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Erste Group Research Issuer Profile | Financials & Covered Bonds | Austria 3. January 2020
Raiffeisen Landesbank Niederoesterreich-Wien
Analyst: Carmen Riefler-Kowarsch Central Institution of the Raiffeisen Banks of Lower Austria [email protected] Company Profile Key Facts 31.12.2018 With total assets of EUR 27bn Raiffeisen Landesbank Niederoesterreich- Total Assets EUR 27.0bn Wien (RLB NOE-Wien) is the second-largest of the eight RLBs in Austria. Earnings Result EUR 197.6mn The bank is the central institution of the Raiffeisen Banking Group in Lower CET1 Ratio 17.8% Austria. Raiffeisen Holding NOE-Wien is the ultimate controlling entity in the Capital adequacy ratio 22.1% corporate structure, while RLB NOE-Wien represents its most important Rating (current) operating subsidiary. The latter conducts banking operations, holds Moody's Baa1 stable participating interests in banks as well as bank-related businesses and defines itself as a regional bank. The largest stable earnings contribution is provided by the segment “corporate clients”. However, the most important Public Cover Pool 30.09.2019 contribution to the company's results is provided by its investment in Moody's Rating Aaa Raiffeisen Bank International (RBI), of which RLB NOE-Wien is the largest Cover Pool EUR 2.0bn direct shareholder with a stake of 22.7%. The company is a member of the Covered Bonds EUR 1.5bn protection schemes of the Austrian Raiffeisen sector, thus a very high OC 35% likelihood of affiliate support can be assumed in case of need.
Mortgage Cover Pool 30.09.2019 Earnings Result Moody's Rating Aaa Generally the earnings results of RLB NOE-Wien are strongly influenced by Cover Pool EUR 5.1bn income from its investments (RBI), which leads to high volatility in year-on- Covered Bonds EUR 3.9bn year earnings comparisons. In FY 2017 the earnings contribution of the RBI OC 30% group was exceptionally strong due to the recognition of a valuation gain. In FY 2018 the carrying value of the RBI stake was subject to an impairment
charge and annual earnings amounted to EUR 197.6mn (2017: EUR 560.2mn). An increase in earnings to EUR 105.3mn in the first half of Ticker RFLBNI
Issuer Rating Contents Moody's assigns a rating of 'Baa1' with a stable outlook to the bank. This Central Institution of the Raiffeisen Banks of rating has been in place since November 2017. At the time the rating was Lower Austria ...... 1 Company profile ...... 2 upgraded by one notch as a result of an increase in cross-sector support Earnings result ...... 7 probability assumptions (as RBI joined the institutional protection scheme). Issuer rating ...... 8 The baseline credit assessment reflects the adequate capitalization and RLB NOE-Wien as an Issuer ...... 10 strong liquidity profile of the bank. However, the agency regards high Public Sector Covered Bond Program ...... 11 Mortgage Covered Bond Program ...... 12 earnings volatility (RBI investment result) and the group's high cost structure as credit negative factors.
Funding and Covered Bonds Major Markets & Credit Research As the central institution of the Raiffeisen banks of Lower Austria, RLB-NOE Gudrun Egger, CEFA (Head) Wien receives a sizable proportion of their excess liquidity. In addition the
Financials & Covered Bonds bank is active in the capital markets as an issuer of debt securities. RLB Heiko Langer NOE-Wien has both a public sector and a mortgage covered bond program, Carmen Riefler-Kowarsch and has in the meantime become the third largest issuer of covered bonds in Austria. Both programs are rated 'Aaa' by Moody's and are composed of
Note: Past performance is not necessarily cover assets from Lower Austria and Vienna. indicative of future results. Major Markets & Credit Research Page 1
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Company profile
Structure and Business Activities
Segregation of banking and The history of Raiffeisen Landesbank Niederoesterreich-Wien (RLB NOE- investment business Wien) dates back to 1898. At the time “NOE Genossenschafts- Centralcasse“ was founded as a jointly owned cash clearing institution for the Raiffeisen banks of Lower Austria. After several name changes its banking operations and investment activities were largely segregated. This step essentially established the current structure of the group.
RLB NOE-Wien is the most The controlling entity of RLB NOE-Wien is Raiffeisen Holding important subsidiary of the Niederoesterreich-Wien reg. Gen.m.b.H. (RHNW). The latter is a pure RHNW Group holding company and represents the top tier of the group. It holds investments in agricultural, infrastructure and real estate companies as well as in companies in the media sector. However, the most important investment of RHNW Group is its stake in RLB NOE-Wien, which conducts banking operations and holds participating interests in banks and bank- related businesses. RHNW Group has a limited banking license and represents the top financial holding company from a regulatory perspective. Moreover, RHNW is fully liable for all current and future liabilities of RLB NOE-Wien in the event of insolvency. As a result of this set-up, both RHNW as a banking group on a consolidated basis and RLB NOE-Wien on a single institution basis are under direct supervision of the regulatory authority (Financial Market Supervisory Authority/FMA).
