• Successful wind-down measures in 2014 and new plans to restructure the Association of Volksbanks not taken into account 

• Koren: “The result did not come as a surprise. With our restructuring, we want to create a new Association of Volksbanks that is fit for the future.”

As of today, the result of the ECB comprehensive assessment is available. For the Association of Volksbanks an aggregate capital requirement of EUR 864.72 million was determined by the ECB. The stress test did not take into account the successful wind-down measures taken in 2014 or the planed restructuring of the Association of Volksbanks as these came after the test’s cut-off date of 31 December 2013.

VBAG’s CEO Dr Stephan Koren commented: “This result did not come as a surprise. VBAG’s Managing Board has already stated on several occasions that the Association of Volksbanks will need additional own funds over the next few years, as underlined by the ECB’s stress test. Together with the authorities, Österreichische Volksbanken-AG will now flesh out its plans for restructuring the Association of Volksbanks, which were unveiled back in early October. The aim is to lay the foundations and establish the framework that will give the restructured Association of Volksbanks a successful future.”

Own funds bolstered by successful wind-down measures 

As at 30 June 2014, the Association of Volksbanks has a “hard” core capital ratio of 11.2%, giving it euro 1,9 billion more core equity tier1 capital (CET1) than is required by the regulator. The Association’s own funds were bolstered in the first half of 2014 by activities including successful wind-down measures, such as the sale of a portfolio of non-performing loans by Volksbank Romania worth euro 495 million and the sale of a real estate portfolio with a volume of euro 400 million.

Neither the AQR nor the balance sheet stress test took account of these successful wind-down measures or the plans for the future of the Association of Volksbanks.

Restructuring plan for the Association of Volksbanks

VBAG plans, splitting up the bank, with central organisational and service operations to be transferred to a regional Volksbank. Following the split, the original VBAG will essentially be left with the assets that are to be wound down as non-core functions.

The VBAG-plan further envisages, that the original VBAG will then leave the joint liability scheme in the first half of 2015, before surrendering its banking licence and ultimately being dissolved. Once it has given up its banking licence, VBAG would no longer be subject to banking supervision or the regulations governing banks’ equity. In other words, it would no longer need minimum required capital that is required of banks and instead would be able to use all its equity for the dissolution. The implementation of these plans will require official, EU state-aid and supervisory approval.

In accordance with the policy resolution passed by the Volksbanks at their annual conference on 2 October, the 44 regional Volksbanks and seven special institutions (as of early October) are to be transformed into nine strong regional banks by merging small and medium-sized institutions. In future, these new banks are to work closely with one another and are to be complemented by three specialist institutions. The Association of Volksbanks is thus also making a major contribution to the consolidation of banks in Austria: what are now 52 institutions (44 Volksbanks, seven specialist institutions, VBAG) are to become twelve banks, whose size will make them a strong partner for their about 1 million retail and 90,000 corporate customers.

VBAG’s CEO Dr Stephan Koren: “Over the past few years, we have been highly successful in winding down old liabilities. By splitting VBAG up and voluntarily dissolving it, we are now setting a new course that should enable the bank to be wound down completely and closed without placing any additional burden on the taxpayer. With our restructuring, we are laying the foundations for a new Association of Volksbanks that is fit for the future and can focus on its core business – serving retail and corporate customers.”

Association of Volksbanks and the ECB comprehensive assessment

On 4 November 2014, the European Central Bank (ECB) will assume responsibility for the direct supervision of the EU’s 130 largest banks. In the run-up to this transfer of supervisory duties, these banks have been subjected to a series of extensive tests, known as the comprehensive assessment or CA.

The Austrian Association of Volksbanks, which comprises the VBAG Group, more than 40 independent regional Volksbanks and seven specialist institutions, was among the six Austrian banking groups that were tested.

The test came in two parts. First, the so-called asset quality review (AQR) tested the soundness of the assets on the banks’ balance sheets. There then followed a balance sheet stress test, which analysed the impact of future economic trends in Europe and worldwide on the banks’ equity ratios based on two different stress scenarios for the years between now and 2016 (baseline and negative scenarios).

The total capital shortfall of the Association of Volksbanks calculated by the ECB amounts to EUR 864.72 million.