Against the backdrop of the financial crisis, which continued to smoulder in the year under review and actu- ally flared up again, especially in the second quarter, the responsibility for and forward-looking manage- ment of so-called structural income earned in the financial markets segment were in the hands of BKS Bank’s Asset Liability Management (ALM) Committee. Structural income includes earnings from interbank trad- ing, proprietary securities trading, derivatives in the banking book and the bank’s internal reference inter- est rate settlements.
FINANCIAL MARKEtS SEGMENt
€k 2010 2011 2012
Net interest income 19,150 25,560 23,133
Impairment charge on loans and advances 0 (752) (1,602)
Net fee and commission income 755 615 421
Net trading income 1,568 1,325 2,348
General administrative expenses (5,831) (5,222) (6,234)
Other operating income net of other operating expenses (3,318) 118 (4,551)
Profit/(loss) from financial assets 5,102 (32,516) 3,036
Profit for the year before tax 17,426 (10,872) 16,551
ROE before tax 5.8% (3.3%) 4.6%
Risk:earnings ratio — 2.9% 6.9%
86 GROuP MANAGEMENt REPORt 87
BKS BANK NOtES ORIGINAtED IN 20121
Name ISIN Nominal Amount, €m
3% BKS Bank Obligation 2012-2017/1 AT0000A0U4N5 21.0
BKS Bank Stufenzins-Obligation 2012-2017/2 AT0000A0V7F3 28.8
2 5/8% BKS Bank Obligation 2012-2018/3 AT0000A0W4F9 27.1
2% BKS Bank Obligation 2012-2017/4 AT0000A0XHK6 7.0
3.25% fundierte BKS Bank Obligation 2012-2020/1/PP AT0000A0UC80 1.0
3% fundierte BKS Bank Obligation 2012-2020/2/PP AT0000A0V610 2.0
1% fundierte BKS Bank Obligation 2012-2014/3/PP AT0000A0W436 3.0
2.75% fundierte BKS Bank Obligation 2012-2022/4/PP AT0000A0W4B8 2.0
3.7% fundierte BKS Bank Obligation 2012-2032/5/PP AT0000A0X8T0 6.0
4.3% BKS Bank Obligation 2012-2027/6/PP AT0000A0XH25 25.0
1.7% BKS Bank Obligation 2012-2015/7/PP AT0000A0XMY7 10.0
2.55% fundierte BKS Bank Obligation 2012-2022/8/PP AT0000A0XP66 15.0
3.35% fundierte BKS Bank Obligation 2012-2027/9/PP AT0000A0XPM5 6.0
1.7% BKS Bank Obligation 2012-2015/10/PP AT0000A0XQH3 5.0
1 This does not constitute an offer or an inducement to buy or sell the notes mentioned. Nor does it constitute a recommendation
to buy or sell. These issuances took place during the 2012 reporting year on the basis of the base prospectus published by BKS Bank and approved by the FMA on 8 March 2012 together with all supplements and the final terms and conditions published in each case. These are available from the issuer’s website at www.bks.at or free of charge from the branches of BKS Bank AG, St. Veiter
Ring 43, A-9020 Klagenfurt, Austria, during normal business hours.
Terms and conditions mirrored the downtrend in reference interest rates, especially in the loans segment. This trend stayed with us throughout the year. Although action taken by the European Central Bank helped bring about some recovery in the markets and customer activity during the third quarter, the debt crisis was still a dominant issue for, among others, BKS Bank. Savings deposit balances already bottomed out at mid-year. The applicable sliding rate of interest clauses accelerated the drop in customer interest rates in the consumer credit segment and increased the pressure on profits as result. At the same time, since the competition for customer funds, which was intensive, was primarily interest rate based, we had to offer our customers competitive terms and conditions in order to raise so-called primary funds. The management of our challenging interest rate operations took place on the basis of an extended proactive funds transfer pricing process that was used to ascertain the costs that arise when funding financial products. The mar- ginal costs of raising funds were included in our calculations, giving us the appropriate loan rate markups and bonuses for deposit products.
The perceptible drop in structural income led to a decline of about 9.5 per cent in the segment’s net inter- est income, which came to €23.1 million. However, this segment achieved a much better profit for the year than the figure of negative €10.9 million recorded in 2011, namely positive €16.6 million. Profit was fed by a revaluation gain caused by use of the fair value option. On the other hand, earnings in 2011 had been hard hit by write-downs of Greek government bonds. The profit contributed by our investments in our sister banks Oberbank and BTV, which were accounted for using the equity method, were again an important pil- lar of earnings in our financial markets segment in 2012. Thanks to the drop in funding costs, profit from investments in entities accounted for using the equity method increased from €19.3 million to €22.3 mil- lion. We also have good news to report about BKS Bank’s PIIGS exposure. As presented on page 131, we have small exposures in Italy and Spain totalling €35.1 million and €1.8 million, respectively, and we have no exposures in Portugal, Ireland or Greece. In addition, a large part of the exposure is secured by tangible collateral. Because we have tightened up our internal rules on calculating country risk, the impairment allowance was €1.6 million higher than in 2011. We were able to keep the increase in general administra- tive expenses within carefully defined boundaries; it rose by about 1.0 million to 6.2 million. On the other hand, revaluation of the goodwill of BKS bank d.d. in Croatia resulted in Other operating income net of other operating expenses of negative €3.6 million. This segment’s cost:income ratio worsened from 18.9 per cent to a still respectable 29.2 per cent. Its risk:earnings ratio was 6.9 per cent, compared with 2.9 per cent in 2011. Its return on equity leapt from negative 3.3 per cent to 4.6 per cent.
86 87
€m
In order to reduce the need to enter into liabilities in the money market to raise funds, we stepped up our acquisition of so-called primary funds by way of issuances of our own securities in 2012. We satisfied BKS Bank’s long-term funding needs by issuing 14 tranches of our own securities for €158.9 million. One of our focuses was on placing covered bonds. These issuances totalled €35 million (covered by a mortgage cover pool worth €32.0 million and a cover pool of public-sector assets worth €3.0 million). Institutional inves- tors were particularly interested in these covered bonds. These securities are among the bank issuances that will qualify as highly liquid assets under the forthcoming Basel III regime and will therefore make it possible for us to meet the regime’s restrictive liquidity rules.