Raiffeisen banks are direct and indirect shareholders of RLB NOE- Wien Ownership and shareholder structure of Raiffeisen Banking Group NOE- Wien as of 30 June 2019
53 Raiffeisen banks of Lower Austria Other (e.g. Lagerhaeuser)
80% 20%
Raiffeisen-Holding Niederoesterreich-Wien (RHNW)
100%
RLB Agricultural Participations Infrastructure Participations Media Participations Niederoesterreich- sugar industry STRABAG (construction): Medicur-Holding (media; Wien (AGRANA: 27.1%; Suedzucker: 10.3%) 13.2% and real estate 75.0%) NOEM AG (dairy products): 75.0% participations Leipnik-Lundenburger Invest (flour & mill, machinecatering): 50.1%
Raiffeisen Bank Raiffeisen Informatik: Other participations International (RBI) 47.35% (22.66%) [36.1% other RLB‘s, 41.2% free float]
Source: RLB NOE-Wien, RHNW, Erste Group Research
Raiffeisen banks are indirect The cooperative Raiffeisen banks of Lower Austria on the primary-level owners of RLB NOE-Wien ultimately control RLB NOE-Wien. They hold 80% of the shares of RHNW, through RHNW which in turn is the sole owner of RLB NOE-Wien. RLB NOE-Wien in turn holds 22.66% of the shares of Raiffeisen Bank International AG (RBI).
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RLB NOE-Wien is the largest In January 2017 a merger between Raiffeisen Zentralbank Oesterreich shareholder of RBI (RZB) and Raiffeisen Bank International AG (RBI) was implemented. The merged company retained the name Raiffeisen Bank International AG (RBI). Its shares are listed on the Vienna Stock Exchange. Due to the merger, all shares in RZB previously held indirectly or directly by RLB NOE-Wien were exchanged for new RBI shares at the agreed upon exchange ratio. After the merger, RLB NOE-Wien remains the largest shareholder of RBI - the central institution of the Austrian Raiffeisen Banking Group - with a stake of 22.66%. Overall, RLBs hold 58.8% of the shares in RBI, while 41.2% are in the free float.
Central institution of the With total assets of EUR 27bn (FY 2018) RLB NOE-Wien is the second- Raiffeisen banks of Lower largest of the eight RLBs in Austria. It is the regional central institution of the Austria with total assets of 53 independent Raiffeisen banks operating locally in Lower Austria. As an EUR 27bn association they form one of the leading banking groups in the province. The company defines itself as a regional bank. It conducts business with private, trade and corporate customers as well as with the public sector, and is also active in proprietary trading. Its holdings of participating interests in banks and other banking-related businesses complement its core strategy. Regionally the company is mainly focused on serving around 270,000 customers in the federal capital Vienna, while the locally operating independent Raiffeisen banks serve around 970,000 customers in Lower Austria.
Business Segments
Segments redefined in 2018 In 2018 the bank has revised its segment reporting. Similar to before, the segments comprise retail/association services, corporate clients and financial markets; new segments are RBI, association and other investments. The earnings contributions of RBI as well as the associated refinancing and administrative expenses are recognized in the new segment RBI.
Earnings strongly influenced by RBI Segments before 2018 New segmentation – pretax earnings in EUR million Old segmentation – pre-tax earnings in EUR million 600 600 500 500 400
400 300 200
300 100
0 200 -100
100 -200
-300 0
-400
2013 2014 2015 2016
-100 2012
2017 2018 Retail Banking Corporate Customers Financial Markets Investments Other Total Retail/Raiffeisen Association Services Corporate Clients Financial Markets RBI Raiffeisen Association Other Investments Other Total
Source: RLB NOE-Wien, Erste Group Research
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Retail banking provides The segment “retail/association services” comprises the retail banking negative earnings contribution business in Vienna. It provides a variety of banking services to customers, in particular advice on investment and financing. In this context it largely offers standardized products. In addition the segment includes services to SMEs and independent professionals. The segment generated pre-tax losses in the low double-digit millions range in recent years (FY 2018: EUR -25.2mn). This was attributable to high administrative costs.
“Corporate clients” segment the The “corporate clients” segment plays the most important role in the primary most stable income source of banking business. The segment has generated the most stable income the primary banking business contributions in recent years, as a rule in the high double-digit millions range (FY 2018: EUR 73.3mn). It includes corporate customers in the Centrope region, the public sector, institutional clients and the international business. It comprises the traditional lending business, corporate finance (financing of projects and investments, as well as of acquisitions and real estate), trade and export financing, the documentary business, as well as lending to regional authorities and financial institutions. The company states that customized products and solutions as well as an intensive customer focus are the decisive factors accounting for the success of this business segment.
The financial markets segment The “financial markets” segment comprises the group's treasury activities. comprises treasury activities These include in particular the result from managing the banking book (structural contribution), the trading result and the result from liquidity management. In the past two years this segment generated earnings in the low double-digit millions (FY 2018: EUR 10.3mn).
Earnings result of RLB NOE- A new addition to the segment report is the segment “RBI”, in which the Wien decisively influenced by earnings contribution of RBI and the associated refinancing and RBI administrative expenses are recognized. The earnings results of RBI have a decisive impact on the earnings posted by RLB NOE-Wien. In 2014 to 2016 losses had to be recognized in this segment and developments at RBI (prior to the merger at RZB) in 2014 and 2016 were therefore primarily responsible for the overall losses posted by the company. In 2017 the pendulum swung back markedly in a positive direction again and RBI contributed a total of EUR 542.2mn to earnings (proportional share in earnings and reversal of impairments). In 2018 another write-down of the book value in the amount of EUR 90mn had to be recognized. This resulted in a net earnings contribution of EUR 197,7mn (2017: EUR 542.2mn).
