Central and Eastern Europe (CEE)

“The upswing experienced by the CEE countries after the difficult years of system transformation is a real success story. It is primarily the result of the countries’ own strong efforts, while also reflecting the targeted employment of capital. A number of our banking subsidiaries have reached levels of market position and maturity which suggest that stronger links can be established with the entire banking group, in terms of both customer service and production. And South-East Europe is an area where entrepreneurial initiative can thrive, an area characterised by optimism about the future which often seems to be missing in the “old EU” countries.”

Regina Prehofer, Managing Board member responsible for CEE, Large Corporates and Real Estate

Record performance in 2005 …
2005 was another successful year for the CEE business segment following the good results in 2004, fully confirming that we are moving in the right direction. Net income before taxes reached € 704 m, an increase of 93%. Adjusted for one-off income and special effects (capital gains of € 123.5 m in connection with the acquisition of a majority interest in Banca Tiriac via an exchange of shares, and allocation of € 7 m to provisions for restructuring costs), net income before taxes rose by 65%. The improvement resulted from a 28% increase in operating revenues after the provisioning charge, while costs were 19% higher than in the previous year. Exchange rate effects and the inclusion of additional companies in the group of consolidated companies had no major impact on the overall positive picture. The main reason for these good results was growth. Risk-weighted assets increased by more than one-quarter; margins, though declining, remained satisfactory. Fee-based business also made a strong contribution to revenues; this reflects the growing use of products with no impact on the balance sheet and increasing income from services – in brief, the growing market maturity of numerous CEE countries. The cost/income ratio fell significantly; the net charge for losses on loans and advances absorbed 12% of net interest income, a figure that is lower than for the bank as a whole (19%). The ROE before taxes was 33.4% (on an adjusted basis, 28.6%), exceeding the target of 25% which we had set ourselves when we launched the BA-CA shares on the stock market in mid−2003.

The combined net income before taxes of the CEE banking subsidiaries, excluding Vienna-related central items for the business segment, (whose results were not distorted by the special effects) reached € 650 m, an increase of 32% (compared with the previous year’s figure adjusted to reflect IFRS first-time application). Thus it was twice as large as in 2003.

• The CEE subsidiaries improved their results by 33% p.a. on the average for the years since 2001.

The 2005 figures reflect mainly organic growth. Following the acquisition of Hebros Bank in Bulgaria and Eksimbanka in Serbia at the end of 2004, we acquired two more banks in South-East Europe (SEE) in 2005. At the end of August 2005, we acquired a majority interest in Banca Comerciala “Ion Tiriac” S.A., Bucharest, by way of an exchange of shares; this bank will be merged with HVB Bank Romania S.A. to form the fourth-largest bank in Romania. With its focus on private customer business, Banca Tiriac has a large customer base and a country-wide network of branches, optimally complementing the strength of our subsidiary HVB Bank Romania in corporate banking. Bank Austria Creditanstalt also acquired 83.3% of Nova banjalucka banka, the third-largest bank in Republika Srpska, which concentrates on serving small and medium-sized businesses and private customers. On the basis of this acquisition, BA-CA’s market share as fourth-largest bank in Bosnia and Herzegovina rose from 8.5% to 10.9%.

• At the end of 2005, BA-CA was active in 11 countries, with total assets of CEE operations reaching € 37.4 bn, more than three times the 2001 figure.