupted projects under the IMF standby agreement and the EU accession process may soon be resumed. Serbia has also moved closer to EU accession can-didate status. Among the Baltic countries, Estonia (which joined the euro area at the beginning of 2011) and Latvia – and also Lithuania, with some delay – achieved a strong turnaround, which started to spread to domestic demand in the first half of 2011, supported by close trading relations with Nordic countries and by direct investment.

After strong appreciation against the euro in the first six months of 2010, cee currencies as a whole started to depreciate in summer 2010, with some fluctuations. In average terms for the first half of 2011, CEE currency depreciation (weighted by contribution to operat-ing income) was 2.5% (the overall decline from the end of 2010 to the end of June 2011 was roughly the same, at 2.3%). Currency movements against the US dollar more or less mirrored this trend (+3.0%). Only the currencies of the Czech Republic (+5.7%) and Hungary (+0.8%) were stronger against the euro in a half-year /year-on-year comparison. The currencies of all other countries depreciated against the euro, especially those whose exchange rate regime is guided also by the US dollar. The Turkish lira recorded the largest decline in value against the euro (average: –8.4%/ first six months: –11.9%), not least on account of measures aimed at fending off speculative inflows; given the size of the Turkish banking unit, this development had a significant influence on the income statement of Bank Austria’s CEE business segment.

CEE currency movements (Index H1 2010 average =100)

… against the US dollar

2010 2011Q3 Q4Q1 Q2 Q1 Q2

92

94

96

98

100

102

104

106

108

avg.

avg.

avg.

Appreciation/depreciation against the euro, weighted by contribution to CEE operating income of Bank Austria

in H1 2010 (excluding Poland)



Bank Austria in the first half of 2011

OverviewAs expected, the economic environment – in combination with the recent escalation of the government debt crisis and stricter regulatory requirements – had a strong influence on Bank Austria’s performance in the past few quarters. Trends in the real economy and in the mone-tary sector determined developments in operating activities (volume/demand, changes in the interest rate environment, investor decisions) and income components. Business volume and revenues of Bank Aus-tria recovered strongly in the past six quarters; a slight – probably tem-porary – weakening in the second quarter of 2011 does not affect the overall picture to any great extent. Repercussions of the financial market crisis in 2008/2009 have tapered off, and net write-downs of loans and provisions for guarantees and commitments have declined substantially to date. These developments characterised the Austrian business seg-ments and CEE as a whole, with the usual variations in intensity.

The stable upward trend in banking business in the countries covered by our network contrasted with the gradual escalation of the sovereign debt crisis. This led to volatility in interest-rate and currency markets, and caused investors to view developments with strong scepticism; ulti-mately, the government debt crisis also had a direct effect: banks’ par-ticipation in the package for Greece also led to valuation adjustments at Bank Austria with an impact on the income statement. Among the non-operating items, primarily net income from investments, these negative effects more than offset a number of one-off income items. Moreover, in addition to the bank levies, further restrictive regulations in some coun-tries impacted profitability (as reflected in various items in the income statement and in the financial statements of banks in some countries).

Income statement for the first half of 2011 (€ m)

Q1 2011 Q2 2011 H1 2011cHAnge on prev. yeAr 1)

Operating income 1,801 1,744 3,545 +44 +1%

Operating costs – 950 – 990 –1,941 –115 +6%Net write-downs of loans and provisions for guarantees and commitments –376 –329 –705 +191 –21%

Net operating profit 2) 475 425 900 +120 +15%

Non-operating items 3) –134 –26 –160 +198 –63%

Net profit 4) (before Greece) 341 399 740 +317 +75%

Greece-related effect, net 4) –100 –100 –100

Net profit 4) 341 299 640 +218 +52%compared with original figures for 2010:Net profit 4) 341 299 640 +181 +39%

1) Comparative figures for 2010 restated to reflect the current consolidation perimeter (mainly determined by deconsolidation of CAIB). / 2) Operating profit less net write-downs of loans and provisions for guarantees and commitments. / 3) Provisions for risks and charges, integration costs, net income from investments, income tax, non-controlling interests, Purchase Price Allocation effect, goodwill impairment; Greece-related effect and income tax thereon shown separately. / 4) Net profit attributable to the owners of Bank Austria.

➔ Bank Austria performed well against this background in the first half of 2011: net profit improved by about one-third to € 640 m (+39%) as against the published figure for the same period of the previous year. Compared with the adjusted figures (reflecting the

current consolidation perimeter) for the previous year, net profit rose by one-half, without the Greece-related effect by three-quarters. In this context one should note that the revenue trend had just passed the lowest point in the first half of 2010. In other words, the high growth rates should not obscure the fact that Bank Austria has not yet returned to the level of profitability seen in the years before the finan-cial market crisis. Although net profit rose strongly, the bank’s ROE after tax, at 7.5%, is still well below the return on equity which would be needed for a sustained build-up of capital buffers and additional capital to support business growth, and which would also be required from the perspective of the providers of capital.

Recent quarterly trends Quarter-to-quarter developments in the past one and a half years show an initial strong increase in volume and revenues following the decline caused by the crisis in 2009; subsequently, growth slowed to a more moderate level. From the end of 2009 to the middle of 2011, the average volume of loans to customers grew by about 6%. In the second quarter of 2011 it was 0.6% higher than in the preced-ing quarter and up by 2% on a year earlier. All of the expansion took place in CEE: Q2 2011 +15% since year-end 2009/+1% over Q1 2011/+5% over Q2 2010. In the Austrian customer business segments, customer lending volume has stagnated for a long time.

Performance generated by the bank as a whole = net profit attributable to the owners of Bank Austria2)

Quarterly trends in the past years

€ m

€ bnAverage lending volume

1) Customer business segments = Austria (F&SME, PB and CIB) and CEE = Bank Austria without Corporate Center. / 2) Difference compared with operating profit of customer business segments = operating profit of Corporate Center; provisions for risks and charges, integration costs, net income from investments and goodwill impairment as well as income tax and non-controlling interests. / 3) Impairment losses on goodwill

Q22009 2010 2011

Q3 Q4 Q3 Q4Q1Q1 Q1Q2 Q2–50

050

100150200250300350400450500550600650700 121

122123124125126127128129130

131

128

549

170 14670

204

317

218

–14

299

341326

467

809

282

392

470513

411

125

123 124

128.1128.7 128.9

130.1129.3

3)

3)

Net operating profit of customer business segments1)

3)

Greece-relatedeffect

532533



The bank’s operating performance moved in line with volume trends (see chart). net operating profit of customer business segments has shown an upward trend since the end of 2009; in the second quarter of 2011 it amounted to € 532 m, up by 13% on Q2 2010. (If the Corporate Center is included in the calculation, the figure declined by 10% from Q1 to Q2 2011 and also in a year-on-year comparison, but this was mainly due to Bank Austria’s participation in profits of the Markets product line of UniCredit’s CIB Division pursuant to the terms and conditions of the sale of CAIB.)

The improvement in operating performance in customer business in Austria and CEE was based on the following factors: operating income in the customer business segments did not change from Q1 to Q2 2011 (+0%) and was also more or less unchanged compared with the previous year’s level (–1%). Within the total figure, an improvement in net interest – resulting from a slight increase in volume in the new interest rate environment – offset the continued decline in net fees and commissions, which was due to particularly low turnover. The cost side reflected market initia-tives in Austria and CEE: operating costs in the customer business segments increased by 5% from Q1 to Q2 2011 (and also in a year-on-year comparison), as the number of staff serving customers in Austria was increased and in CEE the branch network was optimised and higher inflation led to higher wage increases in some countries. The decline in net write-downs of loans and provisions for guar-antees and commitments reflects a return to normal levels after the financial market crisis and the recession, as well as the bank’s own measures to improve asset quality. In the second quarter of 2011, the provisioning charge declined to € 329 m, from € 376 m in Q1 2011 and € 457 m in Q2 2010. This means that the decrease (of € 128 m or 28% compared with Q2 2010) was the main factor contributing to the improvement in operating performance.

Continued stabilisation in the financial sector and companies’ improved financial position were reflected in non-operating items. Net additions to provisions for risks and charges declined from Q1 to Q2 2011 and also from H1 2010 to H1 2011. Special income of € 93 m included in the item “net income from investments” made it easier to absorb the unexpected burden of € 130 m, also reflected in this item, which resulted from the Greek debt crisis.

The European Council decisions made on 21 July 2011 to support greece were for the first time accompanied by an offer for the par-ticipation of private investors. The proposal made by international banks comprises the voluntary exchange of existing Greek govern-ment bonds into up to four alternative tranches of long-term instru-ments with reduced interest coupons and various guarantees as well as a debt buyback programme. While details are yet to be defined, this option of a debt rescheduling (which was previously ruled out),

though voluntary, suggests an impairment loss on the exposure to Greek government bonds. In the consolidated financial statements for the first six months of 2011, Bank Austria has therefore made a write-down on its holdings of Greek government bonds, which the parent company UniCredit Bank Austria and CEE banking sub-sidiaries have held in the banking book for a long time. The write-down had an impact of € 130 m on the item “net income from investments”, and the (net) impact on net profit was € 100 m. Of the total write-down of € 130 m, € 47 m relates to the Central Eastern Europe (CEE) Division and the remaining amount to the Austrian business segments.

The components of operating income showed a steady moderate upward trend from Q1 to Q2 2011, and non-operating items including net income from investments accrued in the reporting period also made positive contributions to profits. It was the impact of the Greece-related effect alone that led to a decline of € 61 m or 14 % in profit before tax (Q2 2011: € 388 m) compared with Q1 2011; the year-on-year decrease (based on the restated figure for Q2 2010) was € 82 m or 18%. An additional impact on Bank Austria’s profits in the second quarter of 2011 came from an impairment loss of € 50 m on goodwill in connection with the re orientation of CJSC UniCredit Securities (previously ATON), our Russian brokerage firm. A year earlier, the goodwill impairment charge was even higher (€ 167 m in connection with the reassess-ment of the outlook in Kazakhstan). Net profit attributable to the owners of Bank Austria for the second quarter of 2011 was € 299 m, down by € 42 m from the Q1 2011 figure but € 95 m higher than in Q2 2010. This means that the unforeseeable impact of the Greece-related effect does not affect the overall picture of an upward trend in Bank Austria’s performance.

Total assets declined slightly from year-end 2010 to the end of March 2011, but then increased again by almost 2% to € 193.8 bn at the end of June, thus exceeding the year-end 2010 level. The structure of total assets continued to improve: the proportion of customer business rose further, especially in the second quarter of 2011, while trading-related items continued to fall. From the end of March to the end of June 2011, equity increased by 3.4% to € 17,998 m. Leverage (without intangibles) continued to decline, to 13.2 in June 2011 compared with 14.2 a year earlier. capital ratios rose strongly as a result of the capital increase carried out more than a year ago; since then they have hardly changed. At the end of June 2011 the Tier 1 capital ratio pursuant to the Austrian Banking Act was 10.34%, the Core Tier 1 capital ratio (excluding hybrid capital) was 10.02%. This means that Bank Austria is well positioned to meet the stricter requirements of Basel 3, with regard to the levels of capital ratios and in respect of quality (very low proportion of hybrid capital, no participation capital).



Details of the income statement for the first half of 2011Bank Austria’s operating performance in the first six months of 2011 was strong, enabling the bank to achieve significant profit growth compared with the same period of the previous year, despite the above-mentioned adverse impact of non-operating items. net operat-ing profit reached € 900 m. A comparison with adjusted figures for the first half of the previous year1), on which the following commen-tary is based, shows that net operating profit rose by € 120 m or 15%. The major part of this improvement came from the Central Eastern Europe (CEE) business segment, where net operating profit was up by 28%. Austrian customer business (comprising Family & SME Banking, Private Banking and Corporate & Investment Banking) also contributed to the overall improvement by generating a significant increase of 15% in net operating profit. As transaction volume in financial markets declined strongly in the past few months, Bank Aus-tria’s participation in profits of UniCredit’s Markets product line was lower than in the previous year. On this basis, the contribution from the Corporate Center was lower than in the first six months of 2010.

net interest, at € 2,248 m, was the most important income com-ponent (accounting for 63% of operating income). While being affected by weak demand and the renewed flattening of the yield curve in the past three months, net interest matched the level of the first half of the previous year (+ € 52 m or 2%). This reflected developments which partly moved in opposite directions. In Central and Eastern Europe, lending volume increased from quarter to quarter, reaching a level in the first half of 2011 which exceeded the previous year’s figure by 7%. But as the interest margin in CEE declined, net interest grew by only 1%, or 3% at constant exchange rates, which is unusually low by CEE standards. Nevertheless, the interest margin (492 basis points of aver-age lending volume) is about double the figure for the mature Austrian market. In some CEE countries, restrictive economic and monetary policy measures had an impact on volume trends and interest rate developments, primarily in Turkey; in some countries, major industrial companies withdrew short-term bank deposits.

Net interest generated by Austrian customer business was mainly determined by interest rate developments in the past few months and by the fact that credit demand stagnated. Short-term interest rates rose steadily throughout the year, while interest rates for medium-term to long-term maturities started to decline in March; as a result, the yield curve flattened. This benefited the deposit side (although short-term deposits declined) while lending business remained under pres-sure. Net interest in the three Austrian customer business segments (€ 780 m) was slightly above the previous year’s level (+1%).

1) In this restatement the comparative figures for the previous year have been adjusted to reflect the current consolidation perimeter; this mainly involves eliminating the income statement items of UniCredit CAIB, which was sold on an intra-group basis in May 2010. The restatement differences compared with the original figures are shown in the notes to the consolidated financial statements on page 58 of this report. For net profit attributable to the owners of Bank Austria, the restatement difference for the first half of 2010 is € 36 m.

Changes in major items of the income statement compared with the previous year (changes in € m)

Net interest income1)

Net fees and commissions

Net trading, hedging and fair value income, and net other expenses/ income

Operating income

Operating costs

Net write-downs of loans and provisions for guarantees and commitments

Net operating profit2)

Non-operating items3)

Greece-related effect

Profit before tax

Other items, mainly goodwill impairment4)

Net profit (restated)

Net profit (as published)

1) Net interest + dividend income and other income from equity investments. / 2) Operating profit less write-down of loans and provisions for guarantees and commitments. / 3) Provisions for risks and charges (+ € 59 m), integration costs (€ 0 m), net income from investments (without Greece-related effect: + € 63 m) / 4) Income tax (– € 1 m), PPA effect (– € 4 m), goodwill impairment (+ € 115 m).

–150 –100 –50 0 50 100 150 200 250

+71

–63

–115

–130

+35

+44

+191

+120

+122

+112

+106

+218

+181



Dividend income and other income from equity investments (€ 102 m) in the first half of 2011 was higher than a year earlier (+ € 19 m or +23%), reflecting the favourable development of our equity interest in UniCredit Leasing and the turnaround in performance of real estate companies. The income components are shown separately, without any sub-totals, in our new Group-wide format for the income state-ment. If dividend income and other income from equity investments is added to net interest, net interest income in a wider sense for the first six months of 2011 increased by 3% over the previous year.

Given profound uncertainty and a lack of guidance – described above in the section on “The banking environment” – in the past months (government debt crisis, monetary policy, exchange rate volatility, etc.), private and corporate customers showed pronounced restraint in their investment decisions. As a result, transaction volume declined sharply, especially in securities business and hedging trans-actions but also in commercial services, and this had an impact on fee-based income. net fees and commissions in the first six months of 2011 thus fell by 6% to € 922 m, declining mainly in Austria across all customer segments by a combined 7%. Central and Eastern Europe was again characterised by significant regional variations; overall, net fees and commissions rose by a modest 2%, despite the rapid advance of modern banking services including credit cards and electronic payments.

Bank Austria’s net trading, hedging and fair value income is to be seen in the context of the reorientation implemented over the past few years in financial market trading activities to focus on customer-driven business. As part of the bundling of trading operations within UniCredit Bank AG (the former Bayerische Hypo- und Vereinsbank AG) CAIB was restructured and sold on an intra-group basis in May 2010; under the terms and conditions of the sale, Bank Austria par-ticipates in current profits of UniCredit’s Markets product line. For this reason, from that date onwards, the restated comparative figures for the previous year no longer include the contribution from CAIB but the participation – reflected in the Corporate Center – in profits of the Markets product line, which was significantly lower (by € 39 m) in the first half of 2011 than in the same period of the previous year. Customer-driven financial market transactions, which remained in the Corporate & Investment Banking (CIB) Division, generated a net profit of € 7 m in the first half of 2011, after a net loss in the first six months of 2010, resulting in a positive swing of € 32 m. Net trading, hedging and fair value income in the CEE business segment was € 73 m, more than double the figure for the first half of the previous year, due to strong performance in Turkey and Russia; the economic situation in both countries is characterised by special circumstances, with strong demand for international capital market transactions and hedging transactions. Overall, net trading, hedging and fair value income amounted to € 168 m (up by 11% on an adjusted basis, but down by 28% on the basis of reported figures).

➔ operating income totalled € 3,545 m, a slight increase of 1% over the same period of the previous year although the contribution from UniCredit’s Markets product line was much lower. In a longer-term comparison, operating income rose by 5% compared with the second half of 2009, which marked the low point in the recession, and exceeded the pre-crisis figure for the first half of 2008 by 10%.

H1 2011 in a longer-term comparison (€ m)

H1 2011 cHAnge In % on…

H1 2010 H2 2009 H1 2008

Operating income *) 3,545 +1% +5% +10%Operating profit 1,605 –4% +0% +21%Net write-downs of loans and provisions for guarantees and commitments –705 –21% 1) –44% +114%Net operating profit 900 +15% +169% –10%Profit before tax 838 +15% +200% –35%

*) Minus = reduction of net write-downs of loans and provisions for guarantees and commitments = positive change.

operating costs (€ 1,941 m) in the first half of 2011 were up by € 115 m or 6% on the same period of the previous year (reflect-ing the consolidation perimeter in 2011). Basically, cost growth was due to three factors: the bank’s initiatives to expand its market position in Austria and in promising CEE countries; higher wage increases in the banking sector in a number of CEE countries in response to higher local inflation rates; and the bank levies, which are included in the item “other administrative expenses” and which amounted to € 38.8 m in Austria and € 15.4 m in Hungary. Costs in Austria, including the Corporate Center, rose by 8%; without the bank levy, the increase at UniCredit Bank Austria AG and domestic banking subsidiaries was only 3%. The number of staff serving customers in the Austrian branch network was increased; the staff increase in customer business (+236 FTEs in June year-on-year) compares with a reduction of 80 FTEs in the Corporate Center, which resulted from the integration of 223 FTEs from Divisions into central Competence Lines and from the contracting out of 303 FTEs as part of cooperation with IBM in computer operations and IT development. In Austria, staff numbers were up by 156 FTEs on the level a year earlier. In Central and Eastern Europe, the number of branches and employees remained more or less stable, but underly-ing changes are reflected in costs: the branch network in several countries was further expanded, and a multiple presence in some regions was reduced (see CEE segment commentary). In CEE the bank levy – for the time being payable in Hungary only – amounted to over € 15 m. In the first half of 2011, the cost / income ratio for Bank Austria as a whole was 54.7% (compared with 52.1% in the previous year). The cost / income ratio in the CEE business segment remained better, at 46.5% (compared with 46.1% in the same period of the previous year).



Bank Austria’s income statement reflects the improvement in the economic environment since 2008/2009 primarily in the form of lower net write-downs of loans and provisions for guarantees and commitments, and less in new business as was the case in earlier cycles. Since 2010, the provisioning charge has declined: while revenues show comparatively moderate growth, a larger pro-portion of operating income feeds through to profits.

This trend, which was temporarily interrupted by a weaker fourth quarter of 2010, continued and intensified in the first and second quarters of 2011. Net write-downs of loans and provisions for guar-antees and commitments in the first half of 2011 totalled € 705 m, down by € 191 m or 21% from a year earlier (see table). A longer-term comparison of half-year results provides indications of a gradual return to normal levels: while the provisioning charge declined by 44% or € 558 m compared with the peak level seen in the second half of 2009, the figure for the first half of 2011 was still more than double (+114% or + € 376 m) the provisioning charge recorded in the last half-year before the financial market crisis broke out (€ 329 m). The cost of risk (provisioning charge as a proportion of average lending volume in the period) fell to a level of 109 basis points (109 bp = 1.09%) in H1 2011; the peak was seen in the sec-ond half of 2009, when the cost of risk reached 209 bp, while the figure for the first half of 2008 was a low 54 bp.

Over one quarter (26%) of the provisioning charge for the first half of 2011 related to Austria while CEE accounted for close to three-quar-ters (mainly booked locally, partly at the Vienna-based CEE head-quarters, but always in the CEE business segment). In Austria, the provisioning charge in the first six months of 2011 was € 184 m, down by 28% from the H1 2010 figure (€ 255 m). The decline was due in equal measure to corporate banking and business with private customers. The CIB Division, which serves large corporate customers, recorded a very satisfactory trend resulting from overall economic performance and far-sighted risk management during the periods that were more difficult. While the provisioning charge in the CIB Division was slightly higher than in the second half of 2010, this reflects the accelerated reduction of large-volume loan loss provi-sions made in preceding years. In CIB the cost of risk for the first half of 2011 was 38 bp; the figure for the second quarter of 2011 was as low as 32 bp.

In the F&SME Division, which has included small and medium-sized enterprises (SMEs) since the beginning of 2011 (figures for 2010 have been restated), quality improvements achieved in the Small Businesses sub-segment in the previous year were maintained – the provisioning charge for this sub-segment had declined by one-half in 2010. Particular attention was given, together with customers, to risk management of loans denominated in Swiss francs and this proved very effective as the Swiss franc continued to strengthen against the

euro. The cost of risk in F&SME for the first half of 2011 was 94 bp (H1 2010: 130 bp), in the second quarter of 2011 it was 87 bp. The decline in net write-downs of loans and provisions for guaran-tees and commitments in the course of 2011 is also explained by an adjustment of model parameters under Basel 2 (in the calculation of risk weights for business with private customers) which has become possible not least on the basis of the more favourable risk profile and refined measurement methodologies.

