EANS-News: BAWAG P.S.K. Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse Aktiengesellschaft / Consolidated Annual Report 2016 (with document)

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annual report

BAWAG P.S.K. REPORTS 2016 RECORD NET PROFIT OF EUR 484 MILLION, +23%

- Net profit of EUR 484 million, +23% versus prior year
- Return on tangible equity of 17.9%, +1.8pts
- Operating income of EUR 991 million, +2%
- Core revenues of EUR 923 million, +2%
- Net interest margin stable at 2.3%
- Operating expenses down 7%
- Cost-income ratio improved to 44.4%, -4.0pts
- Fully loaded CET1 ratio of 15.1%, +2.2pts versus year-end 2015

VIENNA, Austria - February 16, 2017 - BAWAG P.S.K. today releases its
preliminary results for 2016, reporting a record net profit of EUR
484 million, up 23% versus the prior year. The increase was driven by
higher operating income, lower operating expenses and reduced risk
costs. The return on tangible equity came in at 17.9%, up 1.8pts. The
net interest margin remained largely stable at 2.3%. Operating
expenses were down 7% and the cost-income ratio down 4.0pts to 44.4%.
Risk costs decreased by 7% to EUR 43 million. The Bank has increased
its fully loaded CET1 ratio by 2.2pts to 15.1%.

"Last year was yet another record year for BAWAG P.S.K. We continued
to grow our business in challenging times by focusing on our
customers, applying a disciplined growth strategy and continuously
investing in our future. Despite a low-interest rate and slow-growth
European macro environment, BAWAG P.S.K. again generated record
earnings and outperformed all goals set for 2016, making us one of
the most profitable and best-capitalized banks across Europe and
providing us with a strong basis for further growth. Additionally,
the improved rating by Moody's as well as the initial rating by Fitch
make BAWAG P.S.K. the highest rated bank in Austria by these rating
agencies as well as one of the few banks with two ratings in the
single A category across Europe. Our strong results in 2016 reiterate
that BAWAG P.S.K. is well prepared to succeed in a competitive and
evolving European banking environment. On the back of our
transformation and our strong results over the past few years, we are
in a position to capitalize on unique opportunities to grow our
business, both organically and inorganically," said Chief Executive
Officer Byron Haynes.

"Over the past five years, we have simplified our business model by
focusing on core products, cost efficiency, low leverage and a
conservative risk profile. We will continue to execute on a variety
of operational and strategic initiatives in 2017. Our focus remains
on driving efficiency, operational excellence and profitable growth,"
said Chief Financial Officer Anas Abuzaakouk.

Strong capital ratios

The management team continues to run the Bank on a fully loaded basis
from a capital standpoint. The fully loaded CET1 ratio improved by
2.2pts to 15.1% (Dec 2015: 12.9%) and the fully loaded total capital
ratio also by 2.2pts to 18.0% (Dec 2015: 15.8%), driven by organic
earnings while at the same time funding acquisitions. Thereby, the
capital position significantly exceeded both regulatory requirements
and the Bank's CET1 target ratio of greater than 12%.

In 2016, the minimum CET1 ratio according to the SREP (Supervisory
Review and Evaluation Process) applicable to BAWAG P.S.K. amounted to
9% (including a systemic risk buffer of 0.25%). For 2017, the
regulatory minimum CET1 ratio applicable to BAWAG P.S.K. according to
the SREP will be 8% (including a systemic risk buffer of 0.50%). In
addition to the capital requirement, the SREP for 2017 for the first
time also includes a Pillar 2 guidance, which has been set at 1% for
BAWAG P.S.K. The regulator therefore expects BAWAG P.S.K. to maintain
a CET1 ratio of 9% (8% SREP requirement plus 1% Pillar 2 guidance).