The segment “other” inherently The segments “other investments” and “other” include all other participating generates a negative earnings interests and expenses such as e.g. the bank levy, which cannot be contribution allocated to any other business segments.
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Ownership Structure/Support
The Raiffeisen Banking Group RLB NOE-Wien is part of the Raiffeisen Banking Group (RBG), which plays has a three-tiered structure an important role in the Austrian banking system. The Raiffeisen Banking Group has a three-tiered structure. The first tier is composed of locally operating Raiffeisen banks. They consist of around 400 independent institutions in Austria, which form a nationwide network of around 1,500 branch offices. As universal banks they provide all types of banking services and are owners of the respective regional Raiffeisen Landesbanks/ Provincial Central Institutions.
Raiffeisen banks are owners of Accordingly the banks on the primary level hold a controlling stake in the the RLBs RLBs. In the case of RLB NOE-Wien the primary-level banks hold 80% of the shares of Raiffeisen Holding NOE-Wien, which in turn is the sole owner of RLB NOE-Wien. There are eight Raiffeisen Landesbanks/Provincial Central Organizations (the provinces of Lower Austria and Vienna have been combined). They represent the second tier of the Raiffeisen Banking Group. The Landesbanks are managing cash clearing operations and provide additional central services to Raiffeisen banks in their regions. Beyond that they also operate as independent universal banks and are the major shareholders of Raiffeisen Bank International.
RBI as the central institution of RBI is the central institution of the Raiffeisen Landesbanks as well as of the RLBs represents the third other affiliated credit institutions within the Raiffeisen Banking Group Austria tier and represents its third tier. In this function RBI provides important services for its direct owners and main shareholders, the Raiffeisen Landesbanks, and is responsible for joint solutions involving its own group and the RBG. RBI is a listed company and is one of the most important large banks in Austria with total assets of EUR 140bn (2018) and a network of branch offices in Central and Eastern Europe.
The Raiffeisen banking sector has a three-tiered ownership structure Structure of the Raiffeisen Banking Group
1.7mn Members of the cooperative
about 400 Autonomous Raiffeisen Banks
8 Raiffeisenlandesbanken
RBI
Source: Raiffeisen, Erste Group Research
RLB NOE-Wien is a member of Due to the membership of RLB NOE-Wien in the protection schemes of the the Raiffeisen protection Austrian Raiffeisen sector, a very high likelihood of cross-sector support can schemes be assumed (in case of need). The Raiffeisen sector has developed a multi- stage system designed to support institutions in financial difficulties.
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Institutional protection scheme In 2013/14 the Austrian Raiffeisen sector has created additional layers of (IPS) in the Raiffeisen sector protection in the form of institutional protection schemes/IPS. As mandatory protection mechanisms for banks these represent an advance in terms of Raiffeisen protection systems. The institutional protection schemes are subsidiarity-based. This means that the funds of a provincial IPS have to be exhausted before it is possible to obtain support from the federal IPS. The Raiffeisen banks in Lower Austria (except two banks) as well as Raiffeisen Holding NOE-Wien and RLB NOE-Wien are members of the provincial IPS.
IPS serves to secure continued Both the federal IPS and the provincial IPS are in compliance with CRR operation of member requirements. This means that above all, the mechanism has to secure the institutions continued operation of member banks. In case of need, liquidity and solvency must be ensured in order to prevent bankruptcy. In addition the IPS provides advantages to its member institutions which can have a positive effect on their capital ratios. The RLBs, RBI, Raiffeisen Holding NOE-Wien, Posojilnica Bank, Raiffeisen Wohnbaubank and Raiffeisen Bausparkasse are members of the federal IPS. Due to these protection systems, RLB NOE-Wien can expect to receive support from the Raiffeisen sector if it runs into financial difficulties. However, in turn it bears the risk of potentially having to provide financial aid to other troubled institutions in the sector.
IPS provides advantages to member institutions Institutional protection scheme
Source: RLB NOE-Wien
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Earnings result
Earnings result of RLB NOE- 2018 Financial Year Wien significantly influenced by Due to the set-up of the corporate structure the earnings result of RLB NOE- RBI Wien is significantly influenced by its investment in RBI, which is accounted for at-equity. After the RZB/RBI merger in January 2017 RLB NOE-Wien remains the largest shareholder in this corporate structure with a stake of 22.7% in RBI. In 2018 RLB NOE-Wien posted net earnings of EUR 197.6mn (2017: EUR 560.2mn).
After revaluation gain in RBI The greatest contribution to the change in year-on-year earnings stems from investment in the previous year, the result from investments in companies accounted for at-equity. In the renewed impairment in 2018 2017 financial year the earnings contribution of at-equity investments was exceptionally strong at EUR 545.3mn - largely driven by the investment in RBI Group. This amount was composed of the proportional share in RBI's earnings of EUR 236.9mn and a reversal of previous impairments in the carrying value of the investment of EUR 305.3mn. In the 2018 financial year the earnings contribution of participations amounted to EUR 210.4mn. The proportional share in RBI's earnings of EUR 287.7mn was diminished by an impairment charge of EUR -90.0mn against the carrying value of the stake in RBI.