Net write-downs of loans and provisions for guarantees and commitments (€ m)

H1 2011 H1 2010 +/– € m +/– %

Bank Austria as a whole 1) 705 896 –191 –21%… Austria 2) 184 255 –71 –28%… CEE 520 641 –121 –19%

cost of risk (basis points) 3)

Bank Austria as a whole 109 bp 142 bp –33 bp… Austria 2) 58 bp 79 bp –21 bp… CEE 157bp 208 bp –51 bp

1) Business segment figures restated (no difference compared with original figures at overall bank level. 2) Three customer business segments plus Corporate Center. 3) Provisioning charge / average loans to customers (net).

Net write-downs of loans and provisions for guarantees and commit-ments in central and eastern europe declined by 19% to € 520 m compared with the same period of the previous year. At this level, the provisioning charge was half the figure for the second half of 2009, when it exceeded one billion euros (€ 1,010 m). The cost of risk declined to 157 bp (H1 2010: 208 bp, peak in H2 2009: 346 bp). The strong decline in the provisioning charge is based on economic trends, local restructuring measures and the gradual improvement in asset quality. In some countries, methodological factors (IFRS harmo-nisation, Basel 2 implementation) have also had a non-recurrent favourable effect. In Turkey the provisioning charge decreased signifi-cantly a year earlier, other countries will yet experience a turn for the better in terms of asset quality. This means that the decline in the provisioning charge seen in the past few quarters cannot be expected to continue at the same pace. The provisioning charge for Kazakhstan, Ukraine and the Baltic countries in the first half of 2011 (including the provisioning charge booked at the Vienna-based CEE headquarters which is attributable to these countries) was € 197 m, down by € 154 m from the comparative figure for the same period of the previous year. The situation in these countries continues to stabi-lise; they account for about one-eighth of CEE lending volume and 38% of the overall provisioning charge for CEE. South-East Europe (SEE) was lagging behind in the credit cycle in 2010 and in 2011 to date, but it presents a mixed picture: while the provisioning charge in Romania was unchanged compared with the same period of the previous year, the cost of risk in that country was still relatively high (317 bp); Bulgaria experienced a further deterioration but the trend



improved from the first to the second quarter of 2011, with the cost of risk (230 bp) lower in absolute terms. In Croatia, on the other hand, the provisioning charge declined by 23% and the cost of risk fell to 102 bp, though Q2 compared unfavourably with Q1 2011. The situation in Russia improved significantly, in line with the eco-nomic environment (provisioning charge down by 30%, cost of risk at 125 bp). Turkey, which is far ahead of other countries in the cycle, is a special case: asset quality in the country improved substantially in the early part of 2010; debt collection efforts were successful, and loan loss provisions remained stable. In the first half of 2011 there was a net release of loan loss provisions following large recoveries on loans previously written off.

The NPL ratio, i. e. non-performing loans measured as a percentage of gross lending volume, continued to rise – a development usually seen at the end of a credit cycle – as the workout progressed, but the rate of growth declined; in June 2011 the NPL ratio was 4.8%, up by 0.2 percentage points on year-end 2010 and 0.7% higher than in June 2010 (then at 4.1%). Specific write-downs covered 64.3% of NPLs in June 2011; this means that the coverage ratio was slightly higher than in December 2010 (62.6%). The proportion of impaired loans, the broadest definition of problem loans, rose more strongly (see table), a development which was exclusively due to a regulatory adjustment in CEE, namely the obligation to continue to report a loan which has been successfully restructured as impaired for at least another year. This rule – which is stricter than the relevant Austrian regulations – was applied to CEE loans for the first time at the beginning of 2011. The increase in impaired loans resulted from the regulatory adjustment, and this leads to a break in the time series. As write-downs on restructured loans represent a much lower proportion of the gross amounts, the coverage ratio for impaired loans declined but this decrease was due to methodological adjustments.

Asset qualityend oF perIod june 2011 dec. 2010 june 2010

Loans to customers (gross), € bn 138.9 137.0 136.3Write-downs, € bn 7.3 6.9 6.6

Impaired loans (gross) 13.61)

12.5 11.9as a percentage of loans to customers 9.8% 9.1% 8.7%… covered by specific write-downs 47.5% 48.4% 48.7%

of which: non-performing loans 6.7 6.4 5.5as a percentage of loans to customers 4.8% 4.6% 4.1%… covered by specific write-downs 64.3% 62.6% 69.1%

1) Break in time series due to regulatory change relating to CEE (see commentary).

net operating profit amounted to € 900 m (up by € 120 m or 15%). non-operating items deducted from net operating profit to arrive at the profit for the period were € 62 m. Within these non-operating items, the net addition to provisions for risks and charges (€ 31 m) in the first half of 2011 was down by € 59 m from the previous year. Integration costs (€ 2 m) were more or less unchanged. The item net income from investments showed a net loss of € 29 m compared with net income of € 38 m in the same period of the previous year. Positive factors in the first six months of 2011 included a revaluation gain resulting from the restructuring of the Moscow Interbank Currency Exchange (MICEX) Group, in which our Russian banking subsidiary holds an equity interest, and realised gains in connection with an addition to our shareholding interest in CA Immo, a real estate investment com-pany, as well as a generally favourable performance of invest-ments. Net income from investments of about € 100 m turned into a net loss through the write-down of € 130 m on Greek bonds as at 30 June 2011. For this reason, profit before tax for the first half of 2011 was € 838 m, lower than net operating profit. Despite the unforeseen Greece-related effect, this represents an increase of € 112 m or 15% over the same period of the previous year. Profit growth was driven by the three Austrian customer business divisions (+ € 55 m, +18%) and the CEE business segment (+€ 192 m, +34%).

The new format of the income statement shows items related to equity interest management, i. e. the Purchase Price Allocation effect and goodwill impairment, as separate items below profit before tax in order to present the bank’s performance without the accounting impact of valuation measures. An impairment loss on goodwill related to our Russian subsidiary CJSC UniCredit Securi-ties (previously ATON) had to be recognised in the first half of 2011. At € 53 m, the goodwill impairment charge was significantly lower than in the previous year (H1 2010: € 167 m), when Bank Austria recognised an impairment loss on goodwill related to ATF, our banking subsidiary in Kazakhstan.

net profit (attributable to the owners of Bank Austria) for the first half of 2011 was € 640 m, up by € 218 m or 52% from the com-parative figure for the previous year. A comparison with published figures for the first half of 2010 (instead of the figures adjusted to reflect the current consolidation perimeter) shows an increase of 39% in net profit. Operating performance accounted for more than one-half of this improvement, while the remaining portion reflects the improved economic outlook for the CIS countries.



Condensed income statement of Bank Austria1) (€ m)

QuArTerLy FIgureS HALF-yeAr FIgureS

cHAnge over prevIouS yeAr

CHANGE OVER H1 2010

RESTATED 2)

Q1 2011 Q2 2011 H1 2011 H1 2010 € m In % IN %

Net interest 1,128 1,120 2,248 2,218 +30 +1% +2%

Dividend income and other income from equity investments 50 52 102 82 +20 +24% +23%

Net fees and commissions 462 460 922 988 –66 –7% –6%

Net trading, hedging and fair value income 114 54 168 234 –65 –28% +11%

Net other expenses/ income 47 58 105 79 +26 +33% +22%

Operating income 1,801 1,744 3,545 3,601 –56 –2% +1%

Payroll costs –496 –512 –1,008 – 948 –60 +6% +6%

Other administrative expenses –386 –408 –793 –735 –58 +8% +10%

Recovery of expenses 0 0 0 1 –0 –37% –37%

Amortisation, depreciation and impairment losses on intangible and tangible assets –69 –71 –139 –146 +7 –5% – 9%

Operating costs – 950 – 990 –1,941 –1,829 –112 +6% +6%

Operating profit 851 754 1,605 1,773 –168 – 9% –4%

Net write-downs of loans and provisions for guarantees and commitments –376 –329 –705 –896 +191 –21% –21%

net operating profit 475 425 900 877 +23 +3% +15%

Provisions for risks and charges –32 1 –31 – 90 +59 –66% –66%

Integration costs –1 –1 –2 –2 +0 –11% –2%

Net income from investments 8 –37 –29 39 –68 n.m. n.m.

profit before tax 449 388 838 823 +14 +2% +15%

Income tax for the period –89 –24 –113 –167 +55 –33% +1%

Profit for the period 360 364 725 656 +69 +10% +18%

Non-controlling interests –13 –12 –25 –21 –4 +21% +21%

Net profit before PPA 3) 347 352 700 635 +64 +10% +18%

Purchase Price Allocation effect 4) –4 –3 –7 – 9 +2 –23% +95%

Goodwill impairment –3 –50 –53 –167 +115 –69% –69%

net profit 3) 341 299 640 459 +181 +39% +52%

n.m. = not meaningful 1) Bank Austria’s income statement as presented in this table is a reclassified format corresponding to the format used for segment reporting. See pages 55 to 61 of this report./ 2) Restated: comparative figures adjusted to the consolidation perimeter and the business structure in 2011. / 3) Attributable to the owners of Bank Austria. 4) PPA effects for Kazakhstan, Ukraine, Russia and Aton.



Volume, profitability and resourcesAverage loans and receivables with customers of Bank Austria as a whole rose steadily in the past year, with faster growth seen in the first six months and a slower increase from the middle of 2010. Average loans to customers in the three Austrian business segments declined slightly, but rose strongly year-on-year in CEE (see table below). Quite generally, risk-weighted assets (RWAs), which are characterised by swings from quarter to quarter, increased signifi-cantly from quarter to quarter in the previous year before declining again in the first two quarters of 2011. The decline reflects develop-ments in Austria. In the Family & SME Banking Division, RWAs rose sharply in the course of 2010 when exchange rate movements led to a disproportionately strong increase in terms of volume and the com-puted risk content. This trend corrected itself in the first six months of 2011, partly with the Basel 2-compliant adjustment of model parame-ters to calculate the risk weights for business with private customers. Market risk was also further reduced. These developments led to a renewed decline in RWAs in Austria in the first half of 2011, similar to the trend in unweighted loans to customers (–0.7%). In Central and Eastern Europe, risk-weighted assets rose from quarter to quarter until 30 June 2011; in the first six months of 2011 they were 9.5% above the level of the same period of the previous year. Translated at constant exchange rates, this growth rate of RWAs in CEE would be over two percentage points higher. The strong increase in the volume of RWAs in Turkey (+28% in local currency /+17% in euro) was diminished by currency depreciation in excess of 8%, and in some countries average RWAs declined also in local currency terms (espe-cially in Kazakhstan and Ukraine). This compared with a strong expan-

sion of RWAs in Russia, Croatia and Romania. In average terms, RWAs increased in the four Central European countries.

return on equity (ROE before tax = profit before tax /allocated equity, subsidiaries with institutional capital) in the first half of 2011 was 9.5%, slightly up on H1 2010 (8.8%) but still far below the pre-crisis level (average for the period 2005 to 2007: 19.1%). ROE after tax was significantly above the previous year’s figure (7.5% after 5.8%) which reflected weaker profitability in the previous year due to the high provisioning charge and impairment losses on goodwill (average for the period 2005 to 2007: 15.7%). economic value Added (marginal EVA) reached about € 155 m at overall bank level in the first half of 2011, with the contributions from Austria and CEE being more balanced again (see table above). A comparison of aver-age figures for IFrS equity in H1 2010 and H1 2011 shows the effect of the capital increase carried out in the previous year.

bAnk AuSTrIA AuSTrIA 1) cee

gbS+corporATe

cenTer 2)

employees (FTEs)End of June 2011 59,539 5,576 51,495 2,468End of 2010 (restated) 59,653 5,549 51,598 2,506

Change –114 +27 –103 –38

branchesEnd of June 2011 3,013 298 2,715End of 2010 3,033 298 2,735

Change –20 +0 –20

1) F&SME, Private Banking and Corporate & Investment Banking (CIB) Divisions 2) GBS = Global Banking Services plus remaining part of Corporate Center

The number of branches of Bank Austria declined by twenty since the end of 2010. This was mainly due to measures aimed at stream-lining the branch network in Ukraine. On the other hand, branches were opened in Turkey, the Czech Republic, and in five other coun-tries. In many cases, the opening of branches is accompanied by the closure of branches in regions where the bank maintains a multiple presence. Staff numbers declined by 114 FTEs in the period from year-end 2010 to the end of June 2011, mostly in CEE (–103 FTEs). This development largely reflects restructuring measures in Ukraine (–355 FTEs). Apart from the usual fluctuations, staffing levels increased in Turkey, Russia, the Czech Republic, Hungary, Serbia and Slovenia. In Austria, there was an organisational shift from support functions in customer business segments to Service Lines of the Corporate Center. Overall, the number of employees assigned to cus-tomer business in Austria increased by 27 FTEs over year-end 2010, largely due to initiatives for increasing staff numbers in the sales net-work in Austria. In the Corporate Center, the increase in employees from customer business segments (retransfer from Competence Lines to the head office, involving, for example, controlling and com-munication functions) was offset by the IT experts that were con-tracted out under the cooperation programme with IBM, resulting in a net decline of 39 FTEs.

Resources and profitability in H1 2011 compared with H1 2010bAnk AuSTrIA AuSTrIA 1) cee

relative sizeAverage loans to customers (€ bn) 129.7 63.7 66.2

Change over previous year 2) +2.9% –1.4% +7.3%Average RWAs under Basel 2 (€ bn) 125.0 40.2 80.1

Change over previous year 2) +5.2% –0.7% +9.5%Operating income (€ m) 3,545 1,201 2,355

Change over previous year 2) +1.3% +0.8% +4.1%

profitability and value creationROE before tax 3) 9.5% 19.2% 12.9%Marginal EVA, € m 4) 154.9 111.2 178.5Marginal RARORAC 3.14% 7.45% 5.46%

equityAverage equity (€ bn) 5) 17.6 3.7 11.8

Change over previous year 2) +6.8% +30.9% +8.6%

1) Family & SME Banking, Private Banking and Corporate & Investment Banking Divisions, the difference of the total amount is shown in the Corporate Center (see pages 56 to 61of this report). / 2) Restated. / 3) ROE = profit before tax/ institutional capital. / 4) Calculated on the basis of capital allocated under Basel 2. Difference = Corporate Center and inter-segment items, sum total calculated using bank’s own cost of capital. 5) Subsidiaries are included at actual IFRS capital. The strong increase in the three Austrian customer business segments reflects the low base figure in the CIB Division after adjustment for the former UniCredit CAIB; moreover, since the beginning of 2011, capital allocation in UniCredit Bank Austria AG has been based on actual RWAs, with specific capital items being added. Until the end of 2010, capital allocation in UniCredit Bank Austria AG was based on budgeted RWAs.



Financial position and capital resources

Financial position in the first half of 2011Total assets declined by 1.4% from the end of 2010 to 31 March 2011 and then rose by 1.9% to reach € 193.8 bn on 30 June 2011, a slight increase of 0.4% over the year-end 2010 level. The increase in the second quarter of 2011 was driven by loans and receivables with customers (+ € 3.0 bn) on the assets side, and by debt securi-ties in issue and deposits from banks on the liabilities side. The improvement in the structure of the financial position in the past few months and in the past year is reflected in the larger proportion of customer business and the increase in equity, while short-term and trading-related items declined.

In the first six months of 2011 (the following commentary compares the statement of financial position at the end of June 2011 and at the end of 2010) total assets rose by € 795 m. On the assets side, financial assets held for trading continued to decline (as in the previ-ous year) by 24.5%, as did hedging derivatives (–15.4%), while financial market investments rose by 8.2%, partly as a result of changes in market value. Loans and receivables with customers increased by € 1.5 bn or 1.2%, with exchange rate movements hav-ing a dampening effect. Loans and receivables with customers amounted to € 131.6 bn and accounted for 67.9% of total assets (up from 67.4% at the end of 2010 and 64.7% at the end of June 2010). Loans and receivables with banks decreased slightly (–1.9%); compared with the mid-year 2010 figure, the decline was more pronounced (–21.2%), reflecting the return to more normal conditions in money markets which has taken place in the meantime.

On the liabilities side, financial liabilities held for trading (–16.0%) and hedging derivatives (–20.9%) declined in the first six months of 2011. The decrease of € 2.1 bn or 2.1% in deposits from customers (mainly in time deposits) to € 98.2 bn was more than offset by an increase of € 2.9 bn or 10.7% in debt securities in issue. As a result, primary funds – the sum total of deposits from customers and debt securities in issue – rose slightly, by 0.7%, to € 128.7 bn, account-ing for 66.4% of total liabilities and equity as at 30 June 2011. Customer loans are funded by primary funds to the extent of 98%. As at 30 June 2011, equity was € 18.0 bn, up by 3.0% from the end of 2010. The increase of € 522 m resulted from the inclusion of net profit in retained earnings, with retained profit partly offset by the balance of income and expenses directly recognised in equity, mainly by the negative development of foreign currency translation. The leverage ratio, pursuant to UniCredit standards and the cash concept (without intangible assets), improved slightly, from 13.8 at the end of 2010 to 13.2 in June 2011; at the end of June 2010, the figure was 14.2. The basic leverage ratio (equity / total assets) was 10.8 (after 11.0 and 11.2).

Capital resources pursuant to the Austrian Banking ActRisk-weighted assets (RWAs) as at 30 June 2011 were € 125.2 bn, down by € 2.7 bn (–2.1%) from year-end 2010. In Austria, the change resulted primarily from the adjustment of risk parameters and also from a decline in trading activities. On the other hand, business expansion in CEE led to an increase, which was partly offset by exchange rate movements. While several banking subsidiaries switched to the internal ratings-based (IRB) approach, this had a very small net effect in terms of RWAs: a € 10.8 bn increase in the IRB portfolio was more or less offset by a € 10.4 bn decrease in the portfolio under the standardised approach. As a result of lower RWAs, the capital requirement for credit risk declined to € 8.9 bn (–2.1%) and the capital requirement for all types of risk was € 10.0 bn (–2.1%).

Net capital resources as at 30 June 2011 were € 14.9 bn, down by € 0.7 bn (–4.3%). The decline resulted mainly from negative consol-idation effects and a lower amount of subordinated capital eligible for inclusion.

The moderate decline in net capital resources and the reduction of RWAs compared with the year-end 2010 figures resulted in a slight decrease in Tier 1 capital ratios; on account of the change in subor-dinated capital, the decline in total capital ratios was somewhat more pronounced. The Core Tier 1 capital ratio (Tier 1 capital ratio without hybrid capital) based on all risks declined slightly, from 10.04% to 10.02%. The Core Tier 1 capital ratio based on credit risk declined from 11.33% to 11.30%.

Capital ratios30 june 2011 31 dec. 2010

based on all risks 1) Tier 1 capital ratio 10.34% 10.35%... without hybrid capital (Core Tier 1 capital ratio) 10.02% 10.04%Total capital ratio 11.87% 12.13%

based on credit risk 2) Tier 1 capital ratio 11.66% 11.68%... without hybrid capital (Core Tier 1 capital ratio) 11.30% 11.33%Total capital ratio 12.37% 12.67%

1) Credit risk, operational risk, position risk and settlement risk. / 2) Capital resources less requirement for the trading book and for commodities risk, exchange rate risk and operational risk as a percentage of the risk-weighted assessment basis for credit risk.



Development of business segments

Family & SME Banking (F&SME)(€ m) H1 2011 H1 2010 1) cHAnge

Operating income 586 592 –6 –1%Operating costs –441 –419 –23 +5%Operating profit 145 174 –29 –16%Net write-downs of loans –103 –139 +37 –26%Net operating profit 43 34 +8 +23%profit before tax 54 45 +9 +21%Loans to customers (avg.) 21,729 21,379 +350 +2%Risk-weighted assets (avg.) 2) 13,850 11,850 +2,000 +17%Average equity 3) 1,269 750 +520 +69%

1) For segment reporting purposes, the comparative figures for 2010 were restated to reflect the structure and methodology of the reporting period 2011 (see the segment reporting section in the notes to the consolidated financial statements on pages 55 to 61 of this report. / 2) Average risk-weighted assets under Basel 2 (all risks). / 3) Standardised capital; capital allocation to subsidiaries reflects actual IFRS capital. The difference compared with the consolidated equity of the Bank Austria Group is shown in the Corporate Center. See segment reporting section on pages 56 to 61. This information applies to all business segment tables.

The upward trend which started in the Family & SME Banking Divi-sion (F&SME)*) in the middle of 2009 continued in the first half of 2011. As the debt crisis escalated, growing uncertainty and fears over monetary stability had an impact on fee-based business in F&SME, primarily in the sub-segments comprising Mass Market and Affluent customers. Therefore revenues declined from the first to the second quarter of 2011. Operating performance nevertheless improved strongly: in the first half of 2011, net operating profit was € 43 m, up by 23% on the first half of 2010. The main factor contributing to this improvement was the lower provisioning charge. Profit before tax rose by 21% to € 54 m. With a number of initia-tives (including the increase in the number of staff serving custom-ers, efficiency enhancement in the sales network, innovations in mobile banking (iPhone, Android smartphones), simpler products, and close monitoring of customer satisfaction and feedback) F&SME is working to put this development on a sustainable basis.

In a longer-term comparison, volume and revenues rose strongly after the financial market crisis and recession until the middle of 2010 and subsequently remained at the level that was then reached. operating income amounted to € 586 m (accounting for 49% of total revenues generated by Austrian customer business) and was thus 1% lower than a year earlier, as net fees and com-missions fell significantly in the second quarter of 2011. Average lending volume was up by 1.6% on the previous year. The net interest margin recovered over the past three quarters, after nar-rowing for many years to reach a low in the fourth quarter of 2010. Despite the recent improvement, the figure for the first half of 2011

was still lower than in the same period of the previous year. net interest thus remained unchanged year-on-year (€ 359 m/–0%). There were insignificant changes in lending volume and total deposits; while the interest margin rose on the deposits side, this was largely offset by a decline on the lending side. As short-term loans (including consumer loans) declined and medium-term/ long-term loans (including construction and housing loans) increased, total loans were more or less unchanged. Housing loans rose by 7% as intensive marketing efforts led to lively new business. Nevertheless, the assets-side interest margin resulted in a decline in interest income. Deposits decreased slightly (especially time deposits) compared with the previous year; the interest margin improved in this area, as usual in an environment of rising short-term interest rates, but this development was no longer supported by trends in the middle of 2011.

