EANS-News: BAWAG P.S.K. Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse Aktiengesellschaft / Consolidated Interim Report Q3 2016 (with document)

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9-month report

BAWAG P.S.K. REPORTS STRONG NET PROFIT OF EUR 380 MILLION FOR Q1-3 2016 - Net profit of EUR 380 million, +19% versus prior year - Return on tangible equity of 19.0%, +1.4pts - Operating income of EUR 743 million, +2% - Core revenues of EUR 690 million, +1% - Net interest margin stable at 2.1% - Operating expenses down 4% - Cost-income ratio improved to 42.8%, -2.6pts - Fully loaded CET1 ratio of 15.7%, +2.8pts versus year-end 2015

VIENNA, Austria - November 9, 2016 - BAWAG P.S.K. today reports a strong net profit of EUR 380 million for the first three quarters 2016, up 19% 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 19.0%, up 1.4pts. The net interest margin remained stable at 2.1%. Operating expenses were down 4% and the cost-income ratio down 2.6pts to 42.8%. Risk costs decreased by 28% to EUR 25 million.

"BAWAG P.S.K. delivered strong results in the first three quarters 2016, reporting a net profit of EUR 380 million. With a return on tangible equity of 19.0%, a cost-income ratio of 42.8% and a fully loaded CET1 ratio of 15.7%, BAWAG P.S.K. ranks among the most profitable, efficient and best capitalized banks across Europe. The continued strong results reiterate that BAWAG P.S.K. is well positioned to win in this competitive and evolving European banking landscape. We will continue to maintain our Austria- and developed market-focused low-risk strategy while providing our customers with simple, transparent and best-in-class products and services. All our 2016 financial targets are expected to be achieved or exceeded from today's perspective," said Chief Executive Officer Byron Haynes.

"Over the past four 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 during the fourth quarter 2016 and going forward into 2017. Our focus continues to be on driving efficiency, operational excellence and profitable growth," said Chief Financial Officer Anas Abuzaakouk.

Strong capital ratios

The fully loaded CET1 ratio further improved by 2.8pts to 15.7% (Dec 2015:
12.9%) and the fully loaded total capital ratio by 3.0pts to 18.8% (Dec 2015:
15.8%). At the same time, we maintained an RWA density of 46%, a conservative ratio relative to our European peers.

BAWAG P.S.K. rated by Fitch for the first time

On November 7, 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, a strong and experienced management team with a demonstrated track record in realigning the Bank's business model following its restructuring, 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, pricing discipline as well as a strong capitalization and performance in regulatory stress tests. This rating makes BAWAG P.S.K. the highest rated bank in Austria by Fitch and Moody's as well as one of the few banks across Europe with two ratings in the single A category.

BAWAG P.S.K. awarded "Austria's Best Bank 2016" by Euromoney

In July 2016, BAWAG P.S.K. was awarded "Austria's Best Bank 2016" by Euromoney, one of the world's leading special-interest magazines for banking, finance and capital market issues. This award underlines BAWAG P.S.K.'s successful strategic transformation in recent years and is the second important international recognition for the Bank after The Banker's "Bank of the Year 2015" award for Austria in December 2015.

Key business highlights in the first three quarters 2016

BAWAG P.S.K. successfully executed on its business plans in the first three quarters 2016, delivering another period of strong results.

Operating income increased by 2% to EUR 743 million, driven by strong net interest income. Despite the continued low-interest rate environment, net interest income increased by 1% versus the first three quarters 2015, driven by core product growth, pricing initiatives and lower funding costs. Net interest margin remained stable at 2.1%, reflecting the Bank's dedicated focus on risk-adjusted pricing and optimizing the liability structure.

Operating expenses decreased by 4% to EUR 318 million, driven by sustainable long-term measures in personnel and non-personnel expenses. The cost-income ratio further decreased by 2.6pts to 42.8%.

Risk costs decreased by 28% to EUR 25 million in the first three quarters 2016, resulting from the improved overall 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 12bps and a low and stable NPL ratio of 2.3%.

Profit before tax was EUR 367 million, up 8% versus the prior year. Net profit increased by 19% to EUR 380 million, driven by higher operating income, lower operating expenses and risk costs as well as tax income resulting from the recognition of deferred tax assets on tax loss carryforwards in the first quarter. These positive developments offset the increase in regulatory charges.

Loans and receivables with customers decreased by 3% to EUR 23.9 billion compared to year-end 2015 but increased by 1% compared to the second quarter

2016. The total new origination volume in the first three quarters 2016 was EUR 3.2 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 continue to pay off. The market share in consumer loans, one of the Bank's core retail products, grew to 11.4%, up 120bps from year-end 2015, representing net asset growth of 10.0%.

