Erste Group Research
Erste Group Research Issuer Profile | Financials & Covered Bonds | Austria 21. June 2021
Oberbank AG
Analyst: Carmen Riefler-Kowarsch Regional Universal Bank for Corporate Customers, [email protected] SMEs and High-End Private Banking
Key Facts 31.12.2020 Company Profile Total Assets EUR 24bn The bank defines itself as a regional universal bank for corporate customers Net Income EUR 124mn and SMEs, with a second strategic pillar in high-end private banking. This is Tier1 Ratio 17.8% underscored by the fact that the corporate business is its most important Capital adequacy ratio 20.4% source of sustained income. The bank's core markets are the provinces of Upper Austria and Salzburg, but Oberbank has a cross-border market Rating S&P current presence as well (in Germany and the CEE region). In recent years it Issuer Rating A expanded primarily organically, by establishing new branch offices. Together Outlook negative with Bank fuer Tirol und Vorarlberg (BTV) and BKS Bank AG (BKS), Oberbank forms the “3-Banken Group”. Mortgage Cover Pool 31.03.2021 ESG Rating (current) AAA/-/- The sustainability strategy considered in 2019 has been integrated in the Cover Pool EUR 2,256mn corporate strategy "Oberbank 2025" in 2020 and the target horizon has Covered Bonds EUR 1,237mn been extended to 2025. The sustainability strategy covers all ESG-related OC 82.4% areas. At present, Oberbank has not published an ESG rating.
Earnings Result The bank posted consolidated net income of EUR 123.5mn in the 2020 financial year (2019: EUR 216.1mn). The decline in earnings in 2020 was Ticker attributable to an increase in risk provisions, a negative investment result OBERBK
Contents Issuer Rating Regional Universal Bank for Corporate Since early 2019 S&P assigns an issuer rating of 'A' to Oberbank, which Customers, SMEs and High-End Private was affirmed at the end of February 2021. However, the negative outlook Banking ...... 1 set in response to the impact of the corona crisis remains in place. As such, Company profile ...... 2 ESG ...... 6 the affirmation of the rating reflects the bank's proven and stable business Earnings result ...... 9 model as well as its cost efficiency and strong capitalization. Despite the Issuer rating ...... 10 more challenging economic conditions in the wake of the Corona pandemic, Oberbank as an Issuer ...... 11 the agency expects the bank's strong capital ratios to be maintained. Covered Bond Program ...... 12
Funding Oberbank strives to establish a funding mix that is as diversified as possible.
The bulk of its funding consists of customer deposits. Since 2018 the bank is Major Markets & Credit Research active as an issuer in the capital markets as well in order to boost the share Gudrun Egger, CEFA (Head) of long-term refinancing instruments in the funding mix. S&P assigns a rating of 'AAA' to the bank's mortgage covered bonds. Oberbank plans to Financials & Covered Bonds Heiko Langer expand its capital market funding with green covered bond placements. In Carmen Riefler-Kowarsch the future it is planned to issue 50% of its bonds in the form of green and social bonds.
Note: Past performance is not necessarily indicative of future results.
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Company profile
Universal bank for corporate Oberbank was founded in 1869 as “Bank fuer Oberoesterreich und customers, SMEs and high net Salzburg”, with its headquarters in Linz. At the time it was exclusively active worth private banking in corporate banking. Today it defines itself as a regional universal bank for corporate customers and SMEs with a second strategic pillar in high net worth private banking. In 1986 its shares were listed on the Vienna Stock Exchange.
Core markets Upper Austria and Originally the bank only had a presence in the federal provinces of Upper Salzburg – expansion into Austria and Salzburg, but in the 1980s it began to expand beyond its Germany and the CEE region traditional business region. At first it did so domestically (to Lower Austria and Vienna), but since 1990 it is expanding beyond Austria's national borders as well (branch offices in Bavaria). In 2004 it began to enter the markets of the CEE region in the Czech Republic (followed by Hungary in 2007 and Slovakia in 2009). The expansion of recent years was primarily organic, via establishing new branch offices. This strategy is bucking current market trends, but the company plans to maintain it over the medium term.
Steady organic growth With total assets of EUR 24.4bn at the end of 2020 (3Q 2020: EUR 25bn) and around 2,200 employees Oberbank is in the meantime one of the ten largest banks in Austria. It serves roughly 56,000 corporate and 284,000 retail customers in 176 branch offices, which are spread across Austria (97 branch offices), Germany (42), the Czech Republic (20), Hungary (13) and Slovakia (4). Measured by the geographic distribution of branch offices, but also in terms of credit risk, Austria remains the bank’s most important market (core markets: Upper Austria and Salzburg) – followed at a considerable distance by Germany. The business strategy remains focused on organic growth.
Ownership Structure
Oberbank, BTV and BKS Bank form the 3-Banken Group By total shareholder capital as of 31 Dec 2020
Employees UniCredit Bank Austria AG Wuestenrot 4.15% 3.41% Generali 3 Banken Wohnungswirtschaft Holding AG reg. Gen.m.b.H. 1.62% 4.50% Free Float BKS Bank AG 31.62% 14.79%
syndicate agreement syndicate Bank fuer Tirol und CABO Beteiligungs- Vorarlberg AG gesellschaft m.b.H. 16.15% 23.76%
Source: Oberbank, Erste Group Research
Autonomy and independence The bank regards safeguarding its autonomy and independence as its top the top priority strategic priority. Together with Bank fuer Tirol und Vorarlberg (BTV) and BKS Bank AG (BKS), Oberbank forms the 3-Banken Group. The banks are linked by a similar shareholder structure. In addition, there is a syndicate
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agreement between BKS, BTV and the Wuestenrot Cooperative. This serves to ensure the independence of Oberbank. Among other things it provides for the joint exercise of voting rights and reciprocal preemptive purchase rights. As of 31 Dec. 2020, CABO Beteiligungsgesellschaft mbH., a wholly owned subsidiary of UniCredit Bank Austria, remains the largest single shareholder of Oberbank. Around 32% of the common shares are free-floating and are held by companies, institutional investors and retail investors.