Increase in net interest income Net interest income (incl. dividend income) rose to EUR 155.3mn in 2018. The increase in interest income was attributable to a significant year-on-year expansion in loans and advances to customers. Dividend income rose as well. This was tempered by continued low margins and the burden imposed by negative deposit facility rates on bank reserves held at the OeNB (-0.4%). Moreover, in the previous year net interest income was weighed down by a precautionary provision set aside to cover potential claims for reimbursement of interest charges on business loans that may have been too high. In 2018 this led to the recognition of a one-off gain of EUR 12.9mn.
Increase in net commission Net commission income grew by 13.9% year-on-year to EUR 62mn, income and lower loan loss however, the increase was not attributable to continuing operations but provisions rather to an expansion in the scope of consolidation. Loan loss provisions of EUR -10.3mn decreased 23.4% year-on-year. At EUR -6.7mn the trading result deteriorated significantly compared to the previous year, on account of a further flattening of the yield curve and general market turmoil in 2018. Administrative expenses rose by 6.5% year-on-year, with the bulk of the increase attributable to the first time consolidation of certain subsidiaries. The bank reported a cost-income ratio of 53.7% (incl. investment result).
Non-recurring effects lead to 1H 2019 year-on-year increase in half- In 1H 2019 RLB NOE-Wien posted net earnings of EUR 97.5mn, surpassing year result the half-year result reported in the previous year (2018: EUR 90.1mn). While net interest income, net commission income and investment income from the stake in RBI all stood below the respective figures reported in the previous year, the trading result improved significantly due to a gain on the sale of government bonds. Other operating income was also boosted due to a reversal of provisions.
Selected financial data can be reviewed in the Appendix.
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Issuer rating
Issuer rating unchanged since November 2019 Rating history of RLB NOE-Wien Aaa21 Covered Bond Aa120 Rating Aa219 Aa318 A117 A216 A315 Baa114 Baa213 Baa312 Ba111 Ba210 Ba39 2009 2011 2013 2015 2017 2019
Senior Unsecured Public Covered Bond Mortgage Covered Bond
Source: Company, rating agencies, Erste Group Research
Issuer rating 'Baa1'/'stable' Moody's currently assigns an issuer rating of 'Baa1' with a stable outlook to RLB NOE-Wien. This rating has been in place since November 2017. At the time the agency inter alia upgraded the rating of RLB NOE-Wien by one notch based on an increase in cross-sector support probability (as RBI joined the institutional protection scheme as a result of the RZB/RBI merger).
Baseline credit assessment of As mentioned above the rating of the bank benefits from the assumption of RLB NOE-Wien benefits from a high cross-sector support probability within the Raiffeisen sector. Moody's high cross-sector support assesses it as “very high”, which results in two notches of rating uplift. The probability rating of the bank furthermore benefits from the stable economic environment in its Austrian home market (strong+).
Due to concentration risks the The agency considers the capitalization of the bank to be adequate. The score assigned to the bank's bank's capital ratios exhibit a fairly pronounced dependence on the result capitalization is merely average from the investment in RBI. Due to the sizable concentration risks in connection with RBI (as reflected by the repeated impairment charges against the carrying value of the investment in RBI) this rating component receives merely an average score. In addition Moody's notes that changes to the EU guideline with respect to the currently quite favorable risk weightings for participating interests could have a significant negative impact on the capital ratios of the bank.
Profitability strongly reliant on With respect to the group's profitability, the result from investments is once the investment result and an again a major focus of the analysis. It was and remains strongly reliant on unfavorable cost structure developments at RZB/RBI and has caused a sharp increase in earnings volatility in recent years. Moreover, Moody's regards the underperformance of the bank's retail banking business and its high cost structure to be among the greatest challenges faced by RLB NOE-Wien. According to the agency's calculations the cost-income ratio (CIR) stood at 100% in 2017 and 2018.
Non-performing loans continue to decrease and the NPL ratio of 2.3% (at year-end 2018) is well within the average range in Austria. However, due to the bank's regional focus, the agency points to concentration risks in this context as well.
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Liquidity does not significantly The agency's assesses the factor “liquidity” as sound. RLB NOE-Wien has depend on capital markets both its own customer deposits at its disposal as well as the cash balances of Raiffeisen banks operating locally on the primary level. Thus the bank's liquidity is not overly reliant on capital markets.
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RLB NOE-Wien as an Issuer
Funding mix composed of retail As the central institution of the Raiffeisen banks of Lower Austria, RLB deposits, sector funding and NOE-Wien receives a substantial share of their excess liquidity. In addition, capital market issues the bank itself accepts deposits from retail and business customers. Overall, its funding mix represented a combination of customer deposits (33%), sector funding (17%) as well as bond issues and promissory notes (30%). The bank has a EUR 10bn debt issuance program for both domestic and international bond placements. Through these program it can issue covered bonds, senior preferred bonds, senior non-preferred bonds and subordinated bonds. In addition, RLB NOE-Wien disposes of stand-alone documentations for promissory notes (“Schuldscheindarlehen”) and registered bonds (“Namensschuldverschreibungen”).
RLB NOE-Wien has in the According to market information systems the bank has around EUR 8bn in meantime become the third- bonds outstanding at year-end 2019. More than 70% of these consist of largest issuer of covered bonds covered bond issues, 20% are senior unsecured bonds and less than 10% in Austria are subordinated debt securities. In 2019 the company was very active in the capital markets and raised a total of around EUR 2.5bn with benchmark bond placements. The majority of these issues had a 5 year term to maturity. This is reflected in the bank's debt maturity profile by an increased volume of redemptions coming due in 2024. RLB NOE-Wien has both a public sector and a mortgage covered bond program and is currently the third-largest covered bond issuer in Austria. One benchmark-sized bond each from RLB NOE-Wien's mortgage and public sector covered bond programs will mature in the autumn of 2020.