After improving in the first quarter of 2011, net fees and com-missions declined in the second quarter; the overall figure of € 221 m for the first half of 2011 was 3% lower than for the same period of the previous year. This reflects the impact of generally low transaction volume, especially turnover in securities on safe-custody accounts, and hedging transactions and services. The bank successfully placed its own issues: in addition to tax-privi-leged Wohnbauanleihe bonds, eight Erfolgsanleihe bond issues (€ 410 m) with maturities of two to five years, and three tranches of mortgage bonds, two USD floaters and one inflation-guaranteed structured issue with a capital guarantee took account of the

*) Since the beginning of 2011, F&SME has comprised not only the Mass Market, Affluent and Small Businesses sub-segments but also small and medium-sized enterprises (SMEs) with a turnover between € 3 m and € 50 m. Segment reporting was retrospectively adjusted to the new structure, so that a comparison with previous year’s figures can be made on a consistent basis.

% p.a.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2009 2010 2011Q3 Q4 Q3 Q4Q1 Q1 Q2Q2

Turnaround in interest rates … and trend reversal

Money market(3 months)

10-year

5-year

2-year

Weekly (smoothed data)



current interest rate environment and investors’ strong preference for security. The outstanding volume of the bank’s own issues increased by 10%. PIA guarantee funds and especially Real Invest Austria, a real estate investment fund, as well as insurance products with a one-off payment also met with lively interest from customers.

Operating costs rose significantly in the second quarter of 2011; the total figure for the first half of 2011 was up by 5% on the same period of the previous year. This increase reflects initiatives launched to expand the market position: the sales network was strengthened with the recruitment of new employees and internal transfers to customer service units of employees who received special training for this purpose. On the other hand, a number of employees were retransferred from support functions to central Competence Lines (Corporate Center). Overall, staff numbers rose by 114 FTEs com-pared with the previous year.

operating profit for the first half of 2011 was € 145 m (down by € 29 m or 16%). The continued decline in the provisioning charge was the decisive factor for the Division’s stronger net operating per-formance. Supported by economic trends and the gradual improve-ment in employment and incomes, net write-downs of loans and provisions for guarantees and commitments have declined from quarter to quarter for over a year. The favourable market develop-ments have also permitted a change to be made to the Basel 2 model parameters in the calculation of risk weights for business with Austrian private customers. (This also slowed the increase in risk-weighted assets, which was very strong especially in the second half of 2010, reflecting the appreciation of the Swiss franc). The provisioning charge for the first half of 2011 amounted to € 103 m, down by € 37 m or 26% from the same period of the previous year. The cost of risk in the first six months of 2011 was 94 basis points (H1 2010: 130 bp), in the second quarter of 2011 it was as low as 87 bp.

Net operating profit reached € 43 m. Non-operating items (provisions for risks and charges, net income from investments) were positive, as in the previous year, totalling € 11 m after € 10 m. On this basis, profit before tax for the first half of 2011 was € 54 m, an increase of 21% over the same period of the previous year.

Private Banking(€ m) H1 2011 H1 2010 cHAnge

Operating income 70 71 –1 –1%Operating costs –51 –49 –2 +3%Operating profit 20 22 –3 –12%Net write-downs of loans –2 0 –2 n.m.Net operating profit 17 22 –5 –23%profit before tax 19 22 –3 –14%Total financial assets (avg.) 17,012 16,509 +503 +3%Loans to customers (avg.) 376 365 +11 +3%Risk-weighted assets (avg.) 514 520 –6 –1%Average equity 128 123 +5 +4%

n.m. = not meaningful

The Private Banking business segment was challenged considerably more than other business segments by the severe disruptions expe-rienced by the market environment in the second quarter of 2011. While sentiment in early 2011 was still supported by strong growth of the industrial sector and expansion among the emerging economies (interrupted only by the natural catastrophe in Japan in March and its repercussions), the escalating Greece-related crisis and the US’s tarnished AAA status in the second quarter led to defensive investing and a wait-and-see attitude by investors. The final weeks of the first half of 2011 saw a growing number of reports of poor economic performance, signs of a further spread of the European debt crisis, and doubts about the value of money in general, not least on account of the many taboos broken by central banks. These developments prompted panic-driven flight into quality worldwide, reflected in the high price of gold (which reached an all-time high of US$ 1,685 per ounce shortly before completion of this half-year report) and the appreciation of the Swiss franc (most recently to a level of CHF 1.085 against the euro – see the chart and commentary on the banking environment at the beginning of the report).

In this environment characterised by fears and uncertainty, the Private Banking Division’s advisory and management services, which take a long-term view, put the situation into perspective. The performance of the Private Banking Division has been stable over the last few quarters. Total financial assets (in terms of quarterly and half-yearly averages) in the first half of 2011 were up by 3% on the level of H1 2010 after rising in the first and second quarters. Total financial assets amounted to € 17.0 bn on 30 June 2011, with direct deposits accounting for 34% of this amount, and assets under management (funds and asset management) and assets under custody (direct investments in securities /safe-custody business) for the remaining share. There was only a slight shift of one percentage point – probably only of a temporary nature – to direct deposits.



There was no significant change in the income statement items, either quarter-on-quarter or year-on-year. operating income in the second quarter of 2011 was maintained at the level of the preced-ing quarter despite the more difficult market conditions; at € 70 m in the first half of 2011 it was 1% below the level of H1 2010. net interest rose sharply, both on a quarterly basis (+27%) and in a year-on-year comparison (+23%). The rise is attributable to an increase in the volume of direct deposits, triggered partly by a suc-cessful time-deposit initiative by Schoellerbank and by a general preference for liquidity. Net interest was also supported by interest rate developments (higher margins on deposits). As expected, the rise in net interest compared with a decline in net fees and com-missions, especially in the second quarter of 2011. While net fees and commissions, the most significant income component for pri-vate banking business, include revenue from fund and asset man-agement business, which develops in a more predictable manner, they also reflect investment turnover which is a result of investment

behaviour. This in turn mirrors the mood prevailing on capital mar-kets. Brokerage business, which plays a particularly strong role in Schoellerbank’s activities, made a much smaller contribution to net fees and commissions. In the first half of 2011, net fees and com-missions were down by € 5 m or 10% on the same period of the previous year, thereby offsetting the increase in net interest.

While operating income remained more or less unchanged (–1%), costs rose somewhat faster in the first half of 2011 and were up by 3% to € 51 m in connection with various initiatives to expand the market position. Staffing levels also increased, by 25 FTEs year-on-year, following the recruitment of experts. Together with net write-downs of loans and provisions for guarantees and commitments (relating to one brokerage customer), this resulted in a profit before tax of € 19 m for the first half of 2011, which compares with € 22 m for H1 2010. As the business segment with the most advi-sory-intensive services and the most staff-intensive client relation-ships, the Private Banking Division had a cost / income ratio of 72.1% in H1 2011, but a return on equity of about 30%.

In the first six months of 2011, private banking took a number of further initiatives to expand its position in the market: after imple-menting an ongoing review of portfolio quality by the bank’s own port-folio analysts and within the international network of UniCredit experts, the Preferred Partners concept has resulted in a simplification of products and services, and in quality enhancement (focus on the world’s top ten fund management companies as partners). As market leader in the private foundations sub-segment, the Division set up a private foundations centre in May. The team of experts assigned to this centre supports clients throughout Austria with eco-nomic and legal issues, and with succession planning in particular. Meeting the needs of the about 1,100 Austrian private foundations currently served by Bank Austria and further expanding the market leadership position is a strategic focus of the Division’s activities. The Private Banking Division maintains a presence in 25 locations throughout Austria with 553 employees and serves the top segment of private customers, about 34,000 high net worth individuals. The bank is market leader in this segment, with a 19% market share. While the Private Banking Division is important for the bank’s image as it has responsibility for the important customer segment of high net worth individuals and private foundations, it also consistently cre-ates value for the bank as a whole (EVA +€ 13 m, RARORAC of 67% on account of the low level of average equity allocated to the Division).

Financial markets fail to settle down

Swiss franc in euro

Shares: EuroStoxx 10-year € benchmark bond 10-year Greek bond

Gold (US$ per ounce)

Gold

Greece556065707580859095

100105110115120125130135140145

2010 2011Q3 Q4Q1 Q2 Q1 Q2

For bonds and shares: total return, i.e. price + reinvested coupon or price + reinvested dividend

Average for H1 2010 = 100

Shares

CHF

€ benchmark bond



Corporate & Investment Banking (CIB)(€ m) H1 2011 H1 2010 cHAnge

Operating income 544 528 +16 +3%Operating costs –188 –178 –10 +6%Operating profit 356 350 +6 +2%Net write-downs of loans –79 –115 +35 –31%Net operating profit 277 236 +41 +17%profit before tax 285 237 +49 +21%Loans to customers (avg.) 41,613 42,930 –1,317 –3%Risk-weighted assets (avg.) 25,789 28,085 –2,296 –8%Average equity 2,332 1,976 +356 +18%

The Corporate & Investment Banking (CIB) business segment achieved a 21% increase in profit before tax for the first half of 2011 although credit demand remained weak, uncertainty among customers was growing in the second quarter, and interest rate trends were partly unfavourable. While revenues from customer business rose slightly, the improvement in profit before tax was mainly due to the decline of one-third in net write-downs of loans and provisions for guarantees and commitments. With a profit before tax of € 285 m, CIB made a contribution of 80% to overall profit before tax generated by Austrian customer business – even after the transfer of the SME sub-segment to the F&SME Division*) – and accounted for one-quarter of profit before tax recorded by the bank as a whole (without the Corporate Center). CIB thereby strongly supported Bank Austria’s overall performance.

operating income in the first half of 2011 was 3% higher than in the same period of the previous year, although it declined from the first to the second quarter. net interest (the main component of operating income, accounting for 73% of the total figure), though declining slightly in the past three quarters, remained at the level of the first six months of the previous year. Average lend-ing volume stabilised in the first six months of 2011, after a steady decline seen in the course of 2010, and slightly expanded again as real estate finance increased. Nevertheless, average lending volume in the first half of 2011 was 3% lower than in the same period of the previous year. In view of the strong momentum of industrial activity in the early part of 2011, the decline may be explained by companies’ strong liquidity position and by the fact that they postponed investment projects. Interest margins improved from the weaker first quarter to the second quarter of 2011 as the yield curve initially steepened and then flattened

again. An improvement in margins on the deposit side, mainly in sight deposits and short-term customer funds, compared with pres-sure on margins on short-term loans which resulted from reference rate developments; overall, margins were more or less maintained on the lending side. Favourable economic trends were also reflected in dividend income and other income from equity invest-ments (mainly from real estate investments), which were 10% higher than in the same period of the previous year.

net fees and commissions in the first half of 2011 reflected growing market volatility and uncertainty in view of the escalating government debt crisis, which led to pronounced restraint on the part of customers in their transactions and hedging operations. Net fees and commissions have been declining for quite some time; in the reporting period they were down by 12% from the pre-vious year’s level. The main reason for this development was the low volume of securities transactions. On the other hand, CIB was involved, in a leading capacity, in capital measures (including OMV) and in launching and placing major corporate bond issues (Egger, Alpine, Strabag, Wienerberger), underlining its role as a preferred partner in capital markets. The reorientation of financial market trading activities in 2010 to focus on customer-driven business has proved to be successful. This can be seen from the good perform-ance of the Counterparts sub-segment, where total revenues increased by 28%. CIB’s net trading, hedging and fair value income is determined by customer-driven trading activities and by the bank’s asset / liability management, which also includes funding for CEE subsidiaries. The net trading result for the first half of 2011 showed significant net income, representing a positive swing of € 32 m from the net loss recorded in the first half of 2010, which was mainly due to market factors and was to be seen in the con-text of trading-induced interest income in that period.

operating costs totalled € 188 m, an increase of 6% over the same period of the previous year. As a result, the cost / income ratio rose slightly, from 33.7% to 34.5%. This mainly reflects the first-time consolidation of several new subsidiaries in CIB’s income statement in 2011 (e.g. Immorating GmbH, BACA Realinvest Client GmbH). Moreover, staff numbers of product units for customer business (Finance & Advisory and Global Transaction Banking/GTB) were increased. operating profit was nevertheless 2% higher than in the first six months of the previous year. The sustained good performance of CIB is due to the fact that revenues were stable and the provisioning charge remained under control: at € 79 m, net write-downs of loans and provisions for guarantees and com-mitments in the first half of 2011 were down by 31% from the first half of 2010. The provisioning charge in the second half of 2010 was even lower (€ 32 m, cost of risk: 15 bp) as the improved

*) The comparative figures for the previous year were restated to reflect the cur-rent business structure; in the context of CIB this mainly involves adjustments for UniCredit CAIB and the SME customer sub-segment.



position of companies made it possible to release loan loss provisions made in preceding years. But even after the return to normal conditions in the first half of 2011, the cost of risk is very low, at 38 basis points of average lending volume.

In the first half of 2011, net operating profit – i.e. operating profit less net write-downs of loans and provisions for guarantees and commitments – was € 277 m, up by € 41 m or 17% on the same period of the previous year. The net amount of non-operat-ing items in the income statement was positive, and higher than a year earlier; within the total figure, net income from investments rose by € 6 m to € 7 m. This means that profit before tax improved by € 49 m or 21% to € 285 m.

Equity allocated to the CIB Division was higher than in the previ-ous year, as the comparative figures were adjusted for the sale of the former UniCredit CAIB, and because of methodological changes and the capital increase carried out in the meantime. Risk-weighted assets, on the other hand, declined. On this basis, return on equity (ROE before tax) improved from 23.9% to 24.5%. In the first half of 2011, economic value Added (mar-ginal EVA) generated by the CIB business segment was a sub-stantial € 117 m; the risk-adjusted return on risk-adjusted capital (RARORAC) reached 13.14%.

With a view to expanding its market position and raising profita-bility, the CIB Division focuses on cross selling and intensive use of the entire value creation chain covered by the Division’s cross-regional operations. CIB also aims to strengthen its function as strategic financial partner und companies’ partner of first choice for capital market activities. CIB has introduced a Senior Banker approach to provide targeted services to CEOs/CFOs of large national and international companies. Another focus is on cross-border business: the Umbrella Facility launched in the second quarter of 2011 is a cross-border financing facility to which CEE subsidiaries of Austrian companies have fast and easy access, initially in ten CEE countries. GTB is making intensive use of the international network. Other focal areas are advisory services and finance for municipalities (in connection with the “Gemeindemilli-arde” lending scheme) in the public sector and services for com-mercial real estate customers.

Central Eastern Europe (CEE)(€ m) H1 2011 H1 2010 cHAnge Adj.*)

Operating income 2,335 2,243 +92 +4% +7%Operating costs –1,086 –1,033 –53 +5% +8%Operating profit 1,249 1,210 +39 +3% +6%Net write-downs of loans –520 –641 +120 –19% –17%Net operating profit 729 569 +160 +28% +31%profit before tax 762 570 +192 +34% +37%Loans to customers (avg.) 66,169 61,645 +4,523 +7% +9%Risk-weighted assets (avg.) 80,123 73,156 +6,967 +10% +12%Average equity 11,805 10,867 +938 +9% +11%

*) adjusted = at constant exchange rates

Business trends in Central and Eastern Europe (CEE) were character-ised by continued expansion and a significant improvement in operating performance. In the second quarter of 2011, volume continued to grow – with wide regional variations – at a steady pace though moder-ately by CEE standards. Revenue trends in the past few quarters were similar to those in Western Europe, with stable net interest and still weak net fees and commissions. The main factor for the improvement in performance was the decline in net write-downs of loans and provi-sions for guarantees and commitments, with a larger proportion of the strong operating profit feeding through to the bottom line. profit before tax for the second quarter of 2011 was € 408 m, up by 15% on the first quarter of 2011 (+35% compared with Q2 2010). It should be noted that a write-down of € 47 m on Greek government bonds was made in CEE. This impact was more than offset by positive one-off income reflected in the item “net income from investments”. Without the Greece-related effect, profit before tax would have been 29% higher than in the preceding quarter (+51% compared with Q2 2010).

In the first half of 2011, the CEE business segment recorded growth of over 7% in customer loans and 10% in risk-weighted assets, as well as an improvement of about one-third in its profit before tax. On this basis it continued to drive Bank Austria’s overall growth and underlined its role as the bank’s major contributor to overall profits. Adjusted for exchange rate movements, the rates of change were 2 to 3 percentage points higher, depending on the aggregated item; at the level of profits, the change was over 3% higher. Following some quar-ters of a renewed upswing in the first half of the previous year, volume and revenue trends have been flatter since the middle of 2010, with less dynamic growth than in periods preceding the financial and eco-nomic crisis. The major differences between country groups and individ-ual countries which became apparent in 2010 continued to exist. Nevertheless, a comparison of the first half of 2011 with the same period of the previous year clearly shows that conditions are returning to normal – revenues are getting close to the levels seen in 2008. What is particularly noteworthy is the significant improvement in net write-downs of loans and provisions for guarantees and commitments as leg-acy problems were resolved, restructuring in highly exposed countries made good progress and the economic upswing gained momentum.



Profit before tax generated by the CEE Division in the first half of 2011 was up by 34% on the same period of the previous year (adjusted for exchange rate movements, the increase was 37%). Of the increase of € 192 m in profit before tax, € 39 m or about 20% came from the improvement in operating profit while the lower provisioning charge accounted for € 120 m or over 62%, and the remaining portion (18%) of the increase resulted from a more favourable development of non-operating items (despite the Greece-related effect).

Countries and regions in the first half of 2011When interpreting the aggregate figures for the CEE business seg-ment, one should note the significant regional and structural differ-ences in terms of market size and level of economic autonomy, struc-ture of production, cyclical features, external financial situation, and banking sector. While the economy has gained momentum in all countries, some of them – e.g. Turkey – are ahead of the cycle; other countries and country groups, such as South-East Europe, are lagging behind. Developments are strongly influenced by – predominantly restrictive – local economic policy measures aimed at balancing out state budgets and the balance of payments while keeping inflation under control. And in the banking sector of several countries, legacy problems from the boom which preceded the financial market crisis are still having repercussions, though significant progress has been made in dealing with them over the past few quarters. A comparison of growth rates illustrates the differences and shows that the SEE region itself, in particular, presents a heterogeneous picture.

Countries and country groups

Turkey ruSSIAcenTrALeurope1)

SouTH-eAST

europe2)eASTerneurope3)

ceedIvISIon4)

Average rWAs (€ bn) 17.0 12.3 17.8 20.1 9.3 80.1

Change on prev. year in % +17% +21% +7% +8% –12% +10%

Change on prev. year in % at constant exchange rates +28% +22% +4% +9% –7% +12%

operating income (€ m) 506 361 456 715 213 2,335

Change on prev. year in % –8% +18% +12% +7% –1% +4%

Change on prev. year in % at constant exchange rates +1% +19% +9% +8% +4% +7%

net operating profit 5)

(€ m) 275 178 151 234 6 729

Change on prev. year in % –10% +65% +19% +24% 6) +28%

Change on prev. year in % at constant exchange rates –2% +66% +16% +26% 6) +31%

1) Central Europe (CE) = Czech Republic, Slovakia, Hungary and Slovenia. / 2) Bulgaria and Romania; Croatia, Bosnia & Herzegovina and Serbia. / 3) Baltic states, Ukraine and Kazakhstan. / 4) Difference compared with total for banking subsidiaries = CEE headquarters in Vienna. / 5) Operating profit less net write-downs of loans and provisions for guarantees and commitments. / 6) Swing of € 111 m from net operating loss to net operating profit.

The bank in Turkey (included at 41% using the proportionate consolidation method) recorded very strong growth of risk-weighted assets: adjusted for exchange rate movements, RWAs increased by 28% (as in the entire local banking sector). Eco-nomic policy measures to counteract this development (higher minimum reserve requirements, interest rate ceilings for credit cards, low interest rates to fend off speculative capital inflows, foreign exchange intervention) have already had an impact on rev-enues and profits, leading to a stagnation (see table). The credit cycle is far ahead of other countries; following strong economic growth in 2010 and 2011, successful debt collection activities reduced the cost of risk to nil in the past year, which means that the positive effect on the income statement took place in Turkey a year ago. In addition, the Turkish lira’s depreciation of 8.5% means that Turkey did not contribute to profit growth in the first half of 2011; but at € 268 m, profit before tax still strongly sup-ported overall performance. Volume expansion in russia reached a similar rate (RWAs up by more than 20%). Revenues rose by 23% and net operating profit, also supported by a lower provi-sioning charge, increased by 65% in the first half of 2011, the strongest growth rates in CEE. The rouble’s exchange rate against the euro hardly changed in terms of half-year averages.

In the four central european countries (CE) volume rose by a combined 7% (without the strong appreciation of the Czech crown, by 4.5%). Combined revenue growth in these mature countries reached a double-digit figure while net write-downs of loans and provisions for guarantees and commitments declined slightly. Net operating profit was down from the same period of the previous year, impacted by the bank levy in Hungary, which is included in operating costs (+17%). The performance of the banks in South-east european countries (SEE) was depressed primarily by structural weaknesses in terms of growth in Romania and Bulgaria. This compared with an upswing in Croatia, which accounted for most of the improvement in profit before tax. The East-European banking subsidiaries in Kazakhstan, Ukraine and the Baltic states achieved a net operating profit in the first half of 2011 after a net operating loss in the same period of the previous year; the positive swing of € 111 m was due to a decline in the provisioning charge. (In calculating the total figure, account is to be taken of the net expense at the Vienna-based CEE headquar-ters, with a negative net result of € 115 m, down by € 13 m from the comparative figure for the previous year.)

Based on market size and market share, our banking operations in Turkey (30%), Russia (30%) and Croatia (13%) made a combined contribution of 74% to net operating profit generated by all CEE banks; the contribution of the three large units to the increase was lower, at 65%, given the special situation in Turkey (propor-tions calculated without the Vienna-based CEE headquarters).