Today's shareholder structure reflects the history of the bank. The credit institution was acquired by Creditanstalt AG in the 1930s (today: UniCredit Bank Austria). In the 1950s the latter relinquished its qualified majority stakes in the three banks Oberbank, BTV and BKS. Creditanstalt retained a third of the stakes in each bank for itself, and sold the remaining shares to the respective two other banks.
Synergies within the 3-Banken Due to their joint history and similar corporate culture, the originally merely Group are taken advantage of capital-based links between Oberbank, BKS and BTV has evolved into a close cooperative partnership by today, which since 1997 finds expression in their joint market presence as the 3-Banken Group. While each company is a shareholder of the other banks, they operate autonomously and independently in their own home regions. Synergies are taken advantage of, as is inter alia evidenced by their jointly owned subsidiaries, such as 3-Banken IT GmbH, 3-Banken-Generali Investment-Gesellschaft or Alpenlaendische Garantie-Gesellschaft, which the three banks use to hedge large credit exposures.
Credit risk
Credit risk: sectors well diversified Credit risk: Austria largest region As of 31 Dec. 2020 As of 31 Dec. 2020 Construction Other Individuals 5% Western Europe 10% and self- PIGS Manufacture employed Other (ex DE) countries of goods 16% countries 2% 0% 3% 5% Eastern Credit and Europe (CZ, insurance SK, HU) industry Public sector 16% 6% 16%
Metals processing 6% Austria Germany 59% Trade 20% 8% Services Holding and 11% investment Real estate companies 10% 8%
Source: Oberbank, Erste Group Research Source: Oberbank, Erste Group Research
Services sector and retail trade The non-performing loan ratio stood at 2.05% at the end of 2020 (YE 2019: account for 19% of credit 1.96%). 59% of the bank's credit exposure at the end of 2020 was located in exposure Austria, followed by 20% in Germany. Exposure to borrowers in CEE countries (Czech Republic, Slovakia and Hungary) together amounted to 16% of the loan book. Broken down by industry, retail and self-employed customers with 16% and with the public sector at the same level as well, represent the largest share of the bank's credit exposure. Sectors particularly strongly impacted by the corona crisis, such as the services sector and the retail trade account for a 19% share of the credit exposure of Oberbank. Major Markets & Credit Research Page 3
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Segment reporting
Corporate customers remain strongest segment in 2020 as well Earnings contribution (pre-tax) of individual business segments in EUR mn
350
300
250
200
150
100
50
0
-50
12/2016 12/2017 12/2018 12/2019 12/2020
Corporate and Business Banking Personal Banking Financial Markets Other Total
Source: Oberbank, Erste Group Research
The bank divides its activities into four business segments, with the segment “Other” primarily used for the recognition of expenses (2020: EUR -47.2mn, comprising material and personnel expenses as well as depreciation charges).
Corporate customers business The strongest sustained contribution to pre-tax earnings is provided by the provides the most important corporate customers business (“Corporate and Business Banking”). In 2020, sustained earnings contribution pre-tax earnings declined by 17.0% to EUR 163.1mn due to higher risk provisions. The segment encompasses companies and self-employed persons. With respect to these customers the bank positions itself as a bank for corporate and medium-sized business clients with a high level of foreign business expertise. Accordingly it offers a wide variety of financing alternatives, subsidized loans and international business services (such as cross-border payment services/processing and export financing). The leasing sub-group is included in this segment as well.
Earnings from private customer The bank regards the high-end private customers business as a second business increase in 2020 strong pillar. The segment includes business relationships with wage and salary earners and high net worth private individuals. In this unit the focus is mainly on businesses that require intensive consulting, such as securities trading and investment as well as financing of residential construction. Due to an increase in commission income the segment posted pre-tax earnings of EUR 56.4mn in 2020, exceeding the level of EUR 46.7mn reported in the previous year.
Financial Markets segment The “Financial Markets” segment includes the earnings contribution from strongly affected by result from participating interests and trading activities as well as interest income from at-equity investments maturity transformation and the balance sheet structure. According to the bank, traditional proprietary trading plays only a subordinated role. Rather, the financial markets segment primarily provides services such as interest rate and currency risk management for customers and is responsible for bank controlling. Investments in companies accounted for at-equity are the main drivers of the segment's earnings contribution. Essentially these are Major Markets & Credit Research Page 4
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permanent participating interests in domestic companies. This either fortifies the “house bank” function of Oberbank, or the companies it holds stakes in represent an “extension” of its core banking business (such as e.g. real estate developers or asset management companies).
