BAWAG Group AG: Record profit before tax of EUR 573 million for 2018, +14% vs. 2017

Vienna (pta/19.02.2019/07:00 UTC+1) -
- Record full-year profit before tax (PBT) of EUR 573 million (+14% vs. prior year) with Q4 PBT of EUR 143 million
- Outperformed all 2018 targets
- Fully loaded CET1 ratio of 15.6% pre-dividend and 14.5% post-dividend
- Capital distribution plans: Dividend of EUR 2.18 per share (EUR 215 million) to be proposed to AGM while actively evaluating share buyback options
- Very good progress in executing on our strategy
- Revised Group targets upward for 2019 & 2020 following strong 2018 operating performance

BAWAG Group today releases its preliminary results for 2018, reporting a strong profit before tax of EUR 573 million, up 14% versus the prior year. The increase was primarily driven by higher core revenues as well as lower risk costs, the latter reflecting the benign credit environment and the focus on developed markets. The return on tangible equity (@12% CET1) came in at 17.1%. The cost-income ratio of 44.2% remained well below the target of <46%. The fully loaded CET1 ratio increased by net 210 basis points to 15.6% versus year-end 2017, absorbing approximately 50 basis points capital impact from the 2018 share buyback program and Tier 2 capital redemption as well as organic growth. Considering dividend, the fully loaded CET1 ratio was 14.5%.

"2018 marked yet another successful year for BAWAG Group, delivering record pre-tax profits of EUR 573 million (+14% versus prior year). We outperformed all of our targets, focused on the things we control, and delivered on our promise of being good stewards of capital all while continuing to shape the BAWAG Group of tomorrow. It's a real testimony to the Bank and the quality of our team that we were able to complete multiple acquisitions and make progress on integrations; all while never losing sight of executing on our day-to-day operational and strategic initiatives. We will propose to the AGM a dividend payment of EUR 2.18 per share (equivalent to a gross payout of EUR 215 million) and are in addition actively evaluating stock buyback options. Based on the strong business performance in 2018, we revised our targets upward. Expectations for 2019 and beyond are high, but I'm convinced that with our team we will continue to deliver value to our customers and shareholders," commented Chief Executive Officer Anas Abuzaakouk.

Delivering record results in 2018

Core revenues increased by EUR 113 million, or 11%, to EUR 1,123 million. Net interest income rose by 6% to EUR 841 million. Net fee and commission income increased by EUR 66 million, or 30%, to EUR 283 million mainly due to the acquisition of PayLife and Südwestbank as well as lower commission expenses paid to Austrian Post. Operating expenses decreased by 2% compared to 2017, despite the acquisition of PayLife and Südwestbank in 2017 and the acquisition of Deutscher Ring Bausparkasse in September 2018.

The cost-income ratio was down 3pts versus the prior year to 44.2% and remained well below our 2018 target of <46%. We maintained a strong capital position with a fully loaded CET1 ratio of 14.5% post dividend at year-end 2018 (December 2017: 13.5%).

Loans and advances with customers remained largely stable compared to December 2017. The overall customer loan book continued to be comprised of approximately 70% exposure to the DACH region and approximately 30% exposure to Western Europe and the United States

Execution on our strategy

Our business model is based on four pillars:

This past year, we made good progress in regards to growth in our core markets. Our focus is, and will continue to be, in growing in developed markets with Austria as our core and foundation. Besides growth in our core products across our Austrian Retail & SME businesses, we've planted the seeds with new customer acquisition channels, signing three retail partnerships in 2018. Furthermore, we released new digital products and expanded our broker platforms. We also successfully integrated PayLife, which provides us with a comprehensive credit card offering across BAWAG Group. In the corporate lending space, we experienced very strong growth in our International Lending segment, offsetting softness in the DACH Corporates & Public Sector business.

In 2018 we made great progress with our expansion into Germany, setting the foundation for growing our German retail platform by integrating Südwestbank and closing Deutscher Ring Bausparkasse. These acquisitions were strategic in helping grow our customer franchise, enter new markets, offer new products, leverage talented teams and continue to improve our operating performance. In December, we signed two bolt-on acquisitions in Germany and one in Switzerland, which paved the path to expand our footprint into Switzerland. We continue to assess M&A opportunities, but will remain disciplined in following our underwriting guidelines on both strategic fit and value.

In terms of making our customers' lives easier, we have made tremendous progress on our network transformation, known both internally and externally as Concept 21, which stands for a re-imagined, right-sized branch network of up to 100 branches by the end of 2019. Our goal is to provide our customers with a truly differentiated high-quality customer experience, high-quality advisory and substantive engagement as well as leveraging technology to be able to address administrative and transactional activities. By the end of 2018, we completed 85% of the branch transition with a customer retention rate of over 95%. We're excited about the many opportunities ahead as we manage our own independent right-sized branch network, digital channels and salesforce.

The focus on efficiency and operational excellence is part of our DNA. With a cost-income ratio in the low 40s and a Return on Tangible Equity (@12% CET1) north 17%, BAWAG Group remains one of the most efficient and profitable banks in Europe.

We run the bank in a safe and secure manner. The NPL ratio stood at 1.7% and the risk cost ratio of 12 basis points in 2018 reflects our continued focus on proactive risk management, conservative risk profile, focusing on developed markets and benefiting from a benign credit environment.