Details of the income statement of the CEE DivisionAmong the income components, net interest of the CEE Division was € 1,627 m, matching the previous year’s level (+1%); adjusted for exchange rate movements, it was significantly higher, by over 3%, mainly because the Turkish lira depreciated against the euro. As average lending volume expanded significantly, by 7.3%, the overall interest margin declined from 523 basis points in the first quarter of 2010 to 492 bp in the first six months of 2011. This development reflects the combined effect of declining interest rates and restrictive economic policy measures, e.g. in Turkey and Romania.

net fees and commissions in the first half of 2011 (€ 586 m) were up by 2% (or 5%, adjusted for exchange rate movements) on the same period of the previous year. Turnover in securities business did not yet reach pre-crisis levels in CEE, either, whereas commercial services including credit card business and interest-rate /exchange-rate management developed favourably in almost all countries.

net trading, hedging and fair value income amounted to € 73 m, doubling from the figure for the same period of the previous year; this improvement was mainly driven by Russia and Turkey, where high activity levels were recorded in payment transactions and inter-est-rate /exchange-rate management in customer business, and

exchange rate movements had an effect on financial instruments and currency trading positions measured at fair value. operating costs (€ 1,086 m) in the first half of 2011 were up by 5% (or 8%, adjusted for exchange rate movements) on the figure for the first six months of the previous year. As revenues grew, however, the cost / income ratio rose only slightly, by 0.4 percentage points to 46.5%, remaining significantly below the average for the bank as a whole. Investment in business expansion related to the branch network and to mobile sales channels (see the subsequent country reports). At the end of June, the number of branches in Turkey (+42), the Czech Republic (+19) and Croatia (+4) was significantly higher than a year earlier. In many cases, the opening of branches is accompanied by closures of branches in regions where the bank maintains a multiple presence. In Ukraine and Kazakhstan, the adjustment of the branch network resulted in a combined reduction of 66 units, which did not have an immediate cost-reducing effect. Cost growth was also determined by higher inflation rates and wage increases in a number of CEE countries, an effect which was only partly offset by currency depreciation in Turkey and Kazakhstan. Operating costs in the first half of 2011 also included the pro-rata expense arising from the bank levy in Hungary (over € 15 m). In the first half of 2011, operating profit was € 1,249 m, up by € 39 m or over 3% (or 6%, adjusted for exchange rate movements) on the same period of the previous year.

net write-downs of loans and provisions for guarantees and commitments in the CEE business segment declined by € 120 m or 19% to € 520 m. At this level, the provisioning charge was half the figure for the second half of 2009, when it exceeded one billion euros (€ 1,010 m), and lower than in any half-year since the second half of 2008 (€ 338 m). The cost of risk declined to 157 bp (H1 2010: 208 bp, peak in H2 2009: 346 bp). The provisioning charge for Kazakhstan, Ukraine and the Baltic countries in the first half of 2011 was about € 197 m compared with € 350 m in the same period of the previous year. These figures include the provisioning charge of € 93.5 m booked at the Vienna-based CEE headquarters*). The situation in these countries continues to stabilise; they account for about one-eighth of CEE lending volume and 38% of the overall provisioning charge for CEE. South-East Europe (SEE) was lagging behind in the credit cycle in 2010 and in 2011 to date, but it presents a mixed picture: while the provisioning charge in Romania was unchanged compared with the same period of the previous year, the cost of risk in that country was still relatively high (317 bp); Bul-garia experienced a further deterioration but the trend improved from the first to the second quarter of 2011, with the cost of risk (230 bp) lower in absolute terms. In Croatia, on the other hand, the provision-ing charge declined by 23% and the cost of risk fell to 102 bp,

2007 2008 2009 2010 2011Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Central Eastern Europe (CEE)

€ m

€ bn

0

100

200

300

400

500

600

700

800

900

1,000

1,100

1,20050

60

70

80

Costs

Operating profit

Operating income

Volume (RWA)

Net operating profit

Provisioning charge

*) The provisioning charge at the Vienna-based CEE headquarters includes the above-mentioned charge relating to guarantees for Kazakhstan and the Baltic banking subsidiary and credit risk-related charges arising from cross-regional portfolios in commercial real estate business and structured finance.



though Q2 compared unfavourably with Q1 2011. The situation in Russia improved significantly, in line with the economic environment (provisioning charge down by 30%, cost of risk at 125 bp). Turkey, which is far ahead in the cycle, is a special case: asset quality in the country improved substantially in the early part of 2010; debt collec-tion efforts were successful, and loan loss provisions remained sta-ble. In the first half of 2011 there was a net release of loan loss pro-visions following large recoveries on loans previously written off. In assessing the overall picture, one should note that the reduction of the provisioning charge is based on economic trends, local restruc-turing measures, the gradual improvement – or at least no further deterioration – in asset quality; but the decline seen in the past few quarters cannot be expected to continue at the same pace. As can be seen in the case of Turkey, net releases of loan loss provisions cannot go on indefinitely. In some countries, methodological factors (IFRS harmonisation, Basel 2 implementation) have also had a non-recurrent favourable effect. Other countries will yet experience a turn for the better in terms of asset quality. But the favourable effect resulting from the development of net write-downs of loans and pro-visions for guarantees and commitments will also be reflected in the income statement for the year as a whole.

net operating profit for the first half of 2011 improved by € 160 m or 28% to € 729 m compared with the same period of the previous year. The balance of non-operating items in the income statement was positive: net additions to provisions for risks and charges (€ 10 m) were down by € 7 m from the figure for the first six months of 2010, while integration costs remained unchanged. Net income from investments primarily reflected a revaluation gain in connection with the restructuring of the Moscow Interbank Currency Exchange (MICEX) Group, in which our Russian banking subsidiary holds an equity interest; as other changes were insignificant, this more than offset the write-down on Greek government bonds at our banks in the Czech Republic and in Turkey. Net income from investments was € 45 m, up by € 26 m on the same period of the previous year.

In the first half of 2011, the CEE business segment achieved a profit before tax of € 762 m, an increase of 34% over the previous year (or 37% at constant exchange rates). Profit before tax grew at a rate that was a multiple of the rate of change in average equity (+9%); as a result, return on equity before tax improved by 2.4 percentage points to 12.9%. Despite the high level of allocated equity, the CEE business segment made the strongest contribution to value creation of Bank Austria in the first half of 2011: Economic Value Added (mar-ginal EVA) amounted to € 179 m (after a negative EVA of – € 20 m in the same period of the previous year). The risk-adjusted return on risk-adjusted capital was 5.46%.

Reports on CEE banks Turkey: In H1 2011, Turkish banks operated in an environ-ment of positive macroeconomic dynamics, sound fundamen-tals but with increasing pressure from regulatory requirements and intensified competition. koç Financial Services (KFS), the financial holding company controlling 81.8% of yapı kredi bank – the fourth largest private bank by total assets – recorded solid growth and sustained profitability in H1 2011, driven by fee revenue and asset quality coupled with continuing tight cost control despite net interest margin compression. In H1 2011, KFS recorded revenues of about TL 2,740 m (+1% y /y) on the back of lower net interest income (–10% y /y) due to ongoing regulatory pressure and aggressive competition which was offset by sustained fee growth (about +8% y /y) and supported by strong trading income. Continued tight cost management and efficiency initiatives resulted in contained cost growth of about 8% y /y, slightly above inflation, despite the opening of new branches. The cost / income ratio was 46%. The bank continued investing in alternative delivery channels (ADCs) to increase customer satisfaction and decrease cost to serve and, as of H1 2011, managed 76% of total banking transactions through non-branch channels.

In its lending activities, the Group recorded loan growth of over 16% compared with year-end 2010, mainly driven by Yapı Kre-di’s focus on higher margin loan segments including general purpose (34% ytd) and SME loans (22% ytd) on the local cur-rency retail side and project finance loans on the foreign cur-rency corporate side. As the leading bank in financing energy projects, Yapı Kredi achieved a financing volume of US$ 3 bn for this sector as of H1 2011. In terms of asset gathering, the Group recorded deposit growth of around 7% compared with year-end 2010, driven by foreign currency deposits due to the impact of regulatory changes on Turkish Lira deposits. Asset quality continued to improve in the first six months of 2011, driven by a reduction /stabilisation of non-performing loan (NPL) inflows, sustained collections, credit infrastructure improvements and continuing loan growth. As a result, Yapı Kredi’s NPL ratio declined to 2.9%. Yapı Kredi continued its branch expansion efforts in H1 2011 and opened 20 new branches to reach 891 branches as of the end of June 2011, thereby maintaining the fourth largest branch network in Turkey with a 9.2% market share. The bank is planning to open a total of 60 new branches in 2011.



russia: After January-February 2011, a weakened Russian banking sector started to recover and showed positive trends in Q2 2011 in line with overall improvements in the economy, spurred by slow growth in total assets and a recovery in lend-ing activity and deposit gathering in both the corporate and retail segments. UniCredit holds its ground as the largest for-eign bank in Russia and is ranked among the 10 largest banks in the country. The bank maintains a strong position in the mar-ket with a large capitalisation and strong performance ratios: 34% cost / income ratio and 20% return on equity for H1 2011. The bank recorded a Q2 2011 operating profit of RUR 4.9 bn (3.9% higher than in Q1 2011), which pushed up the H1 2011 operating profit by 24% on the H1 2010 figure. Revenues con-tinued to improve in Q2 2011, rising by 4.1% q/q, to RUR 7.4 bn on account of better net trading results and higher fee income. Fees rose by 17% q/q, supported by stronger trade finance business. Tight cost control mechanisms limited the increase in costs to 4.3% q /q in Q2 2011. Net writedowns on loans were positively influenced by a permanent decrease in non-performing loans, resulting in a 29% y /y decline of H1 2011 risks costs. A one-off transaction in May related to the revaluation of the bank’s shares in MICEX (Moscow Interbank Currency Exchange) generated an increase in the Q2 2011 net profit to RUR 5.4 bn (reflecting an increase of almost 80% q/q). The bank’s balance sheet total increased by 7.7% q/q to RUR 561 bn, fueled by an increase in the loan portfolio of 8% q /q to RUR 419 bn. The total deposit volume of the bank increased by 4.9% q/q to RUR 300 bn.

croatia: Zagrebačka banka (ZABA) Group performed well in H1 2011, achieving a net profit of HRK 696 m, thereby outper-forming H1 2010 by HRK 261 m (+60%). This performance was driven by 12% y /y revenue growth. Total revenues reached HRK 2,208 m (+12.4% yoy) as a result of volume growth, lower funding costs, replacement bond revaluation and collection of suspended income. Cost and process efficiency was steadily improved, resulting in a cost / income ratio of 45% which is a notable improvement compared to the 50% reported in H1 2010. Despite the challenging economic environment, ZABA reaffirmed its leading position in the retail, private bank-ing, small business and CIB business segments. Commercial initiatives related to real estate were well received by custom-ers (special offers financed by the bank: “Green Loans” with 126% growth of the portfolio in H1 2011, subsidised housing loans, with ZABA taking a 56% participation in these loans). The bank launched a new m-zaba mobile banking application for Android software, a “first” in the market. The “Craftsmen & Partner” programme was launched in May in cooperation with

the Croatian Chamber of Trades and Crafts and partners, tar-geting the market of 90,000 craftsmen as businesses and indi-vidual customers with VISA cards. The Multiplus loyalty pro-gramme, launched in cooperation with the largest local retailer and telecom company, recorded remarkable growth – more than 160,000 private customers participated, accounting for almost 20% of the total private customer base. Total loans to individuals and small businesses reached HRK 37.5 bn, while deposits amounted to HRK 43.2 bn. Total loans to corporate customers grew from HRK 35 bn at the end of 2010 to HRK 38.5 bn in June 2011. Deposits by corporate customers, which in June amounted close to HRK 15.5 bn, indicate a steady increase from the end of 2010. Market share in corpo-rate loans increased from 26% at year-end 2010 to 27% in May 2011, and from 25% at year-end 2010 to 27% for corpo-rate deposits. Financing & Advisory maintained its position as the leading investment banking house in the SEE region. This achievement was recently recognised by EMEA Finance, which named ZABA Best Investment Bank in Croatia for 2010.

unicredit bank czech republic achieved good revenue growth of 5% in H1 2011 compared with the same period of last year. The bank’s profitability was strongly affected by the write-down on Greek bonds. Net of this effect, consolidated profit grew by 3% y /y. In H1 2011 the bank continued to pur-sue its retail expansion plan by opening additional retail outlets. UniCredit Bank Czech Republic was named “Best Bank of 2011” by Hospodářské Noviny, a prestigious Czech economic newspaper. The contest, involving 18 Czech banks, was based on a combination of products and services offered to custom-ers, and on the economic performance of each bank. UniCredit Bank Czech Republic confirmed its leading position by winning the contest again after being awarded the title in 2009.

unicredit bank Slovakia achieved significant revenue growth of 19% y /y in H1 2011, driven by all areas of cus-tomer business. The most important component was net inter-est income, which rose by as much as 20% y /y, underpinned by very positive net trading results and fee income. The bank succeeded in keeping operating costs at last year’s level. The improved economic environment and the good asset qual-ity resulted in a significant decrease of loan loss provisions of 29% y /y and contributed to the exceptional development of the net profit in a y / y comparison. Customer loans increased by 9% y /y, thanks to an upward trend in all business lines (primarily in the retail segment), and reached € 2.7 bn. The growth of total deposits of 12% y /y stemmed mainly from corporate business.



unicredit bank Hungary confirmed its good performance in H1 2011, with profit trends supported by steady revenue growth despite the special bank levy and weak domestic demand. Total interest income rose by 8% y /y, whilst fee income increased by 6% y /y in H1 2011. Operating expenses, impacted by the bank levy, showed an upward trend which was contained by the bank’s strict cost policy. Excluding the bank levy, expenses grew by a moderate 1% y /y. As a result, the cost / income ratio was close to 50%. In H1 2011 the loan loss provision declined y / y, largely as a result of the brighter economic environment. Loans to custom-ers increased by 1% q /q, supported mainly by retail loans and in particular by the appreciation of the Swiss franc against the Hungarian forint. The volume of deposits, mainly from corporate customers, declined. As a result, the net loan-to-deposit ratio reached 112% in Q2 2011.

Despite a comparatively unfavourable macro situation, with the country lagging behind the general business cycle, unicredit bank Slovenia always retained its profitability and, similar to the performance in 2010, achieved strong revenues of € 42 m in H1 2011 (+25% compared to the same period in 2010). This growth was driven primarily by the development of net interest income,

which increased to € 30 m (+18%) as a consequence of improved margins, the bank’s good funding position and the collection of dividend income. Risk costs in H1 2011 amounted to € 13 m (+ € 5 m y / y). Profit before tax for H1 2011 totalled € 9 m, 14% above the level of H1 2010. The bank also success-fully managed to improve its loan-to-deposit ratio by increasing customer deposit volume by 20% compared with the end of H1 2010. In its business with private customers, the bank, with three new branches in Q2, is well on the way to expanding its network. In corporate banking, the bank is well placed to benefit from its strong ties with other banks within the UniCredit network by offer-ing cross-border solutions. The Group’s know-how will also allow the bank to continue to support customers’ bond placements (such as the bank’s successful joint lead management of the € 1.5 bn bond issue of the Republic of Slovenia in H1 2011) and to participate in public finance and large-scale infrastructure projects.

In bosnia and Herzegovina (B&H), the Group is represented by two banks, UniCredit d.d. Mostar and UniCredit a.d. Banja Luka. Recent economic trends in B&H continue to indicate a moderate and gradual economic recovery in B&H. UniCredit as

Net operating profit of CEE banks (€ m)

Turkey

Russia

Croatia

Czech Rep.

Bulgaria

Hungary

Serbia

Romania

Ukraine

Slovakia

Bosnia

Slovenia

Baltic states

Kazakhstan

–120 –100 –80 –60 –40 –20 0 20 40 60 80 100 120 140 160 180 200 220 240 260 280 300 320

First half of 2010First half of 2011

275

178

115

76

51

49

28

24

17

17

17

9

2

–13



a Group takes the leading market position in terms of both total assets and total deposits. Through a balanced development of loans and deposits, the Group has a loan-to-deposit ratio of slightly below 93% as of 30 June 2011. Furthermore, the two banks’ performance figures confirm the position of the most profitable banking group in the country which serves over 1.2 million clients through a network of 134 branches (90 of UniCredit Bank Mostar and 44 of UniCredit a.d. Banja Luka). In H1 2011, net profit after tax increased by an impressive 142% y /y, thanks to revenue growth and lower loan loss provisions (which decreased by 34% compared with the same period of the previous year). As a result of the simultaneous growth of net interest income and non-interest income, total revenues grew by 14% y /y, whilst total expenses increased by only 1% y /y. The cost / income ratio improved significantly to 62% (compared with 70% in H1 2010). Operating profit therefore improved significantly, by 43% y /y.

unicredit bank Serbia continues its positive trend and recorded about 60% y /y growth in net profit, significantly out-performing the overall banking sector. The main reason for this good result is very strong revenue growth (H1 2011 +37% y /y, mainly net interest income but also improved fees and net trad-ing result) and strict cost management. The cost / income ratio further improved to 34%. At the end of Q2 2011, total assets amounted to RSD 166 bn, representing an increase of 8% y /y. Net profit after tax for H1 2011 amounted to about € 25 m (RSD 2.6 bn, +61%). Revenues per employee grew by 35%, reflecting the continued top performance of UniCredit Bank Ser-bia. As of 30 June 2011, the bank operated with 71 branches, with a further increase in branches planned for the second half of the current year.

In romania, unicredit Tiriac bank (ucT) achieved a 13% growth in revenues in Q2 2011 compared to Q1 2011, yet rev-enues decreased by 8.7% in H1 2011 compared to H1 2010 (reaching approximately RON 600 m in H1 2011) largely due to accounting adjustments related to interest accruals from non-performing loans, the impact of statutory regulations and spread compression. Operating costs rose by 5.2% compared with the same period of the previous year, influenced by higher VAT costs after budget consolidation measures in the middle of 2010, a more than 50% increase in the deposit insurance rate, and 8% y /y inflation. The cost of risk for on- and off-balance sheet exposures improved y / y. The NPL ratio closed at 8.6%, improving by 130 bp compared with year-end 2010. UCT recorded growth of over 7% y /y in gross loans, with stable

growth of market share in all segments. In the corporate bank-ing segment gross loans increased by 12% y /y, while the retail segment saw 3.3% growth. Customer deposits declined by 4.6% y /y due to the repayment of large expensive tickets while lower segments experienced stable growth. Activities focused mainly on mortgage-backed lending, corporate lending, large base deposits, small business models and risk-free transac-tional business.

In H1 2011 unicredit bulbank, market leader in Bulgaria, improved its financial standing, capitalising on its high reputa-tion and on improved customer satisfaction. Total assets on a consolidated basis increased by 4% y /y to € 5.9 bn. Gross customer loans accounted for 72% of total assets. Retail loans grew by 5% y /y, while corporate loans improved by 4% y /y. As business activities focused on deposit collection, in Q2 total deposits amounted to € 3.5 bn, up by 3% y /y, while corporate deposits increased by 6% y /y. Shareholder’s equity increased by 13% y /y to approximately € 850 m. Investment sentiment in the country remained low, and this was accompanied by the continued weakness of consumer budgets. Despite the unfa-vourable environment, the bank managed to lift revenue by 8% y /y in H1 2011 to € 157 m, supported by both net interest income and net fees and commissions. Net interest rose by a notable 9% y /y to € 114 m due to an increase in the loan portfolio and a balanced pricing policy on customer deposits. Net fee income increased by 7% y /y, mainly in the area of loans, payment transactions and documentary business. Enhanced cost management and improved operating efficiency limited the growth of total operating costs, which were up by just 1% y /y in H1 2011 and helped to improve the cost /income ratio by 2.7 percentage points to 39.4%. Consequently, gross operating profit was up by 13% y /y to € 95 m. Given the still challenging economic environment, loan loss provisions continued growing, reaching € 45 m (H1 2010: € 34 m). The bank’s consolidated profit after minority interests was € 43 m.

In Q2 2011 ukrsotsbank in Ukraine focused its commercial activities on increasing the bank’s customer loan portfolio, and achieved growth of UAH 380 m compared with Q1 2011. New lending activity concentrated on corporate customers with a good risk profile in all sub-segments (large corporates and medium-sized enterprises). At the same time, due to extensive advertising and the development of special offers, the bank boosted the number of new retail loans. Applications received in H1 2011 already reached almost three times the number recorded in 2010 as a whole. In Q2 2011, the favourable trend



of the bank’s customer deposits continued with growth of more than 7% q/q. This resulted in a further improvement of the loan-to-deposit ratio, to 188% as of 30 June 2011 (–13 per-centage points q /q). In this context, Ukrsotsbank’s total reve-nues increased to almost UAH 1.4 bn and – based on a contin-ued strong focus on cost management – the bank achieved a gross operating profit of UAH 756 m. Profit before tax of Ukrsotsbank in H1 2011 amounted to UAH 194 m, six times higher than in H1 2010, growth which is also due to a signifi-cant decrease of the provisioning charge. The net profit of UAH 569 m was supported by a one-off positive tax effect related to the recognition of real estate assets following the implementation of the new Ukrainian tax code in Q2 2011.

In kazakhstan the ATF Group’s loan portfolio remained flat in Q2 2011 with a moderate increase in the retail segment off-set by the gradual reduction of the more challenging portion of the portfolio. The positive development of the bank’s corporate loan book in the last months of 2010 was also confirmed in Q2 2011, with an increase of 50% or about KZT 88 bn compared with September 2010. The growth in lending is mainly attributa-ble to loans granted to the natural resource, energy and trans-portation segments – core sectors of the Kazakh economy. Fur-thermore, the client profiles of ATF are continuing to improve with the acquisition of major blue chip state-owned and interna-tional companies which enhance the asset quality mix. In order to further support growth in the loan books and improve capital-

isation, the bank increased its share capital by KZT 40 bn in May 2011, with all shares bought by UniCredit. The bank’s liquidity position is supported by the continued inflow of deposits, mostly from large companies, with the loan-to-deposit ratio falling to 110% from 124% in Q1 2011. Revenues in H1 2011 reached about KZT 16.8 bn, an increase of 83% y /y, with positive contributions from net interest (+15% y /y) and fee income; in Q2 2011, however, revenues declined slightly compared with Q1 (–1%). Costs remained stable in H1 2011 compared with the same period in 2010, and this contributed to a significant year-on-year improvement in operating profit.

In Q2 2011 the three baltic countries (Estonia, Lithuania and Latvia), saw continued signs of economic recovery, espe-cially in Estonia. The positive trend of net interest income recorded by AS UniCredit Bank, which is active in all three Baltic states, in the last four quarters continued in Q2 2011; fee income also contributed to an increase of total revenues compared to Q1 2011. At the same time, the bank is continuing to pursue tight cost discipline, resulting in a further improve-ment of its cost / income ratio. The bank’s gross operating profit improved over Q1 2011. UniCredit Bank’s capital adequacy ratio increased substantially to 13.1% due to a capital injection of LVL 13.8 m in May 2011. External funds were obtained from institutions such as the European Investment Bank and the Nordic Investment Bank.