Highlights in 2016

Awards: Euromoney, one of the leading magazines for banking, finance
and capital market issues, elected BAWAG P.S.K. as "Austria's Best
Bank 2016," emphasizing that we were "the standout story of the year"
and highlighting our "sector-beating return on equity," efficiency
and solid capitalization. The Banker, an international industry
magazine for banks published by the Financial Times, selected BAWAG
P.S.K. as "Bank of the Year" in Austria for the second time in a row.

Acquisitions: BAWAG P.S.K. acquired start:bausparkasse, an Austrian
savings and loan association, as well as IMMO-BANK. This transaction,
successfully closed in December 2016, will grow BAWAG P.S.K.'s
domestic retail footprint, extend its expertise in building society
savings and loans and result in a significant increase in the
financing volume with real estate companies and social housing
associations.

Ratings: Moody's again upgraded BAWAG P.S.K.'s long-term deposit,
senior unsecured and issuer ratings by one notch to A3 in 2016. The
outlook was maintained as "positive." Additionally, the Bank's
standalone rating as well as its senior subordinate rating were
upgraded to baa2 and Baa3 (investment grade for the first time),
respectively. According to Moody's, the rating upgrades reflect the
Bank's stronger-than-anticipated recovery in profitability, the
continued de-risking of its balance sheet as well as the continued
build-up of the Bank's capital adequacy ratios. The rating assessment
indicates further upside potential for the standalone rating. In
2016, BAWAG P.S.K. was rated by Fitch for the first time. The
long-term issuer rating and the standalone rating were both set at A-
with a stable outlook. The main rating drivers were, amongst others,
the conservative risk appetite and strong asset quality reflecting
the focus on high-quality assets in developed markets, an established
brand and strong retail franchise in Austria with a good performance
record supported by a focus on cost control and general pricing
discipline as well as a strong capitalization and performance in
regulatory stress tests. In early February 2017, Fitch additionally
assigned senior unsecured and subordinated debt ratings of A- and
BBB+, respectively.

Own issues: In 2016, BAWAG P.S.K. issued two Swiss franc senior
unsecured bonds with a total of CHF 275 million, with one issuance
accounting for the lowest ever recorded yield of a newly issued
financial bond in CHF on the Swiss financial market (minus 25bps).
Furthermore, BAWAG P.S.K. placed an RMBS transaction denominated in
GBP with a total of GBP 500 million backed by high-quality performing
UK retail mortgages to gain access to direct GBP funding,
representing the first ever RMBS transaction by an Austrian bank.

Key business highlights in 2016

BAWAG P.S.K. successfully executed on its business plans in 2016,
delivering strong results and exceeding all its stated goals.

Operating income increased by 2% to EUR 991 million. Despite a
continued low-interest rate environment, net interest income rose 1%
to EUR 730 million in 2016 compared to 2015, primarily driven by net
asset growth and lower funding costs. Net commission income increased
by 4% to EUR 193 million due to favorable developments across current
accounts and the loan insurance business. The net interest margin
remained stable at 2.3%, reflecting the Bank's dedicated focus on
risk-adjusted pricing and optimizing the liability structure.

Operating expenses decreased by 7% to EUR 439 million, driven
primarily by sustainable long-term measures in non-personnel
expenses. The cost-income ratio further improved by 4.0pts to 44.4%.

Risk costs decreased by 7% to EUR 43 million, resulting from the
improved credit quality of the individual business segments and
positive effects from the prior years' de-risking activities. The
Bank continues to maintain a conservative risk profile with
disciplined underwriting and a focus on developed markets in Austria,
Western Europe and the United States. This is best reflected in a low
risk cost ratio of 15bps and an NPL ratio of 2.0%.

Profit before tax was EUR 470 million, up 12% versus 2015. Net profit
increased by 23% to EUR 484 million, driven by higher core revenues,
lower operating expenses and reduced risk costs. In addition, a
positive one-time net tax benefit was recognized in the first
quarter, the majority of which reversed by year-end 2016.