Customer business segment performance in 2018

Segment	PBT (in EUR million)	Pre-tax RoTE(@12% CET1)	Cost-income ratio
BAWAG P.S.K. Retail	243/+25%	41.2%	44.9%
easygroup	145/+6%	36.2%	31.5%
International Business	123/+47%	30.9%	19.5%
DACH Corporates & Public Sector	46/+7%	15.1%	53.3%
Südwestbank	50/ n/a	14.5%	60.2%

The BAWAG P.S.K. Retail segment delivered record PBT of EUR 243 million, up 25% versus 2017. The focus in 2018 was on transforming our retail model by exploring new customer acquisition channels through partnerships and accelerating our preferred stand-alone strategy, Concept 21. We have reshaped our network by successfully consolidating a majority of our advisors into our target branch network, helping to drive growth in sales per FTE, while delivering significant cost reduction and providing outstanding services to customers.

The easygroup segment also delivered record PBT of EUR 145 million, up 6% versus 2017. We successfully integrated PayLife and completely repositioned the business by the end of the year. PayLife already reached a significant milestone, achieving net credit card growth (the first since 2013) and successfully launched its credit card issuing business in Germany. Additionally, in December 2018, we launched Qlick after working closely with the Südwestbank team to build an integrated online strategy and technology platform.

The International Business segment also delivered record results with profit before tax of EUR 123 million, up 47% versus 2017. This mainly reflects core revenue growth of 4% and the release of prior year provisions. The asset quality is best reflected in an NPL ratio of 50 basis points.

DACH Corporates & Public Sector contributed a PBT of EUR 46 million and the focus continues to be on maintaining and acquiring sustainable customer relationships in a very competitive and challenging environment. We believe risk-adjusted returns are currently out of balance. However, we will remain patient for a more normalized pricing environment while also pursuing further efficiency and funding optimization measures.

Südwestbank achieved a PBT of EUR 50 million. The strategy focuses on developing new customer acquisition strategies to reposition Südwestbank into a broader Retail & SME franchise with a more comprehensive set of retail products distributed through multiple channels. The strong integration momentum has reached an advanced state with a focus on profitability, capital, operational efficiency and risk management targeting to deliver results in line with the overall BAWAG Group targets.

Additional Highlights in 2018

- BAWAG Group again received multiple awards
In March 2018, BAWAG Group was awarded "Best Bank in Austria" by Global Finance for the second consecutive year. Moreover, in July 2018, Euromoney, one of the world's leading special-interest magazines for banking, finance and capital market issues, awarded the bank with two awards ("Western Europe's Best Bank Transformation" and "Austria's Best Bank"). These prestigious awards underline BAWAG Group's successful transformation over the past few years.

- Initiatives for total capital optimization
In April 2018, we issued EUR 300 million Additional Tier 1 capital. In June 2018, BAWAG Group launched a tender offer for the EUR 300 million 8.125% Tier 2 Notes of BAWAG P.S.K. due 30 October 2023 with settlement in July (take-up approximately 90%). These were important steps in the optimization of BAWAG Group's total capital position planned in 2018.

- Share buyback program
In June 2018, we announced a share buyback program for up to 1,285,000 shares for a total consideration of up to EUR 70 million by year-end 2018, which was executed between 3 July 2018 and 7 November 2018. The maximum volume of 1,285,000 shares was bought back with a total value of EUR 51 million.

Outlook and targets

Given our strong operating performance in 2018, we have revised our original 3-year Group targets covering 2018 thru 2020. Essentially, we've moved our targets one year forward reflecting an annual PBT growth rate of 6% for both 2019 and 2020 as well as an absolute PBT target of greater than EUR 600 million in 2019 and EUR 640 million in 2020.

Our targets for 2019-2020 are as follows:

Targets	2019	2020
Profit before tax growth	>6%	>6%
Profit before tax (absolute)	>EUR 600m	>EUR 640m
Cost-income ratio	<43%	<40%
Return on tangible equity	15-20%	15-20%
Common Equity Tier 1 capital ratio (fully loaded)	12-13%	12-13%
Pre-tax earnings per share (in EUR)	>6.00	>6.40
Post-tax earnings per share (in EUR)	>4.50	>4.80

In terms of capital generation and return, we target an annual dividend payout of 50% of net profit attributable to shareholders and will deploy additional excess capital to invest in organic growth and pursue earnings-accretive M&A at returns consistent with our RoTE group targets.

The Managing Board will propose to the Annual General Meeting to distribute a dividend for the financial year 2018 of EUR 2.18 per share (EUR 215 million; based on shares outstanding as of 18 February 2019) and actively evaluates share buyback options

About BAWAG Group

BAWAG Group AG is the listed holding company of BAWAG P.S.K., which is headquartered in Vienna, Austria, with the main banking subsidiaries easybank and start:bausparkasse in Austria as well as Südwestbank and start:bausparkasse in Germany. With more than 2.5 million customers, BAWAG P.S.K. is one of Austria's largest banks operating under a well-recognized national brand and applies a low-risk, efficient, simple and transparent business model focused on Austria, Germany and developed markets. The Bank serves retail, small business and corporate customers offering comprehensive savings, payment, lending, leasing, investment, building society and insurance products and services through various online and offline channels. Delivering simple, transparent and best-in-class products and services that meet our customers' needs is the consistent strategy across all business units.

BAWAG Group's Investor Relations website https://www.bawaggroup.com/ir contains further information, including financial and other information for investors.

Contact:

Financial Community:
Jutta Wimmer (Head of Investor Relations)
Tel: +43 (0) 5 99 05-22474

IR Hotline: +43 (0) 5 99 05-34444
E-mail: investor.relations@bawaggroup.com

Media:
Manfred Rapolter (Head of Communications, Spokesman)
Tel: +43 (0) 5 99 05-31210
E-mail: communications@bawaggroup.com

This text can also be downloaded from our website: https://www.bawaggroup.com

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