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

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quarterly report

BAWAG P.S.K. REPORTS STRONG Q1 2017 - PROFIT BEFORE TAX OF EUR 123 million

  • Profit before tax of EUR 123 million, +1% versus prior year
  • Return on tangible equity (@ 12% CET1) of 17.2%
  • Core revenues of EUR 247 million, +4%
  • Operating income of EUR 265 million, +6%
  • Operating expenses up 3% due to recent acquisitions
  • Cost-income ratio improved to 40.5%, -1.1pts
  • Net interest margin improved to 2.23%, +3bps versus Q4 2016
  • Fully loaded CET1 ratio of 15.7%, +60bps versus year-end 2016

VIENNA, Austria - May 4, 2017 - BAWAG P.S.K. today reports a strong profit before tax of EUR 123 million for the first quarter 2017, up 1% versus the prior year and up 18% compared to the fourth quarter 2016, driven by higher operating income. The return on tangible equity (@12% CET1) came in at 17.2%. Higher operating expenses and higher risk costs were driven by fully absorbing the Bank's recent acquisitions that were completed during the fourth quarter 2016. Nevertheless, the cost-income ratio was down 1.1pts to 40.5%. The net interest margin was up 3bps to 2.23% versus the fourth quarter 2016. The Bank has increased its fully loaded CET1 ratio by 60bps to 15.7% versus year-end 2016.

"After a record 2016, BAWAG P.S.K. is off to a strong start in 2017, delivering strong results in the first quarter 2017 backed by solid operational developments and progress on various strategic initiatives. We continue to maintain our low-risk strategy focused on the DACH region, with Austria as our foundation, while providing our customers with simple, transparent and best-in-class products and services. The most recent upgrades of our ratings by Moody's in April 2017 make BAWAG P.S.K. the best-rated Austrian bank and are a testament to the strength of the Bank, in particular its capitalization, asset quality and sustained profitability. Our first quarter results reiterate that BAWAG P.S.K. is well positioned to win in this competitive and evolving European banking landscape. We are well on track to meet or exceed our full-year 2017 targets," commented Chief Executive 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 60bps to 15.7% (Dec 2016: 15.1%) and the fully loaded total capital ratio by 50bps to 18.5% (Dec 2016: 18.0%), 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%.

BAWAG P.S.K. upgraded by Moody's

In April 2017, the long-term senior unsecured debt, issuer and deposit ratings were all raised by one notch to A2 while the positive outlook on these ratings was maintained. At the same time, the Bank's standalone rating as well as its subordinate debt rating were also upgraded by one notch to baa1 and Baa2, respectively. Taken together with our Fitch rating, this makes BAWAG P.S.K. one of the few banks across Europe with two ratings in the single A category.

BAWAG P.S.K. awarded as "Austria's Best Bank 2017" by Global Finance

In addition to the Moody's upgrades, Global Finance, one of the leading magazines for finance and capital market issues, awarded BAWAG P.S.K. as "Austria's Best Bank 2017" in March 2017. After having received The Banker's "Bank of the Year 2016" award for Austria in December 2016, we are again proud to be recognized for the successful development of the Bank.

Acquisition of PayLife

In February 2017, easybank signed a purchase agreement to acquire the commercial card issuing business of SIX Payment Services Austria (PayLife). The acquisition of the PayLife card issuing business will not only be accretive day 1, but easybank will look to continue using their partnerships and distribution channels to further grow its customer franchise in Austria and abroad. The transaction is expected to close in the second half of 2017.

Key business highlights in Q1 2017

BAWAG P.S.K. successfully executed on its business plans in the first quarter 2017, delivering another quarter of strong results.

Operating income increased by 6% to EUR 265 million. Despite a continued low-interest rate environment, net interest income rose 6% to EUR 197 million in the first quarter 2017, primarily driven by net asset growth and lower funding costs. Net commission income decreased by 2% to EUR 50 million. The net interest margin increased by 3bps to 2.23% compared to the fourth quarter 2016, reflecting the Bank's dedicated focus on risk-adjusted pricing and optimizing the liability structure.

Higher operating expenses and risk costs in the first quarter 2017 were driven by fully absorbing the recent acquisitions that were completed during the fourth quarter 2016. Despite higher operating expenses, the cost-income ratio in the first quarter 2017 further improved by 1.1pts to 40.5%. The operating expenses will decrease as integration efforts from our recent acquisitions are realized through the course of the year.

