Reorganisation of the Association of Volksbanks stepped up in response to future challenges
  • VBAG Group's equity ratio increases to 19.1% (Basel II, Austrian Commercial Code - UGB) thanks to successful wind-down efforts
  • Association of Volksbanks achieves very satisfactory equity ratio of 14.9% (31 December 2013, unaudited, Basel II, UGB)
  • Association of Volksbanks to generate equity ratio of 14.6% under Basel III according to outlook (1 January 2014, unaudited, IFRS)
  • VBAG Group posts loss in 2013 due to devaluations and wind-down measures
  • Huge restructuring programme is expected to improve the Association of Volksbanks' ability to operate on the capital markets
  • No further pressure on taxpayers

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:

  • Sale of Volksbank International (excluding VB Romania)
  • Sale of insurance holdings
  • Asset sales Frankfurt
  • Sale of container leasing business
  • Sale of office properties
  • Sale of Selini GmbH (remaining Europolis property)
  • Final wind-down measures in the corporate financing area and thus closure of area at the end of 2013
  • Conversion or redemption of supplementary, hybrid and subordinated capital
  • Significant risk reduction in the investment book by winding down structured securities of euro 772 million 
  • Disposal and early repayment of loans in a real estate portfolio totalling euro 400 million in January 2014
  • Volksbank Romania - reduction in amount of refinancing (2013: euro 800 million, 2012: euro 1.4 billion)
  • Sales process of Volksbank Malta and Volksbank Leasing International at advanced stage

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."

The 2013 business year in detail

VBAG's successful wind-down measures are also reflected in the detailed figures that make up the consolidated result.

  • Net interest income declined by euro 33 million year-on-year to euro 189 million and net fee and commission income by euro 28 million to euro 30 million as a result of the deliberately controlled disposal of loans and advances to customers in the Non-core Corporates segment and putting a stop to new business activities, along with the reduction in credit and guarantee fees this brought about. Net trading income also declined as a result of one-off effects, falling from euro 32 million in 2012 to euro 8 million in 2013.
  • General administrative expenses were reduced further. For example, headcount declined by 185 full-time equivalents in the VBAG Group over the last two years (140 full-time equivalents in VBAG as a separate institution) and now totals 1,853 full-time equivalents in the VBAG Group as a whole, 752 of whom work outside Austria and 661 of whom work in VBAG as a separate institution.
  • Credit risk provisions declined significantly, falling from euro 367 million in the previous year to euro 23 million in the reporting period. This is due to conservative provisions recognised in recent years, as well as a partial reversal of portfolio-based allowances which had a positive effect.
  • The other operating result for 2013 amounted to euro 157 million and primarily includes access to the asset guarantee provided by the Republic of Austria, the result from the sale of owner-occupied buildings, and the result from the repurchase of supplementary capital bonds in the third quarter.
  • Income from companies measured at equity, financial investments and sales totalled euro -160 million and mainly comprises the write-down through profit or loss of VB Romania.
  • All of these individual items ultimately led to a loss after taxes and minority interests of euro 100 million in the VBAG Group. The consolidated result for the year is not comparable with the previous year as the 2012 consolidated result was positively influenced by one-off effects (adjustment of carrying amount of 2008 PS capital and supplementary capital, and repurchase of hybrid and Tier 2 capital).

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.

Major challenges lie ahead - significant increase in equity requirements

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.

Making the Association of Volksbanks fit for the future without putting pressure on taxpayers

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.

Association of Volksbanks' strategic project to lead to significant contributions to earnings and improve ability to operate on the capital markets

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:

  • There will be nine strong regional Volksbanks in Austria in the future. The Volksbanks will continue to dominate the market, which will make it possible to establish an even stronger regional presence and exploit existing earnings potential more effectively.
  • A small number of specialist institutions will also remain.
  • The organisational and operational structures of the nine regional Volksbanks are to be harmonised, thus creating cost synergies.
  • Under this model, an even slimmer VBAG will continue its role as an efficient top institution, assuming control functions and centralised services for the Association as a whole.
  • By streamlining the organisational structure of the Association of Volksbanks, significant additional contributions to earnings should be achieved by 2018, despite implementation costs in the first few years.

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.

distributed by