Bancherul - BANCI / ENGLISH / VBAG: Reduced consolidated net income in first half of year

Greece write-downs negatively impact result – resizing strategy being systematically continued, said VBAG in a press release.

* Operating result of euro 199 million, result before taxes of euro 11 million and euro 1 million consolidated net income after taxes and minority interest
* Stable capital base: eligible own funds of euro 3.4 billion, equity ratio in relation to total risk of 12.8%
* Risk provisions fall by another euro 64 million to euro 130 million
* Resizing strategy 2015 being systematically implemented, closing of VBI sale by end of 2011
* Redemption of euro 300 million of participation capital held by the Republic of Austria in 2011

Österreichische Volksbanken AG Group (VBAG Group) posted a slight profit for the first half of the year. The operating result was increased to euro 105 million in the second quarter of 2011 as against euro 94 million in the first quarter, bringing the result for the first half of the year to euro 199 million. In comparison to the 2010 half-year result of euro 234 million, the figure for the first six months is – as expected – slightly below prior year’s results due to the reduction within the segments. Despite this solid operating result and lower risk provisions, the result before taxes for the first half of 2011 decreased to euro 11 million. Write downs on financial investments – primarily on Greek bonds – substantially affected group results. As a consequence, consolidated net income after taxes and non-controlling interests for the first half of the year amounted to euro 1 million.

Decrease in consolidated net income due to Greece and market situation

VBAG built substantial provisions related to Greece. Under securities in the available for sale category, reserves were reclassified in the amount of euro -17 million, affecting net income. Securities in the held to maturity category were measured at a present value of 79%, corresponding to impairment of euro 7 million. VBAG Group is thus completely following the recommendations of the auditors with regard to the valuation of Greek securities.

The result was also adversely affected by an impairment requirement on country risks. Income from financial investments was negatively impacted in an amount of euro 36 million by decreases in the fair value of securities for which changes in value are based on baskets of different country risks (including Greece).

Stable capital ratios

As of 30 June 2011, the VBAG Group had eligible own funds of euro 3.4 billion. The tier I ratio (ratio of core capital to the assessment base for credit risk) stood at 10.6%. The tier I ratio in relation to total risk stood at 9.7%. As at the reporting date, the equity ratio in relation to total risk amounted to 12.8%. Eligible own funds exceeded the regulatory requirement by nearly euro 1.3 billion, or 60.4%.

Implementation of measures to strengthen capital and earnings

In line with the Strategy 2015, focusing on the core business, divesting Volksbank International AG and RZB shares as well as the merger of VBAG with Investkredit, VBAG has initiated the process for selling Volksbank International AG.. On 14 July 2011, the shareholders of Volksbank International AG (VBI) and the Russian bank Sberbank signed a term sheet on the key points of a purchase agreement for 100% of the VBI’s shares (the VBAG Group holds 51% of these shares). Volksbank Romania S.A. is not included in this transaction. The closing is expected by the end of 2011. VBAG aims to sell the block of RZB shares in 2011 as planned. The redemption of EUR 300 Mio. state’s participation capital is planned for this year.

Positive trend in risk provisions continued – RWAs significantly reduced

The positive trend in risk provisions continued on from the 2010 financial year into the first half of 2011. Despite the persisting difficult economic environment in some regions of Central and Eastern Europe, risk provisions were reduced by euro 64 million compared with the first half of 2010 and stood at euro 130 million. The greatest decrease was recorded in the Retail segment and was primarily attributable to the Leasing business area and to Volksbank in Romania. All other segments also posted declining risk provisions. The major RWA reduction broadens the possibilities for the redemption of the state’s participation capital.

Outlook

As a result of the difficult economic environment and of the current degree of implementation of VBAG´s “Strategy 2015” a payment or a full payment on dividend-carrying securities (shares and participation capital) in 2012 for the 2011 business year is unlikely from today´s viewpoint.