Deposits from customers increased by 5% to EUR 22.7 billion compared to year-end 2015 and by 3% compared to the second quarter 2016, mainly resulting from higher deposit account balances. Funding costs continued to decrease as the product mix, volume and pricing were optimized. At the end of the third quarter 2016, the blended overall retail deposit rate stood at 0.24%, down 11bps versus a year ago.

The funding of BAWAG P.S.K. continued to be based on stable customer deposits representing two thirds of the funding base. Additionally, the Bank issued two Swiss franc senior unsecured bonds with a total of CHF 275 million in October in order to replace the derivative CHF funding used so far with direct CHF funding, with one issuance accounting for the lowest ever recorded yield of a newly issued financial bond on the Swiss financial market (minus 25bps). Furthermore, to gain access to direct GBP funding, BAWAG P.S.K. placed a GBP 500 million RMBS (Residential mortgage-backed securities) transaction backed by high-quality performing UK retail mortgages in early November (settlement on November 11) representing the first ever RMBS transaction by an Austrian bank.

Segment reporting

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, achieved a net profit of EUR 126 million in the first three quarters 2016, up 14% compared to the same period last year, while also delivering a return on equity of 19.6% and a cost-income ratio of 55.0%. Higher core revenues and lower operating expenses offset in particular the increased regulatory charges. New loan originations were EUR 880 million, while moderately increasing margins and maintaining the disciplined underwriting standards. Overall risk metrics reflect the high credit quality of the retail business, with a risk cost ratio of 0.38% and an NPL ratio of 2.3%.

The easygroup segment, comprising Austria's leading direct bank easybank, our auto and mobile leasing platforms as well as our international residential mortgage portfolio, showed strong results by more than doubling net profit to EUR 69 million compared to the first three quarters 2015, with a return on equity of 24.9% and a cost-income ratio of 24.1%. The underlying performance reflects the acquisition of the Volksbank Leasing business as well as the purchase of a high-quality performing international residential mortgage portfolio during the fourth quarter 2015. During the first three quarters 2016, the segment recorded new business originations of EUR 360 million, including EUR 277 million in consumer auto leasing, which was up 12% from the first three quarters 2015. In July, we entered into a partnership with Autogott, Austria's leading online car sales channel, which will increase easybank's brand awareness and further grow the segment's current customer base of approximately 380,000 clients in Austria. In addition, we successfully launched our new brand easyleasing in September. easyleasing will become our "one brand and one face" to the leasing market in Austria. Overall, easygroup is well positioned to further build out its asset origination capabilities in auto leasing and consumer loans both domestically and internationally.

The DACH Corporates & Public Sector segment includes corporate and public lending activities and other feedriven financial services for mainly Austrian customers and select client relationships in Germany and Switzerland. The segment contributed EUR 54 million to the Bank's net profit in the first three quarters 2016, a decrease of 16% compared to the same period last year, but still delivered a return on equity of 13.2%. Core revenues were down 17%, driven by early redemptions, margin pressure and low new business volume. This was offset by an improvement in operating expenses (down 8%) and positive risk costs. In the first three quarters 2016, the business segment recorded EUR 390 million of new lending in addition to regular renewals. The overall quality of the portfolio further improved with an NPL ratio of 0.7%, down 0.3pts versus the prior year and being a reflection of prior years' de-risking activities.

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 the first three quarters 2016, the Bank continued to focus on loan origination opportunities in select developed Western countries, generating new business volume of EUR 1.6 billion. The segment contributed EUR 82 million to the Bank's net profit in the first three quarters 2016, up 1% from the same period last year, and delivered a return on equity of 19.1% despite higher-than-anticipated early redemptions. Similar to the DACH business, the international business is characterized by high-quality assets with no non-performing loans.

Treasury Services & Markets manages the Bank's investment portfolio of financial securities in the amount of EUR 5.1 billion as well as the liquidity reserve of EUR 0.8 billion at the end of September 2016. The investment strategy continues to focus on investment grade securities primarily representing secured and unsecured bonds of financial institutions in Western Europe and the United States as well as select sovereign bond exposures in order to maintain a solid diversification. The investment portfolio's average maturity was 4.1 years, comprising 97% investment grade-rated securities, of which 80% were rated in the single "A" category or higher. The segment contributed EUR 41 million to the Bank's net profit in the first three quarters 2016, up 39% compared to the same period in 2015, and delivered a return on equity of 15.3%. Overall core revenues were down 3.9%, with higher gains and losses on financial instruments and lower operating expenses.

About BAWAG P.S.K.

With more than 1.7 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 and receivables 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 and insurance services. Our Austrian business is complemented by international activities focused on retail, corporate, commercial real estate and portfolio lending in Western economies. 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

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

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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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