Income statement of the consolidated banking subsidiaries in CEE

(€ m)

cee buSIneSS SegmenT 1) cZecH repubLIc SLovAkIA HungAry

H1 2011 H1 2010 H1 2011 H1 2010 H1 2011 H1 2010 H1 2011 H1 2010

Net interest income 1,639.0 1,617.4 129.6 115.6 41.4 34.4 113.3 104.6Net fee and commission income 585.5 575.4 59.3 54.4 14.2 13.3 49.8 46.4Net trading income 73.4 34.2 3.0 3.5 3.0 1.3 –2.9 –5.0Net other operating income/expenses 36.9 15.9 0.8 0.4 0.3 0.5 2.5 3.3operating income 2,334.9 2,243.0 192.7 173.9 58.9 49.4 162.5 149.2operating costs –1,085.9 –1,033.4 – 91.1 –75.5 –36.8 –36.8 –80.2 –63.7operating profit 1,249.0 1,209.6 101.6 98.4 22.0 12.6 82.3 85.4Net write-downs of loans –520.4 –640.5 –26.0 –27.6 –5.5 –7.7 –32.9 –41.7net operating profit 728.6 569.1 75.6 70.8 16.5 4.9 49.4 43.8Provisions for risks and charges – 9.6 –16.6 –0.1 –0.9 –0.2 0.2 –0.4 –0.9Integration costs –1.8 –1.8 –1.8 –1.7 0.0 0.0 0.0 0.0Net income from investments 44.9 19.2 –41.1 0.6 0.0 0.2 –2.4 1.5profit before tax 762.2 569.9 32.7 68.7 16.3 5.3 46.6 44.4 Cost / income ratio 46.5% 46.1% 47.3% 43.4% 62.6% 74.5% 49.4% 42.7%Risk/earnings ratio 31.7% 39.6% 20.0% 23.9% 13.3% 22.5% 29.0% 39.8%

Exchange rate 24.350 25.730 Euro Euro 269.449 271.687 Appreciation/depreciation against the euro +5.7% +0.8%

(€ m)

SLovenIA buLgArIA romAnIA bALTIcS

H1 2011 H1 2010 H1 2011 H1 2010 H1 2011 H1 2010 H1 2011 H1 2010

Net interest income 31.9 24.9 113.9 104.6 92.2 115.0 7.7 5.9Net fee and commission income 11.2 11.4 40.7 38.0 28.0 25.5 –0.6 –1.8Net trading income –1.2 –2.5 2.4 2.7 23.2 17.8 0.2 3.0Net other operating income/expenses 0.1 –0.2 0.4 0.5 0.2 0.0 –0.4 0.1operating income 42.0 33.7 157.4 145.8 143.6 158.4 6.9 7.1operating costs –19.8 –18.7 –61.9 –61.3 –72.5 –69.4 –6.4 –6.9operating profit 22.2 14.9 95.5 84.5 71.1 88.9 0.4 0.2Net write-downs of loans –13.0 –7.8 –44.6 –33.9 –47.5 –47.5 1.6 –3.6net operating profit 9.1 7.1 50.9 50.6 23.6 41.5 2.1 –3.4Provisions for risks and charges 0.0 0.0 0.1 –0.3 1.7 0.1 0.0 0.0Integration costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Net income from investments 0.1 1.0 0.6 0.7 0.1 0.0 0.0 0.0profit before tax 9.2 8.1 51.5 51.1 25.4 41.6 2.1 –3.4 Cost / income ratio 47.2% 55.7% 39.3% 42.0% 50.5% 43.8% 93.5% 97.9%Risk/earnings ratio 0.0% 0.0% 0.0% 0.2% –1.9% –0.1% 0.0% 0.0%

Exchange rate Euro Euro 1.956 1.956 4.180 4.149 0.707 0.708 Appreciation/depreciation against the euro +0.0% –0.7% +0.2%

1) The CEE business segment for segment reporting purposes comprises the total figures for the CEE banks shown in this table and the Vienna-based CEE headquarters.



(€ m)

Turkey 2) ruSSIA kAZAkHSTAn ukrAIne

H1 2011 H1 2010 H1 2011 H1 2010 H1 2011 H1 2010 H1 2011 H1 2010

Net interest income 281.3 340.5 283.4 262.8 75.4 69.9 105.2 137.6Net fee and commission income 180.1 181.4 72.6 65.0 –3.9 –20.3 20.5 21.2Net trading income 28.2 6.2 –0.2 –21.3 9.8 11.1 0.5 3.3Net other operating income/expenses 16.2 19.0 5.5 –0.2 0.6 –13.6 –2.3 –0.6operating income 505.8 547.0 361.3 306.3 82.0 47.1 123.9 161.5operating costs –234.6 –237.2 –123.0 –112.8 –43.5 –47.1 –56.2 –54.3operating profit 271.2 309.8 238.3 193.5 38.5 0.1 67.7 107.1Net write-downs of loans 3.9 –4.3 –59.9 –85.1 –51.7 –103.6 –51.0 –105.1net operating profit 275.0 305.5 178.3 108.4 –13.1 –103.6 16.7 2.0Provisions for risks and charges – 9.7 –14.0 –0.1 0.0 0.0 0.0 0.5 0.0Integration costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net income from investments 2.9 5.5 84.0 2.2 –0.1 4.6 0.2 0.6profit before tax 268.2 297.0 262.3 110.6 –13.2 – 98.9 17.4 2.6 Cost / income ratio 46.4% 43.4% 34.0% 36.8% 53.0% 99.8% 45.4% 33.6%Risk/earnings ratio –1.4% 1.3% 21.2% 32.4% 68.5% 148.2% 48.5% 76.4%

Exchange rate 2.208 2.021 40.135 39.886 204.900 195.404 11.177 10.578 Appreciation/depreciation against the euro –8.5% –0.6% –4.6% –5.4%

(€ m)

croATIA boSnIA SerbIA

H1 2011 H1 2010 H1 2011 H1 2010 H1 2011 H1 2010

Net interest income 221.7 185.6 44.0 36.8 42.4 30.6Net fee and commission income 60.8 65.1 14.3 14.5 10.4 7.9Net trading income 2.5 7.8 3.3 2.7 1.6 1.3Net other operating income/expenses 13.5 11.9 –0.1 0.2 –0.2 –0.3operating income 298.5 270.5 61.5 54.2 54.1 39.5operating costs –135.2 –135.2 –38.2 –37.9 –18.1 –16.5operating profit 163.4 135.2 23.3 16.3 36.0 23.0Net write-downs of loans –48.2 –62.6 –6.6 –10.0 –7.8 –5.5net operating profit 115.1 72.6 16.7 6.3 28.2 17.6Provisions for risks and charges 0.4 –0.5 –0.1 –0.2 0.0 –0.1Integration costs 0.0 –0.1 0.0 0.0 0.0 0.0Net income from investments 0.5 1.3 0.0 0.8 0.2 0.1profit before tax 116.0 73.3 16.6 6.8 28.4 17.6 Cost / income ratio 45.3% 50.0% 62.2% 70.0% 33.5% 41.7%Risk/earnings ratio –0.2% 0.3% 0.3% 0.6% 0.0% 0.2%

Exchange rate 7.398 7.266 1.956 1.956 101.884 100.096 Appreciation/depreciation against the euro –1.8% 0.0% –1.8%

2) pro quota



Following the sharp upturn in 2010 and early 2011, the latest leading indicators suggest that the momentum will weaken in the industrial countries (see the chart with the Purchasing Managers’ Indices). While a temporary pause in the growth trend would be typical for the middle of a cycle, we do not see any signs of a turn-around – provided the debt problems and the recent bout of weak-ness in stock markets do not lead to a prolonged withdrawal of investors and downward adjustments can be avoided.

The expansion of the threshold countries, led by China, continues to drive global economic growth; China’s economy has slowed from 10% to 8%. Even the US economy is expected to pick up slightly after a particularly weak first half-year. In Europe, there is still a wide gap between the core and peripheral countries: consolidation requirements and inflation rates of over 3% in the summer months, as high commodity prices are passed on to the consumer, are damp-ening domestic demand in most countries. However, the level of industrial output in the competitive core countries is so high that other sectors of the economy will benefit from the resulting multiplier effect for some time. In addition, real GDP at the beginning of the second half of the current year is well above the average of the pre-vious year, which means that annual growth rates will be strong even if economic activity slows in the remaining months of the year (annual forecasts for 2011: euro area +1.7%, Germany +3.5%, Austria +3.1%, CEE +4.1%).

The increase in key interest rates widely expected for autumn may be delayed in the event of particularly slow growth in the summer and it may fail to come in the event of new financial market turbu-lence. The benchmark yield curve will remain flat. The government debt crisis continues to smoulder also after the most recent rescue package that was made available to Greece, and it threatens to spread to large countries. One of the greatest risks for future devel-opments is that European politicians fail to create an instrument and effective institutions for dealing with the debt crisis, thereby dispelling the scepticism towards the large countries with high government debt ratios. Such failure would result in greater interest rate /exchange rate volatility and higher liquidity costs for banks.

In Austria there have recently been growing signs of a slowdown in economic activity. After the strong counter-movement that followed the sharp economic downturn in 2009, the Austrian economy is returning to moderate growth trends. In June 2011, industry ended its two-year period of dynamic growth at a high level of industrial output, with overall economic growth consequently losing momentum in the next few months. The Bank Austria Purchasing Managers’ Index stood at 50.8 points in July, only just above the 50-point growth threshold. Even the level of incoming orders of Austrian man-ufacturing has deteriorated, so that the outlook of companies is now generally more cautious. While two-digit year-on-year output growth is unlikely for the second half of 2011, we expect Austrian industry to achieve strong growth of 8 per cent in 2011 as a whole, thanks to the strong momentum seen in the early part of the year. Although the recent more unfavourable survey results were significantly influenced by discussions concerning the debt problems of the EU’s peripheral countries and the raising of the US debt ceiling, they also point to weaker foreign demand. The role of exports as the engine of growth will diminish in the second half of the year, but the domestic econ-omy will follow a stable trend: backlog demand is leading to a strong rise of over 7% in investment in equipment, while a recovery of construction investments is still not in sight. At the same time, the deterioration in consumer sentiment since the early summer reflects concerns over higher inflation (given high commodity prices, inflation will be over 3% also in the second half of the year) and expectations that there will also be cuts in public sector budgets.

In the latter half of 2011 economic growth will slow to a seasonally adjusted level of about 0.3 per cent quarter-on-quarter. Thanks to the strong start to the year, we still expect economic growth of 3.1% for 2011 as a whole. In 2012 the Austrian economy will grow much more slowly, as further interest rate increases by the ECB in the second half of 2011 start to have an impact. In addition, demand for business loans remains flat given the uncertain business environment and companies’ improved liquidity. The trend in personal loans is not much better: private households are more likely to further reduce the savings ratio, a development underway since the middle of 2008.

Outlook

Deutschland

Euro-Gebiet

Global industry returns to growth threshold

30323436384042444648505254565860626466

China

GermanyAustriaEuro areaUSA

2007 2008 2009 2010 2011

50 = growththreshold

Monthly survey among purchasing managers in industry (PMI)



central and eastern europe continues on a path of sound growth. Anticipated average growth rates, which in the last few months were revised upwards with a few exceptions, are twice as high as those of Western Europe (see the table of forecasts). 2011 will see economic growth of over 4% (without Poland, weighted by GDP). Although the CEE region is influenced by global economic developments, the CEE countries are together represented among the prospering market segments, with their production mix (ranging from the supplier industry to producers of basic goods) and the regional orientation of their foreign trade (which is directed primarily towards the core European countries). There are good prospects that domestic demand, which (with the positive exceptions of Tur-key, Ukraine and Kazakhstan) has been flat in the year to date, may make a stronger contribution to economic growth in the second half of 2011 as long as export-driven incomes and employment remain high and the global economy does not experience a renewed down-turn. Under these conditions real purchasing power should increase as inflation rates subside (in 2010 inflation rates were fuelled by increases in energy and food prices which currently have a high index weighting).

The CEE region was hardly affected by the government debt crisis in the euro area. Budget consolidation measures adopted by most countries in 2010 and in the current year – at the expense of domestic demand – also had the purpose of cutting the current account deficit and reducing dependence on external funding. Today, the region is considerably less vulnerable to economic strains than in 2008. This is confirmed by the fact that credit spreads hardly changed as a result of these measures, while the rating of some countries was upgraded. The region’s stability is also underlined by structural reforms in connection with requirements imposed by the IMF, renewed privatisation efforts, co-financing by the EBRD and EU structural aid, and – not least – the EU conver-gence and accession process in the Balkan region. The risk of another escalation of the debt crisis in the euro area cannot be ruled out. A downturn in international investment activity would primarily affect Kazakhstan, Croatia, Slovenia and Hungary; Turkey experienced the strongest capital inflows in absolute terms. The CEE region’s trade links with South-West Europe are insignificant. However, Greek banks have an important market position as foreign banks in Bulgaria, as well as in Serbia and Romania. Barring excep-

tional disruptions that might have an impact on the CEE region, we believe that the conditions for continued market growth and further market penetration in the banking sector are sound, given the region’s growth and financial stability.

Economic growth (real GDP, % over the previous year)

2008 2009 2010 2011 2012

World (purchasing power parities) +2.8 –0.6 +4.8 +4.1 +4.4USA +0.0 –2.6 +2.9 +1.8 +2.5Euro area +0.3 –4.1 +1.7 +2.1 +1.7… Austria +2.2 –3.9 +2.1 +3.1 +1.8

Czech Republic +2.5 –4.1 +2.3 +2.3 +2.8Slovakia +5.8 –4.8 +4.0 +3.1 +3.9Hungary +0.8 –6.7 +1.2 +2.8 +3.5Slovenia +3.7 –8.1 +1.2 +1.9 +2.4central europe +2.7 –5.4 +2.2 +2.6 +3.2Poland +5.1 +1.7 +3.8 +4.4 +3.5Bulgaria +6.2 –5.5 +0.2 +2.8 +3.3Romania +7.1 –7.1 –1.3 +1.8 +3.3Croatia +2.2 –6.0 –1.2 +1.2 +2.5Bosnia and Herzegovina +5.4 –2.9 +0.5 +1.8 +2.5Serbia +3.8 –3.5 +1.8 +2.7 +3.5Estonia –5.1 –13.9 +3.0 +4.5 +4.3Latvia –4.1 –17.8 –0.5 +3.8 +3.5Lithuania +2.8 –14.7 +1.3 +5.1 +3.2See and baltic states +4.2 –8.0 –0.2 +2.5 +3.2Russia +5.2 –7.8 +4.0 +4.6 +3.9Turkey +0.7 –4.7 +8.9 +5.8 +4.1russia and Turkey +3.8 –6.9 +5.5 +5.0 +4.0Kazakhstan +3.3 +1.2 +7.0 +6.5 +5.9Ukraine +2.1 –15.1 +4.2 +4.7 +5.0kazakhstan and ukraine +2.6 –8.2 +5.4 +5.5 +5.4

CEE (with Poland, GDP-weighted) +3.8 –5.9 +4.2 +4.3 +3.8CEE (without Poland, GDP-weighted) +3.6 –6.9 +4.3 +4.3 +3.9CEE (Bank Austria-weighted)*) +3.2 –6.1 +2.9 +3.3 +3.9

Bank Austria market (GDP-weighted) +3.5 –6.6 +4.0 +4.2 +3.7Bank Austria market (Bank Austria-weighted) +2.9 –5.4 +2.6 +2.9 +3.3

*) weighted by contribution of Bank Austria’s subsidiaries to operating income in CEE regionSource: UniCredit Research. Forecasts CEE: 17 June 2011, rest of world: 1 August 2011



Outlook for Bank Austria’s performance The good performance in the first half of 2011 largely confirmed our expectations for 2011, which we set out in our 2010 Annual Report. This means that no major changes in the overall picture are expected for the remaining part of the year. Supported by demand in CEE, volume will continue to grow, though only moderately in a multi-year comparison. In combination with a flat yield curve, and in the context of funding and liquidity costs which may temporarily rise from time to time, this indicates that net interest will more or less match the level of the previous year as a whole. For the second half of 2011 we expect that commercial transactions and turnover in securi-ties will grow again and companies will continue to launch new bond issues. After a weak first six months, net fees and commissions should therefore pick up after the summer months.

As expected, the improvement in net operating profit in the first half of 2011 was driven by a decline in net write-downs of loans and pro-visions for guarantees and commitments; in other words, the provi-sioning charge absorbed a significantly lower proportion of the strong operating profit. We think that this favourable effect will also deter-mine the overall picture in the second half of the year, even if legacy burdens from crisis and recession will have an impact in several countries and although asset quality usually improves with some time lag. The decline in the provisioning charge cannot be expected to continue at the same pace. But on the basis of what has been achieved, Bank Austria’s net operating profit (operating profit after net write-downs of loans and provisions for guarantees and commit-ments) for 2011 as a whole will be significantly higher than in 2010. In the first six months of 2011, profit trends were affected by the write-down on Greek government bonds, but this was largely offset by better-than-expected developments in other non-operating items in the first six months. Provided we do not encounter additional incidents of this kind in the second half of the year, as we all hope, we assume that the stronger operating performance will also lead to a significant improvement in net profit for 2011.

In response to the moderate trend in retail banking business we launched a number of service initiatives in 2011. Within the Family & Sme banking Division, the use of modern communication chan-nels for advisory services (“Smart Banking”) and mobile banking (apps for iPhone and Android technologies) has proved to be a great success. Our initiative for strengthening staff capacity in the branch network was already partly implemented in the first half of 2011 with the recruitment of new employees and internal transfers to customer service units of employees who received appropriate training for this purpose. And our customer service network for small and medium-sized enterprises (SMEs) with a turnover of up to € 50 m is now operative in almost 60 locations (up from the previous 22) throughout Austria. Advisory services related to financial assistance schemes for SMEs are being strongly expanded in cooperation with a number of

public, private and international partners, and a new “Business Billion” lending scheme for small and medium-sized businesses is supporting the economic upswing. In private banking we will con-sistently expand our leading market position by pursuing our quality initiative (including current portfolio analysis in cooperation with UniCredit experts in the international network) and focusing on the ten best providers of mutual funds (preferred partners). As market leader in the sub-segment of private foundations we established a service centre for foundations in May 2011, with a team of experts covering the entire Austrian market. After a consolidation phase, the cIb division will again pursue sustainable growth in its corporate banking business in the remaining part of 2011. Among other objec-tives, we aim to expand our position as strategic financial partner and companies’ partner of first choice for capital market activities. Another focus is on cross-border business, where we have launched the “Umbrella Facility”, a cross-border financing facility to which CEE subsidiaries of Austrian companies have quick and easy access, initially in ten CEE countries. Our efforts to serve the public sector included expanding the “Gemeinde-Milliarde“ lending scheme for municipalities and developing a new “Projects and Investments” advi-sory tool. In cee we invest in organic growth and market penetration on a selective basis. In implementing the branch network expansion programme (900 new branches are planned to be opened by 2015 in Turkey, Romania, Hungary, Russia and Bulgaria), we will take into account the general economic environment and location-based factors. New-generation mobile and online banking services, often underestimated as low-cost alternative sales channels, are rapidly advancing in CEE countries. Innovations (BankAir, StickAir) proved very successful in pilot operations in Croatia and will be rolled out in five additional CEE countries. With a number of cross-border initia-tives we are further enhancing our leading position as a network bank for international corporate customers.

The outlook for banking business remains mixed. Although earn-ings have recently shown a favourable trend, banks are still far from achieving the minimum level of profitability which would permit them to further improve their risk-bearing capacity on their own while also generating a sufficient return on equity. The cumulative effect of vari-ous stricter regulatory requirements – including, at the international level, the Basel 3 package, additional capital buffers for major inter-national banks (SIFIs) and possibly financial transaction taxes and product restrictions, and at the local level, increased contributions to deposit guarantee schemes and additionally national bank levies or tax increases – could sooner or later reach the limits of the banking sector’s performance capabilities and impact the banks’ important function for the overall economy. We aim to absorb the additional costs resulting from burdens such as bank levies, new rules for the deposit guarantee scheme and Basel 3 by unlocking synergy poten-tial in settlement and back-office operations and by using economies of scale in production which are available to us as a large European banking group with a presence in many locations.