The Bank continues to maintain a conservative risk profile characterized by disciplined underwriting, low leverage and a business model focused on developed markets in Austria and Western Europe. This is best reflected in a risk cost ratio of 14bps and a stable NPL ratio of 2.1% as of March 2017.

Regulatory charges increased by 53% to EUR 25 million as we had to front-load approximately 80% of the total regulatory charges anticipated for the full year during the first quarter.

For comparison purposes, BAWAG P.S.K. focuses on profit before tax as net profit last year was significantly impacted by a one-time tax benefit booked in the first quarter 2016. Profit before tax was EUR 123 million, up 1% compared to the first quarter 2016 and up 18% compared to the fourth quarter 2016 driven by higher operating income.

Loans and receivables with customers remained stable and stood at EUR 28.2 billion as of 31 March 2017. 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 total new origination volume in the first quarter was more than EUR 900 million.

The funding of BAWAG P.S.K. continues to be based on stable customer deposits of EUR 25.5 billion, representing two-thirds of the overall funding base. The increase compared to the first quarter 2016 mainly results from the acquisition of start:bausparkasse and IMMO-BANK. The funding costs continued to decrease as the product mix, volume and pricing were optimized. At the end of the first quarter 2017, the blended overall retail deposit rate stood at 0.22%, down 7bps versus a year ago.

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, also includes start:bausparkasse and parts of IMMO-BANK. The segment achieved a profit before tax of EUR 43 million in the first quarter 2017, up 11% compared to the same period last year, while delivering a pre-tax return on equity (@12% CET1) of 20.9% and a cost-income ratio of 51.1%. Higher core revenues deriving from the recent acquisitions of start:bausparkasse and IMMO-BANK more than offset the increase in regulatory charges, reflecting the already booked full-year contribution to the deposit guarantee scheme. Overall risk metrics reflect the high credit quality of the retail business, with a risk cost ratio of 37bps and an NPL ratio of 1.9% (down 30bps versus the first quarter 2016).

The easygroup segment, comprising Austria's leading direct bank easybank, the auto and mobile leasing platforms as well as residential mortgage portfolios in Western Europe, achieved a profit before tax of EUR 31 million in the first quarter 2017, up 33% compared to the first quarter 2016, with a pre-tax return on equity (@12% CET1) of 37.4% and a cost-income ratio of 20.8%. The underlying performance reflects the purchase of a high-quality performing residential mortgage portfolio in Western Europe in December 2016. The segment will largely benefit from the announced acquisition of the PayLife card issuing business, bringing over half a million new customers, an elite credit card team and important distribution partnerships.

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 21 million to the Bank's profit before tax, up 31% compared to the first quarter 2016 and delivering a pre-tax return on equity (@12% CET1) of 19.1%. Core revenues were up 3%, driven by the acquisition of IMMO-BANK in December 2016. The overall quality of the portfolio further improved compared to the first quarter 2016 with an NPL ratio of 0.7%, down 40bps versus the prior year. This is a reflection of the prior years' de-risking activities and the overall high asset quality.

The International Business segment comprises international corporate, real estate and portfolio lending outside the DACH region, primarily in Western Europe and the United States. The segment contributed EUR 22 million to the Bank's profit before tax in the first quarter 2017, down 13% compared to the same period last year due to higher operating expenses and risk costs, while still delivering a pre-tax return on equity (@12% CET1) of 19.5%. Despite higher-than-anticipated early redemptions and a general pressure on margins, core revenues remained stable. Similar to the DACH corporate lending business, the international business is characterized by high-quality assets and a low NPL ratio of 0.3%.

Treasury Services & Markets manages the Bank's investment portfolio of financial securities of EUR 5.6 billion and a liquidity reserve of EUR 2.8 billion. The investment portfolio's average maturity was five years, comprising 96% of investment grade rated securities, of which 85% were rated single A or higher. As of 31 March 2017, 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 14 million to the Bank's profit before tax in the first quarter 2017, up 45% compared to the same period in 2016, delivering a pre-tax return on equity (@12% CET1) of 17.1%. Operating income was up 30%, supported by higher gains from financial instruments.

*) Return on tangible equity calculated at a fully loaded CET1 ratio of 12%.

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 PDF press release

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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:

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