BTV, BKS as well as voestalpine The stakes in BTV and BKS (in the 3-Banken Group context) are among the are included in the at-equity bank's most important investments. The institution also holds stakes in other result companies with which it has close cooperative partnerships, such as Bausparkasse Wuestenrot, OeKB or the Vienna Stock Exchange (indirect stake). Furthermore, the bank inter alia holds shares in voestalpine as a strategic partner (a stake of 8.04% as of 31 Dec. 2020). However, only BTV, BKS and voestalpine are consolidated at-equity. In 2020 the Financial Markets segment posted a pre-tax loss of EUR -4.8mn (2019: EUR 70.9mn). The negative earnings contribution from at-equity investments was the major driver of this result, which was in turn primarily attributable to the loss reported by voestalpine.
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ESG
Sustainability strategy In 2019, Oberbank has carried out a group-wide sustainability project. In integrated into company 2020 the resulting sustainability strategy was integrated into the company's strategy business strategy “Oberbank 2025”, and the target horizon has therefore been extended from 2022 to 2025. The sustainability strategy covers all ESG-related areas. At present, Oberbank has not published an ESG rating.
Influence of ESG criteria on In its core financing business Oberbank relies on sustainable lending credit extension standards. Loan applications are not only considered in terms of economic factors, but appropriate attention is paid to ESG criteria as well. This is primarily important on account of the fact that companies can be held accountable for conduct detrimental to climate protection in the future, and/or the emergence of climate-related transition risks (CO2 taxes and/or technological changes), which could have severe financial repercussions and impact debt repayment.
Detailed review of customer In 2020, the customer base of 1,206 companies was audited and as a result base with respect to exclusion business relationships with 23 customers (nuclear energy, fracking and criteria performed in 2020 coal) will be terminated in the course of 2021. Since 2021, an automatic block for future new engagements has been set in the system.
Positive criteria: from 2021 In addition, positive criteria in the environmental and social areas have been positive impact to be measured defined as well, such as e.g. renewable energy projects, electric mobility, sustainable water management, waste management or pollutant/emissions reduction and the existing exposure was reviewed as well. Beginning in 2021 additional information and data per positive criterion will be collected under a new structured process in order to enable measurement of the corresponding positive impact.
Placement of a green covered The search for potential financing projects aligned with the defined positive bond planned criteria for the placement of a green and/or social bond is underway. According to the Sustainability Report, Oberbank plans to refinance EUR 500mn through bond issues in 2021. Half of this amount is to be placed in the form of a green covered bond (based on energy-efficient housing finance). Until 2025, issuance policy is to be shifted even further toward sustainability and 50% of all capital market borrowings are to be raised via green or social bonds.
EUR 500mn growth target for Apart from sustainability criteria for new customer business in the lending sustainable investment funds business, proprietary investments and its own bond issues, Oberbank has planned also built up a portfolio of sustainable investment products. In the area of asset management, Oberbank focuses on raising awareness in securities advisory services. The investment volume of sustainable investment funds was increased from EUR 117 million to EUR 202 million and is expected to reach EUR 500 million within the next five years. The total customer volume of EUR 1.2bn currently in sustainable investments is expected to grow to a total of EUR 2.5bn by 2025.
2021 Introduction of a certified Operational ecology has a high priority at Oberbank. A professional energy environmental management management team is employed since 2007. Internally set guidelines system regarding energy efficiency and sustainability are continually evaluated and implemented with the aim of consistently increasing the energy efficiency of all buildings. In 2021 the introduction of a certified environmental management system in accordance with ISO 14001 or EMAS was started.
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Cumulative CO2 savings Oberbank Austria Total CO2 emissions balance In tons of CO2 Tons of CO2 per year 2020 2021 Target 2025 Austria 4,789 1,800 1,692 Germany 1,260 739 693 Czech 730 730 371 Hungary 301 301 284 Slovakia 80 80 75 Total 7,160 3,650 3,115
Measures: Measures: Measures: systems room Measures: branches Austria
Source: Oberbank, Erste Group Research Source: Oberbank, Erste Group Research
Furthermore, reduction of paper and electricity consumption, decreasing the CO2 footprint (e.g. fleet management and business travel) as well as active procurement and supplier management (such as a code of conduct for suppliers, sourcing of regional supplies) continue to be advanced.
Measurable and observable Measurable and observable indicators in human resource management indicators in human resource policies have been established in order to ensure a fair and safe work space management policies have for all employees through equality of opportunity, employee development, been set job security and health protection as well as continual employee training.
Greater equality of gender Oberbank strives to achieve an equal gender balance of its management balance in management to be staff - 50% women and 50% men. Since the beginning of 2019 this quota pursued has been taken into account in all new appointments and replacements for vacant positions. Moreover, the age structure will change over the coming 10 years as well. One quarter of the approximately 400 managers currently employed will be replaced due to reaching retirement age.
25% proportion of women In 2020 the total proportion of female employees at the bank was slightly planned for the management below 60%, while the proportion of female managers was around 23%. Until board as well 2022 the measures already implemented are to achieve a 25% quota of women in management, with the aim of boosting this to 40% by 2030. The internal replacement quota is to remain at a minimum of 80% until 2022. The Executive Board was expanded to four (previously 3) male members as of October 1, 2020. The proportion of women on the board of directors is to increase to 25% through the generational change-over as well.
Employee turnover rate at 7.4% Oberbank continues to state that it does not terminate employees - it exclusively uses the natural staff fluctuation rate for the purpose of changing personnel and implementing targeted cost cuts. As of 31 Dec. 2020, length of service averaged 13.2 years, while the adjusted staff fluctuation rate stood at 7.4% (2019: 9.9%). The aim is to keep it below 8.5% in the long- term.