Consolidated Financial Statements in accordance with IFRSs


of the Bank Austria Group for the first half of 2011

Statement of Comprehensive Income

Income statement (€ m)

1 Jan.–30 June 2011

1 Jan.–30 June 2010

Interest income and similar revenues 4,199 4,146Interest expense and similar charges –1,951 –1,928net interest margin 2,248 2,218Fee and commission income 1,173 1,222Fee and commission expense –251 –234net fees and commissions 922 988Dividend income and similar revenue 15 13Gains and losses on financial assets and liabilities held for trading 150 237Fair value adjustments in hedge accounting 2 –13Gains and losses on disposal of: 96 18

a) loans 2 –2b) available-for-sale financial assets 93 20c) held-to-maturity investments – –d) financial liabilities – –

Gains and losses on financial assets / liabilities at fair value through profit or loss 15 9Operating incOme 3,449 3,471Impairment losses on: –841 –894

a) loans –705 –882b) available-for-sale financial assets –84 –c) held-to-maturity investments –50 –d) other financial assets –2 –11

net income from financial activities 2,607 2,577Premiums earned (net) 63 53Other income (net) from insurance activities –51 –44net income from financial and insurance activities 2,620 2,586Administrative costs: –1,803 –1,685

a) staff expense –1,008 – 948b) other administrative expense –795 –737

Provisions for risks and charges –31 – 90Impairment /write-backs on property, plant and equipment – 97 –104Impairment /write-backs on intangible assets –52 –55Other net operating income 93 71Operating cOsts –1,891 –1,863Profit (loss) of associates 105 69Gains and losses on tangible and intangible assets measured at fair value – –1Impairment of goodwill –53 –167Gains and losses on disposal of investments –6 20tOtal prOfit Or lOss befOre tax frOm cOntinuing OperatiOns 775 644Tax expense (income) related to profit or loss from continuing operations –110 –165net prOfit 665 480Attributable to:Owners of the parent company 640 459Non-controlling interests 25 21Earnings per share (in €, basic and diluted) 5.53 4.14



Other comprehensive income (€ m)

1 Jan.–30 June 2011

1 Jan.–30 June 2010

Gains/ losses on assets held for sale (available-for-sale reserve) 334 67Gains / losses on cash flow hedges (cash flow hedge reserve) –187 200Changes at companies accounted for under the equity method 9 11Foreign currency translation – exchange differences –320 879Foreign currency translation relating to assets held for sale – –Actuarial gains / losses on defined-benefit plans – –Taxes on items directly recognised in equity –22 –66Other changes 62 31recognised directly in equity –123 1,121net profit 665 480tOtal Of incOme and expenses recOgnised in the repOrting periOd 542 1,601Attributable to:Owners of the parent company 523 1,570Non-controlling interests 19 19

Taxes on items directly recognised in equity (€ m)

1 Jan.–30 June 2011

1 Jan.–30 June 2010

Gains/ losses on assets held for sale (available-for-sale reserve) –72 –18Gains / losses on cash flow hedges (cash flow hedge reserve) 50 –48taxes On items directly recOgnised in equity –22 –66



of the Bank Austria Group at 30 June 2011

Statement of Financial Position

Assets (€ m)

30 June 2011 31 dec. 2010

Cash and cash balances 2,387 3,030Financial assets held for trading 3,238 4,304Financial assets at fair value through profit or loss 217 304Available-for-sale financial assets 20,155 17,544Held-to-maturity investments 3,759 4,446Loans and receivables with banks 19,365 19,749Loans and receivables with customers 131,617 130,093Hedging derivatives 2,072 2,449Changes in fair value of portfolio hedged items (+/–) 20 44Investments in associates and joint ventures 2,519 2,518Insurance reserves attributable to reinsurers 1 –Property, plant and equipment 2,601 2,553

of which held for investment 775 479Intangible assets 3,545 3,751

of which goodwill 3,063 3,225Tax assets 1,280 1,254

a) current tax assets 259 248b) deferred tax assets 1,021 1,006

Non-current assets and disposal groups classified as held for sale 42 2Other assets 1,026 1,008tOtal assets 193,844 193,049

Liabilities and equity (€ m)

30 June 2011 31 dec. 2010

Deposits from banks 33,332 33,130Deposits from customers 98,224 100,284Debt securities in issue 30,497 27,555Financial liabilities held for trading 2,056 2,448Financial liabilities at fair value through profit or loss 1,468 1,651Hedging derivatives 2,302 2,909Changes in fair value of portfolio hedged items (+/–) – –Tax liabilities 532 543

a) current tax liabilities 121 126b) deferred tax liabilities 411 417

Liabilities included in disposal groups classified as held for sale – –Other liabilities 3,006 2,573Provisions for risks and charges 4,261 4,297

a) post-retirement benefit obligations 3,800 3,791b) other provisions 461 506

Insurance reserves 167 183Equity 17,998 17,476

of which non-controlling interests (+/–) 544 546tOtal liabilities and equity 193,844 193,049



Statement of Changes in Equity

(€ m)

sub- scribed capital

capital reserVes

retained earnings

fOreign currency

translatiOn

reserVes in accOrdance With ias 391)

actuarial lOsses in

accOrdance With ias 19

share- hOlders’

equity

nOn-cOn-trOlling

interests equity

as at 1 January 2010 1,469 5,325 9,295 –1,727 148 –660 13,850 539 14,388Capital increase 212 1,788 2,000 2,000Transaction costs of capital increase –20 –20 –20Changes in the group of consolidated companies 2 2Shares in controlling companies –2 –2 –2Recognised income and expenses 501 870 199 1,570 31 1,601Dividend paid –20 –20as at 30 June 2010 1,681 7,091 9,795 –857 347 –660 17,398 551 17,948

1) Reserves in accordance with IAS 39 1 Jan. 2010 30 June 2010 Cash flow hedge reserve 62 239 Available-for-sale reserve 86 108 Total 148 347

sub- scribed capital

capital reserVes

retained earnings

fOreign currency

translatiOn

reserVes in accOrdance With ias 392)

actuarial lOsses in

accOrdance With ias 19

share- hOlders’

equity

nOn-cOn-trOlling

interests equity

as at 1 January 2011 1,681 7,096 10,121 –1,334 111 –746 16,931 546 17,476Changes in the group of consolidated companies 1 1Shares in controlling companies – – –Recognised income and expenses 715 –317 125 523 19 542Dividend paid –21 –21as at 30 June 2011 1,681 7,097 10,836 –1,651 236 –746 17,454 544 17,998

2) Reserves in accordance with IAS 39 1 Jan. 20113) 30 June 2011 Cash flow hedge reserve 81 –57 Available-for-sale reserve 30 292 Total 111 236

3) Allocation restated to ensure full comparability with 30 June 2011.




Statement of Cash Flows


(€ m)

1 Jan.– 30 June 2011

1 Jan.– 30 June 2010

cash and cash equiValents at end Of preViOus periOd 3,030 3,246Cash flows from operating activities 1,271 –1,636Cash flows from investing activities –1,764 –684Cash flows from financing activities –143 1,730Effects of exchange rate changes –7 –34cash and cash equiValents at end Of periOd 2,387 2,622


Notes to the Consolidated Financial Statements

Basis for the preparation of the financial statementsThe consolidated financial statements of the Bank Austria Group for the first six months of 2011 (1 January 2011 to 30 June 2011) are based on the financial statements of UniCredit Bank Austria AG and its subsidiaries. They have been prepared in euro, the Group currency. These consolidated finan-cial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs), with IAS 34, “Interim Financial Reporting”, being applied. Unless indicated otherwise, all figures are in millions of euros (€).

The consolidated financial statements of the Bank Austria Group for the first six months of 2011 have not been audited. They include the statement of comprehensive income, the statement of financial position, the statement of changes in equity, the statement of cash flows, segment reporting and other financial information.

Application of amended and new IASs and IFRSs

Effects arising from changes in accounting methodsFinancial reporting standards applied for the first timeSince 1 January 2011, the revised version of IAS 24 Related Party Disclosures and improvements to IFRSs 2010 which are of relevance to the Group have been applied for the first time. The application of these financial reporting standards had no material effect on the consolidated financial state-ments.

New financial reporting standardsThe amendments issued by the IASB (International Accounting Standards Board) in the first half of 2011 have not been applied in the Group because they are effective for financial years beginning on or after 1 January 2012 or 1 January 2013. The Group is currently examining the possible effects of the implementation of the standards on the consolidated financial statements.

Effects of amendments to IAS 39 and IFRS 7In accordance with the amendments to IAS 39 and IFRS 7, “Reclassification of Financial Assets”, published in October 2008, and in response to the rare circumstances presented by the financial market crisis, we reclassified asset-backed securities (ABSs / specific securitised assets) from “financial assets held for trading” into “loans and receivables with customers” with effect from 1 July 2008 at the fair values determined at that date. Regardless of this fact, the following disclosure table shows the effects as at 30 June 2011 of reclassification by item in the statement of financial position and in the income statement.

Reclassified financial assets: carrying amount, fair value and effects on comprehensive income (€ m)

accOunting pOrtfOliO befOre reclas-sificatiOn

accOunting pOrtfOliO after reclassificatiOn

carrying amOunt

as at 30 June

2011

fair Value as at

30 June 2011

incOme/expenses absent reclassificatiOn

(befOre taxes)

incOme/expenses recOgnised during the periOd (befOre taxes)

types Of instrumentsfrOm

measurement OtherfrOm

measurement Other

a. debt securities –1,281 –1,186 53 37 – 26HFT AFS –7 –7 – – – –HFT HTM –41 –43 –2 1 – 1HFT Loans to banks – – – – – –HFT Loans to customers –1,233 –1,136 55 35 – 24AFS Loans to banks – – – – – –AFS Loans to customers – – – – – –

b. equity instruments – – – – – –c. loans – – – – – –d. units in investment funds – – – – – –tOtal –1,281 –1,186 53 37 – 26



Notes (CoNTINuEd)

Impairment testIn Bank Austria, goodwill allocated to each cash-generating unit was also tested for impairment as at 30 June 2011. Performance trends which were below the original assumptions used for planning purposes required the recognition of an impairment loss of € 42 m on goodwill related to UniCredit Securities International Limited Cyprus and the recognition of an impairment loss of € 5 m on goodwill related to Closed Joint Stock Company UniCredit Securities in Russia as at 30 June 2011.

Group of consolidated companies and changes in the group of consolidated companies of the Bank Austria Group in the first half of 2011Consolidated companies

number

Opening balance 124additions 9

Newly established companies 4Companies newly added to the group of consolidated companies 5

disposals 2Companies sold or liquidated 1Mergers 1

Other changes*) 4clOsing balance 135

*) These changes relate to companies which were previously included in a sub-group and are now reported separately.

Companies accounted for under the proportionate consolidation methodnumber

Opening balance 17Additions –Disposals –clOsing balance 17

Companies accounted for under the equity methodnumber

Opening balance 25additions 6

Newly established companies –Newly added companies 6

disposals 2clOsing balance 29



AdditionsNewly established companiesname Of cOmpany dOmicile additiOn as at

UniCredit Turn-Around Management GmbH Vienna 1 Jan. 2011UCTAM RK Limited Liability Company Almaty 1 Jan. 2011UCTAM Ukraine LLC Kiev 1 Jan. 2011UCTAM RO S.R.L. Bucharest 30 June 2011

The objects of the Uctam companies are to acquire, manage, administer and sell equity interests, properties and other business assets, especially of or from real estate projects and other business undertakings, deriving from debt restructuring.

Companies newly added to the group of consolidated companiesname Of cOmpany dOmicile additiOn as at

Center Heinrich-Collin-Straße 1 Vermietungs GmbH u. Co KG Vienna 30 June 2011DC elektronische Zahlungssysteme GmbH Vienna 30 June 2011VIENNA DC Tower 1 Liegenschaftsbesitz GmbH Vienna 1 Jan. 2011VIENNA DC Tower 2 Liegenschaftsbesitz GmbH Vienna 1 Jan. 2011VIENNA DC Bauträger GmbH Vienna 1 Jan. 2011

Companies newly added to the group of consolidated companies did not meet the materiality criterion before 2011.

Companies newly added to those accounted for under the equity methodname Of cOmpany dOmicile additiOn as at

BA GebäudevermietungsgmbH Vienna 30 June 2011Cash Service Company AD Sofia 30 June 2011Kapital-Beteiligungs Aktiengesellschaft Vienna 30 June 2011MARINA CITY Entwicklungs GmbH Vienna 30 June 2011MARINA TOWER Holding GmbH Vienna 30 June 2011Wiener Kreditbürgschaftsgesellschaft m.b.H. Vienna 30 June 2011

Companies newly added to those accounted for under the equity method did not meet the materiality criterion before 2011.

disposalsConsolidated companiesname Of cOmpany dOmicile dispOsal as at

Bank Austria Global Information Service GmbH Vienna 30 June 2011

Companies accounted for under the equity methodname Of cOmpany dOmicile dispOsal as at

RCG Holding LLC (previously Ramius LLC) New York 31 May 2011UniCredit Business Partner SCPA Cologno Monzese 31 May 2011

Mergersname Of merged cOmpany dOmicile name Of absOrbed cOmpany dOmicile merger as at

UniCredit Factoring Penzügyi Szolgoltato Zrt. Budapest UniCredit Bank Hungary Zrt. Budapest 1 Jan. 2011

Notes (CoNTINuEd)



Notes to the income statement

Interest income/ Interest expense

Interest expense and similar charges (€ m)

1 Jan.–30 June 20111 Jan.–

30 June 2010

depOsits securitiesOther

transactiOns tOtal tOtal

Deposits from central banks –1 X – –1 –17Deposits from banks –389 X – –389 –306Deposits from customers –1,027 X – –1,027 –1,078Debt securities in issue X –434 – –434 –402Financial liabilities held for trading – – –41 –41 –76Financial liabilities at fair value through profit or loss – –11 – –11 –13Other liabilities X X –3 –3 –1Hedging derivatives X X –46 –46 –34tOtal –1,416 –445 – 90 –1,951 –1,928

Interest income and similar revenues (€ m)

1 Jan.–30 June 20111 Jan.–

30 June 2010

debt securities lOansOther

transactiOns tOtal tOtal

Financial assets held for trading 31 – 49 80 125Financial assets at fair value through profit or loss 3 – – 3 4Available-for-sale financial assets 360 – – 360 229Held-to-maturity investments 117 – – 117 160Loans and receivables with banks 4 146 – 150 110Loans and receivables with customers 32 3,214 – 3,246 3,241Hedging derivatives X X 242 242 275Other assets X X 2 2 2tOtal 545 3,361 293 4,199 4,146



Notes to the income statement (CoNTINuEd)

Fee and commission income (€ m)

1 Jan.–30 June 2011

1 Jan.–30 June 2010

guarantees given 104 100credit derivatives 3 4management, brokerage and consultancy services: 386 424

securities trading 26 32currency trading 120 133portfolio management 90 94custody and administration of securities 53 64custodian bank 30 27placement of securities 11 11reception and transmission of orders 4 6advisory services 12 11distribution of third party services 41 46

collection and payment services 406 374securitisation servicing – –factoring 5 20tax collection services – –management of multilateral trading facilities – –management of current accounts 102 101Other services 167 199tOtal 1,173 1,222

Fee and commission expense (€ m)

1 Jan.–30 June 2011

1 Jan.–30 June 2010

guarantees received –39 –13credit derivatives –15 –22management, brokerage and consultancy services: –56 –63

trading in financial instruments –3 –5currency trading –1 –1portfolio management –11 –8custody and administration of securities –25 –33placement of financial instruments –1 –off-site distribution of financial instruments, products and services –15 –16

collection and payment services –121 –107Other services –20 –29tOtal –251 –234

Fee and commission income/Fee and commission expense

(€ m)

1 Jan.–30 June 2011 1 Jan.–30 June 2010

diVidendsincOme frOm units in

inVestment funds diVidendsincOme frOm units in

inVestment funds

Financial assets held for trading – – 1 –Available-for-sale financial assets 9 2 9 1Financial assets at fair value through profit or loss – – – –Investments 4 X 3 XtOtal 13 3 12 1

dividend income and similar revenue




Gains and losses on financial assets and liabilities held for trading(€ m)

1 Jan.–30 June 20111 Jan.–

30 June 2010unrealised

prOfitsrealised

prOfitsunrealised

lOssesrealised

lOsses net prOfit net prOfit

financial assets held for trading 19 166 –5 –170 10 179Debt securities 5 20 –4 –7 14 84Equity instruments 1 7 – –7 1 1Units in investment funds – – – – – –Loans – – – – – –Other 14 138 – –156 –5 94

financial liabilities held for trading – – –3 –1 –4 – 9Debt securities – – – – – –Deposits – – – – – –Other – – –3 –1 –4 – 9

Other financial assets and liabilities: exchange differences x x x x 19 344derivatives 406 598 –331 –573 125 –277

Financial derivatives 403 598 –330 –573 123 –240on debt securities and interest rates 316 590 –320 –563 24 63on equity securities and share indices 81 2 –6 –3 74 89on currency and gold X X X X 24 –390other 6 6 –4 –8 1 –2

Credit derivatives 3 – –1 – 2 –37tOtal 426 764 –339 –744 150 237

Fair value adjustments in hedge accounting (€ m)

1 Jan.–30 June 2011

1 Jan.–30 June 2010

gains on:Fair value hedging instruments 16 17Hedged asset items (in fair value hedge relationship) 23 7Hedged liability items (in fair value hedge relationship) – –Cash-flow hedging derivatives – –total gains on hedging activities 39 24losses on:Fair value hedging instruments –34 –25Hedged asset items (in fair value hedge relationship) –3 –6Hedged liability items (in fair value hedge relationship) – –7Cash-flow hedging derivatives – –total losses on hedging activities –36 –37net hedging result 2 –13




(€ m)

1 Jan.–30 June 2011 1 Jan.–30 June 2010

gains lOsses net prOfit gains lOsses net prOfit

financial assetsLoans and receivables with banks – – – – – –Loans and receivables with customers 2 – 2 5 –8 –3Available-for-sale financial assets 156 –63 93 29 – 9 20

Debt securities 73 –63 10 13 – 9 4Equity instruments 81 – 81 16 – 16Units in investment funds 3 – 3 – – –Loans – – – – – –

Held-to-maturity investments – – – – – –tOtal assets 158 –63 96 35 –17 18

financial liabilitiesDeposits from banks – – – – – –Deposits from customers – – – – – –Debt securities in issue – – – – – –tOtal liabilities – – – – – –

tOtal 158 –63 96 35 –17 18

Gains and losses on disposals / repurchases

Net change in financial assets and liabilities at fair value through profit or loss

(€ m)

1 Jan.–30 June 20111 Jan.–

30 June 2010

unrealised prOfits

realised prOfits

unrealised lOsses

realised lOsses net prOfit net prOfit

financial assets 4 7 –10 – – 43Debt securities 1 3 –1 – 2 2Equity instruments – – – – – –Units in investment funds 3 4 – 9 – –2 41Loans – – – – – –

financial liabilities 17 1 – 9 –5 5 13Debt securities 17 1 – 9 –5 5 13Deposits from banks – – – – – –Deposits from customers – – – – – –

financial assets and liabilities in foreign currency: exchange differences x x x x – –credit and financial derivatives 27 2 –17 –1 10 –48tOtal 47 11 –37 –6 15 9



Impairment lossesImpairment losses on loans (€ m)

1 Jan.–30 June 20111 Jan.–

30 June 2010

Write-dOWns Write-bacKs

specific

Write-Offs Other pOrtfOliO specific pOrtfOliO tOtal tOtal

Loans and receivables with banks – – – – – – 7Loans and receivables with customers –16 –1,065 –26 333 70 –704 –889tOtal –16 –1,065 –26 333 70 –705 –882

Impairment losses on other financial transactions (€ m)

1 Jan.–30 June 20111 Jan.–

30 June 2010


specific


Guarantees given – –18 – 8 5 –5 –12Credit derivatives – – – – – – –Commitments to disburse funds – –3 – 6 1 4 –Other transactions – – – – – – –tOtal 0 –20 –0 14 5 –1 –11

Impairment losses on held-to-maturity investments (€ m)

1 Jan.–30 June 20111 Jan.–

30 June 2010


specific


Debt securities –47 –4 – – – –50 –Loans to banks – – – – – – –Loans to customers – – – – – – –tOtal –47 –4 0 0 0 –50 –0

Impairment losses on available-for-sale financial assets (€ m)

1 Jan.–30 June 20111 Jan.–

30 June 2010


specific

Write-Offs Other specific tOtal tOtal

Debt securities –83 – 1 –82 1Equity instruments – – x – –2Units in investment funds –2 – – –2 –Loans to banks – – – – –Loans to customers – – – – –tOtal –85 –0 1 –84 –0





(€ m)

1 Jan.–30 June 20111 Jan.–

30 June 2010

prOVisiOnsreallOcatiOn

surplus tOtal tOtal

Other provisionsLegal disputes –44 7 –37 –70Staff costs – – – –Other –13 19 5 –20tOtal –57 26 –31 – 90

Figures for the previous year adjusted to changes in presentation.

Net provisions for risks and charges

(€ m)

1 Jan.–30 June 2011

1 Jan.–30 June 2010

indirect taxes and duties –72 –23miscellaneous costs and expenses –723 –714

Advertising, marketing and communication –61 –59Expenses related to credit risk –14 –16Expenses related to personnel –30 –28Information and communication technology expenses –198 –190Consulting and professional services –35 –23Real estate expenses –166 –163Other functioning costs –218 –233

tOtal –795 –737

other administrative expenses

(€ m)

1 Jan.–30 June 2011

1 Jan.–30 June 2010

employees – 985 – 932Wages and salaries –713 –677Social charges –143 –138Severance pay – –Social security costs –27 –26Allocation to employee severance pay provision – –Provision for retirement payments and similar provisions –126 –111Payments to external pension funds –15 –14Costs related to share-based payments –3 –Other employee benefits –24 –41Recovery of compensation*) 66 75

Others –23 –16tOtal –1,008 – 948

*) This includes recovery of staff costs relating to Bank Austria employees who are not active within the Group.

Payroll




Other operating expenses (€ m)

1 Jan.–30 June 2011

1 Jan.–30 June 2010

Costs for operating leases – –Reclassification of gains / losses associated with cash flow hedges of non-financial assets or liabilities from equity to profit or loss (IAS 39, paragraph 98a) – –Non-deductible tax and other fiscal charges –1 –1Write-downs on improvements of goods owned by third parties –1 –1Costs related to the specific service of financial leasing – –Other –32 –51tOtal Other Operating expenses –34 –52

other net operating income

Other operating income (€ m)

1 Jan.–30 June 2011

1 Jan.–30 June 2010

recovery of costs – 1Other income 126 122

Revenue from administrative services 61 61Reclassification of valuation reserve relating to cash-flow hedging of non-financial assets / liabilities – –Revenues from rentals of real estate investments (net of operating direct costs) 9 7Revenues from operating leases 1 –Recovery of miscellaneous costs paid in previous years 2 2Revenues from finance lease activities – –Others 54 52

tOtal Other Operating incOme 127 123

Other net Operating incOme 93 71

(€ m)

1 Jan.–30 June 20111 Jan.–

30 June 2010

amOrtisatiOnimpairment

lOsses Write-bacKs net prOfit net prOfit

intangible assetsOwned –52 – – –52 –55

generated internally by the company –3 – – –3 –2other –49 – – –49 –53

finance leases – – – – –tOtal –52 0 0 –52 –55

Impairment on intangible assets

(€ m)

1 Jan.–30 June 20111 Jan.–

30 June 2010

depreciatiOnimpairment

lOsses Write-bacKs net prOfit net prOfit

property, plant and equipmentOwned – 98 – 1 – 97 –102

used in the business – 95 – 1 – 94 –101held for investment –3 – – –3 –1

finance lease –1 – – –1 –1used in the business –1 – – –1 –1held for investment – – – – –

tOtal – 98 0 1 – 97 –104

Impairment on property, plant and equipment



Earnings per shareDuring the reporting period, no financial instruments with a dilutive effect on the bearer shares were outstanding. Therefore basic earnings per share in accordance with IAS 33 equal diluted earnings per share in accordance with IAS 33. Earnings per share are calculated on the basis of the average number of shares outstanding (231.2 million shares). Earnings per share for the first six months of 2011 were € 2.77 (comparative figure for the same period of the previous year: € 2.07, based on 221.5 million shares).