Elevated refinancing requirements until 2024 due to maturing bonds Maturity profile of outstanding bonds as of December 2019 1,200
1,000
800
600
400
200
0 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 >2029
Source: Market information system, Erste Group Research
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Public Sector Covered Bond Program
'Aaa' rating for public sector Since October 2016 Moody's awards the top rating of 'Aaa' to the bank's covered bond program public sector covered bond program. The agency has assigned a timely payment indicator (TPI) of “high”, while the TPI leeway currently stands at 2. The TPI measures the probability of the timely servicing of covered bond payment obligations in the event of an issuer's default (in six steps from “very high” to “very improbable”). The TPI leeway indicates by how many notches an issuer rating could be downgraded without triggering a downgrade of the covered bond rating.
Purely Austrian public sector As of 30 September 2019 RLB NOE-Wien had a volume of EUR 1,505mn in cover pool (96% of primary public sector covered bonds outstanding. Relative to cover assets in the collateral located in Lower amount of EUR 2,025mn this represents an overcollateralization ratio of Austria and Vienna) 35% on a nominal basis (40% NPV). 100% of the assets in the cover pool are located in Austria and in line with the bank's business strategy reflect its home region of Lower Austria with a share of 75% and Vienna with a share of 21%. A breakdown of cover assets shows that they comprise primarily two types of loans. For one thing there are loans with a provincial deficiency guarantee, which represent 68% of the assets in the cover pool. The remaining assets (25%) consist almost entirely of direct advances to municipalities.
Moody's requires relatively high Almost all assets in the cover pool are denominated in EUR, just EUR 11mn overcollateralization rate to are denominated in CHF. The average loan size per borrower is maintain 'Aaa' rating EUR 1.2mn. The collateral score is a measure of the credit quality of assets in the cover pool; the lower the collateral score, the higher the credit quality of the cover pool. The Austrian average stands at around 10.3%, while RLB NOE-Wien has a relatively high score of 25.8%. This is due to concentration risk, which is one of the inputs used in modeling collateral scores. The cover pool exhibits both geographical concentration (Lower Austria and Vienna) and a high concentration of borrowers. The agency nevertheless highlights the strong credit quality of the cover assets. The market risk score of 12.2% stands below the Austrian average of around 14%. In order to maintain the 'Aaa' rating Moody's requires a relatively high overcollateralization rate of 26% to mitigate these risks.
Majority of cover pool assets consists of loans with Cover pool characterized by long-term loans provincial deficiency guarantees– 30 Sept. 2019 30 Sept. 2019 in EUR million Sovereign 1,600 0% 1,400
Munici-pality 1,200 32% 1,000
800
600
400
Federal 200 state 0 68% mat. less mat. 1 - 2Y mat. 2 - 3Y mat. 3 - 4Y mat. 4 - 5Y mat. 5 - 10Y mat. >10Y than 1 Y
Total Cover Assets Bonds
Source: RLB NOE-Wien, Erste Group Research Source: RLB NOE-Wien, Erste Group Research
For a comparison with other Austrian issuers please refer to Cover Pool Reporting 2Q 2019.
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Mortgage Covered Bond Program
Mortgage covered bond Moody's currently awards an 'Aaa' rating to the mortgage covered bond program rated 'Aaa' program. The agency has assigned a timely payment indicator of “probable” while the TPI leeway is currently set at 1. The TPI measures the probability of the timely servicing of covered bond payment obligations following an issuer's default (in six steps from “very high” to “very improbable”). The TPI leeway indicates by how many notches an issuer rating could be downgraded without triggering a downgrade of the covered bond rating.
Exclusively Austrian loans (90% The mortgage cover pool has been expanded in recent years and its size of primary collateral located in has more than tripled since 2013. As of 30 September 2019 the cover pool Lower Austria and Vienna) comprised cover assets in the amount of EUR 5,119mn, while mortgage covered bonds in the amount of EUR 3,923mn were outstanding. Thus nominal overcollateralization stood at 30% at the reporting date. The cover pool is composed of altogether 23,423 loans with an average volume of EUR 218K. The equivalent of EUR 100mn in loans is CHF-denominated, with an equivalent of EUR 138mn in CHF-denominated covered bonds outstanding. The cover pool contains both loans originated in-house (57%), as well as pooled cover assets transferred by local Raiffeisen banks (43%). 45 independent Raiffeisen banks as well as RLB Burgenland currently participate in the cover pool program of RLB NOE-Wien. The ten largest advances represent 11% of the assets in the cover pool. From a regional perspective the pool consists entirely of Austrian assets, 52% of which are located in Vienna and 38% in Lower Austria. Around 52% of the loans are residential mortgages and around 48% are commercial real estate loans.