Organizationally independent There is an organizationally independent compliance department that is compliance department tasked with supervising issues such as regulations, prevention of money laundering, terrorism funding, sanctions and embargoes, compliance with securities regulations and fraud prevention.
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Data protection and data The bank states that it pays close attention to data protection and data security are implemented security. The General Data Protection Regulation (GDPR) was fully implemented as of 25 May 2018. Training courses for employees are taking place. All information security processes are currently brought into line with ISO 27001. Certification of the entire IT system in accordance with ISO 27001 has begun in January 2021.
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Earnings result
Consolidated net income of In the 2020 financial year Oberbank posted a decline in consolidated net EUR 123.5mn income to EUR 123.5mn (2019: EUR 216.1mn). Pre-tax profit decreased to EUR 167.5mn year-on-year (2019: EUR 276mn). The decline in the 2020 earnings result was attributable to an increase in risk provisions, a negative investment result due to the investment stake in voestalpine and unfavorable asset valuation adjustments.
Decline in net interest income, Net interest income - the largest component of the bank's earnings - increase in net commission declined 2.6% to EUR 336.9mn year-on-year. While there was an increase income in net interest income from corporate customers, it halved in the financial markets segment. Net commission income grew by 4.7% to EUR 170.7mn (2019: EUR 163mn). The increase in commission income was largely generated by the private customers segment.
Higher risk provisions, Loan loss provisions increased from EUR 12.2mn to EUR 41.8mn and were negative investment result almost entirely allocated to the corporate customers segment. The NPL ratio stood at 2.1% at the end of 2020 (2019: 2.0%). Net income from investments provided a negative earnings contribution of EUR -8.0mn in 2020 (2019: EUR 29.7 million). This was attributable to the at-equity investment in voestalpine and could not be fully offset by the positive earnings contributions of the sister banks.
Significantly lower valuation Other income declined from EUR 36.5mn posted in the previous year to just results and slightly higher EUR 3.2mn. The decrease was primarily due to significantly lower asset administrative expenses valuation adjustments. Administrative expenses increased 2.1% to EUR 294.9mn year-on-year. Personnel expenses increased to EUR 179.1mn (2019: EUR 174.9mn), while other expenses rose from EUR 114.1mn to EUR 115.8mn.
Total assets grow to Total assets grew by 7% to EUR 24.4bn (2019: EUR 22.8bn). Loans and EUR 24.4bn advances to customers rose by 2.9% to EUR 17.3bn, while customer deposits increased by 9.2% to EUR 13.1bn. Oberbank participated in the ECB's TLTRO III refinancing program and took up EUR 1.5bn. The CET-1 ratio increased to 17.8%.
1Q 2021 – 2021 Outlook
1Q 2021 net earnings of In 1Q 2021 Oberbank posted net income of EUR 49.4mn (2020: EUR 49.4mn EUR -73.7mn). This positive development was primarily attributable to the result from investments of EUR 23.4mn - last year a loss of EUR -81.7mn was recognized under this line item.
Earnings expected to improve Oberbank states that it intends to continue to pursue its organic growth substantially in 2021 strategy by opening new branch offices in the 2021 financial year. With respect to earnings guidance for 2021, the Bank expects a substantial improvement in earnings year-on-year, provided that neither the valuation result nor credit risk deteriorates dramatically.
Selected financial data can be reviewed in the Appendix.
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Issuer rating
Issuer rating of 'A' with a Since early 2019 rating agency S&P assigns an issuer rating of 'A' to negative outlook Oberbank, which was affirmed in February 2021. The affirmation of the rating reflects the bank's proven and stable business model as well as its cost efficiency and strong capitalization. The agency expects the bank's strong capital ratios to be maintained despite the more challenging economic conditions in the wake of the Corona pandemic.
'BBB+' rating for senior non- In October 2020 the bank furthermore received a rating of 'BBB+' for senior preferred instruments non-preferred instruments. As a result of the COVID-19 pandemic S&P conducted a review of the Austrian banking sector at the end of April 2020 and revised the rating outlook of several Austrian banks. In the course of this review the outlook for the rating of Oberbank was downgraded from “stable” to “negative” as well, where it remains to date.
Economic risk of the banking In its rationale the agency justifies this by pointing to the heightened landscape in Austria economic risk for the Austrian banking sector as a result of the pandemic. Oberbank has a regionally concentrated market position, particularly in the corporate customers and SME segments. In addition, Oberbank has invested in participating interests which are concentrated in Upper Austria (mainly voestalpine). In this context the emergence of unfavorable economic conditions can have a negative impact on profitability as well.
Business position of the According to S&P's stand-alone credit assessment, Oberbank – as a mid- company regarded as adequate, sized bank domiciled in Austria – is at a disadvantage relative to larger capitalization and profitability competitors in its rating peer group due to its significant geographical seen as strong concentration and smaller balance sheet. However, as noted above, this is offset by the positive effects of its proven and stable business model, its above-average cost efficiency (compared to the peer group) and its strong capitalization.
Risk position considered to be One of the biggest weaknesses highlighted by the agency is the moderate - regional and concentration in the corporate customers business – particularly in Austria customer-related concentration (province of Upper Austria). Additional risks are generated by the large risks in evidence investment stakes in Austrian companies, which can have a negative impact on the bank's earnings if local economic conditions become unfavorable. S&P also expects that the quality of Oberbank's credit exposure will deteriorate once the support measures related to the corona crisis expire. The agency assigns a score of 'moderate' to the bank's risk position.