(€ m)

1 Jan.–

30 June 20111 Jan.–

30 June 2010

propertyGains on disposal 5 6Losses on disposal – –Other assetsGains on disposal 2 16Losses on disposal –13 –2tOtal –6 20

Gains and losses on disposal of investments


(€ m)

1 Jan.–

30 June 20111 Jan.–

30 June 2010

companies subject to significant influenceincome 111 77

Revaluations 89 77Gains on disposal 22 –Write-backs – –Other gains – –

expense –6 –8Write-downs –2 –7Impairment losses –4 –1Losses on disposal – –Other negative changes – –

tOtal 105 69

Profit (Loss) of associates



Financial assets held for trading (€ m)

30 June 2011 31 dec. 2010

fair Value leVel 1

fair Value leVel 2

fair Value leVel 3 tOtal

fair Value leVel 1

fair Value leVel 2


financial assets (non-derivatives) 660 470 16 1,146 625 1,246 15 1,886Debt securities 637 470 13 1,119 604 1,245 14 1,863

Structured securities 10 – – 10 11 – – 11Other debt securities 627 469 13 1,109 593 1,245 14 1,852

Equity instruments 13 – 3 17 9 1 1 11Units in investment funds 9 – – 10 11 1 – 11Loans – – – – – – – –

Reverse repos – – – – – – – –Other – – – – – – – –

derivative instruments 1 2,061 30 2,092 1 2,378 39 2,418Financial derivatives 1 2,057 28 2,086 1 2,374 39 2,414

Trading 1 2,056 28 2,086 1 2,374 39 2,414Related to fair value option – – – – – – – –Other – – – – – – – –

Credit derivatives – 4 2 6 – 4 – 4Trading – 4 2 6 – 4 – 4Related to fair value option – – – – – – – –Other – – – – – – – –

tOtal 661 2,531 46 3,238 626 3,625 54 4,304

Notes to the statement of financial position

Financial assets at fair value through profit or loss

This item shows assets in respect of which Bank Austria used the option to designate financial instruments as at fair value through profit or loss in order to avoid inconsistencies in the valuation of assets and liabilities which are connected with each other. Most of these assets are complex struc-tures with embedded derivatives.

(€ m)

30 June 2011 31 dec. 2010

fair Value leVel 1

fair Value leVel 2


fair Value leVel 1

fair Value leVel 2


Debt securities 11 46 38 94 12 73 46 131Structured securities – – – – – – – –Other debt securities 11 46 38 94 12 73 46 131

Equity instruments – – – – 15 – – 15Units in investment funds 12 – 110 123 – – 157 158Loans – – – – – – – –

Structured – – – – – – – –Other – – – – – – – –

tOtal 23 46 149 217 27 73 204 304



Notes to the statement of financial position (CoNTINuEd)

Available-for-sale financial assets (€ m)

30 June 2011 31 dec. 2010

fair Value leVel 1

fair Value leVel 2


fair Value leVel 1

fair Value leVel 2


Debt securities 5,480 12,146 1,497 19,123 4,844 10,441 1,606 16,892Structured securities – – 419 419 – 1 419 420Other 5,480 12,146 1,079 18,704 4,844 10,440 1,187 16,472

Equity instruments 52 114 639 805 53 113 295 461Measured at fair value 52 114 607 773 53 113 256 421Carried at cost – – 32 32 – – 40 40

Units in investment funds 27 94 106 227 11 99 81 191Loans – – – – – – – –tOtal 5,559 12,354 2,242 20,155 4,908 10,654 1,982 17,544

Held-to-maturity investments (€ m)

30 June 2011 31 dec. 2010

bOOK Valuefair Value

leVel 1fair Value

leVel 2fair Value

leVel 3 bOOK Valuefair Value

leVel 1fair Value

leVel 2fair Value

leVel 3

Debt securities 3,759 2,525 1,195 407 4,446 2,896 1,543 180Structured securities – – – – – – – –Other securities 3,759 2,525 1,195 407 4,446 2,896 1,543 180

Loans – – – – – – – –tOtal 3,759 2,525 1,195 407 4,446 2,896 1,543 180

Loans and receivables with banks (€ m)

30 June 2011 31 dec. 2010

loans to central banks 5,470 6,155Time deposits 592 975Compulsory reserves 4,825 4,511Reverse repos 10 628Other 42 42

loans to banks 13,895 13,594Current accounts and demand deposits 3,955 3,527Time deposits 6,684 6,569Other loans 3,255 3,498

Reverse repos 712 951Finance leases – –Other 2,544 2,547

Debt securities – –Structured – –Other – –

tOtal (carrying amOunt) 19,365 19,749tOtal (fair Value) 19,462 19,836Loan loss provisions deducted from loans and receivables 48 61




Loans and receivables with customers (€ m)

30 June 2011 31 dec. 2010

perfOrming impaired tOtal perfOrming impaired tOtal

Current accounts 12,597 215 12,812 11,764 325 12,089Reverse repos 455 – 455 385 – 385Mortgages 23,050 1,750 24,800 23,056 1,695 24,751Credit cards and personal loans, including wage assignment loans 8,755 150 8,906 8,703 154 8,856Finance leases 385 17 402 363 24 387Factoring 946 7 953 997 8 1,005Other transactions 76,735 4,966 81,700 76,694 4,167 80,861Debt securities 1,562 26 1,589 1,694 65 1,759

Structured securities – – – – – –Other debt securities 1,562 26 1,589 1,694 65 1,759

tOtal (carrying amOunt) 124,486 7,132 131,617 123,655 6,438 130,093tOtal (fair Value) 124,868 7,094 131,962 124,477 6,391 130,868Loan loss provisions deducted from loans and receivables 791 6,461 7,252 896 6,040 6,936

Property, plant and equipment (€ m)

30 June 2011 31 dec. 2010

assets for operational use 1,826 2,074Owned 1,776 2,025

Land 181 199Buildings 1,219 1,393Office furniture and fittings 139 147Electronic systems 141 180Others 96 105

leased 50 49Land – –Buildings 49 48Office furniture and fittings – –Electronic systems – –Others 1 1

held-for-investment assets 775 479Owned 775 479

Land 297 243Buildings 478 237

leased – –Land – –Buildings – –

tOtal 2,601 2,553

Hedging derivatives (€ m)

30 June 2011 31 dec. 2010

fair Value leVel 1

fair Value leVel 2


fair Value leVel 1

fair Value leVel 2


financial derivatives – 2,068 4 2,072 – 2,448 1 2,449Fair value – 437 – 437 – 495 – 495Cash flows – 1,631 4 1,634 – 1,953 1 1,954Net investment in foreign subsidiaries – – – – – – – –

credit derivatives – – – – – – – –Fair value – – – – – – – –Cash flows – – – – – – – –

tOtal 0 2,068 4 2,072 0 2,448 1 2,449




Intangible assets (€ m)

30 June 2011 31 dec. 2010

goodwill 3,063 3,225Other intangible assets 482 526

Assets carried at cost 482 526Intangible assets generated internally 32 39Other assets 450 487

Assets valued at fair value – –Intangible assets generated internally – –Other assets – –

tOtal 3,545 3,751

Non-current assets and disposal groups classified as held for sale(€ m)

30 June 2011 31 dec. 2010

individual assetsFinancial assets – –Equity investments 15 –Property, plant and equipment 27 2Intangible assets – –Other non-current assets – –total 42 2

asset groups classified as held for saleFinancial assets held for trading – –Financial assets at fair value through profit or loss – –Available-for-sale financial assets – –Held-to-maturity investments – –Loans and receivables with banks – –Loans and receivables with customers – –Equity investments – –Property, plant and equipment – –Intangible assets – –Other assets – –total – –

assets 42 2

deposits from banks(€ m)

30 June 2011 31 dec. 2010

deposits from central banks 746 757deposits from banks 32,586 32,373

Current accounts and demand deposits 3,438 3,447Time deposits 12,935 12,809Loans 16,149 16,002

Reverse repos 1,431 967Other 14,718 15,034

Liabilities in respect of commitments to repurchase treasury shares – –Other liabilities 65 115

tOtal 33,332 33,130fair Value 33,691 33,782




deposits from customers(€ m)

30 June 2011 31 dec. 2010

Current accounts and demand deposits 43,203 41,842Time deposits 49,628 51,943Loans 580 893

Reverse repos 429 590Other 151 302

Liabilities in respect of commitments to repurchase treasury shares 585 565Other liabilities 4,228 5,042tOtal 98,224 100,284fair Value 98,518 100,762

debt securities in issue(€ m)

30 June 2011 31 dec. 2010

carrying amOunt

fair Value leVel 1

fair Value leVel 2

fair Value leVel 3

carrying amOunt

fair Value leVel 1

fair Value leVel 2

fair Value leVel 3

securitiesBonds 28,613 1,214 26,548 741 24,913 1,094 23,305 390

Structured 192 – – 192 130 – – 130Other 28,422 1,214 26,548 549 24,783 1,094 23,305 261

Other securities 1,883 5 797 1,080 2,642 23 1,498 1,119Structured 5 5 – – 23 23 – –Other 1,878 – 797 1,080 2,620 – 1,498 1,119

tOtal 30,497 1,219 27,345 1,821 27,555 1,117 24,803 1,510

Financial liabilities held for trading (€ m)

30 June 2011 31 dec. 2010

fair Value leVel 1

fair Value leVel 2


fair Value leVel 1

fair Value leVel 2


financial liabilities 11 7 – 18 9 30 – 39deposits from banks – – – – – – – –deposits from customers 11 7 – 18 9 30 – 39debt securities – – – – – – – –

Bonds – – – – – – – –Other securities – – – – – – – –

derivative instruments – 1,977 61 2,038 18 2,326 65 2,409financial derivatives – 1,906 32 1,938 18 2,252 42 2,312

Trading – 1,903 32 1,935 – 2,249 42 2,291Relating to fair value option – – – – 18 – – 18Other – 3 – 3 – 4 – 4

credit derivatives – 71 29 100 – 73 23 97Trading derivatives – 71 29 100 – 73 23 97Relating to fair value option – – – – – – – –Other – – – – – – – –

tOtal 11 1,984 61 2,056 27 2,355 65 2,448



(€ m)

30 June 2011 31 dec. 2010

fair Value leVel 1

fair Value leVel 2


fair Value leVel 1

fair Value leVel 2


Deposits from banks – – – – – – – –Deposits from customers – – – – – – – –Debt securities – 1,468 – 1,468 – 1,651 – 1,651

Structured – 1,468 – 1,468 – 1,651 – 1,651Others – – – – – – – –

tOtal 0 1,468 0 1,468 0 1,651 0 1,651

Financial liabilities at fair value through profit or loss

This item shows liabilities in respect of which Bank Austria used the option to designate financial instruments as at fair value through profit or loss in order to avoid inconsistencies in the valuation of assets and liabilities which are connected with each other. Most of these liabilities are debt securities and complex structures with embedded derivatives. In the first six months of 2011, changes in fair values resulting from changes in our own funding costs were – € 0.7 m (same period of the previous year: € 38.1 m).


Hedging derivatives (€ m)

30 June 2011 31 dec. 2010

fair Value leVel 1

fair Value leVel 2


fair Value leVel 1

fair Value leVel 2


financial derivatives – 2,288 13 2,302 – 2,883 25 2,909Fair value – 142 – 142 – 185 – 185Cash flows – 2,146 13 2,160 – 2,698 25 2,723Net investment in foreign subsidiaries – – – – – – – –

credit derivatives – – – – – – – –Fair value – – – – – – – –Cash flows – – – – – – – –

tOtal 0 2,288 13 2,302 0 2,883 25 2,909

Provisions for risks and charges(€ m)

30 June 2011 31 dec. 2010

pensions and other post-retirement benefit obligations 3,800 3,791Other provisions for risks and charges 461 506

Legal disputes 203 197Staff expenses 5 5Other 252 304

tOtal 4,261 4,297



Segment reporting

Reconciliation of reclassified accounts to mandatory reporting schedule(€ m)

1 Jan. – 30 June 2011

1 Jan. – 30 June 2010

Net interest 2,248.1 2,218.4Dividends and other income from equity investments 102.0 82.1

Dividend income and similar revenue 15.1 13.2minus: dividends from equity instruments held for trading –0.1 –0.4

Profit (loss) of associates – of which: Income (loss) from equity investments valued at net equity 87.0 69.4Net fees and commissions 922.0 988.0Net trading, hedging and fair value income 168.0 233.5

Gains (losses) on financial assets and liabilities held for trading 150.0 236.8plus: dividends from equity instruments held for trading 0.1 0.4Fair value adjustments in hedge accounting 2.5 –12.7Gains (losses) on disposal or repurchase of financial liabilities 0.1 0.1Gains (losses) on financial assets and liabilities designated at fair value through profit or loss 15.4 9.0

Net other expenses/ income 105.1 79.2Gains (losses) on disposals / repurchases of loans and receivables – not impaired 0.2 0.3Premiums earned (net) 63.2 52.8Other income (net) from insurance activities –50.9 –44.1Other net operating income 93.2 71.1

minus: other operating income – of which: recovery of expenses –0.4 –0.6plus: Impairment on tangible assets – other operating leases –0.2 –0.2

Operating incOme 3,545.2 3,601.2Operating cOsts –1,940.7 –1,828.5Operating prOfit 1,604.5 1,772.7Net write-downs of loans and provisions for guarantees and commitments –704.7 –895.7

Gains (losses) on disposal and repurchase of loans 2.1 –2.4minus: gains (losses) on disposals / repurchases of loans and receivables – not impaired –0.2 –0.3

Impairment losses on loans –704.8 –881.7Impairment losses on other financial assets –1.8 –11.3

net Operating prOfit 899.8 877.0Provisions for risks and charges –31.1 – 90.2Integration costs –1.8 –2.0Net income from investments –29.4 38.7

Gains (losses) on disposal and repurchase of available-for-sale financial assets 93.4 20.5Gains (losses) on disposal and repurchase of held-to-maturity investments 0.0 0.0Impairment losses on available-for-sale financial assets –84.1 –0.4Impairment losses on held-to-maturity investments –50.5 –0.1

plus: Impairment losses/write-backs on property owned for investment 0.0 0.0Profit (loss) of associates 105.2 69.1

minus: Profit (loss) of associates – Income (loss) from equity investments valued at net equity –87.0 –69.4Gains and losses on tangible and intangible assets –0.2 –0.8Gains (losses) on disposal of investments –6.1 19.9

prOfit befOre tax 837.5 823.5Income tax for the period –112.7 –167.4

Tax expense (income) related to profit or loss from continuing operations –110.4 –164.6minus: Taxes on Purchase Price Allocation effect –2.3 –2.8

prOfit (lOss) fOr the periOd 724.9 656.1Non-controlling interests –25.2 –20.8net prOfit attributable tO the OWners Of the parent cOmpany befOre ppa 699.6 635.3Purchase Price Allocation effect –7.2 – 9.4Impairment of goodwill –52.5 –167.1net prOfit attributable tO the OWners Of the parent cOmpany 639.9 458.8



description of segment reportingThe segment reporting format is based on the internal reporting structure of business segments, which reflects management responsibilities in the Bank Austria Group in 2011. The business segments are presented as independent units with their own capital resources and responsibility for their own results. This also meets the requirements of IFRS 8.

Starting with the reporting period in 2011, segment reporting was adjusted to the new structure of the Group’s income statement. Goodwill impairment and the Purchase Price Allocation effect are now shown immediately before net profit attributable to the owners of Bank Austria.

The definition of business segments is primarily based on organisational responsibility for customers.

Family & SME BankingResponsibility for the Family & SME Banking Division covers Bank Austria’s business with private customers (except Private Banking customers) and small and medium-sized enterprises (SMEs) with a turnover of up to € 50 m. Also included in this Division are the credit card business and factoring business.

Private BankingPrivate Banking has responsibility for private customers with investments exceeding € 500,000. Schoellerbank AG and various other small subsidiaries are also included in the Private Banking Division.

Corporate & Investment BankingThe Corporate & Investment Banking segment covers the sub-segments large customers (international corporates, financial institutions, public sector) and real estate, business with corporate customers whose turnover exceeds € 50 m, and treasury activities. The Corporate & Investment Banking Division includes, beside others, Bank Austria Wohnbaubank AG, the Bank Austria Real Invest Group and smaller subsidiaries in CEE countries with a focus on investment banking as consolidated companies.

CEEThe CEE business segment includes the commercial banking units of the Bank Austria Group in the region of Central and Eastern Europe (including Turkey and Kazakhstan).

Corporate CenterThe Corporate Center comprises all equity interests that are not assigned to other segments and it also includes the contribution from UniCredit Global Leasing, in which Bank Austria has a shareholding interest of 31.01% accounted for under the equity method. Also included are inter-segment elimi-nations and other items which are not to be assigned to other business segments.

MethodsNet interest is split up according to the market interest rate method. Costs are allocated to the individual business segments from which they arise.

The result of each business segment is measured by the profit earned by the respective segment.

The interest rate applied to investment of equity allocated to the business segments is determined for one year in advance as part of the budgeting process. It is composed of a “risk-free” interest rate plus a margin of the historical average (6 years) of the 5-year CDS spread of UniCredit.

Overhead costs are allocated to the business segments according to a key of distribution applied within the Group on a uniform basis (50% costs, 20% revenues, 20% FTEs and 10% proportionately).

In 2011, capital allocated to the business segments in UniCredit Bank Austria AG, based on the Tier 1 capital ratio, is 7% of risk-weighted assets. Capital allocation to subsidiaries reflects actual IFRS capital. The adjustment item with respect to the consolidated IFRS capital of the Bank Austria Group is reflected in the Corporate Center.

Segment reporting (CoNTINuEd)



Restatements:A number of structural changes took place within the business segments and in the group of consolidated companies. This means that results for 2011 are not fully comparable with those for 2010. For this reason, the segment results for 2010 have been adjusted to the new structure. The difference compared with Bank Austria’s overall results is presented in a separate column showing “Restatement differences”.

The main pro-forma adjustments are as follows:• UniCreditCAIBAGandUniCreditCAIBSecuritiesUKLtd.weresoldtoUniCreditBankAG(theformerBayerischeHypo-undVereinsbankAG),

Munich, in June 2010. The result of the Corporate & Investment Banking Division for 2010 was therefore adjusted for this effect.• UniCreditCAIBSecuritiesRomaniaSAwastransferredfromCEEtoCorporate&InvestmentBanking.• InJanuary2011,businesswithsmallandmedium-sizedenterprises(SMEs)withaturnoverbetween€3mand€50mwastransferredfrom

the Corporate & Investment Banking Division to the Family & SME Banking Division. As part of this transfer of customers, Factorbank AG was also transferred from Corporate & Investment Banking to Family & SME Banking. The relevant comparative figures for 2010 were also restated.





(€ m)

family & sme banKing diVisiOn

priVate banKing diVisiOn

cOrpOrate & inVestment

banKing diVisiOn

central eastern

eurOpe diVisiOn

cOrpOrate center

restatement differences 1)

banK austria grOup

Net interest 1–6 2011 359 25 396 1,627 –158 – 2,2481–6 2010 360 20 394 1,613 –192 22 2,218

Dividends and other income 1–6 2011 3 – 29 12 58 – 102from equity investments 1–6 2010 1 – 26 4 51 –1 82Net fees and commissions 1–6 2011 221 44 107 586 –36 – 922

1–6 2010 229 49 122 575 9 3 988Net trading, hedging and 1–6 2011 1 – 7 73 86 – 168fair value income/ loss 1–6 2010 – 1 –24 34 140 82 234Net other expenses/ income 1–6 2011 3 – 5 37 59 – 105

1–6 2010 2 – 10 16 57 –7 79Operating incOme 1–6 2011 586 70 544 2,335 9 – 3,545

1–6 2010 592 71 528 2,243 66 100 3,601Operating cOsts 1–6 2011 –441 –51 –188 –1,086 –175 – –1,941

1–6 2010 –419 –49 –178 –1,033 –146 –3 –1,829Operating prOfit 1–6 2011 145 20 356 1,249 –166 – 1,605

1–6 2010 174 22 350 1,210 –80 97 1,773Net write-downs of loans and provisions 1–6 2011 –103 –2 –79 –520 – – –705for guarantees and commitments 1–6 2010 –139 – –115 –641 –1 – –896net Operating prOfit 1–6 2011 43 17 277 729 –166 – 900

1–6 2010 34 22 236 569 –81 97 877Provisions for risks and charges 1–6 2011 10 2 1 –10 –34 – –31

1–6 2010 –1 – – –17 –72 – – 90Integration costs 1–6 2011 – – – –2 – – –2

1–6 2010 – – – –2 – – –2Net income from investments 1–6 2011 2 – 7 45 –83 – –29

1–6 2010 11 – 1 19 6 1 39prOfit befOre tax 1–6 2011 54 19 285 762 –283 – 838

1–6 2010 45 22 237 570 –147 98 823Income tax for the period 1–6 2011 –12 –5 –63 – 98 66 – –113

1–6 2010 –10 –6 –29 –114 47 –55 –167prOfit (lOss) fOr the periOd 1–6 2011 41 14 222 664 –217 – 725

1–6 2010 34 16 208 456 –100 42 656Non-controlling interests 1–6 2011 –3 – – –32 10 – –25

1–6 2010 –7 – –1 –29 16 – –21net prOfit attributable tO the 1–6 2011 38 14 222 632 –206 – 700OWners Of the parent cOmpany befOre ppa

1–6 2010 27 16 206 427 –84 42 635

Purchase Price Allocation effect 1–6 2011 – – – – –7 – –71–6 2010 – – – – –4 –6 – 9

Goodwill impairment 1–6 2011 – – – – –53 – –531–6 2010 – – – – –167 – –167

net prOfit attributable tO the 1–6 2011 38 14 222 632 –266 – 640OWners Of the parent cOmpany 1–6 2010 27 16 206 427 –254 36 459risk-weighted assets (rWa) (avg.) 1–6 2011 13,850 514 25,789 80,123 4,771 – 125,046

1–6 2010 11,850 520 28,085 73,156 5,247 901 119,759Equity (avg.) 2) 1–6 2011 1,269 128 2,332 11,805 2,062 – 17,595

1–6 2010 750 123 1,976 10,867 2,760 – 16,475Cost / income ratio in % 1–6 2011 75.2 72.1 34.5 46.5 n.m. n.m. 54.7

1–6 2010 70.7 68.8 33.7 46.1 n.m. n.m. 50.8Risk /earnings ratio in % 3) 1–6 2011 28.4 n.m. 18.7 31.7 n.m. n.m. 30.0

1–6 2010 38.6 n.m. 27.2 39.6 n.m. n.m. 38.9

1) The segment results for 2010 have been restated. The difference compared to Bank Austria’s results for 2010 is presented in a separate column showing “Restatement differences”, which mainly relate to the sale of UniCredit CAIB AG.