Strong credit quality highlighted Overall, Moody's assesses the pure credit quality of the cover assets with a collateral score of 7.2%. This is slightly lower than the average of domestic mortgage covered bond programs, reflecting a somewhat better asset quality. Moody's makes a point of highlighting the strong credit quality of the collateral in its analysis, although geographical concentration risks are also cited in this case. There is interest rate risk as well. While 70% of the cover assets consist of variable rate loans, more than 90% of the outstanding covered bonds have fixed rate coupons. The market risk score of 13.5% is in line with the average of domestic mortgage covered bond programs. In order to maintain the 'Aaa' rating, Moody's requires an overcollateralization rate of 14% to mitigate these risks.
Residential mortgages predominate Homogeneous picture in the 5 – 10 year maturity 30 Sept. 2019 range – 30 Sept. 2019 in EUR million 1800 1600 1400 1200 1000 Commercial 48% Residential 800 52% 600 400 200 0 mat. less mat. 1 - mat. 2 - mat. 3 - mat. 4 - mat. 5 - mat. than 1 Y 2Y 3Y 4Y 5Y 10Y >10Y Total Cover Assets Bonds
Source: RLB NOE-Wien, Erste Group Research Source: RLB NOE-Wien, Erste Group Research
For a comparison with other Austrian issuers please refer to Cover Pool Reporting 2Q 2019.
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Appendix
Selected Data and Financial Metrics (IFRS, in EUR mn)
Change Change Income Statement 1H 2019 1H 2018 % (yoy) 2018 2017 % (yoy) 2016 2015 2014 Net interest income 76.3 78.9 -3.3% 158.2 132.8 19.1% 173.3 188.1 175.4 Net provisions 6.2 1.2 418.1% -10.3 -13.4 -23.4% 17.8 1.9 -84.1 Net fee & commission income 29.4 34.5 -14.8% 62.0 54.4 13.9% 52.3 66.2 66.5 Trading result 4.7 -1.4 >-100% -6.7 26.2 >-100% 14.7 55.4 22.1 Income from participations 97.9 102.4 -4.4% 210.4 546.6 -61.5% -98.7 0.7 -185.0 thereof attributable income 151.9 176.4 -13.9% 300.4 241.2 24.5% 93.6 100.0 -144.2 thereof impairment -54.0 -74.0 -27.0% -90.0 305.3 >-100% -192.3 -99.3 -40.8 other income 30.9 25.5 21.3% 61.7 59.5 3.7% 34.3 32.9 -17.3 Total income 245.3 241.0 1.8% 475.2 806.0 -41.0% 193.7 345.2 -22.4 General administrative expenses -108.1 -116.3 -7.1% -236.5 -222.0 6.5% -206.0 -204.7 -198.5 Personnel expenses -48.5 -58.2 -16.7% -109.5 -110.5 -0.9% -95.0 -104.9 -98.9 Material expenses -59.5 -58.1 2.5% -127.0 -111.5 13.9% -111.0 -99.8 -99.6 Other expenses -33.5 -33.4 0.4% -45.5 -43.2 5.4% -48.2 -60.1 -41.6 Total expenses -141.6 -149.7 -5.4% -282.0 -265.2 6.3% -254.2 -264.8 -240.1 Pre-tax profit 103.8 91.3 13.6% 193.2 540.8 -64.3% -60.5 80.4 -262.5 Net profit 105.3 86.9 21.3% 197.6 560.2 -64.7% -64.5 65.4 -248.6 Change Change Balance sheet 1H 2019 2018 % (yoy) 2018 2017 % (yoy) 2016 2015 2014 Total assests 28,012 26,965 3.9% 26,965 25,712 4.9% 25,405 27,743 29,514 Customer loans 12,947 12,618 2.6% 12,618 11,366 11.0% 11,818 11,948 12,418 Customer deposits 8,444 8,182 3.2% 8,182 7,768 5.3% 7,618 7,622 7,478 Equity capital 2,369 2,257 5.0% 2,257 2,238 0.8% 1,693 1,751 1,799 Risk w eighted assets 13,216 12,929 2.2% 12,929 11,817 9.4% 12,216 12,887 14,485 Change Change Key figures 1H 2019 (1H) 2018 % (yoy) 2018 2017 % (yoy) 2016 2015 2014 Net interest margin 0.3% 0.3% 0.0 pp 0.6% 0.5% 0.1 pp 0.7% 0.7% 0.6% CIR 41.6% 53.7% -12.1 pp 53.7% 47.1% 6.6 pp 64.4% 76.5% 97.1% RoE after tax and minorities 4.4% 3.8% 0.6 pp 8.8% 25.0% -16.2 pp -3.8% 3.7% -13.8% Loan/deposit ratio 153% 154% -0.9 pp 154% 146% 7.9 pp 155% 157% 166% NPL Ratio 1.4% 1.6% -0.2 pp 1.6% 1.9% -0.3 pp 3.7% 4.8% 6.1% CET 1 Ratio (transitional) 17.6% 17.8% -0.2 pp 17.8% 19.1% -1.3 pp 14.2% 13.8% 12.2% Tier1 ratio 18.6% 18.7% -0.1 pp 18.7% 20.0% -1.3 pp 15.1% 15.0% 13.8% Capital adequacy ratio 21.8% 22.1% -0.3 pp 22.1% 24.3% -2.2 pp 20.4% 20.3% 19.7%