Importance for the region and The group's funding and liquidity profiles are regarded as adequate. solid buffer of loss-absorbing Furthermore, S&P considers the bank to be systemically important for the instruments province of Upper Austria. Apart from that the agency appreciates the bank's sizable buffer of loss-absorbing instruments and expects additional security issues in this category. Due to the resultant protection for senior unsecured creditors the agency applies an uplift of one notch to the rating.
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Oberbank as an Issuer
Customer deposits the main Oberbank strives to achieve the broadest possible diversification of funding funding source sources in order to avoid being dependent on interbank money markets and capital markets. Customer deposits represent the bulk of the funding base. In addition the group counts covered bonds and subordinated debt as its primary funding sources. For the ratio between loans to customers and the sum of primary deposits, own issues and deposits of development banks Oberbank has set itself a strategic upper limit of 110%.
Customer deposits serve as the main refinancing source of Oberbank As of 31 Dec. 2020 TLTRO 7% Interbanken 11%
Subsidized loans 12%
Saving Deposits Securitized 59% liabilities + supplementary capital 11%
Source: Oberbank, Erste Group Research
Since 2018 Oberbank is also Since 2018 Oberbank is active as an issuer in the capital markets as well. active in the capital markets This is mainly intended to boost the proportion of its long-term funding. Since April 2017 the bank's mortgage covered bond program has a rating of 'AAA' from S&P. Since January 2019 S&P also assigns an issuer rating of 'A' to the bank and since October 2020 a rating of 'BBB+' to its senior non- preferred instruments.
Currently Oberbank has five public bonds in sub-benchmark volume outstanding in the capital markets. Two mortgage covered bonds, one senior unsecured bank bond and two senior non-preferred bonds, which are eligible for the fulfillment of MREL requirements.
Green bond placement planned Oberbank is working on the issuance of green and social bonds. Potential financing projects were filtered in accordance with its defined positive criteria and evaluated for their suitability. A green bond framework was published and a second party opinion was provided by ISS ESG. The funding plan envisages bond issues totaling EUR 500mn in 2021. Half of this amount, i.e., EUR 250mn, is to be raised through a green covered bond placement (based on energy-efficient residential construction financing). The proceeds of the bond issue are earmarked for the refinancing of existing loans. Until 2025, the bank's issuance policy is to be shifted even further toward sustainability and 50% of all capital market borrowings are to be raised via green or social bond placements.
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Covered Bond Program
Mortgage cover pool volume Oberbank issues mortgage covered bonds. As of 31 March 2021 the totals EUR 2,256mn aggregate volume of assets in the cover pool amounted to EUR 2,256mn (outstanding covered bonds: EUR 1,237mn). At the cut-off date the overcollateralization rate (OC) stood at 82.4%. The cover pool comprises exclusively EUR-denominated assets, 77% of which consist of purely residential mortgage loans. In line with the business strategy, most of the assets in the cover pool are located in Austria (77%). The provinces of Upper Austria, Vienna, Lower Austria and Salzburg are most strongly represented there. Foreign assets (23% of the cover pool) originate entirely from Germany, with the largest exposure in Bavaria.
'AAA' rating remains intact in Mortgage covered bonds (CB) issued by Oberbank have a rating of 'AAA' the event of an issuer rating from S&P since March of 2017. The agency states that Oberbank’s CB downgrade rating could theoretically benefit from a rating uplift of up to eight notches. Only six of these are currently utilized. One supportive factor each from the jurisdictional support and collateral support components of the analysis remains unused. This provides immunity of up to two notches in the event of a downgrade of the issuer rating.
Overcollateralization and asset In principle S&P regards the overcollateralization provided by the bank as quality seen as strengths, but one of the program’s strengths, but the lack of a contractual commitment to regional concentration risks and a minimum overcollateralization rate is criticized. S&P regards the lending lack of liquidity reserve standards of Oberbank as essentially sound. Both the fact that the cover criticized pool is largely composed of first-ranking mortgages on owner-occupied properties located in Austria and that NPLs are avoided are regarded as credit-positive factors. While the granularity of the cover pool is viewed in a positive light, the focus on Upper Austria results in certain regional concentration risks. The lack of a liquidity reserve (180-day liquidity buffer) is criticized as well.
For a comparison with other Austrian issuers please refer to Cover Pool Reporting.