Customer loans increased by 15% to EUR 28.5 billion compared to
year-end 2015, primarily driven by growth in consumer loans and the
international business as well as the acquisition of
start:bausparkasse, IMMO-BANK and another high-quality performing
residential mortgage portfolio in Western Europe. The total new
origination volume in 2016 was EUR 5.0 billion. The overall customer
loan book continued to be comprised of two-thirds exposure to Austria
and one-third to Western Europe and the United States. The
investments in the Bank's Austrian retail franchise continued to pay
off. As an example, the market share in consumer lending, one of the
Bank's core retail products, grew to 11.9%, up 1.7pts versus year-end
2015.

The funding of BAWAG P.S.K. continued to be based on stable customer
deposits representing two-thirds of the funding base. Customer
deposits increased by 20% to EUR 26.0 billion compared to the
previous year. The increase mainly results from the acquisition of
start:bausparkasse and IMMO-BANK as well as higher deposit account
balances. The funding costs continued to decrease as the product mix,
volume and pricing were optimized. At year-end 2016, the blended
overall retail deposit rate stood at 0.28%, down 4bps versus a year
ago.

Segment reporting

In 2016, the business segmentation and the related reporting were
changed in order to provide greater insight and transparency and to
better reflect our strategic focus as well as the progress of the
business units going forward.

The BAWAG P.S.K. Retail segment, consisting of the Bank's retail and
small business lending to domestic customers, social housing
activities and real estate leasing, also includes start:bausparkasse
and parts of IMMO-BANK for the first time. This segment achieved a
net profit of EUR 169 million in 2016, up 29% compared to 2015, while
also delivering a return on equity of 18.4% and a cost-income ratio
of 55.2%. Higher core revenues and lower operating expenses more than
offset the increase in regulatory charges. New loan originations were
EUR 1.2 billion. Overall risk metrics reflect the high credit quality
of the retail business, with a largely stable risk cost ratio and an
NPL ratio of 1.8% (down 40bps versus the prior year).

The easygroup segment, comprising Austria's leading direct bank
easybank, our auto and mobile leasing platforms as well as our
residential mortgage portfolios in Western Europe, showed strong
results by more than doubling net profit to EUR 87 million in 2016
with a return on equity of 24.1% and a cost-income ratio of 24.6%.
New originations were EUR 460 million. The underlying performance
reflects the acquisition of the Volksbank Leasing business in the
fourth quarter 2015 as well as the purchase of two high-quality
performing residential mortgage portfolios in Western Europe at the
end of 2015 and 2016. During the reporting year, we entered into a
partnership with Autogott, Austria's leading online car sales
channel, which is a perfect fit for easygroup, allowing us to combine
our ability to market via an online channel with our leasing
expertise. In addition, we successfully launched our new brand
easyleasing, which serves as our "one brand and one face" to the
leasing market in Austria.

The DACH Corporates & Public Sector segment includes corporate and
public lending activities and other fee-driven financial services for
mainly Austrian customers and select client relationships in Germany
and Switzerland. The segment contributed EUR 71 million to the Bank's
net profit and delivered a return on equity of 13.1%. Core revenues
were down 14%, driven by early redemptions, margin pressure and lower
new business volume. This was partly offset by an improvement in
operating expenses (down 6%) and positive risk costs. The overall
quality of the portfolio further improved, with an NPL ratio of 0.7%,
down 50bps versus the prior year, being a reflection of prior years'
de-risking activities and the overall high credit quality of the
assets.

The International Business segment comprises international corporate,
real estate and portfolio lending outside the DACH region, primarily
in Western Europe and the United States. In 2016, new loan
originations were EUR 2.7 billion. The segment contributed EUR 102
million to the Bank's net profit in 2016, down 8% compared to the
previous year, but still delivered a return on equity of 17.6%
despite higher than anticipated redemptions. Similar to the DACH
business, the international business is characterized by high credit
quality assets with no non-performing loans.