Source: RLB NOE-Wien, Erste Group Research
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The Austrian Covered Bond Market
Outstanding CB volumes of Austrian CB issuers (as of 30 June 2019)
14.000
12.000
10.000
8.000
6.000
4.000
2.000
0
RLB Tirol RLB
Oberbank
BKS Bank BKS
KA Finanz KA
HYPO NOE HYPO
RV Salzburg RV
RLB NÖ-Wien RLB
BAWAG P.S.K. BAWAG
sBausparkasse
RLB Vorarlberg RLB
RLB Steiermark RLB
HYPO Salzburg HYPO
Volksbank Wien Volksbank
Kommunalkredit
HYPO Tirol Bank Tirol HYPO
HYPO Steiermark HYPO
Erste Group Bank Group Erste
Austria Anadi Bank Anadi Austria
RLB Oberösterreich RLB
HYPO Oberösterreich HYPO
UniCredit Bank Austria Bank UniCredit
HYPO Vorarlberg Bank Vorarlberg HYPO
HYPO-Bank Burgenland HYPO-Bank
Sparkasse Oberösterreich Sparkasse
Bausparkasse Wuestenrot Bausparkasse
Raiffeisen Bank International Bank Raiffeisen Bank für Tirol und Vorarlberg und Tirol für Bank Public Sector Mortgage
Overview of Austrian cover pools (as of 30 June 2019)
Public Sector Mortgage Covered Cover Assets Covered Cover Assets Issuer Bond Rating (in EUR mn) Austria Germany EU-GIIPS CEE Bond Rating (in EUR mn) Austria Germany EU-GIIPS CEE Austria Anadi Bank - 494 97% 0% 0% 0% AA 462 81% 3% 0% 0% Bank für Tirol und Vorarlberg - 28 100% 0% 0% 0% - 486 100% 0% 0% 0% Bausparkasse Wuestenrot AAA 612 98% 0% 0% 0% BAWAG P.S.K. Aaa 1.143 100% 0% 0% 0% Aaa 2.302 100% 0% 0% 0% BKS Bank - 278 100% 0% 0% 0% Erste Group Bank Aaa 3.361 96% 0% 0% 2% Aaa 14.842 96% 2% 0% 0% HYPO NOE Aa1 4.501 98% 0% 0% 0% Aa1 1.834 87% 11% 0% 0% HYPO Oberösterreich - 706 99% 0% 0% 0% - 2.811 98% 0% 0% 0% HYPO Salzburg - 155 93% 0% 0% 0% - 546 94% 1% 0% 0% HYPO Steiermark - 205 89% 6% 0% 0% - 800 93% 6% 0% 0% HYPO Tirol Bank Aa1 593 98% 0% 0% 0% Aa1 2.403 98% 0% 0% 0% HYPO Vorarlberg Bank Aa1 779 80% 8% 0% 2% Aaa 3.987 83% 16% 0% 0% HYPO-Bank Burgenland - 73 99% 0% 0% 0% AAA 907 99% 0% 0% 0% KA Finanz - 907 76% 23% 0% 0% - Kommunalkredit A 1.155 95% 2% 0% 0% - Oberbank AAA 1.076 95% 5% 0% 0% Raiffeisen Bank International Aa2 1.074 82% 0% 0% 0% Aa1 1.814 50% 2% 0% 29% RLB NÖ-Wien Aaa 1.967 100% 0% 0% 0% Aaa 4.658 100% 0% 0% 0% RLB Oberösterreich - 1.005 100% 0% 0% 0% Aaa 3.368 100% 0% 0% 0% RLB Steiermark Aaa 563 100% 0% 0% 0% Aaa 3.400 97% 3% 0% 0% RLB Tirol - 157 100% 0% 0% 0% Aaa 1.439 100% 0% 0% 0% RLB Vorarlberg Aaa 2.170 100% 0% 0% 0% RV Salzburg Aaa 992 100% 0% 0% 0% sBausparkasse - 576 99% 0% 0% 0% Sparkasse Oberösterreich - 851 100% 0% 0% 0% UniCredit Bank Austria Aaa 6.518 100% 0% 0% 0% Aaa 13.845 98% 0% 0% 0% Volksbank Wien - Aaa 2.306 100% 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 Contacts Group Research Treasury – Erste Bank Vienna
Head of Group Research Group Markets Retail and Agency Business Friedrich Mostböck, CEFA +43 (0)5 0100 11902 Head: Christian Reiss +43 (0)5 0100 84012
CEE Macro/Fixed Income Research Markets Retail Sales AT Head: Juraj Kotian (Macro/FI) +43 (0)5 0100 17357 Head: Markus Kaller +43 (0)5 0100 84239 Zoltan Arokszallasi, CFA (Fixed income) +361 373 2830 Katarzyna Rzentarzewska (Fixed income) +43 (0)5 0100 17356 Group Markets Execution Malgorzata Krzywicka (Fixed income, Poland) +43 (0)5 0100 17338 Head: Kurt Gerhold +43 (0)5 0100 84232
Croatia/Serbia Retail & Sparkassen Sales Alen Kovac (Head) +385 72 37 1383 Head: Uwe Kolar +43 (0)5 0100 83214 Mate Jelić +385 72 37 1443
Ivana Rogic +385 72 37 2419 Corporate Treasury Product Distribution AT Czech Republic Head: Christian Skopek +43 (0)5 0100 84146 David Navratil (Head) +420 956 765 439 Jiri Polansky +420 956 765 192 Fixed Income Institutional Sales Michal Skorepa +420 956 765 172