Mortgage cover pool – cover assets by usage Maturity matching between mortgage cover pool and type (31 Mar. 2021) mortgage covered bonds (31 Mar. 2021) 1800 Commercial 1600 23% 1400 1200 1000 800 600 400 200 0 Residential mat. less mat. 1 - mat. 2 - mat. 3 - mat. 4 - mat. 5 - mat. 77% than 1 Y 2Y 3Y 4Y 5Y 10Y >10Y Total Cover Assets Bonds
Source: Oberbank, Erste Group Research
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Appendix
Selected Data and Financial Metrics (IFRS, in EUR mn)
change Income Statement 2020 2019 (y/y) 2018 2017 2016 Net Interest Income 336.9 345.8 -2.6% 345.2 315.3 308.3 Provisions & Impairments -41.8 -12.2 >100% -25.6 -28.4 -25.0 Net Fee and Commission Income 170.7 163.0 4.7% 159.2 140.6 130.9 Net Income from Financial Instruments 1.5 2.3 -38.2% 5.3 9.9 34.2 Equity-accounted Profit/ Loss - -8.0 29.7 >100% 83.1 72.2 51.3 Operating Other Income (net) 3.2 36.5 -91.2% -13.2 -4.5 -28.9 Total Operating Income 462.4 565.2 -18.2% 554.1 505.1 470.9 Personnel Expenses -179.1 -174.9 2.4% -175.9 -164.4 -154.0 Administrative Expenses -115.8 -114.1 1.5% -107.6 -101.8 -97.8 Total Operating Expenses -294.9 -288.9 2.1% -283.6 -266.2 -251.8 Pre-Tax Profit 167.5 276.2 -39.4% 270.5 238.9 219.1 Net Income 123.5 216.1 -42.8% 225.6 200.5 181.3
change Balance Sheet 2020 2019 (y/y) 2018 2017 2016 Total Assets 24,432.9 22,829.0 7.0% 22,212.6 20,830.6 19,158.5 Loans to Customers 17,264.7 16,772.2 2.9% 15,883.0 14,760.3 13,325.4 Deposits From Customers 13,087.2 11,980.7 9.2% 12,145.7 11,397.4 10,944.5 Total Common Equity 3,038.9 2,960.5 2.6% 2,797.9 2,466.8 2,282.8 change Key figures 2020 2019 (y/y) 2018 2017 2016 Net Interest Margin 1.4% 1.5% -0.1 pp 1.6% 1.6% 1.6% Cost-Income-Ratio 58.5% 50.0% 8.5 pp 48.9% 49.9% 53.5% RoE after Taxes 4.1% 7.5% -3.4 pp 8.6% 8.4% 8.6% Loan / Deposit Ratio 131.9% 140.0% -8.1 pp 130.8% 129.5% 121.8% NPL Ratio 2.1% 2.0% 0.1 pp 2.4% 2.6% 3.4% CET 1 Ratio 17.8% 17.6% 0.2 pp 17.5% 16.5% n/d Tier 1 Ratio 18.2% 17.9% 0.3 pp 17.8% 17.0% 16.3% Total Capital Ratio 20.4% 20.2% 0.2 pp 20.2% 19.6% 19.4%
Source: Oberbank, Erste Group Research
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The Austrian Covered Bond Market
Outstanding CB volumes of Austrian CB issuers (as of 30 Sep 2020)
20,000
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
RLB Tirol
Oberbank
BKSBank
KAFinanz
HYPONOE
RVSalzburg
RLB NÖ-Wien
BAWAGP.S.K. sBausparkasse
RLB Vorarlberg
RLB Steiermark HYPOSalzburg
VolksbankWien
Kommunalkredit
HYPOTirol Bank
HYPOSteiermark
Erste Group Bank
AustriaAnadi Bank
RLB Oberösterreich
HYPOOberösterreich
UniCreditBank Austria
HYPOVorarlberg Bank
HYPO-BankBurgenland
Sparkasse Oberösterreich
BausparkasseWuestenrot
Raiffeisen Bank International Bank fürTirol und Vorarlberg
Public Sector Mortgage
Overview of Austrian Cover Pools (as of 30 Sep 2020)
Public Sector Mortgage Covered Bond Cover Assets Covered Cover Assets Issuer Rating (in EUR mn) Austria Germany EU-GIIPS CEE Bond Rating (in EUR mn) Austria Germany EU-GIIPS CEE Austria Anadi Bank - 493 97% 0% 0% 0% AA 428 85% 1% 0% 0% Bank für Tirol und Vorarlberg - 15 100% 0% 0% 0% - 523 100% 0% 0% 0% Bausparkasse Wuestenrot AAA 613 100% 0% 0% 0% BAWAG P.S.K. Aaa 1,657 98% 2% 0% 0% Aaa 4,489 81% 0% 0% 0% BKS Bank - 315 100% 0% 0% 0% Erste Group Bank Aaa 3,529 95% 0% 0% 2% Aaa 21,939 95% 2% 0% 0% HYPO NOE Aa1 4,429 98% 0% 0% 0% Aa1 2,389 83% 10% 0% 0% HYPO Oberösterreich - 689 99% 0% 0% 0% - 2,745 98% 0% 0% 0% HYPO Salzburg - 134 92% 0% 0% 0% - 485 93% 1% 0% 0% HYPO Steiermark - 178 98% 1% 0% 0% - 700 96% 4% 0% 0% HYPO Tirol Bank Aa1 626 98% 0% 0% 0% Aa1 2,634 96% 0% 0% 0% HYPO Vorarlberg Bank Aa1 685 83% 7% 0% 0% Aaa 4,362 82% 16% 0% 0% HYPO-Bank Burgenland - 28 100% 0% 0% 0% AAA 880 99% 0% 0% 0% KA Finanz - 801 75% 25% 0% 0% - Kommunalkredit A 1,067 97% 1% 0% 0% - Oberbank AAA 1,808 86% 14% 0% 0% Raiffeisen Bank International Aa2 1,202 73% 0% 0% 0% Aa1 2,664 60% 14% 0% 20% RLB NÖ-Wien Aaa 2,231 100% 0% 0% 0% Aaa 6,138 100% 0% 0% 0% RLB Oberösterreich - 770 97% 0% 0% 0% Aaa 4,131 100% 0% 0% 0% RLB Steiermark Aaa 621 100% 0% 0% 0% Aaa 4,303 96% 4% 0% 0% RLB Tirol - 170 100% 0% 0% 0% Aaa 2,176 100% 0% 0% 0% RLB Vorarlberg Aaa 2,528 100% 0% 0% 0% RV Salzburg Aaa 1,194 100% 0% 0% 0% sBausparkasse - 473 99% 0% 0% 0% Sparkasse Oberösterreich - 852 100% 0% 0% 0% UniCredit Bank Austria Aaa 6,023 100% 0% 0% 0% Aaa 15,235 98% 0% 0% 0% Volksbank Wien - Aaa 3,502 100% 0% 0% 0%
Source: Issuers, Erste Group Research
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Austrian Pfandbrief
Pfandbriefe (Mortgage Banking Act) Secured bank bonds Gesetz betreffend Fundierte Hypothekenbankgesetz Pfandbriefgesetz Bankschuldverschreibungen (Mortgage Banking Act 1899) (Pfandbrief Law 1927) (Covered Bond Act 1905)
Erste Group Bank Landes- BAWAG, Kommunalkredit Bank Austria Hypothekenbank Raiffeisen, Volksbank Wien, Bausparkasse Wuestenrot etc.