Treasury Services & Markets manages the Bank's investment portfolio
of financial securities of EUR 5.4 billion and a liquidity reserve of
EUR 1.3 billion at year-end 2016. The investment strategy continues
to focus on investment grade securities, primarily representing
secured and unsecured bonds of financials in Western Europe and the
United States as well as select sovereign bond exposures in order to
maintain solid diversification. The investment portfolio's average
maturity was 4.3 years, comprising 96% of investment grade-rated
securities, of which 80% were rated single A or higher. As of
year-end, the portfolio had no direct exposure to China, Russia,
Hungary or South-Eastern Europe. Direct exposure to the UK is
moderate and focuses on internationally diversified issuers with
solid credit quality. The segment contributed EUR 50 million to the
Bank's net profit in 2016 and delivered a return on equity of 13.7%.

Outlook

Our strong results in 2016 reiterate that BAWAG P.S.K. is well
prepared to succeed in a competitive and evolving European banking
environment. We are confident that we have positioned the Bank to
successfully tackle the challenges the Austrian and European banking
industry are confronted with in order to continue to grow while
maintaining a conservative risk profile based on our strong capital
and funding base. We are ready to capitalize on any opportunities
that might arise from the current significant changes within the
European banking landscape.

Going into 2017, we plan to grow in the DACH region, one of the
wealthiest economic areas in Europe with over 100 million people,
very strong macroeconomic fundamentals, a stable legal system and
superior credit quality across retail and corporate lending. We have
already made preparations to expand organically into Germany and are
planning to start offering direct banking services there through our
easygroup platform, with the plan to offer banking products to German
customers during the first half 2017. We are currently in the process
of looking at a few other inorganic opportunities, mainly in the DACH
region, that will expedite our growth plans.

About BAWAG P.S.K. With more than 2.2 million customers, BAWAG P.S.K.
is one of Austria's largest, most profitable and best capitalized
banks operating under a well-recognized national brand. We apply a
low-risk, highly efficient, simple and transparent business model
focused on Austria and other developed markets - with two-thirds of
our customer loans within Austria. The remaining customer loans are
predominantly in Western Europe and the United States. We serve
Austrian retail, small business and corporate customers across the
country, offering comprehensive savings, payment, lending, leasing,
investment, building society and insurance products and services. Our
Austrian business is complemented by international activities focused
on retail, corporate, commercial real estate and portfolio lending in
Western developed countries. This strategy provides us with earnings
diversification and growth opportunities while maintaining a
conservative risk profile with disciplined underwriting.

We run the Bank in a safe and secure manner with a strong balance
sheet, low leverage and solid capitalization. Delivering simple,
transparent and best-in-class products and services that meet our
customers' needs is our consistent strategy across all business
units.

BAWAG P.S.K.'s Investor Relations website https://www.bawagpsk.com/IR
contains further information about the Bank, including financial and
other information for investors.

BAWAG P.S.K. contacts:
Financial Community:
Benjamin del Fabro (Head of Investor Relations & Communications)
Tel: +43 (0) 5 99 05-22456
E-mail: investor.relations@bawagpsk.com

This text can also be downloaded from our website:
https://www.bawagpsk.com

Note: In this press release, any data is presented on the BAWAG
Holding Group level (referred to as "BAWAG P.S.K." throughout the
document) unless stated otherwise.

For charts please refer to the attached press release (PDF format)

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Further inquiry note:
Pressestelle
T: 43 (0)59905 - 31210
F: 43 (0)59905 - 22007
e-mail: presse@bawagpsk.com

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company: BAWAG P.S.K. Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse Aktiengesellschaft
Georg-Coch-Platz 2
A-1018 Wien
phone: +43 (0) 59905
mail: bawagpsk@bawagpsk.com
WWW: www.bawagpsk.com
sector: Banking
ISIN: -
indexes:
stockmarkets: stock market: Luxembourg Stock Exchange, Euronext Amsterdam,
Frankfurt, Wien, SIX Swiss Exchange
language: English

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