Our retail banking segment was still facing a challenging market environment in 2012. Securities opera- tions, which had been one of the supporting pillars of net fee and commission income before the financial crisis, appear to have bottomed out in 2012. However, the financial and capital markets are still volatile, so it will be some time before their usual strength is restored. Because retail customer deposits will play an essential role in meeting the new liquidity requirements associated with the Basel III regime, the savings deposit and issuances markets were also hotly contested in the year under review. As every bank based its funding activities mainly on so-called primary funds, competition reduced margins — which have already been eroding for years — to a level that is hardly commercially viable any more. At the end of the report- ing period, the deposit margin at BKS Bank AG averaged 0.14 per cent, compared with 0.47 per cent at 31 December 2011. In addition, a lot of customers in this segment are covered by consumer protection regulations. This means that it was virtually impossible to adjust margins in the retail loan portfolio so as to pass on the rise in the premiums charged to us when raising funds. At the same time, maintenance costs were continually being incurred to ensure that our branches stayed up to date. We are fully aware how dependent this resource and cost intensive segment is on branch operations, but we also believe that the retail banking segment is indispensable because retail customers account for over 86 per cent of sav- ings deposit balances and roughly one third of sight and time deposit balances — that is 59.1 per cent of payables to customers — making them far and away our bank’s most important source of funds. Moreover, about 22 per cent of our lending to customers during the period under review was to retail customers. In a persistently difficult market environment, we were very pleased to see the meticulousness and dedica- tion with which BKS Bank’s retail customer advisors worked even in a tough banking year. We were able to acquire roughly 5,000 new account holders, providing us with important foundations for our future business operations. The broad spectrum of accounts is tailored to the needs of every age group, ranging from a pocket money account to youth and student accounts, comfort accounts and classical accounts. As a so-called universal bank, BKS Bank naturally also had a presence in the cashless credit card market. It offered its customers all the usual credit cards of its partners, including VISA, MasterCard and Diners, at all its branches. Savings deposit balances generated by the retail banking segment came to €1.55 billion, or €27.1 million more than at the end of the previous year. The trend towards secure forms of investment con- tinued in 2012, so customer interest in, above all, Kapitalsparbuch fixed-term, fixed-rate passbook accounts with durations of between one and two years, the BKS Bank online savings account and the on-demand BKS Sparcard saving card account was undiminished. Classical building society agreements were also still among the saving products that attracted brisk demand. As usual, BKS Bank cooperated with Wüstenrot in this field, signing some 4,100 new contracts in the period under review.
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While the saving market firmed up in an atmosphere of risk aversion and traditional savings products thrived visibly, securities operations remained on hold. International share prices did indeed rise in the sec- ond half, increasing the value of our customers’ securities accounts to €6.31 billion, but fresh investment in securities eligible for trading in the capital markets was slow to develop, reducing our fee and commis- sion income in this segment by 3 per cent. However, we felt a new lease of life in our Private Banking Divi- sion (a separate securities services unit within BKS Bank that gives analytical and clearly structured advice designed to meet the demands of our high net worth clients with liquid assets of over €200,000). We have private banking centres in Klagenfurt, Graz, Mattersburg and Vienna. Among other things, we offer private banking clients asset management services tailored to their individual needs, brokerage services, a trust service, lucrative investments in buy to let apartments and models for property investors. In the words of our advertising slogan, “When it comes to money, I only talk to BKS Bank.”
3 Banken-Generali Investment-Gesellschaft — the investment fund company of the 3 Banken Group and Gen- erali Holding — performed solidly in performance comparisons with its competitors during 2012. Funds under management by this company increased by 21.5 per cent to €6.06 billion. This was nearly three times the growth rate of the market as a whole. The company’s innovative management concepts, such as investing more in high-dividend equities and implementing a predefined fund duration, were much in demand. Its tangible asset strategy with its focus on equities, commodities, gold and property investments remained popular with both ‘public’ and ‘special’ funds. The 3 Banken Österreich-Fonds was again the best fund in its class, delivering a performance of 33.3 per cent. A number of Austrian and international awards also confirmed the quality of our fund management services. Austrian Lipper Fund Awards went to the 3 Banken Inflationsschutzfonds and the 3 Banken Österreich-Fonds, and Germany’s EURO Magazine gave the 3 Banken Österreich-Fonds first place in the Austrian equity funds category.