Hungary Institutional Distribution non CEE Orsolya Nyeste +361 268 4428 Head: Margit Hraschek +43 (0)5 0100 84117 Karin Rattay +43 (0)5 0100 84118 Romania Christian Kienesberger +43 (0)5 0100 84323 Eugen Sinca +40 3735 10435 Bernd Bollhof +49 (0)30 8105800 5525 Dorina Ilasco +40 3735 10436 Rene Klasen +49 (0)30 8105800 5521 Slovakia Christopher Lampe-Traupe +49 (0)30 8105800-5507 Maria Valachyova (Head) +421 2 4862 4185 Charles-Henry La Coste de Fontenilles +43 (0)5 0100 84115 Katarina Muchova +421 2 4862 4762 Bernd Thaler +43 (0)5 0100 84119
Major Markets & Credit Research Bank Distribution Head: Gudrun Egger, CEFA +43 (0)5 0100 11909 Head: Marc Friebertshäuser +49 (0)711 810400 5540 Ralf Burchert, CEFA (Sub-Sovereigns & Agencies) +43 (0)5 0100 16314 Sven Kienzle +49 (0)711 810400 5541 Hans Engel (Global Equities) +43 (0)5 0100 19835 Michael Schmotz +43 (0)5 0100 85542 Margarita Grushanina (Austria, Quant Analyst) +43 (0)5 0100 11957 Ulrich Inhofner +43 (0)5 0100 85544 Peter Kaufmann, CFA (Corporate Bonds) +43 (0)5 0100 11183 Klaus Vosseler +49 (0)711 810400 5560 Heiko Langer (Financials & Covered Bonds) +43 (0)5 0100 85509 Andreas Goll +49 (0)711 810400 5561 Stephan Lingnau (Global Equities) +43 (0)5 0100 16574 Mathias Gindele +49 (0)711 810400 5562 Carmen Riefler-Kowarsch (Financials & Covered Bonds)+43 (0)5 0100 19632 Rainer Singer (Euro, US) +43 (0)5 0100 17331 Institutional Distribution CEE Bernadett Povazsai-Römhild, CEFA (Corporate Bonds) +43 (0)5 0100 17203 Head: Jaromir Malak +43 (0)5 0100 84254 Elena Statelov, CIIA (Corporate Bonds) +43 (0)5 0100 19641 Gerald Walek, CFA (Euro, CHF) +43 (0)5 0100 16360 Institutional Distribution PL and CIS Pawel Kielek +48 22 538 6223 CEE Equity Research Michal Jarmakowicz +43 50100 85611 Head: Henning Eßkuchen +43 (0)5 0100 19634 Daniel Lion, CIIA (Technology, Ind. Goods&Services) +43 (0)5 0100 17420 Institutional Distribution Slovakia Michael Marschallinger, CFA +43 (0)5 0100 17906 Head: Sarlota Sipulova +421 2 4862 5619 Nora Nagy (Telecom) +43 (0)5 0100 17416 Monika Smelikova +421 2 4862 5629 Christoph Schultes, MBA, CIIA (Real Estate) +43 (0)5 0100 11523 Thomas Unger, CFA (Banks, Insurance) +43 (0)5 0100 17344 Institutional Distribution Czech Republic Vladimira Urbankova, MBA (Pharma) +43 (0)5 0100 17343 Head: Ondrej Cech +420 2 2499 5577 Martina Valenta, MBA +43 (0)5 0100 11913 Milan Bartos +420 2 2499 5562
Croatia/Serbia Barbara Suvadova +420 2 2499 5590 Mladen Dodig (Head) +381 11 22 09178 Anto Augustinovic +385 72 37 2833 Institutional Asset Management Czech Republic Magdalena Dolenec +385 72 37 1407 Head: Petr Holecek +420 956 765 453 Davor Spoljar, CFA +385 72 37 2825 Martin Perina +420 956 765 106 Petr Valenta +420 956 765 140 Czech Republic David Petracek +420 956 765 809 Petr Bartek (Head) +420 956 765 227 Blanca Weinerova +420 956 765 317 Marek Dongres +420 956 765 218 Jan Safranek +420 956 765 218 Institutional Distribution Croatia
Hungary Head: Antun Buric +385 (0)7237 2439 József Miró (Head) +361 235 5131 Zvonimir Tukač +385 (0)7237 1787 András Nagy +361 235 5132 Natalija Zujic +385 (0)7237 1638 Tamás Pletser, CFA +361 235 5135 Institutional Distribution Hungary Poland Head: Peter Csizmadia +36 1 237 8211 Tomasz Duda (Head) +48 22 330 6253 Gabor Balint +36 1 237 8205 Cezary Bernatek +48 22 538 6256 Konrad Grygo +48 22 330 6254 Institutional Distribution Romania and Bulgaria Michal Pilch +48 22 330 6255 Head: Ciprian Mitu +43 (0)50100 85612 Emil Poplawski +48 22 330 6252 Crisitan Adascalita +40 373 516 531 Marcin Gornik +48 22 330 6251
Romania Group Institutional Equity Sales Caius Rapanu +40 3735 10441 Head: Brigitte Zeitlberger-Schmid +43 (0)50100 83123 Werner Fürst +43 (0)50100 83121 Turkey Josef Kerekes +43 (0)50100 83125 Gizem Akkan +90 2129120445 Cormac Lyden +43 (0)50100 83120 Berke Gümüs +90 2129120445
Business Support Bettina Mahoric +43 (0)50100 86441
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