Risk Management

“As a bank with growing business volume, we deliberately take more risk on our books while aiming to reduce the relative risk content of business. In these efforts we are supported by progress in quantitative risk management methods. On the basis of our rating advisory service and a financial structure analysis, we also want to enhance our customers' credit rating. We improve the employment of capital by placing risks in the secondary market or via derivatives, with no impact on customer relationships. This helps us to free up additional resources for expansion in strategically important areas.”

Johann Strobl, Managing Board member, Chief Risk Officer (CRO)

In recent years risk management at Bank Austria Creditanstalt has become one of the fundamental success factors of the banking group. By using the most modern methods of risk management BA-CA has been able to sustainably improve its profitability and reliability in the interests of both customers and shareholders.

We perceive one of our most important functions as a bank to be not in the avoidance of risks but in assessing risks and taking them deliberately into our books. A risk culture is necessary to create a total transparency of risks – for our customers in particular – and to make sure that risks are entered into after careful deliberation, weighing risk and return against one another and optimising capital allocation in the Group.

The provisioning charge in 2005 has to be assessed from the point of view of BA-CA’s profitability and reliability: at € 495 m, the net charge for losses on loans and advances was € 96 m higher than in 2004 (€ 78 m over the 2004 level if IFRS first-time application effects for 2004 are taken into account). This increase basically resulted from a one-off effect in the amount of about € 70 m. As described in the management report, this was caused by improved methods and a one-off adjustment in the area of small-volume loans business which is in line with UniCredit Group standards.

Almost all of this one-off effect applied to the Private Customers segment where provisions were noticeably higher. In addition to a growing number of insolvencies of private individuals, a further reason for the increase was a change in the parameters used in calculating flat-rate specific provisions. In the Private Customers segment, the application of the new retail scoring system and the streamlining of processes and lending guidelines have already laid the cornerstone for a significant reduction of the provisioning charge in this segment, too, within the normal time frame required for these measures to take effect.

Bank Austria Creditanstalt was not affected by large-scale bankruptcies in 2005. The application and further improvement of procedures to recognise risks at an early stage once again had a positive effect on the provisioning requirement for corporate business. Due to the high market share in SME business in Austria, Bank Austria Creditanstalt is usually affected by economic developments in this sector. However, provisions were made in past years for possible loan losses resulting from the higher number of insolvencies in 2005 compared with 2004.

Risk trends in Central and Eastern Europe continued to be very satisfactory and were again better than expected. Contributions to this favourable development came from our banking subsidiaries in Croatia, the Czech Republic, Slovakia and Poland, where provisioning charges were in some cases significantly below budget.

A detailed description of the risk management principles applied, the organisational structure and the risk measurement and monitoring processes can be found in the “Risk report” contained in the notes to the consolidated financial statements.