2) Total IFRS capital for the subsidiaries allocated to the respective Division together with standardised capital for the rest of the respective Division. The difference compared to the consolidated equity of the Bank Austria Group is shown in the Corporate Center. Starting 2011 capital allocation is based on actual RWAs (until 2010 based on budget RWAs).

3) Risk / earnings ratio: net writedowns of loans and provisions for guarantees and commitments measured against net interest and dividends and other income from equity investments n.m. = not meaningful

Segment reporting 1–6 2011/1–6 2010




Segment reporting Q1–Q2 2011/Q1–Q4 2010(€ m)




banKing diVisiOn

central eastern

eurOpe diVisiOn

cOrpOrate center


banK austria grOup

Net interest Q2 2011 181 14 198 809 –82 – 1,120Q1 2011 178 11 198 818 –77 – 1,128Q4 2010 171 12 210 820 –69 – 1,142Q3 2010 174 11 212 846 –59 – 1,183Q2 2010 180 10 206 827 – 94 8 1,137Q1 2010 179 10 189 787 – 98 15 1,081

Dividends and other income Q2 2011 – – 9 10 32 – 52from equity investments Q1 2011 3 – 20 2 26 – 50

Q4 2010 3 – 13 2 27 – 45Q3 2010 – – 5 5 19 – 30Q2 2010 1 – 17 3 25 – 46Q1 2010 – – 9 1 27 – 36

Net fees and commissions Q2 2011 107 20 50 297 –15 – 460Q1 2011 114 24 57 288 –21 – 462Q4 2010 108 27 63 313 – – 511Q3 2010 106 19 64 305 –2 – 492Q2 2010 118 25 64 301 7 3 518Q1 2010 111 25 58 275 2 1 470

Net trading, hedging and Q2 2011 1 – 4 35 15 – 54fair value income/ loss Q1 2011 – – 4 38 72 – 114

Q4 2010 –1 – 3 69 –21 – 49Q3 2010 –1 – –23 42 25 – 43Q2 2010 – 1 –8 14 113 38 158

Q1 2010 – – –17 20 28 45 76Net other expenses/ income Q2 2011 2 – 3 23 30 – 58

Q1 2011 2 – 2 14 29 – 47Q4 2010 1 –1 1 19 34 – 54Q3 2010 –1 – 5 28 26 – 57Q2 2010 1 1 5 15 30 –3 48Q1 2010 2 – 5 1 28 –5 31

Operating incOme q2 2011 290 35 264 1,174 –20 – 1,744q1 2011 296 35 280 1,161 29 – 1,801q4 2010 282 38 290 1,222 –30 – 1,802q3 2010 277 30 263 1,226 8 – 1,804q2 2010 300 37 284 1,160 80 45 1,906q1 2010 292 35 245 1,083 –14 55 1,695

Operating cOsts q2 2011 –227 –26 – 96 –554 –87 – – 990q1 2011 –214 –25 – 92 –532 –88 – – 950q4 2010 –217 –27 – 90 –561 –86 4 – 978q3 2010 –215 –25 – 93 –533 –74 4 – 936q2 2010 –211 –25 – 90 –530 –73 12 – 918q1 2010 –208 –24 –88 –503 –73 –15 – 911

Operating prOfit q2 2011 63 9 168 621 –107 – 754q1 2011 83 10 188 628 –59 – 851q4 2010 65 11 200 661 –116 4 824q3 2010 62 5 171 693 –66 4 869q2 2010 90 11 194 630 7 57 988q1 2010 84 11 157 580 –87 40 784

Net write-downs of loans and provisions Q2 2011 –47 –1 –34 –246 – – –329for guarantees and commitments Q1 2011 –55 –1 –46 –274 – – –376

Q4 2010 –57 –2 –18 –449 – – –526Q3 2010 –68 – –14 –337 – – –418Q2 2010 –70 – –61 –324 –1 – –457Q1 2010 –69 – –53 –316 – – –439








banKing diVisiOn

central eastern

eurOpe diVisiOn

cOrpOrate center


banK austria grOup

net Operating prOfit q2 2011 15 8 134 375 –107 – 425q1 2011 27 9 143 354 –59 – 475q4 2010 8 9 182 212 –116 4 299q3 2010 –6 5 157 356 –66 4 451q2 2010 20 12 133 306 5 57 532q1 2010 15 11 103 263 –87 40 345

Provisions for risks and charges Q2 2011 10 1 1 –8 –3 – 1Q1 2011 – 1 – –2 –31 – –32Q4 2010 –7 1 –20 –7 –1 – –33Q3 2010 1 – – –13 – – –13Q2 2010 –1 – – –11 –8 – –19Q1 2010 – – – –6 –65 – –71

Integration costs Q2 2011 – – – –1 – – –1Q1 2011 – – – –1 – – –1Q4 2010 – – – –1 – – –1Q3 2010 – – – –1 – – –1Q2 2010 – – – –1 – – –1Q1 2010 – – – –1 – – –1

Net income from investments Q2 2011 – – 4 43 –85 – –37Q1 2011 1 – 3 2 1 – 8Q4 2010 1 – –6 7 –1 – 1Q3 2010 1 – 1 19 – – 22Q2 2010 1 – – 8 6 – 16Q1 2010 10 – 1 11 – 1 22

prOfit befOre tax q2 2011 25 9 139 408 –194 – 388q1 2011 29 10 146 354 –89 – 449q4 2010 2 11 156 211 –118 4 266q3 2010 –4 5 158 361 –66 4 459q2 2010 20 11 132 302 4 57 528q1 2010 25 11 104 267 –152 40 296

Income tax for the period Q2 2011 –6 –3 –29 –31 45 – –24Q1 2011 –6 –2 –34 –67 21 – –89Q4 2010 –1 –3 –51 –38 39 –2 –56Q3 2010 1 –1 –47 –76 6 –16 –133Q2 2010 –8 –3 –11 –72 4 –41 –132Q1 2010 –2 –3 –18 –42 43 –14 –36

prOfit (lOss) fOr the periOd q2 2011 19 7 110 377 –149 – 364q1 2011 22 7 112 287 –68 – 360q4 2010 1 8 104 173 –79 1 210q3 2010 –2 4 111 286 –60 –12 326q2 2010 12 8 121 231 9 16 396q1 2010 23 8 87 225 –109 26 260

Non-controlling interests Q2 2011 –1 – – –18 6 – –12Q1 2011 –2 – – –15 4 – –13Q4 2010 –5 – –1 –4 –3 – –13Q3 2010 –2 – 1 –24 7 – –17Q2 2010 – – – –16 9 – –7Q1 2010 –7 – –1 –13 7 – –14

net prOfit attributable tO the q2 2011 18 7 110 360 –143 – 352OWners Of the parent cOmpany q1 2011 20 7 112 272 –64 – 347befOre ppa q4 2010 –3 8 103 170 –82 1 197

q3 2010 –4 4 112 262 –52 –12 310q2 2010 12 8 121 215 18 16 389q1 2010 16 8 85 212 –101 26 246








banKing diVisiOn

central eastern

eurOpe diVisiOn

cOrpOrate center


banK austria grOup

Purchase Price Allocation effect Q2 2011 – – – – –3 – –3Q1 2011 – – – – –4 – –4Q4 2010 – – – – –1 –1 –2Q3 2010 – – – – –2 –3 –5Q2 2010 – – – – –2 –3 –5Q1 2010 – – – – –2 –3 –4

Goodwill impairment Q2 2011 – – – – –50 – –50Q1 2011 – – – – –3 – –3Q4 2010 – – – – 9 –200 – –208Q3 2010 – – – – –3 – –3Q2 2010 – – – – –167 – –167Q1 2010 – – – – – – –

net prOfit attributable tO the q2 2011 18 7 110 360 –196 – 299OWners Of the parent cOmpany q1 2011 20 7 112 272 –70 – 341

q4 2010 –3 8 103 161 –283 – –14q3 2010 –4 4 112 262 –57 –15 302q2 2010 12 8 121 215 –151 13 217q1 2010 16 8 85 212 –103 23 242

risk-weighted assets (rWa) (avg.) q2 2011 12,513 491 25,211 80,708 4,694 – 123,616q1 2011 14,429 548 26,334 78,778 4,886 – 124,976q4 2010 17,374 552 26,619 77,718 5,245 – 127,508q3 2010 16,046 556 27,118 77,120 5,427 – 126,267q2 2010 13,079 534 27,037 75,210 5,120 1,467 122,446q1 2010 10,840 497 28,156 70,856 5,226 1,352 116,927

Equity (avg.) 2) Q2 2011 1,241 128 2,262 11,909 2,155 – 17,694Q1 2011 1,298 128 2,401 11,701 1,969 – 17,496Q4 2010 768 118 2,232 11,287 3,039 – 17,444Q3 2010 748 125 2,068 11,088 3,534 – 17,562Q2 2010 745 128 2,167 10,878 3,398 – 17,316Q1 2010 754 119 1,785 10,856 2,121 – 15,635

Cost / income ratio in % Q2 2011 78.4 73.4 36.5 47.1 n.m. n.m. 56.8Q1 2011 72.1 70.9 32.7 45.9 n.m. n.m. 52.8Q4 2010 77.0 70.5 31.1 45.9 n.m. n.m. 54.3Q3 2010 77.7 82.8 35.2 43.5 n.m. n.m. 51.8Q2 2010 70.2 68.6 31.7 45.7 n.m. n.m. 48.2Q1 2010 71.2 69.0 36.0 46.5 n.m. n.m. 53.7

Risk /earnings ratio in % 3) Q2 2011 26.2 n.m. 16.2 30.1 n.m. n.m. 28.0Q1 2011 30.6 n.m. 21.0 33.4 n.m. n.m. 31.9Q4 2010 32.7 n.m. 8.1 54.6 n.m. n.m. 44.3Q3 2010 39.1 n.m. 6.3 39.5 n.m. n.m. 34.5Q2 2010 38.5 n.m. 27.5 39.1 n.m. n.m. 38.6Q1 2010 38.6 n.m. 27.0 40.2 n.m. n.m. 39.3


2) Total IFRS capital for the subsidiaries allocated to the respective Division together with standardised capital for the rest of the respective Division. The difference compared to the consolidated equity of the Bank Austria Group is shown in the Corporate Center. Starting 2011 capital allocation is based on actual RWAs (until 2010 based on budget RWAs).

3) Risk / earnings ratio: net writedowns of loans and provisions for guarantees and commitments measured against net interest and dividends and other income from equity investments n.m. = not meaningful



Risk report

Legal risksProceedings were initiated in Austria related to Bernard L. Madoff’s fraud in which UniCredit Bank Austria AG, among others, was named as defendant. The parties invested in funds that, in turn, invested directly or indirectly in Bernard L. Madoff Investment Securities LLC (BMIS). The judgements in these lawsuits so far have been completely in favour of the bank. UniCredit Bank Austria AG is also the subject of proceedings in Austria following the complaint filed by the Austrian Financial Market Authority with the Public Prosecutor’s Office and complaints filed with the said Public Prosecutor’s Office by private parties that invested in funds which, in turn, invested directly or indirectly in BMIS. The parties that filed said complaints maintain that UniCredit Bank Austria AG violated, among other things, the terms of the Consolidated Investment Act that governs UniCredit Bank Austria AG’s role as “auditor of the prospectus” of Primeo funds.

UniCredit Bank Austria AG was named as one of many defendants in two putative class action suits filed in the United States District Court for the Southern District of New York. A liquidated indirect subsidiary of UniCredit Bank Austria AG has also been named in two putative class action suits filed in the United States District Court for the Southern District of New York. In each of the suits, the class action plaintiffs claim to represent investors whose assets were invested in BMIS, directly or indirectly. Proposed amended complaints have been filed; one of which purports to include allegations that the defendants, including UniCredit Bank Austria AG, violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”) by allegedly partici-pating in a plan to enrich themselves by feeding investors’ money into Madoff’s Ponzi scheme and seeks treble damages under RICO, i.e., three times US$ 2 billion. The United States Bankruptcy Court appointed Irving H. Picard as Trustee (the “SIPA Trustee”) for the liquidation of BMIS. The Trustee’s job is to collect the assets of Madoff’s estate and distribute those assets to creditors including investors. In December 2010, the SIPA Trustee filed two complaints in the United States Bankruptcy Court in the Southern District of New York against many defendants, including UniCredit Bank Austria AG and a liquidated indirect subsidiary of UniCredit Bank Austria AG, to recover amounts to be determined at trial. One complaint seeks to recover so-called avoidable transfers to initial transferees of funds from BMIS, subsequent transfers of funds originating from BMIS (in the form of alleged management, performance, advisory, administrative and marketing fees, among other such payments, said to exceed US$ 400 million in the aggregate for all defendants), and compensatory and punitive damages against certain defendants alleged to be in excess of US$ 2 billion. The other complaint further alleges defendants violated RICO by allegedly participating in a plan to enrich themselves by feeding investors’ money into Madoff’s Ponzi scheme. In this latter complaint, the SIPA Trustee seeks treble damages under RICO, i.e. three times the reported net US$ 19.6 billion losses allegedly suffered by all BMIS investors. On 28 July 2011, the Court granted the motion to dismiss with respect to all the claims that the Court indicated it would review. It is possible that this decision will be appealed. The 28 July 2011 ruling encompasses only the claims for aiding and abetting Madoff’s fraud and breach of fiduciary duty, for unjust enrichment and for contribution. It does not extend to the claims to recover avoidable transfers. All pend-ing U.S. actions are in their initial phases.

UniCredit S.p.A. and its subsidiaries involved intend to defend themselves against the charges regarding the Madoff case by any method available to them. At present it is not possible to reliably estimate the timing and results of the various actions, nor determine the level of responsibility, if any responsibility exists.



Guarantees given and commitments(€ m)

30 June 2011 31 dec. 2010

financial guarantees given to: 5,206 6,195Banks 309 550Customers 4,898 5,645

commercial guarantees given to: 14,175 13,145Banks 1,005 1,442Customers 13,170 11,703

Other irrevocable commitments to disburse funds 16,913 14,737Banks 1,974 650

Usage certain 54 55Usage uncertain 1,920 596

Customers 14,939 14,086Usage certain 6,437 6,637Usage uncertain 8,503 7,449

underlying obligations for credit derivatives: sales of protection 859 869assets used to guarantee others’ obligations – –Other commitments 3,677 3,807tOtal 40,831 38,754

Additional disclosures

EmployeesShare-based paymentsThe Management Board and selected key management personnel of Bank Austria participate in UniCredit Group’s incentive scheme for share-based payments. The share-based payment arrangements relate to Stock Options, Performance Shares and Restricted Shares based on shares in the parent company UniCredit S.p.A (UCI). UniCredit calculates the economic value of the share-based payment arrangements on a uniform basis for the entire Group and provides the Group companies with the relevant information. In the Bank Austria Group, the total amount recognised in the income statement for the first six months of 2011 is € 3 m. No new Stock Option Plans have been granted since 2009. A cash-based payment model was adopted.

Full-time equivalentsh1 2011 2010

Salaried staff 59,608 59,591Other employees 92 104tOtal*) 59,700 59,695

of which: in Austria 7,920 7,815of which: abroad 51,780 51,880

*) Average full-time equivalents of staff employed in the Bank Austria Group (employees of companies accounted for under the proportionate consolidation method are included at 100%), excluding employees on unpaid sabbatical or maternity / paternity leave.

Events after the reporting periodAt its meeting on 28 July 2011, the Supervisory Board of Bank Austria appointed Dieter Hengl as Management Board member with responsibility for the Corporate & Investment Banking Division of Bank Austria with effect from 1 August 2011.

Following the recent events in the European financial community and relying on the recent agreements summarised in the paper issued by the Institute of International Finance on 21 July, our Group has the intention to formally adhere to the restructuring plan to support Greece. On this basis, the bank has determined that an impairment trigger according to IFRS rules has occurred.



Additional disclosures (CoNTINuEd)

Consolidated capital resources and regulatory capital requirementsNet capital resources of the Bank Austria group of credit institutions (€ m)

30 June 2011 31 dec. 2010

Paid-in capital (less own shares) 1,681 1,681

Reserves and minority interests 12,592 12,951

Intangible assets –504 –557Deductions from Tier 1 capital (in particular 50% deduction pursuant to Section 23 (13) 3 to 4d of the Austrian Banking Act) 1) –827 –833

core capital (tier 1) 12,943 13,242Net subordinated liabilities 2,528 2,857

Revaluation reserves and undisclosed reserves 166 167

Deductions from Tier 2 (50% deduction pursuant to Section 23 (13) 3 to 4d) 1) –827 –833

supplementary capital resources (tier 2) 1,867 2,191Deductions from Tier 1 and Tier 2 (deduction pursuant to Section 23 (13) 4a) 2) –134 –140

net capital resources (excl. tier 3) 14,676 15,293Tier 3 (re-assigned subordinated capital) 183 228

net capital resOurces (incl. tier 3) 14,859 15,520

Capital requirements of the Bank Austria group of credit institutions (€ m)

30 June 2011 31 dec. 2010

capital requirements ofa) Credit risk pursuant to standardised approach 5,542 6,201

b) Credit risk pursuant to internal ratings-based (IRB) approach 3,334 2,866

Credit risk 8,876 9,067

Operational risk 956 938

Position risk – debt instruments, equities, foreign currencies and commodities 183 228

Settlement risk – –

capital requirement 10,015 10,232Total RWA 125,187 127,906

Capital ratios30 June 2011 31 dec. 2010

Tier 1 capital ratio, based on all risks 10.34% 10.35%Total capital ratio, based on all risks 3) 11.87% 12.13%Tier 1 capital ratio, based on credit risk 11.66% 11.68%Total capital ratio, based on credit risk 4) 12.37% 12.67%

1) Capital components in non-consolidated companies and “shortfall” under Basel 22) Capital components in insurance companies3) Net capital resources (incl. Tier 3) as a percentage of the risk-weighted assessment basis for all risks4) Total capital resources less requirement for trading book, commodities risk, exchange rate risk and operational risk as a percentage of the risk-weighted assessment basis for credit risk



Statement by Management

We confirm to the best of our knowledge that the interim consoli-dated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group as required by the applicable accounting standards and that the management report of the group for the first six months gives a

true and fair view of important events that occurred during the first six months of the financial year and their impact on the interim consolidated financial statements, and of the principal risks and uncertainties for the remaining six months of the financial year.

Willibald Cernko(Chairman)

Helmut Bernkopf Jürgen danzmayr

Massimiliano Fossati Francesco Giordano

Rainer Hauser Gianni Franco Papa doris Tomanek

Vienna, 25 July 2011

The Management Board

on the Interim Report

Additional Information


Investor Relations

Financial calendar

15 November 2011 Results for the first nine months of 2011All information is available electronically at http:// ir.bankaustria.at

Published byUniCredit Bank Austria AGA-1010 Vienna, Schottengasse 6 – 8Telephone within Austria: 05 05 05-0; from abroad: + 43 5 05 05-0Fax within Austria: 05 05 05-56155; from abroad: + 43 5 05 05-56155Internet: www.bankaustria.ate-mail: [email protected]: BKAUATWWAustrian routing code: 12000Austrian Register of Firms: FN 150714pVAT registration number: ATU 51507409

Editor: Identity & Communications, Michael Trischler

Creative concept: BBH Partners LLP, London

Cover illustration: James Taylor, Illustrator c /o Debut Arts, London

Basic design: Mercurio – Studi di promozione pubblicitaria, Milan

Graphics: www.horvath.co.at

Contact:Bank AustriaIdentity & CommunicationsP. O. Box 22.000A-1011 Vienna, Austriae-mail: [email protected]: within Austria: 05 05 05-0; from abroad + 43 5 05 05-0

NotesThis report contains forward-looking statements relating to the future performance of Bank Austria. These statements reflect estimates which we have made on the basis of all information available to us at present. Should the assumptions underlying forward-looking statements prove incorrect, or should risks – such as those mentioned in this report – materialise to an extent not anticipated, actual re-sults may vary from those expected at present. Market share data are based on the most recent information available at the editorial close of this report.

“Bank Austria” as used in this report refers to the group of consolidated companies. “UniCredit Bank Austria AG” as used in this report refers to the parent company.

In adding up rounded figures and calculating the percentage rates of changes, slight differences may result compared with totals and rates arrived at by adding up component figures which have not been rounded off.

DisclaimerThis edition of our Interim Report is prepared for the convenience of our English-speaking readers. It is based on the German original, which is the authentic version and takes precedence in all legal respects.

Editorial close of this Interim Report:4 August 2011

UniCredit Bank Austria AG/Corporate Relations

Lassallestrasse 5, A-1020 Vienna, AustriaTel: (+43) (0) 5 05 05-572 32 Fax: (+43) (0) 5 05 05-89572 32e-mail: investor. [email protected] Internet: http:// ir.bankaustria.atGünther Stromenger, Head of Corporate RelationsTel: (+43) (0) 5 05 05-572 32Thomas KirinTel: (+43) (0) 5 05 05-527 74Andreas PetzlTel: (+43) (0) 5 05 05-595 22

RatingsLonG-TErm SUBordinATEd LiABiLiTiES ShorT-TErm

Moody’s1) A1 A2 P-1Standard & Poor’s2) A A – A-1

Public-sector mortgage bonds of Bank Austria are rated Aaa by Moody’s.1) Grandfathered debt remains rated Aa2, subordinated debt rating remains Aa3.2) Grandfathered debt and subordinated debt remain rated AA+.

interim report at 30 june 2011 · interim report at 30 june 2011 4 the banking environment in the...

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