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A range of measures has been implemented since VBAG's partial nationalisation two years ago which have reduced the VBAG Group's total assets and risk volume and significantly strengthened the capital base of the VBAG Group and the Association of Volksbanks in accordance with the restructuring plan set out by the European Commission. These measures include:
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Thanks to these restructuring measures, the VBAG Group has almost halved its total assets from euro 41.1 billion in 2011 to euro 20.9 billion at the end of 2013. Risk-weighted assets (RWAs in overall risk) were reduced to an even greater extent in the same period, from euro 26.3 billion in 2011 to euro 11.3 billion. Both of these figures are much lower than envisaged in the European Commission's restructuring plan for 2013 (total assets: euro 26.8 billion, RWAs: euro 17.4 billion).
This rapid and successful reduction in RWAs meant that the equity ratio (pursuant to Basel II) increased from 12.7% in 2011 to 15.7% in 2012 and 19.1% in 2013, even though devaluations and wind-down costs led to a loss of euro 100 million in the VBAG Group. The Association of Volksbanks achieved a very satisfactory equity ratio of 14.9% in 2013 (unaudited; Basel II, UGB). In fact, the equity ratio of the Association of Volksbanks significantly exceeds the requirements of Basel III at present (14.6%, 1.1.2104, unaudited).
VBAG's Chief Executive Officer Stephan Koren: "These figures demonstrate that we have forged ahead with our downsizing programme more quickly and, above all, with much less of an impact on our capital than was stipulated in the requirements. Our restructuring measures have therefore proved successful so far."
VBAG's successful wind-down measures are also reflected in the detailed figures that make up the consolidated result.
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VBAG as a separate institution (in accordance with UGB) posted a loss of euro -224 million in its financial statements, which is in line with its most recent expectations.
Despite the restructuring successes implemented to date, major challenges lie ahead for the Association of Volksbanks. Based on the huge increase in equity requirements to 13.6% (according to draft FMA resolution; resolution not yet issued), the Association of Volksbanks would need to hold considerably more equity than that held on the basis of the 8% equity ratio requirement currently in force, which the association has exceeded by a large margin.
The situation will be exacerbated by the planned and unavoidable reduction in the equity ratio over the next few years due to the loss of government participation capital (2017 and 2018) and negative effects arising from application of Basel III rules (gradual withdrawal of applicability of minority interests and consolidation differences, withdrawal of applicability of uncalled liabilities and withdrawal of applicability of private participation capital). Nor can the risk of higher costs arising from winding down the remaining portfolio be excluded. As a result, VBAG's Managing Board cannot rule out the possibility - as frequently mentioned - of a potential future capital requirement, despite the satisfactory 2013 statement of financial position.
However, it is also possible that re-examination of the Association of Volksbanks' risk position, which is due to take place based on the significant contraction of the statement of financial position in 2013, could lead to a reduction of the JRAD ratio.
Based on the good progress of the restructuring programme, VBAG's Managing Board has already implemented further measures to prepare for foreseeable challenges over the coming years. These include a programme aimed at optimising risk-weighted assets (RWA) within the Association of Volksbanks, a study looking into the possibility of switching to the IRB approach to calculate Basel III capital requirements, and the continuation of the cost-cutting programme within VBAG as the top institution.
"My aim is to make the Association of Volksbanks fit for the future in the long term without putting any more pressure on taxpayers. To this end, we need to strengthen the sector's earnings power and improve the Association of Volksbanks' ability to operate on the capital markets above all else. Base is a stable an trusting business of the Volksbanks, which is reflected in increasing lending in 2013 and growth in customer deposits", explains CEO Koren.
In the summer of 2013 the Managing Board of the VBAG therefore launched a strategic project, with the involvement of Volksbanks, designed to ensure the sustained strengthening of the Volksbanks' market position and to improve the ability to operate on the capital markets. The outcome of the project shows that significant consolidation efforts would be able to bring about clear improvements in results within the Association of Volksbanks. The Managing Board of the VBAG has therefore turned this into a multi-annual programme, the key points of which can be summarised as follows:
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The aim of the new Association of Volksbanks is to create a powerful group of banks with a clear-cut profile, an efficient organisation and significantly improved earnings power. This should also make this new group more attractive on the capital market and increasingly improve its ability to raise fresh capital from investors.
This realignment will create a group of strong regional banks that enjoy both market proximity and close links with their customers. Alongside this, an efficient organisation will guarantee fast and cost-efficient handling of all transactions and processes. Under this structure, the central functions assigned to the top institution, VBAG, will allow provincial Volksbanks to concentrate wholly on the activities they perform on the market and on behalf of their customers.
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