The portfolio of loans in the construction and residential sector (serviced within the scope of BKS Bank’s WohnCoach home coach service), consumer loans and finance leases granted to retail customers was worth a high €1.09 billion, which was 1.5 per cent up on the end of 2011. One of our focuses in 2012 was on extending the line of products and services, especially in BKS Bank’s markets close to the border in Slove- nia, Croatia and Slovakia. New business in Austria declined slightly compared with 2011. On the positive side, credit risk attributable to this segment came to just €0.7 million, which was well below the already very low figure of €1.2 million recorded in 2011. As a result, the segment’s risk:earnings ratio fell from 3.6 per cent to just 2.4 per cent at year-end. In view of the 9,629 private insolvencies reported by KSV1870 in 2012, these figures mirrored the responsible role played by BKS Bank as a lender that carries out careful credit checks to stop its customers overborrowing. We point out that all new loans granted by BKS Bank since the autumn of 2008 have been euro loans and that we continued to take measures to mitigate our customers’ foreign currency risks during the year under review. At year-end, roughly 73 per cent of all loans in the retail customer portfolio were euro loans (31 December 2011: roughly 63 per cent).
PAYABLES tO REtAIL BANKING CuStOMERS
Sight and time deposit balances Savings deposit balances
0 2.0 1.0 0.5 1.5 2.5 €bn 1.89 2008 2.01 2009 2.03 2010 2.01 2011
Foreign currency receivables Euro receivables
RECEIVABLES FROM REtAIL BANKING CuStOMERS 0 2.0 1.0 0.5 1.5 2.5 €bn 0.86 2008 0.96 2009 1.04 2010 2011 2012 2.10 2012 1.08 1.09
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Private pension and risk insurance policies are a solid way of saving for old age. At the same time, they are part of the ambitious initiatives and advisory focuses that we have put in place to encourage our retail customers to take personal control of their own provisions for the future and those of their close relatives. Most of the products that are typically used to provide for the future are insurance products. We pro- vided these products via our close collaboration with 3-Banken Versicherungs-AG, which is a joint venture of the 3 Banken Group and Generali Versicherung AG. We were, in particular, very successful placing classical regular-premium endowment insurance policies in cooperation with Generali. 3-Banken Versicherungs-AG sold a total of 38,391 policies (2011: 41,296), 31,514 of which (2011: 34,364) were risk insurance policies underwritten by 3-Banken Versicherungs-AG and 5,309 of which (2011: 5,481) were Generali endowment insurance policies. Insurance brokered by 3 Banken Versicherungsmakler GmbH generated premium income of €68.8 million (2011: €69.3 million), with BKS Bank accounting for 23.0 per cent or €15.8 million thereof (2011: €16.4 million). Despite the low interest rates, the gradual increase in pension and risk insurance sales in the retail banking segment continued unbroken. However, single-premium life insurance policies are unlikely to regain their attractiveness until there is a permanent rise in interest rates.
Despite the intensive cross-selling activities described above, which benefited our customers, our suc- cesses were not reflected by our earnings in the retail banking segment. Profit for the year before tax fell from €5.5 million in 2011 to negative €0.8 million in the year under review. Because of the increase in staff costs and other administrative costs, costs charged to this segment were €5.1 million up on the previ- ous year to €51.9 million. The segment’s cost:income ratio was correspondingly unsatisfactory, coming to 100.2 per cent. Its return on equity slumped from 12.2 per cent to negative 1.8 per cent. We believe that this means that the segment has already bottomed out and that the positive effects of a series of ambitious projects will help produce a powerful revival of our retail banking operations. Among other things, we aim to gradually streamline the customer base, and we want to exploit the stronger population growth in Vienna and its environs.