Pfandbriefe under Pfandbriefe under Secured bank bonds under Criterion HypBG PfandbriefG FBSchVG Description Pfandbrief "Covered bond"/ secured bank bond Cover pool assets held by Structure On balance sheet issuer - Loans and advances to and securities issued or guaranteed by a public sector entity Additionally, bonds eligible for trust -Hedging transactions to hedge against interest rate and investments Cover pool assets currency risks Additionally, bonds eligible for trust Mortgages investments Tw o cover pools, one w ith public-sector, the other w ith mortgage cover assets (in the case of Number of cover pools secured assets, optional) Countries eligible for primary Austria, EEA, Sw itzerland Cover pool and substitute cover assets and Limit for substitute cover (for 15% valuation mortgage assets)
-Securities of public-sector issuers from eligible countries Additionally, bonds eligible for trust Substitute cover -Balances w ith Zone A central banks or w ith Austrian credit investments institutions -Cover register, monthly Publications -Daily updates of entries in land register As per Articles; generally LTV limits 60% As per Articles 60% Statutory or contractual rules Discounts for substitute cover; standard for matching governing market risks maturities Rules for asset- Statutory minimum over- 2% of nominal / present value liability collateralisation management Calculation of cover based on nominal/present value as per Articles Principal method for liquidity Stress tests as per Articles risks Insolvency rules Preferential claim as provided by the law Claim against bank's yes insolvency assets if cover pool is inadequate? ranking equally w ith other unsecured creditors Treatment in Notification to borrow ers yes case of insolvency Once a loan or advance has been included in the cover pool, the borrow er no longer has the right Eligible for off-setting to offset the loan or advance against deposits held w ith the issuer (for Austrian mortgages: the public is informed by annotation in the land register that the mortgage forms part of cover pool The maintenance of adequate cover is review ed periodically by an administrator, government Oversight and review commissioner or trustee appointed by the Austrian Financial Market Authority or the Federal Ministry of Finance; the issuer is subject to audits by the Austrian Financial Market Authority Compliant w ith UCITS directive Risk w eights yes 52(4)
Source: Pfandbrief und Covered Bond Forum Austria, Erste Group Research
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Contacts
Group Research Corporate Treasury Product Distribution AT Head of Group Research Head: Christian Skopek +43 (0)5 0100 84146 Friedrich Mostböck, CEFA +43 (0)5 0100 11902 Fixed Income Institutional Sales CEE Macro/Fixed Income Research Head: Juraj Kotian (Macro/FI) +43 (0)5 0100 17357 Group Securities Markets Katarzyna Rzentarzewska (Fixed income) +43 (0)5 0100 17356 Head: Thomas Einramhof +43 (0)50100 84432 Malgorzata Krzywicka (Fixed income, Poland) +43 (0)5 0100 17338 Katarina Muchova +43 (0)5 0100 17336 Institutional Distribution Core Head: Jürgen Niemeier +49 (0)30 8105800 5503 Croatia/Serbia Alen Kovac (Head) +385 72 37 1383 Institutional Distribution DACH+ Mate Jelić +385 72 37 1443 Head: Marc Friebertshäuser +49 (0)711 810400 5540 Ivana Rogic +385 72 37 2419 Bernd Bollhof +49 (0)30 8105800 5525 Andreas Goll +49 (0)711 810400 5561 Czech Republic Mathias Gindele +49 (0)711 810400 5562 David Navratil (Head) +420 956 765 439 Ulrich Inhofner +43 (0)5 0100 85544 Jiri Polansky +420 956 765 192 Sven Kienzle +49 (0)711 810400 5541 Michal Skorepa +420 956 765 172 Rene Klasen +49 (0)30 8105800 5521 Christopher Lampe-Traupe +49 (0)30 8105800 5523 Hungary Karin Rattay +43 (0)5 0100 84118 Orsolya Nyeste +361 268 4428 Michael Schmotz +43 (0)5 0100 85542 Klaus Vosseler +49 (0)711 810400 5560 Romania Slovakia Ciprian Dascalu (Head) +40 3735 10108 Šarlota Šipulová +421 2 4862 5619 Eugen Sinca +40 3735 10435 Monika Směliková +421 2 4862 5629 Dorina Ilasco +40 3735 10436 Iulian George Misu +40 758484043 Institutional Distribution CEE & Insti AM CZ Head: Antun Burić +385 (0)7237 2439 Slovakia Jaromir Malak +43 (0)5 0100 84254 Maria Valachyova (Head) +421 2 4862 4185 Matej Hornak +421 902 213 591 Czech Republic Head: Ondrej Čech +420 2 2499 5577 Major Markets & Credit Research Milan Bartoš +420 2 2499 5562 Head: Gudrun Egger, CEFA +43 (0)5 0100 11909 Ralf Burchert, CEFA (Sub-Sovereigns & Agencies) +43 (0)5 0100 16314 Institutional Asset Management Czech Republic Hans Engel (Global Equities) +43 (0)5 0100 19835 Head: Petr Holeček +420 956 765 453 Margarita Grushanina (Austria, Quant Analyst) +43 (0)5 0100 11957 Petra Maděrová +420 956 765 178 Peter Kaufmann, CFA (Corporate Bonds) +43 (0)5 0100 11183 Martin Peřina +420 956 765 106 Heiko Langer (Financials & Covered Bonds) +43 (0)5 0100 85509 David Petráček +420 956 765 809 Stephan Lingnau (Global Equities) +43 (0)5 0100 16574 Blanca Weinerová +420 956 765 317 Carmen Riefler-Kowarsch (Financials & Covered Bonds) +43 (0)5 0100 19632 Petr Valenta +420 956 765 140 Rainer Singer (Euro, US) +43 (0)5 0100 17331 Croatia Bernadett Povazsai-Römhild, CEFA (Corporate Bonds) +43 (0)5 0100 17203 Head: Antun Burić +385 (0)7237 2439 Elena Statelov, CIIA (Corporate Bonds) +43 (0)5 0100 19641 Zvonimir Tukač +385 (0)7237 1787 Gerald Walek, CFA (Euro, CHF) +43 (0)5 0100 16360 Natalija Zujic +385 (0)7237 1638 Hungary CEE Equity Research Head: Peter Csizmadia +36 1 237 8211 Head: Henning Eßkuchen +43 (0)5 0100 19634 Gábor Bálint +36 1 237 8205 Daniel Lion, CIIA (Technology, Ind. Goods&Services) +43 (0)5 0100 17420 Ádám Szönyi +36 1 237 8213 Michael Marschallinger, CFA +43 (0)5 0100 17906 Romania and Bulgaria Nora Nagy (Telecom) +43 (0)5 0100 17416 Head: Ruxandra Lungu +40 373516562 Christoph Schultes, MBA, CIIA (Real Estate) +43 (0)5 0100 11523 Thomas Unger, CFA (Banks, Insurance) +43 (0)5 0100 17344 Group Institutional Equity Sales Vladimira Urbankova, MBA (Pharma) +43 (0)5 0100 17343 Head: Brigitte Zeitlberger-Schmid +43 (0)50100 83123 Martina Valenta, MBA +43 (0)5 0100 11913 Werner Fürst +43 (0)50100 83121 Josef Kerekes +43 (0)50100 83125 Croatia/Serbia Cormac Lyden +43 (0)50100 83120 Mladen Dodig (Head) +381 11 22 09178 Czech Republic Anto Augustinovic +385 72 37 2833 Head: Michal Řízek +420 224 995 537 Magdalena Dolenec +385 72 37 1407 Jiří Fereš +420 224 995 554 Davor Spoljar, CFA +385 72 37 2825 Martin Havlan +420 224 995 551 Pavel Krabička +420 224 995 411 Czech Republic Poland Petr Bartek (Head) +420 956 765 227 Head: Jacek Jakub Langer +48 22 538 62 65 Jan Safranek +420 956 765 218 Tomasz Galanciak +48 22 538 62 12 Przemyslav Nowosad +48 22 538 62 66 Hungary Stepien Grzegorz +48 22 538 62 11 József Miró (Head) +361 235 5131 Wysocki Wojciech +48 22 538 62 17 András Nagy +361 235 5132 Croatia Tamás Pletser, CFA +361 235 5135 Damir Eror +385 (0)72 37 2836 Hungary Poland Nandori Levente + 36 1 23 55 141 Tomasz Duda (Head) +48 22 330 6253 Krisztian Kandik + 36 1 23 55 162 Cezary Bernatek +48 22 538 6256 Balasz Zankay + 36 1 23 55 156 Konrad Grygo +48 22 330 6254 Romania Emil Poplawski +48 22 330 6252 Liviu Avram +40 3735 16569 Marcin Gornik +48 22 330 6251 Group Fixed Income Securities Markets Romania Head: Goran Hoblaj +43 (0)50100 84403 Caius Rapanu +40 3735 10441 FISM Flow Head: Aleksandar Doric +43 (0)5 0100 87487 Group Markets Margit Hraschek +43 (0)5 0100 84117 Christian Kienesberger +43 (0)5 0100 84323 Head of Group Markets Ciprian Mitu +43 (0)5 0100 85612 Oswald Huber +43 (0)5 0100 84901 Bernd Thaler +43 (0)5 0100 84119 Zsuzsanna Toth +36-1-237 8209 Group Markets Retail and Agency Business Poland: Head: Christian Reiss +43 (0)5 0100 84012 Pawel Kielek +48 22 538 6223
Markets Retail Sales AT Michal Jarmakowicz +43 50100 85611 Head: Markus Kaller +43 (0)5 0100 84239 Group Fixed Income Securities Trading Group Markets Execution Head: Goran Hoblaj +43 (0)50100 84403 Head: Kurt Gerhold +43 (0)5 0100 84232 Group Equity Trading & Structuring Retail & Sparkassen Sales Head: Ronald Nemec +43 (0)50100 83011 Head: Uwe Kolar +43 (0)5 0100 83214 Business Support Bettina Mahoric +43 (0)50100 86441
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